[Federal Register Volume 62, Number 181 (Thursday, September 18, 1997)]
[Proposed Rules]
[Pages 48972-48981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24836]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 52 and 81
[MI 52-01-7260; FRL-5894-6]
Approval and Promulgation of Implementation Plans; Michigan
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
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SUMMARY: The Environmental Protection Agency (EPA) is proposing
approval of the requested revisions to the Michigan State
Implementation Plan (SIP) for ozone, carbon monoxide, sulfur dioxide,
nitrogen dioxide, particulate matter and lead. The requested revisions
are Michigan's Emissions Averaging and Emission Reduction Credit
Trading Rules and supporting documents. These rules were submitted by
the State of Michigan on April 17, 1996 as an optional revision to the
SIP. The EPA has determined through its evaluation of the rules that
they can be approvable upon submission of corrections to certain
deficiencies that are identified in this notice.
DATES: Comments on this proposed action must be received by October 20,
1997.
ADDRESSES: Written comments should be addressed to: Carlton T. Nash,
Chief, Regulation Development Section, Air Programs Branch (AR-18J),
United States Environmental Protection Agency, Region 5, 77 West
Jackson Boulevard, Chicago, Illinois 60604.
Copies of the State's submittal and EPA's analysis (Technical
Support Document) are available for inspection at the following
location: United States Environmental Protection Agency, Region 5, Air
and Radiation Division, 77 West Jackson Boulevard, Chicago, Illinois
60604. (Please telephone Alexis Cain or Rick Tonielli before visiting
the Region 5 Office.)
FOR FURTHER INFORMATION CONTACT: Alexis Cain at (312) 886-7018 or Rick
Tonielli at (312) 886-6068.
SUPPLEMENTARY INFORMATION:
I. Background
Michigan submitted these rules as a SIP revision to allow sources
of emissions of ozone precursors (NOX and VOCs) and non-
ozone criteria pollutants (CO, SO2, NO2, PM-10
and lead) flexibility in complying with requirements already in the
SIP. The program provides emissions sources with a financial incentive
to reduce emissions below levels required by applicable Federal and
State requirements and below their actual emissions of the recent past.
Sources that make these extra reductions beyond requirements generate
emission reduction credits (ERCs) that they can use later or sell to
other sources. ERCs may be used by sources to comply with emissions
limits. The program is not a means of limiting emissions; instead,
trading and averaging are meant to provide an opportunity to comply
with existing emission limits in a more cost effective manner.
Michigan's emissions trading credit and averaging rules are not a
required SIP submission under the Clean Air Act (the Act).
Outline of State Program
Michigan's SIP submittal includes both ``open market'' trading and
emissions averaging. In an open market trading system, credits are
first generated, then subsequently traded, so that generation and use
of the credit are separated in time. Open market programs rely on
continual credit generation to ensure that use of previously generated
credits is balanced by generation of new credits, so that ``spikes'' in
emissions are not created by credit use. Sources participating in an
open market trading program generate discrete emission reductions,
referred to as emission reduction credits (ERCs) in the Michigan
program, by reducing emissions below a baseline over a discrete time
period. The generation baseline is established by existing
requirements, and is determined by the lower of allowable emissions or
actual past emissions. Credits can either be used at a later time by
the generator source or be sold to another source; the use of credits
allows a source to emit above its emission limit while remaining in
compliance.
The Michigan program also allows emissions averaging at sources
that are subject to Reasonably Available Control Technology (RACT)
requirements and are under common ownership and control. Under
Michigan's emissions averaging provisions, one source can exceed a
permitted emissions limit, as long as there is a simultaneous
reduction, equaling 110 percent of the exceedance, at another source
under the same ownership or control, but not necessarily at the same
location. In both the open market and emission averaging provisions of
Michigan's rule, 10 percent of the emission reductions generated are
retired for an environmental benefit.
Sources can trade and average emissions of volatile organic
compounds (VOCs) as a group, nitrogen oxides (NOX), and all
criteria pollutants other than ozone. VOC and NOX ERCs must
be designated as either ozone season or non-ozone season credits; VOC
and NOX ERCs generated outside of the ozone season cannot be
used during the ozone season.
Under the Michigan plan, sources which generate ERCs or engage in
emissions averaging must provide the Michigan Department of
Environmental Quality (MDEQ) with a notice that includes information
about the source
[[Page 48973]]
generating the reductions, the methods of generating the reductions,
the amount of reductions, and the methods used to measure the
reductions. An official representative of the source must certify that
the information contained in the notice is ``true, accurate and
complete,'' that the emission reductions generated are ``real, surplus,
enforceable, permanent and quantifiable,'' and that the reductions have
not been used elsewhere for averaging or credit generation. ERCs and
averaging plans are not valid until MDEQ certifies that this notice is
complete. The rule requires MDEQ to make a determination of
completeness within 30 days. Similarly, sources which wish to trade or
use ERCs must provide to MDEQ a notice which includes information about
the source using the ERCs, the number of ERCs to be used, the
requirements being complied with through the use of ERCs, and a copy of
the generation notice for the ERCs that will be used. A responsible
official must certify that the information is ``true, accurate, and
complete'' and that the source will be operated in compliance with all
applicable requirements, including requirements for the use of ERCs.
As mentioned previously, the Michigan program requires a retirement
of 10 percent of ERCs generated, and of 10 percent of the reductions
used in an emission averaging program, to create a benefit for the
environment. In addition, VOC and NOX ERCs are discounted 10
percent per ozone season. All ERCs expire five years after being
generated.
Basis for Evaluation of SIP Revision
In 1994, EPA issued Economic Incentive Program (EIP) rules and
guidance (40 CFR part 51, subpart U), which outlined requirements for
establishing EIPs that States are required to adopt in some cases to
meet the ozone and carbon monoxide standards in designated
nonattainment areas. Michigan is not required to submit an EIP, so its
emission trading and averaging program need not necessarily follow the
EIP rule; however, subpart U also contains guidance on the development
of voluntary EIPs.
The EPA has also published a proposed policy on open market trading
programs (60 FR 39668, August 3, 1995) and a model open market trading
rule (60 FR 44290, August 25, 1995), which will be published as
guidance. This guidance will describe the elements of an open market
trading program that EPA considers to be desirable, and those that are
necessary for a program to be approvable as a SIP revision. As of this
writing, this guidance has not been finalized. Moreover, Michigan began
to develop its emissions trading program prior to the proposed guidance
on open market trading. Therefore, EPA does not expect Michigan's rule
to conform to this guidance.
Michigan's submittal is being evaluated on the basis of whether it
meets the requirements of SIPs as described in section 110 of the Act.
