[Federal Register Volume 66, Number 127 (Monday, July 2, 2001)]
[Proposed Rules]
[Pages 34864-34878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16568]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[IN 131a; FRL-7005-9]


Approval and Promulgation of Air Quality Implementation Plans; 
Indiana; Oxides of Nitrogen Regulations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: On March 30, 2001, Indiana submitted and requested parallel 
processing on a draft plan to control emissions of oxides of nitrogen 
(NOX) throughout the State. The plan consists of two 
proposed rules, a preliminary budget demonstration, and supporting 
documentation. The plan will contribute to attainment and maintenance 
of the 1-hour ozone standard in several 1-hour ozone nonattainment 
areas including the Chicago-Gary-Lake County and Louisville areas. 
Indiana's plan, which focuses on electric generating units, large 
industrial boilers, turbines and cement kilns, was developed to achieve 
the majority of reductions required by EPA's October 27, 1998, 
NOX State

[[Page 34865]]

Implementation Plan (SIP) Call. As of May 1, 2004, Indiana's plan will 
also provide reductions at units currently required to make reductions 
under the EPA's Clean Air Act Section 126 rulemaking. Through parallel 
processing, EPA is proposing to approve the plan as a SIP revision 
fulfilling the NOX SIP Call Phase I requirements, provided 
Indiana corrects identified deficiencies in a manner that is consistent 
with this notice.
    EPA notes that, as discussed in this Federal Register action, the 
State adopted final rules June 6, 2001. These rules and the supporting 
documents have not yet been submitted to EPA and thus EPA has not 
concluded its review and analysis. However, it is EPA's understanding 
and expectation that the rules resolve the deficiencies identified in 
this Federal Register proposal and do not introduce any unapprovable 
changes.

DATES: Written comments must be received on or before August 1, 2001.

ADDRESSES: Written comments should be sent to: J. Elmer Bortzer, Chief, 
Regulation Development Section (AR-18J), U.S. Environmental Protection 
Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. Copies of 
the State's submittals and materials relevant to this proposed 
rulemaking are available for public inspection during normal business 
hours at the following address: United States Environmental Protection 
Agency, Region 5, Air and Radiation Division, 77 West Jackson 
Boulevard, Chicago, Illinois 60604 (18th floor). (Please telephone Ryan 
Bahr at (312) 353-4366 before visiting the Region 5 office.)

FOR FURTHER INFORMATION CONTACT: Ryan Bahr, Environmental Engineer, 
Regulation Development Section, Air Programs Branch (AR-18J), U.S. 
Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, 
Chicago, Illinois 60604, Telephone Number: (312) 353-4366, E-Mail 
Address: [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Why are reductions in NOX important?
    B. What mechanism is Indiana using to ensure that regional 
NOX reductions occur?
    C. What analyses and EPA rulemaking actions support the need for 
the NOX emission control regulations?
    D. What court rulings have impacted EPA's NOX 
emission control regulations?
    E. What are Section 126 petitions, and how are they related to 
this proposal?
II. Summary of the State Submittal
    A. When did Indiana develop and submit the NOX 
emission control plan to the EPA?
    B. What are the basic components of the State's draft plan?
    C. How does Indiana address its statewide NOX budget?
    1. What NOX budget did EPA determine for the State?
    2. What changes did the State request to the NOX 
budget and are those changes approvable?
    3. How does Indiana demonstrate that it is meeting the budget?
    D. How is the State addressing the units covered by Section 126 
Petitions?
    E. What public review opportunities did the State provide?
    F. What guidance did EPA use to evaluate Indiana's 
NOX control program?
    G. Does Indiana's proposed NOX emissions control plan 
meet all of the federal NOX SIP Call requirements?
    H. What deficiencies are there in Indiana's proposed 
NOX emissions control regulations, and do any of these 
deficiencies constitute an approvability issue?
    1. The 25-ton exemptions
    2. Definition of ``maximum design heat input''
    3. Definition of ``NOX budget trading program''
    4. Definition of ``percent monitoring data availability''
    5. Monitoring requirements
    6. Indiana's new source and energy efficiency and renewable 
energy ``set-asides''
    7. Penalties
    8. 326 IAC 10-3, Nitrogen Oxide Reduction Program for Specific 
Source Categories
    9. General SIP requirements
    I. What additional significant changes has the Indiana 
Department of Environmental Management (IDEM) incorporated in 
response to comments?
    1. Blast furnace gas units
    2. Definition of ``repowered natural gas-fired units''
    3. Utilization correction for new units
    4. Centralized recordkeeping
    5. Allocation methodology
III. Proposed Action
    A. What action is EPA proposing today?
    B. What happens if Indiana does not address the deficiencies 
identified or has significantly changed the regulations during the 
final adoption process?
IV. Administrative Requirements


    Note: In the following questions and answers, whenever the term 
``you'' is used it refers to the reader of this proposed rule and 
``we,'' ``us,'' or ``our'' refers to the EPA.

I. Background

A. Why Are Reductions in NOX Important?

    The Clean Air Act (Act or CAA) requires the EPA to establish 
National Ambient Air Quality Standards (NAAQS) for certain air 
pollutants that cause or contribute to air pollution and are reasonably 
anticipated to endanger public health or welfare. (CAA Sections 108 and 
109) In 1979, EPA determined ground level ozone, at certain 
concentrations, to be one of those pollutants and promulgated the 1-
hour ground-level ozone standard of 0.12 parts per million (ppm) or 120 
parts per billion (ppb) to protect public health. 44 FR 8202 (February 
8, 1979).
    Ground-level ozone has long been recognized, in both clinical and 
epidemiological research, to affect public health. There is a wide 
range of ozone-induced health effects, including decreased lung 
function (primarily in children active outdoors), increased respiratory 
symptoms (particularly in highly sensitive individuals), increased 
hospital admissions and emergency room visits for respiratory causes 
(among children and adults with pre-existing respiratory disease such 
as asthma), increased inflammation of the lung, and possible long-term 
damage to the lungs.
    Ground-level ozone is generally not directly emitted by sources. 
Rather, volatile organic compounds (VOC) and NOX, both 
emitted by a wide variety of sources, react in the presence of sunlight 
to form additional pollutants, including ozone. NOX and VOC 
are referred to as precursors of ozone.
    Historically, EPA, State and industry efforts have focused on 
controlling VOC in urban areas to achieve the ozone standards. However, 
notwithstanding significant efforts, the 1-hour ozone standards have 
not been met in many areas, especially major urban areas. A detailed 
process was begun in 1995 to evaluate what effect transported pollution 
was having on ozone levels in nonattainment areas. This study 
determined, among other things, that NOX emissions have 
contributed to significant transport of ozone and that a program to 
regulate regional NOX emissions can provide the essential 
background reductions needed for the majority of nonattainment areas to 
attain the 1-hour ozone standard.

B. What Mechanism Is Indiana Using To Ensure That Regional 
NOX Reductions Occur?

    On October 27, 1998, the EPA published a final rule in the Federal 
Register finding certain States' SIPs deficient, since they failed to 
prohibit the interstate transport of oxides of nitrogen (63 FR 57356). 
This action is known as the ``NOX SIP Call,'' and applies to 
a number of States, primarily east of the Mississippi, including 
Indiana. The NOX SIP Call adds and revises sections of 40 
CFR parts 51 and 75 and adds part 96. The 40 CFR part 51 sections 
codify the requirements for

[[Page 34866]]

the State's submittal. These requirements are primarily to develop 
NOX emission control regulations and the supporting 
documentation and programs necessary, for a SIP revision sufficient to 
provide for a prescribed NOX emission budget in 2007. The 40 
CFR part 75 revisions and additions revise the part 75 monitoring 
requirements so that they are appropriate for the NOX SIP 
Call trading program. Finally, 40 CFR part 96 is the model 
NOX budget trading program for SIPs. (You will also see 40 
CFR part 97 discussed in this Federal Register action. 40 CFR part 97 
was added to the CFR in a separate action in response to 126 petitions. 
It establishes a control program similar to 40 CFR part 96. However, 
unlike part 96, part 97 is not a model rule. It is actually a USEPA 
implemented program which regulates sources directly. 40 CFR part 97 
and the section 126 Petitions are discussed in more detail in section 
I.E. of today's proposal.)
    EPA promulgated the NOX SIP Call under sections 
110(a)(2)(D) and 110(k) of the CAA. Section 110(a)(2)(D) applies to all 
SIPs for each pollutant covered by a NAAQS and for all areas regardless 
of their attainment designation. It requires a SIP to contain adequate 
provisions that prohibit any source or type of source or other types of 
emissions within a State from emitting any air pollutants in amounts 
which will contribute significantly to nonattainment in, or interfere 
with maintenance of attainment of a standard by, any other State with 
respect to any NAAQS. Section 110(k)(5) authorizes the EPA to find that 
a SIP is substantially inadequate to meet any CAA requirement when 
appropriate and, based on such a finding, to then require the State to 
submit a SIP revision within a specified time to correct such 
inadequacies.
    Indiana submitted its plan and requested a SIP revision with 
parallel processing on March 30, 2001. EPA is proposing, in this 
Federal Register, to approve this plan as a SIP revision meeting the 
requirements of Phase I of the NOX SIP Call, provided that 
Indiana corrects the identified deficiencies. Indiana adopted final 
rules on June 6, 2001. EPA has not concluded its analysis of these 
final adopted rules and the associated plan. However, based on our 
preliminary review and conversations with the State, we expect that the 
rules will address the deficiencies identified in this proposal. These 
final adopted rules are available on Indiana's website at:
http://www.state.in.us/idem/oam/standard/Sip/index.html.

