[Federal Register Volume 70, Number 35 (Wednesday, February 23, 2005)]
[Proposed Rules]
[Pages 8880-8917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3366]



[[Page 8879]]

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Part II





Environmental Protection Agency





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40 CFR Parts 51 and 52



Prevention of Significant Deterioration for Nitrogen Oxides; Proposed 
Rule

  Federal Register / Vol. 70, No. 35 / Wednesday, February 23, 2005 / 
Proposed Rules  

[[Page 8880]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51 and 52

[AD-FRL-7875-1; E-Docket ID No. OAR-2004-0013 (Legacy Docket No. A-87-
16)]
RIN-2060-AM33


Prevention of Significant Deterioration for Nitrogen Oxides

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: To preserve the air quality in national parks and other areas 
that are meeting the national ambient air quality standards (NAAQS) for 
nitrogen dioxide (NO2), EPA is reevaluating the increments 
for NO2 that were first established in 1988 under its 
program to prevent significant deterioration of air quality (PSD 
program). The EPA is initiating this rulemaking action to comply with a 
1990 court ruling that directed the Agency to consider and harmonize 
the statutory criteria for establishing PSD regulations for nitrogen 
oxides (NOX) contained in sections 166(c) and 166(d) of the 
Clean Air Act (CAA or Act).
    After an initial reevaluation of the existing NO2 
increments under these statutory criteria, EPA is proposing three 
options. One proposed option is not to change the existing increments. 
We are also proposing two other options that would allow States to use 
alternative approaches in lieu of the existing increments for 
NO2 to satisfy the statutory criteria for preventing 
significant deterioration of air quality due to emissions of 
NOX. These proposed options include implementation of either 
an EPA-administered cap and trade program or a State planning approach.

DATES: Comments. Comments must be received on or before April 25, 2005.
    Public Hearing. If anyone contacts EPA requesting a public hearing 
by March 15, 2005, we will hold a public hearing on or about March 25, 
2005.

ADDRESSES: Submit your comments, identified by Docket ID No. OAR-2004-
0013, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the on-line instructions for submitting comments.
     Agency Web site: http://www.epa.gov/edocket. EDOCKET, 
EPA's electronic public docket and comment system, is EPA's preferred 
method for receiving comments. Follow the on-line instructions for 
submitting comments.
     E-mail: [email protected].
     Fax: (202) 566-1741.
     Mail: Attention Docket ID No. OAR-2004-0013, U.S. 
Environmental Protection Agency, Mailcode 6102T, 1200 Pennsylvania 
Ave., NW., Washington, DC 20460. The EPA requests that a separate copy 
also be sent to the contact person listed below (see FOR FURTHER 
INFORMATION CONTACT).
     Hand Delivery: Attention Docket Number OAR-2004-0013, U.S. 
Environmental Protection Agency, EPA West (Air Docket), 1301 
Constitution Ave., NW., Washington, DC 20004. Such deliveries are only 
accepted during the Docket's normal hours of operation, and special 
arrangements should be made for deliveries of boxed information. The 
EPA requests a separate copy also be sent to the contact person listed 
below (see FOR FURTHER INFORMATION CONTACT).
    Instructions: Direct your comments to Docket ID No. OAR-2004-0013 
(Legacy Docket No. A-87-16). The EPA's policy is that all comments 
received will be included in the public docket without change and may 
be made available online at http://www.epa.gov/edocket, including any 
personal information provided, unless the comment includes information 
claimed to be Confidential Business Information (CBI) or other 
information whose disclosure is restricted by statute. Do not submit 
information that you consider to be CBI or otherwise protected through 
EDOCKET, regulations.gov, or e-mail. The EPA EDOCKET and the Federal 
regulations.gov Web sites are ``anonymous access'' systems, which means 
EPA will not know your identity or contact information unless you 
provide it in the body of your comment. If you send an e-mail comment 
directly to EPA without going through EDOCKET or regulations.gov, your 
e-mail address will be automatically captured and included as part of 
the comment that is placed in the public docket and made available on 
the Internet. If you submit an electronic comment, EPA recommends that 
you include your name and other contact information in the body of your 
comment and with any disk or CD ROM you submit. 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. Electronic 
files should avoid the use of special characters, avoid any form of 
encryption, and be free of any defects or viruses. For additional 
information about EPA's public docket, visit EDOCKET on-line or see the 
Federal Register of May 31, 2002 (67 FR 38102). For additional 
instructions on submitting comments, go to section I.B of the 
SUPPLEMENTARY INFORMATION section of this document.
    Docket: All documents in the docket are listed in the EDOCKET index 
at http://www.epa.gov/edocket. Although listed in the index, some 
information is not publicly available, i.e., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, is not placed on the Internet and will be 
publicly available only in hard copy form. Publicly available docket 
materials are available either electronically in EDOCKET or in hard 
copy at the U.S. Environmental Protection Agency, EPA West (Air 
Docket), Room B102, 1301 Constitution Ave., NW., Washington, DC. The 
Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through 
Friday, excluding legal holidays. The telephone number for the Public 
Reading Room is (202) 566-1744, and the telephone for the Air Docket is 
(202) 566-1742.
    Public Hearing. People interested in presenting oral testimony or 
inquiring as to whether a hearing is to be held should contact Ms. 
Chandra Kennedy, OAQPS, Integrated Implementation Group, Information 
Transfer and Program Integration Division (C339-03), U.S. Environmental 
Protection Agency, Research Triangle Park, NC 27711, telephone number 
(919) 541-5319 or e-mail [email protected], at least 2 days in 
advance of the public hearing. People interested in attending the 
public hearing must also call Ms. Kennedy to verify the time, date, and 
location of the hearing. The public hearing will provide interested 
parties the opportunity to present data, views, or arguments concerning 
the proposed action. If a public hearing is held, it will be held at 10 
a.m. in EPA's Auditorium in Research Triangle Park, North Carolina, or 
at an alternate site nearby.

FOR FURTHER INFORMATION CONTACT: Mr. Dan deRoeck, Information Transfer 
and Program Integration Division (C339-03), U.S. Environmental 
Protection Agency, Research Triangle Park, NC 27711, telephone (919) 
541-5593, fax (919) 541-5509, or e-mail at [email protected].

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does This Action Apply to Me?

    Entities potentially affected by this proposed rule include sources 
in all industry groups. The majority of sources potentially affected 
are expected to be in the following groups:

[[Page 8881]]



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                 Industry group                  SIC \a\                         NAICS \b\
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Electric Services..............................      491  221111, 221112, 221113, 221119, 221121, 221122
Petroleum Refining.............................      291  324110
Industrial Inorganic Chemicals.................      281  325181, 325120, 325131, 325182, 211112, 325998,
                                                           331311, 325188
Industrial Organic Chemicals...................      286  325110, 325132, 325192, 325188, 325193, 325120, 325199
Miscellaneous Chemical Products................      289  325520, 325920, 325910, 325182, 325510
Natural Gas Liquids............................      132  211112
Natural Gas Transport..........................      492  486210, 221210
Pulp and Paper Mills...........................      261  322110, 322121, 322122, 322130
Paper Mills....................................      262  322121, 322122
Automobile Manufacturing.......................      371  336111, 336112, 336211, 336992, 336322, 336312,
                                                           336330, 336340, 336350, 336399, 336212, 336213
Pharmaceuticals................................      283  325411, 325412, 325413, 325414
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\a\ Standard Industrial Classification
\b\ North American Industry Classification System.

    Entities potentially affected by the proposal also include States, 
local permitting authorities, and Indian Tribes whose lands contain new 
and modified major stationary sources.

B. What Should I Consider as I Prepare My Comments for EPA?

1. Submitting CBI
    Do not submit proprietary or confidential business information 
(CBI) to EPA through EDOCKET, regulations.gov, or e-mail. Clearly mark 
the part or all of the information that you claim to be CBI. For CBI 
information in a disk or CD ROM that you mail to EPA, 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 claimed as CBI. In 
addition to one complete version of the comment that includes 
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 
public docket. Information so marked will not be disclosed except in 
accordance with procedures set forth in 40 CFR part 2. Send an 
additional copy, clearly marked as CBI, as above, to: Mr. Roberto 
Morales, OAQPS Document Control Officer (C339-03), U.S. Environmental 
Protection Agency, Research Triangle Park, NC 27711.
2. Tips for Preparing Your Comments
    When submitting comments, remember to:
    i. Identify the rulemaking by docket number and other identifying 
information (e.g., subject heading, Federal Register proposal 
publication date and reference page number(s)).
    ii. Follow directions--The agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
    iii. Explain why you agree or disagree; suggest alternatives and 
provide substitute language for your requested changes.
    iv. Describe any assumptions and provide any technical information 
and/or data that you used.
    v. If you estimate potential costs or burdens, explain how you 
arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
    vi. Provide specific examples to illustrate your concerns, and 
suggest alternatives.
    vii. Explain your views as clearly as possible, avoiding the use of 
profanity or personal threats.
    viii. Make sure to submit your comments by the comment period 
deadline identified.

C. Where Can I Obtain Additional Information?

    In addition to being available in the docket, an electronic copy of 
today's proposed rule is also available on the World Wide Web through 
the Technology Transfer Network (TTN). Following signature by the EPA 
Administrator, a copy of today's proposed rule will be posted on the 
TTN's policy and guidance page for newly proposed or promulgated rules 
at http://www.epa.gov/ttn/oarpg. The TTN provides information and 
technology exchange in various areas of air pollution control. If more 
information regarding the TTN is needed, call the TTN HELP line at 
(919) 541-5384.

D. How Is this Preamble Organized?

    The information presented in this preamble is organized as follows:

I. General Information
    A. Does This Action Apply To Me?
    B. What Should I Consider as I Prepare My Comments for EPA?
    C. Where Can I Obtain Additional Information?
    D. How Is This Preamble Organized?
II. Overview of Today's Proposed Action
    A. Option 1: Retain Existing Increment System for NOX
    B. Option 2: Allow States To Use a Cap and Trade Program in Lieu 
of an Increment System for NOX
    C. Option 3: Allow States Flexibility To Use a State Planning 
Approach in Lieu of an Increment System for NOX
III. Background
    A. PSD Program
    B. Existing Section 166 Regulations for NOX
    1. Statutory Provisions
    2. The 1988 NO2 Increments
    C. Court Decision
IV. Legal Authority
    A. Interpretation on Remand: Harmonizing Sections 166(c) and 
166(d) of the Clean Air Act
    B. Interpretation on Remand: The Section 166(c) Factors
    1. Numerical Measures by Which Permit Application May Be 
Evaluated
    2. Protect Air Quality Values
    3. Protect Public Health and Welfare From Adverse Effects 
Notwithstanding Attainment of NAAQS
    4. Ensure Economic Growth Consistent With Preservation of 
Existing Clean Air Resources

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    C. EPA's Authority To Fulfill Section 166 Requirements by 
Granting States Flexibility To Adopt Alternative Measures in Their 
SIPs
V. Health and Welfare Effects of NOX
    A. Scope of Effects EPA Proposes To Consider
    B. Data Included in Review
    C. Analysis of Effects
    1. Health Effects
    2. Welfare Effects
VI. Proposed Actions
    A. Retain Existing Increment System for NOX
    1. How Existing Characteristics of the Regulatory Scheme Fulfill 
Statutory Criteria
    2. Proposed Actions Regarding Characteristics of NO2 
Increments
    B. Regional Cap and Trade Program
    1. Description of Cap and Trade Programs
    2. Using a Cap and Trade Program in Lieu of an Increment System 
for NOX
    C. State Planning Approach
    1. Description of State Planning Approach
    2. Using State Planning Approach in Lieu of an Increment System 
for NOX
VII. Other Alternative Considered
VIII. Statutory and Executive Order Reviews
    A. Executive Order 12866--Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132--Federalism
    F. Executive Order 13175--Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045--Protection of Children From 
Environmental Health and Safety Risks
    H. Executive Order 13211--Actions That Significantly Affect 
Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act

II. Overview of Today's Proposed Action

    To ensure protection of the air quality in national parks and other 
areas that meet the NAAQS for NO2, EPA is reevaluating the 
NO2 increments that were first established in 1988 under the 
PSD program. In accordance with the directions of a 1990 court ruling, 
the Agency is conducting this review to consider and harmonize the 
statutory criteria, contained in subsections 166(c) and 166(d) of the 
Act, that govern the content of EPA's pollutant-specific PSD 
regulations for NOX. The EPA is proposing to apply these 
criteria using the ``contingent safe harbor'' approach that was 
suggested by the court as an appropriate way to ensure that EPA's PSD 
regulations for nitrogen oxides will prevent significant deterioration 
of air quality due to emissions of NOX in parks and other 
areas that are either designated to be in attainment with the NAAQS or 
are unclassifiable.
    Today's proposal includes three options to address our 
responsibility to promulgate pollutant-specific regulations to prevent 
significant deterioration of air quality from emissions of 
NOX and to preserve, protect and enhance the air quality in 
our national parks and other areas of special interest. The first 
option is to retain the existing regulatory format using the increments 
that we originally adopted in 1988. We also propose two alternative 
approaches that we believe would satisfy the goals and objectives of 
the statutory PSD program in lieu of the existing NO2 
increments. These two additional options, for which we are seeking 
public comment today, would permit States to adopt a specific market-
based cap and trade approach or to demonstrate that strategies and 
measures in their State Implementation Plans (SIPs), in conjunction 
with other Federal requirements, will prevent significant deterioration 
of air quality due to emissions of NOX. Each of these 
options is summarized immediately below and described in greater detail 
in section VI of this preamble.

A. Option 1: Retain Existing Increment System for NOX

    The EPA is reviewing whether, considering the criteria in section 
166(c), EPA should establish different increments for NOX 
than the ones that were adopted in 1988. The existing increments were 
established as a percentage of the NAAQS, and were based on the ambient 
measure (NO2) and the same time period (annual) as the 
NAAQS. An increment with these characteristics satisfies the minimum 
requirements of section 166(d) of the Act for preserving the air 
quality in parks and other attainment and unclassifiable areas. In 
accordance with the ``contingent safe harbor'' approach, EPA is 
undertaking this additional review to determine whether the criteria in 
section 166(c) indicate that it is necessary for EPA to deviate from 
this ``safe harbor'' in order to satisfy the criteria in section 
166(c).
    Based on our initial review of the existing NO2 
increments under these statutory criteria, one option is to retain the 
existing PSD regulations for NOX, which includes the 
existing NO2 increments, without modification because we 
believe the existing regulations protect the air quality in national 
parks and other attainment or unclassifiable areas, within the context 
of the criteria of section 166(c). Our review has considered and 
balanced the criteria in section 166(c) and the incorporated goals and 
purposes of the PSD program set forth in section 160 of the Act. We 
have also reviewed the existing regulatory framework of the Agency's 
PSD regulations for NOX and the scientific and technical 
information pertaining to the health, welfare, and ecological effects 
of NOX. In light of this review, EPA believes that the 
statutory requirements are met by retaining annual NO2 
increments based on the percentages of the NAAQS employed to set the 
increments for sulfur dioxide (SO2). The available research 
on health and welfare effects indicates that the existing increments, 
in conjunction with the case-by-case permit review for additional 
impacts and impairment of air quality related values (AQRV), fulfills 
the criteria in section 166(c). The EPA requests comment on this option 
and its supporting review.

B. Option 2: Allow States To Use a Cap and Trade Program in Lieu of an 
Increment System for NOX

    As an alternative approach to retaining the existing increment 
system for NOX, we are soliciting comments on a proposed 
option that would allow States to prevent significant deterioration of 
air quality due to emissions of NOX by implementing the 
model cap and trade program for EGUs contained in our proposed Clean 
Air Interstate Rule (CAIR).\1\ A State that implements this program to 
address NOX emissions would no longer be required to conduct 
certain source-specific analyses, including the current NO2 
increment analysis.
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    \1\ EPA proposed the CAIR, originally called the Interstate Air 
Quality Rule (IAQR), on January 30, 2004 (69 FR 4566), followed by a 
supplemental notice of proposed rulemaking on June 10, 2004 (69 FR 
32684), to reduce emissions of SO2 and NOX in 
29 States and the District of Columbia to contribute to the 
attainment of the PM2.5 and 8-hour ozone NAAQS in a 
number of eastern States.
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    This option would require States to revise their SIPs to include a 
cap and trade program to reduce NOX emissions in accordance 
with statewide emissions budgets prescribed by EPA. Neither the 
statewide budget nor the regional cap would be a legally enforceable 
limit on total NOX emissions but would be used as an 
accounting technique to determine the amount of emissions reductions 
that would be needed from specific source categories to satisfy the 
budget or cap. The requirements of the cap and trade program would be 
enforceable, and this would ensure that as long as emissions from 
sources outside of the cap did not grow more than projected, the 
overall regionwide budget would be met.
    As described in greater detail in section VI.B of this preamble, we 
believe that such a cap and trade program, while designed to address 
other CAA program requirements, is also an effective alternative to

[[Page 8883]]

increments for preventing significant deterioration from emissions of 
NOX. The EPA has utilized this approach with considerable 
success in several instances. The EPA proposed a model multi-State cap 
and trade program in its June 10, 2004, supplemental notice for the 
CAIR proposal that States could choose to adopt to meet the proposed 
emissions reductions requirements in a flexible and cost-effective 
manner. The EPA believes that the implementation of this kind of cap 
and trade program could bring about significant improvements in air 
quality and would offer many advantages over traditional command-and-
control and project-by-project emissions reduction credit trading 
programs.

C. Option 3: Allow States Flexibility To Use a State Planning Approach 
in Lieu of an Increment System for NOX

    As a third option, we propose to allow a State to forego 
implementation of the NO2 increments and associated 
requirements if the State can demonstrate that measures in its SIP, in 
conjunction with Federal requirements, would prevent significant 
deterioration of air quality from emissions of NOX. In lieu 
of implementing the increment system for NOX, a State would 
have to demonstrate that the specific planning goals and requirements 
contained in its SIP would satisfy the requirements in section 166 of 
the Act and the goals and purposes of the PSD program set forth in 
section 160.
    This option would provide States with the flexibility to design a 
program to prevent significant deterioration of air quality from 
emissions of NOX that may be more effective than increments. 
States would have to establish a clear planning goal that satisfies the 
requirements of sections 166(c) and 166(d) of the Act. To achieve this 
goal, a State could impose NOX emissions limitations on any 
type of emissions sources it chooses, including new or existing 
sources. Under this option, EPA does not propose to require a State to 
demonstrate that its SIP includes a specific type of program that we 
believe is sufficient to satisfy the requirements of section 166. 
However, we believe that a goal to keep statewide emissions of 
NOX from all sources below 1990 levels would prevent 
significant deterioration of air quality and satisfy the requirements 
of section 166 of the Act. Adoption of this goal could streamline our 
review of the State's demonstration, but a State would not be precluded 
from using another approach to prevent significant deterioration of air 
quality due to emissions of NOX.

III. Background

A. PSD Program

    Part C of title I of the Act contains the requirements for a 
component of the major new source review (NSR) program known as the 
Prevention of Significant Deterioration (PSD) program. This program 
sets forth procedures for the preconstruction review and permitting of 
new and modified major stationary sources of air pollution locating in 
areas meeting the NAAQS (``attainment'' areas) or areas for which there 
is insufficient information to classify an area as either attainment or 
nonattainment (``unclassifiable'' areas).
    The applicability of the PSD program to a particular source must be 
determined in advance of construction and is pollutant specific. For 
new sources locating in an attainment or unclassifiable area, PSD 
applies when the source qualifies as a major source because it has the 
potential to emit any regulated NSR pollutant equals or exceeds either 
100 or 250 tons per year (tpy) depending on the source category. In 
addition to reviewing the pollutant emitted at or in excess of the 
``major source'' levels, the PSD permit review also covers each 
regulated NSR pollutant for which the area is in attainment or 
unclassifiable that the source would have the potential to emit in 
significant amounts.
    For modified sources, PSD applies when an existing major stationary 
source undergoes a nonexcluded physical change or change in the method 
of operation that results in a significant net emissions increase of 
any regulated NSR pollutant for which the area is in attainment or 
unclassifiable. The PSD regulations define ``significant'' as a 
specific emissions rate (tons per year) for each regulated pollutant. 
Each regulated NSR pollutant emitted by the source must be reviewed 
independently for applicability purposes. Moreover, to determine the 
emissions of a particular pollutant for applicability purposes, the 
source may take into account the use of emissions control technology 
and restrictions on the hours of operation or rates of production, 
where such controls and restrictions are enforceable.\2\
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    \2\ On December 31, 2002, we revised the PSD regulations to, 
among other things, enable major sources undergoing modification of 
existing emissions units to project future emissions increases on 
the basis of projected utilization of the modified equipment. Most 
States have not yet adopted the new provisions but they are in 
effect in States where EPA is the permitting authority (i.e., where 
no State PSD rule has been approved by EPA) or where the State PSD 
rule incorporates the Federal regulations by reference. 67 FR 80186; 
68 FR 11316 (March 10, 2003).
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    Once a source is determined to be subject to PSD, it must undertake 
a series of analyses to demonstrate that it will use the best available 
control technology (BACT) and will not cause or contribute to a 
violation of any NAAQS or incremental ambient pollutant concentration 
increase. In cases where the source's emissions may adversely affect an 
area classified as a Class I area, additional review is conducted to 
protect the increments and special attributes of such an area defined 
as ``air quality related values.''
    When the permitting authority reaches a preliminary decision to 
authorize construction of each proposed major new source or major 
modification, it must provide notice of the preliminary decision and an 
opportunity for comment by the general public, industry, and other 
persons that may be affected by the major source or major modification. 
After considering and responding to the comments, the permitting 
authority may issue a final determination on the construction permit in 
accordance with the PSD regulations.

B. Existing Section 166 Regulations for NOX

1. Statutory Provisions
    In section 166(a) of the Act, Congress directed EPA to conduct a 
study and promulgate regulations to prevent significant deterioration 
of air quality which would result from emission of hydrocarbons, carbon 
monoxide, photochemical oxidants, and NOX. Congress further 
specified that such regulations meet the following requirements set 
forth in sections 166(c) and 166(d):

    (c) Such regulations shall provide specific numerical measures 
against which permit applications may be evaluated, a framework for 
stimulating improved control technology, protection of air quality 
values, and fulfill the goals and purposes set forth in section 101 
and section 160.
    (d) The regulations * * * shall provide specific measures at 
least as effective as the increments established in section 163 [for 
SO2 and PM] to fulfill such goals and purposes, and may 
contain air quality increments, emission density requirements, or 
other measures.

    The goals and purposes of the PSD program set forth in section 160 
are as follows:

    (1) to protect public health and welfare from any actual or 
potential adverse effect which in the Administrator's judgment may 
reasonably be anticipate[d] to occur from air pollution or from 
exposures to pollutants in other media, which pollutants originate 
as emissions to the ambient air, notwithstanding attainment and 
maintenance of all national ambient air quality standards;

[[Page 8884]]

    (2) to preserve, protect, and enhance the air quality in 
national parks, national wilderness areas, national monuments, 
national seashores, and other areas of special national or regional 
natural, recreational, scenic, or historic value;
    (3) to insure that economic growth will occur in a manner 
consistent with the preservation of existing clean air resources;
    (4) to assure that emissions from any source in any State will 
not interfere with any portion of the applicable implementation plan 
to prevent significant deterioration of air quality for any other 
State; and
    (5) to assure that any decision to permit increased air 
pollution in any area to which this section applies is made only 
after careful evaluation of all the consequences of such a decision 
and after adequate procedural opportunities for informed public 
participation in the decisionmaking process.

