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Page 1 of 647 

### Contents I. PREAMBLE GLOSSARY OF TERMS AND ABBREVIATIONS ................................ ................................ ..................... 6 II. GENERAL INFORMATION ................................ ................................ ................................ ................................ ... 8 A. DOES THIS ACTION APPLY TO M E ? ................................ ................................ ................................ ................................ 8 B. H OW I S THE P REAMBLE O RGANIZED? ................................ ................................ ................................ ............................ 9 III. EXECUTIVE SUMMARY ................................ ................................ ................................ ................................ .... 14 IV. LEGAL AUTHORITY, ENVIRONMENTAL BASIS, AND CORRECTION OF CAIR SIP APPROVALS ............................. 46 A. EPA’ S AUTHORITY FOR TRANSPORT R ULE ................................ ................................ ................................ ..................... 46 B. R ULEMAKING H ISTORY ................................ ................................ ................................ ................................ .............. 48 C. AIR QUALITY P ROBLEMS AND NAAQS ADDRESSED ................................ ................................ ................................ ........ 52 1. Air Quality Problems and NAAQS Addressed
................................ ................................ ................................ .. 52 2. FIP Authority for each State and NAAQS Covered
................................ ................................ ...................... 58 D. CORRECTION OF CAIR SIP APPROVALS ................................ ................................ ................................ ........................ 66 V. ANALYSIS OF DOWNWIND AIR QUALITY AND UPWIND STATE EMISSIONS ................................ ...................... 74 A. POLLUTANTS R EGULATED ................................ ................................ ................................ ................................ .......... 74 1. Background.
................................ ................................ ................................ ................................ ................... 74 2. Which Pollutants did EPA Propose to Control for Purposes of PM2.5 and Ozone Transport?
......................... 77 3. Comments and Responses
................................ ................................ ................................ ............................. 78 B. BASELINE FOR POLLUTION TRANSPORT ANALYSIS ................................ ................................ ................................ ............ 81 C. AIR QUALITY M ODELING TO I DENTIFY DOWNWIND N ONATTAINMENT AND M AINTENANCE R ECEPTORS ................................ .... 90 1. Emission Inventories ................................ ................................ ................................ ................................ ....... 90 2. Air Quality Basis for Identifying Receptors
................................ ................................ ................................ .... 105 D. POLLUTION TRANSPORT FROM U PWIND STATES................................ ................................ ................................ ........... 145 1. Choice of Air Quality Thresholds
................................ ................................ ................................ ................... 145 2. Approach for Identifying Contributing Upwind States
................................ ................................ .................. 157 VI. QUANTIFICATION OF STATE EMISSION REDUCTIONS REQUIRED ................................ ................................ .. 182 A. COST AND AIR QUALITY STRUCTURE FOR D EFINING R EDUCTIONS ................................ ................................ .................... 183 1. Summary ................................ ................................ ................................ ................................ ....................... 183 B. COST OF AVAILABLE E MISSION R ED UCTIONS (STEP 1)
................................ ................................ ................................ ... 198 1. Development of Annual NO X and Ozone
-Season NOX Cost Curves................................ ................................ 199 2. Development of SO2 Cost Curves ................................ ................................ ................................ ................... 204 3. Amount of Reductions that Could Be Achieved by 2012 and 2014
................................ .............................. 209 C. ESTIMATES OF AIR QUALITY I MPACTS (STEP 2)
................................ ................................ ................................ ............. 212 1. Development of the Air Quality Assessment Tool and Air Quality Modeling Strategy
................................ .. 213 2. Utilization of AQAT to Evaluate Control Scenarios
................................ ................................ ........................ 218 3. Air Quality Assessment Results
................................ ................................ ................................ .................... 220 D. M ULTI- FACTOR ANALYSIS AND D ETERMINATION OF STATE E MISSION B UDGETS ................................ ................................ . 224 1. Multi
- factor Analysis (Step 3)
................................ ................................ ................................ ........................ 225 2. State Emission Budgets (Step 4)
................................ ................................ ................................ .................... 244 E. APPROACH TO POWER S ECTOR E MISSION VARIABILITY................................ ................................ ................................ ... 268 1. Introduction to Power Sector Variability
................................ ................................ ................................ ....... 268*** E.O. 12866 Review

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Page 2 of 647 2. Transport Rule Variability Limits ................................ ................................ ................................ ................... 271 F. VARIABILITY LIMITS AND STATE E MISSION B UDGETS : STATE ASSURANCE LEVELS ................................ ................................ . 280 G. H OW THE STATE E MISSION R EDUCTION R EQUIREMENTS ARE CONSISTENT WITH J UDICIAL O PINIONS I NTERPRETING THE C LEAN AIR ACT ................................ ................................ ................................ ................................ ................................ ......... 283 VII. FIP PROGRAM STRUCTURE TO ACHIEVE RE DUCTIONS ................................ ................................ ................. 288 A. OVERVIEW OF AIR QUALITY-ASSURED TRADING P ROGRAMS................................ ................................ ........................... 288 B. APPLICABILITY ................................ ................................ ................................ ................................ ........................ 301 C. COMPLIANCE D EADLINES ................................ ................................ ................................ ................................ ......... 319 1. Alignment with NAAQS Attainment Deadlines
................................ ................................ ............................. 319 2. Compliance and Deployment of Pollution Control Technologies
................................ ................................ .. 327 D. ALLOCATION OF E MISSION ALLOWANCES ................................ ................................ ................................ .................... 347 1. Allocations to existing units
................................ ................................ ................................ .......................... 349 2. Allocations to New Units ................................ ................................ ................................ ............................... 379 E. ASSURANCE P ROVISIONS ................................ ................................ ................................ ................................ .......... 379 F. P ENALTIES ................................ ................................ ................................ ................................ ............................. 407 G. ALLOWANCE M ANAGEMENT SYSTEM ................................ ................................ ................................ ......................... 415 H. E MISSIONS M ONITORING AND R EPORTING ................................ ................................ ................................ ................. 416 I. P ERMITTING ................................ ................................ ................................ ................................ ........................... 422 1. Title V Permitting
................................ ................................ ................................ ................................ .......... 422 2. New Source Review ................................ ................................ ................................ ................................ ....... 427 J. H OW THE P ROGRAM STRUCTURE IS CONSISTENT WITH J UDICIAL O PINIONS I NTERPRETING THE C LEAN AIR ACT ......................... 441 VIII. ECONOMIC IMPACTS OF THE TRANSPORT RULE ................................ ................................ ......................... 448 A. E MISSION R EDUCTIONS ................................ ................................ ................................ ................................ ........... 448 B. THE I MPACTS ON PM 2.5 AND OZONE OF THE F INAL SO 2 AND NOX STRATEGY ................................ ................................ .... 453 C. B ENEFITS ................................ ................................ ................................ ................................ .............................. 457 1. Human Health Benefit Analysis
................................ ................................ ................................ ..................... 457 2. Quantified and Monetized Visibility Benefits
................................ ................................ ............................... 462 3. Benef its of Reducing GHG Emissions
................................ ................................ ................................ ............. 462 4. Total Monetized Benefits
................................ ................................ ................................ .............................. 463 5. How Do the Benefits in 2012 Compare to 2014?
................................ ................................ .......................... 465 6. How Do the Benefits Compare to the Costs of this Final Rule?
................................ ................................ ..... 466 7. What Are the Unquantified and Non
-monetized Benefits of the Transport Rule Emission Reductions?
...... 474 D. COSTS AND E MPLOYMENT I MPACTS ................................ ................................ ................................ ........................... 484 1. Transport Rule Costs and Employment Impacts
................................ ................................ ............................ 484 2. End
-Use Energy Efficiency
................................ ................................ ................................ ............................. 490 IX. RELATED PROGRAMS AND THE TRANSPORT RU LE ................................ ................................ ........................ 494 A. TRANSITION FROM THE C LEAN AIR I NTERSTATE R ULE ................................ ................................ ................................ .... 494 1. Key Differences between the Transport Rule and CAIR
................................ ................................ ................. 494 2. Transition from the Clean Air Interstate Rule to the Transport Rule
................................ ............................. 502 B. I NTERACTIONS WITH NOX SIP CALL ................................ ................................ ................................ ........................... 519 C. I NTERACTIONS WITH TITLE IV ACID RAIN P ROGRAM ................................ ................................ ................................ ...... 522 D. OTHER STATE I MPLEMENTATION P LAN R EQUIREMENTS ................................ ................................ ................................ 523 X. TRANSPORT RULE STATE IMPLEMENTATION PLANS ................................ ................................ ...................... 524*** E.O. 12866 Review

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Page 3 of 647 XI. STRUCTURE AND KEY ELEMENTS OF TRANSPORT RULE AIR QUALITY-ASSURED TRADING PROG RAM RULES 542 XII. STATUTORY AND EXECUTIVE ORDER REVIEWS ................................ ................................ ............................ 593 A. EXECUTIVE O RDER 12866: R EGULATORY P LANNING AND R EVIEW AND EXECUTIVE O RDER 13563: I MPROVING R EGULATION AND R EGULATORY R EVIEW ................................ ................................ ................................ ................................ ................. 593 B. PAPERWORK R EDUCTION ACT ................................ ................................ ................................ ................................ ... 598 C. R EGULATORY F LEXIBILITY ACT ................................ ................................ ................................ ................................ ... 601 D. U NFUNDED M ANDATES R EFORM ACT ................................ ................................ ................................ ........................ 605 E. EXECUTIVE O RDER 13132: F EDERALISM ................................ ................................ ................................ ..................... 608 F. EXECUTIVE O RDER 13175: CONSULTATION AND COORDINATION WITH I NDIAN TRIBAL G OVERNMENTS ................................ .. 609 G. EXECUTIVE O RDER 13045: P ROTECTION OF C HILDREN FROM E NVIRONMENTAL H EALTH AND SAFETY R ISKS ............................ 611 H. EXECUTIVE O RDER 13211: ACTIONS THAT S IGNIFICANTLY AFFECT E NERGY S UPPLY, D ISTRIBUTION, OR U SE ........................... 612 I. N ATIONAL TECHNOLOGY TRANSFER ADVANCEMENT ACT ................................ ................................ ................................ 615 J. EXECUTIVE O RDER 12898: F EDERAL ACTIONS TO ADDRESS E NVIRONMENTAL J USTICE IN M INORITY POPULATIONS AND LOWI NCOME POPULATIONS ................................ ................................ ................................ ................................ ................ 617 1. Consideration of Environmental Justice in the Transport Rule Development Process and Response to Comments ................................ ................................ ................................ ................................ ......................... 619 2. Potential Environmental and Public Health Impacts among Populations Susceptible or Vulnerable to Air Pollution
................................ ................................ ................................ ................................ ............................ 624 3. Meaningful Public Participation
................................ ................................ ................................ ................... 638 4. Summary ................................ ................................ ................................ ................................ ....................... 642 K. CONGRESSIONAL R EVIEW ACT................................ ................................ ................................ ................................ ... 643 L. J UDICIAL R EVIEW ................................ ................................ ................................ ................................ .................... 644*** E.O. 12866 Review

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Page 4 of 647 6560 - 50 - P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 51, 52, 72, 78, and 97 [EPA- HQ - OAR- 2009 - 0491; FRL - 9174 - 9 ]

RIN 2060 -AP50 Federal Implementation Plans to Reduce Interstate Transport of Fine Particulate Matter and Ozone ; Correction of SIP Approvals for Alabama, Arkansas, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia, West Virginia

AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. SUMMARY: In this action, EPA is limitin g the interstate transport of emissions of n itro gen oxides ( NO X ) and sulfur dioxide ( SO 2 ) that contribute to harmful levels of fine particle matter ( PM2.5 ) and ozone in downwind states. EPA is identifying emissions within 27 states in the eastern United States that significantly affect the ability o f downwind states to attain and maintain compliance with the 1997 and 2006 fine particulate matter national ambient air quality standards (NAAQS) and the 1997 ozone NAAQS. Also, EPA is limiting these emissions through Federal Implementation Plans (FIPs) th at regulate electric generating units (EGUs) in the 27 states. This action will substantially reduce adverse air quality impacts in downwind states from emissions transported across state lines. In*** E.O. 12866 Review

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Page 5 of 647 conjunction with other federal and state actions, it will help assure that all but a handful of areas in the eastern part of the country achieve compliance with the current ozone and PM2.5 NAAQS by the deadlines established in the Clean Air Act. The FIPs may not fully eliminate the prohibited emissions from
c ertain states with respect to the 1997 ozone NAAQS for two remaining downwind areas and EPA is committed to identifying any additional required upwind emission reductions and taking any necessary action in a future rulemaking. In this action, EPA is also modifying its prior approvals of certain SIP submissions to rescind any statements that the submissions in question satisfy the interstate transport requirements of the Clean Air Act with respect to the 1997 fine particulate and 1997 ozone standards. EPA is also issuing a supplemental proposal to request comment on applying ozone
- season NO X reductions in certain additional states under this rule. DATES: This final rule is effective on [insert date 60 days after publication in the Federal Register] . ADDRES SES: EPA has established a docket for this action under Docket ID No. EPA

– HQ
– OAR
– 2009

– 0491. All documents in the docket are listed on the www.regulations.gov web site. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material,*** E.O. 12866 Review

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Page 6 of 647 is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available eit her electronically through www.regulations.gov or in hard copy at the EPA Docket Center, EPA West, Room B102, 1301 Constitution Avenue, NW , Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding le gal holidays. The telephone number for the Public Reading Room is (202) 566

– 1744, and the telephone number for the Air Docket is (202) 566

– 1742. FOR FURTHER INFORMATION CONTACT: For general questions concerning this action, please contact Ms. Meg Victor, Clean Air Markets Division, Office of Atmospheric Programs, Mail Code 6204J, Environmental Protection Agency, 1200 Pennsylvania Avenue, NW., Washington, DC 20460; telephone number: (202) 343
- 9193; fax number: (202) 343
- 2359; e
-mail address: victor.meg@epa. gov. For legal questions, please contact Ms. Sonja Rodman, U.S. EPA, Office of General Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue, NW , Washington, DC 20460, telephone (202) 564

– 4079; e
-mail address : rodman.sonja@epa.gov. SUPPLEMENTARY INFORMATION: I. Preamble Glossary of Terms and Abbreviations The following are abbreviations of terms used in the preamble. ARP Acid Rain Program BART Best Available Retrofit Technology*** E.O. 12866 Review

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Page 7 of 647 BACT Best Available Control Technology CAA or Act Clean Air Act CAIR Clean Air I nterstate Rule CBI Confidential Business Information CFR Code of Federal Regulations EGU Electric Generating Unit FERC Federal Energy Regulatory Commission FGD Flue Gas Desulfurization FIP Federal Implementation Plan FR Federal Register EPA U.S. Environmen tal Protection Agency GHG Greenhouse Gas Hg Mercury IPM Integrated Planning Model lb/ MMBtu Pounds Per Million British Thermal Unit μg/m3 Micrograms Per Cubic Meter NAAQS National Ambient Air Quality Standards NO X Nitrogen Oxides NSPS New Source Performance Standard OTAG Ozone Transport Assessment Group PUC Public Utility Commission SNCR Selective Non
- catalytic Reduction SCR Selective Catalytic Reduction SIP State Implementation Plan*** E.O. 12866 Review

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Page 8 of 647 PM2.5 Fine Particulate Matter, Less Than 2.5 Micrometers PM 10 Fine and Coarse Particulate Matter, Less Than 10 Micrometers PM Particulate Matter RIA Regulatory Impact Analysis SO 2 Sulfur Dioxide SO X Sulfur Oxides, Including Sulfur Dioxide ( SO 2 ) and Sulfur Trioxide (SO 3 ) TIP Tribal Implementation Plan TPY Tons Per Year TSD Technical Support Document II. General Information A. Does This Action Apply to Me? This rule affects EGUs, and regulates the following g roups: Industry group NAICS a Utilities (electric, natural gas, other systems.) 2211, 2212, 2213

a North American Industry Classification System. This table is not intended to be exhaustive, but rather provides a guide for reade rs regarding entities likely to be regulated by this action. This table lists the types of entities that EPA is aware of that could potentially be regulated. Other types of entities not listed in the table could also be*** E.O. 12866 Review

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Page 9 of 647 regulated. To determine whether your facility would be regulated by the proposed rule, you should carefully examine the applicability criteria in proposed §§ 97.404, 97.504, and 97,604.
B. How Is The Preamble Organized?

I. Preamble Glossary of Terms and Abbreviations II. General Information A. Does T his Action Apply to Me? B. How Is The Preamble Organized? III. Executive Summary IV. Legal Authority , Environmental Basis , and Correction of CAIR SIP Approvals A. EPA’s Authority for Transport Rule B. Rulemaking History C. Air Quality Problems and NAAQS Addressed 1. Air Qual ity Problems and NAAQS Addressed 2. FIP Authority for each State and NAAQS Covered 3. Additional Information Regarding CAA Section 110(a)(2)(D)(i)(I) SIPs for States in the Transport Rule Modeling Domain D. Correction of CAIR SIP Approvals V. Analysis of Downwind Air Quality and Upwind State Emissions A. Pollutants Regulated*** E.O. 12866 Review

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Page 10 of 647 1. Background 2. Which Pollutants did EPA Propose to Control for Purposes of PM2.5 and Ozone Transport? 3. Comments and Responses B. Baseline for Pollution Transp ort Analysis C. Air Quality Modeling to Identify Downwind Nonattainment and Maintenance Receptors 1. Emission Inventories 2. Air Quality Basis for Identifying Receptors D. Pollution Transport from Upwind States 1. Choice of Air Quality Thresholds 2. Approach for I dentifying Contributing Upwind States VI. Quantification of State Emission Reductions Required A. Cost and Air Quality Structure for Defining Reductions 1. Summary 2. Background B. Cost of Available Emission Reductions 1. Development of Annual NO X and Ozone - Season NO X Cost Curves 2. Development of SO 2 Cost Curves 3. Amount of Reductions That Could Be Achieved by 2012 and 2014 C. Estimates of Air Quality Impacts*** E.O. 12866 Review

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Page 11 of 647 1. Development of the Air Quality Assessment Tool and Air Quality Modeling Strategy 2. Utilization of AQAT to Evaluate Control Sc enarios 3. Air Quality Assessment Results D. Multi
- Factor Analysis and Determination of State Emission Budgets 1. Multi
- Factor Analysis 2. State Emission Budgets E. Approach to Power Sector Emission Variability 1. Introduction to Power Sector Variability 2. Transport Rule Vari ability Limits F. Variability Limits and State Emission Budgets: State Assurance Levels G. How the State Emission Reduction Requirements are Consistent with Judicial Opinions Interpreting the Clean Air Act VII. FIP Program Structure to Achieve Reductions A. Overview o f Air Quality
-Assured Trading Programs B. Applicability C. Compliance Deadlines 1. Alignment with NAAQS Attainment Deadlines 2. Compliance and Deployment of Pollution Control Technologies D. Allocation of Emission Allowances*** E.O. 12866 Review

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Page 12 of 647 1. Allocations to Existing Uni ts 2. Allocations to New Units E. Assurance Provisions F. Penalties G. Allowance Management System H. Emissions Monitoring and Reporting I. Permitting 1. Title V Permitting 2. New Source Review J. How the Program Structure is Consistent with Judicial Opinions Interpreting the Clea n Air Act VIII. Economic Impacts of the Transport Rule A. Emission Reductions B. The Impacts on PM2.5 and Ozone of the Final SO 2 and NO X Strategy C. Benefits 1. Human Health Benefit Analysis 2. Quantified and Monetized Visibility Benefits 3. Benefits of Reducing GHG Emissions 4. To tal Monetized Benefits 5. How Do the Benefits in 2012 Compare to 2014? 6. How do the Benefits Compare to the Costs of this Final Rule?*** E.O. 12866 Review

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Page 13 of 647 7. What are the Unquantified and Non -monetized Benefits of the Transport Rule Emission Reductions? D. Costs and Employment Impacts 1. Tr ansport Rule Costs and Employment Impacts 2. End - Use Energy Efficiency IX. Related Programs and the Transport Rule A. Transition from the Clean Air Interstate Rule 1. Key Differences Between the Transport Rule and CAIR 2. Transition from the Clean Air Interstate Rule to the Transport Rule B. Interactions with NO X SIP Call C. Interactions with Title IV Acid Rain Program D. Other State Implementation Plan Requirements X. Transport Rule State Implementation Plans XI. Structure and Key Elements of Transport Rule Air Quality
-Assured Trading P rogram Rules XII. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism*** E.O. 12866 Review

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Page 14 of 647 F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer Advancement Act J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low
Income Populations 1. Considerat ion of Environmental Justice in the Transport Rule Development Process and Response to Comments 2. Potential Environmental and Public Health Impacts among Populations Susceptible or Vulnerable to Air Pollution 3. Meaningful Public Participation 4. Summary K. Congressi onal Review Act L. Judicial Review III. Executive Summary Clean Air Act (CAA) section 110(a)(2)(D)(i)(I) requires states to prohibit emissions that contribute significantly to*** E.O. 12866 Review

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Page 15 of 647 nonattainment in, or interfere with maintenance by, any other state with respect t o any primary or secondary NAAQS. In this final rule, EPA finds that emissions of SO 2 and NO X in 27 eastern, midwestern, and southern states contribute significantly to nonattainment or interfere with maintenance in one or more downwind states with respec t to one or more of three air quality standards
-- the annual PM2.5 NAAQS promulgated in 1997, the 24
- hour PM2.5 NAAQS promulgated in 2006, and the ozone NAAQS promulgated in 1997 (EPA uses the term “states” to include the District of Columbia in this preamble). These emissions are transported downwind either as SO 2 and NO X or, after transformation in the atmosphere, as fine particles or ozone. This final rule identifies emission reduction responsibilities of upwind states, and also promulgates enforceable Federal Implementation Plans (FIPs) to achieve the required emission reductions in each state through cost
effective and flexible requirements for power plants. Each state has the option of replacing these federal rules with state rules to achieve the re quired amount of emission reductions from sources selected by the state. Section 110(a)(2)(D)(i)(I) of the CAA requires the elimination of upwind state emissions that significantly contribute to nonattainment or interfere with maintenance of a NAAQS in a nother state. Elimination of these upwind state*** E.O. 12866 Review

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Page 16 of 647 emissions may not necessarily, in itself, fully resolve nonattainment or maintenance problems at downwind state receptors. Downwind states also have control responsibilities because, among other things, the Act requires each state to adopt enforceable plans to attain and maintain air quality standards. Indeed, states have put in place measures to reduce local emissions that contribute to nonattainment within their borders. Section 110 (a)(2)(D)(i)(I) only requires the elimination of emissions that significantly contribute to nonattainment or interfere with maintenance of the NAAQS in other states; it does not shift to upwind states the responsibility for ensuring that all areas in other states attain the NAAQS. The reductions obtained through the Transport Rule will help all but a few downwind areas come into attainment with and maintain the 1997 annual PM2.5 NAAQS, the 2006 24
- hour PM2.5 NAAQS, and the 1997 ozone NAAQS. With respect to the annual PM2.5 NAAQS, this rule finds that 18 states have SO 2 and annual NO X emission reduction responsibilities, and this rule quantifies each state’s full emission reduction responsibility under section 110(a)(2)(D)(i)(I). See Table III - 1 for the list of these states. W ith these reductions, EPA projects that no areas will have nonattainment or maintenance concerns with respect to the annual PM2.5 NAAQS.*** E.O. 12866 Review

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Page 17 of 647 With respect to the 24
- hour PM2.5 NAAQS, this rule finds that 22 states have SO 2 and annual NO X emission reduction
res ponsibilities, and this rule quantifies each state’s full emission reduction responsibility under 110(a)(2)(D)(i)(I). See Table III - 1 for the list of these states. In all, this rule requires emission reductions related to interstate transport of fine par ticles in 23 states. With these reductions, as discussed in section VI.D of this preamble, only one area (Liberty
- Clairton) is projected to remain in nonattainment, and three other areas (Chicago , 1 Detroit, and Lancaster) are projected to have remaining maintenance concerns for the 24
- hour PM2.5 NAAQS. With respect to the 1997 ozone NAAQS, this rule finds that 20 states have ozone
- season NO X emission reduction responsibilities. For 10 of these states this rule quantifies the state’s full emission reductio n responsibility under section 110(a)(2)(D)(i)(I). 2 For 10 additional states, EPA quantifies in this rule the ozone
- season NO X emission reductions that are
1 This area is not currently designated as non
- attainment f or the 24
- hour PM2.5 standard. EPA is portraying the recepto r s and counties in this area as a single 24
- hour maintenance area based on the annual PM2. 5 non - attainment designation of Chicag o - Gary Lake County, IL - IN. 2 The 10 states for which this rule quantifies the state’s full responsibility under section 110(a)(2)(D)(i)(I) with respect to the 1997 ozone NAAQS are Florida, Maryland, New Jersey, New Yor k, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia, and West Virginia.*** E.O. 12866 Review

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Page 18 of 647 necessary but may not be sufficient to eliminate all significant contribution to nonattainment and interference with maintenance in other states. 3 See Table III - 1 for the complete list of 20 states required to reduce ozone
- season NO X emissions in this rule. With the Transport Rule reductions, only one area (Houston) is projected to remain in nonattainment, and one area (Baton Rouge) to have a remaining maintenance concern with respect to the 1997 ozone NAAQS. The 10 states upwind of either of these two areas are the states for which additional reductions may be necessary to fully eliminate each state’ s significant contribution to nonattainment and interference with maintenance, as discussed in section VI of this preamble. 4 As discussed further below, EPA’s analysis also demonstrates that six additional states should be required to reduce ozone - season NO X emissions. EPA is issuing a supplemental proposal to request comment on requiring ozone
- season NO X

3 The 10 states for which this rule quantifies reductions that are necessary but may not be sufficient to satisfy the requirements of 110(a)(2)(D)(i)(I) with respect to the 1997 ozone NAAQS are Alabama, Arkansas, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Tennessee, and Texas. 4 This preamble uses the term "significant contribution" only in the context of the CAA section 110(a)(2)(D)(i)(I) requirement that states prohibit emissions that "contribute significantly to nonattainment" in any other state with respect to any primary or secondary NAAQS. Thus, a significant contribution, as used in this preamble, is one that is significant for purposes of CAA sectio n 110(a)(2)(D)(i)(I) as coming from a particular state.*** E.O. 12866 Review

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Page 19 of 647 reductions in these six states. For five of these six states, EPA’s analysis identifies the state’s full emission reduction responsibility under section 110(a)(2)(D)(i)(I), and for the remaining one state EPA’s analysis identifies reductions that are necessary but may not be sufficient to satisfy the requirements of 110(a)(2)(D)(i)(I). 5 On January 19, 2010, EPA proposed revisions to the 8
- hour ozone NAAQS that the Agency had issued March 12, 2008 (75 FR 2938); the Agency intends to finalize its reconsideration in the summer of 2011. EPA intends to propose a rule to address transport with respect to the reconsidered 2008 ozone NAAQS as expeditiously as pos sible after reconsideration is completed. EPA intends to include in that proposed rule requirements to address any remaining significant contribution to nonattainment and interference with maintenance with respect to the 1997 ozone NAAQS for the states identified in this final rule, or the associated supplemental notice of proposed rulemaking, for which EPA was unable to fully quantify the emissions that must be

5 The five states addressed in the supplemental proposal for which EPA’s analysis identifies the state’s full reduction responsibility under section 110(a)(2)(D)(i)(I) with respect to the 1997 ozone NAAQS are Iowa, Kansas, Michigan, Oklahoma, and Wisconsin. The one state addressed in the supplemental proposal for which EPA’s analysis identifies reductions that are necessary but may not be sufficient to satisfy section 110(a)(2)(D)(i)(I) with respect t o the 1997 ozone NAAQS is Missouri.*** E.O. 12866 Review

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Page 20 of 647 prohibited to satisfy the requirements of 110(a)(2)(D)(i)(I) with respect to the 1997 ozone NAAQS. The Act requires EPA to conduct periodic reviews of each the NAAQS. When NAAQS are set or revised, the CAA requires revision of SIPs to ensure the standards are met expeditiously and within relevant timetables in the Act. If more protective NAAQS are promulgated, in the case of pollutants for which interstate transport is important, additional emission reductions to address transported pollution may be required from the power sector, from other sectors, and from sources in additional states. EPA will act promptly to promulgate any future rules addressing transport with respect to revised NAAQS. The Transport Rule requires substantial near
- term emission reductions in every covered state to address each state’s significant contribution to nonattainment and interference with maintenance downwind. This rule achieves these reductions through FIPs that regulate the power sector using air quality
assured trading programs whose assurance provisions ensure that necessary reductions will occur within every covered state. This remedy structure is substantially similar to the preferred trading remedy structure presented in the proposal. The Transport Rule’s air quality
- assured trading approach will assure environmen tal results in each state while providing market - based flexibility to covered sources through interstate*** E.O. 12866 Review

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Page 21 of 647 trading . The final rule includes four air quality
- assured trading programs: an annual NO X trading program, an ozone
- sea son NO X trading program, and two separate SO 2 trading programs (“ SO 2 Group 1” and “ SO 2 Group 2”), as discussed further in sections VI and VII, below. The first phase of Transport Rule compliance commences January 1, 2012 for SO 2 and annual NO X reductions a nd May 1, 2012 for ozone - season NO X reductions. The second phase of Transport Rule reductions , which commences January 1, 2014 , increases the stringency of SO 2 reductions in a number of states as discussed further below . EPA projects that with the Trans port Rule, covered electric generating units (EGU) will substantially reduce SO 2 , annual NO X and ozone - season NO X emissions, as shown in Tables III
- 2 and III
3, below. This rule generally covers electric generating units that are fossil fuel
- fired boilers and turbines producing electricity for sale, as detailed in section VII. EPA is promulgating the Transport Rule in response to the remand of the Clean Air Interstate Rule (CAIR) by the U.S. Court of Appeals for the District of Columbia Circuit (“Court”) in 2008. CAIR, promulgated May 12, 2005 (70 FR 25162), required 29 states to adopt and submit revisions to their State Implementation Plans (SIPs) to eliminate SO 2 and NO X emissions that contribute significantly to downwind nonattainment of the*** E.O. 12866 Review

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Page 22 of 647 PM2.5 and ozone NAAQS promulgated in July 1997. CAIR covered a similar but not identical set of states as the Transport Rule. CAIR FIPs were promulgated April 26, 2006 (71 FR 25328) to regulate electric generating units in the covered states and achieve the emiss ion reductions requirements established by CAIR until states could submit and obtain approval of SIPs to achieve the reductions. In July 2008, the Court found CAIR and the CAIR FIPs unlawful. North Carolina v. EPA , 531 F.3d 896 (D.C. Cir. 2008), modified on rehearing, North Carolina v. EPA , 550 F.3d 1176, 1178 (D.C. Cir. 2008). The Court’s original decision vacated CAIR. North Carolina , 531 F.3d at 929
- 30. However, the Court subsequently remanded CAIR to EPA without vacatur because it found that “allowi ng CAIR to remain in effect until it is replaced by a rule consistent with our opinion would at least temporarily preserve the environmental values covered by CAIR.” North Carolina , 550 F.3d at 1178. The CAIR requirements have remained in place while EPA has developed the Transport Rule to replace them. EPA’s approach in the Transport Rule to measure and address each state’s significant contribution to downwind nonattainment and interference with maintenance is guided by and consistent with the Court’s op inion in North Carolina and addresses the flaws in CAIR identified by the Court therein. This final rule*** E.O. 12866 Review

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Page 23 of 647 also responds to extensive public comments and stakeholder input received during the public comment periods in response to the proposal and subsequent Notices of Data Availability (NODAs). In this action, EPA both identifies and addresses emissions within states that significantly contribute to nonattainment or interfere with maintenance in other downwind states. In developing this rule, EPA used a sta te - specific methodology to identify emission reductions that must be made in covered states to address the CAA section 110(a)(2)(D)(i)(I) prohibition on emissions that significantly contribute to nonattainment or interfere with maintenance in a downwind st ate. EPA believes this methodology addresses the Court’s concern that the approach used in CAIR was insufficiently state
- specific. EPA used detailed air quality analysis to determine whether a state’s contribution to downwind air quality problems is at o r above specific thresholds. A state is covered by the Transport Rule if it s contribution meets or exceeds one of those air quality thresholds and the Agency identifies, using a multi
- factor analysis that takes into account both air quality and cost
con siderations, emissions within the state that constitute the state’s significant contribution to nonattainment and interference with maintenance with respect to the 1997 ozone or the 1997 annual or 2006 24
- hour PM2.5 NAAQS. Section 110(a)(2)(D)(i)(I) requi res states to eliminate the emissions*** E.O. 12866 Review

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Page 24 of 647 that constitute this “significant contribution” and “interference with maintenance.” 6 In this final rule, EPA determined the emission reductions required from all upwind states to eliminate significant contribution to nonattainment and interference with maintenance with respect to the 1997 ozone, 1997 annual PM2.5 , and 2006 24
- hour PM2.5 NAAQS, using, in part, an assessment of modeled air quality in 2012 and 2014. EPA first identified the following two sets of downwind receptors: (1) receptors that EPA projects will have nonattainment problems; and, (2) receptors that EPA projects may have difficulty maintaining the NAAQS based on historic variation in air quality. To identify areas that may have problems attaining or maintaining these air quality standards, EPA projected a suite of future air quality design values, based on measured data during the period 2003 to 2007. EPA used the average of these future design values to assess whether an area will be in nonattainmen t. EPA used the maximum projected future design value to assess whether an area may have difficulty maintaining the relevant NAAQS (i.e., whether an area has a reasonable possibility of being in nonattainment under

6 In this preamble, EPA uses the terms “significant contribution” and “interference with maintenance” to refer to the emissions that must be prohibited pursuant to section 110(a)(2)(D)(i)(I) because they significantly co ntribute to nonattainment or interfere with maintenance of the NAAQS in another state.*** E.O. 12866 Review

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Page 25 of 647 adverse emission and weather conditions) . Section V.C of this preamble details the Transport Rule’s approach to identify downwind nonattainment and maintenance areas. After identifying downwind nonattainment and/or maintenance areas, EPA next used air quality modeling to determine which upwin d states are projected to contribute at or above threshold levels to the air quality problems in those areas. Section V.D details the choice of air quality thresholds and the approach to determine upwind state contributions. States whose contributions me et or exceed the threshold levels were analyzed further to determine emission reductions requirements as detailed in section VI. When EPA proposed this air
- quality and cost
- based multi
factor approach to identify emissions that constitute significant contr ibution to nonattainment and interference with maintenance from upwind states with respect to the 1997 ozone, annual PM2.5 , and 2006 24
- hour PM2.5 NAAQS, the Agency indicated that the approach was designed to be applicable to both current and potential fut ure ozone and PM2.5 NAAQS (75 FR 45214). EPA believes that the Transport Rule's approach of using air
- quality thresholds to determine upwind
- to - downwind
- state linkages and using the cost - and air quality
- based multi
- factor approach to determine the quanti ty of emissions that each upwind state must eliminate, i.e., the state's significant contribution to*** E.O. 12866 Review

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Page 26 of 647 nonattainment and interference with maintenance, could serve as a precedent for quantifying upwind state emission reduction responsibilities with respect t o potential future NAAQS, as discussed further in section VI.A of this preamble. The Agency further believes that the final Transport Rule demonstrates the strong value of this approach for addressing the role of interstate transport of air pollution in c ommunities’ ability to comply with current and future NAAQS. EPA thus identified specific emission reduction responsibilities for each upwind state found to significantly contribute to nonattainment or interfere with maintenance in other states. Using tha t information, EPA developed individual state budgets for emissions from covered units under the Transport Rule. The Transport Rule emission budgets are based on EPA’s state - by - state analysis of each upwind state’s significant contribution to nonattainmen t and interference with maintenance. Because each state’s budget is directly linked to this state
- specific analysis of the state’s obligations pursuant to section 110(a)(2)(D)(i)(I), this approach addresses the Court’s concerns about the development of CA IR budgets. In this rule, EPA is finalizing SO 2 and annual NO X budgets for each state covered for the 24
- hour and/or annual PM2.5 NAAQS and an ozone - season NO X budget for each state covered for the ozone NAAQS. A state’s emission budget is the quantity of*** E.O. 12866 Review

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Page 27 of 647 emissions that will remain from covered units under the Transport Rule after elimination of significant contribution to nonattainment and interference with maintenance in an average year (i.e., before accounting for the inherent variability in power sys tem operations). 7 Baseline power sector emissions from a state can be affected by changing weather patterns, demand growth, or disruptions in electricity supply from other units or from the transmission grid. As a consequence, emissions could vary from year to year even in a state where covered sources have installed all controls and taken all measures necessary to eliminate the state’s significant contribution to nonattainment and interference with maintenance. As described in detail in sections VI and VII of this preamble, the Transport Rule accounts for the inherent variability in power system operations through “assurance provisions” based on state
- specific variability limits which extend above the state budgets to form each state’s “assurance level. ” The state assurance levels take into account the inherent variability in baseline emissions from year to year. The final Transport Rule FIPs will implement

7 For the states discussed above for which EPA has quantified the minimum amount of emission reductions needed to make measurable progress toward satisfying the state’ s section 110(a)(2)(D)(i)(I) responsibility, the emission budget is the quantity of emissions that will remain from covered units after removal of those emissions.*** E.O. 12866 Review

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Page 28 of 647 assurance provisions starting in 2012 as discussed in section VII, below. The emission reduction s requirements (i.e., the “remedy”) EPA is promulgating in this rule respond to the Court’s concerns that in CAIR, EPA had not shown that the emission reduction requirements would get all necessary reductions within the state as required by section 110(a)( 2)(D)(i)(I). The Transport Rule FIPs include assurance provisions specifically designed to ensure that no state’s emissions are allowed to exceed that specific state’s budget plus the variability limit (i.e., the state’s assurance level). Each state’s Tra nsport Rule SO 2 , annual NO X , or ozone - season NO X emission budget is composed of a number of emission allowances (“allowances”) equivalent to the tonnage of that specific state budget. Under the Transport Rule FIPs, EPA is distributing (“allocating”) allowances under each state’s budget to covered units in that state. In this rule, EPA analyzed each individual state’s significant contribution to nonattainment and interference with maintenance and calculated budgets that represent each state’s emissions aft er the elimination of those prohibited emissions in an average year. The methodology used to allocate allowances to individual units in a particular state has no impact on that state’s budget or on the requirement that the state’s emissions not exceed tha t budget plus the*** E.O. 12866 Review

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Page 29 of 647 variability limit; the allocation methodology therefore has no impact on the rule’s ability to satisfy the statutory mandate of CAA section 110(a)(2)(D)(i)(I). The Transport Rule’s approach to allocate emission allowances to existing unit s is based on historic heat
- input data, as detailed in section VII of this preamble. The Transport Rule SO 2 , annual NO X , and ozone - season NO X emission allowances each authorize the emission of one ton of SO 2 , annual NO X , or ozone - season NO X emissions, res pectively, during a Transport Rule control period, and are the currency in the Transport Rule’s air quality
- assured trading programs. As discussed in section IX below, EPA is creating these Transport Rule allowances as distinct complianc e instruments with no relation to allowances from the CAIR trading programs. EPA recognizes the administrative value of continuity under successive regulatory trading programs; however, EPA is promulgating the Transport Rule as a Court
- ordered replacement for (not a successor to) CAIR’s trading programs. EPA will strongly consider administrative continuity of this rule’s trading programs under any future actions designed to address related problems of interstate transport of air pollution. A state may submit a SIP revision under which the state (rather than EPA) would determine allocations for one or more of the Transport Rule trading programs beginning with vintage year*** E.O. 12866 Review

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Page 30 of 647 2013 or later allowances. 8 Section X of this preamble discusses the final rule’s prov isions for SIP submissions in detail. Table III - 1 lists states covered by the Transport Rule for PM2.5 and ozone. It also, with respect to PM2.5 , identifies whether EPA determined the state was significantly contributing to nonattainment or interfering wi th maintenance of the 1997 annual PM2.5 NAAQS, the 2006 24
- hour PM2.5 NAAQS, or both. As discussed below, the Transport Rule sorts the states required to reduce SO 2 emissions due to their contribution to PM2.5 downwind into two groups of varying reduction stringency, with “Group 1” states subject to greater SO 2 reduction stringency than “Group 2” states starting in 2014 . Table III - 1 also lists which SO 2 Group each of the states is in.

Table III - 1 - States that Significantly Contribute to Nonattainment or Interfere with Maintenance of a NAAQS Downwind in the Final Transport Rule State 1997 Ozone NAAQS 1997

Annual PM2.5 NAAQS 2006 24 -

Hour PM2.5 NAAQS SO2

Group Alabama X X X 2 Arkansas X Florida X

8 This final rule allows states to make 2013 allowance allocations through the use of a SIP revision that is narrower in scope than the other SIP revisions states can use to replace the FIPs and/or to make allocation decisions for 2014 and beyond , as discussed in section X.*** E.O. 12866 Review

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Page 31 of 64 7 Georgia X X X 2 Illinois X X X 1 Indiana X X X 1 Iowa X X 1 Kansas X 2 Kentucky X X X 1 Louisiana X Maryland X X X 1 Michigan X X 1 Minnesota X 2 Mississippi X Missouri X X 1 Nebraska X 2 New Jersey X X 1 New York X X X 1 North Carolina X X X 1 Ohio X X X 1 Pennsylvani a X X X 1 South Carolina X X 2 Tennessee X X X 1 Texas X X 2 Virginia X X 1 West Virginia X X X 1 Wisconsin X X 1 Number of States 20 18 22*** E.O. 12866 Review

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Page 32 of 647 As explained in this preamble, EPA has improved and updated both steps of its significant contribut ion analysis. It updated and improved the modeling platforms and modeling inputs used to identify states with contributions to certain downwind receptors that meet or exceed specified thresholds. It also updated and improved its analysis for identifying any emissions within such states that constitute the state’s significant contribution to nonattainment or interference with maintenance. Therefore, the results of the analysis conducted for the final rule differ somewhat from the results of the analysis c onducted for the proposal. 9 With respect to the 1997 ozone NAAQS, the analysis EPA conducted for the proposal did not identify Wisconsin, Iowa and Missouri as states that significantly contribute to nonattainment or interfere with maintenance of the ozon e NAAQS in another state. However, the analysis conducted for the final rule shows that emissions from these states do significantly contribute to nonattainment or interfere with maintenance of the ozone NAAQS in another state. EPA is not issuing FIPs wi th respect to the 1997 ozone NAAQS or finalizing ozone season NO X budgets for these states in this rule. EPA is publishing a

9 EPA updated its modeling platforms and modeling inputs in response to public comments received on the proposed Transport Rule and subsequent Notices of Data Availability and performed other standard updates.*** E.O. 12866 Review

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Page 33 of 647 supplemental notice of proposed rulemaking that will provide an opportunity for public comment on our conclusion that these states significantly contribute to nonattainment or interfere with maintenance of the 1997 ozone NAAQS. In the other direction, the analysis conducted for the proposal supported EPA’s conclusion at the time that Connecticut, Delaware, and the District of Columbi a significantly contributed to nonattainment or interference with maintenance with respect to the 1997 ozone NAAQS, whereas the modeling for the final rule no longer supports that conclusion for those states. Additionally, the modeling conducted for the fi nal rule identified two ozone maintenance receptors that were not identified in the modeling conducted for the proposal
-- Allegan County (MI) and Harford County (MD). Five states that EPA identified as significantly contributing to maintenance problems
a t the Allegan and/or Harford County receptors in the modeling for the final rule uniquely contribute to these receptors, i.e., absent these receptors the states would not be covered by the Transport Rule ozone - season program. The five states that uniquely contribute to these receptors are Iowa, Kansas, Michigan, Oklahoma, and Wisconsin. EPA is not issuing FIPs with respect to the 1997 ozone NAAQS or finalizing ozone
- season NO X budgets for these states in this rule. EPA is publishing a*** E.O. 12866 Review

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Page 34 of 647 supplemental notice of proposed rulemaking that will provide an opportunity for public comment on our conclusion that these states significantly contribute to nonattainment or interfere with maintenance of the 1997 ozone NAAQS. EPA did not change its methodology between th e proposed Transport Rule and the final Transport Rule for identifying upwind states that significantly contribute to nonattainment or interfere with maintenance in other states; nor did EPA change its methodology for identifying receptors of concern with respect to maintenance of the 1997 ozone NAAQS. The final rule’s air quality modeling identifies the new states and new receptors described above based on updated input information (including emission inventories), much of which was provided to EPA through public comment on the proposal and subsequent NODAs. Section V of this preamble details the approach EPA used to identify contributing states and receptors of concern. With respect to the annual PM2.5 NAAQS, the analysis EPA conducted for the proposal supported EPA’s conclusion that the states of Delaware, the District of Columbia, Florida, Louisiana, Minnesota, New Jersey, and Virginia were significantly contributing to nonattainment and interfering with maintenance of the annual PM2.5 NAAQS while the final rule’s analysis does not. Also, with respect to the 24
- hour PM2.5 NAAQS, the analysis conducted for the proposal supported EPA’s*** E.O. 12866 Review

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Page 35 of 647 conclusion that the states of Connecticut, Delaware, the District of Columbia, and Massachusetts were significantly
con tributing to nonattainment or interfering with maintenance in other states while the analysis conduct ed for the final rule did not. In the proposal EPA also requested comment on wheth er Texas should be included in the Transport Rule for annual PM2.5 . EPA’s analysis for the proposal showed that emissions in Texas would significantly contribute to nonattainment or interfere with maintenance of the annual PM2.5 NAAQS if Texas were not in cluded in the rule for PM2.5 . The proposal did not include an illustrative budget for Texas or illustrative allowance allocations. However, the budgets and allowance allocations provided in the proposal were included solely to illustrate the result of applying EPA’s proposed methodology for quantifying significant contribution to the data EPA proposed to use. EPA provided an ample opportunity for comment on this methodology and on the data, including data regarding emissions from Texas sources, used in t he significant contribution analysis. EPA received numerous comments on and corrections to Texas specific data. The modeling conducted for the final rule demonstrates that Texas significantly contributes to nonattainment or interferes with maintenance of the annual NAAQS in another state. EPA provided a full opportunity for comment on whether*** E.O. 12866 Review

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Page 36 of 647 Texas should be included in the rule for annual PM2.5 , as well a s on the methodology and data used for the significant contribution analysis for the final rule. EPA therefore believes its determination that Texas must be included in the rule for annual PM2.5 is a logical outgrowth of its proposal. EPA is also request ing comment, in a supplemental notice of proposed rulemaking, on its conclusion that Texas also significantly contributes to nonattainment or interferes with maintenance of the 24
- hour PM2.5 NAAQS in another state. The final rule, however, does not cover t he states of Connecticut, Delaware, the District of Columbia, Florida, Louisiana, or Massachusetts for annual or 24
- hour PM2.5 as the analysis for the final rule does not support their inclusion. The Transport Rule FIPs require the 23 states covered for purposes of the 24
- hour and/or annual PM2.5 NAAQS to reduce SO 2 and annual NO X emissions by specified amounts. The FIPs require the 20 states covered for purposes of the ozone NAAQS to reduce
ozone - season NO X emissions by specified amounts. As discussed i n detail in section VI, below, the 23 states covered for the 24
- hour and/or annual PM2.5 NAAQS are grouped in two tiers reflecting the stringency of SO 2 reductions required to eliminate that state’s significant contribution to nonattainment and interferenc e with maintenance downwind. The more
- stringent SO 2 tier (“Group 1”) is comprised of the 16 states indicated in*** E.O. 12866 Review

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Page 37 of 647 Table III - 1, above, and the less - stringent SO 2 tier (“Group 2”) is comprised of the 7 states identified in the table. The two SO 2 trading prog rams are exclusive, i.e., a covered source in a Group 1 state may use only a Group 1 allowance for compliance, and likewise a source in a Group 2 state may use only a Group 2 allowance for compliance. In Group 1 states, the SO 2 reduction requirements become more stringent in the second phase, which starts in 2014. In response to the Court’s opinion in North Carolina , EPA has coordinated the Transport Rule’s compliance deadlines with the NAAQS attainment deadlines that apply to the downwind nonattainment an d maintenance areas. The Transport Rule requires that all significant contribution to nonattainment and interference with maintenance identified in this action with respect to the 1997 annual PM2.5 NAAQS and the 2006 24
- hour PM2.5 NAAQS be eliminated by n o later than 2014, with an initial phase of reductions starting in 2012 to ensure that reductions are made as expeditiously as practicable and, consistent with the Court’s remand, to “preserve the environmental values covered by CAIR.” Sources must comply by January 1, 2012 and January 1, 2014 for the first and second phases, respectively. With respect to the 1997 ozone NAAQS, the Transport Rule requires NO X reductions starting in 2012 to ensure that reductions are made as expeditiously as practicable to a ssist*** E.O. 12866 Review

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Page 38 of 647 downwind state attainment and maintenance of the standard. Sources must comply by May 1, 2012. The Transport Rule’s compliance schedule and alignment with downwind NAAQS attainment deadlines are discussed in detail in section VII below. Table III - 2 shows projected Transport Rule emissions compared to projected base case emissions, and Table III
- 3 shows projected Transport Rule emissions compared to historical emissions (i.e., 2005 emissions), for the power sector in all Transport Rule states. The o zone - season NO X results shown in Tables III - 2 and III
- 3 are based on analysis of the group of 26 states that would be covered for the ozone - season program if EPA finalizes the supplemental proposal regarding ozone
- season requirements for Iowa, Kansas, Mich igan, Missouri, Oklahoma, and Wisconsin. Table III - 2 – Projected SO2 and NOX Electric Generating Unit Emission Reductions in Covered States with the Transport Rule Compared to Base Case without Transport Rule or CAIR (Million Tons) 2012 Base Case Emission s 2012

Transport Rule Emissions 2012

Emission Reductions 2014

Base Case Emissions 2014

Transport Rule Emissions 2014

Emission Reductions
SO 2 7.0 3.0 4.0 6.2 2.4 3.9 Annual NO X 1.4 1.3 0.1 1.4 1.2 0.2
Ozone Season NO X 0.7 0.6 0.1 0.7 0.6 0.1
*Note that numbers may not sum exactly due to rounding .*** E.O. 12866 Review

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Page 39 of 647 Notes: The SO 2 and annual NO X emissions in this table reflect EGUs in the 23 states covered by this rule for purposes of the 24
- hour and/or annual PM2.5 NAAQS (Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin). The ozone - season NO X emissions reflect EGUs in the 20 states covered by this rule for purposes of the ozone NAAQS (Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and West Virginia) and the six states that would be covered for the ozone NAAQS if EPA finalizes its supplemental proposal (Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin).
Table III - 3 – Projected SO2 and NOX Electric Generating Unit Emission Reductions in Covered States with the Transport Rule

Compared to 2005 Actual Emissions

(Million Tons) 2005 Actual Emissions 2012

Transport Rule Emissions 2012

Emissions Reductions from 2005 2014

Transport Rule Emissions 2014

Emissions Reductions from 2005 SO 2 8.8 3.0 5.8 2.4 6.4 Annual NO X 2.6 1.3 1.3 1.2 1.4
Ozone Season NO X 0.9 0.6 0.3 0.6 0.3

Notes: The SO 2 and annual NO X emissions in this table reflect EGUs in the 23 states covered by this rule for purposes of the 24
- hour and/or annual PM2.5 NAAQS (Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin).*** E.O. 12866 Review

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Page 40 of 647 The ozone - season NO X emissions reflect EGUs in the 20 states covered by this rule for purposes of the ozone NAAQS (Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsyl vania, South Carolina, Tennessee, Texas, Virginia, and West Virginia) and the six states that would be covered for the ozone NAAQS if EPA finalizes its supplemental proposal (Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin). In addition to the emission reductions shown above, EPA projects other substantial benefits of the Transport Rule, as described in section VIII in this preamble. EPA used air quality modeling to quantify the improvements in PM2.5 and ozone concentrations that are expected to result from the Transport Rule emission reductions in 2014. The Agency used the results of this modeling to calculate the average and peak reduction in annual PM2.5 , 24
- hour PM2.5 , and 8
- hour ozone concentrations for monitoring sites in the Transport Rul e covered states (including the six states for which EPA issued a supplemental proposal for
ozone - season NO X requirements) in 2014. For annual PM2.5 , the average reduction across all monitoring sites in covered states in 2014 is 1.41 microgram per meter
cubed (μg/m3 ) and the greatest reduction at a single site is 3.60 μg/m3 . For 24
- hour PM2.5 , the average reduction across all monitoring sites in covered states in 2014 is 4.3 μg/m 3 and the greatest reduction at a single site is 11.6 μg/m 3 . And finally, for 8
- hour ozone, the average reduction across all monitoring sites in covered states in 2014 is 0.3 parts per billion (ppb)*** E.O. 12866 Review

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Page 41 of 647 and the greatest is 3.9 ppb. See section VIII for further information on air quality improvements. EPA estimated the Transport Rule’s costs and benefits, including effects on sensitive and vulnerable and environmental justice communities. Table III
- 4, below, summarizes some of these results. Further discussion of the results is provided in preamble section VIII, below, and in the Regu latory Impact Analysis (RIA). Estimates here are subject to uncertainties discussed further in the RIA.
Table III - 4. Summary of Annual Benefits, Costs, and Net Benefits of the Final Transport Rule in 2014

(Billions of 2007$) a Description Transport Rule Remedy Social costs 3 % discount rate $0.8 1 7 % discount rate $0.8 1 Total monetized benefitsb 3 % discount rate 7 % discount rate $ 120 to $ 280 $ 110 to $ 250 Net benefits (benefits - costs ) 3 % discount rate 7 % discount rate $ 120 to $ 280 $ 100 to $ 250 a All estimates are for 2014, and are rounded to two significant figures. b The total monetized benefits reflect the human health benefits associated with reducing exposure to PM2.5 and ozone and the welfare benefits associated with improved visibilit y in Class I areas. The reduction in premature mortalities account for over 90 percent of total monetized PM2.5 and ozone benefits. As a result of updated analyses and in response to public comments, the final Transport Rule differs from the proposal in*** E.O. 12866 Review

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Page 42 of 647 a number of ways. The differences between proposal and final rule are discussed throughout this preamble. Some key changes between proposal and final rule are that EPA:

 Updated emission inventories (resulting in generally lower base case emissions). See section V.

 Updated modeling and analysis tools (including improved alignment between air quality estimates and air quality modeling results). See sections V and VI.

 Updated conclusions regarding which states significantly contribute to nonattainment or in terfere with maintenance of the NAAQS in other states. See Table III - 1 and sections V and VI.

 Recalculated state budgets and variability limits, i.e., state assurance levels, based on updated modeling. See section VI.

 Simplified variability limits for on e - year application only and adjusted calculation s to improve alignment with each state’s historic variability. See section VI.

 Revised allocation methodology for existing and new units and revised new unit set
- asides for new units in Transport Rule states and new units potentially locating in Indian country. See section VII.*** E.O. 12866 Review

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Page 43 of 647  Changed start of assurance provisions to 2012 and increased assurance provision penalties. See section VII.

 Removed opt - in provisions. See section VII.

 Added provisions for full and abbreviated Transport Rule SIP revisions. See section X.

EPA conducted substantial stakeholder outreach in developing the Transport Rule, starting with a series of “listening sessions” in the spring of 2009 with states, nongovernmental organizations, an d industry. EPA docketed stakeholder - related materials in the Transport Rule docket (Docket ID No. EPA- HQ - OAR- 2009
- 0491). The Agency conducted general teleconferences on the rule with tribal environmental professionals, conducted consultation with tribal governments, and hosted a webinar for communities and tribal governments. EPA continued to provide updates to regulatory partners and stakeholders through several conference calls with states as well as at conferences where EPA officials often made prese ntations. The Agency conducted additional stakeholder outreach during the public comment period. EPA responded to extensive public comments received during the public comment periods on the proposed rule and associated NODAs. This Transport Rule is one o f a series of regulatory actions to reduce the adverse health and environmental impacts*** E.O. 12866 Review

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Page 44 of 647 of the power sector. EPA is developing these rules to address judicial review of previous rulemakings and to issue rules required by environmental laws. Finalizing th ese rules will effectuate health and environmental protection mandated by Congress while substantially reducing uncertainty over the future regulatory obligations of power plants, which will assist the power sector in planning for compliance more cost effe ctively. The Agency is providing full opportunity for notice and comment for each rule. As discussed above, rules to address transport under revised NAAQS, including the reconsidered 2008 ozone NAAQS, may result in additional emission reduction requiremen ts for the power sector. In addition, existing Clean Air Act rules establishing best available retrofit technology (BART) requirements and other requirements for addressing visibility and regional haze may also result in future state requirements for cert ain power plant emission reductions where needed. On May 3, 2011 ( 76 FR 24976 ) , EPA proposed national emission standards for hazardous air pollutants from coal
- and oil
- fired electric utility steam generating units under CAA section 112(d), also called Mer cury and Air Toxics Standards (MATS) , and proposed revised new source performance standards for fossil fuel
- fi red EGUs under section 111(b). As discussed in the EPA
- led public listening sessions during February and*** E.O. 12866 Review

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Page 45 of 647 March 2011, EPA is preparing to propose innovative, cost
effective and flexible greenhouse gas (GHG) emissions performance standards under section 111 for steam electric generating units, the largest U.S. source of greenhouse gas emissions. On April 20, 2011 (76 FR 22174), EPA proposed requirements under section 316(b) of the Clean Water Act for existing power generating facilities, manufacturing and industrial facilities that withdraw more than two million gallons per day of water from waters of the U.S. and use at least twenty - five percent of that water exclusively for cooling purposes. On June 21, 2010 (75 FR 35128), the Agency proposed to regulate coal combustion residuals (CCRs) under the Resource Conservation and Recovery Act to address the risks from the disposal of CCRs generated from th e combustion of coal at electric utilities and independent power producers. EPA will coordinate utility
- related air pollution rules with each other and with other actions affecting the power sector including these rules from EPA’s Office of Water and its O ffice of Resource Conservation and Recovery to the extent consistent with legal authority in order to provide timely information needed to support regulated sources in making informed decisions. Use of a small number of air pollution control technologies, widely deployed, can assist with compliance for multiple rules. EPA also notes that the*** E.O. 12866 Review

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Page 46 of 647 flexibility inherent in the allowance
- trading mechanism included in the Transport Rule affords utilities themselves a degree of latitude to determine how best to inte grate compliance with the emissions reduction requirements of this rule and those of the other rules. EPA will pursue energy efficiency improvements in the use of electricity throughout the economy, along with other federal agencies, states and other groups, which will contribute to additional environmental and public health improvements while lowering the costs of realizing those improvements. IV. Legal Authority , Environmental Basis , and Correction of CAIR SIP Approvals A. EPA’s Authority for Transpo rt Rule The statutory authority for this action is provided by the CAA, as amended, 42 U.S.C. § 7401 et. seq. Section 110(a)(2)(D) of the CAA, often referred to as the “good neighbor” provision of the Act, requires states to prohibit certain emissions bec ause of their impact on air quality in downwind states. Specifically, it requires all states, within 3 years of promulgation of a new or revised NAAQS, to submit SIPs that prohibit certain emissions of air pollutants because of the impact they would have on air quality in other states. 42 U.S.C. § 7410(a)(2)(D). This action addresses the requirement in section 110(a)(2)(D)(i)(I) regarding the prohibition of*** E.O. 12866 Review

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Page 47 of 647 emissions within a state that will significantly contribute to nonattainment or interfere with mai ntenance of the NAAQS in any other state. EPA has previously issued two rules interpreting and clarifying the requirements of section 110(a)(2)(D)(i)(I). The NO X SIP Call, promulgated in 1998, was largely upheld by the U.S. Court of Appeals for the D.C. Circuit in Michigan , 213 F.3d 663. CAIR, promulgated in 2005, was remanded by the D.C. Circuit in North Carolina , 531 F.3d 896 , modified on reh’g , 550 F.3d. 1176. These decisions provide additional guidance regarding the requirements of section 110(a)(2) (D)(i)(I) and are discussed later in this notice. Section 301(a)(1) of the CAA also gives the Administrator of EPA general authority to prescribe such regulations as are necessary to carry out her functions under the Act. 42 U.S.C. § 7601(a)(1). Pursuant to th is section, EPA has authority to clarify the applicability of CAA requirements. In this action, among other things, EPA is clarifying the applicability of section 110(a)(2)(D)(i)(I) by identifying SO 2 and NO X emissions that must be prohibited pur suant to this section with respect to the PM2.5 NAAQS promulgated in 1997 and 2006 and the 8
- hour oz one NAAQS promulgated in 1997. Section 110(c)(1) requires the Administrator to promulgate a FIP at any time within 2 years after the Administrator finds that a s tate has failed to make a required SIP submission, finds*** E.O. 12866 Review

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Page 48 of 647 a SIP submission to be incomplete or disapproves a SIP submission unless the s tate corrects the deficiency, and the Administrator approves the SIP revision, before the Administrator promulgates a FIP. 42 U.S.C. § 7410(c)(1). Tribes are not required to submit state implementatio n plans. However, as explained in EPA’s regulations outlining Tribal Clean Air Act authority, EPA is authorized to promulgate FIPs for Indian country as necessary or appropriate to protect air quality if a tribe does not submit and get EPA approval of
an implementation plan. See 40 CFR 49.11(a). Section 110(k)(6) of the CAA gives the Administrator authority, without any further submission from a State, to revise certain prior actions, including actions to approve SIPs, upon determining that those action s were in error. B. Rulemaking History The Transport Rule FIPs will limit the interstate transport of emissions of NO X and SO 2 within 27 states in the eastern,
midwestern, and southern United States that affect the ability of downwind states to attain and maintain compliance with the 1997 and 2006 PM2.5 NAAQS and the 1997 ozone NAAQS. 10 Prior to

10 As discussed in section III of this preamble, simultaneous with this final rule, EPA is proposing to apply ozone
- sea son NO X requirements to additional states. If EPA finalizes that action*** E.O. 12866 Review

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Page 49 of 647 this Transport Rule, CAIR was EPA’s most recent regulatory action in a longstanding series of regulatory initiatives to address interstate transport of air polluti on. The proposed Transport Rule preamble provides more information on EPA actions prior to CAIR (75 FR 45221
- 45225). CAIR, promulgated May 12, 2005 (70 FR 25162), required 29 states to adopt and submit revisions to their SIPs to eliminate SO 2 and NO X emis sions that contribute significantly to downwind nonattainment of the PM2.5 and ozone NAAQS promulgated in 1997. The states covered by CAIR were similar but not identical to the states covered by the Transport Rule. The CAIR FIPs, promulgated April 26, 20 06 (71 FR 25328), regulated electric generating units in the covered states and achieved CAIR’s emission reductions requirements unless or until states had approved SIPs to achieve the required reductions. In July 2008, the D.C. Circuit Court found CAIR an d the CAIR FIPs unlawful and vacated CAIR. North Carolina , 531 F.3d at 929
- 30. However, the Court subsequently remanded CAIR to EPA without vacatur in order to “at least temporarily preserve the environmental values covered by CAIR.” North Carolina , 550 F.3d at 1178. CAIR requirements have remained in place and CAIR’s

as proposed, the total number of states covered by the Transport Rule FIPs would be 28.*** E.O. 12866 Review

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Page 50 of 647 emissions trading programs have operated while EPA developed replacement rules in response to the remand. By promulgating the Transport Rule FIPs, EPA is responding to the Court’s remand o f CAIR and the CAIR FIPs and replacing those rules. The approaches EPA used in the Transport Rule to measure and address each state’s significant contribution to downwind nonattainment and interference with maintenance are guided by and consistent with th e Court’s opinion in North Carolina and address the flaws in CAIR identified by the Court therein. By notice of proposed rulemaking (Federal Implementation Plans To Reduce Interstate Transport of Fine Particulate Matter and Ozone, 75 FR 45210; August 2, 20 10), EPA proposed the Transport Rule to identify and limit NO X and SO 2 emissions within 32 states in the eastern, midwestern, and southern United States that affect the ability of downwind states to attain and maintain compliance with the 1997 and 2006 PM2 .5 NAAQS and the 1997 ozone NAAQS. EPA proposed to achieve the emission reductions under FIPs, which states may choose to replace by submitting SIPs for EPA approval. EPA proposed to limit emissions by regulating electric generating units in the 32 states with interstate emissions trading programs and assurance provisions to ensure the required reductions occur in each*** E.O. 12866 Review

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Page 51 of 647 covered state. EPA also requested comment on two alternative FIP remedies. EPA supplemented the Transport Rule record with addition al information relevant to the rulemaking in three Notices of Data Availability (NODAs) for which EPA requested comments:

 Notice of Data Availability Supporting Federal Implementation Plans to Reduce Interstate Transport of Fine Particulate Matter and Ozon e (75 FR 53613; September 1, 2010). This NODA provided an updated database of unit
level characteristics of EGUs included in EPA modeling, an updated version of the power sector modeling platform EPA used to support the final rule, and other input assumpt ions and data EPA provided for public review and comment.

 Notice of Data Availability Supporting Federal Implementation Plans To Reduce Interstate Transport of Fine Particulate Matter and Ozone: Revisions to Emission Inventories (75 FR 66055; October 27, 2 010). This NODA provided additional information relevant to the rulemaking, including updated emission inventory data for 2005, 2012 and 2014 for several stationary and mobile source inventory components.

 Notice of Data Availability for Federal Implementa tion Plans To Reduce Interstate Transport of Fine Particulate Matter and Ozone: Request for Comment on Alternative*** E.O. 12866 Review

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Page 52 of 647 Allocations, Calculation of Assurance Provision Allowance Surrender Requirements, New
- Unit Allocations in Indian Country, and Allocations by States (76 FR 1109; January 7, 2011). This NODA provided additional information relevant to the rulemaking, including emissions allowance allocations for existing units calculated using two alternative methodologies, data supporting those calculations, in formation about an alternative approach to calculation of assurance provision allowance surrender requirements, allocations for new units locating in Indian country in Transport Rule states in the future, and provisions for states to submit SIPs providing for state allocation of allowances in the Transport Rule trading programs. C. Air Quality Problems and NAAQS Addressed 1. Air Quality Problems and NAAQS Addressed a. Fine Particles Fine particles are associated with a number of serious health effects incl uding premature mortality, aggravation of respiratory and cardiovascular disease (as indicated by increased hospital admissions, emergency room visits, health
related absences from school or work, and restricted activity days), lung disease, decreased lung function, asthma attacks,*** E.O. 12866 Review

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Page 53 of 647 and certain cardiovascular problems. In addition to effects on public health, fine particles are linked to a number of public welfare effects, including (1) reduced visibility (haze) in scenic areas, (2) effects caused by partic les settling on ground or water, such as: making lakes and streams acidic, changing the nutrient balance in coastal waters and large river basins, depleting the nutrients in soil, damaging sensitive forests and farm crops, and affecting the diversity of ec osystems, and (3) staining and damaging of stone and other materials, including culturally important objects such as statues and monuments. In 1997, EPA revised the NAAQS for PM to add new annual and 24

– hour standards for fine particles, using PM2.5 as the indicator (62 FR 38652). These revisions established an annual standard of 15 μg/m3 and a 24
- hour standard of 65 μg/m 3 . During 2006, EPA revised the air quality standards for PM2.5 . The 2006 standards decreased the level of the 24
- hour fine parti cle standard from 65 μg/m3 to 35 μg/m3 , and retained the annual fine particle standard at 15 μg/m 3
. b. Ozone Short - term (1 - to 3
- hour) and prolonged (6
- to 8
- hour) exposures to ambient ozone have been linked to a number of adverse health effects. At suf ficient concentrations, short
term exposure to ozone can irritate the respiratory system, causing coughing, throat irritation, and chest pain. Ozone can*** E.O. 12866 Review

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Page 54 of 647 reduce lung function and make it more difficult to breathe deeply. Breathing may become more rapid an d shallow than normal, thereby limiting a person’s normal activity. Ozone also can aggravate asthma, leading to more asthma attacks that may require a doctor’s attention and the use of additional medication. Increased hospital admissions and emergency ro om visits for respiratory problems have been associated with ambient ozone exposures. Longer - term ozone exposure can inflame and damage the lining of the lungs, which may lead to permanent changes in lung tissue and irreversible reductions in lung functio n. A lower quality of life may result if the inflammation occurs repeatedly over a long time period (such as months, years, or a lifetime). There is also epidemiological evidence indicating a correlation between short
- term ozone exposure and premature mo rtality. In addition to causing adverse health effects, ozone affects vegetation and ecosystems, leading to reductions in agricultural crop and commercial forest yields; reduced growth and survivability of tree seedlings; and increased plant susceptibility to disease, pests, and other environmental stresses (e.g., harsh weather). In long - lived species, these effects may become evident only after several years or even decades and have the potential for long
- term adverse impacts on forest ecosystems. Ozone damage to the foliage of trees and*** E.O. 12866 Review

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Page 55 of 647 other plants can also decrease the aesthetic value of ornamental species used in residential landscaping, as well as the natural beauty of our national parks and recreation areas. In 1997, at the same time we revised the PM2.5 standards, EPA issued its final action to revise the NAAQS for ozone (62 FR 38856) to establish new 8

– hour standards. In this action published on July 18, 1997, we promulgated identical revised primary and secondary ozone standards that specified a n 8
- hour ozone standard of 0.08 parts per million (ppm). Specifically, the standards require that the 3
- year average of the fourth highest 24
- hour maximum 8
- hour average ozone concentration may not exceed 0.08 ppm. In general, the 8
- hour standards are mo re protective of public health and the environment and more stringent than the pre
- existing 1
- hour ozone standards. On March 12, 2008, EPA published a revision to the 8
- hour ozone standard, lowering the level from 0.08 ppm to 0.075 ppm. On September 16, 2 009, EPA announced it would reconsider these 2008 ozone standards. The purpose of the reconsideration is to ensure that the ozone standards are clearly grounded in science, protect public health with an adequate margin of safety, and are sufficient to pro tect the environment. EPA proposed revisions to the standards on January 19, 2010 (75 FR 2938) and anticipates issu ing final standards soon. c. Which NAAQS does this rule address?*** E.O. 12866 Review

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Page 56 of 647 This action addresses the requirements of CAA section 110(a)(2)(D)(i)(I) a s they relate to: (1) the 1997 annual PM2.5 standard, (2) the 2006 24
- hour PM2.5 standard, and (3) the 1997 ozone standard. The original CAIR and CAIR FIP rules, which pre
- dated the 2006 PM2.5 standards, addressed the 1997 ozone and 1997 PM2.5 standards on ly. In this action, EPA fully addresses, for the states covered by this rule, the requirements of CAA section 110(a)(2)(D)(i)(I) for the annual PM2.5 standard of 15 μg/m 3 and the 24
- hour standard of 35 μg/m3 . For the 1997 8
- hour ozone s tandard of 0.08 ppm, EPA fully addresses the CAA section 110(a)(2)(D)(i)(I) requirements for some states covered by this rule, but for the remaining states EPA is conducting further analysis to determine whether further requirements are needed, as discusse d in section III of this preamble. This action does not address the CAA section 110(a)(2)(D)(i)(I) requirements for the revised ozone standards promulgated in 2008. These standards are currently under reconsideration. We are, however, actively conducting the technical analyses and other work needed to address interstate transport for the reconsidered ozone standard as soon as possible. We intend to issue as soon as possible a proposal to*** E.O. 12866 Review

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Page 57 of 647 address the transport requirements with respect to the reconsidered standard. This action addresses these CAA transport requirements through reductions in annual emissions of SO 2 and NO X , and through reductions in ozone
- season NO X . The rationale for these reductions is discussed in detail later in the preamble. d. Publi c comments. EPA received comments on two issues related to the NAAQS regulated under the proposed FIPs. A number of commenters believed that EPA’s approach to ozone was inadequate, and that EPA should not have based the proposed requirements on the 1997 o zone NAAQS. These commenters cited EPA’s 2008 revision to the standard which lowered the standard to 75 ppb, and noted that EPA’s January 2010 proposal for reconsidered ozone NAAQS would, if finalized, further lower the primary NAAQS from 75 ppb to a valu e between 60 and 70 ppb. Accordingly, many of the commenters believed that EPA should have considered the 75 ppb level to be the maximum possible value moving forward, and that EPA should have used a value no greater than 75 ppb in its analysis. EPA agree s with commenters that EPA and states should address interstate transport with respect to the tighter ozone NAAQS as quickly as possible. EPA, as commenters noted, intends to propose a second rule to address interstate transport of*** E.O. 12866 Review

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Page 58 of 647 ozone that will be appr opriately configured for the revised level of the ozone NAAQS after reconsideration of the 2008 standard is finalized. EPA is mindful of the need for SIPs to provide for continuing ozone progress to meet the 75 ppb level of the 2008 NAAQS, or possibly lower levels based on the reconsideration. EPA believes that the ozone
- season NO X requirements of this rule will provide important initial assistance to states in this regard. Some commenters questioned whether EPA had given states the opportunity to p rovide SIPs addressing transport under the 2006 PM2.5 NAAQS, and thus questioned the appropriateness of the issuance of FIPs addressing those NAAQS. Those comments, and EPA’s response, are discussed in detail in section IV.C.2. 2. FIP Authority for each Stat e and NAAQS Covered The Clean Air Act requires and authorizes EPA to promulgate each of the Federal Implementation Plans in this final rule. Section 1 10(c)(1) of the Clean Air Act requires the Administrator to promulgate a Federal Implementation Plan (FIP) at any time within 2 years after the Administrator takes one of three distinct actions: (1) she finds that a state has failed to make a required SIP submission; (2) she finds a SIP submission to be incomplete; or (3) she disapproves a SIP submission. Once the Administrator has taken one of these actions with respect to*** E.O. 12866 Review

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Page 59 of 647 a specific state’s 110(a)(2)(D)(i)(I) obligation for a specific NAAQS, she has a legal obligation to promulgate a FIP to correct the SIP deficiency within two years. EPA is relieved of the obligation to promulgate a FIP only if two events occur before the FIP is promulgated: (1) the state submits a SIP correcting the deficiency; and (2) the Administrator approves the SIP revision. 42 U.S.C. § 7410(c)(1). 11 For each FIP in this rule, 12 EPA either has found that the state has failed to make a required 110(a)(2)(D)(i)(I) SIP

11 The Clean Air Act provides that EPA is not relieved of its obligation to promulgate FIPs un less the States submits a SIP that corrects the deficiency and EPA approves the SIP. Nonetheless, in the preamble to the proposed rule, EPA indicated that for states not covered by CAIR which had 110(a)(2)(D)(i)(I) SIPs pending at the time of proposal, EPA would finalize the FIP only if EPA determined the submission was incomplete or disapproved the SIP submission. The only two states covered by this rule but not covered by CAIR are Kansas and Nebraska. Both Kansas and Nebraska are covered by this rule b ased only on their significant contribution to nonattainment or interference with maintenance of the 2006 PM2.5 NAAQS. EPA has not received a 110(a)(2)(D)(i)(I) submission from Nebraska with respect to the requirements of the 2006 PM2.5 NAAQS. EPA disapp roved a SIP submission from Kansas with respect to the requirements of 110(a)(2)(D)(i)(I) for the 2006 PM2.5 NAAQS. 12 In this action, EPA is issuing 59 FIPs. EPA is issuing 20 FIPs to remedy SIP deficiencies relating to the 110(a)(2)(D)(i)(I) requirements for the 1997 ozone NAAQS. EPA is also issuing 18 FIPs to remedy SIP deficiencies relating to the 1997 PM2.5 NAAQS. Finally, EPA is issuing 21 FIPs to remedy SIP deficiencies relating to the 2006 PM2.5 NAAQS.*** E.O. 12866 Review

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Page 60 of 647 submission, or has disapproved a SIP submission. 13 In addition, EPA has determined , in each c ase, that there has been no approval by the Administrator of a SIP submission correcting the deficiency prior to promulgation of the FIP. EPA’s obligation to promulgate a FIP arose when the finding of failure to submit or disapproval was made, and in no case has it been relieved of that obligation. Some c omment ers argued that EPA was relieved of its obligation to promulgate FIPs when it approved the CAIR SIPs for certain states. As an initial matter, EPA notes that this argument applies only to EPA’s authority to promulgate FIPs with respect to the 1997 PM2.5 a nd /or 1997 ozone NAAQS for a subset of states covered by the CAIR. It does not apply to EPA’s authority to promulgate FIPs for the 2006 PM2.5 NAAQS which was not addressed in CAIR. It also does not apply to EPA’s authority to promulgate FIPs for the 1997 ozone and 1997 PM2.5 NAAQS for states that remain subject to the CAIR FIPs, including the states that received EPA approval of abbreviated CAIR SIPs which allowed the states to allocate allowances while remaining subject to the CAIR FIPs. 16

13 The specific findings made and actions t aken by EPA are described in greater detail in the TSD entitled “Status of CAA 110(a)(2)(D)(i)(I) SIPs.” 16 States may also have received approval to expand the applicability of the CAIR NO X ozone season program to include all*** E.O. 12866 Review

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Page 61 of 647 Further, the CAIR SIP approvals do not eliminate EPA’s obligation and authority to promulgate a FIP to address the requirements of 110(a)(2)(D)(i)(I) because the court in North Carolina v. EPA , 531 F.3d 896 (D.C. Cir. 2008) found that compliance with CAIR does not satis fy the requirement that each state prohibit all emissions within the state that significantly contribute to nonattainment or interfere with maintenance in another state. The court’s finding that CAIR was unlawful because it did not make measureable progre ss towards the statutory mandate of section 110(a)(2)(D)(i)(I) meant that the CAIR SIPs were not adequate to satisfy that mandate. The CAIR SIPs thus do not correct the SIP deficiencies identified in the 2005 findings of failure to submit. The SIPs remai ned in force for the limit ed purpose allowed by the Court

– that is, to achieve interim reductions until EPA promulgated a rule to replace CAIR. Given the flaws the court identified with CAIR, EPA’s approval of a CAIR SIP does not relieve it of the obliga tion to promulgate FIPs created under section 110(c)(1) of the CAA. Further to avoid any confusion, EPA has decided to correct, in this notice the full CAIR SIP approvals for states covered by this rule to rescind any statements suggesting that the SIP units subject to the NO X Budget Program, allow op t - ins, or provide for distribution of a Compliance Supplement Pool under the CAIR NO X (annual) program.*** E.O. 12866 Review

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Page 62 of 647 submissions satisfied or relieved states of the obligation to submit SIPs to satisfy the requirements of section 110(a)(2)(D)(i)(I). Some commenters further argued that states should be given additional time following promulgation of the Transport Rule, to submit a SIP to meet the requirements of section 110(a)(2)(D)(i)(I) and that CAIR should remain in place in the meantime. Some commenters specifically suggested that EPA restart the “FIP clock” 17 to give states this additional time. EPA does not interpre t the Clean Air Act as giving it authority to extend the deadline for SIP submissions or restart the FIP clock. And n othing in the Act requires EPA to give the states another opportunity, following promulgation of the Transport Rule, to promulgate a SIP b efore EPA promulgates a FIP. The plain language of section 110(a)(1) of the Act requires the submission of SIPs that meet the requirements of 110(a)(2)(D)(i)(I) within three years after the promulgation of or revision of a primary NAAQS. See 42 U.S.C. § 7410(a)(1). Section 110(a)(2)(D)(i)(I) SIPs for the 1997 ozone and PM2.5 NAAQS were due in 2000 and 110(a)(2)(D)(i)(I) SIPs for the 2006

17 “FIP clock” is a term used to describe EPA’s responsibility found in CAA Section 110(c)(1) to promulgate a FIP within 2 years after either: finding t hat a state has not submitted a required SIP revision or that a submitted SIP revision is incomplete; or disapproving a SIP revision.*** E.O. 12866 Review

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Page 63 of 647 PM2.5 NAAQS were due in 2006. While the statute gives EPA authority to prescribe a shorter period of time for states to make these SIP submissions, it does not give EPA authority to extend the 3
- year deadline established by the Act. See 42 U.S.C. § 7410(a)(1). The plain language of section 110(c)(1) of the Act, in turn, provides that EPA shall promulgate a FIP at any time within 2 years after the Administrator makes a finding of failure to make a required SIP submission of disapproves, in whole or in part, a SIP submission. See 42 U.S.C. § 7410(c)(1). EPA does not have authority to set aside the specific deadlines established in the statute, and neither provision allows for the deadlines to be extended or to run from promulgation by EPA of a rule to quantify the state’s specific obligations pursuant to section 110(a)(2)(D)(i)(I). The Act does not require EPA to promulg ate a rule or issue guidance regarding the specific requirements of section 110(a)(2)(D)(i)(I) in advance of the SIP submittal deadline , much less require EPA to promulgate such a rule a specific amount of time before the SIP submittal deadline . For these reasons, EPA has neither authority to alter the SIP submittal deadline nor authority to alter the statute provision regarding when EPA’s obligation to promulgate a FIP is triggered. Finally, EPA does not believe it would be appropriate, in light of the C ourt’s decision in North Carolina , to establish a*** E.O. 12866 Review

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Page 64 of 647 lengthy transition period to the rule that will replace CAIR. The Court decision remanding CAIR without vacatur stressed the court’ s conclusion that CAIR was deeply flawed and emphasized EPA’s obligation to remedy those flaws expeditiously . North Carolina , 550 F.3d 1176. Although the Court did not set a specific deadline for corrective action, the Court took care to note that the effect of its opinion would not be delayed “indefinitely” and that petitioners could bring a mandamus petition if EPA were to fail to modify CAIR in a manner consistent with its prior opinion. Id. Given the Court’s emphasis on remedying CAIR’s flaws expeditiously, EPA does not believe it would be appropriate to establish a lengthy transition period to the rule which is to replace CAIR. 3 . Additional Information Regarding CAA Section 110(a)(2)(D)(i)(I) SIPs for States in the Transport Rule Modeling Domain This final rule evaluates out - of - state contributions for the 38 states that are fully contained within the 12 km e astern U.S. modeling domain. EPA is making no specific finding for states that are not fully contained within the e astern 12 km modeling domain. EPA did not conduct a contribution analysis or make any specific finding for New Mexico, Colorado, Wyoming, and Montana since they are only partially contained within the 12 km modeling domain. With regard to the 1997 PM2.5 NAAQS and 2006*** E.O. 12866 Review

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Page 65 of 647 PM2.5 NAAQS, EPA b elieves that states that are included in this 38 state modeling domain will meet their section 110(a)(2)(D)(i)(I) obligations to address the “significant contribution” and “interference with maintenance” requirements by complying with the requirements in t his rule . With regard to the 1997 ozone NAAQS, EPA believes that states that are included in this 38 state modeling domain will meet their section 110(a)(2)(D)(i)(I) obligations to address the “significant contribution” and “interference with maintenance” requirements by complying with the requirements in this rule , except for the 10 states upwind of either Houston or Baton Rouge (i.e., Alabama, Arkansas, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Tennessee, and Texas). States that are in the 38 state modeling domain, and are not found to be contributing significantly to nonattainment or interfering with maintenance for any NAAQS evaluated in the modeling for the final rule, could rely on this analysis as technical support that their cur rent SIP (for those states that have already submitted SIPs to address 110(a)(2)(D)(i)(I ) requirements) is adequate to address the transport requirements of 110(a)(2)(D)(i)(I). Additionally, if a s tate has never submitted an interstate transport SIP an d i ntends to submit a SIP, the s tate can rely on the technical analysis in this rule for its SIP submission. For example, this rule finds that South*** E.O. 12866 Review

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Page 66 of 647 Carolina significantly contributes to nonattainment and interferes with maintenance of the 1997 ozone NAAQS a nd the 1997 PM2.5 NAAQS in downwind states. The technical support for the rule does not show that South Carolina significantly contributes to nonattainment or interferes with maintenance of the 2006 PM2.5 NAAQS in downwind states. EPA believes that South Carolina can make a negative declaration concluding that the State does not significantly contribute to nonattainment or interfere with maintenance in other states with regard to the 2006 PM2.5 NAAQS. D. Correction of CAIR SIP Approvals In this action, EPA is also correcting its prior approvals of CAIR related SIP submissions from Alabama, Arkansas, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia and West Virginia to rescind any statements that the SIP submissions either satisfy or relieve the state of the obligation to submit a SIP to satisfy the requirements of section 110(a)(2)(D)(i)(I) with respec t to the 1997 ozone and/or 1997 PM2.5 NAAQS. This action is based on EPA’s determination that those SIP approvals were in error to the extent they provided explicitly or implicitly that compliance with CAIR satisfies the requirements of*** E.O. 12866 Review

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Page 67 of 647 110(a)(2)(D)(i)(I) with respect to the 1997 ozone and 1997 fine particulate NAAQS. The July 2008 decision of the D.C. Circuit held, among other things, that the CAIR rule did not “achieve[] something measureable toward the goal of prohibiting sources ‘within the State’ from contributing to nonattainment or interfering with maintenance in ‘any other State.’” North Carolina , 531 F.3d 908; see also, e.g. , id. at 916 (EPA not exercising its authority to make measureable progress towards the goals of section 110(a)(2)(D)(i)(I) because the emission budgets were insufficiently related to the statutory mandate). EPA’s actions to approve CAIR SIP submittals as satisfying the requirements of section 110(a)(2)(D)(i)(I), based on the flawed determination in CAIR that compliance with CAIR satisfied those statutory requirements, were thus in error as were the separate actions taken to approve section 110(a)(2)(D)(i)(I) submissions that relied wholly or in part on CAIR. The approval for Alabama entitled “Approval and Promulgation of Implementation Plans; Alabama; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on October 1, 2007 (72 FR 55659). The approval for Arkansas entitled “Approval and Promulgation of Implementation Plans; Arkansa s; Clean Air Interstate Rule Nitrogen Oxides Ozone Season Trading Program”*** E.O. 12866 Review

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Page 68 of 647 which is hereby corrected was originally published in the Federal Register on September 26, 2007 (72 FR 54556). The approval for Connecticut entitled “Approval and Promulgation of Air Quality Implementation Plans; Connecticut; State Implementation Plan Revision to Implement the Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on January 24, 2008 (73 FR 4105) and the approval for Co nnecticut entitled “Approval and Promulgation of Air Quality Implementation Plans; Connecticut; Interstate Transport of Pollution” which is hereby corrected was originally published in the Federal Register on May 7, 2008 (73 FR 25516). The approval for Flo rida entitled “Approval and Promulgation of Implementation Plans; Florida; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on October 12, 2007 (72 FR 58016). The approval for Georgia entitled “Approval and Promulgation of Implementation Plans; Georgia; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on October 9, 2007 (72 FR 57202). The approval for Illinois entitled “Approval of Implementation Plans of Illinois: Clean Air Interstate Rule”*** E.O. 12866 Review

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Page 69 of 647 which is hereby corrected was originally published in the Federal Register on October 16, 2007 (72 FR 58528). The approval for Indiana entitled “Approval and Promulgation of Air Quality Implementation Plans; Indiana; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on October 22, 2007 (72 FR 59480) and November 29, 2010 (75 FR 72956). The approval for Iowa entitled “Approval and Promulgation of Implementation Plans; Iowa; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on August 6, 2007 (72 FR 43539) and the approval for Iowa entitled “Approval and Promulgation of Implementation Plans; Iowa; Interstate Transport o f Pollution“ which is hereby corrected was originally published in the Federal Register on March 8, 2007 (72 FR 10380). The approval for Kentucky entitled “Approval of Implementation Plans of Kentucky: Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on October 4, 2007 (72 FR 56623). The approval for Louisiana entitled “Approval and Promulgation of Implementation Plans; Louisiana; Clean Air Interstate Rule Sulfur Dioxide Trading Program” which is hereby
c orrected was originally published in the Federal Register on July 20, 2007 (72 FR 39741) and the approval for Louisiana*** E.O. 12866 Review

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Page 70 of 647 entitled “Approval and Promulgation of Implementation Plans; Louisiana; Clean Air Interstate Rule Nitrogen Oxides Trading Program” which is hereby corrected was originally published in the Federal Register on September 28, 2007 (72 FR 55064). The approval for Maryland entitled “Approval and Promulgation of Air Quality Implementation Plans; Maryland; Clean Air Interstate Rule” which is her eby corrected was originally published in the Federal Register on October 30, 2009 (74 FR 56117). The approval for Massachusetts entitled “Approval and Promulgation of Air Quality Implementation Plans; Massachusetts; State Implementation Plan Revision to I mplement the Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on December 3, 2007 (72 FR 67854). The approval for Minnesota entitled “Approval and Promulgation of Air Quality Implementation Plans; Minnes ota; Interstate Transport of Pollution“ which is hereby corrected was originally published in the Federal Register on June 2, 2008 (73 FR 31366). The approval for Mississippi entitled “Approval and Promulgation of Implementation Plans; Mississippi: Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on October 3, 2007 (72 FR 56268).*** E.O. 12866 Review

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Page 71 of 647 The approval for Missouri entitled “Approval and Promulgation of Implementation Plans; Missouri; Clean Air Interstate Rule” wh ich is hereby corrected was originally published in the Federal Register on December 14, 2007 (72 FR 71073) and the approval of Missouri entitled “Approval and Promulgation of Implementation Plans; Missouri; Interstate Transport of Pollution“ which is hereby corrected was originally published in the Federal Register on May 8, 2007 (75 FR 25975). The approval for New York entitled “Approval and Promulgation of Implementation Plans; New York: Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on January 24, 2008 (73 FR 4109). The approval for North Carolina entitled “Approval of Implementation Plans; North Carolina: Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Re gister on October 5, 2007 (72 FR 56914) and the approval for North Carolina entitled “Approval and Promulgation of Air quality Implementation Plans; North Carolina; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federa l Register on November 30, 2009 (74 FR 62496). The approval for Ohio entitled “Approval and Promulgation of Air Quality Implementation Plans; Ohio; Clean Air Interstate*** E.O. 12866 Review

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Page 72 of 647 Rule” which is hereby corrected was originally published in the Federal Register on Feb ruary 1, 2008 (73 FR 6034) and the approval for Ohio entitled “Approval and Promulgation of Air Quality Implementation Plans; Ohio; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on September 25, 2009 (74 FR 48857). The approval for Pennsylvania entitled “Approval and Promulgation of Air Quality Implementation Plans; Pennsylvania; Clean Air Interstate Rule; NO X SIP Call Rule; Amendments to NO X Control Rules” which is hereby corrected was originally publ ished in the Federal Register on December 10, 2009 (74 FR 65446). The approval for South Carolina entitled “Approval of Implementation Plans of South Carolina: Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Reg ister on October 9, 2007 (72 FR 57209) and the approval for South Carolina entitled “Approval and Promulgation of Air Quality Implementation Plans; South Carolina; Clean Air Interstate Rule” which is hereby corrected was originally published on October 16, 2009 (74 FR 53167). The approval for Virginia entitled “Approval and Promulgation of Air Quality Implementation Plans; Virginia; Clean Air Interstate Rule Budget Trading Programs” which is*** E.O. 12866 Review

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Page 73 of 647 hereby corrected was originally published in the Federal Register on December 28, 2007 (72 FR 73602). The approval for West Virginia entitled “Approval and Promulgation of Air Quality Implementation Plans; West Virginia; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Register on December 18, 2007 (72 FR 71576) and the approval for West Virginia entitled “Approval and Promulgation of Air Quality Implementation Plans; West Virginia; Clean Air Interstate Rule” which is hereby corrected was originally published in the Federal Regi ster on August 4, 2009 (74 FR 38536).EPA is taking this final action without prior opportunity for notice and comment because EPA finds, for good cause, that notice and public procedure thereon are unnecessary and not in the public interest. Section 553(b )(B) of the Administrative Procedure Act provides that the notice and comment requirements in section 553 do not apply when the agency for good cause finds that notice and public procedure there on are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. § 553(b)(B). Section 307(d)(1) of the CAA in turn provides that the requirements of section 307(d) do not apply in the case of a rule or circumstance referred to in section 553(b)(A) or section 553(b)(B) of the Administrative Procedure Act in Title 5. 42 § U.S.C. 7607(1).*** E.O. 12866 Review

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Page 74 of 647 EPA finds that notice and public procedure are unnecessary because EPA has no discretion given the specific circumstances presented in this case. EPA is bound by the decisions of the courts and must act in accordan ce with those decisions. EPA must accept the court’s conclusion that compliance with CAIR does not satisfy the requirements of CAA section 110(a)(2)(D)(i)(I) and lacks discretion to reach a different conclusion. This correction is a ministerial matter con sistent with the decisions of the courts. For these reasons, it is unnecessary to provide an opportunity for notice and comment. V. Analysis of Downwind Air Quality and Upwind State Emissions A. Pollutants Regulated To address interstate transport of air pollution, EPA must choose which pollutants to regulate relevant to significant contribution to nonattainment or interference with maintenance of the NAAQS of concern downwind. This section of the proposal discusses the pollutants regulated under the fin al Transport Rule. 1. Background. Based on the understanding of scientific and technical information, as well as EPA’s air quality modeling, EPA concluded for CAIR that it was both appropriate and necessary to focus on control of SO 2 and NO X emissions as the most effective*** E.O. 12866 Review

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Page 75 of 647 approach to reducing the contribution of interstate transport to PM2.5 . For CAIR, EPA did not include emissions limitations that affect other components of PM2.5 , noting that “current information relating to sources and controls for oth er components identified in transported PM2.5 (carbonaceous particles, ammonium, and crustal materials) does not, at this time, provide an adequate basis for regulating the regional transport of emissions responsible for these PM2.5 components” (69 FR 4582 ). With respect to ozone transport, EPA has previously concluded that it is proper to focus on ozone
- season NO X emissions. For the CAIR and the NO X SIP call programs, EPA noted its reliance on the assessment of ozone transport made by the Ozone Transpor t Assessment Group (OTAG) in the mid
- 1990s. The OTAG Regional and Urban Scale Modeling and Air Quality Analysis Work Groups concluded that regional NO X emission reductions are effective in producing ozone benefits and that benefits grew with increased reg ional NO X abatement. The relative importance of NO X and VOC in ozone formation and control varies with local and time
- specific factors, including the relative amounts of VOC and NO X present. In rural areas and many urban areas with high concentrations of VOC from biogenic sources, ozone formation and control is governed by NO X . In some urban core situations, NO X concentrations can be high*** E.O. 12866 Review

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Page 76 of 647 enough relative to VOC to suppress ozone formation locally, but still contribute to increased ozone downwind from the ci ty. In such situations, VOC reductions are most effective at reducing ozone within the urban environment and immediately downwind. The formation of ozone increases with temperature and sunlight, which is one reason ozone levels are higher during the summer . Increased temperature also increases emissions of volatile man
made and biogenic organics and can indirectly increase NO X as well (e.g., increased electricity generation for air conditioning). Summertime conditions also bring increased episodes of large scale stagnation of air masses, which promote the build
- up of direct emissions and pollutants formed through atmospheric reactions over large regions. Authoritative assessments of ozone control approaches have concluded that, for reducing regional scal e ozone transport, a NO X control strategy is most effective, whereas VOC reductions are generally most effective locally, in more dense urbanized areas. Studies conducted since the 1970s established that ozone occurs on a regional scale (i.e., thousands of kilometers) over much of the eastern U.S., with elevated concentrations occurring in rural as well as metropolitan areas. While substantial progress has been made in reducing ozone in many urban areas, regional scale ozone transport is still an important component of high ozone concentrations during the extended summer ozone*** E.O. 12866 Review

