UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

No. 11-71127

CALIFORNIA COMMUNITIES AGAINS T TOXICS, an unincorporated association; COMMUNITIES FOR A BE TTER ENVRIONMENT, a California non-profit organization Petitioners,

v.

UNITED STATES ENVIRONMENTAL PR OTECTION AGENCY, LISA P. JACKSON, Administrator, U.S. Enviro nmental Protection Agency, and JARED BLUMENFELD, Regional Administrato r, Region IX, U.S. Environmental Protection Agency, Respondents.

________________________ ______________________ ____________________

PETITIONERS’ OPENING BRIEF [CORRECTED]

________________________ ______________________ ____________________ Angela Johnson Meszaros, SBN 174130 angela@cleanairmatters.net Timothy R. Grabiel, SBN 231045 tgrabiel@defenseterre.org Law Offices of Angela Johnson Meszaros 1107 Fair Oaks Avenue, Suite 246 South Pasadena, CA 91030 323-341-5868 office 323-872-5212 fax Attorneys for Pe titioner California Communities Against Toxics Shana Lazerow, SBN 195491 slazerow@cbecal.org Maya Golden-Krasner, SBN 217557 maya@cbecal.org Communities for a Better Environment 1904 Franklin Street, Suite 600 Oakland, CA 94612 510-302-0430 office 510-302-0437 fax Attorneys for Petitione r Communities for a Better Environment Case: 11-71127 07/28/2011 Page: 1 of 48 ID: 7836786 DktEntry: 21-2i CORPORATE DISCLOSURE STATEMENT Pursuant to Federal Rule of Appella te Procedure 26.1, Petitioners California
Communities Against Toxics and Commun ities for a Better Environment certify
that they have no parent companies and that no publicly held corporations own 10
percent or more of eith er of the organizations.
Dated: July 28, 2011

_____/s__________________ Shana Lazerow Case: 11-71127 07/28/2011 Page: 2 of 48 ID: 7836786 DktEntry: 21-2ii TABLE OF CONTENTS

CORPORATE DISCLOSU RE STATEM ENT .......................................................... i

TABLE OF CO NTENTS .......................................................................................... ii

TABLE OF AUT HORITIES .................................................................................... iv

GLOSSARY ........................................................................................................... viii

INTRODUCTI ON ..................................................................................................... 1

STATEMENT OF JU RISDICTI ON.......................................................................... 1

STATEMENT OF THE ISSU ES............................................................................... 1
STATEMENT OF THE CASE, COURSE OF PROCEEDINGS AND DISPOSITION BEFO RE THE AG ENCY ...................................................... 2

STATEMENT OF FACTS ........................................................................................ 3

SUMMARY OF THE ARGUMENT ........................................................................ 8

STANDARD OF REVIEW ....................................................................................... 9

STANDING ............................................................................................................. 11

ARGUMENT ........................................................................................................... 13 I. EPA’s Refusal to Include in its Docket the Documentation Upon Which it Relied was Arbitrary and Caprici ous .................................................................. 13

A. The Index and Docket Lacked Ref erence to the Technical Documents Concerning Cred it Validity ........................................................................... 14

B. EPA’s Failure to Include the Tec hnical Information Violated the APA ....... 16

II. The Emission Reductions Transferre d into the AB 1318 Tracking System Violate the Clean Air Act ................................................................................... 19

A. The Emission Reductions Violat e the Offset Requirements ......................... 19 Case: 11-71127 07/28/2011 Page: 3 of 48 ID: 7836786 DktEntry: 21-2iii 1. The Emission Reductions from Aggregate Operati ons Violate the Surplus Requi rement .............................................................................. 20

2. The Emission Reductions Violate the Quantifiable Requirement ............... 22

3. The Emission Reductions Are Not Creditabl e Because They Have Not Been Included in the Emissions Inve ntory ............................................ 26

B. The Internal Accounts Are Inextr icably Intertwined with the AB 1318 Tracking Syst em ............................................................................................... 28

1. Internal Accounts Balance is Re levant to This Rulemaking ........................ 30

2. EPA’s Reliance On a Letter to Support its Claim About the Account Balances is Improper .................................................................................... 33

CONCLUSION AND RELIEF REQUESTED ....................................................... 36

CERTIFICATE OF COMPLIANCE WITH WORD LIMIT .................................. 37

STATEMENT OF RELA TED CASES ................................................................... 38 Case: 11-71127 07/28/2011 Page: 4 of 48 ID: 7836786 DktEntry: 21-2iv TABLE OF AUTHORITIES

FEDERAL CASES
Akhtar v. Burzynski , 384 F.3d 1193 (9th Ci r. 2004) .......................................... 10, 11
Bennett v. Spear , 520 U.S. 154 (1997) .................................................................... 34
Burlington Truck Lines v. United States , 371 U.S. 156 ( 1962) ............................... 10
Center for Energy and Econ. Dev. v. EPA , 398 F.3d 653 (D.C. Cir. 2005) ......................................................................... 12

Chevron U.S.A. Inc. v. Natura l Res. Def. Council, Inc ., 467 U.S. 837 (1984) ......................................................................................... 10
Connecticut Light and Power Co. v. Nuclear Regulatory Commission , 673 F.2d 525 (D.C.Cir. 1982) ......................................................................... 17
Covington v. Jefferson County , 358 F.3d 626 (9th Cir. 2004) ................................ 12
Desert Citizens Against Pollution v. Bisson , 231 F.3d 1172 (9 th Cir. 2000) ........................................................................ 10
General Motors Corp. v. U.S. , 496 U.S. 530 ( 1990) ................................................. 3
Hunt v. Washington Stat e Apple Advertising Comm’n , 432 U.S. 333 (1977) ......................................................................................... 11
Kern County Farm Bureau v. Allen , 450 F.3d 1072 (9 th Cir. 2006) ................................................................... 13, 14
Motor Vehicles Mfrs. Ass’n v. New York State Dep’t of Envtl. Conservation , 17 F. 3d 521 (2nd Ci r. 1994).............................................................................. 3
Motor Vehicle Mfrs. Ass’n v. State Farm Mutual Automobile Ins. Co. , 463 U.S. 29 (1983) ........................................................................................... 10 Case: 11-71127 07/28/2011 Page: 5 of 48 ID: 7836786 DktEntry: 21-2v Natural Resources Defense Council v. EPA , 507 F.2d 905 (9th Cir. 1974) ........................................................................... 12
Natural Resources Defense Council v. EPA , 966 F.2d 1292 (9th Cir. 1991) ......................................................................... 13
Natural Resources Defense Council v. South Coast AQMD , Los Angeles S uper. Ct. Case No. BS1057 28 ..................................................... 7
Natural Resources Defense Council v. South Coast AQMD , Los Angeles Supe r. Ct. Case No. BS110792 ............................................... 7, 32
Oregon Natural Desert Ass’ n v. U.S. Forest Service , 465 F.3d 977 (9th Cir. 2006) ........................................................................... 34
Ranchers Cattleman Action Legal Fund v. U.S. Dep’t of Agric ., 415 F.3d 1078 (9th Cir. 2005) ......................................................................... 10
South Coast Air Quality Mgmt. Dist. v. EPA , 472 F. 3d 882 (D.C. Cir. 2007) .......................................................................... 4
Vigil v. Leavitt , 381 F. 3d 826 (9th Cir. 2004) ........................................................... 9
Whitman v. Am. Trucking Ass'n , 531 U.S. 457 (2 001) ............................................ 34

FEDERAL STATUTES

5 U.S.C. § 553 ......................................................................................................... 13 5 U.S.C. § 706(2)(A ) ...................................................................................... 9, 10, 32 5 U.S.C. § 706( 2)(D) ................................................................................................ 32
42 U.S.C. § 7407 (d) ................................................................................................... 3
42 U.S.C. § 7409(b) ................................................................................................... 3 Case: 11-71127 07/28/2011 Page: 6 of 48 ID: 7836786 DktEntry: 21-2vi 42 U.S.C. § 7410(a )(1) ........................................................................................... 3, 5 42 U.S.C. § 7410(a)( 2) ................................................................................... 5, 19, 35
42 U.S.C. § 7410 (h)(2)............................................................................................... 4
42 U.S.C. § 7410(k) ................................................................................................... 4
42 U.S.C. § 7501 ........................................................................................................ 5
42 U.S.C. § 7502(c) ................................................................................................... 4 42 U.S.C. § 7502(c )(2) ............................................................................................. 35 42 U.S.C. § 7502(c )(3) ............................................................................................. 35 42 U.S.C. § 7502(c)( 5) ........................................................................................ 6, 19
42 U.S.C. § 7503 (a)(1) ............................................................................................... 5
42 U.S.C. § 7503 (c) ............................................................................. 4, 6, 19, 20, 22
42 U.S.C. § 7607 (b)(1)............................................................................................... 1
42 U.S.C. § 7401 -7671 .............................................................................................. 5

E–Government Act of 200 2, Pub.L. No. 107–347, 116 Stat. 2899, 2916 (Dec. 17, 2002) .............................................................. 18

