Document ID: EPA-R05-OAR-2007-0519-0001
Agency: epa
Document Type: Proposed Rule
Title: Proposed Approval of the Michigan Clean Air Interstate Rule
Posted Date: 2007-09-12T04:00Z

[Federal Register: September 12, 2007 (Volume 72, Number 176)]
[Proposed Rules]               
[Page 52038-52044]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12se07-22]                         

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 52 and 97

[EPA-R05-OAR-2007-0519; FRL-8466-2]

 
Approval of Implementation Plans of Michigan: Clean Air 
Interstate Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing to conditionally approve a revision to the 
Michigan State Implementation Plan (SIP) submitted on July 16, 2007. 
This revision incorporates provisions related to the implementation of 
EPA's Clean Air Interstate Rule (CAIR), promulgated on May 12, 2005, 
and subsequently revised on April 28, 2006, and December 13, 2006, and 
the CAIR Federal Implementation Plan (CAIR FIP) concerning 
SO2, NOX annual, and NOX ozone season 
emissions for the state of Michigan, promulgated on April 28, 2006, and 
subsequently revised December 13, 2006. EPA is not proposing to make 
any changes to the CAIR FIP, but is proposing, to the extent EPA 
approves Michigan's SIP revision, to amend the appropriate appendices 
in the CAIR FIP trading rules simply to note that approval.
    The SIP revision that EPA is proposing to conditionally approve is 
an abbreviated SIP revision that addresses: The applicability 
provisions for the NOX ozone season trading program under 
the CAIR FIP and supporting definitions of terms; the methodology to be 
used to allocate NOX annual and ozone season NOX 
allowances under the CAIR FIP and supporting definitions of terms; and 
provisions for opt-in units under the CAIR FIP. Michigan will be 
submitting additional SO2 rules in the future.

DATES: Comments must be received on or before October 12, 2007.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R05-
OAR-2007-0519, by one of the following methods:
    1. http://www.regulations.gov: Follow the on-line instructions for 

submitting comments.
    2. E-mail: mooney.john@epa.gov.
    3. Fax: (312) 886-5824.
    4. Mail: John M. Mooney, Chief, Criteria Pollutant Section, Air 
Programs Branch (AR-18J), U.S. Environmental Protection Agency, 77 West 
Jackson Boulevard, Chicago, Illinois 60604.
    5. Hand Delivery: John M. Mooney, Chief, Criteria Pollutant 
Section, Air Programs Branch (AR-18J), U.S. Environmental Protection 
Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. Such 
deliveries are only accepted during the Regional Office normal hours of 
operation, and special arrangements should be made for deliveries of 
boxed information. The Regional Office official hours of business are 
Monday through Friday, 8:30 a.m. to 4:30 p.m. excluding Federal 
holidays.
    Instructions: Direct your comments to Docket ID No. EPA-R05-OAR-
2007-0519. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
http://www.regulations.gov, including any personal information provided, 

unless the comment includes information claimed to be Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. Do not submit through http://www.regulations.gov or e-

mail, information that you consider to be CBI or otherwise protected. 
The http://www.regulations.gov Web site is an ``anonymous access'' system, 

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 http://www.regulations.gov, 

your e-mail address will be automatically captured and included as part 
of the comment that is placed in the public docket 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 and any form of 
encryption and should be free of any defects or viruses. For additional 
information about EPA's public docket visit the EPA Docket Center 
homepage at http://www.epa.gov/epahome/dockets.htm.

    Docket: All documents in the electronic docket are listed in the 
http://www.regulations.gov index. 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 http://www.regulations.gov or 

in hard copy at the Environmental Protection Agency, Region 5, Air and 
Radiation Division, 77 West Jackson Boulevard, Chicago, Illinois 60604. 
This Facility is open from 8:30 a.m. to 4:30 p.m., Monday through 
Friday, excluding legal holidays. We recommend that you telephone 
Douglas Aburano, Environmental Engineer, at (312) 353-6960, before 
visiting the Region 5 office.

FOR FURTHER INFORMATION CONTACT: Douglas Aburano, Environmental 
Engineer, Criteria Pollutant Section, Air Programs Branch (AR-18J), 
Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, 
Chicago, Illinois 60604, (312) 353-6960, aburano.douglas@epa.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. What Action Is EPA Proposing To Take?
II. What Is the Regulatory History of CAIR and the CAIR FIP?
III. What Are the General Requirements of CAIR and the CAIR FIP?
IV. What Are the Types of CAIR SIP Submittals?
V. Analysis of Michigan's CAIR SIP Submittal

[[Page 52039]]

    A. Nature of Michigan's Submittal
    B. Summary of Michigan's Rules
    C. State Budgets for Allowance Allocations
    D. CAIR Cap-and-Trade Programs
    E. Applicability Provisions for Non-EGU NOX SIP Call 
Sources
    F. NOX Allowance Allocations
    G. Allocation of NOX Allowances From the Compliance 
Supplement Pool
    H. Individual Opt-in Units
    I. Conditions for Approval
VI. Proposed Action
VII. Statutory and Executive Order Reviews

