[Federal Register Volume 67, Number 141 (Tuesday, July 23, 2002)]
[Proposed Rules]
[Pages 48083-48090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18575]


-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[FRL-7249-9]


Approval and Promulgation of Implementation Plans; Louisiana; 
Emission Reduction Credits Banking in Nonattainment Areas

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The EPA proposes to approve revisions to the Louisiana State 
Implementation Plan (SIP). The revisions concern the establishment of a 
means of enabling stationary sources to identify and preserve or 
acquire emission reductions for New Source Review (NSR) offsets. The 
revisions remove the requirement that emission reduction credits (ERCs) 
in the bank be set aside as a contingency measure for the attainment 
demonstration.
    The revisions also remove the requirement that NSR netting be 
conducted with surplus ERCs from the bank. The revisions clarify the 
requirement that ERCs be surplus to all requirements of the Clean Air 
Act (the Act) when used. The EPA proposes to approve these revisions to 
satisfy the provisions of the Act which relate to the permitting of new 
and modified sources which are located in nonattainment areas. The EPA 
does not propose to approve the revisions as an Economic Incentive 
Program (EIP), nor through this rule alone to allow the use of ERCs for 
inter-precursor trading purposes or for alternate Reasonably Available 
Control Technology (RACT) compliance purposes.

DATES: Comments must be received on or before August 22, 2002.

ADDRESSES: Written comments should be addressed to David Neleigh, 
Chief, Air Permits Section (6PD-R), 1445 Ross Avenue, Dallas, Texas 
75202-2733.
    Copies of documents relevant to this action, including the 
Technical Support Document (TSD), are available for public inspection 
during normal business hours at the following locations. Anyone wanting 
to examine these documents should make an appointment with the 
appropriate office at least two working days in advance.
    Environmental Protection Agency, Region 6, Air Planning Section 
(6PD-L), 1445 Ross Avenue, Dallas, Texas 75202-2733.
    Louisiana Department of Environmental Quality, 7920 Bluebonnet 
Boulevard, Baton Rouge, Louisiana 70884.

FOR FURTHER INFORMATION CONTACT: Merrit Nicewander of EPA Region 6 Air 
Permits Section at (214) 665-7519 at the address above.

SUPPLEMENTARY INFORMATION: Throughout this document, wherever ``we,'' 
``us,'' or ``our'' is used, we mean EPA.

Table of Contents

I. Background Information
II. Summary of State Submittal
III. Criteria for Evaluation
IV. Technical Review
V. Proposed Action
VI. Request for Public Comments
VII. Administrative Requirements

I. Background Information

Why Is This Action Necessary?

    The Baton Rouge area consists of the following parishes: East Baton 
Rouge, West Baton Rouge, Ascension, Livingston, and Iberville. The 
Baton Rouge area (40 CFR 81.319) was classified as a serious ozone 
nonattainment area.
    We received the Louisiana rule that we are considering in this 
proposed action on December 31, 2001, as a component of the Attainment 
Plan and Transport Demonstration (hereinafter, the Attainment Plan/
Transport SIP) for the Baton Rouge area submitted by the LDEQ. This 
revision to the Attainment Plan/Transport SIP specifies emission 
reduction strategies designed to bring the Baton Rouge area into 
compliance with the ozone NAAQS. One component of the Attainment Plan/
Transport SIP is the revised emission reduction credit banking 
regulation that has been enacted at Louisiana Administrative Code (LAC) 
33:III Chapter 6. This action is necessary to determine whether that 
revised rule is an approvable component of the Attainment Plan/
Transport SIP.

Does the currently EPA approved SIP contain an emission reduction 
credit banking regulation?

    Yes, we proposed approval (63 FR 44192) on August 18, 1998 of 
revisions to the Louisiana State Implementation Plan (SIP) for the 
Baton Rouge ozone nonattainment area for revisions to the 1990 base 
year emission inventory, the Post-1996 Rate-of-Progress (ROP) Plan, its 
associated 1999 Motor Vehicle Emissions Budgets (MVEBs) for the area, 
Attainment Demonstration, the Contingency Measures Plan, and the 
State's point source emissions banking regulations. We promulgated 
final approval (64 FR 35930) of the SIP revisions, including the 
emission reduction credit (ERC) banking regulation on July 2, 1999. The 
Louisiana Department of Environmental Quality (LDEQ) ERC banking 
regulation is codified as Louisiana Administrative Code (LAC) 33:III 
Chapter 6.
    EPA's July 2, 1999 approval of the LDEQ Chapter 6 rule is 
summarized below:

 LDEQ Chapter 6.--Regulations on Control of Emissions Reduction Credits
                                 Banking
------------------------------------------------------------------------
                               Original LDEQ date
                                    of action        EPA date of action
------------------------------------------------------------------------
Section 601 Background and    Aug. 1994, LR20:874.  [July 2, 1999, 64 FR
 Purpose.                                            35930]

[[Page 48084]]

