[Federal Register Volume 67, Number 218 (Tuesday, November 12, 2002)]
[Proposed Rules]
[Pages 68542-68545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28695]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[VA127-5059; FRL-7406-5]


Approval and Promulgation of Air Quality Implementation Plans; 
Virginia; Nitrogen Oxides Budget Trading Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing to approve the NOX Budget Trading 
Program submitted as a revision to the Virginia State Implementation 
Plan (SIP), with the exception of its NOX allowance banking 
provisions, which EPA proposes to conditionally approve. The revision 
was submitted in response 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.'' The revision establishes and requires a nitrogen oxides 
(NOX) allowance trading program for large electric 
generating and industrial units, beginning in 2004. The intended effect 
of this action is to propose approval of Virginia's NOX 
Budget Trading Program because it substantively addresses the 
requirements of the NOX SIP Call, with the following 
exception: Its NOX allowance banking provision is proposed 
to be conditionally approved because it must be revised to require that 
flow control begin in 2005, in accordance with the revised model rule. 
EPA is proposing approval of this revision, with the exception noted, 
in accordance with the requirements of the Clean Air Act.

DATES: Written comments must be received on or before December 12, 
2002.

ADDRESSES: Written comments should be mailed to Walter Wilkie, Acting 
Chief, Air Quality Planning and Information Services Branch, Mailcode 
3AP21, U.S. Environmental Protection Agency, Region III, 1650 Arch 
Street, Philadelphia, Pennsylvania 19103. Copies of the documents 
relevant to this action are available for public inspection during 
normal business hours at the Air Protection Division, U.S. 
Environmental Protection Agency, Region III, 1650 Arch Street, 
Philadelphia, Pennsylvania 19103 and Virginia Department of 
Environmental Quality (VADEQ), 629 East Main Street, Richmond, 
Virginia, 23219.

FOR FURTHER INFORMATION CONTACT: Marilyn Powers, (215) 814-2308, or by 
e-mail at [email protected]. Please note that any comments on this 
rule must be submitted in writing, as provided in the ADDRESSES section 
of this document.

SUPPLEMENTARY INFORMATION: On June 25, 2002, VADEQ submitted a revision 
to its SIP to address the requirements of the NOX SIP Call. 
The revision consists of the adoption of Regulation for Emissions 
Trading, 9 VAC Chapter 140, part I--NOX Budget Trading 
Program. The information in this section of this document is organized 
as follow:

I. EPA's Action
    A. What Action Is EPA Taking in This Proposed Rulemaking?
    B. What Are the General NOX SIP Call Requirements?
    C. What Is EPA's NOX Budget Trading Program?
    D. What standards did EPA use to evaluate Virginia's submittal?
II. Virginia's NOX Budget Trading Program
    A. When Did Virginia Submit the SIP Revision to EPA in Response 
to the NOX SIP Call?
    B. What Is Virginia's NOX Budget Trading Program?
    C. What Is the Result of EPA's Evaluation of Virginia's Program?
III. Proposed Action
IV. Administrative Requirements

I. EPA's Action

A. What Action Is EPA Taking in This Proposed Rulemaking?

    EPA is proposing to approve the Virginia NOX Budget 
Trading Program submitted as a SIP revision on June 25, 2002, with the 
exception of its NOX allowance banking provisions, which EPA 
proposes to conditionally approve.

B. What Are the General NOX SIP Call Requirements?

    On October 27, 1998 (63 FR 57356), EPA published a final rule 
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.'' The NOX SIP Call requires 
the District of Columbia and 22 States, including Virginia, to meet 
statewide NOX emission budgets during the May 1 through 
September 30 ozone season. By meeting these budgets the States will 
reduce the amount of ground level ozone that is transported across the 
eastern United States. EPA has previously determined statewide 
NOX emission budgets for each affected jurisdiction to be 
met by the year 2007. EPA identified NOX emission 
reductions, by source category, that could be achieved by using cost-
effective measures. The source categories included were electric 
generating units (EGUs), non-electric generating units (non-EGUs), area 
sources, nonroad mobile sources and highway sources. However, the 
NOX SIP Call allowed States the flexibility to decide which 
source categories to regulate in order to meet the statewide budgets. 
In the NOX SIP Call rule's preamble, EPA suggested that 
imposing statewide NOX emission 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 
pounds NOX per million British thermal units (lbs. 
NOX/MMBtu)

