27286 Federal Register / Vol. 54, No. 123 / Wednesday, Jitne 28, 1989 / Rules and Regulations

pursuant to 40 CFR Parts 60 and 61,

requirements within any applicable

State implementation plan, any permit

requirements established pursuant to 40

CFR 52.21 or under regulations approved

pursuant to 40 CFR Part 51, Subpart I,

including operating permits issued under

an EPA-approved program that is

incorporated into the State

implementation plan and expressly

requires adherence to any permit issued

under such program.

IFR Doc. 89-14681 Filed 6-27-89; 8:45am]

BILWNG CODE 8560-50-M

40 CFR Parts 51 and 52

[AD-FRL-3511-2a]

Requirements for Implementation

PlansAir Quality New Source Review

AGENCY. Environmental Protection

Agency (EPA).

ACTION: Final rule.

SUMMARY: On August 25, 1983, EPA

proposed amendments to its regulations

addressing the construction of new and

modified stationary sources of air

pollution which appear at 40 CFR 51.24

(now 40 CFR 51.166), 52.21, Appendix S

to Part 51, 51.18(j) (now 51.165(a)) and

52.24 (see 48 FR 38742). That document

presented eight areas of proposed

rulemaking and additional guidance in

three other areas. The EPA proposed

those amendments and provided

guidance m order to meet the terms of a

settlement agreement between EPA and

various industries and trade

associations challenging the particular

regulations in Chemical Manufactures

Association (CMA) v. EPA, D.C. Cir. No.

79-1112 (settlement agreement entered

into February 22, 1982).

On October 26, 1984 (49 FR 43202),

EPA took action on the component of

the August 25, 1983 proposal dealing

with fugitive emissions. This document

constitutes final action on six of the

seven other remaining issues in the

August 25 proposal: (1) The definition of

"significant" as it affects Class I area

protection, (2) the innovative control

technology waiver for sources which

would impact Class I areas, (3)

secondary emissions, (4) the crediting of

source shutdowns and curtailments as

emissions offsets in nonattamment

areas, (5) banking of emissions offsets

under 40 CFR Part 51, Appendix S, and

(6) the requirement for health and

welfare equivalence for netting. In

addition, final action with respect to the

other remaining issue, the Federal

enforceability requirement, is being

published in parallel with this

document.

DATES: This rule takes effect on June 28,

1989. Under section 307(b)(1) of the

Clean Air Act (Act), 42 U.S.C. 7607(b)(1),

petitions for judicial review must be

filed on or before August 28, 1989, in the

U.S. Court of Appeals for the D.C.

Circuit.

ADDRESSES: Material relevant to this

rulemaking may be found in Public

Docket A-82-23. This docket is located

in U.S. EPA's Central Docket Section

(LE-131), Waterside Mall, M-1500, 401

M Street, SW Washington, DC 20460.

The docket may be inspected between

8:00 a.m. and 3:00 p.m. on weekdays and

a reasonable fee may be charged for

copying.

FOR FURTHER INFORMATION CONTACT:

Mr. David Solomon, New Source Review

Section, Office of Air Quality Planning

and Standards (MD-15), Research

Triangle Park, North Carolina 27711;

(919) 541-5375; FTS 629-5375.

SUPPLEMENTARY INFORMATION:

I. Introduction

On August 7 1980, EPA extensively

revised its regulations concerning the

preconstruction review of new and

modified stationary sources "new

source review" (NSR)) under the Act, 42

U.S.C. 7401-7642, in response to

Alabama Power Company v. Castle, 636

F.2d 323 (D.C. Cir. 1979) (see 45 FR

52676). Five sets of regulations resulted

from those revisions. The first set, 40

CFR 51.166 (formerly 40 CFR 51.24),

specifies the niinimum requirements that

a prevention of significant deterioration

(PSD) air quality permit program under

Part C of the Act must contain in order

to warrant approval by EPA as a

revision to a State implementation plan

(SIP). The second set, 40 CFR 52.21,

delineates the Federal PSD permit

program, which currently applies, as

part of the SIP in the roughly 20 States

that have not submitted a PSD program

meeting the requirements of 40 CFR

51.166. The third set, 40 CFR 51.165(a)

and (b) (formerly 40 CFR 51.18 (j) and

(k)), specifies the elements of an

approvable State permit program for

preconstruction review for

nonattainment purposes under Part D of

the Act. It elaborates on section 173 of

the Act, 42 U.S.C. 7503. The fourth set, 40

CFR Part 51, Appendix S. embodies the

"Emissions Offset Interpretative Ruling"

(Offset Ruling), which EPA revised

previously in January 1979 (44 FR 3274).

The fifth set, 40 CFR 52.24, embodies the

construction moratorium which EPA

implements in certain nonattainment

areas.

In the fall of 1980, numerous

organizations petitioned the U.S. Court

of Appeals for the D.C. Circuit to review

various provisions of those PSD and

nonattainment preconstruction

regulations. Subsequently, the court

consolidated those petitions into CMA,

a collection of challenges to the 1979

revisions to the Offset Ruling. In June

1981, EPA began negotiations with the

industry petitioners to settle the CMA

case. The EPA entered into a

comprehensive settlement agreement

with those petitioners in February 1982.

Subsequently, the court granted a stay

of the case pending implementation of

the agreement.

In the settlement agreement, EPA

committed to propose certain

amendments (set forth as Exhibit A of

the agreement) to eight portions of the

NSR regulations and to provide

guidance in three additional areas, and

to take final action on those proposals.

Accordingly, EPA published a notice of

proposed rulemaking in the August 25,

1983 Federal Register (48 FR 38742). The

EPA noted that it would review the

comments carefully and with an open

mind and that it would take a new look

at the proposals in order to make an

independent judgment on the merits.

The EPA received extensive public

comment regarding the August 25, 1983

document, including that presented at a

public hearing. In light of the public

comments and on the basis of further

evaluation, EPA has determined that it

is appropriate to retain various portions

of the regulations that had been

proposed for deletion or revision, while

making final certain other portions of

the proposed changes.

The EPA addressed fugitive emissions

in a separate Federal Register notice

that was published on October 26, 1984

(49 FR 43202). This document constitutes

final action on six of the remaining

seven issues in the August 25, 1983

proposal.

With respect to the other remaining

issue, Federal enforceability, EPA is

today announcing, in a separate Federal

Register item published in conjunction

with this one, its decision to retain the

Federal enforceability requirement.

Accordingly, today's final actions

fulfill EPA's commitmente under Exhibit

A of the CMA settlement agreement.

II. Final Action on Proposal

A. Definition of "Significant"

1. Background

In revising the NSR regulations on

August 7 1980, EPA introduced

provisions which use the term

"significant. One of those provisions

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defines a "major modification" subject

to the PSD requirements as any change

at a major stationary source that would

result in a "significant net emissions

increase" in any one of certain

pollutants (e.g., § 52.21(b)(2)(i) (45 FR

52735)). The other provisions require an

applicant for a PSD permit to meet

certain requirements for control

technology and air quality impact

assessment for each pollutant regulated

under the Act that the proposed project

would emit in a "significant" amount

(e.g., § 52.21(j) (45 FR 52740)).

In revising the PSD regulations, EPA

also introduced a definition of "significant" (e.g., § 52.21(b)(23) (45 FR

52739)). The first paragraph of that

provision defines "significant" in terms

of rates of emissions. For example, a

rate of 40 tons per year (tpy) or more is

"significant" for sulfur dioxide (SO2).

Another paragraph of the definition,

however, also defines "significant" m

terms of ambient air impacts in Class I

areas:

Notwithstanding (the first paragraph),

significant one means any emissions rate or any net emissions increase associated with a

major stationary source or major

modification which would construct within 10

kilometers of a Class I area, and have an

impact on such an area equal to or greater

than I microgram per cubic meter (g/im 3),

(24-hour average).

(e.g., Section 52.21(b)(23)(iii) (45 FR

52739)).

In the CMA case, certain industry

petitioners challenged the ambientbased threshold for "significant"

emissions embodied m the paragraph

quoted above. They contend that EPA,

in promulgating it, violated section

165(e)(3)(A) of the Act, which prohibits

EPA from requiring "the use of any

automatic or uniform buffer zone or

zones" respecting the assessment an

applicant must perform of existing air

quality within the impact area of it

proposed project (42 U.S.C.

7475(e)(3(A)-see Brief for Industry

Petitioners on Fugitive Emissions

(February 11, 1981) at 54; American

Mining Congress Petition for

Reconsideration, at 35-36).

In the August 25, 1983 rulemaking

proposal, EPA proposed deletion of the

ambient-based portion of the definition

of "significant. It did so roughly on the

grounds advocated by industry: That the

definition constitutes a sufficiently low

threshold for review as to arguably

create a virtually uniform buffer zone

with respect to air quality analyses (48

FR 38749).

2. Public Comment

a. Comments Generally Favoring the

EPA Proposal. Various industry

commenters agreed with the basis of the

proposal that the 10 kilometer provision

in the existing rules violates the section

165(e)(3)(A) proscription of buffer zones.

Several industry commenters also stated

that the general significance levels

provide adequate protection, and that

their use would be more workable and

appropriate. An industry trade group

stated that field instruments cannot

detect changes in SO2 or particulate

matter as small as 1 microgram per

cubic meter ({pg/m3) and that a

threshold that small would prompt NSR

over very broad areas in the west.

Another commenter observed that

sources subject to NSR would be

required to analyze the impact of

smaller sources that had avoided

review.

b. Comments Generally Opposing the

EPA Proposal. A Federal agency

opposed the proposal since it would

remove a requirement for analysis of

potential adverse impacts on air quality

related values in Class I areas, which

Congress intended to receive the highest

protection. These comments were

supported by environmental groups. The

Federal agency stated that applidability

thresholds keyed to significant

emissions rates do not provide adequate

protection. First, they are based on tpy,

and do not specify a maximum hourly or

daily rate. Second, the agency stated it

can be easily shown that sources with

total emissions less than the significant

rates can contribute to ambient

concentrations greater than 1 Ftg/m 5

and, in cases of S0 2, may cause

exceedances of the short-term Class I

increment.

Third, that commenter noted further

that, under the proposal, new source

growth and modifications having

emissions of total particulate matter or

SO less than the significance levels

would neither establish baselines in

affected Class I areas, nor consume PSD

increments in areas where baselines had

not been previously established.

Conceivably, increases in particulate

and sulfur oxides concentrations could

reach national ambient air quality

standards (NAAQS) levels in Class I

areas from the cumulative effect of such

sources without any review of the

contributing sources under the PSD

program.

With regard to industry's buffer zone

argument, that commenter stated that

the 10 kilometer distance in the

definition of "significant" is really a

technical analysis zone, not a prohibited

no-growth buffer zone. Other

commenters agreed that the 10 kilometer

criterion was not a proscribed buffer

zone, since it does not prohibit

construction of a major source or

determine in any automatic or uniform

.manner whether a proposed source may

be permitted.

This commenter noted that if the 10

kilometer distance criterion were

deleted, the I Ag/m s impact criterion

should be retained for sources at any

distance from a Class I area, since it will

assure establishment of a baseline when

such impacts occur. Other commenters

also urged that the 10 kilometer

provision be dropped, but the 1 pg/m 3

threshold be retained, on the grounds

that a source's distance from a Class I

area is irrelevant to achieving the stated

purposes of the Act and protecting air

quality in Class I areas.