I. What Action Is EPA Proposing To Take?

CAIR SIP Approval

    EPA is proposing to conditionally approve a revision to Michigan's 
SIP, submitted on July 16, 2007, that would modify the application of 
certain provisions of the CAIR FIP concerning NOX annual and 
NOX ozone season emissions. (As discussed below, this less 
comprehensive CAIR SIP is termed an abbreviated SIP.) The CAIR 
SO2 FIP will remain in place unaffected. Michigan is subject 
to the CAIR FIP that implements the CAIR requirements by requiring 
certain electric generating units (EGUs) to participate in the EPA-
administered federal CAIR SO2, NOX annual, and 
NOX ozone season cap-and-trade programs. The SIP revision 
provides a methodology for allocating NOX allowances for the 
NOX annual and NOX ozone season trading programs. 
The CAIR FIP provides that this methodology, if approved as EPA is 
proposing, will be used to allocate NOX allowances to 
sources in Michigan, instead of the federal allocation methodology 
otherwise provided in the FIP. The SIP revision also provides a 
methodology for allocating the compliance supplement pool (CSP) in the 
CAIR NOX annual trading program, expands the applicability 
provisions of the CAIR NOX ozone season trading program, and 
allows for individual units not otherwise subject to the CAIR trading 
programs to opt into such trading programs. Consistent with the 
flexibility provided in the FIP, these provisions, if approved, will 
also be used to replace or supplement, as appropriate, the 
corresponding provisions in the CAIR FIP for Michigan. EPA is not 
proposing to make any changes to the CAIR FIP, but is proposing, to the 
extent EPA approves Michigan's SIP revision, to amend the appropriate 
appendices in the CAIR FIP trading rules simply to note that approval.
    This SIP revision is being proposed for conditional approval as 
opposed to a full or complete approval because of several minor 
deficiencies that must be addressed. If the conditions for full 
approval are not met within one year of the effective date of EPA 
approval, this conditional approval will revert to a disapproval, as of 
the deadline for meeting the conditions, without further action 
required by EPA. In the event the conditional approval reverts to a 
disapproval, EPA will publish a notice in the Federal Register to 
inform the public. If Michigan does meet the conditions necessary for a 
full approval, EPA will publish a Federal Register notice finalizing 
the full approval.

II. What Is the Regulatory History of the CAIR and the CAIR FIP?

    The CAIR was published by EPA on May 12, 2005 (70 FR 25162). In 
this rule, EPA determined that 28 states and the District of Columbia 
contribute significantly to nonattainment and interfere with 
maintenance of the national ambient air quality standards (NAAQS) for 
fine particles (PM2.5) and/or 8-hour ozone in downwind 
states in the eastern part of the country. As a result, EPA required 
those upwind states to revise their SIPs to include control measures 
that reduce emissions of SO2, which is a precursor to 
PM2.5 formation, and/or NOX, which is a precursor 
to both ozone and PM2.5 formation. For jurisdictions that 
contribute significantly to downwind PM2.5 nonattainment, 
CAIR sets annual state-wide emission reduction requirements (i.e., 
budgets) for SO2 and annual state-wide emission reduction 
requirements for NOX. Similarly, for jurisdictions that 
contribute significantly to 8-hour ozone nonattainment, CAIR sets 
state-wide emission reduction requirements for NOX for the 
ozone season (May 1st to September 30th). Under CAIR, states may 
implement these emission budgets by participating in the EPA-
administered cap-and-trade programs or by adopting any other control 
measures.
    CAIR explains to subject states what must be included in SIPs to 
address the requirements of section 110(a)(2)(D) of the Clean Air Act 
(CAA) with regard to interstate transport with respect to the 8-hour 
ozone and PM2.5 NAAQS. EPA made national findings, effective 
May 25, 2005, that the states had failed to submit SIPs meeting the 
requirements of section 110(a)(2)(D). The SIPs were due in July 2000, 3 
years after the promulgation of the 8-hour ozone and PM2.5 
NAAQS. These findings started a 2-year clock for EPA to promulgate a 
Federal Implementation Plan (FIP) to address the requirements of 
section 110(a)(2)(D). Under CAA section 110(c)(1), EPA may issue a FIP 
anytime after such findings are made and must do so within two years 
unless a SIP revision correcting the deficiency is approved by EPA 
before the FIP is promulgated.
    On April 28, 2006, EPA promulgated a FIP for all states covered by 
CAIR in order to ensure the emissions reductions required by CAIR are 
achieved on schedule. Each CAIR state is subject to the FIP until the 
state fully adopts, and EPA approves, a SIP revision meeting the 
requirements of CAIR. The CAIR FIP requires certain EGUs to participate 
in the EPA-administered CAIR SO2, NOX annual, and 
NOX ozone season model trading programs, as appropriate. The 
CAIR FIP SO2, NOX annual, and NOX 
ozone season trading programs impose essentially the same requirements 
as, and are integrated with, the respective CAIR SIP trading programs. 
The integration of the CAIR FIP and SIP trading programs means that 
these trading programs will work together to create effectively a 
single trading program for each regulated pollutant (SO2, 
NOX annual, and NOX ozone season) in all states 
covered by CAIR FIP or SIP trading programs for that pollutant. The 
CAIR FIP also allows states to submit abbreviated SIP revisions that, 
if approved by EPA, will automatically replace or supplement the 
corresponding CAIR FIP provisions (e.g., the methodology for allocating 
NOX allowances to sources in the state), while the CAIR FIP 
remains in place for all other provisions.
    On April 28, 2006, EPA published two more CAIR-related final rules 
that added the states of Delaware and New Jersey to the list of states 
subject to CAIR for PM2.5 and announced EPA's final 
decisions on reconsideration of five issues without making any 
substantive changes to the CAIR requirements.

