[Federal Register Volume 65, Number 235 (Wednesday, December 6, 2000)]
[Proposed Rules]
[Pages 76197-76203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30912]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[Region II Docket No. NY44-215, FRL-6911-9]


Approval and Promulgation of Implementation Plans; New York; 
Nitrogen Oxides Budget and Allowance Trading Program

AGENCY: Environmental Protection Agency.

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing to 
approve a State Implementation Plan (SIP) revision submitted by the 
State of New York. This SIP revision responds to the EPA's regulation 
entitled, ``Finding of Significant Contribution and Rulemaking for 
Certain States in the Ozone Transport Assessment Group Region for 
Purposes of Reducing Regional Transport of Ozone,'' otherwise known as 
the ``NO<INF>X</INF> SIP Call.'' The SIP revision includes a narrative 
and a regulation that establish a statewide nitrogen oxides 
(NO<INF>X</INF>) budget and a NO<INF>X</INF> allowance trading program 
that begins in 2003 for large electricity generating and industrial 
sources.
    The intended effect of this SIP revision is to reduce emissions of 
NO<INF>X</INF> in order to help attain the national ambient air quality 
standard for ozone. EPA is proposing this action pursuant to section 
110 of the Clean Air Act.

DATES: EPA must receive written comments on or before January 5, 2001.

ADDRESSES: All comments should be addressed to: Raymond Werner, Chief, 
Air Programs Branch, Environmental Protection Agency, Region II Office, 
290 Broadway, 25th Floor, New York, New York 10007-1866.
    Copies of the State submittal and other information are available 
at the following addresses for inspection during normal business hours:

Environmental Protection Agency, Region II Office, Air Programs Branch, 
290 Broadway, 25th Floor, New York, New York 10007-1866.
New York State Department of Environmental Conservation, Division of 
Air Resources, 50 Wolf Road, Albany, New York 12233.

FOR FURTHER INFORMATION CONTACT: Ted Gardella at (212) 637-3892 for 
general questions, Rick Ruvo at (212) 637-4014 for specific questions 
on the Trading Program, or Raymond Forde at (212) 637-3716 for specific 
questions on the Budget Demonstration; Air Programs Branch, 
Environmental Protection Agency, 290 Broadway, 25th Floor, New York, 
New York 10007-1866.

SUPPLEMENTARY INFORMATION:

Overview

    The Environmental Protection Agency (EPA) is proposing to approve 
the New York State Department of Environmental Conservation's (New 
York's) NO<INF>X</INF> SIP Call State Implementation Plan (SIP) 
revision. The following table of contents describes the format for this 
SUPPLEMENTARY INFORMATION section:

I. EPA's Action
    A. What action is EPA proposing today?
    B. Why is EPA proposing this action?
    C. What are the NO<INF>X</INF> SIP Call general requirements?
    D. What is the NO<INF>X</INF> Budget and Allowance Trading 
Program?
    E. What guidance did EPA use to evaluate New York's program?
    F. What is the result of EPA's evaluation of New York's program?
II. New York's NO<INF>X</INF> Budget Program
    A. What is New York's NO<INF>X</INF> Budget Demonstration?
    B. What is New York's NO<INF>X</INF> Budget Trading Program?
    C. What is the Compliance Supplement Pool?
    D. How does New York's program protect the environment?
    E. How will New York and EPA enforce the program?
    F. When did New York propose and adopt the program?
    G. When did New York submit the SIP revision to EPA and what did 
it include?
    H. What other significant items relate to New York's program?
    I. Impact of D.C. Circuit Court remand on New York's 
NO<INF>X</INF> SIP Call submittal.
    J. What is the relationship of today's proposal to EPA's 
findings under the section 126 rule?
III. Proposed Action
IV. Administrative Requirements

I. EPA's Action

A. What action is EPA proposing today?

[[Page 76198]]

    EPA proposes approval of revisions to New York's ground level ozone 
SIP which New York submitted on April 3, 2000 and April 18, 2000. These 
SIP revisions include a new regulation, 6 NYCRR Part 204, `` 
NO<INF>X</INF> Budget Trading Program,'' dated April 3, 2000, and a 
narrative entitled, ``New York State Implementation Plan For Ozone; 
Meeting The Statewide Oxides of Nitrogen (NO<INF>X</INF>) Budget 
Requirements Contained In The NO<INF>X</INF> SIP Call (63 FR 57356, 
October 27, 1998),'' dated April 18, 2000 and supplemented on May 16, 
2000. New York submitted the regulation and narrative, including 
NO<INF>X</INF> reducing measures, in order to strengthen its one-hour 
ozone SIP and to comply with the NO<INF>X</INF> SIP Call during each 
ozone season, i.e., May 1 through September 30, beginning in 2003. EPA 
proposes that New York's submittal is fully approvable as a SIP 
strengthening measure for New York's one-hour ground level ozone SIP 
and EPA has determined it meets the air quality objectives of EPA's 
NO<INF>X</INF> SIP Call requirements. New York's SIP revision also 
satisfies Phase III of the Ozone Transport Commission's NO<INF>X</INF> 
Budget Program as discussed in section II.H. of this document.