C. What Analyses and EPA Rulemaking Actions Support the Need for the 
NOX Emission Control Regulations?

    The State of Indiana has the primary responsibility under the CAA 
for ensuring that it meets the ozone NAAQS. For that reason, the State 
is required to submit a SIP that specifies emission limitations, 
control measures, and other measures necessary for attainment, 
maintenance, and enforcement of the NAAQS within the State. The SIP for 
ozone must meet the CAA requirements discussed above, be adopted 
pursuant to notice and comment rulemaking, and be submitted to the EPA 
for approval. A number of analyses and EPA rulemaking actions have 
affected the SIP revisions needed for the Chicago-Gary-Lake County 
ozone nonattainment areas, as discussed below.
    The Chicago-Gary-Lake County ozone nonattainment area has not 
attained and continues to violate the 1-hour ozone standard. The States 
of Illinois, Indiana, and Wisconsin have worked cooperatively to 
provide the EPA with an ozone attainment demonstration for the Lake 
Michigan area, which includes the Chicago-Gary-Lake County ozone 
nonattainment area. Analyses conducted to support this ozone attainment 
demonstration indicate that reductions in upwind NOX 
emissions are needed to reduce the transport of ozone into these 
nonattainment areas.
    Recognizing the complexity of ozone pollution, on March 2, 1995, 
Mary D. Nichols, Assistant Administrator for EPA's Air and Radiation 
Division, issued a memorandum titled ``Ozone Attainment 
Demonstrations.'' In this memorandum, the EPA recognized that the 
development of the necessary technical information, as well as the 
emission control measures necessary to achieve the attainment of the 
ozone NAAQS had been difficult for the States affected by significant 
ozone transport. EPA established a two-phased process for States with 
serious and severe ozone nonattainment areas, such as the Chicago/
Northwest Indiana nonattainment area, to develop ozone attainment SIPs. 
Under Phase I, States were required to complete 1994 SIP requirements 
(with the exception of final ozone attainment demonstrations), submit 
regulations sufficient to meet rate of progress (ROP) requirements 
through 1999, and submit initial ozone modeling analyses, including 
preliminary ozone attainment demonstrations based on assumed reductions 
in upwind ozone precursor emissions. Phase II called for: a two-year 
consultative process to assess regional strategies to address ozone 
transport in the eastern United States and required submittal of all 
remaining ROP submittals to cover ROP through the attainment dates; 
final attainment demonstrations to address the emission reduction 
requirements resulting from the two-year consultative process; any 
additional rules and emission controls needed to attain the ozone 
standard; and, any regional controls needed for attainment by all areas 
in the eastern half of the United States.
    In response to the problem of ozone transport, the Environmental 
Council of States (ECOS) recommended the formation of a national 
workgroup to develop a consensus approach to addressing the transport 
problem. As a result of ECOS' recommendation and in response to the 
March 2, 1995 EPA memorandum, the Ozone Transport Assessment Group 
(OTAG), a partnership among EPA, the 37 eastern States and the District 
of Columbia, and industrial, academic, and environmental groups, was 
formed to conduct regional ozone transport analyses and to develop a 
recommended ozone transport control strategy. OTAG was given the 
responsibility of conducting the two-years of analyses envisioned in 
the March 2, 1995 EPA memorandum.
    OTAG conducted a number of regional ozone data analyses and 
regional ozone modeling analyses using photochemical grid modeling. In 
July 1997, OTAG completed its work and made recommendations to the EPA 
concerning the regional emissions reductions needed to reduce 
transported ozone as an obstacle to attainment in downwind areas. OTAG 
recommended a possible range of regional NOX emission 
reductions to support the control of transported ozone. Based on OTAG's 
recommendations and other information, EPA issued the NOX 
SIP Call rule on October 27, 1998. 63 FR 57356.
    In the NOX SIP Call, EPA determined that sources and 
emitting activities in 23 jurisdictions \1\ emit NOX in 
amounts that ``significantly contribute'' to ozone nonattainment or 
interfere with maintenance of the 1-hour ozone NAAQS in one or more 
downwind areas, in violation of CAA Section 110(a)(2)(D)(i)(I). EPA 
identified NOX emission reductions by source sector that 
could be achieved using cost-effective measures and set state-wide 
NOX emission budgets for each affected

[[Page 34867]]

jurisdiction for 2007 based on the possible cost-effective 
NOX emission reductions. The source sectors included nonroad 
mobile, highway mobile, area, cement kilns, internal combustion 
engines, electricity generating units (EGUs) and non-EGU stationary 
point sources. EPA established recommended NOX emissions 
caps for large EGUs and for large non-EGUs, and recommended emission 
limits for large cement kilns and large internal combustion engines. 
Large EGUs included stationary boilers, turbines and combined cycle 
systems, serving a generator 25 megawatts or larger, who generate 
electricity for sale to the electrical grid. Large non-EGUs included 
process stationary boilers, turbines and combined cycle systems, who 
are not EGUs and whose maximum design heat input is 250 million British 
thermal units [Btu] per hour [mmBtu/hr] or more. EPA determined that 
significant NOX reductions using cost-effective measures 
could be obtained as follows: application of a 0.15 pounds 
NOX/mmBtu heat input emission rate limit for large EGUs; a 
60 percent reduction of NOX emissions from large non-EGUs; a 
30 percent reduction of NOX emissions from large cement 
kilns; and a 90 percent reduction of NOX emissions from 
large stationary internal combustion engines. The 2007 state-wide 
NOX emission budgets were based on NOX emissions 
projections to 2007 coupled with these levels of NOX 
emission controls.
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    \1\ Alabama, Connecticut, Delaware, District of Columbia, 
Georgia, Illinois, Indiana, Kentucky, Maryland, Massachusetts, 
Michigan, Missouri, New Jersey, New York, North Carolina, Ohio, 
Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, 
West Virginia, and Wisconsin.
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    Although the state-wide NOX emission budgets were based 
on the levels of reduction achievable through cost-effective emission 
control measures, the NOX SIP Call allows each State to 
determine what measures it will choose to meet the state-wide 
NOX emission budgets. It does not require the States to 
adopt the specific NOX emission rates assumed by the EPA in 
establishing the NOX emission budgets. The NOX 
SIP Call merely requires States to submit SIPs, which, when 
implemented, will require controls that meet the NOX state-
wide emission budget. The NOX SIP Call encourages the States 
to adopt a NOX cap-and-trade program for large EGUs and 
large non-EGUs as a cost-effective strategy and provides an interstate 
NOX trading program that the EPA can administer for the 
States. If States choose to participate in the national trading 
program, they must submit SIPs that conform to the trading program 
requirements in the NOX SIP Call.
    In its March 2, 1995 memorandum, EPA did not include moderate ozone 
nonattainment areas, such as the Louisville area, in the two-phased 
approach. The EPA, however, recognizes that some moderate ozone 
nonattainment areas may also have been significantly impacted by ozone 
transport from upwind areas, making attainment of the 1-hour ozone 
NAAQS difficult through the imposition of only local emission control 
measures. On July 16, 1998, EPA established a policy that allowed for a 
deferral of the attainment date for areas significantly impacted by 
ozone transport where certain conditions are met. The EPA published 
this policy (Extension Policy) in the Federal Register on March 25, 
1999. 64 FR 14441.
    Under the Extension Policy, the EPA would defer final findings on 
the attainment status for moderate nonattainment areas and would 
instead allow these areas to submit attainment SIPs that include 
boundary reductions in ozone achieved by controls measures in upwind 
areas. The attainment date for these areas would be the date by which 
the relevant upwind areas will have reduced emission, reducing the 
transported ozone.
    On April 30, 1998, the State of Indiana submitted a major revision 
of the ozone attainment demonstration for the Chicago-Gary-Lake County 
ozone nonattainment area. In that revision, the State demonstrated that 
significant reductions in transported ozone and NOX would be 
necessary to achieve attainment of the 1-hour ozone standard in the 
nonattainment area. Indiana committed to complete the ozone attainment 
demonstration and to adopt sufficient local and regional controls as 
needed to demonstrate attainment of the ozone standard and to submit 
the final attainment demonstration and adopted regulations to the EPA 
by December 2000. The EPA proposed to conditionally approve the 1-hour 
attainment demonstration based, in part, on the State's commitment to 
adopt and submit a final attainment demonstration and a post-1999 ROP 
plan, including the necessary State emission control regulations, by 
December 31, 2000. (December 16, 1999. 64 FR 70514). The NOX 
regulations reviewed in this proposed rule are, in part, intended to 
meet part of the State's commitment to complete the ozone attainment 
demonstration for the Chicago-Gary-Lake County nonattainment area.

D. What Court Rulings Have Impacted EPA's NOX Emission 
Control Regulations?

    When the EPA published the NOX SIP Call on October 27, 
1998, a number of States and industry groups filed petitions 
challenging the rulemaking before the United States Court of Appeals 
for the District of Columbia Circuit. The Court, on May 25, 1999, 
stayed the states' obligation to submit SIPs in response to the 
NOX SIP Call rule. Subsequently, on March 3, 2000, the Court 
upheld most of the NOX SIP Call rule. The Court, however, 
vacated the rule as it applied to Missouri and Georgia, and remanded 
for further consideration the inclusion of portions of Missouri and 
Georgia in the rule. The Court also vacated the rule as it applied to 
Wisconsin because EPA had not made a showing that sources in Wisconsin 
significantly contribute to nonattainment or interfere with maintenance 
of the ozone NAAQS in any other State. Finally, the Court remanded to 
EPA two issues concerning a limited portion of the NOX 
emission budgets. See Michigan et al. v. EPA, 213 F.3d 663 (D.C. Cir. 
2000). Based on the remanded issues, on April 11, 2000, EPA initiated a 
two phase approach to implement the NOX SIP Call. Phase I of 
this approach addresses the portion of the NOX SIP Call 
upheld by the Court. It will achieve the majority of the reductions in 
the NOX SIP Call. Based on the June 22 Court decision, 
discussed below, the Phase I plan was due from Indiana on October 30, 
2000. The second phase will address the few narrow issues that the 
Court remanded to EPA, including: Whether, and if so, how, a small 
subclass of facilities that generate electricity should be included in 
the rule; and what control levels should be assumed for large, 
stationary internal combustion engines. Phase II of the NOX 
SIP Call will not require a submittal from the States until EPA has 
proposed and finalized rules in response to the Court's remand.
    On June 22, 2000, the Court removed the stay of the states' 
obligation to submit SIPs in response to the NOX SIP Call 
and denied petitioners' motions for rehearing and rehearing en banc. In 
removing the stay, the Court provided that EPA should allow 128 days 
for States to submit SIPs to the EPA, i.e., by October 30, 2000. 
Shortly after removing the stay, petitioners requested that the Court 
adjust the NOX SIP Call compliance date. The Court 
determined that the compliance date for the SIP Call would be May 31, 
2004.

