Response to Petitions for Reconsideration

Moreover, the petitioners claim that thefinal rules allow the source to include emission

reductions that occur “more than a decade earlier” is incorrect. The reduction must occur

within thefive year contemporaneous window; however, the source may go backfurther to

determine the size ofthe reduction from the activity. This is consistent with the method used

before thefinal rule changes. A source that reduced emissions five years before a change could

use years six and seven, or even a longer period ~fit wasfound to be more representative, to

establish its actual emissions. Therefore, the petitionershavefailed to show how their objection

is ofcentral relevance to the outcome ofthe rule, because theyfailed to provide information

which would cause us to deviatefrom our historical practice. Accordingly, petitioners’ request

is denied.

B. Actual-to-Projected-Actual Methodology

1. Demand Growth Exclusion

Petition:

The Environmental Group, Northeast State, and South Coast petitioners state that in the 1998

NOA, EPA presented several arguments against incoiporating the demand growth exclusion.

However, the final rule included the exclusion for both EUSGUs and other emissions units. The

Environmental Group, South Coast, and Northeast State petitioners claim that EPA provided no

explanation in the administrative record for this reversal. The South Coast petitioners claim that the

demand growth provisions in the final rules are not a logical outgrowth ofEPA’s proposed rules.

The Northeast State petitioners.claim that EPA changed its position as presented in the 1996

NPRM and 1998 NOA on whether demand growth should be taken into account when calculating

future actual emissions without providing notice and opportunity for comment. In the preamble to the

1996 NPRM, EPA expressed concern about extending the demand growth exclusion to non-utility

industries, and did not propose any rule language for doing so. 61 FR 38628. Then, in the 1998

NOA, EPA took a stronger stand against the demand growth exclusion: “EPA believes that [the

demand growth exclusion] should not be extended to non-utility units.” 63 FR 39860. The EPA

further explained that “it cannot be said that demand growth is an ‘independent factor,’ separable from a

given physical or operational change” and that “the demand growth is problematic because it is self

implementing and self-policing.” 63 FR 39861.

The Environmental Group petitioners note that EPA stated in the 1998 NOA that “there is no

plausible distinction between emissions increases due solely to demand growth as an independent factor

and those changes at a source that respond to, or create new, demand growth which then results in

increased capacity utilization.” 63 FR 39861. The Environmental Group petitioners claim that ifin fact

17
Response to Petitions for Reconsideration

there is no distinction between emissions increases from demand growth and emissions increases

resulting from a change, then emissions attributed to demand growth are emissions resulting from a

change. Thus, the Environmental Group petitioners claim that allowing a source to exclude emissions

attributable to demand growth is a violation ofthe CAA.

The Northeast State petitioners claim that EPA did not resolve these problems or others

articulated in the previous notices concerning the demand growth exclusion. Instead, EPA stated that

sources “will be allowed to apply” the demand growth exclusion as presented in the WEPCO rule

because “[b]oth the statute and implementing regulations indicate that there should be a causal link

between the proposed change and any post-change increase in emissions.” 67 FR 80203. The

Northeast State petitioners claim that this statement does not contain an adequate explanation for

EPA’s reversal of opimon, which is a violation of section 307(d)(6) ofthe CAA.

Response:

We deny reconsideration on this issue because the petitioners had adequate opportunity to

comment on this issue. Moreover~ wefully explained our rationale in the final rulesfor the

demand growth provisions by indicating that the statute requires there to be a causal link

between the emissions increases and the physical or operational change, and thus major NSR

only applies when the emissions increases are the result ofa physical or operational change. See

67 FR 80203 andfinal rules TSD, volume ] sections 3.6, 4.2 and 4.10.

In summary, in the 1996 proposal~ we sought comment as to whether we should continue to

allow utilities to consider demand growth. The proposal also sought comment on the possibility

ofextending the use ofthe exclusion to modifications at non-utility emissions units ~fit were

retainedfor utilities. In our 1998 NOA, we questioned whether there was a way to disassociate

a utility unit’s post-change emissions increases, which would have otherwise occurred due to

demand growth, as a purely independentfactorfrom those emissions that resulted directlyfrom

the project. We suggested that it would be appropriate to consider discontinuing the practice

under the WEPCO rules, and that the provisions not be extended to non-utility emissions units.

