UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

RESEARCH TRIANGLE PARK, NC 2771 1 

OFFICE OF 

AIR QUALITY PLANNING 

AND STANDARDS 

MEMORANDUM 

SUBJECT: Guidance on Developing Fee Programs Required by Clean Air Act Section 185 

for the 1-hour Ozone NAAQS 

FROM: Stephen D. Page, Director 

Office of Air Quality Planning and Standard 

TO: Regional Air Division Directors, Regions I-X 

Section 185 of the Clean Air Act (CAA) reauires states with ozone nonattainment areas , A 

classified as Severe or Extreme to develop, as a revision to their state implementation plan (SIP), 

a fee collection rule to be implemented in the event that an area fails to attain the ozone standards 

by the required attainment date.' This memorandum provides additional guidance on fee 

collection programs for the 1-hour ozone National Ambient Air Quality &dard (NAAQS or 

standard), which are required as anti-backsliding measures during transition to the 1997 8-hour 

ozone standard. 

Avvlicabilitv of Section 185 to Ozone NAAOS Nonattainment Areas 

The section 185 fee program requirement applies to any ozone nonattainment area that is 

classified as Severe or Extreme under the NAAQS, including any area that was classified Severe 

or Extreme under the l-hour ozone NAAQS as of the effective date of the area's 8-hour 

de~i~nation.~ TheEPA had previously waived the section 185 fee program requirements 

applicable under the revoked 1-hour ozone NAAQS in rules issued to address the transition from 

the 1-hour standard to the 1997 8-hour ~tandard.~ However, on December 23,2006, the United 

States Court of Appeals for the District of Columbia Circuit issued an opinion determining that 

EPA improperly waived the application of the section 185 fee provision for Severe and Extreme 

nonattainment areas that failed to attain the 1-hour ozone standard by their attainment date. 

South Coast Air Oualitv Management District v. EPA, 472 F.3d 882 (D.C. Cir. 2006). 

' See Attachment A for the text of CAA section 185. The CAA requires that fee program SIPS for 

nonattainment areas initially classified as Severe or Extreme for the I-hour ozone standard be submitted to EPA by 

December 31,2000 (see CAA section 182(d)(3)). Areas subsequently reclassified as Severe or Extreme have a SIP 

submission date as determined by EPA. 

The I-hour ozone NAAQS were established in 1982 and revoked on June 15,2004 for most areas. The 

&hour ozone NAAQS were first established in 1997. EPA is currently reconsidering the 8-hour ozone NAAQS that 

was last revised in 2008. EPA intends to complete the reconsideration by August 31,2010. 

See 69 Fed Reg 23951 (April 30,2004). 

Internet Address (URL) http://w.epa.gov 

Recycl.dlReeyclable .Printed wlh Vegetable 011 Based Inks on Rec/cled Papr (Mlnlmum 25% Postconsumer) 
Sumniarv of Section 185 Requirements 

In the event that a nonattainnient area classified as Severe or Extreme fails to attain the 

ozone standard by the required date, section 185 ofthe CAA requires each major stationary 

source of volatile organic compounds (VOC) and nitrogen oxides (NOx)" located in such area to 

pay a fee to the state for each calendar year following the attainment year for emissions above a 

"baseline amount." In 1990, the CAA set the fee as $5,000 per ton of VOC and NOx emitted by 

the source during the calendar year in excess of 80 percent of the "baseline amount." The fee 

must be adjusted for inflation based on the Consumer Price Index (C1'1) on an annual basis. 

Attachment I3 sets forth the fees, as adjusted for inflation, for the years 1990-2009. 

The CAA provides that the coniputation of a source's "baseline amount" must be the 

lower of the amount of actual or allowable emissions under the permit applicable to the source 

(or if no permit has been issued for the attainment year, the amount of VOC and NOx emissions 

allowed under the applicable implementation plan) during the attainment year. The CAA also 

provides that EPA may issue guidance on the calculation of the "baseline amount" as the lower 

of the average actual emissions or average allowable emissions over a period of more than one 

year in cases where a "source's emissions are irregular, cyclical or otherwise vary significantly 

froni year to year." Accordingly, on March 21,2008, EPA issued a memorandum entitled 

"Guidance on Establishing Emissions Baselines under Section 185 of the CAA for Severe and 

Extreme Ozone Nonattainment Areas that Fail to Attain the 1-hour Ozone NAAQS by their 

Attainment Date." 

'She CAA does not specify how states may spend or allocate the fees collected under a 

section 185 fee program. Therefore, states have discretion on how to use tlie fees. We believe 

that one beneficial approach would be to channel the fees into innovative programs to provide 

incentives for additional ozone precursor emissions reductions froni stationary or mobile sources, 

or for other purposes aimed at reducing ambient ozone concentrations in the affected area. 

