ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R09-OAR-2011-0876; FRL-]

Revisions to the California State Implementation Plan, South 

Coast Air Quality Management District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

SUMMARY: In this action, we are proposing to approve South Coast 

Air Quality Management District (SCAQMD) Rule 317, “Clean Air 

Act Non-Attainment Fee,” as a revision to SCAQMD’s portion of 

the California State Implementation Plan (SIP). Rule 317 is a 

local rule submitted to address section 185 of the Clean Air Act 

(CAA or Act). We are proposing that Rule 317, an equivalent 

alternative program, is not less stringent than the program 

required by section 185, and, therefore, is approvable, 

consistent with the principles of section 172(e) of the Act. As 

part of this action, we are inviting public comment on whether 

it is appropriate for EPA to consider equivalent alternative 

programs, and, if so, whether Rule 317 would constitute an 

approvable equivalent alternative program. We are taking 

comments on these proposals and plan to follow with a final 

action.

DATE: Any comments must arrive by [Insert date 30 days from the 

date of publication in the Federal Register].
ADDRESSES: Submit comments, identified by docket number EPAR09-OAR-2011-0876, by one of the following methods:

1. Federal eRulemaking Portal: www.regulations.gov. Follow 

the on-line instructions.

2. E-mail: steckel.andrew@epa.gov.

3. Mail or deliver: Andrew Steckel (Air-4), U.S. Environmental 

Protection Agency Region IX, 75 Hawthorne Street, San 

Francisco, CA 94105-3901. 

Instructions: All comments will be included in the public docket 

without change and may be made available online at 

www.regulations.gov, including any personal information 

provided, unless the comment includes Confidential Business 

Information (CBI) or other information whose disclosure is 

restricted by statute. Information that you consider CBI or 

otherwise protected should be clearly identified as such and 

should not be submitted through www.regulations.gov or e-mail. 

www.regulations.gov is an “anonymous access” system, and EPA 

will not know your identity or contact information unless you 

provide it in the body of your comment. If you send e-mail 

directly to EPA, your e-mail address will be automatically 

captured and included as part of the public comment. If EPA 

cannot read your comment due to technical difficulties and 

cannot contact you for clarification, EPA may not be able to 

consider your comment. 
3

Docket: Generally, documents in the docket for this action are

available electronically at www.regulations.gov and in hard copy 

at EPA Region IX, 75 Hawthorne Street, San Francisco, 

California. While all documents in the docket are listed at 

www.regulations.gov, some information may be publicly available 

only at the hard copy location (e.g., copyrighted material, 

large maps), and some may not be publicly available in either 

location (e.g., CBI). To inspect the hard copy materials, 

please schedule an appointment during normal business hours with 

the contact listed in the FOR FURTHER INFORMATION CONTACT

section.

FOR FURTHER INFORMATION CONTACT: Lily Wong, EPA Region IX, (415) 

947-4114, wong.lily@epa.gov.

SUPPLEMENTARY INFORMATION: Throughout this document, “we,” “us”

and “our” refer to EPA.

Table of Contents 

I. What Did the State submit?

II. Are There Other Versions of This Rule?

III. What Action is EPA Taking?

IV. Background

V. What is the Legal Rationale for This Action?

VI. What is EPA’s Analysis of SCAQMD’s Alternative Program?

VII. Proposed Action
4

VIII. Statutory and Executive Order Reviews

I. What Did the State Submit?

On February 4, 2011, SCAQMD adopted Rule 317, “Clean Air 

Act Non-attainment Fee,” to meet the requirements of CAA section 

185. On April 22, 2011, the California Air Resources Board 

(CARB) submitted SCAQMD’s Rule 317 to EPA. On May 19, 2011, EPA 

determined that the submittal met the completeness criteria in 

40 CFR Part 51 Appendix V, which must be met before formal EPA 

review. SCAQMD provided supplemental information in a letter 

dated December 21, 2011.

II. Are There Other Versions of This Rule? 

There are no previous versions of Rule 317 in the SIP. 

Although the SCAQMD adopted an earlier version of Rule 317 on 

December 5, 2008, that rule was never submitted to EPA for 

approval as a SIP revision. 