[[Page 68543]]

at EGUs, multiplied by the projected heat input (MMBtu) from burning 
the quantity of fuel needed to meet the 2007 forecast for electricity 
demand. See 63 FR 57407, October 27, 1998. The calculation of the 2007 
EGU emissions assumed that an emissions trading program would be part 
of an EGU control program. The NOX SIP Call State budgets 
also assumed, on average, a 30 percent NOX reduction from 
cement kilns, a 60 percent reduction from industrial boilers and 
combustion turbines, and a 90 percent reduction from internal 
combustion engines. The 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.
    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 rulemaking 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 
EPA. See 63 FR 57458--57459, October 27, 1998.
    EPA conducted several comment periods 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. The March 2, 2000 final rulemaking established 
the inventories upon which Virginia's final budget is based.
    A number of parties, including certain States as well as industry 
and labor groups, challenged the October 27, 1998 (63 FR 57356) 
NOX SIP Call Rule. On March 3, 2000, the D.C. Circuit issued 
its decision on the NOX SIP Call ruling in favor of EPA on 
all of the major issues. Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 
2000). However, the Court remanded certain matters for further 
rulemaking by EPA. EPA recently published a final notice that addresses 
one of the remanded issues and expects to publish this year another 
final notice that addresses the remaining remanded issues. Any 
additional emissions reductions required as a result of the final 
rulemaking will be reflected in the second phase portion (Phase II) of 
the NOX SIP Call rule. Virginia will be required to submit 
SIP revisions to address Phase II of the NOX SIP Call Rule.

C. What Is EPA's NOX Budget 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 October 27, 1998 final rulemaking 
contains a full description of the EPA's model NOX budget 
trading program. See 63 FR 57514-57538 and 40 CFR part 96. In general, 
air emissions trading 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, of mass emissions from a specific group of 
sources. The budget limits the total number of allocated allowances 
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.

D. What Standards Did EPA Use To Evaluate Virginia's Submittal?

    The final NOX SIP Call rule included a model 
NOX budget trading program regulation at 40 CFR part 96. EPA 
used the model rule and 40 CFR 51.121 and 51.122 to evaluate Virginia's 
NOX Budget Trading Program.

II. Virginia's NOX Budget Trading Program

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

    On June 25, 2002, the VADEQ submitted a revision to its SIP to 
address the requirements of the NOX SIP Call.