In particular, review focuses on whether the SIP as revised would be
enforceable, whether the revision would negatively affect the SIP's
ability to provide for attainment and maintenance of the National
Ambient Air Quality Standards (NAAQS), whether it would protect against
violations of Prevention of Significant Deterioration (PSD) increments,
and whether it would violate any other provisions of the Act.
II. Analysis of State Submittal
A. Size of Tradable Units
Under Michigan's program, ERCs are denominated in tons, but not
necessarily in whole tons. While the rule itself does not specify the
fractions that can be used, MDEQ staff indicate that credits may be
denominated in tenths of tons, if such precision is merited by the
measurement accuracy of the quantification protocol. While it would be
preferable from EPA's perspective to denominate all credits in whole
tons, Michigan's procedure is acceptable. No procedure is identified in
the rule for rounding the amount of credits generated or the amount
used. The EPA would suggest specifying that ERC users round up to the
nearest unit when determining the amount of ERCs needed, and ERC
generators must round down to the nearest unit when determining the
amount of ERCs generated. Although it is not specified in the rule,
MDEQ staff have indicated that they will require use of a similar
procedure.
B. Benefit Sharing With the Environment
Michigan appropriately requires that generators of ERCs retire 10
percent of the ERCs generated as an environmental benefit when
providing notice of generation.
C. Trading of Oxides of Nitrogen
While the intent of the trading rules is clearly to allow trading
of NOX, the ozone precursor, as well as NO2, the
criteria pollutant, Rule 1203(2) indicates that the program ``applies
only to volatile organic compounds as a class of compounds and all
criteria pollutants, except ozone.'' In order to allow for trading of
NOX as well as NO2, this statement must be
changed to add NOX to the list of compounds eligible for
trading.
D. Claiming Ownership of ERCs
Michigan's rule does not include a discussion specifying which
parties are eligible to generate credits in situations where more than
one party has a potential claim. This issue is significant because the
rights to credits generated by a particular credit generation strategy
will be unclear in some cases. For instance, a manufacturer of a device
that reduces automobile emissions might attempt to register credits
based on the sale of the device within Michigan. However, an owner of a
vehicle fleet might also attempt to register credits based on his or
her installation of those same devices within the fleet. Registration
of both sets of credits would double count the emission reductions,
leading to excess credits being generated.
MDEQ must address the issue of ownership claims in its procedures
for approving notices of credit generation. Guidance will be
forthcoming on this issue from EPA.
E. ERC Generation Issues
1. ERC Generation Baseline
Rule 1207 explains how the baseline from which a source may
generate credits is determined. Calculations must be based on the
source's emissions over the most recent 2 years or most recent 2 ozone
seasons, unless it can be shown that another time period is more
representative of actual emissions. Measurement must be based on
continuous emission monitoring (CEM) or parametric monitoring if
required by applicable requirement or if practical and reasonable;
otherwise, measurement for stationary sources will be based on emission
monitoring methods specified by applicable requirement or approved by
MDEQ. The baseline is calculated using an equation that includes the
lower of the actual or allowable emission rate, a capacity utilization
factor representative of the historical production rate of the source,
and the average actual operating hours of the source.
The generation baseline is determined by the emissions that
occurred prior to ``the initiation of an activity to reduce emissions
for the purposes of creating emission reduction credits.'' 1
(Rule 1207(1)) However, Michigan's rule also
[[Page 48974]]
requires that reductions which generate ERCs be ``surplus,'' defined as
``those emission reductions made below an established source baseline
which are not required in the state implementation plan, any applicable
federal implementation plan, any applicable attainment demonstration,
reasonable further progress plan, or maintenance plan and which are not
mandated by any applicable requirement.'' Thus, the generation baseline
must be adjusted to reflect new requirements.
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\1\ For mobile source emissions, the baseline can be established
by the emissions projected in the absence of an emissions reduction
action, ``where a period of historical operations and actual
emission data or activity levels cannot be used to determine
emissions.'' (Rule 1207(2)(b)(3))
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The rules do not set any limit on the age of emissions data that
can be used to establish a generation baseline, although the
requirement to show that other data is more representative when not
using the previous 2 years as a baseline should limit, in practice, how
far back a source could go. The EPA strongly urges MDEQ to reject the
use of any baseline calculated based on data from any date prior to
November 15, 1990.
2. ERC Generation Start Date
Michigan's emissions trading rules allow credits to be generated
from actions dating back to 1991, accruing starting in 1991. Allowing
use of credits generated prior to enactment of the program has
potentially troublesome aspects. Credits generated prior to enactment
of the rule could flood the market, creating widespread use of cheap
credits and discouraging the generation of new credits. With generation
of new credits suppressed and abundant old credits in use, total
emissions could exceed levels that would have occurred in the absence
of the trading program.
However, several aspects of Michigan's program provide some
protection against this potential problem. First, credits generated
prior to enactment of the rules are discounted 50 percent, rather than
the usual 10 percent. Second, credits last only 5 years beyond the time
that the reductions occur. Therefore, reductions generated in the early
1990s will have a very limited life. Finally, credits generated from
early reductions must be registered within 1 year of enactment--by
March 17, 1997, a date which has already passed, allowing the State to
determine immediately the total number of pre-enactment credits that
are registered and in circulation.
While EPA would prefer that the program not allow credits to be
generated prior to enactment of the trading rule, and that credits not
be generated from actions taken more than 1 year prior to enactment, it
is willing to accept Michigan's approach, contingent upon receipt from
the State of the following: an accounting of the number of pre-
enactment credits generated and the remaining life of these credits,
and an analysis which demonstrates to EPA's satisfaction that the
potential use of these credits is unlikely to have a detrimental effect
on attainment or maintenance of the NAAQS or on any other requirement
of the Clean Air Act.
3. Credit Generation Through Activity Level Reductions
Michigan's program allows stationary sources to generate ERCs
through curtailing production, provided that the notice of generation
is submitted prior to the curtailment of operations. It also allows
sources which are shut down to generate ERCs for 5 years following the
shutdown. Therefore, given the 5 year limit on ERC life, shutdown
credits could be used a maximum of 10 years after the shutdown occurs.
Maintenance and attainment plans often rely upon emission
reductions caused by production decreases at some sources (i.e.,
shutdowns and curtailments) to help counteract increased emissions
caused by higher levels of production at sources subject to emission
rate limits, where emission increases are allowed to occur when net
production increases. Under Michigan's open-market trading system,
however, while increases in production at sources with emission rate
limits will still lead to emissions increases, production decreases
will not generate offsetting emissions reductions, since the reductions
resulting from production decreases can generate ERCs that are used to
allow higher emissions elsewhere. Therefore, overall emissions may
increase without a net increase in production under the trading
program; this is clearly a detriment to the environment.
