BEFORE THE ADMINISTRATOR

UNITED STATES ENVIRONMEN TAL PROTECTION AGENCY

In the Matter of:

Implementation of the 2008 National Ambient Air Quality Standards for Ozone: State Implementation Plan Requirements – Final Rule, 80 Fed. Reg. 12,264 (Mar. 6, 2015) ) ) ) ) ) ) ) ) RIN 2060-AR34

EPA-HQ-OAR-2010-0885

PETITION FOR RECONSIDERATION

Pursuant to Section 307(d)(7)(B) of the Clean Air Act (“CAA” or “the Act”), 42 U.S.C. § 7607(d)(7)(B), Sierra Club, Conservation Law Foundation, Do wnwinders at Risk, and Physicians for Social Responsibility-Los Angele s (“petitioners”) petiti on the Administrator of the Environmental Protection Agency (“the Administra tor” or “EPA”) to reconsider the final rule captioned above and published at 80 Fed. Reg. 12,264 (M ar. 6, 2015) (“NFRM” or “final rule”). The grounds for the objections raised in this pe tition arose after the pe riod for public comment

and are of central relevance to the outcome of the rule. Th e Administrator must therefore “convene a proceeding for reconsideration of the ru le and provide the same procedural rights as

would have been afforded had the information been available at the time the rule was proposed.” 42 U.S.C. § 7607(d)(7)(B).

INTRODUCTION

This petition raises objections to the final rule captioned above. Each objection is “of central relevance to the outcome of the rule,” 42 U.S.C. § 7607(d)(7)(B), in that it demonstrates that the rule is “arbitrary, capri cious, an abuse of discretion, or ot herwise not in accordance with

law.” Id. § 7607(d)(9)(A). With resp ect to each objection, moreove r, the regulatory language and EPA interpretations that render the rule ar bitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law appeared for the first time in the NFRM published on March 6, 2015. 80 Fed. Reg. at 12,288-89, 12,317-18. The Federal Register notice soliciting comment on the rule was published on June 6, 2013, 78 Fed. Reg. 34,178, and the public comment period thereon cl osed September 4, 2013. Id. at 34,178/1. The grounds for the objections raised in this petition thus “arose after the period for public comment.” 42 U.S.C. § 7607(d)(7)(B). Because judicial review of the rule is available by the filing of a petition for review within sixty days of the rule’s March 6, 2015 publicati on date – that is, by May 5, 2015 – the grounds for the objections arose “within th e time specified for judicial review.” Id.2 OBJECTIONS

I. Interprecursor Offset Substitution

The final rule unlawfully and arbitrarily authorizes interprecursor offsetting 1 ( i.e.

, offsetting of VOC emissions increases by NOx em ission decreases, and vice versa) for purposes of meeting the Act’s offset requirements fo r new and modified major sources in ozone nonattainment areas. Provisions authorizing such interprecursor offsetting, and justifications therefor, were added to the rule after the close of the public comment period. Thus, the grounds for our objections arose after th e period for public comment, and the raising of those objections during the public comment period was impracticable. See 42 U.S.C. § 7607(d)(7)(B). Those objections are of central relevance to the rule, see id. , because they go to the core procedural and substantive validity of the interprecursor offsetti ng provisions of the rule – including the public’s opportunity to comment on those provisions, and the consistency of thos e provisions with the

Act and with fundamental standards of reasoned agency decision-making.

A. EPA Unlawfully and Arbitrarily Failed to Seek Public Comment on the Final Rule's Authorization of Interprecursor Offsetting

Under § 307(d) (which EPA has found applicab le to this proceeding), EPA must present for public comment “the major legal interpreta tions and policy considerations underlying the proposed rule.” 42 U.S.C. § 7607(d)(3)(C). The same requirement would apply under the Administrative Procedure Act. 5 U.S.C. § 553. Here, EPA unlawfully failed to present the rule authorizing interprecursor offsetting and accomp anying rationales to the public for comment.

Neither the rule nor the rationa le therefor appeared in the rulemaking proposal, nor did EPA otherwise present them to the public for comm ent. Although the propos al notice contained a very brief reference to the practice of interpollu tant offset substitution and the flexibility it can provide, 78 Fed. Reg. at 34,201/2, it did not propose to authorize such substitution or propose any regulatory language on the matter. At the time of the proposal, EPA’s rules prohibited interprecursor offsetting except for PM 2.5 , and EPA did not propose any amendment to those prohibitions. 40 C.F.R. § 51.165(a)(11) (2013) ; 40 C.F.R. Pt. 51, App. S § IV.G.5 (2013).

