58154 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 

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. This proposed 

rule 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, Intergovernmental 

relations, Nitrogen dioxide, Ozone, 

Reporting and recordkeeping 

requirements, Volatile organic 

compounds. 

Authority: 42 U.S.C. 7401 et seq. 

Dated: September 27, 2005. 

Richard E. Greene, 

Regional Administrator, Region 6. 

[FR Doc. 05–19997 Filed 10–4–05; 8:45 am] 

BILLING CODE 6560–50–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[R06–OAR–2005–TX–0029; FRL–7980–7] 

Approval and Promulgation of Air 

Quality Implementation Plans; Texas; 

Discrete Emission Credit Banking and 

Trading Program 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: EPA is proposing to 

conditionally approve revisions to the 

Texas State Implementation Plan (SIP) 

concerning the Discrete Emission Credit 

Banking and Trading Program. 

Additionally, we are proposing approval 

of a subsection of Chapter 115 of the 

Texas Administrative Code (TAC), 

Control of Air Pollution from Volatile 

Organic Compounds, which crossreferences the Discrete Emission Credit 

Banking and Trading Program. We are 

also proposing approval of a subsection 

of 30 TAC Chapter 116, Control of Air 

Pollution by Permits for New 

Construction or Modification, which 

provides a definition referred to in the 

Discrete Emission Credit Banking and 

Trading Program. 

DATES: Comments must be received on 

or before November 4, 2005. 

ADDRESSES: Submit your comments, 

identified by Regional Materials in 

EDocket (RME) ID No. R06–OAR–2005–

TX–0029, by one of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the on-line 

instructions for submitting comments. 

• Agency Website: http:// 

docket.epa.gov/rmepub/ RME, EPA’s 

electronic public docket and comment 

system, is EPA’s preferred method for 

receiving comments. Once in the 

system, select ‘‘quick search,’’ then key 

in the appropriate RME Docket 

identification number. Follow the online instructions for submitting 

comments. 

• U.S. EPA Region 6 ‘‘Contact Us’’

web site: http://epa.gov/region6/ 

r6coment.htm. Please click on ‘‘6PD’’

(Multimedia) and select ‘‘Air’’ before 

submitting comments. 

• E-mail: Mr. David Neleigh at 

neleigh.david@epa.gov. Please also cc 

the person listed in the FOR FURTHER

INFORMATION CONTACT section below. 

• Fax: Mr. David Neleigh, Chief, Air 

Permitting Section (6PD–R), at fax 

number 214–665–6762. 

• Mail: Mr. David Neleigh, Chief, Air 

Permitting Section (6PD–R), 

Environmental Protection Agency, 1445 

Ross Avenue, Suite 1200, Dallas, Texas 

75202–2733. 

• Hand or Courier Delivery: Mr. 

David Neleigh, Chief, Air Permitting 

Section (6PD–R), Environmental 

Protection Agency, 1445 Ross Avenue, 

Suite 1200, Dallas, Texas 75202–2733. 

Such deliveries are accepted only 

between the hours of 8 am and 4 pm 

weekdays except for legal holidays. 

Special arrangements should be made 

for deliveries of boxed information. 

Instructions: Direct your comments to 

RME ID No. R06–OAR–2005–TX–0029. 

EPA’s policy is that all comments 

received will be included in the public 

file without change, and may be made 

available online at http:// 

docket.epa.gov/rmepub/, including any 

personal information provided, unless 

the comment includes information 

claimed to be Confidential Business 

Information (CBI) or other information 

the disclosure of which is restricted by 

statute. Do not submit information 

through RME, regulations.gov, or e-mail 

if you believe that it is CBI or otherwise 

protected from disclosure. The RME 

website and the Federal regulations.gov 

are ‘‘anonymous access’’ systems, which 

means EPA will not know your identity 

or contact information unless you 

provide it in the body of your comment. 

If you send an e-mail comment directly 

to EPA without going through RME or 

regulations.gov, your e-mail address 

will be automatically captured and 

included as part of the comment that is 

placed in the public file and made 

available on the Internet. If you submit 

an electronic comment, EPA 

recommends that you include your 

name and other contact information in 

the body of your comment and with any 

disk or CD–ROM you submit. If EPA 

cannot read your comment due to 

technical difficulties and cannot contact 

you for clarification, EPA may not be 

able to consider your comment. 

Electronic files should avoid the use of 

special characters, any form of 

encryption, and be free of any defects or 

viruses. Guidance on preparing 

comments is given in the 

SUPPLEMENTARY INFORMATION section of 

this document under the General 

Information heading. 

Docket: All documents in the 

electronic docket are listed in the RME 

index at http://docket.epa.gov/rmepub/. 

Although listed in the index, some 

information is not publicly available, 

i.e., CBI or other information whose 

disclosure is restricted by statute. 

Certain other material, such as 

copyrighted material, is not placed on 

the Internet and will be publicly 

available only in hard copy form. 

Publicly available docket materials are 

available either electronically in RME or 

in the official file which is available at 

the Air Permitting Section (6PD–R), 

Environmental Protection Agency, 1445 

Ross Avenue, Suite 700, Dallas, Texas 

75202–2733. The file will be made 

available by appointment for public 

inspection in the Region 6 FOIA Review 

Room between the hours of 8:30 am and 

4:30 pm weekdays except for legal 

holidays. Contact the person listed in 

the FOR FURTHER INFORMATION CONTACT

paragraph below to make an 

appointment. If possible, please make 

the appointment at least two working 

days in advance of your visit. There will 

be a 15 cent per page fee for making 

photocopies of documents. On the day 

of the visit, please check in at the EPA 

Region 6 reception area at 1445 Ross 

Avenue, Suite 700, Dallas, Texas. 

The State submittal is also available 

for public inspection at the State Air 

Agency listed below during official 

business hours by appointment: Texas 

Commission on Environmental Quality, 

Office of Air Quality, 12124 Park 35 

Circle, Austin, Texas 78753. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Adina Wiley, Air Permitting Section 

(6PD–R), Environmental Protection 

Agency, Region 6, 1445 Ross Avenue, 

Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 58155 

Suite 700, Dallas, Texas 75202–2733, 

telephone (214) 665–2115; fax number 

214–665–6762; e-mail address 

wiley.adina@epa.gov. 

SUPPLEMENTARY INFORMATION: 

Throughout this document wherever 

‘‘we,’’ ‘‘us,’’ or ‘‘our’’ is used, we mean 

the EPA. 

Outline 

I. Discrete Emission Credit Banking and 

Trading Program 

A. Proposed Action 

1. What is EPA proposing to approve? 

2. What is a conditional approval? 

3. What future actions are necessary for the 

DERC program to fully meet EPA’s 

expectations? 

B. Summary of the Discrete Emission 

Credit Banking and Trading program 

1. How does the DERC program work? 

2. What is the history of the DERC 

program? 

C. EPA’s Analysis 

1. How did EPA review and evaluate the 

DERC program? 

2. What criteria did EPA use to analyze the 

DERC program? 

3. What is EPA’s analysis of the 

fundamental principle of integrity? 

4. Will the DERC program violate the 

integrity of the MECT program? 

5. What is EPA’s analysis of the 

fundamental principle of equity? 

6. What is EPA’s analysis of the 

fundamental principle of environmental 

benefit? 

7. What is EPA’s analysis of the use of 

discrete emission credits for 

nonattainment new source review 

offsets? 

8. What is EPA’s analysis of the 

commitments TCEQ has made? 

9. What is EPA’s analysis of the crossreference rule language in Chapters 115 

and 116? 

10. What is EPA’s analysis of the DERC 

program with respect to section 110(l) of 

the Clean Air Act? 

D. Conclusion 

II. General Information 

III. Statutory and Executive Order Reviews 

I. Discrete Emission Credit Banking and 

Trading Program 

A. Proposed Action 

1. What is EPA proposing to approve? 

The EPA is proposing conditional 

approval of the Discrete Emission Credit 

Banking and Trading Program, referred 

to as the Discrete Emission Reduction 

Credit (DERC) program, enacted at 

Texas Administrative Code (TAC) Title 

30, Chapter 101 General Air Quality 

Rules, Subchapter H, Division 4, 

sections 101.370–101.374, 101.376, 

101.378, and 101.379. Also at this time, 

EPA is proposing approval of 30 TAC 

Chapter 115, Control of Air Pollution 

from Volatile Organic Compounds, 

Subchapter J, Division 4, section 

115.950 (‘‘Use of Emissions Credits for 

Compliance’’), which cross-references 

the DERC program. EPA is also 

proposing approval of the definition of 

‘‘facility’’ published at 30 TAC Chapter 

116, Control of Air Pollution by Permits 

for New Construction or Modification, 

Subchapter A, section 116.10(4). These 

revisions were provided in SIP revisions 

dated July 22, 1998; December 20, 2000; 

July 15, 2002; January 31, 2003; and 

December 6, 2004. 

2. What is a conditional approval? 

Under section 110(k)(4) of the Clean 

Air Act EPA may conditionally approve 

a plan based on a commitment from the 

State to adopt specific enforceable 

measures within one year from the date 

of approval. If EPA determines that the 

revised rule is approvable, EPA will 

propose approval of the rule. If the State 

fails to meet its commitment within the 

one year period, the approval is treated 

as a disapproval. There are at least two 

ways that the conditional approval may 

be converted to a disapproval. 

• If the State fails to adopt and submit 

the specified measures by the end of one 

year (from the final conditional 

approval), or fails to submit anything at 

all, EPA will have to issue a finding of 

disapproval but will not have to propose 

the disapproval. That is because in the 

original proposed and final conditional 

approval, EPA will have provided 

notice and an opportunity for comment 

on the fact that EPA would directly 

make the finding of disapproval (by 

letter) if the State failed to submit 

anything. Therefore, at the end of one 

year from the conditional approval, the 

Regional Administrator (RA) will send a 

letter to the State finding that it had 

failed to meet its commitment and that 

the SIP submittal is disapproved. The 

18-month clock for sanctions and the 

two year clock for a Federal 

Implementation Plan (FIP) start as of the 

date of the letter. Subsequently, a notice 

to that effect will be published in the 

Federal Register, and appropriate 

language will be inserted in the Code of 

Federal Regulations (CFR). Similarly, if 

EPA receives a submittal addressing the 

commitment but determines that the 

submittal is incomplete, the RA will 

send a letter to the State making such a 

finding. As with the failure to submit, 

the sanctions and FIP clocks will begin 

as of the date of the finding letter. 

• Where the State does make a 

complete submittal by the end of the 

one year period, EPA will have to 

evaluate that submittal to determine if it 

may be approved and take final action 

on the submittal within 12 months after 

the date EPA determines the submittal 

is complete. If the submittal does not 

adequately address the deficiencies that 

were the subject of the conditional 

approval, and is therefore not 

approvable, EPA will have to go through 

notice-and-comment rulemaking to 

disapprove the submittal. The 18-month 

clock for sanctions and the two year 

clock for a FIP start as of the date of 

final disapproval. 

In either instance, whether EPA 

finally approves or disapproves the rule, 

the conditional approval remains in 

effect until EPA takes its final action. 

Note that EPA will conditionally 

approve a certain rule only once. 

Subsequent submittals of the same rule 

that attempt to correct the same 

specifically identified problems will not 

be eligible for conditional approval. 

3. What future actions are necessary for 

the DERC rule to fully meet EPA’s 

expectations? 

