[Federal Register Volume 63, Number 215 (Friday, November 6, 1998)]
[Proposed Rules]
[Pages 59924-59928]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29818]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[CA 102-0111; FRL-6185-9]


Approval and Promulgation of Implementation Plans; California 
State Implementation Plan Revision, Bay Area Air Quality Management 
District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing a limited approval and limited disapproval of 
revisions to the California State Implementation Plan (SIP). This 
revision concerns Rules 1, 2 and 4 of Regulation 2--Permits, for the 
Bay Area Air Quality Management District (BAAQMD or the ``District''). 
This State Implementation Plan (SIP) revision was submitted by the 
State of California for the purpose of meeting the requirements of the 
Clean Air Act (CAA), as amended in 1990, with regard to new source 
review (NSR) in areas that have not attained the national ambient air 
quality standards (NAAQS). This SIP revision was submitted by the State 
to satisfy Federal requirements for an approvable nonattainment area 
NSR SIP for the District.
    The intended effect of proposing a limited approval and limited 
disapproval of these rules is to strengthen the federally approved SIP 
by incorporating these updated provisions. EPA's final action on this 
proposal will incorporate the rules into the SIP. EPA is proposing a 
simultaneous limited approval and limited disapproval under provisions 
of the Act regarding EPA action on SIP submittals and general 
rulemaking authority. While strengthening the SIP, this revision 
contains deficiencies which the BAAQMD must address before EPA can 
grant full approval under Section 110(k)(3).

DATES: Comments must be received on or before December 7, 1998.

ADDRESSES: Comments may be mailed to: John Walser, Permits Office [AIR-
3], Air Division, U.S. Environmental Protection Agency, Region IX, 75 
Hawthorne Street, San Francisco, CA 94105-3901.
    Copies of the state submittal and rules are available for public 
inspection at EPA's Region IX office during normal business hours and 
at the following locations: Bay Area Air Quality Management District, 
939 Ellis Street, San Francisco, CA 94109. California Air Resources 
Board, Stationary Source Division, Rule Evaluation Section, 2020 ``L'' 
Street, Sacramento, CA 95812.

FOR FURTHER INFORMATION CONTACT: John Walser, Permits Office, [AIR-3], 
Air Division, U.S. Environmental Protection Agency, Region IX, 75 
Hawthorne Street, San Francisco, CA 94105-3901, Telephone: (415) 744-
1257.

SUPPLEMENTARY INFORMATION:

I. Applicability

    The rules proposed for limited approval and limited disapproval 
into the California SIP are the District's Regulation 2 Permits, Rule 1 
General Requirements, Rule 2 New Source Review, and Rule 4 Emissions 
Banking. These rules were submitted by the California Air Resources 
Board on behalf of the District to EPA on September 28, 1994.

II. Background

    The air quality planning requirements for nonattainment NSR are set 
out in part D of title 1 of the Clean Air Act. EPA has issued a 
``General Preamble'' describing EPA's preliminary views on how EPA 
intends to review SIPs and SIP revisions submitted under part D, 
including those State submittals containing nonattainment NSR SIP 
requirements [see 57 FR 13498 (April 16, 1992) and 57 FR 18070 (April 
28, 1992)]. Because EPA is describing its interpretations here only in 
broad terms, the reader should refer to the General Preamble for a more 
detailed discussion. EPA has also proposed regulations to implement the 
changes under the 1990 Amendments in the NSR provisions in parts C and 
D of title 1 of the Act. [See 61 FR 38249 (July 23, 1996)]. Upon final 
promulgation of those regulations, EPA will review those NSR SIP 
submittals on which it has already taken final action to determine 
whether additional SIP revisions are necessary.
    Part D of the Clean Air Act (CAA), Sections 171 to 173, Section 
182, Section 187, and Section 189, requires that States incorporate in 
their State Implementation Plans an acceptable permitting program for 
the construction and operation of new or modified major stationary 
sources in nonattainment areas. The statutory permit requirements for 
ozone nonattainment areas are generally contained in Section 173, and 
in subpart 2 of part D. These are the minimum requirements that States 
must include in an approvable

