[Federal Register Volume 74, Number 151 (Friday, August 7, 2009)]
[Proposed Rules]
[Pages 39592-39597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18999]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 52 and 96

[EPA-R04-OAR-2009-0454; FRL-8942-3]


Approval and Promulgation of Air Quality Implementation Plans; 
North Carolina; Clean Air Interstate Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing to approve a revision to the North Carolina 
State Implementation Plan (SIP) submitted by the State of North 
Carolina through the North Carolina Department of Environment and 
Natural Resources on June 20, 2008. This revision addresses the 
requirements of EPA's Clean Air Interstate Rule (CAIR). Although the DC 
Circuit Court found CAIR to be flawed, the rule was remanded without 
vacatur and thus remains in place. Thus, EPA is continuing to approve 
CAIR provisions into SIPs as appropriate. CAIR, as promulgated, 
requires States to reduce emissions of sulfur dioxide (SO<INF>2</INF>) 
and nitrogen oxides (NO<INF>X</INF>) that significantly contribute to, 
or interfere with maintenance of, the national ambient air quality 
standards (NAAQS) for fine particulates and/or ozone in any downwind 
state. CAIR establishes budgets for SO<INF>2</INF> and NO<INF>X</INF> 
for States that contribute significantly to nonattainment in downwind 
States and requires the significantly contributing States to submit SIP 
revisions that implement these budgets. States have the flexibility to 
choose which control measures to adopt to achieve the budgets, 
including participation in EPA-administered cap-and-trade programs 
addressing SO<INF>2</INF>, NO<INF>X</INF> annual, and NO<INF>X</INF> 
ozone season emissions. In the full SIP revision that EPA is proposing 
to approve, North Carolina will meet CAIR requirements by participating 
in these cap-and-trade programs. EPA is proposing to approve the full 
SIP revision, as interpreted and clarified herein, as fully 
implementing the CAIR requirements for North Carolina. Consequently, 
this action will also cause the CAIR Federal Implementation Plans (CAIR 
FIPs) concerning SO<INF>2</INF>, NO<INF>X</INF> annual, and 
NO<INF>X</INF> ozone season emissions by North Carolina sources to be 
automatically withdrawn.

DATES: Comments must be received on or before September 8, 2009.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R04-
OAR-2009-0454, by one of the following methods:
    1. http://www.regulations.gov: Follow the on-line instructions for 
submitting comments.
    2. E-mail: <a href="/cdn-cgi/l/email-protection#462423282c272b2f28682a3f28293427230623362768212930"><span class="__cf_email__" data-cfemail="3052555e5a515d595e1e5c495e5f425155705540511e575f46">[email protected]</span></a>.
    3. Fax: 404-562-9019.
    4. Mail: EPA-R04-OAR-2009-0454, Regulatory Development Section, Air 
Planning Branch, Air, Pesticides and Toxics Management Division, U.S. 
Environmental Protection Agency, Region 4, 61 Forsyth Street, SW., 
Atlanta, Georgia 30303-8960.
    5. Hand Delivery or Courier: Lynorae Benjamin, Chief, Regulatory 
Development Section, Air Planning Branch, Air, Pesticides and Toxics 
Management Division, U.S. Environmental Protection Agency, Region 4, 61 
Forsyth Street, SW., Atlanta, Georgia 30303-8960. Such deliveries are 
only accepted during the Regional Office's normal hours of operation. 
The Regional Office's official hours of business are Monday through 
Friday, 8:30 to 4:30, excluding Federal holidays.
    Instructions: Direct your comments to Docket ID No. EPA-R04-OAR-
2009-0454. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
http://www.regulations.gov, including any personal information 
provided, unless the comment includes information claimed to be 
Confidential Business Information (CBI) or other information whose 
disclosure is restricted by statute. Do not submit through http://www.regulations.gov or e-mail, information that you consider to be CBI 
or otherwise protected. The http://www.regulations.gov Web site is an 
``anonymous access'' system, which means EPA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an e-mail comment directly to EPA without 
going through http://www.regulations.gov, your e-mail address will be 
automatically captured and included as part of the comment that is 
placed in the public docket and made available on the Internet. If you 
submit an electronic comment, EPA recommends that you include your name 
and other contact information in the body of your comment and with any 
disk or CD-ROM you submit. If EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EPA 
may not be able to consider your comment. Electronic files should avoid 
the use of special characters, any form of encryption, and be free of 
any defects or viruses. For additional information about EPA's public 
docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.
    Docket: All documents in the electronic docket are listed in the 
http://www.regulations.gov index. Although listed in the index, some 
information is not publicly available, i.e., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, is not placed on the Internet and will be 
publicly available only in hard copy form. Publicly available docket 
materials are available either electronically in http://www.regulations.gov or in hard copy at the Regulatory Development 
Section, Air Planning Branch, Air, Pesticides and Toxics Management 
Division, U.S. Environmental Protection Agency, Region 4, 61 Forsyth 
Street, SW., Atlanta, Georgia 30303-8960. EPA requests that if at all 
possible, you contact the person listed in the FOR FURTHER INFORMATION 
CONTACT section to schedule your inspection. The Regional

[[Page 39593]]

Office's official hours of business are Monday through Friday, 8:30 to 
4:30, excluding Federal holidays.