FEDERAL REGULATIONS

40 C.F.R. § 50 ............................................................................................................ 3 40 C.F.R. § 51. 112 ............................................................................................. 21, 26 40 C.F.R. § 51.165 (a)(3) ...................................................................................passim 40 C.F.R. § 51.230 ................................................................................................... 21 40 C.F.R. § 51.852 ..................................................................................................... 4 Case: 11-71127 07/28/2011 Page: 7 of 48 ID: 7836786 DktEntry: 21-2vii 40 C.F.R. § pt. 51, App. S § IV(C)(3)(i )(l) .......................................................... 4, 19 40 C.F.R. § 52.220 ..................................................................................................... 5 76 Fed. Reg. 22038 (Apr. 20, 2011) ................................................................ 1, 3, 16 76 Fed. Reg. 22039 (April 20, 2011) at fn . 1 ....................................................passim 76 Fed. Reg. 22040 (April 20, 2011) ..................................................... 16, 23, 33, 36 76 Fed. Reg. 22041 (April 20, 2011) ...............................................20, 23, 25, 27, 35 76 Fed. Reg. 2294 (January 13, 2011) ........................................................... 2, 14, 15 76 Fed. Reg. 2296 (Janua ry 13, 2011) ..................................................................... 14

STATE CODE
Cal.. Health & Safe ty Code § 40412 .......................................................................... 5 Case: 11-71127 07/28/2011 Page: 8 of 48 ID: 7836786 DktEntry: 21-2viii GLOSSARY

Act The federal Clean Air Act, 42 U.S.C. §§ 7410 et seq.
AER Annual Emissions Report

APA Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.
AQMP Air Quality Management Plan

District South Coast Air Quality Management District

EPA United States Environmental Protection Agency

LCM Little Company of Mary Hospital
NAAQS National Ambient Air Quality Standard

NSR New Source Review

Nonattainment

area An area designated by EPA as failing to meet a national ambient air quality standard.

Offset requirements Requirements of 42 U.S.C. § 7503, applicable in nonattainment areas, to ensure that all new emissions are offset by emissions reductions. OSCV Forms Offset Source Calculation/Verification Forms Sentinel Revision CPV Sentinel Energy Project AB 1318 Tracking System SIP State Implementation Plan. A plan that identifies the actions and programs to be undertaken by the state and its subdivisions to implement their responsibilities under the Clean Air Act. Case: 11-71127 07/28/2011 Page: 9 of 48 ID: 7836786 DktEntry: 21-21 INTRODUCTION Petitioners California Communities Ag ainst Toxics and Communities for a Better Environment (collec tively “Communities”) challenge approval by the United States Environmental Protection Ag ency (“EPA”) of the Revision to the South Coast Portion of the California St ate Implementation Plan, CPV Sentinel Energy Project AB 1318 Tracking System (“Sentinel Revision”) because EPA violated the Administrative Procedure Act (“ APA”), failing both to reveal the basis for its decision to the public, and to base its decision on facts in the record. Communities further challenge the Sentinel Revision because it fails to meet the requirements of the Clean Air Act (“Act”).

STATEMENT OF JURISDICTION This is a petition for review of a fi nal action of EPA made under the Clean Air Act. This Court has jurisdiction pursu ant to section 307(b)(1) of the Act, 42 U.S.C. § 7607(b)(1), which provides that a petition for review of a final EPA action “which is locally or regionally a pplicable” may be filed “only in the United States Court of Appeals for the appropriate circuit.” The petition for review must be filed within 60 days from the date the notice of the final action appeared in the Federal Register. Id . The final EPA rule at issu e was published in the Federal Register on April 20, 2011, and is locally or regionally applicable. 76 Fed. Reg. 22038 (Apr. 20, 2011) [Petitioners’ Excer pts of Record (“PER”) 000005]. The petition for review was timely filed on April 20, 2011.

STATEMENT OF THE ISSUES
1. Whether EPA violated the APA in refusing, in both the index to its docket and its electronic docket, to include the doc uments upon which it based its decision; Case: 11-71127 07/28/2011 Page: 10 of 48 ID: 7836786 DktEntry: 21-22 2. Whether EPA violated the Clean Air Act in approving emission reductions as meeting federal offset requirements wh en the factual evidence upon which it purported to rely was absent, and the evid ence that existed was contrary to such a finding; 3. Whether EPA violated the Clean Air Act in approving reliance upon “offset credits” that do not meet the Clean Ai r Act requirements of 42 U.S.C. § 7502; and,
4. Whether EPA violated the Clean Air Ac t in allowing a transfer of “offset credits” from an “offset account” that cannot be shown to have a positive balance.

STATEMENT OF THE CASE, COUR SE OF PROCEEDINGS, AND DISPOSITION BEFORE THE AGENCY On January 13, 2011, the U.S. Envir onmental Protection Agency (“EPA”) published a notice of proposed rulemaking, for an amendment to the California State Implementation Plan (“SIP”) that would create “offset credits” from emission reductions purportedly occurring be tween 1999 and 2008. The SIP amendment would allow transfer of th ese credits from South Coas t Air Quality Management District’s (“District”) internal credit bank to a new powerplant, CPV Sentinel. PER 000012. On two occasions, Petitione rs California Communities Against Toxics and Communities for a Better En vironment (“Communities”) sought an extension of time to submit comments c oncerning the amendment, and both times EPA refused the extension requests. See PER 000002. On February 14, 2011, Communities commented on the proposed am endment. PER 000003. On April 20, 2011, Communities filed a petition for re view in this Court challenging EPA’s final action published in its April 20, 2011 “Revision to the South Coast Portion of Case: 11-71127 07/28/2011 Page: 11 of 48 ID: 7836786 DktEntry: 21-23 the California State Implementation Plan, CPV Sentinel Energy Project AB 1318 Tracking System.” PER 000005.

STATEMENT OF FACTS Statutory Background The Clean Air Act is recognized as “ one of the most comprehensive pieces of legislation in our nation’s history.” Motor Vehicles Mfrs. Ass’n v. New York State Dep’t of Envtl. Conservation , 17 F.3d 521, 524 (2nd Cir. 1994). Congress crafted, in meticulous detail, a statutory scheme that makes “the States and the Federal Government partners in th e struggle against air pollution.” General Motors Corp. v. U.S. , 496 U.S. 530, 532 (1990). Under the Act, EPA is responsible fo r establishing national ambient air quality standards (“NAAQS”) for air pollutant s to “protect the public health” with “an adequate margin of safety.” 42 U.S.C. § 7409(b). EPA has established NAAQS for six criteria pollutants: carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide. 40 C.F.R. § 50. EPA further designates all air basins in the country as “attainment” or “nonattainment” areas, depending on whether a basin meets the NAAQS for a particular pollutant. 42 U.S.C. § 7407(d). The South Coast Air Basin and Salton Sea Air Basin have been designated as nonattainment for particulate matter, a nd thereby its precursors nitrogen oxides and sulfur oxides, as well as for ozone. See PER 000018. Under the Act, each state with a nonattainment area is responsible for developing a State Implementation Plan (“SIP”) to achieve an d maintain NAAQS within its territory. 42 U.S.C. § 7410(a)(1). The Act and federal regulations outline the requirements for a SIP. EPA reviews each SIP submi ssion, and may approv e a submission only Case: 11-71127 07/28/2011 Page: 12 of 48 ID: 7836786 DktEntry: 21-24 when the SIP complies with the Act and federal regulations. 42 U.S.C. § 7410(k); see also 42 U.S.C. § 7502(c); 42 U.S.C. § 7410(h)(2); 40 CFR § 51.165. Early versions of the Act gave states wide discretion in choosing the manner in which they would attain the NAAQS. After decades of little progress toward air quality goals, however, a frustrated Congr ess enacted significant amendments to the 1970 version of the Act in 1977 and again in 1990, mandating increasingly prescriptive requirements for nonattainment areas. See South Coast Air Quality Mgmt. Dist. v. EPA , 472 F.3d 882, 886-87 (D.C. Cir. 2007) (describing the history of Clean Air Act amendments). In the 1990 Amendments, Congress requ ired, as a key strategy in the New Source Review (“NSR”) program, that ne w sources of pollution “offset” their emissions increases with emission reductions. 42 U.S.C. § 7503(c). Congress required that emission reductions used as offsets “be, by the time a new or modified source commences operation, in effect and enforceable.” Id. Congress further specified that “the total tonnage” of new emissions “be offset by an equal or greater reduction, as applicable, in the actual emissions of such air pollutant.” Id. In addition, “emission reductions othe rwise required [under the Act] shall not be creditable as emission reductions for pur poses of any such offset requirement.” Id. EPA, in its regulations implementi ng Congress’ offsetting mandate, has developed a shorthand for the requirements of § 7503, referring to them as real, surplus, enforceable, quantifiable, and permanent (collectively “offset requirements”). See, e.g., 40 C.F.R. §§ 51.165(a)(3)( ii)(C)(1)(i)(ii); 51.852; 40 C.F.R. pt. 51, App. S § IV(C)(3)(i)(1). An emission reduction not in compliance with offset requirements is not valid, a nd may not be credited to offset emission increases at polluting facilities. Case: 11-71127 07/28/2011 Page: 13 of 48 ID: 7836786 DktEntry: 21-25 California State Implementation Plan The District is responsible for air qua lity in the South Coast Air Basin and Salton Sea Air Basin. Cal. Health & Safety Code § 40412. Its principal duty is to implement the Act, which requires the Di strict to develop and submit a SIP to EPA. 42 U.S.C. §§ 7401-7671. The SIP mu st “include enforceable emission limitations and other control measures, means, or techniques..., as well as schedules and timetables for compliance, as may be necessary or appropriate to meet the applicable requirements of this chapter,” including the more stringent offsetting requirements for nonattainment areas. 42 U.S.C. § 7410(a)(2)(A), (I). The California SIP contains a NSR progr am for the South Coast Air Basin. 1 See, e.g. , 42 U.S.C. §§ 7410(a), 7501, 7503(a)(1)( A). As part of the NSR program, the District must compel pollution sour ces to offset emission increases with emissions reductions in the form of emission reduction credits (“credits” or “emission credits”). Emitters typically buy and sell credits on the open market. The District also maintains a bank of cred its (“internal accounts”) for distribution to qualifying facilities through its Rule 1309.1 “Priority Reserve” and its Rule 1304. Internal Bank Offset Credits and AB 1318 The District’s internal accounts are an integral part of the District’s offsetting program, en suring that new emissions from “exempt” sources are offset by emission reductions. PER 000013, 00 0018, 000132-000133. These exempt sources—mostly small facilities and essentia l public services, such as schools and hospitals—rely on the District itself to provide offsets from its internal accounts, so that they need not turn to the market to pur chase offset credits. Id. In its approval

