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OAR Box 1787 

Prepped by Ollie Stewart 

Document Number: 

38) I I-B-23 A 

Docket Number: 

A-90-37 

Printed 11/4/200810:22:19 AM Sheet 38 of 147 
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A-QO-37 

STAFF WORKING DRAFT. . . .NOT OFFICIAL EPA POLICY ON THE ISSUES DISCUSSED. . .APRIL 1, 1993 

STAFF DRAFT MEMO 

SUBJECT: Use of Shutdown Credits for Offsets 

FROM: 

TO: 

11B15H 

John S. Seitz 

Director 

Office of Air Quality Planning and 

Standards (MD-10) 

A. Stanley Meiburg 

Director 

Air, Pesticides and Toxics Division (6T) 

This memorandum responds to your July 27, 1992 memorandum 

which requests review of the EPA new source review (NSR) rules 

and guidance concerning the use of shutdown credits. Under the 

regulations in 40 CFR 51.165(a)(3)(ii)(C)(2), where a State lacks 

an approved attainment demonstration, emissions reductions from 

shutdowns or curtailments (other than replacement units) 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. Your concern 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 

hinder a State's ability to establish a viable offset banking 

program for several years. You also cite the need for States to 

be able to establish banking programs, given that States were 

required to implement more stringent NSR ozone nonattainment area 

rules by November 15, 1992. 

In response to your request and in light of the 1990 

Amendments, the Office of Air Quality Planning and Standards has 

reviewed the shutdown credit policy. This policy, and the 

regulations in part 51 noted above, 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 the 

shutdown credit restriction in areas without approved attainment 

demonstrations. 

1 For 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 Act for marginal and 

nonclassified ozone nonattainment areas. 
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STAFF WORKING DRAFT. . . .NOT OFFICIAL EPA POLICY ON THE ISSUES DISCUSSED. . .APRIL 1, 1993 

This guidance document does not supersede existing State 

regulations or approved State implementation plans. The policies 

set out in this memorandum are intended solely as guidance and do 

not represent final Agency action. They are not ripe for 

judicial review for this reason. Moreover, they are not 

intended, nor can they be relied upon, to create any rights 

enforceable by any party in litigation with the United States. 

The EPA officials may decide to follow the guidance provided i.n 

this memorandum, or to act at variance with the guidance, based 

on an analysis of specific circumstances. The Agency also may 

change this guidance at any time without public notice. 

As you are aware, 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 shutdowns credits. All ozone nonattainment areas classified 

as moderate and above are now required to submit new attainment 

demonstrations and all nonattainment areas are subject to new 

attainment deadlines. Indeed, in ozone nonattainment areas, the 

1990 Amendments imposes a series of planning requirements and 

milestones to mark progress towards attainment. The amended Act 

allows States with moderate ozone nonattainment areas, for 

instance, to submit revised control measures, revised NSR rules, 

and a 1990 emissions inventory, and allows until Nov. 15, 1993 to 

submit additional control measures and an attainment 

demonstration plan that achieves at least a 15% reduction in VOC 

emissions. Serious and above areas are now required to submit 

numerous new or revised control measures, revised NSR rules, and 

a 1990 emission inventory by Nov. 15, 1992; additional control 

measures and a 15% reduction plan by Nov. 15, 1993; and the full 

attainment demonstration plans by Nov. 15, 1994. 

In 1983, EPA proposed lifting nearly all restrictions on the 

use of prior shutdown credits. In making that proposal, EPA 

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 2 72 92). However, by the time EPA took final action -- some 

six years later -- this proved not to be the case. Many SIPs 

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 

attainment 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 
STAFF WORKING DRAFT. . . .NOT OFFICIAL EPA POLICY ON THE ISSUES DISCUSSED. . .APRIL 1, 1993 

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 be lost for 

reasonable further progress (RFP) and instead would fuel 

additional emissions growth in the nonattainment areas. 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 capacity and thus 

assure RFP. .Id. at 27293. On the other hand, where the 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. 

prospects of adopting Draconian 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 passage of the 1990 Amendments changes this landscape 

dramatically. At this point in time, States have been given new 

attainment deadlines and new dates for submitting attainment 

demonstrations. 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 emission 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 
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STAFF WORKING DRAFT. . . .NOT OFFICIAL EPA POLICY ON THE ISSUES DISCUSSED. . .APRIL 1, 1993 

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 

submitting the attainment demonstration and when showing 

compliance with the various RFP milestones (see General Preamble, 

pp. 13507-13509) .

