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OAR Box 1787 

Prepped by Ollie Stewart 

Document Number: 

40) ll-B-25 

Docket Number: 

A-90-37 

Printed 11/4/2008 10:22:19 AM Sheet 40 of 147 
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A - 90-3*7 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

Office of Air Quality Planning and Standards 

Research Triangle Park, North Carolina 27711 

JUL 2 I I993 

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APR r; 0ISC3 {$•> J 

EFA AIH DOCKET 

MEMORANDUM 

SUBJECT; Use of Shutdown Credits fo 

FROM: 

TO: 

hn S. Seitz, Direct 

Office of Air Quality P 

Addressees 

d Standards (MD-10) 

• 

P 

This memorandum and attachment respond to issues involving 

the Environmental Protection Agency's (EPA's) new source review 

(NSR) rules and guidance concerning the use of shutdown credits. 

The attachment provides a full discussion of the issues and this 

policy. The regulations in 40 CFR 51.165(a)(3)(ii)(C)(2) provide 

that where a State lacks an approved attainment demonstration, 

emissions reductions from shutdowns or curtailments cannot be 

used as new source offsets unless the shutdown or curtailment 

occurs on or after the date a new source permit application is 

filed. A concern raised is that because the Clean Air Act 

Amendments of 1990 (1990 Amendments) have created new schedules 

for submitting attainment demonstrations,1 the existing NSR rules 

restricting the use of so called "prior shutdown credits" may be 

read as unnecessarily hindering a State's ability to establish a 

viable offset banking program for several years. Since this 

situation was not accounted for in EPA's prior policy statement, 

EPA determined it was appropriate to reconsider its position in 

light of the 1990 Amendments. 

The reconsideration led to the conclusion that States should 

be able to follow, during the interim period between the present 

and the date when EPA acts to approve—or—disapprove an 

attainment demonstration that is due, the shutdown requirements 

applicable to areas with attainment demonstrations. This 

interpretation only extends to those otherwise creditable 

shutdowns and curtailments actually occurring during the time 

*For instance, attainment demonstrations are not due until 

November 15, 1993 for moderate ozone nonattainment areas, and 

November 15, 1994 for serious and above areas. Attainment 

demonstrations are not required by the Clean Air Act (Act) for 

marginal and nonclassified ozone nonattainment areas and for 

ozone attainment and unclassifiable areas in the ozone transport 

region (OTR). 
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• 

period from enactment of the 1990 Amendments (November 15, 1990) 

through the period until EPA acts to approve—or—disapprove an 

attainment demonstration that is due. This policy cannot be 

extended to situations where an attainment demonstration is 

lacking. In addition, to be sure that the State remains on track 

for attainment, the lifting of the shutdown restrictions is 

conditioned on the State meeting other applicable part D planning 

requirements as discussed in the attachment to this memorandum. 

If the State's submittal is delinquent for any of the 

reasonable further progress (RFP) milestone submissions 

identified in the attachment or the State's attainment 

demonstration is disapproved, the restrictions on use of 

shutdowns will again apply. To be creditable, the shutdowns or 

curtailments being used as offsets must have occurred on or after 

November 15, 1990; the emissions from the shutdown or curtailment 

must be included in the emissions inventory for attainment 

demonstration and RFP milestone purposes; and the amount of the 

credit must be the lower of actual or allowable emissions for the 

source. Pursuant to EPA's existing regulatory framework, the 

shutdown or curtailment must be permanent, quantifiable, and 

federally enforceable. 

For marginal ozone nonattainment areas and for the 

attainment and unclassifiable ozone areas in the OTR, EPA's 

present interpretation is that these areas should be allowed to 

follow the less-restrictive shutdown policies applicable to areas 

in compliance with the attainment demonstration requirements. 

Since these areas are not required by the 1990 Amendments to 

submit attainment demonstrations, it would be inconsistent with 

EPA's purposes in adopting the shutdown restrictions to treat 

these areas as if they had failed to make this demonstration. 

The RFP will be protected by the mandatory bump-up provisions 

applicable to marginal ozone areas and by the requirement that 

ozone nonattainment areas in the OTR continue to meet RFP 

milestones in order to qualify for this interim policy. 