B. Why Is EPA Proposing This Action?

    EPA is proposing this action in order to:
    <bullet> Approve a control program which reduces NO<INF>X</INF> 
emissions, a precursor of ozone, and which therefore helps to achieve 
the national ambient air quality standard for ozone,
    <bullet> Fulfill New York's and EPA's requirements under the Clean 
Air Act (the Act),
    <bullet> Make New York's NO<INF>X</INF> allowance trading 
regulation federally enforceable and available for credit in the SIP,
    <bullet> Make New York's SIP narrative, including the ozone season 
NO<INF>X</INF> budget, federally enforceable as part of the New York 
SIP, and
    <bullet> Give the public an opportunity to submit written comments 
on EPA's proposed action, as discussed in the DATES and ADDRESSES 
sections.

C. What Are the NO<INF>X</INF> SIP Call General Requirements?

    On October 27, 1998, EPA published a final rule entitled, ``Finding 
of Significant Contribution and Rulemaking for Certain States in the 
Ozone Transport Assessment Group Region for Purposes of Reducing 
Regional Transport of Ozone,'' otherwise known as the ``NO<INF>X</INF> 
SIP Call.'' See 63 FR 57356. At that time, the NO<INF>X</INF> SIP Call 
required 22 states and the District of Columbia \1\ to meet statewide 
NO<INF>X</INF> emission budgets during the five month period from May 1 
through September 30 in order to reduce the amount of ground level 
ozone that is transported across the eastern United States. The 
NO<INF>X</INF> SIP Call set out a schedule that required the affected 
states to adopt regulations by September 30, 1999, and to implement 
control strategies by May 1, 2003.\2\
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    \1\ Alabama, Connecticut, District of Columbia, Delaware, 
Georgia, Illinois, Indiana, Kentucky, Massachusetts, Maryland, 
Michigan, Missouri, North Carolina, New Jersey, New York, Ohio, 
Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, 
Wisconsin, and West Virginia.
    \2\ On May 25, 1999, the D.C. Circuit issued a partial stay of 
the submission of the SIP revisions required under the 
NO<INF>X</INF> SIP Call. The NO<INF>X</INF> SIP Call had required 
submission of the SIP revisions by September 30, 1999. State 
Petitioners challenging the NO<INF>X</INF> SIP Call moved to stay 
the submission schedule until April 27, 2000. The D.C. Circuit 
issued a stay of the SIP submission deadline pending further order 
of the court. Michigan v. EPA, No. 98-1497 (D.C. Cir. May 25, 1999) 
(order granting stay in part).
    On April 3rd and 18th, 2000, New York voluntarily submitted this 
revision to EPA for approval notwithstanding the court's stay of the 
SIP submission deadline. On March 3, 2000, the D.C. Circuit ruled on 
Michigan v. EPA, affirming many aspects of the SIP Call and 
remanding certain other portions to the Agency. On June 22, 2000, 
the DC Circuit upheld EPA's NO<INF>X</INF> SIP Call. This allows EPA 
to move forward on a fixed schedule to reduce NO<INF>X</INF> 
emissions. The court's previous rulings did not affect this action 
because it was submitted and is being proposed as a SIP-
strengthening measure regardless of the status of the case.
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    The NO<INF>X</INF> SIP Call allowed states the flexibility to 
decide which source categories to regulate in order to meet the 
statewide budgets. However, the SIP Call notice suggested that imposing 
statewide NO<INF>X</INF> emissions caps on large fossil-fuel fired 
industrial boilers and electricity generators would provide a highly 
cost-effective means for states to meet their NO<INF>X</INF> budgets. 
In fact, the state-specific budgets were derived using an emission rate 
of 0.15 pounds NO<INF>X</INF> per million British thermal units (lb. 
NO<INF>X</INF>/mmBtu) at electricity generating units (EGUs) with a 
nameplate capacity greater than 25 megaWatts, multiplied by the 
projected heat input (mmBTU) from burning the quantity of fuel needed 
to meet the 2007 forecast for electricity demand. See 63 FR 57407. The 
calculation of the 2007 EGU emissions was based on an emissions trading 
program used to achieve part of an EGU control program. The 
NO<INF>X</INF> SIP Call state budgets also assumed on average a 30% 
NO<INF>X</INF> reduction from cement kilns, a 60% reduction from 
industrial boilers and combustion turbines, and a 90% reduction from 
internal combustion engines. The non-EGU control assumptions were 
applied to units where the heat input capacities were greater than 250 
mmBtu per hour, or in cases where heat input data were not available or 
appropriate, to units with actual emissions greater than one ton per 
day.
    To assist the states in their efforts to meet the SIP Call, the 
NO<INF>X</INF> SIP Call final rulemaking included a model 
NO<INF>X</INF> allowance trading regulation, called ``NO<INF>X</INF> 
Budget Trading Program for State Implementation Plans,'' (40 CFR part 
96), that could be used by states to develop their regulations. The 
NO<INF>X</INF> SIP Call rule explained that if states developed an 
allowance trading regulation consistent with the EPA model rule, they 
could participate in a regional allowance trading program that would be 
administered by the EPA. See 63 FR 57458-57459.