TCEQ has submitted a commitment 

letter to Region 6 outlining the steps 

that will be taken to achieve full 

approval. This letter, dated September 

8, 2005, can be found in the RME 

docket. The commitments are: 

1. Revising the language in section 

101.373: 

a. To prohibit the future generation of 

discrete emission reduction credits from 

permanent shutdowns; 

b. To allow discrete emission 

reduction credits generated from 

permanent shutdowns before September 

30, 2002, to remain available for use for 

no more than five years from the date 

of the commitment letter; and 

2. TCEQ will perform a credit audit to 

remove from the emissions bank all 

discrete emission reduction credits 

generated from permanent shutdowns 

after September 30, 2002. 

3. Revising the language in sections 

101.302(f), 101.372(f)(7), and 

101.372(f)(8) to clarify that EPA 

approval is required for individual 

transactions involving emission 

reductions generated in another state or 

nation, as well as those transactions 

from one nonattainment area to another 

or from attainment counties into 

nonattainment areas. 

4. TCEQ will revise Form DEC–1, 

Notice of Generation and Generator 

Certification of Discrete Emission 

Credits; Form MDEC–1, Notice of 

Generation and Generator Certification 

of Mobile Discrete Emission Credits; 

and Form DEC–2, Notice of Intent to 

Use Discrete Emission Credits, to 

include a waiver to the Federal statute 

of limitations defense for generators and 

users of discrete emission credits. 

5. TCEQ will maintain its current 

policy of preserving all records relating 

to discrete emission credit generation 

58156 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 

and use for a minimum of five years 

after the use strategy has ended. 

Additionally, TCEQ has agreed to 

comply with these commitments during 

the conditional approval period. 

Specifically, TCEQ will not approve any 

trades involving the types of reductions 

described in item (3) above, will not 

approve any use of discrete shutdown 

credits that were generated after 

September 30, 2002, and will require 

the waiver described in item (4) above 

for generators and users of discrete 

emission credits. 

TCEQ will submit these revisions to 

EPA on or before December 01, 2006. 

The conditional approval will 

automatically become a disapproval if 

the revisions are not completed and 

submitted to EPA by this date. 

B. Summary of the Discrete Emission 

Credit Banking and Trading Program 

1. How does the DERC program work? 

The DERC rules establish a type of 

Economic Incentive Program (EIP), in 

particular an open market emission 

trading program as described in EPA’s 

EIP Guidance document, ‘‘Improving 

Air Quality with Economic Incentive 

Programs’’ (EPA–452/R–01–001, January 

2001). In an open market trading (OMT) 

program, a source generates short-term 

emission credits (called discrete 

emission credits, or DECs, in the Texas 

program) by reducing its emissions. 

Discrete emission credit is a generic 

term that encompasses reductions from 

stationary sources (discrete emission 

reduction credits or DERCs), and 

reductions from mobile sources (mobile 

discrete emission reduction credits or 

MDERCs). The source can then use 

these DECs at a later time, or trade them 

to another source to use at a later time. 

The trading program assumes that many 

sources will participate and 

continuously generate new DERCs or 

MDERCs to balance with other sources 

using previously generated discrete 

credits. DECs are quantified, banked and 

traded in terms of mass (tons) and may 

be generated and used statewide. 

Reductions of all criteria pollutants, 

with the exception of lead, may be 

certified as DECs. 

This program provides flexibility for 

sources in complying with certain State 

and Federal requirements. Traditionally 

DECs have been used for alternate RACT 

compliance for volatile organic 

compounds (VOCs) and nitrogen oxides 

(NOX). The DERC rule also allows DECs 

to be used to exceed allowable emission 

levels, as new source review (NSR) 

offsets, and in lieu of allowances in the 

Houston/Galveston/Brazoria NOX MECT 

program. 

In this action, when we refer to this 

program as ‘‘the DERC rule’’ or ‘‘the 

DERC program’’ we are speaking of the 

entire Discrete Emission Credit Banking 

and Trading program, which 

encompasses both DERCs and MDERCs. 

2. What is the history of the DERC 

program? 

The DERC program was first adopted 

by the State at 30 TAC Section 101.29 

on December 23, 1997. Effective January 

18, 2001, Section 101.29 was repealed 

and Chapter 101, Subchapter H, 

Divisions 1, 3, and 4 were created. This 

action created separate divisions for the 

ERC, Mass Emissions Cap and Trade 

(MECT) in the Houston/Galveston/ 

Brazoria (HGB) area, and DERC 

programs. Amendments to the MECT 

were adopted on October 18, 2001; these 

amendments also included changes 

made primarily for clarification to 

Sections 101.370, 101.372, and 101.373 

in the DERC program. The DERC 

program was amended again effective 

April 14, 2002, to include the provisions 

in Texas Senate Bill 1561 for air 

emissions trading across international 

boundaries. The submittal, which was 

effective on January 17, 2003, 

completely reorganized the DERC and 

ERC program rules into more 

standardized formats parallel to each 

other, with a rule structure which 

followed a process of recognizing, 

quantifying, and certifying reductions as 

credits while explaining the guidelines 

for trading and using creditable 

reductions. The most recent submittal of 

December 06, 2004, amended Sections 

101.370, 101.373, 101.373, and 101.376. 

The DERC program adoption and each 

of the subsequent revisions were 

submitted to EPA for approval into the 

SIP; however, this proposed conditional 

approval is the first time we have acted 

on this program. 

C. EPA’s Analysis 

1. How did EPA review and evaluate the 

DERC program? 

Generally, SIP rules must be 

enforceable and must not relax existing 

requirements. See Clean Air Act 

sections 110(a), 110(l), and 193. 

A guidance document that we used to 

define evaluation criteria is ‘‘Improving 

Air Quality with Economic Incentive 

Programs’’ (EPA–452/R–01–001, January 

2001) (EIP Guidance). This guidance 

applies to discretionary economic 

incentive programs (EIPs) adopted to 

attain national ambient air quality 

standards (NAAQS) for criteria 

pollutants, but the EIP Guidance is not 

EPA’s final action on discretionary EIPs. 

Final action as to any such EIP occurs 

when EPA acts on it after its submission 

as a SIP revision. Because the EIP 

Guidance is non-binding and does not 

represent final agency action, EPA is 

using the guidance as an initial screen 

to determine whether potential 

approvability issues arise. A more 

detailed review of the DERC program as 

compared to the EIP Guidance is in the 

Technical Support Document (TSD) for 

the TCEQ Discrete Emission Credit 

Banking and Trading Program. The TSD 

is available as specified in the section of 

this document identified as ADDRESSES. 

2. What criteria did EPA use to analyze 

the DERC program? 

Fundamental principles that apply to 

all EIPs are integrity (meaning that 

credits are based on emission reductions 

that are surplus, enforceable, 

quantifiable, and permanent), equity, 

and environmental benefit. These 

fundamental principles can apply to an 

EIP in its entirety (the programmatic 

level) or to individual sources (the 

source-specific level). EPA evaluated 

the DERC program against these three 

fundamental principles, specific 

concerns applicable to open market 

trading programs, and applicable Clean 

Air Act requirements. Our complete 

analysis of the DERC program is 

contained in the TSD for this action. 

3. What is EPA’s analysis of the 

fundamental principle of integrity? 

The fundamental principle of 

integrity consists of the qualities of 

surplus, enforceable, quantifiable, and 

permanent. 

Integrity Element One—Surplus 

The element of surplus does not apply 

to the DERC program in its entirety 

because OMT programs are not designed 

to achieve program-wide emission 

reductions. However, the element of 

surplus does apply at the sourcespecific level. Emission reductions are 

surplus if the reductions are not 

presently relied upon in any other air 

quality-related programs such as the 

SIP, SIP-related requirements such as 

transportation conformity, other 

adopted TCEQ measures not in the SIP, 

Federal rules that focus on reducing 

precursors of criteria pollutants such as 

new source performance standards, or a 

consent decree. Emission reductions 

measured by sources on a retrospective 

basis are surplus if the source’s actual 

emissions are below its baseline 

allowable or historical actual 

emissions—whichever is lower—and 

the retrospective inventories reflect 

actual emission information as 

appropriate. 

Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 58157 

Sections 101.372(c)(1)(A) and 

(c)(2)(A) of the DERC rules require that 

a reduction be real, quantifiable, and 

surplus at the time the DERC or MDERC 

is generated. Surplus is defined in 

section 101.370(33) as an emission 

reduction that is not otherwise required 

of a facility or mobile source by state or 

Federal law, regulation, agreed order, 

and not otherwise relied on in the SIP. 

Thus, the DERC rule requires that at the 

time of generation, reductions satisfy 

the source-specific integrity element of 

surplus. Requirements for emission 

reduction baselines are specified in 

sections 101.373(b) and 101.374(b). 

Integrity Element Two—Enforceable 

Emission reductions use, generation, 

and other required actions in the EIP are 

enforceable on a programmatic basis if 

they are independently verifiable, 

define program violations, and identify 

those liable for violations. For 

enforceability, both the State and EPA 

should have the ability to apply 

penalties and secure appropriate 

corrective actions where applicable. 

Citizens should also have access to all 

the emissions-related information 

obtained from the source so that citizens 

can file suits against sources for 

violations. Required actions must be 

practicably enforceable in accordance 

with other EPA guidance on practicable 

enforceability. At the source-specific 

level, the source must be liable for 

violations, the liable party must be 

identifiable, and the State, the public, 

and EPA must be able to independently 

verify a source’s compliance. 

Additionally, in OMT programs owners/ 

operators of sources generating OMT 

credits must ensure the truth and 

accuracy of statements regarding actions 

taken to generate discrete credits and 

are liable for meeting their emission 

limits. Owners/operators of sources 

using OMT credits must ensure the 

validity of discrete credit generation and 

use and are liable for meeting their 

emission limits. The EIP Guidance 

outlines enforcement elements common 

to all trading EIPs in Chapter 6.0. In 

addition to addressing the programmatic 

and source-specific enforcement 

provisions discussed above, trading EIPs 

must incorporate provisions for 

assessing liability, provisions to assess 

penalties against participating sources, 

and provisions for sources with title V 

permits. 

The monitoring and testing protocols 

established in 30 TAC Chapters 115 and 

117 are adequate for independent 

verifications of emission reductions 

certified as DERCs or MDERCs and for 

demonstrating practicable 

enforceability. The DERC rule identifies 

those liable at section 101.372(l), and 

information to be made available to the 

public/citizens is addressed at section 

101.372(i). The DERC rule does provide 

in section 101.372(l)(2) that a user is in 

violation of the rule if the user does not 

possess enough DECs to cover the 

compliance need for the use period. If 

the user possesses an insufficient 

quantity of DECs to cover its compliance 

need, the user will be out of compliance 

for the entire use period. Each day the 

user is out of compliance may be 

considered a violation. 

The application of penalties or 

obtaining corrective action and citizen 

filing of lawsuits are not addressed in 

the DERC rules. Texas enforcement 

provisions are not typically in the 

State’s individual rules but are 

separately codified. Texas Water Code 

Chapter 7 contains the State’s statutory 

provisions for enforcement of the DERC 

program. In particular, TWC section 

7.051 provides for the assessment of 

administrative penalties by the TCEQ, 

and section 7.032 provides for 

injunctive relief by the TCEQ. The 

TCEQ enforcement rule at 30 TAC 

section 70.5 incorporates remedies 

found in the State statutes (Texas Water 

Code and the Texas Health and Safety 

Code), and permits referrals to EPA for 

civil, judicial or administrative action. It 

is our conclusion that TCEQ has 

adequate legal authority to enforce its 

DERC program. Once we approve the 

DERC program into the SIP, EPA will be 

able to enforce it under section 113 of 

the Clean Air Act. 