Two State air quality programs agreed

that the general tpy significance levels

will not protect a Class I area. One

stated that, using EPA's recommended

modeling criteria, a major source within

2 kilometers of a Class I area with

complex terrain could probably

consume the entire Class I 24-hour SO2

increment by increasing SO2 emissions

39 tpy. That program added that it is

important to remember that 1 pg/m is a

20 percent consumption of the 24-hour

PSD increment for SO2. An

environmental group noted that an

impact on air quality related values in a

Class I area is a function of the amount

of the pollution actually reaching an

area rather than amount of pollution

emitted from a source, and whether

pollutants reach an area is influenced by

the mode of emissions (stack versus

fugitive) as much as by the amount of

pollution. This group stated further that

small changes as low as 1 g/m3 in

ambient concentrations can have very

significant effects on the acidity of

water and on visibility in an area and

that the I ug/m 3 threshold could be

easily reached by a relatively modest

shift of ground level fugitive emissions

to stack plumes. In all of this, it is

important to remember, the group

concluded, that the Act's purposes focus

on protecting and remedying the actual

adverse effects of air pollution in Class I

areas.

Finally, another commenter expressed

concern that in unusual terrain the

significance levels would not provide

adequate protection for Class I areas,

and a private commenter stated that his

modeling showed that an existing 10 tpy

emissions rate from a source within 10

kilometers of a national park exceeded

the 1 pg/rms threshold.

3. EPA Analysis

Public comments and reconsideration

of the legal issues have persuaded EPA

to retain the current definition of

"significant. A review of legislative

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history indicates that Congress was

concerned only about the potential for a "mandatory no-growth buffer zone"

around Class I areas. The subject

regulation does not violate this

congressional directive. Rather, it

merely triggers the requirement to get a

PSD permit before constructing, so as to

provide for additional protection for

Class I areas. The commenting

government agency adequately refuted

the argument that the current

requirement establishes a "no-growth"

buffer zone by supplying several

examples of sources which were

permitted for locations within 10

kilometers of a Class I area.

The EPA concludes that the subject

provision is a useful tool in

implementing the important

congressional purpose of protection of

Class I areas. The general significant

emissions rates do not assure this and

EPA reaffirms that, standing alone, they

are adequate only for Class II and III

areas. It should be noted that the

substantive comments favoring deletion

of the requirement rely on the

questionable premise that the tpy significance numbers would provide

adequate Class I protection. Even one of

those comments, from a State air quality

program, indicates that this might not be

enough under some circumstances and

recommends a screening procedure

based on increment consumption.

Finally, promulgation of the proposal

could prompt pressure to lower thetpy

significance numbers, since those values

would then have to protect Class I

increments as well as the less stringent

Class II values.

B. Innovative Control Technology

Waiver

1. Background

When revising the PSD regulations in

August 1980, EPA established, for the

first time, a procedure for granting

innovative control technology waivers

of certain PSD requirements (see 45 FR

52735, 52741). The EPA patterned this

procedure after the innovative control

technology waiver in section 111 of the

Act 42 U.S.C. 7411, for new source

performance standards (NSPS). The

regulations, however, entirely disallow

such a waiver if a proposed project would impact any Class I area (e.g., 40

CFR 52.21(v)[2)(iv)(b)).

In the CMA case, certain industry

petitioners challenged that disallowance

provision. They contend primarily that

the provision is arbitrary because it

disallows the waiver even if an impact is insignificant or temporary (Fugitive

Emissions Brief, at 55).

In the August 1983 rulemaking

proposal, EPA preliminarily agreed with

industry that the current formulation of

the waiver is overly stringent with

respect to Class I areas. Accordingly,

EPA proposed to delete the current

disallowance provision and to insert a

new provision authorizing a waiver only if the requirements relating to Class I

areas have been satisfied as to all

periods during the life of the source or

modification (48 FR 38750).

2. Public Comment

This part of the proposal attracted

relatively little interest, with those

commenting generally supporting the

proposal. One commenter stated that it

would be beneficial to allow this

waiver, since it would provide an

opportunity to achieve greater emission

reductions at the same or lower cost. A

State air quality program supported the

proposal but would modify it to ensure

that sources receiving waivers would

not cause a violation of the air quality

increment and would not be eligible for

any special variance procedures for

Class I areas provided by 40 CFR

52.21(p) (4)-(7). A local air pollution

control agency opposed the proposal generally, stating that Congress

intended that Class I areas receive

maximum protection.

3. EPA Analysis

The EPA has decided to promulgate the deletion of this restriction as

proposed. The EPA concludes that the

limitation on the innovative control

technology waiver is not necessary. As

stated in the proposal, any applicant whose project would affect a Class I

area can nevertheless obtain a PSD

permit, if the applicant shows that the

project would not cause or contribute to

a violation of an increment for the area

and the Federal land manager (FLM]

fails to show that the project would

adversely impact any air quality related

values of the area (e.g., 40 CFR

52.21(p)(3)). In fact, even an applicant whose project would violate a Class I

increment might be able to obtain a

permit through special variance

procedures under paragraphs (p)(4]-(7)

of the regulations. In contrast, an

applicant whose project would merely

affect a Class I area cannot get the

innovative control technology waiver

under any circumstances. It is, therefore,

inappropriate to deny an innovative

control technology waiver to a source

merely because it would affect a Class I

area.

The EPA, in creating the original disallowance, sought to counter-balance

an exemption that the waiver provision

extends to applicants. Under paragraph

(v)(2)(iii), an applicant does not have to

show that the proposed project would

not cause or contribute to an increment

violation while operating under the

waiver (45 FR 52727). As a result, but for

the disallowance, a project under a

waiver could violate a Class I increment

or adversely affect an air quality related

value. The EPA agrees, however, that

the waiver provision can be refined to

exempt an applicant from providing

most of the air quality impact analysis

that it would otherwise have to provide

with respect to the waiver period and

still protect Class I areas fully.

To assure adequate protection of

Class I areas, EPA is inserting a

provision that allows the permitting

authority to grant a waiver only if the

provisions relating to Class I areas (i.e.,

subsection (p)) have been satisfied with

respect to all periods during the life of

the source or modification. This

provision expands the circumstances in

which a waiver is available, but with

additional demonstrations for some

applicants.

C. Secondary Emissions

1. Background

The 1978 version of the Part 52 PSD

regulations provided in 40 CFR 52.21(1)

that, to obtain a permit, an applicant

had to show, among other things, that

the proposed project would neither

cause nor contribute to a violation of a

PSD increment or NAAQS (43 FR 26407).

The preamble to the regulations added

that an applicant, in making that

showing, generally had to include any

quantifiable "secondary emissions" of

the proposed project (43 FR 26403).' The

1978 Part 51 PSD regulations echoed

those requirements: it required any State

PSD program to contain a provision

equivalent to § 52.21(1). A definition of "secondary emissions" did not appear in

the Part 51 or Part 52 regulations or in

the preambles to them at that time.

In revising the PSD regulations in

August 1980, EPA retained, in the form

of new §§ 52.21(k) and 51.24(k) (now

§ 51.166(k)), the requirement for a

demonstration that a proposed project

would neither cause nor contribute to a

violation of a PSD increment or NAAQS

(45 FR 52741, 51784). The EPA, however,

added a parenthetical clarification to

those provisions which expressly

In view of the restrictions on indirect source review in section 110(a)(5) of the Act, EPA added

that the applicant could exclude any "secondary emissions" from motor vehicles or aircrafts (43 FR

26403 n.9}. The EPA added vessels to the list so that

emissions from vessels going to and from marine

terminals are now to be excluded as well (see 47 FR

27544 (June 25,1982)). See also NRDC v. EPA, 725

F.2d 761 (D.C. Cir. 1984).

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required the inclusion of "secondary

emissions. It also put a definition of

that term into both sets of regulations.

Now, "secondary emissions" means

emissions which would occur as a result

of the construction or operation of a

major stationary source or major

modification, but do not come from the

major stationary source or major

modification itself. Secondary emissions

include emissions from any off-site

support facility which would not be

constructed or increase its emissions

except as a result of the construction or

operation of the major stationary source

or major modification. For the purpose

of PSD, secondary emissions must be

specific, well defined, quantifiable, and

impact the same general area as the

stationary source or modification.

Secondary emissions do not include any emissions from any off-site support

facility which would be constructed or

increase its emissions for some reason

other than the construction or operation

of the major stationary source or major modification. Secondary emissions also

do not include any emissions which

come directly from a mobile source,

such as emissions from the tailpipe of a

motor vehicle or from the propulsion

unit of a train or a vessel (e.g., 40 CFR

52.21(b)(18) (1981), as amended 47 FR

27554 (June 25, 1982)).

An example of an off-site support

facility included in the ambient impact demonstration is a strip mine owned by

one company that would be located next

to a proposed power plant owned by

another and that would supply the

power plant. Another example is a

quarry owned by one company that

would be located next to a proposed

cement plant owned by another and that

would supply the cement plant.

Certain of the industry petitioners in

the CMA case challenged this

requirement on the grounds that EPA

exceeded its authority in creating it (see

Fugitive Emissions Brief, at 48-50;

American Mining Congress Petition for

Reconsideration, at 29-32). They assert

that a relevant statutory provision

(section 165(a)(3)) requires only that an

applicant include those emissions that

would come from the proposed project,

since that section refers only to "emissions from the construction or

operation of such facility" (42 U.S.C.

7475(a)(3) (emphasis added)). 2

Section 165(a)(3) provides, in relevant part, as follows:

(a] No major emitting facility on which

construction is commenced after the date of

enactment of this part may be constructed m any area to which this part applies unless

(3) the owner or operator of such facility

demonstrates that emissions from

The August 1983 Federal Register

document proposed deletion of the

requirement, but did so on the grounds

that secondary emissions are not

quantifiable unless the source is already

permitted or in operation. The EPA

noted that section 165(a)(3) also

provides that an applicant must show

that the proposed project "will not cause

or contribute to air pollution" in

violation of a PSD increment or NAAQS

((id.) (emphasis added)). This "contribute" language persuaded EPA

that Congress intended "secondary

emissions" to be taken into account for

this limited purpose. Consequently, EPA

based the proposed deletion of this

requirement upon the premise that

secondary emissions are "arguably not

reasonably quantifiable" unless from

sources already permitted or in

operation (48 FR 38750-51).

2. Public Comment

a. Comments Generally Favoring the

Proposal. Commenters in support of the

proposal generally claimed that permit

applicants have little control over

secondary emissions and that their

quantification is complex and

burdensome. As a result, such emissions

should be reviewed and controlled

directly. One commenter observed that

secondary ermssions review is

superfluous in those cases in which the

secondary emitter is major, since that

source would be subject to PSD review

in any case. Some of these commenters suggested

legal interpretations of section 165.

Several noted that section 165(a)(3)

requires that the applicant demonstrate

"that emissions from construction or

operation" of the facility will not

endanger ambient values. Consequently,

emissions from support facilities cannot

be included in secondary emissions

review since the word "from" implies a

direct connection. An industry trade

group contended that section 165(a)(6),

which requires "an analysis of any air

quality impacts projected for the area as

a result of growth associated with the

facility, does not preclude the proposed

regulatory deletion since it does not

equate such analyses with ambient

standards or increment assessments.