1 EPA approved Regulation XIII, esta blishing the New Source Review (NSR) program for the District, in 1996. 61 Fed. Reg. 64291 (D ecember 4, 1996) (codified at 40 C.F.R. § 52.220). Case: 11-71127 07/28/2011 Page: 14 of 48 ID: 7836786 DktEntry: 21-26 of the NSR portion of California’s SIP pertai ning to the South Coast, EPA clarified that when the District provides these banked emission reductions to pollutiongenerating facilities, the District stands in the shoes of a private party selling credits and thus assumes the responsibility for ensuring that its emission reductions meet federal offset requirements. PER 000013, 00020-00021, 000125. This construct is intended to ensure that all emission increases, whether they occur at facilities subject to the offset market or at facilities the District has excused from that market, are offset with the em ission reductions that are required for nonattainment areas. 42 U.S.C. § 7502(c)(5 ); 42 U.S.C. § 7503(c); 40 C.F.R. § 51.165(a)(3)(ii )(C)(1)(i)-(ii). The District tracks offsets in its inte rnal account in the aggregate, which means it does not associate a specific em ission reduction with a specific emission increase. If the internal bank has a pos itive balance, as shown in an Annual Equivalency Report, the District’s progr am has demonstrated “equivalence” with federal requirements and is presumed to have offset credits to issue. Zero balance would indicate that all emission reductions are “in use,” and a negative balance would show that the District had allowe d increases to exceed reductions, and the new emissions were not being offset. In 2000-2001, market manipulations and illegal pipeline shutdowns triggered the California energy crisis. In the panic that en sued, the District amended its Rule 1309.1, opening its internal bank for the first time to power plant developers. See PER 000130. In reviewing the expanded universe of recipients eligible for internal bank credits, EPA reque sted documentation to substantiate the accounts balance. Many of the emission re ductions in the internal accounts lacked documentation, or failed to meet the Clean Air Act’s requirements. Petitioners’ Request for Judicial Notice (“RJN”) Exh. C, pp. 21-22. Therefore, in 2005, the Case: 11-71127 07/28/2011 Page: 15 of 48 ID: 7836786 DktEntry: 21-27 District eliminated those credits from its accounts’ balance sheet. Id. ; see also PER 000129. The internal accounts’ balances were now negative. See, generally, RJN Exh. C, pp. 21-22; 25-27. Hoping to address its nega tive balance and establish a tracking system EPA would approve, the District adopted a ne w rule, Rule 1315. Rule 1315 would have added four additional cla sses of emission reduction credits, and applied those changes retroactively, to stock the inte rnal bank. In adopting Rule 1315, the District failed to comply with state envi ronmental law in 2006, and again in 2007.
See , Natural Resources Defense Council v. South Coast AQMD , Los Angeles Super. Ct. Case No. BS105728 (demu rrer denied February 21, 2007); Natural Resources Defense Council v. South Coast AQMD , Los Angeles Super. Ct. Case No. BS110792 (judgment entered November 3, 2008). In 2011, the District again adopted Rule 1315. PER 000006, ftnt 1. At present, it is under state-court review through a writ return. It has also been submitted to EPA as a SIP revision. Id

. EPA has stated its intention to notice Rule 1315 for rulemaking. Id . Unless and until the Rule 1315 modifications to the existing tracking system are approved by EPA and a new account balan ce is determined, the Distri ct has a negative balance in its internal bank. The most recent Annual Equivalency Report approved by the South Coast AQMD Board that did not rely on the use of credits created by the not yet adopted Rule 1315 was for the balance in 2002 – over 9 years ago. PER 000001; RJN Exh. C, pp. 21-22. In 2009, power plant developers and th e District joined forces to lobby the California legislature for “a solution” – a new state law, Assembly Bill (“AB”) 1318, mandating that the District issue credits from its internal bank. PER 000005- 000010. AB 1318 specified that the District would transfer credits from its internal bank to a new power plant, to be bu ilt by CPV Sentinel. PER 000017-000019. Case: 11-71127 07/28/2011 Page: 16 of 48 ID: 7836786 DktEntry: 21-28 The credits would be derived from emissi on reductions that purportedly occurred between 1999 and 2008. Id. The District adopted this SIP amendment, seeking EPA’s approval to change its approved NSR program so it could use the newlyminted credits it intended to credit to its internal account and transfer to CPV Sentinel.

SUMMARY OF THE ARGUMENT EPA adopted a revision to the California SIP, the AB 1318 Tracking System, in violation of applicable law. In adopting the SIP revision, EPA violated mandatory APA requirements that are vital to meaningful public participation in the rulemaking process. In approving the AB 1318 Tracking System and the emission reductions transferred into it, EP A further violated bedrock Clean Air Act requirements for nonattainment plans a nd emission reductions. Each of these violations renders the SIP revision unlawful. The APA violations boil down to a singl e issue: whether EPA must disclose to the public the information upon which it relied in reviewing the SIP revision. Contrary to EPA assertions, the law requir es this information to be disclosed and made available for public review and co mment, both in the docket index and the electronic docket. These procedural pr otections were established to provide meaningful opportunity for the public to inform and improve agency decisions, especially those with implications for publ ic health and well-be ing. To allow EPA to ignore these protections is to thro w a blanket over the fundamental American value of government-in-the-sunshine. EPA approval of the Sentinel SIP revision also violates the Clean Air Act. The AB 1318 Tracking System was designed for a singular purpose: to provide emission credits from the District’s intern al accounts, traditionally reserved for Case: 11-71127 07/28/2011 Page: 17 of 48 ID: 7836786 DktEntry: 21-29 small facilities and essential public services, to a power plant that successfully lobbied the California state legislature. Although this ill-advised policy decision is not at issue, the emission offsets tran sferred into the AB 1318 Tracking system must comply with federal offset requireme nts in the Clean Air Act – requirements designed to transcend political whims a nd ensure air quality improvements in nonattainment areas. EPA c oncluded that the emission offsets meet the offset requirements. However, this conclusion is flat out contradicted by the information that EPA waited until publication of the Fina l Rule to disclose (the information EPA now offers in support of its conclusi on). Records show, with cold starkness, that the emission reductions are not surplus, are not quantifiable, and have not been included in emissions inventories, as requi red. The record also strongly suggests that EPA did not undertake a thorough analys is of the documents it claims to have reviewed before making its decision. Fina lly, even if the emissions offsets were transferrable, EPA cannot establish that the District’s internal accounts have credits available to transfer. The emission credits have not been shown to be valid, and EPA’s approval of them violates the Clean Air Act.

STANDARD OF REVIEW The Clean Air Act does not specify a st andard of review for challenges to EPA approvals of revisions to state implem entation plans. Accordingly, this Court has applied the general standard of review for agency actions provided in section 706 of the APA, 5 U.S.C. § 706(2)(A). See Vigil v. Leavitt , 381 F.3d 826, 833 (9th Cir. 2004). Section 706 of the APA provide s in relevant part, “[t]he reviewing court shall . . . hold unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A ). Where an agency has “offered an Case: 11-71127 07/28/2011 Page: 18 of 48 ID: 7836786 DktEntry: 21-210 explanation for its decision that runs coun ter to the evidence be fore the agency,” the court will reverse an agency’s ac tion under the arbitrary and capricious standard of review. Motor Vehicle Mfrs. Ass’n v. St ate Farm Mutual Automobile
Ins. Co. , 463 U.S. 29, 43 (1983). Further, th e agency must artic ulate a “rational connection between the facts f ound and the choice made.” Burlington Truck Lines v. United States , 371 U.S. 156, 168 (1962). This Court has explained:
This standard necessitates a judicial examination of the disputed decision's rationale and surrounding circumstances in order to carry out the “demand that courts ensure that agency decisions are founded on a reasoned evaluation ‘of the relevant factors.’”