Another problem potentially created by use of shutdown credits is
that load-shifting could occur among small sources such as gas stations
or print shops. Such sources could reduce emissions and generate ERCs
by shutting down or reducing production; however, the economic activity
of these sources will likely be picked up by new or existing sources in
the same areas, replacing the emissions for which ERCs were just given.
Since emissions created by increased operating rates by other existing
sources are not limited, and since new small sources are not subject to
an offset or cap requirement, the net effect of allowing shutdowns and
curtailments to generate ERCs would be to increase overall emissions.
Michigan's rule 1207(5) provides protection against load-shifting among
sources under common ownership or control. However, it does not protect
against load shifting among sources under different ownership or
control.
Moreover, allowing generation of ERCs from shutdowns and
curtailments could lead to generation of ERCs from emissions reductions
already relied upon in an attainment or maintenance plan, as mentioned
previously. Attainment and maintenance plans represent an effort to
prevent future violations of the NAAQS by projecting emissions
increases that will result from economic growth, factoring in the net
of shutdowns and curtailments, and insuring that emissions controls
will constrain emissions adequately despite net economic growth.
In order to correct this deficiency, Michigan can pursue one of
three options. The simplest and best option, from EPA's perspective, is
to prohibit the generation of ERCs from shutdowns and curtailments. A
second option is to prohibit the use of shutdown credits for compliance
with federal requirements in any area that has or needs an approved
attainment or maintenance demonstration. A third option is to prohibit
the use of shutdown credits for compliance with federal requirements in
any area that needs but lacks an approved attainment or maintenance
demonstration, while demonstrating to EPA's satisfaction that none of
Michigan's approved maintenance and attainment plans will be
compromised by the use of these credits. To make this demonstration, it
will be necessary to show that these plans do not rely in any way on
emission reductions created by source retirements or curtailments, and
that there is not an unacceptable level of risk that these credits
would interfere with future attainment or maintenance requirements. If
it decides to pursue this option, MDEQ must also seek public comment on
this form of credit generation.
4. Overcompliance With an Alternative RACT Determination
Emissions sources which cannot comply with a RACT limit because it
would not be technically feasible or economically reasonable can
receive an alternate RACT determination. Serious equity concerns would
be raised if such sources were allowed to generate credits by reducing
emissions below their alternative emission limit, while other sources
were required to base credit generation on their RACT limit. Therefore,
Michigan's rule appropriately disallows the use of an alternative
emission limit above an applicable RACT limit for the purpose of
setting a baseline. A source that has an
[[Page 48975]]
alternative emission limit can generate credits only by reducing
emissions below the RACT limit.
F. ERC Emission Reduction Quantification Protocols
The credibility of an emission trading program depends on the
ability of sources and regulatory agencies to judge the value of the
currency--in Michigan's case, the emissions reduction credits-- used in
the program. Thus, it is vital that the criteria used for judging the
adequacy of emissions quantification protocols be clearly understood by
all parties. Moreover, it is important that sources understand the
elements of quantifying emissions reductions in an emission trading
program (i.e., the need to establish a baseline, the need to ensure
that reductions are not overestimated) that do not arise when
quantifying emissions simply for the purpose of demonstrating
compliance. In a program where no agency pre-certification of the
validity of credits takes place, it is vital that the basis for an
enforcement action against generators and users of bad credits be
clearly delineated. Furthermore, while EPA does not wish to delay the
use of emission trading for sources in categories that do not have EPA-
approved quantification protocols, a source in a category that already
has an EPA-approved protocol must use it, unless it gains EPA approval
for use of an equally-good protocol.
Michigan's emission trading program already contains the
requirement that emission reduction credits be real, surplus,
enforceable, permanent, and quantifiable. In order to ensure that these
criteria are met, Michigan must take two steps; first, incorporate into
the emissions trading rules a requirement that sources in categories
without EPA-approved protocols must follow a set of EPA-approved
protocol development criteria that have been provided to MDEQ (Letter
from David Kee to Dennis Drake, July 1, 1997) when developing protocols
for their source category, and second, commit in the SIP to require use
of existing and future EPA-approved protocols for quantifying emission
reductions at applicable sources, and to allow sources to deviate from
an EPA protocol only if they first get the approval of EPA.
G. Potential Uses of ERCs
1. RACT Compliance Alternative
The Michigan rule appropriately allows ERCs to be used as a RACT
compliance alternative. The EPA recommends that in conjunction with its
trading program, Michigan consider halting alternative RACT
determinations/variances, given that ERCs provide an alternative means
of compliance for sources that cannot otherwise meet RACT. At a
minimum, the State should consider the cost and availability of ERCs
when making economic feasibility-based alternative RACT determinations.
2. New Source Review Requirements
a. Synthetic minor sources: A ``synthetic minor'' source is one
that has the potential to emit at major source levels defined by the
New Source Review (NSR) program, but whose emissions are artificially
limited by its permit to levels below those that would subject it to
the major source requirements of NSR. Michigan's Rule 1204(6) allows a
synthetic minor source to use ERCs to make a temporary increase in
emissions that would bring its total emissions above the major source
threshold, without making the source subject to the requirements that
would normally apply to sources which exceed the threshold, such as New
Source Review and Title V. This increase must not exceed major
modification levels as specified in 40 CFR 52.21; ``temporary increase
in emissions'' is defined in Rule 1201(ee) as an increase ``which
occurs for less than 12 months and which does not occur more than once
in a 24 month period.''
This provision is unacceptable because of its potentially serious
environmental consequences. It would allow sources that would otherwise
be required to undergo New Source Review to use emission reduction
credits to avoid this requirement. For example, assume that a synthetic
minor source with a potential to emit of 150 tons per year (tpy) has
agreed to a limit of 90 tons per year in order to avoid major source
status. Assume that this source wishes to increase its emissions to 117
tpy. Under the Michigan program, the source could purchase 27 tons of
ERCs to compensate for the increase. The 27 tons would have been
generated by a source or sources which reduced emissions by 30 tons,
leading to the retirement of 10 percent of these reductions for an
environmental benefit. Thus, the environment would see a net
improvement of 3 tons from the trade.
In the absence of the trading program, however, a 90 tpy synthetic
minor source that increases its production above 100 tpy would undergo
New Source Review; as a result, the source would be required to comply
with the provisions of Best Achievable Control Technology (BACT) or
Lowest Achievable Emission Rate (LAER), which would frequently result
in a reduction of the source's total emissions by an amount
substantially larger than 3 tons. This loss of reductions means that
the synthetic minor provisions of the Michigan rule could, in many
cases, result in a significant loss of environmental benefit. In
summary, emissions would be higher under the synthetic minor program
than they would be without it, since the emission reductions required
by BACT or LAER will usually be greater than the 10 percent reduction
for the environment that a trading program would achieve.
