[Federal Register Volume 66, Number 217 (Thursday, November 8, 2001)]
[Rules and Regulations]
[Pages 56465-56476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27931]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[IN 131b; FRL-7077-7]


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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: On March 30, 2001, Indiana submitted and requested parallel 
processing of its proposed plan to control emissions of oxides of 
nitrogen ( NOX) throughout the State. On July 2, 2001, 
through parallel processing, EPA proposed approval of the plan provided 
Indiana revise its proposed rule consistent with the discussion in 
EPA's proposal. Indiana did so and submitted its final plan to EPA on 
August 20, 2001 with a supplement on September 19, 2001. The plan 
consists of two rules, a budget demonstration, and supporting 
documentation. The plan will contribute to attainment and/or 
maintenance of the 1-hour ozone standard in several 1-hour ozone 
nonattainment areas including the Chicago-Gary-Lake County and 
Louisville areas. Indiana developed its plan, which focuses on electric 
generating units, large industrial boilers, turbines and cement kilns, 
to achieve the majority of reductions required by EPA's October 27, 
1998, NOX State 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 (CAA) Section 
126 rulemaking. EPA is approving this plan as a SIP revision fulfilling 
the NOX SIP Call ``Phase I'' requirements. EPA is also 
finding Indiana's submittal on August 20, 2001 and supplemented on 
September 19, 2001 complete in this Federal Register action. Through 
this action, both the sanctions clock and EPA's Federal Implementation 
Plan (FIP) obligation are terminated.

EFFECTIVE DATE: This rule will be effective December 10, 2001.

ADDRESSES: Copies of the State's submittals and materials relevant to 
this rulemaking are available for public inspection during normal 
business

[[Page 56466]]

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:

Overview

    The EPA is approving the Indiana Department of Environmental 
Management's (IDEM's) NOX SIP Call SIP revision. The 
following table of contents describes the format for this SUPPLEMENTARY 
INFORMATION section:

Table of Contents

I. 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 final plan?
    C. How does Indiana address its statewide NOX budget?
    1. What NOX budget did EPA determine for the State in 
the NOX SIP Call?
    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. What public review opportunities did the State provide?
    E. What documents did EPA use to evaluate Indiana's 
NOX control program?
    F. Does Indiana's NOX emissions control plan meet all 
of the federal NOX SIP Call requirements?
    G. What changes did Indiana make to its proposed NOX 
emissions control regulations before finalizing?
    1. Changes made regarding units affected under the Section 126 
Rulemaking
    2. The 25-ton exemptions
    3. Definition of ``maximum design heat input''
    4. Definition of `` NOX budget trading program''
    5. Definition of ``percent monitoring data availability''
    6. Monitoring requirements
    7. Indiana's new source and energy efficiency and renewable 
energy ``set-asides''
    8. Penalties
    9. 326 IAC 10-3, Nitrogen Oxide Reduction Program for Specific 
Source Categories
    10. General SIP requirements
    11. Definition of ``repowered natural gas-fired units''
    12. Utilization correction for new units
    13. Centralized recordkeeping
    14. Allocation methodology
II. What are the public comments on EPA's proposal?
III. Final Action
    A. What action is EPA approving today?
    B. What is the impact of today's action on EPA's finding under 
the Clean Air Act section 126 rule?
IV. Administrative Requirements

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

I. 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 plan and requested 
parallel processing, which allows a state to submit a draft plan for 
approval prior to actual adoption by the state. On July 2, 2001, 
through parallel processing, EPA proposed approval of the plan. On 
August 20, 2001 and September 19, 2001, IDEM submitted its final 
NOX emission control plan to the EPA.
    IDEM had originated its rulemaking process on regional 
NOX reductions in 1999. EPA reviewed and provided extensive 
comments on several previous drafts of the rules. The State addressed 
all issues raised before adopting its final rules. The State did not, 
however, address some of the issues before it proposed rules. Since our 
proposal was based on the State's proposed rules, EPA discussed these 
issues at length in our proposed approval. Indiana's final resolution 
of each of these issues is consistent with our comments in our proposed 
rule, as discussed in this Federal Register action.

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

    Indiana's final plan includes a budget demonstration, supporting 
materials and two NOX rules: 326 IAC 10-3, pertaining to 
cement kilns and blast furnace gas boilers, and 326 IAC 10-4, a trading 
program focusing on reductions from electric generating units (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 EPA to allocate 
to each EGU unit for 2004--2006 and each large affected non-EGU unit 
for 2004--2009 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. 
``Phase I'' NOX budgets reflect controls on EGUs subject to 
the acid rain program, large boilers and turbines, and cement kilns. 
The tables below summarize the requirements of Indiana's two final 
rules and highlight some key differences between 326 IAC 10-4 and the 
model rule in the NOX SIP Call (40 CFR Part 96). 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 rules, please see the 
applicable rulemaking package which is available at the locations 
listed in the ADDRESSES section of this final approval.

                                 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 and ``Blast
                                                      furnace gas boilers.''
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 percent
                                                         reductions.
                                                         Blast furnace gas boilers--.17 lb/mmBtu.
326 IAC 10-3-4.....................................  Monitoring and Testing Requirements.
                                                         Technology Requirements--preventative
                                                         maintenance plan.
                                                         Ozone Season Emission Averages or Approved
                                                         alternatives to achieve 30 percent reductions--initial
                                                         and subsequent annual testing or NOX Continuous
                                                         Emission Monitoring Systems (CEMS).

