[Federal Register Volume 61, Number 154 (Thursday, August 8, 1996)]
[Rules and Regulations]
[Pages 41335-41338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20241]


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ENVIRONMENT PROTECTION AGENCY
40 CFR Part 52

[FRL-5533-2]


Approval and Promulgation of Implementation Plans; Massachusetts; 
Emissions Banking, Trading, and Averaging Program Approval

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: The EPA is approving, in final, a State Implementation Plan 
(SIP) revision submitted by Massachusetts. This revision establishes a 
voluntary emissions banking, trading, and averaging program for 
eligible sources of volatile organic compounds (VOC), nitrogen oxides 
(NOX), or carbon monoxide (CO). The goal of these regulations is 
to encourage the creation, trading, and averaging of emission reduction 
credits in order for facilities to comply with new source review 
offsetting, netting, and reasonably available control technology (RACT) 
requirements in the most cost-effective manner. The program was adopted 
as a discretionary Economic Incentive Program, developed pursuant to 
EPA's guidance. This revision includes provisions which EPA proposed to 
approve in a document published on February 22, 1995.

DATES: This action is effective October 7, 1996, unless notice is 
received by September 9, 1996 that adverse or critical comments will be 
submitted. If the effective date is delayed, timely notice will be 
published in the Federal Register.

ADDRESSES: Comments may be mailed to Susan Studlien, Deputy Director, 
Office of Ecosystem Protection, U.S. Environmental Protection Agency, 
Region I, JFK Federal Bldg., Boston, MA 02203. Copies of the State 
submittal and EPA's technical support document are available for public 
inspection during normal business hours, by appointment at the Office 
of Ecosystem Protection, U.S. Environmental Protection Agency, Region 
I, One Congress Street, 11th floor, Boston, MA, and the Division of Air 
Quality Control, Massachusetts Department of Environmental Protection, 
One Winter Street, 8th floor, Boston, MA 02108.

FOR FURTHER INFORMATION CONTACT: Steven A. Rapp, Environmental 
Engineer, Air Quality Planning Unit (CAQ), United States Environmental 
Protection Agency, Region 1, JFK Federal Building, Boston, MA 02203. 
(617) 565-2773.

SUPPLEMENTARY INFORMATION:

I. Background

    On April 7, 1994, EPA published final rules for Economic Incentive 
Programs (59 FR 16690). The notice set forth Economic Incentive Program 
(EIP) rules which could be adopted by certain ozone and carbon monoxide 
nonattainment areas which were mandated by sections 182(g)(3), 
182(g)(5), 187(d)(3), and 187(g) of the Clean Air Act (Act) to use or 
consider EIPs. The notice also served as interim guidance for States to 
develop discretionary EIPs for any criteria pollutant in all areas. 
Massachusetts has developed emissions banking and trading, and 
emissions averaging regulations as a discretionary EIP. The program was 
developed pursuant to EPA's EIP guidance. These regulations establish a 
voluntary emissions banking, trading, and averaging program for 
eligible sources of volatile organic compounds (VOC), nitrogen oxides 
(NOX), or carbon monoxide (CO). The goal of these regulations is 
to encourage the creation, trading, and averaging of emission reduction 
credits in order for facilities to comply with new source review 
offsetting, netting, and reasonably available control technology (RACT) 
requirements in the most cost-effective manner.

II. State Submittal

    Massachusetts submitted an emissions banking and trading, and 
emissions averaging regulations in two separate SIP submittals. First, 
on February 9, 1994, the Massachusetts Department of Environmental 
Protection (MA DEP) submitted Sections 310 CMR 7.00 Appendix B(1), (2), 
(3), and (5) as a revision to its SIP. These sections of the 
regulations establish requirements for the certification of emission 
reduction credits (ERCs), or ``banking,'' as well as for the trading of 
the ERCs between facilities. On February 22, 1995, EPA proposed 
approval of this submittal. Subsequently, on April 14, 1995, the EPA 
received a request from the Massachusetts DEP to revise the SIP for 
ozone, including amendments to 310 CMR 7.18 and 7.19, regarding 
emissions averaging at VOC and NOX RACT sources, concurrent with 
the addition of sections 310 CMR 7.00 Appendix B(4) and (6), which deal 
with emissions averaging and public participation procedures, 
respectively, in the EIP.