III. What Action is EPA Taking? 

EPA is proposing to approve Rule 317 as a revision to 

SCAQMD’s portion of the California SIP. The purpose of Rule 317 

is to satisfy the requirements of sections 182 and 185 of the 

Act by utilizing an equivalency approach consistent with the 

principles of section 172(e) of the Act. Under Rule 317, SCAQMD 

will track, calculate, analyze, and report to demonstrate that 

the requirements of section 185 of the Act have been met. Rule 
5

317 includes: calculation of CAA non-attainment (section 185) 

fee obligation, establishment of a “section 172(e) fee 

equivalency account,” an annual demonstration of equivalency, an 

annual preliminary determination of equivalency, reporting to

CARB and EPA, and a backstop provision for failure to achieve 

equivalency. The “section 172(e) fee equivalency account” will 

include funds from qualified programs that are surplus to the 1-

hour ozone SIP and designed to result in direct reductions or 

facilitate future reductions of VOC or NOx emissions. 

In this action, EPA is also proposing to approve Rule 317 

as an alternative to the program required by section 185 of the 

Act. We are proposing that SCAQMD’s equivalent alternative 

program is not less stringent than the program required by 

section 185, and, therefore, is approvable, consistent with the 

principles of section 172(e) of the Act as explained more fully 

below. We are taking comments on these proposals and plan to 

follow with a final action. 

IV. Background 

Section 185 Fees

Under sections 182(d)(3), (e), (f) and 185 of the Act, 

states with ozone nonattainment areas classified as Severe or 

Extreme are required to submit a revision to the SIP that would

require major stationary sources of VOC or NOx to pay a fee for 
6

each ton of VOC or NOx emitted in excess of 80% of baseline 

emissions.

1 Under section 185(a) of the Act, the SIP revision 

must provide that the fees be paid if the area to which the SIP 

revision applies has failed to attain the 1-hour ozone National 

Ambient Air Quality Standard (NAAQS or standard) by the 

applicable attainment date. A source’s baseline emissions are 

its actual emissions during the required attainment year. The 

fee rate is $5,000 per ton in 1990 dollars, which must be 

adjusted for inflation based on the Consumer Price Index (CPI).

South Coast Air Quality Management District

There are two 1-hour ozone nonattainment areas within the 

jurisdiction of the SCAQMD: the Los Angeles-South Coast Air 

Basin Area (South Coast Air Basin) and the Coachella Valley 

region of Riverside County in the Southeast Desert Modified Air 

Quality Maintenance Area (Riverside County portion of Southeast 

Desert Modified AQMA).2 The South Coast Air Basin is an Extreme 

nonattainment area for the 1-hour ozone standard; the attainment 

year is 2010. The Riverside County portion of the Southeast 

Desert Modified AQMA is a Severe-17 nonattainment area for the 

1-hour ozone standard; the attainment year is 2007. Therefore, 

 

1

VOC help produce ground-level ozone and smog, which harm human health and the 

environment. NOx helps produce ground-level ozone, smog and particulate 

matter, which harm human health and the environment.

2

“Riverside County portion of Southeast Desert Modified AQMA” is the same 

geographic area as “Riverside County portion of the Salton Sea Air Basin” and 

Rule 317 uses the latter terminology. 
7

California was required under sections 182(d)(3), (e) and (f) to 

develop and submit a SIP revision meeting the requirements of 

section 185, which are discussed above. 

On December 30, 2011, we published a finding that the South 

Coast Air Basin and the Southeast Desert Modified AQMA failed to 

attain the 1-hour ozone standard by their applicable attainment 

dates (76 FR 82133). 

Pursuant to California law, the SCAQMD is responsible for 

developing rules, such as Rule 317, that are intended to meet 

CAA SIP requirements for the two nonattainment areas described 

above under SCAQMD jurisdiction. Such rules are then submitted 

to EPA after adoption by CARB, which is the State agency 

responsible for SIP matters on behalf of the State of 

California. On April 22, 2011, CARB submitted Rule 317 to 

satisfy SCAQMD’s obligations under sections 182 and 185 of the 

Act. 

V. What is the Legal Rationale for Equivalent Alternative 

Programs?

EPA is proposing that states can meet the section 185 

obligation arising from the revoked 1-hour ozone NAAQS through a 

SIP revision containing either the fee program prescribed in 

section 185 of the Act, or an equivalent alternative program. As 

further explained below, EPA is proposing that an alternative 
8

program may be acceptable if EPA determines, through notice-andcomment rulemaking, that it is consistent with the principles of 

section 172(e) of the CAA and is not less stringent than a 

program prescribed by section 185.3 

Section 172(e) is an anti-backsliding provision of the CAA 

that requires EPA to develop regulations to ensure that controls 

in a nonattainment area are “not less stringent” than those that 

applied to the area before EPA revised a NAAQS to make it less 

stringent. In the Phase 1 Ozone Implementation Rule for the 

1997 ozone NAAQS published on April 30, 2004 (69 FR 23951), EPA 

determined that although section 172(e) does not directly apply 

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

reasonable to apply to the transition from the 1-hour NAAQS to 

the more stringent 1997 8-hour NAAQS, the same anti-backsliding 

principle that would apply to the relaxation of a standard. 