[[Page 56467]]

 
                                                         Blast furnace gas boilers--monitor fuel usage
                                                         and percentage heat input.
326 IAC 10-3-5.....................................  Recordkeeping and Reporting
                                                     (a) Recordkeeping--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 percent reductions--
                                                         emissions in pounds per ton of clinker.
                                                         Blast furnace gas units--fuel information and
                                                         emissions in lb/mmBtu.
                                                         For any of the above--startup, shutdown, and
                                                         malfunction information and any CEMS data if CEMS are
                                                         used.
                                                     (b-e) Reporting
                                                         For cement kilns, by May 31, 2004 submit
                                                         initial information to IDEM.
                                                         For cement kilns and blast furnace gas boilers,
                                                         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 and blast furnace 
gas boilers, 326 IAC 10-3, Indiana adopted a rule to implement the 
Nitrogen Oxides Budget Trading Program at 40 CFR part 96.

                          Table 2.--326 IAC 10-4 Nitrogen Oxides Budget Trading Program
----------------------------------------------------------------------------------------------------------------
                                                                          Comparable section in 40 CFR part 96
             Cite/section                        Title/subject                       model rule/note
----------------------------------------------------------------------------------------------------------------
326 IAC 10-4-1........................  Applicability.................  Sec.  96.4--Indiana's rule includes same
                                                                         core sources (EGUs, including EGUs not
                                                                         subject to the acid rain program, and
                                                                         large non utility boilers and turbines)
                                                                         as the NOX SIP Call, except for blast
                                                                         furnace gas boilers covered under 326
                                                                         IAC 10-3 and internal combustion
                                                                         engines which will be addressed under
                                                                         Phase II of the NOX SIP Call. It allows
                                                                         for opt-ins. It also contains 2
                                                                         additional 25-ton exemptions.
326 IAC 10-4-2........................  Definitions...................  Sec.  96.2--Indiana adds pertinent
                                                                         definitions, including a definition for
                                                                         ``energy efficient or renewable energy
                                                                         projects.'' Indiana also adjusts some
                                                                         definitions to account for 2004
                                                                         compliance date and units affected
                                                                         under Section 126 rulemaking.
326 IAC 10-4-3........................  Retired Unit Exemption........  Sec.  96.5.
326 IAC 10-4-4........................  Standard Requirements.........  Sec.  96.6.
326 IAC 10-4-5........................  Computation of time...........  Sec.  96.7--Indiana 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 Account          Sec.  96.10, Sec.  96.11, Sec.  96.12,
                                         Representative.                 Sec.  96.13, Sec.  96.14.
326 IAC 10-4-7........................  Permit Requirements...........  Sec.  96.20, Sec.  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 10-4-8........................  Compliance Certification......  Sec.  96.30, Sec.  96.31.
326 IAC 10-4-9........................  Allowance Allocations.........  Sec.  96.40, Sec.  96.41, Sec.  96.42--
                                                                         IDEM is establishing a total trading
                                                                         program budget of 53,960 tons of NOX
                                                                         per control period. IDEM requested
                                                                         changes to the SIP Call budget as
                                                                         discussed in the budget demonstration.
                                                                         The State also provides a mechanism
                                                                         which could potentially allow for a
                                                                         transition from the Section 126
                                                                         petitions to the SIP Call. The State
                                                                         has developed an allocation
                                                                         methodology, utilizing the flexibility
                                                                         under the NOX SIP Call.
326 IAC 10-4-10.......................  NOX allowance tracking system.  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 transfers.......  Sec.  96.60, Sec.  96.61, Sec.  96.62.
326 IAC 10-4-12.......................  NOX monitoring and reporting    Sec.  96.70, Sec.  96.71, Sec.  96.72,
                                         requirements.                   Sec.  96.73, Sec.  96.74, Sec.  96.75,
                                                                         Sec.  96.76.
326 IAC 10-4-13.......................  Individual opt-ins............  Sec.  96.80, Sec.  96.81, Sec.  96.82,
                                                                         Sec.  96.83, Sec.  96.84, Sec.  96.85,
                                                                         Sec.  96.86, Sec.  96.87, Sec.  96.88.
326 IAC 10-4-14.......................  NOX Allowance Banking.........  Sec.  96.55 (a) and (b).
326 IAC 10-4-15.......................  Compliance Supplement Pool....  Sec.  96.55(C)--The State has made
                                                                         several changes to this section to
                                                                         allow for an easier transition from the
                                                                         Section 126 rulemaking.
----------------------------------------------------------------------------------------------------------------

    Two sections of the 40 CFR part 96 model rule, namely 40 CFR 96.1 
and 40 CFR 96.3, were not addressed by a specific section in Indiana's 
rule. 40 CFR 96.1 describes the purpose of the model rule and 
establishes the general framework. It provides that a unit needs to 
comply only after a state with proper jurisdiction adopts and submits a 
rule

[[Page 56468]]

and the EPA approves that rule as part of the SIP. 40 CFR 96.1 also 
requires that, to the extent a state adopts specified parts of the 
rule, that state needs to authorize the EPA to assist in the 
implementation. Indiana addressed this requirement in its rule's 
definition of EPA in 326 IAC 10-4-2(73), where it authorizes EPA to 
assist in operating the trading program. 40 CFR 96.3 is simply a list 
of acronyms that were used in the model rule. Unlike the model rule, 
instead of defining the acronyms in one section, Indiana's rule usually 
defines those acronyms the first time they are used in the document.

