ENVIRONMENTAL PROTECTION AGENCY

                               40 CFR Part 52

                                  [FRL- ]

                             October 10, 1997

  Finding of Significant Contribution and Rulemaking for Certain States in
    the Ozone Transport Assessment Group Region for Purposes of Reducing
                        Regional Transport of Ozone

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking (NPR).

SUMMARY: In accordance with the Clean Air Act (CAA), today's action is a
proposed rulemaking to require certain States to submit State
implementation plan (SIP) measures to ensure that emission reductions are
achieved as needed to mitigate transport of ozone (smog) pollution and one
of its main precursors--emissions of oxides of nitrogen (NOx)-- across
State boundaries in the eastern half of the United States. The States
affected by today's action are in the Ozone Transport Assessment Group
(OTAG) Region.

Today's action proposes to find that the transport of ozone from certain
States in the OTAG region (the 37 eastern most States and the District of
Columbia) significantly contributes to nonattainment of the ozone national
ambient air quality standards (NAAQS), or interferes with maintenance of
the NAAQS, in downwind States. This proposal explains the basis for
determining significant contribution or interference with maintenance for
the affected States. Further, by today's action, EPA is proposing the
appropriate levels of NOx emissions that each of the affected States will
be required to achieve.

The EPA is committed to promulgate final action on the proposed rule within
12 months from the date of publication of today's action.

DATES: The EPA is establishing a 120-day comment period, ending on [insert
120 days after the date of publication]. For additional information on the
comment period, please refer to SUPPLEMENTARY INFORMATION. A public hearing
will be held during the comment period, if requested. If a public hearing
is requested, EPA will make an announcement in the Federal Register.

ADDRESSES: Documents relevant to this matter are available for inspection
at the Air and Radiation Docket and Information Center (6101), Attention:
Docket No. A-96-56, U.S. Environmental Protection Agency, 401 M Street SW,
room M-1500, Washington, DC 20460, telephone (202) 260-7548, between 8:00
a.m. and 4:00 p.m., Monday through Friday, excluding legal holidays. A
reasonable fee may be charged for copying. Comments and data may also be
submitted electronically by following the instructions under SUPPLEMENTARY
INFORMATION of this document. No Confidential Business Information (CBI)
should be submitted through e-mail.

FOR FURTHER INFORMATION CONTACT: General questions concerning today's
action should be addressed to Kimber Smith Scavo, Office of Air Quality
Planning and Standards, Air Quality Strategies and Standards Division,
MD-15, Research Triangle Park, NC 27711, telephone (919) 541-3354. Please
refer to SUPPLEMENTARY INFORMATION below for a list of contacts for
specific subjects described in today's action.

SUPPLEMENTARY INFORMATION:

Comment Period

Because commenters may wish to submit technical information that may
require additional time to develop, EPA will accept additional pertinent
information beyond the 120-day time frame and will do what is possible to
take the information into account for the final rulemaking. The EPA will
make every effort to consider this information. However, due to the time
frames associated with this action, EPA cannot guarantee that information
submitted after the close of the comment period will be considered. The EPA
is committed to publish the final rulemaking within 12 months of the date
of today's action.

Electronic Availability

The official record for this rulemaking, as well as the public version, has
been established under docket number A-96-56 (including comments and data
submitted electronically as described below). A public version of this
record, including printed, paper versions of electronic comments, which
does not include any information claimed as CBI, is available for
inspection from 8 a.m. to 4 p.m., Monday through Friday, excluding legal
holidays. The official rulemaking record is located at the address in
"ADDRESSES" at the beginning of this document. Electronic comments can be
sent directly to EPA at:

A-and-R-Docket@epamail.epa.gov. Electronic comments must be submitted as an
ASCII file avoiding the use of special characters and any form of
encryption. Comments and data will also be accepted on disks in WordPerfect
in 5.1 file format or ASCII file format. All comments and data in
electronic form must be identified by the docket number A-96-56. Electronic
comments on this proposed rule may be filed online at many Federal
Depository Libraries.

Availability of Related Information

Documents related to OTAG are available on the Agency's Office of Air
Quality Planning and Standards' (OAQPS) Technology Transfer Network (TTN)
Bulletin Board System (BBS). The telephone number for the TTN BBS is (919)
541-5742. To access the bulletin board a modem and communications software
are necessary. The following parameters on the communications software are
required: Data Bits-8; Parity-N; and Stop Bits-1. The documents are located
on the OTAG BBS. The TTN can also be accessed via the web at
http://www.epa.gov/ttn. If assistance is needed in accessing the system,
call the help desk at (919) 541-5384 in Research Triangle Park, NC. Other
documents related to OTAG can be downloaded from OTAG's webpage at
http://www.epa.gov/ttn/otag. The OTAG's technical data are located at
http://www.iceis.mcnc.org/OTAGDC.

For Additional Information

For technical questions related to the determination of significant
contribution, please contact Norm Possiel, Office of Air Quality Planning
and Standards, Emissions, Monitoring, and Analysis Division, MD-13,
Research Triangle Park, NC 27711, telephone (919) 541-5692. For legal
questions, please contact Howard Hoffman, Office of General Counsel, 401 M
Street SW, MC-2344, Washington, DC, 20460, telephone (202) 260-5892. For
questions concerning the statewide emission budgets, please contact Doug
Grano, Office of Air Quality Planning and Standards, Air Quality Strategies
and Standards Division, MD-15, Research Triangle Park, NC 27711, telephone
(919) 541-3292. For questions concerning SIP approvability, please contact
Carla Oldham, Office of Air Quality Planning and Standards, Air Quality
Strategies and Standards Division, MD-15, Research Triangle Park, NC 27711,
telephone (919) 541-3347. For questions concerning the cost analysis,
please contact Sam Napolitano, Office of Atmospheric Programs, MC-6201J,
401 M Street SW, Washington, DC 20460, telephone (202) 233-9751.

Outline

  I. Preamble
       A. Summary of Rulemaking & Affected States
       B. General Factual Background
       C. Statutory and Regulatory Background
            1. Clean Air Act Provisions
                 a. 1970 and 1977 Clean Air Act Amendments
                 b. 1990 Clean Air Act Amendments
                      i. 1-hour NAAQS
                     ii. Revised Ozone NAAQS
                    iii. Provisions Concerning Transport of Ozone and Its
                         Precursors
            2. Regulatory Structure
                 a. March 2, 1995 Policy
                 b. OTAG
                 c. EPA's Transport SIP Call Regulatory Efforts
                 d. Revision of the Ozone NAAQS
                 e. Impacts of NOx Emissions
       D. EPA's Proposed Analytical Approach
            1. Process for Requiring Submission of Section 110(a)(2)(D) SIP
               Revisions
            2. Overview of Elements of Section 110(a)(2)(D)
                 a. Summary of Section 110(a)(2)(D)
                 b. Significant Contribution to Nonattainment
                 c. Interfere with Maintenance
                 d. Remedying the Significant Contribution
                      i. Adequate Mitigation
                     ii. Elimination of Contribution
                    iii. Comparison of the Two Legal Interpretations of
                         Section 110(a)(2)(D)
                     iv. Other Issues
                 e. Control Implementation and Budget Attainment Dates
       E. Section 126 Petitions
       F. OTAG Process
 II. Weight-of-Evidence Determination of Significant Contribution
       A. Introduction
       B. Background Technical Information
            1. OTAG Modeling Process
            2. OTAG Strategy Modeling
            3. OTAG Geographic Modeling
            4. Other Relevant Analyses
       C. Technical Analyses of Significant Contribution
            1. Criteria for Determining Significant Contribution
            2. Overview of Technical Approach
            3. Identification of Ozone Problem Areas
            4. Analysis of Air Quality, Trajectory, and Non-OTAG Modeling
               Information
            5. Approaches for Analyzing Subregional Modeling Data
                 a. Approaches for 1-Hour Nonattainment
                 b. Approaches for 8-Hour Nonattainment
                 c. Methods for Presenting 1-Hour and 8-Hour
               Assessments
            6. Contributions to 1-Hour Nonattainment
            7. Contributions to 8-Hour Nonattainment
            8. Assessment of State Contributions
       D. Comparison of Upwind and Downwind Contributions to Nonattainment
          and Costs of Controls
III. Statewide Emission Budgets
       A. General Approach for Calculating Budgets
            1. Overview
            2. Relationship of Proposed Budget Approach to the OTAG
               Recommendations
            3. Uniform Application of Control Measures
                 a. OTAG
                 b. Collective Contribution and Equity Considerations
                 c. Modeling Assumptions and Potential Synergistic Effects
                 d. Electrical Generation and Emissions Shifting
                 e. Alternative Approaches Based on Non-Uniform Application
                    of Control Measures
            4. Seasonal vs Annual Controls
            5. Consideration of Areas with Clean Air Act Section 182(f) NOx
               Waivers
            6. Relation of OTC NOx MOU to Budgets in the Ozone Transport
               SIP Rulemaking
       B. Budget Development Process
            1. Overview
            2. Description of and Rationale for Proposed Control
               Assumptions
                 a. Considering the Cost Effectiveness of Other Actions
                 b. Determining the Cost Effectiveness of NOx Controls
                 c. Summary of Measures Assumed in Proposed
               Budget Calculation
            3. Proposed Assumptions for Electric Utilities
                 a. Affected Entities
                 b. Methodology Used to Determine the Proposed Electric
                    Utility Budget Component
                      i. Proposed Utility Budget Component Calculation and
                         Alternatives
                     ii. Seasonal Utilization
                    iii. Growth Considerations
                 c. Summary and Proposed Utility Budget Components
            4. Proposed Assumptions for Other Stationary Sources
                 a. Affected Entities
                 b. Methodology Used to Determine Proposed Area and
                    Nonutility Point Source Budget Components
                 c. Summary and Proposed Area and Nonutility
               Point Source Budget Components
            5. Proposed Assumptions for Highway Vehicles
                 a. Affected Entities
                 b. Methodology Used to Develop the Proposed Highway
                    Vehicle Budget Component
                      i. Budget Component Determination Method and
                         Alternatives Considered
                     ii. Activity Level Projections and Growth
                         Considerations
                    iii. Seasonal/Weekday/Weekend Adjustment
                     iv. Comparison to OTAG Recommendations
                 c. Summary and Proposed Highway Vehicles Budget Components
                 d. Conformity
            6. Proposed Assumptions for Nonroad Sources
                 a. Affected Entities
                 b. Methodology Used to Determine the Proposed Nonroad
                    Budget Component
                      i. Budget Component Determination Method and
                         Alternatives Considered
                     ii. Activity Level Projections and Growth
                         Considerations
                    iii. Seasonal/Weekday/Weekend Adjustment
                     iv. Comparison to OTAG Recommendations
                 c. Summary and Proposed Nonroad Budget Components
       C. State-by-State Emissions Budgets
       D. Recalculation of Budgets
 IV. Implementation of Revised Air Quality Standards
       A. Introduction
       B. Background
       C. Implementation Policy
            1. Areas Eligible for the Transitional Classification
            2. Areas Not Eligible for the Transitional Classification
  V. SIP Revisions and Approvability Criteria
       A. SIP Revision Requirements and Schedule
       B. SIP Approval Criteria
            1. Budget Demonstration
            2. Control Strategies
                 a. Enforceable Measures Approach
                 b. Fixed Tonnage Budgets
            3. Control Strategy Implementation
            4. Growth Estimates
            5. Promoting End-Use Energy Efficiency
       C. Review of Compliance
       D. 2007 Reassessment of Transport
       E. Sanctions
            1. Failure to Submit
            2. Failure to Implement
       F. Federal Implementation Plans (FIPs)
            1. Legal Framework
            2. Timing of FIP Action
            3. Statewide Emission Budgets
            4. FIP Control Measures
            5. FIP Trading Program
            6. Section 105 Grants
       G. Other Consequences
 VI. States Not Covered by this Rulemaking
VII. Model Cap-and-Trade Program
VIII.Regulatory Analysis
 IX. Air Quality Analyses
  X. Nonozone Benefits of NOx Reductions
 XI. Impact on Small Entities
XII. Unfunded Mandates Reform Act

Appendix A - References

Appendix B - OTAG Recommendations

Appendix C - Tables for Section II. Weight-of-Evidence Determination of
Significant Contribution

Appendix D - Figures for Section II. Weight-of-Evidence Determination of
Significant Contribution

I. Preamble

A. Summary of Rulemaking and Affected States

The CAA has set forth many requirements to address nonattainment of the
ozone NAAQS. Many States have found it difficult to demonstrate attainment
of the NAAQS due to the widespread transport of ozone and its precursors.
The Environmental Council of the States (ECOS) recommended formation of a
national work group to allow for a thoughtful assessment and development of
consensus solutions to the problem. This work group, OTAG, was established
2 years ago to undertake an assessment of the regional transport problem in
the Eastern half of the United States. The OTAG was a collaborative process
conducted by representatives from the affected States, EPA, and interested
members of the public, including environmental groups and industry, to
evaluate the ozone transport problem and develop solutions. The OTAG region
includes the following 37 States and the District of Columbia: Alabama,
Arkansas, Connecticut, Delaware, District of Columbia, Florida, Georgia,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New
Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio,
Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota,
Tennessee, Texas, Vermont, Virginia, West Virginia and Wisconsin. Today's
action builds on the work of OTAG.

Through the OTAG process, the States concluded that widespread NOx
reductions are needed in order to enable areas to attain and maintain the
ozone NAAQS. The EPA believes, based on data generated by OTAG and other
data sources, that certain downwind States receive amounts of transported
ozone and ozone precursors that significantly contribute to nonattainment
in the downwind States. Today's action proposes SIP requirements under
section 110(a)(1) and section 110(k)(5) in order to meet the requirements
of section 110(a)(2)(D) to prohibit ozone precursor emissions from sources
or activities in those States from "contribut[ing] significantly to
nonattainment in, or interfer[ing] with maintenance by," a downwind State
of the ozone NAAQS.

Upon this determination, the EPA is requiring SIP revisions in order to
take steps toward ensuring that the necessary regional reductions are
achieved that will enable current ozone nonattainment areas in the eastern
half of the United States to prepare attainment demonstrations and that
will enable all areas to demonstrate noninterference with maintenance of
the ozone standard.

The OTAG's July 8, 1997 final recommendations (see Section I.F. OTAG
Process and Appendix B) identify control measures for States to achieve
additional reductions in emissions of NOx and do not identify such measures
for volatile organic compounds (VOC) beyond EPA's promulgation of national
VOC measures. The OTAG Regional and Urban Scale Modeling and Air Quality
Analysis Work Groups reached the following relevant conclusions:

   * Regional NOx emissions reductions are effective in producing ozone
     benefits; the more NOx reduced, the greater the benefit
   * VOC controls are effective in reducing ozone locally and are most
     advantageous to urban nonattainment areas.(See Appendix B)

The EPA agrees with these OTAG conclusions and, thus, is not proposing new
SIP requirements for VOC emissions for the purpose of reducing the
interstate transport of ozone. States may, however, need to consider
additional reductions in VOC emissions as they develop local plans to
attain and maintain the ozone standards.

Therefore, this rulemaking is intended to make a finding of significant
contribution to a nonattainment problem, or interference with a maintenance
problem, and to assign, specifically, the emissions budgets for NOx that
each of the identified States must meet through SIP measures. As indicated,
the EPA is proposing to require the submission of SIP controls to meet the
specified budgets. However, this requirement permits each State to choose
for itself what measures to adopt to meet the necessary emission budget.
Consistent with OTAG's recommendations to achieve NOx emission decreases
primarily from large stationary sources in a trading program, EPA
encourages States to consider electric utility and large boiler controls
under a cap-and-trade program as a cost-effective strategy. This is
described in more detail in section III, Statewide Emission Budgets. The
EPA also recognizes that promotion of energy efficiency can contribute to a
cost-effective strategy. The EPA is working to develop guidance on how
States can integrate energy efficiency into their SIPs to help meet their
NOx budgets at least cost.

The EPA proposes to find, after considering OTAG's recommendations and
other relevant information, that the following 22 States and the District
of Columbia significantly contribute to nonattainment in, or interfere with
maintenance by, a downwind State: Alabama, Connecticut, Delaware, Georgia,
Illinois, Indiana, Kentucky, Massachusetts, Maryland, Michigan, Missouri,
North Carolina, New Jersey, New York, Ohio, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin. These
findings proposed today reflect the air quality modeling and other
technical work done by OTAG, as well as other relevant information.

Under this proposal, these States would be required to adopt and submit,
within 12 months after publication of the notice of final rulemaking, SIPs
containing control measures that will mitigate the ozone transport problem
by meeting the assigned statewide emissions budget. Section II, Weight of
Evidence Determination of Significant Contribution, describes how EPA
determined which States to propose as significant contributors, and section
III, Statewide Emission Budgets, describes how EPA determined the
appropriate statewide emission budgets and proposes to assign specific
emission budgets for the States identified above. Section V, SIP Revisions
and Approvability Criteria, describes the proposed SIP requirements.

The EPA believes that expedited implementation of regional control
strategies to facilitate attainment is necessary. On July 18, 1997, EPA
published its final rule for strengthening the NAAQS for ozone by
establishing a new, 8-hour NAAQS (62 FR 38856). This results in more areas
and larger areas with monitoring data indicating nonattainment. Thus, it
will be even more critical to implement regional control strategies which
will mitigate transport into areas in violation of the new standard and
thus enable these areas to demonstrate attainment. The regional NOx
reduction strategy proposed in today's action will provide a mechanism to
achieve reductions that will be necessary for States to enable them to
attain and maintain this revised standard. The proposed regional reductions
alone should be enough to allow most of the new nonattainment counties in
States covered by this rulemaking to be able to comply with the new
standard. States that are not required to comply with the requirements set
forth in today's action would also benefit from the NOx strategy EPA is
proposing if they adopt similar measures. On July 16, 1997, President
Clinton issued a directive on the implementation of the revised air quality
standards. This implementation policy is described in section IV,
Implementation of Revised Air Quality Standards.

Many of the States that EPA is not proposing to find as significant
contributors to the ozone nonattainment problem, and, therefore, do not
have a proposed NOx statewide emissions budget to mitigate ozone transport,
still may need, as recommended by OTAG, to cooperate and coordinate SIP
development activities with other States. States with local interstate
nonattainment areas for the 1-hour standard and/or the new 8-hour standard
are expected to work together to reduce emissions to mitigate local scale
interstate transport problems in order to provide for attainment in the
nonattainment area as a whole.

In addition, areas in these States (those covered by OTAG modeling but not
covered by this proposal) may be able to receive the transitional
classification as described in section IV, Implementation of Revised Air
Quality Standards. An area in the State would satisfy one of the
eligibility requirements for the transitional area classification by
attaining the 1-hour standard and submitting a SIP attainment demonstration
by 2000 for the 8-hour standard. The OTAG's modeling (in particular, OTAG
strategy Run 5 described in section II.B.2, OTAG Strategy Modeling) shows
that a strategy in which a State adopted NOx emission decreases similar to
those EPA proposes to establish in this rulemaking would be helpful in
achieving attainment in most of these areas. The EPA strongly suggests that
these States (those covered by OTAG modeling but not covered by this
proposal) with new nonattainment counties for the 8-hour standard should
consider the option of this strategy since our analysis indicates that
nearly all new nonattainment counties are projected to come into attainment
as a result of this strategy. The benefits of this regional strategy for
States not required to implement the proposed strategy under this
rulemaking are described below in section VI, States Not Covered by this
Rulemaking.

The EPA plans to publish a supplemental notice of proposed rulemaking
(SNPR) in early 1998. The Agency intends to include in the SNPR a proposed
model cap-and-trade rule, air quality analyses of the proposed statewide
emission budgets, emissions reporting and State reporting requirements, a
discussion of the interaction with the Title IV NOx rule(including EPA's
plans to proceed with rulemaking on remanded elements of that rule relating
to flexible implementation where an appropriate cap-and-trade system is in
place), and proposed rule language for the rulemaking discussed in today's
action. There will be another public comment period following publication
of the SNPR. All comments received regarding either today's action or the
proposed rule language in the SNPR will be considered before promulgation
of a final rule.

B. General Factual Background

In today's proposal, EPA takes a significant step in order to reduce ozone
in the eastern half of the country. Ground-level ozone, the main harmful
ingredient in smog, is produced in complex chemical reactions when its
precursors, VOC and NOx, react in the presence of sunlight. The chemical
reactions that create ozone take place while the pollutants are being blown
through the air by the wind, which means that ozone can be more severe many
miles away from the source of emissions than it is at the source.

At ground level, ozone can cause a variety of ill effects to human health,
crops and trees. Specifically, ground-level ozone induces the following
health effects:

   * Decreased lung function, primarily in children active outdoors
   * Increased respiratory symptoms, particularly in highly sensitive
     individuals
   * Hospital admissions and emergency room visits for respiratory causes,
     among children and adults with pre-existing respiratory disease such
     as asthma
   * Inflammation of the lung
   * Possible long-term damage to the lungs.

The new 8-hour primary ambient air quality standard will provide increased
protection to the public from these health effects.

Each year, ground-level ozone above background is also responsible for
several hundred million dollars worth of agricultural crop yield loss. It
is estimated that full compliance of the newly promulgated ozone NAAQS will
result in about $500 million of prevented crop yield loss. Ozone

also causes noticeable foliar damage in many crops, trees, and ornamental
plants (i.e., grass, flowers, shrubs, and trees) and causes reduced growth
in plants. Studies indicate that current ambient levels of ozone are
responsible for damage to forests and ecosystems (including habitat for
native animal species).

The science of ozone formation, transport, and accumulation is complex.
Ozone is produced and destroyed in a cyclical set of chemical reactions
involving NOx, VOC and sunlight. Emissions of NOx and VOC are necessary for
the formation of ozone in the lower atmosphere. In part of the cycle of
reactions, ozone concentrations in an area can be lowered by the reaction
of nitric oxide with ozone, forming nitrogen dioxide; as the air moves
downwind and the cycle continues, the nitrogen dioxide forms additional
ozone. The importance of this reaction depends, in part, on the relative
concentrations of NOx, VOC and ozone, all of which change with time and
location.

As part of the efforts to reduce harmful levels of smog, EPA today proposes
to require certain States to revise their SIPs in order to implement the
regional reductions in transported ozone and its precursors that are needed
to enable areas in the Eastern United States to attain and maintain the
NAAQS. Since air pollution travels across county and State lines, it is
essential for State governments and air pollution control agencies to
cooperate to solve the problem.

C. Statutory and Regulatory Background

1. Clean Air Act Provisions

a. 1970 and 1977 Clean Air Act Amendments. For almost 30 years, Congress
has focused major efforts on curbing tropospheric ozone. In 1970, Congress
amended title I of the CAA to require, among other things, that EPA issue,
and periodically review and if necessary revise, NAAQS for ubiquitous air
pollutants (sections 108 and 109). Congress required the States to submit
SIPs to attain those NAAQS, and Congress included, in section 110, a list
of minimum requirements that SIPs must meet. Congress anticipated that
areas would attain the NAAQS by 1975.

In 1977, Congress amended the CAA to provide, among other things,
additional time for areas to attain the ozone NAAQS, as well as to impose
specific SIP requirements for those nonattainment areas. These provisions
first required the designation of areas as attainment, nonattainment, or
unclassified, under section 107; and then required that SIPs for ozone
nonattainment areas include the additional provisions set out in part D of
title I, as well as demonstrations of attainment of the ozone NAAQS by
either 1982 or 1987 (section 172).

In addition, the 1977 Amendments included two provisions focused on
interstate transport of air pollutants: the predecessor to current section
110(a)(2)(D), which requires SIPs for all areas to constrain emissions with
certain adverse downwind effects; and section 126, which authorizes a
downwind State (or political subdivision) to petition for EPA to impose
limits directly on upwind sources found to adversely affect that State.
Section 110(a)(2)(D), which is key to the present action, is described in
more detail below.

b. 1990 Clean Air Act Amendments. In 1990, Congress amended the CAA to
better address, among other things, continued nonattainment of the 1-hour
ozone NAAQS, the requirements that would apply if EPA revised the 1-hour
standard, and transport of air pollutants across State boundaries (Pub. L.
101-549, Nov. 15, 1990, 104 Stat. 2399, codified at 42 U.S.C., 7401-7671q).
Numerous provisions added, or revised, by the 1990 Amendments are relevant
to today's proposal.

i. 1-hour Ozone NAAQS. In the 1990 Amendments, Congress required the States
and EPA to review and, if necessary, revise the designation of areas as
attainment, nonattainment, and unclassifiable under the ozone NAAQS in
effect at that time, which was the 1-hour standard (section 107(d)(4)).
Areas designated as nonattainment were divided into, primarily, five
classifications based on air quality design value (section 181(a)(1)). Each
classification carries specific requirements, including new attainment
dates (sections 181-182). In increasing severity of the air quality
problem, these classifications are marginal, moderate, serious, severe and
extreme. The OTAG region includes all classifications except extreme.

As amended in 1990, the CAA requires States containing ozone nonattainment
areas classified as serious, severe, or extreme to submit several SIP
revisions at various times. One set of SIP revisions included specified
control measures, such as reasonably available control technology (RACT)
for existing VOC and NOx sources (section 182(b)(2), 182(f)). In addition,
the CAA requires the reduction of VOC in the amount of 15 percent by 1996
from a 1990 baseline (section 182(b)(1)). Further, the CAA requires the
reduction of VOC or NOx emissions in the amount of 9 percent over each
3-year period from 1996 through the attainment date (the rate-of-progress
(ROP) SIP submittals) under section 182(c)(2)(B). In addition, the CAA
requires a demonstration of attainment (including air quality modeling) for
the nonattainment area (the attainment demonstration), as well as SIP
measures containing any additional reductions that may be necessary to
attain by the applicable attainment date (section 182(c)-(e)). The CAA
established November 15, 1994 as the required date for the ROP and
attainment demonstration SIP submittals.(1)

ii. Revised Ozone NAAQS. Section 109(d) of the CAA requires periodic review
and, if appropriate, revision of the NAAQS. As amended in 1990, the CAA
further requires designating areas as attainment, nonattainment, and
unclassifiable under a revised NAAQS (section 107(d)(1)). The CAA
authorizes EPA to classify areas that are designated nonattainment under a
new NAAQS, and to establish for those areas attainment dates not to exceed
10 years from the date of designation (section 172(a)).

The CAA continues, in revised form, certain requirements, dating from the
1970 Amendments, which pertain to all areas, regardless of their
designation. All areas are required to submit SIPs within certain time
frames (section 110(a)(1)), and those SIPs must include specified
provisions, under section 110(a)(2). In addition, SIPs for nonattainment
areas are generally required to include additional specified control
requirements, as well as controls providing for attainment of the revised
NAAQS and periodic reductions providing "reasonable further progress" in
the interim (section 172(c)).

iii. Provisions Concerning Transport of Ozone and Its Precursors. The 1990
Amendments reflect general awareness by Congress that ozone is a regional,
and not merely a local, problem. As described above, ozone and its
precursors may be transported long distances across State lines to combine
with ozone and precursors downwind, thereby exacerbating the ozone problems
downwind. In the case of ozone, this transport phenomenon was not generally
recognized until relatively recently. Yet, ozone transport is a major
reason for the persistence of the ozone problem, notwithstanding the
imposition of numerous controls, both Federal and State, across the
country.

Section 110(a)(2)(D) provides one of the most important tools for
addressing the problem of transport. This provision, which applies by its
terms to all SIPs for each pollutant covered by a NAAQS, and for all areas
regardless of their attainment designation, provides that a SIP must
contain provisions preventing its sources from contributing significantly
to nonattainment problems or interfering with maintenance in downwind
States.

Section 110(k)(5) authorizes EPA to find that a SIP is substantially
inadequate to meet any CAA requirement, as well as to mitigate interstate
transport of the type described in section 184 (concerning ozone transport
in the northeast) or section 176A (concerning interstate transport in
general) and thereby require the State to submit, within a specified
period, a SIP revision to correct the inadequacy. The CAA further addresses
interstate transport of pollution in section 126, which Congress clarified
in 1990. Subparagraph (b) of that provision authorizes each State (or
political subdivision) to petition EPA for a finding that emissions from
"any major source or group of stationary sources" in an upwind State
contribute significantly to nonattainment in, or interfere with maintenance
by, the downwind State. If EPA makes such a finding in support of a section
126 petition, EPA would impose limits on the affected source or group of
sources (section 126(c)).(2)

In addition, the 1990 Amendments included specific provisions focused on
the interstate transport of ozone. Section 184 delineates a multistate
ozone transport region (OTR) in the Northeast, requires specific additional
controls for all areas (not only nonattainment areas) in that region, and
establishes the Ozone Transport Commission (OTC) for the purpose of
recommending to EPA regionwide controls affecting all areas in that region.

2. Regulatory Structure

a. March 2, 1995 Policy. Notwithstanding significant efforts, the States
generally were not able to meet the November 15, 1994 statutory deadline
for the attainment demonstration and other SIP submissions required under
section 182(c). The major reason for this failure was that States were not
able to address or control transport. As a result, in a memorandum from
Mary D. Nichols, Assistant Administrator for Air and Radiation, dated March
2, 1995, entitled "Ozone Attainment Demonstrations," (March 2, 1995
Memorandum or the Memorandum), EPA recognized the efforts made by States
and the remaining difficulties in making the ROP and attainment
demonstration submittals. The EPA recognized that development of the
necessary technical information, as well as the control measures necessary
to achieve the large level of reductions likely to be required, had been
particularly difficult for the States affected by ozone transport.

Accordingly, as an administrative remedial matter, the Memorandum indicated
that EPA would establish new time frames for SIP submittals. The Memorandum
indicated that EPA would divide the required SIP submittals into two
phases. Phase I generally consisted of: SIP measures providing for ROP
reductions due by the end of 1999, an enforceable SIP commitment to submit
any remaining required ROP reductions on a specified schedule after 1996,
and an enforceable SIP commitment to submit the additional SIP measures
needed for attainment. Phase II consists of the remaining submittals,
beginning in 1997.

Ten States and the District of Columbia failed to submit Phase I elements
within the specified time. By notice dated July 10, 1996 (61 FR 36292), EPA
issued findings and thereby started sanctions clocks for these areas for
those Phase I submittals.

The Phase II submittals primarily consisted of the remaining ROP SIP
measures, the attainment demonstration and additional local rules needed to
attain, and any regional controls needed for attainment by all areas in the
region. The March 2, 1995 Memorandum indicated that the attainment
demonstration, target calculations for the post-1999 ROP milestones, and
identification of rules needed to attain and for post-1999 ROP were due in
mid-1997. To allow time for States to incorporate the results of the OTAG
modeling into their local plans, EPA, in its Final Policy for
Implementation of the 1-hour and Pre-Existing PM-10 Standards, is extending
the mid-1997 submittal date to April 1998.

b. OTAG. In addition, the March 2 1995 Memorandum called for an assessment
of the ozone transport phenomenon. The Environmental Council of States
(ECOS) had recommended formation of a national work group to allow for a
thoughtful assessment and development of consensus solutions to the
problem. The OTAG has been a partnership between EPA, the 37 easternmost
States and the District of Columbia, industry representatives and
environmental groups. This effort has created an opportunity for the
development of an Eastern United States ozone strategy to address transport
and to assist in attainment of the 1-hour ambient ozone standard.

The EPA believes that the OTAG process has been invaluable in demonstrating
the types of regional ozone precursor reductions that are needed to enable
areas in the Eastern United States to attain and maintain the ambient air
quality standard for ozone. Indeed, today's action to propose to mandate
SIP revisions under section 110(a)(2)(D) is a first step directed at
providing the regulatory structure to implement the kinds of broad regional
precursor reductions recommended by OTAG.

c. EPA's Transport SIP Call Regulatory Efforts. Shortly after OTAG began
its work, EPA began to indicate that it intended to issue a SIP call to
require States to implement the reductions necessary to address the ozone
transport problem. On January 10, 1997 (62 FR 1420), EPA published a Notice
of Intent that articulated this goal and indicated that before taking final
action, EPA would carefully consider the technical work and any
recommendations of OTAG.

By a letter to Mary Gade, Chair of OTAG, dated April 16, 1997, EPA
Assistant Administrator Mary D. Nichols stated that on the basis of
technical work performed by EPA staff, it appeared that EPA would issue a
SIP call to specified States and the District of Columbia. The EPA staff
issued a technical support document, "Preliminary Assessment of States
Making a Significant Contribution to Downwind Ozone Nonattainment," dated
April, 1997, which explained EPA's technical basis for those tentative
conclusions. Please refer to section II, Weight of Evidence Determination
of Significant Contribution, for EPA's revised conclusions.

As described below in section I.F., OTAG Process, OTAG completed its work
in June 1997 and issued its final recommendations to EPA on July 8, 1997.
The OTAG's technical work and recommendations form part of the basis of
today's proposal.

d. Revision of the Ozone NAAQS. On July 18, 1997 (62 FR 38856), EPA issued
its final action to revise the NAAQS for ozone. The EPA's decision to
revise the standard was based on the Agency's review of the available
scientific evidence linking exposures to ambient ozone to adverse health
and welfare effects at levels allowed by the pre-existing 1-hour ozone
standards. The 1-hour primary standard was replaced by an 8-hour standard
at a level of 0.08 parts per million (ppm), with a form based on the 3-year
average of the annual fourth-highest daily maximum 8-hour average ozone
concentration measured at each monitor within an area. The new primary
standard will provide increased protection to the public, especially
children and other at-risk populations, against a wide range of
ozone-induced health effects. Health effects are described in section I.B,
General Factual Background. The EPA retained the applicability of the
1-hour NAAQS for certain areas to ensure adequate health protection during
the transition to full implementation of the 8-hour NAAQS.

The pre-existing 1-hour secondary ozone standard was replaced by an 8-hour
standard identical to the new primary standard. The new secondary standard
will provide increased protection to the public welfare against
ozone-induced effects on vegetation as described in section I.B, General
Factual Background.

e. Impacts of NOx Emissions. At the August 7, 1997 Clean Air Act Advisory
Committee meeting, EPA announced the availability of a document ("Nitrogen
Oxides: Impacts on Public Health and the Environment," EPA-452/R-97-002,
August 1997) that describes the multiple impacts of NOx emissions on public
health and the environment and the consequent implications for national
policy. In addition to helping attain public health standards for ozone,
decreases in emissions of NOx are helpful to reducing acid deposition,
greenhouse gases, nitrates in drinking water, stratospheric ozone
depletion, excessive nitrogen loadings to aquatic and terrestrial
ecosystems, and ambient concentrations of nitrogen dioxide, particulate
matter and toxics. These impacts are described in more detail in section X,
Nonozone Benefits of NOx Reductions.

D. EPA's Proposed Analytical Approach

1. Process for Requiring Submission of Section 110(a)(2)(D) SIP Revisions

As described above, SIPs for all areas must meet the requirements of
section 110(a)(2), including section 110(a)(2)(D), which imposes limits on
sources that affect the ability of downwind areas to attain and maintain
the NAAQS. Because many areas are currently required to attain two ozone
NAAQS--the 1-hour standard and the 8-hour standard--with different SIP
planning requirements, EPA proposes that section 110(a)(2)(D) be applied in
different ways with respect to each of the ozone NAAQS.

Under the 1-hour ozone NAAQS, each area is currently required to have a SIP
in place. Moreover, EPA has determined that the 1-hour standard will
continue to apply to areas designated nonattainment for the 1-hour NAAQS
until EPA determines that the area has air quality meeting this standard
(40 CFR 50.9(a) (62 FR 38894 (July 18, 1997)). Accordingly, each area is
under a current obligation to include in its SIP, provisions that meet the
requirements of section 110(a)(2)(D) for the 1-hour NAAQS.

This obligation to meet section 110(a)(2)(D) under the 1-hour standard
applies even after EPA determines that an upwind area has attained the
1-hour standard, and the applicability of that standard thereby terminates
for the upwind area. Regardless of the status of the 1-hour standard with
respect to the upwind area's air quality, a downwind area may continue to
have a nonattainment problem under the 1-hour standard, and the upwind
area's sources may continue to impact that downwind nonattainment problem.
Under these circumstances, the upwind area would be required to retain or
adopt SIP provisions that meet the requirements of section 110(a)(2)(D).

To assure that SIPs include required controls, section 110(k)(5) authorizes
EPA to find that a SIP is substantially inadequate to meet an CAA
requirement, and to require ("call for") the State to submit, within a
specified period, a SIP revision to correct the inadequacy. This EPA
requirement for a SIP revision is known as a "SIP call." Specifically,
section 110(k)(5) provides, in relevant part:

Whenever the Administrator finds that the applicable implementation plan
for any area is substantially inadequate to attain or maintain the relevant
[NAAQS], to mitigate adequately the interstate pollutant transport
described in section 176A or section 184, or to otherwise comply with any
requirement of this Act, the Administrator shall require the State to
revise the plan as necessary to correct such inadequacies. The
Administrator shall notify the State of the inadequacies, and may establish
reasonable deadlines (not to exceed 18 months after the date of such
notice) for the submission of such plan revisions.

By today's action, EPA is proposing to determine that the SIPs under the
1-hour ozone NAAQS for the States identified in today's action are
substantially inadequate to comply with the requirements of section
110(a)(2)(D) and to mitigate adequately the regional, interstate ozone
transport described in section 184, because ozone precursor emissions and
transported ozone from those States contribute significantly to
nonattainment downwind. Based on these findings, EPA today proposes a SIP
call to require the identified States to reduce emissions to mitigate their
contribution.

If a State fails to submit the required SIP provisions in response to this
SIP call, EPA is required to issue a finding that the State failed to make
a required SIP submittal under section 179(a). This finding has
implications for sanctions as well as EPA's promulgation of a Federal
implementation plan (FIP). Sanctions and a FIP are discussed in section V.,
SIP Revisions and Approvability Criteria.

Under the 8-hour ozone NAAQS, areas have not yet been designated as
attainment, nonattainment, or unclassifiable, and are not yet required to
have SIPs in place. When those SIPs become due, they must meet the
applicable requirements of section 110, which apply to all areas, and SIPs
for areas designated nonattainment must also meet the additional
requirements in subpart 1 of part D applicable to nonattainment areas.

Section 110(a)(1) provides, in relevant part--

Each State shall . . . adopt and submit to the Administrator, within 3
years (or such shorter period as the Administrator may prescribe) after the
promulgation of a national primary ambient air quality standard (or any
revision thereof)...a plan which provides for implementation, maintenance,
and enforcement of such primary standard in each [area] within such State.

Section 110(a)(2) provides, in relevant part--

Each implementation plan submitted by a State under this CAA shall be
adopted by the State after reasonable notice and public hearing. Each such
plan shall [meet certain requirements, including those found in section
110(a)(2)(D)].

These two provisions, read together, require SIP revisions under the
revised NAAQS within 3 years of the date of the revision, or earlier if EPA
so requires, and require that those SIP revisions meet the requirements of
section 110(a)(2), including subparagraph (D). It should be noted that the
schedule for these section 110(a)(2) SIP submissions for all ozone areas
differs from the schedule for the SIP submissions required under section
172(b) for part D SIP submissions for ozone nonattainment areas. These part
D SIP submissions are required for all areas that are designated
nonattainment under the 8-hour NAAQS and must be submitted within 3 years
of the date of designation. The submission of SIP revisions containing the
regional NOx reductions proposed under this rulemaking earlier than the
part D nonattainment submissions will assist the downwind nonattainment
areas in their attainment planning.

The EPA believes it has the authority to establish different submittal
schedules for different parts of the section 110(a)(1) SIP revision.
Specifically, EPA proposes to require first the portion of the section
110(a)(1) SIP revision that contains the controls required under section
110(a)(2)(D). The EPA proposes to require the section 110(a)(2)(D)
submittal first for the purpose of securing upwind reductions at an earlier
stage in the regional SIP planning process. This information on controls in
upwind States is essential to the downwind States in the latter States'
attainment planning.

In summary, EPA is proposing to determine, under section 110(k), that the
1-hour ozone NAAQS SIPs for certain States are deficient because the SIPs
do not impose sufficient controls on their sources to meet the requirements
of section 110(a)(2)(D), and EPA is proposing to require those States to
submit SIP revisions containing adequate controls. The EPA is proposing to
require, under section 110(a)(1), that certain States must submit SIP
revisions under the 8-hour ozone NAAQS to meet the requirements of section
110(a)(2)(D). For simplicity, today's rulemaking occasionally uses the term
"SIP call" to describe both EPA actions.

2. Overview of Elements of Section 110(a)(2)(D)

a. Summary of Section 110(a)(2)(D). As noted above, section 110(a)(2)(D) is
the operative provision for determining whether additional controls are
required to mitigate the impact of upwind sources on downwind air quality,
with respect to both the 1-hour and 8-hour ozone NAAQS. Separate
determinations must be made for each NAAQS.

