[Federal Register Volume 67, Number 70 (Thursday, April 11, 2002)]
[Rules and Regulations]
[Pages 17624-17631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8683]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[KY-123; KY-123-1; KY 137-200218(a); FRL-7169-7]


Approval and Promulgation of Implementation Plans: Kentucky: 
Nitrogen Oxides Budget and Allowance Trading Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: EPA is approving the State Implementation Plan (SIP) revision 
that was submitted by the Commonwealth of Kentucky (Kentucky) on 
January 31, 2002. This revision responds to EPA's regulation entitled, 
``Finding of Significant Contribution and Rulemaking for Certain States 
in the Ozone Transport Assessment Group Region for Purposes of Reducing 
Regional Transport of Ozone,'' otherwise known as the ``NOX 
SIP Call.'' This revision establishes and requires nitrogen oxides 
(NOX) reduction requirements and an allowance trading 
program for large electric generating and industrial units, beginning 
in 2004. It also establishes and requires NOX reduction 
requirements for cement kilns beginning in 2004. The revision includes 
a budget demonstration and initial source allocations that clearly 
demonstrate that Kentucky will achieve the required NOX 
emission reductions in accordance with the timelines set forth in EPA's 
NOX SIP Call. The intended effect of this SIP revision is to 
reduce emissions of NOX in order to help attain the national 
ambient air quality standard for ozone. EPA is approving Kentucky's 
NOX Reduction and Trading Program because it meets the 
requirements of the Phase I NOX SIP Call that will 
significantly reduce ozone transport in the eastern United States. As 
of May 31, 2004, Kentucky'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. On December 26, 2000, EPA determined that Commonwealth of 
Kentucky 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 Federal 
Implementation Plan (FIP) within 24 months. On January 31, 2002, 
Kentucky submitted a NOX SIP and EPA found that SIP 
submission complete on March 6, 2002, stopping the sanctions clock. 
Through this Federal Register Notice, both the sanctions clock and 
EPA's FIP obligation are terminated.
    EPA is also approving several revisions to existing regulation 401 
KAR 51:001 (Definitions for 401 KAR Chapter 51) that do not to address 
NOX SIP Call requirements, but fulfill other Kentucky 
statutory requirements.

DATES: This direct final rule is effective June 10, 2002 without 
further notice, unless EPA receives adverse comment by May 13, 2002. If 
adverse comment is

[[Page 17625]]

received, EPA will publish a timely withdrawal of the direct final rule 
in the Federal Register and inform the public that the rule will not 
take effect.

ADDRESSES: All comments should be addressed to: Sean Lakeman; 
Regulatory Development Section; Air Planning Branch; Air, Pesticides 
and Toxics Management Division; U.S. Environmental Protection Agency 
Region 4; 61 Forsyth Street, SW; Atlanta, Georgia 30303-8960. Copies of 
Kentucky's submittals and other information relevant to this action are 
available for inspection during normal business hours at the following 
addresses: Environmental Protection Agency, Region 4, Air Planning 
Branch, 61 Forsyth Street, SW, Atlanta, Georgia 30303-8960.
    Commonwealth of Kentucky, Division for Air Quality, 803 Schenkel 
Lane, Frankfort, Kentucky, 40601-1403.
    The interested persons wanting to examine these documents should 
make an appointment at least 24 hours before the visiting day and 
reference files KY-123, KY-123-1 and KY-137.

FOR FURTHER INFORMATION CONTACT: Sean Lakeman; Regulatory Development 
Section; Air Planning Branch; Air, Pesticides and Toxics Management 
Division; U.S. Environmental Protection Agency Region 4; 61 Forsyth 
Street, SW; Atlanta, Georgia 30303-8960. Mr. Lakeman can also be 
reached by phone at (404) 562-9043 or by electronic mail at 
[email protected].