E. What Are Section 126 Petitions, and How Are They Related to This 
Proposal?

    Section 126 of the CAA authorizes a downwind State to petition EPA 
for a finding that any new (or modified) or existing major stationary 
source or group of stationary sources upwind of the State emits or 
would emit in violation of the prohibition of section 110(a)(2)(D)(i) 
because the source(s) emissions contribute significantly to

[[Page 34868]]

nonattainment, or interfere with maintenance, of a NAAQS in the State. 
Sections 110(a)(2)(D)(i), 126(b)-(c). If EPA makes the requested 
finding, the source(s) must shut down within 3 months from the finding, 
unless EPA directly regulates the source(s) by establishing emissions 
limitations and a compliance schedule, extending no later than 3 years 
from the date of the finding, to eliminate the prohibited interstate 
transport of pollutants as expeditiously as possible. See sections 
110(a)(2)(D)(i) and 126(c). Eight northeastern States, including 
Connecticut and New York, petitioned EPA requesting that EPA make a 
finding that certain major stationary sources or groups of sources in 
upwind States, including Indiana, emit NOX emissions in 
violation of the CAA's prohibition on amounts of emissions that 
contribute significantly to ozone nonattainment or maintenance problems 
in the petitioning State.
    EPA made affirmative technical determinations for six of these 
petitions on May 25, 1999 (64 FR 28250). EPA's approach was to defer 
making Section 126 findings as long as States and EPA stayed on track 
to meet the requirements of the NOX SIP Call by May 1, 2003. 
This timing was synchronized such that approval of a complete 
NOX SIP Call could supplant the section 126 rulemaking by 
ensuring that section 126 sources were no longer contributing 
significantly to downwind nonattainment. However, when the Court 
granted a motion to stay the compliance deadline for the NOX 
SIP Call to May 31, 2004, the result was that the NOX SIP 
Call no longer assured in 2003 that affected sources would not emit in 
violation of the prohibition in section 126 of the CAA. Thus, with the 
required compliance deadline for the NOX SIP Call of May 31, 
2004, the dates are no longer aligned.
    EPA subsequently took final action making 126 findings on January 
18, 2000 (65 FR 2674). The January 18, 2000, action also finalized the 
federal NOX Budget Trading Program at 40 CFR part 97 as a 
means of mitigating the interstate transport of ozone and 
NOX. The sources listed in the section 126 rulemaking are 
required to comply with the part 97 trading program by May 1, 2003. 
Several parties filed a petition for review of EPA's final action. On 
May 15, 2001, the United States Court of Appeals for the District of 
Columbia Circuit rendered its decision, largely upholding EPA's action. 
Appalachian Power Co. et al. v. EPA, No. 99-1200.
    In the NOX SIP call, EPA determined that emissions from 
sources throughout the entire State of Indiana significantly contribute 
to downwind areas. However, because the petitions from Connecticut and 
New York named sources in only part of the State, EPA limited its 
section 126 findings to the geographic scope of those petitions. Maps 
showing the geographic coverage of these two petitions are shown in 
Figures F-2 and F-6 of appendix F to 40 CFR part 52. Based on the 
geographic limits given in the petitions, all sources in Indiana 
located east of 86.0 degrees longitude are covered by the section 126 
1-hour finding. The existing sources located in Indiana that are 
subject to the 1-hour section 126 finding are also listed in appendix A 
to 40 CFR part 97.

II. Summary of the State Submittal

A. When Did Indiana Develop and Submit the NOX Emission 
Control Plan to the EPA?

    On March 30, 2001, IDEM submitted its proposed NOX 
emission control plan to the EPA and requested parallel processing.
    IDEM had originated its rulemaking process on regional 
NOX reductions in 1999. EPA has reviewed and provided 
extensive comments on several previous drafts of the rules. The State 
has adequately addressed most of these comments. Some of the issues 
raised, however, were very complex and the State was not able to 
address them before proposing the rule. These issues are discussed in 
this Federal Register action.
    Parallel processing allows a State to submit a plan for approval 
prior to actual adoption by the State. 47 FR 27073 (June 23, 1982). A 
submittal for parallel processing must include the following three 
items: a letter from the State requesting parallel processing; a 
schedule for final adoption or issuance of the plan; and a copy of the 
proposed regulation or document. Indiana submitted this information in 
its March 30, 2001, letter.

B. What Are the Basic Components of the State's Draft Plan?

    Indiana's proposed plan included a budget demonstration, supporting 
materials and two NOX rules: 326 IAC 10-3, pertaining to 
cement kilns, and 326 IAC 10-4, a trading program focusing on 
reductions from EGUs and large boilers and turbines. The budget 
demonstration is discussed in more detail in section C, ``How does 
Indiana address its statewide NOX budget?''. The supporting 
materials include information such as the number of allowances that 
Indiana intends to allocate to each unit for 2004-2006 and detailed 
inventories. The rules included in the plan require compliance 
statewide by May 31, 2004. This plan constitutes Indiana's response to 
Phase I of the NOX SIP Call. The tables below summarize the 
requirements of the two draft rules as submitted and how the rules 
differ from the SIP Call. These tables are not meant to be exhaustive 
of every requirement in Indiana's rules. Rather, they are intended to 
provide a general idea of how Indiana's rules are structured and some 
of the significant requirements. For a complete understanding of the 
proposed rules, please see the applicable rulemaking package which is 
available at the locations listed in the Addresses section of this 
proposal. As described in this proposal action, it is EPA's 
understanding that the State made changes in response to comments by 
EPA and affected stakeholders. (These tables, however, reflect the 
proposed rules as submitted.)

                                 Table 1.--326 Indiana Administrative Code 10-3
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                        Cite                                             Section title/subject
----------------------------------------------------------------------------------------------------------------
326 IAC 10-3-1......................................  Applicability--Generally Portland Cement Kilns larger than
                                                       specified size with specified exceptions.
326 IAC 10-3-2......................................  Definitions
326 IAC 10-3-3......................................  Emission limits
                                                       Technology Requirements (mid-kiln firing or low
                                                       NOX burners) or
                                                       Ozone Season Emission Averages 2.8--6 pounds of
                                                       NOX per ton of clinker depending on type of kiln or
                                                       Approved alternatives to achieve 30% reductions
326 IAC 10-3-4......................................  Monitoring and Testing Requirements
                                                       Technology Requirements--preventative maintenance
                                                       plan
                                                       Ozone Season Emission Averages or Approved
                                                       alternatives to achieve 30% reductions--initial and
                                                       subsequent annual testing or NOX Continuous Emission
                                                       Monitoring Systems (CEMS)

[[Page 34869]]

 
326 IAC 10-3-5(a)...................................  Record keeping and Reporting
                                                      (a) Record keeping--Begin May 31, 2004, and keep records
                                                       at the unit for 5 years.
                                                       Technology Requirements--record maintenance,
                                                       startup, shutdown, and malfunction information
                                                       Ozone Season Emission Averages or Approved
                                                       Alternatives to achieve 30% reductions--emissions in
                                                       pounds per ton of clinker, results of performance
                                                       testing, CEMS data if CEMS are used, startup, shutdown
                                                       and malfunction information
                                                      (b) Reporting
                                                       By May 31, 2004 submit initial information to
                                                       IDEM
                                                       By October 31, 2004 and before October 31 each
                                                       year after submit NOX emission information.
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    In addition to the specific rule for cement kilns, 326 IAC 10-3, 
Indiana proposed a rule to implement the 40 CFR part 96 Nitrogen Oxides 
Budget Trading Program.

      Table 2.--326 IAC 10-4 Nitrogen Oxides Budget Trading Program
------------------------------------------------------------------------
                                                     Comparable federal
           Cite/section             Title/subject      regulation/note
------------------------------------------------------------------------
326 IAC 10-4-1...................  Applicability..  Sec.  96.4--Indiana'
                                                     s rule includes
                                                     same core sources
                                                     (EGUs and large non
                                                     utility boilers and
                                                     turbines) as NOX
                                                     SIP Call and opt in
                                                     provisions. It
                                                     contains 2
                                                     additional 25 ton
                                                     exemptions.
326 IAC 10-4-2...................  Definitions....  Sec.  96.2--Indiana
                                                     adds definition for
                                                     ``energy efficient
                                                     or renewable energy
                                                     projects.'' Indiana
                                                     also adjusts some
                                                     definitions to
                                                     account for 2004
                                                     compliance date.
326 IAC 10-4-3...................  Retired Unit     Sec.  96.5
                                    Exemption.
326 IAC 10-4-4...................  Standard         Sec.  96.6--Proposed
                                    Requirements.    rule does not
                                                     include full
                                                     liability
                                                     requirements of SIP
                                                     Call and will need
                                                     to be revised.
326 IAC 10-4-5...................  Computation of   Sec.  96.7--Indiana
                                    time.            clarified that the
                                                     ozone control
                                                     period always
                                                     begins and ends on
                                                     the calendar dates
                                                     specified in the
                                                     definition.
326 IAC 10-4-6...................  NOX Authorized   Sec.  96.10, Sec.
                                    Account          96.11, Sec.  96.12,
                                    Representative.  Sec.  96.13, Sec.
                                                     96.14
326 IAC 10-4-7...................  Permit           Sec.  96.20, Sec.
                                    Requirements.    96.21, Sec.  96.22,
                                                     Sec.  96.23, Sec.
                                                     96.24, Sec.  96.25--
                                                     Indiana is
                                                     implementing the
                                                     permitting
                                                     requirements with
                                                     its existing
                                                     permitting
                                                     programs, 326 IAC 2-
                                                     7.
326 IAC 10-4-8...................  Compliance       Sec.  96.30, Sec.
                                    Certification.   96.31.
326 IAC 10-4-9...................  Allowance        Sec.  96.40, Sec.
                                    Allocations.     96.41, Sec.  96.42
                                                     State is
                                                     establishing
                                                     trading program
                                                     budget of 43,654
                                                     tons of NOX in 2004
                                                     and 2005 and 45,033
                                                     tons thereafter.
                                                     The State requested
                                                     changes to the SIP
                                                     Call budget as
                                                     discussed in the
                                                     preliminary budget
                                                     demonstration. The
                                                     State also provides
                                                     a mechanism to
                                                     transition from the
                                                     Section 126
                                                     petitions to the
                                                     SIP Call. This
                                                     issue is discussed
                                                     in detail in this
                                                     proposal. The State
                                                     has developed an
                                                     allocation
                                                     methodology,
                                                     utilizing the
                                                     flexibility under
                                                     the NOX SIP Call.
326 IAC 10-4-10..................  NOX allowance..  Sec.  96.50, Sec.
                                                     96.51, Sec.  96.52,
                                                     Sec.  96.53, Sec.
                                                     96.54, Sec.  96.56,
                                                     Sec.  96.57.
326 IAC 10-4-11..................  NOX allowance    Sec.  96.60, Sec.
                                    transfers.       96.61, Sec.  96.62.
326 IAC 10-4-12..................  NOX monitoring   Sec.  96.70, Sec.
                                    and reporting    96.71, Sec.  96.72,
                                    requirements.    Sec.  96.73, Sec.
                                                     96.74, Sec.  96.75,
                                                     Sec.  96.76--State'
                                                     s proposed rule
                                                     would not require
                                                     sources to begin
                                                     monitoring May 1 of
                                                     the year before the
                                                     compliance year as
                                                     required by the NOX
                                                     SIP Call as
                                                     discussed in this
                                                     proposal.
326 IAC 10--13...................  Individual opt-   Sec.  96.80, Sec.
                                    ins.             96.81, Sec.  96.82,
                                                     Sec.  96.83,Sec.  9
                                                     6.84, Sec.  96.85,
                                                     Sec.  96.86, Sec.
                                                     96.87, Sec.  96.88.
326 IAC 10-4-14..................  NOX Banking....  Sec.  96.55(a) and
                                                     (b).
326 IAC 10-4-15..................  Compliance       Sec.  96.55(C)--The
                                    Supplement.      State has made
                                                     several changes to
                                                     this section to
                                                     allow for an easier
                                                     transition from the
                                                     Section 126
                                                     rulemaking as
                                                     discussed below.
------------------------------------------------------------------------


