[Federal Register Volume 69, Number 95 (Monday, May 17, 2004)]
[Rules and Regulations]
[Pages 27837-27843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10981]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[CA 280-0444; FRL-7657-3]


Revisions to the California State Implementation Plan; San 
Joaquin Valley Unified Air Pollution Control District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: EPA is finalizing approval of revisions to the San Joaquin 
Valley Unified Air Pollution Control District (SJVUAPCD or District) 
portion of the California State Implementation Plan (SIP). In the 
Federal Register on February 13, 2003, EPA proposed approval of revised 
SJVUAPCD Rules 2020 (permit exemptions) and 2201 (New Source Review or 
NSR for stationary sources). The rule revisions we are approving into 
the SIP address deficiencies identified in our July 19, 2001 limited 
approval and limited disapproval of the previous versions of these 
rules.

EFFECTIVE DATE: June 16, 2004.

ADDRESSES: You can inspect copies of the administrative record for this 
action at EPA's Region IX office during normal business hours by 
appointment. You can inspect copies of the submitted SIP revisions by 
appointment at the following locations:
    Environmental Protection Agency, Region IX, 75 Hawthorne Street, 
San Francisco, CA 94105-3901.
    Copies of the submitted Rules are also available for inspection at 
the following locations:
    California Air Resources Board, Stationary Source Division, Rule 
Evaluation Section, 1001 ``I'' Street, Sacramento, CA 95814.
    San Joaquin Valley Unified APCD, 1990 E. Gettysburg Avenue, Fresno, 
CA 93726.
    A copy of the rules may also be available via the Internet at 
http://www.arb.ca.gov/drdb/drdbltxt.htm. Please be advised that this is 
not an EPA Web site and may not contain the same version of the rules 
that were submitted to EPA.

FOR FURTHER INFORMATION CONTACT: Ed Pike, Permits Office [AIR-3], Air 
Division, EPA Region IX, (415) 972-3970, [email protected].

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

[[Page 27838]]

I. Background

    On February 13, 2003 (68 FR 7330), EPA proposed to approve the 
following rules into the California SIP.

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              Local agency                  Rule No.              Rule title              Adopted     Submitted
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SJVUAPCD................................         2020  Exemptions.....................     12/19/02     12/23/02
SJVUAPCD................................         2201  New and Modified Stationary         12/19/02     12/23/02
                                                        Source Review Rule.
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    We proposed to approve these rules because we determined that they 
addressed the deficiencies noted in our July 19, 2001 limited approval 
and limited disapproval of the previous versions of these rules (66 FR 
37587) and otherwise complied with relevant Clean Air Act (CAA or Act) 
requirements. Our February 13, 2003, Federal Register notice of 
proposed rulemaking (NPRM) contains more information on the rules and 
our evaluation.
    EPA's limited disapproval cited three deficiencies in the previous 
versions of Rules 2020 and 2201. First, EPA determined that the 
previous version of Rule 2201 was not approvable because its offset 
tracking equivalency system failed to contain a mandatory remedy. We 
also found the previous version of Rule 2201 deficient because section 
4.5 of the rule exempted agricultural sources from permitting. Finally, 
we concluded the previous version of Rule 2020 was not approvable 
because it did not require all sources making modifications that result 
in a significant increase in emissions to meet the Lowest Achievable 
Emission Rate (LAER). For a more detailed discussion of these three 
rule deficiencies please see our July 19, 2001 final limited approval 
and limited disapproval at 66 FR 37587 and the accompanying Technical 
Support Document dated August 30, 1999 (``1999 TSD'').
    EPA's July 2001 limited disapproval informed the District that the 
following actions were required to correct the rule deficiencies:
    1. The District must revise Rule 2201 to provide a mandatory, 
enforceable and automatic remedy to cure any annual shortfall and, in 
the future, prevent shortfalls in the District's New Source Review 
Offset Equivalency Tracking System.
    2. The District must remove the agricultural exemption from Rule 
2020.
    3. The District must revise Rule 2201 to ensure that all sources 
meet LAER \1\ if they are allowed to make a significant increase in 
their actual emissions rate.

    \1\ Many California Districts use the term ``Best Available 
Control Technology'' (BACT) with a definition equivalent to LAER. 
Please see the 1999 TSD for additional information on the District's 
definition of BACT.
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See 66 FR 37590. The District has addressed each of these deficiencies.