 
Section 603 Applicability...  Aug. 1994, LR20:874.  [July 2, 1999, 64 FR
                                                     35930]
Section 605 Definitions.....  Aug. 1994, LR20:874.  [July 2, 1999, 64 FR
                                                     3590]
Section 607 Stationary Point  Aug. 1994, LR20:877.  [July 2, 1999, 64 FR
 Source Reductions.                                  35930]
Section 613 ERC Bank Balance  Aug. 1994, LR20:877.  [July 2, 1999, 64 FR
 Sheet.                                              35930]
Section 615 Schedule for      Aug. 1994, LR 20:878  [July 2, 1999, 64 FR
 Submitting Applications.                            35930] Approves
                                                     original LDEQ rule
                                                     (adopted 8/94) and
                                                     subsequent revision
                                                     (adopted 07/95)
Section 617 Review and        Aug. 1994, LR20:878.  [July 2, 1999, 64 FR
 Approval of ERC Bank                                35930]
 Balance Sheets.
Section 619 Registration of   Aug. 1994, LR20:879.  [July 2, 1999, 64 FR
 Emission Reduction Credit                           35930]
 Certificates.
Section 621 Protection of     Aug. 1994, LR20:679.  [July 2, 1999, 64 FR
 Banked ERCs.                                        35930]
Section 623 Withdrawal, Use,  Aug. 1994, LR20:880.  [July 2, 1999, 64 FR
 and Transfer of Emission                            35930]
 Reduction Credits.
Section 625 Application and   Aug. 1994, LR20:880.  [July 2, 1999, 64 FR
 Processing Fees.                                    35930]
------------------------------------------------------------------------

    We proposed approval of the LDEQ Chapter 6 emissions banking rule 
as meeting the requirements for SIP approval under Title I Part D and 
section 110 of the Act. We did not approve the banking regulations as 
an economic incentive program (EIP) pursuant to the EPA's Economic 
Incentives Program Rules (59 FR 16690) and section 182(g) of the Act. 
64 FR 35936.

What Did Louisiana Submit as Contingency Measures in the Post-1996 ROP 
Plan/Attainment Demonstration SIP?

    Louisiana identified, in both its 15% and Post-1996 ROP Plans 
submittals, the State's point source VOC/NOX banking 
regulations (LAC 33:III sections 601, 603, 605, 607, 613, 615, 617, 
619, 621, 623, and 625) 2 as a three percent contingency measure 
intended to meet the requirements of sections 172(c)(9) and 182(c)(9) 
of the Act. The banking regulations were initially submitted to the EPA 
for approval in the December 15, 1995, 15% ROP Plan submittal. The EPA 
deferred taking action on the regulations in the context of the 15% ROP 
Plan approval until its rulemaking action on the Post-1996 ROP Plan/
Attainment Demonstration SIP. (The rationale for ``carving out'' the 
contingency measures was explained in detail in the TSD to the August 
18, 1998, proposed rulemaking as well as the TSD to the 15% ROP Plan 
rulemaking.)
    In the December 22, 1995, Post-1996 ROP Plan submittal, the State 
provided a table of the emissions reductions that had been banked by 
industry pursuant to the regulations. The State's contingency measure 
requirement was 5.7 tons/day of VOCs (three percent times the adjusted 
base year inventory of 191.2 tons/day). The VOC reductions ``on 
deposit,'' 13.0 tons/day, were well in excess of the three percent 
requirement.
    We determined in the July 2, 1999 rulemaking that the State met the 
contingency measures requirements by having adopted and submitted the 
point source banking regulations, and demonstrated that the bank had 
sufficient VOC credits ``on deposit'' and available for confiscation in 
the event of a missed milestone/failure to attain. Furthermore, we 
determined that the banking rules provided for expeditious 
implementation of the contingency measures consistent with the time 
frames identified in the General Preamble.

What are contingency measures?

    Under section 172(c)(9) of the Act, ozone nonattainment areas 
classified as moderate or above must submit contingency measures to be 
implemented if RFP is not achieved or if the standard is not attained 
by the applicable attainment date. The ``General Preamble for the 
Implementation of Title I of the Clean Air Act Amendments of 1990'' (57 
FR 13498, April 16, 1992) states that the contingency measures should, 
at a minimum, ensure that an appropriate level of emissions reduction 
progress continues to be made if attainment or RFP is not achieved in a 
timely manner and additional planning by the State is needed.
    In the General Preamble, the EPA interpreted the Act to require 
States with moderate and above ozone nonattainment areas to include 
sufficient contingency measures in their November 1993 submittals so 
that, upon implementation of such measures, additional emissions 
reductions of up to three percent of the emissions in the adjusted base 
year inventory (or a lesser percentage that will cure the identified 
failure) would be achieved in the year following the year in which the 
failure has been identified. States must show that their contingency 
measures can be implemented with minimal further action on their part 
and with no additional rulemaking actions such as public hearings or 
legislative review.
    Additional contingency provisions are included in section 182(c)(9) 
for serious ozone nonattainment areas. These latter provisions are 
similar to the section 172(c)(9) requirements except that the focus in 
section 182 (Ozone Areas) is on meeting emissions reductions milestones 
(section 182(g)).

On What Basis Did We Approve the LDEQ Chapter 6 Emission Reduction 
Credit Banking Regulation on July 2, 1999 (64 FR 35930)?

    We took final action to approve the already-banked VOC emissions 
reductions credits (totaling 5.7 tons/day) toward meeting the three 
percent contingency measure requirement pursuant to sections 172(c)(9) 
and 182(c)(9) of the Act.
    We determined that the point source VOC/NOX banking regulations 
were generally consistent with the Act, EPA policy/guidance and Federal 
regulations. Therefore, we took final action to approve the State's 
banking regulations as meeting the requirements for SIP approval under 
part D and section 110 of the Act.

What Is an Economic Incentive Program (EIP)?

