[Federal Register Volume 60, Number 165 (Friday, August 25, 1995)]
[Proposed Rules]
[Pages 44290-44296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21168]



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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Ch. 1

[FRL-5285-3]


Open Market Trading Rule for Ozone Smog Precursors

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed policy statement and model rule; Notice of public 
hearing; correction.

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SUMMARY: This notice contains the text of the proposed model open 
market trading rule (OMTR) for ozone smog precursors which was 
inadvertently omitted in the original Federal Register publication on 
August 3, 1995 (60 FR 39668 (August 3, 1995)). The model OMTR is 
intended to serve as a template for State development of open market 
trading programs. States that adopt the final model OMTR, will receive 
automatic EPA approval of the State implementation plan (SIP) revision 
containing the model OMTR. SIP 

[[Page 44291]]
revisions containing variations on the model OMTR will be expeditiously 
reviewed by EPA in accordance with EPA's final policy on open market 
trading.

FOR FURTHER INFORMATION CONTACT: Anyone with a computer and a model can 
download the full text of the preamble and proposed model rule from the 
Clean Air Act Amendments bulletin board (under ``Recently Signed 
Rules'') on EPA's Technology Transfer Network (TTN) by calling 919-541-
5742 or Internet access via TELNET ttnbbs.rtpnc.epa.gov. For TTN 
assistance call 919-541-5384 between the hours of 1:00 p.m. and 5:00 
p.m. EST. For further information about the proposed OMTR, contact 
Nancy A. Mayer, U.S. EPA, MD-15, Research Triangle Park, North Carolina 
27711, telephone 919-541-5390, fax 919-541-0839; or Scott L. Mathias, 
U.S. EPA, MD-15, Research Triangle Park, North Carolina 27711, 
telephone 919-541-5310, fax 919-541-0839.

SUPPLEMENTARY INFORMATION: The contents of the proposed model open 
market trading rule for ozone smog precursors are listed in the 
following outline:

I. Purpose
II. Definitions
III. General Rules for Generation and Use
    A. General Rule
    B. Government Approvals
    C. Market Participation
    D. Time of Use
    E. Limited Authorization to Emit
IV. DER Generation
    A. Computation of DER's
    1. General Rule
    2. Areas with Approved Attainment Demonstrations or Maintenance 
Plans (Optional)
    3. Sources Subject to Emissions Caps
    4. Sources Subject to Multiple Emissions Limitations
    5. Protocols
    B. Limitations on Generation
    C. Notice and Certification of Generation
    1. General Rule
    2. Required Information
    3. Certification Under Penalty of Law
V. DER Use
    A. Time of Acquisition
    B. Sufficiency
    C. Operating Permits
    D. Environmental Contribution
    E. Compliance Calculation
    F. Notice of Intent to Use DER's
    1. General Rule
    2. Required Information
    G. Notice and Certification of Use
    1. General Rule
    2. Required Information
    3. Certification Under Penalty of Law
    H. Use Limitations
VI. Geographic Scope of Trading
    A. General Rule
    B. Geographic Scope
    1. NOX DER's
    2. VOC DER's
    C. Interstate Trading
VII. Recordkeeping and Public Availability
    A. Recordkeeping
    B. Public Availability
VIII. Protocol Development and Approval
    A. General Rule
    B. USEPA-Approved Protocols
    C. Protocol Elements
    D. Emission Quantification Methods
IX. DER Use for NSR and Conformity Purposes
    A. General Rule
    B. Specific Requirements for NSR
X. Program Audits
XI. Enforcement
    A. Compliance Burden
    B. Violation Day Definition for User Source Excess Emissions

I. Purpose

    To establish a process whereby sources may generate and use 
discrete emission reductions for compliance with VOC and NOX 
requirements in the Act while complying with all other applicable 
requirements of the Act.

