CAIR Replacement Rule

Discussions between Texas Commission on Environmental Quality (TCEQ) and EPA

April 28, 2009

I. Introduction

On Tuesday, April 28, 2009, EPA held a call with the Texas Commission on 

Environmental Quality (TCEQ) to discuss the CAIR replacement rule. The summary that 

follows covers the key issues discussed during the call.

II. EPA Opening Comments

Sam Napolitano, CAMD, noted that illness had prevented Bill Harnett, OAQPS, from 

joining the call, but that some of his key staff were on the call. Sam then briefly outlined the 

current situation, explaining that EPA was beginning the process of creating a replacement rule

for CAIR. The Agency is reviewing all options, setting up analyses, and preparing technical

models. The goal is to finalize a replacement rule within two years. 

The primary objectives are to help states comply with the NAAQS and to reduce

interstate transport. Therefore, EPA has decided that it would be best to start working with states 

and stakeholders immediately. EPA has already held a number of meetings with state groups 

and stakeholders and would like to hear from Texas about what type of replacement rule would 

be most practical while also achieving the required emission reductions. Sam stressed that this is

the beginning of a dialogue process, and that EPA intends to continue these types of discussions 

throughout the rule development process. 

This is a chance for the stakeholders to talk to the key EPA staff that will actually

develop and write the rules, as well as the OGC attorneys assigned to the rule development. Sam

stressed that EPA is interested in hearing the stakeholders' thoughts and concerns. Everything is 

on the table as EPA puts together ideas for the new Assistant Administrator for Air and 

Radiation, who should arrive within the next couple of weeks. 

III. TCEQ Opening Discussion

Kim Herndon, TCEQ, thanked Sam and EPA for the opportunity to share ideas and to 

discuss the replacement CAIR rule. She indicated that for the most part TCEQ had questions for 

EPA, and she began by asking how the CAIR replacement rule would mesh with CAIR as it is 

currently in effect.

Sam explained that the current CAIR rule was in effect and that EPA credits the rule with 

2.4 million tons of reductions and the largest SO2 reductions in 15 years. EPA has distributed 

allowances for all sources through 2010, and some sources were given allowances for 2011-

2013. In general, the Agency is waiting for the new Assistant Administrator for Air and

Radiation before distributing later year allowances. EPA has informed the designated 

representatives (DRs) at the affected facilities that the original CAIR will be in effect through 

2010, after which it is unclear what will happen. The Agency has cautioned DRs to be careful 

about trading or buying later year allowances given the regulatory uncertainty. 
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Kim noted that Texas was under the FIP for Phase II of the original CAIR. TCEQ has 

been instructed by the state legislature to revise the SIP for approval so that the state is not under 

the FIP for Phase II. She asked what TCEQ should do, given that the replacement CAIR rule is 

supposed to be promulgated before Phase II. Sam replied that a specific discussion about Texas'

SIP would be better coordinated through EPA Region 6. EPA would be very interested in 

helping work through any SIP issues, but that process has to go through the Regions. 

TCEQ posed several questions about details of the new CAIR replacement rule, at which 

point Sonja Rodman, OGC, intervened to provide context to the discussion. She explained that 

EPA was at the very beginning of the rulemaking process and had not made any decisions about 

specifics of a replacement rule. She noted that the D.C. Circuit Court had remanded the rule 

after finding substantial flaws in how EPA had addressed significant contribution. The court 

ruled that EPA had failed to quantify each state's individual contribution and found that the 

remedy did not adequately remove each state's significant contribution. EPA now confronts 

fundamental questions about how to address significant contribution and create a remedy that 

satisfies the court's decision. 

The purpose of this meeting is to get a sense of what the states need from EPA. The 

Agency is not in a position to discuss the details of the replacement rule because fundamental 

decisions about how the new rule will work still need to be made by incoming management. 

This is an opportunity for Texas to talk to EPA about how the state believes the Agency should 

address the fundamental issues raised by the court. 

Susana Hildebrand, TCEQ, explained that Texas was primarily concerned with not 

penalizing sources in the state that had already made significant NOx reductions as a result of 

state legislative requirements set years ago. Texas does not want to require further reductions 

from those sources because, on average, other states have not made similar reductions. 

The group then turned to discuss the agenda EPA had provided and distributed before the 

call. 

