Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 1 of 63 **ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 51**  **[EPA-HQ-OAR-2009-0897; FRL- ] 2060-AQ07**  **Withdrawal of the Prior Determination or Presumption that Compliance**

**with the CAIR or the NO x**  **SIP Call Constitutes RACT or RACM for the 1997 8-Hour Ozone and 1997 Fine Particle NAAQS; and Revision to RACT**  **Guidance and RFP Requirements for the 1997 Fine Particle NAAQS**
**AGENCY:** Environmental Protection Agency (EPA).
**ACTION:** Proposed rule.
**SUMMARY:** The EPA is proposing to withdraw any prior determination or presumption that compliance with the Clean Air Interstate Rule (CAIR) or the NO x SIP Call constitutes reasonably available control technology (RACT) or reasonably available control measures (RACM) for oxides of nitrogen (NO x ) or sulfur dioxide (SO 2 ) emissions from electric generating unit (EGU) sources participating in these regional cap-and-trade programs. The EPA is proposing revisions to preamble guidance in the final Implementation Rule for the 1997 PM 2.5 national ambient air quality standard (NAAQS) concerning the economic feasibility criteria for determining RACT for sources located within nonattainment areas. The EPA is also proposing not to allow emission reductions from outside of a nonattainment area to be credited toward meeting the Reasonable Further Progress (RFP) requirements for the 1997 PM 2.5 NAAQS.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 2 of 63 **DATES:** Comments. Comments must be received on or before **[INSERT DATE 30 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER]** 

. Public Hearings. If anyone contacts us requesting a public hearing on or before **[INSERT DATE 15 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]**  , we will hold a public hearing. Please refer to SUPPLEMENTARY INFORMATION for additional information on the comment period and the public hearing.

**ADDRESSES:** Submit your comments, identified by Docket ID No. EPA-HQOAR-2009-0897, by one of the following methods:

 www.regulations.gov **.** Follow the online instructions for submitting comments. Attention Docket ID No. EPA-HQ-OAR-2009- 0897.

 Email: a-and-r-docket@epa.gov. Attention Docket ID No. EPA-HQOAR-2009-0897.

 Fax: (202) 566-9744. Attention Docket ID No. EPA-HQ-OAR-2009- 0897.

 Mail: EPA Docket Center, EPA West (Air Docket), Attention Docket ID No. EPA-HQ-OAR-2009-0897, U.S. Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania Avenue, NW, Washington, DC 20460. Please include a total of two copies.

 Hand Delivery: U.S. Environmental Protection Agency, EPA West (Air Docket), 1301 Constitution Avenue, Northwest, Room 3334, Washington, DC 20004, Attention Docket ID No. EPA-HQ-OAR-2009-Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 3 of 63 0897. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. Instructions. Direct your comments to Docket ID No. EPA-HQ-OAR-2009- 0897. The EPA's policy is that all comments received will be included in the public docket without change and may be made available online at 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 information that you consider to be CBI or otherwise protected through www.regulations.gov or email. The www.regulations.gov website 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 email comment directly to EPA without going through www.regulations.gov, your email 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, the 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 the EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, the EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, avoid any form of encryption,Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 4 of 63 and be free of any defects or viruses. For additional information about EPA's public docket, visit the EPA Docket Center homepage at www.epa.gov/epahome/dockets.htm **.** Docket. All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in www.regulations.gov or in hard copy at the Air and Radiation Docket and Information Center, EPA/DC, EPA West Building, Room 3334, 1301 Constitution Ave., NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air Docket is (202) 566-1742.
**FOR FURTHER INFORMATION CONTACT:** Ms. Kristin Riha, Office of Air Quality Planning and Standards, Air Quality Policy Division, Mail code C539-01, Research Triangle Park, NC 27711, telephone (919) 541- 2031; fax number: 919-541-0824; email address: riha.kristin@epa.gov.
**SUPPLEMENTARY INFORMATION: I. General Information**  A. Does this action apply to me?Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 5 of 63 Entities potentially affected by this action include states (typically state air pollution control agencies), tribes, and, in some cases, local governments that are responsible for air quality management and planning. In particular, states with areas designated nonattainment for the 1997 8-hour ozone NAAQS and/or the 1997 PM 2.5 NAAQS and that are located within the geographic areas covered by the
NO x SIP Call 1 and/or the CAIR 2 may be affected by this action. EGUs located in such geographic regions may also be affected by any new RACT or RACM reviews that may result from final rulemaking on this action. These sources are in the following groups: Industry group SIC a NAICS b Electric Services 492 221111, 221112, 221113, 221119, 221121, 221122

a Standard Industrial Classification. b North American Industry Classification System. B. What should I consider as I prepare my comments for EPA? 1. Submitting CBI. Do not submit this information to EPA through www.regulations.gov or email. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk

1 See Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone; Final Rule, 63 FR 57356 (October 27, 1998). 2 See Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule); Revisions to Acid Rain Program; Revisions to the NO x SIP Call; Final Rule, 70 FR 25162 (May 12, 2005).Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 6 of 63 or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed to be CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR Part 2. 2. Tips for Preparing Your Comments. When submitting comments, remember to:

 Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

 Follow directions - The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

 Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

 Describe any assumptions and provide any technical information and/or data that you used.

 If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 7 of 63  Provide specific examples to illustrate your concerns, and suggest alternatives.

 Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

 Make sure to submit your comments by the comment period deadline identified. C. Where can I get a copy of this document and other related information? In addition to being available in the docket, an electronic copy of this notice will be posted at http://www.epa.gov/ttn/oarpg/new.html under “Recent Actions **.”** D. What information should I know about a possible public hearing? To request a public hearing or information pertaining to a public hearing on this document, contact Ms. Pamela Long at (919) 541-0641 before 5 p.m. on **[INSERT DATE 15 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].**  If requested, further details concerning a public hearing for this proposed rule will be published in a separate Federal Register notice. For updates and additional information on a public hearing, please check EPA’s website for this rulemaking at http://www.epa.gov/ttn/oarpg/new.html under “recent actions **.”**Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 8 of 63 E. How is this notice organized? The information presented in this notice is organized as follows: I. General Information A. Does this action apply to me? B. What should I consider as I prepare my comments for EPA? 1. Submitting CBI 2. Tips for Preparing Your Comments C. Where can I get a copy of this document and other related information? D. What information should I know about a possible public hearing? E. How is this notice organized? II. Background A. RACT or RACM Requirements for EGUs Participating in the NO x SIP Call and the CAIR 1. CAA Requirements and the Definition of RACT and RACM 2. The NO x SIP Call 3. The CAIR 4. The Phase 2 Ozone Implementation Rule 5. The PM 2.5 Implementation Rule 6. Impact of the NRDC v. EPA Court Decision on Determinations and Presumptions 7. Impact of the North Carolina v. EPA Court Decision on Determinations and Presumptions B. Analysis of the Economic Feasibility of Reasonably Available Controls in the PM 2.5 Implementation Rule C. RFP Requirements for the 1997 PM 2.5 NAAQS 1. Linkage between the RFP Policy in the Phase 2 Ozone Implementation Rule and the PM 2.5 Implementation Rule 2. Rulemaking and Litigation Chronology of RFP Requirements for the 1997 Ozone NAAQS and the 1997 PM 2.5 NAAQS III. Proposed Action A. RACT or RACM Requirements for EGUs Participating in the NO x SIP Call and the CAIR B. Analysis of the Economic Feasibility of Reasonably Available Controls in the PM 2.5 Implementation Rule C. RFP Requirements for the 1997 PM 2.5 NAAQS IV. Statutory and Executive Order Review A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act C. Regulatory Flexibility ActSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 9 of 63 D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

**II. Background** A. RACT or RACM Requirements for EGUs Participating in the NO x SIP Call and the CAIR 1. CAA Requirements and the Definition of RACT and RACM The Clean Air Act (CAA) requires the EPA to designate areas as either attainment, nonattainment, or unclassifiable for each NAAQS. States have primary responsibility for implementing the NAAQS within their borders, and each state must develop a State Implementation Plan (SIP) that contains adequate provisions for attainment and maintenance of the NAAQS. The SIPs developed by states must meet the applicable statutory requirements. For areas designated nonattainment, Part D of the CAA requires that SIPs must include certain control measures. Subpart 1 of Part D contains generally applicable requirements for all nonattainment areas. Subpart 2 of Part D contains additional requirements applicable to certain ozone nonattainment areas.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 10 of 63 Among the general statutory requirements for all nonattainment areas is the requirement in section 172(c)(1) that SIPs: “provide for the implementation of all reasonably available control measures as expeditiously as practicable (including such reductions in emissions from existing sources in the area as may be obtained through the adoption, at a minimum, of reasonably available control technology).” Ozone nonattainment areas that are subject to the requirements of Subpart 2 must meet more specific RACT requirements in accordance with section 182(b)(2)(C). States located within the Ozone Transport Region (OTR) have additional requirements to impose RACT on sources statewide, rather than only in nonattainment areas, in accordance with section 184. EPA refers to the requirement for “reasonably available control measures” as RACM, and refers to the subset of RACM in the parenthetical for “reasonably available control technology” as RACT. RACM and RACT measures apply broadly to a range of source categories located in designated nonattainment areas, including large stationary sources such as EGUs. The EPA has interpreted RACT to mean the lowest emissions limitation that a particular source is capable of meeting by the application of control technology that is reasonably available considering technological and economic feasibility as well as other considerations. 3 Economic feasibility encompasses considerations such

