***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 1 of 104 6560-50-P ENVIRONMENTAL PRO TECTION AGENCY 40 CFR Parts 51, 52, 70 and 71 [EPA-HQ-OAR-2009-0517; FRL- ] RIN 2060-AR10 Prevention of Significant Deterioration and Titl e V Greenhouse Gas Tailoring Rule Step 3, GHG Plantwide Applicability Limitations and GHG Synthetic Minor Limitations AGENCY : Environmental Protection Agency (EPA). ACTION : Proposed rule. SUMMARY : This proposal concerns the third step (Step 3) in the EPA’s Tailoring Rule. We are proposing to maintain the applicability thresholds for greenhouse gas (GHG)-emitting sources at the current levels. We are also proposing two st reamlining approaches, which will improve the administration of GHG Prevention of Significant Deterioration (PSD) and title V permitting programs. The first proposal addresses the implementation of GHG plantwide applicability limitations (PALs). We propose to allow permitting authorities to issue GHG PALs on either a mass-basis (tpy) or a carbon dioxide equivalent (CO 2 e)-basis and to allow PALs to be used as an alternative approach for determining whether a project is a major modifi cation and whether GHG emissions are subject to regulation. The second proposal woul d create the regulatory authority for the EPA to issue synthetic minor limitations for GHGs in areas subject to a GHG PSD Federal Implementation Plan (FIP). We also discuss our progress in evaluating the suitability of other streamlin ing approaches and solicit further

comment. DATES : Comments must be received on or before [INSERT DATE 45 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER ]. Public Hearing . Two public hearing will be held on March XX, 2012, and March XX, 2012. For additional instructions on the two public hearings, go to the SUPPLEMENTARY INFORMATION section of this document.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 2 of 104 ADDRESSES : Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2009–0517, by one of the following methods:

 Http://www.regulations.gov: Follow the online instructions for submitting comments.

 Email: a-and-r-docket@epa.gov. Attention Docket ID No. EPA–HQ–OAR–2009–0517.

 Fax: (202) 566-9744.

 Mail: Attention Docket ID No. EPA–HQ–OAR– 2009–0517, Air and Radiation Docket and Information Center, Mailcode: 2822T, U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue, NW, Washington, D.C. 20460. Please include a tota l of two copies. In addition, please mail a copy of your comments on the information collection provisions to the Office of Information and Regulatory Affair s, Office of Management and Budget, Attn: Desk Officer for EPA, 725 17 th Street, NW, Washington, D.C. 20503.

 Hand Delivery: Air and Radiation Docket and Info rmation Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Avenue, NW, Washi ngton, D.C. 20004, Attention Docket ID No. EPA–HQ–OAR–2009–0517. Such deliveries are only accepted during the Docket Center’s normal hours of operation, and special arrangements should be made for deliveries of boxed information. Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-2009–0517. The EPA’s policy is that all comments received will be includ ed in the public docket without change and may be made available online at www.regulations.gov , including any personal inform ation provided, unless the comment includes information claimed to be C onfidential Business Inform ation (CBI) or other information whose disclosure is rest ricted by statute. Do not submit in formation that you consider to be CBI or otherwise protecte d through www.regulations.gov or email. The www.regulations.gov website is an “anonymous access” system, which means the EPA will not know your identity or contact information unless you provide it in the body of your co mment. If you send an email comment directly***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 3 of 104 to the EPA without going through www.regulations.gov your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an elect ronic comment, the EPA recommends that you include your name and other contact information in the body of your comme nt and with any disk or CD-ROM you submit. If the EPA cannot read your comment due to technical di fficulties and cannot contac t you for clarification, the EPA may not be able to consider your comment. Electronic files should a void the use of special characters, any form of encryption, and be free of a ny defects or viruses. For additional instructions on submitting comments, go to section I.C of the SUPPLEMENTARY INFORMATION section of this document. Docket: All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some informa tion is not publicly available, e.g. , CBI or other information whose disclosure is restricted by statute. Certain other material, such as c opyrighted material, will be publicly available only in hard copy. Publicly available dock et materials are available either electronically in www.regulations.gov or in hard copy at the Air and Radia tion Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Avenue, NW, Washington, D.C. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday thr ough Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air and Radiation Docket and Informa tion Center is (202) 566-1742. Public Hearing : Two public hearings will be held on this proposed rule. The March XX, 2012, hearing will be held at the _________________, Wa shington, DC _____; phone number ___________. The March XX, 2012, hearing will be held at the __________________Chicago, IL _____; phone number _______________. Both public hearings will conv ene at 10:00 a.m. and continue until 7:00 p.m. (local time) or later, if necessary, depending on the number of sp eakers wishing to participate. The EPA will make every effort to accommodate all speaker s that arrive and register before 7:00 p.m. A***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 4 of 104 lunch break is scheduled from 12:30 p.m. until 2:00 p.m. during both hearings. The EPA website for the rulemaking, which includes the proposal and info rmation about the public hearings, can be found at: www.epa.gov/nsr

. FOR FURTHER INFORMATION CONTACT : Michael S. Brooks, Air Quality Policy Division, Office of Air Quality Planning and Standards (C5 04-05), Environmental Protection Agency, Research Triangle Park, North Carolina 27711; telephone nu mber (919) 541-3539; fax number (919) 541-5509; email address: brooks.michaels@epa.gov . To register to speak, attend or for information pertaining to the public hearings on this document, contact Ms. Pa mela S. Long, Air Quality Policy Division, Office of Air Quality Planning and Standards (C504-01), E nvironmental Protection Agency, Research Triangle Park, North Carolina 27711; telephone number ( 919) 541-0641; fax number (919) 541-5509; email address: long.pam@epa.gov

. SUPPLEMENTARY INFORMATION : The information in this Supplementary Informa tion section of this preamble is organized as follows:
I. General Information A. Does this action apply to me? B. Where can I get a copy of this document and other related information? C. What should I consider as I prepare my comments for the EPA? 1. Submitting CBI 2. Tips for Preparing Your Comments D. How can I find information about the public hearing? E. What acronyms, abbreviations and units are used in this preamble? II. Overview of the Proposed Rule III. Background A. Statutory and Regulatory Background for PSD and Title V B. How has the Tailoring Rule addressed GHG emissions under PSD and Title V? C. In the Tailoring Rule, what commitments did the EPA make for Step 3? D. In the Tailoring Rule, what plan di d the EPA announce for developing streamlining measures? E. In the Tailoring Rule, what commitments did the EPA make for subsequent action? IV. Available Information on GHG Permitting A. GHG Permitting Activity to Date B. Consultations with States C. Additional Technical Support for the Step 3 Rule***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 5 of 104 V. Proposed Step 3 Rule A. Overview B. Have states had adequate tim e to ramp up their resources? C. What is the ability of permitting au thorities to issue timely permits? D. Has the EPA developed streamlining methods? E. Limited Benefit from Lowering Thresholds in Step 3 F. Conclusion VI. Streamlining for PSD and Title V Permitting of GHGs A. Plantwide Applicability Limitations for GHGs 1. What is the EPA Proposing? 2. What is a PAL? 3. Why are we proposing to amend the regulations? 4. Options for Allowing GHG-Only Sources to Obtain a GHG PAL 5. Extending PALs to GHGs on a CO 2 e Basis, and Using PALs To Determine Whether GHG Emissions Are “Subject to Regulation” 6. Can a GHG source that already has a mass-based GHG PAL obtain a CO 2 e-based PAL once we issue final changes to the PAL rules? 7. How whould we change the regulatory provi sions to implement PALs for GHG-only major sources? B. Synthetic Minor Source Permitting Authority for GHGs 1. What is the EPA proposing? 2. What is synthetic minor limita tion, and what is its function? 3. What is a “subject to regulation” limitation? 4. Why does the EPA need authority to issue synthetic minor source permits? 5. What are the benefits to a federal GHG synthetic minor permit program? 6. What is the legal rationale for EPA’s GHG synthetic minor source permitting authority? 7. What changes would EPA make to the PSD regul ations to allow EPA to issue GHG synthetic minor permits? C. Redefining Potential to Emit and Source Category Specific PTE D. General Permitting for GHGs 1. What is a general permit? 2. What is the legal authority for general permits? 3. Have the states used general permits? 4. What steps has the EPA made toward developing general permits? 5. General Permits and Title V E. Presumptive BACT for GHGs 1. Definition of BACT 2. What is presumptive BACT? 3. How the EPA Could Consider Implementing Presumptive BACT 4. Possible Impediments to Presumptive BACT F. Title V Empty Permits VII. Request for Comment A. Solicitation of Comment on Proposed Step 3 1. General 2. Call for Additional Information Concerning State Burdens B. Solicitation of Comment on Streamlining Techniques 1. Plantwide Applicability Limitations for GHGs 2. Synthetic Minor Source Permitting Authority for GHGs***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 6 of 104 3. Redefining PTE and Source Category Specific PTE 4. General Permits for GHGs 5. Presumptive BACT for GHGs 6. Empty Permits VIII. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordi nation with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks H. Executive Order 13211: Actions That Significantl y Affect Energy Supply, Distribution or Use I. National Technology Transfer and Advancement Act J. Executive Order 12898: Federal Actions To A ddress Environmental Justice in Minority Populations and Low-Income Populations K. Determination under Section 307(d) I X. Statutory Authority
I. General Information
A. Does this action apply to me? Entities affected by this action include sour ces in all sectors of the economy, including commercial and residential sources. Entities potentially affected by this action al so include states, local permitting authorities and tribal authorities. The majo rity of categories and entities potentially affected by this action are expected to be in the following groups: Industry Group NAICS a Agriculture, fishing, and hunting ................... 11 Mining ............................................................ 21 Utilities (electric, natural gas, other systems).................................................... 2211, 2212, 2213 Manufacturing (food, beverages, tobacco, textiles, leather) ........................................ 311, 312, 313, 314, 315, 316 Wood product, paper manufacturing ............. 321, 322 Petroleum and coal products manufacturing. ......................................... 32411, 32412, 32419 Chemical manufacturing. ............................... 3251, 3252, 3253,3254, 3255, 3256,3259 Rubber product manufacturing ...................... 3261, 3262 Miscellaneous chemical products .................. 32552, 32592, 32591, 325182, 32551***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 7 of 104 Nonmetallic mineral product manufacturing . 3271, 3272, 3273, 3274, 3279 Primary and fabricated metal manufacturing .......................................... 3311, 3312, 3313, 3314, 3315, 3321, 3322, 3323, 3324, 3325, 3326, 3327, 3328, 3329 Machinery manufacturing .............................. 3331, 3332, 3333, 3334, 3335, 3336, 3339 Computer and electronic products manufacturing .......................................... 3341, 3342, 3343, 3344, 3345, 4446 Electrical equipment, appliance, and component manufacturing ....................... 3351, 3352, 3353, 3359 Transportation equipment manufacturing ...... 3361, 3362, 3363, 3364, 3365, 3366, 3366, 3369 Furniture and related product manufacturing .......................................... 3371, 3372, 3379 Miscellaneous manufacturing ........................ 3391, 3399 Waste management and remediation ............. 5622, 5629 Hospitals/Nursing and residential care facilities .................................................... 6221, 6231, 6232,6233, 6239 Personal and laundry services ........................ 8122, 8123 Residential/private households ...................... 8141 Non-Residential (Commercial) ...................... Not available. Codes only exist for private households, construction and leasing/sales industries.

a North American Industry Classification System.
B. Where can I get a copy of this document and other related information? In addition to being available in the docket, an el ectronic copy of this proposed rule will also be available on the World Wide Web. Following signatu re by the EPA Administrator, a copy of this proposed rule will be posted in the regulations an d standards section of our New Source Review (NSR) website, under Regulations & Sta ndards, at http://www.epa.gov/nsr

. C. What should I consider as I prepare my comments for the EPA?
1. Submitting CBI Do not submit this information to the EPA through www.regulations.gov or email. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to the EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 8 of 104 that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR Part 2. Send or deliver information identifie d as CBI only to the following address: Roberto Morales, OAQPS Document Control Officer (C404- 02), Environmental Protection Agency, Research Triangle Park, NC 27711, Attention Docket ID No. EPA-HQ-OAR-2009–0517.
2. Tips for Preparing Your Comments When submitting comments, remember to:

 Identify the rulemaking by docket number a nd other identifying information (subject heading, Federal Register date and page number).

 Follow directions – The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Re gulations (CFR) part or section number.

 Explain why you agree or disagree; suggest a lternatives and substitute language for your requested changes.

 Describe any assumptions and provide any tech nical information and/or data that you used.

 If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

 Provide specific examples to illustrate your concerns, and su ggest alternatives.

 Explain your views as clearly as possible, avoidi ng the use of profanity or personal threats.

 Make sure to submit your comments by the comment period deadline identified.
D. How can I find information about the public hearing? Persons interested in presenting oral testim ony should contact Ms. Pamela Long, Air Quality Policy Division (C504-01), Environmental Protecti on Agency, Research Triangle Park, NC 27711; telephone number (919) 541-0641 or email long.pam@epa.gov at least 2 days in advance of the public hearings. Persons interested in a ttending the public heari ngs should also contact Ms. Long to verify the***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 9 of 104 time, date and location of the hearing. The public hear ings will provide interested parties the opportunity to present data, views or argumen ts concerning these proposed rules.
E. What acronyms, abbreviations and units are used in this preamble? The following acronyms, abbreviations a nd units are used in this preamble:
AFUE BACT Annual Fuel Utilization Efficiency Best Available C ontrol Technology CAA or Act Clean Air Act CFR CH 4 Code of Federal Regulations Methane CO 2 Carbon Dioxide CO 2 e Carbon Dioxide Equivalent DOE EPA U.S. Department of Energy U.S. Environmental Protection Agency ECOS FIP Environmental Council of the States Federal Implementation Plan FR GHG Federal Register Greenhouse Gas GP GWP General Permit Global Warming Potential HFCs Hydrofluorocarbons ICR Information Collection Request LDVR Light-Duty Vehicle Rule N 2 O Nitrous Oxide NAAQS National Ambient Air Quality Standard NACAA NRDC NSR National Association of Clean Air Agencies Natural Resources Defense Council New Source Review NTTAA National Technology Transfer and Advancement Act OMB Office of Management and Budget PAL PFCs Plantwide Applicability Limitation Perfluorocarbons PSD Prevention of Significant Deterioration PTE Potential to Emit RFA Regulatory Flexibility Act SBA Small Business Administration SF 6 Sulfur Hexafluoride SIP State Implementation Plan SNPR Supplemental Notice of Proposed Rulemaking TSD Technical Support Document tpy Tons Per Year UMRA Unfunded Mandates Reform Act
II. Overview of the Proposed Rule***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 10 of 104 In the Tailoring Rule, 1 we included an enforceable commitme nt to propose or solicit comment on what we call Step 3 of the process for phasing in, or tailoring, the applicability thresholds at which GHG emission sources are subject to the Clean Air Act (CAA or “the Act”) PSD and title V permitting requirements. We also stated in that rule that we would lower the Tailoring Rule thresholds only after we determined that the states have had enough time to develop the necessary in frastructure and increase their GHG permitting expertise and capacity to efficiently manage the expected increase in administrative burden, and only after we had the opportunity to expedite GHG permit issuance through streamlining measures. In addition, in the Tailori ng Rule, we committed to complete action on the Step 3 rulemaking by July 1, 2012, and to make the Step 3 rule effective on July 1, 2013. In the short period of time since the EPA promulgated the Tailoring Ru le, the states and we have made progress in GHG permitting capacity and streamlining in some areas, but not enough to justify lowering the thresholds at this time. As a result, in this rulemaking, we propose to maintain Step 3 of the Tailoring Rule at current levels. In section III of this proposal, we discu ss background information, including the potential numbers of permit actions, amounts of GHG emissions , and administrative costs of permit actions for the sources that are potentially subject to GHG permitting for Step 3. In section IV, we discuss the available information regarding the impact that GHG permitting is having on permitting authorities. In section V, we discuss our proposal to maintain the current applicability requirements for GHG PSD and title V permitting at the levels established under Steps 1 and 2 of the Tailoring Rule, which we generally refer to as the 100,000/75,000 levels. Our basis for maintaining the current applicability requirements st ems from the Tailoring Rule itself, in which we determined that with the Step 1 and 2 thresholds, permitting authorities would be required to handle a

1 “Prevention of Significant Deteri oration and Title V Greenhouse Gas Tailoring Rule; Final Rule,” 75 FR 31,514 (June 3, 2010) (the Tailoring Rule).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 11 of 104 large number of GHG permitting actions that would impose significant administrative burdens on the permitting authorities, and that lowering those thre sholds in Step 3 would bring in more permitting actions that in turn would add more burden. Accord ingly, we stated we woul d lower the GHG thresholds only if certain criteria were met. The criteria ar e: (i) the development of what we call streamlining measures that would make GHG permitting more efficient, (ii) whether permitting authorities had the time needed to ramp up their resources, and (iii) the ability of sources to meet the requirements of the PSD program and the permitting authoritie s’ ability to issue timely permits. 2 Information currently available indicates that the permitting authorities ar e not significantly better positioned now to process more GHG permits than they were at the time we pr omulgated Steps 1 and 2 in the Tailoring Rule. We also note that lowering the thresholds to include the relatively low-emitting sources currently under consideration for Step 3 would result in a very sm all addition to the amount of GHG emissions subject to permitting requirements while potentially adding thousands of sources to the permitting process. For these reasons, we propose in Step 3 to maintain, and not lower, the current applicability thresholds. As we committed to do in the Tailoring Rule, we have been exploring a variety of approaches that could be used to streamline PSD and title V permitting for sources of GHGs. In section VI, we discuss streamlining techniques with the potential to make the PSD and title V permitting programs more efficient to administer for GHG-emitting sour ces, and propose two streamlining techniques. In section VI.A, we propose to add provisions to th e PSD regulations at 40 CFR 51.166 and 52.21 to better address PALs for GHGs. More specifically, we propos e regulatory changes to implement GHG PALs on either a mass-basis (tpy) or a CO 2 e-basis, including for existing sources that are not yet currently major for any regulated NSR pollutants and are not majo r sources because of th eir GHG emissions, and we also propose allowing PALs to be used as an altern ative approach for determining both whether a project is a major modification and whether GHG emissions ar e subject to regulation. In section VI.B, we

2 75 FR 31559.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 12 of 104 propose to add provisions to the PSD regulations at 40 CFR 52.21 to create GHG synthetic minor source permitting authority, in areas subject to a GHG PSD FIP. In doing so, we propose changes to create the regulatory authority for the EPA to issue synthe tic minor limitations for GHG emissions to allow sources to restrict emissions below the PSD appli cability thresholds. A synthetic minor limit may also allow sources to restrict emissions below the title V permitting applicability threshold on a source-wide basis. We also request comment on whether any stat es with approved SIPs l ack authority to issue GHG synthetic minor limitations. In the rest of section VI, we discuss our pr ogress in evaluating the suitability of other streamlining options and request further comment, for the purposes of both PSD and title V permitting, on potential-to-emit calculations and the use of gene ral permits; and for PSD permitting, on the use of presumptive best available control technology (BACT). In section VII, we solicit comment on the full ra nge of topics discussed in this proposal. In addition, we call for additional information from st ates as to their current and expected air permit budgets as well as their current and expected future levels of permitting based on the current thresholds and the possibility of lower thresholds in the future.
III. Background This section describes key as pects of the background for this rulemaking. For other background information, such as a description of GHGs and th eir sources, the regulatory backdrop to the Tailoring Rule, and the EPA’s GHG PSD and title V programs, see the Tailoring Rule, the related actions that the EPA took shortly before fi nalizing the Tailoring Rule, 3 and the GHG PSD and title V implementation

3 “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” 74 FR 66,496 (December 15, 2009) (the Endangerment and Cause-or-Contribute Findings); “Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule,” 75 FR 25,324 (M ay 7, 2010) (the Light-duty Vehicle Rule); “Interpretation of Regulations that Determin e Pollutants Covered by Clean Air Act Permitting Programs,” 75 FR 17,004 (April 2, 2010) (the Timi ng Decision or the Johnson Memo Reconsideration).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 13 of 104 rules that we call the GHG PSD SIP Call and GHG FIP, 4 as well as the GHG PSD and title V Narrowing Rules. 5 For purposes of this proposal, we assume that the reader is familiar with the above-referenced materials. In the following paragraphs we provide a brief summary of key statutory and regulatory background for the PSD permit and title V programs.
A. Statutory and Regulatory B ackground for PSD and Title V Under the CAA, PSD applies to any “major emitt ing facility” that commences construction or undertakes a “modification.” The Act defines “major em itting facility” as a stati onary source that emits any air pollutant in the amount of at least 100 or 250 tpy on a mass basis, depending on the source category. The Act also defines “modification” as a ny physical or operational cha nge that “increases the amount” of any air pollutant emitted by the source. CAA section 165(a), 169(1), 169(2)(C), 111(a)(4). Under the CAA, title V applies to a “major source,” which is defined to include any stationary source that is a “major stationary source” under section 302 of the Act. CAA §501(2). Under section 302, a “major stationary source” is defined as any stationary facility or source of ai r pollutants which directly emits, or has the potential to emit, 100 tpy or mo re of any air pollutant. CAA §302(j). The EPA’s regulations implement these requirements, though they use different terminology. Under the regulations, PSD applies to any “major stationary source” that commences construction or undertakes a “major modification.” 40 CFR 51.166(a)(7)(i)-(ii). The regul ations define a “major stationary source” as a