    An economic incentive program is a regulatory program that achieves 
an air quality objective by providing market-based incentives or 
information to emission sources. A uniform emission reduction 
requirement, based for instance on installation of a required

[[Page 48085]]

emission control technology, does not take account of variations in 
processes, operations, and control costs across sources even of the 
same type, such as electric utilities, or petroleum refiners. By 
providing flexibility in how sources meet an emission reduction target, 
an EIP empowers sources to find the means that are most suitable and 
most cost-effective for their particular circumstances.
    EIPs can be either mandatory (required by the CAA) or discretionary 
(a program chosen by a state or tribe).

What Is the Section 182 Requirement for an EIP?

    Under section 182(g)(3), if a State fails to submit a milestone 
compliance demonstration for any serious or severe area as required by 
section 182(g)(2), the State must choose from three options: to bump up 
to the next higher classification, to implement additional measures 
(beyond those in the contingency plan which will already be triggered 
and implemented) to achieve the next milestone, or to adopt an economic 
incentive program (as described in section 182(g)(4)). Under section 
182(g)(5), if a State fails to submit a compliance demonstration for 
any extreme area as required by section 182(g)(2), or if the area has 
not met an applicable milestone as required by section 182(g)(1), the 
State must submit a plan revision to implement an economic incentive 
program (as described in section 182(g)(4)) within 9 months of such 
failure.
    A mandatory EIP was not, and still is not, required for the Baton 
Rouge serious ozone nonattainment area. We encourage the adoption of 
discretionary EIPs by States where appropriate, as allowed for in the 
Act (section 110(a)(2)(A)), as a means of stimulating the adoption of 
incentive-based, innovative programs that will assist States in meeting 
air quality management goals. As explained below (under ``What is the 
purpose of the revised State emissions banking rule?''), the revised 
LDEQ Chapter 6 emissions banking rule does not establish a 
discretionary EIP, although it contains some of the features of one.

What Are the EPA's Economic Incentive Program Rules, Promulgated at 59 
FR 16690?

    The regulations, promulgated at 59 FR 16690, appear at 40 CFR part 
51, subpart U--Economic Incentive Programs Secs. 51.490--51.494). The 
rules in Subpart U apply to any mandatory economic incentive program 
submitted to the EPA to comply with sections 182(g)(3), 182(g)(5), 
187(d)(3), or 187(g) of the Act. The LDEQ Post-1996 ROP Plan and 
Attainment Demonstration SIP revision submittal revisions did not 
include the ERC bank rules for EPA approval as a section 182 mandatory 
EIP.
    Subpart U was also promulgated to serve as our policy guidance on 
discretionary EIPs submitted as implementation plan revisions. EPA has 
since developed additional guidance on discretionary EIPs (``Improving 
Air Quality With Economic Incentive Programs,'' EPA/452/R-01-001, 
January 2001) (the ``EIP Guidance'').
    As further discussed below, the revised Louisiana ERC banking 
regulation does not establish either a mandatory or discretionary EIP, 
and therefore the above guidance does not directly apply.

What Are the Submitted Revisions to the Emission Reduction Credit 
Banking Rule?

    EPA action is necessary because the banking rule has been revised 
in several ways, and the State of Louisiana is now requesting that EPA 
approve the revised rule as a component of the Baton Rouge SIP. A 
summary of the revisions to the banking rule follows.
    First, the LDEQ removed Section 621 of the LDEQ ERC banking 
regulation that we approved into the SIP for contingency purposes on 
July 2, 1999. That section of the rule provided a process for the 
confiscation by the LDEQ of banked ERCs in the case of failure to meet 
rate of progress/attainment requirements. The submitted regulation has 
removed this. The State submitted a substitute contingency measures 
plan that we have proposed to approve, as published on May 20, 2002 at 
67 FR 35468.
    Second, the revisions to the banking rule contain provisions that 
require ``Surplus When Used'' ERCs in accordance with Section 173(c)(2) 
of the Act and in response to our Administrator's Order of December 22, 
2000 (the ``Borden Order''). The order was in response to a petition 
from the Louisiana Environmental Action Network (LEAN) filed on August 
24, 1999 requesting the Administrator to object to the issuance of a 
state operating permit issued to Borden Chemicals, Inc. (Borden) for a 
new formaldehyde facility in Geismar, Ascension parish, Louisiana.
    The order emphasizes the Act's requirements that ERCs used from the 
emissions bank as offsets must be surplus of State and Federal 
requirements at the time they are used as well as when they are 
generated or banked. LDEQ has revised the rule to clarify that ERCs in 
the emissions bank must be ``Surplus When Used'' for NNSR offset 
purposes in accordance with section 173(c)(2) of the Act and as 
discussed in the Borden Order.
    Third, the previous emissions banking rule required that ERCs from 
the bank be surplus when used for NNSR netting purposes. There is no 
federal requirement that netting reductions be surplus when used from 
an emissions bank. The rule was revised to delete this state-only 
requirement that netting reductions be surplus.
    We approved the LDEQ Chapter 6 banking rule on July 2, 1999, as 
summarized on the table in Part I BACKGROUND INFORMATION. That SIP 
approval did not include section 611, Mobile Sources Emission 
Reductions, which the State had promulgated in August 1994, but did 
include sections 621, 623 and 625. Section 623 covered the withdrawal, 
use and transfer of emission reduction credits. Section 625 covered the 
application and processing fees. The revised Chapter 6 banking rule 
that is the subject of this action removed sections 611, 621, 623 and 
625. It is therefore necessary for us to propose approval of the 
Chapter 6 banking rule as part of the SIP with sections 611, 621, 623 
and 625 removed.
    Finally, the program established by the revised Chapter 6 Rule may 
be used in conjunction with the revised Chapter 5 rule, concerning 
nonattainment new source review (NNSR), to facilitate stationary source 
communications and offset purchases before certification and use of an 
ERC in an NNSR permit application.
    For these reasons, it is necessary for us to propose an action on 
the submitted emissions banking regulation at LAC 33:III Chapter 6.

