MEMORANDUM July 21, 1993 

SUBJECT: Use of Shutdown Credits for Offsets 

FROM: John S. Seitz, Director 

Office of Air Quality Planning and Standards (MD-10) 

TO: Addressees 

This memorandum and attachment respond to issues involving the Environmental 

Protection Agency's (EPA's) new source review (NSR) rules and guidance concerning the use of 

shutdown credits. The attachment provides a full discussion of the issues and this policy. The 

regulations in 40 CFR 51.165(a)(3)(ii)(C)(2) provide that where a State lacks an approved 

attainment demonstration, emissions reductions from shutdowns or curtailments cannot be used as 

new source offsets unless the shutdown or curtailment occurs on or after the date a new source 

permit application is filed. A concern raised is that because the Clean Air Act Amendments of 

1990 (1990 Amendments) have created new schedules for submitting attainment demonstrations,1 

the existing NSR rules restricting the use of so called "prior shutdown credits" may be read as 

unnecessarily hindering a State's ability to establish a viable offset banking program for several 

years. Since this situation was not accounted for in EPA's prior policy statement, EPA 

determined it was appropriate to reconsider its position in light of the 1990 Amendments. 

The reconsideration led to the conclusion that States should be able to follow, during the 

interim period between the present and the date when EPA acts to approve--or--disapprove an 

attainment demonstration that is due, the shutdown requirements applicable to areas with 

attainment demonstrations. This interpretation only extends to those otherwise creditable 

shutdowns and curtailments actually occurring during the time period from enactment of the 1990 

Amendments (November 15, 1990) through the period until EPA acts to approve--or--disapprove 

1For instance, attainment demonstrations are not due until

November 15, 1993 for moderate ozone nonattainment areas, and

November 15, 1994 for serious and above areas. Attainment

demonstrations are not required by the Clean Air Act (Act) for

marginal and nonclassified ozone nonattainment areas and for

ozone attainment and unclassifiable areas in the ozone transport

region (OTR). 
2

an attainment demonstration that is due. This policy cannot be extended to situations where an 

attainment demonstration is lacking. In addition, to be sure that the State remains on track for 

attainment, the lifting of the shutdown restrictions is conditioned on the State meeting other 

applicable part D planning requirements as discussed in the attachment to this memorandum. 

If the State's submittal is delinquent for any of the reasonable further progress (RFP) 

milestone submissions identified in the attachment or the State's attainment demonstration is 

disapproved, the restrictions on use of shutdowns will again apply. To be creditable, the 

shutdowns or curtailments being used as offsets must have occurred on or after November 15, 

1990; the emissions from the shutdown or curtailment must be included in the emissions inventory 

for attainment demonstration and RFP milestone purposes; and the amount of the credit must be 

the lower of actual or allowable emissions for the source. Pursuant to EPA's existing regulatory 

framework, the shutdown or curtailment must be permanent, quantifiable, and federally 

enforceable. 

For marginal ozone nonattainment areas and for the attainment and unclassifiable ozone 

areas in the OTR, EPA's present interpretation is that these areas should be allowed to follow the 

less-restrictive shutdown policies applicable to areas in compliance with the attainment 

demonstration requirements. Since these areas are not required by the 1990 Amendments to 

submit attainment demonstrations, it would be inconsistent with EPA's purposes in adopting the 

shutdown restrictions to treat these areas as if they had failed to make this demonstration. The 

RFP will be protected by the mandatory bump-up provisions applicable to marginal ozone areas 

and by the requirement that ozone nonattainment areas in the OTR continue to meet RFP 

milestones in order to qualify for this interim policy. 

States may interpret their own regulations or, when necessary, make a State 

implementation plan (SIP) submittal in accordance with this policy. This policy statement is 

limited to ozone nonattainment areas and ozone attainment and unclassifiable areas in the OTR. 

States may wish to seek relaxation of the policy for other pollutants. We will consider these 

requests on a case-by-case basis. It should be noted that at least some attainment demonstrations 

are in fact due.2 

This guidance document does not supersede existing Federal or State regulations or 

approved SIP's. The policies set out in this memorandum and attachment are intended solely as 

guidance during the interim period as specified in this memorandum and do not represent final 

Agency action. This policy statement is not ripe for judicial review. Moreover, it is not intended, 

nor can it be relied upon, to create any rights enforceable by any party in litigation with the United 

2For instance, attainment demonstrations in moderate carbon

monoxide areas were due on November 15, 1992; attainment

demonstrations for moderate PM-10 (particles with an aerodynamic

diameter of less than or equal to a nominal 10 micrometers) areas

were due on November 15, 1991. 
3

States. Agency officials may decide to follow the guidance provided in this memorandum, or to 

act at variance with the guidance, based on an analysis of specific circumstances. The EPA also 

may change this guidance at any time without public notice. The EPA presently intends to 

address further the matters discussed in this document in its forthcoming NSR rulemaking 

regarding regulatory changes mandated by the 1990 Amendments and will take comment on this 

interpretation of the shutdown provisions in light of the 1990 Amendments as part of that 

rulemaking. 

The Regional Offices should send this memorandum with the attachment to their States. 

