[Federal Register Volume 66, Number 6 (Tuesday, January 9, 2001)]
[Proposed Rules]
[Pages 1796-1805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-564]



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Part V





Environmental Protection Agency





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40 CFR Part 52



Approval and Promulgation of Implementation Plans; New Jersey; Open 
Market Emissions Trading Program; Revised Interpretation of Operating 
Permit Requirements for Emissions Trades; Proposed Rule

  Federal Register / Vol. 66 , No. 6 / Tuesday, January 9, 2001 / 
Proposed Rules  

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[Region II Docket No. NJ34-1-193, FRL-6929-3]


Approval and Promulgation of Implementation Plans; New Jersey; 
Open Market Emissions Trading Program; Revised Interpretation of 
Operating Permit Requirements for Emissions Trades

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency is proposing to 
conditionally approve New Jersey's State Implementation Plan (SIP) 
revision for ozone. This SIP revision relates to New Jersey's Open 
Market Emissions Trading Program, which provides a more cost-effective 
mechanism for sources to meet regulatory requirements for reducing 
oxides of nitrogen and volatile organic compound emissions. This action 
proposes a conditional approval of the regulations which implement New 
Jersey's Open Market Emissions Trading Program, and will help to meet 
the national ambient air quality standard for ozone. This action also 
proposes a revised interpretation that the permits provisions of the 
Clean Air Act do not mandate that emissions quantification requirements 
resulting from the application of emissions trading program be included 
in the SIPs.

DATES: Written comments must be received on or before March 12, 2001. 
Representatives from EPA and New Jersey will hold public information 
sessions to meet with members of the public and discuss the proposed 
rule as follows:
Wednesday, February 7, 2001, 3:00 p.m. to 5:00 p.m., and 7:00 p.m.; and
Thursday February 15, 2001, 3:00 p.m. to 5:00 p.m., and 7:00 p.m.

ADDRESSES: All comments should be addressed to:
    Raymond Werner, Chief, Air Programs Branch, Environmental 
Protection Agency, Region II Office, 290 Broadway, 25th Floor, New 
York, New York 10007-1866.
    The public information session for February 7, 2001 will be held at 
the New Jersey Department of Environmental Protection Building, First 
Floor Hearing Room, 401 East State Street, Trenton, New Jersey; and the 
public information session for February 15, 2001 will be held at Newark 
City Hall, Room B29, 920 Broad Street, Newark, New Jersey.
    Copies of the state submittal and supporting documents are 
available for inspection during normal business hours, at the following 
addresses:

Environmental Protection Agency, Region II Office, Air Programs Branch, 
290 Broadway, 25th Floor, New York, New York 10007-1866.
New Jersey Department of Environmental Protection, Office of Air 
Quality Management, Bureau of Air Quality Planning, 401 East State 
Street, CN418, Trenton, New Jersey 08625.

FOR FURTHER INFORMATION CONTACT: Richard Ruvo, Air Programs Branch, 
Environmental Protection Agency Region II, 290 Broadway, 25th Floor, 
New York, New York 10007-1866, (212) 637-4014.

SUPPLEMENTARY INFORMATION:

Overview

    The Environmental Protection Agency (EPA) is proposing to 
conditionally approve the New Jersey State Department of Environmental 
Protection's (New Jersey's) Open Market Emissions Trading (OMET) 
Program.
    The following table of contents describes the format for this 
SUPPLEMENTARY INFORMATION section:

EPA's Proposed Action

What Action Is EPA Proposing Today?
Why Is EPA Proposing This Action?
What Is Emissions Trading?
What Is Open Market Emissions Trading?
What Are EPA's Proposed Conditions For Approval?
1. Using Approved Emission Quantification Protocols
2. Providing for Monetary Penalties
3. Claiming Ownership of Discrete Credits
4. Notifying Metropolitan Planning Organizations
5. Notifying the Federal Land Manager
6. Accounting for Discrete Credits in Emission Inventory
7. Including Toxic Disclosure Information in Notices
What Other Clarifications Should New Jersey Make in Their Program?
How Can New Jersey Get Full Approval for Their Program?
What Guidance Did EPA Use to Evaluate New Jersey's Program?
What Is EPA's Evaluation of New Jersey's Program?

New Jersey's Open Market Emissions Trading Program

How Do Sources Generate Credits?
How Do Sources Use Credits?
What Are the Other Requirements of New Jersey's Program?
How Does New Jersey's Program Protect the Environment?
How Is New Jersey's Program Enforced?
How Does New Jersey's Program Interact With Title V Permits?
How Does New Jersey's Program Provide for Emissions Quantification 
Protocols?
When Was New Jersey's Program Proposed and Adopted?
When Was New Jersey's Program Submitted to EPA and What Did it 
Include?

Other Significant Items Related to New Jersey's Program

How Does New Jersey's Program Avoid Adverse Local Impacts of 
Hazardous Air Pollutant Emissions?
How Does EPA's Proposed Action Affect Earlier Credits?
How Will New Jersey Audit the Program?
What is the Basis for Today's Proposal?
How Will New Jersey Address Future EPA Trading Guidance?
What is the Status of the 1994 Economic Incentive Program?

Conclusion

Administrative Requirements

EPA's Proposed Action

What Action Is EPA Proposing Today?

    EPA is proposing a conditional approval of New Jersey's revision to 
the ozone State Implementation Plan (SIP) submitted to EPA on October 
27, 1998 and supplemented on April 27, 2000. This SIP revision relates 
to New Jersey's new Subchapter 30 regulation for New Jersey's Open 
Market Emissions Trading (OMET) Program.

Why Is EPA Proposing This Action?

    EPA is proposing this action to:
     Give the public the opportunity to submit written comments 
on EPA's proposed action, as discussed in the DATES and ADDRESSES 
sections
     Fulfill New Jersey's and EPA's requirements under the 
Clean Air Act (the Act)
     Make New Jersey's OMET Program federally-enforceable.

What Is Emissions Trading?

    Air emission trading is a program where one source, for example a 
power plant, reduces its emissions below the level it is required to 
meet. This source then sells or trades these reductions as credits to 
another source which continues to release emissions above its required 
levels. In return for this flexibility, the second source must purchase 
additional credits beyond those needed to comply, therefore reducing 
overall emissions. Emissions trading uses market forces to reduce the 
overall cost of compliance for sources, while maintaining emission 
reductions and environmental benefits.

What Is Open Market Emissions Trading?