3 See Clean Air Fine Particle Implementation Rule; Final Rule, 72 FR 20586 (April 25, 2007). The interpretation of RACT occurs at 20610.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 11 of 63 as whether the cost of a potential measure is reasonable considering attainment needs of the area and the costs of other measures, and whether the cost of a measure is reasonable for the regulated entity to bear, in light of the benefits. 4 RACT requirements are specifically intended to impose emission controls for purposes of attainment and maintenance of the NAAQS within a specific local nonattainment area. The EPA has interpreted the terms RACT and RACM for purposes of Subpart 1 requirements as being the level of emissions control that is necessary to provide for expeditious attainment of the NAAQS within a nonattainment area. Courts have upheld this interpretation of the statute with respect to nonattainment SIPs. 5 In contrast to nonattainment plan requirements, section 110(a)(2)(D)(i) requires each state’s SIP to contain provisions that will prevent emissions from sources in the state from having certain prohibited impacts on the air quality of other states, via interstate transport. In particular, section 110(a)(2)(D)(i)(I) requires that a state’s SIP must contain provisions to prevent emissions in amounts that would “contribute significantly to nonattainment in, or interfere with maintenance by, any other state” with respect to a NAAQS. The EPA has initiated several programs pursuant to section 110(a)(2)(D)(i)(I) in order to address interstate transport of

4 See Clean Air Fine Particle Implementation Rule, 72 FR 20619. 5 See NRDC v. EPA, 571 F.3d 1245, at 1252-53 (D.C. Cir. 2009).Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 12 of 63 emissions that have such prohibited impacts on attainment of the ozone and PM 2.5 NAAQS on a regional basis. 2. The NO x SIP Call In October 1998, EPA published a rule under section 110(a)(2)(D)(i) of the CAA, commonly referred to as the “NO x SIP Call.” This rule was intended to reduce NO x emissions (a precursor for ozone formation) from sources that significantly contribute to nonattainment or interfere with maintenance of the ozone NAAQS in one or more downwind states. To implement these reductions, the NO x SIP Call required 22 states and the District of Columbia to submit SIP revisions prohibiting those NO x emissions that EPA determined to be adversely impacting downwind air quality problems. The NO x SIP Call provided a regional cap-and-trade program as one mechanism for states to meet their interstate transport requirements under section 110 (a)(2)(D)(i). Through this mechanism, affected sources could meet emissions reductions requirements either by installing NO x emissions controls or by purchasing allowances from other sources located within the geographic region covered by the NO x SIP Call. 3. The CAIR In May 2005, EPA published another rule under section 110(a)(2)(D)(i) of the CAA, referred to as the “Clean Air Interstate Rule” (or the CAIR). The CAIR required reductions of NO x and/or SO 2 emissions across 28 states and the District of Columbia needed to eliminate significant contribution to nonattainment, or interferenceSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 13 of 63 with maintenance of, the 1997 8-hour ozone NAAQS and/or the 1997 PM 2.5 NAAQS in one or more downwind states. 6 Similar to the NO x SIP Call, EPA provided a regional cap-and-trade mechanism as one means for upwind states to meet the interstate transport requirements of section 110(a)(2)(D)(i). By this mechanism, affected sources could meet their emission reduction requirements either by installing controls for NO x and/or SO 2 emissions, or by purchasing allowances from other sources located in the geographic region covered by the CAIR. On April 28, 2006 (71 FR 25328), EPA also promulgated Federal Implementation Plans (FIPs) for all jurisdictions covered by the CAIR to address the section 110(a)(2)(D)(i) requirements in the event that states were unable to make a SIP submission containing state measures necessary to alleviate interstate transport. A number of parties filed petitions for review in 2008 to challenge the CAIR on various grounds. As a result of this litigation, the United States Court of Appeals for the District of Columbia Circuit (the Court) remanded the CAIR to EPA, but later decided not to vacate the rule. 7 In the process of remanding the CAIR, however, the Court identified serious concerns with EPA’s reading of the statute and analytical approach, including such core issues as the Agency’s method of evaluating significant contribution

6 NO x is a precursor for ozone formation, while both NO x and SO 2 are precursors for PM 2.5 formation. 7 See North Carolina v. EPA, 531 F.3d 896; modified by 550 F.3d 1176 (D.C. Cir. 2008).Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 14 of 63 to nonattainment and interference with maintenance of the NAAQS. In response to the remand of the CAIR, EPA finalized another rule, the “Cross-State Air Pollution Rule” (CSAPR) on July 6, 2011. 8 Both the NO x SIP Call and the CAIR were intended and designed to eliminate interstate transport of pollutants that have impacts on attainment and maintenance of the ozone and PM 2.5 NAAQS in downwind areas. Thus, they provide significant emissions reductions that assist downwind areas with attainment or maintenance of the NAAQS, and allow downwind states to develop SIPs in reliance on regional emissions reductions. However, EPA did not intend that either the NO x SIP Call or the CAIR would completely obviate the potential need for additional local pollution controls in downwind nonattainment areas, nor did EPA intend either action to override the statutory

requirements for SIPs for nonattainment areas. 9

8 See http://www.epa.gov/airtransport/pdfs/TR_070611_WEB.pdf for the prepublication version of this rule. Once published in the Federal Register, the rule will appear at www.regulations.gov under Docket Number HQ-OAR-2009-0491. 9 See the CAIR, 70 FR 25184 (discussing the need for both regional and local emission reductions to bring all areas into attainment); See also Clean Air Fine Particle Implementation Rule, 72 FR 20587-89 (discussing the need for regional and national emission reduction programs in conjunction with local controls in SIPs for nonattainment areas to bring all areas into attainment).Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 15 of 63 In order to help states address the specific statutory requirement for SIPs for nonattainment areas for the 1997 8-hour ozone NAAQS and 1997 PM 2.5 NAAQS, EPA promulgated both regulations and guidance applicable to each NAAQS in separate implementation rules. Within those actions, EPA addressed questions concerning the intersection of the requirements for regional control strategies and the requirements for local control strategies to reduce interstate transport in individual nonattainment areas needed for local attainment purposes. In particular, EPA focused on the issue of whether, or to what extent, compliance by EGUs with the requirements of the NO x SIP Call and/or the CAIR could also be construed as compliance with the RACT requirements for local nonattainment SIPs for the 1997 8-hour ozone and 1997 PM 2.5 NAAQS. The EPA’s approach to this issue for each NAAQS is described in more detail later. 4. The Phase 2 Ozone Implementation Rule On November 29, 2005 (70 FR 71612), EPA published an ozone implementation rule to address nonattainment SIP requirements for the 1997 8-hour ozone NAAQS (the Phase 2 Ozone Implementation Rule). The Phase 2 Ozone Implementation Rule addressed various statutory requirements, including the requirement for RACT level controls for sources located within nonattainment areas generally, and controls for NO x emissions from EGUs in particular. After explaining its analysis of the issue, EPA indicated its determination that the regional NO x emissions reductions that result from either the NO x SIPSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 16 of 63 Call or the CAIR would meet the NO x RACT requirement for EGUs located in states included within the respective NO x SIP Call or CAIR geographic regions. Thus, EPA concluded that: “[t]he State need not perform a NO x RACT analysis for sources subject to the State’s emission cap-and-trade program where the cap-and-trade program has been adopted by the State and approved by EPA as meeting the NO x SIP Call requirements or, in States achieving the CAIR reductions solely from electric generating units (EGUs), the CAIR NO x requirements.” 10 In January 2006, Earthjustice, on behalf of the Natural Resources Defense Council (NRDC), filed a petition for reconsideration of the Phase 2 Ozone Implementation Rule, objecting to EPA’s determination that, in certain circumstances, compliance with the requirements of the CAIR would constitute RACT for NO x emissions for EGUs located in states within the CAIR region. 11 The petition raised objections to an alleged failure to seek public comment on the determination and to the Agency’s interpretation of the CAA to allow a regional emissions reduction program to constitute RACT for sources located within nonattainment areas, as well as other related issues. The EPA granted the petition for reconsideration of the Phase 2 Ozone Implementation Rule and subsequently conducted a Supplemental Technical Analysis to assess whether compliance with the

10 See Phase 2 Ozone Implementation Rule, 70 FR 71617. 11 See “Petition for Reconsideration,” filed by David Baron, Earthjustice, on behalf of NRDC (January 30, 2006). A copy of the petition is located in the docket for this action. Deleted: theSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 17 of 63 CAIR could satisfy the NO x RACT requirement for EGUs in certain geographic areas. 12 A proposed rule, which presented this analysis and solicited comments regarding the reconsideration of whether the CAIR would constitute RACT for NO x emissions for EGUs located in states within the CAIR region, was published in December 2006. The EPA did not reconsider or request comments on its prior determination that the NO x SIP Call constitutes RACT for those sources covered by the NO x SIP Call. EPA then published a final notice of reconsideration on June 8, 2007 (72 FR 31727), reflecting the Agency’s additional evaluation of whether compliance with the CAIR could constitute RACT for NO x emissions for certain EGUs. In that action, EPA modified its conclusion regarding when compliance with the CAIR may satisfy NO x RACT requirements for EGUs in areas within the CAIR region. The EPA reaffirmed its determination that, in many ozone nonattainment areas, compliance with the CAIR would satisfy NO x RACT requirements for EGUs in such areas. 13 However, EPA stated that this determination would