III. Discussion of Agenda

1. Baseline 

Sam Napolitano noted that a number of issues arose during consideration of which year 

to use as a baseline. Some states have expressed concerns about using a future year because of 

the many extrapolations required. Other concerns center on the fact that MACT requirements, 

and other known settlements that will require controls to be installed, could not be taken into 

account using current year data. Because EPA knows that the emission situation will have 

changed by the time the replacement rule is promulgated, some have argued that the Agency

should try to forecast a future year baseline. 

Susana Hildebrand expressed concern that units that have already installed scrubbers 

might be unable to make further significant reductions. She suggested that EPA should use some 
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type of emissions factor or other mechanism to credit facilities that have already made reductions 

and reward the early investment. EPA should not require a flat percentage reduction. 

Tim Smith, OAQPS, explained that EPA is wrestling with how to consider cost when 

looking at significant contribution and a remedy that satisfies the court decision. In Texas'

situation, where the sources are already well-controlled, further reductions would clearly have a 

much higher cost. Susana agreed with Tim's characterization of her comment as expressing a 

preference that EPA consider cost. 

David Schanbacher, TCEQ, provided additional background on the reduction percentages 

that Texas has achieved. He noted that Texas implemented a cap and trade program in the 1990s 

for grandfathered facilities that had not gone through the permitting process. Through this 

program Texas was able to achieve 50% reductions on average statewide. Given this success, 

the SIP group created a similar program for permitted facilities, which gave Texas about a 50% 

reduction across the board. The state has also achieved significant reductions under SIP plans 

implemented for Houston and Dallas, where they have realized nearly 90% reductions. Texas 

has also been working to replace some of the older natural gas fired peaker units that have been 

responsible for significant NOx emissions. 

David noted that fear of being penalized is one of the primary concerns of facility

owners, and one of the reasons they resist putting on controls proactively. TCEQ believes that 

large reductions have been achieved in Texas under the plans that have been implemented, and it 

does not want federal regulations to penalize owners who put on controls either proactively or in 

response to state regulations. 

Sam said he understood TCEQ's concerns. EPA has attempted in the past to consider, in 

an even-handed manner, the significant contribution that upwind states make to downwind states 

and to set a limit where all states over the limit for ozone or fine particles would, in an equitable 

way, be part of addressing the transport problem for downwind states. He asked if TCEQ was

concerned with EPA continuing to address transport in that manner.

Susana Hildebrand explained that one of the key concerns is Texas's size and the 

geographic location of all its plants. Western plants have no significant transport issues in most 

cases, but they get drawn into the program because eastern plants are affecting neighboring 

states. Texas is large enough that multiple states could fit within its borders. Perhaps one way

EPA could address this geographic challenge is to divide the state into quarters.

David then noted that Texas is the one state with a self-contained grid, which means it 

does not generate energy within its borders to export to other states. For the most part, what is 

generated in Texas is also consumed here.
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2. Quantifying Significant Contribution

Sonja Rodman said that significant contribution was a big area to address, with many

options for the replacement rule. For CAIR, EPA established significant contribution through a 

two step process. EPA first conducted air quality modeling to determine which states should be 

included in the region and then looked at the cost-effectiveness of controls to determine 

significant contribution. EPA established regional caps and developed the state budgets for each 

pollutant involved. The D.C. Circuit Court ruled that EPA had failed to quantify individual state 

significant contributions and thus also did not require the specific state to eliminate its significant 

contribution. As EPA develops the new rule it is considering alternate ways to define significant 

contribution. The Agency welcomes suggestions, especially on what role modeling and costeffectiveness should play in quantifying and remedying significant contribution.

TCEQ replied that it had not formed an opinion regarding significant contribution or cost 

analysis. TCEQ strongly criticized the idea that west Texas was contributing to Illinois and east 

St. Louis.

Sonja indicated that EPA would accept comments on dividing Texas for the purpose of 

the CAIR replacement rule. However, the issue has already been litigated and is partially 

addressed in the recent court decision. Kim Herndon offered to assemble more formal comments 

on the issue. Sonja noted that one issue to address is whether any suggested dividing lines are 

specifically related to interstate transport. Kim responded that the only differences between one 

state and another are government boundaries. Therefore, Texas should be able to create 

boundaries within the state. 

Sonja noted that the Agency is willing to consider all options. However, from a 

defensibility standpoint lines unrelated to interstate transport seem more difficult to defend in 

court. Accepting a boundary drawn by Texas is very different than working with state 

boundaries. 

3. Remedy

Tim Smith outlined the issue of remedy: What remedy should be applied to the

quantified significant contribution? What types of approaches should be considered? Is the 

trading option practical? Tim noted that EPA had heard suggestions ranging from a strict 

command-and-control program to a trading program, as well as various combinations of the two. 

