[Federal Register Volume 69, Number 38 (Thursday, February 26, 2004)]
[Proposed Rules]
[Pages 8905-8911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4253]


=======================================================================
-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[MI84-01; FRL-7627-1]


Approval and Promulgation of Implementation Plans: Michigan: 
Oxides of Nitrogen Rules

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: EPA is proposing to conditionally approve a State 
Implementation Plan (SIP) revision submitted by the State of Michigan 
on April 3, 2003. The submittal made by the Michigan Department of 
Environmental Quality (MDEQ) responds to the 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 rules submitted by MDEQ establish and require nitrogen 
oxides (NOX) emissions reductions through an allowance 
trading program for large electric generating and industrial units, and 
reductions from cement kilns, beginning in 2004. The intended effect of 
the regulations submitted by MDEQ is to reduce emissions of 
NOX in order to help attain the national ambient air quality 
standard for ozone. We are proposing to conditionally approve 
Michigan's Oxides of Nitrogen Budget Trading Program because it 
generally meets the requirements of the Phase I NOX SIP Call 
that will significantly reduce ozone in Michigan and ozone transport in 
the eastern United States. We deemed the submittal as administratively 
and technically complete in a letter of completeness sent to MDEQ on 
April 24, 2003.

DATES: We must receive written comments on or before March 29, 2004.

ADDRESSES: You should send written comments to: J. Elmer Bortzer, 
Acting Chief, Air Programs Branch (AR-18J), U.S. Environmental 
Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, 
Illinois 60604.
    You may inspect copies of the State submittal and EPA's analysis of 
it at:
    Criteria Pollutant Section, Air Programs Branch (AR-18J), U.S. 
Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, 
Chicago, Illinois 60604. (Please contact Douglas Aburano at (312) 353-
6960 or [email protected] before visiting the Region 5 Office.
    Comments may also be submitted electronically or through hand 
delivery/courier; please follow the detailed instructions described in 
Part(I)(B)(1)(i) through (iii) of the Supplementary Information 
section.

FOR FURTHER INFORMATION CONTACT: Douglas Aburano, Environmental 
Engineer, Criteria Pollutant Section (AR-18J), Air Programs Branch, Air 
and Radiation Division, United States Environmental Protection Agency, 
Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 
353-6960, [email protected].

SUPPLEMENTARY INFORMATION: Throughout this document, the term ``you'' 
refers to the reader of this rule and/or to sources subject to the 
State rule, and the terms ``we'', ``us'', or ``our'' refer to EPA.
    On April 3, 2003, MDEQ submitted a NOX emission control 
plan to the EPA for inclusion in Michigan's SIP to meet the 
requirements of the Phase I NOX SIP Call. The revisions 
generally comply with the requirements of the Phase I NOX 
SIP Call. Included in this document are Michigan Rules 802 through 817. 
The information in this proposed conditional approval is organized as 
follows:

I. General Information
II. Background
    A. What is EPA proposing today?
    B. What are the NOX SIP Call general requirements?
    C. What is EPA's NOX budget and allowance trading 
program?
    D. EPA's Section 126 Rule in Michigan.
    E. What guidance did EPA use to evaluate Michigan's submittal?
    F. What is the result of EPA's evaluation of Michigan's program?
    G. NOX Allowance Allocations
    H. NOX Budget Permits
    I. What deficiencies must be addressed by MDEQ?
    J. What happens if MDEQ fails to address these deficiencies?
III. Michigan's Control of NOX Emissions
    A. When did Michigan submit the SIP revision to EPA in response 
to the NOX SIP Call?
    B. When did Michigan hold public hearings and what were the 
results?
    C. What is included in Michigan's NOX SIP Call 
Revision?
    D. What is the Compliance Supplement Pool?
    E. How does Michigan's NOX SIP affect sources subject 
to EPA's Section 126 Rule in the SIP Call Area?
IV. EPA's Proposal
V. Statutory and Executive Order Reviews