II. Summary of State Submittal

What Revised State Regulations Did We Evaluate?

    We evaluated the LAC 33:III Chapter 6 Emission Reduction Credit 
Banking regulation, as published in the Louisiana Register on February 
20, 2002 and submitted by the Governor on March 4, 2002. The rule was 
revised to reflect the rescission of the contingency measures' 
enforceable process contained in section 621 of the rule, to 
incorporate the ``Surplus When Used'' provision in accordance with the 
Act and Borden Order and to remove the requirement that netting 
reductions for NNSR purposes meet the surplus requirement of the 
emissions bank.
    The rule was also revised to remove section 611 which covered 
mobile

[[Page 48086]]

sources emission reductions, which we had not previously approved as 
part of the SIP. In addition, the revised rule removed section 623 
which covered the withdrawal, use and transfer of emission reduction 
credits, and section 625, which covered the application and processing 
fees. Our proposed approval of the revised rule including the removal 
of these sections, does not constitute a relaxation of the SIP since 
any and all relevant portions of these sections have been incorporated 
into the revised rule.
    The following sections of Chapter 6 were submitted by the State and 
are being acted upon by us in this proposed action.

------------------------------------------------------------------------
       State citation             Title/Subject      State approval date
------------------------------------------------------------------------
Section 601.................  Purpose.............  Feb. 2002, LR 28:301
Section 603.................  Applicability.......  Feb. 2002, LR 28:301
Section 605.................  Definitions.........  Feb. 2002, LR 28:301
Section 607.................  Determination of      Feb. 2002, LR 28:302
                               Creditable Emission
                               Reductions.
Section 613.................  Bank Recordkeeping    Feb. 2002, LR 28:303
                               and Reporting
                               Requirements.
Section 615.................  Schedule for          Feb. 2002, LR 28:304
                               Submitting
                               Applications.
Section 617.................  Procedures for        Feb. 2002, LR 28:304
                               Review and Approval
                               of ERCs.
Section 619.................  Emission Reduction    Feb. 2002, LR 28:305
                               Credit Bank.
------------------------------------------------------------------------

What Is the Purpose of the Revised State Emissions Banking Rule?

    The purpose of the revised rule, as stated in section 601, is to 
establish the means of enabling stationary sources to identify and 
preserve or acquire emission reductions for New Source Review offsets. 
This purpose provides flexibility to stationary sources when they 
undergo nonattainment new source review, allowing sources in need of 
emissions offsets to identify another stationary source that may have 
surplus emission reductions available for purchase as NNSR offsets.
    Although section 601 states that the purpose of the rule is to 
``identify and preserve'' emission reductions for NNSR offsets, the 
revised rule does not itself provide a mechanism for ``preserving'' 
emission reductions until the permitting stage. That is, under LAC 
33:III.617(C)(2), emission reductions can only be preserved after they 
are identified in the ERC certificate, and the State determines that 
they are ``Surplus When Used.''
    Thus, in spite of the fact that the revised rule is named an 
Emission Reduction Credit Banking regulation, it does not establish an 
ERC bank. Rather, the revised rule functions as merely a bulletin board 
to facilitate stationary source communications and offset purchases 
before certification and use of the ERC in an NNSR permit application. 
The program established by the revised Chapter 6 rule is not itself a 
market-based program for achieving air quality improvements (and is 
therefore not an EIP as defined by EPA). Instead, the program may be 
used to reduce the administrative burden experienced by stationary 
sources obtaining emission reductions as a part of New Source Review 
permitting.
    An emissions banking rule that functions merely to facilitate 
communication between stationary sources is not required to meet the 
Economic Incentive Program guidance. The guidance was developed to 
assist states and tribes in establishing programs to achieve emission 
reductions as required to meet SIP attainment demonstrations or to be 
traded for inter-precursor offsets purposes, or to facilitate the 
compliance requirements for alternative RACT requirements. For these 
reasons, EPA is not reviewing the revised rule for compliance with 
EPA's EIP Guidance.

Will Offsets Identified and Preserved Under the Revised State Emissions 
Banking Rule Satisfy the ``Surplus When Used'' Requirement?

    As required by section 173(c)(2) of the Act, the revised rule 
provides at section 607(B)(1) that emission reductions must be surplus, 
permanent, quantifiable, and enforceable. ``Surplus Emission 
Reductions'' are defined in LAC 33:III.605 as emission reductions 
voluntarily created for an emissions unit; not required by any local, 
state or federal law, regulation, order, or requirement, and in excess 
of reductions used to demonstrate attainment of federal and state 
ambient air quality standards. LDEQ has revised the rule to clarify 
that ERCs in the emissions bank must be ``Surplus When Used'' for NNSR 
offset purposes in accordance with the Act and as discussed in the 
Borden Order. Section 617(C)(2) of the revised rule provides for the 
recalculation of ERCs at the time of permit issuance; therefore, given 
the surplus requirement of Section 607(b)(1), the revised rule is clear 
in requiring that ERCs be ``Surplus When Used.'' In addition to the 
``surplus'' definitions discussed above, e.g., not required by any 
local law, etc., section 605 limits emission reductions as ``surplus'' 
to only emission reductions that have occurred ``at the time a permit 
application that relies upon the reductions as offsets is deemed 
administratively complete.''