D. What Is the NO<INF>X</INF> Budget and Allowance Trading Program?

    EPA's model NO<INF>X</INF> budget and allowance trading rule for 
SIPs, 40 CFR part 96, sets forth a NO<INF>X</INF> emissions trading 
program for large EGUs and non-EGUs. A state can voluntarily choose to 
adopt EPA's model rule in order to allow its sources to participate in 
regional allowance trading. The October 27, 1998 Federal Register 
notice contains a full description of the EPA's model NO<INF>X</INF> 
budget trading program. See 63 FR 57514-57538 and 40 CFR part 96.
    In general, air emissions trading uses market forces to reduce the 
overall cost of compliance for pollution sources, such as power plants, 
while achieving emission reductions and environmental benefits. One 
type of market-based program is an emissions budget and allowance 
trading program, commonly referred to as a ``cap and trade'' program.
    In an emissions budget and allowance trading program, the state or 
EPA sets a regulatory limit, or emissions budget, in mass emissions 
from a specific group of sources. The budget limits the total number of 
allocated allowances during a particular control period. When the 
budget is set at a level lower than the current emissions, the effect 
is to reduce the total amount of emissions during the control period. 
After setting the budget, the state or EPA then assigns, or allocates, 
allowances to the participating entities up to the level of the budget. 
Each allowance permits the emission of a quantity of pollutant, e.g., 
one ton of airborne NO<INF>X</INF>.
    At the end of the control period, each source must demonstrate that 
its actual emissions during the control period were less than or equal 
to the number of available allowances it holds. Sources that reduce 
their emissions below their

[[Page 76199]]

allocated allowance level may sell their extra allowances. Sources that 
emit more than the amount of their allocated allowance level may buy 
allowances from the sources with extra reductions. In this way, the 
budget is met in the most cost-effective manner. An example of a budget 
and allowance trading program is EPA's Acid Rain Program for reducing 
sulfur dioxide emissions.

E. What Guidance Did EPA Use To Evaluate New York's Program?

    EPA evaluated New York's NO<INF>X</INF> SIP Call submittal using 
EPA's ``NO<INF>X</INF> SIP Call Checklist,'' (the checklist), issued on 
April 9, 1999. The checklist summarizes the requirements of the 
NO<INF>X</INF> SIP Call set forth in 40 CFR 51.121 and 51.122. The 
checklist, developed from the basic requirements of the formal SIP Call 
Federal Register action (63 JR 57356), outlines the criteria that the 
EPA Regional Office used to determine the completeness and provability 
of New York's submittal.
    As noted in the checklist, the key elements of an provable 
submittal under the NO<INF>X</INF> SIP Call are: a budget 
demonstration; enforceable control measures; legal authority to 
implement and enforce the control measures; adopted control measure 
compliance dates and schedules; monitoring, record keeping, and 
emissions reporting; as well as elements that apply to states that 
choose to adopt an emissions trading rule in response to the 
NO<INF>X</INF> SIP Call. The checklist is available to the public on 
EPA's web site at: http://www.epa.gov/ttn/otag/sip/related.html.
    As described above, the final NO<INF>X</INF> SIP Call rule included 
a model NO<INF>X</INF> budget trading regulation. See 40 CFR part 96. 
EPA used the model rule to evaluate New York's Part 204. Additionally, 
EPA used the October 1998 final NO<INF>X</INF> SIP Call rulemaking, as 
well as the subsequent technical amendments to the NO<INF>X</INF> SIP 
Call, published in May 1999 (64 FR 26298) and March 2000 (65 FR 11222), 
in evaluating the approvability of New York's submittal. EPA also used 
section 110 of the Act, ``Implementation Plans,'' to evaluate the 
approvability of New York's submittal as a revision to the SIP.