III. What Are the General Requirements of CAIR and the CAIR FIP?

    CAIR establishes state-wide emission budgets for SO2 and 
NOX and is to be implemented in two phases. The first phase 
of NOX reductions starts in 2009 and continues through 2014, 
while the first phase of SO2 reductions starts in 2010 and 
continues through 2014. The second phase of reductions for both 
NOX and SO2 starts in 2015 and continues 
thereafter. CAIR requires states to implement the budgets by either: 
(1) Requiring EGUs to participate in the EPA-administered cap-and-trade 
programs: or, (2) adopting other control measures of the state's 
choosing and demonstrating that such control measures will result in 
compliance with the applicable state SO2 and NOX 
budgets.

[[Page 52040]]

    The May 12, 2005, and April 28, 2006, CAIR rules provide model 
rules that states must adopt (with certain limited changes, if desired) 
if they want to participate in the EPA-administered trading programs.
    With two exceptions, only states that choose to meet the 
requirements of CAIR through methods that exclusively regulate EGUs are 
allowed to participate in the EPA-administered trading programs. One 
exception is for states that adopt the opt-in provisions of the model 
rules to allow non-EGUs individually to opt into the EPA-administered 
trading programs. The other exception is for states that include all 
non-EGUs from their NOX SIP Call trading programs in their 
CAIR NOX ozone season trading programs.

IV. What Are the Types of CAIR SIP Submittals?

    States have the flexibility to choose the type of control measures 
they will use to meet the requirements of CAIR. EPA anticipates that 
most states will choose to meet the CAIR requirements by selecting an 
option that requires EGUs to participate in the EPA-administered CAIR 
cap-and-trade programs. For such states, EPA has provided two 
approaches for submitting and obtaining approval for CAIR SIP 
revisions. States may submit full SIP revisions that adopt the model 
CAIR cap-and-trade rules. If approved, these SIP revisions will fully 
replace the CAIR FIP. Alternatively, states may submit abbreviated SIP 
revisions. These SIP revisions will not replace the CAIR FIP; however, 
the CAIR FIP provides that, when approved, the provisions in these 
abbreviated SIP revisions will be used instead of or in conjunction 
with, as appropriate, the corresponding provisions of the CAIR FIP 
(e.g., the NOX allowance allocation methodology).
    A state submitting an abbreviated SIP revision, may submit limited 
SIP revisions to tailor the CAIR FIP cap-and-trade programs to the 
state submitting the revision. Specifically, an abbreviated SIP 
revision may establish certain applicability and allowance allocation 
provisions that will be used instead of or in conjunction with the 
corresponding provisions in the CAIR FIP rules in that state. 
Specifically, the abbreviated SIP revisions may:
    1. Include NOX SIP Call trading sources that are not 
EGUs under CAIR in the CAIR FIP NOX ozone season trading 
program;
    2. Provide for allocation of NOX annual or ozone season 
allowances by the state, rather than the Administrator, and using a 
methodology chosen by the state;
    3. Provide for allocation of NOX annual allowances from 
the compliance supplement pool (CSP) by the state, rather than by the 
Administrator, and using the state's choice of allowed, alternative 
methodologies; or
    4. Allow units that are not otherwise CAIR units to opt 
individually into the CAIR FIP cap-and-trade programs under the opt-in 
provisions in the CAIR FIP rules.
    With approval of an abbreviated SIP revision, the CAIR FIP remains 
in place, as tailored to sources in the state by that approved SIP 
revision.
    Abbreviated SIP revisions can be submitted in lieu of, or as part 
of, CAIR full SIP revisions. States may want to designate part of their 
full SIP as an abbreviated SIP for EPA to act on first when the timing 
of the state's submission might not provide EPA with sufficient time to 
approve the full SIP prior to the deadline for recording NOX 
allocations. This will help ensure that the elements of the trading 
programs where flexibility is allowed are implemented according to the 
state's decisions. Submission of an abbreviated SIP revision does not 
preclude future submission of a CAIR full SIP revision. In this case, 
the July 16, 2007, submittal from Michigan has been submitted as an 
abbreviated SIP revision.

V. Analysis of Michigan's CAIR SIP Submittal

A. Nature of Michigan's Submittal

    On July 16, 2007, Michigan submitted draft rules and supporting 
material for addressing CAIR requirements. The Michigan Department of 
Environmental Quality (MDEQ) held a public hearing on these proposed 
rules on April 2, 2007. MDEQ also provided a 30-day comment period that 
ended on April 2, 2007.