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Page 77 of 647 season. A series of more recent progress reports discussing the effect of the NO X SIP Call reductions can be found on EPA’s Web site at: http :// www . epa . gov / airmarkets / progress/progress
reports.html. More recent assessments of ozone (including those conducted for the Regulatory Impact Analysis for the ozone standards in 2008) continue to show the importance of NO X transport as a factor in ozone formation. For addressing interstate ozone transport in CA IR, EPA addressed NO X emissions but did not include requirements for VOCs. EPA believes that VOCs from some upwind states do indeed have an impact in some nearby downwind states, particularly over short transport distances. EPA expects that states, typic ally in local nonattainment planning, would benefit from examining the extent to which VOC emissions affect ozone pollution levels within and near urban nonattainment areas, and states may identify areas where multi
state VOC strategies might assist in att ainment planning for meeting the 8
- hour standard. However, EPA continues to believe that the most effective regional pollution control strategy for mitigation of interstate transport of ozone remains NO X emission reductions. 2. Which Pollutants did EPA P ropose to Control for Purposes of PM2.5 and Ozone Transport?*** E.O. 12866 Review

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Page 78 of 647 For the proposed rule, EPA concluded that its findings in CAIR regarding the nature of pollutant contributions are still appropriate. EPA proposed to continue to focus the PM2.5 transport requir ements on SO 2 and NO X emissions and to focus the ozone transport requirements on NO X emissions. In the proposal, EPA discussed and requested comment on the inclusion of southern states in the annual NO X program for PM2.5 control. 3. Comments and Respons es EPA received no adverse comments on its proposal to regulate SO 2 for addressing PM2.5 transport, the proposal not to regulate direct PM2.5 or organic PM2.5 precursors, and the proposal to focus ozone - season efforts on NO X and not to regulate VOCs. One commenter questioned EPA’s regulation of NO X for purposes of addressing PM2.5 transport in all states (including northern states with cooler climates and higher nitrate deposition). Several commenters, representing southern state air quality agencies and regulated sources in southern states, disagreed with EPA’s proposed regulation of annual NO X emissions for all regulated states. These commenters, while not disagreeing with the need for regulation of SO 2 , observed that in EPA’s modeling analysis, contri butions from certain southern states’ NO X emissions to PM2.5 in downwind states were relatively small.*** E.O. 12866 Review

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Page 79 of 647 Accordingly, these commenters argued that either (1) EPA should remove NO X as a precursor analyzed for PM2.5 contribution from those states, or (2) the required remedy for emission reductions in those states should not require reductions in annual NO X . For the final rule, EPA retains the approach for regulated pollutants in the proposal, which regulates annual NO X and SO 2 for states affecting downwind state PM2.5 nonattainment and maintenance sites, and ozone
- season NO X for states impacting downwind state ozone nonattainment and maintenance. EPA considered commenters’ requests to remove some states from the annual NO X program. However, EPA believes th at it is appropriate to establish a cap on these states’ annual NO X emissions, in part to ensure the continued annual operation of existing control equipment that would prevent substantial increases in NO X emissions. EPA believes that without these reduc tions, increased “nitrate replacement” could occur, a known atmospheric phenomenon whereby some of the sulfate reductions due to SO 2 emission reductions are eroded by increases in nitrate concentrations due solely to those SO 2 reductions. 21 This is an

21 SO 2 reductions successfully decrease atmospheric formation of ammonium sulfate, but in doing so they “free up” the ammonia component that would otherwise have reacted with SO 2 and is now free to react with NO X i nstead, causing a “rebound effect”*** E.O. 12866 Review

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Page 80 of 647 espe cially pertinent concern for southern states which have significant impacts on northern receptors in colder climates where nitrate concentrations are generally higher. For example, Alabama and Tennessee are both linked to Washtenaw County, MI for 24
- hour PM2.5 ; North Carolina is linked to Lancaster County, PA for 24
- hour PM2.5 ; and Texas is linked to Madison County, IL for both annual and 24
- hour PM2.5 . All of these downwind areas have appreciable nitrate deposition contributing to nonattainment and maint enance concerns for the PM2.5 NAAQS. If the states linked to those receptors made SO 2 reductions only, their beneficial impact on downwind air quality would be partially eroded by nitrate replacement. EPA therefore believes that it is reasonable to seek both SO 2 and NO X reductions from states included in the Transport Rule program for states affecting downwind state PM2.5 nonattainment and maintenance sites. In addition, EPA notes that there would be important disbenefits to effectively removing CAIR’s ex isting annual NO X requirements in those states. If EPA were to allow annual NO X emissions to increase for those states, there would be potentially harmful effects on visibility, nitrogen deposition, and other aspects of human and environmental health. partially eroding the improvement in PM2.5 concentrations. This effect can be mitigated with tandem NO X reductions.*** E.O. 12866 Review

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Page 81 of 647 EPA notes that for the final rule this issue has become moot for two states -- Florida and Louisiana . For those two states, the modeling analysis for the final rule showed their overall contributions to PM2.5 at downwind receptors of concern are below th e threshold for inclusion. Accordingly, Florida and Louisiana are no longer covered by the Transport Rule for PM2.5 and thus are no longer included in the annual NO X program. B. Baseline for Pollution Transport Analysis Implementing the requirements of CAA section 110(a)(2)(D)(i)(I) requires EPA to determine which states significantly contribute to nonattainment and interfere with maintenance of the National Ambient Air Quality Standards in other states, as well as to quantify the emissions in each state t hat must be eliminated. This process begins with an analysis of baseline emissions. Baseline emissions are the emissions that would occur in each state if EPA did not promulgate the Transport Rule. To conduct such analysis, EPA generally takes into acco unt emission limitations that are currently, and will continue to be, in place. From that baseline, EPA analyzes whether additional reductions beyond those already mandated by existing emission limitation requirements are necessary. For example, the base case used in CAIR reflected the reductions*** E.O. 12866 Review

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Page 82 of 647 already required by the NO X SIP Call, which remained in effect even after the CAIR emission reduction requirements took effect. The unique legal situation addressed by the Transport Rule necessarily affects the quantification of baseline emissions. Specifically, because the Transport Rule will replace CAIR, EPA cannot consider reductions associated with CAIR in the “base case” (i.e., analytical baseline emissions scenario). If EPA were to consider all reductions associated with CAIR in the “base case,” the baseline emissions would not adequately reflect the true 2012 baseline in each state (i.e. , the emissions that would occur in each state in 2012 if the Transport Rule did not require any reductions in that stat e). Similarly, if EPA were to ignore that capital investments have already been made to meet the requirements of CAIR and that these investments comprise “sunk” capital costs and not new costs, EPA’s analysis would not correctly reflect the cost of emissi on reductions required by the Transport Rule. As explained below, EPA’s analysis both properly considered all capital investments made in response to CAIR and properly recognized that, after CAIR is terminated, the emission limitations imposed by CAIR wil l cease to exist. In 2005 EPA promulgated CAIR, which required large electric generating units in 28 states and the District of Columbia to make phase I emission reductions in NO X emissions starting in*** E.O. 12866 Review

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Page 83 of 647 2009, phase I emission reductions in SO 2 starting in 2 010, and additional, phase II reductions in emissions of both pollutants starting in 2015. On July 11, 2008, the D.C. Court of Appeals held that CAIR had “more than several fatal flaws , ” North Carolina , 531 F.3d at 901, and remanded and vacated the rule, id. at 930. The Court subsequently granted EPA’s petition for rehearing in part and remanded CAIR without vacatur “for EPA to conduct further proceedings consistent with” the Court’s July 11, 2008 opinion. North Carolina , 550 F.3d 1176. The Court explai ned that it was “allowing CAIR to remain in effect until it is replaced by a rule consistent with [the July 11, 2008] opinion” because this “would at least temporarily preserve the environmental values covered by CAIR.” Id. at 1178. Moreover, the Court st ated that it did not “intend to grant an indefinite stay of the effectiveness of” the July 11, 2008 order vacating CAIR. Id. In summary, the Court determined that CAIR was fatally flawed and could remain in effect only as a stopgap measure until EPA coul d act to replace it. Thus, unlike most other regulatory requirements (such as the Acid Rain Program under CAA Title IV, the NO X Budget Trading Program under the NO X SIP Call, New Source Performance Standards, and state laws and consent orders requiring emission reductions), the emission limitations contained in CAIR are only temporary. Moreover, the duration of these limitations is*** E.O. 12866 Review

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Page 84 of 647 directly tied to the Transport Rule. The Transport Rule is to replace CAIR. Thus, CAIR itself will be te rminated for the SO 2 , annual NO X , and ozone - season NO X control periods starting in 2012 when the emission limitations established in the Transport Rule for those control periods take effect (January 1, 2012 for the annual control periods and May 1, 2012 for the ozone
- season control period). For this reason, emission reductions made to comply with CAIR cannot be treated as if they were emission reductions achieved to comply with statutory provisions, rules, consent decrees, and the like that establis h permanent emission limitations. EPA takes reductions made to comply with permanent limits into consideration when quantifying each state’s baseline emissions for the purpose of analyzing whether its emissions significantly contribute to nonattainment or interfere with maintenance in another state. However, the unique legal status of CAIR and the effect of the Transport Rule as a replacement for CAIR distinguish the emission reductions required by CAIR from those of other regulatory requirements. Since t he limits and emission reduction requirements in CAIR are temporary and will be terminated by the Transport Rule , t hey must be excluded from the base case analysis. Some comments on the Transport Rule proposal claim that EPA’s treatment of CAIR is inconsi stent with the treatment, in prior rulemakings, of the Acid Rain Program and the NO X SIP Call.*** E.O. 12866 Review

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Page 85 of 647 Such comments ignore the unique legal status of CAIR, and EPA therefore rejects these claims. A simple example illustrates this point. Assume state Z’s emissio ns before CAIR were 2,000 tons and that state Z was required by CAIR to reduce its emissions to 1,000 tons. If EPA were to determine that state Z’s baseline emissions were 1,000 tons and then conclude, based on that assumption, that no additional reductio ns in state Z are necessary because state Z does not significantly contribute to downwind nonattainment unless its emissions exceed 1,500 tons, then state Z would not be covered by the Transport Rule. However, the Transport Rule will terminate all CAIR re quirements in all CAIR states regardless of whether they are covered by the Transport Rule. Thus, after promulgation of the Transport Rule, state Z would again be allowed, and would be projected in this example, to emit 2,000 tons. In other words, state Z would be allowed to significantly contribute to nonattainment and/or interfere with maintenance in other states
-- a result that would be inconsistent with the statutory mandate of CAA section 110(a)(2)(D)(i)(I). On the other hand, if EPA assumes state Z’s baseline emissions are 2,000 tons as projected without CAIR in place, EPA can properly determine whether, if state Z were allowed to emit that amount (i.e., the amount state Z would be projected to emit if excluded from the Transport Rule), the*** E.O. 12866 Review

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Page 86 of 647 state would significantly contribute to nonattainment or interfere with maintenance in any other state. In other words, EPA can determine the stringency of emission limitations needed (if any) to replace those that were established by CAIR in order to ensure tha t state Z prohibits all emissions that significant ly contribute to nonattainment or interfere with maintenance in other states. In fact, commenters’ suggestion that the Transport Rule base case should include CAIR would cause the anomalous result of exc luding sources in a state from the Transport Rule because of their CAIR

– required emission reductions while simultaneously eliminating those CAIR
- required emission reductions. If EPA’s base case analysis were to assume erroneously that reductions from CAIR would continue indefinitely, a state currently covered by CAIR, but not covered by the Transport Rule, would have no CAIR requirements once the Transport Rule programs began and so could have increased emissions beyond the CAIR limitations. Downwind area s that are in attainment (and are not experiencing interference with maintenance of such attainment) solely because of emission reductions required by CAIR could again face nonattainment or interference with maintenance problems because the current protect ion from upwind pollution from such an upwind state would not be replaced. In short, the analysis of whether a state should be included in a rule eliminating and replacing*** E.O. 12866 Review

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Page 87 of 647 CAIR cannot logically assume that CAIR remains in place. For these reasons, EPA be lieves it is reasonable to use a base case that does not assume that the CAIR reduction requirements will continue to be achieved and so does not include CAIR
- specific emission reductions. As a result, EPA’s 2012 base case shows emissions higher than curr ent levels in some states. In the absence of the CAIR SO 2 and NO X programs that EPA has been directed to eliminate and replace, utility emissions in CAIR states will be limited only by non - CAIR constraints including the Acid Rain Program, the NO X SIP Call , New Source Performance Standards, any state laws and consent order requiring emission reductions, and any other permanent and enforceable binding reduction commitments. This will lead to increased emissions in some states in the 2012 base case relative to current emissions. For example, efforts to comply with the Acid Rain Program at the least cost may occur, in some cases, without the operation of existing scrubbers through use of readily available, inexpensive Title IV allowances. It is important to note that, to the extent that emission reductions currently required by CAIR are also reflected in emission reduction requirements under the Acid Rain Program, the NO X SIP Call, New Source Performance Standards, any state laws and consent order s requiring emission reductions, and any other*** E.O. 12866 Review

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Page 88 of 647 enforceable binding reduction commitments, such reductions are accounted for in EPA’s 2012 base case. Commenters’ claims that, in excluding CAIR
- specific emission reductions from the base case, EPA ignores non
- CAIR legal requirements (e.g., in Title V permits) that may prevent sources from increasing emissions above CAIR levels, are incorrect. As discussed elsewhere in this preamble, EPA accounted for any Title V permits, consent decrees, state rules, and the like that r equired specific sources to limit their emissions to the levels consistent with CAIR compliance. Commenters also assert that utilities are unlikely to dismantle or discontinue running the installed controls to the point of returning to pre
- CAIR emission l evels. EPA agrees that installed controls are not likely to be dismantled, and as discussed elsewhere in this preamble, EPA’s analysis properly treats the capital investments made in emission controls as a result of CAIR as “sunk” capital costs (i.e., cap ital costs already incurred in the past) that are not included as costs of meeting Transport Rule requirements. Our cost analysis for significant contribution reflects on
the - ground realities. Investments in pollution control equipment were made in respon se to the remanded CAIR requirements. Those expenditures are “sunk” capital costs, meaning that those costs were incurred in the past, prior to the Transport Rule. Adding the capital costs of that equipment into*** E.O. 12866 Review

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Page 89 of 647 the costs of Transport Rule emission reduc tion options would be incorrect; those capital investments are represented in place in the base case. However, given ongoing costs associated with operating these controls, EPA believes sources would have an economic incentive to discontinue operating in stalled controls, or to operate those controls less effectively, except to the extent
non - CAIR legal requirements mandate emission reductions or to the extent that sources would find it economic to operate the controls for non - CAIR market - based emission co ntrol programs. EPA properly treats the costs of operating controls installed to meet CAIR requirements as costs of meeting Transport Rule requirements. 22 EPA’s base case accounts for non - CAIR requirements and does not make the unreasonable assumption tha t installed controls would be operated to achieve emission reductions that are not necessary to meet non
- CAIR requirements. For all of these reasons, EPA rejects commenters’ claims that the base case is “unrepresentative” or lacks “a rational relationship to the real world.”

22 For more details on how EPA models economic operation of existing pollution control equipment in the T ransport Rule base case, please see Section 6 ("Dispatchable Controls") in "Updates to EPA Base Case v3.02 EISA Using the Integrated Planning Model" T echnical Support Document (TSD) for the Transport Rule Docket ID No. EPA- HQ - OAR- 2009
- 0491, U.S. EPA, July 2010 (available atwww.epa.gov/airmarkets/progsregs/epa
- ipm/IPM_Update_Documentation.pdf).*** E.O. 12866 Review

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Page 90 of 647 C. Air Quality Modeling to Identify Downwind Nonattainment and Maintenance Receptors 1 . Emission Inventories To inform air quality modeling for the development of the final Transport Rule, EPA developed emission inventories for a 2005 base year and for 2012 and 2014. The inventories for all years include emission estimates for EGUs, non
- EGU point sources, stationary nonpoint sources, onroad mobile sources, nonroad mobile sources, and biogenic (non
- human) sources. EPA’s air quality modeling relies on this comprehensive set of emission inventories because emissions from multiple source categories are needed for the model to compute values for the ambient air quality, and to facilitate comparison of model outputs with ambient measurements . In addition, EPA considers all relevant emissions (regardless of source category) when determining whether a state is found to be significantly contributing to or interfering with maintenance of a particular NAAQS in another state. The emission inventor ies were processed through the Sparse Matrix Operator Kernel Emissions (SMOKE) Modeling System version 2.6 to produce the gridded, hourly, speciated, model
- ready emissions for input to the CAMx air quality model. Additional information on the development of the emission inventories and related data sets for emissions modeling is provided in the*** E.O. 12866 Review

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Page 91 of 647 Emission Inventory Final Rule TSD for the Transport Rule Notice of Final Rulemaking (NFR). Tables that provide summaries of SO 2 and NO X emissions by state and sector for 2005, 2012, and 2014 are also available in the Emission Inventory Final Rule TSD. On October 27, 2010 a Notice of Data Availability (NODA) on “Revisions to Emission Inventories” was issued. The primary purpose was to notify the public about changes to emission inventories made since the proposal modeling. The affected emission sectors were stationary point sources that are not EGUs, nonpoint sources, and Category 3 commercial marine vessel sources. Plans to use a newl y released model for onroad mobile
source emissions were also announced in the NODA. The major comments received in response to the emission inventories and modeling included in the proposed Transport Rule and the October 27 NODA are summarized in the fol lowing subsections. EPA agreed with the comments summarized below and adopted technical corrections or updates to the emissions inventories and modeling accordingly. For EPA to be able to take appropriate action, comments on the emission inventories neede d to be specific enough to allow for credible alternative data sources to be located. EPA adopted corrections from comments on in
- place control programs or devices where the controls were enforceable and quantifiable. a. Foundation Emission Inventory Data Sets*** E.O. 12866 Review

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Page 92 of 647 EPA developed emission data representing the year 2005 to provide a base year from which future air quality could be forecasted. EPA used the 2005 National Emission Inventory (NEI), version 2 from October 6, 2008, as the chief basis for the U.S. inventories supporting the 2005 air quality modeling. This inventory includes 2005
- specific data for point and mobile sources, while most nonpoint data were carried forward from version 3 of the 2002 NEI. The future base case scenarios modeled for 2012 and 2014 represent predicted emission reductions primarily from already promulgated federal measures. EPA used a 2006 Canadian inventory and a 1999 Mexican inventory for the portions of Canada and Mexico within the air quality modeling domains for all modeled scenarios. Emissions from Canada and Mexico for all source sectors (including EGUs) in these countries were held constant for all base and future
year cases. EPA made this conservative assumption because it does not currently have data to support projec tions of future
year emissions from Canada and Mexico. b. Development of Emission Inventories for EGUs The annual NO X and SO 2 emissions for EGUs in the 2005 NEI v2 are based primarily on data from EPA’s Clean Air Markets Division’s Continuous Emissions Mon itoring (CEM) program, with other EGU pollutants estimated using emission factors and the annual heat input data reported to EPA’s Clean Air Markets*** E.O. 12866 Review

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Page 93 of 647 Division. Although only the pollutants NO X and SO 2 are considered for control in this rule , emissions for all criteria air pollutants must be provided to the air quality model. For EGUs without CEMs, data submitted to the NEI by the states were used. For more information on the details of how the 2005 EGU emissions were developed, see the Emissions Inventory Final Rule TSD. A comment impacting the final 2005 EGU inventory is the following: Comment: Commenters stated that some point sources that were classified as non
- EGUs in the proposal modeling were actually EGUs, resulting in double counting of emissions in future - year modeling. Response: EPA reviewed the assignment of EGUs and non
- EGUs and reclassified EGU sources found to be in the non
- EGU inventory into the 2005 EGU inventory to prevent double counting of future - year emissions. The future base case scenar ios for EGUs reflect projected changes to fuel usage and economics, as described in the Emission Inventory Final Rule TSD. Future year base case EGU emissions that predict SO 2 , NO X , and PM2.5 were obtained from version 4.10_FTransport of the Integrated Pl anning Model (IPM) outputs (http://www.epa.gov/airmarkt/progsregs/epa
ipm/index.html). The IPM is a multi
- regional, dynamic, deterministic linear programming model of the U.S. electric*** E.O. 12866 Review

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Page 94 of 647 power sector; version 4.10_FTransport reflects state rules and consent decrees through December 1, 2010, and incorporates public comments on existing controls submitted to EPA through both the Transport Rule - related notice and comment process as well as the proposed Mercury and Air Toxics Standards Information Collection Requ est (ICR). The operation of existing SO 2 or NO X advanced controls (e.g., scrubber, SCR) on units that were not required to operate those controls for compliance with Title IV, New Source Review (NSR), state settlements, or state
specific rules was project ed by IPM on the basis of providing least cost operation of the power generation system subject to existing regulatory requirements except CAIR (see baseline discussion section V.C.2.b ). Additionally, IPM v.4.10_FTransport incorporates comments received during the rulemaking process. Fuel
- related updates include comment
- driven unit
- specific limitations on 2012 coal rank selection, limiting unrestricted switching from bituminous to subbituminous coal by imposing boiler modification costs for those units s hifting from bituminous to subbituminous coal without historical precedent, and a correction of waste coal prices. Pollution control
- related updates include keying the performance assumptions for FGD and SCR more closely to historic performance data, and the inclusion of dry sorbent injection (DSI), a SO 2 removal technology. Other notable updates include*** E.O. 12866 Review

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Page 95 of 647 revised assumptions on the heat rate and consequent dispatching of cogenerating units and incorporation of additional planned retirements. Further detai ls on these updates are available in the IPM Documentation, available in the docket and at: http://www.epa.gov/airmarkets /progsregs/epa
- ipm/index.html. c. Development of Emission Inventories for Non
- EGU Point Sources Details on the development of emission inventories are available in the Emission Inventory Final Rule TSD. In both the proposal and final modeling, controls on industrial boilers installed under the NO X SIP call were assumed to have been implemented by 2005 and captured in the 2005 NEI v2. T he non EGU point source emissions were updated from the 2005 NEI and the emissions used for the proposal modeling through the incorporation of comments on the proposal emissions values, previously unknown facility closures, and through other data improveme nts as identified by EPA analyses. EPA does not factor in economic growth to develop non
- EGU point source emission projections because analysis of historical emission trends and economic data did not support using economic growth to project non
- EGU emissi ons. More details on the rationale for not applying economic growth to non
- EGU industrial sources can be found in Appendix D of the Regulatory Impact Assessment for the PM NAAQS rule*** E.O. 12866 Review

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Page 96 of 647 ( http :// www . epa . gov / ttn / ecas / regdata / RIAs / Appendix %20 D -- Inventory . pdf ). Although projections based on economic growth were not included, EPA did include reductions resulting from plant and unit closures, local and federal consent decrees, and several Maximum Achievable Control Techn ology (MACT) standards. For non - EGU point sources, local control programs that may be necessary for areas to attain the annual PM2.5 NAAQS and the ozone NAAQS are only included in the future base case projections when specific information about existing en forceable loc al controls was provided. Since aircraft at airports were treated as point emissions sources in the 2005 NEI v2, we applied projection factors based on activity growth projected by the Federal Aviation Administration Terminal Area Forecast (TAF) system, published in December 2008. A number of comments were received on the stationary non
EGU point source inventories. Below is a summary of the major comments that impacted the stationary non
- EGU point source inventories for the final modeling: Comment: Commenters stated that EPA did not properly represent some point source emissions in base
- year and future year inventories due to facility and unit closures, consent decrees, emission caps, control programs, and alternative emission estimates.*** E.O. 12866 Review

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Page 97 of 647 Resp onse: EPA reviewed the sources referenced in the individual comments regarding the base
- year and future - year inventories. In cases where credible alternative data were available, EPA revised the emission inventories to incorporate additional facility and unit closures, consent decrees, emission caps, control programs, enforceable local controls, and alternative emission estimates. Comment: Commenters stated that EPA should include controls from the National Emission Standards for Hazardous Air Pollutants f or Reciprocating Internal Combustion Engines (RICE NESHAP) in our modeling. Response: EPA included reductions expected to be achieved by the RICE NESHAP across the United States in our final modeling of stationary non
- EGU and nonpoint sources. Comment: Commenters stated that EPA was not properly representing existing or planned controls for cement plants. Response: EPA updated control and projection information for cement plants based on the latest available data and cement sector - specific modeling results. Comment: EPA specifically requested comments on whether to incorporate emission reduction estimates from the National Emissions Standards for Hazardous Air Pollutants (NESHAP) for Major Sources: Industrial, Commercial, and Institutional Boilers and Proces s Heaters (75 FR 32006). Commenters stated that*** E.O. 12866 Review

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Page 98 of 647 emission reduction estimates should not be included until the rule became final. Response: EPA did not incorporate emission reduction estimates from the NESHAP for Major Sources: Industrial, Commercial, and I nstitutional Boilers and Process Heaters (75 FR 32006) into the proposal or final modeling because the rule was not final at the time the modeling was performed. Note that reductions from this rule would not have impacted the 2012 base case due to its impl ementation schedule, and only the 2014 emissions would have been affected. d. Development of Emission Inventories for Onroad Mobile Sources The onroad emissions in the proposal modeling were primarily based on the National Mobile Inventory Model (NMIM)
mo nthly, county, and process level emissions along with gasoline exhaust emissions from a fall 2008 draft version of the Motor Vehicle Emission Simulator (MOVES). A major comment on the proposal modeling for onroad mobile sources was the following: Comment: Commenters stated that EPA should use a publicly released version of MOVES for its final modeling. Response: EPA updated the final modeling to use data from the publicly released version of the MOVES 2010 model because the model became available in time f or inclusion of its results in the final modeling. It was not used for the proposal modeling*** E.O. 12866 Review

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Page 99 of 647 because it was not available at the time the modeling was performed. In the final Transport Rule modeling, EPA used MOVES 2010 state -month level emissions for all criteria pollutants and all modes ( evaporative , exhaust, brake wear and tire wear) and allocated those emissions to counties according to state
- county NMIM emissions ratios. For California (the emissions for which are included to support the co arse modeling domain), the onroad mobile emissions data were derived from data provided by the state. These data were augmented with MOVES 2010 outputs for NH 3 because data for that pollutant had not been provided. Additional information on the approach t o onroad mobile source emissions is available in the Emission Inventory Final Rule TSD. In the future - year base modeling for mobile sources, all national measures available at the time of modeling were included. The future scenarios for mobile sources ref lect projected changes to fuel usage, as described in the Emission Inventory Final Rule TSD. Emissions for these years reflect onroad mobile control programs including the Light
- Duty Vehicle Tier 2 Rule, the Onroad Heavy
- Duty Rule, the Light
- Duty Vehicle G reenhouse Gas Rule, the Renewable Fuel Standards Rule, and the Mobile Source Air Toxics (MSAT) final rule. e. Development of Commercial Marine Category 3 Vessel Emission Inventories*** E.O. 12866 Review

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Page 100 of 647 For the 2005 modeling, the commercial marine category 3 (C3) vessel emis sions, a portion of nonroad mobile emissions, were augmented with gridded 2005 emissions from the previous modeling efforts for the rule called “Control of Emissions from New Marine Compression
- Ignition Engines at or Above 30 Liters per Cylinder.” Emission s out to 200 nautical miles from the coastline were allocated to states in the proposal modeling. A major comment on the proposal modeling was the following: Comment: Commenters stated that emissions from commercial marine sources (a component of the nonro ad emissions in the summaries that were provided for the NPR) were too high. Response: EPA reviewed the approach used for commercial marine C 3 emissions in the proposal. In the final modeling, instead of using the boundary of 200 nautical miles from the
co ast as was used in the proposal, EPA adopted the Mineral Management Service state
- federal water boundaries that assign state waters 3
- 10 nautical miles from the coast. This approach is consistent with the approach used in the 2005 and 2008 National Emissi on Inventories. In addition, the category 3 commercial marine emissions were adjusted to reflect a
co ordination between the Emissions Control Area proposal to the International Maritime Organization (EPA
- 420
- F - 10
- 041, August 2010) control strategy; reduct ions of NO X , VOC, and CO emissions*** E.O. 12866 Review

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Page 101 of 647 for new C 3 engines starting in 2011; and fuel sulfur limits that go into effect as early as 2010. f. Development of Emission Inventories for Other Nonroad Mobile Sources The nonroad mobile source emissions for sources o ther than C 3 marine were primarily based on NMIM monthly, county, and process level emissions from the 2005 NEI v2. These emissions were unchanged from proposal modeling, except for PM emissions in California that were updated to correct for missing emiss ions in a few counties and source categories. Nonroad mobile emissions were created for future years with NMIM using an approach consistent with that used for 2005. The nonroad emissions for 2012 and 2014 were calculated using NMIM future - year equipment population estimates and control programs. Nonroad mobile emission reductions for 2012 and 2014 include reductions to locomotives, various nonroad engines including diesel engines and various marine engine types, fuel sulfur content, and evaporative emis sions standards. A more comprehensive list of control programs included for mobile sources is available in the Emission Inventory Final Rule TSD. The 2012 and 2014 nonroad mobile emissions for locomotives and category 1 and 2 (C1 and C2) commercial marine vessels were based on emissions published in EPA’s Locomotive Marine Rule, Regulatory Impact Assessment, Chapter 3.*** E.O. 12866 Review

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Page 102 of 647 g. Development of Nonpoint Emission Inventories For the proposal Transport Rule modeling, EPA augmented the 2002 NEI nonpoint emission i nventory with a non
- California Western Regional Air Partnership (WRAP) oil and gas exploration inventory, which includes emissions in several states within the eastern U.S. 12 km modeling domain and additional states within the national 36 km modeling doma in. For the final Transport Rule modeling, EPA updated the nonpoint emission estimates for oil and gas sources. EPA continued to use the same WRAP inventory from the proposal, but for the final modeling emissions in Texas and Oklahoma were updated with da ta from the Texas Commission on Environmental Quality (TCEQ) and the Oklahoma Department of Environmental Quality (DEQ), respectively. The average - year county - based inventories for wildfire and prescribed burning emissions were unchanged between the prop osal and final modeling. For stationary nonpoint sources, local control programs that may be necessary for areas to attain the annual PM2.5 NAAQS and the ozone NAAQS are not included in the future base case projections unless specific information about exi sting enforceable controls was available (e.g., ozone SIP controls from Ozone Transport Commission rules that impact source categories such as Consumer Products, Solvent Cleaning,*** E.O. 12866 Review

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Page 103 of 647 Adhesives and Sealants). EPA specifically requested comment on local control data as part of the proposal and the October 27 NODA, and incorporated any usable data that was provided into the final inventories . For stationary nonpoint sources, refueling emissions were projected using the refueling results from the NMIM runs performed for the onroad mobile sector. Portable fuel container emissions were projected to future years using estimates from previous OTAQ rulemaking inventories. Emissions of ammonia and dust from animal operations were projected based on animal population da ta from the Department of Agriculture and EPA. Residential wood combustion was projected by replacement of obsolete wood stoves with new wood stoves and a 1 percent annual increase in fireplaces. Landfill emissions were projected using MACT controls. Al l other nonpoint sources were held constant between 2005 and the future years. Some specific adjustments to the inventories were made in the final modeling to address comments that were received as described below. Area source MACT programs and controls f rom the RICE NESHAP were included in the final modeling to address submitted comments, as were fuel sulfur controls that were enforceable and that take effect by 2014. The major comments that impacted the nonpoint sectors are as follows:*** E.O. 12866 Review

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Page 104 of 647 Comment: Commenter s stated that the SO 2 emissions from industrial fuel combustion in Nebraska EPA are too high. Response: EPA reviewed the NEI 2002
- based data that had been used for the proposal modeling and determined that emissions from the 2005 inventory compiled for the Central Regional Air Planning Association (CENRAP) were more up to date for this source category and based on more localized data sources. The 2005 CENRAP emissions for industrial fuel combustion were used in the final modeling. Comment: Commenters state d that EPA should include sulfur rule controls that take effect prior to the future years that were modeled. Response: EPA included quantifiable sulfur rule controls in 2014 modeling for those states that had implemented the rules (New Jersey and Maine). Comment: A commenter stated that emissions for Delaware were overestimated for several nonpoint categories in base
- year and future - year inventories and provided alternative estimates for these categories. Response: EPA reviewed the alternative estimates provided and found them to be credible and based on more detailed local scale information than were available in the national inventories. EPA incorporated the alternative emission estimates for Delaware into the final modeling.*** E.O. 12866 Review

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Page 105 of 647 Comment: A commenter stated t hat residual oil is not used as an industrial fuel in South Carolina. Response: EPA analyzed the emissions from residual oil industrial fuel combustion in South Carolina and all other states, and analyzed preliminary regional planning office inventories an d the 2008 NEI submittals. The South Carolina residual oil industrial fuel emissions were determined to be anomalously large in comparison to the near zero emissions in other submittals and were therefore removed from the nonpoint inventory. 2 . Air Qualit y Basis for Identifying Receptors a. Introduction In this section, we describe the final approach to identify downwind nonattainment and maintenance receptors. We briefly summarize the modeling platform, the proposed approach to identify receptors, commen ts received, and the results of the final analysis. In the Transport Rule, EPA has explicitly given independent meaning to the "interfere with maintenance" prong of section 110(a)(2)(D)(i)(I) by evaluating contributions to identified maintenance receptors as well as contributions to identified nonattainment receptors. EPA identified maintenance receptors as those receptors that would have difficulty maintaining the relevant NAAQS in a scenario that takes into account historic*** E.O. 12866 Review

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Page 106 of 647 variability in air quality at that receptor. Specifically, EPA projects future air quality design values based on measured data during the period 2003 to 2007. In determining the downwind receptors of concern, EPA does not solely rely on the projection of an average design value bas ed on measured data from the relevant period (in this case 2003 to 2007) to make a determination of "attainment" or "nonattainment." Instead, EPA also evaluates the maximum future design value at that receptor based on measured data over the relevant peri od. Receptors for which this latter analysis projects design values higher than the NAAQS are identified as maintenance receptors. EPA believes it is appropriate and reasonable to use this approach to identify receptors that may have maintenance problem s in the future. This approach uses measured data in order to establish potential air quality outcomes at each receptor that take into account the variable meteorological conditions present across the entire period of measured data (2003 to 2007). EPA in terprets the maximum future design value to be a potential future air quality outcome consistent with the meteorology that yielded maximum measured concentrations in the ambient data set analyzed for that receptor. In other words, the average design value gives a reasonable projection of future air quality at the receptor under "average" conditions. However, EPA also recognizes that previously experienced*** E.O. 12866 Review

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Page 107 of 647 meteorological conditions (e.g., dominant wind direction, temperatures, air mass patterns) promoting ozone or fine particle formation that led to maximum concentrations in the measured data may reoccur in the future. The maximum design value gives a reasonable projection of future air quality at the receptor under a scenario in which such conditions do, in fact, reoccur. It also identifies upwind emissions that under those circumstances could interfere with the downwind area's ability to maintain the NAAQS. Per the court's opinion in North Carolina , it is necessary for the Agency to evaluate “interfere nce with maintenance” separately from “significant contribution to nonattainment” in order to give independent meaning to that phrase in the statute. The approach described above does so and provides a reasonable basis for identifying upwind emissions tha t interfere with maintenance of the NAAQS at downwind receptors. Because the methodology is based on actual variations in design values measured at the receptors, EPA believes that the application of this design value methodology for identifying maintena nce receptors reasonably anticipates possible future air quality outcomes based on meteorological conditions independent of emission reduction requirements occurring between 2005 (the base year for air quality analysis) and 2012 (the future year for air qu ality analysis of the base case without CAIR or the*** E.O. 12866 Review

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Page 108 of 647 Transport Rule in place). EPA uses air quality modeling to properly account for changes in air quality from 2005 to 2012 due to emission control requirements and trends in emission source fleet turnover (such as increasingly cleaner motor vehicle fleets). The air quality modeling process allows EPA to effectively adjust measured data to project design values in 2012 based on the forecast changes in emissions. For a given receptor, the forecast change in emissions from 2005 to 2012 is a constant factor applied across all of the design values from the period 2003 to 2007. Thus, a comparison of the projected (future - year) design values themselves is equivalent to comparing the base period design values from the data set to consider how pollution concentrations are affected by non modeled factors such as environmental and meteorological variability independent of the forecast emission reduction s that stem from successful imposition of emission limitations an d controls on various sources between the base and future modeling years. EPA believes it is reasonable to anticipate that these year - to - year meteorological fluctuations may reoccur at any time in the future and are relevant to determining receptors that are at risk of having a problem in the future with maintenance of the NAAQS. Therefore, EPA assesses the relationship of the maximum projected design value for 2012 at each receptor to the relevant NAAQS, and where such a value exceeds the NAAQS, EPA*** E.O. 12866 Review

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Page 109 of 647 dete rmines that receptor to be a “maintenance” receptor for purposes of defining interference with maintenance under the Transport Rule. To provide an illustrative example, consider a hypothetical receptor “Y” whose measured data for 2003
- 2007 yields three des ign values for annual fine particles of 17, 14, and 12 ug/m3 using the methodology described above for calculating design values from that baseline period. For this example, assume that corresponding projected future
- year design values, based on relative change in particulates from modeling emissions that take into account all known and legally applicable emission limitations, are 15.98, 13.16, and 11.28 ug/m3, respectively. Because the average of these future - year design values would not exceed the 1997 annual PM2.5 NAAQS, EPA does not expect receptor Y to show nonattainment of that NAAQS in the future year. For this reason, it would not be identified as a nonattainment receptor. However, because the maximum of these design values would exceed that NAAQ S, EPA has a basis for believing that the receptor may have difficulty maintaining attainment with the NAAQS under future potential meteorological conditions. Upwind state emissions in this circumstance could interfere with maintenance of the NAAQS at tha t receptor. For this reason it would be identified as a maintenance receptor, and upwind state emissions contributing to air pollution at the receptor would be*** E.O. 12866 Review

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Page 110 of 647 evaluated to determine if they interfere with maintenance at that receptor. EPA’s methodology a ccounts for the range of meteorological conditions reflected by design values from the measured 2003
- 2007 data at receptor Y while also accounting for the projected changes in emissions from 2005 to 2012 shown by the air quality modeling of the past
- to - fut ure (2005
- to - 2012) predicted change in pollution concentrations at receptor Y. In this example, the maximum measured design value for receptor Y is 17. This design value represents measured data from 2003 to 2005. EPA applies to this design value the mo deled 2005
- to - 2012 change in concentrations at receptor Y to obtain a 2012 maximum design value for that receptor. Therefore, this maximum 2012 design value has already accounted for the air quality impacts of all known and legally applicable emission limitations taking effect after the 2003 to 2005 base period which provides the basis of the maximum design value at receptor Y (please see section V.B for an explanation of why reductions required only by the remanded Clean Air Interstate Rule cannot be cons idered when determining the future air quality baseline for purposes of the Transport Rule). Therefore, EPA may consider any of the projected future
- year design values as a fair representation of future air quality at receptor Y that meteorological condit ions and remaining emissions may support, on the basis that*** E.O. 12866 Review

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Page 111 of 647 meteorological conditions originally supported all of the design values calculated from the measured data from 2003 to 2007. EPA thus believes that it is reasonable to assess whether any of these future - year (2012) design values would exceed the NAAQS, thereby indicating that upwind emissions may interfere with maintenance of the NAAQS at that receptor. In this example, EPA would find that while receptor Y’s average future
- year design value would not exceed the NAAQS, its maximum future
- year design value would exceed the NAAQS, and it would thus be designated as a “maintenance” receptor for purposes of the Transport Rule analyses. In the proposed rule we used air quality modeling to (1) identify l ocations where we expected there to be nonattainment and/or maintenance problems for annual average PM2.5 , 24
- hour PM2.5 , and/or 8
- hour ozone in 2012, (2) quantif y the impacts (i.e., air quality contributions) of SO 2 and NO X emissions from upwind states on downwind annual average and 24
- hour PM2.5 concentrations at monitoring sites projected to be nonattainment or have maintenance problems in 2012 for the 1997 annual and 2006 24
- hour PM2.5 NAAQS, respectively, and (3) quantif y the impacts of NO X emissions f rom upwind states on downwind 8
- hour ozone concentrations at monitoring sites projected to be nonattainment or have maintenance problems in 2012 for the 1997 ozone NAAQS.*** E.O. 12866 Review

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Page 112 of 647 To support the proposal, air quality modeling was performed for four emissions scena rios: a 2005 base year, a 2012 “no CAIR” base case, a 2014 “no CAIR” base case, and a 2014 control case that reflects the emission reductions expected from the FIPs. The modeling for 2005 was used as the base year for projecting air quality for each of th e 3 future year scenarios. The 2012 base case modeling was used to identify future nonattainment and maintenance locations and to quantify the contributions of emissions in upwind states to annual average and 24
- hour PM2.5 and 8
- hour ozone. The 2012 ozon e and PM2.5 concentrations were derived by projecting 2003
- 2007 based ambient ozone and/or PM2.5 data to the future using the relative (percent) change in modeled concentrations between 2005 and 2012. The 2014 base case and 2014 control case modeling were used to quantify the benefits of this proposal. In the proposed rule, EPA used the Comprehensive Air Quality Model with Extensions (CAMx) version 5.20 23 to simulate ozone and PM2.5 concentrations for the 2005 base year and the 2012 and 2014 future year sce narios. The CAMx model

23 Comprehensive Air Quality Model with Extensions Version 5 User’s Guide. Environ International Corporation. Novato, CA. March 2009.*** E.O. 12866 Review

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Page 113 of 647 applications were designed to cover states in the central and eastern U.S. using a horizontal resolution of 12 x 12 km24
. CAMx contains “source apportionment” tools that are designed to quantify the contribution of emissions from va rious sources and areas to ozone and PM2.5 component species in other downwind locations. The source apportionment tools were used to quantify the downwind contributions of ozone and PM2.5 from upwind states. In the proposed rule, EPA used a 2005
- based a ir quality modeling platform which included 2005 base year emissions and 2005 meteorology for modeling ozone and PM2.5 with CAMx. We received comments related to several aspects of the air quality modeling platform. Comment: There was wide support from commenters for the use of CAMx as an appropriate, state
- of - the science air quality tool for use in the Transport Rule. There were no comments that suggested that EPA should use an alternative model for quantifying interstate transport. Many commenters requ ested that EPA update the emission inventories used for the Transport Rule and then remodel the 2005 base year and future year emissions using the updated emissions and the most recent

24 The 12 km domain was nested within a coarse grid, 36 x 36 km modeling domain which covers the lower 48 states and adjacent portions of Canada and Mexico. Predictions from this Continental U.S. (CONUS) domain were used to provide initial and boundary concentrations for simulations in the 12 km domain.*** E.O. 12866 Review

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Page 114 of 647 version of CAMx to reassess interstate transport for the final rule. Re sponse: For the final rule we have updated our modeling using the latest public release of CAMx (version 5.30) and associated preprocessors. We have also made numero us improvements to the emission inventories for the 2005 base year as well as the 2012 an d 2014 future year base cases in response to public comments. The emissions changes are described in section V.C.2. The projection of future year nonattainment and maintenance sites and the quantification of ozone and PM2.5 transport for the final rule a re based on modeling with CAMx v5.30 using the updated emission inventories. The final rule air quality projections of 2012 nonattainment and maintenance are described below. The final rule interstate contributions are presented in section V.D. Comment: The performance evaluation of the 2005 base year model predictions for the proposed rule was too cursory and did not provide sufficient detail on model performance. Commenters requested additional analyses and spatial resolution describing how well base year model predictions compare to the corresponding measured values. Response: For the final rule we have expanded the scope of the model evaluation for 2005 to include a broader suite of statistics to characterize performance for individual subregions*** E.O. 12866 Review

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Page 115 of 647 of the e astern U.S. modeling domain. The results of the performance evaluation for the final rule 2005 base year air quality modeling are described in the Air Quality Modeling Final Rule TSD . Comment: The 2005 based modeling pla tform should be updated to a more recent year. There were several different aspects of this comment. Some commenters stated that EPA should be using a more recent emission inventory as a base year, due to identified changes and updates to the inventories . Other commenters stated that EPA should use a more recent base year, due to a trend of improvement in air quality over the past few years. The commenters claim that the 2005
- based EPA modeling does not account for large emission reductions and air quali ty improvements that have occurred over the last several years. Response: There are several reasons why the use of a 2005 modeling base case is both reasonable and , in fact, necessary for the Transport Rule. As explained in section V.B, above, because th e Transport Rule will replace CAIR, EPA cannot consider reductions associated with CAIR in the analytical baseline emissions scenario. Thus, the base year for the air quality projections should be a year that represents emissions before CAIR was in place (i.e. 2005). We are projecting emissions to a future 2012 “no CAIR” case and therefore want to best represent the air quality change between 2005 and 2012,*** E.O. 12866 Review

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Page 116 of 647 without CAIR. To do this, we projected emissions that existed before CAIR was in effect and modele d the air quality change that occurs between 2005 and 2012 without CAIR. A key consideration in our projection methodology is the use of ambient data to anchor the design value projections to the future. The modeling is used in a relative sense by multip lying the modeled percent change in ozone or PM2.5 species concentrations by the base year ambient data. The o zone and PM2.5 modeling guidance recommends projecting design values based on five years 25 of monitoring data that is centered on the base model year. Using 2005 as a base emissions and meteorological year entailed the use of 2003
- 2007 ambient air quality data (five years of data centered about 2005). This was a reasonable choice because the majority of the ambient data from this period was not impacted by CAIR emission reductions. After 2005, early emission reductions of SO 2 and NO X in anticipation of CAIR began to impact the measured air quality concentrations. Since the modeling projection methodology uses both modeled and observed data, 2005 i s the latest base year that we deemed appropriate (before CAIR emission reductions took place) for use in projecting the measured air quality to a 2012

25 The modeling guidance recommends using a five year weighted average design value. This is calculated by averaging the three consecutive design value periods of 2003
- 2005, 2004
- 20006, and 2005
- 2007.*** E.O. 12866 Review

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Page 117 of 647 future year. The early years of the five year period (2003, 2004, and 2005) were not impacted by CAIR26
. The last two years in the period (2006 and 2007) were slightly impacted by CAIR emission reductions. But the 5 year average is weighted towards the middle year of the period (2005), so the impact of the years after CAIR promulgation should be minimal. Th e 2005 base year was also chosen because it was an appropriate meteorological year. In the e astern U.S. there was relatively high ozone during the summer of 2005 and relatively high PM2.5 periods during the year. The modeled attainment test s for both ozo ne and 24
- hour PM2.5 depend on having a sufficient number of “high” modeled days to project to the future. Modeling a year that is not meteorologically conducive to ozone and/or PM2.5 formation is discouraged by the modeling guidance because a meteorologi cal year that is not conducive to ozone or PM2.5 formation may be less responsive to changes in emissions in the future. Therefore, projecting the relative change in ozone
or PM2.5 for a non - conducive base year may underestimate the future change in ozone and/or PM2.5 concentrations. Additionally, all enforceable emission reductions that occurred between 2005 and 2012 (other than those required under CAIR) are captured by the modeling system. Any enforceable non
EGU emission reductions due to existing rules or the
26 The CAIR final rule was published on May 12, 2005.*** E.O. 12866 Review

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Page 118 of 647 installation of emissions controls after 2005 were included in the 2012 base case inventory. As explained above in section V.B, to capture changes in EGU emissions between 2005 and 2012, EPA did not assume operation of all controls installed during that time period, as many of those controls were built in response to CAIR. EPA used the Integrated Planning Model ( IPM ) to project 2012 EGU emissions incorporating all non
- CAIR enforceable emission constraints; operation of existing pollution contr ols was taken into account only where non
- CAIR constraints made it economic or legally necessary to operate them. We also accounted for permanent source shutdowns that occurred after 2005. Where possible, we incorporated reported emissions changes based on comments to the proposed rule and a subsequent emission inventory notice of data availability (NODA). Comment: Several commenters stated that we used a “modeled + monitored” test in CAIR to identify future year nonattainment receptors, but we only used a modeled test in the Transport Rule proposal. They suggest that we should either go back to the “modeled + monitored” test or explain why we should not use monitoring data in the identification of nonattainment and maintenance receptors. T hey say that we should not base nonattainment and maintenance receptors solely on modeled violations. They also say that we if we had looked at the most*** E.O. 12866 Review

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Page 119 of 647 recent ambient data we would see that most of the modeled nonattainment and maintenance receptors are already attaining the ozone and/or PM2.5 NAAQS. Response: In the identification of future year nonattainment receptors for CAIR, EPA used what was called the “modeled + monitored test”. The most recent ambient data (2001
- 2003 design values at the time) were examined to further verify that nonattainment was still being measured at potential future year nonattainment receptors. In the proposed Transport Rule, EPA identified future year nonattainment and maintenance receptors based on modeled projections of ambient data from the 2003
- 2007 time period. The future year receptors were not compared to most recent ambient data to verify that nonattainment still existed.

For the final Transport Rule , there are several
reasons that EPA did not examine the most recent ambient data to verify that receptors were still measuring nonattainment. The main reason for dropping the “monitored” part of the modeled + monitored test is the fact that the most recent monitoring data (2007
- 2009 design values) include large emission reductions from CAIR. As explained in section V.B, above, because the Transport Rule will replace CAIR, we must use no
- CAIR base case modeling. It is simply not appropriate to examine the current monitoring data, which represent air quality with CAIR emission reductions*** E.O. 12866 Review

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Page 120 of 647 in place, and compare the values to 2012 projected air quality that is based on a no
- CAIR modeling case. As discussed above, we modeled a 2005 base case with pre
- CAIR emissions and a 2012 future “no CAIR” case. The change in model ed air quality is due to the non - CAIR enforceable emissions changes between 2005 and 2012 and therefore explicitly does not take CAIR into account. As a consequence, the 2012 projected design values represent a unique case (necessary for analyzing future air quality without either CAIR or its replacement Transport Rule in effect) that cannot be represented by current ambient data. It is also important to note that all of the projected 2012 design values are based on projections of measured ambient data. They are a combination of measured data and modeled response factors. Therefore , it is inaccurate to imply that future year nonattainment and maintenance receptors are solely based on modeled projections. The future year concentrations are firmly rooted in base year measured ambient data that have been projected to the future using modeled data. There are additional reasons for not verifying the nonattainment and maintenance receptors against the most recent ambient data. In CAIR we did not explicitly i dentify maintenance receptors. In the Transport Rule proposal we identified maintenance receptors based on 2012 projections of maximum design values from the 2003
- 2007 period. Even though*** E.O. 12866 Review

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Page 121 of 647 receptors may be measuring attainment based on recent data, they
may still be at risk for falling back into nonattainment. Therefore, even if commenters argue that recent data show that receptors should not be nonattainment receptors (which we do not agree with), the same argument cannot be made with regards to maintena nce receptors. Clearly, receptors with recent “clean” ambient data may still experience higher PM2.5 and/or ozone concentrations in the future (based on meteorological and emission variability) and therefore may be appropriate maintenance receptors. Comment: Several commenters claim that the maintenance receptor methodology overstates actual future design values. They also recommend an alternative methodology which takes into account the downward trend in observed PM2.5 concentrations over the l ast 5+ years. The methodology would remove the trend in the data where air quality is improving over the period by applying a linear fit to the data, calculating the residuals and then adding the residuals back to the average of the data. Given a site wi th a downward trend, this has the effect of decreasing the calculated maximum values from the early years in the period and increasing the values from the end years in the period. Response: EPA continues to believe that our approach to identify maintena nce receptors is reasonable and appropriate.*** E.O. 12866 Review

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Page 122 of 647 For the final rule, we continue to identify maintenance receptors by projecting the maximum design value from the 2003
- 2007 period to the future. The methodology assumes that the combination of emissions and meteorology that occurred in the base period (which led to relatively high ambient design values) could happen again in the future (albeit at lower emissions levels). There is no information presented by the commenters which explains why the magnitude of b ase year design value variability could not occur in the same way in the future. The commenters cite the downward trend in ambient data as the reason why the EPA methodology is not reasonable. However, in most cases, the recent downward trend in ambient data is due to a combination of ongoing emission reductions (which includes CAIR), variability in meteorology, and depressed emissions due to the recession. In fact, the most recent ambient design value period (2007
- 2009) is heavily influenced by extremel y low ozone and PM2.5 concentrations measured in 2009. The 2009 data are marked by relatively low emissions due to cool summer weather and ongoing effects of the recession. The preliminary27 2010 ambient data in the e astern U.S. show that ozone and PM2.5 values were considerably higher in 2010 compared to 2009. In the Transport Rule states, there were 158 ozone monitor days that

27 The 2010 data is preliminary. Exceptional event data has not been flagged and removed from the reported data.*** E.O. 12866 Review

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Page 123 of 647 exceeded 84 ppb in 2009 compared to 412 monitor days in 2010. For PM2.5 , there were 251 monitor days that exceeded 35 μg/m 3 in 2009 compared to 417 monitor days in 2010. Even though the SO 2 and NO X emissions were generally lower in 2010, the observed ozone and PM2.5 concentrations were higher. This shows the important influence of meteorology on ambient concentrations. Clearly, the year to year variability due to meteorology can be large. We acknowledge the downward trend in ambient data over the last few years. But this does not mean that conditions that led to high ozone and/or PM2.5 in the 2003
- 2007 period could not
occur a gain in the future. The 2010 ambient data show that meteorology can cause concentrations to go back up. We also believe that the alternate maintenance methodology presented by the commenter is inappropriate. The EPA modeling for 2012 (and 2014) appropr iately accounts for emission reductions that occur after 2005 except for those that should not be considered, as explained in section V.B., because they were required only by CAIR . Therefore, the starting point design values used to project to the future should not be lowered to account for emissions reductions trends that occur after 2005. Doing so would give “double credit” to the more recent emissions reductions and provides an inappropriate downward adjustment to the early design value periods o f the 2003
- 2007 period.*** E.O. 12866 Review

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Page 124 of 647 Comment: One commenter claims that EPA did not follow our own modeling guidance by not doing local scale modeling in urban areas with high PM2.5 concentration gradients. They suggested that the methodology to calculate future yea r design values should have included dispersion modeling to calculate the change in concentration over time of primary PM2.5 emissions. Response: EPA modeling guidance for PM2.5 attainment demonstrations recommends photochemical grid modeling to examine future year changes in PM2.5 concentrations. There are several optional aspects of the modeling which are recommended in specific cases. This includes a recommendation for a “local area analysis” using a dispersion model. An area with relatively large l ocal primary PM2.5 concentration gradients may want to do additional modeling to examine the impacts of local controls on its future year PM2.5 concentrations. This is particularly important when local controls of primary PM2.5 are included as part of the attainment demonstration. As noted above, a “local area analysis” is recommended as part of the local attainment demonstration process in specific situations. It is impractical for EPA to perform this type of analysis for each local area in the region al Transport Rule. National rulemakings are not attainment demonstrations. We are not able to perform fine scale analyses for each area. For the final rule modeling, we have attempted to address all emissions*** E.O. 12866 Review

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Page 125 of 647 and modeling related comments. We have upda ted the modeling platform to use the latest version of CAMx and are continuing to model ozone and PM2.5 at 12km grid resolution, which for PM2.5 is a more refined grid resolution compared to the CAIR modeling. Additionally, there is no evidence presented by the commenter that would indicate that the future year PM2.5 concentrations from the Transport Rule are biased high. In fact, depending on the circumstances, local fine scale grid or dispersion modeling may result in lower or higher future year design values. In a fine scale analysis, the dominant local primary PM2.5 emissions become a larger percentage of the PM2.5 concentrations. Therefore, if the local emissions are forecast to decrease, fine scale modeling may lead to lower future design values. However, if the local emissions are forecast to increase or stay the same between the base and future years, local modeling will likely show higher future year design values compared to a regional analysis. This points to the fact that perceived biases in modeling results may not always be correct. In sum, fine scale modeling of local areas may lead to either higher or lower future year design values. There is no indication that EPA’s regional modeling is biased in either direction. EPA’s Transport Rul e modeling generally followed EPA’s modeling guidance and is appropriate for the purpose of this rulemaking.*** E.O. 12866 Review

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Page 126 of 647 Comment: One commenter submitted a detailed CAMx based modeling analysis with a 2008 base year and future years of 2014 and 2018. The analysis sh ows that the majority of the proposed rule 2012 nonattainment and maintenance sites are already attaining based on either 2006
- 2008 or 2007
- 2009 ambient data. Based on this, the commenter claims that air quality has improved more rapidly than predicted by EPA’s proposed rule modeling. Also, based on the commenter ’ s 2014 modeling of CAIR emissions (including utility consent decrees and state programs), the commenter concludes that no additional controls are needed beyond CAIR to bring most or all sites int o attainment by 2014. Response: As an initial matter, we note that the basic question addressed by the commenter, “whether additional controls beyond CAIR are necessary” is not on point. As explained previously, the D.C. Circuit remanded CAIR to EPA and it remains in place only temporarily. The question EPA must answer in this rulemaking, therefore, is not what controls in addition to CAIR are necessary but what, if any, restrictions on emissions must be put in place to replace CAIR in order to satis fy the requirements of section 110(a)(2)(D)(i)(I) of the Clean Air Act. For this reason, and as explained in greater detail in section V.B of this preamble, any analysis of whether beyond CAIR controls are necessary is irrelevant to this*** E.O. 12866 Review

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Page 127 of 647 rulemaking. None theless, we have carefully reviewed different aspects of the commenter’s analysis. We previously addressed comments related to the use of more recent ambient data to examine future year nonattainment and maintenance receptors. As noted above, the 2006
- 20 08 and 2007
- 2009 ambient data is heavily influence d by several factors. Among them are the emissions reductions from CAIR, the relatively low recent observed ozone and PM2.5 concentrations at least partially due to non
- conducive meteorology (particularly in 2009), and the atypical suppression of emissions due to the sharp recession. For all of these reasons, we believe it is not possible to directly compare the most recent design values to the predicted future year 2012 and 2014 design values from the Tra nsport Rule. In particular, it is inappropriate to compare current design values to EPA’s no
CAIR 2012 future year modeling results. As noted in the comment summary, the commenter’s modeling analysis assumed that CAIR was in place in both 2008 and the fu ture years. This is a fundamentally different assumption than the modeling EPA used to define the Transport Rule nonattainment and maintenance receptors in 2012 and is inappropriate for purposes of the Transport Rule for reasons described above and in sec tion V.B. Additionally, EPA’s maintenance methodology chooses the highest of three base year design value periods projected to the future. The commenter only used a single design value period in*** E.O. 12866 Review

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Page 128 of 647 their analysis and therefore did not fully examine mainte nance issues. In fact, the 2014 nonattainment modeling receptors in the final Transport Rule and the commenter’s modeling analysis are similar. As documented in Section VI.D., in the 2014 final rule remedy case, there is only one remaining nonattainment area for ozone and one remaining nonattainment area for 24
- h ou r PM2.5 . This is similar to the modeling results presented in the comments 28 . However, EPA modeling identifies additional maintenance receptors in 2012 that continue to have maintenance issues in 2014. EPA also examined our ozone and PM2.5 projection procedures to see if there might be additional reasons for the relatively lower current ambient design values (and modeled design values in the commenter’s analysis) compared to the 2014 remedy modeled values. Upon further analysis of EPA’s 24
- hour attainment test methodology, we noted certain discrepancies between the methodology and the calculation of the ambient 24
- h ou r design values. In the proposed rule 24
- h ou r attainment test, for each PM2.5 monitor, we projected the measured 98th percentile concentrations from the 2003
- 2007 period to the future. A basic

28 The purpose of this comparison is to note that the modeling analyses are actually more similar than the commenter implies. However, the Transport Rule differs from the commenter’s modeling due to the assumption that CAIR was in place. CAIR and the Transport Rule differ in state coverage and emission budgets. They are therefore not directly comparable.*** E.O. 12866 Review

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Page 129 of 647 assumption in this methodology is that the distribution of high measured days in the base period will be the same in the future. For ex ample, if the 98th percentile day is the 3rd high day for the year, this assumes that the 1st, 2nd, and 3rd high days (and subsequent high days) in the future remain in the same basic distribution. Further examination of the proposed rule modeling found t hat this is not always the case. In situations where there are large summer PM2.5 concentration reductions, some of the high days may switch from the summer in the base period to the winter in the future period. In order to better account for the complic ated future response in 24
- h ou r design values, we have updated the 24
- h ou r attainment demonstration methodology to more closely reflect the way 24
- h ou r design values are calculated. In the revised methodology, we do not assume that the temporal distributi on of high days in the base and future periods will remain the same. We project a larger set of ambient days from the base period to the future and then re - rank the entire set of days to find the new future 98th percentile value (for each year). More spec ifically, we project the highest 8 days per quarter (32 days per year) to the future and then re - rank the 32 days to derive the future year 98th percentile concentrations. In the case of the Transport Rule model results, this has the effect of lowering th e future year 24
- h ou r design values compared to the*** E.O. 12866 Review

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Page 130 of 647 old methodology. The 2012 base case design values for all nonattainment and maintenance receptors were either unchanged or lower with the revised methodology. 2. How did EPA project future nonattainme nt and maintenance for annual PM2.5 , 2 4 - Hour PM2.5 , and 8
- hour ozone? Final Rule: In general, the methodology to project ozone and PM2.5 concentrations to the future year(s) remains the same for the final rule. The proposal modeling followed the modeling guidance procedures for projecting ambient design values to future years. For the final rule, we continue to follow the basic procedures outlined in the guidance. The 8
- hour ozone and annual PM2.5 methodology are unchanged from the proposal. However, t he 24
- hour PM2.5 methodology has been updated in the final rule to be more consistent with the calculation of 24
- h ou r PM2.5 design values. There were also additional minor updates to the ambient data 29 . The methodology to identify maintenance receptors is also unchanged from the proposal. We continue to use the maximum design value (from the five year base period) to calculate future year maintenance receptors. As noted in the proposal, EPA considers that the maintenance concept has two components: Year
- t o - year variability in emissions and air quality, and continued maintenance of the

29 The base year design values were updated based on the latest official data. See http://www.epa.gov/airtrends/values.html.*** E.O. 12866 Review

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Page 131 of 647 air quality standard over time. The way that EPA defined maintenance based on year
- to - year variability (as discussed in detail here) directly affects the requirements of this final rule. EPA also considered whether further reductions were necessary to ensure continued lack of interference with maintenance of the NAAQS over time (e.g., after 2014). EPA concluded that in light of projected emission trends, and also considering t he emissions reductions from this proposed rule, no further reductions are required solely for this purpose at PM2.5 and ozone receptors for which we are partially or fully determining significant contribution for the current NAAQS. (See discussion of emissions trends in Chapter 7 of TSD entitled ‘‘Emission Inventories,’’ included in the docket for the Transport Rule proposal.) a. Which ambient ozone and PM2.5 data did EPA use for the purpose of projecting future year concentrations? The final rule modeli ng continues to use a 2005 base case inventory and 2005 meteorology. Therefore, we continue to use ambient data from the 2003
- 2007 period. For each monitoring site, all valid design values (up to 3) from this period were averaged together. Since 2005 is included in all three design value periods, this has the effect of creating a 5
- year weighted average, where the middle year is weighted 3 times, the 2nd and 4th years are weighted twice, and the 1st and 5th years are*** E.O. 12866 Review

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Page 132 of 647 weighted once. We refer to this as t he 5 - year weighted average value. The 5 - year weighted average values were then projected to the future years that were analyzed for this final rule. The 2003

– 2005, 2004
- 2006, and 2005
- 2007 design values are accessible at www . epa . gov/ airtrends /values . html . The design values have been updated based on the latest official values. The official values have except ional events removed from the calculations if they are flagged by states and concurred with by EPA Regional offices. The procedures for projecting annual average PM2.5 and 8
- hour ozone conform to the methodology in the current attainment demonstration modeling guidance 30
. b. Projection of Future Annual and 24
- Hour PM2.5 Nonattainment and Maintenance (1) Methodology for Projecting Future Annual PM2.5 Nonattainment and Maintenance For the final rule, annual PM2.5 modeling was performed for the 2005 base year emissions and for the 2012 base case as part of the approach for projecting which locations are expected to be in nonattainment and/or have difficulty maintaining the PM2.5

30 U.S. EPA, 2007: Guidance on the Use of Models and Other Analyses for Demonstrating Attainment of Air Quality Goals for Ozone, PM2.5 , and Regional Haze; Office of Air Quality Planning and Standards, Research Triangle Park, NC.*** E.O. 12866 Review

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Page 133 of 647 standards in 2012. We refer to these areas as nonattainment sites and maintenance sites respectively. Concentrations of PM2.5 in 2012 were estimated by applying the modeled 2005
- to - 2012 relative change in PM2.5 species to each of the 3
- year ambient monitoring data periods (i.e., 2003
- 2005, 2004
- 2006, and 200 5 - 2007) to obtain up to thr ee future - year PM2.5 design values for each receptor. We used the highest of these projections at each receptor to determine which sites are expected to have maintenance problems in 2012. We used the five year weighted average of those projections to det ermine which monitoring sites are expected to be nonattainment in this future year. For the analysis of both nonattainment and maintenance, monitoring sites were included in the analysis if they had at least one complete design value in the 2003
- 2007 per iod. 31 There were 721 monitoring sites in the 12 km modeling domain which had at least one complete design value period for the annual PM2.5 NAAQS, and 722 sites which met this criteri on for the 24
- hour NAAQS 32
.

31 If there is only one complete design value, then the nonattainment and maintenance design values are the same. 32 Design values were only used if they were deemed to be officially c omplete based on CFR 40 Part 50 Appendix N. The completeness criteria for the annual and 24
- hour PM2.5 NAAQS are different. Therefore, there are fewer complete sites for the annual NAAQS.*** E.O. 12866 Review

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Page 134 of 647 EPA followed the procedures recommended in th e modeling guidance for projecting PM2.5 by projecting individual PM2.5 component species and then summing these to calculate the concentration of total PM2.5 . EPA’s Modeled Attainment Test Software (MATS) was used to calculate the future year design valu es. The software (including documentation) is available at: http ://www . epa . gov/ scram001/modelingapps

_ mats . htm . Additional details on the annual PM2.5 nonattainment and maintenance receptor methodology can be found in the Air Quality Modeling Final Rule TSD . The 2012 annual PM2.5 design values were calculated for each of the 721 sites. The calculated annual PM2.5 design values are truncated after the second decimal place 33 . This is consistent with the ambient monitoring data trun cation and rounding procedures for the annual PM2.5 NAAQS. Any value that is greater than or equal to 15.05 μg/m 3 is rounded to 15.1 μg/m 3 and is considered to be violating the NAAQS. Thus, sites with projected 5
- year weighted average (“average”) annual PM2.5 design values of 15.05 μg/m3 or greater are predicted to be nonattainment sites. Sites with projected maximum design values of 15.05 μg/m 3 or greater are predicted to be maintenance sites. Note that nonattainment sites are also maintenance sites b ecause 33 For example, a calculated annual average concentration of 14.947 53... becomes 14.94 when digits beyond two places to the right of the decimal are truncated.*** E.O. 12866 Review

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Page 135 of 647 the maximum design value is always greater than or equal to the 5 - year weighted average. For ease of reference we use the term “nonattainment sites” to refer to those sites that are projected to exceed the NAAQS based on both the average and maximum design values. Those sites that are projected to be attainment based on the average design value but exceed the NAAQS based on the maximum design value are referred to as maintenance sites. The monitoring sites that we project to be nonattainment and/o r maintenance for the annual PM2.5 NAAQS in the 2012 base case are the nonattainment/maintenance receptors used for assessing the contribution of emissions in upwind states to downwind nonattainment and maintenance of the annual PM2.5 NAAQS. Table V.C - 1 co ntains the 2003
- 2007 base case period average and maximum annual PM2.5 design values and the corresponding 2012 base case average and maximum design values for sites projected to be nonattainment of the annual PM2.5 NAAQS in 2012. Table V.C - 2 contains thi s same information for projected 2012 maintenance sites. Table V.C - 1. Average and Maximum 2003 - 2007 and 2012 Base Case Annual PM2.5 Design Values (μg/m3 ) at Projected Nonattainment Sites Monitor ID State County Average Design Value 2003 - 2007 Maximum

Design Value 2003 - 2007 Final

Rule Average Design Value 2012 Final

Rule Maximum Design Value 2012*** E.O. 12866 Review

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Page 136 of 647 010730023 Alabama Jefferson 18.57 18.94 16.15 16.46 010732003 Alabama Jefferson 17.15 17.69 15.16 15.64 131210039 Georgia Fulton 17.43 17.47 15.07 15.1 0 171191007 Illinois Madison 16.72 17.01 15.46 15.73 261630033 Michigan Wayne 17.50 18.16 15.73 16.32 390350038 Ohio Cuyahoga 17.37 18.10 15.99 16.66 390350045 Ohio Cuyahoga 16.47 16.98 15.14 15.61 390350060 Ohio Cuyahoga 17.11 17.66 15.67 16.18 3906 10014 Ohio Hamilton 17.29 17.53 15.76 15.98 390610042 Ohio Hamilton 16.85 17.25 15.40 15.77 390618001 Ohio Hamilton 17.54 17.90 16.01 16.33 420030064 Pennsylvania Allegheny 20.31 20.75 17.94 18.33

Table V.C - 2. Average and Maximum 2003 - 2007 and 20 12 Base Case Annual PM2.5 Design Values (μg/m3 ) at Projected Maintenance - Only Sites Monitor ID State County Average Design Value 2003 - 2007 Maximum

Design Value 2003 - 2007 Final

Rule Average Design Value 2012 Final

Rule Maximum Design Value 2012 180970081 Indiana Marion 16.05 16.36 14.86 15.16 180970083 Indiana Marion 15.90 16.27 14.71 15.06 390350065 Ohio Cuyahoga 15.97 16.44 14.67 15.10 390617001 Ohio Hamilton 16.17 16.56 14.74 15.10 (2) Methodology for Projecting Future 24
- Hour PM2.5 Nonattainme nt and Maintenance*** E.O. 12866 Review

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Page 137 of 647 The procedures for calculating the future year 24
- hour PM2.5 design values have been updated for the final rule 34 . The revised procedures are in response to comments which noted relatively high future year 24
- h ou r PM2.5 design values in EPA’s modeling of the proposed Transport Rule. The updates are intended to make the projection methodology more consistent with the procedures for calculating ambient design values. As noted above, for the proposed Transport Rule EPA projected for each PM2.5 monitor the measured 98th percentile concentrations from the 2003
- 2007 period to the future. As an additional check, we also projected the next highest concentrations from the three calendar quarters in each year when the 98th percentile did not occu r in the 2003
- 2007 base period, to ensure that the future year 98th percentile did not switch seasons in the future year compared to the base year. A basic assumption in this methodology is that the distribution of high measured days in the base period wi ll be the same in the future. In other words, EPA assumed at proposal that the 98th
percentile day could only be displaced “from below” in the instance that a different day’s future concentration exceeded the original 98th
- percentile day’s future concentra tion. In

34 There were no updates to the ozone and annual PM2.5 attainment test methodology.*** E.O. 12866 Review

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Page 138 of 647 that case, the original 98th
- percentile day may become the 97th
or 96th
- percentile day in the future year; EPA accounted for this possibility at proposal. EPA did not, however, consider that the 98th
- percentile day could also be displaced “from above” in the instance that higher
- concentration days in the base period were projected to have future concentrations lower than the original 98th
- percentile day’s future concentration. In that case, the original 98th
- percentile day may become the 99th
- o r 100th percentile day. Because EPA continued to use that day’s future concentration to determine the monitor’s future design value at proposal, this sometimes resulted in overstatement of future - year design values for 24
- hour PM2.5 at receptors whose sea sonal distribution of highest
- concentration 24
- hour PM2.5 days changed between the 2003
- 2007 period and the future year modeling. Examination of the proposed rule remedy modeling (2014 remedy case) showed that many of the highest PM2.5 days switched from the summer in the base period to the winter in the future period. This is especially true in areas of the upper Midwest which experience both high summer and winter PM2.5 episodes. In the revised methodology, we do not assume that the seasonal distributi on of high days in the base period years and future years will remain the same. We project a larger set of ambient days from the base period to the future and then re
- rank*** E.O. 12866 Review

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Page 139 of 647 the entire set of days to find the new future 98th percentile value (for each year). More specifically, we project the highest 8 days per quarter (32 days per year) to the future and then re - rank the 32 days to derive the future year 98th percentile concentrations. In the case of the Transport Rule model results, this has the effect of lowering the future year 24
- h ou r design values compared to the old methodology. The modeling guidance recommendations for state attainment demonstrations have been updated to reflect the changes outlined above. Further details on the 24
- h ou r PM2.5 design value calculations can be found in the Air Quality Modeling Final Rule TSD . The above procedures for determining future year 24
- hour PM2.5 concentrations were applied for each site. The 24
- hour PM2.5 design values are trun cated after the first decimal place. This approach is consistent with the ambient data truncation and rounding procedures for the 24
- hour PM2.5 NAAQS. Any value that is greater than or equal to 35.5 μg/m 3 is rounded to 36 μg/m 3 and is violating the NAAQS . Sites with future year 5 year weighted average design values of 35.5 μg/m 3 or greater, based on the projection of 5
- year weighted average concentrations, are predicted to be nonattainment. Sites with future year maximum design values of 35.5 μg/m 3 or g reater are predicted to be maintenance sites. Note that nonattainment sites for the 24
- hour NAAQS are also maintenance sites because the maximum design*** E.O. 12866 Review

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Page 140 of 647 value is always greater than or equal to the 5
- year weighted average. The monitoring sites that we pro ject to be nonattainment and/or maintenance for the 24
- hour PM2.5 NAAQS in the 2012 base case are the nonattainment/maintenance receptors used for assessing the contribution of emissions in upwind states to downwind nonattainment and maintenance of 24
- hour PM2.5 NAAQS as part of this final rule. Table V.C - 3 contains the 2003
- 2007 base period average and maximum 24
- hour PM2.5 design values and the 2012 base case average and maximum design values for sites projected to be 2012 nonattainment of the 24
- hour PM2 .5 NAAQS in 2012. Table V.C
- 4 contains this same information for projected 2012 24
- hour maintenance sites.
Table V.C - 3. Average and Maximum 2003 - 2007 and 2012 Base Case 24 - Hour PM2.5 Design Values (μg/m3 ) at Projected Nonattainment Sites Monitor ID State County Average Design Value 2003 - 2007 Maximum

Design Value 2003 - 2007 Final

Rule Average Design Value 2012 Final

Rule Maximum Design Value 2012 010730023 Alabama Jefferson 44.0 44.2 36.9 37.3 170311016 Illinois Cook 43.0 46.3 37.5 40.4 171191007 Illi nois Madison 39.1 40.1 36.5 36.8 180970043 Indiana Marion 38.4 39.9 35.7 37.1 180970066 Indiana Marion 38.3 39.6 35.7 36.9*** E.O. 12866 Review

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Page 141 of 647 180970081 Indiana Marion 38.2 39.2 35.8 36.9 261470005 Michigan St Clair 39.6 40.6 36.2 37.1 261630015 Michigan Wayne 40.1 40.6 35.5 36.0 261630016 Michigan Wayne 42.9 45.4 38.9 41.2 261630019 Michigan Wayne 40.9 41.4 37.3 37.8 261630033 Michigan Wayne 43.8 44.2 39.4 39.8 390350038 Ohio Cuyahoga 44.2 47.0 39.4 41.8 390350060 Ohio Cuyahoga 42.1 45.7 37.7 40.8 420030064 Pennsyl vania Allegheny 64.2 68.2 56.7 59.9 420030093 Pennsylvania Allegheny 45.6 51.5 39.1 44.3 420030116 Pennsylvania Allegheny 42.5 42.5 35.5 35.5 420070014 Pennsylvania Beaver 43.4 44.6 36.2 37.4 420710007 Pennsylvania Lancaster 40.8 44.0 35.9 38.3
540090 011 West

Virginia Brooke 43.9 44.9 37.5 38.3 550790043 Wisconsin Milwaukee 39.9 40.8 36.2 37.1
Table V.C - 4. Average and Maximum 2003 - 2007 and 2012 Base Case 24 - Hour PM2.5 Design Values (μg/m3 ) at Projected Maintenance - Only Sites

Monitor ID State County Average Design Value 2003 - 2007 Maximum

Design Value 2003 - 2007 Final

Rule Average Design Value 2012 Final

Rule Maximum Design Value 2012 010732003 Alabama Jefferson 40.3 40.8 35.3 35.9 170310052 Illinois Cook 40.2 41.4 34.9 36.0 170312001 Illinois Co ok 37.7 40.6 33.6 36.1 170313301 Illinois Cook 40.2 43.3 34.9 37.6*** E.O. 12866 Review

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Page 142 of 647 170316005 Illinois Cook 39.1 41.8 34.1 36.4 171190023 Illinois Madison 37.3 38.1 35.1 35.8 180890022 Indiana Lake 38.9 44.0 34.9 39.5 180890026 Indiana Lake 38.4 41.3 34.0 37.0 261610 008 Michigan Washtenaw 39.4 40.8 35.0 36.3 390170003 Ohio Butler 39.2 41.1 34.4 36.5 390350045 Ohio Cuyahoga 38.5 41.5 34.7 38.1 390350065 Ohio Cuyahoga 38.6 41.0 34.9 37.6 390618001 Ohio Hamilton 40.6 40.9 35.2 35.8 390811001 Ohio Jefferson 41.9 45.5 34.5 37.8 391130032 Ohio Montgomery 37.8 40.0 33.6 35.6 420031008 Pennsylvania Allegheny 41.3 42.8 35.0 36.3 420031301 Pennsylvania Allegheny 40.3 42.4 33.9 35.6 420033007 Pennsylvania Allegheny 37.5 43.1 32.3 37.3 421330008 Pennsylvania York 38.2 40 .7 33.3 36.0 550790010 Wisconsin Milwaukee 38.6 40.0 35.4 36.7 550790026 Wisconsin Milwaukee 37.3 41.3 33.6 37.2 (3) Methodology for Projecting Future 8
- Hour Ozone Nonattainment and Maintenance The final rule methodology to calculate 8
- h ou r ozone no nattainment and maintenance receptors is identical to the proposed rule. The May - to - September 24
- hour maximum 8
- h ou r average concentrations from the 2005 base case and the 2012 base case were used to project ambient design values to 2012. The following i s a brief summary of the future year 8
- hour average*** E.O. 12866 Review

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Page 143 of 647 ozone calculations. Additional details are provided in the Air Quality Modeling Final Rule TSD . We are using the base period 2003
- 2007 ambient ozone design value data for proj ecting future year design values. Relative response factors (RRF) for each monitoring site were calculated as the percent change in ozone on days with modeled ozone greater than 85 ppb 35
. The maximum future design value is calculated by projecting design values for each of the three base periods (2003
- 2005, 2004
- 2006, and 2005
- 2007) separately. The highest of the three future values is the maximum design value. This maximum value is used to identify the 8
- hour ozone maintenance receptors. The future year design values are truncated to integers in units of ppb. This approach is consistent with the ambient data truncation and rounding procedures for the 8
- hour ozone NAAQS. Future year design values that are greater than or equal to 85 ppb are considered t o be violating the NAAQS. Sites with future year 5 - year weighted average design values of 85 ppb or greater are predicted to be nonattainment. Sites with future year maximum design values of 85 ppb or greater are predicted to be

35 As specified in the attainment demonstration modeling guidance, if there are les s than 10 modeled days > 85 ppb, then the threshold is lowered in 1 ppb increments (to as low as 70 ppb) until there are 10 days. If there are less than 5 days > 70 ppb, then an RRF calculation is not completed for that site.*** E.O. 12866 Review

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Page 144 of 647 future year maintenance s ites. Note that, as described previously for the annual and 24
- hour PM2.5 NAAQS, nonattainment sites for the ozone NAAQS are also maintenance sites because the maximum design value is always greater than or equal to the 5
- year weighted average. The monit oring sites that we project to be nonattainment and/or maintenance for the 8
- h ou r ozone NAAQS in the 2012 base case are the nonattainment/maintenance receptors used for assessing the contribution of emissions in upwind states to downwind nonattainment and maintenance of ozone NAAQS. Table V.C - 5 contains the 2003
- 2007 base period average and maximum 8
- hour ozone design values and the 2012 base case average and maximum design values for sites projected to be 2012 nonattainment of the 8
- hour ozone NAAQS in 201 2. Table V.C
- 6 contains this same information for projected 2012 8
- hour ozone maintenance sites. Table V.C - 5. Average and Maximum 2003 - 2007 and 2012 Base Case 8 - Hour Ozone Design Values (ppb) at Projected Nonattainment Sites Monitor ID State County Average Design Value 2003 - 2007 Maximum

Design Value 2003 - 2007 Final

Rule Average Design Value 2012 Final

Rule Maximum Design Value 2012
220330003 Louisiana East Baton Rouge 92.0 96 85.6 89.3 480391004 Texas Brazoria 94.7 97 86.7 88.8*** E.O. 12866 Review

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Page 145 of 647 482010051 Texas Harris 93 .0 98 86.1 90.8 482010055 Texas Harris 100.7 103 93.3 95.4 482010062 Texas Harris 95.7 99 88.8 91.8 482010066 Texas Harris 92.3 96 87.1 90.6 482011039 Texas Harris 96.3 100 88.8 92.2
Table V.C - 6. Average and Maximum 2003 - 2007 and 2012 Base Case 8 - Hour Ozone Design Values (ppb) at Projected Maintenance - Only Sites Monitor ID State County Average Design Value 2003 - 2007 Maximum

Design Value 2003 - 2007 Average

Design Value 2012 Maximum

Design Value 2012 090011123 Connecticut Fairfield 92.3 94 83.9 85.5 090093002 Connecticut New Haven 90.3 93 82.7 85.1 240251001 Maryland Harford 92.7 94 84.4 85.6 260050003 Michigan Allegan 90.0 93 82.4 85.1 482010024 Texas Harris 88.0 92 83.4 87.2 482010029 Texas Harris 91.7 93 84.2 85.4 482011015 Texas Harris 89.0 96 82.4 88.9 482011035 Texas Harris 86.3 95 79.9 88.0 482011050 Texas Harris 89.3 92 82.8 85.4 D. Pollution Transport from Upwind States 1. Choice of Air Quality Thresholds a. Thresholds In this action, EPA uses air quality thresholds to identify lin kages between upwind states and downwind nonattainment and maintenance receptors. States whose contributions to a specific*** E.O. 12866 Review

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Page 146 of 647 receptor meet or exceed the thresholds identified are considered linked to that receptor; those states’ emissions (and available emi ssion reductions) are analyzed further in the second step of EPA’s significant contribution analysis. States whose contributions are below the thresholds are not included in the Transport Rule for that NAAQS. In other words, we are finding that states wh ose contributions are below these thresholds do not significantly contribute to nonattainment or interfere with maintenance of the relevant NAAQS. We use separate air quality thresholds for annual PM2.5 , 24
- hour PM2.5 , and 8
- hour ozone. Each air quality t hreshold is calculated as 1 percent of the NAAQS. Specifically, we use an air quality threshold of 0.15 μg/m 3 for annual PM2.5 , 0.35 μg/m3 for 24
- hour PM2.5 , and 0.8 ppb for 8
- hour ozone. These are the same air quality thresholds we proposed. EPA receive d a number of comments on the threshold s we proposed, and those comments and EPA’s responses are discussed below. b. General c omments on the overall stringency and use of 1 percent of the NAAQS. EPA received numerous comments supporting and opposi ng the proposed thresholds. A number of commenters cited support for EPA’s approach. Some commenters believed that use of a 1 percent threshold was too stringent, and recommended that EPA*** E.O. 12866 Review

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Page 147 of 647 should use a threshold greater than 1 percent. Others believed t hat 1 percent was not stringent enough, and they recommended using a lower value such as 0.5 percent. EPA believes that for both PM2.5 and for ozone, it is appropriate to use a threshold of 1 percent of the NAAQS for identifying states whose contribution s do not significantly contribute to nonattainment or interfere with maintenance of the relevant NAAQS; therefore, EPA has retained the 1 percent threshold for the reasons described below. As we found at the time of CAIR, EPA’s analysis of base
case PM2.5 transport shows that, in general, PM2.5 nonattainment problems result from the combined impact of relatively small contributions from many upwind states, along with contributions from in
- state sources and, in some cases, substantially larger contributions from a subset of particular upwind states. (See section II of the January 2004 CAIR proposal, 69 FR 4575
- 87). In the 1998 NO X SIP Call (63 FR 57456, October 27, 1998) and in CAIR, EPA also found important contributions from multiple upwind states. As a result of the upwind “collective contributions,” EPA determined that it is appropriate to use a low air quality threshold when analyzing upwind states’ contributions to downwind states’ attainment and maintenance problems for ozone as well as PM2.5 .*** E.O. 12866 Review

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Page 148 of 647 Low threshold values are also warranted, as EPA discussed in the notices for CAIR, due to adverse health impacts associated with ambient PM2.5 and ozone even at low concentrations (See relevant portions of the CAIR proposal notice (63 FR 4583
- 84) and the CAIR final rule notice (70 FR 25189
- 25192)). To aid in responding to comments, EPA has compiled the contribution modeling results to analyze the impact of different possible thresholds. This analysis demonstrates the reasonableness of using the 1 percent thres hold to account for the combined impact of relatively small contributions from many upwind states (See Air Quality Modeling Final Rule TSD). In this analysis, EPA identifies for annual PM2.5 (sulfate and nitrate), 24
- hour PM2.5 (sulfate and nitrate), and 8
- hour ozone receptors : (1) total upwind state contributions, and (2) the amount of the total upwind state contribution that is captured at thresholds of 1 percent, 5 percent and 0.5 percent of the NAAQS. EPA continues to find that the total “collective contribution” from upwind sources represents a large portion of PM2.5 and ozone at downwind locations and that the total amount of transport is composed of the individual contribution from numerous upwind States. The analysis shows that the 1 percent thre shold captures a high percentage of the total pollution transport affecting*** E.O. 12866 Review

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Page 149 of 647 downwind states for both PM2.5 and ozone. In response to commenters who advocated a higher threshold, EPA observes that higher thresholds would exclude increasingly large percenta ges of total transport, which we do not believe would be appropriate. For example, a 5 percent threshold would exclude the majority

– and for annual PM, more than 80 percent
-- of interstate pollution transport affecting the downwind state receptors analy zed (based on the average percentage of total interstate transport across all receptors captured at the 5 percent threshold). In response to commenters who advocated a lower threshold, EPA observes that the analysis shows that a lower threshold such as 0.5 percent would result in relatively modest increases in the overall percentages of PM2.5 and ozone pollution transport captured relative to the amounts captured at the 1 percent level . A 0.5 percent threshold could lead to emission reduction responsibilit ies in additional states that individually have a very small impact on those receptors

– an indicator that emission controls in those states are likely to have a smaller air quality impact at the downwind receptor. We are not convinced that selecting a th reshold below 1 percent is necessary or desirable. A strong indication that the amount of pollution transport being excluded from consideration is not excessive is that the controls required under this rule are*** E.O. 12866 Review

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Page 150 of 647 projected to eliminate nonattainment and mai ntenance problems with air quality standards at most downwind state receptors. C onsidering the combined downwind impact of multiple upwind states, the health effects of low levels of PM2.5 and ozone pollution, and EPA ’ s previous use of a 1 percent threshol d for PM2.5 in CAIR, EPA ’ s judgment is that the 1 percent threshold is a reasonable choice .