Mining industry commenters asserted

that EPA has no authority to regulate

fugitive dust from coal strip mining

operations unless EPA complies with the

rulemaking requirements of section

302(j). This section provides that fugitive

emissions may be included in

determining whether a proposed new

construction or operation of such facility will not

cause, or contribute to. air pollution in excess of

(42 U.S.C.,7475[a)j.

source is "major" and subject to review

only "as determined by rule by the

Administrator. (See Alabama Power

Co. v. Costle, 636 F.2d 323, 369 (D.C. Cir.

1979)). These commenters were

particularly concerned with the

inclusion of fugitive dust emissions from

strip mines in the ambient air quality

analyses of co-located, coal-fired

electric generating facilities.

b. Comments Generally Opposing the

Proposal. The provisions of section

165(a) (3] and (6] were also interpreted

by commenters opposing the proposal.

They stated that the industry

interpretation of section 165(a)(3) is too

narrow since, in using the words "contribute to, Congress indicated that

the sum of the emissions of the proposed

source and other projects affected by it

be taken into account in the ambient

demonstration. They concluded that it

was reasonable for EPA to have

determined in the existing regulations

that secondary emissions, which would

not be produced "but for" the new

facility, should be included as part of

the emissions from the facility's

construction or operation. Commenters

also pointed out that section 165(a)(6)

requires an analysis of associated

growth and that this cannot be complied

with unless secondary emissions are

considered. An environmental group

cited section 165(a)(6) and concluded

that it would be anomalous to suggest

that the air quality analysis must be

performed, but that a finding that

secondary emissions would violate

increments or standards must be ignored

in the permitting decision.

Several commenters challenged the

proposal's conclusion that secondary

emissions are not quantifiable. A

Federal agency noted that secondary

emissions have been quantified in

numerous environmental impact

statements. They added that there is no

major difference between quantifying

emissions from a source that does not

have a permit and one that does, since

many operating parameters are known

before a source is constructed and,

conversely, many permits are issued on

the basis of preliminary design

information. A State air quality program

reported that it disagrees with the

contention that secondary emissions are

significantly more difficult to measure.

Commenters also noted that

secondary emissions can be important.

One commenter reported that, as the

result of a proposed oil shale processing

facility, an entire town was planned

with all the quantifiable emissions

sources associated with major urban

areas, such as space heaters and

incinerators. Another commenter stated

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that EPA should not exempt all sources

from assessing secondary emissions

simply because of a few cases in which

such emissions are not reasonably

quantifiable.

3. EPA Analysis

After review of the public comments

and further analysis of the subject

provision, EPA has decided to retain the

current regulation. Evaluation of

secondary emissions is consistent with

section 165 of the Act. Section 165(a)(6),

in particular, indicates strong

congressional concern that secondary

emissions be reviewed as part of the

applicant's ambient impact assessment.

The regulation also furthers the broader

purposes of an NSR program that

emphasizes prospective review of all the

consequences of growth so as to

minimize the risk of future ambient air

quality problems. The EPA

acknowledges that there may be

situations in which quantification of

secondary emissions may be unduly

speculative or complex. The "reasonably quantifiable" condition in

this requirement provides an

appropriate response to those problems.

The EPA disagrees with the comments

of mining industry representatives that it

must conduct a separate rulemaking

under section 302(j) before it can

consider secondary emissions from strip

mines or any other industrial category.

Section 302(j) only addresses whether

fugitive emissions should be included in

threshold applicability determinations.

Once a source is found to be major,

section 302(j) is irrelevant to the

application of substantive NSR

requirements. Thus, in Alabama Power,

the D.C. Circuit upheld EPA's position

that section 302(j) has no bearing

whatsoever on the applicability of

substantive PSD requirements under

section 165 after a source is determined

to be major. 636 F.2d at 369 ("[tjhe terms

of section 165 apply with equal

force to fugitive emissions and

emissions from industrial point

sources").

D. Offset Credit for Source Shutdowns

and Curtailments

1. Background

The concept of "offsetting" is the core

of nonattainment NSR permitting. An

applicant (for a permit for a "major"

project that would be located in an area

that is nonattainment for a pollutant for

which the project is major) must show

that the emissions of the pollutant from

the project will be offset by sufficient

creditable reductions in emissions

elsewhere so as to assure reasonable

further progress (RFP) toward

attainment and a net air quality benefit

(see section 173(1) of the Act; 40 CFR

51.165(a)(2) (formerly 40 CFR 51.18(j)(2)),

40 CFR Part 51, Appendix S (known as

the "Offset Ruling"), Section IV.A).3 The

relevant regulations (40 CFR 51.165(a)

(formerly 40 CFR 51.18(j)) and the Offset

Ruling contain detailed criteria for

determining the creditability of

emissions reductions that come from the

permanent shutdown or curtailment of a

source. They allow a reduction from a

shutdown or curtailment that occurred

before the date of the preconstruction

permit application to be creditable only

if: (1) The curtailment occurred after

August 7 1977 and (2) the proposed

source is a replacement for the

productive capacity represented by the

proposed offset credit 4 (40 CFR

51.165(a)(3)(ii)(c) (formerly

51.18(j)(3)(ii)(c)) and 40 CFR Part 51,

Appendix S, Section IV.C.3 footnote 9).5

The stated purpose of this restriction

was "to ensure that an offset relates to

the current air quality problem *"

(see 44 FR 3280).6

In the CMA case, certain industry

petitioners challenged the restriction in

40 CFR 51.18(j) (now 40 CFR.61.165(a))

and the Offset Ruling, claiming that EPA

violated the intent of Congress and

acted arbitrarily and capriciously (see

Brief for Industry Petitioners on Source

Shutdown and Curtailment, February 12,

1981).

The August 25, 1983 Federal Register

document proposed deletion of the

restriction. The EPA's action was based

on its preliminary agreement with the

CMA case petitioners that section 173 of

the Act does not allow a restriction on

the creditability of offsets. The proposal

also agreed preliminarily that the

restriction is unnecessary and, therefore,

undesirable. The EPA also proposed to

change the cutoff dates in the provisions

from August 7 1977 to "a reasonable

date specified in the plan, in the case of

3 The Offset Ruling currently applies in only a

few circumstances. in general, the construction

moratorium, or preconstruction review programs

approved as meeting the requirements of section

173, as set forth in 40 CFR 51.165(a), have

supplanted it.

This provision first appeared in the original

Offset Ruling, 41 FR 55529 (December 21, 1976). The

EPA repromulgated it, with some refinement, when

it revised the Offset Ruling in January 1979 (44 FR

3284]. It was included in 40 CFR 51.18(j) (now 40

CFR 51.165(a)) (see 45 FR 52672, August 7. 1980].

5 The regulations also provide that reduction

from shutdown or curtailment that occurs after the

date of application is creditable only if: (1) the work

force has been notified of the shutdown or

curtailment, and (2] the shutdown or curtailment is

federally enforceable (40 CFR 51.185(a](3)(ii) (c] and

(e); Appendix 5. Section IV.C.3}.

In September 1980, EPA declined to revise the

restriction in the Offset Ruling in response to

comments opposing it (see 45 FR 59876-77).

40 CFR 51.18 (now Subpart I) and to the

date of original promulgation of the

Offset Ruling (December 21, 1976).

Finally, EPA proposed to delete the

restriction that relates to notification of

the work force (48 FR 38751-52).

2. Comments Supporting the Proposal

This issue attracted the greatest

number of comments, although many

were quite similar. Industry in southern

California expressed special interest in

this topic. Comments received on EPA's

separate notice regarding the possible

uses of shutdown credits for bubbles

under EPA's Emissions Trading Policy

Statement (ETPS) (48 FR 39580, August

31, 1983) were also taken into account in

the present rulemaking. A great majority

of the commenters supported the

proposal in whole or in part.

a. Restriction of Credits to

Replacement Facilities. Several of the

commenters stated that this restriction

violates section 173 of the Act and is

arbitrary. One industry commenter

explained that the existing rule infringes

on the authority of a State to make

growth management decisions, and that

a State's internal growth decisions must

be approved by EPA under sections 172

and 173 if RFP and attainment are

assured. Moreover, this commenter

claimed that the existing provision is

arbitrary, since there is no rational basis

to distinguish emissions reductions

achieved by shutdowns and

curtailments from emissions reductions

achieved by other means.

The bulk of the comments stressed the

practical need to allow this potential

avenue for offset credits. Many of these

commenters noted that industries in

nonattamment areas find it difficult to

obtain emissions reduction credits to

use as offsets, since sources in those

areas are already subject to rigorous

pollution control requirements. In

particular, they claimed that allowing

credit for past shutdowns and

curtailments is the only hope for

continued growth and the replacement

of older, more polluting facilities with

newer, better controlled facilities in

southern California. A local air pollution

authority supported this contention by

stating that it already requires the

highest level of reasonably available

control technology (RACT), and there is

no reasonable opportunity for proposed

sources to get credit from improved

control by existing sources. Practically,

therefore, all credits banked in the

district are the result of shutdowns or

curtailments. Thus, unless EPA's

proposal is adopted, emission "banks"

could be without assets available for

new source offsets, which would

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adversely affect even the best controlled

growth, employment, and the value of

the emissions reduction credits already

filed by over 100 companies. Several

projects were described that would be

adversely affected by retention of the

restriction on offset credits.

Some of the supporting commenters

argued that since air pollution agencies

must require a greater than one-to-one

ratio in crediting past reductions to

proposed increases in emissions, trading

(including credit for prior shutdowns

and curtailments) should be encouraged

since every time there is a trade, a net

air quality benefit results. In this view,

the ability to trade serves the Act's air

quality purposes, since it provides an

incentive for industries to look for ways

to reduce emissions and, in particular, to

replace old polluting facilities with

newer and cleaner ones.

One commenter opposed discounting

of offsets from prior source shutdowns

but stated that, if EPA feels it necessary

to require special discounting of such

credits to achieve ambient standards in

severe nonattainment areas, then the

definition of "shutdown" should refer to

only an "entire plant, rather than to

specific equipment, thus allowing

sources some flexibility and consequent

economic benefit.

One air pollution control agency

addressed the issue of credit from prior

shutdowns or curtailments in

nonattainment areas without a

demonstration of attainment and stated

that EPA should allow such credits but

set certain additional conditions on their

use. These conditions should be, it

continued, that such emissions

reductions: (1) Not be double-counted,

(2) be discounted at a greater than oneto-one ratio, and (3) not be used to "net

out" of best available control

technology. The EPA was also urged to

define "shutdown" as removal from

service of an individual piece of

equipment, a process line, or an entire

plant. This commenter stated further

that EPA should not include

replacement of an individual piece of

equipment, or relocation of equipment

without modification to a nearby

noncontiguous property, in the definition

of "shutdown. This commenter stated

EPA should also not consider the motive

for the shutdown, which is subjective

and would be difficult to discern.

Another air pollution control agency

also supported the proposal, but was

concerned over potential double

counting. To prevent abuses, this

commenter advised that a person

creating an emissions reduction credit

from a shutdown of equipment later be

required to offset emissions increases, at

least equal to the amount of the

emissions credit, from similar types of

new or modified major or nonmajor

equipment.

b. Time Limitations. Arguing that the

use of shutdown credits promotes RFP

toward attainment of the Act's goals by

securing more reductions than increases

and by facilitating the replacement of

old, dirty facilities with new, clean ones,

and given the great need for offsets by

companies in nonattainment areas who

seek to modernize or expand, several

commenters stated that there should be

no time limitations on the use of credits,

as long as the State is not explicitly

taking credit for the shutdown in its

applicable air quality plan. Some of

these commenters stated that, at a

minimum, all credits for shutdowns and

curtailments occurring after December

21, 1976 should be allowed.

