Document ID: EPA-R09-OAR-2022-0420-0001
Agency: epa
Document Type: Proposed Rule
Title: Air Quality State Implementation Plans; Approvals and Promulgations: California; San Joaquin Valley Air Pollution Control District; Stationary Source Permits
Posted Date: 2022-07-29T04:00Z

[Federal Register Volume 87, Number 145 (Friday, July 29, 2022)]
[Proposed Rules]
[Pages 45730-45735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16245]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR part 52

[EPA-R09-OAR-2022-0420; FRL-9970-01-R9]

Limited Approval and Limited Disapproval of California Air Plan 
Revisions; San Joaquin Valley Air Pollution Control District; 
Stationary Source Permits

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing a 
limited approval and limited disapproval of revisions to the San 
Joaquin Valley Air Pollution Control District (SJVAPCD or ``District'') 
portion of the California State Implementation Plan (SIP). These 
revisions concern volatile organic compounds (VOC), oxides of nitrogen 
(NOX), particulate matter (PM) (including PM equal to or 
less than 2.5 microns in diameter (PM2.5) and PM equal to or 
less than 10 microns in diameter (PM10)), and their 
precursors. This action addresses a revised rule governing the issuance 
of permits for stationary sources, focusing on the preconstruction 
review and permitting of major sources and major modifications under 
part D of title I of the Clean Air Act (CAA or ``Act''). We are taking 
comments on this proposal and a final action will follow.

DATES: Written comments must be received on or before August 29, 2022.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R09-
OAR-2022-0420 at www.regulations. For comments submitted at 
Regulations.gov, follow the online instructions for submitting 
comments. Once submitted, comments cannot be removed or edited from 
Regulations.gov. The EPA may publish any comment received to its public 
docket. Do not submit electronically any information you consider to be 
Confidential Business Information (CBI) or other information the 
disclosure of which is restricted by statute. Multimedia submissions 
(audio, video, etc.) must be accompanied by a written comment. The 
written comment is considered the official comment and should include 
discussion of all points you wish to make. The EPA will generally not 
consider comments or comment contents located outside of the primary 
submission (i.e., on the web, cloud, or other file sharing system). For 
additional submission methods, please contact the person identified in 
the FOR FURTHER INFORMATION CONTACT section. For the full EPA public 
comment policy, information about CBI and multimedia submissions, and 
general guidance on making effective comments, please visit 
www.epa.gov/dockets/commenting-epa-dockets. If you need assistance in a 
language other than English or if you are a person with disabilities 
who needs a reasonable accommodation at no cost to you, please contact 
the person identified in the FOR FURTHER INFORMATION CONTACT section.

FOR FURTHER INFORMATION CONTACT: Laura Yannayon, EPA Region IX, 75 
Hawthorne St., San Francisco, CA

[[Page 45731]]

94105. By phone: (415) 972-3534, or by email at [email protected].

SUPPLEMENTARY INFORMATION: Throughout this document, the terms ``we,'' 
``us,'' and ``our'' refer to the EPA.

Table of Contents

I. The State's Submittal
    A. What rule did the State submit?
    B. Are there other versions of this rule?
    C. What is the purpose of the submitted rule?
II. The EPA's Evaluation and Action
    A. How is the EPA evaluating the rule?
    B. Does the rule meet the evaluation criteria?
    C. What are the rule deficiencies?
    D. EPA Recommendations to Further Improve the Rule
    E. Proposed Action and Public Comment
III. Incorporation by Reference
IV. Statutory and Executive Order Reviews

I. The State's Submittal

A. What rule did the State submit?

    Table 1 lists the rule addressed by this proposal including the 
date it was adopted by the District and submitted to the EPA by the 
California Air Resources Board (CARB), which is the governor's designee 
for California SIP submittals. This rule constitutes part of the 
SJVAPCD's program for preconstruction review and permitting of new or 
modified stationary sources under its jurisdiction. The rule revisions 
that are the subject of this action represent an update to the 
SJVAPCD's preconstruction review and permitting program and are 
intended to satisfy the requirements under part D of title I of the 
Act, ``nonattainment new source review (``NNSR'') as well as the 
general preconstruction review requirements under section 110(a)(2)(C) 
of the Act, minor new source review (``NSR'').
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    \1\ The submittal was transmitted to the EPA via a letter from 
CARB dated November 15, 2019.