FOR FURTHER INFORMATION CONTACT: Steven Scofield, Regulatory 
Development Section, Air Planning Branch, Air, Pesticides and Toxics 
Management Division, U.S. Environmental Protection Agency, Region 4, 61 
Forsyth Street, SW., Atlanta, Georgia 30303-8960. The telephone number 
is (404) 562-9034. Mr. Scofield can also be reached via electronic mail 
at <a href="/cdn-cgi/l/email-protection#087b6b676e616d646c267b7c6d7e6d486d7869266f677e"><span class="__cf_email__" data-cfemail="84f7e7ebe2ede1e8e0aaf7f0e1f2e1c4e1f4e5aae3ebf2">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. What Action is EPA Proposing to Take?
II. What is the Regulatory History of CAIR and the CAIR FIPs?
III. What are the General Requirements of CAIR and the CAIR FIPs?
IV. What are the Types of CAIR SIP Submittals?
V. Analysis of North Carolina's CAIR SIP Submittal
    A. State Budgets for Allowance Allocations
    B. CAIR Cap-and-Trade Programs
    C. Applicability Provisions
    D. NO<INF>X</INF> Allowance Allocations
    E. Allocation of NO<INF>X</INF> Allowances From Compliance 
Supplement Pool
    F. Individual Opt-In Units
VI. Proposed Action
VII. Statutory and Executive Order Reviews

I. What Action Is EPA Proposing to Take?

    EPA is proposing to approve, the full SIP revision, submitted by 
North Carolina on June 20, 2008, as interpreted and clarified herein 
\1\ as meeting the applicable CAIR requirements by requiring certain 
electric generating units (EGUs) to participate in the EPA-administered 
CAIR cap-and-trade programs addressing SO<INF>2</INF>, NO<INF>X</INF> 
annual, and NO<INF>X</INF> ozone season emissions. As a consequence of 
the SIP approval, the CAIR FIPs concerning SO<INF>2</INF>, 
NO<INF>X</INF> annual, and NO<INF>X</INF> ozone season emissions for 
North Carolina are automatically withdrawn. If this proposal is 
finalized, the automatic withdrawal will be reflected in the rule text 
that will accompany the final rulemaking notice, and will delete and 
reserve the provisions in Part 52 that establish the CAIR FIPs for 
North Carolina sources.
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    \1\ On May 11, 2009, North Carolina submitted a letter of 
clarification related to this SIP revision. This letter clarifies 
the reference to ``NO<INF>X</INF> ozone season trading program'' in 
15A North Carolina Administrative Code (NCAC) 02D.2401(b)(3)(4) was 
intended to refer to the CAIR NO<INF>X</INF> ozone season trading 
program. North Carolina also clarified the reference to ``oil'' in 
15A NCAC 02D.2401(b)(3)(B) to mean fuel oil as that term is used in 
40 CFR 96.4(b)(1)(i). Further, North Carolina acknowledged that the 
reference to 40 CFR 96.4(b)(1)(iii) in 15 A NCAC 02D .2401(b)(3)(C) 
is not a restriction on hours of operation but rather provides how a 
unit's potential NO<INF>X</INF> mass emissions shall be calculated.
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II. What Is the Regulatory History of the CAIR and the CAIR FIPs?

