Regulation CC establishes the maximum period a depositary bank may wait between receiving a deposit and making the deposited funds available for withdrawal. 1 A depositary bank generally must provide faster availability for funds deposited by a “local check” than by a “nonlocal check.” A check drawn on a bank is considered local if it is payable by or at a bank located in the same Federal Reserve check-processing region as the depositary bank. A check drawn on a nonbank is considered local if it is payable through a bank located in the same Federal Reserve check-processing region as the depositary bank. Checks that do not meet the requirements for “local” checks are considered “nonlocal.”

Appendix A to Regulation CC contains a routing number guide that assists banks in identifying local and nonlocal banks and thereby determining the maximum permissible hold periods for most deposited checks. The appendix includes a list of each Federal Reserve check-processing office and the first four digits of the routing number, known as the Federal Reserve routing symbol, of each bank that is served by that office for check-processing purposes. Banks whose Federal Reserve routing symbols are grouped under the same office are in the same check-processing region and thus are local to one another.

On July 19, 2008, the Reserve Banks will transfer the check-processing operations of the Memphis branch office of the Federal Reserve Bank of St. Louis to the head office of the Federal Reserve Bank of Atlanta. 2 To assist banks in identifying local and nonlocal checks and making funds availability decisions, the Board is amending the lists of routing symbols in appendix A associated with the Federal Reserve Banks of St. Louis and Atlanta to reflect the transfer of check-processing operations from the Memphis branch office to the Atlanta head office. To coincide with the effective date of the underlying check-processing changes, the amendments to appendix A are effective July 19, 2008. The Board is providing notice of the amendments at this time to give affected banks ample time to make any needed processing changes. Early notice also will enable affected banks to amend their availability schedules and related disclosures if necessary and provide their customers with notice of these changes. 3

The Federal Reserve Banks announced on March 31, 2008, that they are accelerating their planned reductions in the number of locations at which they process checks. 4 These steps are being taken in response to the continued nationwide decline in check usage and to position the Reserve Banks more effectively to meet the cost recovery requirements of the Monetary Control Act of 1980. Whereas they had previously announced that the transitions would take place by early 2011, the Reserve Banks now plan to cease check-processing operations at all of their check-processing offices except four—Philadelphia, Cleveland, Atlanta, and Dallas—by early 2010. As a result of the accelerated schedule, the tentative dates in the Board's earlier Federal Register notice (73 FR 1267, Jan. 8, 2008) regarding this matter are no longer accurate. Moreover, the accelerated schedule set forth in the Reserve Banks' March 2008 announcement is subject to further review and may change. Institutions seeking the most current information should consult the Reserve Banks' check-restructuring Web site. 5

The Board plans to amend appendix A in connection with each stage of the restructuring to delete the names of the offices that will no longer process checks and transfer the affected Federal Reserve routing symbols to other check-processing offices. The Board intends to provide notice of each amendment to appendix A approximately 60 days prior to the effective date of the amendment in order to give affected banks ample time to make processing changes and, if necessary, amend their availability schedules and related disclosures and provide their customers with notice of any changes to their availability schedules.

The Board has not followed the provisions of 5 U.S.C. 553(b) relating to notice and public participation in connection with the adoption of the final rule. The revisions to appendix A are technical in nature and are required by the statutory and regulatory definitions of “check-processing region.” Because there is no substantive change on which to seek public input, the Board has determined that the § 553(b) notice and comment procedures are unnecessary. In addition, the underlying consolidation of Federal Reserve Bank check-processing offices involves a matter relating to agency management, which is exempt from notice and comment procedures.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board has reviewed the final rule under authority delegated to the Board by the Office of Management and Budget. The technical amendments to appendix A of Regulation CC will delete the reference to the Memphis branch office of the Federal Reserve Bank of St. Louis and reassign the routing symbols listed under that office to the head office of the Federal Reserve Bank of Atlanta. The depository institutions that are located in the affected check-processing regions and that include the routing numbers in their disclosure statements would be required to notify customers of the resulting change in availability under § 229.18(e). However, all paperwork collection procedures associated with Regulation CC already are in place, and the Board accordingly anticipates that no additional burden will be imposed as a result of this rulemaking.

On February 21, 2008, the FAA proposed to amend part 71 of the Federal Aviation Regulations (14 CFR part 71) by modifying the Class E airspace area at Waynesburg, PA (73 FR 9504). The proposed action would provide additional controlled airspace to accommodate RNAV (GPS) approaches for Runway 09/27 at the Green County Airport. After publication, a minor error was discovered in the geographic coordinates of the airport. This action also corrects that error.

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments objecting to the proposal were received. Class E airspace areas extending from 700 feet or more above the surface of the earth are published in paragraphs 6005 of FAA Order 7400.96, signed August 14, 2007, and effective September 15, 2007, which is incorporated by reference in 14 CFR 71.1. The class airspace designation listed in this document will be published subsequently in the Order.

The FAA is amending Title 14, Code of Federal Regulations (14 CFR) part 71 to modify Class E airspace at Waynesburg, PA, by providing additional controlled airspace for aircraft executing the RNAV (GPS) Runway 09/27 to the Green County Airport. This action also corrects the geographic position coordinates of the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in the Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it modifies Class E Airspace at Waynesburg, PA.

The Coast Guard will enforce the Rose Festival Security Zone established by 33 CFR 165.1312 from 1 a.m. on June 4, 2008 until 10 a.m. June 10, 2008.

Under the provisions of 33 CFR 165.33 a vessel may not enter the regulated area, unless it receives permission from the Captain of the Port or his designee. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation.

This notice is issued under authority of 33 CFR 165.1312 and 5 U.S.C. 552(a). In addition to this notice in the Federal Register , the Coast Guard will provide the maritime community with extensive advance notification of this enforcement period via the Local Notice to Mariners and marine information broadcasts.

Entities affected by this rule include sources in all industry groups. The majority of sources potentially affected are expected to be in the following groups:

Entities affected by this rule also include States, local reviewing authorities, and Indian country with new and modified major stationary sources.

In addition to being available in the docket, an electronic copy of this final rule will also be available on the World Wide Web. Following signature by the EPA Administrator, a copy of this final rule will be posted in the regulations and standards section of our NSR home page located at http://www.epa.gov/nsr.

The information presented in this preamble is organized as follows:

The purpose of this rulemaking is to finalize the major NSR program provisions for PM 2.5 . This final rule supplements the final implementation rule for PM 2.5 (excluding the NSR provisions) that we  1 promulgated on April 25, 2007 at 72 FR 20586. This final action on the bulk of the major NSR program for PM 2.5 along with our proposed rule on increments, SILs, and SMC, when final, will represent the final elements necessary to implement a PM 2.5 PSD program. When both rules are promulgated and in effect, the PM 2.5 PSD program will no longer use a PM 10 program as a surrogate, as has been the practice under our existing guidance.

The existing regulations require both major and minor NSR programs to address any pollutant for which there is a National Ambient Air Quality Standard (NAAQS) and precursors to the formation of such pollutant when identified for regulation by the Administrator. This final rule amends the NSR regulations to establish the minimum elements for State, local, and Tribal agency programs implementing NSR for the PM 2.5 NAAQS. This preamble also explains what interim provisions would apply with respect to PM 2.5 during the State Implementation Plan (SIP) development period.

The NSR program is a preconstruction permitting program that applies when a source is constructed or modified. The NSR program is composed of three different programs:

• Prevention of Significant Deterioration (PSD);

• Nonattainment NSR (NA NSR); and

• Minor NSR.

The PSD program applies when a major source that is located in an area that is designated as attainment or unclassifiable for any criteria pollutant is constructed or undergoes a major modification. 3 4 The NA NSR program applies when a major source that is located in an area that is designated as nonattainment for any criteria pollutant is constructed or undergoes a major modification. The minor NSR program addresses both major and minor sources that undertake construction or modification activities that do not qualify as major, and it applies regardless of the designation of the area in which a source is located.

The national regulations that apply to each of these programs are located in the Code of Federal Regulations (CFR) as shown in the following table:

The PSD requirements include but are not limited to:

• Installation of Best Available Control Technology (BACT);

• Air quality monitoring and modeling analyses to ensure that a project's emissions will not cause or contribute to a violation of any NAAQS or maximum allowable pollutant increase (PSD increment);

• Notification of Federal Land Manager of nearby Class I areas; and

• Public comment on the permit.

Nonattainment NSR requirements include but are not limited to:

• Installation of Lowest Achievable Emission Rate (LAER) control technology;

• Offsetting new emissions with creditable emissions reductions;

• Certification that all major sources owned and operated in the State by the same owner are in compliance with all applicable requirements under the Act;

• An alternative siting analysis demonstrating that the benefits of the proposed source significantly outweigh the environmental and social costs imposed as a result of its location, construction, or modification; and

• Public comment on the permit.

Minor NSR programs must meet the statutory requirements in section 110(a)(2)(C) of the Act, which requires “* * * regulation of the modification and construction of any stationary source * * * as necessary to assure that national ambient air quality standards are achieved.”

Fine particles in the atmosphere are made up of a complex mixture of components. Common constituents include sulfate (SO 4 ); nitrate (NO 3 ); ammonium; elemental carbon; a great variety of organic compounds; and inorganic material (including metals, dust, sea salt, and other trace elements) generally referred to as “crustal” material, although it may contain material from other sources. Airborne particulate matter (PM) with a nominal aerodynamic diameter of 2.5 micrometers or less (a micrometer is one-millionth of a meter, and 2.5 micrometers is less than one-seventh the average width of a human hair) are considered to be “fine particles,” and are also known as PM 2.5 . “Primary” particles are emitted directly into the air as a solid or liquid particle ( e.g. , elemental carbon from diesel engines or fire activities, or condensable organic particles from gasoline engines). “Secondary” particles ( e.g. , sulfate and nitrate) form in the atmosphere as a result of various chemical reactions.

The health effects associated with exposure to PM 2.5 are significant. Epidemiological studies have shown a significant correlation between elevated PM 2.5 levels and premature mortality. Other important effects associated with PM 2.5 exposure include aggravation of respiratory and cardiovascular disease (as indicated by increased hospital admissions, emergency room visits, absences from school or work, and restricted activity days), lung disease, decreased lung function, asthma attacks, and certain cardiovascular problems. Individuals particularly sensitive to PM 2.5 exposure include older adults, people with heart and lung disease, and children.

On July 18, 1997, we revised the NAAQS for PM to add new standards for fine particles, using PM 2.5 as the indicator. We established health-based (primary) annual and 24-hour standards for PM 2.5 (62 FR 38652). We set an annual standard at a level of 15 micrograms per cubic meter (μg/m 3 ) and a 24-hour standard at a level of 65 μg/m 3 . At the time we established the primary standards in 1997, we also established welfare-based (secondary) standards identical to the primary standards. The secondary standards are designed to protect against major environmental effects of PM 2.5 such as visibility impairment, soiling, and materials damage.

On October 17, 2006, we revised the primary and secondary NAAQS for PM 2.5 and PM 10 . In that rulemaking, we reduced the 24-hour NAAQS for PM 2.5 to 35 μg/m 3 and retained the existing annual PM 2.5 NAAQS of 15 μg/m 3 . In addition, we retained PM 10 as the indicator for coarse PM, retained the existing PM 10 24-hour NAAQS of 150 μg/m 3 , and revoked the annual PM 10 NAAQS (which had previously been set at 50 μg/m 3 ). See 71 FR 61236.

After we promulgated the NAAQS for PM 2.5 in 1997, we issued a guidance document entitled “Interim Implementation for the New Source Review Requirements for PM 2.5 ” (John S. Seitz, EPA, October 23, 1997). 5 As noted in that guidance, section 165 of the Act suggests that PSD requirements become effective for a new NAAQS upon the effective date of the NAAQS. Section 165(a)(1) of the Act provides that no new or modified major source may be constructed without a PSD permit that meets all of the section 165(a) requirements with respect to the regulated pollutant. Moreover, section 165(a)(3) provides that the emissions from any such source may not cause or contribute to a violation of any NAAQS. Also, section 165(a)(4) requires BACT for each pollutant subject to PSD regulation. The 1997 guidance stated that sources would be allowed to use implementation of a PM 10 program as a surrogate for meeting PM 2.5 NSR requirements until certain difficulties were resolved, primarily the lack of necessary tools to calculate the emissions of PM 2.5 and related precursors, the lack of adequate modeling techniques to project ambient impacts, and the lack of PM 2.5 monitoring sites.

On April 5, 2005, we issued a guidance document entitled “Implementation of New Source Review Requirements in PM-2.5 Nonattainment Areas” (Stephen D. Page, EPA). 6 This memorandum provides guidance on the implementation of the nonattainment major NSR provisions in PM 2.5 nonattainment areas in the interim period between the effective date of the PM 2.5 NAAQS designations (April 5, 2005) and the promulgation date of the final NSR regulations reflected in this action. Besides affirming the continuation of the Seitz guidance memo in PM 2.5 attainment areas, the April 5, 2005 memo recommends that until we promulgate the PM 2.5 major NSR regulations, States should use a PM 10 nonattainment major NSR program as a surrogate to address the requirements of nonattainment major NSR for PM 2.5 .

On November 1, 2005, we proposed a rule to implement the 1997 PM 2.5 NAAQS, including proposed revisions to the NSR program (70 FR 65984). As discussed above, this action finalizes the portion of that proposal related to NSR. The other portions of that proposal, concerning attainment dates, SIP submittals, reasonable further progress (RFP) requirements, etc., were finalized on April 25, 2007 (72 FR 20586).

On September 21, 2007, we proposed additional elements for the PSD program for PM 2.5 including PM 2.5 “increments,” significant impact levels (SILs), and significant monitoring concentrations (SMCs) (72 FR 54112). Increments are the maximum allowable increases over baseline concentrations that can be permitted to occur when a major source is constructed or modified. This is one mechanism by which the PSD program prevents significant deterioration in air quality. A SIL defines the level of ambient air impact that is considered a “significant contribution” to air quality. If the modeled maximum ambient impacts of a new source or modification are below the SILs, the source: (1) Is presumed not to cause or contribute significantly to a PSD increment or NAAQS violation, and (2) is not required to perform the multiple-source, cumulative impacts assessments that are otherwise required under PSD. An SMC defines the level of modeled ambient air impact below which the reviewing authority may exempt a new or modified source from conducting the preconstruction monitoring that may otherwise be required under PSD. The reviewing authority may also exempt the source from preconstruction monitoring if the existing monitored ambient concentration is less than the SMC. This final action on the bulk of the major NSR program for PM 2.5 along with our proposed rule on increments, SILs, and SMC, when final, will represent the final elements necessary to implement a PM 2.5 PSD program. When both rules are promulgated and in effect, the PM 2.5 PSD program will no longer use a PM 10 program as a surrogate, as has been the practice under our existing guidance.

The table below summarizes the main elements of the existing NSR program that this action addresses for PM 2.5 as a regulated NSR pollutant. The table indicates our final position on an issue and whether our position has changed based on comments received. Our final action for each element, or where appropriate, explanation of implementation under existing regulations, is addressed in detail in the referenced sections of this preamble.

The provisions of the PM 2.5 major NSR program finalized in this action are codified as revisions in the previously existing regulatory text. The revisions to NA NSR are codified in 40 CFR 51.165 and appendix S to 40 CFR part 51. The PSD revisions are codified in 40 CFR 51.166 and 52.21.

In this section we discuss each element of our proposal for this rulemaking, explain our final action, discuss the rationale for our final action, and summarize the major public comments we received. The full summary of public comments on the proposal, along with our responses, can be found in the docket for this rulemaking. 7

Scientific research has shown that various pollutants can contribute to ambient PM 2.5 concentrations. In addition to direct PM 2.5 emissions, these include the following precursors:

• Sulfur dioxide (SO 2 );

• Oxides of nitrogen (NO X );

• Volatile organic compounds (VOC); and

• Ammonia.

These gas-phase precursors undergo chemical reactions in the atmosphere to form secondary PM. Formation of secondary PM depends on numerous factors including the concentrations of precursors; the concentrations of other gaseous reactive species; atmospheric conditions including solar radiation, temperature, and relative humidity; and the interactions of precursors with preexisting particles and with cloud or fog droplets. Several atmospheric aerosol species, such as ammonium nitrate and certain organic compounds, are semi-volatile and are found in both gas and particle phases. Given the complexity of PM formation processes, new information from the scientific community continues to emerge to improve our understanding of the relationship between sources of PM precursors and secondary particle formation.

Precursors contribute significantly to ambient PM 2.5 concentrations, producing approximately half of the concentration nationally. In most areas of the country, PM 2.5 precursor emissions are major contributors to ambient PM 2.5 concentrations. The relative contribution to ambient PM 2.5 concentrations from each of these pollutants varies by area. The relative effect of reducing emissions of these pollutants is also highly variable.

Some PM 2.5 precursors are already subject to major NSR under other NAAQS, as shown in the following table:

In the subsections that follow, we first discuss our legal authority under the Act for regulating precursors to the formation of criteria pollutants, and then discuss our final action for each of the PM 2.5 precursors.

As we discussed in the November 1, 2005 proposal, we interpret the Act to not only provide explicit authority for EPA to regulate precursors, but also to grant us discretion to determine how to address precursors for particular regulatory purposes. This reading is based on section 302(g) of the Act, which defines the term “air pollutant” to include “any precursors to the formation of any air pollutant, to the extent the Administrator has identified such precursor or precursors for the particular purpose for which the term ‘air pollutant’ is used.” The first clause of this second sentence in section 302(g) explicitly authorizes the Administrator to identify and regulate precursors as air pollutants under other parts of the Act. In addition, the second clause of the sentence indicates that the Administrator has discretion to identify which pollutants should be classified as precursors for particular regulatory purposes. Thus, we do not necessarily construe the Act to require that EPA identify a particular precursor as an air pollutant for all regulatory purposes where it can be demonstrated that various programs under the Act address different aspects of the air pollutant problem. Likewise, we do not interpret the Act to require that EPA treat all precursors of a particular pollutant the same under any one program when there is a basis to distinguish between such precursors within that program. For example, in a recent rule addressing PM 2.5 precursors for purposes of the transportation conformity program, we chose to adopt a different approach for one precursor based on the limited emissions of that precursor from onroad mobile sources and the degree to which it contributes to PM 2.5 concentrations (70 FR 24280, May 6, 2005).

Other provisions of the Act reinforce our reading of section 302(g) to mean that Congress intended precursors to NAAQS pollutants to be subject to the air quality planning and control requirements of the Act, but also recognized that there may be circumstances where it is not appropriate to subject precursors to certain requirements of the Act. Section 182 of the Act provides for the regulation of NO X and VOC as precursors to ozone in ozone nonattainment areas, but also provides in section 182(f) that major stationary sources of NO X (an ozone precursor) are not subject to emission reduction requirements for ozone where the State shows through modeling that NO X reductions do not decrease ozone. Section 189(e) provides for the regulation of PM 10 precursors in PM 10 nonattainment areas, but also recognizes that there may be certain circumstances ( e.g. , if precursor emission sources do not significantly contribute to PM 10 levels) where it is not appropriate to apply control requirements to PM 10 precursors. The legislative history of section 189(e) recognized the complexity behind the science of precursor transformation into PM 10 ambient concentrations and the need to harmonize the regulation of PM 10 precursors with other provisions of the Act:

In summary, section 302(g) of the Act clearly calls for the regulation of precursor pollutants, but the Act also identifies circumstances when it may not be appropriate to regulate precursors and gives the Administrator discretion to determine how to address particular precursors under various programs required by the Act. Due to the complexities associated with precursor emissions and their variability from location to location, we believe that in certain situations it may not be effective or appropriate to control a certain precursor under a particular regulatory program or for EPA to require similar control of a particular precursor in all areas of the country.

The term “air pollutant,” as defined in section 302(g), is incorporated into the NSR provisions for various purposes. Thus, we interpret section 302(g) of the Act to require us to consider how to address precursors under the NSR program.

With regard to PSD, section 165(a)(3) of the Act states that new or modified major sources must demonstrate that emissions “will not cause, or contribute to, air pollution in excess of any * * * NAAQS in any air quality control region * * *.” A source could not reasonably make this demonstration without considering precursors that EPA has identified for this purpose. Section 165(a)(4) of the Act states that a new or modified source must apply BACT “for each pollutant subject to regulation under this Act emitted from, or which results from, such facility.” The phrase “emitted from, or which results from” indicates that the statute is not limited to direct emissions, but rather extends to precursors as well.

With regard to NA NSR, sections 172(c)(4) and 173 require States to demonstrate, among other things, that emissions from new or modified major sources are consistent with the achievement of “reasonable further progress.” Reasonable further progress is further defined as reductions of the relevant air pollutant, which is defined in section 302(g) to include precursors identified by EPA as subject to regulation for that purpose.

As proposed, we are finalizing different approaches for addressing the individual precursors to PM 2.5 under the Act's NSR provisions. Generally, where the scientific data and modeling analyses provide reasonable certainty that the pollutant's emissions are a significant contributor to ambient PM 2.5 concentrations, we believe that pollutant should be identified as a “regulated NSR pollutant” and subject to the PM 2.5 NSR provisions. Conversely, where the effect of a pollutant's emissions on ambient PM 2.5 concentrations is subject to substantial uncertainty, such that in some circumstances the pollutant may not result in formation of PM 2.5 , or control of the pollutant may have no effect or may even aggravate air quality, we generally believe it is unreasonable to establish a nationally-applicable presumption that the pollutant is a regulated NSR pollutant subject to the requirements of NSR for PM 2.5 . We discuss our final action with respect to each of the PM 2.5 precursors and the basis for that action in sections V.A.2 through 5.

For those precursors that are either presumed to be regulated or not regulated (NO X , VOC, and ammonia), a State program need not follow the presumed approach if it can be demonstrated that the precursor in question is not, or is, a “significant contributor” to PM 2.5 concentrations within the specific area. “Significant contribution” in this context is a different concept than that in section 110(a)(2)(D) of the Act. Section 110(a)(2)(D) of the Act prohibits States from emitting air pollutants in amounts which significantly contribute to nonattainment or other air quality problems in other States. Consistent with the previous discussion of sections 189(e) and 302(g), we are clarifying that the use in this NSR implementation rule of the term “significant contribution” to the area's PM 2.5 concentration means that a significant change in emissions of the precursor from sources in the area would be projected to provide a significant change in PM 2.5 concentrations in the area. For example, if modeling indicates that a reduction in an area's NO X emissions would reduce ambient PM 2.5 levels in the area, but that a reduction in ammonia emissions would result in virtually no change in ambient PM 2.5 levels, this would suggest that NO X is a significant contributor but that ammonia is not. We are not establishing in this rule a quantitative test for determining whether PM 2.5 levels in an area change significantly in response to reductions in precursor emissions in the area. However, in considering this question, it is relevant to consider that relatively small reductions in PM 2.5 levels are estimated to result in worthwhile public health benefits.