Section 110(a)(2)(D) provides, in relevant part, that each SIP must:

. . . contain adequate provisions . . . prohibiting, consistent with the
provisions of this title, any source or other type of emissions activity
within the State from emitting any air pollutant in amounts which will . .
. contribute significantly to nonattainment in, or interfere with
maintenance by, any other State with respect to any such national primary
or secondary ambient air quality standard . . . .

According to section 110(a)(2)(D), the SIP for each area, regardless of its
designation as nonattainment or attainment (including unclassifiable), must
prohibit sources within the area from emitting emissions that: "contribute
significantly" to "nonattainment" in a downwind State, or that "interfere
with maintenance" in a downwind State.

b. Significant Contribution to Nonattainment. The initial prong under
section 110(a)(2)(D) is whether sources "contribute significantly" to
"nonattainment in . . . any other State" with respect to the NAAQS. The
initial inquiry for this prong is to identify and determine the geographic
scope of "nonattainment" downwind. The EPA proposes to interpret this term
to refer to air quality and not to be limited to currently-designated
nonattainment areas. Section 110(a)(2)(D) does not refer to "nonattainment
areas," which is a phrase that EPA interprets to refer to areas that are
designated nonattainment under section 107 (section 107(d)(1)(A)(I)).
Rather, the provision includes only the term "nonattainment" and does not
define that term. Under these circumstances, EPA has discretion to give the
term a reasonable definition, and EPA proposes to define it to include
areas whose air quality currently violates the NAAQS, and will likely
continue for some time to violate, regardless of the designation of those
areas (compare section 181(b)(2)(A) (referring to ozone "nonattainment
area" which EPA interprets as an area designated nonattainment) and section
211(k)(10)(D)).

For present purposes, EPA is examining the air quality for the 1993-1995
years, but EPA expects to refer to 1996 (and perhaps 1997) data as the
rulemaking proceeds.

As discussed below, to determine whether emissions from sources in an
upwind area significantly contribute to nonattainment downwind, EPA
proposes to compare NOx emissions reductions upwind with ozone reductions
downwind. For this purpose, EPA assumes that areas with current air quality
indicating nonattainment for the 1-hour standard will be required to
implement certain controls under the CAA, through the year 2007, which is
the attainment date for ozone nonattainment areas classified as severe-17.
Accordingly, EPA proposes to determine, through air quality modeling, which
areas with current air quality indicating nonattainment for both the 1-hour
and 8-hour standards will continue to be in nonattainment in the year 2007,
even after implementation of controls specifically required under the CAA.
Because this projection is occurring through the year 2007, it is also
necessary to take into account growth in emissions, generally due to
economic growth and greater use of vehicles, to that time. If an area with
air quality currently indicating nonattainment is modeled to continue to be
in nonattainment as of the year 2007, then emissions from sources in upwind
areas may be considered to "contribute significantly" to the current
nonattainment problem, depending on the factors described below. On the
other hand, if an area the current air quality of which measures
nonattainment is modeled to be in attainment in the year 2007 due to
imposition of required CAA controls, then EPA proposes not to consider
emissions from sources in upwind areas to "contribute significantly" to
that downwind area.

The EPA's decision is explained below for choosing the year 2007 as the
date for assuming the implementation of controls and for modeling air
quality.

The EPA proposes a similar analysis for purposes of the 8-hour NAAQS. The
EPA will consider as "nonattainment" any area that has monitored
nonattainment air quality currently, and for which modeling shows is likely
to continue to be in nonattainment in the year 2007 after application of
controls specifically required under the CAA. After determining the scope
of the downwind nonattainment problem, EPA must next analyze whether the
emissions from sources in the upwind area "contribute significantly" to the
nonattainment problem. As described below, EPA analyzed all NOx emissions
in specified upwind areas, made proposed determinations as to significant
contributions based on the entire inventory of the area's NOx emissions and
is requiring SIP revisions that address overall levels of NOx emissions. By
contrast, EPA is not, in this rulemaking, determining whether particular
sectors of the NOx inventory "contribute significantly" and is not
mandating controls on particular sectors of that inventory.

Neither the CAA nor its legislative history provides meaningful guidance
for interpreting the term, "contribute significantly" (H.Rept. 101-491,
101st Cong., 2d sess., 1990, 218). The simpler part of the analysis
concerns the term, "contribute." In EPA's view, if emissions have an impact
on downwind nonattainment, those emissions should be considered to
contribute to the nonattainment problem. Generally, because ozone is a
secondary pollutant formed as a result of complex chemical reactions, it is
not possible to determine downwind impact on a source-by-source basis.
However, if air quality modeling shows that the aggregation of emissions
from a particular geographic region affect a nonattainment problem, then
all of the emissions in that region should be considered as contributors to
that nonattainment problem.

Whether a contribution from sources in a particular upwind area is
"significant" depends on the overall air quality context. The EPA is
proposing a "weight of evidence" test under which several factors are
considered together, but none of them individually constitutes a
bright-line determination.

The EPA is proposing and soliciting comment on two alternative
interpretations of section 110(a)(2)(D). Each of the two interpretations
relies on a set of factors to make the determinations required under
section 110(a)(2)(D). In addition, each of the two relies on the same
factors. However, each relies on different factors in different parts of
the analysis.

Under the first interpretation of section 110(a)(2)(D), the weight of
evidence test for determining significant contribution focuses on factors
concerning amounts of emissions and their ambient impact, including the
nature of how the pollutant is formed, the level of emissions and emissions
density (defined as amount of emissions per square mile) in the particular
upwind area, the level of emissions in other upwind areas, the amount of
contribution to ozone in the downwind area from upwind areas, and the
distance between the upwind sources and the downwind nonattainment problem.
Under this approach, when emissions and ambient impact reach a certain
level, as assessed by reference to the factors identified above, those
emissions would be considered to "contribute significantly" to
nonattainment. The EPA would then determine what emissions reductions must
be required in order to adequately mitigate these contributions. Evaluation
of the costs of available measures for reducing upwind emissions enters
into this determination, as well as to the extent known (at least
qualitatively), the relative costs of, amounts of emission reductions from,
and ambient impact of, measures available in the downwind areas. The EPA
proposes to require upwind areas to implement a NOx budget reflecting
cost-effective controls that compare favorably, at least qualitatively,
with the costs of controls downwind and that reduces ozone levels downwind.

Under the second interpretation of section ll0(a)(2)(D), the weight of
evidence test for determining significant contribution includes all of the
factors identified immediately above, including the factors that comprise
the adequate mitigation test. That is, the relevant factors concern upwind
emissions and ambient impact therefrom, as well as the costs of the
available measures for reducing upwind emissions and, to the extent known
(at least qualitatively), the relative costs of, amounts of emissions
reductions from, and ambient impact of measures available in the downwind
areas. Thus, under this second interpretation, the cost effectiveness of
controlling upwind emissions would be an important, but not necessarily a
controlling factor in evaluating whether emissions meet the significant
contribution test. As a result, EPA may conclude that a certain amount of
the upwind emissions contributes significantly to downwind problems
because, among other things, that amount may be eliminated through controls
that are relatively more cost effective. However, EPA would not conclude
that the remaining emissions contribute significantly because the
additional available controls that might be implemented are not as cost
effective. Under this second interpretation, once EPA determines what
amount of emissions contribute significantly to problems downwind, the
remedy would be for EPA to require the elimination of that amount of upwind
emissions and to determine the NOx budgets accordingly.

Under either the first or second interpretation of section ll0(a)(2)(D),
EPA would be considering the relative costs and cost effectiveness of
various controls in deciding how much each State would need to reduce its
emissions. The methodology EPA would employ to reach this result under
either interpretation is set forth more fully in sections II and III of
today's action.

As discussed above, unhealthful levels of ozone result from emissions of
NOx and VOC from thousands of stationary sources and millions of mobile
sources across a broad geographic area. Each source's contribution is a
small percentage of the overall problem; indeed, it is rare for emissions
from even the largest single sources to exceed 1 percent of the inventory
of ozone precursors for a single metropolitan area. Under these
circumstances, even complete elimination of any given source's emissions
may well have no measurable impact in ameliorating the nonattainment
problem. Rather, attainment requires controls on numerous sources across a
broad area. Ozone is a regional scale problem that requires regional scale
reductions.

The National Academy of Sciences (NAS) study, "Rethinking the Ozone Problem
in Urban and Regional Air Pollution"(2) emphasized this aspect of ozone
formation. According to this report, high concentrations of ozone occur
concurrently in the Eastern United States in urban, suburban and rural
areas on scales of over 1000 kilometers. The NAS report describes a
"persistent blanket of high ozone in the Eastern United States" that can
last for several days. Since rural ozone values commonly exceed 90 parts
per billion (ppb) on these occasions, an urban area needs an ozone
increment of only 30 ppb to cause an exceedance of the 1-hour ozone
standard in a downwind area. Clearly, attainment strategies must include
controls on numerous sources across broad areas.

In light of this "collective contribution" characteristic of ozone
formation and control, EPA proposes that if contributions from an upwind
area's emissions, taken together, are considered to be an important portion
of the downwind area's nonattainment problem, then this factor tends to
indicate that the upwind emissions as a whole, as well as each of the
upwind emitters, make a "significant" contribution. The fact that emissions
from any particular source, or even a group of sources, may
in-and-of-themselves be small, does not mean those sources' emissions are
not "significant" within the meaning of section 110(a)(2)(D). Those
sources' emissions are generally "significant" if, when they are combined
with emissions from other sources in the same upwind area, they total
upwind emissions that are "significant." Even so, it should be noted that
the collective contribution factor is only one of various factors that EPA
proposes to consider in determining whether emissions from an area
constitute a "significant" contribution to a downwind problem. The amounts
of emissions from the area and, in certain cases, emissions density, remain
important factors. Depending on all the facts and circumstances, these
other factors may tend to indicate that emissions from a particular area
should not be considered to contribute significantly, notwithstanding the
fact that those emissions may be linked in some manner with emissions from
other upwind areas that are considered to be significant contributors.

In several rulemakings promulgated and court decisions handed down, in the
1980's, EPA interpreted and applied the predecessors to sections
110(a)(2)(D) and 126 (e.g., State of New York v. EPA, 852 F.2d 574 (D.C.
Cir. 1988); Air Pollution Control District of Jefferson County, Kentucky v.
EPA, 739 F.2d 1071 (6th Cir. 1984); Connecticut v. EPA, 696 F.2d 147 (2d
Cir. 1982)). Although these rulemakings and court decisions generally
employed multifactor formulas for the "significant contribution" test that
bear some similarity to the formula EPA is proposing today, they have
limited relevance to the issues in the present rulemaking because of the
numerous differences in the relevant factors. For example, in the earlier
rulemakings compared to the present rulemaking, the pollutants and
precursors are different, and the inventories of emissions and number of
emitters in the upwind and downwind areas are different. The significant
contribution test is a facts-and-circumstances analysis that depends on
these factors, and differences among these factors may yield different
results under this test. Accordingly, the differences in the key factors
between the earlier decisions and today's proposal means that those earlier
decisions are not determinative for today's proposed action.

For purposes of today's rulemaking, EPA determined the amount of
contribution to downwind air quality, under both the 1-hour NAAQS and the
8-hour NAAQS, by employing an air quality model that assumed a zero level
of anthropogenic emissions from the various upwind areas. The results of
those model runs, as well as their other assumptions and characteristics,
are described in detail below.

As described below, EPA made separate determinations as to which upwind
areas "contribute significantly" to nonattainment under the 1-hour NAAQS
and under the 8-hour NAAQS. Those separate determinations resulted in
identifying the same States for both the 1-hour and the 8-hour NAAQS.

c. Interfere with Maintenance. Section 110(a)(2)(D) also prohibits
emissions that "interfere with maintenance" of the NAAQS in a downwind
State. An area is obligated to maintain the NAAQS after the area has
reached attainment. This requirement of section 110(a)(2)(D) does not, by
its terms, incorporate the qualifier of "significantly." Even so, EPA
believes that for present purposes, the term "interfere" should be
interpreted much the same as the term "contribute significantly," that is,
through the same weight of evidence approach.

With respect to the 1-hour NAAQS, the "interfere-with-maintenance" prong
appears to be inapplicable. The EPA has determined that the 1-hour NAAQS
will no longer apply to an area after EPA has determined that the area has
attained that NAAQS. Under these circumstances, emissions from an upwind
area cannot interfere with maintenance of the 1-hour NAAQS.

With respect to the 8-hour NAAQS, the "interfere-with-maintenance" prong
remains important. After an area has reached attainment of the 8-hour
NAAQS, that area is obligated to maintain that NAAQS (sections 110(a)(1)
and 175A). Emissions from sources in an upwind area may interfere with that
maintenance.

The EPA proposes to apply much the same approach in analyzing the first
component of the "interfere-with-maintenance" issue, which is identifying
the downwind areas whose maintenance of the NAAQS may suffer interference
due to upwind emissions. The EPA has analyzed the
"interfere-with-maintenance" issue for the 8-hour NAAQS by examining areas
whose current air quality is monitored as attaining the 8-hour NAAQS, but
for which air quality modeling shows nonattainment in the year 2007. This
result is projected to occur, notwithstanding the imposition of certain
controls required under the CAA, because of projected increases in
emissions due to growth in emissions generating activity. Under these
circumstances, emissions from upwind areas may interfere with the downwind
area's ability to maintain the 8-hour NAAQS. Ascertaining the impact on the
downwind area's air quality of the upwind area's emissions aids in
determining whether the upwind emissions interfere with maintenance.

d. Remedying the Significant Contribution. After identifying States whose
sources do "contribute significantly" to a nonattainment problem or
interfere with maintenance downwind, it is necessary to determine the
appropriate limit on emissions required in each upwind SIP. The EPA is
proposing, in the alternative, two different analyses for the remedies
which are tied to the two alternatives for the "weight of evidence" test.

i. Adequate Mitigation. Under the first interpretation of section
110(a)(2)(D), EPA does not consider costs in determining whether upwind
emissions contribute significantly to nonattainment or interfere with
maintenance. Instead, once EPA determines, on the basis of factors
generally related to emissions, that those emissions do contribute
significantly to nonattainment (or interfere with maintenance), EPA then
determines what emissions reductions must be required in order to
adequately mitigate these contributions. Evaluation of relative costs
enters into this determination.

Adequate mitigation would amount to eliminating a sufficient portion of the
upwind emissions so that they no longer contribute significantly to
nonattainment or interfere with maintenance.

In the present case, EPA proposes to determine an allowable level of NOx
emissions for each of the 23 jurisdictions with sources that trigger the
requirements of section 110(a)(2)(D). Given the need to reduce this overall
regional level of ozone, as discussed earlier, EPA determined this "budget"
of emissions by, in the first instance, calculating the emissions
achievable by applying the most reasonable, cost-effective controls on NOx
emissions in the 23 jurisdictions. The control measures considered and
those determined to be the most reasonable and cost-effective are detailed
below. In selecting those control measures determined to be the most
reasonable and cost-effective, EPA carefully considered the recommendations
made by OTAG on July 8, 1997. (The OTAG process is described in section
I.F. of this rulemaking.) The budget calculations described below generally
fall within the range of OTAG's recommendations.

The statewide emissions budgets proposed in this rulemaking were not
modeled directly to determine their air quality benefits. The EPA believes,
however, that the air quality impact of implementing these reductions would
be very similar to results previously modeled by OTAG. This modeling is
identified in section IX, Air Quality Analyses. The downwind air quality
benefits from these reductions are sufficient for EPA to conclude that they
would adequately mitigate the contribution from the upwind sources.

ii. Elimination of Contribution. Under the second interpretation of section
110(a)(2)(D), costs are considered as part of the calculation as to what
(if any) amount of emissions contribute significantly to nonattainment or
interfere with maintenance. The EPA proposes to determine those amounts for
each State by considering the factors described above and the extent to
which the State's emissions can be reduced through the most cost-effective
controls that reduce ozone levels downwind. Once EPA makes this
determination, EPA would conclude that requiring those cost-effective
controls is mandated under the provisions of section 110(a)(2)(D) that
require SIP provisions "prohibiting" that amount of emissions. Thus, under
this alternative interpretation, a SIP meets the requirement for
"prohibiting" emissions that contribute significantly to nonattainment, or
interfere with maintenance, downwind, by implementing cost-effective
controls determined to improve air quality downwind.

iii. Comparison of the Two Legal Interpretations of Section 110(a)(2)(D).
The EPA solicits comments on which of the two legal interpretations of
section 110(a)(2)(D), as described above, should be used. Each
interpretation relies on the same factors (although certain factors enter
into different parts of the analysis under the two interpretations).
Because each relies on the same factors, there is little technical
difference between the two interpretations. Each requires the same
determinations as to, for example, the ambient impact of upwind emissions
and the cost effectiveness of controls.

Moreover, as proposed in today's action, each interpretation leads to the
same conclusion as to which States are considered to have emissions that
significantly contribute to downwind problems, and as to the amounts of NOx
budgets that those States should meet.

However, the two interpretations have different legal justifications. As
noted above, section 110(a)(2)(D) provides that the SIP for the upwind area
must "contain adequate provisions . . . prohibiting . . . [sources] from
emitting any air pollutant in amounts which will . . . contribute
significantly to nonattainment in, or interfere with maintenance by, any
other State . . .." Under the first interpretation, EPA may determine that
a relatively larger inventory of emissions contributes significantly to
nonattainment (or interferes with maintenance) in light of the fact that
the costs of controlling those emissions are not considered in determining
significant contribution. The EPA would then require adequate mitigation of
the full set of emissions that contribute to nonattainment or interfere
with maintenance.

Other relevant provisions indicate that the CAA could be construed to
require mitigation, and not necessarily complete elimination, of emissions
that contribute to air quality problems downwind. Section 110(k)(5)
authorizes the Administrator to promulgate a SIP call whenever she finds
that a SIP is "substantially inadequate to attain or maintain the relevant
[NAAQS], to mitigate adequately the interstate pollutant transport
described in section 176A or 184, or to otherwise comply with any
requirement of this Act" (emphasis added). Section 176A describes
interstate transport of air pollutants generally, and section 184 describes
ozone transport in the northeast region in particular, which constitutes
part of the transport phenomenon at issue in today's proposal. Section 176A
authorizes the creation of a transport region when emissions from one or
more States contribute significantly to a NAAQS violation in another State
and further authorizes a transport commission to, among other things,
assess strategies for mitigating the interstate pollution. These
provisions, read together, indicate that adequate mitigation of transport
is an appropriate response to a SIP call. Arguably, this interpretation
should hold when EPA issues a SIP call based on section 110(a)(2)(D), and
when EPA mandates a SIP revision under section 110(a)(1), based on section
110(a)(2)(D).

The second interpretation focuses on the provisions of section ll0(a)(2)(D)
that the SIP must include provisions to "prohibit" any emitting activity
from emitting in "amounts" that contribute significantly to downwind
nonattainment or interfere with maintenance. The EPA has determined the
States whose full set of NOx emissions contribute markedly to downwind
problems. The term "prohibit" could be interpreted to require EPA, upon
finding that a State's full set of emissions "contribute significantly" to
nonattainment, must then require the SIP to eliminate that full set of
emissions. This construction could mean that EPA must require the State to
shut down all of the emission-generating activities. It is doubtful
Congress would have intended this result.

The EPA's second interpretation avoids this possible result by taking into
account the relative cost effectiveness of the upwind and downwind controls
in defining the "amounts" of emissions in each State that contribute
significantly to the downwind problem. Once EPA has set those "amounts" in
light of its consideration of the cost factors, the SIPs for the affected
States would then need to prohibit only those amounts.

iv. Other Issues. States will have the flexibility to choose their own mix
of control measures to meet the proposed statewide emissions budgets. That
is, States are not constrained to adopt measures that mirror the measures
EPA used in calculating the budgets. In fact, EPA believes that many
control measures not on the list relied upon to develop EPA's proposed
budgets are reasonable--especially those like enhanced vehicle inspection
and maintenance programs that yield both NOx and VOC emissions reductions.
Thus, one State may choose to primarily achieve emissions reductions from
stationary sources while another State may focus emission reductions from
the mobile source sector. Furthermore, States may choose to pursue
cost-effective energy efficiency opportunities as a means to reduce the
control measures necessary to meet their statewide emission budgets.

e. Control Implementation and Budget Attainment Dates. The EPA proposes to
require that the SIP revisions impose an implementation date for the
required controls of 3 years from the date of the required SIP submission,
which would result in compliance by those sources by no later than
September 2002. However, the EPA is soliciting comments on the range of
implementation dates from between September 2002 and September 2004. The
EPA seeks comment on which date within this 2-year range is appropriate, in
light of the feasibility of implementing controls and the need to provide
air quality benefits as expeditiously as practicable. The EPA is proposing
an implementation date of September 2002 in order to allow coordination of
this rulemaking with its response to 8 section 126 petitions which are
discussed below in section I.E, Section 126 Petitions. Although the EPA's
actual proposed compliance date is September 2002, because the Agency is
seeking comment on a range from September 2002 to September 2004, the
Agency refers to the range of implementation dates throughout this
rulemaking. The EPA further proposes that States be required to meet the
mandated budgets by the end of the year 2007, by which time additional
reductions from various Federal measures will also be achieved.

The EPA believes that requiring implementation of the upwind controls, and
thereby mandating upwind reductions, by no later than these 2002-4 dates,
is consistent with the attainment schedule for the downwind areas. Because
the downwind areas depend on upwind reductions to reach attainment,
mandating upwind controls on a schedule consistent with downwind attainment
requirements is appropriate.

A review of the attainment schedule under the 1-hour NAAQS would be useful.
Under the attainment schedule, serious areas are required to attain by the
end of 1999, severe-15 areas are required to attain by the end of 2005, and
severe-17 areas are required to attain by the end of 2007 (section
181(a)(1)). If a serious area fails to meet its 1999 attainment date, it is
to be reclassified ("bumped up") to severe-15 (section 181(b)(2)). However,
an area may fail to reach attainment by its attainment date, but avoid bump
up, if EPA grants a 1-year extension. An area is eligible for a 1-year
extension if, among other things, it has no more than one exceedance of the
NAAQS in the attainment-date year. The EPA may grant another extension for
the next year under the same conditions (section 181(a)(5)). If an area
receives two 1-year extensions, it may reach attainment in the following
year (the second year after the attainment-date year) if, again, it has no
more than one exceedance of the NAAQS. Under these circumstances, the area
will have had no more than three exceedances over a 3-year period (the
attainment-date year and the 2 next years), which would qualify it for
attainment under the 1-hour NAAQS. The EPA has indicated that once it
determines that an area has achieved air quality that satisfies the 1-hour
NAAQS, the NAAQS will be rescinded with respect to that area.

Although controls on upwind emissions are designed to assist downwind
nonattainment areas in reaching the NAAQS, EPA is aware that at this point,
it is not possible for EPA to mandate controls on upwind areas within the
OTAG region in sufficient time to help serious areas reach attainment by
their end-of-1999 attainment date. The amount of time that is necessary to
assure that the rulemaking proposed today is well considered by all
affected parties, added to the amount of time necessary for the States to
adopt the required SIP revisions, and the amount of lead-time necessary to
implement the required controls, means that those controls cannot be
expected to be in place in time to assist the serious areas in reaching
their attainment date.

The next attainment date is 2005, which applies to severe-15 areas, such as
the Baltimore area, and which would apply to any serious area that is
bumped up. The EPA's proposal to require upwind controls to be implemented
by no later than September 2004--in time for the beginning of the ozone
season for the affected States--is sensible in light of this 2005
attainment date. Implementing controls earlier than September 2004, or at
least phasing in some controls, if not all of them, prior to that date,
would improve the chance for minimizing exceedances during the 3-year
period up to, and including, 2005, which will facilitate reaching
attainment as of this date. In particular, to the extent that the State
chooses controls on major stationary sources of NOx, EPA believes it would
be feasible to implement some of those controls earlier than September
2004. However, EPA is aware that implementation of controls for other
sources may be more problematic. The EPA solicits comments on what dates
within the range of 3 to 5 years of the required SIP submission would be
appropriate for implementation of the controls.

Full implementation by no later than September 2004 would mean that all of
the upwind controls required under the rulemaking proposed today would be
in place as of the November 15, 2005 attainment date for the downwind
severe-15 areas. Failure to implement those controls prior to September
2004 may mean that the downwind area may record too many exceedances in the
3-year period prior to the end of 2005, so that it would not be possible to
reach attainment as of that time. However, implementation of these
reductions by September 2004, coupled with any necessary additional
reductions from the downwind sources, may result in no more than one
exceedance in the downwind area during the attainment year and during each
of the next 2 years thereafter. Under these circumstances, the downwind
area would be eligible for the 1-year extensions described above and would
reach attainment by the year 2007.

Similarly, full implementation by September 2004 would mean that severe-17
areas would receive the benefit of reduced upwind emissions during the
3-year period up to, and including, their 2007 attainment year. In the OTAG
region, the severe-17 areas include the Philadelphia, New York, Milwaukee,
and Chicago areas. These reductions should greatly assist the downwind
areas in reaching attainment by the end of 2007.

An implementation date of between September 2002 September 2004 is also
consistent with the attainment date scheme for the 8-hour NAAQS. The EPA
intends to promulgate designations for areas under the 8-hour NAAQS by the
year 2000. The CAA provides for attainment dates of up to 5 years or 10
years after designation. Therefore, the first attainment date for many
areas under the 8-hour standard could be 2005. Section 172(a)(2)(C) has a
two, 1-year extension scheme applicable for areas under the 8-hour NAAQS
that is similar to that described above, under section 181(a)(5),
applicable to areas under the 1-hour NAAQS. Accordingly, full
implementation of mandated SIP controls in the upwind areas by no later
than September 2004 may allow downwind areas to reach attainment of the
8-hour NAAQS by 2007, counting the two 1-year extensions in the same manner
as for severe-15 areas under the 1-hour NAAQS. In addition, the EPA
believes that compliance no later than September 2004 by the utility and
nonutility sector, with the emission limits assumed in setting the emission
budgets or application of controls to other source categories, is feasible.

Further, EPA notes that the September 27, 1994 OTC NOx Memorandum of
Understanding (MOU) provides that large utility and nonutility NOx sources
should comply with the Phase III controls by the year 2003. The levels of
control in the MOU are 75 percent or 0.15 lb/106 btu in the inner and outer
zones, levels comparable to the controls assumed in setting the budget for
this rulemaking. In addition, in comments to EPA's proposed Phase II NOx
reduction program under the Acid Rain provisions of the CAA(3), the
Institute of Clean Air Companies (ICAC) stated that more than sufficient
vendor capacity existed to supply retrofit of selective catalytic control
to the boilers affected by the proposed rule. The ICAC in fact indicated
that additional catalyst capacity could be added if needed.

Although EPA is proposing today that SIPs mandate implementation of the
required SIP controls by a date within a range of September 2002 and
September 2004, EPA is also proposing that the affected States demonstrate
achievement of their NOx budgets as of the end of the year 2007. In
addition, EPA used the 2007 date to analyze for modeling purposes the
impact of upwind emissions on nonattainment air quality. Using the 2007
date means that the States will be able to account for the additional
reductions from Federal measures occurring between the date that SIP
controls are implemented and the end of 2007, although the State must also
account for growth in emissions during this time. Using the 2007 date is
sensible in part because OTAG used this date for these purposes and
compiled substantial technical information--such as information concerning
inventories--based on this date. It is, therefore, efficient for EPA to use
this same information. Developing comparable information for an earlier
date would be time consuming and resource intensive. In addition, it is
uncertain that there would be significant differences in amounts of
emissions and impact on ambient air quality between an earlier date and
2007, in light of the fact that during this period, emissions would
generally increase somewhat as a result of growth in activities that
generate emissions, but would also decrease due to continued application of
federally mandated controls. Accordingly, requiring accounting for a budget
as of the 2007 date is both practicably indicated and is a reasonable
surrogate for requiring this accounting as of September 2004.

E. Section 126 Petitions

The EPA has received section 126 petitions from eight States: Connecticut,
Maine, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island
and Vermont. The petitions vary as to the type and geographic location of
sources they identify as meriting a finding of significant contribution.
The petitions also vary as to the levels of controls they recommend. In
addition, EPA has received a petition from the State of Wisconsin asking
EPA to promulgate a SIP call under section 110(k)(5) requiring the States
of Illinois, Indiana, Iowa, Kentucky and Missouri to submit SIP revisions
addressing the purported impact of their emissions on Wisconsin. By letter
dated August 8, 1997, from Mary D. Nichols, Assistant Administrator for Air
and Radiation, to Michael J. Walls, Chief, Environmental Protection Bureau,
Office of the Attorney General, State of New Hampshire, EPA provided
technical guidance concerning section 126 petitions. The EPA is now
studying the petitions and will prepare a notice(s) of proposed rulemaking
to grant or deny them.

The EPA's response to a section 126 petition differs from today's action in
several ways. Today's action is a proposed SIP call under section 110(k)(5)
for SIP provisions meeting the requirements of section 110(a)(2)(D) for the
1-hour ozone NAAQS, coupled with a proposed requirement under section
110(a)(1) for submission of SIP provisions meeting the requirements of
section 110(a)(2)(D) for the 8-hour ozone NAAQS. The EPA bases this action
on a technical analysis as to whether the entire NOx emissions inventory of
an individual upwind State contributes significantly to an ozone
nonattainment problem downwind. If EPA concludes that the NOx emissions
from that State make such a significant contribution, EPA will require the
State to submit SIP provisions that limit the State's NOx emissions to the
level mandated by EPA, but through any combination of measures affecting
any sector of the inventory chosen by the State. If the State does not make
the required submission, EPA may, among other things, promulgate a FIP in
accordance with section 110(c).

By comparison, a section 126 petition, by the terms of section 126(b)-(c),
is limited to upwind major stationary sources and not other sectors of the
upwind emissions inventory. Moreover, a section 126 petition may seek a
finding concerning upwind sources in more than one State. Further, if EPA
grants the petition, it is EPA, and not the States, that promulgates direct
controls for the major sources.

The EPA's response to section 126 petitions would bear relevance to today's
action. The section 126 petitions and section 110(k)(5)/110(a)(1) action
both require technical analysis of whether upwind sources contribute
significantly to a downwind nonattainment or maintenance problem. However,
EPA's section 110(k)(5)/110(a)(1) action results in a mandate for the
States to submit SIP revisions that conform to only minimum guidance
provided by EPA. On the other hand, the section 126 petitions, if granted,
would result in EPA selection and imposition of controls directly on major
stationary sources. These controls could provide a template for the SIP
provisions the States must include in their rulemaking response to EPA's
section 110(k)(5)/110(a)(1) rulemaking or, if necessary, a FIP.

EPA believes that both the 110 process as outlined and 126 petition
processes are aimed at addressing regional transport of ozone forming
pollutants and can be fully coordinated. The 110 process outlined provides
the potential to deal comprehensively with transported pollutants that
contribute significantly to downwind nonattainment, and importantly, allows
individual States to make choices about cost-effective source controls best
fitting their unique State situations. The 126 petition process provides
assurance to petitioning States that upwind sources of air pollution will
be addressed in a timely manner. Thus, each of these processes may provide
important and complementary tools to address the regional ozone transport
problem.

Over the next several months, EPA will be working with the affected States
to ensure these two processes are fully coordinated. This will provide
maximum certainty for State and business planning requirements. The EPA's
goal in this effort will be to ensure that States achieve the air quality
reductions EPA determines through rulemaking are necessary to address
regional transport while providing the maximum flexibility to those States
in identifying the appropriate means to meet those goals.

F. OTAG Process

The OTAG has completed the most comprehensive analysis of ozone transport
ever conducted. The process has resulted in more technical information
being gathered and more modeling and monitoring analyses on regional ozone
transport than ever before. The OTAG process was fundamentally different
from previous efforts undertaken by the Federal Government and the States
to assess and solve air pollution problems. What was unique about the
multistate, multistakeholder OTAG process is that for the first time, the
Federal Government has looked to the States involved to provide the
necessary technical information and to aid in determining an outcome which
has local, regional and national implications.

The OTAG was organized into a number of subgroups and work groups that
included members from the States, EPA, industry and environmental groups.
The OTAG's Policy Group, comprised of the State Environmental
Commissioners, provided overall direction to its subgroups for the
assessment of ozone formation and transport, as well as the development of
control strategies that will reduce concentrations of ozone and its
precursors. The subgroups within OTAG addressed issues relating to
emissions inventories, monitoring, modeling, and evaluated the
availability, effectiveness, and costs of potential national, regional and
local air pollution control strategies. Specific issues such as trading and
market-based incentives were also addressed.

The OTAG's initial meetings were on May 18, 1995, in Reston, Virginia, and
June 19, 1995, in Washington, DC. The OTAG continued to meet regularly for
2 years until their final meeting in Washington, DC on June 19, 1997. The
goal of OTAG was to:

. . . identify and recommend a strategy to reduce transported ozone and its
precursors which, in combination with other measures, will enable
attainment and maintenance of the national ambient ozone standard in the
OTAG region. A number of criteria will be used to select the strategy
including, but not limited to, cost effectiveness, feasibility, and impacts
on ozone levels.(4)

To meet its goal, OTAG used technical information from air quality analyses
and photochemical modeling. The OTAG modeled three rounds of emission
reduction scenarios and strategies, including varying control measures
geographically. The first round of modeling was performed during September
and October 1996 and provided an initial evaluation of possible OTAG
emission reduction scenarios. The second round was performed during
November and December 1996 and refined the emission reduction level for the
strategies. The third round was performed during January through March 1997
and evaluated the geographic applicability of the OTAG strategies. These
geographic modeling runs provided information on applying different levels
of controls on utilities and nonutility point sources at incremental steps.
Round-3 also included a limited number of additional modeling runs needed
to address comments made by a number of States related to the geographical
boundaries of the zones defined for round-3 modeling. The OTAG modeling
results are discussed in section II, Weight of Evidence Determination of
Significant Contribution, and are also available on the OTAG webpage. This
modeling, along with other OTAG-generated information, provided the
technical information necessary to make recommendations to the Policy Group
and to EPA on what is needed to meet the OTAG goal. The EPA received OTAG's
final recommendations on July 8, 1997. These recommendations are included
in Appendix B.

II. Weight of Evidence Determination of Significant Contribution

A. Introduction

This section documents the technical information and analyses for the
factors concerning emissions and contributions to ambient air quality that
EPA uses to determine which States in the OTAG domain make a significant
contribution to nonattainment in downwind States(5). To a large extent,
this assessment is based upon the results of OTAG modeling and air quality
analyses as well as information from other non-OTAG modeling studies. The
OTAG modeling available for this analysis includes a set of initial
emissions sensitivity runs, the regional strategy runs in rounds 1, 2, and
3, and the geographic sensitivity runs performed to support the design of
strategies in round-3.

B. Background Technical Information

The importance of interstate transport to the regional ozone problem and
contributions from upwind States to downwind States is supported by
numerous studies of air quality measurements and modeling analyses. In
general, ozone episodes can occur on many spatial and temporal scales
ranging from localized subregional events lasting a day or 2, up to
regionwide episodes lasting as long as 10 - 14 days. The frequency of
localized versus regional episodes depends on the characteristics of the
large-scale meteorological patterns which control the weather in a
particular summer season. Local controls alone are not sufficient to reduce
ozone during regionwide episodes since a substantial amount of ozone may be
transported into the area from upwind sources. The National Research
Council report, "Rethinking the Ozone Problem in Urban and Regional Air
Pollution",(6) cites numerous studies of widespread ozone episodes during
summertime meteorological conditions in the East. These episodes typically
occur when a large, slow-moving, high pressure system envelopes all, or a
large portion of, the Eastern United States. The relatively clear skies
normally associated with such weather systems favor high temperatures and
strong sunlight, which enhances the formation of high ozone concentrations.
In addition, the wind flow patterns can lead to a build up of ozone
concentrations and the potential for long-range ozone transport.
Specifically, winds are generally light in the center of high pressure
systems so that areas under the center may have near-stagnation conditions
resulting in the formation of high ozone levels. As the high pressure
system moves eastward, winds become stronger on the "backside" which
increases the potential for these high ozone levels to be transported to
more distant downwind locations. Over several days, the emissions from
numerous small, medium and large cities, major stationary sources in rural
areas, as well as natural sources, combine to form a "background" of
moderate ozone levels ranging from 80 to 100 ppb (2) of which 30 to 40 ppb
may be due to natural sources. Concentration levels in the range of 80 to
100 ppb and higher have also been measured by aircraft aloft, upwind of the
Lake Michigan area(7), as well as the Northeast Corridor(8). Because this
level of background ozone is so close to the NAAQS, even a small amount of
locally-generated ozone will result in an exceedance.

The importance of the episodic meteorological conditions is heightened by
the spatial distribution of emissions across the region. The EPA has
examined the State total emissions and emissions density projected by OTAG
to 2007, as described in section B.2, OTAG Strategy Modeling. Both of these
measures of emissions (i.e., total and density) are important
considerations for ozone formation. Total emissions indicate the amount of
mass emitted by a State while emissions density indicates the degree to
which those emissions are concentrated within the State and provides a way
to compare emissions between geographically large and small States on a
more equivalent basis. The State total emissions in Table II-1 indicate
that there is no single State or group of adjacent States that stand out as
the major contributors to the total manmade emissions in the OTAG region.
Rather, many States in the Midwest, Northeast and Southeast have high
levels of emissions. For example, Illinois, Indiana, Ohio, Kentucky,
Michigan, Pennsylvania, New York, Alabama, Georgia, Florida, North Carolina
and Tennessee each have total NOx emissions exceeding 1000 tons per day.
Even some other smaller States like Connecticut, Delaware, Maryland,
Massachusetts, and Rhode Island, along with the District of Columbia, have
a high spatial density of NOx emissions as indicated in Table II-2. Thus,
considering the distribution of emissions, a broad range of emissions from
many States contribute to the regional background ozone during episodic
meteorological conditions. In this situation, there is a cumulative effect
in that the thousands of stationary sources and millions of motor vehicles
throughout the OTAG region collectively cause downwind contributions as
they generate emissions and those emissions interact over multiple days.

1. OTAG Modeling Process

As described in the OTAG Modeling Protocol(9), state-of-the-science models
and data bases were used in OTAG for simulating the physical and chemical
processes involved in the formation and transport of ozone and precursor
species over multiday episodes and regional scales. As such, the OTAG
modeling system provides the most complete, scientifically-credible tools
and data available for the assessment of interstate transport. All of the
OTAG model runs were made for an area covering a large portion of the
Eastern United States, as shown in Figure II-1. This area includes all or
portions of 37 States, the District of Columbia and southern Canada. In
general, the OTAG "modeling domain" (i.e., OTAG region) was set large
enough to encompass the widespread spatial extent of high ozone levels
measured during multiday episodes in the eastern half of the United States.
As such, the domain is designed to handle the synoptic (i.e., large) scale
meteorological conditions associated with regional transport and to include
the major emissions source areas in the East. The horizontal grid
configuration used by OTAG (see Figure II-1) includes a "Fine Grid" at 12
km resolution "nested" within a "Coarse Grid" at 36 km resolution. The size
and location of the "Fine Grid" was determined based on the location of
areas with high ozone concentrations, the geographic variations in
emissions density, the meaningful resolution of some model inputs, computer
hardware limitations, and model run times. As described in section B.3,
OTAG Geographic Modeling, OTAG applied different levels of controls in the
"Fine Grid" versus the "Coarse Grid" as part of the round-3 modeling.

Four specific episodes were selected by OTAG for model simulations in order
to provide information on a range of meteorological conditions which occur
during periods of elevated ozone levels. These episodes are: July 1-11,
1988; July 13-21, 1991; July 20-30, 1993 and July 7-18, 1995. Each of these
episodes represents somewhat different episodic characteristics in terms of
transport patterns and the spatial extent of high ozone concentrations in
the East(10). The 1988 and 1995 episodes featured high ozone concentrations
in the Northeast, Midwest, and Southeast with wind regimes that provided
the meteorological potential for intra- and inter-regional transport.
During the 1991 episode, high ozone was confined mainly to the northern
portion of the OTAG domain, whereas the 1993 episode was a "Southeast"
episode with relatively low ozone levels outside this region. It should be
noted that none of the OTAG episodes include extensive periods of high
ozone in the far western portions of the domain nor in areas along the gulf
coast.

As part of OTAG, an objective evaluation of model predictions was conducted
for each of these four episodes in order to determine the performance of
the modeling system for representing regional ozone concentration levels.
This evaluation focused on a number of statistical metrics comparing
predicted ozone to ground-level ozone measurements(11). The results
indicate generally good agreement between simulated and observed values.
Most importantly, areas of predicted high ozone correspond to areas of
observed high ozone. However, a few relatively minor concerns were found,
such as:

   * a tendency to underestimate concentrations in the North and
     overestimate concentrations in the South;
   * concentrations at night are somewhat underestimated relative to
     daytime predictions;
   * low observed concentrations tend to be overestimated and higher
     observed values tend to be underestimated; and
   * concentrations at the start of the episode tend to be underestimated
     with a tendency for concentrations at the end of the episode to be
     overestimated.