                                             Table 1--Submitted Rule
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                  Rule No.                                Rule title                  Adopted        Submitted
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Rule 2201..................................  New and Modified Stationary Source         08/15/19    11/20/19 \1\
                                              Review Rule.
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    On May 7, 2020, the submittal for Rule 2201 was found to meet the 
completeness criteria in 40 CFR part 51, appendix V, which must be met 
before formal EPA review.\2\
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    \2\ See letter dated May 7, 2020, from Elizabeth J. Adams, U.S. 
EPA Region 9, to Richard Corey, CARB, regarding the November 20, 
2019, submittal of District Rule 2201.
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B. Are there other versions of this rule?

    Rule 2201 was previously approved into the California SIP on 
September 17, 2014.\3\ If the EPA finalizes the action proposed herein, 
this prior version of the rule will be replaced in the SIP by the 
submitted rule identified in Table 1.
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    \3\ 79 FR 55637.
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C. What is the purpose of the submitted rule?

    As noted above and described in further detail below, the submitted 
rule is intended to satisfy the minor NSR and NNSR requirements of 
section 110(a)(2)(C) and part D of title I of the Act, and related EPA 
regulations. Minor NSR requirements are generally applicable for SIPs 
in all areas, while NNSR requirements apply only for areas designated 
as nonattainment for one or more National Ambient Air Quality Standards 
(NAAQS). The San Joaquin Valley is currently designated ``Extreme'' 
nonattainment for the 1997, 2008 and 2015 ozone NAAQS and ``Serious'' 
nonattainment for the 1997, 2006, and 2012 PM2.5 NAAQS. See 
40 CFR 81.305. Therefore, the designation of San Joaquin Valley as 
federal ozone and PM2.5 nonattainment areas triggered the 
requirement for the District to develop and submit an NNSR program to 
the EPA for approval into the California SIP.
    The EPA issued a final rule on December 6, 2018, that found that 
the District had failed to submit a SIP submittal addressing NNSR 
requirements for PM2.5.\4\ This finding of failure to submit 
triggered sanctions clocks under CAA section 179. The EPA's May 7, 2020 
finding of completeness represented the EPA's determination that the 
District had corrected the deficiencies related to NNSR requirements 
for the 2006 and 2012 PM2.5 NAAQS that formed the basis for 
the EPA's December 6, 2018 finding of failure to submit, and as a 
result, the associated sanctions and running of the sanctions clocks 
were permanently stopped.\5\ The EPA's Technical Support Document (TSD) 
has more information about the purpose of the submitted rule.
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    \4\ 83 FR 62720.
    \5\ See 40 CFR 52.31(d)(5).
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II. The EPA's Evaluation and Action

A. How is the EPA evaluating the rule?

    The EPA has evaluated Rule 2201 for compliance with the applicable 
requirements of section 110(a)(2)(C) and part D of title I of the CAA 
and the associated regulations at 40 CFR 51.160-165, consistent with 
the District's classification as an Extreme ozone nonattainment area 
and Serious PM2.5 nonattainment area. We have also 
considered whether the rule meets the federal visibility requirements 
related to state NNSR programs as described in 40 CFR 51.307. 
Additionally, we have reviewed the rule for consistency with other CAA 
general requirements for SIP submittals, including requirements at 
section 110(a)(2) regarding rule enforceability, and requirements at 
sections 110(l) and 193 for SIP revisions.
    Part D and title I of the CAA and the implementing regulations at 
40 CFR 51.165 contain the NNSR program requirements for major 
stationary sources and major modifications for the pollutants for which 
the area has been designated nonattainment. The applicable provisions 
of 40 CFR 51.307 establish requirements for state NNSR programs to 
provide for review of major stationary sources and major modifications 
that may have an impact on visibility in any mandatory Class I Federal 
area, consistent with CAA section 169A. Section 110(a)(2)(A) of the Act 
requires that regulations submitted to the EPA for SIP approval must be 
clear and legally enforceable. Section 110(l) of the Act prohibits the 
EPA from approving SIP revisions that would interfere with any 
applicable requirement concerning attainment and reasonable further 
progress (RFP) or any other applicable requirement of the CAA. Section 
193 of the Act prohibits the modification of a SIP-approved control 
requirement in effect before November 15, 1990, in a nonattainment 
area, unless the modification ensures equivalent or greater emission 
reductions of the relevant pollutant(s). With respect to procedures, 
CAA sections 110(a) and 110(l) require that a state conduct reasonable 
notice and hearing before adopting a SIP revision.