[[Page 59925]]

implementation plan. EPA's requirements are contained in 40 CFR 51.165, 
revised as of July 1, 1992, and the Emissions Trading Policy Statement, 
published December 4, 1986 under 51 FR 43814. EPA relied upon the 
following materials in its review of the District's NSR rules: CAA, as 
amended, 40 CFR 51.160 through 51.165, Emissions Trading Policy 
Statement, General Preamble to Title 1, and the December 15, 1992, 
draft comprehensive SIP checklist for all Part D NSR requirements.
    On March 3, 1978, EPA promulgated a list of ozone nonattainment 
areas under the provisions of the 1977 Clean Air Act (1977 CAA or pre-
amended Act), that included the San Francisco Bay Area (43 FR 8964). On 
May 26, 1988, EPA notified the Governor of California, pursuant to 
section 110(a)(2)(H) of the pre-amended Act, that the Bay Area Air 
Quality Management District's portion of the SIP was inadequate to 
attain and maintain the ozone standard and requested that deficiencies 
in the existing SIP be corrected (EPA's SIP-Call). On November 15, 
1990, amendments to the 1977 CAA were enacted. Pub. L. 101-549, 104 
Stat. 2399, codified at 42 U.S.C. 7401-7671q.
    On November 12, 1993, BAAQMD submitted a request for redesignation 
to attainment of the ozone standard. Subsequently, EPA approved 
BAAQMD's request and the San Francisco Bay Area was reclassified as an 
attainment area. 40 CFR 81.305. Subsequently, on July 10, 1998, EPA 
revoked the Bay Area's attainment status and reclassified the area back 
to nonattainment for ozone. 63 FR 37258. The Bay Area was redesignated 
under Subpart 1 of Part D of the Act, and for this reason does not have 
a classification. However, for purposes of the new source review and 
Title V programs, moderate area requirements apply to the Bay Area 
based on its design value of .138 ppm. See 62 FR 66581, December 19, 
1997. Because the District is currently designated as nonattainment for 
ozone and attainment or unclassifiable for NO2, PM-10, Pb, 
CO, and SO2, the District's nonattainment rules must be 
applied to all major new or modified stationary sources proposing to 
emit ozone precursors, namely VOC and NOX.
    This document addresses EPA's proposed action for BAAQMD Regulation 
2 Permits, Rules 1, 2 and 4. The BAAQMD adopted these rules on June 15, 
1994. These submitted rules were found to be complete on November 22, 
1994, pursuant to EPA's completeness criteria that are set forth in 40 
CFR Part 51, Appendix V;1 and are being proposed for limited 
approval and limited disapproval.
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    \1\ EPA adopted completeness criteria on February 16, 1990 (55 
FR 5830) and, pursuant to section 110(k)(1)(A) of the CAA, revised 
the criteria on August 26, 1991 (56 FR 42216).
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    BAAQMD Regulation 2 clarifies the terms and requirements that apply 
to the District's NSR regulation and emissions banking program. BAAQMD 
Regulation 2 was originally adopted as part of BAAQMD's effort to 
achieve the National Ambient Air Quality Standard (NAAQS) for ozone. 
The following is EPA's evaluation and proposed action for BAAQMD 
Regulation 2, Rules 1, 2 and 4.

III. EPA Evaluation and Proposed Action

    In determining the approvability of a rule submittal, EPA must 
evaluate the rule for consistency with the requirements of the CAA and 
EPA regulations, as found in section 110 of the CAA and 40 CFR Part 51 
(Requirements for Preparation, Adoption, and Submittal of 
Implementation Plans).
    The statutory requirements for nonattainment NSR SIPs and 
permitting are found in sections 172 and 173 of the Act. The Act 
requires States to address a number of nonattainment NSR provisions in 
a SIP submittal to meet the requirements of part D of title 1 of the 
Act.
    EPA has evaluated District Rules 1, 2 and 4 of Regulation 2 and has 
determined that the rules contain deficiencies and are not fully 
consistent with CAA requirements, EPA regulations and EPA policy. A 
more detailed analysis is contained in the Technical Support Document 
for this submittal which is available for inspection at the Region IX 
address listed above.
    The following six items are issues that EPA has identified as 
significant deficiencies (approvability issues) in BAAQMD Regulation 2.