B. Summary of Michigan's Rules

    Part 8 of Michigan Air Pollution Control Rules, entitled, 
``Emission Limitations and Prohibitions--Oxides of Nitrogen,'' includes 
provisions limiting the emissions of NOX from stationary 
sources in Michigan. While Part 8 contains many sections, Michigan 
submitted only a portion of them to address the CAIR requirements. 
Specifically, Michigan submitted rules 802a, 803, 821 through 826, and 
830 through 834 for federal approval.
     Rule 802a, entitled ``Adoption by reference,'' contains 
adoption by reference language. Michigan has adopted necessary portions 
of federal regulations including parts of: EPA's Acid Rain Program 
(specifically 40 CFR 72.2 and 72.8), Continuous Emission Monitoring 
Program (the entire 40 CFR part 75), NOX Model Rule 
Compliance 40 CFR 96.54, and the CAIR SO2 and NOX 
FIP rules (specifically 40 CFR 97.2, 97.102, 97.103, 97.104, 97.302, 
97.303, 97.304, 97.180 to 97.188, 97.380 to 97.388).
     Rule 803, entitled ``Definitions,'' modifies the existing 
Michigan definitions section to address the CAIR requirements. In order 
to incorporate sources affected by the NOX SIP Call into the 
CAIR NOX trading program, and also to accommodate Michigan's 
NOX allocation methodology, the state has adopted 
definitions that did not already exist in the CAIR FIP.
     Rule 821, entitled ``CAIR NOX ozone season and 
annual trading programs; applicability determinations,'' contains 
applicability criteria. Michigan has incorporated the CAIR 
applicability from the CAIR FIP, has included the non-EGU sources from 
the NOX SIP Call, and also allows sources of renewable 
energy and renewable energy projects to receive NOX 
allowances under the state's allocation methodology. Michigan has also 
included in this section allocation adjustments based on EGU fuel type.
     Rule 822, entitled ``CAIR NOX ozone season 
trading program; allowance allocation,'' establishes the NOX 
budgets for the ozone season control period and establishes the 
allocation methodology procedures for the ozone season. These 
provisions describe how Michigan sources under the CAIR FIP, non-EGUs 
formerly affected by the NOX SIP Call, and renewable energy 
sources will be allocated NOX ozone season allowances.
     Rule 823, entitled ``New EGUs, new non-EGUs, and newly 
affected EGUs under CAIR NOX ozone season trading program; 
allowance allocations,'' establishes the provisions for a set-aside 
ozone season control period allocation pool for new EGUs, new non-EGUS, 
and newly affected EGUS (which were not included in the original 
NOX SIP Call program due to geographic location).
     Rule 824, entitled ``CAIR NOX ozone season 
trading program; hardship set-aside,'' establishes the provisions for a 
hardship set-aside ozone season control period allocation pool to 
address issues for small (i.e., employing fewer than 250 people) 
businesses that can demonstrate that the controls required for this 
source result in excessive or prohibitive costs for compliance.
     Rule 825, entitled ``CAIR NOX ozone season 
trading program; renewable set-aside,'' establishes the provisions for 
an ozone season control

[[Page 52041]]

period allocation pool to be allocated to renewable energy sources or 
renewable energy projects.
     Rule 826, entitled ``CAIR NOX ozone season 
trading program; opt-in provisions,'' adopts by reference the ozone 
season control period opt-in provisions under the federal CAIR FIP 
rules, specifically 40 CFR 97.380 to 97.388.
     Rule 830, entitled ``CAIR NOX annual trading 
program; allowance allocations,'' establishes the NOX 
budgets for the annual control period, and establishes the allocation 
methodology procedures for the annual control period.
     Rule 831, entitled ``New EGUs under CAIR NOX 
annual trading program; allowance allocations,'' establishes the 
provisions for a set-aside annual control period allocation pool for 
new EGUs and the pool allocation methodology.
     Rule 832, entitled ``CAIR NOX annual trading 
program; hardship set-aside,'' establishes the provisions for a set-
aside annual control period allocation pool to address issues for small 
(i.e., employing fewer than 250 people) businesses that can demonstrate 
that the required controls will result in excessive or prohibitive 
compliance costs.
     Rule 833, entitled ``CAIR NOX annual trading 
program; compliance supplement pool,'' establishes the provisions for 
an annual control period compliance supplement pool that provides for 
allocation for early reduction credit generation for existing sources, 
and for the newly affected EGUs that were not in the original 
NOX Budget Program that can demonstrate that compliance 
during the 2009 control period would create an undue risk to the 
reliability of the electrical supply.
     Rule 834, entitled ``Opt-in provisions under the CAIR 
NOX annual trading program,'' adopts by reference the opt-in 
provisions for the annual control period under the federal CAIR rules. 
While Michigan has developed an abbreviated SIP, it differs from most 
other states because of artifacts from the NOX SIP Call. 
While many states are affected by the NOX SIP Call, Michigan 
is one of only a few states that is not entirely covered under the 
NOX SIP Call, due to a modeling boundary that EPA used in 
atmospheric modeling of pollution sources and downwind effects. Only 
those Michigan counties that fall, in their entirety, south of 44 
[ordm] latitude are affected by the NOX SIP Call. This is 
the result of a decision in Michigan v. EPA, 213 F.3d 663 (DC Cir. 
March 3, 2000) that established 44 [ordm] (a modeling boundary) as the 
appropriate northern boundary for the NOX SIP Call. EPA 
describes both the court decision and how it applies to Michigan in a 
Federal Register notice dated April 21, 2004 (69 FR 21604, 21622-
21627). Although only a portion of Michigan is affected by the 
NOX SIP Call, the entire state is affected by CAIR. In order 
to transition from the NOX SIP Call trading program to the 
CAIR ozone season trading program, the Michigan rules include 
additional definitions and provisions to account for this geographic 
discrepancy.
    An additional complication that Michigan has addressed in its rules 
is that the CAIR requirements for sources of NOX begin in 
2009. Under the NOX SIP Call, Michigan has already issued 
NOX allowances through 2009. Because the 2009 NOX 
SIP Call allowances have already been allocated to the Michigan 
sources, Michigan included provisions acknowledging the 2009 
NOX SIP Call allowances and provided that they will be 
treated as CAIR NOX ozone season allowances issued for that 
year. 2010 will be the first year in which Michigan sources (other than 
CAIR opt-in units) will be allocated CAIR NOX ozone season 
allowances that were not previously issued as NOX SIP Call 
allowances.