12 See “Technical Support Document for Phase 2 of the Final Rule toImplement the 8-Hour Ozone National Ambient Air Quality StandardNotice of Reconsideration; NO x RACT for EGUs in CAIR States –Supplemental Technical Analysis,” December 2006.(Docket ID no. EPAHQ-OAR-2003-0079, item number EPA-HQ-OAR-2003-0079-1044.2) (Supplemental Technical Analysis). 13 Specifically, EPA determined that compliance with the CAIR would meet the NO x RACT requirements for ozone nonattainment areas in sections 172(c)(1) and 182(f), and the statewide NO x RACT requirements for SIPs for states located within the Ozone Transport Region pursuant to sections 184(b) and 182(f). See Phase 2 Ozone Implementation Rule-Notice of Reconsideration, 72 FR 31730.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 18 of 63 only apply to specific areas for which EPA’s Supplemental Technical Analysis showed that the CAIR was projected to achieve equal or greater NO x emissions reductions than application of source-by-source application of RACT to the EGUs within the nonattainment area. Even in those nonattainment areas where EPA did not make a formal determination, however, EPA also established a separate presumption that compliance with the CAIR, in certain circumstances, could satisfy NO x RACT requirements for EGUs in any area within the CAIR region. 14 EPA thus announced that states could rely initially on this presumption, even in areas where the Agency had made no formal determination, assuming certain conditions. Finally, EPA reiterated in the final notice of reconsideration that EGU sources complying with the requirements of the NO x SIP Call would also be considered to have met their ozone NO x RACT obligations, assuming certain conditions. 15 In addition to the Supplemental Technical Analysis, EPA provided various legal and policy bases for its determinations and presumptions in the final notice of reconsideration of the Phase 2 Ozone Implementation Rule. For example, EPA argued that its interpretation of section 172(c) to allow RACT to include consideration of regionwide emissions reductions, rather than nonattainment area specific reductions only, was permissible because

14 See Phase 2 Ozone Implementation Rule-Notice of Reconsideration, 72 FR 31730-31. 15 Id., 72 FR 31731.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 19 of 63 of the use of the term “reasonable” as part of the definition of
RACT. 16 As a policy matter, EPA also argued that emissions reductions that result from regional scale programs like the CAIR often “will achieve a more effective and economically efficient air qualityimprovement in nonattainment areas than application of source-bysource RACT.” 17 In November 2008, the U.S. Court of Appeals for the D.C. Circuit heard oral argument concerning multiple petitions for judicial review of EPA’s Phase 2 Ozone Implementation Rule and the Notice of Reconsideration. Among other issues, the petitioners (including NRDC) challenged EPA’s determination that compliance with the NO x SIP Call and/or the CAIR could satisfy NO x RACT requirements for EGUs in ozone nonattainment areas, and EPA’s specific determinations for some areas and general presumption for other areas that compliance with the CAIR could satisfy NO x RACT for EGUs in ozone nonattainment areas. In view of its decision in North Carolina v. EPA, in which the Court had previously remanded the CAIR and in response to the parties’ joint suggestion to the Court that any further litigation of CAIR-related issues be held in abeyance given the North Carolina decision , the Court deferred consideration of the litigants ’ challenge s to the Phase 2 Ozone Implementation Rule and Reconsideration Notice insofar as they related to the CAIR program.

16 Id., 72 FR 31730. 17 Id. Deleted: several parties (including NRDC) further challenged

Deleted: In particular, they

Deleted: ,

Deleted: ’Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 20 of 63 As a result of this litigation, the Court decided that the provisions in the Phase 2 Ozone Implementation Rule indicating that a state need not perform (or submit) a NO x RACT analysis for EGU sources subject to a cap-and-trade program that meets the requirements of the
NO x SIP Call are inconsistent with the statutory requirements of section 172(c)(1). 18 The Court specifically held that the Phase 2 Ozone Implementation Rule allowing use of the NO x SIP call to constitute RACT without any locally applicable analysis regarding the equivalence of NO x SIP Call and RACT reductions: “is inconsistent withthe Clean Air Act . . . in allowing participation in a regional capand-trade program to satisfy an area-specific statutory mandate.” The Court emphasized that: “the RACT requirement calls for reductions in emissions from sources in the area; reductions from sources outside the nonattainment area do not satisfy the requirement . . . Accordingly, participation in the NO x SIP call would constitute RACT only if participation entailed at least RACT-level reductions in emissions from sources within the nonattainment area.” The Court rejected EPA’s arguments that a regional emissions reductions program like the NO x SIP Call would result in greater emissions reductions in nonattainment areas as unsupported by any adequate technical analysis. 19 The Court likewise rejected EPA’s argument that regionwide emissions reductions would collectively

18 See NRDC v. EPA, 571 F.3d 1245 (D.C. Cir. 2009). 19 Id. 571 F.3d at 1257.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 21 of 63 achieve better emissions reductions because this argument did not comport with the explicit “in the area” language of section 172(c)(1). 20 With respect to EPA’s argument that the statute is ambiguous as to whether each individual source within a nonattainment area must install RACT, the Court concluded that even if that were correct, EPA had failed to evaluate the impact of the NO x SIP Call on the air quality within specific nonattainment areas, and thus EPA “has failed to establish that NO x SIP Call compliance can be equated to RACT compliance.” 21 The Court disagreed with EPA’s theory that section 172(c)(6), which authorizes auctions as a permissible form of control measure, could allow reliance on a regional cap-and-trade type program in lieu of the RACT requirement for sources “in the

area.” 22 Finally, the Court rejected the argument that EPA’s interpretation should be upheld because a state could still elect to define RACT to require greater emissions reductions from EGUs in a given area for local attainment needs, concluding that: “[a] state’s decision to require stricter controls cannot eliminate the defect in EPA’s approach – failing to implement the requirement of at least RACT-level reductions in emissions from sources in the nonattainment

area.” 23

20 Id. 21 Id. 22 Id. 571 F.3d at 1258. 23 Id.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 22 of 63 Based on the foregoing reasoning, the Court remanded the provision of the Phase 2 Ozone Implementation Rule determining that the NO x SIP Call satisfies NO x RACT for EGUs because EPA had failed to show that compliance with the NO x SIP Call would achieve at least RACT-level reductions in each nonattainment area. In deciding not to vacate the provision, however, the Court noted that a determination that RACT was satisfied by compliance with the NO x SIP Call might be permissible for an area if accompanied by a technical analysis demonstrating that the program in fact “results in greater emissionsreductions in a nonattainment area than would be achieved if RACTlevel controls were installed in that area.” 24 In other words, the Court rejected the notion that a regional cap-and-trade program intended to eliminate interstate transport of emissions consistentwith section 110(a)(2)(D)(i) could automatically constitute RACTlevel control as required by section 172(c)(1), but held open the possibility that such a program might in fact result in the same, or higher, level of emissions reductions in individual nonattainment areas. The Court did not, however, explain how the key feature of such cap-and-trade programs, i.e., the ability of sources to purchase allowances in lieu of installation of emissions controls, could meet the parameters envisioned by the Court. Nor did the Court speak to the issue of sources that might wish to switch their method of

24 Id.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 23 of 63 compliance in the future, taking advantage of the flexibility to control emissions or purchase allowances as market conditions evolve. Significantly, the Court did not address at all EPA’s comparable determinations and presumption that compliance with the CAIR would constitute NO x RACT for EGUs in ozone nonattainment areas under certain circumstances. As mentioned earlier, the Court (in response to the joint suggestion of the parties) deferred consideration of the CAIR-related challenges to EPA’s determinations and presumption because at the time of this decision, the Court had already remanded the CAIR. 25 Nevertheless, EPA believes that the concerns expressed by the Court about the Agency’s approach to the NO x RACT requirement for EGUs and the emissions reductions required by the NO x SIP Call raise significant questions about EPA’s approach to the comparable issues related to compliance with the CAIR, for both the Phase 2 Ozone Implementation Rule and the 1997 PM 2.5 NAAQS Implementation Rule. The EPA has therefore decided to consider the decision and the reasoning of the Court with respect to both the NO x SIP Call and the CAIR as it responds to the remand of the Phase 2 Ozone Implementation Rule, and to evaluate the implications of the decision for other related rulemakings, including the responses to related petitions for reconsideration. 5. The PM 2.5 Implementation Rule

25 Id. at 1250. Deleted: described laterSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 24 of 63 On April 25, 2007 (72 FR 20586), EPA published the “Clean Air Fine Particle Implementation Rule” to address nonattainment SIP requirements for the 1997 PM 2.5 NAAQS (the PM 2.5 Implementation Rule). 26 That action provided regulations and additional guidance in the preamble for state plans required to implement the 1997 PM 2.5 NAAQS. The PM 2.5 Implementation Rule provided a framework for developing SIP submissions for nonattainment areas based on the Subpart 1 requirements for nonattainment areas found in section 172 of the CAA. With respect to the requirements of section 172 (c)(1), the PM 2.5 Implementation Rule utilized a combined RACT/RACM approach, where an area’s obligation to implement RACT was considered as part of an area’s overall RACM obligation for EGU sources. RACT/RACM was defined in the Rule as the set of emission reduction measures needed to attain the standards as expeditiously as practicable in the nonattainment area at issue. Through guidance in the preamble to the final PM 2.5 Implementation Rule, EPA also established a presumption that compliance with the CAIR would satisfy RACT/RACM requirements for SO 2 and NO x emissions from EGUs in states participating in the CAIR cap-and-trade program for such emissions. 27
For SO 2 , EPA’s guidance recommended that states that obtained all
SO 2 reductions required by the CAIR from EGUs could presume that such