States may interpret their own regulations or, when 

necessary, make a State implementation plan (SIP) submittal in 

accordance with this policy. This policy statement is limited to 

ozone nonattainment areas and ozone attainment and unclassifiable 
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areas in the OTR. States may wish to seek relaxation of the 

policy for other pollutants. We will consider these requests on 

a case-by-case basis. It should be noted that at least some 

attainment demonstrations are in fact due.2 

This guidance document does not supersede existing Federal 

or State regulations or approved SIP's. The policies set out in 

this memorandum and attachment are intended solely as guidance 

during the interim period as specified in this memorandum and do 

not represent final Agency action. This policy statement is not 

ripe for judicial review. Moreover, it is not intended, nor can 

it be relied upon, to create any rights enforceable by any party 

in litigation with the United States. Agency officials may 

decide to follow the guidance provided in this memorandum, or to 

act at variance with the guidance, based on an analysis of 

specific circumstances. The EPA also may change this guidance at 

any time without public notice. The EPA presently intends to 

address further the matters discussed in this document in its 

forthcoming NSR rulemaking regarding regulatory changes mandated 

by the 1990 Amendments and will take comment on this 

interpretation of the shutdown provisions in light of the 1990 

Amendments as part of that rulemaking. 

The Regional Offices should send this memorandum with the 

attachment to their States. Questions concerning specific issues 

and cases should be directed to the appropriate EPA Regional 

Office. Regional Office staff may contact Mr. David Solomon, 

Chief, New Source Review Section, at (919) 541-5375, if they have 

any questions. 

Attachment 

Addressees 

Director, Air, Pesticides and Toxics, Regions I, IV and VI 

Director, Air and Waste Management, Region II 

Director, Air, Radiation and Toxics Division, Region III 

Director, Air and Radiation Division, Region V 

Director, Air and Toxics Division, Regions VII, VIII, IX and X 

cc: Air Branch Chief, Regions I-X 

2For instance, attainment demonstrations in moderate carbon 

monoxide areas were due on November 15, 1992; attainment 

demonstrations for moderate PM-10 (particles with an aerodynamic 

diameter of less than or equal to a nominal 10 micrometers) areas 

were due on November 15, 1991. 
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• 

Attachment 

FULL DISCUSSION ON USE OF PRIOR SHUTDOWNS 

In response to concerns regarding use of pre-application 

shutdowns that have arisen by virtue of the Clean Air Act 

Amendments of 1990 (1990 Amendments), the Office of Air Quality 

Planning and Standards has reviewed the policy on the use of 

prior shutdown credits. This policy, and the regulations in 

part 51, were revised in 1989 to allow for the use of prior 

shutdown credits for offset purposes in those areas having 

approved attainment demonstration plans [see 54 FR 27286 

(June 28, 1989)]. The Agency, however, retained a restriction on 

the use of prior shutdown credits in areas without approved 

attainment demonstrations. All of these areas had failed to 

attain the national ambient air quality standards by the 

statutory deadline. 

The 1990 Amendments created new deadlines and new control 

requirements which have dramatically changed the circumstances 

that shaped EPA's 1989 decision regarding the use of shutdown 

credits, such that a literal reading of the 1989 regulation would 

now be inconsistent with EPA's underlying policy in some 

circumstances. All nonattainment areas are subject to new 

attainment deadlines, and all ozone nonattainment areas 

classified as moderate and above are now required to submit new 

attainment demonstrations. Indeed, in ozone nonattainment areas, 

the 1990 Amendments impose a series of planning requirements and 

milestones to mark progress towards attainment. For instance, 

the amended Clean Air Act (Act) required States with moderate 

ozone nonattainment areas to submit revised control measures, 

revised new source review (NSR) rules, and a 1990 emissions 

inventory by November 15, 1992, and allows States until 

November 15, 1993 to submit additional control measures and an 

attainment demonstration plan that achieves at least a 15 percent 

reduction in volatile organic compounds (VOC) emissions. Serious 

and above ozone areas were required to submit numerous new or 

revised control measures, revised NSR rules, and a 1990 emissions 

inventory by November 15, 1992; additional control measures and a 

15 percent reduction plan by November 15, 1993; and full 

attainment demonstration plans by November 15, 1994. 

