[Federal Register Volume 67, Number 26 (Thursday, February 7, 2002)]
[Rules and Regulations]
[Pages 5729-5735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2841]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[CA249-0324; FRL-7134-4]


Revisions to the California State Implementation Plan, South 
Coast Air Quality Management District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: EPA is finalizing approval of revisions to the South Coast Air 
Quality Management District (SCAQMD) portion of the California State 
Implementation Plan (SIP). These revisions were proposed in the Federal 
Register on

[[Page 5730]]

August 7, 2001 and concern oxides of nitrogen (NOX) 
emissions from mobile sources (Class 7 and 8 heavy duty vehicles, 
marine vessels, ocean-going marine vessel hotelling operations, truck 
and trailer refrigeration units), and area sources (agricultural 
pumps). We are approving local rules that regulate these emission 
sources under the Clean Air Act as amended in 1990 (CAA or the Act).

EFFECTIVE DATE: This rule is effective on March 11, 2002.

ADDRESSES: You can inspect copies of the administrative record for this 
action at EPA's Region IX office during normal business hours. You can 
inspect copies of the submitted SIP revisions at the following 
locations:

Environmental Protection Agency, Region IX, 75 Hawthorne Street, San 
Francisco, CA 94105-3901.
Environmental Protection Agency, Air Docket (6102), Ariel Rios 
Building, 1200 Pennsylvania Avenue, NW., Washington, DC 20460.
California Air Resources Board, Stationary Source Division, Rule 
Evaluation Section, 1001 ``I'' Street, Sacramento, CA 95814.
South Coast Air Quality Management District, 21865 E. Copley Dr., 
Diamond Bar, CA 91765-4182.

FOR FURTHER INFORMATION CONTACT: Lily Wong, Rulemaking Office (AIR-4), 
U.S. Environmental Protection Agency, Region IX, (415) 947-4114.

SUPPLEMENTARY INFORMATION: Throughout this document, ``we,'' ``us'' and 
``our'' refer to EPA.

I. Proposed Action

    On August 7, 2001, (66 FR 41174), EPA proposed to approve the 
following rules into the California SIP.

----------------------------------------------------------------------------------------------------------------
                Local agency                  Rule No.            Rule title              Adopted     Submitted
----------------------------------------------------------------------------------------------------------------
SCAQMD......................................    1612.1  Mobile Source Credit               03/16/01     05/08/01
                                                         Generation Pilot Program.
SCAQMD......................................    1631    Pilot Credit Generation            05/11/01     05/31/01
                                                         Program for Marine Vessels.
SCAQMD......................................    1632    Pilot Credit Generation            05/11/01     05/31/01
                                                         Program for Hotelling
                                                         Operations.
SCAQMD......................................    1633    Pilot Credit Generation            05/11/01     05/31/01
                                                         Program for Truck/Trailer
                                                         Refrigeration Units.
SCAQMD......................................    2507    Pilot Credit Generation            05/11/01     05/31/01
                                                         Program for Agricultural
                                                         Pumps.
----------------------------------------------------------------------------------------------------------------

    We proposed to approve these rules because we determined that they 
complied with the relevant CAA requirements. Our proposed action 
contains more information on the rules and our evaluation.

