On December 17, 2003, the Environmental Protection Agency (EPA) issued proposed rules toaddress the effects of interstate transport of air pollutants on non-attainment of the National AmbientAir Quality Standards (NAAQS) for fine particulates (PM 2.5 ) and ozone (specifically, the 8-hourstandard). (1) The proposed Interstate Air Quality (IAQ)rule appeared in the Federal Register January30, 2004. For PM 2.5 , the proposed rule finds that the interstate transport of sulfur dioxide(SO 2 ) andnitrogen oxides (NOx) from 28 states and the District of Columbia contributes significantly todownwind non-attainment; for ozone, the proposed rule finds that interstate transport of NOx from25 states and the District of Columbia contributes significantly to downwind non-attainment of the8-hour standard. To remedy the situation, the proposed rule generally follows the methodology EPA employed in an earlier regulation that addressed interstate transport of ozone pollution, the NOx SIP Call. (2) Inthe NOx SIP Call, EPA found 21 states and the District of Columbia significantly contributed to non-attainment of the 1-hour ozone NAAQS. (3) To remedy thesituation, EPA set statewide emissionsbudgets for NOx emissions, and recommended that states achieve those budgets through "highlycost-effective" controls on electric generators and large industrial facilities under a regional cap andtrade program. States are to implement controls by May 31, 2004. With the IAQ rule, EPA proposes a region-wide emissions cap for NOx and SO 2 to be implemented in two phases -- 2010 and 2015. Based on the methodology employed in the proposedrule, EPA's estimates of emissions under the caps are provided in Table 1, along with percentreductions from the basecase. EPA's methodology determines the caps by applying "highly costeffective" pollution controls on electric generating units. Table 1. EPA Estimates of Regional NOx and SO2 Caps and Percentage Reduction (million tons) Source: Proposed Interstate Air Quality Rule (69 Federal Register 4566-4650) Based on the cost-effectiveness methodology, each of the affected states is assigned a statewide "emissions budget." Each covered state would be required to submit a revised State ImplementationPlan (SIP) identifying measures it intended to implement to achieve its emissions budget. Stateswould be free to choose whatever means they deemed appropriate, subject to EPA approval. However, EPA strongly believes that the regional emissions cap can be most cost-effectivelyachieved through a regional cap-and-trade program focused on electric generators and intends onissuing a proposed cap-and-trade model program rule to encourage that option. In 1997, EPA finalized new NAAQS for both PM 2.5 and ozone. (4) The new NAAQS for ozonerevised the previous ozone NAAQS by tightening the standard from 0.12 parts per million (ppm) to0.08 ppm, increasing the averaging time from 1 hour to 8 hours, and measuring compliance byaveraging concentrations rather than by counting individual peak concentrations exceeding thestandard. The new PM 2.5 NAAQS was set at an annual maximum concentration of 15 microgramsper cubic meter (ug/m3) based on the 3-year average of annual arithmetic mean PM 2.5 concentrationsfrom one or more community-oriented monitors; and a 24-hour concentration of 65 ug/m3, basedon the 3-year average of the 98th percentile of 24-hour PM 2.5 concentrations at eachpopulation-oriented monitor within an area. EPA has taken a cautious approach to implementing the two NAAQS. Attempts to coordinate the new 8-hour standard with the previous 1-hour standard proved difficult and subject toconsiderable litigation. In the case of the PM 2.5 standard, comprehensive monitoring data wereunavailable in 1997 to determine compliance and make designations. In 1998, the Congress set astatutory schedule for the two NAAQS, based on EPA's previously announced InterimImplementation Policy. (5) Judicial review and otherfactors combined to delay the designations. Figure 1 (based on 2000-2002 data) shows that for PM 2.5 , EPA analysis indicates violations ofthe NAAQS over the eastern part of the United States and parts of California and Montana. Specifically, data show at least one monitor measuring concentrations in exceedence of the NAAQSin 120 counties. All 120 counties violate the annual standard; a few violate both the annual and the24-hour standard; none violate only the 24-hour standard. The population of the affected countiesis 65 million. (6) Figure 1 also shows that for the8-hour Ozone NAAQS, EPA analysis indicateswidespread violations of the NAAQS over