I. General Information

A. How Can I Get Copies Of This Document and Other Related Information?

    1. We have established an official public rulemaking file available 
for inspection at the Regional Office. EPA has established an official 
public rulemaking file for this action under ``Region 5 Air Docket 
MI84''. The official public file consists of the documents specifically 
referenced in this action, any public comments received, and other 
information related to this action. Although a part of the official 
docket, the public rulemaking file does not include Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. The official public

[[Page 8906]]

rulemaking file is the collection of materials that is available for 
public viewing at the Air Programs Branch, Air and Radiation Division, 
EPA Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604. EPA 
requests that if at all possible, you contact the person listed in the 
For Further Information Contact section to schedule your inspection. 
The Regional Office's official hours of business are Monday through 
Friday, 8:30 to 4:30, excluding Federal holidays.
    2. Electronic Access. You may access this Federal Register document 
electronically through the Regulations.gov Web site located at http://www.regulations.gov where you can find, review, and submit comments on 
federal rules that have been published in the Federal Register, the 
Government's legal newspaper, and are open for comment.
    For public commenters, it is important to note that EPA's policy is 
that public comments, whether submitted electronically or in paper, 
will be made available for public viewing at the EPA Regional Office, 
as EPA receives them and without change, unless the comment contains 
copyrighted material, CBI, or other information whose disclosure is 
restricted by statute. When EPA identifies a comment containing 
copyrighted material, EPA will provide a reference to that material in 
the version of the comment that is placed in the official public 
rulemaking file. The entire printed comment, including the copyrighted 
material, will be available at the Regional Office for public 
inspection.

B. How and To Whom Do I Submit Comments?

    You may submit comments electronically, by mail, or through hand 
delivery/courier. To ensure proper receipt by EPA, identify the 
appropriate rulemaking identification number by including the text 
``Public comment on proposed rulemaking Region 5 Air Docket MI84'' in 
the subject line on the first page of your comment. Please ensure that 
your comments are submitted within the specified comment period. 
Comments received after the close of the comment period will be marked 
``late.'' EPA is not required to consider these late comments.
    1. Electronically. If you submit an electronic comment as 
prescribed below, EPA recommends that you include your name, mailing 
address, and an e-mail address or other contact information in the body 
of your comment. Also include this contact information on the outside 
of any disk or CD ROM you submit, and in any cover letter accompanying 
the disk or CD ROM. This ensures that you can be identified as the 
submitter of the comment and allows EPA to contact you in case EPA 
cannot read your comment due to technical difficulties or needs further 
information on the substance of your comment. EPA's policy is that EPA 
will not edit your comment, and any identifying or contact information 
provided in the body of a comment will be included as part of the 
comment that is placed in the official public docket. If EPA cannot 
read your comment due to technical difficulties and cannot contact you 
for clarification, EPA may not be able to consider your comment.
    i. E-mail. Comments may be sent by electronic mail (e-mail) to 
[email protected]. Please include the text ``Public comment on 
proposed rulemaking Region 5 Air Docket MI84'' in the subject line. 
EPA's e-mail system is not an ``anonymous access'' system. If you send 
an e-mail comment directly without going through Regulations.gov, EPA's 
e-mail system automatically captures your e-mail address. E-mail 
addresses that are automatically captured by EPA's e-mail system are 
included as part of the comment that is placed in the official public 
docket.
    ii. Regulations.gov. Your use of Regulations.gov is an alternative 
method of submitting electronic comments to EPA. Go directly to 
Regulations.gov at http://www.regulations.gov, then click on the button 
``TO SEARCH FOR REGULATIONS CLICK HERE'', and select Environmental 
Protection Agency as the Agency name to search on. The list of current 
EPA actions available for comment will be listed. Please follow the 
online instructions for submitting comments. The system is an 
``anonymous access'' system, which means EPA will not know your 
identity, e-mail address, or other contact information unless you 
provide it in the body of your comment.
    iii. Disk or CD ROM. You may submit comments on a disk or CD ROM 
that you mail to the mailing address identified in Section 2, directly 
below. These electronic submissions will be accepted in WordPerfect, 
Word or ASCII file format. Avoid the use of special characters and any 
form of encryption.
    2. By Mail. Send your comments to: J. Elmer Bortzer, Acting Chief, 
Air Programs Branch, (AR-18J), U.S. Environmental Protection Agency, 
Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604. Please 
include the text ``Public comment on proposed rulemaking Region 5 Air 
Docket MI84'' in the subject line on the first page of your comment.
    3. By Hand Delivery or Courier. Deliver your comments to: J. Elmer 
Bortzer, Acting Chief, Air Programs Branch, (AR-18J), U.S. 
Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, 
18th floor, Chicago, Illinois 60604. Such deliveries are only accepted 
during the Regional Office's normal hours of operation. The Regional 
Office's official hours of business are Monday through Friday, 8:30 to 
4:30 excluding federal holidays.