4 “Action to Ensure Authority to Issue Permits under the Preven tion of Significant Deterioration Program to Sources of Greenhouse Gas Emissions: Finding of Substantial Inadequacy and SIP Call— Final Rule,” 75 FR 77,698 (December 13, 2010) (the GHG PSD SIP Call); “Action to Ensure Authority to Issue Permits Under the Prevention of Signifi cant Deterioration Program to Sources of Greenhouse Gas Emissions: Federal Implementation Plan; Fi nal Rule,” 75 FR 82246 (December 30, 2010) (the GHG PSD SIP Call FIP). 5 “Limitation of Approval of Prevention of Signif icant Deterioration Provisions Concerning Greenhouse Gas Emitting Sources in State Implementation Plan s; Final Rule,” 75 FR 82535 (December 30, 2010) (the PSD Narrowing Rule); “Action to Ensure Au thority to Implement Titl e V Permitting Programs Under the Greenhouse Gas Tailoring Rule; Final Ru le,” 75 FR 82254 (December 30, 2010) (the Title V Narrowing Rule).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 14 of 104 stationary source that emits, depending on the source ca tegory, at least 100 or 250 tpy, on a mass basis, of a “regulated NSR pollutant.” 40 CFR 51.166(b)(1)(i)(a )-(b). A “major modifica tion” is defined as any physical or operational change that would result in a “significant emi ssions increase” and a “significant net emissions increase” of “a regulated NSR pollu tant” from the major stationary source. 40 CFR 51.166(b)(2)(i). A “significant emissions increase” is defined as “an increase in emissions that is significant ... for that pollutant.” 40 CFR 51.166(b)(39). The term “significant” is defined as a specified number for certain listed regulated NSR polluta nts and zero for any non-listed pollutants. 40 CFR 51.166(b)(23)(i)-(ii). A “significant net emissions increase” refers to emissions increases net of emissions decreases. 40 CFR 51.166(b )(3). A “regulated NSR pollutant[]” is defined as any of the following: (i) in general, any pollutant subject to a NAAQS, (ii) any pollutant subject to a new source standard of performance under CAA §111, (iii) any of a certain type of stratospheric ozone depleting substances, or (iv) “[a]ny pollutant that otherw ise is subject to regula tion under the Act.” 40 CFR 51.166(b)(49)(i)-(iv). The title V regulations define a “major source” in 40 CFR 70.2. In the Tailoring Rule, the EPA promulgated, for th e first time, a regulatory definition of the term “subject to regulation” for purposes of the PSD regulations, and include th at term, as defined, in the title V regulations. Under the Tailoring Rule regulations, a pollutant is “subject to regulation” if, in general, the pollutant is subject to actual control of the quantity of emissions. E.g. , 40 CFR 51.166(b)(48), 40 CFR 70.2. In addition, the Tailoring Rule also pr ovides a special rule for GHGs, which provides that GHGs become pollutants “subject to regulation,” and th erefore subject to PSD a nd title V, if they meet the following two-step phase-in thresholds. Step 1 applies the applicable requirements of PSD, including the BACT requirement to projects that increase net GHG emissions by the applicable threshold (75,000 tpy CO 2 e) provided these projects would be subjec t to PSD anyway by significantly increasing emissions of at least one non-GHG pollutant. Under Step 1, for the title V progr am, only sources with current title V permits for non-GHG pollutants will have to address GHGs. Step 2 then expands the***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 15 of 104 program by phasing in additional large sources of GHG emissions that are not already subject to PSD or title V permitting requirements due to non-GHG emissions . In Step 2, PSD and title V requirements will apply to new sources that emit, or have the potential to emit, at least 100,000 tpy CO 2 e. For existing sources, Step 2 applies title V requirements to existing sources that emit, or have the potential to emit, 100,000 tpy CO 2 e and that are not already subject to ti tle V requirements, and also applies PSD requirements to those sources that emit, or have the potential to emit, 100,000 tpy CO 2 e and undertake a modification that increases net emissions by at least 75,000 tpy CO 2 e. See 75 FR 31516. In the Tailoring Rule, the EPA explained that “we selected the ‘s ubject to regulation’ mechanism” as the legal mechanism for establishing the phase-in thresholds b ecause we had received information that states could more expeditiously adopt those thresholds through that mechanism. The EPA added that “our action in this rulemaking [in establis hing the phase-in thresholds] should be interpreted to rely on any of several legal mechanisms to accomplish this result ... [including] revising the meaning of several terms in the [PSD] definition [ provisions].” 75 FR 31582.
B. How does the Tailoring Rule address GHG emissions under PSD and Title V? 6 In the Tailoring Rule, the EPA explained that the rulemaking was necessary because without it, the CAA PSD preconstruction review permitting pr ogram and the title V operating permit program would, under a literal reading of those provisions, appl y to all stationary sources that emit or have the potential to emit more than 100 or 250 tpy of GHGs beginning on January 2, 2011. This was the date when the EPA’s recently promulgated Light Duty Vehicle Rule (LDVR) took effect, imposing control requirements for the first time on carbon dioxide (CO 2 ) and other GHGs, thereby making them subject to regulation and triggering the PSD and title V permitting requirements. Therefore, a source owner proposing to construct any new major source that would emit or have th e potential to emit at or higher

6 We include this discussion of the Tailoring Rule for background purposes only. We do not reopen for comment any of the determinations made in the Tailoring Rule or our rationale for them.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 16 of 104 than the 100/250 tpy applicab ility levels (and which therefore may be referred to as a “major” source) or modify any existing major source in a way that w ould increase GHG emissions, would need to obtain a permit under the PSD program that addresses these em issions before constructi on or modification could begin. Similarly, title V would apply to a new or existing GHG source exceeding the 100 tpy applicability threshold in the Act. In the Tailoring Rule, we further explained that under these circumstances, and in the absence of streamlining methods, state and local permitting author ities would be burdened by the need to issue PSD permits to tens of thousands of small sources and to issue title V permits to millions of small sources. These extraordinary numbers of permit applications are orders of magnitude greater than the current inventory of annual applications and would vastly exceed the current administ rative resources of the permitting authorities. Permit gridlock would result w ith the permitting authorities able to issue only a tiny fraction of the permits requested. In the Tailoring Rule, we further explained that “[ t]hese impacts ... are so severe that they bring the judicial doctrines of ‘absurd results,’ ‘administr ative necessity,’ and ‘one-step-at-a-time’ into the Chevron two-step analytical framework for statutes admi nistered by agencies.” Tailoring Rule, 75 FR at 31517. We further explained that on the basis of th is legal interpretation, we would phase-in the applicability of PSD and title V to GHG-emitting sour ces so that those requirements would apply “at least to the largest sources initially, at least to as many more sources as possible and as promptly as possible over time ... and at le ast to a certain point.” Id . In the Tailoring Rule, we went on to promulgate the first two steps of the phase-in program, which we call Steps 1 and 2, and we made commitments for subsequent action. In the Tailoring Rule, we closely reviewed the numbers of additional permitting actions for GHG-emitting sources, and the resulting administrative burdens, that would occur at various permitting thresholds. For example, we estimated the following permitting burdens associated with the Step 1 and***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 17 of 104 Step 2 thresholds: Step 1: Number of sources subject to PSD and title V permitting: Additional workload hours PSD program: Additional workload ho urs title V program: the same 34,000 at a cost of $3 million 27,468 at a cost of $1 million Step 2: Number of additional sources subject to PSD permitting: 2 new sources, 915 modified sources Additional workload hours PSD program: 310,655 at a cost of $24 million Number of additional sources subject to title V permitting: 190 sources for each of the first 3 years Additional workload ho urs title V program: 141,322 at a cost of $7 million

75 FR 31541. We further estimated that the combined additional PSD and title V permitting burdens due to Steps 1 and 2 would, on an annual basis, mean a 42 percent increase in costs over the current PSD and title V program. 75 FR 31540, Table V-1.
C. In the Tailoring Rule, what commitmen ts did the EPA make for Step 3? In the Tailoring Rule, we noted that “followi ng implementation of the first phase of PSD and title V applicability to GHG sources , generally at the [proposed] threshold, additional action would be required over time to assure full compliance with th e statute.” 75 FR 31571. Accordingly, we included in the Tailoring Rule an enforceable commitment to issue a notice of proposed rulemaking in which we would propose or solicit comment on a third step of the phase-in, which we call Step 3. We committed to complete Step 3 by July 1, 2012, and to make Step 3 effective by July 1, 2013. We committed to solicit comment on lowering the thresholds, so that mo re sources would be subj ect to PSD and title V requirements, 40 CFR 52.22(b)(1), 40 CFR 70.12(b)(1 ), but we did not commit to either propose or***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 18 of 104 finalize lower thresholds. We further stated that in light of the administrative burdens, we would not, in Step 3, lower the thresholds below the 50,000/50,000 tpy CO 2 e levels. In the Tailoring Rule, we recognized that lowering the thresholds in Step 3, and thereby bringing more sources into PSD and title V permitting, would mean that the permitting authorities would confront even greater administrative burdens. For example, we estimated that lowering the thresholds to the 50,000/50,000 level would increase administrative co sts by 40 percent above administrative costs associated with Step 2. 7 Accordingly, we explained that whether we could lower the thresholds in Step 3 depended on (i) whether the EPA could develop st reamlining measures, (ii) the time that permitting authorities need to ramp up their re sources, and (iii) sources’ abilities to meet the requirements of the PSD program and permitting authorities’ ability to issue timely permits. 75 FR 31524. We elaborated: (2) Criteria for Establ ishing Phase-in Schedule The specific phase-in schedule under th e tailoring approach will depend on several things. The first is our progress in developing st reamlining methods that will render the permitting authority workload more manageable by taking some sources off the table (through regulations or guidance interpreting “potential to emit”), and by allowing for more efficient permit processi ng (through general permits and presumptive BACT). At the same time, streamlining tec hniques will lower permitting costs to sources or even eliminate some sources ’ obligations to obtain perm its altogether. The second is the time that permitting authorities need to ramp up their resources in an orderly and efficient manner to manage the additional work load. The third is information we have as to the sources’ abilities to meet the requi rements of the PSD program and the permitting authorities’ ability to process permits in a ti mely fashion. That information will be based on the real-world experience the permitting authorities will accumulate as they proceed to process permit application for the larger GHG sources. Thus, under our present approach, we will develop streamlining techniques, we expect the permitting authorities to ramp up resources in response to the additional demands placed upon them in the first two st eps, and we will gather real worldinformation about the GHG permitting process; and based on all that, we will address expanding the PSD program in a step-by-step fashion to include more sources over time. We intend to follow this process to establ ish ... the PSD applicab ility thresholds .... 75 FR 31559. With respect to the thir d criterion, we note that in the Tailoring Rule, we made clear that sources’ abilities to meet the requirements of the PSD and title V programs depend at least in part on the

7 75 FR 31540 (Table V-1).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 19 of 104 ability of the states to develop, as part of the stat e programs, outreach and educat ional efforts to facilitate source compliance. Accordingly, fo r present purposes, we think this component concerning sources may be examined by a review of the states’ progress in developing stat e GHG permitting programs. We also note that permitting authorities’ abilities to issue tim ely GHG permits may be measured by the extent of any permitting backlog, and depend in large part on th e permitting authorities’ development of expertise. In this rulemaking, we seek information from the st ates as to their ability to issue timely permits, including data concerning their backlog, but we also are examining, more broadl y, the states’ progress in developing expertise in GHG permitting.
D. In the Tailoring Rule, what plan did the EP A announce for developing streamlining measures? In the Tailoring Rule, we announced a plan to ex plore streamlining techniques that could make the permitting programs more efficient to admini ster for GHGs, and that therefore could allow expanding those programs to smaller sources. Stream lining techniques to be evaluated include: 1) defining PTE for various source categories, 2) establishing source categor y emission limits for presumptive BACT, 3) establishing general permits a nd permits-by-rule, 4) establishing a process for electronic permitting, and 5) establishing a process for lean techniques for more efficient permitting processes. We believe that thes e techniques have the potential to streamline the PSD and title V permitting programs for GHGs to “allow the expeditious expansion of PSD and tit le V applicability to more GHG-emitting sources while protecting those s ources and the permitting authorities from undue expenses.” 75 FR 31526. While we intend to move forward and develop st reamlining approaches, we also stated in the Tailoring Rule that we did not expect to develop and implement any of these prior to Step 2. We also stated in the rule that several of these streamlin ing approaches will take several years to develop, requiring separate rulemaking both at the federal level, and then thr ough state and local processes. We, nonetheless, committed to explore a number of po ssible streamlining actions prior to the Step 3***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 20 of 104 rulemaking. In addition, with respect to title V, in the Tailoring Rule we noted that commenters on the proposal for that rule stated that the EPA should apply the title V program only to sources that are subject to applicable requirements, so that source s should not be required to hold “empty permits” (e.g. , permits issued to a source that is not subject to any applicable requirement for any pollutant). In the Tailoring Rule, we recognized that not requiring sources to hold such “empty permits” is a potential means for relieving title V permitting burdens. [75 FR 31566.] We also stated that – We need to gather more information c oncerning the potential number and utility of “empty permits” for GHG sources, in light of the fact that the need for requirements in title V permits will vary based on the requireme nts of each SIP, and the fact that some SIPs contain broadly applicable requirements. 75 FR 31566. We added that in the Step 3 rulema king, “we may consider whether to limit title V applicability to GHG sources in order to minimize the number of GHG sources with ‘empty’ permits.” Tailoring Rule, 75 FR 31567.
E. In the Tailoring Rule, what commitments did the EPA make for subsequent action? In addition, in the Tailoring Rule, we establis hed an enforceable commitment that we will (i) complete a study by April 30, 2015, to evaluate the status of PSD and title V permitting for GHGemitting sources, including progress in developing streamlining techniques; and (ii) complete further rulemaking based on that study by April 30, 2016, to address the permitting of smaller sources. That rulemaking may also consider additional permanent ex clusions based on the “absu rd results” doctrine, where applicable. In the Tailoring Rule, we also included a provisi on assuring that no source with emissions or potential to emit below 50,000 tpy CO 2 e, and no modification resulti ng in an increase and a net GHG increases of less than 50,000 tpy CO 2 e, would be subject to PSD or title V permitting before April 30, 2016. We included this provision on the basis of our conclusion that the admi nistrative burdens that would accompany permitting sources be low the 50,000 tpy threshold would be so great that it would be***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 21 of 104 impossible to administer the permit programs for these sources until at least 2016, even with the streamlining actions that the EPA may be able to de velop, and the increases in permitting resources that we reasonably expect the permitting authorities to acquire.
IV. Available Information on GHG Permitting To support this Step 3 rulemaking, the EPA has gathered additional information on the impact that GHG permitting is having on permitting authorities at the current threshold levels and the potential impact that would result from a reduction in the GHG permitting thresholds to levels as low as 50,000 tpy CO 2 e. Section IV.A discusses the actual permitting th at has occurred since January 1, 2011. Section IV.B discusses information gathered through prelim inary consultations with eight state PSD permitting authorities, as well as, experience garnered from the EPA regional offices that are the PSD permitting authorities for certain states. 8 Section IV.C presents information from an analysis of the number of existing and new sources that woul d be potentially major sources of GHGs at a range of thresholds between the current level of 100,000 tpy CO 2 e and 50,000 tpy CO 2 e. A. GHG Permitting Activity to Date As of December 1, 2011, the EPA and state pe rmitting authorities had issued 18 PSD permits with GHG requirements. We also estimate that as of that date, the EPA and state permitting authorities had received an additional 50 GHG PSD permit applic ations. The types of source categories for which permitting authorities have issued GHG permits in clude: biofuel production, cement plants, electric generating units, lime production facili ties, outer continental shelf explor ation, pulp and paper mills, and refineries. Eleven states and three EPA regions issued these permits. In most cases, no permitting authority issued a permit for the same source categor y more than once. We discuss in section V the extent to which these permitting actions have pr ovided information relevant to Step 3.

8 In the title V program, the respon sible permitting agency is referred to as the “permitting authority,” while in the PSD program, this entity is referred to as the “reviewing authority.” We use the two terms interchangeably in this preamble.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 22 of 104 B. Consultations with States To obtain additional information on the current status of GHG permitting based on the implementation of Step 1 and Step 2 and the potential impact of reducing the GHG thresholds in Step 3, we consulted with eight state permitting authoritie s – Iowa, Louisiana, Michigan, New Jersey, North Carolina, Pennsylvania, South Dakota and Utah – a ll of which have experience with GHG permitting, and which represent a cross-secti on of state programs geographically and in terms of population and types of sources. In addition, we reviewed the experience of the EPA regional offices that act as PSD permitting authorities in state jurisdictions: Region 4, which issues PSD permits for GHG emissions in Florida and for all regulated polluta nt emissions from outer continen tal shelf sources in the eastern portion of the Gulf of Mexico; Region 6, which issu es PSD permits for GHG emissions in Arkansas and Texas; and Region 9, which issues PSD permits for all regulated pollutants in many of the local air quality management districts in California. For additional information concerning responses to the survey, please refer to the Docket ID No. EPA-HQ-OAR-2009-0517. These states and regional offices confirm that they have not yet experienced the increase in the number of major source permitting actions that was pr edicted to result from the implementation of Step 1 and Step 2. They generally do not believe that 2011 has been representative of the permitting burdens that they expect will ultimately occur under the current Tailoring Rule. In addition, the states confirmed that to this point, they have not been able to build up their GHG permitting infrastructure. For example the permitting activity to date has provided limited, if any, opportunity to build internal capacity to handle GHG permitting for a diverse set of sources or more efficiency for any particular source category. Similarly, the lack of permitting experience greatly diminished the opportunity to develop meaningful streamlining approaches to address GHG permitting. As a result, states indicated that they have ma de little or no progress in implementing streamlining measures, and have not adopted any such measures specifically to address GHGs.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 23 of 104 C. Additional Technical Suppor t for the Step 3 Rule To support the decision-making process for this Step 3 rule, the EPA carried out an analysis to estimate the number of facilities that would exceed different GHG emissi ons threshold levels. 9 This analysis built upon analysis the EPA included in the Ta iloring Rule to support th e threshold decisions in that action. 10 In the Tailoring Rule analysis, the EPA eval uated eight different P TE thresholds between 100 and 100,000 tpy CO 2 e, including 50,000 tons per year. For th is Step 3 analysis, the EPA evaluated nine additional thresholds between 50,000 and 100,000 tpy CO 2 e in 5,000 tpy increments (that is, 55,000 through 95,000 tpy CO 2 e). The EPA considered stationary sources in the following sectors:

 Electricity Generation (facilities with fossil fuel-fired electric generating units);

 Industrial sources (14 subcategor ies of industries with process and combustion GHG emissions);

 Energy (oil and gas extracti on, transport, and processi ng; underground coal mining);

 Waste Treatment (landfills and municipal solid waste incinerators);

 Agriculture (stationary fuel combustion);

 Commercial (stationary fuel combustion); and

 Residential (stationary fuel combustion). For each sector, the analysis estimated the number of sources that would become major sources for GHGs at each of the different thre shold levels and the number of ne w major sources projected to be added each year. The study found that at a St ep 3 major source threshold of 50,000 tpy CO 2 e, approximately 4,650 additional sources would become major sources of GHGs (increasing from 5,326 at 100,000 tpy CO 2 e, to 9,980 at 50,000 tpy). About half of th ese would be in the “unspecified industrial stationary combustion” subcategory of industrial fac ilities; 16 percent in the waste treatment sector,

9 See Technical Support Document “Summary of Met hodology and Data Used to Evaluate Resource Requirements at Alternative Greenhouse Gas (GHG) Permitting Thresholds” (December 2011). 10 See “Technical Support Document for Greenhouse Ga s Emissions Thresholds Evaluation,” March 29, 2010, Docket No. EPA-HQ-OAR-2009-0517-19158.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 24 of 104 landfill subcategory; 14 percent in the energy sect or, oil and gas subcategory; 12 percent in the commercial/stationary fuel combustion sector; 4 per cent in the electricity ge neration sector and the remaining 4 percent scattered among the remaining sect ors and industrial subcateg ories. At a threshold of 80,000 tpy CO 2 e the number of commercial sources that become major sources of GHGs significantly increases and at a threshold of 55,000 tpy CO 2 e, some multi-family residential sources become major sources. The analysis found that no sources in the ag ricultural or single family residential categories would become major sources of GHGs at a threshold of 50,000 tpy CO 2 e. Note that this analysis did not differentiate between sources that become major only because of the source’s GHGs emissions from sources that that are already major for one or more other pollutants. The EPA’s analysis identified sources that would become subject to permitting requirements because of GHG emissions alone. 11 Based on this analysis, we estimate that a reduction from the current Step 2 threshold to 50,000 tpy CO 2 e would result in nearly 3,000 sour ces becoming major sources due to their GHG emissions alone (increasing from 552 sources at 100,000 tpy CO 2 e, to 3,539 at 50,000 tpy). In addition, we estimate that 1,014 additional modi fications would be subject to PSD permitting based on GHG emissions at 50,000/50,000 tpy CO 2 e versus the Step 2 thresholds of 100,000/75,000 (increasing from 917 per year to 1,931). In addition to determining the amount of potential additional permit actions associated with the various thresholds, the EPA also determined the ad ministrative burdens associ ated with those actions. To do so, the EPA relied on the same per-permit administrative cost figures used in the Tailoring Rule for both PSD and title V permitting, for both commerci al/residential sources and industrial sources, as well as for both new construction and modifications. 12 The EPA also determined the amount of GHG

11 See “Summary of Methodology and Data Used to Ev aluate Resource Require ments at Alternative Greenhouse Gas (GHG) Permitting Thresholds,” December 2011. 12 We note that none of the challenges to the Tailor ing Rule have addressed these burden estimates; we have not revisited them for purposes of this rule , nor are we are re-opening them for comment.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 25 of 104 stationary source emissions associated with the s ources potentially affected by the various thresholds. To determine the impacts of lowering the threshol ds in Step 3, the EPA compared the amounts of administrative costs and GHG inventory covered at the various cut-points to the amounts at the 100,000/75,000 Step 2 levels. 13 For example, with respect to the PSD administrative costs, as we stated in the Tailoring Rule, 75 FR 31540 (Table V-1), at the 100,000/75,000 Step 2 le vels, we expect annual PSD permitting actions for GHG-emitting sources to include 242 newly constructed sources and 1,365 modifications ( 917 for GHG emissions alone plus 448 fo r anyway sources) and we expect that these PSD GHG permitting actions would increase permitting authority administrative burdens by 42 percent above existing total air permitting burdens (i ncluding permitting for conventional (i.e. , non-GHG pollutants under Tailoring Rule Step 1), because thes e actions would trigger permitting requirements for both PSD and title V. In total, we estimate the fac ilities meeting the Step 2 major source applicability thresholds account for approximately 67 percent of the total national stationary source GHG emissions. At the 50,000/50,000 levels, the EPA estimates annual PSD permitting actions involving GHG-emitting sources to include 243 newly constr ucted sources and 2,379 modifications (1 more newly constructed source and 1,014 more modifications than at the 100,000/75,000 level). While the EPA estimates these GHG permitting actions to increase permitting authority administrative burdens by 40 percent above the total burdens at Step 2 levels (and 99% above th e administrative burdens without GHG permitting), we estimate the facilities meeting thes e major source applicability thres holds to account for approximately 70 percent of total national stationary source GHG em issions, just three percent more than currently covered under Step 2. For a more complete descrip tion of the EPA’s analysis and an explanation, see the Technical Support Document titled, “Summary of Methodology and Data Used to Evaluate Resource