Some commenters noted that the PM2.5 thresholds used for this rule are less than the “significant impact levels” (SILs) used for permitting programs. As EPA st ated at the time of CAIR, since the thresholds referred to by the commenters serve different purposes than the CAIR threshold for significant contribution, it does not follow that they should be made equivalent (70 FR 25101; May 12, 2005). c. Comments on t he rounding conventions for PM2.5 . In the final Transport Rule, EPA is using two
- digit values for the PM2.5 thresholds. Some commenters suggested that EPA should use the same rounding convention for annual PM2.5 used in CAIR; that is, the threshold should be 0.2 μg/m3 rather than 0.15 μg/m3 . The reasons for EPA’s decision are below. The rationale for the single digit value for the final CAIR rule was that a single digit is consistent with the EPA monitoring data reporting requirements in Part 50, Appen dix N, section 4.3. These reporting requirements specify that design*** E.O. 12866 Review

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Page 151 of 647 values for the annual PM2.5 standard shall be rounded to the tenths place (decimals 0.05 and greater are rounded up to the next 0.1, and any decimal lower than 0.05 is rounded down to th e nearest 0.1). Because the design value is to be reported only to the nearest 0.1 μg/m 3 , EPA deemed it preferable for the final CAIR to select the threshold value at the nearest 0.1 μg/m 3 as well, and hence one percent of the 15 μg/m 3 , rounded to the near est 0.1 μg/m3 became 0.2 μg/m 3
. The reporting requirements in section Part 50, Appendix N, section 4.3 for the 24
- hour PM2.5 standard state that design values for this standard shall be rounded to the nearest 1 μg/m 3 (decimals 0.5 and greater are rounded up to the nearest whole number, and any decimal lower than 0.5 is rounded down to the nearest whole number). If the approach used in CAIR were to be used to establish an air quality threshold for the 24
- hour PM2.5 NAAQS (which CAIR did not address), the res ulting threshold would be zero. One percent of the 24
- hour standard is 0.35 μg/m 3 , and rounding to the nearest whole number would yield an air quality threshold of zero. Thus if we were to apply the same rationale used to develop the annual PM2.5 thresho ld for the final CAIR, there would be no air quality threshold for 24
- hour PM2.5 , which EPA*** E.O. 12866 Review

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Page 152 of 647 believes to be counter
- intuitive and unworkable as an approach for assessing interstate contributions. Therefore, for this rule, EPA proposed and is now finalizing a n approach that decouples the precision of the air quality thresholds from the monitoring reporting requirements, and uses 2
- digit values representing one percent of the PM2.5 NAAQS; that is, 0.15 μg/m 3 for the annual standard, and 0.35 μg/m3 for the 24
- hour standard. EPA believes there are a number of considerations favoring this approach. First, it provides for a consistent approach for the annual and 24
- hour standards. Second, the approach is readily applicable to any current and future NAAQS and wo uld automatically adjust the stringency of the transport threshold to maintain a constant relationship with the stringency of the relevant NAAQS as they are revised. The CAIR approach would not allow for this continuity: for example, if EPA were to retain the CAIR approach for the annual standard, any future lowering of the PM2.5 NAAQS to below 15 μg/m 3 would reduce the air quality threshold to the same outcome: 0.1 μg/m 3
. This would occur because any value less than 0.15 μg/m 3 would round to 0.1 μg/m 3 ( assuming EPA would not round down to zero for the reasons described above), which means that the air quality threshold would have a different relative stringency to each possible future NAAQS value. For the above reasons, EPA believes the use of two - digit thresholds for both annual PM2.5 and 24
- hour*** E.O. 12866 Review

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Page 153 of 647 PM2.5 in the final rule is both reasonable and appropriate. The departure from the approach used for annual PM2.5 in CAIR is appropriate given the additional considerations that were not in existence at the time of the final CAIR, and the importance of using a consistent approach to developing air quality thresholds for all NAAQS addressed by this rule as well as future NAAQS considered in future transport
- related actions. Some of these commenters suggested usin g the CAIR rounding conventions coupled with use of a 1
- digit threshold of 0.4 μg/m 3 for 24
- hour PM2.5 . EPA considered the approach suggested by commenters, but determined that the proposed approach is more appropriate. First, adhering to the rounding co nventions used for CAIR for annual PM2.5 is not workable for the 24
- hour standard because the rounding convention would yield a threshold of zero. Rounding alternatively to 0.4 μg/m 3 would require EPA to find a basis for rounding the threshold to the near est 0.1 μg/m3 instead of using a strict application of 1 percent; we do not see any basis for such rounding at this time. d. Comments related to the multi
- factor test EPA used for
ozone in CAIR . Some commenters suggested that, for ozone, EPA should use the multiple
-metric test we used for CAIR, and not a simple threshold based on 1 percent of the NAAQS. With respect to ozone, EPA proposed in the Transport Rule to take a more*** E.O. 12866 Review

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Page 154 of 647 straightforward approach to air quality thresholds than the multi
- factor approache s used for the NO X SIP Call and the CAIR. As proposed, EPA is using a contribution metric that is calculated based on the multi
- day average contribution. This metric is compared to one percent of the 1997 8
- hour ozone standard of 0.08 ppm. Under this approach, one percent of the NAAQS is a value of 0.8 ppb. Contributions of 0.8 ppb and higher are above the threshold; ozone contributions less than 0.8 ppb are below the threshold. In past rulemakings (e.g., CAIR) EPA used multiple ozone metrics, includin g the average contribution and maximum single day contribution to downwind nonattainment. EPA believes the average contribution (calculated over multiple high ozone days) is a robust metric compared to the maximum contribution on a single day. EPA believes that this approach is preferable because it uses a robust metric, it is consistent with the approach for PM2.5 , and because it provides for a consistent approach that takes into account, and is applicable to any future ozone standards below 0.08 ppm. On e of these commenters suggested that the 0.8 ppb threshold value was substantially more stringent than the 2 ppb screening test which was a part of the approach used for CAIR. The 1 percent threshold (0.8 ppb) is not substantially more stringent than the previous 2 ppb test because of differences in*** E.O. 12866 Review

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Page 155 of 647 the metrics used to evaluate contributions against these two levels. The 2 ppb test was evaluated using the highest single day absolute model - predicted downwind contribution from an upwind state. The 1 percen t threshold is evaluated based on the average relative downwind impact calculated over multiple days. Therefore, it is appropriate to set a lower concentration threshold for use with the average contribution metric calculated for the Transport Rule. More details on the calculation of the contribution metric can be found in the Air Quality Modeling Final Rule TSD . As noted above, EPA believes that the approach used for the proposed rule provides for a simplified, yet robust appro ach compared to CAIR. Accordingly, for the final rule we have retained the approach used for the proposal. One commenter suggested that EPA retain the CAIR multiple
factor approach for ozone, and to apply that same approach to 24
- hour PM2.5 . As noted above, EPA is not retaining this approach for ozone, and for similar reasons we believe a multi
factor approach is not needed for 24
- hour PM2.5 . The approach based on 1 percent of the NAAQS is consistent with the form of the 24
- hour standard. In addition, th is approach is based on contributions on days with high 24
- hour PM2.5 predictions and therefore is relevant for characterizing transport during short
term high PM2.5 episodic conditions.*** E.O. 12866 Review

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Page 156 of 647 e. Comments on the relationship to measurement precision. Other comme nters suggested that, as did commenters on the thresholds used in CAIR, EPA should take into consideration the measurement precision of existing PM2.5 monitors in setting the thresholds for the Transport Rule. EPA disagrees that monitoring precision is re levant to determining the amount of modeled PM2.5 or ozone that should be considered to be a “contribution” from upwind states since states are not required to, nor would it be possible for them to, measure their individual state impacts on downwind recept ors. The approach for eliminating significant contribution is based on the implementation of enforceable emissions budgets and not on a measurement of ambient air quality. Thus, EPA believes it is a reasonable exercise of its discretion to de
- couple moni toring precision from the choice of contribution states. f. Comments related to the CAIR court decision. Commenters recommended that EPA should have retained the criteria used for CAIR because those values were upheld by the Court. As noted above, EPA could not have used the approach for annual PM2.5 that was used in CAIR to develop a 24
- hour PM2.5 threshold, as that approach would have yielded a threshold value of zero 24
- hour PM2.5 . Further, nothing in the North Carolina opinion suggests that the thresholds and methods used in CAIR were the only*** E.O. 12866 Review

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Page 157 of 647 pos s ible approaches EPA could have used, that they were preferable to other approaches, or that other alternatives would not be acceptable. Instead, the court upheld the 0.2 μg/m 3 threshold used for PM2.5 on the grounds that it was not “wholly unsupported by the record” ( North Carolina , 531 F.3d at 915). EPA has determined for reasons explained in the record that the thresholds used in this final rule are both reasonable and appropriate for use in thi s final rule. 2 . Approach for Identifying Contributing Upwind States This section documents the procedures used by EPA to quantify the contribution of emissions in specific upwind states to air quality concentrations in projected 2012 downwind nonattainme nt and maintenance locations for annual PM2.5 , 24
- hour PM2.5 , and 8
- hour ozone. In the proposed rule EPA used CAMx photochemical source apportionment modeling to quantify the impact of emissions in specific upwind states on projected downwind nonattainmen t and maintenance receptors for both PM2.5 and 8
- hour ozone. In this modeling we tracked the ozone and PM2.5 formed from 2012 base case emissions from anthropogenic sources in each upwind state in the 12 km modeling domain. The CAMx Particulate Source Apportionment Technique (PSAT) was used to calculate downwind contributions to nonattainment and maintenance of PM2.5 . In the PSAT simulation NO X emissions are tracked to particulate nitrate concentrations, SO 2 emissions are*** E.O. 12866 Review

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Page 158 of 647 tracked to particulate sulfate c oncentrations, and primary particulates (organic carbon, elemental carbon, and other PM2.5 ) are tracked as primary particulates. As described earlier in section V.A., the nitrate and sulfate contributions were combined and used to evaluate interstate cont ributions of PM2.5 . The CAMx Ozone Source Apportionment Technique (OSAT) was used to calculate downwind 8
- hour ozone contributions to nonattainment and maintenance. OSAT tracks the formation of ozone from NO X and VOC emissions. Comment: Three commenters stated that the CAMx source apportionment techniques used for the proposed rule reflect state - of - the science technologies and are appropriate for evaluating interstate transport. One commenter asked that EPA do more to demonstrate that the PSAT and OSAT t echniques give reliable answers, although no suggestions were provided on how this might be done. Another commenter said that the results of the contribution analyses were consistent with the results of their scientific research. Response: EPA is not ch anging its conclusion that the CAMx source apportionment techniques are appropriate for quantifying interstate transport. The strength of the source apportionment technique is that all modeled ozone and/or PM2.5 mass at a given receptor location in the mo deling domain is tracked back to specific sources of emissions and boundary conditions to fully*** E.O. 12866 Review

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Page 159 of 647 characterize culpable sources. No commenters provided technically valid analyses indicating that EPA’s use of CAMx source apportionment techniques are inapprop riate for the purposes of the Transport Rule. Comment: We received comments that certain states included in the proposed rule should be excluded from the final rule because EPA had overstated the 2012 emissions in these states. Commenter requested that we redo the contribution modelin g using 2012 base case emission inventories that are revised based on proposed rule comments. Several commenters also asked that EPA update the contribution modeling analyses using the latest version of CAMx. Response: In response to these comments, we have rerun our source apportionment modeling for PM2.5 and ozone for the 2012 base case using the updated emission inventories described above in section V.C.2 and the latest version of CAMx, version 5.30. The states EPA anal yzed for interstate contributions for ozone and for PM2.5 for the final rule are: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland 36 ,

36 As in the proposal, EPA has combined the contributions from Maryland and the District of Columbia as a single entity in our contribution analysis for the final rule. EPA believes that this is a fair representation of emissions for transport analysis because of the small size of the District of Columbia and its close proximity to Maryland. However, the District of Columbia is not included in the*** E.O. 12866 Review

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Page 160 of 647 Massachusetts, Michigan, Minnesota, Missi ssippi, 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 . 37 These are the same states that EPA analyzed for the proposed rule. For the proposed rule, we used a relative approach for calculating the contributions to downwind nonattainment and maintenance receptors from the outputs of the source apportionment modeling. As part of th is approach, the source apportionment predictions are combined with measurement
- based concentrations to calculate the contributions from each state to nonattainment and/or maintenance receptors. This is similar to the approach used to calculate future yea r design values, as described in section V.C.1. Comment: One commenter said that using the source apportionment modeling predictions in a relative sense strengthens the determination of contributions and addresses an important source of uncertainty. Ther e were no comments that suggested an alternative approach. Transport Rule due to the significant contribution analysis findings in section VI.D. 37 There were also several other states that are only partially contained within the 12 km modeling domain (i.e., Colorado, Montana, New Mexico, and Wyoming). However, EPA did not individually track the emissions or assess the contribution from emissions in these states.*** E.O. 12866 Review

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Page 161 of 647 Response: For the final Transport Rule we are applying the relative approach developed for the proposed rule to calculate contributions from each state to downwind nonattainment and maintenance re ceptors. As noted above, for the final rule we modeled the updated 2012 base case emissions using CAMx v5.30 to determine the contributions from emissions in upwind states to nonattainment and maintenance sites in downwind states. Contributions to nonatta inment and maintenance receptors are evaluated independently for each state to determine if the contributions
are at or above the threshold criteria. For each upwind state, the maximum contribution to nonattainment is calculated based on the single larges t contribution to a future year (2012) downwind nonattainment receptor. The maximum contribution to maintenance is calculated based on the single largest contribution to a future year (2012) downwind maintenance receptor. Since the contributions are calc ulated independently for each receptor, the upwind contribution to maintenance can sometimes be larger than the contribution to nonattainment, and vice versa. This also means that maximum contributions to nonattainment can be below the threshold while max imum contributions to maintenance may be at or above the threshold, or vice versa.*** E.O. 12866 Review

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Page 162 of 647 V.D.2.a. Estimated interstate contributions to annual PM2.5 and 24
- hour PM2.5 In this section, we present the interstate contributions from emissions in upwind states to downwind nonattainment and maintenance sites for the annual PM2.5 NAAQS and the 24
- hour PM2.5 NAAQS based on modeling updated for the final rule. As described previously in section V.D.1., states which contribute 0.15 μg/m3 or more to annual PM2.5 nonattainment or maintenance in another state are identified as states with contributions large enough to warrant further analysis. For 24
- hour PM2.5 , states which contribute 0.35 μg/m 3 or more to 24
- hour PM2.5 nonattainment or maintenance in another state are ide ntified as states with contributions to downwind attainment and maintenance sites large enough to warrant further analysis. For annual PM2.5 , we calculated each state’s contribution to each of the 12 monitoring sites that are projected to be nonattainment and each of the 4 sites that are projected to have maintenance problems for the annual PM2.5 NAAQS in the 2012 base case. A detailed description of the calculations can be found in the Air Quality Modeling Final Rule TSD . T he largest contribution from each state to annual PM2.5 nonattainment in downwind sites is provided in Table V.D - 1. The largest contribution from each state to annual PM2.5 maintenance in downwind sites is also provided in Table V.D
- 1. The*** E.O. 12866 Review

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Page 163 of 647 contributions from each state to all projected 2012 nonattainment and maintenance sites for the annual PM2.5 NAAQS are provided in the Air Quality Modeling Final Rule TSD . Table V.D - 1 . Largest Contribution to Downwind Annual PM2.5 (μg/m3 )

Nonattainment and Maintenance for Each of 37 States

Upwind State Largest Downwind Contribution to Nonattainment for Annual PM2.5 ( μg/m 3 ) Largest Downwind Contribution to Maintenance for Annual PM2.5 ( μg/m 3 ) Alabama 0.51 0.19 Arkansas 0.10 0.04 Connecticut 0.00 0.00 Delaware 0.00 0.00 Florida 0.08 0.01 Georgia 0.46 0.13 Illinois 0.50 0.65 Indiana 1.34 1.27 Iowa 0.26 0.14 Kansas 0.09 0.04 Kentucky 0.94 0.81 Louisiana 0.09 0.03 Maine 0.00 0.00 Maryland 0.15 0.06 Massachusetts 0.00 0 .00 Michigan 0.64 0.64 Minnesota 0.14 0.09 Mississippi 0.05 0.01 Missouri 1.22 0.27 Nebraska 0.06 0.03 New Hampshire 0.00 0.00 New Jersey 0.02 0.01 New York 0.21 0.21 North Carolina 0.20 0.06 North Dakota 0.06 0.04 Ohio 1.34 0.94*** E.O. 12866 Review

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Page 164 of 647 Upwind State Largest Downwind Contribution to Nonattainment for Annual PM2.5 ( μg/m 3 ) Largest Downwind Contribution to Maintenance for Annual PM2.5 ( μg/m 3 ) Okl ahoma 0.08 0.03 Pennsylvania 0.54 0.54 Rhode Island 0.00 0.00 South Carolina 0.24 0.04 South Dakota 0.03 0.01 Tennessee 0.32 0.32 Texas 0.18 0.07 Vermont 0.00 0.00 Virginia 0.12 0.06 West Virginia 0.95 0.40 Wisconsin 0.22 0.19
Based on the state - by - state contribution analysis, there are 18 states 38 which contribute 0.15 μg/m 3 or more to downwind annual PM2.5 nonattainment. These states are: Alabama, Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Missouri, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, West Virginia, and Wisconsin. In Table V.D - 2, we provide a list of the downwind nonattainment sites to which each upwind state contributes 0.15 μg/m 3 or more (i.e., the upwind state to downwind nonattainment “linkages”).

38 As in the proposal, EPA has comb ined the contributions from Maryland and the District of Columbia as a single entity in our contribution analysis for the final rule. EPA believes that this is a fair representation of emissions for transport analysis because of the small size of the Dist rict of Columbia and its close proximity to Maryland. However, the District of Columbia is not included in the Transport Rule due to the significant contribution analysis findings in section VI.D.*** E.O. 12866 Review

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Page 165 of 647 There are 12 states which contribute 0.15 μg/m 3 or more to downwind annual PM2.5 maintenance. These states are: Alabama, Illinois, Indiana, Kentucky, Michigan, Missouri, New York, Ohio, Pennsylvania, Tennessee, West Virginia, and Wisconsin. In Table V.D - 3, we provide a list of the downwind maintenance sites to which each upwind state contributes 0.15 μg/m 3 or more (i.e., the upwind state to downwind maintenance “linkages”).

Table V.D - 2 . Upwind State to Downwind Nonattainment Site

“Linkages” for Annual PM2.5 Upwind State Downwind Receptor Sites
Alabama Fulton, GA

(131210039) Hamilton, OH (390610014) Hamilton, OH (390610042) Hamilton, OH

(390618001) Georgia Jefferson, AL

(10730023) Jefferson, AL (10732003)

I llinois Jefferson, AL

(10732003) Fulton, GA (131210039) Wayne, MI (261630033) Cuyahoga, OH

(390350038) Cuyahoga, OH (390350045) Cuyahoga, OH (390350060) Hamilton, OH (390610014) Hamilton, OH

(390610042) Hamilton, OH (390618001) Allegheny, PA (420030064 )

Indiana Jefferson, AL

(10730023) Jefferson, AL (10732003) Fulton, GA (131210039) Madison, IL

(171191007) Wayne, MI (261630033) Cuyahoga, OH (390350038) Cuyahoga, OH (390350045) Cuyahoga, OH

(390350060) Hamilton, OH (390610014) Hamilton, OH (3906 10042) Hamilton, OH (390618001) Allegheny, PA

(420030064)
Iowa Madison, IL

(171191007) Kentucky Jefferson, AL

(10730023) Jefferson, AL (10732003) Fulton, GA (131210039) Madison, IL

(171191007)*** E.O. 12866 Review

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Page 166 of 647 Upwind State Downwind Receptor Sites

Wayne, MI (261630033) Cuyahoga, OH (390350038) Cuyaho ga, OH (390350045) Cuyahoga, OH

(390350060) Hamilton, OH (390610014) Hamilton, OH (390610042) Hamilton, OH (390618001) Allegheny, PA

(420030064) Maryland Allegheny, PA

(420030064)
Michigan Madison, IL

(171191007) Cuyahoga, OH (390350038) Cuyahoga , OH (390350045) Cuyahoga, OH

(390350060) Hamilton, OH (390610014) Hamilton, OH (390610042) Hamilton, OH (390618001) Allegheny, PA

(420030064)

Missouri Madison, IL

(171191007) Cuyahoga, OH (390350038) Cuyahoga, OH (390350045) Cuyahoga, OH

(390350060) Hamilton, OH (390610014) Hamilton, OH (390610042) Hamilton, OH (390618001)
New York Cuyahoga, OH

(390350038) Cuyahoga, OH (390350045) Cuyahoga, OH (390350060) Allegheny, PA

(420030064) North Carolina Fulton, GA

(131210039)

Ohio Jefferson, AL

(10 730023) Jefferson, AL (10732003) Fulton, GA (131210039) Madison, IL

(171191007) Wayne, MI (261630033) Allegheny, PA (420030064) Pennsylvania Fulton, GA

(131210039) Wayne, MI (261630033) Cuyahoga, OH (390350038) Cuyahoga, OH

(390350045) Cuyahoga, OH (390350060) Hamilton, OH (390610014) Hamilton, OH (390610042) Hamilton, OH

(390618001) South Carolina Fulton, GA

(131210039)

Tennessee Jefferson, AL

(10730023) Jefferson, AL (10732003) Fulton, GA (131210039) Madison, IL

(171191007) Hamilton, OH (390610014) Hamilton, OH (390610042) Hamilton, OH (390618001)
Texas Madison, IL

(171191007)*** E.O. 12866 Review

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West Virginia Fulton, GA

(131210039) Wayne, MI (261630033) Cuyahoga, OH (390350038) Cuyahoga, OH

(390350045) Cuyahoga, OH (390350060) Hamilton, OH (390 610014) Hamilton, OH (390610042) Hamilton, OH

(390618001) Allegheny, PA (420030064)

Wisconsin Madison, IL

(171191007) Wayne, MI (261630033) Cuyahoga, OH (390350038) Cuyahoga, OH

(390350045) Cuyahoga, OH (390350060) Hamilton, OH (390610014) Hamil ton, OH (390618001)

Table V.D - 3 . Upwind State to Downwind Maintenance Site

“Linkages” for Annual PM2.5 Upwind State Downwind Receptor Sites Alabama Marion, IN

(180970081) Marion, IN (180970083) Hamilton, OH (390617001) Illinois Marion, IN

(18097 0081) Marion, IN (180970083) Cuyahoga, OH (390350065) Hamilton, OH

(390617001) Indiana Cuyahoga, OH

(390350065) Hamilton, OH (390617001) Kentucky Marion, IN

(180970081) Marion, IN (180970083) Cuyahoga, OH (390350065) Hamilton, OH

(390617001) Michiga n Marion, IN

(180970081) Marion, IN (180970083) Cuyahoga, OH (390350065) Hamilton, OH

(390617001) Missouri Marion, IN

(180970081) Marion, IN (180970083) Cuyahoga, OH (390350065) Hamilton, OH

(390617001) New York Cuyahoga, OH

(390350065) Ohio Mario n, IN

(180970081) Marion, IN (180970083) Pennsylvania Marion, IN

(180970081) Marion, IN (180970083) Cuyahoga, OH (390350065) Hamilton, OH

(390617001)
Tennessee Marion, IN

(180970081) Marion, IN (180970083) Hamilton, OH (390617001) West Virginia Ma rion, IN

(180970081) Marion, IN (180970083) Cuyahoga, OH (390350065) Hamilton, OH

(390617001)*** E.O. 12866 Review

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Page 168 of 647 Upwind State Downwind Receptor Sites Wisconsin Marion, IN

(180970081) Marion, IN (180970083) Cuyahoga, OH (390350065) Hamilton, OH

(390617001) For 24
- hour PM2.5 , we calculated each state’s contri bution to each of the 20 monitoring sites that are projected to be nonattainment and each of the 21 sites that are projected to have maintenance problems for the 24
- hour PM2.5 NAAQS in the 2012 base case. A detailed description of the calculations can be found in the Air Quality Modeling Final Rule TSD . The largest contribution from each state to 24
- hour PM2.5 nonattainment in downwind sites is provided in Table V.D
- 4. The largest contribution from each state to 24
- hour PM2.5 maintenance in downwind sites is also provided in Table V.D
- 4. The contributions from each state to all projected 2012 nonattainment and maintenance sites for the 24
- hour PM2.5 NAAQS are provided in the Air Quality Modeling Final Rule TSD . Table V.D - 4 . Largest Contribution to Downwind 24 -hour PM2.5 (μg/m3 ) Nonattainment and Maintenance for Each of 37 States

Upwind State Largest Downwind Contribution to Nonattainment for 24
- hour PM2.5 ( μg/m 3 ) Largest Downwind Contribution to Maint enance for 24
- hour PM2.5 ( μg/m 3 ) Alabama 0.51 0.42 Arkansas 0.24 0.23 Connecticut 0.10 0.18 Delaware 0.22 0.20 Florida 0.07 0.03 Georgia 1.10 0.92*** E.O. 12866 Review

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Page 169 of 647 Upwind State Largest Downwind Contribution to Largest Downwind Contribution to Illinois 3.72 5.70 Indiana 3.56 5.15 Iowa 0.82 1.55 Kansas 0. 37 0.81 Kentucky 4.38 3.58 Louisiana 0.11 0.13 Maine 0.06 0.10 Maryland 2.83 2.11 Massachusetts 0.19 0.30 Michigan 1.86 2.03 Minnesota 0.61 1.01 Mississippi 0.06 0.07 Missouri 3.73 3.71 Nebraska 0.24 0.52 New Hampshire 0.05 0.10 New Jersey 0.68 0.75 New York 0.83 1.34 North Carolina 0.40 0.38 North Dakota 0.21 0.33 Ohio 5.85 4.74 Oklahoma 0.17 0.20 Pennsylvania 2.85 2.29 Rhode Island 0.02 0.03 South Carolina 0.29 0.25 Sou th Dakota 0.10 0.17 Tennessee 1.38 1.30 Texas 0.37 0.33 Vermont 0.03 0.05 Virginia 1.21 1.01 West Virginia 4.02 3.33 Wisconsin 0.69 0.97*** E.O. 12866 Review

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Page 170 of 647 Based on the state - by - state contribution analysis, there are 21 states 39 which contribute 0.35 μg/m3 or more to downwind 24
- hour PM2.5 nonattainment. These states are: Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas , Virginia, West Virginia, and Wisconsin. In Table V.D - 5, we provide a list of the downwind nonattainment counties to which each upwind state contributes 0.35 μg/m 3 or more (i.e., the upwind state to downwind nonattainment “linkages”). There are 21 stat es which contribute 0.35 μg/m 3 or more to downwind 24
- hour PM2.5 maintenance. These states are: Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pe nnsylvania, Tennessee, Virginia, West Virginia, and Wisconsin. In Table V.D - 6, we provide a list of the downwind maintenance sites to which each upwind state contributes 0.35 μg/m 3 or more (i.e., the upwind state to downwind maintenance “linkages”).

39 As in the proposal, EPA has combined the contributions f rom Maryland and the District of Columbia as a single entity in our contribution analysis for the final rule. EPA believes that this is a fair representation of emissions for transport analysis because of the small size of the District of Columbia and its close proximity to Maryland. However, the District of Columbia is not included in the Transport Rule due to the significant contribution analysis findings in section VI.D.*** E.O. 12866 Review

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Page 1 71 of 647 Table V.D - 5. Upwind State to Downwind Nonattainment Site

“Linkages” for 24 -hour PM2.5 Upwind State Downwind Receptor Sites
Alabama Marion, IN

(180970043) Marion, IN

(180970066) Marion, IN

(180970081) Georgia Jefferson, AL

(10730023)

Illinois Marion , IN

(180970043) Marion, IN

(180970066) Marion, IN

(180970081) St Clair, MI

(261470005) Wayne, MI (261630015) Wayne, MI

(261630016) Wayne, MI

(261630019) Wayne, MI

(261630033) Cuyahoga, OH (390350038) Cuyahoga, OH

(390350060) Allegheny, PA

(420030064) Allegheny, PA

(420030093) Allegheny, PA (420030116) Beaver, PA

(420070014) Brooke, WV

(540090011) Milwaukee, WI

(550790043)

Indiana Jefferson, AL

(10730023) Cook, IL

(170311016) Madison, IL

(171191007) St Clair, MI

(261470005) Wayne, MI (261630015) Wa yne, MI

(261630016) Wayne, MI

(261630019) Wayne, MI

(261630033) Cuyahoga, OH (390350038) Cuyahoga, OH

(390350060) Allegheny, PA

(420030064) Allegheny, PA

(420030093) Allegheny, PA (420030116) Beaver, PA

(420070014) Brooke, WV

(540090011) Milwaukee, WI

(550790043)
Iowa Cook, IL

(170311016) Madison, IL

(171191007) Milwaukee, WI

(550790043)
Kansas Madison, IL

(171191007)

Kentucky Jefferson, AL

(10730023) Cook, IL

(170311016) Madison, IL

(171191007) Marion, IN

(180970043) Marion, IN (180970066) Marion, IN

(180970081) St Clair, MI

(261470005) Wayne, MI

(261630015) Wayne, MI (261630016) Wayne, MI

(261630019) Wayne, MI

(261630033) Cuyahoga, OH

(390350038) Cuyahoga, OH (390350060) Allegheny, PA

(420030064) Allegheny, PA

(420030093) Allegheny, PA

(420030116)*** E.O. 12866 Review

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Page 172 of 647 Upwind State Downwind Receptor Sites

Beaver, PA (420070014) Brooke, WV

(540090011) Milwaukee, WI

(550790043) Maryland Cuyahoga, OH

(390350038) Lancaster, PA

(420710007)

Michigan Cook, IL

(170311016) Madison, IL

(171191007) Cuyahoga, OH

(390350038) Cuyahoga, OH

(39035006 0) Allegheny, PA (420030064) Allegheny, PA

(420030093) Beaver, PA

(420070014) Brooke, WV

(540090011) Milwaukee, WI (550790043)
Minnesota Milwaukee, WI

(550790043)

Missouri Cook, IL

(170311016) Madison, IL

(171191007) Marion, IN

(180970043 ) Marion, IN

(180970066) Marion, IN (180970081) St Clair, MI

(261470005) Wayne, MI

(261630015) Allegheny, PA

(420030064) Allegheny, PA (420030116) Beaver, PA

(420070014) Milwaukee, WI

(550790043) New Jersey Lancaster, PA

(420710007)

New York St Clair, MI

(261470005) Wayne, MI

(261630016) Wayne, MI

(261630019) Wayne, MI

(261630033) Cuyahoga, OH (390350060) Lancaster, PA

(420710007) North Carolina Lancaster, PA

(420710007)

Ohio Jefferson, AL

(10730023) Cook, IL

(170311016) Madison, IL

(171191007) Marion, IN

(180970043) Marion, IN (180970066) Marion, IN

(180970081) St Clair, MI

(261470005) Wayne, MI

(261630015) Wayne, MI (261630016) Wayne, MI

(261630019) Wayne, MI

(261630033) Allegheny, PA

(420030064) Allegheny, PA (420030093) Allegheny, PA

(420030116) Beaver, PA

(420070014) Lancaster, PA

(420710007)*** E.O. 12866 Review

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Page 173 of 647 Upwind State Downwind Receptor Sites

Brooke, WV (540090011) Milwaukee, WI

(550790043)

Pennsylvania Jefferson, AL

(10730023) Cook, IL

(170311016) Madison, IL

(171191007) Marion, IN

(180970043) Marion, IN (18097 0066) Marion, IN

(180970081) St Clair, MI

(261470005) Wayne, MI

(261630015) Wayne, MI (261630016) Wayne, MI

(261630019) Wayne, MI

(261630033) Cuyahoga, OH

(390350038) Cuyahoga, OH (390350060) Brooke, WV

(540090011) Milwaukee, WI

(550790043)

Tennesse e Jefferson, AL

(10730023) Madison, IL

(171191007) Marion, IN

(180970043) Marion, IN

(180970066) Marion, IN (180970081) St Clair, MI

(261470005) Wayne, MI

(261630015) Wayne, MI

(261630033) Cuyahoga, OH (390350038) Allegheny, PA

(420030116)
Texas Madison, IL

(171191007) Virginia Lancaster, PA

(420710007)

West Virginia Jefferson, AL

(10730023) Cook, IL

(170311016) Madison, IL

(171191007) Marion, IN

(180970043) Marion, IN (180970066) Marion, IN

(180970081) St Clair, MI

(261470005) Wayn e, MI

(261630015) Wayne, MI (261630016) Wayne, MI

(261630019) Wayne, MI

(261630033) Cuyahoga, OH

(390350038) Cuyahoga, OH (390350060) Allegheny, PA

(420030064) Allegheny, PA

(420030093) Allegheny, PA

(420030116) Beaver, PA (420070014) Lancaster, PA

( 420710007) Milwaukee, WI

(550790043)
Wisconsin Cook, IL

(170311016) Wayne, MI

(261630019) Wayne, MI

(261630033)*** E.O. 12866 Review

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Page 174 of 647 Table V.D - 6. Upwind State to Downwind Maintenance Site

“Linkages” for 24 -hour PM2.5 Upwind State Downwind Receptor Sites
Alabama Wash tenaw, MI

(261610008) Butler, OH (390170003) Montgomery, OH

(391130032) Georgia Jefferson, AL

(10732003)

Illinois Lake, IN

(180890022) Lake, IN (180890026) Washtenaw, MI

(261610008) Butler, OH

(390170003) Cuyahoga, OH (390350045) Cuyahoga, OH ( 390350065) Hamilton, OH

(390618001) Jefferson, OH

(390811001) Montgomery, OH (391130032) Allegheny, PA (420031008) Allegheny, PA

(420031301) Allegheny, PA

(420033007) York, PA (421330008) Milwaukee, WI (550790010) Milwaukee, WI

(550790026)

Indiana Jefferson, AL

(10732003) Cook, IL (170310052) Cook, IL

(170312001) Cook, IL

(170313301) Cook, IL (170316005) Madison, IL (171190023) Washtenaw, MI

(261610008) Butler, OH

(390170003) Cuyahoga, OH (390350045) Cuyahoga, OH (390350065) Hamilton, OH

(3906180 01) Jefferson, OH

(390811001) Montgomery, OH (391130032) Allegheny, PA (420031008) Allegheny, PA

(420031301) Allegheny, PA

(420033007) York, PA (421330008) Milwaukee, WI (550790010) Milwaukee, WI

(550790026)

Iowa Cook, IL

(170310052) Cook, IL (17031 2001) Cook, IL

(170313301) Cook, IL

(170316005) Madison, IL (171190023) Lake, IN (180890022) Lake, IN

(180890026) Milwaukee, WI

(550790010) Milwaukee, WI (550790026)
Kansas Cook, IL

(170310052) Cook, IL (170316005) Milwaukee, WI

(550790010) Milwaukee, WI

(550790026) Kentucky Jefferson, AL

(10732003) Cook, IL (170310052) Cook, IL

(170312001) Cook, IL

(170313301)*** E.O. 12866 Review

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Page 175 of 647 Upwind State Downwind Receptor Sites

Cook, IL (170316005) Madison, IL (171190023) Lake, IN

(180890022) Lake, IN

(180890026) Washtenaw, MI (261610008) Butler, OH (3901700 03) Cuyahoga, OH

(390350045) Cuyahoga, OH

(390350065) Hamilton, OH (390618001) Jefferson, OH (390811001) Montgomery, OH

(391130032) Allegheny, PA

(420031008) Allegheny, PA (420031301) Allegheny, PA (420033007) York, PA

(421330008) Milwaukee, WI

(550790 010) Milwaukee, WI (550790026) Maryland York, PA

(421330008)

Michigan Cook, IL

(170310052) Cook, IL (170312001) Cook, IL

(170313301) Cook, IL

(170316005) Madison, IL (171190023) Lake, IN (180890022) Lake, IN

(180890026) Butler, OH

(390170 003) Cuyahoga, OH (390350045) Cuyahoga, OH (390350065) Hamilton, OH

(390618001) Jefferson, OH

(390811001) Montgomery, OH (391130032) Allegheny, PA (420031008) Allegheny, PA

(420031301) Allegheny, PA

(420033007) York, PA (421330008) Milwaukee, WI (550 790010) Milwaukee, WI

(550790026)
Minnesota Milwaukee, WI

(550790010) Milwaukee, WI (550790026)

Missouri Cook, IL

(170310052) Cook, IL (170312001) Cook, IL

(170313301) Cook, IL

(170316005) Madison, IL (171190023) Lake, IN (180890022) Lake, IN

(18 0890026) Washtenaw, MI

(261610008) Butler, OH (390170003) Hamilton, OH (390618001) Montgomery, OH

(391130032) Allegheny, PA

(420031008) Milwaukee, WI (550790010) Milwaukee, WI (550790026)
Nebraska Milwaukee, WI

(550790010) Milwaukee, WI (550790026 )*** E.O. 12866 Review

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Page 176 of 647 Upwind State Downwind Receptor Sites New Jersey York, PA

(421330008)
New York Washtenaw, MI

(261610008) Cuyahoga, OH (390350045) Cuyahoga, OH

(390350065) York, PA

(421330008) North Carolina York, PA

(421330008)

Ohio Jefferson, AL

(10732003) Cook, IL (170310052) Cook, IL

(170312001) Cook, IL

(170313301) Cook, IL (170316005) Madison, IL (171190023) Lake, IN

(180890022) Lake, IN

(180890026) Washtenaw, MI (261610008) Allegheny, PA (420031008) Allegheny, PA

(420031301) Allegheny, PA

(420033007) York, PA (421330008) Milwaukee, WI (550790010) Milwaukee, WI

(550790026)

Pennsylvania Jefferson, AL

(10732003) Cook, IL (170310052) Cook, IL

(170312001) Cook, IL

(170313301) Madison, IL (171190023) Lake, IN (180890022) Lake, IN

(180890026) Washtenaw, MI

(261610008) Butler, OH (390170003) Cuyahoga, OH (390350045) Cuyahoga, OH

(390350065) Hamilton, OH

(390618001) Jefferson, OH (390811001) Montgomery, OH (391130032) Milwaukee, WI

(550790010) Milwaukee, WI

(550790026)

Tennessee Jefferson, AL

(10732003) Madison, IL (171190023) Washtenaw, MI

(261610008) Butler, OH

(390170003) Cuyahoga, OH (390350065) Hamilton, OH (390618001) Montgomery, OH

(391130032) Virginia York, PA

(421330008)

West Virginia Jefferson, AL

(10732003) Cook, IL (170310052) Cook, IL

(170312001) Cook, I L

(170313301) Madison, IL (171190023) Lake, IN (180890022) Lake, IN

(180890026) Washtenaw, MI

(261610008) Butler, OH (390170003) Cuyahoga, OH (390350045) Cuyahoga, OH

(390350065) Hamilton, OH

(390618001)*** E.O. 12866 Review

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Page 177 of 647 Upwind State Downwind Receptor Sites

Jefferson, OH (390811001) Montgomery, OH (3911 30032) Allegheny, PA

(420031008) Allegheny, PA

(420031301) Allegheny, PA (420033007) York, PA (421330008) Milwaukee, WI

(550790010)

Wisconsin Cook, IL

(170310052) Cook, IL (170312001) Cook, IL

(170313301) Cook, IL

(170316005) Lake, IN (180890022) La ke, IN (180890026)

b. Estimated interstate contributions to 8
- hour ozone In this section, we present the interstate contributions from emissions in upwind states to downwind nonattainment and maintenance sites for the ozone NAAQS. As described pre viously in section V.D.1, states which contribute 0.8 ppb or more to 8
- hour ozone nonattainment or maintenance in another state are identified as states with contributions to downwind attainment and maintenance sites large enough to warrant further analysi s. We calculated each state’s contribution to ozone at each of the 4 monitoring sites that are projected to be nonattainment and each of 6 40 sites that are projected to have maintenance problems for the 8
- hour ozone NAAQS in the 2012 base case. A

40 There are 6 additional sites with projected 2012 nonattainment or maintenance (H arris Co., Texas sites 482010024, 482010062, 482010066, 482011015, 482011035, and 482011039) for which there are less than 5 days with 8
- hour ozone predictions of at least 70 ppb. Thus, we did not calculate contributions for these 6 sites.*** E.O. 12866 Review

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Page 178 of 647 detail ed description of the calculations can be found in the Air Quality Modeling Final Rule TSD. The largest contribution from each state to 8
- hour ozone nonattainment in downwind sites is provided in Table V.D
- 7. The large st contribution from each state to 8
- hour ozone maintenance in downwind sites is also provided in Table V.D.2
- 7. The contributions from each state to all projected 2012 nonattainment and maintenance sites for the 8
- hour ozone NAAQS are provided in the Air Quality Modeling Final Rule TSD . Table V.D - 7 . Largest Contribution to Downwind 8 - Hour Ozone Nonattainment and Maintenance for Each of 37 States

Upwind State Largest Downwind Contribution to Nonattainment for Ozone (ppb) Largest Downwind Contribution to Maintenance for Ozone (ppb) Alabama 4.0 2.8 Arkansas 2.1 2.0 Connecticut 0.0 0.2 Delaware 0.0 0.6 Florida 0.5 3.6 Georgia 1.6 2.8 Illinois 1.9 26.8 Indiana 1.3 9.4 Iowa 0.6 0.9 Kansas 0.5 1.0 Kent ucky 1.6 1.6 Louisiana 8.0 11.1 Maine 0.0 0.0 Maryland 0.0 3.4 Massachusetts 0.0 0.6*** E.O. 12866 Review

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Page 179 of 647 Upwind State Largest Downwind Contribution to Largest Downwind Contribution to Michigan 0.0 0.9 Minnesota 0.3 0.2 Mississippi 4.0 3.3 Missouri 1.1 4.8 Nebraska 0.2 0.2 New Hampshire 0.0 0.1 New Jersey 0.0 11.5 New York 0.0 18.8 North Carolina 0.5 1.3 North Dakota 0.2 0.1 Ohio 0.1 3.2 Oklahoma 0.3 2.8 Pennsylvania 0.1 8.2 Rhode Island 0.0 0.0 South Carolina 0.4 0.9 South Dakota 0.1 0.1 Tennessee 2.2 1.1 Texas 3 .9 1.9 Vermont 0.0 0.0 Virginia 0.2 8.2 West Virginia 0.0 2.8 Wisconsin 0.2 2.2
Based on the state - by - state contribution analysis, there are 11 states that contribute 0.8 ppb or more to downwind 8
- hour ozone nonattainment. These state s are: Alabama, Arkansas, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Tennessee, and Texas. In Table V.D - 8, we provide a list of the downwind nonattainment counties to which each upwind state contributes 0.8 ppb or more (i.e., the upwind state to downwind nonattainment “linkages”).*** E.O. 12866 Review

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Page 180 of 647 There are 26 states 41 which contribute 0.8 ppb or more to downwind 8
- hour ozone maintenance. These states are: Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisia na, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin. In Table V.D.2
- 9, we provide a list of the downwind nonattainment counties to which each upwind state contributes 0.8 ppb or more (i.e., the upwind state to downwind nonattainment “linkages”).
Table V.D - 8. Upwind State to Downwind Nonattainment “Linkages” for 8 -hour Ozone Upwind State Downwind Receptor Sites

Alabama E ast Baton

Rouge, LA (220330003) Brazoria, TX

(480391004) Harris, TX

(482010051) Harris, TX

(482010055)

Arkansas East Baton

Rouge, LA (220330003) Brazoria, TX

(480391004)
Georgia East Baton

Rouge, LA (220330003) Brazoria, TX

(480391004) Harris, TX

(48 2010051) Harris, TX

(482010055) Illinois Brazoria, TX

(480391004) Harris, TX

(482010051) Harris, TX

(482010055)

41 As in the proposal, EPA has combined the contributions from Maryland and the District of Columbia as a single entity in our contribution analysis for the final rule. EPA believes that this is a fair representation of emissions for transport analysis because of the sma ll size of the District of Columbia and its close proximity to Maryland. However, the District of Columbia is not included in the Transport Rule due to the significant contribution analysis findings in section VI.D.*** E.O. 12866 Review

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Page 181 of 647 Upwind State Downwind Receptor Sites Indiana Brazoria, TX

(480391004) Harris, TX

(482010051) Harris, TX

(482010055) Kentucky Brazoria, TX

(480391004) Harris, TX

(482010051) H arris, TX

(482010055) Louisiana Brazoria, TX

(480391004) Harris, TX

(482010051) Harris, TX

(482010055)
Mississippi East Baton

Rouge, LA (220330003) Brazoria, TX

(480391004) Harris, TX

(482010051) Harris, TX

(482010055) Missouri Brazoria, TX

(4803910 04) Harris, TX

(482010051) Harris, TX

(482010055)

Tennessee East Baton

Rouge, LA (220330003) Brazoria, TX

(480391004) Harris, TX

(482010051) Harris, TX

(482010055)

Texas East Baton

Rouge, LA (220330003) Table V.D - 9. Upwind State to Downwind Maintenance “Linkages” for 8 - Hour Ozone Upwind State Downwind Receptor Sites Alabama Harris, TX

(482010029) Harris, TX

(482011050) Arkansas Allegan, MI

(260050003) Florida Harris, TX

(482010029) Harris, TX

(482011050) Georgia Harris, TX

(48 2010029) Harris, TX

(482011050) Illinois Fairfield, CT

(90011123) Allegan, MI

(260050003) Harris, TX

(482011050) Indiana Fairfield, CT

(90011123) New Haven, CT

(90093002) Harford, MD

(240251001) Allegan, MI

(260050003)
Iowa Allegan, MI

(260050003)
Kansas Allegan, MI

(260050003)*** E.O. 12866 Review

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Page 182 of 647 Upwind State Downwind Receptor Sites Kentucky Fairfield, CT

(90011123) New Haven, CT

(90093002) Harford, MD

(240251001) Harris, TX

(482011050) Louisiana Harris, TX

(482010029) Harris, TX

(482011050) Maryland Fairfield, CT

(90011123) New Have n, CT

(90093002) Michigan Harford, MD

(240251001) Mississippi Harris, TX

(482010029) Harris, TX

(482011050) Missouri Allegan, MI

(260050003) New Jersey Fairfield, CT

(90011123) New Haven, CT

(90093002)
New York Fairfield, CT

(9 0011123) New Haven, CT

(90093002) Harford, MD

(240251001) North Carolina New Haven, CT

(90093002) Harford, MD

(240251001) Ohio Fairfield, CT

(90011123) New Haven, CT

(90093002) Harford, MD

(240251001) Oklahoma Allegan, MI

(260050003)
Penn sylvania Fairfield, CT

(90011123) New Haven, CT

(90093002) Harford, MD

(240251001) South Carolina Harris, TX

(482010029)
Tennessee Fairfield, CT

(90011123) Harford, MD

(240251001) Harris, TX

(482011050)
Texas Allegan, MI

(260050003)
Vir ginia Fairfield, CT

(90011123) New Haven, CT

(90093002) Harford, MD

(240251001) West Virginia Fairfield, CT

(90011123) New Haven, CT

(90093002) Harford, MD

(240251001) Wisconsin Allegan, MI

(260050003) VI. Quantification of State Emission Reductions Required*** E.O. 12866 Review

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Page 183 of 647 A. Cost and Air Quality Structure for Defining Reductions 1. Summary Section V, above, describes EPA’s approach to identify ing upwind states with air quality contributions that meet or exceed the air quality thresholds discussed therei n for each of the NAAQS addressed in this rule. A state is covered by the Transport Rule if it s contributions meet or exceed one of those air quality thresholds and the Agency identifies, using the cost - and air quality
- based approach described below, emissions within the state that constitute the state’s significant contribution to nonattainment and interference with maintenance with respect to the 1997 ozone, 1997 PM2.5 or 2006 PM2.5 NAAQS. In this section, EPA explains its final cost
- and air quality
- based approach to quantify the amount of emissions that represent significant contribution to nonattainment and interference with maintenance for each state. EPA then applies that approach for the three different NAAQS being addressed in today’s no tice: the 1997 ozone NAAQS, the 1997 annual PM2.5 NAAQS and the 2006 24
- hour PM2.5 NAAQS. EPA believes that the methodology finalized today could also be used to address transport concerns under other NAAQS, including future revisions to the ozone and PM2 .5 NAAQS. EPA applies the methodology described herein to fully quantify the emissions that constitute each covered state’s*** E.O. 12866 Review

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Page 184 of 647 significant contribution to nonattainment and interference with maintenance with respect to the 1997 annual PM2.5 and the 2006 24
- ho ur PM2.5 NAAQS. The FIPs with respect to the annual and 24
- hour PM2.5 NAAQS that are finalized in this action ensure that all such emissions are prohibited. Each such FIP thus fully satisfies the requirements of 110(a)(2)(D)(i)(I) with respect to the annual and/or 24
- hour PM2.5 NAAQS for the covered state. EPA also applies the methodology to quantify significant contribution to nonattainment and interference with maintenance with respect to the 1997 ozone NAAQS. However, we have not been able to fully qu antify such emissions for all covered states. In this action, EPA fully quantifies the significant contribution to nonattainment and interference with maintenance for 15 states. We finalize FIPs with respect to the 1997 ozone standards for 10 of these 15 states ( Florida, Maryland, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Virginia, and West Virginia ). We are also publishing a supplemental notice of rulemaking to take comment on whether FIPs should be finalized for the rema ining 5 states ( Iowa, Kansas, Michigan, Oklahoma, and Wisconsin ). The FIPs for these 10 states (and the FIPs for the remaining 5 states, if finalized) fully satisfy the requirements of 110(a)(2)(D)(i)(I) with respect to the 1997 ozone NAAQS for the covere d state.*** E.O. 12866 Review

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Page 185 of 647 In addition, we apply the methodology described herein to quantify, for 11 additional states, ozone
- season NO X emission reductions that are necessary but may not be sufficient to eliminate all significant contribution to nonattainment and interfer ence with maintenance in other states. We finalize FIPs with respect to the 1997 ozone standards for 10 of these 11 states ( Alabama, Arkansas, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Tennessee, and Texas) . We are also publishing a s upplemental notice of rulemaking to take comment on whether FIPs should be finalized for the remaining state (Missouri). The FIPs for these 10 states (and the FIP for the remaining state, if finalized) make measurable progress toward satisfying the requir ements of 110(a)(2)(D)(i)(I) with respect to the 1997 ozone NAAQS in each covered state. To the extent that significant contribution to nonattainment and interference with maintenance is not entirely eliminated for the 1997 ozone NAAQS standard through to day’s action, EPA will address these instances in a future rulemaking. This is further explained in section VI. D . With respect to the 1997 annual PM2.5 NAAQS, this rule finds that 18 states have SO 2 and NO X emission reduction responsibilities. EPA also f inds that 22 states have SO 2 and NO X emission reduction responsibilities with respect to the 2006 24
- hour PM2.5 NAAQS. There are a total of 23 states that have SO 2*** E.O. 12866 Review

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Page 186 of 647 and NO X emission reduction responsibilities for one or both of the above PM2.5 NAAQS. We apply the methodology to quantify emission reductions that these states must achieve to eliminate the state’s significant contribution to nonattainment and interference with maintenance. The states are listed in Table III - 1 in section III of this preambl e. This rule will prohibit all significant contribution to nonattainment and interference with maintenance with respect to the annual and 24
- hour PM2.5 . In addition, it will resolve air quality issues at most nonattainment and maintenance receptors i dentified by EPA. EPA projects that unresolved nonattainment and maintenance issues will remain in only a few downwind states after promulgation of the Transport Rule. For the annual PM2.5 standard, EPA projects that this rule will help assure that all
a reas in the east fully resolve their non
- attainment and maintenance concerns. This rule will also help a number of
areas achieve the standard earlier than they may have otherwise. For the 2006 24
- hour PM2.5 NAAQS, one area is projected to remain in non
- attainment (Liberty
- Clairton) and three areas are projected to have remaining maintenance concerns after imposition of the T ransport Rule (Chicago, 43 Detroit, and Lancaster County). 44

43 This area is not currently designated as non
- attainment f or the 24
- hour PM2.5 standard. EPA is portraying the recepto r s and*** E.O. 12866 Review

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Page 187 of 647 The methodology provides similar assistance for ozone, assuring upwind reductions that will assist downwind states in controlling ozone pollution. It reduces ozone concentration levels in 2012 and helps assure that all but two downwind areas fully resolve their nonattainment and maintenance problems with the 1997 ozone NAAQS by 2014. While Houston is projected to still face nonattainment and Baton Rouge is projected to still face maintenance conce rns with the 1997 ozone NAAQS, the Transport Rule improves air quality in these two areas and provides both health benefits and assistance for these local areas in meeting the NAAQS requirements. For reasons explained below, EPA will conduct further analy sis in a subsequent transport - related rulemaking to determine whether further upwind state reductions are warranted to assist attainment and maintenance of the ozone NAAQS in Houston and Baton Rouge areas.

When EPA proposed this air
- quality and cost
- based multi
- factor approach to identify emissions that constitute significant contribution to nonattainment and interference with maintenance from upwind states with respect to the 1997 ozone, counties in this area as a single 24
- hour maintenance area based on the annual PM2.5 non - attainment designation of Chicag o - Gary Lake County, IL - IN.
44 In the Transport Rule proposal, EPA noted that the Liberty
Clairton receptor in Allegheny county was significantly impacted by local emissions from a sizeable coke production facility and other nearby sources (75 FR 45281).*** E.O. 12866 Review

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Page 188 of 647 annual PM2.5 , and 2006 24
- hour PM2.5 NAAQS, the Agency indicated tha t the approach was designed to be applicable to both current and potential future ozone and PM2.5 NAAQS (75 FR 45214). EPA believes that the final Transport Rule demonstrates the value of this approach for addressing the role of interstate transport of ai r pollution in communities’ ability to comply with current and future NAAQS. EPA believes that the Transport Rule's approach of using air
- quality thresholds to determine upwind
- to - downwind
state linkages and using the cost
- and air quality
- based multi
fac tor approach to quantify significant contribution to nonattainment and interference with maintenance (i.e., to determine the specific amount of emissions that each upwind state must reduce) could serve as a precedent for quantifying upwind state emission r eduction responsibilities with respect to potential future NAAQS. One commenter suggested that the rule could set a flawed precedent for future transport analyses and remedies, as it does not fully eliminate the prohibited emissions in every upwind state. EPA disagrees with this characterization of the Transport Rule. EPA notes that the partial determination of significant contribution to nonattainment and interference with maintenance for certain upwind states in the Transport Rule with respect to the o zone NAAQS is not a function of the multi
- factor approach itself, but is instead a function of its limited*** E.O. 12866 Review

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Page 189 of 647 application in this rulemaking to identify emission reductions from a single source category (EGUs). In fact, the Transport Rule's approach itself a llowed EPA to determine for which upwind states we have identified all emissions that constitute significant contribution to nonattainment and interference with maintenance, and for which upwind states we have identified emissions that are necessary but ma y not be sufficient to eliminate the prohibited emissions. As EPA explained at proposal, developing the additional information needed to consider NO X emissions from non
- EGU source categories in order to fully quantify upwind state responsibility with resp ect to the 1997 ozone NAAQS would substantially delay promulgation of the Transport Rule. EPA explained that we do not believe that effort should delay the emissions reductions and large health benefits this final rule will deliver (75 FR 45213). EPA fur ther explained that we believe it is likely that the Agency can provide the greatest assistance to states in addressing transported pollution by issuing a separate (subsequent) rule to address additional reductions that may be necessary to fully eliminate upwind state responsibility with respect to the 1997 ozone NAAQS (75 FR 45288). Thus, EPA decided to promulgate the Transport Rule as quickly as possible. EPA anticipates that application of this air
- quality and cost
- based multi
- factor approach to a broa der set of source categories in a subsequent*** E.O. 12866 Review

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Page 190 of 647 rulemaking will identify any remaining prohibited emissions in the upwind states for which the Transport Rule may not fully eliminate those emissions with respect to the 1997 ozone NAAQS. 2. Background After usi ng air quality analysis to identify upwind states that are “linked” to downwind air quality monitoring sites with nonattainment and maintenance problems through contribution of at least one percent of the relevant NAAQS, EPA quantifies the portion of each state’s contribution that constitutes its “significant contribution” or “interference with maintenance.” This section describes the methodology developed by EPA for this analysis and then explains how that methodology is applied to measure significant con tribution to nonattainment and interference with maintenance with respect to the NAAQS of concern. For this portion of the analysis, EPA expands upon the methodology used in the NO X SIP Call and CAIR but modifies it in significant respects. In the NO X SI P Call and CAIR, EPA’s methodology defined significant contribution as those emissions that could be removed with the use of “highly cost effective” controls. In the Transport Rule, rather than relying solely on an analysis of what constitutes “highly cos t effective” controls, EPA relies on an analysis that accounts for both cost and air quality improvement to identify the portion of a state’s contribution that constitutes its significant contribution to*** E.O. 12866 Review

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Page 191 of 647 nonattainment and interference with maintenance. Fu rthermore, in response to the Court’s opinion in North Carolina , EPA has developed an approach which gives independent meaning to the “interfere with maintenance” prong of section 110(a)(2)(D)(i)(I). The methodology takes into account both the D.C. Circui t Court’s determination that EPA may consider cost when measuring significant contribution, Michigan , 213 F.3d at 679, and its rejection of the manner in which cost was used in the CAIR analysis, North Carolina , 531 F.3d at 917. It also recognizes that th e Court accepted -- but did not require
-- EPA’s use of a single, uniform cost threshold to measure significant contribution. Michigan , 213 F.3d at 679. As EPA discussed at length in the Transport Rule proposal, using both air quality and cost factors all ows EPA to consider the full range of circumstances and state
- specific factors that affect the relationship between upwind emissions and downwind nonattainment and maintenance problems (75 FR 45271). For example, considering cost takes into account the ex tent to which existing plants are already controlled as well as the potential for, and relative difficulty of, additional emission reductions. Therefore, EPA believes that it is appropriate to consider both cost and air quality metrics when quantifying ea ch state’s significant contribution.*** E.O. 12866 Review

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Page 192 of 647 This methodology is consistent with the statutory mandate in section 110(a)(2)(D)(i)(I) which requires upwind states to prohibit emissions that significantly contribute to nonattainment or interference with maintenance in another state. As discussed in more detail in the proposal, interpreting significant contribution to nonattainment and interference with maintenance inherently involves a decision on how much emissions control responsibility should be assigned to upwi nd states, and how much responsibility should be left to downwind states. EPA’s methodology is intended to “assign a substantial but reasonable amount of responsibility to upwind states....to control their emissions” (75 FR 45272) . EPA believes that upwind states contributing to downwind state air quality degradation should bear substantial responsibility to control their emissions because of the plain language of the good neighbor provision, the health risks and control cost impacts that upwind emissions
c ause in the downwind state, and the cumulative impact in the downwind state of emissions from multiple upwind states, and the importance of achieving attainment in downwind states as expeditiously as practicable but no later than specific deadlines as requ ired by the Act. EPA’s approach does not shift the responsibility for achieving or maintaining the NAAQS to the upwind state. See 75 FR 45272.*** E.O. 12866 Review

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Page 193 of 647 The methodology defines each state’s significant contribution to nonattainment and interference with maintenan ce as the emission reductions available at a particular cost threshold in a specific upwind state which effectively address nonattainment and maintenance of the relevant NAAQS in the linked downwind states of concern. Unlike the NO X SIP Call and CAIR, whe re EPA’s significant contribution analysis had a regional focus, the methodology used in the Transport Rule focuses on state - specific factors. The methodology uses a multi
- step process to analyze costs and air quality impacts, identify appropriate cost th resholds, quantify reductions available from EGUs in each state at those thresholds, and consider the impact of variability in EGU operations. There are four steps to this methodology: (1) identification of each state’s emission reductions available at as cending costs per ton as appropriate; (2) assessment of those upwind emission reductions’ downwind air quality impacts; (3) identification of upwind “cost thresholds” delivering effective emission reductions and downwind air quality improvement; and (4)
en shrinement of the upwind emission reductions available at those cost thresholds in state budgets. In step one, EPA identifies what emission reductions are available at various cost thresholds, quantifying emission reductions that would occur within each st ate at ascending costs*** E.O. 12866 Review

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Page 194 of 647 per ton of emission reductions. In other words, EPA determined for specific cost per ton thresholds, the emission reductions that would be achieved in a state if all EGUs greater than 25 MW in that state used all emission controls a nd emission reduction measures available at that cost threshold. For purposes of this discussion, we refer to these as “cost curves.” For this final rule, EPA used updated IPM modeling to conduct a similar cost curve analysis as conducted in the Transport Rule proposal (75 FR 45275). In the proposal, the cost curves only reflected escalating cost for one pollutant while the other pollutant cost was held constant at base case levels (i.e., $0/ton ) . However, EPA improved the costin g analysis for the final rule by identifying upwind emission reductions available as costs were imposed on both SO 2 and NO X simultaneously for states linked to downwind states on the basis of the PM2.5 NAAQS. In other words, the cost curves in the proposa l depicted state level emissions when only one pollutant was priced (i.e., NO X at $500 / ton). Separate cost curves were done for each pollutant. For the final rule, EPA conducted some preliminary cost curve analysis for identifying NO X thresholds in this manner. However, for the final cost curve analysis, EPA relied on cost curves that reflected state emissions when pollutants were priced simultaneously (e.g., NO X at $500 / ton and SO 2 at $1 , 600/ton). For reasons described in section VI.B, EPA*** E.O. 12866 Review

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Page 195 of 647 was able to conduct this type of analysis because the preliminary cost curves specific to annual and ozone
- season NO X suggested little flexibility in adjusting the $500 / ton cost thresholds imposed for each. Therefore, EPA was able to hold the cost threshold constant at $500 / ton for these pollutants in its examination of SO 2 at various cost thresholds. EPA believes this approach to cost analysis is a better simulation of the Transport Rule’s likely impact on covered sources. Under the final Transport Rule, covered so urces in states regulated for PM2.5 must address compliance requirements for SO 2 and NO X emissions simultaneously, and this refined approach to cost curve analysis and subsequent air quality analysis better reflects this reality. Section VI.B of this preamble describes the costing analysis in further detail. Also, for more detail on the development of the cost curves, see “Significant Contribution and State Emission Budgets Final Rule TSD ” in the docket for this rule. Although the cost curves pre sented in this rule only include EGU reductions, EPA also assessed the cost of SO 2 and NO X emission reductions available for source categories other than EGUs in the proposed rulemaking. This preliminary assessment in the rule proposal suggested that ther e likely would be very large emission reductions available from EGUs before costs reach the point for which non
- EGU sources have available reductions*** E.O. 12866 Review

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Page 196 of 647 (75 FR 45272). EPA revisited these non
- EGU reduction cost levels in this final rulemaking and verified th at there are little or no reductions available from non
- EGUs at costs lower than the thresholds that EPA has chosen ($500 / ton for NO X , $2 , 300/ton for SO 2 ). Further details on EPA’s application of cost curves are provided below, in section VI.B. In step two, EPA uses an air quality assessment tool to estimate the impact that the combined reductions available from upwind contributing states and the downwind receptor state at different cost - per - ton levels would have on air quality at downwind monitor sites projected to have nonattainment and/or maintenance problems. 45 While less rigorous than the air quality models used for attainment demonstrations, EPA believes this air quality assessment tool (which has been refined since proposal) is acceptable for asses sing the impact of numerous options for

45 As is discussed in the RIA, EPA also used the CAMx model to perform air quali ty analysis of its proposed remedy to address significant contribution. Results from this modeling will not exactly correspond to results from the air quality assessment tool both because the inputs to the air quality modeling are different and the sophis ticated model more fully accounts for the complex air chemistry interactions. The full air quality modeling looks at the remedy, including reductions in upwind states that do not contribute as well as the impacts of the variability provisions discussed la ter in this section. It also provides a metric against which to evaluate the air quality assessment tool.*** E.O. 12866 Review

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Page 197 of 647 upwind emission reductions in the process of defining an upwind state’s significant contribution. It allows the Agency to anticipate specific air quality impacts of many more potential emission reduction scenarios p ertinent to the relevant NAAQS than time
- and resource - intensive comprehensive air quality modeling would permit. Further details on EPA’s application of step two in this methodology are provided below, in section VI.C. In step three, EPA examines cost an d air quality information to identify “significant cost thresholds.” EPA considered a significant cost threshold to be a point along the cost curves where a noticeable change occurred in downwind air quality, such as a point where large upwind emission re ductions become available because a certain type of emissions control strategy becomes cost - effective. 46 This methodology allows EPA, where appropriate, to define multiple cost thresholds that vary for a particular pollutant for different upwind states. As explained in the Transport Rule proposal, EPA does not believe it is required to utilize multiple cost thresholds to regulate upwind emissions for

46 The cost thresholds identified in this rule are specific to the section 110(a)(2)(D)(i)(I) requirements for the states and NAAQS considered in this proposal. They do not represent an agency position on the appropriateness of such cost thresholds for any other application under the Act.*** E.O. 12866 Review

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Page 198 of 647 purposes of the mandate in CAA section 110(a)(2)(D), but EPA’s multi
- factor methodology developed for the Transport Rule to define significant contribution to nonattainment and interference with maintenance allows the Agency to consider whether a single cost threshold or multiple cost thresholds are appropriate for meeting the requirements of CAA section 110(a )(2)(D) relevant to a particular NAAQS (75 FR 45274). In step four, EPA uses the information regarding emission reductions available in each “linked” upwind state at the appropriate cost threshold to form a state “budget,” representing the remaining emissi ons from covered sources for the state in an average year once significant contribution has been eliminated; each budget also allows for the identification of an associated variability limit. These budgets and variability limits are used to develop enforc eable requirements under the final remedy. The final rule’s methodology for identifying state budgets is derived directly from the cost curves and multifactor analysis EPA uses to determine each state’s significant contribution to nonattainment and interf erence with maintenance. State emissions budgets are discussed in section VI.D and the variability limits are discussed in section VI.E. B. Cost of Available Emission Reductions (Step 1)*** E.O. 12866 Review

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Page 199 of 647 This subsection provides more detail on the cost curves that EPA developed to assess the costs of reducing SO 2 and NO X emissions to address transport related to ozone and PM2.5 concentrations (described previously as Step 1). It summarizes the information from the curves and then provides EPA’s interpretation of that info rmation. EPA used IPM to develop the EGU cost curves described in this rulemaking. More information can be found regarding EPA’s use of IPM for the final Transport Rule in the “Significant Contribution and State Emission Budget s Final Rule TSD ”. The amount of emission reductions that the cost curves suggest are available at various costs are specific to the 2012 and 2014 time periods. These cost estimates factor in the time interval between rule finalization and compliance pe riods, existing controls already in place, and controls that could potentially come on line by the start of the compliance period. EPA notes that cost curves are a fluid concept and would vary given different compliance dates. 1. Development of Annual NO X and Ozone - Season NO X Cost Curves EPA conducted preliminary cost curve analysis for annual NO X and ozone - season NO X in a similar manner to that used in the proposed rulemaking. That is, the impact of various cost thresholds on emissions was examined indi vidually. For example, state level emissions were examined at cost levels for annual NO X*** E.O. 12866 Review

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Page 200 of 647 of $500, $1,000, and $2,500/ton while SO 2 was held at base case levels . EPA used this approach to examine NO X and ozone - se ason NO X emission reductions available from EGUs by 2012 and 2014 at various cost levels, reaching to $2,500/ton for annual NO X and up to $5,000/ton for ozone
- season NO X (in 2007
- year dollars). Section VI.D explains why EPA analyzed the $500/ton threshold for annual and ozone NO X . EPA selected two higher cost thresholds to analyze for annual and ozone - season NO X that provided a reasonable spectrum of emission reduction opportunities from EGUs at higher cost thresholds. Specifically, EPA analyzed these two higher cost thresholds because the first ($1,000/ton) was informative in regards to the additional EGU NO X emissions reductions available without installation of advanced controls, and the second ($2,500/ton for annual NO X , $5,000/ton for ozone - season NO X ) was informative in regards to additional EGU reductions available at cost thresholds where advanced NO X control retrofits are economic for some units. The cost thresholds were only applied to states with air quality contributions that me et or exceed the air quality thresholds as identified in section V. D . For both annual and ozone - season NO X , EPA did not consider cost thresholds below $500/ton for reasons explained in section VI.D. EPA observed in the proposal that low
- cos t NO X reductions are available at upwind sources with existing pollution control*** E.O. 12866 Review

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Page 201 of 647 equipment that may not otherwise be operated in the future without the Transport Rule. EPA believes it is appropriate to prohibit any “linked” upwind state from potentially i ncreasing its emissions through a failure to operate these existing pollution controls, which could worsen downwind air quality problems. Thus, EPA reflected operation of these controls in all modeling of different cost thresholds (i.e., the modeling
assumes year - round operation of post
- combustion NO X controls in covered PM2.5 states and ozone - season operation of post
combustion NO X controls in covered ozone states). Table VI.B - 1 shows the annual NO X emissions from EGUs at various levels of control cost p er ton for 2014. Table VI.B
- 2 presents the cost curves for ozone - season NO X emissions from EGUs. As discussed in section VI.D, EPA determined that $500/ton for annual and ozone NO X was the appropriate cost threshold for this rule (although EPA plans to determine in the future whether a higher cost/ton threshold may be warranted for states contributing to nonattainment or maintenance problems with the 1997 ozone air quality standard projected to remain in two downwind areas). Table VI.B - 1 2014 Annual NOX Emissions from Fossil - Fuel Fired EGUs Greater than 25 MW for Each Transport Rule State at Various

Costs Per Ton [(2007$) Per Ton ( Thousand Tons)] Base Case Level $500 $1,000 $2,500*** E.O. 12866 Review

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Page 202 of 647 Alabama 75 72 72 70 Georgia 48 41 41 39 Illinois 55 51 50 49 Indiana 117 108 107 100 Iowa 45 40 39 37 Kansas 32 25 25 23 Kentucky 83 83 81 78 Maryland 17 17 17 17 Michigan 64 61 61 60 Minnesota 38 30 30 30 Missouri 55 54 54 51 Nebraska 43 27 26 21 New Jersey 8 8 8 8 New York 19 19 18 18 North Carolina 46 46 46 44 Ohio 99 95 94 92 Pennsyl vania 132 124 124 116 South Carolina 38 38 37 36 Tennessee 29 29 29 29 Texas 141 138 138 136 Virginia 36 35 35 28 West Virginia 64 64 64 61 Wisconsin 37 32 32 31*** E.O. 12866 Review

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Page 203 of 647 Total 1,321 1,236 1,229 1,174
Table VI.B - 2 2012 Ozone - Season NOX Emissions from Fossil - Fuel Fired EGUs Greater than 25 MW for Each Transport Rule State at

Various Costs [(2007$) Per Ton ( Thousand Tons)]

Base case level $500 $1,000 $5,000 Alabama 34 34 34 31 Arkansas 15 15 15 14 Florida 42 27 27 24 Georgia 29 28 28 25 Illinois 21 21 21 21 Indiana 47 46 46 43 Kentucky 38 37 36 34 Louisiana 13 13 13 13 Maryland 7 7 7 7 Mississippi 10 10 10 9 New Jersey 3 3 3 3 New York 8 8 8 8 North Carolina 23 23 23 21 Ohio 42 42 42 38 Pennsylvania 53 53 52 49 South Carolina 15 15 15 14 Tennessee 16 16 15 15 Texa s 65 63 63 60 Virginia 15 15 15 13 West Virginia 26 26 26 24 Total 523 504 501 467*** E.O. 12866 Review

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Page 204 of 647 EPA notes that the cost curves presented here differ somewhat from the cost curves presented in the proposal. The NO X emissions modeled at a $500/ton cost threshold f or the final rule are lower than they were at proposal. In addition, the emission reductions they represent from the updated base case are not as pronounced as was found in modeling for the proposed rule. It is worth emphasizing that the lower emission
r eductions observed at $500/ton in this final rulemaking are due to a lower starting point in updated base case NO X emission levels (and thus do not reflect higher NO X emissions remaining after the reductions made at the $500/ton threshold). While the base case 2012 nationwide annual NO X emissions were approximately 3 million tons in the proposal, they were only 2 .1 million tons in the final rule. This approximately 33 percent reduction in base case NO X emissions in the final rule modeling relative to the proposal is due to a combination of modeling updates, including lower natural gas prices, reduced demand, newly
modeled consent decrees and state rules, and updated NO X rates to reflect 2009 emissions data. All of these factors resulted in substantially l ower base case Transport Rule NO X emissions in the final rule modeling. 2. Development of SO 2 Cost Curves As explained in detail below in section VI.D, EPA determined that a single threshold of $500/ton for ozone
- season*** E.O. 12866 Review

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Page 205 of 647 NO X control in the states covere d for the 1997 ozone NAAQS and a single threshold of $500/ton for annual NO X control in the states covered for the PM2.5 NAAQS were appropriate cost thresholds for identifying upwind control under the Transport Rule. With these parameters determined, EPA was able to assess the availability of SO 2 emission reductions from EGUs at various SO 2 cost per ton thresholds with the corresponding NO X reduction requirements simultaneously represented in the analysis. This approach of simultaneously modeling cost levels for covered pollutants is different from the approach taken in the proposal. In the proposal, cost curves were developed and examined independently for each pollutant. For example, with the SO 2 cost curves in the proposal, the NO X cos t level was held constant at base case levels as the SO 2 cost threshold was varied from base case levels to $2,400/ton. Commenters noted that this did not accurately reflect a reality where source owners/operators view price signals for all covered pollutants simultaneously and make operations decisions accordingly. For the final rule, EPA included cost thresholds of $500/ton for annual NO X in PM2.5 states and $500/ton for ozone
- season NO X in
ozone - season states while examining different SO 2 cost thresholds. This allows EPA to develop final cost curves for air quality analysis and budget determination that reflect EGU operation when faced with the appropriate cost thresholds on all*** E.O. 12866 Review

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Page 206 of 647 covered pollutants. EPA believes this approach of modeling final cost curves is superior to the methodology used in the proposal because it reflects market signals for each pollutant simultaneously, as would be experienced by states and sources regulated under the Transport Rule. In this manner, EPA examined several SO 2 cost thresholds of $500, $1,600, $2,300, $2,800, $3,300 and $10,000 per ton. EPA selected these cost thresholds for the final rule's analysis as a representative sampling of points along the SO 2 cost curve thoroughly explored at proposal. Modeling of these cost thresholds provided a spectrum of emission reduction opportunities yielding meaningful differences to consider in total costs and air quality improvements at each threshold. The proposal's more detailed analysis using smaller increments betwee n cost thresholds outlined the general form of the sector's SO 2 emission reduction cost curve and therefore allowed EPA to use larger increments between cost thresholds for the final rule's analysis. Each of the cost thresholds examined for the final rule represents a point where there is a significant change in available controls, emission reductions , or costs and economic impacts. EPA believes analysis of these thresholds illustrate a meaningful progression of costs and air quality impacts that enabled the Agency to determine a proper threshold along this cost curve to identify significant contribution to*** E.O. 12866 Review

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Page 207 of 647 nonattainment and interference with maintenance for this rulemaking. The cost thresholds above $500/ton were applied starting in 2014. In all modeling , the 2012 cost per ton threshold was held constant at $500/ton as EPA believes that this cost threshold captures all emission reductions feasible by 2012 (see section VI.B.3 below for more discussion). At the higher cost levels (i.e., $2,800/ton and above) , the curve does not include all available reductions as they do not include non
- EGU reductions. As described above for NO X , EPA also observed at proposal that substantial low
- cost SO 2 reductions are available from the operation of existing scrubbers t hat may not otherwise operate in the future without the Transport Rule in place. Therefore, all of the final SO 2 cost curves assume operation of existing scrubbers in PM2.5 states under the Transport Rule. In 2014, approximately 3 million tons of SO 2 r eductions can be achieved at the $500/ton cost threshold through operation of existing controls and some fuel switching. This final cost curve also appropriately reflects the Group 1/Group 2 distinction for states covered for PM2.5 . As discussed in mor e detail in section VI.D, EPA identified Group 2 states as those that were linked to states where all nonattainment and maintenance issues had been resolved at $500/ton levels. There is no longer any significant contribution to nonattainment or*** E.O. 12866 Review

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Page 208 of 647 interferen ce with maintenance by these seven Group 2 states at levels above $500/ton. Therefore, in the final curves, these Group 2 states’ cost thresholds were held constant at $500/ton as the higher cost thresholds were applied to the remaining Group 1 states sta rting in 2014. For example, the modeled emissions at the $2,300 per ton cost threshold shown in Table VI.B - 3 below reflect each state’s emissions when Group 1 states are subjected to a $2,300 per ton SO 2 constraint and Group 2 states are subjected to a $5 00/ton SO 2 constraint. Additional reductions can be achieved at the higher cost thresholds. The cost curves demonstrate that sources begin to build additional flue gas desulfurization (FGD) retrofits at an SO 2 cost threshold of $1,600 per ton and additi onal dry sorbent injection (DSI) retrofits at an SO 2 cost threshold of $2,300 per ton. With these final cost curves in hand, EPA was able to identify the combined reductions available from upwind contributing states and the downwind state, at different cos t per - ton levels. Additionally, EPA was able to examine the economic impacts of imposing such cost constraints on power sector generation. However, this only constitutes a portion of EPA’s multi
- factor assessment used to determine the amount of emissions that represent significant contribution to nonattainment and interference with maintenance. As noted in*** E.O. 12866 Review

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Page 209 of 647 the Transport Rule proposal, EPA’s multi
- factor assessment considered air quality and cost considerations when identifying cost thresholds (75 FR 4527 1). The air quality portion of the assessment is described in section VI.C of the final Transport Rule preamble . 3. Amount of Reductions that Could Be Achieved by 2012 and 2014 EPA applied escalating SO 2 cost per ton thresholds for Group 1 states to crea te the cost curves for 2014 and beyond. For 2012 SO 2 , the cost per ton was held constant at $500/ton as the cost thresholds in 2014 and beyond were varied. The advanced pollution controls incentivized by these higher cost
- per - ton levels can reasonably be installed by 2014. EPA also considered whether any of these emission reductions could be achieved prior to 2014. For the reasons that follow, EPA concluded that significant reductions could be achieved by 2012 and that it is important to require all suc h reductions by 2012 to ensure that they are achieved as expeditiously as practicable. For SO 2 and NO X , reductions that come from operating existing controls, installing combustion controls, fuel switching, and increased dispatch of lower
- emitting generat ion can be achieved by 2012. In general, compliance mechanisms that do not involve post
combustion control installation are feasible before 2014. For this reason, EPA believes it is appropriate to require these emissions to be removed in 2012, consistent with the Act’s*** E.O. 12866 Review

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Page 210 of 647 requirement that downwind states attain the NAAQS as expeditiously as practicable. Therefore, all of the cost curves presented below include all feasible 2012 reductions up to a threshold of $500/ton for SO 2 and $500/ton for annual NO X in states linked to receptors for PM2.5 , as well as $500/ton for ozone
- season NO X in states linked to receptors for ozone. These cost per ton levels do not precipitate advanced post
- combustion control installation in 2012 (as EPA acknowledges that such inst allations are not feasible by 2012), but they do promote the compliance options outlined above. The higher cost thresholds for SO 2 Group 1 states were only applied starting in 2014. Therefore, the 2012 state level emissions in the “$2,300 per ton thresho ld” reflect a cost threshold of only $500/ton for all pollutants (the $2,300 per ton value starts in 2014 for Group 1 states’ SO 2 ). The table below illustrates the change in state level SO 2 emissions as the higher cost per ton thresholds are applied to Gro up 1 states. Table VI.B - 3 2014 SO2 Emissions from Fossil - Fuel - Fired EGUs Greater than 25 MW for each Transport Rule State at Various

Costs Per Ton ( Thousand Tons ) a State SO 2 Group Base

C ase L evel $500 $1,600 $2,300 $2,800 $3,300 $10,000

Alabama 2 417 201 226 213 214 236 190*** E.O. 12866 Review

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Page 211 of 647 Georgia 2 170 94 94 95 95 95 98
Illinois 1 138 134 130 124 117 102 36
Indiana 1 711 245 179 161 153 121 69

Iowa 1 127 112 78 75 67 45 13

Kansas 2 70 55 57 61 61 61 45
Kentucky 1 488 161 126 106 103 89 46
Maryland 1 43 32 28 28 26 24 18 Michigan 1 266 206 189 144 105 94 24
Minnesota 2 66 43 45 46 46 46 44
Missouri 1 382 212 173 166 109 84 21

Nebraska 2 72 68 70 70 70 70 66
New Jersey 1 39 7 7 7 7 6 5

New York 1 40 21 20 12 11 10 8 North Carolina 1 120 104 61 58 49 40 30*** E.O. 12866 Review

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Page 212 of 647 Ohio 1 832 294 175 137 123 115 65 Pennsylvania 1 507 294 164 112 107 102 75 South Carolina 2 210 93 100 103 104 104 105

Tennessee 1 284 82 63 59 59 59 24

Texas 2 453 281 282 284 281 281 243 Virginia 1 65 59 51 35 33 32 16
We st Virginia 1 497 157 122 76 74 72 55
Wisconsin 1 125 51 47 40 38 34 14

Total 6,122 3,007 2,487 2,212 2,053 1,919 1,311 Group 1 total 4,665 2,172 1,612 1,340 1,180 1,025 520 Group 2 total 1,457 835 875 872 872 894 791 aNote - As described in the preamble language for this section, the escalating cost per ton figures in each column header only apply to Group 1 states in 2014 and each year thereafter . Cost per ton for Group 2 states is held constant at $500/ton for all the costing runs. In some c ases, the escalating cost levels in Group 1 states affect emission levels in Group 2 states as some generation shifts between states in response to newly imposed costs. C. Estimates of Air Quality Impacts (Step 2)*** E.O. 12866 Review

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Page 213 of 64 7 After developing cost curves to show the state - by - state cost - effective emission reductions available, EPA estimates the air quality impacts of these reductions using the air quality assessment tool coupled with full
- scale air quality modeling where possible. EPA uses the air quality assessment tool to evaluate the impact on air quality for downwind nonattainment and maintenance receptors from upwind reductions in ‘‘linked’’ states. This section describes the development of the air quality assessment tool and summarizes the results of th is evalua tion. 1. Development of the Air Quality Assessment Tool and Air Quality Modeling Strategy In response to comments on the methodology used for the proposed rule, EPA made significant improvements to the air quality assessment tool (AQAT) for the final Tran sport Rule. Furthermore, EPA relied on CAMx to model the air quality response to NO X reductions and limited AQAT’s role (relative to the Transport Rule proposal) to estimat ing the relative response of sulfate concentrations from SO 2 reductions. EPA did n ot use AQAT to address NO X reduction s in the final rule analyses . These and other changes to our approach, as described below and in the

“ Significant Contribution and State Emission Budgets Final Rule TSD” , address commenter’s concerns about the scientific rigor of the design and application of AQAT and commenter’s*** E.O. 12866 Review

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Page 214 of 647 recommendations to rely upon air quality modeling as part of this analysis. For the final Transport Rule, EPA created an AQAT calibration scenario co nsisting of full - scale air quality modeling using CAMx of a 2014 control scenario reflecting SO 2 and NO X emission reductions of similar stringency and from the same geography as the Transport Rule proposal. Modeling of this AQAT calibration scenario refle cted all updates made to the air quality modeling platform, as described in the “ Air Quality Modeling Final Rule TSD” found in the docket for this rulemaking. CAMx modeling of each receptor’s response in this control scenario acc ounts for complex chemical interactions and covariation of these pollutants. Among the important atmospheric chemical interactions accounted for in CAMx is “nitrate replacement . ” 47 Nitrate replacement occurs when SO 2 emission reductions lead to decreases in ammonium sulfate, which in turn, can result in an increase in ammonium nitrate concentrations. As described below, EPA used the CAMx modeling results for this AQAT calibration scenario together with the modeling for the 2012 base case to characterize th e response of

47 Observable indicators of the sensitivity of PM2.5 nitrate to emission reductions

—Part II: Sensitivity to errors i n total ammonia and total nitrate of the CMAQ
- predicted non
- linear effect of SO 2 emission reductions. R.L. Dennis, P.K. Bhave, and R.W. Pinder. 2008. Atmospheric Environment (42):1287
- 1300.doi: 10.1016/j.atmosenv.2007.10.036*** E.O. 12866 Review

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Page 215 of 647 ozone, nitrate, and sulfate at each nonattainment and maintenance receptor to the mix of upwind NO X and SO 2 emission reductions at each cost threshold . As described in section VI.B, EPA determined that the $500/ton threshold for upwind annu al and ozone - season NO X control is appropriate for the final Transport Rule (although EPA plans to determine in the future whether a higher cost/ton threshold may be warranted for states contributing to nonattainment or maintenance problems with the 1997 o zone air quality standard projected to remain at receptors in two downwind areas 48 ). Because this threshold corresponds to the NO X control strategy modeled in the AQAT calibration scenario described above, EPA is able to rely on this CAMx air quality model ing to assess the response of ozone and nitrate concentrations due to NO X reductions and does not estimate ozone or nitrate impacts for this final rulemaking using AQAT. Further information on the air quality modeling of this AQAT calibration scenario can be found in the Air Quality Modeling Final Rule TSD and the Significant Contribution and State Emission Budgets Final Rule TSD in the docket for this rulemaking. In order to estimate 2014 annual and 24
- hour PM2.5 concentrations, AQAT uses the 2012 annual and seasonal contributions which quantify the contribution of SO 2 emissions in
48 Houston and Baton Rouge non - a ttainment areas*** E.O. 12866 Review

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Page 216 of 647 specific upwind states to sulfate concentrations at specific downwind receptors. These contribution s are described in section V.D.2 and the Air Qualit y Modeling Final Rule TSD . EPA utilizes CAMx modeling of the AQAT calibration scenario, described above, to “calibrate” the contribution factors by developing and applying linear sulfate response factors for each downwind receptor . These factors calibrate each receptor’s sulfate response to varying levels of upwind SO 2 emissions. These calibration factors are based on the sulfate response modeled by CAMx due to emission changes occurring between the 2012 base case and the 2014 AQAT calibration scenario. Calibration factors were constructed for the annual and 24
- hour PM2.5 AQAT. To further allow adequate assessment of the seasonal impacts of various levels of upwind SO 2 reductions on each receptor’s 24
- hour PM2.5 concentration u sing AQAT, EPA developed response factors for sulfate on a quarterly basis to capture important air quality differences between summer and winter emissions and concentrations. This process allowed EPA to estimate the air quality values for each season at each cost threshold , and then estimate the air quality design values. Finally, EPA’s air quality assessment accounts for the impact that this differential response in sulfate by quarter can have on the ordering of 24
- hour concentrations when calculating*** E.O. 12866 Review

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Page 217 of 647 th e 98th percentile for the 24
- hour standard. AQAT estimates quarterly specific relative response factors that estimate quarterly specific proportional change in ammonium sulfate resulting from the SO 2 emission reduction from the 2012 base case scenario to the 2014 cost threshold scenario being assessed. These quarterly relative response factors are then applied to each of the maximum 24
- hour PM2.5 concentrations for eight days per quarter per year at each receptor from the 2012 base case . This methodology improvement allows EPA to redetermine the 98th percentile day for each year and recalculate average and maximum design values for the 24
- hour PM2.5 standard. These improvements for the final rule increase EPA’s confidence that the air quality estimates pr ovided by AQAT, now customized for this application, more accurately estimate the results of full - scale air quality modeling of the various levels of upwind SO 2 reductions considered. EPA evaluated the estimates from AQAT using an independent data set, th e 2014 base case estimates from CAMx, finding that the results are unbiased with minimal differences. See “ Significant Contribution and State Emission Budgets Final Rule TSD” for more details.*** E.O. 12866 Review

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Page 218 of 647 As such, EPA belie ves the revised AQAT provides an appropriate basis for assessing the air quality portion of the multi
- factor methodology to define significant contribution. 49 2. Utilization of AQAT to Evaluate Control Scenarios For the final Transport Rule, EPA performed a ir quality analysis for each downwind annual and 24
- hour PM2.5 receptor with
a non - attainment and/or maintenance problem in the 2012 base
case . For each receptor, EPA quantified the sulfate reduction and resulting air quality improvement when a group of st ates consisting of the upwind states that are ‘‘linked’’ to the downwind receptor (as explained in section V. D ) and the downwind

49 EPA used CAMx to conduct full air quality modeling of the final Transport Rule remedy embodying the emission reductions that EPA first selected on the basis of the multifactor analysis using AQAT to project air quality impacts from varyin g levels of emission reductions analyzed. The CAMx results confirmed the relative magnitude and direction of AQAT's estimates of the outcomes for the 2012 base case nonattainment and maintenance receptors analyzed, and the AQAT estimates closely tracked CAMx modeled concentrations at those receptors under the Transport Rule remedy. The paired AQAT
- estimated and CAMx
-modeled concentrations were found to be highly correlated with an R2 value of 0.99 7 . As a result, EPA is confident that AQAT's estimates of impacts on sulfate concentrations at the varying levels of SO 2 emission reductions analyzed provide a technically valid and sound basis for the Agency's selection of the final rule's emission reductions necessary to eliminate (or make meaningful progress toward eliminating) significant contribution and interference with maintenance for the PM2.5 NAAQS considered in this rulemaking. Further details on the comparison of CAMx and AQAT results can be found in the Significant Contribution and State Emissions Budgets Final Rule TSD .*** E.O. 12866 Review

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Page 219 of 647 state where the receptor is located, all made the SO 2 emission reductions that EPA identified as available at each cost thresh old. EPA assumes reductions at each cost threshold from the linked upwind states as well as the downwind receptor state to assess the shared responsibility of these upwind states to address air quality at the identified receptors. Analysis of each recept or did not assume any emission reductions beyond those included in the 2014 base case from upwind states that are not ‘‘linked’’ to that specific downwind receptor (even if the state was ‘‘linked’’ to a different receptor and/or otherwise would have made emission reductions beginning in 2012 due to the Transport Rule). EPA disagrees with comments suggesting that emission reductions, and resulting decreases in contribution, from upwind states that are not “linked” to a particular downwind receptor should be accounted for in the 2014 AQAT analysis of that receptor. EPA decided to assume reductions only from linked states when analyzing each receptor because EPA is performing a state - specific analysis to support a determination of the amount of each upwind st ate’s responsibility for air quality problems at the downwind receptors that it significantly affects. If the AQAT analysis were to assume emissions reductions in other non
linked states, the AQAT analysis would then contradict the 1st step of our two - step approach to defining significant*** E.O. 12866 Review

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Page 220 of 647 contribution to nonattainment and interference with maintenance. Under EPA’s two - step approach, only a state that (1) contributes a threshold amount or more to a particular downwind state receptor ’s air quality problem and (2) has emission reductions available at the selected cost threshold can be deemed to have responsibility to reduce its emissions to improve air quality at that downwind receptor. EPA believes that the commenters’ suggested approach would not qualify as a state
- specific approach for determining upwind state responsibility for downwind air quality problems. Because EPA is relying on the CAMx estimate of nitrate concentrations from the AQAT calibration scenario, the response in nitrate to NO X reductions at a cost threshold of $500/ton is present in each SO 2 cost threshold scenario analyzed. EPA determines the cumulative air quality improvement that can be expected at a particular downwind receptor by multiplying each upwind stat e’s percent SO 2 emission reduction by its calibrated receptor specific sulfate response factor and summing the sulfate, nitrate, and other PM2.5 components (also taken from the 2014 CAMx AQAT calibration scenario) . 3. Air Quality Assessment Results The results of EPA’s air quality assessment of the cost threshold scenarios focus on air quality metrics including, but not limited to, average air quality improvement at receptors*** E.O. 12866 Review

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Page 221 of 647 with 201 2 base case non - attainment and maintenance exceedances and an evaluatio n of estimated receptor design values against annual and 24
- hour PM2.5 standards. See “ Significant Contribution and State Emission Budgets Final Rule TSD ” for more details. In EPA’s air quality analysis of each downwind receptor, all ai r quality improvements are measured relative to the “AQAT base case.” This base case reflects AQAT’s estimated PM2.5 concentrations under base case 2014 SO 2 emissions. The AQAT base case itself is not used for any decision points and only serves as an appropriate starting point for comparison of air quality improvements at SO 2 cost thresholds. EPA ensures internal analytic consistency by comparing all air quality improvements at analyzed SO 2 cost thresholds to the AQAT base case . Regarding average ai r quality improvement at exceeding 2012 base case receptors, EPA identified 41 receptor s with non
attainment or maintenance problems in the 2012 base case. EPA assessed the cumulative reduction in 24
- hour PM2.5 maximum design value at each increasing SO 2 cost threshold from the maximum design value from the AQAT base case , and averaged the reduction across the 41 receptor s. The results of this assessment indicate diminishing returns to 24
- hour PM2.5 maximum design value reduction as SO 2 cost threshold levels increase. EPA finds reductions in maximum design value of 4.28 μg/m3 at $500; 4.98*** E.O. 12866 Review

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Page 222 of 647 μg/m3 at $1,600; 5.33 μg/m3 at $2,300; 5.46 μg/m3 at $2,800; 5.60 μg/m3 at $3,300; and 6.08 μg/m3 at $10,000. These results are provided in table VI.C
- 1.

Table VI.C - 1 Average 2014 Air Quality Improvement at Receptors with 2012 Base Case Nonattainment and Maintenance Problems Group 1 State SO 2 Cost Per Ton Threshold Average Air

Quality Improvement at Exceeding Receptors in 2012 Base Case ( μg/m 3 ) $500 4.28 $1,600 4. 98 $2,300 5.33 $2,800 5.46 $3,300 5.60 $10,000 6.08 Additionally, EPA evaluated the AQAT estimated 2014 average and maximum design values for these receptor s at each cost threshold against the annual and 24
- hour PM2.5 standards. EPA determined t he estimated number of receptor s with nonattainment or maintenance problems at $500/ton cost threshold of NO X and each of the cost threshold scenarios assessed for SO 2 . These results are provided in table VI.C
- 2 in terms of the number of receptors and the number of non - attainment areas containing these receptors .
Table VI.C - 2 Receptors with Nonattainment and/or Maintenance Exceedances of the Annual or 24 -hour PM2.5 NAAQS in 2014 SO 2 Cost Threshold Annual Non attainment Annual Non attainment or Maintenance 24
- hour Non attainment 24
- hour Non attainment or Maintenance Annual and 24
- hour Non attainment and*** E.O. 12866 Review

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Page 223 of 647 Maintenance Receptor s Areas Receptor s Areas Receptor s Areas Receptor s Areas Receptor s Areas $500 1 1 1 1 2 2 9 6 9 6 $1,600 1 1 1 1 2 2 8 5 8 5 $2,300 0 0 1 1 1 1 6 4 6 4 $2,800 0 0 1 1 1 1 5 4 5 4 $3,300 0 0 1 1 1 1 5 4 5 4 $10,000 0 0 1 1 1 1 3 3 3 3

In the proposal, EPA evaluated whether the imposition of the rule’s upwind emission reduction requirements could cause changes in operation of elect ric generating units in states not regulated under the proposal. EPA recognized that such changes could lead to increased emissions in those states, potentially affecting whether they would meet or exceed the 1 percent contribution thresholds used to ident ify linkages between upwind and downwind states. Such shifting of emissions between states may occur because of the interconnected nature of the country’s energy system (including both the electricity grid as well as coal and natural gas supplies). Using updated emissions and air quality information developed for the final rule, EPA’s IPM modeling found that of the states not covered in the final rule for PM2.5 , Arkansas, Colorado, Louisiana, Montana, and Wyoming are all projected to have SO 2 emission incr eases above 5,000 tons in 2014 with the rule in effect. EPA analysis shows the SO 2 emissions increases result from expected shifts to higher sulfur coal in these states. Using AQAT, a state
- level assessment of these emission*** E.O. 12866 Review

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Page 224 of 647 increases relative to the sta te specific contribution s to downwind receptors (where available) indicates that projected increases in the SO 2 emissions would not increase any of these states’ contributions to an amount that would meet or exceed the 0.15 μg/m3 or 0.35 μg/m3 thresholds f or annual and 24
- hour PM2.5 , respectively. For this reason, EPA has determined that it is not necessary to include these additional states in the Transport Rule as a result of the effects of the rule itself on SO 2 emissions in uncovered states. See “ Signi ficant Contribution and State Emission Budgets Final Rule TSD ” in the docket for this rulemaking for more details. D. Multi
- Factor Analysis and Determination of State Emission Budgets EPA used the cost, emission, and air quality informati on described in the previous sections to perform its multi
- factor analysis (step 3). By looking at different “ cost thresholds ” - places where there was a noticeable change on the cost curve because emission reductions occur
- and examining the correspondi ng impact on air quality, EPA identified the amount of emissions that represent significant contribution to nonattainment and interference with maintenance within each state. After quantifying this amount of emissions, EPA*** E.O. 12866 Review

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Page 225 of 647 established state “budgets” whic h represent the remaining emissions for the state in an average year (step 4). For states covered by the rule for PM2.5 , EPA calculated annual NO X and annual SO 2 budgets. For states covered by the rule for ozone, EPA calculated ozone - season NO X budgets . This section explains the multi
- factor assessment and how EPA used this assessment to determine state
- specific budgets. 1. Multi
- factor Analysis (Step 3)
a. Overview As described in section VI.B, EPA examined how different cost thresholds impacted emiss ions in states with air quality contributions that meet or exceed specific air quality thresholds, as discussed in section V.D of this preamble . Section VI.C summarizes the estimated air quality impacts in 2014 of these emiss ion levels at downwind monitor sites, including estimates of their nonattainment and maintenance status ( s ee “Significant Contribution and State Emissions Budgets Final Rule TSD” for more details). From these two steps, EPA evaluated the interaction between upwind emissions at different cost levels and air quality at downwind receptors to identify “significant cost thresholds.” These cost thresholds are based on air quality considerations (such as the cost at which the air quality ass essment analysis projects large numbers of downwind site maintenance and nonattainment problems would be*** E.O. 12866 Review

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Page 226 of 647 resolved) or cost criteria (such as a cost where large emissions reductions occur because a particular technology is widely implemented at that cost). EPA examined each cost threshold and then use d a multi
- factor assessment to determine which serve as cost thresholds that eliminate significant contribution to nonattainment and interference with maintenance for upwind states. Air quality considerations in the assessment include, for example, how much air quality improvement in downwind states results from upwind state emissions reductions at different levels; whether, considering upwind emissions reductions and assumed local (in
- state) reductions, the downwind air quality problems would be resolved; and the components of the remaining downwind air quality problem (e.g., whether it is a predominantly local or in
- state problem, or whether it still contains a large upwind component). Cost considerations inc lude, for example, how the cost per ton of emission reduction compares with the cost per ton of existing federal and state rules for the same pollutant; whether the cost per ton is consistent with the cost per ton of technologies already widely deployed (s imilar to the highly
- cost - effective criteria used in both the NO X SIP Call and CAIR); and what cost increase is required to achieve additional meaningful air quality improvement.*** E.O. 12866 Review

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Page 227 of 647 The specific cost per ton thresholds selected as a basis for identifying sign ificant contribution to nonattainment and interference with maintenance in this rulemaking apply only to the determinations made in this rule and do not establish any precedent for future EPA actions under section 110(a)(2)(D)(i)(I) or any other section of the Clean Air Act. EPA’s selection of specific cost thresholds in the context of this rulemaking relies on current analyses of the cost of available emission reductions, the pattern of interstate linkages for pollution transport, and the downwind air qua lity impacts specifically related to the 1997 ozone NAAQS, the 1997 annual PM2.5 NAAQS, and the 2006 24
- hour PM2.5 NAAQS. In addition and as explained below , the selection of the threshold for
ozone - season NO X was influenced by the limited scope of this
rule. Any or all of these variables used to identify specific cost thresholds are subject to change. Thus, EPA may use different cost thresholds in future actions, even if those actions relate to the same NAAQS addressed in this rule. b. Cost Thresholds Examined and Selected for Ozone
- Season NO X In the proposal, EPA examined various cost thresholds for
ozone season NO X and identified a cost threshold with rapidly diminishing returns at $500/ton. EPA observed that moving beyond the $500 cost threshold up to a $2,500 cost threshold would*** E.O. 12866 Review

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Page 228 of 647 result in only minimal additional ozone season NO X emission reductions and would likely bypass less expensive non
- EGU emission reduction opportunities (75 FR 45281). EPA noted that for greater costs the curves did not inc lude all available reductions as they do not include non
- EGU reductions (75 FR 44286). In the proposal, EPA noted the timely promulgation and implementation of this rule is responsive to the Court’s remand of CAIR, will accelerate critical air quality imp rovement, and more effectively address the mandate of CAA section 110(a)(2)(D) to address significant contribution to nonattainment and interference with maintenance as expeditiously as practicable. EPA did not want to risk delaying air quality benefits available from EGU emission reductions, particularly those emission reductions which eliminate significant contribution to nonattainment and interference with maintenance for many monitors, while the Agency conducts additional analysis to support subsequent transport - related rulemakings including coverage of non - EGU sources (75 FR 45285) . EPA received comments suggesting that it consider cost thresholds higher than $500/ton as reductions beyond the proposed $500/ton cost threshold were needed to fully resolve nonattainment and maintenance issues in downwind states analyzed at proposal. Some of these comments suggested EPA should include non - EGUs as they consider the higher cost thresholds,*** E.O. 12866 Review

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Page 229 of 647 others suggested EPA continue to exclude non
- EGU sources in this rulemaking. In response to those comments that suggested EPA explore higher cost thresholds because nonattainment and maintenance was not fully resolved, EPA first notes that CAA section 110 (a)(2)(D)(i)(I) only requires the elimination of emissions that signi ficantly contribute to nonattainment or interfere with maintenance of the NAAQS in other states. Section 110(a)(2)(D)(i)(I) focuses exclusively on the transport component of nonattainment and maintenance problems. Section 110(a)(2)(D)(i)(I) does not shif t to upwind states the responsibility for ensuring that all areas in other states attain the NAAQS. As such, the mandate of section 110(a)(2)(D)(i)(I) is not to ensure that reductions in upwind states are sufficient to bring all downwind areas in to attai nment, it is simply to ensure that all significant contribution to nonattainment and interference with maintenance is eliminated. Thus, the presence of residual nonattainment or maintenance areas does not, by itself, signify a failure to satisfy the requi rements of 110(a)(2)(D)((i)(I). Furthermore, as noted in VI.A, EPA is finalizing coverage only for the EGU emission source
- sector category in this rulemaking. EPA has not included non
- EGU sources in this final rulemaking. EPA remains convinced that timely promulgation and*** E.O. 12866 Review

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Page 230 of 647 implementation of this rule is responsive to the Court’s remand of CAIR . To the extent that significant contribution is not eliminated for the 1997 ozone NAAQS standard at the $500/ton cost threshold , EPA is not addressing in this rulemak ing whether a cost threshold greater than $500/ton is justified for some upwind states and downwind receptor s . EPA believes it can best serve these states where concerns persist regarding projected nonattainment or maintenance of the 1997 ozone NAAQS by quickly finalizing this rule and seeking further non
- EGU reductions in subsequent rulemakings. Table VI.B
- 2 illustrates the small amount of EGU reductions available as cost thresholds increase above $500/ton. The ozone
- season NO X reductions available in th e Transport Rule states between the $500/ton and $1,000/ton cost thresholds amount to less than 3,000 tons. EPA believes that potentially substantial non
- EGU ozone - season NO X reductions become available approaching the $1,000/ton cost threshold. EPA emphasized this in the proposal, noting that the cost curves for
ozone season NO X did not reflect all available reductions as they do not include non
- EGU reductions (75 FR 45286). For these reasons, EPA did not consider cost thresholds greater than $500/t on. EPA did not consider cost thresholds below $500/ton for
ozone - season NO X . $500/ton is a reasonable threshold*** E.O. 12866 Review

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Page 231 of 647 representing a significant amount of lowest
- cost NO X emission reductions from EGUs, largely accruing from the installation of combustion c ontrols such as low - NO X burners and constitutes a reasonable cost level for operation of existing NO X controls such as SCRs. EPA believes it would be inappropriate for a state linked to downwind nonattainment or maintenance areas to stop operating existin g pollution control equipment (which would increase their emissions and contribution) . This is increasingly likely to occur at cost thresholds lower than $500/ton. Therefore, EPA did not find cost thresholds lower than $500/ton for ozone
- season NO X to be reasonable for development of the Transport Rule cost curves. As discussed in section III of this preamble, EPA intends to finalize reconsideration of the March 2008 ozone NAAQS in the summer of 2011 and to expeditiously propose a transport
- related actio n to address any necessary upwind state control responsibilities with respect to that reconsidered NAAQS. c. Cost Thresholds Examined and Selected for Annual NO X Following the assessment of the cost curves in section IV.B and the air quality modeling of th e AQAT calibration scenario using CAMx, EPA identified a single cost threshold at $500/ton for annual NO X . Beyond requiring the year
- round operation of existing post
- combustion NO X controls and other reductions modeled at $500/ton threshold, EPA observed a limitation in*** E.O. 12866 Review

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Page 232 of 647 available low
- cost annual NO X reductions from EGUs. Approximately 7,000 tons of annual NO X reductions were available from EGUs between the $500/ton and the $1,000/ton cost thresholds ( See Table VI.B. - 1). Furthermore, above the $500/ton t hreshold, similar to ozone season NO X cost curves, the annual NO X cost curves do not include all available reductions as they do not include non
- EGU reductions. EPA analysis suggest s that while NO X emission reductions lead to reductions in PM2.5 , SO 2 redu ctions are generally more cost
- effective than NO X reductions at reducing PM2.5 (75 FR 45281). In part, for these reasons, EPA’s multi
- factor assessment suggested that the $500/ton cost threshold for annual NO X in concert with the cost thresholds identifie d for SO 2 were the appropriate cost thresholds for eliminating significant contribution to nonattainment and interference with maintenance . EPA finds in the final Transport Rule that the $500/ton cost threshold for annual NO X , in concert with the SO 2 cos t threshold selected below, successfully eliminates significant contribution to nonattainment and interference with maintenance for the 1997 annual PM2.5 NAAQS and the 2006 24
- hour PM2.5 NAAQS in the states covered by this Rule for PM2.5 . The reasons for n ot considering cost thresholds lower than $500/ton for annual NO X are the same as those identified for not doing so for ozone season NO X . In addition to its PM2.5 reduction*** E.O. 12866 Review

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Page 233 of 647 be nefits , annual NO X control at the $500/ton threshold can help to stem nitrate replacement in the atmosphere. As explained earlier, n itrate replacement happens when SO 2 emissions reductions successfully reduce ammonium sulfate (a component of PM2.5 ) but provoke a PM2.5 rebound effect by freeing up additional ammonia to form ammonium ni trate (another component of PM2.5 ). d. Cost Thresholds Examined and Selected for SO 2 EPA first assessed the downwind air quality impacts of emission reductions modeled at the $500/ton threshold in all states found to be linked to downwind sites for PM2.5 transport, as well as in the states hosting those downwind sites. The air quality assessment tool projected that those reductions do not fully resolve nonattainment and maintenance problems with the PM2.5 standards for certain areas to which the followin g states are linked: Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and Wisconsin. EPA proceeded to analyze available 2014 emission reductions at higher cost thresholds from these states, collectively referred to as Group 1 states for SO 2 control. For Group 2 states, the air quality assessment tool projected that the SO 2 reductions at this first cost threshold assessed would resolve the nonattainment and maintenance problems for all of the areas to which the following states are*** E.O. 12866 Review

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Page 234 of 647 linked: Alabama, Georgia, Kansas, Minnesota, Nebraska, South Carolina, and Texas. EPA thus finds that these states’ significant contribution is eliminated at the $500 pe r ton level in 2014; they are collectively referred to as Group 2 states for SO 2 control. Because their significant contribution is eliminated at this stringency of control, EPA did not analyze higher cost thresholds for Group 2 states. The states in Group 1 and Group 2 are rationally grouped considering air quality and cost. EPA determined that it would not be appropriate to assign the same cost threshold to Group 2 and Group 1 states because a significantly lower cost threshold was sufficient to resolve air quality problems at all downwind receptors linked to the Group 2 states. Although states are linked to different sets of downwind receptors, EPA analysis indicated that the cost threshold needed to resolve downwind air quality problems varied only to a limited extent among states within Group 1 and among states within Group 2. It did, however, vary greatly between the Group 1 and Group 2 states. The ruling of the D.C. Circuit in Michigan v. EPA , 213 F.3d 663, 679
- 80 (D.C. Cir. 2000), accepting EPA’s prior use of a transport remedy with uniform controls, supports EPA’s decision to use a uniform cost threshold for a group of states. As discussed in section VI.B, the cost threshold for Group 1 states was examined at escalating levels in 2014 (it remaine d*** E.O. 12866 Review

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Page 235 of 647 at $500/ton for Group 2 states). EPA examined emissions at SO 2 cost thresholds of $500, $1,600, $2,300, $2,800, $3,300, and $10,000/ton for Group 1 states in 2014. The higher SO 2 marginal costs were only imposed in Transport Rule states starting in 2014 , by which time the advanced pollution control retrofits induced at those higher cost thresholds could be installed. (See section VI.D.2 for EPA’s assessment and decisions regarding SO 2 budget formation in Group 1 states in 2014.) EPA observed some degree of additional air quality benefit at downwind receptors across all of the cost thresholds examined for SO 2 , but significant air quality outcomes were achieved at the $2,300/ton cost threshold. The $2,300/ton threshold is projected to resolve the last rema ining nonattainment area for the annual PM2.5 standard (Liberty
- Clairton), 50 and it also is projected to resolve the nonattainment and maintenance problems with the 24
- hour PM2.5 standard at 1 monitor in the Detroit area and resolve the maintenance problems in the Cleveland area. There were significant air quality improvements at this level in connection with widespread deployment of pollution control technology, while the cost impacts remained reasonable.