F. What Is the Result of EPA's Evaluation of New York's Program?

    EPA has evaluated New York's NO<INF>X</INF> SIP Call submittal and 
proposes to find it approvable. The April 3, 2000 and April 18, 2000 
submittals will strengthen New York's SIP for reducing ground level 
ozone by providing NO<INF>X</INF> reductions beginning in 2003. EPA 
proposes to find that the NO<INF>X</INF> control measure, Part 204, as 
well as the SIP narrative that includes New York's 2007 NO<INF>X</INF> 
baseline and controlled budgets, are approvable. EPA finds that the 
submittal contained the information necessary to demonstrate that New 
York has the legal authority to implement and enforce the control 
measures, as well as a description of how the state intends to use the 
compliance supplement pool. Furthermore, EPA proposes to find that the 
submittal demonstrates that the compliance dates and schedules, and the 
monitoring, record keeping and emission reporting requirements will be 
met.
    Although provisions in New York's control regulation, Part 204, 
differ slightly from EPA's NO<INF>X</INF> Budget Trading Model Rule, 
EPA finds that Part 204 is consistent with EPA's guidance and meets the 
requirements of the NO<INF>X</INF> SIP Call, including those found in 
40 CFR part 51, Sec. 51.121 and Sec. 51.122 and 40 CFR part 96, as well 
as the general SIP submittal requirements of the Act, section 110, 42 
U.S.C. 7401 et seq. The most notable differences between the EPA's 
model rule and New York's control regulation are related to the 
applicability of Part 204 to Portland cement kilns and smaller 
electricity generating sources than the model rule, and the use of a 
different method for allocating NO<INF>X</INF> allowances. These 
differences are acceptable since Part 204 conforms with the timing 
requirements for submitting the allocations to EPA.
    While Part 204 contains provisions which differ slightly from the 
model rule, these deviations are limited to the acceptable deviations 
under Sec. 51.121(p)(2). Therefore New York's Part 204 is approvable as 
satisfying the same portion of New York's NO<INF>X</INF> emission 
reduction obligations as the State projects the regulation will 
satisfy. See 63 FR 57495-57496.
    EPA is proposing to approve New York's Part 204, and provides the 
following clarification with respect to exempted NO<INF>X</INF> Budget 
units. New York's Part 204-1.5 contains provisions dealing with the 
shutdown and/or change in physical characteristics of a NO<INF>X</INF> 
Budget unit and allows units which shutdown to re-enter the trading 
program as new sources or as opt-in sources if they change their 
physical characteristics such that they no longer are NO<INF>X</INF> 
Budget units. Therefore, New York should ensure that when the State 
computes future budget demonstrations, the emissions which account for 
shutdown and modified units are not combined with emissions from these 
new sources or with the emissions from uncontrolled source categories.
    For example, allowing shutdown units to re-enter the Program 
without reducing the budget will decrease the tons of emissions 
reductions. The units' emissions would still be included in the trading 
program budget and allocated to other NO<INF>X</INF> Budget units, 
thereby requiring fewer tons of reduction from all other NO<INF>X</INF> 
Budget units. Similarly, New York's Part 204-1.4(b) provides for units 
which emit less than 25 tons of NO<INF>X</INF> per ozone season to be 
exempted from the trading program. However, New York does not reduce 
the trading program budget by the NO<INF>X</INF> emission limitation 
which again creates the potential for misinterpreting its emissions 
during a future budget determination. In this case, the unit's 
emissions could be counted in both the trading program budget and the 
uncontrolled source categories. In its budget demonstration, New York 
is responsible for accounting for the emissions reductions which it 
would have obtained from any shutdown or modified units.
    Regarding New York's SIP narrative, EPA finds that the submittal 
contains the required elements, including: the baseline inventory of 
NO<INF>X</INF> mass emissions from EGUs, non-EGUs, area, highway and 
non-road mobile sources in the year 2007; the 2007 projected inventory 
(budget demonstration) reflecting NO<INF>X</INF> reductions achieved by 
the state control measures contained in the submittal; and the 
commitment to meet the annual, triennial and 2007 state reporting 
requirements. EPA further finds that New York's 2007 projected 
inventory, reflecting the control strategies, is approvable, reflecting 
the air quality objectives of the NO<INF>X</INF> SIP Call.
    For additional information regarding EPA's evaluation of New York's 
SIP Call submittal, the reader should refer to the document entitled, 
``Technical Support Document for New York's NO<INF>X</INF> SIP Call 
Submittal,'' dated October 3, 2000. Copies of the technical support 
document can be obtained at either of the addresses listed in the 
ADDRESSES section of this notice.

II. New York's NO<greek-KH> Budget Program

A. What Is New York's NO<INF>X</INF> Budget Demonstration?

    New York's April 18, 2000 SIP submittal, as supplemented on May 16, 
2000, includes New York's SIP narrative entitled, ``New York State 
Implementation Plan For Ozone; Meeting The Statewide Oxides of Nitrogen 
( NO<INF>X</INF>) Budget Requirements Contained In The NO<INF>X</INF> 
SIP Call (63 FR 57356, October 27, 1998),'' that contains a statewide 
NO<INF>X</INF> emissions budget for the 2007 ozone season. Combined 
with

[[Page 76200]]

New York's new regulation, Part 204, ``NO<INF>X</INF> Budget Trading 
Program,'' the narrative demonstrates that the statewide NO<INF>X</INF> 
budget will be met in 2007.
    The NO<INF>X</INF> SIP Call contained EPA calculations of baseline 
NO<INF>X</INF> emissions for the year 2007 for stationary point sources 
that are EGUs, stationary point sources that are non-EGUs, area 
sources, and mobile sources (both nonroad and highway). New York's SIP 
submittal incorporated EPA's 2007 baseline inventory.
    To achieve the statewide budget, New York is relying on the 
expected NO<INF>X</INF> reductions from Part 204. Part 204 applies to 
all EGUs with nameplate electricity generating capacities equal to or 
greater than 15 megawatts that sell any amount of electricity, non-EGU 
units that have a maximum design heat input capacity equal to or 
greater than 250 mmBtu per hour, as well as Portland cement kilns with 
maximum design heat inputs equal to or greater than 250 mmBtu per hour.
    Below is a table of the 2007 baseline, 2007 budget, and projected 
2007 emission levels that New York has submitted with its 
NO<INF>X</INF> SIP Call submittals. The 2007 baseline and budget 
emissions in the following table are identical to the emission levels 
published by EPA in the March 2000 technical amendment. EPA has 
reviewed and agrees with New York's procedures for determining the 2007 
projected emissions and reductions and therefore, EPA expects that New 
York's 2007 statewide budget will be achieved.