This approach to identifying a precursor as a regulated NSR pollutant reflects atmospheric chemistry conditions in the area and the magnitude of emissions of the precursor in the area. Assessments of whether it is technically feasible and cost effective to control particular emissions units at a source should be part of the later BACT determination within a permit action, and should occur after the basic assessment of which precursors are to be regulated NSR pollutants in an area is completed.

Most commenters did not question our legal authority to identify and regulate PM 2.5 precursors. However, some commenters argued, based on the language of sections 302(g) and 189(e) of the Act, that once we have designated a compound as a precursor, we do not have discretion to presumptively exclude it from NSR requirements. Other commenters on this issue indicated that we do have such discretion, based on the de minimis doctrine of the Alabama Power decision or on practical implementation considerations such as the uncertainty in measuring and modeling the effect of PM 2.5 precursors.

We do not agree with the comment that the Act does not give us discretion to presumptively exclude a PM 2.5 precursor from NSR requirements. As stated previously, we believe that section 302(g) allows the Administrator to presumptively not require certain precursors to be addressed in PM 2.5 NSR programs generally, while allowing the State or EPA to make a finding for a specific area to override the general presumption. In the following pollutant-specific sections of this preamble, we find that at this time there is sufficient uncertainty regarding whether certain precursors significantly contribute to PM 2.5 concentrations in all areas such that the policy set forth in this rule does not presumptively require certain precursors (ammonia, VOC) to be controlled in each area. However, the State or EPA may reverse the presumption and regulate a precursor if it provides a demonstration showing that the precursor is a significant contributor to PM 2.5 concentrations in the area. In addition, if in the State's NSR program adoption process a commenter provides additional information suggesting an alternative policy for regulating a particular precursor, the State will need to respond to this information in its rulemaking action.

Hence, we continue to believe that the Act provides us the authority not only to identify and regulate precursors to PM 2.5 , but also to treat precursors of the same pollutant differently under the same program.

Sulfur dioxide is emitted mostly from the combustion of fossil fuels in boilers operated by electric utilities and other industrial sources. Less than 20 percent of SO 2 emissions nationwide are from other sources, mainly other industrial processes such as oil refining and pulp and paper production. The formation of sulfuric acid from the oxidation of SO 2 is an important process affecting most areas in North America. There are three different pathways for this transformation.

First, gaseous SO 2 can be oxidized by the hydroxyl radical (OH) to create sulfuric acid. This gaseous SO 2 oxidation reaction occurs slowly and only in the daytime. Second, SO 2 can dissolve in cloud water (or fog or rainwater), and there it can be oxidized to sulfuric acid by a variety of oxidants, or through catalysis by transition metals such as manganese or iron. If ammonia is present and taken up by the water droplet, then ammonium sulfate will form as a precipitate in the water droplet. After the cloud changes and the droplet evaporates, the sulfuric acid or ammonium sulfate remains in the atmosphere as a particle. This aqueous phase production process involving oxidants can be very fast; in some cases all the available SO 2 can be oxidized in less than an hour. Third, SO 2 can be oxidized in reactions in the particle-bound water in the aerosol particles themselves. This process takes place continuously, but only produces appreciable sulfate in alkaline (dust, sea salt) coarse particles. Oxidation of SO 2 has also been observed on the surfaces of black carbon and metal oxide particles. During the last 20 years, much progress has been made in understanding the first two major pathways, but some important questions still remain about the smaller third pathway. Models indicate that more than half of the sulfuric acid in the eastern United States and in the overall atmosphere is produced in clouds.

The sulfuric acid formed from these pathways reacts readily with ammonia to form ammonium sulfate, (NH 4 ) 2 SO 4 . If there is not enough ammonia present to fully neutralize the produced sulfuric acid (one molecule of sulfuric acid requires two molecules of ammonia), part of it exists as ammonium bisulfate; NH 4 HSO 4 (one molecule of sulfuric acid and one molecule of ammonia) and the particles are more acidic than ammonium sulfate. In certain situations (in the absence of sufficient ammonia for neutralization), sulfate can exist in particles as sulfuric acid, H 2 SO 4 . Sulfuric acid often exists in the plumes of stacks where SO 2 , sulfur trioxide (SO 3 ), and water vapor are in much higher concentrations than in the ambient atmosphere, but these concentrations become quite small as the plume is cooled and diluted by mixing.

Because sulfate is a significant component ( e.g. , ranging from 9 percent to 40 percent) of PM 2.5 concentrations, and contributes to other air quality problems in all regions of the country, we proposed to require States to treat SO 2 as a PM 2.5 precursor in all areas. We are retaining the same approach for SO 2 in this final rule. Sulfate is an important precursor to PM 2.5 formation in all areas, and has a strong regional impact on PM 2.5 concentrations. This approach is consistent with past EPA regulations, such as the Clean Air Interstate Rule (CAIR), the Clean Air Visibility Rule, the Acid Rain rules, and the Regional Haze rule, each of which require SO 2 reductions to address fine particle pollution and related air quality problems. Finally, we do not believe that regulating SO 2 as a precursor to PM 2.5 is likely to add a major burden to sources, as SO 2 is already regulated as part of the NSR program for the SO 2 NAAQS.

Most commenters who addressed this issue agreed that SO 2 should be regulated as a PM 2.5 precursor, although one only supported regulation of SO 2 as a precursor in NA NSR, and not under PSD. Two commenters disagreed that SO 2 acts as precursors to PM 2.5 in all cases and indicated that it should not be regulated as an “always-in” precursor.

We find the commenters' arguments against regulating SO 2 as a precursor unpersuasive. Sulfate is a significant fraction of PM 2.5 mass in all nonattainment areas currently, and although large SO 2 reductions are projected from electric generating units with the implementation of the CAIR program, sulfate is still projected to be a key contributor to PM 2.5 concentrations in the future, in both attainment and nonattainment areas. Sulfur dioxide emissions also lead to sulfate formation on both regional and local scales.

The sources of NO X are numerous and widespread. The combustion of fossil fuel generates the majority of NO X emissions, with large contributions from power generation and mobile sources. Nitrates are formed from the oxidation of NO X into nitric acid (HNO 3 ) either during the daytime (reaction with OH) or during the night (reactions with ozone and water). Nitric acid continuously transfers between the gas and the condensed phases through condensation and evaporation processes in the atmosphere. However, unless it reacts with other species (such as ammonia, sea salt, or dust) to form a neutralized salt, it will volatilize and not be measured using standard PM 2.5 measurement techniques. The formation of aerosol ammonium nitrate is favored by the availability of ammonia, low temperatures, and high relative humidity. Because ammonium nitrate is semivolatile and not stable in higher temperatures, nitrate levels are typically lower in the summer months and higher in the winter months. The resulting ammonium nitrate is usually in the sub-micrometer particle size range. Reactions with sea salt and dust lead to the formation of nitrates in coarse particles. Nitric acid may be dissolved in ambient aerosol particles.

Based on a review of speciated monitoring data analyses, it is apparent that nitrate concentrations vary significantly across the country. For example, in some southeastern locations, annual average nitrate levels are in the range of 6 to 8 percent of total PM 2.5 mass, whereas nitrate comprises 40 percent or more of PM 2.5 mass in certain California locations. Nitrate formation is favored by the availability of ammonia, low temperatures, and high relative humidity. It is also dependent upon the relative degree of nearby SO 2 emissions because ammonia reacts preferentially with SO 2 over NO X . Reductions in NO X emissions are expected to reduce PM 2.5 concentrations in most areas. However, it has been suggested that in a limited number of areas, NO X control would result in increased PM 2.5 mass by disrupting the ozone cycle and leading to increased oxidation of SO 2 to form sulfate particles, which are heavier than nitrate particles.

Because of these factors, we are finalizing our proposed approach to NO X as a precursor to PM 2.5 for the NSR program. Under this approach, NO X is presumed to be a significant contributor to ambient PM 2.5 concentrations in all PSD and NA NSR areas. However, a State or EPA may rebut this presumption for a specific area if the State demonstrates to the Administrator's satisfaction or EPA demonstrates that NO X emissions in that area are not a significant contributor to that area's ambient PM 2.5 concentrations. If a State or EPA makes such a demonstration, NO X would not be considered a PM 2.5 precursor under the NSR program in that area. If a State or EPA does not make such a demonstration, NO X must be regulated as a precursor under the PSD, NA NSR, and minor source programs for PM 2.5 . As discussed previously, this “presumed-in” approach is warranted based on the well-known transformation of NO X into nitrates, coupled with the fact that nitrate concentrations vary significantly around the country. This approach is consistent with other recent EPA regulations requiring NO X reductions, which will reduce fine particle pollution, such as the CAIR and a number of rules targeting onroad and nonroad engine emissions.

We had proposed that NO X be presumed to be a precursor in any State that EPA has identified as a source of the PM 2.5 interstate transport problem. In the final rule, we have dropped this requirement to be consistent with EPA's Clean Air Fine Particle Implementation Rule published on April 25, 2007. 72 FR 20586. Such a requirement is not necessary in this rule because States that contribute to downwind nonattainment for PM 2.5 are otherwise required to address transported NO X emissions under the CAIR.

In areas where NO X is regulated as a precursor to PM 2.5 , we do not believe that this is likely to add a major burden to sources, as NO X is already a regulated NSR pollutant. This is because NO X is an identified precursor for the ozone NAAQS and an indicator for the NO 2 NAAQS.

Several commenters agreed that NO X should be regulated under major NSR as a precursor to PM 2.5 . Some of these commenters believe that States should not have the opportunity to demonstrate otherwise, or indicated that a waiver for exclusion of NO X as a precursor should be allowed only if downwind States approve such a waiver. A few commenters stated that NO X should not be regulated as a precursor to PM 2.5 in the major NSR program, either on grounds of scientific uncertainty regarding the impact of NO X emissions on ambient PM 2.5 concentrations or on policy grounds ( i.e. , because NO X is already regulated under NSR for other NAAQS).

We are not persuaded by the argument that NO X should not be regulated as a PM 2.5 precursor because it is a regulated pollutant under other NAAQS. We do not find the degree of scientific uncertainty regarding PM 2.5 formation from NO X to be great enough to preclude regulation of NO X as a precursor with an opportunity for a case-by-case demonstration that NO X is not a significant contributor. Furthermore, the fact that we regulate NO X for other NAAQS under the NSR program does not by itself justify declining to regulate NO X as a PM 2.5 precursor in circumstances where NO X also significantly contributes to PM 2.5 formation. As noted earlier, the regulation of NO X as a precursor for PM 2.5 is not expected to add a major burden to regulated sources that are already required to limit NO X emission to meet other NAAQS.

We disagree with the commenters who believe that emissions of NO X cannot be correlated to PM 2.5 formation, or that it is unclear when NO X acts as a precursor. As discussed previously, our decision to regulate NO X as a precursor to PM 2.5 is based on the well-known transformation of NO X into nitrates. Nevertheless, nitrate concentrations vary significantly across the country. As a result, we believe that the “presumed-in” approach is appropriate for NO X since a State can demonstrate that NO X should not be a precursor in a given area or region.

While we recognize that NO X emissions can affect PM 2.5 concentrations in downwind areas, we disagree that approval from downwind States should be required for a State to exclude NO X as a PM 2.5 precursor for a particular area. This is because States that contribute to downwind nonattainment for PM 2.5 are otherwise required to address transported NO X emissions under the CAIR.

The organic component of ambient particles is a complex mixture of hundreds or even thousands of organic compounds. These organic compounds are either emitted directly from sources ( i.e. , primary organic aerosol) or can be formed by reactions in the ambient air ( i.e. , secondary organic aerosol, or SOA). Volatile organic compounds are key precursors in the formation processes for both SOA and ozone. The relative importance of organic compounds in the formation of secondary organic particles varies from area to area, depending upon local emissions sources, atmospheric chemistry, and season of the year.

The lightest organic molecules ( i.e. , molecules with six or fewer carbon atoms) occur in the atmosphere mainly as vapors and typically do not directly form organic particles at ambient temperatures due to the high vapor pressure of their products. However, they participate in atmospheric chemistry processes resulting in the formation of ozone and certain free radical compounds (such as OH) which in turn participate in oxidation reactions to form SOA, sulfates, and nitrates. These VOCs include all alkanes with up to six carbon atoms (from methane to hexane isomers), all alkenes with up to six carbon atoms (from ethene to hexene isomers), benzene, and many low-molecular weight carbonyls, chlorinated compounds, and oxygenated solvents.

Intermediate weight organic molecules ( i.e. , compounds with 7 to 24 carbon atoms) often exhibit a range of volatilities and can exist in both the gas and aerosol phase at ambient conditions. For this reason they are also referred to as semivolatile compounds. Semivolatile compounds react in the atmosphere to form SOA. These chemical reactions are accelerated in warmer temperatures, and studies show that SOA typically comprises a higher percentage of carbonaceous PM in the summer as opposed to the winter. The production of SOA from the atmospheric oxidation of a specific VOC depends on four factors: Its atmospheric abundance, its chemical reactivity, the availability of oxidants (ozone, OH, HNO 3 ), and the volatility of its products. In addition, recent work suggests that the presence of acidic aerosols may lead to an increased rate of SOA formation. Aromatic compounds such as toluene, xylene, and trimethyl benzene are considered to be the most significant anthropogenic SOA precursors and have been estimated to be responsible for 50 to 70 percent of total SOA in some airsheds. Man-made sources of aromatics gases include mobile sources, petrochemical manufacturing, and solvents. Some of the biogenic hydrocarbons emitted by trees are also considered to be important precursors of secondary organic PM. Terpenes (and b-pinene, limonene, carene, etc.) and the sesquiterpenes are expected to be major contributors to SOA in areas with significant vegetation cover, but isoprene is not. Terpenes are very prevalent in areas with pine forests, especially in the southeastern United States. The rest of the anthropogenic hydrocarbons (higher alkanes, paraffins, etc.) have been estimated to contribute 5 to 20 percent to the SOA concentration depending on the area.

The contribution of the primary and secondary components of organic aerosol to the measured organic aerosol concentrations remains a complex issue. Most of the research performed to date has been done in southern California, and more recently in central California, while fewer studies have been completed on other parts of North America. Many studies suggest that the primary and secondary contributions to total organic aerosol concentrations are highly variable, even on short time scales. Studies of pollution episodes indicate that the contribution of SOA to the organic PM can vary from 20 percent to 80 percent during the same day.

Despite significant advances in understanding the origins and properties of SOA, it remains probably the least understood component of PM 2.5 . The reactions forming secondary organics are complex, and the number of intermediate and final compounds formed is voluminous. Some of the best efforts to unravel the chemical composition of ambient organic aerosol matter have resulted in quantifying the concentrations of hundreds of organic compounds representing only 10 to 20 percent of the total organic aerosol mass. For this reason, SOA continues to be a significant topic of research and investigation.

Current scientific and technical information shows that carbonaceous material is a significant fraction of total PM 2.5 mass in most areas, that certain VOC emissions are precursors to the formation of SOA, and that a considerable fraction of the total carbonaceous material originates from local as opposed to regional sources. However, while significant progress has been made in understanding the role of gaseous organic material in the formation of organic PM, this relationship remains complex. We recognize that further research and technical tools are needed to better characterize emissions inventories for specific VOC, and to determine the extent of the contribution of specific VOC to organic PM mass.

As a result, this final rule does not, in general, require regulation of VOC as a precursor to PM 2.5 for the NSR program. However, a State may demonstrate to the Administrator's satisfaction or EPA may demonstrate that VOC emissions in a specific area are a significant contributor to that area's ambient PM 2.5 concentrations. After such a demonstration, the State would regulate VOC (or a subset of VOC) as a PM 2.5 precursor for the NSR program in that area. That is, the State would need to regulate construction and modification of stationary sources that increase emissions of VOC in that area to assure that these emissions do not interfere with reasonable further progress or the ability of that area to attain or maintain the PM 2.5 NAAQS.

We believe that this “presumed-out” approach is appropriate for VOC because of the complexity in assessing the role of VOC in PM 2.5 formation, as discussed previously. Where the effect of a pollutant's emissions on ambient PM 2.5 concentrations is subject to this degree of uncertainty, we do not have justification to establish a nationally-applicable presumption that the pollutant is a regulated NSR pollutant subject to the requirements of NSR for PM 2.5 . Under the circumstances, we believe the best policy is to continue to regulate VOC under NSR as a precursor to ozone in all areas, which will potentially provide a co-benefit for PM 2.5 concentrations despite the uncertainty in PM 2.5 formation from VOC. As discussed previously, we do not find it appropriate to utilize the same approach for NO X because the scientific data and modeling analyses provide more certainty that NO X emissions are a significant contributor to ambient PM 2.5 concentrations.

Note that we intend to regulate high molecular weight VOC (with 25 carbon atoms or more and low vapor pressure) as direct PM 2.5 emissions because they are emitted directly as primary organic particles and exist primarily in the condensed phase at ambient temperatures. See section V.E following for more on the regulation of such “condensables.”

Most commenters agreed with the “presumed-out” approach for VOC. One commenter said that the role of VOC in the formation of PM 2.5 is sufficiently understood to recommend a “waiver” approach for this pollutant in the same way as NO X is treated for PM 2.5 in the rule.

As discussed previously, the reactions forming secondary organics are complex and the number of intermediate and final compounds formed is voluminous. Some of the best efforts to unravel the chemical composition of ambient organic aerosol matter have merely been able to quantify the concentrations of hundreds of organic compounds representing only 10 to 20 percent of the total organic aerosol mass. For this reason, SOA continues to be a significant topic of research and investigation. Accordingly, we do not agree with the commenter who suggested a waiver or “presumed-in” approach for VOC. We continue to believe that our “presumed-out” approach is most appropriate for VOC and have included this approach in the final rules.

Ammonia (NH 3 ) is a gaseous pollutant that is emitted by natural and anthropogenic sources. Emissions inventories for ammonia are considered to be among the most uncertain of any species related to PM. Ammonia serves an important role in neutralizing acids in clouds, precipitation, and particles. In particular, ammonia neutralizes sulfuric acid and nitric acid, the two key contributors to acid deposition (acid rain). Deposited ammonia also can contribute to problems of eutrophication in water bodies, and deposition of ammonium particles may effectively result in acidification of soil as ammonia is taken up by plants. The NARSTO Fine Particle Assessment  8 indicates that reducing ammonia emissions where sulfate concentrations are high may reduce PM 2.5 mass concentrations, but may also increase the acidity of particles and precipitation. An increase in particle acidity is suspected to be linked with adverse human health effects and with an increase in the formation of secondary organic compounds. Based on this information and further insights gained from the NARSTO Fine Particle Assessment, it is apparent that the formation of particles related to ammonia emissions is a complex, nonlinear process.

Though recent studies have improved our understanding of the role of ammonia in aerosol formation, ongoing research is required to better describe the relationships between ammonia emissions, PM concentrations, and related impacts. The control techniques for ammonia and the analytical tools to quantify the impacts of reducing ammonia emissions on atmospheric aerosol formation are both evolving. Also, area-specific data are needed to evaluate the effectiveness of reducing ammonia emissions on reducing PM 2.5 concentrations in different areas, and to determine where ammonia decreases may increase the acidity of particles and precipitation.

Due to the considerable uncertainty related to ammonia as a precursor, our final rules do not require ammonia to be regulated as a PM 2.5 precursor but do give States the option to regulate ammonia as a precursor to PM 2.5 in nonattainment areas for purposes of NSR on a case-by-case basis. Consistent with our proposal, if a State demonstrates to the Administrator's satisfaction that ammonia emissions in a specific nonattainment area are a significant contributor to that area's ambient PM 2.5 concentrations, the State would regulate ammonia as a PM 2.5 precursor under the NSR program in that nonattainment area. Once this demonstration is made, ammonia would be a “regulated NSR pollutant” under NA NSR for that particular nonattainment area, and the State would need to regulate construction and modification of stationary sources that increase emissions of ammonia in that area to assure that these emissions do not interfere with reasonable further progress or the ability of that area to attain or maintain the PM 2.5 NAAQS. In all other nonattainment areas in that State and nationally, ammonia would not be subject to the NSR program. In addition, the action of any State identifying ammonia emissions as a significant contributor to a nonattainment area's PM 2.5 concentrations, or our approval of a nonattainment SIP doing so, does not make ammonia a regulated NSR pollutant for the purposes of PSD in any attainment or unclassifiable areas nationally. This is consistent with our proposal (70 FR 66036) and no commenters took issue with the proposal. We also retain the ability to make a technical demonstration for any area in a State, if appropriate, to reverse the presumption and require ammonia to be addressed in that State's nonattainment area plan.

We elected to finalize the proposed approach because of continued uncertainties regarding ammonia emission inventories and the effects of ammonia emission reductions. Ammonia emission inventories are presently very uncertain in most areas, complicating the task of assessing potential impacts of ammonia emissions reductions. In addition, data necessary to understand the atmospheric composition and balance of ammonia and nitric acid in an area are not widely available, making it difficult to predict the results of potential ammonia emission reductions. Ammonia reductions may be effective and appropriate for reducing PM 2.5 concentrations in selected locations, but in other locations such reductions may lead to minimal reductions in PM 2.5 concentrations and increased atmospheric acidity. Research projects continue to expand our collective understanding of these issues, but at this time we believe this case-by-case approach for nonattainment areas is appropriate given that there is sufficient uncertainty regarding the impact of ammonia emission reductions on PM 2.5 concentrations in all nonattainment areas. In light of these uncertainties, we encourage States to continue efforts to better understand the role of ammonia in their fine particle problem areas.

Several commenters agreed with our “presumed-out” approach for ammonia. One of these commenters recommended that we recognize the role ammonia plays in PM 2.5 formation and develop a policy to require the minimization and mitigation of known emissions of ammonia, while another suggested that we require States to initiate comprehensive ambient air monitoring networks to determine the extent of local effects of ammonia.

Four commenters did not support treating ammonia as a PM 2.5 precursor under any circumstances. Three of these commenters stated that if EPA permits States to demonstrate that ammonia should be regulated as a PM 2.5 precursor for NSR purposes, we should make clear that ammonia emissions from the operation of an air pollution control system to control NO X should not factor into such a demonstration.