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

    Virginia's SIP revision to address the requirements of the 
NOX SIP Call consists of the adoption and submittal of 
Regulation for Emissions Trading, 9 VAC Chapter 140, part I--
NOX Budget Trading Program.
    Regulation for Emissions Trading, 9 VAC Chapter 140, part I--
NOX Budget Trading Program establishes and requires a 
NOX allowance trading program for large EGUs and large non-
EGUs.
    The Virginia NOX Budget Trading Program regulation which 
comprises Virginia's SIP revision is as follows:
    ARTICLE 1.--NOX Budget Trading Program General 
Provisions consists of sections 9 VAC 5-140-10 through 9 VAC 5-140-70;
    ARTICLE 2.--Authorized Account Representative for NOX 
Budget Sources consists of sections 9 VAC 5-140-100 through 9 VAC 5-
140-140;
    ARTICLE 3.--Permits consist of sections 9 VAC 5-140-200 through 9 
VAC 5-140-250;
    ARTICLE 4.--Compliance Certification consists of sections 9 VAC 5-
140-300 through 9 VAC 5-140-310;
    ARTICLE 5.--NOX Allowance Allocations consists of 
sections 9 VAC 5-140-400 through 9 VAC 5-140-430;
    ARTICLE 6.--NOX Allowance Tracking System consists of 
sections 9 VAC 5-140-500 through 9 VAC 5-140-570;
    ARTICLE 7.--NOX Allowance Transfers consists of sections 
9 VAC 5-140-600 through 9 VAC 5-140-620;
    ARTICLE 8.--Monitoring and Reporting consists of sections 9 VAC 5-
140-700 through 9 VAC 5-140-760;
    ARTICLE 9.--Individual Unit Opt-ins consists of sections 9 VAC 5-
140-800 through 9 VAC 5-140-880; and
    ARTICLE 10.--State Trading Budget and Compliance Supplement Pool 
consists of sections 9 VAC 5-140-900 through 9 VAC 5-140-930.
    Regulation for Emissions Trading, 9 VAC Chapter 140, part I--
NOX Budget Trading Program establishes a NOX cap 
and allowance trading program with a budget of 21,195 tons of 
NOX for the ozone seasons of 2004 and beyond. The 
NOX budgets for large EGUs and large

[[Page 68544]]

non-EGUs are 17,091 and 4,104 tons of NOX per ozone season, 
respectively. Virginia 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. Because Virginia's NOX Budget Trading Program 
is based upon EPA's model rule, Virginia sources are allowed to 
participate in the interstate NOX allowance trading program 
that EPA will administer for the participating States. Virginia has 
adopted regulations that are substantively identical to 40 CFR part 96, 
with one exception: Virginia's regulation at 9 VAC 5-140-550 for 
banking of NOX allowances must be revised to require flow 
control to begin in 2005 in lieu of 2006 as currently required. Thus, 
EPA proposes approval of Virginia's regulations for its NOX 
Budget Trading Program, with the exception of 9 VAC 5-140-550, which 
EPA proposes to conditionally approve.
    Under the NOX Budget Trading Program, Virginia allocates 
NOX allowances to the EGUs and non-EGUs that are affected by 
these requirements. The NOX trading program generally 
applies to fossil-fuel-fired EGUs with a nameplate capacity greater 
than 25 MW that sell any amount of electricity as well as to non-EGUs 
that have a heat input capacity greater than 250 MMBtu per hour. Each 
NOX allowance permits a unit to emit one ton of 
NOX during the seasonal control period. NOX 
allowances may be bought or sold. Unused NOX allowances may 
also be banked for future use, with certain limitations. Owners will 
monitor their unit's NOX emissions by using systems that 
meet the requirements of 40 CFR part 75, subpart H and will report 
resulting data to EPA electronically. Each budget unit 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 unit holds, 
it cannot emit at levels that would violate other Federal or State 
limits, for example, reasonably available control technology (RACT), 
new source performance standards, or title IV (the Federal Acid Rain 
program).