                                 Table 3
------------------------------------------------------------------------
 Sections of the 40 CFR Part
 96 model rule not addressed     How Indiana has addressed or needs to
   by a specific section in             address these sections.
        Indiana's Rule
------------------------------------------------------------------------
40 CFR 96.1, 40 CFR 96.3.....  Indiana has addressed both of these
                                sections by 1) submitting a rule, and 2)
                                addressing specifics in various sections
                                of its rule. For example, the
                                requirement in 40 CFR 96.1 that, by
                                adoption of the rule a state authorizes
                                EPA to assist in operating the trading
                                program, is addressed in the rule's
                                definition of EPA in 326 IAC 10-4-2(65).
------------------------------------------------------------------------


[[Page 34870]]

C. How Does Indiana Address Its Statewide NOX budget?

1. What NOX budget Did EPA Determine for the State?
    In the October 27, 1998, NOX SIP Call, Indiana's 
NOX budget was set at 202,584 tons/season with a 
``compliance supplement pool'' of 19,738 tons. The ``compliance 
supplement pool'' is a voluntary provision that provides flexibility to 
States in addressing concerns of full compliance by May 31, 2004. Each 
State will be able to use its pool to cover excess emissions from 
sources that are unable to meet the compliance deadline during the 2004 
and 2005 timeframe. In the final NOX SIP Call, EPA provided 
a 60-day public comment period on 2007 baseline sub-inventory 
revisions. The EPA received numerous requests to allow more time to 
accept revisions to source-specific inventory data used to establish 
each State's emissions baseline and budget in the NOX SIP 
Call and also to allow revisions to vehicle miles traveled (VMT) 
projections. Therefore, by notice dated December 24, 1998, EPA 
published a ``Correction and Clarification to the Finding of 
Significant Contribution and Rulemaking for Purposes of Reducing 
Regional Transport of Ozone'' (63 FR 71220), which may be referred to 
as ``the correction notice.''
    In the correction notice, EPA reopened and extended the comment 
period to February 22, 1999, on emissions inventory revisions for the 
2007 baseline information used to establish each State's budget in the 
NOX SIP Call. This included source-specific emission 
inventory data, data on VMT and nonroad mobile growth rates, VMT 
distribution by vehicle class, average speed by roadway type, 
inspection and maintenance program parameters, and other input 
parameters used in the calculation of highway vehicle emissions. In 
response to the comments received during this comment period, EPA 
published revised baseline inventories and budgets in the May 14, 1999 
technical amendment (64 FR 26298).
    Subsequently, on March 2, 2000 (65 FR 11222), the EPA proceeded to 
final action on a second technical amendment based on further comments 
received from the public in response to the NOX SIP Call and 
the request for comments on inventory revisions as well as the May 14, 
1999 technical amendment. The final NOX SIP Call required 
that States submit the SIPs by September 30, 1999, and that the rules 
require the sources to implement the controls by May 1, 2003. The March 
2, 2000, changes were also necessary to make the NOX SIP 
Call inventory consistent with the inventory adopted when EPA granted 
section 126 petitions on December 17, 1999. The March 2, 2000, 2007 
NOX emission budget for the State of Indiana is 229,965 
tons/season with a compliance supplement pool of 19,915 tons.
    This revision did not address the issues remanded by the D.C. 
Circuit Court of Appeals on March 3, 2000. As discussed earlier, in 
this decision, the Court generally upheld the NOX SIP Call. 
It did, however, vacate the standard for some states and portions of 
other states, and remanded two issues concerning a limited portion of 
the NOX emission budgets. Based on this decision, EPA sent 
letters to the affected states' governors on April 11, 2000, to specify 
what portion of the budget needed to be met to achieve the reduction 
upheld by the Court. Consistent with the Court's opinion, these 
budgets, referred to as the ``Phase I NOX budgets,'' reflect 
controls on electricity generating units subject to the acid rain 
program; large boilers and turbines; and cement kilns. For Indiana, the 
Phase I budget was 234,625 tons for each NOX SIP Call ozone 
control period. The compliance supplement pool was not affected by the 
phased approach.
2. What Changes Did The State Request to the NOX Budget and 
Are Those Changes Approvable?
    The State submitted its draft rules and preliminary budget 
demonstration to the EPA for parallel processing on March 30, 2001. In 
the preliminary budget demonstration, the State took a slightly 
different approach than that laid out by EPA in the phased approach, 
and also requested several changes to the statewide budget. The 
resulting overall budget for the State, that EPA is proposing approval 
on in this action, is 233,633 tons. These changes also affected the 
portion of the budget that is being used to ensure that the appropriate 
reductions are being achieved from EGUs and large industrial boilers 
and turbines in the State, namely the trading budget. The State trading 
portion of the budget, in its submittal, is 57,059 tons.
    In the budget demonstration, IDEM used the same inventories as the 
EPA for area, on-road mobile and non-road mobile categories. IDEM also 
used the inventories from the NOX SIP Call as a starting 
point for its budget demonstration for EGUs and the non-EGU point 
sources.
    IDEM then requested moving several units at the Indianapolis Power 
& Light Perry K facility identified by EPA in the EGU inventory to the 
non-EGU inventory based on those units meeting the definition in 326 
IAC 10-4-2 for ``large affected units''. The 2007 projected 
uncontrolled emissions from these units were then multiplied by 40% (to 
account for 60% control as non-EGU large affected units) and added to 
the non-EGU portion of the budget.
    In addition to the changes to the Perry K facility, IDEM determined 
that 19 units that EPA had characterized as large non-EGUs in fact have 
capacities of less than 250 mmBtu/hr. As a result, they do not meet 
either EPA's or IDEM's definition for units that need to be controlled. 
Therefore, IDEM requested and EPA is proposing for approval that these 
units be shifted from the large non-EGU portion of the inventory to the 
small non-EGU portion. More information on the inventory and these 
changes is available in the Docket.
    IDEM also presented inventory information that units at Bethlehem 
Steel and Purdue University are larger than 250 mm/Btu. Since these 
units meet the definition for ``large affected units'', IDEM has 
requested that they be moved to that category and with controls assumed 
to be 60%. IDEM also noted two numerical errors in the SIP call 
inventory; one affecting a New Energy unit and the other affecting two 
units at SIGECO's Warrick Station. The State has submitted inventory 
information to support correcting these errors. We are proposing to 
approve these inventory corrections. More information on these changes 
is available in the Docket.
    The following table shows how IDEM's proposed inventories differed 
from those used by EPA.

[[Page 34871]]



                                       Table 4.--EPA and IDEM Inventories
----------------------------------------------------------------------------------------------------------------
                                                                EPA                            IEDM
----------------------------------------------------------------------------------------------------------------
                                                    2007 Projected       2007       2007 Projected       2007
                 Source category                     uncontrolled       Budget       uncontrolled       Budget
----------------------------------------------------------------------------------------------------------------
Point:
    EGUs........................................            136,773       47,712            136,773       46,778
    Non-EGUs....................................             69,011       52,042             67,263       51,984
Area............................................             29,070       29,070             29,070       29,070
On-road Mobile..................................             79,307       79,307             79,307       79,307
Non-road Mobile.................................             26,494       26,494             26,494       26,494
                                                 ---------------------------------------------------------------
        Total...................................            340,655      234,625            338,907      233,633
----------------------------------------------------------------------------------------------------------------

    EPA is proposing to approve the changes submitted by IDEM in its 
budget demonstration. Based on these changes, the State's budget would 
be 233,633 tons.
3. How Does Indiana Demonstrate That It Is Meeting the Budget?
    To meet the overall budget, Indiana is relying on reductions from 
cement kilns of 30% (326 IAC 10-3) and reductions equivalent to 0.15 
pounds of NOX per million BTU heat input for EGUs and a 60% 
reduction from industrial boilers and turbines with maximum rated heat 
input greater than 250 mmBtu/hr. The reductions from EGUs and large 
industrial boilers and turbines will be achieved through the State's 
trading program (326 IAC 10-4). The State demonstrates that, based on 
these regulations and the changes that it requested to its 2007 
NOX budget, it is controlling facilities to the extent 
necessary to ensure the budget is being met. The following table shows 
that, through the implementation of controls on EGUs, large industrial 
boilers and turbines and cement kilns, the State projects, in its 
submitted materials, that it will meet its 2007 budget.

                           Table 5.--IDEM's Submitted Preliminary Budget Demonstration
----------------------------------------------------------------------------------------------------------------
                                                                                                       Trading
                 Source category                    2007 Projected       2007         Reductions      portion of
                                                     uncontrolled       Budget                          budget
----------------------------------------------------------------------------------------------------------------
EGUs............................................            136,773       46,778             89,995       45,952
Non-EGUs:
    Boilers > 250 mmBtu/hr......................             24,715       11,107             13,608       11,107
    Controlled cement kilns.....................              5,572        3,900              1,672
    Uncontrolled................................             36,976       36,977                  0
Area............................................             29,070       29,070                  0
On-road Mobile..................................             79,307       79,307                  0
Non-road Mobile.................................             26,494       26,494                  0
                                                 ---------------------------------------------------------------
        Total...................................            338,907      233,633          a 105,274      57,059
----------------------------------------------------------------------------------------------------------------
a Slight difference due to rounding.

    One of the most significant numbers in this chart is the total 
trading budget since, through the trading program, this budget will 
ensure that the majority of emission reductions are being obtained. As 
shown below, Indiana included ``set-asides'' for new sources, 
equivalent to 5% of the EGU portion of the budget and 1% of the non-EGU 
portion until 2006, with 2% and 1% respectively, thereafter. The State 
also included an energy efficiency set aside of 1% from the non-EGU 
category. The concept of a set aside was discussed in NOX 
SIP Call Rulemaking Federal Register actions. The State may establish 
set-asides where a portion of the trading budget is reserved for a 
special purpose. It is a tool to help States manage their budgets. The 
result is that the total trading budget is 57,059, including the set-
asides, and 53,509 tons, when considering that excess emission 
reductions will be required from existing facilities to provide for the 
tonnage reduction to supply the set-asides with allowances. The 
following table illustrates the total Indiana budget, the trading 
portion and the set-asides.