In 1983, EPA proposed to lift nearly all restrictions on the 

use of prior shutdown credits. In making that proposal, the 

Agency presumed that by the time it took final action on the 

proposal, areas would either have in place approved attainment 

demonstrations or be subject to a construction moratorium (see 

54 FR 27292). However, by the time EPA took final action—some 

6 years later—this proved not to be the case. Many States 

neither fully demonstrated attainment nor were subject to a 
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construction moratorium. Thus, in justifying the decision to 

continue restrictions on the use of prior shutdowns in areas 

without an attainment demonstration, EPA explained that "the 

nonattainment areas requiring but lacking attainment 

demonstrations . . . are at the center of EPA's current concern 

regarding the shutdown credit issue . . . " (Id.). 

Specifically, EPA explained that the unrestricted use of 

shutdown credits would lead to offset transactions where there 

was no nexus between the decision to shut down the existing 

source or unit and the decision to construct new capacity. 

Instead, shutdowns that would occur regardless of any potential 

to sell the resulting emissions reduction would not be available 

for reasonable further progress (RFP), but instead would be used 

to accommodate additional emissions growth in the nonattainment 

area. In the face of a State's failure to adopt an attainment 

plan long past the statutory deadline for submitting an 

approvable plan, EPA determined that the unrestricted approach 

was inconsistent with the requirements of RFP. Accordingly, EPA 

retained its restrictive shutdown policy for such areas in order 

to guarantee to the extent possible that the new source would 

secure the offsetting reduction out of the area's existing 

emissions and thus assure RFP (Id. at 27293) . On the other hand, 

where the State implementation plan (SIP) contained a 

demonstration of attainment—"and hence an independent assurance 

of RFP"—EPA would be satisfied with a "more attenuated link" 

between the shutdown and the new construction (Id.). 

Another factor favoring retention of the narrow shutdown 

policy in areas needing but lacking approvable attainment 

demonstrations was EPA's intention at the time to impose 

substantial planning burdens on many States for their failure to 

meet the December 31, 1987 attainment date for ozone and carbon 

monoxide. At the time EPA published the 1989 shutdown 

regulations, it believed that many States would be facing the 

prospect of adopting severe measures to respond to EPA's finding 

that their present efforts at achieving RFP and attainment were 

substantially inadequate. Under those circumstances, EPA 

believed "that it would be inappropriate even to hold out the 

possibility that States could obtain approval at this time for 

expanded use of shutdown offset credits in areas with inadequate 

plans" (Id. at 27294). At a minimum, States would need an 

approved inventory so that EPA could verify the proposed use of a 

prior shutdown credit (Id.). 
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• 

The 1990 Amendments changed this landscape dramatically. 

The Act as amended gives States new attainment deadlines and new 

dates for submitting attainment demonstrations.1 No State can be 

said to have missed the overall attainment deadline or the date 

for submitting attainment demonstrations for ozone as required by 

the 1990 Amendments. Instead, States are in the process of 

developing new attainment demonstrations based on the specific 

planning requirements of the new provisions of the 1990 

Amendments. As discussed, these provisions include not only 

specific emissions reduction strategies that must be implemented, 

but requirements that areas demonstrate periodically that the 

reductions are occurring and that specific progress towards 

attainment has been made. In addition, the "General Preamble for 

the Implementation of Title I of the Clean Air Act Amendments of 

1990" (General Preamble) [see 57 FR 13498 (April 16, 1992)] 