13 This level refers to new sources as well as exis ting sources that are not “anyway” sources and that emit, or have the potential to emit, at least 100,000 tpy CO 2 e, as well as existing sources that emit or have the potential to em it at least 100,000 tpy CO 2 e and that undertake a modification that increases net emissions of GHGs by at least 75,000 tpy CO 2 e.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 26 of 104 Requirements at Alternative Greenhouse Gas (GHG) Permitting Thresholds” (December 2011).
V. Proposed Step 3 Rule
A. Overview The Tailoring Rule’s phase-in approach is based on data concerni ng the numbers of GHG permitting actions the permitting authorities would have to undertake and the costs of those actions – both absolute and in comparison to their current budgets – at various different thresholds for the applicability of PSD and title V to GHG-emitting sources. In the Tailoring Rule, we began the phase-in by establishing Steps 1 and 2, which applied PSD a nd title V to “anyway” sources and sources emitting GHGs at the 100,000/75,000 tpy CO 2 e level. To do so, we determined that permitting authorities could handle the hundreds of additional permitting actions th at would occur under Steps 1 and 2, even though the authorities’ administrative costs would increase by 42 percent over their then -current administrative costs for both PSD and title V programs. The present rulemaking represents the fulfillment of our commitment in the Tailoring Rule to undertake Step 3 of the GHG PSD and title V phase-in process. At this time we believe state permitting authorities have not had sufficient time and opport unity to develop the nece ssary infrastructure and increase their GHG permitting expert ise and capacity, which makes it administratively infeasible to apply PSD and title V permitting requirements to a dditional sources. Accordingly, we are proposing to leave the applicabil ity thresholds for GHGs unchanged. In the Tailoring Rule, we committed to undertake future rulemaking, including this Step 3 rulemaking, to examine whether we could lower the thresholds to, potentially , as low as 50,000/50,000, and thereby apply PSD and title V to more sources. We recognized th at lowering the thresholds would add more administrative costs on top of those added by Steps 1 and 2, and as a result, we stated that whether and when we would lower the thresholds would depend on the pace at which the EPA and permitting authorities could develop streamlining meas ures to expedite permit program administration***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 27 of 104 and permitting authorities could hire and train staff, as well as gain experience with GHG permitting. Specifically, we indicated that fu rther phase-in of GHG applicability would depend on three criteria: (i) whether the EPA could develop streamlining measures, (ii) the time that permitting authorities need to ramp up their resources, and (iii) sources’ abilities to meet the re quirements of the PSD program and permitting authorities’ abilities to issue timely permits. As described in the following, the states and the EPA have made some progress in these areas. For example, the states have issued some GHG perm its and we are proposing streamlining measures in this rulemaking. However, neither the states nor th e EPA have had the opportunity to make significant progress in these areas. First, the states ha ve had only limited experience in GHG permitting and therefore have not had the opportunity to develop signi ficant expertise. The main reasons for this are the unexpectedly low number of PSD permit applications submitted to date and the short amount of time since GHG permitting began. Second, the states have not been able to develop their GHG permitting infrastructure – e.g. , hiring additional personnel, establishing policies and conducting outreach programs to sources unfamiliar with the permitting process – largely because their permitting resources have not increased and, in fact, in some cases have decrea sed and may decrease further in the near future. Similarly, for title V, applications for title V pe rmits are not generally due until a year after title V becomes applicable to a source. Thus, for Step 2 tit le V sources, permit applic ations are generally not due until July 1, 2012, and states have not gained title V permitting experience. Third, we have not had the opportunity to develop significan t streamlining approaches, largely because, as we stated in the Tailoring Rule, certain streamlining approaches require a longer process. Becau se of these reasons and following the criteria, described in the Tailoring Rule, we are establishing Step 3 at the current levels. The following discusses these criteria, beginning with the ability of states to ramp up and build infrastructure, and notes the states’ and our expe rience with GHG permitting to date under the current Step 1 and Step 2 applicability thresholds. We also address the additional two criteria noted above and***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 28 of 104 the environmental benefits potentially associated with any further reduction in the GHG PSD permitting thresholds.
B. Have states had adequate tim e to ramp up their resources? A criterion that we described in the Tailoring Rule for whether to lower the thresholds in Step 3 was whether the permitting authorities could increase their resources. As discussed previously in the background section, we stated in th e Tailoring Rule that we expected Steps 1 and 2 to result in an increase in PSD permits for new construction and m odifications and in title V permits. We estimated that Steps 1 and 2 would result in a 42 percen t increase in administrative burdens for permitting authorities. We expected that some increase in state permitting resources would be needed to accommodate, at least in part, those new demands. As noted, to this point stat es have not been confronted with the amount of GHG permit applications that we had expected in the Tailoring Ru le for Steps 1 and 2. We expect that this situation will be short-lived, and that the pace of permitting will pi ck up. Thus, it is prudent for states to continue to plan on confronting additional administrative de mands expected as part of Steps 1 and 2. As discussed in the following, they have confronted other administrative burdens as well and if the thresholds are lowered in Step 3, they will confront still more administrative burdens. Importantly, based on our consultations with a limited number of stat es, we do not believe that states have had the opportunity to obtain the necessary resources and to develop their infrastructure to accommodate the level of permitting expected in Steps 1 and 2. In addition, an August 2011 report by the E nvironmental Council of the States (ECOS) 14 emphasizes the continued need for additional resources before full implementation of the program can begin. It also notes that permitting authorities exp ect workloads to double or triple as a result of

14 S. Brown, A. Fishman, “The Status of Stat e Environmental Agency Budgets, 2009-2011,” Steven Brown, Executive Director, and Adam Fishman, Intern.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 29 of 104 applications for synthetic minor limits to sources who wish to avoid GHG permitting. Further, as quantified in the Tailoring Rule, lowering the thresholds would increase those burdens. We have estimated that lowering the thre sholds to 60,000/60,000 would increase administrative burdens by 20 percent above the to tal burdens at Step 2 levels (and 40 percent above the pre-GHG permitting burdens). As noted above, lowering them to 50,000/50,000 would increase administrative burdens by 40 percent above the to tal burdens at Step 2 levels (and 99 percent above the pre-GHG permitting burdens). As we discussed in the Tailor ing Rule, lowering applicability thresholds would trigger requirements for more sources that never be fore have been regulated under the PSD and title V permitting programs. As a result, permitting agencies will need to conduct an education and outreach program to raise awareness and unde rstanding of the regulatory requirements for these smaller sources. Absent this outreach effort, we believe that many s ources will not understand, and perhaps may not even be aware of, their new regulatory obligations. Finally, we note that certain procedural aspect s of the GHG permitting process have proved to be more resource- and time-intensive for states than an ticipated at the time of the Tailoring Rule. In the final Tailoring Rule, we finalized the applicability thresholds within the definition of “subject to regulation,” instead of within the “major stationary source” definition. We made this change in regulatory approach because we received informati on indicating that many states could adopt the applicable thresholds thr ough a regulatory interpretati on of the term “subject to regulation,” instead of a SIP revision. 15 Since finalizing the Tailoring Ru le, we discovered that in fact , very few states were able to adopt the applicable thresholds by interpretation alone, and instead ne eded SIP revisions to be able to

15 As discussed in the preamble to the final Ta iloring Rule (75 FR 31581), we participated in teleconferences with 1 local and 6 state agency perm itting authorities on this topic, and they generally agreed that this approach would be tter facilitate state incorporation of the limitations in the final rule. We therefore concluded that it wa s likely that the state rules were sufficiently open-ended to apply EPA’s approach by interpretation (although some states might elect to pursue rulemaking in addition to or instead of interpretation).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 30 of 104 regulate GHGs under their approved PSD programs at th e levels of the final Tailoring Rule. Moreover, some states were obliged to invoke emergency procedur es to expedite revision of their state laws. This unexpected, additional state proce ss required for adopting the Tailori ng Rule thresholds may have delayed some states in developing their permitting program infrastructure. By the same token, for title V programs, we be lieved that many states could adopt the Tailoring Rule thresholds through a regulatory interpretation of the term “subject to regulation,” and that this approach would allow permitting authorities to im plement title V for GHGs quickly with little rulemaking burden. However, as it has happened, most states need to change the state laws and/or regulations governing their title V pr ograms to be able to permit GHGs at the Tailoring Rule threshold levels. In fact, it turned out that only 5 state programs and numerous lo cal districts in California, did not need to enact program revisions. In the Tailoring Rule, we expected that over time, permitting authorities would have the opportunity to increase their resources to allow them to process more GHG permit applications in a timely fashion. To this point, we see little eviden ce that permitting authorities could increase resources and, in fact, permitting authorities generally ar e facing fewer resources. Reductions in state environmental agency budgets are fully consistent w ith the overall reductions in state budgets recently seen in the United States. The August 2010 ECOS report, noted previously, 16 concluded that state budgets decreased by an average of approximately $21 million per state from 2009 to 2011. On June 28, 2011, the National Association of Clean Air Agencies (NACAA) sent a letter to the U.S. House of Representatives detailing the status of 40 state and local air quality agencies. 17 The NACAA letter indicates that 80

16 “The Status of State Environmen tal Agency Budgets, 2009-2011,” p. 3. 17 S. William Becker to Honorable Michael Si mpson, Chairman Subcommittee on Interior, Environment, and Related Agencies, and Honorab le James Moran Ranking Member, Subcommittee on Interior, Environment, and Related Agencies***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 31 of 104 percent of air agencies experienced a decline in sta ffing levels in the last 4 years. Over the years 2008- 2010, the average loss of staff per agency was 16.7 pe rcent. In addition to staffing losses, 48 percent of air agencies experienced furloughs, and the majority faced significant declines in budgets. These cutbacks resulted in curtailing core air program ac tivities including permit issu ance, and education and outreach programs. In our recent consultations with states most confirmed that they have seen their budgets and staffs reduced in recent years as the states have responded to the economic downturn and budget shortfalls. For the previously described reasons, states have not had the opportunity to build capacity and resources to handle GHG permitting. Accordin gly, this criterion of state resources supports maintaining the current thresholds.
C. What is the ability of permitting au thorities to issue timely permits? The second criterion we address is whether permitti ng authorities have the ability to issue timely permits based on efficiencies resulting from GHG permitting implementation experience. 18 In describing this criterion in the Tailoring Rule, we expected that permitting authorities, by acting on the anticipated volume of GHG PSD permit actions, would have the opportunity to establish efficient methods for resolving issues and processing permits, including de veloping expertise within their staff. This would allow them to achieve efficiencies that, in turn, would create capacity for processing more GHG permit applications. Thus, with this criterion, we based our commitment to complete the Step 3 rulemaking in part on the assumption that Steps 1 and 2 would provide us with the necessary information to determine whether and when it has become possible for st ates to administer GHG permitting programs for additional sources. This has not yet happened. While we recognize that we have not yet comple ted a full year of implementation for Steps 1 and 2, GHG permit applications are fewer than we had e xpected. As of December 1, 2011, the EPA and state

18 As noted above, this criterion may be measured by the period of time permitting authorities need to issue permits, and it also encompasses the sour ces’ ability to meet GHG permitting requirements***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 32 of 104 permitting authorities have issued only 18 GHG PSD permits. As noted, these 18 permit actions have been spread among 11 states and the EPA. Almost al l of the states have issued only one GHG permit, and only Michigan has issued as many as three perm its. This activity has simply been too limited to allow States to build internal capacity to handle GHG permitting for a diverse set of sources, to develop more efficient techniques for permitting any particul ar source category, or to develop streamlining approaches to address GHG permitting. In our consulta tions with the states, some have confirmed that they have not been able to build up their GHG perm itting infrastructure. However, they generally have added that they do not believe that 2011 has been representative of the permitting burdens that they expect will ultimately occur under the current Tailoring Rule. In sum, the states’ experiences to date do not provide a basis for us to conclude that permitting au thorities in fact have the ability to issue timely permits based on GHG permitting experience thus far.
D. Has the EPA developed streamlining methods? In the final Tailoring Rule, we indicated that implementation of permit streamlining approaches would assist permitting authorities by removing some sources from the permit program, or allowing more efficient processing of applications. As we indicated in the final Ta iloring Rule, however, we expected it would take several y ears for the EPA to develop and for States to gain authority to implement effective streamlining methods. We did not anticipate that streamlining approaches would be available by the time of the Step 3 rulemaking. We also note that in the previously described consultations, the states reported that they have made little progress in implementing streamlining measures, and none have adopted measures specifically to address GHGs. This information is consistent with EPA’s estimate, in general, that it would take at least 3 years for EPA to de velop, and for states to adopt and implement streamlining methods, so that sufficient progress on streamlining would likely not occur before the Step 3 rulemaking deadline. We are proposing requirements for PALs and s ynthetic minor limitations for sources, and these***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 33 of 104 also constitute streamlining methods that can be e xpected to free up administrative resources. However, these methods will not be available in time to enha nce the state’s ability to manage the GHG permitting programs during Step 3. The benefits of a PAL will no t be seen until the States adopt these requirements into their SIPs and sources apply for and receive perm its that reflect PALs. For the previously-described reasons, although we are making prog ress in developing streamlining m easures, the current status of streamlining measures supports maintain ing the thresholds for Step 3. In addition, as noted, we are continuing to consider other st reamlining approaches, including limits on potential-to-emit, general permits, and presumptive BACT. For the most part, these other streamlining methods even if further developed, would have limited benefit for improving permitting administration for the source categories currently subject to GHG PSD permitting or that are under consideration for Step 3. We discuss our progress in developing these other streamlining methods, and their limited utility for Step 3, in section VI. This rulemaking provides a good opportunity to provide the EPA with input on additional streamlining ideas for implementation of the GHG permitting programs. More specifically, in section VII.B we request co mment on other potential str eamlining techniques that may hold promise to reduce PSD and/or title V permitting burden for sources of GHGs and permitting authorities.
E. Limited Benefit from Lowering Thresholds in Step 3 The fact that PSD would apply to the great bulk of GHG emissions at the Tailoring Rule thresholds was a factor in our decision to establis h the thresholds at the 100,000/75,000 levels. For the current rulemaking, we have conduc ted further analysis, which shows that reducing the thresholds in Step 3 to as low as 60,000/60,000 would bring within the potential ambit of the PSD program less than an additional 1 percent of all GHG emissions from all stationary sources above the statutory thresholds while potentially adding a significant number of sour ces into the permitting programs. This is because of the large amount of GHG emissions that come from ve ry large sources, coupled w ith the relatively smalln L

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Page 35 of 104 create significant administrative burdens on permitti ng authorities. We stated that we would lower the thresholds, and thereby create additio nal administrative burdens, only after: (i) we had the opportunity to develop efficiencies in GHG permitting through st reamlining measures; (ii) the states had the opportunity to build up their GHG permitting infrastr ucture and to develop GHG permitting expertise; and (iii) sources have the ability to meet the requirements of the PSD program and permitting authorities have the ability to issue timely pe rmits. These things have not happene d, as the preceding discussion has made clear. As a result, consistent with the commit ment we made in the Tailoring Rule, lowering the thresholds is not feasible at this time. Importantly, we consider the relative lull in perm it activity to be temporary, and we expect that the pace of permit applications will increase. In fact, it is difficult to predict whether the increase in permit activity under Step 2 will occur incrementally or rapidly. If it occurs rapidly, it would be particularly burdensome for states. As a result, even a modest increase in permitting burden that could result from lowering thresholds in Step 3 could overwhelm state permitting capacity and result in substantial delays in proc essing permit applications. All told, these considerations s upport maintaining the Tailoring Ru le thresholds through Step 3. Additional time is required to deve lop streamlining measures to expedi te permit program administration, and permitting authorities need additional time to s ecure resources, hire and train staff, and gain experience with GHG permitting before we move toward full implementation of the program. Accordingly and consistent with our Tailoring Rule commitment, we propose to maintain the thresholds of 100,000/75,000 tpy CO 2 e. We note that maintaining PSD and title V applicab ility for GHG sources at the current thresholds for Step 3 does not have implications for whether we will lower the thresholds in Step 4 or afterwards. Our actions in Step 4 will depend on our evaluation of the criteria and other factors desc ribed above. If those criteria and other factors point in the direction of lowering the thresholds, we will do so, and we***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 36 of 104 will lower them to whatever level indicated. A decisi on not to lower the thresholds in Step 3 does not foreclose a decision to lower them in Step 4.
VI. Streamlining for PSD and Title V Permitting of GHGs In the Tailoring Rule, the EPA committed to explore streamlining measures as an integral part of the phase-in approach to permitting requireme nts for GHG emissions under PSD and title V. Streamlining techniques would allow permitting authorities to be more efficient in administering their GHG permit programs by reducing the overall resources required to administer the PSD permitting program now and in the future. By implementi ng effective streamlining techniques permitting authorities could move more rapidly toward regu lating a larger set of GHG sources. In the Tailoring Rule, we identified potential streamlining options. We also acknowledged that it will take us several years to develop, and for states to gain author ity to implement effective streamlining methods. We committed to continue to explore the identified options, and to request comment on these and any additional streamlining approaches in the Step 3 rulemaking. Today, we propose to adopt two regulations: one that streamlines the PSD permit program, and one that potentially streamlines both the PSD a nd the title V permit program. The first regulation expands the existing PAL provisions to allow review ing authorities to establish GHG PALs on either a mass-basis (tpy) or a CO 2 e-basis, including for existing sources that are not yet GHG major sources, and allows PALs to be used as an alternative approa ch for determining both whether a project is a major modification and whether GHG emissions are subject to regulation. The second regulation establishes a mechanism that allows individual sources to obtain synthetic minor limitations (potential to emit (PTE) limitations) for GHG emissions in ar eas subject to a GHG PSD FIP. We previously had not identified PALs as a viable streamlining t echnique. Since we finalized the Tailoring Rule, we recognized that the existing PA L regulation has limited value for GHG sources, and that revising the current PAL regulations to addre ss the unique applicability aspects associated with***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 37 of 104 GHGs could streamline PSD permitting for more sources and make PALs for GHGs more useful for all source categories. Specifically, by amending the regul ations, we hope to encourage greater use of GHG PALs, which in turn would encourage sources to reduce existing GHG emissions through efficiency improvements and other measures to maximize th e operational flexibility provided by the PAL. In contrast, our proposed Tailori ng Rule discussed the synthetic minor - PTE mechanism we now propose, but expressed concerns that this approach might overwhelm permitting authorities based on the sheer number of sources that could apply for indi vidual synthetic minor permits. Since finalizing the Tailoring Rule, we have continued to evaluate this . We have concluded that offering a mechanism to establish PTE limits for individual sources provides environmental be nefit, and helps streamline the PSD and title V permit programs, at least in the short term. Accordingly, today we propose to amend the federa l PSD regulations to create authority for (i) reviewing and permitting authorities to issue PALs to major and potentially-major GHG stationary sources on either a mass-basis or a CO 2 e basis and also to allow such PALs to be used as an alternative approach for determining whether a project is a ma jor modification and subject to regulation for GHGs by amending regulations in 40 CFR 51.166 and 52.21, a nd (ii) federal reviewi ng authorities to issue GHG synthetic minor permits by amending regulations in 40 CFR 52.21. We also discuss our progress in evaluating the suitability of other streamlining options that we identified in the final Tailoring Rule including: (1) Defining PTE for vari ous source categories, (2) Establishing emission limits for various source categories that constitute presumptive BACT, (3) Establishing procedures for use of general permits. Although we propose two streamlining regulations on a more rapid schedule than we originally envisioned, we do not project that these approaches will provide a sufficient reduction in the immediate permit workload to justify a decrease from the Step 1 and Step 2 applicability levels. The PAL rule, in***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 38 of 104 fact, may increase the immediate short term worklo ad by requiring development of PAL provisions and potential SIP revisions, as well as gaining experi ence in issuing PALs, but will reduce the long term workload on reviewing authorities and sources. The GHG synthetic minor permit program will reduce the short term workload by providing a less burdensome permitting process, and it may allow some sources to avoid PSD and title V permitting at the current Step 1 and Step 2 applicability levels. We believe that these streamlining regul ations will offer advantages to industry, permitting authorities and the environment. They will provide operational flexibili ty to sources and will also provide incentives for sources to install good emission control systems to maximize operational flexibility. These streamlining regulations also help build GHG permitting capacity, be cause both regulations sti ll require the reviewing authority to gain an understanding of GHG emissions for the individual source in context of establishing appropriate emission limitations and monitoring , recordkeeping and reporting requirements. Accordingly, we believe implementation of both regulations should decrea se overall administrative burdens and thus could enable us to reduce the GHG applicability thresholds at some time in the future. The following discussion outlines our two streamlining proposals, and then discusses the viability of other streamlining options.
A. Plantwide Applicability Limitations for GHGs
1. What is the EPA proposing? Our proposal intends to provide reviewing authorities with the authority to issue GHG PALs to sources at which GHG emissions could become subjec t to regulation, and which then must undertake a major modification NSR applicabilit y determination. We provide a summary of several approaches for amending the regulatory language to implemen t a GHG PALs program, and request comment on possible changes to the regulations , any of which we may finalize. We propose three changes to the existing PSD re gulations in 40 CFR 51.166 and 52.21. These changes allow reviewing authorities to issue PALs to both existing major and potentially major GHG***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 39 of 104 stationary sources on eith er a mass-basis or a CO 2 e basis and to allow GHG PALs to be used as an alternative approach for determini ng whether a project is a major modi fication and subject to regulation for GHGs. The proposed changes would continue to pr otect the environment from adverse impacts from projects that would increase emissions. The changes would also streamline GHG preconstruction permitting as part of our overall efforts to tailor the PSD applicability provisions to include regulation of GHG emissions. Specifically, we propose to amend the regulations to allow reviewing aut horities to (1) issue PALs to GHG-only sources 19 ; (2) issue either a mass-based (tpy) or a CO 2 e-based PAL to a particular source; and (3) allow compliance with a GHG PAL to be used as an alternativ e applicability approach for determining whether a project is a ma jor modification and subject to regulation 20 for GHGs. We believe these changes are appropriate to enable the use of PALs for GHG, given the unique characteristics of GHGs and the su bject to regulation app licability approach adopted for GHGs in the Tailoring Rule. We request comment on each aspect of this proposal.
2. What is a PAL? Under the EPA’s regulations, a PAL is an emissi ons limitation expressed in tons per year for a pollutant that is enforceable as a practical matter and is established source-wide in accordance with specific criteria. 21 PALs are voluntary in the sense that sources may, but are not requ ired, to apply for a PAL, and whether to issue a PAL to particular sour ce is at the discretion of the reviewing authority. PALs offer an alternative method for determining ma jor NSR applicability. If the overall emissions at a