                                Table 6.--Summary of Indiana's Phase I NOX Budget
                                     [(tons/season) (as submitted in Draft)]
----------------------------------------------------------------------------------------------------------------
                                                                             On-road      Non-road
                                        EGU        Non-EGU        Area        Mobile       Mobile       Total
----------------------------------------------------------------------------------------------------------------
2007 Projected Uncontrolled             136,773       67,263       29,070       79,307       26,494      338,907
 Inventory........................
2007 Budget.......................       46,778       51,984       29,070       79,307       26,494      233,633
NOX Trading Budget Portion........       45,952       11,107                                              57,059
New Source Set-Aside..............        2,298          111                                               2,409
Energy Efficiency Set-Aside.......                     1,141                                               1,141
Trading Budget minus Set-Asides...       43,654        9,855                                              53,509
----------------------------------------------------------------------------------------------------------------


[[Page 34872]]

    As explained in section I below, where we discuss changes that IDEM 
has made in response to comments, the emissions from ``blast furnace 
gas'' units have been removed from the trading program in the final 
adopted rule. Indiana did not intend to require reductions from these 
units, regardless of whether the units were included in the trading 
program or not. For a more thorough discussion, please see section I 
below. The resulting impact on the budget is as follows:

                                Table 7.--Summary of Indiana's Phase I NOX Budget
                               [(tons/season) (as revised in final adopted rule)]
----------------------------------------------------------------------------------------------------------------
                                                                             On-road      Non-road
                                        EGU        Non-EGU        Area        Mobile       Mobile       Total
----------------------------------------------------------------------------------------------------------------
2007 Projected Uncontrolled             136,773       67,263       29,070       79,307       26,494      338,907
 Inventory........................
2007 Budget.......................       46,778       51,984       29,070       79,307       26,494      233,633
NOX Trading Budget Portion........       45,952        8,008                                              53,960
New Source Set Aside..............        2,298           80                                               2,378
Energy Efficiency Set Aside.......                     1,079                                               1,079
Trading Budget minus Set-Asides...       43,654        6,849                                              50,503
----------------------------------------------------------------------------------------------------------------

    Either of these approaches is acceptable to EPA and should ensure 
that the required reductions will occur in the State. EPA is proposing 
for approval the trading budget and set-asides as revised in the final 
adopted rule and reflected in Table 7 above.

D. How Is the State Addressing the Units Covered by Section 126 
Petitions?

    IDEM's proposed trading rule states that sources subject to 40 CFR 
part 97 will be subject to the Indiana trading rule as of May 1, 2004. 
Indiana's intention is that, as of that date, its rule will ensure that 
those sources are no longer significantly contributing to downwind 
nonattainment and thus the sources would no longer need to be subject 
to the section 126 requirements.
    Under certain circumstances in which the section 126 sources in a 
State are no longer significantly contributing to downwind 
nonattainment, EPA believes it would be appropriate to propose to 
withdraw the section 126 findings of significant contribution and the 
accompanying requirements for such sources. Specifically, where a 
State's regulation is approved into the SIP and requires at least the 
same total quantity of reductions from the same group of sources as 
would have been controlled under the section 126 rule, we believe it 
would be appropriate to propose withdrawal of the section 126 
requirements. EPA believes it would be reasonable to find that, as of 
the required date of compliance with the State regulations, such 
sources were no longer contributing significantly to downwind 
nonattainment for purposes of section 126.
    Under Indiana's proposed regulations, all of the section 126 
sources in the State would be covered by the State rule, and the rule 
requires those sources to reduce a quantity of emissions greater than 
the quantity of reductions required under the section 126 rule. Under 
these circumstances, and assuming that EPA's final analysis of 
Indiana's adopted rule confirms that Indiana has addressed the other 
identified deficiencies, EPA intends to propose to withdraw the section 
126 findings and requirements for sources in the State as of May 1, 
2004.
    As Indiana noted in correspondence to EPA, an Indiana state rule 
cannot operate to withdraw the section 126 findings, which can only be 
modified through further rulemaking under the section 126 rule. 
However, the submitted draft of the Indiana regulations contains a 
provision (326 IAC 10-4-1(c)) that suggests otherwise. In light of 
EPA's intention to propose withdrawal of the section 126 findings and 
requirements for the State as of May 1, 2004, this provision in the 
draft submittal needs to be removed. EPA expressed its concerns with 
this issue to the State in a May 3, 2001, letter from John S. Seitz, 
Director of the Office of Air Quality Planning and Standards to Lori F. 
Kaplan, Commissioner, IDEM. Indiana has removed the language referenced 
above from the final adopted rule. Indiana's NOX SIP rule 
could meet the requirements of the NOX SIP Call without 
addressing the section 126 requirements. However, Indiana and EPA have 
worked together to help ensure that Indiana's SIP Call rule is written 
to allow for a smooth transition to phase out the section 126 
requirements.
    In order to make this transition, EPA identified several other 
issues that Indiana must address in its final submittal so that EPA can 
propose to amend the applicability of the section 126 rulemaking. We 
are highlighting those issues in today's proposal because Indiana has 
made changes to the submitted NOX regulations in response to 
our comments.
    First, if Indiana were to have sole responsibility for distributing 
the ``compliance supplement pool'' for the State, it must account for 
the section 126 sources in the State, as well as the sources covered 
only by the State program. The submitted draft of the Indiana rule 
would provide allowances from the compliance supplement pool for early 
reductions made in 2002 and 2003. EPA recommended that Indiana consider 
also providing allowances from the compliance supplement pool for early 
reductions made in 2001, to assure that the section 126 sources have a 
full two years to earn early reduction credits before their compliance 
deadline of 2003. Indiana's final adopted rule provides the opportunity 
for sources to request early reduction credits for reductions made in 
2001.
    Second, the sources covered by the section 126 rule should not be 
able to earn early reduction credits for any reductions made in 2003. 
The Indiana draft rule provides that reductions already required by 
federal law are not eligible for early reduction credits. EPA 
interprets this language as precluding sources covered by the section 
126 rule from being granted compliance supplement pool allowances for 
reductions made in 2003. It is our understanding that Indiana agrees 
and the State is expected to confirm this in its final submittal.
    The third change to Indiana's proposed NOX rule 
addresses a concern that arises because the NOX SIP Call 
covers the full State, but the section 126 rule covers only a portion 
of the State. The statewide compliance supplement pool is substantially 
larger than either the compliance supplement pool for Indiana under 
section 126 or, for that matter, the entire budget for the section 126 
sources in Indiana. Thus, if the State were to distribute the full 
compliance supplement pool for

[[Page 34873]]

Indiana in a manner that allowed the section 126 sources to use all of 
those allowances in 2003, the section 126 sources might not need to 
make any emissions reductions in 2003. This would undercut the benefits 
of the section 126 requirements and make it difficult for EPA to 
justify a proposal to withdraw the section 126 program for Indiana.
    Indiana's final adopted rule removes this concern by limiting when 
the compliance supplement pool allowances can be used. The rule limits 
the compliance supplement pool allowances that could be used in 2003 to 
no more than 2,454 allowances (i.e., the quantity equal to the 
compliance supplement pool under the section 126 rule). The remainder 
could be used beginning in 2004. This limitation on the number of 
compliance supplement pool allowances that can be used in 2003, equal 
to the quantity of compliance supplement pool allowances under the 
section 126 rule, is included in IDEM's final rule and is being 
proposed for approval in this action.
    Fourth, the State may change the rule to enable it to distribute 
the compliance supplement pool allowances at any time after the early 
reductions have been verified, but no later than the date that the 
source claiming the early reduction credit becomes subject to the 
requirement to hold allowances. Thus, for section 126 sources making 
early reductions, the State could distribute compliance supplement pool 
allowances up to April 30, 2003. For all other sources making early 
reductions, the State can distribute compliance supplement pool 
allowances up to May 30, 2004. The State's final rule specifies that 
the issuance of allowances, under these provisions, shall be completed 
by March 31, 2003 for section 126 sources and March 31, 2004, for non-
section 126 sources.

E. What Public Review Opportunities Did the State Provide?

    Indiana has led a proactive outreach effort with affected 
stakeholders throughout this rulemaking process. IDEM began conducting 
discussion with stakeholders prior to the publication of the 
NOX SIP Call. In April 1999, IDEM drafted language for a 
NOX rulemaking, considering options to fulfill the 
NOX SIP Call requirements and a NOX emission 
limit of 0.25 lb/mmBtu for EGUs, and began to hold monthly public 
meetings to discuss issues and receive feedback on the approaches it 
was developing to respond to the NOX SIP Call. Indiana began 
its formal rulemaking process for the regulations in response to the 
NOX SIP Call on July 1, 2000, opening a comment period for 
30 days. (In the State of Indiana, at least three written public 
comment periods are required for each rulemaking.) The State opened the 
second comment period on December 1, 2000. Indiana preliminarily 
adopted the draft rule on February 7, 2001.
    The proposed rule was published in the Indiana Federal Register on 
April 1, 2001, providing a third written comment period. The comment 
period closed on April 23, 2001. Indiana received numerous comments 
from EPA and affected stakeholders. Since preliminary adoption, IDEM 
has held numerous formal and informal meetings to discuss those 
comments and their resolution with affected stakeholders and EPA. IDEM 
and EPA have discussed several changes to the rules, significant and 
otherwise, that will need to be made or are being made in response to 
comments. The significant issues that are expected to be addressed are 
discussed in this proposal. The State will also need to include 
responses to these comments in its final submittal to EPA.
    Indiana adopted final rules on June 6, 2001. EPA has not concluded 
its analysis of these final adopted rules and the associated plan. 
However, based on our preliminary review and conversations with the 
State, we expect that the rules will address the deficiencies 
identified in this proposal. These final adopted rules are available on 
Indiana's website at: http://www.state.in.us/idem/oam/standard/Sip/index.html.