    The District revised Rule 2201 to clarify and expand the 
requirements for tracking the equivalency of the District's NSR offset 
requirements to the federal NSR program offset requirements. The 
revised District rule includes specific and automatic remedies to 
address any shortfall found by the tracking system or any failure to 
implement the tracking system. The revisions to section 7.0 of Rule 
2201 reasonably satisfy EPA's requirement for mandatory, enforceable 
and automatic remedies to address any shortfalls and prevent future 
ones.
    To address the deficiency in Rule 2020, the District deleted the 
previous permit exemption for agricultural sources. We note that the 
State has also removed a similar blanket exemption, thereby providing 
the District with authority to require air permits for agricultural 
sources, including federally required NSR permits.\2\
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    \2\ On September 22, 2003, the Governor signed SB700 into law. 
The legislation includes an amendment to California Health & Safety 
Code section 42310 to delete the previous permit exemption for 
agricultural sources.
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    Finally, the District revised Rule 2201 to require LAER for all 
modifications considered major under federal regulations. Sections 3.24 
and 4.1.3 provide that any major modification, as defined in the 
federal regulations in 40 CFR 51.165, must meet LAER. We conclude this 
revision reasonably addresses the noted deficiency.

II. Public Comments and EPA Responses

    EPA's proposed action provided a 30-day public comment period. 
During this period, we received comments from the following parties.
    1. Seyed Sadredin, SJVUAPCD; letter dated March 13, 2003.
    2. Caroline Farrell, Center on Race, Poverty & the Environment, on 
behalf of the Association of Irritated Residents (AIR); letter dated 
March 17, 2003.
    3. David Farabee, Pillsbury Winthrop, LLP, on behalf of the Western 
States Petroleum Association (WSPA); letter dated March 17, 2003.\3\
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    \3\ We also received an e-mail on March 14, 2003 from Cathy 
Reheis-Boyd, Acting President of WSPA, asking EPA to consider 
incorporating language into the final notice that indicates a 
willingness to work with the District to develop a flexible tracking 
system that accounts for all differences between the local and 
federal permitting systems. We do not understand this to be a 
comment on the decision to approve the District's rule or a 
suggestion that the tracking system fails to accurately account for 
the various differences between the local and federal programs. We 
agree, however, that, should the District choose to revise its 
tracking system provisions, it will be important for EPA to continue 
to work with the District to ensure the system accurately accounts 
for these differences.
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    4. Ann Harper, Earthjustice; letter dated March 17, 2003.
    These comments and our responses are summarized below.
    The District and WSPA support approval of the revised rules into 
the SIP, but argue that EPA should revise or clarify various preamble 
statements, in particular those regarding the creditability of certain 
``pre-1990'' Emission Reductions Credits.\4\ Earthjustice and AIR 
oppose approval of Rule 2201 for the reasons described below.
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    \4\ These are emissions reductions banked as credits before the 
1990 Clean Air Act Amendments. This notice uses the term ``pre-
baseline'' emission reduction credits to clarify that the issue is 
tied not solely to the 1990 date, but the date that an area uses as 
its emissions inventory baseline date.
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    In addition to these comments, EPA received four other letters 
related to the proposed action after the close of the comment period:
    1. Paul Fanelli, Manufacturers Council of the Central Valley 
(MCCV); letter dated March 21, 2003. This letter is addressed to the 
Regional Administrator and does not specifically comment on the 
proposed approval notice. The letter instead notes that ``The MCCV has 
been advised that the EPA Region IX staff has formulated policy 
regarding pre-1990 Emission Reduction Credits (ERC's)'' and raises 
concerns with such policy formulation.
    2. Joe Neves, Kings County Board of Supervisors; letter dated April 
2, 2003. The letter echoes concerns raised by the District regarding 
the treatment of pre-1990 Emission Reduction Credits.

[[Page 27839]]

    3. L.W. Clark, Independent Oil Producers' Agency (IOPA), letter 
dated April 22, 2003. IOPA argues pre-1990 emission reduction credits 
should not be discounted in any equivalency demonstration.
    4. Harley Pinson, Occidental of Elk Hills (Oxy); letter dated July 
1, 2003. Oxy notes in its letter that it previously submitted comments 
regarding the proposed rule in its capacity as a member of WSPA, but 
adds that it would like to reiterate some of the concerns raised by 
WSPA, the District and others.
    We have not prepared separate responses to these late comments. Our 
responses to the timely comments sufficiently address their concerns.

