[Federal Register Volume 65, Number 231 (Thursday, November 30, 2000)]
[Proposed Rules]
[Pages 71278-71284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30543]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[Region II Docket No. NJ42-1-214, FRL-6910-1]


Approval and Promulgation of Implementation Plans; New Jersey; 
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 Jersey. 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 2, 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 Jersey Department of Environmental Protection, Office of Air 
Quality Management, Bureau of Air Pollution Control, 401 East State 
Street, CN027, Trenton, New Jersey 08625.

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 Demian Ellis at (212) 637-3713 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 Jersey State Department of Environmental Protection's (New 
Jersey'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 Jersey's program?
    F. What is the result of EPA's evaluation of New Jersey's 
program?
II. New Jersey's NO<INF>X</INF> Budget Program
    A. What is New Jersey's NO<INF>X</INF> Budget Demonstration?
    B. What is New Jersey's NO<INF>X</INF> Budget Trading Program?
    C. What is the Compliance Supplement Pool?
    D. How does New Jersey's program protect the environment?
    E. How will New Jersey and EPA enforce the program?
    F. When did New Jersey propose and adopt the program?
    G. When did New Jersey submit the SIP revision to EPA and what 
did it include?
    H. What other significant items relate to New Jersey's program?
    I. Impact of D.C. Circuit Court remand on New Jersey'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?

    EPA proposes approval of revisions to New Jersey's ground level 
ozone SIP which New Jersey submitted on December 10, 1999 and July 31, 
2000. These SIP revisions include an amended regulation, N.J.A.C. 7:27-
31 (subchapter 31), ``NO<INF>X</INF> Budget Program,'' dated July 31, 
2000, and a narrative entitled, ``State Implementation Plan (SIP) 
Revision for the Attainment and Maintenance of the Ozone and Carbon 
Monoxide National Ambient Air Quality Standards-Meeting the 
Requirements of the Regional NO<INF>X</INF> Cap Program and 
Transportation Conformity Budgets Related to the Attainment of the 
Ozone and Carbon

[[Page 71279]]

Monoxide National Ambient Air Quality Standards,'' dated December 10, 
1999 and supplemented on July 31, 2000. New Jersey 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 Jersey's 
submittal is fully approvable as a SIP strengthening measure for New 
Jersey'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. On May 31, 2000, EPA found the mobile source emissions 
budgets to be adequate for transportation conformity purposes. (See 65 
FR 36689, June 9, 2000).

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 Jersey's and EPA's requirements under the 
Clean Air Act (the Act),
    <bullet> Make New Jersey's NO<INF>X</INF> allowance trading 
regulation federally enforceable and available for credit in the SIP,
    sbull Make New Jersey's SIP narrative, including the ozone season 
NO<INF>X</INF> budget, federally enforceable as part of the New Jersey 
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.'' (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 December 10, 1999 and July 31, 2000, New Jersey 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 rule don Michigan v. EPA, affirming many aspects of the 
SIP Call and remanding certain other portions to the Agency. On June 
22, 2000, the D.C. 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 pound 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. (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 notice 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 notice 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. (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 
document contains a full description of the EPA's model NO<INF>X</INF> 
budget trading program. (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 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.

[[Page 71280]]

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

    EPA evaluated New Jersey'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 FR 57356), outlines the criteria that the 
EPA Regional Office used to determine the completeness and 
approvability of New Jersey's submittal.
    As noted in the checklist, the key elements of an approvable 
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, recordkeeping, 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 website 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 Jersey's Subchapter 31. 
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 Jersey's 
submittal. EPA also used section 110 of the Act, ``Implementation 
Plans,'' to evaluate the approvability of New Jersey's submittal as a 
revision to the SIP.

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

    EPA has evaluated New Jersey's NO<INF>X</INF> SIP Call submittal 
and proposes to find it approvable. The December 10, 1999 and July 31, 
2000 submittals will strengthen New Jersey'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, 
Subchapter 31, as well as the SIP narrative that includes New Jersey's 
2007 NO<INF>X</INF> baseline and controlled budgets approvable. EPA 
finds that the submittal contained the information necessary to 
demonstrate that New Jersey 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, recordkeeping and emission 
reporting requirements will be met.
    Although provisions in New Jersey's control regulation, Subchapter 
31, differ slightly from EPA's NO<INF>X</INF> Budget Trading Model 
Rule, EPA finds that subchapter 31 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, Secs. 51.121 and 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 significant differences 
between the EPA's model rule and New Jersey's control regulation are 
related to the applicability of subchapter 31 to smaller electricity 
generating sources than the model rule, and the use of a different 
method for allocating NO<INF>X</INF> allowances. However, subchapter 31 
conforms with the timing requirements for submitting the allocations to 
EPA.
    While subchapter 31 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 Jersey's subchapter 
31 is automatically approvable as satisfying the same portion of New 
Jersey's NO<INF>X</INF> emission reduction obligations as the State 
projects the regulation will satisfy. (63 FR 57495-57496)
    Regarding New Jersey'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 Jersey'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 
Jersey's SIP Call submittal, the reader should refer to the document 
entitled, ``Technical Support Document for New Jersey's NO<INF>X</INF> 
SIP Call Submittal'' dated August 17, 2000. Copies of the technical 
support document can be obtained at either of the addresses listed in 
the ADDRESSES section of this document.