Questions concerning specific issues and cases should be directed to the appropriate EPA 

Regional Office. Regional Office staff may contact Mr. David Solomon, Chief, New Source 

Review Section, at (919) 541-5375, if they have any questions. 

Attachment

Addressees

Director, Air, Pesticides and Toxics, Regions I, IV and VI

Director, Air and Waste Management, Region II

Director, Air, Radiation and Toxics Division, Region III

Director, Air and Radiation Division, Region V

Director, Air and Toxics Division, Regions VII, VIII, IX and X

cc: Air Branch Chief, Regions I-X 
Attachment 

FULL DISCUSSION ON USE OF PRIOR SHUTDOWNS 

In response to concerns regarding use of pre-application shutdowns that have arisen by 

virtue of the Clean Air Act Amendments of 1990 (1990 Amendments), the Office of Air Quality 

Planning and Standards has reviewed the policy on the use of prior shutdown credits. This policy, 

and the regulations in part 51, were revised in 1989 to allow for the use of prior shutdown credits 

for offset purposes in those areas having approved attainment demonstration plans [see 54 FR 

27286 (June 28, 1989)]. The Agency, however, retained a restriction on the use of prior 

shutdown credits in areas without approved attainment demonstrations. All of these areas had 

failed to attain the national ambient air quality standards by the statutory deadline. 

The 1990 Amendments created new deadlines and new control requirements which have 

dramatically changed the circumstances that shaped EPA's 1989 decision regarding the use of 

shutdown credits, such that a literal reading of the 1989 regulation would now be inconsistent 

with EPA's underlying policy in some circumstances. All nonattainment areas are subject to new 

attainment deadlines, and all ozone nonattainment areas classified as moderate and above are now 

required to submit new attainment demonstrations. Indeed, in ozone nonattainment areas, the 

1990 Amendments impose a series of planning requirements and milestones to mark progress 

towards attainment. For instance, the amended Clean Air Act (Act) required States with 

moderate ozone nonattainment areas to submit revised control measures, revised new source 

review (NSR) rules, and a 1990 emissions inventory by November 15, 1992, and allows States 

until November 15, 1993 to submit additional control measures and an attainment demonstration 

plan that achieves at least a 15 percent reduction in volatile organic compounds (VOC) emissions. 

Serious and above ozone areas were required to submit numerous new or revised control 

measures, revised NSR rules, and a 1990 emissions inventory by November 15, 1992; additional 

control measures and a 15 percent reduction plan by November 15, 1993; and full attainment 

demonstration plans by November 15, 1994. 

In 1983, EPA proposed to lift nearly all restrictions on the use of prior shutdown credits. 

In making that proposal, the Agency presumed that by the time it took final action on the 

proposal, areas would either have in place approved attainment demonstrations or be subject to a 

construction moratorium (see 54 FR 27292). However, by the time EPA took final action--some 

6 years later--this proved not to be the case. Many States neither fully demonstrated attainment 

nor were subject to a construction moratorium. Thus, in justifying the decision to continue 

restrictions on the use of prior shutdowns in areas without an attainment demonstration, EPA 

explained that "the nonattainment areas requiring but lacking attainment demonstrations . . . are at 

the center of EPA's current concern regarding the shutdown credit issue . . . " (Id.). 

Specifically, EPA explained that the unrestricted use of shutdown credits would lead to 

offset transactions where there was no nexus between the decision to shut down the existing 

source or unit and the decision to construct new capacity. Instead, shutdowns that would occur 

regardless of any potential to sell the resulting emissions reduction would not be available for 
5

reasonable further progress (RFP), but instead would be used to accommodate additional 

emissions growth in the nonattainment area. In the face of a State's failure to adopt an attainment 

plan long past the statutory deadline for submitting an approvable plan, EPA determined that the 

unrestricted approach was inconsistent with the requirements of RFP. Accordingly, EPA retained 

its restrictive shutdown policy for such areas in order to guarantee to the extent possible that the 

new source would secure the offsetting reduction out of the area's existing emissions and thus 

assure RFP (Id. at 27293). On the other hand, where the State implementation plan (SIP) 

contained a demonstration of attainment--"and hence an independent assurance of RFP"--EPA 

would be satisfied with a "more attenuated link" between the shutdown and the new construction 

(Id.). 

Another factor favoring retention of the narrow shutdown policy in areas needing but 

lacking approvable attainment demonstrations was EPA's intention at the time to impose 

substantial planning burdens on many States for their failure to meet the December 31, 1987 

attainment date for ozone and carbon monoxide. At the time EPA published the 1989 shutdown 

regulations, it believed that many States would be facing the prospect of adopting severe 

measures to respond to EPA's finding that their present efforts at achieving RFP and attainment 

were substantially inadequate. Under those circumstances, EPA believed "that it would be 

inappropriate even to hold out the possibility that States could obtain approval at this time for 

expanded use of shutdown offset credits in areas with inadequate plans" (Id. at 27294). At a 

minimum, States would need an approved inventory so that EPA could verify the proposed use of 

a prior shutdown credit (Id.). 

