BEFORE THE ADMINISTRATOR
UNITED STATES ENVIRONMEN TAL PROTECTION AGENCY

__________________________________________ In the Matter of: ) ) Final Rule to Implement the 8-Hour ) Ozone National Ambient Air Quality ) RIN 2060-AJ99
Standard – Phase 2 ) Air Docket #OAR-2003-0079 __________________________________________)

PETITION FOR RECONSIDERATION

Pursuant to Section 307(d)(7)(B) of th e Clean Air Act, 42 U.S.C. § 7607(d)(7)(B), Natural Resources Defense Council petitions the Administrator of the Environmental Protection Agency (“the Administrator” or “EPA ”) to reconsider the final rule captioned above and published at 70 Fed. Reg. 71612 (November 29, 2005)(“NFRM” or “final rule”). The grounds for the objections raised in this petition arose after the period for public comment and are of central relevance to the outcome of the rule. The Administrator must therefore “convene a proc eeding for reconsideration of the rule and provide the same procedural ri ghts as would have been afforded had the information been available at the time the rule was proposed.” 42 U.S.C. § 7607(d)(7)(B).

INTRODUCTION

This petition raises objections to the fina l rule captioned above. Each objection is
“of central relevance to the outcome of the rule,” 42 U.S.C. § 7607(d)(7)(B), in that it
demonstrates that the rule is “arbitrary, capricious, an abus e of discretion, or otherwise
not in accordance with law.” Id . § 7607(d)(9)(A). With respect to each objection, moreover, the regulatory language and EPA interp retations that render the rule arbitrary, capricious, an abuse of discretion, or otherwis e not in accordance w ith law appeared for the first time in the NFRM published on November 29, 2005. 70 Fed. Reg. 71612-705. Federal Register notices solic iting comment on the rule we re published on July 23, 1996 (61 Fed. Reg. 38250), June 2, 2003, (68 Fed. Reg. 32802), and August 6, 2003 (68 Fed. Reg. 46536). The public comment period on th e July 23, 1996 notice closed on October 21, 1996. 61 Fed. Reg. 38250, 38318 (July 23, 1996). The public comment period on the preamble to June 2, 2003 notice closed on August 1, 2003; the public comment period on the regulatory text (anno unced in the August 6, 2003 notice) closed on September 5, 2003; and the comment period on certain classi fication approaches closed on November 5, 2003. 68 Fed. Reg. 32802, 32802/2 (June 2, 2003); 68 Fed. Reg. 46536, 46536/1 (August 6, 2003); 68 Fed. Reg. 60054 (October 21, 2003). The grounds for the objections raised in this petition thus “ar ose after the period for public comment.” 42 U.S.C. § 7607(d)(7)(B). Because judicial review of the rule is available by the filing of a petition for review “by January 30, 2006,” 70 Fed. Reg. at 71695, the grounds for the objections arose “within the time specified for judicial review.” 42 U.S.C. § 7607(d)(7)(B).OBJECTI O NS

I. Clean Air Interstate Rule as RACT

The final rule unlawfully and arbitrarily: a) determ ines that electric generating units (EGUs ) com p lying with requ ire m ents of EPA’s Clean Air In ters ta te Rule (CAIR)

m eet ozone NOx RACT requirem e nts in all st ates where CAIR reduction s are ach i eved
from EGUs only; and b) that such states need not perform or s ubm it RACT analyses f o r sources sub j ect to CAIR that are in com p lia nce with a SIP that has been approved as

m eeting CAIR. The effect of these d e term ination s (hereinafter, collectively, “CAIRRACT determ ination”) is to unlawfully and arbitrarily waive the Act’s R A CT requirem e nts for individual EGU sour ces in ozone nonattainm ent areas.

The CAIR-RACT determ ination and accom p anying rationales were add e d to the rule after the close of the public comm e ntperiod. Thus, the grounds for our objections arose after the period for public comm ent, and the raising of those objections during the public comm e nt period was im practicable. See CAA § 307( d)(7)(B). Those objections are
of central relevance to th e rule, s ee id

. , because th ey go to the core pro ced ural and substantive validity of the RACT pr ovisi ons of the rule -- including the public' s opportunity to comm ent on those provisions, a nd the consistency of those provisions with
the Act and with fundamental standard s of reasoned agency decision-m a king.

A. EPA Unlawfully and Arbitrar ily F a iled to Se e k Public Co mment on
the Final Rule's Dete r m inatio n that CAIR Sa tisfies NOx RACT Requirements

EPA unlawfully failed to presen t the CAIR-RACT determ ination and

accom p anying rationales to the pub lic for comment. Under § 307(d) (which EPA has found applicable to this proceed ing), EPA m u st present for pu blic comm e n t "the m a jo r legal interpretations and policy consider ations underlying the proposed rule." § 307(d)(3)(C). The same requirem e nt woul d apply under the Adm i nistrative P r ocedure Act. 5 U.S.C. § 553. EPA' s CAIR-RACT dete rmination and accom p anying rationales are not a logical outgrowth of the proposal.

