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OAR Box 1787 

Prepped by Ollie Stewart 

Document Number: 

97) ll-C-55 

Docket Number: 

A-90-37 

Printed 11/4/200810:22:20 AM Sheet 97 of 147 
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

REGION I 

J.F. KENNEDY FEDERAL BUILDING, BOSTON. MASSACHUSETTS 02203-2211 

TT-C-55 

March 1, 1994 

Dennis Keschl, Director 

Bureau of Air Quality Control 

Department of Environmental Protection 

State House, Station No. 17 

Augusta, Maine 04333-4746 

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EFAAKi'L-^ET. 

Dear Mr. f^i-->^=> 

This letter is in response to a Maine Department of Environmental 

Protection (DEP) proposal outlined in a December 12, 1993 letter 

regarding allocation of surplus nitrogen oxide (NOx) emission 

reductions generated by Maine's enhanced Inspection and 

Maintenance (I/M) program to the Louisiana-Pacific (L-P) 

Corporation. In general, EPA supports the DEP's extension of its 

I/M program provided that specific requirements are satisfied by 

L-P and the DEP. The following paragraphs will further explain 

EPA's position on the DEP's proposal. 

BACKGROUND 

As described in your letter, L-P is proposing to construct an 

expansion to its oriented strandboard facility in New Limerick, 

Maine in Aroostook County. Aroostook county is part of the Ozone 

Transport region (OTR). Pursuant to the new source review 

requirements applicable in the OTR, L-P must secure sufficient 

emission reductions of NOx for licensing approval. Your letter 

states that L-P will need approximately 200 tons of NO to offset 

the increase resulting from the expansion. The DEP indicates 

that 200 tons of N0X credits are not available in Maine's 

inventory. According to L-P, the company's timetable for 

construction and commencement of operations necessitates that 

surplus NOx reductions become available shortly. L-P is 

currently scheduled to begin construction on the proposed 

facility in the Spring of 1994 and to commence operations by 

April of 1995. 

PRINTED ON RECYCLED PAPER 
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The DEP intends to resolve L-P's need for N0X offsets by relying 

on surplus NO reductions (i.e., reductions not otherwise 

required by the Clean Air Act) from Maine's enhanced I/M 

program, which Maine is extending to all moderate nonattainment 

areas in the State. Surplus N0x reductions expected to be 

generated by this program would be utilized as offsets for new 

source emissions in the state, including the new emission 

increases expected from the expanded L-P facility. The December 

12, 1993 letter indicates that Maine's enhanced I/M program would 

generate approximately 2000 tons of N0x reductions, of which 

about 1200 tons would be considered surplus. The DEP submitted 

its enhanced I/M program to EPA in November, 1993 as a state 

implementation plan (SIP) revision. The DEP plans to allocate a 

portion of the surplus reductions (200 tons) to L-P as offsets 

for the proposed expansion. 

In previous guidance on emission trading, EPA set forth the 

minimum requirements for the creation and use of emission 

reduction credits. EPA requires that emission reductions be 

surplus, quantifiable, permanent, and federally enforceable for 

use as emission offsets. Emission Trading Policy, 51 FR 43812 

(December 4, 1986). In its NO Supplement to the Title I General 

Preamble, the agency recited these minimum criteria for the 

creation and use of NOx emission reductions in emission trades. 

57 FR 55620, 55625 (Nov. 25, 1992). EPA has evaluated the DEP's 

December 12, 1993 proposal in light of these criteria. The 

following section of this letter evaluates the requirements for 

Maine's NOx emission reductions to be surplus, quantifiable and 

permanent. Thereafter, the letter discusses the requirement that 

these reductions be federally enforceable. 

SURPLUS, QUANTIFIABLE AND PERMANENT REDUCTIONS 

In order to create and use emission reductions from its enhanced 

I/M program, the reductions must be surplus, quantifiable and 

permanent. The first question for the DEP is whether or not NOx 

emission reductions generated by the implementation of Maine's 

enhanced I/M program are surplus. The 1990 Amendments to the 

Clean Air Act codified EPA's longstanding policy that offsets 

must be surplus. See section 173(c)(2) of the Clean Air Act, 

which provides that "emission reductions otherwise required by 

the Act shall not be creditable" as offsets. EPA has interpreted 

this provision flexibly. Consequently, where appropriate, a 

block of emission reductions must be discounted to reflect 

reasonably available control technology (RACT), new source 

performance standards, I/M rule requirements, or any other 

requirement applicable to or reasonably foreseeable at the source 

of the emission reductions at the time of the use of the emission 

reductions as offsets. EPA's final I/M rule states, in part, 
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"emission reduction benefits from expanding coverage beyond the 