[[Page 41336]]

    Additionally, on February 8, 1996, MA DEP submitted supplemental 
information to EPA which provides a quantitative demonstration that the 
use of ERCs certified under 310 CMR 7.00 Appendix B, including the use 
of credits created by one-time actions, or unused credits carried over 
from year to year, i.e., the inter-temporal use of credits, will be 
consistent with the requirements of the Massachusetts SIP, Reasonable 
Further Progress (RFP) and Rate of Progress (ROP) plans, and area wide 
RACT requirements.
    The following is a description of the changes being approved in 
this action:

A. 310 CMR 7.00 Appendix B(1), (2), (3), and (5)

    Sections (1), (2), (3), and (5) of Appendix B establish a 
discretionary economic incentive program (EIP) under Section 182 of the 
Clean Air Act of emission banking and trading. The EIP rule classifies 
EIPs into three broad categories: emission limiting, market response, 
and directionally sound. Since this EIP will limit total mass emission, 
related parameters, or specify levels of emission reductions from 
eligible sources, it is classified as emission-limiting. Under this 
EIP, individuals and companies can voluntarily reduce emissions at 
eligible stationary sources (e.g., factories), mobile sources (e.g., 
automobiles), or area sources (e.g., residential heating systems) below 
the level required by State and federal regulations and then ``bank'' 
the surplus reductions as credit. This program also establishes the 
requirements for the transfer credits between eligible entities. Under 
this program, stationary sources can use credits to comply with new 
source review offsetting, netting, and reasonably available control 
technology (RACT) requirements. These sections of the regulations 
became effective in Massachusetts on September 10, 1993.

B. 310 CMR 7.00 Appendix B(4)

    The goal of this part of the regulations is to allow sources of 
NOX and VOC to utilize emissions averaging, or ``bubbling'', in 
order to comply with RACT requirements. The addition of 310 CMR 7.00 
Appendix B(4), in combination to the changes made to 310 CMR 7.18 and 
7.19, establishes a system by which facilities owned by the same 
person(s) can average, or ``bubble'' emissions. These rule changes 
became effective in Massachusetts on January 27, 1995. This means that 
facilities which reduce emissions below the level required by State and 
federal regulation at some emission sources, can control less at other 
emission sources, provided that the net effect to the environment is as 
if all the emission sources applied the otherwise required controls. 
This regulation replaces the former 310 CMR 7.00 Appendix B.

C. 310 CMR 7.00 Appendix B(6)

    Section 310 CMR 7.00 Appendix B(6) was added to establish public 
participation procedures which apply to applications processed under 
310 CMR 7.00 Appendix B. These rule changes became effective in 
Massachusetts on January 27, 1995. These provisions require that the MA 
DEP propose publicly whether an application should be approved, 
approved with conditions, or disapproved. Additionally, these 
provisions require the MA DEP to make all non-confidential information 
available to the public, to publish a public notice, to provide a 30 
day public comment period, and conduct a public hearing. The inclusion 
of these requirements, in combination with the other requirements of 
310 CMR 7.00 Appendix B, will allow EPA to consider permits issued 
consistent with Appendix B, for the certification, withdrawal, 
transfer, or use of ERCs, to be considered federally enforceable 
without the need for further EPA approval.

D. 310 CMR 7.18(2)(b)

    The changes adopted to 310 CMR 7.18 consist of providing facility 
owners with the option to utilize emissions averaging to comply with 
VOC RACT emission limitations contained in 310 CMR 7.18 (3) through 
(7), (10) through (12), and (14) through (16). Also, these provisions 
require any facility utilizing emissions averaging to comply with the 
requirements of 310 CMR 7.18 to be subject to the emissions averaging 
requirements of 310 CMR 7.00 Appendix B(4).

E. 310 CMR 7.19(2)(d), (2)(g), and (14)

    The changes adopted to 310 CMR 7.19 allow any source subject to the 
NOX RACT requirements of 310 CMR 7.19 either to comply with a more 
stringent limitation, in order to create emission reduction (ERCs) 
credits or offsets, or to comply with the emission limitations of 310 
CMR 7.19 by averaging emissions or by using ERCs. Section 310 CMR 
7.19(14) allows emission units subject to the emission standards in 310 
CMR 7.19(4), (5), (7), (8), or (12) to comply by emissions averaging. 
Further, this section provides the conversion factors necessary for 
averaging emissions between stationary reciprocating internal 
combustion engines or stationary combustion turbines with boilers. 
Additionally, this section requires such averaging emission units to 
meet the testing, monitoring, record keeping, and reporting 
requirements of 310 CMR 7.19(13)(b), (c), and (d), which includes the 
requirements to use NOX CEMS on averaging units.