First, they did not appear in the no tices or proposed rulem a king, nor did EPA otherwise present them to the public for comm en t. Indeed, at the tim e of t h e relevant notices of proposed rulem a king herein, EPA had not yet even proposed to adopt the CAIR rule, much less proposed to determ ine that the CAIR rule would suffice as RACT for any sources. For the sam e reasons, EPA’s CAIR-RACT determ ination was not a logical outgrowth of the relevant proposals.

EPA’s June 2, 2003 notice did propose to fi nd that sources subject to the NOx SIP call cap-and -trad e prog ram meet NOx RACT, and that states need not perfor m or subm it

2NOx RACT analyses or SIP provisions for such sources. The NOx SIP call program

, however, is not the sam e as the CA IR program . 70 Fed. Reg. 25162, 25176 (2005).

Am ong other things, the CAIR program cont ains different requirem ents, covers a different universe of sources, and provides fo r implem e ntation over different tim e fram es than the NOx SIP call. The assum p tions, te chnical analyses and findings underlying the CAIR program also differ in m a terial respec ts from those relied on in developm ent of the NOx SIP call. EPA’s proposed RACT findings with respect to s ources covered by the NOx SIP call did not apprise the public that th e agency intended to m a ke sim ilar RACT findings with respect to EGUs covered by CA IR, nor did the proposal apprise the public of (or provide opportunity to comm e n t on) a ll the technical and an alytical grounds the agency intended to rely on in its CAIR-R ACT de term ination. See, e.g., 70 Fed. Reg. at 71656-58 (stating various grounds for EPA’s CA IR-RACT determ ination, none of which appeared in the proposal notices or underlying docum e nts).

For all the f o regoing r e a s ons, EPA co mm itted a procedur al v i ola tion ( see § 307(d)(9 )(D)) by failin g to solicit p ublic comment on its CAIR-RACT determ inatio n. That proced ural v i olatio n m eets the criteria se t forth in § 30 7(d)(9 )(D) for reve rsa l b a sed on procedural violations. First, EPA's procedur al dereliction is arbitrary and capricious.

See § 307(d)(9)(D)(i). The agency has purported to m a ke a blanket RACT determ ination
for certain E GU sources covered by a program that had not even been proposed at the
tim e of publ ic notice and comment, and that differs m a terially from the pre-existing regulatory regim e . Yet the agency has not de igned to seek the public' s views on that
determ inatio n.

Second, via the present pe tition, petitioner have satis fied the requirem e nts of § 307(d). See § 307(d)(9)(D)(ii).

Third, the challeng ed errors "were s o seri ous an d rela ted to m a tte rs of such central
relevance to the rule that th ere is a substantial likelihood that the rule would have been significantly changed if such errors had not been m a de." See § 307(d)(8), cited in § 307(d)(9)(D)(iii). EPA did not m e rely fa il to seek public comment on som e s m all aspect of the challenged provisi ons. Rather, it failed to s eek comm ent on the funda m e ntal approach they em body -

- an approach that has the effect of exem pti ng a large category of

m a jor sources from installing additional pol lution controls mandated by the Act. Had EPA obeyed the law by soliciting public comm ent, it would have learned of the serious substantive objections detailed below -- objections that address the lack of statutory basis for the challenged provisions, and those provi sions' inconsistency with fundam e ntal principles of reasoned agency decision-m aking.

B. EPA’s CAI R-RACT Determinations Are Unlaw f ul and Arbitrary.

EPA’s CAI R -RACT de term inations violat ed the Act and fundam e ntal standards of reasoned agency decision-m a king

(1). EPA’s Action Illegally Abr ogates the Act’s RACT Requirements

3EPA’s CAIR-RACT determ ination illeg ally sub s titutes controls on sour ces outside of ozone nonattainm ent areas for contro ls that the Act requires on sources within
each nonattainm ent area. Section 17 2(c)(2 ) of th e Act requ ires the SIP for each ozon e nonattainm e nt area to “provide for . . . such reductions in em issions from e x isting sources
in the area as m a y be obtained through th e adoption, at a m i nimum

, of reasonably available control technology [R ACT].” Likewise, §182(b)(2) requires each m oderate and above ozone nonattainment area to require RACT for specified sources “in the area” and “[a]ll other m a jor stationary sources of VOCs [a nd, pursuant to §182(f), NOx] that are
located in th e area. ” Thus, the statu t e unam b iguously requires appl ication of RACT t o sources located “ in the a r ea .” As EPA concedes, CAIR allows existing major EGU
sources loca ted in a non atta in m e nt area to avoid adopting any controls as long as they can purchase the requisite number of allo wances. There is no req u irem ent that such
allowances com e from e m ission reductions inthe sam e nonattainm e nt area or even a nearby one. Indeed, under CAIR, such a llowances can be generated by em ission reductions by a source a thousand m iles dow nwind from the nonattainm e nt area in question. E P A is com p l e tely without authorityto abrogate the Act’s RACT requirem e nts in this m a nner. Because EPA’s CAI R -RAC T determ inations allow existing sources
within a non atta inm e nt area to avoid adoption of RACT cont rols, those d e term inations violate the express term s of the Ac t, including §§172(c )(2) and 182(b)(2).