    EPA published CAIR on May 12, 2005 (70 FR 25162). In this rule, EPA 
determined that 28 States and the District of Columbia contribute 
significantly to nonattainment and interfere with maintenance of the 
NAAQS for fine particles (PM<INF>2.5</INF>) and/or 8-hour ozone in 
downwind States in the eastern part of the country. As a result, EPA 
required those upwind States to revise their SIPs to include control 
measures that reduce emissions of SO<INF>2</INF>, which is a precursor 
to PM<INF>2.5</INF> formation, and/or NO<INF>X</INF>, which is a 
precursor to both ozone and PM<INF>2.5</INF> formation. For 
jurisdictions that contribute significantly to downwind 
PM<INF>2.5</INF> nonattainment, CAIR sets annual State-wide emission 
reduction requirements (i.e., budgets) for SO<INF>2</INF> and annual 
State-wide emission reduction requirements for NO<INF>X</INF>. 
Similarly, for jurisdictions that contribute significantly to 8-hour 
ozone nonattainment, CAIR sets State-wide emission reduction 
requirements or budgets for NO<INF>X</INF> for the ozone season (May 1 
to September 30). Under CAIR, States may implement these reduction 
requirements by participating in the EPA-administered cap-and-trade 
programs or by adopting any other control measures.
    CAIR explains to subject States what must be included in SIPs to 
address the requirements of section 110(a)(2)(D) of the Clean Air Act 
(CAA) with regard to interstate transport with respect to the 8-hour 
ozone and PM<INF>2.5</INF> NAAQS. EPA made national findings, effective 
on May 25, 2005, that the States had failed to submit SIPs meeting the 
requirements of section 110(a)(2)(D). The SIPs were due in July 2000, 3 
years after the promulgation of the 8-hour ozone and PM<INF>2.5</INF> 
NAAQS. These findings started a 2-year clock for EPA to promulgate a 
FIP to address the requirements of section 110(a)(2)(D). Under CAA 
section 110(c)(1), EPA may issue a FIP anytime after such findings are 
made and must do so within two years unless a SIP revision correcting 
the deficiency is approved by EPA before the FIP is promulgated.
    On April 28, 2006, EPA promulgated FIPs for all States covered by 
CAIR in order to ensure the emissions reductions required by CAIR are 
achieved on schedule. The CAIR FIPs require EGUs to participate in the 
EPA-administered CAIR SO<INF>2</INF>, NO<INF>X</INF> annual, and 
NO<INF>X</INF> ozone season trading programs, as appropriate. The CAIR 
FIP SO<INF>2</INF>, NO<INF>X</INF> annual, and NO<INF>X</INF> ozone 
season trading programs impose essentially the same requirements as, 
and are integrated with, the respective CAIR SIP trading programs. The 
integration of the FIP and SIP trading programs means that these 
trading programs will work together to effectively create a single 
trading program for each regulated pollutant (SO<INF>2</INF>, 
NO<INF>X</INF> annual, and NO<INF>X</INF> ozone season) in all States 
covered by the CAIR FIP or SIP trading program for that pollutant. 
Further, as provided in a rule published by EPA on November 2, 2007, a 
State's CAIR FIP is automatically withdrawn when EPA approves a SIP 
revision, in its entirely and without any conditions, as fully meeting 
the requirements of CAIR. Where only portions of the SIP revision are 
approved, the corresponding portions of the FIP are automatically 
withdrawn and the remaining portions of the FIP stay in place. Finally, 
the CAIR FIPs also allow States to submit abbreviated SIP revisions 
that, if approved by EPA, will automatically replace or supplement 
certain CAIR FIP provisions (e.g., the methodology for allocating 
NO<INF>X</INF> allowances to sources in the State), while the CAIR FIP 
remains in place for all other provisions.
    On April 28, 2006, EPA published two additional CAIR-related final 
rules that added the States of Delaware and New Jersey to the list of 
States subject to CAIR for PM<INF>2.5</INF> and announced EPA's final 
decisions on reconsideration of five issues, without making any 
substantive changes to the CAIR requirements. On October 19, 2007, EPA 
amended CAIR and the CAIR FIPs to clarify the definition of 
``cogeneration unit'' and thus the applicability of the CAIR trading 
program to cogeneration units.
    EPA was sued by a number of parties on various aspects of CAIR, and 
on July 11, 2008, the U.S. Court of Appeals for the District of 
Columbia Circuit issued its decision to vacate and remand both CAIR and 
the associated CAIR FIPs in their entirety. North Carolina v. EPA, 531 
F.3d 836 (DC Cir. Jul. 11, 2008). However, in response to EPA's 
petition for rehearing, the Court issued an order remanding CAIR to EPA 
without vacating either CAIR or the CAIR FIPs. North Carolina v. EPA, 
550 F.3d 1176 (DC Cir. Dec. 23, 2008). The Court thereby left CAIR in 
place in order to ``temporarily preserve the environmental values 
covered by CAIR'' until EPA replaces it with a rule consistent with the 
Court's opinion. Id. at 1178. The Court directed EPA to ``remedy CAIR's 
flaws'' consistent with its July 11, 2008 opinion, but declined to 
impose a schedule on EPA for

[[Page 39594]]

completing that action. Id. Therefore, CAIR and the CAIR FIP are 
currently in effect in North Carolina.