 

3 EPA has previously set forth this reasoning in a memorandum from Stephen D. 

Page, Director, Office of Air Quality Planning and Standards, to Air Division 

Directors, “Guidance on Developing Fee Programs Required by Clean Air Act 

Section 185 for the 1-hour Ozone NAAQS,” January 5, 2010 (“Section 185 

Guidance Memo”). On July 1, 2011, the D.C. Circuit Court of Appeals vacated 

this guidance, on the ground that it was final agency action for which 

notice-and-comment rulemaking procedures were required. NRDC v. EPA, No. 10-

1056, 2011 WL 2601560, C.A.D.C. 2011. EPA subsequently set forth this 

reasoning in a rulemaking action concerning an equivalent alternative 185 

program submitted as a SIP revision to EPA by the State of California on 

behalf of the San Joaquin Valley Unified Air Pollution Control District 

(“SJVUAPCD”). 76 FR 45213 (July 28, 2011). In so doing, we were applying 

the court’s directive to follow the rulemaking requirements set forth in the 

Administrative Procedures Act to inform consideration of section 185 and 

equivalent alternative programs. In this action regarding SCAQMD Rule 317, 

we are again applying the court’s directive to follow rulemaking requirements 

with respect to section 185 and equivalent alternative programs. 
9

Thus, as part of applying the principles in section 172(e) for 

purposes of the transition from the 1-hour standard to the 1997 

8-hour standard, EPA can either require states to retain 

programs that applied for purposes of the 1-hour standard, or 

can allow states to adopt equivalent alternative programs, but 

only if such alternatives are determined through notice-andcomment rulemaking to be “not less stringent” than the mandated 

program. EPA has previously identified three types of 

alternative programs that could satisfy the section 185 

requirement: (i) those that achieve the same emissions 

reductions; (ii) those that raise the same amount of revenue and 

establish a process where the funds would be used to pay for 

emission reductions that will further improve ozone air quality; 

and (iii) those that would be equivalent through a combination 

of both emission reductions and revenues.4

We are proposing today to determine through notice-andcomment rulemaking that states can demonstrate an alternative 

program’s equivalency by comparing expected fees and/or 

emissions reductions directly attributable to application of 

section 185 to the expected fees, pollution control project 

funding, and/or emissions reductions from the proposed 

 

4 These types of programs were identified in our rulemaking action concerning 

SJVUAPCD’s alternative section 185 fee program 76 FR 45213 (July 28, 2011). 
10

alternative program. Under an alternative program, states might 

opt to shift the fee burden from a specific set of major 

stationary sources to non-major sources, such as owners of 

mobile sources that also contribute to ozone formation. EPA also 

believes that alternative programs, if approved as “not less 

stringent” than the section 185 fee program, would encourage 

one-hour ozone NAAQS nonattainment areas to reach attainment as 

effectively and expeditiously as a section 185 fee program, if 

not more so, and therefore satisfy the CAA’s goal of attainment 

and maintenance of the NAAQS. 

While section 185 focuses most directly on assessing 

emissions fees, we believe it is useful to interpret antibacksliding requirements for section 185 within the context of 

the CAA’s ozone implementation provisions of subpart 2 (which 

includes section 185). The subpart 2 provisions are designed to 

promote reductions of ozone-forming pollutant emissions to 

levels that achieve attainment of the ozone NAAQS. In this 

context, to satisfy the anti-backsliding requirements for 

section 185 associated with the 1-hour NAAQS we believe it is 

appropriate for states to implement equivalent alternative 

programs that maintain a focus on achieving further emission 

reductions, whether that occurs through the incentives created 

by fees levied on pollution sources or other funding of 
11

pollution control projects, or some combination of both. For 

any alternative program adopted by a state, the state’s 

demonstration that the program is not less stringent should 

consist of comparing expected fees and/or emission reductions 

directly attributable to application of section 185 to the 

expected fees, pollution control project funding, and/or 

emissions reductions from the proposed alternative program. For 

a valid demonstration to ensure equivalency, the state’s 

submissions should not underestimate the expected fees and/or 

emission reductions from the section 185 fee program, nor 

overestimate the expected fees, pollution control project 

funding, and/or emission reductions associated with the proposed 

alternative program. 