C. State Budgets for Allowance Allocations

    The CAIR NOX annual and ozone season budgets were 
developed from historical heat input data for EGUs. Using these data, 
EPA calculated annual and ozone season regional heat input values, 
which were multiplied by 0.15 lb/mmBtu for phase 1, and 0.125 lb/mmBtu 
for phase 2, to obtain regional NOX budgets for 2009-2014 
and for 2015 and thereafter, respectively. EPA derived the state 
NOX annual and ozone season budgets from the regional 
budgets using state heat input data adjusted by fuel factors.
    The CAIR FIP established the NOX budgets for Michigan as 
65,304 tons for NOX annual emissions for 2009-2014; 54,420 
tons for NOX annual emissions for 2015 and thereafter; 
28,971 tons for NOX ozone season emissions for 2009-2014; 
and 24,142 tons for NOX ozone season emissions for 2015 and 
thereafter. Michigan's SIP revision, proposed for conditional approval 
in today's action, does not affect these budgets, which are total 
amounts of allowances available for allocation for each year under the 
EPA-administered cap-and-trade programs under the CAIR FIP. In short, 
the abbreviated SIP revision only affects allocations of allowances 
under the established budgets.

D. CAIR Cap-and-Trade Programs

    The CAIR NOX annual and ozone-season FIP largely mirrors 
the structure of the NOX SIP Call model trading rule in 40 
CFR part 96, subparts A through I. While the provisions of the 
NOX annual and ozone-season FIP are similar, there are some 
differences. For example, the NOX annual FIP (but not the 
NOX ozone season FIP) provides for a CSP, which is discussed 
below and under which allowances may be awarded for early reductions of 
NOX annual emissions. As a further example, the 
NOX ozone season FIP reflects the fact that the CAIR 
NOX ozone season trading program replaces the NOX 
SIP Call trading program after the 2008 ozone season and is coordinated 
with the NOX SIP Call program. The NOX ozone 
season FIP provides incentives for early emissions reductions by 
allowing banked, pre-2009 NOX SIP Call allowances to be used 
for compliance in the CAIR NOX ozone-season trading program. 
In addition, states have the option of continuing to meet their 
NOX SIP Call requirement by participating in the CAIR 
NOX ozone season trading program and including all their 
NOX SIP Call trading sources in that program.
    EPA used the CAIR model trading rules as the basis for the trading 
programs in the CAIR FIP. The CAIR FIP trading rules are virtually 
identical to the CAIR model trading rules, with changes made to account 
for federal rather than state implementation. The CAIR model 
SO2, NOX annual, and NOX ozone season 
trading rules and the respective CAIR FIP trading rules are designed to 
work together as integrated SO2, NOX annual, and 
NOX ozone season trading programs.
    Michigan is subject to the CAIR FIP for ozone and PM2.5, 
and the CAIR FIP trading programs for SO2, NOX 
annual, and NOX ozone season apply to sources in Michigan. 
Consistent with the flexibility it gives to states, the CAIR FIP 
provides that states may submit abbreviated SIP revisions that will 
replace or supplement, as appropriate, certain provisions of the CAIR 
FIP trading programs. Michigan's July 16, 2007, submission is an 
abbreviated SIP revision.

E. Applicability Provisions for Non-EGU NOX SIP Call Sources

    In general, the CAIR FIP trading programs apply to any stationary, 
fossil-fuel-fired boiler or stationary, fossil-fuel-fired combustion 
turbine serving at any time, since the later of November 15, 1990, or 
the start-up of the unit's combustion chamber, a generator with

[[Page 52042]]

nameplate capacity of more than 25 MWe producing electricity for sale.
    States have the option of bringing in, for the CAIR NOX 
ozone season program only, those units in the state's NOX 
SIP Call trading program that are not EGUs as defined under CAIR. EPA 
advises states exercising this option to use provisions for 
applicability that are substantively identical to the provisions in 40 
CFR 96.304 and add the applicability provisions in the state's 
NOX SIP Call trading rule for non-EGUs to the applicability 
provisions in 40 CFR 96.304 in order to include in the CAIR 
NOX ozone season trading program all units required to be in 
the state's NOX SIP Call trading program that are not 
already included under 40 CFR 96.304. Under this option, the CAIR 
NOX ozone season program must cover all large industrial 
boilers and combustion turbines, as well as any small EGUs (i.e., units 
serving a generator with a nameplate capacity of 25 MWe or less), that 
the state currently requires to be in the NOX SIP Call 
trading program.
    Consistent with the flexibility given to states in the CAIR FIP, 
Michigan has chosen to expand the applicability provisions of the CAIR 
NOX ozone season trading program to include all non-EGUs in 
the state's NOX SIP Call trading program.