(2) EPA’s CAI R-RACT Determinations Are Unlaw f ul and Arbitrary

EPA has long defined RACT as “the lowe st em ission lim itation that a particular source is capable of m e eting by the application of control technology that is reasonably available considering technological and economic feasibility." 44 Fed. Reg. 53762 (9/17/79). At the tim e Congress adopted the 1990 Clean Air Act Am endm ents, this
definition of RACT was well-es tablished. Thus, RACT requires a source-specific inquiry
into th e low e st em ission lim itation that a “particular sour ce” is capab le of m eeting.

EPA’s CAI R -RACT determ ination is unlawful and arbitrary because it is not bas e d on such a source-specific in quiry, and b ecause EPA has neither f ound nor demonstrated that participa tion in the CAIR program will require each cove re d source to a c hieve the lo west

em ission lim itation it is capable of m eeting. To the contrary, under EPA’s approach, a specific CAIR-covered source need not instal l any control technology at all, let alone
achieve the lowest em ission lim itation it is cap able of m eeting, as long as it holds enough
allowances.

For exam ple, EPA itself has projected that significant portions of the total capacity of EGUs burning coal will lack advanced pollution controls in 2010, 2015 and 2020. In a CAIR presentation to the 98 th annual conference of the A&WMA on June 23, 2005, an EPA speaker adm itted th at 163 GW out of 244 GW total coal capacity in the CAIR region would lack FGD or SCR for SO2 and NOx, respectively, in the year 2010. By 2015, 129 GW out of 242 GW total coal capac ity in the C A IR region would lack FGD or SCR for SO2 and NOx, respectively. A nd by 2020, 108 GW out of 252 GW total coal capacity in the CAIR region still wou l d lack FGD or SCR for SO2 and NOx, respectively. See attach m e nt for specific breakdown of coal capacity with and without advanced technology.

4Exam ining EPA’s IPM data th at ac c o m p an ied CAIR, one learns that under CAIR in 2015, approxim a tely 440 coal-fired EGUs l ack advanced pollution controls out of a total of about 1,175 such units. And under CAIR in 2020, about 500 coal-fired EGUs lack advanced pollution c ontrols out of a total of about 1,200 such units.

Many of these units are eithe r in ar e a s tha tpres e n tly ar e in n onatta inm e nt with th e 8-hour ozone standard or areas that coul d fall into nonattainm e nt with the 8-hour
standard. A nd these units are am ong those th at will purchase allowa nces rather than adopt pollution controls to com p ly wi th CAIR . By allowing any of these units to avoid
“the lowes tem ission lim itation tha t a part icular source is capable of m e eting by the application of control technol ogy that is reasonably available considering technological and economic feasibility," EPA’ s CAIR-RACT determ ination is arbitrary and unlawful.

EPA’s claim that CAIR alone will achi eve greate r overall red u ctions than RACT is both legally irrelevant a nd factually incorrect. The Ac t does not give E P A the option of requiring CAIR or som e other strategy in lieu of RACT. Rather, as discussed above,
the Act m a ndates RACT “at a m i nimum ” in nonattainm e nt areas regardless of what other

stra tegies may be em ployed. Furthe r, EPA’s cla i m that CAIR will achie ve grea ter o v erall reductions is based on total regional reductions under CAIR – not on reductions within a given nonattainm e nt area where a source is being allowed to f o rego RACT. The Act does not give EPA the option of foregoing m a ndated reductions within one nonattainm ent area on the grounds that greater reductions will be achieved som e where else.

Even if it were legally r e levan t , the claim that CAIR will ac hieve gr eate r reductions without RACT is unsupportab l e. RACT will plainly p r ovid e additional
reductions from sources that install no (or le ss-than-RACT) controls under CAIR. EPA’s assertion to the contrary is based on the use of regional (rather thanlocal) reductions as
the basis for com p arison, and on the presum pti on that RACT reductions could be used by
sources for CAIR allowances. As discusse d abo v e, however, the requ irem ent for RACT reductions in a given nonattainm e nt area ca nnot be offset or negated by reductions elsewhere. Even if it could, EPA can (and indeed, as discussed above, must) require RACT reductions on top of CAIR r e ductions. To the extent that the R A CT requirem e nt

com p licates EPA’s im pl em entation of CAIR, th at is a problem of EPA’s own m a king that
must be addressed within the context of CAIR. Requiring both CAIR and RACT would
further effectuate the differentpurposes served by the two program s : CAI R is designed to prevent states from significantly contributing to nonattainm e nt in other states, while RACT is required to reduce em issions within individual nonattainm ent areas. Furtherm ore, EPA concedes that CAIR alone w ill not be sufficient to produce attainm e nt in all nonattainm e nt areas. The agency cannot lawfully or rationally declare that CAIR
constitutes RACT when CAIR allows sources to go wit hout controls that would otherwise be required under RA CT in nonattainm e nt areas that will or m a y continue to
violate stand a rds after CAIR is im plem en ted. EPA’s action also unlawfully and
arbitrar ily ig nores the po ssibility tha t requi ring both RACT a nd CAIR wi ll produce faster
RFP and earlier attainm e nt than CAIR alone.