Under the Revised State Banking Regulation, How Will ``Surplus When 
Used'' ERCs Be Calculated?

    Section 607(C) of the revised rule provides procedures for 
calculating the surplus emission reductions. To calculate surplus 
emissions reductions, it is necessary to establish a baseline from 
which reduced emission levels can be determined. Emissions reductions 
below these ``baseline emissions'' are considered surplus, and under 
the rule are calculated by subtracting future allowable emissions after 
the reductions from the baseline emissions the voluntary reduction.

Under the Revised State Banking Regulation, How Will ``Baseline 
Emissions'' Be Calculated?

    The revised Chapter 6 procedure utilizes a ``universal growth'' 
concept in determining baseline emissions. This procedure is laid out 
in section 607(C)(4) of the revised rule. Under this procedure, the 
State must compare the current total point-source emissions inventory 
for the modeled parishes to the ``base case inventory'' (until November 
15, 2005. After November 15, 2005, this comparison is to be made to the 
``base line inventory''). (These inventories refer to the aggregate 
point-source emissions inventory for NOX and VOC. The State 
prepares an annual inventory of actual point-source emissions. The base 
case and base line emission inventories are found in the most recent 
Attainment Demonstration. In essence the difference is that the base 
line inventory accounts for new attainment-related emission 
limitations, and hence will reflect lower emissions

[[Page 48087]]

due to the RACT limits established to support the attainment 
demonstration.)
    If the current total point source emissions inventory is less than 
the base case (or, starting in November 15, 2005, the base line) 
inventory, then the universal growth of emissions in the nonattainment 
area is below that relied upon in the attainment demonstration 
modeling. Therefore, it is unnecessary for the determination of the 
actual emissions modeled in the attainment demonstration to be 
performed and used in determining baseline emissions, and baseline 
emissions will simply be the lower of (1) actual emissions or (2) 
adjusted allowable emissions. If, on the other hand, the current total 
point source emissions inventory exceeds the base case (or, starting in 
November 15, 2005, the base line) inventory, baseline emissions will be 
the lower of (1) actual emissions, (2) adjusted allowable emissions, or 
(3) the emissions attributed to the source in question in the base case 
or base line inventory. LAC 33:III.607(C)(4)(a).

Does the Revised State Banking Regulation Incorporate Interpollutant 
Trading?

    No. There is no mention of interpollutant or inter-precursor 
trading in the revised banking rule. The revised banking rule only 
serves as a bulletin board for stationary sources to locate other 
stationary sources that may have offsets for sale. The rule is not an 
emissions banking or trading rule and is not an Economic Incentive 
Program. Using the revised rule itself for inter-precursor trading to 
meet nonattainment new source review offset requirements would be 
inappropriate. The inclusion of an inter-precursor emissions trading 
program in the revised bulletin board rule would subject the rule to 
review as an EIP.
    Inter-precursor trading may, however, be conducted under the 
revised Chapter 5 rule concerning nonattainment New Source Review, 
using the Chapter 6 bulletin board to identify potentially available 
offsets. The revisions to Chapter 5 allow what EPA terms ``inter-
precursor trading'' to offset an increase in emissions of VOCs with a 
decrease in emissions of NOX. That rule states that all 
emission reductions claimed as offset credit for significant net 
NOX increases shall be from decreases of NOX. 
NOX credits will be allowed to offset VOC increases, but not 
vice versa. All emission reductions claimed as offset credit for 
significant net VOC increases shall be from decreases of either 
NOX or VOCs, or any combination. If NOX decreases 
are used to offset VOC increases, the permit for which the offsets are 
required must have been issued on or before November 15, 2005.

III. Criteria for Evaluation

What Criteria Did We Use to Approve the Previous Emissions Banking 
Rule?

    As stated above, the previous approval of Chapter 6 by us on July 
2, 1999 was not as an Economic Incentive Program. The Chapter 6 
regulation no longer provides an enforceable mechanism to confiscate 
the escrowed 5.7 tons/day of VOCs serving as the contingency measures 
in support of the attainment demonstration; nor does it provide any 
emission reductions in support of any attainment demonstration.

What Are the Applicable Criteria for Review of the Revised Emissions 
Banking Rule?

    The revised State emissions banking rule is intended to facilitate 
communications among stationary sources seeking to identify possible 
nonattainment new source review emission offsets. Thus, it serves as a 
bulletin board among the regulated community. The revised State 
emissions banking rule must only be consistent with the Federal 
statutes and regulations governing the permitting of stationary sources 
in ozone nonattainment areas. The statutory requirements, as was the 
case in the July 2, 1999, EPA approval of the point source banking 
regulations as an acceptable SIP revision, appear at subchapter I, part 
A (section 110) and part D (sections 171-185B) of the Act.

What Are the Specific Statutory Requirements With Which the Revised 
Banking Rule Must Be Consistent?