A. General Equivalency Tracking System Issues

    Comment 1: WSPA expresses concern that sources in compliance with 
District Rules 2020 and 2201 may not comply with federal offset 
requirements because EPA noted that sources should ``ensure that the 
emission reductions used to satisfy offset requirements meet federal 
creditability criteria.'' WSPA writes that this statement suggests 
sources that comply with Rule 2201 may still not meet pertinent federal 
offset requirements. WSPA urges EPA to clarify that compliance with the 
District's SIP-approved NSR rule satisfies federal offset requirements 
and that a separate federal emission reduction creditability analysis 
is not necessary.
    Response: EPA agrees that a source that complies with the 
applicable District SIP-approved NSR rule would be in compliance with 
the provisions of the Clean Air Act that the District SIP rule 
implements. As EPA explained in the NPRM, with the exception of the 
requirement to determine the surplus value of emission reduction 
credits at the time of use, the District rule applies the same criteria 
for determining the creditability of such emission reduction credits as 
the CAA. See 68 FR 7333. As a result, sources must continue to meet CAA 
creditability requirements as incorporated in sections 4.5 and 3.2.1 of 
Rule 2201. The equivalency demonstration in Rule 2201 provides some 
flexibility regarding surplus adjusting but the rule does not otherwise 
exempt sources from obtaining creditable emission reduction credits to 
meet offset requirements. Once these other requirements are met, 
nothing in section 7.1.5 requires the District to withdraw a permit 
issued in reliance on an emission reduction credit that is of lesser 
surplus value at the time of use under federal criteria.\5\ Rule 2201 
allows such credits to be used as long as equivalency is demonstrated 
annually.\6\ Should the District allow too many non-surplus emission 
reductions to be used as offsets, the remedy is outlined in section 
7.4. The District will retire additional creditable reductions that 
have not been used as offsets and have been banked or generated as a 
result of enforceable permitting actions. If a deficit remains, the 
District must implement the requirements specified in the federal 
rules.
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    \5\ The District's rule provides for EPA review of the 
District's creditability determinations not for purposes of 
reviewing whether individual permitting decision rely on ERCs that 
are not surplus at the time-of-use, but to ensure the District's 
program satisfies the offset requirements of the Act. Accordingly, 
section 7.1.5 of District Rule 2201 provides that EPA may review the 
District's creditability determination to ensure that the emission 
reductions are ``real, surplus, quantifiable, enforceable, and 
permanent.''
    \6\ We explained our understanding of the District's rule in our 
testimony before the California Energy Commission regarding the 
offsets relied upon in the NSR permit for Calpine's San Joaquin 
Valley Energy Center. We noted that the District rule allowed 
Calpine to rely on credits considered acceptable under the District 
rules but that would be non-surplus under the federal rules. We 
added that the District would need to address any shortfall that 
resulted in the creditable emission reductions needed to satisfy the 
Clean Air Act offset requirements. A copy of this testimony has been 
added to the administrative record for today's action.
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    Comment 2: WSPA disagrees with EPA's determination that the offset 
equivalency tracking system only covers permits for sources with 
authority to construct (ATC) applications deemed complete on or after 
August 20, 2001. WSPA argues that because EPA granted limited approval 
to a prior version of the tracking system in its July 19, 2001 final 
action, EPA cannot rely on the fact that it subsequently required 
additional changes to the tracking system to exclude sources covered by 
ATC applications deemed complete before August 20, 2001. EPA should 
clarify that even sources that have permit applications deemed complete 
before August 20, 2001 should be treated as covered by the District's 
tracking system.
    Response: Section 7.3.1 of District Rule 2201 limits the scope of 
the tracking system to ``new and modified sources for which a complete 
application for Authority to Construct was submitted after August 20, 
2001.'' This date aligns with the effective date of EPA's July 19, 2001 
limited approval and limited disapproval of the previous version of 
Rule 2201. Prior to August 20, 2001, the SIP required offsets but did 
not include a requirement to track and demonstrate offset equivalency. 
The rule being approved into the SIP today clearly specifies the period 
covered by Rule 2201. Whether we use the effective date of the prior 
approval or the terms of the current rule, we would still limit 
allowances for non-surplus credits under the equivalency tracking 
system to sources submitting ATCs after August 20, 2001 unless the 
District changes the rule to include these sources in the tracking 
system.
    Comment 3: WSPA notes that EPA has concluded that the District may 
not rely on the application of LAER requirements to newly constructed 
federal minor sources for purposes of demonstrating equivalency with 
federal NSR requirements because the District's LAER rules do not 
require these minor sources to make actual emission reductions. WSPA 
observes that despite this finding, the District's rules result in 
emissions from new minor sources that are substantially lower than 
would be the case under federal NSR requirements. WSPA also observes 
that in certain cases, the District's NSR program does reduce actual 
emissions from sources that are not major under federal NSR. WSPA 
encourages EPA to work with the District to assess further approaches 
for evaluating the overall effectiveness of the District's NSR rules as 
compared to federal NSR requirements.
    Response: EPA will continue to work with the District to assess 
where more stringent District requirements result in actual emission 
reductions that may be used to compensate for any less stringent offset 
requirements. It is important to reiterate, however, that the exercise 
is to demonstrate that the District achieves real reductions in the 
inventory of emissions through requirements more stringent than the 
Act's. For this reason, construction of a new source, even if it adds 
fewer new emissions than might occur in other areas, does not reduce 
real emissions from the air and the baseline inventory. The purpose of 
the tracking system is not to make creditable certain actions that do 
not otherwise qualify as offsets, such as avoided possible emission 
increases. CAA section 173(c)(2) requires that offsets be reductions in 
``actual emissions.'' As commenter notes, there may be examples where 
actual reductions of emissions in the air and in the inventory do occur 
and we will assess these examples with the District.
    Comment 4: WSPA notes that the equivalency tracking program 
requires the District to demonstrate equivalency with the federal NSR 
rules in effect on November 14, 2002. See Rule 2201, section 7.1.1. 
WSPA observes that