50 AQAT results indicated that one receptor in the Liberty
Clairton area continued to have maintenance problems with the annual PM2.5 standard. However, final air quality modeling results (described in sect ion VIII.B) indicated that this maintenance problem was resolved for this receptor under the final Transport Rule.*** E.O. 12866 Review

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Page 236 of 647 Moving beyond $2,300/ton to the $2,800/ton and $3,3 00/ton thresholds, EPA projected notably smaller air quality improvements compared to those projected when moving from the $1,600/ton threshold to the $2,300/ton threshold. EPA also projected no ultimate change in the 24
- hour PM2.5 attainment status of th e remaining nonattainment area (Liberty
- Clairton) or three remaining maintenance areas (Chicago, 51 Detroit, and Lancaster). 52 At the same time, the total program cost continued to increase by about the same interval at each of these thresholds as it had between the $1,600/ton and $2,300/ton thresholds. EPA thus observed a relatively lower cost
effectiveness of downwind PM2.5 control via upwind SO 2 reductions beyond $2,300/ton for the receptors linked to Group 1 states. Table VI.D - 1 and Figure VI.D
- 1 demons trate this relationship between cost of EGU SO 2 control and downwind PM2.5 concentration impacts, showing a sustained diminishing of cost effectiveness beyond the $2,300/ton threshold. The $2,300/ton threshold in

51 This area is not currently designated as non
- attainment f or the 24
- hour PM2.5 standard. EPA is portraying the recepto r s and counties in th is area as a single 24
- hour maintenance area based on the annual PM2.5 non - attainment designation of Chicag o - Gary Lake County, IL - IN. 52 AQAT results indicated that two receptors in the Detroit area continued to have maintenance problems with the 24
- hour PM2.5 standard. However, final air quality modeling results (described in section VIII.B) indicated that only one receptor continued to have maintenance problems in this area for this standard under the final Transport Rule.*** E.O. 12866 Review

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Page 237 of 647 this analysis is situated in the “knee
- in
- the - curve” area of cost - effectiveness for addressing downwind PM2.5 concentrations with SO 2 reductions, beyond which point the air quality gains per dollar spent on additional reductions are much smaller. This relationship is demonstrative of the economic potency of SO 2 reductions at each cost threshold to address the PM2.5 concentrations at linked receptors in this analysis.

Table VI.D - 1 Cost-Effectiveness of Group 1 State SO2 Reductions a for Downwind PM2.5 Control SO 2 Cost Threshold Additional

System Cos t Expended (2007$, billions) Average PM2.5

Air Quality Improvement ( μg/m3 ) b Air Quality Cost
Effectiveness (average μg/m3 reduced per billion $ expended) $500 0.2 2 3.27 14.74 $1,600 0.82 3.86 4.70 $2,300 1.35 4.22 3.11 $2,800 1.94 4.37 2.25 $3,300 2.36 4.50 1.91 $10,000 3.61 4.99 1.38 a Downwind PM2.5 improvement based on SO 2 reductions from states “linked” to specific receptors. See section VI.C. bMeasured as the reduction in maximum design value for the 24
- hour PM2.5 NAAQS from AQAT base case to each SO 2 threshold for receptors with remaining non
- attainment and maintenance exceedances at the $500/ton threshold, averaged across these receptors. Figure VI.D - 1*** E.O. 12866 Review

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Page 238 of 647 Furthermore, even at the $10,000/ton cost threshold, AQAT still projects Liberty
- Clairton to face maintenance concerns with the annual PM2.5 standard and is projected to remain in nonattainment of the 24
- hour PM2.5 standard, while the Chicago 53 and Lancaster areas are still projected to have residual maintenance probl ems with the 24
- hour PM2.5 standard. EPA projected that even total elimination of EGU SO 2 emissions (no matter the cost) would not be able to resolve either

53 This area is not currently de signated as non
- attainment f or the 24
- hour PM2.5 standard. EPA is portraying the recepto r s and counties in this area as a single 24
- hour maintenance area based on the annual PM2.5 non - attainment designation of Chicag o - Gary Lake County, IL - IN.*** E.O. 12866 Review

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Page 239 of 647 nonattainment of the 24
- hour PM2.5 standard in the Liberty
Clairton area or the residual maintenan ce concerns with that standard in Lancaster County. EPA thus finds that other PM2.5 strategies, including local reductions of other PM2.5 precursors, are important to consider for remaining nonattainment and maintenance areas to seek further improvements in PM2.5 concentrations. Considering both air quality and cost, EPA’s multi
- factor analysis indicated $2,300 per ton as an appropriate cost threshold for SO 2 in the Group 1 states. EPA believes the analyzed cost thresholds lower than $2,300/ton were not
appropriate for SO 2 control in the Group 1 states under the Transport Rule for the following reasons:

 Downwind air quality impacts up to the $2,300 threshold are significant. Moving up to $2,300/ton successfully resolves all downwind nonattainment of the a nnual and 24
- hour PM2.5 standards except for the Liberty
- Clairton receptor in Allegheny county with respect to 24
- hour PM2.5 , which EPA has noted is heavily influenced by a local source of organic carbon (75 FR 45281).

 Upwind emission reductions available up to $2,300 / ton are highly cost
- effective in comparison with similar regulations.*** E.O. 12866 Review

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Page 240 of 647  The emission reductions up to this threshold are achievable with widespread deployment of controls that can be installed at power plants by 2014.

 As stated at proposal, EPA finds it reasonable to require a substantial level of control of upwind state emissions that significantly contribute to nonattainment or maintenance problems in another state. The $2 , 300/ton cost threshold is comparable to EPA’s survey of local non
- EGU S O 2 reduction opportunities in the PM2.5 NAAQS RIA, which range in cost from just above $2,300/ton to over $16,000/ton (2007 $ ). EPA thus finds it reasonable to seek EGU SO 2 reductions up to $2 , 300/ton (rather than at a lower cost threshold) in the states linked to receptors with ongoing attainment and maintenance concerns with the PM2.5 NAAQS. EPA believes the analyzed cost thresholds above $2,300/ton were not appropriate for SO 2 control in the Group 1 states under the Transport Rule for the following reas ons:

 As noted above, r eductions up to $2,300/ton were able to resolve all projected downwind nonattainment of the annual and 24
- hour PM2.5 NAAQS, with the sole exception of projected nonattainment of the 24
- hour PM2.5 standard at a receptor in Liberty
- Clai rton. It is well
- established that, in addition to being impacted by regional sources, the Liberty
- Clairton area is significantly affected by local*** E.O. 12866 Review

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Page 241 of 647 emissions from a sizable coke production facility and other nearby sources, leading to high concentrations o f organic carbon in this area. 54 EPA finds that the remaining PM2.5 nonattainment problem is predominantly local and therefore does not believe that it would be appropriate to establish a higher cost threshold solely on the basis of this projected ongoing nonattainment of the 24
- hour PM2.5 standard at the Liberty
- Clairton receptor.

 Approximately 70 percent of base case SO 2 emissions from Group 1 states were eliminated at the $2,300/ton cost threshold, leaving a decreasing amount of emission reductions avail able at each increased cost threshold beyond $2,300/ton.

 Additional EGU SO 2 reductions available from EGUs beyond the $2,300/ton threshold level realize significantly less improvement in downwind PM2.5 concentrations per dollar spent to impact receptors linked to Group 1 states. In other words, the cost - effectiveness of controlling EGU emissions in Group 1 states to improve downwind PM2.5 concentrations at the linked receptors is notably diminished beyond the $2,300/ton threshold in this analysis. See F igure VI.D
- 1.

54http:// www . epa . gov / pmdesignations /2006 standards / final / TSD / tsd_4.0_4.3_4.3.3_r03_PA_2.pdf*** E.O. 12866 Review

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Page 242 of 647  EGUs are by far the largest source category for SO 2 emissions. This analysis shows that reductions of EGU SO 2 emissions up to the $2,300/ton cost threshold were significantly more cost
- effective for improving downwind PM2.5 concentrations th an further such reductions (beyond the $2,300/ton cost threshold) would be to address the remaining PM2.5 maintenance concerns. EPA’s analysis also shows that these maintenance concerns cannot be fully resolved even with complete elimination of all remain ing EGU SO 2 emissions, no matter the cost. EPA finds that other PM2.5 precursor emission reductions, particularly those from local sources will be critical for states in these remaining areas to consider for controlling PM2.5 concentrations with respect t o maintenance of the 2006 24
- hour PM2.5 NAAQS. In summary, the appropriate cost thresholds for each state were identified through the multi
- factor assessment. This assessment included both cost and air quality considerations. As explained above, the oz one - season NO X threshold was determined to be $500/ton for all states required to reduce ozone - season NO X , with residual nonattainment and maintenance concerns to be addressed in a future rulemaking addressing a broader set of source categorie s for additional cost
- effective reductions. For PM2.5 , the appropriate cost threshold for each state was*** E.O. 12866 Review

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Page 243 of 647 determined to be either the level at which nonattainment and maintenance issues were completely resolved in downwind states to which the state is linked, the level where remaining nonattainment and maintenance issues are primarily local, or where we found greatly diminished improvements in air quality occurring if EPA moved further up the cost curve. This assessment yielded a cost threshold of $2,300/t on on SO 2 for Group 1 states starting in 2014 ($500/ton in 2012), a cost threshold of $500/ton on SO 2 for Group 2 states, and a cost threshold of $500/ton on annual NO X for all states required to reduce emissions for purposes of the annual or 24
- hour PM2.5 NAAQS in this rule . As explained above, none of these specific cost thresholds establish any precedent for the cost per ton stringency of reductions EPA may require in future transport
- related rulemakings; these specific cost thresholds ar e based on current analy s es of air quality and cost of emission reductions with respect to the NAAQS considered in this rulemaking and thus would not be relevant to future rulemakings (which would consider updated information) or rulemakings with respect t o different NAAQS . In particular, EPA acknowledges that additional action EPA will require in a subsequent rulemaking to address significant contribution to nonattainment and interference with maintenance of the 2008 ozone NAAQS (once*** E.O. 12866 Review

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Page 244 of 647 reconsideration is f inalized) is very likely to require a higher cost per ton stringency of ozone
- season NO X control applied to a broader set of source categories from upwind states than found to be appropriate for this rulemaking. 2. State Emission Budgets (Step 4) a. Budge t Methodology EPA used the multi
- factor assessment to identify, for each state, the cost threshold that should be used to quantify that state’s significant contribution. As described above, in the context of this rulemaking EPA identified a cost threshold of $500/ton for ozone
- season NO X control for all states required to reduce ozone - season NO X emissions for purposes of the 1997 ozone NAAQS in this rule . EPA also identified a cost threshold of $500/ton for annual NO X control for all states required to reduce annual NO X emissions for purposes of the annual or 24
- hour PM2.5 NAAQS in this rule . Finally, EPA identified a cost threshold of $500/ton of SO 2 starting in 2012 for all states required to reduce SO 2 emissions for purposes of the annual or 24
- hour PM2.5 NAAQS in this rule, and $2,300/ton for the Group 1 states starting in 2014. EPA used these cost thresholds from the multi
- factor analysis to quantify each state’s emissions that significantly contribute to or interfere with maintenance downwind. For example, for a Group 1 state , EPA modeling of the cost threshold*** E.O. 12866 Review

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Page 245 of 647 conveys emission reductions available in each covered state from operation of existing pollution con trols as well as all emission reductions available at cost thresholds of $500/ton for annual NO X in 2012 and 2014, $500/ton for SO 2 in 2012, and $2,300/ton for SO 2 in 2014. The total SO 2 and NO X modeled in that state in those years represents that state’s emissions once significant contribution to nonattainment or interference with maintenance downwind for the relevant PM2.5 NAAQS has been eliminated .

Table VI.D - 2 Example of Emission Reductions and Budget Formation in Michigan for Annual SO2 and NOXa

Final Cost Threshold Base Case

Emissions (1000 tons) Remaining

Emissions at Cost Thresholds (1000 tons) Emissions

Eliminated (1000 tons) A B C D E F 2012 SO 2 $500 252.4 194.5 57.9

NO X $500 60.6 60.2 0.4 2014 SO 2 $2,300 265.6 144 121.6

NO X $50 0 64.3 57.8 6.5 a Note: In this table, emissions are shown for fossil
- fuel fired EGUs > 25 MW (i.e., those units likely covered by the Transport Rule). Table VI.D.2 illustrates how budgets are derived from the elimination of significant contribution for the state of Michigan. Column C illustrates the cost thresholds applied in the costing run that was ultimately identified as the final cost threshold in the multi
- factor analysis. Column D shows the base case emissions for the identified pollutant in th e identified time period. Column E shows the emission levels that result when the cost thresholds*** E.O. 12866 Review

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Page 246 of 647 identified in column C are applied. Because this is the cost threshold identified through the multi
- factor analysis and the point where all significant cont ribution to nonattainment and interference with maintenance has been address ed for the PM2.5 NAAQS - state budgets are set equal to these emission levels. The final column illustrates the emission reductions for the state in an average year (before accoun ting for variability) when the cost thresholds are applied
- this is equal to the emission levels identified at the cost threshold subtracted from the base case emission levels. EPA’s modeling of a state’s SO 2 and annual NO X emission l evels (from fossil
- fired EGUs >25 MW) at the relevant cost thresholds in each state reflect that state’s emissions from covered sources after the removal of significant contribution to nonattainment and interference with maintenance of the PM2.5 NAAQS cons idered in this rulemaking. As these state emission levels reflect the removal of significant contribution and interference with maintenance , they are reasonable levels on which to determine state budgets. Consequently, EPA set state budget levels equal t o the state level emissions that remained at the cost threshold . Each state’s budget corresponds to its emission levels following the elimination of significant contribution to nonattainment and interference with maintenance in an average year (before taki ng year - to - year variability into account, as discussed in section VI.E below). Therefore, the implementation and realization of these budgeted emissions levels leads to the elimination of significant contribution to nonattainment and interference with mai ntenance and EPA meets*** E.O. 12866 Review

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Page 247 of 647 the statutory mandate of section 110(a)(2)(D)(i)(I) with respect to the 1997 annual PM2.5 NAAQS and the 2006 24
- hour PM2.5 NAAQS. EPA’s establishment of state budgets for ozone
- season NO X control follow the same methodology as descr ibed above for SO 2 and annual NO X ; however, implementation of these ozone
- season NO X budgets reflects the elimination of significant contribution to nonattainment and interference with maintenance of the 1997 ozone NAAQS only for 15 states, whereas 11 othe r states’ ozone season NO X budgets reflect meaningful progress toward (but not full completion of) this elimination under the mandate of section 110(a)(2)(D)(i)(I). See section III for lists of states. This approach to basing budgets on projected state level emission used in the multi
- factor analysis is identical to the approach used in the proposal for determining 2014 SO 2 budgets for Group 1 states. EPA is extending this approach more broadly in the final Transport Rule to create state budgets for ozone
season NO X , annual NO X , and SO 2 in all relevant states in both 2012 and 2014. In the proposal EPA used a more complex approach based on a comparison of historic and projected unit
- level emissions (further adjusted for operation of existing controls) in ea ch state to create 2012 state budgets for ozone
- season NO X , annual NO X , and Group 2 SO 2 . At the time of proposal, EPA believed that historic 2009 emissions data were in some cases*** E.O. 12866 Review

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Page 248 of 647 more representative of expected emissions in 2012 than pure modeling projec tions made at the time (75 FR 45290). However, following the proposal EPA has made significant updates to the IPM model for projecting EGU emissions, including specifically the adoption of 2009 historic data into its modeling parameters directly. EPA also received substantial public input following the proposal on the model’s assumptions and representation of individual units, which allowed EPA to improve its 2012 and 2014 emission projections for states under the cost thresholds considered. These modelin g updates diminish the concerns EPA expressed at proposal that 2009 historic data may have offered for some states a better proxy for 2012 emissions than model projections, particularly now that EPA is incorporating 2009 data directly in its updated modeli ng projections. Given these updates to the model in response to public comment, EPA believes it is more appropriate for the final rule to use a consistent approach based on projected state level emissions for all state budgets, as was done for Group 1 SO 2 budgets in 2014 at proposal. EPA received significant comment supporting the use of the model to project state
- level emissions for creating budgets in this manner. EPA also received comments that criticized the proposal’s methodology for 2012 budgets fo r lack of transparency, unnecessary complexity, and inconsistency with the state
- level emission projections used*** E.O. 12866 Review

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Page 249 of 647 in the air quality modeling. EPA’s decision for the final Transport Rule to consistently apply across all pollutants the budget methodology or iginally used for Group 1 SO 2 budgets in 2014 addresses those concerns. This budget methodology for the final rule uses projected state - level emissions in 2012 and 2014 to set emissions budgets for those years on relevant pollutants for that state to contr ol under the Transport Rule. EPA’s modeling projects that some states have 2014 emissions that are lower than their 2012 projected emissions even as the same cost threshold (e.g., $500/ton) is applied in both years. This occurs in the annual NO X , o zone - s eason NO X , and Group 2 SO 2 program. As such, EPA’s application of this budgeting methodology results in a tightening of budgets in states whose projected emissions of that budgeted pollutant decline from 2012 to 2014 as the cost threshold is held constant. There are two primary variables that explain the decrease in emissions for some states between 2012 and 2014 as the cost threshold remains constant over both time periods. First, even though the cost threshold is constant between 2012 and 2014 for the programs noted above, the cost threshold for SO 2 Group 1 increases in 2014. This higher cost threshold for Group 1 SO 2 results in obvious reductions in SO 2 emissions in the Group 1 states, but it also lowers the cost of certain related NO X*** E.O. 12866 Review

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Page 250 of 647 reductions in t hose states as well such that they become newly available within the $500/ton threshold. For example, if a state increases natural gas generation in response to the higher SO 2 cost threshold, such action also yields additional annual and
ozone - season NO X emission reductions that are cost
- effective at the $500/ton NO X threshold. Where the cost curve modeling shows such additional cost
- effective NO X reductions in tandem with SO 2 control, EPA is therefore reducing those states’ 2014 annual NO X and ozone - seas on NO X budgets accordingly, so that those budgets accurately reflect remaining emissions from covered sources in those states after the elimination of all emissions that can be reduced up to the relevant cost thresholds (e.g., $500/ton). Second, some of th ese additional reductions are driven by
non - Transport Rule variables. These are reductions that occur due to state rules, consent decrees, and other planned changes in generation patterns that occur after 2012, but during or prior to 2014. For example, E PA modeling reflects emission reduction requirements under a state rule in Georgia that go es into effect after 2012 but before 2014. These requirements involve the installation and operation of specific advanced pollution controls. These source
- specifi c requirements under a legal authority unrelated to the Transport Rule result in sharp reductions in Georgia’s baseline emission projections between 2012 and 2014. Even though the cost threshold for NO X and for*** E.O. 12866 Review

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Page 251 of 647 SO 2 in Georgia is $500/ton in both 2012 and 2014, EPA believes it is important to establish separate NO X and SO 2 budgets that accurately reflect the emissions remaining in Georgia (and other states experiencing similar reductions) after the elimination of emissions that can be reduced up to the Tran sport Rule remedy’s cost thresholds (e.g., $500/ton) ( See Table VI.D.3. It illustrates a notable decrease between the 2012 and 2014 state budgets for NO X and SO 2 in Georgia that is largely driven by these state rule requirements). If EPA did not adjust 2 014 budgets to account for other emission reductions that would occur even in the baseline, other sources within the state would be allowed to increase their emissions under the unadjusted Transport Rule budgets to offset the emission reductions planned
un der other requirements such as state rules. Therefore, to prevent the Transport Rule from allowing such offsetting of emission reductions already expected to occur between 2012 and 2014, EPA is establishing separate budgets for 2012 and 2014 in the final Transport Rule to capture emission reductions in each state that would occur for non - Transport Rule - related reasons (i.e., in the base case) during that time. EPA’s modeling also projects that other states would slightly increase emissions from 2012 to 201 4 even at the same cost threshold, such as $500/ton. There are two primary variables that explain the increase in emissions for these*** E.O. 12866 Review

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Page 252 of 647 states between 2012 and 2014. These increases are generally small in magnitude. For annual and ozone season NO X , they o ccur as a byproduct of small changes in dispatch related to changes in non
- Transport Rule factors (e.g., higher demand in 2014). For SO 2 , they primarily occur in Group 2 states and, in addition to the reasons given above, are influenced by some generation shifting from Group 1 to Group 2 states as the Group 1 states begin to face a higher cost threshold in 2014. EPA believes that allowing for such emissions growth in covered states beyond 2012 would be inconsistent with the Transport Rule’s identification and elimination of significant contribution to nonattainment and interference with maintenance beginning in 2012. Therefore, for any covered state whose emissions of a relevant pollutant are projected to increase from 2012 to 2014 under the relevant cost thresholds selected in the multi
- factor analysis described above, EPA is finalizing that state’s 2014 emissions budget to maintain the same level of the 2012 emissions budget, thereby disallowing such an emissions increase that is inconsistent with the 11 0(a)(2)(D)(i)(I) mandate. Tables VI.D - 3 and VI.D
- 4 below list state emissions budgets. Table VI.D - 3 - SO2 and Annual NOX State Emission Budgets for Electric Generating Units before Accounting for Variability* (tons)
SO2 NOX Group 2012 - 2013 2014 and 2012 - 2013 2014 and*** E.O. 12866 Review

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Page 253 of 647

beyond beyond Alabama 2 216,033 213,258 72,691 71,962 Georgia 2 158,527 95,231 62,010 40,540 Illinois 1 234,889 124,123 47,872 47,872 Indiana 1 285,424 161,111 109,726 108,424 Iowa 1 107,085 75,184 38,335 37,498 Kansas 2 41,528 41,528 30,714 25,560 Kentucky 1 189,335 106,284 85,086 77,238 Maryland 1 30,120 28,203 16,633 16,574 Michigan 1 194,537 143,995 60,193 57,812 Minnesota 2 41,981 41,981 29,572 29,572 Missouri 1 207,466 165,941 52,374 48,717 Nebraska 2 65,052 65,052 26,440 26,440 New Jersey 1 5,574 5,574 7,266 7,266 New York 1 20,497 11,823 17,543 17,543 North Carolina 1 136,881 57,620 50,587 41,553 Ohio 1 310,230 137,077 92,703 87,493 Pennsylvania 1 278,651 112,021 119,986 119,194 South Carolina 2 88,620 88,620 32,498 32,49 8 Tennessee 1 148,150 58,833 35,703 19,337 Texas 2 243,954 243,954 133,595 133,595 Virginia 1 70,820 35,057 33,242 33,242 West Virginia 1 146,174 75,668 59,472 54,582 Wisconsin 1 79,480 40,126*** E.O. 12866 Review

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Page 254 of 647 31,628 30,398 Grand Total 3,301,008 2,128,264 1,245,869 1,164,910 Group 1 Total 2,445,313 1,338,640 NA NA Group 2 Total 855,695 789,624 NA NA Note - These state emissions budgets apply to emissions from electric generating units greate r than 25 MW and covered by the Transport Rule Program. Group 1/Group 2 designations are only relevant for SO 2 emissions budgets.

* The impact of variability on budgets in discussed in section VI.E The District of Columbia is not covered by the final Transport Rule. As discussed in section V.D of this preamble and as done for the Transport Rule proposal, EPA combined contributions projected in the air quality modeling from Maryland and the District of Columbia to determine whether those jurisdictions collectively contribute to any downwind nonattainment or maintenance receptor in amounts equal to or greater than the 1 percent thresholds. This modeling confirmed that the combined contributions exceed the air quality threshold at downwind receptors for the ozone, annual PM2.5 , and 24
- hour PM2.5 NAAQS considered. Both Maryland and the District of Columbia are therefore linked to these receptors. 55 However, the

55 It is important to note that Maryland’s modeled contributions in isolation were greater than the 1 per cent threshold for all three of the NAAQS considered at all of the same receptors for which Maryland and DC were “linked,” and therefore EPA would have considered Maryland “linked” to the same set of downwind receptors even if the Agency had treated Maryla nd’s*** E.O. 12866 Review

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Page 255 of 647 District of Columbia is not included in the Transport Rule because, in the second step of EPA’s significant contribution analysis, we concluded that there are no emission reductions available from EGUs in the District of Columbia at the cost thresholds deemed sufficient to eliminate significant contribution to nonattainment and interfe rence with maintenance of the NAAQS considered at the linked receptors. At the time of this rulemaking, EPA finds only one facility with units meeting the Transport Rule applicability requirements in the District of Columbia. EPA’s projections do not show any generation from this facility to be economic under any scenario analyzed (including the base case), and the facility’s owners have also announced plans to retire its units in early 2012. 56 Therefore, this unit is projected to have zero emissions in 20 12. As such, the total SO 2 and NO X emissions in the District of Columbia for EGUs that meet the Transport Rule applicability requirements is also projected to be zero. It follows therefore, that EPA did not identify any emission reductions available at a ny of the cost thresholds considered in the final rule’s multifactor analysis contributions and the District of Columbia’s contributions separately. 56 The future retirement status of this D.C. facility was also supported by its inclusion on PJM's future deactivation list. PJM further suggested that reliability issues related t o their retirement are expected to be resolved by next year in time for its planned retirement date (See PJM pending deactivation request in TR Docket).*** E.O. 12866 Review

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Page 256 of 647 to identify significant contribution to nonattainment and interference with maintenance. For this reason, EPA concludes that no additional limits or reductions are necessary, at this time, in the District of Columbia to satisfy the requirements of section 1 10(a)(2)(D)(i)(I) with respect to the 1997 ozone, the 1997 PM2.5 and the 2006 PM2.5 NAAQS. EPA is therefore neither establishing budgets nor finalizing any FIPs for the Distri ct of Columbia in this rule. Table VI.D - 4 - Ozone Season NOX State Emissions Budgets for Electric Generating Units Before Accounting for Variability* (tons) 2012 2014 Alabama 31,746 31,499 Arkansas 15,037 15,037 Florida 27,825 27,825 Georgia 27 ,944 18,279 Illinois 21,208 21,208 Indiana 46,876 46,175 Kentucky 36,167 32,674 Louisiana 13,432 13,432 Maryland 7,179 7,179 Mississippi 10,160 10,160 New Jersey 3,382 3,382 New York 8,331 8,331 North Carolina 22,168 18,455 Oh io 40,063 37,792 Pennsylvania 52,201 51,912 South Carolina 13,909 13,909 Tennessee 14,908 8,016 Texas 63,043 63,043 Virginia 14,452 14,452 West Virginia 25,283 23,291 Total 495,314 466,051 Note - These state emission budgets apply t o emissions from*** E.O. 12866 Review

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Page 257 of 647 electric generating units greater than 25 MW and covered by the Transport Rule Program. Group 1/Group 2 designations are only relevant for SO 2 emissions budgets. *The impact of variability on budgets in discussed in section VI.E

EPA notes that the NO X budgets for five states linked to downwind ozone receptors in the final Transport Rule are equal to their projected 2012 base case emissions. The five states are Arkansas, Indiana, Louisiana, Maryland, and Mississippi. These states are among those found to meet or exceed the 1 percent contribution threshold for the 1997 ozone NAAQS at downwind receptors and are thus “linked” to downwind receptors. EPA therefore evaluates, in the second step of its significant contribut ion analysis, what emission limits are necessary to ensure that all emissions that constitute the state’s significant contribution to nonattainment and interference with maintenance are prohibited. As explained above, EPA decided to require from all such states all reductions available at the $500/ton cost threshold. The five states identified above do not appear to show EGU ozone season NO X reductions at the $500/ton cost threshold relative to the 2012 base case projections (which do not take int o account reductions to be*** E.O. 12866 Review

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Page 258 of 647 made in other states as a result of this rule). Therefore, EPA conducted further analysis to evaluate whether such reductions were available in these states and whether emission limits are necessary to prohibit these states from significantly contributing to downwind nonattainment or interfering with maintenance of the 1997 ozone NAAQS in other states. Specifically, EPA projected those states’ ozone
- season NO X emissions if all other linked states (but not these five states)
were to make all available reductions at the $500/ton threshold. That analysis revealed that if emission limits were not established for these five states, ozone
- season NO X emissions in each of the states would increase (beyond the 2012 base case emiss ion projections), due to interstate shifts in electricity generation that cause “emissions leakage” in uncovered states. These increases would result in each state’s emissions being above the level associated with the prohibition of all emissions that can be eliminated at the $500/ton threshold. EPA thus determined that it is necessary to establish emission limits for these states at the $500/ton level. These limits, although equal to the state’s 2012 projected base case emissions, are necessary to prohibit all emissions that can be controlled at the $500/ton cost threshold. In other words, the significant contribution to nonattainment and interference with maintenance addressed by the ozone FIPs for these states is the difference*** E.O. 12866 Review

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Page 259 of 647 between these s tates’ projected emissions if they were not covered under the Transport Rule (but other states were), and their emissions after all emissions that can be eliminated at $500/ton are prohibited. In addition, EPA notes that four of these five states (Arkansa s, Indiana, Louisiana, and Mississippi) are linked to receptors in either the Houston or Baton Rouge areas, which are projected to continue facing nonattainment or maintenance concerns with the 1997 ozone NAAQS, respectively. To allow these states to incr ease emissions above base case projections would erode the measurable progress toward eliminating significant contribution to nonattainment and interference with maintenance secured by achieving ozone
- season NO X reductions in the other states linked to the se receptors. Furthermore, as discussed in section III, EPA may require additional reductions in these states to fully address significant contribution to nonattainment and interference with maintenance with respect to the 1997 ozone NAAQS in a future ru lemaking to be proposed after finalizing reconsideration of the 2008 ozone NAAQS. b. Relationship of Group 1 and Group 2 States for SO 2 Control In the Proposal, EPA chose not to allow sources in Group 1 states to use Group 2 SO 2 allowances for compliance, and likewise not to allow sources in Group 2 states to use Group 1 SO 2*** E.O. 12866 Review

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Page 260 of 647 allowances for compliance at any time. The preamble clearly states, “With regard to interstate trading, the two SO 2 stringency tiers would lead to two exclusive SO 2 trading groups. That is, states in SO 2 Group 1 could not trade with states in SO 2 Group 2.” No such distinction or limitation exists for NO X allowance trading. EPA received significant public comment both in support and opposition to the two distinct SO 2 trading programs . T hose in opposition noted that the variability limits imposed at the state level made the compliance restrictions between the two groups unnecessary. Commenters also noted that it may unfairly penalize sources that are part of the same airshed, but are on opposite sides of a state boundary. Those in favor of the separate SO 2 compliance programs noted that it would reduce the probability of a state exceeding its variability limit. Allowing the use of Group 1 or Group 2 allowances for compliance between the two SO 2 programs would potentially encourage Group 1 states to purchase allowances instead of making reductions necessary to eliminate significant contribution. Group 1 states are states that need continued reductions (beyond the $500/ton threshold) to e liminate their significant contribution to nonattainment and interference with maintenance . Group 2 states have already eliminated their significant contribution to nonattainment and interference with maintenance at the*** E.O. 12866 Review

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Page 261 of 647 $500/threshold. So to allow Group 1 or Group 2 allowances to be used interchangeably for compliance between the two SO 2 groups would be to allow the shifting of reductions from areas where they are needed to eliminate significant contribution to nonattainment and interference with maintenance to areas where they are not needed to eliminate the prohibited emissions . EPA also agrees that allowing for trading between the two groups in the remedy finalized in this action would increase risk of a state exceeding its variability limit. For these reasons, EPA is finalizing this rulemaking with the same prohibition on SO 2 trading between Group 1 and Group 2 states that was defined in the proposal. Further, EPA clarifies that while trading of allowances (i.e., buyin g, selling, and banking) is allowed without restriction, it is specifically the surrender of SO 2 allowances for compliance that is limited. As mentioned earlier, a source in a Group 1 state can only use SO 2 allowances allocated to Group 1 states for compl iance with the SO 2 trading program. Likewise, a source in a Group 2 state can only use SO 2 allowances allocated to Group 2 states for compliance with the SO 2 trading program. c. Ozone Season Budgets EPA established the ozone
- season NO X budgets in a simil ar manner to the annual NO X and SO 2 budgets by using the state level emissions from the cost threshold that reflected the removal of*** E.O. 12866 Review

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Page 262 of 647 significant contribution to nonattainment and interference with maintenance . Ozone - season budgets were set equal to the state level emissions from fossil
- fuel - fired units greater than 25 MW observed at this cost threshold . As described in section VI.B, all cost thresholds examined reflected the final Transport Rule geography and the marginal cost s were applied a ccordingly. Therefore, for an ozone - only state like Florida, the state level emissions would only reflect a n ozone - season cost threshold of $500/ton in the final cost curves for 2012 and 2014. For a state subject to both annual and ozone
- season program s , the marginal cost curves would reflect a $500/ton NO X cost year round, a $500/ton SO 2 cost in 2012 and the $2,300/ton SO 2 cost starting in 2014 if a Group 1 state. (1 ) Length of ozone season (a) Proposed Rule. For purposes of determining ozone
- sea son budgets in the proposed rule, EPA defined the ozone season based on a 5 month period (May 1 through September 30). This 5 month ozone season was consistent with the approach taken by the OTAG, the NO X SIP Call, and CAIR. EPA requested comment on wh ether EPA should base final rule budgets on a longer season, such as March through October. (b) Public Comments. Several commenters supported continuing with the May through September time period. One commenter supported continuing with this time period , but argued*** E.O. 12866 Review

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Page 263 of 647 that EPA should consider lengthening the ozone season for future efforts. One commenter questioned the concept of ozone season budgets and recommended EPA focus on sources with greater emissions on high ozone days. (c) Final rule. For the final rule, EPA has retained the approach in the proposed rule, as commenters broadly supported the proposal’s ozone - season duration and ozone
- season NO X limitations . Notably, many Transport Rule states covered for PM2.5 reductio ns will have sources with annual NO X controls that are likely to keep operating year round to address PM2.5 and ozone. EPA believes that experience from ozone
- season NO X trading has consistently shown that the emission measures taken to comply with ozo ne - season budgets provide emission reductions throughout the ozone - season, including the highest ozone days. (See NO X Budget Trading Program and CAIR Program progress reports in the docket to this rulemaking or at http://www.epa.gov/airmarkets/progress/nbp08.html and http://www.epa.gov/airmarkets/progress/CAIR_09/CAIR09.html .) However, EPA believes that there is mer it in future Agency actions addressing ozone transport in considering strategies to target high ozone days more specifically. d. Summary of C ost Thresholds and Final Budgets for PM2.5 and Ozone*** E.O. 12866 Review

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Page 264 of 647 Summary of methodology. In summary, EPA determined that SO 2 emissions that could be reduced for $2,300/ton in 2014 should be considered a state’s significant contribution to nonattainment and interference with maintenance , unless EPA determined that a lesser reduction would fully resolve the nonattainment and/or
maintenance problem for all the downwind monitoring sites to which a particular state might be linked. For these Group 2 states EPA is determining that a lesser reduction of SO 2 , based on the amount of SO 2 reductions that can be reasonably achieved by 2012 is appropriate. This level is defined by the reductions observed in the $500/ton cost threshold . EPA also determined that all states linked to downwind PM2.5 nonattainment and maintenance problems should be required to achieve those emission reductions that can be reasonably achieved by 2012. Finally, EPA determined that all states linked to downwind PM2.5 nonattainment and maintenance problems should, by 2012, remove all NO X emissions that can be reduced for $500/ton and run all existing controls in 20 12. For ozone season NO X , EPA determined that all states linked to downwind ozone and nonattainment and maintenance problems should be required to achieve those ozone season emission reductions associated with a cost threshold of $500 per ton. Additiona lly, EPA examined final 2012 and 2014 budgets based on state level emissions at $500 cost threshold.*** E.O. 12866 Review

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Page 265 of 647 The budget formation methodology finalized in this action responds to concerns about state budgets expressed by commenters on the Transport Rule proposal. EPA requested comment on the four step approach used to determine significant contribution and determine budgets in the proposal. Some commenters noted that the state level emissions from the cost thresholds used to determine significant contribution to nonattainment and interference with maintenance did not match the state level emissions allowed by the final budgets. The concern was that the state level emissions that reflected the elimination of significant contribution in the AQAT analysis, in partic ular for NO X , were less than the emissions allowed by the final budgets. The result would be an implementation that did not quite fully eliminate the significant contribution to nonattainment and interference with maintenance defined in the rule. The proposed budgets not matching the levels reflected in the proposed costing runs were an artifact of the budget formation process that relied on a combination of historic and projected data. While EPA noted this process resulted in state budgets that “reflect ed” EGU emissions at $500/ton, it was not always consistent with the EGU emissions at $500/ton in the costing runs as the commenters noted. By using the cost curves to determine both significant contribution to nonattainment and interference with maintena nce -- and state budgets -- in the*** E.O. 12866 Review

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Page 266 of 647 final rule, EPA addresses the commenter’s concerns about any inconsistency between the two in the proposal. Some commenters expressed concern that the Transport Rule would result in state budgets that were in some cases higher than those established in CAIR. Commenter s suggested that this would be inconsistent with requirements or the spirit of certain CAA provisions aimed at preventing backsliding, i.e., sections 110(l), 172(e), and 193. However, the D.C. Court of App eals rejected the state budgets in CAIR as arbitrary and capricious and not consistent with CAA section 110(a)(2)D)(i)(I) ( North Carolina, 531 F.3d 918 and 921) and remanded CAIR to EPA to promulgate a new rule replacing CAIR and consistent with the Cou rt's decision (North Carolina, 550 F.3d 1178). As discussed elsewhere in this section, on remand EPA developed new, final state budgets that address the Court's concerns and meet section 110(a)(2)(D)(i)(I) requirements. Although some state budgets unde r the final rule are higher than those under CAIR, this does not violate either the letter or the spirit of CAA provisions aimed at backsliding. In particular, CAA section 110(l) provides that the Administrator may not approve a plan revision that would " interfere with any...applicable requirement" of the CAA. 42 U.S.C. 7410(l). Because the Court reversed and remanded CAIR with instructions to "remedy" the rule's "fundamental flaws" (including*** E.O. 12866 Review

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Page 267 of 647 specifically the state budgets found to be unlawful (North Ca rolina, 550 F.3d 1178 ), it is difficult to see how new state budgets replacing unlawful budgets and meeting section 110(a)(2)(D)(i)(I) requirements could be viewed as interfering with requirements of the CAA. Indeed, the commenters' approach would severel y limit EPA's ability to meet the Court's mandate to develop a new rule consistent with section 110(a)(2)(D)(i)(I). See North Carolina, 531 F.3d 921 (explaining that EPA may not require "some states to exceed the mark" of eliminating their significant con tribution). Further, the other CAA sections cited by the commenters (section 172(e), addressing circumstances where the Administrator relaxes a NAAQS, and section 193, addressing the treatment of requirements promulgated before the November 15, 1990, enac tment date for the 1990 Amendments to the Clean Air Act) are not applicable here. Additionally, while the CAIR budgets may have been tighter than Transport Rule state budgets for a couple of states, the sum of state budgets that were subject to both CAIR and the Transport Rule is lower under the Transport Rule for the annual programs. Moreover, the carryover of the large Title IV allowance bank in CAIR allowed for a great deal more emissions within any given state than is permitted under the Transport Rul e.*** E.O. 12866 Review

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Page 268 of 647 E. Approach to Power Sector Emission Variability 1. Introduction to Power Sector Variability Variability is an inherent aspect of the production and delivery of electricity. In particular, emission variability is built into the design of power systems , which use a wide mix of power generation sources with varying use and emissions patterns. Electricity is dispatched to meet loads while minimizing costs, with less expensive sources, such as coal
fired boilers, generally used before more expensive sourc es, such as natural - gas - fired combustion turbines. Since cheaper sources may have very different emission rates

– - often, as in the case of coal units compared to natural gas units, much higher emission rates
-- variations in the level of loads can have a significant impact on the level of emissions. Loads on a power system vary over every time interval, changing not only in the short term and seasonally, but also annually. Load patterns and levels are determined by a number of factors, including economic activity and weather, which vary over time. In particular, weather obviously varies not just from season to season but also from year to year, and even small changes in annual weather patterns can affect how the power system operates during a year. Fo r example, load, and the resulting use of generation sources on an interconnected grid to meet load, depend not only on how hot a summer day is, but also*** E.O. 12866 Review

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Page 269 of 647 on how long a heat wave lasts. Similarly, a relatively cold winter that drives up winter load may als o change what generation sources are used. Thus, the pattern of generation may shift geographically as a weather pattern moves across the country. Because weather and other factors affecting loads, and the patterns of generation used to meet loads, vary over time and from state to state, the resulting level of emissions also varies over time and from state to state. In the final Transport Rule, like the proposed rule, EPA explicitly takes account of power sector emission variability . As discussed pre viously, EPA identified a specific amount of emissions that must be prohibited by each state to meet the requirements of CAA section 110(a)(2)(D)(i)(I). EPA also developed state baseline emissions based on projections of state emissions in an average year before the elimination of prohibited emissions , and state budgets based on projections of state emissions in an average year after the elimination of such emissions. However, because of the inherent variability in state - level baseline emissions

– - result ing from the inherent variability in loads and power system operations
-- state - level emissions are likely to vary even after all significant contribution to nonattainment and interference with maintenance that EPA identified in this final rule are elimina ted. EPA believes that, because baseline emissions are variable and*** E.O. 12866 Review

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Page 270 of 647 emissions after the elimination of all significant contribution to nonattainment and interference with maintenance are therefore also variable, it is appropriate to take this variability into account in developing the remedy for meeting the requirements of CAA section 110(a)(2)(D)(i)(I). For this reason, EPA is finalizing variability limits for each state budget to identify the range of emissions that EPA believes is likely to occur in
ea ch state following the elimination of all the state’s significant contribution to nonattainment and interference with maintenance. As discussed in detail in section VII, the air quality
assured trading remedy’s state - specific budgets represent each state’s emissions in an average year after elimination of significant contribution to nonattainment and interference with maintenance. Because actual base case emissions are likely to vary from projected base case emissions, this remedy incorporates provisions that account for such variability. EPA believes that the remedy uses variability limits in a way that both provides the flexibility of interstate trading for dealing with real
- world variability in the operation of the power syst em and for reducing costs of compliance with emission reduction requirements, as well as providing assurance for downwind states that significant contribution to nonattainment and interference with maintenance by upwind states will be eliminated.*** E.O. 12866 Review

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Page 271 of 647 Moreover, EPA believes that the variability limits are used in a way that also does not allow an overall increase in emissions. Under the remedy, an individual state can have emissions up to its budget plus the variability limit. However, the requirement that all sources hold allowances covering emissions, and the fact that those allowances are allocated based on state - specific budgets without variability, ensure that the total emissions from the states do not exceed the sum of the state budgets. The remedy, therefore, ensures both that total emissions do not exceed the total of the state budgets and that the required emission reductions occur in each state. This section describes how EPA calculated variability limits for each state to achieve this goal. 2. Tr ansport Rule Variability Limits EPA performed analyses using historical data to demonstrate that there is year
- to - year variability in base case emissions (even when emission rates for all units are held constant) and to quantify the magnitude of this variability. The focus of the analysis is on quantifying the magnitude of the inherent year
- to - year variability in state
- level EGU emissions independent of measures taken to control those emissions (and thus due only to changes in electricity generation withi n each state). EPA used this analysis to set variability limits as part of the remedy to ensure that states*** E.O. 12866 Review

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Page 272 of 647 are eliminating their significant contribution to nonattainment and interference with maintenance to protect air quality. As discussed in detail be low, EPA is finalizing the Transport Rule with one
- year variability limits calculated using a modified approach from the one described in the proposal. EPA is not including the proposal’s three
- year variability limits in the final Transport Rule. EPA rec eived comments that the three
year variability limits increased program costs and diminished compliance flexibility without delivering any additional air quality benefits. EGU owners and operators expressed concern that three - year variability limits would be impracticable to implement and that the one
- year variability limits themselves would be adequately stringent to ensure elimination of significant contribution to nonattainment and interference with maintenance in each state. After further consideration , EPA has concluded that three year variability limits would be unnecessary, would be difficult to anticipate, and would not have a measurable impact on air quality benefits. EPA has determined that annual limits are sufficient to eliminate significant con tribution to nonattainment and interference with maintenance in all upwind states while accommodating the historically observed year
- to year fluctuation in state
- level EGU emissions even at the same rate of emissions control in a given state.*** E.O. 12866 Review

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Page 273 of 647 In the propos al, EPA used statistical methods to derive the three - year variability limit directly from the one
- year variability limit, meaning that the two are statistically equivalent in the long run under certain statistical assumptions. Primarily, these assumptions were that the variation in electric demand around the budget is random from year to year and that, when the annual emissions are averaged over a multi
- year time
- period, the average emissions per year will equal the state’s budget. The first assumption wa s also made in the assessment of the historical year
- to - year variation in heat input in developing the one
- year limit (see section 2 of the “Power Sector Variability Final Rule TSD ” for more details). Regarding the second assumption, since the state
- by - s tate emission budgets are based on the availability of emission reductions at an equal marginal cost level, EPA expects the sources in each of the upwind states to make these cost
effective reductions and to meet the emission budgets each year, on average. Since the three
- year variability limit was based on average year - to - year variability over a longer time horizon, EPA notes that a random ordering of those years could yield two above
average years in a row. If, by chance, a third above
- average year were to follow, the state could face violation of the three - year limit, even if over a time period longer than three*** E.O. 12866 Review

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Page 274 of 647 years, that state would never have exceeded the statistically
equivalent one
- year variability limit and its annual emissions would have average d to the level of its budget. Effectively, this means that imposing a multi
- year variability limit would erode the one - year variability limit’s ability to accommodate historically observed year
- to - year variability in state
- level EGU emissions (due only to generation changes), and it would do so without providing any additional air quality benefits or protection for downwind areas (since the average emissions over the long time horizon equal the level of the budget). For more details about the relationship between the one and three - year limits, see the discussions in section 3 of the “Power Sector Variability” TSD from the proposed Transport Rule, which describes the derivation of the three
- year limit from the
one - year variability and section 3 of the “Powe r Sector Variability F inal Rule TSD ” , which describes the results of a numerical simulation showing that the one
- and three - year limits result in similar numbers of exceedances. While EPA expects the yearly emissions in each state, on average, to equal the level of the budgets, EPA also estimated the air quality impacts of 5 , 10 , 15, and 20 percent emission variability using the air quality assessment tool (see section 4 of the “Power Sector Variability Final Rule TS D ” for more details). This analysis suggests that the air quality impacts*** E.O. 12866 Review

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Page 275 of 647 are small when all upwind states linked to a particular receptor monitor increase their SO 2 emissions to any of the variability levels (5, 10, 15, or 20 percent) . Furthermore, bec ause the state budgets are based directly on IPM modeling of electric generation when cost
- effective emissions have been removed, sources within each state should have the same incentive to meet that budget, on average, in any given year. Additional EPA a nalysis supports the claim that states would be no more likely to exceed one
- year variability limits without the three
- year limits than with the three
- year limits. See the “Power Sector Variability Final Rule TSD ” for more details on this statistical ana lysis. Finally, because the state budgets (and thus the total amount of allowances available) are fixed and every covered source must hold allowances covering its emissions, it is not feasible for all, or even many, states to repeatedly exceed their budge ts. The approach calculated the standard deviation in state
level heat input over a 7
- year time period (2002 through 2008), from which the 95th percent confidence level was calculated. EPA divided this value by the mean to get the percentage variation i n heat input. The two - tailed 95th percent confidence level is the equivalent of the 97.5 percent upper (single
- tailed) confidence level. Data from 2009 were not included because of unusually adverse economic conditions in that year (not*** E.O. 12866 Review

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Page 276 of 647 representative of long - run average year - to - year variability) that would potentially skew the variability outcomes for all states. This approach yielded an average year
- to - year heat input variability for each state. EPA multiplied the percentage heat input variability val ue in each state by the emission budget to determine the emission variability. From the state - by - state emission variability values, EPA identified a single variability level (percentage) based on the historic variability of covered states in the four tradi ng programs that would provide adequate flexibility in almost all cases. As in the proposal, EPA made the decision to adopt a single, uniform percentage level, to the extent possible, applicable to all states in favor of simplicity and straightforward imp lementation. Most states’ historic variability in year
- to - year emissions of the covered pollutants (holding emission rates constant) were within 10 percent of their average annual emissions. Therefore, for those states and those pollutants, EPA set a vari ability limit of 10 percent of the state budget. Where EPA’s analysis found states that experienced historic variability of a covered pollutant’s emissions greater than 10 percent of its average annual emissions, EPA rounded those budgets’ variability limi t percentages up to the next five
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Page 277 of 647 successfully accommodated the historically observed variability. In other words, based on their historic variability, states are clustered into the following groups fo r each covered pollutant : (1) those with up to 10 percent variability who receive a 10 percent variability limit; (2) those with historic variability exceeding 10 percent but less than 15 percent who receive a 15 percent variability limit; and (3) those wi th historic variability exceeding 15 percent who receive a 20 percent variability limit. For example, for ozone
- season NO X emissions, EPA determined Louisiana’s historic variability to be over 18 percent and is thus setting its variability limit at 20 per cent of its state budget for ozone
- season NO X . In this way, each state has adequate operational flexibility and total emissions are only as high as historical data supports. This approach is a modification of the proposal, which also identified a single variability limit for all states and all pollutants (10 percent) but took a slightly different and more complex approach to accommodating states whose historic variability exceeded 10 percent. For each pollutant, the proposal calculated an absolute tonnage of historic variability for the state with the largest exceedance of 10 percent and then offered all states the greater of 10 percent or that tonnage amount ( 75 FR 45293 ) . EPA received comments that the tonnage limits were unreasonably large for some states with small*** E.O. 12866 Review

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Page 278 of 647 budgets. In some cases under the proposal’s approach, states taking the tonnage amount would have received a variability limit of more than 50 percent of their annual budget. As a result, these comments led EPA to consider alternative ways to accommodate historic variability while avoiding the incidental surplus to some states observed above; EPA thus developed this final approach as a direct and logical outgrowth that addresses the commenters’ objections. The variability limit approach EPA is finalizing is a variation of the proposed approach that results in no material change for the majority of states for each pollutant. This is the case because most states will have a variability limit equal to 10 percent of their budget using either this final approach or the proposed approach, so the result is identical. There is only one state for SO 2 and one state for annual NO X in the final rule whose historic variability exceeds 10 percent; there is no appreciable difference in the variability l imits established for these two states under either approach. The finalized approach’s main purpose is to address the phenomenon noted above from the proposal’s approach that would otherwise yield surplus ozone
season NO X variability in a subset of ozone s tates whose historic variability exceeds 10 percent. The final rule’s methodology described above yields variability limits that better represent these states’ historic variability than the tonnage limitation*** E.O. 12866 Review

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Page 279 of 647 that would emerge from application of the prop osal’s methodology. The final rule’s approach remains entirely consistent with EPA’s objective of allowing EGUs the operational flexibility they need while maintaining average annual emission reductions required in each state under the rule. In both the proposal and this final rule, EPA has avoided calculating unique, custom percentages for each state in order to simplify the approach, to group states with similar needs, and to acknowledge that, by definition, in some years states will be above the histor ical average. EPA believes that switching from a single maximum tonnage to a more tailored percentage for only those states with relatively high historical heat input variability is a reasonable, measured improvement that achieves the same objectives, whi le simplifying the variability limits methodology and aligning the limits more closely with the amount of flexibility needed by each state. EPA received a number of comments that variability limits were too stringent and should be increased to better acc ount for actual emission variability or variability in extreme situations and to minimize program costs. However, EPA is not increasing the broadly applied 10 percent variability limit for the final rule because, based on historical data, the Agency believes states will have sufficient flexibility and room to operate within the final variability limits while achieving elimination*** E.O. 12866 Review

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Page 280 of 647 of significant contribution to nonattainment and interference with maintenance in each state. F. Variability Limits and State Emission Budgets: State Assurance Levels As explained above, EPA determined variability limits for each state and applied the variability limits on a state
- by state basis to calculate specific emission budgets with variability limits. The state budget plus the variability limit is also called the “state assurance level.” Table VI.F
- 1 shows final state budgets, variability limits, and assurance levels by state for SO 2 emissions. Table VI.F
- 2 shows final state budgets, variability limits, and assurance level s by state for annual NO X emissions. Table VI.F
- 3 shows final state budgets, variability limits, and assurance levels by state for ozone - season NO X emissions.
Table VI.F- 1 – State Budgets, Variability Limits, and Assurance Levels for SO2 Emissions Emis sion Budget (tons) Emission

Variability Limit (tons) State Emissions

Assurance Level (tons) 2012 - 2013 2014 and

beyond 2012 -

2013 2014 and

beyond 2012 -

2013 2014 and

beyond Alabama 216,033 213,258 21,603 21,326 237,636 234,584 Georgia 158,527 95,231 15,853 9,523 174,380 104,754 Illinois 234,889 124,123 23,489 12,412 258,378 136,535 Indiana 285,424 161,111 28,542 16,111 313,966 177,222 Iowa 107,085 75,184 10,709 7,518 117,794 82,702 Kansas 41,528 41,528 4,153 4,153 45,681 45,681 Kentucky 189,335 1 06,284 18,934 10,628 208,269 116,912 Maryland 30,120 28,203 3,012 2,820 33,132 31,023*** E.O. 12866 Review

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Page 281 of 647 Michigan 194,537 143,995 19,454 14,400 213,991 158,395 Minnesota 41,981 41,981 4,198 4,198 46,179 46,179 Missouri 207,466 165,941 20,747 16,594 228,213 182,535 Nebra ska 65,052 65,052 6,505 6,505 71,557 71,557 New Jersey 5,574 5,574 1,115 1,115 6,689 6,689 New York 20,497 11,823 2,050 1,182 22,547 13,005 North Carolina 136,881 57,620 13,688 5,762 150,569 63,382 Ohio 310,230 137,077 31,023 13,708 341,253 150,785 Pe nnsylvania 278,651 112,021 27,865 11,202 306,516 123,223 South Carolina 88,620 88,620 8,862 8,862 97,482 97,482 Tennessee 148,150 58,833 14,815 5,883 162,965 64,716 Texas 243,954 243,954 24,395 24,395 268,349 268,349 Virginia 70,820 35,057 7,082 3,506 77,902 38,563 West Virginia 146,174 75,668 14,617 7,567 160,791 83,235 Wisconsin 79,480 40,126 7,948 4,013 87,428 44,139 Note: Budgets, limits, and assurance levels apply to each state’s emissions from covered sources, as defined by this final rule, on ly. Table VI.F- 2 – State Budgets, Variability Limits, and Assurance

Levels for Annual NOX Emissions Emission Budget (tons) Emission

Variability Limit (tons) State Emissions

Assurance Level (tons) 2012 - 2013 2014 and

beyond 2012 -

2013 2014 and

beyond 2012 -

2013 2014 and

beyond Alabama 72,691 71,962 7,269 7,196 79,960 79,158 Georgia 62,010 40,540 6,201 4,054 68,211 44,594 Illinois 47,872 47,872 4,787 4,787 52,659 52,659 Indiana 109,726 108,424 10,973 10,842 120,699 119,266 Iowa 38,335 37,498 3,834 3,750 42,169 41,248 Kansas 30,714 25,560 3,071 2,556 33,785 28,116 Kentucky 85,086 77,238 8,509 7,724 93,595 84,962 Maryland 16,633 16,574 1,663 1,657 18,296 18,231 Michigan 60,193 57,812 6,019 5,781 66,212 63,593 Minnesota 29,572 29,572 2,957 2,957 32,529 32,529 Missouri 52,374 48,717 5,237 4,872 57,611 53,589 Nebraska 26,440 26,440 2,644 2,644 29,084 29,084 New Jersey 7,266 7,266 727 727 7,993 7,993 New York 17,543 17,543 2,631 2,631 20,174 20,174 North Carolina 50,587 41,553 5,059 4,155 55,646 45,708 Ohio 92,703 87,493 9,270 8,749 101,973 96,242 Pennsylvania 119,986 119,194 11,999 11,919 131,985 131,113 South 32,498 32,498 3,250 3,250 35,748 35,748*** E.O. 12866 Review

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Page 282 of 647 Carolina Tennessee 35,703 19,337 3,570 1,934 39,273 21,271 Texas 133,595 133,595 13,360 13,3 60 146,955 146,955 Virginia 33,242 33,242 3,324 3,324 36,566 36,566 West Virginia 59,472 54,582 5,947 5,458 65,419 60,040 Wisconsin 31,628 30,398 3,163 3,040 34,791 33,438 Note: Budgets, limits, and assurance levels apply to each state’s emissions from covered sources, as defined by this final rule, only. Table VI.F- 3 – State Budgets, Variability Limits, and Assurance

Levels for Ozone - Season NOX Emissions Emissions Budget (tons) Emissions

Variability Limit (tons) State Emissions

Assurance Level (tons) 2012 - 2013 2014 and

beyond 2012 -

2013 2014 and

beyond 2012 -

2013 2014 and

beyond Alabama 31,746 31,499 3,175 3,150 34,921 34,649 Arkansas 15,037 15,037 3,007 3,007 18,044 18,044 Florida 27,825 27,825 2,783 2,783 30,608 30,608 Georgia 27,944 18,2 79 4,192 2,742 32,136 21,021 Illinois 21,208 21,208 2,121 2,121 23,329 23,329 Indiana 46,876 46,175 4,688 4,618 51,564 50,793 Kentucky 36,167 32,674 3,617 3,267 39,784 35,941 Louisiana 13,432 13,432 2,686 2,686 16,118 16,118 Maryland 7,179 7,179 718 7 18 7,897 7,897 Mississippi 10,160 10,160 1,016 1,016 11,176 11,176 New Jersey 3,382 3,382 507 507 3,889 3,889 New York 8,331 8,331 1,250 1,250 9,581 9,581 North Carolina 22,168 18,455 2,217 1,846 24,385 20,301 Ohio 40,063 37,792 4,006 3,779 44,069 41, 571 Pennsylvania 52,201 51,912 5,220 5,191 57,421 57,103 South Carolina 13,909 13,909 1,391 1,391 15,300 15,300 Tennessee 14,908 8,016 2,236 1,202 17,144 9,218 Texas 63,043 63,043 6,304 6,304 69,347 69,347 Virginia 14,452 14,452 2,168 2,168 16,620 16, 620 West Virginia 25,283 23,291 2,528 2,329 27,811 25,620 Note: Budgets, limits, and assurance levels apply to each state’s emissions from covered sources, as defined by this final rule, only. See Section VII.E for the discussion of how variability limits and state assurance levels are used in the implementation*** E.O. 12866 Review

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Page 283 of 647 of assurance provisions for the air quality
- assured trading programs . G. How the State Emission Reduction Requirements are Consistent with Judicial Opinions Interpreting the C lean Air Act The methodology described in this notice quantifies states’ significant contribution to nonattainment and interference with maintenance in a manner that is consistent with the decisions of the D.C. Circuit. As discussed previously, the D.C. C ircuit has issued two significant decisions addressing the requirements of 110(a)(2)(D)(i)(I). The first opinion largely upheld the NO X SIP Call, Michigan , 213 F.3d 663, and the second found significant flaws in CAIR, North Carolina , 531 F.3d. 896. In bo th cases, the Court considered aspects of the methodology used by EPA to identify emissions that, pursuant to section 110(a)(2)(D)(i)(I), must be eliminated due to their impact on air quality in downwind states. EPA believes that the methodology used in t his final rule is consistent with both opinions and rectifies the flaws the North Carolina court identified with the methodology used in CAIR. The methodology used for this rule relies on state - specific data to analyze each individual state’s significant contribution, uses air quality considerations in addition to cost considerations to identify each state’s significant contribution, and gives independent meaning to the*** E.O. 12866 Review

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Page 284 of 647 “interference with maintenance” prong. This methodology is then applied in a reasonabl e manner consistent with the relevant judicial opinions. In North Carolina , the Court held that EPA’s approach to evaluating significant contribution was inadequate because, by evaluating only whether emission reductions were highly cost effective “at the regional level assuming a trading program”, it failed to conduct the required state
- specific analysis of significant contribution. See id . at 907. EPA, the Court concluded, “never measured the ‘significant contribution’ from sources within an individual state to downwind nonattainment areas.” Id . The Court did not, however, disturb the air
quality
- based methodology used by EPA to identify the states with contributions large enough to warrant further consideration. For this rule, EPA uses a first step similar to that used in CAIR to identify the states with relatively large contributions. However, in contrast to CAIR, it then uses a state - specific analysis. Instead of identifying a single emissions level that could be achieved by the application of high ly cost effective controls in the region, EPA determines, on a state - by - state basis , what reductions could effectively be achieved by sources in each state. EPA’s new approach does not, as the CAIR methodology did, establish a regional cap on*** E.O. 12866 Review

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Page 285 of 647 emissions th at is then divided into state budgets that set the emission reduction requirements for each state. Instead, EPA develops, for each covered state, emission budgets based on the reductions achievable at a particular cost per ton in that particular state, ta king into account the need to ensure reliability of the electric generating system. The selected cost/ton levels reflect consideration of both cost factors and air quality factors including the estimated impact of upwind states’ emissions on each downwind receptor. In addition, in developing this approach, EPA was guided by the Court’s holdings regarding the use of cost to identify significant contribution. Specifically, the Court held in Michigan that EPA could “in selecting the ‘significant’ level of ‘c ontribution’ under section 110(a)(2)(D)(i)(I), choose a level corresponding to a certain reduction in cost.” North Carolina , 531 F.3d at 917 (citing Michigan , 213 F.3d at 676
- 77). This holding also supported the Court’s conclusion in Michigan that it was acceptable for EPA to apply a uniform cost
- criterion across states. See Michigan , 213 F.3d at 679. In the CAIR case, the Court rejected EPA’s analysis, not because it relied on cost considerations to identify significant contribution, but because it fou nd that EPA had failed to draw the significant contribution line at all. See North Carolina , 531 F.3d at 918 (“. . . here EPA did not draw the [significant contribution]*** E.O. 12866 Review

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Page 286 of 647 line at all. It simply verified sources could meet the SO 2 caps with controls EPA dubbed ‘highly cost
- effective.’”). The holdings in Michigan regarding the use of cost and a uniform cost - criterion across states were left undisturbed. See, e.g., North Carolina , 531 F.3d at 917 (explaining that in Michigan the Court held that “EPA may ‘af ter [a state’s] reduction of all [it] could . . . cost
- effectively eliminate[],’ consider ‘any remaining contribution insignificant”). In fact, the Court acknowledged that, based on the Michigan holdings, the measurement of a state’s significant contribut ion need not “directly correlate with each state’s individualized air quality impact on downwind nonattainment relative to other upwind states.” North Carolina , 531 F.3d at 908. For these reasons, EPA determined that it was appropriate in this rulemaking to consider the cost of controls to determine what portion of a state’s contribution is its “significant contribution.” However, EPA also heeded the North Carolina Court’s warning that “EPA can’t just pick a cost for a region, and deem ‘significant’ any emissions that sources can eliminate more cheaply.” North Carolina , 531 F.3d at 918. Thus, in this rulemaking, EPA departs from the practice used in the NO X SIP Call and in CAIR of evaluating, based solely on the cost of control required in other regulat ory environments, what controls would be considered “highly
- cost - effective.” Instead, as part*** E.O. 12866 Review

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Page 287 of 647 of its determination of a reasonable cost per ton for upwind state control, EPA evaluates the air quality impact of reductions at various cost levels and conside rs the reasonableness of possible cost thresholds as part of a multi
factor analysis. In addition, the methodology used in this rulemaking gives independent meaning to the interfere with maintenance prong of section 110(a)(2)(D)(i)(I). In North Carolina , the Court concluded that CAIR improperly “gave no independent significance to the ‘interfere with maintenance’ prong of section 110(a)(2)(D)(i)( I ) to separately identify upwind sources interfering with downwind maintenance.” North Carolina , 531 F.3d at 91 0. EPA rectified this flaw in this rulemaking by separately identifying downwind “nonattainment sites” and downwind “maintenance sites.” EPA decided to consider upwind states’ contributions not only to sites that EPA projected would be in nonattainment, but also to sites that, based on the historic variability of their emissions, EPA determined may have difficulty maintaining the relevant standards. The specific mechanism EPA used to implement this approach is described in detail in section V .C , previ ously. For annual PM2.5 , this approach identified 16 maintenance sites in addition to the 32 nonattainment sites identified in the analysis of nonattainment receptors. For 24
- hour PM2.5 this approach identified 38*** E.O. 12866 Review

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Page 288 of 647 maintenance sites in addition to the 92 nonattainment sites identified in the analysis of nonattainment receptors. For ozone it identified 16 maintenance sites in addition to the 11 ozone nonattainment sites identified. EPA applied this methodology using available information and data to measur e the emissions from states in the eastern United States that significantly contribute to nonattainment or interfere with maintenance in downwind areas with regard to the 1997 and 2006 PM2.5 NAAQS and the 1997 ozone NAAQS. Although EPA has not completely quantified the total significant contribution of these states with regard to all existing standards, EPA has determined, on a state
- specific basis, that the emissions prohibited in the FIPs are either part of or constitute the state’s significant contribut ion to nonattainment and interference with maintenance. Thus, elimination of these emissions will, at a minimum, make measurable progress towards satisfying the section 110(a)(2)(D)(i)(I) prohibition on significant contribution to nonattainment and interf erence with maintenance. VII. FIP Program Structure to Achieve Reductions A. Overview of Air Quality
-Assured Trading Programs EPA is finalizing a n air quality
- assured trading remedy that is substantially similar to the preferred trading remedy*** E.O. 12866 Review

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Page 289 of 647 presented in the proposal. Key differences from the preferred trading remedy in the proposal include:

 Recalculated state budgets and variability limits (i.e., state assurance levels) based o n updated modeling;

 Simplified variability limits for one
- year application only;

 Revised allocation methodology for existing and new units and revised new unit set
- asides for new units in Transport Rule states and new units potentially locating in Indian
c ountry ;

 Changed start of assurance provisions to 2012 and increased assurance provision penalties; and

 Removed opt - in provisions. In the final rule, as in the proposed rule, EPA is promulgating FIPS to require SO 2 and NO X reductions from power plants in ju risdictions 57 that contribute significantly to nonattainment in, or interfere with maintenance by, a downwind area with respect to the 1997 ozone NAAQS, the 1997 annual PM2.5

57 Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin. Simultaneously with this final action, EPA is proposing to include Iowa, Kansas , Michigan, Missouri, Oklahoma, and Wisconsin in the ozone
- season NO X requirements [insert SNPR FR cite].*** E.O. 12866 Review

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Page 290 of 647 NAAQS, and/or the 2006 24
- hour PM2.5 NAAQS. These FIPs establish state - specific emission control requirements using state budgets starting in 2012, with a second phase of SO 2 reductions in some states in 2014. Section IV explains EPA’s authority to issue FIPs.The air quality
- assured trading remedy in the final rule allows interstate trading to account for variability in the electricity sector, but also includes assurance provisions to ensure that the necessary emission reductions occur within each covered state. The assurance provisions restr ict EGU emissions within each state to the state’s budget plus the variability limit and ensure that every state is making reductions to eliminate the significant contribution to nonattainment and interference with maintenance that EPA has identified. While EPA proposed to impose these assurance provisions starting in 2014, the final rule implements these provisions starting in 2012 ( see section VII.E of this preamble). Additionally, the final FIPs include penalty provisions adequate to ensure that th e state budget with the variability limit will not be exceeded. In the final rule, as in the preferred trading remedy discussed in the proposed rule, state
- specific emission budgets without the variability limits are used to determine the number of emission allowances allocated to sources in each state. An*** E.O. 12866 Review

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Page 291 of 647 EGU source is required to hold one SO 2 or one NO X allowance, respectively, for every ton of SO 2 or NO X emitted during the control period. Banking of allowances for use or trading in future ye ars is allowed. The final rule establishes four interstate trading programs, each starting in 2012: two for annual SO 2 , one for annual NO X , and one for ozone - season NO X . One SO 2 trading program is for sources in states (referred to as SO 2 Group 1) th at need to make larger reductions to eliminate their significant contribution, while the second is for sources in states (referred to as SO 2 Group 2) that need to make smaller reductions. A source in a Group 1 state can only use SO 2 allowances allocated t o Group 1 states for compliance with the SO 2 trading program. A source in a Group 2 state can only use SO 2 allowances allocated to Group 2 states for compliance with the SO 2 trading program. For compliance in the annual NO X and
ozone - season trading progr ams respectively, sources may use annual NO X and ozone - season allowances allocated for any state, even if that state is in a different group for SO 2 than the source’s state. Four sets of new emission allowances based on the new state - specific budgets with out variability are allocated to sources, one set for each of the four trading programs. Each state has the option of replacing these FIPs with state rules. EPA believes that this remedy meets the concerns raised by the*** E.O. 12866 Review

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Page 292 of 647 Court in the 2008 North Carolina decisions which remanded CAIR to EPA. In the proposed rule, EPA took comment on all aspects of the preferred trading remedy and on two alternative regulatory options: (1) intrastate trading; and (2) direct control. EPA also took comment on a trading ratios approach. Comments on the Preferred Trading Remedy : The great majority of public comments supported the preferred trading remedy . Most of these commenters voiced their support for the bro adest possible trading mechanism because it allows for the most cost - effective implementation of any emission controls. Commenters noted that flexibility is always needed in the early years of new programs. Further, commenters favoring the preferred reme dy agreed with EPA that, by using state
- specific control budgets and allowing for interstate trading, the preferred remedy provided electricity generators the flexibility to undertake the most cost - effective reductions while assuring that the resulting reductions occur within the individual states. Some commenters that supported the preferred remedy felt that, while not ideal, the interstate trading remedy was preferable to the alternative options of intrastate trading or dire ct control. Many commenters that supported the preferred remedy felt that the intrastate trading remedy and direct*** E.O. 12866 Review

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Page 293 of 647 control remedy options offer minimal flexibility from a compliance perspective. They stated that this lack of flexibility would unnecessari ly increase the cost of emission reductions. Other commenters who generally support the preferred remedy cited concerns about the level of complexity in the assurance provisions. One commenter surmised that the preferred option creates significant risk where a company could unexpectedly find itself in a noncompliance situation due to the after
- the - fact variability analysis. Another said that the rule’s features needlessly reduce the system’s efficiency and increase complexity. These commenters generall y preferred unlimited trading, noting that EPA has proven success with Title IV, the NO X SIP Call, and CAIR unlimited interstate trading programs and that allowing unrestricted interstate trading would increase flexibility to meet reduction goals and minimize increases in power costs. EPA is finalizing the preferred trading remedy for the following reasons. EPA believes this approach is the most cost
effective and practical way to comply with the Court decision in North Carolina to ens ure that all emissions in a given state that EPA has identified as significant ly contributi ng to downwind nonattainment or interfer ing with maintenance are eliminated. The vast majority of public comment er s agree. In*** E.O. 12866 Review

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Page 294 of 647 addition, this approach provides the most flexibility for sources while meeting the Clean Air Act requirements and protecting public health. As a result, potential innovations and resulting cost savings are more likely to be found and implemented. Based on historical experience (see the Tra nsport Rule proposal, p. 45315), EPA has shown that the results offered by a flexible trading approach (e.g., flexible compliance choices, incentives to reduce emissions early and in the highest emitting areas, 100 percent compliance with requirements) are substantial. A large number of commenters have corroborated this assessment. As summarized in the proposal, EPA believes that the preferred trading remedy will allow source owners to choose among several compliance options to achieve r equired emission reductions in the most cost
- effective manner, such as installing controls, changing fuels, reducing utilization, buying allowances, or any combination of these actions. Interstate trading with assurance provisions will also allow the elec tricity sector to continue to operate as an integrated, interstate system able to provide electric reliability. Comments on Intrastate Trading: A few commenters favored the first alternative, intrastate trading. One commenter who favored intrastate tra ding stated that many power plants have avoided investment in pollution controls by buying allowances from other plants, affecting local air quality improvement. EPA*** E.O. 12866 Review

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Page 295 of 647 notes that this Transport Rule aims to address emissions from one state that significantl y contribute to nonattainment or interfere with maintenance of certain NAAQS in other states. Local air quality issues are directly addressed by other provisions in the Clean Air Act. Several commenters raised concerns about the intrastate trading appro ach. Some stated, as EPA noted in the proposal, that the intrastate trading option would be more resource intensive, more complex, less flexible, and potentially more susceptible to market manipulation than the other options. In addition, some commenters felt that this alternative would provide less flexibility to ensure electric reliability than the preferred approach, resulting in greater private costs to the power sector and greater social costs for consumers. EPA is not finalizing the intrastate tra ding option for the following reasons. As EPA expressed in the proposal and as commenters have agreed, the intrastate trading option would be more resource intensive (both for EPA and for sources), more complex, less flexible, and potentially more suscept ible to market manipulation than the preferred trading approach that EPA is finalizing. The intrastate trading option would be more costly and less transparent due to the large number of trading programs that would be operated simultaneo usly and the large number of annual auctions that would be held every year to*** E.O. 12866 Review

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Page 296 of 647 address the issues of market power within states. This option would also result in a greater burden for participants operating EGUs in multiple states. Comments on Direct Contr ol Option: Several commenters favored the second alternative, direct control. One commenter stated that direct control
-- allowing no trading
-- was the option best aligned with the 2008 Court decisions. EPA disagrees with this comment for the reasons g iven below and because, as explained in this notice, EPA believes the air quality
- assured trading remedy finalized today is consistent with the decisions of the D.C. Circuit in North Carolina . Some commenters, who support direct contr ol , voic ed
concerns that the other emission trading approaches would disadvantage poor and minority communities or allow increased emission impacts in neighborhoods near power plants . EPA notes that a direct control approach would not require controls on all plants in a state, but only on a sufficient number to address the transport requ irements under section 110(a)(2)( d)(i)(I) that this rule addresses, and therefore would not necessarily mandate controls on each neighborhood power plant. In addition, EPA has conducted an analysis of the effects of the Transport Rule on environmental justice and other vulnerable communities. We concluded that, similar to our*** E.O. 12866 Review

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Page 297 of 647 experience with the Acid Rain Program, 58 many environmental justice communities are expected to see large health benefits, and none are expected to experience any disbenefits, from implementing an air quality
- assured trading program. The results of this analysis are presented in section XII of this preamble and Chapter 5 of the RIA f or this rule. In addition, the Clean Air Act provides flexibility for state and local authorities to impose stricter limits on sources to address specific local air quality concerns. Such limits are independent of the requirements in this rule, and compl iance with Transport Rule requirements in no way excuses a source from complying with other Clean Air Act or state law requirements. Several commenters raised concerns with the direct control approach. One commenter felt that issues with electricity marke t reliability could occur during high electricity demand periods if sources ceased operations due to approaching their emission rate limitations under a direct control remedy. Another commenter was concerned that applying emission rates under a direct con trol remedy to small municipal units would cause disproportionate impacts on power plants where pollution

58 See http :// www . epa . gov / airmarkets / resource / docs / ejanalysis . pdf and Ringquist, Evan J. 2011. “Trading Equity for Efficiency in Environmental P rotection? Environmental Justice Effects from the SO 2 Allowance Trading Program.” Social Science Quarterly 92(2):297
- 323*** E.O. 12866 Review

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Page 298 of 647 control is more expensive. Other commenters cited concerns that EPA’s proposed within
- state company - wide averaging provision in the direct control pr oposed alternative (designed to allow some flexibility for sources) would place companies with fewer units at a disadvantage compared to companies with more units. EPA generally agrees with the commenters concerns and has decided not to finalize the direc t control remedy for the following reasons. EPA modeling projects that the direct control alternative would result in fewer emission reductions and higher costs compared to the air quality
- assured trading remedy. EPA analysis indicates that it is not necessary to implement a direct control approach in order to protect vulnerable and sensitive populations or environmental justice communities. Also, the direct control approach would result in fewer compliance options because a direct con trol approach would directly regulate individual sources by setting unit
- level emission rate limits. This lack of flexibility could lead to potential increases in reliability risks in the electric power system and fewer opportunities for potential technol ogical innovations that reduce emissions further and/or lower costs. For these reasons, EPA believes that this approach is inferior to the air quality
- assured trading remedy. Other Comments: A handful of commenters mentioned the tradi ng ratios approach, though none favored it as a viable*** E.O. 12866 Review

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Page 2 99 of 647 alternative. One commenter said the trading ratios approach was not consistent with CAA section 110(a)(2)( D ) requirements that reductions in emissions occur in particular geographic locations. Other commenters agreed that it was administratively unworkable and would be difficult to implement due to the complexity and variety of meteorological conditions. EPA generally concurs with the commenters. In the proposal, EPA noted that it would not be possi ble under this approach, as contemplated, to include enforceable legal requirements to ensure that a specific state’s emissions remain below a specified level or to ensure that a specific amount of reductions occur within a particular state. EPA specifica lly requested comment on whether a ratios trading program could be designed to provide such legal assurance s . Of the few comments received, none offered such a solution. For these reasons, EPA is not finalizing this approach. Some commenters offered addi tional suggestions, such as: unrestricted trading; using different authorities in the Clean Air Act to address interstate transport such as section 110(k)(5) and section 126; and an approach that would replace the assurance provisions by a system using both emission allowances usable (as well as bankable) in any state and assurance allowances usable (but not bankable) in only the state for which they would be issued. While EPA appreciates the*** E.O. 12866 Review

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Page 300 of 647 thoughtful and constructive comments, we did not find any of these suggestions improved our ability to address interstate transport under CAA section 110(a)(2)( D )(i)(I), in line with the Court decision, in an administratively practical way. Several commenters liked the idea of establishing unit
- by unit shor t - term and long - term performance standards/emission rates but suggested adding an overlaid cap and trade program. EPA believes the air quality
- assured trading remedy finalized today is consistent with the decisions of the Court in North Carolina and will ensure the reductions necessary to meet statutory requirements. For the 2012
- 2013 period, EPA took comment on whether the assurance provisions are needed, since the state
- specific budgets would be based on known air pollution controls and the penalty provisions would be adequate to ensure that the budget, including a variability limit, would not be exceeded. Further, EPA proposed to use two variability limits: a 1
- year limit, based on the year - to - year variability in emissions relative to the proposed budgets; and a 3
- year limit based on the variability in a 3 year average relative to the proposed budget. Based on comments on the assurance provisions (see section VII.E of this preamble) and variability limits (see section VI.E.2 of this preamble), EPA is finalizing the Transport Rule with state budgets plus variability limits and assurance*** E.O. 12866 Review

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Page 301 of 647 provisions starting in 2012 for all of the trading programs. EPA sees an immediate need to ensure that emissions with in a state do not exceed the state budget plus the variability limitation in order to comply with the Court’s opinion. Further, commenters stated that the 3
- year variability limit increased costs and unnecessarily complicated the trading programs. As explained in section VI.E.2, EPA is finalizing the 1 - year variability limit starting in 2012, but not the 3
- year limit. B. Applicability The applicability provisions in the final rule are, except as discussed herein, essentially the same as in the propose d rules and for each of the Transport Rule trading programs. Under the general applicability provisions of the proposed rule, the Transport Rule trading programs would cover fossil
fuel - fired boilers and combustion turbines serving

– - on any day starting N ovember 15, 1990 or later
-- an electrical generator with a nameplate capacity exceeding 25 MWe and producing power for sale, with the exception of certain cogeneration units and solid waste incineration units. The proposed use of the November 15, 1990 da te was consistent with the use of 1990 as the beginning of the historical period for which owners and operators would generally be required to have information about*** E.O. 12866 Review

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Page 302 of 647 their units for purposes of determining whether the units were covered by the Tr ansport Ru le trading programs. EPA requested comment on whether a more recent year should be used instead. The proposed use of the November 15, 1990 date was consistent with the use of 1990 as the beginning of the historical period for which owners and operators wo uld generally be required to have information about their units for purposes of determining whether the units were covered by the Transport Rule trading programs. Because unit information is generally compiled and retained on a calendar year basis, EPA be lieves that, for the general applicability provisions, it is preferable to use January 1, rather than November 15. In determining which year should be used as the reference year in the general applicability provisions, EPA considers several factors. Firs t, in order for owners and operators, and EPA, to be able to determine which units are subject to the Transport Rule trading programs, EPA believes that the reference year should not be so far in the past that the unit information necessary to make applicability determinations is not readily available. This particularly becomes an issue in cases of older units that have changed ownership over time. EPA found, in making some applicability determinations under the CAIR trading programs, that some older unit s with ownership changes had difficulty obtaining information back as far as twenty or more years.*** E.O. 12866 Review

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Page 303 of 647 Using January 1, 1990 as the reference date in the general applicability provisions could effectively require some owners and operators to retain unit information going back as far as 20 years. As a point of contrast, under the title V permitting rules, owners and operators are generally required to retain data for 5 years. See 40 CFR 70.6(a)(3)(B). Second, EPA also believes that the reference year used in the applicability provisions should be far enough in the past that the unit information on which applicability determinations are based provides a full picture of the nature of the unit and its operations over time, such as the types of fuels combusted at the unit and whether the unit has produced electricity for sale. Third, EPA considers whether selecting a different reference year for the applicability provisions than the one in the proposed rule dramatically changes what units will be covered by the Transport Rule trading programs. In this case, EPA believes, based on available information about the units potentially subject to the Transport Rule, that using a somewhat later year than the one in the proposed rule will likely have little effect on wh at units are covered. Balancing these factors, EPA concludes that it is reasonable to use January 1, 2005, rather than November 15, 1990, in the general applicability provisions in the final rule.*** E.O. 12866 Review

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Page 304 of 647 In the final rule, EPA is taking the same approach with
re gard to defining whether a boiler or combustion turbine is considered to be “fossil
- fuel - fired” as the one used in the proposal . Under the proposed rule, a unit was considered to be “fossil
- fuel - fired” if it combusts any amount of fossil fuel at any time in 1990 or later. For the same reasons that EPA decided to use January 1, 2005 in the general applicability provisions, and in order to have a consistent reference year in all applicability
- related provisions, the final rule defines a “fossil
- fuel - fired” unit as one that combusts any amount of fossil fuel in 2005 or later. EPA notes that the final Transport Rule allows a state to submit a SIP revision (abbreviated or full SIPs) under which the state may -- in addition to making certain types of changes
co ncerning allowance allocations in the Transport Rule trading programs – - expand the general applicability provisions of the Transport Rule Ozone - Season NO X Trading Program to cover fossil
fuel - fired boilers and combustion turbines serving

– - at any time st arting January 1, 2005 or later
-- an electrical generator with a nameplate capacity as low as 15 MWe and producing power for sale. The exemptions, discussed below, for cogeneration units and solid waste incineration units still will continue to apply.*** E.O. 12866 Review

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Page 305 of 647 Co generation unit exemption. Under the final rule (as well as the proposed rule) certain cogeneration units or solid waste incinerators are exempt from the FIP requirements. In particular, the final rule includes an exemption for a unit that qualifies as a cogeneration unit throughout the later of 2005 or the first 12 months during which the unit first produces electricity and continues to qualify each year thereafter and that meets the limitation on electricity sales to the grid. In order to meet the defi nition of “cogeneration unit” in the final rules, a unit (i.e., a fossil
- fuel - fired boiler or combustion turbine) must operate as part of a “cogeneration system,” which is defined as an integrated group of equipment at a source (including a boiler, or combustion turbine, and a steam turbine generator) designed to produce useful thermal energy for industrial, commercial, heating, or cooling purposes and electricity through the sequential use of energy. In order to qualify as a cogeneration unit, a unit also must meet, on a 12
- month or annual basis, efficiency and operating standards. In the proposed rule, a unit would have to qualify as a cogeneration unit and meet the limitation on electricity sales starting the later of 1990 or the year when the unit beg ins operating. EPA requested comment on whether a more recent year should be used. For the reasons discussed above concerning the reference year used in the general applicability provisions and*** E.O. 12866 Review

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Page 306 of 647 in order to have a consistent reference year in all applicab ility
- related provisions, EPA concludes that it is reasonable to use 2005, rather than 1990, in the cogeneration unit exemption provisions in the final rule. In the final rule, EPA clarifies that the electricity sales limitation under the exemption is appl ied in the same way whether a unit serves only one generator or serves more than one generator. In both cases, the total amount of electricity produced annually by a unit and sold to the grid cannot exceed the greater of one - third of the unit’s potential electric output capacity or 219,000 MWhr. This is consistent with the approach taken in the Acid Rain Program (40 CFR 72.7(b)(4)), where the cogeneration unit exemption originated. EPA believes that this clarification is needed to ensure that a unit serv ing, for example, two generators would not have a limit on sales of electricity to the grid that would be different (i.e., twice as high) from the limit for a unit serving only one generator with the same total nameplate capacity as the first unit’s two ge nerators. EPA also took comment on whether efficiency standards should be applied on a system
- wide basis to bottoming
- cycle units (where useful thermal energy is produced before useful power is produced), as they are for topping
- cycle units (where useful t hermal energy is produced after useful power); and*** E.O. 12866 Review

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Page 307 of 647 whether to exclude, from the requirement to meet the operating and efficiency standards, calendar years during which a cogeneration unit does not operate at all. Several commenters argued EPA should apply efficiency standards to both types of units. EPA agrees that applying efficiency standards on a system- wide basis to both bottoming
- cycle and topping
- cycle units is reasonable because EPA sees no technical reason to distinguish between the two types of u nits in this instance. EPA further agrees with commenters that excluding calendar years in which the cogeneration unit does not operate at all, i.e., does not combust any fuel, from the requirements to meet operating and efficiency standards is also reaso nable. For such a year, the unit would not produce any useful thermal energy or useful power and therefore could not meet the minimum output requirements in the operating and efficiency standards, but the unit also would not have any emissions. For these reasons, the final rule expressly provides that the operating and efficiency standards do not have to be met for a calendar year throughout which a unit did not operate at all. Solid waste incineration unit exemption. The final rule also includes an exemption for a unit that qualifies as a solid waste incineration unit during the later of 2005 or the first 12 months during which the unit first produces electricity, that continues to qualify each year thereafter, and that meets the*** E.O. 12866 Review

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Page 308 of 647 limitation on fossil
- fu el use. In contrast, the exemption for solid waste incineration units in the proposed rule distinguished between units commencing operation before January 1, 1985 and those commencing operation on or after that date. A unit commencing operation before Ja nuary 1, 1985 would be exempt if it qualified as a solid waste incineration unit starting the later of 1990 or the year when it began producing electricity and its average annual fuel consumption of non
- fossil fuels exceeded 80 percent of total heat input during 1985
- 1987 and during any three consecutive calendar years after 1990. A unit commencing operation on or after January 1, 1985 would be exempt if it qualified as a solid waste incineration unit starting the later of 1990 or the year when it began pro ducing electricity and its average annual fuel consumption of non
- fossil fuel exceeded 80 percent of total heat input for the first 3 calendar years of operation and for any 3 consecutive calendar years thereafter. In the proposal, EPA requested comment on whether it would be problematic to obtain sufficiently detailed information about unit operation potentially as far back as 1985
- 1987 and 1990, and whether the fuel consumption standard for each unit should be limited to more recent years. For the reas ons discussed above concerning the reference year used in the general applicability provisions and in order to have a consistent*** E.O. 12866 Review

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Page 309 of 647 reference year for all applicability
- related provisions, EPA concludes that it is reasonable to use 2005, rather than 1990, in the solid waste incineration unit exemption in the final rule. In particular, EPA notes that the proposed provisions for units commencing operation before January 1, 1985 and for units commencing operation on or after January 1, 1985 could require
some owners and operators to retain unit information going back more than 20 years before the promulgation of this final rule. Further, EPA believes that removing the distinction between units commencing operation during these two periods, and referencing somewh at later years as the earliest years for which information on fossil
- fuel consumption is required, will result in the exemption still being based on sufficient data to provide a full picture of the nature and operation of the units involved. EPA also beli eves, based on available information about the units potentially subject to the Transport Rule, that this approach will not significantly change which units qualify for the exemption. Consequently, the final rule removes the distinction based on whether a solid waste incineration unit commences operation before January 1, 1985 or on or after January 1, 1985. In order to be exempt, the unit must qualify as a solid waste incineration unit during the later of 2005 or the first 12 months during which the unit first produces electricity, must continue to qualify each year thereafter, and*** E.O. 12866 Review

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Page 310 of 647 must meet the limitation on fossil
- fuel use on a three - year average basis during the first 3 years of operation starting no earlier than 2005 and every 3 years of operation the reafter. Opt - in units. EPA is not finalizing the opt
- in provisions that were discussed in the Transport Rule proposal. EPA proposed opt - in provisions to allow non
- covered units to voluntarily opt in to any of the proposed Transport Rule trading program s and receive allocations reflecting 70 percent of the unit’s emissions before opting in. These allowances were above the state - specific budgets developed under the Transport Rule to eliminate a state’s significant contribution to nonattainment and interf erence with maintenance. In theory, an opt
- in unit that makes reductions below its baseline and sells the freed
- up allowances is effectively substituting its new, lower
- cost reductions for higher
- cost reductions otherwise required by a covered EGU, with t he result that the state’s significant contribution is still eliminated but at a lower total program cost. EPA notes that theoretical benefits anticipated from allowing opt
- ins did not materialize in prior trading programs with opt
- in provisions. The Acid Rain Program has about 23 opt in units; the NO X Budget Trading Program had five opt
- in units. No units opted into the CAIR programs. As a group, these opt
- in units neither eased the achievement of required emission*** E.O. 12866 Review