[[Page 45732]]

B. Does the rule meet the evaluation criteria?

    With the exceptions noted below, the EPA finds that Rule 2201 
generally satisfies the applicable CAA and regulatory requirements for 
sources subject to NNSR permit program requirements for Extreme ozone 
nonattainment areas and Serious PM2.5 nonattainment areas. 
Although the rule does not satisfy the related visibility requirements 
in 40 CFR 51.307, the San Joaquin Valley is subject to a Federal 
Implementation Plan that addresses these requirements.\6\
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    \6\ 40 CFR 52.281(d).
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    Rule 2201 complies with the substantive and procedural requirements 
of CAA section 110(l). With respect to the procedural requirements, 
based on our review of the public process documentation included with 
the submitted rules, we find that the SJVAPCD has provided sufficient 
evidence of public notice and opportunity for comment and public 
hearings prior to submittal of this SIP revision and has satisfied 
these procedural requirements under CAA section 110(l). With respect to 
the substantive requirements of CAA section 110(l), we have determined 
that our approval of Rule 2201 would not interfere with the area's 
ability to attain or maintain the NAAQS or with any other applicable 
requirements of the CAA.
    Similarly, we find that Rule 2201 is approvable under section 193 
of the Act because it does not modify any control requirement in effect 
before November 15, 1990.
    Rule 2201 is generally consistent with criteria for the EPA's 
approval of regulations submitted for inclusion in the SIP, including 
the requirement in CAA section 110(a)(2)(A) that submitted regulations 
be clear and legally enforceable.
    For the reasons stated above and explained further in our technical 
support document (TSD), we find that the submitted rule generally 
satisfies the applicable CAA and regulatory requirements for minor NSR 
and NNSR permit programs under CAA section 110(a)(2)(C) and part D of 
title I of the Act and other applicable requirements, subject to the 
exceptions noted below where the EPA has identified deficiencies. 
Because Rule 2201 is not fully consistent with these requirements, we 
are proposing a limited approval and limited disapproval of Rule 2201 
under CAA sections 110(k)(3) and 301(a). Rule 2201 provisions that do 
not meet the evaluation criteria are summarized in the following 
section and described in more detail in the TSD included in the docket 
for this proposed action.