SUPPLEMENTARY INFORMATION: On February 20, 2001, Kentucky's Natural 
Resources and Environmental Protection Cabinet (Cabinet) submitted 
draft regulations in response to the federal NOX SIP Call to 
EPA for pre-adoption review, and requested parallel processing to the 
development and adoption of these regulations by Kentucky, since the 
rules were not adopted or state-effective at the time of submittal. On 
October 10, 2001, the Cabinet supplemented the February 20, 2001 
submittal with a draft budget demonstration and initial source 
allocation for pre-adoption review. Parallel processing of this 
documentation to support Kentucky's NOX SIP Call regulations 
was also requested, as it was not adopted by the Cabinet at the time of 
submittal. The supplemental submittal also contained copies of 
Kentucky's final NOX SIP Call regulations, including 
evidence that these regulations were adopted by Kentucky and became 
effective on August 15, 2001. However, the regulations were not 
formally submitted for approval into the Kentucky SIP. On January 31, 
2002, Kentucky submitted final revisions to its SIP to meet the 
requirements of the Phase I NOX SIP Call. The revisions 
comply with the requirements of the Phase I NOX SIP Call. 
Included in the document are revisions to 401 KAR 51:001 ``Definitions 
for 401 KAR Chapter 51'', 401 KAR 51:160 ``NOX Requirements 
for Large Utility and Industrial Boilers'', 401 KAR 51:170 
``NOX Requirements for Cement Kilns'', 401 KAR 51:180 
NOX Credits for Early Reduction and Emergency'', 401 KAR 
51:190 Banking and Trading NOX Allowances'', and 401 KAR 
51:195 NOX opt-in Provisions''. EPA has deemed the submittal 
is administratively and technically complete, and a letter of 
completeness was sent to the Commonwealth of Kentucky Natural Resources 
and Environmental Protection Cabinet on March 6, 2002. The information 
in this notice is organized as follows:

I. EPA's Action
    A. What actions are being approved today?
    B. Why is EPA approving these actions?
    C. What are the NOX SIP Call general requirements?
    D. What is EPA's NOX budget and allowance trading 
program?
    E. What guidance did EPA use to evaluate Kentucky's submittal?
    F. What is the result of EPA's evaluation of Kentucky's program?
II. Kentucky's Control of NOX Emissions
    A. When did Kentucky submit the SIP revision to EPA in response 
to the NOX SIP Call?
    B. What is the Kentucky NOX Budget Trading Program?
    C. What is the Compliance Supplement Pool?
    D. What is the New Source Set-Aside program?
    E. Today's Rulemaking and Section 126 Rulemaking
III. What other revisions to the Kentucky SIP is EPA approving?
IV. Final Action
V. Administrative Requirements

I. EPA's Action

A. What Actions Are Being Approved Today?

    EPA is approving revisions to Kentucky's SIP concerning the 
adoption of its NOX Reduction and Trading Program and cement 
kiln rule, submitted on January 31, 2002. EPA is also approving several 
revisions to existing regulation 401 KAR 51:001 (Definitions for 401 
KAR Chapter 51) that do not to address NOX SIP Call 
requirements, but fulfill other Kentucky statutory requirements.

B. Why Is EPA Approving These Actions?

    EPA is approving these actions because Kentucky's NOX 
Reduction and Trading Program and cement kiln regulations meet the 
requirements of the Phase I NOX SIP Call. Therefore, EPA is 
approving Kentucky's NOX Reduction and Trading Program.
    To address all NOX SIP Call requirements Kentucky 
revised existing regulation 401 KAR 51:001 (Definitions for 401 KAR 
Chapter 51) and added several new regulations to 401 KAR 51. Under 
Kentucky statute, any regulation that is reopened for revision must be 
completely updated at the time of reopening. Since 401 KAR 51 also 
contains regulations that address new source review requirements for 
attainment and nonattainment areas, an update of 401 KAR 51:001 
required revision of several definitions associated with these 
regulatory programs. Several other revisions were made to improve the 
overall clarity and readability of this regulation.

C. What Are the NOX SIP Call General Requirements?

    The NOX SIP Call requires 22 States and the District of 
Columbia to meet statewide NOX emission budgets during the 
five month period from May 1 to September 30, called the ozone season 
(or control period), in order to reduce the amount of ground level 
ozone that is transported across the eastern United States. The D.C. 
Circuit decision on March 3, 2000, concerning the NOX SIP 
Call (Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000)) reduced the 
number of States from 22 to 19 and defined the ozone season in 2004 as 
May 31 through September 30.
    EPA identified NOX emission reductions by source 
category that could be achieved by using cost-effective controls. The 
source categories included were electric generating units (EGUs) and 
non-electric generating units (non-EGUs), internal combustion engines, 
and cement kilns. EPA determined statewide NOX emission 
budgets based on the implementation of these cost effective controls 
for each affected jurisdiction to be met by the year 2007. Internal 
combustion engines are not addressed by Kentucky in this response to 
Phase I, but will be in Phase II. In the NOX SIP Call, EPA 
suggested that imposing statewide NOX emissions caps on 
large fossil-fuel fired industrial boilers and EGUs would provide a 
highly cost effective means for states to meet their NOX 
budgets. In fact, the state-specific budgets were set assuming an 
emission rate of 0.15 lbs NOX/mmBtu at EGUs, multiplied by 
the projected heat input (mmBtu/hr). The NOX SIP Call state 
budgets also assumed on average a 30 percent NOX reduction 
from cement kilns, and a 60 percent reduction from industrial boilers. 
The

