Document ID: EPA-R05-OAR-2007-0183-0005
Agency: epa
Document Type: Rule
Title: Final Approval of Illinois Emission Reduction Market System
Posted Date: 2008-07-07T04:00Z

[Federal Register: July 7, 2008 (Volume 73, Number 130)]
[Rules and Regulations]               
[Page 38328-38330]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07jy08-6]                         

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R05-OAR-2007-0183; FRL-8575-3]

 
Approval and Promulgation of Air Quality Implementation Plans; 
Illinois; Revisions to Emission Reduction Market System

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: In 1997, Illinois adopted and submitted rules establishing a 
cap and trade program regulating emissions of volatile organic 
compounds (VOC). The program, known as the Emission Reduction Market 
System (ERMS), was designed to address VOC sources in the Chicago area 
with potential to emit at least 25 tons per year. Then, in 2004, the 
Chicago ozone nonattainment area was in effect reclassified from severe 
to moderate, which according to EPA guidance revised the applicable 
definition of major sources from 25 tons per year to 100 tons per year. 
This ``reclassification'' could have resulted in the program no longer 
including sources with potential to emit more than 25 but less than 100 
tons per year. Instead, Illinois adopted rule revisions, submitted to 
EPA on January 10, 2007, which required that these sources remain part 
of the program. Illinois' rule revisions also addressed other potential 
ramifications of the ``reclassification.'' EPA is approving these rule 
revisions.

DATES: This final rule is effective August 6, 2008.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-R05-OAR-2007-0183. All documents in the docket are listed on 
the www.regulations.gov Web site. Although listed in the index, some 
information is not publicly available, i.e., Confidential Business 
Information (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 through 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 Federal holidays. We recommend that you telephone John 
Summerhays, Environmental Scientist, at (312) 886-6067 before visiting 
the Region 5 office.

FOR FURTHER INFORMATION CONTACT: John Summerhays, Environmental 
Scientist, Criteria Pollutant Section, Air Programs Branch (AR-18J), 
Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, 
Chicago, Illinois 60604, (312) 886-6067, summerhays.john@epa.gov.

SUPPLEMENTARY INFORMATION: This supplementary information section is 
arranged as follows:

I. Description and Review of Illinois' Submittal
II. What Action Is EPA Taking?
III. Statutory and Executive Order Reviews

I. Description and Review of Illinois' Submittal

    On January 10, 2007, Illinois submitted revisions to Part 205 of 
Title 35 of the Illinois Administrative Code, entitled ``Emissions 
Reduction Market System'' (ERMS). ERMS is a cap and trade program 
addressing VOC emissions in the Chicago area. Under ERMS, Illinois 
issues allowances equivalent to 12 percent less than baseline VOC 
emission levels, and requires affected sources to hold allowances 
equivalent to their VOC emissions during the ozone season. The program 
thereby requires overall VOC emission levels to be reduced to 12 
percent below baseline levels. Illinois adopted the original rules for 
this program on November 20, 1997, and submitted the rules to EPA on 
December 16, 1997. EPA approved those rules on October 15, 2001, at 66 
FR 52359.
    Part 205 requires participation of all major VOC sources in the 
Chicago area. More specifically, the version of Section 205.200 that 
Illinois adopted in 1997 stated that ``The requirements of this Part 
shall apply to any source * * * located in the Chicago ozone 
nonattainment area that is required to obtain a [Title V permit], and 
[has VOC emissions during the ozone season of at least 10 tons].'' The 
requirement for a Title V operating permit applies to major sources. 
Since the Chicago area at that time was classified as a severe ozone 
nonattainment area, major sources were defined to include sources with 
the potential to emit 25 tons per year or more of VOC.
    In 2004, EPA classified the Chicago ozone nonattainment area as 
moderate for the 8-hour ozone standard, and effective in 2005 rescinded 
the severe classification for the 1-hour ozone standard. The definition 
of major sources for moderate ozone nonattainment areas includes 
sources with the potential to emit 100 tons per year or more of VOC. 
According to EPA guidance (see 69 FR 23951, April 30, 2004), the 
replacement of the prior classification of severe with a classification 
of moderate thus meant that sources with potential to emit at least 25 
tons per year but less that 100 tons per year of VOC would no longer be 
major sources and would no longer be required to have Title V operating 
permits. As a result, the sources in the Chicago area in this size 
range would no longer be subject to the ERMS requirements, given the 
applicability criteria in section 205.200 as quoted above.
    Illinois estimated that the loss of these intermediate sized 
sources from ERMS would result in a loss of 330 tons of VOC emission 
reduction per ozone season associated with these sources. Illinois 
sought to avoid this loss of sources from the program. Consequently, 
Illinois revised section 205.200 to redefine applicability to include 
sources with potential to emit at least 25 tons of VOC (and sources 
otherwise required to have a Title V permit) and at least 10 tons of 
VOC emissions during the ozone season. By this means, Illinois revised 
its applicability provisions to include the same set of sources as were 
included in 1997, notwithstanding the change in the classification of 
the Chicago ozone nonattainment area.
    Under the 1997 rules, since by definition all the affected sources 
had a Title V permit, Illinois used the Title V permits to establish 
several elements of the ERMS program. Most notably, Illinois used the 
source's Title V permit to specify the number of allowances to be 
issued to the source (Cf. section 205.315) and the source-specific VOC 
monitoring methods (Cf. section 205.330).
    Since (under EPA's guidance) sources with potential emissions 
between 25 and 100 tons per year were no longer subject to a 
requirement for a Title V permit, the State needed an alternative means 
of specifying source-specific ERMS provisions. Illinois therefore 
adopted section 205.316, to provide that sources included in ERMS but 
not required to obtain a Title V permit were required either to request 
a Title V permit anyway or to apply for a federally enforceable state 
operating