II. Public Comments and EPA Responses

    EPA's proposed action provided a 60-day public comment period. 
During this period, we received comments from the following parties.
    1. Suma Peesapati, Communities for a Better Environment (CBE); 
letter dated October 9, 2001 and received October 9, 2001.
    2. Reed L. Royalty, Orange County Taxpayers Association (OCTA); 
letter dated August 30, 2001 and received September 6, 2001.
    3. William J. Quinn, California Council for Environmental and 
Economic Balance (CCEEB); letter dated October 5, 2001 and received 
October 5, 2001.
    4. Jon K. Owyang, Market-Based Solutions (MBS); letter dated 
October 8, 2001 and received October 8, 2001.
    5. Jack Brunton, Sempra Energy (SE); letter dated October 8, 2001 
and received October 9, 2001.
    6. Michael J. Carroll, Latham & Watkins (LW); letter dated October 
9, 2001 and received October 9, 2001.
    7. Detrich B. Allen, City of Los Angeles (CLA); letter dated 
October 9, 2001 and received October 9, 2001.
    The comments and our responses are summarized below.
    Comment 1: CBE commented that the RECLAIM program is fundamentally 
flawed and, as a result, has not achieved the emission reductions 
promised during program development eight years ago. Among the problems 
that CBE describes with RECLAIM are: (a) Initial over-allocation of 
credits resulting from artificially inflated baselines; (b) Inadequate 
safeguards against fraud and uncertainty; (c) Emissions have actually 
increased from the two largest NOX source categories.
    Response 1: RECLAIM is implemented by SCAQMD's Regulation 20 and 
establishes a declining cap on emissions from medium and large 
stationary NOX sources. Regulations 16 and 25 provide 
mechanisms to generate emission reduction credits from mobile sources 
and area sources that can be purchased by RECLAIM sources. EPA is not 
acting on Regulation 20 at this time. We are acting on rules in 
Regulations 16 and 25, which can and should be evaluated independently. 
Regulation 16 and 25 sources are not also subject to Regulation 20 and 
Regulation 20 does not need to function well to achieve emission 
reductions from Regulations 16 and 25. Even if Regulation 20 has 
achieved no real emission reductions to date, rules in Regulation 16 
and 25 should be approved if they comply with the CAA as described in 
relevant national policy and guidance. As discussed in today's notice 
and the August 7, 2001 proposal, we believe these rules in Regulations 
16 and 25 do comply with the CAA. Comments on Regulation 20 are not 
relevant to EPA's SIP action on the Regulation 16 and Regulation 25 
credit rules.
    Comment 2: CBE commented that SCAQMD and EPA should fix RECLAIM's 
defects rather than developing and approving the Regulation 16 and 25 
rules. Regulations 16 and 25 would increase the supply of cheap credits 
which will exacerbate the problem with the RECLAIM program.
    Response 2: We agree that SCAQMD should correct any problems with 
the existing RECLAIM program. However, as discussed in Response 1, 
Regulations 16 and 25 can and should be evaluated independently from 
Regulation 20. While we do not believe these reductions will be 
inexpensive, as suggested by the comment, there would be nothing 
inherently wrong if they were. An important feature of economic 
incentive programs like this is to allow industry to achieve the most 
economically efficient emission reductions. The commenter may be 
alleging that the emission reduction credits will be cheap because they 
will not come from real emission reductions. The commenter, however, 
provides no evidence or support for this. If used, we believe these 
credit rules will generate real emission reductions. As discussed in 
the Technical Support Documents (TSDs) to our August 7, 2001 proposal, 
the rules are carefully designed to assure that reductions are surplus, 
quantifiable, enforceable and permanent. As we have stated numerous 
times, the criteria for judging the adequacy of emission reduction 
credits, i.e., that the emission reductions are surplus, quantifiable, 
enforceable and permanent, are based upon fundamental requirements of 
the CAA. See ``Emissions Trading Policy Statement,'' 51 FR 43814, 
43831-43832 (December 4,

[[Page 5731]]