C. What are the rule deficiencies?

    The following provisions of Rule 2201 do not satisfy the 
requirements of section 110 and/or part D of title I of the Act, and 
prevent full approval of the Rule 2201:
1. Definitions
    Section 3.18 of Rule 2201 incorporates the federal definition of 
``major modification'' through the definition of ``Federal Major 
Modification,'' but omits several other definitions necessary for 
proper application of this term and related calculation provisions. 
These missing definitions are listed in the TSD for this proposed 
rulemaking. The District must either include definitions for these 
terms, or explicitly state that for the purposes of the Rule 2201 
definition of ``Federal Major Modification,'' all terms used in the 
definition are as defined in 40 CFR 51.165, as it exists on the date of 
adoption.
    Additionally, Rule 2201 contains deficient definitions for the 
following terms: Major Source; Routine Maintenance, Repair and 
Replacement; PM10 Emissions; Secondary Emissions; and 
Volatile Organic Compounds. The specific deficiencies associated with 
these terms, and the necessary revisions necessary to correct the 
deficiencies, are described in the TSD for this proposed action.
2. Interpollutant Offset Requirements
    Section 4.13.3.1 allows the District to approve interprecursor 
trading (IPT) of ozone precursors to satisfy emission offset 
requirements, provided certain conditions are satisfied. However, on 
January 29, 2021, the D.C. Circuit Court of Appeals in Sierra Club v. 
EPA, 984 F.3d 1055, issued a decision holding that the CAA does not 
allow IPT for ozone precursors and vacating the provisions in the EPA's 
NNSR regulations allowing IPT for ozone precursors. In light of the 
Court's decision, the provision in section 4.13.3.1 allowing for IPT 
for ozone precursors is no longer permissible. The District must revise 
section 4.13.3.1 to ensure it is consistent with the Courts decision 
and the provisions of 40 CFR 51.165(a)(11) as it pertains to ozone 
precursors.
3. Offset Exemptions
    Sections 4.6.6 and 4.6.7 both allow exemptions from otherwise 
applicable offset requirements for the relocation of an entire 
stationary source or emission unit, respectively, if certain conditions 
are met. Because federal requirements do not allow any exemptions from 
offset requirements for relocation projects, we find these provisions 
deficient. The District may allow a source or emission unit to obtain 
emission reduction credits for the quantity of actual emissions 
previously emitted at the old location and use them as offsets at the 
new location. However, the full potential to emit (PTE) of the source 
or emission unit at the new location must be offset at the appropriate 
offset ratio. Alternatively, the District may limit the applicability 
of these exemptions to minor sources that are not subject to the NNSR 
offsetting requirements.
    Section 4.6.8 provides an offset exemption for the installation or 
modification of required emission control equipment. Paragraph 4.6.8.4 
establishes emissions increase limits for a project to qualify for this 
exemption but does not include a limit for PM2.5 emissions 
and is therefore deficient. The District must update this provision to 
add a limit on increases in permitted emissions or potential to emit of 
no more than 10 tpy of PM2.5. This will ensure that the 
exemption only applies to emission control projects that will not 
trigger a PM2.5 major modification.
4. Public Notice Requirements for Minor Source Permits Emitting Ozone 
Precursors
    Section 5.4.5 requires public notice for any project resulting in 
an increase in permitted emissions of any pollutant exceeding 20,000 
pounds per year (10 tpy). As an extreme ozone nonattainment area, the 
major source threshold for ozone precursors is also 10 tpy, meaning 
that the rule currently does not require any public notice for minor 
sources of NOX and VOC, whose emissions may contribute to 
ozone nonattainment in the San Joaquin Valley. Therefore, the public 
notice threshold does not adequately address the minor source and minor 
modification public notice requirements for VOC and NOX. The 
District must demonstrate that its public notice threshold for minor 
sources of NOX and VOC is sufficiently stringent to exclude 
only sources whose emissions are inconsequential to attainment.
5. District Equivalency With Federal Offset Requirements
    Section 173 of the CAA and the EPA's implementing NSR regulations 
at 40 CFR 51.165 require emissions increases associated with new major 
sources and major modifications to be offset through corresponding 
decreases in emissions.

[[Page 45733]]