C. How Does Indiana Address Its Statewide NOX Budget?

1. What NOX Budget Did EPA Determine for the State in the 
NOX SIP Call?
    EPA finalized a NOX budget for each affected state on 
October 27, 1998, in its NOX SIP Call (63 FR 57355). Since 
that time, EPA has also published two technical amendments. In 
addition, the D.C. Circuit Court of Appeals rendered an opinion on 
March 3, 2000, that, while generally upholding the NOX SIP 
Call, slightly changed states' NOX SIP Call budgets. 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 consistent with the amendments as upheld by the Court. 
Consistent with the Court's opinion, these budgets, referred to as the 
``Phase I NOX budgets,'' reflect controls on EGUs 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 corresponding 
compliance supplement pool was 19,915 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 provide additional allowances that sources 
may use to cover emissions during the 2004 and 2005 ozone control 
periods.
2. What Changes Did the State Request to the NOX Budget and 
Are Those Changes Approvable?
    In the 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 approving in this action is 
233,633 tons. These changes also affect the portion of the budget being 
used to ensure that the appropriate reductions are 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 final 
rule and submittal, is 53,960 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.
    For the EGU inventory, IDEM started with the inventory from the 
March 2, 2000 technical amendment(65 FR 11222). In doing so, IDEM has 
considered all the reductions assumed for EGUs, including assumed 
reductions from the EGUs not currently covered under the acid rain 
program. 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 
percent (to account for 60 percent 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 approving the shifting 
of these units 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 mmBtu/hr. 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 percent. 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 approving these 
inventory corrections. More information on these changes is available 
in the Docket.
    The following table shows how IDEM's final inventories differed 
from those used by EPA in the April 11, 2000, notification to states of 
EPA's approach to implementing the NOX SIP Call in light of 
the March 3, 2000 court decision.

                                       Table 3.--EPA and IDEM Inventories
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                                              EPA NOX SIP call April 11, 2000,      IDEM final SIP inventory
                                                          inventory            ---------------------------------
               Source category               ----------------------------------
                                               2007 Projected                    2007 Projected    2007 Budget
                                                uncontrolled     2007 Budget      uncontrolled
----------------------------------------------------------------------------------------------------------------
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
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[[Page 56469]]

    EPA is approving the changes submitted by IDEM in its budget 
demonstration. Based on these changes, the State's NOX 
budget is 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 percent (326 IAC 10-3), and reductions equivalent to 
0.15 pounds of NOX per million BTU (lb/mmBtu) heat input for 
EGUs and a 60 percent 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 budget demonstration, that it will meet its 2007 
budget.

                                   Table 4.--IDEM's Final Budget Demonstration
----------------------------------------------------------------------------------------------------------------
                                               2007 Projected                                    Trading portion
               Source category                  uncontrolled     2007 Budget       Reductions       of budget
----------------------------------------------------------------------------------------------------------------
EGUs........................................          136,773           46,778           89,995           45,952
Non-EGUs:
    10--4 Units > 250 mmBtu/hr..............           21,616            8,008           13,608            8,008
    Controlled cement kilns.................            5,572            3,900            1,672  ...............
    Blast Furnace Gas Boilers...............            3,099            3,099                0  ...............
    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      \1\ 105,274          53,960
----------------------------------------------------------------------------------------------------------------
\1\ 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 percent of the EGU portion of the budget and 1 percent 
of the non-EGU portion until 2006, with 2 percent and 1 percent 
respectively, thereafter. The State also included an energy efficiency 
set aside of 1 percent from the non-EGU category. The concept of a set 
aside was discussed in NOX SIP Call Rulemaking Federal 
Register actions. It is a tool to help states manage their budgets. A 
state may establish set-asides where a portion of the trading budget is 
reserved for a special purpose. In this case, the result is that the 
total trading budget is 53,960, including the set-asides. The following 
table illustrates the total Indiana budget, the trading portion and the 
set-asides.

                                Table 5.--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-           43,654         6,849  ............  ............  ............        50,503
 Asides.....................
----------------------------------------------------------------------------------------------------------------

    EPA is approving the trading budget and set-asides reflected in 
Table 7 above as contained in Indiana's final adopted rules and its 
submitted plan.

D. 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 
discussions 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. (The State of Indiana requires at least three written public 
comment periods 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 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 
discussed several changes to the rules, significant and otherwise, that 
were made in response to comments. The significant issues that were 
addressed after the State's proposal are discussed in today's action.
    Indiana adopted final rules on June 6, 2001. Indiana submitted its 
NOX plan to

[[Page 56470]]

EPA, including its response to comments, on August 20, 2001, with a 
supplemental submittal on September 19, 2001. EPA has determined that 
the State's submittal is complete and approvable.