1986), and ``Economic Incentive Program Rules,'' 59 FR 16690, 16691 
(April 7, 1994).
    We note also that the Regulation 16 and 25 rules are designed to 
achieve significant environmental benefit. In particular, the rules 
require that all NOX emission reduction credits be 
discounted by 9-10% for the benefit of the environment. The rules will 
also significantly reduce particulate matter (PM) emissions, since no 
PM emission reduction credits are awarded. For these reasons, the 
approval of these credit rules will strengthen the SIP, regardless of 
the past performance of the RECLAIM program.
    Comment 3: CBE commented that SCAQMD has not complied with Rule 
2015 which offers an appropriate ``fix.'' Rule 2015 requires SCAQMD to 
conduct a thorough investigation of the high price of credits in the 
context of the compliance and enforcement program, and of whether the 
program provides appropriate incentives to comply.
    Response 3: SCAQMD'S implementation of Rule 2015 is not relevant to 
this rulemaking. Rule 2015 does not preclude the SCAQMD from developing 
credit rules in Regulations 16 and 25. See also Responses 1 and 2.
    Comment 4: CBE commented that mobile to stationary source trading 
results in environmental justice (EJ) impacts. While the benefits from 
emission reductions from mobile sources occur over a widespread area, 
the emissions increases occur at stationary sources, often in low-
income communities of color. Further, even if the emission reductions 
occur in low-income communities of color, pollution is merely 
transferred from mobile to stationary sources in the same community.
    Response 4: EPA agrees that programs which allow volatile organic 
compound (VOC) trading should address EJ, because many VOCs are also 
hazardous air pollutants (HAPs) that may impact health of people near 
the emission sources. This comment is not relevant to the five credit 
rules, however, which only allow trading of NOX emissions 
and not VOC or HAPs. NOX emissions combine with VOCs to form 
ozone, which can have significant health impacts. But because ozone 
forms fairly slowly and then disperses throughout the South Coast Air 
Basin, it is highly unlikely that increased NOX emissions in 
any one South Coast neighborhood will disproportionately increase ozone 
levels in the same neighborhood. NOX emissions also 
contributes to PM formation, but the increased health impacts from this 
PM in the South Coast is also a regional and not a localized problem 
for the same reasons, and thus does not have EJ implications. Lastly, 
NO2, a component of NOX emissions, can have 
health impacts. To considerable extent, the same arguments regarding 
regional rather than localized impacts would apply here. In addition, 
all areas of South Coast and the country meet the health-based 
NO2 standard, so no health impacts are expected from 
NO2.
    Comment 5: CBE commented that monitoring mobile emission reduction 
programs is difficult and often leads to ``phantom trades,'' citing 
SCAQMD's experience with Rule 1610 regarding car scrappage.
    Response 5: EPA believes that emission reductions from these five 
credit rules are real, surplus, quantifiable, enforceable, and 
permanent. These five credit rules are fundamentally different than the 
car scrappage program because they require utilization of a cleaner 
technology to generate emission reduction credits. Rule 1610, on the 
other hand, assumed that emissions would be reduced by scrapping cars 
that would no longer operate. While we agree that Rule 1610 was 
significantly flawed, its problems (e.g., some scrapped cars had not 
been in use and some cars' parts were used after being scrapped) do not 
relate to these credit rules. Oversight, for example, of these credit 
rules is more straightforward because they require changes to equipment 
which can be easily verified. The credit rules also require extensive 
monitoring, recordkeeping and reporting to verify the emission 
reduction credits.
    Comment 6: CBE commented that proper functioning of the RECLAIM 
market necessitates a closed universe of credits. This is why, for 
example, excess emissions are deducted from sources' annual credit 
allocation--to regulate the total amount of pollution on the market.
    Response 6: It is not essential that the total amount of pollution 
in the market remain fixed, but that the basin-wide emissions be 
reduced. A closed universe of emission reduction credits in RECLAIM is 
not necessary if new emission reductions are real and appropriately 
addressed in the emissions inventory. As discussed in Response 2, the 
five credit rules are carefully designed to assure that reductions are 
real by being surplus (which includes being addressed in the emissions 
inventory), quantifiable, enforceable and permanent.
    We also evaluated the credit rules to determine whether demand 
shifting could create ``paper'' reductions by shifting activity to 
sources not participating in the program. Demand shifting is not a 
problem because emission reduction credits can only be generated to the 
extent that generators lower emission rates and actually engage in the 
activity. If, for example, a generator completely shifts his activity 
level to sources not participating in the program, no emission 
reduction credits are generated and the emission rate of the non-
participating sources would not increase. We also evaluated whether the 
credit rules could increase activity and emissions from the source 
categories they address. We are aware of no basis for this to occur. 
Any increase in source category activity would be a function of growth 
that would be factored into the attainment plan.
    Comment 7: CBE commented that CAA section 110(a) requires SIPs to 
include programs for enforcement of control measures, and to assure 
adequate personnel, funding and authority. SCAQMD has a minimum 
2-year lag in enforcing existing programs, and the five credit rules 
impose a new set of monitoring, reporting and calculating criteria that 
will substantially increase SCAQMD's enforcement burden. SCAQMD does 
not plan to increase its enforcement capacity to properly oversee these 
new requirements in violation of section 110(a).
    Response 7: EPA originally approved California's compliance with 
the section 110(a)(2)(E) personnel, funding and authority requirement 
in 1972, and we have had no cause to question SCAQMD's continued 
compliance since then. Enforcement cases take time to identify, develop 
and negotiate, and while a two-year lag to close them out is not ideal, 
in itself it does not justify questioning compliance with section 
110(a)(2)(E). We note also that SCAQMD is by far the largest and best 
funded local air pollution regulatory agency in the country, with over 
750 staff and an annual operating budget of over $85 million. In 
addition, we understand that in the last two and a half years, SCAQMD 
has added 22 inspectors which may help SCAQMD in determining RECLAIM 
compliance. We understand that the emission reduction projects under 
these five credit rules are administered by SCAQMD staff in a different 
office than staff working on RECLAIM compliance.
    Comment 8: CBE commented that approving the credit rules will relax 
existing requirements in violation of CAA section 110(l). Section 
110(l) directs EPA to not approve SIP revisions that interfere with 
attainment, reasonable further progress or any other applicable 
requirement. Credit rule approval would delay real emission