F. What Guidance Did EPA Use To Evaluate Indiana's NOX 
Control Program?

    In evaluating Indiana's draft NOX rules, EPA considered 
a number of documents related to the NOX SIP Call, section 
110 of the Clean Air Act and 40 CFR part 51. These documents include:
    (1) ``Federal Implementation Plans to Reduce the Regional Transport 
of Ozone; Proposed Rule,'' published October 21, 1998. (63 FR 56393)
    (2) ``Findings of Significant Contribution and Rulemaking for 
Certain States in the Ozone Transport Assessment Group Region for 
Purposes of Reducing Regional Transport of Ozone; Rule,'' published 
October 27, 1998. (63 FR 57356). This Federal Register is referred to 
as ``The NOX SIP Call'' in today's action.
    (3) ``Correction and Clarification to the Finding of Significant 
Contribution and Rulemaking for Purposes of Reducing Regional Transport 
of Ozone,'' published December 24, 1998 (63 FR 71220).
    (4) EPA's `` NOX SIP Call Checklist,'' (the checklist), 
issued on April 9, 1999. The checklist summarizes the requirements of 
the NOX SIP Call set forth in 40 CFR 51.121 and 51.122.
    (5) ``Development of Emission Budget Inventories for Regional 
Transport NOX SIP Call'' issued by the EPA Office of Air 
Quality Planning and Standards May 1999 and technically-amended 
December 1999.
    (6) Technical amendments to the NOX SIP Call, published 
May 14, 1999 (64 FR 26298) and March 2, 2000 (65 FR 11222).
    (7) The section 126 findings and requirements as contained in the 
January 18, 2000, Federal Register (63 FR 2674).
    (8) The April 11, 2000 letter from EPA Administrator Carol Browner 
to Indiana Governor Frank O'Bannon, regarding the phased approach to 
implement the issues upheld by the Court, based on the March 3, 2000, 
decision from the United States Court of Appeals for the District of 
Columbia Circuit regarding the NOX SIP Call.
    (9) ``Summary of EPA's Approach to the NOX SIP Call in 
Light of the March 3rd Court Decision'' fact sheet issued April 11, 
2000.
    (10) EC/R, Inc., `` NOX Control Technologies for the 
Cement Industry.'' Chapel Hill, NC. September 19, 2000. This report 
updates information in the ``Alternative Control Techniques Document- 
NOX Emissions from Cement Manufacturing'' (EPA-453/R-94-
004), which was the primary reference used in preparing the cement kiln 
portion of the proposed Federal Implementation Plan (FIP) rulemaking. 
The report includes updated information on uncontrolled NOX 
emissions from cement kilns and on the current use, effectiveness and 
cost of NOX controls.
    (11) A May 3, 2001, letter from John S. Seitz, Director of the 
Office of Air Quality Planning and Standards, to Lori F. Kaplan, 
Commissioner, IDEM.
    As noted in the EPA's NOX SIP Call checklist, the key 
elements of an approvable submittal are: a budget demonstration; 
enforceable control measures; legal authority to implement and enforce 
the control measures; adopted control measure compliance dates and 
schedules; monitoring, recordkeeping, and emissions reporting; and 
elements that apply to states that choose to adopt an emissions trading 
rule in response to the NOX SIP Call. The documents related 
to the NOX SIP Call are available to the public on EPA's 
website at: http://www.epa.gov/ttn/otag/sip/related.html.

[[Page 34874]]

G. Does Indiana's Proposed NOX Emissions Control Plan Meet 
All of the Federal NOX SIP Call Requirements?

    Based on EPA's review, Indiana's proposed plan meets all of the 
federal requirements, including the Phase I NOX SIP Call 
requirements, with the exception of the deficiencies identified in this 
document. In addition, the State's final submittal will need to include 
responses to comments on the preliminarily adopted rule. Furthermore, 
Indiana must have addressed the deficiencies identified in this 
proposal, including revisions to the preliminary budget demonstration 
to support those changes where appropriate. Finally, Indiana must not 
significantly change the submitted rules from those being proposed for 
approval today, other than to address EPA comments or changes that are 
discussed in this Federal Register action. In addition, if Indiana does 
not correct these deficiencies, EPA is proposing to disapprove these 
rules, in the alternative.
    Indiana adopted final rules on June 6, 2001. EPA has not concluded 
its analysis of these final adopted rules and the associated plan. 
However, based on our preliminary review and conversations with the 
State, we expect that the rules will address the deficiencies 
identified in this proposal. These final adopted rules are available on 
Indiana's website at: http://www.state.in.us/idem/oam/standard/Sip/index.html.

H. What Deficiencies Are There in Indiana's Proposed NOX 
Emissions Control Regulations, and Do Any of These Deficiencies 
Constitute an Approvability Issue?

    EPA reviewed the State's proposed NOX emissions control 
rules at 326 IAC 10-3 and 10-4 and offers the following comments on 
deficiencies found in the rules. Many of these comments are minor and 
should be readily correctable in the final rule adoption process. These 
deficiencies must be corrected before the EPA can give final approval 
on the Indiana NOX rules. EPA is proposing disapproval, in 
the alternative, if the State does not correct these deficiencies.
1. The 25-Ton Exemptions
    States may develop alternative 25-ton NOX exemptions to 
the one included in the model rule (40 CFR part 96) provided they are 
based on permit restrictions that limit a unit's potential to emit 
during an ozone season to 25 tons or less. Indiana's proposed rule, 326 
IAC 10-4, Nitrogen Oxides Budget Trading Program Section, includes in 
10-4-1(b), the 25-ton exemption from the model rule and two additional 
exemptions. One of these alternatives relies on Continuous Emission 
Monitoring System (CEMS) data. In this exemption, units may use CEMS 
data to demonstrate that the unit is not emitting more than 25 tons 
during an ozone season. For this exemption to provide sufficient 
assurance that these units will not emit more than 25 tons per season, 
these units must still be required to monitor according to 40 CFR part 
75, subpart H, even while they have the exemption. This requirement 
needs to be clarified in Indiana's rule.
    The second alternative attempts to restrict the unit's usage of 
each fuel that it is authorized to burn (natural gas or fuel oil) such 
that the unit's potential NOX mass emissions will not exceed 
25 tons of NOX during the ozone season. Indiana's intent in 
including this exemption appears to be to allow units which burn 
predominantly natural gas, and only a small amount of oil, to not have 
to use only the default emissions rate in 40 CFR 75.19, table 2, for 
oil when determining the 25-ton exemption. However, the provisions in 
Indiana's rule are unclear and would not result in limiting the unit's 
potential NOX emissions to 25 tons or less. Indiana must 
either use the following language to correct this deficiency or use 
similar language which is as stringent and achieves similar and 
acceptable results. This language allows units the flexibility Indiana 
intended and also limits a unit's potential NOX emissions to 
less than 25 tons:

    326 IAC 10-4-1(b)(3)(B)(iii): Restrict the number of hours a 
unit may use each fuel that it is authorized to burn such that the 
unit's potential NOX mass emissions will not exceed 
twenty-five (25) tons per ozone control period, calculated by 
dividing twenty-five (25) tons of potential NOX mass 
emissions by the unit's maximum potential hourly NOX mass 
emissions (DD), where the unit's maximum potential hourly 
NOX mass emissions shall be calculated as follows:
    (AA) Identify the percentage of hours in the ozone control 
period during which the unit intends to burn each type of fuel that 
is authorized under the fuel use restriction in clause (A).
    (BB) For each fuel type identify the default NOX 
emission rate in 40 CFR 75.19(c)(1)(ii), Table 2 for each type of 
fuel that the unit is allowed to burn under the fuel use restriction 
in clause (A).
    (CC) For each fuel type multiply the default NOX 
emission rate under subitem (BB) and the percentage of the unit's 
maximum rated hourly heat input for that fuel type identified under 
subitem (AA). The owner or operator of the unit may petition the 
department to use a lower value for the unit's maximum rated hourly 
heat input than the value as defined under section 2(24) of this 
rule. The department may approve the lower value if the owner or 
operator demonstrates that the maximum hourly heat input specified 
by the manufacturer or the highest observed hourly heat input, or 
both, are not representative, and that the lower value is 
representative, of the unit's current capabilities because 
modifications have been made to the unit, limiting its capacity 
permanently;
    (DD) Sum the products determined in (CC) for each fuel type.

    In addition, when a unit receives a 25-ton exemption, the unit's 
emissions must be removed from the trading program budget to avoid 
double counting. EPA has concerns about how Indiana's submitted rule 
accounts for the emissions of the exempt units. Specifically, the 
provision at 326 IAC 10-4-9(a), which states that ``the total number of 
NOX allowances shall be adjusted, as needed, to account for 
units exempted under section (1)(b) of this rule'' is not explicit 
enough to account for the emissions of units receiving the 25-ton 
exemption. IDEM needs to specify the mechanism that will be used to 
ensure that the emissions from these sources are removed from the 
trading budget.
    There are many ways Indiana can account for the exempted units' 
emissions. If Indiana does not plan on allocating allowances to units 
which are exempt from the program based on the 25-ton exemption, then 
it must subtract the unit's potential tons of emissions from the 
trading budget. Alternatively, if Indiana chooses to allocate 
allowances to these exempt units, then immediately after EPA allocates 
allowances, IDEM's rule needs to provide that EPA should deduct from 
accounts the maximum number of tons of NOX emissions the 
units have the potential to emit. The Authorized Account 
Representatives (AAR) for the units are required to ensure that enough 
allowances are in the units' accounts. EPA notes that Indiana has 
posted its final adopted NOX regulation to its website, and 
this rule appears to address the EPA's concerns regarding Indiana's 25-
ton exemptions.
2. Definition of ``Maximum Design Heat Input''
    Indiana's rule changes the definition of ``maximum design heat 
input'' to, ``the ability of a unit to combust a stated maximum amount 
of fuel per hour on a steady state basis, as determined by the physical 
characteristics of the unit and the federally enforceable permit 
conditions limiting the heat input.'' This expansion of the term is 
unacceptable as it would exempt from the trading program units (both 
new and existing) that meet the definition of a large