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Page 311 of 647 reductions in past trading programs, n or added to the reduction of overall program costs. In the proposal, EPA requested comment on the opt - in provisions, specifically regarding: what are the benefits of and concerns about including opt
- in provisions; how to ensure units are not credited f or emission reductions the units would have made anyway; whether the proposed 30 percent reduction (i.e., application of the 70 percent multiplier to baseline emissions) or some other percentage reduction, or no reduction, should be applied to the baseline emission rate used in determining allocations; and whether any additional percentage reduction (such as 45 percent) should be applied to SO 2 G roup 1 opt - in units in Phase II to reflect the stricter limits for covered units. Some commenters argued that inc reasing the Transport Rule budgets for opt - ins would undermine the goal of CAA section 110(a)(2)(D)(i)(I) to eliminate a state’s significant contribution to nonattainment and interference with maintenance. One commenter stated that they do not favor allow ing sources that are not subject to the emission reduction requirements to be issued allowances that would increase the overall state emission budgets, due to the uncertainty that any reductions made by such units would be surplus, verifiable, permanent an d enforceable. This could compromise the integrity of the EGU*** E.O. 12866 Review

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Page 312 of 647 emission reduction requirements of the Transport Rule, and jeopardize assurance that a state’s significant contribution would be eliminated, as required by the Court in North Carolina . Other c ommenters claim that, while no cheap tons are available from non - EGUs and EPA is right not to require non
- EGU reductions, EPA should nonetheless allow non
- EGUs to choose voluntarily to be covered by opting in. As mentioned previously, the final Transport Rule does not include any opt
- in provisions either in the FIPs or in the provisions allowing modification or replacement of the FIPs through submission of trading program provisions in SIPs. EPA has several reasons for not adopting provisions to allow opt
- in units. First, as mentioned above, historically, very few units have opted in. As of 2010, 28 units out of more than 4,700 covered units (23 units out of a total of about 3,600 covered units in the Acid Rain Program and 5 units out of a total of about 2,600 covered units in the NO X SIP Call) have opted in to EPA trading programs over the past 15 years. In the Acid Rain Program, 3 of the units opted in and then, effective for 2005, opted out. Four of the units opted in, immediately shut down, and conti nue to receive allowance allocations. Four of the units opted in and continue to operate and receive allowance allocations. Finally, 12 of the units opted in, after CAIR was finalized, in order to receive allowances usable for compliance*** E.O. 12866 Review

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Page 313 of 647 in the CAIR SO 2 trading program. Because CAIR will be replaced by this Transport Rule, EPA anticipates that these 12 units will opt out of the Acid Rain Program. In the NO X Budget Trading Program, 3 plants with 5 opt
- in units received allocations between 2003 and 2008. Moreover, EPA has determined that the inclusion of opt
- in units in the Transport Rule trading programs would undermine the rule’s objective of addressing emissions in each state that significantly contribute to nonattainment or interfere with maintenan ce in other states. As explained above, EPA has established budgets plus variability limits that states must meet to ensure that the significant contribution to nonattainment and interference with maintenance identified by EPA is addressed. If EPA were t o allow opt - ins, and if any opt
in unit were to receive an allocation of allowances for emissions that would be reduced even if the units did not opt in, then the inclusion of that opt
- in unit in the program would allow the sources covered by the Transport Rule to emit in excess of the budget plus variability limit with no new, offsetting reduction in emissions. For example, after a unit would opt in, process or fuel changes made for economic reasons (rather than due to any regulatory requirements), or ins tallation of new emission controls or fuel
- switching conducted to meet future, non - Transport Rule regulatory*** E.O. 12866 Review

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Page 314 of 647 requirements, could result in emission reductions that occurred “anyway” (i.e., even if the unit did not opt in), and the opt
- in unit would be all ocated allowances for the portion of its baseline emissions that would be removed by these “anyway” reductions. Allocations above the cap to opt
- in units making “anyway” emission reductions would convert these reductions into extra allowances (i.e., autho rizations to emit) usable by covered EGUs to meet their requirements to hold allowances for emissions. Because the extra EGU emissions authorized by these extra allowances would not be offset by any new emission reductions by the opt
- in units, this could threaten a state’s ability to eliminate significant contribution to nonattainment and interference with maintenance. Also, opt
- in units, which are allocated allowances outside the state budget for covered units, could increase the possibility that a state ’s total emissions would exceed the state budget plus variability and thus that the assurance provisions would be triggered. This problem of allocating allowances for emissions that would have been reduced anyway is of special concern since recent promulg ation of the final rule, National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters (76 FR 15608 (March 21, 2011))(“ final Boiler MACT rule ”), which requires certain industrial, commercial, and*** E.O. 12866 Review

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Page 315 of 647 institutional boilers to meet maximum a chievable control technology (MACT) standards for emissions of specified hazardous air pollutants, such as hydrogen chloride (HCL) and mercury (Hg). Some of the control technologies that can be used to meet these standards will also provide significant reductions of SO 2 emissions. For example, a boiler may use a wet scrubber or the combination of a dry sorbent injection system and a fabric filter (among other options) to meet the applicable H CL standard or may use a wet scrubber or a combination of activated carbon injection and a fabric filter (among other options) to meet the applicable Hg standard. See 76 FR 15614 (describing testing and compliance requirements when such controls are used to meet these standards); and Memo from Brian Shrager to Amanda Singleton and Graham Gibson, Revised Methodology for Estimating Cost and Emissions Impacts for Industrial, Commercial and Institutional Boilers and Process Heaters National Emissions Standards for Hazardous Air Pollutants

— Major Source (February 11, 2011), Document ID EPA
- HQ - OAR- 2009
- 0491
- 4036 (section 3.1, describing control options for HCL and Hg control). In fact, EPA estimated that the new standards would result in emission reductions of not only the hazardous air pollutants directly subject to the standards, but also in other air pollutants such
as SO 2 . Specifically, EPA projected that compliance with the final Boiler MACT rule standards will result in about 431,000*** E.O. 12866 Review

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Page 316 of 647 tons of annual SO 2 re ductions from existing boilers subject to the final Boiler MACT rule. This will comprise on average about a 46 percent reduction in SO 2 emissions for this group of boilers. Coal
- and oil
- fired boilers
-- which are the boilers likely to have the most unco ntrolled SO 2 emissions and so would be the most likely types of units to consider opting into the Transport Rule trading programs (if opting
- in were allowed)
-- are projected to reduce about 409,000 tons of annual SO 2 as a result of complying with the fina l Boiler MACT rule, or about a 50 percent reduction in SO 2 emissions. See Memo from Brian Shrager to Amanda Singleton and Graham Gibson, Appendix B
- 1, (where column CE represents baseline SO 2 emissions and column CH represents SO 2 reductions resulting from the final Boiler MACT rule compliance). The amount of offsetting SO 2 increases projected to result from final Boiler MACT rule compliance, e.g., from additional fuel being combusted to generate electricity to operate emission controls, is minor. See 76 FR 15651 (Table 4) and 15653 (showing projected total SO 2 reductions for all boilers and process heaters of about 442,000 tons and net SO 2 reductions of about 440,000 tons). Consequently, a boiler subject to the final Boiler MACT rule may install a wet acid gas scrubber or a bag house in order to meet the HCL or Hg standard applicable to boilers under the final Boiler MACT rule and thereby achieve SO 2 emission*** E.O. 12866 Review

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Page 317 of 647 reductions. If that boiler were to opt in to one of the Transport Rule SO 2 trading programs du ring the year before installing these controls to comply with the final Boiler MACT rule, then the boiler would be allocated allowances for the unit’s current tons of SO 2 emissions and would not need to use these allowances for compliance under the Transpo rt Rule once the final Boiler MACT - related controls were installed. The allowances allocated to the boiler would be additional allowances above the Transport Rule trading budget for the state where the boiler was located. As a result, the boiler would have freed - up allowances above the state trading budget that represent reductions that the boiler would have made anyway (i.e., even if the boiler had not opted in) and that could be sold to EGUs covered by the Transport Rule. In effect, the opting
- in of th e boiler would result in the conversion of the boiler’s SO 2 reductions from the final Boiler MACT rule into increased emissions above the state trading budget from EGUs subject to the Transport Rule. Commenters addressed this issue. For instance, one
commenter suggested that SO 2 reductions made by a boiler under the final Boiler MACT rule should be eligible for opt
- in provision allowances under the Transport Rule trading programs. Another commenter stated that, given the uncertainty that reductions made by opt - in units would be surplus, verifiable,*** E.O. 12866 Review

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Page 318 of 647 permanent, and enforceable, opt - in provisions could compromise the integrity of the EGU emission reductions. For the reasons explained above, EPA agrees with the latter commenter. Further, EPA notes that none of the commenters supporting adoption of the opt
- in provisions suggested any revision to the proposed opt
- in provisions that would address this problem. While the proposed opt
- in provisions would limit an opt - in unit’s allocation for a control period by c alculating the allocation using the lesser of the unit’s pre
- opt - in SO 2 emission rate or the most stringent SO 2 emission rate applicable in that control period, this would not address SO 2 rate reductions that are not directly required by the final Boiler MACT rule but that are a secondary result of using and operating certain emission controls installed to comply with the HCL or Hg standards under the final Boiler MACT rule. Because the secondary SO 2 reductions will vary depending on the type of controls i nstalled and on the extent to which the controls are used, and a boiler may use a combination of emission controls and other approaches to reduce HCL or Hg emissions (such as fuel switching), EPA believes that it is highly unlikely that opt
- in provisions c ould prevent allocation for “anyway” emission reductions resulting from compliance with the final Boiler MACT rule. EPA therefore believes that the final Boiler MACT rule provides a concrete example of why adoption of opt
- in provisions*** E.O. 12866 Review

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Page 319 of 647 could undermine the rule’s objective of addressing emissions in each state that significantly contribute to nonattainment or interfere with maintenance in other states. EPA notes that the final Boiler MACT rule, of course, is simply one example of how allocations for “anywa y” reductions could occur and undermine the statutory requirements of the Transport Rule. C. Compliance Deadlines 1. Alignment with NAAQS Attainment Deadlines a. Proposed Rule. EPA proposed an initial phase of reductions in 2012 followed by a second phase in 2014. Specifically, EPA proposed that sources comply with annual SO 2 and NO X requirements by January 1, 2012 and January 1, 2014 for the first and second phases, respectively. Similarly, EPA proposed sources comply with ozone
- season NO X requirements b y May 1, 2012, and by May 1, 2014. EPA chose these dates to coordinate with the NAAQS attainment deadlines and to assure that reductions are made as expeditiously as practicable. The proposal also discussed how the compliance deadlines address the Court’ s concern about timing. Relationship to PM2.5 schedule. For all areas designated as nonattainment with respect to the 1997 PM2.5 NAAQS, the SIP deadline for attaining that standard must be as expeditious as*** E.O. 12866 Review

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Page 320 of 647 practicable but no later than April 2010, with a possible extension to no later than April 2015. Many areas have already come into attainment by the April 2010 deadline due in part to reductions achieved under CAIR. Because the 2010 deadline will have passed before the Transport Rule is finalized, EPA proposed to coordinate the deadline for eliminating significant contribution under this rule with respect to the 1997 PM2.5 NAAQS with the April 2015 deadline that applies to areas that will need an extension of the April 2010 deadline. For all areas de signated as nonattainment with respect to the 2006 24
- hour PM2.5 NAAQS, the attainment deadline must be as expeditious as practicable but no later than December 2014 with a possible extension to as late as December 2019 59
. Upwind emission reductions achieved by the 2014 emissions year will help areas that failed to meet the April 2010 deadline to meet the April 2015 deadline for the 1997 PM2.5 NAAQS. These

59 Section 172(a)(2) of the Clean Air Act provides that “the attainment date for an area designated nonattainment with respect to a nat ional primary ambient air quality standard shall be the date by which attainment can be achieved as expeditiously as practicable, but no later than 5 years from the date such area was designated nonattainment under section 7407(d) of this title, except tha t the Administrator may extend the attainment date to the extent the Administrator determines appropriate, for a period no greater than 10 years from the date of designation as nonattainment, considering the severity of nonattainment and the availability a nd feasibility of pollution control measures.” Designations for the 2006 24
- hour PM2.5 NAAQS became effective on December 14, 2009.*** E.O. 12866 Review

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Page 321 of 647 reductions will also help areas meet the December 2014 attainment deadline with respect to the 2006 PM2.5 NAAQS. Any areas not meeting that deadline can request a n extension of up to 5 years, to December 2019. Further, a deadline of January 1, 2014 also provides adequate and reasonable time for sources to plan for compliance with the Transport Rule and i nstall any necessary controls. EPA believes that this deadline is as expeditious as practicable for the installation of the controls needed for compliance ( see further discussion in section V II .C.2). Relationship to Attainment Deadlines for Ozone. Ozone nonattainment areas must attain permissible levels of ozone “as expeditiously as practicable,” but no later than the date assigned by EPA in the ozone implementation rule (40 CFR part 51). The areas designated nonattainment in 2004 with respect to the 19 97 8
- hour ozone NAAQS in the eastern United States were assigned maximum attainment dates corresponding to the end of the 2006, 2009, and 2012 ozone seasons. Many areas have already attained due in part to CAIR, federal mobile source standards, and other local, state, and federal measures. Those that have not yet attained the standard have maximum attainment dates ranging from 2010 (these are the 2009 areas that have been granted a 1 - year extension due to clean data in 2009) to 2018. Areas designated “se rious” nonattainment areas have a June 2013*** E.O. 12866 Review

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Page 322 of 647 maximum attainment deadline. The proposed Transport Rule’s first phase of reductions in 2012 will help the remaining areas with June 2013 maximum attainment deadlines attain the 1997 8
- hour ozone NAAQS by their deadline. The reductions will also improve air quality in areas with later deadlines. Rationale for Requiring Reductions by 2012. EPA proposed to require an initial phase of reductions by 2012. EPA proposed that these reductions are necessary to ensure that significant contribution to nonattainment and interference with maintenance are eliminated as expeditiously as practicable. This will in turn assist downwind states to achieve attainment as expeditiously as practicable as required by the CAA. Becau se t his final rule would replace CAIR, EPA could not assume that after this rule is finalized, EGUs would continue to emit at the reduced emissions levels achieved by CAIR. Instead, it is the emission reductions requirements in the proposed FIPs that will determine the level of EGU emissions in the eastern United States. For these reasons, EPA proposed to require an initial phase of reductions by 2012 which would ensure that existing and planned SO 2 and NO X controls operate as anticipated. Addressing the Court’s Concern About Timing. As directed by the Court in North Carolina , 531 F.3d 896, and described previously, EPA established the compliance deadlines in the proposed rule based on the respective NAAQS attainment*** E.O. 12866 Review

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Page 323 of 647 requirements and deadlines applicable to the downwind nonattainment and maintenance sites. The 2012 deadline for compliance with the limits on ozone
season NO X emissions is coordinated with the June 2013 maximum attainment deadline for serious ozone nonattainment areas (taking into account the need for reductions by 2012 to demonstrate attainment by that date). This deadline is also consistent with the requirement that states attain the NAAQS as expeditiously as practicable. The 2014 deadline for compliance with the limits on annual NO X and annual SO 2 emissions is coordinated with the April 2015 maximum attainment deadline for areas that received the maximum 5 - year extension of the 5
- year attainment deadline for the 1997 PM2.5 NAAQS (taking into account the need for reductions by 2014 to demonstrate attainment by April 2015). This 2014 compliance deadline is also consistent with December 2014 attainment deadline (5 years from designation, in the absence of an extension) for areas designated nonattainment for the 2006 PM2.5 NAAQS. Areas u nable to meet this 2014 deadline may seek a maximum 5
- year extension to 2019. In addition, the 2012 compliance deadline for the first
phase of annual NO X and annual SO 2 emission reductions will assure the reductions are achieved as expeditiously as prac ticable. EPA established the interim 2012 compliance*** E.O. 12866 Review

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Page 324 of 647 deadline for annual NO X and annual SO 2 reductions because a significant number of reductions can be achieved by 2012. However, given the time needed to design and construct scrubbers at a large number of facilities, EPA believes the 2014 compliance date is as expeditious as practicable for the full quantity of SO 2 reductions necessary to fully address the significant contribution to nonattainment and interference with maintenance. Requiring reductions in transported pollution as expeditiously as practicable, as well as within maximum deadlines, helps to promote attainment as expeditiously as practicable. This is consistent with statutory provisions that require states to adopt SIPs that provide for att ainment as expeditiously as practicable and within the applicable maximum deadlines. b. Public comments and EPA responses. EPA received numerous comments on the proposed compliance dates. A number of commenters supported EPA’s compliance schedule and rati onale. Other commenters supported extending the compliance deadlines to later dates. Many commenters questioned the technical feasibility of achieving the required reductions by the 2012 and 2014 dates. EPA’s responses to those comments are discussed below in section VII.C.2 .*** E.O. 12866 Review

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Page 325 of 647 Other commenters provide d policy and legal arguments for allowing s tates to develop SIP alternatives to the FIP, and to build time for that SIP development and review process into the compliance schedule. For example, some commenters asserted that the requirement in the CAA for providing reductions “as expeditiously as practicable” must be balanced with CAA provisions allowing states to develop state implementation plans prior to EPA imposing FIPs. EPA responses to those commen ts are discussed in section X . Some commenters suggested that EPA had the ability to leave CAIR in place for a transition period, and by doing this EPA could allow for a longer compliance period for this rule. EPA does not believe it would be appropri ate, in light of the Court’s decision in North Carolina , to establish a lengthy transition period to the rule that will replace CAIR. Although the Court decided, on rehearing, not to remand CAIR without vacatur, the Court stressed its prior decision that CAIR was deeply flawed and EPA’s obligation to remedy those flaws. North Carolina , 550 F.3d 1176. Although the Court did not set a definitive deadline for corrective action, the Court took care to note that the effectiveness of its opinion would not be de layed “indefinitely” and that petitioners could bring a mandamus petition if EPA were to fail to modify CAIR in a manner consistent with its prior opinion. Id. Given the Court’s*** E.O. 12866 Review

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Page 326 of 647 emphasis on remedying CAIR’s flaws expeditiously, EPA does not believe it wo uld be appropriate to establish a lengthy transition period to the rule which is to replace CAIR. As relates to PM2.5 , EPA received a number of comments on its proposal to include a 2012 deadline to ensure that emission reductions needed to reduce PM2.5 be achieved “as expeditiously as practicable.” Some commenters supported EPA’s 2012 deadline. Other commenters believed that it was unnecessary and unwarranted for EPA to impose emission reduction requirements in advance of the 2014 attainment date . In light of the 2014 five
year attainment dat e for the 2006 PM2.5 NAAQS (with a possible extension to 2019), and the possible extension to April 2015 for the 1997 PM2.5 NAAQS, these commenters believed EPA’s 2012 emission reduction requirements for annual PM2.5 and NO X were not necessary. EPA disagrees with these commenters, for a number of reasons. First, EPA notes (supported by commenters) that there is a clear statutory obligation to attain “as expeditiously as practicable.” Second, EPA notes that there are feasible reductions available by 2012. Third, EPA believes that the substantial health and environmental benefits achieved by the rule underscore the importance of achieving the reductions as soon as possible. With respect to ozone, some commenters noted that the proposed rule required ozone reductions by 2012 for states*** E.O. 12866 Review

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Page 327 of 647 impacting areas which EPA’s analysis shows will attain the 1997 ozone NAAQS by 2014 without further controls. Those commenters questioned the importance of getting reductions in su ch states and whether the 2012 deadline is necessary. EPA disagrees with those comments. Except for Houston all ozone areas within the region addressed by this rule have attainment dates no later than 2013. In effect, this means that emission reductions needed to attain the 1997 ozone NAAQS must be in place by the 2012 ozone season. EPA believes that if there are reductions available by 2012, and those emission reductions have in fact been identified, it is appropriate and necessary to ensure that those reductions are in place. 2. Compliance and Deployment of Pollution Control Technologies The power industry will undertake a diverse set of actions to comply with the Transport Rule at the start of 2012 and another set of actions when companies in Group 1 states comply
w ith more stringent SO 2 budgets at the start of 2014. In 2012, the industry will largely meet the rule’s NO X requirements by: operating an extensive existing set of combustion and post
combustion controls on fossil fuel
- fired generators; di spatching lower emitting units more often; and installing and operating a limited amount of relatively simple NO X pollution controls in states not previously subject to CAIR. For the SO 2 requirements, EPA anticipates at a minimum that coal
- fired generator s will*** E.O. 12866 Review

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Page 328 of 647 operate the substantial capacity of advanced pollution controls already in place or scheduled for 2012 use; some units will also elect to burn lower - sulfur coals, and the fleet will increase dispatch from lower
- sulfur - emitting units as well as from natural gas - fired generators. EPA provides a more detailed explanation below of how fuel switching to lower sulfur coals factored in to the design of the final Transport Rule. By 2014, EPA’s budgets under the Transport Rule will sustain previous NO X and SO 2 reductions as well as account for reductions from additional advanced NO X and SO 2 controls that are driven by other state and federal requirements. In addition to these reductions, companies in Group 1 states are also projected to add a limited amount of advanced SO 2 controls in 2014 that will be discussed below. EPA’s expectations are supported by the IPM analysis reported in this rule’s Regulatory Impact Analysis (see Chapter 7). Notably, since EPA has established a cap
- and - trade control system for lowering NO X and SO 2 emissions, individual owners and operators of covered units have some flexibility in meeting the program’s requirements as needed and are free to find alternative ways to comply. The RIA clearly shows a viable known pathway for own ers and operators to comply at reasonable costs, although it is not the only compliance pathway possible under this flexible regulation that could deliver the emission*** E.O. 12866 Review

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Page 329 of 647 reductions required under the rule. Notably, by 2014 and beyond, the power industry may also augment the projected compliance efforts with programs aimed at improving energy efficiency. Table VII.C.2
- 1 shows EPA’s projection of the amount of existing coal
- fired generating capacity in gigawatts(GW) that may retrofit various systems for compli ance with this rule.

Table VII.C.2 - 1 Projected Potential Air Pollution Control (APC) Retrofits for Transport Rule 60 Capacity retrofitted by: Wet FGD Dry FGD DSI SCR LNB/OFA Improvements January 1, 2012 10 GW January 1, 2014 5.7 GW 0.2 GW 3.0 GW 0 GW EPA received proposal comments expressing a concern about the feasibility of deploying retrofit APC technologies in the time frames available between the final date of this rule and the compliance dates. As discussed below, EPA believes that i t is feasible for the electric power sector and its APC supply chain to either make most of the projected retrofits in time to

60 GW: gigawatts of capacity retrofitted; FGD: flue gas desulfurization ( SO 2 control); DSI: dry sorbent injection ( SO 2 contr ol); SCR: selective catalytic reduction ( NO X control); LNB/OFA: low
- NO X burner and/or overfire air ( NO X controls)*** E.O. 12866 Review

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Page 330 of 647 meet the 2012 and 2014 compliance deadlines, or to comply by other means. a. 2012 Power Industry Compliance EPA’s analysis of emission reductions available in 2012 assumes year - round operation of existing post
- combustion pollution controls in states covered for PM2.5 and ozone - season operation of NO X post - combustion controls in states covered for
ozone . E PA also modeled emission reductions available in 2012 at the $500/ton threshold for SO 2 , $500/ton for annual NO X , and $500/ton for ozone
- season NO X . For SO 2 , EPA believes that reductions associated with the following methods of control are available and w ill be used as compliance strategies to meet the 2012/2013 budgets: 1) operation of existing controls year
- round in PM2.5 states, 2) operation of scrubbers that are currently scheduled to come online by 2012, 3) some sources switching to lower
- sulfur coa l (see Section C that follows), and 4) changes in dispatch and generation shifting from higher emitting units to lower emitting units. EPA modeling and selection of a $500/ton cost threshold includes all existing and planned controls operating year round (items 1 and 2). It also reflects an amount of coal switching and generation shifting that can be achieved for $500/ton. This set of expected actions was confirmed in the detailed modeling of EPA’s final remedy in the RIA and can be reviewed there.*** E.O. 12866 Review

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Page 331 of 647 For NO X , EPA has also concluded that it is appropriate to require reductions through a limited amount of combustion control improvements, and in some cases, retrofits such as low
NO X burners (LNB) and/or overfire air (OFA). EPA recognizes that the 6
-month time frame between rule finalization and start of the first compliance period would not allow for the installation of a major post
- combustion NO X control such as selective catalytic reduction (SCR). Assumed improvements and retrofits for the January 1, 2012 de adline for NO X therefore only involve the much simpler LNB/OFA control modifications or installations. Alternatively, some plant owners might choose to achieve NO X reductions in a similar time period through an even simpler retrofit
- selective non
- catalyt ic reduction (SNCR). 61 Although the improvements, and in some cases, installation of combustion controls would be an economic means of achieving emission reductions, these specific controls are not required for compliance purposes under the final Transport Rule remedy. Individual sources may comply through other measures (such as purchasing additional allowances) in the event that it takes more than 6 months for installation of a given combustion control. The vast majority of covered sources already have
c ombustion controls installed; therefore, the NO X reductions
61 David L. Wojichowski, SNCR System

– Design, Installation, and Operating Experiencehttp://www.netl.doe.gov/publications/ proceedings/02/scr
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Page 332 of 647 associated with these incremental control improvements and installations are small. Based on the Transport Rule’s geography, EPA estimates that approximately 10 GW of coal
- fired units may improve, and in some cases, install LNB/OFA specifically in reaction to the Transport Rule NO X caps. EPA reflects the effects of these installations in the 2012 annual and ozone
- season NO X budgets, which would yield reductions of approximately 28,000 tons of annual NO X and 14,000 tons of ozone
- season NO X . EPA assumes these controls are cost effective at $500/ton and that they should be incentivized through budgets given the 2013 attainment deadline for ozone areas classified as “serious.” Once instal led, LNB/OFA operates any time the boiler is fired and thus yields NO X reductions beyond the ozone season alone. In the proposal’s LNB technical support document 62 , EPA observes that LNB and/or OFA installations, burner modifications, or other NO X reduction controls would likely have to be installed during fall 2011 or spring 2012 outages in order to achieve significant reductions for 2012. While this 6
-month schedule is aggressive, industry has shown that it can be met. For example, Limestone Electric Gener ating Station Unit 2, an 820 MW tangentially
- fired lignite unit, was retrofitted with
62 Technical Support Document (TSD) for the Transport Rule, Docket ID No. EPA- HQ - OAR- 2009
- 0491, Installation Timing for Low NO X Burners (LNB)*** E.O. 12866 Review

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Page 333 of 647 Foster Wheeler’s Tangential Low NO X (TLN3) system in less than six months, including engineering, fabrication, delivery and installation. 63 Harlee Branch Unit 4, a 535 MW cell - fired unit, was retrofitted with Riley Power’s low
- NO X Dual Air Zone CCV burners on a similar schedule. 64 Although such 6
-month schedules can be achieved on some units, under favorable circumstances, historical projects suggest a more typical schedule would be 12 to 16 months for the contractor’s portion of the work. 65 A plant owner’s project planning and procurement work in advance of a contract award would typically involve several additional months. On the other hand, there are other approaches that can also be implemented in a short time frame to achieve significant NO X reduction. As mentioned above, relatively simple SNCR systems can be installed quickly; and the re
- tuning or upgrading of existing combustion control systems can often provide signif icant NO X reductions and can be performed quickly. 66

63 R. Pearce, J. Grusha, Reliant Energy Tangential Low NO X System at Limestone Uni t 2 Cuts Texas Lignite, PRB and Pet Coke NO X , http://www.fwc.com/publications/tech_papers/files/tp_firsys_01_0 2.pdf 64 B. Courtemanche, et al, Reducing NO X Emissions and Commissioning Time on Southern Company Coal Fired Boilers With Low NO X Burners and CFD Analysis, http://www.babcockpower.com/pdf/t
- 182.pdf 65 M. O’Donnell, Babcock & Wilcox Company, (personal communication with EPA staff, February 22, 2011) 66 N.C Widmer, et al, Coal Power, October 8, 2009, http://www.coalpowermag.com/ops_and_maintenance/Zon al -*** E.O. 12866 Review

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Page 334 of 647 As stated above, EPA believes that LNB/OFA modifications or retrofits would be possible during the 6
-month interim between rule signature and the start of the first compliance period, particularly for tho se “early movers” who have initiated LNB projects based on the proposed rule. However, even if every affected unit from the analysis delayed LNB modification or installation until the beginning of the 2012 ozone season (10 months from a June 30, 2011 signa ture), the emissions consequence would be limited to less than 1 percent of most states’ annual NO X budgets, reaching at most 5 percent of only one state’s annual NO X budget. In light of this limited consequence and the supporting material above, EPA incl udes LNB driven NO X reductions in both annual and ozone
- season NO X budgets for 2012. b. 2014 Power Industry Compliance EPA projects that compliance with 2014 requirements for NO X will result largely from operation of existing and future controls required b y state and other federal requirements, as well as the appropriate dispatch of the electric generation fleet. EPA does not project additional NO X pollution control retrofits aside from about 10 GWs of combustion control improvements or retrofits projected for the 2012 compliance
Combustion
- Tuning
- Systems - Improve - Coal - Fired
- Boiler
Performance_226.html*** E.O. 12866 Review

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Page 335 of 647 period. To comply with the rule’s SO 2 requirements, EPA projects that the power industry will rely on existing controls, operate newly installed advanced controls necessary for other binding state and federal requirements, rely mor e on relatively lower sulfur coals, and dispatch lower
- emitting generation units. In Group 1 states, industry is projected to increase switching to lower sulfur coals and install a limited amount of additional scrubbers and other advanced pollution contro l technology. EPA’s assessment of the industry’s ability to install SO 2 pollution controls in 2014 and undertake the projected coal switching follows below. EPA’s modeling of least
- cost compliance with the state budgets under the Transport Rule projects approximately 5.9 GW of FGD systems and lesser amounts of other technologies will be retrofitted by 2014 for compliance with the Transport Rule. 67 EPA’s schedule assumptions for these larger more complex projects were developed in an earlier study and menti oned in the proposal: 27 months for retrofitted wet FGD and 21 months for SCR. 68 Note that a dry FGD system, due to its relatively simpler

67 Nearly all of the 5.9 GW of FGD retrofits are comprised by some 12 units at 7 plants (Beckjord, Muskingum River, Homer City, Rockport, Kammer, Danskammer, and Will County). 68 E PA, Engineering and Economic Factors Affecting the Installation of Control Technologies for Multipollutant Strategies; EPA
- 600/R
- 02/073 October 2002.*** E.O. 12866 Review

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Page 336 of 647 configuration and lesser cost, would typically take somewhat less time to retrofit than wet FGD. As discussed below, EPA believes that its schedule assumptions remain reasonable expectations for sources that have completed most of their preliminary project planning and can quickly make commitments to proceed. These schedules do not include the extensive time that some pl ant owners might spend in making a decision on whether or not to retrofit. They do include the time needed to make a final confirmation of the type of technology to be used at a particular site, to prepare bid requests, award contracts, perform engineering , obtain construction and operating permits (in parallel with project activities), perform construction, tie
- in to the existing plant systems, and perform integrated systems testing. EPA received comments on the proposed rule indicating that some past sin gle - unit APC retrofits had considerably longer schedules, with a few exceeding 48 months. EPA engineering staff have extensive experience with power plant and APC system design, construction, and operation. Based on that experience, EPA can observe that in the absence of a compelling deadline or major economic incentive, many large project schedules are considerably longer than necessary. Given further observations as explained below, EPA believes it reasonable to expect that*** E.O. 12866 Review

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Page 337 of 647 almost all future APC retrofits can be completed far more quickly than they were in recent history. EPA’s perspective on this matter derives in part from a comparison of longer APC schedules (as provided by some commenters) to the project schedule for an entire new coal
- fired unit, inc luding its APC systems. Springerville Unit 3, for example, is a 400 MW coal
- fired unit that became operational in July 2006, some 33 months after the turnkey engineering
construction contractor was given a notice to proceed with engineering. 69 Springervill e was clearly on an accelerated schedule, as its original planned schedule was about 38 months. The main point here is that recent APC project schedules, and those of large complex power projects, can be significantly accelerated. Because the scope and complexity of the work involved for an entire new coal unit and its APC systems is perhaps five times greater than that of a retrofit wet FGD system alone, EPA believes it is reasonable to expect that even the most complex retrofit APC project can be signific antly accelerated as well. Additional factors are discussed below that

69 Best Coal - fired Projects, Springerville Unit 3 Expansion Project , Power Engineering, November 2006, http ://www.powergenworldwide.com/index/display/articledisplay/27 7709/articles/power
- engineering/
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Page 338 of 647 further support the feasibility of installing by 2014 the 5.9 GW of FGD retrofits projected for this rule. Although IPM modeling provides reliable estimates on a regional basis, and ca nnot be as accurate at the level of individual plants or units, it is informative and relevant to consider IPM’s plant level projections in this case. Although the IPM- projected retrofits named below may not actually occur, IPM projects that they would be economic and would allow industry to meet the tighter SO 2 emission standards in Group 1 states in 2014. Of the Transport Rule - related FGD retrofits, 0.2 GW is projected to use dry FGD, which EPA expects to be simpler and quicker installations than those wi th wet FGD. Half of the 5.9 GW (Muskingum, Rockport) has already been committed under consent decrees to add controls or retire; 70 and EPA reasonably believes that significant preliminary project planning work has already been done for those projects. An a dditional 1,200 MW (Homer City) had completed project planning and was ready to proceed in 2007, before putting the project on hold. 71 The latter plant is now facing EPA legal action and the possibility of a

70 http :// www . epa . gov / compliance / resources / decrees / civil / caa / ameri canelectricpower
- cd . pdf 71 ht tp :// www . businesswire . com / news / home /20060731005193/ e n / Contrac tors - Selected - Install - Emissions
- Control - System- Pennsylvania*** E.O. 12866 Review

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Page 339 of 647 required expeditious FGD retrofit. 72 Thus, of the 5.9 GW of projected FGD retrofits resulting from this rule, nearly 75 percent appears to be in good position for an early start of construction, and over 3 GW of that would be bringing forward already committed compliance start dates. Any of the above men tioned potential retrofits or any other unit that might choose to retrofit FGD for a January 2014 compliance date will likely have to use various methods to accelerate the project schedule. Such methods could include the use of parallel permitting, overtime and/or two
- shift work schedules during construction, and 5
- or 6
- day work weeks instead of the 4
- day x 10
- hour schedules often used to minimize cost when time is not of the essence. Increased use of offsite modularization and pre
- fabrication of APC compo nents could also shorten schedules and reduce job hours. EPA believes that the January 1, 2014 compliance starting date is as expeditious as practicable for the sources installing large, complex control systems. The following additional observations suppo rt EPA’s expectation that the limited 5.9 GW of FGD retrofits can be realized in the 30 month interim between rule signature and the start of 2014:

72 http :// www . epa . gov / Compliance / resources / complaints / civil / caa / ho mercity
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Page 340 of 647 ● There are documented instances of large, complex wet FGD retrofits being deployed in less than 30
-months (excluding the time for owners’ project planning). Examples are Killen Station Unit 2 73 , and Asheville Unit 1 . 74
● In 2009 the APC supply chain dep loyed more than six times more GW capacity of FGD and SCR controls than the 5.9 of FGD that would be deployed by 2014 under this Rule. ● The APC supply chain has seen a 2
- year decline in deployments since its peak in 2009, but in 2011 is nonetheless putt ing into service about three times more GW capacity of FGD and SCR controls than the 5.9 of FGD that would be deployed under this Rule.
● Because the supply chain has been in decline, but remains quite active, there are now adequate supply chain
resources available that can be quickly reengaged to support a rapid deployment of 5.9 GW of FGD. EPA recognizes that the installation of any amount of scrubbers in this short time frame will require aggressive action by plant owners and that the owners who can me et this

73 Black & Veatch, http://www.bv.com/News_3_Publications/News_Releases/2005/0503.as px , http://www.bv.com/wcm/press_release/07252007_9767.aspx 74 PowerGenWorldwide, Projec ts of the Year, January 1, 2007, http://www.powergenworldwide.com/index/display/articledisplay/28 2547/articles/power
- engineering/volume
- 111/issue
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Page 341 of 64 7 schedule will already have done their project planning and will be ready to place orders. An example of such “early movers” was seen in the power sector’s anticipation of CAIR. EPA data indicate that solely CAIR
- driven FGD and SCR deployments of ab out 6 GW occurred within two and one
- half years after CAIR’s finalization in mid
- 2005, showing that at least 20 percent of the total CAIR- only controls effort through a 2010 compliance date was sufficiently planned for installation to start before or immed iately upon finalization of the rule. EPA reasonably expects that similar advance planning has already been done for units that would retrofit under this rule. In the event that a particular control installation requires additional time into 2014 to come online, EPA believes compliance would not be jeopardized given the ability of sources to purchase allowances during that time. This approach could be supported by some sources with FGD that have the ability to increase their SO 2 removal above historic ra tes, perhaps through relatively low cost upgrades to improve scrubber effectiveness, or by operating scrubbers at higher chemistry ratios. The ability of sources to temporarily or permanently substitute dry sorbent injection (DSI) for FGD serves as anothe r backstop for any feasibility issues regarding FGD. Note that the updated modeling for this rule projects the addition by 2014 of about 3 GW of DSI for SO 2 control using trona or other sorbent. DSI is a*** E.O. 12866 Review

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Page 342 of 647 relatively low capital cost technology that readil y can be installed in the time frame available for compliance. 75 , 76 It should also be noted that most APC retrofits will involve a source outage for final “tie
- in” of retrofitted systems to existing systems, during which time emissions from the affected un its are zero. For some sources, the duration of this tie
- in outage may effectively extend the deadline by which all of the projected emission reductions need to occur. Although EPA believes that installation of 5.9 GW of FGD at facilities by January 1, 2 01 4 is feasible, EPA also conducted a n IPM sensitivity analysis to examine a scenario in which FGD retrofitting by 2014 is not allowed . Results of EPA’s “no FGD” analysis indicate that if the power industry were subjected to the requirements of this rule without an FGD retrofit option for compliance , covered units would still be able to meet the Transport Rule requirements in every state while respecting each state’s assurance level . (See the docket to this rulemaking for the TR No FGD in 2014 Scenario Fi nal IPM run.)

75 ICAC letter to Senator Carper, November 3, 2010, http://www.icac.com/f iles/public/ICAC_Carper_Response_110310.pdf 76 Assessment of Technology Options Available to Achieve Reductions of Hazardous Air Pollutants , URS Corporation, April 5, 2011, http://www.supportcleanair.com/resources/studies/file/4
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Page 343 of 647 In this scenario without the availability of new FGD by 2014, sources in covered states complied with the Transport Rule budgets by using moderate additional amounts of DSI retrofits, switching to larger shares of sub - bituminous coal, and dis patching larger amounts of natural gas - fired generation in lieu of the FGD retrofits that are projected as being most economic under modeling of the Transport Rule remedy. Because new FGD capacity is included in EPA’s projection of the least cost set of S O 2 emission reductions required in Group 1 states , the “no FGD” sensitivity scenario did project higher system cost s , although these costs were still substantially lower than the remedy EPA modeled in the Transport Rule proposal. Th e “no FGD” analysis indi cates that while the ability of Group 1 states to meet their 2014 SO 2 budgets is facilitated by FGD retrofits, they are by no means require d, nor is Transport Rule compliance jeopardized by their absence. Even under a scenario in which sources fail to complete FGD retrofits by 2014 , sources in the affected states would have other compliance options available at reasonable cost to meet the state’s budget requirements. This analysis shows that Group 1 s tates would be able to comply with the ir 2014 SO 2 budge ts by relying on other emission reduction opportunities that do not require FGD retrofit s . EPA analysis confirms that those alternatives are feasible both in terms of cost and timing.*** E.O. 12866 Review

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Page 344 of 647 Finally, EPA recognizes that, when finalized later this year as current ly scheduled, the Mercury and Air Toxics Standards (MATS) will require significant retrofit activity at covered sources in the power sector with a 2015 compliance date for that rule. EPA's projections of retrofit activity under the final Transport Rule ar e highly compatible with its projections of retrofit activity under the proposed MATS (which included the proposed Transport Rule in its baseline). EPA therefore anticipates that the Transport Rule's projected retrofit activity will not only be the least
- cost compliance pathway to meeting state budgets in 2014 but will also accelerate emission reductions subsequently required by the effective date of MATS. The final Transport Rule's projected 2014 retrofit installations will also further incentivize the p ower sector to ramp up its retrofit installation capabilities to achieve broader deployment of the projected pollution control retrofits under the proposed MATS. Considering all the reasons given above, EPA has concluded that the 2014 requirements for SO 2 emissions in the states covered by the Transport Rule are reasonable and can be met by the power industry by a variety of means. c. Coal Switching for SO 2 Compliance in 2012 and 2014 Coal switching is another mechanism which can be used along with operatin g pollution controls in 2012 for compliance. It*** E.O. 12866 Review

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Page 345 of 647 will be a complementary activity by many coal
- fired units alongside of operating pollution controls and the addition of more scrubbers and DSI in 2014. In the proposal, EPA noted that coal switching could se rve as a compliance mechanism for 2012. EPA requested comment on the reasonableness of EPA’s assumption that coal switching will have relatively little cost or schedule impact on most units. EPA received substantial comment suggesting that the coal switch ing and coal blending projected by EPA modeling are not feasible for all units, and that, if feasible, would often incur a cost through the derating of the unit associated with the switch to a lower sulfur coal or coal blend. Additionally, sources indicat ed that coal switching by 2012 would not always be possible in the six month window between final rule signature and start of compliance. These feasibility concerns stemmed from restrictions included in existing coal supply contracts and from boiler design constraints that may hinder coal switching within a six month window. EPA agrees with these concerns and revised its IPM modeling to limit coal switching capability in 2012 for particular units that may have trouble switching coals or coal blends in a six month time frame. A cost adder was also included in the IPM modeling for coal switching to capture the potential cost burden*** E.O. 12866 Review

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Page 346 of 647 of deratings that might accompany switching to a very low sulfur subbituminous coal or coal blend. A particular commenter conc ern regarding switching to lower sulfur within the eastern bituminous coals related to a possible impact on the performance of a cold
- side electrostatic precipitator (ESP). Some ESPs that operate at acceptably high collection efficiency when using a high
- or medium
- sulfur bituminous coal may experience some loss in collection efficiency when a lower sulfur coal is used. Whether this occurs on a specific unit, and the extent to which it occurs, would depend on the design margins built into the existing ESP , the percentage change in coal sulfur content, and other factors. In any case, industry experience indicates that relatively inexpensive practices to maintain high ESP performance on lower sulfur bituminous coals are available and can be used successfull y where necessary. These include a range of upgrades to ESP components and flue gas conditioning. 77 EPA therefore assumes that it will not be necessary for units that switch from higher to lower sulfur bituminous to make a costly replacement of the ESP.

77 Assessment of Technology Options Available to Achieve Reductions of Hazardous Air Pollutants , URS Corporation, April 5, 2011, http://www.supportcleanair.com/resources/studies/file/4
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Page 347 of 647 Coal switching as a SO 2 compliance option might also include switching from bituminous to subbituminous coal. EPA’s analysis does not assume that a unit designed for bituminous can switch to (very low sulfur) subbituminous coal unless the unit’s historic al data demonstrate that capability in the past. EPA assumes that units with that demonstrated capability have already made any investments needed to handle a switch back to the use of subbituminous coal at a similar percentage of its heat input as in the past. For IPM analysis in the final rule EPA also introduced a coal switching option that assumes that units can increase a historically low percentage use of subbituminous to a “maximum” level, if economic. This option includes an appropriate derate in output, increase in heat rate, and additional capital and operating costs. Details of this and other IPM updates for this rule are provided in the IPM Modeling Documentation in the docket for this rulemaking (“Documentation Supplement for EPA Base C ase v.4.10_FTransport

– Updates for Final Transport Rule”) . D. Allocation of Emission Allowances Under the final rule, EPA distributes a number of SO 2 , annual NO X , and ozone - season NO X emission allowances to covered units in each state equal to the SO 2 , an nual NO X , and ozone season NO X budgets for those states. These budgets are addressed*** E.O. 12866 Review

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Page 348 of 647 in section VI.D of this preamble. This section discusses the methodology EPA uses to allocate allowances to covered units in each state. As discussed later in section VII .D.2, EPA is setting aside a base 2 percent of each state’s budgets for allowance allocations for new units, with 5 percent of that 2 percent, or 0.1 percent of the total state budget being set aside for new units located in Indian country. To this bas e 2 percent, EPA is setting aside an additional percentage on a state
- by - state basis, ranging from 0 to 6 percent (yielding total set asides of 2 percent to 8 percent), for units committed to be built. The remainder of the state budget is allocated to exis ting units. Tables V.D. - 3 and V.D.
- 4 in this preamble show the SO 2 , annual NO X , and ozone - season NO X budgets for each covered state (without the variability limits). In allocating allowances to existing and new units, EPA distributes four discrete types of emissions allowances for four separate programs: SO 2 Group 1 allowances, SO 2 Group 2 allowances, annual NO X allowances, and ozone - season NO X allowances. In the SO 2 Group 1 and SO 2 Group 2 programs, each SO 2 allowance authorizes the emission of one ton o f SO 2 in that vintage year or later and is usable for compliance only in the program for which the allowance was issued. In the annual NO X program, each annual NO X allowance authorizes the emission of one*** E.O. 12866 Review

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Page 349 of 647 ton of NO X in that vintage year or later in that p rogram. In the
ozone - season NO X program, each ozone - season NO X allowance authorizes the emission of one ton of NO X during the regulatory ozone season (May through September for this final rule) in that vintage year or later for that program. In each of t he four trading programs, a covered source is required to hold sufficient allowances (issued in the respective trading program) to cover the emissions from all covered units at the source during the control period. EPA assesses compliance with these allowance - holding requirements at the source (i.e., facility) level. This section explains how, in this final rule, EPA allocates a state’s budget to existing units and new units in that state. This section also describes the new unit set
- asides and Indian cou ntry new unit set
- asides in each state, allocations to units that are not operating, and the recordation of allowance allocations in source compliance accounts. 1. Allocations to existing units This subsection describes the methodology EPA will use in the FIPs finalized in this action to allocate to existing units. 78 The same methodology will be used to allocate allowances to existing units for all four trading programs.

78 In this rule, existing units are defined as covered units that commenced commercial operation prior to January 1, 2010. As*** E.O. 12866 Review

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Page 350 of 647 For the reasons explained below, EPA has decided to base allocations made under the FIPs on historic heat input, subject to a maximum allocation limit to any individual unit based on that unit’s maximum historic emissions. This methodology gives each existing unit an allocation equal to its share of the state’s historic heat input for al l the covered units in the program, except where that allocation would exceed its maximum historic emissions; this methodology would constrain the heat input
- based allocations from exceeding any unit’s maximum historic emissions. Further detail on the imp lementation of this approach is provided in section VII.D.1.c below as well as in the Allowance Allocation Final Rule TSD in the docket for this rulemaking. All allocations for 2012 will be done pursuant to the FIPs. However, as described in section X, s tates may submit SIPs or abbreviated SIPs to use different allocation methodologies for allowances of vintage year 2013 and later. a. Summary of allocation methodologies and comments EPA took comment on three distinct allocation methodologies. The first

– an emissions
- based option

– was presented in the original Transport Rule proposal (75 FR 45309). The second and third

– heat input option 1 and heat input option explained in greater detail in Section VII.B. of this preamble, EPA decided to use this definition to ensure that EPA would have at least one full year of quality
- assured data on which to base a unit’s allocation.*** E.O. 12866 Review

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Page 351 of 647 2

– were presented in a Notice of Data Availability (76 FR 1113). EPA received numerous c omments on all three options. i. emissions
- based allocation methodology The emissions
- based option presented in the original Transport Rule proposal would base allowance allocations to existing units on each covered unit’s calculated emissions “share” o f that state’s budget for a given pollutant under the Transport Rule. The proposed rule stated that “for 2012, each existing unit in a given state receives allowances commensurate with the unit’s emissions reflected in whichever total emissions amount is lower for the state, 2009 emissions or 2012 base case emissions projections. In either case, the allocation is adjusted downward, if the unit has additional pollution controls projected to be online by 2012...For states with lower SO 2 budgets in 2014 (SO 2 group 1 states), each unit’s allocation for 2014 and later is determined in proportion to its share of the 2014 state budget, as projected by IPM” (75 FR 45309). Many commenters objected to this projected emissions allocation methodology. Commenters offe red two principle objections. First, they argued EPA should not use unit
- level model projections to allocate allowances. Second, they argued the use of any emissions
- based allowance methodology is improper. Many of these commenters argued that instead o f an*** E.O. 12866 Review

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Page 352 of 647 emissions
- based allocation methodology, EPA should use a heat
input
- based allocation methodology. Commenters’ objections to the use of unit level model projections focused primarily on the accuracy of such projections. While many commenters supporte d the use of modeling projections in determining state emissions budgets, they argued that the unit
- level model projections were not sufficiently accurate to use as a basis for allocating allowances. Among other things, they argued that the modeling used for the proposal did not recognize certain non
- economic factors that may cause individual units to operate differently than the model projects. Commenters also argued that EPA’s modeling does not capture all up
- to - date contracts and other economic arrangements made at the unit
- level which may affect operational decision
-making. Some of these commenters continued to support the use of an emissions
- based allocation approach, but urged EPA to use more up - to - date and specific unit
- level data in its modeling p rojections. Others opposed the use of any emissions
- based allocation approach. EPA acknowledges that the model may not, at this time, capture all relevant operational decision factors for each individual unit. EPA also recognizes that there are unit
- leve l details of operational decision
-making and economic arrangements (such as certain contracts for electricity sales) which are*** E.O. 12866 Review

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Page 353 of 647 private and thus unavailable to EPA on an ongoing basis for modeling purposes. EPA believes these potential omissions would not have a significant impact on EPA’s determination of significant contribution at the state level; however, EPA recognizes they could conceivably have a significant impact on projections at the individual unit level. EPA thus agrees with commenters that the unit
- level emissions projections from its modeling may not reflect all possible operational decisions at a given unit and are therefore not an appropriate proxy measure to use as a basis for allocating allowances to individual units. Many commenters also argued that, even if the emissions projections could be adjusted to capture all known and up
- to date unit
- level operational factors, EPA should not use any emissions
- based allocation approach. They argued that an emissions
- based approach should not be us ed because it is not fuel - neutral. That is to say, the type of fuel consumed significantly affects the emissions from, and therefore the allocation to, a given unit under an emissions
- based approach. Commenters argued that an approach that is not fuel
- ne utral effectively awards higher
- emitting units. Commenters also argued that a projected emissions
- based approach should not be used because it is not control
- neutral. In other words, whether or not a unit has installed controls would significantly affect the allocation for a given unit under an emissions
- based*** E.O. 12866 Review

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Page 354 of 647 approach. Under an emissions
- based approach, controlled units receive significantly fewer allowances than uncontrolled units. Such an approach, commenters pointed out, effectively penalizes
source s who have taken action to reduce emissions. EPA acknowledges that an emissions
- based approach would not be fuel - neutral or control - neutral. EPA notes that the D.C. Circuit rejected the fuel adjustment factors that were used in CAIR to adjust state budgets and allocations based on the type of fuel burned at each covered unit. North Carolina , 531 F.3d 918
- 21 (rejecting use of fuel adjustments in setting state NO X budgets) . While the proposal’s allocation methodology did not explicitly adopt “fuel adjus tment factors” for allocation purposes, EPA recognizes that an emissions
- based allocation methodology effectively discriminates among covered sources based on the type of fuel they combust. In addition, several commenters argued that the proposal’s emissio ns - based methodology would inappropriately reward the highest emitters under the program with more allowances than their lower
- emitting counterparts would receive. EPA acknowledges that such a methodology would allocate more allowances to units whose emis sions make up a larger share of the proposed Transport Rule programs’ state budgets. EPA notes that because any allocation patterns under the Transport Rule FIPs would be established in advance of covered sources’*** E.O. 12866 Review

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Page 355 of 647 compliance decisions (i.e., decisions reg arding how much to emit under the programs), covered sources cannot be “rewarded” by adjusting their future emissions. However, EPA notes commenters’ observations that the proposal’s methodology would reduce allocations to units that previously installed pollution control technology or invested in cleaner forms of generation in anticipation of CAIR. EPA concluded in review of these comments that the proposed Transport Rule’s allocation methodology unintentionally yielded this distributional outcome. EPA therefore considered alternative allocation methodologies described below. A substantial portion of the commenters who objected to the proposal’s emissions
- based allocation option urged EPA to consider historic heat input based approaches. EPA agreed it should accept comment on the use of historic heat input
- based approaches and published a NODA to provide an opportunity for comment on two specific heat input options and the allocations that would result from application of those options to the proposed T ransport Rule state budgets. ii. Heat input allocation option 1 The first heat input option presented by EPA in the NODA (“Option 1”) allocates allowances to units based solely on their historic heat input. Under this option, EPA establishes a 5
- year his toric heat input baseline for each covered unit and*** E.O. 12866 Review

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Page 356 of 647 allocates allowances to sources at levels proportional to the each unit’s share of the total historic heat input at all covered units in that state. Numerous commenters supported the use of a heat - input based allocation methodology. These commenters stated that basing allocations on historic heat input has the following advantages over the proposal’s emissions
- based allocation methodology: (i) For certain types of units, h istoric heat input data may off er a better representation of unit
- level operation than model projections of unit
- level emissions; furthermore, for all units, historic heat input is typically represented by quality
assured data reported by sources from continuous emissions monitoring sys tems, which strengthens its accuracy. (ii) Historic heat input data are fuel
- neutral. (iii) Historic heat input data are emissions
- control neutral and thus do not yield reduced allocations for units that installed or are projected to install pollution co ntrol technology. Many commenters also argued that a heat input
- based allocation methodology should be used because, unlike the proposal’s emissions
- based methodology, a heat - input based methodology would be generally fuel - neutral and control

– neutral and would rely on unit
- level quality
- assured data instead of on modeling projections.*** E.O. 12866 Review

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Page 357 of 647 Several commenters expressed support for specific aspects of heat input option number one. From a technical standpoint, commenters noted that heat input option 1 relied on t he highest
quality and most transparent data EPA had provided as a basis for allocating allowances under the Transport Rule programs. They argued that the calculation methodology for heat input option 1 is more readily re
- created and understood by sources than either the proposal’s methodology or EPA’s application of the “reasonable upper - bound capacity utilization factor and a well - controlled emission rate” in heat input option 2 (described in greater detail below). They also pointed out that it is simil ar to methodologies used in previous trading programs, such as the NO X Budget Trading Program ( see 40 CFR 96.42(a) & (b) (calculating each existing EGU’s allocation by multiplying each unit’s historic heat input by 1.5 lb/mmBtu)). In addition, commenters supported the reliance of heat input option 1 on continuous emissions monitoring system (CEMS) data that are reported to EPA and certified by the source’s designated representative (DR) as accurate and complete. In addition, many commenters supported EPA’ s use of historic data without further transformation by any calculation factors created by EPA. From a policy perspective, commenters highlighted the fuel neutrality and emissions
- control neutrality aspects of heat input option 1. They noted that this option does not, in*** E.O. 12866 Review

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Page 358 of 647 contrast to the proposal’s emissions
- based methodology, penalize a source, through a reduced allowance allocation, for having chosen a generation technology or emissions control technology that was more favorable to public health and the environment. EPA agrees with these commenters’ observations. The allocation pattern associated with this option does not discriminate between units based on either the fuel consumed or the presence or absence of a pollution control technology. In this respect, it is a neutral approach that does not “reward” high
- emitting units or “penalize” low
- emitting units, including, for example, those units to which pollution control technology was installed in anticipation of CAIR. EPA agrees with the aforemention ed arguments from these commenters regarding the technical and policy merits of this heat input
- based allocation methodology. EPA believes that the quality
- assured heat input data reported by EGUs under its programs are among the most detailed and sound u nit
- level data accessible by EPA. EPA believes the calculation of any individual unit’s share of this historic heat input data is a straightforward, clear, and simple calculation to perform, such that anyone may easily reproduce EPA’s calculated allowance allocations under this approach. EPA also agrees with commenters that such data has previously supported allowance allocation procedures for highly*** E.O. 12866 Review

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Page 359 of 647 successful program implementation of the Acid Rain Program (ARP) and the NOX Budget Program (NBP). Notably , Congress chose a heat input
- based allocation approach when authorizing the ARP in title IV of the Clean Air Act, suggesting that Congress viewed heat input as a reasonable basis for allocation. Additionally, EPA’s selection of a heat input
- based approach for the NBP was not legally challenged, implying that stakeholders also see a heat input
- based approach as reasonable. EPA also agrees with comments observing that allocations made under this heat input approach do not discriminate on the basis of any un it’s choice of fuel combustion or pollution control technology, and that allocations under this approach would thus be “fuel - neutral” and “control - neutral.” EPA also agrees with commenters that unlike the proposed rule’s emissions
- based methodology, this heat input methodology does not yield lower allocation to units that reduced emissions in advance of the Transport Rule relative to units that did not make such emission reductions. Other commenters objected to the use of a heat
- input based allocation meth odology. These commenters argued that the allocation pattern associated with a heat
- input allocation methodology would yield “windfall profits”
-- in the form of allowance allocations greatly in excess of likely emissions
-- for certain units, particularl y with regard to SO 2 allowance*** E.O. 12866 Review

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Page 360 of 647 allocations for units combusting natural gas. EPA disagrees with the characterization of the excess allowances as “windfall profits.” Allocations based on heat
- input alone are fuel
neutral and control - neutral. The characte rization of the heat
input allocation methodology as creating “windfall profits” for any unit is based on the assumption that all units should be allocated allowances based on emissions, not heat input. In arguing the heat
- input approach creates a “windfa ll” for some units, commenters are assuming that the allocation of allowances above a unit’s projected emissions constitutes a “windfall”

– a conclusion EPA does not accept. EPA believes that under market
based regulatory programs, it is appropriate to ba se initial allowance allocations on a neutral factor and allow the market to determine the least
- cost pattern of emission reductions in each state to achieve the reductions that address th e state’s significant contribution and interference with maintenance under the final Transport Rule programs. EPA disagrees that future allowance transactions (following a neutral
- factor initial allocation) in response to these market forces can be characterized as “windfall profits.” As explained above, EPA believes it is appropriate to allocate allowances based on a neutral factor. Commenters appear to ask EPA, instead of allocating based on a neutral factor, to consider the unit
- level distributional impacts of each allocation methodology and to*** E.O. 12866 Review

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Page 361 of 647 select an allocation me thodology on the basis of equity. EPA does not believe it would be appropriate for the agency to pick an allocation methodology to achieve any particular distributional outcome as such considerations are not related to the statutory mandate of section 110 (a)(2)(D)(i)(I). Instead, EPA believes it is appropriate to allocate allowances to sources covered by its trading programs based on a neutral factor. Furthermore, CAA section 110(a)(2)(D)(i)(I) requires prohibition of certain emissions within a state (i. e., a state’s significant contribution and interference with maintenance). It does not direct EPA to use any particular methodology for allocating allowances under a trading program designed to ensure all such emissions are prohibited. As such, EPA beli eves it is appropriate to allocate allowances based on a neutral factor representing fossil energy content used to produce electricity. Detailed considerations of equity, as the D.C. Circuit reminded EPA, are not related to the statutory mandate of sectio n 110(a)(2)(D)(i)(I). North Carolina , 531 F.3d 921 . Some commenters objected to the use of a heat input
- based approach by arguing that higher
- emitting units would not receive an initial allocation sufficient to cover their emissions. EPA does not believe it is reasonable to expect initial allocations to cover a unit’s emissions under a trading program aimed at producing meaningful emission reductions. In its administration*** E.O. 12866 Review

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Page 362 of 647 of prior trading programs such as the ARP and the NBP, EPA has made initial allowan ce allocations using a heat input
- based approach, and virtually all covered sources have successfully complied at the end of each compliance period by making cost
effective emission reductions and purchasing additional allowances through robust markets to cover emissions. EPA disagrees with commenters’ arguments that allowance allocations should be used to compensate units with higher emissions. iii. Heat input allocation methodology option 2 The second heat input option presented by EPA for public
commen t also uses historic heat input but applies a constraint to unit
- level allocations under certain circumstances. Specifically, under this option unit
- level allocations are not allowed to exceed what EPA determines, based on historic emissions and other fac tors, to be the units’ “reasonably foreseeable maximum emissions.” To apply this constraint, EPA first determines whether the allocation to a unit under an unconstrained heat
- input methodology would exceed that unit’s maximum historic emissions of the rele vant pollutant since 2003 “ in order to reflect unit
level emissions before and after the promulgation of the CAIR” (76 FR 1115). Using this baseline enhances the neutrality of the maximum historic emissions data because it captures the highest emissions o f the unit during that period regardless of*** E.O. 12866 Review

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Page 363 of 647 what fuels it combusted or what pollution control devices were installed and used at any time during that period. In other words, a unit’s allocation would not be reduced due to a recent decision to switch fuels or install pollution controls. Second, for this option, EPA then adjusts that maximum historic emissions data by applying a “well
- controlled rate maximum,” designed to place “a reasonably foreseeable maximum emissions level reflecting a reasonable upper
- b ound capacity utilization factor and a well
- controlled emission rate that all units (regardless of the type of fuel they combust) can meet for the pollutant” (76 FR 1115). This option would constrain certain units’ allocations that, if based solely on his toric heat input, would be determined by EPA to be “in excess of their reasonably foreseeable maximum emissions” under the Transport Rule programs (76 FR 1115). As noted above, commenters offered numerous arguments in favor of using a historic heat input approach. These arguments apply equally to heat input option 1 and heat input option 2. EPA also received numerous comments comparing the two heat input options presented. Many commenters preferred heat input option 1’s reliance purely on historic data as compared with heat input option 2’s reliance on that data modified by the application of EPA
determined “reasonable upper bound capacity factors” and “well
-*** E.O. 12866 Review

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Page 364 of 647 controlled emission rates.” Commenters also criticized the complexity of these modification factors in heat input option 2. While EPA believes both options represent viable approaches, the Agency agrees with commenters that the application of these factors increase the complexity of allocation determinations and would adjust unit
- specific historic data by applying EPA
- created factors generically determined for broad categories of units. Some commenters suggested that EPA’s application of these modification factors could also represent legal vulnerabilities for the Transport Rule. In particular, they were concerned that the capacity factors and well controlled emission rates presented as part of heat input option 2 could be perceived as arbitrary. While EPA does not agree that these modification factors are arbitrary, the Agency does recognize that
application of such EPA
- created generic factors in determining unit
- specific allocations increases the complexity of the allocation approach and raises issues regarding whether such generic factors are appropriately applied to each individual unit.iv. Gen eral comments on EPA’s authority to allocate allowances Numerous commenters also noted that EPA has generally broad authority in selecting an allocation methodology under CAA*** E.O. 12866 Review

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Page 365 of 647 sections 110(a)(2)(D)(i)(I) and 302(y). 79 EPA agrees with commenters that the Age ncy has broad discretion in this area. Neither the CAA nor the D.C. Circuit Court’s opinion in North Carolina specifies a particular methodology that EPA must use to allocate allowances to individual units. CAA section 110(a)(2)(D)(i)(I) requires prohibi tion of emissions “within the state” that significantly contribute to nonattainment or interfere with maintenance, and it gives states broad discretion to develop a control program in a SIP that achieves this objective. EPA has similarly broad discretion when issuing a FIP to realize this objective. Moreover, while the definition of FIP in CAA section 302(y) clarifies that a FIP may include “enforceable emission limitations or other control measures, means or techniques (including economic incentives, suc h as marketable permits or auctions of emissions allowances),” this section does not require EPA to use any particular methodology to allocate allowances under a FIP trading program. In light of

79 CAA section 302(y) defines the term “Federal implementation plan” as follows: Federal implementation plan.

—The term “Federal implementation plan” means a plan (or portion thereof) promulgated by the Administrator to fill all or a portion of a gap or otherwise correct all or a portion of an inadequacy in a State implementation plan, and which includes enforceable emission limitations or other control measures, means or techniques (including economic incentives, suc h as marketable permits or auctions of emissions allowances), and provides for attainment of the relevant national ambient air quality standard.*** E.O. 12866 Review

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Page 366 of 647 this lack of direction in the CAA concerning allowance alloc ation, EPA has broad discretion to select an allocation methodology that is reasonable and consistent with the goals of CAA section 110(a)(2)(D)(i)(I). The body of public comment makes it clear that no allocation option could be deemed satisfactory from th e perspective of all stakeholders. Public comments from most states and industrial stakeholders with a substantial interest in how EPA allocates allowances under the Transport Rule FIPs expressed support for an historical heat input
- based approach as oppo sed to the proposal’s emissions
- based approach. Most commenters favored this historical heat input data basis as the most sound and offered technical corrections which EPA has used in the final rule. EPA believes it is reasonable to select a heat input
- b ased approach for the final Transport Rule as being consistent with its program objectives and historically established from prior program implementation as a credible, workable allocation approach. b. Final FIP Allocation Methodology After consideratio n of all comments, EPA decided to allocate allowances to individual units based on that units’ share of the state’s historic heat
- input, but to ensure that no unit’s allocations exceed that unit’s historic emissions. EPA decided to use the allocation meth odology originally presented*** E.O. 12866 Review

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Page 367 of 647 as heat input option 2, modified in response to public comments. EPA decided to use heat input option 2 but without the application of the “reasonable upper
- bound capacity utilization factor and a well - controlled emission rate ” factors. This allocation approach reflects the Agency’s response to extensive public comment on the options presented in the proposed Transport Rule and subsequent NODAs and is a logical outgrowth of those actions. EPA is using this approach to allocat e allowances under the FIPs for all four trading programs. Further details on the calculation and implementation of this approach are provided below in section VII.D.1.c and can also be found in the Allowance Allocation Final Rule TSD in the docket for th is rulemaking. The principal reasons for this decision are:

 EPA believes that allowance allocation under the Transport Rule should not discriminate between units based on the selection of fuels consumed or of pollution controls installed at a given unit in anticipation of either the Clean Air Interstate Rule or the Transport Rule, i.e. fuel or control decisions taken from 2003 onward. This approach will avoid allocations that effectively penalize units which have already invested in cleaner fuels or othe r pollution reduction measures that will continue to deliver*** E.O. 12866 Review

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Page 368 of 647 important emission reductions under this rulemaking. The selected approach makes no such discriminations and is thus fuel
- neutral and control - neutral in its allocation determinations.

 EPA finds that the selected approach maximizes transparency and clarity of allowance allocations. EPA has already made public the historic heat input and historic emissions data on which this approach is based, and its application to calculate unit
- level allocation s in each state under that state’s emission budgets finalized in this Transport Rule can be easily replicated by any party.

 EPA finds that quality
- assured historic CEMS - quality data used to implement this approach represent the most technically superior da t a available to EPA at the time of this rulemaking for calculating unit
- level allocations. This approach relies on unmodified historic data reported directly by the vast majority of covered sources, which have already attested to the validity and accuracy of this data. EPA agrees with commenters that allowance allocations should be based on quality
- assured data to the maximum extent possible. This approach uses the most accurate data currently available to EPA.*** E.O. 12866 Review

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Page 369 of 647  Heat - input based approaches were used to al locate allowances under both the NO X Budget Program and the Acid Rain Program. Allocation under these programs was readily and easily administered and the programs achieved or exceeded their environmental goals. This approach’s core use of heat input as a basis for allocations seeks to build on prior legislative and administrative approaches to allowance allocations for emission trading programs.

 EPA also finds that this approach’s addition of a constraint to heat input
- based allocations where such alloca tions would otherwise exceed a unit’s maximum historic emissions is a reasonable extension of a heat input
- based allocation approach. The Transport Rule programs are established to achieve emission reductions from covered states. As a group, covered
sour ces within each state will make the necessary reductions under these programs. In light of the program’s goal to reduce each state’s emissions, it is logical that initial allowance allocations to covered units should be limited to no more than each unit’s maximum historic emissions, as a reasonable starting point from which the trading programs would commence to assure state - level reductions. Under the trading*** E.O. 12866 Review

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Page 370 of 647 programs, any source may emit any ton for which it holds a corresponding allowance, which it may acquire either by initial allocation or by subsequent purchase. Notwithstanding that compliance flexibility of the market - based trading programs under the Transport Rule, EPA believes that constraining initial heat input
- based allowance allocations not t o exceed a unit’s maximum historic emissions offers a reasonable starting point from which the programs can operate. EPA believes that this selected allocation methodology for the final Transport Rule FIPs is within its authority under the Clean Air Act. Section 110(a)(2)(D)(i)(I) of the CAA requires that emissions “within a state” that significantly contribute to nonattainment or interfere with maintenance in another state be prohibited. In the final Transport Rule, EPA analyzed each individual state’s significant contribution and interference with maintenance and calculated budgets that represent each state’s emissions after the elimination of those prohibited emissions. The methodology used to allocate allowances in a state budget to individual units in the state has no impact on that state’s budget or on the requirement that the state’s emissions not exceed that budget plus variability. Regardless of the allocation methodology used, the state’s responsibility for eliminating its significant contribut ion and interference*** E.O. 12866 Review

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Page 371 of 647 with maintenance remains unchanged. This is reflected by the fact that allocations under each state’s budget, regardless of how they are made, cannot change that state’s budget. In sum, the allocation methodology has no impact on the final rule’s ability to satisfy the statutory mandate of CAA section 110(a)(2)(D)(i)(I) to eliminate significant contribution and interference with maintenance. Consistent with its broad authority in CAA sections 110(a)(2)(D)(i)(II) and 302(y), EPA believes that data quality, fuel - neutrality, control
- neutrality, transparency, clarity, and successful experience in previous trading programs are reasonable factors on which to base the selection of an allowance allocation methodology for the final Transport Rule. EPA believes that the transparency and clarity of this allocation approach builds credibility with the public that the government is distributing a public resource precisely as stated in this rulemaking, with clear execution that can be easily verifi ed by any citizen with a calculator. EPA also believes that the final Transport Rule’s heat input
- based approach is not inconsistent with the goals of the Clean Air Act because it allocates allowances on the basis of a neutral factor that does not discrimi nate by what fuel the unit burns or whether or not a unit has installed controls in anticipation of these regulations. In contrast, allocations*** E.O. 12866 Review

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Page 372 of 647 under the proposal’s emissions
- based methodology would give a greater share of allowances to units with higher emission rates, which are generally responsible for a greater share of a state’s total emissions . Because these higher
- emitting rate units are generally responsible for a greater share of emissions, it follows that they are also responsible for a greater share of a state’s significant contribution and interference with maintenance. The proposal’s emissions
- based allocation methodology would disadvantage one of two otherwise identical units if it invested in emission reductions in anticipation of the Clean Air Interstate Rule or this final Transport Rule. The heat - input allocation methodology selected for the final Transport Rule does not have this flaw. In contrast to the proposal’s emissions
- based allocation approach, the heat input allocation methodol ogy selected by EPA yields a smaller proportion of allowances relative to emissions to higher
emission
- rate units and a higher proportion of allowances relative to emissions to lower
- emission
- rate units. For example, assume that in a state with two units and in a baseline year, Unit A combusts 100 MMBtu of heat input and emits 1000 tons while Unit B combusts 100 MMBtu of heat input and emits only 500 tons. Assume also that this state’s future Transport Rule emissions budget for this pollutant is only 500 tons. Because Units A and B each make up an even share of historic*** E.O. 12866 Review

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Page 373 of 647 heat input for the state, the final rule’s heat input
- based approach would allocate the same share of allowances (250 tons) to each unit. In this example, Unit A’s initial allocation of 2 50 is a smaller proportion of its historic emissions (25 percent of its baseline 1000
- ton emissions), while Unit B’s initial allocation of 250 is a larger proportion of its historic emissions (50 percent of its baseline 500
- ton emissions). Therefore, Unit B’s ability to emit fewer tons per MMBtu of heat content used for generating electricity (as compared to Unit A) results in Unit B receiving a larger proportion of its historic emissions as an initial allocation share than Unit A receives. This relative d istribution al pattern yielded is not in consistent with the goals of CAA section 110(a)(2)(D)(i)(I) because under this distribution, higher
- emitting units, which are responsible for a greater share of the state’s significant contribution to nonattainment an d interference with maintenance, would require relatively more allowances in order to cover their pre - existing emissions than would lower
- emitting units . EPA believes this initial allocation pattern is an appropriate reflection of the goals of CAA section 110(a)(2)(D)(i)(I). The heat input
- based allowance methodology selected by EPA is fuel
- neutral, control - neutral, transparent, based on reliable data, and similar to the allocation methodologies used in the NO X SIP Call and Acid Rain Program. For all thes e reasons, EPA*** E.O. 12866 Review

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Page 374 of 647 determined that it is appropriate to use a heat input
- based allocation methodology in this rule. In addition, this allocation methodology is similar to an output - based allocation approach , which would base allocations on the quantity of elec tricity generated (rather than energy content combusted) and would also be fuel - neutral, control neutral, and able to reward generation units that operate the most efficiently . Many state and industry commenters advocated using an output
- based approach du e to its reported strong value in promoting efficiency. However, at this time EPA does not have access to unit
- level output data that is as quality
- assured or comprehensive as its data sets on heat input across the units considered. Therefore, EPA is usi ng a heat input
- based approach under the Transport Rule in part due to its ability to serve as the best proxy for an output - based standard using the most quality
- assured data that EPA has to date. In the NODA, EPA noted that final state budgets and allocat ions may differ from the proposed budgets and allocations because EPA was still in the process of updating its emissions inventories and modeling in response to public comments, including comments on the Integrated Planning Model. Thus, unit
- level allocat ions in the NODA provided an indication of the proportional share of a state’s budget that would be allocated to individual existing units if the alternative methodologies*** E.O. 12866 Review

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Page 375 of 647 were used. The allocations made final today are based on budgets that reflect the updated modeling and comments received during the comment period.
c. Calculation of existing unit allocations under the final Transport Rule FIPs Allocations under this final methodology for each existing unit are determined by applying the following steps . 1. For each unit in the list of potential existing Transport Rule units, annual heat input values for the baseline period of 2006 through 2010 are identified using data reported to EPA or, where EPA data is unavailable, using data reported to the Energy Inf ormation Administration (EIA). For a baseline year for which a unit has no data on heat input (e.g., for a baseline year before the year when a unit started operating), the unit is assigned a zero value. (Step 2 explains how such zero values are treated in the calculations.) The allocation method uses a five
year baseline to approximate a unit’s normal operating conditions over time. 2. For each unit, the three highest, non
- zero annua l heat input values within the five
- year baseline are selected and averaged. Selecting the three highest, non
- zero annual heat input values within the five
- year baseline reduces the*** E.O. 12866 Review

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Page 376 of 647 likelihood that any particular single year’s operations (which might be negatively affected by outages or other unusual events) would determine a unit’s allocation. If a unit does not have three non
- zero heat input values during the five
- year baseline period, EPA averages only those years for which a unit does have non
- zero heat input values. For example, if a unit has only reported data for 2008 and 2009 among the baseline years and the reported heat input values are 2 and 4 MMB tus respectively, then the unit’s average heat input used to determine its pro
- rata share of the state budget is (2+4)/2 = 3. 3. Each unit is assigned a baseline heat input va lue calculated as described in step 2 , above, referred to as the “ three - year average heat input .” 4. The three - year average heat inputs of all covered existing units in a state are summed to obtain that state’s total “three - year average heat input.” 5. Each uni t’s three - year average heat input is divided by the state’s total three - year average heat input to determine that unit’s share of the state’s total three
- year average heat input. 6. Each unit’s share of the state’s total three
- year average heat input is multi plied by the existing
- unit portion of*** E.O. 12866 Review

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Page 377 of 647 the state budget (i.e., the state budget minus the state’s new unit set
- aside and, if applicable, minus the Indian country new unit set
- aside) to determine that unit’s allocation. 7. An eight
- year (2003
- 2010) historic emissions baseline is established for SO 2 , NO X , and ozone - season NO X based on data reported to EPA or, where EPA data is unavailable, based on EIA data. This approach use s this eight
- year historic emissions baseline in order to capture the unit
- level emiss ions before and after the promulgation of CAIR. 8. For each unit, the maximum annual historic SO 2 and NO X emissions would be identified within the eight
- year baseline. Similarly, the maximum ozone season NO X emissions from the eight
- year baseline for each un it would be identified. These values are referred to as the “maximum historic baseline emissions” for each unit. 9. If a unit has a historic heat
- input based allocation (as determined in step 6) that exceeds its maximum historic baseline emissions (as determined in step 8), then its allocation would equal the maximum historic baseline emission for that unit. 10. The difference (if positive) under step 9 between a unit’s historic heat
- input
- based allocation and its “maximum*** E.O. 12866 Review

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Page 378 of 647 historic baseline emissions” would be re apportioned on the same basis as described in steps 1 through 6 to units whose historic heat - input
- based allocation does not exceed its maximum historic baseline emissions. Steps 7, 8, and 9 are repeated with each revised allocation distribution until the entire existing
- unit portion of the state budget is allocated. The resulting allocation value is rounded to the nearest whole number using conventional rounding. The only exceptions are for units wh ere the above process results in an allocation greater t han 0 but less than 1. For these units (e.g., a unit with an allowance value of 0.3), their allocation is always rounded to 1 allowance.
T able VI.D - 1 below provides an illustrative application of the steps 1 - 10 in a hypothetical state.
Table VI.D - 1 : Demonstration of Allocations Using Final

Allocation Methodology in a Three -Unit State with an 80 - Ton State Budget Steps 1 - 6 Steps 7,8,9 Steps 1 - 9 Reiterated Step 10
Initial Historic Heat Input - based Allocation Maximum

Historic Baseline Emissions Revised

Historic Heat Input based Allocation Final Allocation Unit A 20 16 N/A 16 Unit 30 50 32 32*** E.O. 12866 Review

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Page 379 of 647 B Unit C 30 50 32 32

2. Allocations to New Units EPA is finalizing
-- similar to the proposal (75 FR 45310)

-- an approach to allocate emission allowances to new units from new unit set
- asides in each state. A “new unit” may be any of the following: (1) a covered unit commencing commercial operation on or after January 1, 2010; (2) any unit that becomes a covered unit by meeting applicability criteria subs equent to January 1, 2010; (3) any unit that relocates into a different state covered by the Transport Rule; and any existing covered unit that stopped operating for two consecutive years but resumes commercial operation at some point thereafter. 81 The p roposed Transport Rule would have required that owners and operators initially request allowances from the new unit

81 Existing
- or new - unit allocations drawn from the budget of the relocated unit’s ori ginal state are replaced by new unit set
aside allocations from the budget of the unit’s relocation state in order to generally ensure that allocations are drawn from the correct state budget.*** E.O. 12866 Review

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Page 380 of 647 set - aside when the unit first became eligible for an allocation. EPA now believes that it can identify which units become eligible and when they become eligible, based on information provided in other submissions (e.g., certificates of representation, monitoring system certifications, and quarterly emissions reports) that the final rule already requires such units to make to EPA. EPA concludes that requiring owners and operators to submit requests of new unit set
- aside allocations would impose an unnecessary burden on the owners and operators, as well as on EPA, and therefore EPA has removed this requirement in the final rule. The following s ections describe the methodology in the final Transport Rule for allocating to new units, how EPA determined the size of new unit set
- asides in the final rule, and how EPA has provided for allocations to new units that locate in Indian Country.
a. New Unit Allocation Methodology The proposal’s new unit allocation methodology did not provide any allocation for a new unit’s first control period of commercial operation. Some commenters expressed concern about the lack of new unit allocations the first year of c ommercial operation. In order to address this concern, EPA is modifying the new unit allocation methodology in this final rule to include allocations to new units for the first control period in*** E.O. 12866 Review

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Page 381 of 647 which the units are in commercial operation, as well as for
c ontrol periods in subsequent years. The final rule’s allocation to new units is performed in two “rounds.” The first round is the same as the new unit allocation procedures in the proposal (except for elimination of the requirements that owners and operat ors request the allocations) and occurs during the control period for which the allocations are made. These first round allocations are based on new unit emissions during the prior control period and are recorded in allowance accounts in the Allowance Man agement System for the units by August 1 of each control period. For example, for the 2012 vintage year, “first
- round” allocations would be made to new units by August 1, 2012 based on their emissions in the 2011 control period (as monitored and reported in accordance with Part 75 of the Acid Rain Program regulations). If the new unit set
- aside is insufficient to accommodate first round allocations reflecting all new unit’s prior control period emissions, the first round allocations are made pro rata to n ew units based on their share of total new unit emissions in the prior control period. The second round of allocations accommodates new units that come online during the control period for which the allocations are made and did not therefore receive any al location in the first round. The second round also accommodates new units that*** E.O. 12866 Review

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Page 382 of 647 come online partway into the prior control period and therefore received an allocation in the first round that did not extend to cover operations in a full control period. Thi s second round of new unit allocation is therefore applicable only to new units coming online either during the control period of the allocations or during the control period immediately prior. New units coming online earlier than the previous control per iod only receive first
- round allocations from the new unit set
asides, as first
- round allocations to those units is based on operational data spanning an entire control period. Second - round allocations are based on new unit emissions during the same contro l period as the vintage year of the allowances allocated. For example, for the 2012 vintage year, “second - round” allocations are based on the difference between the new unit’s emissions in the 2012 control period and the new unit allocation (if any) that the unit received in the first round of allocations. For a unit coming online in 2012, this amount equals its total emissions during the 2012 control period. For a unit coming online in 2011, this amount equals its incremental emissions in 2012 beyond it s emissions in 2011, as such a unit would have already received a first
- round allocation from the new unit set
- aside based on its emissions in 2011. Second
- round allocations are recorded in allowance accounts by November 15 for the NOX ozone season tradin g program*** E.O. 12866 Review

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Page 383 of 647 (ahead of the December 1 compliance deadline) and by February 15 of the following calendar year for NOX and SO2 annual trading programs (ahead of the March 1 compliance deadline). This methodology only allocates in the second round whatever allowances remain in the new unit set
- asides after the first
- round allocations have been recorded. If the new unit set - aside available for second round allocations is insufficient to accommodate allocations based on the difference between control period emissi ons and any first round allocations for the units involved, then the second round allocations are made pro rate to the new units based on their share of the total of such differences. b. Determination of New Unit Set
-Asides The proposed Transport Rule identi fied new units using a threshold online date of January 1, 2012, whereas the final Transport Rule uses a threshold online date of January 1, 2010. As explained above, EPA adjusted this cutoff date because the final Transport Rule’s allocation methodology for existing units requires that EPA possess at least one full year of historic data in order to calculate allocations. As a consequence, EPA recognizes that the proposal’s methodology to determine the size of the new unit set
- asides based only on new EGU s forecast by the model would fail to account for known EGUs that have come online, or are planned to come online, after January 1, 2010.*** E.O. 12866 Review

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Page 384 of 647 Therefore, EPA has modified its approach to determining the size of the new unit set
- asides in the final rule to acco unt for both “potential” units (i.,e., those that are not yet planned or under construction but are projected by modeling to be built) and ”planned” units (i.e., those that are known units with planned online dates after January 1, 2010). EPA uses the d istinction between “potential” and “planned” new units to determine the ultimate size of each state’s new unit set
- aside (as a percentage of that state’s budgets for each pollutant covered); however, the new unit allocation methodology described above appl ies the same to “potential” and “planned” new units. The first step of EPA’s analysis to determine the new unit set - asides accounts for likely future emissions from potential units, and its methodology is taken directly from the Transport Rule proposal but reflects updated modeling ( see “Allowance Allocation to Existing and New Units under the Transport Rule Federal Implementation Plans” TSD for detailed findings). This analysis informed EPA’s decision to establish a minimum new unit set - aside size of 2% o f each state’s budget for each pollutant that is configured to accommodate future emissions from potential units. For the final rule, EPA augmented its new unit set
- aside determination to account for “planned” units through an additional step. Because t he location of these “planned” units*** E.O. 12866 Review

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Page 385 of 647 is known and identified in EPA modeling, this second step is a state - specific modification of the size of the new unit set
asides. That is, EPA only increased new unit set
- asides above the 2% minimum established in the first step for states that had additional known units coming online between January 1, 2010 and January 1, 2012. The increases made to the new unit set
- asides for these planned units reflect the projected emissions from these units. Therefore, if the expected emissions of a given pollutant from all “planned” new units when in a given state were equal to 3% of that state’s budget for that pollutant, then EPA added that amount to the base 2% new unit set
- aside (creating a hypothetical new unit set
- aside of 5% for that pollutant in that state). See “Allowance Allocation to Existing and New Units under the Transport Rule Federal Implementation Plans” TSD for detailed results showing how EPA determined the size of each new unit set
- aside reflecting the applic ation of both of the steps described above.This approach to determining the size of state new unit set
- asides is a logical outgrowth of the proposal, the NODA on allowance allocations, and updated modeling results. In fact, EPA received comments that using a January 1, 2010 cutoff date for distinguishing between existing and new units would result in the new unit set
- aside, as proposed, being insufficient to meet the needs of units already under*** E.O. 12866 Review

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Page 386 of 647 construction. EPA believes that the approach adopted in the final rule results in new unit set
- asides that reasonably accommodate the foreseeable emissions from both planned and potential new units in each state. The new unit allocation percentages for each state are shown in Table VII.D.2
- 1.
Table VII.D.2 - 1: Percentage of State Emissions Budgets for

Allowances in State New Unit Set-Asides

Annual SO2 Annual NOX Ozone Season NOX Alabama 2% 2% 2%
Arkansas --- --- 2% Florida
--- --- 2% Georgia 2% 2% 2% Illinois 5% 8% 8% Indiana 3% 3% 3%
Iowa 2% 2%
---
Ka nsas 2% 2%
--- Kentucky 6% 4% 4% Louisiana
--- --- 3% Maryland 2% 2% 2%*** E.O. 12866 Review

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Page 387 of 647 Michigan 2% 2%
--- Minnesota 2% 2%
--- Mississippi
--- --- 2% Missouri 2% 3%
--- Nebraska 4% 7% --- New Jersey 2% 2% 2%
New York 2% 3% 3% North Carolina 8% 6% 6% Ohio 2% 2% 2% Pennsylvania 2% 2% 2% South Carolina 2% 2% 2%
Tennessee 2% 2% 2%
Texas 5% 3% 3% Virginia 4% 5% 5% West Virginia 7% 5% 5% Wisconsin 5% 6%
--- c. Procedures for Allocating New Unit Set
- asides*** E.O. 12866 Review

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Page 388 of 647 For the first round of new unit set
- aside allocations , the Administrator will promulgate a notice of data availability informing the public of the specific new unit allocations and provide an opportunity for submission of objections on the grounds that the allocations are not consistent with the requirements of the relevant final rule provisions. A second notice of data availability will subsequently be promulgated in order to make any necessary corrections in the specific new unit allocations. As discussed elsewhere in this preamble, the final rule establi shes a different schedule for promulgation of these notices of data availability than the proposed rule. In particular, a single set of deadlines (i.e., for the first notice in the first round of allocations, June 1 of the year for which the new unit allo cations are described in the notice and, for the second notice of the first round, August 1 of that year) for promulgation of the notices is established for all of the Transport Rule trading programs. EPA believes that these deadlines will provide suffici ent time for EPA to obtain final emissions data for the prior year for the units involved and to calculate the allocations and promulgate the notices. Further, the approach of using the same deadline for all of the Transport Rule trading programs will simplify EPA’s implementation and reduce the complexity of the process for source owners and operators.*** E.O. 12866 Review

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Page 389 of 647 For the second round of new unit set
- aside allocations, the Administrator will also promulgate two notices of data availability. However, the deadlines fo r the notices differ for the NOX ozone season trading program and for the SO2 and NOX annual trading programs because control period emissions data (used in making second round allocations) become available sooner, and the compliance deadline for holding a llowances covering emissions is sooner, in the NOX ozone season trading program. The control period in the NOX ozone season program ends on September 30, and fourth quarter emissions reports must be submitted to EPA by October 30, while the control period s in the SO2 and NOX annual programs end on December 31 and fourth quarter emission reports are due by January 30. Further, in order for the second round allocations to be available to be used for compliance with the allowance
- holding requirement, the
sec ond round needs to be completed before the compliance dates, which are December 1 in the NOX ozone season program and March 1 in the SO2 and NOX annual programs. Consequently, for the NOX ozone season program the Administrator will promulgate by September 15 a notice of data availability identifying the units eligible for second round allocations and by November 15 a second notice of data availability of the list of eligible units and their second round allocations, which will also be recorded in the allowance accounts by that date. The comparable*** E.O. 12866 Review

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Page 390 of 647 deadlines for the SO2 and NOX annual programs are December 15 and February 15. EPA believes that these deadlines will provide sufficient time for EPA to identify the units and obtain their needed emissions data and to calculate the allocations and promulgate the notices. d. Addition of Allowances to New Unit Set
- asides As discussed elsewhere in this preamble, EPA proposed that, if a unit with an existing
- unit allocation does not operate for three consecutive year s, the allowances that would otherwise have been allocated to that unit, starting in the seventh year after the first year of non
- operation, would be allocated to the new unit set
- aside for the state in which the retired unit is located. EPA is retaining this provision in the final rule but is changing the time of non
- operation to two years and the time of allowance allocation to a non
- operating unit to four years. Starting in the fifth year of non
- operation, allowances will be allocated to the new unit s et - aside for the state in which the
non - operating unit is located. EPA received comments that the new unit set
- asides were not sufficient to encourage the operation of new units. One commenter suggested that allowance allocations should cease after thre e years of non - operation because the financial incentive gained from receiving allowances beyond the 3
- year period is insignificant relative to operating and fuel costs.*** E.O. 12866 Review

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Page 391 of 647 Another commenter said that providing allowances to non
operating units is unnecessar y and distorts the market. In addition to increasing the size of the new unit set
aside in this final rule, as described above, EPA is terminating existing unit allocations starting in the fifth year after the unit does not operate for two consecutive ye ars and reallocating to the new unit set
- aside the allowances that the unit otherwise would have received for the fifth and subsequent years in order to make them available for new units in the state. This approach allows the new unit set
- asides to grow over time.
e. Allocation s to New Units Locating in Indian Country EPA received several comments on the proposed rule that it did not explicitly address the distribution of allowances to potential new units built in Indian country. EPA recognized this con cern and requested comment on this topic in the January 7, 2011 NODA. In the final rule, EPA is providing a mechanism to make allowances available in the future for new units built in Indian country. The final rule establishes an Indian country new unit
s et - aside for each pollutant in each state whose borders encompass Indian country (i.e., Florida, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Nebraska, New York, North Carolina, South Carolina, Texas, and Wisconsin). EPA will retain administ ration of these Indian country new unit set
-*** E.O. 12866 Review

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Page 392 of 647 asides as part of the Transport Rule trading programs whether or not a Transport Rule state elects to modify or replace the Transport Rule FIPs through approved SIP revisions. EPA does not create Indian country new unit set
- asides for states lacking Indian country within their borders. EPA determined the size of each Indian country new unit set - aside by calculating the ratio of square mileage of Indian country to the square mileage of the state within whose bor ders Indian country is located. This calculation yielded a maximum percentage of 5 percent when assessing all of the states encompassing Indian country subject to the final Transport Rule; this is referred to as the “5 percent Indian country factor” below . To determine the maximum percentage, EPA used the American Indian Reservations/Federally Recognized Tribal Entities dataset, which contains data for the 562 federally recognized tribal entities in the contiguous U.S. and Alaska. EPA accessed the data t o analyze the Transport Rule region and compare the square miles of Indian country with the square miles of the Transport Rule state that includes the Indian country. EPA then took the highest percentage as the number to be applied across all states with Indian country to determine the size of the Indian countrynew unit set
- aside pertinent to that state’s budgets under the Transport Rule. EPA chose to use the maximum percentage (5 percent) from the Indian country analysis to*** E.O. 12866 Review

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Page 393 of 647 determine the Indian country s et - aside for each state on the basis that this approach would reserve a reasonable number of allowances from each state’s budget for potential allocation to new units that may locate in Indian country within that state’s borders. Any allowances from the I ndian country new unit set
aside that are not allocated in a given control period are redistributed into the state’s new unit set
- aside. As discussed above, any any allowances not allocated from that new unit set
aside are redistributed to existing units based on the existing units’ share of the total existing unit allocations. To calculate the size of each tribal new unit set
- aside, EPA applied this 5 percent Indian country factor to the portion of the state’s new unit set
- aside originally determined by
a ccounting for “potential” new units, which as described above was set at 2% of each pollutant’s budget in each state. Therefore, the Indian country new unit set
- aside is 5 percent of 2 percent of a state’s budget, or 0.1 percent of that total state budget . EPA did not apply the 5 percent Indian country factor to the state - specific planned unit portion of each state’s new unit set
- aside because the planned unit portion is determined using projected emissions from specific, known units coming online after January 1, 2010 and none of these known units are located in Indian country.*** E.O. 12866 Review

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Page 394 of 647 The Indian country new unit set
- asides in the following Transport Rule states with Indian Country are shown in Table VII.D.2
- 2. Table VII.D.2 - 2 : New Unit Set-Aside Allowances for Indian Country (tons)

SO 2 2012
- 2013 SO 2

2014 and Beyond Annual

NO X 2012 Annual

NO X 2012 Ozone Season NO X 2012 Ozone Season NO X 2014 Florida
--- --- --- --- 28 28 Iowa 107 75 38 37
--- --- Kansas 42 42 31 26
--- --- Louisiana
--- --- --- --- 13 13 Michigan 195 144 60 58
--- --- Minnesota 42 42 30 30
--- --- Mississippi
--- --- --- --- 10 10 Nebraska 65 65 26 26
--- --- New York 20 12 18 18 8 8 North Carolina 137 58 51 42 22 18 South Carolina 89 89 32 32 14 14 Texas 244 244 134 134 63 63 Wi sconsin 79 40 32 30
--- ---
Under the FIPs, EPA allocates allowances from Indian country new unit set
- asides in essentially the same manner as it allocates allowances from state new unit set
- asides. The approach for identifying, and determining the numb er of allowances allocated to, new units in Indian country is the same as the approach for identifying and determining allocations for non
- Indian country*** E.O. 12866 Review

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Page 395 of 647 new units covered by the state new unit set
- aside, and allocations are made in two rounds using the same schedules for promulgation of notices of data availability. However, as discussed above, unallocated allowances in the Indian country set - asides are handled differently from unallocated allowances in the state new unit set
- asides in that unallocated I ndian country new unit set
- aside allowances are first transferred back into the state new unit set
- aside and then, if still not allocated to new units, are distributed to existing units in the state. EPA believes that the above
- described approach in estab lishing and handling the Indian country new unit set
- asides and state new unit set
- asides is a reasonable way of making a sufficient amount of allowances available for new units in the state and Indian country located in the state and ensuring that the ent ire state budget is available to either new or existing units in the state and Indian country. EPA retains administration of these Indian country new unit set
- asides (and, of course, the portions of state budgets that comprise these set - asides) as part of the Transport Rule trading programs even if a state elects to modify or replace the Transport Rule FIPs through approved SIP revisions. EPA continues to manage and distribute the Indian country new unit set
- aside allowances in the same manner as under th e FIPs . Unallocated allowances in the Indian country new unit set
- aside will be returned to the*** E.O. 12866 Review

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Page 396 of 647 portion of the state budget allocated under the approved SIP’s allocation provisions. EPA believes that this approach is reasonable because EPA, rather tha n the states, has the authority and responsibility of administering the Transport Rule with regard to new units that locate in Indian country. E. Assurance Provisions To ensure that the FIPs require the elimination of all emissions that EPA has identifie d that significantly contribute to nonattainment or interfere with maintenance within each individual state, the Agency is adopting assurance provisions in addition to the requirement that sources hold allowances sufficient to cover their emissions. These assurance provisions limit emissions from each state to an amount equal to that state’s trading budget plus the variability limit for that state (i.e., the state assurance level). As discussed in section VI of this preamble, this variability limit takes into account the inherent variability in baseline EGU emissions and recognizes that state emissions may vary somewhat after all significant contribution to nonattainment and interference with maintenance are eliminated. This approach also provides sources with flexibility to manage growth and electric reliability requirements, thereby ensuring the country’s electric demand will be met, while meeting the statutory requirement of*** E.O. 12866 Review

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Page 397 of 647 eliminating significant contribution to nonattainment and interference with mai ntenance. Starting in 2012, EPA is establishing, as part of the FIPs, limits on the total emissions that may be emitted from EGUs at sources in each state. For any single year, the state’s emissions must not exceed the state budget with the variability l imit allowed for any single year for that state (i.e., the state’s 1 - year variability limit). In other words, in addition to covered sources being required to hold allowances sufficient to cover their emissions, the total sum of EGU emissions in a particu lar state cannot exceed the state budget with the state’s 1 - year variability limit in any one year (i.e., the state’s assurance level). EPA is not finalizing 3
- year variability limits that were included in the proposal for the reasons explained previously in section VI.F of this preamble. The state budgets, variability limits, and state assurance levels for each state are shown in Tables VI.F
- 1, VI.F - 2 and VI.F
- 3 in section VI.F of this preamble. The basis for the variability limits is also described in section VI.F of this preamble. Additional details may be found in the Power Sector Variability Final Rule TSD in the docket to this rule. To implement this requirement, EPA first evaluates whether any state’s total EGU emissions in a control period exceeded the state’s assurance level. If any state’s EGU emissions in a*** E.O. 12866 Review

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Page 398 of 647 control period exceed the state assurance level, then EPA applies additional criteria to determine which owners and operator s of units in the state will be subject to an allowance surrender requirement. In applying the additional criteria, EPA evaluates which groups of units at the common designated representative (DR) level had emissions exceeding the respective DR’s share of the state assurance level (regardless of whether the source had enough allowances to cover its emissions) during the control period. 82 The requirement that owners and operators surrender allowances under the assurance provisions will be triggered only if two criteria are met: (1) the group of sources and units with a common DR are located in a state where the total state EGU emissions for a control period exceed the state assurance level; and (2 ) that group with the common DR had emissions exceeding the r espective DR’s share of the state assurance level. The share of the assurance penalty borne by the owners and operators will be based on the amount by which the total emissions for the units in the group exceed the common DR’s share of the state
assurance level as a percentage of the total calculated for all

82 A group of one or more sources and units in a state has a c ommon designated representative where the same individual is authorized as the designated representative (not the alternate designated representative) for that group of sources and units as of the allowance transfer deadline for the control period involved .*** E.O. 12866 Review

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Page 399 of 647 such groups of sources and units in the state. Thus, the owners and operators of each such group of sources and units must surrender an amount of allowances equal to the excess of state EGU emissions over the state assurance level multiplied by the owners’ and operators’ percentage and multiplied by two (to reflect the penalty of two allowances for each ton of the state’s excess EGU emissions). See Table VII.E - 1 below for an illustrative example. This approach in the final rule of implementing the assurance provisions on a common designated representative basis contrasts with the approach in the proposed rule of implementing the assurance provisions on an owner basis. In the January 7, 2011 NODA, EPA requested comment on the alternative of basing the assurance provision penalty using common designated representatives, and many commenters supported this alternative. The common designated representative approach is simpler and avoids the need to collect information on percentage ownership (which information is not used in any other provisions of the Transport Rule trading programs). In addition, the common designated representative approach provides additional flexibility to owners and operators who have only one or a few units in a given state but have the option of selecting a common designated representative with owners and operators of other units in the state.*** E.O. 12866 Review

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Page 400 of 647 In the January 7, 2011 NODA, EPA also requested comment on continuing to link allocations to assurance provision allowance surrender requirements. Even though the final rule uses a different allowance allocation methodology than the allocation methodology that was proposed, the final rule continues to treat the groups of units with greater emi ssions than their allocations plus share of state variability as responsible for the state’s excess of emissions over the state assurance level. EPA believes that this approach is reasonable because any state that exceeds its state assurance level likely does so because not all units have made the reductions necessary to eliminate the state’s contribution to nonattainment or interference with maintenance. Moreover, the groups of units with emissions exceeding their allocations plus share of variability ar e the units most likely to have contributed to the state’s exceedance of its state assurance level and thus to the state’s triggering of the assurance provisions. Consequently, EPA concludes that it is reasonable to penalize owners and operators of those sources and units (grouped by common DR) for the state’s exceedance through application of the assurance provision allowance surrender requirement. Some commenters stated that this is a reasonable approach. While a few commenters suggested alternative approaches to the assurance provisions, EPA believes that the suggested*** E.O. 12866 Review

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Page 401 of 647 alternatives are not workable and are likely to create implementation problems. These commenters suggested variations of approaches that would have created state - specific and vintage year - specific allowances that would have been traded independently of compliance allowances. These differentiated allowances would have fragmented the markets and made the programs resemble the intrastate trading option that EPA rejected because of market power and other concerns described in the proposal. The existence of these assurance provisions with significant penalties imposed if a state’s emissions exceed the state budget with the variability limit, along with other features of the Transport Rule tr ading programs discussed below, will ensure that state emissions stay below the level of the budget with the variability limit. In making compliance decisions and determining to what extent to rely on purchased or banked allowances, owners and operators will have to take into account the risk of triggering the assurance provisions in the state involved and of incurring significant assurance provision penalties. The greater the extent to which units sharing a common DR have emissions exceeding the DR units’ allocations plus share of the state variability limit, the greater the risk of being subject to the assurance provision penalties.*** E.O. 12866 Review

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Page 402 of 647 As discussed previously in section VII.D.2, EPA allocates allowances to a new unit for the control period during which the unit commences commercial operation from the new unit set
- aside based on its emissions. In the case where assurance provisions for a state are triggered in the year that a new unit commences operation, the unit’s share of the state assurance level is calculated using the unit’s allocation from the new unit set
aside plus its proportional share of the variability limit. There is the possibility that a new unit would receive no allocation for the control period during whi ch the unit commences commercial operation. EPA sees no reasonable basis for disadvantaging owners and operators because they started up a new unit and EPA had no emissions data on which to base an allocation from the new unit set
- aside or no allowances
available in the state’s new unit set
- aside. 83 For these new units, EPA would use a specific surrogate number to calculate the maximum amount of emissions that the unit would likely have had during that year. The surrogate emissions number applies only if the state’s assurance provisions are triggered and only in the first year of the new unit’s commercial operation for a

83 Some other units (e.g., those units with no data for the 2006
- 2010 base period) may have a zero allocation for a control period. However, those are highly likely to be units that will continue to operate rarely or not at all and so will incur little o r none of the assurance provision penalties.*** E.O. 12866 Review

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Page 403 of 647 new unit that did not receive an allocation from the set
- aside. The methodology for calculating the surrogate emissions number is essent ially unchanged from the proposal [75 FR 45313]. For more details on capacity factors for new units, see “ Capacity Factors Analysis for New Units Final Rule TSD ” . These assurance provisions are above and beyond the fundamental requirement for each sourc e to hold enough allowances to cover its emissions in the control period. Failure to hold enough allowances to cover emissions is a violation of the CAA, subject to an automatic penalty and discretionary civil penalties, as described in section VII.G of t his preamble. Other features of the air quality
- assured trading programs work in conjunction with the assurance provisions to ensure state emissions do not exceed state assurance levels. The air quality
- assured trading programs have: state - specific budgets that do not include the variability limits and that are the basis for allocating allowances in each state; a requirement that owners and operators of each source hold enough of these allowances to cover source emission s for each control period; assurance provisions that require owners and operators to hold a significant amount of additional allowances in a state if the assurance provisions are triggered; and additional penalties for failing to hold sufficient allowances under the assurance*** E.O. 12866 Review

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Page 404 of 647 provisions. The underlying mechanism of cap and trade
-- with a cap on allowances issued and a requirement to hold allowances covering emissions
-- has succeeded, even without assurance provisions, in broadly reducing emissions below a llowance levels. The accumulated data, history, and experience from cap and trade programs underscore that emission reduction requirements and environmental and public health goals of the programs have been met and, in many instances, exceeded. Additionally, EPA has now added assurance provisions to ensure that emissions within a state do not exceed the state budget with the variability limitation that eliminates the state’s significant contribution and interference with maintenance to downwind states’ air quality . Emissions from a common DR’s group of units in excess of the DR’s share of the state budget with the variability limit are not a violation of the rule or the CAA, but do lead to strict allowance surrender requirements. Specifically, t he owners and operators with a common DR will be required to surrender two allowances for each ton of their proportional share of the exceedance of the state budget with the variability limit. Failing to hold sufficient allowances to meet the allowance su rrender requirement will be a violation of the regulations and the CAA and subject to discretionary civil pe nalties under CAA section 113. Allowances surrendered to meet*** E.O. 12866 Review

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Page 405 of 647 an assurance provision penalty may be from the year immediately following the control period in which the state assurance level was exceeded (i.e., the year in which the penalty is assessed) or any prior year. Any future vintage allowances beyond the year in which the penalty is assessed may not be used to meet an assurance provision pena lty. This penalty level is a change from the proposal, in which one allowance was to be surrendered for each ton of emissions over the state assurance level. EPA ran an IPM modeling scenario in order to assess the level of penalty that would be sufficien t to deter sources from exceeding state assurance levels. According to the model, no state would exceed its assurance level and incur the two
- for - one allowance penalty in either 2012 or 2014, although some states emit up to the assurance level. The two - f or - one allowance surrender requirement is significant, and EPA believes that this penalty
-

- along with the other elements of the Transport Rule discussed above -- will be sufficient to ensure that the state emissions will not exceed the budgets plus the variability limits. See the Assurance Penalty Level Analysis Final Rule TSD for further details of the analysis. Below are examples of how the penalty will be assessed for four common designated representatives in the same state if the
as surance provisions are triggered. In the first case, DR1’s*** E.O. 12866 Review

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Page 406 of 647 combined units were allowed to emit up to 66 tons (60 * 110 percent ), but actually emitted 75 tons during the control period, or 9 more than their share of the state assurance level. Since the st ate, as a whole exceeded the state assurance level by 26 tons, DR1’s share of the penalty is 35 percent (9/26) of the total penalty, or 17 allowances (35 percent of 50).