    Furthermore, the goals and purposes of the CAA set forth in section 
101 are as follows:

    (b) * * * (1) to protect and enhance the quality of the Nation's 
air resources so as to promote the public health and welfare and the 
productive capacity of its population;
    (2) to initiate and accelerate a national research and 
development program to achieve the prevention and control of air 
pollution;
    (3) to provide technical and financial assistance to State and 
local governments in connection with the development and execution 
of their air pollution prevention and control programs; and
    (4) to encourage and assist the development and operation of 
regional air pollution prevention and control programs [; and]
    (c) * * * to encourage or otherwise promote reasonable Federal, 
State, and local governmental actions, consistent with the 
provisions of this Act, for pollution prevention.
2. The 1988 NO2 Increments
    On October 17, 1988, EPA promulgated pollutant-specific PSD 
regulations for NOX under section 166 of the CAA. 53 FR 
40656. The EPA decided to establish NO2 increments following 
the pattern enacted by Congress for the PM and SO2 
increments. These increments establish maximum increases in ambient air 
concentrations of NO2 (expressed in micrograms per cubic 
meter ([mu]g/m3)) allowed in a PSD area over a baseline 
concentration. Emissions increases from both stationary and mobile 
sources are considered in the consumption of the NO2 
increments which are implemented through the PSD permitting provisions 
in 40 CFR parts 51 and 52.
    The increment system for NOX includes the three-tiered 
area classification system established by Congress in section 163 for 
increments of SO2 and PM. Class I areas (including certain 
national parks and wilderness areas) were designated by Congress as 
areas of special national concern, where the need to prevent air 
quality deterioration is the greatest. Consequently, the allowable 
level of incremental change in air quality is most stringent in Class I 
areas. Class II areas are all areas not specifically designated in the 
Act as Class I areas. The increments of Class II areas are less 
stringent than the Class I areas and allow for a moderate degree of 
emissions growth. Class III areas are areas originally designated as 
Class II, that have been redesignated by States where higher levels of 
industrial development (and emissions growth) are desired, and are 
allowed to have the greatest increase in ambient concentration. There 
have been no Class III redesignations to date.
    EPA based the levels of the increments for each area classification 
on the percentages of the NAAQS that Congress used to set the 
increments for SO2 and PM. Congress used different 
percentages of the NAAQS to calculate the Class I increments for PM and 
SO2. For the NO2 increments, we chose the 
percentage that Congress used for SO2. This decision yielded 
a lower Class I increment for NO2 than would have resulted 
by using the PM percentage.
    The existing Class I NO2 increment is 2.5 [mu]g/
m3 (annual average), a level of 2.5 percent of the 
NO2 NAAQS. It is based on the Class I SO2 
increment, which is set at the same percentage (2.5 percent) of the 
SO2 annual NAAQS. The Class II NO2 increment is 
25 [mu]g/m3-25 percent of the NO2 NAAQS. The 
Class III NO2 increment is 50 [mu]g/m3-50 percent 
of the NO2 NAAQS.
    EPA believed that these increments satisfied the standard in 
section 166(d), which requires that PSD regulations for NOX 
be ``at least as effective'' as the existing section 163 increments in 
preventing significant deterioration of air quality due to emissions of 
NOX. The EPA thought that reflecting the same percentages of 
the NAAQS as the SO2 and PM increments would be at least as 
stringent as the statutorily established increments in terms of ambient 
air quality impacts. In the preamble to these regulations, EPA 
explained that the increments satisfied the section 166(c) criteria by 
providing numerical measures against which permit applications may be 
evaluated and stimulating improved control technology. The EPA relied 
on the establishment of a Class I NO2 increment and the 
provisions for protecting AQRVs in section 165(d)(2) (providing a role 
for the Federal Land Manager (FLM) in the review of certain PSD permits 
prior to issuance) to protect air quality values affected by 
NOX. The EPA further reasoned that these ambient 
concentration percentages could be used as a proxy for all the PSD 
purposes set forth in the statute, thus satisfying the ``goals and 
purposes set forth in section 101 and section 160'' incorporated by 
reference in section 166(c).

C. Court Decision

    In 1988, the Environmental Defense Fund (now Environmental Defense, 
or ``ED'') filed suit in the U.S. Court of Appeals for the District of 
Columbia Circuit against the Administrator (Environmental Defense Fund, 
Inc. v. Reilly, No. 88-1882). ED argued that EPA failed to sufficiently 
consider several of the section 166(c) criteria. ED also argued that 
EPA's approach failed to satisfy the ``at least as effective'' standard 
under section 166(d) because EPA did not compare the NO2 
increments (set only for the annual averaging period) to the 24-hour 
and 3-hour increments for SO2.
    In its 1990 opinion, the court held that EPA had satisfied its 
obligation under section 166(d) but had not sufficiently considered 
whether different increments should be established under the criteria 
in section 166(c). More specifically, the court held that EPA's 
percentage-of-NAAQS approach for determining the increments satisfied 
the duty under section 166(d) to promulgate regulations for 
NOX that were ``at least as effective'' as the increments in 
section 163. Id. at 188. As to subsection (c), however, the court held 
that EPA's approach of using the percentage ambient concentrations as a 
``proxy'' for meeting the subsection (c) criteria overlooked the 
language of subsection (c), and turned subsection (c) into an option, 
despite its mandatory wording. Thus, the court remanded the case to EPA 
``to develop an interpretation of section 166 that considers both 
subsections (c) and (d), and if necessary to take new evidence and 
modify the regulations.'' Environmental Defense Fund v. EPA, 898 F.2d 
183, 190 (DC Cir. 1990) (``EDF v. EPA'').
    The court identified three steps that EPA took to develop PSD 
regulations for NOX under section 166. The first two steps 
reflected EPA's decisions to adopt regulations for NOX that 
employed increments with an area classification system to implement the 
PSD program for NOX. These first two steps were not 
controverted in EDF v. EPA, 898 F.2d at 184-85. The dispute in the EDF 
case involved only the third step, which was EPA's action to establish 
several characteristics of the increments by reference to the NAAQS. 
The

[[Page 8885]]

characteristics that EPA derived from the NAAQS were (1) the level of 
the increments using the percent-of-NAAQS-approach; (2) the time period 
(annual average) for the increments; and (3) the pollutant 
(NO2) for which the increments were established. Since these 
three characteristics of the increments were the only issues 
controverted in the EDF v. EPA case, EPA is revisiting only these 
questions to satisfy the court's remand. However, we also believe it 
would be beneficial to consider alternative approaches to an increment 
system and thus are voluntarily reconsidering the first two steps in 
the process of developing pollutant-specific PSD regulations for 
NOX.
    In EDF v. EPA, the court held that, in light of the criteria in 
section 166(c), EPA could not use the NAAQS as the sole basis for 
deriving increments. However, the court held that using the NAAQS as 
the basis for deriving increments was permissible in determining 
whether the ``at least as effective'' standard under subsection (d) was 
met. But, with respect to subsection (c), the court stated: ``we find 
nothing in the language or legislative history suggesting that this 
duty [consideration of the goals and purposes of the statute] could be 
satisfied simply by referencing the NAAQS.'' Id. at 190. The court 
noted the differences between the health and welfare criteria on which 
the NAAQS are based (sections 108 and 109) and the ``goals and 
purposes'' of the PSD program set forth in section 160, highlighting 
the special value the PSD program places on protection of national 
parks. At the same time, the court recognized that ``[n]evertheless, 
the ambient standards are the basic measure of air quality under the 
[Clean Air Act], and the controlling standards by no means exclude any 
value that is the subject of focus under the PSD provisions.'' Id. at 
176 (internal citations and quotations omitted). In other words, the 
court observed that NAAQS remain relevant to the inquiry under section 
166 because they are a basic measure of air quality and may indirectly 
reflect some consideration, among others, of the same values that are 
the focus of the PSD program. However, the court indicated that we 
could not rely solely upon the NAAQS to comply with section 166 because 
this provision directs us to focus on the specific goals and purposes 
of PSD which are not necessarily the factors that determine the NAAQS 
under section 109.
    Thus, the court directed EPA to reconsider the characteristics of 
the existing increments in light of the criteria in both sections 
166(c) and 166(d). The court indicated that one permissible 
interpretation for harmonizing subsections (c) and (d) would be to 
construe subsection (d) as a ``contingent safe harbor'' or presumptive 
baseline. Thus, increments derived from the NAAQS could be authorized 
if the agency were to undertake additional analysis and make a reasoned 
determination that the criteria under subsection (c) do not call for 
different increments than the ``safe harbor'' that meets the criteria 
in subsection (d) of the statute.
    On July 31, 2003, Environmental Defense (ED) petitioned the court 
to order EPA to take action in accordance with the court's earlier 
opinion. ED and EPA reached a settlement in which EPA agreed to propose 
and promulgate a rule to fully comply with the court's remand order. 
The settlement obligated the Agency to issue a proposal no later than 
September 30, 2004, and a final rule no later than September 30, 2005. 
However, in September 2004, EPA and ED agreed to extend the proposal 
deadline until February 14, 2005 in order to allow EPA more time to 
consider alternatives to the increment approach.

IV. Legal Authority

    Section 166(a) of the Act directs EPA to develop pollutant-specific 
regulations to prevent the significant deterioration of air quality. 
Sections 166(c) and 166(d) of the Act provide more detail on the 
contents of those regulations. To develop pollutant-specific 
regulations under subsection (a), EPA must establish an overall 
regulatory framework for those regulations and fill in many specific 
details around that framework.
    EPA interprets section 166 to require that its PSD regulations for 
a particular pollutant must, as a whole, satisfy the criteria in 
section 166. Thus, we believe our obligations under section 166(c) of 
the Act are satisfied when the entire body of pollutant-specific 
regulations for NOX (including the overall regulatory 
framework and the specific details) satisfy the criteria in sections 
166(c) and 166(d) of the Act.
    In the case of NOX, EPA established that overall 
framework in the 1988 rulemaking and employed NO2 increments 
and an area classification system for these regulations.\3\ This 
increment system for NOX was modeled on the system that 
Congress had already established for PM and SO2. Within this 
overall system, EPA then filled in specific details, including defining 
the characteristics of the increments to be developed for 
NOX.
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    \3\ Under section 166(e) of the Act, a State is authorized to 
develop measures to prevent significant deterioration of air quality 
other than an area classification scheme for pollutants other than 
PM and SO2 if the implementation plan contains other 
provisions that the Administrator finds will ``carry out the 
purposes in section 160 at least as effectively as an area 
classification plan for such pollutant.''
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    The dispute in EDF v. EPA involved only EPA's decisions to define 
the characteristics of the increments for NOX in relation to 
the NAAQS. Since the basic increments and area classification system in 
EPA's PSD regulations for NOX were not controverted, EPA 
does not interpret the court's opinion to require that the Agency 
reconsider these fundamental aspects of its PSD regulations for 
NOX. Thus, EPA believes that it is only required at this 
time to reconsider the level, time period, and pollutant used in 
establishing increments in its PSD regulations for NOX.
    However, EPA is also requesting comment in this proposed rule on 
alternatives to the current increment system for NOX. Based 
on the input from various stakeholders, EPA is voluntarily 
reconsidering whether the increment system is the most effective 
mechanism for fulfilling our obligations to protect parks and other 
attainment areas under section 166 of the Act. Thus, as alternatives to 
our proposing to retain the existing increment system for 
NOX, we are also proposing to allow the States to implement 
an EPA-administered cap and trade program or a State planning approach 
to fulfill our obligation to establish pollutant-specific PSD 
regulations for NOX.

A. Interpretation on Remand: Harmonizing Sections 166(c) and 166(d) of 
the Clean Air Act

    We propose to harmonize the criteria set forth in sections 166(c) 
and 166(d) by using the ``contingent safe harbor'' approach discussed 
by the Court. We believe this is an appropriate reading of the statute. 
Subsection (c) describes the kinds of measures to be contained in the 
regulations to prevent significant deterioration of air quality called 
for in section 166(a) and specifies that these regulations are to 
``fulfill the goals and purposes'' set forth in sections 160 and 101 of 
the Act. Then, under subsection (d), to ``fulfill such goals and 
purposes,'' EPA must promulgate ``specific measures at least as 
effective as the increments established in section 7473 of this title 
[section 163 of the Act].'' 42 U.S.C. 7476. Subsection (d) indicates 
that these specific measures may include increments but are not 
necessarily required to contain increments. Thus, subsection (d) can be 
construed to require that EPA identify a minimum level of 
effectiveness, or safe

[[Page 8886]]

harbor, for the body of pollutant-specific PSD regulations adopted 
under section 166. Then, subsection (c) may be read to require that EPA 
conduct further review to determine whether, based on the criteria in 
subsection (c), EPA's pollutant-specific PSD regulations under section 
166 should contain measures that deviate from the minimum ``safe 
harbor'' identified under subsection (d). As in 1988, we construe 
subsection (d) to require that the measures be ``at least as 
stringent'' as the statutory increments set forth in section 163.
    In an instance where EPA opts to employ increments in its section 
166 PSD regulations for a specific pollutant, we interpret this 
language to require that EPA, at minimum, establish increments that are 
consistent with the statutory increments established by Congress in 
that each increment (Class I, II, or III) is established in relation to 
the NAAQS and is set (1) at an equivalent percentage of the NAAQS as 
the statutory increments; (2) for the same pollutants as the NAAQS; and 
(3) for the same time period as the NAAQS. Under an increment approach, 
EPA would then conduct further review to determine whether the ``safe 
harbor'' increments, in conjunction with other measures adopted under 
the PSD program and section 166, sufficiently fulfill the criteria in 
subsection (c). If, after weighing and balancing the criteria set forth 
in subsection (c) (and the incorporated goals and purposes of the CAA 
in section 101 and the PSD program in section 160), EPA determines that 
the ``safe harbor'' increments and other measures do not satisfy these 
criteria, then EPA would need to develop additional regulations which 
may include different increments, additional increments, or additional 
measures to satisfy the section 166(c) criteria. If EPA determines that 
the ``safe harbor'' increments and associated measures satisfy the 
criteria in subsection (c), then it need not adopt different or 
additional increments or other measures as part of its PSD regulations 
under section 166.

B. Interpretation on Remand: The Section 166(c) Factors

    EPA interprets section 166(c) of the Act to establish eight factors 
to be considered in the development of PSD regulations for the 
pollutants covered by this provision. Section 166(c) lists three 
specific criteria that EPA must consider in the development of PSD 
regulations for the pollutants covered by this provision. These three 
criteria indicate that PSD regulations for specific pollutants should 
provide (1) specific numerical measures for evaluating permit 
applications; (2) a framework for stimulating improved control 
technology; and (3) protection of air quality values. 42 U.S.C. 
7476(c). In addition, section 166(c) directs that EPA's PSD regulations 
for specific pollutants ``fulfill the goals and purposes'' set forth in 
sections 101 and 160 of the Act. 42 U.S.C. 7476(c). We interpret this 
phrase to incorporate the five goals and purposes of the PSD program 
set forth in section 160 as factors that EPA must consider to comply 
with section 166(c) of the Act.
    The Agency's view is that PSD measures that satisfy the specific 
goals and purposes of section 160 also satisfy the more general 
purposes and goals identified in section 101 of the Act. The overall 
goals and purposes of the CAA listed in sections 101(b) and 101(c) are 
general goals regarding protecting and enhancing the nation's air 
resources and controlling and preventing pollution. Because these broad 
goals are given more specific meaning in section 160, EPA does not 
believe it is necessary to consider them in detail when evaluating 
whether PSD regulations satisfy the criteria in section 166(c). In 
addition, the court's inquiry in EDF v. EPA focused exclusively on the 
specific goals and purposes of the PSD program set forth in section 
160. However, because the broad purpose of the CAA set forth in section 
101(b)(1) provides some additional guidance as to the meaning of the 
more specific PSD goal set forth in section 160(3), we discuss section 
101(b)(1) further below in this limited context of interpreting one of 
the factors applicable under section 166.
    Thus, EPA construes the term ``fulfill the goals and purposes,'' as 
used in section 166(c), to mean that EPA should apply the goals and 
purposes listed in section 160 as factors applicable to pollutant-
specific PSD regulations established under section 166. The EPA's PSD 
regulations for NOX should therefore be consistent with the 
three criteria listed in section 166(c) and the five goals and purposes 
listed in section 160 of the Act.
    As noted above and explained further below, for the increment 
option in this proposal, we believe many of the eight factors 
applicable under section 166(c) are fulfilled by elements of the 
regulatory framework that were established in 1988 and not controverted 
in EDF v. EPA. We discuss further below how the proposed cap and trade 
and State planning options also satisfy these factors. The following 
sections provide more detail on how we propose to interpret and apply 
several of these factors in developing pollutant-specific PSD 
regulations under section 166 of the Act.
1. Numerical Measures by Which Permit Application May Be Evaluated
    The first criterion in section 166(c) states that pollutant-
specific PSD regulations must contain ``specific numerical measures 
against which permit applications may be evaluated.'' We believe an 
increment would clearly satisfy this criterion but do not interpret 
section 166 to require that we employ an increment system for every 
pollutant listed in this section. Section 166(d) states that our 
pollutant-specific PSD regulations ``may contain'' increments or 
``other measures.'' We interpret this provision to allow EPA or the 
States to employ approaches other than an increment system, so long as 
such an approach fulfills the ``specific numerical measures'' criterion 
in section 166(c).
    While an increment is the clearest example of a specific numerical 
measure for evaluating permit applications because of the model 
Congress established for PM and SO2, the Act gives EPA the 
discretion to employ other types of numerical measures in PSD 
regulations for the other pollutants listed in section 166, such as 
``nitrogen oxides.'' An increment represents the allowable marginal 
increase in air pollutant concentration (measured in [mu]g/m\3\. Under 
this approach, the permit applicant must conduct modeling to determine 
whether or not its emissions on a mass basis (e.g., tons) will result 
in an air quality concentration increase in excess of the increment. 
However, another way to provide a numerical measure for evaluating 
permits could be, for instance, to establish a maximum allowable level 
of emissions on a mass basis (e.g., tons).
    Under the latter approach, permit applicants would have to show 
that their emissions will not cause total emissions in a given area to 
exceed the maximum allowable level of emissions established for that 
area. Under a State planning approach, the State could monitor the 
inventory of emissions from all sources (new and existing) and only 
issue a permit if the applicant's project would not cause emissions to 
exceed allowable levels. Using a cap and trade approach, EPA or the 
States could adopt regional or statewide caps on emissions of specific 
sources that could then be allocated to States or individual sources 
covered by the cap in the form of a budget or allowance. Individual 
permit applications would be evaluated against the cap by determining 
whether the applicant held a sufficient number of allowances.

[[Page 8887]]

2. Protect Air Quality Values
    The third criterion in section 166(c) broadly states that the 
regulations ``shall provide * * * protection of air quality values'' 
without identifying the air quality values to be protected. Legislative 
history indicates that the term ``air quality value'' was used 
interchangeably with the term ``air quality related value'' (AQRV) 
regarding Class I lands.\4\ Thus, we believe the term ``air quality 
values'' should be given the same meaning as ``air quality related 
values.''
---------------------------------------------------------------------------

    \4\ See S. Rep. 95-127, at 12, reprinted at 3 Legislative 
History at 1386, 1410 (describing the goal of protecting ``air 
quality values'' in ``Federal lands--such as national parks and 
wilderness areas and international parks,'' and in the next 
paragraph and subsequent text using the term ``air quality related 
values'' to describe the same goal); id. at 35, 36 (``The bill 
charges the Federal land manager and the supervisor with a positive 
role to protect air quality values associated with the land areas 
under the jurisdiction of the [FLM]'' and then describing the 
statutory term as ``air quality related values''). H.R. Report 95-
564 at 532 (describing duty of Administrator to consider ``air 
quality values'' of the tribal and State lands in resolving an 
appeal of a tribal or State redesignation, which is described in the 
final bill as ``air quality related values'').
---------------------------------------------------------------------------

    The Act does not define AQRV, except to note that it includes 
visibility. Section 165(d)(1)(B). However, the legislative history 
provides the following explanation of AQRV:

    The term ``air quality related values'' of Federal lands 
designated as class I includes the fundamental purposes for which 
such lands have been established and preserved by the Congress and 
the responsible Federal agency. For example, under the 1916 Organic 
Act to establish the National Park Service (16 U.S.C. 1), the 
purpose of such national park lands ``is to conserve the scenery and 
the natural and historic objects and the wildlife therein and to 
provide for the enjoyment of the same in such manner and by such 
means as will leave them unimpaired for the enjoyment of future 
generations.''

S. Rep. 95-127 at 36, reprinted at 3 Legislative History at 1410.
    Thus, in 1996, the Agency proposed the following definition of 
AQRV:

* * * visibility or a scenic, cultural, physical, biological, 
ecological, or recreational resource that may be affected by a 
change in air quality, as defined by the Federal Land Manager for 
Federal lands, or by the applicable State or Indian Governing Body 
for nonfederal lands.

61 FR 38250, 38322 (July 23, 1996). The reference to State or Indian 
Governing Body was to acknowledge that Congress recognized in section 
164(e) that such areas also may have AQRVs to be taken into 
consideration.
3. Protect Public Health and Welfare From Adverse Effects 
Notwithstanding Attainment of NAAQS
    The first goal and purpose in section 160 of the Act sets forth a 
broad mission ``to protect public health and welfare from any actual or 
potential adverse effects which in the Administrator's judgment may 
reasonably be anticipated to occur notwithstanding attainment and 
maintenance of all national ambient air quality standards.'' The 
precise meaning of this goal is somewhat ambiguous because it appears 
to mirror the legal standards applicable to the promulgation of the 
primary and secondary NAAQS. Under section 109(b) of the Act, the 
primary NAAQS must ``protect the public health'' with an adequate 
margin of safety (section 109(b)(1)) and the secondary NAAQS must 
``protect the public welfare from any known or anticipated adverse 
effects'' associated with ambient concentrations of the pollutant 
(section 109(b)(2)). The term ``welfare'' is defined in the Act to 
include ``effects on soils, water, crops, vegetation, man-made 
materials, animals, wildlife, weather, visibility, and climate.'' 
Section 302(h).
    When applied as a relevant factor for the content of PSD 
regulations for specific pollutants under section 166(c) of the Act, we 
do not construe this language in section 160 to require EPA to conduct 
a full NAAQS review every time it establishes PSD regulations for a 
pollutant. A NAAQS review is a rigorous scientific process,\5\ and 
Congress gave EPA 5 years to complete this review. 42 U.S.C. 
7409(d)(1). However, under section 166(a) of the Act, Congress gave EPA 
only 2 years to establish PSD regulations for specific pollutants. 
Furthermore, in cases where NAAQS were not established as of 1977, 
section 166(a) gave EPA 2 years after the establishment of a NAAQS to 
promulgate PSD regulations. This indicates that Congress intended for 
PSD regulations to be developed shortly after establishment of a NAAQS 
and before completion of the next NAAQS review in 5 years. As a result, 
we do not believe it is reasonable to interpret this factor to require 
such a rigorous review to establish PSD regulations. In addition, as 
discussed further below, we believe these statutory provisions indicate 
that Congress intended for EPA to develop PSD rules using the research 
compiled when establishing or reviewing a NAAQS.
---------------------------------------------------------------------------

    \5\ The NAAQS process begins with the development of ``air 
quality criteria'' under section 108 for air pollutants that ``may 
reasonably be anticipated to endanger public health or welfare'' and 
that come from ``numerous or diverse'' sources. Section 108(a)(1). 
``Air quality criteria'' must reflect the latest scientific 
knowledge on ``all identifiable effects on public health or 
welfare'' that may result from a pollutant's presence in the ambient 
air. Id. Sec.  7408(a)(2). The scientific assessments constituting 
air quality criteria generally take the form of a ``criteria 
document,'' a rigorous review of all pertinent scientific studies 
and related information. The EPA also develops a ``staff paper'' to 
``bridge the gap'' between the scientific review and the judgments 
the Administrator must make to set standards. See Natural Resources 
Defense Council v. EPA (``NRDC''), 902 F.2d 962, 967 (DC Cir. 1990). 
Both documents undergo extensive scientific peer-review as well as 
public notice and comment. See e.g., 62 FR 38654/1-2.
    For each NAAQS review, the Administrator must appoint ``an 
independent scientific review committee composed of seven members of 
the National Academy of Sciences, one physician, and one person 
representing State air pollution control agencies,'' known as the 
Clean Air Scientific Advisory Committee (CASAC). Section 
109(d)(2)(A). CASAC is charged with recommending revisions to the 
criteria document and NAAQS, and advising the Administrator on 
several issues, including areas in which additional knowledge is 
required to apprise the adequacy and basis of existing, new or 
revised NAAQS. Section 109(d)(2)(B), (C).
---------------------------------------------------------------------------

    In the specific context of the PSD program, we construe this charge 
to ``protect public health and welfare'' to require EPA to evaluate 
whether adverse effects may occur as a result of increases in pollution 
to ambient levels below the NAAQS. If such effects may occur in some 
areas of the country, then EPA must consider how to establish PSD 
regulations that protect public health and welfare against such effects 
where they may occur. However, we do not interpret the PSD program to 
require regulations that eliminate all adverse effects that may result 
from increases in pollution in attainment areas. The PSD program is, as 
its title suggests, designed to prevent ``significant deterioration'' 
from a baseline concentration. S. Rep. 95-127 at (3 LH at 1385) (``This 
legislation defines `significant deterioration' in all clean air areas 
as a specified amount of additional pollution. This definition is 
intended to prevent any major decline in air quality currently existing 
in clean air areas * * *''). That is, some decline in air quality 
(relative to the baseline air quality concentration) is permissible for 
any particular area of the country that is currently achieving the 
NAAQS, as long as it is not ``significant.'' \6\
---------------------------------------------------------------------------

    \6\ Of course, if the area is designated nonattainment pursuant 
to section 107 of the Act because the air quality is not attaining 
the NAAQS, the PSD increments do not apply. Rather, reductions in 
emissions must be implemented to bring the area's air quality into 
attainment with the NAAQS, and, in the case of new sources, 
sufficient offsetting emissions reductions must be obtained. 
Sections 172(c) and 173(a) of the Act.