[[Page 5732]]

reductions by postponing installation of available control equipment on 
RECLAIM sources, and thus interfere with reasonable further progress 
and attainment in the South Coast.
    Response 8: If used, we believe these credit rules will generate 
real emission reductions. We agree that use of these rules may mean 
some available controls are not installed on RECLAIM sources. However, 
because the new emission reductions are real, and additional 
environmental benefit is built into the Regulation 16 and 25 rules, we 
expect the rules to result in a net decrease in emissions, and not 
interfere with attainment, reasonable further progress or any other 
applicable requirement in violation of CAA section 110(l). See also 
Responses 2 and 6.
    Comment 9: CBE provided information regarding California's alleged 
power crisis and commented that the crisis may not have been 
responsible for the price spike in RECLAIM credits. If it was, the 
energy crisis is over and doesn't justify changes to the RECLAIM 
program. If it wasn't, the price reflects the true cost of foregoing 
pollution control and represents a healthy market making up for years 
of dysfunction. This is not the time to flood the market with more 
credits which will artificially drive down credit prices and delay real 
emission reductions.
    Response 9: As discussed in Response 2 and elsewhere, we believe 
the five credit rules comply with the CAA and will benefit the 
environment. The justification for developing these rules is not a 
criteria in our evaluation.
    Comment 10: CBE commented that, at a minimum, SCAQMD should limit 
the amount of new emission reduction credits that can enter the RECLAIM 
market to prevent: (a) Flooding the market with emission reduction 
credits that drive down credit prices and continue a dysfunctional 
market that provides no incentives for pollution control; (b) 
eviscerating the potential benefits of compliance plans under proposed 
RECLAIM Rules 2009 and 2009.1; and (c) violating CAA section 110(l).
    Response 10: See Responses 1, 2, 6, 8, and 9. In addition, SCAQMD's 
staff reports estimate that the maximum NOX emission 
reduction credits that will be generated from the five credit rules is 
approximately 2.75 to 3.96 tons/day. Even if this entire amount of 
emission reduction credit is generated, it is unlikely to flood the 
RECLAIM credit market, which currently contains approximately 32.45 
tons/day.
    Comment 11: CBE commented that Rule 1612.1 contains only 9% instead 
of the traditional 10% environmental benefit, in violation of CAA 
section 110(l). The 10% benefit helps ensure that pollution credit 
programs reduce pollution, and helps mitigate the margin of error 
associated with emission measurement and emission reduction credits 
calculation.
    Response 11: EPA evaluates environmental benefit as an issue 
separate from uncertainty. EPA however agrees that technical 
uncertainty must also be addressed. We believe that uncertainty in 
measuring emissions and calculating emission reductions has been 
addressed by establishing conservative emission quantification 
protocols in these rules. For example, the baseline emission rate in 
Rule 1612.1 is the emission rate for a new on-highway diesel engine 
that meets both EPA and CARB certified exhaust engine standards. 
Applying certified engine standards helps remove the uncertainty 
relating to the remaining useful life of the existing diesel engine, 
and will result in a conservative estimate of baseline emissions, since 
we expect that the actual emission rate of the existing diesel engines 
will be higher than the baseline emission rate specified in the 
emission quantification protocols. Technical uncertainty is also 
mitigated by the use of certified engine standards for the optional 
