### From: Vasu, Amy Sent: Friday, July 31, 2015 3:11 PM To: nfrey@omb.eop.gov Cc: Szabo, Aaron; Culligan, Kevin; Harvey, Reid; Schmidt, Lorie Subject: Response to interagency review comments on the CPP final rule

Nathan, Attached are clean and RLSO revisions in response to interagency review comments on the discussion of the portfolio approach in Section VIII of the CPP preamble (p. 960 of the clean July 29th version). Thank you. Amy

~~~~~~~~~~~~~~~~~~~~~~~ Amy B. Vasu U.S. EPA / OAQPS Sector Policies and Programs Division email: vasu.amy@epa.gov phone: 919.541.0107

<< portfolio_07-31-15__3pm_clean.docx >> << portfolio_07-31-15__3pm_redline.docx >>Draft/portfolio_07-31-15__3pm_clean 

## d. Legal considerations with proposed portfolio approach. The EPA is not finalizing the portfolio approach that was included in the proposed rulemaking, 79 FR 34830, 34902 (June 18, 2014). In the proposal, the EPA noted that the portfolio approach raised legal questions. 79 FR 34830, 34902-03. A number of commenters stated that the portfolio approach is unlawful because it exceeds the limitations that section 111(d)(1) places on state plans. Upon further review, we agree with these

comments. Section 111(d)(1) provides that state plans shall “establish[] “standards of performance for any existing source” and “provide[] for the implementation and enforcement of . . . standards of performance” under CAA section 111(d)(1). Although in the proposal we identified possible interpretations of section 111(d)(1) that could justify the proposed portfolio approach, after reviewing the comments, we are not adopting those interpretations. Because section 111(d)(1) specifically requires state plans to include only (A) standards for emissions imposed on affected sources and (B) measures that implement and enforce such standards, 1 

## we interpret it as allowing federal enforceability only of requirements or measures that are in

1 

## Such measures include, for example, in this rule, requirements for ERCs.

## those two specifically required provisions. Furthermore, we do not interpret the term “implementation of ... such standards of performance” broadly enough to authorize the EPA to approve state plans that impose federally enforceable obligations upon a broad array of non-emitting entities. Thus, the EPA is not finalizing the portfolio approach, and in the event that states submit such measures to the EPA for inclusion in the state plan, the EPA would not approve them into the state plan and therefore would not make them federally enforceable. We note that section 111(d) limits on federal enforceability of requirements against non-affected sources donot imply that the BSER cannot be based on actions by nonaffected sources. As discussed in section V, the BSER may be based on the ability of owners/operators of affected sources to engage in commercial relationships with a wide range of other entities, from the vendors, installers, and operators of air pollution control equipment to, in this rulemaking, owners/operators of renewable energy. The EPA notes it is also not finalizing the proposed state commitment approach or state crediting approach. The EPA believes the finalized state measures plan type provides states with the same flexibilities as would have been allowed under these two proposed approaches, and does so in a way that is legally supportable by the Clean Air Act. Therefore, the EPA

## does not believe it necessary to finalize the state commitment approach or state crediting approach.Formatted: Footer Draft/portfolio_07-31-15_3pm_redline d. Legal considerations with proposed portfolio approach. The EPA is not finalizing the portfolio approach that was included in the proposed rulemaking, 79 FR 34830, 34902 (June 18, 2014). In the proposal, the EPA noted that the portfolio approach raised legal questions. 79 FR 34830, 34902-03. After reviewing comments, the EPA agrees withA number of commenters stated that legal questions remain as to whetherthe portfolio approach is

unlawful because it exceeds the limitations that section 111(d)(1) places on state plans. Upon further review, we agree with these comments. Section 111(d)(1) provides that state plans shall “establish[] state plans are precluded from including federally enforceable measures that are mandatory for entities other than affected EGUs eitheron grounds that those measures do not constitute “standards of performance for any existing source ” or and “provide[] for the implementation and enforcement of . . . standards of performance” under CAA section 111(d)(1). In addition, in Utility Air Regulatory Group v. EPA, 1 the U.S. Supreme Court cautioned that there are limits to the extension of CAA jurisdiction, which raises additional questions as to whether the EPA may make federally enforceable in a section 111(d) plan state measures that are mandates on entities other

1 134 S. Ct. 2427 (2014) (“ UARG v. EPA ”). Formatted: Font: 8 pt, Complex Script Font: 8 pt

Formatted: Right Formatted: Font: 8 pt, Complex Script Font: 8 pt