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[[Page 8888]]

4. Ensure Economic Growth Consistent With Preservation of Existing 
Clean Air Resources
    The third goal and purpose set forth in section 160 is to ``insure 
that economic growth will occur in a manner consistent with the 
preservation of existing clean air resources.'' To some extent, this 
goal of the PSD program more specifically articulates the broader 
purpose of the CAA, described in section 101(b)(1) of the Act, to 
``protect and enhance the quality of the Nation's air resources so as 
to promote the public health and welfare and the productive capacity of 
its population.'' 42 U.S.C. 7401(b)(1). Sections 160(3) and 101(b)(1) 
are similar in that both sections reflect the goal to simultaneously 
protect air quality and to foster economic growth. Thus, in 
interpreting the meaning of section 160(3) when used as a factor 
applicable under section 166(c), we also consider the broader purpose 
of the Act set forth in section 101(b)(1).
    The first part of this goal of the PSD program set forth in section 
160(3) (``to insure that economic growth will occur'') makes clear that 
the PSD program is not intended to stifle economic growth. However, the 
second part of this goal indicates that economic growth should ``occur 
in a manner that is consistent with the preservation of existing clean 
air resources.'' 42 U.S.C. 7470(3). Section 101(b)(1) indicates that 
these goals are not necessarily inconsistent because Congress sought to 
``protect and enhance the Nation's air resources so as to promote the 
public health and welfare and the productive capacity of [the Nation's] 
population.'' Thus, when considered in light of the purpose of the Act 
set forth in section 101(b)(1), it is clear that section 160(3) 
establishes the goal of the PSD program to balance the promotion of 
economic growth and the protection of clean air resources.
    Therefore, when applied as a guiding factor for the content of 
pollutant-specific PSD regulations under section 166(c), we construe 
section 160(3) to establish a balancing test between fostering economic 
growth and protecting: (1) AQRVs; (2) the public health and welfare 
from adverse effects, and (3) the air quality in parks and special 
areas. When EPA employs an area classification system in its section 
166 regulations, all of these factors must be weighed in each type of 
area (Class I, Class II, and Class III). However, the weight given to 
each factor may be more or less depending on the area involved. For 
example, economic growth may be the most important factor in a Class 
III area, but our PSD regulations for such areas should offer some 
level of protection for existing clean air resources. In a Class I 
area, our PSD regulations should allow some level of economic growth, 
even though preservation of existing clean air resources may be the 
dominant value for these areas.

C. EPA's Authority To Fulfill Section 166 Requirements by Granting 
States Flexibility To Adopt Alternative Measures in Their SIPs

    Under section 110(a)(1) of the Act, each State is required to 
submit a State Implementation Plan (SIP) which provides for 
implementation, maintenance, and enforcement of the primary and 
secondary NAAQS established by EPA. All areas are required to submit 
SIPs within certain timeframes, and those SIPs must include specified 
provisions identified under section 110(a)(2) of the Act. SIPs for 
nonattainment areas are required to include additional specified 
control requirements, as well as controls providing for attainment of 
any revised NAAQS and periodic reductions providing ``reasonable 
further progress'' in the interim (see section 172(c)). For attainment 
areas subject to the PSD program, section 161 of the Act requires that 
``each applicable implementation plan shall contain emissions 
limitations and such other measures as may be necessary, as determined 
under regulations promulgated under this part, to prevent significant 
deterioration of air quality in each region * * * designated * * * as 
attainment or unclassifiable.'' Thus, we have interpreted sections 166 
and 161 to collectively require that EPA promulgate a specific PSD 
regulatory program for each pollutant identified in section 166 (such 
as the existing NO2 increments and associated regulations), 
and then to require the States to adopt that program as part of their 
SIPs.
    We view the PSD program to be a growth management program that is 
intended to limit the deterioration of air quality beyond baseline 
levels that may be caused by the construction of major new and modified 
sources. We do not interpret the PSD provisions to authorize us to 
direct States in their SIPs to achieve reductions in emissions from 
existing sources. However, we recognize that the growth management 
goals of PSD may also be fulfilled when the States adopt controls on 
existing sources that would reduce emissions and allow growth from new 
sources and major modifications to existing sources without causing 
significant deterioration. Under the increment approach, we have 
previously recognized that States may choose to require reductions from 
existing sources in order to expand the increments and allow for more 
growth under the PSD program.\7\ However, we have never required States 
to do so because, in the absence of an increment violation, we do not 
believe section 166 and other provisions in part C give us the legal 
authority to mandate such reductions for PSD purposes. Consistent with 
these authorities, in addition to requiring States to adopt a specific 
PSD program for NOX promulgated under section 166 as part of 
their SIPs, we believe we could also give States the flexibility to 
develop their own programs that EPA could review to determine if the 
State program meets the requirements of section 166(c) and 166(d) of 
the Act. If a State adopts a program that meets the criteria of 
sections 166(c) and 166(d), we believe section 166 would give us the 
authority to allow the State to implement that program in lieu of any 
specific program (such as one that may include increments) that EPA 
might adopt under section 166. Thus, we think one option for fulfilling 
our obligation to promulgate pollutant-specific regulations for 
NOX under section 166 would be to adopt regulations that 
establish a procedure for States to submit their own programs to 
satisfy section 166. These regulations would contain criteria that 
would guide EPA's evaluation of whether a State program contains 
``other measures'' that are sufficient to satisfy the requirements of 
sections 166(c) and 166(d) and to operate in lieu of an EPA-promulgated 
program.
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    \7\ 43 FR 26380, 26381 (June 19, 1978) (``States can expand the 
available PSD increments by requiring emissions reductions from 
existing sources.'')
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V. Health and Welfare Effects of NOX

    ``Nitrogen oxides'' is the generic term for a group of highly 
reactive gases that contain nitrogen and oxygen in varying amounts. The 
high-temperature combustion of fossil fuels, primarily from electric 
utilities and mobile sources, is a major contributor to the formation 
of nitric oxide (NO) and NO2. Most NOX from 
combustion sources are emitted as NO (about 95 percent); the remainder 
are primarily NO2. Emissions of NO are rapidly oxidized in 
the atmosphere to produce even more NO2.\8\
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    \8\ Because NO is readily converted to NO2 in the 
atmosphere, the emissions of NOX reported by EPA assumes 
NOX in the form of NO2. In predicting ambient impacts 
that may result from emissions of NOX, all NOX 
initially is assumed to be emitted from sources as NO2. 
(40 CFR part 50 app W sec. 6.2.4.)
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    Nitrogen oxides \9\ play a major role in the formation of ozone and 
PM

[[Page 8889]]

(nitrogen-bearing particles and acid aerosols), each with their own set 
of adverse health and welfare effects.\10\ For example, nitrate 
particles contribute to visibility impairment and regional haze and 
nitrates are a major component of acidic deposition. Emissions of 
NOX also contribute to nitrates in drinking water, nitrogen 
loadings to aquatic (eutrophication) and terrestrial 
(nitrification)\11\ ecosystems, toxics, stratospheric ozone depletion, 
and global climate change.
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    \9\ Seven oxides of nitrogen are known to occur in the 
atmosphere: nitric oxide (NO), nitrogen dioxide (NO2), 
nitrate (NO3-), nitrous oxide 
(N2O), dinitrogen trioxide (N2O3), 
dinitrogen tetroxide (N2O4) and dinitrogen 
pentoxide (N2O5).
    \10\ The term ``welfare'' is defined in the Act to include, 
inter alia, ``effects on soils, water, crops, vegetation, man-made 
materials, animals, wildlife, weather, visibility, and climate.'' 
Section 302(h).
    \11\ It should be noted that nitrification can be a beneficial 
process in many instances. Nitrification (a bacterially driven 
process that converts ammonium to nitrite) can occur productively in 
manure piles, during sewage processing, in soil, and in marine 
environments in the oxygenated water column above anaerobic 
sediments or within the surface of oxidized layers of sediments. 
Nitrification becomes adverse when it is accompanied by ``nitrogen 
saturation,'' a condition that can arise in terrestrial ecosystems 
from the long-term chronic effects of nitrogen deposition or 
loading, where nitrogen inputs into an ecosystem exceed the ability 
of plants and soil organisms to utilize it so that it begins to 
leach nitrite out of the soil into streams and other water bodies.
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    Reduced nitrogen compounds, such as ammonia (NH3) 
(derived largely from emissions from livestock waste as well as those 
associated with the application of fertilizer to the ground) and 
ammonium (NH4+), are also important to many of 
the public health and environmental impacts associated with atmospheric 
nitrogen compounds. It is important to recognize that some forms of 
NOX are produced naturally (via lightning, soils, wildfires, 
stratospheric intrusion, and the oceans) and also can play a role in 
the cycling of nitrogen through the ecosystem. Such varied origins of 
nitrogen in the atmosphere add to the difficulty of determining the 
specific source contributing to the total nitrogen concentration and, 
therefore, make it difficult to design an emissions control strategy 
for reducing the nitrogen contribution in a particular area.

A. Scope of Effects EPA Proposes To Consider

    In order to evaluate our pollutant-specific PSD regulations for 
NOX under section 166(c), we must first define the scope of 
effects that are relevant to our analysis. Although emissions of 
NOX contribute to a range of direct and indirect effects on 
health, welfare, and AQRVs, we believe our review should focus on those 
effects that were considered by EPA in the development of the NAAQS for 
NO2.
    EPA believes that this approach is appropriate because the need to 
develop PSD rules is tied to the existence of the NAAQS. As the court 
in EDF v. EPA acknowledged ``the ambient standards are the basic 
measure of air quality under the [Clean Air Act] and the controlling 
standards by no means exclude any value that is the subject of focus 
under the PSD provisions.'' 898 F.2d at 190 (emphasis in original). 
Thus, the health and welfare effects that were evaluated by EPA when it 
established the NAAQS should also be considered when EPA establishes 
regulations under section 166 to protect against significant 
deterioration of air quality from NOX emissions.
    This view is supported by the provisions of section 166 which make 
clear that EPA is to establish PSD regulations (including an increment, 
if appropriate) under this provision after the establishment of a NAAQS 
for the applicable pollutants. In 1971, EPA first established a single 
standard for NO2 as both the primary and secondary NAAQS 
addressing NOX. 36 FR 8186 (April 30, 1971). Congress then 
passed section 166 of the Act in 1977 and gave EPA 2 years to complete 
its study and promulgate PSD regulations for ``nitrogen oxides.'' 42 
U.S.C. 7476(a). In addition, for pollutants for which a NAAQS had not 
been promulgated by August 7, 1977, Congress gave EPA 2 years from the 
promulgation of such standards to establish PSD regulation under 
section 166 of the Act. Id. The establishment of PSD regulations which 
may include increments must necessarily follow the NAAQS because the 
NAAQS provides the benchmark against which we are to judge 
``significant deterioration'' of air quality.
    Although we propose to use the range of effects considered in 
setting the NAAQS to define the bounds of our analysis, we are also 
mindful that the court in EDF v. EPA rejected use of the NAAQS as the 
``sole basis'' for deriving the increment. 898 F.2d at 190. However, in 
this action, we propose to focus not simply on the level of the NAAQS 
as a legal standard, as we did in 1988, but to further consider the 
health and welfare effects that EPA evaluated to establish the NAAQS. 
Rather than considering those effects in relation to the standards set 
forth in section 109, we now evaluate those effects in relation to the 
factors in sections 166(c) and 160 of the Act. The court held that we 
could not rely solely on the NAAQS itself to establish increments 
because of the emphasis in sections 166(c) and 160 on special 
considerations--such as national wilderness areas--whose special values 
may be reflected in the NAAQS but are not necessarily the only factors 
that determine the level of the NAAQS. See 898 F.2d at 190. Thus, 
within the field of effects that EPA found relevant when establishing 
the NAAQS, we narrow our inquiry here to focus on the special 
considerations of PSD and those effects that may occur in some areas 
notwithstanding attainment of the NAAQS.
    As noted above, both photochemical oxidants (ozone) \12\ and PM 
\13\ are formed in part by reactions of NOX emissions with 
other pollutants in the atmosphere. Thus, the question arises whether 
the PSD regulations for NOX must also address the ozone and 
PM impacts. Because section 166(a) directs EPA to separately promulgate 
pollutant-specific PSD regulations for photochemical oxidants (i.e., 
ozone), we believe the duty to promulgate increments for ``nitrogen 
oxides'' does not include consideration of ozone.\14\
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    \12\ Ozone is the oxidant found in the largest quantities in the 
atmosphere. The EPA promulgated NAAQS for photochemical oxidants in 
1971. The chemical designation of the standard was changed in 1979 
from ``photochemical oxidants'' to ozone. See 44 FR 8202 (February 
8, 1979).
    \13\ Particulate matter (PM) is composed of directly emitted 
particles and secondarily formed particles. Secondary particulates 
are produced from gaseous pollutants, mainly NOX, 
SO2, ammonia, and some VOCs. Emissions of NOX 
can result in the formation of particulate nitrates whose 
contribution to fine particles varies depending on geographic 
location and other criteria.
    \14\ In the 1988 final preamble adopting the NO2 
increments, we gave limited consideration to whether limiting 
increases of NOX emissions would worsen ozone ambient 
concentrations, in response to comments raising this issue. 53 FR at 
40668. We did not, however, attempt to set the NO2 
increments to address ozone public health and welfare impacts, nor 
do we believe that is required here, for the reasons stated above. 
Increments for ozone have not been established because of the 
technical difficulty associated with predicting ambient 
concentration changes resulting from a single stationary source. 61 
FR 65764, 65776 (Dec. 13, 1996).
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    We believe that Congress did not intend for EPA to establish 
duplicative PSD regulations. Several pollutants are identified in 
section 166(a) for the promulgation of regulations to ``prevent the 
significant deterioration of air quality which would result from the 
emissions of such pollutants.'' In addition to ``nitrogen oxides,'' the 
statute lists ``photochemical oxidants'' and any pollutants for which 
NAAQS are later promulgated. Increments for PM10 are 
separately authorized in section 166(f).
    In addition, we believe it would be unreasonable to establish 
pollutant-specific PSD regulations to protect against the effects of 
ozone without considering the other major precursor

[[Page 8890]]

for ozone--volatile organic compounds. Any PSD regulation attempting to 
mitigate the ozone impacts from NOX, notwithstanding the 
ozone NAAQS, would be unfounded without also addressing this 
significant component. Thus, we believe the contribution of 
NOX to the formation of ozone should be considered only in 
the context of the establishment of pollutant-specific PSD regulations 
for ozone.
    For similar reasons, we believe the duty to promulgate PSD 
regulations for ``nitrogen oxides'' under section 166 of the Act does 
not include a requirement to consider effects attributable to PM. 
Instead, Congress established increments for PM (then measured as total 
suspended particulate or TSP) and authorized EPA to replace the TSP 
increments with increments for PM10. See CAA sections 163 
and 166(f). Thus, we believe it would be inappropriate to promulgate 
pollutant-specific regulations for NOX based on its 
transformation into PM. Regulations for NOX that address PM 
effects in such a narrow manner (i.e., nitrates \15\ only) could 
potentially affect the stringency of the PM increments and 
considerations regarding the baseline concentration and baseline date. 
Additionally, like ozone, PM has several precursors, of which 
NOX is only one. Any PSD strategy for PM should consider 
both direct PM emissions and all of the regulated precursors instead of 
placing disproportionate emphasis on only one component of the 
pollutant. In a separate notice, EPA intends to consider options for 
regulating precursors to PM2.5.
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    \15\ NO2 may be transformed to nitrate particulates 
by means of chemical reactions in the atmosphere. Nitrate is a major 
constituent of atmospheric PM. Due to limited scientific literature 
addressing the health impacts of nitrates, exposure currently is 
analyzed as exposure to fine PM. (NAPAP, 1998.)
---------------------------------------------------------------------------

B. Data Included in Review

    Our review of the available scientific and technical information 
focuses primarily on the health and welfare information contained in 
the 1993 Criteria Document for NOX and the 1995 OAQPS Staff 
Paper used for the periodic review of the NO2 NAAQS 
completed in 1996. As described below, we have also considered 
information contained in more recent studies, particularly concerning 
the types of effects on ecosystems associated with atmospheric nitrogen 
deposition because the Act does place an emphasis on protection of air 
quality values and national parks and other special areas of national 
or regional interest.
    The court's opinion in EDF v. EPA did not indicate what data set 
EPA should use in its review under the statutory criteria in sections 
166(c) and 166(d). When EPA promulgated the NO2 increments 
in 1988, the health and welfare information used for completing the 
periodic review of the NO2 NAAQS (50 FR 25532, June 19, 
1985) was contained in EPA's 1982 Criteria Document for NOX. 
The same document represented the Agency's latest official 
documentation of health and welfare effects when the 1988 increments 
were challenged by Environmental Defense.
    In general, we believe that it is appropriate to rely on the latest 
information used for promulgating or reviewing the NAAQS in order to 
evaluate the effectiveness of a set of increments or other PSD 
regulations for the same pollutant. This is because, under normal 
circumstances, the Act provides that EPA promulgate new PSD regulations 
under section 166, including new increments if appropriate, within 2 
years from the promulgation of any NAAQS after 1977. 42 U.S.C. 7476(a). 
In such instances, the health and welfare information used for the 
setting of the NAAQS would also be ``current'' for purposes of 
establishing pollutant-specific PSD regulations.
    The record of information used for the most recent periodic review 
of the NO2 NAAQS includes the 1993 Criteria Document and 
1995 Staff Paper. This information was used in 1996 to carry out the 
required periodic review of the NO2 NAAQS and to conclude 
that the existing primary and secondary NO2 NAAQS should be 
retained in the original form. 61 FR 52852 (October 8, 1996).
    The most recent review of the NO2 NAAQS contains 
information that was not part of the scope of the previous NAAQS 
review. Specifically, the 1993 Criteria Document and 1995 Staff Paper 
considered as part of the secondary standard review ``short- and long-
term effects of nitrogen deposition on biological, physical and 
chemical components of ecosystems and the resulting effect of changes 
to these components on ecosystem structure and function as well as the 
traditional issue of visibility impairment, and materials damage.'' The 
expanded scope is particularly relevant to the types of effects that 
should be used to consider the effectiveness of the PSD increments.
    While we believe that it is in keeping with congressional intent to 
rely in the ordinary case on only the information used in the most 
recent NAAQS review when establishing pollutant-specific PSD 
regulations under section 166, the situation we face here with 
NOX is unique. Considerable time has passed since the 1996 
review of the NO2 NAAQS. Thus, in this unique case where we 
are reevaluating the NO2 increment, we have also evaluated 
information contained in a number of more recent studies, published 
since completion of the last NAAQS review, to determine whether there 
have been significant advances in scientific and technical information. 
However, our review of the post-1996 scientific and technical 
information does not represent the level of effort appropriate for the 
development of a criteria document. Nevertheless, we believe our review 
was sufficient to determine that there has not been a substantial 
advance in scientific understanding of the ambient pollutant 
concentration levels at which adverse effects may occur as a result of 
NOX emissions. Thus, we believe the research summarized in 
the most recent criteria document and Staff Paper remains valid and 
relevant for purposes of this review. Although the more recent data 
augment our understanding of the effects that may be caused by 
emissions of NOX, they do not provide significant new 
information on the specific ambient air pollutant concentrations that 
may ultimately cause or contribute to these effects. Thus, the data 
concerning pollutant impacts associated with NOX do not 
provide sufficient information from which it would be possible to 
conclude that the levels of the existing NO2 increments are 
inadequate for purposes of the nationwide PSD program.

C. Analysis of Effects

    This section contains a summary of the health and welfare effects 
reviewed by EPA as part of the reconsideration of the pollutant-
specific PSD regulations for NOX. These effects are within 
the scope of effects reviewed by EPA as part of its decision in 1996 to 
retain the existing primary and secondary NO2 NAAQS. The 
objective of this technical review is to determine whether there is any 
compelling basis for proposing to modify the original NO2 
increments, which were based on the ``percentage-of-NAAQS'' approach, 
in order to ensure that we promulgate pollutant-specific PSD 
regulations for NOX that adequately protect air quality 
values, parks and special areas, and health and welfare from adverse 
effects which may occur in some areas notwithstanding compliance with 
the NAAQS.
1. Health Effects
    In 1996, EPA announced its conclusions that the current primary 
ambient air quality standard for NO2, which is in the form 
of an annual standard for NO2, ``appears to be both adequate 
and necessary to protect

[[Page 8891]]

human health against both long- and short-term NO2 
exposures.'' 61 FR 52852. In reaching this conclusion, EPA considered a 
variety of acute (short-term) and chronic (long-term) health effects 
associated with exposure to NO2 concentration.\16\ Some of 
the most serious health effects reviewed by EPA were shown to occur at 
significantly higher exposure concentrations than are allowed by the 
NAAQS; other health effects, however, were found to occur at levels 
near the NAAQS. For our review purposes herein, only the adverse health 
effects that were found to occur at levels at or near the NAAQS are 
being considered.\17\
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    \16\ Based on the 1993 Criteria Document used for the decision 
in 1996 to retain the existing NO2 NAAQS, EPA reaffirmed 
its previous conclusion that NO2 is the only oxide of 
nitrogen sufficiently widespread and commonly found in ambient air 
at high enough concentrations to be a matter of public health 
concern. 60 FR 52878, October 11, 1995.
    \17\ For the purposes of this review, we are only summarizing 
some of the adverse health effects that were identified during EPA's 
periodic review of the NO2 NAAQS in 1996. A detailed 
discussion of pertinent studies can be found in the 1993 Criteria 
Document and the 1995 Staff Paper.
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    The health effects of most concern at ambient or near-ambient 
concentrations of NO2 with short-term (e.g., less than 3 
hours) exposure include mild changes in airway responsiveness (airway 
constriction and narrowing) and decrease in pulmonary function. In 
addition, there is some evidence of increased respiratory illnesses 
among children associated with long-term, low-level exposure to 
NO2. Each of these effects is summarized below.
    While there is little evidence to show that healthy individuals 
experience increases in airway responsiveness when exposed to 
NO2 concentrations below 1.0 ppm, clinical studies of 
asthmatics have reported evidence of increased airway narrowing at 
relatively low concentrations (mostly within the range of 0.2 to 0.3 
ppm NO2) at short-term exposures of less than 3 hours. 
However, such responses did not appear to cause airway inflammation and 
were fully reversible. In addition, the exposure concentrations studied 
exceeded the ambient levels typically monitored in areas that meet the 
annual NAAQS.
    Small changes in pulmonary function have been observed in 
asthmatics at NO2 concentrations generally ranging between 
0.2 and 0.5 ppm NO2 either at rest or following periods of 
exercise. Some findings of airway resistance occurred in mild 
asthmatics exposed to concentrations as low as 0.1 ppm NO2 
at rest. However, EPA concluded that this finding was not considered 
statistically significant. As above, the concentrations related to 
these effects exceed the levels typically monitored in areas meeting 
the NAAQS.
    Increases in respiratory illnesses in children 5 to 12 years old 
resulting from exposure typically averaging over a 2-week period were 
reported in a number of epidemiological studies investigating effects 
of indoor exposure to NO2 emitted from gas stoves. In these 
studies, NO2 concentrations were estimated in terms of two-
week average NO2 exposures, where mean weekly exposure 
concentrations in bedrooms were predominantly between 0.008 and 0.065 
ppm NO2. The EPA noted various limitations with these 
studies, however, that made it extremely difficult to extrapolate the 
results in a manner that would yield quantitative estimates of health 
impacts for outdoor exposure to NO2.
2. Welfare Effects
    In its 1996 review of the NAAQS, EPA concluded that the ``available 
scientific and technical evidence * * * does not provide an adequate 
basis for setting a separate secondary standard for NO2'' to 
address the welfare effects considered by EPA. 61 FR 52855. In 
addition, because of the multiple causes and regional character of many 
of the welfare effects that may be associated with NOX 
emissions, the Administrator concluded that ``adoption of a nationally 
uniform secondary standard would not be an effective approach to 
addressing them.'' Id. Thus, EPA adopted a secondary standard for 
NO2 that is the same as the primary standard.
    However, as discussed earlier, the goals and purposes of the PSD 
program include protection of welfare, air quality values and areas of 
special national and regional interest (national parks, national 
wilderness areas, etc.). Nitrogen dioxide and other nitrogen compounds 
have been associated with a wide range of environmental effects. Thus, 
EPA has reviewed the information on welfare effects to determine 
whether there is any basis for modifying the existing NO2 
increments or to establish an alternative regulatory framework in order 
to provide additional protection notwithstanding attainment of the 
NAAQS in PSD areas.
a. Direct Welfare Effects
    The periodic review of the NO2 NAAQS, leading to EPA's 
final decision published in 1996, expanded the scope of coverage over 
the previous periodic review in that it included new environmental 
considerations, set forth by the Clean Air Act Amendments of 1990 (1990 
Amendments), not included in the earlier review. In addition to the 
environmental features identified for protection by the secondary 
standard in the definition of public welfare (see section 302(h) of the 
Act), the 1990 Amendments expressed a new determination on the part of 
Congress to investigate through research ``short-term and long-term 
causes, effects, and trends of ecosystems damage from air pollutants * 
* *'' (see section 301(e) of the Act). Thus, in addition to the 
traditional issues of visibility impairment, and vegetation and 
materials damage, EPA's most recent periodic review of the 
NO2 NAAQS addressed as part of the secondary standard review 
short- and long-term effects of nitrogen deposition on biological, 
physical and chemical components of ecosystems and the resulting effect 
of changes in these components on ecosystems structure and function.
    Information contained in the 1993 Criteria Document, not available 
in the previous criteria document, indicated that single exposures to 
NO2 for less than 24 hours can produce effects on growth, 
development, and reproduction of plants. However, the data did not 
suggest significant effects at or below the current ambient standards 
level. Instead, the observed effects generally occurred at 
concentrations greatly exceeding the ambient levels of NO2 
measured in the U.S. Some studies have shown that NO2 in 
combination with other pollutants (i.e., SO2, ozone) can 
increase plant sensitivity, thus lowering concentration and time of 
exposure required to produce injury/growth effects. Again, however, the 
pollutant concentrations used in these experimental studies were well 
above those observed in the ambient air and at a frequency of 
occurrence not typically found in the U.S.
    Nitrogen dioxide has been qualitatively associated with various 
adverse effects on materials. For example, exposure to NO2 
may contribute to: Enhancing the fading of dyes; diminishing the 
strength of fabrics, plastics and rubber products; assisting the 
corrosion of metals; and reducing the useful life of electric 
components, paints, and masonry. Compared to studies on sulfur oxides, 
however, there is limited information available quantifying the effects 
of NO2 or other nitrogen compounds. The available evidence 
shows that it is difficult to distinguish a single causative agent for 
observed damage because many agents, together with a number of 
environmental stresses, act on the surface of materials over time.
    Another potential direct effect of NO2 is visibility 
impairment. NO2 and other