Two commenters preferred that we use the “presumed-in” approach for ammonia, as for NO X . One of these commenters stated that the “presumed-out” approach would improperly delegate our authority to regulate ammonia as a PM 2.5 precursor to the States and would reverse Congress' requirement to regulate PM precursors unless the emissions are not part of the problem, instead taking the approach that we will “not regulate unless proven to be part of the problem.”

We continue to believe that the “presumed-out” approach is most appropriate for ammonia. As discussed previously, considerable uncertainties remain regarding ammonia emission inventories and the effects of ammonia emission reductions. As a result, we do not believe it advisable to adopt a “presumed-in” approach. However, where a State can gather sufficient data to demonstrate that reductions in ammonia emissions will decrease ambient concentrations of PM 2.5 in a particular nonattainment area, we believe that the State should be allowed to regulate ammonia emissions under its PM 2.5 NSR program for that area.

We do not believe that this approach improperly delegates authority to the States. The final rule establishes a general presumption for all nonattainment areas through this rulemaking process, and allows for the presumption to be modified by the State on a case-by-case basis with EPA approval. Under the Clean Air Fine Particle Implementation Rule (72 FR 20586, April 5, 2007) (addressing various nonattainment plan elements other than NSR), we still retain the ability to make a technical demonstration for any area if appropriate to reverse the presumption and require ammonia to be addressed in its nonattainment area plan. As discussed previously in section V.A.1, we interpret the Act to allow the “presumed-out” approach adopted in the final rule.

We agree with the commenter who suggested that we continue research on the role of ammonia in the formation of PM 2.5 . We believe that it is prudent to continue research on ammonia control technologies and the ammonia-sulfate-nitrate-SOA equilibrium before undertaking a broad national program to reduce ammonia emissions. As we develop a greater understanding about the potential air quality effects of reducing ammonia emissions in specific nonattainment areas, it may be appropriate for ammonia reduction strategies to be included in future SIPs. At this time, however, we believe that reducing SO 2 and NO X emissions will achieve significant reductions in ambient PM 2.5 concentrations.

Regarding the comment related to ammonia emissions from NO X control systems, we believe that a State should evaluate all sources of ammonia emissions when determining whether to regulate ammonia under its PM 2.5 NSR program for a particular nonattainment area. However, we also encourage States to be mindful of the potential tradeoff in terms of ambient PM 2.5 concentrations that may be related to reducing ammonia emissions from NO X control systems.

The major NSR program applies to construction of major stationary sources and major modifications at major stationary sources. A stationary source is a “major source” if its actual emissions or its potential to emit for a specific pollutant equals or exceeds the major source threshold for that pollutant established in the Act. Different pollutants, including precursors, are not summed to determine applicability.

Sections 169 and 302(j) of the Act contain definitions of “major emitting facility” and “major stationary source” that apply to programs implemented under part C and subpart 1 of part D of the Act (PSD and NA NSR, respectively). Consistent with our proposal, these final rules follow these definitions for purposes of defining a major emitting facility or major stationary source that would be subject to major NSR. The thresholds set out in the definitions are applied to each relevant pollutant individually, that is, to direct PM 2.5 emissions and to emissions of each pollutant identified as a PM 2.5 precursor for the applicable NSR program. Under the final rules, the major source thresholds are as follows:

No regulatory change is required to implement this approach to the major source thresholds for direct PM 2.5 emissions and the PM 2.5 precursors. See 40 CFR 51.165(a)(1)(iv)(a), 51.166(b)(1)(i), 52.21(b)(1)(i), and part 51, appendix S, section II.A.4.

This approach is consistent with how we treat other criteria pollutants that are covered by subpart 1 of part D of the Act. Nonattainment NSR programs under subpart 1 do not include a tiered classification system such as the one required for ozone nonattainment areas under subpart 2 of part D. We do not interpret subpart 4 of part D of the Act (creating “serious” and “moderate” classifications for PM 10 nonattainment areas) as applying to PM 2.5 .

Although our approach is consistent with sections 169 and 302(j) and subpart 1 of part D of the Act, it results in a higher major source threshold in PM 2.5 nonattainment areas than the major source threshold that applies in some PM 10 nonattainment areas under subpart 4 of part D of the Act. This is because section 189(b) of the Act establishes a 70-tpy major source threshold for “serious” PM 10 nonattainment areas while “moderate” PM 10 nonattainment areas apply a 100-tpy major source threshold based on the definition in section 302(j). We do not believe the Act gives us the discretion to promulgate a lower major source threshold for pollutants such as PM 2.5 that are only subject to subpart 1 of part D of the Act.

Our emissions inventory data do not indicate that this situation will adversely impact attainment of the PM 2.5 NAAQS. These data indicate that a significant number of sources have actual PM 2.5 emissions in the 100 to 250 tpy range. Additionally, our more current inventory data show that the number of sources that would be covered as major sources by a lower major source threshold would not increase substantially unless the threshold were lowered to 20 tpy or below. Thus, even if EPA had the discretion to adopt a 70-tpy major source threshold for PM 2.5 nonattainment areas, our data indicate that few additional sources would be subject to the major NSR program in PM 2.5 nonattainment areas. 9

We believe that States should consider such information in developing their own SIP-approved NSR programs. For example, if construction of PM 2.5 sources emitting 99 tpy with no major NSR controls and without mitigation would undermine a State's ability to achieve reasonable further progress or attain the PM 2.5 NAAQS, the State should consider imposing emissions controls or other requirements on these sources through the State's minor NSR program. Note that such programs are required under the existing statute and regulations to assure that the NAAQS are achieved. See section 110(a)(2)(C) of the Act and 40 CFR 51.160. In addition, States may address such sources through other elements in their nonattainment area SIPs that are not statutorily bound to the definition of major source, as the major NSR program is. We reiterate that since we do not interpret subpart 4 of the Act to apply to PM 2.5 , we do not believe that we have discretion under section 302(j) of the Act to define a lower major source threshold for pollutants such as PM 2.5 that are only subject to subpart 1 of part D of the Act.

Some commenters indicated that State minor NSR programs would not be sufficient to address such sources due to interstate transport and the existence of interstate PM 2.5 nonattainment areas. These commenters indicated that a lower major source threshold for PM 2.5 sources located in designated nonattainment areas should be applied uniformly throughout the entire nonattainment area, which would not be possible when minor NSR programs are defined on a State-by-State basis.

We believe, to the contrary, that States can coordinate their minor NSR programs to address interstate PM 2.5 nonattainment areas, and we encourage them to do so. In addition, we note that the impacts of direct PM 2.5 emissions are generally felt primarily in the local area.

One commenter stated that in order to address the impact of high PM concentrations, the Act mandates EPA to define a criteria pollutant's NSR major threshold at levels less than 100 tpy. The commenter gave the example of subparts 2 and 4 of part D of the Act, which define lower major source thresholds for certain classifications of ozone and PM 10 nonattainment areas, respectively. The commenter argued that it is unreasonable for us to assert that subpart 4 does not apply to this rule because it regulates all PM with a diameter of less than 10 micrometers, which includes PM 2.5 . The commenter believes that we recognized as much in our proposal preamble discussion of the options for implementing reasonably available control technology (RACT), where we discussed potential approaches that “would be consistent with the approach set forth in the Act in subpart 4.” 70 FR 66017. This commenter stated that a reasonable interpretation of the Act requires major sources of direct PM 2.5 emissions and precursor emissions to be defined at a baseline level of 70 tpy, and adjusted further downward as appropriate considering the characteristics and potential impacts of the pollutants.

We do not agree that subpart 4 of part D applies to PM 2.5 nonattainment areas. Subpart 4 was added to the Act by Congress specifically to address the PM 10 NAAQS. We believe that the PM 2.5 standard should be implemented under subpart 1 of part D, which is the general provision of the Act related to NAAQS implementation. Part D of title I of the Act sets forth the requirements for SIPs needed to attain the NAAQS. Part D also includes a general provision under subpart 1, which applies to all NAAQS for which a specific subpart does not exist. Because the PM 2.5 standards were not established until 1997, the nonattainment plan provisions found in section 172 of subpart 1 apply. Subpart 4 on its face applies only to the PM 10 standard. In general, the emphasis in subpart 4 on reducing PM 10 concentrations from certain sources of direct PM 2.5 emissions can be somewhat effective in certain PM 2.5 nonattainment areas but not in all. Contributions to PM 2.5 concentrations are typically from a complex mix of sources of primary emissions and sources of precursor emissions, which form particles through reactions in the atmosphere. In addition, PM 2.5 differs from PM 10 in terms of atmospheric dispersion characteristics, chemical composition, and contribution from regional transport.

A group of environmental commenters believed that EPA should be consistent with the stationary source size thresholds proposed for RACT in option 2, see 70 FR 66019/1. In our proposal preamble discussion of RACT, while we discussed developing a classification system for PM 2.5 nonattainment areas under section 172(a)(1) of subpart 1, we did not discuss subjecting PM 2.5 to the requirements of subpart 4. While our discussion of RACT contemplated a lower threshold for RACT applicability in some PM 2.5 nonattainment areas, we did not characterize this as defining a lower major source threshold. Moreover, section 302(j) defines a major stationary source as one that emits 100 tpy or more “except as otherwise expressly provided.” Since section 172 does not expressly provide EPA with the authority to promulgate a major source threshold below 100 tpy, we do not believe we are authorized to do so under subpart 1 of part D of the Act.

One commenter stated that the major source threshold for PM 2.5 emissions should be calculated using the current SO 2 and NO X definitions of major source and significant emissions rate. Specifically, the commenter suggested that the ratio of these values (100 tpy and 40 tpy, respectively) should be multiplied by the significant emissions rate for direct PM 2.5 emissions (10 tpy; see section V.C following) to yield a PM 2.5 major source threshold of 25 tpy.

As previously stated, we do not believe that we have discretion under the Act to define a lower major source threshold under subpart 1 of part D of the Act. In any case, the major source thresholds and significant emissions rates for SO 2 and NO X were not defined in relation to one another, and therefore their relationship would not provide a suitable basis for developing the PM 2.5 major source threshold from the PM 2.5 significant emissions rate. Major source thresholds are defined directly in the Act, while the significant emissions rates were codified independently in regulations through a modeling analysis of ambient impacts.

The determination of what should be classified as a modification subject to major NSR is based, in part, on a “significant emissions rate.”  10 The major NSR regulations define this term as a rate above which a net emissions increase will trigger major NSR permitting requirements, if the increase results from a major modification. Sources are exempt from major NSR requirements if the emissions increase resulting from a modification is below this rate because EPA considers such lower emissions increases to be de minimis for purposes of the major NSR program.

The significant emissions rates for the criteria pollutants other than PM 2.5 are given in the following table:

For direct emissions of PM 2.5 , these final rules define the significant emissions rate as 10 tpy. This is the level that we proposed as our preferred option. This final significant emissions rate for direct PM 2.5 emissions is based fundamentally on the same approach that we used in setting the previous significant emissions rates for PM emissions and PM 10 emissions.

Historically, the original significant emissions rate for PM (25 tpy of PM emissions) was set using a modeling analysis to determine the amount of PM emissions that a source could emit that would be unlikely to cause ambient impacts above 4 percent of the PM NAAQS (measured as total suspended particulate (TSP)). 11 Although a range of source configurations can yield a wide range of impacts per tpy of emissions, our review of typical configurations of major PM sources led us to the conclusion that a major modification that increased PM emissions by 25 tpy or less would be unlikely to increase 24-hour average concentrations of TSP by more than 4 percent of the 24-hour TSP NAAQS. Subsequently, when we set the significant emissions rate for PM 10 , we adjusted the rate for PM emissions using the ratio of the 24-hour PM 10 NAAQS to the 24-hour TSP NAAQS to derive the PM 10 significant emissions rate of 15 tpy. We used the ratio of 24-hour NAAQS for this adjustment because that NAAQS was controlling for both PM and PM 10 .

We used a conceptually similar methodology to derive the final PM 2.5 significant emissions rate from the rate for PM 10 . However, because the 24-hour NAAQS is not controlling for PM 2.5 , we revised the methodology to take into account the annual impact of emissions. See the proposal preamble for additional information on the methodology we used to develop the final significant emissions rate for direct PM 2.5 emissions (70 FR 66038).

Several commenters supported our approach to setting the significant emissions rate for direct PM 2.5 emissions and the level (10 tpy) based on the same methodology used for PM emissions and PM 10 emissions. Numerous other commenters believe that our methodology was too conservative, and suggested a significant emissions rate of 15 tpy. Two commenters suggested that we use significant emissions rate of 5 tpy or less. Another commenter suggested that we could “split the difference,” using an option that could give States and companies some flexibility: Modifications less than 5 tpy of direct PM 2.5 emissions could be considered de minimis ; modifications between 5 and 15 tpy of direct PM 2.5 emissions could choose to either demonstrate less than a 4 percent NAAQS increase or simply be subject; and modifications with increases of 15 or more tpy of direct PM 2.5 emissions would be subject.

We agree with commenters who indicated that we were correct in using the same methodology for direct PM 2.5 that was used to set the significant emissions rate for PM 10 and PM emissions. We do not agree that using the same level as PM 10 emissions (15 tpy) is warranted, given the demonstrated health effects of PM 2.5 . Neither do we agree that a significant emissions rate of 5 tpy or less is warranted. While our screening model runs indicated that emissions increases in this range at facilities with short stacks can cause measurable increases in ambient PM 2.5 levels, we do not believe that facilities at the extremes should dictate the program for all sources.

We do not agree that inclusion of condensable emissions in future testing and applicability determinations ( see section V.E) is grounds for increasing the SER for direct PM 2.5 emissions. The results of the modeling analysis that is the basis for the SER of 10 tpy is not affected by the nature of the direct PM 2.5 emissions ( i.e. , condensable or not).

We also do not agree that the proportions of primary and secondary PM 2.5 that comprise ambient PM 2.5 concentrations is relevant to determining the appropriate SER for direct PM 2.5 emissions. Following our historic approach for PM and PM 10 , we based our analysis on determining the size of a source of direct PM 2.5 emissions that would be expected to have an ambient impact of 4 percent or more of the NAAQS. This relationship holds true regardless of the origin of the particles that make up the ambient PM 2.5 . The commenter's approach ( i.e. , carrying out the analysis based on one-half of the NAAQS because primary PM 2.5 makes up only one-half of the ambient PM 2.5 ) implies that an increase in ambient PM 2.5 concentrations due to an increase in direct PM 2.5 emissions is somehow automatically matched by a like increase in the ambient concentration of secondary PM 2.5 . We do not believe that this is a reasonable approach.

Consistent with the preferred option in the proposal, we are setting significant emissions rates for PM 2.5 precursors at the levels for those pollutants already included in major NSR programs, as shown in the following table:

VOC is presumed not to be a precursor to PM 2.5 in any attainment or unclassifiable area, unless the State demonstrates to the Administrator's satisfaction or EPA demonstrates that emissions of VOC from sources in a specific area are a significant contributor to that area's ambient PM 2.5 concentrations. Any State making such a demonstration would be required to adopt the 40-tpy significant emissions rate unless it demonstrates that a more stringent significant emissions rate (lower rate) is more appropriate.

For ammonia, States determining in their SIPs that control of ammonia is a necessary part of a PM 2.5 control strategy in a particular area must set the significant emissions rate for ammonia. Otherwise, according to the definition of “significant” in the PSD program, “any emissions rate” would be considered significant. See 40 CFR 51.166(b)(23)(ii).

One commenter stated that we should not leave it to States to set significant emissions rates for ammonia. The commenter argued that EPA's scientists should shoulder this responsibility, and the resulting significant emissions rate should be subject to notice and comment.

In the final rule, we are allowing those States that determine in their SIPs that control of ammonia is necessary to set the significant emissions rate for ammonia, based on the information developed for each attainment demonstration. At this time, we believe this is more appropriate than EPA setting a single, nationwide significant emissions rate because of the different role ammonia plays in the formation of PM 2.5 from one area to another, as well as our still-evolving understanding of the impact of reducing ammonia emissions on ambient PM 2.5 concentrations. In addition, we note that the SIP revisions that States undertake to add ammonia to their NA NSR programs are subject to notice and comment rulemaking procedures.

Numerous commenters supported our proposal to set significant emissions rates for PM 2.5 precursors at the levels already used for other purposes in the NSR program. One commenter indicated that since roughly half or more of ambient PM 2.5 is derived from precursors, 10 tpy would be an appropriate significant emissions rate for PM 2.5 precursor emissions. Another commenter suggested a significant emissions rate of 4 tpy for SO 2 and 2 tpy for NO X , based on the percentage of PM 2.5 that is typically derived from these precursors and the ratios between the existing significant emissions rates for these pollutants and the SO 2 and NO 2 annual NAAQS. Since the ambient concentrations of PM 2.5 vary across the country and since significant emissions rates have not been developed as a ratio of the NAAQS, we do not believe that the suggested approach is appropriate.

As discussed in the proposal, the use of existing significant emission rates where the PM 2.5 precursor is also regulated under NSR as a separate criteria pollutant harmonizes the NSR program for PM 2.5 with the NSR programs for those other criteria pollutants. This enables a source to determine the NSR impacts of proposed modifications by reference to a single significant emissions rate for each pollutant, and enables streamlining of determinations regarding the applicable control technology and analysis of air quality impacts into a single and comprehensive decision making process for both PM 2.5 and other criteria pollutants that also cover PM 2.5 precursors. This also follows precedent. When ozone became a criteria pollutant, EPA used the NO X significant emissions rate from the NO 2 program.

The burden imposed is not the only factor to consider when setting the significant emission rates for precursors—the process for determining the significant emission rates must also take into account the accuracy and certainty with which we can predict the effect of the precursors on PM 2.5 concentrations. It is difficult to determine the ambient air quality effects that result from a single source of emissions of PM 2.5 precursors. There are conservative screening models for predicting impacts of large NO X and SO 2 sources on ambient PM 2.5 concentrations. We conducted a range of modeling analyses to determine the amount of PM 2.5 precursor emissions needed to show an increase in ambient PM 2.5 concentrations. These analyses showed that precursor emissions probably have some localized impacts, but that most impact is farther downwind as precursors have the time to convert to PM 2.5 . In addition, the modeling available at this time does not provide sufficient information to estimate impacts of emissions from individual sources of ammonia and VOC on ambient PM 2.5 concentrations. While we know that precursors contribute to the formation of PM 2.5 in the ambient air, the degree to which these individual precursors contribute to PM 2.5 formation in a given location is complex and variable. There are competing chemical reactions taking place in the atmosphere, and meteorological conditions play a significant role in the size and characteristics of particle formation. For these reasons, we do not believe that we have adequate data on the impacts of precursor emissions from individual sources to override the administrative advantages of setting the significant emissions rates for SO 2 , NO X , and VOC for purposes of the PM 2.5 NSR program at the same levels that are already used for other purposes in the major NSR program.

In this final NSR rule, EPA will not require that States address condensable PM in establishing enforceable emissions limits for either PM 10 or PM 2.5 in NSR permits until the completion of a transition period, as described herein. In response to significant comments on the variability of test methods available for measuring condensable emissions, we have adopted this transition period approach to allow us to assess the capabilities of the test methods and possibly revise them to improve performance. The transition period will end January 1, 2011 unless EPA advances this date through the rulemaking process described below.

Subsequent to the completion of the test methods assessment, EPA will be conducting a notice and comment rulemaking to codify new or revised test methods. Once these new or revised test methods are in place, States will have the tools necessary to issue NSR permits addressing condensable PM. Thus, as part of the test methods rulemaking, we will take comment on an earlier closing date for the transition period in the NSR program if we are on track to meet our expectation to complete the test methods rule much earlier than January 1, 2011. In the meantime, however, we are establishing January 1, 2011 as the latest possible end date for the NSR transition period because this is also the end of the transition period for SIP purposes as described in the Clean Air Fine Particle Implementation Rule ( see section II.L in 72 FR 20586, April 25, 2007). Prevention of Significant Deterioration and NA NSR permits issued after the effective date of this NSR implementation rule but prior to the end of the transition period for the NSR program are not required to account for condensable emissions in PM 2.5 or PM 10 emissions limits. After January 1, 2011 (or any earlier date established in the upcoming rulemaking codifying test methods), EPA will require that NSR permits include limits of condensable emissions, as appropriate. Prior to this date, States are not prohibited from establishing emissions limits in NSR permits that include the condensable fraction of direct PM 2.5 .

As noted in the proposal preamble, certain commercial or industrial activities involving high temperature processes ( e.g. , fuel combustion, metal processing, and process cooking operations) emit gaseous pollutants into the ambient air, some of which rapidly condense into particle form. The constituents of these condensed particles include, but are not limited to, organic materials, sulfuric acid, and metals and metal compounds. We consider such condensable emissions to be a component of direct PM emissions. Specifically, direct PM emissions consist of both the “filterable fraction” which already exist in particle form at the elevated temperature of the exhaust stream, and the “condensable fraction” which exist in gaseous form under exhaust stream conditions but condenses rapidly in the ambient air.

Because condensable PM emissions exist almost entirely in the 2.5 micrometer range and smaller, these emissions are inherently more significant for PM 2.5 than for prior PM standards addressing larger particles. Condensable PM emissions commonly make up a significant component of direct PM 2.5 emissions. Therefore, we believe that it is important that the air quality management of PM promote a comprehensive approach to the control of condensable PM.

We proposed on November 1, 2005 to clarify that condensable PM emissions must be included when determining whether a source is subject to the major NSR program. We noted in the proposal that our prior guidance  12 had clarified that PM 10 includes condensable PM and that, where States expect condensable PM emissions to be in higher amounts, States should use methods that appropriately measure condensable PM emissions. In addition, we pointed out that the 2001 consolidated emissions reporting rule (CERR) requires States to report condensable emissions in each inventory revision ( see 67 FR 39602, June 10, 2001) and that Method 202 in appendix M of 40 CFR part 51 quantifies condensable PM. We also noted that States have not applied this existing guidance consistently.

We received a number of comments on whether NSR programs should account for condensable PM emissions in light of the current state of knowledge of and uncertainties around the measurement of direct PM 2.5 . Several commenters supported our proposal to require the inclusion of condensable PM emissions in NSR applicability determinations. On the other hand, several other commenters expressed opposition to including condensables at this time and raised concerns about the availability and implementation of test methods and related issues about the uncertainties in existing data for condensable PM 2.5 . As a result of the concerns, these commenters believed EPA would be premature in requiring a comprehensive evaluation of condensable PM 2.5 , especially as it related to developing any new emissions limits for stationary sources.