III. What are the General Requirements of CAIR and the CAIR FIPs?

    CAIR establishes State-wide emission budgets for SO<INF>2</INF> and 
NO<INF>X</INF> and is to be implemented in two phases. The first phase 
of NO<INF>X</INF> reductions starts in 2009 and continues through 2014, 
while the first phase of SO<INF>2</INF> reductions starts in 2010 and 
continues through 2014. The second phase of reductions for both 
NO<INF>X</INF> and SO<INF>2</INF> starts in 2015 and continues 
thereafter. CAIR requires States to implement the budgets by either: 
(1) Requiring EGUs to participate in the EPA-administered cap-and-trade 
programs; or (2) adopting other control measures of the State's 
choosing and demonstrating that such control measures will result in 
compliance with the applicable State SO<INF>2</INF> and NO<INF>X</INF> 
budgets.
    The May 12, 2005 and April 28, 2006 CAIR rules provide model rules 
that States must adopt (with certain limited changes, if desired) if 
they want to participate in the EPA-administered trading programs. With 
two exceptions, only States that choose to meet the requirements of 
CAIR through methods that exclusively regulate EGUs are allowed to 
participate in the EPA-administered trading programs. One exception is 
for States that adopt the opt-in provisions of the model rules to allow 
non-EGUs individually to opt into the EPA-administered trading 
programs. The other exception is for States that include all non-EGUs 
from their NO<INF>X</INF> SIP Call trading programs in their CAIR 
NO<INF>X</INF> ozone season trading programs.

IV. What are the Types of CAIR SIP Submittals?

    States have the flexibility to choose the type of control measures 
they will use to meet the requirements of CAIR. EPA anticipates that 
most States will choose to meet the CAIR requirements by selecting an 
option that requires EGUs to participate in the EPA-administered CAIR 
cap-and-trade programs. For such States, EPA has provided two 
approaches for submitting and obtaining approval for CAIR SIP 
revisions. States may submit full SIP revisions that adopt the model 
CAIR cap-and-trade rules. If approved, these SIP revisions will fully 
replace the CAIR FIPs. Alternatively, States may submit abbreviated SIP 
revisions. These SIP revisions will not replace the CAIR FIPs; however, 
the CAIR FIPs provide that, when approved, the provisions in these 
abbreviated SIP revisions will be used instead of or in conjunction 
with, as appropriate, the corresponding provisions of the CAIR FIPs 
(e.g., the NO<INF>X</INF> allowance allocation methodology).
    A State submitting a full SIP revision may either adopt regulations 
that are substantively identical to the model rules or incorporate by 
reference the model rules. CAIR provides that States may only make 
limited changes to the model rules if the States want to participate in 
the EPA-administered trading programs. A full SIP revision may change 
the model rules only by altering their applicability and allowance 
allocation provisions to:
    1. Include all NO<INF>X</INF> SIP Call trading sources that are not 
EGUs under CAIR in the CAIR NO<INF>X</INF> ozone season trading 
program;
    2. Provide for State allocation of NO<INF>X</INF> annual or ozone 
season allowances using a methodology chosen by the State;
    3. Provide for State allocation of NO<INF>X</INF> annual allowances 
from the compliance supplement pool (CSP) using the State's choice of 
allowed, alternative methodologies; or
    4. Allow units that are not otherwise CAIR units to opt 
individually into the CAIR SO<INF>2</INF>, NO<INF>X</INF> annual, or 
NO<INF>X</INF> ozone season trading programs under the opt-in 
provisions in the model rules.
    An approved CAIR full SIP revision addressing EGUs' SO<INF>2</INF>, 
NO<INF>X</INF> annual, or NO<INF>X</INF> ozone season emissions will 
replace the CAIR FIP for that State for the respective EGU emissions. 
As discussed above, EPA approval in full, without any conditions, of a 
CAIR full SIP revision causes the CAIR FIPs to be automatically 
withdrawn.