26 The PM 2.5 Implementation Rule is now codified at 40 CFR Section 51.1000 – 1012. Section 51.1010 addresses the RACT and RACM requirement. 27 See PM 2.5 Implementation Rule, 72 FR 20623–5.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 25 of 63 sources located within a designated nonattainment area were meeting
SO 2 RACT/RACM requirements because of overall regional SO 2 reductions from EGUs. The guidance indicated that this presumption could be utilized without conducting a technical analysis comparing the CAIR and RACT/RACM reductions for the specific nonattainment area. For NO x , EPA similarly recommended that so long as the EGU sources in the state were required to operate NO x emissions controls on a year-round basis to comply with the CAIR, then that state could presume that those EGUs were meeting NO x RACT/RACM requirements because of overall regional NO x reductions from EGUs. The EPA made no decision with respect to what might constitute RACT/RACM level controls for direct

PM 2.5 emissions from EGUs in relation to the CAIR because the CAIR only addressed the NO x and SO 2 emissions from such sources. Based on this presumption that compliance with the CAIR would constitute RACT/RACM level controls for SO 2 and NO x emissions from EGUs within the CAIR region, EPA concluded that: “states may define RACT/RACM as the CAIR level of control on the collective group of sources in the region rather than impose a specific level of control on individual sources.” 28 In other words, EPA indicated that states could presume that EGUs located within a given nonattainment area were meeting the RACT/RACM requirement, based solely upon a regional program that imposed controls on sources both within and outside designated nonattainment areas. The EPA acknowledged that reliance on

28 Id. at 72 FR 20624.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 26 of 63 the presumption could result in situations where specific EGUs located within nonattainment areas might elect to comply with the CAIR through the acquisition of allowances, rather than the reduction of emissions. Although EPA articulated a series of policy and technical reasons for the appropriateness of considering a regional control program like the CAIR to be a preferable approach, the Agency also acknowledged that a state might “conclude that establishing additional ‘beyond CAIR’ emissions control requirements on specific sources in nonattainment areas is warranted to provide for attainment as expeditiously as practicable.” 29 These policy and technical arguments are very similar to those made by EPA in connection with challenges to the Phase 2 Ozone Implementation Rule, and rejected by the Court decision discussed in further detail previously in this notice. In June 2007, EPA received a petition for reconsideration filed by Earthjustice on behalf of several petitioners (including NRDC)

that raised several objections to the PM 2.5 Implementation Rule. 30 One of the principle objections raised by the petition is that under the CAA, compliance with a regional trading program, such as the CAIR,

29 Id. at 72 FR 20625. 30 See “Petition for Reconsideration,” filed by Paul Cort, Earthjustice, on behalf of the American Lung Association, Medical Advocates for Healthy Air, Natural Resources Defense Council, and the Sierra Club (June 25, 2007). A copy of the petition is in the docket for this action.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 27 of 63 should not be presumed to satisfy RACT/RACM requirements for individual EGU sources located in nonattainment areas. The petitioner argued that the effect of the “CAIR-RACT presumption” was to waive the CAA RACT requirements for individual EGU sources located within

PM 2.5 nonattainment areas. The petition also asserts that the presumption and its accompanying rationale were added to the rule after the close of the public comment period, and that EPA therefore failed to seek public comment on the final rule’s determination that the CAIR presumptively satisfies SO 2 and NO x RACT requirements for EGUs located in nonattainment areas. The petition further maintains that EPA lacks authority to establish a presumption on what satisfies RACT in this fashion, and that EPA’s conclusion that the CAIR can be presumed to satisfy RACT is arbitrary and capricious because it lacked a factual basis. Lastly, the petition also maintained that even if an initial presumption that compliance with the CAIR constituted compliance with the RACT requirements of section 172(c)(1) were otherwise permissible, the final rule would be arbitrary and unlawful because it failed to explain if or how the presumption can be rebutted. Significantly, Earthjustice filed the petition for reconsideration of the PM 2.5 Implementation Rule well before the Court in the NRDC v. EPA case addressed the comparable issue with respect to the NO x SIP Call in the context of the Phase 2 Ozone Implementation Rule. Nevertheless, the petitioner made essentially the same pointsSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 28 of 63 as the Court in the NRDC v. EPA case that to allow compliance with a regional cap-and-trade program to constitute RACT for sources located within a nonattainment area automatically, or pursuant to an unsupported presumption, would be contrary to the explicit requirements of section 172(c)(1). Moreover, EPA notes that multiple parties have indicated that they intend to challenge the PM 2.5 Implementation Rule on this same issue through petitions for review currently pending in the Court. In light of the arguments raised in the petition for reconsideration, and in light of the Court’s decision in NRDC v. EPA, EPA decided to grant the petition for reconsideration on this issue and initiate this rulemaking. 31 Accordingly, after reconsideration and for the reasons further described later in this notice, EPA is proposing in this action to withdraw our prior presumption in the

PM 2.5 Implementation Rule that compliance with the CAIR would automatically constitute RACT/RACM level controls for EGUs located in areas designated nonattainment for the 1997 PM 2.5 NAAQS. 6. Impact of the NRDC v. EPA Court Decision on Determinations and Presumptions EPA has reevaluated whether compliance with the NO x SIP Call could constitute NO x RACT for EGUs in light of the Court’s opinion in the NRDC v. EPA case. Given the explicit wording of section 172(c)(1)

31 See letter dated April 25, 2011, from Lisa Jackson to Paul Cort, Earthjustice. A copy of this letter is located in the docket for this action.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 29 of 63 that sources “in the area” must at a minimum adopt RACT controls for that area, EPA believes that it is no longer appropriate to address this requirement merely based upon the participation of the source ina regional cap-and-trade program. Implicit in a regional cap-andtrade program is that some sources may elect to utilize allowances in lieu of emissions controls in order to meet the regional emissions reductions requirements, and that those elections could change. In response to the remand of the CAIR, EPA finalized the CSAPR on July 6, 2011, which requires 27 states in the eastern half of the United States to significantly improve air quality by reducing EGU emissions that cross state lines and contribute to ground-level ozone and fine particle pollution in other states. At the same time, the Agency also issued a supplemental proposal that would require six states — Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin — to make summertime NO X reductions under the CSAPR ozone-season control program. Finalizing this supplemental proposal would bring the total number of covered states under the CSAPR to 28. Based on the logic of the NRDC v. EPA Court decision, and the concerns raised in the petition for reconsideration on the PM 2.5 Implementation Rule, EPA believes that it would be inappropriate for EPA to pre-judge that other regional cap-and-trade programs, such as the CSAPR, would constitute RACT for covered sources. Therefore, states should not rely merely on the fact that sources are complying with a regional cap-and-trade program as a basis for RACT or RACMSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 30 of 63 level emissions controls for the 1997 8-hour ozone NAAQS, the 1997

PM 2.5 NAAQS, or any other NAAQS. States must comply with the provisions of the CAA, which require an evaluation of EGUs located within designated nonattainment areas for potential RACT controls, and imposition of such controls as may be necessary for expeditious attainment of the NAAQS within the area. States may, however, elect to conduct a technical analysis for the specific nonattainment area considering the emissions controls required by the regional cap-and-trade program at issue, and demonstrate that compliance by EGUs participating in this program results in actual emission reductions in the particular nonattainment

area that are equal to or greater than the emission reductions that would result if RACT were applied to each individual EGU source or the EGU source category within the nonattainment area. States could conduct this analysis for the EGUs in the nonattainment area, either individually or in the aggregate. The EPA anticipates that in many areas, such an evaluation will likely indicate that EGUs within the nonattainment area at issue are already adequately controlled for NO x and SO 2 emissions, whether by virtue of the NO x SIP Call, the controls required by the CSAPR, or by other means. However, based on the logic of the NRDC v. EPA Court decision, and the concerns raised in the petition for reconsideration on the PM 2.5 Implementation Rule, EPA believes that it would be inappropriate for EPA to pre-judge that Deleted: equal to or greater than Deleted: from the EGUs with

Deleted: application of Deleted: on all subject Deleted: sSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 31 of 63 outcome prior to state development of locally applicable demonstrations showing equivalent reductions. 7. Impact of the North Carolina v. EPA Decision on Determinations and Presumptions As mentioned earlier, the Court remanded the CAIR to EPA and later decided not to vacate the rule. In the process of remanding the CAIR, the Court identified serious concerns with EPA’s reading of the statute and analytical approach, including such core issues as the Agency’s method of evaluating significant contribution to nonattainment and interference with maintenance of the NAAQS. The EPA notes that the Court also reiterated some of its concerns in the NRDCv. EPA decision with the CAIR and EPA’s use of a regional cap-andtrade program to address interstate transport of emissions between

states. 32 Given that the Court has remanded the CAIR, the Agency believes that any prior determination that compliance with the CAIR would constitute RACT for NO x for EGUs for purposes of the Phase 2 Ozone Implementation Rule can no longer be considered reliable. Those determinations were implicitly based upon the continued existence of the CAIR and its specific requirements. In making the determinations, EPA evaluated the controls that EGUs in those areas would be likely to install given the specific requirements of the CAIR, and the choices that such sources would make given the specific cap-and-trade