Two other commenters stated they

had no objection to the "reasonable

date" time limitation in 40 CFR 51.18(j)

(now 40 CFR 51.165(a)), or to the

proposed December 21, 1976 date for

offsets, since both those proposals are

consistent with the CMA settlement

agreement. Both commenters stated,

however, that they favor the removal of

any time limitation in order to provide

flexibility, so long as a State did not

take that shutdown or curtailment credit

into account when formulating its

attainment plan. Other commenters

supported the December 21, 1976 cutoff

date.

Commenters from local air pollution

control agencies also suggested

alternative cutoff dates, generally based

on the year a State established an

emissions inventory for purposes of

preparing its plan for attainment. For

example, one local authority stated that

the proper baseline date for crediting an

offset is that of the SIP base year

inventory. A group of local agencies

recommended: (1) That EPA specify an

appropriate baseline date from which

State and local agencies can compute

shutdown credits on grounds that any

credits from plant closings should not be

open-ended, and (2) that any benefits

from the shutdowns should compensate

directly those citizens in the community

where the shutdown occurred. Another

local control group suggested that the

cutoff date should be related to the date

of adoption of the local NSR rule.

Another commenter, in noting that the

December 21, 1976 cutoff date may be

reasonable, observed that there may

well be a "natural" limit to the date

which can be established, since even

process and fuel use records become

difficult to find as one goes back in time.

The best approach, the commenter

stated, is for the States to determine

what date is "reasonable based on

inventory information, enabling

legislation, or other criteria, and then

use this date for both 40 CFR 51.18(j)

(now 40 CFR 51.165(a)) and the Offset

Ruling.

State agencies asserted that a

baseline date should be established to

limit shutdown credits, but differed as to

the amount of State discretion that could

be used in setting such baseline dates.

One State control agency agreed that

EPA should allow the States to set a "reasonable" date for both the 40 CFR

51.18(j) and Offset Ruling credit

determinations. This agency and an

agency from another State specifically

recommended that the cutoff date be a

moving date, not earlier than 5 years

before the application date. They noted

that permitting authorities do not have

unlimited time to delve into past

records, if such records exist at all. A

different State control agency

maintained that the cutoff date should

be concurrent with the date of emissions

inventory, which would preclude a

windfall for sources that shut down

after an arbitrary date like August 7

1977 In no event, however, should the

cutoff date be before August 7 1977 the

State concluded. Another State group

noted that the requirements in sections

129 and 172 of the Act (that offsets

provide a net air quality benefit and not

interfere with RFP toward attainment)

would preclude the use of emissions

reductions for shutdowns before the

date of the baseline inventory on which

the nonattamment plan is based.

Finally, one commenter claimed that

businesses in nonattainment areas are

often advised by legal counsel to delay

installation of control equipment,

implementation of cleaner production

methods, or removal of older equipment

m order to preserve credit for the

company's own expansion or sale of the

credits to other businesses. This, the

commenter stated, is because the

existing EPA rule denies offsets for any

reduction m air pollution due to a

shutdown or curtailment occurring

before credit is applied for regarding

new construction.

c. Notification of the Work Force. The

several commenters who addressed

EPA's proposed deletion of the rule

regarding notification of the work force

supported it on the grounds that EPA

lacks statutory authority for this

requirement.

3. Comment Opposing the Proposal

The primary comment in opposition to

the proposal came from a coalition of

several environmental groups. Their

analysis is based on a fundamental

distinction between emissions

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reductions achieved through shutdowns

and curtailments and those achieved by

actually installing pollution controls.

They observed that sources have a

limited life and a natural cycle of

operation within that span, with the

older units often being used for a

relatively small portion of the time.

Since a company's plans regarding

capacity utilization and ultimate

retirement of the unit are generally not

public, a SIP of necessity, exaggerates

the emissions and longevity of many

sources in its emissions inventory. This

means that source owners may be able

to get inappropriately large "paper"

credits that would lead to actual

worsemng of air quality when used to

offset emissions from new sources that

would be operating at a higher capacity

utilization. These commenters also

asserted that the requirement, in section

172 of the Act, that attainment of the

standards be achieved "as expeditiously

as practicable, disallows crediting of

any noncontemporaneous shutdowns.

They contended that emissions

reductions due to such

noncontemporaneous shutdowns are "environmental windfalls" and, as the

current regulations provide, should not

be creditable for offsetting purposes.

Similarly, they opposed the proposed

change in cutoff dates for these credits

as a further expansion of windfall

credits.

4. EPA Analysis

After careful consideration of the

comments received and further analysis

of the issues involved, EPA has decided

to promulgate the proposed elimination

of the restriction on the use of prior

shutdown credits for offset purposes

only where the SIP contains an

approved attainment demonstration.

The EPA is retaining the current

restrictions on crediting, for offset

purposes, emissions reductions

attributable to the prior shutdown or

curtailment of an existing source in

those nonattainment areas for which

there is not an approved demonstration

of attainment of the NAAQS. In

addition, EPA is adding certain

safeguards to assure that prior

shutdown credits, where they are

allowed, are consistent with the area's

SIP

The EPA believes that this decision to

relax the current regulations comports

with congressional intent regarding the

offset program. However, as a

preliminary matter, it is appropriate to

point out that the Act does not expressly

mandate any particular treatment of

shutdowns for offset crediting purposes.

Rather, this question is a matter within

the administrative discretion delegated

to EPA under the Act. In Chevron,

US.A. Inc. v. NRDC, Inc., 467 U.S. 837

(1984), the Supreme Court reaffirmed

that Congress intended to grant EPA

broad discretionary authority in

implementing the 1977 Amendments to

the Act..This discretion extends to rules

implementing the nonattainment plan

provisions in Part D generally and, ui

particular, the offset program in section

173. (Indeed, Congress made an explicit

delegation by incorporating the Offset

Ruling, and authorizing EPA to amend it,

in an uncodified provision of the 1977

Amendments o the Act (section 129 of

Pub. L. 95-95), 42 U.S.C. 7502 Note.)

Thus, although it is true, as noted in the

proposed regulations, that section 173

requires EPA to allow the construction

of new sources in nonattainment areas

where such construction will be

consistent with RFP toward attainment,

EPA retains broad discretion to

establish criteria for determining when

RFP has been assured. In this regard,

EPA believes that it is certainly a

reasonable exercise of its discretion to

distinguish between the showing

necessary to represent RFP where there

is an attainment demonstration and the

showing needed where an attainment

demonstration is lacking. In the latter

situation, EPA can properly require

greater assurances that offset

transactions will result in the

improvement of air quality. The final

rules reflect this position.

The essence of the Act's offset

provision is that a new source may be

allowed in a nonattainment area only

where its presence would be consistent

with RFP toward attainment of the

NAAQS. The EPA's primary concern in

this regard is that State plans provide

reliable assurance of steady

improvement in air quality and

attainment by the target dates. Thus,

where a fully approved SIP

demonstrates RFP and attainment, it is

appropriate to grant that State maximum

flexibility in its nonattainment plan,

under section 173, within the constraint

that the demonstration not be

invalidated. By definition, any fully

approved SIP has independently assured

RFP and attainment. Therefore, allowing

credit for the prior shutdown of sources

which the SIP assumed are currently in

operation generally is appropriate in this

context, because it will not endanger the

overall showing of RFP and attainment.

Of course, this independent assurance

would be lacking to the extent that the

SIP has relied on such prior shutdowns

in its attainment demonstration, or to

the extent that the emissions reductions

attributable to the prior shutdowns

cannot reasonably be ascertained.

Following these principles, EPA has

concluded that, so long as adequate

safeguards are in place to prevent

possible abuses (e.g., provisions to avoid

double counting and ensure proper

quantification of credits), it is no longer

necessary to restrict shutdown credits

under a fully approved SIP in the

manner currently provided by 40 CFR

51.165(a)(3)(ii)(c) and the Offset Ruling

(40 CFR Part 51, Appendix S, section

IV.A). In contrast, where a SIP at this

late date, lacks an approved attainment

demonstration, EPA has a responsibility

under sections 110(a)(2)(I), 172(a)(1), and

173(1)(A) to disallow offset transactions

that do not clearly demonstrate RFP

toward timely attainment. The EPA has

concluded that, where an attainment

demonstration is lacking, retention of

the current shutdown credit restriction

on offset transactions is necessary both

to assure RFP and to guarantee that a

new source does not cause or contribute

to a violation of the NAAQS.

At the outset, EPA should point out

that the nonattainment areas requiring

but lacking attainment demonstrations,

which are at the center of EPA's current

concern regarding the shutdown credit

issue, were not specifically addressed in

the proposed rule. The August 1983

proposal assumedthat, in-general,

nonattainment areas would either be

governed by a preconstruction review

.program approved as meeting the

.requirements of section 173 (i.e., where

there was an approved demonstration of

attainment), or be subject to a

construction moratorium under section

110(a)(2)(I) (i.e., where there was no

such demonstration) (see 48 FR 38742,

38751 and n. 23). In fact, there are

currently several categories of SIP's,

listed below, which have neither fully

-demonstrated attainment nor are

currently subject to a construction

moratorium. It is these areas which, for

the reasons detailed below, must remain

subject to the shutdown credit

restriction.

As noted previously, the essence of

the offset program is to ensure that

additional emissions from a new source

will be offset by corresponding

reductions elsewhere so as to result in

RFP toward attainment. Although

neither the Act itself nor the legislative

history is explicit regarding the source

of these offsetting emissions reductions,

it seems clear that Congress

contemplated a relatively well-defined

transactional relationship between the

existing offsetting source(s) and the new

source. Thus, the Senate Report on the

1977 Amendments emphasized that the

offset program was meant to entail a

case-by-case reviewi in which a new

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source would obtain "matching

reductions from existing sources (S.

Rep. No. 127 95th Cong., 1st. Sess. 55,

reprinted in "3 Legislative History of the

Clean Air Act Amendments of 1977 at

1429). Certainly, this transactional

approach has been followed since EPA's

original 1976 Offset Ruling, which

Congress did not alter in pertinent part

when it enacted Part D. At one extreme

under the current rules, the new source

may actively and directly induce

specific emissions reductions, such as

by causing an existing source to install

control equipment not otherwise

required under the Act, or by replacing

its own existing facilities with newer,

cleaner facilities. A somewhat more

attenuated market relationship is

present when an existing source

voluntarily installs pollution controls to

reduce emissions below legally required

levels and places the surplus in a

"bank" from which that surplus is later

purchased by a prospective new source

needing offsets. Toward the other

extreme, there is a temporal relationship

between a new source which applies for

a construction permit on a certain date,

and unrelated existing sources which

shut down or curtail operations after

that date.

The 1977 Amendments sought to

reconcile the need for economic growth

in nonattainment areas and the

environmental interest in improving air

quality in those same areas by granting

States greater flexibility in

accommodating these often conflicting

goals (see H. R. Rep. No. 294, 95th Cong.,

1st Sess. 211, reprinted in "4 Legislative

History of the Clean Air Act

Amendments of 1977 at 2678).

Recognizing this congressional direction,

EPA has taken affirmative steps to

encourage early replacement of existing,

dirtier sources with newer, cleaner ones

without requiring NSR when there

would be no significant net increase in

emissions as a result of that change.