19 A GHG-only source is a source that emits or has the potential to emit 100/250 tpy GHG on a massbasis, and emits or has the potential to emit 100,000 tons per year of CO 2 e or more, but does not emit or have the potential to emit any other regulated NSR pollutant at or above the applicable major source threshold. 20 For an explanation of “subject to regulation,” see the background section in the Tailoring Rule at 75 FR 31516. 21 40 CFR 52.21(aa)(2)(v).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 40 of 104 source remain below the PAL level, the source can ma ke changes at the source that do not trigger major NSR. This allows sources to respond rapidly to ma rket conditions, while assu ring there is no adverse impact to the environment from the change. A PAL also results in significant environmental benefit, by providing the community with an understanding of the long-term emissions impact from a facility, preventing emissions creep (i.e., a se ries of unrelated individual emissions increases that are below major NSR applicability thresholds), and requiring enhanced monitoring, reco rdkeeping and reporting to demonstrate compliance with the PAL.
3. Why are we proposing to amend the regulations? The EPA reads its current PAL and PSD regulati ons as restricting permitting authorities from issuing certain kinds of GHG PALs. The current regulations restrict sources that can obtain GHG PALs to existing major stationary sources and do not allo w sources to rely on the PAL’s emissions limitation in determining whether GHG emissions are subject to regulation because they are not identified as an approved methodology for determining if GHG are “subject to regulation”. We also interpret our current regulations to al low reviewing authorities to issue PALs only to existing major stationary sources. 22 The PSD provisions generally define a “major stationary source” as a stationary source which emits or has the potential to emit 100 or 250 tpy or more of a regulated NSR pollutant, depending on the type of source. 23 A GHG-only source is a source that emits or has the potential to emit 100/250 tpy GHG on a mass-basis, and emits or has th e potential to emit 100,000 tons per year of CO 2 e or more, but does not emit or have the potential to emit any other regulated NSR pollutant at or above the app licable major source threshold. 24 A GHG-only source is a minor source for purposes of PSD, and only becomes major for PSD when it undertakes a change that increases GHG

22 40 CFR 52.21(aa)(1). 23 40 CFR 52.21(b)(1)(i)( a)-(b). 24 For the purpose of this rule, we te rm such sources “GHG-only sources.”***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 41 of 104 emissions by at least 75,000 tpy CO 2 e. This means that at this time, for GHGs, reviewing authorities using the federal PAL provisions can only issue a PAL to a GHG-only source when the source proposes to undertake such a change, because this is the only time when the source is a major stationary source. 25 As a result, GHG-only sources may not currently use the alternate major NSR applicability provisions provided by a PAL in the same way that existing ma jor stationary source of other regulated NSR pollutants may. Instead, GHG-only sources must wa it to obtain a PAL until they actually propose to make a change that qualifies the source as a major stationary sour ce under the PSD program. 26 Moreover, because the definition of modification is based on changes in emissions of regulated NSR pollutants on a mass basis, and PALs are curre ntly designed as an alternative for this determination, but not specified as an alternative in the definition of “subject to regulation,” any PAL established by the EPA under our cu rrent regulations can only be mass-based. This means that GHG sources cannot rely on the same metric of GHG em issions to determine whether a change causes GHG emissions to be subject to regulation, as the source relies on to determine whether a change results in a major modification. Thus, under the current regulati ons, sources using the PAL provisions must still monitor both metrics to ultimately determine wh ether a change triggers major NSR review. We believe changing the regulations to remove these restrictions will provide sources with additional operational flexibility, and reduce GHG workload burdens on reviewing authorities by decreasing the number of PSD permit applications re viewing authorities must process for these sources over the long term. Providing an option that allows a source to use a GHG PAL will help streamline the major NSR permitting program and provide more opera tional flexibility to sources. Being able to establish a PAL would provide planning certainty to s ources, and would relieve the current time pressure

25 40 CFR 52.21(b)(49)(v)(b). 26 Because an anyway source emits or has the pote ntial to emit another regulated NSR pollutant in amounts at or above the major source thresholds, it is a major stationary source, and it may apply for a PAL for its GHG emissions on a mass basis at any tim e under the current regu lations as long as it otherwise qualifies (e.g. , has sufficient emissions data to establish a PAL).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 42 of 104 to issue a PAL permit concurrent with authorizat ion for a planned major modification which could potentially delay that project. We also believe th at compliance with a GHG PAL generally assures that the environment remains protected from adverse air impacts resulting from changes a source undertakes in compliance with such a PAL, regardless of whic h metric is specified to measure GHG emissions in that PAL, because emissions cannot exceed this pre-es tablished level without further review. PALs also provide an incentive for a source to minimize GHG emissions increases from future projects. Finally, the EPA did not promulgate a mass-base d significant emissions rate for GHG emissions in the final Tailoring Rule. Instead, we included an em issions increase applicab ility threshold of 75,000 tpy CO 2 e within the subject to regulati on definition. Consequently, the la ck of a mass-based significant emissions rate reduces the operati onal flexibility that can be provi ded under a mass-based GHG PAL. A significant rate is an applicability threshold for m odifications based on a rate of emissions increase below which the emissions increase is not a major modification, and at or above which the emissions increase triggers major NSR applicability. In the absence of a specific signi ficant rate, the significant rate for GHG emissions equals any emissions incr ease. Under the current PAL rules, a reviewing authority may add an amount equal to the significant rate for a pollutant to the baseline actual emissions to establish the PAL level on a mass basis. Thus, if a reviewing authority es tablishes a mass-based GHG PAL, under our current interpretatio n of the regulations, the PAL may not include any margin above the baseline actual emissions for emissions growth . Absent this margin, a GHG PAL provides less flexibility to a source when compar ed to PALs for other regulated NSR pollutants. The proposed rules provides GHG PAL sources with the same kind of flex ibility sources currently have for other regulated NSR pollutants by allowing sources to establish a CO 2 e-based PAL using the 75,000 tpy CO 2 e applicability threshold for GHGs. A review ing authority could add the 75,000 tpy CO 2 e to a source’s
CO 2 e baseline actual emissions to establish the PAL level, because the Tailoring Rule established 75,000 tpy CO 2 e as the appropriate rate of emissions in crease for the GHG applicability threshold.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 43 of 104 Changing the regulations will also have the effect of streamlining future major NSR applicability determinations for sources that choose a CO 2 e PAL, by eliminating the need to evaluate GHG emissions on a mass basis for major NSR applicability as long as the source is complying with the CO 2 e PAL, because a CO 2 e PAL can function to assure both that GHG em issions are not subjec t to regulation, and that a change does not trigger a major modification. In sum, we believe that the current PAL regulations are inconsistent with the outcome achieved when the PAL rules are applied to regulated NSR po llutants other than GHGs, and therefore are overly restrictive with respect to GHG-only sources. Accord ingly, we are proposing to amend the major NSR regulations and PAL rules to allo w reviewing authorities to (1) i ssue PALs to GHG-only sources; (2) issue either a mass-based (tpy) or a CO 2 e-based PAL to a particular source; (3) allow CO 2 e-based PALs to include the 75,000 tpy CO 2 e rate of emissions increase appli cability threshold; and (4) allow compliance with a GHG PAL to be used as an alternative applicability approach for determining both whether a project is a major modification and wh ether GHG emissions are subject to regulation. Provided a source complies with a GHG PAL, GHG emi ssions at the source will not be “subject to regulation,” and a project at the source will not resu lt in a major modification. We request comment on each one of these proposals. As noted previously, in the Tailoring Rule, a lthough the EPA amended the definition of “subject to regulation” to establ ish a level of GHG emissions that a so urce must meet, on both a source and project basis, before GHGs will be considered an NSR regulated pollutant for PSD permitting purposes, the EPA also made clear that its action had the same substantive effect, and should be treated, as having revised other components of the definition of “major st ationary source” to achieve the same effect. Even so, because in the Tailoring Rule it was the “subject to regulation” provision that the EPA chose to incorporate the phase-in thresholds, in this proposal concerning PALs, the EPA is continuing to focus on***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 44 of 104 the “subject to regulation” provision as the codifi cation of the Tailoring Rule requirements, to be consistent with the approach in the Tailoring Rule.
4. Options for Allowing GHG-Only Sources to Obtain a GHG PAL We request comment on two approaches for re gulating GHG-only sources under a PAL. We call the first approach the Major Source Opt-in Approach . This approach is consistent with the current restriction that only allows reviewing authorities to issue PALs to existing major stationary sources, but the approach would provide GHG-only sources the abil ity to become existing major stationary sources. A GHG-only source could become a major stationary source by agreeing to be considered an existing major stationary source, without having a sp ecific qualifying projec t that increases CO 2 e emissions at the source by at least 75,000 tpy CO 2 e. We call the second approach the Minor Source Appr oach. In contrast to the Major Source Opt-in approach, under the Minor Source Approach a GHG- only source would remain a minor source, and a reviewing authorities could issue GHG PALs to the GHG-only sources without requiring the source to become an existing majo r stationary source. Under the Major Source Opt-in Approach, we w ould amend the regulations to allow any existing stationary source that emits or ha s the potential to emit GHGs in am ounts above the first part of the “subject to regulation” applicability threshold (currently 100,000 tpy CO 2 e) and above the 100/250 tpy major stationary source threshold, to submit an app lication for a PAL, in which the source agrees to be considered an existing major stationary source for GHG emissions. As long as the source complies with the GHG PAL, it would not trigger the PSD permitting requirements for GHGs for any project, but the regulations would continue to re quire the source to evaluate wh ether the change triggers PSD applicability for other regulated NSR pollutants in the attainment or unclassifiable area. This is because PSD applies whenever a major stationary source undert akes a project that result s in both a significant emissions increase and a significant net emission s increase of any regulated NSR pollutant.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 45 of 104 The EPA believes that allowing GHG-only sources to opt into major stationary source status is consistent with the Act. But for the Tailori ng Rule, GHG-only sources qualify as “major emitting facilities,” because such sources emit or have the potential to emit 100 or 250 tpy GHG. Thus, these sources fall within the statutory scope of sources that, absent th e Tailoring Rule, we would have authority to regulate for purposes of PSD. Although we took a limited interpretation of how to exercise this authority through th e Tailoring Rule, we believe that th e Major Source Opt-in Approach is consistent with the Tailoring Rule ’s schedule for further phasing-in additional GHG sources into the PSD permitting program. In the final Tailoring Rule, we indicated that we would base our decision to include additional sources in the GHG permitting programs on an assessm ent of three criteria. These criteria are (i) whether the EPA could develop streamlining measures, (ii) the time that permitting authorities need to ramp up their resources, and (iii) sources’ abilities to meet the re quirements of the PSD program and permitting authorities’ ability to issue timely permits . Each of these criteria supports expanding the PSD permit program to include a source that opts into the GHG PAL regulatory structure. First, while the Major Source Opt-in Approach has the potential to increase the total number of GHG major stationary sources, it does so in a manner that decreases the long-term permitting burden for both the source and the reviewing authority. This is because the sour ce would likely require fewer permit actions over the life of a PAL. Thus, the Major Source Opt-in ap proach streamlines the PSD permitting program, which will assist permitting authorities when the EPA regulates additional GHG sources under the PSD program. Second, permitting authorities can gain valu able experience in issuing PAL permits that can build staff expertise. This, in turn, helps permittin g authorities’ efforts to ramp up their PSD permitting programs in a more timely and efficient manner. Third, sources demonstrate an ability to comply with major stationary source permitting requirements by voluntarily seeking a PAL under the Major Source Opt-in provisions. If a source could not comply , then it would not seek a GHG PAL. Moreover,***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 46 of 104 reviewing authorities likely would on ly agree to issue a PAL if they believe they have the necessary resources to issue the PAL(s), and do ing so would not detrimentally aff ect their obligations to otherwise issue timely permits. In sum, if a source opts-into the program, and a reviewing authority agrees to permit the source, then we believe these source s are properly brought within the PSD permitting
program. Under the Major Source Opt-in Approach, a sour ce could also choose to establish PALs for its non-GHG regulated NSR pollutants to better manage applicability for all pollutants at the source, including those regulated NSR pollutants for which th e source is not major. Under this approach, the source will continue to be considered a major sour ce under PSD and title V at th e expiration of the PAL. If the source is subject to the fe deral PSD program for GHG emissions , and to a state SIP-approved PSD program for its non-GHG regulated NSR pollutants, then whether a source can apply for, and receive, a PAL for its non-GHG regulated NSR pollutants will be governed by the applicable SIP-approved regulations and the state reviewing authority. Neither the EPA, nor its delegated authority, would issue PALs for non-GHG regulated NSR pollutants under 40 CFR 52.21, unless a FIP would govern PSD applicability for that pollutant. As with the current PAL regulations, the ultimate decision to issue a PAL remains with the reviewing authority. We are concerned, however, about the potential impact on reviewing au thorities of allowing GHG-only sources to obtain PALs for all their regulat ed NSR pollutants, as th is could cause a shortterm increase in regulatory burden on permitting authorities at a time when they are ramping up their programs to address other GHG major stationary sour ces. We request comment on this aspect of the Major Source Opt-in Approach and welcome suggesti ons for refining the appro ach to address concerns with short-term workload burdens for permitting authorities. Under the Minor Source Approach, we would amend the regulations to allow a GHG-only source to submit an application fo r a GHG PAL, and would also allow the source to maintain its minor***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 47 of 104 source status. A GHG-only source that complies w ith its GHG PAL will not trigger PSD permitting requirements for GHGs, but could trigger PSD for othe r regulated NSR pollutant if it undertakes a change that increases emissions by a “major ” amount for any non-GHG regulated pollutant. See 40 CFR 51.166 (b)(1)(i)(c ). That is, this approach would authorize permitting authorities to use the PAL program for minor sources only to regulate GHG emissions. Moreover, under the Tailoring Rule existing minor sources that emit only GHGs, but no other regulated pollutants in major amounts, must determin e whether any project will result in GHG emissions that are subject to regulation (on a CO 2 e basis), and correspondingly wi ll also result in a major modification (on a mass basis). Because GHG-only sour ces must undertake these determinations for any change, even those that would not make the source major for GHGs, we believe that extension of the PAL program to these sources thro ugh the Minor Source Approach is consistent with the purposes and design of the PAL program - to a llow use of a PAL as an alternate major modification applicability approach. Issuing PALs to GHG-only sources that remain mi nor sources does not conflict with the basis for the current PAL rules. When we promulgated the PAL rules in 2002 (67 FR 80186), we limited the application of the PAL provisions to existing major stationary sources only. We included this provision based on our decision to limit PALs to sources th at had historical emissions through which the reviewing authority could establish a baseline actual emissions level. New major stationary sources do not have historical actual emissions from which a re viewing authority can estab lish an actuals PAL, and so we declined to include these sources in the actuals PAL program. When we originally promulgated the PAL rules, we also chose not to extend the PAL program to minor (source) NSR permit programs, because PALs are an alternate major NSR applicability provision to determine whether a project results in a major modification, and we did not believe the program would be useful to minor sources. At that tim e, the rules generally required only existing major***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 48 of 104 stationary sources to undertake a major modificati on applicability analysis to determine whether a change triggers PSD review. 27 Given the unique “subject to regula tion” PSD applicability requirement for GHGs, wherein an existing source that emits majo r amounts of GHGs is a major stationary source only at the time it proposes to undertake a project that will result in an emissions increase of 75,000 tpy
CO 2 e or more, we do not believe that extending the PA L provisions to GHG-only sources runs afoul of the reasoning we provided when initially limiting the PAL program to existing major stationary sources. As explained previously, we propose to limit th e Minor Source approach to allow reviewing authorities to establish PALs only for GHG emissions , and not for other regulated NSR pollutants for which the source remains a minor source. Because the GHG-only source remains a minor source (absent any other PSD-triggering change) and, generally, will not trigger a major m odification applicability analysis for increases in other regulated NSR pollutants, we believe it unnecessary to extend the PAL authority under this approach to other pollutants. Moreover we r ecognize that extending the PAL program in that way could place a burden on permitti ng authorities and redirect resources needed to issue permits to other GHG major stationary sources. The Minor Source Approach is cons istent with the CAA in that it regulates sources that but for the Tailoring Rule would be major stationary so urces based on the mass of their GHG emissions. This approach is also consistent w ith our Tailoring Rule principles. But unlike the Major Source Opt-in Approach, which defines the scope of pollutants in cluded in the PAL based on an individual permitting authority’s discretion and ability to regulate a give n source, under the Minor Source Approach, the EPA has determined that the scope of the program is limited only to a source’s GHG emissions. Again, as with the Major Source Opt-in Approach, the Minor Source Approach fulfills our streamlining goals by bringing more sources into the major NSR permitting provisions, in a manner that best manages

27 The provisions in 40 CFR 51.166(b)(3)(iii) illustrate an exception to this general rule but we did not contemplate that exception in creating the PAL rules in 2002.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 49 of 104 reviewing authorities’ long-term permit burden. We request comment on both the Major Source Opt-in Approach and the Minor Source Approach. We also request comment on whether we should finalize both approaches. That is, sources would have the ability, consistent with the ultimate d ecision of its reviewing authority, either to opt into major stationary source status and establish PALs for all pollutants, or to maintain minor source status and obtain a PAL for GHG emissions only. 5. Extending PALs to GHGs on a CO 2 e Basis and Using PALs To Determine Whether GHG Emissions Are “Subject to Regulation” Currently, the EPA reads the PAL regulations to allow reviewing authorities to establish a GHG PAL only on a mass basis. Today we propose to allo w reviewing authorities to establish GHG PALs on either a mass basis or a CO 2 e basis. More specifically, we propos e to allow reviewing authorities to establish a CO 2 e-based GHG PAL by adding up to an amount equa l to the second part of the “subject to regulation” applicability threshold (e.g., 75,000 CO 2 e) to the source’s baseline actual emissions. We also propose to allow GHG PALs, either on a mass basis or a CO 2 e basis, to serve as an alternate applicability approach for determining whether GHG emissions are subj ect to regulation. That is, rather than applying the emissions increase tests (signifi cant emissions increase and significant net emissions increase) currently contained in the “subject to regul ation” definition, a source could demonstrate that GHG emissions are not “subject to regulation” by complying with a GHG PAL. Compliance with a GHG PAL would be used as an altern ative applicability approach for determining that the source neither causes GHG emissions to be subject to regulati on, nor causes the GHG source to have a major modification. We further believe that it is necessary to allo w the alternative applic ability provision to be included in “subject to regulation” determinations for GHG PALs, because failing to do so would negate the flexibility gained by creating a GHG PAL. This is because sources would still be required to monitor***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 50 of 104 individual emissions changes usi ng the procedures in 40 CFR 52.21(a )(2)(iv) to determine whether a source triggers the subject to regulation definitio n. These procedures rely on an emissions-unit-byemissions-unit analysis, and a shorter contemporaneous period to measure emissions changes compared to a PAL. We believe that the enhanced recordkeep ing, reporting and monitoring burdens of a PAL, and the environmental benefits resulting from a PAL, warrant extension of the alternate applicability provisions to subject to regulation determinations to assure that the PAL provides the intended flexibility