To be creditable as offsets, these offsetting emissions reductions must 
be surplus, permanent, quantifiable, and federally enforceable,\7\ and 
meet other federal requirements.
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    \7\ 40 CFR 51.165(a)(3)(ii)(C)(1)(i).
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    The EPA allows local permitting authorities flexibility in 
designing and implementing emissions offset programs, so long as these 
programs achieve an equal or greater amount of creditable emissions 
reductions as would be required under the offset program described in 
the federal NSR regulations. Rule 2201 differs from the federal offset 
requirements in several respects, including especially how it 
calculates ``surplus'' emission reductions required to offset emissions 
increases from new major sources and major modifications.
    To account for these differences, Rule 2201 includes an offset 
equivalency tracking system in Section 7, which requires the District 
to submit an annual report comparing the offsets actually required by 
the District to those that would have been required under the federal 
requirements in terms of both the quantity of offsets required (``Test 
1'') and the creditable ``time-of-use'' surplus value of the offsets 
(``Test 2'').\8\
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    \8\ ``Time-of-use'' surplus signifies that the offsetting 
emissions reductions are surplus of applicable requirements as of 
the issuance date of the ATC permit for the project whose emission 
increases the reductions are used to offset. The federal offset 
program requires all offsets to be time-of-use surplus. CAA 
173(c)(2). In contrast, the quantity of offsets surrendered for 
construction permits issued by the District, as measured in Test 1, 
are surplus-adjusted only at the time the emission reduction credit 
is initially issued (``time-of-issuance'' surplus). Rule 2201 at 
section 3.2.2. Since emissions reductions may be credited years 
before they are used to offset a project, more stringent control 
requirements implemented in the interim period may significantly 
reduce the time-of-use surplus value relative to the time-of-
issuance surplus value. Therefore, the District's allowance of ERCs 
valued at time-of-issuance is generally less stringent than federal 
requirements because it may assign higher value to a credit than is 
federally creditable.
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    If there is a shortfall under either Test 1 or Test 2, the District 
may supplement the demonstration by retiring additional creditable 
emission reductions that have not been used as offsets.\9\ If the 
District cannot produce sufficient additional creditable emission 
reductions to make up a shortfall under either test, the failure 
triggers specific remedies under section 7.4. For a shortfall under 
Test 1, all new major source and major modification authority to 
construct (ATC) permits issued after the report deadline must apply the 
federal offset calculation requirements from 40 CFR 51.165 and part D 
of title I of the CAA, including the requirements to provide the 
federally required quantity of offsets and to ensure that these offsets 
are time-of-use surplus adjusted.\10\ For a shortfall under Test 2, all 
new major source and major modification ATC permits issued after the 
report deadline must ensure that emissions reductions used to satisfy 
offset requirements are creditable and time-of-use surplus 
adjusted.\11\
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    \9\ Id. at sections 7.2.1.2 and 7.2.2.2.
    \10\ Id. at section 7.4.1.2.
    \11\ Id. at section 7.4.2.1.
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    The EPA first approved these provisions in 2004.\12\ In the years 
since, the District has submitted annual equivalency demonstrations as 
described under the rule, showing equivalency under Test 1 and Test 
2.\13\ For many pollutants and years, the District has demonstrated 
equivalency on an annual basis, by collecting more offsets annually 
than required under the federal program.\14\ However, tightened federal 
requirements resulting from the San Joaquin Valley's 2010 
reclassification to Extreme ozone nonattainment has resulted in the 
District collecting, in some years, fewer annual offsets for VOC and 
NOX than federally required. As a result, recent VOC and 
NOX equivalency demonstrations have relied on ``carryover'' 
offsets collected in previous reporting years, as well as additional 
creditable emission reductions from facility closures that have not 