The 1990 Amendments changed this landscape dramatically. The Act as amended gives 

States new attainment deadlines and new dates for submitting attainment demonstrations.3 No 

State can be said to have missed the overall attainment deadline or the date for submitting 

attainment demonstrations for ozone as required by the 1990 Amendments. Instead, States are in 

the process of developing new attainment demonstrations based on the specific planning 

requirements of the new provisions of the 1990 Amendments. As discussed, these provisions 

include not only specific emissions reduction strategies that must be implemented, but 

requirements that areas demonstrate periodically that the reductions are occurring and that 

specific progress towards attainment has been made. In addition, the "General Preamble for the 

Implementation of Title I of the Clean Air Act Amendments of 1990" (General Preamble) [see 57 

FR 13498 (April 16, 1992)] includes a specific methodology for reconciling prior shutdowns with 

the 1990 ozone inventory, and assures that these reductions must be taken into account when 

3Some areas subject to offset requirements (such as marginal

ozone nonattainment areas and attainment areas in the ozone

transport region) are not even required to submit attainment

demonstrations.
6

submitting the attainment demonstration and when showing compliance with the various RFP 

milestones (see General Preamble, pp. 13507-13509).4 

In total, these provisions provide the "independent assurance of RFP" that EPA pointed to 

before as being necessary to allow generous use of prior shutdown credits. Of course, if a State 

misses any of the RFP milestones, the rationale for a more restrictive use of shutdown credits 

returns. For this reason, EPA's position is that use of pre-application shutdown credits as offsets 

can only be allowed where State submissions have met and continue to meet the statutory 

planning mandates and air quality improvement milestones. As described below, once a State fails 

to meet any of the milestones in its SIP or to meet a RFP benchmark, EPA cannot be assured that 

the safeguards in the Act guaranteeing proper progress towards attainment are sufficient, and the 

restriction on use of pre-application shutdowns and curtailments must automatically resume until 

the delinquent planning provisions are submitted.5 

In ozone nonattainment areas, this means that the temporary lifting of the restrictions 

under this policy is subject to the following conditions as they apply and as they come due: 

! The State has submitted a completed emissions inventory as required by § 182(a)(1); 

4The increased offset ratios for VOC and nitrogen oxides in

ozone nonattainment areas [see, e.g., § 182(a) - (e)] and the new

requirement that all offsets be based on actual emissions

reductions [§ 173(c)] provide further assurances that new source

increases will in fact be counterbalanced by real reductions in

actual emissions.

5In the General Savings Clause (§ 193), Congress required

EPA to retain all regulations and other requirements in effect at

the time of the passage of the Act, "except to the extent

otherwise provided under this Act [or] inconsistent with any

provisions of this Act." The EPA views the new deadlines for

attainment and for the submittal of an attainment demonstration

as creating sufficient inconsistencies to justify changing-­

during the short interim period until the date EPA acts on an

attainment demonstration that is due--its pre-enactment position

on shutdowns. This is especially true in the few nonattainment

areas that are no longer subject to the attainment demonstration

requirement and can never qualify for the more relaxed shutdown

policy under the existing regulations. 
7

! The State has submitted complete revisions to its NSR program as required by § 

182(a)(2)(C); 

! The State submits the 15 percent VOC reduction plan required by § 182(b)(1)(A) for 

moderate and above areas; and 

! The State submits the attainment demonstration required by § 182(c)(2) for moderate 

and above areas. 

Under this policy, if any of these submissions are delinquent, or if any of these submissions are 

deemed incomplete or disapproved, emissions reductions from shutdowns or curtailments can no 

longer be used for NSR offsets unless the criteria laid out in 40 CFR 51.165(a)(3)(ii)(C)(2) are 

met. Where there is an emissions reduction credit bank in place, banked credits from prior 

shutdowns or curtailments will be frozen until the State submits the delinquent SIP elements. 

Furthermore, the emissions reductions represented by the shutdown or curtailment cannot 

be otherwise required by the Act, EPA regulations, or rules adopted by the State under the Act. 

In other words, the State cannot rely on emissions reductions credits in its overall attainment plan 

and rely on the same credits in the issuance of a NSR permit (i.e., no "double counting"). 

Consequently, where appropriate, emissions reductions from source shutdowns or curtailments 

must be discounted to reflect reasonably available control technology (RACT), new source 

performance standards, or any other Act requirement applicable to the source or reasonably 

foreseeable at the time of the use of the emissions reductions as offsets. For example, a State may 

have already developed RACT rules that would require compliance by a source in 1995. Any 

reductions at the source that would be necessary to meet the upcoming RACT requirement would 

need to be excluded in computing the offsets that would be available by a complete shutdown of 

the source. 

It is possible that, during review of a permit application that uses emissions reductions 

from prior shutdowns or curtailments as offsets as allowed under this policy, a State may become 

delinquent in meeting the planning provisions outlined above. At such time as a State becomes 

delinquent, the restrictions for offsets are automatically restored. However, in such cases, States 

may allow offsets to remain creditable if the permit application was complete (as determined in 

writing by the reviewing authority) before the State became delinquent. Alternatively, States may 

use a later point in the permitting process for determining if these offsets are creditable.