to sources. When we proposed the Tailoring Rule, we proposed to include applicability thresholds within the definitions of major stationary source and major modification, based on tpy emissions of CO 2 e. We also proposed to establish a CO 2 e-based significant emissions rate. In the final rule, we changed our regulatory approach and instead include d these applicability thresholds wi thin the “subject to regulation” definition, and we did not revise the definition of significant to include a CO 2 e-based emissions rate. We did so, in part, because we intended this change in regulatory structure to faci litate more rapid adoption of the rules by reviewing au thorities. Nonetheless, we intended th e definition of “subj ect to regulation” to function in tandem with the definitions of “maj or stationary source” and “major modification” to determine whether a given project triggers PSD prec onstruction permit requiremen ts. That is, if a source emits GHG emissions at a level that causes the emissi ons to become “subject to regulation,” that same level of emissions increase will likely cause the sour ce to be a major stationary source and trigger PSD requirements as a major modification. Accordingly, since the 75,000 CO 2 e applicability threshold contained in the second part of the “subject to regul ation” definition works in tandem with the “major modification” provision to determine whether major NSR applies we are proposing that a CO 2 e-based GHG PAL can be established by adding up to an amount equal to 75,000 CO 2 e to the source’s baseline actual emissions as this is the appropriate applicability threshold for CO 2 e tpy GHG. In our proposed Tailoring Rule, we noted that, in rare instances, there may be an exception to***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 51 of 104 this general principle, if a source emit s very small amounts of a particular non-CO 2 GHG that carries a very large GWP. 74 FR 55330. We not ed our concern that the proposed rule could cause sources, whose mass emissions do not meet the major stationary sour ce tpy threshold, to nonetheless be regulated under the permit programs. When we finalized the Tailoring Rule using the subject to regulation approach, we resolved this concern by retaining both a mass-based threshold and a CO 2 e-based threshold. Our intent in retaining both thresholds was to assure that no source was subject to PSD that would not otherwise meet the statutory criteria for trea tment as a major stationary source. Ironically, this same regulatory structure crea tes the opposite effect for sources operating under a GHG PAL. Instead of providing GHG PAL sources with the ability to use either th reshold to show that they are not a major stationary sources and that major NSR does not apply, sources must monitor both thresholds to prove this outcome under the curren t rules. This is because a mass-based GHG PAL cannot assure that there is no increase in CO 2 e tpy GHG. Expanding the GHG PAL program to allow GHG PALs to be used as an alternative applicability pr ovision for both the major modification and “subject to regulation” determinations resolves this dual thre shold issue. We also believe that we may properly allow GHG PALs to be expressed on either a mass or CO 2 e-basis, because, in essence, we intended the subject to regulation determination to be functio nally equivalent to making a major modification applicability determination for GHG sources. We reso lve our previous concern that relying on a single metric might lead to over-inclusion of sources that do not meet the statutory threshold for the PSD program by limiting the GHG PALs program to GHG-only sources, which are defined as those sources that, by definition, meet the 100/250 tpy major stati onary source threshold. We request comment on all aspects of this proposal.
6. Can a GHG source that already has a mass-based GHG PAL obtain a CO 2 e-based PAL once we issue final changes to the PAL rules? We are proposing to add transition provisions to the PAL regulations that would allow a GHG***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 52 of 104 source that has a mass-based GHG PAL to convert to a CO 2 e-based GHG PAL once, at the source’s option, and if agreed to by the reviewing authority. We intended these provisions to provide integrity to the PAL provisions, and assure that sources avoid casually opting out of the PAL program, rather than go through the rigorous procedures for increasing the level of the PAL. The current PAL regulations do not contain specific provisions for dissolving an established PAL during the PAL term, but contain provisions for wh en a PAL expires. It is inappropriate to apply these rigorous procedures to sources th at would have elected to seek a CO 2 e-based PAL in lieu of a mass-based PAL, had such an option been available. We propose to include regulatory language that the expiration of PAL provisions do not apply when a source elects to convert from a mass-based GHG
PAL to a CO 2 e-based PAL. Instead, a source could transition to a CO 2 e-based PAL and the permitting authority could dissolve the mass-ba sed PAL without retaining the mass- based PAL level as a restriction on allowable emissions. We also propose to include provisions that a llow the mass-based GHG PAL to be converted to a
CO 2 e-based GHG PAL in the middle of the PAL effectiv e period. Under the transition provision, the reviewing authority would propose to dissolve the existing mass-ba sed PAL permit at the time it proposes the new CO 2 e-based PAL permit for public comment. The reviewing authority would establish the new CO 2 e-based GHG PAL following the standard proce dures (10-year lookback for baseline actual emissions, 10 year PAL effective period, etc.) in the current PAL regulations. Once a final CO 2 e-based PAL permit is issued, the permitting authority may al so finalize its proposed act ion to dissolve the massbased PAL permit and remove any applicable requirements from the title V permit following the appropriate title V procedures. This would, in es sence, create a new PAL and establish a new 10 year

term. We also propose to allow a revi ewing authority to use a slightly different procedure for this conversion from the standard PAL procedures. If the baseline actual emissi ons period the reviewing***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 53 of 104 authority used to establish the mass-based GHG PA L is no longer within the 10 year lookback period currently available to the source, then the transi tion provisions would allow that source a one-time conversion of a mass-based GHG PAL to a CO 2 e-based GHG PAL using the same baseline actual emissions period used to establish the mass-base d GHG PAL. The new PAL effective period would be the remainder of the mass-based GHG PAL’s effective period. For example, if a reviewing authority issued a mass-based GHG PAL to a source that becam e effective in 2011, that PAL’s effective period runs for 10 years through 2021. If the same source converts that mass-based GHG PAL to a CO 2 e-based PAL in 2014, and elects to use the expired, mass-ba sed GHG PALs baseline actual emissions years, then the CO 2 e-based GHG PAL would be effective for the remaining 7 years of the mass-based GHG’s PAL effective period. We request comment on these procedures for converting a mass-based GHG PAL to a CO 2 ebased GHG PAL. Specifically, we request comment on whether there are existing mass-based GHG PALs for which transition provisions are needed. More specifically, shou ld we allow such a transition, or should we decline to provide transition provisions . If we decline to provide a transition should we instead require sources either to maintain both PALs, or require the sources to comply with a source wide emissions cap equal to the PAL level that f unctions as a synthetic minor limitation? We also request comment on whether we should provide a te mporary transition provision to allow sources to convert from the mass-based GHG PAL to the CO 2 e-based GHG PAL only for a limited time after the effective date of the regulatory changes, or whet her the procedures should remain available for the duration of the PAL provisions. Specifically, we reque st comment on whether there are implications for major NSR compliance if sources are allowed to switch from a mass-based PAL to CO 2 e-based PAL at any time, or whether providing the option for the dur ation of the program coul d encourage certain types of environmentally preferable projects.
7. How would we change the regulatory provisi ons to implement PALs for GHG-only major***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 54 of 104 sources? To implement our proposed changes, we would revise a number of existing regulatory provisions, depending on the specif ic approach selected. Under the Major Source Opt-in Approach, we propose to change the definition of major stationary source to add a paragraph that defines Major Source Opt-in GHG-only sources as major stationary sour ces. Under the Minor Sour ce Approach, we propose to revise the applicability para graph for the PAL provisions at 40 CFR 52.21(aa)(1) to include GHGonly sources. In addition, under the Major Source Opt-in A pproach, we propose to revise the PAL Permit Application Requirements provisions and Contents of the PAL Permit provisions to include provisions for opting into existing major stationary source status. Under either approach, we would: (1) revise the PAL rules to add transition provisions for converting from a mass-based PAL to a CO 2 e-based PAL including revisions to the PAL expiration provisions; (2) add a paragraph to the “subject to regulation” definition an d the PAL applicability section to indicate that a source that complies with a GHG PAL is not subject to regulation for GHG emissions; (3) allow CO 2 e-based PALs to include the 75,000 tpy CO 2 e rate of emissions increase applicability threshold by adding this amount to a sour ce’s baseline actual emi ssions; and (4) revise the definition of PAL and PAL pollutant to include CO 2 e as a metric of GHG emissions.
B. Synthetic Minor Source Permitting Authority for GHGs
1. What is the EPA proposing? We are proposing to create synthetic minor permit authority, within the existing federal PSD regulations in 40 CFR 52.21, for the purpose of issu ing “subject to regulati on” synthetic minor permit limitations on a CO 2 e basis for GHGs. We are also proposing to amend the federal minor NSR program in Indian country for the purpose of issuing synthetic minor permit limitations for GHGs. These regulatory changes would allow certai n sources or projects that might otherwise be required to obtain a***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 55 of 104 GHG PSD permit, pursuant to 40 CFR 52.21, to obtain a “s ubject to regulation” li mitation that restricts the source’s GHG emissions below the “subject to regul ation” threshold(s). That is, for sources located in a jurisdiction in which the federal PSD permitt ing program applies, we propose a mechanism that would allow the EPA, or its delegated agent, to is sue a permit containing synthetic minor limitations for GHGs to any source that emits or has the potentia l to emit GHGs above the applicable subject to regulation thresholds and that vol untarily requests a restriction on its PTE. Although we would establish this program using our PSD permitting authority, a synthetic minor permit limitation issued under this authority could also effectively limit the source’s GHG PTE for purposes of title V applicability. As a general matter, we believe that synthetic minor li mits for GHGs should be available as an option for sources that would prefer to take a legally and practicably enforceable limitation on GHG emissions in order to avoid major source permitting requirements. We believe that many state and local permitting authorities will already have mechanisms in place to issue such GHG synthetic minor limits to sources that request them, including title V permitting progr ams, state minor source permitting programs, or federally enforceable state opera ting permit programs. Nonetheless, we request comment on whether permitting authorities implementing SIP-approved PSD permitting programs lack mechanisms to create synthetic minor limitations for GHGs, and if so, how that gap in permitting authority or mechanism could best be filled. It is important to note that we only propose to issue synthetic minor permits for GHG emissions, not for other regulated NSR pollutants, and we will only do so for sources located in areas where the EPA is the GHG permitting authority (including areas subject to a GHG FIP). These synthetic minor permits would also be available where the federal PSD program is implemented by a state permitting authority under a delegation agreement because delega ted states issue PSD permits on behalf of the EPA in those areas under 40 CFR 52.21. We, however, ar e not proposing to issue synthetic minor source limits for non-GHG pollutants under this rule. States and some tribes operate minor source permitting***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 56 of 104 programs that cover these other pollutants, a nd the EPA also operates a minor source permitting program in Indian country. If a source wishes to obt ain a synthetic minor limit for any other pollutant, it should seek that limit under the appl icable minor source program. The EPA has long recognized synthetic minor permits as a way to restrict a source’s PTE and thus avoid major source NSR and title V permitting requirements. 28 While we discussed the use of synthetic minor permits for establishing PTE restri ctions on GHG emissions in our proposed Tailoring Rule, we expressed concerns that establishing GHG synthetic minor limitations in individual permits could overwhelm reviewing and permitting authorities based on the sheer number of sources that we anticipated would apply for PSD permits. Thus, we proposed to focus our attention on developing category specific approaches for limiting PTE. Since finalizing the Tailoring Rule, we reconsid ered this conclusion, and now believe that establishing synthetic minor limitations for individual sources could increase permitting authorities’ capacity to regulate GHG emissions by providing expe rience in addressing emissions limitations, and monitoring, recordkeeping and repor ting requirements specific to GHG em issions. We also believe that it would lead to an overall reduction of permitting burden in that synthetic minor permits generally require fewer administrative resources than full PSD permitting and title V permitting, to which these sources could otherwise be subject. Moreover, streamlining ideas often result from re peat experiences. After issuing permits that share common features, a reviewing or permitting au thority might formulate new ideas for effective streamlining techniques. We now belie ve that issuing synthetic minor pe rmits is a key component of our overall efforts to gain experience in permitting GHG sources to phase additional sources into the GHG

28 See , e.g. , Guidance on Limiting Potential to Emit in New Source Permitting (June 13, 1989); Guidance an Enforceability Requirements for Limiting Potential to Emit through SIP and §112 Rules and General Permits (Jan. 25, 1995). The rules propos ed here for limiting potential to emit should be read in light of our extensive prior guidance on this issue.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 57 of 104 program, because it can help manage sources currently subject to the program and help identify opportunities for further streamlining the GHG perm itting programs. Moreover, allowing sources to obtain a synthetic minor limitation, in lieu of triggering major NSR requi rements, encourages sources to effectively minimize project emissions through efficiency improvements or other measures such that the total GHG emissions to the environment from the project are lower than might otherwise occur. We acknowledge that other mechanisms may cu rrently exist to establish synthetic minor limitations for GHGs. We do not intend today’s propos al to supplant or supe rsede other available mechanisms for creating synthetic minor limitations. Rath er, our intent is to ensu re that we are able to issue GHG synthetic minor limits in the areas subject to the federal PSD permitting program for GHGs to avoid a potential gap in synthetic minor permitti ng authority and to ensure that we are able to efficiently manage our administrative resources for the federal PSD program. Notwithstanding today’s proposal, we encourage States to us e appropriate existing mechanisms, or to create new authority if needed, to issue synthetic minor limitations for GHGs.
2. What is synthetic minor limitati on, and what is its function? A synthetic minor limitation is a legally and pract icably enforceable restriction that a source voluntarily seeks to avoid major stationary source re quirements, such as the PSD or title V permitting programs. Synthetic minor limitations allow sources to avoid these permit programs in two ways. First, a reviewing or permitting authority can issue a synthetic minor limitation to assure that a stationary source does not emit above the major stationa ry source threshold, and therefor e, that the stationary source remains a minor source for either one or both pe rmit programs. Second, a reviewing or permitting authority can issue a synthetic minor limitation to assu re that emissions increases from a project remain below the relevant significant rate fo r a specific regulated NSR pollutant. As we explained in the Background Section, our regulations define a “major stationary source” for purposes of PSD as a stationary source that emits, or has a potential to emit, at least 100 tpy, if the***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 58 of 104 source is in one of 28 listed source ca tegories, or, if the source is not, th en at least 250 tpy, of a regulated NSR pollutant. CAA section 169. A “major stationary source” for title V include s sources that emit or have the potential to emit above 100 tpy or more of a ny air pollutant subject to regulation. CAA sections 501, 302. 29 We refer to these 100 or 250 tpy amounts as the major source applicab ility thresholds. These thresholds are computed on a mass-basis for each regulated NSR pollutant or title V air pollutant. Because the definition of major stationary source re lies, in large part on, a source’s “potential to emit,” the definition of “potential to emit” is extr emely important in determining the applicability of PSD and title V for a particular source. The PSD regulations define PTE as: the maximum capacity of a stationary sour ce to emit a pollutant under its physical and operational design. Any physical or operational limitation on the cap acity of the source to emit a pollutant, including air pollution control equipmen t and restrictions on hours of operation or on the type or amount of fuel combusted, stored or pr ocessed, shall be treated as part of its design if the limitation or the effect it would ha ve on emissions is federally enforceable. 30 40 CFR 52.21(b)(4), 51.165(a)(1)(iii), 51.166(b)(4). Th e title V regulations are similar. 40 CFR 70.2. If a source has no practicably enforceable emissi ons limitations that restrict the amount of a pollutant the source may emit, and the source has no re strictions on its capacity utilization or hours of operation, we require the source to use its highest expected emissions rate and “assume operation at maximum design or achievable capacity (whichever is higher) and continuous operation (8760 hours per year)” to compute its potential to emit. 31 Thus, if a source will actually emit below its maximum capacity to emit, a synthetic minor limitation can play an integral role in limiting the source’s PTE to a

29 As explained in the Tailoring Rule, while the stat utory provision addresses a ny air pollutant, we have historically applied the PSD and title V programs only to pollutants subject to regulation. 30 40 CFR 52.21(b)(4). Following two court deci sions, National Mining Association v. EPA , 59 F.3d 1351 (D.C. Cir.1995) and Chemical Manufacturers Ass'n v. EPA, No. 89-1514 (D.C. Cir.1995), we clarified that the term “fed erally enforceable” should be read to mean “federally enforceable or legally and practicably enforceable by a state or local air pollution control agency.” Release of Interim Policy on Federal Enforceability of Limitations on Potential to Emit, at 3 (Jan. 22, 1996). 31 See Memo from Terrell E. Hunt, Associate En forcement Counsel Air Enforcement Division Office of Enforcement and Compliance Monitoring, and John S. Seitz, Director Stationary Source Compliance Division Office of Air Quality Pla nning and Standards, June 13, 1989.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 59 of 104 level below this maximum level. If the source accep ts legally and practicably enforceable limits and requirements sufficient to limit its PTE, that source can be treated as a minor source, rather than a major source, for purposes of our regulations. Synthetic minor limitations are also important for determining whether a project will result in an emissions increase that exceeds the significant rate for a regulated NSR pollutant, thus triggering PSD permitting requirements. While the significant rate for GHGs is currently zero tpy, thus making this type of synthetic minor limit less practical for GHG sources , the methods used to determine such emission increases are applicable to GHGs because they are al so used to determine whether GHGs are “subject to regulation.” To compute whether a project will result in a “significant emissions increase” under the federal PSD regulations, a source has the option of usi ng either “projected actual emissions,” or PTE to estimate post-change emissions. A source opting to use PTE can reduce the amount of its PTE by accepting legally and practicably enforceable limitations on its operations. To compute whether a project will result in a “significant net emissions increase,” a source must compute emissions increases from projects that occur durin g the contemporaneous period. A creditable emissions increase is computed by comparing “baseline actual emissions” to the unit’ s post-change PTE. A permitting authority can use a synthetic minor limitation to limit an emissions unit’s post-change PTE to reduce the amount of emissions increase that is creditable in a net emi ssions increase analysis. In computing a creditable emissions decrease, a source may only take credit for an emissions decrease that is legally and practicably enforceable. Thus a reviewing authority can use a synthetic minor limitation to create a creditable emissions reduction. 40 CFR 52.21(b)(3)(vi)(b). We call any permit used to restrict a source’s PTE below either the major stationary source threshold or below the significant rate a “syntheti c minor permit.” We call a source that accepts limitations on its operations a “synthetic minor source.” Th is is in contrast to a “true” or “natural minor” source, which is a source whose PTE remains below th e threshold without any additional restrictions on***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 60 of 104 the source. Again, because the majo r stationary source thre shold and significant ra te are mass-based for all non-GHG regulated NSR polluta nts and title V air pollutants, synthetic minor limitations, historically, have reduced a source’s mass emissions.
3. What is a “subject to regulation” limitation? A “subject to regulation” synthetic minor limita tion is unique to the GHG permitting programs. Instead of allowing a source to avoid the PSD or t itle V permit programs by establishing PTE limitations that reduce tpy mass emissions, a “subject to regulation” limitation reduces CO 2 e-based GHG emissions. This unique type of limit is specific to GHGs, becau se of the unique way in which the EPA regulated GHG emissions through the Tailoring Rule. As we explained in the Background Section, a s ource must meet two applicability requirements to trigger PSD permitting requirements for GHGs: 1) it must emit GHGs in amounts – calculated on a
CO 2 e basis – that make GHGs “subject to regulation” 32 , and 2) it must also emit GHGs in amounts – calculated on a mass basis – that qualif y as a major stationary source (e.g. , 100 or 250 tpy) and, if relevant, qualify as a major modification (e.g. , net emissions increase of more than 0 tpy). For title V, GHGs are “subject to regulation” at a stationary source that emits or has the potential to emit 100,000 tpy CO 2 e. A “subject to regulation” limitation preven ts a source from emitting GHGs in amounts that exceed the relevant “subject to regulation” applicab ility threshold that we established in the final Tailoring Rule. Accordingly, just like other synthetic minor limitations, a source that complies with a “subject to regulation” limitation can avoid trigge ring PSD or title V GHG permitting requirements. As noted previously, in the Tailoring Rule, a lthough the EPA amended the definition of “subject to regulation” to establ ish a level of GHG emissions that a source must meet, on both a source and project basis, before GHGs will be considered an NSR regulated pollutant for PSD permitting purposes, the EPA also made clear that its action had the same substantive effect, and should be treated, as having

32 Previously in this preamble we refer to the two-step phase-in thresholds 75 FR 31516.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 61 of 104 revised other components of the definition of “major st ationary source” to achieve the same effect. Even so, because in the Tailoring Rule it was the “subject to regulation” provision that the EPA chose to incorporate the phase-in thresholds, in this proposal concerning PALs, EPA is continuing to focus on the “subject to regulation” provision as the codification of the Tailoring Rule requirements, to be consistent with the approach in Tailoring Rule. Like the major stationary source applicability th reshold, the “subject to regulation” threshold relies on the concept of PTE. And like the major m odification significant rate, the subject to regulation threshold also relies on PTE to compute changes in GHG emissions at the sour ce. Accordingly, the EPA proposes to create new regulatory language to af firm the EPA’s and other reviewing and permitting authorities’ ability to establis h limitations on a source that prevent a source from emitting GHG emissions above subject to regulation thresholds on a source-wide basis or for i ndividual modifications. Because we are not proposing to amend the regulatory definition of PTE, consistent with the EPA’s current policy, we will recognize legally and pr acticably enforceable restrictions for determining whether a source’s PTE is below the subject to re gulation threshold and for determining whether an individual modification is below the subject to regulation threshold. As with limitations on “potential to emit” in traditional synthetic minor permits under our current policy, these rest rictions need not be federally enforceable as long as they are enforceable by the permitting authority. 33
4. Why does the EPA need authority to i ssue synthetic minor source permits? In general, the EPA does not have a federal permitting program for mi nor sources. Although the EPA recently finalized a minor NSR permitting program for Indian country, that program did not affect permitting outside of Indian country or include regulation of GHG emissions. 34 The EPA is now the

33 We may alter this polic y in final response to address the Courts’ decisions in National Mining Association v. EPA , 59 F.3d 1351 (D.C. Cir.1995) and Chemi cal Manufacturers Ass'n v. EPA, No. 89- 1514 (D.C. Cir.1995). 34 See 76 FR 38748 (2011) (promulgating Tribal minor source rule).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 62 of 104 GHG permitting authority in areas subject to a PSD FI P, including Indian country, but does not have a generally applicable minor source permitting progra m that the EPA can use to restrict GHG PTE for sources that might want to request voluntar y limitations to avoid PSD permitting for GHGs. 35 In these areas it is not clear whether sources will be able to obtain synthetic minor limits for GHGs from states or local permitting authorities through other permitting mechanisms, or through any other cognizable mechanisms for establishing a synthetic minor li mit. Without a federal synthetic minor permitting program for GHGs, a source that would be subject to PSD permitting requirements because of a project’s potential GHG emissions, but that would be willing to reduc e emissions from the source or project to avoid those requirements, might not have a viable permit mechanism for committing to these emissions reductions and making them enforceable. T hus, we are proposing to fill this gap in federal regulatory authority, because we believe doing so is important to our GHG phase-in efforts and permitting authorities’ ability to manage their GHG pe rmit workload (including our ability to efficiently issue GHG permits), and because we believe that s ynthetic minor limitations for GHGs can result in increased environmental benefit. We believe that synthetic minor limits for GHGs provide a valuable mechanism to help manage GHG permitting burden and potentially reduce GHG emissi ons, and that such limits should generally be available as an option for sources that would pref er to take a legally and practicably enforceable limitation on GHG emissions in order to avoid major source permitting requirements. Before the Tailoring Rule, state and local revi ewing authorities predominantly i ssued synthetic minor permits to

