JUL 21 2011 

MEMORANDUM 

SUBJECT: Revised Policy to Address Reconsideration of Interpollutant Trading Provisions for Fine 

Particles (PM2.s) 

FROM: 

TO: Regional Au Division Directors, Regions 1-10 

The purpose of this memorandum is to announce a change in the policy that the U.S. Environmental 

Protection Agency originally set forth in the 2008 PM25 New Source Review Implementations Rule (the 

2008 final rule) concerning the development and adoption ofinterpollutant trading (offset) provisions 

for PM2.s under state nonattainment area New Source Review (NA NSR) programs for PM2.5. As a result 

of our reconsideration of the policy, we no longer support the ratios provided in the preamble to the 

2008 final rule as presumptively approvable ratios for adoption in state implementation plan (SIPs) 

containing NA NSR programs for PM25. This revised policy does not affect the EPA rule provisions that 

allow states to adopt as part of their NA NSR programs for PM2.s appropriately supported interpollutant 

offset provisions involving PM2.5 precursors. 

In sum, the new policy is that any ratio involving PM2.5 precursors submitted to EPA for approval for 

use in a state's interpollutant offset program for PM2.s nonattainment areas must be accompanied by a 

technical demonstration that shows the net air quality benefits of such ratio for the PM2.s nonattainment 

area in which it will be applied. 

Background: 

The 2008 final rule authorizes states to adopt provisions in their NA NSR rules that would allow major 

stationary sources and major modifications locating in areas designated nonattainment for PM2.s to 

offset emissions increases of direct PM2.s emissions or PM2.s precursors with reductions of either direct 

PM2.5 emissions or PM2.s precursors in accordance with offset ratios contained in the approved SIP for 

the applicable nonattainment area. The inclusion, in whole or in part, of the interpollutant offset 

provisions for PM2.s is discretionary on the part ofthe states. 

In the preamble to the 2008 final rule, the EPA included preferred or presumptive offset ratios, 

applicable to specific PM2.5 precursors that states may adopt in conjunction with the new interpollutant 

offset provisions for PM2.s, and for which the state could rely on the EPA's technical work to 
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demonstrate the adequacy of the ratios for use in any PM2.s nonattainment area. Alternatively, the 

preamble indicated that states may adopt their own ratios, subject to the EPA's approval, that would 

have to be substantiated by modeling or other technical demonstrations of the net air quality benefit for 

ambient PM2.

5 concentrations. The preferred ratios were subsequently the subject of a petition for 

reconsideration, which the Administrator granted. This memo is a result of that reconsideration and, as 

stated above, we no longer support the ratios provided in the preamble to the 2008 final rule as 

presumptively approvable ratios for adoption in SIPs containing NA NSR programs for PM2.S· 

Additional Background: 

Section 173 ofthe Clean Air Act (CAA) sets forth certain requirements for obtaining a preconstruction 

permit for major stationary sources that are located, or propose to locate, in an area designated 

nonattainment for a NAAQS. One such requirement is that the proposed major stationary sources and 

major modifications must obtain emissions reductions of the affected nonattainment pollutant from the 

same source or other sources in the area to offset the proposed emissions increase. CAA § 173(c). The 

2008 final rule included a provision in the nonattainment NSR regulations at 40 CFR § 51.165 and 40 

CFR Part 51, Appendix S that provided an option for meeting the offset requirement for PM2.s with 

interpollutant (precursor) offsets. Under the provision, states could allow reductions in direct PM2.5 

emissions to offset precursor emissions increases, emissions reductions of one precursor to offset 

emissions increases of another precursor, and reductions in precursor emissions to offset direct PM2.s 

emissions increases. The provision further stipulates that the use of a PM2.5 precursor offset must 

"comply with the interprecursor trading hierarchy and ratio established in the approved plan for a 

particular nonattainment area." 40 CFR § 51.165(a)(ll). 

In the preamble to the 2008 final rule, the EPA issued "preferred" offset ratios that it recommended 

states use as part of an interpollutant offset provision in their NSR rules. As part of its policy authorizing 

states to implement the new PM2.s offset provision within their approved NSR SIPs, the EPA provided a 

hierarchy and "preferred" ratios involving two PM2.5 precursors--sulfur dioxide (S02) and nitrogen 

oxides (NOx). Implementation of the New Source Review (NSR) Program for Particulate Matter Less 

Than 2.5 Micrometers (PMz.s), 73 Fed. Reg. 28321, 28339-40 (May 16, 2008). We indicated that the 

preferred ratios were the result of a technical assessment that we conducted to support use of the ratios. 