V. Analysis of North Carolina's CAIR SIP Submittal

A. State Budgets for Allowance Allocations

    The CAIR NO<INF>X</INF> annual and ozone season budgets were 
developed from historical heat input data for EGUs. Using these data, 
EPA calculated annual and ozone season regional heat input values, 
which were multiplied by 0.15 pounds per million British thermal unit 
(lb/mmBtu) for phase 1, and 0.125 lb/mmBtu, for phase 2, to obtain 
regional NO<INF>X</INF> budgets for 2009-2014 and for 2015 and 
thereafter, respectively. EPA derived the State NO<INF>X</INF> annual 
and ozone season budgets from the regional budgets using State heat 
input data adjusted by fuel factors.
    The CAIR State SO<INF>2</INF> budgets were derived by discounting 
the tonnage of emissions authorized by annual allowance allocations 
under the Acid Rain Program under title IV of the CAA. Under CAIR, each 
allowance allocated in the Acid Rain Program for the years in phase 1 
of CAIR (2010 through 2014) authorizes 0.50 ton of SO<INF>2</INF> 
emissions in the CAIR trading program, and each Acid Rain Program 
allowance allocated for the years in phase 2 of CAIR (2015 and 
thereafter) authorizes 0.35 ton of SO<INF>2</INF> emissions in the CAIR 
trading program.
    In today's action, EPA is proposing to approve North Carolina's SIP 
revision that adopts the budgets established for the State in CAIR. 
These budgets are 62,183 tons for NO<INF>X</INF> annual emissions from 
2009 through 2014, and 51,819 tons from 2015 and thereafter; 28,392 
tons for NO<INF>X</INF> ozone season emissions from 2009 through 2014, 
and 23,660 tons from 2015 and thereafter; and 137,342 tons for 
SO<INF>2</INF> annual emissions from 2010 through 2014, and 96,139 tons 
from 2015 and thereafter. Additionally, because North Carolina has 
chosen to include all non-EGUs in the State's NO<INF>X</INF> SIP call 
trading program, the CAIR NO<INF>X</INF> ozone season budget will be 
increased annually by 2,443 tons to account for such NO<INF>X</INF> SIP 
Call trading sources. North Carolina's SIP revision sets these budgets 
as the total amounts of allowances available for allocation for each 
year under the EPA-administered cap-and-trade programs.
    EPA notes that, in North Carolina, 531 F.3d at 916-21, the Court 
determined, among other things, that the State SO<INF>2</INF> and 
NO<INF>X</INF> budgets established in CAIR were arbitrary and 
capricious.\2\ However, as discussed above, the Court also decided to 
remand CAIR but to leave the rule in place in order to ``temporarily 
preserve the environmental values covered by CAIR'' pending EPA's 
development and promulgation of a replacement rule that remedies CAIR's 
flaws. North Carolina, 550 F.3d at 1178. EPA had indicated to the Court 
that development and promulgation of a replacement rule would take 
about two years. Reply in Support of Petition for Rehearing or 
Rehearing en Banc at 5 (filed Nov. 17, 2008 in North Carolina v. EPA, 
Case No. 05-1224, DC Cir.). The process at EPA of developing a proposal 
that will undergo notice and comment and result

[[Page 39595]]

in a final replacement rule is ongoing. In the meantime, consistent 
with the Court's orders, EPA is implementing CAIR by approving State 
SIP revisions that are consistent with CAIR (such as the provisions 
setting State SO<INF>2</INF> and NO<INF>X</INF> budgets for the CAIR 
trading programs) in order to ``temporarily preserve'' the 
environmental benefits achievable under the CAIR trading programs.
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    \2\ The Court also determined that the CAIR trading programs 
were unlawful (Id. at 906-8) and that the treatment of CAA title IV 
allowances in CAIR was unlawful (Id. at 921-23). For the same 
reasons that EPA is approving the provisions of North Carolina's SIP 
revision that use the SO<INF>2</INF> and NO<INF>X</INF> budgets set 
in CAIR, EPA is also approving, as discussed below, North Carolina's 
SIP revision to the extent the SIP revision adopts the CAIR trading 
programs, including the provisions addressing applicability, 
allowance allocations, and use of title IV allowances.
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    On May 7, 2009, EPA participated in a teleconference with North 
Carolina and requested several clarifications. EPA received a letter 
from North Carolina dated May 8, 2009, that provided the requested 
clarifications. Specifically, in the May 8, 2009, letter the State 
clarified references in North Carolina's rule to ``CAIR NO<INF>X</INF> 
Ozone Season trading program'' and ``fuel oil.'' In addition, North 
Carolina acknowledged that the reference to 40 CFR 96.4(b)(1)(iii) in 
15A North Carolina Administrative Code (NCAC) 02D .2401(b)(3)(c) is not 
a restriction on hours of operation, but rather provides how a unit's 
potential NO<INF>X</INF> mass emissions will be calculated.