One commenter noted that regulation of condensable PM at this time will impede, rather than facilitate, expeditious attainment of the PM 2.5 standard. Another commenter expressed concern about the potential for retroactive enforcement over applicability decisions made in good faith, and for retroactive application of the new test method to assert violations of an emission limit, where the applicability decision or the emission limit was originally based on flawed testing/estimating methodology. Several commenters raised serious concerns about the availability and implementation of accurate test methods and emissions factors for condensable PM 2.5 . They further stated that regulation of condensable PM 2.5 emissions would be appropriate only after we have developed a workable transitional strategy that ensures existing major sources are not placed in “NSR jeopardy” for physical and operational changes undertaken before new test methods and other requirements for condensable PM 2.5 are established.

In recognition of these concerns, both as they apply to the NSR program and the broader air program, we have adopted a transition period during which NSR permits need not address limits of condensable PM 2.5 emissions. During this transition period, EPA will undertake a collaborative testing effort with industry, National Association of Clean Air Agencies (NACAA), and other stakeholders to assess and improve the effectiveness and accuracy of the available or revised test methods. The purpose of the stakeholder testing projects will be to collect new direct filterable and condensable PM 2.5 emissions data using methodologies that provide data more representative of sources' direct PM 2.5 emissions. The EPA, States, and others will use these data to establish or improve emissions factors and to define more representative source emissions limits in permits.

The EPA acknowledges the legitimate concerns raised by commenters concerning potential exposure to retroactive enforcement and has established rules to address this issue. The EPA will not revisit applicability determinations made in good faith prior to the end of the transition period, insofar as the quantity of condensable PM emissions are concerned, unless the applicable implementation plan clearly required consideration of condensable PM. Likewise, EPA will interpret PM emissions limitations in existing permits or permits issued during the transition period as not requiring quantification of condensable PM 2.5 for compliance purposes unless such a requirement was clearly specified in the permit conditions or the applicable implementation plan.

After the end of the transition period (January 1, 2011 or any earlier date established in the upcoming rulemaking codifying test methods), EPA will require that all NSR applicability determinations for PM 2.5 and PM 10 address condensable emissions as applicable, and the source may not rely on calculations made for previous determinations that did not include an accurate accounting of condensables. Additionally, compliance with these limits must be determined using the promulgated validated test methods that are applicable after that date. Moreover, after that date, we expect that condensable PM emissions will be addressed in all other aspects of the major NSR program, such as impact analyses under PSD and offsets under NA NSR. See 72 FR 20586, April 25, 2007 for the discussion of the transition period as it applies to the other elements of the air program in the final Clean Air Fine Particle Implementation Rule.

Although EPA is not requiring that State NSR programs address condensable emissions of PM until the end of the transition period, States that have developed the necessary tools are not precluded from acting to measure and control condensable PM emissions in NSR permit actions prior to the end of the transition period, especially if it is required in an applicable SIP. To the extent that a State has the supporting technical information and test methods, the State may assess the capabilities of current control technologies, possible modifications to such technologies, or new technologies as appropriate relative to control of condensable PM 2.5 emissions. As an example, a specific approach for controlling condensable PM could be a change in control device operating temperature to improve emissions reductions. We also note that it is important that implementation of any new or revised emissions limits and test methods that account for condensable emissions should be prospective and clearly differentiated from existing NSR permit requirements. This will avoid confusion over the compliance status relative to existing PM emissions limits that were not developed considering the condensable portion.

Notwithstanding the issues and uncertainties related to condensable PM, we encourage States to begin immediately to identify measures for reducing condensable PM emissions in major NSR permit actions, particularly where those emissions are expected to represent a significant portion of total PM emissions from a source.

To receive a permit for a new major source or a major modification, sources subject to PSD must:

• Install Best Available Control Technology (BACT).

• Conduct air quality modeling to ensure that the project's emissions will not cause or contribute to either—

• As required, comply with preconstruction monitoring requirements.

We are not making any change to our current regulations or policy for implementing BACT requirements at a major source that is subject to the requirements of the PSD program. Accordingly, if a new major source will emit, or have the potential to emit, a significant amount of a regulated NSR pollutant in an attainment area for that pollutant, the source must apply BACT for each emissions unit that emits the pollutant. In addition, if a physical or operational change at an existing major source will result in a significant emissions increase and a significant net emissions increase of a regulated NSR pollutant in an attainment area for that pollutant, the source must apply BACT to each proposed emissions unit experiencing a net increase in emissions of that pollutant as a result of the physical or operational change in the unit. Under the PM 2.5 PSD program, these requirements will apply to direct PM 2.5 emissions; SO 2 emissions; NO X emissions, unless a State demonstrates that NO X is not a significant contributor to ambient PM 2.5 concentrations in that area; and to VOC if identified by a State as a precursor in the PM 2.5 attainment area where the source is located.

On November 1, 2005, we proposed a rule to implement the PM 2.5 NAAQS, including proposed revisions to the NSR program (70 FR 65984). In that proposal, we indicated our intent to propose a separate rule for developing PM 2.5 increments, SILs, and SMCs and sought comments on general approaches for developing these values. We proposed PM 2.5 increments, SILs, and SMCs in a rule dated September 21, 2007. 72 FR 54112. We intend to address comments received on these components of the PM 2.5 PSD program when we finalize that proposed rule.

All sources subject to PSD review must perform an ambient air quality impact analysis to show that the emissions from the source will not cause or contribute to a PSD increment or NAAQS violation. See section 165(a)(3) of the CAA; 40 CFR 51.166(k) and 52.21(k). We did not propose, and our final rules do not contain, any changes to the regulations on air quality impact analyses for purposes of the PM 2.5 NSR program. Accordingly, sources will be required to perform this analysis for the PM 2.5 NAAQS and, when finalized, PM 2.5 increments. Such analyses must consider how a source, in combination with other sources in the area, will impact air quality at existing PM 2.5 monitor locations, as well as at other locations that are appropriate for comparing predicted PM 2.5 concentrations to the NAAQS based on PM 2.5 monitor siting requirements and recommendations.

Sources subject to PSD are subject to preconstruction ambient air quality monitoring requirements. See sections 165(a)(7) and 165(e) of the Act and 40 CFR 51.166(m) and 52.21(m). The PSD permitting requirements provide that continuous preconstruction ambient air quality monitoring must be conducted for any criteria pollutant emitted in significant amounts. Under 40 CFR 51.166(i)(5) and 52.21(i)(5), the reviewing authority has the discretion to exempt an applicant from this monitoring requirement if:

• The maximum modeled concentration for the applicable averaging period caused by the proposed significant emissions increase (or net emissions increase) is less than the prescribed SMC; or

• The existing monitored ambient concentrations are less than the prescribed SMC.

We proposed five options for how to address preconstruction monitoring for PM 2.5 . We are adopting a combination of options 1 and 3 from the proposal, primarily because we believe that it reflects existing procedures for other regulated NSR pollutants. The following sections summarize the major comments received on each option and explain why we are not adopting particular options.

Generally, commenters who supported option 1 believed the option gives regulatory agencies enough flexibility to address sources with unique characteristics. One commentator stated that another benefit is that this option would avoid unnecessary installation of new PM 2.5 monitors and redundant preconstruction monitoring.

Another commenter, however, believed option 1 to be overly burdensome until EPA develops an SMC. The commenter argued that for example, there are many upcoming PSD projects in their State, which would be located in extremely remote areas where there are no local or regional PM 2.5 emission sources, so there would be no need to collect such data for these areas. Additionally, one group of commenters stated that option 1 appeared to be “streamlining” preconstruction permit requirements, which is not the intention of the Act's PSD provisions, and that EPA does not have the authority to exempt sources from the requirements of section 165(e)(2).

We agree with the commenter that recommended combining option 3 (the use of a 24-hr PM 2.5 SMC) with option 1 and are finalizing this approach. We have proposed an SMC for PM 2.5 in the rulemaking on increments, SILs, and SMCs (72 FR 54112, September 21, 2007). Our regulations at 40 CFR 51.166(i)(5) and 52.21(i)(5) have allowed the use of an SMC as screening tool for identifying when an impact is de minimis and there is thus little or no value in gathering preconstruction monitoring data The use of de minimis levels of this nature (such as significant emission rates and significant impact levels) is supported by court precedent interpreting the NSR provisions of the Act. Alabama Power Co. v. Costle, 636 F.2d 323, 360 (DC Cir. 1979). (“Unless Congress has been extraordinarily rigid, there is likely a basis for an implication of de minimis authority to provide [an] exemption when the burdens of regulation yield a gain of trivial or no value.”)

Under option 2, we proposed to exempt all PM 2.5 sources from preconstruction monitoring through a blanket determination that the existing PM 2.5 monitoring network is sufficient. One commenter who preferred option 5 (described subsequently) was also supportive of option 2. This commenter noted that preconstruction monitoring is expensive and can significantly delay a project. The commenter also pointed out that it is very difficult to locate monitors for both direct PM 2.5 and precursors because precursors may transport over long distances before transforming into PM 2.5 . The commenter indicated that we should not rely on the existing regulations, which are already known to be problematic.

One comment letter from a group of environmental advocacy organizations specifically opposed option 2. These commenters noted that spatial gradients can be significant for PM 2.5 , especially for direct PM 2.5 emissions, and that the existing monitoring network is severely limited in its spatial coverage, most especially in attainment areas where PSD preconstruction monitoring requirements apply. The commenters indicated that to make a blanket determination that the existing network suffices for any source, regardless of where it might choose to locate, would be absurd.

We decided not to finalize option 2 because we do not believe that the current network will be sufficient for all existing and potential new sources. As stated in the proposal preamble, we believe that the existing PM 2.5 monitoring record has the following limitations:

• The PM 2.5 monitoring data record would require spatial interpolation between monitors for the determination of appropriate concentrations at the project's location.

• Use of existing monitored data will not increase the PM 2.5 monitoring data record to confirm or contradict conventional perceptions.

• The PM 2.5 monitoring data record assumes that local hot spots of high PM 2.5 concentrations do not exist or are already being monitored, which may not be true in all cases.

• Automatic acceptance of existing measurements does not follow our current policy that a case-by-case determination needs to be made to determine whether preconstruction ambient monitoring is necessary.

• When used with the impact modeling, separate concentrations of direct and precursor-formed PM are needed.

Several commenters supported this option adding that this approach follows existing procedures to justify the exclusion of preconstruction monitoring requirements when source impacts are less than the SMC or when sufficient representative data exists. One group of commenters stated that EPA's proposed options 1 and 3, which would allow case-by-case or de minimis exemptions from the monitoring requirements, are ill-conceived as a matter of public policy and contradict the Act's PSD provisions.

We agree with the commenters that support adopting option 3 because a combination of options 1 and 3 reflects existing procedures for other regulated NSR pollutants. As discussed previously, a de minimis exemption from monitoring requirements is supported by court precedent interpreting the PSD provisions of the Act. We do not consider it sound policy to require gathering additional data when it is unnecessary to demonstrate that a proposed source or modification will not adversely impact air quality.

We proposed using the available large PM 10 data record combined with the recently acquired PM 2.5 data to provide representative ambient measurements for most sources. One comment letter from an industry group opposed any requirement for preconstruction monitoring, and endorsed option 4 if nationally gathered PM 2.5 data is not available. Three commenters specifically opposed option 4. One comment letter from an environmental advocacy organization stated that option 4 is illegal on its face, to the extent that EPA intends it as a universally available alternative. This comment indicated that some individual sources might be able to demonstrate that PM 10 monitoring could fulfill the statutory requirements and purposes of PM 2.5 monitoring ( e.g. , with sufficiently protective assumptions about PM 2.5 /PM 10 proportions), but due to the variability in the relationship between PM 2.5 and PM 10 , EPA cannot categorically allow this substitution. Two other commenters stated that option 4 was not a viable approach due to the convoluted nature of attempting to infer PM 2.5 concentration from PM 10 monitoring data for source-specific applications.

We decided not to finalize option 4. As we recognized in the proposal preamble, the differences in characteristics between PM 2.5 and PM 10 and our limited understanding of their relationship are problematic for this application. We do not believe that generalized factors to convert PM 10 concentrations to PM 2.5 concentrations sufficiently reflect important industry-specific and spatially-related characteristics of PM 2.5 . In addition, removing altogether the obligation to provide preconstruction PM 2.5 ambient monitoring data would eliminate industry's contribution to the PM 2.5 data record when source impacts are more than de minimis .

We noted in the proposed rule that the existing regulations at 40 CFR 51.166(i)(5)(iii) and 52.21(i)(5)(ii) could be interpreted to allow a reviewing authority to exempt an applicant from preconstruction monitoring for any pollutant for which we have not established an SMC. These provisions state that a source may be exempted from preconstruction monitoring “if * * * the pollutant is not listed in” the list of pollutants for which SMC have been set. 13 The original rationale for this exemption is based on the lack of adequate methods for measuring ambient concentrations of pollutants not on the list. See 45 FR 52709, 52723-52724. We requested comment on this interpretation and any other legal or policy rationale that could support applying the text of these provisions to exempt sources from preconstruction monitoring if we elected not to define an SMC for PM 2.5 .

One commenter stated that option 5 is the most practicable to implement until an SMC can be established and any potential gaps in the monitoring network can be filled. Two commenters question the legality of option 5 under the Act. They added that whatever may have been the case when the existing list of SMCs was adopted, methods now exist for conducting the monitoring required under section 165(e)(2). We decided not to finalize option 5, and have proposed an SMC rule for PM 2.5 .

In conclusion, we are finalizing a combination of options 1 and 3 from the proposal, since we believe that it reflects existing procedures for other regulated NSR pollutants. Once we finalize an SMC for PM 2.5 , the reviewing authority will have the discretion to exempt a source from the preconstruction monitoring requirement if the projected PM 2.5 ambient impact of the source is below the PM 2.5 level promulgated in our rules. In addition, additional preconstruction monitoring data may not be necessary based on the availability of existing representative monitoring data in the area, as discussed previously.

To receive a permit for a new major source or a major modification, sources subject to NA NSR must:

• Install Lowest Achievable Emission Rate (LAER) control technology;

• Offset new emissions with creditable emissions reductions;

• Certify that all major sources owned or operated by the applicant in the same State are in compliance; and

• Conduct an alternative siting analysis demonstrating that the benefits of the proposed source significantly outweigh the environmental and social costs.

Under section 173 of the Act, all major sources and major modifications at existing major sources within a nonattainment area must obtain emissions reductions to offset any emissions increases resulting from the project in an amount that is at least equal to the emissions increase, and that is consistent with reasonable further progress towards attainment. We refer to the proportional difference between the amount of the required offsets to the amount of emissions increase as the “offset ratio.”

The Act specifies an offset ratio for several situations. In ozone nonattainment areas subject to subpart 2 (of title I, part D of the Act), the ratio is set between 1.1:1 and 1.5:1 depending on the area's level of classification pursuant to subpart 2. For other nonattainment areas, the Act establishes a minimum offset ratio of 1:1 pursuant to subpart 1 of title I, part D of the Act.

As proposed, we are finalizing the offset ratio for direct PM 2.5 emissions as at least 1:1 on a mass basis because the PM 2.5 program is being implemented under subpart 1 of the Act. The commenters on this issue generally agreed that our regulations should require an offset ratio of at least 1:1 pursuant to subpart 1.

A few commenters indicated that a lower ratio could be acceptable on a source-specific basis if accompanied by a modeling analysis demonstrating a net air quality benefit. One commenter suggested that such a demonstration would be possible when a direct PM 2.5 emissions increase from a tall stack is being offset by ground-level PM 2.5 emission reductions. Applying diesel retrofit technology to bus and truck fleets is an example of how ground-level PM 2.5 emission reductions could be achieved. We do not believe that a lower offset ratio is authorized under subpart 1, which prescribes an offset ratio of at least 1:1, and therefore we have not adopted this approach in our final rules.

Some of the commenters disagreed regarding whether an offset ratio of at least 1:1 under subpart 1 represents a ceiling or a floor on the level we can prescribe in our regulations. We interpret section 173 of the Act to allow higher offset ratios where necessary to achieve reasonable further progress. Accordingly, we believe that States may establish higher offset ratios in their State programs if they wish, but we do not believe that it would be appropriate for us to do so for PM 2.5 in national regulations. We do not have cause to believe a higher ratio is necessary for PM 2.5 in each area of the country and prefer to leave this to the discretion of States. We do not believe that the higher offset ratios required for ozone precursors under subpart 2 apply in any way to direct PM 2.5 emissions or PM 2.5 precursors.

Consistent with our proposal, the pollutants that are designated as PM 2.5 precursors in a particular area are subject to the offset requirement in that area. Accordingly, SO 2 is subject to offsets in all PM 2.5 nonattainment areas. As a “presumed-in” precursor, NO X will be subject to offsets unless a State obtains an exemption for its NSR program through a demonstration that NO X emissions in a particular area are not a significant contributor to that area's ambient PM 2.5 concentrations. As “presumed-out” precursors, VOC and ammonia would be subject to offsets only in areas where the State has demonstrated that these emissions are significant contributors to the area's ambient PM 2.5 concentrations. Two commenters on this issue agreed with this approach; one commenter recommended that we not require offsets for any PM 2.5 precursors. We believe that it is appropriate to offset emissions increases of all precursors that have been established to contribute to the PM 2.5 nonattainment problem in a particular area.

As discussed previously, the Act requires that a source obtain offsets for emissions increases that occur in a nonattainment area. As with PM 2.5 direct emissions, the minimum offset ratio permitted under subpart 1 of the Act is at least 1:1. Based on these requirements of the Act, we are finalizing our proposal that an offset ratio of at least 1:1 applies where a source seeks to offset an increase in emissions of a PM 2.5 precursor with creditable reductions of the same precursor. This offset ratio applies for all pollutants that have been designated as PM 2.5 precursors in a particular nonattainment area.

Most commenters agreed with this approach. A few commenters indicated that an offset ratio of less than 1:1 for precursor emissions of PM 2.5 should be allowed only if there is a net air quality benefit and if the lower ratio is justified by air quality modeling analysis. They noted that for PM 2.5 precursors, chemical reactivity modeling demonstrations should be developed and approved that are, at a minimum, capable of determining the impacts of the precursor emissions on the air quality in the nonattainment area in which the source is located. As noted previously, we do not believe that any offset ratio less than 1:1 is permissible under subpart 1.

One commenter stated that consistent with the statutory scheme for ozone laid out in section 182, and given the severity of the health risks associated with PM 2.5 , EPA must require offsets of at least 1.15:1 for PM 2.5 precursors in “moderate” nonattainment areas, and must increase the offset ratio in “serious” nonattainment areas or in areas that request extensions of their attainment deadlines. As mentioned previously, we do not believe that subpart 2 of the Act (which includes section 182) has any relevance to PM 2.5 or its precursors. Subpart 2 is specific to ozone. In addition, we are implementing the PM 2.5 program under subpart 1. Nevertheless, under the Act, we believe that a State may require higher offset ratios if it determines that they are necessary to achieve reasonable further progress. For the reasons discussed previously with respect to direct PM 2.5 , we do not believe that it is appropriate for us to set higher offset ratios for PM 2.5 precursors on a national basis.

Two commenters requested that we make clear in the final rule that an increase in precursor emissions need only be offset once, even if the increase triggers nonattainment NSR under, for example, both the ozone and PM 2.5 programs. We agree with these commenters and are clarifying that a precursor emissions increase only needs to be offset once. A permit applicant will not, for example, need to obtain two sets of offsets for NO X emissions if NO X is regulated as a precursor both for ozone and PM 2.5 in the area. The NO X precursor emissions need only be offset once in accordance with the applicable ratio. To the extent a higher ratio applies for ozone under subpart 2, the applicant would have to obtain offsets at the higher ratio. However, when the offset ratios are the same, both requirements can be met with a single set of NO X offsets.

In this final rule, we are allowing limited interpollutant trading for purposes of offsets only (and not netting) under the PM 2.5 NA NSR program. Specifically, the final rules allow interpollutant trading only based on a trading ratio established in the SIP as part of the attainment demonstration approved for a specific nonattainment area, on a statewide basis, or in a regional, multi-state program. This differs from our proposal in that the final rules do not allow interpollutant trading on a case-by-case basis as part of an individual NA NSR permitting process. For the purpose of offsets in the NA NSR program for PM 2.5 , the final rules allow reductions in direct PM 2.5 emissions to offset precursor emissions increases, emissions reductions of one precursor to offset emissions increases of another precursor, and reductions in precursor emissions to offset direct PM 2.5 emissions increases.

We have completed a technical assessment to develop preferred interpollutant trading ratios that may be used for the purposes of PM 2.5 offsets, where appropriate. The preferred ratios were generated with a PM 2.5 response surface modeling (RSM) approach based on the EPA's Community Multi-Scale Air Quality (CMAQ) model. This RSM approach allows one to distinguish the impact of direct and precursor emissions from particular source groupings on total PM 2.5 concentrations within nine specific urban areas and broadly across U.S. regions. This approach was recently applied by the Agency to inform development of potential PM 2.5 control strategies as part of the Regulatory Impact Assessment (RIA) for the final PM 2.5 NAAQS. 14 Based on results from the RSM, we determined the distribution of predicted ratios for urban areas and regions across the country and developed the preferred ratios with a goal to be environmentally protective. The technical approach with details on data and modeling inputs are fully described in a technical memo to the docket, “Details on Technical Assessment to Develop Interpollutant Trading Ratios for PM 2.5 Offsets.”  15 Use of the preferred ratios is recommended by EPA but not mandatory, and we do not intend to preclude the opportunity for a local demonstration of trading ratios on a case-by-case basis and public input into that process.

Our work here and in other recent PM 2.5 assessments clearly show that the relative efficacy of emissions reductions varies across pollutants and that a ton of direct PM 2.5 is generally more effective than a ton of precursor emissions in reducing overall PM 2.5 concentrations. For the purposes of reporting information here, we define the “East” to be the 37 States either completely or in part east of 100 degrees west longitude. “West” would include the remaining 11 western-most States in the continental United States. We found the following relationships between pollutants in developing the preferred trading ratios:

We recommend that States use these hierarchies and trading ratios in their interpollutant trading programs to provide consistency and streamline the trading process. As indicated by our work and findings, it is appropriate to establish acceptable trading ratios for interpollutant trading for PM 2.5 NSR offsets. If States elect to use EPA's recommended trading ratios, they may rely on EPA's technical work and a presumption that such ratios will be approvable by EPA absent a credible showing that EPA's trading ratios are not appropriate for that location. If States choose to develop their own hierarchies/trading ratios, they will have to substantiate by modeling and/or other technical demonstrations of the net air quality benefit for PM 2.5 ambient concentrations, and such a trading program will have to be approved by EPA.

