1 Regional Haze: Revisions to Provisions Gov erning Alternatives to Source-Specific Best Available Retrofit Technology (BART) Determinations, Limited SIP Disapprovals, and Federal Implementation Plans
Beginning on page 4 of file na me: EO12866_BTB_2060-AR-05_Final_FRN 20121418_REDLINE_5_23_12_ALTERNATE Changes as a result of 5/24/12 conference call are highlighted and redlined.

II. Background and General Legal Considerations for the EPA’s Final Action
A. Background Section 169A(b)(2)(A) of the CAA requires stat es to revise their SIPs to contain such measures as may be necessary to make reasona ble progress towards the natural visibility goal, including a requirement that certain categories of existing major stationary sources built between 1962 and 1977 procure, install, and oper ate BART as determined by the state. 1 Under the Regional Haze Rule, states are directed to conduct BART determinations for such “BARTeligible” sources that may be anticipated to cause or contribute to any visibility impairment in a Class I area. Rather than requiring source-specific BART controls, states also have the flexibility to adopt an emissions trading program or other alternative program as long as the alternative provides greater reasonable progress toward s improving visibility than BART. 40 CFR §51.308(e)(2). The EPA provided states with this flexibility in the Regional Haze Rule, adopted in 1999, and further refined the criteria for assessing whether an alternative program provides for greater reasonable progress in three subsequent rulemakings. 64 FR 35714 (July 1, 1999); 70 FR 39104 (July 6, 2005); 71 FR 60612 (October 13, 2006). These criteria are described below.

1 The preamble to the proposed rule provid es additional background on the visibility requirements of the Clean Air Act and the EPA’s Regional Haze Rule. 76 FR 82221-22.2 1. Criteria for Developing an Alternative Program to BART Specific criteria for determining if an alte rnative measure achieves greater reasonable progress than source-specific BART are set out in the Regional Haze Rule at §51.308(e)(3). 2 The “better-than-BART” test may be satisfied as fo llows: If the distribution of emissions is not substantially different than under BART, and the alternative measure results in greater emission reductions, then the alternative measure may be d eemed to achieve greater reasonable progress. If the distribution of emissions is significantly diffe rent, then states are directed to conduct an air quality modeling study to determine differences in visibility betw een BART and the alternative program for each impacted Class I area for the worst and best 20 percent of days. 3 A test with the following two criteria (the “two-pronged visibility test”) The two

- pronged visibility test would demonstrate “greater reasonable progress” under the alternative program if both prongs of the

test of the following criteria are met:

- Visibility does not decline in any Class I area 4 , and

- There is an overall improvement in visibi lity, determined by comparing the average differences between BART and the altern ative over all affected Class I areas. 2. What is the relationship between BART and CAIR?