II. New Jersey's NO<INF>X</INF> Budget Program

A. What is New Jersey's NO<INF>X</INF> Budget Demonstration?

    New Jersey's December 10, 1999 SIP submittal, as supplemented on 
July 31, 2000, includes New Jersey's SIP narrative entitled, ``State 
Implementation Plan (SIP) Revision for the Attainment and Maintenance 
of the Ozone and Carbon Monoxide National Ambient Air Quality 
Standards-Meeting the Requirements of the Regional NO<INF>X</INF> Cap 
Program and Transportation Conformity Budgets Related to the Attainment 
of the Ozone and Carbon Monoxide National Ambient Air Quality 
Standards,'' that contains a statewide NO<INF>X</INF> emissions budget 
for the 2007 ozone season. Combined with New Jersey's amended 
regulation, subchapter 31, ``NO<INF>X</INF> Budget 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 Jersey's 
SIP submittal incorporated EPA's 2007 baseline inventory.
    To achieve the statewide budget, New Jersey is relying on the 
expected NO<INF>X</INF> reductions from subchapter 31. Subchapter 31 
applies to all EGUs with nameplate electricity generating capacities 
greater than 15 megaWatts that sell any amount of electricity as well 
as any non-EGU units that have a heat input capacity greater than 250 
mmBtu per hour.
    Regarding other non-EGUs, New Jersey has no cement kilns or 
internal combustion engines with emissions large enough to exceed the 
applicability threshold for assumed control requirements. Therefore, 
the SIP submittal does not include any reductions from those source 
categories.
    Below is a table of the 2007 baseline, 2007 budget, and projected 
2007 emission levels that New Jersey 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 Jersey's procedures for determining the 
2007 projected emissions and reductions and therefore EPA expects that 
New Jersey's 2007 statewide budget will be achieved.

[[Page 71281]]



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                                                    EPA's 2007      EPA's 2007
                                                     baseline       NO<INF>X</INF> budget       NJ's 2007       NJ's 2007
                 Source category                  emissions  for  emissions  for     projected       projected
                                                    NJ  (tons/      NJ  (tons/       emissions      reductions
                                                      season)         season)      (tons/season)   (tons/season)
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EGUs............................................          18,352          10,250          25,113           9,214
Non-EGU Point...................................          15,975          15,464  ..............  ..............
                                                 ---------------------------------------------------------------
      Total.....................................          34,327          25,714  ..............  ..............
Area sources....................................          12,431          12,431          12,431               0
Non-road mobile.................................          23,565          23,565          23,565               0
Highway mobile..................................          35,166          35,166          36,166               0
                                                 ---------------------------------------------------------------
      NJ Total..................................         105,489          96,876          96,275          9,214
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*8,200 cap from trading.

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

    In response to the NO<INF>X</INF> SIP Call, New Jersey amended 
subchapter 31, ``NO<INF>X</INF> Budget Program.'' With subchapter 31, 
New Jersey established a NO<INF>X</INF> cap and allowance trading 
program for the ozone seasons of 2003 and beyond. New Jersey 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 subchapter 31, New Jersey allocates NO<INF>X</INF> allowances 
to its EGUs and large industrial units. 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, Subchapter 31 differs from EPA's NO<INF>X</INF> 
model budget trading rule in two significant ways. Specifically, 
subchapter 31 includes smaller electricity generating sources than the 
model rule. Also, subchapter 31 uses a different method for allocating 
NO<INF>X</INF> allowances. However, subchapter 31 results in fewer tons 
being allocated to sources than would be allowed by the model rule. 
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).
    Subchapter 31 provides for the distribution of supplementary 
allowances by the early reduction credit and direct distribution 
methodologies. 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 subchapter 31, New Jersey will only provide early reduction 
credits to those sources holding banked allowances that were allocated 
in 2000, 2001, and 2002, under New Jersey's Ozone Transport 
Commission's (OTC's) Memorandum of Understanding (MOU). Subchapter 31 
also contains New Jersey's SIP approved OTC's regional NO<INF>X</INF> 
cap and allowance trading program. (65 FR 53599, September 5, 2000).
    If any NO<INF>X</INF> allowances remain after the early reduction 
allowances are allocated, subchapter 31 allows for direct distribution 
of NO<INF>X</INF> allowances to sources that demonstrate a need for the 
compliance supplement, provided the sources demonstrate to New Jersey 
and the public that achieving compliance by May 1, 2003 would create 
undue risk either to its own operation or its associated industry. 
Subchapter 31 specifies New Jersey's compliance supplement pool is 
1,550 allowances pursuant to EPA's March 2000 technical amendment. 
Should EPA subsequently revise New Jersey's compliance supplement pool 
amount through rulemaking, New Jersey's compliance supplement pool 
amount will be the revised amount published by EPA.