For the above reasons, and as further 

explained in the TSD, EPA has 

concluded that the DERC program is 

consistent with Clean Air Act 

requirements and EIP Guidance 

expectations for the integrity element of 

enforceability. 

Integrity Element Three—Quantifiable 

On a programmatic basis, emissions 

and emission reductions attributable to 

an EIP are quantifiable if the source can 

reliably and replicably measure or 

determine them. The generation or use 

of emission reductions by a source or 

group of sources is quantifiable on a 

source-specific basis if each source can 

reliably calculate the amount of 

emissions and/or emission reductions 

occurring during the implementation of 

the program, and replicate the 

calculations. The EIP Guidance further 

states that when quantifying results, 

sources must use the same methodology 

used to measure baseline emissions, 

unless there are good technical reasons 

that this approach is not appropriate. In 

OMT EIPs, sources must quantify their 

activity level and their historical, actual, 

and allowable emission rates per 

activity levels; OMT credit generators 

must quantify their emissions before 

and during implementation of the 

reduction strategy; and OMT credit 

users must quantify the amount of 

credits they will need to cover their 

total emissions when using discrete 

credits. Common elements for 

quantifying results of an EIP are 

included in Chapter 5.0 of the EIP 

Guidance. All EIPs should incorporate 

provisions for predicting results, 

addressing uncertainty, approving 

quantification protocols, and emission 

quantification methods. 

For a reduction to be certified as a 

DEC, the reduction must be real, 

quantifiable, and surplus at the time the 

DEC is generated. Quantifiable is 

defined as an emission reduction that 

can be measured or estimated with 

confidence using replicable 

methodology under section 101.370(25). 

The emission quantification provisions 

established in 30 TAC Chapters 115 and 

117 are sufficient to reliably and 

replicably measure the emission 

reduction. The DERC program definition 

of quantifiable and the quantification 

provisions above are sufficient to satisfy 

the quantifiability requirements at the 

programmatic and source-specific 

levels. Additionally, generators/users 

wanting to use quantification protocols 

alternate to 30 TAC Chapter 115 and 

Chapter 117 must follow the 

quantification requirements at section 

101.372(d)(1)(C). EPA approval of such 

alternate protocols is required. The 

formulas used to calculate DERC 

generation, DECs needed, and DECs 

used incorporate the use of the baseline, 

actual, and allowable activity levels as 

applicable. The calculation for DERC 

generation includes the difference 

between the baseline emission rate and 

the emission reduction strategy 

emission rate. This ensures that the 

DERC generator quantifies their 

emissions before and during 

implementation for the reduction 

strategy. Section 101.376(d)(1)(D) 

requires that the application to use 

DECs include the amount of DECs 

needed. For the above reasons, and as 

further explained in the TSD, EPA has 

concluded that the DERC program is 

consistent with Clean Air Act 

requirements and EIP Guidance 

expectations for the integrity element of 

quantifiability. 

Integrity Element Four—Permanent 

To satisfy the EIP Guidance 

expectations for permanence, a 

compliance flexibility EIP must ensure 

that no emission increases (compared to 

emissions if there was no EIP) occur 

58158 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 

over the time defined in the SIP. On a 

source-specific basis, the permanence 

expectations are met if the sources 

participating in the EIP commit to 

actions or achieve reductions for a 

future period of time as defined in the 

EIP. 

The DERC certification procedures 

under section 101.373(d) ensure that the 

credits generated are permanent, thus 

ensuring that there were no increases in 

emissions during the DERC generation 

period. Similar provisions are provided 

for MDERC certification in section 

101.374(e). 

4. Will the DERC program violate the 

integrity of the MECT program? 

In our initial MECT approval (66 FR 

57252, Nov. 14, 2001), EPA deferred 

action on the use of DERCs and 

MDERCs for compliance with the MECT 

until our action on the DERC rule. In 

addition to the original MECT 

submission, TCEQ has submitted 

revisions to section 101.356 twice since 

EPA’s approval of the MECT program. 

In this document, we are reviewing the 

use of DERCs and MDERCs in TCEQ’s 

MECT program for the Houston/ 

Galveston/Brazoria (HGB) ozone 

nonattainment area. We will review and 

act on the revisions to the MECT 

program in a separate action (RME 

Docket R06–OAR–2005–TX–0023). The 

use of DERCs and MDERCs in the MECT 

program will not be Federally approved 

until the approval of both the DERC rule 

and the revisions to the MECT program. 

The DERC and MECT programs are 

OMT and multi-source cap-and-trade 

programs, respectively, as described in 

the EIP Guidance. Section 4.1 of the EIP 

Guidance explains that certain types of 

EIPs may not be combined because their 

characteristics and requirements are 

incompatible and cites OMT and multisource cap-and-trading as an example of 

such incompatible programs. Therefore, 

the fact that the MECT program 

provides for the use of DERCs and 

MDERCs in lieu of allowances at section 

101.356(h), with corresponding 

provisions in the DERC rule at section 

101.376(b), is contrary to the general 

statement in the EIP Guidance about the 

incompatibility of OMT and multisource cap-and-trade programs. 

The EIP Guidance discourages the use 

of OMT credits in a multi-source capand-trade program based on concerns 

that the use of OMT credits in the cap 

program could potentially undermine 

the integrity of the cap, thus preventing 

the goals that the cap was established to 

achieve. EPA is concerned that 

including OMT credits in a cap-andtrade system could lead to: 

• The possibility that more OMT 

credits will be used in a given year than 

are generated; 

• The possibility that sources will 

shift production from one source to 

another, generating credits at the 

reduced source while no real net benefit 

in air quality is achieved; and 

• The possibility that reductions at 

unregulated sources will not be real 

reductions and that they will be used to 

offset increases at regulated sources. 

When a program includes elements 

that are not consistent with the 

approaches outlined in our guidance, 

EPA may still approve the rule if it is 

consistent with CAA requirements and 

the rationales underlying the provisions 

in EPA guidance. In this case, we must 

determine whether the use of OMT 

credits (DERCs or MDERCs) in lieu of 

allowances will, because of the above 

concerns, undermine the goal of the 

MECT program, which is attainment of 

the one-hour ozone standard in the HGB 

area. EPA should also consider whether 

there are adequate safeguards to ensure 

that the additional flexibility provided 

by the interplay between the DERC and 

MECT programs will not undermine the 

HGB reasonable further progress plan 

and attainment demonstration. 

Regarding the HGB reasonable further 

progress plan, we approved the plan on 

February 14, 2005 (70 FR 07407). The 

HGB area met its rate of progress (ROP) 

target by a wide margin (over 100 tons 

per day) so the institution of DERCs in 

the MECT would not be expected to 

interfere with ROP. 

As for the attainment demonstration, 

the reduction in industrial NOX

emissions relied on in it is achieved by 

the MECT program, which provides a 

cap on NOX emissions. Beginning in 

2002, the amount of allowances (the 

authorization to emit one ton of NOX

during a control period, which is the 

calendar year) under the cap decreases 

to the final cap level in 2007. The final 

2007 cap level was set, based on 

photochemical modeling and other 

evidence, at a level determined 

necessary for the area to meet the onehour ozone standard. Even after the 

change from 90 percent to 80 percent 

NOX control strategy, the final MECT 

level is among the most stringent levels 

of NOX controls on industrial emissions 

in the United States. 

Because of the stringency of the 

MECT NOX controls, Texas linked the 

DERC and MECT programs, in an effort 

to provide additional flexibility to sites 

subject to the program while 

encouraging the development and use of 

cleaner technologies to reduce NOX

emissions from sources not covered by 

the cap-and-trade program. Only DERCs 

and MDERCs generated in the HGB area 

are available for use in lieu of 

allowances. 

At the time the MECT rules were 

developed, the number of DERCs 

available for use in the HGB area totaled 

over 37,000 tons (all generated by 

stationary sources; no MDERCs had 

been generated). Additionally, sources 

had the ability to make early reductions 

and continue banking DERCs until the 

January 1, 2002, implementation date of 

the MECT. After implementation of the 

MECT, sources subject to the cap no 

longer had the ability to generate DERCs 

because those reductions would take the 

form of unused allowances. The 

potential for capped sites to hold these 

banked DERCs for use in 2005 and 

beyond was significant enough to 

negatively impact the HGB ROP and 

attainment demonstration. To guard 

against more DERCs being used in a 

given year than are being generated, 

which might affect the goal of 

attainment, Texas included the 

following provisions in the MECT rule 

limiting the use of NOX DERCs in lieu 

of allowances. 

First, beginning in 2005, use of DERCs 

within the MECT is limited to 10,000 

DERCs collectively for all sites within 

the HGB area. This provision eliminates 

the potential for sites subject to the 

MECT to use a large quantity of DERCs 

in a single year and negatively impact 

the HGB ROP plan and attainment 

demonstration. All requests to use 

DERCs (or MDERCs) in the MECT must 

be made by October 1 of the control 

period for which the DERCs (or 

MDERCs) would be used. In terms of the 

10,000 DERC limit, TCEQ will approve 

requests to use DERCs in the amount of 

250 tons or less for a given control 

period. After October 1, when all 

requests to use DERCs have been 

received, TCEQ determines how to 

respond to any requests to use DERCs in 

an amount exceeding 250 tons. TCEQ 

may reduce any such request so that the 

total amount of all DERCs used 

collectively does not exceed 10,000. If 

all the requests to use DERCs in a given 

control period are less than the 10,000 

limit, TCEQ will then address requests 

for more than 250 tons. For these 

requests, TCEQ determines the number 

of remaining DERCs under the 10,000 

limit that were not approved in the 

requests of 250 tons or less. These extra 

DERCs may be apportioned based on the 

percentage of DERCs in excess of 250 

requested for use by those sites relative 

to the total amount of extra DERCs 

available. 

Second, depending on when the 

DERCs were generated, the MECT rule 

requires the use of DERCs at specified 

Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 58159 

ratios. Beginning in 2005, DERCs 

generated before January 1, 2005, are 

required to be used at a ratio of four 

DERCs to one allowance. The ratio of 

DERCs to allowances increases to a 10 

to 1 ratio for DERCs generated before 

2005 and used in the 2007, or 

subsequent, control periods. For 

example, if DERC usage equaling the 

full 10,000 limit is approved for use in 

the 2007 control period, the overall cap 

would be increased by 1,000 

allowances. Any DERCs generated after 

January 1, 2005, are available for use 

within the MECT at a one to one ratio, 

but are still included in the 10,000 

DERC collective limit. We believe these 

ratios guard against the possibility that 

the availability of historic reductions 

would permit the use of more DERCs in 

a year than are generated, which could 

interfere with attainment or reasonable 

further progress. 

As a further safeguard against the 

possibility of undermining the 

attainment demonstration by allowing 

the use of more DERCs in any given year 

than are generated, Texas added an 

additional 2.7 tons per day into the 

attainment model beyond the emissions 

that would be allowed based on source 

allocations. This additional 2.7 tons per 

day represents the maximum amount of 

pre-2005 DERCs available for use in the 

attainment year 2007. To arrive at this 

number, TCEQ divided the 10,000 DERC 

limit by 10 (the 2007 reduction ratio) 

and then by 365 (days per year) to yield 

a total of 2.7 tons per day that could be 

reintroduced into the cap. DERCs 

generated after 2005 by sources outside 

of the cap could not be quantified as 

those reductions would be generated 

through voluntary measures. TCEQ 

therefore assumed that all DERCs that 

would be used in the 2007 control 

period were pre-2005 DERCs. Including 

these added emissions in the attainment 

modeling is analogous to cap-and-trade 

programs that set aside a percentage of 

the modeled emissions for new source 

growth or other purposes. 