We acknowledge that the relationship between pollutants can vary across geographic areas. Thus, local demonstrations, to determine trading ratios, will need to address a number of local factors including, but not limited to, the following:

We have adopted this approach to capture the flexibility advantages of interpollutant trading, while remaining mindful of the limitations of existing air quality models. We believe that the regional-scale models used for area-wide attainment demonstrations have sufficient accuracy to establish an overall equivalence ratio for a nonattainment area. However, we do not believe that available models can accurately determine the effects of interpollutant trades at a single source. In addition, permit-by-permit modeling demonstrations are extremely resource intensive, only to yield limited results. For these reasons, the final rules only allow a State to develop its own interpollutant trading rule for inclusion in its SIP, based on a technical demonstration for a specific nonattainment area. We will not accept case-by-case demonstrations on an individual source permit basis.

The flexibility provided by this policy allows sources to select the most cost-effective manner to obtain the offsets necessary to ensure that PM 2.5 air quality improves. This will be particularly beneficial where offsets for one particular pollutant are scarce in a particular area, as is often the case for direct PM 2.5 emissions and SO 2 .

We received a large number of comments on this issue representing a wide variety of viewpoints. Several commenters supported flexible interpollutant trading at ratios established either on an area-wide basis or permit by permit. They often pointed out the economic and administrative benefits of flexibility in the program, especially in areas where offsets for some pollutants will be difficult to obtain. One commenter asserted that such flexibility is essential to the ability of enterprises to be able to expand as the PM 2.5 NAAQS is implemented, especially in the program's early years. Another commenter suggested allowing such trading on an equal basis, without the “unnecessary complication” of interpollutant offset ratios.

Many commenters argued against allowing interpollutant trading for offsets. These commenters commonly pointed out that direct PM 2.5 emissions typically have a more local impact, while the impact of precursor emissions are farther afield. A number of commenters pointed out the complex atmospheric chemistry of secondary particulate formation and the shortcomings of the air quality models currently available to perform a detailed PM 2.5 formation assessment, specifically that local-scale models are not sufficiently accurate and regional-scale models do not have the resolution to show local impacts adequately. According to two commenters, trading precursors for direct PM 2.5 emissions raises serious environmental justice concerns due to the localized impacts of direct PM 2.5 emissions. These commenters also asserted that the equivalence between precursors would vary spatially and temporally, making it extremely difficult to assess, and that PM 2.5 precursors also differ in their impacts on other air pollution problems, such as direct health and welfare impacts of SO 2 and NO X ; and formation of ozone, acid deposition, and reactive nitrogen deposition.

We also received comments opposing allowing interpollutant trading for netting purposes, on the basis that the resulting program would be very staff-intensive apart from the difficulty of demonstrating through modeling the net air quality benefit of a single source trade. We concur with these commenters and are not allowing interpollutant trading for netting purposes at this time.

A number of commenters supported some types of trades, but not others. Most frequently, these commenters favored allowing reductions in direct PM 2.5 emissions to offset precursor emissions increases. One commenter suggested a hierarchy as follows: Direct PM 2.5 emissions, SO 2 , NO X , ammonia, and VOC. That is, a pollutant should be allowed as an offset for a pollutant ranked lower, but not the reverse ( e.g. , reductions in direct PM 2.5 emissions could be used to offset increases in any of the listed pollutants, SO 2 emissions reductions could offset NO X increases, etc.).

As previously noted, this rule allows interpollutant and interprecursor trading of offsets according to a SIP-approved trading program. To be approved, the trading program must either adopt EPA's recommended trading ratios or be backed up by regional-scale modeling that demonstrates a net air quality benefit using appropriate overall offset ratios for such trades for a specified nonattainment area, State, or multi-State region. There is considerable uncertainty about the relationship of precursor and direct PM 2.5 emissions to localized ambient PM 2.5 concentration both spatially and temporally. Given the uncertainty as to localized adverse and beneficial effects, we have opted for program flexibility. We believe this is necessary, in part, because of the shortage of available offsets for some pollutants, particularly direct PM 2.5 emissions and SO 2 , in many areas.

On October 23, 1997, after the NAAQS for PM 2.5 was originally promulgated, we issued a guidance document entitled “Interim Implementation for the New Source Review Requirements for PM 2.5 ,” John S. Seitz, EPA. As noted in that guidance, section 165 of the Act suggests that PSD requirements become effective for a new NAAQS upon the effective date of the NAAQS. Section 165(a)(1) of the Act provides that no new or modified major source may be constructed without a PSD permit that meets all of the section 165(a) requirements with respect to the regulated pollutant. Moreover, section 165(a)(3) provides that the emissions from any such source may not cause or contribute to a violation of any NAAQS. Also, section 165(a)(4) requires BACT for each pollutant subject to PSD regulation.

The 1997 guidance stated that sources should continue to use implementation of a PM 10 program as a surrogate for meeting PM 2.5 NSR requirements until certain difficulties were resolved, primarily the lack of necessary tools to calculate the emissions of PM 2.5 and related precursors, the lack of adequate modeling techniques to project ambient impacts, and the lack of PM 2.5 monitoring sites. With this final action and technical developments in the interim, these difficulties have largely been resolved.

The Federal PSD program is contained in 40 CFR 52.21. This section is the Federal implementation plan for areas lacking an approved PSD program. We implement this program in Indian country and some U.S. territories, but for the most part we have delegated implementation of 40 CFR 52.21 to those States without approved PSD programs (typically referred to as “delegated States”). Except as provided in the grandfathering provisions that follow, these final rules go into effect and must be implemented beginning on the effective date of this rule, July 15, 2008 in all areas subject to 40 CFR 52.21, including the delegated States.

Consistent with 40 CFR 52.21(i)(1)(x), wherein EPA grandfathered sources or modifications with pending permit applications based on PM from the PM 10 requirements established in 1987, EPA will allow sources or modifications who previously submitted applications in accordance with the PM 10 surrogate policy to remain subject to that policy for purposes of permitting if EPA or its delegate reviewing authority subsequently determines the application was complete as submitted. This is contingent upon the completed permit application being consistent with the requirements pursuant to the EPA memorandum entitled “Interim Implementation of New Source Review Requirements for PM 2.5 ” (Oct. 23, 1997) recommending the use of PM 10 as a surrogate for PM 2.5 . Accordingly, we have added 40 CFR 52.21(i)(1)(xi) to reflect this grandfathering provision.

The requirements for State PSD programs are contained in 40 CFR 51.166. Most States have developed PSD programs according to these requirements, which we have approved into each State's implementation plan. States with PSD programs approved under 40 CFR 51.166 are called “SIP-approved States.”

States with SIP-approved PSD programs that require amendments to incorporate these final NSR rule changes for PM 2.5 will need time to accomplish these SIP amendments. For example, a State may need to amend its existing regulations to add the specific significant emissions rate for PM 2.5 or a designated precursor. In our December 31, 2002 Federal Register notice promulgating other changes to the NSR program, we explained that the Act does not specifically address the timeframe by which States must submit SIP revisions when we revise the PSD and NA NSR rules. We nonetheless looked to section 110(a)(1) to guide our decision to require States to adopt and submit plan revisions within 3 years from when we publish changes in the Federal Register . We codified this approach in the PSD regulations at 40 CFR 51.166(a)(6)(i) and applied this same timeframe to State NA NSR programs through that final rule action. 64 FR 80241. This rule follows our established approach for determining when States must adopt and submit revised SIPs following changes to the NSR regulations, but does not revise otherwise applicable SIP submittal deadlines. Accordingly, we are requiring States with SIP-approved PSD programs to submit revised PSD programs and revised NA NSR programs for PM 2.5 ( see section V.I.) within 3 years from the date of this action. 16

During this SIP development period, the PM 2.5 NAAQS must still be protected under the PSD program in such States. We are finalizing our proposed option 1 that if a SIP-approved State is unable to implement a PSD program for the PM 2.5 NAAQS based on these final rules, the State may continue to implement a PM 10 program as a surrogate to meet the PSD program requirements for PM 2.5 pursuant to the 1997 guidance mentioned previously. Under option 1 for SIP-approved States, we had proposed two additional requirements. These were to require sources to demonstrate that emissions from construction or operation of the facility will not cause or contribute to a violation of the PM 2.5 NAAQS and to include condensable PM emissions in determining major NSR applicability and control requirements. We are not finalizing either of these additional requirements of our proposed option 1. We have dropped the requirement for demonstrating compliance with the PM 2.5 NAAQS in order to maintain consistency in the application of the existing surrogate policy across the PSD program during the interim period. Since in the final rule we are otherwise allowing SIP-approved States to continue with the existing PM 10 surrogate policy to meet the PSD requirements for PM 2.5 , partially implementing the PM 10 surrogate policy in this manner would be confusing and difficult to administer. Thus, to ensure consistent administration during the transition period, we have elected to maintain our existing PM 10 surrogate policy which only recommends as an interim measure that sources and reviewing authorities conduct the modeling necessary to show that PM 10 emissions will not cause a violation of the PM 10 NAAQS as a surrogate for demonstrating compliance with the PM 2.5 NAAQS. Also as discussed previously in section V.E, we are not requiring condensable emissions to be fully integrated into the PM 2.5 program until the end of the transition period to validate test methods discussed in section V.E of this preamble.

In our proposal, we offered two additional options for the SIP development period in States with SIP-approved PSD programs. Under option 2, we would have updated the 1997 guidance to reflect the provisions in these final rules and allowed States to run a PM 2.5 program pursuant to this updated guidance. Alternatively under option 2, we would have amended appendix S and 40 CFR 52.24 so that the PSD requirements of 40 CFR 52.21 would govern the issuance of major NSR permits during the SIP development period. Finally, under option 3, we would have allowed a State to request delegation of just the Federal PM 2.5 PSD program in 40 CFR 52.21 in that State. A State that otherwise had a SIP-approved PSD program could have requested delegation for PM 2.5 by informing us that it did not intend to submit a PSD SIP for PM 2.5 in the immediate future.

We received several comments supporting option 1, although some of these commenters requested that we not require condensable emissions to be included until the concerns with test methods were resolved. One of these commenters favored continuing to implement the PM 10 program as a surrogate under the 1997 guidance to provide clarity and certainty to the permitting agency and regulated community. The commenter indicated that PM 2.5 inventories and methods for estimating emission rates are rudimentary and may even be nonexistent in some cases, which would make permitting onerous.

A few commenters opposed option 1. One of these commenters indicated that we should not continue outdated policy ( i.e. , the 1997 NSR guidance) because it does not address the PM 2.5 problem, cannot be implemented in some States, and does not incorporate precursor emissions.

Four commenters expressed support for option 2. Three of these suggested that we issue updated guidance to incorporate these PSD requirements for PM 2.5 , while one preferred that we revise appendix S to point to the requirements of 40 CFR 52.21. We received one comment in favor of option 3 and three opposed.

Two commenters supported approaches different from our options. One of these commenters requested that the interim framework should, at a minimum, ensure that any new or modified project that exceeds thresholds use BACT. The commenter also suggested that we require offsets for projects approved before the other protective elements of the full PSD program are in place to ensure that there is no significant deterioration in air quality. Another commenter stated that none of the proposed options were viable for their State. The commenter requested that we allow States to continue their existing PM 10 program as a surrogate for PM 2.5 , without caveat.

As noted previously, we are finalizing proposed option 1, without the requirement of demonstrating compliance with the PM 2.5 NAAQS or the requirement to include condensable emissions. We believe that our final rule is reasonable for the following reasons. First, PM 10 will act as an adequate surrogate for PM 2.5 in most respects, because all new major sources and major modifications that would trigger PSD requirements for PM 2.5 would also trigger PM 10 requirements because PM 2.5 is a subset of PM 10 . Second, both of the precursors designated in the final rule—SO 2 and NO X (presumptively)—are already regulated under State NSR programs for other criteria pollutants. Thus, those precursors will be subject to NSR through those other programs. We do not believe that the other options or suggestions offer significant advantages that outweigh the utility and ease of implementation of this approach.

States may include grandfathering provisions similar to the ones EPA included in the transition requirements for 40 CFR 52.21.

The requirements for State NA NSR programs are contained in 40 CFR 51.165. All States with nonattainment areas have developed NA NSR programs according to these requirements, which we have approved into each State's implementation plan. However, as noted previously, it takes time for a State to amend its SIP when it must make changes to its NA NSR program. According to the provisions of 40 CFR 52.24(k), during such an interim period when a State lacks an approved NA NSR program for a particular pollutant, appendix S of 40 CFR part 51 applies for NA NSR permitting.

Section 172(c)(5) of the Act requires that States issue major NSR permits for construction and major modifications of major stationary sources in any nonattainment area. Thus, since the PM 2.5 nonattainment designations became effective on April 5, 2005, States are now required to issue major NSR permits that address the section 173 NA NSR requirements for PM 2.5 .

On the date that the PM 2.5 nonattainment designations took effect (April 5, 2005), we issued guidance to address implementation of the NA NSR program pending the completion of this action to develop implementation rules for PM 2.5 . See memorandum from Stephen D. Page, Director, Office of Air Quality Planning and Standards to Regional Air Directors, “Implementation of New Source Review Requirements in PM 2.5 Nonattainment Areas” (April 5, 2005).

Our current guidance permits States to implement a PM 10 NA NSR program as a surrogate to address the requirements of NA NSR for the PM 2.5 NAAQS. A State's surrogate major NSR program in PM 2.5 nonattainment areas may consist of either the implementation of the State's SIP-approved NA NSR program for PM 10 or implementation of a major NSR program for PM 10 under the authority in 40 CFR part 51, appendix S.

With this finalization of the new PM 2.5 NSR implementation requirements under 40 CFR 51.165, States now have the necessary tools to implement a NA NSR program for PM 2.5 . After the effective date of the amended rule (that is, July 15, 2008, States will no longer be permitted to implement a NA NSR program for PM 10 as a surrogate for the PM 2.5 NA NSR requirements. Most States will then need to implement a transitional PM 2.5 NA NSR program under appendix S (as amended in this rulemaking action) until EPA approves changes to a State's SIP-approved NA NSR program to reflect the new requirements under 40 CFR 51.165. At this time, we do not believe it is appropriate to allow grandfathering of pending permits being reviewed under the PM 10 surrogate program in nonattainment areas, mainly because of a State's obligations to expedite attainment and the fact that we had not established a similar precedent for transitioning from PM to PM 10 .

The NA NSR provisions in a State's existing SIP-approved NA NSR program would also apply in areas designated as nonattainment for the PM 2.5 NAAQS if the SIP-approved regulations contain a generic requirement to issue part D permits in areas designated as nonattainment for any criteria pollutant and do not otherwise need to be amended to incorporate the changes finalized in this action. States belonging to the following categories will need to revise their NA NSR regulations and submit them to EPA for incorporation into the SIP within 3 years from the date of this action  17 :

• States that have nonattainment regulations which need to be amended to incorporate the new PM 2.5 requirements.

• States that have designated nonattainment areas for PM 2.5 and their nonattainment NSR regulations specifically list the areas in which NA NSR applies ( i.e. , the list does not include the designated nonattainment areas for PM 2.5 ).

• States that have not previously had nonattainment areas but now have nonattainment areas for PM 2.5 .

These States will have to implement a transitional NA NSR permitting program for PM 2.5 pursuant to 40 CFR 52.24(k) and appendix S until their existing part D SIPs are revised to meet these new PM 2.5 NSR requirements under 40 CFR 51.165.

In general, appendix S requires new or modified major sources to meet LAER and obtain sufficient offsetting emissions reductions to assure that a new major source or major modification of an existing major source will not interfere with the area's progress toward attainment. Readers should refer to appendix S for a complete understanding of these and other appendix S requirements. In this action, we are finalizing our proposed revisions to appendix S to include provisions necessary to implement a transitional NA NSR program for PM 2.5 , including significant emissions rates applicable to major modifications for PM 2.5 and, as appropriate, precursors. Additionally, since we are finalizing interpollutant trading provisions in the NSR rules at 40 CFR 51.165, we are also amending appendix S to allow interpollutant trading for PM 2.5 . Appendix S applies directly to new and modified major stationary sources. In accordance with the requirements of section 110(a)(2)(c) of the Act, we believe that the majority of States have the legal authority to issue permits consistent with these requirements under an existing SIP-approved permitting program. Nonetheless, at least one State has reported that it lacks the legal authority to issue permits implementing the requirements of appendix S under its existing permitting rules.

If a State is unable to apply the requirements of appendix S, we will act as the reviewing authority for the relevant portion of the permit. We believe that it is appropriate for EPA to issue the preconstruction permits in such circumstances. Congress amended the Act in 1990 to remove the requirements that would have applied a construction ban in areas that lacked a SIP-approved part D permit program. Thus, we believe that it is consistent with Congressional intent that either the State or EPA issues construction permits for those projects meeting the applicable criteria during the interim period. See the preamble of the proposal for this rule for more detail on the legal basis for requiring States to issue NA NSR permits pursuant to appendix S during the SIP development period (70 FR 66045-46).

We received three comments supporting the issuance of NA NSR permits under appendix S during the SIP development period. Two of these commenters expected States generally to be able to do so, while one suggested that EPA issue such permits because States will lack the authority to do so without protracted rule revisions. One of these commenters also suggested that we revise appendix S to authorize interprecursor trading during the transition period, believing that the paucity of existing direct PM 2.5 emissions and SO 2 offsets likely will make business expansion in PM 2.5 nonattainment areas from now until at least April 2008 impossible unless this is done. One commenter suggested that we suspend the 2005 PM 2.5 NSR guidance which allows use of PM 10 emissions as a surrogate for PM 2.5 emissions in PM 2.5 nonattainment areas when we adopt the final PM 2.5 implementation rules, while three other commenters requested continued implementation of that guidance during the interim period.

As noted previously, this final action will require States to amend their NA NSR programs consistent with the amended rules at 40 CFR 51.165. During the SIP development period, where they have legal authority to do so, States must issue NA NSR permits under appendix S (as revised for purposes of the PM 2.5 program). To address one of the points raised by commenters, we are amending appendix S to allow interpollutant trading for PM 2.5 in this final rule. Where a State determines that it does not have legal authority to issue such permits, we will act as the reviewing authority. As of the effective date of this action, the 2005 PM 2.5 NSR guidance on use of PM 10 emissions as a surrogate for PM 2.5 emissions will remain in effect only for PSD in the SIP-approved States during the SIP development period. In the delegated PSD States and in nonattainment areas, the new PM 2.5 requirements will apply immediately on the effective date of this final action.

As discussed previously in section V.A, we have taken final action on NSR applicability for PM 2.5 precursors. Specifically, we have designated SO 2 as a national precursor to PM 2.5 in all areas, NO X as a “presumed-in” precursor in all areas, VOC as a “presumed-out” precursor in all areas, and ammonia as a “presumed-out” precursor. Thus, States have the option of excluding NO X as a precursor by demonstrating that NO X emissions are not a significant contributor to ambient PM 2.5 concentrations in a particular area. In addition, States have the option of identifying VOC and/or ammonia as precursor(s) by demonstrating that emissions of VOC and/or ammonia are a significant contributor in an area, and thus should be subject to major NSR.

In the proposal, during the SIP development period, we proposed that SO 2 should be treated as a regulated PM 2.5 precursor as of the effective date of this final rule since there is no doubt about its status as such in any area and proposed to defer NSR applicability for NO X until a State SIP submittal so that if a State elected to submit information to rebut the presumption that NO X is a regulated PM 2.5 precursor, the State would have an opportunity to do so in its SIP submittal. We also proposed that VOCs and ammonia would not be treated as PM 2.5 precursors during the interim period because they are presumed not to be precursors until they have been demonstrated to be through a State's SIP submittal.

A few commenters supported staying the applicability of NSR to all precursors during the interim period. However, two of these supporters suggested that EPA establish mechanisms for interpollutant trading for offsets during the interim period so that increases in direct PM 2.5 emissions can be offset with SO 2 or NO X emissions reductions. Another supporter noted that their State cannot impose obligations on NSR applicants until those obligations are established in State regulations or statutes. Another indicated that this delay would allow States the time to develop experience and knowledge in establishing local photochemical models and to performance test their accuracy.

Two commenters opposed staying NSR applicability for any precursors. They believe that this would make attainment more difficult. One commenter suggested that SO 2 should be designated as a precursor during the interim period, and another suggested the same for SO 2 and NO X .

Based on the comments, we have been persuaded that SIP-approved PSD States will not have the authority to regulate PM 2.5 precursors before they have amended their SIPs to incorporate these requirements in attainment areas. Thus, in order to allow time for these States to revise their regulations to incorporate such requirements, this final action does not require regulation of SO 2 or NO X as precursors to PM 2.5 under PSD until the SIP development period ends. In addition, we are allowing SIP-approved PSD States to continue with the existing PM 10 surrogate policy to meet the PSD requirements for PM 2.5 . However, for delegated PSD States, SO 2 and NO X are regulated as precursors from the effective date of this rule. However, these States or EPA have the option of excluding NO X as a precursor by demonstrating that NO X emissions are not a significant contributor to ambient PM 2.5 concentrations in a particular area.

For nonattainment areas, the transitional program pursuant to appendix S will apply on the effective date of this action. Under appendix S, SO 2 will be regulated as a precursor in all nonattainment areas for PM 2.5 . However, unlike in the proposal, NO X will not be regulated as a precursor for PM 2.5 because we believe it is appropriate to give States the opportunity to determine whether NO X emissions are a significant contributor to the ambient PM 2.5 problem, and to make the appropriate demonstration in their SIP. Finally, for States determining that VOC and/or ammonia are PM 2.5 precursors under their SIPs, we will approve their definition of “significant emissions rate” for each precursor based on an appropriate demonstration.

Some Tribal areas may be designated as nonattainment, in part because of pollution that is transported from surrounding State lands. Tribal representatives have advocated for additional flexibility to address nonattainment problems caused by transported pollution, such as a pool of available NSR offset set-asides (which we expect would come from State offset pools or banks), because they have limited ability to generate offsets on their own. Tribal representatives have raised these and other concerns in discussions on implementation of the 8-hour ozone and PM 2.5 standards, and in comments on the 8-hour ozone implementation rule. We requested comment on whether emissions offset set-asides, possibly generated by innovative measures to promote additional emissions reductions, are an appropriate method to help level the playing field for the Tribes and support economic development in Tribal areas. We also requested comment on ways in which States may help provide the Tribes access to offsets from non-Tribal areas. We received no comments on these issues.

We recently proposed Tribal NSR rules. See 71 FR 48696, August 21, 2006. They include a NA NSR rule, which refers to appendix S for its substantive requirements, and a minor NSR rule. In recognition of the concerns mentioned above, we have proposed and sought comments on options for obtaining offset relief in that proposal. We will address these issues in the context of that rule.