If the state fails to adopt or implement a required fee prograin, EPA is required to collect 

the unpaid fees and may also collect interest on any unpaid fees. All revenue collected by EPA 

under authority of section 185 is required to be deposited in a special fund in the United States 

Treasury for licensing and other services and may be used to fund the Agency's activities for 

collecting such fees. &, CAA sections 185(d) and 502(b)(3)(C). 

Alternatives to Section 185 17ec Proaranis 

As a result of the 2006 court decision in South Coast, states with areas classified as 

Severe or Extreme nonattainrnent for the 1-hour ozone standard at tlie time of the initial 

nonattainment designation for tlie 8-hour standard are subject to the requirements of section 185. 

We believe states can meet this obligation through a SIP revision containing either the fee 

program prescribed in section 185, or an equivalent alternative program, as further explained 

4 While section 185 expressly mentions only VOC, section I82(t) extends the application of this provision 

to NOx, by providing that "plan provisions required under [subpart Dl for major stationary sources of [VOC] shall 

also apply to major stationary sources ... of [NOx]." 
below. EPA believes that an alternative program may be acceptable if it is consistent with the 

principles of section 172(e) of the CAA, which allows WA through rulemaking to accept 

alternative programs that are "not less stringent" where EPA has revised the NAAQS to malte it 

less stringent. 'This discretion does not currently apply to a section 185 fee program obligation 

arising from failure to attain the 1997 8-hour ozone NAAQS by the attainment date associated 

with a Severe or Extreme classification for that NAAQS because that NAAQS has not been 

revoked. 

Section 172(e) is an anti-backsliding provision of the CAA that requires EPA to develop 

regulations to ensure that controls are "not less stringent" than those that applied prior to relaxing 

a standard wl~ere EPA has revised a NAAQS to make it less stringent. In the implementation 

rule for the 1997 ozone NAAQS, EPA determined that although section 172(e) does not directly 

apply where EPA has strengthened the NAAQS, as it did in 1997, it was reasonable to apply the 

same principle for the transition from the I-hour NAAQS to the 1997 8-hour NAAQS. As part 

of applying the principle in section 172(e) for purposes of the transition from the 1-hour standard 

to the 1997 8-hour standard, EPA can either require states to retain programs that applied for 

purposes of the 1 -hour standard, or alternatively can allow states flexibility to adopt alternative 

programs, but only if such alternatives are "not less stringent" than the mandated program. 

EPA is electing to consider alternative programs to satisfy the section 185 fee program 

SIP revision requirement. The remainder of this memorandum describes the circumstances 

under which we believe we can approve an alternative program that is "no less stringent." These 

interpretations will only be finalized through EPA actions taken under notice-and-comment 

rulemaking to address ihe fee program obligations associated with each applicable nonattainment 

area. If a state chooses to adopt an alternative program to the section 185 fee program, the state 

must demonstrate that the alternative program is no less stringent than the otherwise applicable 

section 185 fee program. If our preliminary assessment indicates that the alternative program is 

not less stringent, we would issue a notice in the Federal Register proposing to make such a 

determination at the same time we propose and take action on any accompanying SIP revision 

pursuant to section 1 lO(k). 

EPA believes that for an area that we determine is attaining either the 1 -hour or 1997 8- 

hour ozone NAAQS, based on permanent and enforceable emissions reductions, the area would 

no longer be obligated to submit a fee program SIP revision to satisfy the anti-backsliding 

requirements associated with the transition from the 1-hour standard to the 1997 8-hour standard. 

In such cases an area's existing SIP should be considered an adequate alternative program. Our 

reasoning follows from the fact that an area's existing SIP measures, in conjunction with other 

eliforceable federal measures, are adequate for the area to achieve attainment, which is the 

purpose of the section 185 program. The section 185 fee program is an element of an area's 

attainment demonstration, and its object is to bring about attainment after a failure of an area to 

attain bv its attainment date. Thus. areas that have attained the 1-hour standard. the standard for 

which the fee program was originally required, as a result of permanent and enforceable 

emissions reductions, would have a SIP that is not less stringent than the SIP required undei 

section 185. Also, once an area attains the 1997 8-hour ozok standard, which replaced the now 

revoltcd 1-hour standard, the purpose of retaining the section 185 fce program as an antibacksliding measure would also be fulfilled as the area would have attained the 8-hour standard 
for which the fee program was retained as a transition measure. We believe that it would 

unfairly penalize sources in these areas to require that fees be paid after an area has attained the 

8-hour standard due to permanent and enforceable emission reductions because the fees were 

imposed due to a failure to meet the applicable attainment deadline for the 1-hour standard, not 

any failure to achieve the now applicable 8-hour standard by its attainment date. Similarly, for 

the reasons,described above, areas that must still develop and submit a fee program may submit 

an alternative that provides that the fees end at the time that the area attains either the 1-hour or 

1997 8-hour standard due to the existence of permanent and enforceable measures. 