[[Page 27840]]

newly promulgated federal NSR Reform rules took effect on March 3, 2003 
and urges EPA to work promptly with the District to incorporate the new 
federal NSR rules into the equivalency demonstration requirement.
    Response: On December 31, 2002, EPA finalized revisions to the 
federal NSR rules (``NSR Reform''). 67 FR 80186. Pursuant to the 
revised rules in 40 CFR 51.165, permitting agencies revising their 
rules to meet NSR Reform must adopt and submit such revisions to EPA by 
January 2, 2006. As suggested by the comment, EPA is working with the 
District to determine how the District will implement NSR Reform, 
although the rule does not provide for establishing a different 
deadline for the District.
    Comment 5: WSPA encourages EPA to continue to work with the 
District to develop alternative NSR rules that demonstrate equivalency 
with federal offset requirements, while accounting for the unique 
characteristics of the District's permitting system. WSPA also suggests 
that more flexible approaches to satisfying federal offset requirements 
may be appropriate in other jurisdictions and encourages EPA to 
consider alternative approaches in other states and air districts.
    Response: EPA acknowledges WSPA's support for alternative 
approaches to satisfying federal emissions offset requirements and will 
consider submissions from other jurisdictions on a case-by-case basis.

B. Determination of Surplus Value of Credits

    Comment 6: WSPA agrees that creditable emission reductions must be 
surplus when created and either used immediately to offset emissions or 
banked for later use. However, WSPA argues that nothing in the Clean 
Air Act or EPA regulations requires banked emission reduction credits 
to be surplus at the time of use. WSPA suggests that EPA revisit its 
position on the treatment of credits banked for later use in order to 
assure that the District's banking program remains effective.
    Response: We disagree with WSPA's assertion that the Clean Air Act 
does not require emission reduction credits to be surplus at time of 
use. The surplus requirement derives from CAA section 173(c)(2), which 
provides, ``Emission reductions otherwise required by this Act shall 
not be creditable as emissions reductions for purposes of any such 
offset requirement.'' We believe the provision, by focusing on emission 
reductions ``for purposes'' of the offset requirement, is clear that 
the creditability of an emission reduction is to be determined at the 
time it is used as an offset. See also CAA Sec.  173(a)(1)(A) 
(requiring ``actual'' emission reductions equal to the total tonnage of 
increase at the time construction is commenced). Even if we found this 
language ambiguous, however, the most reasonable interpretation is to 
reconcile creditability, including the surplus value, no earlier than 
at the time of use when the permitting agency formally determines that 
an applicant meets Clean Air Act requirements for an authority to 
construct permit. WSPA's interpretation that emission reduction credits 
retain their value for all time is inconsistent with the purposes of 
section 173(c)(2) and related requirements of Part D of Title I of the 
Act that require continuing air pollution reductions in nonattainment 
areas.
    For example, one of the purposes of this requirement is to ensure 
that offsets are real reductions in the area's emissions inventory. 
Without ``surplus adjusting'' at time of use, there is no assurance 
that emissions reductions have not already been counted in the area's 
plan as a decrease in the inventory. If a reduction is otherwise 
required by a subsequently adopted rule, the reduction is typically 
included in the emissions reduction benefits of the rule incorporated 
into the SIP. This inconsistency with the requirement for reasonable 
further progress is one reason why EPA believes the ``surplus-at-time-
of-use'' requirement is consistent with the goals of the Act.
    WSPA's reading of the surplus requirement of section 173(c)(2) 
would diminish it to a mere timing provision with no broader air 
quality protection function. WSPA's interpretation would mean that 
sources making emission reductions that they know will be required 
would be able to use these emission reduction credits for all time as 
long as they are made before officially required. Sources would be 
motivated to make these ``early'' reductions in order to preserve these 
emissions for future use. If such a ``loophole'' in section 173(c)(2) 
did exist, the result would be that the emission reduction benefits of 
many CAA requirements such as Reasonably Available Control Technology 
(RACT) for existing sources would be lost because the reductions could 
be used to allow increases in emissions at the same source or other 
sources. This is not a reasonable interpretation of section 173(c)(2). 
A more reasonable interpretation is that Congress established section 
173(c)(2) at least in part to preserve the benefits of other CAA 
requirements and that creditability must instead be determined when a 
stationary source uses a credit to meet offset requirements.