F. NOX Allowance Allocations

    Under the NOX allowance allocation methodology in the 
CAIR model trading rules and in the CAIR FIP, NOX annual and 
ozone season allowances are allocated to units that have operated for 
five years, based on heat input data from a three-year period that are 
adjusted for fuel type by using fuel factors of 1.0 for coal, 0.6 for 
oil, and 0.4 for other fuels. The CAIR model trading rules and the CAIR 
FIP also provide a new unit set-aside from which units without five 
years of operation are allocated allowances based on the units' prior 
year emissions.
    The CAIR FIP provides states the flexibility to establish a 
different NOX allowance allocation methodology that will be 
used to allocate allowances to sources in the states if certain 
requirements are met concerning the timing of submission of units' 
allocations to the Administrator for recordation and the total amount 
of allowances allocated for each control period. In adopting 
alternative NOX allowance allocation methodologies, states 
have flexibility with regard to:
    1. The cost to recipients of the allowances, which may be 
distributed for free or auctioned;
    2. The frequency of allocations;
    3. The basis for allocating allowances, which may be distributed, 
for example, based on historical heat input or electric and thermal 
output; and
    4. The use of allowance set-asides and, if used, their size.
    Consistent with the flexibility given to states in the CAIR FIP, 
Michigan has chosen to replace the provisions of the CAIR 
NOX annual FIP concerning the allocation of NOX 
annual allowances with its own methodology. Michigan has chosen to 
distribute NOX annual allowances based upon a heat input 
based methodology for existing units, with set-asides for new sources 
and for existing sources that submit acceptable demonstrations of 
hardship to MDEQ.
    Michigan's Rule 830 allocates three years of NOX annual 
allowances at a time to existing sources on a heat input basis. This 
begins in 2007 for the annual control periods of 2009, 2010 and 2011. 
By October 31, 2008, Michigan will submit to EPA allocations for the 
annual control periods of 2012, 2013 and 2014. By October 31, 2011, 
and, thereafter, each October 31 of every third year Michigan will 
submit to EPA allocation for the subsequent three year period.
    Under Michigan Rule 831, the new source set-aside for new EGUs is 
1,000 tons per year for years 2009-2011, and 1,400 tons per year for 
years 2012 and thereafter. Allowances for the first annual control 
period under the new source set-aside are allocated based on 70 percent 
of a unit's projected emissions. After the first annual control period, 
new EGUs can request allowances equal to (the number of megawatt hours 
operated during the previous control period divided by 2,000 lb/ton), 
multiplied by (1.0 lb NOX/megawatt hours). Once a unit has 
five years of operating data, it is no longer considered a ``new'' unit 
and will be allocated allowances as an existing source under Rule 830.
    Michigan Rule 832 establishes a hardship set-aside of 1,200 
allowances per year for existing sources. Existing sources with fewer 
than 250 employees that are able to submit a demonstration to Michigan 
that the control level required by CAIR will result in excessive or 
prohibitive compliance costs can request allowances from this set-aside 
pool.
    Michigan Rule 833 establishes a compliance supplement pool of 6,491 
allowances for existing EGUs and a pool for newly-affected EGUs of 
1,856 allowances. For existing EGUs, allowances can be requested if 
units have made early reductions during calendar year 2007 and 2008. A 
newly affected EGU can request hardship allowances if it can 
demonstrate that compliance with CAIR will result in hardship.
    Consistent with the flexibility given to states in the CAIR FIP, 
Michigan has chosen to replace the provisions of the CAIR 
NOX ozone season FIP concerning allowance allocations with 
its own methodology. Michigan has chosen to distribute NOX 
ozone season allowances using a heat input-based methodology for 
existing units, with set-asides for new sources, renewable energy 
sources, and existing sources that submit acceptable demonstrations of 
hardship to MDEQ.
    Michigan's Rule 822 establishes trading budgets for existing EGUs, 
new EGUs, newly affected EGUs, existing non-EGUs, renewable sources and 
hardship set-asides. Rule 822 also provides for allocation of three 
years of NOX ozone season control period allowances at a 
time to existing EGUs and existing non-EGUs on a heat input basis. This 
begins in 2007 for the ozone season control periods of 2010 and 2011. 
By October 31, 2008, Michigan will submit to EPA allocations for the 
ozone control periods of 2012, 2013 and 2014. By October 31, 2011, and 
thereafter by each October 31 of the year that is three years after the 
last year of allocation submittal, Michigan will submit the next three 
years of ozone control period allocations to EPA. Allowances for the 
2009 ozone control period are the same as were allocated under the 
NOX SIP Call Budget Trading Program.
    Rule 823 establishes a set-aside pool for new EGUs, new non-EGUs 
and newly affected EGUs. Rule 823 also includes the directions for how 
sources can apply for the allowances in this set-aside. Most EGUs were 
allocated NOX allowances for the 2009 ozone control period 
under the NOX SIP Call. These allowances are now being 
designated as CAIR NOX ozone season allowances issued for 
the 2009 ozone control period. Newly affected EGUs that were not 
subject to the NOX SIP Call never were allocated 2009 ozone 
control period allowances under the NOX SIP Call, but will 
need allowances to comply with CAIR in 2009. Therefore, they are being 
allowed to request allowances from this set-aside. Newly affected 
sources can request allowances based on their historic heat input. For 
the first ozone season control period of operation, new EGUs and new 
non-EGUs can request allowances from this set-aside based on predicted 
hours of operation. For the four ozone control periods after the first 
ozone control period of operation, new EGUs may request allowances 
based on the actual number of megawatt hours of electricity