B. CAIR Cap-and-Trade Programs

    The CAIR NO<INF>X</INF> annual and ozone-season model trading rules 
both largely mirror the structure of the NO<INF>X</INF> SIP Call model 
trading rule in 40 CFR Part 96, subparts A through I. While the 
provisions of the NO<INF>X</INF> annual and ozone-season model rules 
are similar, there are some differences. For example, the 
NO<INF>X</INF> annual model rule (but not the NO<INF>X</INF> ozone 
season model rule) provides for a CSP, which is discussed below and 
under which allowances may be awarded for early reductions of 
NO<INF>X</INF> annual emissions. As a further example, the 
NO<INF>X</INF> ozone season model rule reflects the fact that the CAIR 
NO<INF>X</INF> ozone season trading program replaces the NO<INF>X</INF> 
SIP Call trading program after the 2008 ozone season and is coordinated 
with the NO<INF>X</INF> SIP Call program. The NO<INF>X</INF> ozone 
season model rule provides incentives for early emissions reductions by 
allowing banked, pre-2009 NO<INF>X</INF> SIP Call allowances to be used 
for compliance in the CAIR NO<INF>X</INF> ozone-season trading program. 
In addition, States have the option of continuing to meet their 
NO<INF>X</INF> SIP Call requirement by participating in the CAIR 
NO<INF>X</INF> ozone season trading program and including all their 
NO<INF>X</INF> SIP Call trading sources in that program.
    The provisions of the CAIR SO<INF>2</INF> model rule are also 
similar to the provisions of the NO<INF>X</INF> annual and ozone season 
model rules. However, the SO<INF>2</INF> model rule is coordinated with 
the ongoing Acid Rain SO<INF>2</INF> cap-and-trade program under CAA 
title IV. The SO<INF>2</INF> model rule uses the title IV allowances 
for compliance, with each allowance allocated for 2010-2014 authorizing 
only 0.50 ton of emissions and each allowance allocated for 2015 and 
thereafter authorizing only 0.35 ton of emissions. Banked title IV 
allowances allocated for years before 2010 can be used at any time in 
the CAIR SO<INF>2</INF> cap-and-trade program, with each such allowance 
authorizing 1 ton of emissions. Title IV allowances are to be freely 
transferable among sources covered by the Acid Rain Program and sources 
covered by the CAIR SO<INF>2</INF> cap-and-trade program.
    EPA also used the CAIR model trading rules as the basis for the 
trading programs in the CAIR FIPs. The CAIR FIP trading rules are 
virtually identical to the CAIR model trading rules, with changes made 
to account for Federal rather than State implementation. The CAIR model 
SO<INF>2</INF>, NO<INF>X</INF> annual, and NO<INF>X</INF> ozone season 
trading rules and the respective CAIR FIP trading rules are designed to 
work together as integrated SO<INF>2</INF>, NO<INF>X</INF> annual, and 
NO<INF>X</INF> ozone season trading programs.
    In the SIP revision, North Carolina chooses to implement its CAIR 
budgets by requiring EGUs to participate in EPA-administered cap-and-
trade programs for SO<INF>2</INF>, NO<INF>X</INF> annual, and 
NO<INF>X</INF> ozone season emissions. North Carolina has adopted a 
full SIP revision that adopts, with certain allowed changes discussed 
below, the CAIR model cap-and-trade rules for SO<INF>2</INF>, 
NO<INF>X</INF> annual, and NO<INF>X</INF> ozone season emissions.

C. Applicability Provisions

    In general, the CAIR model trading rules apply to any stationary, 
fossil-fuel-fired boiler or stationary, fossil-fuel-fired combustion 
turbine serving at any time, since the later of November 15, 1990, or 
the start-up of the unit's combustion chamber, a generator with 
nameplate capacity of more than 25 megawatt electrical (MWe) producing 
electricity for sale.
    States have the option of bringing in, for the CAIR NO<INF>X</INF> 
ozone season program only, those units in the State's NO<INF>X</INF> 
SIP Call trading program that are not EGUs as defined under CAIR. EPA 
advises States exercising this option to add the applicability 
provisions in the State's NO<INF>X</INF> SIP Call trading rule for non-
EGUs to the applicability provisions in 40 CFR 96.304 in order to 
include in the CAIR NO<INF>X</INF> ozone season trading program all 
units required to be in the State's NO<INF>X</INF> SIP Call trading 
program that are not already included under 40 CFR 96.304. Under this 
option, the CAIR NO<INF>X</INF> ozone season program must cover all 
large industrial boilers and combustion turbines, as well as any small 
EGUs (i.e. units serving a generator with a nameplate capacity of 25 
MWe or less) that the State currently requires to be in the 
NO<INF>X</INF> SIP Call trading program.
    North Carolina has chosen to expand the applicability provisions of 
the CAIR NO<INF>X</INF> ozone season trading program to include all 
non-EGUs in the State's NO<INF>X</INF> SIP Call trading program.