35 The EPA recently increased the number of areas in which it is the PSD permitting authority. On December 30, 2010, the EPA imposed a partial PSD FIP for GHGs in some jurisdictions in the Action to Ensure Authority to Issue Permits Under the Preven tion of Significant Deterior ation Program to Sources of Greenhouse Gas Emissions: Federal Implementation Plan. Once that FIP became effective, the EPA became the GHG PSD permitting authority for seven stat es: Arizona: Both Pinal County and Rest of State (excluding Maricopa County, Pima County, and Indian Country ), Arkansas, Florida, Idaho, Kansas, Oregon, and Wyoming. In addition, the EP A has long been the PSD permitting authority in a few other states, in Indian country, and in some areas of the Outer Continental Shelf.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 63 of 104 sources, even when the EPA was the permitting authority for the PSD permits. State and local agencies used their SIP-approved minor NSR permit authority, or in some instances their Part 70 permit authority or their federally enforceable state operating permit pr ogram, to issue permits to a source that requested synthetic minor permit restrictions. Recently, th e EPA assumed GHG PSD permitting authority for a number of jurisdictions. 36 In many of these jurisdictions, as well as jurisdictions in which the EPA has long been the PSD permitting authority, state, local a nd tribal agencies may lack mechanisms to create restrictions on a source’s potenti al to emit GHG emissions. This could occur if their minor NSR program regulations do not include GHG emissions or perhaps if it only includes GHG emissions on a mass basis, and if they do not have any other lega l mechanism under which they could issue a synthetic minor limit for GHGs. As we noted in the proposed Tailo ring Rule, states may but are not required to regulate GHG emissions through their minor NSR progr ams. Accordingly, if a gap in minor NSR permitting authority exists it may continue to exist. On the other hand, these states may have other viable mechanisms for issuing synthetic minor lim its for GHGs, which might alleviate the potential synthetic minor permitting gap. To better understand the extent of state, local, and tribal authorities’ synthetic minor GHG permitting authority, we request comment on whethe r there is a minor source permitting gap in areas subject to EPA permitting authority for PSD permits for GHG. For each state in which the EPA is the GHG PSD permitting authority, we request information on the states’ current efforts to interpret or amend their minor NSR permit authority to includ e GHG emissions, and on other mechanisms that may be available to create synthetic minor limitations on a source’s GHG emissions. If there is a gap in either permitting authority or available mechanisms for i ssuing synthetic minor permits for GHGs, we request input on how that gap could best be filled. We are also requesting comment on whether there are sufficient permitting mechanisms and permitting authority to create GHG synthetic minor limitations in

36 See FN 33 above.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 64 of 104 areas subject to a SIP-approved PSD permit program for GHGs. If a gap exists outside of federal GHG PSD permitting areas, we request sugges tions for ways to address that gap. 5. What are the benefits to a federal GHG synthetic minor permit program? A federal GHG synthetic minor permit program will increase EPA’s GHG permitting capacity and provide valuable knowledge and experience that the EPA can use to develop effective streamlining methods that assist in the EPA’s phase-in of th e GHG PSD and title V permit programs to statutory levels. It will also assist the EPA in managing th e GHG permit workload for sources already potentially subject to permitting at existing applicability thre sholds, and may result in enhanced environmental protection compared to permitting a source as a major source through PSD and/or title V. We believe that creating federal authority to issu e synthetic minor permits to restrict a source’s GHG PTE will decrease the long te rm permit burden on the EPA (and eventually reviewing and permitting authorities if they assume the role for PSD and/or title V permit issuance) by allowing sources to avoid PSD permitting when their actu al emissions will not exceed the major source applicability threshold and the subject to regulation th resholds. In addition, such federal authority could reduce state and federal title V permitting burdens, becau se a PTE limit may be structured in such a way that it also allows a source to avoid the need to u ndergo title V permitting. We believe that the cost and level of burden for sources applying for a synthetic minor permit, and for permitting authorities to issue the permit, are generally far lower than issuing ei ther a PSD permit or a title V permit. We request information about permitting authorities’ a nd sources’ experiences in this regard. Moreover, the ability to apply for synthetic minor permits can result in greater environmental benefits than those obtained through a PSD permit, b ecause it creates an incentiv e for sources to reduce emissions to levels below the applicability thresholds. For example, to accommodate a need for an increase in capacity, suppose a source has the opti on of either modifying an old, inefficient existing emissions unit to increase its capacity, or adding a new, high efficiency, lower emitting emissions unit.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 65 of 104 Under the federal PSD regulations, th e post-change emissions for a new emissions unit are equal to that unit’s PTE, while the source may use the projected act ual emissions to estimate post-change emissions for the existing emissions unit. Suppose the source only operates 16 hours a day. If the source modifies an existing emissions unit, it may project its emissi ons using the anticipated 16 hours of operation. In contrast, unless the source can obtain a legally and practicably enforceable re striction on its hours of operation, to determine its PTE, it must calculate emissions for the new emissions unit assuming a full day (24 hours) of operation. As a result, PSD may be triggered for the addition of the new emissions unit, while PSD may not be triggered for the modifi cation of the existing unit. Depending on the cost of emissions controls, and the delay in obtaining the preconstruction pe rmit, the source may chose to modify its existing emissions unit, rather than inst all the environmentally pref erable new emissions unit if it cannot obtain a PTE limit. Providing the EPA th e ability to issue synthetic minor permits for GHG emissions gives the EPA a tool to avoid this outcome. Finally, because we believe that synthetic minor permits generally requ ire fewer administrative resources than full PSD permitting, establishing this synthetic minor program allows permitting authorities to focus greater resources on larger sources that, for whatever reason, cannot or do not want to restrict the emissions to lower levels. Accordingly, for all the reasons described here, as part of the EPA’s effort to phase-in the permitting requirements for GHGs, the EPA proposes to add authority to issue synthetic minor permits to sources for which the EPA, or its delegated ag ent, is the GHG PSD permitting authority. We propose to add the authority to issue CO 2 e-based synthetic minor permits to sources whose potential emissions are above the statutory major source threshold (i.e. , 100 or 250 tpy GHG) on a mass basis or the subject to regulation thresholds on a CO 2 e basis. We request comment on our conclusion that a federal synthetic minor permit program will assist in the EPA’s efforts to phase-in the GHG permit program and efficiently manage its GHG permitting***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 66 of 104 resources. We also request comment on our conc lusion that synthetic minor permits can achieve enhanced environmental protection. We also note that a synthetic minor limit on GH G emissions could furthe r reduce administrative burdens under the title V permitting program for tw o reasons. First, as long as the title V GHG applicability threshold is equal to or higher than the PSD threshold, any synthetic minor limit that establishes GHG emissions below th e PSD threshold would also prev ent such sources from becoming title V sources based on their PSD major source stat us and/or applicable PSD requirements for GHGs. Second, if the synthetic minor permit restricts GHGs below the subject to regul ation threshold for title V, such sources would not qualify as title V sources because of their GHG emissi ons alone. Of course, if such a source qualifies as a title V source based on their emissions of a non-GHG pollutant or based on title V applicable requirements, th at source would still be required to comply with those title V obligations, regardless of the synthetic minor limit for GHGs.
6. What is the legal rationale for EPA’s GHG s ynthetic minor source permitting authority? Our authority to issue GHG synthetic minor permits arises from the fact that, but for the Tailoring Rule, the sources eligible for this type of permit would qualify as “major emitting facilities” under CAA section 169 because they emit or have th e potential to emit more than 100 or 250 tpy GHGs on a mass basis, depending on the source category. As a result, we interpret CAA section 165 to convey to PSD permitting authorities, including the EPA, the legal authority to issue preconstruction permits to these sources. We note that we do not expect that s ources at or near the 100/ 250 tpy levels would seek such permits at this time, since such sources are unlikely to trigge r PSD under the current applicability tests. Instead, we expect that larger sour ces would avail themselv es of this option. Although CAA § 165 by its terms authorizes the EPA to issue permits to major sources, and sources to whom we issue a GHG synthetic minor source permit are, in many instances, not major sources, we propose that under the present circumstan ces, CAA § 165 authorizes the EPA to issue these***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 67 of 104 permits. As noted, these sources would be major sour ces but for the Tailoring Rule, and as explained in that rule, the administrative burden associated wi th immediately implementing the PSD program at statutory levels for GHGs would have crippled the program. Thus, we decided to tailor the program and phase-in the permitting requirements to ensure that the PSD permitting program would be administrable for GHGs. Similar to the approach in the Tailoring Rule, we view the GHG synthetic minor program as another tool to help ensure that the PSD program for GHGs can be ad ministered in an effective and efficient manner. Because the GHG synthetic minor pr ogram will have those effects, CAA § 165 may be read to authorize it. CAA § 301(a)(1 ), which authorizes the Administra tor “to prescribe such regulations as are necessary to carry out his functions under [the CAA],” provides additional authority.
7. What changes would EPA make to the PSD regul ations to allow EPA to issue GHG synthetic minor permits? We are proposing to change both the federa l PSD permitting program in 40 CFR 52.21 and the federal minor NSR program in Indian country in 40 CFR Part 49. For the federal PSD permitting program, we propose to add a new section to the ex isting PSD regulations. In this section we would adopt permit requirements similar to the requirements we established in Indian country in 40 CFR Part 49, most particularly at 40 CFR 49.158. These requirements would include permit application and permit content requirements, as well as requirement s for monitoring, recordk eeping and reporting, and public participation. We re quest comment on what would need to be amended in the Part 49 provisions to establish a GHG synthetic minor permitting pr ogram in 40 CFR 52.21, and on any additional provisions that might be required. In addition, we request comment on the appropriate procedures for administrative review. Finally, we would also amend the existing regulations in Part 49 to ensure that we have synthetic minor permitting authority for GHG s ources located in Indian country. Amending our existing minor source authority for Indian country to add GHG synthetic minor authority would retain all synthetic minor authorities for Indian country w ithin one rule. We believe this would be easier for***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 68 of 104 sources in Indian country to impl ement, but we request comment on whether we should instead limit the proposed changes to only 40 CFR 52.21.
C. Redefining Potential to Emit a nd Source Category Specific PTE This section discusses our current thinking on developing ca tegory specific PTE rules or guidance and requests comment on the appropriate cate gories and requirements. In addition we are also exploring a novel approach that would provide an individual source, in any of multiple source categories, a way to obtain streamlined, as well as le gally and practicably enfor ceable restrictions, on the source’s hours of operation. We ou tline and request comment on a poten tial approach for creating such a rule; however, we do not intend to finalize this approach in this rulemaking. As explained in the Tailoring Rule, because th e PSD and title V applicability are based on PTE, rather than on actual emissions, they could sweep e normous numbers of sources into the PSD and title V programs even though those sources’ actual emissions are far below the applicability thresholds. For example, sources that operate for only part of th e year, but that have no legally and practicably enforceable limitation on their operating hours, must cal culate their PTE on the ba sis of the amount of emissions that would result if those sources did op erate, and therefore emit, on a year-round basis (8760 hours per year). Our proposed synthetic minor rule would give sources the op tion to accept legally and practicably enforceable limits on their operations by, for example, agreeing to limit the hours the sources operate and complying with recordkeeping, monitori ng, and reporting requirements to ensure that these limits are enforceable as a practical matter. As we have explained, the issuance of synthetic minor permits to individual sources benefits the GHG phase- in program, but we woul d like to continue to explore methods that can reduce th e number of individual permits a reviewing or permitting authority need to issue. Therefore, in addition to individua l minor source permitting, we continue to explore adopting, or encouraging state permitting authorities to adopt, rules for source categories that we expect include large numbers of sources whose actual GHG em issions are well below applicability thresholds,***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 69 of 104 but which, absent legally and practicably enforceabl e limitations, have PTE above those thresholds. As we noted in our proposed Tailoring Rule, the fi rst step necessary to de velop a source specific PTE regulation or guidance is to id entify source categories that are ge nerally conducive to a streamlined PTE approach. 74 FR 55321. In selecting one or more source categories, one consideration is how to address the possibility that the GHG a pplicability thresholds could change in the future. Today, we have more information on sources with a potential to emit 100,000 tpy or more CO 2 e, and may be better situated to propose a source category specific PTE rule for a one of these source ca tegories, in the nearer term. We have less information about smaller so urces, and developing a P TE rule will require significant additional information collection, and technical analysis. Source category PTE rules or guidance cont inue to offer the opportunity for reducing administrative and permitting burden related to s ources of all sizes. We are broadly soliciting information on source categories with sources at a ll levels of emissions, ranging from sources with actual emissions below the PSD and title V statutory th resholds to those that ar e just below the Steps 1 and 2 thresholds or the thresholds under consideration fo r this rulemaking. Therefore, we request comment on all source categories that would be ca ndidates for creation of a PTE-specific rule or guidance. Candidates include source categories that currently have PTE substa ntially higher than their actual emissions, so that, if we were to revise the thresholds to fall below their PTE but remain above their actual emissions, a rule or guidance that adjust ed how sources in those source categories calculate PTE could allow them to fall below the revised th resholds. For instance, we request comment on the usefulness of a PTE regulation for na tural gas fired boilers that use a limited amount of fuel. As another example, we solicit comment on whether this appr oach might be useful for sources whose only emissions units are metered, natural-gas fired uni ts with actual GHG emissions below the relevant applicability thresholds, which b ecause of their metering are able to track and determine their GHG emissions on a continuous basis. This option would essentially allow sources to determine PTE with***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 70 of 104 reference to their actual emissions based on actual fu el use. Conceptually, this option would likely be available for such metered sources that have histor ically always had emissions below the applicability thresholds and that will maintain and operate their meters on a going-forward basis. For such sources, actual GHG emissions can be continuously determined by monitoring their fuel use so that they remain below the applicability thresholds, as well as comp ly with recordkeeping and reporting requirements. For any source category identified in comments, we specifically solicit information on how the source category should be defined, typical hours of operati on over a year and whether those vary by, for example, season, production cycle, or over a day, a nd information on typical emissions. We specifically request input on what sorts of GHG-emitting source ca tegories may only operate seasonally or otherwise have a limited production time -- e.g. , limited number of shifts, operate only during day-time hours, operate only in the evenings, or emit emissions onl y from heating during wint er months -- or have physical restrictions on their operati ons that might make them well suited for a PTE rule or guidance. We request comment on the time pe riod that reflects these sources ’ maximum historical operations, which we could use to establish, whether through guidance or rulemaki ng, the PTE for sources in those source categories. We also solicit comment on what type of documentation would be necessary to demonstrate that sources in a source category have a history of limited operations. For example, would it suffice for sources to demonstrate a 5 or 10 year history of limited actual hours of operation? Suppose a representative set of sources in a source category has records documenti ng that they operated only two, 8-hour shifts at their facilities fo r the past 10 years, and that when workers are not working, emissions units are not running. Alternativel y, suppose a representative set of sources in a source category has records that show that they only ope rate during summer months, and that the longest they have operated in the summer is for 4 months. In such circumstan ces, could the EPA interpret, through guidance or rulemaking, PTE for sources in that source category to reflect that maximum le vel of actual operation? We are also exploring the development of a streamlined method that reduces the permitting***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 71 of 104 burden for sources that have historically operated with reduced hours of operations and are willing to accept an hourly limit at or below the maximum level of historical operation. The purpose of such a rule would be to create a legal mechanism by which sources in at least certain ty pes of source categories could take legally and practicably enforceable li mits on hours of operation without having to go through the more burdensome process of obtaining individual synthetic minor permits. Rather, we contemplate that under such an approach, a source would report and document its historical maximum hours of operation to EPA in some way, and accept a legally and practicably en forceable limit to operate at or below that level, along with obligations designed to ensure enforceability, such as recordkeeping, reporting, and monitoring requirements. In order to develop our thinking on this new approach, we are asking for comment on several specific issues. We request comment on whether such a rule would be helpful to permitting authorities in reducing GHG permit burden. In addition, we reque st comment on whether hours of operation is an operating parameter that does not need source specific limitations to assure compliance. Have permitting authorities included hours of opera tion restrictions in numerous synthetic minor permits? What success or difficulties have permitting aut horities experienced in enforci ng hours of operation restrictions through synthetic minor permits? Have terms and condi tions of such permits been uniform within or between source categories? Additionally, we are requesting input on whether such a rule should target specific source categories, or be made broadly available to all source categories, and on what types of GHG-emitting source categories may only operate seasonally or ha ve a limited production time. We request comment on the appropriate structure and requirements for such a rule. What sorts of application requirements, permit limits, and recordkeeping, monitoring, and repor ting have permitting authorities required for such hourly limits? What time period adequately reflects maximum historical ope rations, for purposes of determining a restriction on future operations?***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 72 of 104 We also request comment on mechanisms the rule should provide to ensure that the source does not exceed any limitation on hours of operations that it agrees to accept. Finally, we request comment on whether such a process can be rigorous enough to main tain the necessary integrity in PTE calculations, and made legally and practicably enforceable th rough reporting, monitoring, and ongoing recordkeeping requirements, but streamlined when compared to the burden of issuing and obtaining an individual synthetic minor permit. Again, we are just requesting comment in th is action on the idea of developing a rule to voluntarily restrict hours of operation across multi ple source categories and we are not proposing a specific rule at this time. If, after reviewing comments, we determine that this is a viable approach for streamlining GHG permitting, we may proceed to propose a specific rule in the future.
D. General Permitting for GHGs
1. What is a general permit? A general permit is a permit that the permitting authority adopts once and then applies identically to each source that requests coverage and meets the sp ecific eligibility requirements. General permits are best suited for the regulation of sources that perf orm the same or similar operations, emit similar air pollutants and are subject to the same limitations, standards and requirements. General permits are a mechanism that provides for greater efficiency in i ssuing required permits, thereby saving costs to both the source and the permitting authority. As noted in the following, some states have programs that authori ze general permits. These programs show very clearly that th ere are benefits to using general permits. The issuance process for the permit is relatively simple and streamlined. The app licable requirements for these sources have already been identified for the applicant in both the applic ation and the permit. The a pplicant knows, prior to application submittal, what conditions the permit will contain. In additi on, public review is simplified. The public review process for genera l permits occurs before the general permit is finalized, rather than***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 73 of 104 on a permit by permit basis. In the context of GHG, the issuance of PSD or title V general permits would promote more efficient treatment of GHG-emitting sources that would be subject to permitting, and allow the expeditious expansion to more GHG-emitting sources while protecting those so urces and the permitting authorities from undue burden.
2. What is the Legal Authority for General Permits? The CAA gives the EPA the authority in secti on 504(d) to issue general permits for title V sources, and the EPA has regulations in place to create general permits for title V sources. Although there is no provision in the CAA th at expressly authorizes the use of general permits in the PSD program, the D.C. Circuit, in the Alabama Power case, recognized that “[c]onsiderations of administrative necessity may be a basis for finding im plied authority for an administrative approach not explicitly provided in th e statute” and expressly identified genera l permits as an alternative to the exemptions that were at issue in that case. See 636 F.2d at 360. Further, courts have recognized the EPA’s authority to use general permits under secti on 402 of the Clean Water Act without an express provision authorizing such general permits . Environmental Defense Center v. EPA , 344 F.3d 832, 853 (9 th Cir. 2003) (“General permitting has long been recognized as a lawful means of authorizing discharges.”) (citing NRDC. v. Costle. , 568 F.2d 1369, 1381 (D.C. Cir. 1977)); NRDC v. Train. , 396 F. Supp. 1393, 1402 (D.D.C. 1975) (The EPA has “substan tial discretion to use ad ministrative devices, such as area permits, to make EPA’s burden manageable.”).
3. Have the states used general permits? Many states have taken advantag e of the ability to use genera l permits. In reviewing state programs, we have found that though the concepts are similar, the structure and content of the various programs is quite diverse. For example, the New Jersey Department of Environmental Protection***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 74 of 104 (NJDEP) has developed a ge neral permit program (GP-017) 37 that allows for the construction, installation, reconstruction, modi fication and operation of boilers a nd heaters less than 5 MMBTU/hour. NJDEP defines a general permit as a pre-approved pe rmit and certificate which applies to a specific class of significant sources. By issuing a general pe rmit, NJDEP indicates that it approves the activities authorized by the general permit, provided that the owner or operator of the source registers with the Department and meets the requirements of the general permit. If a source belongs to a class of sources which qualify for a general permit and the owner or operator of the source registers for the general permit, the registration satisfies the requirements of NJAC 7:27-8.3 38 for a permit and certificate. Ohio’s Division of Air Pollution Control (DAPC) also has developed model general permits-tointall and model general permits-to-in stall and operate for select sour ces in Ohio. The regulations for general permits can be found in OAC Rule 3745-31-29. Oh io states that a general permit is the same as any permit-to-install or permits-to-install and to oper ate that DAPC issues; the only difference is that all the terms and conditions of the permit have been developed in advance. Th is is referred to as the "model general permit." Potential applicants can review th e model general permit qualifying criteria, terms and conditions, and if they believe they qualify, they can complete the application and sign the qualifying criteria document. The DAPC will review the appli cants’ information to confirm that they meet the qualifications, and then issue the general permit to the applicants.
4. What steps has the EPA made towa rd developing general permits? In the context of streamlining the permitting process for GHGs, the EPA is considering various methods for developing general permits. As a procedural matter, the EPA is eval uating the possibility of