In the notice of final rulemaking, EPA a sserted that the fina l rule authorizing interprecursor offsetting was a logical outgrowth of the proposal because EPA had issued previous Economic Incentive Program guidance (“EIP Guidance”) 2 purportedly allowing for such interprecursor trading, and the proposal purportedly indicated EPA’s intent to continue to allow such trading. 80 Fed. Reg. at 12289/1. Bu t the proposal did not cite the referenced guidance as a basis for authorizi ng such trading, much less assert that EPA intended to codify or follow it. These citations and rationales were presented for the first time in the final rule. 3

1 Throughout this petition, the phrases “interprecursor offsetting,” “interprecursor trading,” “interpollutant offsetting,” “interpollutant offset,” and “interpolluta nt offset substitution” are used interchangeably.

2 EPA, Improving Air Quality with Economic Incentive Programs (Jan. 2001), available at
http://www.epa.gov/airquality/advance/pdfs/eipfin.pdf

. 3 A footnote to the notice of final rulemaking also referred the reader to a web link, www.epa.gov/region7/air/nsr/nsrindex.htm , “for additional memoranda and guidance documents.” 80 Fed. Reg. at 12,289/1 n.59. Again, the proposal notice did not include this citation as supporting interpollutant offsetting in the3 Moreover, contrary to EPA’s suggestion, th e EIP Guidance did not override the bar on interprecursor trading in EPA’s rules. To the contrary, the EIP Guidance made clear that it is “non-binding policy,” non-final ac tion and does not supersede the st atute or EPA’s NSR rules. EIP Guidance at 5, 10, 12. Among other things, the EIP Guidance specifically stated as follows:

[T]his EIP guidance does not supersede the established requirements of

the new source Review (NSR) program . The CAA and the EPA’s rules and guidance describe the kinds of emissi ons reductions that may be used for NSR offsets and NSR netting in a number of ways that are different from the requirements for generating and using EIP emissions reductions that are set forth in this guidance. The NSR requirements continue, and they may not be lifted by the State’s adoption of an EIP or by the approval of that EIP into a SIP.

Id. at 10 (emphasis added). The EIP Guidance reiterated the above poi nt at page 254.

Nor did EPA’s proposal otherwise state an intent to adopt a rule authorizing interprecursor offsetting. The proposal stated only the following:

b. Interpollutant Offset Substitution – States can make it easier for new or modified major sources to satisfy the offset requirements in an area by establishing interpollutant offset subst itution provisions. Su ch provisions create additional flexibility in meeting offset requirements by allowing NOx emissions reductions to satisfy VOC offset requirem ents and vice versa. The appropriate exchange rate for substitution is determined by the state for each area consistent

with the attainment needs of the ar ea and must be approved by the EPA.

78 Fed. Reg. at 34,201/2. At most, the above text merely describe s the flexibility that can be provided by interpollutant offset substitution provisions, and existing practices regarding determination of the exchange rate. Nowhere doe s the text state that EP A is actually proposing

to amend its rules so as to authorize such offset substitutions.

Nor did the proposal contain any of the actual rule amen dment language included in the

final rule. The final rule amended 40 C. F.R. §51.165(a)(11) to read as follows:

(11) The plan shall requir e that in meeting the emissi ons offset requirements of paragraph (a)(3) of this section, the emi ssions offsets obtained shall be for the same regulated NSR pollutant unless interprecursor offsetting is permitted for a particular pollutant as speci fied in this paragraph.

proposal, much less propose to codify the memoranda and guidance documents listed on the referenced web page. Moreover, the cited web page is a listing of more than 67 0 documents on a wide variety of issues relating to the NSR program. EPA did not identify which, if any, of these hundreds of documents purportedly supported its action. Thus, it is absurd for EPA to imply that this web page somehow put the public on notice that EPA intended to codify any particular rule, memoranda or guidance at all, much le ss a rule authorizing interpollutant offsetting for ozone

precursors.4 (i) The plan may allow the offset re quirement in paragraph (a)(3) of this

section for emissions of the ozone precursors NOX and VOC to be satisfied by offsetting reductions in emissions of either of those precursors, if all other requirements for such offsets are also satisfied.

(ii) The plan may allow the offset re quirements in paragr aph (a)(3) of this

section for direct PM2.5 emissions or emissions of precursors of PM2.5 to be satisfied by offsetting reductions in direct PM2.5 emissions or emissions of any PM2.5 precursor identified under paragraph (a)(1)(xxxvii)(C) of this section if such offsets comply with the interprecursor trading hi erarchy and ratio establis hed in the approved plan for a particular nonattainment area.