D. NOX Allowance Allocations

    Under the NO<INF>X</INF> allowance allocation methodology in the 
CAIR model trading rules and in the CAIR FIP, NO<INF>X</INF> annual and 
ozone season allowances are allocated to units that have operated for 
five years, based on heat input data from a three-year period that are 
adjusted for fuel type by using fuel factors of 1.0 for coal, 0.6 for 
oil, and 0.4 for other fuels. The CAIR model trading rules and the CAIR 
FIP also provide a new unit set-aside from which units without five 
years of operation are allocated allowances based on the units' prior 
year emissions.
    States may establish in their SIP submissions a different 
NO<INF>X</INF> allowance allocation methodology that will be used to 
allocate allowances to sources in the States if certain requirements 
are met concerning the timing of submission of units' allocations to 
the Administrator for recordation and the total amount of allowances 
allocated for each control period. In adopting alternative 
NO<INF>X</INF> allowance allocation methodologies, States have 
flexibility with regard to:
    1. The cost to recipients of the allowances, which may be 
distributed for free or auctioned;
    2. The frequency of allocations;
    3. The basis for allocating allowances, which may be distributed, 
for example, based on historical heat input or electric and thermal 
output; and
    4. The use of allowance set-asides and, if used, their size.
    North Carolina has chosen to distribute NO<INF>X</INF> annual and 
NO<INF>X</INF> ozone season allowances with its own methodology. North 
Carolina has chosen to distribute NO<INF>X</INF> annual allowances by 
submitting the table adopted in 15A NCAC 02D .2403(a) which establishes 
the North Carolina CAIR NO<INF>X</INF> annual allocation for existing 
units. North Carolina has chosen to establish a new unit set aside for 
each control period. For CAIR NO<INF>X</INF> emissions for each control 
period, CAIR NO<INF>X</INF> allowances available for allocation for new 
unit set asides will be 2,638 tons for 2009-2014 and 1,154 tons for 
2015 and thereafter.

[[Page 39596]]

    North Carolina has chosen to distribute NO<INF>X</INF> ozone season 
allowances by submitting the table adopted in 15A NCAC 02D .2405(a)(1) 
which establishes the North Carolina CAIR NO<INF>X</INF> ozone season 
allocations for existing units. North Carolina has chosen to establish 
a new unit set aside for each control period. For CAIR NO<INF>X</INF> 
ozone season emissions, allowances available for allocation for new 
unit set asides will be 1,234 tons for 2009-2014 and 555 tons for 2015 
and thereafter.
    The State's NO<INF>X</INF> ozone season allocation provisions have 
been modified to add requirements associated with North Carolina's 
option to bring its non-EGUs into the CAIR NO<INF>X</INF> ozone season 
trading program. The State has chosen to distribute CAIR NO<INF>X</INF> 
Ozone season allowances to non-EGUs by submitting a table adopted in 
15A NCAC 02D .2405(a)(2).

E. Allocation of NOX Allowances From Compliance Supplement Pool

    The CAIR establishes a CSP to provide an incentive for early 
reductions in NO<INF>X</INF> annual emissions. The CSP consists of 
200,000 CAIR NO<INF>X</INF> annual allowances of vintage 2009 for the 
entire CAIR region, and a State's share of the CSP is based upon the 
projected magnitude of the emission reductions required by CAIR in that 
State. States may distribute CSP allowances, one allowance for each ton 
of early reduction, to sources that make NO<INF>X</INF> reductions 
during 2007 or 2008 beyond what is required by any applicable State or 
Federal emission limitation. States also may distribute CSP allowances 
based upon a demonstration of need for an extension of the 2009 
deadline for implementing emission controls.
    The CAIR annual NO<INF>X</INF> model trading rule establishes 
specific methodologies for allocations of CSP allowances. States may 
choose an allowed, alternative CSP allocation methodology to be used to 
allocate CSP allowances to sources in the States.
    Consistent with the flexibility given to States in the model 
trading rule, North Carolina has not chosen to modify the provisions of 
the CAIR NO<INF>X</INF> annual model trading rule concerning the 
allocation of allowances from the CSP. North Carolina has not chosen to 
adopt CSP provisions since the State does not have any allowances 
available to allocate under the CSP provisions.

F. Individual Opt-in Units

    The opt-in provisions of the CAIR SIP model trading rules allow 
certain non-EGUs (i.e., boilers, combustion turbines, and other 
stationary fossil-fuel-fired devices) that do not meet the 
applicability criteria for a CAIR trading program to participate 
voluntarily in (i.e., opt into) the CAIR trading program. A non-EGU may 
opt into one or more of the CAIR trading programs. In order to qualify 
to opt into a CAIR trading program, a unit must vent all emissions 
through a stack and be able to meet monitoring, recordkeeping, and 
recording requirements of 40 CFR part 75. The owners and operators 
seeking to opt a unit into a CAIR trading program must apply for a CAIR 
opt-in permit. If the unit is issued a CAIR opt-in permit, the unit 
becomes a CAIR unit, is allocated allowances, and must meet the same 
allowance-holding and emissions monitoring and reporting requirements 
as other units subject to the CAIR trading program. The opt-in 
provisions provide for two methodologies for allocating allowances for 
opt-in units, one methodology that applies to opt-in units in general 
and a second methodology that allocates allowances only to opt-in units 
that the owners and operators intend to repower before January 1, 2015.
    States have several options concerning the opt-in provisions. 
States may adopt the CAIR opt-in provisions entirely or may adopt them 
but exclude one of the methodologies for allocating allowances. States 
may also decline to adopt the opt-in provisions at all.
    Consistent with the flexibility given to States in the FIPs, North 
Carolina has chosen to allow non-EGUs meeting certain requirements to 
participate in the CAIR NO<INF>X</INF> annual trading program. The 
North Carolina rule allows for both the opt-in allocation methods as 
specified in 40 CFR part 96, Subpart II of the CAIR NO<INF>X</INF> 
annual trading program.
    Consistent with the flexibility given to the States in the FIPs, 
North Carolina has chosen to permit non-EGUs meeting certain 
requirements to participate in the CAIR NO<INF>X</INF> ozone season 
trading program. The North Carolina rule allows for both of the opt-in 
allocation methods as specified in 40 CFR part 96 Subpart III of the 
CAIR NO<INF>X</INF> ozone season trading program.
    Consistent with the flexibility given to the States in the FIPs, 
North Carolina has chosen to allow certain non-EGUs to opt into the 
CAIR SO<INF>2</INF> trading program. The North Carolina rule allows for 
both of the opt-in allocation methods as specified in 40 CFR part 96 
Subpart III of the CAIR SO<INF>2</INF> trading program.