E. What Documents Did EPA Use To Evaluate Indiana's NOX 
Control Program?

    In evaluating Indiana's 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) EPA's ``Responses to Significant Comments on the Proposed 
Finding of Significant Contribution and Rulemaking for Certain States 
in the Ozone Transport Assessment Group (OTAG) Region for Purposes of 
Reducing Regional Transport of Ozone,'' dated September 1998.
    (2) EPA's ``Air Quality Modeling Technical Support Document for the 
NOX SIP Call,'' dated September 23, 1998 [Docket Number A-
96-56, VI-B-11].
    (3) ``Federal Implementation Plans to Reduce the Regional Transport 
of Ozone; Proposed Rule,'' published October 21, 1998. (63 FR 56393)
    (4) ``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 57355). This Federal Register is referred to as 
``The NOX SIP Call'' in today's action.
    (5) ``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).
    (6) EPA's ``Responses to Significant Comments on the Proposed 
Findings of Significant Contribution and Rulemaking on Section 126 
Petitions for Purposes of Reducing Interstate Ozone Transport'' dated 
April 1999 [Docket Number A-97-43, VI-C-01].
    (7) 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.
    (8) ``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.
    (9) Technical amendments to the NOX SIP Call, published 
May 14, 1999 (64 FR 26298) and March 2, 2000 (65 FR 11222).
    (10) The Section 126 findings and requirements as contained in the 
January 18, 2000, Federal Register (63 FR 2674).
    (11) 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 United States Court of Appeals for 
the District of Columbia Circuit on March 3, 2000.
    (12) ``Summary of EPA's Approach to the NOX SIP Call in 
Light of the March 3rd Court Decision'' fact sheet issued April 11, 
2000.
    (13) 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.
    (14) 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.

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

    Based on EPA's review, Indiana's plan meets the Phase I 
NOX SIP Call requirements.
    EPA is also finding Indiana's submittal on August 20, 2001 and 
supplemented on September 19, 2001 complete in this Federal Register 
action. EPA had previously determined, on December 26, 2000, that 
Indiana had failed to submit a SIP in response to the NOX 
SIP Call, thus starting an 18-month clock for the mandatory imposition 
of sanctions and the obligation for EPA to promulgate a FIP within 24 
months(65 FR 81366). Through this action, both the sanctions clock and 
EPA's FIP obligation are terminated.

G. What Changes Did Indiana Make To Its Proposed NOX 
Emissions Control Regulations Before Finalizing?

    In our July 2, 2001, proposal, we discussed changes that the State 
had made or intended to make to its proposed NOX emissions 
control plan including the rules at 326 IAC 10-3 and 10-4. Each of 
these changes is approvable, as discussed below. For additional 
information on these issues, please see the July 2, 2001, proposed 
rulemaking (66 FR 34864).
1. Changes Made Regarding Units Affected Under the Section 126 
Rulemaking
    Today's final rulemaking does not have any direct bearing on the 
applicability of the Section 126 rulemaking. We are not amending the 
Section 126 rule at this time. However, based upon coordination with 
EPA, Indiana made changes to its proposed NOX rule so that 
the rule could potentially supplant the Section 126 rule as of May 1, 
2004. In order to make a transition of this sort, EPA would need to 
complete a future proposal and final rulemaking to amend the Section 
126 rule.
    IDEM made the following changes to its proposed rule to make it 
more compatible with the Section 126 rulemaking. These changes and how 
they comport with the Section 126 rule are discussed in additional 
detail in EPA's proposal.
    a. IDEM's proposed rule included a provision at 326 IAC 10-1, which 
stated that ``A unit subject to 40 CFR [Part] 97 shall be subject to 
the requirements of this rule on May 1, 2004 and shall no longer be 
subject to 40 CFR [Part] 97 as of that date.'' An Indiana State rule 
can not operate to withdraw the Section 126 findings which are codified 
at 40 CFR Part 97. The findings can only be modified through further 
rulemaking under the Section 126 rule. In the final rule, IDEM removed 
the provision pertaining to the applicability of 40 CFR Part 97.
    b. Indiana's proposed rule did not contemplate how compliance 
supplement pool (CSP) allowances would be allocated under the Section 
126 rulemaking. In EPA's proposal, we noted that, in order for us to 
contemplate a future action to amend the Section 126 rule, the State 
NOX rule would need to take into consideration the number of 
CSP allowances that are available under the Section 126 rule and

[[Page 56471]]