[[Page 8892]]

pollutants can degrade the visual appearance of distant objects and 
reduce the range at which they can be distinguished from the 
background. NO2 appears as a yellow to reddish-brown gas 
because it absorbs blue light, allowing red wavelengths to reach the 
eye.
    The discoloration effect is most noticeable as local scale or 
``reasonably attributed impairment,'' defined as a coherent, 
identifiable impairment, which can be seen as an optical entity (plume) 
against the background sky or a distant object. NO2 does not 
normally contribute significantly to haze in remote areas, because of 
its high reactivity and relatively short lifetime in the atmosphere. 
Large-scale ``regional haze'' is more commonly associated with the 
light-scattering properties of PM, including nitrate PM formed by 
chemical reactions involving NO and NO2 with other 
substances in the atmosphere, and is discussed below as an indirect 
effect of NO2.
    As reported in the 1995 Staff Paper (p. 87), the 1993 Criteria 
Document indicated that less than 0.1 ppm-km NO2 is 
sufficient to produce a color shift that is distinguishable in 
carefully controlled, color matching tests. However, at concentrations 
below 0.01 ppm (approximately the concentration increase allowed by the 
Class II increment for NO2), area-wide impacts of 
NO2 absorption are not considered important.\18\ In 
addition, some studies have shown that brownish discoloration can 
result from particles alone, thus making it difficult to determine a 
reliable relationship between ground-level concentrations of 
NO2 at any given point and discoloration caused by particles 
which may also be in a source's plume. The 1995 Staff Paper noted that 
despite the known light-absorbing qualities of NO2, ``there 
are relatively little data available for judging the actual importance 
of NO2 to visual air quality.''
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    \18\ ``Protecting Visibility: An EPA Report to Congress,'' 
OAQPS, October, 1979.
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b. Indirect Welfare Effects
    Various other welfare effects associated with NO2 of 
environmental concern are indirect effects that NO2 may have 
on ecosystems. These indirect effects occur following the 
transformation of ambient NO2 to other nitrogen compounds by 
chemical reactions in the atmosphere and the transfer of these 
compounds from the atmosphere to other media through a process known as 
atmospheric nitrogen deposition (nitrogen deposition). Nitrogen 
deposition is the process by which nitrogen in airborne compounds is 
transferred to a variety of surfaces, e.g., water, soil, vegetation, 
and other materials.
    In terrestrial or agricultural systems, for example, that are 
nitrogen limited, some amount of nitrogen deposition can enhance growth 
of some forest species and crops. However, in areas where deposition 
occurs in excess of plant and microbial demand (also known as nitrogen 
saturation) the added nitrogen can disturb the nitrogen cycle, 
contributing to such adverse effects as increased plant susceptibility 
to some natural stresses and modification of interplant competition.
    To have an effect on a particular ecosystem, nitrogen that has been 
released to the atmosphere must enter the ecosystem by either wet (rain 
or snow), dry (transfer of gases or particles), or occult (fog, mist or 
cloud) deposition. Nitrogen deposition occurs primarily as nitrates, 
which are formed in the atmosphere by the oxidation of NO and 
NO2, or as ammonia, which is released by agricultural or 
soil microbial activity. When the nitrogen transfer process involves 
acids (e.g., nitric acid) or acidifying compounds, the deposition 
process is referred to as ``acidic deposition.'' The adverse welfare 
effects associated with both types of nitrogen deposition are discussed 
in greater detail in the subsections below.
    In the 1995 Staff Paper assessing the scientific and technical 
information contained in the 1993 Criteria Document, it was reported 
that little, if any, research had been initiated to determine what 
percentage of total (wet and dry) nitrogen deposition can be attributed 
to emissions of stationary and mobile sources of NOX. The 
EPA did, however, estimate at that time that approximately one-third to 
one-half of the emissions of NOX in the U.S. are removed by 
wet deposition, and it was generally assumed that dry deposition was 
equal to wet deposition for areas directly adjacent to emissions 
sources. The same assumption for wet deposition could not be made in 
receptor locations remote from the emissions sources.
    More recently, at least one study has been published reporting on 
the relationship between emissions of NOX and nitrate 
concentrations (and deposition) in the eastern U.S. The results of this 
study suggest linearity, specifically, that a reduction in 
NOX emissions may reduce NO3- 
concentrations and acidic precipitation (wet deposition) with an 
efficiency ranging between 75 and 95 percent (Butler, 2003). The study 
was limited to the eastern U.S., and left unanswered the percentage 
contribution of total NOX emissions to the total nitrogen 
deposition.
    Studies such as this can provide potentially useful information to 
help estimate the relative benefits (in terms of anticipated reductions 
in NO3- deposition) resulting from different 
NOX emissions control strategies. Similarly, such 
information could prove useful in evaluating the relationship between 
different levels of allowable ambient NO2 concentration 
increases (i.e., PSD increment levels) and corresponding total nitrogen 
deposition rates. Unfortunately, there are additional criteria that 
would need to be studied in order to be able to adequately evaluate 
this relationship and associated environmental effects.
    To further complicate matters, dry deposition differs from wet 
deposition in that a sample taken at a particular location cannot be 
assumed to represent the rate of dry deposition of the area as a whole. 
Instead, dry deposition is driven by surface properties that are site-
specific. Thus, a regionally representative average rate of dry 
deposition cannot be readily derived from information obtained from a 
single location (NOAA, 2004).
    The following subsections summarize the various indirect effects of 
NO2 on ecosystems, including terrestrial systems (i.e., 
plant communities), wetlands, and aquatic systems. The EPA believes 
that the effects described are potentially relevant to an evaluation of 
the pollutant-specific PSD regulations for NOX because these 
effects have been observed in areas of the country that are attaining 
the NAAQS.
    (1) Terrestrial ecosystems. Soils are the largest pool of nitrogen 
in forest ecosystems, although such nitrogen is generally not available 
for plants until it has been mineralized by bacteria (Fenn, 1998). 
Another important source of nitrogen is atmospheric wet and dry 
deposition, which often has a fertilizing effect on terrestrial 
ecosystems, accelerating plant growth. While this effect can sometimes 
be considered beneficial, nitrogen deposition may also cause or 
contribute to significant adverse changes in terrestrial ecosystems, 
including soil acidification, increase in soil susceptibility to 
natural stresses, and alterations in plant species mix.
    When excess nitrogen input causes soil acidification, it can alter 
the availability of plant nutrients (i.e., calcium and magnesium) and 
expose tree roots to toxic levels of aluminum and manganese, thereby 
having an adverse effect on tree growth. It can also lead to the 
mobilization of aluminum from the soil as nitrates are leached

[[Page 8893]]

from the soil and transported to waterways, where the aluminum can 
exhibit toxic effects to aquatic organisms.\19\
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    \19\ Aluminum from soil seldom appears in aquatic systems 
because natural aluminum minerals are insoluble in the normal pH 
range of natural waters. However, the term ``aluminum mobilization'' 
refers to the the conversion of aluminum in acidic soils into 
dissolved forms and its transport, as runoff or subsurface flow, to 
water systems. Mobilized aluminum can then alter the acid/base 
property of natural water systems (Wang, 2004).
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    Air pollution is not the sole cause of soil change; many studies 
have shown that acidic deposition is not a necessary condition for the 
presence of extremely acidic soils. High rates of acidification are 
occurring in less polluted regions of western U.S. because of internal 
soil processes, such as tree uptake of nitrate and nitrification 
associated with excessive nitrogen fixation. Although nitrogen 
deposition can accelerate the acidification of soils, the levels of 
nitrogen necessary to produce measurable soil acidification are quite 
high. The 1993 Criteria Document indicated that, at that time, nitrogen 
deposition had not been directly associated with the acidification of 
soils in the U.S. More recent information suggests that in parts of the 
Northeast, for example, acid deposition has resulted in the 
accumulation of sulfur and nitrogen in the soil beyond the levels that 
forests can use and retain, and has accelerated the leaching of base 
cations, such as calcium and magnesium, that help neutralize acid 
deposition. (Driscoll, 2001.) Some western forest areas may also be 
experiencing nitrogen saturation conditions, although the role of 
nitrogen deposition may vary from one location to another (Fenn, 1998, 
2003).
    Aside from the effects of soil acidification, some studies have 
shown that increased nitrogen deposition can alter tree susceptibility 
to frost damage, insect and disease attack, and plant community 
structure. However, other studies have not shown that similar results 
occur. In all, the studies evaluated in the 1993 Criteria Document 
which focused on the impact of excessive inputs of nitrogen in forest 
ecosystems showed mixed results. The long response time of trees to 
environmental stresses has made it difficult to fully understand how 
acid rain may affect trees. It is also difficult to isolate the 
possible effects of acid rain from other stresses resulting from other 
natural and anthropogenic origins. However, more recent studies appear 
to provide some evidence that acid deposition has caused the death of 
red spruce trees, particularly at higher elevations in the Northeast by 
decreasing cold tolerance, and may be in part responsible for the 
extensive loss of sugar maple in Pennsylvania. (Driscoll, 2001.)
    Finally, in terrestrial systems in which the pre-existing balance 
is marked by a competition among species for the available nitrogen, 
additional nitrogen inputs, such as nitrogen deposition, may bring 
about an alteration of the species mix. That is, a displacement of one 
kind of vegetation (e.g., plants, grasses) with another may occur. 
While the 1995 Staff Paper noted that there were no documented accounts 
of terrestrial ecosystems undergoing species shifts due to nitrogen 
deposition in the U.S., recent research provides some evidence 
suggesting that elevated nitrogen deposition can contribute to shifts 
of species compositions (e.g., Allen, 1998; Bowman, 2000).
    (2) Wetlands. Wetlands (e.g., swamps, marshes, bogs) are lands 
where saturation with water is the dominant factor determining the 
nature of soil development and the types of plants and animal 
communities living in the soil and on its surface. These areas function 
as habitats for plant and wildlife (among other useful environmental 
purposes), including many rare and threatened plant species. Some of 
these plants adapt to systems low in nitrogen or with low nutrient 
levels. Long-term studies (greater than 3 years) of increased nitrogen 
loadings to wetland systems in European countries have reported that 
increased primary production of biomass can result in changes of 
interplant competition. The 1995 Staff Paper reported that, based on 
the evidence reviewed in the 1993 Criteria Document, ``the staff 
believes we can anticipate similar effects from atmospheric nitrogen 
deposition in the United States * * *.'' However, EPA found no 
documentation providing sufficient evidence that such species changes 
have occurred or were occurring at the time in the U.S.
    (3) Aquatic ecosystems. Nitrogen deposition may adversely affect 
aquatic ecosystems as a result of either acidification or 
eutrophication. Both processes can cause a reduction in water quality 
that makes the body of water unsuitable for many aquatic organisms. The 
basic concern is that deposition of nitrates alters the availability of 
nitrogen to organisms (e.g., algae, fish, submerged vegetation, and 
amphibian and aquatic vertebrate communities) and causes changes in 
species composition within the system. In addition, the affected water 
can become unfit for human consumption.
    The 1995 Staff Paper indicated that growing evidence supported the 
concern that the impact of nitrogen deposition on sensitive aquatic 
systems ``may be significant.'' Atmospheric nitrogen can enter lakes 
and streams either as direct deposition to the water surfaces or as 
nitrogen deposition to the watershed of which they are a part. In some 
cases, nitrate may be temporarily stored in snow packs from which it is 
subsequently released in more concentrated form in snow melt. In other 
cases, nitrogen deposited to the watershed may subsequently be routed 
through plants and soil microorganisms and transformed into other 
inorganic or organic nitrogen species which, when they reach the water 
system, are only indirectly related to the original deposition. In 
addition to the contribution of nitrogen from anthropogenic sources, 
recent studies suggest that nitrogen released from the weathering of 
nitrogen-bearing bedrock, not commonly considered in the biogeochemical 
cycling of nitrogen, may contribute a ``surprisingly large amount'' of 
nitrate to natural waters. (Dahlgreen, 2002.)
    Acidification may occur in two ways: Chronic (long-term) 
acidification and episodic (short-term or seasonal) acidification. 
Episodic acidification is more likely to be the primary problem in most 
situations, with chronic acidification occurring mainly where excessive 
nitrogen saturation exists. (NAPAP, 1998.) The main concern with 
acidification of aquatic ecosystems is associated with freshwater 
systems. Acidification impairs the water quality of lakes and streams 
by lowering the pH levels, decreasing acid-neutralizing capacity, and 
increasing aluminum concentrations. (Driscoll, 2001.) High levels of 
aluminum, as well as increased acidity, create unfit conditions for 
habitat and cause the water to be unfit for human consumption. Acid 
deposition may also increase the conversion of mercury to organic 
(methyl) mercury in lakes where it is absorbed by aquatic organisms and 
leads to increasing concentrations in the food chain. Human consumption 
of fish containing high levels of methylmercury can lead to problems 
with the central nervous system.
    Regions of North America differ in their sensitivity to acidic 
deposition and in the amount of acidic deposition they receive. Some 
parts of the eastern U.S. are highly sensitive and chronically or 
episodically receive damaging concentrations of acidic deposition. For 
example, a recent report indicates that 41 percent of lakes in the 
Adirondack Mountain region of New York and 15

[[Page 8894]]

percent of lakes in New England show evidence of either chronic or 
episodic acidification, or both. (Driscoll, 2001.) Other sensitive 
regions, such as the western U.S., are unlikely to suffer adverse 
chronic effects but may experience acidic conditions more on an 
episodic basis. Certain high-elevation western lakes, in particular, 
are subject to episodes of acidic deposition.
    Eutrophication generally is a natural process by which aquatic 
systems are enriched with the nutrients, including nitrogen, that are 
presently limiting for primary production in that system. However, this 
process can be accelerated by increased nutrient input resulting from 
anthropogenic sources, e.g., agricultural runoff, urban runoff, leaking 
septic systems, sewage discharge. Studies have also shown that nitrogen 
deposition may directly and indirectly play a role in accelerated 
eutrophication. When nitrogen is a limiting nutrient, input from 
various origins can make a water system prone to eutrophication, with 
impacts ranging from the increased turbidity and floating mats of macro 
algae shading out beneficial submersed aquatic vegetation habitat, to 
the exacerbation of noxious algae blooms, to the creation of low or no-
oxygen conditions which negatively affect fish populations. The 
National Park Service (NPS) has reported that loadings of total 
nitrogen deposition (wet and dry) have caused changes in aquatic 
chemistry and biota in the Rocky Mountain National Park's high 
elevation ecosystems. (U.S. Department of the Interior, 2002.) In the 
same report, the NPS noted that increasing trends in nitrogen 
deposition at many parks in the western U.S. result from both nitrate 
and ammonium.
    The key to creating a linkage between levels of nitrogen deposition 
and the eutrophication of aquatic systems is to demonstrate that the 
productivity of the system is limited by nitrogen availability, and to 
show that nitrogen deposition is a major source of nitrogen to the 
system. Thus, while it appears that nitrogen inputs to aquatic systems 
may be of general concern for eutrophic conditions, the significance of 
nitrogen input will vary from site to site. (1995 Staff Paper at 77.)
    A 1993 National Research Council report identifying eutrophication 
as the most serious pollution problem facing the estuarine waters of 
the U.S. was reported in an EPA document issued in 1997, entitled 
``Nitrogen Oxides: Impacts on Public Health and the Environment'' (p. 
79). Nitrogen input is a major concern because nitrogen is the limiting 
nutrient for algae growth in many estuaries and coastal water systems. 
In contrast to the eutrophication concern, acidification typically is 
not a concern, because estuaries and coastal waters receive substantial 
amount of weathered material from terrestrial ecosystems and from 
exchange with sea water.
    Estimation of the contribution of atmospheric nitrogen deposition 
to the eutrophication problem can be difficult because of the various 
direct anthropogenic sources of nitrogen, including agricultural runoff 
and sewage. Some studies have shown that nitrogen deposited from the 
atmosphere can be a significant portion of the total nitrogen loadings 
in specific locations, such as the Chesapeake Bay--the largest of the 
130 estuaries in the U.S. It has been estimated that the proportion of 
the total nitrate load to the Bay attributable to nitrogen deposition 
ranges from 10 to 45 percent (NAPAP, 1998).
    In most freshwater systems, including lakes and streams, 
phosphorus, not nitrogen, is the limiting nutrient. Thus, 
eutrophication by nitrogen inputs will only be a concern in lakes that 
are chronically nitrogen limited and have a substantial total 
phosphorus concentration. This condition is common only in lakes that 
have received excessive inputs of anthropogenic phosphorous, or in rare 
cases, have high concentrations of natural phosphorus. In the former 
case, the primary dysfunction of the lakes is an excess supply of 
phosphorus, and controlling nitrogen deposition would be an ineffective 
method of gaining water quality improvement. In the latter case, 
nitrogen deposition can measurably increase biomass and thus contribute 
to eutrophication in lakes with high concentrations of natural 
phosphorus. Other lakes, including some high-elevation lakes in the 
Rocky Mountains and Sierra Nevada, are very low in both phosphorus and 
nitrogen; addition of nitrogen can increase biomass and contribute to 
eutrophication in these lakes also.
    (4) Visibility impairment (Regional Haze). Nitrate particulates, 
formed as a result of chemical reactions involving NO and 
NO2 with other substances in the atmosphere, are considered 
to be more responsible for visibility impairment than NO2 
directly. Nitrate particles are observed as both fine and coarse 
particles. The fine particles that can remain airborne for considerable 
periods of time and may be transported long distances from the 
NOX source. These fine particles impair visibility by 
scattering or absorbing light.
    Generally, the two largest contributors to visibility impairment 
are sulfates and carbon-based particles. The major cause of visibility 
impairment in the East is sulfate. Nitrates account for only 7 to 16 
percent of the light extinction in the East, but are responsible for 
between 4 and 45 percent of the light extinction in the West. While 
NO2, a precursor of nitrate particulates, is minimized 
through the control of NOX emissions from new and modified 
major stationary sources under the PSD requirements for NOX, 
EPA believes that the problems associated with nitrate particulates, 
along with other forms of PM, are best addressed through programs 
focusing on strategies to effectively reduce PM. For example, EPA's 
Regional Haze program, established pursuant to section 169B of the Act, 
specifically requires reductions in NOX emissions from 
certain existing stationary sources. The EPA also recognized the 
significance of NOX emissions as an important precursor of 
PM2.5 under its June 2004 proposal for CAIR. Accordingly, 
EPA proposed to assign emission reduction requirements to States that 
significantly contribute to nonattainment in a downwind State with 
respect to the PM2.5 NAAQS. Both the Regional Haze program 
and the proposed CAIR are discussed in greater detail later in this 
preamble.

VI. Proposed Actions

    As noted above, section 166 directs EPA to conduct a study and 
promulgate regulations to prevent significant deterioration of air 
quality due to NOX emissions. Those regulations may include 
increments or ``other measures'' to prevent significant deterioration 
of air quality, so long as those other measures are consistent with the 
requirements of sections 166(c) and 166(d) of the Act. Accordingly, we 
are today proposing three options for addressing the statutory 
requirement for preventing significant deterioration of air quality due 
to emissions of NOX which we believe satisfy the specific 
criteria described herein. The first option involves retaining the 
existing NO2 increments, and the other two options qualify 
as ``other measures'' and include using (1) a cap and trade program in 
lieu of increments, and (2) a State planning option providing States 
with some flexibility for developing ``other measures'' to adequately 
prevent significant deterioration of air quality due to emissions of 
NOX.

[[Page 8895]]

A. Retain Existing Increment System for NOX

1. How Existing Characteristics of the Regulatory Scheme Fulfill 
Statutory Criteria
    As discussed above, EPA does not interpret the Court's decision to 
require that EPA reevaluate the entire regulatory framework of the PSD 
regulations for NOX established in 1988. Thus, for the 
increment system for NOX set forth in this proposal, EPA is 
only reevaluating the level, time period, and pollutant form 
(NO2) used in establishing increments in its PSD regulations 
for NOX.
    Because section 166 of the Act requires that EPA establish PSD 
regulations for NOX that satisfy the criteria set forth in 
subsections (c) and (d), EPA interprets section 166 to require that its 
PSD regulations for a particular pollutant must, as a whole, satisfy 
the criteria in section 166. However, in this unusual circumstance 
where EPA is reevaluating specific aspects of a larger body of PSD 
regulations under an order of a court, EPA does not necessarily 
consider all of the criteria in section 166(c) of the Act to be 
relevant to the specific issues addressed by the court regarding the 
characteristics of an increment. The EPA believes that many of the 
factors applicable under section 166(c) are fulfilled by elements of 
the increment and area classification regulatory framework that were 
not controverted in EDF v. EPA. Thus, EPA has not conducted an 
extensive review of the existing increments based on those factors that 
are sufficiently satisfied by the overall increment and area 
classification system that was not controverted.
    However, we believe it is helpful to explain how several aspects of 
the overall system of regulations EPA adopted for NOX under 
section 166 satisfy the factors applicable under section 166(c). We 
believe our obligations under section 166(c) of the Act are satisfied 
when the entire body of pollutant-specific PSD regulations for 
NOX (including the level and other characteristics of any 
increment) as a whole meet the factors applicable under 166(c) of the 
Act.
a. Increment System
    An increment is the maximum allowable increase in air pollution 
that is allowed to occur above baseline concentrations. The baseline 
concentration in a particular area is the ambient pollutant 
concentration in an area at the time the first complete PSD permit 
application is submitted (i.e., the baseline date) by a new major 
stationary source or a major modification for a source affecting that 
area. By establishing the maximum allowable level of increase in air 
pollution in a particular area, an increment defines ``significant 
deterioration.'' Once a proposed new major stationary source or major 
modification establishes the baseline date in a particular area, the 
new emissions from that source consume increment in that area, as do 
any subsequent emissions increases that occur from any source in the 
area. When the increment is totally consumed, additional PSD permits 
cannot be issued until sufficient amounts of the increment are ``freed 
up'' via emissions reductions that may be required by the permitting 
authority. Moreover, the air quality in a region cannot deteriorate to 
a level in excess of the applicable NAAQS, even if all the increment 
has not been consumed. Thus, areas experiencing air quality levels near 
the level allowed by the NAAQS may not be able to use the full amount 
of pollutant concentration increase allowed by the increment.
    Congress did not require EPA to utilize increments in its PSD 
regulations for NOX promulgated under section 166 but gave 
EPA the discretion to employ increments if appropriate to meet the 
criteria and goals and purposes set forth in sections 166 and 160. 42 
U.S.C. 7474(d); EDF v. EPA, 898 F.2d at 185 (``Congress contemplated 
that EPA might use increments''). In adopting its PSD regulations for 
NOX in 1988, EPA elected to base those regulations on the 
concept of an increment because increments represented the most 
workable option at the time for establishing a numerical measure 
against which permit applications could be evaluated. In addition, EPA 
recognized that in using the increment approach, it would be able to 
take advantage of expertise that State and local agencies had already 
developed in implementing an increment-based program for PM and 
SO2. 53 FR 40657.
    Thus, EPA concluded that an increment-based program was the best 
way to fulfill its obligation under section 166(c) to provide 
``specific numerical measures against which permit applications may be 
evaluated.'' Under section 165(a)(3) of the Act, a permit applicant 
must demonstrate that emissions from the proposed construction and 
operation of a facility ``will not cause, or contribute to, air 
pollution in excess of any (A) maximum allowable increase or maximum 
allowable concentration for any pollutant.'' 42 U.S.C. 7475(a)(3). An 
increment is a quantitative value that establishes the ``maximum 
allowable increase'' for a particular pollutant. It functions, 
therefore, as a specific numerical measure that can be used to evaluate 
whether an applicant's proposed project will cause or contribute to air 
pollution in excess of allowable levels. Since this aspect of EPA's 
regulations was not controverted in EDF v. EPA, we are not proposing to 
revisit this criterion in our analysis of the characteristics of the 
increments below.
    In addition, EPA also determined that using increments in the PSD 
regulations for NOX also satisfied the second factor in 
section 166(c) by providing ``a framework for stimulating improved 
control technology.'' In 1988, we concluded that increments establish 
an incentive to apply more stringent control technologies in order to 
avoid violating the increment. 53 FR 40657. Given that the PSD 
increment level is consumed over time, the level of control required to 
avoid causing exceedance of the increment becomes more stringent. 
Consequently, new or modified sources in such localities may have to 
install control technologies more effective than those normally 
considered representative of BACT in order to comply with the 
increment, or to preserve some portion of the increment for future 
economic growth. The control technologies utilized in these areas will 
become the basis of BACT determinations elsewhere, as the technologies 
become more commonplace and the costs tend to fall. See also S. Rep. 
95-127 at 18, 30 (3 LH at 1392, 1404) (``the incremental ceiling should 
serve as an incentive to technology, as a potential source may wish to 
push the frontiers of technology in a particular case to obtain greater 
productive capacity within the limits of the increments''). We believe 
the existing regulatory framework, which was not controverted in EPA v. 
EDF, satisfies this criterion and do not propose to reconsider it under 
the increment option of this proposal.
b. Area Classifications
    In 1988, EPA chose to establish NO2 increments of 
different stringency based on the three-tiered classification scheme 
established by Congress. 53 FR 40657. Under this scheme, Class I areas 
are generally national parks, wilderness areas, and other special areas 
that require an extra level of protection. The most stringent increment 
is imposed in Class I areas. Class III areas, which have the least 
stringent increment level, are those areas in where a State wishes to 
permit a higher level of industrial development. Areas that are not