C. Enforceability of Equivalency Tracking System

    Comment 7: AIR contends that EPA should not approve Rules 2020 and 
2201 because the District's revised rules remain unenforceable. AIR 
urges EPA to consider the District's past failure to meet statutory or 
regulatory reporting deadlines before relying on the District's 
commitment to submit annual offset equivalency demonstration reports. 
Accordingly, AIR recommends that EPA reject any remedy hinging on the 
District's compliance with reporting requirements. Likewise, 
Earthjustice contends that EPA's reliance on the District's promise of 
compliance is unjustified and unreasonable in light of the District's 
history of noncompliance with the CAA.
    Response: EPA agrees that the District's NSR program must generate 
real, enforceable reductions in emissions that meet all EPA 
creditability requirements. Accordingly, EPA's July 19, 2001 limited 
approval of Rules 2020 and 2201 directed the District to include in the 
Rule 2201 offset equivalency tracking system ``a mandatory and 
enforceable remedy to cure any annual shortfall and prevent future 
shortfalls.'' 66 FR 37587. EPA believes the District's revised Rule 
2201 addresses this concern. Section 7.4.1 of Rule 2201 establishes two 
remedies that would take effect if the District fails to demonstrate 
equivalency with federal NSR offset requirements. First, the District 
will retire any unused emission reduction credits that meet federal 
creditability criteria to make up for any shortfall in the amount of 
federal creditable emission reductions required. Rule 2201, section 
7.4.1.1. If the shortfall persists after the District retires unused 
federally creditable emission reduction credits, the District must also 
apply federal offset requirements to all permits issued after the 
annual demonstration deadline. Rule 2201, section 7.4.1.2. As we stated 
in our NPRM, EPA has determined that these remedies satisfy the 
concerns raised in our July 19, 2001 limited approval of Rule 2201.
    While EPA acknowledges AIR's concern regarding the possible failure 
to meet reporting deadlines, we believe the current rules provide 
adequate remedies for any possible noncompliance. For example, section 
7.4.1.1 of Rule 2201 specifies that if EPA determines that the 
District's demonstration is erroneous, the mandatory and enforceable 
remedies discussed in the preceding paragraph will automatically be 
imposed. In

[[Page 27841]]

addition, section 7.4.2.3 specifically addresses the consequences 
should the District fail to submit the required report to EPA and the 
public. These provisions include specific, automatic remedies that 
provide safeguards should the District be unable to meet the 
equivalency demonstration requirements. These remedies will become 
federally enforceable upon the effective date of today's action.
    Comment 8: Earthjustice argues that the District's offset 
equivalency tracking system fails to comply with ``some of the most 
basic elements'' of the Clean Air Act. Specifically, Earthjustice 
believes the District's annual equivalency demonstration ``does little 
more than ``track and report'' annual shortfalls in the District's 
system.'' Earthjustice expresses concern that a year or more may pass 
before any remedy to cure annual shortfalls takes effect. Earthjustice 
claims that such a delay is unreasonable and violates the Act.
    Response: As noted above, EPA has concluded that the provisions of 
District Rule 2201, section 7.4.1 provide automatic and mandatory 
enforceable remedies in the event that an annual shortfall in the 
District's offset equivalency tracking system occurs. While it is true 
the remedies set forth in section 7.4.1 take effect only after the 
District fails to demonstrate equivalency with federal NSR offset 
requirements, CAA section 173(a)(1)(A) allows for this type of 
aggregate demonstration (please see response to Comment 9 for further 
discussion). The reporting schedule is unlikely to cause a significant 
delay compared to permit-by-permit review of annual aggregate 
equivalency. Accordingly, EPA has concluded that the District's program 
reasonably implements section 173(a)(1) and (c) of the Act.