Examples include EPA's decision to

allow States to adopt a "plantwide"

definition of "source" for purposes of

the preconstruction review program in

nonattainment areas where it is

consistent with RFP and attainment (see

46 FR 5076 (1981). The Supreme Court

upheld this approach in Chevron, US.A.,

Inc. v. NRDC, Inc., 407 U.S. 837 (1984).

As noted above, several industry

commenters likewise favored

elimination of the prior shutdown offset

credit restriction on grounds that the

present rules discourage early

replacement of older, dirtier facilities.

The EPA agrees with the general thrust

of this proposition-that the offset rules

should encourage construction of new

sources, so long as there is a linkage to

the removal from service of older and

dirtier sources, and that such removal

results in progress toward attainment.

Indeed, the purpose of the present offset

rules is to allow offset credit for prior

shutdowns in those circumstances

where EPA has a reasonable assurance

that the shutdown is sufficiently "matched" with the.new source, such

that use of the offset credit can be said

to represent RFP Similarly, for the

reasons stated above, where a SIP

contains an adequate demonstration of

attainment-and hence an independent

assurance of RFP-EPA has determined

that a significantly more attenuated link

between a prior shutdown and the

construction of a new source may be

sufficient to constitute RFP and thus the

prior shutdown credit restriction may be

deleted. However, with respect to those

areas without the attainment

demonstration mandated by section

172(a)(1), and therefore no independent

assurance of RFP EPA has concluded

that it remains inappropriate, under the

present NSR structure, to attribute

preapplication shutdowns to the

construction of an unrelated new source

for offset purposes. The EPA believes

that this is a reasonable basis upon

which to distinguish the creditability of

prior shutdowns and offsets generated

by other means.

The restriction on crediting of prior

shutdowns for NSR offset purposes in

areas without adequate plans rests on

logic similar to the logic reflected in

EPA's Emissions Trading Policy

Statement, which governs trades

between existing sources (i.e., bubbles)

(see generally 51 FR 43814-43860,

December 4, 1986). In the ETPS, EPA

decided to allow, with stringent

qualitative safeguards, the use of

shutdown credits for bubbles with caseby-case EPA approval as a SIP revision,

or under generically approved State

programs in areas lacking approved

attainment demonstrations, so long as

the shutdown of a source occurred after

its application to bank or trade, special

baseline and extra reduction

requirements were met, and the State

gave assurances of noninterference with

future SIP planning. The EPA concluded

that it was j5lausible to presume that

such a source's decision to shut down

was elicited "at least in part" by an

opportunity to trade or bank emissions

reduction credits (see 51 FR 43822).

Thus, m the ETPS, EPA did not pretend

that it had divined an unvarying,

dominant economic motive behind all

existing source trades involving

shutdowns, but rather that it had

resolved a close question in a generic

fashion as a practical necessity (see 51

FR 43811). Applying a presumption as to

transactional relationship under both

NSR and the ETPS is a reasonable

accommodation, administratively

necessary to avoid extraordinarily

difficult, case-by-case determinations of

subjective motive.

However, EPA also believes it is

reasonable to continue on somewhat

different paths to these common goals of

NSR and emissions trading given the

longstanding distinctions between the

two programs. For example, in

emissions trading, EPA presumes that

even shutdowns occurring before an

application to trade were elicited by an

opportunity to trade if they occurred

after an application to bank. Any doubts

about that presumption are

compensated for by other program-wide

safeguards. These include the

requirements that all trades under

generic programs in nonattainment

areas without adequate plans-not just

those trades involving banking or

shutdowns-use a very stringent

baseline, produce a net reduction m

actual emissions of at least 20 percent,

and be accompanied by State

assurances that a trade is consistent

with ambient progress and future air

quality planning goals (see 51 FR 43832).

For NSR offset purposes, EPA has

presumed that shutdowns banked prior

to a new source application are not

transactionally related to the new

source, but EPA historically has not

required a lower-of-actual-or-allowable

baseline, an across-the-board minimum

offset ratio, or State assurances for

offset transactions generally.

Nothing in the Act requires that

emissions trading and NSR programs

treat shutdown credits or other credits

in precisely the same way. Moreover,

revamping the longstanding NSR offsets

system to incorporate all of the

provisions of the ETPS would be a timeconsuming and burdensome process.

Accordingly, issuance of the ETPS

does not, as the ETPS itself indicated,

force EPA to abandon the longstanding

restriction on use of shutdown offset

credits in areas without adequate

plans.7 Likewise, the ETPS does not

independently require EPA to adopt a

uniformly tighter baseline, a minimum 20

percent reduction in emissions, or a

State assurance provision in its NSR

program as a general matter. The end

result is that EPA has rationally chosen

different administrative mechanisms

which it believes will serve equally well

In adopting the ETPS, EPA noted that nothing

therein altered existing NSR requirements or the

need for compliance with them (see 51 FR 43831).

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the statutory goals of RFP and

attainment.

An additional consideration in this

regard is EPA's developing program to

address the failure of many metropolitan

areas to meet the December 31, 1987

attainment date for ozone and carbon

monoxide, which is the latest one

specified in the Act. On November 24,

1987 EPA published a comprehensive

proposed policy that spells out, in detail,

the planning requirements that EPA

expects to impose on areas that still lack

adequate plans for attainment, or have

otherwise failed to meet the NAAQS

(see 52 FR 45044). Although EPA has not

yet issued a final policy, in May 1988,

the Agency issued notices that the SIP's

for numerous areas are "substantially

inadequate" within the meaning of

section 110(a)(2)(H) of the Act. The

notices call for SIP revisions in those

areas, so that States will begin the

fundamental activities necessary to

make progress toward attainment of the

ozone and carbon monoxide NAAQS

(see 53 FR 20722, 20724 (June 6,1988)].

Although the final contours of EPA's

post-1987 policy have not been drawn, it

is clear that many States will face

substantial planning burdens and the

need to adopt additional control

measures for the areas in question.

Under these circumstances, EPA

believes it would be inappropriate even

to hold out the possibility that States

could obtain approval at this time for

expanded use of shutdown offset credits

in areas with inadequate plans. In light

of the continued severe ozone and CO

nonattainment m many metropolitan

areas beyond the 1987 statutory

deadline, any such approval would need

to be conditioned on the adoption of

safeguards at least as stringent as those

now required for approval of generic

bubble rules under the ETPS.s But it is

doubtful that affected States could

provide, for example, the necessary

assurances that prior shutdown offset

credits would be consistent with

ambient progress and future air quality

planning goals. In particular, EPA could

not approve a general relaxation on the

current restriction on the use of prior

shutdown offsets until, at a minmunum, a

State has completed a draft emissions

inventory, which is required within 12

months of the SIP call (see 52 FR 45056.

This is so because, if the State lacks an

approved attainment plan, the absence

State generic bubble rules under the ETPS and

State offset rules under NSR are structurally similar

because, in both programs, EPA reviews and

approves the rules governing the overall conduct of

such programs by the States indefinitely into the

future but does not pass judgment on individual

transactions which these programs share.

of an emissions inventory means that

EPA has no assurance that use of prior

shutdown offset credits for an indefinite

period of time, without further review by

EPA, would be consistent with further

SIP planning for attainment. (For the

same reason, the State would be unable

to determine whether a 20 percent net

reduction in emissions or some larger

percent reduction wo-uld be consistent

with that needed to attain in the area.) 9

The final factor in today's decision is

that the possibility that elimination of

the shutdown credit restriction would

serve to encourage economic growth

and early cleanup is insufficient to

justify a radical departure from the

present NSR offset rules in

nonattainment areas lacking adequate

attainment demonstrations. In contrast

to situations where a new source is

responsible for the installation of

additional control equipment by an

existing source, or where an existing

source replaces an old item of process

equipment with a newer one, the

relationship between the prior shutdown

of an existing source and the later

construction of an unrelated new source

is not obvious. In an August 31, 1983,

Federal Register notice, EPA solicited

comments on the issue of whether the

restriction on shutdown crediting

induced sources to keep older, dirtier

facilities on line beyond their

economically optimum period of use in

order to preserve potential emissions

reduction credits (48 FR 39585). No

definitive evidence that such is the case

was received. In the absence of such

evidence, EPA is not compelled to adopt

this change in areas lacking adequate

attainment demonstrations.

Accordingly, at this time EPA is

retaining the offset restrictions on

shutdowns which occurred pror to the

date of the construction permit

application where there is no adequate

attainment demonstration. The EPA

believes it is reasonable to deem that

postapplication shutdowns may be

transactionally linked to the new source

for purposes of demonstrating RFP

under the NSR offset requirement.

Conversely, a preapplication shutdown

(other than a replacement) can

reasonably be viewed as insufficiently

related to the new source, and therefore

It should be noted that State rules may at the

present time allow sources to preserve prior

shutdown credits for future use at such time as an attainment demonstration has been approved by

EPA, provided that the emissions inventory used in

the development of the approved attainment

demonstration explicitly includes as current "existing" emissions the emissions from the

previously shutdown sources. In addition, the

emissions reductions from such shutdown sources must be permanent, quantifiable, and federally

enforceable at the time of use.

unavailable for purposes of

demonstrating that the net result of

construction of the new source is RFP in

those nonattainment areas lacking an

adequate independent demonstration of

RFP and timely attainment.

The EPA believes that this position

comports with congressional intent

regarding the proper role of the offset

program. Moreover, EPA believes that

this position is generally consistent with

requirements for bubbles under the

ETPS, taking into account the different

history and functions of these programs.

It is also consistent with EPA's emerging

post-1987 nonattainment policy. Finally,

EPA's position follows the

recommendation of many pollution

control agencies by avoiding the difficult

and intrusive task of determining a

source's subjective motive for shutting

down or curtailing production.

The EPA wishes to clarify the four

types of planning circumstances in

which EPA considers the SIP to be

inadequate and will continue to restrict

offset credits for prior shutdowns. In all

but the following situations, EPA will

consider the SIP to contain an

acceptable attainment demonstration

and will allow the general offsetting use

of prior source shutdowns, provided all

other criteria regarding creditable

emissions reductions are met:

a. The total'suspended particulates

(TSP) areas that are designated

nonattainment under section 107 in

States which failed to submit a 1979 Part

D attainment demonstration or

submitted one. that did not receive full

EPA approval. This also includes both

primary and secondary TSP

nonattamment areas that submitted a

SIP that did not include an actual

demonstration of attainment but still

received EPA approval (e.g., a "RACT

plus studies" SIP). Although EPA has

changed the NAAQS indicator for

particulate matter from TSP to

particulate matter nominally 10 microns

and less (PM1o), the TSP nonattainment

designations will remain in place at

least until a State receives EPA

approval of its PMo attainment plan.

Until such time, State NSR provisions

requiring compliance with the old TSP

requirements-including offsetsremain in effect (see 52 FR 24672, 24682,

and 24684).

b. Nonattainment areas that have

received a final notice of disapproval of

their current SIP

c. Nonattainment areas that have

received either a section 110(a}(2)(H)

notice of deficiency based on failure to

attain or maintain the primary NAAQS,

or a notice of failure to implement an

approved SIP This includes newly

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designated primary nonattamment areas

that do not yet have an EPA-approved

attainment demonstration to address the

new-found nonattamment problem.

d. Nonattainment areas that received

notice from EPA that they have failed to

meet conditions in their EPA-approved

SIP's, including commitments to adopt

particular regulations by specified dates.