Pursuant to section 110(a)(2)(C) of the Act, States must have a minor source permitting program. This applies to new and modified stationary sources that are not considered major for a criteria pollutant or a precursor for a criteria pollutant. Prior to this action, States were required to include the following pollutants in their minor NSR program:

• VOC,

• SO 2 ,

• NO X ,

• CO,

• PM 10 , and

• Lead (Pb).

Based on this action, States must now amend their minor source programs to include direct PM 2.5 emissions and precursor emissions in the same manner as included for purposes of PM 2.5 major NSR.

In the proposal for the Clean Air Fine Particle Implementation Rule and this NSR implementation rule for PM 2.5 , we considered the option of classifying some nonattainment areas as transport areas that suffer from overwhelming transport, and of developing NA NSR rules specific to such areas. However, the final implementation rule does not include the rural transport classification. Consequently, no NA NSR rules have been developed or finalized in this rule.

Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), this action is a “significant regulatory action” because it is likely to raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Accordingly, EPA submitted this action to the Office of Management and Budget (OMB) for review under EO 12866 and any changes made in response to OMB recommendations have been documented in the docket for this action.

The information collection requirements in this rule have been submitted for approval to the OMB under the Paperwork Reduction Act , 44 U.S.C. 3501 et seq. The information collection requirements are not enforceable until OMB approves them. The Information Collection Request (ICR) document prepared by EPA has been assigned OMB Control Number 2060-0003 (EPA ICR No. 1230.21).

To achieve the purposes of the major NSR program, certain records and reports are necessary for the State or local agency (or the EPA Administrator in non-delegated States), for example, to: (1) Confirm the compliance of status of stationary sources, identify any stationary sources not subject to the rules, and identify stationary sources subject to the rules; and (2) ensure that the stationary source control requirements are being achieved. The information would be used by EPA or State enforcement personnel to (1) identify stationary sources subject to the rules, (2) ensure that appropriate control technology is being properly applied, and (3) ensure that the emission control devices are being properly operated and maintained on a continuous basis.

This final NSR rule does not create new information collection requirements, but rather expands the coverage of the existing requirements of the major NSR program. Specifically, the rule changes finalized in this action add PM 2.5 to the list of air pollutants that must be addressed in the major NSR program, and the companion proposal adds certain elements that are necessary for a complete PM 2.5 NSR program. This change is unlikely to increase significantly the number of NSR permits that must be issued, but may add to the analyses that sources and Federal, State, and local reviewing authorities must conduct as part of the construction permit application and review process.

We expect the rule changes finalized in this action to increase the burden associated with major NSR permitting for tracking new emissions of PM 2.5 against increments; collecting ambient air quality monitoring data for existing PM 2.5 concentrations; reviewing the effects of PM 2.5 emissions on soils and vegetation, as well as on air quality related values in Class I areas; determining the appropriate best available control technology or lowest achievable emission rate; and/or obtaining offsets. At the same time, there would be a reduction in burden directly associated with the revocation of the annual increment for PM 10 , which is proposed in the proposed rule.

Over the 3-year period covered by the ICR, we estimate an average annual burden increase of about 39,000 hours (about 8 percent) and $4.3 million (about 10 percent) for all industry entities that would be affected by this final NSR rule. For the same reasons, we also expect the final rule to increase burden for the State and local authorities reviewing permit applications when fully implemented. In addition, there would be additional burden for State and local agencies to revise their SIPs to incorporate the proposed changes. We estimate the combined increase in burden to average about 16,000 hours and $700,000 annually for all State and local reviewing authorities, which is less than 13 percent.

Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. When this ICR is approved by OMB, the Agency will publish a technical amendment to 40 CFR part 9 in the Federal Register to display the OMB control number for the approved information collection requirements contained in this final rule.

The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the Agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of this proposed rule on small entities, “small entity” is defined as: (1) A small business as defined by the Small Business Administration's regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government or a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of this final rule on small entities, I certify that this rule will not have a significant economic impact on a substantial number of small entities. The requirements of this final rule apply only to new major stationary sources or major modifications of existing major stationary sources. This final rule does not create any new requirements under the major NSR program, but simply expands the program to cover an additional pollutant, referred to as PM 2.5 . There is no reason to expect that the rule will significantly or uniquely affect small businesses, organizations, or governments (few, if any, of which act as reviewing authorities pursuant to this final rule).

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, we generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in aggregate, or to the private sector, of $100 million or more in any 1 year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires us to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows us to adopt an alternative other than the least-costly, most cost-effective, or least-burdensome alternative if the Administrator publishes with the final rule an explanation of why that alternative was not adopted. Before we establish any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, we must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of our regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements.

We have determined that this rule does not contain a Federal mandate that may result in expenditures of $100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in any 1 year. The final rule does not add any new requirements to the NSR program; it simply expands the program to cover PM 2.5 in addition to the several other pollutants already defined as regulated NSR pollutants. (Technically, the rule also subjects the precursors to PM 2.5 to the NSR program. However, these precursors (SO 2 , NO X , and VOC) are already subject to the existing NSR program.) As discussed previously in section VI.B on the Paperwork Reduction Act , the expansion of the NSR program to cover PM 2.5 will only marginally increase the expenditures of State, local, and tribal governments and the private sector on the program. Thus, this action is not subject to the requirements of sections 202 and 205 of the UMRA.

The EPA has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments. As noted previously, this rule does not create any new requirements under the major NSR program, but simply expands the program to cover an additional pollutant (PM 2.5 ). There is no reason to expect that the rule will significantly or uniquely affect small governments, few if any of which act as reviewing authorities.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires us to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.”

This final rule 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, as specified in Executive Order 13132. Pursuant to the terms of Executive Order 13132, it has been determined that this proposed rule does not have “federalism implications” because it does not meet the necessary criteria. Thus, the requirements of section 6 of the Executive Order do not apply to this proposed rule.

In the spirit of Executive Order 13132, however, and consistent with our policy to promote communications between us and State and local governments, we specifically solicited comment on the proposed rule from State and local officials.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by Tribal officials in the development of regulatory policies that have Tribal implications.” This final rule does not have “Tribal implications” as defined in Executive Order 13175. This rule concerns the NSR requirements for State and tribal implementation plans. The CAA provides for States to develop plans to regulate emissions of air pollutants within their jurisdictions. The Tribal Air Rule (TAR) under the CAA gives Tribes the opportunity to develop and implement CAA programs such as programs to attain and maintain the PM 2.5 NAAQS, but it leaves to the discretion of the Tribe the decision of whether to develop these programs and which programs, or appropriate elements of a program, they will adopt.

Although Executive Order 13175 does not apply to this rule, EPA did reach out to Tribal leaders and environmental staff in developing this rule. From 2001-2004, the EPA supported a National Designations Workgroup to provide a forum for tribal professionals to give input to the designations process. In 2006, EPA supported a national “Tribal Air call” which provides an open forum for all Tribes to voice concerns to EPA about the NAAQS implementation process, including the PM 2.5 NAAQS. In these meetings, EPA briefed call participants and Tribal environmental professionals gave input as the rule was under development. Furthermore, in December 2005, EPA sent individualized letters to all federally recognized Tribes about the proposal to give Tribal leaders the opportunity for consultation.

This final rule does not have Tribal implications as defined by Executive Order 13175. It does not have a substantial direct effect on one or more Indian Tribes, since no Tribe has implemented a CAA program to attain the PM 2.5 NAAQS at this time. The EPA notes that even if a Tribe were implementing such a plan at this time, while the rule might have Tribal implications with respect to that Tribe, it would not impose substantial direct costs upon it, nor would it preempt Tribal law.

Furthermore, this rule does not affect the relationship or distribution of power and responsibilities between the Federal government and Indian Tribes. The CAA and the TAR establish the relationship of the Federal government and Tribes in developing plans to attain the NAAQS, and this rule does nothing to modify that relationship. As this rule does not have Tribal implications, Executive Order 13175 does not apply.

Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be “economically significant” as defined under Executive Order 12866; and (2) concerns an environmental health or safety risk that we have reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

This final rule is not subject to the Executive Order because it is not economically significant as defined in Executive Order 12866, and because the Agency does not have reason to believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. This rule does not impose any new requirements under the NSR program. However, in expanding the major NSR program to address PM 2.5 , we believe that this rule will serve to reduce environmental health risks to all citizens, including children, because one of the basic requirements of the major NSR program is that new and modified major stationary sources must not cause or contribute to air quality in violation of the NAAQS.

This rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The final rule does not add any new requirements to the major NSR program; it simply expands the program to cover PM 2.5 in addition to the several other pollutants already defined as regulated NSR pollutants. Although the major NSR program may apply to energy supply and distribution companies that build or significantly modify major sources of regulated NSR pollutants, we believe that any increase in expenditures for obtaining NSR permits that may result from this rule will be marginal rather than significant.

As noted in the proposed rule, section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs us to use voluntary consensus standards (VCS) in our regulatory and procurement activities unless to do so would be inconsistent with applicable law or otherwise impractical. The VCS are technical standards ( e.g. , materials specifications, test methods, sampling procedures, and business practices) developed or adopted by one or more voluntary consensus bodies. The NTTAA directs us to provide Congress, through annual reports to OMB, with explanations when we do not use available and applicable VCS.

This final rule does not involve technical standards. Therefore, we did not consider the use of any VCS.

Executive Order 12898 (59 FR 7629 (Feb. 16, 1994)) establishes Federal executive policy on environmental justice. Its main provision directs Federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minorities and low-income populations in the United States.

The EPA has determined that this final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it will have the effect of improving air quality. While it does not impose any new requirements under the major NSR program, we believe that this rule, in expanding the NSR program to address PM 2.5 , will serve to reduce adverse human health and environmental effects for all citizens, including minorities and low-income populations.

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. The EPA will submit a report containing this rule 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). The rules affected by this action will be effective July 15, 2008.

Under section 307(b)(1) of the Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the District of Columbia Circuit by July 15, 2008. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule 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 Act section 307(b)(2).

The PSD portions of this rulemaking, which implements part C of title I of the Act, are subject to the procedural requirements in section 307(d) of the Act. See section 307(d)(1)(J). In addition, pursuant to section 307(d)(1)(V) of the Act, the Administrator determines that the NA NSR portions of this action should also be subject to the provisions of section 307(d) to ensure consistency. All of the procedural requirements of section 307(d), e.g. , docketing, hearing, and comment periods, have been complied with during the course of this rulemaking.

The statutory authority for this action is provided by sections 101, 110, 165, 169, 172, 173, 301, and 302 of the Act as amended (42 U.S.C. 7401, 7410, 7475, 7479, 7502, 7503, 7601, and 7602). This rulemaking is also subject to section 307(d) of the Act (42 U.S.C. 7407(d)).

The Federal Emergency Management Agency (FEMA) makes the final determinations listed below for the modified BFEs for each community listed. These modified elevations have been published in newspapers of local circulation and ninety (90) days have elapsed since that publication. The Assistant Administrator of the Mitigation Directorate has resolved any appeals resulting from this notification.

This final rule is issued in accordance with section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR part 67. FEMA has developed criteria for floodplain management in floodprone areas in accordance with 44 CFR part 60.

Interested lessees and owners of real property are encouraged to review the proof Flood Insurance Study and FIRM available at the address cited below for each community. The BFEs and modified BFEs are made final in the communities listed below. Elevations at selected locations in each community are shown.

National Environmental Policy Act. This final rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. An environmental impact assessment has not been prepared.

Regulatory Flexibility Act. As flood elevation determinations are not within the scope of the Regulatory Flexibility Act, 5 U.S.C. 601-612, a regulatory flexibility analysis is not required.

Regulatory Classification. This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 13132, Federalism. This final rule involves no policies that have federalism implications under Executive Order 13132.

Executive Order 12988, Civil Justice Reform. This final rule meets the applicable standards of Executive Order 12988.

The 9/11 Heroes Stamp Act of 2001, Public Law 107-67, sec. 652, 115 Stat. 557 (Nov. 12, 2001) (Heroes Stamp Act), directed the United States Postal Service (USPS) to issue a semipostal stamp and distribute the proceeds through the Federal Emergency Management Agency (FEMA) to the families of emergency relief personnel killed or permanently disabled while serving in the line of duty in connection with the terrorist attacks against the United States on September 11, 2001.

A semipostal stamp is a type of postage that is sold for a value greater than that of a regular first class stamp. The proceeds from the price differential between the sale price of the stamp and the cost of the postage fund the distribution, minus the USPS' cost to produce and distribute the stamps. No administrative costs were deducted by FEMA. The USPS issued the Heroes semipostal stamp in June 2002, and stopped selling it on December 31, 2004. The sum of $10,565,073.61 was provided to FEMA by USPS from stamp sales during that time period.

On July 26, 2005, FEMA published an interim rule at 70 FR 43214 establishing a program to distribute the funds raised from the sale of the Heroes semipostal stamp. Under the program, eligible claimants were those emergency relief personnel acting in their official capacity who were permanently physically disabled, or the families of such personnel who were killed in the line of duty while serving at the World Trade Center, Pentagon, or Shanksville, PA site in connection with the terrorist attacks against the United States on September 11, 2001. In determining whether a claimant had a permanent physical disability, FEMA relied on determinations made by appropriate Federal, State, and local agencies, as well as appropriate private entities.

The interim rule also created an appeals process. This process allowed an applicant to appeal a determination made by FEMA that the applicant was not eligible. The applicant was required to submit a notice of intent to appeal within 15 calendar days of the issuance of FEMA's determination of eligibility. The written appeal could not exceed 15 pages, exclusive of supporting documentation, and had to be submitted within 60 calendar days of the issuance of FEMA's determination of eligibility. New documentation was accepted on appeal. Appeals determinations were made by the Appeals Specialist in FEMA's Office of Dispute Resolution.

The amount of assistance granted under the Heroes Stamp Act was within FEMA's discretion. The interim final rule established that FEMA would, to the extent possible, distribute the funds equally among all eligible claimants until the fund was liquidated. Multiple distributions were allowed with monies set aside for applicants who appealed their initial determination of ineligibility. On December 7, 2005, FEMA published a notice (70 FR 72845) that announced that the application period for the Assistance Program Under the 9/11 Heroes Stamp Act of 2001 would run from December 2, 2005 to April 3, 2006.

Eligibility determinations were made by the Heroes Stamp Panel who conducted nine meetings between February and November 2006 to make the determinations. Applicants were considered on a rolling basis and were informed of their eligibility decisions by United States mail. Of the 1,945 total applications received during the application period, the Panel deemed 1,356 eligible. Each applicant received a letter notifying them of their eligibility determination, and for those deemed eligible, FEMA provided an Electronic Funds Transfer form to be completed and returned to FEMA. Between November 2006 and April 2007, FEMA distributed $7,400 to each eligible applicant, who supplied the necessary banking information for the Electronic Funds Transfer.

Of the 589 applicants found ineligible, 64 submitted appeals. During the appeals process, 21 of these applicants submitted additional information and were found eligible. This brought the total number of eligible applicants to 1,377. In July 2007, the remaining amount of the fund was distributed. In total, 1,357 of the eligible applicants received $7,672.53; the final 20 applicants received $7,672.52. This difference was required in order to liquidate the entire amount of the funds raised.

FEMA received 36 comments from the public regarding the interim rule. The comments received, together with FEMA's responses, are set forth below. All previously published rulemaking documents, as well as all comments received are available in the public docket for this rulemaking. The public docket for this rulemaking is available online by conducting a search for Docket ID FEMA-2005-0001 or Legacy ID DHS-2005-0006, at the Federal e-Rulemaking Portal at www.regulations.gov.

Continuation of semipostal stamp: Two comments suggested that the Heroes semipostal stamp should be continued. FEMA could not implement this suggestion. The Heroes Stamp Act specified that the stamp be issued for such period of time that USPS considered necessary and appropriate, but in no event could it continue issuing the stamp after December 31, 2004. USPS discontinued selling the Heroes semipostal stamp on December 31, 2004.

Eligibility: Seven comments suggested that iron, steel, and construction workers should be included in the definition of emergency relief personnel; one comment expressed concern that HAZMAT response teams might not be eligible under the program; seven comments suggested that the funds should be available to all victims of September 11, 2001, not just emergency relief personnel; three comments suggested that non-uniformed volunteers should be eligible to receive funds; and another commenter suggested that the funds should only be distributed to rescue workers and emergency volunteers who have been disabled and that the funds should not be distributed to the police and firefighter families unless there are extenuating circumstances.

While FEMA recognizes that iron, steel, and construction workers performed an invaluable service in response to the terrorist attacks of September 11, 2001, FEMA determined that these workers did not fall within the statutory definition of emergency relief personnel set out in the Heroes Stamp Act. The statutory definition of emergency relief personnel included a specific list of occupations, which did not include iron, steel, or construction workers. It included firefighters, law enforcement officers, paramedics, emergency medial technicians, and members of the clergy. The Heroes Stamp Act did provide for inclusion in that definition “other individuals (including employees of legally organized and recognized volunteer organizations, whether compensated or not) who, in the course of professional duties, respond to fire, medical, hazardous material, or other similar emergencies.” FEMA determined that iron, steel, and construction workers do not fall under the statutory definition because they do not typically respond, in the course of their professional duties, to fire, medical, hazardous material, or other similar emergencies.

The language of the statute also limited FEMA from distributing the funds to all victims of the September 11, 2001 attacks, or to all individuals who provided assistance. The Heroes Stamp Act directed that the funds were for emergency workers who had been permanently disabled and the families of emergency workers killed. The Heroes Stamp Act contained no provisions regarding other civilian victims. Furthermore, the Act did not give FEMA discretion relating to need or extenuating circumstances. It was left to FEMA's discretion to determine the distribution of the funds, and it decided to distribute funds equally among all eligible applicants, including the families of police and firefighters.

With respect to HAZMAT responders, FEMA did consider them to be in an eligible class of responders. The interim rule used the same definition for emergency relief personnel as the Heroes Stamp Act, which includes response to hazardous material: “firefighters, law enforcement officers, paramedics, emergency medical technicians, members of the clergy, or other individuals * * * who, in the course of professional duties, respond to fire, medical, hazardous material, or other similar emergencies” (emphasis added). Although FEMA did not keep a tally sheet of each class of worker who received funds from sale of the stamp, FEMA would have considered a HAZMAT worker to be well within the statutory definition of emergency relief personnel set out in the Heroes Stamp Act.

Amount of funds distributed to each applicant: Three comments suggested that the funds raised through the sale of the Heroes semipostal stamp should be divided equally among all eligible applicants, while one comment suggested that those applying on behalf of deceased individuals should receive larger distribution than permanently disabled applicants. It was also suggested that geographic cost of living differences should be taken into account.

The Heroes Stamp Act left the manner of distribution within FEMA's discretion. The funds were, to the extent possible, distributed equally among the eligible applicants. Factors considered by FEMA in its decision included the limited funds available to distribute, FEMA's limited ability to assess degrees of disability, and an inherent sense of fairness in providing everyone the same amount.

Interest: One comment questioned whether interest was earned on the funds, and suggested that any earned interest should be distributed to the applicants. Interest was not earned on the funds. Funds generated as the result of a statute, such as the Heroes Stamp Act, that authorizes the imposition and collection of specific charges and the use of the funds generated, are appropriated funds. In the absence of an express provision in the statute to the contrary, the funds are subject to the various restrictions and limitations on the uses of appropriated moneys (35 Comp. Gen. 615 (1956), 57 Comp. Gen. 311 (1978)). Given that these funds are appropriations, and lacking any specific statutory authority to invest and retain interest in the established fund or account, the accretions would have been required to be deposited to the Miscellaneous Receipts of the Treasury. (31 U.S.C. 3302) FEMA was prohibited from distributing any earned interest to the applicants, and therefore opted not to deposit the funds in an interest bearing account.

Distribution by FEMA: One comment asked why FEMA was distributing the funds. In the Heroes Stamp Act, Congress directed USPS to transfer the funds to FEMA to carry out distribution.

Date of distribution unclear: Three comments noted that the interim final rule did not include a date of distribution. A number of factors precluded FEMA from providing a date of distribution in the interim rule. First, the interim final rule did not include an application period. At that point, before the application period had been determined, it would not have been feasible to set a date of distribution. Additionally, when the interim rule was published FEMA had no way to determine the number of applications it would receive. Finally, because funds were distributed through Electronic Funds Transfer, the timing of distribution to each applicant depended on how quickly the applicant provided banking information.

Complicated application process: One comment stated that the application process was too complicated. FEMA made every effort to make the application process as simple as possible. The application contained detailed instructions, FEMA set up a dedicated phone number and e-mail address for questions or concerns, and questions were answered clearly and promptly. Additional information, including a copy of the interim rule was made available on the United States Fire Administration's Web site.

Unclear appeal process: Two commenters stated that the interim final rule was unclear regarding timelines and deadlines for the appeals process. FEMA disagrees. To appeal an ineligibility determination, applicants were required to submit to FEMA's Appeals Specialist a notice of intent to appeal within 15 calendar days of the issuance of FEMA's determination of eligibility. The notice was required to contain a brief statement explaining why the applicant believed the determination was incorrect. Within 60 calendar days after the issuance of FEMA's determination, the applicant was required to submit their full written appeal, not to exceed 15 pages exclusive of supporting documentation. The address to submit the notice of intent to appeal and the appeal were also provided. This information was detailed in § 153.8 of the rule. It was also restated, along with the reason for their denial, in the letters that were sent to applicants who were denied.

Contact family of victims: One comment suggested that applications from affected personnel or their survivors should be compared to known names of victims to make sure no families are missed. FEMA made every effort to publicize the Heroes Stamp Program to ensure that all potentially eligible people would be aware of the program and its requirements. In addition to the interim rule and postings on the United States Fire Administration Web page, several outreach efforts were conducted prior to and early in the application process. These included face to face briefings with impacted New York City agencies and their labor unions, and discussions with agencies in Shanksville, PA, and emergency relief agencies in areas surrounding the Pentagon. Broadcast e-mails also were forwarded to all of the urban search and rescue (USAR) teams that assisted at the three locations. The media also carried stories regarding the availability of the program and how to apply. Finally, the New York City Police Department, Fire Department, and Port Authority all cooperated and coordinated with the Heroes Stamp Project office by providing special assistance and individual notification directly to survivors of the deceased about how to avail themselves of the program.