'Tllere is also an additional, independent basis for EPA's approach to determining that the 

anti-backsliding requirements associated with section 185 have been satisfied. Altl~ough section 

185 provides that fees are to continue until the area is redesignated for ozone, EPA no longer 

promulgates redesignations for the I-hour standard because that standard has been revoked. 

Therefore, relief from the1 -hour fee program requirements under the terms of the statute is an 

impossibility, since the conditions the statute envisioned for relieving an area of its fee program 

obligation no longer can exist. There is, thus, a gap in the statute which must be filled by EPA. 

We believe that under these circumstances we must exercise our discretion under Chevron IJSA, 

Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), to fill this gap, so as to carry 

out Congressional intent in the unique context of anti-backsliding requirements for a revolted 

standard. We believe that it is reasonable for the fee program obligation that applies for 

purposes of anti-backsliding to cease upon a determination, based on notice-and-comment 

rulemaking, that an area has attained the I -hour or 8-hour standard due to permanent and 

enforceable measures. This determination centers on core criteria for redesignations under CAA 

section 107(d)(3). We believe these criteria provide reasoilable assurance that the purpose of the 

I -hour anti-bacltsliding fee program obligation has been fulfilled in the context of a regulatory 

regime where the area renlains subject to other applicable 1-hour anti-backsliding and 8-hour 

measures. Under these circumstances, retention of the fee program under the anti-backsliding 

rule is no longer necessary for the purpose of achieving attainment of the 8-hour standard. 

Additional Potential Eauivalent Alternative Program Concepts 

Following is a summary of concepts for additional alternative programs that a state might 

consider if all I-hour nonattainrnent areas subject to the section 185 fee program anti-backsliding 

requirements within that state are not eligible for the EPA detemination set forth in the section 

above, and/or if the state chooses to develop another alternative program that is no less stringent 

than a section 185 fee program. While section 185 focuses most directly on assessing emissions 

fees; we believe it is uscful to interpret section 185 within the context of the CAA's ozone 

implementation provisions of subpart 2 (which includes section 185). The subpart 2 provisions 

are designed to provide an ever-growing incentive to reduce ozone-forming pollutant emissions 

to levels that achieve attainn~ent of the ozone NAAQS. In this context, to satisfy the 

requirements of section 185 associated with the 1-hour NAAQS we believe it is appropriate for 

states to focus on fee assessments, achieving further emissions reductions, or some combination 

of both in developing an alternative program. For any alternative program adopted by a state, the 

state's demonstration that the program is no less stringent should collsist of cornparing expected 

fees and/or emissions reductions directly attributable to application of section 185 to the 

expected fees and/or emissions reductions from the proposed alternative program. For a valid 
demonstration to ensure equivalency, the state's submission should not underestimate the 

expected fees and/or emissions reductions from the section 185 fee program, nor overestimate 

the expected fees and/or emissions reductions associated with the proposed alternative program 

Recently, a task force composed of members of the Clean Air Act Advisory Committee 

(CAAAC) was formed to discuss alternate ideas on complying with section 185.' The concepts 

described here were discussed by the task force, and the CAAAC forwarded a list of potential 

program features to EPA for leview. EPA's assessment of whether and how certain program 

features identified by the CAAAC can be used in the context of satisfying the requirements of 

section 185 is included as Attachment C to this memorandum. 

EPA cannot conclude at this time whether specific state-developed programs relying on 

these concepts or containing any of the features presented by the CAAAC would be approvable 

because such a determination would be based on the specific parameters of the program adopted. 

Further, any such determination would need to be made through notice-and-comment 

rulemaking. States may decide to develop unique alternative programs for each applicable 

nonattainment area, and we will independently evaluate the approvability of each alternative 

program. To assure a valid demonstration that an alternative is no less stringent, we recommend 

that states work with EPA on a case-by-case basis. 

Additional Fee-Equivalent Alternative Programs 

We anticipate (subject to notice-and-comment rulemalting as noted above) that we could 

approve a program that clearly raises at least as much revenue as the otherwise required section 

185 fee program if the proceeds are spent to pay for emissions reductions of ozone-forming 

pollutants (NOS and/or VOC) in the same geographic area subject to the section 185 program. 

Under this approach, the state would estimate revenues that would result under the section 185 

fee program if all section 185 sources paid fees for each applicable calendar year, develop an 

alternative program that would raise at least that much revenue, and establish a process where the 

revenues would be used to pay for emissions reductions that will further improve ozone air 

quality. 

