From: Lydia Wegman/RTP/USEPA/US

To: "Frey, Nathan J." <Nathan_J._Frey@omb.eop.gov>, "Mancini, Dominic J."

<Dominic_J._Mancini@omb.eop.gov> Cc: Joseph

- J Dougherty/DC/USEPA/US@EPA, Michael Ling/RTP/USEPA/US@EPA, Anna

Wood/RTP/USEPA/US@EPA Date: 12/13/2012 04:22 PM Subject: Portion of preamble related to PSD offsets issue and reg text related to grandfathering of PSD

permit applications

Nathan and Dom, Please find attached preamble language related to the PSD offsets issue and reg text related to the PSD grandfathering issue. We continue to work on the preamble for the grandfathering issue and will send that to you later today.

Please let us k now if you have any questions. Lydiae. Other PSD Transition Issues

Several industry commenters expressed concern that a permitting problem would result from the fact that, upon promulgation of the revised PM 2.5 NAAQS, ambient air quality monitoring data would show that for some areas, PM 2.5 concentrations exceed the revised NAAQS, although those areas would not be formally designated as “nonattainment” until a later date pursuant to the designation process provided by the CAA. The commenters noted that sources locating in such areas would be required to obtain a PSD permit in order to construct or modify, but could not do so because the requirement that the new or modified source must demonstrate that it will not cause or contribute to a NAAQS violation, even though the area would technically already be a nonattainment area. The commenters further noted that once the nonattainment designation is made, section 173 of the Act provides a nonattainment area permit program that specifies conditions under which a permit will be issued, including obt ain ing offsetting reductions in emissions rather than demonstrating through modeling or other analysis that the source will not cause or contribute to a violation of the NAAQS as required in PSD. Thus, the commenters urged the EPA to offer an interim appro ach that would avoid the imposition of an effective construction ban on such areas until such time as the nonattainment area designations and the nonattainment NSR offset requirements are in place instead of the PSD requirements. Some of the commenters spe cifically requested that the EPA provide either a surrogacy approach based on showing compliance with the pre

- existing annual PM 2.5 NAAQS or a PSD offset approach to avoid a construction moratorium in such areas.

The commenters are correct in that areas al ready in violation of the revised annual PM 2.5 NAAQS upon the effective date of such NAAQS may not be formally designated nonattainment for two years or potentially longer in accordance with the statutory procedures for promulgatingsuch area designations. In addition, it is the EPA’s longstanding policy that new and revised

NAAQS must be implemented through the permitting process as of the NAAQS effective date (except for earlier projects that would qualify for any EPA

- authorized grandfathering). According ly, new major stationary sources and major modifications for which permits will be

issued on or after the effective date of the revised annual PM 2.5 NAAQS must comply with the PSD requirement to demonstrate compliance with that and any other applicable NAA QS. We disagree, however, with the commenters’ conclusion that such circumstances will result in “the imposition of an effective construction ban on such areas.” First, as already described, the EPA has promulgated is promulgating a grandfather provision t hat allows certain proposed new and modified sources to proceed with the permit process based on the requirements that were in effect previously, provided the permitting authority either has

determined on the date when or before December 14, 2012 that the p ermit was application is complete or has proposed the permit (i.e., the date on which the draft permit or preliminary

determination was has been noticed for public comment ). ) prior to the date the revised PM

standards become effective , which is 60 days afte r publication in the Federal Register

. . The grandfathering provision thus will enable some sources to avoid issues associated with violations

of the revised annual PM 2.5 NAAQS. Second, for those sources that are not eligible to be grandfathered under the new provision, existing permitting authorities have the discretion to consider offsetting emissions

reductions at other sources as part of a demonstration that an individual sourc e seeking a permit

will not cause or contribute to violation of the NAAQS

. See, Page (2010c). The EPA ha s historically recognized in regulations and through other actions that sources applying for PSD permit may utilize offsets as part of the required PSD demonstration, even though the PSD Formatted: Highlight Formatted: Highlight Formatted: Highlight Formatted: Highlight Formatted: Highlight Formatted: Highlightprovisions of the Clean Air Act do not expressly reference offsets in the same manner as the

nonattainment NSR provisions of the Act. S ee, In re Interpower of New York, Inc ., 5 E.A.D. 130, 141 (EAB 1994) (describing an EPA Region 2 PSD permit that relied in part on offsets to demonstrate the source would not cause or contribute to a violation of the NAAQS)

. E xisting EPA regulations provid e a procedure by which major stationary sources and major modifications locating in an area designated as attainment or unclassifiable for any NAAQS , and found to cause or contribute to a NAAQS violation in any area, may utilize offsets

to address such adv erse impacts and ultimately be issued a permit. See 40 CFR 51.165(b). Specifically, paragraph (b)(3) of those regulations provides that the required permit program may include a provision allowing a proposed major source or major modification to reduce the impact of its emissions on air quality by obtaining sufficient emissions reductions to, at a minimum, compensate for its adverse ambient impact where the source or modification would otherwise cause or contribute to a violation of any NAAQS. On October 20 , 2010, the EPA amended the requirements at 40 CFR 51.165(b) to define a significant impact with regard to the PM 2.5 NAAQS. See 75 FR 64864 at 64902. As noted by some of the commenters, the EPA addressed this same issue in 1987 when it promulgated a new set of NAAQS for PM 10 and revised 40 CFR 51.165(b) of the regulations.