The EPA's position is that ERCs may be used to comply with, but not
to avoid, Clean Air Act requirements. This policy applies to New Source
Review and Title V permit requirements. By allowing this use of ERCs to
avoid a requirement, even temporarily, the trading rule allows
emissions to be higher than they would be otherwise.
There is also an important legal basis for finding this provision
to be deficient. According to 40 CFR 52.21(r)(4): ``At such time that a
particular source or modification becomes a major stationary source or
major modification solely by virtue of a relaxation in any enforceable
limitation which was established after August 7, 1980, on the capacity
of the source or modification otherwise to emit a pollutant, such as a
restriction on hours of operation, then the requirements or paragraphs
(j) through (s) of this section shall apply to the source or
modification as though construction had not yet commenced on the source
or modification.''
This deficiency can be corrected by removing Rule 1204(6) from the
SIP submittal. In the absence of Rule 1204(6), synthetic minor sources
in Michigan will be prevented from using trading to avoid requirements,
but they will still be allowed to use trading to compensate for any
emissions increases that would not trigger new requirements in the
absence of the trading program.
b. Compliance with NSR and PSD Emission Limits: Michigan's rule
prohibits the use of credits in place of installing equipment
determined to constitute BACT or LAER requirements under the NSR
program. However, credits can be used for compliance with the BACT or
LAER emissions rate when the required equipment has been installed and
is being properly maintained, but the emissions rate is nonetheless
being exceeded. This provision will allow a source that exceeds
permitted emissions, despite installing and properly maintaining the
required equipment, to remain in compliance until permit limits are
revised to reflect the emission
[[Page 48976]]
reductions actually achieved by the required technology. The EPA
believes that this is an appropriate use of credits, and suggests that
the rule could be strengthened by specifying what steps will be taken
by the State to limit the amount of time the source remains out of
compliance with BACT or LAER.
c. Offsets and Netting: Michigan allows use of credits for offsets
or netting at new or modified sources, with the following restrictions:
i. New sources which use ERCs for offsets must cover a minimum of
2.5 years of operation, and modified sources must cover the period of
time from issuance of an NSR permit to the date of issuance or renewal
of an operating permit.
ii. For renewal of an operating permit, the source must obtain ERCs
covering 5 years, or the term of the operating permit.
iii. The NSR permit must contain an enforceable commitment that the
source may not receive an operating permit or operating permit renewal
unless the operating permit contains an enforceable condition requiring
the source to obtain offsets for 5 years or the period of time for
which the permit is issued.
iv. ERCs used as offsets or for netting must be generated in the
``nonattainment area where the new or modified source is located or an
adjacent nonattainment area of equal or higher classification or other
area that contributes to the exceedance of a national ambient air
quality standard in the nonattainment area where the new or modified
source is located.'' Also, use must be in accordance with Clean Air Act
Section 182 and Michigan rule R 336.1220 (the State's ``major offset
rule'').
Section 182 of the Clean Air Act requires that offsets obtained
from a different nonattainment area must be both from the same or
higher classification and must contribute to a NAAQS exceedance in the
relevant nonattainment area. This contraction in the rules appears to
be an oversight; Rule 1211(3)(a) must be modified to reflect the
language of Section 182 of the Clean Air Act.
Michigan's rule would allow ERCs to be banked for the purpose of
netting. As stated in the technical support to the SIP, ``the
reductions are still required to be made at the same stationary source
and must be contemporaneous and of sufficient quantity to qualify under
NSR regulations.'' Under the current definition of netting (40 CFR
52.21), emissions increases and decreases considered for the purpose of
netting must be ``contemporaneous,'' defined as occurring within a
period beginning 5 years before the date that construction is expected
to commence on the proposed modification and ending when the increase
from the modification occurs. Since ERCs expire 5 years after being
generated under the Michigan rule, the contemporaneous requirement
would not be violated under Michigan's rule.
For both offsets and netting, the technical support to the trading
rule SIP submission indicates that MDEQ's intention is to allow ERCs to
be used only in a manner consistent with New Source Review
requirements. This intention must be stated explicitly as an
enforceable requirement of the rules.
3. NESHAP and NSPS Requirements
Michigan's rule appropriately prohibits the use of credits to
comply with National Emission Standards for Hazardous Air Pollutants
(NESHAP) and New Source Performance Standard (NSPS) emission
limitations or work practice standards.
4. Certain Mobile Source Standards
Michigan's rule appropriately prohibits the use of credits to
comply with ``Federally mandated mobile source requirements.''
5. Title IV Acid Rain Requirements
Michigan's rule appropriately prohibits Title IV sources that
participate in the Title IV acid rain cap-and-trade program from using
SO2 and NOX credits generated under Michigan's
trading rule to fulfill Title IV requirements.
H. ERC Use Requirements
1. Ownership of Credits Prior to Use
In open market trading programs, it is vital that sources that use
credits be required to own the credits prior to use. This requirement
ensures that sources will not be able to use trading to avoid the need
to maintain a compliance margin by simply using credits to ``true up''
after having exceeded their emission limits. Clearly, it is the intent
of the Michigan program to require ownership of credits prior to use--
Rule 1208(7) requires that emission reductions be generated prior to
being used or traded; Rule 1214(1) requires a user source to submit a
Notice of Use to MDEQ (which includes a copy of the Notice of
Generation for the credits being used); the price paid for credits must
be in the Notice of Use or submitted separately to the State within
seven business days of the use or trade; and Rule 1216(1) places
liability upon the source for assuring compliance with all applicable
requirements. However, the rules do not contain a straightforward
requirement that credits must be owned before use, nor do they specify
that failure to hold sufficient credits is a violation. These
deficiencies must be corrected in the rules.
2. Use Baseline
A trading program must specify the baseline for users of emissions
reduction credits, so that users know how to calculate the number of
credits that will be needed for compliance. While Michigan's intention
seems to be that the baseline will be established by allowable
emissions--that is, the maximum level of emissions that would have
occurred had the source met its compliance obligations without the use
of emission reduction credits--the rules do not make this intention
explicit. The rules must include a specific definition of the user
source baseline.
3. Temporal Requirements
The Michigan rule appropriately prohibits use during the ozone
season of NOX and VOC ERCs generated outside of the ozone
season. The rule allows ERCs generated during the ozone season to be
used during the entire year. This provision is appropriate because it
could encourage sources to shift emissions of ozone precursors from the
ozone season to the winter months, creating environmental benefits.