2 The Regional Haze Rule also allows for a de monstration that an alternative program provides for greater reasonable progress to be based on the clear weight of evidence. 40 CFR § 51.308(e)(2)(E). We concluded that a more ge neral test may be appropriate in certain circumstances, such as where, for example, techni cal or data limitations limit the ability of a state (or the EPA) to undertake a robust comparison using the test set out in 40 CFR § 51.308(e)(3). 3 While the Regional Haze Rule directs the state to conduct the air quality modeling study, as described in section III.C.2, the EPA itself conducted such a study for CAIR and through a notice-and-comment rulemaking codified the conclu sion that the stated criteria were met by adding specific provisions allowing the use of CA IR in lieu of source-specific BART. We have now done the same for the Transport Rule. 4 The “decline” is relative to modeled future baseline visibility conditions in the absence of any BART or alternative program control requirements.3 In May 2005, the EPA published CAIR, which required 28 states and the District of Columbia to reduce emissions of SO 2 and NO X that significantly contribute to, or interfere with maintenance of, the 1997 national ambient air quality standards (NAAQS) for fine particulates and/or ozone in any downwind state. Th e CAIR established emission budgets for SO 2 and NO X for states that contribute significantly to nonat tainment in downwind states and required the significantly contributing states to submit SIP revisions that implemented these budgets. Because such SIP revisions were already overdue, the EPA subsequently promulgated CAIR FIPs for the affected states establishing cap and trade progr ams for EGUs with opt-in provisions for other sources. States had the flexibility to subseq uently adopt SIP revisions mirroring CAIR requirements or otherwise providing emission reduc tions sufficient to address interference with attainment or maintenance of the NAAQS in othe r states. Many affected states adopted CAIRmirroring SIPs, while others chose to remain under CAIR FIPs. As noted above, the Regional Haze Rule allows states to implement an alternative program in lieu of BART so long as the alternative program has been demonstrated to achieve greater reasonable progress toward the national vi sibility goal than would BART. The EPA made just such a demonstration for CAIR in revisions to the regional haze program made in 2005. 70 FR 39104. In those revisions, we amended our regula tions to provide that states participating in the CAIR cap-and-trade programs under 40 CFR part 96 pursuant to an EPA-approved CAIR SIP or states that remain subject to the a CAIR FIP in 40 CFR part 97 need not require affected BART-eligible EGUs to install, operate , and maintain BART for emissions of SO 2 and NO X . 40 CFR 51.308(e)(4). In Utility Air Regulatory Group v. EPA , 471 F.3d 1333 (DC Cir. 2006), the court upheld our determination that states could rely on CAIR as an alternative program to BART for EGUs in the CAIR

- affected states. The court concluded that the EPA’s test for Comment [MarthaK1]: Delete highlighted text and move it to section B.1 “Authority for Trading Program”. (page 7 of this document)4 determining whether an alternative program achieves greater reasonable progress was a reasonable one. Id A t 1340. The cou rt al so concluded that nothing in the Clean Air Act required the EPA to “impose a separate technology mandate for sources whose emissions affect Class I areas, rather than piggy

- backing on solutions devised under other statutory categories. ” Id

. As a result of our determination that CAIR was “better-than-BART,” a number of states in the CAIR region, fully consistent with our regulations, relied on the CAIR cap-and-trade programs as an alternative to BART for EGU emissions of SO 2 and NO X in designing their regional haze implementation plans. These states also relied on CAIR as an element of a longterm strategy for achieving their reasonable progress goals for their regional haze programs

. 3. Remand of CAIR and Implications for State Regional Haze Implementation Plans Following our determination in 2005 that CAIR was “better-than-BART,” the D.C. Circuit Court ruled on several petitions for review challenging CAIR on various grounds. As a result of this litigation, the D.C. Circuit Court remanded CAIR to the EPA but later decided not to vacate the rule. 5 The court thereby left CAIR and CAIR SIPs and FIPs in place in order to “temporarily preserve the environmental values co vered by CAIR” until the EPA replaced it with a rule consistent with the court's opinion. 550 F.3d at 1178. The EPA replaced CAIR with the Transport Rule , which was published in the Federal Register on August 8, 2011. 6 The EPA expects that the requirements of the Transport Rule, which are currently stayed pending the outcome of litigation, will take effect in advance of 2018, the date by which all necessary emission reductions must take place for a BART alternative program. See 40 CFR 51.308(e)(2)(iii). the 2018 deadline for any BART alternative program