C. How Should I Submit CBI To the Agency?

    Do not submit information that you consider to be CBI 
electronically to EPA. You may claim information that you submit to EPA 
as CBI by marking any part or all of that information as CBI (if you 
submit CBI on disk or CD ROM, mark the outside of the disk or CD ROM as 
CBI and then identify electronically within the disk or CD ROM the 
specific information that is CBI). Information so marked will not be 
disclosed except in accordance with procedures set forth in 40 CFR part 
2.
    In addition to one complete version of the comment that includes 
any information claimed as CBI, a copy of the comment that does not 
contain the information claimed as CBI must be submitted for inclusion 
in the official public regional rulemaking file. If you submit the copy 
that does not contain CBI on disk or CD ROM, mark the outside of the 
disk or CD ROM clearly that it does not contain CBI. Information not 
marked as CBI will be included in the public file and available for 
public inspection without prior notice. If you have any questions about 
CBI or the procedures for claiming CBI, please consult the person 
identified in the FOR FURTHER INFORMATION CONTACT section.

II. Background

A. What Is EPA Proposing Today?

    EPA is proposing to conditionally approve revisions to Michigan's 
SIP concerning the adoption of its NOX Rules, submitted on 
April 3, 2003. The rules meet the requirements of the Phase I 
NOX SIP Call with certain exceptions. MDEQ is in the process 
of adopting rules to correct these deficiencies. Once MDEQ has 
submitted the rule changes to address these deficiencies, we can take 
action to fully approve the SIP revision.

B. What Are the NOX SIP Call General Requirements?

    On October 27, 1998, EPA published a final rule entitled, ``Finding 
of Significant Contribution and Rulemaking for Certain States in the

[[Page 8907]]