Formatted: Indent: First line: 0.5"Formatted: Footer than affected EGUs. Commenters stated that these provisions by their terms limit federally enforceable state plans to standards of performance for affected sources, along with implementation and enforcement measures for those standards of performance, and preclude state plans from including obligations on entities other than affected EGUs. AlthoughAlthough in the proposal we identified possible interpretations of section 111(d)(1) that could justify the proposed portfolio approach, after reviewing

the comments , we are not adopting those interpretations. Because we agree that there are significant questions as to whether

s Ss ection 111(d)(1) only specifically requires /authorizes is clear by its terms that state plans are limited to include only (A) standards for emissions imposed on affected sources and (B) measures that implement and enforce such standards, 2 we interpret it as allowing federal enforceability only of state law requirements or measures only for measures that are in those

two those specifically required /authorized provisions. 3 Furthermore, we do not interpret and that the term “ measures

2 Such measures include, for example, in this rule, requirements for ERCs. 3 It should be noted that in a recent rule under section 111(b), the EPA imposed federally enforceable standards of performance on the manufacturers and sellers of wood stoves. 80 FR 13672 (March 16, 2015). A similar rule under section 111(d) could allow a state to impose controls on those same entities because they were involved in the design or operation of the affected facility. Commented [ZE1]: The footnote is deleted. Do we want to keep some form of it or do we think that “broad aray” gives us room to say that we are fine regulating wood stove mans etc.

Formatted: Font: 12 pt, Complex Script Font: 12 ptFormatted: Footer that implement ation of ... such standards of performance ” is not

broad ly enough to does not thatauthorize s the EPA may not to approve state plans that that potentially impose federally enforceable obligations upon a broad array of non-emitting entities

. 4 that have not been involved in the design or operation of the facility. We note that this interpretation concern does not imply that the BSER includes the same types of limits. As discussed in section V, the BSER may be based on the ability of owners/operators of affected sources to engage in commercial relationships with a wide range of other entities, from the vendors, installers. 5 Thus, In light of these concerns, the EPA is not finalizing the portfolio approach , and operators of air pollution control equipment to, in this rulemaking, owners/operators of RE. But for the reasons noted above, the federally enforceable state plan may not impose obligations on those non-affected source entities. Finally, the EPA notes that in the event that states did do submit such measures to the EPA for inclusion in the state plan, the EPA would not take action

4 It should be noted that in a recent rule under section 111(b), the EPA imposed federally enforceable standards of performance on the manufacturers and sellers of wood stoves. 80 FR 13672 (March 16, 2015). A similar rule under section 111(d) could allow a state to impose controls on those same entities because they were involved in the design or operation of the affected facility. 5 In a recent rule under section 111(d), the EPA’s emission guidelines required the imposition of federally enforceable requirements on the manufacturers and sellers of wood stoves. 80 FR 13672 (March 16, 2015). Commented [ZE2]: The footnote is deleted. Do we want to keep some form of it or do we think that “broad aray” gives us room to say that we are fine regulating wood stove mans etc.

Formatted: Strikethrough

Formatted: StrikethroughFormatted: Footer to approve them into the state plan and therefore would not thereby make them federally enforceable. Instead, the EPA is finalizing the state measures approach, which would allow states to impose obligations upon such entities that are enforceable only as a matter of state law. As discussed in sec. VIII.C.6.d, the state measures approach achieves the same objective as the proposed portfolio approach in a way that comports with the statutory requirements of CAA section 111(d). We note that section 111(d) limits on federal enforceability of requirements against non-affected sources donot imply that the BSER cannot be based on actions by nonaffected sources. As discussed in section V, the BSER may be based on the ability of owners/operators of affected sources to engage in commercial relationships with a wide range of other entities, from the vendors, installers, and operators of air pollution control equipment to, in this rulemaking, owners/operators of renewable energy. The EPA notes it is also not finalizing the proposed state commitment approach or state crediting approach. The EPA believes the finalized state measures plan type provides states with the same flexibilities as would have been allowed under these two proposed approaches, and does so in a way that is legally supportable by the Clean Air Act. Therefore, the EPA does not believe it necessary to finalize the state commitmentFormatted: Footer approach or state crediting approach.