minimum urban area boundaries can... be used for offsets..." 40 

CFR 51.350 (b)(3). After reviewing the population density 

criteria identified in EPA's I/M rule and the nonattainment 

status of areas in Maine, EPA Region I has determined that 

Cumberland County is the only area in Maine where enhanced I/M is 

required. The DEP intends to implement enhanced I/M in the seven 

counties currently designated as moderate nonattainment (i.e., 

Androscoggin, Cumberland, Kennebec, Knox, Lincoln, Sagadahoc, and 

York). Emission reductions of NOx due to implementation of 

enhanced I/M in all counties except for Cumberland County would 

thus be surplus and available for generating N0X emission 

reduction credits.1 

The DEP's intention to allocate the Volatile Organic Compound 

(VOC) emission reductions achieved from implementing enhanced I/M 

in these six counties toward its 15% Reasonable Forward Progress 

(RFP) reduction requirement does not prohibit the treatment of 

the N0X reductions as surplus. The N0X emission reductions from 

Maine's enhanced I/M program will not and cannot be used towards 

the 15% reduction requirement. Thus, as noted above, the NOx 

reductions from enhanced I/M that are being set aside for offsets 

are surplus provided that they are not necessary for, and will 

not be used in, any relevant attainment demonstration plan. The 

DEP committed in its December 12, 1993 letter not to rely on any 

of the 200 tons of NOx that it plans to allocate to L-P as 

offsets in its attainment demonstration. The DEP should 

recognize that if further reductions are necessary to reach 

attainment of the ozone NAAQS, the DEP will need to implement 

additional control programs. 

In order to allocate the NOx reductions from the enhanced I/M 

program to L-P, the DEP must also show that the reductions are 

quantifiable and permanent. The DEP must demonstrate that it 

will secure sufficient emission reductions (200 tons) from 

implementation of its enhanced I/M program in the six counties. 

This could be done using estimates of Maine's vehicle miles 

travelled (VMT) and EPA's MOBILE model. EPA has not yet provided 

guidance on calculations of excess N0X credits generated by an 

enhanced I/M program. In the absence of such guidance, EPA 

suggests that the DEP calculate' the credit conservatively in 

order to ensure whether the trade will be approved. A 

conservative way to calculate the amount of excess NOx credits 

1 Please note that basic I/M is required in the Lewiston 

Auburn Nonattainment area. No NO reductions, however, are 

predicted from the basic I/M requirements. Therefore, the NOx 

reductions from Maine's enhanced I/M program in this area would 

be surplus. 
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available would be to multiply 1990 estimates of VMT times the 

emissions difference (in grams per mile) between no I/M program 

and Maine's program in the year 2020 as predicted by EPA's 

MOBILE5a model. The EPA recommends the year 2020 because 

enhanced I/M benefits are lowest in the out years and the MOBILE 

model does not presently predict beyond 2020. Maine's present 

program may have lower compliance rates, or waiver rates, because 

of the low mileage waiver presently authorized under Maine state 

law. Nevertheless, EPA currently expects that the level of 

credit generated through this calculation should be adequate for 

the immediate need to set aside a pool of credits for offsets in 

the near-term. EPA will be glad to work with you to define 

appropriate modeling assumptions for determining the exact level 

of credits available from year to year. 

EPA suggests that the DEP revise its enhanced I/M SIP submittal 

(November, 1993) to articulate its intent to set aside credits 

and to make the demonstration discussed above. In addition, 

Maine should specify exactly how much credit it intends to set 

aside for the L-P permit. In addition to quantifying these 

reductions and ensuring that they are surplus, the DEP must also 

ensure that the offsets occur no later than the date on which the 

new source or modification commences operation. Prior to L-P 

beginning operation, the DEP should submit a demonstration 

acceptable to EPA which shows that the state is implementing its 

enhanced I/M program on schedule and that the enhanced I/M 

program has secured enough emission reductions of NOx to meet the 

offset requirements for L-P. This will demonstrate to EPA that 

the emission reductions have occurred before the modification 

commences operation. 

In addition, L-P should include documentation in its application 

for a new source review permit. L-P's application should 

quantify the amount of offsets needed by the company to expand 

its plant and describe how it plans to meet the offset . 

requirements. The DEP should also include similar documentation 

in the proposed Findings of Fact and Order Air Emission License 

for this major modification. This will ensure that L-P submits a 

complete application and that the public has an opportunity to 

comment on the proposed offsets. 

FEDERALLY ENFORCEABLE REDUCTIONS 

Maine's enhanced I/M program that will generate the offsetting 

NOx emission reductions must also be federally enforceable prior 

to L-P's commencement of operations at its expansion. 
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Section 173(a)(1) of the Clean Air Act provides that "permits to 

construct and operate may be issued if ... by the time the source 

is to commence operation, sufficient offsetting emissions 

reductions have been obtained." Subsection (a) goes on to 

provide that offsets on which a permit to construct and operate 

is conditioned under paragraph (1) "shall be federally 

enforceable before such permit may be issued." This augments the 

language of section 173 prior to the 1990 amendments that 

provided that offsets must be "legally binding" before a permit 

to construct and operate may be issued. Finally, section 173 

(c)(1) provides that offsets "shall be, by the time a new 

modified source commences operation, in effect and enforceable." 