4. Geographic Requirements
Emission trading involves shifting of emissions from one area to
another. An emission trading program requires restrictions on the
geographic scope of trading in order to ensure that localized air
quality problems are not created. In particular, a trading program must
ensure that emission reductions generated in areas of clean air are not
used to allow emissions increases in areas of poor air quality. The
nature of the geographic restrictions needed depends on the transport
characteristics of the pollutant being traded. Pollutants that affect
air quality long distances from the location of their emission can
potentially be traded over a large area, while pollutants that affect
air quality in a small area should not be traded beyond that area.
The Michigan rule includes some provisions to discourage the
shifting of emissions from low pollution areas to areas with higher
pollution. Under the Michigan rule, trading can occur within the same
or a contiguous attainment area, between contiguous nonattainment areas
of the same classification, or from a nonattainment area to an
attainment
[[Page 48977]]
area anywhere else in the state, on a 1:1 ratio. ERCs used in a
nonattainment area but generated in an attainment area or a
nonattainment area of lower classification elsewhere in the state must
be discounted by the ratios specified for the higher classification
area in section 182 of the Act, in addition to the 10 percent discount
for the environment. For instance, there would be a total 25 percent
discount for a trade from an attainment area to a moderate
nonattainment area (10 percent for the environment, 15 percent for the
geographic shift). The rule does not specifically address the issue of
trades between noncontiguous areas of the same classification.
Despite these provisions, the current geographic restrictions in
Michigan's SIP are not sufficient to ensure that ERCs will be used in a
manner that would maintain or improve air quality. EPA is concerned
that sources in attainment areas could generate large numbers of ERCs
by reducing emissions from an uncontrolled baseline. These ERCs could
then be used to allow for emissions increases or to forego reductions
in nonattainment and maintenance areas where emission controls are
required and where reductions are necessary to achieve attainment.
Moreover, it is unlikely that these trades would be balanced by an
equal volume of trades in the opposite direction, since sources in
attainment areas are subject to fewer requirements and would have less
need of ERCs than sources located in nonattainment areas. For example,
Michigan has some VOC RACT rules which apply only in nonattainment and
maintenance areas, or that have lower applicability thresholds in those
areas. Sources subject to these requirements could potentially use VOC
credits that were generated outside the area from an uncontrolled
baseline. This would result in a net decrease in air quality, since
credits would be shifted into the more highly polluted area where the
requirements applied. For these reasons, trading between attainment and
nonattainment areas may not balance out, despite the required discounts
for attainment area ERCs used in nonattainment areas.
Trading between nonattainment or maintenance areas and attainment
areas could be acceptable in cases where the State provides a
demonstration that pollution emitted in an attainment area affects a
nonattainment or maintenance area. EPA feels that it would be difficult
to demonstrate that emissions from the entire State affect air quality
in Michigan's nonattainment areas for ozone or for the other criteria
pollutants. However, EPA agrees with Michigan that a more regional
approach to protecting air quality is needed.
a. Geographic Restrictions on Trading of Ozone Precursors: EPA's
proposal for an interim implementation policy (IIP) for a potential new
ozone standard (61 FR 65752-65762, December 13, 1996) includes an
example of a possible regional approach to trading of VOCs and
NOX. This proposal suggests that nonattainment areas be
allowed to take credit for reductions occurring within an expanded area
extending 100 km from the nonattainment area boundary for VOCs and 200
km from the nonattainment area boundary for NOX. While the
IIP proposal would allow this expanded geographic area to be used for
the purpose of meeting post-1996 and post-1999 rate-of-progress
requirements, EPA believes that the same geographic limits could be
adopted to fit the trading allowed in the Michigan rule. Revising the
Michigan rule to allow trading and averaging of VOC and NOX
emissions within these geographic limits would enable sources to escape
the current restrictions caused by attainment and nonattainment area
designations, while also ensuring that the air quality in the area
where trading occurs will be, on average, improved. Making this
revision would eliminate EPA's transport-related approvability issues
for NOX and VOCs. These geographic limits, of course, need
apply only to sources which use trading to meet Federal, or SIP,
requirements.
b. Restrictions on Trading of Criteria Pollutants other than Ozone:
Because of the highly localized impacts that can be created by
emissions of the criteria pollutants other than ozone, all trades and
averaging involving above de minimus levels of these pollutants must be
evaluated for their localized impacts. For these pollutants, trading
between an attainment area and a nonattainment or maintenance area is
unacceptable, and trading above de minimus levels even within areas is
acceptable only if an evaluation indicates that the trade will not
cause an air quality problem.
Trading of emissions of sulfur dioxide, nitrogen dioxide,
particulate matter, carbon monoxide and lead, as allowed under
Michigan's program, creates concerns that do not arise in the trading
of ozone precursor emissions. Trading of criteria pollutants other than
ozone raises questions about whether the trading program would be
adequately protective of the National Ambient Air Quality Standards
(NAAQS), given that stationary source emissions of these pollutants can
create highly localized air quality problems (CO and fine particulates
can be either an area-wide or a localized problem). Moreover, a shift
in emissions of these pollutants from, for instance, a tall stack to a
short stack can make a major difference in air quality. Therefore, for
criteria pollutants other than ozone, special protections are needed to
ensure that use of ERCs does not lead to NAAQS violations. Whereas
attainment and maintenance plans for ozone focus on reducing the
region-wide emissions of ozone precursors, for the other criteria
pollutants, the specific location of the emissions is of vital
importance. Rule 1204(1) provides some protection against violations of
the NAAQS or of attainment or maintenance plans, stating that:
emission averaging and the use of emission reduction credits in an
attainment area shall not cause a violation of a national ambient
air quality standard, allotted prevention of significant
deterioration increments, or an applicable attainment area
maintenance plan. Emission averaging and the use of emission
reduction credits in a nonattainment area shall result in emission
reductions consistent with the requirements for reasonable further
progress for the nonattainment area and the attainment demonstration
and maintenance plan specified in the state implementation plan.
Michigan has developed procedures to ensure proper State review of
ERC uses and emission averaging of criteria pollutants other than ozone
that could cause concerns, and to ensure that modeling is done to
predict the air quality impact of potentially problematic ERC uses and
averaging. MDEQ's procedures for review of notices of use and emission
averaging, containing adequate modeling requirements, must be submitted
as part of the SIP to provide added protection against potential
adverse environmental impacts created by trading of criteria pollutants
other than ozone.
5. Intersector Trading
Michigan's rule specifies that ERC trading between mobile and
stationary sources is allowed. This provision is appropriate, since it
increases the number of options for trading.
6. Interpollutant Trading
The Michigan rule appropriately prohibits the use of ERCs for one
criteria pollutant or ozone precursor to allow for increases in a
different criteria pollutant or ozone precursor, ``except for
interstate trading where the use is consistent with a regional ozone
control strategy and the state implementation plan.''