80 Fed. Reg. at 12,318/1-2 (new language underlined).

An amendment identical in s ubstance was adopted to rule language in 40 C.F.R. Part 51 Appendix S §IV.G.5. Id. at 12,317/3 Not only was the new regulatory language completely absent from the proposal, but also the propos al nowhere hinted at vagueness and potential breadth of the language ultimately adopted. As phrased, the new language places no explicit restrictions on interprecursor offs etting other than to require that “all other requirements for such

offsets are also satisfied.” Id. at 12,317/3, 13,318/1. The rule language does not explain what “other requirements” are being referred to: Are they requirements for offsets generally – whether interprecursor or not; provisions in EPA’s EIP Guidance doc ument; requirements in other guidance documents or memoranda; or some other requirements? The rule language does not answer these questions. To the extent EPA intends to limit interprecursor offsetting to

situations where the ratios of VOC to NOx reducti ons (or vice versa) assure equivalent or greater ozone reduction benefits, the rule text nowhere so states. To the extent EPA intended to incorporate its EIP Guidance on such offsetting, th e rule text itself al so does not so state. 4

Had EPA proposed the above rule language, pe titioners and others would have had the opportunity to raise these and other concerns with the language. They would also have had the opportunity to argue (as petitioners do below), that the trading as authorized by the rule language is unlawful and arbitrary. As things stand now , however, the specific rule language that EPA ultimately adopted and the agency’s stated rationale therefor has never been subjected to public notice and comment as required by the Act.

For all the foregoing reasons, EPA committed a procedural violation ( see 42 U.S.C. § 7607(d)(9)(D)) by failing to so licit public comment on its aut horization of interprecursor offsetting and on specific rule amendment language to facilitate such offse tting. That procedural

4 The preamble to the final rule asserts that the change s in the regulatory text “are intended to clarify that interprecursor trading continues to be an option for the ozone precursors VOC and NOx as long as such trades are consistent with existing policy and legal requirements.” 80 Fed. Reg. at 12,289/1. But the rule text contains no reference to requiring consistency with “existing policy and legal requirements” – it refers only to “all other requirements” – and, in any event, EPA does not explain what it views the applicable “policy requirements” to be. To the extent EPA means to refer to the EIP Guidance, the rule does not so state, and in any case that document by its terms does not set out “requirements” because it is a non-final, non-binding document. To the extent EPA is referring to other policy statements it may have made on interprecursor trading, the rule does not identify them.5 violation meets the criteria se t forth in § 307(d)(9)(D) for re versal based on procedural violations. First, EPA’s procedural dereliction is arbitrary and capricious. See id. § 7607(d)(9)(D)(i). The agency ha s adopted a final rule authorizi ng interprecursor offsetting that was not proposed at the time of public notice and comment. EPA has further adopted final regulatory language that was ne ver subjected to pub lic notice and comment, and that differs materially from the pre-exis ting regulatory language.

Second, via the present petiti on, petitioners have satisfied the requirements of § 307(d).

See id. § 7607(d)(9)(D)(ii).

Third, the challenged errors “were so seri ous and related to matte rs of such central

relevance to the rule that th ere is a substantial likelihood that the rule would have been significantly changed if such e rrors had not been made.” See id. § 7607(d)(8), cited in id. § 7607(d)(9)(D)(iii). Had EPA obeyed the law by soliciting public comment, it would have

learned of the serious substantiv e objections detailed below – object ions that address the lack of statutory basis for the challenged provisions , and those provisions ’ inconsistency with fundamental principles of reasoned agency decision-making.

B. EPA’s Authorization of Interpollutant Offsetting is Unlawful and Arbitrary

The Act unambiguously bars the interprecursor offset trading authorized by EPA’s rule. Section 173(c) of the Act provides as follows:

(c) Offsets. – (1) The owner or operator of a new or modified major stationary source may comply with any offset requirement in effect under this part for increased emissions of any air polluta nt only by obtaining emission reductions of such air pollutant from the same source or other sources in the same nonattainment area, except that the Stat e may allow the owne r or operator of a

source to obtain such emi ssion reductions in another nona ttainment area if (A) the other area has an equal or higher nonattain ment classification than the area in which the source is located and (B) emissions from such other area contribute to a

violation of the national ambi ent air quality standard in the nonattainment area in

which the source is located. Such emi ssion reductions shall be, by the time a new or modified source commences operation, in effect and enforceable and shall assure that the total tonnage of increased emissions of the air pollutant from the new or modified source shall be offset by an equal or greater reduction, as applicable, in the actual em issions of such air pollutant from the same or other

sources in the area.