5To the exten ttha tEPA is claim i ng th at the tes tf o r estab l ishin g the CAIR level of control is equivalent to or m o re stringent than R A CT, EPA is also m i staken. The CAIR
level of control is based on EPA’s assessm ent of contro ls that are “h ighly cost effectiv e” in reducing significant contri bution to downwind nonattainme nt. The RACT level of

contro l is ba sed on the lo west em ission lim itatio n that a p a rticular sour ce is capab le of

m eeting by the application of control technology that is reaso n ably available considering technological and econom i c feasibility. As show n above, the two tests ar e not equivalent. Nor has EPA conducted any analyses dem onstr ating that CAIR-level control is m o re stringent on a source-by-source basis. EPA offers nothing but speculation that sourcespecific RACT “could result in m o re costly em ission reductions on a per ton basis.” 70 Fed. Reg. at 71657. EPA bases this speculation on m o re speculation – i.e., that if States
chose to r e q u ire sm aller em itting sour ces in non attainm e nt are a s to m eet source-sp e cif i c RACT by 2009, they would likely use labor an d other resources that w ould otherwise be used for control on larger sour ces where th e cost per ton of reductions would allegedly be cheaper due to econom ies of scal e. Id. EPA cites no data or analyses supporting any of
these m u sings, and they defy comm on sense. 1 There is no reason to expect that states
would focus m a inly on sm aller sources for RA CT requirem e nts: Indeed, the sources at issue here are the very sam e ones covered by CAIR – m a jor EGUs that emit sign if ican t quantities of NOx. States would have every incentive to focus on the larg est sources where RACT would produce the m o st benef it and where RACT would be m o st cost effective. Moreover, there is no ev idence th at labor and resources would be diverted
from control on larger sources.

Indeed, contrary to EPA’s assertions, the evid ence shows that standard s for RACT-level control are more stringent than provided by CAIR According to EPA, the
estim ated average costs of region wide oz one season NOx control under CAIR are $1,800 per ton in 2015 and $900 per ton in 2 009 [in 1999 dollars]." 70 FR 25212/2. EPA
f u rther be lie ves tha tactu a l cos t s of CAIR controls will be lo wer than th e s e f i gures. I d. Moreover, the “highly cost effective controls ” th at are the benchm ark forCAIR reflect the lower end of average and m a rginal cost ranges for SO2 and NOx control. Id. 25203. In contrast, states have adopted RACT requi rem e nts for ozone precursors with costs per
ton well in excess of these so -called “highly cost effectiv e controls” under CAIR. For

exam ple, we ll over a decade ago New Jersey adopted NOx RACT requirem e nts (NJAC 7:27-19) with costs as high $4,500 per ton; adju sted for inflation, such costs would be even higher in today’s dollars and for the fu ture years when RACT requirem e nts apply. In other instances, RACT reflects contro ls costing $8,000 to $10,000 per ton. See, e.g., Metropo litan W a shingto nCouncil of Governm e nts, Plan to Improve Air Quality in th e Washington DC-MD-VA Regi on (Feb. 19, 2004) at 8-3, http://www.mwcog.org/uploads/com m ittee-docum ents/ylZbVw20040217115150.pdf (copy attached hereto). Thus , RACT requires sources to put m o re into pollution controls than requ ired for the “highly cost effectiv e” control level ostensibly provided by CAIR.

As to EGUs specif i ca lly, the f i nal CAIR rule chose to forego highly cost-ef f ective controls with per-ton costs well below the RA CT figures just cite d, in order to avoid

1 EPA itself c o ncedes t h at loca l e m ission re ductions m a y be m o re cost effe ctive in s o m e ozone

no nat t a i n m e nt areas. See 7 0 Fed. R e g

. at 25 19 3.

6additional em issions reductions from the electric utility sect or beyond what the
President’s “Clear Skies” le gislation would achieve. In adopting the final CAIR rule,
EPA was well aware that states already were resorting to NOx control strategies well in excess of the $900 per ton and $1,800 per ton th at EPA determ ined region wide ozone
season NOx controls would cost EG Us in 2009 and 2015, respectively. S ee 70 FR 25208/3 (table shows average annual costs in 1999 dollars up to $2,800 per ton, except
for the Texas em ission reduction grants, which cost up to $12,700 per ton). Indeed, CAIR itself departed do wnward from the highlycost-effective contro l precedent
established in the NOx SIP Call rulem a king, where the agency determ ined that NOx controls were highly cost-effective w h en the cost of ozone season NOx e m issions

rem oved we re $2,500 per ton in 1999 dollars. See 63 FR 57399/3.