limit source's usage of CSP allowances in a manner at least as 
stringent. In its final rule, IDEM limits the number of compliance 
supplement pool allowances that can be used in 2003 to 2,454--the 
number of compliance supplement pool allowances available under the 
Section 126 rulemaking.
    c. Indiana's proposed rule only allowed sources to apply for early 
reduction credits (ERCs) for reductions made in 2002 and 2003. Since 
the Section 126 rulemaking allows sources to apply for ERCs for 
reductions made in 2001, Indiana revised its final rule to also allow 
sources to apply for ERCs based on 2001 reductions. EPA addressed a 
second point regarding ERCs in our July 2, 2001 proposal. We pointed 
out that if IDEM were to have sole responsibility for distribution of 
the CSP and correspondingly the ERC distribution, Section 126 sources 
could not be granted ERCs for reductions made in 2003 in response to 
the Section 126 rule. In both the proposed and final rule, IDEM 
included a restriction on ERCs that the reductions could not be 
otherwise required by the Clean Air Act. In addition, as explained 
below, Indiana revised its rule to specify that for units subject to 
Section 126, all CSP allowances must be allocated by March 31, 2003 
(i.e., before the start of the 2003 ozone control period).
    d. IDEM's proposal allowed distribution of CSP allowances up to 
March 31 of the year after control measures were implemented. In EPA's 
proposal, we noted that 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 could distribute compliance supplement pool 
allowances up to May 30, 2004. The State's final rule specifies that 
the issuance of CSP allowances shall be completed by March 31, 2003 for 
Section 126 sources and March 31, 2004, for non-Section 126 sources.
2. The 25-Ton Exemptions
    Indiana's rule, 326 IAC 10-4, Nitrogen Oxides Budget Trading 
Program Section, includes in subsection 10-4-1(b), the 25-ton exemption 
from the NOX SIP Call model rule and two additional 
exemptions. One of these alternatives relies on Continuous Emission 
Monitoring System (CEMS) data. In this exemption, units can use CEMS 
data to demonstrate that the unit is not emitting more than 25 tons 
during an ozone season. In Indiana's proposed rule, it was not clear 
that, if units were exempted based upon CEMS, those units would be 
required to continue monitoring with CEMS. For this exemption to 
provide sufficient assurance that these units will not emit more than 
25 tons per season, Indiana revised the final rule to require these 
units to monitor according to 40 CFR Part 75, subpart H, even while 
they have the exemption.
    Indiana's second alternative exemption provides for consideration 
of how much natural gas and/or fuel oil was burned during the ozone 
control period, as opposed to assuming that all of a unit's heat input 
is from the fuel with the higher emission factor. Indiana allows units 
this flexibility by requiring recordkeeping verifying the amount of 
each fuel being burned during the ozone control period. This satisfies 
EPA's concern discussed in the proposal that this alternative must 
effectively limit a unit's potential NOX emissions to less 
than 25 tons during an ozone control period.
    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. IDEM's final rule specifies the mechanism that will be 
used to ensure that the emissions from these sources are removed from 
the trading budget. Indiana has accounted for this by establishing 
that, once a unit is exempt, EPA will deduct a number of allowances 
from a general account specified by the owner and operator equal to the 
unit's permitted limit until the three-year allocation period has 
ended. When Indiana determines allocations for the next three-year 
period, it will deduct ``off the top'' from the trading budget a number 
of tons equal to the permitted limits of the exempt units.
3. Definition of ``Maximum Design Heat Input''
    Indiana's final rule revises the definition of ``maximum design 
heat input'' so that it is consistent with the NOX SIP Call 
in that it is based solely on physical characteristics and not 
permitted limits.
4. Definition of ``NOX Budget Trading Program''
    Indiana's final rule adds 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.
5. Definition of ``Percent Monitoring Data Availability''
    Indiana revised the definition ``percent monitoring data 
availability'' so that it is based on a unit's actual total operating 
hours instead of the total potential operating hours in the season. The 
definition in the State's proposed rule was 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 proposed rule 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 percent monitoring data availability requirement 
even if its monitors were available 90 percent of the time it operated. 
Thus, Indiana revised the definition as described above.
6. Monitoring Requirements
    In its final rule, Indiana revised the date that monitoring is 
required to begin to May 1, 2003. Beginning monitoring at the beginning 
of the ozone season a year before compliance is required will ensure 
that when Indiana updates its allocations, it has a full year of data 
to use. Requiring monitoring a year earlier than compliance also allows 
sources 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.
7. Indiana's New Source and Energy Efficiency and Renewable Energy 
``Set-Asides''
    In its final rule, IDEM clarified that the allowances for the new 
source and energy efficiency and renewable energy ``set-asides'' 
outlined in 326 IAC 10-4-9(e) come from the trading program budget.
8. Penalties
    Indiana added language equivalent to the following from 40 CFR 
Section 96.54(d)(3)(i) to its final 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 establishes the maximum number of days in which penalties 
could be sought for a violation. However, EPA notes that if an agency 
were to seek penalties for a violation, an owner or an operator may 
demonstrate that a lesser number of days should be considered.

[[Page 56472]]

9. 326 IAC 10-3  Nitrogen Oxide Reduction Program for Specific Source 
Categories
    326 IAC 10-3 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 (63 FR 56393). Since much of the analysis and 
background materials for the proposed FIP are germane to cement kilns, 
as noted below, EPA also used these materials in its review of the 
State's submittal.
326 IAC 10-3-1  Applicability
    Indiana's proposed rule contained a provision, 326 IAC 10-3-1(b), 
that would have exempted cement kilns covered by the rule from the 
Clark and Floyd NOX Reasonably Available Control Technology 
(RACT) rules at 326 IAC 10-1. EPA informed 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 asserted 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 exempt 
during the ozone control period.
    Based on the expected emissions achievable for cement kilns with 
low-NOX burners installed, emissions are expected to be less 
than required for the same type of 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.

                                 Table 6.--Low-NOX Burner Cement Kiln Stringency
----------------------------------------------------------------------------------------------------------------
                                                                   326 IAC 10-1, pounds per ton    326 IAC 10-3,
                                                                            of clinker            pounds per ton
                                                                 --------------------------------   of clinker
                                                                                                 ---------------
                                                                                                     Expected
                                                                                                  emissions from
                                                                                                   installation
                        Cement kiln type                                                            of low-NOX
                                                                   30 day limit     Daily limit   burners (based
                                                                                                    on proposed
                                                                                                      NOX FIP
                                                                                                   materials and
                                                                                                      30 day
                                                                                                    averaging.
----------------------------------------------------------------------------------------------------------------
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 percent of the 
daily RACT requirement for preheater kilns and 47 percent of the daily 
RACT requirement for long dry kilns. Low-NOX burners are a 
type of technology that, once installed, cannot 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. Therefore, EPA believes that the significantly lower 
expected emissions from cement kilns with low-NOX burners 
installed in Clark and Floyd Counties should ensure that 326 IAC 10-3 
is as stringent as the applicable emission limits in 326 IAC 10-1.
326 IAC 10-3-3  Emission Limits
    In its proposed rule, 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 percent 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 based on a 30-day average. The 
State's rationale for providing seasonal limits for these sources was 
based on the fact that the NOX SIP Call addresses 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) of its proposed rule, IDEM included an 
emission limit option which would allow a reduction equivalent to 30 
percent 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 State's proposed 
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