42 U.S.C. § 7503(c) (emphasis added). The stat utory language could not be clearer that the offset requirement can only be satisfied by securing reductions in the same po llutant that will be emitted by the new or modified source. Congr ess was emphatic on this point: a source can comply with the offset requirement “for increased emissions of any air pollutant only by obtaining emission reductions of such air pollutant

. ” Id. (emphasis added). And there must be

assurance that “increased emissions of the air pollutant

... shall be offset by an equal or greater

reduction... in the actual emissions of such air pollutant ....” Id. (emphasis added). There is6 simply no way that this language can be read as allowing the offset requirement for an air pollutant to be satisfied by anyt hing other than reductions in actu al emissions of that same air pollutant.

The Act’s ozone-specific provisions likew ise make clear that offsetting emission reductions must be of the same pollutant whose em issions are being offset. For example, section 182(a)(4), governing SIP requirements for margin al ozone nonattainment areas, states:

(4) General offset requirement. – For pur poses of satisfying the emission offset requirements of this part, the ratio of total emission reductions of volatile organic compounds to total increased emissions of such air pollutant shall be

at least 1.1 to 1.

42 U.S.C. § 7511a(a)(4) (emphasis added). Per tinent language governing offset requirements for moderate, serious, severe, and extreme areas is substantivel y identical to the above. Id. §§ 7511a(b)(5), 7511a(c)(10), 7511a(d)(2), 7511a(e)(1). In each case, the statute sp ecifies that

the offsets to be obtained for increased emissions of an air pollutant must consist of emission reductions “of such air pollutant.” Other provis ions of the Act relating to NSR offsets likewise require that emissions increases subject to the offset requirement must be offset by emission reductions for the same pollutant. E.g.

, id. §§ 7511a(c)(7), 7511a(c )(8), 7511a(e)(2).

Where Congress has intended to allow substitution of NOx reductions for VOC reductions, it has expressly said so. For 3% a nnual reasonable further pr ogress plans in serious and above ozone nonattainment areas, section 182(c )(2)(C) of the Act expr essly authorizes EPA to provide for such substitution under limited circumstances. Id. § 7511a(c)(2)(C). It is therefore particularly telling that Congress provided no such substitution authority for the purpose of satisfying the Act’s nonattainment NSR offset requirement. Indeed, EPA itself has cited the substitution authority in § 182(c)(2)(C ) as grounds for concluding that EPA does not

have discretion to authorize s ubstitution in other circumstance s. EPA, Response to Comments on Implementation of the 2008 National Ambient Air Quality Standards for Ozone: State Implementation Plan Requirements at 188, Feb. 13, 2015, EPA-HQ-OAR-2010-0885-0191 (“RTC”).

EPA’s final action authorizing interprecu rsor offsetting also violates the Act’s antibacksliding requirements. The rule allo ws construction of major new sources and

modifications under circumstances that were no t previously allowed under EPA’s rules, and allows increased emissions of a given ozone precur sor that are not offset by greater reductions in emissions of that pollutant as required by the Ac t. The result is to unlawfully and arbitrarily authorize controls for that pollutant that are le ss stringent than require d under the pre-existing NAAQS.

Even if they were not otherwise flatly barred by the Act, EPA’s authorization of interprecursor offsetting in the final rule is unlawfully and arbitrarily vague and overbroad. Under the final rule, a SIP “may allow the o ffset requirement...for emissions of the ozone precursors NOx and VOC to be satisfied by offsetti ng reductions in emissions of either of those precursors, if all other requirements for such o ffsets are also satisfied.” 80 Fed. Reg. at 12,317/3,7 12,318/1. The rule text itself fails to identify any specific requirem ents for or limitations on such offsetting. For example, the rule text does not specify limitations on setting the ratio of NOx to VOC reductions for such offsetting, and indeed EPA expressly refused to state any such limitations in responding to comments. Thus, stat es and sources may argue that the rule allows states discretion to set whatever ratios they deem reasonable, even if they result in higher ozone

levels than would have been allowed in the ab sence of such substitution. Such an outcome would arbitrarily flout the purposes of nonattainment NSR. The preamble to the final rule cites the EIP Guidance, but as noted above, that Gu idance is by its terms nonbinding and is not cited in the rule text. Moreover, th e EIP Guidance is unlawful and ar bitrary for reasons including, but not limited to the following:

 The EIP Guidance purports to allow inter-pr ecursor trading if the state shows “that anticipated trades will either reduce emissi ons, or not increase emissions.” EIP Guidance

at 243. That authorization c onflicts with the Act’s offset requirements for ozone nonattainment areas, which expressly require that emissions increases be offset by

greater reductions in emissions: It is not enough to merely avoid a net increase in emissions. 42 U.S.C. §§ 7511a(b)(5), 7511a(c )(10), 7511a(d)(2), 7511a(e)(1). Further, the above-quoted language from the Guid ance fails to comport with the Act’s requirement that offsets assure that – by the time the new source is to commence operation – total emissions are sufficiently less than emissions prior to the application for the NSR permit so as to represen t reasonable further progress. Id. §7503(a)(1)(A). Again, it is not enough to merely require a show ing that emissions will not increase.