[[Page 52043]]

generated during the ozone control period immediately preceding the 
request. After a new EGU has five ozone control periods of operating 
data, it is no longer considered a ``new'' EGU and is allocated ozone 
control period allowances per the requirements found in Rule 822.
    Rule 824 creates an annual hardship set-aside pool of 650 
allowances beginning in 2010. Both existing EGUs and non-EGUs can 
request allowances from this pool if the company making the request 
employs fewer than 250 people and can make a demonstration of financial 
hardship. The number of allowances a source can request will be based 
on historical heat input.
    Rule 825 establishes a set-aside of 200 allowances per year for 
renewable units. Initially, renewable units can request allowances from 
this set-aside based on the nameplate capacity of the unit and the 
predicted hours of operation during the ozone control period. After a 
renewable unit has been in operation for one ozone control period, the 
unit can request allowances based on the previous ozone season control 
period's actual megawatt hours. Renewable units may only request 
allowances for three consecutive ozone seasons.

G. Allocation of NOX Allowances From the Compliance 
Supplement Pool

    The CSP provides an incentive for early reductions in 
NOX annual emissions. The CSP consists of 200,000 CAIR 
NOX annual allowances of vintage 2009 for the entire CAIR 
region, and a state's share of the CSP is based upon the state's share 
of the projected emission reductions under CAIR. States may distribute 
CSP allowances, one allowance for each ton of early reduction, to 
sources that make NOX reductions during 2007 or 2008 beyond 
what is required by any applicable state or federal emission 
limitation. States also may distribute CSP allowances based upon a 
demonstration of need for an extension of the 2009 deadline for 
implementing emission controls.
    The CAIR NOX annual FIP establishes specific 
methodologies for allocations of CSP allowances. States may choose an 
allowed, alternative CSP allocation methodology to be used to allocate 
CSP allowances to sources in those states.
    Consistent with the flexibility given to states in the FIP, 
Michigan has chosen to modify the provisions of the CAIR NOX 
annual FIP concerning the allocation of allowances from the CSP. 
Michigan Rule 833 establishes an annual compliance supplement pool of 
6,491 allowances for existing EGUs and an annual pool for newly-
affected EGUs of 1,856 allowances. Existing EGUs can request allowances 
if the units have made early reductions during calendar years 2007 and 
2008. Newly affected EGUs can request hardship allowances if a 
demonstration of hardship can be made.

H. Individual Opt-In Units

    The opt-in provisions allow for certain non-EGUs (i.e., boilers, 
combustion turbines, and other stationary fossil-fuel-fired devices) 
that do not meet the applicability criteria for a CAIR trading program 
to participate voluntarily in (i.e., opt into) the CAIR trading 
program. A non-EGU may opt into one or more of the CAIR trading 
programs. In order to qualify to opt into a CAIR trading program, a 
unit must vent all emissions through a stack and be able to meet 
monitoring, recordkeeping, and recording requirements of 40 CFR part 
75. The owners and operators seeking to opt a unit into a CAIR trading 
program must apply for a CAIR opt-in permit. If the unit is issued a 
CAIR opt-in permit, the unit becomes a CAIR unit, is allocated 
allowances, and must meet the same allowance-holding and emissions 
monitoring and reporting requirements as other units subject to the 
CAIR trading program. The opt-in provisions provide for two 
methodologies for allocating allowances for opt-in units, one 
methodology that applies to opt-in units in general and a second 
methodology that allocates allowances only to opt-in units that the 
owners and operators intend to repower before January 1, 2015.
    States have several options concerning the opt-in provisions. The 
rules for each of the CAIR FIP trading programs include opt-in 
provisions that are essentially the same as those in the respective 
CAIR SIP model rules, except that the CAIR FIP opt-in provisions become 
effective in a state only if the state's abbreviated SIP revision 
adopts the opt-in provisions. The state may adopt the opt-in provisions 
entirely or may adopt them but exclude one of the allowance allocation 
methodologies. The state also has the option of not adopting any opt-in 
provisions in the abbreviated SIP revision and thereby providing for 
the CAIR FIP trading program to be implemented in the state without the 
ability for units to opt into the program.
    Consistent with the flexibility given to states in the FIP, 
Michigan has chosen to allow non-EGUs meeting certain requirements to 
participate in the CAIR NOX annual trading program. Michigan 
has adopted by reference the FIP language regarding opt-ins. Rule 802a 
incorporates 40 CFR 97.180 to 97.188 by reference, and Rule 834 makes 
them applicable to units in the State.
    Consistent with the flexibility given to states in the FIP, 
Michigan has chosen to permit non-EGUs meeting certain requirements to 
participate in the CAIR NOX ozone season trading program. 
Michigan has adopted by reference the FIP language regarding opt-ins. 
Rule 802a incorporates 40 CFR 97.380 to 97.388 by reference, and Rule 
826 makes them applicable to units in the State.