37 http://www.state.nj.us/dep/aqpp/downloads/gp17.pdf. 38 The permittee shall not construct, reconstruct, in stall, or modify a signifi cant source or control apparatus serving the significant source without first obtaining a pr econstruction permit under N.J.A.C. 7:27-8. [N.J.A.C. 7:27-8.3(a)] The permittee shall not operate (nor cause to be operated) a significant sour ce or control apparatus serving the significant source w ithout a valid operating certif icate. [N.J.A.C. 7:27-8.3(b)]***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 75 of 104 proposing an enabling rule to enable the developm ent of PSD general permits for GHG emitting sources. This rule would enable the EPA to create and impl ement PSD general permits for GHG emissions only for selected source or emissions un it categories. The enabling rule woul d lay out the basic foundation for general permits. It would identify the general provisi ons that would be found in all EPA-issued general permits, the criteria and process for establishing a general permit, and discu ss the rationale and legal basis for a PSD general permit for GHGs. The enabli ng rule would also establ ish the process for the creation of general permits for the EPA’s use where the EPA is the GHG permitting authority and define mechanisms by which states could leverage federal general permits to streamline the permitting processes for sources that would trigge r PSD for only their emissions of GHGs. We are also considering the overall criteria for determining the source or emissions unit categories for which we may develop the first gene ral permits. Our initial inclination, on which we solicit comment, is that we should focus first on GHG-only sources, that is, GHG-emitting sources that do not emit non-GHGs in amounts that would be subj ect to PSD requirements. This is because complying with PSD for non-GHG pollutants involve s analyses and demonstrations, such as a requirement that the source demons trate that the proposed project wi ll not cause or co ntribute to a violation of any NAAQS, which inherently are faci lity and location specific. For GHGs, BACT is the primary substantive PSD permitting requirement, and we believe that BACT can more readily be established for a source or emissions unit category, thus making the general permit approach feasible for sources and modifications that ar e major only due to GHG emissions. We are considering what source and/or emissi ons unit categories would be good candidates for the first general permits. Even though natural gas- fired boilers range from large high performance boilers for industrial applications to small commercial and residentia l units for space heating and hot water, sources for which the only or predominan t source of GHG emissions are boilers may be good candidates for PSD GHG general permits. Because boi lers are widely used throughout industrial and***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 76 of 104 commercial source categories, and can readily be categorized by design, purpose, efficiency and emissions, they present opportunities for significant streamlining through the use of general permits and thereby reductions in administrative burden from PSD permitting. Because the controls for GHGs on natural gas-fired boilers are sufficiently uniform, it seems possible to identify standardized control requirements to include in a general permit w ithout significantly compromising environmental protection. Even so, it is unclear whether a general permit rule , for boilers or other emissions units, would be a productive streamlining method for the source categ ories and projects affected by this Step 3 rulemaking. In many cases, boilers or other equipment located at a source or involved in a project will emit non-GHG pollutants in amounts great enough to tr igger other significant CAA requirements such as minor NSR, NESHAP and/or N SPS, diminishing the streamlining utility of a PSD general permit for GHG only. We are also mindful that implementation of a general permit program would likely involve regulatory action and a SIP revision at the state or local permitting authority level, which in and of itself imposes administrative costs, a nd the limited benefits of a general permit program for the source categories and projects potential ly covered in this Step 3 rulemaking could be offset by the administrative costs of the SIP revision process. Although we are concerned that GHG general permits for boilers and other common emis sions unit categories may not provi de enough streamlining value for the source categories affected by this Step 3 rulema king, we believe such permits may have significant value when we consider smaller sources, especially those with no other emissions units or non-GHG pollutants emitted at significant levels. We are also considering how to incorporate a general permit for GHGs into existing state permitting programs. We are mindful that reviewing agencies generally have construction permitting processes that address all a pplicable requirements, including minor NSR and major NSR/PSD in an integrated fashion. It would be important to structure the general permit program so as to avoid complicating or conflicting with established permitting processes.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 77 of 104 We are also considering further questions, including: (1) Should general permits be available to greenfield sources?; (2) When issu ing a general permit for a projec t/modification what do we do with pollutants other than GHGs?; (3) Can general permits be utilized for projects at any major source or only at sources major only for GHGs?; (4) Are general pe rmits available to both new and modified units?” (5) “Are general permits mandatory or optional for states?; (6) What is the process for establishing general permits?; (7) Should states or the public be able to request that the EPA propose general permits for source categories and emissions units, and if so, wh at is the process for this type of request?; (8) What should the public participation procedures be?; (9) What is th e approval or denial process for sources to use a general permit?; (10) What woul d BACT for a general pe rmit look like?; (11) How would BACT be established?; (12) How would BA CT be updated?; (13) What are the Endangered Species Act and environmental justice implications of the general permit?; (14) Should there be a periodic review of the general pe rmit’s provisions, and if so, what would it look like?, and (15) Could we develop a process for states to incorporate a ge neral permit program into their SIPs in a way that minimizes the administrative costs of the SIP revision process? We commit to continue to explore the possibili ty of general permits by reviewing information that we expect to receive in response to this proposal and the information gathered by permitting authorities through the implementation of GHG permitti ng. We believe that establishing general permits will require collection of significant category-specific data for various source and emission unit types as well as those that have heretofore gene rally not been regulated by the CAA (e.g. , small furnaces, water heaters, etc.), which could take a sign ificant amount of resources and time. We request comment on, in addition to the issu es described previously, possible sources and source categories that may benefit from general permits, if such permits were only created for addressing GHG emissions, as a streamlining method to assist in the phase-in of GHG permitting. We request comment on the appropriate approach for public review, in particular whether public review of***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 78 of 104 individual uses of a PSD general permit can be satis fied through public particip ation in the development of the general permit itself or whether each individual use of the PSD general permit requires public participation. We also request comment on whet her such a program should be a required minimum element for SIP approved PSD programs, as relevant. 5. General Permits and Title V We expect many of the issues related to PSD gene ral permits would also be relevant for title V general permits. For example, we would expect title V general permits to be most useful for GHG sources that trigger title V applicability due to boilers, but where sources are subject to other requirements, such as NSR, NESHAP and/or NSPS, the utility of general permits may be limited. We request comment on experience with title V general permits issued by state and local permitting authorities, including whether permitting authorities have altered application requirements pursuant to 40 CFR 70.6(d)(2), and ot her means of ensuring that general permits met the goals of title V for streamlined procedures and assuring compliance. Finally, we request comment on whether such a program should be a required minimum element for state Part 70 title V programs, as relevant.
E. Presumptive BACT for GHGs
1. Definition of BACT The Act defines BACT as: ... an emission limitation based on the maximum degree of reduction of each pollutant subject to regulation under this Act emitted from or which results from any major emitting facility, which the permitting authority, on a case-by-case basis, taking into account energy, environmental, and economic impacts and other costs, determines is achievable for such facility through applic ation of production processes and available methods, systems, and techniques, including fuel cleaning, clean fuels, or treatment or innovative fuel combustion techniques for control of each such pollutant. In no event shall application of “best available contro l technology” result in emissions of any pollutant which will exceed the emissions al lowed by any applicable standard established pursuant to section 111 or 112 or this Act. Emissions from any source utilizing clean fuels, or any other means, to comply with th is paragraph shall not be allowed to increase above levels that would have been required under this paragraph as it existed prior to enactment of the Clean Air Act Amendments of 1990.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 79 of 104 CAA section 169(3). Performing case-by-case BACT determinations can be complicated, resource-intensive and timeconsuming. In brief, the top-down BACT process calls for all availabl e control technologies for a given pollutant to be identified and ra nked in descending order of contro l effectiveness. The highest-ranked (“top”) option(s) should be esta blished as BACT unless the permit applicant demonstrates to the satisfaction of the permitting authority that technical considerations, or energy, environmental, or economic impacts justify a conclusion that the top-ra nked technology is not “achieva ble” in that case. If the most effective control strategy is eliminated in th is fashion, then the next most effective alternative should be evaluated, and so on, until an option is selected as BACT. Th is analysis should be conducted for each regulated NSR pollutant that is subject to the BACT requirement in a given case. The EPA has broken down this analytical process into the following five steps. Step 1: Identify all available control technologies. Step 2: Eliminate technically infeasible options. Step 3: Rank rema ining control technologies. Step 4: Evaluate most e ffective controls and document results. Step 5: Select BACT.
2. What is presumptive BACT? Presumptive BACT is a potential streamlining approach that involves the development of a standardized BACT for certain emissions units. Pr esumptive BACT would create ways for specific categories of permitted emissions units to move from a system under which determinations are made on individual permits on a case-by-case basis, to on e where BACT is determined for common types of equipment, which could be applied to individual perm its with little to no additional revision or analysis. In general, the EPA believes that presumptive BACT could be implemented on a broad basis for specific emissions units where there are well defined and similar types of emissions units, uniformity in***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 80 of 104 process/emissions unit design and function, and well defined GHG control technologies. Reviewing agencies could adopt presumptive BACT, possibl y including model permit language and monitoring, reporting and recordkeeping requirements, to stream line the BACT analysis for GHGs within their own established permitting process. The EPA has previously introduced the concept of presumptive BACT to streamline permitting for desulfurization projects at refine ries as well as in other instances, 39 and some state permitting authorities have adopted similar approaches. 40 Based on our understanding of the types of sources that will become subject to PSD if GHG emissions are regulated at levels below the thresholds currently contained in the Tailoring Rule, we believe the presumptive BACT process could offer significant streamlining benefits. Such streamlining benefits w ould arise because many of the sources that would become subject to BACT at lower GHG emission le vels will likely have very similar emissions producing equipment, and we believe there would be li ttle variation across sour ces with respect to the cost, energy and environmental consid erations in the BACT decision. As discussed in the following, the EPA has expressed interest in soliciting comments on the potential use of presumptive BACT for GHG permitti ng. It should be understood that presumptive BACT would be only an optional means to stream line the top-down BACT process by pre-evaluating what could constitute BACT for specific categories of similarly-situated emissions units. It should also be understood that this would only be available to address the GHG emissions from those units, and that the pre-construction permitting process would not be affected in any other way. Presumptive BACT would add another option fo r sources to achieve BACT requirements and

39 See Memorandum, "BACT and LAER for Emissions of Nitrogen Oxides and Volatile Organic Compounds at Tier 2/Gasoline Sulfur Refinery Projects," from John S. Seitz, Director, Office of Air Quality Planning and Standards, to Regional Air Division Directors (January 19, 2001). 40 For example, Wyoming has a minor source permitting program that includes a BACT analysis, and they use a presumptive BACT process for issuing minor source permits to a particular source category— oil and gas production facilities. See Permitting Guidance for Oil a nd Gas Production Facilities, Wyoming Dept. of Environmental Quality, Air Quality Division (August 2007 revision).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 81 of 104 provides additional benefits for the source and th e permitting authority through streamlining of the permit process. In actual implementation, the choice of a presumptive BACT option would reduce burdens currently associated with conducting indi vidualized, top-down BACT analyses for each source requiring a PSD permit. Nonetheless, there are seve ral considerations to explore before we can implement a presumptive BACT approach including the role of presumptive BACT in a case-by-case decision framework, the role and timing of public review, and preserving BACT’s technology-forcing role within a presumptive BACT framework.
3. How the EPA Could Consider Implementing Presumptive BACT As noted previously, the CAA requirement for BACT, found in section 16 5(a)(4), mandates that BACT determinations be made for each regulated po llutant on a "case-by-case basis." Accordingly, the EPA would like to develop a process that benefits from the efficienci es that presumptive BACT would provide while allowing for issuance of individual PSD permits. In the proposed Tailoring Rule, the EPA discussed potential options to expl ore presumptive BACT as an alternative to the current case-by-case nature of conventional BACT. In that discussion a nd in subsequent consideration by the agency, two potential ways in which to implement a presumptiv e BACT program have emerged: as an alternative method of completing a BACT analysis in an indivi dual permitting action or as a way to eliminate the need for an individualized BACT analysis for all permits in a particular category. The first approach would develop, thr ough notice-and-comment rulemaking or through permitting guidance, a presumptive BACT level for sources in a particular source category that subsequently could be applied and assessed in in dividual permitting actions. Under such an approach, while the top-down analysis for an individual perm it would be fulfilled by a request to include the presumptive BACT limit, there would still be an opportunity for permitting aut horities and the public to examine individual permits to assess whether th ere are significant case-specific energy, economic, and/or environmental impacts that would require adjustment of the presumed limit for that particular***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 82 of 104 source. This form of presumptive BACT would cr eate a rebuttable presumption that the emissions covered by the particular source’s BACT limit will, in fact, be controlled to the maximum degree that can be achieved. This presumption shifts the burden to the permitting authority or other interested parties to produce credible evidence that the applica tion of presumptive BACT to that particular source would not comply with BACT requirements. If cred ible evidence were produced, then the source would either be required to produce evidence sufficient to show that the presumpti on is the best achievable control technology or to conduct an individualized top-down BACT analysis. While such an approach could streamline the BA CT determination process to some extent, we are concerned that those streamlining benefits could be negated given th e prospect that such presumptive BACT determinations would, as a result of perm itting authority review and public comment, still have to be reviewed for numerous indivi dual sources. Accordingly, the EPA has also considered a system in which presumptive BACT levels for a specific cate gory of emissions units w ould be developed through notice-and-comment rulemaking but then applied to individual sources in that category without requiring permitting authorities to individualize the BACT determination or allowing for public comment on whether presumptive BACT levels should a pply to an individual source. While, as noted in the following, some have argued that such an appro ach would not strictly adhe re to the individual caseby-case BACT determinations envisioned in the CAA, ev en if that is the case, maintaining case-specific BACT determinations may well be impractical given th e significant increase in new sources that would likely be brought into the PSD program when GHG permitting thresholds are reduced. Moreover, the D.C. Circuit, in the Alabama Power case previously discussed, stated that courts "frequently uphold streamlined agency [regulatory] approaches or pro cedures where the conventional course, typically caseby-case determinations, would, as a practical matter, prevent the ag ency from carrying out the mission assigned to it by Congress." 636 F.2d at 358. The Court recognized that such non-individualized streamlining measures may be needed when tim e or personnel constraint s or other practical***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 83 of 104 considerations "would make it impossible for the agency to carry out its mandate." See id . at 359. A presumptive BACT approach that does not require individualized, source-specific determinations could well be an important tool to allow the EPA, state and local permitting authorities to carry out the PSD program in as timely and efficient manner as necessa ry to promote (rather th an hinder) control of GHG emissions from the many new, small source categor ies that would be require d to have PSD permits based on their GHG emissions. This approach would preserve opportunities fo r public participation by taking comment during the determination of presump tive BACT levels for a source category. Although here too, some have argued that this type of pr esumptive BACT approach, one that does not require individualized, source-specific determinations, would depart from a literal application of the statutory requirements for BACT, even if that is the case, it may nevertheless remain closer to the congressional intent for the PSD program in so far as it would reduce administrative burdens in each permitting action, thus allowing more overall sources to become subject to a PSD permitting program that moves applicability thresholds closer to the statutory levels. We received many comments on presumptive BACT during the public comment period for the Tailoring Rule. Many commenters supported the c oncept of presumptive BACT as a means to streamline PSD permitting. Some noted that it would promote consistency in BACT determinations as various permitting authorities gain experience with GHG permitting. So me suggested that it would be useful for common combustion sources, and at least one indicated that it would be particularly justified for natural gas-fired equipment. Several included r ecommendations for specific industrial sectors. A number of the supportive commenters also reco mmended that the source have the option to use presumptive BACT or to conduct a case-by-case BACT determination. Some commenters opposed presumptive BACT. A fe w indicated that it would not be flexible enough to take into account s ource-specific factors. Others asserted that it is cont rary to the requirements of the Act for a case-by-case BACT determination a nd opportunity for public review. Some noted that it***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 84 of 104 would dampen the technology-forcing role of BACT , and at least one suggested a periodic update not less than every 5 years. The EPA requests comment on the possible ap proaches to presumptive BACT discussed previously. We request comment on whether the first approach, where each use of presumptive BACT would be subject to permitting authority review and public comment, would offer significant streamlining value. We also request comment on our legal authority to implement each approach, particularly on the applicability of Alabama Power principles to the second approach, which does not authorize individualized, source- specific determinations.
4. Possible Impediments to Presumptive BACT a. Public comment processes for presumptive BACT The provision of effective and meaningful opportunities for public comment on BACT determinations is an important element of air permitting process provided for in the CAA. In the context of the two presumptive BACT approaches explaine d previously, the EPA or a state agency could provide opportunity for public particip ation either in individual permittin g actions to allow the public to rebut the presumption that a pre-determined BACT limit applies to th e specific source under consideration, or in determining the presumptive BA CT levels for a source category. The EPA requests comment on the public participation approaches th at would be appropriate to support presumptive BACT determinations. For example, is it sufficien t to provide for public review and comment only during the rulemaking to establish a presumptive BACT level or does the case-by-case nature of BACT require comment for individual permitting actions? Ev en if we follow the approach of establishing a presumptive BACT limit through notice-and-co mment rulemaking and limiting public input on individual permitting actions, are there circumstances in which public comment might also be warranted for those individual permitting actions the presumptiv e BACT limit? If so, what are they? If we follow the approach of allowing public input on individual permitting actions that use presumptive BACT, are***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 85 of 104 there ways in which the public comment might be limited to recognize more streamlining benefits? b. General permits The EPA is particularly interested to consid er pursuing presumptive BACT as a streamlining approach in cases where there would be similar BACT outcomes in multiple permits due to similar source characteristics and available control optio ns. General permits, which are discussed in the previous section, provide one context to implement this. General permits are particularly useful in situations where source operations ar e highly consistent and relativel y simple across a source category. General permits typically work best where sources in the category are subject to the same applicable air regulatory requirements, including those associated with criteria pollutant and air toxics regulatory
programs. We are particularly interested to consider oppo rtunities to develop presumptive BACT options to complement potential general permitting approaches addressing GHGs. In the absence of a presumptive BACT approach, general permits addressing GHGs ma y have limited streamlining value in light of caseby-case conventional BACT determin ation needs. Accordingly, we request comment on opportunities for using presumptive BACT approaches in the cont ext of general permits. In addition, we request comment on potential source categories or types of emission units that may be particularly well-suited for a general permit and presumptive BACT approach due to similarities in source characteristics and available GHG control options. We also request comment on whether presumptive BACT approaches for GHGs should be considered for source categorie s and types of emission units that may not be feasible to address using a general permit approach. c. Updating of presumptive BACT In general, case-by-case BACT determinations allow for the continual evolution of BACT requirements over time and are genera lly referred to as “technology forcing,” in so much as available controls identified in prior permits are considered in each subsequent BACT determination and the***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 86 of 104 specific facts of subsequent actions may support app lication of a top-ranked control technology that was eliminated in prior actions. However, the EPA rec ognizes that application of presumptive BACT to a category of sources over many permitting decisions may diminish the technology forcing effects of PSD. Updating of BACT is an important concept to c onsider in the context of developing a presumptive BACT option, and the EPA is interested in options that would help maintain advances in control technologies. As previously explained, the conventional t op-down BACT process incorporates continual updating of the BACT for each type of emission unit through the analysis that occurs to ensure that the most current BACT is used. To provide stream lining opportunities, the presumptive BACT process would likely need to incorporate some form of updating mechanism to ensure that the BACT remains current over time. We have identified several diffe rent approaches by which such updating could be accomplished. One approach would be for the EPA or a state agency to periodical ly review and consider updates to the presumptive BACT op tion established for a certain sour ce category or type of emission unit. For example, there could be a requirement to update presumptive BACT on a set time interval (such as every 3 or 5 years). Another approach could be to link a presumptive BACT determination to a standard established through some respected standard-setting programs so that the presumptive BACT level would automatically update periodically in conjunction with updating process already used in established standard-setting programs, as discussed in the follo wing examples. One option would be for the EPA or a state agency to set presumptive BACT at the same levels used in equipment energy efficiency standards established by government agencies or other respected sta ndard-setting bodies. For example, the U.S. Department of Energy (DOE), pursuant to the Energy Policy and Conservation Act,***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 87 of 104 promulgates energy efficiency standard s for industrial and commercial boilers. 41 These periodicallyupdated equipment energy efficiency standards could be used as the basis for presumptive BACT in cases where such standards exist. Similarly, it may be appropriate to use ENERGY STAR equipment certification as a basis for presumptive BACT. Wh ereas appliance and equipment energy efficiency standards usually provide the “ground floor” requir ements for performance of new energy consuming equipment, ENERGY STAR certification specifications establish minimum performance requirements for high-efficiency, lower emissions equipment w ithin selected product categories. The ENERGY STAR program, administered by the EPA in partners hip with the DOE, establ ishes voluntary product and equipment energy efficiency specifications for certain products and equipment in an effort to transform the market for manufactured goods by expa nding the availability and visibility of energyefficient products. Commercial and residential products can earn the ENERGY STAR label by meeting the energy efficiency requirements set fo rth in ENERGY STAR product specifications. Accordingly, ENERGY STAR equipment specifica tions include energy efficiency performance requirements that exceed DOE appliance and equi pment standards. For example, to qualify for ENERGY STAR certification, residen tial boilers must have annual fuel utilization efficiency (AFUE) ratings of 85 percent or greater. 42 This compares with DOE boiler energy efficiency standards established in 2007 that range from 80 to 83 percent. 43 The EPA requests comment on approaches for ensuring that presumptive BACT options are periodically reviewed and refreshed. We also request comments on the feasibility and potential configuration of approaches that connect presump tive BACT to equipment energy efficiency standards

41 http://www1.eere.energy.gov/buildings/applianc e_standards/residential/furnaces_boilers.html

. 42 http://www.energystar.gov/index.cfm?fuseac tion=find_a_product.showPr oductGroup&pgw_code=BO 43 http://www1.eere.energy.gov/buildin gs/appliance_standards/residen tial/pdfs/furnaces_ boilers/furnaces _fr_111907.pdf.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 88 of 104 or certifications or other external factors. In part icular, it would be helpful to receive comments on the role DOE industrial equipment and appliance en ergy efficiency standard s and/or ENERGY STAR certification for industrial and commercial equipment play in the context of presumptive BACT. In addition to the specific comments requested previously, the EPA seek s overall comments on the use of presumptive BACT, including suggestions for how such limits could be established, updated and used consistently within the requirements of the CAA, including requirements for a top-down, case-by-case BACT determination process. The EPA invites comments on whether presumptive BACT options should be advanced through rulemaki ng or through guidance. Comments would also be useful regarding considerations that should affect whether presump tive BACT approaches could be used to address only existing units or new units. The EPA also encourages comments on the respective roles of state, local and tribal air agencies relative to that of the EPA in establishing presumptive BACT options.
F. Title V Empty Permits In the Tailoring Rule, we identified a possibl e exclusion for “empty permits” as a potential means for alleviating the potential burden of tit le V permitting for GHG sources. In the Tailoring Rule we described an “empty permit” as “a permit issued to a source that is not s ubject to any applicable requirement for any pollutant.” 44 Empty permits may occur because the ap plicability for title V is in part based on major source status, yet there may not be a ny applicable requirements that apply. Since the principal purpose of title V is to collect the require ments applicable to the s ource and assure compliance with those requirements it is unclea r whether Congress intended sources, particularly smaller sources, to be subject to title V permitting if there are no applicable requirements for the source. The EPA solicits comments on whether we may, and should, interpret title V as not requiring permits for sources that are not subject to any applicable requirements (as defi ned in 40 CFR 70.2). The EPA also solicits comments