includes a specific methodology for reconciling prior shutdowns 

with the 1990 ozone inventory, and assures that these reductions 

must be taken into account when submitting the attainment 

demonstration and when showing compliance with the various RFP 

milestones (see General Preamble, pp. 13507-13509).2 

In total, these provisions provide the "independent 

assurance of RFP" that EPA pointed to before as being necessary 

to allow generous use of prior shutdown credits. Of course, if a 

State misses any of the RFP milestones, the rationale for a more 

restrictive use of shutdown credits returns. For this reason, 

EPA's position is that use of pre-application shutdown credits as 

offsets can only be allowed where State submissions have met and 

continue to meet the statutory planning mandates and air quality 

improvement milestones. As described below, once a State fails 

to meet any of the milestones in its SIP or to meet a RFP 

benchmark, EPA cannot be assured that the safeguards in the Act 

guaranteeing proper progress towards attainment are sufficient, 

and the restriction on use of pre-application shutdowns and 

^ome areas subject to offset requirements (such as marginal 

ozone nonattainment areas and attainment areas in the ozone 

transport region) are not even required to submit attainment 

demonstrations. 

^he increased offset ratios for VOC and nitrogen oxides in 

ozone nonattainment areas [see, e.g., § 182(a) - (e)] and the new 

requirement that all offsets be based on actual emissions 

reductions [§ 173(c)] provide further assurances that new source 

increases will in fact be counterbalanced by real reductions in 

actual emissions. 
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curtailments must automatically resume until the delinquent 

planning provisions are submitted.3 

In ozone nonattainment areas, this means that the temporary 

lifting of the restrictions under this policy is subject to the 

following conditions as they apply and as they come due: 

• The State has submitted a completed emissions inventory 

as required by § 182(a)(1); 

• The State has submitted complete revisions to its NSR 

program as required by § 182(a)(2)(C); 

• The State submits the 15 percent VOC reduction plan 

required by § 182(b)(1)(A) for moderate and above areas; and 

• The State submits the attainment demonstration required 

by § 182(c)(2) for moderate and above areas. 

Under this policy, if any of these submissions are delinquent, or 

if any of these submissions are deemed incomplete or disapproved, 

emissions reductions from shutdowns or curtailments can no longer 

be used for NSR offsets unless the criteria laid out in 

40 CFR 51.165(a)(3)(ii)(C)(2) are met. Where there is an 

emissions reduction credit bank in place, banked credits from 

prior shutdowns or curtailments will be frozen until the State 

submits the delinquent SIP elements. 

Furthermore, the emissions reductions represented by the 

shutdown or curtailment cannot be otherwise required by the Act, 

EPA regulations, or rules adopted by the State under the Act. 

In other words, the State cannot rely on emissions reductions 

credits in its overall attainment plan and rely on the same 

credits in the issuance of a NSR permit (i.e., no "double 

counting"). Consequently, where appropriate, emissions 

reductions from source shutdowns or curtailments must be 

discounted to reflect reasonably available control technology 

3In the General Savings Clause (§ 193), Congress required 

EPA to retain all regulations and other requirements in effect at 

the time of the passage of the Act, "except to the extent 

otherwise provided under this Act [or] inconsistent with any 

provisions of this Act." The EPA views the new deadlines for 

attainment and for the submittal of an attainment demonstration 

as creating sufficient inconsistencies to justify changing— 

during the short interim period until the date EPA acts on an 

attainment demonstration that is due—its pre-enactment position 

on shutdowns. This is especially true in the few nonattainment 

areas that are no longer subject to the attainment demonstration 

requirement and can never qualify for the more relaxed shutdown 

policy under the existing regulations. 
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(RACT), new source performance standards, or any other Act 

requirement applicable to the source or reasonably foreseeable at 

the time of the use of the emissions reductions as offsets. For 

example, a State may have already developed RACT rules that would 

require compliance by a source in 1995. Any reductions at the 

source that would be necessary to meet the upcoming RACT 

requirement would need to be excluded in computing the offsets 

that would be available by a complete shutdown of the source. 

It is possible that, during review of a permit application 

that uses emissions reductions from prior shutdowns or 

curtailments as offsets as allowed under this policy, a State may 

become delinquent in meeting the planning provisions outlined 

above. At such time as a State becomes delinquent, the 

restrictions for offsets are automatically restored. However, in 

such cases, States may allow offsets to remain creditable if the 

permit application was complete (as determined in writing by the 

reviewing authority) before the State became delinquent. 

Alternatively, States may use a later point in the permitting 

process for determining if these offsets are creditable.