By deem ing CAIR controls to be equi valent to R A CT, EPA is unlawfully and
arbitrar ily se eking to ins u late un controlled or poorly controlled EGUs in current or future
nonattainm e nt areas fro mstill cost-effective co ntrols that would qualify as RACT, yet
exceed th e “highly cost effective control” co sts un der CAIR. This EPA may not do. As the foregoing discussion shows, EPA’s unlaw ful enterprise would have the perverse
effect of for c ing states to seek m o re co stly, less c o st-ef f ectiv e controls from other polluting se ctors to come into a tta in m e nt , while continuing to im pose more costly existing control m easures as RACT on non-EGUs.

EPA’s final phase II ozone rule seeks to deflect criticism over this perverse and
unlawful outcom e by flatly m i srepresenting the prevailing state of RA CT control costs. Pointing to 12 and 14 year old agency guida nce docum ents, EPA suggests that it is appropriate for states to cons ider in their NOx RACT dete rminations technologies that fall within the guidance’s cost range of $160-1300 per ton of NOx re m o ved. 70 FR at 71654/2. The agency states its belief that new RACT determinations under the 8-hour
standard sho u ld resu lt in the sam e or sim ila r control technologies costing no m o re than $160-$1300 per ton of NOx rem oved. Id. 71654/3.

This is absurd and renders EPA’s RA CT approach even m o re arbitrary and unlawful. The 1992 and 1994 agency guidan ce in question are hopelessly outdated and wildly in con s isten twith RACT control cost s tha tstates ar e imposing today. Telling l y , EPA’s preambular discussion does not even pretend to claim that the $160-$1300 cost range is consistent with state RACT costs, whether average or upper end costs. Nor does EPA explain why the agency failed to exam in e a represen tativ e sam p le of state RACT costs, or project what such costs would be over the period corre sponding to the 8-hour
ozone attainm e nt statutory deadlines. Finall y, the agency does not even bother to explain why it is reasonable to rely upon 12 and 14 year old guidance that the agency has never updated – to reflect inflation, to reflect actual RACT contro l costs, or to reflect the
advancem ent of technolo gy consisten twith th e statuto ry RACT definitio n. Instead, the agency woodenly respo nds that its “curren tguid a nce” “assum e [s]” RACT costs to b e within $160-$1300 per ton. This is arbitrary.

By the sam e token, it is arbitrary and unlawful for EPA to take the position that “VOC RACT guidance, including CTGs and ACTs , m a y continue to be used by States in

7m a king RACT determ inations with respect to the 8-hour ozone standards.” 70 FR 71655/2. Such guidance are static and therefore outdated, m a king them inappropriate for reliance by states in reaching RACT determ inations that depend upon the current and future availability of techni cally and econom ically available controls – not controls that
EPA dee m e d acceptable in the late 1 970s throug h m i d-1990s when the ag ency issued the guidance. A tbest, such guidance docum e nts reflect floor levels of control below which states can never go: They do not and cannot re flect a presum ptive ceiling for present-day RACT control levels, nor can th ey relieve states of the ob ligation to conduct up-to-date RACT evaluations for each source or source categor y to ensure that each source is in fact subjec t to th e lowest em ission lim itation th at the source is capable of m e eting by the application of control technol ogy that is reasonably available considering technological and economic feasibility

Finally, CAIR controls are also not equi valent to RACT beca use the schedule for fully im plem enting CAIR controls is far m o re protracted than the RACT schedule

m a ndated in the Act. According to EPA, al m o st half of the ozone season CAIR NOx
reductions will not o c c u r until 201 5. See EP A, Projec ted S easonal NOx Em issions f r om Power Plants with the F i nal Clean Air Inte rstate Rule (p3) ( http://www.epa.gov/cair/charts_ files/cair_em i ssions_costs.pdf ). In contrast, the Act and EPA’s own rules require full im ple m entation of RACT in moderate and above areas by
the 2009 ozone season.

II. Relaxation of NSR Requirements

The final rule m a kes several changes in requirem ents gove rning nonattainm e nt new source review, including: a) a change tha tallows NSR perm it applic ants to cla i m offset credit from preapplication shutdowns or curtailm ents, even in areas that lack approved attainm e nt demonstrations; and b) a c h ange tha tallows EPA to waive NSR requirem e nts for a new or m odified source in certain circum stances where EPA m a kes a source specific finding that the attainm e nt date has notyet passed, the source m eets applicable S I P em ission lim its, and the source wi ll not inte rf ere with tim ely atta inm e nt.

As further discussed below, portions of the above-referenced NSR rule changes were significantly m odified after the close of the public comm e nt period in ways that did not reflect logical outgrowths of the proposal. T hus, the grounds for our objections arose after the period for public comm ent, and the ra ising of those objecti ons during the public comment period was im practicable. See CAA § 307(d)(7)(B ). Those objections are of
central relev a nce to the rule, see id. , because they go to the core procedural and substantive validity of the NSR provisions of the rule -- including th e public' s opportunity

to comm ent on those provisions, and the consis tency of those provisions with the Act and
with fundamental standards of reasoned agency decision-m a king.