1. Interpollutant Trading

Regulation 2, Rule 2 Sections 302.1, 302.2 and 303.1
    Section 302.1 states that emission reduction credits (ERCs) of 
nitrogen oxides (NOX) may be used to offset increased 
emissions of precursor organic compounds (POC) at the offset ratio 
specified in Section 2-2-302 (generally 1.15 to 1.0). Section 302.2 
allows for emission reduction credits of POC to be used to offset 
increased emissions of NOX at the offset ratio specified in 
Section 302.2, and Section 303.1 allows ERCs of NOX and/or 
sulfur dioxide (SO2) to be used to offset increased 
emissions of particulate matter (PM10) at ratios deemed appropriate by 
the Air Pollution Control Officer.
    These sections of Regulation 2, Rule 2 are not approvable in their 
current form because they do not contain adequate safeguards to ensure 
an overall air quality benefit from this type of trading. For example, 
as currently drafted, the rule allows for the same trading ratio for 
POC to POC trades as it does for POC for NOX trades, without 
any demonstration that such trades will result in an equal air quality 
benefit. EPA continues to discourage interpollutant trading due to the 
scientific uncertainty of acceptable pollutant trading ratios. However, 
if the District wishes to allow interpollutant trading, the rule must 
be consistent with EPA guidance.2 For instance, the rule 
must restrict interpollutant trading to precursor pollutants 
contributing to the same secondary non-attainment pollutant (such as 
trading POC for NOX). The District must either perform 
adequate modelling studies to include a scientifically determined 
pollutant trading ratio and define that ratio in the rule, or perform a 
case-by-case analysis of the ratio, and state in the rule that the 
ratio will be determined after adequate modelling, public notice, and 
EPA concurrence.
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    \2\ See letter from Dave Howekamp to Dan Speer of the San Diego 
Air Pollution Control District dated April 13, 1995.
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    Additionally, the District's interpollutant trading provisions may 
allow inter-District trading without regard to the attainment status of 
the District where the ERCs are created and used, because the rule is 
silent on this issue. Therefore, the rule must be revised to prohibit 
this type of trading, or be revised to explicitly include the 
provisions of 173(c)(1) of the Clean Air Act.

2. Exemption List

Regulation 2 Permits, Rule 1 General Requirements
    Sections 2-1-114 to 128, provide that ``any equipment that produces 
air contaminants in excess of 150 lb/day of any single pollutant is not 
exempt'' from permit review. EPA is concerned that the District 
interprets this language to apply on an individual emissions unit 
basis, rather than a facility-wide basis.
    EPA's fundamental requirements with respect to permit exemptions 
are threefold. First, the exemptions must not keep a major source from 
appearing to be major. That is, emissions from

[[Page 59926]]

exempt equipment must be included in the determination of whether a 
source is major (or whether a modification is major), whether for NSR 
or Title V purposes. Second, emissions from exempt equipment must be 
included in determining the offset liability for a source. Third, 
substantive requirements, such as BACT, must generally apply to all 
emissions units.
    EPA continues to believe that if the 150 lb/day cap on exemptions 
applies to any group of emissions units or pieces of equipment, and not 
just to a single piece of equipment, the District is likely to be able 
to satisfy the above requirements. For example, the District may be 
able to argue that 150 pounds a day is de minimus from a BACT 
standpoint. Also, a maximum 150 pound per day facility wide exemption 
could be factored into offset requirements.
    In addition, Regulation 2, Rule 1 exempts equipment such as 
internal combustion engines or gas turbines of less than 250 horsepower 
rating (Section 2-1-115.2) from authority to construct and permit to 
operate requirements, and exempts certain other sources subject to 
generally applicable requirements. These sources may have high 
emissions and a greater likelihood of violating emission standards and 
for these reasons should not be included on an exemptions list.

3. Functionally Identical Replacement

Regulation 2, Rule 2-NSR, Dated 6/15/94, Sections 2-2-225.4, 2-2-313, 
2-2-241 and 2-2-608: Replacement Sources
    EPA does believe that the sections in Regulation 2, Rule 2 
concerning functionally identical replacement may not fully meet the 
federal requirements found at 40 CFR 51.165. Specifically, section 
51.165(a)(1)(v)(A) defines ``major modification'' as any physical 
change in or change in the method of operation of a major stationary 
source that would result in a significant net emissions increase of any 
pollutant subject to regulation under the Act. Section 51.165 
(a)(1)(v)(C)(1) excludes ``routine maintenance, repair and 
replacement'' from the definition of physical or operational change. 
Such assessments should be made on a case-by-case basis, but would 
generally not include replacement of emissions units (``sources'' in 
BAAQMD's nomenclature), or life extension projects.
    Additionally, Section 2-2-313 of Regulation 2 states that offset 
requirements for replacement sources of POC and NOX shall be 
met either in accordance with Section 2-2-302 Offset Requirements, or 
2-2-608 Alternate Emission Calculation Procedures, Replacement Sources, 
which is an alternative to the calculation procedures outlined in 
Section 2-2-605. EPA believes that the alternate emission calculation 
procedures outlined in Section 2-2-608 may allow replacement sources to 
construct without fully applying offsets that would be required by 
Section 2-2-605, and by the federal regulations at 40 CFR 51.165. As 
drafted, the rule does not require the replacement source to consider 
the operating history of the replaced source, which could have been 
operating at a capacity well below its maximum allowable limits (e.g., 
actual emissions 50 percent of potential emissions). Therefore, the 
calculation appears to use a potential to potential emissions test, and 
as a result no offsets would be needed. EPA's regulations and policy 
(Emission Trading Policy Statement, FR 51 43838 and 40 CFR 51.165) 
require an actual to potential test for determining emission changes, 
and, consequently, offset requirements.