[[Page 8896]]

especially sensitive or that do not wish to allow for a higher level of 
industrial growth are classified as Class II. When Congress established 
this three-tiered scheme for SO2 and PM, it intended that 
Class II areas be subject to an increment that allows ``moderately 
large increases over existing pollution.'' H.R. Rep. 95-294, 4 
Legislative History at 2609. The Petitioner's in EDF v. EPA did not 
contest EPA's decision to employ this same classification scheme for 
NOX. We believe that adopting such an area classification 
scheme for NOX with a different level of increment for each 
type of area helps to fulfill two of the factors applicable under 
section 166(c) of the Act.
    First, Class I areas generally cover the kinds of parks and special 
areas covered by section 160(2) of the Act. Thus, establishing the 
lowest level of increment in these areas helps fulfill EPA's obligation 
to establish regulations for NOX that ``preserve, protect, 
and enhance the air quality'' in these areas.
    With the air quality in Class I areas subject to the greatest 
protection, this scheme then provides two additional area 
classifications with higher increment levels to help satisfy the goal 
in section 160(3) of the Act that EPA ``insure that economic growth 
will occur in a manner consistent with preservation of clean air 
resources.'' In those areas where clean air resources may not require 
as much protection, more growth is allowed. By employing an 
intermediate level (Class II areas) and higher level (Class III areas), 
this classification scheme helps ensure that growth can occur where it 
is needed (Class III areas) without putting as much pressure on 
existing clean air resources in other areas where some growth is still 
desired (Class II areas).
    By redesignating an existing Class II area to Class III, States may 
accommodate economic growth and air quality in areas where the Class II 
increment is too stringent to allow the siting of new or modified 
sources. The procedures specified by the Act for such a redesignation 
require a commitment of the State government to the creation of such an 
area, extensive public review, participation in the State 
Implementations Plan (SIP) area redesignation process, and a finding 
that the redesignation will not result in the applicable increment 
being exceeded in a nearby Class I or Class II area. See 42 U.S.C. 
7474(a)-(b) (Section 164(a)-(b)). Our 1988 analysis, 53 FR at 3702-05 
and the subsequent issuance of PSD permits for major new and modified 
sources of NOX since that time,\20\ tend to confirm that, 
with the existing increment levels, the three-tiered classification 
system has allowed for economic growth, consistent with the 
preservation of clean air resources.
---------------------------------------------------------------------------

    \20\ EPA does not formally track the issuance of PSD permits 
across the country, but EPA's Regional Offices have confirmed that 
various PSD permits for sources of NOX have been issued 
by many of the States in their respective jurisdictions.
---------------------------------------------------------------------------

    Because it helps fulfill these goals and purposes and was not 
controverted in EDF v. EPA, we do not propose to revisit our decision 
to employ this area classification scheme for NOX. However, 
we do not believe that this framework alone completely satisfies the 
factors applicable under section 166(c) of the Act. The increment level 
that is employed for each class of area is also relevant to an 
evaluation of whether the area classification scheme achieves the 
competing goals of the PSD program. Thus, we propose to further 
consider the goals of protecting parks and special areas and ensuring 
economic growth consistent with the preservation of clean air resources 
as we reevaluate the increment levels at the direction of the Court.
c. Permitting Procedures
    The framework of our existing PSD regulations employs the 
preconstruction permitting system and procedures required under section 
165 of the Act. 42 U.S.C. 7475. These requirements are generally 
reflected in sections 51.166 and 52.21 of EPA's PSD regulations in 
Title 40 of the Code of Federal Regulations. These permitting and 
review procedures, which we interpret to apply to construction on any 
new or modified major source, fulfill several of the factors applicable 
under section 166(c) of the Act for EPA's PSD regulations for 
NOX. Two of the goals and purposes of the PSD program, in 
particular, seem especially amenable to being fulfilled through a case-
by-base permit review.
    Under section 160(5) of the Act, as incorporated in section 166(c), 
EPA should develop PSD regulations for NOX that ``assure 
that any decision to permit increased air pollution in any area to 
which this part applies is made only after careful evaluation of all 
the consequences of such a decision, and after adequate procedural 
opportunities for informed public participation in the decisionmaking 
process.'' The permit evaluation and review procedures reflected in the 
existing PSD regulations, which are applicable to sources of 
NOX, call for a careful evaluation that involves a source 
impact analysis (sections 51.166(k) and 52.21(k)), air quality analysis 
(sections 51.166(m) and 52.21(m)), additional impacts analysis 
(sections 51.166(o) and 52.21(o)), and an analysis of impacts on Class 
I areas (sections 51.166(p) and 52.21(p)). In addition, the procedures 
incorporated in sections 51.166(q) and 52.21(q) ensure public 
participation in the decisionmaking process. Thus, we believe the 
existing framework for the PSD regulations for NOX fulfills 
the goals and purposes set forth in section 160(5) by employing the 
permit review procedures described above. Because the goal in section 
160(5) is satisfied by the existing regulatory framework that was not 
controverted in EDF v. EPA, we do not propose to further consider this 
factor in our evaluation of the characteristics of the NO2 
increment.
    In addition, we believe the permit review component of the 
framework also fulfills the goals and purposes set forth in section 
160(4) of the Act. As incorporated through section 166(c) of the Act, 
section 160(4) calls on EPA to establish PSD regulations that prevent 
one State from interfering with the PSD program for any other State. 
This goal is also one that we believe can be best implemented through 
individual permit review when we use an increment system. In the course 
of such a review, a source must demonstrate that it does not cause or 
contribute to an increment violation in any area subject to part C of 
the Act. See section 165(a)(3)(A). These areas include areas in other 
States. Thus, we do not propose to further consider the goal in section 
160(4) in our reevaluation of the characteristics of the NO2 
increments. We believe the existing permit evaluation procedures 
incorporated into the framework of our existing PSD regulations for 
NOX operate to satisfy the goal in section 160(4) and do not 
require further analysis for the increment option.
d. Additional Impacts Analysis
    One particular aspect of the permit review procedures described 
above is worthy of more particular attention because it also helps 
fulfill the substantive criteria and goals and purposes in section 
166(c) and section 160. Where applicable, the additional impact 
analysis required under section 165(e)(3)(B) and the PSD regulations 
(Sec. Sec.  51.166(o), 52.21(o)) provides a case-by-case review of the 
potential harm that a pollutant may cause to certain resources in all 
classes of areas. The following type of analysis is required to be 
conducted by the permit applicant:

    (1) The owner or operator shall provide an analysis of the 
impairment to visibility, soils and vegetation that would occur as a 
result

[[Page 8897]]

of the source or modification, and general commercial, residential, 
industrial and other growth associated with the source or 
modification. The owner or operator need not provide an analysis of 
the impact on vegetation having no significant commercial or 
recreational value.
    (2) The owner or operator shall provide an analysis of the air 
quality impact projected for the area as a result of general 
commercial, residential, industrial, and other growth associated 
with the source or modification.

    Section 165(e)(3)(B). The Additional Impacts Analysis requirements 
are the most relevant in this rulemaking action to Class II and Class 
III areas which are not subject to the additional FLM review that 
applies in Class I areas.
e. Federal Land Manager Review
    In the 1988 rulemaking addressing PSD for NOX, EPA 
extended the FLM review procedures set forth in sections 51.166(p) and 
52.21(p) to cover NO2. 53 FR at 3704. These FLM review 
procedures were established based on section 165(d), and they were 
originally applied only in the context of the statutory increments for 
PM and SO2. However, because they also address many of the 
factors applicable under section 166(c) of the Act, EPA also applied 
them to NOX through regulation. Under an increment approach, 
we view the FLM review procedures as an additional measure that helps 
to satisfy the factors in sections 166(c) and 160(2) which require that 
EPA's PSD regulations for NOX protect air quality values and 
parks and other special areas.
    Section 165(d) creates a scheme under which the FLM has an 
affirmative responsibility to protect the AQRVs in Class I areas, and 
may object to or concur in the issuance of a PSD permit based on the 
impact or lack thereof on any affected AQRV that the FLM has 
identified, irrespective of whether the increment is exceeded. The 
exceedance of the increment determines only where the burden of proof 
lies.\21\
---------------------------------------------------------------------------

    \21\ In response to concerns that Class I increment would hinder 
growth in areas surrounding the Class I area, Class I increments 
were established as a means of determining where the burden of proof 
should lie for a demonstration of adverse effects on AQRVs. See 
Senate Debate, June 8, 1977 (3 LH at 725).
---------------------------------------------------------------------------

    That is, if the proposed source will cause or contribute to a 
violation of a Class I increment, the permitting authority (State or 
EPA) shall not issue the permit unless the owner or operator 
demonstrates to the satisfaction of the FLM that there will be no 
adverse impact on AQRVs.\22\ On the other hand, if the proposed source 
does not cause or contribute to a violation of a Class I increment, the 
FLM may only prevent issuance of the permit by demonstrating to the 
satisfaction of the permitting authority that the source will have an 
adverse impact on AQRVs. Section 165(d)(2)(C).
---------------------------------------------------------------------------

    \22\ Even if such a waiver of the Class I increment is allowed 
upon a finding of no adverse impact, the source must comply with 
such emissions limitations as may be necessary to ensure that the 
Class II increment for SO2 or PM is not exceeded. Section 
165(d)(2)(C)(iv). In 1988, EPA made this provision applicable to the 
PSD provisions for NOX, with a cap of 25 [mu]g/
m3 - the NO2 Class II increment. 53 FR at 
3704; 40 CFR 51.166(p)(4) and 52.21(p)(5).
---------------------------------------------------------------------------

    Incorporating these FLM procedures into the PSD regulations for 
NOX helps to provide protection for parks and special areas 
(which are generally the Class I areas subject to this review) and air 
quality values (which are factors considered in the review). Section 
166(d) on its face provides that measures other than increments may be 
promulgated to satisfy the duty under section 166.
    Legislative history indicates that the FLM provisions of section 
165(d) were intended to provide another layer of protection, beyond 
that provided by increments. The Senate committee report stated the 
following: ``A second test of protection is provided in specified 
Federal land areas (Class I areas), such as national parks and 
wilderness areas; these areas are also subjected to a review process 
based on the effect of pollution on the area's air quality related 
values.'' S. Rep. 95-127, at 17, 4 Legislative History at 1401.
f. Installation of Best Available Control Technology
    Finally, another important element of the existing framework of PSD 
regulations applicable to NOX emissions is the requirement 
that a permit applicant apply BACT when constructing a new source or 
making a major modification to an existing source. This requirement, 
based on section 165(a)(4) of the CAA, is included in EPA's PSD 
regulations and thus is also part of the regulatory framework for the 
Agency's pollutant-specific regulations for NOX. 40 CFR 
52.21(j); 40 CFR 51.166(j). Our existing regulations define ``best 
available control technology'' as ``an emission limitation * * * based 
on the maximum degree of reduction for each pollutant subject to 
regulation under the Act * * * which the Administrator, on a case-by-
case basis, taking into account energy, environmental, and economic 
impacts and other costs, determines is achievable for such source 
through application of production processes or available methods, 
systems, and techniques * * *.'' 40 CFR 52.21(b)(12); 40 CFR 
52.166(b)(12). This pollutant control technology requirement is 
rigorous and in practice has required significant reductions in the 
pollutant emissions from new and modified sources. Thus, the BACT 
requirement is an additional measure in the framework of PSD 
regulations for NOX that helps to satisfy the factors in 
sections 166(c), 160(1), and 160(2), which require that EPA's PSD 
regulations for NOX protect air quality values, public 
health and welfare, and parks and other special areas.
2. Proposed Actions Regarding Characteristics of NO2 
Increments
    We believe our review of the characteristics of the existing 
NO2 increments should apply the following four factors 
applicable under section 166(c): (1) Protect air quality values; (2) 
protect public health and welfare from adverse effects from air 
pollution that occur even if in attainment; (3) protect air quality in 
parks and special areas; and (4) ensure economic growth consistent with 
preservation of clean air resources.\23\ As noted earlier, we believe 
sections 166 and 160 direct that we balance the fourth factor 
(fostering economic growth) against the other three environmentally 
protective factors listed above. The other four factors identified in 
sections 166(c) and 160 of the Act do not appear to relate to the 
characteristics of the increments and are more appropriately considered 
when establishing the overall framework for PSD regulations. As 
described above, we believe that the framework adopted for the PSD 
regulations for NOX satisfies the other factors. Since EPA 
is not reconsidering the entire framework in this proposed option, we 
do not believe that it is appropriate to further consider these other 
four factors.
---------------------------------------------------------------------------

    \23\ We paraphrase these factors here and in the sections that 
follow to facilitate the explanation of our reasoning. However, we 
recognize that the statutory language is broader than the shorthand 
we use here for convenience.
---------------------------------------------------------------------------

a. Level of Increment
    Consistent with the ``contingent safe harbor'' approach described 
above, our analysis of the appropriate levels for NO2 
increments begins by establishing a ``safe harbor'' increment level 
that is ``at least as effective as'' the increments established by 
Congress in section 163 of Act. 42 U.S.C. 7476(d). The court in EDF v. 
EPA recognized that this standard from section 166(d) of the Act is 
satisfied when we establish increments using the percentage-of-NAAQS 
approach that Congress used to establish the statutory increments. See

[[Page 8898]]

898 F.2d at 188. This approach involves using the same percentages that 
Congress used to calculate the PM and SO2 increments from 
the NAAQS in effect at that time for these pollutants.
    Because the only oxide of nitrogen for which we have a NAAQS is 
NO2, we can only utilize the percentage of NAAQS approach to 
establish a ``safe harbor'' increment level for NO2. We 
consider below whether we should establish increments for other forms 
of NOX.
    Because Congress used different percentages to calculate the Class 
I increments for PM and SO2, we must determine which of 
these percentages is appropriate for the Class I NO2 
increment. For the reasons described in the 1988 rulemaking, we believe 
that it is appropriate for NO2 increments to be derived 
using the same percentages that Congress used for SO2 
because NO2 more closely resembles SO2 than PM in 
its characteristics and sources. See 53 FR 3698, 3700 (February 8, 
1988). Thus, we begin our analysis with a ``safe harbor'' increment 
level for each class of area that is set at the same percentage of the 
NO2 NAAQS as the SO2 increment is of the 
SO2 NAAQS. Because the NO2 increments have not 
changed since 1988, the percentage-of-NAAQS approach yields the same 
levels that we derived in 1988. Thus, using this approach, the ``safe 
harbor'' level for the Class I increment for NO2 is 2.5 
[mu]g/m3 (annual average), a level that is 2.5 percent of 
the NO2 NAAQS. For the Class II increment for 
NO2, the ``safe harbor'' level is 25 [mu]g/m3 - 
25 percent of the NO2 NAAQS. For the Class III increment for 
NO2, the ``safe harbor'' level is 50 [mu]g/m3 - 
50 percent of the NO2 NAAQS.
    Under our interpretation of the Act, these ``safe harbor'' levels 
establish the minimum stringency levels (or highest concentration 
levels) that we may use as the increments for NO2. Our next 
step is to consider the factors applicable under section 166(c) and 
evaluate whether we need to revise the ``safe harbor'' level to satisfy 
these factors. Thus, under the increment option in this proposed 
rulemaking, to satisfy the requirements of section 166 of the Act, we 
believe we must evaluate whether it is necessary to adjust the 
NO2 increments to levels more stringent than the ``safe 
harbor'' levels we derived using the percentage-of-NAAQS-approach. In 
this analysis of the level of each increment, we propose to apply the 
four factors applicable under section 166(c) that have not already been 
satisfied by the regulatory framework described above. Thus, we 
consider whether different increment levels are necessary to (1) 
protect air quality values; (2) protect public health and welfare from 
any effects occurring at levels below the NAAQS; (3) protect parks and 
special areas; and (4) ensure economic growth consistent with 
preservation of clean air resources.
    (1) An increment is an allowable marginal increase in air 
pollution. Increments represent the maximum allowable level of increase 
in an area that is in attainment with the NAAQS or unclassifiable. 
Thus, increments are essentially a marginal level of increase in air 
pollution that is allowable for particular areas. The statutory 
increments are expressed as concentration rather than mass values. 
Thus, in applying the factors applicable under section 166(c), we 
believe section 166 of the Act requires that we analyze the impacts on 
air quality values, health and welfare, and parks and special areas 
that may occur as a result of some marginal increase in the 
concentration of air pollution in an area.
    Using the ``contingent safe harbor'' approach, we first derive the 
highest level of marginal increase that may be permitted for each class 
of areas using the percentage-of-the-NAAQS approach. We must then 
consider whether this level of marginal increase satisfies the factors 
applicable under section 166(c). If the marginal increase in 
concentration allowed by the ``safe harbor'' level does not adequately 
protect against these effects and ensure economic growth consistent 
with preservation of clean air resources, then we must attempt to 
identify an alternative level of marginal increase that will satisfy 
the factors applicable under section 166(c).
    As noted earlier, EPA does not interpret the PSD program to require 
it to set increments at a level where there will be no adverse effects 
from a marginal increase in air pollution in the amount of the 
increment. Congress did not anticipate that an increment would be a 
level of increase below which there would be no effects. An increment 
is the level that defines ``significant'' deterioration but does not 
prohibit all deterioration of air quality. The PSD program allows for 
some increase in effects when necessary to ensure that economic growth 
may continue to occur consistent with the preservation of clean air 
resources.
    (2) Increments are not intended to remedy existing effects but to 
maintain levels of air quality achieved by other programs. Because an 
increment is an allowable level of increase, it does not function to 
reduce existing air pollution. The PSD program is intended to protect 
against significant deterioration of the air quality in attainment and 
unclassifiable areas from the construction and operation of new and 
modified sources of a particular size. Thus, the PSD program limits 
increases in emissions from these sources but does not seek to reduce 
emissions or ambient air pollutant concentrations to a particular 
level. The increments established by Congress were only intended to 
define the allowable levels of marginal increase in air pollution above 
a baseline concentration that are established in each area when the 
first major source applies for a PSD permit in that area. 42 U.S.C. 
7479(4). As a result, we do not believe we are required to set 
increments at a level intended to alleviate existing adverse effects.
    An increment is a marginal level of increase in air pollutant 
concentrations that functions to prevent significant deterioration of 
air quality. Thus, in evaluating the increment levels that are 
necessary to prevent significant deterioration of air quality, we 
consider that there are other programs authorized under the CAA that 
are operating (or will be operating) to reduce the adverse effects from 
existing air pollution sources. If we use an increment approach, these 
programs will serve the role of bringing existing emissions down, while 
increments included in our PSD regulations established under section 
166 of the Act will be designed to limit increases in emissions from 
the construction of new major sources and the modification of existing 
ones.
    For example, existing visibility problems are being addressed 
through implementation of the Regional Haze Program under sections 169A 
and 169B of part C.\24\ Section 169A establishes as a national goal 
``the prevention of any future, and the remedying of any existing, 
impairment of visibility in mandatory Class I Federal areas which 
impairment results from manmade pollution.'' 42 U.S.C. 7491(a). In the 
1990 Amendments, Congress added section 169B, which called for 
additional research into the visibility problem and directed EPA to 
issue regional haze rules taking into account such studies and reports 
within 18

[[Page 8899]]

months after receipt of a final report from the Grand Canyon Transport 
Visibility Commission. The EPA promulgated these regulations on July 1, 
1999. 64 FR 35714 (``Regional Haze rule''). The main components of this 
rule require States to: (1) Submit SIPs that provide for ``reasonable 
progress'' toward achieving ``natural visibility conditions'' in Class 
I areas; (2) provide for an improvement in visibility in the 20 percent 
most impaired days; (3) ensure no degradation in visibility occurs on 
the 20 percent clearest days; and (4) determine the annual rate of 
visibility improvement that would lead to ``natural visibility'' 
conditions in 60 years.
---------------------------------------------------------------------------

    \24\ When the visibility provisions were enacted, the House 
committee report specifically recognized that the ``visibility 
problem is caused primarily by emission into the atmosphere of 
sulfur dioxide, oxides of nitrogen, and particulate matter * * *'' 
H.R. Rep. 95-294, at 204, reprinted in 4 Legislative History at 
2671. NOX may result in visibility impairment either 
locally (a brown plume effect) or contributing to regional haze, 
which has been recognized as primarily a fine particle phenomenon. 
1995 Staff Paper at 89. For the reasons discussed earlier, we do not 
believe we need to consider PM effects in this reevaluation of the 
NO2 increments.
---------------------------------------------------------------------------

    At the time that the Regional Haze Program was established, a 
Congressional committee recognized that the PSD program was not 
necessarily created to alleviate existing adverse effects resulting 
from contributions by existing sources. When it was writing section 
169A of the Act at the same time that it established the PSD program, 
the House recorded the following observations in a committee report:

[T]he committee recognizes that one mechanism which has been 
suggested for protecting these areas, the mandatory Class I 
increments of new section 160 (`Prevention of Significant 
Deterioration') do not protect adequately visibility in Class I 
areas. First, inadequately controlled, existing gross emitters such 
as the Four Corners plant would not be affected by the significant 
deterioration provisions of the bill. Their emissions are part of 
the baseline, and would not be required to be reduced by new section 
160 of the act.

H. Rep. 95-294, at 205, 4 Legis. History at 2672 (emphasis added). This 
statement indicates that protection of air quality values under section 
166(c) is provided when an increment limits significant deterioration 
of air quality, but does not require an increment that eliminates all 
adverse impacts on air quality values, such as visibility, that may be 
caused by existing sources.
    In addition, in the 1990 Amendments, Congress enacted title IV to 
address the problem of acid deposition. We believe this supports an 
interpretation that the PSD measures called for in section 166 need not 
eliminate acid deposition impacts that may be caused by existing 
sources. Rather, under an increment approach, our view is that the PSD 
program is intended to focus on establishing a marginal level of 
increase in emissions that will prevent significant air quality 
deterioration and, in conjunction with AQRVs identified by the FLM, 
provide protection against increases in adverse effects resulting from 
acid deposition.
    Reduction of NOX emissions from existing sources is also 
required under EPA's NOX SIP Call and the proposed CAIR. 
Under both programs, emissions of NOX are regulated as a 
precursor of either ozone or fine PM, or both. The programs are based 
on State obligations to address interstate transport of pollution under 
section 110(a)(2)(D) of the Act, which is discussed in more detail 
above in the section on our legal authority.
    The NOX SIP Call requires the affected States and the 
District of Columbia to submit SIP revisions that reduce NOX 
emissions by specified amounts by a specified date. The EPA has 
projected that over 1 million tons of NOX per ozone season 
will be reduced as a result of this particular program.
    As proposed, the CAIR requires that emissions reductions be 
implemented in two phases, with the first phase in 2010 and the second 
phase in 2015. The EPA's estimates of the NOX emissions 
reductions that would result from the CAIR proposal are 1.5 million 
tons by 2010 and an additional 0.3 million tons by 2015 (for a total of 
1.8 million tons).
    In areas where the PSD baseline has not yet been established, the 
emissions reductions achieved by these programs may result in lower 
baselines being established when triggering does occur. Then, the 
increments we are reevaluating in this rulemaking will begin to operate 
as an allowable level of marginal increase that prevents the 
significant deterioration of air quality in attainment areas. This 
approach is consistent with Congressional intent that the baseline 
concentration, representing the air quality in an attainment area 
subject to PSD, be established on the date of the first application for 
a permit by a PSD source affecting that area. 42 U.S.C. 7479(4). See 
also, Alabama Power v. Castle, 606 F.2d 1068, 1088-89 (D.C. Cir. 1979).
    (3) Increments should be uniform across the nation. When we use the 
framework of an area classification system in PSD regulations for a 
particular pollutant, we believe that we must establish a single 
increment for each class of area such that this allowable level of 
increase applies uniformly to all areas in the nation with that 
particular classification. This is necessary to ensure equitable 
treatment by allowing the same level of economic growth for all regions 
of the country that a State elects to classify in a particular manner. 
We believe that Congress intended for the PSD program to allow air 
quality in each area of the country with the same classification to 
change by the same amount in order to avoid a disproportionate impact 
on growth that might disadvantage some communities. The following 
statement from the legislative history of the PSD program supports our 
interpretation:

    Some suggestions were made that the pollution increments should 
be calculated as a function of existing levels of pollution in each 
area. But the inequities inherent in such an approach are readily 
evident * * *. The committee's approach--increments calculated as a 
percentage of the national standard--eliminates those inequities. 
All areas of the same classification would be allowed the same 
absolute increase in pollution, regardless of existing levels of 
pollution.