[[Page 34875]]

electric generating unit or large non-electric generating unit under 40 
CFR 51.121, which is based strictly on the physical characteristics of 
the unit.
    Additionally, such a definition could result in load shifting from 
affected to non-affected units. If there is load shifting, the 
emissions from the affected units would decrease but there would be no 
net decrease in emissions because the emissions of the unaffected units 
that picked up the load would increase by a commensurate amount. This 
definition needs to be revised so that ``maximum design heat input'' is 
based solely on physical characteristics and not permitted limits. The 
State has made this change in its final adopted rule by removing the 
reference to permit limits.
3. Definition of ``NOX Budget Trading Program''
    Indiana's submitted draft rule allows trading between Section 126 
and NOX SIP call sources. Because under the NOX 
SIP Call, States have the option of developing their own intrastate 
trading programs, the State must add language to the definition of 
``NOX budget trading program'' to indicate that trading may 
only occur between sources that are participating in an EPA 
administered trading program. IDEM has added this language to its final 
adopted rule.
4. Definition of ``Percent Monitoring Data Availability''
    Indiana's submitted draft rule includes a definition of ``percent 
monitoring data availability''. The definition is not correct. (EPA 
notes that the definition of ``percent monitoring data availability'' 
in part 97 is also incorrect, and intends to take action to correct the 
definition.) Under Indiana's definition, a source would determine the 
percent availability based on the assumption that it is operating the 
entire ozone season. With this definition, a unit could fail to meet 
the 90% monitoring data availability requirement even if its monitors 
were available 90% of the time it operated. Thus, Indiana must revise 
the definition such that the unit's total operating hours constitute 
the denominator of the equation instead of the total potential 
operating hours in the season. IDEM has made this revision in the final 
adopted rule.
5. Monitoring Requirements
    Indiana's 326 IAC 10-4-12(c) does not require units to comply with 
the rule's monitoring and reporting requirements until May 31, 2004 
unless they are applying for early reduction credits. However, the 
model rule requires compliance with the monitoring and reporting 
requirements one year before the program begins (i.e., May 31, 2003). 
The additional year of monitoring is for the benefit of the sources. It 
allows them to ensure that their monitoring and reporting systems are 
working and accurate before the program begins, thus avoiding 
unnecessary penalties once the trading program has begun. Additionally, 
Indiana may want to use the 2003 data for determining allocations under 
``326 IAC 10-4-9 NOX allowance allocations.'' The date for 
required monitoring must be May 31, 2003 at the latest. However, EPA 
has recommended to Indiana that monitoring begin May 1, 2003, so that 
when Indiana updates its allocations, it has a full year of data to 
use. Indiana has revised this date in its final rule to require 
monitoring to begin May 1, 2003.
6. Indiana's New Source and Energy Efficiency and Renewable Energy 
``Set-Asides''
    Indiana may include the new source, and energy efficiency and 
renewable energy ``set-asides'' outlined in 326 IAC 10-4-9(e). However, 
the allowances reserved for these set-asides must come from the trading 
program budget. While EPA believes this was Indiana's intent, Indiana 
should clarify that the allowances reserved for these set-asides are 
within the bounds of its trading program budget. EPA can only approve a 
rule where the set-asides come from the trading program budget. IDEM 
has clarified this issue in its final adopted rule.
7. Penalties
    The following language in 40 CFR 96.54(d)(3)(i) must be added to 
the rule:

    For purposes of determining the number of days of violation, if 
a NOX Budget unit has excess emissions for a control 
period, each day in the control period (153 days) constitutes a day 
in violation, unless the owners and operators demonstrate that a 
lesser number of days should be considered.

    The language stipulates the maximum number of days in which a 
violation could be sought. However, EPA notes that if an agency were to 
seek penalties for a violation, it has the discretion to seek penalties 
for fewer days of violation. Removing this language would limit both 
the State and EPA's ability to seek violation for the maximum number of 
days which would be a violation of the Clean Air Act, as interpreted in 
case law. IDEM has added this language to its final adopted rules.
8. 326 IAC 10-3 Nitrogen Oxide Reduction Program for Specific Source 
Categories
    326 IAC 10-3, as submitted by Indiana, requires emission reductions 
at cement kilns. Model rules for cement kilns were not a part of the 
NOX SIP Call. For this reason, the State used the proposed 
October 28, 1998, NOX Federal Implementation Plan (FIP) as a 
starting point in developing its rules. Since much of the analysis and 
background materials for the proposed FIP are germane to cement kilns, 
as noted below, these materials were also used to provide information 
to review the State's submittal.
    326 IAC 10-3-1 Applicability. Indiana's submitted rules contain a 
provision, 326 IAC 326 10-3-1(b), that would exempt cement kilns 
covered by the rule from the Clark and Floyd NOX Reasonably 
Available Control Technology (RACT) rules at 326 IAC 10-1. EPA 
commented to Indiana that 326 IAC 10-3 can only supercede the Clark and 
Floyd NOX RACT rules at 326 IAC 10-1 if the State either 
demonstrates that 326 IAC 10-3 is as stringent as 326 IAC 10-1 or 
provides photochemical dispersion modeling that shows the area remains 
in attainment without the RACT controls.
    In response to EPA's comment, in the final adopted rule, Indiana 
significantly narrowed the scope of the provision and argued that for 
the group of cement kilns affected, 326 IAC 10-3 is as stringent as 326 
IAC 10-1. Indiana narrowed the scope of the provision such that only 
cement kiln units operating low-NOX burners would be exempt. 
Furthermore, the final adopted rule states that those units are only 
exempt from the emission limit in 326 IAC 10-1 and only during the 
ozone control period.
    Indiana's argument is that based on the expected emission limits 
achievable for low-NOX burners installed on cement kilns, 
those kiln's emissions under 326 IAC 10-3 are expected to be less than 
the emission limits required for those kilns under 326 IAC 10-1. The 
following table summarizes the emission limits in 326 IAC 10-1 compared 
to the expected emissions from a cement kiln with low-NOX 
burners installed.

[[Page 34876]]



                                 Table 8.--Low-NOX Burner Cement Kiln Stringency
----------------------------------------------------------------------------------------------------------------
                                                                   326 IAC 10-1  Pounds per ton    326 IAC 10-3
                                                                            of clinker            Pounds per ton
                                                                 --------------------------------   of clinker
                                                                                                 ---------------
                        Cement Kiln Type                                                             Expected
                                                                   30 day limit     Daily limit      emissions
                                                                                                   averaged over
                                                                                                      30 days
----------------------------------------------------------------------------------------------------------------
preheater kiln..................................................             4.4             5.9             3.8
long dry kiln...................................................             6.0            10.8             5.1
----------------------------------------------------------------------------------------------------------------

    As discussed in the proposed October 28, 1998, NOX FIP, 
EPA expects that low-NOX burners can achieve a 
NOX emission rate of 3.8 pounds per ton for any preheater 
kiln, and 5.1 pounds per ton of clinker for any long dry kiln averaged 
over 30 days. The RACT rule requires 4.4 and 6.0 pounds per ton of 
clinker produced on a thirty-day average basis, respectively, and 5.9 
and 10.8 pounds per ton of clinker produced on a daily basis, 
respectively.
    On a thirty-day rolling average basis, low-NOX burners 
are expected to have lower emissions than the current requirement in 
the RACT rule. The expected emission rate is also 64% of the daily RACT 
requirement for preheater kilns and 47% of the daily RACT requirement 
for long dry kilns. Low-NOX burners are a type of technology 
that, once installed, can not be bypassed or taken off-line unless the 
entire kiln is shut down. 326 IAC 10-3 requires that the low-
NOX burners be installed, operated and maintained. Keeping 
these burners properly maintained should ensure that they provide a 
relatively constant effect on NOX emissions. Hence, EPA 
believes that the significantly lower expected emissions from having 
the low-NOX burners installed should ensure that for cement 
kilns in Clark and Floyd Counties with low-NOX burners 
installed 326 IAC 10-3 is as stringent as the applicable emission 
limits in 326 IAC 10-1. The State is also expected to submit supporting 
documentation with its final plan submittal.
    326 IAC 10-3-3 Emission Limits. IDEM included an emission limit 
option at subdivision(a)(2), in which a unit could meet emission limits 
that were determined to be the equivalent of 30% reduction from the 
industry-wide average in the FIP proposed October 21, 1998 (63 FR 
56393). The proposed FIP and the supporting documents have been used as 
tools for evaluating cement kiln provisions in State rules. While EPA 
agrees that the emission limit option can be provided, it was not 
proposed as part of the FIP and certain elements need to be 
incorporated into the State's rule to make it viable. The preamble to 
the FIP listed these emission limits to be based on a 30 day average. 
The State has asserted that the NOX SIP Call is for the 
purposes of addressing regional transport on a seasonal basis. EPA has 
reconsidered the averaging time for these limits and determined that a 
seasonal average can be appropriate as long as the State adds 
compliance language to indicate that if the limit is exceeded at any 
time in the season, it constitutes a separate violation for every day 
in the season unless the unit can demonstrate otherwise. IDEM's final 
rule includes this language.
    Under 326 IAC 10-3-3 (a)(3), IDEM has an emission limit option 
which allows a reduction equivalent to 30% subject to IDEM and EPA 
approval. EPA agrees that again, this is a reasonable approach to 
achieving the emissions decreases intended by the NOX SIP 
Call. The approach in the submitted draft rule is a variation of the 
industry-wide average emissions rate provision described in the 
proposed FIP. It uses actual, measured uncontrolled emissions to set 
the baseline rate and then requires a 30 percent reduction from that 
baseline.
    While this approach provides flexibility to sources and may reduce 
costs, we are concerned that the site-specific emissions baseline needs 
to be carefully determined. Due to the large variability of emissions 
at cement kilns cited in comments we received on the FIP proposal, and 
confirmed in the September 19, 2000, EC/R Incorporated report 
referenced above, we believe that short-term emissions testing is not 
appropriate for establishing a baseline or a seasonal emission average 
for this compliance option. An unduly high emissions reading with a 
short-term test could lead to a minimal emissions reduction 
requirement. Conversely, an unduly low emissions reading could lead to 
an unrealistically high emissions reduction requirement. For this 
reason, Indiana must require sources to establish baseline emissions 
with a CEMS or require in the rule that the 30% reduction be measured 
from industry wide average--the resulting emission limits being those 
required in 326 IAC 10-3-3(a)(2). The State has followed the second 
approach in its final adopted rule.
    326 IAC 10-3-4 Monitoring and Testing Requirements. As discussed 
above, EPA believes IDEM's additional compliance options at 326 IAC 10-
3-3 (a)(2)and (a)(3) to be reasonable, provided reliable seasonal 
emission averages can be determined. If the cement kiln is complying 
through subdivision (a)(2) or (a)(3), it needs to determine the 
seasonal average using an agreed-upon reliable mechanism such as CEMS 
data. This is due to the variability in NOX emissions from 
cement kilns, as referenced above. In discussions with the State, it 
has agreed that CEMS is the only viable option for compliance with 
these provisions and IDEM has included the requirement for CEMS, if the 
unit is complying with one of these emission limit options, as part of 
its final adopted rule.
    326 IAC 10-3-5 Record Keeping and Reporting. Sources that are 
complying by meeting the emission limits on a pound of NOX 
per ton of clinker basis would need to keep daily cement kiln 
production records to ensure that the emission limits are complied with 
on at least a 30-day rolling average. Alternatively, if IDEM adds 
language to clarify that exceeding the emission limit at any time 
during the ozone control period constitutes a violation for every day 
in the period, it does not need to make this change. IDEM has included 
language in the final adopted rule that clarifies the violation issue 
and requires sources to report the daily cement kiln production 
records.
9. General SIP Requirements
    Indiana's draft submittal did not fully address some of the general 
requirements required under the NOX SIP Call for a SIP 
revision. These requirements must be addressed before EPA can take a 
final rulemaking action. The requirements include: that resources are 
available to implement the

[[Page 34877]]

program, that the State address the data availability requirements of 
40 CFR 51.116, how the SIP provides for compliance with the annual and 
trienniel reporting requirements set forth in 40 CFR 51.122, that the 
State has the legal authority to carry out the SIP revision, and 
information that the general testing, inspection, enforcement and 
complaint mechanisms required under 40 CFR 51.121(f)(1) and 40 CFR 
51.212 are in place to support implementation of this rule.