C. What Is the Result of EPA's Evaluation of Virginia's Program?

    EPA has evaluated Virginia's June 25, 2002 SIP submittal and has 
found that the Virginia NOX Budget Trading Program is 
consistent with EPA's guidance and addresses the requirements of the 
NOX SIP Call, with one exception: Virginia's regulation at 9 
VAC 5-140-550 for banking of NOX allowances requires flow 
control to begin in 2006. The 2006 date is inconsistent with the model 
rule in part 96 (which required flow control in the NOX SIP 
Call to start in 2004) and the subsequent timing change effected by the 
ruling of the U.S. Court of Appeals for the D.C. related to its 
decision in Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000). Although 
the court's action affected only the compliance deadline, other dates 
in the rule for related requirements (such as flow control) were also 
extended because they were established relative to the original 
compliance deadline. The compliance deadline was extended by 1 year 
(from 2003 to 2004), thereby necessitating an extension of the date for 
flow control to begin by 1 year (from 2004 to 2005). Virginia must 
revise its regulation at 9 VAC 5-140-550 to establish the start of flow 
control to be 2005. Thus, EPA proposes approval of Virginia's 
regulations for its NOX Budget Trading Program, with the 
exception of 9 VAC 5-140-550, which EPA proposes to conditionally 
approve. The June 25, 2002 submittal will strengthen Virginia's SIP for 
reducing ground level ozone by providing NOX reductions 
beginning in 2004.
    Virginia's SIP revision does not establish requirements for cement 
manufacturing kilns and stationary internal combustion engines. 
Virginia will be required to submit SIP revisions to address any 
additional emission reductions required to meet the State's overall 
emissions budget. In addition, Virginia's submittal does not rely on 
any additional reductions beyond the anticipated Federal measures in 
the mobile and area source categories.
    On December 26, 2000 (65 FR 81366), EPA made a finding that 
Virginia had failed to submit a SIP response to the NOX SIP 
Call, thus starting 18 and 24 month clocks for the mandatory imposition 
of sanctions and the obligation for EPA to promulgate a Federal 
Implementation Plan (FIP) within 24 months. The effective date of that 
finding was January 25, 2001. On June 25, 2002, Virginia submitted a 
SIP revision to satisfy the NOX SIP Call. On July 16, 2002, 
EPA found Virginia's SIP submission to be complete. On July 23, 2002, 
EPA published a notice halting the sanctions clocks for the 
Commonwealth of Virginia. Upon approval of this SIP revision, with the 
exception noted, the EPA's FIP obligation is terminated.
    In 1995, Virginia adopted legislation that provides, subject to 
certain conditions, for an environmental assessment (audit) 
``privilege'' for voluntary compliance evaluations performed by a 
regulated entity. The legislation further addresses the relative burden 
of proof for parties either asserting the privilege or seeking 
disclosure of documents for which the privilege is claimed. Virginia's 
legislation also provides, subject to certain conditions, for a penalty 
waiver for violations of environmental laws when a regulated entity 
discovers such violations pursuant to a voluntary compliance evaluation 
and voluntarily discloses such violations to the Commonwealth and takes 
prompt and appropriate measures to remedy the violations. Virginia's 
Voluntary Environmental Assessment Privilege Law, Va. Code Sec. 10.1-
1198, provides a privilege that protects from disclosure documents and 
information about the content of those documents that are the product 
of a voluntary environmental assessment. The Privilege Law does not 
extend to documents or information: (1) That are generated or developed 
before the commencement of a voluntary environmental assessment; (2) 
that are prepared independently of the assessment process; (3) that 
demonstrate a clear, imminent and substantial danger to the public 
health or environment; or (4) that are required by law.
    On January 12, 1997, the Commonwealth of Virginia Office of the 
Attorney General provided a legal opinion that states that the 
Privilege Law, Va. Code Sec. 10.1-1198, precludes granting a privilege 
to documents and information ``required by law,'' including documents 
and information ``required by Federal law to maintain program 
delegation, authorization or approval,'' since Virginia must ``enforce 
Federally authorized environmental programs in a manner that is no less 
stringent than their Federal counterparts * * *.'' The opinion 
concludes that ``[r]egarding Sec.  10.1-1198, therefore, documents or 
other information needed for civil or criminal enforcement under one of 
these programs could not be privileged because such documents and 
information are essential to pursuing enforcement in a manner required 
by Federal law to maintain program delegation, authorization or 
approval.''
    Virginia's Immunity Law, Va. Code Sec. 10.1-1199, provides that 
``[t]o the extent consistent with requirements imposed by Federal 
law,'' any person making a voluntary disclosure of information to a 
State agency regarding a violation of an environmental statute, 
regulation, permit, or administrative order is granted immunity from 
administrative or civil penalty. The

[[Page 68545]]