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                                                    EPA's 2007    EPA's 2007 NO<INF>X</INF>
                                                   baseline NO<INF>X</INF>       budget         NY's 2007       NY's 2007
                 Source category                  emissions  for  emissions  for     projected       projected
                                                    NY  (tons/      NY  (tons/       emissions      reductions
                                                      season)         season)      (tons/season)   (tons/season)
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EGUs............................................          39,199          31,036      \1\ 30,589           8,610
Non-EGU Point...................................          32,678          25,477      \2\ 25,185           7,493
Area Sources....................................          17,423          17,423          17,423               0
Non-Road Mobile.................................          42,091          42,091          42,091               0
Highway Mobile..................................         124,261         124,261         124,261               0
                                                 ---------------------------------------------------------------
      NY Total..................................         255,652         240,288         239,549         16,103
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\1\ 30,405 cap from trading program.
\2\ 10,945 cap from trading program.

B. What Is New York's NO<INF>X</INF> Budget Trading Program?

    In response to the NO<INF>X</INF> SIP Call, New York adopted Part 
204, ``NO<INF>X</INF> Budget Trading Program.'' With Part 204, New York 
established a NO<INF>X</INF> cap and allowance trading program for the 
ozone seasons of 2003 and beyond. New York developed the regulation in 
order to reduce NO<INF>X</INF> emissions and allow its sources to 
participate in the kind of interstate NO<INF>X</INF> allowance trading 
program described in Sec. 51.121(b)(2).
    Under Part 204, New York allocates NO<INF>X</INF> allowances to its 
EGUs and large industrial units, including Portland cement kilns. Each 
NO<INF>X</INF> allowance permits a source to emit one ton of 
NO<INF>X</INF> during the seasonal control period. NO<INF>X</INF> 
allowances may be bought or sold. Unused allowances may also be banked 
for future use, with certain limitations. For each ton of 
NO<INF>X</INF> emitted in a control period, EPA will remove one 
allowance from the source's NO<INF>X</INF> Allowance Tracking System 
(NATS) account. Once the allowance has been retired in this way, no one 
can ever use the allowance again.
    Source owners will monitor their NO<INF>X</INF> emissions by using 
systems that meet the requirements of 40 CFR part 75, subpart H, and 
report resulting data to EPA electronically. Each budgeted source 
complies with the program by demonstrating at the end of each control 
period that actual emissions do not exceed the amount of allowances 
held for that period. However, regardless of the number of allowances a 
source holds, it cannot emit at levels that would violate other Federal 
or state limits, for example, reasonably available control technology 
(RACT), new source performance standards, or Title IV (the Federal Acid 
Rain program).
    As described above, Part 204 differs from EPA's NO<INF>X</INF> 
model budget trading rule in two notable ways. Specifically, Part 204 
includes Portland cement kilns and smaller electricity generating 
sources than the model rule. Also, Part 204 uses a different method for 
allocating NO<INF>X</INF> allowances. Refer to section I.F. of this 
document for more details.

C. What Is the Compliance Supplement Pool?

    To provide additional flexibility for complying with emission 
control requirements associated with the NO<INF>X</INF> SIP Call, the 
final NO<INF>X</INF> SIP Call provided each affected state with a 
``compliance supplement pool.'' The compliance supplement pool is a 
quantity of NO<INF>X</INF> allowances that may be used to cover excess 
emissions from sources that are unable to meet control requirements 
during the 2003 and 2004 ozone season. Allowances from the compliance 
supplement pool will not be valid for compliance past the 2004 ozone 
season. The NO<INF>X</INF> SIP Call included these voluntary provisions 
in order to address commenters' concerns about the possible adverse 
effect that the control requirements might have on the reliability of 
the electricity supply, or on other industries required to install 
controls as the result of a state's response to the SIP Call.
    A state may issue some or all of the compliance supplement pool via 
two mechanisms. First, a state may issue some or all of the pool to 
sources with credits from implementing NO<INF>X</INF> reductions beyond 
all applicable requirements after September 30, 1999 but before May 1, 
2003 (i.e., early reductions). In this way, sources that cannot install 
controls prior to May 1, 2003, can purchase other sources' early 
reduction credits in order to comply. Second, a state may issue some or 
all of the pool to sources that demonstrate a need for an extension of 
the May 1, 2003 compliance deadline due to undue risk to the 
electricity supply or other industrial sectors, and where early 
reductions are not available. See 40 CFR 51.121(e)(3).
    Part 204 provides for the distribution of supplementary allowances 
by the early reduction credit methodology but not the direct 
distribution methodology. The distribution of early reduction credits 
are available to sources that implement NO<INF>X</INF> reductions 
beyond applicable requirements after September 30, 1999 but before May 
1, 2003. Under Part 204, New York will only provide early reduction 
credits to those sources holding banked allowances that were