I. Notice and Recordkeeping Requirements
The Michigan rule requires that notices of generation or emission
[[Page 48978]]
averaging and notices of use and their supporting documentation
accompany ERC trades, and establishes responsibility with the ERC users
and generators, or emission averagers, to store and maintain this
information. Michigan requires that copies of the notices and their
supporting documentation be stored on site no less than five calendar
years after the date of expiration of the emission averaging plan or
after the date the ERC is used, expired, or retired. These
recordkeeping requirements are appropriate.
1. Notice of ERC Generation
The Michigan rule requires sources to file a Notice of Intent to
Generate credits. For emission reductions generated between January 1,
1991, and the effective date of the rule, sources have 1 year from the
effective date of the rule to file such Notices. For post-enactment
reductions, there is no specified filing deadline, since credit life is
limited to 5 years after the year of generation. The rule appropriately
requires that the Notice of Generation be included in the Notice of
Use.
The EPA suggests that Michigan require notification of the relevant
Metropolitan Planning Organization in the event of mobile source
generation activities, and that the Notice of Intent to Generate
include a certification that the protocol used to quantify reductions
was acceptable.
MDEQ staff have developed a system for tracking ERCs by serial
number. While the system assigns serial numbers for each batch of ERCs
generated, not for each ton (as EPA would prefer), the Michigan system
seems adequate to enable accurate tracking in the registry of each
credit throughout its life.
2. Notice of Intent to Use ERCs
Michigan requires that sources submit to the State a Notice of
Intent to Use. The State then has 30 days to make a completeness
determination of the notice. The notice requires a description of the
``source, process, or process equipment'' where the credits will be
applied. The EPA recommends that, to simplify compliance determination,
the source, process, or process equipment be identified by permit or
identification number.
The party using credits is required to include the price paid for
the credits, either within the notice or by separately notifying the
State within seven business days of the use or trade. The Michigan rule
does not require the user to notify the State when credits are used.
However, the Notice of Intent to Use is required to include the
effective dates of use of the emission credits (1214(1)(h)). Any
methods used and operational changes made to accommodate the use of
credits become legally enforceable upon the effective date of the
completeness notice issued by the State. Furthermore, the rule requires
the State to create an emission trading registry for ``recording and
tracking emission averaging and the use and trading of emission
reduction credits.'' The EPA feels that these provisions are adequate.
Michigan also requires that notices of intent to use include
identification of ``the methods and procedures used to quantify
emissions and to determine compliance with all applicable
requirements'' and ``calculations demonstrating compliance through the
use of emission reduction credits.''
3. Public Availability of Information
EPA policy is that any information required to determine emissions
and to judge the quality of an ERC must be publicly available and
therefore not designated confidential. Sources that wish to use ERCs
must have access to this information, as must the general public.
Michigan Rule 1213(5) allows portions of information in notices of ERC
use or generation to be determined to be confidential under sections
11(2) and (3) of Act No. 451 of the Michigan Public Acts of 1994.
However, Act No. 451 specifies in part that ``data on the quantity,
composition, or quality of emissions from any source'' may not be held
confidential, and that ``data on the amount and nature of air
contaminants emitted from a source shall be available to the public.''
EPA feels that these provisions in Act No. 451, as cited in the trading
rule, adequately guarantee public access to the information needed to
determine emissions from sources participating in trading and to
evaluate the quality of ERCs.
MDEQ must also ensure access to information collected by sources as
part of an environmental self-audit that demonstrated erroneous or
willful generation or use of invalid credits. As discussed in the
following section, these sources may be eligible for a 30-day
reconciliation period under certain circumstances; the state must be
able to review this information to verify that such an opportunity is
appropriate.
J. Enforcement and Compliance Provisions
1. Compliance Certification
If either a generator or user of credits under the Michigan rule
self-reports to the State errors in calculations, methods, etc.
resulting in the generation or use of invalid credits, a reconciliation
period of up to 30 days is generally permitted without penalty for the
party at fault to purchase valid credits or to revise its planning to
compensate for its errors. This reconciliation period is available to
those who provide a notice within 30 days of discovery that includes an
explanation that the circumstances causing the credits to be invalid
have not occurred before, and a description of corrective steps that
will be taken to ensure that the error does not occur again.
The EPA would prefer that no reconciliation period be granted, or
that some lesser penalty be identified for those sources that self-
report mistakes than those who do not; allowing a reconciliation period
without any penalty lessens the incentive for generators and users of
credits to ensure that credits are valid. However, this provision of
Michigan's rule is acceptable because it limits the relief provided by
the reconciliation period; it is available only to those sources self-
reporting errors. In addition, granting of a reconciliation period does
not bring a source into compliance with the underlying requirement
being violated, leaving them subject to enforcement.
2. Violations and Penalties
Generators of credits which are discovered by the State to be
invalid must purchase three times the amount of the invalid credits,
which are then donated to the environment. The EPA supports the use of
this type of penalty and the donation of the credits to the
environment, and also recommends that provisions which address the
circumstance in which a user knowingly uses invalid credits be added to
the rule.
Donation of credits to the environment under this subrule does not
exclude a party from other penalties: ``A donation of emission
reduction credits under this subrule shall not be considered to be a
civil or criminal penalty * * * a person may also be subject to civil
and criminal enforcement actions, fines, and imprisonment as provided
under the act.'' (1216(3))
3. Assignment of Regulatory Liability
In an open market program where credits are certified, the user can
rely on the State's evaluation of credit quality (which is in turn
based on an evaluation of the accuracy and validity of quantification
methods). Without this certification, it falls upon the user to
evaluate the quality of quantification techniques when determining how
many credits are needed for compliance purposes, and upon the market to
create
[[Page 48979]]
financial value for credits based on their quality.
The Michigan rule requires that a credit be registered before use,
but not certified; the State performs only a completeness determination
of the Notice of Generation. The EPA strongly supports Rule 1216(1),
which specifies that both the generator and user are held responsible
for the generation of invalid credits. This feature of Michigan's rule
provides an added incentive to the user to conduct the checks of credit
validity that are not performed due to the absence of a credit
certification process in the rule.
This open market program design places considerable importance on
the quality of quantification protocols, so that accurate
determinations of credit value can be made by potential users. For this
reason, the trading rules should include the provisions discussed in
Section II (F) of this action requiring that Michigan follow EPA-
approved protocols and protocol development criteria.