We also note that the structure established in Subparts 1 

and 2 of the CAA recognizes that successful achievement of clean 

air goals depends in great part on the development by states of 

clean air plans that that are specifically tailored to the 

nature of the air pollution sources in each state. The Act 

recognizes that states are best suited to design plans that will 

be most effective. Allowing states to put forward an equivalent 

program under the circumstances that pertain here, and under the 

authority of 172(e), is consistent with this principle of the 

Act.
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In sum, in order for EPA to approve an alternative program 

as satisfying the 1-hour ozone section 185 fee program SIP 

revision requirement, the state must demonstrate that the 

alternative program is not less stringent than the otherwise 

applicable section 185 fee program by collecting fees from 

owner/operators of pollution sources, providing funding for 

emissions reduction projects, and/or providing direct emissions 

reductions equal to or exceeding the expected results of the 

otherwise applicable section 185 fee program. We are inviting 

public comment on whether it is appropriate for EPA to consider 

equivalent alternative programs, and, if so, whether Rule 317 

would constitute an approvable equivalent alternative program. 

VI. What is EPA’s Analysis of SCAQMD’s Alternative Program?

Summary of SCAQMD’s Alternative Program

In today’s action, we are proposing to approve SCAQMD Rule 

317 as an equivalent alternative program that satisfies the 

section 185 requirement under the principles of section 172(e). 

Further information regarding Rule 317 is set forth below and in 

EPA’s Technical Support Document (TSD) for this action. 

The purpose of Rule 317 is to satisfy the requirements of 

section 185 of the Act by utilizing an equivalency approach 

consistent with the principles of 172(e) of the Act. Under Rule 

317, SCAQMD will track, calculate, analyze, and report to 
13

demonstrate that the requirements of section 185 of the Act have 

been met. Rule 317 includes: calculation of CAA non-attainment 

(section 185) fee obligation; establishment of a "section 172(e) 

fee equivalency account” to track qualified expenditures on 

pollution control projects; an annual demonstration of 

equivalency; an annual preliminary determination of equivalency; 

reporting to CARB and EPA; and a backstop provision for failure 

to achieve equivalency. 

As described above, there are two 1-hour ozone 

nonattainment areas within the jurisdiction of the SCAQMD. By 

letter dated December 21, 2011, SCAQMD clarified that they 

intend to provide separate equivalency demonstrations for the 

two non-attainment areas in that the equivalency analyses will 

compare fee obligations within each non-attainment area to 

expenditures within the same non-attainment area.

SCAQMD will establish a “section 172(e) fee equivalency 

account” that will be credited with expenditures from qualified 

programs that meet the criteria in section (c)(1)(A) of Rule

317: (i) surplus to the 1-hour ozone SIP and approved by the 

District, CARB, and EPA as being surplus to the SIP; (ii) 

designed to result in direct VOC or NOx reductions in SCAQMD, or 

to facilitate future VOC or NOx reductions in SCAQMD through 

vehicle/engine fueling infrastructure or advanced technology 
14

development efforts for implementation within the next 10 years, 

or for other uses approved by EPA; (iii) expenditures occurring 

only in calendar years subsequent to 2008 from eligible 

projects;5 and (iv) only monies actually expended from qualified 

programs during a calendar year shall be credited. Rule 317 

provides that the equivalency account may be pre-funded with 

expenditures from the programs listed in Attachment A of the 

rule.6 

SCAQMD will annually calculate the total amount of major 

stationary source fees that would have been assessed in the 

prior calendar year under a direct implementation of section 185 

of the Act. A fee is calculated for each major stationary 

source whose actual emissions of VOC or NOx exceed 80% of its 

baseline emissions. The fee rate is $5,000 per ton in 1990 

dollars, which must be adjusted for inflation based on the 

Consumer Price Index (CPI). 

While CAA section 185 requires baseline emissions to be 

based on the lower of the source’s actual or allowable7 emissions 

 

5 By letter dated December 21, 2011, SCAQMD clarified that for the South Coast 

Air Basin equivalency demonstration, SCAQMD intends only to include 

expenditures that occurred in calendar years 2010 and forward. 