[[Page 76201]]

allocated in 2000, 2001, and 2002, under New York's Ozone Transport 
Commission's (OTC's) Memorandum of Understanding (MOU). Subpart 227-3 
contains New York's SIP approved OTC's regional NO<INF>X</INF> cap and 
allowance trading program. See 65 FR 20905, April 19, 2000.
    Part 204 specifies New York's compliance supplement pool to be 
2,370 allowances whereas EPA's March 2000 technical amendment allows 
for 2,764 allowances. If New York wants to take advantage of this 
increased share of the pool, New York should amend Part 204 to 2,764 
tons and submit it as a SIP revision for EPA approval. Also, should EPA 
subsequently revise New York's compliance supplement pool amount 
through rulemaking, New York should amend Part 204 and submit it as a 
SIP revision for EPA approval.

D. How Does New York's Program Protect the Environment?

    New York's revised NO<INF>X</INF> SIP Call submittal is expected to 
result in about 6.3% reduction in NO<INF>X</INF> from New York's total 
2007 baseline ozone season inventory and about 22.4% reduction in 
NO<INF>X</INF> from the EGUs and non-EGUs affected by Part 204. After 
reviewing air quality modeling assessments performed for the 
NO<INF>X</INF> SIP Call, EPA has determined that the NO<INF>X</INF> 
reductions in New York and other states subject to the SIP Call will 
reduce the transport of ozone starting in 2003.
    Besides ozone air quality benefits, decreases of NO<INF>X</INF> 
emissions will also help improve the environment in several other 
important ways. Decreases in NO<INF>X</INF> emissions will decrease 
acid deposition, nitrates in drinking water, excessive nitrogen 
loadings to aquatic and terrestrial ecosystems, and ambient 
concentrations of nitrogen dioxide, particulate matter and toxics. On a 
global scale, decreases in NO<INF>X</INF> emissions reduce greenhouse 
gases and stratospheric ozone depletion.

E. How Will New York and EPA Enforce the Program?

    Once approved into New York's SIP, both New York and EPA will be 
able to enforce the requirements of the NO<INF>X</INF> budget and 
allowance trading program in Part 204. All of the sources subject to 
the NO<INF>X</INF> allowance trading program will have federally-
enforceable operating permits that contain source specific 
requirements, such as emission allowances, emissions monitoring or 
pollution control equipment requirements. New York and EPA will be able 
to enforce the source specific requirements of those permits.
    In order to determine compliance with the emission requirements of 
the program, at the end of each ozone season, New York and EPA will 
compare sources' allowance and actual emissions. The allowances are 
tracked using the NO<INF>X</INF> Allowance Tracking System (NATS). To 
be in compliance, sources must hold a number of available allowances 
that meets or exceeds the number of tons of NO<INF>X</INF> actually 
emitted by that source and recorded in the NO<INF>X</INF> Emissions 
Tracking System (NETS) for a particular ozone season. For sources with 
excess emissions, penalties include EPA deducting three times the 
unit's excess emissions from the unit's allocation for the next control 
period.

F. When Did New York Propose and Adopt the Program?

    New York published public notices on June 30, 1999 and February 16, 
2000 to announce the availability of the proposed Part 204 and the SIP 
narrative, that included the statewide 2007 NO<INF>X</INF> emission 
budget, respectively. The public notices opened 30-day public comment 
periods. New York held public hearings on the proposed regulation on 
August 2 and 3, 1999 and on the SIP narrative on March 20 and 21, 2000. 
After modifying the proposal in response to public comment, New York 
filed the final Part 204 on January 26, 2000 with the Department of 
State. The regulation became effective at the State level on February 
25, 2000.

G. When Did New York Submit the SIP Revision to EPA and What Did It 
Include?

    New York submitted Part 204 and the SIP narrative to EPA, on April 
3, 2000 and April 18, 2000 respectively, with a request to revise the 
New York SIP. On July 11, 2000, EPA sent a letter to New York finding 
the SIP submittals technically and administratively complete.
    New York's SIP submittals include the following:
    <bullet> Adopted control measures which require emission reductions 
beginning in 2003; Part 204, ``NO<INF>X</INF> Budget Trading Program'';
    <bullet> A baseline inventory of NO<INF>X</INF> mass emissions from 
EGUs, non-EGUs, area, highway and non-road mobile sources in the year 
2007, as part of New York's SIP narrative;
    <bullet> A 2007 projected inventory (budget demonstration) 
reflecting NO<INF>X</INF> reductions achieved by the state control 
measures contained in the submittal, as part of New York's SIP 
narrative;
    <bullet> A description of how the State intends to use the 
compliance supplement pool, as part of New York's SIP narrative and in 
Part 204;
    <bullet> A commitment to meet the annual, triennial, and 2007 
reporting requirements, as part of the SIP narrative.