The MECT program also provides that 

MDERCs can be used in lieu of 

allowances at a ratio of one MDERC to 

one allowance. MDERCs are not 

included in the 10,000 DERCs limit in 

any given year. TCEQ incorporated 

MDERCs into the MECT to provide 

incentives for mobile reductions. 

Although there is no set limit for 

MDERC usage under the MECT, from 

our experience with open market 

trading programs, we can reasonably 

predict that a relatively small quantity 

of MDERCs will be generated. 

Consistent with our prediction, we note 

that only 60 tons of NOX MDERCs have 

been banked as of August 1, 2005. 

TCEQ has also committed to making 

certain revisions to the DERC program 

to ensure that DECs used are real and 

surplus, consistent with the 

assumptions in the attainment 

demonstration. These revisions will 

include: 

• Prohibiting the generation of DERCs 

from permanent shutdowns; 

• Ensuring that reductions can only 

come from process changes or the 

installation of control equipment that 

result in less emissions per unit of 

production, thus preventing reductions 

from production shifting as a method of 

DEC generation; 

• Clarifying provisions that allow for 

public comment and EPA approval of 

quantification protocols to ensure that 

the reductions used for DEC generation 

are quantifiable. 

Additionally, section 101.363 requires 

TCEQ to audit the MECT program every 

three years. If the use of DERCs or 

MDERCs is shown to negatively impact 

attainment, TCEQ will remove this 

flexibility from the program. 

With the restrictions outlined above, 

we believe that using DERCs and 

MDERCs in lieu of allowances provides 

additional flexibility in compliance 

with the MECT program without 

undermining the goal of attaining the 

one-hour ozone standard in the HGB 

area. EPA also believes that the 

restrictions placed on the use of DECs 

in the MECT will prevent such use from 

damaging the integrity of the MECT 

program and the HGB attainment 

demonstration. Because the basis for the 

use of DECs in the MECT is, in part, the 

modeling and attainment demonstration 

for the HGB area, EPA cannot grant a 

final approval of this provision of the 

MECT program until EPA issues a final 

approval of the attainment modeling 

provided as a mid-course review SIP 

revision. The attainment demonstration 

and MECT revisions are being 

concurrently proposed for approval 

(RME Dockets R06-OAR–2005-TX–0018 

and R06-OAR–2005-TX–0023). 

5. What is EPA’s analysis of the 

fundamental principle of equity? 

The equity principle is composed of 

two elements—general equity and 

environmental justice. 

Equity Element One—General Equity 

General equity means that an EIP 

ensures that all segments of the 

population are protected from public 

health problems and no segment of the 

population receives a disproportionate 

share of a program’s disbenefits. OMT 

EIPs should specifically protect 

communities from disproportionate 

impacts from emission shifts and 

foregone emission reductions. 

Consideration of health impacts from 

DEC use are included throughout the 

DERC rule. A facility wishing to use 

reductions of one pollutant to meet the 

reduction requirement of another 

pollutant must use urban airshed 

modeling to obtain TCEQ and EPA 

approval. If the facility generating the 

reductions is located outside the United 

States, the substitution must result in a 

greater health benefit and be of equal or 

greater benefit to the overall air quality 

of the area. Once the TCEQ meets the 

commitments outlined earlier, EPA 

review and approval will be required 

any time a reduction generated outside 

the United States is requested for use. 

EPA intends to address any such 

requests through a SIP revision, which 

will provide an opportunity for public 

participation. The public information 

requirements in section 101.372(h) and 

the information that must be submitted 

to the TCEQ for inclusion in the credit 

registry on the use and banking of DECs 

in sections 101.376 and 101.379 

demonstrates the importance of public 

participation in the DERC program. 

Equity Element Two—Environmental 

Justice 

The environmental justice element 

applies if the EIP covers VOCs and 

could disproportionately impact 

communities populated by racial 

minorities, people with low incomes, 

and/or Tribes. EIPs that include 

hazardous air pollutants (HAPs) must 

also satisfy the expectations of 

Appendix 16.2 of the EPA EIP 

Guidance, which addresses prevention 

and/or mitigation of impacts from 

potential or actual trades involving 

HAPs, sufficient information made 

available for meaningful review and 

participation, public participation, and 

periodic program evaluations. OMT 

EIPs should also protect communities of 

concern from disproportionately high 

and adverse impacts from emission 

shifts and foregone emission reductions. 

Because the DERC program allows for 

the generation and use of DECs from 

VOCs and/or HAPs, the rule must be 

evaluated against environmental justice 

expectations. The DERC rule satisfies all 

elements of the HAP Framework. For 

compliance with the prevention and/or 

mitigation of potential impacts, the 

TCEQ has placed limits on NOX and 

VOC DEC usage in ozone nonattainment 

areas and similar DEC usage limits in 

attainment or unclassified areas to 

exceed permit allowables. Additionally, 

the trading of DECs may be 

discontinued if the program audit 

identifies problems in a localized area of 

58160 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 

concern. The TCEQ addresses the 

expectations for sufficient information 

made available for meaningful review 

and participation by requiring under 

section 101.372(i) that all information 

submitted with notices, reports, and 

trades regarding the nature, quantity of 

emissions, and sales price for DECs is 

public information. This information is 

available upon request or on the TCEQ 

website. Public participation is an 

integral feature of the DERC rule in the 

design, implementation, and evaluation 

of the program. During the development 

of the SIP revisions under consideration 

in this action, the TCEQ held four 

public meetings in Austin, 

Channelview, and Houston, TX. The 

TCEQ also has an extensive stakeholder 

list of approximately 150 contacts who 

receive copies of all TCEQ rulemaking 

actions for comment and participation 

in development. The public also has the 

opportunity to comment on 

quantification protocols used under 

section 101.372(d) and has the ability to 

review the program evaluations under 

section 101.379. 

As an added measure that 

demonstrates general equity and 

environmental justice, TCEQ has 

developed the Toxicological Risk 

Assessment (TARA) Effects Evaluation 

Procedure. Under this process, which is 

authorized under section 382.0518(b)(2) 

of the Texas Health and Safety Code, 

TCEQ may not grant a permit to a 

facility and a facility may not begin 

operating unless it is demonstrated that 

emissions will not have an adverse 

impact on public health and welfare. 

This demonstration is accomplished by 

(1) establishing off-property groundlevel-air concentrations of constituents 

resulting from the proposed emissions, 

and (2) evaluating these concentrations 

for the potential to cause adverse health 

or welfare effects. The TARA Effects 

Evaluation is used to evaluate the use of 

DECs in an air permit. The TCEQ 

guidance document ‘‘How to Determine 

the Scope of Modeling and Effects 

Review for Air Permits’’ (RG–324, Oct. 

2001) has a detailed discussion of the 

TARA Effects Evaluation procedures. 

6. What is EPA’s analysis of the 

fundamental principle of environmental 

benefit? 

All EIPs must be environmentally 

beneficial and can demonstrate this 

principle through more rapid emission 

reductions or faster attainment than 

would have occurred without the EIP. 

The DERC EIP meets the expectations 

for the environmental benefit principle. 

The ability to generate DECs provides an 

incentive for early compliance and more 

rapid emission reductions. 

Additionally, users of DECs must retire 

an additional 10 percent of DECs as an 

environmental benefit under section 

101.376(d)(2)(D). 

7. What is EPA’s analysis of the use of 

discrete emission credits for 

nonattainment new source review 

offsets? 

Appendix 16.14 of the EIP Guidance 

outlines EPA’s expectations for the use 

of emission credits in the NSR program. 

In addition to meeting the requirements 

of the NSR program, a source wishing to 

use OMT credits to meet NSR offset 

requirements must: 

• Meet all other OMT requirements. 

• Meet the geographic limitation and 

other criteria contained in section 173 of 

the CAA. 

• Obtain sufficient OMT credits for at 

least one year of operation before 

receiving its permit. 

• Commit in its NSR permit to obtain 

sufficient additional OMT credits to 

cover each subsequent year of operation 

by December 31 of the previous year. 

This means that the OMT credits used 

for NSR offsets must be obtained in 

advance of the year for which they will 

be used. 

• Ensure that emissions reductions 

used as OMT credits are not otherwise 

required by the CAA. 

The DERC program meets the 

requirements of an OMT program, as 

shown in the TSD for this action. Table 

IV–3 of the TSD specifically addresses 

how sources demonstrate that DECs are 

surplus and not otherwise required by 

the CAA. Section 101.376 of the DERC 

program provides that DECs can be used 

as NSR offsets if the following 

requirements are met: 

• The user must obtain the executive 

director’s advance approval covering 

use of specific DECs for at least one year 

of operation of the new or modified 

facility; 

• The amount of DECs needed for 

NSR offsets equals the quantity of tons 

needed to achieve the maximum 

allowable emission level set in the 

user’s NSR permit. The user must also 

purchase and retire enough DECs to 

meet the offset ratio requirement in the 

user’s ozone nonattainment area. The 

user must purchase and retire either the 

environmental contribution of 10 

percent or the offset ratio, whichever is 

higher; and 

• The NSR permit must meet the 

following requirements: 

• The permit must contain an 

enforceable requirement that the facility 

obtain at least one additional year of 

offsets before continuing operation in 

each subsequent year; 

• Before issuance of the permit the 

user must identify the DECs; and 

• Before start of operation the user 

must submit a completed DEC–2 Form, 

Notice of Intent to Use Discrete 

Emission Credits, along with the 

original certificate. 

The structure of the DERC program 

also addresses the requirements in 

section 173 of the CAA concerning NSR 

offsets. In particular, section 

173(a)(1)(A) requires that ‘‘by the time 

the source is to commence operation’’

the total allowable emissions in the area 

must be less than total emissions as of 

the time of the application to construct, 

so as to represent reasonable further 

process under section 171. Further, 

section 173(c) requires that by the time 

the source commences operation its new 

emissions must be offset by ‘‘actual’’

reductions in the area. Thus, as to 

offsets, section 173 requires that 

emission reductions occur in sufficient 

quantity to ensure that new or modified 

sources do not add to the total 

emissions in the airshed. 

Because OMT programs such as the 

DERC program provide for banking and 

trading of reductions that occur over a 

discrete span of time, it is possible that 

when they are used as NSR offsets such 

reductions may have occurred several 

years before the commencement of the 

new emissions that they are being used 

to offset. It is important that such time 

lags between generation of the DECs and 

their use as offsets not interfere with the 

purposes of the NSR program. These 

purposes include ensuring that new 

sources in nonattainment areas do not 

significantly add to the overall level of 

emissions in the area. 

The ultimate test as to whether 

offsetting emissions reductions are 

sufficient under section 173(a)(1)(A) is 

whether they represent ‘‘reasonable 

further progress as defined in section 

171.’’ The definition of ‘‘reasonable 

further progress’’ in section 171(1) 

plainly refers to the air quality goal of 

attainment of the NAAQS. Accordingly, 

real reductions should be the focus. We 

consider banked DERCs and MDERCs to 

be real reductions. Therefore, we only 

need to determine whether the potential 

time lag between generation and use of 

DERCs and MDERCs as offsets may 

interfere with attainment or otherwise 

impede the achievement of the goals of 

the NSR program. 