The success of the model for predicting pollutant concentrations aloft is
also important from a transport perspective. During the day, when the
atmosphere is "well mixed," ground-level ozone values can serve as a good
measure of both local formation and transport. However, at night, ozone is
depleted in a very shallow layer near the ground due to deposition and
nighttime chemical reactions. Thus, during the overnight and early morning,
ground-level measurements and predictions do not adequately reflect
pollutant transport. Aircraft-measured pollutant data and model predictions
during these periods indicate moderate to high levels of ozone aloft which
can then mix down during the day and further elevate ground-level
concentrations. A limited amount of measured data aloft are available from
non-OTAG field studies for several of the days in the 1991 and 1995
episodes. An initial comparison of these data to the model predictions (6)
indicates that model performance aloft is not as good as for ground-level
ozone. In general, the model tends to underestimate ozone aloft. This
suggests that the model may somewhat underestimate the amount of ozone
transport aloft, especially overnight into the early morning hours. Thus,
the contribution of upwind source regions to ozone levels in downwind areas
may actually be greater than estimated by the model.

2. OTAG Strategy Modeling

The OTAG strategy modeling was conducted in several phases. In each phase,
the effects on ozone(12) of various changes in emissions were examined
relative to a future-year baseline. This baseline reflects the projection
of emissions from 1990 to 2007. Included in the 2007 baseline are the net
effects of growth and specific control programs prescribed in the 1990
Amendments. The control measures included in the 2007 baseline are listed
in Table II-3. Overall, domainwide emissions of NOx in the 2007 baseline
are approximately 12 percent lower than 1990 while emissions of VOC are
approximately 20 percent lower. The procedures for developing the 1990 base
inventory and the 2007 baseline are described by Pechan(13). The key
findings (6) from comparing the model predictions for the 2007 baseline to
the 1990 base case scenario are:

   * ozone levels are generally reduced across most of the region,
     including nonattainment areas;
   * some increases in ozone are predicted in areas where higher economic
     growth is expected to occur, especially in the South;
   * ozone levels aloft along regional "boundaries" are reduced, but
     average concentrations above 100 ppb and peak concentrations above 120
     ppb are still predicted on several days; and
   * ozone concentrations above the 1-hr and/or 8-hr NAAQS may still occur
     in the future under similar meteorological conditions in many of the
     counties currently violating either or both of these NAAQS.

The 2007 baseline emissions were reduced in an initial set of sensitivity
modeling performed to assess several broad strategy-relevant issues. All of
these model runs involved "across-the-board" emissions reductions (i.e., no
source category-specific reductions). The results (6) of these simulations
are as follows:

   * regional reductions in NOx emissions decrease ozone across broad
     portions of the region including ozone in areas violating the NAAQS;
   * regional reductions in VOC emissions decrease ozone in and near the
     core portions of urban areas with relatively small regional benefits;
   * both elevated and low-level NOx reductions decrease ozone
     concentrations;
   * NOx reductions can produce localized, transient increases in ozone
     (mostly due to low-level, urban NOx reductions) in some areas on some
     days; most increases occur on days and in areas where ozone is low
     (i.e., below the NAAQS);
   * NOx plus VOC reductions lessen ozone increases in urban areas, but
     provide little additional regional benefits compared to NOx-only
     reductions; and
   * the magnitude and spatial extent of changes in 8-hour ozone
     concentrations are consistent with the changes predicted in 1-hour
     concentrations.

Based upon the findings of the sensitivity runs, OTAG subsequently
developed and simulated source-specific regionwide control strategies in
two rounds of modeling. These strategies were derived from a range of
control measures applied to individual source categories of VOC and NOx
(8). The controls were grouped into various levels of relative "stringency"
as listed in Tables II-4a and II-4b. The round-1 and round-2 modeling
consisted of strategies that contained various combinations of controls
from the least (level "0") to most stringent (level "3") for each source
category. The control levels and domainwide emissions associated with these
strategies are given in Tables II-5a and II-5b.

The round-1 modeling was a "bounding analysis" with runs that ranged from
the lowest level of control on all source categories (Run 1) to the highest
level of control on all sources (Run 2). Runs 3 and 4b were included to
isolate the effects of the most stringent OTAG controls on utilities only,
versus this level of control on the other source categories. In the round-2
modeling, eight runs were simulated to examine the relative benefits of
progressively increasing the level of control on utilities, under two
alternative levels of control applied to area, nonroad and mobile sources.
The results (6) of the round-1 and round-2 modeling are given in Table
II-6.

The findings from the round-1 and round-2 OTAG strategy modeling which are
particularly relevant to this analysis are:

   * Clean Air Act programs will likely provide a reduction in ozone
     concentrations in many nonattainment areas; however, some areas
     currently in nonattainment will likely remain nonattainment in the
     future and new 8-hr nonattainment and/or maintenance problem areas may
     develop as a result of economic growth in some areas;
   * NOx reductions from elevated and low-level sources are both beneficial
     when considered on a regional basis; and
   * further mitigation of the ozone problem will require regional
     NOx-oriented control strategies in addition to local VOC and/or NOx
     controls necessary for attainment in individual areas.

3. OTAG Geographic Modeling

In the round-1 and round-2 strategy modeling, controls were applied across
the entire domain. In round-3, controls were applied on a geographic basis
in order to assess the relative effects of different strategies in various
portions of the region. Prior to developing these strategies, a series of
sensitivity tests was conducted by OTAG to provide information on the
spatial scales of transport in order to help determine where to apply
various levels of control. The most relevant tests are the "subregional"
modeling and the "rollout" modeling. The base case for these tests was the
2007 baseline scenario. In the subregional modeling, the domain was divided
into the 12 subregions shown in Figure II-2. For one set of subregional
modeling, all anthropogenic emissions were eliminated from each subregion,
individually in separate model runs. These runs, called the "zero-out"
subregional scenarios, were performed for the 1988 and 1995 episodes. In a
second set of subregional modeling, emissions were reduced, but not
eliminated in each subregion. The level of reductions were 60 percent for
elevated point-source NOx emissions, 30 percent from all other sources of
NOx, and 30 percent from all sources of VOC. These runs are referred to as
the "5c" subregional scenarios. The "5c" scenarios were run for most, but
not all, subregions for the 1988, 1991 and 1995 episodes. In addition to
looking at individual subregions, there were runs for 1988 and 1991 which
applied the "5c" reductions in subregions 5, 6, and 9 (Figure II-2)
combined in order to determine the relative impacts of expanding the size
of the area of emissions reductions.

In the rollout modeling, the "5c" emissions reductions were applied first
within selected areas and, then, outward in incremental steps (rollouts) of
approximately 200 km from these areas, in subsequent runs. Three major
nonattainment areas in the region (Atlanta, the Lake Michigan Area, and New
York City) were selected by OTAG for this type of modeling.

The results (6) of the OTAG geographic modeling indicate the following:

   * emissions reductions in a given multistate region/subregion have the
     most effect on ozone in that same region/subregion;
   * emission reductions in a given multistate region/subregion also affect
     ozone in downwind multistate regions/subregions;
   * downwind ozone benefits decrease with distance from the source
     region/subregion (i.e., farther away, less effect);
   * downwind ozone benefits increase as the size of the upwind area being
     controlled increases, indicating that there is a cumulative benefit to
     extending controls over a larger area; and
   * downwind ozone benefits increase as upwind emission reductions
     increase (the larger the upwind reduction, the greater the downwind
     benefits).

The round-3 strategies were based in large part on the results of the
geographical sensitivity runs. The cornerstone of round-3 was a set of
geographic "zones" (see Figure II-3) which was used to vary the level of
control across the OTAG region. For the most part, OTAG focussed the
round-3 controls on zones in the "Fine Grid." This was based upon an
analysis indicating that, in general, the greatest potential for regional
transport leading to inter-state impacts of concern occurs within the "Fine
Grid" portion of the OTAG region. The individual zones were used to
differentiate the impacts of controls in and close to the three major
1-hour nonattainment areas of the "Fine Grid" (i.e., the Northeast
Corridor, Atlanta, and Chicago/Milwaukee) versus controls in zones farther
upwind of these areas. Specifically, in round-3 various levels of utility
and nonutility controls were applied by zone in different runs. The level
of control for each strategy is given in Table II-7. In general (except for
Run F), the round-3 runs progressively increase the level and spatial
extent of utility and nonutility controls starting with the reference run
(Run A) through the most stringent run (Run I). In addition, there were a
number of supplemental round-3 runs (6) performed using a modified version
of the zones. The most relevant of these were Runs CA and CB which altered
the configuration of zones II, III, and IV to correspond more closely to
the borders of the OTR.

The results (6) of the OTAG round-3 runs indicate the following:

   * the greater the emissions reductions the greater the ozone benefits
     (Run I was the most effective strategy and Run A the least);
   * there was no bright-line between the incremental application of
     controls nor any leveling off of benefits with the more stringent
     controls;
   * increasing the spatial extent of emissions reductions increases the
     amount and spatial extent of ozone benefits downwind; areas farther
     upwind may need a higher level of control to have a given effect in a
     particular downwind area;
   * in general, emissions reductions in a given zone have the greatest
     effects within that zone; but there are also impacts on high ozone
     concentrations in other zones downwind;
   * emissions reductions in zones I, III, and V are "effective and
     necessary" (6) to reduce ozone in the Lake Michigan area, the
     Northeast Corridor, and Atlanta, respectively which are the closest
     downwind areas to each of these zones;
   * emissions reductions in more distant zones also help reduce ozone in
     these three major nonattainment areas; emissions reductions in zone II
     benefit the Northeast Corridor and the Lake Michigan area; emissions
     reductions in zone IV benefit Atlanta and the Lake Michigan area;
   * emissions reductions in zones II and IV are also "effective and
     necessary" (6) to reduce ozone in "problem areas" within these zones
     (e.g., Birmingham, Nashville, Charlotte, Richmond, Louisville, and
     Cincinnati);
   * when viewed on a regional basis, it may be "difficult to
     geographically distinguish between control levels" (6) because there
     are ozone problem areas in every zone within the "Fine Grid" and there
     are clearly interzonal impacts;
   * additional emissions reductions in "Coarse Grid" States "are not very
     effective" (6) in reducing high ozone levels downwind in problem areas
     of the "Fine Grid"; and
   * although the OTAG assessments focused on 1-hour concentrations, the
     impacts on 8-hour average concentrations were found to be similar to
     those for 1-hour peak values, suggesting that "a regional strategy
     designed to help meet" the 1-hour NAAQS "will also help meet" the
     8-hour NAAQS (6).

Overall, the findings from the OTAG sensitivity and strategy modeling
indicate that:

   * areas of high ozone, both measured and predicted for the future,
     occur, or will occur, in most portions of the modeling domain;
   * several different scales of transport (i.e., inter-city, intra-state,
     inter-state, and inter-regional) are important to the formation of
     high ozone in many areas of the East;
   * the greatest potential for inter-state and inter-regional impacts
     associated with transport occurs between States within the multistate
     "Fine Grid" area;
   * a regional strategy focussing on NOx reductions across a broad portion
     of the region will help mitigate the ozone problem in many areas of
     the East;
   * there are ozone benefits across the range of controls considered by
     OTAG; the greatest benefits occur with the most emissions reductions;
     there was no "bright line" beyond which the benefits of emissions
     reductions diminish significantly;
   * even with the large ozone reductions that would occur if the most
     stringent controls considered by OTAG were implemented, there may
     still remain high concentrations in some portions of the OTAG region;
   * a regional NOx emissions reduction strategy coupled with local NOx
     and/or VOC reductions may be needed to enable attainment and
     maintenance of the NAAQS in this region.

It should be noted that urban-scale analyses will be necessary in order for
States to develop local attainment plans. These analyses will take into
account more geographically refined emissions and local meteorological
factors, such as lake and sea breezes and/or topography. Urban-scale
modeling is also necessary to more precisely evaluate the degree and extent
of any NOx disbenefit.

4. Other Relevant Analyses

In addition to the OTAG modeling described above, the potential for
regional ozone transport has been examined by the OTAG Air Quality
Assessment Work Group using trajectory analyses, wind vector
characterization, and statistical analyses of ozone measurements. The
trajectory analyses(14) were used to identify a "distance scale" indicative
of the 1- to 2-day transport distance of ozone and precursors. The results
suggest that ozone-laden air may travel distances of 150 miles to 500 miles
or more into and across the Midwest and Northeast. Analyses, as part of the
Southern Oxidants Study(15), indicate that most southern episodes may be
more closely linked to near-stagnation conditions and thus, shorter
transport distances might be expected within the Southeast. Additional
information on regional transport patterns comes from an analysis conducted
by OTAG to characterize the regional wind flow patterns typically
associated with high ozone in the Northeast, Southeast, and Midwest (9).
These wind vectors (Figure II-4) indicate that regional episodes are
typically associated with broad-scale anticyclonic (i.e., clockwise) flow
regimes centered over the Ohio-Tennessee Valley area. Under these
conditions, there are typically lighter winds and weaker transport within
the South compared to other regions. However, the information also
indicates the potential for transport from the South to other portions of
the region. For example, in the Midwest, high ozone is generally associated
with wind flows from States located to the south and southwest. For the
Northeast, the data suggest a strong westerly flow favoring transport from
States farther to the west.

Another method for estimating the potential range of transport was
developed by Rao(16) based on correlating daily ambient ozone measurements
between monitoring sites for the period 1985 through 1994 for several
nonattainment areas (i.e., Atlanta, Washington DC, Cincinnati, Pittsburgh
and Chicago). The analysis indicates the presence of "ozone clouds"
surrounding these areas which are likely the result of pollutant transport,
spatial patterns in emissions, and weather conditions conducive to ozone
formation. The spatial extent of these "ozone clouds" is on the order of
300 miles or more, extending from the central portion of the nonattainment
area along the axis of the major transport direction.

The importance of mitigating transported ozone for solving the
nonattainment problem for many cities in the East has been examined as part
of ongoing urban scale modeling analyses by various State agencies. In
urban scale modeling, transport into the nonattainment area is represented
by specifying pollutant concentrations along the sides and top of the
modeling domain. These "boundary condition" concentrations reflect ozone
transport into the urban area at the surface and aloft. As such, incoming
ozone (as well as precursor chemical species) moves into the urban area and
mixes with local emissions to increase the formation of ozone. The
available urban scale modeling work is summarized in a report commissioned
by OTAG(17). It should be noted that these modeling analyses were conducted
to address 1-hour attainment problems. Still, the information is expected
to be generally applicable to 8-hour ozone concentrations as well. The
findings from this report which are relevant include:

   * New York City--a reduction in transport into the New York area
     associated with upwind emissions reductions on the order of 75 percent
     for NOx and 25 percent for VOC along with local VOC and NOx reductions
     may be needed for attainment in New York;
   * Philadelphia--transport appears to be a major component in peak ozone
     concentrations in the Philadelphia domain, contributing 90 percent to
     the peak in one of the scenarios modeled;
   * Lake Michigan--transported ozone levels coming into the Lake Michigan
     area contribute 40-60 percent to the peak concentration downwind of
     urban centers in this area; background concentrations in the range of
     80-100 ppb may need to be reduced to around 60 ppb for attainment in
     this region;
   * Southeast Michigan--ozone transport into this area "contributed
     significantly to the simulated peak ozone concentrations on many of
     the episode days";
   * St. Louis--predicted ozone concentrations in this area are sensitive
     to incoming levels of ozone/precursor transport;
   * Atlanta--the amount of ozone transported into the area was found to be
     one of the factors contributing to the difficulty for this area to
     demonstrate attainment;
   * Richmond--transported ozone contributes to predicted high ozone on
     certain episode days, and regional controls on upwind sources may be
     necessary to reduce ozone in this area during some of the episode days
     modeled;
   * Charlotte--transported ozone appears to be a "significant component"
     of ozone in the area during some episodes, particularly with winds
     from a northerly direction; and
   * Nashville--transported ozone was predicted to be a major contributor
     to ozone in this area on 1 of the 2 high ozone days modeled.

In addition to the preceding qualitative analyses, there are several
non-OTAG regional modeling analyses which provide information on interstate
contributions due to transport. First, modeling by EPA for the OTC, using
the Regional Oxidant Model (ROM), examined the impact of controls outside
the OTR on ozone within this region(18). The results indicate that a 0.15
lb/MMBtu NOx emissions limit on certain stationary sources outside the OTR,
together with other controls, would likely have the following effects
within the OTR:

   * reductions of up to 15-18 ppb in daily maximum 1-hour ozone in the
     western part of the OTR, and
   * reductions of up to 6-9 ppb along the Northeast Corridor from
     Washington, DC to northern New Jersey.

Second, a new modeling technique, the "Comprehensive Air-quality Model with
extensions" (CAMx), has been developed(19) in an attempt to identify the
contribution of upwind source areas to specific downwind locations. The
Ozone Source Apportionment Technology (OSAT) in CAMx was used by the
Midwest Ozone Group (MOG) to quantify the contributions of emissions from
upwind sources on high ozone concentrations in the Northeast Corridor and
the Lake Michigan area. The CAMx analysis modeled the OTAG July 1991
episode only and considered 1-hour ozone predictions above two cut-points:
100 ppb and 120 ppb. Also, the MOG CAMx report (14) did not examine the
contributions from emissions in individual upwind States, but rather, the
analysis examined the impacts of emissions from concentric geographic
"rings" upwind of the Northeast Corridor and Lake Michigan areas. In
general, the results are consistent with the OTAG geographic sensitivity
modeling in that much of the contribution to ozone in a particular
multistate area comes from sources within that same multistate area,
considerable contributions also come from sources outside the multistate
area, and anthropogenic NOx emissions in upwind areas contribute much more
to transport than upwind VOC emissions. Some of the findings from the CAMx
analysis relative to the contributions to high ozone in the Northeast
Corridor and Lake Michigan area are as follows:

   * on average, nearly 50 percent of the high ozone levels in these two
     areas come from upwind (mostly NOx) sources;
   * on average, for the Northeast Corridor a large portion (90 percent) of
     the contribution from upwind sources comes from States to the west and
     south within approximately 390 km of the Corridor (this may include
     all or portions of States as far upwind as Ohio, North Carolina, and
     West Virginia); nearly all (95 percent) of the contribution comes from
     upwind sources within approximately 570 km of the Corridor (this may
     add portions of Kentucky, Tennessee, and South Carolina as potential
     upwind contributors);
   * on average, for the Lake Michigan area a large portion (90 percent) of
     the contribution from upwind sources comes from States to the west and
     southwest within approximately 650 km of this area (this may include
     all or portions of States as far as Iowa, Minnesota, Missouri, and
     Tennessee); nearly all (95 percent) of the contribution comes from
     upwind sources within approximately 770 km of the Lake Michigan area
     (this adds portions of Arkansas, Kansas, Nebraska, North Dakota, and
     South Dakota); and
   * transport distances for individual high ozone days are even longer, in
     some cases, than the episode averages indicated above.

A third non-OTAG modeling study that is relevant to this assessment was
performed by a group of northwest OTAG States (Iowa, Minnesota, Nebraska,
North Dakota, and South Dakota)(20). One part of this study included
modeling similar to the OTAG subregional modeling, except that "zero-out"
and "5c" emissions reductions were applied in various combinations in these
States only, using the OTAG July 1995 episode. In these runs, emissions in
all other States in the OTAG region were simulated with the 2007 baseline
emissions. The modeling results were analyzed in terms of the contributions
of emissions in these five States to daily maximum 1-hour ozone above 100
ppb in downwind areas. The results indicate the following:

   * emissions in Minnesota, Nebraska, North Dakota, South Dakota, and the
     "Coarse Grid" portion of Iowa (see Figure II-1) collectively
     contribute less than 2 ppb to downwind ozone above 100 ppb; and
   * emissions from these States including the "Fine Grid" portion of Iowa,
     contribute in the range of 2 to 6 ppb to ozone above 100 ppb in grid
     cells downwind near Lake Michigan, Detroit, and Cincinnati.

Collectively, the studies cited here indicate that:

   * the meteorological conditions and air trajectories during
     regional-scale, high ozone episodes provide the potential for
     multistate ozone transport;
   * ambient measurements indicate that ozone episodes can have a large
     multistate spatial extent within which 1- to 2-day transport may
     occur;
   * examination of emissions data indicates that numerous sources of NOx
     may be contributing to high regional background ozone concentrations;
   * State urban-scale modeling analyses for areas in various portions of
     the OTAG region indicate that transport from upwind areas is an
     impediment to attainment of the NAAQS;
   * regional modeling studies indicate contributions to high ozone in the
     Northeast Corridor and the Lake Michigan area may come from States as
     far away as 570 km and 770 km, respectively; and
   * non-OTAG multistate modeling indicates that emissions from States in
     the northwest portion of the "Coarse Grid" may not make large
     contributions to high ozone in downwind States elsewhere in the OTAG
     region.

C. Technical Analysis of Significant Contribution

1. Criteria for Determining Significant Contribution

Whether a contribution is "significant" depends on the overall context.
There may be no single amount of contribution which could be considered as
a bright line indicator of "significant" that would be applicable and
appropriate in all circumstances. As described above, under one
interpretation of the CAA's section 110(a)(2)(D), factors to be considered
in determining whether a contribution is significant include:

   * the level of emissions in the area upwind of a nonattainment area;
   * the amount of the contribution (ppb above the level of the standard)
     made to the downwind nonattainment area;
   * the transport distance between the upwind source area and the downwind
     problem area; and
   * the geographic extent of the contribution downwind.

For example, ozone is generally the result of emissions of NOx and VOC from
hundreds of stationary sources and millions of vehicles, each of which is
likely to be responsible for much less than 1 percent of the overall
inventory of precursor emissions. A source or group of sources should not
be exempted from treatment as a significant contributor merely because it
may be a small part, in terms of total emissions, of the overall problem
when all or most other contributors, individually, are also relatively
small parts of the overall problem. This situation, in which a number of
individual (and sometimes small) sources collectively cause a significant
impact, is a major aspect of the contribution issue. The moderate-to-high
ozone levels which cover broad regions are the result of emissions from
millions of individual sources interacting over multiple days. The
contribution to downwind nonattainment results from the cumulative
contribution from all sources involved in this process. Given these issues,
it is not appropriate to define a bright line test for "significant
contribution." Rather, EPA is using a "weight of evidence" approach, based
on a range of information, for determining whether a State makes a
significant contribution to downwind nonattainment. The EPA is also
proposing a second, alternative interpretation to section 110(a)(2)(D),
under which the weight of evidence approach incorporates other factors,
including the relative costs of controlling downwind emissions, as
described in section I.D.2.b., Significant Contribution to Nonattainment.

2. Overview of Technical Approach

The findings from the relevant background studies and the OTAG modeling
results provide a basis for concluding that ozone transport results in
interstate contributions to high ozone levels during multiday episodic
conditions within portions of the OTAG region. An overview of the approach
for analyzing this information in an assessment of States that make a
significant contribution to downwind nonattainment is as follows:

   * the air quality and modeling analyses cited in section B.4, Other
     Relevant Analyses, were considered in a qualitative manner to
     identify, from a regional perspective, States which may contribute to
     multistate transport;
   * the results of the OTAG subregional modeling runs were used to
     quantify the extent that each subregion contributes to downwind
     nonattainment for the 1-hour and/or 8-hour NAAQS; and
   * State NOx emissions data were used to translate the findings from the
     subregional modeling to a State-by-State basis.

The specific model runs used in this analysis include the "zero-out" runs
in which all anthropogenic emissions from individual subregions (comprised
of portions of small groups of States) are removed, and the contributions
to downwind ozone are predicted. This set of model runs was chosen since it
provides an appropriate way to quantify the contribution of the full set of
anthropogenic emissions in one area to ozone concentrations in another. As
described in section B.2, OTAG Strategy Modeling, zero-out runs were made
for the 1988 and 1995 episodes only. The results for both episodes were
combined in this assessment. Also, the analysis of emissions data focussed
on NOx since the OTAG and non-OTAG modeling results indicate that NOx
emissions reductions lower ozone transport across broad portions of the
OTAG region, whereas, VOC emissions reductions have primarily local
benefits.

The air quality, modeling, and emissions information was used collectively
to determine, based on the weight of evidence, which States make a
significant contribution to downwind nonattainment.

3. Identification of Ozone "Problem Areas"

As described above, in order to quantify the contribution from upwind
States to nonattainment downwind, EPA identified areas which currently have
a 1-hour and/or 8-hour ozone nonattainment problem and are expected to
continue to have a nonattainment problem in the future, based on modeling.
In addition, EPA considered areas which may have a future maintenance
problem for the 8-hour NAAQS. For current nonattainment areas, EPA used air
quality data for the period 1993 through 1995 to determine which counties
are violating the 1-hour and/or 8-hour NAAQS. These are the most recent 3
years of fully quality-assured data which were available in time for this
assessment. A list of these counties is provided in Tables II-8a and II-8b.
The EPA is reviewing more recent air quality data for 1996 and 1997. In the
event that these data alter the results of this assessment in any
meaningful way, EPA will make the appropriate adjustments to the findings.
Concerning projected future nonattainment areas, EPA used the OTAG model
predictions for the 2007 baseline, as described in section II.C.5,
Approaches for Analyzing Subregional Modeling Data. For ease of
communication, the technical discussions frequently use the term
"nonattainment" to refer to these areas. It should be noted that this use
of the term "nonattainment" in reference to a specific area is not meant as
an official designation or determination as to the attainment status of the
area.

4. Analysis of Air Quality, Trajectory, and Non-OTAG Modeling Information

The EPA examined the findings from the air quality, trajectory, and
non-OTAG modeling analyses in section B.4. to identify certain States which
may potentially contribute to nonattainment in downwind areas. First, EPA
applied both the lower and upper ends of the OTAG transport distance scale
(i.e., 150 miles and 500 miles (9)) to 1-hour nonattainment areas in the
northern half of the OTAG region. Using the lower end of the transport
scale indicates that the following States and Washington DC may potentially
contribute to ozone in downwind nonattainment areas: Connecticut, Delaware,
Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island,
Tennessee, Virginia, West Virginia, Wisconsin and Vermont. Using the upper
limit of transport distance indicates that the following additional States
may potentially contribute to downwind nonattainment areas: Alabama,
Arkansas, Georgia, Iowa, Kansas, Minnesota, Mississippi, Missouri,
Nebraska, North Carolina, Oklahoma and South Carolina. Also, examining the
findings from the non-OTAG regional modeling results (13,14,15) indicates
that collectively, a large portion of the contributions to high ozone in
the Northeast Corridor and/or the Lake Michigan area may come from States
as far upwind as: Missouri, North Carolina, Ohio, Tennessee and West
Virginia.

5. Approaches for Analyzing Subregional Modeling Data

The subregional modeling runs provide a method to quantify the amount of
contribution by upwind States to downwind nonattainment. Four approaches
were included in the analysis of subregional modeling results. Approaches 1
and 2 were designed to address the contribution to 1-hour nonattainment and
Approaches 3 and 4 the contribution to 8-hour nonattainment. Approaches 1
and 3 examine the contributions in areas which have both monitored and
modeled nonattainment. Approaches 2 and 4 examine the contributions in
areas with modeled nonattainment. The rationale for each approach is
described below.

a. Approaches for 1-Hour Nonattainment. Approach 1 was designed to focus on
contributions to areas that have an observed 1-hour ozone problem and in
which the model predicts an ozone problem. In this regard, the analysis was
restricted to those grid cells in the domain that had 1-hour daily maximum
ozone predictions > 125 ppb(21) in the 2007 baseline, and were within one
of the counties currently violating the 1-hour NAAQS. However, the
requirement that high ozone predictions spatially coincide with violating
counties may be overly restrictive given the uncertainties in the modeled
wind regimes associated with the regional nature of the meteorological
inputs. Also, the analysis was limited to only two episodes, only one of
which, July 1995, actually occurred during the 3-year period used to
identify the violating counties. Another limitation of Approach 1 was that
it excludes all grid cells that are over water and not touching any State
land areas. This may be too restrictive since, in the real atmosphere, sea
breeze and lake breeze wind flows can transport high ozone levels that
occur over water back on-shore to affect coastal land areas. This
meteorological process, often associated with high ozone along the
shoreline of Lake Michigan and along the New England coast, is not
adequately treated by the regional scale meteorological inputs used in
OTAG. Thus, high concentrations predicted just offshore may be
inappropriately excluded from the analysis. Approach 2 was designed to
address these concerns. In this approach, all grid cells over land that had
a 1-hour daily maximum ozone prediction > 125 ppb in the baseline were
included. Also included were grid cells with predictions > 125 ppb over
each of the Great Lakes and in a band 60 km (5 grid cells) wide along the
East Coast.

b. Approaches for 8-hour Nonattainment

The two approaches for assessing contribution for 8-hour nonattainment were
similar in design to those used for 1-hour nonattainment. However, the
inconsistency between the form of the 8-hour NAAQS, which considers 3 years
of data, and the limited predictions available from the OTAG episodes
introduced a complication to the analysis. Basically, it was not possible
to use the model predictions in a way that explicitly matches the 3-year
average of the 4th highest 8-hour form of the NAAQS. Instead, an analysis
was performed to link the model predictions to the NAAQS as closely as
possible. This analysis consisted of comparing the average 4th highest
8-hour concentrations, based on 3 years of ambient data, to the average
1st, 2nd, 3rd, and 4th highest 8-hour values using ambient data limited to
the three most recent OTAG episodes (i.e., 1991, 1993, and 1995). The
results of this analysis indicate that the average of the episodic 2nd
highest 8-hour ozone concentration corresponds best, overall, to the
average of the 4th highest 8-hour NAAQS.

Approach 3 is intended to focus on the contributions to areas that have an
observed 8-hour ozone problem and where the model predicts an 8-hour ozone
problem. The analysis for this approach was restricted to those grid cells
in the domain that had an average (over the 1988 and 1995 episodes) 2nd
high 8-hour ozone prediction > 85 ppb in the 2007 baseline, and were within
one of the counties currently violating the 8-hour NAAQS. The same
technical concerns and limitations discussed above for Approach 1 are also
applicable to Approach 3. To address these concerns for the 8-hour
analysis, Approach 4 was constructed to include all grid cells that had an
average 2nd high 8-hour ozone prediction > 85 ppb over land areas, the
Great Lakes, and in the offshore waters, as in Approach 2 for the 1-hour
NAAQS. In addition, by including all grid cells with predicted
nonattainment in 2007, Approach 4 provides a way to consider areas which
are currently measuring attainment, but which may become nonattainment for
the 8-hour NAAQS in the future.

c. Methods for Presenting 1-Hour and 8-Hour Assessments

All of the approaches for both 1-hour and 8-hour nonattainment quantify the
impacts of emissions in each subregion on ozone concentrations in downwind
States (i.e., States outside the particular subregion). It should be noted
that the calculated contributions represent the impacts from individual
upwind subregions and not the cumulative impacts from multiple subregions,
which would be even greater in magnitude. In Approaches 2 (1-hour) and 4
(8-hour), grid cells off the East Coast were added to the totals of the
adjacent States, whereas the impacts for areas over each of the Great Lakes
were tabulated separately. In all cases, the ozone impacts were quantified
by calculating the difference in predicted ozone between each subregional
zero-out run and the 2007 baseline scenario. The contributions from
emissions in each subregion to nonattainment in downwind States are
summarized for all approaches in Tables II-9a and II-9b. This summary shows
the contributions in terms of both the frequency of impacts and the number
of downwind States impacted for specific concentration ranges, as described
below. More detailed information including the contributions to individual
States is provided in Tables II-10 through II-13, for Approaches 1 thorough
4, respectively. The contributions are grouped into one of six ranges: >2
to 5 ppb, >5 to 10, >10 to 15, >15 to 20, >20 to 25, and > 25 ppb. A value
of 2 ppb was chosen as the minimum level for this analysis following the
convention generally used by OTAG for evaluating the impacts of emissions
changes. As an example, Table II-10 shows the frequency of contributions
from each subregion to nonattainment in downwind States for Approach 1.
Note that the frequency of contributions for the 1-hour NAAQS is determined
by tallying the total "number of days and grid cells" with impacts within
the specified range. However, the frequency of contributions for the 8-hour
NAAQS includes the total "number of grid cells" only. That is, the
averaging procedure used to reflect the form of the 8-hour NAAQS results in
a single "average" value for each grid cell, instead of values for each day
modeled. In the following sections, Approach 1 and Approach 3 are referred
to as the "violating-county" approaches, whereas Approach 2 and Approach 4
are referred to as the "all grid-cell" approaches for the 1-hour and 8-hour
NAAQS, respectively. Also, as mentioned previously, the term
"nonattainment" is used to refer to those areas (grid cells) which meet the
criteria for a given approach. For example, in the analysis of Approach 1,
"nonattainment" refers to those areas which have both measured violations
and model predictions of 1-hour ozone > 125 ppb.

6. Contributions to 1-Hour Nonattainment

The information from the subregional modeling analyses provided in Tables
II-10 and II-11 were examined from both a "receptor" and "source"
perspective. The results for the "county-violation" approach (Approach 1 -
Table II-10) and the "all grid-cell" approach (Approach 2 - Table II-11)
are both considered. Examining the data in Table II-10 indicates that many
nonattainment areas are affected by multiple source areas. Considering the
impacts on violating counties indicates, for example, that:

   * nonattainment areas in Pennsylvania receive contributions of more than
     2 ppb from Midwest and Southeast States located in five subregions (2,
     5, 6, 7, and 8) with contributions over 25 ppb from States in
     subregions 6 and 7;
   * nonattainment areas in New Jersey receive contributions of more than 2
     ppb from Midwest States as well as adjacent States in six subregions
     (1, 2, 3, 5, 6, and 7) with contributions over 25 ppb from subregions
     3 and 7;
   * nonattainment areas in Maryland receive contributions of more than 2
     ppb from Midwest States and adjacent States in six subregions (1, 2,
     3, 4, 5, and 6) with contributions in the range of 15 to 20 ppb from
     subregions 3 and 6;
   * nonattainment areas in Illinois receive contributions of 5 to 10 ppb
     from Southeast States in subregion 9; and
   * nonattainment areas in Georgia and Alabama receive contributions of 15
     to 20 ppb from Midwest States in subregion 5 as well as from adjacent
     Southeast States in subregion 8.

Considering the "all grid cell" approach increases the frequency and
magnitude of impacts, as would be expected. For example, the contributions
from States in subregion 2 to nonattainment in Pennsylvania increase to the
range of 10 to 15 ppb; contributions from Southeast States in subregion 9
in the range of 2 to 5 ppb are evident in nonattainment in Maryland; and
Midwest States in subregions 1 and 5 contribute 5 to 10 ppb to
nonattainment in Ohio.

As indicted above, the subregional modeling results were also examined in
terms of the impact of each subregion on ozone in downwind States outside
the particular subregion. The following results highlight the contributions
of each subregion to downwind nonattainment (see Tables II-10 and II-11).
Results are presented for the "violating county" approach (Approach 1) and
supplemented with results from the "all grid-cell" approach (Approach 2) to
the extent that this later approach adds key information to the findings.

Subregion 1 (portions of Illinois, Wisconsin, Indiana, and Iowa): emissions
in this subregion contribute 2 to 5 ppb on numerous occasions to
nonattainment in violating counties in four States along the Northeast
Corridor having serious or severe nonattainment (i.e., Connecticut,
Maryland, New Jersey, and New York); downwind contributions as high as 5 to
10 ppb are evident near Detroit over Lake St. Clair, as well as over Lakes
Erie and Ontario based on the "all grid-cell" approach.

   * Subregion 2 (portions of Michigan, Indiana, and Ohio): emissions in
     this subregion contribute 5 to 10 ppb to nonattainment in violating
     counties in five downwind States; contributions over 10 ppb are
     evident in seven downwind States from the "all grid-cell approach."
   * Subregion 3 (portions of Pennsylvania, New York and Delaware):
     emissions in this subregion contribute over 2 ppb to violating
     counties in nine downwind States with contributions of 15 ppb or more
     in three States.
   * Subregion 4 (New Jersey, Connecticut and portions of New York,
     Pennsylvania and Delaware): emissions from this subregion contribute
     more than 25 ppb on numerous occasions to three downwind States along
     the Northeast Corridor.
   * Subregion 5 (portions of Illinois, Indiana, Kentucky, Missouri, and
     Tennessee): emissions from this subregion contribute 2 to 5 ppb to
     violating counties in three downwind States along the Northeast
     Corridor with contributions of over 10 ppb in three other downwind
     States in the region; considering the "all grid-cell" approach shows
     contributions of over 20 ppb to the south in Alabama and 5 to 10 ppb
     over Lakes Erie and St. Clair.
   * Subregion 6 (portions of Ohio, Indiana, Kentucky, Tennessee, West
     Virginia and Virginia): emissions in this subregion contribute over 5
     ppb to violations in eight States (and as far downwind as
     Massachusetts with the "all grid-cell" approach); contributions over
     15 ppb are predicted in two of the eight States.
   * Subregion 7 (Maryland, Washington, DC, and portions of Delaware, North
     Carolina, Virginia and West Virginia): emissions in this subregion
     contribute more than 15 ppb to violating counties in downwind States
     along the Northeast Corridor with over 25 ppb contribution on numerous
     occasions to two of these States; the "all grid-cell" approach
     indicates contributions from this subregion to South Carolina as well
     as to Kentucky and Ohio.
   * Subregion 8 (portions of North Carolina, South Carolina and Georgia):
     emissions in this subregion contribute 2 to 5 ppb to violating
     counties in four States including several which are relatively far
     downwind (i.e., Missouri and Illinois) with contributions over 15 ppb
     to one other State; considering the "all grid-cell" approach indicates
     contributions of over 10 ppb to two States along the Northeast
     Corridor.
   * Subregion 9 (portions of Tennessee, Georgia, Alabama, Mississippi,
     North and South Carolina and Arkansas): emissions in this subregion
     contribute over 2 ppb to violating counties in four downwind States
     with contributions over 10 ppb in Indiana; contributions over 10 ppb
     are evident in three downwind States and far away as Lakes Michigan
     from the "all grid-cell" approach.
   * Subregion 10 (Florida and portions of Mississippi, Alabama, Georgia
     and Louisiana): emissions in this subregion do not contribute above 2
     ppb to violating counties in any other States; considering the "all
     grid-cell" approach indicates one occurrence of a contribution in the
     range of 2-5 ppb.
   * Subregion 11 (portions of Texas, Louisiana, Arkansas and Oklahoma):
     emissions in this subregion contribute 2 to 5 ppb to violating
     counties in two downwind States.
   * Subregion 12 (portions of Missouri, Iowa, Wisconsin, Minnesota, North
     Dakota, South Dakota, Nebraska, Kansas and Oklahoma): emissions in
     this subregion contribute 2 to 5 ppb in violating counties in two
     downwind States with 5 to 10 ppb contributions also evident in one of
     these States (i.e., Michigan, including Lake Michigan).

     The results presented in Tables II-10 and II-11, and discussed above,
     indicate that in general, large contributions to downwind
     nonattainment occur on numerous occasions even though the analysis was
     limited to only two episodes. Although the level of contribution
     varies from subregion to subregion, a consistent pattern is apparent.
     In view of the relatively high magnitude of the contributions, and/or
     the relatively high frequency of the contributions, and/or the
     distance downwind to which the contributions occur, and/or the
     geographic extent of the downwind contributions, EPA believes that
     emissions from subregions 1 through 9 make a marked contribution to
     1-hour nonattainment in numerous downwind States. Contributions to
     downwind nonattainment were also evident from subregions 10, 11, and
     12, although to a lesser magnitude and extent.

     7. Contributions to 8-Hour Nonattainment

     In general, the downwind contributions to 8-hour nonattainment are
     more geographically extensive than those for 1-hour nonattainment.
     This is not unexpected because there are many more violating counties
     for the 8-hour NAAQS and, likewise, the model predicts "nonattainment"
     over a much broader portion of the region. The following examples
     illustrate the extent and magnitude of contributions to violating
     counties (Approach 3 - Table II-12) that are beyond what was found for
     the 1-hour assessment:
   * contributions to nonattainment areas in Pennsylvania from States in
     subregion 2 are over 25 ppb rather than 2 to 5 ppb;
   * in addition to the contributions from States in subregions 1, 2, 3, 5,
     6, and 7 (ranging up to 15 to 20 ppb from subregion 3), nonattainment
     areas in New Jersey also receive a 2 to 5 ppb impact from southeastern
     States in subregion 8;
   * nonattainment areas in Illinois receive contributions of 5 to 10 ppb
     from States to the east in subregion 6 and south in subregion 9;
   * nonattainment areas in Ohio receive contributions of 5 to 10 ppb from
     States in five subregions in the Midwest, Northeast, and Southeast (1,
     3, 5, 7, 8, 9) with contributions over 10 ppb from States in subregion
     5;
   * nonattainment areas in North Carolina receive contributions of 5 to 10
     ppb from two subregions (7 and 9) with contributions of over 25 ppb
     from Midwest States in subregion 6; and
   * nonattainment areas in Tennessee receive contributions of 10 to 15 ppb
     from three subregions (5, 6, and 8) with 15 to 20 ppb contributed by
     Midwest States in subregion 6.