6

Attachment A of Rule 317 identifies potential sources of funds for the 

section 172(e) fee equivalency account. These potential funding mechanisms 

include: fees from motor vehicles pursuant to AB 118 and AB 27866 and 

federal grants to fund retrofitting of school buses and trucks.

7

“Allowable” emissions are the amount of emissions that are allowed under the 

source’s permit, or if no such permit has been issued to the source for the 

attainment year, the amount of emissions allowed under the applicable 
15

during the attainment year, it also allows the use of an 

alternative period as provided in EPA guidance. Rule 317 

specifies that baseline emissions of an existing source in the 

South Coast Air Basin will be based on an average of the 

source’s actual emissions during fiscal years 2005-06 and 2006-

07 (which are not to exceed allowable emissions), and would be 

programmatically adjusted by SCAQMD to take into account the 

effects of new requirements or regulations from 2006 to 2010. 

In the Salton Sea Air Basin, an existing source’s baseline 

emissions are its reported emissions during 2007, the attainment 

year for the Southeast Desert Modified AQMA. Rule 317 also 

specifies that, for sources that become subject to the rule 

after the attainment year, baseline emissions are based on 

allowable limits in the applicable implementation plan or 

potential to emit, or holdings of RECLAIM Trading Credits. 

SCAQMD will annually demonstrate that the funds in the 

section 172(e) fee equivalency account for the prior year are 

equal to or greater than the CAA non-attainment (section 185) 

fee obligation that would have been assessed for the prior year. 

SCAQMD will also annually project whether adequate funding 

is expected to be available in the section 172(e) fee 

equivalency account in the current year in accordance with the 

 

attainment plan (CAA section 185(b)(2)).
16

equation in section (c)(4) of the rule. This preliminary 

determination of equivalency requires the projection to show 

that the amount of funds in the fee equivalency account are at 

least 110% of the previous year’s fee obligation, which serves 

as a surrogate for the current year’s fee obligation. 

SCAQMD will annually report to CARB and EPA on the results 

of the demonstration of equivalency and preliminary 

determination of equivalency, as well as information on 

facilities’ fee obligations, programs and expenditures included 

in the fee equivalency account, and any surplus funding carried 

over to the subsequent calendar year.

If the annual demonstration of equivalency fails to show 

sufficient funds in the section 172(e) fee equivalency account 

for the prior year, or the preliminary determination of 

equivalency shows that adequate funding may not be available in 

the current year, then Rule 317 requires the SCAQMD Executive 

Officer (EO) to submit to the Governing Board within 90 days of 

the finding a back-stop rule that would require the EO to 

collect and/or track adequate fees for any shortfall. The 

Governing Board is required to act on the backstop rule within 

120 days of the funding inadequacy finding. 

If SCAQMD adopts a backstop rule applicable to major 

stationary sources, Rule 317 states that the backstop rule would 
17

include provisions that allow sources to request an alternate 

baseline period and multi-site aggregation of baseline and 

emissions. Rule 317 also states that stationary sources paying 

such fees in the backstop rule shall receive a credit for annual 

operating fees and annual operating emission fees paid to 

SCAQMD.

EPA’s TSD has more information about SCAQMD’s equivalent 

alternative program. 

How is EPA Evaluating SCAQMD’s Alternative Program?

Generally, SIP rules must be enforceable (see section 

110(a) of the Act). Guidance and policy documents that we use to 

evaluate enforceability requirements consistently include the 

following:

1. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, 

and Deviations,” EPA, May 25, 1988 (the Bluebook).

2. “Guidance Document for Correcting Common VOC & Other Rule 

Deficiencies,” EPA Region 9, August 21, 2001 (the Little 

Bluebook). 

3. “State Implementation Plans; Nitrogen Oxides Supplement to 

the General Preamble; Clean Air Act Amendments of 1990 

Implementation of Title I; Proposed Rule,” (the NOx

Supplement), 57 FR 55620, November 25, 1992.

4. “Review of State Implementation Plans and Revisions for 
18

Enforceability and Legal Sufficiency; Section 110: State 

Implementation Plans,” EPA, September 23, 1987 Memorandum.

Also, SIP revisions must not interfere with any applicable 

requirement concerning attainment and reasonable further 

progress (RFP) or any other applicable requirement of the Act 

(CAA section 110(l)).