We do not expect that many sources 

will choose to use DECs for NSR offsets. 

Emission credits representing ongoing, 

perpetual reductions—such as the 

credits generated under the 30 TAC 

Chapter 101, Subchapter H, Division 1 

Emission Credit Banking and Trading 

program—are the traditional choice for 

Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 58161 

NSR offsets. By contrast, EPA believes 

that few DECs will be used as offsets, 

because few facilities will want to face 

potentially having to shut down if no 

credits are available in later years. We 

note that since the DERC program began 

operation in 1997 no source has applied 

to use DECs as NSR offsets. Nonetheless, 

we are evaluating the potential impact 

of usage of this feature of the DERC 

program. We conclude that the program 

is consistent with section 173 and NSR 

goals, for the following reasons. 

A. Substantial Likelihood of Continuing 

Reductions in Each Nonattainment Area 

First, and most important, we expect 

that, under the DERC program, new 

discrete emission reductions, and other 

reductions that are equivalent to 

discrete reductions, will be generated on 

an ongoing basis. The generation of new 

reductions is important to 

counterbalance the potential effect of 

the use as offsets of reductions that took 

place entirely in the past. If new 

reductions are generated regularly, then 

the system as a whole will satisfy the 

section 173 offset requirements even if 

some of the DERCs and MDERCs in the 

system are from previous years. 

In each of the nonattainment areas in 

Texas where DERCs and MDERCs might 

be used as offsets, there is a reasonable 

basis to conclude that DERCs and 

MDERCs will be generated on a 

recurring basis at least until the area 

reaches attainment. Because of the 

expected low utilization of DERCs and 

MDERCs as offsets, it is not necessary to 

show that DERCs and MDERCs will be 

generated in quantities equal to existing 

banked quantities—a much smaller 

amount of recurring generation will be 

sufficient. We will address each of the 

nonattainment areas in Texas 

separately. 

Houston/Galveston/Brazoria (HGB) 8- 

Hour Ozone Nonattainment Area 

The HGB area is a moderate 

nonattainment area for ozone under the 

8-hour standard. Its attainment deadline 

is 2010. In the HGB area, the existence 

of a robust trading market, with credits 

that are for relevant purposes fungible 

across several programs, leads EPA to 

conclude that additional reductions may 

reasonably be expected in the future. 

The NOX Mass Emissions Cap and 

Trade (MECT) program and the large 

and diverse universe of sources will 

ensure that a robust trading market will 

exist until the area reaches attainment. 

Analysis of the HGB 2002 emissions 

inventory shows that for VOC 

emissions, approximately 41 percent of 

the inventory (239 tpd) is attributable to 

area sources, 23 percent (136 tpd) is 

attributable to point sources, 20 percent 

(115 tpd) is attributable to onroad 

mobile sources, and 16 percent of the 

inventory (93 tpd) is attributable to 

nonroad mobile sources. For NOX

emissions, approximately 35 percent of 

the inventory (398 tpd) is attributable to 

nonroad mobile sources, 30 percent (338 

tpd) is attributable to point sources, 28 

percent of the inventory (323 tpd) is 

attributable to onroad sources, and 8 

percent (87 tpd) is attributable to area 

sources. (Please note that the emissions 

inventory data above is presented only 

for illustrative purposes. EPA is not 

proposing action on the 2002 emissions 

inventory in this document.) Typical 

point sources in the HGB area include 

refineries, chemical facilities, and 

electric generating facilities. 

The MECT program applies to all sites 

in the HGB area with an uncontrolled 

design capacity to emit 10 or more tons 

of NOX per year. The MECT is a 

declining cap: the first phase of NOX

reductions required under the cap was 

in 2002, and has been followed by stepdowns that will continue through 2007. 

All sites subject to the MECT had the 

option of complying early and 

generating DERCs up to the 2002 start 

date. Since 2002, any reductions these 

sites make have been considered unused 

allowances under the MECT program, 

instead of being banked as DERCs. Sites 

participating in the MECT also have the 

option to use banked DERCs in lieu of 

MECT allowances. Additionally, 

sources not subject to the MECT (e.g., 

mobile sources and area sources) can 

still generate DERCs in accordance with 

the generation strategies in the DERC 

rule. Therefore, we conclude, as to NOX, 

that the emissions increases at sources 

that have used DERCs generated in the 

past for offsets will be offset by 

reductions in the future that will occur 

as unused allowances. 

With regard to VOCs, TCEQ has also 

adopted two rules for controlling 

emissions of highly reactive volatile 

organic compounds (HRVOCs) in the 

HGB area. The short-term limit on 

HRVOC emissions established in 30 

TAC Chapter 115 will be effective in 

2006, and the HRVOC annual emissions 

cap and trade program will be effective 

in 2007. Sources subject to these rules 

can comply early and generate DERCs 

from early reductions up until the 

implementation dates. Therefore, we 

believe that sources will have incentives 

to generate VOC DERCs in the future, 

which will tend to offset the use of past 

DERCs for NSR purposes. 

Dallas/Fort Worth (DFW) 8-Hour Ozone 

Nonattainment Area 

Past patterns of DERC generation, 

combined with rules coming into effect 

in the future, suggest that it is likely that 

new reductions will continue to occur, 

although not in every year. From 2000 

through 2005, some amount of DERCs 

were generated in every year except 

2005 (which of course is not over yet). 

A relatively small amount was 

generated in 2004, but nonetheless the 

fact that substantial amounts of 

reductions were generated in each of the 

years 2000 through 2003 is a positive 

sign as to the ability of stationary 

sources in the DFW area to generate 

reductions. There are approximately 

9,000 tons of NOX and 10 tons of VOC 

DERCs banked in DFW; no MDERCs 

have been generated in DFW. Analysis 

of the DFW 2002 emissions inventory 

shows that for VOC emissions, 

approximately 53 percent of the 

inventory (216 tpd) is attributable to 

area sources, 26 percent (104 tpd) is 

attributable to onroad mobile sources, 

13 percent (55 tpd) is attributable to 

nonroad mobile sources, and 8 percent 

of the inventory (30 tpd) is attributable 

to point sources. For NOX emissions, 

approximately 45 percent of the 

inventory (207 tpd) is attributable to 

onroad mobile sources, 27 percent (121 

tpd) is attributable to nonroad mobile 

sources, 19 percent of the inventory (83 

tpd) is attributable to point sources, and 

9 percent (40 tpd) is attributable to area 

sources. (Please note that the emissions 

inventory data above is presented only 

for illustrative purposes. EPA is not 

proposing action on the 2002 emissions 

inventory in this document.) Typical 

point sources in the DFW area are 

electric generating facilities and cement 

kilns. Electric generating facilities have 

generated approximately 85 percent of 

the NOX DERCs in DFW to date. 

To the extent there is a concern that 

these previous reductions were driven 

by early compliance with rules that are 

now in effect, and therefore that there is 

no incentive for future reductions, other 

rules coming into effect in the future 

should mitigate that concern. The DFW 

5 percent increment of progress plan 

submitted to fulfill obligations under 

the 1-hour ozone standard extends the 

nonattainment area to the new counties 

of Ellis, Parker, Rockwall, Johnson, and 

Kaufman. Sources in the newly 

designated nonattainment counties now 

have a RACT compliance date of 2007. 

These sources could comply early with 

RACT requirements and generate DERCs 

up to the 2007 compliance date. The 8- 

hour ozone attainment deadline for 

DFW is 2010. The 8-hour ozone 

58162 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 

attainment demonstration SIP has not 

yet been submitted, but it will 

presumably have control measures 

taking effect between now and 2010, 

which will drive reductions, and 

therefore potential early reductions, 

during that time. 

In addition to the above reasons, to 

the extent discrete credits become 

widely used in the DFW area (as NSR 

offsets or otherwise), the ordinary 

function of the trading market could 

drive the creation of new DERCs and 

MDERCs. That is, demand for discrete 

reductions will provide a financial 

incentive for sources to generate such 

reductions. 

Beaumont/Port Arthur (BPA) 8-Hour 

Ozone Nonattainment Area 

Past patterns of DERC generation in 

the BPA area, combined with rules 

coming into effect in the future, suggest 

that it is likely that new reductions will 

continue to occur, although not in every 

year. From 1999 through 2005, some 

amount of DERCs were generated in 

every year except 2000 and 2005 (which 

of course is not over yet). The fact that 

substantial amounts of reductions were 

generated in most of these years is a 

positive sign as to the ability of 

stationary sources in the BPA area to 

generate reductions usable as DERCs. 

There are approximately 1,500 tons of 

NOX DERCs banked in BPA; no 

MDERCs have been generated in BPA. 

Analysis of the BPA 2002 emissions 

inventory shows that for VOC 

emissions, approximately 44 percent of 

the inventory (57 tpd) is attributable to 

area sources, 34 percent (44 tpd) is 

attributable to point sources, 12 percent 

(16 tpd) is attributable to nonroad 

mobile sources, and 10 percent of the 

inventory (13 tpd) is attributable to 

onroad sources. For NOX emissions, 

approximately 41 percent of the 

inventory (120 tpd) is attributable to 

nonroad mobile sources, 38 percent (109 

tpd) is attributable to point sources, 16 

percent of the inventory (46 tpd) is 

attributable to onroad mobile sources, 

and 5 percent (16 tpd) is attributable to 

area sources. (Please note that the 

emissions inventory data above is 

presented only for illustrative purposes. 

EPA is not proposing action on the 2002 

emissions inventory in this document.) 

Typical point sources in the BPA area 

are refineries, chemical facilities, and 

electric generating facilities. Chemical 

manufacturers and refineries have 

generated all the DERCs in BPA to date. 

To the extent there is a concern that 

these previous reductions were driven 

by early compliance with rules that are 

now in effect, and therefore that there is 

no incentive for future reductions, other 

rules coming into effect in the future 

should mitigate that concern. In 

particular, TCEQ has proposed to lower 

the RACT exemption for shipbuilding/ 

repair and batch processes from 100 to 

50 tons, which will cause some sources 

to be newly subject to RACT. These 

sources could comply early with RACT 

requirements and generate DERCs up to 

the 2006 compliance date. 

Beaumont expects to reach attainment 

by the end of 2006, therefore, the time 

frame for using DERCs/MDERCs as NSR 

offsets in this area (and hence the scope 

of our concern about this usage) may 

prove to be fairly limited. If discrete 

credits do become widely used in the 

BPA area (as NSR offsets or otherwise), 

the ordinary function of the trading 

market could drive the creation of new 

DERCs and MDERCs. That is, demand 

for discrete reductions will provide a 

financial incentive for sources to 

generate such reductions. 

El Paso CO and PM10 Nonattainment 

Area 

El Paso is currently classified as a 

moderate nonattainment area for carbon 

monoxide (CO) and particulate matter 

with a diameter of less than 10 

micrometers and smaller (PM10). El Paso 

has monitored attainment of the CO 

standard for approximately the past five 

years and is expected to submit a 

request for redesignation by the end of 

2005. EPA approved El Paso’s 179(b) 

plan for PM10 on January 18, 1994 (59 

FR 2532), which demonstrated that the 

area would achieve the PM10 standard 

except for emissions contribution from 

geologic dust from Mexico. TCEQ also 

intends to pursue redesignation under 

the PM10 standard in the future. Since 

the DERC program began in 1997, no CO 

or PM10 DECs have been generated. 