Highlights of the 8-hour contributions from a "source" perspective are
given below based on the information in Tables II-12 and II-13. The
following discussion is structured similar to that for the 1-hour
nonattainment analysis in that results are presented for the "violating
county" approach and supplemented with results from the "all grid-cell"
approach.

Subregion 1 (portions of Illinois, Wisconsin, Indiana, and Iowa): emissions
in this subregion contribute over 25 ppb to nonattainment in Michigan with
contributions of 5 to 10 ppb in Ohio as well as contributions of 2 to 5 ppb
to six other States.

Subregion 2 (portions of Michigan, Indiana, and Ohio): emissions in this
subregion contribute 2 to 5 ppb to 16 States as far downwind as New
Hampshire and Maine with contributions of 5 to 10 ppb or more in five
States.

Subregion 3 (portions of Pennsylvania, New York and Delaware): emissions in
this subregion contribute 10 to 15 ppb to three States along the Northeast
Corridor with contributions of 5 to 10 ppb in Massachusetts and New
Hampshire.

Subregion 4 (New Jersey, Connecticut and portions of New York, Pennsylvania
and Delaware): emissions from this subregion contribute over 25 ppb to
Rhode Island and Massachusetts with contributions of 15 to 20 ppb in Maine.

Subregion 5 (portions of Illinois, Indiana, Kentucky, Missouri, and
Tennessee): emissions from this subregion contribute 2 ppb or more to 13
States with contributions of 10 to 15 ppb in two States.

Subregion 6 (portions of Ohio, Indiana, Kentucky, Tennessee, West Virginia
and Virginia): emissions in this subregion contribute 5 to 10 ppb or more
to 10 States with contributions of 15 ppb or more in two States.

Subregion 7 (Maryland, Washington, DC, and portions of Delaware, North
Carolina, Virginia and West Virginia): emissions in this subregion
contribute 10 to 15 ppb or more to four States with contributions of 5 to
10 ppb as far downwind as Rhode Island and Massachusetts and 2 to 5 ppb in
Maine.

Subregion 8 (portions of North Carolina, South Carolina and Georgia):
emissions in this subregion contribute 10 to 15 ppb to three States and 15
to 20 ppb to one of these States; multiple contributions of 2 to 5 ppb are
predicted as far downwind as New Jersey.

Subregion 9 (portions of Tennessee, Georgia, Alabama, Mississippi, North
and South Carolina and Arkansas): emissions in this subregion contribute 5
to 10 ppb to six States with contributions of 10 to 15 ppb in two States.

Subregion 10 (Florida and portions of Mississippi, Alabama, Georgia and
Louisiana): emissions in this subregion contribute 2 to 5 ppb in two States
and 5 to 10 ppb in one State.

Subregion 11 (portions of Texas, Louisiana, Arkansas and Oklahoma):
emissions in this subregion contribute 2 to 5 ppb in six States.

Subregion 12 (portions of Missouri, Iowa, Wisconsin, Minnesota, North
Dakota, South Dakota, Nebraska, Kansas and Oklahoma): emissions in this
subregion contribute 2 to 5 ppb in three States; considering the "all
grid-cell" approach indicates multiple contributions of 2 to 5 ppb downwind
over Lake Michigan and Lake Erie.

The results indicate that the contributions to 8-hour nonattainment are
very consistent with those for 1-hour nonattainment. Subregions 1 through 9
have a much greater magnitude, frequency, and geographic extent of
contribution compared to the other subregions. Thus, based on this
assessment, EPA believes that emissions from subregions 1 through 9 make a
marked contribution to downwind nonattainment for the 8-hour NAAQS. In
fact, the extent of contributions from most of these subregions (i.e., 1
through 9) is even larger for 8-hour nonattainment while the contribution
from the other subregions (i.e., 10, 11, and 12) still remains relatively
low by comparison.

8. Assessment of State Contributions

The preceding air quality, trajectory, emissions, and modeling analyses
provide a number of pieces of information for determining, based on the
weight of evidence, which States make a significant contribution to
downwind nonattainment. The assessment of the State contributions is
divided into three parts. States which are wholly or partially contained
within subregions 1-9 are considered first since emissions from these
States make a marked contribution to downwind nonattainment for both the
1-hour and 8-hour NAAQS, based upon the subregional modeling. States which
were not included in any of the OTAG subregions (i.e., some of the New
England States) are considered second. States located in subregions 10, 11
and 12, which did not have a marked contribution to downwind nonattainment
for either the 1-hour or 8-hour NAAQS, are discussed last.

The subregional modeling results indicate that emissions from States in
subregions 1 through 9 produce large downwind contributions in terms of the
magnitude, frequency, and geographic extent of the downwind impacts. In
addition, nonattainment areas within many States in the OTAG region receive
large and/or frequent contributions from emissions in these subregions. The
EPA believes that the following States whose emissions are wholly or
partially contained within one or more of these subregions (i.e., Alabama,
Connecticut, Delaware, Washington DC, Georgia, Illinois, Indiana, Kentucky,
Maryland, Michigan, Missouri, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and
Wisconsin) is making a significant contribution to downwind nonattainment.
In addition to the marked levels of contributions described above, this
finding is based on:

   * OTAG strategy modeling and non-OTAG modeling indicates that NOx
     emissions reductions across these States would produce large
     reductions in 1-hour and 8-hour ozone concentrations across broad
     portions of the region including 1-hour and 8-hour nonattainment
     areas;
   * the air quality, trajectory, and wind vector analyses indicate that
     these States are upwind from nonattainment areas within the 1- to
     2-day distance scale of transport;
   * these States form a contiguous area of manmade emissions covering most
     of the core portion of the OTAG region;
   * 11 of the States that are wholly within these nine subregions (i.e.,
     Illinois, Indiana, Kentucky, New Jersey, North Carolina, Ohio,
     Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia)
     have a relatively high level of NOx emissions from sources in their
     States; these States are ranked in the top 50 percent of all States in
     the region in terms of total NOx emissions and/or have NOx emissions
     exceeding 1000 tons per day, as indicated in Table II-1;
   * States wholly within subregions 1 through 9 with lesser emissions
     (i.e., Connecticut, Delaware, Maryland) and Washington, DC have a
     relatively high density of NOx emissions, as indicated in Table II-2;
   * for the nine States that are only partially contained in one of
     subregions 1 through 9 (i.e., Arkansas, Iowa, Michigan, Mississippi,
     Missouri, Alabama, Georgia, Wisconsin, and New York) the State total
     NOx emissions in Table II-1 as well as each State's contribution to
     NOx emissions in the subregions (see Tables II-14a and II-14b)
     indicate that six of these States (i.e., Michigan, Missouri, Alabama,
     Georgia, Wisconsin, and New York) each have: NOx emissions that are
     generally more than 10 percent of the total NOx emissions in one of
     these subregions, and either NOx emissions in the top 50 percent among
     all States, and/or a majority of the State's NOx emissions are within
     one of these subregions.

For the New England States that were not included in any of the OTAG
zero-out subregions (i.e., Maine, Massachusetts, New Hampshire, Rhode
Island, and Vermont), State emissions data indicate that both Massachusetts
and Rhode Island have a high density of NOx emissions (see Table II-2).
Also, the trajectory and wind vector analyses indicate that these States
are immediately upwind of nonattainment areas in Maine and New Hampshire.
Thus, EPA believes that these two States (i.e., Massachusetts and Rhode
Island) also make a significant contribution to downwind nonattainment for
both the 1-hour and 8-hour NAAQS.

In summary, based on the weight of evidence, EPA believes that the 22
States plus the District of Columbia's consolidated metropolitan
statistical area which make a significant contribution to downwind
nonattainment for both the 1-hour and 8-hour NAAQS are:

Alabama

Connecticut

Delaware

District of Columbia

Georgia

Illinois

Indiana

Kentucky

Maryland

Massachusetts

Michigan

Missouri

New Jersey

New York

North Carolina

Ohio

Pennsylvania

Rhode Island

South Carolina

Tennessee

Virginia

West Virginia

Wisconsin

It should be noted that under EPA's alternative interpretation of section
110(a)(2)(D), these areas would be determined to significantly contribute
to nonattainment problems downwind only after consideration of additional
factors, including the respective costs of controls on emissions in upwind
and downwind areas, to the extent this information is at least
qualitatively available. Those additional factors, discussed in section
II.D. below, leads EPA to propose to conclude that these areas contribute
significantly under this interpretation as well.

For the nine States in the OTAG region which are wholly within subregions
10, 11, and 12 (i.e., Florida, Kansas, Louisiana, Minnesota, Nebraska,
North Dakota, Oklahoma, South Dakota, and Texas), the OTAG and non-OTAG
modeling information indicates that emissions from these States make at
most a relatively small contribution to downwind nonattainment. Also, most
of these States are relatively distant from many of the downwind
nonattainment areas in the OTAG region and have a relatively low amount of
manmade NOx emissions and/or NOx emissions density. Thus, as discussed in
section VI, States Not Covered By This Rulemaking, the weight of evidence
available does not support a finding that these States make a significant
contribution to downwind nonattainment.

D. Comparison of Upwind and Downwind Contributions to Nonattainment and
Costs of Controls

Important parts of EPA's determination of whether, and to what extent, to
require controls on upwind NOx emissions that are linked to regional
transport are comparing the contribution to downwind nonattainment problems
of upwind NOx emissions as opposed to local, downwind NOx or VOC emissions;
as well as comparing the costs of achieving downwind ozone reductions
through upwind emissions reductions, as opposed to through downwind
emissions reductions. Depending on the interpretation for section
110(a)(2)(D), the relative downwind contribution and the respective costs
are either a factor in the determination of what emissions limitations
constitute adequate mitigation of that contribution, or they are a factor
in the significant contribution test.

Under the CAA requirements, downwind nonattainment areas are already
obligated to implement significant controls. The provisions for classified
areas mandate cascading control requirements so that higher classified
areas must implement the same controls as lower classified areas, plus
additional controls. These mandated controls generally are assumed in the
OTAG/EPA modeling for the 2007 base case, as described above. These
mandated controls may be viewed as the first increment of required controls
that will bring the nonattainment areas into attainment. Today's proposal
indicates that the next increment of controls should be the regional
controls, for the reasons described below.

The EPA has developed preliminary data indicating that regional NOx
emissions reductions in the OTAG region are a cost-effective means for
reducing ozone levels in nonattainment areas downwind, compared to the
costs of further reductions in local VOC and NOx emissions in those
nonattainment areas. The EPA developed this information based on data from
the recent regulatory impact analysis (RIA) for the new ozone standard. The
EPA estimated the amount of VOC and/or NOx emissions reductions which would
be needed for areas to attain the new standard as well as the air quality
improvement resulting from a regional NOx strategy. The EPA then compared
the potential cost of achieving attainment through a strictly local
emission reduction approach alone to the cost of a regional NOx strategy.

The preliminary cost comparison was based on a simplified analysis that
illustrates the potential control cost difference between a
regionally-coordinated NOx strategy and a collection of local control
strategies in projected ozone nonattainment areas. The analysis estimates
that the existence of a 22-States and the District of Columbia ("23
jurisdiction") regional NOx strategy has the potential to avoid from $2.9
to $12.8 billion dollars of the total annual cost that would be incurred
under the alternative local control strategy. This "cost avoided" can be
compared to the estimated annual cost of $2.8 billion for the regional NOx
strategy assumed in the RIA to evaluate the relative efficiency of a
regional strategy.

The EPA's analysis is based on two runs of the ROM. The first run, called
the local control strategy (LCS) run, estimates ozone air quality based on
a 2007 emissions projection assuming CAA-mandated controls, but not
including a regional NOx strategy. The second run, called the regional
control strategy (RCS) run, estimates ozone air quality based on a 2007
emissions projection with a regional NOx strategy. This strategy includes a
regionwide emissions cap based on a 0.15 lb/MMBtu NOx limit on utilities
and large industrial boilers, and the National Low Emission Vehicle (NLEV)
program. While not identical to the regional control assumptions in this
rulemaking, the RCS run is similar enough to offer insights for this cost
comparison.

Using the LCS ROM runs, EPA estimated the potential local NOx and/or VOC
emission reductions needed in 17 projected ozone nonattainment areas to
attain the new 8-hour ozone standard. An additional 13 areas are also
projected to be nonattainment under the LCS scenario, but emission
reduction targets were not established for these areas. These additional
areas are not included in this analysis; thus, the estimates presented in
this analysis of the potential local control cost avoided due to the
regional NOx strategy are likely underestimated.

Based on the ROM run for the RCS scenario, EPA estimated the effect of the
regional NOx strategy on future ozone concentrations for the 17 areas.
Seven of these 17 areas are projected to attain the new ozone standard as a
result of controls in the RCS scenario. These 7 areas are given a 2007 RCS
reduction target credit of 100 percent (i.e., further local reductions may
not be needed for attainment). For the 10 remaining nonattainment areas,
the RCS is estimated to be 32 percent effective(22) toward achieving the
air quality attainment target relative to the LCS. This is based on a
comparison of ROM predictions for the LCS and RCS scenarios versus the air
quality target (0.08 ppm/8-hour/4th max ozone standard). Therefore, all
remaining areas are given a 32 percent credit toward their respective VOC
and/or NOx emission reduction targets. For the regional NOx strategy, the
total avoided local VOC reductions are over 513,000 tons, and the total
avoided local NOx reductions are nearly 767,000 tons. This analysis
indicates that the regional NOx emissions reductions provide equivalent air
quality benefits to a large portion of the local VOC and/or NOx emissions
reductions which may be needed to attain in these areas. This finding
weighs in favor of concluding that the regional NOx reductions are
appropriate to mitigate the upwind contribution or, under the second
interpretation of section 110(a)(2)(D), that the relevant upwind areas
significantly contribute to nonattainment problems downwind.

As discussed in the next section, EPA has identified a set of regional NOx
controls in a cost range of $1,650 to $1,700 per ton. These regional upwind
and downwind control costs appear to compare favorably to the potential
control costs associated with the downwind local controls, as indicated in
Table II-15. The avoided cost of local VOC control is assumed to range from
a low-end cost of $2,400 per ton to a high-end cost of $10,000 per ton. The
avoided cost of local NOx control is assumed to range from a low-end cost
of $2,200 per ton to a high-end cost of $10,000 per ton. The low-end costs
are derived from the nationwide average incremental costs of VOC- and
NOx-related control measures selected in the RIA for the new ozone
standard. The high-end cost of $10,000 per ton is assumed based on the
Presidential Directive for the Administrator of EPA regarding
"Implementation of Revised Air Quality Standards for Ozone and Particulate
Matter" issued by President Clinton.

The foregoing analysis suggests, at least directionally, that the regional
NOx reductions that would result from today's proposal may have the same
ambient impact, but at lower cost, than available local VOC and NOx
reductions. Thus, this analysis is another factor supporting EPA's proposed
conclusion that the SIPs for States in this region are required, under
section 110(a)(2)(D), to reduce NOx emissions.

III. Statewide Emissions Budgets

A. General Approach for Calculating Budgets

This section describes the general approach EPA is proposing to use to
develop emission budgets under today's action and the rationale for that
approach. In addition to a description of how control measures were
selected, this section addresses other issues related to calculating
budgets, including: relationship to OTAG recommendations, uniform
application of controls, seasonal versus annual controls, and treatment of
areas with NOx waivers.

1. Overview

In earlier parts of today's action, EPA proposed to determine that NOx
emissions from 23 jurisdictions contribute significantly to nonattainment
problems in downwind areas in the OTAG region. In this and subsequent
parts, EPA proposes to require a NOx budget for each of these jurisdictions
for those emissions that will result in sufficient reductions to adequately
mitigate the contribution. The EPA proposes as the criteria for
establishing the budget the relative cost effectiveness of the emissions
reductions associated with the available controls, combined with reference
to the ambient impact of the emissions reductions. The EPA solicits comment
on alternative approaches for establishing State emissions budgets that
factor in the differential effects of NOx reductions in different
geographic locations on downwind air quality.

Specifically, for the proposed approach, EPA employed the following steps
in determining the budget levels that EPA proposes constitute adequate
mitigation under the first interpretation of significant contribution.
First, EPA compiled a list of available NOx control measures for the
various emissions sectors in the upwind areas. For the control measures on
this list, EPA estimated the average cost effectiveness of those controls.
The average cost effectiveness is defined as the cost of a ton of
reductions from the source category based on full implementation of the
proposed controls, as compared to the pre-existing level of controls.

Second, EPA developed a rationale for determining which of the NOx control
measures should form the basis of the budget. The EPA focused on average
cost effectiveness of the controls. As a point of comparison, EPA
determined the average cost effectiveness of a representative sample of
recent current and planned State and Federal controls. The EPA believes
that the average cost effectiveness for the measures proposed today to form
the basis for the budgets should be comparable to the average cost
effectiveness of those recently undertaken and planned controls.

Third, EPA evaluated control measures to determine whether they should be
assumed in the budget calculation based on this rationale. The EPA proposes
that when controls on utilities in the 23 jurisdictions are extended to the
level proposed today, and when controls on nonutility point sources are
similarly extended, then the average cost effectiveness of the utility
controls and of the nonutility point source controls are both comparable to
the average cost effectiveness of recently undertaken and planned controls.

At the same time, EPA analyzed the average cost effectiveness for NOx
reductions from source categories other than utilities or other point
sources. The EPA is today proposing that additional controls (beyond the
current and planned measures described in section III.B.2.b) from those
categories should not form the basis for any of the budgets because their
costs, for the purpose of reducing only NOx emissions, are significantly
higher than those of the utilities and other point sources and/or
additional feasible controls have either not been identified or are more
appropriate for local, not regional, implementation.

Fourth, EPA determined the state-by-state budgets for NOx emissions based
on the selected controls.

Fifth, EPA determined that these budget levels--or generally comparable
levels--result in an adequate level of ambient reductions downwind. The EPA
did not conduct ambient air quality modeling for the level of emissions
contained in the budgets proposed today. However, OTAG conducted air
quality modeling for a set of controls that, although somewhat different
from the utility and point source controls EPA is today proposing to rely
on, yielded comparable emission levels, on a regionwide basis, to those
proposed today. This modeling indicated a noticeable improvement in ozone
concentrations due to implementation of the required emissions budget. The
Agency intends to include air quality analyses of the proposed NOx
emissions budgets in the SNPR. Although EPA is proposing that States be
required to achieve the emissions budgets specified and has based those
budgets on a particular set of cost-effective controls, States may select
their own mix of controls that meet this budget.

Sixth, EPA determined that, based on current information, requiring upwind
NOx emissions reductions, based on an assessment of their costs and ambient
impact, is more appropriate than requiring downwind VOC emissions
reductions, based on an assessment of their costs and ambient impacts. The
EPA's current information is limited for this aspect of today's rulemaking,
but generally consists of the analyses performed for the RIA for the
revised ozone and particulate matter NAAQS.

The alternative interpretation for section 110(a)(2)(D) of the CAA, which
EPA is also proposing today, should also be noted. Under this
interpretation, the various factors included in the weight of evidence
approach discussed above concerning the upwind emissions and ambient
contributions, therefore, would be part of the determination as to whether
the emissions contribute significantly to nonattainment problems (or
interfere with maintenance downwind). The EPA would then undertake the same
cost analysis as described above as an additional factor in the weight of
evidence test. If EPA concluded that the regional NOx emissions controls
are appropriately cost effective, EPA would conclude, on the basis of all
the factors, that the emissions subject to those controls are considered to
contribute significantly to nonattainment. Under this interpretation of
section 110(a)(2)(D), the State budget levels, which are based on the
cost-effective control measures, are necessary to prohibit the amount of
the State's emissions determined to contribute significantly to
nonattainment.

2. Relationship of Proposed Budget Approach to the OTAG Recommendations

In selecting those control measures determined to be the most reasonable
and cost effective for the purpose of achieving regional NOx reductions,
EPA carefully considered the recommendations made by OTAG on July 8, 1997
(Appendix B). The OTAG process is described in section I.F, OTAG Process,
of this rulemaking. The control measures assumed in the proposed budget
calculations described below generally fall within the range of OTAG's
recommendations.

The OTAG recommendations call for implementation of several Federal
measures to achieve NOx emissions decreases through a NLEV program,
inspection and maintenance (I/M) programs (where required by the CAA), and
reformulated gasoline (RFG) in mandated and current opt-in areas. Emissions
reductions following these recommendations are included in EPA's
calculation of the highway vehicle budget component as part of the 2007
Clean Air Act base.

The OTAG recommendations endorse the development and implementation of
ozone action-day programs. The recommendations also encourage EPA to
evaluate emission benefits of cetane adjustments with respect to diesel
fuel. While EPA supports these recommendations, it should be noted that
they do not translate into specific emissions reductions at this time and,
thus, EPA did not calculate emissions reductions from these programs as
part of the proposed budget calculation.

The OTAG recommendations also cover electric utilities and other large- and
medium-sized point sources. Specifically, OTAG recommended controls
discussed below in all of the "fine grid" areas. The OTAG recommended that
emissions from sources in the portion of States that are in the "coarse
grid" be exempted from the budget calculation. The EPA is proposing to
include entire States rather than exempting portions based on the division
between coarse and fine grid. This affects New York, Michigan, Wisconsin,
Missouri, Alabama and Georgia. The EPA proposes to take this approach
because the division between fine and coarse grid areas was based, in part,
on technical modeling limitations; because the additional emissions
decreases will help the downwind nonattainment areas; and because a
statewide budget creates fewer administrative difficulties than a
partial-state budget. The OTAG fine grid States are the same as the 23
jurisdictions proposed in this rulemaking as having a significant
contribution, with the exception of the States of Maine, New Hampshire and
Vermont. The portion of these three States in the OTAG fine grid are
included in the OTAG recommendation for additional controls, but are not
included in today's proposal for the reasons described in section II,
Weight of Evidence Determination of Significant Contribution, of this
rulemaking. The EPA is soliciting comments on this approach; specifically,
whether partial States should be included, which States or parts of States
should be excluded, the appropriate rationale for excluding States or parts
of States, and how to address administrative difficulties associated with
excluding parts of a State.

For electric utilities, OTAG recommended that the range of utility NOx
controls in the fine grid fall between CAA controls (about a 30 percent
reduction from 1990 levels) and the less stringent of 85 percent reduction
from the 1990 rate or 0.15 lb/MMBtu. As discussed below, EPA's proposed
utility budget component calculation is based on the 0.15 lb/MMBtu emission
rate without the 85 percent reduction option. Thus, EPA's proposed utility
budget component calculation is similar to the upper bound recommended by
OTAG, but with a slightly lower overall emission rate (since it excludes
the 85 percent reduction criterion) and slightly different total area
(since whole States--not just the fine grid portion--but fewer States are
included). The alternatives considered and explanation of the methodology
proposed to make these calculations are more fully discussed below and in
the technical support document (TSD) which is included in the Docket to
this rulemaking.

For nonutility point sources, OTAG recommended that the stringency of
controls for large sources be established in a manner equitable with
utility controls. The OTAG recommendation includes a definition of large
sources (e.g., industrial boilers with a heat input greater than 250 MMBtu)
and recommends control levels ranging from 55-70 percent reduction. The
OTAG Policy Group further recommended that RACT should be considered for
individual medium-sized nonutility point sources (e.g., industrial boilers
with a heat input between 100 and 250 MMBtu). The EPA-proposed nonutility
budget component calculations generally follow the OTAG recommendations.
Missing data in the OTAG emissions inventories, however, preclude EPA from
precisely following the recommended definitions of large- and medium-sized
sources. The alternatives considered and explanation of the methodology
proposed to make these calculations are more fully discussed below.

3. Uniform Application of Control Measures

The EPA is proposing that the budget for each State that has been
determined to contribute significantly to nonattainment in a downwind State
be calculated using the same control measure assumptions. This is true
under either interpretation, described above, of section 110(a)(2)(D). An
alternative approach would be for EPA to attempt to identify for each State
or a group of adjacent States (e.g., Ohio Valley, Great Lakes, Southern, or
Northeastern States) a unique set of control levels on which to base
emissions budgets that, together with other States' emission budgets, would
eliminate significant contribution to downwind nonattainment areas. The EPA
is soliciting comment on methodologies that might be used to implement such
an approach. The decision to propose to calculate budgets based on uniform
control measures is based primarily on cost effectiveness (cost per ton
removed) and also in consideration of the OTAG recommendations, collective
contribution, equity concerns, modeling assumptions and concerns over
emissions shifting. These are discussed further below.

a. OTAG. Although OTAG did note that the range of transport is generally
longer in the North than in the South, the OTAG recommendations did not
specifically indicate whether controls should be applied at differing
levels over the fine grid.

b. Collective Contribution and Equity Considerations. The EPA believes that
certain downwind States receive amounts of transported ozone and ozone
precursors that significantly contribute to their nonattainment. The EPA
further believes that it is the "collective" emissions of "several" upwind
States that result in significant contributions. All States included within
a group of States whose collective emissions significantly contribute to
nonattainment may be assumed to contribute significantly. Because each
State's contribution is viewed with reference to other States'
contributions, EPA believes it is appropriate to require the same type of
remedial action for each State.

The proposed approach results in the calculation of statewide emissions
budgets based on the consistent application of potential controls across
the States determined to contribute significantly. This approach treats the
23 jurisdictions in a like manner for the purpose of calculating the
proposed statewide emissions budgets.

c. Modeling Assumptions and Potential Synergistic Effects. In theory, it
would be possible to derive more precise contributions made by individual
States to collective transport of ozone and precursors to downwind States.
In practice, however, this is a more challenging analysis. First, the
relative impact of individual States, within a collective group of States,
on transport varies as a function of meteorology. For example, the impact
of more distant States may be relatively greater when there is a well
defined windfield. In contrast, effects of nearby States may be most
pronounced under stagnant or semi-stagnant conditions. Modeling may
therefore not sufficiently characterize the relative importance of
emissions in individual States to regional transport, unless many days
reflecting a variety of meteorological conditions are modeled.

Second, the impact of an individual State on downwind transport of ozone
and precursors depends on what is assumed about emissions in other States
in the collective group shown to result in significant transport. This is
exacerbated by the fact that ozone formation and transport is not a linear
function of precursor emissions. Rather, there is likely to be a
synergistic effect which arises from reducing emissions in several
neighboring States. Thus, the predicted relative importance of emissions
from a single State might change substantially if emissions from other
States in the group were reduced. There is a myriad of assumptions which
can be made about emission controls in neighboring States. It is not
feasible to model them all. Thus, a definitive, precise estimate of the
relative importance of a single State's contribution to transport is
unlikely. On the other hand, OTAG has performed modeling showing the air
quality impacts of applying differential levels of controls in different
zones of the OTAG domain (see section II.B.3, OTAG Geographic Modeling). In
section III.A.3.e below, EPA is requesting comment on the possibility of
using this or some other analysis as a means for considering an alternative
approach to developing NOx budgets.

d. Electrical Generation and Emissions Shifting. Among many factors that
EPA considered in weighing whether to propose uniform or variable emissions
limits in calculating States' emission budgets was the concern that
different controls in one part of the OTAG fine grid region in combination
with an interstate emissions trading program may lead to increases in
pollution within areas having more restrictive controls. That is, if
unrestricted interstate emissions trading were allowed, emissions
reductions might be expected to shift away from States assigned more
restrictive controls to States which received less restrictive control
requirements due to the lower control costs likely to exist in States with
less restrictive controls. This may result in emissions above the budget
level in areas with more restrictive controls. Such shifts are an important
concern and may be most significant for large combustion sources because
they emit a large portion of the total regional NOx emissions and dominate
point source emissions.

On the other hand, having the interstate trading program incorporate
control levels that vary from State to State by varying the value of an
emission credit or allowance would complicate administration of the trading
program. Such complexity would increase transaction costs and could
discourage emissions trading which may result in higher regionwide control
costs. Alternatively, the scope of the trading program could be confined to
those States with similar control levels. However, each subregional trading
program would have fewer participants. A trading program that covers a
smaller market area will provide less flexibility and reduce the possible
savings for the affected sources as compared with larger trading programs.

e. Alternative Approaches Based on Non-Uniform Application of Control
Measures. The EPA is proposing to derive State NOx emissions budgets using
uniform control measures. As discussed earlier in this section, EPA
believes it is appropriate to require comparable levels of control of NOx
emissions throughout the 23 jurisdictions covered by today's action. The
EPA selected these proposed levels primarily by considering the cost
effectiveness of control at the source (i.e., the control cost per ton of
NOx reduced for each type of source). Although not all such emissions
reductions are equally effective in reducing ozone concentrations in target
nonattainment areas, EPA believes that other benefits of NOx reductions and
equity considerations are also important and support this type of approach.

In a July 1997 Memorandum to the EPA Administrator, the President directed
the Agency to maximize common sense, flexibility, and cost effectiveness in
implementing the revised ozone and particulate matter standards. Fulfilling
this mandate by developing the least burdensome strategy for achieving air
quality improvements, and ultimately attainment in nonattainment areas,
requires technically complex analysis of regional transport, similar to
that undertaken as part of the OTAG process. As noted elsewhere in this
package, a number of other factors, including distance and meteorology,
influence how effective different tons of emissions reductions are in
reducing ambient ozone concentrations in nonattainment areas.

The EPA recognizes that analytic approaches other than one based on using
uniform control measures might be useful in deriving State NOx emissions
budgets. For example, one approach would be to attempt to quantify more
explicitly the cost effectiveness in terms of the ambient ozone improvement
in nonattainment areas (measured, for example, as cost per population
weighted changes in parts per billion of peak ozone concentrations) taking
into account the location of control measures through regional modeling.
This alternative, if feasible, would clarify the linkage between the budget
calculation and ambient ozone improvement in nonattainment areas and,
depending on its effect on interstate emissions trading, could thereby
lower the overall cost of achieving comparable ambient ozone improvements
in nonattainment areas. Alternative approaches to measuring cost
effectiveness that would more directly link cost effectiveness to
improvements of air quality in nonattainment areas could also be adopted.

The EPA solicits comment on alternative approaches for establishing State
emissions budgets that factor in the differential effects of NOx reductions
in different geographic locations on downwind air quality. Comments
advocating alternative approaches would be most helpful if they set forth
concrete proposals on what analysis should form the basis for budget
calculations. The EPA plans to review alternative approaches and perform
additional air quality and economic analysis in developing the final rule.
If, after review of alternative approaches, EPA concludes that a new basis
for the State emissions budgets is appropriate, EPA would issue a SNPR.

4. Seasonal vs Annual Controls

Today's proposal is for the purpose of helping attain and maintain the
NAAQS for ozone. High ambient concentrations of ozone are associated with
periods of elevated temperature and solar radiation. Thus, in most parts of
the country, high ozone episodes occur only during summer months.
Accordingly, the control of NOx emissions primarily on a summer season
basis may be part of some areas' strategies to attain the ozone standard at
least cost. The OTAG analyses have assumed that the control requirements
flowing from this process would be required only over the ozone season,
which OTAG considered to be May 1 through September 30. For the purpose of
decreasing the regional transport of ozone and ozone precursors, EPA agrees
that control measures that focus over the ozone season may be appropriate
and is proposing seasonal NOx budgets.

Because NOx emissions have adverse impacts on the environment in several
ways (as described in section IX., Nonozone Benefits of NOx Reductions), it
should be noted that the timing of the NOx emissions can be important to
the subsequent environmental impacts. For example, year-round reductions in
NOx emissions are more helpful than seasonal approaches at minimizing the
impacts of acid deposition and eutrophication, although summertime NOx
emissions reductions are most helpful in attaining the ozone standard.
Application of NOx emissions controls that focus emissions reductions in
the summer will, in many cases, also achieve significant emission
reductions on a year-round basis. For example, efforts to decrease
emissions from large boilers will usually include installation of low NOx
burners--which will achieve year-round moderate amounts of emission
reductions--and may include, in addition, some type of summer season
control, such as switching to a cleaner fuel or post-combustion technology.
Therefore, while the purpose of this rulemaking is to address ozone
transport that significantly contributes to downwind nonattainment, which
is primarily a concern during the ozone season, States may wish to consider
the total environmental impacts when adopting measures to achieve the NOx
emissions decreases.

The OTAG modeling used emissions inventory information that represented
typical summer day emissions. In this rulemaking, EPA is proposing seasonal
emission budgets for each of the 23 affected jurisdictions. Thus, in
developing the budget, a conversion is needed to arrive at a seasonal
budget. As in the OTAG process, EPA is proposing to use May 1 through
September 30 as the ozone season. The detailed procedures for converting
the daily emissions into the seasonal budgets are described below for each
source sector. The proposed budgets are in units of tons of anthropogenic
NOx for the season May 1 to September 30. Since States will generally only
be able to affect anthropogenic sources, the proposed budget does not
include biogenic or geogenic sources.

5. Consideration of Areas with CAA Section 182(f) NOx Waivers

The OTAG process included lengthy discussions on the potential increase in
local ozone concentrations in some urban areas that might be associated
with a decrease in local NOx emissions. The OTAG modeling results indicate
that urban NOx emissions decreases produce increases in ozone
concentrations locally, but the magnitude, time, and location of these
increases generally do not cause or contribute to high ozone
concentrations. That is, NOx reductions can produce localized, transient
increases in ozone (mostly due to low-level, urban NOx reductions) in some
areas on some days, but most increases occur on days and in areas where
ozone is low. The OTAG recommended that the States work together and with
EPA toward completing local SIPs, including evaluation of possible local
NOx disbenefits. The EPA agrees that further analysis of this effect is
needed as part of the development of local attainment plans. With respect
to regional ozone transport and today's proposed action, EPA believes it is
not appropriate to give special treatment to areas with NOx waivers as
discussed below.

In calculating the proposed statewide NOx emissions budget, EPA considered
the options of: (1) requiring less reductions from a State that had been
granted a NOx waiver under section 182(f) of the CAA, or (2) ignoring the
NOx waiver for purposes of calculating the transport budget. As described
below, EPA believes it is inappropriate to give special treatment to areas
with NOx waivers when considering measures to reduce the regional transport
of ozone and ozone precursors. Therefore, EPA is proposing to calculate the
statewide emissions budget without special consideration for areas with NOx
waivers. The EPA views the effect of NOx waivers on air quality as
appropriate for further analysis by each State as part of its local
attainment planning process, and EPA will consider such results when
working with each State's attainment plan.

In option (1), the upwind States with NOx waivers would achieve only a
portion of the emissions decreases otherwise required under the statewide
emissions budget. Thus, the downwind nonattainment areas would receive less
improvement in air quality and would need to adopt additional control
measures in their States. To some degree this approach defeats the purpose
of today's action because fewer emissions reductions in the upwind areas
would lead to higher ozone concentrations in the downwind areas.

In option (2), the upwind States may be able to achieve the NOx emissions
decreases needed to meet their budgets in those portions of the State where
NOx emissions decreases are not a problem. On the other hand, the State may
need to implement some NOx emissions decrease in areas where such decreases
may lead to increases in ozone concentrations on some days. Thus,
additional VOC control measures may be needed to offset associated ozone
increases due to NOx emissions decreases in the sensitive areas. This
approach is more consistent with the purpose of today's action and may or
may not result in additional VOC controls being needed.

In proposing option (2), it is helpful to look more closely at why the NOx
waivers were initially granted and the manner in which they were granted.
Most of the NOx waivers granted were not supported by local or regional
scale air quality modeling analyses indicating that NOx emissions decreases
would result in ozone increases. In fact, most of the waivers were granted
based solely on local air quality data indicating the areas were already
attaining the ozone standard. Thus, technical support for option (1) is
substantially incomplete. In addition, relevant modeling analyses completed
by OTAG and others regarding the issue of NOx waiver areas need to be
considered as described below.

The CAA requires EPA to view NOx waivers in a narrow manner. In general,
section 182(f) provides that waivers must be granted if states show that
reducing NOx within a nonattainment area would not contribute to attainment
of the ozone NAAQS within the same nonattainment area. Only the role of
local NOx emissions on local attainment of the ozone standard is considered
in nonattainment areas outside an ozone transport region. The role of NOx
in regional attainment is addressed separately under section 110(a)(2)(D)
of the Act, which prohibits one State from significantly polluting another
State's downwind areas.

In response to State NOx waiver petitions submitted between 1992-1995, EPA
granted NOx waivers under section 182. Most waivers were granted on the
basis that the area had already attained the ozone standard and, thus,
additional NOx (or VOC) reductions "would not contribute to ozone
attainment in the area." In some cases, the waivers were granted based on
dispersion modeling which showed that the area would attain just as
expeditiously based solely on additional VOC reductions or that local NOx
reductions increased local peak ozone concentrations; this also meets the
above test that additional NOx reductions would not contribute to ozone
attainment in the area.

Specifically, the EPA received petitions for a NOx waiver for 51 ozone
nonattainment areas. Of these petitions, EPA has approved waivers for 48
nonattainment areas and 3 are pending. Most of the waivers granted (28 of
48) were simply based on air quality monitoring data over a period of 3 or
more years indicating the area had attained the ozone standard (and, thus,
additional NOx reductions were not needed for attainment). Several States
submitted NOx waiver petitions (7 of 48) accompanied by an attainment plan
showing achievement of the ozone standard by the statutory deadline through
additional VOC controls only. None of these 35 nonattainment areas with
approved NOx waivers have demonstrated or even sought to demonstrate that
NOx reductions might increase ozone concentrations in specific areas. Only
in the cases of the Lake Michigan (9 nonattainment areas), Phoenix AZ,
Baton Rouge LA and the Houston/Beaumont TX areas was information submitted
to show that, in some episodes, NOx emissions decreases lead to increases
in peak ozone concentrations (13 of 48). Thus, the technical support for
option (1) is substantially incomplete. Even for the few areas which had
modeling information, those analyses were generally considered preliminary
analyses that would be replaced with more complete modeling associated with
attainment plans.

In the Federal Register notices approving individual waiver petitions, EPA
gave notice that approval of the local petition, under section 182(f) of
the CAA, is on a contingent or temporary basis because subsequent modeling
or monitoring data for an area may show attainment benefits from NOx
reductions, and stated that additional local and regional NOx emissions
reductions may be needed to reduce the long range transport of ozone. Where
such additional NOx reductions are necessary to reduce the long range
transport of ozone, EPA stated that authority provided under section
110(a)(2)(D) of the CAA would be used and that a section 182(f) NOx waiver
would, in effect, be superseded for those control requirements needed to
meet the section 110(a)(2)(D) action. Further, EPA noted that States may
require additional NOx reductions in these nonattainment areas for nonozone
purposes, such as attainment of the PM-10 standard or achieving acid rain
reduction goals.

The OTAG addressed the complex issue of regional impacts due to transport
of NOx and VOC emissions. The OTAG modeling results indicate that urban NOx
reductions produce widespread decreases in ozone concentrations on high
ozone days. In addition, urban NOx reductions also produce limited
increases in ozone concentrations locally, but the magnitude, time, and
location of these increases generally do not cause or contribute to high
ozone concentrations. Most urban ozone increases modeled in OTAG occur in
areas already below the ozone standard and, thus, in most cases, urban
ozone increases resulting from NOx reductions do not cause exceedance of
the ozone standard. There are a few days in a few urban areas where NOx
reductions are predicted to produce ozone increases in portions of an urban
area with high ozone concentrations.

In other words, modeling analyses conducted as part of the OTAG process
indicated that, in general, NOx reduction disbenefits are inversely related
to ozone concentration. On the low ozone days leading up to an ozone
episode (and sometimes the last day or so), the increases are greatest, and
on the high ozone days, the increases are least (or nonexistent); the ozone
increases occur on days when ozone is low and the ozone decreases occur on
days when ozone is high. This indicates that, in most cases, urban ozone
increases may not contribute to exceedances of the ozone standards.
Overall, OTAG modeling thus suggests that the ozone reduction benefits of
NOx control may outweigh the disbenefits of urban ozone increases in both
magnitude of ozone reduction and geographic scope.

It should be noted that the modeling analyses completed within the OTAG
process necessarily utilized a larger grid size than States are likely to
use in their attainment plans. That is, future analyses by States will
likely use smaller grid sizes. The smaller grid sizes may provide
additional information on effects such as local NOx emissions reacting with
local ozone. The additional information will be important as States develop
their attainment plans.