Some states expressed interest in combining looser standards with a trading program in an effort 

to leverage the increased reductions that can be gained by allowing trading. 

TCEQ indicated that it generally supports the cap and trade philosophy and believes there 

is value in allocating allowances in a manner that gives credit to facilities already operating at 

low emission rates. TCEQ raised concerns that in the past rules have been developed that did not 

take into consideration trading programs other than the NOx SIP Call. Texas has a cap and trade 

program separate from the NOx SIP Call. Assumptions about the NOx SIP Call do not apply to 

all states with trading programs. It is frustrating when comments from EPA Headquarters do not 

seem to recognize the existence of other trading programs. 
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Sam acknowledged TCEQ's concern and indicated that he had heard about the program 

before during a presentation by Susana Hildebrand at MIT. Per Sam's request, Susana agreed to 

send him materials about Texas' cap and trade program. 

Tim asked for examples of the types of comments TCEQ thought overlooked their 

program. Kim noted that she did not have any specific comment in front of her, but that 

responses concerning state trading programs would often start with such phrases as "If you are a 

NOx SIP Call state this applies, otherwise this does not apply to you". In general, the responses 

seemed to imply that the NOx SIP Call is the only program of its kind, which is not true because 

there are states with different cap and trade programs. 

Sam noted that nothing said at this point would be taken as an official position. These 

calls are a chance for states to think aloud and offer ideas. 

Susana suggested that EPA consider trading zones so that states can count on certain 

reductions during ozone planning. It is hard for states to incorporate CAIR reductions into 

modeling for their SIPs. A trading zone would guarantee states that there would be certain 

amounts of reduction within a trading zone. States could then incorporate those known 

reductions into SIP planning. Under the original CAIR it was not clear where the reductions 

would take place, which made it harder to try and incorporate those reductions in the planning 

process. 

Sam said that EPA considered trading zones during the NOx SIP Call, but that it 

ultimately decided not to include the zones. He asked whether TCEQ had thoughts about major 

air sheds or about how EPA should set up the zones. Susana replied that TCEQ did not have any 

specific recommendations to make. It would like to see improvements in the Gulf cost region 

that might help the Houston and Beaumont areas. Specifically, there are concerns about 

transport from Louisiana, and Louisiana has similar concerns about transport from Texas. A 

trading zone in which both states could quantify the reductions would be helpful. 

4. Affected Area/National Ambient Air Quality Standards (NAAQS)

Which states or regions should be covered by the rule? Sam Napolitano noted that some 

stakeholders had recommended expanding CAIR to include western states. What should the 

timing of the rule look like? Should EPA start with existing NAAQS? Or, should it try to 

integrate the newer NAAQS into a replacement rule? Timing becomes a key element when 

considering which NAAQS to target. 

Kim Herndon suggested that it would be helpful if the reductions from the CAIR 

replacement rule lined up with the attainment dates. For example, the initial NOx part of the 

current CAIR will be implemented in 2010 and Texas needs the reductions in 2009. Sam noted 

that the CAIR annual NOx program began on January 1, 2009.

Tim Smith then asked whether EPA should address the 2008 NAAQS. Susana

Hildebrand said EPA should address the 2008 NAAQS and by-pass the 2006 NAAQS because 

by achieving the 2008 levels states would have met the 2006 requirements. She then inquired 

whether EPA thought the replacement rule would continue with an annual and summer program. 
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Sam responded that the summer program was largely to reassure the eastern states that the NOx

Budget program reductions were achieved. 

Susana suggested that the ozone season become an annual program because if other states 

are contributing to Texas' ozone problem, those states should have the same year-round controls 

Texas requires. With the lowering of the NAAQS and possible inclusion of the entire state, it is 

even more important that other contributing states have annual controls. 

Sam noted that EPA had transitioned away from the NOx Budget program and into 

CAIR. What happens between now and when the final revised CAIR is published is unclear, but 

EPA does feel that the program has been extremely helpful in reducing ozone problems in the 

east. 

IV. Concluding Points

Sam Napolitano thanked TCEQ members and said EPA would take all of their 

suggestions under consideration. He mentioned that meeting notes would be sent out to all the 

participants and suggested that they include additional comments as addenda to the notes. This 

will help continue the dialogue process.

TCEQ thanked EPA for providing an opportunity to begin the dialogue process. Staff 

will continue discussing the issues EPA has raised and will try to add comments or further 

thoughts to the meeting notes.