    In an open market emission trading program, a source generates 
short-term emission reduction credits, called discrete emission 
reduction credits or DER's (discrete credits) by reducing its

[[Page 1797]]

emissions. The source can then use these discrete credits at a later 
time, or trade them to another source to use at a later time. Open 
market programs rely on many sources continuing to generate new 
discrete credits to balance with other sources using previously 
generated discrete credits.
    For example, a power plant burns a cleaner fuel for a summer to 
reduce oxides of nitrogen (NOX) emissions. This emission 
reduction could generate discrete credits. The power plant trades these 
discrete credits to a paperboard manufacturer. In the future, the 
paperboard manufacturer can use the discrete credits to meet its 
NOX control requirements. While the paperboard manufacturer 
is using the discrete credits, other sources are also reducing 
emissions and generating discrete credits. But the paperboard 
manufacturer must also purchase an additional amount, 10 percent, of 
discrete credits above the number of credits they would otherwise need 
to comply. The paperboard source, or any other source, will never use 
this additional amount for compliance. This is known as a retirement of 
credit to benefit the environment. The total effect is to reduce 
emissions.

What Are EPA's Proposed Conditions for Approval?

    EPA is proposing the following seven conditions for approving New 
Jersey's OMET Program. These areas of New Jersey's OMET Program do not 
fully satisfy EPA's guidance. A Technical Support Document (TSD), 
prepared in support of this proposed action, contains a full 
description of EPA's conditions for approval. A copy of the TSD is 
available upon request from the EPA Regional Office listed in the 
ADDRESSES section and on EPA Region II's website at http://www.epa.gov/region02/air/air.htm.
1. Using Approved Emission Quantification Protocols
    New Jersey's OMET Program contains emission quantification protocol 
development criteria in Subchapter 30.20. This provision is consistent 
with the approach outlined in Option 1 of EPA's proposed policy on open 
market trading programs (60 Federal Register (FR) 39668, August 3, 
1995) and model open market trading rule (60 FR 44290, August 25, 
1995), and the first requirement contained in EPA's proposed action for 
the State of Michigan's Emissions Averaging and Emission Reduction 
Credit Trading Rules (62 FR 48972, September 18, 1997).
    New Jersey's OMET Program also requires mobile source generators 
and users to use a protocol which complies with EPA guidance. 
Therefore, with respect to mobile sources, New Jersey's OMET Program is 
consistent with Option 1 and Option 2 of EPA's proposed model rule and 
the first and second requirements contained in EPA's proposed action 
for Michigan.
    With respect to stationary sources, New Jersey's OMET Program does 
not directly require protocols to comply with all applicable EPA 
guidance. New Jersey's adoption documents state it will review any EPA-
approved protocols or guidance for stationary sources to determine 
whether it needs to incorporate it by reference, similar to what the 
State did with mobile sources. In addition, subchapter 30 already 
contains the requirement that discrete credits be real, surplus and 
properly quantified. The generator bears the burden of proving that it 
has in fact generated discrete credits in accordance with the rules and 
certified the discrete credits are real, surplus and properly 
quantified (Subchapter 30.21). Also, based on its experience in 
emissions trading programs, New Jersey has included protocol 
development criteria in subchapter 30.20 which addresses the general 
elements that would be characteristic to stationary sources and, 
therefore, contained in the stationary source protocol.
    However, to further ensure that the criteria of real, surplus and 
quantified in New Jersey's OMET Program are met, New Jersey must also 
incorporate into subchapter 30.20 a requirement that if an EPA-approved 
protocol exists, sources must use that protocol for quantifying 
emission reductions at applicable stationary sources, and to allow 
sources to deviate from the EPA protocol only if they first get the 
approval of EPA.
2. Providing for Monetary Penalties
    New Jersey's OMET Program establishes at subchapter 30.22 that any 
person who fails to comply with any provision of the OMET Program is 
subject to both civil administrative penalties and applicable criminal 
penalties. However, there are two provisions in subchapter 30 which 
provide for the temporary relief from monetary penalties.
    Subchapter 30.11(f) requires a user source to hold the full 
quantity of discrete credits needed for compliance before using them, 
and must continue to hold them until the Notice of Use is due. But this 
provision also allows the source to purchase additional credits it may 
need for compliance, provided this additional amount is multiplied by 
three. Subchapter 30.11(h) allows a 60-day period for sources to 
substitute good credits when New Jersey or EPA determines the credits 
are invalid for any reason. While these two provisions require the 
source to make up for the credits used, they provide an exception from 
the principle that a user source must be potentially subject to 
monetary penalties at any time when the user does not hold sufficient 
valid credits prior to the use of the credits.
    New Jersey must revise subchapter 30 to include the potential for 
monetary penalties at any time when the user does not hold sufficient 
valid credits. Section 113 of the Act requires that all violations of 
the Act be potentially subject to monetary penalties equivalent to 
$10,000 per violation per day under State law and $27,500 per violation 
per day under Federal rules. Every requirement under a trading program 
is a requirement of the Act. Therefore, any violation of the trading 
provisions must be potentially subject to monetary penalties from the 
very first day of the violation.
    A source committing a violation must be potentially subject to a 
monetary penalty. Whether the regulatory agency actually imposes a 
monetary penalty depends on enforcement discretion which covers 
considerations such as:
     The amount of money the source saved by committing the 
violation
     The amount of environmental damage caused by the violation
     Evidence of knowledge that the act was a violation
     Evidence of intentional fraud.
    EPA recognizes New Jersey includes the independent verifier 
requirement to provide confirmation of the correct generation and 
quantification of discrete credits to prevent the generation and use of 
invalid credits. However, while the verification step may minimize the 
likelihood of the use of invalid credits, there is still the 
possibility of sources using invalid credits. Under subchapters 
30.11(f) and (h) it is possible for a source to buy credits that may 
not be valid, to claim to have bought valid credits that may be invalid 
credits, or to buy fewer credits than the amount needed for compliance. 
When New Jersey determines the source is holding invalid credits or 
when the source discovers it needs additional credits for compliance 
after the use of the credits, the source only has to buy the additional 
valid credits which they should have bought in the first place (only 
now the source can buy the credits at a later date).
    Trading programs should encourage sources to ensure that they hold