Desert Citizens Against Pollution v. Bisson , 231 F.3d 1172, 1180 (9th Cir. 2000) (citations omitted) quoting Marsh v. Oregon Nat. Res. Council , 490 U.S. 360, 378 (1989). While this Court has recognized that the review of agency actions is deferential, it has also noted its responsibility to prov ide its own thorough review. See, e.g., Ranchers Cattlem an Action Legal Fund United Stockgrowers of America v. U.S. Dep’t of Agric. , 415 F.3d 1078, 1093 (9th Cir. 2005) (“[w]hile review is . . . deferential, it is not toothless; courts must conduct a ‘thorough, probing, in-depth’ inquiry into the validity of regulations”). When reviewing EPA’s construction of a statute, this Court follows the twopart test established in Chevron U.S.A. Inc. v. Natura l Res. Def. Council, Inc., 467 U.S. 837 (1984). The first step is to determine whether Congress has spoken directly to the precise question at issue. Akhtar v. Burzynski , 384 F.3d 1193, 1198 (9th Cir. 2004) (citing Chevron , 467 U.S. at 842). If the intent of Congress is clear, the court must give effect to that unambiguously expressed intent. Akhtar , 384 F.3d at 1198. If the statute is silent or ambiguous, a reviewing court will defer to an agency’s interpretation if found to be reasonable. Id . However, the Court Case: 11-71127 07/28/2011 Page: 19 of 48 ID: 7836786 DktEntry: 21-211 owes no deference to agency interpretations that construe the statute “in a way that is contrary to congressional intent or that frustrates congressional policy.” Id.

STANDING California Communities Against Toxics (“CCAT”) and Communities for a Better Environment (“CBE”) have standi ng to challenge EPA’s approval of the Sentinel Revision. An organization has sta nding to bring an action on behalf of its members when: (1) neither th e claim asserted nor the relief requested requires its members to participate directly in the laws uit, (2) it is seeking to protect interests that are germane to its purpose, and (3) its members would have standing to sue individually. See Hunt v. Washington St ate Apple Advertising Comm’n , 432 U.S. 333, 343 (1977). Here, direct participation of Communities’ me mbers is not necessary either to make the claims asserted or for th is Court to grant the relief requested. Moreover, the interests Communities seek to advance through this litigation fall squarely within each of their organiza tion’s missions. Declaration of Robert Cabrales (“Cabrales Dec.”), ¶¶ 5-7; Declaration of Alfredo Figueroa (“Figueroa Dec.”), ¶ 4; Declaration of Oscar Gutierre z (“Gutierrez Dec.”), ¶ 3 and Declaration of Jane Williams (“Williams Dec.”), ¶ 4. CCAT and CBE each have members wi th standing to bring this suit individually because the members are inju red by EPA’s approval of the Sentinel Revision and a favorable order from this Court would redress that injury. See generally Cabrales Dec., Figueroa Dec., Gutie rrez Dec., and Williams Dec. A plaintiff “will suffer injury if compelled to breathe air less pure than that mandated by the Clean Air Act.” Natural Resources Defense Council v. EPA , 507 F.2d 905, 910 (9th Cir. 1974). CCAT and CBE each has members who will be forced to Case: 11-71127 07/28/2011 Page: 20 of 48 ID: 7836786 DktEntry: 21-212 breathe air less pure than it would have been had the Sentinel Revision complied with the requirements of the Clean Air Ac t. Cabrales Dec., ¶¶ 15-17; Williams Dec., ¶ 7-12. In a Clean Air Act citizen su it alleging a procedural failure, plaintiffs need only show a “concrete interest” is at stake and need not show that substantive environmental harm is imminent. Covington v. Jefferson County, 358 F.3d 626, 641 (9th Cir. 2004). Here, each organiza tion has members who were deprived of the right, required by the APA, to par ticipate in the rulemaking process that resulted in EPA’s decision. Williams Dec., ¶¶ 13-15; Cabrales Dec., ¶¶ 9-10, 15-
16. Had EPA disappr oved the Sentinel Revision, th e facility either would not be constructed at all or, at least, would not be adding pollution to the air basin that is not allowed under the Clean Air Act. Had EPA followed the notice and comment process required by the AP A, CCAT and CBE would have provided critical analysis that EPA should have included in its decision-making. Finally, a favorable order by this Court will provide redress to CCAT and CBE members for the illegal and harmful e ffects of EPA’s violations of both the APA and the Clean Air Act. An order vacating EPA’s approval of the Sentinel Revision will prevent air emissions not a llowed under the Clean Air Act and also will require EPA to provide an opportunity to participate in a new rulemaking. See Center for Energy and Econ. Dev. v. EPA , 398 F.3d 653, 657 (D.C. Cir. 2005) (holding that “the redressability requireme nt may be satisfied . . . by vacating the challenged rule and giving the aggrieved pa rty the opportunity to participate in a new rulemaking”) (quotations omitted). For the above reasons, bot h California Communities Against Toxics and Communities for a Better Environment have standing to challenge EPA’s approval of the Sentinel Revision. Case: 11-71127 07/28/2011 Page: 21 of 48 ID: 7836786 DktEntry: 21-213 ARGUMENT

I. EPA’S REFUSAL TO INCLUDE IN ITS DOCKET THE DOCUMENTATION UPON WHICH IT RELIED WAS ARBITRARY AND CAPRICIOUS The APA requires an agency to “give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments...” 5 U.S.C. § 553(c). A critical part of this requirement is the agency’s “duty to identify and make available techni cal studies and data that it has employed in reaching the decisions to propose particular rules.” Kern County Farm Bureau v. Allen , 450 F.3d 1072, 1076 (9th Cir. 2006). These requirements apply in full force when EPA is considering a SIP am endment, which can be particularly technical. In a Clean Air Act-related ru lemaking, EPA’s docket must include the documentation upon which it relies for its d ecision that the amendment satisfies the Clean Air Act requirements. See, e.g., NRDC v. EPA , 966 F.2d 1292, 1305 (9th Cir. 1991) (“without supportable facts, we are unable to rely on our usual assumption that EPA has rationally ex ercised the duties delegated to it by Congress”). To effectua te the APA’s public participation requirements, an agency’s electronic docket must include al l materials submitted to the agency in the rulemaking, as well as all other mate rials ordinarily included in the agency docket. 2 E–Government Act of 2002, Pu b.L. No. 107–347, 116 Stat. 2899, 2916 (Dec. 17, 2002).

2 Narrow exceptions exist for certain inform ation, such as Confidential Business Information. Case: 11-71127 07/28/2011 Page: 22 of 48 ID: 7836786 DktEntry: 21-214 “An agency commits serious procedural error when it fails to reveal portions of the technical basis for a proposed rule in time to allow for meaningful commentary.” Kern , 450 F.3d at 1076.

A. The Index and Docket Lacked Reference to the Technical Documents Concerning Credit Validity In the Proposed Rule, EPA “pr opos[ed] to find that the PM 10 and SO x offsetting emission reductions transferre d to the AB 1318 Tracking System meet the CAA Section 173 requirements that emission reductions used as offsets be ‘real, quantifiable, surplus, permanent, and enforceable prior to use.’” PER 000014. EPA explained that it “has re viewed the documents provided for each offsetting emission reduction the District has transferred to the AB 1318 Tracking System.” PER 000014. EPA provided a 30- day public comment for this Proposed Rule and described the info rmation upon which it relied:

Docket: The index to the docket for this action is available electronically at http://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 in the index , some information may be publicly available only at the hard copy location ( e.g., copyrighted material ), and some may not be publicly available in either location ( e.g., CBI). PER 000044. On January 21, 2011, Communities reque sted an extension of time to comment on the Proposed Rule. PER 000037. On January 28, EPA refused Communities’ request. PER 000038-0000 39. On February 7, Communities requested that EPA reconsider its denial, noting that:
[A]lthough the Federal Register noti ce says “Documentation for each of these offsetting emission reductions is included in the docket for this proposal,” that documentation was not included as part of the record. The Case: 11-71127 07/28/2011 Page: 23 of 48 ID: 7836786 DktEntry: 21-215 failure to include in the docket inform ation that is critical for commenting upon this proposed rule is yet another reason to extend the comment deadline.

PER 000040-000041. EPA responded to Co mmunities’ letter on February 11, three days before comments on the Propo sed Rule were due. PER 000042-000043. There, EPA again suggested that it was re lying upon “documentation” that was not listed in the Docket Index, but did not de scribe or otherwise disclose what that “documentation” was. EPA wrote:
While the index posted on regulations .gov did not specifically list the support documents for each offset em ission reduction as a line item, as you note in your letter, the FR notice states that such information is available in the docket.

PER 000042. This statement is bewildering. The Proposed Rule stated that “all documents in the docket” are listed in th e Docket Index. PER 000012. Further, the Docket Index includes two notes: (1) “ All documents are available on internet at Regulations.gov under Docket # EP A-R09-OAR-2010-1078;” and (2) “Copies of the listed documents are located at EP A Region 9 offices.” PER 000044 (emphasis added). Nowhere in the lette r—nor in the Notice of Proposed Rule— does EPA describe the documen tation upon which it relied. See generally PER 000042, 000005-000020

. In the Notice of Final Rule, EPA c ontinued its cat-and-mouse game. The Docket Index is again described as c ontaining “all documents” in the docket:

Docket: The index to the docket for this action is available electronically at http://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 in the index , some information may be publicly available only at the hard copy location ( e.g., copyrighted material ), and some may not be publicly available in either location ( e.g., CBI). Case: 11-71127 07/28/2011 Page: 24 of 48 ID: 7836786 DktEntry: 21-216 PER 000005 (emphasis added). Yet, in its response to Communities’ comment that “EPA did not include critical docum ents in the docket for this proposed rulemaking,” EPA wrote:
CCAT appears to be criticizing the fact that scanned copies of voluminous records documenting the validity of each pound of emissions credits being transferred from the District bank to Sent inel were not provided in electronic form on the regulations.gov Web site. These documents consist of the “Offset Source Calculation/Veri fication Form” and supporting documentation for each form. The Distri ct’s submittal consisted of a CD, with 62 separate documents, comp rising more than 1,000 pages.