A. Offset Credit for Preapplic ation Shutdowns and Curtailments

8(1). EPA Unlawfully and Arbitrar ily F a iled to Se e k Public Co mment on
the Final Rule's Prov is ions Allow i ng Offse t Credit fo r Pr eapplicat io n Shutdo w n s and Curtailments

EPA unlawfully failed to present porti ons of the rule’s shutdown-curtailm ent offset provisions (hereinafter , collectively, “SCO rule”) and accom p anying rationales to the public for comm ent. Under § 307(d) (whi ch E P A has found applicable to this proceed ing), EPA m u st present for pu blic co mm ent "the m a jo r legal in terp retations an d policy considerations underlying the pr oposed rule." § 307(d)(3)(C). The sam e requirem e nt would apply under the A d m i nistra tive Procedure Act. 5 U.S.C. § 553. EPA' s SCO rule and accom p anying rationale are no t log i cal outgrow t hs of the proposal.

First, the final SCO rule changes the circum stances under which em ission
reductions from pre-application shutdowns or curtailm ents can be used as offsets in the absence of an approved attainm e nt dem ons tration. Under the proposed rule, such

em ission reductions could be us ed as offsets only if they o ccurred “after th e las tday of the baseline year of the most recen t base year em ission inventory used (or to be used) in the plan.” Under the final rule, such em issi on reductions can be used as offsets if they occur after “the last day of the base year for the S I P planning process.” 70 Fed. Reg. 71676. The change is m a terial b ecau se it allo ws offsets from pre-app lication shutdowns
and curtailm ents even in the absence of an e m issions invent ory for the attainm e nt plan. Although petitioner contends that both the propos ed and final versions of the SCO rule violate the Act (for reasons further discusse d below), the final version expands the scope of the proposal’s unlawful exem ption. Unde r the proposal: a) em ission reductions from pre-application shutdowns and cu rtailm ents could not be used as offsets in the absence of
a baseline em ission inventory for the area; and b) the shutdown or curtailm ent would

repres ent a real reductio nfrom the em ission i nventory levels that ha ve been or will be
relied on in the area’s attainm e nt demons tration. The final rule drops these key requirem e nts. Moreover, because EP A did notpropose the less protective SCO rule that was finally adopted, its final rule was not a logical outgrowth of the proposal.

Second, the final SCO rule allows a revi ewing authority to deem a prior shutdown
or curtailm e n t to have occurr ed “after the last day of the base year if the projected

em ission inventory used to develop the attain m e nt dem onstration ex p lic itly in cludes the

em issions from such previously shutdown or curtailed em issions unit.” Id. This new provision did not appear in the proposed rule , nor was it suggested by the proposed rule. The new provision is a s i gnificant ch ange becaus e it cou l d allow pre -baseline reductio n s from shutdowns or curtailm ents to be used as post-baseline offsets: som e thing not allowed under the proposed rule. The new provision would arguably allow such a result as along as the state explicitlyincluded em issions from the prior shutdown or curtailm ent in the a tta in m e nt dem o nstra tion inventory. The new provisi on is not a logical outgrowth of the proposal, which contained none of th ese provisions and which lim ited offset credit
to reduc tion s occurr ing af ter the b a s e line y ear.

For all the f o regoing r e a s ons, EPA comm itted a procedur al v i ola tion ( see § 307(d)(9 )(D)) by failin g to solicit p ublic co mment on the above-described provis i o n s of

9the final SC O rule. That proce dural violation m eets the criter ia set forth in § 307(d)(9)(D) for reversal based on procedur al violations. First, EPA' s procedural dereliction is arbitrary an d capricious. See § 307(d)(9)(D)(i). T h e agency has purported to m a rkedly change the criteria for granting offset cr edit to reductions from pre-application
curtailm ent/shutdown reductions in ways that had not even been proposed at the tim e of public notice and comment, and t h at di ffer mat e ri all y from the pre-existing regulatory regim e . Yet the agency has not deigned to s eek th e public' s views on that determ inatio n.

Second, via the present pe tition, petitioner have satis fied the requirem e nts of § 307(d). See § 307(d)(9)(D)(ii).

Third, the challeng ed errors "were s o seri ous an d rela ted to m a tte rs of such central
relevance to the rule that th ere is a substantial likelihood that the rule would have been significantly changed if such errors had not been m a de." See § 307(d)(8), cited in § 307(d)(9)(D)(iii). EPA did not m e rely fa il to seek public comment on som e s m all aspect of the challenged provisi ons. Rather, it failed to s eek comm ent on the funda m e ntal approach they em body -

- an approach that ha s the effect of abrogating the Act’s express

m a ndate for offsets for new and m o dified m a jor sources. Had EPA obeyed the law by
solic iting pu blic comm ent, it would have learned of the se rious substantive objections detailed below -- objections that address the lack of statutory basis for the challenged provisions, and those provisions' inconsistenc y with fundam e ntal principles of reasoned agency decision-m a king.