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sufficient credits in advance of use and that they use valid credits. 
The potential for Federal and state penalties immediately upon the 
discovery of a violation is an incentive which the regulatory agency 
cannot achieve by merely requiring the purchase of replacement credits. 
Therefore, New Jersey must revise subchapter 30, to address sections 
30.11(f) and (h), and include the potential for monetary penalties at 
any time when the user does not hold sufficient valid credits.
    New Jersey should also revise subchapter 30 (or Subchapter 3 at 
N.J.A.C. 7:27A) to clarify what constitutes a violation and provide the 
potential to assess daily penalties. In some cases, a user's failure to 
comply with subchapter 30 may prevent the use of discrete credits for 
compliance with an emission limit. In such cases, if the user exceeds 
the emission limit it would be in violation of existing provisions and 
the existing rules contain penalties for such violations. Also, the 
general sections at subchapter 3.5 specify that each violation 
constitutes a separate and distinct offense, and each day during which 
a violation continues will constitute an additional, separate, and 
distinct offense. However, New Jersey should clarify that during a 
particular compliance period, if a source does not hold sufficient 
valid credits at any time, the source is subject to a violation. New 
Jersey should also clarify that if the source is using credits to 
comply with a requirement over an extended compliance period, such as a 
30-day rolling average, then the source could be subject to a violation 
of the entire compliance period.
3. Claiming Ownership of Discrete Credits
    Subchapter 30.4(a) states the owner or operator of a source is 
eligible to generate discrete credits and claim ownership. In addition, 
a person that does not own or operate a source may generate discrete 
credits by reducing emissions from either (1) a reduction in mobile 
source activity levels in an activity reduction plan approved by EPA 
and the State, or (2) a reduction in an electric generator's activity 
level resulting from electrical energy efficiency measures.
    However, New Jersey's OMET Program does not include a requirement 
specifying which parties are eligible to generate discrete 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 New 
Jersey. 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 the generation of excess 
credits.
    New Jersey must address the issue of ownership claims in its 
regulation and make provisions for reporting ownership claims in the 
Notices of Discrete Credit Generation.
4. Notifying Metropolitan Planning Organizations
    New Jersey must require notification of the relevant Metropolitan 
Planning Organizations and Departments of Transportation in the event 
of mobile source generation activities. To avoid double-counting the 
emission reductions generated by mobile sources in trading programs, 
the state must ensure coordination between the emission trading program 
and the conformity analyses in the area in which the trading program 
takes place. Metropolitan Planning Organizations should not use any 
reductions they receive notice about, for transportation conformity. 
Similarly, the trading program should not use reductions the 
Metropolitan Planning Organizations rely on in a transportation 
conformity determination. New Jersey should require a generator of 
mobile-source emission reductions to notify the Metropolitan Planning 
Organizations in the area, and the State Department of Transportation 
of the generator's intention to generate emission reductions. The 
generator must provide enough information to the Metropolitan Planning 
Organizations about the likely emission reductions from the activity to 
allow the Metropolitan Planning Organizations to adjust its regional 
conformity analyses appropriately. Once notified, the Metropolitan 
Planning Organizations may not use these emission reductions to satisfy 
the requirement for transportation conformity.
5. Notifying the Federal Land Manager
    EPA has a policy of providing special protection for Class I areas 
(pristine environments such as international parks, large national 
parks and wilderness areas), as required under sections 160 through 169 
of the Act. New Jersey contains a Class I area--the Brigantine National 
Wildlife Refuge. This policy includes keeping Federal Land Managers 
informed of activities that could affect air quality in Class I areas. 
In accordance with this policy, New Jersey must revise subchapter 30, 
or submit procedures as part of the SIP, which require 30-day prior 
notification to the relevant Federal Land Manager before any discrete 
credit use activity occurs approximately within 100 km of a Class I 
area.
6. Accounting for Discrete Credits in Emission Inventory
    The Act requires states to have an emissions inventory that 
specifically accounts for actual emissions of all major stationary 
sources and minor/area source categories. EPA's General Preamble 
guidance to the Act also requires the inventory to consider credits 
available for use as if they are ``in the air'' for all attainment 
demonstrations. Therefore all attainment modeling demonstrations must 
include all unused credits, that sources can eventually use, as actual 
emissions. While this can ``inflate'' an area's actual emissions 
inventory above the level of what will probably occur, it does not 
inflate emissions above what could potentially occur. For emission 
trading purposes, EPA has and continues to require that attainment, 
reasonable further progress and rate-of-progress demonstrations use a 
worst-case emissions scenario. This is to discourage the accumulation 
of large banks of credits that could potentially ruin any attainment 
plan or demonstration if the credits were all used at the same time. 
New Jersey must submit to EPA additional information on how the 
emission inventories account for unused credits under New Jersey's OMET 
Program.
7. Including Toxic Disclosure Information in Notices
    Subchapter 30.7(b)(1) and 30.14(b)(4) require the Notices which 
document the generation and use of discrete credits to include 
information on any increase in emissions of any hazardous air pollutant 
as a result of generating or using discrete credits. However, EPA's 
proposed open market policy also requires the Notices to include 
information on any forgone emission reductions in hazardous air 
pollutants due to the generation or the use of discrete credit, instead 
of non-discrete credit compliance with otherwise applicable 
requirements. New Jersey must revise the provisions on Notice 
requirements to include information on forgone emission reductions.

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What Other Clarifications Should New Jersey Make in Their Program?

    New Jersey should clarify the following provisions in Subchapter 
30. While these provisions are not approval issues, clarification would 
make the OMET program more understandable and enforceable.
     Subchapter 30.20(f)(2)(i) and (ii) reference alternative 
monitoring plans and test methods approved by New Jersey. New Jersey 
should clarify that these references are already part of the SIP, and 
are not Director discretion issues.
     Subchapter 30.4(a)(1) and the ``curtailment'' definition 
refer to mobile source activity level reductions approved by New 
Jersey. New Jersey should specify that while these actions may be 
eligible to generate discrete credit, the generation strategy must 
still comply with any applicable EPA guidance concerning mobile source 
emission quantification protocols.
     New Jersey should revise the definition of ``SIP'' as a 
plan developed by the State and approved by EPA.
     New Jersey should clarify the definition of ``surplus'' 
includes emission reductions in excess of an established program 
baseline which are not required by SIP requirements or State 
regulations, relied upon in any applicable attainment plan or 
demonstration, or credited in any reasonable further progress or 
milestone demonstration so as to prevent the double-counting of 
emission reductions.
     New Jersey should clarify that in the definition of 
``Volatile organic compound,'' EPA, not the State, has the final 
decision on an acceptable VOC test method.
     New Jersey should clarify the units for the definitions of 
``activity'' and ``economic output'' correspond to the applicable 
emission rate.
     New Jersey should clarify the provisions for determining 
the baseline period to be consistent with how New Jersey historically 
determines normal source operation in the State's rules.

How Can New Jersey Get Full Approval for Their Program?

    EPA is proposing conditional approval of New Jersey's OMET Program, 
provided New Jersey commits to correct the deficiencies discussed in 
the ``What are EPA's Proposed Conditions for Approval?'' section, in 
writing, on or before February 8, 2001. New Jersey must then correct 
the deficiencies and submit them to EPA within one year of EPA's final 
action on the OMET SIP revision.
    If New Jersey submits a commitment to comply with EPA's conditions, 
EPA will publish a final conditional approval of New Jersey's OMET 
Program. EPA will consider all information submitted prior to any final 
rulemaking action as a supplement or amendment to the October 27, 1998 
submittal. If New Jersey does not make the required commitment to EPA, 
EPA is proposing to disapprove the OMET Program.

What Guidance Did EPA Use To Evaluate New Jersey's Program?