II. Definitions

    Terms not defined in this part shall have the meaning given in the 
Act and EPA regulations (40 CFR) [or State citations].
    Act means the Clean Air Act as amended in 1990.
    Activity level means the amount of activity at a source measured in 
terms of production, use, raw materials input, vehicle miles traveled, 
or other similar units that have a direct correlation with the economic 
output of the source and is not affected by changes in the emissions 
rate (i.e., mass per unit of activity).
    Actual emissions rate means the actual rate of emissions of a 
pollutant from a source. Actual emissions as of a particular date shall 
equal the average rate, in mass per unit of time or mass per unit of 
activity, at which the unit actually emitted the pollutant during a 
two-year period which precedes the particular date and which is 
representative of normal source operation at a particular time. A 
different time period may be used if that is more representative of 
normal source operation. Actual emissions shall be calculated using the 
unit's actual operating hours, production rates, types of materials 
processed, stored, or combusted during the selected time period.
    Allowable emission rate means any emission limit applicable to a 
particular source including all Federal and State requirements for the 
control of tropospheric ozone and the requirements of Title IV of the 
Act, including but not limited to, all requirements in a SIP, the 
inventories contained in any attainment strategy, maintenance 
demonstration or ROP plan for any NAAQS as well as source-specific or 
source-category-specific permits.
    Alternative emission limitation means any emission limit that 
applies to a specific source that is less stringent than the limit 
contained in the SIP approved by the [State authority] generally for 
similar sources.
    Applicable emissions inventory means the emission inventory that 
forms the basis for an attainment demonstration or strategy, a ROP 
plan, or maintenance plan submitted to or acted on by USEPA.
    Applicable implementation plan or applicable SIP means the portion 
(or portions) of the SIP or most recent revision thereof, which has 
been approved under section 110 of the Act, or promulgated under 
section 110(c) of the Act (Federal implementation plan), or promulgated 
or approved pursuant to regulations promulgated under section 301(d) of 
the Act and which implements the relevant requirements of the Act.
    Area source means those small or diverse stationary source that are 
not required to be, and are not individually included in a stationary 
source emissions inventory. The term area sources include emissions 
related to consumer and commercial products.
    Attainment area means any area of the country designated or 
redesignated by EPA at 40 CFR part 81 in accordance with section 107(d) 
of the Act as unclassifiable or better than the national ambient air 
quality standards for ozone [or State may cite its regulations, or list 
its areas].
    Attainment demonstration means the State rules that comply with the 
requirement in section 172(c)(1), 182(b)(1), or 182(c)(2) of the Act to 
demonstrate that the specific emission reductions included in the SIP 
are sufficient to attain the ozone NAAQS by the date applicable to the 
area [or State citation of their plan].
    Baseline emission rate means a generating source's actual emissions 
rate or allowable emissions rate considering all applicable State and 
Federal regulations.
    Best available control technology (BACT) is as defined in 40 CFR 
part 51.166(b)(12) [State may add the cite to its rules if they are 
USEPA-approved].
    Conformity purposes means any reductions required to comply with 
the conformity requirements contained in 40 CFR part 51, subparts T and 
W, and part 93, subparts A and B.
    Contingency measure means any emission control measure that is 
adopted into the SIP which shall be 