D. Use of Pre-1990 Emission Reduction Credits (ERCs)

    Comment 9: AIR argues the District's NSR program improperly relies 
on pre-1990 emission reduction credits without adequately accounting 
for these credits. AIR contends that the District may not use pre-1990 
emission reduction credits without verifying that the credits are 
surplus (i.e., in excess of emission reductions expressly required by 
the Clean Air Act). AIR also notes that there are ``very real 
concerns'' that the pre-1990 emission reduction credits are not 
``actual or quantifiable.''
    Response: Section 7.1.3 of Rule 2201 requires the Air Pollution 
Control Officer to track the surplus value of ``creditable'' emission 
reductions used as offsets. Section 7.1.5 defines ``creditable'' for 
purposes of this tracking as emission reductions that are real, 
surplus, quantifiable, enforceable and permanent. EPA agrees that pre-
baseline emission reduction credits create special challenges in 
meeting these requirements. Thus, EPA agrees with AIR's comment insofar 
as it suggests the need to carefully scrutinize the creditable value of 
pre-baseline emission reduction credits in the equivalency tracking 
system.
    However, to the extent AIR challenges EPA's authority to allow 
individual sources to rely on pre-baseline credits for offsetting 
purposes, EPA believes AIR's arguments are addressed by our July 19, 
2001 limited approval of the District's NSR rules. In that notice, EPA 
concluded that the District can rely on pre-baseline credits in issuing 
individual construction permits provided it demonstrates sufficient 
creditable offsets are available on an aggregate basis. 66 FR 37588-89. 
EPA believes this conclusion is reasonable in light of the requirements 
of CAA Sec.  173(a)(1)(A), which provides that offset requirements are 
satisfied if ``total allowable emissions from existing sources in the 
region, from new or modified facilities which are not major emitting 
facilities and from the proposed sources, will be sufficiently less 
than total emissions from existing sources.'' The language of section 
173(a)(1)(A) supports the District's reliance on aggregate emissions to 
demonstrate equivalency. See also 57 FR 13498, 13508 (Apr. 16, 1992) 
(noting, ``[f]or purposes of equity, EPA encourages States to allow the 
use of pre-enactment [i.e., pre-baseline] emission reduction credits 
for offsetting purposes' and establishing the requirements for States 
to meet if they wish to allow these credits).\7\
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    \7\ For further discussion on the ability of States to make up 
for sources' use of non-surplus emission reduction credits, see the 
August 26 1994 memo from John Seitz, Director, Office of Air Quality 
Planning and Standards, to David Howekamp, Director, Region IX, Air 
and Toxics Division (``Seitz Memo''). The memo explains, ``States 
may provide other reductions to cover all or some portion of the 
emission reductions required for ensuring ERC's reflect current RACT 
levels.'' The memo cites the 1994 Economic Incentive Program rule 
and guidance, which provided, ``[T]he Act does not require that 
offsets be secured by the new source. Rather, any portion of the 
necessary offsets may be generated by the local air quality district 
or by the State.'' 59 FR 16690, 16696 (April 7, 1994).
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    Comment 10: AIR believes the offset equivalency tracking system 
will have an adverse effect on air quality in the San Joaquin Valley if 
the system fails to generate enough surplus emission reduction credits 
to offset pre-1990 credits. According to AIR, EPA is currently unable 
to predict whether the District Rules 2020 and 2201 will generate 
sufficient emission reduction credits to demonstrate equivalency with 
federal NSR rules.
    Response: EPA acknowledges AIR's concerns regarding the inclusion 
of pre-1990 emission reduction credits. However, EPA believes the 
nonattainment planning process and the equivalency tracking system are 
the proper mechanisms for addressing these concerns. For example, in 
the District's 2003 PM-10 Plan recently proposed for approval (69 FR 
5412 (Feb. 4, 2004)), the District evaluated the number of pre-baseline 
ERCs that could be used in the future without jeopardizing attainment 
or reasonable further progress. See 2003 PM-10 Plan at 3-17 to 3-20 
(Amended Dec. 2003). The analysis in the 2003 PM-10 Plan follows that 
outlined in the August 26, 1994 Seitz Memo. The District uses economic 
forecast data to project growth in the various industry sectors in the 
area. Some of this growth will trigger NSR and the offset requirements. 
This growth would normally not impact the area's inventory because 
reductions from other sources would be required to compensate for this 
growth. Using pre-baseline ERCs has the effect of allowing growth in 
emissions without obtaining actual inventory reductions. The Seitz memo 
explains that in order to ensure that the use of these pre-baseline 
ERCs is consistent with the area's attainment plan and reasonable 
further progress, the District is required to either show that their 
use is reflected in the growth estimates in an identifiable way or add 
these ERCs on top of the growth estimates. The District has shown that 
by capping the number of pre-baseline ERCs that may be used at the 
projected level of growth, the area can still achieve sufficient 
emission reductions elsewhere to achieve attainment and reasonable 
further progress ``net'' of this allowed growth in emissions. This 
demonstration supports the limited use of pre-baseline ERCs as 
consistent with attainment of the national ambient air quality 
standards (NAAQS) for PM-10. EPA agrees that a similar demonstration 
must be included in the area's ozone plan to account for pre-baseline 
emission reduction credits and ensure that the plan generates 
sufficient creditable emission reductions to satisfy reasonable further 
progress and compliance demonstration requirements for extreme ozone 
nonattainment areas.\8\

[[Page 27842]]