PER 000007. EPA is correct; Communities ar e criticizing the failure to make available the documents upon which EPA purpor ts to base its decision. It was in this response to comments, published with its final decision on April 20, that EPA first disclosed any information at all a bout the documents upon wh ich it relied.

B. EPA’s Failure to Include the Tec hnical Information Violated the APA EPA’s attempts to justify the omissi on of these documents from the index and docket are unavailing. First , EPA suggested it would have been onerous to list each document on which it relied in the I ndex. While EPA conceded that “the District’s submittal consisted of a CD... with 62 separate documents,” it implied that listing those documents in the Docket Index—or describi ng them in any way at all—was too burdensome and therefore EPA did not do so. See PER 000007. Second , EPA argued that “there is no lega l requirement” to provide a Docket Index at all, and it was therefore entitled to provide an incomplete index. This argument ignores that, regardless of wh ether EPA was required to provide a Docket Index or not, since EPA did provide a Docket Index claiming “all Case: 11-71127 07/28/2011 Page: 25 of 48 ID: 7836786 DktEntry: 21-217 documents in the docket are listed in the index,” it had an obligation to provide a complete Docket Index. 3 EPA criticized Communitie s for not trekking to San Francisco to scrutinize the physical c opies of documents, despite repeated published written assurances that all the documents in the docket were listed in the index. The APA emphatically pr ohibits such gamesmanship. See Connecticut Light and Power Co. v. Nuclear Regulatory Commission, 673 F.2d 525, 530-531 (D.C.Cir. 1982), cert. denied, 459 U.S. 835 (the public is not required to “hunt the peanut” to ascertain the documents upon which an agency relied). Third , EPA claimed the 62 documents were available “in hard copy” despite not being listed in EPA’s Docket Index. This would mean that, in addition to not listing the documents it was given in electronic format (“a CD”) in its Docket Index, EPA decided to print out the “voluminous records” and stash those “hard cop[ies]” someplace in its Sa n Francisco offices. EPA did this instead of simply posting the documents it received in electronic format in the electronic docket at regulations.gov. Such behavior is counterintuitive. EPA must post in the EDOCKET at regul ations.gov the entire docket for this rulemaking, save a limited number of cl early identified documents not at issue here. See E–Government Act of 2002, P ub.L. No. 107–347, 116 Stat. 2899, 2916 (Dec. 17, 2002.) The E-Government Act re quires that “Agency electronic dockets shall make publicly available online ... (A ) all submissions under section 553(c) of title 5, United States Code; and (B) other materials that by agency rule or practice are included in the rulemaking docket under s ection 553(c) of title 5, United States Code, whether or not submitted electr onically.” EPA failed to post the 62 documents on its docket. See PER 000002-000004. In e ssence, the documents

3 The Certified List of Documents Co mprising the Administrative Record—the corrected version filed on July 20, 2011 —also fails to list the 62 documents supporting the emission reductions. Case: 11-71127 07/28/2011 Page: 26 of 48 ID: 7836786 DktEntry: 21-218 upon which EPA based its decision were not simply omitted from the electronic index and the docket. The 62 electroni c documents on which EPA purports to have relied were not in the Docket. Fourth , EPA argued, curiously, that, “the same records were provided to [Communities] by the District long before our proposed approval was published.” Id. Until EPA made this assertion in its approval of the final rule, Communities had no way of knowing what “documents” EPA received or was reviewing. Further, the general public neither had any way of knowing what documents EPA based its decision upon nor had access to those documents. What information Communities had previously secured from th e District has no relevance at all for what the APA requires be included in EPA’s rulemaking docket. EPA never informed the public or Co mmunities that it had the 62 documents until EPA approved the final rule. It omit ted all mention of the documents from its purportedly complete index to the doc ket, and failed to post the electronic documents on its electronic docket. An ag ency that not only hides its technical documents from the public, but affirmativel y misleads the public about what it has reviewed, has violated the letter and spirit of the APA. This failure renders this SIP appr oval unlawful under the Administrative Procedure Act, and requires this Court to vacate EPA’s rule adoption, and remand this rulemaking to EPA to undertake a properly noticed rulemaking process. Case: 11-71127 07/28/2011 Page: 27 of 48 ID: 7836786 DktEntry: 21-219 II. THE EMISSION REDUCTIONS TRANSFERRED INTO THE AB 1318 TRACKING SYSTEM VIOL ATE THE CLEAN AIR ACT The Clean Air Act requires all emission reductions to comply with federal offset requirements. In addition, within the context of this SIP revision, which is premised on a transfer of emission reducti ons from one account to another, the starting account must contain unused emission reductions—or have a positive balance—before emission redu ctions can be transferred from it into the AB 1318 Tracking System. 4 EPA must therefore engage in a two-step inquiry: (i) whether the itemized emission reductions meet offset requirements, and, if so, (ii) whether the starting internal account has a positive bala nce. The answer to both is no. As a result, EPA approval is arbitrary and caprici ous, an abuse of discretion, and not in accordance with the law.

A. The Emission Reductions Viol ate the Offset Requirements The Clean Air Act requires that nonatta inment plans ensure, as a condition of SIP approval, that emission reductions co mply with federal offset requirements. 42 U.S.C. § 7502(c)(5); 40 C.F. R. 51.165(a)(3)(ii)(C)(1)(i); see also 42 U.S.C. § 7410(a)(2)(D)(i) (EPA shall not approve a SIP revision if it would interfere with any applicable requirement, including the requirements on offsets). Emission reductions are not creditable as offsets un less they are real, surplus, permanent, quantifiable, and enforceable . 42 U.S.C. § 7503(c); 40 C.F.R. 51.165(a)(3)(ii)(C)(1)(i); 40 C.F.R. pt. 51, App. S. Further, emission reductions can be used as offsets only if the “shutdo wn or curtailment occurred after the last

4 By way of analogy, if one were to tr ansfer money from a savings account to a checking account in order to cover a chec k written, the savings account must first have a positive balance. The balance of funds in the savings account is vital information that must be availabl e before the transfer occurs. Case: 11-71127 07/28/2011 Page: 28 of 48 ID: 7836786 DktEntry: 21-220 day of the base year for the SIP planning process” unless those emissions are explicitly included in the emissions inventory. 40 C.F.R. 51.165(a)(3)(ii)(C)(1)(ii). The emission reductions used in the AB 1318 Tracking System violate several offset requirements, rendering this SIP revision unlawful. 1. The Emission Reductions from A ggregate Operations Violate the Surplus Requirement The Clean Air Act requires emission redu ctions to be surplus. 42 U.S.C. § 7503(c); 40 C.F.R. 51.165(a)(3)(ii)(C)(1)( i). Surplus means that, “an emission reduction is not required for complian ce with a SIP, SIP-related program, other State air quality program not covered by a SIP, or federal rule that focuses on reducing precursors of criteria pollutant s.” PER 00006 (emission reductions used as offsets must be “surplus” to any other federal requirement to reduce emissions). Surplus is determined when the emission reductions are offered for use, not when the emission reductions occur. Id

. In the Notice of Final Rule in re sponse to Communitie s’ comments, EPA agreed that “[e]mission credits would need to be adjusted to ensure they are surplus to any new or modified standards for PM 10 and/or SO x emissions from ... aggregate operations.” PER 000008. It concluded, however, that the “District has not promulgated new rules or standards that would apply to these types of sources, and thus no adjustments to the credits were required.” Id . This conclusion is arbitrary and capricious and not based on fact. In the South Coast Air Basin, the SIP pl anning process occurs through the Air Quality Management Plan (“AQMP”) which details control measures for demonstrating attainment with NAAQS. In the 2003 AQMP, the District listed “control measure BCM-08 - FURT HER EMISSION REDUCTIONS FROM AGGREGATE OPERATIONS (PM10)” as part of its PM 10 attainment Case: 11-71127 07/28/2011 Page: 29 of 48 ID: 7836786 DktEntry: 21-221 demonstration for SI P planning purposes. 5 RJN Exh. A, p. 4; see also RJN Exh. A., p. 3 (BCM-08 was “proposed in order to ensure that attainment with the federal
PM 10 standard is demonstrated by 2006”). In 2005, the District adopted “Ru le 1157 – PM10 Emission Reductions from Aggregate and Related Operations” th ereby creating a state and SIP-related program to reduce PM 10 emissions, which is part of the District’s attainment demonstration for the SIP planning proce ss. 40 C.F.R. § 51.112; 40 C.F.R. § 51.230; RJN Exh. G, p. 63. Rule 1157 applies to severa l emission reductions identified in the Sentinel Revision. For example, the Technical Support Document lists 2,907 lbs/year of
PM 10 emission reductions from Chandler Aggr egates in Corona, California. PER 00029. Chandler Aggregates operated a ma ssive aggregate processing system that ran several cones, conveyors, and crushers to cr ush stone and pulverize minerals. PER 00051-00053. It appears that Chandler Aggregates was issued its permit on April 4, 1996, ceased operation in 2005, and, ironically, applied for emission reduction credits but was rejected by th e District. PER 00054, 00045. Rule 1157 applies to Chandler Aggregates. Theref ore, contrary to EPA assertions, the District has promulgated new rules a nd standards that require a downward adjustment of emission reductions associat ed with Chandler Aggregates. Yet the emissions credited for the Sentinel Revision represent all of the purported emissions for the entire operation, and no downward adjustment occurred. 6 See