There may be circumstances where,

subsequent to the submittal of a

complete permit application wuch relies

on a specific prior shutdown or

curtailment which is otherwise

creditable, the SIP's attainment

demonstration is no longer considered

adequate for one of the four reasons

outlined above. In such cases, the

criteria for crediting prior source

shutdowns in areas with an acceptable

demonstration will continue to apply to

the processing of the permit

Regarding the comments pertaining to

the proper definition of shutdown for

offsetting purposes, EPA wishes to

clarify that where the prior shutdown

restrictions remain in place, "source

shutdown" refers to the permanent

withdrawal from productive capacity of

any building, structure, facility,

installation, item of process equipment,

or comihmation thereof. This

nontechnical definition of the potential

sources of offset credits has been

followed by EPA since adoption of the

original Offset Ruling, and clearly

comports with the purpose of the offset

program. The EPA did not intend to alter

its policy in October 1981 (see 46 FR

50766), when EPA adopted a "plantwide" definition of "source" for

determimng the overall applicability of

the NSR requirements.

With respect to the question of

discounting of shutdown offsets, EPA's

position is that where offset credit for

shutdowns is appropriate, such credits

may be treated in the same fashion as

any other type of emissions reduction.

Thus, shutdown offset credits continue

to be subject to any general offset ratio

specified in an, applicable SIP unless the

State in its discretion establishes a

different ratio for such credits, and are

not subject to the special baseline,

across-the-board 20 percent net

emissions reduction, or State assurance

requirements applicable to "progress"

bubbles under EPA's ETPS.

Regarding time limitations, the EPA

agrees with the reasoning of those

commenters who favored removal of

inflexible nationwide time limitations on

the crediting of prior shutdowns.

However, EPA does not concur that time

limitations are wholly unnecessary, so

long as a State has not explicitly taken

credit for the shutdown in its SIP

Rather, some limitations must be

retained to provide adequate assurance

for air quality planning and

administrative reasons that shutdown

credits are allowed only where they

will, in fact, result in RFP.

As noted by several States and local

air pollution control agencies,

shutdowns. which occurred prior to a

State's establishment of the emissions

inventory used in its attainment

demonstration should not be available

as credit. In general, States have at least

implicitly taken account of all such

preinventory shutdowns and

curtailments in their nonattainment

plans. It would constitute "double

counting" of these emissions reductions

to allow their unrestrcted use as

shutdown offset credits by potential'

new sources. Accordingly, emissions

from a new source whose construction

is premised upon such shutdowns

cannot reliably be said to be consistent

with RFP unless the emissions

inventory explicitly treats the emissions

from the shutdown, source as current

actual emissions.

The EPA believes that the final rule

should also reflect the concerns of State

commenters who pointed to a range of

practical, difficulties in verifying the

existence and extent of past emissions

reductions. Accordingly. in order to

afford individual States maximumflexibility, white ensuring that prior

shutdown credits will result in RFP the

final rule in Subpart I provides that the

time limit for-use of shutdown credits

may be any reasonable cutoff date after

August 7 1977 as specified in the SIP, so

long as that date is on or after the date

of the most recent emissions inventory

used in the plan's EPA-approved

demonstration of attainment, In

addition, where the emissions inventory

explicitly lists the emissions from a

previously shut down or curtailed

source as still existing, the State may

choose to allow such emissions for

offset credit purposes. The Offset Ruling

has been revised to contain the same

cutoff date provisions as Subpart I. In

addition. the final rules provide that, in

order to, be creditable, prior shutdowns

must be permanent, quantifiable andi

federally enforceable when used.

The final rules also promulgate the

proposed deletion of the work force

notification provision. This requirement

served no purpose in assuring

attainment of the NAAQS and, thus, its

retention would be inappropriate.

E. Banking, of Offsets

1. Background

The current Offset Ruling contains a

provision, subparagraph W.C.5., which

affirms that a permitting authority may

give credit under the Offset Ruling for

past "banked" reductions and which

sets some boundaries on the

circumstances under which it may grant

this credit. The third and last sentences

of that subparagraph also contain,

guidance on the approvability, under

section 173, of a permit program that

would give credit for "banked" offsets.

Since adding that guidance to the Offset

Ruling in January 1979, EPA has issued

regulatory guidance on banking for

purposes of nonattainment NSR in the

form of § 51.165(a)(3) (formerly

§ 51.18j)l3Jj and policy guidance in the

form of the ETPS (51 FR 43814,

December 4, 1986. This newer guidance

renders the gudance in the Offset

Ruling superfluous. To avoid confusion,

EPA proposed to delete the third and

last sentences.

2. Public Comment

Comment on this issue was limited'

but generally favorable.. Several

commenters supported what they

termed "the removal of artificial

distinctions against the use of shutdown

emissions," noting that crediting of such

emissions was very important,

especially in California, where

shutdowns are the only area source of

emissions credit. Others agreed with

EPA's proposal to eliminate the banking

guidance in the Offset Ruling in favor of

more recent guidance in the ETPS.

One State agency opposed the

proposed' deletion of the two provisions

in the Offset Ruling because, until the

final ETPS is promulgated, there would

be no official regulatory replacement of'

these limitations on abuse of emissions

reduction credits. Finally, one

commenter stated that the ETPS should

be combined with a formal emissions

banking and trading program, subject to

notice and public comment, in, order to

reduce confusion and provide the

maximum flexibility in the use of

credits.

3. EPA Analysis

The EPA is today deleting the subject

provisions, as proposed. They are

unnecessary in view, of the ETPS

F Health and Welfare Equivalence

1. Background

The five sets of PSD and

nonattainment NSR regulations define

"major modification,- roughly, as any

change at a major source that would

result in a "significant net emissions

increase" in any one of certain

pollutants. "Net emissions increase, in

turn, is defined as the amount by which

the sum of: (1,) The increase in emissions

from the proposed change, and (2) any

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creditable increases and decreases

elsewhere at the source would exceed

zero (e.g., 40 CFR 52.21(b)(3)(i)). This

process of summing increases and

decreases in emissions in order to avoid

NSR is commonly referred to as "netting. The regulations restrict the

creditability of some decreases in

emissions. One provision, in particular,

allows credit for a reduction only to the

extent that it has approximately the

same qualitative significance for public health and welfare as the increase from

the proposed change (e.g., id.

§ 52.21(b)(3)(vi)(c)). Examples of specific

concerns are variations in pollutant

carcinogenicity and volatile organic compounds (VOC) reactivity, and in air

quality impact as a result of different

stack heights.

Several of the industry petitioners in

the CMA case have challenged that

restriction on the creditability of

emissions reductions. The basis of this

argument is that the relevant statutory

definition of "modification, section

111(a)(4) of the Act, includes any change "which increases the amount of any air

pollutant emitted. *" This reference

to "amount" is argued to mean that the

definition only applies to the quantity of

air pollutants, by weight, rather than to

any qualitative criteria regarding

amount of impact, such as toxicity or

impact area. The EPA proposed to

delete this requirement on those

grounds, stating that NSR of

modifications primarily is triggered by

quantitative increases in emissions and,

therefore, it lacks authority to limit

netting credits based on purely

qualitative reasons. In addition, the

proposal concluded that, even if EPA

did have authority to impose this

restriction, it could not do so because

the wording is unlawfully vague.

In conjunction with the issue of health

and welfare equivalence, EPA proposed

to exclude certain compounds from the

term VOC's as that term is used in the

PSD and nonattamment regulations,

because EPA has determined them to be

negligibly photochemically reactive and,

hence, not precursors of ozone.

2. Public Comment on Health and

Welfare Equivalence

a. Comments Generally Favoring the

Proposal. Industry commenters

generally supported the proposal. Some

stated that there is no reason to

differentiate between types of emissions

which contribute to ambient levels of a

criteria pollutant. For example, all

reductions in particulate matter

emissions help to attain the TSP

standard. Consequently, if EPA's

concern is with fine particulates, it

should directly address them in a

rulemaking. Similarly, these commenters

stated, mechanisms from other

programs-such as RACT, NSPS, and

national emission standards for

hazardous air pollutants (NESHAP)-

exist to address toxic pollutants

directly. Some commenters also

criticized the restriction as vague and

potentially burdensome if case-by-case

analyses were required. One State air

quality program added that it has

authority to ban netting in any case

where such could cause hazardous

emissions problems.

b. Comments Generally Opposing the

Proposal. Several commenters

representing State air quality programs

opposed the proposal, arguing that it

should be the quality, not merely the

quantity, of emissions that determine

creditability for netting purposes. If this

were not the case, trades could proceed that allowed increases in toxic

pollutants in place of criteria pollutants,

or between large and small particulate

emissions, even though there would be a

significantly greater adverse effect on

public health and welfare.

A Federal agency noted that the

rerouting of fugitive emissions through a

stack to achieve a net decrease in

emissions could still cause greater ambient concentrations of a pollutant

further downwind, such as at a national

park. Since a PSD applicant would

thereby avoid having to demonstrate a

lack of adverse impact on such a

downwind Class I area, the FLM's

ability to exercise his affirmative

responsibility to protect air quality- related values would be impaired.

Therefore, the only creditable emissions

decreases should be those for which

points of emissions have the same

emissions characteristics, and the FLM

should be notified if a Class I area

would be potentially affected by

emissions from a source modified

through such netting. An environmental group stated that

the Alabama Power Company v. Castle

case, contrary to EPA's assertion in the

proposal, provides no authority against

a health and welfare equivalency

criterion since no party raised this

question in the litigation, and the court

had no occasion to address it. The

language from the court opinion which

EPA quotes is, therefore, simply not

relevant.

3. Public Comment on Exclusion of

Nonreactive VOCs.

a. Comments Generally Favoring the

EPA'Proposal Several commenters

supported EPA's decision to-exclude

certain compounds from the term VOC's

as that term is used in the PSD and

nonattainment regulations. A petroleum

company urged EPA to also delete

propane, acetone, methanol, acetylene,

and teftiary alkyl alcohols from the

definition, arguing that these compounds

are also nonreactive. A manufacturing

company urged EPA to delete

fluorinated organic compounds (citing

an EPA letter that such substances were

negligibly photochemically reactive); a

chemical company urged EPA to delete

tetrachloroethylene (citing an EPA

report); and a trade association urged

EPA to clarify that other nonreactive

VOC's may, in the future, be added to

the present list as soon as they are

shown not to be precursors of ozone.

One commenter, although supporting

the EPA proposal, urged that the new

definition of VOC not be retroactive to

previous applicability determinations or

emissions banking determinations, since

this would create an administrative

nightmare and change the basic

principles under which industry has

been operating.

b. Comments Generally Opposing the

EPA Proposal. A local air quality

program opposed the proposed

definition of VOC unless EPA institutes

measures to consider the compounds

deleted from the definition under

separate provisions of the Act. That

commenter noted that these compounds

are a potential public health hazard.

Another commenter stated that the

proposed exclusions from the VOC

definition were shortsighted since a

number of the substances to be deleted

are candidates for listing under section

112. The commenter stated that the

effect of the proposal would be to

encourage greater use of these

substances which may in the future

have to be regulated more tightly than

the average hydrocarbon.

4. EPA Analysis

Upon consideration of the public

comments and of its duties and

authority under the Act, EPA has

decided to retain the current regulation

allowing netting credit for a reduction in

emissions only to the extent that the

reduction has "approximately the same

qualitative significance for public health

and welfare" as the proposed emissions

increase. However, as explained below,

today's action clarifies that the

implementation of this regulation is

temporarily limited in certain ways,

described below, pending further

improvements in EPA's ability to assess

qualitative differences in the effects,

including toxic effects, of pollutants that

are similar in quantity.