32 See NRDC v. EPA, 571 F.3d 1245 at 1256-57.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 32 of 63 features of the CAIR. Further, in NRDC v. EPA, the Court explicitly rejected the Agency’s conclusion that compliance with the NO x SIP Call would constitute RACT for EGUs in nonattainment areas because there was inadequate technical basis or justification for such a conclusion. 33 EPA believes that after the remand of the CAIR, the prior EPA determinations that compliance with the CAIR would automatically constitute RACT for EGUs in nonattainment areas suffers from a comparable lack of an adequate technical basis or justification. Moreover, because other rules such as the CSAPR will by necessity differ from the CAIR as a result of the Court’s remand of the CAIR, EPA concludes that any reliance on the prior determinations at this time would be inappropriate. Therefore, in this action EPA is proposing to withdraw the prior area-specific determinations that EPA made in connection with the Phase 2 Ozone Implementation Rule. EPA’s prior conclusion that a state could presume that the CAIR would constitute NO x RACT for EGUs for purposes of the ozone NAAQS, even in areas where EPA did not make a formal determination, is also

33 EPA notes that the Court also considered the issue of potentially outdated RACT determinations in the context of “RACT certifications” in the Phase 2 Ozone Implementation Rule. The Court approved of EPA’s case-by-case approach to evaluate the continued viability of past RACT determinations, in part because “[i]f a state is presented with information indicating that a previous RACT determination is inappropriate, the state must consider that information and modify its RACT determinations accordingly.” NRDC v. EPA, 571 F.3d 1245 at 1254-55. The EPA concludes that the same logic would extend to prior determinations that the CAIR constituted RACT, in light of subsequent events.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 33 of 63 no longer reliable for the same reasons. That presumption also assumed continued existence of the CAIR and its specific requirements. Similarly, EPA’s prior conclusion that a state could presume that compliance with the CAIR would constitute both NO x RACT/RACM and SO 2 RACT/RACM for EGUs for purposes of the PM 2.5 NAAQS is also no longer reliable. Therefore, in this action EPA is proposing to withdraw our prior presumption that EPA announced for purposes of the ozone NAAQS in the Phase 2 Ozone Implementation Rule and our prior presumption that EPA announced for purposes of the PM 2.5 NAAQS in the PM 2.5 Implementation Rule. B. Analysis of the Economic Feasibility of Reasonably Available Controls in the PM 2.5 Implementation Rule Section 172(c)(1) requires that sources located in nonattainment areas meet RACM and RACT level control requirements. In the PM 2.5 Implementation Rule, EPA promulgated regulations to implement this requirement, among others, for the 1997 PM 2.5 NAAQS. 34 In addition, in the preamble to the final PM 2.5 Implementation Rule, EPA provided extensive guidance for states about how to evaluate sources for RACM and RACT level controls. 35 Although section 172(c)(1) does not itself specify how to determine what constitutes RACM or RACT level controls, EPA has a long history of interpreting those terms both in prior guidance and as applied in many SIP actions.

34 See 40 CFR 51.1010. 35 See PM 2.5 Implementation Rule, 72 FR 20609 – 33.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 34 of 63 The petition for reconsideration of the final PM 2.5 Implementation Rule filed by Earthjustice asserts that EPA unlawfully and arbitrarily revised well-established criteria used to determine the economic feasibility of controls being considered for RACT, without any explanation of the legal or policy arguments in support of the new interpretation of the statute. 36 The petition further claims that the new approach directly contradicts the approach included in the proposed PM 2.5 Implementation Rule and that these new interpretations were added to the final rule after the close of the public comment period. For this reason, the petition argues that EPA unlawfully failed to present the new criteria for economic feasibility of RACT to the public for comment. The petition maintains that the final PM 2.5 Implementation Rule includes the following new policies which were not subject to an opportunity for public comment: (1) consideration of economic feasibility encompasses whether the cost of a measure is reasonable to bear in light of the benefits; (2) there is no presumption that a given source must bear a similar cost to other similar sources; and (3) states may evaluate equity considerations in weighing economic

36 See “Petition for Reconsideration,” filed by Paul Cort, Earthjustice, on behalf of the American Lung Association, Medical Advocates for Healthy Air, Natural Resources Defense Council, and the Sierra Club (June 25, 2007). A copy of the petition is in the docket for this action.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 35 of 63 feasibility. 37 The petition states that these are significant changes in longstanding EPA policy and interpretation of the RACT requirement for nonattainment areas. In particular, the petitioner argues that “[e]conomic feasibility is not a cost-benefit analysis.” The petitioner also argues that EPA’s longstanding policy, which was reiterated in the preamble to the proposal for the PM 2.5 Implementation Rule, maintained that absent other indications, it is reasonable for a source to bear similar costs of emission reduction as are borne by similar sources in the same source category. In light of the arguments raised in the petition, EPA decided to grant the petition for reconsideration on this issue. 38 Accordingly, after reconsideration and for the reasons explained further, EPA is proposing in this action to remove the section of guidance in the preamble to the final PM 2.5 Implementation Rule that included the new interpretations of RACT objected to by the petitioner. The EPA is also proposing to replace this section of the guidance with EPA’s long-standing policy on economic feasibility for RACT as described in the proposed PM 2.5 Implementation Rule. 39 A basic element of this policy is the presumption that a source in a given category should be

37 The new guidance objected to by the petitioner appears in section II.F.5.b of the preamble to the final PM 2.5 Implementation Rule. See 72 FR 20619-20. 38 See letter dated April 25, 2011 from Lisa Jackson to Paul Cort, Earthjustice. A copy of this letter is located in the docket for this action. 39 See Proposed Rule To Implement the Fine Particle National Ambient Air Quality Standards, 70 FR 65984 (November 1, 2005). The section of the preamble appears at 70 FR 66021-22.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 36 of 63 able to bear a cost of control similar to the cost of control of other sources in that category. 40 The original policy did not include factors such as “equity” and “profit margins” in determining whether a given level of control is appropriate. C. RFP Requirements for the 1997 PM 2.5 NAAQS 1. Linkage between the RFP Policy in the Phase 2 Ozone Implementation Rule and the PM 2.5 Implementation Rule The Phase 2 Ozone Implementation Rule and the PM 2.5 Implementation Rule each included a policy allowing emission reductions from certain sources located outside of a nonattainment area to be credited toward meeting the RFP requirement for the 1997 8-hour ozone NAAQS and the 1997 PM 2.5 NAAQS within such a nonattainment area. In these actions, EPA used somewhat different approaches with respect to how states could take credit for emission reductions from outside the nonattainment area. In response to a petition for reconsideration of the Phase 2 Ozone Implementation Rule concerning this policy and other issues, EPA proposed to revise the policy for the 1997 8-hour ozone NAAQS on December 22, 2010 (75 FR 80420). This action is being proposed in response to a petition for reconsideration concerning the RFP policy in the PM 2.5 Implementation Rule. However, to understand this proposed change in RFP policy with respect to the PM 2.5 Implementation Rule, it is important to also

40 See Title I General Preamble, 57 FR 13498 (April 16, 1992) for the basis of this policy.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 37 of 63 understand related actions and court decisions with respect to this issue in the Phase 2 Ozone Implementation Rule. A chronology of rulemaking and litigation with respect to the RFP policy is described in detail in the next subsection. 2. Rulemaking and Litigation Chronology of RFP Requirements for the 1997 Ozone NAAQS and the 1997 PM 2.5 NAAQS Under EPA’s Phase 2 Ozone Implementation Rule, certain emission reductions from sources located outside a nonattainment area could be credited toward meeting the 1997 8-hour ozone NAAQS RFP requirement. In the preamble to that Rule, EPA stated that credit could be taken for volatile organic compounds (VOC) and NO x emission reductions within 100 kilometers (km) and 200 km, respectively, from outside the nonattainment area under certain circumstances. In addition, if a regional NO x control strategy was in place in a state, NO x reductions within that state beyond 200 km could be credited toward meeting the RFP target. In all cases, however, states had to include a demonstration that the emissions from outside the nonattainment area had an impact on ambient ozone air quality levels within the nonattainment area and emissions from the sources outside the area providing the reductions would have to be added to the baseline inventory for the nonattainment area. The EPA explained that where data indicated that emission reductions from sources outside a nonattainment area improved ozone air quality within the nonattainment area, it was appropriate to allow states to take RFPSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 38 of 63 credit for such reductions from outside the nonattainment area. This interpretation was consistent with the policy EPA had established under the l-hour ozone standard "Guidance for Implementing the l-Hour Ozone and Pre-Existing PM 10 NAAQS.” 41 Earthjustice filed a petition for reconsideration in January 2006 on behalf of NRDC challenging EPA’s interpretation that formed the basis of its policy for allowing credit for emission reductions outside the nonattainment area, namely the interpretation that the intent of section 182(c)(2)(C) is to reduce ambient ozone concentrations within an area rather than to reduce emissions within the nonattainment area. 42 The petitioner claimed that EPA’s interpretation and implementation of these provisions were both unlawful and arbitrary. The petitioner also argued that the rule was arbitrary because it allowed the state to claim credit for emission reductions from selected outside-the-nonattainment-area sources without also adding emissions from other outside sources to the RFP baseline, even where those other sources impact air quality in the nonattainment area.