44 Empty permits are different from “hollow permits .” A “hollow permit” is a permit for a GHG major source that does not contain requirements for GHG emissions, but which cont ains other applicable requirements for pollutants for which the source is not major.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 89 of 104 on whether the EPA could adopt such an interpretati on through guidance, an in terpretative rule (without notice and comment), or only throug h notice and comment rulemaking, and whether states would, or should, be required to submit program revisions to the EPA for approval in order to exclude such sources from title V permitting. In the Tailoring Rule, the EPA noted that we anticipated very few if any “empty permits” as a result of Step 2. However, there remains significant uncertainty as to the number of “empty permits” that would exist if the Tailoring Rule thresholds were significantly lowered. The EPA believes that several SIPs contain generally applicable requirements for sources that would constitute “applicable requirements” for many sources that would become subject to title V solely as a result of GHG emissions if the thresholds were si gnificantly lowered. We noted in the final Tailoring Rule that: We need to gather more information con cerning the potential number and utility of “empty permits” for GHG sources, in light of the fact that the need for requirements in title V permits will vary based on the requireme nts of each SIP, and the fact that some SIPs contain broadly applicable requirements.
Tailoring Rule, 75 FR 31566. Thus, we solicit comments, particularly from states on these issues. For example: What, if any, SIP requirements would be applicable to sources that would become subject to title V permitting solely as a result of emitt ing GHG in excess of a lower threshold? What number (or proportion) of sources potentially subject to title V would be expected to have no applicable requirements under the SIP or other CAA programs? Is there a threshold below which the number of empty permits would incr ease significantly, as a result of a corresponding threshold in applicability of SIP requirements?
VII. Request for Comment We have requested comment throughout this preamble on many aspects of the GHG permitting program and our proposed rulemaking. In this section, we provide a summary of the issues on which we***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 90 of 104 are requesting comment and refer the reader to the preceding sections for our requests on more specific points.
A. Solicitation of Comment on Proposed Step 3
1. General We solicit comment on all issues described previous ly in section V of this preamble. In particular we solicit comment from the states as to their current and expected air permit budgets as well as their current and expected future levels of permitting. In addition, we solicit comment on promulgating lower GHGs thresholds for PSD applicability and on promulgating lower GHGs thresholds at any leve ls we have analyzed in this rulemaking for PSD and title V applicability. Commenters advocating lower thresholds should support their position with data demonstrating that the permitting authorities have developed the capacity to handle the current and future permitting volume under the existing threshol ds, and will be able to handle the additional permitting volume, in a timely manner, that would be required at reduced thresholds. Commenters should also be able to support their positions with data demonstrating that sources have the ability to meet the requirements of the PSD program. We note that in this rulemaking, we are not re-opening or soliciting comment on the Tailoring Rule’s decision to phase in the thre sholds, to begin with the Steps 1 a nd 2 levels, or the legal or policy basis for the Tailoring Rule. By the same token, as noted previously in section V, in this rulemaking, we are relying on the same methodology used in the Tailo ring Rule to calculate administrative burdens, and we are not re-opening that met hodology or soliciting comment on it. 45 We are simply proposing action and soliciting comment on Step 3 of the phase-in approach.
2. Call for Additional Information Concerning State Burdens

45 Although the Tailoring Rule has been challenged in th e U.S. Court of Appeals for the D.C. Circuit, no party has challenged this methodology.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 91 of 104 As stated in the Tailoring Rule, the EPA is co mmitted to tailoring the applicability criteria that determine which GHG emission sources become subject to the PSD and title V programs of the CAA. The following questions are structured to help the EPA best assess the status of GHG permitting programs based on the three criteria outlined in the Ta iloring Rule, which forms the basis for this action. We request states submit responses to the follo wing questions to the appropriate EPA Regional Administrator within 45 days afte r the date of publication of this proposal in the Federal Register

. General Permitting Burden/Resources
1. Does your state currently have the necessary resources (funding and staff) to run the PSD and title V permitting program as they exist today?

a. If your state is strained for resources please describe the r easons for it? Please list all that apply and provide a short description of the problem providing specific information where possible (i.e., budget cuts of 10 percen t during the last year; hiring freeze; loss 3 FTE in last two years). i. GHG Permitting ii. Other Permitting Issues (SO 2 , NO 2 , etc) iii. Budget cuts iv. Lack of personnel

v. Other (please specify)
2. If permitting activity were to increase to levels closer to those originally anticipated in the Tailoring Rule 46 , would your state have the necessary resources to manage the increased workload?

a. If not, please estimate the level of additional resources (funding and staff) your state would require to handle the increased burden.

46 See 75 FR 31540.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 92 of 104 3. In providing perspective on the PSD program, consider the following scenarios where your annual number of PSD permitting activity were to increase by 10, 20, 30, 50, 100, and 200 permit actions per year (both new permit applicat ions and modifications included) due to the potential lowering of the current GHG applicabili ty thresholds. When assessing the resources to permit these sources, consider that many of the newly permitted GHG sources under this scenario would likely consist of commercial and small industrial sources whose primary GHG emissions units are small, similarly configured combustion units:

a. How many more full-time employees (FTEs) w ould your program need to address each of these potential permitting activity increas es (i.e., 10, 20, 30, 50, 100, and 200 permit actions per year) in PSD due to GHGs and still meet current PSD permit processing times? b. How many additional dollars annually to your staffing budget would these additional FTEs equate to?
4. How has GHG permitting affected the permitting pro cess in your state? Please consider the areas listed below and provide specific estimates of the impact GHG permitting has had on your program where possible (i.e., responded to 10 pe rcent more permitting questions than usual).

a. Number of source meetings. b. Number of daily permitting questions.

c. Number of incomplete permit applications. d. Training for permitting staff to understand the GHG permitting process.

e. Is your staff unsure of how and when to permit GHG sources? 5. For states where PSD permits for GHG have b een issued, how was the burden (monetary and man-hours) compared to a typical non-GHG perm it? Please provide an estimate where possible (i.e., an additional 20 hours).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 93 of 104 6. In providing perspective on th e title V program, consider th e following scenarios where your annual number of title V permitting activity were to increase by 10, 20, 30, 50, 100, and 200 permit actions per year (both new permit applicat ions and modifications included) due to the potential lowering of the current GHG applicabili ty thresholds. When assessing the resources to permit these sources, consider that many of the newly permitted GHG sources under this scenario would likely consist of commercial and small industrial sources whose primary GHG emissions units are small, similarly configured combustion units:

a. How many more full-time employees (FTEs) w ould your program need to address each of these potential permitting activity increas es (i.e., 10, 20, 30, 50, 100, and 200 permit actions per year) in title V due to GHGs and still meet current title V permit processing times? b. How many additional dollars annually to your staffing budget would these additional FTEs equate to?
7. Does your state have an active outreach initiative and the resources necessary to reach out to smaller sources that may not be aware of their ob ligation to apply for title V or PSD permits due
to GHGs?

a. If the GHG permitting thresholds were lowere d resulting in additional sources being subject to the PSD and title V permitting programs, how would this affect such initiative? Please be specific about the level of resources necessary where possible.
8. Have the GHG requirements created or adde d to a backlog of unissued permits?

a. If so, by what amount?
9. Has your state modified its title V fees to c over GHG permitting needs? If not, would your state need to do so if additional sources (i.e., 10, 20, 30, 50, 100, and 200 actions per year) were added to the permitting programs as a result of lowered thresholds?***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 94 of 104 Streamlining Specific Questions
1. Is your state processing applications through any electronic permitting measures? If not do you plan on implementing an type of electronic permitting?
2. Has your state implemented LEAN techniques to streamline the permitting process? If so, how has this improved the efficiency for permitting actions? If not, do you plan on doing this in the future?
3. Is your state considering any other permitting streamlining technique to help improve the efficiency and reduce the burden associated with permitting of GHG sources? Please list all streamlining techniques under consideration and the expected implementation timelines.
B. Solicitation of Comment on Streamlining Techniques In section VI of this preamble, we disc uss a range of streamlining techniques for GHG permitting. In this action we propose rulemaking to implement two of these techniques at this time concerning PALs for GHGs and creation of federal synthetic minor source permits for GHGs. For the other techniques, we present information on the tec hniques but propose no rulemaking at this time. We request comment on all these potential streamlining t echniques, as discussed in section VII and in the following sections. More broadly, we request comment on other appro aches to streamlining that may hold promise to reduce PSD and/or title V perm itting burden for sources of GHGs and permitting authorities. Please include as much detail as possible on how such an approach would work, the amount of burden reduction that could be achieved, the specific legal aut hority the EPA should rely upon for implementing the approach, and whether EPA rulemaking would be required for implementation.
1. Plantwide Applicability Limitations for GHGs We request comment on our proposal to undertake rulemaking at this time to provide a more flexible approach for GHG PALs. We further re quest comment on which option we should pursue for this rulemaking, the Major Source Opt-in Appro ach or the Minor Source Approach, and on how,***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 95 of 104 specifically, we should revise our ru les to implement the preferred ap proach. In our discussion of, and rationale for, GHG PALs in section VI.A of this preamble, we requested comment on many specific, related issues. We again request comment on those issues here.
2. Synthetic Minor Source Perm itting Authority for GHGs We request comment on our proposal to create synthetic minor permit authority, within the existing federal PSD regulations, for the purpose of issuing synthetic minor permit limitations for GHGs. In addition, we request comment on our le gal authority for implementing such a program. Finally, we again request comment on other specific , related issues on which we requested comment in the discussion of synthetic minor permit aut hority in section VI.B of this preamble.
3. Redefining PTE and Source Category Specific PTE We request comment on the discussion in this proposal of our curren t thinking on developing category specific PTE rules or guidance, and on categories for which such a rule or guidance would be appropriate. We also request comment on creating a ru le that would allow a s ource to use historical hours of operation in determining an emissions unit’ s PTE. In addition, we request comment on the other specific, related issues that we discussed and on which we reque sted comment in the discussion of approaches to PTE in section VI.C of this preamble.
4. General Permits for GHGs We request comment on the idea of developing a ru le that would allow use of general permits for GHG sources, and on possible sources a nd source categories that may benefit from general permits. We also request information on the experience of state and local permitting authorities with the use of general permits and their potential applicability to GHG sources. In addition, we request comment on the other specific, related issues that we disc ussed and on which we requested comment in the discussion of general permits in section VI.D of this preamble. 5. Presumptive BACT for GHGs***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 96 of 104 We request comment on the concept of developi ng presumptive BACT for sources of GHGs, and on possible source categories and em issions units that may be promising candidates for this approach. We request comment on how and when to update pr esumptive BACT determinations, on the use of presumptive BACT for general permits, and on the a ppropriate public participation for the development and application of presumptive BACT. In addition, we request comment on the other specific, related issues that we discussed and on which we requested comment in the discussion of presumptive BACT in section VI.E of this preamble.
6. Title V Empty Permits We request comment on the extent to which SIPs contain requirements that would be applicable to sources that would be subject to title V solely as a result of emissions of GHGs below the current thresholds established by the Tailoring Rule, and whether a significant number of sources would have empty permits at different thresholds. We also solicit comment on whether the EPA can, and should, interpret the title V as not requiring “empty perm its,” and if so whether state program revisions, approved by the EPA, would, or should, be necessary to exclude such sources from title V permit requirements. In addition, we request comment on th e other specific, related i ssues that we discussed and on which we requested comment in the discussi on of empty permits in section VI.F of this preamble. VIII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review Under Executive Order 12866 (58 FR 51735, Octobe r 4, 1993), this actio n is a “significant regulatory action” because it raises novel legal or policy issues. Accordingly, the EPA submitted this action to the OMB for review under Executive Or ders 12866 and 13563 (76 FR 3821, January 21, 2011) and any changes made in response to OMB recomme ndations have been documented in the docket for***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 97 of 104 this action. This proposed Step 3 of the Tailoring Rule would continue the phased-in approach begun in Steps 1 and 2. However, we have determined that it would not be appropriate at this time to expand the universe of large sources of GHG emissions that must comply with permitting requirements under the Act, and the proposed rule would not reduce the GHG applicability thresholds or bring more sources into the PSD or title V programs. Thus, the propos ed rule would not impose any costs on sources of GHGs to obtain permits or on permitti ng authorities to issue permits.
B. Paperwork Reduction Act This action does not impose any new informati on collection burden. The proposed rule would not change the existing GHG permitting thresholds, and therefore would not impose any additional burden on sources to obtain PSD or title V permits or on permitting authorities to issue such permits. The proposed provisions for GHG PALs and synthetic minor source permitting authority would have the effect of reducing permitting burden in that the bu rden associated with obtaining or issuing a PAL permit or synthetic minor permit would be more than offset through avoiding subsequent PSD permitting actions with greater associated burden. However the OMB has previously approved the information collection requirements contained in the existing regulations for the NSR and title V programs under the provisions of the Paperwork Reduction Act , 44 U.S.C. 3501 et seq . and has assigned OMB control number 2060-0003 to the NSR progr am and OMB control numbers 2060-0243 and 2060- 0336 to the title V program (40 CFR Part 70 and Pa rt 71 components, respectively). The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR Part 9.
C. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedures Act or any other statute unl ess the agency certifies that the rule will not have***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 98 of 104 a significant economic impact on a substantial number of small entities. Sma ll entities include small businesses, small organizations a nd small governmental jurisdictions. For purposes of assessing the impacts of this pr oposed action on small entities, small entity is defined as: (1) a small business that is a small indus trial entity as defined in the U.S. Small Business Administration (SBA) size standards (see 13 CFR 121.201); (2) a small govern mental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; or (3) a small organization that is any not-fo r-profit enterprise that is independently owned and operated and is not dominant in its field. After considering the economic im pacts of this proposed action on small entities, I certify that this proposed action will not ha ve a significant economic impact on a substantial number of small entities. In determining whether a rule has a sign ificant economic impact on a substantial number of small entities, the impact of c oncern is any significant adverse economic impact on small entities, since the primary purpose of the regulator y flexibility analysis is to identify and address regulatory alternatives “which minimize any significant economic impact of the rule on small entities.” 5 U.S.C. 603 and 604. Thus, an agency may certify that a rule will not have a signifi cant economic impact on a substantial number of small entities if the rule reli eves regulatory burden, or otherwise has a positive economic effect, on all of the sma ll entities subject to the rule. The proposed rule would not change the ex isting GHG permitting thresholds, and therefore would not impose any additional burden on any sources (including small entities) to obtain PSD or title V permits or on any permitting authorities (including sm all entities, if any) to issue such permits. The proposed provisions for GHG PALs and synthetic minor source permitting authority would have the effect of reducing permitting burden on all entities, including small entitie s, in that the burden associated with obtaining or issuing a PAL permit or synthetic minor permit would be more than offset through avoiding subsequent PSD permitting actions with gr eater associated burden. We have therefore***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 99 of 104 concluded that this proposed rule will be neutral or relieve the regul atory burden for all affected small entities. We continue to be intere sted in the potential im pacts of the proposed rule on small entities and welcome comments on issues related to such impacts. In addition while we propose to maintain the current thresholds in this rulemaking, we also solicit comment on lowering the thresholds. If we receive information that persuades us that we should take action to lower the thresholds, we will at that time reassess the applicability of the requireme nts of the Regulatory Flexibility Act.
D. Unfunded Mandates Reform Act This rule does not contain a federal mandate that may result in expenditures of $100 million or more for state, local and tribal governments, in the aggregate, or the private sector in any 1 year. The proposed rule would not change the existing GH G permitting thresholds, and therefore would not impose any additional burden on sources to obtain PSD or title V permits or on permitting authorities to issue such permits. The proposed provisions fo r GHG PALs and synthetic minor source permitting authority would have the effect of reducing perm itting burden in that the burden associated with obtaining or issuing a PAL permit or synthetic minor permit would be more than offset through avoiding subsequent PSD permitting actions with greater associated burden. Thus, this rule is not subject to the requirements of sections 202 or 205 of UMRA. This rule is also not subject to the requireme nts of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. As noted previously, the effect of the proposed rule would be neutral or re lieve regulatory burden.
E. Executive Order 13132: Federalism This proposed rule does not have federalism im plications. It will not have substantial direct effects on the states, on the relationship between the national government and the states or on the distribution of power and responsib ilities among the various levels of government, as specified in Executive Order 13132. This proposed rule would mainta in the existing structure of the PSD and title V***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 100 of 104 programs and would not, therefore, affect the re lationship between the national government and the states or the distribution of pow er and responsibilities among the va rious levels of government. In addition, the proposed rule would not change th e existing GHG permitting thresholds, and therefore would not impose any additional burden on state permitti ng authorities to issue PSD or title V permits or such permits. The proposed provisions for GHG PALs and synthetic minor source permitting authority would have the effect of reducing permitting burden in that the burden associated with issuing a PAL permit or synthetic minor permit would be more than offset through avoiding subsequent PSD permitting actions with greater associated burden. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between the EPA and state and lo cal governments, the EPA specifically solicits comment on this proposed rule from state and local officials.
F. Executive Order 13175: Consultation and Coor dination with Indian Tribal Governments This action does not have tribal implications. There are no tribal authorities currently issuing major NSR permits, one tribe is implementing a titl e V program based on a delegation agreement under 40 CFR Part 71 and one tribe has recently obtained approval of title V program under 40 CFR Part 70. However, the proposed rule would not change th e existing GHG permitting thresholds, and therefore would not impose any additional burden on sources to obtain PSD or title V permits or on permitting authorities to issue such permits. The proposed provisions for GHG PALs a nd synthetic minor source permitting authority would have the effect of reduci ng permitting burden in that the burden associated with obtaining or issuing a PAL permit or synthetic minor permit would be more than offset through avoiding subsequent PSD permitting actions with greater associated burden. Although Executive Order 13175 does not apply to this proposed rule, the EPA specifically solicits additional comment on this propos ed action from tribal officials.
G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 101 of 104 The EPA interprets Executive Order 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the Executive Order has the potential to influe nce the regulation. This action is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks.
H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution or Use This action is not a “significant energy ac tion” as defined in Executive Order 13211 (66 FR 28355, May 22, 2001), because it is not likely to have a significant adverse effect on the supply, distribution or use of energy. Further, we have concluded that this rule is not likely to have any adverse energy effects because this action would not create any new requirements for sources in the energy supply, distribution or use sectors.
I. National Technology Transfer and Advancement Act Section 12(d) of the Nationa l Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs the EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are techni cal standards (e.g. , materials specifications, test methods, sampling procedures a nd business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs the EPA to provide Congress, through the OMB, explanations when the agency decides not to use available and applicable voluntary consensus standards. This proposed rulemaking does not involve tech nical standards. Therefore, the EPA did not consider the use of any voluntary consensus standards.
J. Executive Order 12898: Federal Actions To A ddress Environmental Justice in Minority Populations and Low-Income Populations***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 102 of 104 Executive Order 12898 (59 FR 7629, February 16, 1994) establishes federal executive policy on environmental justice. Its main provision directs fede ral agencies, to the greates t extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse hu man health or environmental effects of their programs, policies and activities on minority populat ions and low-income populations in the United
States. The EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection pr ovided to human health or the environment. The proposed rule would not change the existing GHG permitting thresholds, a nd therefore would not affect the universe of sources subject to permitting.
K. Determination under Section 307(d) Pursuant to sections 307(d)(1 )(J) and 307(d)(1)(V) of the CAA, the Administrator determines that this action is subject to the provisions of s ection 307(d). Section 307(d)(1 )(J) specifies that the provisions of section 307(d) apply to “promulgation or revision of re gulations under [part] C of title I (pertaining to prevention of signifi cant deterioration of air quality a nd protection of visibility).” This section clearly subjects the portions of this action that pertain to PSD to the provisions of section 307(d). Section 307(d)(1)(V) provides that the provisions of section 307(d) a pply to “such other actions as the Administrator may determine.” Pursuant to this secti on, the Administrator determines that the portions of this action that pertai n to title V are subject to the provisio ns of section 307(d). This determination allows for uniform treatment for all aspects of this action. IX. Statutory Authority The statutory authority for this action is pr ovided by sections 101, 111, 114, 116 and 301 of the CAA as amended (42 U.S.C. 7401, 7411, 7414, 7416 and 7601).***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 103 of 104 List of Subjects 40 CFR Part 51 Environmental protection, Administrative practic e and procedure, Air pollution control, Carbon dioxide, Carbon dioxide equivale nts, Greenhouse gases, Hydrofl uorocarbons, Intergovernmental relations, Methane, Nitrous oxide, Perfluorocarbons, Reporting and reco rdkeeping requirements, Sulfur hexafluoride. 40 CFR Part 52 Environmental protection, Administrative practic e and procedure, Air pollution control, Carbon dioxide, Carbon dioxide equivale nts, Greenhouse gases, Hydrofl uorocarbons, Intergovernmental relations, Methane, Nitrous oxide, Perfluorocarbons, Reporting and reco rdkeeping requirements, Sulfur hexafluoride. 40 CFR Part 70 Environmental protection, Administrative practic e and procedure, Air pollution control, Carbon dioxide, Carbon dioxide equivale nts, Greenhouse gases, Hydrofl uorocarbons, Intergovernmental relations, Methane, Nitrous oxide, Perfluorocarbons, Reporting and reco rdkeeping requirements, Sulfur hexafluoride.***E.O. 12866 Review – Draft – Do not Cite, Quote or Release During Review*** EO12866_Tailoring Rule Step 3_2060-AR10_Proposal_FRN_20120202

Page 104 of 104 Page 105 of 105 - Prevention of Significant Det erioration and Title V Greenhouse Gas Tailoring Rule Step 3, Including GHG Plantwide Applic ability Limitations and GHG Synthetic Minor Limitations

40 CFR Part 71 Environmental protection, Administrative practic e and procedure, Air pollution control, Carbon dioxide, Carbon dioxide equivalents, Greenhouse gases, Hydrofluorocar bons, Methane, Nitrous oxide, Perfluorocarbons, Reporting and recordkeepi ng requirements, Sulfur hexafluoride.

___________________________________________ Dated:

___________________________________________ Lisa P. Jackson, Administrator.