emission factors in Rule 1612.1. Under the CAA and other federal 
regulations, manufacturers must submit applications to obtain a 
certificate of conformity to EPA on the basis of engine(s) testing that 
conforms to the requirements of the EPA Test Procedures, and where 
applicable, in accordance with the California Exhaust Emission 
Standards and Test Procedures for new model year engines.
    As discussed in our August 7, 2001 proposal, EPA published the EIP 
guidance, ``Improving Air Quality with Economic Incentive Programs'' 
(EPA-452/R-01-001) in January 2001 to help ensure consistent 
application of the CAA regarding economic incentive programs like 
RECLAIM and the five credit rules. The EIP guidance suggests that a 10% 
emission reduction credit discount generally demonstrates adequate 
environmental benefit consistent with the CAA, but also allows States 
to demonstrate environmental benefit other ways. Nine percent of all 
NOX emission reductions generated under Rule 1612.1 will be 
retired for benefit of the environment and cannot be used to offset 
emissions at RECLAIM sources. Rule 1612.1 activity as well as the 
activities in the other credit rules will also significantly reduce PM 
emissions; but since no PM emission reduction credits are awarded or 
can be used by RECLAIM sources, all the PM emission reductions fully 
benefit the environment. These PM emission reductions are important to 
the demonstration of overall environmental benefit from Rule 1612.1 
and, in combination with the 9% NOX emission reduction 
credit discount, are consistent with the EIP guidance and the CAA.
    Comment 12: CBE commented that the CAA prohibits use of mobile 
source emission reduction credits from the five rules for NSR offsets. 
CAA section 173(a)(1)(A) states that offsets must be obtained ``from 
existing sources in the region.'' CAA section 111(a)(6) defines 
``existing source'' as ``any stationary source other than a new 
source.'' Therefore, NSR offsets must be obtained from stationary, not 
mobile sources.
    Response 12: CBE misunderstands the purpose and application of 
section 111 of the CAA. The title of section 111 is also a description 
of its limited application; ``Standards of Performance for New 
Stationary Sources.'' The definition cited by CBE in section 111(a)(6) 
applies only to the stationary sources covered by section 111. That 
definition is not applicable to or relevant for these credit rules, 
which are being included into the California SIP pursuant to section 
110 of the CAA. Had Congress wished to limit the generation of offsets 
to stationary sources, it would have inserted ``stationary'' in front 
of ``sources'' in the language quoted by CBE from section 173(a)(1)(A) 
of the CAA. Congress was obviously aware of this distinction, having 
defined ``stationary source'' for purposes of the CAA in section 
302(z). Since section 173(a)(1)(A) uses the broader term ``sources,'' 
EPA has concluded that this can include mobile sources.
    Comment 13: CBE has commented that EPA's reliance on the 2001 EIP 
Guidance as the basis for proposing approval of the credit rules is 
illegal. The 2001 EIP guidance has no legal authority and calls for a 
relaxation of standards proposed in other policy statements and rules. 
The 2001 EIP guidance cannot change standards that have gone through 
the formal rulemaking process, such as the 1986 Emissions Trading 
Policy Statement (ETPS) and the 1994 EIP rule, and surely cannot trump 
federal CAA requirements.
    Response 13: While the 1986 ETPS was published in the Federal 
Register, it was guidance, not regulation and did not, as CBE suggests, 
go through formal rulemaking. Similarly, the 1994 EIP explains that it 
was guidance for discretionary programs such as these five credit 
rules. The 2001 EIP is EPA's most recent guidance for economic