VI. Proposed Action

    EPA is proposing to approve, as interpreted and clarified herein, 
North Carolina's full CAIR SIP revision submitted on June 20, 2008. 
Under the approved SIP revision, North Carolina is choosing to 
participate in the EPA-administered CAIR cap-and-trade programs for 
SO<INF>2</INF>, NO<INF>X</INF> annual, and NO<INF>X</INF> ozone season 
emissions. The approved SIP revision, as interpreted and clarified 
herein, meets the applicable requirements of CAIR, which are set forth 
in 40 CFR 51.123(o) and (aa), with regard to NO<INF>X</INF> annual and 
NO<INF>X</INF> ozone season emissions, and 40 CFR 51.124(o), with 
regard to SO<INF>2</INF> emissions. If this proposed approval for North 
Carolina's full CAIR SIP revision is finalized, EPA will promulgate, in 
conjunction with the final rule for this action, rules implementing the 
automatic withdrawal--in accordance with 40 CFR 52.35 and 52.36--of the 
CAIR FIPs for SO<INF>2</INF>, NO<INF>X</INF> annual, and NO<INF>X</INF> 
ozone season emissions for North Carolina sources.

VII. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP 
submission that complies with the provisions of the Act and applicable 
Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in 
reviewing SIP submissions, EPA's role is to approve State choices, 
provided that they meet the criteria of the CAA. Accordingly, this 
proposed action merely approves State law as meeting Federal 
requirements and does not impose additional requirements beyond those 
imposed by State law. For that reason, this proposed action:
    <bullet> Is not a ``significant regulatory action'' subject to 
review by the Office of Management and Budget under Executive Order 
12866 (58 FR 51735, October 4, 1993);
    <bullet> Does not impose an information collection burden under the 
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
    <bullet> Is certified as not having a significant economic impact 
on a substantial number of small entities under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.);
    <bullet> Does not contain any unfunded mandate or significantly or 
uniquely affect small governments, as described in the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4);
    <bullet> Does not have Federalism implications as specified in 
Executive Order 13132 (64 FR 43255, August 10, 1999);
    <bullet> Is not an economically significant regulatory action based 
on health or safety risks subject to Executive Order 13045 (62 FR 
19885, April 23, 1997);

[[Page 39597]]

    <bullet> Is not a significant regulatory action subject to 
Executive Order 13211 (66 FR 28355, May 22, 2001);
    <bullet> Is not subject to requirements of Section 12(d) of the 
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 
note) because application of those requirements would be inconsistent 
with the CAA; and
    <bullet> Does not provide EPA with the discretionary authority to 
address, as appropriate, disproportionate human health or environmental 
effects, using practicable and legally permissible methods, under 
Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have Tribal implications as specified 
by Executive Order 13175 (65 FR 67249, November 9, 2000), because the 
SIP is not approved to apply in Indian country located in the State, 
and EPA notes that it will not impose substantial direct costs on 
Tribal governments or preempt Tribal law.

List of Subjects

40 CFR Part 52

    Environmental protection, Air pollution control, Electric 
utilities, Intergovernmental relations, Carbon monoxide, Nitrogen 
oxides, Ozone, Particulate matter, Reporting and recordkeeping 
requirements, Sulfur dioxide.

40 CFR Part 96

    Environmental protection, Air pollution control, Electric 
utilities, Intergovernmental relations, Nitrogen oxides, Ozone, 
Particulate matter, Reporting and recordkeeping requirements, Sulfur 
dioxide.

    Authority: 42 U.S.C. 7401 et seq.

    Dated: July 29, 2009.
Beverly H. Banister,
Acting Regional Administrator, Region 4.
[FR Doc. E9-18999 Filed 8-6-09; 8:45 am]
BILLING CODE 6560-50-P


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