Permanent disability should not be required: One comment suggested that eligible injuries should not be required to be permanent disabilities, and two comments suggested that those with permanent mental disabilities should be eligible as well as those with permanent physical disabilities. The Heroes Stamp Act specifically limited the assistance to emergency relief personnel killed or permanently disabled. Congress left FEMA no discretion in this area. The Heroes Stamp Act did not, however, define the term “permanently disabled”. Within its discretion, FEMA decided that the intent of the Heroes Stamp Act was best met by interpreting that term to mean physically disabled. Validating “permanent mental disabilities” was found to be too difficult. Further, considering the relatively small amount of funds FEMA had to distribute, it was determined that further widening eligibility would further reduce the amount of funds available for distribution to those with clear cut permanent physical disabilities.

Focus on Pentagon and Shanksville, PA: One comment suggested that the program should focus on those who responded to the events in Shanksville, PA and at the Pentagon. The Heroes Stamp Act directed that the funds be made available to the families of emergency workers killed or permanently disabled while serving in the line of duty while responding to the terrorist attacks against the United States on September 11, 2001. FEMA believed that the Congressional intent was for the funds to be available to personnel injured or killed in response to all of the terrorist attacks against the United States on September 11, 2001. Since the terrorist attacks on September 11, 2001 took place at the World Trade Center, the Pentagon, and Shanksville, Pennsylvania, the interim rule made clear that all three locations were included in the program.

Portion for support agencies: One comment suggested that a portion of the funds should be directed to nonprofit World Trade Center agencies. The Heroes Stamp Act was clear that the funds were to be distributed to the emergency relief workers themselves or their families. The interim rule followed this statutory language. Congress left FEMA no discretion in this area.

Original intent of legislation: Two comments asked that FEMA follow the original intent of the Heroes Stamp Act. FEMA agreed. The Heroes Stamp Act states that the semipostal stamp was to be issued “in order to afford the public a direct and tangible way to provide assistance to the families of emergency relief personnel killed or permanently disabled in the line of duty in connection with the terrorist attacks against the United States on September 11, 2001.” The Heroes Stamp Act directed FEMA to carry out this purpose. FEMA, within its discretion, promulgated the interim rule and distributed the funds in order to best carry out this intent.

Determinations: One comment suggested that the interim rule was unclear as to who would review applications and make final determinations on eligibility. The Heroes Stamp Act contained no provisions relating to the review process. Within its discretion, FEMA formed a Heroes Stamp Panel which conducted 9 meetings between February and November 2006 to make the final eligibility determinations on all 1,945 applications. The panel's five members represented FEMA's Office of Chief Counsel (formerly the Office of General Counsel), the Office of Legislative Affairs, and the United States Fire Administration. In making their final eligibility determinations, these individuals largely relied upon determinations of permanent physical disability made by appropriate Federal, State, and local agencies, as well as appropriate private entities.

As noted in the interim rule, FEMA found good cause under 5 U.S.C. 553(d)(3) to issue an interim rule which would take effect upon the closure of the comment period because delay would be impracticable in light of the eligible individuals' need for relief. FEMA also noted that prompt disbursement of the benefits from the Heroes Stamp sales proceeds was in the public interest. FEMA received no adverse comments as to the finding of good cause.

Now that all funds have been distributed and all appeals resolved, FEMA is removing the regulatory text from the Code of Federal Regulations. FEMA again finds good cause not to take public comment or wait 30 days before making this rule effective under 5 U.S.C. 553(b) and (d). Because all of the funds available from the sale of the Heroes Stamp have been distributed, and all appeals have been resolved, there is no longer any need for these regulations. Allowing public comment and/or delaying the effectiveness of this rule for 30 days is unnecessary.

FEMA prepared and reviewed this rulemaking under the provisions of Executive Order 12866, Regulatory Planning and Review. Although the interim rule was determined to be a significant, but not economically significant regulatory action, now that all funds have been distributed and all appeals resolved these regulations no longer serve a purpose to FEMA or the public. OMB has determined that this rule is not a significant regulatory action. OMB has not reviewed this rule.

Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121, 110 Stat. 857), FEMA is not required to prepare a final regulatory flexibility analysis for this final rule because the agency has not issued a notice of proposed rulemaking.

In the interim rule, FEMA determined that this rule fell within the exclusion category of 44 CFR 10.8(d)(2)(ii), which excludes from NEPA requirements the preparation, revision, adoption of regulations, directives, manuals, and other guidance documents related to actions that qualify for categorical exclusions. No commenters disagreed with our determination. The rulemaking provided for disbursement of funds received from the sale of the Heroes Stamp to emergency relief personnel who were permanently disabled while serving in the line of duty in connection with the terrorist attacks against the United States on September 11, 2001, or to the families of such personnel who were killed in such line of duty. The rule had no significant effect on the human environment. Because no other extraordinary circumstances have been identified, this rule does not require the preparation of either an environmental assessment or an environmental impact statement as defined by NEPA.

Under Executive Order 12898, “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations,” 59 FR 7629, February 16, 1994, each Federal agency is required to conduct its programs, policies, and activities that substantially affect human health or the environment in a manner that ensures that those programs, policies, and activities do not have the effect of excluding persons from participation, denying persons benefits of our programs, or subjecting persons to discrimination because of their race, color, or national origin.

This final rule removes regulations that implemented the 9/11 Heroes Stamp Act of 2001. The Heroes Stamp Act provided for the sale of the Heroes Stamp and for disbursement of the proceeds to emergency relief personnel who were permanently disabled while serving in the line of duty in connection with the terrorist attacks against the United States on September 11, 2001, or to the families of such personnel who were killed in such line of duty. There were no effects on human health or the environment as a result of this rulemaking, and the Heroes Stamp funds were distributed without regard to race, color, or national origin; thus the requirements of Executive Order 12898 do not apply to this rule.

FEMA has sent this final rule to the Congress and to the Government Accountability Office under the Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801-808. The rule is not a “major rule” within the meaning of that Act. This rule will not result in a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. It will not have “significant adverse effects” on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises.

This rule is not an unfunded mandate within the meaning of the Unfunded Mandates Reform Act of 1995, 5 U.S.C. 1531-1538. This rule will not result in the expenditure by State, local, and tribal governments, in the aggregate, nor by the private sector, of $100,000,000 or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no action is required by the provisions of the Unfunded Mandates Reform Act of 1995.

Executive Order 13132, “Federalism,” (64 FR 43255, August 10, 1999), sets forth principles and criteria that agencies must adhere to in formulating and implementing policies that have federalism implications. This rule provided for the distribution of funds collected from the sale of the semipostal Heroes Stamp. It had no 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. It did not preempt any State laws. As noted in the interim rule, FEMA determined that this rule did not have sufficient federalism implications sufficient to warrant the preparation of a federalism impact statement. This final action which removes the interim regulations likewise has no federalism implications.

The interim rule contained information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq. Under the PRA, a person may not be penalized for failing to comply with an information collection that does not display a currently valid OMB control number. The information collection, which includes FEMA Form 75-14, the 9/11 Heroes Stamp Act of 2001 Eligibility and Application for Benefits form, was approved under OMB number 1660-0091 with an expiration date of July 2008. The Paperwork Reduction Act Collection Discontinuation Form for 1660-0091 was filed on August 15, 2007.

FEMA has reviewed this rule under Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000). This rule does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

FEMA has reviewed this rule under Executive Order 12988, “Civil Justice Reform” (61 FR 4729, February 7, 1996). This rule meets applicable standards to minimize litigation, eliminate ambiguity, and reduce burden.

This is a summary of the Federal Communications Commission's Report and Order and Third Further Notice of Proposed Rulemaking (the “Order”) in MB Docket Nos. 07-294; 06-121; 02-277; 04-228, MM Docket Nos. 01-235; 01-317; 00-244; FCC 07-217, adopted December 18, 2007, and released March 5, 2008. The full text of this document is available for public inspection and copying during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street, SW., CY-A257, Washington, DC 20554. These documents will also be available via ECFS ( http://www.fcc.gov/cgb/ecfs ). The complete text may be purchased from the Commission's copy contractor, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. To request this document in accessible formats (computer diskettes, large print, audio recording and Braille), send an e-mail to fcc504@fcc.gov or call the FCC's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice)(202) 418-0432 (TTY).

1. This Order was adopted to expand opportunities for participation in the broadcasting industry by new entrants and small businesses, including minority- and women-owned businesses. It has long been a basic tenet of national communications policy that the widest dissemination of information from diverse and antagonistic sources is essential to the welfare of the public. By broadening participation in the broadcast industry, the Commission seeks to strengthen the diverse and robust marketplace of ideas that is essential to our democracy. As the Supreme Court has recognized, “Safeguarding the public's right to receive a diversity of views and information over the airwaves is * * * an integral component of the FCC's mission.” Metro Broadcasting, Inc. v. FCC, 497 U.S. 547, 567 (1990), overruled in part on other grounds in Adarand Constructors Inc. v. Pena, 515 U.S. 200, 227 (1995). Beyond fostering viewpoint diversity, the Commission also believes that taking steps to facilitate the entry of new participants into the broadcasting industry may promote innovation in the field because in many cases, the most potent sources of innovation often arise not from incumbents but from new entrants. The Commission believes that this may be particularly true with respect to small businesses, including those owned by minorities and women. Expanding the pool of potential competitors in media markets to include such businesses should bring new competitive strategies and approaches by broadcast station owners in ways that benefit consumers in those markets. The new rules will help eligible entities with access to financing and availability of spectrum.

2. To define the group intended to receive the benefits of the measures adopted in the Order, the Commission uses the term “eligible entity,” defined as an entity that would qualify as a small business consistent with Small Business Administration (“SBA”) standards for its industry grouping, based on revenue. At present, the SBA defines as a small business a television broadcasting station that has no more than $13 million in annual receipts and a radio broadcasting entity that has no more than $6.5 million in annual receipts. To determine qualifications as a small business, the SBA considers the revenues of the parent corporation and affiliates of the parent corporation, not just the revenues of individual broadcast stations. In addition, in order to ensure that ultimate control rests in an eligible entity that satisfies the revenue criteria, the entity must satisfy one of several control tests. The eligible entity must hold: (1) 30 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast license; or (2) 15 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast licenses, provided that no other person or entity owns or controls more than 25 percent of the outstanding stock or partnership interests; or (3) more than 50 percent of the voting power of the corporation if the corporation that holds the broadcast licenses is a publicly traded company. The Commission concludes that use of this definition of “eligible entity” will advance its objectives of promoting diversity of ownership in the broadcast industry by making it easier for small businesses and new entrants—that otherwise might find it difficult or impossible to compete—to acquire a license and attract the capital necessary to compete in the marketplace with larger and better financed companies. In addition, by facilitating entry into the broadcast industry by new entrants, the Commission hopes that these measures will result in a wider array of programming services, including some that are responsive to local needs and interests and audiences that are currently underserved. The Commission anticipates that small businesses will be more likely than large corporations to have ties to the communities that they seek to serve, and thus be more attuned to local needs and interests.

3. Revision of Rules Regarding Construction Permit Deadlines. The Order revises § 73.3598 of the Commission's rules to afford eligible entities that acquire an expiring construction permit additional time to build out the facility. Specifically, the Commission allows eligible entities the time remaining on the original construction permit or 18 months, whichever is greater. Section 73.3598 requires that each construction permit for the construction of a new TV, AM, FM, international broadcast, low power TV, TV translator, TV booster, FM translator or FM booster station must specify a period of three years from the date of issuance of the original construction permit within which construction shall be completed and an application for license filed. Construction permits for new LPFM stations allow permittees 18 months to complete construction and file a license application. Generally, any construction permit for which construction has not been completed, and for which an application for license has not been filed, is automatically forfeited upon expiration without any further affirmative cancellation by the Commission. The Commission believes that the extra time the Order provides to eligible entities acquiring an expiring construction permit will advance diversity of ownership, as broadcasters that otherwise would forfeit their construction permits would be motivated to sell them to eligible entities as an alternative. Moreover, it will serve as an appropriate accommodation of the capital constraints and other financial issues that small businesses often confront. The Commission believes that service to the public would be expedited by providing eligible entities up to 18 months additional time to complete construction of an expiring permit, rather than allowing the permit to expire and auctioning the allotment a second time.

4. Modification of Attribution Rule. The Order revises the Commission's equity/debt plus (“EDP”) attribution standard to facilitate investment in eligible entities. The Commission's broadcast attribution rules define which financial or other interests in or relationships with a licensee are counted in applying the broadcast ownership rules. The rules “seek to identify those interests in or relationships to licensees that confer on their holders a degree of influence or control such that the holders have a realistic potential to affect the programming decisions of licensees or other core operating functions.” At the same time, the attribution rules are designed to “permit arrangements in which a particular ownership or positional interest involves minimal risk of influence, in order to avoid unduly restricting the means by which investment capital may be made available to the broadcast industry.” With regard to corporate entities, the broadcast attribution rules generally attribute voting stock interests of five percent or more. Minority stock interests in a corporation with a single-majority shareholder, non-voting stock interests, warrants, debt, properly insulated limited partnership and LLC interests, and unexercised options are not attributable, unless the EDP rule is triggered.

5. The EDP rule is designed to resolve concerns that multiple non-attributable interests could be combined to allow the holders to exert significant influence over licensees such that these interests should be counted in applying the multiple ownership rules. Under the EDP rule, where an investor is either (1) a major program supplier (providing programming constituting over 15 percent of a broadcast station's total weekly broadcast programming hours); or (2) a same-market media entity subject to the broadcast multiple ownership rules, its interest in a licensee or other media entity will be attributed if that interest, aggregating both debt and equity holdings, exceeds 33 percent of the total assets (equity plus debt) of the licensee or media entity. In other words, attribution results where the financial interest exceeds 33 percent and there is a triggering relationship, i.e., either the investor is a major program supplier or a same-market media entity subject to the broadcast multiple ownership rules. The EDP rule limits the single majority shareholder attribution exemption, as well as the exemptions from attribution applicable to non-voting stock, debt, and properly insulated interests in limited partnerships and LLCs. The EDP rule applies to all of the broadcast ownership rules.

6. Under the revision adopted in the Order, the Commission will allow the holder of an equity or debt interest in a media outlet subject to the media ownership rules to exceed the 33 percent threshold set forth in Note 2(i) to § 73.3555 of the rules without triggering attribution where such investment would enable an eligible entity to acquire a broadcast station, provided that: (1) The combined equity and debt of the interest holder in the eligible entity is less than 50 percent, or (2) the total debt of the interest holder in the eligible entity does not exceed 80 percent of the asset value of the station being acquired by the eligible entity and the interest holder does not hold any equity interest, option, or promise to acquire an equity interest in the eligible entity or any related entity. These higher investment limits in eligible entities also apply for purposes of determining eligibility for the new entrant bidding credit in broadcast auctions, as the standards for determining attribution in a winning bidder parallel the attribution standards in § 73.3555, Note 2, which the Commission revises in this Order.

7. The Commission finds sufficient evidence in the record to show that difficulty in accessing capital investment currently is inhibiting diversity of ownership of broadcast stations and new entry. Moreover, the Commission thinks it is reasonable to conclude that modification of the EDP rule could alleviate or, at the least, minimize this problem. The Commission believes that this modification will further its goal of improving access to capital in order to foster diversity of ownership, new entry, and, ultimately, the provision of new programming and other services to the public. The Commission finds sufficient evidence in the record warrants a change in its policy. The Commission also believes that the changes it is making in the Order will retain regulatory certainty for entities in planning their financial transactions, an important goal of the attribution rules, which are designed as bright line tests. Finally, it believes that the public interest weighs in favor of allowing existing broadcasters to acquire a minority equity ownership interest in an eligible entity in order to provide the opportunity for such a new entrant to enter the broadcasting market.

8. Distress Sale Policy. The Commission's distress sale policy permits “a licensee whose license has been designated for revocation hearing, or whose renewal application has been designated for hearing on basic qualifications issues, to assign its license prior to commencement of the hearing to a minority controlled entity” at a price that is substantially below its fair market value. Under this policy, a licensee facing the possible loss of its license can sell the station in a “distress sale.” The licensee faces a substantial financial penalty as a result of the “distress” sale but recoups a portion of the value of its station and avoids the revocation or renewal hearing. The Commission saves the time and expense of conducting a revocation or renewal hearing and subsequent appeals. Most important, the station is placed expeditiously in the hands of a qualified operator that might otherwise have few opportunities to acquire a station, and the public does not lose service from a local broadcast station. In the Order, the Commission decided to place the distress sale policy on a sound constitutional and administrative footing by allowing a licensee whose license has been designated for a revocation hearing or whose renewal application has been designated for a hearing on basic qualifications issues to sell its station prior to the commencement of the hearing to an “eligible entity,” as defined in the Order. The Commission believes that this action will promote diversity of ownership in the broadcast industry by making it easier for small businesses and new entrants, including minority-owned businesses, to purchase stations. This, in turn, may result in a greater diversity of program services, including services that are responsive to local needs and interests and the interests of underserved audiences. Similar to the Commission's new rule facilitating the transfer of expiring construction permits to eligible entities, the modified distress sale policy can expedite new service or facilitate the continuation of existing service to the public by avoiding lengthy revocation or renewal hearings and subsequent appeals, and it also conserves substantial private and Commission resources that would otherwise be devoted to such proceedings. The Commission believes this action will serve the public interest by aiding the swift delivery of new services to the public, and the conservation of public and private resources.

9. Ban on Discrimination in Broadcast Transactions. The Order adopts a rule that bars discrimination on the basis of race or gender and related protected categories in broadcast transactions. Specifically, the rule states that, “No qualified person or entity shall be discriminated against on the basis of race, color, religion, national origin or sex in the sale of commercially operated AM, FM, TV, Class A TV or international broadcast stations (as defined in this part).” Adoption of a nondiscrimination rule with respect to sales is consistent with the Commission's statutory mandate under 47 U.S.C. 257, which directs the Commission to identify and eliminate, through regulatory action, market entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications and information services, in order to promote the policies and purposes of the Act favoring diversity of media voices, vigorous economic competition, technological advancement, and the promotion of the public interest, convenience and necessity. The new rule will also advance the statutory goal of fostering minority and female ownership in the provision of commercial spectrum-based services and will advance the Commission's public-interest mandate to foster viewpoint diversity by promoting the dissemination of licenses to a wide variety of applicants. The new rule will require sellers to certify compliance with this rule against discrimination by checking a box on Form 314 or 315 applications, which will be amended accordingly.

10. “Zero Tolerance” Policy for Ownership Fraud. The Commission adopts a “zero tolerance” policy for ownership fraud and reaffirms its principle that applicants' representations to the Commission must be complete and correct. A commenter notes that ownership fraud occurs when real-parties-in-interest structure transactions so that the principals of the putative applicant entity have no real voice in practice. The commenter states that such fraud may be relatively common. Ownership fraud could impede the Commission's efforts to assess or increase media ownership diversity. The Commission recognizes that rules granting preferences to qualified applicants encourage applicants to qualify for the preference and that some potential applicants will try to claim the preference by creating an appearance of qualification that does not accord with reality. Because the risk of such fraud arises whenever some applicants can obtain a preference, the Commission concludes that adopting a “zero tolerance” policy will help deter and detect ownership fraud. Accordingly, the Order adopts a “zero-tolerance” policy for ownership fraud and states that the Commission should “fast-track” ownership-fraud claims and seek to resolve them within 90 days.

11. Non-Discrimination Provisions in Advertising Sales Contracts. The Commission adopts a proposal to require broadcasters renewing their licenses to certify that their advertising sales contracts contain nondiscrimination clauses that prohibit all forms of discrimination. The Commission adopts this requirement in light of reports that some advertising contracts contain “no urban/no Spanish dictates” that are intended to minimize the proportion of African American or Hispanic customers patronizing an advertiser's venue—or that presume that African Americans or Hispanics cannot be persuaded to buy an advertiser's product or service. The Order observes that such clauses may violate U.S. nondiscrimination laws. For over 20 years, the Commission has been aware of the insidious practices of certain advertisers, rep firms and advertising agencies of imposing written or unwritten “no urban/no Spanish” dictates. The Commission finds that discriminatory practices have no place in broadcasting and concludes that it is appropriate for the Commission to require broadcasters renewing their licenses to certify that their advertising contracts do not discriminate on the basis of race or gender and that such contracts contain nondiscrimination clauses. Broadcasters will be required to certify compliance with the new rule on their renewal applications prepared on Form 303-S. The Commission declined to dictate the specific language that advertising contracts can or should contain, given that serious First Amendment concerns could arise were the Commission to do so.

12. Longitudinal Research on Minority and Women Ownership Trends. Commenters argue that the Commission should conduct annual longitudinal studies of minority and female ownership. The Order agrees with these concerns, and the Commission will commence such research once it has resolved the data-gathering issues raised in the Third Further Notice accompanying the Order. The Commission agrees that longitudinal studies could help the Commission track ownership trends over time and that such studies could help scholars and other interested parties assess the impact of rule changes on minority and female ownership. It agrees that this, in turn, could help provide real-time feedback on the impact of the Commission's rules and policies on access to capital, the availability of spectrum and opportunity to minority and female-owned entities, and the ability of such entities to serve the public. It also agrees that conducting such studies annually would help it build a more robust database that could better illuminate the optimal intervals for conducting future studies. Once the Commission has collected improved information on FCC Form 323, it will conduct longitudinal studies as suggested by the commenters.

13. Local and Regional Bank Participation in SBA Guaranteed Loan Programs. The Commission adopts a proposal to increase Commission efforts to encourage local and regional banks to participate in SBA-guaranteed loan programs to facilitate broadcast and telecommunications-related transactions. Through its Office of Communications Business Opportunities, the Commission will work closely with the SBA to educate and encourage more local and regional banks (which historically have not been heavily involved in broadcast and telecommunications lending) to make loans through the SBA's 7(a) or 504 programs. The Commission believes that by increasing outreach to local and regional banks and to the SBA, the Commission can better assist both local banks and SBA programs to facilitate such transactions and provide potential lenders with special expertise regarding transactions. Absent such efforts, uncertainty about asset valuation could cause local and regional banks to refuse to facilitate otherwise viable transactions. Because such outcomes could frustrate Commission efforts to promote ownership and viewpoint diversity, the Commission concludes that this action is appropriate.