I. Conditions for Approval

    EPA notes that it has identified several minor deficiencies that 
are necessary to correct in Michigan's rules. These minor deficiencies 
are as follows:
    1. In rule 803(3), Michigan needs to add a definition for 
``commence operation.'' This definition, and the revised definition of 
``commence commercial operation,'' are necessary to take account of 
NOX SIP Call units brought into the CAIR NOX 
ozone season trading program that do not generate electricity for sale 
and to ensure that they have appropriate deadlines for certification of 
monitoring systems under 40 CFR Part 97.
    2. In rule 803(3)(c), Michigan needs to revise the definition for 
``commence commercial operation,'' as described in Condition 1, above.
    3. In rule 803(3)(d)(ii), Michigan needs to revise the definition 
of ``electric generating unit'' or ``EGU.'' EPA interprets Michigan's 
current rule 803 as properly including in the CAIR NOX ozone 
season trading program all EGUs in Michigan that were subject to the 
NOX SIP Call trading program. Michigan must revise the rule 
to clarify that all EGUs in Michigan that were subject to the 
NOX SIP Call trading program are included in the CAIR 
NOX ozone season trading program.
    4. In rule 823(5)(c), Michigan needs to reference ``subrule (1)(a), 
(b), (c), and (d)'' of the rule. While EPA interprets Michigan's 
current rule as limiting the new unit set-aside allocations to the 
amount of allowances in the set-aside, Michigan must revise this 
provision to clarify the mechanism for implementing this limitation on 
such allocations.
    These minor deficiencies are described in detail in a technical 
support document in the docket for this rulemaking. By a letter dated 
August 15, 2007, Michigan committed to making final and effective 
revisions to its rules by correcting these deficiencies as discussed 
above by July 20, 2008.
    Under section 110(k)(4) of the CAA, EPA may conditionally approve a 
SIP revision based on a commitment from the State to adopt specific 
enforceable

[[Page 52044]]

measures by a date certain that is no more than one year from the date 
of conditional approval. In this action, we are proposing to approve 
the SIP revision that Michigan has submitted on the condition that the 
minor deficiencies in the SIP revision are corrected as discussed above 
by the date referenced in Michigan's letter, i.e., by July 20, 2008. If 
this condition is not met within one year of the effective date of 
final rulemaking, the conditional approval will automatically revert to 
a disapproval--as of the deadline for meeting the conditions--without 
further action from the EPA. A notice will be published in the Federal 
Register informing the public of a disapproval. In the event the 
conditional approval automatically reverts to a disapproval, the 
validity of allocations made under the SIP revision (including the 
treatment, of previously allocated 2009 NOX SIP Call 
allowances as 2009 CAIR ozone season allowances) before the date of 
such reversion to disapproval will not be affected. If Michigan submits 
final and effective rule revisions correcting the deficiencies as 
discussed above within one year from this conditional approval being 
final and effective, EPA will publish in the Federal Register a notice 
to acknowledge this and to convert the conditional approval to a full 
approval.

VI. Proposed Action

    EPA is proposing to conditionally approve Michigan's abbreviated 
CAIR SIP revision submitted on July 16, 2007. Michigan is covered by 
the CAIR FIP, which requires participation in the EPA-administered CAIR 
FIP cap-and-trade programs for SO2, NOX annual, 
and NOX ozone season emissions. Under this abbreviated SIP 
revision and consistent with the flexibility given to states in the 
FIP, Michigan adopts provisions for allocating allowances under the 
CAIR FIP NOX annual and ozone season trading programs. In 
addition, Michigan adopts in the abbreviated SIP revision provisions 
that establish a methodology for allocating allowances in the CSP, 
expand the applicability provisions for the CAIR FIP NOX 
ozone season trading program, and allow for individual non-EGUs to opt 
into the CAIR FIP NOX annual and NOX ozone season 
cap-and-trade programs. As provided for in the CAIR FIP, these 
provisions in the abbreviated SIP revision will replace or supplement 
the corresponding provisions of the CAIR FIP in Michigan. The 
abbreviated SIP revision meets the applicable requirements in 40 CFR 
51.123(p) and (ee), with regard to NOX annual and 
NOX ozone season emissions. EPA is not proposing to make any 
changes to the CAIR FIP, but is proposing, to the extent EPA approves 
Michigan's SIP revision, to amend the appropriate appendices in the 
CAIR FIP trading rules simply to note that approval.

VII. Statutory and Executive Order Reviews

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
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 action 
merely proposes to approve state law as meeting federal requirements 
and would impose no additional requirements beyond those imposed by 
state law. Accordingly, the Administrator certifies that this proposed 
rule would 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 action proposes to approve pre-existing 
requirements under state law and would not impose any additional 
enforceable duty beyond that required by state law, it does not contain 
any unfunded mandate or significantly or uniquely affect small 
governments, as described in the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4).
    This proposal also does not have tribal implications because it 
would 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 proposed action also 
does not have Federalism implications because it would 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 to amend the appropriate appendices in the CAIR FIP 
trading rules to note that approval. It 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 would 
approve a state rule implementing a federal standard.
    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 would 
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

40 CFR Part 52

    Environmental protection, Air pollution control, Electric 
utilities, Intergovernmental relations, Nitrogen dioxide, Ozone, 
Particulate matter, Reporting and recordkeeping requirements, Sulfur 
oxides.

40 CFR Part 97

    Environmental protection, Air pollution control, Electric 
utilities, Intergovernmental relations, Nitrogen oxides, Ozone, 
Particulate matter, Reporting and recordkeeping requirements, Sulfur 
dioxide.

    Dated: September 4, 2007.
Bharat Mathur,
Acting Regional Administrator, Region 5.
[FR Doc. E7-18026 Filed 9-11-07; 8:45 am]

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