Under this concept, states could develop programs that shift the fee burden from the 

specific set of major stationary sources that are otherwise required to pay fees according to 

section 185, to other non-major sources of emissions, including ownersloperators of mobile 

sources. This could allow states to recognize through reduced fees those major sources of 

emissions that have already installed the latest technology, and assess the remainder of the total 

required fees on other sources that are not already as well controlled. EPA recognizes that 

section 185 is not strategic in imposing emissions fees on &l major stationary sources, including 

already well-controlled sources that have few, if any, options for avoiding fees by achieving 

additional reductions. States can be more strategic by crafting alternative programs that exempt 

or reduce the fee obligation on well-controlled sources, and assign the required fees to less wellcontrolled sources as an incentive for those sources to further reduce emissions of ozone-forming 

pollutants. The alternative program should not rely on emissions reductions already required by 

5 For more information on the CAAAC and the proceedings of the Task Forcc on section 185 fec programs 

visit the following Web site: htto://www.ena.nov/.di1-/caaac/l85.ht,~il 
the applicable SIP, since the goal is to achieve further reductions to movc the area expeditiously 

to attainment. 

Additional Emissions-Equivale~lt Alternative Programs 

EPA believes that as an alternative to the section 185 fee program a state could adopt a 

program that achieves at least as much additional en~issions reductions as would be expected to 

res& fiom the fee-minimization incentive of the section 185 fee program. EI'A belie& this 

would clearly be demonstrated if the alternative program achieves emissions reductions each 

year that are equal to or greater than the amount of emissions against which fees would be 

assessed each year under the section 185 fee program (it., actual emissions in excess of 80 

percent of the baseline emission^).^ For purposes of estimating the emissions reductions required 

in such a program, the state would assume that sources would reduce their emissions to the fee 

applicability threshold. This conservative approach would assure that emissions reductions from 

the alternative program are at least as great as reductions that might have occurred ifthe statutory 

fee program resulted in all major stationary sources reducing their emissions to no more than 80 

percent of the baseline emissions. The emissions reductions in the alternative program could 

come from the same set of major sources subject to section 185, or from a different set of 

sources, in whole or in part, so long as all reductions come from within the nonattainment area 

and are equally beneficial in reducing ozone formation. The alternative program should not rely 

on emissions reductions already required by the' applicable SIP, since the goal is to achieve 

further reductions to move the area expeditiously to attainment. 

Under this approach, states would first calculate the emissions baseline for the major 

stationary sources of VOC and NOx in accordance with the methodology required under CAA 

section 185(b)(2) and as further described in the March 21,2008 guidance memorandum. Once 

a state calculates the baseline amount of each pollutant for each source affected by section 185, 

the amount of emissions in excess of 80 percent of the baseline would be the amount of 

emissions of each pollutant that sources within the area would need to reduce on a calendar year 

basis in each year following the 1-hour ozone attainment year until such time as the fee program 

no longer applies. 

Additional Alternative Programs Combining Emissions Reductions and Fees 

A program that combines features of an emissions-equivalel~t program with a feeequivalent program could also be adopted. For example, some portion of the emissions 

reductions necessary to demonstrate equivalence (as explained above) could be offset by fees 

collected on each ton of emissions that is offset. To illustrate, assume that 1000 tons of 

emissions reductions is needed to demonstrate equivalence. The state could instead adopt a 

program that obtains 600 tons of emissions reductions and collect fees totaling $2.0 million 

(calculated as the remaining 400 tons times $5,000 per ton). 

A program that achieves less than this amount of emissions reductions may also be approvable depending on the 

casc-specific cil-cumstances. 
EPA Assistance 

My officc is available to provide any additional guidance and to consult with any state 

that wants to develop an alternative equivalent program to the section 185 fee program. For 

additional consultation you may contact Denise Gcrth, 919-541-5550. 
ATTACHMENT A 

Text of CAA Section 185 

SEC. 185. ENFORCEMENT FOR SEVERE AND EXTREME OZONE NONAI'TAINMENT 

AREAS FOR FAILURE TO ATTAIN. 

(a) General Rule.- Each ilnplementation plan revision required under section 182 (d) and (e) 

(relating to the attainrnetlt plan for Severe and Extreme ozone nonattainment areas) shall provide 

that, if the area to which such plan revision applies has failed to attain the national primary 

ambient air quality standard for ozone by the applicable attainment date, each major stationary 

source of VOCs located in the area shall, except as otherwise providedunder subsection (c), pay 

a fee to the State as a penalty for such failure, computed in accordance with subsection (b), for 

each calendar year beginning after the attainment date, until the area is redesignated as an 

attainment area for ozone. Each such plan revision should include procedures for assessment and 

collection of such fees. 