Ozone Transport Assessment Group Region for Purposes of Reducing 
Regional Transport of Ozone,'' otherwise known as the ``NOX 
SIP Call.'' See 63 FR 57356. The NOX SIP Call requires 22 
states and the District of Columbia to meet NOX emission 
budgets during the five month period from May 1 through September 30 in 
order to reduce the amount of ground level ozone that is transported 
across the eastern United States. As the result of court actions, the 
compliance date for the first year has been changed to May 31, 2004 and 
the NOX SIP Call has been divided into two phases.
    EPA identified NOX emission reductions by source 
category that could be achieved by using highly cost-effective 
measures. The source categories included were large electric generating 
units (EGUs) and non-electric generating units (non-EGUs), internal 
combustion (IC) engines and cement kilns. EPA derived state-wide 
NOX emission budgets based on the implementation of these 
highly cost-effective controls for each affected jurisdiction to be met 
by the year 2007. Internal combustion engines are not addressed by 
Michigan in this submittal which responds to Phase I, but will be 
addressed in a response to EPA's Phase II requirements. 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 notice, EPA suggested that a cap and 
trade program for EGUs (fossil-fuel fired electric generating boilers 
and turbines serving a generator greater than 25 MW) and non-EGUs 
(large fossil-fuel fired industrial boilers and turbines) 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 (lb. NOX/mmBtu) 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). The 
NOX SIP Call State budgets also assume a 30 percent 
NOX reduction from cement kilns, and a 60 percent reduction 
from non-EGUs. The non-EGU control assumptions were applied at units 
whose maximum design heat input was 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. Phase I 
budgets did not include reductions from IC engines. EPA's Phase II 
NOX SIP Call will address reductions from these sources.
    To assist the states in their efforts to meet the SIP Call, the 
NOX SIP Call final rulemaking notice included a model 
NOX cap and trade 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 notice 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 (See 63 FR 57458-57459).
    There were several periods during which EPA received comments on 
various aspects of the NOX SIP Call emissions inventories. 
On March 2, 2000, EPA published additional technical amendments to the 
NOX SIP Call in the Federal Register (65 FR 11222). On March 
3, 2000, the DC Circuit issued its decision on the NOX SIP 
Call ruling in favor of EPA on all the major issues. Michigan v. EPA, 
213 F.3d 663 (D.C. Cir. 2000). The DC Circuit 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 DC Circuit's ruling on EPA's 
NOX SIP Call rule.
    On April 11, 2000, in response to the Court's decision, EPA 
notified Michigan of the maximum amount of NOX emissions 
allowed for the State during the ozone season. This emission budget 
reflected adjustments to Michigan's NOX emission budget to 
reflect the Court's decision that Georgia and Missouri should not be 
included in full. Although the Court did not order EPA to modify 
Michigan's budget, the EPA believes these adjustments are consistent 
with the Court's decision.
    On February 22, 2002 (67 FR 8396), EPA published a proposal that 
addresses the remanded portion of the NOX SIP Call Rule. 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 State's emission budget.

C. 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 an 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, Federal Register 
notice contains a full description of the EPA's model NOX 
budget trading program (See 63 FR 57514-57538 and 40 CFR part 96).
    Air emissions trading, in general, uses market forces to reduce the 
overall cost of compliance for pollution sources, such as power plants, 
while achieving 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 an emissions cap and trade program, the state or EPA sets a 
regulatory limit, or emissions budget or cap, for total mass emissions 
from a specific group of sources. The budget limits the total number of 
allowances for all sources 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 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 affected 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 or bank 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 
and in the most cost-effective manner.

D. EPA's Section 126 Rule in Michigan

    In a rulemaking separate from the NOX SIP Call, EPA 
placed requirements directly on sources in Michigan, and many other 
states in the eastern half of the country, to reduce NOX 
emissions that adversely affect downwind areas in other states. This 
rule is known as EPA's Section 126 Rule (65 FR 2764). The Section 126 
Rule is similar to the NOX SIP Call in that it is designed 
to address

[[Page 8908]]

the problem of downwind transport and many of the sources that would be 
affected by states' NOX SIPs are also affected by the 
Section 126 Rule. The sources that are required to reduce emissions 
under the Section 126 Rule are EGUs (units serving a generator with 
nameplate capacity greater than 25 MW) and non-EGUs (units with maximum 
design heat input greater than 250 mmBtu/hr). These rules are different 
in that the NOX SIP Call is a requirement placed upon states 
to develop rules that will reduce NOX emissions but it is up 
to the state to determine what sources to control.
    EPA issued the Section 126 rulemaking based on petitions filed by 
eight Northeastern States seeking to mitigate interstate transport of 
NOX. These petitions requested EPA to require NOX 
reductions from specific upwind NOX sources or source 
categories. EPA based its section 126 findings on the same technical 
work that was used in the NOX SIP Call.

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

    The final NOX SIP Call rule 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 Michigan's 
Oxides of Nitrogen Budget Trading Program for EGUs and non-EGUs. A 
cement kiln rule was included as part of a Federal Implementation Plan 
(FIP) that EPA proposed on October 28, 1998 (See 63 FR 56393). We used 
this proposed FIP cement kiln rule to evaluate Michigan's cement kiln 
rule.