In view of substantial arguments on

both sides of the health and welfare

issue, EPA has reassessed the question

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of EPA's authority to promulgate this

regulation. The EPA has concluded that

congressional intent behind the

adoption of section 111(a)(4) to guide the

definition of "modification' for NSR

purposes is ambiguous, and that EPA

possesses adequate authority to

maintain the health and welfare

requirement.

Industry commenters have urged EPA

to strictly construe the operative phrase

"* which increases the amount of

any air pollutant emitted *" so as to

exclude consideration of qualitative

impacts. However, although strict

construction might require exclusive

focus on the amount of pollution, it

would also demand close adherence to

the "any air pollutant" portion of the

definition. This could lead to anomalous

results that no party has sought, and

which would not further the statutory

purposes of the Act.. This is because

section 302(g) defines "air pollutant"

very broadly to include:

Any air pollutant agent or combination of

such agents, including any physical,

chemical, biological. radioactive tincluding source material, special nuclear material, and

by-product material) substance or matter

which is emitted into or otherwise enters the

ambient air.

However, under the PSD program, EPA,

to date, has equated "any air pollutant"

with pollutants "subject to regulation

under (the Act)" as that term is used in

section 165(a)(3). In contrast, in the

"NSPS" program from which the

definition is borrowed, EPA has

consistently treated "any air pollutant"

as referring only to those pollutants for

which a performance standard has been

promulgated under section Ill for the

specific source category in question.

Thus, a strict reading of section

111(a)(4), together with section 302(g),

might require vastly expanded

regulation, under both the NSPS and

NSR provisions of the Act, of any air

pollutant, including discrete subspecies

of criteria pollutants, regardless of

whether such pollutant is otherwise

regulated under the Art or the program

in question. In the context of NSR

netting calculations, such a reading

would require that netting be strictly

quantitative by focusing on the amounts

of individual air pollutant agents, yet be

qualitative in nature by allowing only

netting of air pollutant agents of the

same type.

There is no indication that Congress

required EPA to administer the Act in

this fashion. Rather, EPA believes that

there is an, inherent tension between the

statutory terms "amount" and "any air

pollutant," and that congressional intent

is thus ambiguous. Where a clear

expression of legislative purpose is

lacking, EPA may interpret statutory

language reasonably so as to further the

general legislative purposes (see

Chevron, US.A., Inc. v. NRDC, 467 U.S.

837 (1984)) Here, EPA believes that the

central purposes of the Act, to protect

public health and welfare (see sections

101(b)(11 and 160(1)), and to allow

increases m, pollution only after careful

evaluation of all the consequences (see

section 160(5)), will be served by

retaining this regulatory requirement,.

because it helps ensure that modified

sources that would otherwise "net out"

of review do not inadvertently cause a

significant adverse health or welfare

impact This position. is also supported

by Alabama Pbwer Co. v. Castle,

wherein the court recognized that EPA

retains substantial discretion in

applying the bubble concept (see 636

F.2d at 402),.

Some commenters. have argued that

these goals should be pursued

exclusively through the NSPS and

NESHAP programs, not through NSR.

The EPA's response to these

commenters is two-fold. First, the Act

clearly does not limit control of these

problems to only those two, programs.

Indeed, the Act provides for

complementary, but distinctly different,

roles for all three programs. Section 112

addresses "hazardous air pollutants,"'

defined as those which

cause[sl, or contribute[sl to, air

pollution which may reasonably be

anticipated to result in an increase in

mortality or an increase m serious

irreversible, or incapacitating reversiblei,

illness (section 112(a})tl}.

This program provides for the

identification of these hazardous air

pollutants and control of emissions from

source categories designated by EPA.

The PSD provisions of the Act provide a

very different focus and standard for

regulation. For example, the PSD

program addresses all major sources

and is designed "to protect public health

and welfare from any actual or potential

adverse effect" from any air pollutant

(section 160( ]).

Second, NSR possesses an inherent

speed and flexibility in its ability to

protect public health and welfare that

those other programs lack. The NSR

programs provide timely and focused

responses to health and welfare issues,

arising from specific sources. These

responses complement the type of longrange and generat studies performed

pursuant to sections 111 and 112. The

NSR programs also address all

pollutants from each source in every

source category. while the NSPS and

NESHAP programs do not.

Although EPA believes it has

adequate authority to consider

differences in the toxicity of various

subspecies, of pollutants in netting,

calculations, EPA has not yet set forth

criteria by which to delineate these

differences so as to ensure reasonable

and nationally consistent

implementation. Thus, while EPA

believes that-sources should not trade

decreases in compounds of lesser

toxicity (considered in terms of acute or

carcinogenic effects) if this results in

adverse health or welfare consequences,

specific limitations on sources' ability to

net must await further development of

objective criteria by which to judge

these differences..

Toward this goal, EPA now solicits

comments to be used. in the development

of guidance for implementing this

provision. Certainly, an exact and

detailed approach to ranking all toxics

is impossible; there are 4,500,000

chemicals listed by the Amencan

Chemical. Society, with 70,000 chemicals

in commercial use and 1,000 new ones

added each year. Furthermore, toxicity

is an art, as well as a science,, with the

level of knowledge constantly evolving.

It would be irresponsible and contrary

to the Act. however, to, ignore potential

public health problems because of the

inability to precisely discriminate

among all chemicals. Prudent regulatory

strategy entails the. broad. examination

and classification of toxic air pollutants

in such a way as to provide for

reasonable and predictable

implementation of the NSR program

while preventing appreciable increases

in public health risk.

There are a variety of sources of

information to assist permitting

authorities and affected industry in

assessing relative risk of toxic air

pollutants. For example, the American

Conference of Governmental Industrial

Hygienists publishes "Threshold Limit

Values, indicating safe worker

exposure concentrations for numerous

pollutants. The Carcinogen Assessment

Group provides a broad classification

system for carcinogens,, as well as unit

risk factors for carcinogenic potency.

Such sorcesof information on toxicity

could well serve as the basis for

classifications of pollutants for purposes

of determining appropriateness of

netting transactions. One initial

approach might be to group the toxic air

pollutants likely to be encountered into

four or five classifications based on

variances in toxicity, with netting

credits being, allowed for reductions in

any other chemical contained in the

same group.

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In the meantime, section 116 allows,

and EPA encourages, the States to

continue development and

implementation of their own air toxics

programs, including case-by-case

analysis of proposed netting

transactions. The EPA will continue to

closely monitor these State efforts, and

will consider the approaches being used

by the various States (such as

prohibiting netting between certain

groups of toxic subspecies, or

establishing netting ratios between

certain groups of toxic pollutants) in

developing specific Federal regulatory

requirements m this area.

The EPA also agrees with those

commenters who pointed out a

vagueness problem with the area impact

aspect of the health and welfare

equivalence regulation. Specifically,

industry comments criticizing netting

restrictions determined by area or

concentration of pollutant impact, such

as stack height, plume temperature, and

impact on visibility or vegetation, are

well taken. Absent more specific

guidance on the reach of this provision,

it is unduly vague and, hence, difficult to

implement in a consistent manner.

Consequently, EPA policy will be to

limit this aspect of the health and

welfare provision unless, and until,

specific guidance on how to address

these comparisons is issued.

Accordingly, the area impacts aspect

of the regulation will apply only where

the State has reason to believe that the

reduction in ambient concentrations

from the emissions decrease will not be

sufficient to prevent the proposed

emissions increase from causing or

contributing to a violation of any

NAAQS or PSD increment, despite the

absence of a significant net increase in

emissions. In such cases, an applicant

for a federally enforceable permit must

demonstrate that the proposed netting

transaction will not cause or contribute

to an air quality violation before the

emissions reduction may be credited.

This requirement serves as a "safety

valve" for circumstances not

contemplated by the calculation of

significance values in the NSR

regulations, and is amply specific to

allow consistent application. This

requirement is also appropriate because

it provides, as to sources that would be

considered major but for their ability to

net out of NSR review, air quality

protection equivalent to that mandated

under section 165(a)(3) of the Act.

As indicated above, the concerns

addressed by this regulation relate to

differences in the toxicity and impact

areas of emissions subject to a netting

calculation. However, many common

types of emissions can be considered

the same pollutant in terms of health

and welfare impacts. In addition, many

industrial processes are sufficiently

similar that they can be considered as

having an equivalent impact on health

and welfare. Therefore, where netting

takes place between the same or similar

combustion units, fuels, or processes,

equivalency may, in most cases, be

assumed. As is the case with all other

criteria for the crediting of emissions

reductions, it is the responsibility of the

source attempting to net emissions to

support, where necessary, a finding of

equivalence of health and welfare

equivalence. Nevertheless, EPA has no

evidence to indicate that the requisite

health and welfare equivalency

demonstration has been burdensome or

has resulted in any undue delay or

prohibition in the construction of a

major modification to a major source.

Furthermore, any burdens that currently

exist would be reduced as a result of

today's action.

The EPA is also promulgating a new

definitional provision that, in general,

excludes certain organic compounds

from the term "VOC" as that term is

used in the PSD and nonattainment

regulations. 10 The compounds are those

that EPA has determined to be

negligibly photochencally reactive and,

hence, not important precursors of

ozone (see 42 FR 35314, July 8, 1977" 44

FR 32043, June 4,1979; 45 FR 32424, May

15, 1980; 45 FR 48941, July 22, 1980; 54 FR

1987 January 18, 1989). They are,

therefore, not considered to be VOC's

within the meaning of the PSD and

nonattainment regulations. The purpose

of the revision is to clarify that increases

and decreases m emissions of those

compounds are to be ignored completely

in any applicability determination with

respect to VOC's. Although this is a new

provision for the NSR regulations, it

does not change the chemicals on EPA's

list of organic compounds determined to

be negligibly photochemically reactive.

Thus, it does not change any EPA

applicability determinations, since this

list has already been relied on in those

transactions.

Ill. Miscellaneous

A. Executive Order 12291

Under Executive Order 12291, EPA

must judge whether a regulation is a "major rule" and therefore subject to the

requirement for preparation of a

Regulatory Impact Analysis. The EPA

has determined that this regulation is

not a "major rule, because it either

1o It would not exclude a compound if it were

subject to an NSPS or NESHAP

relaxes a regulatory requirement or

retains existing provisions and will not

have any significant effects on the

economy.

This regulation has been submitted to

the Office of Management and Budget

for review under Executive Order 12291.

Any written comments from that office,

and EPA's written responses to any such

comments, have been placed in the

docket for this proceeding and are

available for public inspection at the

times and place described earlier in this

preamble.

B. Paperwork Reduction Act

The information collection

requirements contained in this rule have

been approved by the Office of

Management and Budget (OMB) under

the provisions of the Paperwork

Reduction Act, 44 U.S.C. 3501 et seq. and

have been assigned OMB control

number 2060-0003.

The public reporting burden resulting

from this rulemaking is estimated to

decrease 2,920 hours overall as a result

of today's rulemaking. This estimate

includes time for reviewing instructions,

searching existing data sources,

gathering and maintaining the data

needed, and completing and reviewing

the collection of information.