(b) Computation of Fee.- 

(1) Fee amount.- The fce shall equal $5,000, adjusted in accordance with paragraph (3), per 

ton of VOC emitted by the source during the calendar year in excess of 80 percent of the baseline 

amount, colnputed under paragraph (2). 

(2) Baseline amount.- For purposes of this section, the baseline amount shall be computed, 

in accordance with such guidance as the Administrator may provide, as the lower of the amount 

of actual VOC emissions ("actuals") or VOC en~issions allowed under the permit applicable to 

the source (or, if no such permit has been issued for the attainment year, the amount of VOC 

emissions allowed under the applicable implelnentation plan "allowables")) during the 

attainment year. Notwithstanding the preceding sentence, the Administrator may issue guidance 

authorizing the baseline amount to be determined in accordance with the lower of average 

actuals or average allowables, determined over a period of more than one calendar year. Such 

guidance may provide that such average calculation for a specific source may be used if that 

source's emissions are irregular, cyclical, or otherwise vary significantly from year to year. 

(3) Annual adjustment.- The fee amount under paragraph (1) shall be adjusted annually, 

beginning in the year beginning after the year of enactment, in accordance with section 

502(b)(3)(B)(v) (relating to inflation adjustment). 

(c) Exception.- Notwithstanding any provision of this section, no source shall be required to pay 

any lee under subsection (a) with respect to emissions during any year that is treated as an 

Extension Year under section 181(a)(5). 

(d) Fee Collection by the Administrator.- If the Administrator has found that the fee provisions 

of the in~plementation plan do not meet the requirements of this section, or if the Administrator 

makes a finding that the State is not administering and enforcing the fee required under this 

section, the Administrator shall, in addition to any other action authorized under this title, collect, 

in accordance with procedures promulgated by the Administrator, the unpaid fees required under 

subsection (a). If the Administrator makes such a finding under section 179(a)(4), the 

Administrator may collect fees for periods before the determination, plus interest computed in 

accordance with section 6621(a)(2) of the Internal Revenue Code of 1986 (relating to 

colnputation of interest on underpayment of Federal taxes), to the extent the Administrator finds 

such fees have not been paid to the State. The provisions of clauses (ii) through (iii) of section 

502(b)(3)(C) (relating to penalties and use of the funds, respectively) shall apply with respect to 

fees collected under this subsection. 
(e) Exelnptions for Certain Small Areas.- For areas with a total population under 200,000 which 

fail to attain the standard by the applicable attainment date, no sanction under this section or 

under any other provision of this Act shall apply if the area can demonstrate, consistent with 

guidance issued by the Administrator, that attainment in the area is prevented because of ozone 

or ozone precursors transported from other areas. 'The prohibition applies only in cases in which 

the area has met all require~nents and implemented all measures applicable to the area under this 

Act. 

[42 U.S.C. 751 Id] 
ATTACHMENT I3 

Inflation Adiustment for Section 185 Fees 

Section 185 cross-references the methodology in section 502(b)(3)(H)(v) of the CAA. 

This method has been interpreted for use in determining permit fees in a 1992 EPA 

memoranduin. (See, Memorandum of October 15, 1992, from Frank Bunyard, "Calculating Fees 

for Operating Permits.") EPA has used this method to calculate the Part 70 permit fee rate since 

1990, and will continue to update the rate every year in September, when the August values are 

available. The adjusted section 185 fee, then, would be prorated to that adjusted permit fee, as 

shown in Table 1 below, by n~ultiplying the Part 70 permit fee rate by 200 ($5000/$25). Since 

section 185 fees are assessed on a calendar year basis, and the inflation factor is applied in 

September, the calendar year fee is determined as a weighted average (8112 of the fee associated 

with January to August, and 4112 of the fee associated with September to December). The 

weighted fees appear in Table 2 below. These will be updated each year in the fall. 

TABLE I: SECTION 185 FEE RATE BASED ON PART 70 PERMIT FEE RATE 

* From www.e~a.aov/oar/oaa~s/~ermitslhistoricalrates.html 
TABLE 2: ANNUALIZED SECTION 185 FEE RATE 

2005 

2006 

2007 

2008 

2009 

$7,737.33 

$7,998.67 

$8,266.67 

$8,51133 

$8,755.33 - 
ATTACHMENT C 

Response to CAAAC Task Force Options 

EPA's Clean Air Act Advisory Committee (CAAAC) submitted a letter to EI'A dated 

May 15, 2009, asking whether "it is legally permissible under either section 185 or 172(e) for a 

state to exercise the discretion identified" in 10 bullet points listed in an attachment to the letter 