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

    EPA has evaluated Michigan's April 3, 2003, SIP submittal and finds 
the majority of it approvable. The Michigan Oxides of Nitrogen Budget 
Trading Program is basically consistent with EPA's guidance and almost 
meets all of the requirements of the Phase I NOX SIP Call. 
EPA finds the NOX control measures in the Michigan's Oxides 
of Nitrogen Budget Trading Program generally approvable. If it becomes 
fully approved, the April 3, 2003, submittal will strengthen Michigan's 
SIP for reducing ground level ozone by providing NOX 
reductions beginning in 2004. EPA finds that the submittal contained 
the information necessary to demonstrate that Michigan 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.
    We identified certain deficiencies during our review but because 
MDEQ has been made aware of these problems and is currently in the 
process of addressing them, we are proposing to conditionally approve 
the submittal made by MDEQ on April 3, 2003. MDEQ requested this 
conditional approval of its April 2003 submittal in a letter dated 
January 9, 2004. In this letter, MDEQ has committed to submit fully 
adopted rules addressing the identified deficiencies by May 31, 2004. 
Upon receipt of these newly adopted rules eliminating all deficiencies, 
we can take action to fully approve Michigan's NOX SIP.

G. NOX Allowance Allocations

    Because the vast majority of the SIP submitted by MDEQ has been 
found approvable by EPA and because MDEQ has committed to address the 
deficiencies identified by EPA, by no later than May 31, 2004, EPA will 
allocate NOX allowances to the affected sources in Michigan 
per the allocation methodology found in the Michigan SIP after 
finalization of this conditional approval.

H. NOX Budget Permits

    State rules currently require the MDEQ to issue NOX 
Budget permits. Following EPA's final conditional approval of the 
Michigan NOX Rules into the Michigan SIP, the terms of any 
NOX Budget permit issued under the SIP-approved program are 
federally enforceable pursuant to the SIP.

I. What Deficiencies Must Be Addressed by MDEQ?

    In the review of Michigan's NOX SIP, EPA identified six 
deficiencies that need to be corrected before these rules can be fully 
approved. These deficiencies have been communicated to MDEQ and now, 
MDEQ is in the process of changing its rules to address these problems.
    Following is a list of the identified deficiencies:
    1. Rule 802(5) states, ``An oxides of nitrogen budget unit that is 
subject to a rule promulgated under section 126 of the Clean Air Act 
shall not be subject to this rule until the section 126 requirements no 
longer apply.'' Under this language, those oxides of nitrogen budget 
units that are subject to the Section 126 Rule and that would be 
subject to controls under the Michigan SIP are not covered by the SIP. 
The Section 126 Rule remains in place and will remain effective until 
EPA approves the Michigan SIP. The EPA cannot approve the Michigan SIP, 
and move forward to remove the Section 126 requirements, unless the SIP 
has in place regulations to achieve the necessary emissions reductions 
to meet the Phase I budget. In evaluating the SIP, EPA cannot take into 
consideration the emissions reductions required by the Section 126 
Rule. Because the Section 126 Rule would still be in place at the time 
EPA takes action on the Michigan SIP, oxides of nitrogen budget units 
that would otherwise be subject to controls under the Michigan SIP 
would not be covered at that time. Therefore, the SIP would not be 
providing sufficient emissions reductions to meet the Phase I budget 
and would not be approvable. This language must be removed from the 
State's rules. EPA will then take action to ensure that no unit is 
subject to both trading programs.
    2. The applicability of these rules is based on named counties in 
the southern portion of Michigan. While this applicability is 
sufficient to meet the requirements found in the SIP Call, it is not 
enough to remove all of the Section 126 requirements from the State. 
This is because there is one source, Detroit Edison's Harbor Beach 
unit, that is affected by Section 126 requirements, but is not in one 
of the counties affected by Michigan's NOX SIP call rule. 
Michigan has indicated a desire to include the Harbor Beach unit in the 
trading program in order to satisfy the Section 126 requirements for 
this source. To address this situation and enable EPA to remove all of 
the Section 126 requirements from Michigan after the Michigan 
NOX SIP has been approved, MDEQ must extend the 
applicability of the Michigan NOX SIP to that one source.
    3. Twenty-five ton exemption--States may develop alternative 25-ton 
NOX exemptions to the one included in the model rule 
provided they are based on permit restrictions that limit a unit's 
potential to emit during an ozone season to 25 tons or less and are not 
inconsistent with 40 CFR part 75 monitoring requirements. Michigan's 
regulation, Part 8. Emissions Limitations and Prohibitions--Oxides of 
Nitrogen, includes in Rule 802(2) the 25-ton exemption. The rule 
language is based on the model rule but provides additional options for 
qualifying for the exemption that involve emission monitoring or 
testing that is inconsistent with part 75.
    In addition, when a unit receives a 25-ton exemption, the unit's 
potential emissions (reflected as an equivalent number of allowances) 
must be removed