[[Page 44292]]
implemented whenever there is a failure to meet the ROP requirement in 
section 185 of the Act or a failure to attain a NAAQS as projected in 
an approved attainment demonstration.
    Curtailment means a temporary or partial reduction in activity 
level (e.g., hours of operation and process rate). For purposes of this 
rule, curtailment shall not include a reduction in activity levels for 
a mobile source that occurs as a result of an activity reduction plan 
that is the subject of a USEPA emissions quantification protocol.
    Discrete emission reduction (DER) means an emission reduction 
generated over a discrete period of time, and measured in weight (e.g., 
tons).
    Emissions cap means an emissions limit that is measured as mass 
emissions per unit of time.
    Emissions unit means any part of a source that emits or would have 
the potential to emit VOC or NOx.
    Fuels and fuel delivery system, for mobile sources, means fuels 
intended for use in mobile sources and the distribution systems 
associated with those fuels including, but not limited to, pipelines, 
tanker trucks, storage tanks, and dispenser pumps.
    Generator source means any source that generates a DER.
    Generation period means the period of time over which a DER is 
generated.
    Lowest achievable emissions rate (LAER) means the control 
technology defined at 40 CFR 51.165(a)(1)(xiii) [or State may insert 
citation to its rules].
    Maintenance area means any area with a maintenance plan approved 
under section 175 of the Act [or State may insert the list of its 
areas].
    Maintenance plan means a revision to the applicable SIP, meeting 
the requirements of section 175A of the Act.
    Mobile source means any vehicle or engine used for on-highway or 
nonroad purposes, the mobile-source related fuels and/or fuel delivery 
systems used by those vehicles or engines. For the purpose of this 
definition, nonroad vehicles and engines include those used in marine 
vessels, locomotives, and airplanes, as well as those described in the 
definition of nonroad contained in the Act.
    Modeling domain means a geographic area covered by an air quality 
model used to support an attainment or maintenance demonstration. 
Specifications for existing modeling domains are available through the 
USEPA's Technology Transfer Network (TTN).
    National ambient air quality standards (NAAQS) means the standards 
set by EPA at 40 CFR part 50 under section 109 of the Act.
    New Source Review (NSR) means the permitting requirements for major 
new and modified sources contained in Parts C and D of Title I of the 
Act and in 40 CFR parts 51.165, 51.166 and part 52.21. [State may add 
citations to SIP rules if they are USEPA-approved]
    Nonattainment area means any area designated at 40 CFR part 81 in 
accordance with section 107(d) of the Act as nonattainment for ozone.
    Normal source operation means the average actual activity rate of a 
source necessary for determining the actual emissions rate for the two 
years prior to the date necessary for determining actual emissions, 
unless some other time period is more representative of the operation 
of the source. A source may use either the simple arithmetic mean (sum 
of emissions for 12 months divided by 12) or the mean plus one standard 
deviation if sufficient data are available to determine the normal 
source operation for the shorter time period.
    NOx means oxides of nitrogen, including nitric oxide (NO) and 
nitrogen dioxide (NO2) and not including, for purposes of this 
rule, nitrous oxide (N2O).
    Operator means the individual who is in control of or in charge of 
a source while it is in operation. For all requirements of this 
section, the operator is considered to be an agent of the owner.
    Owner means a person who claims lawful possession of a source by 
virtue of legal title or equitable interest therein which entitles him 
to such possession.
    Ozone season means the portion of year when ozone monitoring is 
required to occur in a specific geographic area as defined in 40 CFR 
part 58 appendix D.
    Person means an individual, corporation, partnership, association, 
State, municipality, firm, political subdivision of a State, and any 
agency, department, or instrumentality of the United States and any 
officer, agent, or employee thereof.
    Protocol means a replicable and workable method to estimate the 
mass of emissions reductions, or the amount of DER's needed for 
compliance, that meets USEPA's approval criteria.
    Quantifiable means that the quantity of emission reductions can be 
measured or estimated by accurate and replicable techniques. These 
techniques shall be at least as accurate and replicable as the 
techniques accepted by the USEPA for SIP purposes, where accepted 
techniques exist.
    Rate of progress (ROP) plan means a SIP providing for the 
incremental emission reductions required by section 182(b)(1) and 
182(c)(2)(B) of the Act [or State may insert the cite for its plans].
    Shutdown means the permanent cessation of the activity that results 
in emissions at all or part of a source. For purposes of this rule, 
scrappage of mobile sources is not considered a shutdown.
    Source means any mobile, area, or stationary source.
    State means State, local government, or Indian-governing body.
    State implementation plan (SIP) means a plan developed by an 
authorized governing body, including a State, local government, and 
Indian-governing body, as required under Titles I and II of the Act, 
and approved by the USEPA.
    Stationary source means any building, structure, facility or 
installation which emits or may emit any air pollutant subject to 
regulation under the Act. Building, structure, facility or installation 
includes all pollutant emitting activities that are located on one or 
more contiguous or adjacent properties, and are under the common 
control of the same person (or persons under common control).
    Surplus emission reduction means, in general, any emission 
reduction that is not otherwise required of a source. Any emission 
reduction that complies with sections IV(A) and IV(B) is considered 
surplus for purposes of this rule.
    Use period means the period of time over which the user source 
applies the DER's to an applicable emission reduction requirement.
    USEPA means the United States Environmental Protection Agency.
    User source means any source that seeks to use DER's to comply with 
an applicable emission reduction requirement.
    Volatile organic compounds (VOC) means all emissions included at 40 
CFR part 51.100(s) as measured by a USEPA test method [or State may 
insert citation to its definition].

III. General Rules for Generation and Use

    (A) General Rule. Except as provided under section IV(B), any 
source may generate a DER by reducing emissions, in the amount 
determined under section IV(A). DER generators must ensure that DER's, 
are real, properly quantified, and surplus.
    (B) Governmental Approvals. No prior Federal, State, or local 
governmental approval is necessary for the use of DER's, except for 
DER's that are used for NSR offsets, in which case State approval 
pursuant to an approved NSR rule is required. 