[[Page 56473]]

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, in our proposed rule we noted that Indiana must require sources 
to establish baseline emissions with a CEMS or require in its rule that 
the 30 percent reduction be measured from the 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. As a result, 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  Recordkeeping and Reporting
    Under Indiana's proposed rule, sources that could comply by meeting 
emission limits on a pound of NOX per ton of clinker basis 
were not required to keep daily cement kiln production records needed 
to ensure compliance with the emission limits. EPA noted this 
deficiency in our proposal and also noted the revised language that 
Indiana had included in its final adopted rule to address this issue. 
IDEM added language to its final adopted rule to require sources 
meeting emission limits to report their daily cement kiln production 
records.
Blast Furnace Gas Units
    The final adopted rule includes 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. Likewise, IDEM has set the 
emission factor in 326 IAC 10-3 based on NOX SIP Call 
uncontrolled emissions. Since, as discussed further in the proposal, 
this modification does not impact the reductions being achieved under 
IDEM's rule, EPA is approving this rule modification as part of 
Indiana's submittal.
10. General SIP Requirements
    Indiana's final submittal fully addressed the general requirements 
required under the NOX SIP Call for a SIP revision 
including: that resources are available to implement the program, that 
the State meets the data availability requirements of 40 CFR 51.116, 
that the SIP provides for compliance with the annual and triennial 
reporting requirements set forth in 40 CFR 51.122, that the State has 
the legal authority to carry out the SIP revision, and 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.
11. 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 is acceptable.
12. 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 have potentially removed NOX 
allowances permanently 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 from that used in 
the model trading rule, it should ensure the integrity of both the 
trading program and Indiana's NOX budget.
13. Centralized Recordkeeping
    IDEM's final adopted rules allow recordkeeping at a central 
location under specific conditions. EPA discussed these recordkeeping 
requirements at length with the State. These provisions are only 
acceptable, as indicated in our proposal, under certain circumstances, 
i.e., for sources not participating in the trading program and not 
exempted from the trading program based on Part 75 monitoring. The 
State chose to retain the provisions throughout the rule (since it had 
determined that the centralized recordkeeping could be acceptable for 
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 of 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, EPA is approving the limited centralized 
recordkeeping requirements.

[[Page 56474]]

14. 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 are being approved as part of Indiana's 
NOX SIP Call Phase I submittal.

II. What Are the Public Comments on EPA's Proposal?

    EPA published a proposed rulemaking on July 2, 2001, (66 FR 34864) 
to approve, as a SIP revision, the plan Indiana submitted in response 
to the NOX SIP Call. The proposal provided a 30-day public 
comment period, which ended on August 1, 2001. EPA received comments 
from the following parties: A citizen; Indianapolis Power and Light 
Company (IPL); and the Natural Resources Defense Council and the 
Hoosier Environmental Council.
    Comment 1: Comment received from a citizen. The commentor asserts 
that the definition of ``ozone control period'' should be inclusive of 
every day in the year. The commentor notes that nitrogen dioxide and 
other oxides of nitrogen are harmful at all times and it is not 
appropriate to only require controls to be used during the ozone 
control period. Furthermore, the commentor claims, once EGUs 
demonstrate the ability to operate at 0.15 lb/mmBtu, they have an 
obligation to equal or better that performance on a 365-day averaging 
period. The commentor believes there is an inequity with mobile sources 
which are required to maintain their controls over broad ranges of 
operation.
    Response 1: EPA recognizes that control of NOX emissions 
would likely produce non-ozone benefits, as well as ozone benefits. 
However, the commentor's suggestion that EPA define a control period on 
an annual basis is outside the scope of this rulemaking. EPA issued the 
NOX SIP call to address the failure of certain SIPs to 
prohibit sources from emitting NOX in amounts that 
contribute significantly to nonattainment (or interfere with 
maintenance of attainment) of the ozone National Ambient Air Quality 
Standards (NAAQS) during the ozone season. Because ozone formation is a 
summer season problem, the rule focuses on obtaining the necessary 
reductions during those months when a potential public health problem 
exists due to high concentrations of ambient ozone.
    Comment 2: Comments received from Indianapolis Power and Light 
(IPL). The commentor notes that changes to the Indiana SIP were made in 
response to the SIP Call and that the SIP Call was based on EPA models 
of regional ozone transport. The commentor claims that EPA's modeling 
is unreliable and inconsistent. The commentor questions the linkage 
between Indiana and New York nonattainment areas. The linkage from 
Indiana to New York was found to be significant, but the linkages from 
Indiana to Pittsburgh and Philadelphia (which are both closer to 
Indiana than New York) were not found to be significant. The commentor 
claims that ozone passes over Kentucky, Ohio, and Pennsylvania without 
having a significant effect. The commentor states that the modeled 
predictions for Indiana are ``statistically meaningless'' and concludes 
that the Agency is ``pushing the computer-generated data beyond the 
limits of its reliability.'' The commentor asserts that these issues 
are at the core of the SIP Call, and that EPA is not authorized to lock 
in requirements for NOX reductions in Indiana based on this 
modeling analysis.
    Response 2: Most fundamentally, Indiana's obligation to submit the 
present SIP revision derives from the NOX SIP Call 
rulemaking. That rulemaking was premised on air quality modeling 
conclusions that were subjected to notice and comment. The U.S. Court 
of Appeals for the D.C. Circuit, in Michigan v. EPA, 213 F.3d 663, 673 
(D.C. Cir. 2000), cert. den., 121 S. Ct. 1225, 149 L. Ed. 135 (2001), 
generally upheld the rulemaking, as well as the air quality modeling 
conclusions. As a result, EPA does not consider air quality impacts to 
be an open issue in the present rulemaking. In any event, IPL made a 
very similar comment regarding the modeling results in the Section 126 
rulemaking. EPA's response is provided on pages 79-83 of the 
``Responses to Significant Comments on the Proposed Findings of 
Significant Contribution and Rulemaking on Section 126 Petitions for 
Purposes of Reducing Interstate Ozone Transport'' (April 1999).\1\
---------------------------------------------------------------------------