5 The control measures in the 2003 AQMP, including BCM-08, were incorporated into the SIP-adopted 2007 AQMP as “assum ptions in developing AQMP’s future year inventories” thereby making “cont inued implementation ... essential in achieving clean air goals.” RJN Exh. B, pp. 4-59. 6 A companion rule, “Rule 1156 – Further Reductions of Particulate Emissions from Cement Manufacturing,” was adopted on November 4, 2005 and amended on March 6, 2009. Rule 1156 outlines measures to further reduce particulate matter Case: 11-71127 07/28/2011 Page: 30 of 48 ID: 7836786 DktEntry: 21-222 PER 00026-00036. The Technical Support Do cument lists at least six other companies that fall under Rule 1157, totaling 14,808 lbs/year of PM 10 emission reductions that were transferred into the AB 1318 Tracking System. 7
EPA’s determination that emission re ductions from aggregate (and related operations) meet the surplus requirement is arbitrary and capricious and not based on fact. 2. The Emission Reductions Violat e the Quantifiable Requirement The Clean Air Act requires emission re ductions to be quantifiable. 42 U.S.C. § 7503(c); 40 C.F.R. 51.165(a)(3)(ii )(C)(1)(i). Quantifiable “requires an accurate assessment of the quantity of emissions previously emitted by the source prior to modification or shutdown of th e subject equipment.” PER 000021. In comments, Communities noted that the reco rd does not support the claim that the emission reductions are quantifiable for, among other things, insufficient documentation.” PER 000008. In the Notice of Final Rule, EPA stat ed that “[t]he District provided documents with the SIP revision showing precisely how many pounds of pollutant had been reduced or eliminated to s upport each emission credit.” PER 000008.

emissions from cement manufacturing facilities. According to the District, the rule “partially implement[s] the 2003 AQMP Control Measure BCM-08 – Further Emission Reductions from Aggregate and Cement Manufacturing Operations.” See RJN, Exh. E, pp. 37-41. Two comp anies listed in the Technical Support Document at issue here, Elsinore Ready- Mix Co Inc and Oldcastle Westile, Inc. fall under Rule 1156, totaling 1,436 lbs/year of PM 10 emission reductions.
7 The companies are: Matthews Internatio nal Corp (three pieces of equipment totaling 7,491 lbs/year of PM 10 ); Whitewater Rock & Suppl y Co. (two pieces of equipment totaling 4,836 lbs/year of PM 10 ); Oldcastle Westile, Inc. (two pieces of equipment totaling 1,962 lbs/year of PM 10 ); Ortiz Enterprises Inc. (one piece of equipment totaling 464 lbs/year of PM 10 ); CDE Resources, Inc. (two pieces of equipment totaling 28 lbs/year of PM 10 ); and Elsinore Ready-Mix Co. Inc. (one piece of equipment totaling 27 lbs/year of PM 10 ). PER 000029-000032. Case: 11-71127 07/28/2011 Page: 31 of 48 ID: 7836786 DktEntry: 21-223 EPA further stated that “[t]hese amount s were based on actual emission inventory data or production records for each s ource” that contained the requisite information:
The District’s documentation provides the name and location of the source that made the reduction, when the s ource was shutdown, verification that it was actually shutdown, the amount of the reduction, including documentation of actual emissions invent ory data for each source for the two years prior to shutdown, and ot her supporting in formation.

Id . EPA claimed to “hav e reviewed the documentation for the emission reductions,” stating that its “approval of the SIP revision relied on these documents to demonstrate that a sufficient number of emission credits the District transferred met the integrity criteria in [42 U.S.C. 7503].” PER 000006-0 00007. The facts on which EPA purports to have relied do not support, and in fact contradict, these conclusions. EPA’s approval is therefor e arbitrary and capricious and not based on fact. One stark example of the facts c ontradicting EPA’s conclusion is documentation for the Little Company of Mary Hospital (“LCM”). LCM was founded by the Sisters of the Little Compa ny of Mary to provid e medical services in Torrance, California. See PER 000080. In 1959, LCM installed three large boilers (application numbers A05788, A05789, and A05790) a nd, in 1993, may have installed another boiler (application numbe r 226646) although there is contradictory evidence on this point. 8 Nonetheless, there are four LCM boilers listed in the Technical Support Document as providing PM 10 and SO x emission reductions to the AB 1318 Tracki ng System. PER 000031, 000035.

8 The documents show that a permit was gran ted, but there is no evidence in the record that the boiler was actually inst alled. Instead the 2003 inspection report notes that the facility has active pe rmits for three boilers. PER 000091. Case: 11-71127 07/28/2011 Page: 32 of 48 ID: 7836786 DktEntry: 21-224 In 2010, the District created four Offset Source Calculation/Verification Forms (“OSCV Forms”) assuming four LCM boilers. PER 000072-000075. The LCM OSCV Forms purport to follow the standard calculation methodology for quantifying emission reductions. PER 000072-000075. For each supposed LCM boiler, the LCM OSCV Forms identify 97 lbs/year of PM 10 emission reductions and 8 lbs/year of SO x emission reductions for a total of 388 lbs/year of PM 10 emission reductions and 32 lbs/year of SO x emission reductions for transfer into the AB 1318 Tracking System. Id . These figures, how ever, are unsupported— and, indeed, outright contradicted—by the OSCV Forms’ supporting documentation, which instead establishes that these emissions reductions violate the “quantifiable” requirement in at least three ways. First, the shutdown date for the LCM boilers is misstated. The LCM OSCV Forms—created in 2010—state that “[a] ll boilers shut down in 2005.” PER 000072-000075. The supporting documentation, however, contains a field report from a District Inspector dated July 9, 2003. PER 000089-000091. The field report shows that, at time of inspection, th e “three large boilers ha[d] been replaced by twelve identical Parker boilers ... and ten identical Patterson Kelley Hot Water Heaters.” PER 000091. There is no mention of the fourth boiler. PER 000091. It is therefore clear that the LCM boilers shut down before the July 9, 2003 inspection, not in 2005 as stat ed on the LCM OSCV Forms. Compare PER 000072-000075 with PER 000089-000091. The shutdown date, in other words, is unknown. Second, based on the erroneous 2005 s hutdown date, the LCM OSCV Forms use the wrong dataset to calculate the emissi on reductions attributed to this facility. The documentation relied upon for the OS CV Form was the purported “Annual Emissions Report” for the years 2002-2004. To comply with the Act and SIP Case: 11-71127 07/28/2011 Page: 33 of 48 ID: 7836786 DktEntry: 21-225 rules, the correct dataset consists of th e actual emissions for each source two years prior to shutdown. PER 000008 (EPA stati ng that it reviewed “documentation of actual emissions inventory data for ea ch source for the two years prior to shutdown”). Since the field report shows that the LCM boilers shut down sometime before the July 9, 2003 inspecti on, the appropriate dataset would consist of the two years prior to shutdown—when ever that is—but certainly not 2002- 2004. PER 000090. The emission reporting da ta for the LCM OSCV Forms is not for the equipment claimed. Third, a shut down boiler has no emi ssions. The LCM OSCV Forms claim, however, that four LCM boilers had emissions even after shutdown, which is simply untrue. PER 000072-000075. It is unclear what emissions the AERs were reporting or if the AERs were truly from LCM at all. It is clear, however, that the emissions reported on the LCM OSCV Fo rms EPA purports to have relied upon to support its decision on these 388 lbs/year of PM 10 emission reductions and 32 lbs/year of SO x emission reductions are not from the four boilers, which had shut down at some untold time earlier w ith emissions levels unknown. The failure to include proper documenta tion in the LCM file is emblematic of the pervasive lack of credit documen tation for this rulemaking. Of the 153 OSCV Forms, 69 pieces of equipment la cked either one or both Annual Emission Reports for the period that EPA claims to have reviewed. For example, the OSCV Form for Whitewater Rock & Supply Co. notes that, “of previous two years, only 06-07 available, so use that as repr esentative.” PER 000025. The AB 1318 tracking system was then credited for 4,836 lbs/year of PM 10 reductions. PER 000032. EPA may not use one year of em issions data as “representative” of emissions from a facility, the Act requires actual emissions data to be used. Case: 11-71127 07/28/2011 Page: 34 of 48 ID: 7836786 DktEntry: 21-226 The actual documents belie EPA’s stat ement that the reductions in the Sentinel Revision were quantifiable in ac cordance with the requirements with the Act. These examples also raise serious questions as to whether and how EPA reviewed the documentation it claims to ha ve reviewed. EPA’s determination that the emission reductions meet the quantifiable requirement is arbitrary and capricious and not based on fact. Furthe r, EPA has not articulated a rational connection between the facts in th e record and the decision made. 3. The Emission Reductions Are Not Creditable Because They Have Not Been Included in the Emissions Inventory As noted above, in the South Coast Ai r Basin, the SIP planning process occurs through the AQMP, and its emission inventory serves as the baseline for control measures demonstrating attainment with NAAQS. 9 The emissions inventory plays an important role in limi ting what reductions can act as offsets. The Clean Air Act prohibits offsetting with emission reductions that occurred before the last day of the base y ear of the emissions inventory unless explicitly included. 40 C.F.R. § 51.165(a)(3)(ii)(C)(1)(ii); see 40 C.F.R. § 51.165(a)(3)(ii)(C)(2)( outlining exceptions that are inapplicable in the current case). Another way of saying this is that a source of emissions must explicitly appear in the emissions inventory in the AQMP for the reduction to be creditable. 40 C.F.R. § 51.165(a )(3)(ii)(C)(1)(ii). In the Notice of Final Rule, EPA stated that “emission reductions are considered creditable if they have not been relied upon to demonstrate attainment,