    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. There is no requirement for New Jersey to submit 
an EIP, so its OMET Program need not necessarily follow the EIP rule. 
However, since subpart U also contains guidance on the development of 
voluntary EIPs, New Jersey did follow certain aspects of the EIP 
guidance in the development and submittal of its OMET Program.
    EPA also published an August 3, 1995 proposed policy on open market 
trading programs and an August 25, 1995 model open market trading rule. 
EPA's proposed policy describes the elements of an open market trading 
program that EPA considers to be desirable and necessary for a program 
to be approvable as a SIP revision. The proposed policy also allowed 
States to adopt rules that varied from the proposed model rule. In a 
March 10, 1998-letter from Richard D. Wilson, Acting Assistant 
Administrator for Air and Radiation to Congressman Thomas J. Bliley, 
EPA clarified its policy on open market trading. The letter says EPA 
will work with states to develop open market programs tailored to their 
individual circumstances and use the August 1995 proposal as guidance.
    Also available for reference is EPA's September 18, 1997 Proposed 
Action on the State of Michigan's Trading Rules. This proposal includes 
additional Agency guidance on several open market trading provisions.
    EPA's basis for evaluating New Jersey's OMET Program, is whether it 
meets the SIP requirements described in section 110 of the Act. More 
specifically, EPA used the EIP of 1994 as guidance for voluntary EIPs. 
In those areas where the EIP does not address certain provisions in an 
open market system, EPA used (as stated in the March 10, 1998 Bliley 
letter) the proposed policy on open market trading as relevant 
guidance, in coordination with the proposal on Michigan's Program, and 
other guidance documents, to determine the approvability of New 
Jersey's OMET Program. For further discussion of how these documents 
provide the basis of today's proposed action, see the section ``What is 
the Basis for Today's Proposal?''

What Is EPA's Evaluation of New Jersey's Program?

    EPA has determined New Jersey's new subchapter 30 regulation for 
New Jersey's OMET Program is consistent with EPA's guidance, except for 
the deficiencies discussed in the ``What are EPA's Proposed Conditions 
for Approval?'' section. New Jersey's OMET Program is based upon and is 
consistent with EPA's EIP guidance of 1994, EPA's proposed open market 
policy of 1995, and EPA's proposal of 1997 on Michigan's Program.
    New Jersey's subchapter 30 contains provisions for definitions, 
generation, transfer, verification and use of discrete credits, the 
registry, geographic restrictions, recordkeeping, public availability, 
demonstrating compliance and penalties.
    Given the documentation in the SIP submittal and the provisions of 
New Jersey's OMET Program, EPA believes New Jersey has demonstrated the 
State's other regulations will achieve at least the same quantity of 
NOX and volatile organic compound (VOC) emission reductions, 
with or without the OMET Program, including the early reduction 
strategies under the OMET Program. Furthermore, given the extra 
reductions inherent in New Jersey's reasonably available control 
technology (RACT) program, the State will continue to meet the 
reasonable further progress and SIP attainment requirements. Based upon 
these analyses and documentation, and the commitment for a periodic 
program audit, EPA believes that New Jersey's OMET Program will not 
interfere with any applicable requirement concerning attainment and 
reasonable further progress, or any other applicable requirement of the 
Act.
    EPA has also determined, with the exceptions discussed in the 
``What are EPA's Proposed Conditions for Approval?'' section, the 
emission quantification protocol criteria, monetary penalty structure, 
geographic scope of trading, early reduction credit, and program audit 
provisions of New Jersey's OMET Program are consistent with EPA's 
guidance.
    EPA has determined the amendments and administrative changes made 
to subchapters 16 (VOC RACT), 18 (emission offset program), and 19 
(NOX RACT) to be consistent with Subchapter

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30, are consistent with EPA's guidance. EPA will discuss the amendments 
and administrative changes made to subchapter 22 (operating permits) in 
a future proposed rule on the operating permit program revisions to 
part 70.
    Finally, EPA has determined the provisions submitted on April 27, 
2000 as a supplement to the SIP revision, allowing municipal waste 
combustors to use discrete credits to comply with certain Federal 
NOX emission standards, are consistent with EPA's guidance.
    A TSD, prepared in support of this proposed action, contains the 
full description of New Jersey's submittal and EPA's evaluation. A copy 
of the TSD is available upon request from the EPA Regional Office 
listed in the ADDRESSES section and on EPA Region II's website at 
http://www.epa.gov/region02/air/air.htm.

New Jersey's Open Market Emissions Trading Program

How Do Sources Generate Credits?

    Sources participating in the OMET Program generate discrete credits 
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. Sources which generate discrete credits must submit a 
``Notice'' to a private Registry identified by New Jersey, which 
includes information about the source 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 the following:
     Information in the Notice is true, accurate and complete.
     Emission reductions generated are real and surplus.
     The source used an emission quantification protocol, 
according to subchapter 30, to calculate the emissions reductions.
     A prohibited generation strategy is not the basis for the 
emission reduction.

How Do Sources Use Credits?

    New Jersey's OMET Program requires discrete credits to be verified 
by a New Jersey licensed professional engineer or certified public 
accountant, before they are used. The verifier must be independent of 
the generator source. In verifying a batch of discrete credits, the 
verifier must make a diligent inquiry that goes beyond simply relying 
on the generator's representations. The verifier must submit a Notice 
to the Registry.
    Sources that wish to trade or use discrete credits must provide 
Notices to the Registry with information about the source's intent to 
use discrete credits, as well as the source's use of the discrete 
credits. The Notices must also include:
     Number of discrete credits to be used.
     The requirements the source will comply with through the 
use of discrete credits.
     Copy of the generation Notice for the discrete credits 
used.
     Statements that the discrete credits were not previously 
used or retired.
     Certifications similar to the other Notices.
    A generating source can use discrete credits at a later time, or 
trade them to another source to use at a later time. The source using 
discrete credits must purchase an additional 10 percent of discrete 
credits above the number of credits they would otherwise need to 
comply. This additional amount is not used for compliance, but retired 
to benefit the environment.

What Are the Other Requirements of New Jersey's Program?

    New Jersey's OMET Program also contains requirements on the 
geographic scope of trading, recordkeeping, public availability of 
information, and quantification protocols.
    Sources can trade VOC or NOX discrete credits. Discrete 
credits must be designated as either ozone season (May 1 through 
September 30) or non-ozone season credits. Discrete credits generated 
outside of the ozone season cannot be used during the ozone season.

How Does New Jersey's Program Protect the Environment?

    New Jersey submitted these rules as a SIP revision to allow sources 
which emit ozone precursors--NOX and VOCs--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 
the source's actual emissions of the recent past. Sources that make 
these extra reductions going beyond requirements generate discrete 
credits that they can use later or sell to other sources. Discrete 
credits may be used by sources to comply with emissions limits. The 
program is not a means of limiting emissions; instead, trading is meant 
to provide an opportunity to comply with existing emission limits in a 
more cost effective manner.
    However, the OMET Program protects the environment in several ways:
     New Jersey has demonstrated that in each ozone season the 
number of discrete credits generated will be equal to or greater than 
the number used.
     The calculation of the number of discrete credits needed 
for use is conservative since the source must retire an additional 10 
percent of credits.
     The OMET Program specifically requires credits to be 
surplus to reductions already relied on in the SIP.
     The emission inventory must reflect the generator's 
emissions before they can generate credit.