2 

In total, these provisions provide the "independent 

assurance of RFP" that EPA pointed to before as being necessary 

to allow liberal use of prior shutdown credits. Of course, if a 

State misses any of the SIP submission dates, the rationale for a 

more restrictive policy returns. For this reason, we believe 

that any loosening of its policy can only be allowed where State 

submissions meet the statutory planning mandates and air quality 

improvement milestones. As is described more fully below, should 

a State fail to make timely submissions or to meet a RFP 

benchmark, the restrictions on the use of shutdown credits should 

resume.3 

Because the 1990 Amendments have temporarily created a 

situation unanticipated by the regulatory scheme for shutdowns 

adopted by EPA prior to the 1990 Amendments, we believe that 

States may temporarily lift the restrictions placed on shutdown 

credits by § 51.165(a)(3)(ii)(C)(2) for areas without approved 

attainment demonstrations. However, this interpretation only 

extends to those creditable shutdowns and curtailments actually 

occurring during the time period from the passage of the 1990 

Amendments through the period when the attainment demonstration 

is due (and extending beyond this date to the date of EPA 

approval --or disapproval -- of a timely attainment 

2 The increased offset ratios for VOCs and other criteria 

pollutants [see, eg., CAA § 182(b) - (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. 

3 At this time this policy statement is limited to ozone 

nonattainment areas. 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. (For instance, 

attainment demonstrations in moderate CO areas were due on 

November 15, 1992; attainment demonstrations for moderate PM-10 

areas were due on November 15, 1991.) This policy cannot be 

extended to situations where an attainment demonstration is 

lacking. 
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STAFF WORKING DRAFT. . . .NOT OFFICIAL EPA POLICY ON THE ISSUES DISCUSSED. . .APRIL 1, 1993 

demonstration). 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 the applicable Part D 

planning requirements as discussed in the following paragraph. 

Once a State fails to meet any of these milestones, EPA cannot be 

assured that the safeguards in the Act guaranteeing proper 

progress towards attainment are sufficient. 

States may interpret their own regulations or, when 

necessary, make a SIP submittal in accordance with this policy. 

The State policy or submission must provide that this lifting of 

the restriction is temporary and that the restrictions are 

automatically restored if the State fails to make any required 

part D submission, including an attainment demonstration or has 

its attainment demonstration disapproved. In ozone nonattainment 

areas, this means that the temporary lifting of the restrictions 

is subject to the following conditions as they apply and as they 

come due: 

• The State has submitted a completed emission 

inventory as required by section 182(a)(1); 

• The State has submitted complete revisions to its 

NSR program as required by section 182(a)(2)(C); 

• The State submits the 15% reduction plan required 

by section 182(b)(1)(A) for moderate and above areas, and 

• The State submits the attainment demonstration 

required by section 182(c) (2) for moderate and above areas. 

If a State has failed to make any of these submissions that 

are due, or if they are deemed to be incomplete, or any of these 

submissions are disapproved, emission 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 emission reduction credit bank in place, banked 

credits from all shutdowns or curtailments will be frozen until 

the State submits these required SIP elements. 

• The shutdown or curtailment being used as an 

offset occurred in or after 1990, the associated actual emissions 

from the shutdown or curtailment were reported in the 1990 base 

year emissions inventory and the amount of the credit is the 

lower of actual or allowable emissions for the source; 

PLEASE NOTE THAT THIS IS A STAFF WORKING DRAFT AND DOES 

NOT REPRESENT OFFICIAL EPA POLICY ON THE ISSUES 

DISCUSSED. 
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STAFF WORKING DRAFT. . . .NOT OFFICIAL EPA POLICY ON THE ISSUES DISCUSSED. . .APRIL 1, 19 93 

In addition, pursuant to EPA's existing regulatory 

framework, the shutdown or curtailment must be permanent, 

quantifiable and federally enforceable. Also, the emissions 

reductions can not be otherwise required by the Act, EPA 

regulations, or rules adopted by the State under the Act or to 

meet any other regulatory requirements. 

Finally, the State cannot rely on an emission reduction 

credit in its overall attainment plan and rely on the same credit 

in the issuance of a new source review permit (i.e., no "double 

counting"). Where appropriate, the shutdown must be discounted 

to reflect reasonably available control technology, new source 

performance standards, or any other reasonably foreseeable Act 

requirement applicable to the shut down source at the time of the 

use of the shutdown credit.