[[Page 44293]]

    (C) Market Participation. Any person may, at any time, transfer, 
buy, sell, trade, or otherwise convey DER's to another person in any 
manner in accordance with the laws of [State].
    (D) Time of Use. DER's may be used any time after the State has 
received the Notice and Certification of Generation pursuant to section 
IV(C).
    (E) Limited Authorization To Emit. A DER created under this rule is 
a limited authorization to emit NOX and/or VOC in accordance with 
the provisions of this rule and the Act as well as regulations 
promulgated thereunder. A DER does not constitute a property right. 
Nothing in this rule shall be construed to limit the authority of the 
[State authority] or the United States to terminate or limit such 
authorization.

IV. DER Generation

(A) Computation of DER's

    (1) General Rule. The amount of DER's shall be the difference 
between--
    (a) The amount of VOC or NOX emissions that would have been 
emitted during the generation period based on actual activity levels 
during that period and the lower of (i) the lowest applicable allowable 
emissions rate, or (ii) the actual emissions rate based on normal 
source operation, and
    (b) The amount of actual emissions during the generation period 
based on actual activity levels during that period.
    (2) [States may delete this paragraph at their discretion] Areas 
with Approved Attainment Demonstrations or Maintenance Plans. In an 
area with a USEPA-approved attainment demonstration or maintenance 
plan, the amount of DER's shall be the difference between--
    (a) The amount of VOC or NOX emissions that would have been 
emitted during the generation period based on actual activity levels 
during that period and the lowest applicable allowable emissions rate, 
and
    (b) The amount of emissions during the generation period based on 
actual activity levels during that period.
    (3) Sources Subject to Emissions Caps.
    (a) For purposes of subsection[s] (1) [and (2)] of this section, 
the term ``allowable emissions rate'' includes a source's allowable 
amount of total emissions for the generation period, as may be 
specified in that source's Federally enforceable operating permit, in 
the SIP, or included with respect to that source in the attainment 
demonstration or maintenance plan (or the emissions inventory that 
forms the basis for such demonstration or plan).
    (b) For sources subject to this subsection, if the generation 
period differs from the period of the emissions cap, the allowable 
emissions rate for the generation period shall be adjusted to reflect 
the proportion of the generation period to the period of the emissions 
cap.
    (c) Amounts determined under subsection[s] (1) [and (2)] of this 
section, must be adjusted to the extent necessary to exclude emission 
reductions resulting from shutdowns or curtailments.
    (4) Sources Subject to Multiple Emissions Limitations. If a source 
is subject to multiple emissions limitations, the amount of DER's shall 
be determined by reference to the emissions limitation that results in 
the least amount of DER's.
    (5) Protocols. The amount of DER's must be calculated using 
quantification protocols that meet the requirements of section VIII.
    (B) Limitations on Generation. A DER shall not be formed by 
emissions reductions of activities or source categories identified in 
this subsection:
    (1) Shutdowns;
    (2) Curtailments;
    (3) Modification or discontinuation of any activity that is 
otherwise in violation of any Federal, State or local law;
    (4) Emissions reductions required to comply with any provision 
under the Act for control of tropospheric ozone and Title IV of the 
Act, including but not limited to--
    (a) Administrative orders issued pursuant to enforcement actions.
    (b) Any provision of a Federal implementation plan.
    (c) Requirements for ROP or attainment of the ozone NAAQS.
    (5) Emission reductions of hazardous air pollutants, as defined in 
section 112 of the Act, from application of a standard promulgated 
under section 112 of the Act.
    (6) Reductions credited or used under any other emissions trading 
program, including any mobile source averaging, banking, and trading 
program.
    (7) Emission reductions occurring at a source which received an 
alternative emission limitation to meet a State RACT requirement, 
except to the extent that the emissions are reduced below the level 
that would have been required had the alternative emission limitation 
not been issued.
    (8) Emission reductions generated prior to the start of the ozone 
season in 1995.
    (9) Any source subject to a RACT limit pursuant to the Act, but 
with respect to which the State has not determined the RACT limit, 
until the State determines RACT through a permit or SIP approval 
action.
    (C) Notice and Certification of Generation.
    (1) General Rule. The owner or operator of a generator source shall 
provide a Notice and Certification of Generation to [State authority]:
    (a) No later than 90 days after the DER generation activity was 
completed,
    (b) One year after the first day of the generation period (and at 
least annually thereafter), or
    (c) Prior to the first day of the use period, whichever is sooner.
    The Notice and Certification of Generation shall be publicly 
available pursuant to section VII(B).
    (2) Required Information. The Notice and Certification of 
Generation shall include the following information, submitted on [State 
form ------]:
    (a) For stationary source reductions, identifying information, 
including--
    (i) The name and address of the generator, and
    (ii) The name of the owner and/or operator of the generator source.
    (b) For mobile sources related reductions, identifying information 
as required in the applicable USEPA approved protocol or described in 
USEPA guidance on protocols.
    (c) The generation period and the unique serial numbers assigned by 
the [State authority] to each ton of DER's.
    (d) A brief description of the generation activity.
    (e) The amount of DER's generated during the ozone season and the 
amount of DER's generated during other parts of the year.
    (f) The protocols that were used to calculate and document the 
DER's.
    (g) Information on all the generator source's applicable allowable 
emission rates.
    (h) A statement that the reductions were calculated in accordance 
with section IV(A).
    (i) A statement that the DER's were not generated in whole or in 
part from actions prohibited pursuant to section IV(B).
    (j) For each source subject to reporting toxic chemical releases 
for the Community Right-to-Know provisions under 40 CFR part 372, the 
estimated amount of hazardous air pollutants, as defined below, emitted 
to the air as the result of the generation of the DER.
    (i) A pollutant shall be reported under this paragraph, only if it 
is listed both in 40 CFR 372.65 and section 112(b) of the Act, and a 
chemical which the source is reporting or expects to report under 40 
CFR part 372 for the calendar year in which the DER was generated.
    (ii) The requirements in 40 CFR 373.30(b) shall be followed for the 
notice.