H. What Other Significant Items Relate to New York's Program?

    In addition to submitting the April 2000 SIP package in order to 
fulfill its NO<INF>X</INF> SIP Call obligation, New York adopted Part 
204 as part of its one-hour ozone attainment plans for the ozone 
nonattainment areas of the State. The attainment plans rely on the 
NO<INF>X</INF> reductions associated with Part 204 in 2003 and beyond. 
EPA proposed approval of New York's attainment plans for ozone 
nonattainment areas on December 16, 1999. See 64 FR 70364. Approval and 
implementation of Part 204 is relied on in order for New York to attain 
the one-hour ozone standard.
    Part 204 is also related to the Ozone Transport Commission's 
(OTC's) ozone season NO<INF>X</INF> budget program. On September 27, 
1994, OTC adopted a Memorandum of Understanding (MOU) that committed 
the signatory states, including New York, to the development and 
proposal of a region-wide reduction in NO<INF>X</INF> emissions. The 
OTC agreement committed the states to one phase of reductions by 1999 
and another phase of reductions by 2003.
    As a signatory state of the MOU, New York adopted its 
NO<INF>X</INF> budget and allowance trading regulation, Subpart 227-3, 
on January 12, 1999. Subpart 227-3 contained a NO<INF>X</INF> emissions 
budget and allowance trading system for the ozone seasons of 1999 
through 2002, the period known as ``OTC Phase II.'' EPA approved New 
York's Phase II OTC NO<INF>X</INF> budget regulation on April 19, 2000. 
See 65 FR 20905. Although the OTC MOU obligations are not Federal 
requirements, Part 204 can be viewed as satisfying the ``OTC Phase 
III'' program requirements for the ozone seasons beginning in 2003 and 
beyond.

I. Impact of D.C. Circuit Court Remand on New York's NO<INF>X</INF> SIP 
Call Submittal

    On March 3, 2000, the D.C. Circuit ruled on Michigan v. EPA, 
affirming many aspects of the NO<INF>X</INF> SIP call and remanding 
certain other portions to the Agency (e.g., the definition of an EGU 
and the control assumptions for internal combustion engines). Because 
of the litigation, the States' deadline for submitting their SIP 
revisions was extended, and as a result, by order dated August 30, 
2000, the Court also extended the deadline for implementation of the 
required SIP revisions from May 1, 2003 to May 31,

[[Page 76202]]

2004. Due to the Court's remanding of the EGU definition and IC engine 
control assumptions, EPA must now recalculate the final 2007 baseline, 
2007 budget, and compliance supplement allocation for each state 
subject to the NO<INF>X</INF> SIP Call, including New York. The Agency 
expects to publish those recalculated budgets in the next few months. 
However, this means that although EPA is proposing to approve New 
York's SIP submittal as meeting the air quality objectives of the 
NO<INF>X</INF> SIP Call published to date, New York may be required to 
make minor adjustments to its NO<INF>X</INF> SIP Call program due to 
potential forthcoming changes to the NO<INF>X</INF> SIP Call 
requirements. At such time as EPA publishes new emission budget 
requirements, EPA will inform New York and other states subject to the 
NO<INF>X</INF> SIP Call as to what if any changes are needed.

J. What Is the Relationship of Today's Proposal to EPA's Findings Under 
the Section 126 Rule?

    In the January 18, 2000 section 126 rule (65 FR 2674), EPA granted, 
in part, petitions submitted by Connecticut, Massachusetts, New York, 
and Pennsylvania under the 1-hour ozone standard. The EPA made findings 
that large EGUs and large non-EGUs located in the District of Columbia 
and 12 states, including a portion of New York, are significantly 
contributing to nonattainment problems in one or more of the 
petitioning states. The January 18, 2000 rule established Federal 
emissions limits for the affected sources in the form of tradable 
NO<INF>X</INF> allowances and required these sources to reduce 
NO<INF>X</INF> emissions by May 1, 2003.
    The section 126 rule provides that if a state submits, and EPA 
fully approves, a SIP revision meeting the requirements of the 
NO<INF>X</INF> SIP call, the section 126 findings and associated 
control requirements would automatically be revoked for sources in that 
state. See 40 CFR 52.34(i). As discussed in the preamble to the section 
126 rule (65 FR 2682-2684), the premise for the automatic withdrawal 
provision was that once a SIP (or Federal Implementation Plan (FIP)) 
controls the full amount of significant contribution from a state, the 
section 126 sources in that state could no longer be significantly 
contributing to downwind nonattainment, and hence the basis for the 
section 126 findings would no longer be present. Moreover, the 
provision would ensure that the downwind states receive the emission 
reduction benefits they are entitled to under section 126 by May 1, 
2003, either under the section 126 rule or under a federally 
enforceable SIP or FIP. See 65 FR 2684. Thus, EPA's rationale for 
adopting the automatic withdrawal provision depended upon a May 1, 2003 
compliance date for sources under the SIP that would substitute for the 
control remedy under section 126. Accordingly, EPA interpreted section 
52.34(i) to apply only where EPA approves a SIP revision (or 
promulgates a FIP) meeting the full requirements of the NO<INF>X</INF> 
SIP call and including a May 1, 2003 compliance date for sources.\3\ 
See 65 FR 2683.
---------------------------------------------------------------------------