[[Page 8909]]

from the trading budget to avoid double counting. An exempt unit's 
emissions are included in the state's large EGU or large non-EGU 
emissions budget and therefore as allowances in the state's trading 
budget. EPA is concerned that Michigan's rule does not account for 
potential emissions from the exempt units. Neither the rule nor the SIP 
submittal specifies a procedure for removing from the trading budget 
the allowances reflecting the exempt unit's potential emissions. To 
address the deficiencies related to the 25-ton exemption provisions 
including the related budget adjustments, Michigan must modify its 
regulations to ensure an exempt source's emissions are less than 25 
tons in each ozone season and provide a process for adjusting the 
trading budget accordingly. EPA provided MDEQ suggested language 
modifying the regulations.
    4. New source set-aside--The new source set-aside provisions of 
Sec.  811(1)(a) specify the set-aside pool allocation. The rule 
contains a typographical error regarding the number of allowances to be 
set-aside after 2006. A footnote in the Michigan SIP submittal 
highlights this error and indicates the correct number. This error 
should be corrected since the official regulations are the basis for 
all allocations. Also, Section 811(2) appears to address the issue of 
adjusting a new source's allowances to account for reduced utilization, 
but is incomplete and, for example, lacks the adjustment formula. This 
section also appears to specify how remaining set-aside allowances are 
determined, but that matter is also addressed in Section 811(3). 
Michigan must clarify these provisions. EPA provided MDEQ suggested 
language to clarify these provisions.
    5. Language in Sec.  802(1)(a) appears to allow the State to exempt 
an EGU for which applicability has not been determined. EPA cannot 
approve any exemption that is solely at the discretion of the State and 
does include EPA approval as well. The language relating to exemptions 
based solely on the State's discretion must be removed as a condition 
of final approval.
    6. Language in Sec.  804 relating to retired unit exemptions must 
be modified to include the requirement that a unit that qualifies for 
this exemption, is not required to have a permit, and subsequently 
resumes operation will lose the exemption at the time of resumption of 
operation. EPA provided MDEQ suggested language modifying this section 
of the regulations.

J. What Happens if MDEQ Fails To Address These Deficiencies?

    In a letter dated, January 9, 2004, MDEQ committed to submit fully 
adopted rules addressing the deficiencies by May 31, 2004. If a 
submittal is not made by this date, this conditional approval will 
automatically revert to a disapproval of the Michigan NOX 
SIP.

III. Michigan's Control of NOX Emissions

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

    On April 3, 2003, MDEQ submitted a final revision to its SIP to 
meet the requirements of the Phase I NOX SIP Call.

B. When Did Michigan Hold Public Hearings and What Were the Results?

    Public hearings were held on December 3, 2001 and January 22, 2003. 
MDEQ holds public hearings on rules at the end of a 30-day public 
comment period. MDEQ either modified its rules to accommodate the 
comments received or explained why the rules were not changed in light 
of the comments.