How Is New Jersey's Program Enforced?

    New Jersey's OMET Program divides compliance responsibilities 
between the generator, verifier and user of discrete credit. In 
general, the generator, verifier and user are responsible for actions 
within his or her control, and a generator, verifier or user is in 
violation of subchapter 30 if they do not fulfill their respective 
responsibilities.
    The generator is responsible for ensuring that it has created 
discrete credits according to the OMET Program and that the discrete 
credits are real, surplus, and properly quantified.
    The verifier is responsible for making the Notice of Discrete 
Credit Verification true, accurate and complete and using diligent 
inquiry to check that the generated discrete credits are real, surplus, 
and properly quantified.
    The user is responsible for ensuring that its use of discrete 
credits complies with the provisions of the OMET Program, including 
requirements on the geographic scope of trading (subchapter 30.17) and 
the prohibitions on use (subchapter 30.13). A user is also responsible 
for ensuring a discrete credit is not used unless the Registry shows 
that the user holds the discrete credit, the credit is verified, the 
credit was not previously used or retired, and the discrete credit is 
valid.
    In any enforcement action, the generator, verifier and user bear 
the burden of proof on each of their respective responsibilities. The 
verification step does not replace the liability of the generator or 
the user under the OMET Program.

How Does New Jersey's Program Interact With Title V Permits?

    The purpose of the Title V permitting program, codified in 40 CFR 
Part 70, is to ensure that a single document identifies all applicable 
requirements under the Act for sources that are ``major sources'' or 
are otherwise required to obtain subject to a federally enforceable 
operating permit. Part 70 contains provisions designed to streamline 
the process of modifying operating permits for facilities that wish

[[Page 1801]]

to participate in an emissions trading programs like the New Jersey 
OMET program. See, e.g., 40 CFR 70.6(a)(8), 70.7(e)(2)(B). New Jersey 
has revised several provisions in its operating permits regulation, 
N.J.A.C. title 7, chapter 27, subchapter 22, in an effort to establish 
appropriate procedures for facilities to make changes to their 
operating permits so that they can participate in the OMET program. 
These revisions to the New Jersey operating permits regulation will be 
reviewed separately to determine whether they are consistent with the 
federal operating permits regulations and the Clean Air Act.

How Does New Jersey's Program Provide for Emissions Quantification 
Protocols?

    A key element in the design and implementation of trading programs, 
including open market trading programs, is methods for quantifying 
amounts of emissions. Precisely determining these amounts would be 
important to determine the amount of emissions by which a source may be 
exceeding its SIP or permit limits, and therefore the amount of 
emissions reductions the source would need to acquire in an emissions 
trade in order to meet those limits; as well as the amount of emissions 
a source may generate to sell. These methods are often referred to as 
emissions quantification protocols, or, simply, protocols.
    The 1992 preamble to the part 70 rulemaking (57 FR 32250, July 21, 
1992) (1992 Permits Rule Preamble) discusses emission quantification 
methods in the context of reviewing emissions trading within a 
permitted facility to meet its SIP limits, where the approved SIP 
authorizes such trading or emission averaging.
    The provisions of 40 CFR 70.4(b)(12)(ii) would allow a source to 
trade emissions within the permitted facility to meet its SIP limits, 
where the permit does not already provide for such emissions trading 
but the SIP does. This method would allow a source which had not 
anticipated needing to trade emissions within the facility to take 
advantage of emissions trading provisions in the SIP after a 7-day 
notice, without having to modify its permit to include new compliance 
provisions to enforce for the emissions trade. For trades to occur 
under Sec. 70.4(b)(12)(ii), the Part 70 preamble explains that:

    Any such SIP would have to include compliance requirements and 
procedures for such trades * * * these procedures must assure that 
any trade is quantifiable, accountable, enforceable and based on 
replicable procedures for ensuring the emission reductions that the 
trading program was intended to provide, including necessary test 
methods, monitoring, recordkeeping, and reporting.'' See 57 FR 
32250, 32268 (July 21, 1992).

    Similarly, the 1992 Permits Rule Preamble allowed States to use the 
minor permit modification process to make changes to operating permits 
to allow facilities to participate in emissions trading programs, if 
the underlying SIP or EPA rule explicitly provided that minor permit 
modification procedures could be used. 57 FR at 32287. The 1992 Permits 
Rule Preamble also stated that trading programs approved in SIPs and 
EPA regulations would have to contain compliance requirements and 
protocols to assure that market-based programs were quantifiable, 
accountable, enforceable and based on replicable procedures for 
determining emission reductions expected from the program. Id.
    In 1995, EPA proposed guidance for state open market trading 
programs submitted for EPA approval as part of the SIP. The 1995 
proposal provides guidance on the emissions quantification criteria 
identified in the part 70 preamble in the context of designing SIP-
based programs to allow trading among facilities. Specifically, the 
1995 guidance allows for a state's SIP-approved open market trading 
rule to contain only the criteria and process for sources to develop 
protocols. This guidance recommends that the protocols, which contain 
the specifics of quantifiable and replicable procedures, need not be 
included in the SIP, but instead may be included with the permit at the 
time of the emission trade.
    By notice dated September 15, 1999, EPA published notice of, and 
opportunity for comment on, the Draft Economic Incentive Program 
Guidance. 64 FR 50086 (Draft EIP Guidance). Under this draft guidance 
proposal, States with EIPs would submit protocols as SIP revisions, 
although in certain limited circumstances trading could proceed on an 
interim basis if specified procedures were followed before EPA took 
action on those SIP submittals. Draft EIP Guidance, section 6.2(c).
    The 1992 Permits Rule Preamble stated that Title V required 
emissions quantification protocols to be included in the SIP in order 
for intra-facility trading to be available through the seven-day notice 
procedure. It could be interpreted that similar requirements would 
apply for inter-facility trading. The 1992 Permits Rule Preamble also 
expressed EPA's view that emissions quantification protocols should be 
included in SIPs in order for the minor permit modification process to 
be used to allow facilities to participate in inter-facility trading 
programs, if the underlying SIP or EPA rule explicitly provided that 
minor permit modification procedures could be used. Today, EPA proposes 
to clarify that Title V does not require that protocols be included in 
the SIP. Rather, the requirements of Title V would be satisfied with 
the inclusion of protocols in the permits themselves. EPA is not, 
however, proposing today to revise the provisions of the Draft EIP 
Guidance, which recommend that protocols be included in the SIP to meet 
the requirements of CAA section 110 (including section 110(a)(2)(A), 
mandating ``enforceable emissions limitations''). In subsequent 
guidance or rulemaking, which could include further action on the Draft 
EIP Guidance, EPA intends to clarify the relationship between protocols 
and SIP revisions for purposes of the section 110 requirements.
    In addition, EPA proposes to approve New Jersey's OMET Program on 
the basis that at the time New Jersey adopted and submitted it to EPA, 
New Jersey relied on the guidance provided in 1995. As a result, EPA 
proposes to approve the provisions of the OMET Program that the SIP 
must include criteria for protocol development but not the protocols 
themselves.