    \3\ On August 30, 2000, in response to a motion from industry, 
the Court extended the NO<INF>X</INF> SIP call compliance deadline 
for sources until May 31, 2004. The court's decision does not affect 
any state that chooses to submit a SIP revision which includes an 
earlier compliance deadline.
---------------------------------------------------------------------------

    As discussed in section II.I. of this proposal, the EPA is 
currently revising certain portions of the NO<INF>X</INF> SIP call in 
response to a March 3, 2000 decision by the U.S. Court of Appeals for 
the D.C. Circuit. See Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000). 
In this decision, the court upheld the NO<INF>X</INF> SIP call on all 
major issues, but remanded four narrow issues to EPA for further 
rulemaking. EPA expects to issue soon a proposal to address the 
remanded issues, which will slightly modify the NO<INF>X</INF> SIP 
budgets based on the court's decision. In light of the changes 
necessary to respond to the court decision, EPA anticipates that the 
final NO<INF>X</INF> SIP budgets would be no more stringent than the 
original SIP budgets as modified by the March 2, 2000 technical 
amendment which modified the NO<INF>X</INF> emission budgets for each 
affected state. See 65 FR 11222. Therefore, a SIP meeting the March 2, 
2000 budgets and providing for reductions by May 1, 2003, should fully 
address the significant NO<INF>X</INF> transport from that state, and 
therefore section 52.34(i) would apply to automatically withdraw the 
section 126 requirements for sources in that state.
    In today's action, EPA is proposing to approve the New York 
NO<INF>X</INF> SIP revision as meeting the full NO<INF>X</INF> SIP 
Call, and including a May 1, 2003 compliance date. Therefore, if the 
SIP revision is fully approved as proposed, the section 126 
requirements will automatically be withdrawn for sources in the State 
pursuant to 40 CFR 52.34(i).

III. Proposed Action

    EPA has reviewed New York's April 3, 2000 and April 18, 2000 SIP 
submittals, including New York's May 16, 2000 supplement, using the 
NO<INF>X</INF> SIP Call rulemaking notices and checklist. EPA has 
reviewed New York's control measures and projected reductions and finds 
them approvable. Therefore, EPA proposes approval of Part 204 and the 
SIP narrative into the New York SIP at this time.
    EPA is soliciting public comments on the issues discussed in this 
proposal or on other relevant matters. EPA will consider these comments 
before it takes final action. Interested parties may participate in the 
Federal rulemaking procedure by submitting written comments to the EPA 
Regional office listed in the ADDRESSES section of this action.

IV. Administrative Requirements

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
action is not a ``significant regulatory action'' and therefore is not 
subject to review by the Office of Management and Budget. This action 
merely approves state law as meeting Federal requirements and imposes 
no additional requirements beyond those imposed by state law. 
Accordingly, the Regional Administrator certifies that this rule will 
not have a significant economic impact on a substantial number of small 
entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
Because this rule approves pre-existing requirements under state law 
and does not impose any additional enforceable duty beyond that 
required by state law, it does not contain any unfunded mandate or 
significantly or uniquely affect small governments, as described in the 
Unfunded Mandates Reform Act of 1995 (Public Law 104-4). For the same 
reason, this rule also does not significantly or uniquely affect the 
communities of tribal governments, as specified by Executive Order 
13084 (63 FR 27655, May 10, 1998). This rule 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 
responsibilities among the various levels of government, as specified 
in Executive Order 13132 (64 FR 43255, August 10, 1999), because it 
merely approves a state rule implementing a Federal standard, and does 
not alter the relationship or the distribution of power and 
responsibilities established in the Clean Air Act. This rule also is 
not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), 
because it is not economically significant.
    In reviewing SIP submissions, EPA's role is to approve state 
choices, provided that they meet the criteria of the Clean Air Act. In 
this context, in the absence of a prior existing requirement for the 
State to use voluntary consensus standards (VCS), EPA has no authority 
to disapprove a SIP submission for

[[Page 76203]]

failure to use VCS. It would thus be inconsistent with applicable law 
for EPA, when it reviews a SIP submission, to use VCS in place of a SIP 
submission that otherwise satisfies the provisions of the Clean Air 
Act. Thus, the requirements of Sec. 12(d) of the National Technology 
Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. 
As required by Sec. 3 of Executive Order 12988 (61 FR 4729, February 7, 
1996), in issuing this rule, EPA has taken the necessary steps to 
eliminate drafting errors and ambiguity, minimize potential litigation, 
and provide a clear legal standard for affected conduct. EPA has 
complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by 
examining the takings implications of the rule in accordance with the 
``Attorney General's Supplemental Guidelines for the Evaluation of Risk 
and Avoidance of Unanticipated Takings'' issued under the executive 
order. This rule does not impose an information collection burden under 
the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
et seq.).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Intergovernmental 
relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping 
requirements.

    Authority:  42 U.S.C. 7401 et seq.

    Dated: November 27, 2000.
William J. Muszynski,
Acting Regional Administrator, Region 2.
[FR Doc. 00-30912 Filed 12-5-00; 8:45 am]
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