been claimed for offset credit by the facility operators (often termed 
``orphan shutdowns''), and agricultural engine electrification 
projects.
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    \12\ 69 FR 27837 (May 17, 2004). The TSD for this proposed 
action includes more detail on the history of the Section 7 
provisions and EPA's approval of the equivalency system.
    \13\ These reports are generally available at www.valleyair.org/busind/pto/annual_offset_report/annual_offset_report.htm.
    \14\ This has been most common for PM10, CO, and 
SOX, when the District has applied lower offsetting 
thresholds than applicable under the federal major source 
definitions at 40 CFR 51.165(a)(1)(iv)(A).
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    The District's 2019-2020 Annual Offset Equivalency Report (``2019--
2020 Report'') was the first to demonstrate a shortfall for any 
pollutant.\15\ The 2019-2020 Report showed a failure of Test 1 and Test 
2 for VOC, and a Test 2 failure for NOX, and attributed 
these failures to the District's provisional removal of the additional 
creditable emission reductions associated with orphan shutdowns and 
engine electrification projects.\16\ In response to the Report's VOC 
and NOX failures, the District began implementing the 
federal offset requirements for VOC, and the federal requirements for 
offset surplus value (but not offset quantity) for NOX, as 
described in the section 7 remedy provisions.\17\
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    \15\ SJVAPCD, ``2019-2020 Annual Offset Equivalency Report,'' 
November 20, 2020.
    \16\ Id. at 4-5. The District withdrew these credits in response 
to a CARB report that identified concerns about the assumptions and 
calculations that the District applied in crediting these 
reductions, among other issues associated with the District's 
implementation of its offset program. See CARB, ``Review of the San 
Joaquin Valley Air Pollution Control District Emission Reduction 
Credit System,'' June 2020.
    \17\ Rule 2201, section 7.4.1.2 and 7.4.2.1.
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    The District's 2020-2021 Annual Offset Equivalency Report (``2020-
2021 Report'') showed offset equivalency for PM10, 
PM2.5, CO, and SOX.\18\ The 2020-2021 Report did 
not include a Test 1 or Test 2 demonstration for VOC, or a Test 2 
demonstration for NOX, since the 2019-2020 Report found that 
the District's program was no longer showing equivalency under these 
tests. The 2020-2021 Report's Test 1 demonstration for NOX 
showed that the District required fewer offsets in the reporting year 
than would have been required under federal offset requirements, but 
that the District's offset program maintained a sufficient balance of 
carryover offsets from previous reporting years to make up the 
difference. Critically, however, while NOX offsets collected 
in the most recent reporting year were surplus adjusted to time-of-use 
pursuant to federal requirements (per the District's response to the 
prior year's Test 2 failure), the carryover offsets were credited at 
their full time-of-issuance value (i.e., these offsets were not 
federally surplus-adjusted). Since the District's previous report had 
shown a Test 2 shortfall for NOX offsets, these carryover 
offsets no longer retained any surplus balance that could be counted 
toward equivalency. The District subsequently issued a revised report 
withdrawing the NOX portion of the 2020-2021 Report, based 
on the District's concern that the remedy of requiring a federal time-
of use surplus adjustment was not adequate to ensure full federal 
equivalency.\19\
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    \18\ SJVAPCD, ``2020-2021 Annual Offset Equivalency Report,'' 
November 19, 2021.
    \19\ SJVAPCD, ``2020-2021 Revised Annual Offset Equivalency 
Report,'' March 1, 2022 (``2020-2021 Revised Report''). See also 
letter dated March 21, 2022, from Elizabeth J. Adams, Director, EPA 
Region IX Air and Radiation Division, to Samir Sheikh, Executive 
Director, SJVAPCD (conveying EPA concerns about 2020-2021 Report 
NOX demonstration, and supporting District decision to 
withdraw through 2020-2021 Revised Report).
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    Since the shortfalls from the 2019-2020 and 2020-2021 Reports, 
several shortcomings in the District's equivalency system have become 
apparent. As an initial matter, the equivalency failures for VOC and 
NOX mean that the District must update the rule to apply 
federal applicability and

[[Page 45734]]

offset requirements for these pollutants.\20\ More generally, the 2020-
2021 Report showed a significant disconnect between the section 7 tests 
and remedies for all pollutants. Specifically, once the District has 
failed Test 2, it has effectively demonstrated that its program is less 
stringent than the federal requirements because it has not provided an 
equivalent amount of time-of-use surplus emissions reductions as would 
have been required under the federal program.\21\ However, the remedy 
for a Test 2 failure provides only that the District must require the 
offsets collected for future permits to be time-of-use surplus 
adjusted, and does not contain any explicit requirement for the 
District to collect the federal quantity of time-of-use surplus offsets 
for those permits. Therefore, the Test 2 remedy does not ensure full 
offset equivalency following a Test 2 failure.
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    \20\ See Rule 2201, section 7.4.1.2.
    \21\ See CAA 173(a)(1)(A) (requiring state NSR programs to 
obtain ``sufficient offsetting emissions reductions'' as determined 
by federal NSR regulations).
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    Additionally, we identified a deficiency in Rule 2201 in that it 
does not contain any requirement to prevent the equivalency system from 
continuing to operate at a deficit once available carryover offsets and 
additional creditable emission reductions are exhausted. Because the 
rule only requires the District to demonstrate equivalency on an annual 
(rather than ongoing) basis, the District may continue to issue permits 
that require less than the federal quantity of surplus offsets even 
after the equivalency system has run out of excess offsets and emission 
reductions that can be used to restore the difference. This could allow 
the District to incur an increasing deficit for up to 15 months before 
any remedy is in place, since the rule's remedies become effective only 
after the submission deadline for the annual offset equivalency 
report.\22\
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    \22\ See Rule 2201 at section 7.4.1.2 and 7.4.2.1. Fifteen 
months represents the outermost time for a shortfall to be 
addressed, running from the start of a reporting year (August 20) to 
the reporting deadline (November 20 of the following year). We note 
that the District initiated federal time-of-use surplus adjustments 
for VOC and NOX once it could no longer demonstrate Test 
2 equivalency for these pollutants, consistent with the Test 2 
remedy but prior to the reporting deadline. We recognize this as a 
voluntary correction consistent with the District's provisional 
withdrawal of additional creditable reductions of these pollutants, 
rather than a requirement of the existing rule text.
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    As described above, our 2004 approval of Rule 2201 found that an 
annual aggregate demonstration was generally appropriate and would not 
cause significant delay in implementing a remedy. However, this finding 
relies on demonstrations involving an annual shortfall that could be 
made up using carryover offsets, rather than a shortfall that exceeds 
the balance of available carryover offsets and additional creditable 
emission reductions within the equivalency system, as happened in the 
2019-2020 Report.\23\ On reconsideration, we find that an annual 
aggregate system may be inappropriate because it does not ensure that 
sufficient creditable emission reductions are available to offset 
emissions from new construction prior to an ATC permit being 
issued.\24\ Moreover, we find that the specific provisions of Rule 2201 
are inadequate because they do not contain any safeguards to prevent 
the District from continuing to operate its equivalency system with a 
negative balance during a reporting period.
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    \23\ See 69 FR 27837, 27841.
    \24\ See CAA sections 173(a) and 173(c)(1) (specifying that 
emission reductions used to offset a new or modified major source 
must be federally enforceable before a permit for the source is 
issued, and must be in effect and enforceable by the time the source 
commences operation). See also CAA section 173(a)(1)(A) (requiring 
sufficient emissions reductions to have been ``obtained'' by the 
time the source commences operation).
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    Finally, because neither remedy provides a mechanism to require the 
District to quantify or restore a negative balance in the equivalency 
system, both remedies fail to ensure full federal offset equivalency in 
the event of a shortfall. Thus, even where the District adopts all 
offset requirements of the federal program in response to an 
equivalency failure, it will retain an historic deficit relative to the 
federal program, which is not made whole under the rule. Therefore, the 
EPA finds that the District must revise the rule to address these 
deficiencies.
    The TSD for this proposed action includes suggestions for how the 
District can correct these deficiencies. We encourage the District to 
consult with Region 9 during the rule development process to ensure 
that all deficiencies are properly addressed.
6. Temporary Replacement Emission Units
    The submitted version of Rule 2201 includes revisions to section 
8.1.3 to provide an ``application shield'' for Temporary Replacement 
Emission Units (TREUs). An application shield is an administrative 
mechanism that allows a source to operate prior to submitting an 
application and obtaining an ATC, if certain conditions are met. While 
this provision is generally approvable, we have identified two 
deficiencies. First, the provision specifies that TREUs must be 
addressed by a best available retrofit control technology (BARCT) rule, 
but ``BARCT'' is not defined in Rule 2201 or the approved SIP. Second, 
the provision specifies that a TREU must be equipped with a control 
device that is ``capable'' of at least 85% emission control but does 
not specify any required minimum level of control that must actually be 
achieved. The definition of Routine Replacement Emissions Unit in 
section 3.35.5 of the existing rule also contains these same two 
deficiencies. These provisions must be revised to incorporate a 
definition of ``BARCT'' and to specify a minimum level of emission 
control to be achieved.
7. Other Deficiencies
    The TSD for this proposed action describes several other federal 
NNSR requirements not addressed in Rule 2201. These include the 
following: stack height requirements at 40 CFR 51.164; enforceable 
procedures as provided at 40 CFR 51.165(a)(5)(i) and (ii); and permit 
issuance restrictions based on inadequate SIP implementation at CAA 
section 173(a)(4). This section of the TSD also notes that the rule 
contains a cross-reference to a State statutory provision that should 
be clarified with an applicable date. See our discussion in Section 
6.3.6 of the TSD for more information on these deficiencies.

D. EPA Recommendations to Further Improve the Rule

    The TSD includes recommendations for the next time the SJVAPCD 
modifies Rule 2201.

E. Proposed Action and Public Comment

    As authorized in sections 110(k)(3) and 301(a) of the Act, the EPA 
is proposing a limited approval and limited disapproval of Rule 2201. 
We will accept comments from the public on this proposal until August 
29, 2022. If we finalize this action as proposed, this action will 
incorporate Rule 2201 into the SIP, including those provisions 
identified as deficient. This approval is limited because EPA is 
simultaneously proposing a limited disapproval of the rule under 
section 110(k)(3). If finalized as proposed, our limited disapproval 
action would trigger an obligation on the EPA to promulgate a Federal 
Implementation Plan unless the State corrects the deficiencies, and the 
EPA approves the related plan revisions, within two years of the final 
action. Additionally, because the deficiency relates to NNSR 
requirements under part D of title I of the Act, the offset sanction in 
CAA section 179(b)(2) would apply in the San Joaquin Valley 18 months 
after the effective date of a

[[Page 45735]]

final limited disapproval, and the highway funding sanctions in CAA 
section 179(b)(1) would apply in the area six months after the offset 
sanction is imposed. Neither sanction will be imposed under the CAA if 
the State submits and we approve, prior to the implementation of the 
sanctions, a SIP revision that corrects the deficiencies we identify in 
our final action. The EPA intends to work with the SJVAPCD to correct 
the deficiencies in a timely manner.
    Note that Rule 2201 has been adopted by the SJVAPCD, and the EPA's 
final limited disapproval would not prevent the local agency from 
enforcing it. The limited disapproval would also not prevent any 
portion of the rule from being incorporated by reference into the 
federally enforceable SIP.\25\
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    \25\ Memorandum dated July 9, 1992, from John Calcagni, 
Director, Air Quality Management Division, Office of Air Quality 
Planning and Standards, U.S. EPA, to EPA Regional Air Directors, 
Regions I-X, Subject: ``Processing of State Implementation Plan 
(SIP) Submittals.''
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III. Incorporation by Reference

    In this rule, the EPA is proposing to include in a final EPA rule 
regulatory text that includes incorporation by reference. In accordance 
with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by 
reference the rule discussed in Section I. and listed in Table 1 of 
this preamble. The EPA has made, and will continue to make, this 
document available electronically through www.regulations.gov and at 
the EPA Region IX Office (please contact the person identified in the 
FOR FURTHER INFORMATION CONTACT section of this preamble for more 
information).

IV. Statutory and Executive Order Reviews

    Additional information about these statutes and Executive Orders 
can be found at www.epa.gov/laws-regulations/laws-and-executive-orders.

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is not a significant regulatory action and was 
therefore not submitted to the Office of Management and Budget (OMB) 
for review.

B. Paperwork Reduction Act (PRA)

    This action does not impose an information collection burden under 
the PRA because this action does not impose additional requirements 
beyond those imposed by state law.

C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. This 
action will not impose any requirements on small entities beyond those 
imposed by state law.

D. Unfunded Mandates Reform Act (UMRA)

    This action does not contain any unfunded mandate as described in 
UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect 
small governments. This action does not impose additional requirements 
beyond those imposed by state law. Accordingly, no additional costs to 
state, local, or tribal governments, or to the private sector, will 
result from this action.

E. Executive Order 13132: Federalism

    This action does not have federalism implications. It will 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.

F. Executive Order 13175: Coordination With Indian Tribal Governments

    This action does not have tribal implications, as specified in 
Executive Order 13175, because the SIP is not approved to apply on any 
Indian reservation land or in any other area where the EPA or an Indian 
tribe has demonstrated that a tribe has jurisdiction, and will not 
impose substantial direct costs on tribal governments or preempt tribal 
law. Thus, Executive Order 13175 does not apply to this action.

G. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    The EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that the EPA has reason to believe may disproportionately affect 
children, per the definition of ``covered regulatory action'' in 
section 2-202 of the Executive Order. This action is not subject to 
Executive Order 13045 because it does not impose additional 
requirements beyond those imposed by state law.

H. Executive Order 13211: Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    This action is not subject to Executive Order 13211, because it is 
not a significant regulatory action under Executive Order 12866.

I. National Technology Transfer and Advancement Act (NTTAA)

    Section 12(d) of the NTTAA directs the EPA to use voluntary 
consensus standards in its regulatory activities unless to do so would 
be inconsistent with applicable law or otherwise impractical. The EPA 
believes that this action is not subject to the requirements of section 
12(d) of the NTTAA because application of those requirements would be 
inconsistent with the CAA.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Population

    The EPA lacks the discretionary authority to address environmental 
justice in this rulemaking.

List of Subjects in 40 CFR Part 52

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Incorporation by reference, Intergovernmental 
relations, Nitrogen dioxide, Ozone, Particulate matter, Reporting and 
recordkeeping requirements, Sulfur dioxide, Volatile organic compounds.

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

    Dated: July 25, 2022.
Martha Guzman Aceves,
Regional Administrator, Region IX.
[FR Doc. 2022-16245 Filed 7-28-22; 8:45 am]
BILLING CODE 6560-50-P