9 An “attainment demonstration” is a formal demonstration, “by means of applicable air quality models, data bases, and other requirements specified in [the Code of Federal Regulations], ” that the pollution control measures contained in an implementation plan are adequate to provide for the timely attainment and maintenance of NAAQS. 40 C.F.R. § 51.112(a)(1). Case: 11-71127 07/28/2011 Page: 35 of 48 ID: 7836786 DktEntry: 21-227 [reasonable further progress] or any ot her permit action.” EPA explained that “[t]he District accounts for the use of cr edits from their internal accounts by adding the average annual quantity of ERCs used over the last eight years to the projected inventory for years 2014 and 2020, i.e., th e AQMP assumes that these emissions are in the air.” PER 000008. EPA therefore concluded that, “[b]y including such emissions in the inventory, the attainment plan has not relied on these emission reductions, thus they remain cr editable for other purposes.” Id . EPA’s determination that the emission reductions have been explicitly included in the emission inventories is arbitrary and capricious and not based on fact. Under the 2007 AQMP, the base year fo r the emissions inventory is 2002. RJN Exh. B., pp. 7, 14. That means th at a certain number of the shutdowns—and their associated emission reductions—occurred before the last day of the base year for the SIP planning process. PER 000020 (“[t]he new AB 1318 Tracking System includes specific offset credits that were identified from reductions of SOX and PM10 occurring betw een 1999 and 2008”); see also PER 000006 (“some of the emission credits that the District is tr ansferring arose from events in 1999”). Therefore, unless the District explicitly included these emission reductions in its base and projected emissions inventory, any pre-2003 emission reductions are not creditable. 40 C.F.R. § 51.165(a)(3)(ii)(C)(1)(ii). In fact, according to the SIP, emissi on reductions pre-dating 2003 have been explicitly excluded from emissions inventories. RJN Exh. B, pp. 15- 18. In calculating emissions stemming from its internal accounts, the 2007 AQMP excludes all pre-2003 credits after finding them unnecessary: “[t]he annual credits to the NSR account are sufficient for the de bits so that there is no need to have Case: 11-71127 07/28/2011 Page: 36 of 48 ID: 7836786 DktEntry: 21-228 debits from the pre-2002 credit s. Therefore, no additio n to the current baseline inventory is necessary for this category.” 10 RJN Exh. B, pp. 17– 18. (Tables 2-11 and 2-12 contain summaries of emission reductions). Table 2-12 in the 2007 AQMP makes clear that rather than including pre-2003 emission reductions in the inventory, those PM 10 and SO x emission reductions were explicitly excluded:
TABLE 2-12 Total 2014 and 2020 NSR Emissions and Pre -2002 Credits Needed from New and Modified Sources

(Tons per Day) VOC NOx SOx PM10 Total NSR Emissions 6.5 5.5 0.8 2.1

Total Pre-2002 ERC/Debits Needed 3.1 0 0 0

RJN Exh. B, p. 18. Therefore, contrary to EPA assertions, the AQMP explicitly excludes pre-2003 emission reductions and those emission reductions may not be resurrected in this SIP revision.

B. The Internal Accounts Are Inextr icably Intertwined with the AB 1318 Tracking System The Sentinel Revision transfers credits from the District’s internal accounts for the CPV Sentinel Project. PE R 000005. The AB 1318 Tracking System therefore cannot be divorced from the in ternal accounts from which the emission

10 T he District mistakenly refers to the pre-baseline credits as pre-2002 when, in fact, the legal requirement includes shutdo wns occurring before the last day of the base year. Case: 11-71127 07/28/2011 Page: 37 of 48 ID: 7836786 DktEntry: 21-229 reductions credits come. 11 Unless and until EPA appr oves proposed Rule 1315, the internal accounts are empty, and in fact have negative balances . As a result, no credits can be transferred from them. In the Notice of Final Rule, EPA assert ed that, “[f]or purposes of this SIP revision, the balance of the District’s in ternal accounts is not relevant.” PER 000006. But a positive account balance is, in fact, vital to the question of whether credits that are taken from the accounts are already used. Once an emission reduction has been used to offset an emis sion increase it is unavailable for transfer. The emission reduction is spoken for. Whether the accounts hold any emission reductions that are not “in use” is a straig htforward question – the internal account would have a positive balanc e. EPA has no rational basis to ignore this. A positive balance is sine qua non for this SIP revision to proceed. It is clear that this SIP revision is premised on transferring emission reductions from the internal accounts to the AB 1318 Tracking System. The SIP revision preamble references this transfer four times:
...Notwithstanding District Rule 1303, th is SIP revision provides a federally enforceable mechanism for transferring offsets from the AQMD's internal accounts to the CPV Sentinel Project. The Executive Office r shall complete the transfer of credits to an electrical gene rating facility pursuant to this provision upon the receipt of payment of the mitigation fees set forth in the South Coast District's Rule 1309.1, as adopted on August 3, 2007, regardless of the subsequent repeal of those provi sions. This section shall remain in effect only until January 1, 2012, and suns ets as of that date. Such repeal does not affect the federal approvability of credits or the transfer of such credits that are transferred prior to the repeal.

11 See footnote 4, supra

. Case: 11-71127 07/28/2011 Page: 38 of 48 ID: 7836786 DktEntry: 21-230 PER 000017-000018 (emphasis a dded). The relevance of the account balances should therefore be beyond question. Yet EPA questions it. The reason is to sidestep two insurmountable hurdles that further render this SIP approval unlaw ful: (i) the account balances are negative due to the elimination of substantia l invalid emission reductions without documentation; and (ii) final adoption of Rule 1315 is a condition precedent to addressing the negative bala nce. EPA’s approval of the Sentinel Revision before the internal accounts’ house is in or der—through adoption of Rule 1315—is arbitrary and capricious, an abuse of disc retion, and not in accordance with the law. 1. Internal Accounts Balance is Re levant to This Rulemaking The District maintains a tracking system for its internal bank. The purpose of the tracking system is to “track and compare” emission reductions and increases from the internal accounts to demonstr ate equivalence with federal offset requirements on an aggregate basis. See RJN Exh. C. Pos itive balances should indicate this aggregate offsetting system is securing equivalent offsets as a system that would assign each individual emi ssion reduction to a ne w source. Negative balances indicate that all emission reduc tions are “in use” and the District has allowed new emissions that are not bei ng offset by reductions. The District demonstrates equivalence throu gh Annual Equivale ncy Reports. In 2000-2001, market manipulations and illegal pipeline shutdowns triggered the California energy crisis. In th e aftermath, the District adopted a rule allowing power plant developers to access its internal accounts for a limited period.
See RJN Exh. H, pp. 80-81. The internal accounts soon came under intense public scrutiny. In response to EPA’s request for documentation to substantiate the emission reductions in the internal accounts, the District could not verify all of the Case: 11-71127 07/28/2011 Page: 39 of 48 ID: 7836786 DktEntry: 21-231 emissions reductions it claimed had occurred. RJN Exh. C. pp. 21-22. In addition, EPA determined that the District was crediting some emission reductions to its internal account that were precluded by the Clean Air Act. Id . Therefore, in 2005, the District agreed to re move these emission reducti ons from its account. RJN Exh. C. p. 28. The account balances were devastated : the starting balance for PM 10 was reduced by 92% and the starting balance for SO x was reduced by 56%. RJN Exh. C. p. 27. In the aggregate, with the elimination of the unverifiable emission reductions, the accounts balan ces were now negative. Id . Upon making this discovery, EPA requested “a rule specifying how the tracking of debits and credits will occur in the future.” 12 RJN Exh. C. p. 21. In 2006, the District adopted Ru le 1315 titled “New Source Review Tracking System.” See PER 000111-112. Rule 1315 contained several controversial “modifications to the procedur es used in the tracking system” that, if applied retroactively to 1990, would make the internal account balances positive. 13 RJN Exh. C. pp. 21, 31-36. Environmenta l organizations twice filed state-court litigation on environmental-review gr ounds. PER 000006, ftnt. 1. In both instances, Rule 1315 adoption was held to violate state law and was rescinded. Id

.