When Was New Jersey's Program Proposed and Adopted?

    On August 2, 1995, New Jersey's Governor signed legislation 
requiring the State to promulgate an open market emissions trading 
program. After a public workshop on September 19, 1995, New Jersey 
proposed the OMET Program on February 20, 1996 and held a public 
hearing on March 7, 1996. New Jersey requested public comments by March 
21, 1996. New Jersey adopted the OMET program on July 1, 1996 with an 
operative date of August 2, 1996. New Jersey published Correction 
Notices on August 5, 1996, November 18, 1996 and June 2, 1997.
    On July 6, 1999, New Jersey proposed amendments to the OMET Program 
and held a public hearing on August 5, 1999. New Jersey requested 
public comments by August 20, 1999. New Jersey adopted the amendments 
on April 7, 2000 with an operative date of June 6, 2000.

When Was New Jersey's Program Submitted to EPA and What Did It Include?

    New Jersey submitted its OMET Program SIP revision to EPA on 
October 27, 1998. EPA determined the submittal

[[Page 1802]]

administratively and technically complete on December 22, 1998.
    New Jersey's OMET Program SIP revision included the following 
elements:
     New Subchapter 30
     Amended Subchapters 3, 16, 18, 19 and 22
     A memorandum of understanding between the States of 
Connecticut and New Jersey
     Ten applications for discrete credit generation strategies 
from May 1, 1992 through August 2, 1996, as supporting information
     A detailed evaluation of the EIP requirements, including a 
summary of trading activity to date.
    On April 27, 2000, New Jersey submitted a SIP revision to EPA 
containing amendments to Subchapter 30. EPA is including two provisions 
of the amended Subchapter 30 SIP revision as a supplement to the 
October 27, 1998 SIP revision. These two specific provisions relate to 
allowing municipal waste combustors to use discrete credits to comply 
with certain Federal NOX emission standards, as these 
Federal rules specifically acknowledge the ability of New Jersey owners 
and operators to comply with the Federal NOX standard using 
discrete credits.
    EPA is including these provisions as part of the rulemaking for the 
October 27, 1998 SIP revision to make these provisions federally-
enforceable and therefore available as an option for sources in New 
Jersey to meet the December 19, 2000 final compliance date for 
Increment 5 of 40 CFR 62.14108(a)(5) of subpart FFF.

Other Significant Items Related to New Jersey's Program

How Does New Jersey's Program Avoid Adverse Local Impacts of Hazardous 
Air Pollutant Emissions?

    In VOC trading programs, it is important to recognize that many 
VOCs are also classified as hazardous air pollutants (HAPs). EPA is 
committed to protecting the health and environment of local communities 
from any negative impacts related to VOC trading. EPA is also committed 
to providing flexibility for local decision making that can allow for 
different circumstances in different localities.
    While sources involved in VOC trading are required to meet all 
applicable current and future air toxics requirements, such as maximum 
achievable control technology (MACT), EPA believes VOC trading programs 
should build in additional safeguards for HAPs. In the September 15, 
1999 proposed revisions to the EIP guidance, EPA outlined a draft 
framework for addressing HAP-related issues in VOC trading programs. 
The draft framework says VOC trading programs must contain the 
following general safeguards:
     A program review of the trading program to evaluate the 
impacts of VOC trades involving HAPs on the health and environment of 
local communities
     Prevention and/or mitigation measures to address any 
negative impacts
     Public participation in program design, implementation and 
evaluation
     Availability of sufficient information for meaningful 
review and participation.
    New Jersey's OMET Program is more restrictive than EPA's proposed 
open market trading model rule with respect to HAPs. The proposed model 
rule requires a user source to disclose the amount of HAPs emitted as a 
result of the use of discrete credits. New Jersey's OMET Program 
prohibits the generation or use of discrete credits which would result 
in more than a ``de minimis'' increase in HAP emissions. These de 
minimis levels are the same as the levels which make a source subject 
to MACT requirements. New Jersey's OMET Program also requires 
disclosure of smaller increases in HAP emissions resulting from 
discrete credit generation or use.
    EPA believes New Jersey's OMET Program is consistent with the 
proposed framework for addressing HAP-related issues in VOC trading 
programs as outlined below, even though New Jersey adopted its OMET 
Program prior to the proposed revisions to the EIP.
    Periodic Program Evaluation provisions: New Jersey's OMET Program 
includes a periodic program evaluation in the form of an audit to occur 
at least every three years.
    New Jersey defined this program audit as part of the initial 
program design and will include any appropriate analyses and/or 
criteria contained in EPA guidance on audits. Evaluation can also occur 
on a source-by-source basis through the public accessibility of the 
Registry on the Internet at www.omet.com. Regulators and the public are 
able to track the generation and use of discrete credits to review the 
implementation of specific trades.
    Prevention and Mitigation provisions: The prevention provision in 
New Jersey's OMET Program of unacceptable impacts from potential or 
actual trades or other types of transactions including HAPs is an up-
front prohibition on the generation and use of discrete credits which 
are accompanied by an increase in HAPs above a de minimis level. 
Retrospective mitigation will also occur through the program audit.
    Public Participation provisions: New Jersey provided for public 
participation in the design of the OMET Program through a public 
workshop on September 19, 1995 to have an open discussion of the issues 
with interested parties on open market trading. After the workshop, New 
Jersey proposed their OMET Program on February 20, 1996 and held a 
public hearing on March 7, 1996. After adopting the OMET program on 
July 1, 1996, New Jersey established a stakeholder workgroup which has 
generally met every other month since the adoption of the OMET Program. 
These meetings are open to the public and discuss implementation of the 
OMET Program and ways to improve its environmental and economic 
effectiveness. New Jersey's program audit will also include an 
opportunity for public review and comment.
    Information Availability provisions: New Jersey's OMET Program 
provides for the availability of sufficient information. Subchapter 30 
contains numerous provisions which require the Notices filed with the 
Registry to contain the sufficient and appropriate information. These 
Notices specifically contain information and statements related to the 
emissions of HAPs. Also, subchapter 30.19 requires all information to 
be publicly available.
    As of this writing, EPA believes New Jersey's OMET Program is 
consistent with EPA's current thinking on addressing HAP-related issues 
in VOC trading programs. As EPA develops additional guidance, EPA will 
provide this guidance to New Jersey as the State continues to discuss 
these and other issues in the program audit and, where appropriate, 
require New Jersey to revise the OMET Program.