[[Page 17626]]

non-EGU control assumptions were applied at units where the heat input 
capacities were greater than 250 mmBtu per hour, or in cases where heat 
input data were not available or appropriate, at units with actual 
emissions greater than one ton per day. However, the NOX SIP 
Call allowed states the flexibility to decide which source categories 
to regulate in order to meet the statewide budgets.
    To assist the states in their efforts to meet the SIP Call, the 
NOX SIP Call final rule included a model NOX 
allowance trading regulation, called ``NOX Budget Trading 
Program for State Implementation Plans'' (40 CFR part 96) that could be 
used by states to develop their regulations. The NOX SIP 
Call rule explained that if states developed an allowance trading 
regulation consistent with the EPA model rule, they could participate 
in a regional allowance trading program that would be administered by 
the EPA (63 FR 57458-57459, October 27, 1998)).
    There were several periods during which EPA received comments on 
various aspects of the NOX SIP Call emissions inventories. 
On March 2, 2000 (65 FR 11222), EPA published additional technical 
amendments to the NOX SIP Call. On March 3, 2000, the D.C. 
Circuit issued a decision on the NOX SIP Call that largely 
upheld EPA's position (Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000)). 
The DC Circuit Court denied petitioners' requests for rehearing or 
rehearing en banc on July 22, 2000. However, the Circuit Court remanded 
four specific elements to EPA for further action: the definition of 
electric generating unit, the level of control for stationary internal 
combustion engines, the geographic extent of the NOX SIP 
Call for Georgia and Missouri, and the inclusion of Wisconsin. On March 
5, 2001, the U.S. Supreme Court declined to hear an appeal by various 
utilities, industry groups, and a number of upwind states from the D.C. 
Circuit's ruling on EPA's NOX SIP Call rule.
    EPA published a proposal that addresses the remanded portion of the 
NOX SIP Call on February 22, 2002 (67 FR 8395). Any 
additional emissions reductions required as a result of a final 
rulemaking on that proposal will be reflected in the second phase 
portion (Phase II) of the Commonwealth's emission budget. On April 11, 
2000, in response to the Court's decision, EPA notified Kentucky of the 
maximum amount of NOX emissions allowed for the Commonwealth 
during the ozone season. This budget adjusted Kentucky's NOX 
emission budget to reflect the Court's decision regarding internal 
combustion engines and cogeneration facilities. Although the Court did 
not order EPA to modify Kentucky's budget, EPA believes these 
adjustments are consistent with the Court's decision.

D. What Is EPA's NOX Budget and Allowance Trading Program?

    EPA's model NOX budget and allowance trading rule, 40 
CFR part 96, sets forth a NOX emissions trading program for 
large EGUs and non-EGUs. A state can voluntarily choose to adopt EPA's 
model rule in order to allow sources within its borders to participate 
in regional allowance trading. The NOX SIP Call (63 FR 
57514-57538, October 27, 1998) and 40 CFR part 96 contain a full 
description of EPA's model NOX budget trading program.
    Emissions trading, in general, uses market forces to reduce the 
overall cost of compliance for pollution sources, such as power plants, 
while maintaining emission reductions and environmental benefits. One 
type of market-based program is an emissions budget and allowance 
trading program, commonly referred to as a ``cap and trade'' program.
    In a cap and trade program, the state (or EPA) sets a regulatory 
limit, or emissions budget, in mass emissions (emissions budget) from a 
specific group of sources. The budget limits the total number of 
allowances for each source covered by the program during a particular 
control period. When the budget is set at a level lower than the 
current emissions, the effect is to reduce the total amount of 
emissions during the control period. After setting the budget, the 
state (or EPA) then assigns, or allocates, allowances to the 
participating entities up to the level of the budget. Each allowance 
authorizes the emission of a quantity of pollutant, e.g., one ton of 
airborne NOX.
    At the end of the control period, each source must demonstrate that 
its actual emissions during the control period were less than or equal 
to the number of available allowances it holds. Sources that reduce 
their emissions below their allocated allowance level may sell their 
extra allowances. Sources that emit more than the amount of their 
allocated allowance level may buy allowances from the sources with 
extra reductions. In this way, the budget is met in the most cost-
effective manner.