    Subchapter I, part D of the Act contains SIP requirements for 
nonattainment areas. Subpart I of part D contains the statutory 
requirements for nonattainment areas in general. Section 173 covers the 
permit requirements for the nonattainment areas. The Act allows new and 
modified stationary sources to be constructed in a nonattainment area 
if the State's SIP contains approved permitting program requirements by 
the time the source is to commence operation.
    The Act requires that offsetting emissions reductions must be 
obtained, such that total allowable emissions from existing sources in 
the region (from new or modified minor sources and from the proposed 
source) will be sufficiently less than total emissions from existing 
sources before the permit application so that the reasonable further 
progress requirements are met.
    In order to construct and operate in the nonattainment area, the 
proposed source is required to comply with the lowest achievable 
emission rate, and all other major stationary sources of the owner or 
operator in the State must be in compliance, or on a schedule for 
compliance, with all applicable emission limitations and standards 
under the Act.
    Section 172 of the Act covers nonattainment SIP provisions in 
general. Section 172(c)(6) contains SIP measures (including plan items) 
required to be submitted to comply with the Act. These SIP provisions 
must include enforceable emission limitations and other control 
measures as necessary to attain the NAAQS. These measures may include 
other means or techniques (including economic incentives such as fees, 
marketable permits, and auctions of emission rights), as well as 
schedules and timetables for compliance. Given that the Act in section 
172 provides that a technique such as a marketable permits program may 
be appropriate for inclusion in a SIP, a bulletin board such as the 
revised State rule is consistent with the Act.
    Section 173(c)(1) of the Act states that the owner or operator of a 
new or modified major stationary source may comply with any offset 
requirement of the Act for increased emissions only by obtaining 
emission reductions from the same source or other sources in the same 
nonattainment area. The emission reduction offsets must, by the time a 
new or modified source commences operation, be in effect and 
enforceable. The reductions must assure that the total tonnage of 
increased emissions of the air pollutant from the new or modified 
source shall be offset by an equal or greater reduction, as applicable, 
in the actual emissions of such air pollutant from the same or other 
sources in the area.
    Section 173(c)(2) states that emission reductions otherwise 
required by the Act are not creditable as emissions reductions for any 
offset requirement. Incidental emission reductions not otherwise 
required by the Act are creditable as emission reductions for offset 
purposes if they meet the requirements of section 173(c)(1).

What Are the Specific Regulatory Requirements With Which the Revised 
Banking Rule Must Be Consistent?

    Federal regulations at 40 CFR 51.160 (Subpart I--Review of New 
Sources and Modifications) state that the SIP must contain the legally 
enforceable procedures to be followed in air permitting in an 
nonattainment area.

[[Page 48088]]

These legally enforceable procedures enable the State to determine 
whether the construction or modification of a stationary source will 
result in a violation of applicable portions of the SIP approved 
control strategy or will interfere with attainment of the NAAQS.
    Federal regulations at 40 CFR 51.161 contain the requirements for 
public availability of the permit information. This section requires 
that the legally enforceable procedures identified in 40 CFR 51.160 
must include an opportunity for the public to comment on the 
information submitted in the permit application. The information 
available for public comment must contain the State's analysis of the 
effect of the permit on ambient air quality including the State's 
proposed approval or disapproval of the permit application.
    Federal regulations at 40 CFR 51.163 require the SIP to contain 
administrative procedures to be followed in making the determination 
required in 40 CFR 51.160.
    Federal regulations at 40 CFR 51.165 contain the minimum federal 
permit requirements for nonattainment areas. Each SIP must adopt a 
preconstruction permit review program to satisfy the requirements of 
sections 172(b)(6) and 173 of the Act for any area that has been 
designated nonattainment for any NAAQS. (Nonattainment areas for 
Louisiana are listed at 40 CFR 81.319.)
    The permit program must apply to any new major stationary source or 
major modification that is major for the pollutant (or pollutant 
precursor) for which the area is designated nonattainment. For each SIP 
containing a preconstruction review program, the baseline for 
determining credit for emissions reductions must be the emissions limit 
under the applicable SIP in effect at the time the application to 
construct is filed.
    Emissions reductions achieved by shutting down an existing source 
or curtailing production or operating hours below baseline levels may 
be generally credited if such reductions are permanent, quantifiable, 
and federally enforceable, and if the area has an EPA-approved 
attainment plan. No emissions credit may be allowed for replacing one 
hydrocarbon compound with another of lesser reactivity, except for 
those compounds listed in Table 1 of EPA's ``Recommended Policy on 
Control of Volatile Organic Compounds'' (42 FR 35314, July 8, 1977).

IV. Technical Review

What Was the Basis for the Technical Review of the State Emissions 
Banking Rule as Revised in Chapter 6?

    The purpose of the revised rule as stated in section 601 was to 
establish the means of enabling stationary sources to identify and 
preserve or acquire emission reductions for New Source Review (NSR) 
offsets. The pollutants to which the rule applies are nitrogen oxides 
(NOX) and volatile organic compounds (VOC). Since the rule 
does not by itself directly reduce emissions or improve air quality, 
and is instead intended solely to enable stationary sources to identify 
and acquire NOX and VOC offsets for NNSR purposes, the rule 
was reviewed as a component of the SIP related to the NNSR offsets 
rule, not as an Economic Incentive Program.

Was the State's Revised Emissions Banking Rule Reviewed as an Inter-
Precursor Trading Program?

    No, the revised rule does not contain any reference to an inter-
precursor trading program. The purpose of the rule does not include 
inter-precursor, or for that matter any, emissions trading.
    In keeping with the Act, a determination of whether the ERCs are 
surplus ``at use'' must be conducted by the State when they are to be 
used. The Chapter 6 regulation merely provides for stationary sources 
to identify and acquire ERCs. The new source permitting regulation in 
Chapter 5, on the other hand, refers to what EPA considers inter-
precursor trading. Under the revised Chapter 5 procedure, the State's 
verification that the ERCs are surplus must be conducted when they are 
to be used, not when they are acquired (or submitted for certification 
or purchased). Accordingly, the State's determination that an inter-
precursor trade consists of surplus emission reductions must be made at 
the time of the State's evaluation of the permit application relying 
upon a trade. Thus, inter-precursor trades are appropriately reviewed, 
evaluated and verified as surplus under the NSR program at the time of 
use, which is at the time of the State's review of the permit 
application. Appropriately, the inter-precursor trading program is not 
contained in Chapter 6 and was not reviewed under this action. We are 
reviewing the inter-precursor trading program separately as a part of 
our review of Louisiana's revisions to its Chapter 5 nonattainment new 
source review regulations.

