[Federal Register Volume 66, Number 95 (Wednesday, May 16, 2001)]
[Proposed Rules]
[Pages 27047-27051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12355]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[AL-057-200105; FRL-6980-5]


Approval and Promulgation of Implementation Plans: Alabama: 
Nitrogen Oxides Budget and Allowance Trading Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing to approve a State Implementation Plan (SIP) 
revision submitted by the State of Alabama on March 12, 2001. This 
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.'' This revision establishes and requires a nitrogen oxides 
(NO<INF>X</INF>) allowance trading program for large electric 
generating and industrial units, and reductions for cement kilns, 
beginning in 2004. 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 to approve 
Alabama's NO<INF>X</INF> Reduction and Trading Program because it meets 
the requirements of the Phase I NO<INF>X</INF> SIP Call that will 
significantly reduce ozone transport in the eastern United States. EPA 
has deemed the

[[Page 27048]]

submittal is administratively and technically complete, and a letter of 
completeness was sent to Alabama Department of Environmental Management 
(ADEM) on April 26, 2001.

DATES: Written comments must be received on or before June 15, 2001.

ADDRESSES: All comments should be addressed to: Sean Lakeman at the 
EPA, Region 4 Air Planning Branch, 61 Forsyth Street, SW., Atlanta, 
Georgia 30303.
    Copies of documents relative to this action are available at the 
following addresses for inspection during normal business hours: 
Environmental Protection Agency, Region 4, Air Planning Branch, 61 
Forsyth Street, SW., Atlanta, Georgia 30303-8960. Alabama Department of 
Environmental Management, 400 Coliseum Boulevard, Montgomery, Alabama 
36110-2059.

FOR FURTHER INFORMATION CONTACT: Sean Lakeman, Regulatory Planning 
Section, Air Planning Branch, Air, Pesticides and Toxics Management 
Division, Region 4, Environmental Protection Agency, Atlanta Federal 
Center, 61 Forsyth Street, SW., Atlanta, Georgia 30303. The telephone 
number is (404) 562-9043. Mr. Lakeman can also be reached via 
electronic mail at <a href="/cdn-cgi/l/email-protection#5d313c3638303c33732e383c331d382d3c733a322b"><span class="__cf_email__" data-cfemail="6c000d0709010d02421f090d022c091c0d420b031a">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: On October 13, 2000, ADEM submitted a draft 
NO<INF>X</INF> emission control rule to the EPA for pre-adoption 
review, requesting parallel processing to the development of the rule 
at the State level and included a schedule for development and adoption 
of the rule by the State. On March 12, 2001, ADEM submitted final 
revisions to its SIP to meet the requirements of the Phase I 
NO<INF>X</INF> SIP Call. The revisions comply with the requirements of 
the Phase I NO<INF>X</INF> SIP Call. Included in this document are 
revisions to chapter 335-3-1 General Provisions and chapter 335-3-8 
Control of Nitrogen Oxide Emissions. The information in this proposal 
is organized as follows:

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 EPA's NO<INF>X</INF> budget and allowance trading 
program?
    E. What guidance did EPA use to evaluate Alabama's submittal?
    F. What is the result of EPA's evaluation of Alabama's program?
II. Alabama's Control of NO<INF>X</INF> Emissions
    A. When did Alabama submit the SIP revision to EPA in response 
to the NO<INF>X</INF> SIP Call?
    B. What is the Alabama's NO<INF>X</INF> Budget Trading Program?
    C. What is the Compliance Supplement Pool?
    D. What is the New Source Set-Aside program?
III. Proposed Action
IV. Administrative Requirements

I. EPA's Action

A. What Action Is EPA Proposing Today?

    EPA is proposing to approve revisions to Alabama's SIP concerning 
the adoption of its NO<INF>X</INF> Reduction and Trading Program, 
submitted on March 12, 2001.

B. Why Is EPA Proposing This Action?

    EPA is proposing this action because Alabama's NO<INF>X</INF> 
Reduction and Trading Program regulations meet the requirements of the 
Phase I NO<INF>X</INF> SIP Call. Therefore, EPA is proposing full 
approval of Alabama's NO<INF>X</INF> Reduction and Trading Program.