Figure VII.E - 1 Assurance Provision Penalty Examples
Number of Allowances Allocated Allocation

+ % of var. limit Total

Emitted Number of

Allowances above Allocation # over

Alloc + % of var . limit Share of

Exceedance (%) Penalty

(# Allow ances)
DR1 60 66 75 15 9 35% 17 DR2 20 22 35 15 13 50% 25 DR3 10 11 15 5 4 15% 8 DR4 10 11 10
- - - 0 TOTAL 100 110 135 35 25 100% 50 DR1, DR2, DR3, and DR4 are all in the same state. State budget plus 10% variability limit is 110 tons (100 + 10 = 110). State exceeded its assurance level by 25 tons (135
- 110 = 25). Penalty is 50 allowances (2 x 25 = 50). Some numbers may not add up due to rounding In the proposal, EPA took comment on whether assurance provisions should be implemented starting in 2012 or 2014. While a number of commenters supported the proposal to start in 2014, EPA receive d several comments making the case that starting assurance provisions in 2012 would be more compatible*** E.O. 12866 Review

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Page 407 of 647 with the Court’s opinion in North Carolina , which emphasized EPA’s obligation to require elimination of emissions within the states that significantly co ntribute to nonattainment or interfere with maintenance. In this final rule, EPA makes the assurance provisions effective starting in 2012 because this approach provides even further assurance, consistent with North Carolina , that each state’s prohibited emissions will be eliminated from the start of the Transport Rule trading programs. F. Penalties Under the final Transport Rule FIPs (like under the proposed rule), the owners and operators of each covered source must hold, as of the allowance transfer dea dline, an allowance for each ton of SO 2 or NO X emitted by the source and are subject to penalties if they fail to comply with this allowance
- holding requirement. In particular, the owners and operators must hold in the source’s compliance account in the Al lowance Management System enough allowances issued for the respective Transport Rule annual trading program ( SO 2 G roup 1, SO 2 G roup 2, or annual NO X program) to cover the annual emissions of the relevant pollutant from all covered units at the source. The allowances must have been issued for the year in which the emissions occurred or a*** E.O. 12866 Review

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Page 408 of 647 prior year. If the owners and operators fail to meet this allowance - holding requirement, they must provide
-- for deduction by the Administrator from the source’s complian ce account -- one allowance as an offset, and one allowance as an excess emissions penalty, for each ton of emissions (i.e., excess emissions) in excess of the amount of allowances held. The offset and the excess emissions penalty are automatic requiremen ts in that they must be met without any further action by EPA (e.g., any additional proceedings) regardless of the reason for the occurrence of the excess emissions. In addition, each ton of excess emissions, as well as each day in the averaging period (i .e., the control period of one calendar year), constitute a violation of the CAA, and the maximum discretionary civil penalty is $25,000 (inflation
- adjusted to $37,500 for 2010) per violation under CAA section 113. This means that, if a source has emissio ns in excess of allowances held for the source as of the allowance transfer deadline for a control period, the number of tons of excess emissions multiplied by the total number of days in that control period and multiplied by $25,000 (inflation adjusted) e quals the maximum discretionary civil penalty for that occurrence of excess emissions. For the ozone - season NO X trading program, the same provisions apply as for an annual program, except that the*** E.O. 12866 Review

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Page 409 of 647 averaging period (i.e., the control period) is the ozone s eason, not a calendar year. Consequently, the relevant emissions are for an ozone season, the allowances usable to meet the allowance - holding requirement are allowances issued for Transport Rule ozone - season NO X t rading program for the ozone season involved or a prior ozone season, and the number of days used in calculating the maximum civil penalty is the number in the ozone season. Commenters expressed concern that the proposed FIPs expressly stated that, for purposes of determining the maximum discretio nary civil penalty for failure to meet the allowance
holding requirement, each ton of emissions lacking a held allowance would be a violation and each day in the averaging period involved would be a violation. Some commenters compared the proposed penalty provisions for excess emissions with the excess emission penalty provisions under the Acid Rain Program and claimed that the proposed penalty provisions differed from the Acid Rain Program provisions and were excessive. In fact, h owever, the final FIP provisions concerning discretionary civil penalties are essentially the same as those under the Acid Rain Program, as well as those under the NO X Budget Trading Program and the CAIR trading programs. In particular, the Acid Rain Program regulations state tha t each ton of SO 2 excess emissions constitutes “a separate violation” of*** E.O. 12866 Review

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Page 410 of 647 the CAA. 40 CFR 72.9(c)(2). Moreover, while the Acid Rain Program regulations do not expressly address that each day in the averaging period (i.e., a calendar year control period un der the Acid Rain Program) constitutes a separate violation when a unit has excess emissions for the calendar year, the courts have addressed this question. In decisions applying the discretionary civil penalty provisions in section 309(d) of the Clean Wat er Act, which are analogous to the civil penalty provisions in CAA section 113, the courts have interpreted the provisions to mean that, when a source violates the emission limitation for a multi
- day control period, the source has a violation for each day in the control period, as well as for each ton of excess emissions on each such day. See, e.g., Chesapeake Bay Foun. V. Gwaltney of Smithfield , 791 F.2d 304, 313
- 15 (4th Cir. 1986), Atlantic States Legal Foun. v. Tyson Foods , 897 F.2d 1128, 1139
- 40 (11th Cir. 1990), and U.S. v. Allegheny Ludlum Corp. , 366 F.3d 164, 169 (3d. Cir. 2004). As noted by the courts, the treatment of each ton and each day as a separate violation is used for purposes of setting the maximum discretionary civil penalty. Because CAA section 113 sets the maximum civil penalty, EPA, of course, has the discretion to tailor the penalty amount that it seeks in any specific occurrence of excess emissions to reflect the circumstances of that excess emission occurrence. See 42 U.S.C. 7413( b)(stating that the*** E.O. 12866 Review

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Page 411 of 647 Administrator may commence a civil action “to assess and recover a civil penalty of not more than $25,000 per day for each violation”). Moreover, when a district court imposes a civil penalty, the court “retains discretion to assess a penalty much smaller than the maximum, as the situation requires.” Chesapeake Bay , 791 F.2d at 316. In addition, the Acid Rain Program regulations state that any allowance deduction, excess emission penalty, or interest under the Acid Rain Program regula tions “shall not affect liability” of the owners and operators “for any additional fine, penalty, or assessment, or their obligation to comply with any other remedy, for the same violation, as ordered under the [CAA]”, including under CAA section 113 provi ding for discretionary civil penalties. 40 CFR 77.1(b). In summary, under the Acid Rain Program, each ton of excess emissions and each day in the averaging period (i.e., the calendar year) constitute a violation, the resulting number of violations times $2,000 is the maximum civil penalty for violating owners and operators, and EPA has the discretion to impose a civil penalty at or below such maximum, in addition to the automatic requirement to surrender one allowance and pay $2,000 (inflation adjusted) f or each ton of excess emissions. The final FIPs take an analogous approach to that under the Acid Rain Program. Specifically, the final FIPs state both that each ton of excess emissions is a violation of the CAA and that*** E.O. 12866 Review

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Page 412 of 647 each day in the averaging period ( i.e., a calendar year under the annual programs and the ozone season under the ozone - season program) is a violation. Moreover, the imposition of civil penalties at or below the maximum amount resulting from the maximum penalty calculation is in addition t o the automatic allowance surrender and penalty totaling 2 allowances per ton of excess emissions. Thus, commenters’ assertion that the approach in the final FIPs is inconsistent with the approach in the Acid Rain Program is incorrect. Moreover, EPA has taken this same general approach in two other trading programs (i.e., the NO X Budget Trading Program and the CAIR trading programs), whose regulations explicitly state that each ton and each day of the averaging period constitute a violation. See 40 CFR 9 6.54(d)(3) ( NO X Budget Trading Program); and 40 CFR 96.106(d)(CAIR). In any event, EPA maintains that the approach of treating each excess emission ton and each day in the averaging period as a violation for purposes of calculating the maximum discretionar y civil penalty is reasonable. Some commenters suggested that only the days on which a source’s cumulative control period emissions exceed the amount of allowances that the source then holds for that control period should be treated as a violation. However, this suggested approach makes little sense in the context of the Transport Rule trading programs.*** E.O. 12866 Review

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Page 413 of 647 In order to provide owners and operators compliance flexibility, the Transport Rule trading programs do not require source owners and operators to hold an y amount of allowances until the allowance transfer deadline, no matter what the source’s cumulative control period emissions are before that deadline. The commenters’ approach of comparing
-- each day, cumulative emissions and allowances held
-- for purp oses of calculating maximum civil penalties would be inconsistent with the flexibility that EPA intends to provide owners and operators. For example, under the commenters’ suggested approach, owners and operators that buy or sell allowances in the allowan ce market or hold allowances in a company
- wide account, do not transfer allowances into their source’s compliance account until just before the allowance transfer deadline, and end up with some excess emissions for the calendar year would face a significan tly higher maximum civil penalty than owners and operators that every day increase the amount of allowances held in their source’s compliance account as the source’s cumulative emissions increase and end up with the same amount of excess emissions for the calendar year. In short, the commenters’ approach would penalize owners and operators that use some of the compliance flexibility that the trading programs are intended to provide.*** E.O. 12866 Review

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Page 414 of 647 EPA also maintains that it is reasonable to both impose the automatic allowance surrender and penalty provisions and to retain the discretion to impose civil penalties for the same occurrence of excess emissions. This approach encourages compliance with the allowance
- holding requirement by ensuring that violating owners and ope rators are penalized automatically (i.e., without any further administrative or judicial proceedings, except for appeals) and that EPA can seek additional penalties where the circumstances warrant discretionary civil penalties. In fact, the Acid Rain Prog ram, for which CAA Title IV mandated this approach, has achieved a very high level of compliance with the requirement to hold allowances covering SO 2 emissions and therefore resulted in major reductions in utility SO 2 emissions. See 42 U.S.C.7651j(a). Similarly, the NO X Budget Trading Program and CAIR trading programs, which took the same approach, also have achieved very high compliance levels and major utility emission reductions. EPA notes that, in calculating maximum civil penalties when owners and op erators fail to hold allowances required under the assurance provisions in the final FIPs, EPA takes a similar approach in determining the number of violations. Each ton for which an allowance is not held as required and each day in the control period involved constitute a violation of the CAA. As discussed elsewhere in this preamble, EPA believes that this*** E.O. 12866 Review

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Page 415 of 647 calculation approach is also reasonable in the context of the assurance provisions and that taking an approach like the commenters’ suggested approach described above would be inconsistent with some of the flexibility that the Transport Rule trading programs are intended to provide. G. Allowance Management System The final Transport Rule trading programs, like the proposed preferred remedy, utilize EPA’ s allowance management system (AMS), which currently supports allowance surrender, transfer, and tracking activity under the Acid Rain Program and CAIR. EPA received no adverse comment on this aspect of the proposed rule. The primary role of AMS is to p rovide an efficient, automated means for covered sources to comply, and for EPA to determine whether covered sources are complying with the emissions
- related provisions of the Transport Rule trading programs. As was proposed, each of the final SO 2 tradin g programs and final NO X trading programs is separately handled in the AMS, which is used to track Transport Rule trading program SO 2 and NO X allowances held by covered sources, as well as such allowances held by other entities or individuals. In additio n, the AMS tracks: the allocation of all SO 2 and NO X allowances; holdings of SO 2 and NO X allowances in compliance*** E.O. 12866 Review

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Page 416 of 647 accounts (i.e., accounts for individual covered sources), general accounts (i.e., accounts for other entities such as companies and brokers), and assurance accounts (i.e., accounts for allowance surrender by owners and operators of sources and units with common designated representatives under the assurance provisions); deduction of SO 2 and NO X allowances for compliance purposes (including deduc tions from assurance accounts where necessary); and transfers of allowances between accounts. The AMS also allows the public to see whether each source is in compliance and provides information to the allowance market and the public in general, including information on ownership of allowances, dates of allowance transfers, buyer and seller information, and the serial numbers of allowances transferred. H. Emissions Monitoring and Reporting
Under the proposed rule, units subject to the Transport Rule trad ing programs would monitor and report NO X and SO 2 mass emissions in accordance with 40 CFR part 75, as incorporated in the proposed rule, and with certain other specified requirements, such as compliance deadlines. In the final rule, like the proposed rule , covered units must comply with emissions monitoring and reporting requirements that are largely incorporated from Part 75 monitoring and reporting requirements.*** E.O. 12866 Review

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Page 417 of 647 Under the final rule and under Part 75, a unit has several options for monitoring and reporting, namely the use of: a CEMS; an excepted monitoring methodology ( NO X mass monitoring for certain peaking units and SO 2 mass monitoring for certain oil
and gas - fired units); low mass emissions monitoring for certain
non - coal - fired, low emitting un its; or an alternative monitoring system approved by the Administrator through a petition process. In addition, the Administrator can approve petitions for alternatives to Transport Rule and Part 75 monitoring, recordkeeping, and reporting requirements. Further, the final rule and Part 75 specify that each CEMS must undergo rigorous initial certification testing and periodic quality assurance testing thereafter, including the use of relative accuracy test audits (RATAs) and 24
- hour calibrations. In addit ion, when a monitoring system is not operating properly, standard substitute data procedures are applied and result in a conservative estimate of emissions for the period involved. In addition, the final rule and Part 75 require electronic submission, to the Administrator and in a format prescribed by the Administrator, of a quarterly emissions report. The report must contain all of the data required concerning annual NO X and
ozone - season and SO 2 annual emissions. Most Transport Rule units are in states subject to CAIR and are already monitoring and reporting NO X and/or SO 2 under CAIR*** E.O. 12866 Review

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Page 418 of 647 and the Acid Rain Program, which programs also use Part 75 monitoring and reporting. Units under the Transport Rule annual trading programs and in states subject to CAIR ge nerally have no changes to their monitoring and reporting requirements. These units must continue to monitor and submit reports on a year
round basis as they have under CAIR. Therefore, units in the following states must monitor and report both SO 2 and NO X year round under the Transport Rule: Alabama, Georgia, Illinois, Indiana, Kentucky, Maryland, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and West Virginia. Some states (Kansas, Minnesota, and Nebraska) subject to the Transport Rule annual trading programs were not subject to CAIR. Transport Rule units in those states must meet monitoring and reporting requirements that are new except to the extent the units were subject to Part 75 under some oth er program (such as the Acid Rain Program). Further, some states (Florida, Louisiana, and Mississippi) subject to the Transport Rule ozone
- season trading program but not the Transport Rule annual trading programs were subject to the annual and ozone - seas on trading programs under CAIR. Transport Rule units in those states must continue to monitor and report in accordance with Part 75 but have the option of*** E.O. 12866 Review

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Page 419 of 647 monitoring and reporting on a year
- round or ozone - season - only basis. In addition, one state (Arkansa s) subject to the Transport Rule ozone - season trading program but not to the Transport Rule annual trading program was similarly subject to only the ozone
season trading program in CAIR. Transport Rule units in that state continue to have the option of mo nitoring and reporting NO X on a year - round or ozone - season - only basis. Finally, some states (Connecticut, Delaware, District of Columbia, and Massachusetts) that were subject to CAIR are not subject to the Transport Rule. Electric generating units in th ose states must continue to meet monitoring and reporting requirements only to the extent the units are subject to Part 75 under some other program (such as the Acid Rain Program or a state adopted program requiring such monitoring and reporting ). EPA i s finalizing requirements for existing Transport Rule units in states covered by the Transport Rule annual trading programs to monitor and report SO 2 and NO X emissions by January 1, 2012 programs and for existing Transport Rule units in states covered by t he Transport Rule ozone - season trading program to monitor NO X emissions by May 1, 2012. The use of Part 75 certified monitoring methodologies is required in both cases. As discussed previously, most covered existing units will generally have no changes t o their monitoring and reporting*** E.O. 12866 Review

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Page 420 of 647 requirements and will continue to monitor and submit reports under Part 75 as they have under CAIR. Existing units that have not been subject to Part 75 monitoring and reporting requirements in the past have less than one year to install, certify, and operate the required monitoring systems. EPA believes that these units will be able to comply with this requirement because the monitoring equipment needed is not extensive or is largely in place already for the purpose of
me eting other requirements. Quality assurance and reporting provisions and data system upgrades may be necessary, but EPA believes that there is sufficient time to accomplish this by the deadline for existing units in the final rule. In the proposed rule, t he compliance deadline for installing, certifying, and operating the required monitoring systems at new units was based upon the date of commencement of commercial operation. A new unit would have to install and certify its monitoring system within 180 da ys of the commencement of commercial operation. The final rule adopts this deadline, which is consistent with the approach recently adopted in Part 75 under the Acid Rain Program. See 76 FR 17288, 17289 (March 28, 2011)). Using this deadline (rather th an a deadline, used previously in Part 75, of the earlier of the unit’s 90th operating day or 180 days after the unit’s commencement of*** E.O. 12866 Review

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Page 421 of 647 commercial operation) ensures that new units have sufficient time to complete installation and certification of monitori ng systems and facilitates units’ compliance. Because of unit shakedown problems, some new units have had difficulty meeting a deadline earlier than 180 days after commencement of commercial operation. Further, using this deadline facilitates owners’ and operators, and EPA’s, ability to track important dates related to monitoring, reporting, and allowance holding. Under the final rule, the requirement that a unit hold enough allowances to cover its emissions starts on the later of the commencement of the Transport Rule trading program involved or the deadline for installation and certification of the monitoring system. Having a simple, easily determined deadline (180 days after the commencement of commercial operation) makes it easier for owners and oper ators and EPA to determine when allowance
- holding requirements begin, as well as when monitoring and reporting requirements begin. In contrast, using a deadline involving determination of a unit’s 90th operating day required keeping track of any days on which the unit did not operate (e.g., due to problems associated with shakedown of the unit). EPA found that owners and operators have had more difficulty reporting the 90th operating day than in reporting the commencement of commercial operation, and once the latter date is reported, EPA*** E.O. 12866 Review

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Page 422 of 647 can independently determine the 180th calendar day after the reported date. I. Permitting 1. Title V Permitting The final Transport Rule (like the proposed rule) does not establish any permitting requirements independen t of those under Title V of the CAA and the regulations implementing Title V, 40 CFR Parts 70 and 71 . 84 All major stationary sources of air pollution and certain other sources are required to apply for title V operating permits that include emission limita tions and other conditions as necessary to assure compliance with applicable requirements of the CAA, including the requirements of the applicable State Implementation Plan. CAA §§ 502(a) and 504(a), 42 U.S.C. §§ 7661a(a) and 7661c(a). The “applicable
re quirements,” that must be addressed in title V permits are defined in the Title V regulations (40 CFR 70.2 and 71.2 (definition of “applicable requirement”)). EPA anticipates that, given the nature of the units covered by the final Transport Rule, most of the sources at which they are located are already or will be subject to Title V permitting requirements. For sources subject to Title V, the requirements

84 Part 70 addresses requirements for state Title V programs, and Part 71 governs the federal Title V program.*** E.O. 12866 Review

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Page 423 of 647 applicable to them under the final FIPs will be "applicable requirements" under Title V and therefore will need to be addressed in the Title V permits. For example, requirements under the final FIPs concerning designated representatives, monitoring, reporting, and recordkeeping, the requirement to hold allowances covering emissions, the assurance provisi ons, and liability will be “applicable requirements” to be addressed in the permits. The Title V permits program includes, among other things, provisions for permit applications, permit content, and permit revisions that will address the applicable requi rements under the final FIPs in a manner that will provide the flexibility necessary to implement market
- based programs such as the Transport Rule trading programs. For example, the Title V regulations provide that a permit issued under Title V must inclu de, for any “approved...emissions trading and other similar programs or processes” applicable to the source, a provision stating that no permit revision is required “for changes that are provided for in the permit.” 40 CFR 70.6(a)(8) and 71.6(a)(8). Cons istent with this provision in the Title V regulations, the Transport Rule trading program regulations include a provision stating that no permit revision is necessary for the allocation, holding, deduction, or transfer of allowances. Consistent with the T itle V regulations, this*** E.O. 12866 Review

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Page 424 of 647 provision will also be included in each Title V permit for a covered source. As a result, allowances can be traded (or allocated, held, or deducted) under the final FIPs without a revision of the Title V permit of any of the sourc es involved. As a further example of flexibility under Title V, the Title V regulations allow the use of the minor permit modification procedures for permit modifications “involving the use of economic incentives, marketable permits, emissions trading, an d other similar approaches, to the extent that such minor permit modification procedures are explicitly provided for in an applicable implementation plan or in applicable requirements promulgated by EPA.” 40 CFR 70.7(e)(2)(i)(B) and 40 CFR 71.7(e)(1)(i)(B ). The final FIPs set forth in detail, and reference relevant provisions in Part 75 concerning, the approaches that are available for covered units to use for monitoring and reporting emissions (i.e., approaches using a continuous emissions monitoring sys tem, an excepted monitoring system under appendices D and E to Part 75, a low mass emissions excepted monitoring methodology under §75.19, or an alternative monitoring system under subpart E of Part 75). The final FIPs also require unit owners and operato rs to submit monitoring system certification applications (or, for alternative monitoring systems, petitions) to EPA establishing the monitoring and reporting approach actually to be used by the*** E.O. 12866 Review

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Page 425 of 647 unit and allow owners and operators to submit petitions for
a lternatives to any specific monitoring and reporting requirement. These applications and petitions are subject to EPA review and approval to ensure consistency in monitoring and reporting among all trading program participants, and EPA’s responses to any petitions for alternative monitoring systems or for alternatives to specific monitoring or reporting requirements are to be posted on EPA’s website. Moreover, EPA intends that each covered unit’s Title V permit will include a description of the general approach that the covered unit is required to use for monitoring and reporting emissions and that the description will reference the relevant sections of the Transport Rule trading program regulations and Part 75 and will state that the requirements may be modified through EPA approval of petitions for alternatives to specific requirements. Finally, consistent with §§70.7(e)(2)(i)(B) and 71.7(e)(1)(i)(B) of the Title V regulations, the final FIPs provide that a description of the general monitoring and repor ting approach for a covered unit can be added to, or an existing description of a unit’s general monitoring and reporting approach can be changed, in a Title V permit, using minor permit modification procedures, provided that the approach being described i n the changed or new general description and the requirements applicable to that approach are already incorporated elsewhere in the permit. As a*** E.O. 12866 Review

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Page 426 of 647 result, minor permit modification procedures can be used to revise a covered unit’s Title V permit to be consi stent with the monitoring and reporting approach, or any changes in the approach, allowed for the unit by EPA through the monitoring system certification or petition process under the Transport Rule trading programs. As new applicable requirements under T itle V, the requirements for covered units under the final FIPs will be incorporated into covered sources’ existing Title V permits either pursuant to the provisions for reopening for cause (40 CFR 70.7(f) and 40 CFR 71.7(f)) or the permit renewal provisio ns (40 CFR 70.7(c) and 71.7(c)) . 85 In contrast to the approach in CAIR of imposing permitting requirements and deadlines independent of those under Title V, the approach to permitting under the final FIPS of imposing no independent permitting requirements should reduce the burden on sources already required to be permitted under Title V and on permitting authorities. For sources newly subject to Title V that will also be covered sources under the final FIPs, the initial Title

85 A permit is reopened for cause if any new applicable requirements (such as those under a FIP) be come applicable to a covered source with a remaining permit term of 3 or more years. If the remaining permit term is less than 3 years, such new applicable requirements will be added to the permit during permit renewal. See 40 CFR 70.7(f)(1)(i) and 71.7(f )(1)(i).*** E.O. 12866 Review

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Page 4 27 of 647 V permit issued pursuant to 40 CFR 70.7(a) will address the final FIP requirements. In order to ensure that covered sources’ Title V permit provisions concerning the final FIPs will reflect the Transport Rule trading program requirements and flexibilities properly and in a manner cons istent from permit to permit , EPA intends to issue guidance to assist permitting authorities. This guidance would include information on permit issuance and permit modification requirements, as well as a permit content template that will identify the appl icable requirements under the applicable Transport Rule trading program and thereby ensure that they will be correctly and comprehensively reflected in each permit in a manner that will reduce the burden on sources and permitting authorities related to the issuance of the permit and will reduce the need for permit revisions. 2. New Source Review a. Background EPA recognizes that following the vacatur of the new source review (NSR) pollution control project exemption in New York v. EPA , 413 F.3d 3, 40
- 41 (D. C. Cir. 2005) pollution control projects, including pollution control projects constructed to comply with this rule, have the potential to trigger new source review (NSR) permitting.*** E.O. 12866 Review

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Page 428 of 647 This issue was previously addressed in the context of CAIR. On Decembe r 20, 2005, the EPA agreed to reconsider one specific aspect of CAIR. In that notice, EPA granted reconsideration and sought comment on the potential impact of the opinion in New York v. EPA , which vacated the previously existing NSR exemption for certain environmentally beneficial pollution control projects. For this reconsideration, EPA conducted an analysis which showed that the court decision did not impact the CAIR analyses. Details of this analysis can be found in a Technical Support document which is available on EPA’s website at: http :// epa . gov / cair / pdfs /0053
- 2263. pdf Because GHG were not considered by EPA to be air pollutants within the meaning of the CAA at the time of CAIR, GHG emissions were not addressed in 2005 analysis. GHG requirements related to the component of New Source Review concerning the Prevention of Significant Deterioration (“PSD”) program are addressed in EPA’s “Interpretation of Regulations that Determine Poll utants Covered by Clean Air Act Permitting Programs,” 75 FR 17004 (April 2, 2010), and “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule,” 75 FR (June 3, 2010) (“Tailoring Rule”). Generally, as discussed in those actions, major stationary sources will be required to address GHG emissions as part of the PSD program if these sources emit GHG in amounts that equal or exceed the thresholds in the Tailoring*** E.O. 12866 Review

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Page 429 of 647 Rule. Major sources that undergo a modification, including the addition of pollution control equipment, will trigger PSD requirements for their emissions of GHG if such emissions increase by at least 75,000 86 tons per year of CO 2 equivalent (CO 2 e). b. Proposed rule In the proposed rule, EPA presented the following conclusion s:

(1) the 2005 analysis remains current and relevant for all pollutants except for greenhouse gas (GHG), and it shows that New Source Review (NSR) requirements would not significantly impact the construction of controls that are installed to comply with t he proposed Transport Rule. (2) it is very unlikely that pollution control projects would cause GHG increases that would exceed the 75,000 tons per year threshold. 86 We note that, for sources that are modifying and are not subject to PSD for emissions of a non
- GHG pollutant, in order to be subject to PSD for GHGs the source must not only have an emissions increase of 75,000 TPY CO2e, but must also have a PT E of at least 100,000 TPY CO2e and 100 TPY mass GHG. See 40 CFR 52.21(b)(49)(v)( b ). However, since it is reasonable to assume that all sources that are potentially subject to the Transport Rule will have a PTE of at least 100,000 TPY CO2e and 100 TPY, fo r the purposes of discussions in this section we will only note the requirement to have an emissions increase of 75,000 TPY CO2e.*** E.O. 12866 Review

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Page 430 of 647 Consistent with these proposed conclusions, EPA also concluded that there would be no sign ificant impacts from NSR for any pollution control projects resulting from the proposed rule such as low - NO X burners, SO 2 scrubbers, or SCR. EPA requested comment on this issue. c. Public Comments. EPA received a number of comments on the NSR issue, whic h can be divided into four types of comments: (1) comments related to GHGs, (2) comments related to sulfuric acid mist, (3) comments related to CO emissions increases from low NO X burners, and (4) suggested changes to the EPA rules. Greenhouse gases. A number of commenters recommended that EPA should document and substantiate its conclusion that greenhouse gases would be unlikely to trigger NSR requirements. Other commenters suggested that some units installing an FGD scrubber could exceed the 75,000 ton threshold for GHGs in the Tailoring Rule by emitting CO 2 produced from the chemical reaction of SO 2 with limestone. Commenters also suggested that NSR applicability for GHGs would also need to consider that an FGD would consume 1 - 3 percent of a scrubbed unit’s generation, referred to as “parasitic load,” which (all else held equal)*** E.O. 12866 Review

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Page 431 of 647 lowers that unit’s net generation. 87 Commenters argued that any post - retrofit increase in generation to offset that “parasitic load” could lead to GHG increases potentially ex ceeding the 75,000 ton threshold. Sulfuric Acid Mist . Two commenters noted that use of high sulfur fuels, in combination with SCR, can lead to increases in sulfuric acid mist, a pollutant regulated under NSR. One of these commenters noted that reagent inj ection was necessary to avoid triggering NSR for sulfuric acid mist when their SCR was installed. Carbon monoxide (CO) . One commenter believed that EPA’s 2005 analysis may not be adequate as it related to carbon monoxide emission increases that result from installation of low NO X burners. The commenter noted EPA’s statement in the 2005 analysis that read as follows: “Since the NO X removal efficiencies used in EPA’s analysis are not aggressive, it is believed that the units installing combustion controls can opt for moderate levels of overfire air (OFA) flow rates and still achieve the NO X reduction levels projected in EPA’s analysis, without causing significant increases in the CO and unburned carbon emissions.” The commenter suggested that the transport rule NO X may be more aggressive than CAIR and thus EPA should
87 “Net generation” refers to total generation minus the amount of power consumed on - site for various purposes, including oper ation of pollution control equipment.*** E.O. 12866 Review

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Page 432 of 647 conduct a review to determine whether EPA retains the same conclusion regarding CO emissions. Recommended Rule Changes . Some commenters suggested changes to EPA rules to address their concerns that control equipment installed as a result of the transport rule could trigger NSR. Some commenters suggested that EPA craft an exclusion from NSR in the transport rule. One of these commenters suggested that EPA could do this by: (1) providing speci al definition of baseline actual emissions; (2) a causation determination specifically tied to the Transport Rule; or (3) interpret the term “stationary source” in CAA 110(a)(4) in a way that doesn’t impede Transport Rule compliance. Other commenters exp ressed the concern that if NSR is triggered, the proposed transport rule did not allow enough time for compliance for sources needing to install control equipment. These commenters recommend that EPA should waive transport requirements or provide extra a llowances until NSR review is complete. d. Final rule and responses to comments. Greenhouse Gases . EPA has carefully reviewed relevant data in assessing the comments suggesting that NSR permitting would likely be triggered for facilities installing FGD s crubbers to comply with this rule. EPA believes that sources installing FGD*** E.O. 12866 Review

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Page 433 of 647 to comply with the Transport Rule can achieve those installations without triggering NSR. EPA notes that its forecast of the number and extent of FGD scrubber installations substa ntially decreased since the time of proposal . For the proposed rule, EPA modeled 14 GW of FGD retrofit installations by 2014. For the final rule, EPA models a total of 5.7 GW of wet FGD installations from 7 units at 5 plants. There are two factors assoc iated with wet FGD scrubbers that commenters suggested individually or in combination could lead to increases above the 75,000 tons per year threshold in the Tailoring Rule. The first is the CO 2 chemically produced from the reaction of SO 2 with limestone in wet FGD scrubbers. The second is that owners or operators of the affected units may desire to increase coal usage after the retrofit is made to offset the “parasitic load” that is consumed on
- site in order to operate the scrubber. With respect to chemically produced CO 2 , EPA concludes that only in very limited circumstances when installation of a scrubber is coupled with a change to considerably higher sulfur coal could installation of a wet limestone scrubber be associated with a more than 75,000 t on increase in CO 2 emissions . EPA finds this possibility unlikely to occur. For example, EPA’s acid rain emissions reporting system shows that the plant*** E.O. 12866 Review

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Page 434 of 647 with the greatest emissions from unscrubbed units in 2009 emitted about 103,000 tons of SO 2 from thos e units. If this plant installed a wet limestone scrubber assumed to reduce those SO 2 emissions by 96 percent, EPA calculates that chemically produced CO 2 could increase emissions by:

103,000 X (0.96) X (44/64) = 67,980 tons CO 2 . 88 Therefore, EPA find s that all currently uncontrolled units are technically capable of retrofitting with wet FGD without chemically produced CO 2 increases leading to a triggering of NSR. In limited circumstances, an owner or operator may elect to switch fuels to a significan tly higher
- sulfur coal subsequent to FGD installation and may risk an increase in chemically produced CO 2 emissions that would trigger NSR, but such a decision is not necessary in order to successfully install and operate the scrubber as a strategy for compliance with Transport Rule requirements. With respect to the “parasitic load” issue, EPA estimates that today’s wet FGD retrofit technology would consume typically about 1.7 percent of on - site generation. 89 If a facility made no

88 The factor 44/64 reflects the relative molecular weight of CO 2 and SO 2 , respectively. A wet FGD’s removal of one ton of SO 2 involves a chemical reaction that releases the equivalent molecular weight of CO 2 (thus equ aling 44/64 of a ton of CO 2 emissions). 89 Documentation Supplement for EPA Base Case v.4.10_FTransport

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Page 435 of 647 other changes to its opera tion other than installing an FGD retrofit, that facility’s CO 2 emissions from fuel combustion would remain constant. It is possible , however, that a source’s owner or operator may elect to increase coal usage by some amount after retrofitting FGD , if for example the owner or operator desires to increase net generation after retrofitting . Under NSR, any such source would be able to compare such a CO 2 emissions increase against the highest average annual emissions in any consecutive 24
-month period from a five
- year historic baseline. Therefore, a unit retrofitting a scrubber under the Transport Rule may be able to increase its CO 2 emissions by more than 75,000 tons without triggering NSR if that increase would register as less than 75,000 tons against a hi gher emissions level in the aforementioned NSR baseline. EPA also notes that scrubber installations provide facilities with the opportunity to make other capital improvements at the unit on which the scrubber is installed to improve the efficiency of boilers , steam turbines, motors, other auxiliary equipment, and plant control systems. Such improvements could allow a retrofitting unit to lower its CO 2 output rate such that a subsequent decision to increase net generation may not result in increased co al use, or may limit any CO 2 emissions increase to less than the 75,000 tons per year threshold for triggering NSR.*** E.O. 12866 Review

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Page 436 of 647 As discussed in section VII.D, EPA notes that the Transport Rule does not mandate any specific control activity, including scrubber retrofit ting, as a compliance strategy for units within a state to meet that state’s SO 2 budget. As demonstrated by EPA’s “no FGD” sensitivity analysis described in VII.D, covered sources within the Group 1 states are capable of meeting their emission reduction obligations through a variety of emission reduction strategies even if no unit is able to complete a scrubber installation by 2014. Therefore, EPA does not believe that NSR permitting presents an obstacle in any way to Transport Rule compliance, even if a given unit retrofitting with FGD triggers NSR for CO 2 . For some plants, EPA’s IPM modeling forecasts installation and operation of dry sorbent injection (DSI) systems. EPA does not believe any of these systems would result in CO 2 emissions incre ases above the 75,000 ton threshold. Moreover, given the relatively short construction schedule for DSI systems, EPA believes that if any of the plants did require NSR permitting , installation of DSI could still be accomplished by 2014. In summary, EPA be lieves that the operators of plants projected to install scrubbers for Transport Rule SO 2 reductions could readily develop workable compliance strategies whether or not such an installation would trigger NSR. P lant owners could readily develop strategies to avoid emissions increases that*** E.O. 12866 Review

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Page 437 of 647 would trigger NSR, including but not limited to alternative SO 2 reduction strategies or technologies, efficiency improvements, or the ability to adjust net electricity generation to prevent a 75,000 ton increase in CO 2 emi ssions . EPA believes that projected scrubber installations under the Transport Rule are broadly unlikely to trigger NSR, but even in the limited conditions where such a triggering may occur, the NSR permitting process would not infringe on a state’s abili ty to comply with its budgets under the Transport Rule (see section VII.D for more details on EPA’s analysis of a “no FGD” sensitivity supporting these points) . Sulfuric Acid Mist . EPA continues to conclude that, consistent with the 2005 TSD, sulfuric aci d mist increases due to compliance with this rule are very unlikely to trigger NSR permitting. Such increases are most commonly seen from installation of SCR units on facilities with relatively high sulfur coal. However, as acknowledged by one of the commenters, engineering solutions have been developed to prevent such increases, and EPA believes that facility owners would take this into account in designing such an SCR system. Moreover, EPA’s IPM modeling of the NO X budgets in the final rule suggests that
no new SCR units will result from the final rule. Carbon monoxide. EPA concludes that any NSR permitting required due to CO increases associated with NO X controls this*** E.O. 12866 Review

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Page 438 of 647 should not hinder the ability of sources to comply with Transport Rule requirement s. For states that were included in the CAIR for either ozone, PM2.5 or both, EPA finds no evidence to suggest that the NO X control requirements of the Transport Rule would require more aggressive controls triggering NSR. As EPA’s baseline analysis acknowledges, many sources in these states installed NO X controls to comply with CAIR. In addition, their historic emissions reflect operation of these controls and there is no evidence to suggest that the Transport Rule will require sources to operate these c ontrols more aggressively, thereby increasing CO emissions above the relevant threshold and triggering NSR. In a few states that were not covered by CAIR, a limited number of facilities may install new combustion controls (such as low NO X burners, overfir e air, or other combustion controls or upgrades) as a result of the Transport Rule. EPA expects relatively few such installations, and believes that NSR permitting, if required, is not an obstacle to compliance with the rule. First, EPA believes that NS R permitting should be relatively straightforward for these installations and that the BACT determination for CO will be very straightforward . EPA expects a relatively short time period for permitting , and as discussed later, EPA is planning to initiate a ctions that will further expedite any required permitting .*** E.O. 12866 Review

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Page 439 of 647 Second, EPA notes that the rule achieves reductions through a trading program rather than direct control requirements. Accordingly, even if a few installations do not have controls in place at th e very beginning of the compliance period, this should not hinder the ability of states to meet their ozone
season NO X budgets. Covered sources have a suite of NO X pollution control strategies and technologies available to them, including coal selection, selective non
- catalytic reduction (SNCR), gas re - burn, low - NO X burner (LNB) and overfire air (OFA) installations or upgrades, and neural network optimization of combustion controls operation. Sources may consider all of these technologies and strategies, which can be designed and operated so as to minimize CO emission increases that may otherwise trigger NSR. EPA also notes that during the downtime for installation of the construction controls, there would be no NO X emissions, and thus the source’s allowance holding requirements would also be lower for that period. Recommended Rule Changes. EPA disagrees with commenters who suggested rule changes, either to the NSR program or to this rule, to account for installations triggering NSR. As noted above, EPA concludes that NSR would be triggered at most for just a few of the projected control installations. EPA believes, however, that even if required these NSR permits would likely be issued in a timely manner given the overall*** E.O. 12866 Review

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Page 440 of 647 environmental benefits resulti ng from the control equipment installation. In addition, this rule ’ s requirements are based on a flexible trading approach rather than a direct control approach. Accordingly, if this affect occurs for only a few installations, EPA believes that any extra emission s that occur during the relatively short time needed to obtain an NSR permit could be accommodated within the overall trading system. Expediting Permitting In the limited circumstances where pollution control installations under the Transport Rule may trigger NSR, we also note that an expedited permitting process can occur with sufficient time to obtain permits and achieve emission reductions under the Transport Rule programs. For this reason, we strongly encourage permitting authorities to expedi te permitting for any such projects, which are likely to be very limited in number. To ensure that the permitting decisions are expedited, separate from this rulemaking EPA will provide assistance and guidance in order to expedite issuance of any such pe rmits. For example, we are considering assistance that would serve to expedite best available control technology (BACT) reviews or required air quality analysis. EPA requests early notification of any specific cases where such guidance and assistance may be needed.*** E.O. 12866 Review

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Page 441 of 647 J . How the Program Structure is Consistent with Judicial Opinions Interpreting the Clean Air Act The air quality
- assured trading program s established by this rule eliminate all of the emissions that EPA has identified as significantly contributing to downwind nonattainment or interference with maintenance 90 in a manner that is consistent with section 110(a)(2)(D)(i) of the CAA as interpreted by the D.C. Circuit in North Carolina , 531 F.3d 896. The FIPs finalize d in this action require sources to participate in air quality
- assured interstate emission trading programs that include provisions to ensure that no state’s emissions exceed t hat state’s budget with variability limit. These assurance provisions, combined with the requirement that all sources hold emission allowances sufficient to cover their emissions,

90 As explained in greater detail in Section VI of this notice, for each covered state, EPA has identified emissions t hat must be prohibited pursuant to section 110(a)(2)(D)(i)(I). In most instances, EPA has determined that elimination of such emissions is sufficient to satisfy the requirements of that section. Thus, in these instances, the budgets represent an estimate of the emissions that will remain after the elimination of all emissions in that state that significantly contribute to nonattainment or interfere with maintenance of the NAAQS in another state. In a few limited instances, however, EPA determined that elimination of the emissions is necessary but may not be sufficient to satisfy the requirements of that section. In these instances, the budgets represent an estimate of the emissions that will remain after the elimination of all emissions that EPA, at this time, has determined must be eliminated.*** E.O. 12866 Review

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Page 442 of 647 effectuate the requirement that emission reductions occur within the s tate. See 42 U.S.C. 7410(a)(1)(2)(D). The state budgets developed in this rule represent an estimate of the emissions that will remain in a given state after the elimination of all emissions in that EPA has determined must be prohibited pursuant to section 110 (a)(2)(D)(i)(I). However, for the reasons explained above, the amount of emissions that remain after the requirements of 110(a)(2)(D)(i)(I) are satisfied may vary. EPA recognizes that shifts in generation due to, among other things, changing weather patterns, demand growth, or disruptions in electricity supply from other units can affect the amount of generation needed in a specific state and thus baseline EGU emissions from that state. Because a state’s significant contribut ion to nonattainment or interference with maintenance is defined by EPA as all emissions that can be eliminated for a specific cost (as explained above, using air quality considerations to identify this cost threshold) and because EGU baseline emissions ar e variable, the amount of emissions remaining in a state after all significant contribution or interference with maintenance is eliminated is also variable. In other words, EGU emissions in a state whose sources have installed all controls and taken all
measures necessary to eliminate its significant contribution to*** E.O. 12866 Review

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Page 443 of 647 nonattainment or interference with maintenance could exceed the state budget without variability. For this reason, EPA determined that it is appropriate for the program to recognize the inheren t variability in state EGU emissions. The program does so by identifying a variability range for each state in the program. The assurance provisions in the program, in turn, limit a state’s emissions to the state’s budget with variability limit. In addition, the requirement that all sources hold emission allowances sufficient to cover their emissions (and the fact that the total number of emission allowances allocated will be equal to the sum of all state budgets without variability)
ensu res that the use of variability limits both takes into account the inherent variability of baseline EGU emissions in individual states (i.e., the variability of total state EGU emissions before the elimination of significant contribution or interference wi th maintenance) and recognizes that this variability is not as great in a larger region. The variability of emissions across a larger region is not as large as the variability of emissions in a single state for several reasons. Increased EGU emissions i n one state in one control period often are offset by reduced EGU emissions in another state within the control region in the same control period. In a larger region that includes multiple states, factors that*** E.O. 12866 Review

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Page 444 of 647 affect electricity generation, and thus EGU emissions levels, are more likely to vary significantly within the region so that resulting emissions changes in different parts of the region are more likely to offset each other. For example, a broad region can encompass states with differing weather pat terns, with the result that increased electricity demand and emissions due to weather in one state may be offset by decreased demand and emissions due to weather in another state. By further example, a broad region can encompass states with differing type s of industrial and commercial electricity end
- users, with the result that changes in electricity demand and emissions among the states due to the effect of economic changes on industrial and commercial companies may be offsetting. Similarly, because stat es in a broad region may vary in their degree of dependence on fossil
- fuel - based electric generation, the impact of an outage of non - fossil
- fuel - based generation (e.g., a nuclear plant) in one state may have a very different impact in that state than on ot her states in the region. Thus, EPA does not believe it is necessary to allow total regional allowance allocations for the states covered by a given trading program to exceed the sum of all state budgets without variability for these states. For these rea sons, the fact that the use of state budgets with variability limits may allow limited shifting of emissions*** E.O. 12866 Review

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Page 445 of 647 between states is not inconsistent with the court’s holding that emission reductions must occur “within the state.” North Carolina , 531 F.3d at 90 7. Under the FIPs, no state may emit more than its budget with variability limit and total emissions cannot exceed the sum of all state budgets without variability. This approach takes into account the inherent variability of the baseline emissions witho ut excusing any state from eliminating its significant contribution to nonattainment or interference with maintenance. It is thus consistent with the statutory mandate of section 110(a)(2)(D)(i)(I) as interpreted by the Court. Most commenters voiced supp ort for a remedy option that allows some degree of interstate trading. However, one commenter argued that the structure of the preferred trading remedy that EPA proposed is legally problematic. The program, the commenter argues, provide s no legal assurance that the variability margins will be used by market participants to account for variability. The commenter does not suggest a solution, but instead says, if a solution cannot be found, EPA should not allow any amount of interstate tra ding. EPA disagrees with the commenter that the structure of the preferred interstate trading program is legally problematic. In North Carolina , the Court held that the CAIR interstate trading programs were inconsistent with section 110(a)(2)(D)( i)(I),*** E.O. 12866 Review

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Page 446 of 647 concluding that “EPA’s apportionment decisions have nothing to do with each state’s ‘significant contribution’” (531 F.3d at 907) and that “EPA is not exercising its section 110(a)(2)(D)(i)(I) duty unless it is promulgating a rule that achieves some thing measurable toward the goal of prohibiting sources ‘within the State’ from contributing to nonattainment or interfering with maintenance ‘in any other State.’” (531 F.3d at 908). It emphasized that “[t]he trading program is unlawful, because it does not connect states’ emission reductions to any measure of their own significant contributions. To the contrary, it relates their SO 2 reductions to their Title IV allowances . . . . The allocation of NO X caps is similarly arbitrary because EPA distributed allowances simply in the interest of fairness.” 531 F.3d at 930. As explained in this rule , EPA has addressed these concerns by using source specific analysis to identify each individual state’s significant contribution to nonattainment and interfe rence with maintenance, and including assurance provisions to ensure that the necessary reductions occur in each state. The Court did not go further to prohibit all interstate trading. In fact, it notes that “after rebuilding, a somewhat similar CAIR may emerge” (531 F.3d at 930). For all of these reasons, EPA does not believe the opinion in North Carolina can be read to stand for the proposition that no interstate trading can be allowed unless the*** E.O. 12866 Review

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Page 447 of 647 specific reasons behind market participants’ decisions t o purchase allowances can be ascertained. Because allowance purchase decisions are likely to be based on multiple factors, which can include the desire to hedge against potential emission variability as well as to address actually occurring variability, r equiring ascertainment of the specific reasons for allowance purchases would be tantamount to prohibiting all interstate trading. Moreover, as discussed above, variability is inherent to the operation of the electric generation system and thus to emiss ions from this sector. In fact, variability in emissions occurs every year in every state and, like variability of year
to - year weather conditions (which is a major cause of emission variability), cannot be accurately predicted. See the Power Sector Vari ability Final Rule TSD in the docket for this rulemaking . EPA maintains that its approach of allowing state EGU emissions each year to vary by up to the historically representative, annual amount of inherent, emission variability reasonably reflects the r ealities of the electric generation system and is consistent with the North Carolina decision. In summary, the variability provisions take into account inherent variability over time of emissions from this sector while ensuring that any emissions shifting that may occur between covered states is fixed at a relatively low level. EPA thus*** E.O. 12866 Review

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Page 448 of 647 concludes that the commenter’s argument that the use of variability l imits allows sources “within the state” to avoid eliminating their significant contribution or interference with maintenance is without merit. VIII. Economic Impacts of the Transport Rule A. Emission Reductions Table VIII.A- 1 presents projected power secto r emissions in the base case (i.e., without the Transport Rule or CAIR) compared to projected emissions with the Transport Rule in 2012 and 2014 for all covered states. Table VIII.A
- 2 presents 2005 historical power sector emissions compared to projected
emissions with the Transport Rule in 2012 and 2014. Note that for ozone - season emissions, these tables present results from a modeling scenario that reflects ozone
- season NO X requirements in 26 states. This modeling differs from the final Transport Rule b ecause it includes ozone
- season NO X requirements for six states (Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin) that the final Transport Rule does not cover (as discussed previously, EPA is issuing a supplemental proposal to request comment on inclusion of these six states).
Table VIII.A- 1 – Projected SO2 and NOX Electric Generating Unit Emission Reductions in Covered States with the Transport Rule Compared to Base Case without Transport Rule or CAIR (Million Tons)*** E.O. 12866 Review

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Page 449 of 647 2012 Base Case Emissions 2012

Transport Rule Emissions 2012

Emission Reductions 2014

Base Case Emissions 2014

Transport Rule Emissions 2014

Emission Reductions
SO 2 7.0 3.0 4.0 6.2 2.4 3.9 Annual NO X 1.4 1.3 0.1 1.4 1.2 0.2
Ozone Season NO X 0.7 0.6 0.1 0.7 0.6 0.1

Notes: The S O 2 and annual NO X emissions in this table reflect EGUs in the 23 states covered by this rule for purposes of the 24
- hour and/or annual PM2.5 NAAQS (Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebras ka, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin). The ozone - season NO X emissions reflect EGUs in the 20 states covered by this rule for purposes of the ozone NAAQS (Alab ama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and West Virginia) and the six states that would be covere d for the ozone NAAQS if EPA finalizes its supplemental proposal (Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin).
Tables VIII.A- 3 through VIII.A
- 5 present projected state
level emissions with and without the Transport Rule in 2012 and 2014 from fossil
- fuel - fired EGUs greater than 25 MW in covered states.
Table VIII.A- 2 – Projected SO2 and NOX Electric Generating Unit Emission Reductions in Covered States with the Transport Rule Compared to 2005 Actual Emissions (Million Tons) 2005 Actual 2012 2012 2014 2014*** E.O. 12866 Review

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Page 450 of 647 Emissions Transport

Rule Emissions Emissions

Reductions from 2005 Transport

Rule Emissions Emissions

Reductions from 2005 SO 2 8.8 3.0 5.8 2.4 6.4 Annual NO X 2.6 1.3 1.3 1.2 1.4
Ozone Season NO X 0.9 0.6 0.3 0.6 0.3

Notes: The SO 2 and annual NO X emissions in this table reflect EGUs in the 23 states covered by this rule for purposes of the 24
- hour and/or annual PM2.5 NAAQS (Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin). The ozone - season NO X emissions reflect EGUs in the 20 states covered by this rule for purposes of the ozone NAAQS (Alabama, Ar kansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and West Virginia) and the six states that would be covered for t he ozone NAAQS if EPA finalizes its supplemental proposal (Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin).
Table VIII.A- 3 – Projected State - level Annual SO2 Emissions from Fossil - Fired Electric Generating Units Greater than 25 MW in Covered S tates in 2012 and 2014 in Base Case and with Transport Rule (tons)
Base Case Transport Rule 2012 2014 2012 2014 Alabama 455,503 417,009 219,067 173,231 Georgia 405,933 169,702 158,581 92,605 Illinois 485,417 137,522 209,701 128,143 Indiana 776 ,359 711,265 241,258 177,222 Iowa 121,663 127,354 75,003 77,931 Kansas 68,490 69,767 41,433 45,681 Kentucky 520,531 487,990 146,133 116,912*** E.O. 12866 Review

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Page 451 of 647 Maryland 49,942 42,926 26,630 30,368 Michigan 252,411 265,611 190,274 158,394 Minnesota 64,524 66,268 42,862 4 5,143 Missouri 375,771 381,939 181,662 177,359 Nebraska 70,754 71,821 65,079 70,087 New Jersey 26,346 38,857 5,518 6,243 New York 51,243 40,416 20,378 12,689 North Carolina 144,554 120,441 117,383 63,382 Ohio 871,401 831,648 230,216 150,784 Pennsylvania 493,206 507,360 250,484 123,224 South Carolina 184,045 209,538 84,435 96,589 Tennessee 324,372 284,463 96,520 64,716 Texas 445,715 452,978 244,239 266,288 Virginia 80,889 64,917 66,640 38,562 West Virginia 535,586 497,398 119,174 83,235 Wisconsi n 131,199 124,862 77,505 44,139 Total 6,935,853 6,122,051 2,910,173 2,242,927

Table VIII.A- 4 – Projected State - level Annual NOX Emissions from Fossil - Fired Electric Generating Units Greater than 25 MW in Covered States in 2012 and 2014 in Base Case and with Transport Rule (tons)
Base Case Transport Rule 2012 2014 2012 2014 Alabama 82,005 74,937 73,600 68,119 Georgia 66,384 47,808 61,464 39,817 Illinois 51,969 54,661 47,635 48,533 Indiana 119,625 116,552 109,773 109,392 Iowa 42,563 44,614 36,9 53 38,302 Kansas 37,106 32,390 30,603 23,938 Kentucky 88,136 83,481 83,856 76,026 Maryland 16,602 17,444 15,665 17,061 Michigan 60,594 64,345 59,405 57,311 Minnesota 36,833 37,952 30,524 30,849 Missouri 53,199 54,528 51,329 48,888 Nebraska 42,985 43 ,410 26,488 26,552 New Jersey 7,391 7,858 7,355 7,562 New York 17,556 18,505 17,616 17,250 North Carolina 51,902 46,130 47,679 41,676 Ohio 100,420 99,389 84,679 84,126 Pennsylvania 129,125 132,299 117,612 116,994*** E.O. 12866 Review

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Page 452 of 647 South Carolina 34,635 37,862 33,144 3 5,591 Tennessee 37,674 29,256 32,984 20,490 Texas 136,124 140,788 133,406 136,638 Virginia 34,567 35,798 33,244 34,891 West Virginia 61,792 64,182 55,808 53,335 Wisconsin 36,701 36,904 30,643 29,688 Total 1,345,888 1,321,092 1,221,466 1,163,027
Table VIII.A- 5 – Projected State - level Ozone - Season NOX Emissions from Fossil - Fired Electric Generating Units Greater than 25 MW in Covered States in 2012 and 2014 in Base Case and with Transport Rule (tons)

Base Case Transport Rule 2012 2014 2012 2014 Alabama 34,074 31,365 31,607 29,532 Arkansas 15,037 16,644 15,087 16,728 Florida 41,646 45,993 27,645 29,435 Georgia 29,106 19,293 26,660 17,838 Illinois 21,371 22,043 21,102 21,210 Indiana 46,877 46,086 46,789 46,564 Iowa 18,307 19,440 15,746 16,346 Kansas 16,126 13,967 13,425 10,217 Kentucky 37,588 35,296 34,969 31,547 Louisiana 13,433 13,924 13,669 13,943 Maryland 7,179 7,540 6,705 7,248 Michigan 25,989 28,037 25,476 24,248 Mississippi 10,161 11,212 10,639 10,960 Missouri 23,156 23,759 21,78 8 20,805 New Jersey 3,440 3,668 3,403 3,518 New York 8,336 9,031 8,404 8,399 North Carolina 22,902 20,169 21,081 18,154 Ohio 42,274 41,327 34,576 35,769 Oklahoma 31,415 31,723 20,910 21,200 Pennsylvania 52,895 54,217 50,384 50,446 South Carolina 15, 145 16,586 13,810 15,058 Tennessee 15,505 12,141 14,305 8,461 Texas 64,711 65,492 62,824 63,749 Virginia 15,148 15,339 14,311 14,744 West Virginia 26,464 27,099 23,352 22,406 Wisconsin 15,876 16,048 12,840 12,768 Total 654,161 647,439 591,508 571,293*** E.O. 12866 Review

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Page 453 of 647 B. The Impacts on PM2.5 and Ozone of the Final SO 2 and NO X Strategy The air quality modeling platform described in section V. was used by EPA to model the impacts of the final rule SO 2 and NO X emission reductions on annual average PM2.5 , 24
- hour PM2.5 , and 8
- hour ozone concentrations. In brief, we ran the CAMx model for the meteorological conditions in the year of 2005 for the eastern U.S. modeling domain 91 . Modeling was performed for the 2014 base case and the 2014 air quali ty - assured trading (i.e. , remedy) scenario to assess the expected effects of the final rule on projected PM2.5 and ozone design value concentrations and nonattainment and maintenance. The procedures used to project future design values and nonattainment a nd maintenance are described in section V. The projected 2014 concentrations of annual PM2.5 , 24
- hour PM2.5 , and ozone at each monitoring site in the East for which projections were made are provided in the Air Quality Modeling Final Rule TSD . The number of nonattainment and/or maintenance sites in the East for the 2012 base case, 2014 base case, and 2014 remedy for annual PM2.5 , 24
- hour PM2.5 , and ozone are

91 As described in the Air Quality Modeling Final Rule TSD , the eastern U.S. was modeled at a horizontal resolution of 12 x 12 km. The remainder of the U.S. was modeled at a resolution of 3 6 x 36 km.*** E.O. 12866 Review

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Page 454 of 647 provided in Table VIII.B
- 1 92 . The average and peak reductions in
annua l PM2.5 , 24
- hour PM2.5 , and ozone predicted at 2012 nonattainment and/or maintenance sites due the emission reductions between 2012 and the 2014 remedy ar e provided in Table VIII.B - 2.

Table VIII.B - 1. Projected Reduction in Nonattainment and/or Maintenance Problems for PM2.5 and Ozone in the Eastern U.S.

Ambient (2003
- 2007) 2012

Base Case 2014

Base Case 2014

Remedy Percent

Reduction: 2012 Base Case vs. 2014 Remedy Percent

Reduction: 2014 Base Case vs. 2014 Remedy Annual PM2.5 Nonattainment Sites 93 103 12 7 0 100 percent 100 percent Annual PM2.5 Maintenance
Only Sites 22 4 3 0 100 percent 100 percent
24
- hour PM2.5 Nonattainment Sites 151 20 10 1 95 percent 90 percent 24
- hour PM2.5 Maintenance
Only Sites 48 21 12 4 81 percent 67 percent

Ozone Nonattainment Sites 104 7 4 4 43 percent No Change Ozone Maintenance
Only Sites 65 9 6 6 33 percent No Change

92 To provide a point of reference, Table VIII.B
- 1 also includes the number of nonattainment and/maintenance sites based on ambient design values for the period 2003 through 2007. 93 “Nonattainment” is used to denote sites that are projected to have both nonattainment and maintenance problems.*** E.O. 12866 Review

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Page 455 of 647 Table VIII.B - 2. Average and Peak Reduction in Annual PM2.5 , 24 - Hour PM2.5 , and Ozone for S ites that are Projected to have Nonattainment and/or Maintenance Problems in the 2012 Base Case Average Reduction: 2012 Base Case to 2014 Remedy Peak Reduction: 2012 Base case to 2014 Remedy Annual PM2.5 Nonattainment Sites 2.73 μg/m 3 3.32 μg/m 3 Annual PM2.5 Maintenance
- Only Sites 2.99 μg/m 3 3 .26 μg/m 3 24
- hour PM2.5 Nonattainment Sites 6. 8 μg/m 3 11.7 μg/m 3 24
- hour PM2.5 Maintenance
- Only Sites 6.5 μg/m 3 11.0 μg/m 3
Ozone Nonattainment Sites 1.9 ppb 2.3 ppb Ozone Maintenance
- Only Sites 1.8 ppb 2.1 ppb
The information in Table VIII .B - 1 shows that there will be significant reductions in the extent of nonattainment and maintenance problems for annual PM2.5 , 24
- hour PM2.5 , and ozone between 2012 and 2014 as a result of the emission budgets in this rule coupled with emission reductions during this time period from other existing control programs. Specifically, the results of the air quality modeling indicate that no sites are projected to be in non attainment or projected to have a maintenance problem for annual PM2.5 in 2014 with the emission reductions expected from the Transport Rule. As indicated in Table VIII.B - 2, the average reduction in annual PM2.5 across the 12 2012 nonattainment sites is 2.73 μg/m3 and the peak reduction at an individual nonattainment site is 3.32 μg/m3 . Large*** E.O. 12866 Review

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Page 456 of 647 reductions are also projected at annual PM2.5 maintenance
- only sites. For 24
- hour PM2.5 , we project that the number of nonattainment sites will be reduced by 95 percent and the number maintenance
- only sites by 81 percent in 2014 compared to the 2012 bas e case. The average reduction in 24
- hour PM2.5 across the 20 2012 nonattainment sites is 6.8 μg/m3 and the peak reduction at an individual nonattainment site is 11.7 μg/m3
. Similarly large reductions are projected at 24
- hour PM2.5 maintenance
- only sites, as indicated in Table VIII.B
- 2. The emission reductions in the Transport Rule will result in considerable progress toward attainment and maintenance at the 5 sites that remain as nonattainment and/or maintenance for the 24
- hour the PM2.5 standard. On average for these 5 sites, the predicted amount of PM2.5 reduction in 2014 is 64 percent of what is needed for these sites to attain and/or maintain the 24
- hour standard. Thus, the SO 2 and NO X emission reductions which will result from the Transport Rule wil l greatly reduce the extent of PM2.5 nonattainment and maintenance problems by 2014 and beyond. As described previously, these emission reductions are expected to substantially reduce the number of PM2.5 nonattainment and/or maintenance sites in the East and make attainment easier for those counties that remain nonattainment by substantially*** E.O. 12866 Review

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Page 457 of 647 lowering PM2.5 concentrations in residual nonattainment sites. The emission reductions will also help those locations that may have maintenance problems. Based on the 2012 base air quality modeling for ozone, 16 sites in the East are projected to be nonattainment or have problems maintaining the 1997 ozone standard. The summer NO X reductions are projected to lower 8
- hour ozone concentration by 1.8 ppb, on average by 2014, at monitoring sites projected to be nonattainment and/or have maintenance problems in the 2012 base
case. We expect that the number of nonattainment sites will be reduced by 43 percent and the number maintenance
- only sites by 33 percent in 2014 comp ared to the 2012 base case. Thus, our modeling indicates that by 2014 the summer NO X emission reductions in this rule , coupled with other existing control programs, will lower ozone concentrations in the East and help bring areas closer to attainment for the 8
- hour ozone NAAQS. As discussed in section III of this preamble, EPA plans to finalize its reconsideration of the 2008 revised ozone NAAQS soon, and these reductions will help areas achieve those revised NAAQS. C. Benefits 1. Human Health Benefit Ana lysis To estimate the human health benefits of the final Transport Rule, EPA used the BenMAP model to quantify the*** E.O. 12866 Review

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Page 458 of 647 changes in PM2.5 and ozone - related health impacts and monetized benefits based on changes in air quality. For context, it is important to not e that the magnitude of the PM2.5 benefits is largely driven by the concentration response function for premature mortality. Experts have advised EPA to consider a variety of assumptions, including estimates based both on empirical (epidemiological) studie s and judgments elicited from scientific experts, to characterize the uncertainty in the relationship between PM2.5 concentrations and premature mortality. For this rule we cite two key empirical studies, one based on the American Cancer Society cohort stu dy 94 and the other based on the extended Six Cities cohort study 95
. The estimated benefits of this rule are substantial, particularly when viewed within the context of the total public health burden of PM2.5 and ozone air pollution. A recent EPA analysis e stimated that 2005 levels of PM2.5 and ozone were responsible for between 130,000 and 320,000 PM2.5 - related and 4,700 ozone
- related premature deaths, or about 6.1 percent of total deaths from al l causes in the continental U.S. (using the

94 Pope et al., 2002. ‘‘Lung Cancer, Cardiopulmonary Mortality, and Long - term Exposure to Fine Particulate Air Pollution.’’ Journal of the American Medical Association. 287:1132

– 1141. 95 Laden et al., 2006. ‘‘Reduction in Fine Particulate Air Pollution and Mortality.’’ American Journal of Respiratory and Critical Care Medicine. 173:667

– 672.*** E.O. 12866 Review

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Page 459 of 647 lower end of the r ange for premature deaths). 96 In other words, 1 in 20 deaths in the U.S. is attributable to PM2.5 and ozone exposure. This same analysis attributed almost 200,000 non
fatal heart attacks, 90,000 hospital admissions due to respiratory or cardiovascular illn ess, 2.5 million cases of aggravated asthma among children, and many other human health impacts to exposure to these two air pollutants. We estimate that PM2.5 improvements under the Transport Rule will , starting in 2014, annually reduce between 13,000 an d 34,000 PM2.5 - related premature deaths, 15,000 non
- fatal heart attacks, 8,700 incidences of chronic bronchitis, 8,500 hospital admissions and 400,000 cases of aggravated asthma while also reducing 10 million days of restricted activity due to respiratory illness and approximately 1.7 million work
- loss days. We also estimate substantial health improvements for children from fewer cases of upper and lower respiratory illness and acute bronchitis. Ozone health - related benefits are expected to occur during the summer ozone season (usually ranging from May to September in the eastern U.S.). Based upon modeling for 2014, annual ozone related health benefits are expected to include between 27 and

96 Fann N, Lamson A, Wesson K, Risley D, Anenberg SC, Hubbell BJ. Estimating the National Public Health Burden Associated wi th Exposure to Ambient PM2.5 and Ozone. Risk Analysis; 2011 In Press.*** E.O. 12866 Review

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Page 460 of 647 120 fewer premature mortalities, 240 fewer hospital admissions for r espiratory illnesses, 86 fewer emergency room admissions for asthma, 160,000 fewer days with restricted activity levels, and 51,000 fewer days where children are absent from school due to illnesses. Table VIII.C - 1 presents the primary estimates of annual reduced incidence of PM2.5 and ozone - related health effects for the final rule based on 2014 air quality improvements. When adding the PM and ozone
- related mortalities together, we find that the Transport Rule will yield between 13,000 and 34,000 fewer pr emature mortalities annually. By 2014, in combination with other federal and state air quality actions, the Transport Rule will address a substantial fraction of the total public health burden of PM2.5 and ozone air pollution.

VIII.C - 1 Estimated Annual Reductions in Incidences of Health

Effects Based on 2014 Modelinga

Health Effect Within transport region Beyond

transport region Total PM-Related endpoints Premature Mortality

Pope et al. (2002) (age >30) 13,000 (5,200

—21,000) 33 (5

— 60) 13,000

(5 ,200

—21,000) Laden et al. (2006) (age >25) 34,000 (18,000

—49,000) 84 (31

—140) 34,000

(18,000

—49,000) Infant (< 1 year) 59 ( - 47

—160) 0.15 ( - 0.2

— 0.5) 59 ( - 47

—160) Chronic Bronchitis 8,700 (1,600

—16,000) 23 ( - 5

—50) 8,700

(1,600

—16,000)*** E.O. 12866 Review

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Page 461 of 647 Non - fatal heart a ttacks (age > 18) 15,000 (5,600

—24,000) 40 (7

—72) 15,000

(5,600

—24,000) Hospital admissions

— respiratory (all ages) 2,700 (1,300

—4,000) 5 (2

— 9) 2,700

(1,300

—4,000) Hospital admissions

— cardiovascular (age > 18) 5,700 (4,200

— 6,600) 15 (10

—19) 5,800

(4,200

— 6,600) Emergency room visits for asthma (age < 18) 9,800 (5,800

—14,000) 21 (7

—36) 9,800

(5,800

—14,000) Acute bronchitis (age 8
- 12) 19,000 ( - 630

—37,000) 50 ( - 29

—130) 19,000

( - 660

—37,000) Lower respiratory symptoms (age 7 - 14) 240,000 (120,000

—360,000) 6 30 (130

—1,100) 240,000

(120,000

—360,000) Upper respiratory symptoms (asthmatics age 9
- 18) 180,000 (57,000

—310,000) 480 ( - 25

— 980) 180,000

(57,000

—310,000) Asthma exacerbation (asthmatics 6
- 18) 400,000 (45,000

— 1,100,000) 1,100 ( - 250

—2,900) 400,000 (45,00 0

— 1,100,000) Lost work days (ages 18
- 65) 1,700,000 (1,500,000

— 1,900,000) 4,300

(3,500

—5,200) 1,700,000 (1,500,000

— 1,900,000) Minor restricted
- activity days (ages 18
- 65) 10,000,000 (8,400,000

— 11,000,000) 26,000 (20,000

— 32,000) 10,000,000

(8,400,000

— 12,0 00,000) Ozone - related endpoints Premature mortalityMulti-cityand NMMAPS Bell et al. (2004)

(all ages) 27 (11

—42) 0.1

(0.01

— 0.3) 27 (11

—42) Schwartz et al. (2005) (all ages) 41 (17

— 64) 0.2

(0.1

— 0.4) 41 (17

— 65) Huang et al. (2005) (all ages) 37 (17

—57) 0.2

(0.1

— 0.4) 37 (17

—57)Meta-analyses Ito et al. (2005) (all ages) 120 (78

—160) 0.6 (0.3

— 0.9) 120 (79

—160) Bell et al. (2005) (all ages) 87 (48

—130) 0.5 (0.2

— 0.8) 87 (48

—130) Levy et al. (2005) (all ages) 120 (89

—150) 0.7 (0.4

— 0.9) 120 (90

—160) Hospital admissions

— respiratory causes (ages > 65) 160 (21

—280) 1.2 (0.1

—2.3) 160 (21

—290)*** E.O. 12866 Review

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Page 462 of 647 Hospital admissions

— respiratory causes (ages <2) 83 (43

—120) 0.5 (0.2

— 0.8) 84 (43

—120) Emergency room visits for asthma (all ages) 86 ( - 2

—260) 0.4

( - 0.2

—1.4 ) 86 ( - 2

—260) Minor restricted
- activity days (ages 18
- 65) 160,000 (80,000

—240,000) 910 (240

—1,600) 160,000

(80,000

—240,000) School absence days 51,000 (22,000

—73,000) 290 (59

—490) 51,000

(22,000

—74,000) a Values rounded to two significant figures. Benef its from reducing other criteria pollutants and hazardous air pollutants and ecosystem effects are not included here Source: EPA, 2011 2. Quantified and Monetized Visibility Benefits Only a subset of the expected visibility benefits

—those for Class I are as—are included in the monetary benefits estimates we project for this rule. We anticipate improvement in visibility in residential areas where people live, work and recreate within the Transport Rule region for which we are currently unable to monetize be nefits. For the Class I areas we estimate annual benefits of $ 4 . 1 billion beginning in 2014 for visibility improvements. The value of visibility benefits in areas where we are unable to monetize benefits could be substantial. 3. Benefits of Reducing GHG Emissions When fully implemented in 2014, the Transport Rule would reduce emissions of CO 2 from electrical generating units by about 25 million metric tons annually. Using a ‘‘social cost of carbon’’ (SCC) estimate that accounts for the marginal dollar val ue (i.e., cost) of climate
- related damages resulting from CO 2 emissions, previous analyses including the RIA for the Final*** E.O. 12866 Review

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Page 463 of 647 Rulemaking to Establish Light
- Duty Vehicle Greenhouse Gas Emissions Standards and Corporate Average Fuel Efficiency Standards have fo und the total benefit of CO 2 reductions is substantial. The monetary value of these avoided damages also grows over time. Readers interested in learning more about the calculation of the SCC metric should refer to the SCC TSD, Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 [Docket No. EPA

– HQ
– OAR
– 2009

– 0472]. 4. Total Monetized Benefits Table VIII.C - 2 presents the estimated annual monetary value of reductions in the incidence of health and welfare effects. These estimates a ccount for increases in the value of risk reduction over time. Total monetized benefits are driven primarily by the reduction in premature fatalities each year, which account for between 8 9 and 96 percent of total benefits.

VIII.C - 2 Estimated Annual Mone tary Value of Reductions in Incidence of Health and Welfare Effects Based on 2014 Modeling (Billions of 2007$) A

Health Effect Pollutant Within Transport Rule R egion Beyond Transport

Rule R egion B Total Premature Mortality (Pope et al. 2002 PM mortality an d Bell et al. 2004 ozone mortality estimates) 3% discount rate PM2.5 & O 3 $100 ($8.3

—$320) $0.3 ($0.01

—$0.9) $100

($8.3

—$320) 7% discount rate PM2.5 & O 3 $94 ($7.5

—$280) $0.2 ($0.01

—$0.8) $94

($7.5

—$290) Premature Mortality (Laden et al. 2006 PM mort ality and Levy et al. 2005 ozone mortality estimates)*** E.O. 12866 Review

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Page 464 of 647 3% discount rate PM2.5 & O 3 $270 ($23

—$770) $0.7 ($0.05

—$2) $270

($23

—$770) 7% discount rate PM2.5 & O 3 $240 ($21

—$700) $0.6

($0.05

—$1.8) $240 ($21

—$700) Chronic Bronchitis PM2.5 $4.2 ($0.2

—$19) $ 0.01

($
- 0.003

—$0.06) $4.2 ($0.2

—$19) Non - fatal heart attacks 3% discount rate PM2.5 $1.7 ($0.3

—$4.2) $0.004

($0.003

—$0.01) $1.7 ($0.3

—$4.2) 7% discount rate PM2.5 $1.3 ($0.3

—$3.1) $0.004

($0.002

—$0.001) $1.3 ($0.3

—$3.1) Hospital admissions

— resp iratory PM2.5 & O 3 $0.04 ($0.02

—$0.06) --- $0.04 ($0.02

— $0.06) Hospital admissions

— cardiovascular PM2.5 $0.09 ($0.01

—$0.2) --- $0.09 ($0.01

— $0.2) Emergency room visits for asthma PM2.5 & O 3 $0.003 ($0.002

— $0.006) --- $0.003 ($0.002

— $0.006) Acute bron chitis PM2.5 $0.008 (<$
- 0.01

— $0.02) c --- $0.008 (<$
- 0.01

— $0.02) c Lower respiratory symptoms PM2.5 $0.004 ($0.002

— $0.009) --- $0.004 ($0.002

— $0.009) Upper respiratory symptoms PM2.5 $0.005 (<$0.01

— $0.014) --- $0.005 (<$0.01

— $0.014) Asthma exacerbation PM2.5 $0.02 ($0.002

—$0.08) --- $0.02 ($0.002

— $0.08) Lost work days PM2.5 $0.2 ($0.17

—$0.24) --- $0.2 ($0.17

— $0.24) School loss days O 3 $0.01 ($0.004

— $0.013) --- $0.01 ($0.004

— $0.013) Minor restricted
activity days PM2.5 & O 3 $0.7 ($0.3

—$1) --- $0.7 ($0.3

—$1) Recreational visibility, Class I areas PM2.5 $ 4 . 1 Social cost of carbon (3% discount rate, 2014 value) CO 2 $0.6*** E.O. 12866 Review

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Page 465 of 647 Monetized total Benefits (Pope et al. 2002 PM2.5 mortality and Bell et al. 2004 ozone mortality estimates) 3% discount ra te PM2.5 , O 3 $110 ($8.8

—$340) $0. 28 ($0.0 1

—$0.9) $1 2 0 ($ 1 4

—$3 5 0) 7% discount rate PM2.5 , O 3 $100 ($8

—$310) $0. 25

($0.0 1

—$0. 85 ) $1 1 0 ($ 13

—$3 2 0) Monetized total Benefits (Laden et al. 2006 PM2.5 mortality and Levy et al. 2005 ozone mortality estimates) 3% discount rate PM2.5 , O 3 $270 ($24

—$800) $0.7

($0.05

—$2 .1 ) $2 8 0 ($2 9

—$8 1 0) 7% discount rate PM2.5 , O 3 $250 ($22

—$720) $0.6

($0.04

—$1.9) $250 ($2 6

—$7 3 0) A Values rounded to two significant figures. Benefits from reducing other criteria pollutants a nd hazardous air pollutants and ecosystem effects are not included here . B Monetary value of endpoints marked with dashes are < $100,000. C The negative estimates for certain endpoints are the result of the weak statistical power of the study used to calcu late these health impacts and do not suggest that increases in air pollution exposure result in decreased health impacts. Source: EPA, 2011 5. How Do the Benefits in 2012 Compare to 2014? The magnitude of SO 2 emission reductions achieved under the rule is actually larger in 2012 than in 2014, due to substantial emission reductions expected to occur in the baseline (i.e., unrelated to the Transport Rule) between those years. As a consequence, EPA expects correspondingly greater reductions in harmful effect s to accrue in 2012 compared to 2014. As presented in T able VIII.C - 1, the Transport Rule is expected to prevent between 1 3 ,000 and 3 4 ,000 premature deaths annually from 2014 onward due to reductions in ambient PM2.5 concentrations , which are most significa ntly impacted by SO 2*** E.O. 12866 Review

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Page 466 of 647 emission reductions . Based on EPA 's analysis of power sector emission reductions under the Transport Rule , the decline in SO 2 in 2012 is 4 percent greater than the decline in SO 2 in 2014 in the states modeled. EPA therefore anticipat es that the Transport Rule will deliver greater reductions in ambient PM2.5 concentrations in 2012 and increased annual benefits to human health and welfare beyond those presented in this section . 6. How Do the Benefits Compare to the Costs of this Final Rule? The estimated annual private costs to implement the emission reduction requirements of the final rule for the Transport Rule states are $1.85 billion in 2012 and $0.83 billion in 2014 (2007$). These costs are the annual incremental electric ge neration production costs that are expected to occur with the Transport Rule. The EPA uses these costs as compliance cost estimates in developing cost
- effectiveness estimates. In estimating the net benefits of regulation, the appropriate cost measure is ‘ ‘social costs.’’ Social costs represent the welfare costs of the rule to society. These costs do not consider transfer payments (such as taxes) that are simply redistributions of wealth. The social costs of this rule are estimated to be approximately $0.8 1 billion in 2014 assuming either a 3 percent discount rate or a 7 percent discount rate. Thus, the annual net benefit (social benefits minus social costs) as shown in Table VIII.C
- 3 for the Transport Rule is*** E.O. 12866 Review

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Page 467 of 647 approximately $120 to $280 billion or $1 10 to $250 billion (3 percent and 7 percent discount rates) in 2014. Implementation of the rule is expected to provide society with a substantial net gain in social welfare based on economic efficiency criteria.

A listing of the benefit categories that could n ot be quantified or monetized in our benefit estimates are provided in Table VIII.C - 4. Table VIII.C– 3 Summary of Annual Benefits, Costs, and Net Benefits of the Final Transport Rule in 2014

(Billions of 2007$) a Description Transport Rule Remedy Social cos ts 3 % discount rate $0.8 1 7 % discount rate $0.8 1 Total monetized benefitsb 3 % discount rate 7 % discount rate $ 120 to $ 280 $ 110 to $ 250 Net benefits (benefits - costs ) 3 % discount rate 7 % discount rate $ 120 to $ 280 $ 1 1 0 to $ 250 a All estimates are f or 2014, and are rounded to two significant figures. b The total monetized benefits reflect the human health benefits associated with reducing exposure to PM2.5 and ozone and the welfare benefits associated with improved visibility in Class I areas. The reduction in premature mortalities account for over 90 percent of total monetized PM2.5 and ozone benefits.
The annualized regional cost of the rule, as quantified here, is EPA’s best assessment of the cost of implementing the Transport Rule. These costs ar e generated from rigorous economic*** E.O. 12866 Review

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Page 468 of 647 modeling of changes in the power sector expected from the rule. This type of analysis using IPM has undergone peer review and been upheld in federal courts. The direct cost includes, but is not limited to, capital investments in pollution controls, operating expenses of the pollution controls, investments in new generating sources, and additional fuel expenditures. The EPA believes that these costs reflect, as closely as possible, the additional costs of the Transport Rule to industry. The relatively small cost associated with monitoring emissions, reporting, and recordkeeping for affected sources is not included in these annualized cost estimates, but EPA has done a separate analysis and estimated the cost to be about $2 6 million ( see section XII.B., Paperwork Reduction Act ). However, there may exist certain costs that EPA has not quantified in these estimates. These costs may include costs of transitioning to this rule, such as the costs associated with the retirement of
s maller or less efficient EGUs, employment shifts as workers are retrained at the same company or re
- employed elsewhere in the economy, and certain relatively small permitting costs associated with Title V that new program entrants face. An optimization mo del was employed that assumes cost minimization. Costs may be understated if the regulated community chooses not to minimize its compliance costs in the same manner to comply with the rules. Although EPA has not*** E.O. 12866 Review

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Page 469 of 64 7 quantified these costs, the Agency believes that they are small compared to the quantified costs of the program on the power sector. However, EPA’s experience and results of independent evaluation suggests that costs are likely to be lower by some degree (see RIA for details). The annualized cost es timates presented are the best and most accurate based upon available information. In a separate analysis, EPA estimates the indirect costs and impacts of higher electricity prices on the entire economy. These impacts are summarized in the RIA for this fin al rule. Every benefit
- cost analysis examining the potential effects of a change in environmental protection requirements is limited to some extent by data gaps, limitations in model capabilities (such as geographic coverage), and uncertainties in the unde rlying scientific and economic studies used to configure the benefit and cost models. Gaps in the scientific literature often result in the inability to estimate quantitative changes in health and environmental effects. Gaps in the economics literature oft en result in the inability to assign economic values even to those health and environmental outcomes that can be quantified. While uncertainties in the underlying scientific and economics literatures (that may result in overestimation or underestimation of benefits) are discussed in detail in the economic analyses and its supporting documents and references,*** E.O. 12866 Review

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Page 470 of 647 the key uncertainties which have a bearing on the results of the benefit
- cost analysis of this rule include the following: • EPA’s inability to quanti fy potentially significant benefit categories; • Uncertainties in population growth and baseline incidence rates; • Uncertainties in projection of emission inventories and air quality into the future; • Uncertainty in the estimated relationships of heal th and welfare effects to changes in pollutant concentrations including the shape of the C

– R function, the size of the effect estimates, and the relative toxicity of the many components of the PM mixture; • Uncertainties in exposure estimation; and • Unc ertainties associated with the effect of potential future actions to limit emissions. Despite these uncertainties, we believe the benefit
- cost analysis provides a reasonable indication of the expected economic benefits of the rulemaking in future years un der a set of reasonable assumptions. This approach calculates a mean value across VSL estimates derived from 26 labor market and contingent valuation studies published between 1974 and 1991. The mean VSL*** E.O. 12866 Review

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Page 471 of 647 across these studies is $6.3 million (2000$). 97 The benefits estimates generated for this rule are subject to a number of assumptions and uncertainties, which are discussed throughout the RIA document. As Table VIII.C - 2 indicates, total annual monetary benefits are driven primarily by the reduction in premature mortalities each year. Some key assumptions underlying the primary estimate for the premature mortality category include the following: (1) EPA assumes inhalation of fine particles is causally associated with premature death at concentrations near t hose experienced by most Americans on a 24
- hour basis. Plausible biological mechanisms for this effect have been hypothesized for the endpoints included in the primary analysis and the weight of the available epidemiological evidence supports an assumption of causality. (2) EPA assumes all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption, because the proportion of certain components in the PM mixture produced via pr ecursors emitted from EGUs may differ significantly from direct PM released from automotive engines and other industrial

97 In this analysis, we adjust the VSL to account for a different currency year (2007$) and to account for income growth to 2014. After applying these adjustments to the $6.3 million valu e, the VSL is $8.7 million.*** E.O. 12866 Review

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Page 472 of 647 sources, but no clear scientific grounds exist for supporting differential effects estimates by particle type. (3) We assume that the health impact function for fine particles is linear down to the lowest air quality levels modeled in this analysis. Thus, the estimates include health benefits from reducing fine particles in areas with varied concentrations of PM2.5 , including both region s that are in attainment with the fine particle standard and those that do not meet the standard down to the lowest modeled concentrations. The EPA recognizes the difficulties, assumptions, and inherent uncertainties in the overall enterprise. The analyse s upon which the Transport Rule is based were selected from the peer - reviewed scientific literature. We used up
- to - date assessment tools, and we believe the results are highly useful in assessing this rule. There are a number of health and environmental e ffects that we were unable to quantify or monetize. A complete benefit
- cost analysis of the Transport Rule requires consideration of all benefits and costs expected to result from the rule, not just those benefits and costs which could be expressed here in dollar terms. A listing of the benefit categories that were not quantified or monetized in our estimate are provided in Table VIII.C - 4.*** E.O. 12866 Review

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Page 473 of 647 Table VIII.C– 4 Unquantified and Non -Monetized Effects of the Transport Rule Pollutant/ E ffect Endpoint PM: H ealth a L ow birth weight Pulmonary function Chronic respiratory diseases other than chronic bronchitis Non - asthma respiratory emergency room visits UVb exposure b PM: Welfare Household soiling Visibility in residential areas Visibility in non
- class I areas and cla ss 1 areas in NW, NE, and Central regions UVb exposure b Global climate impacts b Ozone: H ealth Chronic respiratory damage Premature aging of the lungs Non - asthma respiratory emergency room visits UVb exposure b Ozone: Welfare Yields for:

—Commercial fore sts

—Fruits and vegetables, and

—Other commercial and noncommercial crops Damage to urban ornamental plants Recreational demand from damaged forest aesthetics Ecosystem functions Increased exposure to UVb b Climate impacts NO 2 : H ealth Respiratory hospital admissions Respiratory emergency department visits Asthma exacerbation Acute respiratory symptoms Premature mortality Pulmonary function NO 2 : Welfare Commercial fishing and forestry from acidic deposition effects Commercial fishing, agriculture and fores try from nutrient deposition effects Recreation in terrestrial and estuarine ecosystems from nutrient deposition effects Other ecosystem services and existence values for currently healthy ecosystems Coastal eutrophication from nitrogen deposition effects SO 2 : H ealth Respiratory hospital admissions Asthma emergency room visits*** E.O. 12866 Review

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Page 474 of 647 Asthma exacerbation Acute respiratory symptoms Premature mortality Pulmonary function SO 2 : Welfare Commercial fishing and forestry from acidic deposition effects Recreation in terre strial and aquatic ecosystems from acid deposition effects Increased mercury methylation Mercury: H ealth Incidence of neurological disorders Incidence of learning disabilities Incidences in developmental delays Mercury: Welfare Impact on birds and mamma ls (e.g. , reproductive effects) Impacts to commercial, subsistence and recreational fishing Source: EPA a In addition to primary economic endpoints, there are a number of biological responses that have been associated with PM health effects including morphological changes and altered host defense mechanisms. The public health impact of these biological responses may be partly represented by our quantified endpoints. b May result in benefits or disbenefits . 7. What Are the Unquantified and Non
-monetized Benefits of the Transport Rule Emission Reductions? Important benefits beyond the human health and welfare benefits quantified in this section and the RIA are expected to occur from this rule. These other benefits occur directly from NO X and SO 2 emission reductions and from co
- benefits due to Transport Rule compliance. These benefits are listed in Table VIII.C - 4. Some of the more important examples include: reduced acidification and, in the case of NO X , eutrophication of water bodies; possible reduced nitr ate contamination of drinking*** E.O. 12866 Review

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Page 475 of 647 water; and reduced acid and particulate deposition that causes damages to cultural monuments, as well as, soiling and other materials damage. To illustrate the important nature of benefit categories EPA is currently unable to monetize, we discuss four categories of public welfare and environmental impacts related to reductions in emissions required by the Transport Rule: reduced acid deposition, reduced eutrophication of estuaries, reduced mercury methylation and deposition, an d reduced vegetation impairment from ozone. a. What Are the Benefits of Reduced Deposition of Sulfur and Nitrogen to Aquatic, Forest, and Coastal Ecosystems? Atmospheric deposition of sulfur and nitrogen, often referred to as acid rain, occurs when emiss ions of SO 2 and NO X react in the atmosphere (with water, oxygen, and oxidants) to form various acidic compounds. These acidic compounds fall to earth in either a wet form (rain, snow, and fog) or a dry form (gases and particles). Prevailing winds can trans port acidic compounds hundreds of miles, across state borders. Together these emissions are deposited onto terrestrial and aquatic ecosystems across the U.S., contributing to the problems of acidification. (1) Acid Deposition and Acidification of Lakes an d Streams The extent of adverse effects of acid deposition on freshwater and forest ecosystems depends largely upon the*** E.O. 12866 Review

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Page 476 of 647 ecosystem’s ability to neutralize the acid. The neutralizing ability depends largely on the watershed’s physical characteristics, such as geology, soils, and size. A key indicator of neutralizing ability is termed Acid Neutralizing Capacity (ANC). Higher ANC indicates greater ability to neutralize acidity. Acidic conditions occur more frequently during rainfall and snowmelt that cause high flows of water and less commonly during low
- flow conditions, except where chronic acidity conditions are severe. Biological effects are primarily attributable to a combination of low pH and high inorganic aluminum concentrations. Biological effects of ep isodes include reduced fish condition factor, changes in species composition and declines in aquatic species richness across multiple taxa, ecosystems and regions, as well as fish mortality. Waters that are sensitive to acidification tend to be located in small watersheds that have few alkaline minerals and shallow soils. Conversely, watersheds that contain alkaline minerals, such as limestone, tend to have waters with a high ANC. Areas especially sensitive to acidification include portions of the Northeast (particularly, the Adirondack and Catskill Mountains, portions of New England, and streams in the mid
-Appalachian highlands) and southeastern streams. This regulatory action will decrease acid deposition within and downwind of the transport region and*** E.O. 12866 Review

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Page 477 of 647 is likely to have positive effects on the health and productivity of aquatic ecosystems in the region. (2) Acid Deposition and Forest Ecosystem Impacts Acidifying deposition has altered major biogeochemical processes in the U.S. by increasing the nitrogen a nd sulfur content of soils, accelerating nitrate and sulfate leaching from soil to drainage waters, depleting base cations (especially calcium and magnesium) from soils, and increasing the mobility of aluminum. Inorganic aluminum is toxic to some tree root s. Plants affected by high levels of aluminum from the soil often have reduced root growth, which restricts the ability of the plant to take up water and nutrients, especially calcium. 98 These direct effects can, in turn, influence the response of these pla nts to climatic stresses such as droughts and cold temperatures. They can also influence the sensitivity of plants to other stresses, including insect pests and disease, 99 leading to increased mortality of canopy trees.