How Does EPA's Proposed Action Affect Earlier Credits?

    New Jersey submitted ten applications for discrete credit 
generation strategies from May 1, 1992 through August 2, 1996 as part 
of the OMET SIP submittal. New Jersey submitted these discrete credit 
generation strategies to EPA in response to EPA guidance on credits 
generated prior to rule adoption, and as supplemental information to 
support the OMET SIP submittal.
    EPA reviewed these ten credit generation strategies, independent of 
its review of the OMET SIP revision, to see how sources were 
implementing the OMET Program. EPA, in its role of program oversight, 
decided to conduct this review to provide a comprehensive

[[Page 1803]]

evaluation of New Jersey's OMET Program.
    In the review of the ten strategies, EPA first determined whether 
each strategy was consistent with the criteria contained in subchapter 
30.6(b)(2) for emission reductions generated between May 1, 1992 and 
August 2, 1996. EPA confirmed that each of the ten strategies met the 
criteria for submitting a Notice of Certification of Discrete Credit 
Generation to New Jersey by October 31, 1996. Further, EPA acknowledges 
these ten strategies to be the only discrete credit generation 
strategies which meet the criteria of subchapter 30.6(b)(2), and would 
not expect any other pre-adoption credits to exist.
    EPA determined there were varying degrees of deficiencies in each 
of the ten credit generation strategies. The deficiencies in each 
strategy ranged from minor calculation errors to missing information to 
inconsistencies between the strategy and subchapter 30 and EPA 
guidance. If EPA discovered a deficiency in any of the strategies, it 
was not a deficiency with the protocol development criteria contained 
in subchapter 30, but an issue with the specifics of the strategy. 
Independent of the review of the OMET SIP revision, EPA notified New 
Jersey in an October 20, 1999 letter of the deficiencies as a result of 
EPA's review. In this correspondence, EPA summarized its approach to 
the review of the ten strategies, identified the deficiencies of each 
strategy and described its expectations for New Jersey and the sources 
to address the deficiencies. EPA clarified that the Agency is not 
proposing to approve or disapprove the strategies as part of the 
proposed action on subchapter 30. Rather, EPA provided this information 
to give the participants in the OMET Program an opportunity to address 
any deficiencies (according to the provisions of the OMET Program) 
prior to final approval of the OMET SIP revision.
    EPA expects the sources to address the deficiencies contained in 
the correspondence prior to the verification or the use of the subject 
discrete credits. In fact, verifiers should consider EPA's comments in 
its review, to fulfill the requirement that the verification of 
generated discrete credits be based on diligent inquiry by the 
verifier.
    Upon a final approval of New Jersey's OMET SIP revision, subchapter 
30 will be federally-enforceable. Since subchapter 30 is a SIP 
flexibility mechanism, compliance with its terms is essential in order 
to avoid complying with other applicable requirements of the SIP. Also, 
the generator and the verifier may have other responsibilities related 
to proper quantification and verification of the discrete credits. EPA 
suggests the generators, verifiers and any users of the discrete 
credits review these specific discrete credit generation strategies 
before subchapter 30 becomes subject to EPA enforcement.

How Will New Jersey Audit the Program?

    New Jersey's October 27, 1998 SIP submittal letter contains an 
enforceable commitment to meet reasonable program audit requirements 
established in Federal regulations and/or guidance. New Jersey will 
ensure that an audit is performed at least every three years which 
meets applicable EPA guidance, and will provide timely post-audit 
reports to the EPA. New Jersey recognizes its responsibility to ensure 
that the OMET Program, as implemented, is consistent with the goals of 
rate of progress and of attainment in New Jersey, in respect to the 
national ambient air quality standard for ozone and does not result in 
continued non-attainment in New Jersey and downwind areas. At a 
minimum, New Jersey will include the following elements in the audit:
     An evaluation of the net effect of the New Jersey OMET 
Program on actual emissions
     Verification that in each ozone season the number of 
discrete credits generated will be equal to or greater than the number 
used; and,
     An evaluation of the cost savings.
    Also, the audit will determine whether there is a shortfall between 
the results claimed for the New Jersey OMET Program and the actual 
results obtained during program implementation. If there is a 
shortfall, New Jersey will submit to EPA, with the post-audit report, 
measures to remedy program deficiencies and, if applicable, measures to 
make up any emissions shortfall within a specified period of time 
consistent with relevant reasonable further progress and attainment 
requirements.
    Since New Jersey's commitment to do a program evaluation includes 
reference to ``any applicable EPA guidance on audits,'' New Jersey and 
EPA will not only use the guidance contained in the 1995 proposed open 
market policy, but could use the guidance contained in the 1999 
proposed EIP as part of the program evaluation. In addition, New Jersey 
should specifically evaluate the inclusion of energy efficiency 
measures in the OMET Program as part of the periodic program audit.

What Is the Basis for Today's Proposal?

    As discussed in the section ``What Guidance Did EPA Use to Evaluate 
New Jersey's Program?'' the 1994 EIP includes requirements for 
mandatory EIPs and guidance for voluntary EIPs. 40 CFR part 51, subpart 
U; 59 FR 16690. EPA proposed revised guidance to accommodate open 
market trading programs, by notices dated August 3, 1995, 60 FR 39668, 
and August 25, 1995, 60 FR 44290. EPA proposed action on a Michigan 
emission trading program by notice dated September 18, 1997, 62 FR 
48972. EPA received comments on both of these proposals.
    Subsequent to these proposals, in a letter to Congressman Thomas J. 
Bliley, dated March 10, 1998, Richard D. Wilson, EPA's Acting Assistant 
Administrator for Air and Radiation, stated that EPA would ``work with 
the States to develop open market programs tailored to their individual 
circumstances. In this process EPA and the States are using the August 
1995 [open market trading] proposal as guidance and taking into account 
both State circumstances and the many useful comments we received in 
response to the proposal.''
    New Jersey adopted its SIP on July 1, 1996 and submitted it to EPA 
on October 27, 1998. In response to requests by EPA, New Jersey 
supplemented the submittal with minor revisions on April 27, 2000.
    By notice dated September 15, 1999, EPA proposed revised guidance 
for economic incentive programs. 62 FR 50086. This proposal would 
revise in certain respects the Agency guidance provided in the 1994 
EIP, the 1995 open market trading program proposals and the guidance 
provided in the 1997 EPA proposal to approve the Michigan program. The 
public comment period on the September 15, 1999 proposal ended December 
10, 1999. EPA is currently considering the public's comments in 
developing a final revision to the EIP guidance.
    In developing its OMET SIP revision, New Jersey relied on EPA's 
statements that New Jersey could base its SIP revision on the 1995 open 
market trading proposal. On several occasions during the adoption 
process, EPA and State officials confirmed EPA's support for New 
Jersey's reliance on the 1995 proposal (September 21, 1995 note to the 
file regarding a public workshop in Trenton, New Jersey; and, March 15, 
1996, March 21, 1996, April 30, 1996, and May 22, 1996 letters from EPA 
to New Jersey.) By the same token, New Jersey's submittal of the SIP 
revision accorded with EPA's representations to