E. What Guidance Did EPA Use To Evaluate Kentucky's Submittal?

    The NOX SIP Call included a model NOX budget 
trading program regulation (see 40 CFR part 96). EPA used the model 
rule and 40 CFR 51.121-51.122 to evaluate Kentucky's NOX 
reduction and trading program and 40 CFR part 98 subpart B (proposed 
model rule for cement kilns) to evaluate Kentucky's cement kiln rule 
SIP submittal.

F. What Is the Result of EPA's Evaluation of Kentucky's Program?

    EPA has evaluated Kentucky's January 31, 2002, SIP submittal and 
finds it approvable. The Kentucky NOX reduction and trading 
program and cement kiln rule are consistent with EPA's guidance and 
meet the requirements of the Phase I NOX SIP Call. EPA finds 
the NOX control measures in Kentucky's NOX 
reduction and trading program approvable. Also, EPA finds that the 
submittal contained the information necessary to demonstrate that 
Kentucky has the legal authority to implement and enforce the control 
measures, and to demonstrate their appropriate distribution of the 
compliance supplement pool. Furthermore, EPA finds that the submittal 
demonstrates that the compliance dates and schedules, and the 
monitoring, recordkeeping and emission reporting requirements will be 
met.

II. Kentucky's Control of NOX Emissions.

A. When Did Kentucky Submit the SIP Revision to EPA in Response to the 
NOX SIP Call?

    On February 20, 2001, the Cabinet submitted a draft NOX 
emission control rule to the EPA for pre-adoption review, requesting 
parallel processing to the development of the rule at the Commonwealth 
level. On October 10, 2001, the Cabinet supplemented the February 20, 
2001, submittal with a draft budget demonstration and initial source 
allocation for pre-adoption review, and requested parallel processing 
of this supplement. On January 31, 2002, Kentucky submitted a final 
revision to its SIP to meet the requirements of the Phase I 
NOX SIP Call.

B. What Is Kentucky's NOX Budget Trading Program?

    Kentucky proposes, as in the model rule, to allow the large EGUs, 
boilers and turbines to participate in the multi-state cap and trade 
program. Cement kilns are not included in the trading program, but will 
be required to install low NOX burners, mid-kiln firing 
systems or technology that achieves the same emission reductions, which 
achieve overall 30 percent reduction from sources in this category. 
Kentucky's SIP revision to meet the requirements of the NOX 
SIP Call

[[Page 17627]]