We encourage AIR to participate in the public process regarding this 
plan and to raise any concerns with how pre-baseline emission reduction 
credits are included.
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    \8\ Given the likely need for stringent controls and significant 
emissions reductions, it may be more difficult for the area to 
demonstrate attainment and reasonable further progress if pre-
baseline credits are carried forward in the inventory.
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    Comment 11: AIR also notes that there is uncertainty surrounding 
the District's ability to manage the tracking system if the San Joaquin 
Valley is redesignated as an extreme ozone nonattainment area. AIR 
therefore concludes that EPA should not approve Rule 2201 until these 
uncertainties are resolved.
    Response: On April 8, 2004, EPA took final action to reclassify the 
San Joaquin Valley ozone nonattainment area from a severe to an extreme 
1-hour ozone nonattainment area. 69 FR 8126. EPA agrees that 
redesignation of the ozone nonattainment area will affect the 
implementation of the offset equivalency tracking system. See 68 FR 
8127. The District will need to update its NSR program to meet the new 
federal requirements triggered by redesignation. The offset tracking 
system and equivalency demonstration was approved for limited purposes 
and EPA would like to avoid any possible misunderstanding that it was 
intended to address additional rule deficiencies that would occur if 
the District failed to update its rules to comply with federal NSR 
requirements for extreme ozone nonattainment areas.
    As AIR acknowledges, it is not certain when or if the area will be 
unable to demonstrate equivalency in the future. In the meanwhile, we 
believe it is reasonable to approve the proposed revisions to Rule 2201 
because the Rule provides automatic remedies in the event equivalency 
cannot be demonstrated. Thus, if the District cannot demonstrate 
equivalency, the District will meet all federal offset requirements on 
a case-by-case basis.
    Comment 12: AIR argues that the District's use of pre-1990 emission 
reduction credits violates CAA section 193. AIR observes that section 
193 prohibits the modification of any pre-1990 implementation plan in 
effect in a nonattainment area unless the modification ensures 
equivalent or greater emission reductions. AIR contends that allowing 
the District to use pre-1990 emission reduction credits without 
determining whether or not they are surplus would not have been allowed 
prior to the 1990 Clean Air Act Amendments and would violate section 
193.
    Response: Section 193 of the Clean Air Act prohibits the 
modification of any control requirement in effect in a nonattainment 
area prior to November 15, 1990 ``unless the modification insures 
equivalent or greater emission reductions of such pollutant.'' AIR does 
not identify which pre-1990 control requirement is being relaxed in 
this action. In fact, the revisions being approved today are to 
District rules approved into the SIP in 2001. It is unclear how section 
193 applies to these changes given that they do not revise any pre-1990 
control requirements. Moreover, there is no basis for claiming these 
revisions relax the previously approved SIP measures; to the contrary, 
these changes strengthen rules 2020 and 2201 by addressing deficiencies 
noted in the 2001 limited approval/limited disapproval.
    Comment 13: Comments from WSPA, along with the District, disagreed 
with EPA's conclusion that pre-1990 emissions reduction credits are not 
surplus creditable reductions available to meet federal offset 
requirements. These commenters argue that the District had properly 
accounted for pre-1990 credits in previous submittals to EPA. In 
support of this claim, the commenters cite the District's 1994 Ozone 
Attainment Demonstration Plan, Revised 1993 Rate of Progress Plan, and 
Revised Post-1996 Rate of Progress Plan. Several of the comments note 
that EPA approved these documents without questioning the methodology 
used to account for pre-1990 emissions reduction credits. WSPA 
encourages EPA to work with the District to resolve this issue in a 
manner that maintains the viability of the District's emissions banking 
program and protects the ability of permittees to obtain offsets for 
future projects.
    Response: EPA has worked with the District in preparing its new 
2003 PM-10 Plan to demonstrate more clearly that limited use of pre-
baseline ERCs is consistent with attainment of the PM-10 NAAQS and 
reasonable further progress toward these standards. EPA proposed 
approval of this plan on February 4, 2004. 69 FR 5412. EPA believes 
that the plan shows that even assuming a limited amount of growth in 
emissions is not offset by reductions in the current inventory because 
pre-baseline ERCs are used, the area will still be able to attain the 
NAAQS and demonstrate reasonable further progress. The District will 
need to support a similar demonstration as part of the area's ozone 
plan.
    The plans referenced by commenters did not reasonably support a 
conclusion that the area can attain the ozone NAAQS while foregoing 
meaningful offsets from the emissions inventory. EPA approval of an 
attainment demonstration does not automatically allow the use of pre-
baseline ERCs. There is no requirement that an area carry forward pre-
baseline ERCs. The decision of whether to allow their continued use is 
up to the State and local District. Should a State or local District 
choose to protect these credits for future use, the amount of such ERCs 
must be correctly included in the plan. A state or local agency could 
choose to include all pre-baseline ERCs and require compensating 
reductions elsewhere, or could choose to not allow any pre-baseline 
ERCs to be carried forward. The plans referenced by commenters included 
no specific, identifiable quantity of pre-baseline ERCs and did not in 
any way limit or account for their use. More fundamentally, these 
demonstration have not proven out. Reliance on such demonstrations 
while simultaneously redesignating the ozone area from severe to 
extreme nonattainment would not be reasonable. Until revised 
demonstrations are provided with respect to ozone attainment, EPA's 
position remains that the District has not shown that use of these ERCs 
as offsets can be allowed while preserving the area's ability to attain 
and make reasonable further progress toward attainment of the ozone 
NAAQS.