[[Page 1804]]

Congressman Bliley that States could use the 1995 guidance to assist 
them in developing their open market trading programs. EPA evaluated 
the SIP revision against the guidance available at the time of the 
program's development and submittal. This guidance included both EPA's 
1995 open market trading proposal, and the guidance provided in the 
Federal Register notice accompanying the 1997 EPA proposal to approve 
Michigan's trading program. In light of this reliance, EPA is today 
proposing to approve the New Jersey SIP revision, except for the 
deficiencies discussed in the ``What are EPA's Proposed Conditions for 
Approval?'' section. In doing so, EPA is proposing to apply, on an 
interim basis, both the 1995 open market trading program proposals and 
the guidance contained in the 1997 EPA proposal to approve the Michigan 
program, in light of New Jersey's reliance on those two proposals, 
recognizing that some aspects of these proposals may be further revised 
by the policies of the 1999 EIP proposal, if and when it is finalized.

How Will New Jersey Address Future EPA Trading Guidance?

    EPA believes the basis for today's proposed action is a reasonable 
approach in the interest of supporting trading programs. However, due 
to EPA's lack of experience with open market trading programs and the 
many issues that such programs raise, EPA will use any future final 
revised EIP guidance as a basis for re-evaluating New Jersey's OMET 
Program, in coordination with the State, to ensure that its operation 
is consistent with the Clean Air Act and federal regulation. EPA will 
notify the State of any deficiencies in the OMET Program, within 18 
months after EPA issues a final revised EIP guidance. As with any SIP, 
EPA may require New Jersey to revise the OMET Program where necessary 
and re-submit the OMET Program according to the requirements and 
deadlines under section 110(k)(5) of the Act. According to section 
110(k)(5), New Jersey may have up to 18 months to revise and re-submit 
the OMET Program after EPA notifies the State of any deficiencies.

What is the Status of the 1994 Economic Incentive Program?

    The 1994 EIP established, through notice-and-comment action, rules 
for mandatory EIPs and guidance for voluntary EIPs. Any final action 
that EPA may take to approve the New Jersey OMET Program, to the extent 
that action differs from the guidance portion of the 1994 EIP, would 
revise that portion of the 1994 EIP action only for purposes of today's 
action on the New Jersey SIP submittal. EPA's proposed 1999 EIP 
guidance, once completed through notice-and-comment action, may further 
revise the guidance portion of the 1994 EIP action.

Conclusion

    EPA is proposing to conditionally approve the New Jersey SIP 
revision for Subchapter 30 and approve revisions to Subchapters 16, 18, 
and 19. This SIP revision implements New Jersey's OMET Program. EPA is 
proposing conditional approval of New Jersey's OMET Program, provided 
New Jersey commits to correct the deficiencies discussed in the ``What 
are EPA's Proposed Conditions for Approval?'' section, in writing, on 
or before February 8, 2001. New Jersey must then correct the 
deficiencies and submit them to EPA within one year of EPA's final 
action on the OMET SIP revision.
    If New Jersey submits a commitment to this effect, EPA will publish 
a final conditional approval of New Jersey's OMET Program. EPA will 
consider all information submitted prior to any final rulemaking action 
as a supplement or amendment to the October 27, 1998 submittal. If New 
Jersey does not make the required commitment to EPA, EPA is proposing 
in the alternative to disapprove the OMET Program.
    EPA is requesting public comment on the issues discussed in today's 
action. EPA will consider all public comments before taking final 
action. Interested parties may participate in the Federal rulemaking 
procedure by attending the public information sessions discussed in the 
DATES section, and by submitting written comments to the EPA Regional 
office listed in the ADDRESSES section.

Administrative Requirements

Executive Order 12866

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

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 
Executive Order 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 Executive Order 13045 because it does 
not involve decisions intended to mitigate environmental health or 
safety risks.

Executive Order 13084

    Under Executive Order 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, or EPA consults 
with those governments. If EPA complies by consulting, Executive Order 
13084 requires EPA to 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 officials 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 proposed 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 Executive Order 13084 do not apply to 
this rule.

Executive Order 13132

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires EPA to develop an accountable process to ensure 
``meaningful and timely input by State and local officials in the 
development of regulatory policies that have federalism implications.'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of

[[Page 1805]]

power and responsibilities among the various levels of government.'' 
Under Executive Order 13132, EPA may not issue a regulation that has 
federalism implications, that imposes substantial direct compliance 
costs, and that is not required by statute, unless the Federal 
government provides the funds necessary to pay the direct compliance 
costs incurred by State and local governments, or EPA consults with 
State and local officials early in the process of developing the 
proposed regulation. EPA also may not issue a regulation that has 
federalism implications and that preempts State law unless the Agency 
consults with State and local officials early in the process of 
developing the proposed regulation.
    This rule will not have substantial direct effects on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government, as specified in Executive Order 13132, because it 
merely approves a state rule implementing a federal standard, and does 
not alter the relationship or the distribution of power and 
responsibilities established in the Clean Air Act. Thus, the 
requirements of section 6 of the Executive Order do not apply to this 
rule.

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 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).

Unfunded Mandates

    Under sections 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 
costs to State, local, or tribal governments in the 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 costs of $100 
million or more to either State, local, or tribal governments in the 
aggregate, or to the private sector. This Federal action proposes to 
approve 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.

Paperwork Reduction Act

    This action does not add any information collection requirements or 
increase burden under the provisions of the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq., and therefore is not subject to these 
requirements.

National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law No. 104-113, section 12(d) (15 
U.S.C. 272 note) directs EPA to use voluntary consensus standards in 
its regulatory activities unless to do so would be inconsistent with 
applicable law or otherwise impractical. Voluntary consensus standards 
are technical standards (e.g. materials specifications, test methods, 
sampling procedures, and business practices) that are developed or 
adopted by voluntary consensus standards bodies. The NTTAA directs EPA 
to provide Congress, through OMB, explanations when the Agency decides 
not to use available and applicable voluntary consensus standards. This 
rule does not involve technical standards. Therefore, EPA did not 
consider the use of any voluntary consensus standards.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Hydrocarbons, 
Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and 
recordkeeping requirements, Volatile organic compounds.

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

    Dated: December 28, 2000.
Carol M. Browner,
Administrator.
[FR Doc. 01-564 Filed 1-8-01; 8:45 am]
BILLING CODE 6560-50-P