[[Page 5733]]

incentive programs. EPA'S publication of the 1986 ETPS, 1994 EIP, and 
2001 EIP did not constitute a final determination for discretionary 
programs and none of them were intended to trump CAA requirements. They 
have all been used, however, to help assure consistent interpretation 
of the CAA where its application to detailed EIP requirements is 
unclear. As stated earlier, the criteria for judging the adequacy of 
emission reduction credits, i.e., that the emission reductions are 
surplus, quantifiable, enforceable and permanent, are based upon 
fundamental requirements of the CAA. See ``Emissions Trading Policy 
Statement,'' 51 FR 43814, 43831-43832 (December 4, 1986), and 
``Economic Incentive Program Rules,'' 59 FR 16690, 16691 (April 7, 
1994).
    The next set of comments are summarized from letters CBE wrote to 
SCAQMD during development of the five credit rules and were attached to 
CBE's August 9, 2001 comment letter to EPA. Since CBE's August 9, 2001 
letter is quite extensive and raises many of the same issues as the 
attachments, we believe the attachments were included only as 
background information and not intended as comments to our August 7, 
2001 proposal. We also note that many of the issues in the attachments 
are not relevant to our August 7, 2001 proposal because they were 
raised in context of SCAQMD's local rulemaking. As a result, we do not 
believe we need to respond to the issues raised in the attachments. As 
a courtesy to the commenter, however, we have summarized and responded 
to these comments below.
    Comment 14: CBE has commented that because of the EJ concerns, Rule 
1612.1 must have a better public participation process and evaluation. 
CBE believed it appropriate to offer community members notice and 
opportunity to comment on individual trades. The rule does not provide 
for an evaluation of the program until 2006 and should be evaluated on 
an annual basis.
    Response 14: The rules require a biannual program review beginning 
in 2002 for Rule 1612.1. See also Response 4 regarding EJ concerns. The 
SIP-approved RECLAIM program does not provide for public notice and 
comment on individual trades, and we see no basis for requiring such 
notice and comment for Rule 1612.1 trades.
    Comment 15: CBE commented that SCAQMD must incorporate technical 
uncertainty in the calculation of emission reduction credits. Rule 
1612.1 does not incorporate technical uncertainty in its calculation 
protocols and allows use of notoriously inaccurate emission factors.
    Response 15: Technical uncertainty is accounted for in Rule 
1612.1's emissions quantification protocol even though it does not 
appear as a separate factor in the calculations. See also Response 11.
    Comment 16: CBE commented that SCAQMD violated the California 
Environmental Quality Act (CEQA) in its rulemaking process for this 
program, citing numerous deficiencies.
    Response 16: SCAQMD has certified that development of the five 
credit rules fully complies with CEQA. Specifically, SCAQMD made the 
following findings: A draft Environmental Assessment (EA) was 
circulated for a 30-day public review, all comments received were 
responded to in the Final EA, and the Final EA is adequate. SCAQMD has 
included the Final EA for the five credit rules in its SIP submittal. 
In submitting these rules to EPA, the California Air Resources Board 
(CARB) has concurred with this certification. SCAQMD and CARB have much 
greater expertise in implementing and interpreting this state law than 
does EPA, and we concur with their analysis.
    Comment 17: The RECLAIM program has already violated California 
Health and Safety Code section 39616(c), which require EIPs to reduce 