H. Rep. 95-294, at 153, 4 Legis. History at 2620. See also S. Rep. 95-
127, at 30, 3 Legislative History at 1404 (``These increments are the 
same for all nondeterioration areas, thus providing equity for all 
areas.''). This indicates that Congress did not intend to impose more 
stringent restrictions under the PSD program on particular areas of the 
country based on their current levels of air pollution, unless, of 
course, the current levels are so near the NAAQS that the full amount 
of incremental change cannot be allowed.
    Instead, Congress generally left it up to the States to determine 
the areas where a greater or lesser level of protection was needed. 
Although Congress established certain parks and wilderness areas as 
mandatory Class I areas, it classified all other areas as Class II 
areas and gave the States the power to reclassify these areas to Class 
I or Class III to provide for greater protection of air quality or 
allow more growth, depending on the values of the State and the 
community in that area. This allows the States to make their own 
choices about which areas require more protection of air quality and 
which areas should be allowed more growth consistent with the 
protection of air quality. See H.R. Rep. 95-294, at 153-154, 4 
Legislative History at 2620-2621.
    We believe that the same equitable considerations are applicable 
when we establish PSD regulations containing increments and area 
classifications under section 166 of the Act. Since Congress did not 
intend for the increments it established to impose a disproportionate 
impact on particular areas, we do not believe it intended to grant EPA 
the power to do so under section 166 of the Act. Thus, to treat all 
areas of the country in an equitable manner, it is necessary for us to 
establish uniform increments for NO2 that establish the same 
maximum allowable increase for each class of area.

[[Page 8900]]

    However, we must also weigh these equitable considerations against 
the unique variability in ecosystem effects that may result from 
NOX emissions. In our review of the NO2 NAAQS, we 
observed that ``a great degree of diversity exists among ecosystem 
types, as well as in the mechanism by which these systems assimilate 
nitrogen inputs.'' 60 FR at 52881. As a result, we concluded, ``the 
relationship between nitrogen deposition rates and their potential 
environmental impact is to a large degree site or regionally-specific 
and may vary considerably over broader geographical areas or from one 
system to another because of the amount, form, and timing of nitrogen 
deposition, forest type and status, soil types and status, the 
character of the receiving waterbodies, the history of land management 
and disturbances across the watersheds and regions, and exposure to 
other pollutants.'' Id. Consistent with these earlier conclusions, our 
more recent review in this rulemaking action of the studies on the 
effects of NOX indicates that some levels of air pollution 
resulting from emissions of NOX may contribute to adverse 
effects on welfare, air quality values, and parks in some areas of the 
country while not necessarily causing the same degree of effects on 
similar ecosystems and receptors in other areas of the country.
    In light of the equitable considerations discussed earlier, we 
believe the best way to address the potential regional variability in 
the occurrence of effects attributable to NOX emissions is 
to retain uniform national increments that accommodate growth and 
provide a basic degree of protection across the country, but to augment 
this with a procedural review that will require permitting authorities 
to consider adverse effects that may occur in more sensitive areas 
before the increment is consumed. This approach, which we believe is 
reflected in existing regulations, allows EPA to achieve the equity of 
setting a uniform increment level for all areas with a particular 
classification, while directing that permitting authorities conduct a 
more intensive, site-specific review to identify effects that might 
occur in a more sensitive area but not necessarily in all areas of the 
country with that classification.
    This approach is embodied in the framework for the PSD regulations 
for NOX that we adopted in 1988. As described above, each 
permit application is subject to an ``additional impacts'' analysis 
that allows the permitting authority to consider the sensitivity of a 
particular area. In Class I areas, the FLM review procedures provide 
further protection, notwithstanding the existence of a Class I 
increment, for the air quality values and the national parks and 
wilderness areas included in Class I areas.
    As we noted earlier, we believe our ultimate obligation under 
section 166 of the Act is to establish a system of regulations 
containing provisions that collectively satisfy the content 
requirements in sections 166(c) and 166(d) of the Act. Thus, we think 
that Congress contemplated that we would consider the entire group of 
regulations when establishing particular aspects of those regulations. 
As a result, we believe it is appropriate and consistent with our 
statutory obligations to consider the protection provided by the 
additional impacts analysis and the FLM review of AQRVs when evaluating 
the level of NO2 increments. Therefore, to achieve equity 
and protect against effects that are variable across regions of the 
country, we believe each of the NO2 increments should be set 
at a level that reasonably protects air quality values, health and 
welfare, and parks and special areas across the country while also 
balancing the need to allow economic growth. To the extent necessary, 
the case-by-case additional impact analysis and FLM review should 
provide additional protection of air quality in particular areas that 
may be more sensitive to nitrogen loadings resulting from 
NOX emissions.
    Because of the equitable considerations and State prerogatives to 
classify areas described above, we do not believe that Congress 
intended to create a federally imposed system of regional or locally 
based measures or to authorize EPA to do so to address any variability 
in potential effects. Likewise, we do not believe it is permissible or 
appropriate for us to establish increments at a level that prevents any 
adverse impact on the most sensitive receptors in any part of the 
country. Although such a ``lowest common denominator'' approach might 
achieve uniformity across all areas, it would unduly restrict growth in 
those areas of the country where adverse effects may not occur at a 
higher level. In addition, as discussed further below, the available 
research on the effects of NOX does not readily provide 
sufficient information to identify that level of increase below which 
significant effects would not occur to the most sensitive receptors in 
any area of the country.
    Thus, EPA believes that the factors applicable under section 166(c) 
of the Act are met when we establish a uniform national increment for 
NO2 for each class of area that is augmented by an 
additional case-by-case procedural review to identify and protect 
against variable effects that could occur in especially sensitive areas 
before the increment is fully consumed.
    (4) Evaluation of effects at levels of increase below the ``safe 
harbor'' level. With the above considerations in mind, we have reviewed 
the available effects information to determine whether there is a basis 
for using it to either support the existing increments or to find them 
inadequate for satisfying the criteria, goals, and purposes set forth 
in sections 166(c) and 160 of the Act. Selecting a framework for 
applying the criteria is an important first step. Because the 
increments define an allowable change in air quality rather than 
establish a uniform air quality ``ceiling'' for a particular pollutant, 
we believe that the basis for determining the adequacy of the 
increments should be a comparison of the maximum allowable pollutant 
increase or change (ambient pollutant concentration that would result 
from full increment consumption) with the pollutant concentrations at 
which the effects of concern (particularly the adverse effects 
associated with air quality values under section 166(c) of the Act) may 
occur. This approach relies upon the premise that in specific 
attainment areas where adverse effects caused by existing emissions may 
be experienced, specific control strategies designed to adequately 
reduce current levels of emissions (and air pollution) will be 
evaluated and the most appropriate course of action determined 
independently from the PSD program.
    The problem that EPA immediately faces in trying to make the 
necessary comparative analysis of the ``safe harbor'' levels with lower 
increment levels is that for the adverse effects identified, in most 
instances the pollutant concentrations at which the effects may occur 
are not well defined. Based on the availability of scientific and 
technical information available during the period when the 
NO2 increments were promulgated in 1988 as well as for the 
periodic review of the NO2 NAAQS completed in 1996, there is 
great uncertainty about the specific relationship between the pollutant 
and its precise role in causing the effect. Moreover, while more recent 
research and studies have shed new light on the mechanisms by which 
NO2 contributes--both directly and indirectly--to known 
adverse environmental effects, efforts to establish quantitative 
relationships (as explained further below) are only now under way. 
Nevertheless, what is already known about some of these cause-effect 
relationships is also helpful

[[Page 8901]]

in enabling us to reach a conclusion about the adequacy of the current 
increment levels.
    As described earlier in the preamble under the discussion of 
environmental effects, many of the adverse effects indirectly related 
to emissions of NOX (NO and NO2) are caused (or 
contributed to) largely by nitrogen compounds (e.g., nitrates, nitric 
acid) which are the result of chemical transformations from 
NO2 while in the atmosphere. Thus, in order to attempt to 
determine an acceptable level of increase for ambient NO2 
concentrations, it is necessary to understand the quantitative 
relationship between the emissions of NO2 and the adverse 
effect. This, in part, requires an understanding of the intermediate 
transformation processes, the deposition patterns and total quantities 
of those nitrogen compounds which may cause the effect of concern, as 
well as the nitrogen contribution to ecosystems from natural 
geobiochemical processes. Unfortunately, the atmospheric chemistry 
associated with NOX is significantly more complex than that 
for SO2. In addition to wet and dry nitric acid and nitrate 
aerosols such as ammonium nitrate (NH4NO3), 
emissions of NOX can also produce other end products, such 
as peroxyacetyl nitrates (PAN). Also, NOX may result, either 
directly or indirectly, in the formation of oxidant species such as the 
OH radical, O3, and H2O2, which alter 
transformation rates of NOX. (Butler, 2003.)
    The difficulty of establishing these relationships is further 
illustrated by EPA's experience in evaluating the feasibility of 
setting an acid deposition standard. Under section 404 of the 1990 
Amendments, Public Law 101-549, Congress directed EPA to conduct a 
study of the feasibility and effectiveness of an acid deposition 
standard(s), to report to Congress on the role that a deposition 
standard(s) might play in supplementing the acidic deposition program 
adopted in title IV, and to determine what measures would be needed to 
integrate an acid deposition standard with that program. The EPA 
completed this study, ``Acid Deposition Feasibility Study, Report to 
Congress'' (1995), which concluded that current scientific 
uncertainties associated with determining the level of an acid 
deposition standard(s) are significant, and did not recommend setting 
an acid deposition standard. See State of New York v. Browner, 50 F. 
Supp. 2d 141, 149 (N.D.N.Y. 1999) (rejecting States' claim that section 
404 required that the report include a deposition standard that would 
be sufficient to protect sensitive aquatic and terrestrial resources, 
and affirming EPA interpretation that duty was limited to 
``consideration of a description'' of such standards). While EPA has 
recognized that programs, such as the proposed CAIR (69 FR 4566, Jan. 
30, 2004)), that are intended to achieve NOX emissions 
reductions pursuant to other statutory provisions, will help mitigate 
acid deposition problems, none of those programs purport to set an acid 
deposition standard.
    Some recent studies are attempting to address the various 
parameters that together could establish a quantitative relationship 
between emissions of NOX and the adverse environmental 
effects resulting from nitrogen deposition and acidic deposition from 
nitrates. While some study results provide evidence of a relationship 
between NOX emissions and precipitation (wet deposition) 
NO3-, the results of efforts to establish a 
quantitative relationship between NOX emissions and total 
(wet and dry) nitrogen deposition have been inconclusive (Butler, 2000, 
2003).
    Other recent studies examine the various sources of the nitrogen 
input (industry, transportation, agriculture) the geographical location 
of different nitrogen loadings, trends in deposition rates, as well as 
the specific effects of nitrogen deposition on specific ecosystems. 
These studies in general emphasize the importance of reducing current 
emissions of NOX as part of a strategy for reducing observed 
impacts and promoting ecosystem recovery. However, such studies have 
not yielded the type of information needed to adequately evaluate 
different levels of maximum allowable pollutant increases with respect 
to the specific impacts such levels would have on the ecosystems.
    We have evaluated whether the concept of a ``critical load,'' as 
described more fully in section VII of this preamble, could be used to 
identify an alternative increment level, but we believe our current 
knowledge about critical loads for nitrogen does not provide a 
sufficient basis for establishing a uniform, national standard such as 
a PSD increment. Because of the vastly differing sensitivities and 
potential effects associated with ecosystem resources in different 
regions of the country, we believe that critical loads do not represent 
an appropriate tool for setting a single, uniform, national standard, 
such as a PSD increment level. Even in cases where the deposition rate 
of a pollutant is relatively consistent from one location to another, 
the sensitivity of individual ecosystems varies greatly depending on a 
number of different variables, including climate, diversity of species, 
history of land use, and the existence of other natural and 
anthropogenic stresses.
    Identifying the cause-effect relationship of nitrogen deposition on 
various ecosystems can be problematic for a number of other reasons as 
well. Some effects are believed to be the result of combined pollutant 
impacts, such as the acidification of lakes from both sulfur and 
nitrogen deposition. Some water systems have exhibited high levels of 
nitrogen in the absence of anthropogenic sources. In addition, some 
effects of changing deposition may take years before the ecosystem 
comes into balance with the cumulative amounts of nitrogen inputs. A 
noted problem in the West is that nitrogen deposition can include the 
combined contributions of emissions from NOX (which form 
nitrates and nitric acid in the atmosphere) and ammonia (ammonium). 
Finally, current levels of nitrogen deposition may provide passive 
fertilization for forests and terrestrial ecosystems where nutrients 
are a limiting factor and for some croplands.
    As discussed in the welfare effects section (V.C.2), although we 
are seeing effects at current nitrogen deposition rates, for the above 
reasons we believe that it is not technically or practicably feasible 
to identify a basis for concluding that the existing NO2 
increments are inadequate to provide protection against the types of 
adverse effects on ecosystems that may occur in some areas 
notwithstanding compliance with the NAAQS. In particular, it is not 
possible to determine a different level of increment protection that 
would define a significance level for ecosystem effects associated with 
emissions of NOX. Currently available information does not 
provide a nationally applicable, quantitative basis for revising the 
levels of the existing NO2 increments. The EPA solicits 
comment on possible approaches that should be considered, including the 
concept of critical loads, for further evaluating the existing NO2 
increments. However, under today's action, we are not proposing any 
changes to those increments.
    (5) Qualitative consideration of factors. Because we cannot use the 
effects data to quantify an alternative level of increase to the ``safe 
harbor'' that protects air quality values, health and welfare, and 
parks while ensuring economic growth consistent with the preservation 
of clean air resources, we must instead make a qualitative judgment 
whether the existing increments or some alternative meets

[[Page 8902]]

the applicable factors. In this situation, we believe that determining 
the increment levels that satisfy the factors applicable under section 
166(c) is ultimately a policy choice that the Administrator must make, 
similar to the policy choice the Administrator must make in setting a 
primary NAAQS ``with an adequate margin of safety.'' See Lead 
Industries Ass'n v. EPA, 647 F.2d 1130, 1147 (DC Cir. 1980) (where 
information is insufficient to permit fully informed factual 
determinations, the Administrator's decisions rest largely on policy 
judgments). Using a similar approach is warranted because both section 
109 and section 166 place great weight ``in the Administrator's 
judgment'' in making choices regarding an adequate margin of safety or 
protecting against any effects that may still occur--both areas of 
inquiry characterized by great uncertainty. Thus, in the process for 
setting NAAQS, the Administrator looks to factors such as the 
uncertainty of the science, the seriousness of the health effects, and 
the magnitude of the environmental problem (isolated or commonplace). 
E.g., 62 FR 38652 (July 18, 1997) (PM2.5 NAAQS).
    A pure environmental protection analysis (protecting AQRVs, health 
and welfare, and parks) might suggest that we permit no or minimal 
increases in some areas because there are some data indicating that an 
effect may be attributable to NOX emissions. However, as 
explained earlier, we do not believe that Congress intended for the PSD 
program to eliminate all adverse effects. Thus, rather than just 
seeking to eliminate all effects, we must attempt to identify a level 
of increase at which any additional effects beyond existing (or 
baseline) levels would be ``significant'' and protect against those 
potential effects. Furthermore, we need to ensure that our increments 
provide room for economic growth. Congress intended for EPA to weigh 
these considerations carefully and establish regulations that balance 
economic growth and environmental protection.
    In making this policy judgment, we give particular weight to the 
policy judgment that Congress made when it set the statutory increments 
as a percentage-of-the-NAAQS. In section 166 of the Act, Congress 
directed that EPA study the establishment of PSD regulations for other 
pollutants for which Congress did not wish to set standards at the 
time. Congress' own reluctance to set increments to prevent significant 
deterioration of air quality due to emissions of NOX, and 
the provisions ensuring time for Congressional review and action, 
suggest that Congress intended for EPA to avoid speculative judgments 
about the science where data is lacking. Having conducted such a study 
and finding difficulty establishing a direct relationship between 
adverse effects and particular levels of increase in pollution, we 
believe it is appropriate to consider the approach that Congress used. 
Thus, in the absence of specific data showing that a marginal increase 
of a particular level below the ``safe harbor'' would better protect 
health, welfare, parks, and air quality values, we give weight in our 
qualitative analysis of the factors applicable under section 166(c) to 
the method that Congress used to establish the statutory increments.
    In making this qualitative judgment, we also consider the overall 
regulatory framework that we have established in the PSD regulations 
for NOX. This framework includes a case-by-case analysis of 
each permit application to identify additional impacts (e.g., soils and 
vegetation), a special review by the FLM of potential adverse effects 
on air quality values in parks and special areas, and a requirement 
that all new and modified sources install BACT. In addition, the area 
classification system ensures that there will be economic growth in 
particular areas that are consistent with the values of each State and 
individual communities within States.
    When coupled with the overall framework of PSD regulations 
applicable to NOX, we believe the ``safe harbor'' approach 
for setting the increment levels is sufficient to satisfy the factors 
applicable under section 166(c). This approach ensures economic growth 
and that each area receives a basic level of protection consistent with 
Congressional policy and an additional case-by-case review of effects 
on air quality values and parks and special areas. Under this 
circumstance, we see no basis to deviate from the approach established 
by Congress for the statutory increments. Thus, we propose to retain 
the existing NO2 increments that were established at the ``safe 
harbor'' level using the percentage-of-NAAQS approach. We request 
comment on this proposal, the supporting analysis, and reasoning 
described above.
b. Additional Increments
    (1) Pollutant form for which increments for NOX are set. 
Another disputed issue in the EDF v. EPA case was EPA's action in 1988 
to establish an increment for only one form of NOX, i.e., 
NO2. We promulgated increments for NO2 in 1988 
because NO2 was the only form of NOX for which we 
had established a NAAQS at that time. However, in EDF v. EPA, the court 
held that section 166(c) of the Act ``commands the Administrator to 
inquire into a pollutant's relation to the goals and purposes of the 
statute, and we find nothing in the language or legislative history 
suggesting that this duty could be satisfied simply by referencing the 
ambient standards.'' 898 F.2d at 190. Thus, in this rulemaking action 
on remand, we must evaluate whether, considering the factors applicable 
under section 166(c), we should promulgate additional increments for 
other forms of NOX.
    Under the ``contingent safe harbor'' approach discussed above, we 
begin our analysis with ``safe harbor'' increments that only address 
increases in ambient NO2 concentrations. Since 1988, EPA has 
not identified a basis to establish a NAAQS for any form of 
NOX other than NO2. Thus, it remains the case 
today that the only NAAQS established for NOX are the 
current NO2 NAAQS which have not changed since 1971. We 
believe that increments based on the same pollutant for which we have a 
NAAQS are the ``safe harbor'' for purpose of this rulemaking. 
Establishing increments for this form of NOX is ``at least 
as effective'' as the statutory increments in section 163 of the Act. 
Congress established statutory increments in section 163 for only those 
forms of PM and sulfur oxides for which we had promulgated a NAAQS.\25\ 
As discussed above, the need for an increment necessarily derives from 
the establishment of a NAAQS, which is the basic measure of air quality 
under the CAA. Thus, an increment based on this basic measure of air 
quality is ``at least as effective'' as the statutory increments in 
section 163 of the Act. The court in EDF v. EPA rejected the argument 
that increments based on the same form of NOX as the NAAQS 
were not ``as effective as'' the increments in section 163. 898 F.2d at 
190.
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    \25\ Since that time, we have refined the original NAAQS for PM 
(then measured as TSP) to focus on coarse (PM10) and fine 
(PM2.5) particulate matter. We subsequently established 
increments for PM10 in accordance with section 166(f) of 
the Act. 58 FR 31622 (June 3, 1993). We are considering establishing 
increments for PM2.5.
---------------------------------------------------------------------------

    We noted earlier in this preamble that seven oxides of nitrogen are 
known to occur in the atmosphere. (See footnote 9.) Among these, EPA 
recognizes the significant role that nitrates play in many of the 
indirect welfare effects of NO2. Nitrate is a principal 
contributor to the effects on ecosystems of both nitrogen deposition 
(eutrophication and acidic deposition) and visibility impairment 
(regional haze). As such,

[[Page 8903]]

nitrates conceivably could represent a form of NOX which 
should be considered for regulation under the PSD increments. For 
several reasons, however, EPA believes that it is not necessary to 
adopt individual increments for nitrate.
    First, nitrate compounds found in the atmosphere generally are 
formed from the oxidation of NO and NO2 as they are 
transported in the atmosphere.\26\ Thus, the existing NO2 
increments can generally be viewed as a limiting factor in the 
formation of nitrate concentrations downwind. By limiting the allowable 
increase in ambient concentrations of NO2 in the immediate 
area surrounding proposed new or modified PSD source, some limit can 
effectively be placed on downwind NO3- formation 
as well.
---------------------------------------------------------------------------

    \26\ Another source of nitrates, not associated with emissions 
of NOX, is the nitrification of ammonium by bacteria in 
stream beds.
---------------------------------------------------------------------------

    Another consideration is that ambient nitrate can often exist in 
the atmosphere in particulate form, e.g., ammonium nitrate or nitric 
acid vapor. Nitric acid (a nitrate formed through the gas-phase 
reaction of NO2 and OH), which plays a key role in acid 
rain, in its gaseous phase can also react with airborne particle 
surfaces to form nitrate salts. When ambient concentrations of ammonia 
and nitric acid are sufficiently high, ammonium nitrate can be formed. 
Nitrate particulates contribute to regional haze. The EPA believes that 
it can more effectively regulate nitrates particulate under the PM 
program. In fact, the effects of nitrate particulate were considered in 
setting the NAAQS for PM2.5 and will be considered in the 
development of the upcoming PSD increments for PM2.5 as 
well.
    Finally, EPA does not believe that sufficient information is 
available to adequately establish levels for nitrate increments, even 
if it were to determine that the establishment of increments for 
nitrate are necessary to satisfy the factors applicable under section 
166(c). We described the difficulties of establishing alternative 
increment levels using the available information in the previous 
section.
    In the absence of information showing that increments based on the 
same pollutant of the NAAQS fail to protect air quality values, health 
and welfare, and parks and special areas, from emissions increases 
associated with new and modified PSD sources, we propose to retain the 
``safe harbor'' increments without adopting additional increments for 
NOX. Under these circumstances, the NAAQS provides a 
reasonable benchmark for identifying the pollutant to be used in an 
increment. Section 160(1) of the Act is expressed by using the NAAQS as 
a benchmark and also uses standards that mirror the standards 
applicable to the NAAQS-setting process--``protect public health and 
welfare.'' The court in EDF v. EPA rejected use of the NAAQS as the 
``sole basis'' for deriving the increments for NOX but did 
not preclude EPA from adopting only increments based on the same 
pollutant as the NAAQS when EPA has determined that such increments are 
sufficient to satisfy the special values embodied in the factors 
applicable under section 166(c) of the Act. See 898 F.2d at 190.
    Thus, we propose to retain the NO2 increments and do not 
propose to establish additional increments for other forms of 
NOX. We request comment on this proposed action and our 
basis for it.
    (2) Time periods for increments. In accordance with the court's 
opinion in EDF v. EPA, we have also evaluated whether we should 
promulgate additional NO2 increments based on a short-term 
averaging time. In the 1988 rule, EPA did not set short-term 
NO2 increments because a short-term NAAQS for NO2 
that would define short-term air quality for NO2 did not 
exist. However, the court directed us to evaluate whether, considering 
the factors applicable under section 166(c), we should promulgate 
additional increments for short-term averaging times. 898 F.2d at 190.
    Under the ``contingent safe harbor'' approach discussed above, we 
begin our analysis with the ``safe harbor'' increments that are based 
on the same annual averaging time used in the NAAQS. Since 1988, EPA 
has not found cause to promulgate a NAAQS for any averaging time 
shorter than annual. Thus, since this is the only averaging time used 
in the current NAAQS, we consider an increment that employs this 
averaging time to be a ``safe harbor'' that is ``at least as 
effective'' as the statutory increments in section 163 of the Act. The 
increments listed in section 163 of the Act are based on the same 
averaging times that were contained in the NAAQS at the time Congress 
adopted this provision. The NAAQS are the basic measure of air quality 
under the CAA. Therefore, an increment that uses this standard as a 
benchmark is ``at least as effective'' as the statutory increments in 
section 163 of the Act. The court in EDF v. EPA rejected the argument 
that an increment based on the same averaging time as the NAAQS was not 
``as effective as'' the increments in section 163. 898 F.2d at 190.
    We have further analyzed whether a short-term increment is 
necessary to satisfy the factors applicable under section 166(c) of the 
Act. Based on this review, we believe that an annual average increment 
for NO2 is sufficient to protect air quality values, health 
and welfare, and parks and special areas from potential short-term 
effects. Thus, we propose to retain the existing annual NO2 
increments and do not propose to adopt additional increments for 
shorter time periods.
    The same reasons that supported our decision not to set a short-
term NAAQS for NO2 weigh against setting a short-term 
NO2 increment. We have not identified health effects from 
short-term exposure to NO2 that occur in areas in attainment 
with the NAAQS. In addition, we do not have sufficient information to 
conclude that the welfare effects within the scope of our review are 
caused solely by short-term NOX concentrations.
    In our last review (1995-1996) of the NO2 NAAQS, EPA 
reviewed the short-term effects of NO2 on human health and 
concluded that a short-term standard was not justified. With regard to 
public health, the Administrator concluded that the annual standard of 
0.053 ppm NO2 provides ``substantial protection'' against 
the identified health effects (mild changes in pulmonary function or 
airway responsiveness in sensitive individuals) associated with short-
term peaks occurring in the range of 0.2 to 0.5 ppm--almost one order 
of magnitude higher than the annual standard. 60 FR 52875, 52879-80 
(October 11, 1995). The adequacy of the annual standard to protect 
against these potential short-term effects was further supported by the 
absence of documented effects in some studies at higher concentrations 
(3 ppm to 4 ppm). The Administrator also took into account that where 
the annual NO2 standard is attained--currently all areas of 
the country--the occurrence of 1-hour NO2 values greater 
than 0.15 ppm would be unlikely. Id.
    With respect to public welfare effects from NO2, the 
Administrator also concluded that the impact on terrestrial vegetation 
from short-term exposures to NO2 under existing ambient 
levels is insignificant and did not warrant a short-term standard (1995 
Staff Paper, p. 91). The Administrator also considered the welfare 
impacts from nitrates during the last review of the NO2 
NAAQS. Although we believe we are not required to consider these PM 
impacts in selecting measures to prevent significant deterioration of 
air quality due to emissions of NOX under section 166(a), we 
find it noteworthy that none of the welfare impacts from nitrates were 
attributed to short-term exposure