. As promulgated, the

5 See North Carolina v. EPA , 531 F.3d 896; modified by 550 F.3d 1176 (D.C. Cir. 2008). 6 See Federal Implementation Plans to Reduce Interstate Transport of Fine Particulate Matter and Ozone. 76 FR 48208.5 Transport Rule would have addressed emissions in 2012 and later years and would have left the requirements of CAIR and the CAIR FIPs in pl ace to address emissions through the end of
2011. In the interim period before the Transport Rule takes effect, the CAI R and the CAIR FIPs were to remain in place to address emissions through the end of the 2011 control periods. The D.C. Circuit, however, on December 30, 2011, stayed the Transport Rule (including the provisions that would have suns et CAIR and the CAIR FIPs) and instructed the EPA to continue to administer CAIR pending the outcome of the court’s decision on numerous the petitions for review challenging the Transport Rule. EME Homer City v. EPA , No. 11-1302 (Order). Many states relied on CAIR as an alternative to BART for SO 2 and NO X for subject EGUs, as allowed under the then-current BART provisions at 40 CFR 51.308(e)(4). These states also relied on the improvement in visibility expe cted to result from controls planned or already installed on sources in order to meet CAIR provisions in deve loping their long-term visibility strategy. In addition, many states relied upon th eir own CAIR SIPs or the CAIR FIPs for their states as legal justification for these planned controls and consequently did not include separate enforceable measures in their long-term strategi es (a required element of a regional haze SIP submission) to ensure these EGU reductions. Th ese states also submitted demonstrations showing that no additional controls on EGUs be yond CAIR would be reasonable for the first 10- year implementation period of the regional haze program. In summary, many of the states in the CAIR-affected region have based a number of required elements of their regional haze programs on CAIR. However, as CAIR has been remanded and only remains in place temporarily, we cannot fully approve these regional haze SIP revisions that have relied on the now-temporary reductions from CAIR. Although CAIR is currently in effect as a result of the Order by the EME Homer City court staying the Transport6 Rule, this does not affect the substance of the D.C

. Circuit’s ruling in 2008 remanding CAIR to the EPA. Although CAIR is currently in place, as a result of the Order by the EME Homer Generation court, this does not affect the court’s ruling remanding CAIR to the EPA. 4. The Transport Rule and Regional Haze SIPs The Transport Rule as promulgated, would have will sunset CAIR and the CAIR FIPs at the end of 2011. once the Transport Rule comes into effect. The Transport Rule , as promulgated, requires 28 states in the eastern half of the Unit ed States to significan tly improve air quality by reducing EGU SO 2 and NO X emissions that cross state line s and contribute to ground-level ozone and/or fine particle pollution in other states. The rule allows allowance trading among covered sources, utilizing an allowance market infrastructure modeled after existing allowance trading programs. The Transport Rule allows sour ces to trade emissions allowances with other sources within the same program (e.g ., ozone season NO X ) in the same or different states, while firmly constraining any emissions shifting that may occur by establishing an emission ceiling for each state. In our proposal, we described a technical analysis that we conducted to determine whether compliance with the Transport Rule would satisfy regional haze BART-related requirements. This technical analysis is the basi s of this final action in which we are finalizing our determination that the Transport Rule achieves greater reasonable progress towards the national goal of achieving natural visibility conditions than source-specific BART. For this final rule, an updated sensitivity analysis was conducted to account for subsequent revisions to certain state budgets in the Transport Rule. This analysis is described in section III.B.4 of this notice.