In summary, the EPA views ozone pollution as a regional problem as well as
a local problem. Thus, achieving ozone attainment for an area, and thereby
protecting its citizens from ozone-related health effects, often depends on
the ozone and precursor emission levels of upwind areas. In order to
achieve the needed upwind NOx emissions decreases, areas that were granted
NOx waivers may need to control NOx emissions for transport purposes, even
if the waivers remain in place. Today's action is part of the process that
is leading to additional NOx reductions requirements in attainment and
nonattainment areas across broad parts of the Nation to reduce interstate
transport of ozone. The requirements of today's action apply both to areas
with approved NOx waiver petitions and areas without such petitions. That
is, any nonattainment areas with NOx waiver petitions approved by EPA in
the past or in the future are not proposed to be exempt from today's
action.

At the same time, EPA is sensitive to the concerns of those areas
(primarily in the Lake Michigan area) that may be required to achieve NOx
reductions that produce local increases in ozone concentrations in order to
reduce concentrations in downwind areas. The EPA is, thus, taking comments
on approaches that might be used to address such concerns on a case-by-case
basis. The EPA wishes to stress that it would only consider an approach
that targets areas with concrete modeling results documenting a likelihood
of local disbenefits from NOx reductions at locations and on days with high
ozone concentrations. As already discussed, EPA does not believe
adjustments to NOx budgets are appropriate for areas with waivers based
solely on their ability to attain the NAAQS without further reductions.

6. Relation of OTC NOx MOU to Budgets in the Ozone Transport SIP Rulemaking

The 2007 Budgets for the electric utilities and the nonutilities were
developed independently of the OTC NOx MOU. The Ozone Transport SIP
Rulemaking allows States flexibility to achieve reductions from any source
category; however, implementation of these requirements could be
coordinated. The MOU covers large boilers, both utility and nonutility
boilers. The Ozone Transport SIP Rulemaking covers these sources as well as
other categories of major NOx stationary sources. Although the OTC NOx MOU
does not cover these other categories, the OTC States regulated emissions
from these categories through implementation of the RACT program, beginning
in 1995.

The EPA believes that implementation of Phase II of the MOU should proceed
as scheduled, with achievement of the reductions by May 1999. These
emissions reductions are needed to help reduce ozone transport and make
progress toward attainment. Further, these reductions do not conflict with
the requirements imposed by the Ozone Transport SIP Rulemaking because they
do not exceed the required reductions. In Phase III of the MOU, however,
the timing and the amount of the reductions required by the OTC's MOU and
RACT provisions are much closer to the timing and reductions from the Ozone
Transport SIP Rulemaking. The emissions reductions required by the Ozone
Transport SIP Rulemaking are likely to be somewhat more stringent overall
than the OTC's Phase III requirements, and Phase III implementation could
occur about the same time as the Ozone Transport SIP Rulemaking reductions.
Therefore, EPA intends to work with the OTC States to coordinate Phase III
implementation with implementation of the emissions reductions required by
the Ozone Transport SIP Rulemaking.

The States in the OTC not covered by the Ozone Transport SIP Rulemaking
should continue to develop, adopt and implement Phases II and III of the
MOU. Such reductions may be necessary to provide for attainment of the
ozone NAAQS in those areas, although they may not be significant with
respect to long distance transport. Further, such reductions may help to
attain and/or maintain the new 8-hour ozone standard.

B. Budget Development Process

1. Overview

The EPA is proposing to develop seasonal budgets for each State by
determining the amount of emissions that would remain in each State after
application of reasonable, cost-effective control measures. For all sectors
except electric utilities and nonutility point sources, EPA proposes using
the 2007 Clean Air Act inventory developed by OTAG as the starting point
for this calculation. This inventory reflects implementation of all
mandatory national and nonattainment area Clean Air Act controls, plus any
additional regional and State-specific controls. It also includes growth
assumptions between 1990 and 2007. The specific assumptions on which this
inventory is based are documented in a June 1997 draft Emissions Inventory
Development Report (8). To determine the overall State budgets, EPA
proposes applying controls to various source sectors, as discussed below,
calculating budget components based on these controls, and summing the
budget components for each sector to get the total budget.

In the case of electric utilities, EPA proposes using a slightly different
approach. Instead of using the OTAG 2007 emissions and applying controls,
EPA proposes to calculate the utility component of the budget using data
provided by utilities to EPA for 1995 and 1996 and increasing the emissions
to reflect activity growth projected for 2007. This is discussed in more
detail below in section III.B.3.

In the case of nonutility point sources, EPA proposes using the OTAG 2007
emissions with one adjustment. The inventory needs to be adjusted to
represent uncontrolled levels, rather than CAA control levels, because the
OTAG recommendation is based on uncontrolled levels. This is discussed in
section III.B.4, Proposed Assumptions for Area and Nonutility Point
Sources.

2. Description of and Rationale for Proposed Control Assumptions

An important issue to be addressed in today's action is the reasonableness
of the cost of control of emissions in States that significantly contribute
to another State's ozone nonattainment. The EPA proposes to address this
issue by examining the cost effectiveness of various regionwide ozone
season control measures and determining what measures can be considered the
most reasonable in light of other actions taken by EPA and States to
control NOx.

a. Considering the Cost effectiveness of Other Actions. The EPA is
proposing to base the budget component levels on NOx emissions controls
that are available and the most cost effective in relation to other
recently undertaken or planned NOx measures. Table III-1 provides a
reference list of measures that EPA and States have undertaken to reduce
NOx and their average annual costs per ton of NOx reduced. Most of these
measures fall in the $1,000 to $2,000 per ton range. With few exceptions,
the average cost effectiveness of these measures is representative of the
average cost effectiveness of the types of controls EPA and States have
needed to adopt most recently, since their previous planning efforts have
already taken advantage of opportunities for even cheaper controls. The
measures listed in Table III-1 represent costs that the Nation has been
willing to bear to date to reduce NOx. The EPA believes that the cost
effectiveness of measures that it or States have adopted, or proposed to
adopt, forms a good reference point for determining which of the available
additional NOx control measures can most reasonably be implemented by
upwind States that significantly contribute to nonattainment.

  Table III-1. Average Cost effectiveness of NOx Control Measures Recently
                                Undertaken

                                  (1990 $)
                   Control Measure                     Cost Per Ton of NOx
                                                             Removed
                       NOx RACT                            150 - 1,300
            Phase II Reformulated Gasoline                   3,4001

     State Implementation of the Ozone Commission          950 - 1,600
             Memorandum of Understanding
 Proposed New Source Performance Standards for Fossil         1,290
           Steam Electric Generation Units
    Proposed New Source Performance Standards for             1,790
                  Industrial Boilers
 1 Average cost representing the midpoint of $1,500 to $5,300 per ton.
 This cost represents the projected additional cost of complying with the
 Phase II RFG NOx standards, beyond the cost of complying with the other
 standards for Phase II RFG.

The Federal Phase II RFG costs presented in Table III-1 are not strictly
comparable to the other costs cited in the table. Federal Phase II RFG will
provide large VOC reductions in addition to NOx reductions. Federal RFG is
required in nine cities with the Nation's worst ozone nonattainment
problems; other nonattainment areas have chosen to opt into the program as
part of their attainment strategy. The mandated areas and those areas in
the OTAG region that have chosen to opt into the program are areas where
significant local reductions in ozone precursors are needed; such areas may
value RFG's NOx and VOC reductions differently for their local ozone
benefits than they would value NOx reductions from RFG or other programs
for ozone transport benefits.

The EPA notes that there are also a number of less expensive measures
recently undertaken by the Agency to reduce NOx emission levels that do not
appear in Table III-1. These actions include: (1) the Title IV NOx
reduction program, (2) the Federal locomotive standards, (3) the 1997
proposed Federal nonroad diesel engine standards, (4) the Federal heavy
duty highway engine 2g/bhp-hour standards, and (5) the Federal marine
engine standards. These lower cost actions do not represent a useful
measure of the willingness to make reasonable expenditures to reduce NOx
emissions in order to achieve air quality goals. Decisions to undertake
these measures are low cost steps toward NOx reduction. Though these
actions are very cost effective, the Agency must now focus on what other
measures exist, at a potentially higher cost-effectiveness value, that can
further reduce NOx emissions. The Agency is focusing on these other actions
because they may also be of reasonable cost effectiveness and obtaining
these reductions are less costly than further local reductions of VOC and
NOx in nonattainment areas. Table III-1 is thereby useful as a reference of
the next higher level of NOx reduction cost effectiveness that the Agency
considers reasonable to undertake.

The Agency is also aware that to come into attainment with the new ozone
NAAQS, many localities will spend several thousand dollars per ton of NOx
or VOC reduction.

b. Determining the Cost effectiveness of NOx Controls. In an effort to
consider a cost-effective mix of controls on which to base each component
of the proposed budget (i.e., electricity generating sources, nonutility
point sources, area sources, and mobile sources) the Agency considered the
average cost effectiveness of alternative levels of controls for each
source. Among the plausible levels of control are the controls included in
OTAG's recommendations.

The average cost effectiveness of the controls assumed in calculating each
sector's budget component was calculated from a baseline level that
included all currently applicable Federal or State NOx control measures.
The baseline did not include Phase 2 and Phase 3 of the OTC NOx MOU since
they have not yet been adopted by all the involved States(23); if the MOU
were included in the baseline, the overall costs would be lower. The costs
and emissions reductions for point sources are determined using an
emissions cap-and-trade approach since EPA believes that this approach is
the most cost-effective way for point sources to meet an emissions budget,
and EPA expects that States are also interested in employing the most
cost-effective approach. Table III-2 shows in the first column of numbers
the average cost per ton of NOx removed during the ozone season of various
potential EPA actions, arranged by source sector. The action is presented
in the form of a regionwide budget for each source sector (i.e., the
electric power industry and other stationary sources), and the
cost-effectiveness values are for the ozone season. The Agency used its
estimates of the average cost effectiveness of reducing NOx emissions
during the ozone season to develop the budget components for the electric
power industry and other stationary sources.

The next three columns in the Table contain the average cost per ton of NOx
annually reduced, the incremental cost per ton of NOx reduced during the
ozone season, and the incremental cost per ton of NOx annually reduced. The
average cost per ton of NOx reduced annually is the annual costs of a
source category complying with a NOx budget component option divided by the
NOx emissions reductions that occur throughout the entire year. The
incremental cost per ton of NOx reduced during the ozone season is the
difference in the annual cost of the option examined and the next cheapest
option divided by the difference in seasonal NOx reduction in these two
options. The incremental cost per ton of NOx reduced annually is the
difference in the annual cost of the option examined and the next cheapest
option divided by the difference in the annual NOx reduction in these two
options. For the option with the lowest annual cost for each source
category's NOx budget component, the average and incremental costs are the
same, which assumes that ultimately the cheapest option is no additional
controls, or the baseline.

The EPA has provided these other measures of cost effectiveness to provide
additional perspective on the decision that the Agency made for the level
of each source category budget component. Each of these cost-effectiveness
measures has advantages in being used in conjunction with other factors to
make a decision on environmental controls under certain circumstances. They
each also have limitations. The annual measures are valuable since there
are NOx reduction benefits that the public will gain throughout the year
from controls on the sources covered in this rulemaking. They do not,
however, focus as well on the primary objectives of the ozone transport
rule of providing reductions of ozone during the time of year when it does
the most harm and in which exceedances of the ozone standards are likely to
occur. The incremental measures are valuable since they show the additional
costs of the additional reductions from increasing the stringency of
pollution controls. However, for this rulemaking, it is difficult to
compare the incremental costs of increasing levels of stringency for large
stationary sources with other Agency and State analyses that have been
developed in the past. For instance, because incremental cost comparisons
will differ depending on the size of the increment in stringency being
considered, care must be used in using incremental cost estimates from
earlier rulemakings.

The Agency solicits comments on its use of average seasonal cost
effectiveness as the measure it wants to rely on to judge the cost
effectiveness of the NOx reductions that will occur from the NOx budget
components that EPA has chosen for the electric power industry and other
stationary sources. Commenters offering other measures, or combinations of
cost-effectiveness measures, that EPA needs to consider, should provide
their rationale for their views. The EPA is not choosing to base its
proposed budgets on an expansion of I/M programs beyond the extent required
by the CAA or otherwise reflected in existing SIPs in its calculation of
State NOx budgets. The cost effectiveness of I/M programs in reducing ozone
precursors (including both NOx and VOC) can vary widely due to differences
in the design and operation of individual I/M programs. The EPA's current
estimate of the cost effectiveness of I/M programs ranges from $500 to
$3,000 per ton of ozone precursor, on an annualized summer ton basis.(24)
Although this range suggests that the cost effectiveness of I/M programs in
reducing ozone precursors (including both NOx and VOC) may be comparable to
the cost of the utility NOx reductions proposed in today's rulemaking, the
cost effectiveness of I/M programs in reducing NOx alone would be
significantly higher since most of the ozone precursor reductions from
enhanced I/M programs are VOC reductions. Both VOC and NOx reductions are
valuable for achieving local attainment, but as discussed in section II,
Weight of Evidence Determination of Significant Contribution, today's
rulemaking focuses on reducing NOx emissions since such reductions offer
greater potential for reducing regional transport than would VOC
reductions.

Similarly, EPA is not choosing to base its proposed budgets on an expansion
of Federal Phase II RFG beyond its current extent in its calculation of
State NOx budgets. The EPA's current estimate of the cost effectiveness of
Federal Phase II RFG ranges from $2600 to $3,500 per ton of ozone
precursor, on an annualized summer ton.(25) This cost exceeds the cost of
the utility NOx reductions proposed in today's rulemaking. Furthermore, the
cost effectiveness of Federal Phase II RFG programs in reducing NOx alone
would be significantly higher since most of the ozone precursor reductions
from RFG would be in the form of VOC reductions which, while valuable for
achieving local attainment, are not the focus of today's action since NOx
reductions offer greater potential for reducing regional transport.

 Table III-2. Cost Effectiveness of Options for the Ozone Season NOx Budget
                 Components for Selected Source Categories

                         (1990$/ton of NOx reduced)
  Source Category   Average    Average Cost  Incremental     Incremental
                    Cost Per    Per Ton of Cost Per Ton of Cost Per Ton of
 Options for       Ton of NOx  NOx Reduced   NOx Reduced     NOx Reduced
 Ozone Season NOx   Reduced      Annually     during the       Annually
 Budget            during the                Ozone Season
 Components          Ozone
                     Season
                          Electric Power Industry
 815 thousand       $ 1,100       $ 850        $ 1,100          $ 850
 tons
 652 thousand       $ 1,300      $ 1,050       $ 2,100         $ 2,100
 tons
 489 thousand       $ 1,700      $ 1,400       $ 3,600         $ 3,400
 tons
   391 thousand     $ 2,100      $ 1,750       $ 6,350         $ 5,200
       tons
 326 thousand       $ 2,450      $ 2,000       $ 8,700         $ 6,850
 tons
                          Other Stationary Sources
 484 thousand       $ 1,450       $ 750        $ 1,450          $ 750
 tons1

 466 thousand       $ 1,650       $ 900        $ 4,400         $ 2,150
 tons2

 380 thousand       $ 2,750      $ 1,400       $ 6,300         $ 3,050
 tons3

 1 This measure approximates the emission reductions that would be
 obtained if Level 1 controls were placed on medium sized sources and
 Level 2 controls were placed on large sized sources. The calculation
 process used to calculate cost for nonutility units selects control
 measures (at a State level) so that the cost minimizing set of controls
 that meet the required emissions reductions are chosen. This approach
 provides a downward bias to the costs and cost-effectiveness values
 compared to any way the States might obtain the emission reductions,
 including consideration of other factors (e.g., administrative costs that
 are not included in this analysis). While a least-cost approach simulates
 either costless emissions trading or a cost minimizing command and
 control approach with perfect information, either approach is unlikely to
 include the smaller sources used in this analysis.
 2 This option considers a 70 percent reduction of summer NOx emissions
 from large sources and RACT controls on medium size sources. This
 approach is what OTAG recommended occur, if EPA considered reductions of
 electric power industry emissions of equivalent to .15 pounds of NOx per
 MMBtus, or an 85 percent reduction of uncontrolled levels, whichever is
 less stringent. The EPA's proposal for the NOx budget component for the
 electric power industry is based on a comparable level of controls to the
 .15/85 percent reduction.
 3 This measure approximates budgets of an 80 percent control of baseline
 emissions for large sized sources and Level 1 control on the medium
 sources. The calculation process used to calculate cost effectiveness on
 nonutility units provides a downward bias for the reasons explained in
 the above footnote.
 Note: The options for electric power industry NOx budget component are
 based on pollution controls on electric generation units meeting summer
 season NOx emission limitations in pounds of NOx per million Btus of heat
 input of .25, .20, .15, .12, and .10, respectively. The
 cost-effectiveness calculations are based on implementing these controls
 through a cap-and-trade program. The controls on which the options for
 the NOx budget component for Other Stationary Sources are based are
 provided in the footnotes. The cost-effectiveness calculations are based
 on each State implementing a least-cost approach to compliance.

Considering the $1,000 to $2,000 per ton average cost-effectiveness range
from Table III-1, and the level of control achievable with each sector's
NOx control technologies, EPA believes that it is reasonable to require the
following levels of reductions: (1) for the electric power industry, a
budget component of 489 thousand tons (which is equivalent to an average
NOx emission rate of 0.15 lb/MMBtu) since it is both cost effective and
achievable, on average, by the affected sector sources; and (2) for other
stationary sources, a budget component of 466 thousand tons, which is
consistent with OTAG's recommendation that nonutility point source controls
be comparable in stringency to the selected level of electric power
industry controls, which for .15 lbs/MMBtus would be 70 percent control on
large-sized sources (e.g., boilers greater than 250 MMBtu/hour) and RACT
controls on medium-sized sources (e.g., sources emitting between 1 and 2
tons per day). The RACT controls result in NOx reductions generally in the
range of 25-50 percent. This corresponds closely with the OTAG
recommendation given the proposed level of electric power industry
controls, and EPA believes it is a reasonable level of control based on
average cost effectiveness as discussed above.

For mobile sources, EPA proposes constructing the budget component by
including: (1) those controls that would be implemented federally or by
States in the absence of today's action, and (2) those controls that are
viewed today as being feasible in the 2007 time frame and that meet EPA's
proposed NOx cost-effectiveness criterion. The EPA did not include in the
proposed mobile source budget component a number of control measures that
offer multipollutant benefits and hence may be attractive control measures
for local attainment and maintenance. These measures include Tier 2
light-duty vehicle and light-duty truck standards and more extensive
implementation of I/M and Federal Phase II RFG. When compared with other
available options, these measures are reasonable control measures when
these measures' full range of benefits are considered, including CO, toxic
air pollutants, and VOC benefits in addition to their NOx benefits. Some of
these measures, such as I/M, RFG and Clean Fuel Fleets, can be implemented
in specific areas seeking to meet local air quality objectives rather than
region or nationwide. While EPA did not choose to assume their regionwide
implementation in calculating NOx budgets because their cost effectiveness
for NOx reductions alone did not justify including them in the set of
assumed controls, EPA continues to believe that these measures' nonozone
benefits and VOC benefits (which provide local ozone reductions but tend
not to provide significant reductions in regional ozone transport) make
them attractive for areas seeking to meet local ozone attainment, or
maintenance objectives, or other air quality goals. Although these
strategies were not included in the budget calculation, States can opt to
implement these measures as part of their SIP revision in response to
today's proposal. Each of these programs is discussed in more detail below.

The EPA's approach to the NOx budget component for the electric power
industry relies on the consideration of the States using a cap-and-trade
program to reduce emissions from this source category. The Agency's
analysis shows that this type of approach is 25 percent more cost effective
(lower in cost per ton reduced) than the use of a comparable traditional
command-and-control approach, such as setting rate-based NOx emissions
limitations at .15 lbs of NOx per million Btus of heat input at every
source.

The EPA did not examine the implications of each State setting up its own
trading programs for the electric power industry, which could occur if the
Agency is unable to work with the States to put together a viable trading
program across the 23 jurisdictions covered in this rulemaking. Based on
analysis done for OTAG in the past, the Agency believes this type of
approach would lead to somewhat higher costs, but would still be less
expensive than a command-and-control program in every State. This
conclusion is based on work that EPA did for OTAG, where it divided a
similar area to the one covered in this rule into five trading zones versus
a single trading zone.(26) Although the costs did increase, they were not
dramatically higher. Further support for this conclusion results from the
examination of EPA's Regulatory Analysis supporting this proposed
rulemaking. The Agency found that in the vast majority of States, electric
generation units would make significant NOx emissions reductions under a
cap-and-trade system that allowed trading between all the States covered.
This means that the electric power generation units that can reduce NOx
emissions most cost-effectively are spread throughout the region covered by
the Ozone Transport SIP Rulemaking.

In calculating States' budgets, EPA assumed implementation of the following
mobile source control measures in addition to those measures already
implemented or otherwise promulgated in final form:

Nonroad

   * Federal Small Engine Standards, Phase II
   * Federal Marine Engine Standards
   * Federal Heavy-Duty (>50 hp) Nonroad Standards, Phase I
   * Federal Reformulated Gasoline, Phase II (in statutory and current
     opt-in areas)
   * Federal Locomotive Standards
   * 1997 Proposed Nonroad Diesel Engine Standards

Highway

   * Tier 1 Light-Duty and Heavy-Duty Vehicle Standards
   * Enhanced I/M (serious and above areas)
   * Low Enhanced I/M (rest of OTR)
   * Basic I/M (mandated areas)
   * Clean Fuel Fleets (mandated areas)
   * Federal Reformulated Gasoline, Phase II (in statutory and current
     opt-in areas)
   * National Low Emission Vehicle Standards
   * Heavy-Duty Engine 2 g/bhp-hour standard
   * Revisions to Emissions Test Procedure

With the exception of the Clean Fuel Fleets, I/M, and RFG programs, all of
these control measures are or will be implemented nationally (or in the 49
States outside of California). The EPA assumed that the Clean Fuel Fleets,
I/M, and RFG programs would be implemented to the extent required by the
CAA or existing SIPs, or as reflected in current levels of State opt-in to
these programs. The reader is referred to sections III.B.5 and III.B.6 for
a more extensive discussion of the development of the highway vehicles and
nonroad budget components, respectively.

At the current time, the standards presumed for locomotives, marine
engines, small gasoline engine, nonroad diesel engines, and heavy-duty
highway engines in calculating State NOx budgets represent the most
technically feasible emissions performance levels achievable in the 2007
time frame. For this reason, the Agency did not evaluate any more stringent
standards for these sources in its calculation of State NOx budgets.

c. Summary of Measures Assumed in Proposed Budget Calculation. The EPA is
proposing to calculate the budgets described in this section by assuming
the application of the most reasonable, cost-effective controls for the
purpose of achieving regional NOx reductions. Table III-3 summarizes the
controls that were assumed for each source sector. More detailed
discussions of the controls assumed are contained in the sections that
describe each sector.

                                Table III-3

   Summary of NOx Control Measures Applied in the Development of Proposed
                 Statewide Seasonal NOx Emissions Budgets*
 Emissions Source Sector            Controls Applied in Developing
                                    Proposed Statewide NOx Emissions
                                    Budgets for 2007
 Large Electricity Generating       Statewide seasonal tonnage budget
 Devices (fossil-fuel burning       based on applying a NOx emission rate
 electric utility units and         of 0.15 lb/MMBtu on all applicable
 nonutility units serving           sources
 electricity generators 25MWe or
 greater)
 Nonutility point sources (boilers, 70 percent controls on large-sized
 reciprocating internal combustion  sources (e.g., >250 MMBtu/hour) RACT
 engines, turbines, cement kilns,   controls on medium-sized sources
 etc.)                              (e.g., 100-250 MMBtu/hour)
 Nonroad Sources (commercial marine Federal small engine standards (Phase
 engines, small engines such as lawnII) Federal marine engine standards
 and garden equipment, and larger   (diesel >50 horsepower) Federal
 engines such as construction       locomotive standards 1997 proposed
 equipment and locomotives)         nonroad diesel engine standards
 Highway Vehicle Sources (cars,     National Low Emission Vehicle Program
 trucks, buses, motorcycles -- gas  2004 Heavy-Duty Vehicle Standards
 and diesel highway engines)        Revisions to Emissions Test
                                    Procedure**
 Area (Small Stationary) Sources    Full implementation of programs
 (open burning, small commercial,   required by the CAA and outlined in
 industrial and residential fuel    existing State implementation plans
 combustion devices)

* Controls already required under the 1990 Amendments to the CAA and those
applied through existing SIPs were assumed in the development of the
statewide NOx budgets but are not explicitly listed in this table.

** Other measures used in developing some state budgets include I/M
programs (where mandated), Federal Phase II RFG (where mandated or in areas
which have already opted into the program as of the date of today's
rulemaking ), and clean fuel fleet programs. Potential reductions from Tier
2 light-duty vehicle standards were not incorporated since they are still
under review.

In determining what controls to assume in calculation of the proposed
budgets, EPA considered the conclusions that were reached in the OTAG
process as well as the cost-effectiveness rationale described above. Any
special effort to address ozone transport, such as today's action, must be
part of an integrated regulatory solution developed by EPA and States to
provide national compliance with the current (1-hour) and new (8-hour)
NAAQS. The OTAG's air quality modeling showed that even with the most
stringent control measures that were evaluated for NOx and VOC, not all
areas would come into attainment with the current ozone NAAQS. It is also
evident that with no actions to address ozone transport, some areas will
have "background levels" that will not allow even aggressive local controls
to bring them into compliance, and others will face severe measures in an
effort to do so. Therefore, today's action complements local programs to
address attainment with the ozone NAAQS. The EPA recognizes the need to
provide pollutant reductions where it would be more cost effective to do so
rather than place all of the burden on localities. The recent RIA in
support of the new ozone standard shows that the last tons of localized NOx
and VOC reduction needed for meeting that standard in some areas can easily
cost from $5,000 to $10,000 a ton to achieve. Avoiding such expenditures is
a major objective of today's action.

3. Proposed Assumptions for Electric Utilities

This section presents the rationale and resulting proposed State-by-State
NOx budget components for fossil fuel-burning electric utility units under
today's action. Three different proposed NOx emission scenarios and their
resulting State-by-State emission allocations are presented.

a. Affected Entities. The sources of information used in this section are:
(1) for electric utility units submitted by utilities to EPA under the
requirements of 40 CFR part 75 (emissions monitoring provisions of title
IV, section 412; and (2) for nonutility units (e.g., units owned by
Independent Power Producers), projected by EPA using the Integrated
Planning Model (IPM) from base year information supplied to the
North-American Electricity Reliability Council (NERC), Energy Information
Agency (EIA), and trade sources.

Utility emissions represent approximately 36 percent of the total
anthropogenic NOx emissions after application of current CAA controls in
the States covered by today's action. The calculations described below
apply to large sources that have generators greater than 25 MWe. The EPA
believes that it is reasonable to assume no further control of emissions
from smaller sources based on the current availability of emissions and
utilization data for these sources. While EPA has quality-assured NOx
emissions and utilization data for electric utility units larger than 25
MWe, such data are not currently available for smaller units. Therefore,
the contribution of the smaller sources to the utility component of each
State's budget cannot currently be assessed with certainty. The EPA
solicits comment on: (1) whether sources equal to or smaller than 25 MWe
should be included in the utility component of each State's budget, and (2)
sources of emissions and utilization data for sources equal to or smaller
than 25 MWe.

Larger sources were found to be large contributors to NOx emissions and,
with the application of NOx controls, were found to be able to achieve
reductions cost-effectively. Specifically, EPA performed an analysis to
determine the cost effectiveness of NOx controls applied to large utility
boilers and how it compared to other sector NOx controls. The results
indicate that controlling emissions to an average level of 0.15 lb/MMBtu
was cost effective for large utility boilers (see section III.B.2.).

This section does not include combustion units which generate electricity
for purposes internal to a plant. These units, for the purposes of the
overall State budget, are considered industrial units and are included in
the corresponding section. Some of these units (e.g., units with capacity
greater than 25 MWe or the equivalent in thermal output, measured in MMBtu)
may more appropriately be included with the utility sector emissions, with
similar required levels of control, since controls for these units may be
as cost effective as utility unit controls. Additionally, certain large
industrial combustion sources (e.g., boilers with a heat input larger than
about 250 MMBtu/hour, used only for steam, not electricity generation) may
be able to achieve levels of control equal to that of the electric utility
units with comparable cost effectiveness. The EPA solicits comment on the
appropriateness of including such units in the utility emissions by
assuming the same level of control from these units as from utility units.

b. Methodology Used to Determine the Proposed Electric Utility Budget
Component. The proposed emissions budget component for electric utilities
(in tons) is calculated as the product of two separate components: (1)
source activity level, measured in MMBtu; and (2) pollutant emission rate,
measured in pounds of pollutant per MMBtu. Since both components influence
the emissions, it is important to use the most accurate information when
calculating each component.

i. Proposed Utility Budget Component Calculation and Alternatives. Four
alternatives were considered for calculating the utility budget component
(Table III-4).

                   Table III-4. Summary of Alternatives

 Alternative  Activity Level (Heat Input)     NOx Rate (lb/MMBtu)

              Future Activity (current with   Higher of:
              estimated growth to 2007)
      1                                       (1) 0.15 or
                                              (2) an 85% reduction of
                                              historic emission rate

              Current Activity                Higher of:

      2                                       (1) 0.15 or
                                              (2) an 85% reduction of
                                              current emission rate

      3       Future Activity (current with   0.15
              estimated growth to 2007)

      4       Current Activity                0.15

After evaluating each alternative, EPA is proposing to base the electric
utility emissions on a projected future activity level and a desired
emission rate (scenario 3). The following subsections discuss each
technique separately. Detailed results of each alternative are available in
the TSD.

Alternative 1: Future Activity with Historic (or Desired) Emission Rates

This technique involves calculating the emissions based on a projected
future activity level (e.g., using an electric utility generation
forecasting model such as IPM) and the higher of: (1) a desired emission
rate, or (2) a rate resulting from a percent reduction from some past
baseline year emission rate (e.g., 1990). This was the technique used in
many OTAG analyses. On its face, this approach may appear to equitably
determine an emissions budget. However, this requires the determination of
the NOx emission rates from 1990 for every unit in a State's inventory. In
addition to the accuracy problems encountered in determining an historic
emissions rate, this approach relies on a percent reduction from an
historic rate, which benefits States that were higher emitters over States
that had cleaner fuels. Thus, EPA believes that this approach is neither
the most technically accurate nor the most equitable.

Alternative 2: Current Activity with Current (or Desired) Emission Rates

This technique involves calculating emissions based on a current activity
level (e.g., 1995 or 1996) and the higher of: (1) a desired emission rate,
or (2) a rate resulting from a percent reduction from a current year (e.g.,
1996) for which accurate emission rates per unit exist. The benefit of this
approach is that both activity and emission rates are available for all
utility units included in the emissions budget. This approach requires that
all changes in the utilization of utility units be accommodated within the
utility budget component. However, to the extent this approach relies on
percent reduction, it would benefit currently high emitters and
disadvantage units that installed controls in order to comply with other
provisions of the Act. Thus, though simpler (because it relies on current
actual data without projections), this approach may not be viewed as
equitable.

Alternative 3: Future Activity with Desired Emission Rate

This technique involves calculating the utility budget component based on a
future activity level (i.e., inflating the current measured utilization by
an estimated growth factor) and a desired emission rate. The benefit of
this approach is that it acknowledges the inherent inequity of using any
past or current emission rates and treats all units equally based on a
future standard emission rate (e.g., 0.15 lb/MMBtu). Further, by projecting
future changes in utilization, this approach more directly accommodates
changes in unit utilization to the extent such future utilization can be
reasonably projected. The potential for error in making such projections is
minimized when starting with actual unit-specific utilizations. Thus,
though more complicated than the previous technique (because of its
reliance on a projection of industry growth), this approach is viewed as
more equitable, particularly since other source categories included in the
overall State-specific budget reflect growth.

Alternative 4: Current Activity with Desired Emission Rate

This technique involves calculating emissions based on a current activity
level (e.g., 1995 or 1996) and a desired future emission rate. Similar to
the above approach, this approach acknowledges the inherent inequity of
using any past or current emission rates and treats all units equally based
on a desired standard emission rate (e.g., 0.15 lb/MMBtu). Unlike the above
approach, however, it uses current activity to determine the utility budget
component, providing for the highest degree of accuracy. Changes in the
utilization of utility units must be accommodated within the utility budget
component. This approach is simple (because it relies on current actual
data without projections), but it may be viewed as less equitable for
States with significantly higher projected utilization.

ii. Seasonal Utilization. The proposed utility budget component is based on
utilization over the course of a summer season (i.e., May 1 to September
30). Utilization can be significantly different from season to season and
the degree of this difference can vary from State to State (e.g., some
States can have much higher utilization in the summer due, for example, to
high usage of air conditioning or shifting load to another State). Thus, it
is important to accurately characterize the summer usage of every State
separately. Because of the high seasonal variability, it is less accurate
to simply take total annual utilization and divide by the number of summer
months. Similarly, because of the geographic variation, it is less accurate
to take regionwide summer utilization and equally apportion the utilization
to all States.

There are currently only two sources of information that provide actual
data and take account for seasonal and State variations in utilization: (1)
the EIA's Form 767, and (2) EPA's Emission Tracking System containing data
reported by utilities in accordance with 40 CFR part 75. Both sources
contain unit-by-unit utilization; EIA on a monthly basis and EPA on an
hourly basis. There is, however, one important difference: while the method
used to determine and report utilization to EIA can differ significantly
from utility to utility, the information submitted to EPA is determined and
reported using consistent techniques as required by 40 CFR part 75.

Thus, EPA is proposing to use its information to determine each unit's (and
thereby each State's) utilization for the period beginning May 1 and ending
September 30. It should be noted that in the case of units owned by
nonutility sources (e.g., Independent Power Producers), EPA does not have
current utilization information available. For the purpose of estimating
the emissions for these units, EPA is proposing to use the IPM-predicted
utilization for the year 2007. The predicted utilizations are projected
from base year information supplied to the NERC, EIA and trade sources.

One way of accounting for State-by-State shifts in electricity generation,
from 1 year to the next, during the period beginning May 1 and ending
September 30, is to calculate the utility budget component based on a
composite utilization: using the State-by-State utilization for the higher
of 1995 or 1996 (i.e., for each State, using the higher of its overall 1995
or 1996 summer utilization). This is the approach proposed by EPA. Though
this approach results in a slightly exaggerated baseline utilization, the
inflation to emissions is moderate and the equity that it provides is
potentially significant for some situations. Table III-5(27) compares the
State-by-State utilizations using the composite method versus using 1996
only. The impact is most evident on the District of Columbia (which has a
1995 utilization substantially greater than its 1996 utilization) for which
1996 may have been an unrepresentative summer. Another option would be to
use the annual average of the highest 2 out of 3 recent years (e.g., 1995,
1996, and 1997) when data for 1997 becomes available. The EPA solicits
comment on both approaches.

    Table III-5. Comparison of State-by-State 1995, 1996 and "Composite"
                     Utility Unit Summer Utilizations

       State            1995           1996        State-by State
                     Utilization    Utilization    Higher of 1995
                       (MMBtu)        (MMBtu)         or 1996
                                                    Utilization

 Alabama              342,060,000    349,950,000       349,950,000

 Connecticut           26,500,000     40,890,000        40,890,000

 Delaware              30,890,000     33,830,000        33,830,000

 District of            2,030,000        130,000         2,030,000
 Columbia

 Georgia              349,310,000    335,330,000       349,310,000

 Illinois             331,120,000    344,470,000       344,470,000

 Indiana              511,420,000    512,420,000       512,420,000

 Kentucky             397,540,000    395,800,000       397,540,000

 Maryland             130,530,000    123,060,000       130,530,000

 Massachusetts         96,290,000    100,150,000       100,150,000

 Michigan             280,730,000    287,790,000       287,790,000

 Missouri             267,710,000    270,240,000       270,240,000

 New Jersey            44,140,000     43,310,000        44,140,000

 New York             249,260,000    223,360,000       249,260,000

 North Carolina       286,710,000    310,600,000       310,600,000

 Ohio                 549,050,000    565,990,000       565,990,000

 Pennsylvania         445,030,000    481,950,000       481,950,000

 Rhode Island             320,000     11,940,000        11,940,000

 South Carolina       130,150,000    150,370,000       150,370,000

 Tennessee            279,730,000    268,880,000       279,730,000

 Virginia             150,870,000    136,740,000       150,870,000

 West Virginia        269,840,000    302,850,000       302,850,000

 Wisconsin            196,840,000    191,730,000       196,840,000

iii. Growth Considerations. In general, new units built to meet economic
growth are lower emitting than the older units they augment or replace.
Thus, though the industry's fuel utilization may increase over time, the
industry's average NOx rate may decrease as newer, cleaner units are built
and operated, and total emissions may or may not increase.

Two approaches were considered for accommodating potential emissions growth
under an emissions budget. One approach was to calculate emissions based on
recent historic utilization, as was done in the sulfur dioxide program
under title IV of the Act. Under this approach, States with significant
projected increases in utilization would be required to either: (1) reduce
their NOx rates further, or (2) burn fuel more efficiently in order to
compensate. For such States, the ability to trade emissions regionwide is
particularly attractive because States with low increases or decreases in
utilization can trade emissions with States having significantly increased
utilization.

An alternative approach was to project each State's change in utilization
from current levels to some future year and set a budget based on that
future year's utilization. This approach directly addresses industry
growth. Additionally, this was the type of approach taken by OTAG in
investigating various State budgets. Thus, EPA is proposing to use this
type of approach for addressing activity growth and, as described below,
using the IPM growth projections. However, there are several other ways in
which growth can be reflected in budget allocations. For example,
recognizing that several utility companies span more than one State and
that electricity is dispatched across State boundaries, an average regional
growth rate could be applied to each State's current utilization. The EPA
solicits comment on these and other approaches addressing activity growth
in establishing a statewide utility budget component.

c. Summary and Proposed Utility Budget Components. For reasons discussed in
the previous section, EPA is proposing to calculate each State's summer
season electric utility emissions using a specific NOx emission rate and
the projected summer season utilization of the year 2007. Specifically, EPA
proposes calculating each State's utility NOx budget component by
multiplying: (1) each State's summer activity level, measured in MMBtu,
(EPA selected the higher of each State's overall 1995 or 1996 summer
utilization), by (2) each State's projected growth between 1996 and 2007
(using the IPM model), by (3) a NOx rate of 0.15 lb/MMBtu. The resulting
figure, in lbs, was divided by 2000 (lbs per ton) to determine tons. For
electricity-generating units owned by nonutilities (e.g., Independent Power
Producers), EPA used their IPM-predicted utilization for 2007 in place of
steps (1) and (2). The EPA compared the IPM-generated growth factors of
each State to those developed by OTAG for the electric utility sector in
every State. In general, the IPM-predicted growth was about 60 percent
higher than the growth projected by OTAG. Regionwide, the OTAG-predicted
growth was about 6 percent from 1996 to 2007, and the IPM-generated growth
was about 15 percent for the same period. However, for some States such as
Alabama and New Jersey, the IPM growth factor was lower than the OTAG
growth factor. The TSD describes in detail how the IPM and OTAG growth
factors were calculated.

For the proposed rule, EPA selected the IPM's State-by-State growth factors
over the growth factors developed by OTAG. Unlike the OTAG electric utility
growth projections, the IPM's were not developed separately for each State,
but were developed by analyzing performance of utilities as a regionwide
system. Therefore, the IPM growth factors are considered to be more
consistent than the OTAG growth factors. The EPA solicits comment on the
appropriateness of using the IPM model to determine State-specific growth
factors for the period between 1996 and 2007. Further, EPA solicits comment
on what other reasonable regionwide approaches can be used to develop
growth factors.

Table III-6 presents the resulting proposed utility (and
electricity-generating nonutility) budget components per State along with
the 2007 CAA base.