Attorney General's January 12, 1997 opinion states that the quoted 
language renders this statute inapplicable to enforcement of any 
Federally authorized programs, since ``no immunity could be afforded 
from administrative, civil, or criminal penalties because granting such 
immunity would not be consistent with Federal law, which is one of the 
criteria for immunity.''
    Therefore, EPA has determined that Virginia's Privilege and 
Immunity statutes will not preclude the Commonwealth from enforcing its 
program consistent with the Federal requirements. In any event, because 
EPA has also determined that a State audit privilege and immunity law 
can affect only State enforcement and cannot have any impact on Federal 
enforcement authorities, EPA may at any time invoke its authority under 
the Clean Air Act, including, for example, section 113, 167, 205, 211 
or 213, to enforce the requirements or prohibitions of the State plan, 
independently of any State enforcement effort. In addition, citizen 
enforcement under section 304 of the Clean Air Act is likewise 
unaffected by this, or any, State audit privilege or immunity law.

III. Proposed Action

    EPA is proposing to approve Virginia's Regulation for Emissions 
Trading, 9 VAC Chapter 140, part I--NOX Budget Trading 
Program submitted as a SIP revision on June 25, 2002, with the 
following exception: Virginia's NOX allowance banking 
requirement for flow control is proposed to be conditionally approved. 
EPA proposes approval for Virginia's NOX Budget Trading 
Program because it substantively satisfies the requirements of the 
NOX SIP Call. For Virginia's NOX banking 
requirements to become fully approvable, Virginia must correct the 
deficiency identified in this action and submit the change as a SIP 
revision, by a date within one year from the final conditional 
approval, after which EPA will conduct rulemaking to fully approve the 
revision. If the condition is not met within the specified timeframe, 
EPA is proposing that the rulemaking will convert to a final 
disapproval.

IV. Administrative Requirements

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
proposed action is not a ``significant regulatory action'' and 
therefore is not subject to review by the Office of Management and 
Budget. 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 proposes to approve State law as meeting Federal 
requirements and imposes no additional requirements beyond those 
imposed by State law. Accordingly, the Administrator certifies that 
this proposed rule will not have a significant economic impact on a 
substantial number of small entities under the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.). Because this rule proposes to approve pre-
existing requirements under State law and does not impose any 
additional enforceable duty beyond that required by State law, it does 
not contain any unfunded mandate or significantly or uniquely affect 
small governments, as described in the Unfunded Mandates Reform Act of 
1995 (Public Law 104-4). This proposed rule also does not have a 
substantial direct effect on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes, as specified by Executive Order 13175 (65 
FR 67249, November 9, 2000), nor will it have substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government, as specified 
in Executive Order 13132 (64 FR 43255, August 10, 1999), because it 
merely proposes to approve 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 (62 FR 
19885, April 23, 1997), because it is not economically significant.
    In reviewing SIP submissions, EPA's role is to approve State 
choices, provided that they meet the criteria of the Clean Air Act. In 
this context, in the absence of a prior existing requirement for the 
State to use voluntary consensus standards (VCS), EPA has no authority 
to disapprove a SIP submission for failure to use VCS. It would thus be 
inconsistent with applicable law for EPA, when it reviews a SIP 
submission, to use VCS in place of a SIP submission that otherwise 
satisfies the provisions of the Clean Air Act. Thus, the requirements 
of section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3 
of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing 
this proposed rule, EPA has taken the necessary steps to eliminate 
drafting errors and ambiguity, minimize potential litigation, and 
provide a clear legal standard for affected conduct. EPA has complied 
with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining 
the implications of the rule in accordance with the ``Attorney 
General's Supplemental Guidelines for the Evaluation of Risk and 
Avoidance of Unanticipated Takings'' issued under the executive order.
    This proposed rule that pertains to Virginia's NOX 
Budget Trading Program 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, Nitrogen dioxide, 
Ozone, Reporting and recordkeeping requirements.

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

    Dated: October 31, 2002.
Donald S. Welsh,
Regional Administrator, Region III.
[FR Doc. 02-28695 Filed 11-8-02; 8:45 am]
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