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.'' See 63 FR 57356. The NO<INF>X</INF> SIP Call requires 22 
States and the District of Columbia to meet statewide NO<INF>X</INF> 
emission budgets during the five month period between May 1 and October 
1 in order to reduce the amount of ground level ozone that is 
transported across the eastern United States.
    EPA identified NO<INF>X</INF> emission reductions by source 
category that could be achieved by using cost-effective measures. The 
source categories included were electric generating units (EGUs) and 
non-electric generating units (non-EGUs), internal combustion engines 
and cement kilns were also included. EPA determined state-wide 
NO<INF>X</INF> emission budgets based on the implementation of these 
cost effective controls for each affected jurisdiction to be met by the 
year 2007. Internal combustion engines are not addressed by Alabama in 
this response to Phase I, but will be in Phase II. However, 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. 
In the NO<INF>X</INF> SIP Call notice, EPA suggested that imposing 
statewide NO<INF>X</INF> emissions caps on large fossil-fuel fired 
industrial boilers and EGUs would provide a highly cost effective means 
for states to meet their NO<INF>X</INF> budgets. In fact, the state-
specific budgets were set assuming an emission rate of 0.15 pounds 
NO<INF>X</INF> per million British thermal units (lb. NO<INF>X</INF>/
mmBtu) at EGUs, multiplied by the projected heat input (mmBtu) from 
burning the quantity of fuel needed to meet the 2007 forecast for 
electricity demand. See 63 FR 57407. The calculation of the 2007 EGU 
emissions assumed that an emissions trading program would be part of an 
EGU control program. The NO<INF>X</INF> SIP Call state budgets also 
assumed on average a 30 percent NO<INF>X</INF> reduction from cement 
kilns, and a 60 percent reduction from industrial boilers and 
combustion. The non-EGU control assumptions were applied at 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, at 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. See 63 FR 57458-57459.
    There were several periods during which EPA received comments on 
various aspects of the NO<INF>X</INF> SIP Call emissions inventories. 
On March 2, 2000, EPA published additional technical amendments to the 
NO<INF>X</INF> SIP Call in the Federal Register (65 FR 11222). On March 
3, 2000, the D.C. Circuit issued its decision on the NO<INF>X</INF> SIP 
Call ruling in favor of EPA on all the major issues. Michigan v. EPA, 
213 F.3d 663 (D.C. Cir. 2000). The DC Circuit Court denied petitioners' 
requests for rehearing or rehearing en banc on July 22, 2000. However, 
the Circuit Court remanded four specific elements to EPA for further 
action: The definition of electric generating unit, the level of 
control for stationary internal combustion engines, the geographic 
extent of the NO<INF>X</INF> SIP Call for Georgia and Missouri, and the 
inclusion of Wisconsin. On March 5, 2001, the U.S. Supreme Court 
declined to hear an appeal by various utilities, industry groups and a 
number of upwind states from the D.C. Circuit's ruling on EPA's 
NO<INF>X</INF> SIP Call rule.
    EPA expects to publish a proposal that addresses the remanded 
portion of the NO<INF>X</INF> SIP Call Rule. Any additional

[[Page 27049]]

emissions reductions required as a result of a final rulemaking on that 
proposal will be reflected in the second phase portion (Phase II) of 
the State's emission budget. On April 11, 2000, in response to the 
Court's decision, EPA notified Alabama of the maximum amount of 
NO<INF>X</INF> emissions allowed for the State during the ozone season. 
This emission budget reflected adjustments to Alabama's NO<INF>X</INF> 
emission budget to reflect the Court's decision that Georgia and 
Missouri should not be included in full. Although the Court did not 
order EPA to modify Alabama's budget, the EPA believes these 
adjustments are consistent with the Court's decision.

D. What Is EPA's NO<INF>X</INF> Budget and Allowance Trading Program?

    EPA's model NO<INF>X</INF> budget and allowance trading rule, 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 sources within its borders to participate 
in regional allowance trading. The October 27, 1998, Federal Register 
notice contains a full description of the EPA's model NO<INF>X</INF> 
budget trading program. See 63 FR 57514-57538 and 40 CFR part 96.
    Air emissions trading, in general, uses market forces to reduce the 
overall cost of compliance for pollution sources, such as power plants, 
while maintaining 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 
allowances for each source covered by the program 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 
authorizes 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.