With the future redesignation requests 

the timeframe for using DERCs/MDERCs 

as NSR offsets in the El Paso area (and 

hence the scope of our concern about 

this usage) may prove to be fairly 

limited. If discrete credits do become 

widely used in the El Paso area (as NSR 

offsets or otherwise), the ordinary 

function of the trading market could 

drive the creation of new DERCs and 

MDERCs. That is, demand for discrete 

reductions will provide a financial 

incentive for sources to generate such 

reductions. Also, because there are no 

DERCs or MDERCs generated in El Paso, 

the concern that older banked 

reductions could reenter the market is 

not applicable. 

B. Geographic Restrictions 

The geographic restrictions outlined 

in section 101.372(f) provide further 

safeguards against inappropriate use of 

DECs as offsets, by ensuring that 

reductions used for offsets come from 

the same source or from other sources 

in the same nonattainment area. On 

completion of the conditions outlined 

earlier in this document, TCEQ 

Executive Director and EPA approval 

will be required for sources wishing to 

use reductions generated in another 

state or nation, from another 

nonattainment area, or from attainment 

counties into nonattainment areas. The 

DERC program relies on many sources 

continuing to generate new DERCs and 

MDERCs to balance with other sources 

using previously generated discrete 

credits. Proper functionality of the 

DERC program will ensure that 

reductions used as offsets will not 

negatively impact an area’s attainment 

strategy. 

C. DECs Are Equivalent to Real 

Reductions in Allowables 

EPA believes that although generating 

a DEC does not change the allowable 

emissions in a facility’s permit, it is 

nonetheless appropriate to treat the 

temporary reduction in facility 

emissions that a DEC represents as a 

limited reduction in the allowable 

emissions of the generating facility. The 

rationale for this conclusion is that a 

DEC is banked after it is generated, but 

the facility must be able to quantify its 

reductions and demonstrate that 

emissions before and after a reduction 

strategy produced a certain amount of 

reductions. Thus, by nature of how the 

DEC is generated, there is in effect a 

temporary limit on the facility’s 

emissions. 

D. Program Audit 

EPA’s EIP Guidance directs that to 

avoid problems associated with intertemporal trading, the program should 

analyze, minimize, track, and if 

necessary correct potential problems. 

The DERC program, at section 101.379, 

requires an audit of the program every 

three years. The TCEQ Executive 

Director may suspend or discontinue 

the use of DECs if a problem relating to 

DEC use is identified during the 

triennial audit. 

For the above reasons, EPA believes 

that the DERC program provides offsets 

that (except for their discrete nature) are 

in principle equivalent to offsets 

provided by traditional means, and that 

the program is consistent with section 

173. With the restrictions outlined 

above, and the environmental benefit 

provision for DEC use, EPA believes that 

TCEQ has addressed our expectations 

for using DECs as NSR offsets. 

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8. What is EPA’s analysis of the 

commitments TCEQ has made? 

A. International Discrete Emission 

Reductions and Other Discrete 

Reductions From Outside the Area of 

Use 

The DERC rule provides at section 

101.372(f) that emission reductions from 

another county, state, or nation may be 

used, subject to certain conditions. The 

current wording of the rule is unclear on 

when prior approval from EPA will be 

required. Upon completion of the 

condition outlined above, prior 

approval from EPA will be required 

when discrete emission credits or 

reductions from another county, state, 

or nation are requested for use. EPA has 

addressed the possibility of such crossjurisdictional trades in Appendix 16.16 

of the EIP Guidance. Satisfaction of the 

provisions of Appendix 16.16 is 

necessary to ensure that crossjurisdictional trades are consistent with 

the fundamental integrity, equity, and 

environmental benefit principles 

described in the EIP Guidance. This 

condition requiring EPA review of such 

trades will be the mechanism by which 

EPA ensures that inappropriate trades 

do not take place. In particular, EPA 

intends to require a further SIP revision 

(either a detailed trading program, such 

as an interstate MOU, or a trade-specific 

submission) before approving any 

international trades, interstate trades, or 

intrastate trades that involve reductions 

from beyond the nonattainment area. 

International trades present an 

especially difficult case. For instance, 

currently there is no approvable 

mechanism for demonstrating that 

reductions made in another country are 

surplus or enforceable. Nonetheless, 

emission reductions in other countries 

could potentially offer substantial air 

quality benefits in the United States. In 

approving the DERC rule, EPA is 

recognizing the concept of international 

trading and describing a framework (i.e., 

the submission of a SIP revision 

demonstrating among other things the 

validity and enforceability of foreign 

reductions) for such trading, in the 

event that a suitable mechanism is 

developed for resolving concerns 

regarding enforceability and surplus. 

Until such a time, however, EPA does 

not expect to be able to approve specific 

international trades under the DERC 

rule. 

B. Generation and use of DERCs from 

permanent shutdowns 

The EIP Guidance states that the 

generation of discrete emission 

reduction credits from shutdowns and 

activity curtailments is not an 

appropriate feature of OMT programs 

because: 

• OMT EIPs are intended to 

encourage innovative and creative 

emission reductions, and shutdowns 

generally do not fall into this category. 

• Other types of trading programs 

may allow shutdowns to generate 

emission reductions. 

Shutdowns are also problematic for 

OMT programs because of the 

possibility that a facility may shut down 

in one area, generate and sell credits, 

but then relocate operations to other 

areas or states. Additionally, when 

activity level increases cause emission 

increases, mitigating reductions are 

typically not required. Thus, allowing 

the generation of tradable credits as a 

result of activity level decreases 

(including shutdowns) may tend to 

promote emissions increases. Such 

patterns of activity related to shutdowns 

have the potential to interfere with 

attainment. 

Section 1.6 of the EIP Guidance states 

that: 

From now on, EPA will only approve EIPs 

that are in substantial agreement with this 

guidance. We recognize you may have spent 

considerable effort to develop your EIP. 

However, since this EIP guidance was not 

complete at the time, you may not have 

included all the requirements contained in 

this guidance. If you have submitted an EIP 

to EPA, but it has not been approved yet, you 

must: 

• Consult with your Regional office to 

determine if any changes are needed for 

approval 

• Revise your EIP SIP to make the required 

changes before resubmitting it to EPA. 

Consistent with the intent of this 

statement, EPA recognizes that TCEQ 

began developing the DERC program 

before the January 2001 publication of 

the EIP Guidance. More specifically, the 

Texas DERC program has been 

operational since 1997. Accordingly, we 

have considered the policies behind the 

EIP Guidance’s statement that OMT 

credits from shutdowns are not 

appropriate. We have also considered 

the EPA Office of Inspector General 

report titled, ‘‘Open Market Trading 

Program for Air Emissions Needs 

Strengthening’’ (No. 2002–P–00019, 

September 30, 2002), as well as EPA air 

program responses to that report. 

After considering the legal and policy 

issues, we have concluded that it is 

appropriate to conditionally approve the 

DERC rule based on the following 

commitments from TCEQ: 

• Revising the language in section 

101.373 to prohibit the future generation 

of DERCs from permanent shutdowns 

(‘‘shutdown DERCs’’) and to allow 

shutdown DERCs generated before 

September 30, 2002, to remain available 

for use for up to five years from the date 

of the commitment letter; and 

• To perform a credit audit to remove 

from the emissions bank all shutdown 

DERCs generated after September 30, 

2002. 

EPA believes that these conditions 

address the majority of our policy 

concerns relating to the use of shutdown 

DERCs in OMT programs. These 

conditions address the issue of 

incentives because sources can no 

longer generate DERCs from shutdowns. 

We also believe that the issue of 

whether the use of the existing 

shutdown DERCs would interfere with 

attainment in the HGB nonattainment 

area has been addressed because TCEQ 

modeled a conservative estimate of the 

use of DERCs, including shutdown 

DERCs, and found no interference with 

attainment. (See Section IV of the TSD—

Technical Summary, Does the DERC EIP 

SIP Submittal Violate the Integrity of 

Other Programs.) Additionally, 

reductions from shutdowns of facilities 

not included in the SIP cannot generate 

DERCs. Future attainment 

demonstrations for other areas will have 

to consider and account for any 

potential impact from use of DERCs as 

well. 

EPA further believes that September 

30, 2002, is an acceptable cut-off date 

for the use of shutdown DERCs because 

it reflects the publication date of the 

OIG report and the various EPA air 

program responses, which served as 

notice that in EPA’s view shutdowns 

should not generate OMT credits. 

Additionally, it reflects the necessary 

response time for TCEQ to adopt and 

submit SIP revisions, and for EPA to 

process these submittals. 

The five year phase-out period for the 

use of shutdown DERCs generated and 

banked before September 30, 2002, is 

also consistent with EPA’s goals 

regarding the effects of credit expiration 

on the market. As explained in the EIP 

Guidance, EPA supports unlimited 

credit lifetimes in trading programs 

because it tends to reduce emissions 

spiking around the time of credit 

expiration, and because credits with an 

unlimited lifetime promote an efficient 

trading market. Here, EPA believes that 

the five year phase-out (as opposed to a 

shorter-term phase-out) will reduce the 

potential for emissions spiking and will 

help promote an efficient trading 

market, because companies can manage 

DERC usage across an extended time 

period. Additionally, in the HGB area, 

the flow controls established by TCEQ 

will help ensure that emissions spiking 

does not occur. (See the following 

section for a discussion of other issues 

58164 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 

related to credits with an unlimited 

lifetime.) 

C. Unlimited Lifetime for DECs 

A DEC is available for use after the 

Notice of Generation and Generator 

Certification of Discrete Emission 

Credits Form, has been received, 

deemed creditable by the TCEQ 

Executive Director, and deposited in the 

commission credit registry in 

accordance with section 101.378(a), and 

may be used anytime thereafter. DECs 

do not expire; all credits are deposited 

in the credit registry and reported as 

available credits until they are used or 

withdrawn. 

Section 16.15 of the EIP Guidance 

recognizes that allowing an unlimited 

lifetime for OMT credits provides 

certainty and flexibility to the sources 

participating in the program and 

reduces the risk of emission spiking that 

could occur before the expiration date of 

the credit. It also recognizes that an 

unlimited lifetime of OMT credits could 

present an enforcement problem 

because of the Federal statute of 

limitations at 28 U.S.C. Section 2462, 

which typically requires Federal 

enforcement actions under 

environmental statutes to commence 

within 5 years of a violation. (This 

concern does not apply in the same way 

to State programs because there is no 

comparable statute of limitations under 

Texas law.) In addition, enforcement 

actions taking place many years after the 

generation or use of DECs could be 

hindered by evidentiary problems such 

as the lack of available records. 

Therefore, because of the unlimited 

lifetime of DECs under the Texas 

program, EPA has placed a condition on 

approval of the rule. To address the 

Federal enforceability concerns, TCEQ 

has committed to: 

• Revise Form DEC–1, Notice of 

Generation and Generator Certification 

of Discrete Emission Credits; Form 

MDEC–1, Notice of Generation and 

Generator Certification of Mobile 

Discrete Emission Credits; and Form 

DEC–2, Notice of Intent to Use Discrete 

Emission Credits, to include a waiver to 

the Federal statute of limitations 

defense for generators and users of 

DECs. The assertion of any such defense 

will render the initial trade void from 

the very beginning, and the subsequent 

use of such emission reductions will be 

a violation. 

• TCEQ will maintain its current 

policy of preserving all records relating 

to DEC generation and use for a 

minimum of 5 years after the use 

strategy has ended. 

Again, TCEQ has agreed to comply 

with these conditions during the 

conditional approval period. 

