B. Baseline for Pollution Transport Analysis

Implementing the mandate of CAA section 110(a)(2)(D)(i)(I) 

requires EPA to determine which states significantly contribute 

to nonattainment and interfere with maintenance of the NAAQS in 

other states, as well as to quantify the emissions in each state 

that must be eliminated. This process begins with an analysis 

of baseline emissions. Baseline emissions are the emissions 

that would occur in each state if EPA did not promulgate the 

Transport Rule. To conduct such analysis, EPA generally takes 

into account emission limitations that are currently, and will 

continue to be, in place. From that baseline, EPA analyzes 

whether additional reductions are necessary beyond those already 

mandated by existing emission limitation requirements. For 

example, the base case used in CAIR reflected the reductions 

already required by the NOX SIP Call, which remained in effect 

even after the CAIR emission reduction requirements took effect.

The unique legal situation addressed by the Transport Rule 

necessarily affects the quantification of baseline emissions. 

Specifically, because the Transport Rule will replace CAIR, EPA 

cannot consider reductions associated with CAIR in the “base 

case” (i.e., analytical baseline emissions scenario). If EPA 

were to consider all reductions associated with CAIR in the 

“base case,” the baseline emissions would not adequately reflect 

the true 2012 baseline in each state (i.e., the emissions that 
would occur in each state in 2012 if the Transport Rule did not 

require any reductions in that state). Similarly, if EPA were 

to treat the capital investments that have already been made to 

meet the requirements of CAIR as new costs rather than treating 

them as “sunk” capital costs, EPA’s analysis would not 

accurately reflect the cost of emission reductions required by 

the Transport Rule. As explained below, EPA’s analysis both 

properly considered all capital investments made in response to 

CAIR and properly recognized that, after CAIR is terminated, the 

emission limitations imposed by CAIR will cease to exist.

In 2005 EPA promulgated CAIR, which required large electric 

generating units in 29 states to make phase I emission 

reductions in NOX emissions starting in 2009, phase I emission 

reductions in SO2 starting in 2010 and phase II reductions in 

emissions of both pollutants starting in 2015. On July 11, 

2008, the D.C. Court of Appeals held that CAIR had “more than 

several fatal flaws,” North Carolina, 531 F.3d at 901, and 

remanded and vacated the rule, id. at 930. The Court 

subsequently granted EPA’s petition for rehearing in part and 

remanded CAIR without vacatur “for EPA to conduct further 

proceedings consistent with” the Court’s July 11, 2008 opinion. 

North Carolina, 550 F.3d 1176. The Court explained that it was 

“allowing CAIR to remain in effect until it is replaced by a 

rule consistent with [the July 11, 2008] opinion” because this 
“would at least temporarily preserve the environmental values 

covered by CAIR.” Id. at 1178. Moreover, the Court stated that 

it did not “intend to grant an indefinite stay of the 

effectiveness of” the July 11, 2008 order vacating CAIR. Id. 

In summary, the Court determined that CAIR was fatally flawed 

and could remain in effect only as a stopgap measure until EPA 

could act to replace it. 

Thus, unlike most other regulatory requirements (such as 

the Acid Rain Program under CAA Title IV, the NOX Budget Trading 

Program under the NOX SIP Call, New Source Performance Standards, 

and state laws and consent orders requiring emission 

reductions), the emission limitations contained in CAIR are only 

temporary. Moreover, the duration of these limitations is 

directly tied to the Transport Rule. The Transport Rule 

replaces CAIR. Thus, CAIR itself will be terminated for the SO2, 

annual NOX, and ozone-season NOX control periods starting in 2012 

when the emission limitations established in the final Transport 

Rule for those control periods take effect (January 1, 2012 for 

the annual control periods and May 1, 2012 for the ozone-season 

control period). For this reason, emission reductions made to 

comply with CAIR cannot be treated as if they were emission 

reductions achieved to comply with statutory provisions, rules, 

consent decrees, and other enforceable requirements that 

establish permanent emission limitations. EPA takes reductions 
made to comply with permanent limitations into consideration 

when quantifying each state’s baseline emissions for the purpose 

of analyzing whether its emissions significantly contribute to 

nonattainment or interfere with maintenance in another state. 

However, the unique legal status of CAIR and its replacement 

with the Transport Rule distinguish the emission reductions 

required by CAIR from those of other regulatory requirements. 

Since the limitations and emission reduction requirements in 

CAIR are temporary and will be terminated by the Transport Rule, 

they must be excluded from the Transport Rule’s base case 

analysis.

Some comments on the Transport Rule proposal claim that 

EPA’s treatment of CAIR is inconsistent with the treatment, in 

prior rulemakings, of the Acid Rain Program and the NOX SIP Call. 

Such comments ignore the unique legal status of CAIR, and EPA 

therefore rejects these claims.

A simple example illustrates this point. Assume state Z’s 

emissions before CAIR were 2,000 tons and that state Z was 

required by CAIR to reduce its emissions to 1,000 tons. If EPA 

were to determine that state Z’s baseline emissions were 1,000 

tons and then conclude, based on that assumption, that no 

additional reductions in state Z are necessary because state Z 

does not significantly contribute to downwind nonattainment 

unless its emissions exceed 1,500 tons, then state Z would not 
be covered by the Transport Rule. However, the Transport Rule 

will terminate all CAIR requirements in all CAIR states 

regardless of whether they are covered by the Transport Rule. 