[[Page 44294]]

    (iii) The exemptions listed in 40 CFR 372.38 for determining the 
amount of release to be reported under 40 CFR 372.30 shall also be 
exemptions for determining the amount emitted under this section.
    (iv) The notice shall include:
    ((A)) The name and CAS number (if applicable) of the chemical 
reported;
    ((B)) If the chemical identity is claimed trade secret under 40 CFR 
372, a generic name for the chemical as reported under 40 CFR 
372.85(b)(11);
    ((C)) A mixture component identity if the chemical identity is not 
known; and
    ((D)) An estimate of total air emissions, in pounds, for the 
relevant time period of DER generation. Releases of less than 1,000 
pounds may be indicated in ranges.
    (3) Certification Under Penalty of Law. Any Notice and 
Certification of Generation submitted pursuant to this subsection shall 
contain certification under penalty of law by a responsible official of 
the generator source of truth, accuracy and completeness. This 
certification shall state that based on information and belief formed 
after reasonable inquiry, the statements and information in the 
document are true, accurate and complete.
V. DER Use

    (A) Time of Acquisition. DER's may not be used unless they are 
acquired by the user source before the compliance period for which the 
specific DER's are to be used.
    (B) Sufficiency. The user source must hold sufficient DER's to 
cover its compliance obligation at all times.
    (C) Operating Permits.
    (1) For sources subject to the requirement to obtain a permit under 
a Federally approved operating permit program, the permit, when issued 
or revised, shall authorize the use of DER's for compliance purposes.
    (2) The Notices of Intent to Use DER's and Notice and Certification 
of Use shall be stored with the user source's operating permit, if 
applicable.
    (D) Environmental Contribution. At the time of use, DER users shall 
permanently retire ten percent of all DER's dedicated to that 
particular use. That is, the amount of DER's required to demonstrate 
compliance equals the source's calculated need divided by 0.9.
    (E) Compliance Calculation. The amount of DER's needed to 
demonstrate compliance shall be the difference between--
    (1) The actual emissions expressed in units of mass or the 
alternative limit under which the source will operate, and
    (2) The allowable emissions based on actual activity levels 
expressed in units of mass.
    (F) Notice of Intent to Use DER's.
    (1) General Rule. DER's may be used only if the owner or operator 
of the user source submits to [State authority] a Notice of Intent to 
Use DER's. The Notice of Intent to Use DER's shall be submitted at 
least 30 days before the intended use period begins, and at least 
annually if the use period is greater than one year. The Notice of 
Intent to Use DER's shall be made publicly available pursuant to 
section VII(B).
    (2) Required Information. The Notice of Intent to Use DER's shall 
include the following information submitted on [State form ________]:
    (a) The name and location of the user.
    (b) The emissions unit or application name, the permit or 
identification number (if applicable), and the applicable pollutant.
    (c) The applicable State and Federal requirements that the DER's 
will be used to comply with and the intended use period.
    (d) A copy of the Notice and Certification of Generation submitted 
by the generator source to the State.
    (e) The emission quantification protocols that will be used to 
document the amount of DER's needed to demonstrate compliance.
    (f) For each source subject to reporting toxic chemical releases 
for the Community Right-to-Know provisions under 40 CFR part 372, the 
estimated amount of hazardous air pollutants expected to be emitted to 
the air as the result of the use of the DER's to meet the otherwise 
applicable requirements. The estimated amount shall include expected 
emissions increases and any expected forgone emission reductions due to 
use of the DER's instead of non-DER compliance with otherwise 
applicable requirements. The same procedures shall be followed as for 
the similar requirements under the Notice and Certification of 
Generation (see section IV(C)(2)(j)).
    (G) Notice and Certification of Use.
    (1) General Rule. The owner or operator of a user source shall 