(see Attachment D). In general, we believe the language in section 185 is relatively clear 

regarding the provisions that must comprise an approvable program and, as indicated in the 

discussion below, we do not believe that many of the flexibilities raised by the CAAAC would 

be approvable provisions of a state-adopted section 185 fee program. However, EPA believes 

that an alternative program that contains some of these flexibilities may be acceptable if it is 

consistent with the principles of section 172(e) of the CAA, which allows EPA through 

rulemaking to accept alternative programs that are "not less stringent" where EPA has revised 

the NAAQS. Although the anti-bacltsliding provisions of section 172(e) facially apply only 

where EPA has revised the NAAQS to make it less stringent, in its implementation rule 

governing the transition from the I-hour ozone standard to the more stringent 1997 8-hour 

standard, EPA concluded that it made sense to rely on the governing principles in section 172(e). 

Applying this principle for the transition from the I-hour standard to the 1997 8-hour ozone 

standard, EPA can either require states to retain a specific program that applied for purposes of 

the 1-hour standard, or alternatively can allow states flexibility to adopt alternative programs, but 

only if such alternatives are "not less stringent" than the mandated program. EI'A has not yet 

concluded whether to apply the principles of section 172(e) to any future transitions from the 

1997 ozone NAAQS to any new or revised ozone NAAQS. 

Consistent with the preceding distinction between a scction 185 fee program and an 

alternative program that is "not less stringent," we address each of the 10 points separately 

below. 

Point A asks whether a state may "authorize multi-facility operators to aggregate 

emissions fiom commonly-owned and -operated facilities within a single nonattainment area for 

the purpose of calculating the fee." We have defined "major stationary sources" in many 

contcxts and have interpreted that definition in certain circumstances to allow for aggregation of 

sources. We anticipate that we would be able to approve a section 185 fee program SIP that 

relies on a definition of "major stationary source" that is consistent with the CAA as interpreted 

in our existing regulations and policies. 

Point B aslts whether a state "may permit major sources to aggregate their VOC and NOx 

emissions on a site-wide basis in calculating the fee" and includes a description of certain 

limitations that would be assumed for such aggregation. Provided that aggregation is not used to 

avoid a "major source" applicability finding, and aggregation is consistent with the attainment 

demonstration (e.g., if thc area bas received a NOx waiver under section 182(f), then NOx 

reductions cannot be substituted for VOC reductions), we believe states have discretion to allow 

a major source to aggregate VOC and NOx emissions. 

Points C and D concern whether states may allow a discount for certain "pre-attainment 

year or attainment year" controls. We do not believe that section 185 allows for any such 
consideration. The statutory language is clear that the baseline emissions are the lower of the 

actual elnissions or emissions allowed under the applicable permit during the attainment year or 

allowed under the SIP during the attainment year where there is no such permit. The only 

exception to this calculation for baseline eniissions is where a source's emission are "irregular, 

cyclical or otherwise vary signifkantly from year to year." EPA has previously issued guidance 

addressing this exception. Although consideration of these controls is not consistent with the 

express terms of section 185, states may be able to develop a "no less stringent" program 

consistent with the principles in section 172(e), taking into consideration such pre-attainment 

controls. See discussion of point I below. 

Point E asla whether the purchase of emission reduction credits, or allowances, that are 

part of a11 area's attainment control measures "may reduce the amount of emissions upon which 

the fee is based or constitute an investment that should be credited against the fee." In the 

context of calculating both the attainment-year baseline emissions and the post-attainment year 

emissions, section 185 requires such emissions be the lower of actual or allowable emissions. 

We believe allowable emissions can include emission reduction credits or emissions allowances 

held by a source subject to fees. Whether holding the emissions allowances will affect a source's 

fee obligation depends on the amount that is determined to be the lower of actual or allowable 

emissions for that source. If states wish to provide some other form of credit for sources that 

purchase marltet-based control measures, they may be able to do so in the context of a program 

that is no less stringent than a section 185 program consistent with the principle in section 

172(e). See discussion of point I below. 

Point F asks whether sources may receive credit for post-attainment year emissions 

reductions or air quality investments. The Act is clear that post-attainment year emission 

reductions will be credited to the extent that they reduce emission levels from the baseline year. 

For example, if a source has 1000 tons of emissions in the attainment "baseline" year, the CAA 

requires that source to pay fees on any emissions in excess of 800 tons (80 percent of baseline) in 

each post-attainment year. If the source is able to reduce post-attainment year emissions from 

1000 tons to 900 tons, then the source will pay fees 011 only 100 tons of emissions. With regard 

to crediting emission-reducing or air-quality investments, we note that section 185 does not 

specify how collected fees must be spent. In general, we believe that a state may choose to use 

collected fees to support air quality improvenient projects at sources. However, we caution that 

any such provisions should not be developed in a way such that the provisions would appear to 

defeat the purpose of section 185, which is to encourage emission reductions that will bring the 

area into attainment with the ozone NAAQS in the near-term. 