[[Page 8904]]

to nitrates and that significant uncertainties in the data were 
recognized. Even in those cases where nitrogen deposition was shown to 
cause episodic or ``short-term'' effects, the problem was typically the 
result of a long-term accumulation of nitrogen compounds that were 
released suddenly to the ecosystem (e.g., snowmelt runoff to lakes and 
streams) rather than the result of short-term concentrations of 
nitrogen compounds in the air.
    The conclusions from the last NAAQS review regarding the lack of a 
quantitative basis for establishing any short-term NO2 
standard were also reported in an EPA document issued in 1997, entitled 
``Nitrogen Oxides: Impacts on Public Health and the Environment.'' Id. 
at 33 (``While short-term effects from NO2 are documented in 
the scientific literature, the available information is insufficient to 
provide an adequate scientific basis for establishing any specific 
short-term standard.'').
    Additionally, independent of the short-term exposure issue, as 
discussed in another section of this preamble, EPA has previously 
identified problems that preclude the establishment of a national 
standard to protect against eutrophication and acid deposition. These 
include: (a) The site-specific nature of such impacts (e.g., existing 
levels of nitrogen in the ecosystem and sensitivity of vegetation to 
additional inputs), which cannot be addressed by a uniform national 
standard; and (b) significant uncertainties over the level of 
contribution of NOX sources to nitrogen deposition, 
determining whether an ecosystem was nitrogen saturated, and a lack of 
data establishing the quantitative levels of concern. 60 FR 52874, 
52884 (October 11, 1995).
    EPA has also recognized that NOX results in the 
formation of ozone and nitrate particulates under certain conditions. 
Although ozone, PM10, and PM2.5 have short-term 
NAAQS to protect against public health effects associated with short-
term exposure to these pollutants, EPA does not consider the impacts 
from these criteria pollutants, because it interprets section 166 to 
require consideration of these criteria pollutants separate and 
distinct from the duty to consider NOX.
    Thus, considering the factors applicable under section 166(c), 
EPA's proposed option 1 is to retain the annual average increments and 
not establish any additional increments based on a shorter averaging 
time. We request comment on this option and our basis for proposing it.

B. Regional Cap and Trade Program

    EPA's second proposed option for achieving the goals and objectives 
set forth in the Act to prevent significant deterioration of air 
quality due to emissions of NOX is to create an incentive 
for the States to implement a market-based cap and trade program to 
achieve the goals and purposes of PSD. Under this approach, we would 
permit States that adopt a cap and trade program under specific CAA 
programs being considered by EPA to implement this cap and trade 
program in lieu of an increment system for NOX. Thus, States 
would not need to require source-specific compliance demonstrations for 
the NO2 increments under their PSD regulations. This cap and 
trade program would have to be included in the EPA-approved SIP for 
each affected State and would have to satisfy the requirements of 
sections 166(c) and 166(d) of the Act.
    Under this option, we propose a finding that a cap and trade 
program with specific elements and characteristics would be sufficient 
to fulfill the requirements of section 166, and thus obviate the need 
for States to implement the NO2 increments and conduct case-
by-case analyses of whether a proposed new or modified major source 
would cause or contribute to an exceedance of an increment. We propose 
to allow States to request elimination of the NO2 increments 
from their PSD programs following their submission of a SIP revision 
that contains a cap and trade program with these specific elements.
    EPA believes that the requirements of section 166 to prevent 
significant deterioration of air quality could be satisfied if States 
were to adopt the model EGU cap and trade program proposed for States 
in the eastern U.S. in the CAIR. Under the CAIR proposal, specific 
States in the East and Midwest would be required to submit SIPs that 
contain controls sufficient to eliminate specified amounts of 
NOX emissions in order to reduce emissions contributing to 
nonattainment of the PM2.5 and ozone NAAQS in downwind 
States. The EPA indicated in the CAIR proposal that States subject to 
CAIR have the option to achieve these reductions by participating in a 
regional cap and trade program for EGUs that would be administered by 
EPA. Because the CAIR cap and trade program would require all of the 
sources participating in the program to collectively meet a 
NOX cap, and because this NOX cap is set at a 
level that ensures significant NOX reductions from the 
source categories covered by the cap, we believe it would be equivalent 
to or better than the existing NO2 increment approach which 
allows increases in emissions. Thus, EPA proposes that States 
participating in this program could rely upon it as a substitute for 
implementing the existing increment system for NOX.
    EPA does not propose to adopt or require the States to implement 
such a cap and trade program under legal authority contained in the 
statutory provisions for PSD. However, we believe the air quality 
benefits that such a program would provide could serve to ensure that 
no significant air quality deterioration will occur. Based on our 
analysis supporting the CAIR proposal, we believe we can show that the 
CAIR model cap and trade program, when implemented, will achieve 
reductions in NOX emissions from EGUs that are sufficient to 
compensate for projected increases in NOX emissions from new 
or modified major sources in other source categories.
1. Description of Cap and Trade Programs
    A cap and trade program is a market-based system that is designed 
to achieve required emissions reductions as needed to reach a 
particular emissions goal or cap within a predetermined geographical 
area. The basis for the overall emissions cap is typically to meet 
specific air quality objectives for the area or an affected downwind 
area. The emissions ``cap'' limits the total mass emissions for the 
area of interest by providing a limited number of emission allowances--
each allowance authorizing the emission of a specific amount (e.g., 
under title IV, one Acid Rain Program allowance authorizes the emission 
of one ton of SO2).\27\ Setting the emissions cap properly 
is key to achieving the desired environmental outcome. The allowance 
trading market provides a flexible mechanism for sources to find the 
least-cost reductions necessary to meet the cap.
---------------------------------------------------------------------------

    \27\ Under CAIR, EPA has proposed that more than one Acid Rain 
allowance would have to be turned in for each ton of SO2 
emissions.
---------------------------------------------------------------------------

    For example, a source with a total of 400 allowances (400 tons of 
NOX emissions) that is currently emitting 700 tpy of 
NOX could, factoring in economic considerations, meet its 
requirement to turn in allowances equal to its emissions by (1) 
directly reducing current emissions by 300 tons via the installation of 
controls, fuel switching, reducing utilization, etc., (2) purchasing 
allowances from other capped sources within the prescribed region that 
have controlled their emissions beyond the level needed to meet their 
requirement to turn in allowances equal to their

[[Page 8905]]

emissions, or (3) some combination of these two approaches.
    In the case of the NOX SIP Call, the regionwide 
emissions cap was apportioned to individual States, thereby creating 
State-level ``emission budgets.'' Typically, the emissions from an 
entire sector are ``capped'' to ensure that emissions are not simply 
shifted from a capped unit to one that is not subject to the cap.
    Once an emissions goal or cap is established for an area, the 
regulating authority allocates emission allowances to individual 
sources. In the case of the Acid Rain Program and the NOX 
SIP Call, EPA and individual States, respectively, allocate the 
emission allowances to the sources. Sources comply with cap and trade 
programs by holding enough allowances in their account to cover their 
reported emissions. This is independent of the allocation process, as 
the allowance trading market allows sources to reduce their emissions 
or purchase additional emission allowances.
    A cap and trade program is generally more cost-effective when more 
sources are eligible to participate and allowances can be traded 
without restriction. For example, in a regionally based cap and trade 
program, when affected States allow the sources within their 
jurisdiction to participate in the opportunity for emissions trading 
anywhere within the defined region, this trading affords the 
flexibility needed to enable sources to achieve established emission 
goals at lowest possible cost and encourage least-cost compliance over 
the entire region.
    EPA and States have had considerable success achieving specific air 
quality goals through the implementation of cap and trade programs. 
Title IV of the 1990 Amendments established the Acid Rain Program to 
address the deposition of acidic particles and gases.\28\ The Acid Rain 
Program utilizes a market-based cap and trade approach to require power 
plants to reduce SO2 emissions to 50 percent of the 1980 
emission levels. At full implementation after 2010, emissions will be 
limited (i.e., ``capped'') to 8.95 million tons in the contiguous U.S. 
Individual existing units are directly allocated their share of the 
total emissions allowances, each allowance being an authorization to 
emit a ton of SO2.
---------------------------------------------------------------------------

    \28\ The Acid rain Program requires a phased reduction of 
emissions of SO2 (and, to a lesser extent, 
NOX) from power generators that sell electricity.
---------------------------------------------------------------------------

    The cap and trade program under the Acid Rain Program has created 
financial incentives for electricity generators to look for new and 
low-cost ways to reduce emissions, and to improve the effectiveness of 
pollution control equipment, at costs much lower than predicted. The 
cap on emissions, automatic penalties for noncompliance, and stringent 
emissions monitoring and reporting requirements ensure that 
environmental goals are achieved and sustained, while allowing for 
flexible compliance strategies that take advantage of trading and 
banking. The level of compliance under the Acid Rain Program continues 
to be quite high, measuring over 99 percent.
    In 1998, EPA promulgated a rule determining that 22 States \29\ and 
the District of Columbia in the eastern half of the country 
significantly contribute to 1-hour and 8-hour ozone nonattainment 
problems in downwind States.\30\ This rule, generally known as the 
NOX SIP Call, required those affected jurisdictions to 
revise their SIPs to include NOX control measures to 
mitigate the significant ozone transport. The NOX SIP Call 
requires ozone season NOX reductions which EPA determined by 
projecting NOX emissions to 2007 for all source categories, 
and then reducing those emissions through controls that EPA determined 
to be highly cost-effective.\31\ The affected States were required to 
submit SIPs providing the resulting amounts of emissions reductions.
---------------------------------------------------------------------------

    \29\ The original jurisdictions were: Alabama, Connecticut, 
Delaware, District of Columbia, Georgia, Illinois, Indiana, 
Kentucky, Maryland, Massachusetts, Michigan, Missouri, New Jersey, 
New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South 
Carolina, Tennessee, Virginia, West Virginia, and Wisconsin. 
Subsequent court and EPA actions have slightly reduced the affected 
area.
    \30\ See ``Finding of Significant Contribution and Rulemaking 
for Certain States in the Ozone Transport Assessment Group Region 
for Purposes of Reducing Regional Transport of Ozone; Final Rule,'' 
63 FR 57356 (October 27, 1998). The EPA also published two Technical 
Amendments revising the NOX SIP Call emission reduction 
requirements (64 FR 26298, May 14, 1999; and 65 FR 11222, March 2, 
2000).
    \31\ Under the NOX SIP Call, States are only required 
to provide for the prescribed emissions reductions during the summer 
ozone season, and not year-round.
---------------------------------------------------------------------------

    Under the NOX SIP Call, States have the flexibility to 
determine the mix of controls to meet their emissions reductions 
requirements. However, the rule provides that if the SIP controls EGUs, 
then the SIP must establish a budget, or cap, for EGUs. The EPA 
recommended that each State authorize a trading program for 
NOX emissions from EGUs. Consequently, each State chose to 
adopt a cap and trade program based on a model rule developed by EPA. 
Some States essentially adopted EPA's full model rule ``as is,'' while 
other States adopted the model rule with changes to the sections that 
EPA specifically identified as areas in which States may have some 
flexibility.
    Following the NOX SIP Call, EPA carried out a broader 
assessment to determine the role of transported emissions from upwind 
States in contributing to unhealthy levels of fine particles 
(PM2.5) and 8-hour ozone in downwind States. As a result, on 
January 30, 2004, at 69 FR 4566, EPA proposed to find that 29 States 
and the District of Columbia contribute significantly to nonattainment 
of the NAAQS for fine particles (PM2.5) and/or 8-hour ozone 
in downwind States through transport of both NOX and 
SO2 emissions. In this proposal, originally known as the 
IAQR, EPA expressed its intent to assist States to attain the NAAQS in 
a way that is timely, practical, and cost effective, by proposing 
emissions reduction requirements for NOX and SO2, 
that would apply to upwind States.
    The proposed IAQR (now known as the CAIR) requires certain States 
in the eastern portion of the U.S. to submit SIP measures to ensure 
that emissions reductions are achieved as needed to mitigate transport 
of PM2.5) and/or ozone pollution and its main precursors--
SO2 and NOX--across State boundaries.\32\
---------------------------------------------------------------------------

    \32\ Clean Air Act section 110(a)(2)(D) requires SIPs to contain 
adequate provisions prohibiting air pollutant emissions from sources 
or activities in those States that contribute significantly to 
nonattainment in, or interfere with maintenance by, any other State 
with respect to a NAAQS. EPA proposed the IAQR requiring SIP 
revisions in 28 States and the District of Columbia to reduce 
SO2 and/or NOX emissions, which are important 
precursors of PM2.5 (NOX and SO2) 
and ozone (NOX).
---------------------------------------------------------------------------

    The proposed CAIR focuses on States whose emissions are 
significantly contributing to fine particle and ozone pollution on 
other downwind States in the eastern half of the U.S. The EPA 
identified emissions control requirements in the form of emissions 
budgets for 29 States and the District of Columbia on the basis of 
their contribution to nonattainment problems in the eastern half of the 
U.S. In determining States' emissions reduction requirements, EPA 
considered both the level and timing of the emissions budgets for the 
electric power industry at a regional level and State level. The EPA 
calculated the amount of each State's NOX emissions 
reduction requirement based on reductions that were determined to be 
highly cost-

[[Page 8906]]

effective for large electric generating units (EGUs).\33\
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    \33\ EPA based its emissions reduction requirements on 
reductions from large EGUs, i.e., boilers and turbines serving an 
electric generator with a nameplate capacity exceeding 25 MW and 
producing power for sale. EPA further proposed that its model 
regional cap and trade program would apply to these units.
---------------------------------------------------------------------------

    EPA's proposal to use a cap based on highly cost-effective 
reductions from the electric power industry resulted in part from the 
fact that we had relatively complete information with respect to a 
number of key factors for that industry, that was not available for 
other sources. In addition, the electric power industry emits 
relatively large amounts of the relevant emissions. This factor was 
considered particularly important in a case where the Federal 
government was proposing a multi-State regional approach to reducing 
transported pollution.
    As proposed, each affected State may independently determine which 
emissions sources to subject to controls, and which control measures to 
adopt to satisfy its reduction requirements. Alternatively, States were 
given the opportunity to participate in a regional cap and trade 
program to cap emissions from EGUs. The EPA indicated that it would 
administer the cap and trade program in a manner similar to the 
NOX SIP Call program.
    If the State chooses to control EGUs, then it must establish a 
budget--that is, an emissions cap--for those sources. The State may 
allow them to participate in the interstate cap and trade program, and, 
if so, the State must follow EPA's model rule, which contains required 
provisions including monitoring and reporting, applicability, and 
penalties. If a State wants to control EGUs but does not want to allow 
EGUs to participate in the interstate cap and trade program, the State 
has flexibility to do so, but the State EGU rule must contain certain 
minimum requirements such as capping emissions from EGUs and requiring 
part 75 monitoring.
    A supplemental notice, issued on June 10, 2004 (69 FR 32684), 
provided additional detail on establishing State emissions budgets 
(i.e., emissions reductions requirements) and significant additional 
information concerning EPA's model cap and trade program for EGUs, 
including, among other things, requirements for adopting the model cap 
and trade rules, flexibility afforded to States in adopting certain 
program features, and proposed regulatory language covering monitoring, 
recordkeeping, and reporting requirements.
    The emission reductions for NOX expected under the CAIR 
are significant. Under the CAIR, EPA proposes to implement highly cost-
effective reductions in two phases, with a Phase I compliance date of 
January 1, 2010, and a Phase II compliance date of January 1, 2015. 
When fully implemented, NOX emission reductions would be 
substantial, measuring about 1.5 million tons in 2010 and 1.8 million 
tons in 2015. This represents a reduction approximately 65 percent 
below current NOX levels.
2. Using a Cap and Trade Program in Lieu of an Increment System for 
NOX
a. Cap and Trade Program Would Meet Requirements of Section 166
    We believe that EPA's obligations to promulgate pollutant-specific 
PSD regulations for NOX under section 166 of the CAA could 
be satisfied by giving States the option to implement a cap and trade 
regulatory framework for sources of NOX that achieves the 
objectives of the PSD program. More specifically, we believe that a 
State cap on EGU NOX emissions at the level described in the 
CAIR proposal for that State would achieve emissions reductions that 
would prevent significant deterioration of air quality from emissions 
of NOX. By participating in this program and establishing a 
cap on NOX emissions from EGUs at such a level, we believe 
States could achieve emissions reductions that produce ambient air 
quality levels equivalent to or better than the air quality allowed by 
the existing NO2 increments and associated regulations. 
Moreover, a market-based cap and trade system would provide greater 
certainty that a specific level of emissions and air quality will be 
attained and maintained. Thus, we believe this may be an effective 
alternative to an increment system for NOX.
    (1) Cap and trade framework fulfills obligations under section 166. 
A cap and trade framework has many elements that satisfy the 
requirements of section 166(c), and such an approach would qualify as 
an ``other measure'' that is permissible under section 166(d). Thus, we 
propose to allow States, in lieu of an increment approach, to implement 
a cap and trade framework that, in combination with specific program 
elements, would meet the requirements of sections 166(c) and 166(d).
    A cap on emissions that is allocated to States through budgets and 
to individual sources in the form of tradeable allowances provides a 
numerical measure against which permit applications can be evaluated. 
Under a cap and trade approach, States could prohibit the issuance of a 
PSD permit to a new or modified source that is subject to the cap 
unless the source can ensure that it will have a sufficient number of 
allowances to cover its proposed emissions increase. In evaluating a 
permit application for such a source, a permit writer would only need 
to verify that the permit requires the source to turn in allowances 
equal to its emissions each year. Implementation of the cap in this 
manner would not only satisfy the ``numerical measure'' requirement 
but, for those sources subject to the cap, would also be much more 
efficient and less time-consuming than the current process of 
conducting a source impact analysis to make sure the proposed emissions 
increase will not cause or contribute to an increment violation. Where 
a cap is used to achieve emissions reductions necessary to offset 
future growth by sources not subject to the cap, the permit writer 
would need to verify that emissions from the sources subject to the cap 
remain below required levels in order to issue a permit to a source not 
covered by the cap.
    For PSD purposes, the market-based economic incentive inherent in a 
cap and trade framework could also provide a powerful stimulus for 
improved control technology at those sources subject to the cap. Even 
if new major sources and major modifications subject to the cap still 
have to meet requirements for BACT, the market for allowances could 
cause the facilities to select a more stringent BACT than would 
normally be selected. This, in turn, could also have a carry-over 
effect for subsequent BACT determinations involving other new sources 
that are not under the cap and trade program.
    By allowing States to implement a regional cap and trade system, we 
could address the goal in section 160(4) of the Act to assure that 
emissions in one State do not interfere with the PSD program in another 
State. By first developing a stringent overall cap requiring 
substantial reductions in NOX emissions (e.g., 70 percent) 
for an entire region, the cap and trade program provides assurance to 
downwind States that emissions from upwind States will be effectively 
managed over time.
    A cap and trade approach that operates in concert with the PSD 
preconstruction permit program would continue to fulfill the PSD goal 
in section 160(5) that any decision to permit increased air pollution 
not be made without careful evaluation and public participation. For 
reasons discussed below, major new sources and major modifications will 
still require

[[Page 8907]]

preconstruction permits and will have to comply with existing 
requirements for BACT. Thus, the public will have an opportunity to 
comment on each permit. However, the total allowable emissions from 
sources subject to the cap would be determined by regulatory 
authorities at the time that the cap is first developed. This process 
would still involve the evaluation required under section 160(5), but 
it would be conducted in up-front modeling to demonstrate the 
effectiveness of the cap, well in advance of any case-by-case permit 
review for sources subject to the cap that must obtain allowances and 
other sources outside the cap and trade system that could not be 
permitted without verification that emissions from affected sources do 
not exceed the cap. The public would have the opportunity to comment on 
the cap and thus could participate in any decision to establish a cap 
that allows increased air pollution. In the case of the NOX 
cap set forth in the CAIR proposal, we recognize that this comment 
opportunity has passed. However, under this option we are not proposing 
to authorize States to adopt a program that would allow an increase in 
air pollution. We are proposing to allow States to implement, in lieu 
of an NO2 increment, a cap and trade program that would 
achieve overall reductions in NOX emissions by reducing 
emissions from certain sources to offset expected increases from other 
sources.
    In order to fulfill the minimum requirements of section 166(d) 
under the ``contingent safe harbor'' approach, the cap selected for the 
cap and trade program would have to be at least as effective as the 
increments established by statute for PM and SO2 in each 
affected State. As discussed above, these statutory increments were 
established as a percentage of the NAAQS, which are expressed as an 
ambient concentration of air pollution. As a result, the PM and 
SO2 increments are also expressed in ambient concentration 
form and reflect the maximum marginal increase in air pollution 
concentration allowed in an attainment area. Under the cap and trade 
approach, we would allow States to establish a cap on total 
NOX emissions from specific sources, expressed in terms of 
mass (tons) rather than an ambient concentration (e.g., micrograms per 
cubic meter). To show that a particular emissions cap on specific 
sources is as effective as the concentration-based increments for PM 
and SO2, we could rely on ambient air quality modeling that 
projects the concentration in each part of a State that would result 
from achieving a particular cap. A cap that maintains ambient 
concentrations of NO2 within a certain percentage of the 
pre-cap NO2 levels in most areas (assuming no increment 
violations currently exist) could then be demonstrated to be at least 
as effective as the statutory increments. However, to the extent that 
modeling is not available or is insufficient to make such a showing, we 
request comment on how we might use qualitative measures to identify 
whether a particular cap is at least as effective as the increments for 
PM and SO2. We also request comment on whether, in all cases 
or some cases, this showing would be made inherently because an 
emissions cap less than or equal to the current level (or baseline 
level) is prima facie evidence that significant deterioration is being 
prevented.
    A cap at a level that is as effective as the increments for PM and 
SO2 would represent the ``safe harbor'' cap under the 
``contingent safe harbor'' interpretation we are proposing today for 
section 166 of the Act. Under the cap and trade option, once the safe 
harbor is identified in this manner, we would then analyze whether it 
satisfies the requirements of section 166(c) by using the same 
balancing test discussed above. We would use this balancing test to 
determine whether a cap other than the ``safe harbor'' cap is needed to 
protect public health and welfare, as well as air quality values, while 
also allowing for economic growth consistent with the preservation of 
existing clear air resources.
    We believe a cap and trade framework is particularly well-suited 
for striking the required balance between effective environmental 
protection at a cost that is not detrimental to economic growth. The 
capping of total emissions of pollutants throughout a geographic 
region, and over a period of time, ensures achievement of the 
environmental goal while allowing economic growth (new sources or 
increased use of existing sources). Within the constraints of the NAAQS 
and the available increment, the addition of new sources to the 
regulated sector or an increase in activity at existing sources can 
increase total emissions even though the desired emission rate control 
is in effect.
    (2) Cap on NOX emissions proposed in the CAIR would satisfy PSD 
requirements. Using this analytical approach, we propose to find that a 
cap and trade program that caps NOX emissions at the levels 
proposed in the CAIR would fulfill the requirements of section 166 of 
the Act. We believe a cap on NOX of this magnitude would 
strike the required balance between the environmental protection and 
the economic growth goals of the PSD program.
    The proposed cap on NOX emissions contained in the CAIR 
would be established, under the authority of section 110(a)(2)(D) of 
the Act, on the basis of emissions reductions that can be achieved by 
installing highly cost-effective controls on EGUs. We believe a cap on 
NOX emissions at this ``highly cost-effective'' level would 
meet the objectives of PSD by providing the most protection for AQRVs, 
health and welfare, and parks and other special areas, while also 
ensuring economic growth.
    Our analysis in the CAIR proposal showed that a cap on 
NOX emissions of this magnitude in the relevant region would 
produce improvements in visibility and reduce acid deposition and 
eutrophication of water bodies in the eastern U.S. See 69 FR 4566, 4642 
(Jan. 30, 2004) (Section X: Benefits of Emissions Reductions in 
Addition to the PM and Ozone NAAQS). A more detailed discussion of 
these beneficial effects is provided in a document prepared for the 
CAIR and is entitled ``Benefits of the Proposed Interstate Air Quality 
Rule (January 2004).'' This document is available in the Air Docket for 
this rulemaking and also at http://www.epa.gov/air/interstateairquality/tsd0175.pdf.
    Allowing States to improve ecosystem health in this manner, through 
a cap and trade approach, would satisfy our obligation to develop 
regulations under section 166 of the Act that provide protection for 
AQRVs, health and welfare, and parks. Our analysis to date indicates 
that a cap on NOX emissions equivalent to the reductions 
proposed in the CAIR for the eastern U.S. would reduce adverse effects 
on AQRVs, health and welfare, and parks in this region. 69 FR 32684, 
32706 (June 10, 2004).
    As noted above, visibility is an important AQRV that is affected by 
emissions of NOX. Reductions in emissions of NOX 
at the level required in the CAIR proposal are expected to contribute 
to substantial visibility improvements in many parts of the eastern 
U.S., including Class I areas such as the Great Smoky Mountains.
    NOX emissions may also contribute to effects on AQRVs, 
welfare, and parks resulting from the deposition of nitrogen onto land 
and water. The reductions in NOX emissions required in the 
CAIR proposal are anticipated to reduce nitrogen deposition. Reductions 
in nitrogen deposition will, in turn, reduce acidification and 
eutrophication of water bodies and have a positive impact upon current 
eutrophic conditions in