9. What is EPA’s analysis of the rule 

language in Chapters 115 and 116? 

The rule language published at 30 

TAC Chapter 115, Control of Air 

Pollution from Volatile Organic 

Compounds, Subchapter J, Division 4, 

section 115.950, submitted by TCEQ on 

December 20, 2000, is approvable. This 

subsection cross-references the use 

strategies for DERCs and MDERCs in 

section 101.376, which we are 

proposing to approve. These use 

strategies provide that DERCs and 

MDERCs can be used to meet VOC 

requirements in Chapter 115. 

The definition of ‘‘facility’’ published 

at 30 TAC Chapter 116, Control of Air 

Pollution by Permits for New 

Construction, Subchapter A, section 

116.10(4), submitted by TCEQ on July 

22, 1998, is approvable. This definition 

is approvable as defining what is a 

‘‘facility’’ for purposes of permitting 

under Chapter 116. This satisfies the 

provisions of 40 CFR § 51.160(e) by 

identifying the types of facilities, 

building, structures, or installations 

which will be subject to review. 

10. What is EPA’s analysis of the DERC 

program with respect to section 110(l) of 

the Clean Air Act? 

Section 110(l) of the Clean Air Act 

states: 

Each revision to an implementation plan 

submitted by a State under this Act shall be 

adopted by such State after reasonable notice 

and public hearing. The Administrator shall 

not approve a revision of a plan if the 

revision would interfere with any applicable 

requirement concerning attainment and 

reasonable further progress (as defined in 

section 171), or any other applicable 

requirement of this Act. 

Thus, under section 110(l), this SIP 

revision must not interfere with 

attainment or reasonable further 

progress or any other applicable 

requirement of the Act. 

As a general matter, the satisfaction of 

the environmental benefit principle and 

the other integrity principles applicable 

to trading programs will tend to 

demonstrate that a trading program will 

do no worse than maintain existing air 

quality. Accordingly, EPA has 

determined that discretionary EIPs that 

are consistent with the EIP Guidance are 

consistent with section 110(l): 

Congress did not address specific 

requirements for EIPs in the CAA. Consistent 

with our mandate, the EPA has interpreted 

what an EIP should contain in order to meet 

the requirements of the CAA. This document 

is a guidance document that sets forth EPA’s 

non-binding policy for EIPs. This document 

does not represent final EPA action on the 

requirements for EIPs. Rather, this document 

identifies several different types of economic 

incentive programs, and proposes elements 

for each type that, if met, EPA currently 

believes would assure that the program 

would meet the applicable CAA provisions. 

The guidance phrases these elements in the 

imperative—that is, using the terms ‘‘must’’

or ‘‘shall’’. This is done only to signify that 

EPA would propose to approve a SIP 

submittal of a program containing the 

indicated elements on grounds that under 

section 110(l) of the CAA, the SIP revision 

does not interfere with any applicable 

requirement concerning attainment, 

reasonable further progress, or any other 

applicable requirement. 

(EIP Guidance, section 1.9.) Thus, if 

the DERC program is consistent with the 

EIP Guidance it will satisfy section 

110(l). Although the DERC program is 

an OMT program as described in the EIP 

Guidance, it deviates in several respects 

from that guidance. Namely, the DERC 

program allows the use of DECs in the 

HGB MECT, the generation and use of 

DERCs from permanent shutdowns, the 

use of discrete reductions from beyond 

the nonattainment area, and the use of 

DECs as NSR offsets. Therefore, we must 

determine if these areas of difference 

from the guidance could reasonably be 

expected to interfere with attainment, 

reasonable further progress, or any other 

applicable CAA requirement. As a 

preliminary matter we note that a user 

of DECs must retire 10 percent more 

credits than are needed, which provides 

a built-in source of reductions and 

therefore tends to promote attainment. 

That meliorative tendency noted, we 

will address in the section 110(l) 

context each of the areas of significant 

departure from the EIP guidance. 

First, as described earlier in this 

action, the use of DERCs in lieu of 

MECT allowances has been modeled for 

impact on the HGB attainment 

demonstration and reasonable further 

progress plan. See RME docket R06–

OAR–2005-TX–0018 for the attainment 

demonstration. EPA believes that with 

the flow control restrictions on the use 

of DERCs in the MECT, and considering 

the modeling presented in the 

attainment demonstration, this 

deviation does not render the rule 

inconsistent with section 110(l). 

Second, the generation and use of 

DERCs from permanent shutdowns is 

also a deviation from the EIP Guidance. 

(See section I.C.8 of this action.) One 

condition we have placed on our 

approval of the DERC program is that 

TCEQ prohibit future generation of 

DERCs from permanent shutdowns. 

Additionally, the DERCs currently 

banked from permanent shutdowns will 

Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 58165 

only be available for use for a limited 

time. Because banked DERCs are 

modeled as actual emissions that could 

reenter the airshed, all nonattainment 

areas must evaluate use of shutdown 

DERCs in the modeling. The attainment 

demonstration for HGB is being 

proposed concurrently with this action. 

TCEQ will need to evaluate impact of 

DERC use in BPA and DFW as 

attainment demonstrations are 

submitted. Only a minimal number of 

shutdown DERCs have been banked in 

attainment areas. With the five-year 

phase out period allowed under the 

conditional approval and the limitations 

on DERC use at section 101.376, the use 

of these DERCs should be sufficiently 

restricted as to satisfy section 110(l). 

Third, the use of discrete reductions 

from beyond the nonattainment area is 

also a condition for rule approval. EPA 

approval is required anytime a source 

requests to use discrete reductions from 

beyond the nonattainment area, or from 

another state or nation. EPA intends to 

address any such requests through a SIP 

revision, which will demonstrate 

consistency with section 110(l). 

Fourth, the use of DERCs and 

MDERCs as NSR offsets is permitted by 

the EIP Guidance, but only to the extent 

that other sections of the CAA are 

satisfied. Our discussion earlier shows 

that the use of DECs is consistent with 

sections 171 and 173. Therefore, this 

use is also consistent with section 

110(l). Further, any such use of DECs 

would be in connection with an NSR 

permit, which itself includes a review to 

ensure noninterference with attainment. 

Having reviewed the DERC rule in 

connection with the EIP Guidance and 

section 110(l) of the act, we conclude 

that for purposes of determining 

consistency with section 110(l) the rule 

is consistent with the guidance. To 

further support this determination, we 

will discuss the rule in connection with 

specific locations and criteria 

pollutants. Discrete emission credits can 

be generated from reductions of any 

criteria pollutant or precursor of a 

criteria pollutant, with the exception of 

lead. Therefore, we have evaluated the 

DERC rule for its impact on attainment 

and reasonable further progress for CO, 

ozone, NO2, NOX, PM, SO2, and VOC. 

As to ozone, attainment 

demonstrations under the 8-hour 

standard currently in effect are not yet 

due. Pending that date, EPA believes 

that preservation of the status quo air 

quality while new plans are being 

developed will prevent interference 

with the States’ obligations to develop 

timely attainment demonstrations and 

reasonable further progress plans and to 

attain as expeditiously as practicable. 

Accordingly, for 8-hour ozone 

nonattainment areas in Texas, EPA 

believes that a demonstration that this 

rule will not worsen existing air quality 

is sufficient. As to the HGB 

nonattainment area, a fuller discussion 

of this analysis appears in EPA’s 

evaluation of the HGB attainment 

demonstration submitted for the 1-hour 

ozone standard (RME Docket R06–OAR–

2005–TX–0018). That rulemaking 

contains EPA’s proposed determination 

that the area will attain the 1-hour 

ozone standard and that the current 

attainment strategy does not interfere 

with attainment of the 8-hour standard 

in the HGB area. In addition, EPA has 

already approved TCEQ’s 1-hour 

reasonable further progress plan for 

HGB (70 FR 07407, February 14, 2005). 

Under the DERC rule, one ozone 

precursor may be used to meet the 

reductions of another precursor (i.e., a 

facility could use NOX reductions to 

satisfy a VOC requirement or vice 

versa), subject to an urban airshed 

modeling demonstration and TCEQ 

Executive Director and EPA approval. In 

very limited cases, the rule allows for 

such interpollutant trading across the 

U.S.-Mexico border without specifically 

requiring urban airshed modeling, but 

any such trades would be subject to EPA 

approval, as further described below. 

DEC usage is also subject to geographic 

restrictions. Generally, DECs generated 

in an attainment area can be used in that 

area or any other attainment area. DECs 

generated in a nonattainment area can 

only be used in that nonattainment area 

or in any attainment area. TCEQ 

Executive Director and EPA approval 

will be required any time a DEC 

generated outside a nonattainment area 

is requested for use within that 

nonattainment area. EPA intends to 

address any such request through a SIP 

revision, which would require a 

demonstration of consistency with 

section 110(l). TCEQ will also conduct 

an audit of the DERC program every 

three years. The audit will specifically 

evaluate the impact of DEC generation 

and use on the State’s attainment 

demonstration. If problems are 

identified, the TCEQ Executive Director 

may suspend or discontinue the trading 

of DECs as a remedy. 

As to criteria pollutants other than 

ozone, the only nonattainment area in 

Texas is El Paso, which is currently 

designated nonattainment for carbon 

monoxide (CO) and particulate matter 

with a diameter of 10 micrometers and 

smaller (PM10). El Paso has monitored 

attainment of the CO standard for 

approximately the past five years and is 

expected to submit a request for 

redesignation by the end of 2005. 

No DECs of any sort have yet been 

banked in El Paso. Therefore, before any 

DECs could be used there, reductions in 

an amount ten percent greater than the 

eventual use would have to occur. In 

light of El Paso’s five-year record of 

monitored attainment with the CO 

standard, we conclude that such 

potential DEC usage would not interfere 

with attainment or reasonable further 

progress. As to PM10, potential DEC 

usage will not interfere with attainment 

of the PM10 standard. EPA approved a 

SIP revision for El Paso on January 18, 

1994, finding under section 179(b) of 

the CAA that the plan provided for 

attainment but for emissions from 

Mexico consisting primarily of geologic 

dust (59 FR 2532). As demonstrated by 

the 179(b) plan and by the fact that no 

one has banked PM10 emissions, there 

are very few sources in the El Paso area 

that could serve as generators of PM10

DECs, and therefore there is no 

reasonable prospect that the use of PM10

DECs will interfere with attainment of 

that standard. 

We have also considered whether the 

potential use of DECs to exceed 

allowable emission levels under 30 TAC 

§ 101.376(b)(1) is contrary to section 

110(l) in that it could allow sources to 

exceed limits in their CAA Title V 

permits, which are ‘‘applicable 

requirements’’ under the Act. We 

conclude that this aspect of the rule 

does not violate section 110(l), for the 

following reasons. First, EPA has 

addressed the interface of Title V 

permits and trading programs in the EIP 

guidance, which provides: 

If a facility that has a title V operating 

permit wishes to participate in your 

approved EIP, you must modify the facility’s 

operating permit to include the detailed 

compliance provisions necessary to assure 

compliance with the EIP. Thus, the permit 

becomes a valuable tool to ensure the source 

meets the requirements of the EIP. 

Once the permit includes terms and 

conditions necessary to implement the EIP 

(as described below), the source may 

typically make individual trades under the 

EIP without the need for future formal permit 

revisions. This is true because most trading 

activity under such a permit would already 

be addressed and allowed by the specific 

terms and conditions of the permit and such 

trading would not normally conflict with the 

permit. This is the principle expressed by 

section 70.6(a)(8) of the CFR, which states 

that permit revisions are not required for 

trading program changes that are ‘‘provided 

for’’ in the permit. 