Thus, after promulgation of the Transport Rule, state Z would 

again be allowed, and would be projected in this example, to 

emit 2,000 tons. In other words, state Z would be allowed to 

significantly contribute to nonattainment and/or interfere with 

maintenance in other states -- a result that would be 

inconsistent with the statutory mandate of CAA section 

110(a)(2)(D)(i)(I). On the other hand, if EPA assumes state Z’s 

baseline emissions are 2,000 tons as projected without CAIR in 

place, EPA can properly determine whether, if state Z were 

allowed to emit that amount (i.e., the amount state Z would be 

projected to emit if excluded from the Transport Rule), the 

state would significantly contribute to nonattainment or 

interfere with maintenance in any other state. In other words, 

EPA can determine the stringency of emission limitations needed 

(if any) to replace those that were established by CAIR in order 

to ensure that state Z prohibits all emissions that 

significantly contribute to nonattainment or interfere with 

maintenance in other states. 

In fact, commenters’ suggestion that the Transport Rule 

base case should include CAIR would cause the anomalous result 

of excluding sources in a state from the Transport Rule because 
of their CAIR–required emission reductions while simultaneously 

eliminating those CAIR emission reduction requirements. If 

EPA’s base case analysis were to assume erroneously that 

reductions from CAIR would continue indefinitely, a state 

currently covered by CAIR, but not covered by the Transport 

Rule, would have no CAIR requirements once the Transport Rule 

programs began and so could increase emissions beyond the CAIR 

limitations. Downwind areas that are in attainment (and are not 

experiencing interference with maintenance of such attainment) 

solely because of emission reductions required by CAIR could 

again face nonattainment or interference with maintenance 

problems because the current protection from upwind pollution 

from such an upwind state would not be replaced. In short, the 

analysis of whether a state should be included in a rule 

eliminating and replacing CAIR cannot logically assume that CAIR 

remains in place. For these reasons, EPA believes it is 

reasonable to use a base case that does not assume that the CAIR 

reduction requirements will continue to be achieved and so does 

not include CAIR-specific emission reductions. 

As a result, EPA’s 2012 base case shows emissions higher 

than current levels in some states. In the absence of the CAIR 

SO2 and NOX programs that EPA has been directed to eliminate and 

replace, utility emissions in CAIR states will be limited only 

by non-CAIR constraints including the Acid Rain Program, the NOX
SIP Call, New Source Performance Standards, any state laws and 

consent order requiring emission reductions, and any other 

permanent and enforceable binding reduction commitments. This 

will lead to increased emissions in some states in the 2012 base 

case relative to current emissions. For example, efforts to 

comply with the Acid Rain Program at the least cost may occur, 

in some cases, without the operation of existing scrubbers 

through use of readily available, inexpensive Title IV 

allowances. 

It is important to note that, to the extent that emission 

reductions currently required by CAIR are also reflected in 

emission reduction requirements under the Acid Rain Program, the 

NOX SIP Call, New Source Performance Standards, any state laws 

and consent orders requiring emission reductions, and any other 

enforceable binding reduction commitments, such reductions are 

accounted for in EPA’s 2012 base case. Some Commenter claimed 

that in excluding CAIR-specific emission reductions from the 

base case, EPA ignores non-CAIR legal requirements (e.g., in 

Title V permits) that may prevent sources from increasing 

emissions above CAIR levels. Such allegations are incorrect. 

As discussed elsewhere in this preamble, EPA accounted for any 

Title V permits, consent decrees, state rules, and other 

enforceable limitations on sources’ emissions; if these non-CAIR 

limitations effectively restrain a state’s emissions to not 
exceed the state’s CAIR limitations, EPA’s base case modeling 

would reflect this outcome. Commenters also assert that 

utilities are unlikely to dismantle or discontinue running the 

installed controls to the point of returning to pre-CAIR 

emission levels. EPA agrees that installed controls are not 

likely to be physically dismantled, and as discussed elsewhere 

in this preamble, EPA’s analysis properly treats the capital 

investments made in emission controls attribute to CAIR as 

“sunk” capital costs (i.e., capital costs already obligated in 

the past) that are not included as costs of meeting Transport 

Rule requirements.

Our cost analysis for significant contribution reflects onthe-ground realities. Investments in pollution control 

equipment were made in response to CAIR requirements. Those 

expenditures are “sunk” capital costs, meaning that those 

investments were committed in the past, prior to the Transport 

Rule. Adding the capital costs of that equipment into the costs 

of Transport Rule emission reduction options would be incorrect; 

those capital investments are represented in place in the base 

case. 

However, given ongoing costs associated with operating 

these controls, EPA believes sources would have an economic 

incentive to discontinue operating installed controls, or to 

operate those controls less effectively, except to the extent 
non-CAIR legal requirements mandate emission reductions or to 

the extent that sources would find it economic to operate the 

controls for non-CAIR market-based emission control programs. 

EPA properly treats the costs of operating controls installed to 

meet CAIR requirements as costs of meeting Transport Rule 

requirements.1 EPA’s base case accounts for non-CAIR 

requirements and does not make the unreasonable assumption that 

installed controls would be operated to achieve emission 

reductions that are not necessary to meet non-CAIR requirements. 

For all of these reasons, EPA rejects commenters’ claims that 

the base case is “unrepresentative” or lacks “a rational 

relationship to the real world.”

 

1 For more details on how EPA models economic operation of 

existing pollution control equipment in the Transport Rule base 

case, please see Section 6 ("Dispatchable Controls") in "Updates 

to EPA Base Case v3.02 EISA Using the Integrated Planning Model" 

Technical Support Document (TSD) for the Transport Rule Docket 

ID No. EPA-HQ-OAR-2009-0491, U.S. EPA, July 2010 (available at

http://www.epa.gov/airmarkets/progsregs/epa-ipm/IPM Update 

Documentation.pdf).