the eastern and midwestern United States, California andTexas, along with scattered areas in Louisana, New Mexico and the lower Midwest. Specifically,data show 297 counties currently violate the 8-hour ozone standard. The population of the affectedcounties is 115 million. (7) Source: Environmental Protection Agency. The 1997 8-hour ozone and PM 2.5 NAAQS set in motion the Clean Air Act's SIP process under section 110. The promulgation of the revised ozone NAAQS andthe new PM 2.5 NAAQS meant that the SIPs of many states were no longer adequateto bring those states into compliance by the statutory deadline. Under Section110(k)(5), if EPA finds a SIP inadequate, it must require the affected state to submita revised SIP that includes sufficient measures to bring that state into compliance. This is known as a "SIP Call." In the case of the 8-hour and PM 2.5 NAAQS, the process of developing effective compliance strategies is complicated by the problem of transported air pollutants. Under section 110(a)(2)(D), SIPs must include adequate provisions to preventsources within that state from contributing significantly to non-attainment in one ormore downwind states. Finding that interstate transport of SO 2 and NOx contributessignificantly to ozone and PM 2.5 non-attainment, the EPA issued the proposedInterstate Air Quality rule (IAQ) in December, 2003. Combining the requirements of the CAA with EPA intentions as stated in the proposed rule, the major milestones are set out in Table 2. Table 2. Estimated Schedule for 8-hour Ozone and PM2.5 NAAQS As indicated by the table above, EPA would require States to submit their IAQ rule SIP before the NAAQS non-attainment SIPs are required. EPA justifies thesubmission of transported air pollutant SIPs by upwind states before the submissionof non-attainment SIPs by downwind states on the basis of Section 110(a)(1)-(2) andSection 172(b) of the Clean Air Act and on policy considerations. (8) EPA argues thatthe upwind reductions will facilitate planning by downwind states and that downwindstates will benefit from the relatively early reductions because they themselvescontribute to non-attainment elsewhere. The proposed IAQ rule is based on a series of determinations by EPA with respect to pollution transport, cost-effective pollution control, and compliancefeasibility. These determinations are made within the SIP process of Sections110(k)(5) and 110(a)(2)(D). (9) Significant Contribution. The pivotal finding by EPA in the proposed IAQ rule is that affected states significantlycontribute to non-attainment in downwind states. This determination defines thegeographic scope of the proposed rule. For states in the eastern United States, EPAconducted a series of modeling runs to determine the contribution various upwindstates are projected to make to areas in the eastern U.S. projected by EPA to be innon-attainment in 2010 and 2015. For ozone non-attainment, a "significantcontribution" was defined by EPA as the product of three factors: (1) actual amountof transported pollution from upwind states that contribute to non-attainment indownwind states; (2) how often contributions over specific thresholds occur; and (3)the comparative amount of the upwind transported contribution to the total non-attainment situation in thedownwind area. (10) For the 8-hour ozone NAAQS,EPAmodeled the emissions impact of the 31 states east of or bordering the MississippiRiver on 47 eastern downwind counties. States whose maximum contribution wasestimated at less than 2 parts per billion (ppb) and/or contribute less than 1 percentto total non-attainment were screened out. After evaluating the remaining easternstates on the three criteria above on 47 eastern downwind counties, 25 states werefound to make a significant contribution to non-attainment. (11) Those states are shownin Figure 2. For PM 2.5 NAAQS, EPA modeled the emissions impacts of 41 states on 57 eastern downwind counties. (12) Because thecontrolling PM 2.5 NAAQS is the annualstandard, EPA only considered two of the three factors listed for ozone indetermining significant contribution: actual amount and comparative amount. (13) In theproposed rule, EPA is suggesting that the threshold for determining significantcontribution be 0.15ug/m 3 -- one percent of the annual standard of 15 ug/m 3 . Basedon that threshold, EPA found 28 states and the District of Columbia were projectedto contribute significantly to 2010 PM 2.5 non-attainment. These states are shown inFigure 2. As an alternative, EPA modeled emission contributions if the thresholdwas a more stringent 0.10 ug/m 3 .