B. Summary of the EPA Response to General and Legal Issues Raised in Public Comments7 The EPA has based its determination that the Transport Rule will achieve greater reasonable progress than BART on the approach used by the EPA in evaluating whether a similar program, CAIR, would satisfy the region al haze BART-related requirements. As noted above, the Regional Haze Rule, promulgated in 1999, provides states with the flexibility to adopt an emissions trading program rather than requiring source-by-source BART. 40 CFR § 51.308(e)(2). Some commenters supported our general approach and agreed that the Transport Rule will provide for greater reasonable progr ess. Other commenters, however, disagreed with our conclusion that the Transport Rule can be used as an alternative to BART. These commenters argued that we lack authority to make such a determination and that we cannot rely on the Transport Rule because of the current stay of that rule, and that the Transport Rule does not meet the necessary regulatory requirements for an alternative program in lieu of BART. Some commenters argued that we could not conclude that the Transport Rule provides for greater reasonable progress without considering each state’s reasonable progress goals. Other commenters took the position that we should fully approve the regional haze SIPs that relied on CAIR to satisfy certain regional haze requiremen ts and that our proposed limited disapproval of the regional haze SIPs was unnecessary. 1. Authority for an Alternative Trading Program As described above, in 2005 (70 FR 39104) the EPA amended its Regional Haze Rule to provide that states par ticipating in the CAIR cap-and-trade programs need not require affected BART-eligible EGUs to install, operate and maintain BART for emissions of SO 2 and NO X . 40 CFR 51.308(e)(4). As EPA noted in explaining its reasons for adopting this approach, “[nothing] in the CAA or relevant case law prohibits a State from considering emissions reductions required to meet other CAA requirements when determin ing whether source-by-source BART controls8 are necessary to make reasonable progress. Wh atever the origin of the emission reduction requirement, the relevant question for BART purposes is whether the alternative program makes greater reasonable progress.” 70 FR at 39143. The EPA’s authority to establish non-BART alternatives in the regional haze program and the specific methodology outlined above for assessing such alternatives have been previously challenged and upheld by the D.C. Circuit. In the first case challenging the provisions in the Regional Haze Rule allowing for states to adopt alternative programs in lieu of BART, the court affirmed our interpretation of CAA sectio n 169A(b)(2) as allowing for alternatives to BART where those alternatives will result in gr eater reasonable progress than BART. Center for Energy and Economic Development v. EPA , 398 F.3d 653, 660 (D.C. Cir. 2005) (“CEED ”) (finding reasonable the EPA’s interpretation of CAA section 169(a)(2) as requiring BART only as necessary to make reasonable progress). In the second case, Utility Air Regulatory Group v.
EPA , 471 F.3d 1333 (D.C. Cir. 2006) (“UARG ”), the court specifically upheld our determination that states could rely on CAIR as an altern ative program to BART for EGUs in the CAIRaffected states. The court concluded that the EPA’s two-pronged test for determining whether an alternative program achieves greater reasonable progress was a reasonable one and also agreed with EPA that nothing in the CAA required the EPA to “impose a separate technology mandate for sources whose emissions affect Class I areas, rather than piggy-backing on solutions devised under other statutory categories, where such solu tions meet the statutory requirements.” Id. at
1340. Notwithstanding the decisions of the D.C. Circuit, several commenters argued that the plain language of the CAA precludes the EPA from allowing an alternative to BART. In their comments, these groups claimed that there is no statutory authority to exempt a source from9 BART, except as provided for in CAA §169A(c). Under the interpretation of the CAA urged by these commenters, BART must be required at each BART source that causes or contributes to visibility impairment at any Class I area. The commenters point to recent decisions post-dating