41 The memorandum is available on the EPA Technology and Transfer Network (TTN) Policy and Guidance page for Title I at this website: http://www.epa.gov/ttn/oarpg/t1pgm.html. For a more complete discussion of EPA’s rationale for applying this interpretation in the Phase 2 Ozone Implementation Rule, see 70 FR 71647-49. 42 This same petition also challenged EPA’s determination within the Phase 2 Ozone Implementation Rule that, under certain circumstances, compliance with the requirements of the CAIR would constitute RACT for NO x emissions from EGUs located in states within the CAIR region.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 39 of 63 EPA subsequently published the PM 2.5 Implementation Rule, where the Agency adopted a somewhat different approach for crediting emission reductions from outside nonattainment areas. 43 Section G.5.b of the preamble to the PM 2.5 Implementation Rule allowed states to take credit for reductions of NO x and SO 2 emissions up to 200 km from outside the nonattainment area (and potentially for reductions of VOC or ammonia as well) only when certain conditions are met, including that when taking RFP credit for emissions reductions achieved outside of a nonattainment area, the baseline emissions inventory for the nonattainment area contain all, rather than a select few, sources in the outside area. 44 The primary objective of this policy was to reflect the net emission reductions in the area outside of a nonattainment area that could affect the nonattainment area rather than crediting only reductions from selected sources. In June 2007, EPA received a petition for reconsideration filed by Earthjustice on behalf of several petitioners (including NRDC) that raised objections to the PM 2.5 Implementation Rule on several

43 See PM 2.5 Implementation Rule, 72 FR 20586. 44 In addition, where state RFP plans rely on emission reductions outside of a nonattainment area to meet the RFP obligations, such plans must include a technical demonstration showing that such outside emissions significantly affected the PM 2.5 concentrations within the nonattainment area. In addition, the area outside the nonattainment area from which creditable reductions are taken must be within the state; areas outside the state but within 200 km would not be eligible for credit for RFP purposes.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 40 of 63 issues, including the RFP policy allowing credit for emission reductions from outside the nonattainment area. 45 Shortly thereafter, EPA requested from the Court in July 2007, a partial voluntary remand of the Phase 2 Ozone Implementation Rule to reevaluate and reconsider whether to revise the RFP interpretation for ozone to assure consistency with the provisions in the PM 2.5 Implementation Rule. In response to EPA's motion for a partial voluntary remand of the ozone RFP policy, NRDC asked the Court to also to vacate this provision. In November 2007, the Court issued an order that vacated and remanded the portion of the Phase 2 Ozone Implementation Rule that allowed RFP credit for emission reductions of VOC and NO x from outside nonattainment areas. On August 11, 2009 (74 FR 40074), EPA issued a final rule to revise the RFP policy in the Phase 2 Ozone Implementation Rule to be consistent with the interpretation in the PM 2.5 Implementation rule. In July 2009, the Court issued its decision on the other issues in the Phase 2 Ozone Implementation Rule case. 46 The Court examined the phrase “in the area” included in separate provisions relating to reductions from the application of RACT. As described previously in

45 This same petition raised concerns regarding the criteria used to determine the economic feasibility of controls being considered for RACT for the 1997 PM 2.5 NAAQS. See “Petition for Reconsideration,” filed by Paul Cort, Earthjustice, on behalf of the American Lung Association, Medical Advocates for Healthy Air, Natural Resources Defense Council, and the Sierra Club (June 25, 2007). A copy of the petition is in the docket for this action. 46 See NRDC v. EPA, 571 F.3d 1245 (D.C. Cir. 2009).Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 41 of 63 this notice, in the Phase 2 Ozone Implementation Rule, EPA had explained that because an interstate emissions trading program would achieve beyond RACT-level NO x reductions regionally, areas did not have to meet the RACT-level reductions required under CAA section 172(c)(1) solely from within the nonattainment area. The Court, however, concluded that the phrase “in the area” means that reductions must occur from sources within the area and “reductions from outside the nonattainment area do not satisfy the requirement.” 47 In October 2009, Earthjustice filed a petition on behalf of NRDC for reconsideration of the August 2009 final rule revising EPA’s interpretation in the Phase 2 Ozone Implementation Rule allowing credit toward meeting the RFP requirement using emissions reductions from outside of ozone nonattainment areas. In its petition, the petitioner based its objections to the rule on the following grounds: 1) the Court’s decision on the RACT provisions in the Phase 2 Ozone Implementation Rule and its interpretation of the phrase “sources in the area” requires that RFP emission reductions also be achieved only from sources within the nonattainment area; 2) EPA had presented a new rationale in the August 2009 final rule, i.e., there is some ambiguity in the statutory provisions because they do not prohibit credits for reductions from outside the nonattainment area, for which it did not provide an opportunity for comment; 3) EPA offered a new and arbitrary rationale for its choice of the 100 and 200 km

47 Id., 571 F.3d at 1256.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 42 of 63 distances for reductions outside the nonattainment area; 4) EPA stated a new and arbitrary rationale, i.e., creditable reductions outside a nonattainment area must be reasonably expected to provide ozone air quality benefits comparable to those from reductions in the area, for evaluating emissions reductions outside a nonattainment area; and 5) EPA relied on a new rationale when it explained that sources that are outside the nonattainment area are not necessarily “nearby” for designations purposes and certain factors would need to be considered for judging whether an area is “nearby” for those

purposes. In May 2010, based on Earthjustice’s October 2009 petition for reconsideration, EPA granted reconsideration of the August 2009 final rule to revise the RFP policy in the Phase 2 Ozone Implementation Rule, and stated it would initiate a rulemaking to address the issue. 48 EPA issued this proposed rulemaking on December 22, 2010 (75 FR 80420). In this proposed rulemaking, EPA is addressing the petitioner’s first objection and EPA believes that the proposed action makes the other objections moot. Therefore, EPA did not address any of those subsequent points in the proposed reconsideration rulemaking. These developments with respect to the RFP issue in the context of the 1997 8-hour ozone NAAQS necessitate a reexamination of the

48 See letter dated May 13, 2010, from Gina McCarthy to David S. Baron and Paul Cort, Earthjustice. A copy of the letter is located in the docket for this action.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 43 of 63 comparable issue for purposes of the 1997 PM 2.5 NAAQS. The petition for reconsideration of the PM 2.5 Implementation Rule filed in June 2007 by Earthjustice raised two main objections to the policy allowing certain emissions reductions from outside the nonattainment area to be credited toward meeting the RFP requirements for the 1997 PM 2.5 NAAQS. First, Earthjustice argued that EPA committed a procedural violation by failing to solicit public comments on the policy. Second, the petitioner argued that the policy lacks any standard for defining the geographic boundary of the area outside the nonattainment area from which emission reductions could be credited. The petitioner noted that the policy “limits the surrounding area that can be included to a doughnut around the nonattainment area of up to 200 kilometers.” 49 However, the petitioner objected to the approach in the PM 2.5 Implementation Rule because it could allow a state to choose any portion of that surrounding area for purposes of the RFP calculation; i.e., a state need only show that emissions in the area selected substantially impact ambient concentrations in the nonattainment area. The petitioner argued that there is no stated requirement that all areas substantially impacting the nonattainment area be included. For these reasons, the petitioner claimed that the RFP policy was unlawful and arbitrary. In light of the arguments raised by Earthjustice’s June 2007 petition, EPA decided to grant the petition for reconsideration on

49 See PM 2.5 Implementation Rule, 70 FR 20636.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 44 of 63 this issue. 50 Due to EPA’s proposed action to revise the RFP policy for the 1997 8-hour ozone NAAQS, and upon reconsideration of the policy for the 1997 PM 2.5 NAAQS, EPA is proposing in this action to set aside its earlier interpretation of the RFP provisions described in Section II.G.5.b of the preamble to the final PM 2.5 Implementation Rule and to no longer permit states to rely on credit for emission reductions from outside the PM 2.5 nonattainment area to meet such an area’s RFP obligations. **III. Proposed Action**

A. RACT or RACM Requirements for EGUs Participating in the NO x SIP Call and the CAIR In this notice, EPA is proposing to revise the Phase 2 Ozone Implementation Rule in order to: (1) withdraw the determination that compliance with the NO x SIP Call satisfies NO x RACT for EGUs located in certain ozone nonattainment areas or in states within the OTR; and (2) withdraw the separate determination that compliance with the CAIR satisfies NO x RACT for EGUs located in certain specific ozone nonattainment areas and the presumption that compliance with the CAIR can satisfy NO x RACT for EGUs located in other ozone nonattainment areas or in states within the OTR. The EPA is also proposing to withdraw from the PM 2.5 Implementation Rule any presumption that compliance with the CAIR automatically satisfies RACT/RACM