As noted above, EPA's policy has long been that emission 

reductions must be federally enforceable for use as emission 

offsets. See Emission Trading Policy Statement, 51 FR 43812 

(Dec. 4, 1986). In the General Preamble for Implementation of 

title I, EPA interpreted changes to section 173 in the 1990 

Amendments as clarifying that offsets must be federally 

enforceable before the permit to construct and operate is issued. 

57 FR 13498, 13553 (April 16, 1992). Further, EPA explained 

that, "while it is possible for a state to issue a permit to 

construct once sufficient emissions offsets have been identified 

and made federally enforceable (generally through a permit 

condition made to the permit of the existing source), the State 

must also ensure that the required emissions reductions actually 

occur no later than the date on which the new source or modified 

source would commence operation." Id. 

Nevertheless, under the circumstances of this case, EPA will not 

object if the DEP issues L-P's permit to construct prior to EPA 

approval of Maine's enhanced I/M program that will generate the 

offsetting N0X reductions, as long as L-P's permit contains a 

federally enforceable condition that expressly prohibits the 

commencement of any actual operations until EPA's approval of the 

Maine's enhanced I/M SIP submittal that will generate the 

offsets. EPA believes this position is appropriate for several 

reasons. 

EPA recognizes the concern that sources of offsetting NOx 

emission reductions are scarce in Maine. Based on discussions 

with you and your staff, it does appear that only a few potential 

sources of N0X reductions exist in Maine, and you indicated at 

the November 29, 1993 meeting between Region I and the DEP that 

even those few sources combined would be insufficient to satisfy 

L-P's needs. Further, Maine has not yet adopted N0X RACT 

regulation for existing stationary sources, and uncertainty 

regarding N0X RACT rules could hinder efforts by new or modified 

sources to secure N0X offsets. This is because the uncertainty 

could lead existing N0x sources to retain potentially surplus N0X 
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emission reductions for their own use. The offsets in this case 

have been identified and are to be achieved by an adopted State 

program that has already been submitted to EPA as a SIP revision. 

Maine's program involves extension of its enhanced I/M program to 

areas where it is not otherwise required to achieve NOx 

reductions, and EPA does not foresee substantial obstacles to 

promptly approving the N0x elements of the program for such 

areas. Moreover, the DEP intends to rely on the enhanced I/M 

program to achieve VOC reductions needed for its SIP planning 

obligations. Under these circumstances, EPA can be particularly 

confident that Maine will actually implement its enhanced I/M 

program to achieve the offsetting N0X emission reductions by the 

time L-P is to commence operations. In short, EPA does not 

believe it is necessary to hold up L-P's permit pending the 

longer period needed to review Maine's SIP submittal, especially 

since the offsets have been identified, appear reliable, and 

because the SIP submittal provides particularly great security 

that the offsets will be achieved. 

In recognition of L-P's plan to commence operations in April 

1995, EPA will expedite its review of Maine's enhanced I/M 

program. Section 110(k)(2) provides that EPA must take final 

action on a SIP submittal within 12 months of determining that 

the submittal is complete. EPA determined that Maine's enhanced 

I/M submittal was complete on January 24, 1994. To speed up 

EPA's processing of this submittal, EPA recommends that the State 

of Maine request an expedited EPA approval of the portion of the 

I/M program not mandated as part of the federal I/M regulation. 

This will allow EPA to approve the program in those "surplus" 

areas even if Maine's program does not completely meet all of the 

requirements established by EPA's enhanced I/M rule. Because the 

program in those areas goes beyond the requirements of the Clean 

Air Act, it does not need to meet all of the requirements of the 

enhanced I/M rule.2 

2 It should be noted that, to the extent that the program 

does not meet the requirements of EPA's enhanced I/M rule, Maine 

may need to reduce the amount of emission reductions creditable 

to its I/M program. 

«•.' 
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If you or staff have any questions regarding this determination, 

please contact Brendan McCahill at (617) 565-3262 for new source 

review issues or Robert Judge at (617) 565-3233 for mobile source 

issues. Thank you for your assistance in this matter. 

Sincerely, 

uC-ic /Fh/}^Y/f 

Linda M. Murphy, Director 

Air, Pesticides and Toxic Management Division 

cc: Dean Marriott - Maine DEP 

Dennis Keschl - Maine DEP 

Bryce Sproul - Maine DEP 

John Chandler - Maine DEP 

Marc Cone - Maine DEP 

Peter Chase - Operations Manager, L-P 

Daniel Boxer - Pierce, Atwood, Scribner, Allen, Smith & 

Lancaster 

George Mitchell - US Senator, Maine 

Michael Michaud - State Rep., Maine 

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