I. What Additional Significant Changes Has IDEM Incorporated in 
Response to Comments?

    IDEM received comments on several aspects of its preliminarily 
adopted rule. EPA understands that several changes have been made to 
the final adopted rule to respond to these comments, as discussed 
above. In addition, EPA also sees the following changes as being 
reasonable for the reasons discussed below. Indiana posted final 
adopted rules on its website on June 14, 2001. See http://www.state.in.us/idem/oam/standard/Sip/index.html.
1. Blast Furnace Gas Units
    The final adopted rule would include the regulating of blast 
furnace gas units under 326 IAC 10-3, as opposed to 326 IAC 10-4, as 
originally proposed. Since these units have a relatively low emission 
rate on a lb/mmBtu basis, IDEM was not anticipating requiring them to 
make reductions under the trading program. EPA generally requires, 
under the NOX SIP Call, that if any type of unit in a 
category is regulated by the NOX SIP Call trading program, 
the entire category must be covered by the trading program. This 
prevents production from getting shifted out of the trading program 
while it appears that units within the trading program have reduced 
their seasonal NOX emissions. However, since the entire 
blast furnace gas boiler category is not included in the trading 
program, there is no possibility of shifting production of steel within 
the State from a unit covered by the trading program to one outside the 
program. Indiana has also argued that, because the availability of 
blast furnace gas is limited based on steel production, the shifting of 
production out of the trading program is prohibitive.
    Since IDEM did not envision these units contributing to the 
reductions required in the State, removing them from the trading 
program will have no net effect on the amount of total reductions 
achieved. The most significant effect is that the emissions are being 
removed from the trading portion of the overall budget and hence the 
trading portion of the budget has been revised in the final adopted 
rule.
    In IDEM's final adopted rule, it removed the blast furnace gas 
boilers' uncontrolled 2007 emissions from the trading budget. IDEM then 
developed an emission factor for the sources based on those 
uncontrolled emissions and 2007 projected heat inputs from the units. 
Since these units are not contributing to the required reductions, this 
emission factor was established to effectively limit the blast furnace 
gas units emissions assuming the growth factors in the NOX 
SIP Call. Since this modification does not impact the reductions being 
achieved under IDEM's proposed rule, EPA proposes to approve this rule 
modification.
2. Definition of ``Repowered Natural Gas-Fired Units''
    IDEM's final adopted rule adds new language to define repowered 
natural gas-fired units''. This term is defined for the purpose of 
determining the allowance allocations for these units. Since the 
addition of this term only affects the way that allowances are 
allocated, this rule modification also appears acceptable.
3. Utilization Correction for New Units
    IDEM's submitted draft rules would have required an additional 
deduction of allowances from new sources. The deduction would have been 
to account for actual utilization of the unit as opposed to the 
projected utilization. This interpretation was more stringent than 
necessary as it could potentially permanently remove NOX 
allowances from the trading program for emissions that had not 
occurred. The NOX SIP Call model rule requires a similar 
correction based on actual utilization but intends for the excess 
allowances to be returned to the set aside instead of completely 
removing them from the trading program. The State's final adopted rule 
takes a slightly different approach. It requires any allowances 
remaining in a new NOX budget unit's account at the end of 
each season to be returned to the new source set aside. Although this 
approach is different than used in the model trading rule, it should 
ensure the integrity of the trading program and that the NOX 
budget is being met.
4. Centralized Recordkeeping
    IDEM's final adopted rules allow recordkeeping at a central 
location. EPA discussed these recordkeeping requirements at length with 
the State. EPA was only able to agree to the provisions, under certain 
circumstances, for sources not participating in the trading program. 
The State choose to retain the provisions throughout the rule (since it 
had determined that the centralized recordkeeping could be acceptable 
to the State). However, the State also added language to clarify that 
the central recordkeeping provisions do not override or alter any of 
the record retention requirements for a source under 40 CFR part 75. 
(Since the recordkeeping requirements in 40 CFR part 75 need to be 
required for federal SIP approval.)
    These recordkeeping requirements are included in three parts of the 
final adopted rule and apply to: (1) Units burning only natural gas or 
fuel oil during the ozone control period with potential NOX 
mass emissions for the ozone control period twenty-five (25) tons or 
less; (2) Retired units; and (3) NOX Budget Units covered by 
the trading program. As mentioned above, to the extent these units are 
required to comply with 40 CFR part 75, these centralized recordkeeping 
provisions do not alter those requirements. For example, each unit 
under the trading program must, as required by part 75, maintain its 
records on-site. Furthermore, any unit with an exemption based on part 
75 monitoring, demonstrating 25 tons or less of emissions, must 
maintain records on-site and in accordance with part 75. Since the 
State has been explicit in its rule that the 40 CFR part 75 
requirements stay in place, the centralized recordkeeping requirements 
appear acceptable.
5. Allocation Methodology
    The final adopted rule incorporates several changes to the State's 
NOX allowance allocation methodology. The State has provided 
more concise definitions of the projects that qualify for allowances 
from the energy efficiency and renewable energy set aside, for example. 
The State has also replaced the allocation methodology for existing 
non-EGUs with a table specifying the allowances that will be allocated 
to each non-EGU. EPA has reviewed the revisions to the allocation 
methodologies and determined that they do not adversely affect the 
State's demonstration that it meets the NOX SIP Call budget. 
The changes only affect how the allowances will be allocated and do not 
affect the number of allowances that will be allocated. For these 
reasons, these changes appear acceptable.

[[Page 34878]]

III. Proposed Action

A. What Action Is EPA Proposing Today?

    EPA proposes to approve Indiana's submitted plan as a revision to 
the SIP to fulfill the Phase I NOX SIP Call requirements, if 
Indiana corrects the deficiencies discussed in this document and does 
not make additional significant revisions not discussed in this 
document. The submitted plan includes a budget demonstration, 
supporting materials and the NOX SIP rules for cement kilns 
(326 IAC 10-3) and the trading program for EGUs, large non-EGU boilers 
and turbines and opt-in sources (326 IAC 10-4). The rules achieve 30% 
reductions from cement kilns, the equivalent of a 0.15 lb/mmBtu limit 
on EGUs and 60% reductions from large non-EGU boilers and turbines. In 
the alternative, if Indiana does not address the identified 
deficiencies, EPA is proposing to disapprove this plan.
    Indiana adopted final rules on June 6, 2001. EPA has not concluded 
its analysis of these final adopted rules and the associated plan. 
However, based on our preliminary review and conversations with the 
State, we expect that the rules will address the deficiencies 
identified in this proposal. These final adopted rules are available on 
Indiana's website at: http://www.state.in.us/idem/oam/standard/Sip/index.html.

B. What Happens if Indiana Does Not Address the Deficiencies Identified 
or Has Significantly Changed the Regulations During the Final Adoption 
Process?

    Since the EPA is proposing to rulemake on the Indiana 
NOX plan under parallel processing procedures, it notes the 
possibility exists that Indiana will submit a final version of the plan 
which differs significantly from the version of the plan reviewed in 
this proposed rulemaking.
    If the State makes significant changes to the plan as a result of 
its public comment and adoption process and based on further 
deliberation and/or on comments other than based on the discussion and 
deficiencies noted above, the EPA will need to re-evaluate the rules 
through a new proposed rulemaking. If, on the other hand, the State 
only makes changes in the plan to correct the deficiencies identified 
in this proposed rule consistent with the analysis presented here, the 
EPA will proceed to final approval rulemaking after considering public 
comments received in writing during the public comment period on this 
proposed rule.

IV. Administrative Requirements

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
proposed action is not a ``significant regulatory action'' and 
therefore is not subject to review by the Office of Management and 
Budget. This proposed action merely proposes to approve State law as 
meeting federal requirements and imposes no additional requirements 
beyond those imposed by State law. Accordingly, the Administrator 
certifies that this proposed rule will not have a significant economic 
impact on a substantial number of small entities under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.). Because this rule proposes to 
approve pre-existing requirements under State law and does not impose 
any additional enforceable duty beyond that required by State law, it 
does not contain any unfunded mandate or significantly or uniquely 
affect small governments, as described in the Unfunded Mandates Reform 
Act of 1995 (Public Law 104-4). This proposed rule also does not have a 
substantial direct effect on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes, as specified by Executive Order 13175 (65 
FR 67249, November 9, 2000), nor will it 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 (64 FR 43255, August 10, 1999), because it 
merely proposes to approve State rules implementing a federal standard, 
and does not alter the relationship or the distribution of power and 
responsibilities established in the Clean Air Act. This proposed rule 
also is not subject to Executive Order 13045 (62 FR 19885, April 23, 
1997), because it is not economically significant.
    In reviewing SIP submissions, EPA's role is to approve state 
choices, provided that they meet the criteria of the Clean Air Act. In 
this context, in the absence of a prior existing requirement for the 
State to use voluntary consensus standards (VCS), EPA has no authority 
to disapprove a SIP submission for failure to use VCS. It would thus be 
inconsistent with applicable law for EPA, when it reviews a SIP 
submission, to use VCS in place of a SIP submission that otherwise 
satisfies the provisions of the Clean Air Act. Thus, the requirements 
of section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3 
of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing 
this proposed rule, EPA has taken the necessary steps to eliminate 
drafting errors and ambiguity, minimize potential litigation, and 
provide a clear legal standard for affected conduct. EPA has complied 
with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining 
the takings implications of the rule in accordance with the ``Attorney 
General's Supplemental Guidelines for the Evaluation of Risk and 
Avoidance of Unanticipated Takings'' issued under the executive order. 
This proposed rule does not impose an information collection burden 
under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Intergovernmental 
relations, Nitrogen oxides, Ozone, Reporting and recordkeeping 
requirements.

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

    Dated: June 25, 2001.
David A. Ullrich,
Acting Regional Administrator, Region 5.
[FR Doc. 01-16568 Filed 6-29-01; 8:45 am]
BILLING CODE 6560-50-P