consists of revised rule 401 KAR 51:001 Definitions for 401 KAR Chapter 
51; and new rules 401 KAR 51:160 NOX requirements for large 
utility and industrial boilers, 401 KAR 51:170 NOX 
requirements for cement kilns, 401 KAR 51:180 NOX credits 
for early reduction and emergency, 401 KAR 51:190 Banking and Trading 
NOX allowances, and 401 KAR 51:195 NOX opt-in 
provisions.
    All of the above-cited regulations, with the exception of 401 KAR 
51:170 NOX requirements for cement kilns, contain elements 
of Kentucky's NOX Budget Trading Program. These regulations 
establish and require a NOX cap and allowance trading 
program for large EGUs and non-EGUs, for the ozone control seasons 
beginning May 31, 2004, and commencing May 1 in years thereafter.
    Kentucky voluntarily chose to follow EPA's model NOX 
budget and allowance trading rule, 40 CFR part 96, that sets forth a 
NOX emissions trading program for large EGUs and non-EGUs. 
Since Kentucky's NOX Budget Trading Program is based upon 
EPA's model rule, Kentucky sources are allowed to participate in the 
interstate NOX allowance trading program that EPA will 
administer for the participating states.
    Kentucky has adopted regulations that are substantively identical 
to 40 CFR part 96, with the exception of some provisions related to 
sources procuring and using early reduction credits (ERCs) (see 401 KAR 
51:180 NOX credits for early reduction and emergency). 
Kentucky's rule allows ERCs to be earned for reductions in 
NOX emissions during the 2001, 2002, and 2003 control 
periods that may be deducted for compliance with NOX 
emission standards only during the 2004 and 2005 control periods. ERCs 
will be granted for each ton of NOX emission reduction 
achieved below 0.45 pounds per million British thermal units (lbs/
MMBTU) or the average NOX emission rate (in lbs/MMBTU) from 
the baseline control period in 2000, whichever is less. ERCs will not 
be earned for emission reductions made to satisfy requirements under 
the CAA. Under 401 KAR 51:160, Kentucky allocates NOX 
allowances to the EGU and non-EGU units that are affected by these 
requirements. The NOX trading program applies to all fossil 
fuel-fired EGUs with a nameplate capacity equal to or greater than 25 
MW that sell any amount of electricity to the grid as well as any non-
EGUs that have a heat input capacity equal to or greater than 250 mmBtu 
per hour. Each NOX allowance permits a source to emit one 
ton of NOX during the ozone season. NOX 
allowances may be bought or sold. Unused NOX allowances may 
also be banked for future use, with certain limitations. Kentucky's 
NOX allocations do not exceed the values allowed to meet the 
Commonwealth cap. Therefore, pursuant to 40 CFR 51.121(p)(1), EPA is 
proposing approval of Kentucky's SIP revision as satisfying the 
Commonwealth's NOX emission reduction obligations.
    It should be noted that 401 KAR 51:160 section 2(1)(a)6 defines how 
Kentucky intends to account for the exempt units, as provided in 
Kentucky's January 4, 2002, response to EPA. These units are only 
exempt from the requirements of 401 KAR 51:160, Sections 3 through 8. 
These units remain NOX budget units, as provided in 401 KAR 
51:160, Section 1 and Section 2(1). As such, they remain subject to 401 
KAR 51:190, which incorporates by reference the federal trading 
program; and thus provides that all NOX budget units must 
have an authorized account representative and establish appropriate 
accounts. Section 2(1)(a)6a clearly states that the units must, among 
other things, ``secure and transfer to an account designated by EPA, 
NOX allowances for each control period in an amount equal to 
the NOX emission limitation * * * upon which the unit's 
exemption is based.'' This is Kentucky's method for accounting for 
these units in the Commonwealth budget. Kentucky has agreed that this 
language should be more clearly written and intends to clarify this 
language during the next amendment to the regulation.
    Source owners will monitor their NOX emissions by using 
systems that meet the requirements of 40 CFR part 75, subpart H, and 
report resulting data to EPA electronically. Each budget source 
complies with the program by demonstrating at the end of each control 
period that actual emissions do not exceed the amount of allowances 
held for that period. However, regardless of the number of allowances a 
source holds, it cannot emit at levels that would violate other federal 
or Commonwealth limits, for example, reasonably available control 
technology (RACT), new source performance standards, or Title IV (the 
Federal Acid Rain program).
    In 401 KAR 51:160, Section 2(1)(a)6, Kentucky used the term ``owner 
or operator'' incorrectly. However, the federal trading program, which 
is incorporated by reference in 401 KAR 51:190, provides that all 
NOX budget units must have an authorized account 
representative and establish appropriate accounts. Therefore there is 
no real impact on implementation of the program. Kentucky has committed 
to propose language to revise the appropriate terms when the 
regulations are next amended.
    401 KAR 51:160 NOX Requirements for large utility and 
industrial boilers, addresses several aspects of Kentucky's 
NOX Budget Trading Program for individual subject units 
(EGUs, boilers or turbines used in power plants and other industrial 
applications). Sections 1 and 2 establish applicability requirements 
and requirements for unit exemptions based on permit limitations and 
retired unit status, consistent with part 96 Subpart A--NOX 
Budget Trading Program General Provisions. Section 2(1)(b) states that 
an exempted unit that does not comply with its permit limitations shall 
lose its exempt status and shall become subject to all provisions of 
401 KAR 51:160. It is Kentucky's intent that a unit, which loses its 
exemption by not complying with the applicable permit limits, shall 
become subject retroactively to the full requirements of the 
NOX SIP Call. Kentucky has committed to propose further 
clarifying language when the regulation is next amended. Sections 3 and 
7 require subject units to monitor and report NOX emissions 
in accordance with 40 CFR part 96 Subpart H--Monitoring and Reporting, 
and meet the compliance requirements specified in 401 KAR 51:190. 
Sections 4 and 5 establish methodologies and procedures for allocating 
NOX allowances, including the establishment of a three-year 
allocation period, that are consistent with part 96 Subpart E--
NOX Allowance Allocations. Section 6 establishes 
requirements for applying for a NOX budget permit that are 
consistent with part 96 Subpart C--Permit Requirements.
    401 KAR 51:190 Banking and trading of NOX allowances, 
incorporates by reference several portions of 40 CFR part 96 in their 
entirety: Subpart B--Authorized Representative for NOX 
Budget Sources (40 CFR parts 96.10-96.14) , Subpart D--Compliance 
Certification (40 CFR parts 96.30-96.31), and Subpart G--NOX 
Allowance Transfers (40 CFR parts 96.60-96.62). 401 KAR 51:190 also 
incorporates by reference all of 40 CFR part 96 Subpart F--
NOX Allowance Tracking System (40 CFR parts 96.50-96.57), 
with the exception of 40 CFR part 96.55(c) (provisions for requesting 
and allocating early reduction credits (ERCs)). 401 KAR 51:180 
NOX credits for early reduction and emergency, addresses the 
requirements of 40 CFR part 96.55(c), as described in Section IIC. of 
this final