    \1\ It should be noted that IPL asserts that the model predicts 
that ozone passes over Kentucky, Ohio, and Pennsylvania without 
causing a signficant effect. In fact, both the UAM-V model and 
CAMX model showed that Indiana emissions contribute to 1-
hour ozone exceedances in the Cincinnati-Hamilton area, which, at 
thet ime, was a bi-state nonattainment area in Ohio and Kentucky. It 
was the only nonattainment area in Ohio. In Kentucky, there was on 
additoinal nonattainment area, the Louisville area. The Louisville 
area is a bi-state area with a portion in Kentucky and a portion in 
Indiana. It did not make sense to analyze contributions from Indiana 
to the Louisville area since the area includes two Indiana counties. 
See EPA's September 23, 1998 Air Quality Modeling Technical Support 
Document Appendix C, page C-15 [Docket Number A-96-56, VI-B-11].
---------------------------------------------------------------------------

    Comment 3: Comment received from IPL. The commentor claims that 
Indiana statutes provide that a person who violates air pollution 
control laws is liable for a civil penalty not to exceed twenty-five 
thousand dollars, and that IDEM does not have the authority to 
implement a rule where each ton of NOX per day is a 
violation and where that violation can be spread across the entire 153 
days of the ozone control period. It was arbitrary for the EPA to 
require the State to adopt these provisions.
    Response 3: The State rule defines what constitutes a violation in 
the same manner as the federal law at 40 CFR 96.6(c)(2) and 
96.54(d)(3). Authority to incorporate these provisions into State rules 
can be found in IC 13-17-3-4, which provides that the Air Pollution 
Control Board (Board) shall adopt rules that are necessary to implement 
the CAA, and in IC 13-17-3-11, which provides that the Board has the 
authority to adopt rules under discretionary authority granted to the 
State under the CAA and its regulations. Finally, IC 13-30-4-1 provides 
explicitly that a person who violates any provision of a rule adopted 
by the Board is liable for a penalty per day per violation (italics 
added for emphasis).
    EPA did not arbitrarily determine that these requirements needed to 
be included in state SIPs. EPA has required the State to adopt these 
provisions because of the nature and inherent flexibilities of the 
NOX SIP Call. Because the State's NOX rule at 326 
IAC 10-4 is based on a trading program that caps emissions, it is 
appropriate that every ton of emissions over a source's available 
allowances should be considered a separate violation. Otherwise, the 
penalty might not be sufficient to remove the economic benefit of 
noncompliance and deter excess emissions. Furthermore, it makes sense 
that a source that emits fifty excessive tons should pay a higher

[[Page 56475]]

penalty than a source that emits one excessive ton.
    Additionally, the rule provides that each day of the ozone season 
constitutes a violation because the rule caps emissions on an ozone 
season basis and does not assign the emissions of discrete tons to a 
particular day. If the source exceeds its allowances for the ozone 
season, then each day of that season is a separate violation. However, 
the rule does provide flexibility by allowing the owners and operators 
of the unit to demonstrate that a lesser number of days should be 
considered.
    EPA believes that financial penalties along with an automatic 
allowance offset are sufficient and appropriate for ensuring compliance 
with the NOX budget and the emission limit. The allowance 
deduction is designed to ensure that non-compliance is a more expensive 
option than compliance. However, in addition to the allowance offset, 
the states must also be able to impose financial penalties if necessary 
in response to violations of the NOX Budget Program. In 
fact, some violations (e.g., of monitoring requirements) may not result 
in any excess emissions nor any offset. In a multi-state program, it is 
important that each individual state's regulation include the same 
provisions in order to encourage similar treatment of similar instances 
of non-compliance regardless of location and to provide a level playing 
field for all NOX Budget units. Thus, if a state chooses to 
adopt the model rule's approach, the SIP submission must include the 
offset provisions and the financial penalty provisions contained in the 
model rule. Criteria for SIP approvability are outlined in section 
VI.A.2 of the preamble to the October 27, 1998 NOX SIP Call 
(63 FR 57355).
    A NOX Budget unit with excess emissions for a control 
period may be charged, under the model rule, with 153 days in 
violation. However, the owners or operators of these units have the 
option of demonstrating that the number of days of violation was less 
than 153 days.
    Comment 4: Comments received from The Natural Resources Defense 
Council and Hoosier Environmental Council. The commentor states that 
the Indiana NOX SIP Call appears to waive the May 1, 2003 
compliance date of the Section 126 rulemaking. The commentor requests 
that EPA clarify the overlap between Section 126 and the NOX 
SIP Call.
    Response 4: Final approval of the Indiana NOX SIP call 
does not amend the applicability of the Section 126 rulemaking in any 
way. Units that are affected under the Section 126 rulemaking must 
comply with the applicable compliance date in the Section 126 
rulemaking. Only if EPA takes action to amend the Section 126 rule 
would the applicability of that rule change. EPA is not taking that 
action today. Because of the adjustments that IDEM made to its 
NOX rule, EPA may be able to take an action to amend the 
Section 126 rule in the future so that it is only applicable to those 
sources for at most one year, until May 1, 2004; at which point 
Indiana's NOX rule would take over and require reductions as 
stringent as those required by the Section 126 rule.