E. What Guidance Did EPA Use To Evaluate Alabama's Submittal?

    The final NO<INF>X</INF> SIP Call rule included a model 
NO<INF>X</INF> budget trading program regulation. See 40 CFR part 96. 
EPA used the model rule and 40 CFR 51.121-51.122 to evaluate Alabama's 
NO<INF>X</INF> reduction and trading program.

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

    EPA has evaluated Alabama's March 12, 2001, SIP submittal and finds 
it approvable. The Alabama NO<INF>X</INF> reduction and trading program 
is consistent with EPA's guidance and meets the requirements of the 
Phase I NO<INF>X</INF> SIP Call. EPA finds the NO<INF>X</INF> control 
measures in the Alabama's NO<INF>X</INF> reduction and trading program 
approvable. The March 12, 2001, submittal will strengthen Alabama's SIP 
for reducing ground level ozone by providing NO<INF>X</INF> reductions 
beginning in 2004. Also, EPA finds that the submittal contained the 
information necessary to demonstrate that Alabama has the legal 
authority to implement and enforce the control measures, and to 
demonstrate their appropriate distribution of 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.

II. Alabama's Control of NO<INF>X</INF> Emissions

A. When Did Alabama Submit the SIP Revision to EPA in Response to the 
NO<INF>X</INF> SIP Call?

    On October 13, 2000, the Alabama Department of Environmental 
Management submitted a draft NO<INF>X</INF> emission control rule to 
the EPA for pre-adoption review, requesting parallel processing to the 
development of the rule at the State level and included a schedule for 
adoption of the rule by the State. On March 12, 2001, ADEM submitted a 
final revision to its SIP to meet the requirements of the Phase I 
NO<INF>X</INF> SIP Call.

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

    Alabama proposes, as in the model rule, to allow the large EGUs, 
boilers and turbines to participate in the multi-state cap and trade 
program. Cement kilns are not included in the trading program, but will 
be required to install low NO<INF>X</INF> burners, mid-kiln system 
firings or technology that achieves the same emission decreases. 
Alabama's SIP revision to meet the requirements of the NO<INF>X</INF> 
SIP Call consists of the revision of chapter 335-3-1 General Provisions 
and chapter 335-3-8 Control of Nitrogen Oxide Emissions. The 
regulations under 335-3-8 affect EGUs, non-EGUs, and cement 
manufacturing facilities. Chapter 335-3-1 added one new regulation 
(.14) Emissions Reporting Requirements Relating to Budgets for 
NO<INF>X</INF> Emissions. Chapter 335-3-8 Control of Nitrogen Oxide 
Emissions added eleven new regulations: (.01) Standards for Portland 
Cement Kilns; (.04) Standards For Stationary Reciprocating Internal 
Combustion Engines (reserved); (.05) NO<INF>X</INF> Budget Trading 
Program; (.06) Authorized Account Representative for NO<INF>X</INF> 
Budget Sources; (.07) Permits; (.08) Compliance Certification; (.09) 
NO<INF>X</INF> Allowance Allocations; (.10) NO<INF>X</INF> Allowance 
Tracking System; (.11) NO<INF>X</INF> Allowance Transfers; (.12) 
Monitoring and Reporting; and (.13) Individual Unit Opt-ins.
    Alabama's NO<INF>X</INF> Reduction and Trading Program establishes 
and requires a NO<INF>X</INF> allowance trading program for large EGUs 
and non-EGUs, and reductions from cement kilns. The regulations under 
335-3-8 establish a NO<INF>X</INF> cap and allowance trading program 
for the ozone control seasons beginning May 31, 2004.
    The State of Alabama voluntarily chose to follow EPA's model 
NO<INF>X</INF> budget and allowance trading rule, 40 CFR part 96, that 
sets forth a NO<INF>X</INF> emissions trading program for large EGUs 
and non-EGUs. Alabama's NO<INF>X</INF> Reduction and Trading Program is 
based upon EPA's model rule, therefore, Alabama sources are allowed to 
participate in the interstate NO<INF>X</INF> allowance trading program 
that EPA will administer for the participating states. The State of 
Alabama has adopted regulations that are substantively identical to 40 
CFR part 96. Therefore, pursuant to 40 CFR 51.121(p)(1), Alabama's SIP 
revision is approved as satisfying the State's NO<INF>X</INF> emission 
reduction obligations. Under 335-3-8, Alabama allocates NO<INF>X</INF> 
allowances to the EGU and non-EGU units that are affected by these 
requirements. The NO<INF>X</INF> trading program applies to all fossil 
fuel fired EGUs with a nameplate capacity greater than 25 MW or more 
that sell any amount of electricity to the grid as well as any non-EGUs 
that have a heat input capacity equal to or greater than 250 mmBtu per 
hour. Each NO<INF>X</INF> allowance permits a source to emit one ton of 
NO<INF>X</INF> during