(The preamble clearly indicated that such ratios were for purposes of offsets only and not applicable to 

source netting for applicability purposes.) The technical assessment, with details on data and modeling 

inputs, was fully described in a technical memo entitled "Details on Technical Assessment to Develop 

Interpollutant Trading Ratios for PM2.5 Offsets," which was placed in the docket to the 2008 final rule. 

We recommended that states use the EPA-preferred ratios in their PM2.5 SIPs for PM2.5 nonattainment 

areas, and that we would approve such ratios based on our own technical demonstration, "absent a 

credible showing that the EPA's trading ratios are not appropriate for that location." We further stated 

that if any states chose to develop their own hierarchies and ratios, then such states would have to 

"substantiate by modeling and/or other technical demonstrations of [sic] the net air quality benefit for 

PM2.s ambient concentrations, and such trading programs will have to be approved by .EPA." Ibid. 

In 2009, portions of the 2008 final rule, including the preferred interpollutant offset ratios for PM2.5 

precursors, were the subject of a Petition for Reconsideration filed by Earthjustice on behalf ofNRDC 

and Sierra Club. On Apri124, 2009, the Administrator signed a letter granting the Petition for 
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Reconsideration and agreed to reconsider portions of the 2008 final rule, including the preferred offset 

ratios discussed in the preamble. The reconsideration proceedings for the Interpollutant Trading Policy 

have resulted, in part, in the issuance of this policy memorandum. 

Revised Policy on Preferred Ratios: 

We continue to support the basic policy that sources may offset increases in emissions of direct PM2s or 

of any PM2.s precursor in a PM2.s nonattainrnent area with actual emissions reductions in direct PM2,5 or 

PM2.s precursors in accordance with offset ratios as approved in the SIP for the applicable nonattainrnent 

area. However, we will no longer consider the preferred ratios set forth in the preamble to the 2008 final 

rule for PM2.s NSR implementation to be presumptively approvable. Instead, any ratio involving PM2.5 

precursors adopted by the state for use in the interpollutant offset program for PM25 nonattainrnent areas 

must be accompanied by a technical demonstration that shows the net air quality benefits of such ratio 

for the PM2.s nonattainrnent area in which it will be applied. 

We have revised the policy based on our re-evaluation of the "preferred" ratios. We have reached 

several key conclusions. First, upon re-examination of the original data, we believe that the original 

preferred ratios are not sufficiently representative of conditions in all areas of the country. Any preferred 

ratios would need to be considerably more conservative to be applied nationwide and to account for the 

inherent differences in the nature of PM25 ambient concentrations across nonattainrnent areas and the 

associated variability in responsiveness to direct and precursor emissions changes. We believe that the 

2008 preferred precursor offset ratios for PM2.s are not sufficiently conservative to ensure the net air 

quality benefit for PM2.5 ambient concentrations across all areas of the country and, thus, to serve as 

presumptively approvable ratios for the EPA's general SIP approval in state PM25 NA NSR programs. 

The EPA's original technical assessment only reflected nine urban areas in detail and therefore did not 

sufficiently account for the full spectrum of differences across all nonattainrnent areas. As a result, the 

technical assessment did not adequately identify the offset ratios that would be needed to be considered 

presumptively approvable ratios. 

Second, we have determined that the ratios defined in the 2008 preamble are generally not suitable for 

application to offsets that address violations of the 24-hour primary PM2.5 NAAQS. The 2008 preamble 

did not distinguish between the annual and daily averaging periods to defme applicable offset ratios. 

One could have assumed that the offset ratios provided in the 2008 final rule would apply with respect to 

offsets for any averaging period. However, we have determined that those ratios are not adequate for 

addressing the precursor relationship for PM25 for the short-term averaging period, because the 

modeling setup that we used to develop the original preferred ratios does not adequately capture the 

local and seasonal nature of the short-term PM25 responsiveness to direct and precursor emissions 

changes. Daily PM2.5 concentrations in the air are highly dependent on both source and meteorological 

factors and are widely variable across and within urban and rural areas. Accordingly, states will be 

expected to develop separate PM2.5 precursor offset ratios that are demonstrated to be suitable for 

addressing the particular precursor's relationship with ambient PM2.s concentrations for 24-hour 

averaging period(s) that are causing violations in that nonattainrnent area. 
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As stated above, under the EPA's revised policy, the ratios contained in the preamble to the 2008 final 

rule will no longer carry a presumptive approval status. While we believe that our original modeling 

analysis is valid and demonstrates the technical capability and approach to develop such ratios for areas 

across the country, states wishing to adopt any of those ratios contained in the 2008 preamble must treat 

them as any other ratios that they may choose, such that each ratio will need to be supported by 

modeling or other technical demonstration to show that such ratio is suitable for the particular PM2.s 

nonattainment area( s) of concern, and will be subject to the EPA's evaluation prior to approval in the 

state plan. For the nine urban areas included in the EPA's original technical assessment, that assessment 

may already contain the kind of information that a state needs to support the ratios of their choosing. 