K. Effect of Trading on Hazardous Air Pollutant Emissions
The Michigan rule 1204(3) prohibits any use of ERCs or averaging
that would result in an increase in the maximum hourly emission rate of
a toxic air contaminant from an existing stationary source or area
source, unless it can be demonstrated to the MDEQ that the increased
rate will not cause or exacerbate the exceedance of a toxic air
contaminant screening level based on the methodology in State rule
R336.1230. This provision places the burden on sources to determine
whether increased emissions of toxic air contaminants will result from
emission averaging or ERC use. In addition, the Michigan rule allows
the MDEQ to prohibit any use of credits or averaging that would result
in an increase in any of a list of 14 toxic, persistent pollutants, if
it determines that the increase would be ``inconsistent with the act or
protection of public health, safety or welfare.'' 2 It would
be up to the MDEQ to determine when such an inconsistency arose.
---------------------------------------------------------------------------
\2\ The pollutants are mercury, alkylated lead compounds,
cadmium, arsenic, chromium, polychlorinated biphenyls, chlordane,
octachlorostyrene, toxaphene, hexachlorobenzene, benzo(a)pyrene, DDT
and its metabolites, 2,3,7,8-tetrachlorodibenzo-p-dioxin, and
2,3,7,8-tetrachlorodibenzofuran.
---------------------------------------------------------------------------
The Michigan approach is considerably different from the one
favored by EPA. The EPA's favored approach would not restrict increases
in maximum hourly emissions of toxic pollutants, or restrict total mass
increases of toxic, persistent pollutants, but rather would require
sources that participate in open market trading to disclose all
estimated or measured negative effects of credit trading on emissions
of the hazardous air pollutants (HAPs) listed in section 112 of the
Act.
Many VOCs are listed as hazardous air pollutants (HAPs) in section
112 of the Act, and emissions of particulate matter may include
hazardous air pollutants. Emissions of these toxic pollutants are often
reduced incidentally by compliance with VOC or particulate matter
limitations. Accordingly, ERC generation could have the effect of
lowering toxic emissions from a facility. However, trading could also
result in higher levels of toxic emissions; if a facility that emits
HAPs uses ERCs to satisfy a VOC or particulate matter requirement, the
facility's emissions of HAPs could be higher than if the facility had
installed controls. This would be an example of a foregone decrease in
toxics emissions. Whether or not emissions of toxics are increased or
decreased at a given source due to trading or averaging, Federal and
State air toxics standards must continue to be achieved.
EPA believes that citizens have the right to know if emissions
trading may adversely affect the emissions of HAPs from a nearby
facility, and therefore have a possible impact on public health.
Disclosure of impacts on toxics emissions would also assist the State
in determining if credit generation or use would trigger any air toxics
program requirements at a particular facility and would allow
identification and potential resolution of environmental justice issues
as required in Executive Order 12898. Therefore, EPA requires that a
State that implements an open market trading program must, at a
minimum, require facilities to disclose the effect of open market
emissions trading on HAP emissions. Disclosure must, at a minimum,
follow the Toxics Release Inventory reporting requirements. States must
also examine the effects of the open market trading program on HAP
emissions as part of the periodic program performance audit.
Michigan's Rule 1217(1)(c) requires that audits address ``whether
the program has caused any localized adverse effects to the public
health, safety, or welfare or to the environment.'' We interpret this
provision to require examination of the effects of trading on HAPs, as
well as on air quality impacts related to the criteria pollutants.
However, Michigan's program lacks a requirement that the effects of
trades also be disclosed to the public at the time of registration of
use of credits. Michigan must include this requirement in its SIP.
L. Interstate Trading
In order to accommodate a more regional approach to air quality
management, it must be recognized that traditional boundaries, such as
state lines, do not necessarily accurately reflect the geographic areas
that are most relevant for emission trading purposes. For this reason,
EPA agrees with Michigan's intent to allow interstate emissions
trading.
However, allowing the exchange of credits between two states that
may have considerably different air quality management programs raises
a variety of issues that must be addressed. Safeguards must prevent
multiple uses of the same ERC unit, ensure enforceability of credits
generated out of state, and require that States properly account for
emission shifts in attainment planning and Reasonable Further Progress
milestone demonstrations. Michigan must provide a federally enforceable
commitment that it will not allow the use of credits from other states
without first entering into an adequate Memorandum of Understanding
(MOU) with that State. Michigan may either submit an MOU that addresses
these concerns to EPA for approval prior to undertaking trades with
another State, or include in its SIP revision a list of items that the
State commits to address in each future interstate MOU. With the latter
option, a future MOU need not undergo EPA review and approval, but the
SIP must ensure that any subsequent MOU addresses the consistency
between key trading rule elements in each State, including:
1. The ERC identification system;
2. Sharing of required Notices and a compatible credit tracking
system;
3. Geographic limitations (for instance, a VOC trade between
Michigan and Colorado should not be allowed);
4. Credit lifetimes and expiration dates;
5. Record retention requirements;
6. The list of acceptable credit generation and use activities;
7. Consistent treatment of credit generation and use protocols;
8. Credit generation base case definitions; and
9. Ozone season definition and any other temporal requirements.
Additionally, an MOU must contain a clear statement that each State
will enforce emission limitations under its jurisdiction and a
procedure for incorporating emission shifts caused by trading in each
State's attainment and
[[Page 48980]]
maintenance plans and demonstrations, RFP plans and demonstrations. The
MOU must make a determination on which State's laws determine whether a
credit is valid. EPA agrees with MDEQ that any out-of-State credit must
comply with the user State's requirements.
M. Protection of Class I Areas
The EPA has a policy of providing special protection for Class I
areas (pristine environments such as international parks and large
national parks and wilderness areas), as required under sections 160
through 169 of the Clean Air Act. This policy includes keeping Federal
Land Managers informed of activities that could affect air quality in
Class I areas. In accordance with this policy, to receive EPA approval,
emissions trading programs must include provisions requiring that the
relevant Federal Land Manager be notified 30 days before any ERC use
activity occurs in, or within 100 km of, a Class I area. Michigan's
rule contains no such notification provisions. This deficiency could be
corrected by rule revision, or by procedures submitted as part of the
SIP which require MDEQ staff to forward notices of use or notices of
emissions averaging which involve increases within 100 km of a Class I
area to the Federal Land Manager.
N. Federal Operating Permits
In order to allow for open market emission trading, Michigan must
revise its federally required operating permit program to cite the
trading rule in order to recognize ERC use as a compliance alternative
for permitted sources that are covered by the emissions trading rule.
Prior to ERC use, every permitted source that intends to use ERCs or
emissions averaging must possess a permit containing language that
references the emissions trading and averaging rules and allows ERCs to
be used for compliance demonstrations.