14. Duopoly Priority for Companies That Finance or Incubate an Eligible Entity. The Order adopts a proposal to give any entity that is financing or incubating an “eligible entity” (as that term is defined in the Order) priority if it files for a duopoly simultaneously with non-eligible entities in a market that can only support one additional duopoly. Commenters argue that “when the local television ownership rules permit only one additional duopoly in a market, a ‘race to the courthouse,’ could determine which duopoly application is processed first.” The Order agrees that one way to cure this problem is to create an incentive plan under which a company financing or incubating an eligible entity would be guaranteed a priority if it files for a duopoly simultaneously with other entities in a market that can support only one additional duopoly. This vested priority in a duopolization queue would reward the large broadcaster that had incubated or financed an eligible entity if it filed simultaneously for a duopoly with a non-incubating entity. Moreover, such a priority in the duopolization queue could have substantial value and therefore provide the added benefit of an incentive for eligible entity financing. The Commission agrees that in this situation, a general statement of policy that grants priority to entities funding or incubating eligible entities would promote ownership diversity.

15. Extension of Divestiture Deadlines in Certain Mergers. The Order adopts a proposal to consider requests to extend divestiture deadlines in mergers in which applicants have actively solicited bids for divested properties from eligible entities. The Commission has encouraged companies undertaking major transactions to assist small businesses, including those owned by minority and female entrepreneurs interested in purchasing divested properties. But such efforts may take time, and such entities may need additional time to secure funding to complete potential transactions. Consequently, while rigidly enforced divestiture deadlines might be intended to increase minority ownership and viewpoint diversity, they could sometimes have the perverse effect of disadvantaging potential minority owners. Because divestiture deadlines are intended to prevent undue concentration of media ownership, requests to extend these deadlines in order to facilitate acquisition of divested properties by small businesses could promote both diversity in media ownership and the objective that divestiture seeks to achieve. Consequently, the Commission will adopt a policy of considering requests to extend divestiture deadlines when applicants have actively solicited bids for divested properties from eligible entities. The Order also adopts a proposal requiring that entities availing themselves of an extension must either sell a given property to an eligible entity within the extended deadline or have the property placed in an irrevocable trust for sale by an independent trustee to an eligible entity. This action is designed to prevent potential abuse of the extensions and ensure that the extensions will actually result in sales to eligible entities.

16. Transfer of Grandfathered Radio Station Combinations to Non-Eligible Entities. The Order adopts a proposal that the Commission permit the assignment or transfer of grandfathered radio station combinations intact to any buyer, not just an eligible entity as currently permitted, provided that such a buyer files an application to assign the excess stations to an eligible entity, or to an irrevocable divestiture trust for purposes of ultimate assignment to an eligible entity, within 12 months after consummation of the purchase of the grandfathered cluster. The Commission agrees with commenting parties that this proposal will promote small business investment in broadcasting by providing additional time and flexibility to raise the capital necessary to purchase the excess stations. In order to ensure that this proposal will not undermine the Commission's local radio ownership rule, the rules will require non-eligible entities seeking to acquire a grandfathered radio station group to file the divestiture trust agreement with its initial application to allow the Commission to evaluate the proposed trust at the outset.

17. “Access to Capital” Conference. The Order also adopts a proposal that the Commission convene an access-to-capital conference. This conference will focus on the investment banking and private equity communities, and the opportunities for small businesses, new entrants, and designated entities to acquire access to financing and thereby facilitate entry to ownership in the communications sector. Moreover, the Commission will seek to facilitate the creation of educational conferences whenever a significant ownership transaction is proposed to the Commission.

18. Guidebook on Diversity. The Commission adopts a proposal to create a guidebook on diversity that will focus on what companies can do to promote diversity in ownership and contracting in order to provide the public with more information and guidance on this subject.

19. Transfers of Grandfathered Station Combinations to SDBs. The Commission declines to adopt a proposal to permit the licensee of a grandfathered station combination to sell the cluster intact to a socially disadvantaged business (“SDB”). In the 2002 Biennial Review Order, the Commission permitted the sale of grandfathered station combinations to “eligible entities,” which were defined as entities that would qualify as a small business consistent with SBA standards for its industry grouping. The Order adopts the same definition for the class of entities that benefit initially from the actions taken in the Order. Should the Commission adopt a definition of SDB at the conclusion of the proceeding initiated by the Third Further Notice accompanying the Order, by operation of the existing rule such SDBs would be permitted to acquire grandfathered combinations.

20. Structural Rule Waiver for Selling a Station to an SDB; Staged Implementation of Deregulation. The Commission declines to adopt a “structural” waiver of its broadcast ownership rules, under which an applicant selling a station to an SDB would be permitted to complete a transaction that otherwise would be barred by an ownership rule. This proposal is linked to another, which urges the Commission, should it decide to relax its broadcast ownership rules, to implement such deregulation in stages, measuring its impact and adopting “mid-course corrections” as needed. A commenter suggests that the confluence of these two proposals would have the effect of permitting an applicant selling a station to an SDB to have its transaction evaluated under the more liberal ownership rules that would take effect later in the staged deregulation process. The Commission states that the short-term benefit of the waiver proposal—an immediate increase in the number of stations owned by SDBs—would likely be offset by the public interest harms resulting from the approval of station combinations that exceed the ownership rules. The Commission states that it has no current plans to implement the type of deregulation envisioned by proponents of a staged approach and finds the proposal to be premature.

21. Structural Rule Waivers for Creating Incubator Programs . The Commission declines to adopt a proposal that it waive its broadcast ownership rules to allow an applicant to acquire stations in a market beyond the permissible limit if it establishes and implements an “incubator” program designed to promote ownership by disadvantaged businesses. While it appreciates the value that incentives-based programs such as this can have, the Commission is concerned that companies participating in such a program will expend only the barest minimum in financial and other support required to qualify for the waiver. Moreover, the Commission is concerned that, by allowing the incubating party to acquire stations in excess of local ownership caps, the proposal could create a significant potential for undermining its broadcast ownership restrictions.

22. Opening FM Spectrum for New Entrants . The Commission declines to take three steps to open FM spectrum for new entrants proposed by a commenter. First, it does not relax the current limit on the filing of contingent applications set forth in § 73.3517(e) of the rules, which provides that the Commission will accept up to four contingent applications filed by FM licensees or permittees for minor modification of facilities. Second, it does not repeal the third adjacent channel requirements found in § 73.215(a) of the rules. Finally, it does not relax its FM service and allotment rules and policies: (1) By replacing the community of license coverage requirement for commercial FM stations, set forth in § 73.315(a) of the rules, with the less stringent coverage requirement for noncommercial FM stations, set forth in § 73.515 of the rules; or (2) by authorizing stations to change their community of license to any community located within the same market, as defined by § 73.3555(a) of the rules.

23. In amending § 73.3517 of the rules to permit the filing of contingent applications, the Commission concludes that a limit of four struck the proper balance between the desire of broadcasters for additional flexibility in proposing coordinated changes and the limited staff resources that are available to review the substantially more complex facilities change applications that the revised rule permits. Commenters have not presented evidence sufficient to persuade the Commission to upset this balance. With respect to the second proposed step, the Commission notes that the third adjacent channel requirements are statutory. The Commission issued a report to Congress in 2004, based on the FCC-commissioned Mitre Study, advising that, because LPFM stations do not pose a significant risk of causing interference to existing full service FM stations or FM translator and FM booster stations, Congress should eliminate the third adjacent channel protection requirement. The Commission states that it will continue to recommend such legislation. Finally, the Commission concludes that relaxing community of license coverage requirements for commercial FM stations and increasing the ability of radio stations to change their communities of license to any community within the same market will undermine its broadcast regulatory policy of enhancing localism. Such actions would result in the licensing of stations that technically cannot serve their communities of license, a result antithetical to the concept of localism. Furthermore, the Commission notes that it recently declined to abandon its policy against removing the sole local transmission service at a community in order to allow it to become the first local transmission service at another community. It also notes, however, that a commenter revised this last proposal in accordance with a recent recommendation of the federal advisory committee on diversity, and it seeks comment on this revised proposal in the Third Further Notice that accompanies the Order.

24. Advocacy of Tax Deferral Legislation; Promotion of Minority Ownership in All General Media Rulemaking Proceedings . The Commission believes it already satisfied a proposal that the Commission recommend to Congress that it reinstate the Commission's authority to adopt the former Tax Certificate Policy. That policy, originally adopted by the Commission in 1978, allowed a seller to defer capital gains taxes on the sale of a media property to a minority-controlled firm. The Commission recommended reinstatement of the necessary statutory authority in its recently adopted Section 257 Triennial Report to Congress. The Commission therefore declines to commit to further action in the Order.

25. The Commission also believes it has satisfied a proposal that the Commission consider, as part of all general media rulemaking proceedings (except for individual FM or TV allotment proceedings), how the proposed rules would impact minority ownership. The Commission's Office of Communications Business Opportunities currently provides outreach services to assist small businesses and new entrants into the communications industry and input on how proposed rules impact minority ownership. The Commission therefore declines to commit to further action in the Order.

26. Extension of the Community Reinvestment Act . The Commission declines to adopt a proposal that it work with the Treasury Department to expand application of the Community Reinvestment Act (“CRA”) credit to encourage institutions to place capital in minority-focused private equity funds. The Commission notes that the CRA already encourages debt financing to small broadcasters and, to the extent that the proposal advocates adding a race-based dimension to the CRA, it concludes that judicial precedent constrains the Commission from enacting it.

27. Establish a “Fund of Funds.” The Commission declines to adopt at this time a proposal that it initiate discussions with the major pension funds to encourage the establishment of a special fund to place capital with minority-focused private equity funds. The Commission concludes that it lacks statutory authority to hold such discussions and, while it recognizes that eligible entities, as defined in the Order, have difficulty accessing capital, it has taken action that will help mitigate that difficulty and does not believe that the additional measures proposed are appropriate Commission functions.

28. Relax Ownership Restrictions . The Commission declines to adopt a proposal that it relax restrictions on foreign ownership to permit non-controlling foreign investment where such investment would help eliminate a barrier to access to capital for domestic, minority-owned broadcasters. Commenters do not explain why the Commission's concerns about foreign ownership of broadcast interests generally would not apply in this context. At a minimum, the Commission would be required to undertake a significant rulemaking proceeding to examine this issue in greater depth. The Commission is not convinced, on the basis of the record before it, that taking the extraordinary step of relaxing its foreign ownership rules would promote diversification among broadcast licensees, including women and minorities.

29. Permit AM Stations To Use FM Translators . The Commission concludes that it is not necessary to take action in the Order to permit AM stations to rebroadcast their signals on FM translator stations. It notes that it already has released a Notice of Proposed Rulemaking to seek comment on such a rule change and expects to issue an order resolving that proceeding soon.

30. Repeal Radio Subcaps . The Commission takes no action in the Order on a proposal that it repeal the subcaps on ownership of same-service (AM or FM) stations contained in the local radio ownership rule. It notes that it retains the subcaps as a component of the local radio ownership rule in its Report and Order in the 2006 Quadrennial Review proceeding.

Final Paperwork Reduction Act of 1995 Analysis:

31. This Order contains modified information collection requirements subject to the Paperwork Reduction Act of 1995, Public Law 104-13. It will be submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the general public, and other Federal agencies will be invited to comment on the modified information collection requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. The Commission will publish a separate Federal Register Notice seeking those comments. In addition, we note that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), the Commission seeks specific comment on how it might “further reduce the information collection burden for small business concerns with fewer than 25 employees.”

32. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking (NPRM) in MB Docket No. 02-277. The Commission sought written public comment on the proposals in the NPRM including comment on the IRFA. The Commission also prepared a Supplemental Initial Regulatory Flexibility Analysis (Supplemental IRFA) and a Second Supplemental Initial Regulatory Flexibility Analysis (Second Supplemental IRFA) of the possible significant economic impact on small entities of the proposals in the Further Notice of Proposed Rulemaking (Further Notice) and the Second Further Notice of Proposed Rulemaking (Second Further Notice) , respectively. The Commission sought written public comment on the Further Notice , including comment on the Supplemental IRFA, and written public comment on the Second Further Notice , including comment on the Second Supplemental IRFA. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

33. The Order takes several steps to increase participation in the broadcasting industry by new entrants and small businesses, including minority- and women-owned businesses, which historically have not been well-represented in the broadcasting industry. The Order sets forth the Commission's objectives, defines the entities that will benefit initially from the Commission's actions, and adopts a number of measures modifying certain Commission rules and policies to encourage ownership diversity and new entry in broadcasting.

34. This Order is adopted pursuant to sections 1, 2(a), 4(i), 257, 303, and 307-310 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i), 257, 303, and 307-310.

35. The Commission received no comments in direct response to the IRFA, the Supplemental IRFA, or the Second Supplemental IRFA. However, the Commission received comments that discuss issues of interest to small entities. These comments were taken into account during the Commission's decision-making process to adopt certain rule modifications to promote broadcast ownership among new entrants and small businesses, including minority- and women-owned businesses. These rule modifications are summarized in the section of this FRFA discussing the steps taken to minimize a significant impact on small entities, and the significant alternatives considered.

36. The RFA directs agencies to provide a description of, and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental entity” under section 3 of the Small Business Act. In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

37. Television Broadcasting. In this context, the application of the statutory definition to television stations is of concern. The Small Business Administration defines a television broadcasting station that has no more than $13 million in annual receipts as a small business. Business concerns included in this industry are those “primarily engaged in broadcasting images together with sound.” According to Commission staff review of the BIA Financial Network, Inc. Media Access Pro Television Database as of December 7, 2007, about 825 (66 percent) of the 1,250 commercial television stations in the United States have revenues of $13 million or less. However, in assessing whether a business entity qualifies as small under the above definition, business control affiliations must be included. Our estimate, therefore, likely overstates the number of small entities that might be affected by any changes to the ownership rules, because the revenue figures on which this estimate is based do not include or aggregate revenues from affiliated companies.

38. An element of the definition of “small business” is that the entity not be dominant in its field of operation. The Commission is unable at this time and in this context to define or quantify the criteria that would establish whether a specific television station is dominant in its market of operation. Accordingly, the foregoing estimate of small businesses to which the rules may apply does not exclude any television stations from the definition of a small business on this basis and is therefore over-inclusive to that extent. An additional element of the definition of “small business” is that the entity must be independently owned and operated. It is difficult at times to assess these criteria in the context of media entities, and our estimates of small businesses to which they apply may be over-inclusive to this extent.

39. Radio Broadcasting. The Small Business Administration defines a radio broadcasting entity that has $6.5 million or less in annual receipts as a small business. Business concerns included in this industry are those “primarily engaged in broadcasting aural programs by radio to the public.” According to Commission staff review of the BIA Financial Network, Inc. Media Access Radio Analyzer Database as of December 7, 2007, about 10,500 (95 percent) of 11,050 commercial radio stations in the United States have revenues of $6.5 million or less. We note, however, that in assessing whether a business entity qualifies as small under the above definition, business control affiliations must be included. Our estimate, therefore, likely overstates the number of small entities that might be affected by any changes to the ownership rules, because the revenue figures on which this estimate is based do not include or aggregate revenues from affiliated companies.

40. In this context, the application of the statutory definition to radio stations is of concern. An element of the definition of “small business” is that the entity not be dominant in its field of operation. We are unable at this time and in this context to define or quantify the criteria that would establish whether a specific radio station is dominant in its field of operation. Accordingly, the foregoing estimate of small businesses to which the rules may apply does not exclude any radio station from the definition of a small business on this basis and is therefore over-inclusive to that extent. An additional element of the definition of “small business” is that the entity must be independently owned and operated. We note that it is difficult at times to assess these criteria in the context of media entities, and our estimates of small businesses to which they apply may be over-inclusive to this extent.

41. Class A TV, LPTV, and TV translator stations. The rules and policies adopted herein may also apply to licensees of Class A TV stations, low power television (“LPTV”) stations, and TV translator stations, as well as to potential licensees in these television services. The same SBA definition that applies to television broadcast licensees would apply to these stations. The SBA defines a television broadcast station as a small business if such station has no more than $13.0 million in annual receipts. Currently, there are approximately 567 licensed Class A stations, 2,227 licensed LPTV stations, and 4,518 licensed TV translators. Given the nature of these services, we will presume that all of these licensees qualify as small entities under the SBA definition. We note, however, that under the SBA's definition, revenue of affiliates that are not LPTV stations should be aggregated with the LPTV station revenues in determining whether a concern is small. Our estimate may thus overstate the number of small entities, since the revenue figure on which it is based does not include or aggregate revenues from non-LPTV affiliated companies. We do not have data on revenues of TV translator or TV booster stations, but virtually all of these entities are also likely to have revenues of less than $13.0 million and thus may be categorized as small, except to the extent that revenues of affiliated non-translator or booster entities should be considered.

42. FM Translator Stations and Low Power FM Stations. The proposed rules and policies could affect licensees of FM translator and booster stations and low power FM (LPFM) stations, as well as potential licensees in these radio services. The same SBA definition that applies to radio broadcast licensees would apply to these stations. The SBA defines a radio broadcast station as a small business if such station has no more than $6.5 million in annual receipts. Currently, there are approximately 5,540 licensed FM translator stations and 262 FM booster stations and 820 licensed LPFM stations. Given the nature of these services, we will presume that all of these licensees qualify as small entities under the SBA definition.

43. International Broadcast Stations. Commission records show that there are approximately 24 international high frequency broadcast station authorizations. We do not request nor collect annual revenue information, and are unable to estimate the number of international high frequency broadcast stations that would constitute small businesses under the SBA definition.

44. Daily Newspapers. The SBA has developed a small business size standard for the census category of Newspaper Publishers; that size standard is 500 or fewer employees. Census Bureau data for 2002 show that there were 5,159 firms in this category that operated for the entire year. Of this total, 5,065 firms had employment of 499 or fewer employees, and an additional 42 firms had employment of 500 to 999 employees. Therefore, we estimate that the majority of Newspaper Publishers are small entities that might be affected by our action.

45. Licensees engaged in the sale of a commercially operated AM, FM, TV, Class A TV, or international broadcast station will be required to certify on Form 314 or 315 that they did not discriminate on the basis of race, color, religion, national origin, or sex in the sale of their station. Broadcasters that are renewing their licenses will have to certify on Form 303-S that their advertising sales contracts do not contain discriminatory clauses.

46. The Commission revised its rules to afford eligible entities that acquire an expiring construction permit additional time to build out the facility (either the time remaining on the original construction permit or 18 months, whichever is greater). To obtain this benefit, eligible entities will have to demonstrate that they meet the eligibility criteria. In addition, the Commission relaxed its equity/debt plus attribution standard for interest holders in eligible entities in order to encourage investment in smaller companies. For both these rule changes, there will be revisions to application forms or the forms' instructions.

47. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

48. The Commission's intent in adopting the rule modifications in the Order was to expand broadcast ownership opportunities for new entrants and small businesses, including minority- and women-owned businesses. Therefore, it is anticipated that the adopted rule changes will benefit small businesses, not burden them. Although the Commission adopted numerous proposals to benefit small businesses, it declined to adopt certain other proposals after considering the various ramifications involved. The Order describes in detail the Commission's reasoning for each proposal adopted or declined.

49. To promote and expand media ownership diversity, the Commission: (1) Changed the construction permit deadlines to allow eligible entities that acquire expiring construction permits additional time to build out the facility; (2) revised the equity/debt plus attribution standard to facilitate investment in eligible entities; (3) modified the distress sale policy to allow certain licensees—those whose license has been designated for a revocation hearing or whose renewal application has been designated for a hearing on basic qualifications issues—to sell the station to an eligible entity prior to the commencement of the hearing; (4) adopted an Equal Transactional Opportunity rule that bars race or gender discrimination in broadcast transactions; (5) adopted a “zero-tolerance” policy for ownership fraud and agreed to “fast-track” ownership-fraud claims; (6) required broadcasters renewing their licenses to certify that their advertising sales contracts do not discriminate on the basis of race or gender; (7) resolved to conduct annual longitudinal studies of minority and female ownership after the Commission improves its data gathering process; (8) encouraged local and regional banks to participate in SBA-guaranteed loan programs in order to facilitate broadcast and telecommunications-related transactions; (9) adopted modifications to give priority to any entity financing or incubating an eligible entity in certain duopoly situations; (10) permitted the consideration of requests to extend divestiture deadlines in mergers in which applicants have actively solicited bids for divested properties from eligible entities; (11) revised the exception to the prohibition on the assignment or transfer of grandfathered radio station combinations; (12) agreed to convene an access-to-capital conference; and (13) decided to create a guidebook on increasing diversity in the media and telecom industries.

50. The Commission will send a copy of this Order, including this FRFA, in a report to Congress and the Government Accountability Office, pursuant to the Congressional Review Act. In addition, the Commission will send a copy of this Order, including this FRFA, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of this Order and FRFA (or summaries thereof) will also be published in the Federal Register .

51. Accordingly, it is ordered , that pursuant to the authority contained in sections 1, 2(a), 4(i), 257, 303(r), and 307-310 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i), 257, 303(r), and 307-310, this Report and Order is adopted .

52. It is further ordered , that pursuant to the authority contained in sections 1, 2(a), 4(i), 257, 303(r), and 307-310 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i), 257, 303(r), and 307-310, the Commission's rules are hereby amended as set forth in Appendix A.

53. It is further ordered , that the rule amendments adopted herein will become effective July 15, 2008. Changes to FCC Forms required as the result of the rule amendments adopted herein will become effective 30 days after the Commission publishes a notice in the Federal Register announcing approval by the Office of Management and Budget of the forms.

54. It is further ordered , that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Report and Order , including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

55. It is further ordered , that the Commission shall send a copy of this Report and Order and Third Further Notice of Proposed Rulemaking in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

56. It is further ordered , that pursuant to the authority contained in sections 1, 2(a), 4(i, j), 257, 303(r), 307-10, and 614-15 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i, j), 257, 303(r), 307-10, 534-35, this Third Further Notice of Proposed Rule Making is adopted .

57. It is further ordered , that pursuant to the authority contained in sections 1, 2(a), 4(i, j), 257, 303(r), 307-10, 336, and 614-15 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i, j), 257, 303(r), 307-310, 336, 534-35, notice is hereby given of the proposals described in this Third Further Notice of Proposed Rule Making .

58. It is further ordered , that the Petition for Rulemaking of Entravision Holdings, LLC, RM-9567, is granted in part .

59. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Third Further Notice of Proposed Rule Making , including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

NHTSA published a final rule in the Federal Register of April 30, 2008, (73 FR 23367; NHTSA Docket 2008-0022) that made certain changes in the 17-character vehicle identification number (VIN) system so that there will be a sufficient number of unique manufacturer identifiers and VINs to use for at least another 30 years. 1 The regulatory text of the final rule contained several typographical errors which this document corrects. In addition, this document makes clear that all motor vehicles identified by their manufacturer as model year (MY) 2009 or earlier vehicles must comply with the current Part 565 VIN requirements (which are set forth in subpart C of Part 565 of the final rule). 2