98 U.S. Environmental Protection Agency (U.S. EPA). 2008 . Integrated Science Assessment for Oxides of Nitrogen and Sulfur

– Ecological Criteria National (Final Report). National Center for Environmental Assessment, Research Tri ang le Park, NC. EPA/600/R
- 08/139. December. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=201485. 99 Joslin, J.D., Kelly, J.M., van Miegroet, H. 1992. Soil chemistry and nutrition of North American spruce
- fir stands: evidence for recent change. Jou rnal of Environmental Quality, 21, 12
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Page 478 of 647 Both coniferous and deciduous forest s throughout the eastern U.S. are experiencing gradual losses of base cation nutrients from the soil due to accelerated leaching from acidifying deposition. This change in nutrient availability may reduce the quality of forest nutrition over the long term. Evidence suggests that red spruce and sugar maple in some areas in the eastern U.S. have experienced declining health because of this deposition. For red spruce (Picea rubens), dieback or decline has been observed across high elevation landscapes of the n ortheastern U.S. and, to a lesser extent, the southeastern U.S. Acidifying deposition has been implicated as a causal factor. 100 This regulatory action will decrease acid deposition within and downwind of the transport region and is likely to have positive effects on the health and productivity of forest systems in the region. b. Coastal Ecosystems Since 1990, a large amount of research has been conducted on the impact of nitrogen deposition to coastal waters. Nitrogen is often the limiting nutrient in coa stal ecosystems. Increasing the levels of nitrogen in coastal waters can cause significant changes to those ecosystems. In recent decades, human activities
100 DeHayes, D.H., P.G. Schaberg, G.J. Hawley, and G.R. Strimbeck. 1999. Acid rain impacts on calcium nutrition and forest health. Bioscience 49(10):789

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Page 479 of 647 have accelerated nitrogen nutrient inputs, causing excessive growth of algae and leading to degraded water quality and associated impairments of estuarine and coastal resources. Atmospheric deposition of nitrogen is a significant source of nitrogen to many estuaries. The amount of nitrogen entering estuaries due to atmospheric deposition varies widely, depending on the size and location of the estuarine watershed and other sources of nitrogen in the watershed. A recent assessment of 141 estuaries nationwide by the National Oceanic and Atmospheric Administration (NOAA) concluded that 19 estuaries (13 perc ent) suffered from moderately high or high levels of eutrophication due to excessive inputs of both N and phosphorus, and a majority of these estuaries are located in the coastal area from North Carolina to Massachusetts. 101 For estuaries in the Mid
-Atlantic region, the contribution of atmospheric distribution to total N loads is estimated to range between 10 percent and 58 percent. 102 Eutrophication in estuaries is associated with a range of adverse ecological effects. The conceptual framework developed by NOAA emphasizes four main types of eutrophication effects:
101 National Oceanic and Atmospheric Administration (NOAA) . 2007. Annual Commercial Landing Statistics. August . http://www.st.nmfs.noaa.gov/st1/commercial/landings/annual_landi ngs.html . 102 Valigura, R.A., R.B. Alexander, M.S. Castro, T.P. Meyers, H.W. Paerl, P.E. Stacy, and R.E. Turner. 2001. Nitrogen Loading in Coastal Water Bodies: An Atmospheric Perspective. Washington, DC: American Geophysical Union .*** E.O. 12866 Review

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Page 480 of 647 low dissolved oxygen (DO), harmful algal blooms (HABs), loss of submerged aquatic vegetation (SAV), and low water clarity. Low DO disrupts aquatic habitats, causing stress to fish and shellfish, which, in the short
- term, can lead to episodic fish kills and, in the long
- term, can damage overall growth in fish and shellfish populations. Low DO also degrades the aesthetic qualities of surface water. In addition to often being toxic to fish and shellfish, and leading to fish kills and aesthetic impairments of estuaries, HABs can, in some instances, also be harmful to human health. SAV provides critical habitat for many aquatic species in estuaries and, in some instances, can also protect shorelines by redu cing wave strength. Therefore, declines in SAV due to nutrient enrichment are an important source of concern. Low water clarity is the result of accumulations of both algae and sediments in estuarine waters. In addition to contributing to declines in SAV, high levels of turbidity also degrade the aesthetic qualities of the estuarine environment. Estuaries in the eastern United States are an important source of food production, in particular fish and shellfish production. The estuaries are capable of suppo rting large stocks of resident commercial species, and they serve as the breeding grounds and interim habitat for several migratory species.*** E.O. 12866 Review

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Page 481 of 647 This rule is anticipated to reduce nitrogen deposition within and downwind of the Transport Rule states . Thu s, reductions in the levels of nitrogen deposition will have a positive impact upon current eutrophic conditions in estuaries and coastal areas in the region. c. Mercury Methylation and Deposition Mercury is a highly neurotoxic contaminant that enters th e food web as a methylated compound, methylmercury. 103 The contaminant is concentrated in higher trophic levels, including fish eaten by humans. Experimental evidence has established that only inconsequential amounts of methylmercury can be produced in the absence of sulfate. Current evidence indicates that in watersheds where mercury is present, increased SO X deposition very likely results in methylmercury accumulation in fish. 104 , 105 The SO 2 ISA concluded that evidence is sufficient to infer a
103 U.S. Environmental Protection Agency (U.S. EPA). 2008. Integrated Science Assessment for Sulfur Oxides
- Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. September. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843 . 104 Drevnick, P.E., D.E. Canfield, P.R. Gorski, A.L.C. Shinneman, D.R. Engstrom, D.C.G. Muir, G.R. Smith, P.J. Garrison, L.B. Cleckner, J.P. Hurley, R.B. Noble, R.R. Otter, and J.T. Oris. 2007. Deposition and cycling of sulfur controls mercury accumulation in Isle Royale fish. Environmental Science and Technology 41(21):7266

– 7272. 105 Munthe, J., R.A. Bodaly, B.A. Branfireun, C.T. Dri scoll, C.C. Gilmour, R. Harris, M. Horvat, M. Lucotte, and O. Malm. 2007. Recovery of mercury - contaminated fisheries. AMBIO:A Journal of the Human Environment 36:33

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Page 482 of 647 casual relationsh ip between sulfur deposition and increased mercury methylation in wetlands and aquatic environments. d. Ozone Vegetation Effects Ozone causes discernible injury to a wide array of vegetation. 106 In terms of forest productivity and ecosystem diversity, ozon e may be the pollutant with the greatest potential for regional
- scale forest impacts. 107 Studies have demonstrated repeatedly that ozone concentrations commonly observed in polluted areas can have substantial impacts on plant function. 108 , 109 Assessing the impa ct of ground - level ozone on forests in the eastern United States involves understanding the risks to sensitive tree species from ambient ozone concentrations and accounting for the prevalence of those species within the forest. As a way to quantify the ris ks to particular plants from ground - level ozone, scientists have developed ozone
-

106 Fox, S., Mickler, R. A. (Eds.). 1996. Impact of Air Pollutants on Southern Pine Fo rests. Ecological Studies. (Vol. 118, 513 pp.) New York: Springer
-Verlag. 107 U.S. Environmental Protection Agency (U.S. EPA). 2006. Air Quality Criteria for Ozone and Related Photochemical Oxidants (Final). EPA/600/R
- 05/004aF
- cF. Washington, DC: U.S. E PA. February. http://cfpub.epa.gov/ncea/CFM/recordisplay.cfm?deid=149923 . 108 De Steiguer, J., Pye, J., Love, C. 1990. Air Pollution Damage to U.S. Forests. Journal of Forestry, 88(8), 17
- 22. 109 Pye, J.M. 1988. Impact of ozone on the growth and yield of t rees: A review. Journal of Environmental Quality, 17, 347
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Page 483 of 647 exposure/tree
- response functions by exposing tree seedlings to different ozone levels and measuring reductions in growth as ‘‘biomass loss.’’ Typically, seedlings are used bec ause they are easy to manipulate and measure their growth loss from ozone pollution. The mechanisms of susceptibility to ozone within the leaves of seedlings and mature trees are identical, and the decreases predicted using the seedlings should be related to the decrease in overall plant fitness for mature trees, but the magnitude of the effect may be higher or lower depending on the tree species. 110 In areas where certain ozone
- sensitive species dominate the forest community, the biomass loss from ozone can be significant. Significant biomass loss can be defined as a more than 2 percent annual biomass loss, which would cause long
term ecological harm as the short
- term negative effects on seedlings compound to affect long
- term forest health. 111 Urban ornamental s are an additional vegetation category likely to experience some degree of negative effects associated with exposure to ambient ozone levels. Because ozone causes visible foliar injury, the aesthetic value of ornamentals (such as petunia, geranium, and po insettia) in urban landscapes would

110 Chappelka, A.H., Samuelson, L.J. 1998. Ambient ozone effects on forest trees of the eastern United States: a review. New Phytologist, 139, 91
- 108. 111 Heck, W.W. &Cowling E.B. 1997. The nee d for a long term cumulative secondary ozone standard

– an ecological perspective. Environmental Management, January, 23
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Page 484 of 647 be reduced. Sensitive ornamental species would require more frequent replacement and/or increased maintenance (fertilizer or pesticide application) to maintain the desired appearance because of exposure to ambient ozone. 112 In addition, many businesses rely on healthy
- looking vegetation for their livelihoods (e.g., horticulturalists, landscapers, Christmas tree growers, farmers of leafy crops, etc.) and a variety of ornamental species have been listed as sensitive to ozone. 113 D. Costs and Employment Impacts 1. Transport Rule Costs and Employment Impacts For the affected region, the projected annual private incremental costs of the rule to the power industry are $1. 4 billion in 2012 and $0.8 billion in 2014. These costs rep resent the private compliance cost to the electric generating industry of reducing NO X and SO 2 emissions to meet the requirements set forth in the rule. Estimates are in 2007 dollars.

112 U.S. Environmental Protection Agency (U.S. EPA). 2007. Review of the National Ambient Air Quality Standards for Ozone: Policy a ssessment of scientific and technical information. Staff paper. Office of Air Quality Planning and Standards. EPA- 452/R
- 07
- 007a. July. http://www.epa.gov/ttn/naaqs/standards/ozone/data/2007_07_ozone_ staff_paper.pdf. 113 Abt Associates, Inc. 2005. U.S. EPA. Urban ornamental p lants: sensitivity to ozone and potential economic losses. Memorandum to Bryan Hubbell and Zachary Pekar .*** E.O. 12866 Review

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Page 485 of 647 In estimating the net benefits of regulation, the appropriate cost meas ure is ‘‘social costs.’’ Social costs represent the welfare costs of the rule to society. These costs do not consider transfer payments (such as taxes) that are simply redistributions of wealth. The social costs of this rule are estimated to be approximately $0.8 billion annually in 2014. Overall, the economic impacts of the Transport Rule are modest in 2014, particularly in light of the large benefits ($1 2 0 to $2 8 0 billion annually at a 3 percent discount rate and $ 110 to $2 5 0 billion annually at a 7 pe rcent discount rate) we expect as shown in section XII.A. of this preamble. Ultimately, we believe the electric power industry will pass along most of the costs of the rule to consumers, so that the costs of the rule will largely fall upon the consumers o f electricity. For more information on electricity price changes that result from this final rule, please refer to section XII.H (Statement of Energy Effects) later in this preamble. For this rule, EPA analyzed the costs using the Integrated Planning Mode l (IPM). The IPM is a dynamic linear programming model that can be used to examine the economic impacts of air pollution control policies for SO 2 and NO X throughout the contiguous United States for the entire power system. Documentation for IPM can be fo und in the docket for this*** E.O. 12866 Review

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Page 486 of 647 rulemaking or at http://www.epa.gov/airmarkets/progsregs/epa
ipm/index.html . EPA also included an analysis of impacts of the final rule to industries outside of the electric power sector by using the Multi
-Market Model. This model is a partial equilibrium economic impact model that includes 100 sectors that cover energy, manufacturing, and service applications and is designed to capture the short - run effects associated with an environmental regulation. This model was used to estimate economic impacts for the proposed MATS , and the promulgated industrial boilers major and area source standards and CISWI standard. We use the Multi
-Market Model to estimate the social costs of the final rule. Using this model, we estimate t he social costs of the final rule to be approximately $0.8 billion (2007 dollars), which is close to the compliance costs [will insert final results when available and change associated text if necessary]. Documentation for the Multi
-Market Model can be found in the RIA for this final rule. Also note that as explained in section V.B (Baseline for Pollution Transport Analysis), the baseline used in this analysis assumes no CAIR. If EPA’s base case analysis were to assume that reductions from CAIR would c ontinue indefinitely, areas that are in attainment solely due to controls required by*** E.O. 12866 Review

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Page 487 of 647 CAIR would again face nonattainment problems because the existing protection from upwind pollution would not be replaced. As explained in that section, EPA believes that this is the most appropriate baseline to use for purposes of determining whether an upwind state has an impact on a downwind monitoring site in violation of section 110(a)(2)(D). Although a stand - alone analysis of employment impacts is not included in a s tandard cost - benefit analysis, the current economic climate has led to heightened concerns about potential job impacts. Such an analysis is of particular concern in the current economic climate as sustained periods of excess unemployment may introduce a wedge between observed (market) wages and the social cost of labor. In such conditions, the opportunity cost of labor required by regulated sectors to bring their facilities into compliance with an environmental regulation may be lower than it would be dur ing a period of full employment (particularly if regulated industries employ otherwise idled labor to design, fabricate, or install the pollution control equipment required under this rule). For that reason, EPA also includes estimates of job impacts
ass ociated with the final rule. EPA presents an estimate of short - term employment opportunities as a result of increased demand for pollution control equipment. Overall, the results*** E.O. 12866 Review

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Page 488 of 647 suggest that the final rule could support a net of roughly 2,250 job
- years in direct employment impacts in 2014. The basic approach to estimate these employment impacts involved using projections from IPM from the final rule analysis such as the amount of capacity that will be retrofit with control technologies, for various ener gy market implications, along with data on labor and resource needs of new pollution controls and labor productivity from secondary sources, to estimate employment impacts for 2014. This analysis was also applied for the proposed MATS . For mor e information, please refer to Appendix D of the RIA for the final Transport Rule .” EPA relied on Morgenstern, et al. (2002), a study that is a basis for employment impacts estimated for the final industrial boiler major and area source rules and CISWI standard, and the proposed MATS . The Morgenstern study identifies three economic mechanisms by which pollution abatement activities can indirectly influence jobs: (1) higher production costs raise market prices, higher prices reduce consumption, and employment within an industry falls (“demand effect”); (2) pollution abatement activities require additional labor services to produce the same level of output (“cost effect”); and (3) post regulation production technologies may be more or less labor intensive (i.e., more/less labor is required per dollar of output) (“factor - shift effect”).*** E.O. 12866 Review

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Page 489 of 647 Using plant
- level Census information between the years 1979 and 1991, Morgenster n, et al., estimate the size of each effect for four polluting and regulated industries (petroleum, plastic material, pulp and paper, and steel). On average across the four industries, each additional $1 million spending on pollution abatement results in an small net increase of 1.6 jobs; the estimated effect is not statistically significant different from zero. As a result, the authors conclude that increases in pollution abatement expenditures do not necessarily cause economically significant employment changes. The conclusion is similar to Berman and Bui ( 2001 ) who found that increased air quality regulation in Los Angeles did not cause large employment changes. For more information, please refer to the RIA for this final rule.

The ranges of job effects calculated using the Morgenstern, et al., approach are listed in Table V I II.D - 1 .

Table VIII.D - 1 . Range of Job E ffects for the E lectricity Sector Estimates using Morgenstern, et al. (2002) Demand Effect Cost Effect Factor Shift Effect Net Effect Change in Full - Time Jobs per Million − 3.56 2.42 2.68 1.55*** E.O. 12866 Review

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Page 490 of 647 Dollars of Environmental Expenditure a Standard Error 2.03 0.83 1.35 2.24

EPA E stimate for Final Rule b +200 to -

3,000 +400 to 2,000 0 to 2,000
- 1,000 to +3,000

a Expressed in 1987 dollars. See footnote a of Table 8
- 3 in the RIA for inflation adjustment factor used in the analysis. b According to the 2007 Economic Census, the electric power generation, transmission and distribution sector (NAICS 2211) had approximately 510,000 paid employees. EPA recognizes there may be other job effects which are not considered in t he Morgenstern, et al., study. Although EPA has considered some economy
- wide changes in industry output as shown earlier with the Multi
-Market model, we do not have sufficient information to quantify other associated job effects associated with this rule. 2. End
- Use Energy Efficiency EPA believes that achievement of energy efficiency improvements in homes, buildings, and industry (EE) is an important component of achieving emission reductions from the power sector while minimizing associated compliance cos ts. By reducing electricity demand, energy efficiency avoids emissions of all pollutants associated with electricity generation, including emissions of NO X and SO 2 targeted by this final rule and reduces the need for investments in EGU emissions control*** E.O. 12866 Review

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Page 491 of 647 te chnologies in order to meet emission reduction requirements. Moreover, energy efficiency can often be implemented at a lower cost than traditional control technologies. EPA recognizes that significant opportunities remain for energy efficiency improveme nts in businesses, homes, and industry. However, there are several informational and market barriers that limit investment in cost
- effective energy efficient practices. Several federal programs authorized under the CAA, including ENERGY STAR, are designe d to address these barriers. Congress, EPA, and states have all recognized the value of incorporating energy efficiency into air regulatory programs. Several allowance - based programs -- including the Acid Rain Program, EPA’s NO X Budget Trading program, a nd the Regional Greenhouse Gas Initiative (an effort of 10 states from the Northeast and Mid
-Atlantic regions)
- – have provided mechanisms for rewarding energy efficiency through either the award of allowances, typically through the use of a fixed set
- aside pool, or the use of revenues obtained through the auction of allowances. The emissions caps established by these programs are unaffected by this approach. However, to the extent electricity demand reductions are realized, compliance costs are reduced. In addition to these allowance
- based programs, EPA has*** E.O. 12866 Review

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Page 492 of 647 also provided guidance 114 concerning the recognition, in SIPs, of emission reduction benefits of energy efficiency and has approved the inclusion of EE measures in individual SIPs. 115 While all remedy opt ions considered in the proposed rule would have lead to an increase in the relative cost
effectiveness of EE investments by internalizing environmental costs associated with emission of these pollutants, EPA took comment on whether EPA has authority, and whether it would be appropriate for EPA, to consider EE in developing the allowance allocation methodology and to consider other approaches for encouraging EE in the Transport Rule. Some commenters suggested that EPA has authority to consider EE in developi ng the allocation methodology. Other commenters do not believe EPA has the authority to consider EE. Some commenters suggested that EPA should establish an EE set - aside provision. Other commenters suggested that EPA should allow, and help, states to es tablish EE set
- asides as states transition from Transport Rule FIPs to SIPs. EPA believes that,
114 U.S. EPA. 2004. Guidance on State Implementation Plan (SIP) Credits for Emission Reductions from Electric
- Sector Energy Effici ency and Renewable Energy Measures. http://www.epa.gov/ttn/oarpg/t1/memoranda/ereseerem_gd.pdf 115 Metropolitan Washington Council of Governments developed a regional air quality plan for the eight
- hour ozone standard for the DC Region non
- attainment area that included an EE measure. The plan was adopted by Virginia, Maryland, and the District of Columbia and the respective ozone SIPs were approved by the EPA regions in 2007.*** E.O. 12866 Review

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Page 493 of 647 while EE set
- asides can be effective at encouraging incremental investments in EE, EE set
- asides are more likely to be more practically and effectively impleme nted at the state level. Establishing EE set
- asides in the allowance allocation provisions in the final rule would not allow for the tailoring of the set - asides to the unique characteristics of individual states and would not build on the existing EE prog ram delivery infrastructure that many states already possess. Instead of establishing EPA
- administered EE set
- asides in the final rule, EPA is clarifying that it allows and supports EE set
- asides (including auction
- based approaches) in abbreviated or ful l SIPs that states may submit, as provided in the final rule. Under this approach states have the ability to implement EE set
- asides tailored to their state circumstances if they choose. EPA anticipates providing additional information in the future for states on EE set - asides, as needed. 116 As discussed elsewhere in this preamble, the final rule provides for submission and approval of abbreviated and full SIPs providing for continued state participation in the Transport Rule trading programs and adopting alternative

116 Because the question of EPA authority to create EE set
- asides in the FIPs would be best addressed in the context of actual FIP provisions for EPA
- created EE set - asides and EPA is, for other reasons, not adopting such provisions in the final rule, EPA is not addressing in the final rule the question of EPA’s authority.*** E.O. 12866 Review

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Page 494 of 647 allowance allocation methodologies (which may include EE set
asides) to the allocation methodologies adopted in the FIPs. While the final rule establishes certain requirements for approval of any such alternative allocation methodology, the fi nal rule provides states flexibility to create state
implemented EE set
- asides. IX. Related Programs and the Transport Rule A. Transition from the Clean Air Interstate Rule 1. Key Differences between the Transport Rule and CAIR The Transport Rule replace s CAIR and its associated trading programs. There are a number of differences between implementation of the Transport Rule and implementation of CAIR. This section describes key implementation differences including differences in states covered, complian ce deadlines, applicability, structure of the remedy, provisions for early reductions, and provisions for SIPs. The next section discusses the transition from CAIR to the Transport Rule. States covered . The states covered by the Transport Rule differ somewhat from states covered by CAIR. This section summarizes differences in state coverage. EPA’s approach to determine states covered by the Transport Rule is discussed in sections V and VI of this preamble.*** E.O. 12866 Review

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Page 495 of 647 The Transport Rule’s SO 2 and annual NO X requirements apply to covered sources in the 23 states listed in Table III
- 1 in section III of this preamble. CAIR’s SO 2 and annual NO X requirements applied to covered sources in 25 states. There are many states in common between the Transport Rule and CAIR SO 2 and annual NO X programs. The differences are summarized in Table IX.A- 1. Table IX.A- 1 - Differences in SO2 and Annual NOX State Coverage

between the Transport Rule and CAIR State Transport Rule SO2 and Annual NOX Programs CAIR SO2 and Annual NOX Programs Kansas Yes No Minnesota Yes No Nebraska Yes No Delaware No Yes District of Columbia No Yes Florida No Yes Louisiana No Yes Mississippi No Yes
The Transport Rule’s ozone - season NO X requirements apply to covered sources in the 20 states listed in Table III
- 1 in section III of this preamble, while CAIR’s ozone
- season NO X requirements applied to 26 states. There are many states in common between the Transport Rule and CAIR ozone - season NO X programs. The differences are summarized in Table IX.A
- 2 .*** E.O. 12866 Review

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Page 496 of 647 Table IX.A- 2 - Differences in Ozone - Season NOX State Coverage

between the Transport Rule and CAIR State Transport Rule Ozone Season NOX Program CAIR Ozone - Season NOX Program Georgia Yes No Texas Yes No Connecticut No Yes Delaware No Yes District of Columbia No Yes

Iowa No Yes Massachusetts No Yes Michigan No Yes Missouri No Yes Wisconsin No Yes
In addition, EPA is proposing a supplemental notice to apply Transport Rule ozone - season requirements to the states of Iowa, Kansas, Michigan, Miss ouri, Oklahoma, and Wisconsin, as discussed in section III of this preamble. The transition from CAIR to the Transport Rule is discussed in the next section and State Implementation Plans (SIPs) are discussed in section X of this preamble. Compliance deadl ines . The first phase of Transport Rule reductions commences January 1, 2012 for annual NO X and SO 2 requirements and May 1, 2012 for ozone
- season NO X requirements. The second phase commences January 1, 2014 for annual NO X and SO 2 requirements and May 1, 2014 for ozone
- season NO X requirements.*** E.O. 12866 Review

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Page 497 of 647 In contrast, the first phase of CAIR NO X reductions commenced January 1, 2009 for annual NO X requirements and May 1, 2009 for ozone
- season NO X requirements. On January 1, 2010, the first phase of CAIR SO 2 requiremen ts commenced. However, in anticipation of CAIR, SO 2 reductions actually started as early as 2006 because of the incentive to reduce emissions and bank Title IV Acid Rain Program SO 2 allowances for use when their value would increase under CAIR in 2010 and later. The second phase of CAIR reductions would have (if not replaced by the Transport Rule) commenced January 1, 2015 for annual NO X and SO 2 requirements, and May 1, 2015 for ozone
- season NO X requirements. Applicability . Except for the changes to the states covered, the general applicability provisions of the final Transport Rule trading programs are essentially the same as the CAIR general applicability provisions, with a few exceptions. First, the final Transport Rule does not allow any non
covered u nits to opt into the trading programs, for the reasons discussed in section VII.B of this preamble. In contrast, under CAIR, through SIPs the states could elect to allow boilers, combustion turbines, and other combustion devices to opt into the CAIR tradi ng programs under opt - in provisions specified by EPA. Second, the Transport Rule FIPs ’ ozone - season NO X trading program applicability provisions do not cover NO X SIP Call small*** E.O. 12866 Review

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Page 498 of 647 EGUs and non - EGUs that a number of CAIR states brought into the CAIR ozone - seas on NO X trading program. The Transport Rule does allow any state in the ozone
- season NO X program, through SIPs, to expand the applicability of the Transport Rule ozone
- season NO X trading program to cover small EGUs. However, the Transport Rule does not al low states to expand the applicability to cover NO X SIP Call non - EGUs, for the reasons discussed elsewhere in this preamble. In contrast, in the CAIR trading programs, a NO X SIP Call state could expand the applicability of the CAIR ozone
- season NO X trading program in the state in order to include all units subject to the NO X Budget Trading Program under the NO X SIP Call. A number of states chose to expand the CAIR ozone - season NO X trading program applicability in this way. The transition from CAIR to the Transport Rule is discussed in the following section and SIPs are discussed in section X of this preamble. Structure of the remedy . The CAIR FIPs (and CAIR model trading rules adopted by a number of states in their CAIR SIPs) implemented reductions through SO 2 , annual NO X , and ozone - season NO X interstate emissions trading programs covering primarily large EGUs. The owners and operators of a covered source could buy allowances from or sell allowances to other covered sources (or other market participants) and were required to surrender allowances equal to the source’s emissions for each compliance*** E.O. 12866 Review

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Page 499 of 647 period. CAIR’s trading programs did not impose limitations on the aggregate emissions from covered units within any covered st ate . The Transport Rule FIPs will also achieve the required reductions through SO 2 , annual NO X , and ozone - season NO X interstate trading programs. However, in contrast to CAIR and for the reasons discussed in section VII of this preamble, the Transport Rul e FIPs include assurance provisions specifically designed to ensure that no state’s emissions will exceed that state’s emission budget plus the variability limit, i.e., the state’s assurance level. Another difference in the remedy structure is in the design of the SO 2 trading programs. In CAIR all of the states required to reduce SO 2 emissions were grouped together in one SO 2 trading program with no restriction on the use of SO 2 allowances from any state in the program by any source in the program. In con trast, and for the reasons discussed in section VI of this preamble, the Transport Rule divides states required to reduce SO 2 emissions into two groups with emission reduction requirements of different stringency starting in 2014 ( SO 2 Group 1, whose reduct ion requirements become more stringent starting in 2014, and SO 2 Group 2, whose reduction requirements in 2014 and thereafter do not change). A covered source may only use for compliance
-- with the requirements to hold allowances covering*** E.O. 12866 Review

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Page 500 of 647 emissions and, if applicable, to surrender allowances under the assurance provisions
-- an SO 2 allowance issued for the SO 2 Group in which the source’s state is included. In other words, an SO 2 Group 1 source may only use a SO 2 Group 1 allowance for compliance, and likewise an SO 2 Group 2 source may only use a SO 2 Group 2 allowance for compliance. Provisions for early reductions . CAIR included provisions for covered sources to make early reductions prior to the start of CAIR’s SO 2 and NO X trading programs, bank emission allowances, and carry banked allowances into its trading programs. In contrast, the Transport Rule does not include provisions for covered sources to carry over any allowances (i.e., Title IV SO 2 allowances or CAIR annual or ozone - season NO X allowances) into the Transport Rule trading programs. EPA’s reasons for not allowing the use of banked Title IV SO 2 allowances or CAIR annual
or ozone - season NO X allowances in the Transport Rule trading programs are discussed in the next section. Provisions for SIPs . The following is a summary of the key differences between the Transport Rule and CAIR provisions for SIPs. A more detailed discussion of Transport Rule SIPs is in section X of this preamble. The SIP provisions in the Transport Rule and CAIR are very similar. Both include provisions that allow states to submit SIP revisions (referred to as full SIPs) that replace an*** E.O. 12866 Review

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Page 501 of 647 applicable FIP trading program with a comparable SIP trading program that has certain limited differences from the FIP trading program. Similarly, both rules include provisions that allow states to submit SIP revisions (referred to as abbreviated SIPs) that may modify certain limited provisions in the FIP trading program, which remain in place. Inclusion of this provision in the Transport Rule allows a state to modify certain elements of a Transport Rule FIP trading program in order to better meet the needs of the state. Both the Transport Rule and CAIR allow full or abbreviated SIPs that involve one or more applicable FIP trading programs. However, there are a few differences. In particular, under the Transport Rule, states may submit SIP revisions under which the state determines allocations for the applicable trading program using either full or abbreviated SIP revisions. States could s ubmit similar revisions under CAIR. Under the Transport Rule, the state may use the same allocation methodology as that currently used in the Transport Rule FIP trading program or some other allocation methodology. However, if some other methodology is u sed, the Transport Rule specifies certain requirements that must be met concerning, for example, the timing of such allocation determinations, and expressly allows allowance auctions to be used. CAIR did not include similar provisions . Further, the SIP s ubmission*** E.O. 12866 Review

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Page 502 of 647 deadlines, allocation submission, and allocation recordation dates are different between the Transport Rule and CAIR. The Transport Rule SIP submission deadlines and allocation recordation dates are discussed in section X of this preamble. In addition, both the Transport Rule and CAIR include provisions that allow states to submit SIP revisions under which the state expands the general applicability provisions of the
ozone - season NO X trading programs to cover certain units subject to the NO X SIP Call. However, for the reasons discussed elsewhere in this preamble, this flexibility is more limited in the Transport Rule than it was in CAIR. While CAIR allowed states to adopt, through full or abbreviated SIPs, opt
- in provisions, the Transport Rule do es not allow for opt - in provisions. The reasons for this are discussed in section VII.B of this preamble. Details of the Transport Rule provisions for abbreviated and full SIP revisions, including deadlines for submission to EPA, are discussed in section X of this preamble. 2. Transition from the Clean Air Interstate Rule to the Transport Rule The Transport Rule replaces CAIR and its associated trading programs. This section elaborates on areas of transition from CAIR to the Transport Rule. a. Sunsetting o f CAIR, CAIR SIPs, and CAIR FIPs*** E.O. 12866 Review

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Page 503 of 647 The proposal explained that, for control period in 2012 and thereafter, CAIR, CAIR SIPs, and CAIR FIPs would be replaced entirely by the Transport Rule provisions. The proposal outlined implementation of the sunsetting of CAIR and CAIR FIPs, through revisions to CAIR, §§ 51.123 and 51.124, and the CAIR FIPs, §§ 52.35 and 52.36. For the control period in these years, the CAIR trading programs would not continue, and the Administrator would not carry out any of the functions established for the Administrator in the CAIR model trading rule, the CAIR FIPs, or any state trading programs approved under CAIR. Offset and automatic penalty provisions under CAIR would not apply to excess emissions for 2011 control periods. Also di scussed were the processes for modifying provisions in Part 52 reflecting state
- specific CAIR SIP and CAIR FIP requirements, which would vary depending on whether a state has an approved CAIR SIP or a CAIR FIP. The proposal further explained that sources in some states covered by CAIR or the CAIR FIPs would not be subject to the Transport Rule and that to the extent that CAIR reductions were needed or relied upon to satisfy other SIP requirements, states might need to find alternative ways to satisfy requi rements for their SIPs. EPA is finalizing regulatory changes to sunset CAIR and the CAIR FIPs. The final rule revises the general CAIR and CAIR FIP provisions in Parts 51 and 52 applicable to all CAIR states.*** E.O. 12866 Review

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Page 504 of 647 For control periods in 2012 and thereafter, t he Administrator rescinds the determination that states must meet SIP requirements under CAIR, and the requirements of the CAIR FIPs are not applicable. Further, with regard to these control periods, the Administrator will no longer carry out any of the functions established for the Administrator in the CAIR model trading rule, the CAIR FIPs, or any state trading programs approved under CAIR with the exception of enforcing the provisions for the previous control periods, if necessary . For the reasons dis cussed in the proposed rule preamble (75 FR 45337), CAIR allowances allocated for these control periods cannot be used in any CAIR trading program and, as discussed below, in any Transport Rule trading program. Specifically, for the reasons discussed in t he proposed rule, offset and automatic allowance penalty provisions in the CAIR trading programs will not be applied to 2011 control period excess emissions, which will remain subject to discretionary civil penalties under CAA section 113. EPA still retai ns all enforcement options for excess emissions during the 2011 control period. CAIR allowances allocated for 2012 and thereafter are not usable in any CAIR or Transport Rule trading program. In light of that fact, in order to prevent any confusion by owners and operators and other members of the public concerning the status of such allowances, the final rule provides that, within 90 days after*** E.O. 12866 Review

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Page 505 of 647 publication of the final Transport Rule, the Administrator will remove post - 2011 CAIR Annual NO X and Ozone - Seaso n allowances from the Allowance Tracking System.

The CAIR SO 2 trading program, of course, uses Acid Rain allowances, which will remain in the Allowance Tracking System because they were created by CAA Title IV and continue to be usable in the Acid Rain P rogram. The final rule also adopts the discussion in the proposed rule concerning state
- specific Part 52 provisions concerning CAIR (75 FR 45337
- 38). With regard to Part 52 provisions reflecting EPA’s adoption of an ongoing CAIR FIPs for some individual states, the final rule revises the CAIR FIP provisions to make them inapplicable to control periods in 2012 and thereafter and to require the Administrator to remove from the Allowance Tracking System, CAIR allowances for these control periods. The final , state - specific CAIR FIP provisions in Part 52 essentially echo the language in the final, general CAIR provisions in Part 52 discussed above. In making the CAIR FIP provisions inapplicable to control period in 2012 and thereafter, the final, state
- speci fic provisions sunset the applicable CAIR FIP trading programs whether or not the CAIR FIPs were revised by approved, abbreviated CAIR SIPs. (Under CAIR, abbreviated CAIR SIPs were adopted by certain states so that states, rather than EPA, made NO X allowa nce allocations.)*** E.O. 12866 Review

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Page 506 of 647 Consequently, states with approved, abbreviated CAIR SIPs will not need to revise their abbreviated CAIR SIPs in order to sunset the CAIR trading programs to which these abbreviated SIPs applied. Thus, although such abbreviated SIPs may remain in the state SIPs, they will have no force and effect once the CAIR FIPs sunset. With regard to Part 52 provisions reflecting EPA’s approval of full CAIR SIPs submitted to EPA by many individual states, the Court’s North Carolina decision essentiall y overrides these Agency approvals of individual CAIR SIPs. (Under CAIR, full CAIR SIPs were adopted by certain states to replace CAIR FIPs but continue to participate in the CAIR trading programs.) The Court found CAIR to be illegal and only allowed it to remain in effect temporarily. For this reason, the CAIR SIPs though approved, can have no force and effect once CAIR is replaced by this rule. For this reason, although the proposed rule indicated that states would need to submit SIP revisions to,
amo ng other things, make the CAIR SIPs inapplicable to control periods after 2011, the final rule does not require states to take any actions to revise their full or abbreviated CAIR SIPs. For states covered by CAIR or CAIR FIPs that are not subject to the T ransport Rule and have relied on CAIR reductions to satisfy other SIP requirements, EPA will discuss with states alternative ways to satisfy requirements for those SIP requirements, e.g.,*** E.O. 12866 Review

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Page 507 of 647 through intrastate cap and trade programs that require the level of reductions on which the state has recently relied. b. NO X SIP Call Units The NO X Budget Trading program was used by states to reduce
ozone - season NO X emissions from EGUs and large non
- EGUs under NO X SIP Call requirements. The program started in 2003 and e nded in 2008. Under CAIR, a state subject to the NO X SIP Call was allowed to expand the applicability of the CAIR ozone - season NO X trading program in the state in order to include all units subject to the NO X Budget Trading Program under the NO X SIP Call and thereby to continue to meet the state’s NO X SIP Call requirements. Fourteen states chose to expand the CAIR ozone season NO X applicability in this way, while six states chose not to expand the applicability and instead to meet their NO X SIP Call oblig ations in other ways. EPA proposed to not allow this expansion in applicability for the Transport Rule, primarily because these sources as a group did not actually reduce emissions for the NO X Budget Trading Program or CAIR. EPA took comment on the propo sed approach. Several commenters generally advocated allowing, at state discretion, all NO X Budget Trading Program units to be regulated under the Transport Rule ozone - season NO X trading program. Some also questioned how states would otherwise satisfy NO X SIP Call requirements for these units. Some commenters argued that some*** E.O. 12866 Review

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Page 508 of 647 units did in fact make emission reductions in the NO X Budget Trading Program, but did not provide information on specific units. The final rule provides states an option to expand the general applicability provisions of the Transport Rule ozone season NO X trading program to cover small EGUs, but not other units in the NO X SIP Call. Specifically, consistent with the comments, EPA determined that it is appropriate to allow states to expand the applicability of the Transport Rule Ozone - Season NO X trading program to include units serving a generator with a nameplate capacity equal to or greater than 15 MWe producing electricity for sale. This will allow states with NO X SIP Call obligat ions to meet those requirements with respect to these small EGUs. These units can be brought into the program through abbreviated or full Transport Rule SIPs. However, if a state chooses to expand the general applicability provisions, the state Transport Rule Ozone - Season NO X budget cannot be increased. EPA believes that the level of emissions from small EGUs is sufficiently small that the existing Transport Rule state budget can accommodate these units. This is consistent with the approach taken in the NO X Budget Trading Program, where the states that added these small EGUs did not increase their NO X SIP Call EGU budgets. This also removes concern (expressed in the proposed rule) that increasing state budgets in the Transport*** E.O. 12866 Review

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Page 509 of 647 Rule ozone - season NO X trad ing program, as part of the expansion of the applicability provisions to include small EGUs, would jeopardize elimination of a state’s significant contribution to nonattainment and interference with maintenance. With regard to large non
- EGUs that were in cluded in the NO X Budget Trading Program (the remainder of the sources in the NO X Budget Trading Program), the final Transport Rule, like the proposed rule, does not allow expansion of the general applicability provisions for the ozone - season NO X trading p rogram to include such units. As explained in the proposed rule (75 FR 43340), while some of these units may have installed controls around the start of the NO X Budget Trading Program, EPA analysis shows that, as a group, these units did not collectively reduce emissions, their current emission rates are nearly identical to their emission rates before the start of the NO X Budget Trading Program, and their allocations are about twice their emissions, with the result that the excess allocations were sold to covered EGUs. 117 Moreover, EPA believes that there are little or no emission reductions available by non
- EGUs at the cost thresholds used in the final rule and so no basis for developing for non
-
117 Although the proposed rule discussed the EPA analysis in the context of considering the treatment of both small EGUs and large non - EGUs from the NO X Budget Trading Program, the analysis actually addresses, and draws conclusions about emission reductions, emission rates , and allowance allocations concerning only large non - EGUs.*** E.O. 12866 Review

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Page 510 of 647 EGUs state budgets reflecting the elimination of significant
c ontribution to nonattainment and interference with maintenance. For these reasons, the final rule allows states to expand the
ozone - season NO X trading program to cover small EGUs that were in the NO X Budget Trading Program, but not to cover large non
- EGUs that were in that program. As explained in the proposed rule, if a state were to do so, emissions from these units jeopardize the state’s ability to show that significant contribution to nonattainment or interference with maintenance has been eliminated. ( See 75 FR 45340.) For states that relied on large
non - EGUs for emission reductions required by the NO X SIP Call, EPA will assist in identifying ways to ensure continued, future compliance with the NO X SIP Call requirements. c. Early Reduction Provision s Substantial emission reductions have occurred as a result of the CAIR programs. This has lead to substantial “banks” of allowances (i.e., holdings of unused allowances allocated for years before the programs sunset) in each of the CAIR programs. In the proposal, EPA requested comment on whether to allow banked CAIR allowances to be used in the Transport Rule trading programs. For the reasons explained below, EPA has decided not to allow banked CAIR allowances to be used in any of the Transport Rule trad ing programs. (1) SO 2 Allowance Bank*** E.O. 12866 Review

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Page 511 of 647 The bank of Title IV allowances was more than 12 million tons at the end of 2009. This bank is the result of emission reductions under the Title IV Acid Rain Program. Under the CAIR SO 2 trading program, EPA allowed ba nked (as well as future year) Title IV allowances to be used in the CAIR SO 2 trading program
-- in lieu of being used in the Acid Rain Program
-- for compliance with the requirement to hold allowances covering emissions. This approach encouraged early reductions for the CAIR SO 2 trading program, but was held to be unlawful in North Carolina . In the proposed rule, EPA took comment on whether sources should be allowed to use banked Title IV allowances in the Transport Rule SO 2 program. EPA proposed to not a llow the use of Title IV allowances either as the basis for allocating Transport Rule SO 2 allowances or directly for compliance with allowance
holding requirements, in part, because EPA was concerned that those approaches would be perceived as inconsistent with the requirements of 110(a)(2)(D)(i)(I) as interpreted by the Co u rt in North Carolina . See 75 FR 45338
- 39. A number of commenters advocated that EPA recognize Title IV allowance holdings in the Transport Rule, either by allowing full or limited carryover of the allowances or by allocating all or a portion of the Transport Rule SO 2 allowances based on Title IV allowance holdings. Other commenters agreed with EPA’s assessment that allowing Title IV allowance carryover in the*** E.O. 12866 Review

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Page 512 of 647 Transport Rule is inconsist ent with North Carolina and that any linkage of Transport Rule allocations with Title IV allowance holdings would carry unnecessary, significant legal risk. Therefore, for the reasons explained above and in the proposal, EPA has decided not to permit sour ces to use Title IV allowances for compliance with the Transport Rule SO 2 trading programs. In addition, unlike CAIR, in the Transport Rule, EPA decided not to base allocation of Transport Rule SO 2 allowances on the specific distribution of existing titl e IV allowances. Title IV allowances continue, of course, to be usable for compliance in the Acid Rain Program. 118 (2) NO X Allowance Banks In the proposed rule, EPA estimated that the CAIR ozone season NO X bank would contain over 600,000 allowances and the CAIR annual NO X bank would contain about 720,000 allowances after completion of true
- up of allowance holdings and emissions for 2011. EPA considered the alternatives of allowing or not allowing pre
- 2012 CAIR NO X allowances and CAIR ozone - season NO X allowa nces to be used in the Transport Rule NO X trading programs. EPA also described and requested comment on several possible approaches for handling banked pre
- 2012 CAIR NO X

118 The Title IV allowance bank is expected to be about 14 million tons at the beginning of 2012.*** E.O. 12866 Review

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Page 513 of 647 allowances in the Transport Rule NO X trading programs and the pros and cons of each (7 5 FR 45339):

 Allow all such banked CAIR allowances to be brought into the Transport Rule NO X programs, make the assurance provisions effective starting in 2012, and rely on the assurance provisions to ensure that each state continues to eliminate all of its significant contribution to nonattainment and interference with maintenance;

 Allow only a limited amount of banked pre
- 2012 CAIR allowances to be brought into the Transport Rule NO X programs;

 F actor the bank into the calculation of state NO X budgets by reducing the state NO X budgets to take account of the banked pre - 2012 CAIR allowances; and

 Do not allow the use of any banked pre - 2012 CAIR allowances in the Transport Rule NO X programs. EPA proposed the last of these approaches and requested comment
on all of the described approaches or suggestions on other ways to handle banked pre - 2012 CAIR allowances in the Transport Rule NO X programs.

 Many commenters advocated allowing the carryover of CAIR NO X allowances to the Transport Rule. Reasons given include d: preservation of early reduction investments; need for*** E.O. 12866 Review

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Page 514 of 647 market continuity; increased flexibilit y during program start up and early years of the programs; preservation of the credibility of, and certainty under, trading approaches; and the lack of a prohib ition in North Carolina of carryover of CAIR NO X allowances. Commenters also suggested that surrender ratios be used to limit the amount, and negative effects, of a carryover.

 Many other commenters were against allowing CAIR NO X allowance carryover into t he Transport Rule. Reasons given included: unnecessary, significant legal risk; concerns about the efficacy of the Transport Rule if state budgets are supplemented by a carryover; and differences in the nature of the programs (the NO X Budget Trading Prog ram, which addressed the 1
- hour ozone NAAQS, and the CAIR ozone season NO X trading program, which addressed the 1997 8
- h ou r ozone NAAQS and was reversed in North Carolina ) under which the allowances were banked and the Transport Rule ozone season NO X tradi ng program, which addresses the 1997 8
- h ou r ozone NAAQS. For the reasons explained below, after evaluating all comments on this issue, EPA decided not to allow the use of CAIR NO X allowances in the Transport Rule NO X trading programs. EPA reevaluat ed the estimated size of the potential carryover (allowances that will remain unused in the CAIR programs at the*** E.O. 12866 Review

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Page 515 of 647 end of 2011 compliance periods), taking into account 2010 emissions. EPA estimates that more than 440,000 CAIR ozone season NO X allowances wil l remain and that more than 460,000 CAIR annual NO X allowances will remain at the end of the 2011 compliance periods. EPA considered whether to allow these CAIR
ozone season NO X and CAIR annual NO X allowances to be used in the Transport Rule NO X trading p rograms. The CAIR ozone season NO X allowances expected to remain unused represent nearly three
quarters of aggregate state ozone season NO X budgets 119 in a single year under the final Transport Rule. The allowances expected to remain unused in the annual NO X program represent more than one - third of aggregate state annual NO X budgets in a single year under the Transport Rule. As discussed in the proposal, if these allowances were carried over in addition to the Transport Rule state budgets, EPA could not be assured that significant contribution to nonattainment or interference with maintenance would be eliminated. EPA therefore rejects any approach under which all banked CAIR NO X allowances would be added to the Transport Rule trading programs on top of eac h state’s annual NO X and/or ozone
- season budgets.

119 This analysis is for all states identified to be contributing significantly to nonattainment or interfering with maintenance. When the analysis is conducted using the aggregate state budgets for only those states for which we are finalizing ozone season requirements in this rule, the percentage increases.*** E.O. 12866 Review

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Page 516 of 647 In response to public comments, EPA considered whether the Transport Rule trading programs should allow some form of exchange of banked CAIR annual NO X and ozone - season allowances for new Transport Rule NO X allowances within each state’s annual NO X and/or ozone
- season budgets, respectively. However, EPA believes that this type of approach carries substantial legal and technical problems. First, the state
- by - state distribution of CAIR NO X allowances result ed from the methodology applied by EPA in CAIR of using fuel factors to set the total amounts of allowance allocations in each state (i.e., the state NO X budgets). The CAIR NO X allowance banks therefore are -- at least in part
-- the results of this metho dology , which was reversed in North Carolina . See North Carolina, 531 F.3d at 918
- 22. Thus, EPA did not use fuel factors in developing the Transport Rule state budgets. However, EPA is concerned that the distribution of some or all Transport Rule NO X a llowances through exchanges of banked CAIR NO X allowances for Transport Rule NO X allowances would blur the bright line between the methodology used for setting budgets in the Transport Rule and the methodology used for setting budgets in CAIR which was rej ected by the Court. At least to some extent, the parties that were advantaged under EPA’s budget - setting methodology in CAIR would continue to have an advantage under the Transport Rule by receiving more Transport Rule NO X allowances. EPA therefore*** E.O. 12866 Review

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Page 517 of 647 believes that allowing exchange of banked CAIR NO X allowances for Transport Rule NO X allowances carries significant legal risk. Second, establishing a procedure for exchanging banked CAIR NO X allowances for Transport Rule NO X allowances within each state’s budget would mean that Transport Rule NO X allowances could not be allocated until after completion of the process for determining compliance with allowance
- holding requirements for the 2011 in the CAIR NO X trading programs. This process cannot begin until aft er the allowance transfer deadline for the 2011 control periods (i.e., March 1, 2012 for the CAIR annual NO X program and November 1, 2011 for the CAIR ozone - season NO X program) and will not likely be completed until mid
- 2012. At that time, EPA could begin the procedure of implementing, state
by - state, the exchanges of the remaining CAIR NO X allowance banks held by parties (owners and operators, brokers, and other entities) for some or all of the allowances in the state NO X budgets for 2012. The portion of each state budget that would be used up by such exchanges would likely vary from state to state. The resulting delay, and uncertainty about the unit
- by unit amounts, of Transport Rule NO X allowance allocations for 2012 would undermine Transport Rule allowance market liquidity, significantly disrupt planning by owners and operators for compliance with allowance
- holding requirements for the 2012 control periods, and likely impose increased compliance costs*** E.O. 12866 Review

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Page 518 of 647 under the Transport Rule NO X trading programs or imp act the ability to comply with the 2012 limits . In light of the specific circumstances in this case and the above - described legal and technical problems that would result from a carryover of CAIR NO X allowances into the Transport Rule trading programs, th e final rule does not allow any such carryover. EPA acknowledges that, as a general principle, it is desirable to provide continuity between sequential regulatory programs involving emission trading and thereby to ensure that allowances in the pa st program continue to have some value in the new program. However, after CAIR was remanded by the Court in North Carolina , 550 F.3d 1176, in December 2008, EPA was concerned about the future status of CAIR NO X allowances and consequently advised the publ ic
-- through a statement posted on the EPA website on April 14, 2009
-- that “EPA's continued recording of CAIR NO X allowances does not guarantee or imply that any allowances will continue to be usable for compliance after a replacement rule is finalized or that they will continue to have value in the future.” 120 Balancing the general desirability of providing program continuity against the potential negative

120 http :// epa . gov / airmarkets / business / cairallowancestatus . html . EPA posed similar statements in the on
- line systems for trading CAIR NO X allowances. See 40 CFR 96.102 and 96.302 (definitions of “CAIR NO X Allowance Tracking System” and “CAIR NO X Ozone Season Allowance Tracking System”) .*** E.O. 12866 Review

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Page 519 of 647 consequences of a carryover in, and the specific circumstances of, this case, EPA concludes that th e carryover of banked CAIR NO X allowances into the Transport Rule trading programs should not be allowed. EPA believes its decision to disallow carryover of banked allowances here reflects the specific factors in this case and should not be treated as set ting any precedent for the treatment, in any future trading programs, of any past trading program’s banked allowances. B. Interactions with NO X SIP Call The proposed rule explained that states covered by both the NO X SIP Call and the Transport Rule would be required to comply with the requirements of both rules and that the Transport Rule would not preempt or replace the requirements of the NO X SIP Call. Most, but not all, NO X SIP Call states would be included in the Transport Rule. The proposed rule fur ther explained that the Transport Rule ozone - season NO X trading pro gram would achieve the emission reductions required by the NO X SIP Call from EGUs serving generators with a nameplate greater than 25 MW and producing electricity for sale in most NO X SIP C all states. (This would not be the case, of course, for those NO X SIP Call states not covered by the Transport Rule.) The NO X SIP Call states used the NO X Budget Trading Program to comply with the NO X SIP Call requirements for EGUs serving a*** E.O. 12866 Review

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Page 520 of 647 generator wit h a nameplate capacity greater than 25 MW and large
non - EGUs with a maximum rated heat input capacity greater than 250 MMBtu /h ou r. (In some states, EGUs serving a generator with a nameplate capacity of 25 MW or less were also included in the NO X Budget Tr ading Program as a carryover from the Ozone Transport Commission NO X Budget Trading Program.) EPA stopped administering the NO X Budget Trading Program under the NO X SIP Call after the completion of compliance activities related to the 2008 ozone
- season co ntrol period, and states used other mechanisms to comply with the NO X SIP Call requirements. The proposal further explained that, if EPA promulgated a final rule that did not allow the expansion of the Transport Rule to NO X Budget Trading Program units, an y state that allowed these units to participate in the CAIR Ozone - Season NO X trading program would need to submit a SIP revision to address the state’s NO X SIP Call requirement for the reductions. The proposal also explained that states in the CAIR ozone - season NO X trading program or the NO X Budget Trading Program that would not be in the Transport Rule ozone - season NO X trading program would need to submit SIP revisions addressing the NO X SIP Call requirements for any emission reductions (by EGUs and non
- E GUs) addressed in the NO X Budget Trading Program and not addressed in some other way. ( See 75 FR 45340
- 41.)*** E.O. 12866 Review

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Page 521 of 647 As discussed elsewhere in this preamble, the final Transport Rule allows states to expand the general applicability provisions of the Transport Ru le ozone - season NO X trading program to include small EGUs, which were included by some states in the NO X Budget Trading Program, but not for large non
- EGUs, which were included in the NO X Budget Trading Program. This will allow states with NO X SIP Call ob ligations to meet those requirements with respect to small EGUs brought into the Transport Rule trading program, but not with regard to large non
- EGUs. With the issuance of the final Transport Rule, NO X SIP Call requirements remain in place. See 40 CFR 51.121. EPA is not changing any of the NO X SIP Call requirements. The NO X SIP Call generally requires that states choosing to rely on large EGUs and large non - EGUs for meeting NO X SIP Call emission reduction requirements must establish a NO X mass emissio ns cap on each source and require Part 75, subpart H monitoring. As an alternative to source
- by - source NO X mass emissions caps, a state may impose NO X emission rate limits on each source and use maximum operating capacity for estimating NO X mass emissions or may rely on other requirements that the state demonstrates to be equivalent to either the NO X mass emissions caps or the NO X emission rate limits that assume maximum capacity. Collectively, the caps or their alternatives cannot exceed the portion of t he state budget for those sources. ( See 40 CFR*** E.O. 12866 Review

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Page 522 of 647 51.121(f)(2) and (i)(4).) EPA will work with states to ensure that NO X SIP Call obligations continue to be met (e.g., through intrastate cap and trade programs that require the level of reductions on which th e state has recently relied). C. Interactions with Title IV Acid Rain Program The final rule does not affect any Acid Rain Program requirements. Acid Rain requirements are established independently in Title IV of the CAA and are not replaced by the Transp ort Rule. Title IV sources that are subject to final Transport Rule provisions still need to continue to comply with all Acid Rain provisions. Title IV SO 2 and NO X requirements continue to apply independently of the Transport Rule provisions. For the re asons explained above, Title IV SO 2 allowances are not allowed to be used in the Transport Rule trading programs. Similarly, Transport Rule SO 2 allowances are not usable in the Acid Rain Program. The final Transport Rule does not include any opt
- in unit p rovisions in the FIPs and does not allow SIP revisions to include opt
- in unit provisions in the Transport Rule trading programs. Consequently, no sources, including those that have opted in to the Acid Rain Program, can opt
- in to the Transport Rule tradin g programs.*** E.O. 12866 Review

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Page 523 of 647 There will likely be changes to emissions at some Acid Rain unit s outside of the Transport Rule area as a result of the transition from CAIR to the Transport Rule. Namely, emissions at some non - Transport Rule Acid Rain units in the states that border the Transport Rule states may increase because of potential load
- shifting from units in Transport Rule states and because of a potential decrease in the Title IV allowance price. There is a discussion of possible emissions increases in non
covered states in section VI.C of this preamble. D. Other State Implementation Plan Requirements In this final action, EPA has not conducted any technical analysis to determine whether compliance with the Transport Rule would satisfy RACT requirements for EGUs i n any nonattainment areas, nor Regional Haze BART
- related requirements. For that reason, we are neither making determinations nor establishing any presumptions that compliance with the Transport Rule satisfies any RACT or BART
- related requirements for EGU s. Based on analyses that states conduct on a case - by - case basis, states may be able to conclude that compliance with the Transport Rule for certain EGUs fulfills nonattainment area RACT requirements. EPA intends to undertake a separate analysis to determine if compliance with the Transport Rule would provide sufficient reductions to satisfy BART requirements for EGUs in accordance*** E.O. 12866 Review

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Page 524 of 647 with Regional Haze Rule requirements for alternative BART compliance options as soon as practicable following promulgation of the Transport Rule. X. Transport Rule State Implementation Plans EPA explained in proposal (75 FR 45342) that for each upwind state covered by the proposed Transport Rule, EPA proposed state - specific emission reductions requirements with respect to one or more of three air quality standards

– - the 1997 annual PM2.5 NAAQS, the 2006 24
- hour PM2.5 NAAQS, and the 1997 ozone NAAQS. In CAIR, EPA allowed the states to replace the CAIR FIP with SIPs and provided substantial flexibility and proposed to allow simil ar flexibility to states for addressing the s ection 110(a)(2)(D)(i)(I) transport issues through a SIP. EPA proposed to allow a state to submit a SIP for the ozone requirements only, for the PM2.5 requirements only, or for both the ozone and the PM2.5 requ irements with the specific quantity of emission reductions necessary for a state’s SIP determined based on the state emission budgets provided in the final T ransport Rule. EPA received comments suggesting that if the proposal’s remedy is finalized, EPA sho uld allow states to replace the FIP allowance allocation provisions in the proposed Transport Rule trading programs by state
- developed allocation provisions.*** E.O. 12866 Review

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Page 525 of 647 Commenters referenced the two alternatives provided to states in the CAIR trading programs where: (1) EPA adopted a rule and model trading regulations under which states that adopted, as state SIP trading programs, the model regulations (with only certain limited changes allowed, e.g., in the allocation provisions) could participate in the EPA
- administ ered CAIR trading programs; and (2) EPA adopted a rule allowing states to adopt in SIPs provisions replacing only certain provisions in the CAIR FIPs (e.g., the allocation provisions) and to remain in the CAIR trading programs under the CAIR FIPs. Under bo th approaches, the covered units in the state participated in the CAIR trading programs, albeit with state
- , rather than EPA- , determined allocations. Comments on the Tra nsport Rule proposal supported these two types of approaches for allowing states to
r eplace EPA allocations under the proposed Transport Rule trading programs by state allocations. EPA requested additional comment on this topic in the NODA published January 7, 2011 (76 FR 1109). Two approaches with associated deadlines were explained in th e NODA. Under the first approach, EPA would adopt new provisions, as part of the proposed Transport Rule FIP that would allow a state to submit a SIP (referred as an abbreviated SIP) that would modify specified provisions of the proposed Transport Rule FI P trading programs. Specifically, the*** E.O. 12866 Review

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Page 526 of 647 abbreviated SIP would substitute state allocation provisions for control periods in years after 2012, applicable to one or more of the proposed Transport Rule FIP trading programs that apply to the state. The NODA gave the specific provisions in the FIP that could be replaced. If the state allocation provisions met certain requirements and the abbreviated SIP did not change any other provisions in the respective proposed Transport Rule FIP trading program, then EPA woul d approve the abbreviated SIP. In the substitute state allocation provisions, the state could allocate allowances to Transport Rule units (whether existing or new units) or other entities (such as renewable energy facilities) or could auction some or all o f the allowances. The NODA went on to describe the requirements for EPA approval of an abbreviated SIP (76 FR 1119) including that the total amount of allowances allocated each year could not exceed the applicable budget, allocations would need to be repor ted to EPA by the permitting authority (usually the state) by particular dates prior to the applicable control period depending on whether allowances were going to existing or new sources, and that no other provisions of the FIP are changed. Under the seco nd approach, EPA would adopt a new rule that would provide that, if a state submitted a SIP (referred to as a full SIP) that adopted trading program regulations meeting certain requirements for control period in years after 2012,*** E.O. 12866 Review

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Page 527 of 647 then EPA would approve the full SIP as correcting the deficiency under CAA section 110(a)(2)(D)(i)(I) in the state’s SIP that was the basis for issuance of the comparable proposed Transport Rule FIP. In the state allocation provisions, the state could allocate allowances to Transp ort Rule units (whether existing or new units, except for opt
- in units) or other entities (such as renewable energy facilities) or could auction allowances. Upon EPA approval of a state’s full SIP, the state’s SIP - based trading program would be integrated with the comparable FIP
based Transport Rule trading program (whether or not modified by an abbreviated SIP) covering other states. Moreover, covered sources in the state could participate in the integrated trading program, and the allowances issued under the SIP - based state trading program would be interchangeable with the allowances issued in the comparable FIP
- based Transport Rule trading program. The NODA went on to describe the limited changes that states could make under the full SIP option. Only al location provisions could be modified with the same requirements as for abbreviated SIPs including that the total amount of allowances allocated each year could not exceed the applicable budget and that allocations would need to be reported to EPA by the p ermitting authority (usually the state) by particular dates*** E.O. 12866 Review

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Page 528 of 647 prior to the applicable control period depending on whether allowances were going to existing or new sources. The NODA also discussed the option for states to submit SIPs using emission reduction approaches other than the proposed Transport Rule trading programs to correct the deficiency under CAA section 110(a)(2)(D)(i)(I) in the state’s SIP which EPA would review on a case
- by - case basis (76 FR 1120). Suggested deadlines for abbreviated and full S IPs were given in tables in the NODA (76 FR 1120) and generally required states to submit SIPs about 2 years ahead of a particular control period for which state allocations would apply to give EPA time to review and approve the SIP and record allowances. There were also comments that supported EPA’s proposed approach. Most commenters advocated for state allocation options within the preferred FIP remedy. NODA comments largely supported state allocation options which replace FIP allocations wit h SIP - based state allocations. In the final rule, EPA adopts, with some revisions, both of the approaches described in the January 7, 2011 NODA. Under the first approach, a state may submit an abbreviated SIP that modifies a final Transport Rule FIP trading program in only a limited way: i.e., by replacing the allowance allocation provisions (in §§97.411(a) and (b) and 97.412(a) (for the annual NO X trading program), §§97.511(a) and (b) and 97.512(a) (for the*** E.O. 12866 Review

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Page 529 of 647 ozone - season NO X trading program), §§97.511(a) and (b) and 97.612(a) (for the SO 2 Group 1 trading program), and §§97.511(a) and (b) and 97.612(a) (for the SO 2 Group 2 trading program). In the state’s replacement provisions, the state may allocate allowances to Transport Rule units (whether existing or new units) 121 or other entities (such as renewable energy facilities) or may auction allowances. Additionally, state SIPs can address one or all of the pollutants addressed by the FIPs. For PM2.5 , EPA is finalizing the flexibility for a state SIP to address either SO 2 or NO X , or both. Further, if a state is required to make ozone - season and annual NO X reductions, the SIP could address either ozone
- season or annual NO X emissions, or both. In other words, states can replace all FIPs that apply or some subset of the FI Ps that apply to a particular state leaving in place the FIPs for the requirements not addressed by a SIP. Further, only if the state replacement for the Transport Rule FIP allocation provisions meet certain requirements and the abbreviated SIP does not ch ange any other provisions in the Transport Rule FIP trading program, EPA will approve the abbreviated SIP. For EPA approval, the state allocation provisions must meet the following requirements. First, the provisions must provide that, for each year for which the state

121 EPA is not finalizing opt
- in provisions, so the reference to federal - only allocations given in the NODA has been removed.*** E.O. 12866 Review

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Page 530 of 647 allocation provisions will apply, the total amount of control period (annual or ozone
- season) allowances allocated and, where applicable, auctioned in accordance with these provisions cannot exceed the applicable state budget (less any appli cable Indian country new unit set
- aside, which will continue to be administered by EPA) for that year under the relevant Transport Rule FIP trading program. Second, to the extent the state provisions provide for allocations for, or auctions open to, exist ing units, the provisions must require that the permitting authority under title V of the CAA for the state submit to the Administrator final allocations and, if any auction is to be held, final auction results in accordance with a schedule of deadlines di scussed below. To the extent the provisions provide for allocations for or auctions open to new units or any other entities, the provisions must require that the permitting authority submit to the Administrator final allocations and, if applicable, auctio n results by July 1 of the year of the control period for which the allowances will be distributed. The allocation and auction results must be final and cannot be subject to modification (e.g., through an allowance surrender adjusting the allocation or au ction results). As noted above, the state’s submission to the Administrator of allocations or auction results with regard to existing units*** E.O. 12866 Review

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Page 531 of 647 must meet a specified schedule of deadlines. These submission deadlines reflect, and are necessarily coordinated wi th, the deadlines for recordation by the Administrator of allowance allocations and any auction results under the Transport Rule trading programs. The recordation deadlines, which are discussed in detail in section XI of this preamble, provide that the Administrator must record existing
- unit allowance allocations and auction results by: July 1, 2013 for the applicable control periods in 2014 and 2015; July 1, 2014 for the applicable control periods in 2016 and 2017; July 1, 2015 for the applicable control periods in 2018 and 2019; and July 1, 2016 and July 1 of each year thereafter for the control period in the fourth year after the year of the applicable recordation deadline. In order to provide the Administrator 1 month to review the submissions of alloc ations and auction results to ensure that the submissions include sufficient information (e.g., the correct identification for each unit involved) to record correctly the submitted allocations and auction results, the permitting authority must make these s ubmissions to the Administrator by: June 1, 2013 for the applicable control periods in 2014 and 2015; June 1, 2014 for the applicable control periods in 2016 and 2017; June 1, 2015 for the applicable control periods in 2018 and 2019; and June 1, 2016 and June 1 of each year thereafter for the applicable control*** E.O. 12866 Review

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Page 532 of 647 period in the fourth year after the year of the applicable submission deadline. Third, to the extent the state provisions establish an allowance auction, the provisions must require the following treatment of each allowance purchased by a covered unit in the state in such an auction. Solely for purposes of defining and determining “common designated representative’s share” for implementation of the assurance provisions, each such allowance must be treated as an allowance allocated to that unit. Under the second approach, a state may submit a full SIP adopting a Transport Rule trading program that differs from the comparable Transport Rule FIP trading program in only a limited way: i.e., by includin g new allocation or auction provisions instead of the Transport Rule FIP allowance allocation provisions other than those concerning the Indian country new unit set
- aside. (The state’s full SIP trading program must include provisions that are the same as those in the Transport Rule FIP trading program for the Indian country new unit set
aside.) In the state allocation or auction provisions, the state may allocate allowances to Transport Rule units (whether existing or new units) or other entities (such as renewable energy facilities) or may auction allowances. EPA will approve the full SIP only if the state allocation or auction provisions meet certain requirements and all other provisions in the*** E.O. 12866 Review

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Page 533 of 647 Transport Rule trading program in the full SIP are the same as those in the Transport Rule FIP trading program. For EPA approval, the state allocation provisions must meet the same requirements, as discussed above, that state allocation or auction provisions in an abbreviated SIP must meet. A Transport Rule tr ading program adopted by a state in a full SIP, and approved by EPA, under the second approach will be fully integrated with the comparable Transport Rule FIP trading program (i.e., the proposed TR Annual NO X , TR NO X Ozone - Season, TR SO 2 Group 1, or TR SO 2 Group 2 Trading Program respectively) for other states. This will apply whether the comparable Transport Rule FIP program for other states was modified by an abbreviated SIP approved by EPA under the first approach or was not modified by such an abbreviat ed SIP. The integration of these three types of trading programs will be accomplished primarily through the definitions of the terms, ‘‘TR Annual NO X allowance’’, ‘‘TR Ozone - Season NO X allowance”;, ‘‘TR SO 2 Group 1 allowance’’, and ‘‘TR SO 2 Group 2 allowan ce’’ in the full SIPs approved by EPA and the TR FIP trading programs (whether or not the programs were modified by abbreviated SIPs). ‘‘TR Annual NO X allowance’’ will be defined in the state and Transport Rule FIP trading programs as including allowances issued under any of the following trading programs: the comparable EPA
- approved state Transport Rule trading programs; the comparable Transport Rule*** E.O. 12866 Review

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Page 534 of 647 FIP trading program with EPA
- approved state allocation and auction provisions; and the Transport Rule FIP t rading program with EPA allocation provisions. Similarly, the definitions in the state and Transport Rule FIP trading programs of ‘‘TR Ozone Season NO X allowance’’, ‘‘TR SO 2 Group 1 allowance’’, and ‘‘TR SO 2 Group 2 allowance’’ respectively will include a llowances issued under all three types of trading programs. As a result, allowances issued in one approved state Transport Rule trading program will be interchangeable with allowances issued in the comparable Transport Rule FIP trading program (whether or not modified by an abbreviated SIP), and all these allowances will be available for use for compliance with the allowance
- holding requirements (to cover emissions and to meet assurance provision requirements) in all three types of trading programs. The in tegration of state and the proposed Transport Rule FIP trading programs will also be reflected in the definitions of ‘‘TR Annual NO X Trading Program,’’ ‘‘TR Ozone - Season NO X Trading Program’’, ‘‘TR SO 2 Group 1 Trading Program’’, and ‘‘TR SO 2 Group 2 Tradin g Program’’. Each of these definitions in the state Transport Rule and Transport Rule FIP trading programs will expressly encompass the comparable Transport Rule FIP trading programs (whether or not modified by an abbreviated SIP) and the comparable EPA- approved state full SIP trading program.*** E.O. 12866 Review

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Page 535 of 647 The final rule also sets deadlines for the submission of complete abbreviated and full SIPs. These deadlines are based on the first year for which the state wants to allocate or auction allowances, reflect the above
- discussed deadlines for the Administrator’s recordation of allocations and auction results, and build in a 6
-month period for EPA review, provision of notice and opportunity for public comment, and approval of the SIP revisions. This 6
-month period is bu ilt into the final rule’s SIP submission deadlines because that is the period EPA found was needed for reviewing, providing notice and comment for, and approving state trading program provisions in abbreviated and full SIPs under CAIR. As a result, the fi nal rule requires that complete abbreviated and full SIPs must be submitted to the Administrator by: January 1, 2013 in order to govern allowance allocation and auction for control periods in 2014 and 2015; January 1, 2014 in order to govern control period s in 2016 and 2017; January 1, 2015 in order to govern allowance allocation and auction for control periods in 2018 and 2019; and January 1, 2016 and by January 1 of any year thereafter in order to govern allowance allocation and auction for control period s in the fourth year after such submission deadline. This final rule not only allows a state to choose to submit an abbreviated or a full SIP; it also allows a state to choose*** E.O. 12866 Review

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Page 536 of 647 to submit either form of SIP to replace any or all of the FIPs in this rule as t hey apply to a particular state. By promulgating these Transport Rule FIPs, EPA in no way affects the right of a state to submit, for review and approval, a SIP that replaces the federal requirements of the FIP with state requirements. In order to replac e the FIP in a state, the state’s SIP must provide adequate provisions to prohibit NO X and SO 2 emissions that contribute significantly to nonattainment or interfere with maintenance in another state or states. The Transport Rule FIPs remain in place in ea ch covered state until a state’s SIP is submitted and approved by EPA to replace a FIP. In response to numerous comments urging EPA to allow states to determine allowance allocations as soon as possible, EPA has developed a SIP revision procedure that applies to 2013 allowance allocations only. In developing this procedure, EPA is balancing the desire to allow states the flexibility to tailor allowance allocations to the specific needs and situations in a particular state with the need to provide certai nty to source owners and operators by having allowances recorded sufficiently ahead of the control period for which the allocations are made in order to facilitate owners’ and operators’ efforts to optimize their compliance strateg ies . This final rule all ows states to make 2013 allowance allocations through the use of a SIP revision that is narrower in scope than*** E.O. 12866 Review

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Page 537 of 647 the other SIP revisions states can use to replace the FIPs and/or to make allocation decisions for 2014 and beyond. For 2013 allocation s , the sc ope of the SIP revision is limited to allocation s made to units that commence commercial operation before January 1, 2010 and provided in the form of a list of those units and their corresponding allocation s for 2013. Additionally, this particular SIP rev ision may allocate only the portion s of the state budgets set forth in Tables X - 1 through X 3, i.e., each state budget minus the new unit set
- aside and the Indian country new unit set
- aside. In developing this procedure, EPA set deadlines for submissions o f the SIP revisions for 2013 allocations and for recordation of the allocations that balanced the need to record allowances sufficiently ahead of the control period with the desire to allow state flexibility for 2013. EPA set deadlines that will allow suf ficient time for EPA to review and approve these SIP revisions, taking into account that EPA approval must be final and effective before the 2013 allocations can be recorded and the allowances are available for trading. In order to ensure that EPA review and approval (which must include public notice and opportunity for comment) can be completed in time, the final rule necessarily limits the allowed scope of the SIP revisions for 2013 allocations, as set forth in the requirements discussed below, and thereby limits the issues that*** E.O. 12866 Review

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Page 538 of 647 must be considered and addressed in the review and approval process. Further, the final rule prescribes the form in which the state allocations for 2013 must be provided to EPA in order to facilitate rapid recordation of the allo cations upon their approval. States, along with their sources, will need to weigh the trade offs of a relatively short period of recording before the control period for which the allocation is made (about 6 months) with the desire to have state allocations in 2013 , when deciding whether to pursue a SIP revision for 2013 allocation s . States may choose to submit a SIP revision for one or more of the trading programs. In other words, state allocations for 2013 could apply in one trading program while 2013 FI P allocations apply in another. States can make 2013 allowance allocations provided the state meets certain requirements.

 By [INSERT DATE 70 DAYS AFTER THE DATE OF PUBLICATION IN THE FEDERAL REGISTER ] , a state must provide notification to EPA if the state intends to submit state allocations for 2013. The notification must be in a format prescribed by the Administrator and submitted electronically.

 By April 1, 2012, the state must submit a SIP revision to EPA that:*** E.O. 12866 Review

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Page 539 of 647 o Allocates to existing units 122 only , provide s a list of the units and their state allocations to EPA electronically and in a format prescribed by EPA , and does not provide for any change in the units and allocations on the list and in any allocation previously determined and recorded by the Adminis trator ; o Allocates a total amount of allowances for 2013 that does not exceed the applicable amount in Tables X - 1 through X - 3 for each trading program that applies in that particular state,
o Provides no set
- asides and does not alter the new unit set - asides, the Indian country new unit set
- asides, and any aspect of the FIP rules other than the existing
- unit allocations for 2013. If EPA does not receive notification from a state by [INSERT DATE 70 DAYS AFTER THE DATE OF PUBLICATION IN THE FEDERAL REGISTER] , EPA will record FIP allocations for 2012 and 2013 as scheduled (90 days after publication of the rule). If EPA receives timely notification from a state, EPA will record FIP allocations for 2012 only and wait to record 2013 allocations. If the state provides a timely (not later than

122 Existing unit means a unit that commences commercial operation before January 1, 2010.*** E.O. 12866 Review

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Page 540 of 647 April 1, 2012) SIP revision meeting all the above
- described requirements and EPA approves the SIP revision, EPA will record state - determined allocations for 2013 by October 1, 2012. Otherwise, EPA will record the EPA
- determined allocations for 2013. Table X- 1 Portion of the Annual NOX Trading Budget available for State Allocation in 2013 State Portion of the NO X Annual

Trading Budget available for state allocation in 2013 Alabama 71,237 Georgia 60,770 Illinois 44,042 Indiana 106,434 Iowa 37,569 Kansas 30,099 Kentucky 81,683 Maryland 16,300 Michigan 58,989 Minnesota 28,980 Missouri 50,803 Nebraska 24,590 New Jersey 7,121 New York 17,016 North Carolina 47,551 Ohio 90,849 Pennsylvania 117,586 South Carolina 31,849 Tennessee 34,989 Texas 129,587 Virginia 31,580 West Virginia 56,498 Wisconsin 29,730
Table X- 2 Portion of the Ozone - Season NOX Trading Budget

available for State Allocation in 2013*** E.O. 12866 Review

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Page 541 of 647 State Portion of the Ozone Season NO X

Trading Budget available for s tate allocation in 2013 Alabama 31,111 Arkansas 14,736 Florida 27,268 Georgia 27,385 Illinois 19,511 Indiana 45,470 Kentucky 34,720 Louisiana 13,029 Maryland 7,035 Mississippi 9,957 New Jersey 3,314 New York 8,081 North Carolina 20,838 Ohio 3 9,262 Pennsylvania 51,157 South Carolina 13,631 Tennessee 14,610 Texas 61,152 Virginia 13,729 West Virginia 24,019 Table X- 3 Portion of the SO2 Trading Budget available for State Allocation in 2013 State Portion of the SO2 Trading Budget available for state

allocation in 2013 Alabama 211,712 Georgia 155,356 Illinois 223,145 Indiana 276,861 Iowa 104,943 Kansas 40,697 Kentucky 177,975 Maryland 29,518 Michigan 190,646 Minnesota 41,141 Missouri 203,317*** E.O. 12866 Review

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Page 542 of 647 Nebraska 62,450 New Jersey 5,463 New York 20,088 North Carolina 125,930 Ohio 304,025 Pennsylvania 273,078 South Carolina 86,847 Tennessee 145,187 Texas 231,756 Virginia 67,987 West Virginia 135,942 Wisconsin 75,506
EPA will work with states that wish to submit SIPs to
ensure a smo oth integration. The Agency will provide information and tools to assist states in their rulemaking efforts including electronic versions of the Transport Rule trading rules and other products states feel may be helpful. States that submit approvable SIP s or abbreviated SIPs to implement one or all of the Transport Rule trading programs are not required to include an additional technical demonstration relating to elimination of emissions that contribute significantly to nonattainment or contribute to main tenance in downwind areas. XI. Structure and Key Elements of Transport Rule Air Quality Assured Trading Program Rules In order to make the final FIP trading program rules as simple and consistent as possible, EPA designed t hem so that the*** E.O. 12866 Review

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Page 543 of 647 final rules (like the proposed rules) for each of the trading programs (i.e., the Transport Rule Annual NO X trading program, Transport Rule Ozone - Season NO X trading program, Transport Rule SO 2 Group 1 trading program, and Transport Rule SO 2 Group 2 trading program) are parallel in structure and contain the same basic elements. For example, the rules for the Transport Rule Annual NO X , Ozone - Season NO X , SO 2 Group 1, and SO 2 Group 2 trading programs are located, respectively, in subparts AAAAA (§§97.401, et seq. ), BBBBB (§§97.501, et seq. ), CCCCC (§§97.601, et seq. ), and DDDDD (§§97.701, et seq. ) of Part 97 in Title 40 of the Code of Federal Regulations. Moreover, the order of the specific provisions for each trading program is the same, and t he provisions have parallel numbering. The key elements of the final Transport Rule trading program rules are as follows. (1) General Provisions (i) §§97.402 and 97.403, 97.502 and 97.503, 97.602 and 97.603, and 97.702 and 97.703
-- Definitions and Abbrev iations Most of the definitions in the final Transport Rule trading program rules are essentially the same as in the proposed rules and for each of the Transport Rule trading programs (except where necessary to reflect the different pollutants ( NO X and SO 2 ), control periods (for annual and ozone
- season NO X , and for annual SO 2 ), and geographic coverage involved in the trading programs). Moreover, many of the definitions in the final rules*** E.O. 12866 Review

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Page 544 of 647 that are essentially the same as in the proposed rule and are also es sentially the same as in prior EPA
- administered trading programs. However, as discussed in more detail below, some of the definitions in the final rules clarify, or differ from, the definitions in the proposed rule. As noted, several definitions in the f inal rules are essentially the same as those both in the proposed rules and in prior EPA
- administered trading programs. Examples include the definitions of “source,” “allowance transfer deadline,” “owner,” “operator”, “Allowance Management System” (used i nstead of the term “Allowance Tracking System”), and “continuous emission monitoring system.” One example of a definition in the final rules that is the same as in the proposed rule, but that clarifies the definition used in prior trading programs is the definition of “fossil fuel.” In the final rule, the term “fossil fuel” is defined in general as including natural gas, petroleum, coal, or any form of fuel derived from such material, regardless of the purpose for which such material is derived. For example, with regard to consumer products that are made of materials derived from natural gas, petroleum, or coal, are used by consumers and then used as fuel, these materials in the consumer products qualify as fossil fuel. The definition in the final rules also includes language establishing a narrower meaning of “fossil fuel” that*** E.O. 12866 Review

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Page 545 of 647 is not generally applicable, but rather is applicable only for purposes of applying the limitation on fossil
- fuel use under the solid waste incineration unit exemption (which is d iscussed elsewhere in this preamble). This latter portion of the “fossil fuel” definition makes explicit an interpretation that EPA adopted in CAIR that
-- solely for purposes of applying the fossil
- fuel use limitation in that exemption
-- the term “fossi l fuel” is limited to natural gas, petroleum, coal, or any form of fuel derived from such material “for the purpose of creating useful heat.” For example, applying this narrower meaning, consumer products made from natural gas, petroleum, or coal are not fossil fuel, for purposes of determining qualification under the fossil
- fuel use limitation, because the products (e.g., tires) were derived from natural gas, petroleum, or coal in order to meet certain consumer needs (e.g., to meet transportation needs), not in order to create fuel (i.e., material that would be combusted to produce useful heat). As noted above, some of definitions in the final rules clarify definitions in the proposed rules. The definitions of “allowable NO X emission rate” and “allowable SO 2 emission rate” are clarified by explaining that such a rate is the most stringent state or federal emission rate limitation, expressed in lb/MWhr or, if originally expressed in lb/MMBtu, converted to lb/MWhr by multiplying it by the unit’s heat rate i n MMBtu/MWhr.*** E.O. 12866 Review

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Page 546 of 647 This clarification ensures consistency from unit to unit in determining a unit’s allowable rate. By further example, while the proposed rules used the same definition of “commence commercial operation” as in prior EPA
administered trading pr ograms, the final rules clarify the definition. Under the definition in the proposed rules, a unit that is physically changed is treated as the same unit. However, the proposed rules were unclear about the treatment of a unit that is replaced and whether moving a unit to a different location or source constitutes a physical change. The definition of “commence commercial operation” in the final rules clarifies that a unit that is physically changed (which includes a unit that is replaced) continues to be treated, for purposes of this final rule, as the same unit with the same commence
commercial
- operation date. The definition also clarifies that moving a unit to a different location or source is treated the same as a physical change, and so the unit conti nues to be treated as the same unit. The definition also continues to state that a unit (the replacement unit) that replaces a unit at the same source is treated as a separate unit with a new
commence - commercial
- operation date. (The definition of “commen ce operation” is removed in the final rules because they do not use this term.)*** E.O. 12866 Review

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Page 547 of 647 By further example, while the proposed rules used the same definition of “unit” as in prior EPA
- administered trading programs, the final rules clarify the definition. The “un it” definition is clarified by expanding it to incorporate explicitly the concepts

– - set forth in the definition in the final rules of “commence commercial operation” and thus already applicable to all units
-- that a unit that is physically changed, move d to a different location or source, or replaced continues to be treated as the same unit and that a replacement unit at the same source is treated as a separate unit. EPA believes that it is preferable to provide a comprehensive definition of “unit” in o ne place because the term is used so frequently in the final rules. By further example, the definition of “nameplate capacity” is clarified in the final rules by explaining that it is expressed in MWe rounded to the nearest tenth. This is the same roundi ng convention that is used in the reporting of nameplate capacity to the Energy Information Administration. By further example, the final rules clarify the definition of “State” by explaining that, by covering each state that is subject to the Transport Ru le trading program involved, the term includes Indian country located within the borders of the state. This ensures that units outside of Indian country and within Indian country will be treated the same, except in the case of*** E.O. 12866 Review

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Page 548 of 647 the final rule provisions (d iscussed elsewhere in this preamble) concerning the new unit set
- aside for Indian country, which is expressly limited to Indian country new units. As noted above, some of the definitions in the final rules are similar to those in the proposed rules but have some substantive differences. For example, in the proposed rules, the definitions of “cogeneration unit” and “fossil
- fuel - fired” are similar to those in prior trading programs but with changes to minimize the need for data concerning individual units o r combustion devices for periods before 1990. In order to qualify as fossil
- fuel - fired, a unit would have to combust any amount of fossil fuel in 1990 or thereafter. In order to qualify as a cogeneration unit, a unit would have to meet certain efficiency and operating standa rds during the later of: the 12
-month period starting when the unit begins producing electricity; or 1990. For a topping
- cycle unit, useful power plus one
- half of useful thermal energy output of the unit must equal no less than a
cer tain percentage of the total energy input and useful thermal energy must be no less than a certain percentage of total energy output, and, for a bottoming
- cycle unit, useful power must be no less than a certain percentage of total energy input. EPA propos ed to limit to 1990 or later the historical period for which information on fuel consumption and on cogeneration unit efficiency and operations would be required to apply the*** E.O. 12866 Review

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Page 549 of 647 “fossil
- fuel - fired” and “cogeneration unit” definitions. This limitation was proposed because EPA was concerned that some owners and operators could have difficulty obtaining pre
- 1990 information about older units, particularly for units whose ownership has changed over time. While EPA proposed to use 1990 as the earliest year for wh ich information would be required under these definitions, EPA requested comment on whether a more recent year should be used. As discussed elsewhere in this preamble, the final rule uses 2005 (about 5 years before this rule’s promulgation), rather than 1 990, as the reference year. Consequently, the “fossil
fuel - fired” and “cogeneration unit” definitions in the final rule specifically reference 2005, rather than 1990. As discussed elsewhere in this preamble, consistent with the use of 2005 as the startin g point for applying these definitions, the final rule also uses January 1, 2005 (rather than November 15, 1990) as the reference date in the applicability provisions. With this change in the reference date for the requirement to meet the operating and ef ficiency standards under the “cogeneration unit” definition, a unit would have to meet these standards every year starting the later of 2005 or the 12

–month period starting when the unit begins producing electricity. EPA requested comment on whether these standards should be applied to a calendar year when the unit involved did not combust any*** E.O. 12866 Review

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Page 550 of 647 fuel, i.e., did not operate at all. As discussed elsewhere in this preamble, the final rules expressly provide that the operating and efficiency standards do not have to be met for a calendar year throughout which a unit did not operate at all. In addition, under the proposed rules, if a group of cogeneration units operating as an integrated cogeneration system met the efficiency standards, a topping
- cycle unit in t hat system would be deemed to meet those standards. EPA requested comment on whether this provision should also apply to a bottoming
- cycle unit. As discussed elsewhere in this preamble, this provision in the final rules is not limited to topping
- cycle un its. By further example of definitions in the final rules that have substantive differences from the definitions in the proposed rules, the proposed definitions of “TR Annual NO X allowance,” “TR Ozone - Season NO X allowance,” “TR SO 2 Group 1 allowance,” “TR SO 2 Group 1 allowance,” “TR Annual NO X Trading Program,” “TR Ozone - Season NO X Trading Program,” “TR SO 2 Group 1 Trading Program,” and “TR SO 2 Group 1 Trading Program” are changed in the final rules. Language is added to the definitions in order to referen ce comparable allowances and trading programs established through SIP revisions submitted by states and approved by the Administrator. As discussed elsewhere in this preamble, the final Transport Rule provides*** E.O. 12866 Review

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Page 551 of 647 that, if a state submits SIP revisions meetin g certain specified requirements, the state (rather than the Administrator) will allocate allowances, and the covered sources in the state will participate
- – along with covered sources in states remaining subject to the Transport Rule FIPs
-- in an integr ated, region
wide air quality
- assured trading program under which both any allowance allocated by the Administrator and any allowance allocated by the state will each authorize one ton of emissions of the relevant pollutant a nd will be usable by any source for compliance with the requirement to hold allowances covering emissions. As noted above, the final rules include some definitions that were not used in prior EPA
- administered trading programs and that reflect unique provis ions of the Transport Rule trading programs. For example, the terms, “assurance account,” “TR Annual NO X unit,” “TR Ozone
- Season NO X unit,” “TR SO 2 Group 1 unit,” “TR SO 2 Group 2 unit,” “common designated representative,” “common designated representative ’s assurance level,” and “common designated representative’s share” are used and defined in the final rule. While the proposed rules included definitions for the terms, “owner’s assurance level” and “owner’s share”, the final rules replace these terms and instead define the terms, “common designated representative,” “common designated representative’s assurance level,” and “common*** E.O. 12866 Review

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Page 552 of 647 designated representative’s share.” This is because, as discussed elsewhere in this preamble, the final rules include
assuranc e provisions similar to those in the proposed rules but that are implemented based on groups of units having a common designated representative, instead of being implemented on an
owner - by - owner basis. The definition of “common designated representative’s share” is simpler than the definition of “owner’s share” because implementing the assurance provisions at the designated representative level means it is no longer necessary to address, in the definition, owner
- and unit
- level issues that may arise when a unit has multiple owners or where two or more units emit through the same stack. Finally, some definitions are added to the final rules that are not in the proposed rules. For example, because the term, “business day,” was used, but not defined, in the proposed rule, its meaning was unclear. Specifically, it was unclear whether a day that was uniquely a state holiday, and not a federal holiday, was a business day for purposes of the federally administered Transport Rule trading programs, e.g., whether the allowance transfer deadline applicable to all sources in all states in a Transport Rule trading program could fall on a day that was a unique state holiday in one or a few states or whether the allowance transfer deadline would be advanced to the next business day for all sources in all states or perhaps only*** E.O. 12866 Review

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Page 553 of 647 for sources in the state with the state holiday. EPA believes that, for a federally administered trading program covering sources in multiple states, the deadlines should be clear and uniform for all sources, regardless of the state in which the sources are located, and should not be affected by unique state holidays of which owners and operators of sources in other states may not even be aware. Consequently, the “business day” definition is added in the final rules and means a day that does not fall on a weekend or a federal holiday. By further example, a definition for “natural gas” was added in the final rules. That definition, as well as the definitions for “coal” and “fuel oil”, incorporate the corresponding definitions in Part 72 of the Acid Rain Program regulations. The Part 72 definitions are incorporated because they are also used in the Part 75 monitoring, reporting, and recordkeeping provisions, which provisions are already incorporat ed in the final Transport Rule Trading Program rules. (ii) §§97.404 and 97.405, 97.504 and 97.505, 97.604 and 97.605, and 97.704 and 97.705
-- Applicability and Retired Units The applicability provisions in the final rules are, except as discussed herein, essentially the same as in the proposed rules and for each of the Transport Rule trading programs. Of course, for each trading program, the definition of “State”*** E.O. 12866 Review

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Page 554 of 647 reflects differences in the specific states whose electric generating units are covered by th e respective trading program. Under the general applicability provisions of the proposed rules, the Transport Rule trading programs would cover fossil
fuel - fired boilers and combustion turbines serving

– - at any time starting November 15, 1990 or later
- - an electrical generator with a nameplate capacity exceeding 25 MWe and producing power for sale, with the exception of certain cogeneration units and solid waste incineration units. As discussed elsewhere in this preamble, the general applicability pr ovisions in the final rules reference January 1, 2005 (about 5 years before this rule’s promulgation), rather than November 15, 1990.Cogeneration unit exemption. Under the final rules (as well as the proposed rules) certain cogeneration units or solid waste incinerators otherwise covered by the general category of covered units are exempt from the FIP requirements. In particular, the final rules include an exemption for a unit that qualifies as a cogeneration unit throughout the later of 2005 or the f irst 12 months during which the unit first produces electricity and continues to qualify each year thereafter and that meets the limitation on electricity sales to the grid. In order to meet the definition of “cogeneration unit” in the final rules, a unit (i.e., a boiler or combustion turbine) must*** E.O. 12866 Review