III. Analysis of State Submittal and Supporting Material

    EPA has evaluated the Massachusetts emissions banking, trading, and 
averaging regulations and supporting documentation against applicable 
EPA guidance, including, the Economic Incentive Program rules (40 CFR 
Sec. 51.490-494) and the EPA's June 28, 1989 guidance on requirements 
of State implementation plans (54 FR 27274). EPA has determined that 
all applicable requirements of these guidance documents have been met. 
EPA has developed a technical support document (TSD) that contains a 
detailed description of this analysis. The TSD is part of the docket 
supporting this action and is available upon request.

IV. Issues

    On February 22, 1995, EPA published a notice of proposed rulemaking 
(NPR) proposing to approve portions of 310 CMR 7.00 Appendix B as a 
non-generic economic incentive program (60 FR 9810). In response to 
that notice, EPA received four comments. The commenters raised two 
major areas of concern. First, three of the commenters argued that EPA 
should grant ``generic'' authority to Massachusetts to allow the State 
to approve emissions trades without further EPA approval. Second, one 
commenter asserted that this EIP could result in pollution ``spikes'' 
if facilities traded emission reduction credits such that they would 
emit more during the summer ozone season than the underlying control 
requirements would have allowed absent the EIP.
    However, since the publication of that notice, Massachusetts 
adopted a number of regulatory changes which address the deficiencies 
outlined in the NPR, including providing for public notice and comment 
on each trade or credit certification. Also, Massachusetts has 
submitted a quantitative analysis showing that the use of credits under 
310 CMR 7.00 Appendix B(3), including the use of one-time or carry over 
credits during time periods other than when they were generated (i.e., 
the inter-temporal use of credits), will be consistent with the 
requirements of the Massachusetts SIP, RFP and ROP plans, and area wide 
RACT requirements. EPA also performed an analysis of the potential 
buffering effect inherent in implementation of the State's current 
regulations. Based upon the regulatory

[[Page 41337]]

changes and additional analyses, EPA believes that the Massachusetts 
emissions banking, trading program now fully meets the applicable EPA 
guidance documents. Additionally, EPA has determined that the emissions 
averaging portion of the program also meets the applicable EPA 
guidance. Therefore, in lieu of finalizing the proposed final approval 
of 310 CMR 7.00: Appendix B(1), (2), (3), and (5), and proposing 
approval of the other provisions as a separate action, EPA is approving 
all of 310 CMR 7.00 Appendix B, as well as 310 CMR 7.18(2)(b), 310 CMR 
7.19(2)(d), 7.19(2)(g), and 7.19(14), as a fully generic EIP. The TSD 
provides a detailed explanation of how EPA is addressing the comments 
received on its earlier proposal, and how this current submittal 
responds to the concerns raised in those comments.

V. Final Action

    EPA is approving all of 310 CMR 7.00 Appendix B, as submitted to 
date, as well as 310 CMR 7.18(2)(b), 310 CMR 7.19(2)(d), 7.19(2)(g), 
and 7.19(14), as a fully generic EIP. Additionally, upon approval of 
these regulations as part of the SIP, EPA will consider any emission 
control plans or credit certifications issued according to the 
requirements of 310 CMR 7.00 Appendix B since January 27, 1995, i.e., 
the effective date of the modified regulations, as federally 
enforceable without the need for further EPA approval. EPA is 
publishing this action without prior proposal because the Agency views 
this as a noncontroversial amendment and anticipates no adverse 
comments. However, in a separate document in this Federal Register 
publication, EPA is proposing to approve the SIP revision should 
adverse or critical comments be filed. This action will be effective 
October 7, 1996 unless adverse or critical comments are received by 
September 9, 1996.
    If the EPA receives such comments, this action will be withdrawn 
before the effective date by simultaneously publishing a subsequent 
notice that will withdraw the final action. All public comments 
received will then be addressed in a subsequent final rule based on 
this action serving as a proposed rule. The EPA will not institute a 
second comment period on this action. Any parties interested in 
commenting on this action should do so at this time. If no such 
comments are received, the public is advised that this action will be 
effective on October 7, 1996.