4. Ensuring Offsets Are Surplus When Used

    Both Regulation 2, Rule 2 and Regulation 2, Rule 4 are silent 
regarding the requirement to ensure that ERCs are surplus at the time 
of use. All ERCs must be adjusted at the time of use pursuant to the 
requirements of Sections 173 (a), 173 (c)(1) and 173 (c)(2) of the 
Clean Air Act (``Act''). EPA has provided flexibility in the 
implementation of these requirements in the August 26, 1994 memo from 
John Seitz to David Howekamp entitled, ``Response to Request for 
Guidance on Use of Pre-1990 ERCs and Adjusting for RACT at Time of 
Use.'' For example, if an ERC is created and approved this year, but 
the District subsequently proposes, passes and includes (implicitly or 
explicitly) in its plan a control measure related to the source 
category of the creator of the ERC, the District must, upon use of the 
ERC, evaluate the effect the control measure would have had on the 
source that created the reduction, and reduce the amount of the ERC 
appropriately. Section 173 (a) of the Act requires that offsetting 
emission reductions be federally enforceable at the time an NSR permit 
is issued, and in effect by the time the source commences operation 
(Section 173 (c)(1)). In addition, Section 173 (c)(2) requires that 
offsets be surplus of all other requirements of the Act. The District 
must adjust all emission reductions to ensure that the surplus 
requirement of Section 173(c)(2) is met at the time that the reductions 
are used to meet the offset requirements of Section 173 (a) and (c).

5. Exemption, Emissions From Abatement Equipment

Section 2-2-112 in Regulation 2, Rule 2
    This section states that BACT requirements shall not apply to 
emissions of secondary pollutants which are the direct result of the 
use of an abatement device which complies with the BACT or BARCT 
requirements for control of another pollutant. On July 1, 1994, EPA 
issued guidance from John Seitz, Director of the Office of Air Quality 
Planning and Standards, entitled ``Pollution Control Projects and New 
Source Review (NSR) Applicability'', which states that a source must 
secure offsetting reductions in the case of a pollution control project 
which will result in a significant increase in nonattainment 
pollutants.
    Section 2-2-112 in Regulation 2, Rule 2 must be revised to make it 
clear that significant emissions of secondary pollutants which result 
from control devices or requirements are subject to the requirement to 
obtain offsets.

6. Prevention of Significant Deterioration

    EPA suggests that the District add lead to the PSD pollutant list 
in Regulation 2, Rule 2, Sections 2-2-304, 2-2-305 and 2-2-306. The 
rule lists CO, PM10, SO2, POC and NOX 
as PSD pollutants, but excludes lead. EPA realizes that the District 
has a 0.6 ton/yr BACT threshold for lead, and in Regulation 2, Rule 1, 
Section 111.1 a 0.3 lb/day lead exemption threshold for authorities to 
construct or permits to operate. However, the PSD pollutant list must 
include all criteria pollutants, including lead.
    Because the rule deficiencies described above are inappropriate for 
inclusion in the SIP, EPA cannot grant full approval of this rule under 
section 110(k)(3). Also, because the submitted rule is not composed of 
separable parts which meet all the applicable requirements of the CAA, 
EPA cannot grant partial approval of the rule under section 110(k)(3). 
However, EPA may grant a limited approval of the submitted rule under 
section 110(k)(3) in light of EPA's authority pursuant to section 
301(a) to adopt regulations necessary to further air quality by 
strengthening the SIP. The approval is limited because EPA's action 
also contains a simultaneous limited disapproval. In order to 
strengthen the SIP, EPA is proposing a limited approval of BAAQMD's 
submitted

[[Page 59927]]

Regulation 2 under sections 110(k)(3) and 301(a) of the CAA.
    It should be noted that the rules covered by this proposed 
rulemaking have been adopted by the BAAQMD, subsequently revised, and 
are currently in effect in the BAAQMD. EPA's final limited disapproval 
action will not prevent the BAAQMD or EPA from enforcing this rule.
    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.

IV. Administrative Requirements

A. Executive Order 12866

    The Office of Management and Budget (OMB) has exempted this 
regulatory action from Executive Order (E.O.) 12866, entitled 
``Regulatory Planning and Review.''