SCAQMD’s equivalent alternative program must also be 

evaluated against section 185 of the Act, as described above 

under section III of this document. EPA also developed the 

following guidance on establishing baselines as allowed by 

section 185:

5. Memorandum from William Harnett, Director of the Air 

Quality Policy Division to the Regional Air Division 

Directors, entitled, “Guidance on Establishing Emissions 

Baselines under Section 185 of the Clean Air Act (CAA) for 

Severe and Extreme Ozone Nonattainment Areas that Fail to 

Attain the 1-hour Ozone NAAQS by their Attainment Date,” 

March 21, 2008.8

Does SCAQMD’s Alternative Program Meet the Evaluation Criteria?

As described below, we are proposing to find that SCAQMD’s 

equivalent alternative program is consistent with the relevant 

 

8 This guidance can be found at:

http://www.epa.gov/ttn/oarpg/t1/memoranda/20080321_harnett_emissions_basline.

pdf. 
19

policy and guidance regarding enforceability, SIP revisions, and 

sections 172(e) and 185 of the Act. 

One initial step in the equivalency demonstration is to 

determine the benchmark for comparison, i.e., the amount of fees 

that would have been collected under direct implementation of 

section 185. A fee is calculated for each major stationary 

source whose actual emissions of VOC or NOx exceed 80% of its 

baseline emissions. Rule 317 reflects the method for 

calculation of the fee set out in section 185(b)(1) of the Act. 

Section 185 specifies that baseline emissions are the lower 

of a source’s actual or allowable emissions during the 

attainment year. Section 185 and EPA’s March 21, 2008 baseline 

guidance memorandum provide for determining baseline emissions 

over a longer period if a source’s emissions are irregular, 

cyclical, or otherwise vary significantly from year to year. 

Rule 317 defines baseline emissions for most existing 

stationary sources in the South Coast Air Basin as an average of 

actual emissions from two years (fiscal years 2005-2006, and 

2006-2007), not to exceed allowable emissions, and 

programmatically adjusted to account for regulatory effects 

between 2006 through 2010 for the South Coast Air Basin. 

SCAQMD’s staff report for Rule 317 explains that SCAQMD selected 

this two-year baseline period as more representative of typical 
20

production and emissions because it occurred before the economic 

recession that began in 2008 and that using 2010 attainment year 

actual emissions as the baseline year would lock sources to an 

atypical low production year. SCAQMD provided data on various 

indicators such as Gross Domestic Product, regional employment, 

and usage of fuels and coatings and solvents to show the 

recessionary effects on emissions throughout the area. 

By letter dated December 21, 2011, SCAQMD provided sourcespecific emissions data and analyses that showed that all or 

almost all sources had emissions that varied from year to year. 

SCAQMD’s letter states that the selection of fiscal years 2005-

2006 and 2006-2007 as the baseline period for all major 

stationary sources results in an alternative baseline amount 

that is conservative but more representative of typical 

emissions. SCAQMD explains that under EPA’s 2008 baseline 

guidance, sources are allowed to choose any recent historical 

24-month consecutive period, including a period chosen by the 

source. See 40 CFR 52.21(48). SCAQMD’s analyses show that the 

District’s selected baseline period results in a lower baseline 

overall than would result from a regulatory approach that would 

allow sources to propose their own baseline. A lower baseline 

amount is conservative because it establishes a lower threshold 

for calculating the assessment of section 185 fees. EPA agrees 
21

the emissions baseline provisions of Rule 317 are appropriate. 

EPA’s TSD has more information on the alternative baseline. 

Rule 317 requires SCAQMD to establish a “section 172(e) fee 

equivalency account” that will be credited with expenditures 

from qualified programs that meet the criteria outlined in 

section (c)(1)(A) of the rule. One criterion is whether the 

expenditures, which result in emission reductions, are surplus 

to the 1-hour ozone SIP. The approved 1-hour ozone SIP in the 

South Coast Air Basin is the 1997 Air Quality Management Plan, 

as revised in 1999.9 The approved 1-hour ozone SIP in the 

Southeast Desert Modified AQMA is the 1994 Air Quality 

Management Plan.10

Surplus reductions are those that are not relied upon in 

the SIP, i.e., reductions that are not required nor assumed by 

the SIP to provide for RFP or attainment.11 At the time of rule 

adoption, SCAQMD identified three preliminary lists of qualified 

programs – Rule 317 Attachment A, “List of Programs Pre-funding 

Section 172(e) Fee Equivalency Account,” Attachment B in the 

staff report, “List of Potential Section 172(e) Fee Equivalent 

Account Funding Programs for Post-2011,” and Attachment C in the 

 

9 This SIP was approved by EPA on April 10, 2000 (see 65 FR 18903).

10 This SIP was approved by EPA on January 8, 1997 (see 62 FR 1150).

11 “Surplus” is discussed in EPA’s guidance, “Improving Air Quality with 

Economic Incentive Programs” published on January 2001 (EPA-452/R-01-001) and 

available at http://www.epa.gov/ttn/oarpg/t1/memoranda/eipfin.pdf.
22

staff report, “List of Potential Future Section 172(e) Fee 

Equivalent Account (Credit) Programs.” 