submit to [State authority] a Notice and Certification of Use that 
contains the information described in paragraph (2) of this subsection 
within 90 days after the end of the use period or one year after the 
beginning of the use period, whichever is sooner. The owner or operator 
of a user source shall provide the required information for each 
increment of DER's used over a time period not to exceed one year. The 
Notice and Certification of Use shall be made publicly available 
pursuant to section VII(B).
    (2) Required Information. The Notice and Certification of Use shall 
include the following information submitted on [State form ________]:
    (a) The name and location of the owner or operator of the user 
source.
    (b) The date(s) on which the DER's were acquired.
    (c) The amount of DER's used and the associated serial numbers 
assigned by the [State authority].
    (d) The use period.
    (e) The applicable State and Federal requirements that the DER's 
were used to comply with.
    (f) The emissions quantification protocols that were used to 
calculate the amount of DER's required to demonstrate compliance and 
documentation for the compliance calculation under subsection (E) of 
this section.
    (g) A statement that due diligence was made to verify that the 
DER's were not previously used, not generated as a result of actions 
prohibited under this regulation or other provisions of law.
    (h) A statement that the DER's were not used in a manner prohibited 
under this regulation or other provisions of law.
    (i) A copy of the relevant Notice and Certification of Generation.
    (j) For each source subject to reporting toxic chemical releases 
for the Community Right-to-Know provisions under 40 CFR part 372, the 
estimated amount of hazardous air pollutants emitted to the air as the 
result of the use of the DER to meet otherwise applicable requirements. 
The estimated amount shall include emissions increases and any forgone 
emission reductions due to use of DER's instead of non-DER compliance 
with otherwise applicable requirements. The same procedures shall be 
followed as the similar requirement under the Notice and Certification 
of Generation (see section IV(C)(2)(j)).
    (3) Certification Under Penalty of Law. Any Notice and 
Certification of Use submitted pursuant to this regulation shall 
contain certification under penalty of law by a responsible official of 
truth, accuracy and completeness. This certification shall state that 
based on information and belief formed after reasonable inquiry, the 
statements and information in the document and in referenced documents 
attached are true, accurate and complete.
    (H) Use Limitations. DER's may not be used--
    (1) Before acquisition by the user of the DER's;

[[Page 44295]]

    (2) For netting or other means to avoid the applicability of NSR 
requirements;
    (3) For NSR offsets or conformity purposes unless the requirements 
of section IX are met;
    (4) To meet Act requirements for new source performance standards 
(NSPS) under section 111; lowest achievable emission rate (LAER) 
standards under section 173(a)(2); best available control technology 
(BACT) standards under section 165(a)(4); hazardous air pollutant (HAP) 
standards under section 112; standards for solid waste combustion under 
section 129; requirements for a vehicle inspection and maintenance 
program under sections 182(b)(4) or (c)(3); requirements for an 
employer trip reduction program under section 182(d)(1)(B); ozone 
control standards set under section 183; clean fueled fleet 
requirements under section 246; motor vehicle emissions standards under 
section 202; standards for nonroad vehicles under section 213; 
requirements for reformulated gasoline under section 211(k); or 
requirements for Reid vapor pressure standards under section 211(h) and 
(i);
    (5) State motor vehicle emission standards;
    (6) To meet requirements for one class of tropospheric ozone 
precursor by using DER's generated in a different class of tropospheric 
ozone precursors (e.g., NOX reductions may not be exchanged for 
VOC increases, or vice-versa);
    (7) To meet requirements during an ozone season unless the DER was 
generated during an ozone season; or
    (8) To meet requirements contained in Title IV of the Act.