See 52 FR 24672 (July 1, 1987) at 24684, 24686

- 87, 24698. For PM 10 , the EPA made it clear that when a proposed PSD source was found to cause or contribute to violation of the PM 10 NAAQS , the source would be required satisfy the requirements of 40 CFR 51.165(b) “to obtain, at a minimum, sufficient PM 10 emission offsets to compensate for the source’s ambient impact in the area of the violation.” Such offsets were considered to satisfy the “cause or contribute to”language under section 165(a)(3)(B) of the CAA. Id. at 24698. 1 In response to comments

concerning the appropriate criteria for applying this offset requirement for PSD purposes, the EPA also stated that any emissions offsets used for PSD purposes must meet applicability criteria that are at least as stringent as the offset criteria set forth in the nonattainment NSR requirements for offsets under 40 CFR 51.165(a)(3). Id. at 24684. We continue to believe that

reliance on the 40 CFR 51.165(a)(3) criteria is appropriate and necessary for determining the creditability of PSD offsets, including any offsets obtained to satisfy the PSD requirements for

the revised PM 2.5 NAAQS prior to any anticipated designation of any area as nonattainmen t with that NAAQS. We continue to believe that the 40 CFR 51.165(a)(3) criteria provide the most appropriate guide for determining the creditability of PSD offsets, including any offsets obtained to satisfy the PSD requirements for the revised PM 2.5 NAAQ S prior to any anticipated designation of any area as nonattainment with that NAAQS. Since the purpose for using offsets in PSD is to show that additional emissions from the proposed construction will not cause or contribute to a violation, the EPA has not codified a requirement that such offsets necessarily

must meet the same criteria that apply to offsets under the nonattainment NSR program. In fact,

the EPA has previously observed that, in the context of PSD , it may not be necessary for a perm it

1 In 1980, the EPA had determined that statutory requirement under CAA section 165(a)(3)(B), providing that a proposed new or modified PSD source must demonstrate that it will not cause or contribute to a violation of any NAAQS, taken together with the requirements of section 110(a)(2)(D) of the CAA required all major station ary sources locating outside a nonattainment area but causing or contributing to a NAAQS violation to reduce the impact on air quality so as to assure attainment and maintenance of the NAAQS. In a footnote, the EPA further indicated that this offset requir ement must apply to sources causing or contributing to a newly discovered NAAQS violation until the area is designated nonattainment. See 45 FR 31307 (May 13, 1980) at 31310. In this 1980 rule, EPA adopted section 51.18(k), which was later renumbered secti on 51.165(b). EPA revised 51.165(b) in 1987 to expressly authorize an offset program to meet the requirements of section 110(a)(2)(D)(i), but this provision may also be interpreted to apply to section 165(a)(3)(B) of the CAA, consistent with EPA's reading of section 51.18(k) in 1980.applicant to fully offset the proposed emissions increase if an emissions reduction of lesser

quantity will be sufficient to mitigate the proposed source’s adverse air quality impact on a

modeled violation. Page (2010c) ; 44 FR 3 274, January 16, 1979, a t 3278. (“Although full emission offsets are not required, such a source must obtain emission offsets sufficient to compensate for its air quality impact where the violation occurs.” )

. This may be particularly true where anticipated reductions from existi ng air quality regulations may mitigate the impacts of a proposed source’s emissoins by the time the source begins operating in an area that is expected

to be designated nonattainment. This would need to be evaluated on a case by case basis. To the

exten t that any permit applicants may experience difficulties making the NAAQS compliance showing required to obtain a PSD permit in areas and as set forth in the Memorandum noted above, the EPA is committed to work ing with permitting authorities and applicants to identify ways to apply offsets under the PSD program as necessary to meet PSD requirement. Formatted: Not HighlightPart 5 1

— [ AMENDED ]

1. The authority citation for part 51 continues to read as follows: Authority : 23 U.S.C. 101; 42 U.S.C. 7401

- 7671 q. Subpart I

– [Amended]

2. In §51.166, add paragraph (i)(10) to read as follows: §5 1 .1 66 Prevention of significant deterioration of air quality

* * * * * (i) Exemptions

. (1) * * *

* * * * * (10) The plan may provide that the requirements of paragraph (k)(1) of this section shall not apply to a stationary source or modification with respect to the national ambient air quality

standards for PM 2.5 in effect on [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER] if : (i) T he reviewing authority has determined a permit application subject to this section to be complete on or before December 14, 2012

. Instead, the requirements in paragraph (k)(1) shall apply with respect to the national ambient air quality standards for PM 2. 5 in

effect at the time the reviewing authority determined the permit application to be complete; or (ii) T he reviewing authority has first published before [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER] a public notice of a preliminary determination for the permit application subject to this section. Instead, the requirements in paragraph (k)(1) shall apply with respect to the national ambient air quality standards for PM 2. 5 in effect at the time of first publication of a publicnotice on the preliminary dete rmination.

* * * * *

PART 5 2

—

AMENDED

3. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401, et seq.

4. In §52.21, add paragraph (i)( 11 ) to read as follows: §52.21 Prevention of significant deterioration of air quality.

* * * * * (i) * * * (11) The requirements of paragraph (k)(1) of this section shall not apply to a stationary source or modification with respect to the national ambient air quality standards for PM 2.5 in effect on [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER] if : (i) The Administrator has determined a permit application subject to this section to be complete on or before December 14, 2012 . Instead, the requirements in paragraph (k)(1) shall apply with respect to the nationa l ambient air quality standards for PM 2. 5 in effect at the time the reviewing authority determined the permit application to be complete ; or (ii) T he Administrator has first published before [ INSERT DATE 60 DAYS AFTER

DATE OF PUBLICATION IN THE FEDERAL REG ISTER] a public notice that a draft permit subject to this section has been prepared. Instead, the requirements in paragraph (k)(1) shall apply with respect to the national ambient air quality standards for PM 2. 5 in effect on the date the Administrator fi rst published a public notice that a draft permit has been prepared.* * * * *