By letter dated December 21, 2011, SCAQMD updated the lists 

of qualified programs, which are attached to the letter as 

Exhibit A “Qualified Programs and Estimated Actual Expenditures 

for 2010 and 2011 Pre-funding the Section 172(e) Fee Equivalency 

Account” and Exhibit B “Qualified Programs Providing On-Going 

Funding for Post-2010 to Section 172(e) Fee Equivalent 

Account.12” The December 201l letter also elaborates on the 

bases for the conclusion that listed programs are surplus and 

meet the criteria at Rule 317(c)(1)(A). EPA has reviewed this 

documentation and agrees with SCAQMD that the programs 

previously listed in Attachment A of Rule 317 and Attachments B

and C of the staff report and listed as Exhibits A and B to the 

December 21, 2011 letter are surplus. This determination, with 

respect to these programs only, addresses section (c)(1)(A)(i) 

of the rule, which requires EPA’s approval that the qualified 

programs are surplus to the SIP. Future determinations of 

“surplus” may be necessary if SCAQMD relies on programs or 

 

12 When SCAQMD adopted Rule 317, the programs listed in Attachment C were

identified as “potential” programs for inclusion in the 172(e) equivalency 

account because SCAQMD did not have sufficient time to make a surplus 

determination. Subsequent to rule adoption, SCAQMD concluded in their letter 

dated December 21, 2011 that the programs listed in Attachment C of the staff 

report are also surplus. Exhibit B of SCAQMD’s December 21, 2011 letter 

included all programs that were previously included in Attachments B and C of 

the February 2011 staff report. 
23

expenditures other than those identified in Exhibits A and B of 

the December 21, 2011 letter to offset section 185 fee 

obligations.

Rule 317 requires that expenditures from qualified programs 

result in direct reductions or facilitate future reductions of 

VOC or NOx emissions. In contrast, section 185 of the Act 

requires states to assess fees on stationary sources but does 

not require that the fees be used for activities beneficial in 

reducing ozone formation. We believe this requirement in Rule 

317 to use the surplus funds for reducing ozone formation will 

result in further progress toward attainment. 

SCAQMD is required to demonstrate equivalency for the 

previous year’s fee obligation in accordance with section (c)(3) 

of the rule and report the results to CARB and EPA. Equivalency 

is demonstrated if the funds in the section 172(e) fee 

equivalency account are equal to or greater than the CAA nonattainment (section 185) fee obligation that would have been 

assessed for the prior year. The rule includes the correct 

equation to demonstrate equivalency. 

If equivalency is demonstrated and there are “unused” 

expenditures that exceeded the amount of the fee obligations, 

those “unused” funds are carried forward into the following 

assessment year. Since the expenditures have been determined to 
24

be surplus and there have been no other changes to the SIP for 

the 1-hour ozone standard, carrying these funds forward into the 

following year is acceptable because they would remain surplus. 

Also, if the expenditure occurred in a year prior to its use in 

an equivalency demonstration, the emission reductions would 

occur earlier, which is environmentally beneficial. 

As an added measure to demonstrate equivalency, Rule 317 

also has a forward-looking measure to estimate whether 

equivalency will likely be demonstrated. SCAQMD is required to 

preliminarily determine if expenditures in the section 172(e) 

fee equivalency account are at least 110% of the previous year’s 

fee obligation, which serves as a surrogate for the current 

year’s fee obligation. If the preliminary determination does 

not project equivalency in accordance with the rule, that would 

trigger the requirement for SCAQMD to adopt a backstop rule in 

advance of the actual equivalency demonstration. We believe 

this measure provides an additional checkpoint for ensuring 

equivalency. 

If SCAQMD fails to either demonstrate equivalency or the 

preliminary determination of equivalency does not show 

expenditures in the account at least equal to 110% of the 

estimated fee obligation, Rule 317 requires the EO to submit, 

within 90 days of the determination, a backstop measure to the 
25

Governing Board. Rule 317 also requires the Governing Board to 

act on the measure within 120 days of the determination, to 

either collect and/or track adequate fees to address the 

shortfall. 