CEED and UARG in support of their arguments. The commenter s’ ’s arguments that the plain language of the CAA precludes reliance on the Transport Rule to satisfy the BART requirements were raised in UARG v. EPA and rejected by the D.C. Circuit when it denied the petitions for review of the EPA’s determination that CAIR provided for greater reasonable progress than BART. While the commenter argues that the court’s decision “has been undermined by subsequent D.C. Circuit decisions,” we disagree. The decisions cited by the commenter, North Carolina v. EPA , 531 F.3d 896, 906-08 (D.C. Circ. 2008) and NRDC v. EPA , 571 F.3d 1245, 1255-58 (D.C. Cir. 2009) address the requirements of sections 110(a)(2)(D)(i)(I) and 172(c)(1), re spectively. Given the differences between the language of these statutory provisions and that of section 169A(b)(2), the courts’ interpretation of these other provisions of the CAA do not undermine the two previous rulings of the D.C. Circuit interpreting the visibility provisions of the Act. Similarly, the Supreme Court’s conclusions in Massachusetts v. EPA , 549 U.S. 497, 528-29 (2007) regarding the meanings of “each” and “any” do not conflict with or impact the EPA’s reading of section 169A(b)(2) of the CAA or the D.C. Circuit’s conclusion that th e agency’s interpretation of the statute is a reasonable one. As the CEED court explained, the EPA interprets this provision to mean that “each SIP’s ‘emission limits, schedules of compliance, and other measures’ must ‘include’ BART only ‘as may be necessary to make reasona ble progress toward’ national visibility goals.” 398 F.3d 653, quoting 42 U.S.C. § 7491(b)(2); see also Central Arizona Water Conservation District v. EPA , 990 F.2d 1531, 1543 (9 th Cir. 1993)(upholding the same interpretation of section10 169A(b)(2)). We do not agree, therefore, that the EPA’s regulations allowing for the adoption ofa trading program that provides for greater reasonable progress than BART in place of sourcespecific BART are inconsistent with the CAA.
Th ese is commenter s also argue s that the EPA can exempt sources from BART only if the EPA complies with the requirements of CAA § 169A(c)(1). This provision of the CAA allows the EPA to exempt a source from the BART requirements, by rule, upon a determination that the source is not reasonably anticipated to cause or contribute to significant visibility impairment. As the commenters note, the appropriate Federal Land Manager(s) must agree with the exemption before it can go into effect. We do not agree that the provisions governing exemptions to BART apply to our determination that the Transport Rule will make greater reasonable progr ess than BART. Section 169A(b)(2) of the CAA requires each visibility SIP to contain “such emission limits, schedules of compliance and other measures as may be necessary to make reasonable progress toward the national goal...including...a requirement that [cer tain major stationary sources]...procure, install, and operate...[BART].” Based on this language, in 1999, the EPA concluded that if an alternative program can be shown to make greater reasonable progress toward eliminating or reducing visibility impairment, then installing BART for the purpose of making reasonable progress toward the national goal is no longer necessary. This interpretation of the visibility provisions of the CAA has been upheld three times by the courts, as noted above. We also received a comment s arguing that the EPA cannot rely on the Transport Rule as an alternative to BART because the emission redu ctions do not meet the requirement of 40 CFR 51.308(e)(2)(iv) which provides . This regulatory provision requires that “the emission reductions resulting from the emissions trading program ...will be surplus to those reductions11 resulting from measures adopted to meet requirements of the CAA as of the baseline date of the
SIP.” We do not agree with the comment s that the emissions reductions resulting from the Transport Rule must be “surplus to those measures adopted to meet requirements of the CAA as of the baseline date of the SIP.” We note that the requirements of 40 CFR 51.308(e)(2) are not directly applicable to this action, as the special provisions in the Regional Haze Rule addressing the Transport Rule are codified at 40 CFR 51.308(e)(4). Nonetheless, our determination that the Transport Rule will result in greater visibility improvement than BART is fully consistent with the requirement in 308(e)(2)(iv). In promulgating the Regional Haze Rule in 1999, the EPA explained that the “baseline date of the SIP” in this context means “the date of the emissions inventories on which the SIP relies,” 64 FR 35742, which is “defined as 2002 for regional haze purposes,” 70 FR 39143. Any measure adopted after 2002 is accordingly “surplus” under 40 CFR 51.308(e)(2)(iv). This is consistent with the discussion in the preamble to the 1999 Regional Haze Rule indicating that the regional haze program “is being promulgated in a manner that facilitates integration of emission management strategies for regional haze with the implementation of programs for [the 1997 ozone and PM 2.5 ] NAAQS.” 64 FR 35719. The EPA took this approach in the Regional Haze Rule to allow measures needed to attain the then new NAAQS to be “counted” as making “reasonable progress” toward the visibility goal. The Transport Rule was adopted to help areas come into attainment with and maintain the 1997 ozone and PM NAAQS, as well as the 2006 24-hour PM 2.5 NAAQS. The EPA accordingly does not view the requirement in 308(e)(2)(iv) as limit ing our ability to demonstrate that the Transport Rule reductions are surplus, as defined in the Regional Haze Rule.