VI. Procedural Background

    Nothing in this action shall be construed as permitting or allowing 
or establishing a precedent for any future request for a revision to 
any state implementation plan. Each request for revision to the state 
implementation plan shall be considered separately in light of specific 
technical, economic, and environmental factors and in relation to 
relevant statutory and regulatory requirements.

VII. Regulatory Process

    This action has been classified as a Table 3 action by the Regional 
Administrator under the procedures published in the Federal Register on 
January 19, 1989 (54 FR 2214-2225), as revised by a July 10, 1995 
memorandum from Mary Nichols, Assistant Administrator for Air and 
Radiation. A future document will inform the general public of these 
tables. The Office of Management and Budget (OMB) has exempted this 
action from review under Executive Order 12866.
    Under the Regulatory Flexibility Act, 5 U.S.C. 600 et. seq., EPA 
must prepare a regulatory flexibility analysis assessing the impact of 
any proposed or final rule on small entities. 5 U.S.C. 603 and 604. 
Alternatively, EPA may certify that the rule will not have a 
significant impact on a substantial number of small entities. Small 
entities include small businesses, small not-for-profit enterprises, 
and government entities with jurisdiction over populations of less than 
50,000.
    EPA's action does not create any new requirements, but simply 
approves requirements that the State is already imposing. Therefore, 
because the federal SIP-approval does not impose any new requirements, 
I certify that it does not have a significant impact on any small 
entities affected. Moreover, due to the nature of the federal-State 
relationship under the CAA, preparation of a regulatory flexibility 
analysis would constitute federal inquiry into the economic 
reasonableness of State action. The CAA forbids EPA to base its actions 
concerning SIPs on such grounds. Union Electric Co. v. USEPA, 427 US 
246, 256-66 (S.Ct. 1976); 42 U.S.C. 7410 (a)(2).
    Under sections 202, 203, and 205 of the Unfunded Mandates Reform 
Act of 1995 (``Unfunded Mandates Act''), signed into law on March 22, 
1995, EPA must assess whether various actions undertaken in association 
with proposed or final regulations that include a Federal mandate that 
may result in estimated costs of $100 million or more to the private 
sector, or to State, local, or tribal governments in the aggregate.
    EPA has determined, as discussed earlier, that the finding that is 
the subject of this final action does not impose any federal 
intergovernment mandate, as defined in Sec. 101 of the Unfunded 
Mandates Act. This action consists of factual determinations based upon 
the State's adoption of a voluntary program. Accordingly, no additional 
costs to State, local, or tribal governments, or to the private sector 
result from this action. This action also will not impose a mandate 
that may result in estimated costs of $100 million or more to either 
State, local, or tribal governments in the aggregate, or to the private 
sector.
    Under section 801(a)(1)(A) of the Administrative Procedure Act 
(APA) as amended by the Small Business Regulatory Enforcement Fairness 
Act of 1996, EPA submitted 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 General Accounting 
Office prior to publication of this rule in today's Federal Register. 
This rule is not a ``major rule'' as defined by section 804(2) of the 
APA as amended.
    Nothing in this action should be construed as permitting or 
allowing or establishing a precedent for any future request for 
revision to any state implementation plan. Each request for revision to 
the state implementation plan shall be considered separately in light 
of specific technical, economic, and environmental factors and in 
relation to relevant statutory and regulatory requirements.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Carbon Monoxide, 
Hydrocarbons, Incorporation by reference, Intergovernmental relations, 
Nitrogen oxides, Ozone, Reporting and recordkeeping requirements.

    Note: Incorporation by reference of the State Implementation 
Plan for the State of Massachusetts was approved by the Director of 
the Federal Register on July 1, 1982.

    Dated: June 18, 1996.
John P. DeVillars,
Regional Administrator, Region I.

    Part 52 of chapter I, title 40 of the Code of Federal Regulations 
is amended as follows:

PART 52--[AMENDED]

    1. The authority citation for part 52 continues to read as follows:

    Authority: 42 U.S.C. 7401-7671q

[[Page 41338]]

Subpart W--Massachusetts

    2. Section 52.1120 is amended by adding paragraph (c)(112) to read 
as follows:


Sec. 52.1120  Identification of plan.