Was the State's Revised Emissions Banking Rule Reviewed With Respect to 
Alternate RACT Compliance Trading Plans?

    No, the revised rule does not contain any reference to an alternate 
RACT compliance trading program. The purpose of the rule does not 
include alternate RACT trading plans, or for that matter, any emissions 
trading.
    SIP emission reduction credits must be surplus at the time of use. 
A determination of whether the ERCs are surplus must be conducted by 
the State when they are to be used. The Chapter 6 regulation merely 
provides for stationary sources to identify and acquire ERCs. The 
NOX control regulation in Chapter 22, on the other hand, 
refers to trading associated with RACT compliance. Under the provisions 
of the revised Chapter 22, the verification that the ERCs are surplus 
must be conducted when they are to be used, not when they are acquired 
(or submitted for certification or purchased). The determination that 
an alternate RACT compliance trade consists of surplus emission 
reductions must be made at the time of the State and EPA's approval of 
the alternate RACT trading plan. Thus, through the State and EPA 
approval of a source-specific alternate RACT trading plan, the trade is 
appropriately reviewed, evaluated and verified as surplus at the time 
of use. Appropriately, the alternative RACT trading program is not 
contained in Chapter 6 and was not reviewed under this action. We are 
reviewing the alternate RACT trading plan program separately as a part 
of our review of Louisiana's revisions to its Chapter 22 NOX 
regulations.

How Does the State's Revised Banking Regulation in Chapter 6 Interact 
With the NOX Control Regulation in Chapter 22 and the NSR 
Regulation in Chapter 5?

    The State has recently revised the NOX control 
regulation in Chapter 22. This NOX RACT rule requires 
stationary sources to comply with a more strict emission limitation 
during the five month ozone season. Typically a stationary source 
reduces emissions below the baseline to generate surplus emission 
reduction credits. Due to the revised NOX rule, the 
allowable emission limitation for a stationary source could potentially 
have two values, one for the five month ozone season and another for 
the seven month non-ozone season.
    Thus, the baseline emissions for the stationary source, which are 
used to determine surplus emission reduction

[[Page 48089]]

credits for offset permitting purposes, could have two different 
values. In order to accurately determine the surplus ERCs to be used in 
the NNSR permitting, the baseline emissions and surplus ERCs must be 
determined for the two time periods. Section 173 of the Act does not 
address the use of offsets for nonattainment permitting over periods of 
less than one year. Accordingly, the verification of NOX 
ERCs to be used in all NNSR permitting under Chapter 5 must be 
determined by adding the ERCs from the five-month ozone season and the 
seven-month non-ozone season.
    With respect to all offsets under Chapter 5 and all ERCs under 
Chapter 6, the total NOX emission increases during the ozone 
season must be offset by NOX ERCs from the ozone season. 
Non-ozone season NOX increases may be met by either ozone or 
non-ozone NOX ERCs. The annual NOX increase must 
be offset by the total combination of ozone and non-ozone season 
surplus NOX emission reduction credits.
    The stated purpose of the revised emissions banking rule in Chapter 
6 is to enable stationary sources to identify and acquire emission 
reductions for NSR purposes. The Chapter 6 rule does not address the 
requirement to keep separate documentation for the certification, 
determination, and recordkeeping of NOX ERCs during the 
ozone and non-ozone seasons. The identification, certification, 
acquisition, recordkeeping and determination of ``Surplus When Used'' 
emission reduction credits must be for both the ozone season and the 
non-ozone season time periods. The State has indicated by letter from 
Mr. Dale Givens to EPA dated May 3, 2002, that the State would operate 
the emissions reduction bank in such a manner. EPA requests that in 
response to comments on EPA's proposed approval of the Chapter 5 and 
Chapter 6 rules, the State affirm and detail the procedures for the 
determination of NOX surplus emission reduction credits 
resulting from the split emission limitations for the NOX 
RACT rule in Chapter 22.
    The inter-precursor trading provisions contained in the Chapter 5 
NNSR rules indicate that offsets of VOC emissions may be met by surplus 
NOX emission reductions. The VOC emission offsets met by 
surplus NOX ERCs must be for both the ozone season and non-
ozone seasons. In other words, for inter-precursor trading the VOC 
emission increases during the ozone season must be offset by 
NOX ERCs from the ozone season. Non-ozone season VOC 
increases may be offset by either ozone or non-ozone NOX 
ERCs. The annual VOC increase must be offset by the total combination 
of ozone and non-ozone season surplus NOX emission reduction 
credits.

Does the Revised State Emissions Banking Rule Meet the Requirements of 
the Clean Air Act and 40 CFR Part 51 Regulations Pertaining to NSR 
Requirements?