VI. Geographic Scope of Trading

    (A) General Rule. (1) In using DER's, user sources must comply with 
the requirements of this subsection (A) and the geographic limitations 
described in subsection (B).
    (2) DER use must be consistent with modeling analyses contained in 
an approved SIP; however, each DER use is not required to be supported 
by a modeling analysis specific to such use.
    (3) No provision of this section shall be construed to authorize 
use of DER's in a manner that interferes with any applicable 
requirement of the Act.
    (B) Geographic Scope. (1) NOX DER's. (a) NOX DER's may be 
used in the same SIP modeling domain in which they were generated.
    (b) NOX DER's generated inside a nonattainment or maintenance 
area may be used outside a nonattainment area, maintenance area, or 
modeling domain.
    (2) VOC DER's.
    (a) VOC DER's may be used in a nonattainment or maintenance area 
only if they were generated in the same nonattainment or maintenance 
area.
    (b) VOC DER's may be used in an attainment area that is not a 
maintenance area.
    (c) VOC DER's generated inside a nonattainment or maintenance area 
may be used outside a nonattainment area, maintenance area, or modeling 
domain.
    (C) Interstate Trading. DER's may be used in a State other than the 
State in which they were generated if authorized representatives of the 
two States approve a binding interstate agreement that is approved by 
USEPA as a SIP revision for each State, and that contains at least the 
following provisions that apply to each DER use:
    (1) The authority of the State where the generator source is 
located agrees to provide the authority of the State where the user 
source is located with all relevant information concerning the 
generator source and the DER generation including, but not limited to, 
emission limitations and permits issued to the generator source, if 
any, as well as the Notice and Certification of Generation and 
supporting documentation, in a timely manner;
    (2) The authority of the State where the user source is located 
agrees to provide the state where the generator source is located with 
all relevant information, including the Notice of Intent to Use DER's 
and the Notice and Certification of Use and supporting documentation, 
in a timely manner;
    (3) The authority of the State where the generator source is 
located agrees to notify the authority of the State where the user 
source is located as to whether the DER has been used previously; and
    (4) The authorities of the States where the user and generator 
sources are located agree to enforce their individual State emission 
requirements as modified by any valid emissions trades.

VII. Recordkeeping and Public Availability

    (A) Recordkeeping. The generator source shall adequately document 
the protocol and specific data by which a DER is quantified. Generator 
sources shall transfer all such documentation to any transferee at the 
time that ownership of a DER is transferred. The user source shall 
document the protocol and specific data by which the amount of DER's 
needed for compliance was determined. The user source shall maintain 
all relevant documentation for a minimum of five years after a DER is 
used for compliance. Records shall be kept with at least the same 
frequency as required for the underlying requirement.
    (B) Public Availability. All information submitted to the State for 
compliance with this rule shall be available to the public under 
[insert relevant State law pertaining to public availability of data]. 
This information shall not be considered confidential business 
information.
    (1) The [State official] will make all notices submitted by sources 
pursuant to this rule available for public review. For sources with 
operating permits, the [State official] will attach copies of these 
notices to the copy of the operating permit retained in the State 
offices. For sources that do not have operating permits, the [State 
official] will make these notices available in a similar manner [Cite 
of State rule.]
    (2) The sources shall make all documentation that supports the 
notices submitted to the State as part of this rule available to the 
public (``pursuant to [applicable State regulation'', if applicable]).

VIII. Protocol Development and Approval

    (A) General Rule. To quantify the amount of DER's generated and the 
amount needed for compliance, sources shall use quantification 
protocols in accordance with the requirements of this section.
    (B) USEPA-Approved Protocols (Option 1). [Option 1 or Option 2 will 
be selected for the final model rule.]
    (1) If a USEPA-approved protocol exists for a given application, it 
may be used.
    (2) If a credit generator wishes to deviate to some extent from an 
approved protocol, or develop a new protocol, the generator must do so 
in accordance with guidance set forth by USEPA. The USEPA approval need 
not be obtained in advance, however, USEPA reserves the right to reject 
the protocol and any resulting credits whether or not the protocol was 
followed.
    (C) USEPA-Approved Protocols (Option 2). [Option 1 or Option 2 will 
be selected for the final model rule.]
    (1) If an EPA-approved quantification protocol exists for a given 
application, it must be used.
    (2) If a credit generator wishes to deviate to some extent from an 
approved protocol, the credit generator must obtain advance approval 
from USEPA.
    (3) If an approved protocol does not exist, a new protocol shall be 
designed with the participation of affected parties according to a 
guidance set forth by USEPA. The USEPA approval need not be obtained in 
advance, however, USEPA reserves the right to reject the 