We presented several reasons to consider withdrawing the demand growth provisions in the

1998 NOA. First~, we projected thatfor consumer-driven industries, demand is inextricably

intertwined with changes that improve a source ~ ability to utilize its capacity, and cannot be

considered an “independentfactor” separablefrom a physical or operational change. Second~

because there was no spec~flc test availablefor utilities to determine whether an emissions

increase indeed resultedfrom an independentfactor such as demand growth, we speculated that

a source might adopt its own interpretation, resulting in the demand growth provisions being

“se~f.implementing and s4fpolicing.” Finally, we theorized that ~f a source ‘s pre-change

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Response to Petitions for Reconsideration

emissions are based on its highest capacity utilization in the past 10 years, as proposed~ then it

did not appear likely that the post-change emissions increase in excess ofthe unit’s historical

high would be atfributable to market variability, butfrom the physical or operational change

itseif

After reviewing comments received on the 1996 proposal and the 1998 NOA, we determined

that our concerns did notjust~fy elimination ofthe demand growth provisions. The most

persuasive argumentpresented by commenters who supported the demand growth provisions is

that the Act clearly provides that only emissions increases resultingfrom a physical or

operational change are to be subjected to the major stationary source requirementsfor NSR

programs underparts C and D oftitle I We agree with these commenters and thus we believe it

necessary to include the demand growth provisions in orderfor the calculation ofpost-change

emissions to be consistent with both the Act and the implementing regulations.

The Act clearly suggests that there be a causal link between the proposed change and any

post-change increase in emissions, i.e., “...any physical change or change in the method of

operation that would result in a sign~fIcant net emissions increase... “[emphasis added]. The

major NSR regulations have longprovided that a “physical change or change in the method or

operation shall not include: “among other things, “an increase in the hours ofoperation or in

the production rate, unless such change would be prohibited under any enforceable permit

condition....” See, e.g., ~‘51. 166(a)(2)(iiifiD. This provision ensures that emissions increases that

resultfrom the normalfiuctuation ofproduction to meet market conditions are not subjected to

further review and approval by the reviewing authority, as long as the permit does not

spec~fIcally prohibit themfrom occurring. The demand growth provisions are an extension of

this concept.

Supporters ofthe demand growth provisions also argued that marketfactors independently

cause an emissions increase absent a physical or operational change. While we projected that it

would be d~fficult to separate demand growth increases from other increases resultingfrom a

project, numerous industry commenters indicated that there are situations where the distinction

clearly can be made. Several examples ofthis are: skyrocketing demand because the product

becomes afad; mishaps at a factory, causingproduction increases at remaining supplier

sources; decrease in raw materialprices; opening ofnew markets; and improved economic

conditions.

Based on this information we concluded that it would be inappropriate to eliminate demand

growth considerations. When there is a reasonable possibility that the project will result in a

sign~fIcant emissions increase, thefinal rules require sources using the actual-to-projected-actual

test: (1) to maintain records ofthe amount ofemissions excludedfrom projected actual

19
Response to Petitions for Reconsideration

emissions because the existing unit could have accommodated them during the 24-month period

used to establish the baseline actual emissions and that are unrelated to the particularproject;

and (2) to make such records available to the appropriate reviewing authority ~frequested to do

so. [See, for example, §~‘51. 165(a) (6)(C) and (a)(1) (xxviii)(B)(3).1

Opponents ofthe demand growth exclusion cited various concerns, including the beliefthat

the exclusion would create a disincentivefor emissions reductions because ofthe difficulty in

enforcing compliance with the limits ofthe exclusion, and the d~fJIculties and burdens of

determining emissions increases resultingfrom demand growth. After consideration ofthese

comments, we believe that these concerns would not be realized in practice. Regulations always

involve an evaluation ofhow the requirements apply in given circumstances. Thefact that an

owner or operator makes the determination in thefirst instance is not an unreasonable approach

to implementing the provision.

Opponents also assert that the new 10-year baseline actual emissions periodprovides the

source with the ability to include emissions increases resultingfrom demand growth in the

calculation ofthe baseline actual emissions. However this theory relies on an assumption that

all ofthe maximum product demand occurred during that 10-year period before the project. We

now recognize that previous market conditions may be a poor predictor offuture demand

projections. It is conceivable that a project occurs in the midst ofa new business cycle, or when

new market demand exists that was notpresent during an earlier business cycle. Ourfinal rules

arrive at a reasonable result. In those cases where the source experiences full capacity

utilization, the source will not have a basisfor attributing part ofits post-change emissions

increase to market demand. However~ ~f the source still has the ability to increase production to

meet projected market demand without making a physical or operational change, the source

may consider product demand growth.

Clearly, we have provided an ample opportunityfor the public to comment on these issues.

As such, the petitioners have no procedural claim under Section 307(d)(B) ofthe CAA.

Moreover, we consideredpublic comments on the issues andprovided our rationalefor

concluding that demand growth should be maintained. Petitioners havefailed to provide any

new information that leads us to believe that our original basisfor retaining the demand growth

exclusion is incorrect. Therefore, the petitioners havefailed to demonstrate that their objection

is ofcentral relevance to the outcome ofthe rule.

2. Recordkeeping and Reporting Requirements

The Environmental Group, South Coast, and Northeast State petitioners all made general

arguments that the grounds for their objections in this section arose after the close ofthe public

20