[[Page 38329]]

permit (FESOP). The FESOP is to specify the provisions (relating for 
example to the number of allowances allocated to the source and the 
source-specific monitoring requirements) that would otherwise be 
specified in the Title V permit.
    Title V of the Clean Air Act provides for defining some operations 
with trivial or no emissions as insignificant activities. The 1997 
version of section 205.220 of Illinois' rules exempts these activities 
from ERMS, based on the exemption under Title V. Illinois intended that 
these activities continue to be exempt from ERMS, irrespective of 
whether a source is subject to the requirement for a Title V permit. 
Therefore, Illinois revised Section 205.220 to provide that any 
activity meeting the criteria in Part 201 Subpart F of Title 35 of the 
Illinois Administrative Code for insignificant activities may be 
exempted from the ERMS program, whether the source is subject to a 
Title V permit or a FESOP.
    In ozone nonattainment areas classified as severe, major new 
sources and existing sources undergoing major modifications must obtain 
1.3 tons of offsets for every ton of new emissions. In ozone 
nonattainment areas classified as moderate, major new sources and 
existing sources undergoing major modifications need only obtain 1.1 
tons of offsets for every ton of new emissions. New source review rules 
require that any change in offset ratio applies only prospectively, to 
sources permitted after the change in ratio, and that a source 
permitted before the change in ratio must continue to have offsets in 
at least the ratio that applied at the time the source was permitted.
    Under section 205.150 of the 1997 ERMS rules, major new sources and 
sources undergoing major modifications were required to obtain 1.3 
allowances for every ton of new emissions. Illinois' revised rules 
provide for modified ratios as the applicable ratios change. Section 
205.150(f)(1) of the revised rules states: ``If the nonattainment 
classification of the Chicago area for ozone is changed such that the 
required offset ratio is no longer 1.3 to 1 and a new offset ratio 
applies, as specified in 35 Ill. Adm. Code 203.302, that ratio shall 
then apply in lieu of the 1.3 to 1 ratio set forth in subsections 
(c)(2), (d)(1), and (e) of this Section. Such new ratio shall not apply 
to any part of a source or any modification already subject to the 1.3 
to 1 ratio or other previously effective offset ratio established prior 
to the effective date of the new ratio.'' Section 205.150(f)(2) 
provides that the ratio becomes 1 to 1 if the Chicago area is 
redesignated to attainment.
    These revisions address the ramifications of a revised 
classification according to EPA guidance as cited above. However, while 
Illinois was adopting these rule revisions, EPA's ozone implementation 
guidance was being challenged in court. On December 22, 2006, with 
clarification on June 8, 2007, the Court of Appeals for the District of 
Columbia Circuit ruled against elements of EPA's ozone implementation 
guidance, including the ``backsliding'' inherent in allowing an area 
originally classified as severe and subsequently classified as moderate 
to apply the less stringent major source definition for moderate areas. 
South Coast Air Quality Management Dist. v. EPA, 472 F.3d 882 (D.C. 
Cir. 2006).
    This court ruling has no effect on the approvability of Illinois' 
ERMS rule revisions. Illinois' revised ERMS rules assure the 
incorporation of all sources with potential to emit at least 25 tons of 
VOC per year (and at least 10 tons of VOC during the ozone season), 
irrespective of whether the major source definition for permitting 
purposes is 25 or 100 tons per year. Thus, Illinois' rules assure 
inclusion of a fixed set of sources, irrespective of the source size 
used in the definition of major sources. Illinois' revised ERMS rules 