[[Page 27050]]

the seasonal control period. NO<INF>X</INF> allowances may be bought or 
sold. Unused NO<INF>X</INF> allowances may also be banked for future 
use, with certain limitations.
    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 budget 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).
    Alabama's NO<INF>X</INF> Reduction and Trading Program establishes 
requirements for cement manufacturing facilities, however, these 
sources are subject to NO<INF>X</INF> reduction requirements but do not 
participate in the NO<INF>X</INF> trading program. Alabama's submittal 
does not rely on any additional reductions beyond the anticipated 
Federal measures in the mobile and area source categories.
    Alabama's submittal demonstrates that the Phase I NO<INF>X</INF> 
emission budgets established by EPA will be met as follows:

------------------------------------------------------------------------
                                       EPA 2007 NO<INF>X</INF>     Alabama 2007 NO<INF>X</INF>
          Source category            budget emissions  budget  emissions
                                      (tons/season)       (tons/season)
------------------------------------------------------------------------
EGUs..............................             23,242             23,169
Non-EGUs..........................             31,240             31,159
Area Sources......................             21,109             21,109
Non-road Sources..................             13,402             13,402
Highway Sources...................             35,801             35,801
                                   -------------------------------------
  Total...........................            124,795            124,640
------------------------------------------------------------------------

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 rule 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 2004 and 2005 ozone season. Allowances from the compliance 
supplement pool will not be valid for compliance past the 2005 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 NO<INF>X</INF> 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 
31, 2004 (i.e., early reductions). This allows sources that cannot 
install controls prior to May 31, 2004, to 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 31, 2004, 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). Alabama has 
opted to not participate in the Early Reduction Credit program. The 
compliance supplement pool will be reserved for those companies that 
demonstrate an actual need for the available allowance.

D. What Is the New Source Set-Aside Program?

    The major difference between Alabama's rule and EPA's model rule is 
in the allocation of allowances. Alabama's SIP provides for no New 
Source Set-asides. Initial allocations submitted with this revision for 
the control periods in 2004, 2005, and 2006, and were given to those 
NO<INF>X</INF> budget units in operation, permitted, or with complete 
permit application on or before October 2, 2000 (referred to as 
``baseline units''). After this date there will be no allowances 
available for new sources unless an existing source shuts down. If an 
existing unit is shut down, a replacement unit constructed at the same 
site will be given priority in allowance allocations over new sources. 
The replacement unit must be of the same or less heat input capacity as 
the former unit. Once allocations are made to the replacement unit, 
other new units can qualify for excess allowances resulting from the 
shutdown. Future allocations will be distributed by April 1st of every 
third year (2004, 2007, 2010 etc.). Allocations will be calculated for 
three years each three year period (2004-2006, 2007-2009, etc.). This 
approach to allocations for new units is acceptable because it falls 
within the flexibility of the NO<INF>X</INF> SIP Call requirements for 
a state's allocation to new sources.

III. Proposed Action

    EPA is proposing to approve the Alabama's SIP revision consisting 
of its NO<INF>X</INF> Reduction and Trading Program, which was 
submitted on March 12, 2001. EPA finds that Alabama's submittal is 
fully approvable because it meets the requirements of the Phase I 
NO<INF>X</INF> SIP Call.

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 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). This proposed rule also does not have

[[Page 27051]]

a substantial direct effect on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes, as specified by Executive Order 13175 (65 
FR 67249, November 9, 2000), nor will it 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 proposes to approve 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 proposed approval of the Alabama NO<INF>X</INF> Reduction and 
Trading Program does not impose an information collection burden under 
the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
et seq.).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Nitrogen dioxide, 
Ozone, Reporting and recordkeeping requirements.

    Dated: May 8, 2001.
A. Stanley Meiburg,
Acting Regional Administrator, Region 4.
[FR Doc. 01-12355 Filed 5-15-01; 8:45 am]
BILLING CODE 6560-50-P


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