O. Open Market Program Audits
Michigan requires an evaluation of the emission trading program and
a public report to be made at least every 3 years, or more frequently
if deemed necessary by the State. The EPA supports the provisions that
specify that an audit evaluate:
--Whether the program is consistent with achievement and maintenance of
the NAAQS and has resulted in emission reductions consistent with
reasonable further progress toward attainment;
--Whether monitoring, recordkeeping, reporting, and enforcement have
resulted in a sufficiently high level of compliance;
--Whether the program has caused any localized adverse effects to
public health, safety, or welfare or the environment;
--Whether the program is achieving reductions across a spectrum of
sources, including area and mobile sources; and
--Whether individual source audit provisions have resulted in a
sufficient number of audits.
P. Contingency Measures
Michigan's rule states that if, after the triennial program
evaluation, MDEQ determines that program revisions are necessary, it
will revise the program and submit a SIP revision to EPA within 6
months. This provision is appropriate. EPA considers that program
revisions would be warranted if ERC generation has been greater than
ERC use, resulting in emissions spiking on days of poor air quality or
failure to meet area wide RACT-level or other required emission
reductions; if trading or averaging has led to an increase in exposure
to hazardous air pollutants or criteria air pollutants, or if Class I
areas have been adversely affected by the generation or use of ERCs.
Q. Early NOX Reductions
For EPA to approve an open market trading rule, it needs to be
convinced that ERC generation is likely to keep pace with ERC use, so
that there will not be significant emissions ``spikes'' created by the
use of a large number of ERCs in a short period of time. For VOCs, EPA
has determined that the risk that there will be such spikes is
sufficiently small that this issue can be dealt with through periodic
audits and contingency measures. However, for other pollutants,
particularly NOX, EPA has greater concerns. Under open
market trading, large NOX sources which are not currently
subject to any emissions limits would be able to bank large volumes of
early reductions generated through early compliance with forthcoming
Title IV Acid Rain program requirements. When used later, these large
volumes of ERCs could create spikes large enough to compromise
attainment.
Michigan's program protects against this problem within the State.
Rule 1212(2) limits the life of credits ``generated by emission
reductions which are necessary to comply with a proposed applicable
requirement and which occur after the date the applicable requirement
is proposed but before final compliance dates'' to five calendar years
or to one calendar year after the effective date of final compliance,
whichever comes first. Therefore all NOX credits generated
through early compliance with Title IV requirements will expire on
January 1, 2002, or 1 year after the applicable requirements become
effective. As a result of the limited life of these credits, unless a
market demand for NOX credits within Michigan is created
prior to January 1, 2002, most or all of the credits generated in this
fashion will result in early reductions without risk of being used
within Michigan.
Given this protection, EPA's remaining concern is that the
NOX ERCs generated through early compliance with Title IV
requirements not be used in other States after January 1, 2002. To
allay this concern, MDEQ must outline the existing procedures in the
SIP, or add such procedures, that insure that these credits expire in
accordance with Michigan rules and cannot be used in other States.
R. Property Rights
Michigan's emissions trading program does not contain a statement
that emission reduction credits do not constitute a property right. All
tradeable emissions reduction credits or allowances under the Act are
limited authorizations to emit pollutants, and do not constitute a
property right. Section 403(f) of the Clean Air Act, which deals with
sulfur dioxide allowances under the Acid Rain program, states:
An allowance allocated * * * is a limited authorization to emit
sulfur dioxide * * * Such allowance does not constitute a property
right. Nothing in this subchapter or in any other provision of law
shall be construed to limit the authority of the United States to
terminate or limit such authorization.
Congress included this requirement to ensure that allowance holders
understood that they were barred from claiming a governmental taking
under the 5th Amendment of the U.S. Constitution. Property status could
produce undesired and perverse results, such as requiring a government
agency to compensate the owner of a pollution source when its emissions
are limited. The absence of property status authorizes the
participating air pollution control agency to limit or terminate credit
use in extreme circumstances. The same logic applies to emission
reduction credits.
States should actually terminate credits only when other options
have failed to provide for meeting the State's underlying Act
obligations. Although EPA would not expect this to occur, and would
expect that the program will
[[Page 48981]]
achieve real and cost-effective emissions reductions without having to
resort to credit limitation, this contingency measure must be available
to provide confidence that States will make continued progress toward
their air pollution control goals.
In order to ensure that sources cannot claim that ownership of an
ERC issued under Michigan's program grants them a property right,
Michigan must include in its SIP a statement that ERCs do not
constitute a property right, either directly in the rule or in the form
of a letter from the Attorney General.
III. Proposed Action
The EPA is proposing to approve this revision to the Michigan SIP
for the reasons outlined above. EPA will not take action toward final
approval of this SIP revision until the deficiencies discussed in this
document are corrected. 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 will be considered separately
in light of specific technical, economic, and environmental factors and
in relation to relevant statutory and regulatory requirements.
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 proposed approval of the Michigan's request under section 110
of the Act does not affect any existing requirements applicable to
small entities. Any pre-existing Federal requirements remain in place
after this approval. Federal approval of the state submittal does not
affect its state-enforceability. Moreover, EPA's approval of the
submittal does not impose any new Federal requirements. Therefore, EPA
certifies that this approval action does not have a significant impact
on a substantial number of small entities because it does not remove
existing requirements or impose any new Federal requirements.
Under section 202 of the Unfunded Mandate Reform Act of 1995
(``Unfunded Mandates Act''), signed into law on March 22, 1995, EPA
must prepare a budgetary impact statement to accompany any proposed or
final that includes a Federal mandate that may result in estimated
costs to State, local or tribal governments in aggregate; or to the
private sector, of $100 million or more. Under section 205, EPA must
select the most cost-effective and least burdensome alternative that
achieves the objectives of the rule and is consistent with statutory
requirements. Section 203 requires EPA to establish a plan for
informing and advising any small governments that may be significantly
or uniquely impacted by the rule.
EPA has determined that the approval action proposed does not
include a Federal mandate that may result in estimated cost of $100
million or more to either State, local, or tribal governments in the
aggregate, or to the private sector. This Federal action maintains pre-
existing requirements under State or local law, and imposes no new
Federal requirements. Accordingly, no additional cost to State, local,
or tribal governments, or to the private sector, result from this
action.
This action has been classified as a Table 2 action for signature
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. The Office of Management and Budget (OMB) has
exempted this regulatory action from Executive Order 12866 review.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Carbon monoxide,
Sulfur dioxide, Particulate Matter, Lead, Hydrocarbons,
Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and
recordkeeping requirements.
Authority: 42 U.S.C. 7401-7671q.
Dated: September 4, 1997.
David A. Ullrich,
Acting Regional Administrator.
[FR Doc. 97-24836 Filed 9-17-97; 8:45 am]
BILLING CODE 6560-50-U