Point G asks whether post-attainment year new sources must be subject to the fees. We 

believe it is clear that the fee imposed is on major sources. Thus, to the extent a "new source" is 

considered a part of a major source that existed in the attainment year, the emissions from the 

new source must be considered as eniissions from that major source. For new major sources that 

are not part of existing major sources, we believe section 185 does not provide a clear 

interpretation of the source's fee obligation. Therefore, we believe states have discretion in 

determining how fees apply to these sources. States should consider that section 185 requires 

"each major stationary source" to pay a fee; however, the baseline amount for sources that did 

not have a permit in the attainment year is calculated according to what the SIP "allowed" during 
the attainment year. Therefore, states should examine how the applicable SIP addressed 

emissions fiom potential new major sources in the attainment year. For example, a state could 

determine that the SIP's new source review (NSR) requirements would provide that a new source 

employ emissions control that meets the requirements of "lowest achievable emissions rate" 

(LAER). Therefore, the attainn~ent-year baseline for a new source is the level allowable after 

application of LAER. Alternatively, a state could determine the SIP's NSR requirements would 

provide that a new source's net emissions impact be no greater than zero (is., emissions levels 

after application of LAER must be offset at a ratio of at least 1 to 1). Therefore the attainmentyear baseline for a new source is zero, subjecting the entire amount of a source's post-attainment 

year emissions to the per-ton emissions fee. Also, states may be able to develop "not less 

stringent" programs consistent with the principles in section 172(e), that exempt new major 

sources from fees, provided the alternative programs meet the 172(e) standard of equivalence. 

See discussion of point I below. 

With regard to Point 13, which references state discretion regarding the use of collected 

fees, we point to our response above for Point F. 

Point I asks whether section 172(e) authorizes a state to develop an alternative program to 

that mandated under section 185. As an initial matter, we note that section 172(e) does not 

directly apply here, where we are transitioning fiom the I-hour ozone standard to the more 

stringent 1997 8-hour standard. However, in developing our anti-backsliding rules in the Phase 1 

Rule for Implementing the 8-hour Standard (69 FR 23951, April 30,2004), we indicated that 

although section 172(e) did not directly apply, we were relying on the principles in section 

172(e), as well as other indications of Congressional intent, in developing our anti-backsliding 

rules. In South Coast Air Oualitv Manaaement District v. EPA, 472 F.3d 882 (D.C. Cir. 2006), 

the Court rejected our waiver of the section 185 fee program for the 1-hour standard, holding that 

such program was a "control applicable" to the area as that phrase is used in section 172(e) and 

thus must be retained under EPA's decision to apply section 172(e) to the transition from the 1- 

hour standard to the more stringent 8-hour standard. Not before the Court was the issue of the 

remaining language in section 172(e) that provides that EPA "shall promulgate requirements . . . to provide for controls which are not less stringent than the controls applicable to areas 

designated nonattaimnent before such relaxation." EPA believes that this language clearly 

allows EPA by iqulation to accept alternative control programs that "are not less stringent" than 

those that were mandated by the Act for the standard that has been replaced (is., the 1-hour 

standard). 

Point J requests that EPA "clearly indicate the conditions under which the collection of 

fees may be terminated." Furthennore, it indicates that some members of the task force "would 

like the authority to terminate the section 185 fee program upon the first year in which an area 

achieves the relevant standard." EPA believes that for an area EPA determines through noticeand-comment rulernaking is attaining either the I-hour or 1997 8-hour ozone NAAQS based on 

permanent and enforceable en~issions reductions, the area would no longer be obligated to 

submit a fee program SIP revision, nor be obligated to continue implementing a section 185 fee 

program (or approved alternative equivalent program). The bases for EPA to make such a 

determination through notice-and-com~nent rulemaking are provided in the nmnorandum 

associated with this Attachment. 
ATTACHMENT D 

CAAAC Letter 

llnited States Environmental Protection Agency 

Clean Air Act Advisory Committcc 

May 15,2009 

The Honorable Elizabeth Craig 

Acting Assistant Administrator 

Office of Air and Radiation 

US. EPA 

Ariel Rios North 

1200 Pennsylvania Avenue, N.W 

Mail Code 6lOlA 

Washington, DC 20460 

Rc: Clean Air Act Sections 185 and l72(e1 

Dear Assistant Administrator Craig: 

At the May 14,2009 meeting of tlie US EPA Clean Air Act Advisory Committee, on a 

unanimous vote, the Committee resolved to urge the Agency to provide prompt guidance to tlie States 

regarding the following question arising under the Clean Air Act: 

Is ir legalIypermissible under either seclion 185 or I72jej for a Slate lo exercise 

the di.scre/ion idenlified in Oplions A-J? 