[[Page 17628]]

rulemaking. 401 KAR 51:195 NOX opt-in provisions, 
incorporates by reference 40 CFR part 96 Subpart I--Individual Unit 
Opt-ins. It should be noted that in 401 KAR 51:001 section 1(2) the 
definition ``Affected Facility'' (as applied to the opt-in program) 
appears to broaden the regulation, however, in 401 KAR 51:195 section 2 
the definition is narrowed and is consistent with the NOX 
SIP Call.
    401 KAR 51:170 NOX requirements for cement kilns, 
establishes requirements for cement manufacturing facilities. These 
sources are subject to NOX reduction requirements but do not 
participate in the NOX trading program. They are required to 
install low NOX burners, mid-kiln firing systems or 
technology that achieves the same emission reductions. The 
NOX SIP Call state budgets assumed on average a 30 percent 
NOX reduction from cement kilns. Kentucky has one existing 
cement kiln. Kentucky's regulation establishes an emissions limit of 
6.6 pounds NOX per ton of clinker averaged over a 30 day 
rolling period. This emission limit, which the facility will meet to 
address NOX RACT requirements, reduces NOX 
emissions from this facility by more than 30 percent from projected 
2007 baseline emissions. The cement kiln rule is consistent with EPA's 
guidance and meets the requirements of the Phase I NOX SIP 
Call. Kentucky's submittal does not rely on any additional reductions 
beyond the anticipated federal measures in the mobile and area source 
categories.
    Kentucky's budget demonstration shows how Kentucky intends to meet 
the Phase I NOX emission budgets established by EPA. 
Kentucky's 2007 NOX budget emissions for area, non-road and 
highway sources are identical to EPA's 2007 budget emissions for these 
source categories, as identified in the March 2, 2000, final rule (65 
FR 11231). Kentucky's 2007 NOX budget emissions for EGUs and 
non-EGUs revise EPA's 2007 budget emissions for these two source 
categories. Kentucky's submittal provides documentation demonstrating 
that EPA's 2007 budget emissions incorrectly omitted one EGU unit, 
misidentified one non-EGU unit as small (not subject to control), 
misidentified several non-EGU units as large (subject to control) and 
added non-EGU large internal combustion engines (3,083 tons) which are 
not part of the trading program. EPA has reviewed Kentucky's 
corrections and concurs with Kentucky's revised list of EGUs, large 
non-EGUs and small non-EGUs, as well as Kentucky's resultant 2007 
NOX budget emissions for the EGU and non-EGU source 
categories. EPA therefore is approving Kentucky's final NOX 
emission budgets to meet Phase I of the NOX SIP Call as 
shown below:

------------------------------------------------------------------------
                                       EPA 2007 NOX    Kentucky 2007 NOX
          Source category            budget emissions   budget emissions
                                      (tons/season)      (tons/season)
------------------------------------------------------------------------
EGUs..............................             36,503             36,504
Non-EGUs..........................             25,669             28,750
Area Sources......................             31,807             31,807
Non-road Sources..................             15,025             15,025
Highway Sources...................             53,268             53,268
                                   -------------------------------------
  Total...........................            162,272            165,354
------------------------------------------------------------------------