Send comments regarding the burden

estimate or any other aspect of this

collection of information, including

suggestions for reducing this burden, to

Chief, Information Policy Branch, PM223, U.S. Environmental Protection

Agency, 401 M Street SW Washington,

DC 20460; and to the Office of

Information and Regulatory Affairs,

Office of Management and Budget,

Washington, DC 20503, marked

Attention: Desk Officer for EPA.

C. Economic Impact Assessment

The requirement for performing an

Economic Impact Assessment under

section 317 of the Act (42 U.S.C. 7617),

does not apply, because this regulation

does not make "substantial revisions" to

existing regulations. These revisions are

not "substantial, because they either

relieve a current regulatory burden or

retain existing provisions.

D. Regulatory Flexibility Act

Certification

As required by section 3(a) of the

Regulatory Flexibility Act, 5 U.S.C.

605(b), I certify that this regulation will

not have a significant adverse impact on

any small entities, because it relieves an

existing regulatory burden and imposes

no significant new burdens.

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E. Effective Date

As stated earlier in this notice, this

rule is effective immediately upon

publication in the Federal Register. The

EPA has concluded that, under section

307(d)(1) of the Act, the requirement of

section 4(d) of the Administrative

Procedures Act, 5 U.S.C. 553(d), for a 30-

day waiting period before making a rule

effective is not applicable.

F Federalism Implications

Under Executive Order 12612, EPA

must determine if a rule has federalism

implications, i.e., substantial direct

effects on the States, on the relationship

between the national government and

the States, or on the distribution of

power and responsibilities among the

various levels of government. For those

rules which have federalism

implications, a Federalism Assessment

is to be made.

The Executive order also requires that

agencies, to the extent possible, refrain

from limiting State policy options,

consult with States prior to taking any

actions that would restrict State policy

options, and take such actions only

when there is clear constitutional

authority and the presence of a problem

of national scope. The Executive order

provides for preemption of State law,

however, if there is a clear

congressional intent for the agency to do

so. Any such preemption, however, is to

be limited to the extent possible.

This final rule either retains the

current rules or provides increased State

policy options. The only change with

federalism implications is the action

which allows use of certain emissions

reductions (e.g., prior shutdowns) in

certain areas for offsets. Previously,

such reductions could not be used. The

change increases State policy options,

allowing them to prohibit, use, or

partially use these reductions as a part

of their air quality management plans.

List of Subjects

40 CFR Part 51

Administrative practices and

procedures, air pollution control,

intergovernmental relations, reporting

and recordkeeping requirements, ozone,

sulfur oxides, nitrogen dioxide, lead,

particulate matter, hydrocarbons,

carbon monoxide.

40 CFR Part 52

Air pollution control, ozone, sulfur

oxides, nitrogen dioxide, lead,

particulate matter, carbon monoxide,

hydrocarbons.

Date: June 12,1989.

William K. Reilly,

Administrator.

For reasons set forth in the preamble,

Parts 51 and 52 of Chapter I of the Title

40 of the Code of Federal Regulations

are 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: Secs. 101(b)(1), 110, 160-169,

171-178, and 301(a) of the Clean Air Act, 42

USC 7401(b)(1), 7410, 7470-7479, 7501-7508,

and 7601(a).

2. Section 51.165 is amended by

adding paragraph (a)(1)(xix) and

revising paragraph (a)(3)(ii)(C) to read

as follows:

51.165 Permit requirements.

(a)

(1)

(xix) "Volatile organic compounds"

excludes: methane; ethane; methylene

chloride: 1,1,1 tricholoroethane (methyl

chloroform); trichlorotrifluoroethane

(CFC-113) (Freon 113);

trichlorofluoromethane (CFC-11);

dichlorodifluoromethane (CFC-12);

chlorodifluoromethane (CFC-22);

trifluoromethane (FC-23);

dichlorotetrafluoroethane (CFC-114);

chloropentafluoroethane (CFC-115);

dichlorotrifluoroethane (HCFC-123);

tetrafluoroethane (HFC-134a);

dichlorofluoroethane (HCFC-141b); and

chlorodifluoroethane (HCFC-142b).

(3)

(ii)

(C)(1) Emissions reductions achieved

by shutting down an existing source or

curtailing production or operating hours

below baseline levels may be generally

credited if such reductions are

permanent, quantifiable, and federally

enforceable, and if the area has an EPAapproved attainment plan. In addition,

the shutdown or curtailment is

creditable only if it occurred on or after

the date specified for this purpose in the

plan, and if such date is on or after the

date of the most recent emissions

inventory used in the plan's

demonstration of attainment. Where the

plan does not specify a cutoff date for

shutdown credits, the date of the most

recent emissions inventory or

attainment demonstration, as the case may be, shall apply. However, in no

event may credit be given for shutdowns

which occurred prior to August 7 1977

For purposes of this paragraph, a

permitting authority may choose to

consider a prior shutdown or

curtailment to have occurred after the

date of its most recent emissions

inventory, if the inventory explicitly

includes as current "existing" emissions

the emissions from such previously

shutdown or curtailed sources.

(2) Such reductions may be credited in

the absence of an approved attainment

demonstration only if the shutdown or

curtailment occurred on or after the date

the new source permit application is

filed, or, if the applicant can establish

that the proposed new source is a

replacement for the shutdown or

curtailed source, and the cutoff date

provisions of § 51.165(a)(3)(ii)(C)(1) are

observed.

3. Section 51.166 is amended by

adding paragraphs (b)(29) and (s)(2)(vi)

to read as follows:

§ 51.166 Prevention of significant deterioration of air quality.

(b)

(29) "Volatile organic compounds"

excludes each of the following

compounds, unless the compound is

subject to an emissions standard under

sections 111 or 112 of the Act: methane;

ethane; methylene chloride; 1,1,1

trichloroethane (methyl chloroform);

trichlorotrifluoroethane (CFC-113)

(Freon 113); trichlorofluoromethane

(CFC-11); dichlorodifluouromethane

(CFC-12); chlorodifluoromethane (CFC22): trifluoromethane (FC-23);

dichlorotetrafluoroethane (CFC-114):

chloropentafluoroethane (CFC-115):

dichlorotrifluoroethane (HCFC-123);

tetrafluoroethane (HCFC-134a);

dichlorofluoroethane (HCFC-141b); and

chlorodifluoroethane (HCFC-142b).

(s)

(2)

(vi) The provisions of paragraph (p) of

this section (relating to Class I areas)

have been satisfied with respect to all

periods during the life of the source or

modification.

4. Section 51.166 is amended by

removing paragraph (s)(2)(iv)(b) and

redesignating paragraph (s)(2)(iv)(c) as

(s)(2)(iv)(b).

5. Appendix S is amended by adding

paragraph II.A.20 and revising

paragraph IV.C.3. to read as follows:

Appendix S-Emission Offset

Interpretative Ruling

II.

A.

20. "Volatile organic compounds" excludes:

methane; ethane; methylene chloride; 1,1,1

27299

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27300 Federal Register / Vol. 54, No. 123 / Wednesday, June 28, 1989 / Rules and Regulations

tricholoroethane (methyl chloroform:

trichlorotrifluoroethane (CFC-113)} (Freon

113); trichlorofluoromethane (CFC-11;

dichlorodifluoromethane (CFC-12):

chlorodifluoromethane (CFC-22);

trifluoromethane (FC-23);

dichlorotetrafluoroethane (CFC-114); and

chloropentafluoroethane (CFC-115);

dichlorotrifluoroethane (HCFC-123);

tetrafluoroethane (HCFC-134al;

dichlorofluoroethane (HCFC-141b); and

chlorodifluoroethane CHCFC-142b).

IV

C.

3. (i) Operating hours and source

shutdown.

A source may generally be credited with

emissions reductions achieved by shutting

down an existing source or permanently

curtailing production or operating hours

below baseline levels (see initial discussion

in this Section IV.C), if such reductions are

permanent, quantifiable, and federally

enforceable, and if the area has an EPAapproved attainment plan. In addition, the

shutdown or curtailment is creditable only if

it occurred on or after the date specified for

this purpose in the plan, and if such date is

on or-after the date of the most recent

emissions inventory used in the plan's

demonstration of attainment. Where the plan

does not specify a cutoff date for shutdown

credits, the date of the most recent emissions

inventory or attainment demonstration, as

the case may be, shall apply. However, in no

event may credit be given for shutdowns

which occurred prior to August 7 1977 For

purposes of this paragraph, a permitting

authority may choose to consider a prior

shutdown or curtailment to have occurred

after the date of its most recent emissions

inventory, if the inventory explicitly includes

as current "existing" emissions the emissions

from such previously shutdown or curtailed

sources.

(ii) Such reductions may be credited in the

absence of an approved attainment

demonstration only if the shutdown or curtailment occurred on or after the date the new source application is filed, or, if the

applicant can establish that the proposed new source is a replacement for the

shutdown or curtailed source and the cutoff

date provisions of section IV.C.3.(i] are observed.

6. Appendix S, paragraph IV.D. is

amended by redesignating footnote 10

as footnote 9 and paragraph V.A.(1) is

amended by redesignating footnote 11

as footnote 10.

PART 52-APPROVAL AND

PROMULGATION OF

IMPLEMENTATION PLANS

1. The authority citation for Part 52

continues to read as follows:

Authority: 42 U.S.C. 7401-7642.

2. Section 52.21 is amended by adding

paragraphs (b)(30) and (v)(2)(vi) to read

as follows:

§ 52.21 Prevention of significant deterioration of air quality.

(b)

(30) "Volatile organic compounds

excludes each of the following

compounds, unless the compound is

subject to an emissions standard under

sections 111 or 112 of the Act: methane;

ethane; methylene chloride; 1,1,1

trichloroethme (methyl chloroform);

trichlorotrifluoroethane (CFC-113)

(Freon 113); trichlorofluoromethane

(CFC-11); dichlorodifluouromethane

(CFC-12); chlorodifluoromethane (CFC22); trifluoromethane (FC-23);

dichlorotetrafluoroethane (CFC-114};

and chloropentafluoroethane (CFC-115);

dichlorotrifluoroethane (HCFC-123);

tetrafluoroethane (HFC-134a);

dichlorofluoroethane (HCFC-141b); and

chlorodifluoroethane (HCFC-142b).

v)

(2)

(vi) The provisions of paragraph (p) of

this section (relating to Class I areas)

have been satisfied with respect to all

periods during the life of the source or

modification.

3. Section 52.21 is amended by

removing paragraph (v)(2)(iv)}b) and

redesignating paragraph (v(2)(iv)(c) as

(v)(2)(iv)(b).

4. Section 52.24 is amended by adding

paragraph (f)18) to read as follows:

§ 52.24 Statutory restriction on new

sources.

(f)

(18] "Volatile organic compounds"

excludes: methane; ethane; methylene

chloride; 1,1,1 tricholoroethane (methyl

chloroform); trichlorotrifluoroethane

(CFG-113) (Freon 113);

trichlorofluoromethane (CFC-11);

dichlorodifluoromethane (CFC-12);

chlorodifluoromethane (CFC-22);

trifluoromethane (FC-23);

dichlorotetrafluoroethane (CFC-114);

and chloropentafluoroethane (CFC-115);

dichlorotrifluoroethane (HCFC-123);

tetrafluoroethane (HFC-134a);

dichlorofluoroethane (HCFC-141b); and

chlorodifluoroethane {HCFC-142b).

[FR Doc. 89-14682 Filed 6.-27--89; 8:45 aml

BILLING CODE 6560-50-M

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