III. EPA Action

    No comments were submitted that changed our assessment that the 
submitted rules address the deficiencies noted in our July 19, 2001 
limited disapproval and comply with the relevant CAA requirements. 
Therefore, as authorized in section 110(k)(3) of the Act, EPA is fully 
approving SJVUAPCD Rules 2020 and 2201 into the California SIP. This 
action terminates all sanction and FIP obligations associated with our 
July 19, 2001 action on a previous version of the rule.

IV. Statutory and Executive Order Reviews

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
action is not a ``significant regulatory action'' and therefore is not 
subject to review by the Office of Management and Budget. For this 
reason, this action is also not subject to Executive Order 13211, 
``Actions Concerning Regulations That Significantly Affect Energy 
Supply, Distribution, or Use'' (66 FR 28355, May 22, 2001). This action 
merely approves state law as meeting Federal requirements and imposes 
no additional requirements beyond those imposed by state law. 
Accordingly, the Administrator certifies that this rule will not have a 
significant economic impact on a substantial number of small entities 
under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Because 
this rule approves pre-existing requirements

[[Page 27843]]

under state law and does not impose any additional enforceable duty 
beyond that required by state law, it does not contain any unfunded 
mandate or significantly or uniquely affect small governments, as 
described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).
    This rule also does not have tribal implications because it will 
not have a substantial direct effect on one or more Indian tribes, on 
the relationship between the Federal Government and Indian tribes, or 
on the distribution of power and responsibilities between the Federal 
Government and Indian tribes, as specified by Executive Order 13175 (65 
FR 67249, November 9, 2000). This action also does not have Federalism 
implications because it does not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government, as specified in Executive Order 13132 (64 
FR 43255, August 10, 1999). This action merely approves a state rule 
implementing a Federal standard, and does not alter the relationship or 
the distribution of power and responsibilities established in the Clean 
Air Act. This rule also is not subject to Executive Order 13045 
``Protection of Children from Environmental Health Risks and Safety 
Risks'' (62 FR 19885, April 23, 1997), because it is not economically 
significant.
    In reviewing SIP submissions, EPA's role is to approve state 
choices, provided that they meet the criteria of the Clean Air Act. In 
this context, in the absence of a prior existing requirement for the 
State to use voluntary consensus standards (VCS), EPA has no authority 
to disapprove a SIP submission for failure to use VCS. It would thus be 
inconsistent with applicable law for EPA, when it reviews a SIP 
submission, to use VCS in place of a SIP submission that otherwise 
satisfies the provisions of the Clean Air Act. Thus, the requirements 
of section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not 
impose an information collection burden under the provisions of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
    The Congressional Review Act, 5 U.S.C. section 801 et seq., as 
added by the Small Business Regulatory Enforcement Fairness Act of 
1996, generally provides that before a rule may take effect, the agency 
promulgating the rule must submit a rule report, which includes a copy 
of the rule, to each House of the Congress and to the Comptroller 
General of the United States. EPA will submit a report containing this 
rule and other required information to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States 
prior to publication of the rule in the Federal Register. A major rule 
cannot take effect until 60 days after it is published in the Federal 
Register. This action is not a ``major rule'' as defined by 5 U.S.C. 
section 804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for 
judicial review of this action must be filed in the United States Court 
of Appeals for the appropriate circuit by July 16, 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, Incorporation by 
reference, Intergovernmental relations, Nitrogen dioxide, Ozone, 
Particulate matter, Reporting and recordkeeping requirements, Volatile 
organic compounds.

    Dated: April 19, 2004.
Wayne Nastri,
Regional Administrator, Region IX.

0
Part 52, Chapter I, Title 40 of the Code of Federal Regulations is 
amended as follows:

PART 52--[AMENDED]

0
1. The authority citation for Part 52 continues to read as follows:

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

Subpart F--California

0
2. Section 52.220 is amended by adding paragraph (c)(311) (i)(B) to 
read as follows:


Sec.  52.220  Identification of plan.

* * * * *
    (c) * * *
    (311) * * *
    (i) * * *
    (B) San Joaquin Valley Unified Air Pollution Control District.
    (1) Rules 2020 and 2201 adopted on December 19, 2002.
* * * * *
[FR Doc. 04-10981 Filed 5-14-04; 8:45 am]
BILLING CODE 6560-50-P