    We did not approve the previous LDEQ Chapter 6 emission reduction 
credit banking regulation as an EIP. The stated purpose of the revised 
rule in section 601 is to establish the means of enabling stationary 
sources to identify and preserve or acquire emission reductions for NSR 
offsets. The potential offsets are required by the revised rule to 
demonstrate that they are ``Surplus When Used'' as offsets in the NNSR 
permit application. In spite of the fact that the revised rule is named 
an Emission Reduction Credit Banking regulation, the revised rule does 
not function as an ERC bank. Rather, the revised rule functions as 
merely a bulletin board to facilitate stationary source communications 
and offset purchases before certification and use in an NNSR permit 
application. The ``bank'' established by the revised rule will not 
itself provide emission reduction credits that may be used for NNSR 
inter-precursor trading or alternate RACT compliance trading. 
Therefore, we are proposing action on the revised Chapter 6 rule after 
review for compliance with the Act with respect to NNSR purposes only, 
and not as an EIP.
    We have concluded that having a bulletin board such as that 
established by the revised Chapter 6 rule is consistent with section 
172 of the Act, which specifically indicates that economic incentive 
measures such as fees, marketable permits and auctions of emission 
rights may be used as SIP provisions. It is also consistent with the 40 
CFR part 51 regulations pertaining to NSR permitting.
    The operation of the bulletin board as revised in Chapter 6 is also 
consistent with section 173 of the Act, which provides that the owner 
or operator of a new or modified major stationary source may comply 
with any offset requirement of the Act for increased emissions only by 
obtaining emission reductions from the same source or other sources in 
the same nonattainment area. By determining the surplus ERCs according 
to the requirements of section 607 of the revised rule, the 
requirements of section 173 of the Act--namely, that emission reduction 
offsets must be, by the time a new or modified source commences 
operation, in effect and enforceable--will be satisfied.
    The determination of surplus ERCs under section 607 is consistent 
with the Act. It is consistent with 40 CFR part 51 regulations 
pertaining to NSR requirements. All ERCs sought to be used for inter-
precursor trading, including those identified and acquired through the 
Chapter 6 bank, must be accompanied by a section 607 surplus 
determination at the time of the permit application submission for the 
inter-precursor trade. The State will re-evaluate during the NSR 
process whether these ERCs are surplus at use.
    We concluded that the section 607 ``universal growth'' approach to 
determining baseline emissions for the purpose of calculating surplus 
emission reductions is consistent with the Act and 40 CFR part 51 
regulations pertaining to NSR requirements. This procedure is discussed 
above in part II, under the heading ``Under the revised State banking 
regulation, how will ``baseline emissions'' be calculated?'
    In general, baseline emissions are set at the lower of allowable 
emissions or actual emissions at the source. See EIP Guidance at 39-42. 
(As noted previously, the EIP Guidance is not directly applicable to 
the revised Louisiana rule, but it represents EPA's final action on the 
Open-Market Trading Rule (OMTR) (proposed in August 3, 1995 at 60 FR 
39668, and on August 25, 1995 at 60 FR 44290), and therefore its 
discussion of the baseline for determining surplus emission reductions 
is relevant here.) Under the revised Chapter 6 rule, ``baseline 
emissions'' are defined in section 605, and are calculated as described 
in section 607(C). As described previously, the revised Louisiana rule 
requires the comparison of two different inventories--the ``base line'' 
and ``base case'' inventories--in calculating the baseline emissions. 
The LDEQ has agreed in implementing this rule that it will interpret 
section 607(C)(1) to require use of the base line inventory beginning 
November 15, 2005. See letter from Dale Givens, Secretary of LDEQ, to 
Gregg Cooke, Regional Administrator, EPA Region 6 (May 3, 2002). Using 
the base case inventory until that date is appropriate as a transition 
measure during the implementation of the controls necessary for 
attainment. Accordingly, we have concluded that the use of a universal 
growth factor to evaluate the actual emissions relied upon in the most 
recent attainment demonstration is consistent with the Act and 40 CFR 
part 51 regulations pertaining to NSR permitting.

[[Page 48090]]

V. Proposed Action

    For the reasons stated herein, we have determined that the SIP 
submittal for a revision to LAC 33:III Chapter 6 is consistent with 
Title I of the Act and federal regulations pertaining to NNSR 
permitting as found at 40 CFR part 51. Sections III and IV of this 
preamble and the Technical Support Document for this proposed action 
contain reviews of the State submittal and the basis for our proposal 
to approve of these Sections.

VI. Request for Public Comments

    We are requesting comments on all aspects of the requested SIP 
revision and our proposed rulemaking action. Comments received by the 
date indicated above will be considered in the development of the EPA's 
final rule.

VII. Administrative Requirements

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
proposed action is not a ``significant regulatory action'' and 
therefore is not subject to review by the Office of Management and 
Budget. 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 
proposed action merely proposes to approve state law as meeting Federal 
requirements and imposes no additional requirements beyond those 
imposed by state law. Accordingly, the Administrator certifies that 
this proposed rule will not have a significant economic impact on a 
substantial number of small entities under the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.). Because this rule proposes to approve pre-
existing requirements under state law and does not impose any 
additional enforceable duty beyond that required by state law, it does 
not contain any unfunded mandate or significantly or uniquely affect 
small governments, as described in the Unfunded Mandates Reform Act of 
1995 (Public Law 104-4).
    This proposed rule also does not have 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 proposes to approve 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 
proposed 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 proposed rule does 
not impose an information collection burden under the provisions of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

List of Subjects in 40 CFR Part 52

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

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

    Dated: July 15, 2002.
Gregg A. Cooke,
Regional Administrator, Region 6.
[FR Doc. 02-18575 Filed 7-22-02; 8:45 am]
BILLING CODE 6560-50-P