also assure that any new source or major modification must obtain 
allowances such that the ratio of allowances to the quantity of new 
emissions matches the offset ratio that applies under the permitting 
requirements that are in effect at the time the new source or major 
modification is permitted.
    Illinois requested that EPA defer rulemaking on section 205.150(e). 
This section provides that new sources providing offsets by holding 
trading program allowances in the proper ratio need not also provide 
offsets in their new source permit. Illinois made a similar request for 
deferral of EPA rulemaking on this section in conjunction with its 1997 
submittal of ERMS rules. While a new source may use a shutdown for both 
purposes, purchasing the necessary allowances from a shutdown source 
and simultaneously using the shutdown in the new source permit to 
satisfy offset requirements, the deferral of rulemaking provides that 
the two requirements must be met independently.
    Illinois made a corollary change, changing the term ``Chicago ozone 
nonattainment area'' to the term ``Chicago area.'' The term ``Chicago 
area'' is defined to mean the same area as the previous term ``Chicago 
ozone nonattainment area,'' but the revised term more clearly signifies 
that the program will remain in effect even if the Chicago area is 
redesignated as an attainment area.
    In addition to the rules identified above, Illinois made conforming 
revisions to multiple other rules. These revisions generally replace 
the term ``Chicago nonattainment area'' with the term ``Chicago area'' 
or mention FESOPs as a possible vehicle for specifying source-specific 
provisions to implement the ERMS rules.
    EPA finds these changes approvable. The change in the applicability 
provisions merely assures that the original program applicability 
criteria continue to apply, notwithstanding any change in the 
classification or designation of the area. The requirement for sources 
with potential emissions between 25 and 100 tons per year to obtain a 
permit (either a Title V permit or a FESOP) is a reasonable means of 
implementing the ERMS requirements at any time when these sources are 
not required to obtain a Title V permit. Illinois' provision for offset 
ratios, wherein new source emissions are offset at the ratio that 
reflects the offset ratio that is mandated at the time the permit 
authorizing the new source emissions is issued, properly matches offset 
requirements. The use of the term ``Chicago area'' also properly 
clarifies that the program continues even if the area is redesignated 
to attainment.
    EPA proposed to approve these rule revisions on January 30, 2008, 
at 73 FR 5471. On the same day, at 73 FR 5435, EPA also published a 
direct final rule approving these rule revisions. However, EPA then 
realized that the notice of direct final rulemaking, in comments on an 
EPA memorandum discussing the above court ruling, unintentionally 
commented on a national issue regarding ramifications of the court 
ruling. Therefore, EPA withdrew its direct final rule on February 29, 
2008, at 73 FR 11042. Since the comments did not affect the underlying 
rationale for the proposed rule, i.e. because EPA proposed to find 
Illinois' revised ERMS rules to retain the same benefits without regard 
for what size is used to define major sources, EPA retained its 
proposed rule. EPA received no comments on this proposed rule. EPA 
continues to believe that Illinois' revised rules should be approved.

II. What Action Is EPA Taking?

    EPA is approving Illinois' revisions to the ERMS program, except 
that EPA is deferring action on section 205.150(e).
    Illinois did not change every rule in Part 205. The State submitted 
only those rules that it changed. Thus, the revised rules being 
approved here must be

[[Page 38330]]

viewed in conjunction with the unrevised rules approved at 40 CFR 
52.720(c)(158).