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

    New Jersey's revised NO<INF>X</INF> SIP Call submittal is expected 
to result in about 8.7% reduction in NO<INF>X</INF> from New Jersey's 
total 2007 baseline ozone season inventory and about 27% reduction in 
NO<INF>X</INF> from the EGUs and non-EGUs affected by subchapter 31. 
After reviewing air quality modeling assessments performed for the 
NO<INF>X</INF> SIP

[[Page 71282]]

Call, EPA has determined that the NO<INF>X</INF> reductions in New 
Jersey 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 Jersey and EPA Enforce the Program?

    Once approved into New Jersey's SIP, both New Jersey and EPA will 
be able to enforce the requirements of the NO<INF>X</INF> budget and 
allowance trading program in subchapter 31. 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 Jersey 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 Jersey 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 Jersey Propose and Adopt the Program?

    New Jersey published a public notice on August 2, 1999 and August 
28, 1999 to announce the availability of the proposed subchapter 31 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 Jersey held public hearings on the proposed 
regulation on September 1, 1999 and on the SIP narrative on September 
28, 1999. After modifying the proposal in response to public comment, 
on July 31, 2000, New Jersey adopted the final subchapter 31. The 
regulation becomes operative on September 29, 2000.

G. When Did New Jersey Submit the SIP Revision to EPA and What Did it 
Include?

    New Jersey submitted the SIP narrative and subchapter 31 to EPA, on 
December 10, 1999 and July 31, 2000 respectively, with a request to 
revise the New Jersey SIP. On April 19, 2000 and August 10, 2000 EPA 
sent letters to New Jersey finding the SIP submittals technically and 
administratively complete.
    New Jersey's SIP submittals include the following:
    <bullet> Adopted control measures which require emission reductions 
beginning in 2003, i.e., subchapter 31, ``NO<INF>X</INF> Budget 
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 Jersey'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 Jersey's SIP 
narrative;
    <bullet> A description of how the State intends to use the 
compliance supplement pool, as part of New Jersey's SIP narrative and 
in subchapter 31;
    <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 Jersey's Program?

    In addition to submitting the December 10, 1999 and July 31, 2000 
SIP package in order to fulfill its NO<INF>X</INF> SIP Call obligation, 
New Jersey adopted subchapter 31 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 
subchapter 31 in 2003 and beyond. EPA proposed approval of New Jersey's 
attainment plans for ozone nonattainment areas on December 16, 1999. 
(64 FR 70380) Approval and implementation of subchapter 31 is relied on 
in order for New Jersey to attain the one-hour ozone standard.
    Subchapter 31 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 Jersey, 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 Jersey adopted its 
NO<INF>X</INF> budget and allowance trading regulation, subchapter 31, 
on July 20, 1998. Subchapter 31 contained a NO<INF>X</INF> emissions 
budget and allowance trading system for the ozone seasons of 1999 
through 2002, as well as 2003 and beyond, the periods known as ``OTC 
Phase II'' and ``OTC Phase III.'' EPA approved New Jersey's Phase II 
and III OTC NO<INF>X</INF> budget regulation. Therefore, although the 
OTC MOU obligations are not Federal requirements, subchapter 31 can be 
viewed as satisfying the OTC Phase III program requirements as well.

I. Impact of D.C. Circuit Court Remand on New Jersey'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, 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 Jersey. The Agency expects 
to publish those recalculated budgets within the next few months. 
However, this means that although EPA is proposing to approve New 
Jersey's SIP submittal as meeting the air quality objectives of the 
NO<INF>X</INF> SIP Call published to date, New Jersey 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 Jersey 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

[[Page 71283]]

large EGUs and large non-EGUs located in the District of Columbia and 
12 states, including New Jersey, 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 (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. (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\ 
(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. (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 Jersey 
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 Jersey's December 10, 1999 and July 31, 2000 
SIP submittals, including New Jersey's July 31, 2000 supplement, using 
the NO<INF>X</INF> SIP Call rulemaking notices and checklist. EPA has 
reviewed New Jersey's control measures and projected reductions and 
finds them approvable. Therefore, EPA proposes approval of subchapter 
31 and the SIP narrative into the New Jersey 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 
proposed action is not a ``significant regulatory action'' and 
therefore is not subject to review by the Office of Management and 
Budget. This proposed 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 proposed 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 proposes to 
approve 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 proposed 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 proposed 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 proposed 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 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 section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3 
of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing 
this proposed 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.).

[[Page 71284]]

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 20, 2000
Jeanne M. Fox,
Regional Administrator, Region 2.
[FR Doc. 00-30543 Filed 11-29-00; 8:45 am]
BILLING CODE 6560-50-U