C. What Is Included in Michigan's NOX SIP Call Revision?

    Michigan allows, as in the model rule, EGUs and non-EGUs 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 system or technology that 
achieves the same emission decreases (a 30% reduction). Michigan's SIP 
revision to meet the requirements of the NOX SIP Call 
consists of the revision of Michigan Rules 802 through 817. The 
regulations 802 through 816 affect EGUs and non-EGUs. Rule 817 applies 
requirements to cement manufacturing facilities.
    Michigan's SIP revision to meet the requirements of the 
NOX SIP Call consists of the following Michigan Rules:
     802 Applicability under oxides of nitrogen 
budget trading program
     803 Definitions for oxides of nitrogen budget 
trading program
     804 Retired unit exemption from oxides of 
nitrogen budget trading program
     805 Standard requirements of oxides of nitrogen 
budget trading program
     806 Computation of time under oxides of nitrogen 
budget trading program
     807 Authorized account representative under 
oxides of nitrogen budget trading program
     808 Permit requirements under oxides of nitrogen 
budget trading program
     809 Compliance certification under oxides of 
nitrogen budget trading program
     810 Allowance allocations under oxides of 
nitrogen budget trading program
     811 New source set-aside under oxides of 
nitrogen budget trading program
     812 Allowance tracking system and transfers 
under oxides of nitrogen budget trading program
     813 Monitoring and reporting requirements under 
oxides of nitrogen budget trading
     814 Individual opt-ins under oxides of nitrogen 
budget trading program
     815 Allowance banking under oxides of nitrogen 
budget trading program
     816 Compliance supplement pool under oxides of 
nitrogen budget trading program
     817 Emission limitations and restrictions for 
Portland cement kilns
    Michigan's Oxides of Nitrogen Budget Trading Program (Rules 802 
through 816) establishes and requires a NOX allowance 
trading program for large EGUs and non-EGUs. These rules establish a 
NOX cap and allowance trading program for the ozone control 
seasons beginning May 31, 2004. Michigan Rule 817, not part of the 
trading program, applies to cement kilns and also requires control 
during the ozone season starting on May 31, 2004. Beginning in 2005, 
the ozone control period is May 1 through September 30.
    The State of Michigan 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 EGUs and non-
EGUs. Michigan's Oxides of Nitrogen Budget Trading Program is based 
upon EPA's model rule, therefore, Michigan sources are allowed to 
participate in the interstate NOX allowance trading program 
that EPA is administering for the participating states. The State of 
Michigan has adopted regulations that, revised consistent with the 
conditions noted above, are substantively identical to 40 CFR part 96. 
Therefore, with the conditions noted, pursuant to 40 CFR 51.121(p)(1), 
Michigan's SIP revision is being proposed for a conditional approval as 
satisfying the State's NOX emission reduction obligations. 
Under Rule 810, Michigan allocates NOX allowances to the EGU 
and non-EGU units that are affected by these requirements. The 
NOX trading program applies to EGUs (fossil fuel fired 
boilers

[[Page 8910]]

and turbines serving a generator with a nameplate capacity greater than 
25 MW or more that sell any amount of electricity) as well as non-EGUs 
(industrial boilers and turbines that have a maximum design heat input 
greater than 250 mmBtu per hour). Each NOX allowance permits 
a source 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.
    Source owners will monitor and report their NOX 
emissions by using methodologies 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 State limits, for example, reasonably 
available control technology (RACT), new source performance standards, 
or Title IV (the Federal Acid Rain program).
    Michigan's Oxides of Nitrogen Budget Trading Program establishes 
requirements for cement manufacturing facilities, however, these 
sources are subject to NOX reduction requirements but do not 
participate in the NOX trading program. Michigan's submittal 
does not rely on any additional reductions beyond the anticipated 
federal measures in the mobile and area source categories.
    Michigan's submittal demonstrates that the Phase I NOX 
emission budgets established by EPA will be met because MDEQ agrees 
with all of the assumptions, projections, etc. used by EPA to determine 
the 2007 budgets. Because Michigan has adopted all of the same controls 
assumed by EPA in developing the State's NOX budget, the 
actual emissions in 2007 should be the same as those EPA has projected 
to be the State's 2007 budget.