III. Final Action

A. What Action Is EPA Approving Today?

    EPA is approving revisions to Indiana's ground level ozone SIP 
which Indiana submitted in final on August 20, 2001 and supplemented on 
September 19, 2001. These SIP revisions include two new regulations, a 
budget demonstration and supporting materials. The two new regulations 
are 326 Indiana Administrative Code (IAC) 10-3, the ``Nitrogen Oxide 
Reduction Program for Specific Source Categories,'' and 326 IAC 10-4, 
the ``Nitrogen Oxides Budget Trading Program.'' EPA has determined that 
Indiana's submittal is fully approvable as meeting the Phase I 
NOX SIP Call requirements.
    EPA is also finding Indiana's submittal on August 20, 2001 and 
supplemented on September 19, 2001 complete in this Federal Register 
action. EPA had previously determined, on December 26, 2000, that 
Indiana had failed to submit a SIP in response to the NOX 
SIP Call, thus starting a 18-month clock for the mandatory imposition 
of sanctions and the obligation for EPA to promulgate a FIP within 24 
months(65 FR 81366). This finding stops both the sanctions clock and 
EPA's FIP obligation.

B. What Is the Impact of Today's Action on EPA's Finding Under the 
Clean Air Act Section 126 Rule?

    Today's action does not have any impact on EPA's finding under 
Section 126 of the Clean Air Act. Indiana's submittal does require 
reductions at sources covered under the Section 126 rulemaking and will 
be evaluated in the future to determine if it is appropriate for EPA to 
take action to amend the applicability of the Section 126 rulemaking. 
However, today's action does not address this issue.

IV. Administrative Requirements

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
action is not a ``significant regulatory action'' and therefore is not 
subject to review by the Office of Management and Budget. For this 
reason, this action is also not subject to Executive Order 13211, 
``Actions Concerning Regulations That Significantly Affect Energy 
Supply, Distribution, or Use'' (66 FR 28355, May 22, 2001). This action 
merely approves state law as meeting Federal requirements and imposes 
no additional requirements beyond those imposed by state law. 
Accordingly, the Administrator certifies that this 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 approves 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 rule also does not have tribal implications because it will 
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). This action also does not have Federalism 
implications because it does not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government, as specified in Executive Order 13132 (64 
FR 43255, August 10, 1999). This action merely approves a state rule 
implementing a Federal standard, and does not alter the relationship or 
the distribution of power and responsibilities established in the Clean 
Air Act. This rule also is not subject to Executive Order 13045 
``Protection of Children from Environmental Health Risks and Safety 
Risks'' (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

[[Page 56476]]

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. This 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.). The 
Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small 
Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A major rule cannot 
take effect until 60 days after it is published in the Federal 
Register. This action is not a ``major rule'' as defined by 5 U.S.C. 
804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for 
judicial review of this action must be filed in the United States Court 
of Appeals for the appropriate circuit by January 7, 2002. Filing a 
petition for reconsideration by the Administrator of this final rule 
does not affect the finality of this rule for the purposes of judicial 
review nor does it extend the time within which a petition for judicial 
review may be filed, and shall not postpone the effectiveness of such 
rule or action. This action may not be challenged later in proceedings 
to enforce its requirements. (See section 307(b)(2).)

List of Subjects in 40 CFR Part 52

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

    Dated: September 27, 2001.
David A. Ullrich,
Acting Regional Administrator, Region 5.

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

PART 52--[AMENDED]

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

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

Subpart P--Indiana

    2. Section 52.770 is amended by adding paragraph (c)(144) to read 
as follows:


Sec. 52.770  Identification of plan.

* * * * *
    (c) * * *
    (144) On August 20, 2001 and September 19, 2001, Indiana submitted 
a plan in response to Phase I of the NOX SIP Call. The plan 
includes Indiana's Phase I NOX Budget Demonstration and 
supporting documentation including initial unit allocations and two new 
rules: 326 IAC 10-3 and 326 IAC 10-4.
    (i) Incorporation by reference.
    (A) Indiana Administrative Code Title 326: Air Pollution Control 
Board, Article 10; Ozone rules, Rule 3: Nitrogen Oxide Reduction 
Program for Specific Source Categories (326 IAC 10-3). Adopted June 6, 
2001. Submitted August 20, 2001 and September 19, 2001. State effective 
September 16, 2001.
    (B) Indiana Administrative Code Title 326: Air Pollution Control 
Board, Article 10; Ozone rules, Rule 4: Nitrogen Oxides Budget Trading 
Program (326 IAC 10-4). Adopted June 6, 2001. Submitted August 20, 2001 
and September 19, 2001. State effective September 16, 2001.

[FR Doc. 01-27931 Filed 11-7-01; 8:45 am]
BILLING CODE 6560-50-P