50 See letter dated May 13, 2010 from Gina McCarthy to David S. Baron and Paul Cort, Earthjustice. A copy of the letter is located in the docket for this action.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 45 of 63 requirements for SO 2 and NO x emissions from EGUs located in PM 2.5 nonattainment areas. EPA has reevaluated whether compliance with the NO x SIP Call could constitute NO x RACT for EGUs in light of the Court ’ s opinion in the NRDC v. EPA case. Given the explicit wording of section 172(c) (1) that sources “in the area” must at a minimum adopt RACT controls for that area, EPA believes that it is no longer appropriate to address this requirement merely based upon the participation of the source in a regional cap-and-trade program. Implicit in a regional cap-and-trade program is that some sources may elect to utilize allowances in lieu of emissions controls in order to meet the regional emissions reductions requirements, and that those elections could change. After reconsideration, EPA believes that it would be more consistent with the statutory provision, with the overall structure of the CAA with respect to nonattainment plans, and with the overarching objective to provide for expeditious attainment of the NAAQS in each nonattainment area, that states should evaluate the EGUs located within designated nonattainment areas for any necessary controls. In addition, to the extent that the Court in the NRDC v. EPA decision left open the possibility that an area-specific analysis might establish that compliance with a regional cap-and-trade program like the NO x SIP Call could simultaneously result in factual compliance with the RACT requirement for sources located within Deleted: ’Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 46 of 63 nonattainment areas, EPA believes that eliminating the prior determinations and presumptions will result in such an analysis should states elect to consider it. Only where states conduct a technical analysis for the specific nonattainment area considering the emissions controls required by the regional cap-and-trade program at issue, and demonstrating that compliance by EGUs participating in the program results in actual emissions reductions in the particular nonattainment area that are equal to or greater than the emissions reductions that would result if RACT were applied to each individual EGU source or the EGU s ource category within the nonattainment area, could EPA approve a SIP adopting such an approach. EPA believes that although the NRDC v. EPA decision explicitly deferred consideration of whether compliance with the CAIR could automatically satisfy a source’s obligation to install RACT for NO x or SO 2 , it is both consistent with the decision and appropriate for the Agency to reconsider this issue in the same manner that the Court addressed whether compliance with the NO x SIP Call could satisfy a EGU’s obligation to meet RACT within a nonattainment area. We believe that the Court deferred action with respect to the CAIR, not because the issue could be decided differently, but rather because the Court had already remanded the CAIR to EPA for other reasons. The EPA believes that the logic of the NRDC v. EPA decision extends to any presumption that sources subject to a regional trading program such as the CAIR automatically comply with RACT requirements for NO x or Deleted: such a Deleted: equal to or greater than Deleted: from the EGUs with
Deleted: application of

Deleted: on all subjectSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 47 of 63 SO 2 . Moreover, EPA believes that the remanded status of the CAIR, and the fact that it will be replaced with a different regional program, renders the prior determinations and presumptions unreliable. EPA is also proposing to withdraw the determination made in the Phase 2 Ozone Implementation Rule, final notice of reconsideration, that EPA’s Supplemental Technical Analysis gives an adequate demonstration that participation in the CAIR is projected to achieveequal or greater annual emissions reductions from EGUs than sourceby-source RACT for certain specific areas. EPA is proposing this action because it no longer believes that the assumptions held within the Supplemental Technical Analysis are adequate to make such a showing. First, the analysis was premised upon the continued existence of the CAIR, and implicitly upon the predicted action of sources subject to the CAIR. Second, afterreconsideration, EPA now concludes that the analysis’s across-theboard assumptions regarding what constitutes RACT for all sources in all nonattainment areas were inadequate, and did not consider whether more advanced control technologies, such as post-combustion controls (e.g., selective catalytic reduction or selective non-catalytic reduction), might at some time be technically and economically feasible for specific sources in some areas. Therefore, states with nonattainment areas for which EPA previously made this determination must now individually comply with the provisions of the CAA, which require an evaluation of EGUs located within designated nonattainmentSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 48 of 63 areas for RACT controls, and imposition of such controls as may be necessary for expeditious attainment of the NAAQS within the area. In addition, should they elect to do so, they must conduct a technical analysis for the specific nonattainment area considering the emissions controls required by the regional cap-and-trade program at issue, and demonstrating that compliance by EGUs participating in the program results in actual emissions reductions in the particular nonattainment area that are equal to or greater than the emissions reductions that would result if RACT were applied to each individual
EGU source or EGU source category in the nonattainment area before they include such a determination in a SIP. EPA is consequently proposing to amend Section 51.912 to state explicitly that each individual major source, or major source category, in a nonattainment area must undergo a RACT analysis for purposes of 1997 8-hour ozone NAAQS SIPs. As a result of this action, states should not merely presume that for EGUs located in a nonattainment area that compliance with a cap-and-trade program, including the NO x SIP Call, the CAIR, or other programs, such as the CSAPR, could satisfy their obligation to implement NO x or SO 2 RACT. As required by the CAA, states are required to analyze what constitutes RACT for EGUs in each nonattainment area. However, a state may be able to show through appropriate technical analysis that EGU participation in a regional cap-and-trade program, such as the CSAPR, in a particular nonattainment area would meet NO x Deleted: this

Deleted: equal to or greater than Deleted: from the EGUs with

Deleted: application of

Deleted: on all subject Deleted: s Deleted: withSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 49 of 63 and/or SO 2 RACT requirements for the area. Such an analysis must show that compliance by EGUs participating in the program results in actual emissions reductions in the particular nonattainment area that are equal to or greater than the emissions reductions that would result if RACT were applied to each individual EGU source or the EGU source category in the area. In addition, the state would have to establish that these emissions levels are required by the SIP by some means independent of the regional program so that they would not change based upon a source’s subsequent decision to comply via the purchase of allowances rather than by the installation and operation of emissions controls. The EPA is soliciting comments on the withdrawal of the determinations and presumptions as explained previously in this notice. B. Analysis of the Economic Feasibility of Reasonably Available Controls in the PM 2.5 Implementation Rule EPA has granted the petitioner’s request for reconsideration of the guidance in the preamble for the final PM 2.5 Implementation Rule regarding criteria for determining economic feasibility of RACT controls. Upon reconsideration, EPA agrees that the specific objections raised by the petition do reflect departures from prior EPA guidance on how to evaluate RACT. Given the specific statutory language of section 172(c)(1), and EPA’s long-standing interpretation of what factors are appropriate for consideration of economic feasibility in a RACT analysis, EPA concludes that the final guidanceSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 50 of 63 that the Agency provided for the PM 2.5 Implementation Rule was inappropriate in certain respects. The EPA also concludes that there was inadequate notice and opportunity for public comment for all of the departures from past guidance, and the departures from the guidance as presented in the preamble for the proposed PM 2.5 Implementation Rule. Accordingly, EPA proposes to remove the guidance in question from the preamble to the final PM 2.5 Implementation Rule, and to replace it with guidance very similar to what was included in the preamble to the proposed PM 2.5 Implementation Rule concerning the economic feasibility analysis component for determining what constitutes RACT. The EPA believes that reverting to the guidance as proposed will be the most effective and efficient means to address the concerns related to inappropriate considerations that were set forth in the preamble to the final PM 2.5 Implementation Rule. In particular, this approach will remove what EPA now concludes was incorrect guidance language in the final rule that suggested that the “economic feasibility” element of a RACT determination should include consideration of “whether the cost of a [control] measure is reasonable for the regulated entity to bear, in light of the benefits,” as the costs of control relative to the health benefits of a particular control technology should not be relevant to the technical determination of RACT. This language suggested that the economic feasibility analysis should be a “cost/benefit” analysis,Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 51 of 63 instead of the “cost effectiveness” type of analysis that it has historically been. Similarly, this change will remove the prior statement in the final rule that there is “no presumption that a given source must bear costs similar to any other source,” because of source specific considerations such as “marginal costs, profit margin, and abilities to pass costs through to the consumer.” Upon reconsideration, EPA does not believe that such considerations should override the longstanding presumption that similar sources should be able to bear similar costs, unless adequately and appropriately demonstrated otherwise. A source’s ability to “afford” a control can be a consideration. However, the intent of the policy is not to reward less efficient sources by allowing them to bear lower emission control costs than more efficient sources. Finally, re-establishment of the prior guidance referenced in the preamble to the proposed rule will remove the ambiguous references to “equity considerations” as part of the RACT analysis, which in addition to deviating from prior guidance merely introduced uncertainty as to what this factor might mean, e.g., equity between regulated entities or equity between sources and the health concerns of the public in the nonattainment area, or how such competing equities might be balanced. In order to accomplish this revision to the guidance, we propose in this action to remove the language in section II.F.5.b of theSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 52 of 63 preamble to the final PM 2.5 Implementation Rule (the section heading is: “What factors should states consider in determining whether an available control technology or measure is economically feasible?”), 51 and to replace it with the following language: What factors should states consider in determining whether an available control technology is economically feasible? Economic feasibility considers the cost of reducing emissions and the difference between the cost of the emissions reductions approach at the particular source and the costs of emissions reductions approaches that have been implemented at other similar sources. Absent other indications, EPA presumes that it is reasonable for similar sources to bear similar costs of emission reduction. Economic feasibility for RACT purposes is largely determined by evidence that other sources in a source category have in fact applied the control technology or process change in question. The capital costs, annualized costs, and cost effectiveness of an emission reduction technology should be considered in determining its economic feasibility. The EPA Air Pollution Control Cost Manual 52 describes procedures for determining these costs for stationary sources. A number of other sources of information are available which provide updated information on control technologies and associated costs of installation and operation. 53 The above costs should be determined for all technologically feasible emission reduction options. States may give substantial weight to cost effectiveness in evaluating the reduction feasibility of an emission reduction technology. The cost effectiveness of a technology is its annualized cost ($/year) divided by the emissions reduced (i.e., tons/year) which yields a cost per amount of emission reduction ($/ton). Cost effectiveness provides a value for each emission reduction option that is comparable with other options and other facilities. In considering what level of control is reasonable, EPA is not proposing a fixed dollar per ton cost threshold for RACT. We believe