(2) The Final Rule's Prov is ions Allo w i ng Offse t Credit fo r Pr eapplicat io n Shutdo w n s and Curtailments are Unla w f ul and Arbitrary

EPA has no authority to allow the use of e m ission reductions from pre-application
shutdowns or curtailm ents as offsets unde r the A c t’s NSR provisions. The Act plainly provides tha tNSR off s ets m u st represent add itio nal redu ctio ns achiev ed after the NSR

perm it application. CA A § 173(a)(1)(A)(requiring offsets to ensure that total allowable

em issions will b e suf f i ciently less th an tota l em issions “pr i or to the [ N SR perm it] application” to ensure RFP). See also CAA §173(c)(1) (requi ring that increased

em issions from a new or m odified major sour ce “shall be offs et” by an equal or greater reduction). EPA’s SCO rule vi olates the Act because it allows a new source to claim
offsets from reductions that occurred long be fore the source’s NSR per m it application. Indeed, EPA’s final SCO rule allows use of su ch pre-app lication offsets before the state even knows the degree of e m ission reductions need ed to assure RFP, and before the state has even developed a baseline em ission inventory.

The f i nal rule f u rther v i o l ate s the Act to the ex ten ttha tit allo ws a source to cla i m offsets from reductions that occurred prior to the baseline year for the attainm e nt dem onstration. The Act does not allow such old reductions to qualify as offsets, for reasons set forth above, and the violation is not cured by adding the em issions from the prior shut do wn or curta i lm ent to the atta inm e nt dem onstration inventory. The Act requires an offset in “actual em issions,” §173(c) (1), so that total em issions are actually reduced. The offset requirem ent is not m e t by manipulating th e em ission inventory

10and/or attainm e nt de m o nstra tion to reflect fictional em i ssions and then claim i ng that
these fiction a l em issions are offset. Nor can EPA claim that adding em issions from t h e prior shu t do wn or curta i lm ent to the atta in m e nt inventory som e how cures the lack of post-application offsets: The statute does not give EPA the op tion of waiving real offsets
and real em ission redu ctions m e rely because em issions from the curtailed or shutdow n activ ity are “accounted for in attainment plann i ng .” EPA’s approach is also arbitrary and capricio u s, because EPA has failed to s how how allowing offset credit for preapplic ation r e duction s in the m a nner provide d by the SCO rule will a ssure com p liance with the above-cited provisions of §173 of the act.

B. Waiver of NSR Requirements in Certain Nonattainmen t Areas

(1) EPA Unlawfully and Arbitrar ily F a iled to Se e k Public Co mment on
the Final Rule's Prov is ions Allow i ng Waiver of NSR Requirement s in
Certain Nonattainmen t Areas

EPA unlawfully f a iled to present the f i na l rule’s a pproach to a pplicab ility of Appendix S and the trans ition a l NSR program , and accom p anying ra tiona les, to th e public for comment. Under § 307(d), EPA m u st present for public comm e n t "the m a jor legal interpretations and policy consider ations underlying the proposed rule." § 307(d)(3)(C). The same requirem e nt woul d apply under the Adm i nistrative P r ocedure Act. 5 U.S.C. § 553. As further exp l ained below, the final rule and accom p anying rationale are not logical out growths of the proposal.

EPA’s June 2, 2003 notice proposed a subpartS “transitional” NSR program for
8-hour ozone nonattainm ent areas for whic h states do not have approved SIP NSR

program s. This program would be avai lable only to 8-hour nonattainm e nt areas governed bysubpart 1. In addition, to be e lig ible for the trans ition a l optio n, by the date EPA published the 8-hour designations, a subpart 1 area would have to: 1) Be attaining
the 1-hour o z one stand a rd; 2) have s ubm itted an attainm e nt plan that demonstrates
attainm e nt within 3 years after designation, and include m easures required by the NOx SIP call; 3) have subm itted an a tta in m e nt plan contain i ng any additional local contro l

m easures needed for attainm e nt of the 8- hour standard. 68 Fed. Reg. 32486-87. SIPs for
such areas would have to comm it the State to im plem ent, by Decem ber 31, 2007, all

m easures necessary to bring the area into attainment by 2007. Requirem e nts for offsets and possibly LAER would be relaxed in ar eas qualifying for transitional status. Id.
32847. Transition a l s t atus would end at the earli er of 6 m o nths af ter the subm ission of
an attainm e nt dem onstration with a m a intena nce plan (due by the attainm e nt date in 2007) or upon EPA approval of such a plan. Id. 32848.

EPA’s final rule (prom u lgated November 29, 2005) took a m a rkedly different approach fro mthe propo sal. In the final ru le, EPA took the p o sition that the exis ting language of section VI of Appendix S, as am ended by language that did not appear in the proposal, w ould authorize case-by-case EPA wa iver of NSR requirem e nts in any new l y designated or redesignated nonattainm ent area lacking an approved Part D program fora new or revised NAAQS. 70 Fed. Reg. 71679, 71704. The final rule did not im pose any

11of the proposed restrictions (described above ) on eligibility of nonattainm e nt areas for relaxed NSR requirem e nts. Furthermore, EP A established no absolute end date (other
than the atta inm e nt date) f o r the tr ans ition a l pe rio d during which these rela xed NSR requirem e nts could apply. Nowhere did EP A propose such an approach. Although the agency proposed a variety of options for a transitional NSR program , none of them ca m e close to the approach finally adopted, under which NSR requirem e nts can be waived indefinitely without any of th e proposed restrictions on such waiver authority, save that
the waiver not interfere with attainm e nt. No r did the proposed rule contain any of the language added by EPA in the final rule pr oviding for case-by-case NSR waivers. 70 Fed. Reg. 71704. Thus, the final rule is not a logical outgrowth of the proposal.