The Clean Air Act Section I85 Task Force, a work group establisl~ed under the Clean Air Act 

Advisory Committee, identified ten areas (A-J) of potential state discretion. These options are listed in 

the attaclnnent to this letter. The Coln~nittee took no position on the reasonableness or legal 

pe~missibility of any option. 

As several States are in the process of developing their sectiot~ 185 nonattaintnent fee programs, 

time is of the essence in providing appropriate legal and policy guidance. 

Thank you sincerely, 

Co-Chairs of tlie Section 185 Task Force: 

Eddie Terrill 

Director 

Department oSEnvironmenta1 Quality 

Air Quality Division 

707 North Robinson 

Oklahoma City, OK 73 101-1677 

Robert A. Wyman 

Latham & Watkins LLP 

355 South Grand Avenue 

I,os Angeles, CA 

9007 1 
Aggregation of Emissions Among Commonly-Owned Facilities 

At its option, a State may authorize multi-facility operators to aggregate emissions 

from commonly-owned and -operated facilities within a single nonattainment 

area for the purpose of calculating the fee. 

Aggregation of VOC and NOx Emissions 

At its option, a State may permit major sources to aggregate their VOC and NOx 

emissions on a site-wide basis in calculating the fee to the extent such aggregation 

is consistent with attainment modeling previously submitted by the State for the 

applicable air quality control region. Such aggregation is not to be used for the 

purpose of avoiding a "major source" applicability finding (e.g., by spreading 

emissions over multiple sources so as to render the average facility emissions less 

than the major source threshold). 

Co~isideration of Pre-Attainment Year or Attainment Year Installation of BACT 

or LAER 

At its option, a State may consider to an appropriate extent pre-attainment or 

attaintnent year emission control investments by major sources. Witlmut 

intending to define the precise boundaries of a State's discretion to recognize the 

degree of control already achieved by a source, the participants determined that 

sources that had recently (e.g., within five (5) years of the year for which the fee 

would be imposed) undergone new source review and, as a result, installed %ACT 

or LAER, should not be required to include emissions from such equipment in 

calculating the fee. 

Col~sideration of Pre-Attainment Year or Attainment Year Installation of Retrofit 

Controls. 

In addition, at its option under appropriate circumstances, a State may designate 

emission performance standards that it has determined rcpresent well-controlled 

(e.g., in the range of or superior to BACT or LAER) units for a given period of 

time and authorize a facility to demonstrate what portion of its emissions should 

be excluded from the fee calculation on that basis. 

Consideration of Market-Based Programs 

At its option under appropriate circumstances, a State may determine that 

purchases of emission reduction credits, or allowances, as part of a State's 

market-based attainment control measure may reduce the amount of emissions 

upon which the fee is based or constitute an investment that should be credited 

against the fee. 
17. Credit Sourccs for Post-Attainment Year Emissions-Reducing or Air Quality 

Investments 

At its option, a State should recognize and appropriately credit qualifying postattainment year emissions-reducing or air quality-beneficial investments by major 

sources. 'Il~cse investments should be credited to such sources in a manner that 

reduces or eliminates fees that otherwise would be due under the plogram. States 

should identify the qualifications for such investments based on their unique 

attainment needs. 

G. Post-Attainment Year New Sources 

'Illere was agreement that new sources constructed after the attainnlent year 

would not have a baseline; would already have installed BACT or LAER, would 

already have provided offsets, and therefore should not be subject to the fee for 

such equipment. 

I Use of Program Revenues 

States retain full discretion regarding the usc of collected revenues. I'articipants 

encouraged States to tailor strategies to their unique attainment challenges and to 

consider ways to address under-regulated sources (e.g., legacy vehicles and 

engines and certain area sources). 

1. Equivalent Programs 

Under section 172(e), a State should have the option of collecting equivalent or 

greater fees, or of requiring equivalent or greater emission reductions, by shifting 

the program target in part or in whole to under-regulated sources (e.g., legacy 

vehicles and engines, under-regulated area sources) or by applying the program in 

a manner that addresses other attainment gaps. Likewise, the task force 

envisioned that any recommended strategy not directly approvablc under section 

185 should be considered as an equivalent alternative program under 172(e). In 

such circumstances, the state may need to shift the fee burden among sources to 

demonstrate equivalency. 

J. Program Sunset 

EPA needs to clearly indicatc the conditions under which the collection of fecs 

may be terminated. Some members of the tasltforcc would like the authority to 

terminate the section 185 fee program upon the first year in which an area 

achieves the relevant standard.