  Table III-6. State-by-State Budget Component for Electricity-Generating
                                   Units

      State         2007 CAA    Proposed Budget     Percent
                      Base      Component(tons)    Reduction
                     (tons)

 Alabama               81,704             26,946      67%

 Connecticut            5,715              3,409      40%

 Delaware              10,901              4,390      60%

 District of              385                152      61%
 Columbia

 Georgia               92,946             30,158      68%

 Illinois             115,053             31,833      72%

 Indiana              177,888             48,791      73%

 Kentucky             128,688             35,820      72%

 Maryland              35,332             11,364      68%

 Massachusetts         28,284             12,956      54%

 Michigan              82,057             25,402      69%

 Missouri              92,313             22,932      75%

 New Jersey            14,553              5,041      65%

 New York              39,639             24,653      38%

 North Carolina        83,273             27,543      67%

 Ohio                 185,757             46,758      75%

 Pennsylvania         125,195             39,594      68%

 Rhode Island             773                905      -17%

 South Carolina        43,363             15,090      65%

 Tennessee             71,994             19,318      73%

 Virginia              45,719             16,884      63%

 West Virginia         83,719             23,306      72%

 Wisconsin             51,004             15,755      69%

 Total              1,596,255            489,000      69%

4. Proposed Assumptions for Other Stationary Sources

a. Affected Entities. This section presents the rationale and resulting
proposed State-by-State NOx budget components for other stationary sources,
specifically, the area and nonutility point source sectors. Area sources of
NOx emissions include, for example, emissions from wildfires, open burning,
and residential water heaters. Emissions from area sources represent only 7
percent of total anthropogenic NOx emissions in the States covered by
today's action (based on OTAG 2007 CAA emissions). The highest percentage
in any one State is 18 percent. Nonutility point sources include boilers,
process heaters, reciprocating internal combustion engines, turbines,
cement kilns and other categories. Emissions from sources in this sector
represent 14 percent of the total anthropogenic NOx emissions in the States
covered by today's action, with a range of 3-22 percent.

b. Methodology Used to Determine the Proposed Area and Nonutility Point
Source Budget Components. The proposed State-by-State seasonal (May
1-September 30) budget components for the area and nonutility point sectors
generally reflect the OTAG recommendations. For area sources, EPA proposes
applying OTAG Level 0 (i.e., no new controls). The EPA is proposing this
level of control because EPA and OTAG were not able to identify any
reasonable control measures for sources in this sector. Controls for
wildfires, feasible alternatives for open burning, and reasonable
cost-effectiveness levels for control of existing residential water heaters
have not yet been identified for these States. Therefore, EPA believes that
application of Level 0 controls for this sector is appropriate.

The OTAG recommendations for the nonutility point sector are to reduce
emissions from medium- and large-sized units in a manner equitable with
utility controls. Specifically, OTAG recommended that large nonutility
sources should meet approximately 70 percent reduction and medium-sized
sources should meet RACT if utilities are subject to the 0.15 lb/MMBtu
utility limit.

As discussed in section III.B.2., EPA is proposing to apply the OTAG
recommendations. The EPA believes that these are reasonable levels of
controls for these sources for the reasons outlined in section III.B.2.

For purposes of the budget calculation, EPA believes that it is reasonable
to not calculate reductions from sources with emissions less than 1 ton per
day. The OTAG's recommendation to focus controls on the large sources
rather than all sources for purposes of establishing the budget is a
reasonable approach from an administrative and data availability
perspective and does not preclude States from eventually adopting controls
on other sizes or categories of sources as an alternative way of meeting
their budgets.(28) In addition, emissions data for the smaller nonutility
sources have more uncertainty, especially source size and utilization data
which are important in making a budget calculation. As described in section
III.B.2, EPA's cost analysis does not key on source sizes; rather, it is a
least cost approach that considers small, medium and large sources in
determining the overall cost of the sector budget.

Further, controls on smaller sources are frequently less cost effective
than the same controls on larger sources. It should also be noted that the
1 ton per day cutoff for nonutility sources approximately corresponds to
the 25 MWe cutoff for utility sources. The EPA solicits comment on: (1)
whether sources with NOx emissions less than 1 ton per day should be
included in the nonutility component of each State's budget, and (2)
sources of emissions and utilization data for sources with NOx emissions
less than 1 ton per day.

Other approaches to calculating the nonutility point source budget
component were considered, including a combined Level 2 for large sources
and Level 1 for smaller sources, an 80 percent reduction from large sources
with Level 1 for the smaller sources (see table III-2), and Level 1 or
Level 2 applied across the entire sector. A Level 1 approach across the
entire sector has a relatively low cost effectiveness (less than $1000 per
ton) and is not as equitable as the OTAG recommendations, considering the
reductions calculated for the electric utility sector and the importance of
the nonutility point source sector from a total emissions standpoint. On
the other hand, EPA considered a Level 2 approach across the entire sector
to be less cost effective and administratively more difficult than the OTAG
recommendations. That is, Level 2 nonutility costs for some of the smaller
sources are likely to be higher in some cases than the Level 3 utility
costs and the number of units included in the nonutility point source
category is large, creating an administrative burden. As discussed in
section II.B.3, another alternative approach would be to assume a higher
level of control for combustion units which generate electricity for
purposes internal to a plant. Some of these units may more appropriately be
included with the utility sector emissions, with similar required levels of
control, since controls for these units may be as cost effective as utility
unit controls. Additionally, certain large industrial combustion sources
(e.g., boilers with a heat input larger than about 250 MMBtu/hour, used
only for steam, not electricity generation) may be able to achieve levels
of control equal to that of the electric utility units with comparable cost
effectiveness. The EPA solicits comment on these and other approaches for
calculating the nonutility point source budget component.

In applying the proposed controls, the EPA closely approximated but could
not precisely calculate emissions based on the size of nonutility point
sources as defined by OTAG because the emissions inventories available do
not have the level of detail specified in the OTAG recommendation. For
example:
* The OTAG recommendation separates boilers by size (i.e., less than 100
MMBtu, between 100 and 250 MMBtu and greater than 250 MMBtu). Available
emissions inventory data are incomplete especially for the smaller size
boilers.
* The OTAG recommendation separates stationary reciprocating internal
combustion engines by size (i.e., less than 4000 horsepower (hp), between
4000 and 8000 hp, and greater than 8000 hp). Available emissions inventory
data generally does not include hp capacities.
* The OTAG recommendation separates gas turbines by less than 10,000 hp,
between 10,000 and 20,000 hp, and greater than 20,000 hp. Available
emissions inventory data generally does not include hp capacities.
* The OTAG recommendations also include application of RACT on medium sized
sources; RACT is generally considered equal to Level 1 OTAG measures.
However, since RACT may be a case-by-case decision, a precise forecast of
emissions decreases cannot be made.

In order to calculate the proposed budget components based on application
to the controls discussed above, EPA applied 70 percent reduction controls
for boilers greater than 250 MMBtu/hour and other large sources (see TSD
for details). Boiler size was determined on an SCC basis (i.e., the same
level of control was applied to all boilers within a specific SCC
regardless of the size of individual boilers). In addition, EPA applied
RACT controls for sources not classed "large" and emitting between 1-2 tons
per day; these reductions are generally in the range of 25-50 percent
emissions decrease. Where information on boiler size was not available, EPA
assumed that the source was medium-sized and applied RACT controls. For
other medium and large sized nonutility sources, EPA applied 70 percent
reduction controls where information on size of sources was available, and
RACT controls for the remaining sources (see Budget TSD for details). Due
to the lack of data in the inventories, especially for internal combustion
engines and turbines, EPA could not base a budget calculation precisely on
OTAG's recommendation of 70 percent reduction for large sources.

The proposed procedures for calculating seasonal emissions for these
sectors differs from that used for utilities because, unlike utilities, day
specific emissions are not available for each day of the season. In
general, a three-step process is proposed to obtain summer season emission
totals for the area and nonutility sectors. First, OTAG emissions
reflecting the above controls are obtained for "typical" summer weekday,
Saturday, and Sunday operating conditions for each sector for each State.
The underlying procedures and assumptions used for deriving these emissions
are described in the OTAG Emissions Inventory Development Reports (8).
Second, the weekday emissions are multiplied by 109 (the total number of
weekdays in the period May 1 through September 30), and the Saturday and
Sunday emissions are each multiplied by 22 (the total number of weekends in
the 5-month season). In the third step, these estimates are summed for each
day-type to get the summer season total emissions by sector by State.

c. Summary and Proposed Area and Nonutility Point Source Budget Components.
The resulting proposed nonutility point and area budget components are
contained in Table III-7 below along with a comparison for nonutility point
sources to the 2007 CAA base. The area budget components are not compared
to the 2007 base because no reductions were calculated for this budget
sector. For the nonutility point sources, EPA applied controls that
approximate the OTAG recommendations. For the area and nonutility sectors,
we used the summer weekday, Saturday, and Sunday emissions that were
available in the OTAG data base for these control levels. The OTAG growth
assumptions were used for area and nonutility point source sectors.

Table III-7. Proposed Budget Components for Nonutility Point and Area
Sectors

                      (Tons of NOx per Ozone Season)

                     2007 CAA Base      2007 Budget           Percent
                                         Components          Reduction

       State          Nonutility    Nonutility    Area    Nonutility Point
                         Point         Point

 Alabama                    47,182       25,131   25,229        47%

 Connecticut                 4,732        4,475    4,587         5%

 Delaware                    5,205        3,206    1,035        38%

 District of                   312          312      741         0%
 Columbia

 Georgia                    34,012       20,472   11,901        40%

 Illinois                   63,642       39,855    7,270        37%

 Indiana                    51,432       35,603   25,545        30%

 Kentucky                   18,817       12,258   38,801        35%

 Maryland                    6,729        4,825    8,123        28%

 Massachusetts              10,683        7,590   10,297        29%

 Michigan                   57,190       35,317   28,126        38%

 Missouri                   12,248        8,174    6,626        33%

 New Jersey                 32,663       26,741   11,388        18%

 New York                   19,889       16,930   15,585        15%

 North Carolina             32,107       21,113    9,193        34%

 Ohio                       50,946       32,799   19,446        36%

 Pennsylvania               64,224       59,622   17,103         7%

 Rhode Island                  328          328      420         0%

 South Carolina             34,791       20,097    8,420        42%

 Tennessee                  65,051       32,138   11,991        51%

 Virginia                   23,333       15,529   25,261        33%

 West Virginia              41,510       31,377    4,901        24%

 Wisconsin                  21,209       12,269   10,361        42%

 Total                     698,235      466,158  302,350        33%

5. Proposed Assumptions for Highway Vehicles

a. Affected Entities. The highway vehicle sector encompasses those sources
that normally operate on roads and highways. All light-duty cars and
trucks, medium-duty trucks, heavy-duty trucks, motorcycles, and buses are
included in this category. NOx emissions from these sources, including the
effects of the fuel used to power these sources, are included in the
estimate of emissions from the highway vehicle sector. These estimates also
incorporate the effects of emission control programs which are intended to
reduce emissions from these sources.

b. Methodology Used to Develop the Proposed Highway Vehicle Budget
Component

i. Budget Component Determination Method and Alternatives Considered. The
EPA proposes to derive States' highway vehicle budget component by
estimating the State-by-State NOx emissions from highway vehicles in 2007.
These estimates were developed by modeling the emissions expected in 2007
from all highway vehicles. The estimates are based on: 1) a projection for
each State's number of vehicle-miles-traveled (VMT) by vehicle category in
2007, as described in section III.B.5.b.iii; and 2) the estimated emission
rate for each vehicle category in 2007, assuming implementation of those
measures incorporated in existing SIPs, measures already implemented
federally, and those additional measures expected to be implemented
federally. The additional Federal measures include:

   * National Low Emission Vehicle Standards
   * 2004 Heavy-Duty Engine Standards
   * Revisions to Emissions Test Procedure.

These measures either have been promulgated in final form or are expected
to have been promulgated by the time today's proposal is made final. All of
these measures are expected to be implemented nationwide or in the 49
States other than California and hence would be in effect in those States
required to submit a transport SIP under this proposal. Since these
measures would be in effect as of 2007, EPA believes it is appropriate to
reflect the impact of these measures in 2007 in calculating States' highway
vehicle budget components and proposes to do so. However, it should be
noted that the NLEV program is a voluntary program that will not take
effect until the Northeastern States and the auto manufacturers agree to
participate. While EPA expects such an agreement to be reached, the Agency
acknowledges that such an agreement is not certain at the current time.
Should the Northeastern States and the auto manufacturers fail to agree to
implement NLEV, EPA proposes to revise States' highway vehicle budget
components and overall NOx budgets accordingly. This revision would
increase States' NOx budgets. The EPA requests comment on this proposal.

The EPA proposes not to incorporate in its calculation of the highway
vehicle budget component any benefits from Tier 2 light-duty vehicle
standards. The Agency's decision to go forward with such standards is
contingent on the determination that such standards are necessary to
achieve air quality objectives and can be done so in a cost-effective
manner. The EPA is currently engaged in an investigation of these and other
issues related to Tier 2 standards, and it is premature to assume that such
standards will be implemented prior to 2007. Therefore, EPA cannot at this
time model the impact of a potential set of Tier 2 standards on emissions
from affected States in 2007. If such standards are promulgated and
implemented prior to 2007, EPA proposes to adjust States' highway vehicle
budget components and overall NOx budgets accordingly to reflect
implementation of these standards. The EPA requests comment on this
approach for Tier 2 emission standards.

The EPA proposes to assume full implementation of other highway vehicle
emission control programs as required by the CAA or contained in existing
SIPs and maintenance plans in calculating each State's highway vehicle
budget component for the purpose of establishing a statewide NOx emission
budget. This proposal would encompass I/M programs, Federal Phase II RFG,
Clean Fuel Fleet programs, and other programs intended to reduce NOx
emissions from highway vehicles. The EPA further proposes to assume
continued participation in the RFG program by the mandatory RFG areas and
by those areas which have opted into the program. The EPA requests comment
on the appropriateness of these proposals. In particular, EPA requests
comment on whether the extent of the RFG coverage area chosen in
calculating the highway vehicle budget component is appropriate, and on
whether the normally-required NOx reductions from I/M programs in those
areas whose section 182 waivers currently exempt them from the I/M NOx
performance standard should be assumed when calculating State highway
vehicle budget components and overall NOx budgets.

States have the discretion to adopt additional mobile source control
measures as part of their transport SIP revision in order to meet their NOx
budget or to meet other air quality obligations. The EPA agrees with OTAG
that States should consider such control measures as RFG, I/M programs, and
transportation control measures beyond those already included in State
SIPs. These measures are applied and implemented locally rather than
nationally, and in some cases their specific features are designed locally
as well. The EPA recognizes that States and localities have more detailed
information on which to base any decision to expand these programs beyond
their current extent than does EPA. State and local decisions to expand
these programs can be based on the unique characteristics of local areas
and the nature of the ozone challenges they face. In particular, these
programs provide VOC reductions larger than the NOx reductions they
provide, and the OTAG modeling suggests that VOC reductions affect local
ozone levels but have limited impact on downwind ozone levels. The EPA
believes these programs may be attractive to many States and localities
because they can offer large reductions in VOC, CO, and toxics emissions,
in addition to reductions in NOx emissions, at a relatively modest cost.
Hence States may want to adopt these or other local measures to achieve or
maintain local ozone or CO attainment or to reduce exposure to toxic air
pollutants, as well as to meet their obligations for NOx reductions to meet
their statewide NOx budget. States which choose to do so may be able to
adopt less-stringent controls on other sectors while still meeting their
obligations to reduce NOx emissions as described in this rulemaking. For
the reasons discussed above, EPA is not proposing to reduce the budgets to
assume further controls from Federal or State motor vehicle measures. The
NOx reductions alone from those measures do not appear sufficiently cost
effective in all of the areas that would be subject to reduced budgets,
since for some areas there is no need for local ozone or CO reductions.

ii. Activity Level Projections and Growth Considerations. The EPA proposes
to use the best available projections of State VMT levels in 2007 in
calculating States' budget components for the highway vehicle sector. For
the purposes of providing estimates in today's action , EPA has used the
2007 projections developed by OTAG. The OTAG projections were based on
actual 1990 VMT levels for each State, based on State submittals to OTAG
where available or on estimates generated by the Highway Performance
Monitoring System (HPMS) otherwise. These base year VMT levels were then
projected to 2007, using growth rates agreed to or in some cases supplied
by the State. The EPA proposes to use the state-specific estimates of VMT
growth by vehicle category through 2007, as developed in the OTAG process,
in calculating States' highway vehicle budget components and overall NOx
budgets. In most cases, States accepted OTAG-proposed growth estimates
equal to those used by the Agency in the October 1995 edition of its annual
report, "National Air Pollutant Emission Trends"(29), although several
States submitted (and the OTAG inventory incorporated) growth estimates
that were significantly lower than the growth estimates used by the Agency
in its 1995 Trends report. One State submitted growth estimates that were
higher than the 1995 Trends report growth estimates.

The EPA has considered a number of options to forecast highway VMT levels
in 2007. For today's proposal, EPA has chosen to use the projected VMT
levels used by OTAG. As discussed above, most of those growth rate
estimates were consistent with EPA's estimates in its Trends report.(30)
Furthermore, the open, collaborative OTAG process allowed interested
parties to review VMT and VMT growth estimates when constructing future
year emission estimates. The EPA encourages each State subject to today's
action to review the OTAG 1990 VMT levels and VMT growth projections again;
EPA also requests each affected State to review these projections for
consistency with other State projections, including projections used in
SIPs for nonattainment areas. The EPA expects that all involved State and
local agencies will coordinate and concur on any new VMT growth rate
submissions, as should be the case when growth rates are developed for use
in SIP revisions containing VMT and emissions projections. The EPA proposes
to incorporate revised VMT growth projections received from States during
the comment period of today's action into its final rule, if appropriately
explained and documented.

The EPA further proposes to use actual 1995 VMT levels as the base year for
the 2007 inventory projections in the final rule, rather than continuing to
rely on the 1990 VMT levels. The Agency believes that the accuracy of
projected 2007 VMT levels would be improved by using a more recent base
year, since the impact of any deviation between projected and actual growth
rates through 2007 would be reduced. For this reason, EPA proposes to use
and requests States to submit VMT data for 1995. The EPA requests comment
on this proposal to use actual 1995 VMT levels as the base year for
projecting 2007 VMT levels and on the use of 1990 VMT levels as the base
year in today's action.

iii. Seasonal/Weekday/Weekend Adjustment. The EPA proposes to project
States' highway vehicle budget components during the 2007 ozone season
based on the actual number of weekday and weekend days during the 2007
ozone season. The OTAG inventory projections, by contrast, were based on
the actual number of weekend and weekday days during the specific ozone
episodes modeled by OTAG. The VMT levels on weekdays differ from VMT levels
on weekend days, all other things being equal, so it is important to use
the proper proportion of weekdays and weekend days when developing highway
vehicle budget components and overall State NOx budgets. Since States must
demonstrate compliance with their NOx budgets over the entire ozone season
in 2007, EPA believes that the actual number of weekdays and weekend days
during the 2007 ozone season should be used to calculate highway vehicle
budget components and overall State NOx budgets. The EPA requests comment
on this proposal.

The EPA also proposes to base its calculation of State highway vehicle
budget components and overall NOx budgets on the average temperatures for
the affected months. The OTAG projections are based on the actual daily
temperature ranges experienced during the episodes modeled by OTAG. These
temperature ranges may not be representative of the typical temperatures
experienced during the whole ozone season as defined in today's action,
since ozone episodes tend to occur during periods of above-average
temperature. The estimated highway vehicle budget components presented in
Table III-8 are based on the OTAG temperature ranges and hence are based on
temperatures that may be higher than the average temperatures experienced
during the 5 ozone season months. In its final rulemaking, EPA will revise
its highway vehicle budget components to reflect the average temperatures
for the affected months. The impact of these temperature differences on
highway vehicle budget components is expected to be modest, because even
large differences in summer temperatures have only a modest effect on
estimated NOx emissions from highway vehicles. For example, as temperature
goes from 75 to 95 degrees Fahrenheit, NOx emissions increase by
approximately 4 percent. The actual difference between summer average and
ozone-episode temperature ranges is considerably smaller than 20 degrees
Fahrenheit, so the size of the temperature adjustment described above would
be correspondingly smaller. The EPA requests comment on the appropriateness
of this adjustment and on its proposed use of ozone season average
temperatures instead of ozone-episode temperatures in developing States'
highway vehicle budget components and overall NOx budget.

iv. Comparison to OTAG Recommendations. The set of presumptive controls
modeled by EPA to develop the highway vehicle budget components and overall
NOx budgets is consistent with the OTAG recommendations. The OTAG supported
expeditious implementation of Federal measures, including those listed
above. The OTAG also recommended the continued use of RFG in the mandated
and current opt-in areas, as reflected in EPA's proposed method for
calculating highway vehicle budget components. The OTAG supported State
flexibility to opt into the RFG program and encouraged areas which face
local nonattainment, maintenance, or downwind transport challenges to opt
into the RFG program. The EPA proposes to provide States with such
flexibility in devising strategies to meet the NOx budgets outlined in
section III.C. The EPA believes that Federal Phase II RFG can provide
cost-effective reductions in ozone precursors, since it will reduce
emissions of both VOC and NOx. Phase II RFG can provide VOC and NOx
reductions at a cost of $2600-3500 per ton, depending on the amount of fuel
affected by any expansion of the program offer. Hence EPA encourages States
to consider adopting Federal Phase II RFG in areas eligible to opt into the
program as part of their revised SIP.

The OTAG further recommended that "The USEPA should adopt and implement by
rule an appropriate sulfur standard to further reduce emissions and assist
the vehicle technology/fuel system [to] achieve maximum long term
performance." The EPA is engaged in an extensive evaluation of
gasoline-based emission controls as part of its work to evaluate the need
for and benefits and costs of Tier 2 vehicle emission standards. This
evaluation includes an examination of the costs and benefits of gasoline
sulfur control. At this time, however, EPA has not yet defined, quantified,
or evaluated the impact of sulfur control. Furthermore, EPA has not at this
time decided whether to require sulfur reductions. Therefore, EPA believes
it is not appropriate to assume such reductions when calculating highway
vehicle budget components or overall NOx budgets. If the Agency does
establish gasoline sulfur standards, EPA proposes to adjust State highway
vehicle budget components and overall State NOx budgets to reflect the
emissions impact of such standards on NOx emissions from highway vehicles
in 2007. The EPA requests comment on this proposal.

The OTAG also recommended that EPA should evaluate the potential for
reformulation of diesel fuel for reducing NOx emissions from highway and
nonroad diesel engines. The EPA is engaged in an examination of the need
for and potential benefits of diesel fuel reformulation as part of its
assessment of the feasibility of its proposed 2004 heavy-duty highway
vehicle standards. At the present time, however, EPA does not have
sufficient information to adequately quantify the potential of diesel fuel
reformulation to reduce NOx emissions or to determine the costs of various
reformulation strategies. Hence EPA has not incorporated any emission
reductions from diesel fuel reformulation in its calculation of highway
vehicle budget components or overall NOx budgets. The EPA will continue to
evaluate the potential of diesel fuel reformulation to reduce NOx emissions
and enable the proper functioning of engine-based emission controls through
the collaborative process developed as a result of the 1995 Statement of
Principles. If EPA does promulgate requirements to reformulate diesel fuel,
EPA proposes to revise at that time States' highway vehicle budget
components and overall NOx budgets to reflect the projected impact of the
required diesel fuel reformulation on NOx emission from highway vehicles.

The OTAG called on the States to adopt inspection and maintenance programs
where required by the CAA. This recommendation is reflected in EPA's
proposed method of calculating the highway vehicle emissions, as discussed
above. The OTAG also called on the States to consider expanding I/M
programs to urbanized areas of greater than 500,000 population in the "fine
grid" portion of the OTAG region. The EPA believes that properly designed
and operated I/M programs are a practicable and cost-effective means of
reducing ozone precursors. These programs provide VOC reductions as large
or larger than the NOx reductions they provide, while the OTAG modeling
suggests that VOC reductions affect local ozone levels but have limited
impact on downwind ozone levels. Therefore, while EPA recognizes that many
of the States subject to today's proposal have already implemented or plan
to implement I/M programs, and while EPA encourages the States to consider
extending I/M programs in other areas to reduce ozone precursors as part of
their attainment and maintenance strategy, EPA proposes not to assume
expansion of currently-required I/M programs in calculating States' highway
vehicle budget components or overall NOx budgets. The EPA requests comment
on this proposal. Notwithstanding this proposal, because I/M programs cause
reductions in NOx emissions implicated in ozone transport, EPA encourages
the States to consider implementing effective I/M programs in other areas
as part of their transport SIP.

c. Summary and Proposed Highway Vehicle Budget Components. The highway
vehicle budget components presented in Table III-8 were developed by
evaluating the emissions that would result in 2007 when existing CAA
requirements are met and additional Federal measures are implemented. These
estimates are based on the 1990 VMT levels and growth rates supplied to
OTAG by the States.

            Table III-8. Budget Components for Highway Vehicles

                      (Tons of NOx per Ozone Season)

        State         2007 CAA Base  Proposed Budget    Percent
                                        Component      Reduction

 Alabama                     61,205            56,601      8%

 Connecticut                 23,446            17,392     26%

 Delaware                     8,867             8,449      5%

 District of                  3,081             2,267     26%
 Columbia

 Georgia                     88,363            77,660     12%

 Illinois                    91,656            77,690     15%

 Indiana                     72,294            66,684      8%

 Kentucky                    49,789            46,258      7%

 Maryland                    39,941            28,620     28%

 Massachusetts               35,308            23,116     35%

 Michigan                    91,449            81,453     11%

 Missouri                    61,778            55,056     11%

 New Jersey                  55,783            39,376     29%

 New York                   114,234            94,068     18%

 North Carolina              80,955            73,056     10%

 Ohio                       104,422            92,549     11%

 Pennsylvania                81,805            73,176     11%

 Rhode Island                 7,566             5,701     25%

 South Carolina              53,566            49,503      8%

 Tennessee                   72,907            67,662      7%

 Virginia                    88,792            79,848     10%

 West Virginia               23,267            21,641      7%

 Wisconsin                   46,390            41,651     10%

 Total                    1,356,864         1,179,477     13%

d. Conformity. The CAA section 176 (c) requires federally supported
activities to conform to the purpose of the SIP. Specifically, the Federal
government cannot support an activity that causes or worsens air quality
violations or delays attainment. Conformity applies to nonattainment and
maintenance areas.

The CAA establishes several more specific requirements regarding how
conformity of Federal highway and transit activities must be determined.
For example, the emissions expected from the implementation of
transportation plans and programs must be consistent with estimates of
emissions from highway vehicles and necessary emissions reductions
contained in the SIP. The EPA has promulgated regulations (40 CFR parts 51
and 93) to implement the general and transportation-related conformity
requirements.

The EPA proposes that neither the highway vehicle budget components nor the
overall NOx budgets proposed in this rulemaking change the existing
conformity process or existing SIPs' motor vehicle emissions budgets under
the conformity rule. The EPA does not believe that Federal agencies or
Metropolitan Planning Organizations (MPOs) operating in States subject to
today's proposal must demonstrate conformity to the proposed budgets or the
highway vehicle budget component levels used to calculate the budgets.
Whereas the conformity provisions in section 176(c) of the CAA apply to
nonattainment and maintenance areas, the States' emission budgets apply
statewide. Without greater geographic disaggregation in the SIP, Federal
agencies and MPOs will not be able to determine consistency with the
emission estimates in the transport SIP revision being requested in today's
proposal. Furthermore, EPA does not believe that consistency with the
statewide emissions estimates in transport SIPs can be used to determine
whether or not a transportation or other Federal activity will cause or
worsen local air quality violations. The statewide budget does not
represent the level of emissions necessary for attainment or a reasonable
further progress milestone. In contrast, attainment demonstrations, 15
percent SIPs, post-1996 rate-of-progress, and maintenance plans--SIPs to
which EPA requires conformity--do contain motor vehicle and other emissions
estimates on which the attainment, maintenance, or progress demonstration
depends.

6. Proposed Assumptions for Nonroad Sources

a. Affected Entities. The nonroad sector encompasses those mobile sources
that normally do not operate on roads and highways. This sector includes
recreational and commercial marine engines; small engines such as those
used to power snowmobiles, chainsaws, or lawn and garden equipment; larger
nonroad engines such as those used to power agricultural equipment,
construction equipment, industrial/commercial equipment (forklifts, pumps,
compressors, generator sets), and mining equipment; aircraft, and
locomotives. Emissions from these sources, including the effects of the
fuel used to power these sources, would be included in the estimate of
emissions from the nonroad sector. These estimates would also incorporate
the effect of emission control programs which are intended to reduce
emissions from these sources.

b. Methodology Used to Determine the Proposed Nonroad Budget Component.

i. Budget Component Determination Method and Alternatives Considered. The
EPA proposes that the States' nonroad budget component be derived by
estimating the State-by-State NOx emissions from nonroad engines in 2007.
These estimates would be developed by modeling the emissions expected in
2007 from all nonroad engines. The estimates would be based on: 1) a
projection for each State's number of engines of each type and application
in 2007; 2) a projection of the level of activity for each type and
application of nonroad engine in 2007; and 3) the estimated emission rate
for each engine type and application in 2007, assuming implementation of
those measures incorporated in existing SIPs, measures already implemented
federally, and those additional measures expected to be implemented
federally. The additional Federal measures include:

   * Federal Small Engine Standards, Phase II
   * Federal Marine Engine Standards (for diesels > 50 horsepower)
   * Federal Locomotive Standards
   * 1997 Proposed Nonroad Diesel Engine Standards.

All of these measures either have been proposed or are expected to be
proposed in the near future and are sufficiently well-defined to model
their emission impacts in 2007. These measures are expected to be
implemented nationwide and hence would be in effect in those States
required to submit a SIP under this proposal. Since these measures would be
in effect as of 2007, EPA believes it is appropriate to reflect the impact
of these measures in 2007 in calculating States' nonroad budget components
and proposes to do so.

States have the discretion to adopt additional nonroad control measures as
part of their transport SIP revision in order to meet their NOx budget or
to meet other air quality obligations. The EPA agrees with OTAG that States
should consider such control measures as RFG, scrappage programs, and
activity level control measures beyond those already included in State
SIPs. These measures are applied and implemented locally rather than
nationally, and in some cases their specific features are designed locally
as well. The EPA recognizes that States and localities have more detailed
information on which to base any decision to expand these programs beyond
their current extent than does EPA. State and local decisions to expand
these programs can be based on the unique characteristics of local areas
and the nature of the ozone challenges they face. In particular, some of
these programs tend to provide VOC reductions that are larger than the NOx
reductions they provide, along with significant CO, toxics, and particulate
matter reductions. The OTAG modeling suggests that VOC reductions affect
local ozone levels but have limited impact on downwind ozone levels. Hence
States may want to adopt these measures to help achieve or maintain local
attainment, as well as to help meet their obligation to mitigate transport.
States which choose to do so may be able to adopt less-stringent controls
on other sectors while still complying with their overall budget.

ii. Activity Level Projections and Growth Considerations. The EPA proposes
to use the best available projections of State nonroad activity levels in
2007 in calculating States' budget components for the nonroad sector. For
the purposes of providing estimates in today's action, EPA has used the
2007 projections developed by OTAG. The OTAG projections were based
primarily on estimates of actual 1990 nonroad activity levels found in the
October 1995 edition of EPA's annual report, "National Air Pollutant
Emission Trends." Several States submitted estimates of their 1990 nonroad
activity levels that differed from these estimates. The OTAG growth rates
were based on growth projections issued by the Bureau of Economic Affairs
and hence were consistent with those used by the Agency in its October 1995
"Trends" report. At the present time, EPA considers the growth estimates to
be reasonable; however, the Agency requests comment on its proposal to use
the OTAG growth projections of nonroad activity levels in calculating the
nonroad budget components and overall NOx budgets for those States subject
to today's proposal. The basis of the OTAG growth projections is explained
in greater detail in OTAG's Emission Inventory Development Report, Volume
I, pages 11-13.

The EPA encourages each State subject to today's proposal to review the
OTAG nonroad growth projections again; EPA also requests each affected
State to review these projections for consistency with other State
projections, including projections used in SIPs for nonattainment areas.
The EPA expects that all involved State and local agencies will coordinate
and concur on any new nonroad growth rate submissions, as should be the
case when growth rates are developed for use in SIP revisions containing
nonroad activity level and emissions projections. The EPA proposes to
incorporate revised nonroad growth projections received from States during
the comment period of today's proposal into its final rule, if
appropriately explained and documented. The EPA requests comment on these
proposals.

The EPA further proposes to use estimated historical 1995 nonroad activity
levels as the base year for the 2007 inventory projections in the final
rule, rather than continuing to rely on the 1990 nonroad activity levels.
The Agency believes that the accuracy of projected 2007 nonroad activity
levels would be improved by using a more recent base year, since the impact
of any deviation between projected and actual growth rates through 2007
would be reduced. For this reason, EPA proposes to use its 1997 "Trends"
estimate of 1995 nonroad activity levels in its final rulemaking and
requests comment on this proposal. The EPA also requests comment on its
proposal to use actual 1995 nonroad activity levels as the base year for
projecting 2007 nonroad activity levels and on the use of 1990 nonroad
activity levels as the base year in today's action.

iii. Seasonal/Weekday/Weekend Adjustment. The EPA proposes to project
States' nonroad budget components during the 2007 ozone season based on the
actual number of weekday and weekend days during the 2007 ozone season. The
OTAG inventory projections, by contrast, were based on the actual number of
weekend and weekday days during the specific ozone episodes modeled by
OTAG. Nonroad activity levels on weekdays differ from levels on weekend
days, all other things being equal, so it is important to use the proper
proportion of weekdays and weekend days when developing nonroad budget
component levels and overall State NOx budgets. Since States must
demonstrate compliance with their NOx budgets over the entire ozone season
in 2007, EPA believes that the actual number of weekdays and weekend days
during the 2007 ozone season should be used to calculate budget components
and overall State NOx budgets. The EPA requests comment on this proposal.

The EPA also proposes to base its calculation of the State nonroad budget
components and overall NOx budgets on the average temperatures for the
affected months. The OTAG projections are based on the actual daily
temperature ranges experienced during the episodes modeled by OTAG. These
temperature ranges may not be representative of the typical temperatures
experienced during the whole ozone season as defined in today's proposal,
since ozone episodes tend to occur during periods of above-average
temperature. The estimated nonroad emissions presented in Table III-9 are
based on the OTAG temperature ranges and hence are based on temperatures
that may be higher than the average temperatures experienced during the
five ozone season months. In its final rulemaking, EPA will revise its
nonroad budget components and overall NOx budgets to reflect the average
temperatures for the affected months. The impact of these temperature
differences on nonroad budget components and overall NOx budgets is
expected to be modest, because even large differences in summer
temperatures have only a modest effect on estimated nonroad NOx emissions.
The EPA requests comment on the appropriateness of this adjustment and on
its proposed use of ozone season average temperatures instead of
ozone-episode temperatures in developing States' nonroad budget components
and overall NOx budget.

iv. Comparison to OTAG Recommendations. The set of presumptive controls
modeled by EPA to develop the nonroad sector budget components for each
State is consistent with the OTAG recommendations. The OTAG supported
expeditious implementation of Federal measures, including those listed
above. The OTAG also recommended the continued use of RFG in the mandated
and current opt-in areas, as reflected in EPA's proposed method for
calculating the nonroad budget components. As discussed in section III.B.5,
OTAG supported State flexibility to opt into the RFG program and encouraged
areas which face local nonattainment, maintenance, or downwind transport
challenges to opt into the RFG program. Although current EPA guidance
indicates that Phase II RFG will not reduce NOx emissions from nonroad
engines, Phase II RFG will offer significant VOC emission reduction
benefits from nonroad engines. As discussed in section III.B.5, EPA
encourages States to consider adopting Federal Phase II RFG in areas
eligible to opt into the program as part of their revised SIP.

Current EPA guidance also indicates that changes in fuel sulfur levels,
including any changes that may result from EPA's Tier 2 study, would not
affect NOx emissions from gasoline-powered nonroad equipment since such
equipment is not equipped with catalytic converters. Hence EPA proposes not
to change States' nonroad budget components if EPA should promulgate sulfur
standards as a result of the Tier 2 study or any other EPA analysis, unless
nonroad engines equipped with catalytic converters begin to be introduced
into the U.S. marketplace. The EPA requests comment on this proposal.

As discussed in section III.B.5, OTAG recommended that EPA should evaluate
the potential for reformulation of diesel fuel for reducing NOx emissions
from both highway and nonroad diesel engines. The EPA is engaged in an
examination of the need for and potential benefits of diesel fuel
reformulation as part of its assessment of the feasibility of its proposed
2004 heavy-duty highway vehicle emission standards but has not as of this
writing completed its examination. Furthermore, EPA does not have
sufficient information at the present time to quantify adequately the
potential of diesel fuel reformulation to reduce NOx emissions from nonroad
diesel engines or to determine the costs of various reformulation
strategies. For these reasons, EPA has not incorporated any emission
reductions from diesel fuel reformulation in its calculation of States'
nonroad budget components. If EPA does promulgate requirements to
reformulate diesel fuel, EPA will evaluate whether additional research to
determine the impact of diesel fuel reformulation on NOx emissions from
nonroad engines is needed. The EPA proposes to defer any consideration of
revisions to States' nonroad sector budget components and overall NOx
budgets to reflect the impact of diesel fuel reformulation on NOx emission
from nonroad engines until such time as diesel fuel reformulation
standards, and the effect of those standards on nonroad engine NOx
emissions, have been adequately defined. The EPA requests comment on this
proposal.

c. Summary and Proposed Nonroad Budget Components. The nonroad mobile
sources sector budget components presented in Table III-9 were developed by
evaluating the emissions that would result in 2007 when existing CAA
requirements are met and additional Federal measures are implemented. These
estimates are based on the 1990 activity levels and growth rates supplied
to OTAG by the States.

            Table III-9. Budget Components for Nonroad Sources

                      (Tons of NOx per Ozone Season)

         State          2007 CAA    Proposed Budget     Percent
                          Base         Component       Reduction

 Alabama                    21,742           18,727       14%

 Connecticut                11,679            9,581       18%

 Delaware                    4,663            4,262        9%

 District of                 3,609            3,582        1%
 Columbia

 Georgia                    27,151           22,714       16%

 Illinois                   66,122           56,429       15%

 Indiana                    30,489           27,112       11%

 Kentucky                   25,327           22,530       11%

 Maryland                   21,717           18,062       17%

 Massachusetts              22,865           19,305       16%

 Michigan                   29,005           24,245       16%

 Missouri                   22,582           19,102       15%

 New Jersey                 25,150           21,723       14%

 New York                   35,934           30,018       16%

 North Carolina             22,867           18,898       17%

 Ohio                       46,214           42,032        9%

 Pennsylvania               33,707           29,176       13%

 Rhode Island                2,511            2,074       17%

 South Carolina             15,446           12,831       17%

 Tennessee                  54,710           47,065       14%

 Virginia                   29,160           25,357       13%

 West Virginia              10,966           10,048        8%

 Wisconsin                  19,208           15,145       21%

 Total                     582,824          500,018       14%

C. State-by-State Emissions Budgets

The EPA is proposing a statewide emission budget for the year 2007 for each
State covered by today's action. The proposed statewide budgets were
calculated by summing the budget components which were calculated as
described above. Budget components were calculated for the following five
sectors: electric utility, nonutility point, area, nonroad engines, and
highway vehicles.

The proposed overall budgets to be achieved by 2007 include reductions from
all Federal programs that would continue to result in emission reductions
from the compliance date for the State-adopted rules (between September
2002 and September 2004 that EPA establishes in its final rulemaking) to
2007. In 2007, EPA plans to begin a reassessment of transport. At that
time, EPA will determine how any new data and tools (such as new air
quality models) should be incorporated. The portion of the budget over
which States have control (i.e., the non-Federal portion) would have to be
implemented between September 2002 and September 2004. These concepts are
fully discussed in section V, SIP Revisions and Approvability Criteria, of
this rulemaking.

The proposed State-by-State budgets are shown in Table III-10 below. This
table compares the proposed budgets to the 2007 CAA emissions which were
the starting point for the calculation.

  Table III-10. Proposed Seasonal NOx Emissions Budget For States Making A
         Significant Contribution to Downwind Ozone Nonattainment

                      (Tons of NOx per Ozone Season)

        State           2007 CAA        Proposed      Percent
                        Emissions     2007 Budget    Reduction

 Alabama                     237,062       152,634      36%

 Connecticut                  50,159        39,445      21%

 Delaware                     30,671        21,342      28%

 District of                   8,128         7,054      9%
 Columbia

 Georgia                     254,373       162,905      35%

 Illinois                    343,742       213,077      38%

 Indiana                     357,647       203,734     100%

 Kentucky                    261,422       155,667      40%

 Maryland                    111,841        70,994      36%

 Massachusetts               107,437        73,263      32%

 Michigan                    287,827       194,542      32%

 Missouri                    195,547       111,890      43%

 New Jersey                  139,537       104,270      25%

 New York                    225,281       181,254      19%

 North Carolina              228,395       149,803      34%

 Ohio                        406,785       233,584      43%

 Pennsylvania                322,034       218,671      32%

 Rhode Island                 11,599         9,429      19%

 South Carolina              155,586       105,941      31%

 Tennessee                   276,653       178,173      35%

 Virginia                    212,265       162,879      21%

 West Virginia               164,362        91,273      44%

 Wisconsin                   148,171        95,181      35%

 Total               334,266,508,374     2,937,005      35%

D. Recalculation of Budgets

The EPA is proposing statewide emissions budgets calculated as described
above. The EPA specifically invites public comment on the overall approach
as well as the individual elements that were used in these calculations
(e.g., emission factors, source-specific data, and, growth assumptions).
The EPA is proposing that the same elements and assumptions used in the EPA
budget calculations be used by the States as they develop revisions to
their SIPs in response to today's proposal. However, EPA recognizes that
changes to these individual elements may be warranted. If changes to any of
these elements are appropriate, based on comments received, EPA proposes
recalculating the budgets with the revised data, as described below. The
intention of this procedure is to take into account new information that
would replace less accurate data previously relied upon. That is, EPA
intends to continue to use the best information available as well as to
assure that the States carry out their plans to reduce emissions so that,
in the end, the transport of ozone and ozone precursors is decreased.