D. 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 otherwise 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 beyond 
all applicable requirements after September 30, 1999, but before May 
31, 2004 (i.e., early reductions). This allows sources that cannot 
install controls prior to May 31, 2004, to purchase other sources' 
early reduction credits 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)). Michigan has 
opted to issue the State's compliance supplement pool through the Early 
Reduction Credit program only.

E. How Does Michigan's NOX SIP Affect Sources Subject to 
EPA's Section 126 Rule in the SIP Call Area?

    All of the existing sources in the SIP Call area that are subject 
to EPA's Section 126 Rule are also subject to Michigan's NOX 
rules. There is, however, one Section 126 affected source that falls 
outside of the SIP Call affected area. This source is Detroit Edison's 
Harbor Beach unit and it is located in Huron County. While Huron County 
falls outside of the area covered by the Michigan's NOX SIP 
rules, MDEQ is in the process of modifying the applicability of the 
NOX Rules to include this one source. Detroit Edison 
requested inclusion of the Harbor Beach unit in the State trading 
program because it would then be able to take advantage of the trading 
provisions that are not otherwise available. Since Michigan adopted the 
same applicability thresholds for EGU and non-EGU sources as those 
found in EPA's Section 126 Rule, all of the same sources will be 
covered once MDEQ has adopted rules to include the Harbor Beach unit. 
The Michigan trading budget was not increased as a result of adding the 
Harbor Beach unit.

IV. EPA Proposal

    EPA is proposing to conditionally approve the Michigan's SIP 
revision consisting of its Oxides of Nitrogen Budget Trading Program 
and its rule that affects cement kilns, which was submitted on April 3, 
2003. EPA finds that Michigan's submittal is conditionally approvable 
because it meets the requirements of the Phase I NOX SIP 
Call with some exceptions.

V. Statutory and Executive Order Reviews.

Executive Order 12866; Regulatory Planning and Review

    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.

Executive Order 13211: Actions That Significantly Affect Energy Supply, 
Distribution, or Use

    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).

Regulatory Flexibility Act

    This action merely approves state regulations as meeting Federal 
requirements and imposes no additional requirements beyond those 
imposed by state regulations. 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.).

Unfunded Mandates Reform Act

    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).

Executive Order 13175 Consultation and Coordination With Indian Tribal 
Governments

    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).

[[Page 8911]]

Executive Order 13132 Federalism

    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.

Executive Order 13045 Protection of Children from Environmental Health 
and Safety Risks

    This rule also is not subject to Executive Order 13045 ``Protection 
of Children from Environmental Health Risks and Safety Risks'' (62 FR 
19885, April 23, 1997), because it is not economically significant.

National Technology Transfer Advancement Act

    In reviewing plan 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 plan submission for failure to use VCS. It would thus 
be inconsistent with applicable law for EPA, when it reviews a plan 
submission, to use VCS in place of a plan 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.

Paperwork Reduction Act

    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.).

Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. Section 804 exempts from section 801 the following types 
of rules: (1) Rules of particular applicability; (2) rules relating to 
agency management or personnel; and (3) rules of agency organization, 
procedure, or practice that do not substantially affect the rights or 
obligations of non-agency parties. 5 U.S.C. 804(3). EPA is not required 
to submit a rule report regarding this action under section 801 because 
this is a rule of particular applicability.
    Under section 307(b)(1) of the Clean Air Act, petitions for 
judicial review of this action must be filed in the United States Court 
of Appeals for the appropriate circuit by April 26, 2004. 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, Oxides of 
nitrogen, Ozone, Reporting and recordkeeping requirements.

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

    Dated: February 17, 2004.
Bharat Mathur,
Acting Regional Administrator, Region 5.
[FR Doc. 04-4253 Filed 2-25-04; 8:45 am]
BILLING CODE 6560-50-P