emissions as much or more than the programs they replace. A generous 
estimate of actual overall reductions resulting from RECLAIM is 16% 
since 1993. Approving the RECLAIM amendments and associated credit 
rules will only exacerbate the problem.
    Response 17: See Responses 1 and 2.
    Comment 18: The Mitigation Fee Program and the RECLAIM AQIP violate 
the equivalency requirement under State Law.
    Response 18: These comments relate specifically to recent 
amendments to Regulation 20 and are not relevant to the five credit 
rules. See also, Responses 1 and 2.
    Comment 19: While CBE supports SCAQMD's efforts to mandate 
pollution control at certain power plants through submittal of 
compliance plans to achieve BARCT, it is unclear what the BARCT 
standards are for power producing facilities.
    Response 19: See Response 18.
    Comment 20: It is unclear what is meant by ``best available 
information'' which is the basis for environmental dispatch under Rule 
2009.
    Response 20: See Response 18.
    Comment 21: CBE provided a copy of extensive comments that they 
made in 1994 to CARB during CARB's hearing on RECLAIM.
    Response 21: These comments are not relevant to the five credit 
rules. See Response 1 and 2.
    The next comments are summarized from a June 1, 2001 letter CBE 
wrote to CARB and EPA, and were attached to CBE's October 9, 2001 
comment letter to EPA Region 9 regarding the five credit rules. Since 
CBE's August 9, 2001 letter is quite extensive and raises many of the 
same issues as the attachment, we believe the attachment was included 
only as background information and not intended as comments to our 
August 7, 2001 proposal. As a result, we do not believe we need to 
respond to the issues raised in the June 1, 2001 letter. As a courtesy 
to the commenter, however, we have summarized and responded to these 
comments below.
    Comment 22: CBE commented that CARB has not determined, in 
accordance with California Health and Safety Code section 39616(d)(2), 
that Rule 1612.1 meets certain requirements of the California Clean Air 
Act. CBE believes that the new rules violate several provisions of 
state law, including equivalency under subdivision (c) of section 
39616.
    Response 22: We have discussed this issue with CARB. CARB provided 
us with the following legal analysis. CARB has much greater expertise 
in implementing and interpreting this state law than does EPA, and we 
concur with their analysis.
    When an air district first adopts or revises its attainment plan to 
establish a market-based incentive program, such as RECLAIM in the 
South Coast, the district is required to meet the conditions specified 
in Health and Safety Code section 39616(d)(1) or (2) as applicable and 
to make certain findings, and CARB is required to make a determination 
that the conditions are met. Further, CARB must determine that the 
district met the conditions specified in section 39616(d) when adopting 
regulations to implement a market-based incentive program. SCAQMD and 
ARB met these obligations when the RECLAIM program was established.
    These requirements do not apply to the 5 credit rules, however, 
because they are not establishing a new market-based incentive program 
or significantly altering an existing program. CBE's reading of the 
statute as applying to the credit rules, which do not undermine the 
findings and determinations made when the overarching RECLAIM program 
was established, is incorrect.
    This does not mean that a market-based program goes without further 
review for compliance with the requirements of section 39616. Under 
section 39616(e), a district is required to