* * * * * *
    (c) * * *
    (112) Revisions to the State Implementation Plan submitted by the 
Massachusetts Department of Environmental Protection on February 9, 
1994, and April 14, 1995, concerning emissions banking, trading, and 
averaging.
    (i) Incorporation by reference.
    (A) Letters from the Massachusetts Department of Environmental 
Protection dated February 9, 1994, and March 29, 1995, submitting 
revisions to the Massachusetts State Implementation Plan.
    (B) Regulations 310 CMR 7.00 Appendix B(1); 310 CMR 7.00 Appendix 
B(2); 310 CMR 7.00 Appendix B(3), except 310 CMR 7.00 Appendix 
B(3)(e)5.h; and, 310 CMR 7.00 Appendix B(5); effective on January 1, 
1994. Also, regulations 310 CMR 7.00 Appendix B(4); 310 CMR 7.00 
Appendix B(6); 310 CMR 7.18(2)(b); 310 CMR 7.19(2)(d); 310 CMR 
7.19(2)(g); and, 310 CMR 7.19(14); effective on January 27, 1995.
    (ii) Additional materials.
    (A) Letter and attachments from the Massachusetts Department of 
Environmental Protection dated February 8, 1996, submitting 
supplemental information concerning the demonstration of balance 
between credit creation and credit use.
    3. In Sec. 52.1167, table 52.1167 is amended by removing the 
existing entry for ``310 CMR 7.00 Appendix B'' and replacing it with 
the new entry ``310 CMR 7.00 Appendix B, except for 310 CMR 7.00 
Appendix B(3)(e)5.h''; and by adding new entries in numerical order to 
existing state citations ``310 CMR 7.18'' and ``310 CMR 7.19'' to read 
as follows:


Sec. 52.1167  EPA-approved Massachusetts State regulations.

* * * * *

                                                 Table 52.1167.--EPA-Approved Massachusetts Regulations                                                 
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                                                      Date submitted by                            Federal Register                 Comments/unapproved 
         State citation             Title/subject           State          Date approved by EPA        citation       52.1120(c)         sections       
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
                *                   *                   *                   *                   *                   *                  *                
310 CMR 7.00 Appendix B (except  Emissions Banking,  2/9/94 and.........  Aug. 8, 1996..........  [FR citation from          112  Replaces earlier      
 310 CMR 7.00 Appendix            Trading, and       3/29/95............                           published date].                emissions averaging  
 B(3)(e)5.h).                     Averaging.                                                                                       rules with emissions 
                                                                                                                                   banking, trading, and
                                                                                                                                   averaging.           
                                                                                                                                                        
                *                   *                   *                   *                   *                   *                  *                
310 CMR 7.18 (2)(b)............  Generic VOC bubble  3/29/95............  Aug. 8, 1996..........  [FR citation from          112  Replaces earlier      
                                  for surface                                                      published date].                emissions averaging  
                                  coaters.                                                                                         rules for surface    
                                                                                                                                   coaters.             
                                                                                                                                                        
                *                   *                   *                   *                   *                   *                  *                
310 CMR 7.19 (2)(d)............  Generic NOX         3/29/95............  Aug. 8, 1996..........  [FR citation from          112  Adds credit creation  
                                  bubbling and                                                     published date].                option for NOX RACT  
                                  trading for RACT                                                                                 sources.             
                                  sources.                                                                                                              
310 CMR 7.19 (2)(g)............  Generic NOX         3/29/95............  Aug. 8, 1996..........  [FR citation from          112  Adds credit use option
                                  bubbling and                                                     published date].                for NOX RACT sources.
                                  trading for RACT                                                                                                      
                                  sources.                                                                                                              
310 CMR 7.19 (14)..............  Generic NOX         3/29/95............  Aug. 8, 1996..........  [FR citation from          112  Adds quantification,  
                                  bubbling for RACT                                                published date].                testing, monitoring, 
                                  sources.                                                                                         record keeping,      
                                                                                                                                   reporting, and       
                                                                                                                                   emission control plan
                                                                                                                                   requirements for     
                                                                                                                                   averaging NOX RACT   
                                                                                                                                   sources.             
                                                                                                                                                        
                *                   *                   *                   *                   *                   *                  *                
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[FR Doc. 96-20241 Filed 8-07-96; 8:45 am]
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