51 This section of the preamble to the final PM 2.5 Implementation Rule appears at 72 FR 20619-20. 52 See “EPA Air Pollution Control Cost Manual-Sixth Edition,” EPA Office of Air Quality Planning and Standards, Research Triangle Park, NC, January 2002. (EPA/452/B-02-001). 53 See STAPPA/ALAPCO, “Controlling Fine Particulate Matter Under the Clean Air Act: A Menu of Options,” March 2006; EPA’s RACT/BACT/LAER Clearinghouse; regional air quality planning organizations; state air agencies; add others.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 53 of 63 that what is considered to be a reasonable control level should vary based on the severity of the nonattainment problem in the area. In addition, we believe that in determining what appropriate emission control levels are, the state should also consider the collective health benefits that can be realized in the area due to projected improvements in air quality. The health benefits associated with reducing PM 2.5 levels are significant. Using estimation techniques reviewed and deemed reasonable by the National Academy of Sciences, national monetized health benefits resulting from reductions in PM concentrations are estimated to exceed emission control costs by a factor of three to thirty times, depending on the particular controls on sources of PM precursor emissions. 54 This approach is consistent with EPA’s view that RACT may be related to what is needed for attainment. That is, for areas with more severe air quality problems that typically will need to adopt more stringent controls, RACT level controls in such areas may require controls at higher cost effectiveness levels ($/ton) than areas with less severe air quality problems. Areas with more serious air quality problems typically will need to obtain greater levels of emissions reductions from local sources than areas with less serious problems, and it would be expected that their residents could realize greater health benefits. For this reason, we believe that it will be reasonable and appropriate for areas with more serious air quality problems and higher design values to impose emission reduction requirements with generally higher costs per ton of reduced emissions that the cost of emissions reductions in areas with lower design values. If a source contends that it cannot afford to implement the control technology that is considered to be RACT for certain other sources in its source category, the source should support its claim with information describing the impact of imposing RACT on its: 1. Fixed and variable production costs ($/unit), 2. Product supply and demand elasticity, 3. Product prices (cost absorption vs. cost pass–through), 4. Expected costs incurred by competitors, 5. Company profits, and 6. Employment costs. EPA is soliciting comments on replacing the previous section of the guidance for RACT determinations with this language. To our

54 See “The Clear Skies Act: Technical Support Package,” U.S. EPA, July 2003. See also: “Draft Regulatory Impact Analysis: Control of Emissions from Non-road Diesel Engines,” United States Environmental Protection Agency Office of Air and Radiation EPA420-R-03-008, April 2003.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 54 of 63 knowledge, states did not utilize the specific guidance in the preamble to the PM 2.5 Implementation Rule that we are proposing to remove to alter any RACT determinations in nonattainment SIPs developed for the 1997 PM 2.5 NAAQS, so we anticipate that this change in the guidance will have no practical impact on SIPs already submitted to EPA for approval. C. RFP Requirements for the 1997 PM 2.5 NAAQS After reconsideration of the RFP policy raised by the petitioner in the petition for reconsideration, and in light of the Court’s decision in the NRDC v. EPA case, EPA is proposing in this action to set aside the Agency’s earlier interpretation of its RFP policy described in Section II.G.5.b of the preamble to the final PM 2.5 Implementation Rule and to interpret the CAA as not allowing states to rely on credit for emission reductions from outside the nonattainment area to meet such an area’s RFP requirements for the 1997 PM 2.5 NAAQS. Specifically, EPA is proposing that states may not take credit for emission reductions from outside the nonattainment area to meet the area’s section 172(c)(3) RFP requirements for reductions within the nonattainment area. This revised policy would apply to implementation plans for the 1997 PM 2.5 NAAQS, and would apply to all areas with an approved attainment date beyond 5 years from the effective date of designations that are required to submit an RFP plan per section 51.1009(c) of the PM 2.5 Implementation Rule.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 55 of 63 There may, however, remain valid policy reasons for giving states incentive to focus on obtaining emission reductions that are the most beneficial and cost effective for attaining the PM 2.5 NAAQS. Also, there may be cases where the most beneficial and cost-effective reductions are from sources located outside the designated nonattainment area boundaries. In these cases, there may be good policy reason to credit the emission reductions toward meeting RFP requirements. To this end, EPA is also taking comment on whether it would be appropriate for states to rely on emission reductions credit from outside the nonattainment area for RFP obligations, and whether there are legal rationale s consistent with the CAA that would allow EPA to adopt such an approach. **IV. Statutory and Executive Order Reviews** A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is a "significant regulatory action” because it is likely to raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. Accordingly, EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any changes made in response to OMB recommendations have been documented in the docket for this action. Deleted: under whatSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 56 of 63 B. Paperwork Reduction Act This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Burden is defined at 5 CFR 1320.3(b). This action merely interprets the statutory requirements that apply to states in preparing their SIPs. C. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of this proposed rule on small entities, small entity is defined as: (1) A small business that is a small industrial entity as defined in the U.S. Small Business Administration (SBA) size standards. (See 13 CFR 121.); (2) A governmental jurisdiction that is a government of a city, county, town, school district, or special district with a population of less than 50,000; and (3) A small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 57 of 63 After considering the economic impacts of this proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This rule will not directly impose any requirements on small entities. Rather, this rule interprets the obligations of the CAA for states to submit implementation plans in order to attain the 1997 8-hour ozone and 1997 PM 2.5 NAAQS. We continue to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to such impacts. D. Unfunded Mandates Reform Act This action contains no federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, 2 U.S.C. 1531 – 1538) for state, local, or tribal governments or the private

sector . The action imposes no enforceable duty on any state, local, or tribal governments or the private sector. Therefore, this action is not subject to the requirements of sections 202 or 205 of the UMRA

. This action is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. This action merely interprets the statutory requirements that apply to states in preparing their SIPs. E. Executive Order 13132: Federalism This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationshipSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 58 of 63 between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This action does not impose any new mandates on state or local governments. Thus, Executive Order 13132 does not apply to this rule. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and state and local governments, EPA is specifically soliciting comments on this proposed rule from state and local officials. F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments This rule does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). The rule does not have a substantial direct effect on one or more Indian tribes, since no tribe has to develop a SIP under this regulation. Furthermore, this rule does not affect the relationship or distribution of power and responsibilities between the federal government and Indian tribes. The CAA and the Tribal Air Rule establish the relationship of the federal government and tribes in developing plans to attain the NAAQS, and this rule does nothing to modify that relationship. This rule does not have Tribal implications. Thus, Executive Order 13175 does not apply to this action. The EPA specifically solicits additional comment on this proposed action from tribal officials.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 59 of 63 G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks This action is not subject to EO 13045 (62 FR 19885, April 23, 1997) because it is not economically significant as defined in Executive Order 12866. However, EPA has reason to believe that ozone has a disproportionate effect on children who play outdoors (62 FR 38856; 38859, July 18, 1997). Likewise, EPA believes that PM 2.5 has a disproportionate effect on children. (See 62 FR 38652-38760, National Ambient Air Quality Standards for Particulate Matter, Final Rule; also 40 CFR Part 50.) The EPA invites the public to submit or identify peer-reviewed studies and data, of which EPA may not be aware, that assess how changes in RACT may affect ozone or PM 2.5 formation. This rule may lead to lower levels of ozone and PM 2.5 in particular geographical areas, which will be beneficial to the health of children who live in those particular areas. H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This action is not a “significant energy action” as defined in Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy because it does not establish requirements that directly affect the general public and the public and private sectors, but, rather interprets the statutory requirements that apply to states in preparing their SIPs. The SIPsSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 60 of 63 themselves will likely establish requirements that directly affect the general public, and the public and private sectors. I. National Technology Transfer and Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 ("NTTAA"), Public Law 104-113, section 12(d), (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards. J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations Executive Order 12898 (59 FR 7629, Feb. 16, 1994) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmentalSummary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 61 of 63 effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because if it has any effect on the level of protection provided to human health or the environment, the effect will be to increase the level of protection by resulting in more stringent emission controls on EGUs in affected nonattainment areas.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 62 of 63 **Page 63 of 64 - Withdrawal of the Prior Determination or Presumption**  **that Compliance with the CAIR or the NO x**  **SIP Call Constitutes RACT or RACM for the 1997 8-Hour Ozone and 1997 Fine Particle NAAQS; and**  **Revision to RFP Requirements and RACT Guidance for the 1997 Fine Particle NAAQS** 

**List of Subjects in 40 CFR Part 51** Environmental protection, Administrative practice and procedure, Air pollution control, Ozone, Reporting and recordkeeping requirements, Particulate matter, Volatile organic compounds.

___________________________________ Dated:

___________________________________ Lisa P. Jackson, Administrator.Summary	of	Interagency	Working	C omments	on	Draft	Language	under EO	12866	Interagency	Review.		Subject	to Further	Policy	Review.

Page 63 of 63 For reasons set forth in the preamble, part 51 of chapter I of title 40 of the Code of Federal Regulations is proposed to be amended as follows: Part 51-REQUIREMENTS FOR PREPARATION, ADOPTION, AND SUBMITTAL OF
IMPLEMENTATION PLANS. 1. The authority citation for part 51 continues to read as follows: Authority: **23 U.S.C. 101; 42 U.S.C. 7401-7671q 2. Section 51.912 is amended by adding paragraph (a)(4) to read as**  **follows:**
§ **51.912 What requirements apply for reasonably available control technology (RACT) and reasonably available control measures**  **(RACM) under the 8-hour NAAQS?** **(a) * * *** **(4)** An individual RACT determination must be made for each major source or major source category meeting the applicable major source size within a nonattainment area.
* * * * *