B. Executive Order 12875

    Under E.O. 12875, EPA may not issue a regulation that is not 
required by statute and that creates a mandate upon a state, local, or 
tribal government, unless the Federal government provides the funds 
necessary to pay the direct compliance costs incurred by those 
governments. If the mandate is unfunded, EPA must provide to the Office 
of Management and Budget a description of the extent of EPA's prior 
consultation with representatives of affected state, local, and tribal 
governments, the nature of their concerns, copies of written 
communications from the governments, and a statement supporting the 
need to issue the regulation. In addition, E.O. 12875 requires EPA to 
develop an effective process permitting elected officials and other 
representatives of state, local, and tribal governments ``to provide 
meaningful and timely input in the development of regulatory proposals 
containing significant unfunded mandates.''
    Today's rule does not create a mandate on state, local or tribal 
governments. The rule does not impose any enforceable duties on these 
entities. Accordingly, the requirements of section 1(a) of E.O. 12875 
do not apply to this rule.

C. Executive Order 13045

    Protection of Children from Environmental Health Risks and Safety 
Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is 
determined to be ``economically significant'' as defined under E.O. 
12866, and (2) concerns an environmental health or safety risk that EPA 
has reason to believe may have a disproportionate effect on children. 
If the regulatory action meets both criteria, the Agency must evaluate 
the environmental health or safety effects of the planned rule on 
children, and explain why the planned regulation is preferable to other 
potentially effective and reasonably feasible alternatives considered 
by the Agency.
    This rule is not subject to E.O. 13045 because it does not involve 
decisions intended to mitigate environmental health or safety risks.

D. Executive Order 13084

    Under E.O. 13084, EPA may not issue a regulation that is not 
required by statute, that significantly affects or uniquely affects the 
communities of Indian tribal governments, and that imposes substantial 
direct compliance costs on those communities, unless the Federal 
government provides the funds necessary to pay the direct compliance 
costs incurred by the tribal governments. If the mandate is unfunded, 
EPA must provide to the Office of Management and Budget, in a 
separately identified section of the preamble to the rule, a 
description of the extent of EPA's prior consultation with 
representatives of affected tribal governments, a summary of the nature 
of their concerns, and a statement supporting the need to issue the 
regulation. In addition, Executive Order 13084 requires EPA to develop 
an effective process permitting elected and other representatives of 
Indian tribal governments ``to provide meaningful and timely input in 
the development of regulatory policies on matters that significantly or 
uniquely affect their communities.''
    Today's rule does not significantly or uniquely affect the 
communities of Indian tribal governments. This action does not involve 
or impose any requirements that affect Indian Tribes. Accordingly, the 
requirements of section 3(b) of E.O. 13084 do not apply to this rule.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities. Small entities include small 
businesses, small not-for-profit enterprises, and small governmental 
jurisdictions. This final rule will not have a significant impact on a 
substantial number of small entities because SIP approvals under 
section 110 and subchapter I, part D of the Clean Air Act do not create 
any new requirements but simply approve requirements that the State is 
already imposing. Therefore, because the Federal SIP approval does not 
create any new requirements, I certify that this action will not have a 
significant economic impact on a substantial number of small entities. 
Moreover, due to the nature of the Federal-State relationship under the 
Clean Air Act, preparation of flexibility analysis would constitute 
Federal inquiry into the economic reasonableness of state action. The 
Clean Air Act forbids EPA to base its actions concerning SIPs on such 
grounds. Union Electric Co., v. U.S. EPA, 427 U.S. 246, 255-66 (1976); 
42 U.S.C. 7410(a)(2).

F. Unfunded Mandates

    Under Section 202 of the Unfunded Mandates 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 rule that includes a Federal mandate that may result in estimated 
annual costs to State, local, or tribal governments in the aggregate; 
or to 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 promulgated does not 
include a Federal mandate that may result in estimated annual costs of 
$100 million or more to either State, local, or tribal governments in 
the aggregate, or to the private sector. This Federal action approves 
pre-existing requirements under State or local law, and imposes no new 
requirements. Accordingly, no additional costs to State, local, or 
tribal governments, or to the private sector, result from this action.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Hydrocarbons, 
Incorporation by reference, Intergovernmental relations, Nitrogen 
dioxide, Ozone, Particulate matter, Reporting and recordkeeping

[[Page 59928]]

requirements, Sulfur oxides, Volatile organic compounds.

    Authority: 42 U.S.C. 7401 et seq.

    Dated: October 29, 1998.
Laura Yoshii,
Acting Regional Administrator, Region IX.
[FR Doc. 98-29818 Filed 11-5-98; 8:45 am]
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