 The EIP Guidance further states that the “bes t way” to determine if a plan will reduce emissions or not increase emissions is by us ing air quality modeling. EIP Guidance 243. The Guidance goes on to say, however, that air quality modeling for individual ozone interprecursor trades is not required if the st ate includes provisions in its plan that apply to all ozone interp recursor trades. Id. These provisions of the Guidance are not rationally explained or supported. Although mo deling is almost certa inly essential to

determine the relative ozone reduction benefits of VOC versus NOx reductions, it does

not demonstrate whether emissions will be reduced or stay the same. The latter requires a separate comparison of pre-ap plication emissions with emissions at the time the source will commence operation. Moreover, EPA fails to offer any explanation as to why inclusion of provisions in the state’s plan applicable to a ll ozone interprecursor trades justifies foregoing modeling for individual trad es. The Guidance fails to specify what sort of provisions in the stat e’s plan would suffice for this purpose, much less explain how such provisions would be sufficient to en sure that each and every trade will reduce emissions as the Act requires.

 The EIP Guidance says that the state needs to perform modeling to determine whether VOC or NOx reductions are most effective and the correct ratio for inter-precursor trades

if the state determines that a trade of one ton of VOC (or NOx) for one ton of NOx (or VOC) does not reduce or maintain ozone levels. Id. This statement is facially irrational. EPA does not explain how the state can rati onally determine – without doing modeling – that a one for one trading ratio will not reduce or maintain ozone levels. As EPA itself acknowledges, the relationship between these pollutants and ozone formation is complex8 such that modeling is essential to determin ing the impacts of reductions of VOCs versus NOx. Moreover, as noted above, to comply with the Act’s offset requirements for ozone precursors, it is plainly not sufficient for a trade to merely maintain ozone levels.

 The EIP Guidance asserts that for certain trades in certain areas, the state may assume a reduction or no change in ozone levels by doing minimal or no additional modeling. The guidance says that additional modeling may not be required for: i) sources using VOC reductions to satisfy NOx emission reduction ob ligations when the user and generator are

both located in the same urbanized area if th e state shows the area is VOC limited; and ii) sources using NOx emission reductions to satisfy VOC emission reduction obligations when the user and generator are both located in the same rural area if the state shows that

the area is NOx limited. Id. at 243-44. EPA fails to provi de a reasoned justification for these exceptions. First, EPA fails to explai n how a state can show without modeling that

an area is VOC limited or NOx limited. Second , EPA fails to explain how the state is to determine without modeling the correct trading ratio in areas that meet the criteria for these exceptions. Nor does EPA explain why the exceptions are justified under the

conditions stated.

EPA also fails to rationally explain or justif y the process for approvi ng trading ratios. In the proposal notice, EPA asserted: “The appropria te exchange rate for substitution is determined by the state for each area consistent with the a ttainment needs of the area and must be approved by the EPA.” 78 Fed. Reg. at 34,201/2. The final rule contains no such language, and EPA fails to state whether formal EPA approval of exchange rates will or will not be required under the final rule, and if so at what stage of the process.

Finally, as noted in Part I.A. above, the final rule is arbitrar ily vague as to what specific requirements apply to interpollutant offsetti ng. The final rule langua ge authorizes such offsetting “if all other requirements for such offs ets are also satisfied,” without specifying what those “other requirements” are. The failure to specify the “other requirements” not only renders the rule language itself arbitrar ily vague, but also leaves the rule without a rational basis. There is no way to determine, and EPA fails to explain, how the “other requirements” EPA refers to are rationally related to ensuring co mpliance with the Act and consistency with its purposes.

II. Conclusion

For all the foregoing reasons, EPA must rec onsider and withdraw the portions of the final rule authorizing in terprecursor offsetting.

DATED: May 5, 2015 /s/ David S. Baron

___________ David S. Baron

Seth L. Johnson Earthjustice 1625 Massachusetts Avenue, N.W.

Suite 702 Washington, D.C. 20036-2212 (202) 667-45009 dbaron@earthjustice.org sjohnson@earthjustice.org

Counsel for Petitioners