III. Statutory and Executive Order Reviews

    Under the Clean Air Act, the Administrator is required to approve a 
SIP submission that complies with the provisions of the Act and 
applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). 
Thus, in reviewing SIP submissions, EPA's role is to approve state 
choices, provided that they meet the criteria of the Clean Air Act. 
Accordingly, this action merely approves state law as meeting Federal 
requirements and does not impose additional requirements beyond those 
imposed by state law. For that reason, this action:
     Is not a ``significant regulatory action'' subject to 
review by the Office of Management and Budget under Executive Order 
12866 (58 FR 51735, October 4, 1993);
     Does not impose an information collection burden under the 
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact 
on a substantial number of small entities under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.);
     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);
     Does not have Federalism implications as specified in 
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based 
on health or safety risks subject to Executive Order 13045 (62 FR 
19885, April 23, 1997);
     Is not a significant regulatory action subject to 
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of Section 12(d) of the 
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 
note) because application of those requirements would be inconsistent 
with the Clean Air Act; and
     Does not provide EPA with the discretionary authority to 
address, as appropriate, disproportionate human health or environmental 
effects, using practicable and legally permissible methods, under 
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this rule does not have tribal implications as 
specified by Executive Order 13175 (65 FR 67249, November 9, 2000), 
because the SIP is not approved to apply in Indian country located in 
the state, and EPA notes that it will not impose substantial direct 
costs on tribal governments or preempt tribal law.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this action and 
other required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A major rule cannot 
take effect until 60 days after it is published in the Federal 
Register. This action is not a ``major rule'' as defined by 5 U.S.C. 
804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for 
judicial review of this action must be filed in the United States Court 
of Appeals for the appropriate circuit by September 5, 2008. Filing a 
petition for reconsideration by the Administrator of this final rule 
does not affect the finality of this action for the purposes of 
judicial review nor does it extend the time within which a petition for 
judicial review may be filed, and shall not postpone the effectiveness 
of such rule or action. This action may not be challenged later in 
proceedings to enforce its requirements. (See section 307(b)(2).)

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by 
reference, Intergovernmental relations, Ozone, Reporting and 
recordkeeping requirements, Volatile organic compounds.

    Dated: May 23, 2008.
Bharat Mathur,
Acting Regional Administrator, Region 5.

0
For the reasons stated in the preamble, part 52, chapter I, of title 40 
of the Code of Federal Regulations is amended as follows:

PART 52--[AMENDED]

0
1. The authority citation for part 52 continues to read as follows:

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

Subpart O--Illinois

0
2. Section 52.720 is amended by adding paragraph (c)(180) to read as 
follows:

Sec.  52.720  Identification of plan.

* * * * *
    (c) * * *
    (180) On January 10, 2007, Illinois submitted revisions to its 
rules for the Emission Reduction Market System. These revisions assure 
that sources in the Chicago area with potential emissions of VOC 
between 25 and 100 tons per year will remain subject to the program, 
irrespective of changes in the area's ozone nonattainment 
classification or designation and any associated changes in whether 
such sources are defined to be major sources. EPA is again deferring 
action on section 205.150(e).
    (i) Incorporation by reference.
    (A) Illinois Administrative Code, Title 35: Environmental 
Protection, Subtitle B: Air Pollution, Chapter I: Pollution Control 
Board, Subchapter b: Alternative Reduction Program, Part 205 Emissions 
Reduction Market System, Sections:

205.120 Abbreviations and Acronyms
205.130 Definitions
205.150 Emissions Management Periods (except for 205.150(e))
205.200 Participating Source
205.205 Exempt Source
205.210 New Participating Source
205.220 Insignificant Emission Units
205.300 Seasonal Emissions Component of the Annual Emissions Report
205.310 ERMS Applications
205.315 CAAPP Permits for ERMS Sources
205.316 Federally Enforceable State Operating Permits for ERMS 
Sources
205.318 Certification for Exempt CAAPP Sources
205.320 Baseline Emissions
205.330 Emissions Determination Methods
205.335 Sampling, Testing, Monitoring and Recordkeeping Practices
205.337 Changes in Emissions Determination Methods and Sampling, 
Testing, Monitoring and Recordkeeping Practices
205.400 Seasonal Emissions Allotment
205.405 Exclusions From Further Reductions
205.410 Participating Source Shutdowns
205.500 Emissions Reduction Generator
205.510 Inter-Sector Transaction
205.610 Application for Transaction Account
205.700 Compliance Accounting
205.730 Excursion Reporting
205.750 Emergency Conditions
205.760 Market System Review Procedures

[FR Doc. E8-15153 Filed 7-3-08; 8:45 am]

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