[[Page 5734]]

reassess its program established in accordance with section 39616 
within 5 years of adoption and ratify certain of the findings made at 
the time of adoption within 7 years, with CARB concurrence. This 
process is currently underway but has not yet been completed.
    Comment 23: CBE commented that the credit rules violate State law 
because they do not comply with CARB's methodology which requires that 
calculation methods for determining the amount of reductions generated 
take technical uncertainty into account.
    Response 23: SCAQMD has determined that the credit rules are 
consistent with State law. In submitting these rules to EPA, CARB has 
concurred with this determination. SCAQMD and CARB have much greater 
expertise in implementing and interpreting this state law than does 
EPA, and we concur with their analysis. We also believe that technical 
uncertainty has been addressed in these rules. See Response 11.
    The next set of comments are summarized from an October 10, 1999 
letter CBE wrote to EPA Headquarters during the comment period for the 
2001 EIP guidance, and were attached to CBE's October 9, 2001 comment 
letter to EPA Region 9 regarding the five credit rules. Since CBE's 
October 9, 2001 letter is quite extensive and raises many of the same 
issues, we believe the October 10, 1999 letter was included only as 
background information and not intended as a comment to our August 7, 
2001 proposal. We also note that many of the issues in the October 10, 
1999 letter are either not relevant to our August 7, 2001 proposal 
because they were raised in context of EPA's generic national guidance, 
or EPA has already responded above to the issue. As a result, we do not 
believe we need to respond to the issues raised in the October 10, 1999 
letter. As a courtesy to the commenter, however, we have summarized the 
remaining relevant issues and responded to these comments below.
    Comment 24: CBE comments that the EIP guidance undermines many 
existing technology-based rules and regulations, existing EIP policy 
and rules, as well as the CAA itself.
    Response 24: As discussed in Response 13, the draft EIP guidance 
was developed to help assure consistent interpretation of the CAA where 
its application to detailed EIP requirements is unclear. We do not 
believe it is inconsistent with pre-existing federal requirements or 
the CAA. Ultimately, however, specific EIP rules like the five SCAQMD 
credit rules must comply with the CAA and implementing regulations 
regardless of the EIP guidance.
    Comment 25: CBE commented that the public must have access to the 
results of the program evaluation and the public must be able to 
participate in the development of the reconciliation procedures.
    Response 25: The five credit rules include provisions for a 
biannual review. The SCAQMD Board also adopted a Resolution which 
directed staff to include in the annual RECLAIM report, the 
applications and credits issued pursuant to the credit rules. 
Consequently, information will be available to the public on an annual 
basis. The five credit rules and the RECLAIM program rules and 
amendments include reconciliation procedures which have been subject to 
public notice and comment.
    Comment 26: CLA commented that while they support compliance 
flexibility measures, they urged EPA and SCAQMD to carefully examine 
potential adverse localized impacts to surrounding communities since 
credit programs can have potential socio-economic and environmental 
impacts.
    Response 26: The SCAQMD Governing Board adopted a Resolution on May 
11, 2001 which directed SCAQMD staff to evaluate the potential for 
localized impacts from the use of emission reduction credits from these 
credit rules, and to recommend to the Governing Board mechanisms to 
address such localized impacts, if any. See also Response 4.
    Comment 27: CLA commented that EPA and SCAQMD should provide 
assurance that the proposed credit rules will not preclude SIP emission 
reduction requirements for the maritime industry.
    Response 27: The five credit rules do not preclude SCAQMD from 
submitting additional SIP emission reduction requirements for the 
maritime industry.
    Comment 28: CLA commented that they supported the sunset of the 
credit rules prior to 2010, the year for ozone attainment, and they 
believe that any surplus emission reductions that remain from Rules 
1631 or 1632 should be applied to the Marine Vessel SIP Control Measure 
or other equivalent measure for the maritime industry in the most 
recent EPA-approved SIP.
    Response 28: Rule 1631 will end June 30, 2005. We agree that any 
emission reductions achieved subsequent to that time should be applied 
to the SIP. Rule 1632 includes a provision to evaluate, in 2010, 
whether the emission reductions remain surplus in the context of the 
most recently EPA-approved SIP. If the emission reductions are 
determined not to be surplus, Rule 1632 ends in 2010. If the evaluation 
shows that some or all of the emission reductions are surplus, Rule 
1632 could continue.
    Comment 29: The other commenters all supported our proposed action 
to fully approve the five credit rules.
    Response 29: No response needed.

III. EPA Action

    No comments were submitted that change our assessment that the 
submitted rules comply with the relevant CAA requirements. Therefore, 
as authorized in section 110(k)(3) of the Act, EPA is fully approving 
these rules into the California SIP.

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 32111, 
``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 (Pub. L. 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

[[Page 5735]]

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 
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 April 8, 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, Incorporation by 
reference, Intergovernmental relations, Nitrogen dioxide, Ozone, 
Reporting and recordkeeping requirements.

    Dated: January 16, 2002.
Wayne Nastri,
Regional Administrator, Region IX.

    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 F--California

    2. Section 52.220 is amended by adding paragraphs (c)(282) and 
(c)(284)(i)(B) to read as follows:


Sec. 52.220  Identification of plan.

* * * * *
    (c) * * *
    (282) New and amended regulations for the following APCDs were 
submitted on May 31, 2001, by the Governor's designee.
    (i) Incorporation by reference.
    (A) South Coast Air Quality Management District.
    (1) Rules 1631, 1632, 1633, and 2507 adopted on May 11, 2001.
* * * * *
    (284) * * *
    (i) * * *
    (B) South Coast Air Quality Management District.
    (1) Rule 1612.1 adopted on March 16, 2001.
* * * * *
[FR Doc. 02-2841 Filed 2-6-02; 8:45 am]
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