(EIP Guidance, Appendix 16.8.) Texas 

has modified its Title V permit template 

so as to address the permissible use of 

DECs to meet Title V permit 

requirements. As further explained in 

the TSD for this action, we find that the 

58166 Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 

Texas permit language satisfies the 

concerns identified in Appendix 16.8. 

In reaching this conclusion, we also 

considered that a Title V permit is not 

itself a source of substantive limits. 

Rather, it incorporates applicable 

requirements under other permits and 

programs. In Texas, as elsewhere, many 

of the allowable emission levels in Title 

V permits are determined through New 

Source Performance Standards (NSPS), 

Best Available Control Technology 

(BACT), Lowest Achievable Emission 

Rate (LAER), or National Emission 

Standards for Hazardous Air Pollutants 

(NESHAPs). Under the Texas rules, 

DECs may not be used for compliance 

with any of these programs. The rule 

does allow DECs to be used for 

compliance with Reasonably Available 

Control Technology (RACT) standards, 

in accordance with EPA’s guidance. 

Specifically, the guidance provides that 

‘‘[i]f your EIP allows sources to avoid 

direct application of RACT technology, 

your EIP must ensure that the level of 

emission reductions resulting from 

implementation of the EIP will be equal 

to those reductions expected from the 

direct application of RACT’’ (EIP 

Guidance, Appendix 16.7). The Texas 

program ensures consistency with that 

element of the EIP Guidance through the 

requirement that a user of DECs must 

retire 10 percent more credits than are 

needed. Accordingly, any use of DECs 

for RACT compliance will have been 

preceded by a ten percent greater 

reduction. 

The above discussion concerns 

criteria pollutants for which an area is 

classified as nonattainment. As for 

pollutants for which an area is in 

attainment, EPA believes that the DERC 

rule is consistent with section 110(l). 

Discrete credit use in attainment areas 

could potentially result in temporary 

local increases in such attainment 

pollutants, but only in the sense of 

authorizing limited exceedances of 

state-only permit requirements. That is, 

in attainment areas in Texas, the 

Federally enforceable permit limits are 

all based on programs, such as BACT 

and NSPS, for which DEC use is not 

authorized under the Texas rule. DEC 

use for attainment pollutants can 

therefore only affect non-SIP 

requirements. Irrespective of the DERC 

rule, such non-SIP requirements are 

subject to change without undergoing a 

110(l) analysis. Accordingly, the DERC 

SIP revision is not itself causing any 

increases in attainment pollutants that 

might be contrary to section 110(l). 

For the above reasons, and based also 

on the analysis in the HGB rulemaking, 

we conclude that the Texas DERC rule 

represents an environmental 

improvement on the status quo, and 

does not interfere with attainment, 

reasonable further progress, or any other 

requirement of the Act. TCEQ will need 

to evaluate DEC generation and use for 

the BPA and DFW nonattainment areas 

in the appropriate attainment 

demonstrations and reasonable further 

progress plans. 

D. Conclusion 

EPA reviewed the DERC program 

revisions with respect to the 

expectations of the EIP Guidance 

document and the requirements of the 

Clean Air Act. EPA has concluded after 

review and analysis that the DERC 

program is conditionally approvable. 

EPA is proposing to approve the 

revisions to sections 101.371, 101.372, 

101.378, and 101.379 submitted by 

TCEQ on January 31, 2003, for rule log 

number 2002–044–101–AI; and the 

revisions to sections 101.370, 101.373, 

101.374, and 101.376 submitted by 

TCEQ on December 6, 2004, for rule log 

number 2003–064–101–AI. 

EPA has also reviewed the subsection 

in 30 TAC Chapter 115 which provide 

cross-references to the DERC program, 

and has concluded that this subsection 

is approvable. We are proposing to 

approve section 115.950 submitted by 

TCEQ on December 20, 2000, for rule 

log number 1998–089–101–AI. Because 

this subsection involves the use of 

discrete emission credits and emission 

credits for compliance, the use of 

emission credits for compliance with 

Chapter 115 is not approved until the 

Emission Credit Banking and Trading 

program has been approved. The rules 

for emission credit generation and use 

are being considered in a separate 

Federal Register notice. 

EPA has also reviewed the definition 

of facility provided in 30 TAC Chapter 

116, and has concluded that this 

subsection is approvable. We are 

proposing to approve section 116.10(4) 

submitted by TCEQ on July 22, 1998, for 

rule log number 98001–116–AI. 

II. General Information 

A. Tips for Preparing Your Comments 

When submitting comments, 

remember to: 

1. Identify the rulemaking by File ID 

number and other identifying 

information (subject heading, Federal 

Register date and page number). 

2. Follow directions—The agency may 

ask you to respond to specific questions 

or organize comments by referencing a 

Code of Federal Regulations (CFR) part 

or section number. 

3. Explain why you agree or disagree; 

suggest alternatives and substitute 

language for your requested changes. 

4. Describe any assumptions and 

provide any technical information and/ 

or data that you used. 

5. If you estimate potential costs or 

burdens, explain how you arrived at 

your estimate in sufficient detail to 

allow for it to be reproduced. 

6. Provide specific examples to 

illustrate your concerns, and suggest 

alternatives. 

7. Explain your views as clearly as 

possible, avoiding the use of profanity 

or personal threats. 

8. Make sure to submit your 

comments by the comment period 

deadline identified. 

B. Submitting Confidential Business 

Information (CBI) 

Do not submit this information to EPA 

through regulations.gov or e-mail. 

Clearly mark the part or all of the 

information that you claim to be CBI. 

For CBI information in a disk or CD 

ROM that you mail to EPA, mark the 

outside of the disk or CD ROM as CBI 

and then identify electronically within 

the disk or CD ROM the specific 

information that is claimed as CBI). In 

addition to one complete version of the 

comment that includes information 

claimed as CBI, a copy of the comment 

that does not contain the information 

claimed as CBI must be submitted for 

inclusion in the official file. Information 

so marked will not be disclosed except 

in accordance with procedures set forth 

in 40 CFR part 2. 

III. Statutory and Executive Order 

Reviews 

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. For this reason, this action is 

also not subject to Executive Order 

13211, ‘‘Actions Concerning Regulations 

That Significantly Affect Energy Supply, 

Distribution, or Use’’ (66 FR 28355, May 

22, 2001). This proposed action merely 

proposes to approve 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 

Federal Register / Vol. 70, No. 192 / Wednesday, October 5, 2005 / Proposed Rules 58167 

in the Unfunded Mandates Reform Act 

of 1995 (Public Law 104–4). 

This proposed rule also does not have 

tribal implications because it will not 

have 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). This 

action also does not have Federalism 

implications because it does not 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). This action 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 

‘‘Protection of Children from 

Environmental Health Risks and Safety 

Risks’’ (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. This proposed 

rule 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, Intergovernmental 

relations, Nitrogen dioxide, Ozone, 

Reporting and recordkeeping 

requirements, Volatile organic 

compounds. 

Authority: 42 U.S.C. 7401 et seq. 

Dated: September 27, 2005. 

Richard E. Greene, 

Regional Administrator, Region 6. 

[FR Doc. 05–19998 Filed 10–4–05; 8:45 am] 

BILLING CODE 6560–50–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[R05–OAR–2005–IN–0006; FRL–7981–7] 

Determination of Attainment, Approval 

and Promulgation of Implementation 

Plans and Designation of Areas for Air 

Quality Planning Purposes; Indiana; 

Redesignation of the Evansville Area 

to Attainment of the 8-Hour Ozone 

Standard 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule; extension of 

public comment period. 

SUMMARY: EPA is extending the 

comment period for a proposed rule 

published September 9, 2005 (70 FR 

53605). On September 9, 2005, EPA 

proposed to approve the State of 

Indiana’s request to redesignate the 

Evansville area (Vanderburgh and 

Warrick Counties) to attainment of the 

8-hour ozone National Ambient Air 

Quality Standard. In conjunction with 

the proposed approval of the 

redesignation request for the Evansville 

area, EPA proposed to approve the 

State’s ozone maintenance plan for the 

8-hour ozone NAAQS through 2015 in 

this area as a revision to the Indiana 

State Implementation Plan. EPA also 

proposed to approve 2015 Volatile 

Organic Compounds and Oxides of 

Nitrogen Motor Vehicle Emissions 

Budgets, which are supported by and 

consistent with the 10-year maintenance 

plan for this area, for purposes of 

transportation conformity. In response 

to a September 9, 2005, request from 

Valley Watch, Inc., EPA is extending the 

comment period for 7 days. 

DATES: The comment period is extended 

to October 18, 2005. 

ADDRESSES: Submit comments, 

identified by Regional Material in 

EDocket (RME) ID No. R05–OAR–2005–

IN–0006, to: John M. Mooney, Chief, 

Criteria Pollutant Section, (AR–18J), 

U.S. Environmental Protection Agency, 

Region 5, 77 West Jackson Boulevard, 

Chicago, Illinois 60604. E-mail: 

mooney.john@epa.gov. Additional 

instructions to comment can be found in 

the notice of proposed rulemaking 

published September 9, 2005 (70 FR 

53605). 

FOR FURTHER INFORMATION CONTACT: 

Edward Doty, Environmental Scientist, 

Criteria Pollutant Section, Air Programs 

Branch (AR–18J), United States 

Environmental Protection Agency, 

Region 5, 77 West Jackson Boulevard, 

Chicago, Illinois 60604, (312) 886–6057, 

Doty.Edward@epa.gov. 

Dated: September 29, 2005. 

Bharat Mathur, 

Acting Regional Administrator, Region 5. 

[FR Doc. 05–20094 Filed 10–4–05; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF THE INTERIOR 

Office of the Secretary 

43 CFR Part 4 

RIN 1094–AA49 

Implementation of the Equal Access to 

Justice Act in Agency Proceedings 

AGENCY: Office of the Secretary, Interior. 

ACTION: Proposed rule. 

SUMMARY: The Office of Hearings and 

Appeals (OHA) is proposing to amend 

its existing regulations that implement 

the Equal Access to Justice Act to bring 

them up to date with amendments to the 

statute that have been enacted since 

OHA adopted the existing regulations in 

1983. 

DATES: You should submit your 

comments by December 5, 2005. 

ADDRESSES: You may submit comments, 

identified by the number 1094–AA49, 

by any of the following methods: 

—Federal rulemaking portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

—E-mail: John_Strylowski@ios.doi.gov. 

Include ‘‘RIN 1094–AA49’’ in the 

subject line of the message. 

—Fax: 703–235–9014. 

—Mail: Director, Office of Hearings and 

Appeals, Department of the Interior, 

801 N. Quincy Street, Suite 300, 

Arlington, Virginia 22203. 

—Hand delivery: Director, Office of 

Hearings and Appeals, Department of 

the Interior, 801 N. Quincy Street, 

Suite 400, Arlington, Virginia 22203. 

FOR FURTHER INFORMATION CONTACT: Will 

A. Irwin, Administrative Judge, Interior 

Board of Land Appeals, U.S. 

Department of the Interior, 801 N. 

Quincy Street, Suite 300, Arlington, 

Virginia 22203, Phone 703–235–3750. 

Persons who use a telecommunications 

device for the deaf (TDD) may call the 

Federal Information Relay Service 

(FIRS) at 800–877–8339. 

SUPPLEMENTARY INFORMATION: