Document ID: EPA-R09-OAR-2011-0876-0001
Agency: epa
Document Type: Proposed Rule
Title: Revisions to the California State Implementation Plan: South Coast Air Quality Management District
Posted Date: 2012-01-12T05:00Z

[Federal Register Volume 77, Number 8 (Thursday, January 12, 2012)]
[Proposed Rules]
[Pages 1895-1900]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-447]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R09-OAR-2011-0876; FRL-9617-9]

Revisions to the California State Implementation Plan, South 
Coast Air Quality Management District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: In this action, we are proposing to approve South Coast Air 
Quality Management District (SCAQMD) Rule 317, ``Clean Air Act Non-
Attainment Fee,'' as a revision to SCAQMD's portion of the California 
State Implementation Plan (SIP). Rule 317 is a local rule submitted to 
address section 185 of the Clean Air Act (CAA or Act). We are proposing 
that Rule 317, an equivalent alternative program, is not less stringent 
than the program required by section 185, and, therefore, is 
approvable, consistent with the principles of section 172(e) of the 
Act. As part of this action, we are inviting public comment on whether 
it is appropriate for EPA to consider equivalent alternative programs, 
and, if so, whether Rule 317 would constitute an approvable equivalent 
alternative program. We are taking comments on these proposals and plan 
to follow with a final action.

DATES: Any comments must arrive by February 13, 2012.

ADDRESSES: Submit comments, identified by docket number EPA-R09-OAR-
2011-0876, by one of the following methods:
    1. Federal eRulemaking Portal: http://www.regulations.gov. Follow 
the on-line instructions.
    2. Email: steckel.andrew@epa.gov.
    3. Mail or deliver: Andrew Steckel (Air-4), U.S. Environmental 
Protection Agency Region IX, 75 Hawthorne Street, San Francisco, CA 
94105-3901.
    Instructions: All comments 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 Confidential Business Information (CBI) or 
other information whose disclosure is restricted by statute. 
Information that you consider CBI or otherwise protected should be 
clearly identified as such and should not be submitted through http://www.regulations.gov or email. http://www.regulations.gov is an 
``anonymous access'' system, and EPA will not know your identity or 
contact information unless you provide it in the body of your comment. 
If you send email directly to EPA, your email address will be 
automatically captured and included as part of the public comment. 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.
    Docket: Generally, documents in the docket for this action are 
available electronically at http://www.regulations.gov and in hard copy 
at EPA Region IX, 75 Hawthorne Street, San Francisco, California. While 
all documents in the docket are listed at http://www.regulations.gov, 
some information may be publicly available only at the hard copy 
location (e.g., copyrighted material, large maps), and some may not be 
publicly available in either location (e.g., CBI). To inspect the hard 
copy materials, please schedule an appointment during normal business 
hours with the contact listed in the FOR FURTHER INFORMATION CONTACT 
section.

FOR FURTHER INFORMATION CONTACT: Lily Wong, EPA Region IX, (415) 947-
4114, wong.lily@epa.gov.

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

Table of Contents

I. What did the State submit?
II. Are there other versions of this rule?
III. What action is EPA taking?
IV. Background
V. What is the legal rationale for this action?
VI. What is EPA's analysis of SCAQMD's alternative program?
VII. Proposed Action
VIII. Statutory and Executive Order Reviews

I. What did the State submit?

    On February 4, 2011, SCAQMD adopted Rule 317, ``Clean Air Act Non-
attainment Fee,'' to meet the requirements of CAA section 185. On April 
22, 2011, the California Air Resources Board (CARB) submitted SCAQMD's 
Rule 317 to EPA. On May 19, 2011, EPA determined that the submittal met 
the completeness criteria in 40 CFR part 51 Appendix V, which must be 
met before formal EPA review. SCAQMD provided supplemental information 
in a letter dated December 21, 2011.

II. Are there other versions of this rule?

    There are no previous versions of Rule 317 in the SIP. Although the 
SCAQMD adopted an earlier version of Rule 317 on December 5, 2008, that 
rule was never submitted to EPA for approval as a SIP revision.

III. What action is EPA taking?

    EPA is proposing to approve Rule 317 as a revision to SCAQMD's 
portion of the California SIP. The purpose of Rule 317 is to satisfy 
the requirements of sections 182 and 185 of the Act by utilizing an 
equivalency approach consistent with the principles of section 172(e) 
of the Act. Under Rule 317, SCAQMD will track, calculate, analyze, and 
report to demonstrate that the requirements of section 185 of the Act 
have been met. Rule 317 includes: Calculation of CAA non-attainment 
(section 185) fee obligation, establishment of a ``section 172(e) fee 
equivalency account,'' an annual demonstration of equivalency, an 
annual preliminary determination of equivalency, reporting to CARB and 
EPA, and a backstop provision for failure to achieve equivalency. The 
``section 172(e) fee equivalency account'' will include funds from 
qualified programs that are surplus to the 1-hour ozone SIP and 
designed to result in direct reductions or facilitate

[[Page 1896]]

future reductions of VOC or NOX emissions.
    In this action, EPA is also proposing to approve Rule 317 as an 
alternative to the program required by section 185 of the Act. We are 
proposing that SCAQMD's equivalent alternative program is not less 
stringent than the program required by section 185, and, therefore, is 
approvable, consistent with the principles of section 172(e) of the Act 
as explained more fully below. We are taking comments on these 
proposals and plan to follow with a final action.

IV. Background

Section 185 Fees

    Under sections 182(d)(3), (e), (f) and 185 of the Act, states with 
ozone nonattainment areas classified as Severe or Extreme are required 
to submit a revision to the SIP that would require major stationary 
sources of VOC or NOX to pay a fee for each ton of VOC or 
NOX emitted in excess of 80% of baseline emissions.\1\ Under 
section 185(a) of the Act, the SIP revision must provide that the fees 
be paid if the area to which the SIP revision applies has failed to 
attain the 1-hour ozone National Ambient Air Quality Standard (NAAQS or 
standard) by the applicable attainment date. A source's baseline 
emissions are its actual emissions during the required attainment year. 
The fee rate is $5,000 per ton in 1990 dollars, which must be adjusted 
for inflation based on the Consumer Price Index (CPI).
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    \1\ VOC help produce ground-level ozone and smog, which harm 
human health and the environment. NOX helps produce 
ground-level ozone, smog and particulate matter, which harm human 
health and the environment.
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South Coast Air Quality Management District

    There are two 1-hour ozone nonattainment areas within the 
jurisdiction of the SCAQMD: The Los Angeles-South Coast Air Basin Area 
(South Coast Air Basin) and the Coachella Valley region of Riverside 
County in the Southeast Desert Modified Air Quality Maintenance Area 
(Riverside County portion of Southeast Desert Modified AQMA).\2\ The 
South Coast Air Basin is an Extreme nonattainment area for the 1-hour 
ozone standard; the attainment year is 2010. The Riverside County 
portion of the Southeast Desert Modified AQMA is a Severe-17 
nonattainment area for the 1-hour ozone standard; the attainment year 
is 2007. Therefore, California was required under sections 182(d)(3), 
(e) and (f) to develop and submit a SIP revision meeting the 
requirements of section 185, which are discussed above.
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    \2\ ``Riverside County portion of Southeast Desert Modified 
AQMA'' is the same geographic area as ``Riverside County portion of 
the Salton Sea Air Basin'' and Rule 317 uses the latter terminology.
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    On December 30, 2011, we published a finding that the South Coast 
Air Basin and the Southeast Desert Modified AQMA failed to attain the 
1-hour ozone standard by their applicable attainment dates (76 FR 
82133).
    Pursuant to California law, the SCAQMD is responsible for 
developing rules, such as Rule 317, that are intended to meet CAA SIP 
requirements for the two nonattainment areas described above under 
SCAQMD jurisdiction. Such rules are then submitted to EPA after 
adoption by CARB, which is the State agency responsible for SIP matters 
on behalf of the State of California. On April 22, 2011, CARB submitted 
Rule 317 to satisfy SCAQMD's obligations under sections 182 and 185 of 
the Act.

V. What is the legal rationale for equivalent alternative programs?

    EPA is proposing that states can meet the section 185 obligation 
arising from the revoked 1-hour ozone NAAQS through a SIP revision 
containing either the fee program prescribed in section 185 of the Act, 
or an equivalent alternative program. As further explained below, EPA 
is proposing that an alternative program may be acceptable if EPA 
determines, through notice-and-comment rulemaking, that it is 
consistent with the principles of section 172(e) of the CAA and is not 
less stringent than a program prescribed by section 185.\3\
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    \3\ EPA has previously set forth this reasoning in a memorandum 
from Stephen D. Page, Director, Office of Air Quality Planning and 
Standards, to Air Division Directors, ``Guidance on Developing Fee 
Programs Required by Clean Air Act Section 185 for the 1-hour Ozone 
NAAQS,'' January 5, 2010 (``Section 185 Guidance Memo''). On July 1, 
2011, the DC Circuit Court of Appeals vacated this guidance, on the 
ground that it was final agency action for which notice-and-comment 
rulemaking procedures were required. NRDC v. EPA, No. 10-1056, 2011 
WL 2601560, C.A.D.C. 2011. EPA subsequently set forth this reasoning 
in a rulemaking action concerning an equivalent alternative 185 
program submitted as a SIP revision to EPA by the State of 
California on behalf of the San Joaquin Valley Unified Air Pollution 
Control District (``SJVUAPCD''). 76 FR 45213 (July 28, 2011). In so 
doing, we were applying the court's directive to follow the 
rulemaking requirements set forth in the Administrative Procedures 
Act to inform consideration of section 185 and equivalent 
alternative programs. In this action regarding SCAQMD Rule 317, we 
are again applying the court's directive to follow rulemaking 
requirements with respect to section 185 and equivalent alternative 
programs.
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    Section 172(e) is an anti-backsliding provision of the CAA that 
requires EPA to develop regulations to ensure that controls in a 
nonattainment area are ``not less stringent'' than those that applied 
to the area before EPA revised a NAAQS to make it less stringent. In 
the Phase 1 Ozone Implementation Rule for the 1997 ozone NAAQS 
published on April 30, 2004 (69 FR 23951), EPA determined that although 
section 172(e) does not directly apply where EPA has strengthened the 
NAAQS, as it did in 1997, it was reasonable to apply to the transition 
from the 1-hour NAAQS to the more stringent 1997 8-hour NAAQS, the same 
anti-backsliding principle that would apply to the relaxation of a 
standard. Thus, as part of applying the principles in section 172(e) 
for purposes of the transition from the 1-hour standard to the 1997 8-
hour standard, EPA can either require states to retain programs that 
applied for purposes of the 1-hour standard, or can allow states to 
adopt equivalent alternative programs, but only if such alternatives 
are determined through notice-and-comment rulemaking to be ``not less 
stringent'' than the mandated program. EPA has previously identified 
three types of alternative programs that could satisfy the section 185 
requirement: (i) Those that achieve the same emissions reductions; (ii) 
those that raise the same amount of revenue and establish a process 
where the funds would be used to pay for emission reductions that will 
further improve ozone air quality; and (iii) those that would be 
equivalent through a combination of both emission reductions and 
revenues.\4\
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    \4\ These types of programs were identified in our rulemaking 
action concerning SJVUAPCD's alternative section 185 fee program 76 
FR 45213 (July 28, 2011).
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    We are proposing today to determine through notice-and-comment 
rulemaking that states can demonstrate an alternative program's 
equivalency by comparing expected fees and/or emissions reductions 
directly attributable to application of section 185 to the expected 
fees, pollution control project funding, and/or emissions reductions 
from the proposed alternative program. Under an alternative program, 
states might opt to shift the fee burden from a specific set of major 
stationary sources to non-major sources, such as owners of mobile 
sources that also contribute to ozone formation. EPA also believes that 
alternative programs, if approved as ``not less stringent'' than the 
section 185 fee program, would encourage one-hour ozone NAAQS 
nonattainment areas to reach attainment as effectively and 
expeditiously as a section 185 fee program, if not more so, and 
therefore satisfy the CAA's goal of attainment and maintenance of the 
NAAQS.

[[Page 1897]]

    While section 185 focuses most directly on assessing emissions 
fees, we believe it is useful to interpret anti-backsliding 
requirements for section 185 within the context of the CAA's ozone 
implementation provisions of subpart 2 (which includes section 185). 
The subpart 2 provisions are designed to promote reductions of ozone-
forming pollutant emissions to levels that achieve attainment of the 
ozone NAAQS. In this context, to satisfy the anti-backsliding 
requirements for section 185 associated with the 1-hour NAAQS we 
believe it is appropriate for states to implement equivalent 
alternative programs that maintain a focus on achieving further 
emission reductions, whether that occurs through the incentives created 
by fees levied on pollution sources or other funding of pollution 
control projects, or some combination of both. For any alternative 
program adopted by a state, the state's demonstration that the program 
is not less stringent should consist of comparing expected fees and/or 
emission reductions directly attributable to application of section 185 
to the expected fees, pollution control project funding, and/or 
emissions reductions from the proposed alternative program. For a valid 
demonstration to ensure equivalency, the state's submissions should not 
underestimate the expected fees and/or emission reductions from the 
section 185 fee program, nor overestimate the expected fees, pollution 
control project funding, and/or emission reductions associated with the 
proposed alternative program.
    We also note that the structure established in Subparts 1 and 2 of 
the CAA recognizes that successful achievement of clean air goals 
depends in great part on the development by states of clean air plans 
that that are specifically tailored to the nature of the air pollution 
sources in each state. The Act recognizes that states are best suited 
to design plans that will be most effective. Allowing states to put 
forward an equivalent program under the circumstances that pertain 
here, and under the authority of 172(e), is consistent with this 
principle of the Act.
    In sum, in order for EPA to approve an alternative program as 
satisfying the 1-hour ozone section 185 fee program SIP revision 
requirement, the state must demonstrate that the alternative program is 
not less stringent than the otherwise applicable section 185 fee 
program by collecting fees from owner/operators of pollution sources, 
providing funding for emissions reduction projects, and/or providing 
direct emissions reductions equal to or exceeding the expected results 
of the otherwise applicable section 185 fee program. We are inviting 
public comment on whether it is appropriate for EPA to consider 
equivalent alternative programs, and, if so, whether Rule 317 would 
constitute an approvable equivalent alternative program.

VI. What is EPA's analysis of SCAQMD's alternative program?

Summary of SCAQMD's Alternative Program

    In today's action, we are proposing to approve SCAQMD Rule 317 as 
an equivalent alternative program that satisfies the section 185 
requirement under the principles of section 172(e). Further information 
regarding Rule 317 is set forth below and in EPA's Technical Support 
Document (TSD) for this action.
    The purpose of Rule 317 is to satisfy the requirements of section 
185 of the Act by utilizing an equivalency approach consistent with the 
principles of 172(e) of the Act. Under Rule 317, SCAQMD will track, 
calculate, analyze, and report to demonstrate that the requirements of 
section 185 of the Act have been met. Rule 317 includes: Calculation of 
CAA non-attainment (section 185) fee obligation; establishment of a 
``section 172(e) fee equivalency account'' to track qualified 
expenditures on pollution control projects; an annual demonstration of 
equivalency; an annual preliminary determination of equivalency; 
reporting to CARB and EPA; and a backstop provision for failure to 
achieve equivalency.
    As described above, there are two 1-hour ozone nonattainment areas 
within the jurisdiction of the SCAQMD. By letter dated December 21, 
2011, SCAQMD clarified that they intend to provide separate equivalency 
demonstrations for the two non-attainment areas in that the equivalency 
analyses will compare fee obligations within each non-attainment area 
to expenditures within the same non-attainment area.
    SCAQMD will establish a ``section 172(e) fee equivalency account'' 
that will be credited with expenditures from qualified programs that 
meet the criteria in section (c)(1)(A) of Rule 317: (i) Surplus to the 
1-hour ozone SIP and approved by the District, CARB, and EPA as being 
surplus to the SIP; (ii) designed to result in direct VOC or 
NOX reductions in SCAQMD, or to facilitate future VOC or 
NOX reductions in SCAQMD through vehicle/engine fueling 
infrastructure or advanced technology development efforts for 
implementation within the next 10 years, or for other uses approved by 
EPA; (iii) expenditures occurring only in calendar years subsequent to 
2008 from eligible projects; \5\ and (iv) only monies actually expended 
from qualified programs during a calendar year shall be credited. Rule 
317 provides that the equivalency account may be pre-funded with 
expenditures from the programs listed in Attachment A of the rule.\6\
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    \5\ By letter dated December 21, 2011, SCAQMD clarified that for 
the South Coast Air Basin equivalency demonstration, SCAQMD intends 
only to include expenditures that occurred in calendar years 2010 
and forward.
    \6\ Attachment A of Rule 317 identifies potential sources of 
funds for the section 172(e) fee equivalency account. These 
potential funding mechanisms include: Fees from motor vehicles 
pursuant to AB 118 and AB 27866 and federal grants to fund 
retrofitting of school buses and trucks.
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    SCAQMD will annually calculate the total amount of major stationary 
source fees that would have been assessed in the prior calendar year 
under a direct implementation of section 185 of the Act. A fee is 
calculated for each major stationary source whose actual emissions of 
VOC or NOX exceed 80% of its baseline emissions. The fee 
rate is $5,000 per ton in 1990 dollars, which must be adjusted for 
inflation based on the Consumer Price Index (CPI).
    While CAA section 185 requires baseline emissions to be based on 
the lower of the source's actual or allowable \7\ emissions during the 
attainment year, it also allows the use of an alternative period as 
provided in EPA guidance. Rule 317 specifies that baseline emissions of 
an existing source in the South Coast Air Basin will be based on an 
average of the source's actual emissions during fiscal years 2005-06 
and 2006-07 (which are not to exceed allowable emissions), and would be 
programmatically adjusted by SCAQMD to take into account the effects of 
new requirements or regulations from 2006 to 2010. In the Salton Sea 
Air Basin, an existing source's baseline emissions are its reported 
emissions during 2007, the attainment year for the Southeast Desert 
Modified AQMA. Rule 317 also specifies that, for sources that become 
subject to the rule after the attainment year, baseline emissions are 
based on allowable limits in the applicable implementation plan or 
potential to

[[Page 1898]]

emit, or holdings of RECLAIM Trading Credits.
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    \7\ ``Allowable'' emissions are the amount of emissions that are 
allowed under the source's permit, or if no such permit has been 
issued to the source for the attainment year, the amount of 
emissions allowed under the applicable attainment plan (CAA section 
185(b)(2)).
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    SCAQMD will annually demonstrate that the funds in the section 
172(e) fee equivalency account for the prior year are equal to or 
greater than the CAA non-attainment (section 185) fee obligation that 
would have been assessed for the prior year.
    SCAQMD will also annually project whether adequate funding is 
expected to be available in the section 172(e) fee equivalency account 
in the current year in accordance with the equation in section (c)(4) 
of the rule. This preliminary determination of equivalency requires the 
projection to show that the amount of funds in the fee equivalency 
account are at least 110% of the previous year's fee obligation, which 
serves as a surrogate for the current year's fee obligation.
    SCAQMD will annually report to CARB and EPA on the results of the 
demonstration of equivalency and preliminary determination of 
equivalency, as well as information on facilities' fee obligations, 
programs and expenditures included in the fee equivalency account, and 
any surplus funding carried over to the subsequent calendar year.
    If the annual demonstration of equivalency fails to show sufficient 
funds in the section 172(e) fee equivalency account for the prior year, 
or the preliminary determination of equivalency shows that adequate 
funding may not be available in the current year, then Rule 317 
requires the SCAQMD Executive Officer (EO) to submit to the Governing 
Board within 90 days of the finding a back-stop rule that would require 
the EO to collect and/or track adequate fees for any shortfall. The 
Governing Board is required to act on the backstop rule within 120 days 
of the funding inadequacy finding.
    If SCAQMD adopts a backstop rule applicable to major stationary 
sources, Rule 317 states that the backstop rule would include 
provisions that allow sources to request an alternate baseline period 
and multi-site aggregation of baseline and emissions. Rule 317 also 
states that stationary sources paying such fees in the backstop rule 
shall receive a credit for annual operating fees and annual operating 
emission fees paid to SCAQMD.
    EPA's TSD has more information about SCAQMD's equivalent 
alternative program.

How is EPA evaluating SCAQMD's alternative program?

    Generally, SIP rules must be enforceable (see section 110(a) of the 
Act). Guidance and policy documents that we use to evaluate 
enforceability requirements consistently include the following:
    1. ``Issues Relating to VOC Regulation Cutpoints, Deficiencies, and 
Deviations,'' EPA, May 25, 1988 (the Bluebook).
    2. ``Guidance Document for Correcting Common VOC & Other Rule 
Deficiencies,'' EPA Region 9, August 21, 2001 (the Little Bluebook).
    3. ``State Implementation Plans; Nitrogen Oxides Supplement to the 
General Preamble; Clean Air Act Amendments of 1990 Implementation of 
Title I; Proposed Rule,'' (the NOX Supplement), 57 FR 55620, 
November 25, 1992.
    4. ``Review of State Implementation Plans and Revisions for 
Enforceability and Legal Sufficiency; Section 110: State Implementation 
Plans,'' EPA, September 23, 1987 Memorandum.
    Also, SIP revisions must not interfere with any applicable 
requirement concerning attainment and reasonable further progress (RFP) 
or any other applicable requirement of the Act (CAA section 110(l)).
    SCAQMD's equivalent alternative program must also be evaluated 
against section 185 of the Act, as described above under section III of 
this document. EPA also developed the following guidance on 
establishing baselines as allowed by section 185:
    5. Memorandum from William Harnett, Director of the Air Quality 
Policy Division to the Regional Air Division Directors, entitled, 
``Guidance on Establishing Emissions Baselines under Section 185 of the 
Clean Air Act (CAA) for Severe and Extreme Ozone Nonattainment Areas 
that Fail to Attain the 1-hour Ozone NAAQS by their Attainment Date,'' 
March 21, 2008.\8\
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    \8\ This guidance can be found at: http://www.epa.gov/ttn/oarpg/t1/memoranda/20080321_harnett_emissions_basline.pdf.
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Does SCAQMD's alternative program meet the evaluation criteria?

    As described below, we are proposing to find that SCAQMD's 
equivalent alternative program is consistent with the relevant policy 
and guidance regarding enforceability, SIP revisions, and sections 
172(e) and 185 of the Act.
    One initial step in the equivalency demonstration is to determine 
the benchmark for comparison, i.e., the amount of fees that would have 
been collected under direct implementation of section 185. A fee is 
calculated for each major stationary source whose actual emissions of 
VOC or NOX exceed 80% of its baseline emissions. Rule 317 
reflects the method for calculation of the fee set out in section 
185(b)(1) of the Act.
    Section 185 specifies that baseline emissions are the lower of a 
source's actual or allowable emissions during the attainment year. 
Section 185 and EPA's March 21, 2008 baseline guidance memorandum 
provide for determining baseline emissions over a longer period if a 
source's emissions are irregular, cyclical, or otherwise vary 
significantly from year to year.
    Rule 317 defines baseline emissions for most existing stationary 
sources in the South Coast Air Basin as an average of actual emissions 
from two years (fiscal years 2005-2006, and 2006-2007), not to exceed 
allowable emissions, and programmatically adjusted to account for 
regulatory effects between 2006 through 2010 for the South Coast Air 
Basin. SCAQMD's staff report for Rule 317 explains that SCAQMD selected 
this two-year baseline period as more representative of typical 
production and emissions because it occurred before the economic 
recession that began in 2008 and that using 2010 attainment year actual 
emissions as the baseline year would lock sources to an atypical low 
production year. SCAQMD provided data on various indicators such as 
Gross Domestic Product, regional employment, and usage of fuels and 
coatings and solvents to show the recessionary effects on emissions 
throughout the area.
    By letter dated December 21, 2011, SCAQMD provided source-specific 
emissions data and analyses that showed that all or almost all sources 
had emissions that varied from year to year. SCAQMD's letter states 
that the selection of fiscal years 2005-2006 and 2006-2007 as the 
baseline period for all major stationary sources results in an 
alternative baseline amount that is conservative but more 
representative of typical emissions. SCAQMD explains that under EPA's 
2008 baseline guidance, sources are allowed to choose any recent 
historical 24-month consecutive period, including a period chosen by 
the source. See 40 CFR 52.21(48). SCAQMD's analyses show that the 
District's selected baseline period results in a lower baseline overall 
than would result from a regulatory approach that would allow sources 
to propose their own baseline. A lower baseline amount is conservative 
because it establishes a lower threshold for calculating the assessment 
of section 185 fees. EPA agrees the emissions baseline provisions of 
Rule 317 are appropriate. EPA's TSD has more information on the 
alternative baseline.

[[Page 1899]]

    Rule 317 requires SCAQMD to establish a ``section 172(e) fee 
equivalency account'' that will be credited with expenditures from 
qualified programs that meet the criteria outlined in section (c)(1)(A) 
of the rule. One criterion is whether the expenditures, which result in 
emission reductions, are surplus to the 1-hour ozone SIP. The approved 
1-hour ozone SIP in the South Coast Air Basin is the 1997 Air Quality 
Management Plan, as revised in 1999.\9\ The approved 1-hour ozone SIP 
in the Southeast Desert Modified AQMA is the 1994 Air Quality 
Management Plan.\10\
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    \9\ This SIP was approved by EPA on April 10, 2000 (see 65 FR 
18903).
    \10\ This SIP was approved by EPA on January 8, 1997 (see 62 FR 
1150).
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    Surplus reductions are those that are not relied upon in the SIP, 
i.e., reductions that are not required nor assumed by the SIP to 
provide for RFP or attainment.\11\ At the time of rule adoption, SCAQMD 
identified three preliminary lists of qualified programs--Rule 317 
Attachment A, ``List of Programs Pre-funding Section 172(e) Fee 
Equivalency Account,'' Attachment B in the staff report, ``List of 
Potential Section 172(e) Fee Equivalent Account Funding Programs for 
Post-2011,'' and Attachment C in the staff report, ``List of Potential 
Future Section 172(e) Fee Equivalent Account (Credit) Programs.''
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    \11\ ``Surplus'' is discussed in EPA's guidance, ``Improving Air 
Quality with Economic Incentive Programs'' published on January 2001 
(EPA-452/R-01-001) and available at http://www.epa.gov/ttn/oarpg/t1/memoranda/eipfin.pdf.
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    By letter dated December 21, 2011, SCAQMD updated the lists of 
qualified programs, which are attached to the letter as Exhibit A 
``Qualified Programs and Estimated Actual Expenditures for 2010 and 
2011 Pre-funding the Section 172(e) Fee Equivalency Account'' and 
Exhibit B ``Qualified Programs Providing On-Going Funding for Post-2010 
to Section 172(e) Fee Equivalent Account.\12\ '' The December 201l 
letter also elaborates on the bases for the conclusion that listed 
programs are surplus and meet the criteria at Rule 317(c)(1)(A). EPA 
has reviewed this documentation and agrees with SCAQMD that the 
programs previously listed in Attachment A of Rule 317 and Attachments 
B and C of the staff report and listed as Exhibits A and B to the 
December 21, 2011 letter are surplus. This determination, with respect 
to these programs only, addresses section (c)(1)(A)(i) of the rule, 
which requires EPA's approval that the qualified programs are surplus 
to the SIP. Future determinations of ``surplus'' may be necessary if 
SCAQMD relies on programs or expenditures other than those identified 
in Exhibits A and B of the December 21, 2011 letter to offset section 
185 fee obligations.
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    \12\ When SCAQMD adopted Rule 317, the programs listed in 
Attachment C were identified as ``potential'' programs for inclusion 
in the 172(e) equivalency account because SCAQMD did not have 
sufficient time to make a surplus determination. Subsequent to rule 
adoption, SCAQMD concluded in their letter dated December 21, 2011 
that the programs listed in Attachment C of the staff report are 
also surplus. Exhibit B of SCAQMD's December 21, 2011 letter 
included all programs that were previously included in Attachments B 
and C of the February 2011 staff report.
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    Rule 317 requires that expenditures from qualified programs result 
in direct reductions or facilitate future reductions of VOC or 
NOX emissions. In contrast, section 185 of the Act requires 
states to assess fees on stationary sources but does not require that 
the fees be used for activities beneficial in reducing ozone formation. 
We believe this requirement in Rule 317 to use the surplus funds for 
reducing ozone formation will result in further progress toward 
attainment.
    SCAQMD is required to demonstrate equivalency for the previous 
year's fee obligation in accordance with section (c)(3) of the rule and 
report the results to CARB and EPA. Equivalency is demonstrated if the 
funds in the section 172(e) fee equivalency account are equal to or 
greater than the CAA non-attainment (section 185) fee obligation that 
would have been assessed for the prior year. The rule includes the 
correct equation to demonstrate equivalency.
    If equivalency is demonstrated and there are ``unused'' 
expenditures that exceeded the amount of the fee obligations, those 
``unused'' funds are carried forward into the following assessment 
year. Since the expenditures have been determined to be surplus and 
there have been no other changes to the SIP for the 1-hour ozone 
standard, carrying these funds forward into the following year is 
acceptable because they would remain surplus. Also, if the expenditure 
occurred in a year prior to its use in an equivalency demonstration, 
the emission reductions would occur earlier, which is environmentally 
beneficial.
    As an added measure to demonstrate equivalency, Rule 317 also has a 
forward-looking measure to estimate whether equivalency will likely be 
demonstrated. SCAQMD is required to preliminarily determine if 
expenditures in the section 172(e) fee equivalency account are at least 
110% of the previous year's fee obligation, which serves as a surrogate 
for the current year's fee obligation. If the preliminary determination 
does not project equivalency in accordance with the rule, that would 
trigger the requirement for SCAQMD to adopt a backstop rule in advance 
of the actual equivalency demonstration. We believe this measure 
provides an additional checkpoint for ensuring equivalency.
    If SCAQMD fails to either demonstrate equivalency or the 
preliminary determination of equivalency does not show expenditures in 
the account at least equal to 110% of the estimated fee obligation, 
Rule 317 requires the EO to submit, within 90 days of the 
determination, a backstop measure to the Governing Board. Rule 317 also 
requires the Governing Board to act on the measure within 120 days of 
the determination, to either collect and/or track adequate fees to 
address the shortfall.
    Rule 317 identifies certain elements to be included in a major 
stationary source backstop rule. If the backstop rule requires major 
stationary sources to pay fees, Rule 317 states that the backstop rule 
would allow sources to receive a credit for fees paid for operating 
fees and annual operating emissions fees. Title V regulations at 40 CFR 
70 require the assessment of fees sufficient to cover Title V program 
costs. While any backstop rule would need to ensure that this fee 
credit provision would not adversely affect funds needed to cover Title 
V program costs, this issue ultimately needs to be addressed in the 
rulemaking process for the backstop rule.
    Lastly, Rule 317 applies to SCAQMD and requires SCAQMD to follow 
the procedures to make the equivalency demonstration and to adopt a 
backstop rule to make up any shortfall if equivalency is not initially 
demonstrated. These provisions, if approved into the SIP, would be 
enforceable against SCAQMD.
    In conclusion, Rule 317 requires SCAQMD to demonstrate on an annual 
basis, in accordance with the principles of section 172(e), that its 
alternative CAA section 185 program is not less stringent than the 
program prescribed by CAA section 185. EPA therefore proposes to 
approve Rule 317 as satisfying the 1-hour ozone section 185 fee program 
requirements. The TSD has more information on our evaluation.

VII. Proposed Action

    Because EPA believes SCAQMD Rule 317 fulfills all relevant 
requirements, we are proposing to approve Rule 317 as a SIP revision 
under section 110(k)(3) of the Act. EPA believes that SCAQMD's 
equivalent alternative program is not less stringent than the 
requirements set forth in section 185 of the Act; therefore

[[Page 1900]]

we are proposing to approve SCAQMD's alternative program as fulfilling 
the requirements of sections 182, 185 and 172(e) of the Act. If 
finalized as proposed, this action would permanently terminate all CAA 
Section 110(c) Federal Implementation Plan (FIP) implications 
associated with our January 5, 2010 Finding of Failure to Submit a SIP 
revision to satisfy section 185 requirements for the SCAQMD (75 FR 
232). We will accept comments from the public on these proposals for 
the next 30 days.

VIII. 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 proposed action merely proposes to approve State law 
as meeting Federal requirements and does not impose additional 
requirements beyond those imposed by State law. For that reason, this 
proposed 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 disproportionate human health or environmental effects with 
practical, appropriate, and legally permissible methods under Executive 
Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this proposed action 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.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Intergovernmental 
relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping 
requirements, Volatile organic compounds.

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

    Dated: January 4, 2012.
Jared Blumenfeld,
Regional Administrator, Region IX.
[FR Doc. 2012-447 Filed 1-11-12; 8:45 am]
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