For all the f o regoing r e a s ons, EPA co mm itted a procedur al v i ola tion ( see § 307(d)(9 )(D)) by failin g to solicit p ublic comment on the above-described approach taken in the final rule. That procedural vio l ation m eets the cr iter ia se t f o rth in § 307(d)(9)(D) for reversal based on proce dural violations. F i rst, EPA' s procedural dereliction is arbitrary and capricious. See § 307(d)(9)(D)(i). The final rule takes an approach to NSR waivers that was not proposed at the tim e of public notice and comment, and that differs m a terially from th e proposed alternatives. Yet the agency has not deigned to seek the pub lic' s views on that approach.

Second, via the present pe tition, petitioner have satis fied the requirem e nts of § 307(d). See § 307(d)(9)(D)(ii).

Third, the challeng ed errors "were s o seri ous an d rela ted to m a tte rs of such central
relevance to the rule that th ere is a substantial likelihood that the rule would have been significantly changed if such errors had not been m a de." See § 307(d)(8), cited in § 307(d)(9)(D)(iii). EPA failed to seek commenton an approach that abrogates the Act’s

express m a ndate for newsource review in nonattainm e nt areas, for a potentially indefinite period. Had EPA obeyed the law by so liciting pub lic comm ent, it would have
learned of the serious substant ive objections detailed below -- objections that address the
lack of statu t ory bas i s for the ch allen g ed provisions, and those pr ovisions' inconsistency with fundamental principles of reasoned agency decision-m a king.

(2) The Final Rule's Prov is ions Allo w i ng Waiver of NSR Requirements in
Certain Nonattainment Areas are Unla w f ul and Arbitrary

Comm ents by petitioner and other envi ronm ental groups on the proposed rule explained why EPA has no authority to wa ive NSR requirem e nts in areas designated
nonattainm e nt under the Act. Comme nts of Clean Air Task Force, et al ., on EPA Doc k et No. OAR 2003-0079 (August 1, 2003) at 72-79; a nd Comm e n ts of Clean Air Task Force,
et al ., on EP A Docket No. OAR 2003-0079 (Septem b er 5, 2003) at 11-13. Those
comments are inco rporated herein b yreference. The f i nal ru le is unlawful and arbitrary not only f o r the re asons s t ated in our prio r comments, but als o f o r additio nal re asons.

First, EPA justif ied the f i nal rule ’s tr an sitional N S R program as a gap filler: The agency took the position that “the SIP devel opm ent period provided for in section 172(b)

1213 leaves a gap in part D major NSR permitting” an d “that this gap is to be filled with an interim major NSR program that is substantia lly similar to the requirements of part D,” including requirements for LAER and offset s. 70 Fed. Reg. 71678. EPA further stated that this gap filling program was supported by §§101(b)(1), 110(a)(2)(C), and 301(a) of the Act. Id. Petitioner agrees that EPA can and must ensure that NSR requirements apply in all nonattainment areas where the st ate has not yet adopted an NSR program of its own that meets Part D requirements. Th e agency’s logic, however, does not support allowing EPA or a state to then waive NSR requirements on a case-by-case basis as part of a transitional program. None of the Act’s provisions establishing NSR permitting requirements provide for or allow such wa ivers. CAA§§ 110(a)(2)(C ), 173, 182(a)(2)(C). Contrary to EPA’s suggesti on, §110(a)(2)(C) does not impl y authority to waive NSR requirements, but rather expressly requires each SIP to include “a permit program as required in parts C and D,” and part D does not allow for waiver of NSR permitting requirements in nonattainment areas. EPA’s ra tionale in support of the final rule is therefore not only contrary to the Act, but al so inconsistent with the Agency’s stated intent of providing a gap-filling NSR program that is “substantially similar to the requirements of part D” (which do not allow such waivers).

Second, even if EPA could justify allowi ng NSR waivers as part of a gap filling program, the agency has offered no rationale (and none exists) for allowing such waivers after the statutory deadline fo r completion of the state’s Part D SIP development process. According to EPA itself, the “gap” is over afte r that deadline: But the final rule appears
to allow continued issuance of NSR waivers ev en if the state has failed to timely submit a part D SIP. Again, the final rule is arbitr ary and capricious because it allows NSR waivers even after EPA’s stated justification for allowing such waiver s no longer exists.

Conclusion

EPA must reconsider the final rule for all the reasons set forth above.

DATED: January 30, 2006.

/s/ David S. Baron

___________ David S. Baron Earthjustice 1625 Massachusetts Avenue, N.W.
Suite 702 Washington, D.C. 20036-2212 (202) 667-4500

Counsel for Petitioner