12 It is for this reason that 2004, more than seven years ago, wa s the last time the District finalized an Annual Equivalenc y Report not relying on the yet to be approved methods contained in Ru le 1315. RJN Exh. C. p. 21. 13 The controversial mechanisms for gene rating emission reductions include, in particular, emission reductions from minor source orphan shutdowns. In 1996, at the time of SIP approval, the District only tracked major source orphan shutdowns. See RJN Exh. C. p. 9. (“AQMD’s NSR trac king system currently takes credit for orphan shutdowns from majo r sources only, but not fro m minor sources.”) To the extent the Rule 1315 modifications to th e existing tracking system are lawful—an issue in dispute during the District’s admi nistrative rulemaking that will be raised during formal EPA rulemaking—those emissi on reductions must first be allocated to offset the unlawful emission increases the District has allowed to date. Case: 11-71127 07/28/2011 Page: 40 of 48 ID: 7836786 DktEntry: 21-232 The state court found that the controvers ial modifications “e xpanded exponentially the universe of [emission reductions] av ailable to entities needed to increase emissions,” further reaffirming that:
Rule 1315 does significantly more than simply meet the EPA’s objections regarding the District’s treatment of pre-1990 credits from major shutdowns for which there are inadequate record s. Rule 1315 proposes four additional classes of [emission reduction] credits – credits that by definition will (if used) translate clean air gains into pol lution rights. These changes constitute matters of air pollution policy, not acc ounting, and it is the policy decision that has clear and unavoidable environm ental consequences in degrading the quality of the air in the Basin over what would have existed in the absence of the revise rules, or had the District revised 1315 to deal only with the EPA’s objections regarding undocumented credits.

PER 000120-000121. In 2011, the District again adopted Rule 1315. PER 000006. At present, the rule is under state-court review through a writ return. Natural Resources Defense Council v. South Coast AQMD , Los Angeles Super. Ct . Case No. BS110792. It has also been submitted to EPA as a SIP revision. PER 000006, fn. 1. EPA has stated its intention to notice Rule 1315 for rulemaking in short order. Id . Unless and until the Rule 1315 modifications to th e existing tracking system are adopted and the account balance is determined , EPA approval of the AB 1318 Tracking System is arbitrary, caprici ous, an abuse of discretion, not in accordance with law, and without observance of procedure requir ed by law. 5 U.S.C. § 706(2)(A), (D).

// // Case: 11-71127 07/28/2011 Page: 41 of 48 ID: 7836786 DktEntry: 21-233 2. EPA’s Reliance On a Letter to Support its Claim About the Account Balances is Improper In its response to comments, EPA summar ily “disagrees that ... the District’s internal accounts have ne gative balances.” PER 000007. To justify its disagreement, EPA referenced an unpublished letter date d September 2010, writing:

The Administrator’s letter details th e Agency’s determination that the District may use emission reductions from previously shutdown sources, including minor source orphan shutdowns, to fund its internal accounts. The Administrator’s letter also disagrees w ith assertions that the District’s internal accounts have ne gative balances. Thus, fo r all of the reasons set forth in the Administrator’s letter, EP A disagrees with [Communities] that this SIP revision constitutes codifying a new system of generating emission credits, that the District’s internal accounts have negative balances or that the emission credits are invalid becaus e they were created more than two decades ago. Id . EPA’s reliance on this letter is ina ppropriate because, as described below, the letter itself states that for the Sen tinel Revision, EPA would conduct an independent rulemaking, a nd the letter did not addre ss matters related to the Sentinel Revision. Further, the letter is not a final agency action. Finally, even if it were relevant, the lette r does not address the questions at issue here. In December 2009, Communities, along w ith the Natural Resources Defense Council, petitioned the Administrator of EPA to:
[P]roduce a written statement reiterating es tablished law – that rules or laws enacted by the State of California, or any subdivision thereof, are not valid for purposes of meeting requirements of the Federal Clean Air Act (“the Act” or “CAA”) unless and until such rules or laws have received federal approval in a process compliant with the Act, its implementing regulations, the Administrative Procedures Act (“APA”), and case law. Case: 11-71127 07/28/2011 Page: 42 of 48 ID: 7836786 DktEntry: 21-234 PER 000108. The Administrator denied the Petition writing, inter alia ,
If the District and the California Ai r Resources Board submit [the AB 1318 Tracking System] to the EPA as a SIP revision, the EPA will conduct further public notice and comment on the EPA’s proposed action. Accordingly, I do not consider the Petition ripe with resp ect to the offsets that the District will be providing to the Sentinel En ergy Center and the Petition’s challenge to matters arising in connection with AB 1318.

PER 000135. Therefore, by the letter’s own terms it is not relevant to this rulemaking. Further, the unpublished le tter does not constitute fi nal agency action, and EPA may not rely on it to dispose of any issues, let alone issues that it expressly excluded from consideration. See Bennett v. Spear , 520 U.S. 154, 177-78 (1997); Whitman v. Am. Trucking Ass'n , 531 U.S. 457, 478 (2001); see also Oregon Natural Desert Ass’n v. U.S. Forest Service , 465 F.3d 977, 984 (9th Cir. 2006). To be considered final agency action, the acti on “must not be of a merely tentative or interlocutory nature.” Bennett, 520 U.S. at 178. A court will look to see whether the agency “has rendered its last word on the matter” to determine whether an action is final and is ripe for judicial review. Whitman, 531 U.S. at 478; see also
ONDA , 465 F.3d at 984. The unpublished letter is not final, and anticipates further analysis both from the agency and the public , and is therefore without legal effect. Nor does the unpublished letter even resolve the issue of the internal accounts’ balances, but simply underscore s the need for completing the rulemaking on Rule 1315. First, all parties agree th at the tracking syst em used prior to adoption of Rule 1315 did not track minor source orphan shutdowns. See RJN Exh. C. pp. 21-36 (a primary Rule 1315 modi fication to the tracking system is the inclusion of minor source orphan shutdowns). The unpublished letter simply concludes that there is “nothing in Regulation XIII that would preclude the District Case: 11-71127 07/28/2011 Page: 43 of 48 ID: 7836786 DktEntry: 21-235 from using those offsets to demonstr ate equivalency with federal NSR requirements.” PER 000133 (em phasis added). The issue, however, is not what may or may not have been precluded, but that the system did not track minor sources prior to proposal of Rule 1315. In other words, such a rule is not precluded, but it has not happened yet

. Second, even assuming the District was not precluded from tracking minor sources, the fact is it did not track them and it acted accordingl y for a decade. The sudden retroactive application of Rule 1315’s modifi cations to the tracking system raises serious Clean Air Act issues, including post hoc adjustment to emissions inventories, 42 U.S.C. § 7502(c)(3), inconsistencies with attainment demonstrations, 42 U.S.C. § 7410 (a)(2), and violations of reasonable further progress, 42 U.S.C. § 7502(c)(2). See also PER 000008 (EPA recognizing that “emission reductions are considered creditabl e if they have not been relied upon to demonstrate attainment, [reasonable further progress] or any othe r permit action”). The proper process through which these Rule 1315 issues are reso lved is EPA Rule 1315 rulemaking, not the source-specific SIP revision for a single power plant. Third, even assuming Rule 1315 may, once approved, have retroactive application, here, EPA alleges a positive balance with no support for such a claim because there is none. PER 000007. Instead , the evidence EPA at tempts to add to the record—Annual Equivalency Dete rminations up to 2004—supports Communities’ position that absent EPA’s adoption of Rule 1315 through noticed rulemaking, the District’s internal accounts do not have a positive balance. See PER 000002. Without completing the rule making process for Rule 1315 there are no credits available to be transferred out of the internal account. For all these reasons, the Rule 1315 horse must come be fore the AB 1318 Tracking System cart. Case: 11-71127 07/28/2011 Page: 44 of 48 ID: 7836786 DktEntry: 21-236 CONCLUSION AND RELIEF REQUESTED For the foregoing reasons, Communities re spectfully request that the Court vacate EPA’s approval of the Sentinel Revisi on, both for failing to comply with the Administrative Procedure Act and as unlawful under the Clean Air Act. Communities recognize that a decision on the APA improprieties may obviate the need to resolve the statutory interpretation issues associat ed with the Clean Air Act offsetting requirements. The Clean Air Ac t issues, however, are ripe for judicial review, and a ruling on these questions is in the interest of judicial and administrative economies. Without the Court’s direction on the Clean Air Act issues, a vacature based only on procedur al defects may lead EPA to pursue the same ends through proper rulemaking, which in turn will certainly lead to another round of legal challenge on these same issues.
Dated: July 28, 2011 Respectfully submitted,

s/ Shana Lazerow Attorney for Petitioner Communities for a Better Environment Case: 11-71127 07/28/2011 Page: 45 of 48 ID: 7836786 DktEntry: 21-237 CERTIFICATE OF COMPLIANCE WITH WORD LIMIT
Pursuant to Circuit Rule 32-1, I here by certify that this brief complies with
the word limitations set forth in FRAP 32( a)(7)(B). This brief is proportionally
spaced, has a typeface of 14 points and contains 10,457 words.
DATED: July 28, 2011

s/ Shana Lazerow Case: 11-71127 07/28/2011 Page: 46 of 48 ID: 7836786 DktEntry: 21-238 STATEMENT OF RELATED CASES Petitioners are unaware of any rela ted cases pending in this Court. Case: 11-71127 07/28/2011 Page: 47 of 48 ID: 7836786 DktEntry: 21-2CERTIFICATE OF SERVICE
I hereby certify that I electronically filed the foregoing with the Clerk of the Court
for the United States Court of Appeals fo r the Ninth Circuit by using the appellate
CM/ECF system on July 28, 2011.
I certify that all participants in the case are registered CM/ECF users and
that service will be accomplished by the appellate CM/ECF system.
I certify under penalty of perjury that the foregoing is true and correct.
Executed on July 28, 2011 in Oakland, California.

_______/s Shana Lazerow Case: 11-71127 07/28/2011 Page: 48 of 48 ID: 7836786 DktEntry: 21-2