Rule 317 identifies certain elements to be included in a 

major stationary source backstop rule. If the backstop rule 

requires major stationary sources to pay fees, Rule 317 states 

that the backstop rule would allow sources to receive a credit 

for fees paid for operating fees and annual operating emissions 

fees. Title V regulations at 40 CFR 70 require the assessment 

of fees sufficient to cover Title V program costs. While any 

backstop rule would need to ensure that this fee credit 

provision would not adversely affect funds needed to cover Title 

V program costs, this issue ultimately needs to be addressed in 

the rulemaking process for the backstop rule. 

Lastly, Rule 317 applies to SCAQMD and requires SCAQMD to 

follow the procedures to make the equivalency demonstration and 

to adopt a backstop rule to make up any shortfall if equivalency 

is not initially demonstrated. These provisions, if approved 

into the SIP, would be enforceable against SCAQMD. 

In conclusion, Rule 317 requires SCAQMD to demonstrate on 

an annual basis, in accordance with the principles of section 

172(e), that its alternative CAA section 185 program is not less
26

stringent than the program prescribed by CAA section 185. EPA 

therefore proposes to approve Rule 317 as satisfying the 1-hour 

ozone section 185 fee program requirements. The TSD has more 

information on our evaluation.

VII. Proposed Action

Because EPA believes SCAQMD Rule 317 fulfills all relevant 

requirements, we are proposing to approve Rule 317 as a SIP 

revision under section 110(k)(3) of the Act. EPA believes that 

SCAQMD’s equivalent alternative program is not less stringent 

than the requirements set forth in section 185 of the Act; 

therefore we are proposing to approve SCAQMD’s alternative 

program as fulfilling the requirements of sections 182, 185 and 

172(e) of the Act. If finalized as proposed, this action would 

permanently terminate all CAA Section 110(c) Federal 

Implementation Plan (FIP) implications associated with our 

January 5, 2010 Finding of Failure to Submit a SIP revision to 

satisfy section 185 requirements for the SCAQMD (75 FR 232). We 

will accept comments from the public on these proposals for the 

next 30 days. 

VIII. Statutory and Executive Order Reviews 

 Under the Clean Air Act, the Administrator is required to 

approve a SIP submission that complies with the provisions of 

the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 
27

40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA’s role 

is to approve State choices, provided that they meet the 

criteria of the Clean Air Act. Accordingly, this proposed 

action merely proposes to approve State law as meeting Federal 

requirements and does not impose additional requirements beyond 

those imposed by State law. For that reason, this proposed 

action:

• is not a “significant regulatory action” subject to review 

by the Office of Management and Budget under Executive 

Order 12866 (58 FR 51735, October 4, 1993);

• does not impose an information collection burden under the 

provisions of the Paperwork Reduction Act (44 U.S.C. 3501 

et seq.);

• is certified as not having a significant economic impact on 

a substantial number of small entities under the Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.);

• does not contain any unfunded mandate or significantly or 

uniquely affect small governments, as described in the 

Unfunded Mandates Reform Act of 1995 (Public Law 104-4);

• does not have Federalism implications as specified in 

Executive Order 13132 (64 FR 43255, August 10, 1999);
28

• is not an economically significant regulatory action based 

on health or safety risks subject to Executive Order 13045 

(62 FR 19885, April 23, 1997);

• is not a significant regulatory action subject to Executive 

Order 13211 (66 FR 28355, May 22, 2001);

• is not subject to requirements of section 12(d) of the 

National Technology Transfer and Advancement Act of 1995 

(15 U.S.C. 272 note) because application of those 

requirements would be inconsistent with the Clean Air Act; 

and

• does not provide EPA with the discretionary authority to 

address disproportionate human health or environmental 

effects with practical, appropriate, and legally 

permissible methods under Executive Order 12898 (59 FR 

7629, February 16, 1994).

In addition, this proposed action does not have tribal 

implications as specified by Executive Order 13175 (65 FR 67249, 

November 9, 2000), because the SIP is not approved to apply in 

Indian country located in the State, and EPA notes that it will 

not impose substantial direct costs on tribal governments or 

preempt tribal law.
29

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, 

Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting 

and recordkeeping requirements, Volatile organic compounds.

AUTHORITY: 42 U.S.C. 7401 et seq.

January 4, 2012 //signed//

________________ ______________________

Dated: Jared Blumenfeld,

Regional Administrator,

Region IX.