[[Page 44296]]
protocol and any resulting credits whether or not the protocol was 
followed.
    (C) Protocol Elements. Protocols must contain methods that are 
credible, workable, enforceable, and replicable and must include each 
of the following elements:
    (1) A description of the calculation methods used for determining 
the reductions achieved by the emissions controls as implemented;
    (2) Estimates of the accuracy of the appropriate USEPA test method, 
if available, not to exceed some given value;
    (3) A description of the recordkeeping program that permits 
verification of production, materials used, and use of control 
equipment;
    (4) The USEPA test methods where available; and
    (5) A requirement for complete, verifiable records on production, 
materials used and use of control equipment.
    (D) Emission Quantification Methods. A protocol may contain the 
following:
    (1) Emission quantification methods contained in an applicable 
Federally approved operating permit; or
    (2) Emission quantification methods approved in the applicable SIP.

IX. DER Use for NSR and Conformity Purposes

    (A) General Rule. All DER's used to meet--
    (1) NSR offset requirements shall comply with the requirements of 
section 173 of the Act and 40 CFR 51.165(a) including the requirements 
of subsection (B) of this section.
    (2) Conformity requirements shall comply with 40 CFR part 51, 
subparts T and W and part 93 subparts A and B.
    (B) Specific Requirements for NSR.
    (1) The State must approve the use of specific DER's that cover at 
a minimum 1 year of operation of the new or modified source in the NSR 
permit.
    (2) The NSR permit must contain an enforceable requirement that the 
source obtain at least one additional year of offsets before continuing 
operation in each subsequent year.
    (3) The NSR permit must contain an enforceable commitment that 
before receiving any operating permit or permit renewal, the operating 
permit must contain an enforceable condition that the source must 
obtain offsets for each subsequent year before continuing to operate in 
each subsequent year.

X. Program Audits

    (A) Beginning no later than [insert the next ROP milestone year or 
date 3 years after State adoption of this rule] and at least every 3 
years thereafter (coinciding with the periodic inventory submittals 
required under section 182 of the Act), the [State authority] shall 
audit this program to evaluate at a minimum, the following program 
elements:
    (1) Amount and timing of emission reductions (e.g., DER's used 
compared to DER's generated in a given year or ozone season);
    (2) Compliance by generators and users;
    (3) The effect of the program on temporal and spatial assumptions 
in the attainment demonstration, and ROP plans;
    (4) The effects of remedial measures, if applicable, implemented as 
a result of previous audit findings.
    (5) The effects on toxic emissions from operation of this rule.
    (B) As determined by the [State authority], the [State authority] 
shall institute remedial measures to the extent necessary.
    (C) The audit data and results shall be completed, submitted to 
USEPA, and available for public inspection within one year after the 
audit begins.

XI. Enforcement

    (A) Compliance Burden.
    (1) The DER user source is responsible for assuring that the 
generation and use of DER's comply with this rule.
    (2) The DER user source (not the enforcing authority) bears the 
burden of proving that DER's used are valid and sufficient and that the 
DER use meets all applicable requirements of this rule. The DER user 
source is responsible for compliance with its underlying obligations. 
In the event of enforcement against the user source for non-compliance, 
it shall not be a defense for the purpose of determining civil 
liability that the user source relied in good faith upon the generator 
source's representations.
    (B) Violation Day Definition for User Source Excess Emissions. 
Section 113(b) of the Act authorizes a maximum civil penalty of $25,000 
per day for each violation. For purposes of this regulation, the number 
of days of violation associated with improper DER use or insufficient 
DER quantity shall be the number of consecutive days with insufficient 
DER quantity after taking into account DER's used to offset excess 
emissions (converted to units of mass) on a consecutive day basis. If a 
user is unable to document actual emissions rate on a daily basis, the 
number of days of violation shall include every day since the beginning 
of the use period during which there was insufficient DER's. Failure to 
keep adequate records is equivalent to a lack of creditable DER's.

    Dated: August 16, 1995.
Mary D. Nichols,
Assistant Administrator for Air and Radiation.
[FR Doc. 95-21168 Filed 8-24-95; 8:45 am]
BILLING CODE 6560-50-P