C. What Is the Compliance Supplement Pool?

    To provide additional flexibility for complying with emission 
control requirements associated with the NOX SIP Call, the 
final NOX SIP Call rule provided each affected state with a 
``compliance supplement pool.'' The compliance supplement pool is a 
quantity of NOX allowances that may be used to cover excess 
emissions from sources that are unable to meet control requirements 
during the 2004 and 2005 ozone season. Allowances from the compliance 
supplement pool will not be valid for compliance past the 2005 ozone 
season. The NOX SIP Call included these voluntary provisions 
in order to address commenters' concerns about the possible adverse 
effect that the control requirements might have on the reliability of 
the electricity supply or on other industries required to install 
controls as the result of a state's response to the NOX SIP 
Call.
    A state may issue some or all of the compliance supplement pool via 
two mechanisms. First, a state may issue some or all of the pool to 
sources with credits from implementing NOX reductions in an 
ozone season beyond any applicable requirements of the CAA after 
September 30, 1999, and before May 31, 2004, (i.e., early reductions 
credits, or ERCs). This allows sources that cannot install controls 
prior to May 31, 2004, to purchase other sources' ERCs in order to 
comply. Second, a state may issue some or all of the pool to sources 
that demonstrate a need for an extension of the May 31, 2004, 
compliance deadline due to undue risk to the electricity supply or 
other industrial sectors, and where early reductions are not available. 
See 40 CFR 51.121(e)(3).
    Kentucky's rule, 401 KAR 51:180 NOX credits for early 
reduction and emergency, establishes requirements for monitoring, 
calculating, allocating and tracking ERCs that are generally consistent 
with the general requirements of 40 CFR part 96.55(c). 401 KAR 51:180 
also establishes alternative requirements for Kentucky's sources to 
follow in procuring and using ERCs. First, Kentucky allows an ERC to be 
granted ``for each ton of NOX emission reduction achieved 
below 0.45 lbs NOX/mmBtu [the federally-required limit for 
most units under Title IV of the CAA] or the average NOX 
emission rate (in lbs/mmBtu) from the baseline control period in 2000, 
whichever is less.'' In contrast, 40 CFR part 96.55(c) allows the owner 
or operator to request ERCs for a NOX budget unit only if 
its NOX emission rate is reduced to less than both 0.25 lbs 
NOX/ mmBtu and 80 percent of the unit's NOX 
emission rate in the 2000 control period for EGUs, and for non-EGUs, to 
less than 95 percent of the unit's NOX emission rate in the 
2000, 2001, or 2002 control period. However, Kentucky's rule is 
acceptable within the flexibility allowed by the model rule. Kentucky's 
regulation also divides the compliance supplement pool into separate 
pools for EGUs and non-EGUs. It further divides the pool for EGUs into 
separate annual allocations, with 20 percent of the pool to be 
allocated for NOX reductions achieved in 2001, 30 percent of 
the pool to be allocated for NOX reductions achieved in 
2002, and 50 percent of the pool to be allocated for NOX 
reductions achieved in 2003.

D. What Is the New Source Set-Aside Program?

    Kentucky's SIP provides for new source set-asides. The new source 
set

[[Page 17629]]

aside comprises a set percent of the EGU and non-EGU budgets taken off 
the top and reserved for new units. The allocation period that begins 
in 2004 for EGUs that commence commercial operation after May 1, 2001, 
and before May 1, 2006, is 5 percent of the tons of NOX 
emissions in the Commonwealth trading program budget apportioned to 
EGUs under section 96.40. For allocation periods beginning in 2007 or 
later, the allocation for new EGU units is 2 percent of the tons of 
NOX emissions in the Commonwealth trading program budget 
apportioned to EGUs under 96.40 for the given allocation period. For 
non-EGUs, for all allocation periods, the allocation for new units is 2 
percent of the NOX allowances in the Commonwealth trading 
budget apportioned to non-EGUs under 96.40 for the given allocation 
period. This approach to allocations for new units is acceptable 
because it falls within the flexibility of the NOX SIP Call 
requirements for a state's allocation to new sources.

E. Today's Rulemaking and Section 126 Rulemaking

    Today's direct 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, Kentucky made changes to its NOX SIP rule so that 
the rule could potentially supplant the Section 126 rule as of May 31, 
2004. In order to make a transition of this sort, EPA would need to 
complete a future rulemaking to amend the Section 126 rule. It is EPA's 
intention to propose and finalize rulemaking to supplant the Section 
126 requirements in Kentucky prior to May 31, 2004.

III. What Other Revisions to the Kentucky SIP Is EPA Proposing To 
Approve?

    To address all NOX SIP Call requirements Kentucky 
revised existing regulation 401 KAR 51:001 (Definitions for 401 KAR 
Chapter 51). Under Kentucky statute, any regulation that is reopened 
for revision must be completely updated at the time of reopening. Since 
401 KAR 51 also contains regulations that address new source review 
requirements for attainment and nonattainment areas, complete update of 
401 KAR 51:001 required revision of some definitions associated with 
these regulatory programs. Several other text changes were made to 
improve the overall readability and clarity of this regulation. This 
submittal adds definitions to 401 KAR 51:001 for the following terms 
that do not address NOX SIP Call requirements: Acid Rain 
emissions limitation and Enforceable as a practical matter. This 
submittal also revises existing definitions contained in 401 KAR 51:001 
for the following terms that do not address NOX SIP Call 
requirements: Alternative Method, Capital expenditure, Extreme 
nonattainment county or Extreme nonattainment area, Malfunction, 
Marginal nonattainment county or Marginal nonattainment area, Moderate 
nonattainment county or Moderate nonattainment area, Modification, New 
Source, PM10, Potential to emit or PTE, Reconstruction, Reference 
method, Run, Secondary emissions, Serious nonattainment county or 
Serious nonattainment area, Severe nonattainment county or Severe 
nonattainment area, Source, Standard, Total suspended particulates or 
TSP and Volatile organic compound or VOC.