For example, for nonutility point sources, OTAG recommended that RACT
should be considered for individual medium sized nonutility point sources.
The EPA proposed budget calculations generally follow the OTAG
recommendations. Because the definition of RACT may vary from
source-to-source, it is not possible to precisely forecast emissions
reductions due to RACT on a source-specific basis. States, however, may
have source-specific information useful in determining RACT for sources in
their States and may, therefore, provide more precise information. With
respect to the large nonutility point sources, missing data in the OTAG
emissions inventories precludes EPA from precisely following the
recommended definitions of large sources. Thus, States may provide more
precise information for EPA to use in the budget calculations. In such
cases, EPA is proposing to recalculate the budgets to take into account the
better data. New data should be submitted by the end of the public comment
period so that recalculation would occur prior to final rulemaking on this
proposal; if any additional data become available after EPA's final
rulemaking action, such data could be considered prior to State submittal
of revised SIPs. The EPA is soliciting comment on this approach.

Similarly, with respect to growth assumptions, States should use the same
growth rates EPA used to calculate the proposed budgets, unless better
information indicates that the growth assumptions should be revised. New
data should be submitted by the end of the public comment period so that
recalculation would occur prior to final rulemaking on this proposal; if
any additional data become available after EPA's final rulemaking action,
such data could be considered prior to State submittal of revised SIPs.
Changes in growth that are the result of clearly identified control
strategies which can be shown to provide real, permanent, and quantifiable
changes in growth, such as programs to reduce VMT, may also be creditable
toward meeting the 2007 budget. The EPA is soliciting comment on this
approach.

From time to time, EPA updates its models and inventory estimates to
reflect new information. As models change, EPA recognizes that projected
emission levels such as those used to develop the overall State NOx budgets
and sector-specific budget components proposed in today's action may
change. Furthermore, EPA recognizes that a set of control strategies which
an earlier model projects to result in a given level of emissions may be
estimated to result in a greater or lesser level of emissions, when
evaluated using a newer model, both in terms of absolute emission levels
and the level of emissions relative to some other set of control
strategies. Similar to the discussion above on source-specific data and
growth assumptions, States should use the same models and inventories EPA
used to calculate the proposed budgets, unless better information indicates
that they should be revised. Changes that are the result of changes in EPA
models and/or inventories may lead to an upward or downward recalculation
of the budget prior to 2007. New data should be submitted by the end of the
public comment period so that recalculation would occur prior to final
rulemaking on this proposal; if any additional data become available after
EPA's final rulemaking action, such data could be considered prior to State
submittal of revised SIPs. The EPA requests comment on whether the State
NOx budgets and budget components for specific sectors should be revised
when EPA emission and inventory models change and on whether States' SIP
revisions in response to today's action should be revised. The EPA expects
to address this issue through the process described in section V, SIP
Revisions and Approvability Criteria, to define the reporting and
implementation requirements for today's action.

Finally, it should be noted that it is possible that EPA may introduce
additional Federal measures after State emission budgets are defined but
before 2007. As discussed in this rulemaking, EPA is proposing to base
State NOx budgets on a calculation of the NOx emissions that would result
in each affected State in 2007 assuming the implementation of a set of
reasonable control measures. Any additional Federal measures beyond those
described in today's action would be implemented regardless of State action
to meet its transport SIP obligations. The EPA considered two approaches in
this instance: one which would, in effect, provide emissions reduction
credit to the State and one that does not. In the first case, one could
argue that real emissions reductions result from the new Federal measures
and, therefore, the State could receive credits for these reductions and
implement a smaller portion of its planned emission reductions. In the
second approach, the State would be required to continue to implement the
measures in its revised SIP because those measures continue to be
considered reasonable control measures and all reasonable measures are
needed to mitigate transport. The EPA believes the latter approach is more
consistent with the framework of this proposal. However, EPA requests
comment on both of these approaches.

As noted, EPA is proposing to allow recalculation of NOx budgets as new
information becomes available (e.g., changes in response to the
promulgation of additional Federal standards controlling NOx, changes in
EPA emission and inventory models, changes adopted in SIPs in any of the
underlying elements or assumptions used to calculate the State NOx budget,
or less than full implementation of the NLEV rule). The EPA requests
comments on whether State NOx budgets and budget components for specific
sectors should be revised in these cases and whether States' SIP revisions
in response to today's action should be revised either at the request of
EPA or upon the initiation of a State.

IV. Implementation of Revised Air Quality Standards

A. Introduction

On July 16, 1997, President Clinton issued a directive to the Administrator
of EPA on implementation of the revised air quality standards for ozone and
particulate matter. In the directive, the President laid out a plan for how
these standards are to be implemented. A central element in the directive
is the incentive it provides States to act and submit control strategy SIPs
early in exchange for which many areas will need little or no additional
new local emission reductions beyond those reductions that will be achieved
through the regional control strategy. This approach avoids additional
burdens associated with respect to the beneficial ozone control measures
already under way, while at the same time achieving public health
protection earlier.

The Presidential directive was published in the Federal Register on July
18, 1997 (62 FR 38421). The parts of the directive's implementation plan
relevant to the regional NOx reduction strategy proposed in this rulemaking
are described here.

B. Background

Following promulgation of a revised NAAQS, section 107(d)(1) the CAA
provides up to 3 years for State governors to recommend and the EPA to
designate areas according to their most recent air quality. In addition,
under section 172(b) of the CAA, the States will have up to 3 years from a
nonattainment designation to develop and submit SIPs to provide for
attainment of the new standard. The EPA anticipates that it will need the
maximum period allowed under the CAA to designate areas for the 8-hour
standard. Thus, EPA will designate areas by July of 2000. Under the Act,
States, therefore, would need to submit their nonattainment SIPs by 2003.
Section 172(a) of the CAA then allows up to 10 years plus two 1-year
extensions from the date of designation for areas to attain the revised
NAAQS.

C. Implementation Policy

The implementation plan in the Presidential Directive has several goals.
Three of these goals are especially relevant for the NOx reduction strategy
proposed in this rulemaking:

   * Reward State and local governments and businesses that take early
     action to reduce air pollution levels through cost-effective
     approaches.
   * Respond to the fact that pollution can travel hundreds of miles and
     cross many State lines.
   * Minimize planning and regulatory burdens for State and local
     governments and businesses where air quality problems are regional in
     nature.

To achieve these goals, the implementation plan includes a policy for areas
that attain the 1-hour standard but not the new 8-hour standard in which
EPA will follow a flexible implementation approach that encourages cleaner
air sooner, responds to the fact that ozone is a regional as well as local
problem, and eliminates unnecessary planning and regulatory burdens for
State and local governments. A primary element of the policy will be the
establishment under section 172(a)(1) of the CAA of a special
"transitional" classification for areas that participate in the NOx
regional strategy proposed in this rulemaking and/or that opt to submit
early plans addressing the new 8-hour standard. Because many areas will
need little or no additional new local emission reductions to reach
attainment, beyond those reductions that will be achieved through the
regional control strategy, and will come into attainment earlier than
otherwise required, the EPA will exercise its discretion under the law to
eliminate unnecessary local planning requirements for such areas. The EPA
will revise its rules for new source review (NSR) and conformity so that
States will be able to comply with only minor revisions to their existing
programs in areas classified as transitional. During this rulemaking, EPA
will also reexamine the NSR requirements applicable to existing
nonattainment areas in order to deal with issues of fairness among existing
and new nonattainment areas. The transitional classification will be
available for any area attaining the 1-hour standard but not attaining the
8-hour standard as of the time EPA promulgates designations for the 8-hour
standard.

Based on the Agency's review of the latest OTAG modeling, a regional
approach, coupled with the implementation of other already existing State
and Federal CAA requirements, will allow the vast majority of areas that
currently meet the 1-hour standard but would not otherwise meet the new
8-hour standard to achieve healthful air quality without additional local
controls. Of the 96 new counties in the 22-State plus DC region, 92 are
projected to come into attainment as result of the regional NOx reductions
included in the OTAG Run 5 modeling run.(31) A new county is defined as a
county that violates the 8-hour standard but not the 1-hour standard and is
not located in an area for the 1-hour standard designated nonattainment as
of July 1997. (In the docket to this rulemaking is a table with associated
documentation in which EPA lists these 96 new counties in the 22-State plus
DC region with an indication of whether the county is projected to attain
the 8-hour ozone standard based on the OTAG Run 5 modeling run.) This
county information should be understood with two caveats. First, this list
of counties is based on air quality data from 1993-95. The data from this
period will not be the basis for nonattainment area designations for the
8-hour ozone standard. Those designations will be made in the 2000 time
frame and will be based on the most recent air quality data available at
that time (1997-1999). Therefore, while EPA expects that the vast majority
of new counties will attain as a result of the NOx regional control
strategy, the number of new counties may be more or less than the number
indicated above. The EPA is also currently updating this list based on more
current air quality data which will be included in the docket to the final
rule.

Second, the estimate of which counties will attain the 8-hour standard is
based on the specific assumptions made by the OTAG in Run 5. Because the
proposed budgets are

similar but not identical to those contained in Run 5, the estimate may
change when this rule is final and implemented. In addition, some of the
assumptions used to calculate the proposed budgets may change in response
to comments EPA may receive on various portions of this rulemaking.
Therefore, the estimate of which areas will attain the standards through
the final regional NOx strategy may be higher or lower than the number
indicated above. In addition, areas in the region covered by the proposed
NOx reduction strategy in this rulemaking that would exceed the new
standard after the adoption of the regional strategy, including areas that
do not meet the current 1-hour standard, will benefit as well because the
regional NOx program will reduce the extent of additional local measures
needed to achieve the 8-hour standard. In many cases these regional
reductions may be adequate to meet CAA progress requirements for a number
of years, allowing areas to defer additional local controls. In the
22-State plus DC region, of the 124 counties that violate the 8-hour
standard which are located in an area designated nonattainment for the
1-hour standard as of July 1997, 95 are projected to come into attainment
of the 8-hour standard as a result of OTAG Run 5 regional NOx
reductions.(32) The caveats noted above for new counties also apply to the
information presented here. (In the docket to this rulemaking is a table
with associated documentation in which EPA lists these 124 counties in the
22-State plus DC region, including an indication of whether the area is
projected to attain the 8-hour ozone standard as a result of regional NOx
reductions included in the OTAG Run 5 modeling run.)

To determine eligibility for the transitional area classification, ozone
areas will follow the approaches described below based on their status.

1. Areas Eligible for the Transitional Classification

a. Areas attaining the 1-hour standard, but not attaining the 8-hour
standard, that would attain the 8-hour standard through the implementation
of the regional NOx transport strategy for the East. Based on the OTAG
analyses, areas in the region covered by this proposal that can reach
attainment through implementation of the regional transport strategy
outlined in this rulemaking would not be required to adopt and implement
additional local measures. When EPA designates these areas under section
107(d), it will place them in the new transitional classification if they
would attain the standard through implementation of the regional transport
strategy and are in a State that by 2000 submits an implementation plan
that includes control measures to achieve the emission reductions required
by this proposed rule for States in the region covered by this proposed
rule. This is 3 years earlier than an attainment SIP would otherwise be
required. The EPA anticipates that it will be able to determine whether
such areas will attain based on the OTAG and other regional modeling and
that no additional local modeling would be required.

In addition to areas covered by this proposed rule which could receive the
transitional classification, areas in the OTAG region not required to
revise their SIPs in this rulemaking because they do not significantly
contribute to transport may be able to receive the transitional
classification as well. An area in the State could be eligible for the
transitional area classification by submitting a SIP attainment
demonstration in 2000 in which the State adopts NOx emissions decreases
similar to those EPA proposes to establish in this rulemaking where NOx
controls are effective for a given area to demonstrate attainment. The
OTAG's modeling (in particular, OTAG strategy Run 5 described in section
II.B.2, OTAG Strategy Modeling) shows that such a strategy in which a State
adopted NOx emission decreases similar to those EPA proposes to establish
in this rulemaking would achieve attainment in most of these areas that
would become nonattainment under the 8-hour standard.

b. Areas attaining the 1-hour standard but not attaining the 8-hour
standard for which a regional transport strategy is not sufficient for
attainment of the 8-hour standard. To encourage early planning and
attainment for the 8-hour standard, EPA will make the transitional
classification available to areas not attaining the 8-hour standard that
will need additional local measures beyond the regional transport strategy,
as well as to areas that are not affected by the regional transport
strategy, provided they meet certain criteria. To receive the transitional
classification, these areas must submit an attainment SIP prior to the
designation and classification process in 2000. The SIP must demonstrate
attainment of the 8-hour standard and provide for the implementation of the
necessary emissions reductions on the same time schedule as the regional
transport reductions. The EPA will work with affected areas to develop a
streamlined attainment demonstration. By submitting these attainment plans
earlier than would have otherwise been required, these areas would be
eligible for the transitional classification and its benefits and would
achieve cleaner air much sooner than otherwise required.

c. Areas not attaining the 1-hour standard and not attaining the 8-hour
standard. The majority of areas not attaining the 1-hour standard have made
substantial progress in evaluating their air quality problems and
developing plans to reduce emissions of ozone-causing pollutants. These
areas will be eligible for the transitional classification provided that
they attain the 1-hour standard by the year 2000 and comply with the
appropriate provisions of section (a) or (b) above depending upon which
conditions they meet.

2. Areas not Eligible for the Transitional Classification

Areas that do not attain the 1-hour standard by 2000 are not eligible for
the transitional classification. For these areas, their work on planning
and control programs to meet the 1-hour standard by their current
attainment date (e.g., 2005 for Philadelphia and 2007 for Chicago) will
take them a long way toward meeting the 8-hour standard. In addition, the
regional NOx reductions proposed in this rulemaking will also help these
areas meet both the 1-hour and 8-hour standards.

While the additional local reductions that these areas will need to achieve
the 8-hour standard must occur prior to their 8-hour attainment date (e.g.,
2010), for virtually all areas the additional reductions needed to achieve
the 8-hour standard can occur after the 1-hour attainment date. This
approach allows them to make continued progress toward attaining the 8-hour
standard throughout the entire period without requiring new additional
local controls for attaining the 8-hour standard until the 1-hour standard
is attained. These areas, however, will need to submit an implementation
plan within 3 years of designation as nonattainment for achieving that
standard. Such a plan can rely in large part on measures needed to attain
the 1-hour standard. For virtually all of these areas, no additional local
control measures beyond those needed to meet the requirements of subpart 2
of part D and needed in response to the regional transport strategy would
be required to be implemented prior to their applicable attainment date for
the 1-hour standard. Nonattainment areas that do not attain the 1-hour
standard by their attainment date would continue to make progress in
accordance with the requirements of Subpart 2; the control measures needed
to meet the progress requirements under Subpart 2 would generally be
sufficient for meeting the control measure and progress requirements of
Subpart 1 as well.

V. SIP Revisions and Approvability Criteria

A. SIP Revision Requirements and Schedule

For the 1-hour NAAQS, under section 110(k)(5) of the CAA, EPA has the
authority to establish the date by which a State must respond to a SIP
call. This date can be no later than 18 months after the SIP call is issued
in the final rulemaking. The EPA is proposing that the date for SIP
submittal be 12 months after publication of the notice of final rulemaking.
This date is appropriate in light of the fact that States that are subject
to today's rulemaking have already been involved in the OTAG process. In
addition, submitting the transport SIP by this time will facilitate
area-specific SIP planning required under subpart 2 of CAA. Nonattainment
areas required to develop attainment plans need to know what upwind
reductions to expect and when the reductions will occur. The EPA believes
that it is appropriate for all areas subject to this rulemaking--attainment
as well as nonattainment-- to meet the same schedule for making SIP
submittals. Upwind attainment area controls are a critical element for
reducing elevated levels of ozone and NOx emissions flowing into the
downwind nonattainment areas.

For the 8-hour NAAQS, under section 110(a)(1) of the Act, EPA believes it
has the authority to establish different schedules for different parts of
the section 110(a)(2) SIP revision. Specifically, EPA proposes to require
first the portion of the 110(a)(2) SIP revision that contains the controls
required under section 110(a)(2)(D). The EPA proposes to require that the
110(a)(2)(D) portions of the SIPs mandated under the 8-hour ozone NAAQS be
submitted within 12 months of the date of final promulgation of this
rulemaking. This will assist areas that are ultimately designated
nonattainment for the 8-hour standard in their SIP planning under section
172(c) of the CAA and help avoid the kind of delays due to transport that
were experienced by nonattainment areas for the 1-hour standard.

Therefore, under section 110(k)(5) for the 1-hour NAAQS and section
110(a)(1) for the 8-hour NAAQS, a demonstration that each State will meet
the assigned statewide emission budget (including adopted rules needed to
meet the emission budget) must be submitted to EPA as a SIP revision within
12 months of the date of final promulgation of this rulemaking. The EPA
solicits comment on the time frames described above and elsewhere in this
rulemaking. As discussed in section V.B. of this rulemaking, EPA will
evaluate the SIP based on particular control strategies selected and
whether the strategies as a whole provide adequate assurance that the
budget will be achieved. The SIP revision should include the following
general elements related to the regional strategy: 1) baseline 2007
statewide NOx emission inventory (which includes growth and existing
control requirements)--this would generally be the emission inventory that
was used to calculate the required statewide budget, 2) a list and
description of control measures to meet statewide budget, 3) fully-adopted
State rules for the regional transport strategy with compliance dates
providing for control between September 2002 and September 2004, depending
on the date EPA adopts in its final rulemaking, 4) clearly documented
growth factors and control assumptions, and 5) a 2007 projected inventory
that demonstrates that the State measures along with national measures will
achieve the State budget in 2007. The control measures must meet the
requirements for public hearing, be adopted by the appropriate board or
authority, and establish by regulation or permit a schedule and date for
each affected source or source category to achieve compliance. States
should follow existing EPA guidance on emission inventory development and
growth projections.

The EPA recognizes that States may need additional detailed guidance on how
to develop effective transport-mitigation SIPs. Therefore, the EPA intends
to establish a work group with States and affected Federal agencies to
determine what types of additional information and guidance will be
helpful. As discussed below, this work group will also address what types
of tracking and reporting procedures are needed to assure States are making
satisfactory progress towards meeting their required NOx budget once the
SIPs have been put in place.

B. SIP Approval Criteria

1. Budget Demonstration

In response to the final rulemaking, each State will be required to submit
a SIP revision that clearly demonstrates how the State will achieve its
statewide NOx budget by 2007. The NOx budget demonstration should show how
emissions from each sector, or component, of the NOx emissions inventory
will be addressed and that the application of the regional strategy along
with existing requirements will allow total NOx emissions in the State to
be at or below the level of the required NOx budget by 2007.

In section III, Statewide Emissions Budgets, of this rulemaking, EPA
described the control strategies that EPA used in the development of the
statewide NOx emissions budgets. The EPA believes these measures provide
the most reasonable, cost-effective means for mitigating significant
interstate transport. In addition, the control measures are generally
consistent with the OTAG control strategy recommendations. However, States
have the flexibility to adopt a different set of control strategies so long
as they achieve the 2007 budget. There are a variety of different control
programs that could provide the necessary NOx reductions. States may wish
to consider the strategies that EPA used for budget development as a
starting point in developing their specific statewide NOx strategy. Where
States select different control measures for the various components of
their emissions inventory, they should clearly define the particular
control measures and document the methods used to estimate emissions
reductions from implementation of the measures. For example, if a State
elected to adopt more stringent controls for mobile sources than were used
in EPA's calculation of the statewide budget and less stringent controls on
utilities, the State would identify the additional regulations that would
be applied to the mobile sources and the different limits that would be
applied to utilities. The State would submit fully adopted rules for those
sectors with documentation of the projected emissions reductions the
particular control measures would achieve, along with the rules for the
other sectors, and a demonstration that the overall control strategy when
applied to the baseline 2007 emissions inventory would achieve the
statewide 2007 emission budget. The entire NOx emissions inventory must be
accounted for in the demonstration. As discussed in section III.D,
Recalculation of Budgets, if a State has more precise growth estimates and
control assumptions that it wishes to use in developing its NOx budget
demonstration, and EPA agrees they are appropriate, EPA will recalculate
the statewide budget based on those revised numbers. Because any
justifiable lower growth estimates from the State would be used in EPA's
budget calculation, lower growth could not be considered as part of a
State's NOx control strategy to attain the budget (unless the change in
growth is the result of clearly identified control strategies which can be
shown to provide real, permanent, and quantifiable changes in growth).

2. Control Strategies

All the control strategies a State selects to meet its NOx budget must
provide real, permanent, quantifiable, and enforceable reductions. These
attributes are consistent with those required of all SIP revisions (40 CFR
51). Control strategies are generally composed of enforceable limits or
measures applied to a source or group of sources (i.e., sector) for the
purpose of reducing emissions. Control strategies may be expressed as
either a tonnage limit, an emission rate, or a specific technology or
measure. Considerations in addition to compliance with its NOx budget, such
as local impacts, may lead to selection of a particular strategy over
others. In terms of staying within an emissions budget, the effectiveness
of the different strategies vary significantly. A control strategy that
employs a fixed tonnage limitation (or cap) for a source or group of
sources provides the greatest certainty that a specific level of emissions
will be attained and maintained. With respect to transport of pollution, an
emissions cap also provides the greatest assurance to downwind States that
air emissions from upwind States will be effectively managed over time.
Control strategies designed and enforced as an emissions rate limitation
can achieve a measurable emissions reduction, but the targeted level of
emissions may or may not be reached, depending on the actual activity level
of the affected source(s). Finally, control strategies designed as a
specific technology or measure have the greatest uncertainty for achieving
a targeted emissions level due to uncertainty in both the activity level of
the affected source(s) and uncertainty in the effectiveness of the
technology or measure.

Based on the desire to establish control strategies with the greatest
environmental certainty of providing for achievement and maintenance
statewide NOx emissions budget, EPA would recommend that to the maximum
extent practicable, all control strategies be based on a fixed level of
emissions for a source or group of sources. However, EPA recognizes that
this option may be difficult for some sources because: 1) the available
emissions control options may be limited, and 2) the techniques for
quantifying mass emissions to ensure compliance with a tonnage budget may
not be adequate. Therefore, States may select the most appropriate type of
control strategy to achieve and maintain the desired emissions limitation
for each source or group of sources regulated in response to this
rulemaking. To compensate for the lack of certainty inherent in some types
of control strategies (i.e., control strategies that do not set fixed
tonnage budgets) and to address rule effectiveness concerns, States may
want to consider incorporating a compliance margin in their overall budget
calculation. A compliance margin could be used by increasing the level of
controls in the overall budget beyond what is required by this rulemaking.
Section VII discusses an interstate cap-and-trade program for large
combustion sources that EPA intends to develop, in conjunction with
interested States. Because this is a proven and cost-effective control
strategy that provides maximum flexibility to sources, States may wish to
consider this option as part of their regional NOx strategy.

The EPA is also considering ways to extend the cap-and-trade program to
other types of sources. The Agency's interest in developing such approaches
is consistent with the goal in the Implementation Plan for the Revised Air
Quality Standards of working "with the States to develop control programs
which employ regulatory flexibility to minimize economic impacts on
businesses large and small to the greatest possible degree consistent with
public health protection." The EPA recognizes that there are important
advantages of developing a broad-based trading program to provide
incentives for the development of innovative, low-cost ways of controlling
emissions from these sources. Under market-based approaches like a
cap-and-trade program, there will be an incentive for sources to identify
and adopt pollution-minimizing fuels, energy efficiency measures, or
changes in product mix that offer the lower cost reduction in emissions.

The EPA and OTAG have focused on a cap-and-trade program for large
combustion sources because it assures a proven method for achieving and
maintaining a fixed level of emissions. The EPA solicits comments on
approaches that would allow a broader participation in emissions trading.
In addressing expansion of emissions trading beyond large combustion
sources, commenters should address what steps can be taken to quantify
emissions from each source involved in the program to assure that the
emissions cap is met and the costs to Federal, State and local governments
of administering such a program.

a. Enforceable Measures Approach. Enforceable measures include control
strategies expressed as either emission rate limitations or technology
requirements. These control strategies do not provide the same
environmental certainty that a specific emissions level will be met and
maintained as compared to fixed tonnage budgets. However, these control
requirements are an appropriate method for achieving emissions reductions
for many source sectors that have limited options for controlling and
directly measuring emissions.

For control strategies that use emission rate limitations or technology
requirements the SIP must include the following elements: 1) the
enforceable emission rate, technology requirement, or specific measure for
each source that, when applied to year 2007 activity levels and in
aggregate with other controls, would meet the statewide emissions budget;
2) the projected activity level for each source or group of sources, as
appropriate; 3) other factors necessary to calculate the effect of the
control requirements (e.g., speeds and temperature for mobile sources
necessary to calculate emissions); 4) emissions rate and activity level
measurement and emissions estimation protocols for all sources, or group of
sources; 5) reporting protocols for emission rate, activity level, and
emissions for all sources, or group of sources (EPA intends to address
these requirements in a supplemental EPA rulemaking); 6) enforcement
mechanisms, including compliance schedules for installation and operation
of all control requirements and institution of all compliance processes by
the date between September 2002 and September 2004 that EPA establishes in
its final action on this proposal; and 7) requirements for adequate
penalties on the sources for exceeding applicable emissions rates or
failing to properly install or operate control technologies or carry-out
compliance measures.

A State or groups of States may choose to develop, adopt and implement
trading programs for sources affected by enforceable measures. Such trading
programs should be consistent with EPA guidance on trading, including the
Economic Incentive Program rules and guidance as well as guidance provided
on Open Market Trading. Such approaches could be adopted by States to help
achieve emission reductions cost effectively. The EPA does not anticipate
managing the emissions data and market functions of these trading programs
that do not incorporate emissions caps.

b. Fixed Tonnage Budgets. Under this approach, a group of sources would
have their control strategy expressed as a fixed tonnage budget. Because
the fixed tonnage budget approach is designed to maintain a specific, fixed
level of emissions, this approach does not require an enforceable
compliance plan that prescribes exactly how emissions reductions would be
achieved. If a State elects to use a fixed tonnage budget as a control
strategy, the State would have two options for implementing the program.
The State may choose to join the cap-and-trade program that EPA proposes to
develop and assist in implementing for sources in cooperation with
interested States (this program is discussed in section VII, Model
Cap-and-Trade Program, of this rulemaking), or the State may choose to
develop a fixed tonnage budget regulation separate from EPA's program. The
EPA cap-and-trade program will incorporate all necessary SIP criteria into
the program design. If the State elects to develop a fixed tonnage budget
program separate from EPA's program, the State program must include the
following elements: 1) the total seasonal tonnage emissions limitation for
the category of sources which shall be enforceable at the source level by
the date between September 2002 and September 2004 that EPA establishes in
its final rulemaking through emission tonnage limitations or emission rate
limitations that automatically adjust for growth in activity levels over
time; 2) requirements to measure and electronically report all emissions
from each source; and 3) requirements for adequate penalties for exceeding
an emissions limitation or emission rate.

To implement a fixed tonnage budget program, a State or group of States may
choose to develop, adopt and implement their own cap-and-trade program.
Such trading programs should be consistent with EPA guidance on trading,
including the Economic Incentive Program rules and guidance. The EPA does
not anticipate managing the emissions data and market functions of these
programs.

3. Control Strategy Implementation

As discussed in section I.D.2.e, Control Implementation and Budget
Attainment Dates, of this rulemaking, EPA is proposing that States must
implement all of their State-adopted NOx control strategies by a date
between 3 to 5 years from the SIP submittal due date. This time frame would
result in an implementation deadline within the range from September 2002
and September 2004. The EPA is seeking comment on which date within this
range is appropriate, in light of the feasibility of implementing controls
and the need to provide air quality benefits as expeditiously as possible.
Therefore, for the SIP to be approvable, State NOx rules must all have
compliance dates providing for control by the implementation deadline,
which will be specified in the final rulemaking. The EPA believes this is
necessary to assist ozone areas in meeting their attainment obligations
under the 1-hour standard and to assure timely attainment of the 8-hour
standard. The EPA recognizes that the control measures will not be in place
in time to assist serious ozone areas in meeting their 1999 attainment date
under the 1-hour standard. This is unavoidable because of the time needed
to complete this rulemaking and for States to adopt and implement their NOx
measures. The next attainment date under the 1-hour standard is 2005 for
severe-15 areas. For the 8-hour standard, the CAA provides for attainment
dates of up to 5 or 10 years after designations with 2 potential 1-year
extensions. In light of the projected designation date of 2000, the first
attainment date under the 8-hour standard could also be 2005. For these
areas, it is important that the regional NOx control measures be in place
by no later than September 2004--in time to provide emissions reductions
for the 2005 ozone season. Implementing controls earlier than September
2004, or at least phasing in some controls, would improve the chance for
minimizing exceedances in the 3-year period up to and including the 2005
attainment year. States required to meet a statewide NOx budget by 2007
will continue to achieve additional emissions reductions after September
2004 from continued phase in of Federal measures. The EPA will provide
guidance to the States on the appropriate amount of emission reduction
credit that a State may assume from Federal measures.

4. Growth Estimates

The EPA believes it is important that consistent emissions growth estimates
be used for the State's budget demonstration and for EPA's calculation of
the required Statewide emissions budget. If a State wishes to substitute
its own growth or control information in its budget analyses and can
provide adequate justification for its alternative numbers, EPA will
evaluate the State's submission and may recalculate the required statewide
budget to reflect the State numbers. As mentioned in the previous section,
because the revised growth estimates will be included in EPA's budget
calculation, lower growth rates could not be considered part of a State's
NOx control strategy to attain that budget unless the change in growth is
the result of clearly identified control strategies that can be shown to
provide real, permanent, and quantifiable changes in growth. During the
comment period for this proposal, States will have an opportunity to
comment on EPA's growth assumptions and justifications for emissions rates
and control measures. As described in section III.D, Recalculation of
Budgets, EPA encourages requests for alterations to the growth estimates or
control assumptions be made during the comment period for this proposal so
that the budgets given in the final rulemaking will incorporate the
changes. Addressing these issues prior to the final rulemaking will allow
States to concentrate their efforts on control strategy development and
rule adoption procedures during the proposed 12-month time frame for
submitting their SIP revisions.

5. Promoting End-Use Energy Efficiency

In order to minimize compliance costs, EPA is interested in allowing States
the maximum flexibility practical in meeting their NOx budgets. The EPA
believes that achievement of energy efficiency improvements in homes,
buildings, and industry can be one cost-effective component of a
comprehensive State strategy. These energy efficiency improvements would
substantially reduce control measures required to meet NOx objectives. To
this end, EPA will be investigating, in consultation with the Department of
Energy's Office of Energy Efficiency and Renewable Energy, how energy
efficiency opportunities can be integrated within SIPs, while maintaining
the requisite level of confidence that State budgets will be met. The EPA
intends to provide guidance in this area. The EPA is requesting comment on
how SIPs and associated processes can allow for the incorporation of
cost-effective, end-use energy efficiency.

C. Review of Compliance

The EPA believes it is essential that progress in implementing the regional
control strategy be periodically assessed after the initial SIP submittal.
This will allow early detection of implementation problems, such as
overestimates of control measure effectiveness and underestimates of
growth. The EPA will be carefully tracking State progress and intends to
propose periodic State reporting requirements in its SNPR. Because
nonattainment areas will be relying on emissions reductions in other States
to assist them in reaching attainment, EPA believes that each State must
have an effective program for tracking progress of the regional strategy.
The EPA intends to establish a work group of affected States and other
impacted Federal Agencies to determine what procedures to put in place to
provide adequate assurance that the necessary emissions reductions are
being achieved. The EPA believes that tracking efforts should be structured
to avoid unnecessary burdens on States. Therefore, EPA intends to integrate
activities to track progress on implementing the regional NOx budget with
existing program requirements such as periodic emissions inventories and
reporting under title IV for NOx. The EPA is soliciting comment on what
types of compliance assurance procedures may be necessary.

The EPA recognizes that success of the program depends, in part, on the
availability of reliable, comprehensive inventories of emissions.
Currently, EPA is developing a separate rulemaking that would require
statewide periodic emissions inventories. This rule would be an extension
of the existing periodic emission inventory requirement for nonattainment
areas. In regard to the regional transport strategy, EPA intends to use
these inventories as a tool to assess progress in implementing the regional
strategy, to determine whether the States achieved their required budget by
2007, and for future transport studies.

If tracking and periodic reports indicate that a State is not implementing
all of its NOx control measures or is off-track to meet its budget by 2007,
EPA will work with the State to determine the reasons for noncompliance and
what course of remedial action is needed. The EPA will expect the State to
submit a plan showing what steps it will take to correct the problems.
Continued noncompliance with the NOx transport SIP may lead EPA to make a
finding of failure to implement the SIP, and potentially implement
sanctions, if the State does not take corrective action within a specified
time period. If tracking indicates that, due to actual growth and control
effectiveness, the SIP is not adequate to achieve the budget, EPA will
issue a SIP call under section 110(k)(5) for States to amend their NOx
control strategy. As discussed above, EPA is proposing that all
State-adopted NOx strategies must be implemented by a date within the range
of September 2002 and September 2004. Shortly after the established
implementation due date, EPA will begin checking to determine whether
States are meeting of all their SIP obligations.

In 2007, EPA will assess how each State's SIP actually performed in meeting
the Statewide NOx emission budget. If 2007 emissions exceed the required
budget, the control strategies in the SIP will need to be strengthened. The
EPA will evaluate the circumstances for the budget failure and issue a call
for States to revise their SIPs, as appropriate.

D. 2007 Reassessment of Transport

Today's proposal addresses the emissions reductions necessary to mitigate
significant ozone transport based on analyses using the most complete,
scientifically-credible tools and data available for the assessment of
interstate transport. As the state of ozone science evolves over the next
10 years, EPA expects there will be a number of updates and refinements in
air quality methodologies and emissions estimation techniques. Therefore,
in 2007, the end year for the current analyses, EPA intends to conduct a
new study to reassess ozone transport using the latest emissions and air
quality monitoring data and the next generation of air quality modeling
tools.

The study will evaluate the effectiveness of the regional NOx measures
States have implemented in response to the final rulemaking action in
assisting downwind areas to achieve attainment. Modeling analyses will be
used to evaluate whether additional local or regional controls are needed
to address residual nonattainment in the post-2007 time frame. The study
will examine differences in actual growth versus projected growth in the
years up to 2007 as well as expected future growth throughout the entire
OTAG region.

The study will also review advances in control technologies to determine
what reasonable and cost-effective measures are available for purposes of
controlling local and regional ozone problems.

The EPA expects to seek input from a wide range of stakeholders such as
State and local governments, industry, environmental groups, and Federal
agencies for the study. The OTAG partnership established by the ECOS and
EPA resulted in more technical information and more air quality modeling
being conducted on regional ozone transport than ever before. Because of
the success of the OTAG process, EPA envisions working closely with ECOS
for the transport reassessment study.

E. Sanctions

1. Failure to Submit

If a State fails to submit the required SIP provisions, the CAA provides
for EPA to issue a finding of State failure under section 179(a). (EPA is
using the phrase "failure to submit" to cover both the situation where a
State makes no submission and the situation where the State makes a
submission that EPA finds is incomplete in accordance with section
110(k)(1)(B) and 40 CFR part 51, Appendix V.) Such a finding starts an
18-month sanctions clock; if the State fails to make the required submittal
which EPA determines is complete within that period, one of two sanctions
will apply. If 6 months after the sanction is imposed, the State still has
not made a complete submittal, the second sanction will apply. The two
sanctions are: withholding of certain Federal highway funds and a
requirement that new or modified sources subject to a section 173 new
source review program obtain reductions in existing emissions in a 2:1
ratio to offset their new emissions (section 179(b)).

The EPA promulgated regulations to implement section 179 that specify the
order in which these sanctions will apply in the case of State
noncompliance with requirements under part D of title I of the CAA (40 CFR
52.31). These regulations do not, however, address the imposition of
sanctions in the case of State failure to comply with a SIP call under
section 110(k)(5) or to make a SIP submission under section 110(a)(1).
Since in today's rulemaking EPA is proposing a SIP call and a requirement
for a section 110(a)(1) submission, EPA believes it is appropriate to
propose the order of sanctions if States fail to comply with these
requirements. The EPA believes that the general scheme promulgated for
sanctions should also apply here. Under this scheme, EPA will generally
apply the 2:1 offset sanction first and the highway funding sanction
second. The EPA believes the rationale for this approach provided in the
preamble to the sanctions rule applies equally here (59 FR 39832, August 4,
1994).

Section 179 sets certain limits on where mandatory sanctions apply. The
highway funding sanction applies in designated nonattainment areas and the
2:1 offset sanction applies in areas with part D NSR programs. However, EPA
has additional authority to impose sanctions under section 110(m). The
EPA's authority to impose sanctions under section 110(m) is triggered by
any finding that a State failed to make a required SIP submission. However,
there is no mandatory clock for the imposition of these sanctions. The EPA
may determine whether or not to use this authority in response to a SIP
failure, and thus they are termed discretionary sanctions. With the
discretionary sanctions, use of the 2:1 offset sanction is still limited to
areas with part D NSR programs. However, the highway funding sanction can
be applied in any area. While sanctions under section 179 apply only to the
deficient area, under section 110(m) the highway sanction can be applied
statewide, subject to the conditions in EPA's discretionary sanctions rule
(40 CFR 52.30). Because the mandatory sanctions would not be applicable in
all areas that may fail to respond to requirements proposed in today's
rulemaking, EPA is requesting comment on whether the discretionary
sanctions should be used in response to a failure of a State to submit the
required SIP revision.

In addition to sanctions, a finding that the State failed to submit the
required SIP revision triggers the requirement under section 110(c) that
EPA promulgate a FIP no later than 2 years from the date of the finding if
the deficiency has not been corrected. The FIPs are discussed in the
section below.

A State that submits a SIP that is subsequently disapproved, due to failure
to meet one or more of the required elements, will be subject to the same
sanctions and FIP consequences as a State that fails to make the required
submittal.

2. Failure to Implement

If a State fails to implement its SIP, EPA may also make a finding under
section 179. The finding triggers the mandatory sanctions as described
above. The EPA may also choose to apply discretionary sanctions as a
consequence of failure to implement. However, a FIP is not triggered.

F. Federal Implementation Plans

1. Legal Framework

The Administrator is required to promulgate a FIP within 2 years of: (1)
finding that a State has failed to make a required submittal, or (2)
finding that a submittal received does not satisfy the minimum completeness
criteria established under section 110(k)(1)(A) (56 FR 42216, August 26,
1991), or (3) disapproving a SIP submittal in whole or in part.
Section 110(c)(1) mandates EPA promulgation of a FIP if the Administrator
has not yet approved a correction proposed by the State before the time a
final FIP is required to be promulgated.

2. Timing of FIP Action

The EPA views seriously its responsibility to address the issue of regional
transport of ozone and ozone precursor emissions. Decreases in NOx
emissions are needed in the States named in the rulemaking to enable the
downwind States to first develop plans to achieve the clean air goals and
then to carry out those plans and actually achieve clean air for their
citizens. Thus, although the CAA allows EPA up to 2 years after the finding
to promulgate a FIP, EPA intends to expedite the FIP promulgation to help
assure that the downwind States realize the air quality benefits of
regional NOx reductions as soon as practicable. This is consistent with
Congress's intent that attainment occur in these downwind nonattainment
areas "as expeditiously as practicable" (sections 181(a), 172(a)).
Therefore, EPA intends to propose FIPs at the same time as final action is
taken on this proposed Ozone Transport SIP Rulemaking. Furthermore, EPA
intends to make a finding and promulgate a FIP immediately after the SIP
submittal due date for each upwind State that fails to submit a SIP that
meets the terms of the final rulemaking of this proposal.