General Guidance for Developing Case-specific Offset Ratios for PM2.5 Precursors: 

The July 23, 2007 technical analysis entitled "Details on Technical Assessment to Develop 

Interpollutant Trading Ratios for PM2.s Offsets," provides details on the method used to establish the 

original "preferred" precursor offset ratios. We do not expect that the specific results from the EPA's 

2007 technical assessment could be used generally by a state as part of their demonstration without 

additional technical demonstration specific to the area(s) within which the ratios would be applied, 

unless the area(s) is among the nine areas in the 2007 assessment. We expect EPA regional offices, with 

assistance from the EPA's Office of Air Quality Planning and Standards, to assist states, as necessary, to 

structure appropriate technical demonstrations leading to the development of area-specific ratios for 

PM2.5 nonattainment areas. We do not, however, plan to develop new EPA-preferred or presumptive 

ratios. We believe any presumptively approvable ratios at the national level that we might ultimately 

develop for use across the different PM2.s nonattainment areas would need to be considerably more 

conservative, such that they likely would be considered undesirable by most states and permit applicants 

for use in many, if not most, nonattainment areas' permitting scenarios. 

We expect existing models and techniques to be adequate for states to conduct local demonstrations 

leading to the development of area-specific ratios for PM2.5 nonattainment areas. The general framework 

for such developmental efforts would include the following steps: 

1) Define the geographic area(s) in which offsets between emission sources are allowed, i.e., 

nonattainment area(s). 

2) Conduct a series of sensitivity runs with appropriate air quality models to develop a database 

of modeled PM2.s concentration changes associated with reductions of direct PM2.s emissions 

and PM2.s precursor emissions (e.g., S02 and NOx) from anthropogenic point sources within 

the area of interest. For precursor emissions, a photochemical model (e.g., CMAQ, CAMx) at 

grid resolution of 12 kilometers (km) or less is recommended to predict changes in PM2.s 

concentrations. For direct PM2s emissions, a dispersion model (e.g., AERMOD) or 

photochemical model at grid resolution of 4 km or less is recommended to predict changes in 

PM2.5 concentrations. 

3) Calculate the interpollutant offset ratios for PM2.5 between direct PM2.s emissions and 

precursor emissions in a manner similar to the EPA's 2007 technical assessment, i.e., the 

ratio of impact metrics from step 3, above. 
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4) Conduct quality assurance of the resulting ratios and evaluate their interpretation and 

appropriateness given the nature ofPM2.5 sources and formation in the area of interest. This 

evaluation will likely require emissions inventory data and observed ambient data for PM2.s 

and its component species. 

If there are questions about applying these steps we encourage states to contact their Regional Office 

modeling contact for further technical consultation. 

Effects of This Revised Policy: 

This document is intended as a general statement of the EPA's policy with respect to the review and 

approval of interpollutant offset ratios to meet offset requirements for PM2.s in accordance with 40 CFR 

§ 51.165( a)(ll) and 40 CFR Part 51, Appendix S(IV)(G)(5). The preferred offset ratios described in the 

preamble to the 2008 final rule were not promulgated in the Code of Federal Regulations, were not 

outlined in the proposed rule, and were not subject to public review and comment. The description of the 

preferred offset ratios in the preamble did not impose binding, enforceable requirements on the states, 

but rather provided a statement ofthe EPA's policy. The 2008 preamble described how the EPA 

intended to exercise its discretion in reviewing ratios submitted to the EPA for approval in accordance 

with 40 CFR § 51.165 and 40 CFR Part 51, Appendix S. 

This memorandum reflects the EPA's reasoned reconsideration of that policy position. This document 

does not substitute for the statutory provisions or regulations, nor is it a regulation itself. Since each 

proposal to allow interpollutant offsets under a SIP or in accordance with 40 CFR Part 51, Appendix S 

will be considered on a case-by-case basis, this policy statement does not limit or restrict any particular 

approach states may take to set appropriate interpollutant offset hierarchies and ratios. Thus, the policies 

set forth in this paper are intended solely as guidance, do not represent final agency action, and cannot 

be relied upon to create any rights or obligations enforceable by any party. 

cc: Steve Page 

Anna Wood 

Scott Mathias 

Raj Rao 

DanDeRoeck 

Tyler Fox 

Richard Wayland 

Brian Doster 

Stephanie Hogan