IV. Final Action

    EPA is approving the Kentucky's SIP revision consisting of its 
NOX Reduction and Trading Program and cement kiln rule, 
which was submitted on January 31, 2002. EPA finds that Kentucky's 
submittal will be fully approvable because it meets the requirements of 
the Phase I NOX SIP Call.
    EPA is also approving several revisions to existing regulation 401 
KAR 51:001 (Definitions for 401 KAR Chapter 51) that do not to address 
NOX SIP Call requirements, but fulfill other Kentucky 
statutory requirements.
    The EPA is publishing this rule without prior proposal because the 
Agency views this as a noncontroversial submittal and anticipates no 
adverse comments. However, in the proposed rules section of this 
Federal Register publication, EPA is publishing a separate document 
that will serve as the proposal to approve the SIP revision should 
adverse comments be filed. This rule will be effective June 10, 2002 
without further notice unless the Agency receives adverse comments by 
May 13, 2002.
    If the EPA receives such comments, then EPA will publish a document 
withdrawing the final rule and informing the public that the rule will 
not take effect. All public comments received will then be addressed in 
a subsequent final rule based on the proposed rule. The EPA will not 
institute a second comment period. Parties interested in commenting 
should do so at this time. If no such comments are received, the public 
is advised that this rule will be effective on June 10, 2002 and no 
further action will be taken on the proposed rule. Please note that if 
we receive adverse comment on an amendment, paragraph, or section of 
this rule and if that provision may be severed from the remainder of 
the rule, we may adopt as final those provisions of the rule that are 
not the subject of an adverse comment.

V. 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 (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 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),

[[Page 17630]]

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. section 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. 
section 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 June 10, 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, Nitrogen dioxide, 
Ozone, Reporting and recordkeeping requirements.

    Dated: April 1, 2002.
A. Stanley Meiburg,
Acting Regional Administrator, Region 4.

    Chapter I, title 40, 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 S--Kentucky

    2. In Sec. 52.920 the table in pagagraph (c) is amended by revising 
entry ``401 KAR 51:001'' and adding 5 new entries ``51:160,'' 
``51:170,'' ``51:180,'' ``51:190,'' and ``51:195'' in numerical order 
at the end of Chapter No. 51 New Source Requirements; Non-Attainment 
Areas to read as follows:


Sec. 52.920  Identification of plan.

* * * * *
    (c) EPA-approved regulations.

                                 EPA-Approved Kentucky Regulations for Kentucky
----------------------------------------------------------------------------------------------------------------
                                                            State
               Reg                     Title/subject      effective     EPA approval date     Federal Register
                                                             date                                  Notice
----------------------------------------------------------------------------------------------------------------
 
*                  *                  *                  *                  *                  *
                                                        *
----------------------------------------------------------------------------------------------------------------
                            Chapter 51 New Source Requirements; Non-Attainment Areas
----------------------------------------------------------------------------------------------------------------
401 KAR 51:001...................  Definitions.........     08/15/01  April 11, 2002......  [Insert Federal
                                                                                             Register cite for
                                                                                             this publication].
 
*                  *                  *                  *                  *                  *
                                                        *
401 KAR 51:160...................  NOX Requirements for     08/15/01  April 11, 2002......  [Insert Federal
                                    Large Utility and                                        Register cite for
                                    Industrial Boilers.                                      this publication].
401 KAR 51:170...................  NOX Requirements for     08/15/01  April 11, 2002......  [Insert Federal
                                    Cement Kilns.                                            Register cite for
                                                                                             this publication].
401 KAR 51:180...................  NOX Credit for Early     08/15/01  April 11, 2002......  [Insert Federal
                                    Reduction and                                            Register cite for
                                    Emergency.                                               this publication].
401 KAR 51:190...................  Banking and Trading      08/15/01  April 11, 2002......  [Insert Federal
                                    Allowances.                                              Register cite for
                                                                                             this publication].
401 KAR 51:195...................  NOX Opt-in               08/15/01  April 11, 2002......  [Insert Federal
                                    Provisions.                                              Register cite for
                                                                                             this publication].
 
*                  *                  *                  *                  *                  *
                                                        *
----------------------------------------------------------------------------------------------------------------

[FR Doc. 02-8683 Filed 4-10-02; 8:45 am]
BILLING CODE 6560-50-P