As described elsewhere in this rulemaking, EPA is proposing to require
specific States to decrease their emissions of NOx in order to reduce the
transport of ozone and ozone precursors which affects nonattainment areas
over hundreds of miles downwind. This proposal allows States 12 months to
develop, adopt and submit revisions to their SIPs in response to the final
rulemaking. The EPA intends to expeditiously approve SIP revisions that
meet the rulemaking requirements. For States that fail to make the required
submittal or fail to submit a complete SIP revision response, EPA would
promulgate a FIP as described in the above section. Where the SIP is
complete but EPA disapproves it, EPA would also promulgate a FIP. The EPA
may choose to propose a FIP at the same time as proposing disapproval of a
State's response to the final rulemaking. Thus, EPA intends to move quickly
to promulgate a FIP where necessary. The EPA solicits comment on the time
frames described above and elsewhere in this rulemaking .

3. Statewide Emissions Budgets

In the FIP proposal, each State would be allocated by EPA the same
statewide emissions budget as described elsewhere in this document. That
statewide budget is given to States that are found to significantly
contribute to nonattainment in downwind States as described in section II.
The statewide budget is derived from the set of reasonable, cost-effective
measures applied to the various source sectors as discussed in section III.

4. FIP Control Measures

In contrast to the SIP process--where selection and implementation of
control measures is the primary responsibility of the State--in the case of
a FIP, it is EPA's responsibility to select the control measures for each
source sector and assure compliance with those measures. Thus, while the
FIP would be designed by EPA to achieve the same total statewide emissions
decrease as that described in final action on today's proposal, the
specific control measures assigned in the FIP could be different from what
a State might choose.

In selecting the specific control measures for a FIP, EPA would take into
account the administrative feasibility as well as cost effectiveness of
various control options. In developing the budget calculations, EPA
generally agreed with the direction of the OTAG recommendations that EPA
develop Federal measures for certain sources categories--mobile sources in
particular--and that the States develop stationary source measures in
response to this rulemaking. It is unlikely that EPA's FIP would focus on
mobile source programs such as I/M or transportation control measures
because these measures are not as cost effective as others for controlling
regional NOx emissions and because it would be difficult for a limited
Federal staff to implement such programs, especially without detailed
knowledge of local concerns and circumstances. For stationary sources, the
EPA budget calculations include large- and medium- sized stationary
sources. As in the case with mobile sources, a program to reduce emissions
from stationary sources that is reasonable for States to implement, may be
less feasible for EPA to implement due to factors such as a large number of
affected sources.

Therefore, for the stationary source sector, EPA's FIP would likely propose
to focus controls more on the larger stationary sources. This approach
would take account of the potential need for Federal staff to implement the
program in more than one State by reducing the number of sources affected
so that the program is more manageable. It follows that greater emissions
decreases might be needed from the remaining set of stationary sources than
is suggested by the EPA's statewide budget calculation (described in
section III). That is, to make up the short-fall in the statewide budget
from medium-sized stationary sources, additional decreases might be needed
from the large stationary sources in a FIP program.

5. FIP Trading Program

In order to minimize the burden on sources, EPA would establish in the FIP
an interstate emissions trading program. The FIP trading program would be
designed to be compatible with the emissions trading program described
elsewhere in this rulemaking. Development of such emissions trading
programs would use the process identified in the OTAG July 10, 1997
recommendation on trading--a joint EPA/State effort with appropriate
stakeholder input.

6. Section 105 Grants

The EPA provides annual funding to States under section 105 of the CAA to
carry out Act-related programs. Where EPA must develop, adopt and implement
a FIP, the Agency will consider withholding all or a portion of the grant
funds normally appropriated to the State. Those funds would be used by EPA
in the FIP work.

G. Other Consequences

If a State is implementing all of its control measures but is off course to
meet its 2007 budget due to errors in growth estimates or control
assumptions, EPA will consider issuing a subsequent SIP call for the State
to revise its implementation strategy.

VI. States Not Covered by this Rulemaking

Based upon all the available technical information, the EPA is proposing to
find that the following 15 States in the OTAG region do not make a
significant contribution to downwind nonattainment: Arkansas, Florida,
Iowa, Kansas, Louisiana, Maine, Minnesota, Mississippi, North Dakota,
Nebraska, New Hampshire, Oklahoma, South Dakota, Texas, Vermont. These 15
States are not required to meet an assigned Statewide NOx emission budget.
Based upon comments received during the comment period, as well as any
additional modeling and technical analyses, these States could be found to
be significant contributors to nonattainment. If this is the case, EPA will
publish a SNPR.

These States may need to cooperate and coordinate SIP development
activities with other States. For example, the OTAG recommendation on
utility NOx controls (see Appendix B) recognized that the State of Iowa
would work with Wisconsin in developing the Southeast Wisconsin ozone SIP;
that the State of Kansas would work with Missouri in the continued progress
of the Kansas City ozone SIP; and that Oklahoma, Texas, Arkansas, and
Louisiana would share the results of their urban and regional scale
modeling with Missouri. The EPA also believes that the 11 States (i.e.,
Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island and Vermont) plus the District
of Columbia's consolidated metropolitan statistical area (including
northern Virginia) that are included in the OTR should continue
coordinating their activities through the OTC to provide for attainment of
the ozone NAAQS in that region.

States with interstate nonattainment areas for the 1-hour standard and/or
the new 8-hour standard are expected to work together to reduce emissions
to mitigate local scale interstate transport problems in order to provide
for attainment in the nonattainment area as a whole. For example, New
Hampshire should work with Massachusetts for the Boston-Lawrence-Worcester
nonattainment area. For the 8-hour standard, parts of local scale
interstate nonattainment areas may be located in Louisiana and Texas as
well as in Arkansas and Tennessee. These States should also coordinate
their planning efforts.

In addition, areas in these States may be able to receive the transitional
classification as described in section IV, Implementation of Revised Air
Quality Standards. The OTAG's modeling (in particular, OTAG strategy Run 5
described in section II.B.2, OTAG Strategy Modeling) shows that a strategy
in which a State-adopted NOx emission decreases similar to those EPA
proposes to establish in this rulemaking would achieve attainment in most
of these areas that would become nonattainment under the 8-hour standard.
If a State wishes to consider this as a viable option for meeting its early
SIP requirement and receiving the transitional area classification, EPA
will work with the State to achieve this. Section III, Statewide Emission
Budgets, describes EPA's process for establishing the statewide NOx
emission budgets. (Note that States not covered by this rulemaking may be
eligible for the transitional classification by means other than adopting
NOx emission reductions similar to those in this proposal. In addition to
attaining the 1-hour standard, by at least 2000, areas in States not
covered by this rulemaking that do not wish to adopt NOx emission
reductions similar to those in this proposal must submit an attainment SIP
prior to the designation and classification process in 2000. The SIP must
demonstrate attainment of the 8-hour standard and provide for the
implementation of the necessary emissions reductions on the same time
schedule as the regional transport reductions.)

The EPA strongly suggests that States with new nonattainment counties for
the 8-hour standard should consider the option of this strategy since our
analysis indicates that nearly all new nonattainment counties are projected
to come into attainment as a result of this strategy. States will benefit
by early action to aid their cities in these new counties in the attainment
of the 8-hour standard and receipt of transitional status which will result
in no further controls on local sources. Of the 10 new counties in the 15
States that are not covered by this rulemaking, based on OTAG modeling, all
10 are projected to come into attainment as result of the regional NOx
reductions included in the OTAG Run 5 modeling run.(33) A new county is
defined as a county that violates the 8-hour standard but not the 1-hour
standard and is not located in an area for the 1-hour standard designated
nonattainment as of July 1997. (In the docket to this rulemaking is a table
with associated documentation in which EPA lists these 10 new counties in
the 15 States with an indication of whether the county is projected to
attain the 8-hour ozone standard based on the OTAG Run 5 modeling run.)

This county information should be understood with two caveats. First, this
list of counties is based on air quality data from 1993-95. The data from
this period will not be the basis for nonattainment area designations for
the 8-hour ozone standard. Those designations will be made in the 2000 time
frame and will be based on the most recent air quality data available at
that time (1997-1999). Therefore, while EPA expects that the vast majority
of new counties will attain as a result of the NOx regional control
strategy, the number of new counties may be more or less than the number
indicated above. The EPA is also currently updating this list based on more
current air quality data which will be included in the docket to the final
rule.

Second, the estimate of which counties will attain the 8-hour standard is
based on the specific assumptions made by the OTAG in Run 5. Because the
proposed budgets are similar but not identical to those contained in Run 5,
the estimate may change when this rule is final and implemented. In
addition, some of the assumptions used to calculate the proposed budgets
may change in response to comments EPA may receive on various portions of
this rulemaking. Therefore, the estimate of which areas will attain the
standards through the final regional NOx strategy may be higher or lower
than the number indicated above.

In addition, areas in the region not covered by the proposed NOx reduction
strategy in this rulemaking that would exceed the new standard after the
voluntary adoption of the regional strategy, including areas that do not
meet the current 1-hour standard, would benefit as well because the
regional NOx program would reduce the extent of additional local measures
needed to achieve the 8-hour standard. In many cases, these regional
reductions may be adequate to meet CAA progress requirements for a number
of years, allowing areas to defer additional local controls. In the 15
States, of the 20 counties that violate the 8-hour standard which are
located in an area designated nonattainment for the 1-hour standard as of
July 1997, 14 are projected to come into attainment of the 8-hour standard
as a result of OTAG Run 5 regional NOx reductions.(34) The caveats noted
above for new counties also apply to the information presented here. (In
the docket to this rulemaking is a table with associated documentation in
which EPA lists these 20 counties in the 15 States, including an indication
of whether the area is projected to attain the 8-hour ozone standard as a
result of regional NOx reductions included in the OTAG Run 5 modeling run.)

States that opt in to meet the early SIP requirement this way would not be
eligible to participate in the trading program with the States required in
this rulemaking to revise their SIPs although they could develop intrastate
trading programs. This limitation is needed to avoid the movement of
emissions, via trades, from States that do not contribute to nonattainment
to States that do contribute to nonattainment.

Section V, SIP Revisions and Approvability Criteria, discusses general SIP
requirements for States that EPA has found significantly contribute to
downwind nonattainment. The EPA intends to establish a workgroup with the
affected States to determine what type of reporting and tracking mechanisms
are needed to assure States are making steady progress toward meeting their
2007 budgets. One important element of tracking will be to assess actual
growth versus projected growth. While EPA will not be establishing new
reporting requirements for States exempted from this rulemaking, EPA
intends to periodically review emissions in the exempted States to
determine the impacts of any emissions increases on downwind nonattainment
areas. In addition, as discussed in section V.F, 2007 Reassessment of
Transport, in 2007 EPA will be conducting a reassessment of transport in
the full OTAG region to evaluate the effectiveness of the regional NOx
measures and whether additional regional controls are needed.

If States not covered by this rulemaking choose to adopt budgets based on
the rationale outlined above, EPA will work with those States to determine
what an appropriate statewide budget should be. The EPA would encourage
those States to consider statewide budgets based on adoption of NOx
emission decreases similar to those EPA proposes herein to establish for
States covered by this rulemaking.

VII. Model Cap-and-Trade Program

The EPA is planning to develop and administer an interstate cap-and-trade
program that could be used to implement a fixed tonnage budget. States
electing to reduce emissions from the types of sources covered by this
program in order to achieve and maintain the statewide emissions budget
could voluntarily participate in this program. Much of the discussion to
date on the development of a cap-and-trade program has focussed on
establishing a cap-and-trade program for large combustion sources. As noted
earlier, EPA is also considering ways to extend the cap-and-trade program
to other types of sources.

The EPA is planning to develop a cap-and-trade program for large combustion
sources because it provides a proven and cost-effective method for
achieving and maintaining a fixed tonnage budget while providing maximum
compliance flexibility to affected sources. By capping emissions, the
environmental integrity of this market-based approach is assured. For
example, as total electricity generation grows, average emissions over the
ozone season would not exceed the cap. In addition, the reductions achieved
across sectors will be those of lowest cost, since each source will
identify and implement the specific control technology,
pollution-minimizing fuel, energy efficiency, or production mix that offers
the greatest amount of pollution reduction at the least cost. Overall,
implementation of a regional cap-and-trade program would likely lower the
costs of attaining reductions through more efficient allocation of emission
reduction responsibilities, minimize the regulatory burden for pollution
sources, and serve to stimulate technology innovation.

A number of regulatory programs are currently in use or under development
that use a cap-and-trade program for large combustion sources. These
regulatory systems include the EPA's Acid Rain Program for SO2 emissions,
the South Coast Air Quality Management District's Regional Clean Air
Incentives Market for SO2 and NOx, and the OTC's NOx Budget Program.
Experience with these regulatory programs indicates that establishing a
tonnage budget for large combustion sources is currently feasible and cost
effective. These approaches exist because there is a range of options
available for controlling and measuring emissions from these sources. For
measuring emissions, continuous emissions monitors currently installed at
most sources participating in these approaches provide accurate and
complete emissions measurements which enable the administrators of these
approaches to easily and accurately track and enforce emissions on a
tonnage basis.

In developing the cap-and-trade program, EPA will build upon the work
produced by OTAG's Trading/Incentives Work Group. Based upon OTAG's
products and upon experience from other relevant efforts, a model rule will
be developed that details the program requirements and provisions of a
cap-and-trade program, including: affected sources, monitoring
requirements, and market features. In establishing the specific program
applicability, EPA expects to propose inclusion of those large combustion
sources that are most cost-effective for controlling emissions, while also
capturing the majority of NOx emissions from the stationary source sector.
The monitoring requirements are expected to be based largely on existing
requirements in 40 CFR Part 75. Market features of the program will address
such issues as the basic design of the trading system, the process for
setting emission limitations (e.g., allocation of allowances, generation
performance standard, etc.), and provisions for emissions trading and
banking. The EPA will work to develop a cap-and-trade system with market
features that are easily understood to facilitate maximum participation,
minimum transaction costs, and maximum cost savings. The EPA will also take
comment on ways to include a broader set of industrial and mobile sources
within the cap-and-trade system.

The EPA plans to develop the cap-and-trade program, in coordination with
States interested in participating in such a system. The EPA will hold two
workshops in late 1997 to provide States and stakeholders an opportunity to
comment on the trading program framework prior to proposal, as recommended
by the OTAG. The product of these workshops would be a model rule that EPA
would then publish for comment in the Federal Register prior to
finalization of this proposal. States electing to participate in this
program would either adopt the model rule by reference or State regulations
that are consistent with the model rule. The preamble to the model rule
would outline EPA and State responsibilities for implementing the program.
Generally, EPA expects that it would be responsible for managing the
emissions data and market functions of the program and that States would
have the primary responsibility for enforcing the requirements of the
program.

VIII. Regulatory Analysis

Under Executive Order 12866 (58 FR 51735, October 4, 1993), the Agency must
determine whether the regulatory action is "significant" and therefore
subject to Office of Management and Budget (OMB) review and the
requirements of the Executive Order. The Order defines "significant
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, it has been determined that
this proposal is a "significant regulatory action" because it will have an
annual effect on the economy of approximately $2 billion. As such, this
action was submitted to OMB for review. Any written comments from OMB to
EPA and any written EPA response to those comments are included in the
docket. The docket is available for public inspection at EPA's Air Docket
section, which is listed in the ADDRESSES section of this preamble.

Based on the 2 years of analysis conducted by OTAG and other supplemental
data, the Agency developed an approach that is presented in this proposal
for reducing the transport of ozone emissions over long distances by
lowering NOx emissions from major sources. Currently, the movement of ozone
from one region to another makes compliance with the existing NAAQS
difficult for certain nonattainment areas. Further, State efforts to reach
attainment of the ozone standard through local measures can be very
expensive. In essence, this proposal is a regulatory action designed to
improve the effectiveness and efficiency of State and EPA efforts to attain
and maintain the NAAQS. The OTAG recommended that EPA focus on requiring
appropriate States to reduce summer NOx emissions in three categories:
mobile sources, electric power plants, and other stationary sources. The
Agency adopted this approach in developing this proposal to establish
emissions budgets for 22 States and the District of Columbia. Notably, the
Agency is already establishing national requirements for mobile source
reductions that OTAG recommended. Therefore, EPA did not estimate their
impacts in this regulatory analysis. Agency actions with respect to mobile
sources have been and will be addressed in separate rulemaking activities
that are described below.

Mobile Sources

A number of EPA programs designed to reduce NOx and other emissions from
highway vehicles and nonroad engines have not yet been implemented. Some of
these programs have been promulgated but have implementation dates which
have not yet arrived. Other programs have been proposed but have not been
promulgated, and still other programs are expected to be proposed in the
near future. The following table lists some of these mobile source control
programs and describes their status as of the date of this rulemaking.

          Table VIII-1 Anticipated Mobile Source Control Measures
                  Measure                       Current Status
 National Low-Emitting Vehicle Standards  Final; not yet implemented
 (NLEV)
 2004 Heavy-Duty Vehicle Standards        Proposed
 FTP Revisions                            Final; not yet implemented
 Federal Small Engine Standards,          Proposal in 1997

 Phase II
 Federal Marine Engine Standards (for     Proposal in 1997
 diesels >50 hp)
 Federal Locomotive Standards             Proposed
 1997 Proposed Nonroad Diesel Engine      Proposal in 1997
 Standards
 Tier 2 Light-Duty Vehicle Standards      Under study

All of the programs listed in the preceding table will be implemented on a
nationwide basis (except NLEV which is applicable in 49 States). The EPA
continues to evaluate the need for additional Federal controls on mobile
source emissions and may propose additional measures as conditions warrant.
In addition, EPA continues to encourage States to evaluate as part of their
SIPs the appropriateness of mobile source emission control programs that
can be implemented on a local or Statewide basis such as I/M programs, RFG,
transportation control measures and clean-fuel fleets.

As described in section III, Statewide Emission Budgets, the emission
targets for the mobile source sectors (highway vehicle emissions and
nonroad emissions) were developed by estimating the emissions expected to
result from the projected activity level in 2007. These targets do not
assume the implementation of any additional programs beyond those already
reflected in SIPs or expected to be implemented at the Federal level,
including those listed in Table VIII-1. All of these programs would be
implemented even in the absence of today's proposed rule. States and
industry will not bear any additional mobile source control costs due to
this proposal, unless a State chooses to implement additional mobile source
programs under its own authority and to correspondingly limit the scope or
reduce the stringency of new controls on stationary sources. The EPA
presumes a State would do so only if it found a net savings to its economy
in doing so. Furthermore, the cost of such state-operated programs will
depend on their specific design, which EPA is unable to predict. The EPA
has therefore not included the costs of current or new Federal mobile
source controls in its analysis of the costs of this proposal. Information
on the costs of the various proposed or promulgated Federal measures can be
found in the Federal Register notices for the respective measures.

Electric Power Industry and Other Stationary Sources

The EPA is proposing to establish a summer season NOx emissions budget for
22 States and the District of Columbia based on reducing emissions from
electric power industry and other stationary sources.(35) This will lead to
the placement of NOx controls on operating units in these two categories
that the Agency has not covered in other specific rulemaking activities.
Therefore, EPA has estimated the NOx emissions reductions and annual
incremental costs in the year 2005 resulting from this proposal.

The OTAG recognized the value of market-based approaches to lowering
emissions from power plants and large industrial sources. It also
encouraged EPA to consider the value of allowing "banking" as a program
element in any trading program that it would want to run with the States.
The Agency agrees that a market-based approach with trading and banking is
preferable and wants to work with all States covered by this rulemaking to
establish such a program. The EPA currently believes that for such a
program to be effective and administratively practicable, the program
should have an emissions cap and allow trading between sources in all the
States that are covered. The Agency's economic analysis is based on this
view.

Analytical limitations kept EPA from estimating the costs of a single
cap-and-trade program for the electric power industry and other stationary
sources. The Agency can only estimate the impacts of a cap-and-trade
program across all States covered in this rulemaking for the electric power
industry at the current time.

For its analysis, the Agency assumed that power plants have a trading and
banking program that begins in 2005 with a summer NOx emissions cap of 489
thousand tons. This is the NOx budget component for the electric power
industry that is discussed earlier in the preamble. This type of program
represents EPA's current views of how a reasonable trading program would be
constructed. The Agency estimates that close to 800 electric power
generating sources will come under this program. For other stationary
sources, EPA assumed in its economic analysis that there would be a
regulatory program that would not allow summer NOx emissions in 2005 to
exceed 466 thousand tons. This is the total NOx budget component for other
stationary sources discussed earlier in the Preamble. In this analysis, EPA
set an emissions cap for each State based on its share of the NOx budget
component that EPA has developed and assumes that each State places
controls on its sources in a manner that minimizes compliance costs in that
State (a "least-cost" regulatory approach is used). The EPA estimates that
the States would place controls on about 9,000 other stationary sources to
comply with EPA's requirements. Given that the Agency could not estimate
the costs of a single cap-and-trade program for the electric power industry
and other stationary sources, the total cost estimate of this proposal is
likely to be overstated to the extent that trading would occur between
facilities in both groups.

For the electric power industry, EPA was able to estimate the costs and
emissions changes based on two possible baseline scenarios for the future.
For an Initial Base Case, EPA considered only the implementation of Phase I
(RACT requirements) of the OTC MOU and other existing CAA requirements. For
a Final Base Case, EPA considered implementation of Phase II and Phase III
of the OTC MOU, which lowered the NOx emissions levels in the Northeastern
United States in the baseline. For the other stationary sources, the Agency
was only able to consider the implementation of Phase I of the OTC MOU and
estimate the NOx emission reductions and incremental costs from the Initial
Base Case. For the Final Base Case, EPA knows that the emissions reductions
and incremental costs are going to be less than would occur in the Initial
Base Case.

Table VIII-2 shows the NOx emissions levels that EPA predicts will occur
for each source category in the Initial Base Case and Final Base Case and
after States amend their SIPs to meet the NOx emission budget requirements
in this proposal. Notably, some types of control technologies can be used
on a seasonal basis and others have to be used year round. Because there
are benefits from reducing NOx throughout the year, the annual and seasonal
changes in NOx emissions are both reported.(36) The EPA's analysis of the
use of cap-and-trade program for the electric power industry showed that
there would be significant reductions in NOx emissions occurring from
electric generation units throughout the area covered by the proposed rule.

Table VIII-3 shows the annual incremental costs that the Agency estimates
the regulated community will incur in 2005, the first full year of
implementation of this rule by the States in the two Base Cases. The costs
presented here reflect trading across States for electric power generation
units and cost minimization within States for other stationary sources. For
the Initial Base Case, the total annual incremental costs are estimated to
be $2,072 million in 2005. For the Final Base Case, the total annual
incremental costs are estimated to be lower than $1,992 million in 2005.

                                Table VIII-2

              NOx Emissions in 2005 for Alternative Base Cases

         and after Compliance with the Ozone Transport Rulemaking

                              (1,000 NOx tons)
                  Initial Base       Final Base       Under Proposed Rule
                 Case (Phase I   Case(Phase II/III       Implementation
                    OTC MOU)          OTC MOU)
                  Ozone
 Source Category         Annua    Ozone     Annual   Ozone Season  Annual
                 Season    l     Season
 Electric Power
 Industry         1,490  3,497    1,427      3,423       489        2,278
 Other
 Stationary        698   1,666    < 698     < 1,666      466        1,227
 Sources
      TOTAL       2,188  5,163      <          <         955        3,505

Note: EPA was only able to consider partial and full implementation of the
Ozone Transport Commission Memorandum of Understanding for the electric
power industry. Controls on the electric power industry occur through
cap-and-trade. Controls on Other stationary sources occur by States
implementing an approach applying least-cost controls.

                                Table VIII-3

                      Incremental Annual Costs in 2005

             for Compliance with the Ozone Transport Rulemaking

                        under Alternative Base Cases

                              (Million 1990$)
                           Initial Base         Final Base
    Source Category      Case(Phase I OTC   Case(Phase II/III
                               MOU)              OTC MOU)
 Electric Power
 Industry                          $ 1,687             $ 1,607
 Other Stationary
 Sources                             $ 385             < $ 385
         TOTAL                     $ 2,072           < $ 1,992

Note: EPA was only able to consider partial and full implementation of the
Ozone Transport Commission Memorandum of Understanding for the electric
power industry. Controls on the electric power industry occur through
cap-and-trade. States control

Other stationary sources by implementing a least-cost approach.

During the OTAG process, there arose concern over whether the States would
enter the trading program that EPA offered to form and that they would
instead end up employing command-and-control approaches to comply with
EPA's proposed rulemaking requirements. There were discussions of the
possible application of rate-based controls on electric generation. In
keeping with these discussions, EPA has also estimated the costs of this
type of control for electric power generation units. The EPA estimates that
the electric power industry in the 23 jurisdictions covered by this
rulemaking will incur an annual incremental cost under the Final Base Case
of $2,108 million, if during the ozone season, these plants are regulated
by an emission limitation of .15 pounds of NOx per million Btus of heat
input. Under the Initial Base Case, the costs would be $2,189 million. A
comparison of this cost with that in Table VIII-3 reveals that a
cap-and-trade program for the electric power industry is much less costly
than a traditional rate-based program.

IX. Air Quality Analyses

As discussed in section III, Statewide Emissions Budgets, EPA has used a
comparative cost-effectiveness approach to identify a set of control
measures for achieving the emissions budgets for States found to make a
significant contribution to downwind nonattainment (see section II, Weight
of Evidence Determination of Significant Contribution). These controls are
generally consistent with OTAG's recommendations. The OTAG did perform
model simulations to assess the air quality benefits of a range of regional
strategies. In particular, OTAG strategy Run 5 (see Appendix E) provides
large air quality benefits over broad portions of the region. This strategy
includes regional NOx controls similar to what is being proposed in this
rulemaking. The EPA intends to estimate the impacts of the proposed
statewide emission budgets using air quality modeling for inclusion in the
SNPR.

X. Nonozone Benefits of NOx Reductions

In addition to contributing to attainment of the ozone NAAQS, decreases of
NOx emissions will also likely help improve the environment in several
important ways. On a national scale, decreases in NOx emissions will also
decrease acid deposition, nitrates in drinking water, excessive nitrogen
loadings to aquatic and terrestrial ecosystems, and ambient concentrations
of nitrogen dioxide, particulate matter and toxics. On a global scale,
decreases in NOx emissions will, to some degree, reduce greenhouse gases
and stratospheric ozone depletion. Thus, management of NOx emissions is
important to both air quality and watershed protection on national and
global scales. In its July 8, 1997 final recommendations, OTAG stated that
it "recognizes that NOx controls for ozone reductions purposes have
collateral public health and environmental benefits, including reductions
in acid deposition, eutrophication, nitrification, fine particle pollution,
and regional haze." These and other public health and environmental
benefits associated with decreases in NOx emissions are summarized
below.(37)

Acid Deposition: Sulfur dioxide and NOx are the two key air pollutants that
cause acid deposition (wet and dry particles and gases) and result in the
adverse effects on aquatic and terrestrial ecosystems, materials,
visibility, and public health. Nitric acid deposition plays a dominant role
in the acid pulses associated with the fish kills observed during the
springtime melt of the snowpack in sensitive watersheds and recently has
also been identified as a major contributor to chronic acidification of
certain sensitive surface waters.

Drinking Water Nitrate: High levels of nitrate in drinking water is a
health hazard, especially for infants. Atmospheric nitrogen deposition in
sensitive watersheds can increase stream water nitrate concentrations; the
added nitrate can remain in the water and be transported long distances
downstream.

Eutrophication: NOx emissions contribute directly to the widespread
accelerated eutrophication of United States coastal waters and estuaries.
Atmospheric nitrogen deposition onto surface waters and deposition to
watershed and subsequent transport into the tidal waters has been
documented to contribute from 12 to 44 percent of the total nitrogen
loadings to United States coastal water bodies. Nitrogen is the nutrient
limiting growth of algae in most coastal waters and estuaries. Thus,
addition of nitrogen results in accelerated algae and aquatic plant growth
causing adverse ecological effects and economic impacts that range from
nuisance algal blooms to oxygen depletion and fish kills.

Global Warming: Nitrous oxide (N2O) is a greenhouse gas. Anthropogenic N2O
emissions in the United States contribute about 2 percent of the greenhouse
effect, relative to total United States anthropogenic emissions of
greenhouse gases. In addition, emissions of NOx lead to the formation of
tropospheric ozone, which is another greenhouse gas.

Nitrogen Dioxide (NO2): Exposure to NO2 is associated with a variety of
acute and chronic health effects. The health effects of most concern at
ambient or near-ambient concentrations of NO2 include mild changes in
airway responsiveness and pulmonary function in individuals with
pre-existing respiratory illnesses and increases in respiratory illnesses
in children. Currently, all areas of the United States monitoring NO2 are
below EPA's threshold for health effects.

Nitrogen Saturation of Terrestrial Ecosystems: Nitrogen accumulates in
watersheds with high atmospheric nitrogen deposition. Because most North
American terrestrial ecosystems are nitrogen limited, nitrogen deposition
often has a fertilizing effect, accelerating plant growth. Although this
effect is often considered beneficial, nitrogen deposition is causing
important adverse changes in some terrestrial ecosystems, including shifts
in plant species composition and decreases in species diversity or
undesirable nitrate leaching to surface and ground water and decreased
plant growth.

Particulate Matter (PM): NOx compounds react with other compounds in the
atmosphere to form nitrate particles and acid aerosols. Because of their
small size nitrate particles have a relatively long atmospheric lifetime;
these small particles can also penetrate deeply into the lungs. PM has a
wide range of adverse health effects.

Stratospheric Ozone Depletion: A layer of ozone located in the upper
atmosphere (stratosphere) protects people, plants, and animals on the
surface of the earth (troposphere) from excessive ultraviolet radiation.
N2O, which is very stable in the troposphere, slowly migrates to the
stratosphere. In the stratosphere, solar radiation breaks it into nitric
oxide (NO) and nitrogen (N). The NO reacts with ozone to form NO2 and
molecular oxygen. Thus, decreasing N2O emissions would result in some
decrease in the depletion of stratospheric ozone.

Toxic Products: Airborne particles derived from NOx emissions react in the
atmosphere to form various nitrogen containing compounds, some of which may
be mutagenic. Examples of transformation products thought to contribute to
increased mutagenicity include the nitrate radical, peroxyacetyl nitrates,
nitroarenes, and nitrosamines.

Visibility and Regional Haze: NOx emissions lead to the formation of
compounds that can interfere with the transmission of light, limiting
visual range and color discrimination. Most visibility and regional haze
problems can be traced to airborne particles in the atmosphere that include
carbon compounds, nitrate and sulfate aerosols, and soil dust. The major
cause of visibility impairment in the eastern United States is sulfates,
while in the West the other particle types play a greater role.

XI. Impact on Small Entities

The Regulatory Flexibility Act, 5 U.S.C. 601(a), provides that whenever an
agency is required to publish a general notice of rulemaking, it must
prepare and make available a regulatory flexibility analysis (RFA). An RFA
is required only for small entities that are directly regulated by the
rule. See Mid-Tex Electric Cooperative, Inc. v. FERC, 773 F.2d 327 (D.C.
Cir. 1985) (agency's certification need only consider the rule's impact on
regulated entities and not indirect impact on small entities not
regulated); Colorado State Banking Bd.. v. Resolution Trust Corp., 926 F.2d
931 (10th Cir. 1991). This rulemaking simply requires States to develop,
adopt, and submit SIP revisions, and does not directly regulate any
entities. Accordingly, pursuant to 5 U.S.C. 605(b), the Administrator
certifies that this rule will not have a significant economic impact on a
substantial number of small entities. Furthermore, because affected States
will have discretion to choose which sources to regulate and how much
emissions reductions each selected source must achieve, EPA cannot now
predict the effect of this rule on small entities. In addition, if States
adopt the control measures that form the basis of the proposed State
budget, there will be little, if any, effect on small businesses.

XII. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 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 to
State, local, and tribal governments, in the aggregate, or to the private
sector, of $100 million or more in any one year. Before promulgating an EPA
rule for which a written statement is needed, section 205 of the UMRA
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 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 this rule contains 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 one year.
Accordingly, EPA has prepared under section 202 of the UMRA a written
statement which is summarized below.

The EPA has determined that to meet the requirements of section
110(a)(2)(D) of the Clean Air Act, States must submit SIP provisions that
limit NOx emissions to the specified amounts indicated elsewhere in this
rulemaking. The EPA is granting the affected States broad discretion in
developing SIP controls to attain these levels. The EPA has examined a
variety of possible, regionwide NOx emissions controls, which could form
the basis for (i) State budgets of different levels than proposed, as well
as (ii) State packages of control measures that differ from those selected
by EPA in developing the budget levels. The EPA is soliciting comment on
whether the budget levels proposed in today's action are the most
cost-effective or least burdensome alternative that achieves the objectives
of the rule and on other alternatives (e.g., applying different levels of
control in different subregions), if feasible, that EPA should examine in
developing final budget levels.

By today's proposal, EPA is not directly establishing any regulatory
requirements that may significantly or uniquely affect small governments,
including tribal governments. Thus, EPA is not obligated to develop under
section 203 of the UMRA a small government agency plan.

Consistent with the intergovernmental consultation provisions of section
204 of the UMRA and Executive Order 12875, "Enhancing the Intergovernmental
Partnership," EPA has already initiated consultations with the governmental
entities affected by this rule. The EPA already consulted with these
governmental entities extensively during the OTAG process. The EPA has
received extensive comments from governmental entities through OTAG,
including specific recommendations from OTAG, as described above. The EPA
has evaluated those comments and recommendations, and has determined to
propose statewide budget levels based on a basket of regional NOx controls
that bear some similarity to those OTAG recommendations. The EPA's reasons
for doing so are described at length in this rulemaking.

___________________ ________________________

Date Carol M. Browner

Administrator

Billing Code: 6560-50-M

                                 APPENDIX A

REFERENCES

1. For moderate ozone nonattainment areas, the attainment demonstration was
due November 15, 1993 (section 182(b)(1)(A), except that if the State
elected to conduct an urban airshed model, EPA allowed an extension to
November 15, 1994.

2. 2 In addition, section 115 authorizes EPA to require a SIP revision when
a State's emitters "cause or contribute to air pollution which may
reasonably be anticipated to endanger

public health or welfare in a foreign country."

3. Letter of January 29, 1997 from Jeffrey C. Smith, Executive Director,
Institute of Clean Air Companies, to Docket No. A-95-28: Acid Rain Program,
Nitrogen Oxides Emission Reduction.

4. Ozone Transport Assessment Group (OTAG), Policy Paper approved by the
Policy Group on December 4, 1995.

5. Under the two alternative interpretations of section 110(a)(2)(D) that
EPA is proposing today, if upwind emissions meet the factors related to
emissions and contribution to ambient air quality, EPA would conclude
either that the emissions significantly contribute to a nonattainment
problem, or the emissions may significantly contribute, depending on
further analysis of other factors, including costs.

6. National Research Council, Committee on Tropospheric Ozone Formation and
Measurement, "Rethinking the Ozone Problem in Urban and Regional Air
Pollution," pp. 93-107, National Academy Press, Washington, DC, 1991.

7. Wisconsin Department of Natural Resources, "An Analysis of Measured and
Predicted Concentrations Aloft of Ozone and Total Reactive Oxides of
Nitrogen in the Eastern U.S. During July 1995," DRAFT, January 25, 1997,
Madison, WI.

8. Northeast States for Coordinated Air Use Management, "The Long-Range
Transport of Ozone and Its Precursors in the Eastern United States," March
1997, Boston, MA.

9. OTAG, "Ozone Transport Assessment Group Modeling Protocol," Version 3.0,
1996.

10. OTAG, "Ozone Transport Assessment Group Draft Final Report, Chapter 2
Regional and Urban Scale Modeling," 1997.

11. Sonoma Technology, Inc., "Evaluation of the UAM-V Model Performance in
OTAG Simulations, Phase I: Summary of Performance Against Surface
Observations," January 1997, STI-996120-1605-FR,, Santa Rosa, CA.

12. Although the OTAG assessments focussed on 1-hour concentrations, the
impacts on 8-hr average concentrations were found to be similar to these
for 1-hr values.

13. E.H. Pechan & Associates, "OTAG Emissions Inventory Development
Report," Volumes I, II, and III: DRAFT Report, June 1997, Durham, NC.

14. OTAG, "DRAFT Final Report Volume I: Executive Summary, Ozone Transport
Assessment Group Air Quality and Analysis Workgroup." June, 1997.

15. Chameides, W.L. and E.B. Cowling, "The State of the Southern Oxidants
Study (SOS): Policy-Relevant Findings In Ozone Pollution Research,
1988-1994," pg. 37, January 1995.

16. Porter, P.S., S.T. Rao, E. Zalewsky, I Zurbenko, R.F. Henry, and J.Y.
Ku, "Statistical Characteristics of Spectrally-Decomposed Ambient Ozone
Time Series Data," Report to the Ozone Transport Assessment Group, 1996.

17. Environ, Inc., "Review of Existing Ozone Measurement and Modeling
Studies in the Eastern United States," February 21, 1996, Novato, CA.

18. Ozone Transport Commission, "1994 Fall Meeting Report," September 27,
1994, Newport, RI.

19. Morris, R.E., G.M. Wilson, S.B. Shepard, and K. Lee, "Ozone Source
Apportionment Modeling Using the July 1991 OTAG Episode for the Northeast
Corridor and Lake Michigan Regions," March 1997, Environ, Inc., Novato, CA.

20. McNeill, D., T.W.X. Task, "Photochemical Modeling Analysis of the
Northwest "Ozone Free" OTAG States Using the July 1995 OTAG Modeling
Episode," March 1997, Alpine Geophysics, Golden, CO.

21. Values above 124 ppb are considered to be exceedances of the 0.12 ppm
1-hour ozone NAAQS in view of the rounding convention established for
monitoring data whereby ozone concentrations between 125 ppb and 129 ppb
are rounded up to 0.13 ppm.

22. 32 percent is the median effectiveness of the RCS considering all
nonattainment areas in the OTAG region.

23. 8 However, in the Regulatory Analysis of this action, EPA evaluates the
economic impact of including the MOU in the baseline for the electric power
industry.

24. All estimates of I/M program cost effectiveness in this rulemaking are
presented in terms of the cost per annualized summer ton of ozone
precursor, i.e., the cost per ton of VOC or NOx. Cost per annualized summer
ton is calculated as the total cost of the program divided by the number of
tons that would be reduced annually if the level of reduction achieved
during the summer were achieved year round. It thus understates the cost
per actual ton of reduction of ozone precursors. The EPA believes this
procedure is appropriate because I/M programs reduce other pollutants
besides ozone precursors (e.g., air toxics and carbon monoxide (CO)).

25. This cost represents the midpoint of the expected range of $2,600 to
$3,500 per ton (depending on the degree of expansion of the program), on an
annualized summer ton basis, for both VOC and NOx. All estimates of RFG
cost effectiveness in this rulemaking are presented in terms of the cost
per annualized summer ton of ozone precursor, i.e., the cost per ton of VOC
or NOx. Cost per annualized summer ton is calculated as the total cost of
the programs divided by the number of tons that would be reduced annually
if the level of reduction achieved during the summer were achieved year
round. It thus understates the cost per actual ton of reduction of ozone
precursors. The EPA believes this procedure is appropriate because the use
of RFG reduces other pollutants besides ozone precursors (e.g., air toxics
and CO).

26. 11 U.S. Environmental Protection Agency, "Round 3 Analysis of
Cap-and-Trade Strategies to Lower NOx Emissions from Electric Power
Generation in OTAG", March 25, 1997.

27. It should be noted that units owned by Independent Power Producers were
not included in Table III-5 since neither their 1995 nor their 1996
utilizations are known. The projected 2007 utilization for these units is,
however, included in the utility portion of each State's budget.

28. If States chose to not seek reductions from some smaller sources, then
the overall costs estimated for this sector would be expected to increase.

29. EPA, 1995, "National Air Pollutant Emission trends, 1990-1994,"
EPA-454/R-95-001, October 1995.

30. The Trends report method projects national VMT based on a growth rate
of about 2% per year and allocates VMT to States based on Census Bureau
forecasts of population levels in each State.

31. Appendix E contains a description of the controls applied in Run 5.

32. Appendix E contains a description of the controls applied in Run 5.

33. Appendix E contains a description of the controls applied in Run 5.

34. Appendix E contains a description of the controls applied in Run 5.

35. 19 This category includes industrial, commercial, and institutional
boilers, reciprocating engines, gas turbines, process heaters, cement
kilns, furnaces at iron, steel, and glass-making operations, and nitric
acid, adipic acid and other plants with industrial processes that produce
NOx.

36. 20 The ozone season in this analysis covers May 1 through September 30.

37. U.S. Environmental Protection Agency, "Nitrogen Oxides: Impacts on
Public Health and the Environment," EPA-452/R-97-002, August 1997.
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