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Page 5 55 of 647 operate as part of a “cogeneration system,” which is defined as an integrated group of equipment at a source (including a boiler or combustion turbine, and a steam turbine generator) designed to produce useful t hermal energy for industrial, commercial, heating, or cooling purposes and electricity through the sequential use of energy. In order to qualify as a cogeneration unit, a unit also must meet, on a 12
-month or annual basis, the above described efficiency and operating standards. As discussed elsewhere in this preamble, EPA clarifies that the electricity sales limitation under the exemption is applied in the same way whether a unit serves only one generator or serves more than one generator. In both case s, the total amount of electricity produced annually by a unit and sold to the grid cannot exceed the greater of one - third of the unit’s potential electric output capacity or 219,000 MWhr. Solid waste incineration unit exemption. The final rules also inc lude an exemption for a unit that qualifies as a solid waste incineration unit during the later of 2005 or the first 12 months during which the unit first produces electricity, that continues to qualify each year thereafter, and that meets the limitation o n fossil
- fuel use. In contrast, the exemption for solid waste incineration units in the proposed rules distinguished between units commencing operation before January*** E.O. 12866 Review

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Page 556 of 647 1, 1985 and those commencing operation on or after that date and established somewhat di fferent criteria for these two categories of units. As discussed elsewhere in this preamble, the final rules remove the distinction based on whether a solid waste incineration unit commences operation before January 1, 1985 or on or after January 1, 1985. In order to be exempt, the unit must qualify as a solid waste incineration units during the later of 2005 or the first 12 months during which the unit first produces electricity, must continue to qualify each year thereafter, and must meet the limitation on fossil
- fuel use on a three - year average basis during the first 3 years of operation starting no earlier than 2005 and every 3 years of operation thereafter. Retired unit exemption. The final rule provisions exempting permanently retired units from most of the requirements of the Transport Rule trading programs are essentially the same as in the proposed rules and for each of the Transport Rule trading programs. The retired unit provisions exempt these units from the requirements for emission monitor ing, recordkeeping, and reporting and for holding allowances, as of the allowance transfer deadline, sufficient to cover their emissions. However, the permanently retired units in a state must be included in determining whether owners and operators must
s urrender allowances, and, if so, how many, to comply with the*** E.O. 12866 Review

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Page 557 of 647 assurance provisions (which are discussed elsewhere in this preamble) if the state’s total covered
- unit emissions exceed the state assurance level. Specifically, a designated representative mu st include these units in determining whether his or her share of total emissions of covered units in a state exceed his or her share (generally based on the allowances allocated to the units that he or she represents) of the state trading budget with the variability limit and thus whether the owners and operators of the units that he or she represents would have to surrender allowances under the assurance provisions. (iii) §§97.406, 97.506, 97.606, and 97.706
-- Standard requirements The basic requirements applicable to owners and operators of units and sources covered by the Transport Rule trading programs and presented as standard requirements in the final rules are, except as discussed herein, essentially the same as in proposed rules and for each of the Transport Rule trading programs. These basic requirements include: designated representative requirements; emissions monitoring, reporting, and recordkeeping requirements; emissions requirements comprising emissions limitations and assurance provisions; permit requirements; additional recordkeeping and reporting requirements; liability provisions; and provisions describing*** E.O. 12866 Review

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Page 558 of 647 the effect of the Transport Rule trading program requirements on other CAA provisions. In particular, the paragraphs addressing emiss ions requirements for owners and operators describe these requirements in detail and reference other sections of the final rules that set forth the procedures for determining compliance with the emissions limitations and assurance provisions. The paragraphs in the final rules concerning compliance with the emissions limitations clarify that owners and operators of a source and each covered unit at the source must hold allowances at least equaling the total control period emissions of all covered units at t he source. Further, the paragraphs in the final rules concerning compliance with the assurance provisions differ from those in the proposed rules in that, as discussed elsewhere in this preamble, the final rules implement the assurance provisions based on groups of units with a common a designated representative, instead of being implemented on an
owner - by - owner basis, as proposed. Under the final rules, the assurance provisions are triggered when total control period emissions by covered units in a state (starting in 2012) exceed the state trading budget plus variability limit. If the assurance provisions are triggered for a state for a control period in a given year, owners’ and operators’ responsibility for the resulting penalty ( i.e . , the surrender o f allowances for*** E.O. 12866 Review

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Page 559 of 647 deduction through the transfer of such allowances to the assurance account created by the Administrator for such owners and operators) is determined on a designated representative basis. For purposes of implementing the assurance provisio ns, covered units in a state are in effect grouped by designated representative (as distinguished from the alternate designated representative). The control period emissions of all covered units with the same designated representative are compared with th e allowance allocations of such units plus their share of the state variability limit. The owners and operators of the units in each group that has emissions in excess of allocations plus share of variability are subject to the assurance provisions penalt y. The owners and operators of the units in each group must transfer to the assurance account created for such owners and operators a total amount of allowances equal to such owners’ and operators’ proportionate share of the state’s excess of covered - unit emissions over the state trading budget plus variability. The group’s proportionate share is the percentage resulting from division of the amount of the group’s excess of emissions over allocations plus share of variability by the sum of these
excess amo unts for all groups of units with a common designated representative in the state. The final rule makes it clear that*** E.O. 12866 Review

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Page 560 of 647 this percentage is not rounded to the nearest whole number, but rather that the calculated amount of allowances resulting from applicatio n of this percentage is rounded to the nearest whole number because, in the Transport Rule trading programs, only whole (not fractional) allowances are used. If instead this percentage were rounded before its application, each group’s share would be eithe r 100 percent or 0 percent, which would be contrary to the intent of the assurance provisions in both the final rules and the proposed rules. The provisions addressing the assurance requirements in the final rules reflect this designated
- representative
- ba sed approach. For example, as discussed elsewhere in this preamble, these provisions use the terms, “designated representative’s share” and “designated representative’s assurance level,” in lieu of the terms, “owner’s share” and “owner’s assurance level,” used in the proposed rules. By further example, these final rule provisions refer to both “designated representatives” and “owners and operators,” rather than simply “owners.” The final rules also clarify the standard emissions requirements by explaining further what is meant by the provision that an allowance is a limited authorization to emit. The final rule clarifies that an allowance provides authorization to emit during the control period in one year and is limited in both its use and its duration. For example, an*** E.O. 12866 Review

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Page 561 of 647 allowance provides an emission authorization that can only be used in accordance with the requirements of the respective Transport Rule trading program, such as the requirements specifying what allowances are available for use, and how suc h allowances must be held or transferred, in order to cover emissions or meet the assurance provisions. By further example, the authorization to emit that is provided by an allowance will not necessarily remain unchanged in the future. Under the final
ru les, the Administrator has the express authority to terminate or limit the authorization to the extent he or she determines to be necessary or appropriate to implement any provision of the CAA. The remaining paragraphs in the standard requirements section address permitting, recordkeeping and reporting, liability provisions, and the effect on other CAA provisions. For example, the paragraphs concerning permitting requirements are limited to stating that no title V permit revisions are necessary to account for allowance allocation, holding, deduction, or transfer and that the minor permit modification procedures can be used to add or change general descriptions in the title V permits of the monitoring and reporting approach used by the units covered by each title V permit. These provisions remain the same in the final rules as in the proposed rules.*** E.O. 12866 Review

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Page 562 of 647 (iv) §§96.407, 97.507, 97.607, and 97.707
-- Computation of Time These sections address how to determine the deadlines referenced in the Transport Rule trading program rules and are, except as discussed herein, essentially the same as in the proposed rules and for each of the Transport Rule trading programs. The final rules revise the proposed rule provisions concerning the treatment of the final date in any time period in order to make the provision consistent with the approach discussed above with regard to the new definition of “business day.” The revised provision states that, if the final date is not a “business day”, then the time period is extended to the next “business day.” (v) §§97.408, 97.508, 97.608, 97.708 and Part 78
-- Administrative Appeal Procedures Under the final Transport Rule, final decisions of the Administrator under the Transport Rule trading programs are appealable to EPA’s Environmen tal Appeals Board under the regulations set forth in Part 78 (40 CFR part 78), which are revised by the final Transport Rule to accommodate such appeals. The provisions in the final Transport Rule concerning appeals are, except as discussed herein, essent ially the same as in the proposed Transport Rule. The proposed Transport Rule would add a provision in Part 78 explaining who is an “interested person” with regard to a decision, i.e., a person who submitted*** E.O. 12866 Review

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Page 563 of 647 comments, testimony, or objections as part of t he process of making the decision or a person who submitted his or her name to the Administrator to be placed to an interested persons list. The final Transport Rule includes that provision, but with additional language that clarifies the process for submitting a name to be placed on such a list. (2) Allowance Allocations Sections 97.410 through 97.412, 97.510 through 97.512, 97.610 through 97.612, and 97.710 through 97.712 set forth: certain information related to allowance allocation and for implementation of the assurance provisions; the timing for allocation of allowances to existing and new units; and the procedures for new unit allocations. In particular, these sections include tables providing, for each state covered by the particular Transpo rt Rule trading program and for each year, the state trading budget (without the variability limit), new unit set - aside, and variability limits. These provisions in the final rules differ in several ways, from the proposed rules and are essentially the same for each of the Transport Rule trading programs. With regard to the tables in the final rules for the state trading budgets (without the variability limits), new unit set
asides, and variability limits, the identity of the specific states involved and the values for each state differ from the*** E.O. 12866 Review

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Page 564 of 647 tables in the proposed rules. The final rule values reflect the determinations and modeling underlying the final rules and discussed elsewhere in this preamble. With regard to existing unit allocations, the fina l rules provide that these allocations will be set forth in a notice of data availability to be issued by the Administrator. In contrast, the proposed rules stated that existing unit allocations would be set forth in an appendix to the rules for each Tran sport Rule trading program. EPA believes that including these allocations in a notice of data availability referencing the EPA website (rather than publishing them in tables requiring a large number of pages in the Federal Register for each Transport Rule trading program) is a more efficient method of making these allocations public, particularly since these allocations may be changed for 201 3 and thereafter by states through SIP revisions. In addition, under the final rules the allocations for an existin g unit can change if the unit does not operate (i.e., has no heat input) for two consecutive years starting in 2012. In that case, the unit continues to receive its existing unit allocation for those years plus only two more years. As explained elsewhere in this preamble, this is a modification of the proposed rules, under which a unit that did not operate for three consecutive years*** E.O. 12866 Review

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Page 565 of 647 would continue to receive its existing unit allocation for those years plus three more years. Under the final rule provis ions for new units, the Administrator allocates allowances from the new unit set
- aside for the state where the respective unit is located and for each year when the unit first becomes eligible for an allocation and each year thereafter. The units eligible for new unit set
- aside allocations include units commencing commercial operation on or after January 1, 2010, as well as several other categories of units, such as, for example, existing units that were not initially but then become covered units, existin g units whose allocations are lost due to lack of unit operation and that subsequently begin operating again, and units that lost their allocations because they changed location from one state to another. The approach in the final rules differs from the p roposed rules, which required that owners and operators initially request allowances from the new unit set
- aside when the unit first became eligible for an allocation. As discussed elsewhere in this preamble, under the final rules, EPA identifies which un its become eligible and when they become eligible, based on information provided in other submissions (e.g., certificates of representation, monitoring system certifications, and quarterly emissions reports) that such units must make to EPA, and the requir ement that owners and operators*** E.O. 12866 Review

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Page 566 of 647 to submit requests for new unit set
- aside allocations is removed in the final rules. The final rules also provide for two rounds of allocations from the new unit set
- aside, in contrast with the proposed rules that provided f or only one round. In the first round in the final rules (as in the single round in the proposed rules), a unit’s new unit set
- aside allocation initially equals that unit’s emissions

– - as determined in accordance with §§97.430
- 97.435, 97.530
- 97.535, 97.6 30
- 97.635, and 97.730
- 97.735 of the final rules and Part 75 (40 CFR part 75)

– - for the control period (annual or ozone season, depending on the Transport Rule trading program involved) in the preceding year. If the new unit set
- aside lacks sufficient all owances to provide this initial allocation for all of the new units, then each unit is allocated its proportionate share (based on its initial allocation amount) of the allowances in the new unit set
- aside. The Administrator issues a notice of data availability informing the public of the specific new unit allocations and provides an opportunity for submission of objections on the grounds that the allocations are not consistent with the requirements of the relevant final rule provisions. A second notice o f data availability is subsequently issued in order to make any necessary corrections in the specific new unit allocations. As discussed elsewhere in this preamble, the final rules establish*** E.O. 12866 Review

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Page 567 of 647 a somewhat different schedule for issuance of these notices of data availability than the proposed rules. In particular, a single set of dates (i.e., for the first notice, June 1 of the year for which the new unit allocations are described in the notice and, for the second notice, August 1 of that year) is established for all of the Transport Rule trading programs. For the reasons discussed elsewhere in this preamble, the final rules provide for a second round of allocations to the extent that any allowances remain in the new unit set
- aside after the allocations are made to new units in the first round. (In the proposed rules, remaining allowances were immediately allocated to existing units.) The units eligible for allocations in the second round are new units that commenced commercial operation during the control p eriod for which allocations are being made and during the prior control period. The second round allocation for each such unit initially equals the difference between the unit’s first round allocation (if any) and the unit’s emissions during the control p eriod for which allocations are being made. If the amount of allowances remaining in the new unit set
- aside after the first round is insufficient to provide this initial allocation for all of the second round units, then each such unit is allocated its pr oportionate share of the allowances remaining in the new unit set - aside. The Administrator uses notices of data availability*** E.O. 12866 Review

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Page 568 of 647 (which are issued by December 15 (for the annual trading programs) and September 15 (for the ozone season trading program) of the control period involved and February 15 (for the annual trading programs) and November 15 (for the ozone season trading program) before the allowance transfer deadline for the control period involved, in a manner analogous to the use of such notices in the first round, to inform the public about the identification of the units in the second round allocations and obtain and consider any objections and to inform the public about the amounts of the second round allocations. If, after both rounds of allocation s, any allowances remain in the new unit set
- aside, those allowances are allocated to existing units in proportion to such units’ allocations. The final rules also establish a separate Indian country new unit set
- aside in each state where Indian country i s located (i.e., in Florida, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Nebraska, New York, North Carolina, South Carolina, Texas, and Wisconsin). As discussed elsewhere in this preamble, the Administrator operates the Indian country new u nit set
- aside in essentially the same manner as state new unit set
- aside, except that unallocated allowances remaining in the Indian country after the two rounds of new unit set
- aside allocations are first placed in the new unit set
- aside in the state wher e the Indian country involved is located and then, if still*** E.O. 12866 Review

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Page 569 of 647 unallocated, are allocated to existing units in the state. As with the state new unit set
- aside, EPA will identify the new units qualifying for the Indian country new unit set
- aside, calculate th e allocations, and issue notices of data availability using the same schedules as notices for the state new unit set
- aside. Under the final rules (like under the proposed rules), if a unit in certain specified categories is allocated allowances that shoul d not have received them, the Administrator applies procedures under which the allocation is not recorded or the amount of the recorded allocations is deducted, with one exception. The exception is where the determination of compliance with the emission l imitation for the source that includes the unit has already been completed, in which case no action is taken to account for the erroneous allocation for the control period involved. While this procedure concerning recordation or deduction of allocations i s the same as under the proposed rules, the final rules change the description of the circumstances under which this procedure concerning recordation or deduction of allocations is applied. Under both the final rules and the proposed rules, this procedure is applied to a unit (whether an existing unit or a new unit) that receives an allocation but is not actually a covered unit. However, under the final rules,*** E.O. 12866 Review

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Page 570 of 647 another category of units
-- i.e., any existing unit that is not located

– - as of January 1 of t he control period for which the allocation is received
- – in the state from whose trading budget the allocation was made is also subject to this procedure. Although relatively few units are moved from one state to another, EPA believes that it is importa nt to address what happens to such units’ allocations, both because each state has a limited trading budget out of which all allocations for a year to existing and new units in that state must be made and because, under the assurance provisions, determinat ions are made about owners’ surrender of allowances based on, among other things, the allocations for units in a specific state. Because, under the final rules, a unit that is moved from one state to another may lose its existing unit allocation in the fi rst state under the above - described procedure, the final rules also makes such a unit eligible for allocations from the new
- unit set
- aside of the second state. Finally, the final rules remove, as no longer necessary, one category of units that the proposed rules included as subject to this procedure. The proposed rules, treated, as existing units, some units that had not yet operated but were projected to operate by January 1, 2012, and so the proposed rules made these units subject to the procedure for no t recording or for deducting allocations if they actually were not*** E.O. 12866 Review

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Page 571 of 647 required to certify their monitoring systems and hold allowances covering emissions starting January 1, 2012. The final rule does not treat projected units as existing units and so this
ca tegory of units no longer needs to be made subject to this procedure. (3) Designated Representatives and Alternate Designated Representatives Sections 97.413 through 97.418, 97.513 through 97.518, 97.613 through 97.618, and 97.713 through 97.718 establi sh the procedures for certifying and authorizing the designated representative, and alternate designated representative, of the owners and operators of a source and the units at the source and for changing the designated representative and alternate design ated representative. These sections also describe the designated representative’s and alternate designated representative’s responsibilities and the process through which he or she can delegate to an agent the authority to make electronic submissions to the Administrator. Except as discussed herein, the provisions in the final rules are the essentially same as in the proposed rules and for each of the Transport Rule trading programs. The designated representative is the individual (i.e., the natural pers on) authorized to represent the owners and operators of each covered source and covered unit at the source in matters*** E.O. 12866 Review

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Page 572 of 647 pertaining to all Transport Rule trading programs to which the source and units were subject. One alternate designated representative (al so an individual) can be selected to act on behalf of, and legally bind, the designated representative and thus the owners and operators. Because the actions of the designated representative and alternate legally bind the owners and operators, the designa ted representative and alternate must submit a certificate of representation certifying that each was selected by an agreement binding on all such owners and operators and is authorized to act on their behalf. In the final rules (like in the proposed rule s), the certificate of representation must contain: specified identifying information for the covered source (including location) and the covered units at the source and for the designated representative and alternate; the name of every owner and operator of the source and units; and certification language and signatures of the designated representative and alternate. The final rules require an additional piece of identifying information, i.e., whether the unit is located in Indian country. This is necess ary in order for the Administrator to implement the above
- described Indian country new unit set
- aside. All submissions (e.g., monitoring plans, monitoring system certifications, and allowance transfers) under the final rules for a covered source or covere d unit must be submitted, signed,*** E.O. 12866 Review

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Page 573 of 647 and certified by the designated representative or alternate, except that electronic submission may be delegated. In order to change the designated representative or alternate, a new certificate of representation must b e received by the Administrator. A new certificate of representation must also be submitted to reflect changes in the owners and operators of the source and units involved. The new certificate must be submitted within 30 days of such changes. The final rules make explicit an implied requirement of the proposed rules, i.e., that, if a unit is added to a source or is moved from one source to a second source, a certificate of representation needs to be submitted to reflect the change. This requirement is implicit in the proposed rules when a unit is added to a source because the designated representative would not be authorized to make submissions concerning the added unit unless that unit were included on the certificate of representation. Similarly, where a unit is moved to another source, new certificates of representation would need to be submitted in order for the correct designated representative to be authorized to make submissions concerning the moved unit. Moreover, because compliance accounts in t he Allowance Management System would cover all units at a given source and would be based on the information in the certificate of representation submitted by the designated representative for*** E.O. 12866 Review

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Page 574 of 647 the source, when a unit is moved from a source to a second
sour ce, the designated representative of the second source would need to submit a certificate of representation removing the moved unit from the list of units. The final rules explicitly require that a new certificate of representation be submitted to reflect changes (whether caused by the addition or removal of units) in which units are located at a source. In addition, the final rules impose a deadline on the submission requirement of 30 days from the date of the change in the units. This is analogous to th e maximum time period between a change in a unit’s owner or operator and the deadline for submission of a new certificate of representative reflecting to the change. Long before any actual move of a unit to a new location, owners and operators will need t o make decisions about, and plan the implementation of, such a move. Consequently, EPA believes that a 30
- day deadline after any move for reflecting the move in the certificate of representation is reasonable. In the event the change involves the additio n of a unit that operated before being located at the source, the final Transport Rule also requires that the designated representative provide in the certificate of representation information on the entity from which the unit was obtained, the date on whi ch the unit was obtained, and the date on which the unit became located at the source. In the event of*** E.O. 12866 Review

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Page 575 of 647 a change involving the removal of a unit, the designated representative must provide in the certificate of representation information on the entity that obtained the unit, the date on which that entity obtained the unit, and the date on which the unit became no longer located at the source. This information will enable the Administrator to determine what actions are necessary to reflect the change in uni ts located at the sources involved. For example, if a covered unit is moved from one source to second source, the Administrator will have the information necessary to determine whether the unit’s allocation should be changed to reflect movement of the uni t from one state to another. (4) Allowance Management System Sections 97.420 through 97.428, 97.520 through 97.528, 97.620 through 97.628, and 97.720 through 97.728 establish the procedures and requirements for using and operating the Allowance Managemen t System (which is the electronic data system through which the Administrator handles allowance allocation, holding, transfer, and deduction), and for determining compliance with the emissions limitations and assurance provisions, in an efficient and trans parent manner. The Allowance Management System also provides the allowance markets with a record of ownership of allowances, dates of allowance transfers, buyer and seller information, and the serial numbers*** E.O. 12866 Review

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Page 576 of 647 of allowances transferred. These sections of t he final rules are essentially the same as in the proposed rules and for each of the Transport Rule trading programs. (i) §§97.420, 97.520, 97.620, and 97.720

– - Compliance, Assurance, and General Accounts Under the final rules, the Allowance Management System contains three types of accounts. One type comprises compliance accounts, one of which the Administrator establishes for each covered source upon receipt of the certificate of representation for the source. A compliance account is the account in which all allowance allocations must be recorded and in which any allowances used by the covered source for compliance with the emissions limitations must be held. The designated representative and alternate for the source is also the authorized account r epresentative and alternate for the compliance account. A second type comprises general accounts, which can be established by any entity upon receipt by the Administrator of an application for a general account. General accounts can be used by any person or group for holding or trading allowances. To open a general account, a person or group must submit an application for a general account, which is similar in many ways to a certificate of representation. The provisions for changing the authorize d account representative and alternate, for*** E.O. 12866 Review

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Page 577 of 647 submitting a superseding application to take account of changes in the persons having an ownership interest with respect to allowances, and for delegating authority to make electronic submissions are analogous to those applicable to comparable matters for designated representatives and alternates. A third type comprises assurance accounts. The Administrator establishes one assurance account for each group of units having a common designated representative and loc ated in a state where the assurance provisions are triggered by total emissions exceeding the state trading budget plus variability. (ii) §§97.421 through 97.423, 97.521 through 97.523, 97.621 through 97.623, and 97.721 through 97.723

– - Recordation of All owance Allocations and Transfers Under the final rules, by [INSERT DATE 90 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER], the Administrator must record allowance allocations for existing units, as set forth in a required notice of data availabil ity, for the Transport Rule annual NO X , ozone - season NO X , and SO 2 trading programs for 2012 and 2013, unless, as discussed elsewhere in this preamble, a State notifies the Administrator that the State will submit a SIP revisions with existing
- unit allocati ons for 2013 by May 1, 2012. If the Administrator approves that SIP revision by October 1, 2012, the Administrator will record the State
determined existing
- unit allocations for 2013, and, in the*** E.O. 12866 Review

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Page 578 of 647 absence of such approval by that date, the Administrator wi ll record the EPA- determined existing
- unit allocations for 2013. By July 1, 2013, the Administrator must record existing
- unit allowance allocations (whether EPA
- or State - determined) for each Transport Rule trading program for 2014 and 2015. By July 1, 2 014, the Administrator must record existing
- unit allowance allocations for each Transport Rule trading program for 2016 and 2017. By July 1, 2015, the Administrator must record existing
unit allowance allocations for each Transport Rule trading program fo r 2018 and 2019. By July 1, 2016 and July 1 of each year thereafter, the Administrator must record existing
- unit allowance allocations for each Transport Rule trading program for the control period in the fourth year after the year of the applicable recor dation deadline. By August 1, 2012 and August 1 of each year thereafter, the Administrator must record new
- unit allowance allocations for each Transport Rule trading program for that year. These recordation deadlines differ from those in the proposed rul es for two reasons. First, as discussed elsewhere in this preamble, EPA is adopting provisions that allow states to submit, and EPA to approve, SIP revisions (abbreviated or full SIPs) under which the state, rather than the Administrator, determines the d istribution of allowances under one or more of the Transport Rule trading programs applicable in the state. In*** E.O. 12866 Review

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Page 579 of 647 selecting allocation recordation deadlines, EPA took into account and balanced certain countervailing factors. On one hand, EPA considered the need to provide a reasonable time for a state to develop, propose, and finalize, and for EPA to review and propose and finalize approval of, the SIP revision and the desirability of providing a reasonable opportunity for state distributions to become effec tive for a year relatively soon after the 2012 commencement of the Transport Rule trading programs. EPA’s experience with prior trading programs has shown that the process for development and submission of SIP revisions by states and approval by EPA in ma ny cases about 18 months and in some cases even longer. On the other hand, EPA considered the desirability of owners and operators having allocations in their compliance accounts a reasonable time before the year (referred to as the vintage year) for whic h the allocations are made. Having the allocations recorded, to the extent possible, before the vintage year facilitates compliance decisions and use of the allowance market in implementing such decisions. EPA believes that optimally allocations would be recorded at least 3 years in advance of the vintage year. In balancing these countervailing factors, EPA is adopting an allocation recordation schedule that provides initially for recordation ranging from 6 months to 18 months before the beginning of the control period in the first two years (i.e.,*** E.O. 12866 Review

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Page 580 of 647 2012 and 2013) for which allocations are made and that, as allocations for control periods in subsequent years are recorded, gradually increases the amount of time between recordation and the beginning of the year of the control period involved until allocations are recorded about three and one
- half years in advance. With regard to the need to facilitate states’ distribution of allowances, this approach gives states multiple opportunities to develop, submit, an d obtain EPA approval for SIPs under which the states (rather than EPA) will distribute allowances under the Transport Rule trading programs for control periods relatively early in the programs. Because of time (which has in the past ranged from about 6 months to about 2 years) it may take for a state to develop and submit such a SIP and because of the time (which has in the past been at least 6 months) it will likely take EPA to review and approve such a SIP, EPA believes that 2013 is the first year for which a state can determine allowance distributions and have them recorded some minimal time before the control period involved. With regard to the need to record allowances in advance, this approach achieves recordation at least 6 months in advance and eventually achieves recordation by what EPA believes is an optimal amount of time (greater than 3 years) before the control period for which recorded allowances are issued.*** E.O. 12866 Review

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Page 581 of 647 As discussed elsewhere in this preamble, the approach to allowance recordation in th e final rules results in following schedule for submission of abbreviated or full SIPs under the final Transport Rule. SIP revisions with existing
- unit allocations for 2013 control periods must be submitted to the Administrator by May 1, 2012. Complete abbreviated and full SIPs must be submitted to the Administrator by: January 1, 2013 in order to govern allowance allocation and auction for control periods in 2014 and 2015; January 1, 2014 in order to govern control periods in 2016 and 2017; January 1, 20 15 in order to govern allowance allocation and auction for control periods in 2018 and 2019; and January 1, 2016 and by January 1 of any year thereafter in order to govern allowance allocation and auction for control periods in the fourth year after such s ubmission deadline. The second reason for the differences in the recordation deadlines in the final rules, as compared to the proposed rules, is that, in order to simplify the recordation schedule for owners and operators and EPA, EPA set uniform recordat ion deadlines for all of the Transport Rule trading programs. EPA believes that these deadlines provide the Agency sufficient time, after receipt of any information necessary to determine allocations (e.g., for new unit set
- aside allocations, the emission s data from the control period in the prior year), to*** E.O. 12866 Review

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Page 582 of 647 complete the recordation of allocations and, as discussed above, makes the allocations available to owners and operators before the year for which the allocations are made. EPA notes that these are dea dlines and that the Administrator has the discretion, where feasible and appropriate, to record allocations before such deadlines. Under the final rules (as under the proposed rules), the process for transferring allowances from one account to another is quite simple. A transfer is submitted providing, in a format prescribed by the Administrator, the account numbers of the accounts involved, the serial numbers of the allowances involved, and the name and signature of the transferring authorized account representative or alternate. If the transfer form containing all the required information is submitted to the Administrator and, when the Administrator attempts to record the transfer, the transferor account includes the allowances identified in the form , the Administrator records the transfer by moving the allowances from the transferor account to the transferee account within 5 business days of the receipt of the transfer form. (iii) §§97.424, 97.524, 97.624, and 97.724

– - Compliance with Emissions Limi tations Under the final rules (as under the proposed rules), once a control period has ended (i.e., December 31 for the Transport*** E.O. 12866 Review

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Page 583 of 647 Rule NO X and SO 2 annual trading programs and September 30 for the
ozone - season NO X trading program), covered sources have a window of opportunity
-- until the allowance transfer deadline of midnight on March 1 or December 1 following the control period for the annual and ozone - season trading programs respectively
-- to evaluate their reported emissions and obtain any allowances that they need to cover their emissions during that control period. Each allowance issued in each Transport Rule trading program authorizes emission of one ton of the pollutant involved, and so is usable for compliance in that trading program, for a cont rol period in the year for which the allowance was allocated or a later year. Consequently, each source needs

– - as of the allowance transfer deadline

– - to have in its compliance account, or properly submit a transfer that moves into its compliance accou nt, enough allowances usable for compliance to authorize the source’s total emissions for the control period. If a source fails to hold sufficient allowances for compliance, then the owners and operators must provide, for deduction by the Administrator, two allowances allocated for the control period in the next year for every allowance that the owners and operators failed to hold as required to cover emissions. In addition, the owners and operators are subject to discretionary civil penalties for each violation.*** E.O. 12866 Review

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Page 584 of 647 (iv) §§97.425, 97.525, 97.625, and 97.725

– - Compliance with Assurance Provisions Under the final rules (as under the proposed rules), the assurance provisions ensure that each state will eliminate its significant contribution to nonattainment and interference with maintenance that EPA identifies in this action. A requirement that owners surrender allowances under the assurance provisions is triggered only for certain owners and operators of sources and units in a state where the total state covered - unit emissions for a control period exceed the applicable state trading budget with the variability limit. Moreover, the surrender requirement is implemented based on groups of sources and units with a common designated representative. For each gro up of sources and units with a common designated representative, the owners and operators of such sources and units must surrender allowances only if the units’ emissions (referred to as the designated representative’s share of emissions) during the contro l period involved exceed the units’ allocations plus share of the state variability limit (referred to as the designated representative’s share of the state trading budget with variability). As discussed elsewhere in this preamble, EPA decided to implemen t the assurance provisions on a common designated representative basis, rather than on an owner basis. The final*** E.O. 12866 Review

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Page 585 of 647 rules implement in a series of steps the process of determining which states have total covered
- unit emissions sufficient to trigger the allowa nce surrender requirement for a given control period and determining, using the approach based on common designated representatives, which owners and operators are subject to the allowance surrender and whether those owners and operators are in compliance. This designated
- representative
based process is more streamlined than the owner
- based process in the proposed rules. First, the Administrator performs the calculations necessary to determine whether any state has total covered
- unit emissions for a contr ol period greater than the state trading budget with the one
- year variability limit. As discussed elsewhere in this preamble, EPA decided not to use a three
- year variability limit because, among other things, such a limit seems unnecessary to ensuring elimination of significant contribution to nonattainment and interference with maintenance and would make compliance planning extremely difficult for owners and operators. By May 1, 2013 and May 1 of each year thereafter, the Administrator promulgates a noti ce of data availability of the results of these calculations. Second, by July 1, for states identified in the May 1 notice of data availability as having emissions exceeding the state trading budget with variability, the designated*** E.O. 12866 Review

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Page 586 of 647 representative of each n ew unit in the state that operated during but did not receive an allocation for the year involved must submit a statement to the Administrator with certain information about the unit. This information
-- i.e., the unit’s allowable emission rate for the po llutant involved ( NO X or SO 2 ) and heat rate -- is used to calculate a surrogate allocation for the unit to be used solely for the purposes of determining whether the group of units with a common designated representative that includes the unit, had emissio ns exceeding allocations plus share of the state’s variability limit. Third, the Administrator calculates, for each state identified in the May 1 notice of data availability and for each common designated representative of a group of units (which groups c an include one or more units and sources) in the state, the designated representative’s share of emissions, the designated representative’s share of the state trading budget with the variability limit, and the amount (if any) that the groups of owners and operators of units represented by the designated representative (which groups can include one or more owners and operators) in the state must surrender under the assurance provisions (i.e., the designated representative’s proportionate share of the excess of state emissions over the state trading budget with the variability limit). The Administrator promulgates by August 1 a notice of data*** E.O. 12866 Review

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Page 587 of 647 availability of the results of these calculations, provides an opportunity for submission of objections, and promulgat es by October 1 a second notice of availability of any necessary adjustments to the calculations. In contrast with the proposed rules, objections may be submitted concerning information in the August 1 notice, whether or not that information was also prov ided in the May 1 notice. In short, the process of issuing notices is shortened in the final rules by providing one, comprehensive opportunity to submit objections to the May 1 and August 1 notices, rather than two separate opportunities, one for each not ice. Also in contrast with the proposed rules, the deadlines for issue of notices of data availability for implementation of the assurance provisions are made uniform under the final rules for all of the Transport Rule trading programs. EPA is taking this approach for the same reasons that the deadlines for issuance of notices of data availability for new unit set
- aside allocations are made uniform for all of these trading programs. Fourth, the owners and operators identified in the August 1 notice of dat a availability as being required to surrender allowances under the assurance provisions must transfer, by November 1, to the assurance account created by the Administrator for such owners and operators the amount of allowances (usable for compliance) that the Administrator*** E.O. 12866 Review

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Page 588 of 647 determined in the August 1 notice of data availability. Where the August 1 notice indicates that a specified surrender amount is owed by a group of two or more owners and operators, all the group members are liable for the surrender amou nt, and it is up to the owners and operators in the group to decide who will actually surrender allowances. This is analogous to the situation where a group of two or more owners and operators of covered units at a source is required to hold allowances
covering the unit’s emissions and therefore the group of owners and operators is liable. See 58 FR 3590, 3599 (January 11, 1993) (discussing liability of owners and operators under allowance - holding requirements of Acid Rain Program). As part of implementin g the designated
- representative
- based approach of the assurance provisions in the final Transport Rule, the final rules provide that the Administrator (instead of the owners, as in the proposed rules) will create an assurance account for each group of the owners and operators of units with a common designated representative in each state where the assurance provisions are triggered. Because the final rules require owners and operators to transfer surrendered allowances to the appropriate assurance account (rather than requiring the Administrator to deduct from assurance accounts established by the owners), there is no need for the proposed rule provisions concerning identification of which allowances are to be deducted*** E.O. 12866 Review

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Page 589 of 647 and first
- in, first
- out deduction in t he absence of such identification. The final Transport Rule provides that, in general, the surrender amounts specified in the August 1 notice for owners and operators are final and will not be revised even if the underlying data (e.g., emissions data) use d in the calculations underlying the August 1 notice are subsequently revised. However, the final rule sets forth limited exceptions to this: where such data are revised as a result of a decision in or settlement of litigation concerning the data on appea l. EPA believes that the limitation on revisions of the surrender amounts specified in the August 1 notice are necessary to provide some certainty to owners and operators and avoid the potential for multiple changes in owners’ and operators’ required surr ender amounts. Because the surrender amount for each group of owners and operators of units with a common designated representative in a state is calculated using emission data from all of the covered units in that state, each change in one or a few units ’ emission data that might occur after issuance of the August 1 notice could otherwise change the calculated surrender amounts for all or many groups in the state. For the limited exceptions where the final rules provide that the surrender amounts specifi ed in the August 1 notice may be revised, the final rules require the Administrator to set a*** E.O. 12866 Review

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Page 590 of 647 new surrender deadline for any additional surrender required and to transfer allowances back out of the assurance account involved for any reduced surrender requir ement, as appropriate. Under the final rules (as under the proposed rules), it is not a violation of the CAA for total state covered
- unit emissions to exceed the state trading budget with the variability limit or for an owner or operator to become subject to the allowance surrender requirement under the assurance provisions. However, the failure of any owner or operator or group of two or more owners and operators to surrender the required amount of allowances in the assurance account created for such own ers and operators violates the CAA and is subject to discretionary penalties, with each required allowance that was not surrendered and each day of the control period involved constituting a violation. (v) §§97.426 through 97.428, 97.526 through 97.528, 9 7.626 through 97.628, and 97.726 through 97.728

– - Miscellaneous Provisions These sections in the final rules (as in the proposed rules) include provisions allowing banking of the allowances issued in the Transport Rule trading programs, i.e., the retent ion of unused Transport Rule allowances allocated for a given control period for use or trading in a later control period. While this can potentially cause emissions from sources*** E.O. 12866 Review

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Page 591 of 647 in some states in some control periods to be greater than the allowances all ocated for those control periods, the assurance provisions limit such emissions in a way that ensures that each state’s significant contribution to nonattainment and interference with maintenance that EPA has identified in this action will be eliminated. T hese sections also include provisions stating that the Administrator can, at his or her discretion and on his or her own motion, correct any type of error that he or she finds in an account in the Allowance Management System. In addition, the Administrato r can review any submission under the Transport Rule trading programs, make adjustments to the information in the submission, and deduct or transfer allowances based on such adjusted information. (5) Emissions Monitoring, Recordkeeping, and Reporting. Se ctions 97.430 through 97.435, 97.530 through 97.535, 97.630 through 97.635, and 97.730 through 97.735 establish emissions monitoring, recordkeeping, and reporting requirements for Transport Rule units. These provisions reference the relevant sections of P art 75 (40 CFR part 75), where the specific procedures and requirements for monitoring and reporting NO X and SO 2 mass emissions are set forth. The provisions in the final rules are virtually the same as the monitoring, recordkeeping, and reporting requirements in the*** E.O. 12866 Review

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Page 592 of 647 proposed rules and under previous EPA
- administered trading programs, e.g., the Acid Rain Program and NO X Budget and CAIR trading programs. The final rule provisions are also essentially the same for each of the Transport Rule trading programs , except for differences reflecting the different pollutants and control periods involved. Under the provisions of the final rules and under Part 75, a unit has several options for monitoring and reporting. A unit’s options are to use: a CEMS; an except ed monitoring methodology ( NO X mass monitoring for certain peaking units and SO 2 mass monitoring for certain oil
- and gas - fired units); low mass emissions monitoring for certain, non
- coal - fired, low emitting units; or an alternative monitoring system approved by the Administrator through a petition process. In addition, unit owners and operators may submit, and the Administrator can approve, petitions for alternatives to Transport Rule and Part 75 monitoring, recordkeeping, and reporting requirements. As discussed elsewhere in this preamble, the final rules and Part 75 specify that each CEMS must undergo rigorous initial certification testing and periodic quality assurance testing thereafter. In addition, when a monitoring system is not operating properly , standard substitute data procedures are applied and result in a conservative estimate of emissions for the period involved. Further, the final rules and Part 75*** E.O. 12866 Review

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Page 593 of 647 require electronic submission, to the Administrator and in a format prescribed by the Admini strator, of a quarterly emissions report. The final rules include revised language in §§97.430(b)(3), 97.530(b)(3), 97.630(b)(3) that incorporates by reference, and thereby applies to units in the Transport Rule trading programs, clarification that EPA recently adopted in §75.4(e) of Part 75 (for Acid Rain Program units) concerning the requirements for certification, recertification, and diagnostic testing of emission monitoring systems when a unit adds a new stack or new add - on SO 2 or NO X emission cont rol device. See 76 FR 17288, 17298
- 300 (March 28, 2011) . The revised language is adopted for the reasons set forth in the preamble of that Acid Rain Program final rule and in order to continue the approach, in the Transport Rule trading program rules, of adopting monitoring, recordkeeping, and reporting requirements that are generally consistent with those in the Acid Rain Program, which covers many units in the Transport Rule trading programs.
XII. Statutory and Executive Order Reviews A. Executive Orde r 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review*** E.O. 12866 Review

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Page 594 of 647 Under EO 12866 (58 FR 51735, October 4, 1993), this action is an “economically significant regulatory action” because it is likely to 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. Accordingly, EPA submitted this action to the OMB for review under EO 12866 and EO 13563 (76 FR 3821, January 21, 2011) and any changes in response to OMB recommendations have been documented in the docket for this action. In addition, EPA prepared an ana lysis of the potential costs and benefits for this action. This analysis is contained in the Regulatory Impact Analysis (RIA) for this action. For more information on the costs and benefits for this rule, please refer to Table VIII.C - 3 of this preamble. When estimating the human health benefits and compliance costs in Table VIII.C - 3 of this preamble, EPA applied methods and assumptions consistent with the state
- of - the - science for human health impact assessment, economics and air quality analysis. EPA app lied its best professional judgment in performing this analysis and believes that these estimates provide a reasonable indication of the expected benefits and costs to the nation of this rulemaking. The RIA available in*** E.O. 12866 Review

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Page 595 of 647 the docket describes in detail the empirical basis for EPA’s assumptions and characterizes the various sources of uncertainties affecting the estimates below. In doing what is laid out above in this paragraph, EPA adheres to EO 13563, “Improving Regulation and Regulatory Review,” (76 FR 3, 821, January 21, 2011), which is a supplement to EO 12866. In addition to estimating costs and benefits, EO 13563 focuses on the importance of a “regulatory system [that]...promote[s] predictability and reduce[s] uncertainty” and that “identify[ies] and us e[s] the best, most innovative, and least burdensome tools for achieving regulatory ends.” EO 13563 also states that “[i]n developing regulatory actions and identifying appropriate approaches, each agency shall attempt to promote such coordination, simpli fication, and harmonization. Each agency shall also seek to identify, as appropriate, means to achieve regulatory goals that are designed to promote innovation.” We recognize that the utility sector has compliance obligations related to multiple environmental statutes authorizing regulatory action, including this rule’s requirements to reduce interstate transport of harmful ozone and fine particles and their precursors, as well as other rules’ requirements to reduce air toxic emissions, to reduce greenhou se gas emissions, to safely manage coal combustion wastes, and to protect aquatic wildlife from water intake procedures. In the*** E.O. 12866 Review

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Page 596 of 647 wake of promulgating this final rule, EPA recognizes that moving forward the agency needs to approach these rulemakings in ways that allow the industry to make practical investment decisions that minimize costs in complying with all of the final rules, while still securing the fundamentally important environmental and public health benefits that led Congress to enact those authori ties in the first place. At the same time, EPA notes that the flexibility inherent in the allowance
- trading mechanism included in this rule affords utilities themselves a degree of latitude to determine how best to integrate compliance with the emissions reduction requirements of this rule and those of the other rules. The final rule will also reduce emissions of directly emitted PM and ozone precursors, and estimates of the PM2.5 - related benefits of these air quality improvements may be found in Table s VI II.C 1 and VIII.C - 2 of this preamble. When characterizing uncertainty in the PM
-mortality relationship, EPA has historically presented a sensitivity analysis applying alternate assumed thresholds in the PM concentration
- response relationship. In its synt hesis of the current state of the PM science, EPA’s 2009 Integrated Science Assessment for Particulate Matter concluded that a no
- threshold log - linear model most adequately portrays the PM-mortality concentration
response relationship. In the RIA accompan ying this rulemaking,*** E.O. 12866 Review

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Page 597 of 64 7 rather than segmenting out impacts predicted to be associated levels above and below a “bright line” threshold, EPA includes a “lowest measured level” (LML) analysis that illustrates the increasing uncertainty that characterizes expos ure attributed to levels of PM2.5 below the LML of each epidemiological study used to estimate PM2.5 - related premature death. Figures provided in the RIA show the distribution of baseline exposure to PM2.5 , as well as the lowest air quality levels measure d in each of the epidemiology cohort studies. This information provides a context for considering the likely portion of PM
- related mortality benefits occurring above or below the LML of each study; in general, our confidence in the size of the estimated
r eduction PM2.5 - related premature mortality diminishes as baseline concentrations of PM2.5 are lowered. Approximately 69 percent of the avoided impacts occur at or above an annual mean PM2.5 level of 10 μg/m 3 (the LML of the L aden et al. 2006 study); about 96 percent occur at or above an annual mean PM2.5 level of 7.5 μg/m3 (the LML of the Pope et al. 2002 study). Although the LML analysis provides some insight into the level of uncertainty in the estimated PM mortality benefits, EPA does not view the LML as a threshold and continues to quantify PM
- related mortality impacts using a full range of modeled air quality concentrations. It is important to note that the monetized benefits include many but not all health effects associated with*** E.O. 12866 Review

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Page 598 of 647 PM2.5 exposure. Ben efits are shown as a range from Pope, et al., (2002) to Laden, et al., (2006). These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because there is no clear scientific ev idence that would support the development of differential effects estimates by particle type. The cost analysis is also subject to uncertainties. Estimating the cost conversion from one process to another is more difficult than estimating the cost of addi ng control equipment because it is more dependent on plant specific information. More information on the cost uncertainties can be found in the RIA. A summary of the monetized benefits and net benefits for the final rule at discount rates of 3 percent and 7 percent is in Table VIII.C - 3 of this preamble. For more information on the benefits analysis, please refer to the RIA for this rulemaking, which is available in the docket. B. Paperwork Reduction Act EPA is required to document the information collect ion burden imposed by the Transport Rule on industry, s tates, and EPA in an information collection request (ICR). The ICR describes the information collection requirements associated with the Transport Rule and estimates the incremental costs of*** E.O. 12866 Review

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Page 599 of 647 complianc e with all such requirements, such as the requirement for industry to monitor, record, and report emissions data to EPA. The ICR for the final Transport Rule has been submitted for approval by OMB under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq ., and the information collection requirements it documents are not enforceable until such approval has been granted. An ICR was also submitted to OMB in support of the proposed Transport Rule; no adverse comment was received by EPA on either the information collection requirements or their associated cost estimates as described in that document. The costs associated with the information collection requirements of the Transport Rule include start up and capital costs for units newly affected by an emissions trading program, or whose reporting status has changed (e.g., from ozone season only to annual reporting), as well as the additional operation and maintenance costs for Transport Rule
- affected units already participating in an EPA
- administered cap and tra de program. More information on the ICR analysis is included in the final Transport Rule docket. The records and reports generated by these activities will be used by EPA and states to ensure that affected facilities comply with emissions limits and othe r requirements. Such records and reports are also helpful to EPA and states in both*** E.O. 12866 Review

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Page 600 of 647 identifying affected facilities that may not be in compliance with applicable requirements and in discerning which units and what records or processes should be inspected. The incremental capital and operating costs associated with the recordkeeping and reporting burden to Transport Rule
affected sources in states participating in the Transport Rule trading program are approximately $2 6 million annually in 2010 dollars. The total number of burden hours associated with the recordkeeping and reporting burden to Transport Rule
- affected sources in states participating in the Transport Rule trading program is approximately 185,000 hours annually. These estimates include the a nnualized cost of installing and operating appropriate SO 2 and NO X emissions monitoring equipment to measure and report the total emissions of these pollutants from affected EGUs (serving generators greater than 25 megawatt electrical). The burden to stat e and local air agencies, as documented in the ICR, includes any necessary SIP revisions, performance of monitor certifications, and fulfillment of audit responsibilities. Burden is defined at 5 CFR 1320.3(b). The amendments do not require any notificat ions or reports beyond those required by the General Provisions. The recordkeeping requirements require only the specific information needed to determine compliance, which is specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted*** E.O. 12866 Review

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Page 601 of 647 to EPA for which a claim of confidentiality is made will be safeguarded according to EPA policies in 40 CFR part 2, subpart B, Confidentiality of Business Information. An Agency may not conduct or sponsor, and a person is not required to respond t o a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA’s regulations in 40 CFR are listed in 40 CFR part 9. When this ICR is approved by OMB, the Agency will publish a technical amendment to 40 CFR part 9 in the Federal Register to display the OMB control number for the approved information collection requirements contained in this final rule. C. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) generally requires an agency to p repare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of this final rule on small entities, small entity is defined as:*** E.O. 12866 Review

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Page 602 of 647 (1) A sma ll business as defined by the Small Business Administration’s (SBA) regulations at 13 CFR 121.201. For the electric power generation industry, the small business size standard is an ultimate parent entity defined as having a total electric output of 4 mil lion megawatt
- hours (MW - h ou r) or less in the previous fiscal year. (2) A small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) A small organizati on that is any not
- for - profit enterprise which is independently owned and operated and is not dominant in its field.

Table XII.C - 1 — Potentially Regulated Categories and Entities a Category NAICS

Codeb Examples of Potentially Regulated Entities
I ndustry 221112 Fossil
- fuel - fired electric utility steam generating units. Federal Government 221112 c Fossil
- fuel - fired electric utility steam generating units owned by the

federal government. State/Local Government 221112 c Fossil
- fuel - fi red electric utility steam generating units owned by

municipalities. Tribal Government 921150 Fossil
- fuel - fired electric utility steam generating units in Indian*** E.O. 12866 Review

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Page 603 of 647 Country. a Include NAICS categories for source categories that own and operate electric gen erating units only. b North American Industry Classification System. c Federal, state, or local government - owned and operated establishments are classified according to the activity in which they are engaged. EPA used Velocity Suite’s Ventyx data as a bas is for identifying plant ownership and compiling the list of potentially affected small entities. For plants burning fossil fuel as the primary fuel, plant
- level boiler and generator capacity, heat input, generation, and emissions data were aggregated by owner and then parent company. For cooperatives, investor
- owned utilities, and subdivisions that generate less than 4 billion kWh of electricity annually but may be part of a large entity, additional research on power sales, operating revenues, and other business activities was performed to make a final determination regarding size. After considering the economic impacts of this final rule on small entities, EPA certifies that this action will not have a significant economic impact on a substantial number o f small entities (No SISNOSE). This certification is based on the economic impact of this final rule to all affected small entities across all industries affected. EPA assessed the potential impact of this action on small entities and found that there a re about 660 potentially affected small units (i.e.,*** E.O. 12866 Review

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Page 604 of 647 greater than 25 MW and generating less than 4MM MWh) out of 3,625 existing units in the Transport Rule states . The majority of these EGUs are owned by entities that do not meet the small entit y definition. The remaining 271 of the 660 EGUs are owned by 108 potentially affected small entities and are likely to be affected by this rule. EPA estimates that 2 4 of the 108 identified small entities will have annualized costs greater than 1 percent of their revenues, and the other 8 4 are projected to incur costs less than 1 percent of revenues. Eleven small entities out of 108
- approximately 10 percent
- are e stimated to have annualized costs greater than 3 percent of their
revenues . EPA has lessened the impacts for small entities by excluding all units smaller than 25 MWe. This exclusion, in addition to the exemptions for cogeneration units and solid waste incineration units, eliminates the burden of higher costs for a substantial number of small entities located in the Transport Rule states . While the total number of small entities has increase d compared to the proposal as a result of updated modeling and changes in geographic coverage, the number with compliance costs greater than 1 percent of revenues has fallen , and both the number and percentage of significantly impacted small entities (cost s greater than 3 percent of revenues) are lower - now 10 percent compared to 17 percent in the proposal. The share of*** E.O. 12866 Review

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Page 605 of 647 significantly impacted small entitie s has fallen because of updated modeling and the change in the allowance allocation methodology (See section VII.D for more information about allowance allocations). Although this final rule will not have a significant economic impact on a substantial number of small entities, EPA nonetheless has tried to reduce the impact of this rule on small entities. In EPA’s modeling, most of t he cost impacts for these small entities and their associated units are driven by lower electricity generation relative to the base case. Specifically, two small units reduce their generation by significant amounts, driving the bulk of the costs for all small entities. Excluding these two units, one of the main drivers of small entity impacts are higher fuel costs, which the affected units would incur irrespective of whether they had to comply with this rule. In addition, EPA’s decision to exclude units smaller than 25 MWe has already significantly reduced the burden on approximately 390 small entities . For more information on the small entity impacts associated with the final rule, please re fer to the Regulatory Impact Analysis for this final rule , which can be found in the docket for this rule and on the website www.epa.gov/airtransport . D. Unfunded Mandates Reform Act*** E.O. 12866 Review

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Page 606 of 647 Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531
- 1538, requires federal agencies, unless otherwise prohibited by law, to assess the effects of their regulatory actions on state, local, and tribal governments and the private sector. This rule contains a Federal mandate that may result in expenditure s 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 later. Consistent with the int ergovernmental consultation provisions of section 204 of the UMRA EPA held consultations with the governmental entities affected by this rule during the proposal phase. Subsequently, EPA sent a letter to the ten Representative National Organizations to dr aw their attention to the Transport Rule Notice of Data Availability (NODA) on allowance allocations and other related matters and to invite their comments. During the NODA comment period, EPA participated in informational calls with the Environmental Cou ncil of the States (ECOS) and the National Governors Association to provide information about the NODA directly to state and local officials. There were no new concerns raised during these informational calls. In addition, EPA also conducted consultation s with federally recognized tribes prior*** E.O. 12866 Review

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Page 607 of 647 to finalizing this rule and invited them to comment on the allowance allocation NODA. EPA has added a new unit set
- aside for EGUs constructed in Indian country provision to this final rule to ensure allowances are available to tribes and tribal sovereignty is respected. Consistent with section 205, EPA identified and considered a reasonable number of regulatory alternatives. In the proposal, EPA included three remedy options that it considered when developing this final rule: (1) the preferred remedy trading programs, (2) State Budgets/Intrastate Trading, and (3) Direct Controls. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost
- effective or l east burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. EPA examined the potential economic impacts on state and municipality
- owned entities associated with this rulemakin g based on assumptions of how the affected states will implement control measures to meet program requirements. Although EPA does not conclude that the requirements of the UMRA apply to the Transport Rule, these impacts have been calculated to provide add itional understanding of the nature of potential impacts and additional information.*** E.O. 12866 Review

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Page 608 of 647 EPA has determined that this rule contains a Federal mandate that may result in expenditures of $100 million or more in 1 year. EPA has determined that this rule contai ns no regulatory requirements that might significantly or uniquely affect small governments and that development of a small government plan under section 203 of the Act is not required. The costs of compliance will be borne predominately by sources in the private sector although a small number of sources owned by state and local governments may also be impacted. The requirements in this action do not distinguish EGUs based on ownership, either for those units that are included within the scope of the rule or for those units that are exempted by the generating capacity cut
- off. Therefore, this rule is not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small gover nments. E. Executive Order 13132: Federalism This final rule does not have federalism implications. It will not have substantial direct effects on the s tates, on the relationship between the national government and the s tates, or on the distribution of p ower and responsibilities among the various levels of government, as specified in Executive Order 13132. The final rule primarily affects private industry, and*** E.O. 12866 Review

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Page 609 of 647 does not impose significant economic costs on state or local governments. Thus, Executive Order 13132 does not apply to the final rule. Although section 6 of Executive Order 13132 does not apply to the final rule, EPA did provide information to state and local officials during development of both the proposal and final rule. EPA sent a letter to the ten Representative National Organizations to draw their attention to the Transport Rule Notice of Data Availability (NODA) on allowance allocations and other related matters and to invite their comments. Following that letter in early 2011, EPA participa ted in informational calls with the Environmental Council of the States (ECOS) and the National Governors Association to provide information about the NODA directly to state and local officials. There were no new concerns raised during these informational calls. F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments Under Executive Order 13175 (65 FR 67249, November 9, 2000), EPA may not issue a regulation that has tribal implications, that imposes substantial direct complia nce costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by tribal governments, or EPA consults*** E.O. 12866 Review

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Page 610 of 647 with tribal officials early in the process of developing the propo sed regulation and develops a tribal summary impact statement. EPA has concluded that this action may have tribal implications if a new unit covered by the rule is built in Indian country. Additionally, tribes have a vested interest in how this final rule affects their air quality. However, it will neither impose substantial direct compliance costs on tribal governments, nor preempt tribal law. EPA consulted with tribal officials during the process of finalizing this regulation to permit them to have meani ngful and timely input into its development. EPA received comments on the proposed Transport Rule that the Agency did not properly conduct consultation during the proposal phase of the rulemaking process. In response to these comments, EPA sent a letter t o all federally - recognized tribes in the country offering consultation. In addition, several commenters also noted that the Agency did not adequately consider opportunities for tribes to enter into any of the trading programs and, in particular, did not co nsider sovereignty issues when addressing how to distribute allowances to potential new units in Indian country. On January 7, 2011, EPA issued a NODA requesting comment on allocations for new units in Indian country, among other topics.*** E.O. 12866 Review

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Page 611 of 647 The Agency held a consultation call with three tribes on January 21, 2011. A follow up call was held on February 4, 2011 with two of the three original tribes plus 12 additional tribes and representatives from the National Tribal Air Association. In all ten tribes participa ted in these calls as consultation and five participated as information
- sharing. EPA considered the additional input from these consultation and information calls, in conjunction with the public comments, in the development of the final rule. Accordingly, EPA created an Indian country new unit set
- aside to specifically address tribes’ concerns regarding the protection of tribal sovereignty in the distribution of allowances for new units in Indian country. See section VII.D.2 of this preamble for details o n the Indian country set - aside for new units constructed in Indian country within states covered by the Transport Rule. As required by section 7(a) of the Executive Order, EPA’s Tribal Consultation Official has certified that the requirements of the Exec utive Order have been met in a meaningful and timely manner. A copy of the certification is included in the docket for this action. G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks*** E.O. 12866 Review

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Page 612 of 647 Executive Order 13045 (62 FR 19,885, April 23, 1997) applies to any rule that: 1) is determined to be “economically significant” as defined under EO 12866, and 2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on chil dren. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of this planned rule on children, and explain why this planned regulation is preferable to other potentially effective and reasonably f easible alternatives considered by the Agency. This action is not subject to Executive Order 13045 because it does not involve decisions on environmental health or safety risks that may disproportionately affect children. EPA believes that the emission re ductions from the strategies in this rule will further improve air quality and will further improve children’s health. Analyses by EPA that show how the emission reductions from the strategies in this rule will further improve air quality and children’s he alth can be found in the RIA for this rule. H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use Executive Order 13211 (66 FR 28355, May 22, 2001) provides that agencies shall prepare and submit to the Administrat or of*** E.O. 12866 Review

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Page 613 of 647 the Office of Regulatory Affairs, OMB, a Statement of Energy Effects for certain actions identified as “significant energy actions.” Section 4(b) of Executive Order 13211 defines “significant energy action” as “any action by an agency (normally publ ished in the Federal Register ) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking: (1) (i) that is a significa nt regulatory action under Executive Order 12866 or any successor order, and (ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy; or (2) that is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action.” This rule is a significant regulatory action under Executive Order 12866, and this rule is likely to have a significant adverse effect on the supply, distribution, or use of energy. EPA prepared a Statement of Energy Effects for this action as follows. Under the provisions of this rule, EPA projects that approximately 4 .8 GW of additional coal
- fired generation may be removed from operation by 2014. In practice, however, the units projected to be uneconomic to maintain may be “mothballed,” retired, or kept in service to ensure transmission reliability in certain parts of the grid. These units are predominantly*** E.O. 12866 Review

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Page 614 of 647 small and infrequently
- used generating units dispersed throughout the area affected by the rule . If current forecasts of either natural gas prices or electricity demand were revised in the future to be higher, that would create a greater incentive to keep these units operational. EPA estimates that average retail electricity price could increase in the contiguous U.S. by about 1.7 percent in 2012 and 0.8 percent in 2014. This is generally less of an increase than often occurs with fluctuating fuel prices and other market factors. Related to this, EPA projects limited impacts on coal and gas prices . The average delivered coal price decreases by about 1.4 percent in 2012 and 0.9 percent in 2014 relative to the base case as a result of decreased coal demand and shifts in the type of coal demanded. EPA also projects that electric power sector - deliver ed natural gas price will increase by about 0.3% over the 2012
- 2030 timeframe and that natural gas use for electricity generation will increase by approximately 200 billion cubic feet (BCF) by 2014. These impacts are well within the range of price variabi lity that is regularly experienced in natural gas markets. Finally, under the Transport Rule, EPA projects that coal production for use by the power sector will increase above 2009 levels by 21 million tons in 2012 and a further 14 million tons in 2014, a s opposed to 30 million tons in 2012 and a further 26 million tons in 2014 without the*** E.O. 12866 Review

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Page 615 of 647 Transport Rule in place. The Transport Rule is not projected to impact production of coal for uses outside the power sector (e.g., export, industrial sources), which represent approximately 6% of total coal production in 2009. EPA does not believe that this rule will have any other impacts (e.g., on oil markets) that exceed the significance criteria. EPA believes that a number of features of the rulemaking serve to redu ce its impact on energy supply. First, the trading component of the Transport Rule provides flexibility to the power sector and enables industry to comply with the emission reduction requirements in the most cost
- effective manner compared to the alternati ve remedy approaches on which EPA took comment in the proposal , thus minimizing overall costs and the ultimate impact on energy supply. Second, the more stringent budgets for SO 2 are set in two phases, providing adequate time for EGUs to install pollution controls. In addition, both the operational flexibility of trading and the ability to bank allowances for future years helps industry plan for and ensure reliability in the electrical system. For more details concerning energy impacts, see the RIA for th e Transport Rule. I. National Technology Transfer Advancement Act*** E.O. 12866 Review

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Page 616 of 647 Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104

– 113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in i ts regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) t hat are developed or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This rule will require all sou rces to meet the applicable monitoring requirements of 40 CFR part 75. Part 75 already incorporates a number of voluntary consensus standards. Consistent with the Agency’s Performance Based Measurement System (PBMS), Part 75 sets forth performance criteria that allow the use of alternative methods to the ones set forth in Part 75. The PBMS approach is intended to be more flexible and cost effective for the regulated community; it is also intended to encourage innovation in analytical technology and improved data quality. At this time, EPA is not recommending any revisions to Part 75; however, EPA periodically revises the test procedures set forth in Part 75. When EPA revises the test procedures set forth in Part 75 in the future, EPA will address*** E.O. 12866 Review

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Page 617 of 647 the use of any new voluntary consensus standards that are equivalent. Currently, even if a test procedure is not set forth in Part 75, EPA is not precluding the use of any method, whether it constitutes a voluntary consensus standard or not, as long as it meets the p erformance criteria specified; however, any alternative methods must be approved through the petition process under 40 CFR 75.66 before they are used. J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low - Income Populations Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make envir onmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority, low
- income, and Tribal populations in t he United States. During development of this final Transport Rule, EPA considered its impacts on low
- income, minority, and tribal communities in several ways and provided multiple opportunities for these communities to meaningfully participate in the rulemaking process. The proposed Transport Rule included*** E.O. 12866 Review

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Page 618 of 647 an analysis of its effects on these populations; this section describes additional analysis conducted since proposal, EPA’s responses to key comments on environmental justice issues raised during the comment period, and the public outreach and comment opportunities for this rule. A summary of the history, statutory authority, and key components of this final Transport Rule are described in the Executive Summary (section III) of this preamble. That sectio n also summarizes a supplemental notice of proposed rulemaking (SNPR) that EPA is publishing simultaneously with this final rule to correct a procedural flaw by providing an opportunity for public comment on issues that arose from new analyses with updated inventories and modeling platforms. Briefly, this final Transport Rule will reduce emissions of SO 2 and NO X in 23 eastern and central states in 2012 and 2014 that contribute to the annual and/or 24
- hour PM2.5 nonattainment or interfere with maintenance i n downwind states. It will also reduce emissions of ozone
- season NO X in 20 eastern and central states in 2012 and 2014 that contribute to the 1997 ozone nonattainment or interfere with maintenance in downwind states. This rule is replacing an earlier rule (the 2005 Clean Air Interstate Rule (CAIR)) that was first vacated and then remanded to EPA by the U.S. Court of Appeals for the District of Columbia Circuit in 2008.*** E.O. 12866 Review

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Page 619 of 647 1. Consideration of Environmental Justice in the Transport Rule Development Process a nd Response to Comments The effects of this final Transport Rule on the most highly exposed populations were integral in its development. This rule uses EPA’s authority in CAA section 110(a)(2)(d) to reduce SO 2 and nitrogen oxide NO X pollution that signifi cantly contributes to downwind PM2.5 and ozone nonattainment or maintenance areas. As a result, the rule will reduce exposures to ozone and PM2.5 in the most - contaminated areas (i.e., areas that are not meeting the 1997 ozone and 1997 and 2006 PM2.5 Natio nal Ambient Air Quality Standards (NAAQS)). In addition, the rule separately identifies both nonattainment areas and maintenance areas (maintenance areas are those that are projected to meet the NAAQS but that, based on past data, are in danger o f exceeding the standards in the future). This requirement reduces the likelihood that any areas close to the level of the standard will exceed the current health - based standards in the future. This final Transport Rule implements these emission reduction s using a n emissions trading mechanism with assurance provisions for power plants. EPA recognizes that many environmental justice communities have voiced concerns in the past about emissions trading and the potential for any emissions increases i n any location. EPA also received several comments on this issue during the comment period for the proposed Transport*** E.O. 12866 Review

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Page 620 of 647 Rule. As described below, we believe this final rule addresses the concerns raised on this issue during the comment period. PM2.5 and ozon e pollution from power plants have both local and regional components: part of the pollution in a given location

– even in locations near emissions sources

– is due to emissions from nearby sources and part is due to emissions that travel hundreds of miles and mix with emissions from other sources. Therefore, in many instances the exact location of the upwind reductions does not affect the levels of air pollution downwind. It is important to note that the section of the Clean Air Act providing authority f or this rule, section 110(a)(2)(D), unlike some other provisions, does not dictate levels of control for particular facilities. As at least one commenter noted, none of the alternatives put forward by EPA in the proposed rule could have ensured no emissio n increases at any facility. Under the direct control alternative, the emission rate for each facility would have been limited but each facility could emit more by increasing their power output in order to meet electricity reliability or other goal s. Under the intrastate trading option, sources could not trade allowances with sources in other states but individual facilities within each state could have increased their emissions as long as another facility in the state had decreased theirs at some time .*** E.O. 12866 Review

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Page 621 of 647 The final Transport Rule allows sources to trade allowances with other sources in the same or different states while firmly constraining any emissions shif ting that may occur by requiring a strict emission ceiling in each state (the budget plus variability limit . In addition, assurance provisions in the rule outline the allowanc e surrender penalties for failing to meet the budget plus variability limits; there are additional allowance penalties as well as financial penalties for failing to hold an adequate number of allowances to cover emissions. This approach eliminates emission s in each state that significantly contributes to downwind nonattainment or maintenance areas, while allowing power companies to adjust generation as needed and ensure that the country’s electricity needs will continue to be met. EPA maintains that the ex istence of these assurance provisions, including the penalties imposed when triggered, will ensure that state emissions will stay below the level of the budget plus variability limit. In addition, all sources must hold enough allowances to cover their emis sions. Therefore, if a source emits more than its allocation in a given year, either another source must have used less than its allocation and be willing to sell some of the excess, or the source itself had used less than its allocation in one or more pre vious years (i.e., banked allowances for future use).*** E.O. 12866 Review

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Page 622 of 647 In summary, the final remedy addresses commenter concerns about localized hot spots and reduces ambient concentrations of pollution where they are most needed by sensitive and vulnerable populations b y: considering the science of ozone PM2.5 transport to set strict state budgets to eliminate significant contributions to ozone and PM2.5 nonattainment and maintenance (i.e., the most polluted) areas; implementing air quali ty assured trading ; requiring any emissions above the level of the allocations to be offset by emission decreases; and imposing strict penalties for sources that contribute to a state’s exceedance of its budget plus variability limit. In addition, it is important to note that nothing in this final rule allows sources to violate their title V permit or any other federal, state, or local emissions or air quality requirements. EPA received comments from several tribal commenters regarding the lack of allocations in the proposal to new units in Indian Country. EPA responded to these comments by changing the allocation approach in the final rule to create Indian country new unit set
- asides. In order to protect tribal sovereignty, these set
- asides will be managed and distributed by the federal government regardless of whether the Transport Rule in the adjoining or surrounding state is implemented through a federal implementation plan (FIP) or state implementation plan (SIP). While there are no existing power plants in Indian*** E.O. 12866 Review

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Page 623 of 647 country covered by this Transport Rule, the Indian country set
asides will ensure that any future new units built in Indian country will be able to get the necessary allowances. A full discussion of the Indian country new unit set
- aside s can be found in section VII.D.2. EPA also received several comments during the comment period from individuals and groups requesting additional emission reductions to further protect sensitive and vulnerable communities. While EPA has adjusted the emissi on requirements somewhat in the final rule to accommodate revised data and updated modeling results, we are finalizing emission reductions very similar to the level in the proposal. This is because EPA believes that the emission reductions required by thi s final rule are appropriate to meet the statutory requirements of CAA section 110(a)(2)(d) and respond to the concerns raised by the Court’s opinion in North Carolina that remanded the Clean Air Interstate Rule (CAIR) to the agency in 2008. In addition, it is important to note that CAA section 110(a)(2)(d), which addresses transport of criteria pollutants between states, is only one of many provisions of the CAA that provide EPA, states, and local governments with authorities to reduce exposure to ozone a nd PM2.5 in communities. These legal authorities work together to reduce exposure to these pollutants in communities, including for minority, low
- income, and tribal*** E.O. 12866 Review

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Page 624 of 647 populations, and provide substantial health benefits to both the general public and sensit ive sub
- populations. For example, the recently - proposed Mercury and Air Toxics Standards (MATS) would also result in significant reductions in SO 2 emissions and provide significant health and environmental benefits nationwide. This and other actions descr ibed in section III will have substantial and long
- term effects on both the U.S. power industry and on communities currently breathing dirty air. Therefore, we anticipate significant interest in many, if not most, of these actions from environmental justi ce communities, among many others. EPA will continue to provide multiple opportunities for comment on these actions, similar to the opportunities provided during the comment process for this rule detailed at the end of this section. We encourage environme ntal justice communities to review and comment on these actions. 2. Potential Environmental and Public Health Impacts among Populations Susceptible or Vulnerable to Air Pollution EPA expects that this final rule will provide significant health and environmental benefits to, among others, people with asthma, people with heart disease, and people living in ozone or fine particle ( PM2.5 ) nonattainment areas. EPA’s analysis of the effects of this rule, including information on air quality changes and the resu lting health benefits, is presented both in*** E.O. 12866 Review

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Page 625 of 647 section VIII of this preamble and in the Regulatory Impact Analysis (RIA) for this rule. These documents can be accessed through the rule docket No. EPA- HQ - OAR- 2009
- 0491 and from the main EPA webpage for the rul e www.epa.gov/airtransport . EPA considered several aspects of the effects of the Transport Rule on minority, low
- income, and tribal populations. These included: amount of emission reductions and where they take place (including any potential for areas of increased emissions); the changes in ambient concentrations across the affected area; the estimated health benefits; and how the estimated health benefits are distributed among different populations, including those susceptible and vulnerable to air pollut ion health impacts. a. Emission reductions EPA’s emissions modeling data indicate that implementation of the Transport Rule will substantially reduce SO 2 emissions from electric generating units (EGUs). As noted in section III, emissions in states covered by the Transport Rule will decrease by 6.4 million tons (73 percent) in 2014 compared to 2005 (the year the Clean Air Interstate Rule was finalized). Emissions are also projected to decrease when compared to the base case (the base case estimates emissions in 2014 in the absence of this rule or the Clean Air Interstate Rule it is replacing). EPA estimates that SO 2 emissions in 2014 in covered states will be*** E.O. 12866 Review

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Page 626 of 647 3.9 million tons lower (62 percent lower) compared to the base
case. EPA also assessed emission chan ges in states not covered by the Transport Rule. Emissions in the states not covered by the Transport Rule are also projected to decrease substantially compared to 2005 levels; in 2014 SO 2 emissions are projected to be approximately 430,000 tons lower (30 percent lower) than in 2005.As described in section VI.C, EPA’s modeling does project that some states not covered by any of the fine particle control programs in the final Transport Rule may experience increases of SO 2 emissions greater than 5,000 tons compared to the base case. These states are Arkansas, Colorado, Louisiana, Montana, and Wyoming. These emission increases are the result of forecasted changes in operation of power plant units outside of the Transport Rule states due to the intercon nected nature of the utility grid (i.e., shifts in generation of electricity to sources outside the Transport Rule states ) or influence of the rule on the market for lower sulfur coal. For example, EPA projects that the rule will raise demand for lower sulfur coal in the states covered by the Transport Rule for PM2.5 (thereby raising its price), which may lead sources in states not covered for PM2.5 to choose higher
- sulfur coals that increase SO 2 emissions in those states.*** E.O. 12866 Review

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Page 627 of 647 EPA is not requiring SO 2 emission reductions in these states under this rule because our modeling indicates none of these states’ contributions would increase enough to cause them to meet or exceed the thresholds described in section V.D for either of the PM2.5 standards. EPA’s aut hority under CAA section 110(a)(2)(d) is limited to addressing this significant contribution to nonattainment and interference with maintenance. However, as noted above, EPA has recently proposed the Mercury and Air Toxics Standards that will apply nationwide and result in substantial additional SO 2 emission reductions, including in states not covered by the Transport Rule. EPA’s emission modeling data indicates that ozone
- season NO X emissions from EGUs in states covered by the Transport Rule wi ll be approximately 340,000 tons lower (36 percent lower) in 2014 than they were in 2005. Emissions in states not covered by the Transport Rule are also expected to decrease somewhat (approximately 82,000 tons or 25 percent). EPA’s modeling does project that two states (California and Pennsylvania) may experience increases of NO X emissions greater than 5,000 tons in 2014 compared to 2005 levels. California is not covered by the Transport Rule; in Pennsylvania, 2005 was an unusually low
emitting year and s ources are projected to increase their heat input slightly (usually meaning they are generating more power) after the rule takes effect.*** E.O. 12866 Review

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Page 628 of 647 EPA also assessed the expected changes in seasonal NO X emissions with implementation of the Transport Rule compared t o the base case (i.e., without the rule) in 2014. The modeling indicates ozone
- season NO X emissions from EGUs in both covered states and non - Transport Rule states under this rule will be lower than they would have been in 2014 in the base case. Ozo ne season NO X emissions in covered states are projected to decrease by approximately 74,000 tons (11 percent); ozone - season NO X emissions in non
- Transport Rule states are projected to decrease by approximately 10,000 tons (4 percent). Both Califor nia and Pennsylvania are projected to have lower NO X emissions in 2014 under the Transport Rule as compared to the base case. In addition, EPA anticipates that additional upcoming actions, including likely additional interstate transport reductions to hel p states attain the upcoming new ozone NAAQS, will result in significant additional NO X reductions in the future. b. Air quality improvements EPA assessed the air quality metrics (called “design values”) for each NAAQS addressed in this rule: 24
- hour PM2. 5 , annual PM2.5 , and ozone. We then compared these metrics for the final rule to the same metrics in the recent past (2003
- 2007 average ambient air quality) and for the 2014 base case to assess improvements in air quality.*** E.O. 12866 Review

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Page 629 of 647 EPA’s modeling indicates that the re will be significant improvements in air quality as measured by the 24
- hour PM2.5 standard. Throughout much of the eastern half of the U.S. 24
- hour PM2.5 design values are projected to improve over 10 μg/ m3 compared to the 2003
- 2007 average levels. In addition, compared to the 2014 base case levels, we project the Transport Rule will result in improvements of 8
- 10 μg/ m3 in a broad swath of states stretching from far southwestern New York through Pennsylvania, Ohio, West Virginia, Maryland, Indiana, south ern Illinois, eastern Missouri, eastern Arkansas, Kentucky, Tennessee, northern Alabama, and northern Mississippi. Isolated areas of Virginia and northern New Jersey are also expected to see this level of improvement. Improvements of 2
- 6 μg/m3 are project ed in surrounding states stretching from New England and New York to Minnesota, Iowa, the far eastern edge of Nebraska, Missouri, eastern Kansas, Oklahoma, Texas, the Gulf of Mexico states, and the states bordering the Atlantic Ocean from Florida to New Hampshire. EPA modeling indicates that air quality as measured by the annual PM2.5 design value will also improve. Improvements range from 2 to over 4 μg/m 3 compared to the 2003
- 2007 average levels throughout the eastern half of the U.S. Annual PM2.5 air qua lity with the transport Rule are also projected to improve compared to the 2014 base case levels. The largest improvements of up to*** E.O. 12866 Review

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Page 630 of 647 4 μg/m3 are projected to occur in northern West Virginia and a small area in northwestern Tennessee. Improvements of up to 3 μg/m3 are projected for portions of the Ohio River valley areas of southwestern Pennsylvania, Ohio, West Virginia; Kentucky, central Tennessee, and southern Indiana. Improvements of up to 2 μg/m3 are projected to take place in a ring of surrounding states including all or most of New York, Michigan, Indiana, Illinois, Missouri, Arkansas, the far eastern edge of Oklahoma, the northeastern edge of Texas, Louisiana, Mississippi, Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, P ennsylvania, and New Jersey. Smaller improvements are projected in New England, Wisconsin, the Plains states, southeastern New Mexico, and Florida. EPA modeling indicates that ozone air quality will improve greatly (10
- 12 ppb or more) across much of the ea stern U.S. between the average levels seen in 2003
- 2007 and implementation of the Transport Rule. Most of the improvements take place in the base case; that is, they are the result of federal and state programs other than the Transport Rule. However, ozone air quality is projected to improve somewhat as a direct result of the Transport Rule. Improvements in ozone design values compared to the base case of more than 1 ppb are projected for portions of Florida, eastern Oklahoma, and areas along the upper reac hes of the Ohio River. In addition, improvements in ozone design*** E.O. 12866 Review

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Page 631 of 647 values of up to 1 ppb are projected over a wide area across the eastern U.S. from New England to Texas and north to Minnesota. Improvements are also projected in north
- central Colorado. EPA ’s modeling does indicate small increases in annual PM2.5 air quality design values in the final rule compared to the 2014 base case in two counties outside of the Transport Rule states : one county in northern Colorado and one county in eastern Monta na. As noted above in the section on emissions, these increases are likely the result of forecasted changes in electricity generation due to the interconnected nature of both the utility grid and the national low
- sulfur coal market. It should be noted tha t 2003
- 2007 average air quality levels in these counties is well below the level of the NAAQS and that it does get even cleaner under the final rule. In addition, other actions, including federal rules such as the recently proposed Mercury and Air Toxics S tandards, state, or local actions may also improve air quality in these areas over the next few years. As described in section VI II . B , EPA anticipates that this final rule will reduce, but not eliminate, the number of nonattainment and maintenance areas fo r the 1997 ozone and PM2.5 and 2006 PM2.5 NAAQS. As noted above, ozone and PM2.5 concentrations are the result of both local emissions and long
range transport of pollution. Even when the significant contributions of upwind states are fully eliminated, additional*** E.O. 12866 Review

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Page 632 of 647 emission reductions within the nonattainment area and/or the downwind state will be needed for some areas to attain and maintain the NAAQS. c. Estimated Health benefits This rule reduces concentrations of PM2.5 and ozone pollution. Exposure to the se pollutants can cause, or contribute to, adverse health effects that affect many minority, low
income, and tribal individuals and communities. PM2.5 and ozone are particularly (but not exclusively) harmful to children, the elderly, and people with exist ing heart and lung diseases, including asthma. Exposure to these pollutants can cause premature death and trigger heart attacks, asthma attacks in those with asthma, chronic and acute bronchitis, emergency room visits and hospitalizations, as well as milder illnesses that keep children home from school and adults home from work. High rates of heart disease (e.g., high blood pressure) 123 and asthma 124 exist in many environmental justice communities, making these populations more susceptible to air pollution he alth impacts.

123 Neighborhood of Residence and Incidence of Coronary Heart Disease Ana V. Diez Roux, M.D., Ph.D. et al. N Engl J Med 2001; 345:99
- 106; July 12, 2001. 124 Centers for Disease Control and Prevention. 2007 National Health 11. Interview Survey Data. Table 4
- 1. Current Asthma Prevalence Percents by Age, United States: National Heal th Interview Survey, 2007. Atlanta, GA: U.S. Department of Health and Human Services, CDC, 2010. Accessed June 1, 2010.*** E.O. 12866 Review

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Page 633 of 647 In addition, many individuals in these communities lack access to high quality health care to treat these illnesses 125
. We estimate that in 2014 the PM
- related annual benefits of the final rule include approximately 13,000 to 34,000 fewer premature mortalities, 8,700 fewer cases of chronic bronchitis, 15,000 fewer non
- fatal heart attacks, 8,500 fewer hospitalizations (for respiratory and cardiovascular disease combined), 10 million fewer days of restricted activity due to respiratory illness an d approximately 1.7 million fewer lost work days. We also estimate substantial health improvements for children in the form of fewer cases of upper and lower respiratory illness, acute bronchitis, and asthma attacks. Ozone health - related benefits are expe cted to occur during the summer ozone season (usually ranging from May to September in the eastern U.S.). Based upon modeling for 2014, annual ozone related health benefits are expected to include (in addition to the PM
- related benefits above) between 27
- 120 fewer premature mortalities, 240 fewer hospital admissions for respiratory illnesses in children and older adults, 86 fewer emergency room admissions for asthma, 160,000 fewer days with restricted activity levels, and 51,000 fewer “school absence” days when children are absent from school due to illnesses. When adding the PM and ozone
- related mortalities together, we
125 R. Nelson, Eds. National Institute of Medicine, 2003.*** E.O. 12866 Review

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Page 634 of 647 find that the final rule will yield between 13,000 and 34,000 fewer premature mortalities. It should be noted that, as discussed in t he RIA, that there are other benefits to the emission reductions discussed here, including many other health benefits beyond reducing the risk of premature mortality. Additional benefits of reducing emissions of SO 2 include improved visibility, reduced
ac idification of lakes and streams, and reduced mercury methylation in contaminated waters; additional benefits of NO X reductions include improved visibility, reduced acidification of lakes and streams and reduced coastal eutrophication. d. Distribution of Health Benefits Among Different Populations EPA also estimated the PM2.5 mortality risks according to race, income, and educational attainment before and after implementation of this Transport Rule. We used premature mortality for this analysis for sever al reasons: it is the most serious health effect of exposure to PM2.5 ,and EPA has access to nationwide incidence and demographic data at an appropriate scale to conduct this type of analysis. EPA included educational attainment in this assessment because research on the effects of PM2.5 has found that educational attainment is inversely related to the risk of all
- cause mortality. That is, populations with lower levels of education (in particula r, less*** E.O. 12866 Review

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Page 635 of 647 than grade 12) experience higher rates of PM2.5 mortal ity. Krewski and colleagues 126 note in their analysis of this relationship that the level of education attainment is likely to be a surrogate for the effects of complex socioeconomic processes (including factors such as race and income) on mortality. In the first step of the analysis, we estimated baseli ne (2005) PM2.5 mortality risk by race (White, Black, Asian, Native American) among people living in the counties with the highest (top 5 percent) PM2.5 mortality risk . We also estimated baseline PM2.5 mortality risk by race among people living in the cou nties with both the highest (top 5 percent) poverty rate and the highest (top 5 percent) PM2.5 mortality risk in 2005. And, we estimated the baseline (2005) PM2.5 mortality risk by educational attainment for people living in the highest PM2.5 mortality risk counties. In the second step, we estimated the changes in risk for different races among the people living in these “high
- risk” and “high risk and high
- poverty” counties resulting from implementation of other existing rules in 2014 an d from implementation of just the Transport Rule in 2014. Finally, in

126 Krewski D, Jerrett M, Burnett RT, Ma R, Hughes E, Shi Y, Turner C, Pope CA, Thurston G, Calle EE, Thunt MJ. Extended follow - up and spatial analysis of the American Cancer Society study linking particulate air pollution and mortality. HEI Research Report, 140, 2009; Health Effects Institute, Boston, MA.*** E.O. 12866 Review

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Page 636 of 647 the third step we compared the effects of the Transport Rule by race in the high
- risk and high risk/high
- poverty counties with the effects on people (by race) living in all other countie s. In 2005, people living in the highest
- risk counties and in the high risk/high poverty counties had substantially greater risks of PM2.5 - related death than people living in the other 95 percent of counties. This was true regardless of race: the differences among races in both groups of counties was very small and dwarfed by the large difference between the two groups of counties for all races. For educational attainment, in contrast, our analysis found that people with less than high school education had significantly greater risks from PM2.5 mortality than people with a greater than high school education. This was especially true for people living in the highest
- risk counties, but also held true for people living in all other counties. In summary, in 2005, having less than a high school or high school education, living in one of the poorest counties, and living in a high air pollution risk county are associated with higher PM2.5 mortality risk; race is not. Our analysis of the effects of the Transport Rule on this underlying exposure pattern finds that the rule will significantly reduce the PM2.5 mortality among all populations of different races living throughout the U.S. compared to both 2005 and 2014 pre
- rule (i.e., base case) levels. No gr oup will*** E.O. 12866 Review

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Page 637 of 647 experience any increases in PM2.5 related deaths as a result of implementing the Transport Rule. The analysis indicates that the populations with the largest improvement (i.e., largest decline) in PM2.5 mortality risk as a result of the Transport Rule in 2014 (compared to the base case in 2014) are people living in the highest
- risk counties. Among these counties, the largest improvements are for people with less than high school or high school education. These reductions in risk with in the highest
- risk counties, as well as the reductions in risk within the other 95 percent of counties, are distributed among populations of different races fairly evenly. Therefore, there is no indication that people of particular race receive a greater benefit (or smaller benefit) than others. The analysis indicates that people living in the high risk/high poverty counties will experience larger improvements in risk from the Transport Rule compared to their counterparts in the other counties. This result suggests that the Transport Rule is pr oviding the greatest risk reductions improvements among counties containing the poorest, and highest risk, populations. There is also little difference in the improvement in risk among races; in other words, people in the hi gh risk/high poverty counties experience the same improvement in risk regardless of race.*** E.O. 12866 Review

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Page 638 of 647 The analysis also indicates that this rule, in conjunction with the implementation of existing or proposed rules (e.g., the proposed Mercury and Air Toxics Standards ), will reduce the disparity in risk between the highest
- risk counties and the other 95 percent of counties for all races and educational levels. In addition, implementation of this Transport Rule and other rules will, together, reduce risks in the poorest and highest risk counties to the approximate level of risk for the rest of the counties before implementation. This analysis is presented in more detail in the RIA for this rule which is available in the rule docket No. EPA
- HQ - OAR- 2009
- 0491 and from the main EPA webpage for the rule www.epa.gov/airtransport . 3. Meaningful Public Participation EPA defines “Environmental Justice” to include meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and polic i es. To promote meaningful involvement, EPA developed a communication and outreach strategy to ensure that interested communities had access to the proposed Transport Rule , were aware of its content, and had an opportunity to comment during the comment period. These efforts are summarized below.*** E.O. 12866 Review

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Page 639 of 647 As EPA began considering approaches to address the court remand of the 2005 Clean Air Interstate Rule, long before the rule was p roposed, the agency also began gathering input from a large range of stakeholders. In the spring of 2009, EPA held a series of listening sessions to gather information and perspectives from stakeholders prior to the formal start of the rulemaking process. These stakeholders included a number of environmental groups who requested that EPA consider several potential environmental justice issues during development of this rule. In addition, many environmental justice organizations were represented at a November 2009 EPA
- Health and Human Services White House Stakeholder Briefing entitled “The Public Health Benefits of Energy Reform” in which EPA discussed our intention to propose this rule in the spring of 2010 and participants had the opportunity to respond. Finally, EPA notified Indian Tribes of our intent to propose this rule in the fall of 2009 during a regularly scheduled meeting to update the National Tribal Air Association members of upcoming EPA policies and regulations and to receive input from them on the effects of these efforts in Indian country. These were not opportunities for stakeholders to comment on the specifics of the proposal, as they took place prior to its development, but they provided valuable information that EPA used in developing t he proposal.*** E.O. 12866 Review

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Page 640 of 647 Just after the rule was proposed in July 2010, EPA presented a summary of information related to the proposed Transport Rule at the National Environmental Justice Advisory Council (NEJAC) meeting in Washington, DC, and responded to questions f rom NEJAC members regarding the proposed rule. EPA also solicited suggestions for how to engage environmental justice communities during the rule comment period. During the public comment period, EPA held public hearings in Chicago, Philadelphia, and Atlan ta. Each hearing was advertised by EPA through a variety of products targeted to general audiences (e.g., fact sheets, press release, slide presentation, etc.); on EPA’s environmental justice listserve; and by non - profit organizations (e.g., American Lung Association). The public hearings were held in public buildings (i.e., no formal identification required to enter or to speak) and were open for 11 hours (9am
- 8 pm) to accommodate commenters with various work schedules. All three hearings were well
attended by members of the general public. During hearing breaks, EPA staff spent time talking with individuals, including those representing environmental justice organizations or communities, to understand their perspectives in greater detail. As noted above, several commenters at each hearing made comments related to the need to protect communities living near power plants and the most vulnerable individuals. Some of these*** E.O. 12866 Review

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Page 641 of 647 commenters specifically mentioned environmental justice; others mentioned issues often o f concern to environmental justice communities, such as hot spots, interest in additional emission reductions and greater environmental protection, and concern over the effects of the rule on the most sensitive and vulnerable populations. In September 2010 , during the comment period, EPA held a webinar for EJ communities on the proposed Transport Rule. A presentation tailored for an audience of environmental justice, community, and tribal representatives was specifically designed for this webinar. It was se nt to registered participants beforehand and put on the Transport Rule webpage, where it remains posted. The presentation included both information on the context of the rule, plain language information describing the rule itself, and directions on how to comment on the rule. EPA staff made a short presentation and answered questions about the Transport Rule on a standing bi
-monthly Community conference call targeted to environmental justice and tribal representatives and organizations. In addition, at the fall 2010 NEJAC meeting in Kansas City, Missouri, EPA provided details of the proposed Transport Rule as part of a larger discussion of a sector - based approach to utility regulation. Regarding tribal consultation, EPA sent letters to all 565 federally - rec ognized Tribes in the country offering consultation*** E.O. 12866 Review

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Page 642 of 647 on the proposed Transport Rule. In addition, the January 7 NODA on allowance allocation methodologies specifically requested comment on allocating allowances to new units in Indian Country. EPA held two f ormal consultation and information
- sharing calls with 14 interested Tribes in late January and early February 2011. Tribes participating on these consultation and information calls provided comments on the proposed rule and the allowance allocation NODA. A s noted above, this additional input from the consultation process was taken into account in the development of the final rule. See Section XII.F for more information on tribal consultation. 4. Summary EPA believes that the vast majority of communities and individuals in areas covered by this rule, including numerous low - income, minority, and tribal individuals and communities in both rural areas and inner cities in the eastern and central U.S., will see significant improvements in air quality and resulting improvements in health. EPA’s assessment of the effects of the proposed and final Transport Rules on these communities included a) the structure of the rule and responses to comments received on issues specific to these communities; b) expected SO 2 and NO X emission reductions; c) expected PM2.5 and ozone air quality improvements; d) expected health benefits, including asthma and other health effects of particular concern*** E.O. 12866 Review

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Page 643 of 647 for environmental justice communities; and e) a quantitative assessment of the expect ed socioeconomic distribution of a key health benefit (reduction in premature mortality). All of these analyses indicate large health and environmental benefits for these communities; none show evidence of adverse effects. As a result, EPA concludes that we do not expect disproportionately high and adverse human health or environmental effects on minority, low
- income, or tribal populations in the United States as a result of implementing this final Transport Rule. K. Congressional Review Act The Congression al Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A Major rule cannot take effect until 60 days after it is published in the Federal Register. This action is a ‘‘major*** E.O. 12866 Review

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Page 644 of 647 rule’’ as defined by 5 U.S.C. 804(2). This rule will be effective [ insert date 60 days after publication ]. L. Judicial Review Petitions for judicial review of this action must be filed in the United States Court of Appeals for the District of Columbia Circuit by [INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION]. Section 307(b)(1) of the CAA indicates which Federal Courts of Appeal have venue for petitions of review of final actions by EPA. This section provides, in part, that petitions for review must be filed in the Court of Appeals for the District of Columbia Circuit if (i) the agency action consists of ‘‘nationally applicable regulations promulgated, or final action taken, by the Administrator,’’ or (ii) such action is locally or regionally applicable, if ‘‘such action is based on a determination of nationwide scope or effect and if in taking such action the Administrator finds and publishes that such action is based on such a determination.’’ Any final action related to the Transport Rule is ‘‘nationally applicable’’ within the meaning of section 307(b)(1). Through this rule, EPA interprets section 110 of the CAA, a provision which has nationwide applicability. In addition, the Transport Rule applies to 27 States. The Transport Rule is also based on a common core of factual*** E.O. 12866 Review

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Page 645 of 647 findings and analyses concerning the trans port of pollutants between the different states subject to it. For these reasons, the Administrator also is determining that any final action regarding the Transport Rule is of nationwide scope and effect for purposes of section 307(b)(1). Thus, pursuant to section 307(b) any petitions for review of final actions regarding the Transport Rule must be filed in the Court of Appeals for the
District of Columbia Circuit within 60 days from the date final action is published in the Federal Register. Filing a petition for reconsideration of this action does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed and shall not postpone the effectiveness of such rule or action. In addition, pursuant to CAA section 307(b)(2) this action may not be challenged later in proceedings to enforce its requirements.*** E.O. 12866 Review

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Page 646 of 647 Federal Implementation Plans to Reduce Interstate Transport of Fine Particulate Matter and

Ozone ( Page 6 28 of 1339 )
In addition, this action is subject to the provisions of section 307(d). CAA section 307(d)(1)(B) provides that section 307(d) applies to, among other things, to "the promulgation or revision of an implementation plan by the Administrator under CAA section 110(c)" (42 U.S.C. 7407(d)(1)(B)). The Agency has complied with procedural requirements of CAA section 307(d) during the course of this rulemaking.
List of Subjects 40 CFR Part 51 Administrative practice and procedure, Air pollution control, Intergovernmental relations, Nitrogen oxides, Ozone, Particulate matter, Regional haze, Reporting and recordkeeping requirements, Sulfur dioxide. 40 CFR Part 52 Administrative practice and procedure, Air pollution control, Intergovernmental relati ons, Nitrogen oxides, Ozone, Particulate matter, Regional haze, Reporting and recordkeeping requirements, Sulfur dioxide. 40 CFR Parts 72*** E.O. 12866 Review

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Page 647 of 647 Acid rain, Administrative practice and procedure, Air pollution control, Electric utilities, Intergovernmental relatio ns, Nitrogen oxides, Reporting and recordkeeping requirements, Sulfur dioxide. 40 CFR Part 78 Acid rain, Administrative practice and procedure, Air pollution control, Electric utilities, Intergovernmental relations, Nitrogen oxides, Reporting and recordkeeping requirements, Sulfur dioxide. 40 CFR Part 97 Administrative practice and procedure, Air pollution control, Electric utilities, Nitrogen oxides, Reporting and recordkeeping requirements, Sulfur dioxide.
DATE:________________________

______________________________ Lisa P. Jackson , Administrator.