[[Page 8908]]

estuaries and coastal areas in the eastern region of the country. 
Reductions in nitrogen deposition are likely to have positive effects 
on the health and productivity of some forest systems. Furthermore, 
reductions of this magnitude would reduce deposition that damages 
cultural monuments and other materials.
    In the CAIR proposal, we assessed the quantitative impacts of the 
proposed levels of NOX and SO2 reductions on the 
acidification of water bodies. Areas especially sensitive to 
acidification include portions of the Northeast (particularly the 
Adirondack and Catskill Mountains, portions of New England, and streams 
in the mid-Appalachian highlands) and Southeastern streams. Modeling 
for the CAIR indicated that as a result of the proposed reductions in 
SO2 and NOX, lakes in the Northeast and 
Adirondack Mountains would improve in acid buffering capacity. 
Specifically, we found that no lakes in the Adirondack Mountains were 
projected to be categorized as chronically acidic in 2030 as a result 
of the reductions proposed for the CAIR. In contrast, 12 percent of 
these lakes were projected to be chronically acidic without the 
emissions reductions envisioned in the CAIR proposal. For Northeast 
lakes in general, 6 percent of the lakes were anticipated to be 
chronically acidic before implementation of the proposal. The 
NOX and SO2 reductions called for in the CAIR 
proposal are expected to decrease the percentage of chronically acidic 
lakes in the Northeast to 1 percent.
    We believe State implementation of caps on NOX emissions 
at the levels set forth in the CAIR proposal would provide sufficient 
protection for AQRVs in all the Class I areas in the eastern half of 
the U.S. However, we request comment on whether, even with caps of this 
magnitude, States would need to implement additional measures under the 
model cap and trade program to guard against localized adverse impacts, 
particularly in Class I areas.
    (3) Cap and trade approach would provide ambient air quality 
analysis for all sources. Under this cap and trade program for EGUs, we 
do not believe it will be necessary for any sources to conduct a site-
specific ambient air quality analysis for NOX in order to 
satisfy the requirements of section 165(a)(3) of the Act by showing 
that the source will not cause or contribute to air pollution in excess 
of the NAAQS or an increment. In order to permit States to adopt the 
CAIR model cap and trade program in lieu of NO2 increments, 
EPA or the States would have to perform an ambient air quality analysis 
to show that the NOX caps applicable to each State achieve 
enough reductions to ensure that increases in NOX emissions 
from all new or modified sources will not result in an exceedance of 
the NO2 NAAQS or cause significant deterioration of air 
quality.
    If States adopt a cap and trade system and are not required to 
enforce the increment, sources would not be required under section 
165(a)(3) to show that they would not cause or contribute to a 
violation of the NO2 increment. Instead, the cap and trade 
program would fulfill the function of the NO2 increments to 
prevent significant deterioration of air quality. However, the 
requirements of section 165(a)(3) would still be satisfied because EPA, 
rather than each individual source, would demonstrate that the proposed 
cap is sufficient to either prevent significant deterioration of air 
quality due to emissions of NOX or prevent a violation of 
the NAAQS. Thus, it would be redundant and unnecessarily costly to 
require an individual source to conduct a site-specific air quality 
analysis under a cap and trade approach. A source subject to the cap 
would only need to show that it has enough allowances to cover its 
emissions. The total amount and distribution of allowances would 
already reflect the results of an air quality analysis conducted by the 
regulatory authority.
b. Using a Cap and Trade Program To Streamline the PSD Permitting 
Process
    The discussion above illustrates some ways in which a cap and trade 
program can enable substantial streamlining of the PSD permit process. 
Such streamlining, allowing applicants to avoid various preconstruction 
review requirements, could significantly reduce both the resources 
needed to acquire the necessary construction permit and the time 
required to complete the permitting process. Both are important ways in 
which the PSD permit program can be improved so long as adverse impacts 
on the environment are not allowed to occur as a result.
    Even though the model cap and trade program, as presently 
conceived, would apply only to certain electric power plants, the 
benefits of the streamlined PSD permitting process would be shared with 
all PSD applicants because of the inherent ability of the cap and trade 
program to enable a reduction in total statewide NOX 
emissions from EGUs sufficient to compensate for increases in 
NOX emissions in the State from other source categories of 
NOX emissions.
    Under the approach being proposed today, States would have the 
option to revise their implementation plans to include the necessary 
regulations to enable participation in and implementation of the EPA-
administered cap and trade program for NOX under CAIR. Once 
the necessary revisions are in place and in effect under the applicable 
SIPs, EPA would respond affirmatively to State requests to use the cap 
and trade program in lieu of source-specific compliance demonstration 
for the NO2 increments. The State would not be required to 
conduct source-specific increment analyses so long as the State 
continues to implement the cap and trade program.
    The cap and trade program would not provide a full exemption from 
the PSD permitting process. All new major stationary sources and major 
modifications, including both EGUs directly affected by the cap and 
trade program and non-EGU major sources, would still have to undergo 
some preconstruction review for a PSD permit prior to commencing 
construction on new projects that result in a significant net emissions 
increase for NOX. Such permits would still need to include 
emissions limitations based on BACT. The primary benefit comes from the 
fact that source-specific analyses for the NO2 increments 
and NO2 NAAQS would not be required, as described in the 
above subsection.\34\
---------------------------------------------------------------------------

    \34\ State participation in a cap and trade mechanism would not 
replace the statutory requirement to meet the NAAQS for 
NO2 at the local level, but rather helps achieve this 
requirement through significant reductions in background 
concentrations. While States will continue to have the obligation 
and the authority under the Act to assure that the NAAQS for 
NO2 is being met, we do not believe this needs to be done 
on a source-specific basis under the PSD permitting program, but 
rather through the ongoing monitoring of ambient air quality using 
EPA-recognized monitoring sites (showing current attainment status) 
and possibly periodic modeling assessments.
---------------------------------------------------------------------------

    We believe BACT must continue to apply because this PSD requirement 
is based on section 165(a)(4) of the Act, not section 166, and cannot 
be fulfilled by using a cap and trade approach. In contrast, the 
ambient air quality analysis that is based on section 165(a)(3) could 
be conducted for all sources at the time a cap is established and thus 
need not be conducted again for each individual permit.
    The EPA believes other requirements pertaining to air quality 
analyses might also become unnecessary under a cap and trade approach. 
For example, statewide air quality improvements shown to result from a 
cap and trade program, as described elsewhere in this

[[Page 8909]]

preamble, may eliminate the need for source-specific FLM review in 
Class I areas. In its 1988 PSD regulations for NOX, EPA 
applied this process to NOX on the basis of section 166. We 
also propose to retain this requirement under the increment option 
discussed above. However, we do not interpret section 165(d)(2)(C) to 
require this process for NOX regulations established under 
section 166. Section 165(d)(2)(C) appears to be limited by its terms to 
only PM and SO2. Nevertheless, we believe we have the 
authority to apply this FLM review process to NOX on the 
basis of section 166. However, if the requirements of section 166 are 
otherwise fulfilled by a cap and trade approach, we believe section 166 
would give us the discretion not to employ the FLM review process 
described in section 165(d)(2)(C).
    We are also evaluating, and request comment on, whether certain 
source-specific preconstruction requirements could be satisfied by a 
cap and trade approach. These include (1) the air quality impact 
analysis required under section 165(a)(6) that is codified in 
regulations as the additional impacts analysis (see, e.g., 40 CFR 
52.21(o)); (2) the analysis of air quality, climate and meteorology, 
terrain, soils and vegetation, and visibility required under section 
165(e)(3)(B); and (3) the air quality monitoring requirement in section 
165(a)(7). In the latter case, PSD applicants, where applicable, must 
set up air quality monitoring stations and begin collecting relevant 
air quality data up to 12 months in advance of their submittal of a 
complete PSD application.
c. What Are Some Issues That Still Need To Be Resolved?
    EPA recognizes certain significant issues that still need to be 
resolved before a comprehensive proposal can be set forth for public 
review and comment. These issues are presented here for public 
consideration.
    (1) Failure to show ongoing statewide downward trend in 
NOX emissions. The EPA recognizes that it may not be 
possible to show that NOX emissions decreases in every State 
from CAIR at least offset the expected contribution of NOX 
emissions that non-EGU sources make in the State. Consequently, in 
States where the amount of NOX reductions achieved through 
regulating EGUs under the proposed cap and trade program does not more 
than compensate for increases at other sources of NOX, it 
may be difficult to justify the use of the proposed cap and trade 
program in lieu of the existing increment system for NOX.
    Preliminary air quality modeling by EPA indicates that total 
NOX emissions will generally decline on a statewide basis 
across the nation. ``Total NOX emissions'' includes 
contributions from electric utilities, non-utilities, area sources, and 
mobile sources (onroad, nonroad). As proposed, the statewide emissions 
budgets for NOX apply only to affected EGUS. Sources not 
covered under the regional cap and trade program may face emissions 
limitations stemming from other Federal or State programs (e.g., 
Federal Motor Vehicle Emissions Reduction Program) but would not 
typically be restricted from potential increases under any kind of cap 
for the source category in general.
    Thus, in cases where EPA's modeling cannot initially show a 
downward trend in statewide NOX emissions for a particular 
State because increases from another source sector are exceeding the 
reductions being generated by EGUS under the cap and trade program, EPA 
tentatively intends to announce the continued applicability of that 
State's increment system for NOX as part of the final 
rulemaking for today's proposed action.
    As part of the comprehensive modeling demonstration that EPA 
intends to carry out to support this cap and trade option, we will 
assess the likelihood that total statewide NOX emissions 
will continue to exhibit a downward trend for future years. The EPA 
believes that it will be necessary to conduct periodic assessments 
(e.g., 10-year intervals) of air quality trends for NOX in 
order to continue justifying the cap and trade program as a substitute 
for the increment system for NOX. The EPA seeks comments on 
the frequency of any necessary periodic assessment, as well as other 
possible mechanisms for determining when adjustments may need to be 
made to the cap and trade program to retain its viability as a 
replacement for the increment system or other means of preventing 
significant air quality deterioration for NOX.
    (2) States in which baseline date has not been set. While we 
believe, in general, that the cap and trade program would fulfill the 
function of the increment to prevent significant deterioration due to 
emissions of NOX, we realize there are certain cases where 
making this showing is more complicated. The baseline against which an 
increment is assessed is set at the point of the first permit 
application submittal by a new or modified source located in the area. 
For areas that have not yet had the first permit application submitted, 
no baseline has been triggered. For such areas, it is not immediately 
clear that a cap and trade program is at least as effective as the 
existing increment program. In the case that such an area had its first 
permit application submitted subsequent to the realization of the 
emission reductions anticipated from cap and trade in that State, then 
an equivalency demonstration between cap and trade and the increment 
program becomes more complicated.
    One approach for addressing this situation would be to maintain the 
increment program as it currently exists for States in which few or no 
baseline dates have been set. We request comment on this approach and 
any other alternatives that address this situation.
    (3) Potential for localized adverse impacts resulting from 
emissions increases from new and modified sources. The EPA is mindful 
of the potential for localized impacts of proposed sources and 
modifications even where statewide emissions are shown to be declining. 
In response to this concern, we note that the January 30, 2004, CAIR 
notice of proposed rulemaking addressed the issue of localized adverse 
impacts. In that notice, EPA indicated that experience under the title 
IV Acid Rain Program shows that ``the combination of trading with a 
stringent emissions cap results in substantial reductions throughout 
the region, with the greatest reductions achieved in the areas where 
pollution was originally the highest.'' (69 FR 4629-30) The notice 
further stated that other independent analyses have supported the 
finding that emissions trading under this type of program has not 
resulted in the creation of localized air quality problems.
    We believe that this trend will continue to occur as a result of 
the extended use of a cap and trade program, so that localized air 
quality problems generally will not occur. Nevertheless, there may be 
the potential for localized adverse impacts, especially around Class I 
areas, particularly when a source of NOX locating near a 
Class I area is not subject to a cap. While we believe this situation 
is unlikely to occur and are proposing to allow States that participate 
in the cap and trade programs under consideration to avoid some case-
by-case source impact analyses under the preconstruction review for 
PSD. Below, we solicit comments on whether there is any need for a 
limited source-specific analysis under certain circumstances.
    (4) Role of the Federal Land Manager in the PSD permit process. The 
Act provides that the FLMs have an affirmative responsibility to 
protect any AQRVs that have been identified for the

[[Page 8910]]

Class I areas under their control. Section 165(d)(2)(B). Section 
52.21(p) of the PSD regulations requires notification of the applicable 
FLM when there is a potential for adverse Class I area impacts, and it 
authorizes direct involvement by the FLM in cooperation with the 
applicable permitting authority to identify any adverse effects on any 
known AQRVs.
    Although the cap and trade program would significantly diminish the 
possibility that PSD sources would adversely impact a Class I area, in 
light of the overall NOX reductions that would occur, the 
potential for some adverse impacts could still exist. In the absence of 
individual source-specific air quality analyses, which include data 
that may be reviewed by the FLM early in the permitting process to 
determine the potential for adverse impacts, FLMs would have to rely 
upon other means of detecting such adverse impacts at a point in the 
permitting process when remedial action could be sought.
    One possible remedy to this potential problem is for EPA to include 
specific criteria that, if not satisfied by a particular PSD applicant, 
could enable the FLM, in cooperation with the permitting authority, to 
call for an analysis of source impacts on the Class I area. For 
example, regulatory procedures could be established which authorize an 
FLM to call for a source impact analysis when a proposed new or 
modified source locates within a specified distance (e.g., 150 
kilometers) of a particular Class I area and air quality in the area 
has shown little or no improvement since the cap and trade program took 
effect, as determined by ambient monitoring data. The EPA seeks public 
input on the above example, and other possible parameters, that could 
offer an effective way to ensure continued protection against localized 
adverse impacts from source growth occurring under a cap and trade 
program.
    (5) States that are not affected by the proposed CAIR. Many States 
are not subject to the proposed CAIR, because we believe they do not 
significantly contribute to nonattainment or interfere with maintenance 
of NAAQS in another State. The EPA solicits comments on the best way to 
address States that are not subject to CAIR but that wish to 
participate in an EPA-administered cap and trade program, or that wish 
to develop a State cap and trade program to replace the increment 
system for NOX currently in their State PSD program. We 
believe that a nationwide EPA-administered cap and trade program such 
as the Clear Skies Initiative could replace the increment system for 
NOX. If that legislation is not enacted, States that are not 
part of a regionally based cap and trade program could develop a State 
cap and trade program that could be considered to meet the goals and 
purposes of the Act for preventing significant deterioration of air 
quality due to emissions of NOX.

C. State Planning Approach

    As a third option, we propose to allow a State to submit a 
demonstration that its SIP contains measures, in conjunction with 
Federal requirements, that would prevent significant deterioration of 
air quality due to emissions of NOX. Under this option, we 
would establish a procedure for a State to submit a SIP demonstration 
to EPA to fulfill the requirements of sections 166(c) and 166(d) of the 
Act. If EPA determines that the SIP demonstration meets the 
requirements of section 166, then we would approve the demonstration 
and allow the State to implement the SIP in lieu of an increment system 
for NOX. Thus, the State planning approach, like the cap and 
trade approach, would provide States with an incentive to implement a 
program to prevent significant deterioration of air quality due to 
emissions of NOX that may be more effective than an 
increment system.
    The State planning approach will be implemented through States' 
SIPs. Any State choosing this option could submit a demonstration that 
its SIP establishes a clear planning goal, of the State's own design, 
to satisfy the section 166 PSD requirements for NOX. To 
achieve the goal of its SIP, a State could impose NOX 
emission limitations on any emissions sources it chooses, whether new 
or existing, or demonstrate that existing Federal and SIP limitations 
have the appropriate effect.
    While this approach gives States more flexibility to design a 
program to prevent significant deterioration of air quality due to 
NOX emissions using a system other than increments, the EPA 
review and approval process would be more time- and data-intensive. 
Under this approach, the State would need to provide a rigorous 
demonstration that its planning goal and measures (in conjunction with 
Federal requirements) for meeting that goal are at least as effective 
in preventing significant air quality deterioration for NOX 
as the increments for PM and SO2 (fulfilling the safe harbor 
requirement of section 166(d)) and are consistent with the criteria in 
section 166(c) and the goals and purpose of PSD in section 160 of the 
Act.
    In contrast to the cap and trade option described above, under this 
State planning option, we are not proposing that the State must 
demonstrate that the SIP includes a specific type of program that we 
have already found to be sufficient to satisfy the requirements of 
section 166. However, under this State planning option, we could 
establish a specific planning goal that we find to be sufficient to 
satisfy the requirements of section 166. Thus, if the State 
demonstrates that its SIP achieves our recommended planning goal, this 
could streamline EPA action on the plan. However, if we do not 
establish such a goal, a State would have to define this on its own and 
demonstrate to EPA how a program that achieves that goal would satisfy 
the requirements of section 166 of the Act.
    An example of a State planning goal that we believe could meet the 
requirements of section 166 would be a goal that statewide 
NOX emissions from all sources would remain at or below the 
level observed in a specific baseline year that, in turn, is identified 
to be equivalent to the level of emissions that results in significant 
deterioration. A State could propose to achieve such a goal by tracking 
and managing the inventory of emissions from all sources in the State 
to ensure that statewide emissions of NOX do not increase 
above this level. This approach would in effect authorize a State to 
replace the NOX increment requirement by demonstrating that 
its SIP measures, in conjunction with Federal measures, achieve 
reductions in NOX emissions from all sources that are 
sufficient to offset projected increases from all types of new and 
modified sources. We believe this approach could be an effective 
alternative to an increment system. This kind of a State planning 
approach would prevent significant deterioration of air quality due to 
emissions of NOX with a goal that effectively permits no 
NOX emissions increases from a specific baseline date. The 
State would have to track its inventory of emissions and establish 
control measures on all types of sources (new and existing) as 
appropriate to meet the goal.
1. Description of State Planning Approach
    This State planning option allows States to prevent significant 
deterioration of air quality due to NOX emissions through 
specific statewide control strategies. In developing its approach, the 
State may consider broad scientific research and assessment of various 
means of meeting air quality management goals (visibility progress, 
emission density requirements, or other markers).

[[Page 8911]]

    The State planning approach may be workable for source categories 
such as mobile and area sources, for which a budget approach is 
unproven and for which the available emissions quantification 
techniques are too imprecise to support the budget approach. As stated 
before, a State may achieve its SIP goal by controlling NOX 
emissions from any emissions sources it chooses. The State's control 
requirements, when implemented, must prevent significant deterioration 
of air quality due to NOX emissions.
    Under this option, a State may choose to develop its own 
NOX emissions cap, with approval based on the cap's meeting 
the requirements of sections 166(c) and 166(d). That is, for purposes 
of this proposed rule, the State would not be subject to an EPA-
determined NOX budget. The State would be responsible for 
tracking its NOX emissions and for identifying and reacting 
to needed corrections in its allowable NOX emissions.
    Under the State planning option, SIPs could include emission 
targets that provide for growth from new and modified sources. SIPs 
should be required to track actual emissions increases from new and 
modified sources and provide mechanisms for addressing areas that 
exceed these projected increases. The State is manager of the air 
quality resource and decides how much growth it will allow consistent 
with the requirement to prevent significant deterioration of air 
quality.
a. SIP Requirements
    Under the State planning option, a State may impose NOX 
emissions control requirements in the form of a NOX emission 
rate limit, a specified type of technology, or even a cap on 
NOX emissions. However, to demonstrate that its plan is at 
least as effective as the increments for PM and SO2, the 
State must demonstrate through its emissions inventory that its control 
requirements are adequate from an air quality standpoint.
    Critical to SIP planning are the elements of accountability and 
emissions tracking. To ensure that the SIP goal is achieved, the State 
planning approach requires an accurate baseline emissions estimate. 
Then, to demonstrate the amount of emissions control from the 
controlled sources, the State must take into account the amount of 
emissions attributable to the sources or source category both in the 
base case year and in the control case. The SIP must include 
monitoring, recordkeeping, and reporting requirements. Unlike under the 
cap and trade option (option 2), under the State planning option 
(option 3), the State must bear the responsibility for monitoring 
progress and tracking emissions.
    The EPA is soliciting comment on what requirements are needed to 
ensure that the SIP goal is met. Overarching considerations include 
whether the requirements: (1) Provide certainty that all emissions that 
are controlled pursuant to this option are adequately controlled; (2) 
ensure that controls will continue to be adequate in future years; and 
(3) ensure that the control requirements can be feasibly implemented.
    Pursuant to section 166(c), the State goal must provide specific 
numerical measures against which permit applications may be evaluated. 
Under option 3, we propose that each SIP demonstration must include a 
NOX emissions inventory for its baseline year (1990 or 
other). The State will have to weigh its projected reductions against 
its projected increases (so as to allow for growth) over the next 10 
years. Each State will need to demonstrate that the objectives of the 
statutory PSD program for NOX are being met, for example, by 
demonstrating that NOX increases are less than or equal to 
NOX reductions at the end of a 10-year period, or by some 
other scheme that can accommodate significant growth of emissions, 
which is particularly anticipated in the western U.S. Based on the 
State's demonstration through statewide modeling and analysis that it 
will meet the SIP goal, the State would be permitted to waive some of 
the case-by-case analysis for new and modified major sources subject to 
PSD preconstruction permitting.
b. Benefits of State Planning Approach
    The State planning approach could effectively serve in the same way 
that an increment system does to prevent significant air quality 
deterioration, with the added benefit of eliminating the need for 
certain case-by-case source analyses as currently required for sources 
applying for preconstruction permits under State PSD programs. 
Depending on how a program is designed by the State, a State planning 
approach could not only prevent significant air quality deterioration 
but, while not required to do so, also provide substantial improvements 
in air quality over time as any required controls are installed on 
sources in order to meet the State goal. For example, reductions in 
NOX will contribute to visibility improvements (69 FR June 
10, 2004, at 37205-6) and will also help to reduce acidification and 
eutrophication of water bodies (69 FR January 30, 2004, at 4642-3).
2. Using State Planning Approach in Lieu of an Increment System for 
NOX
a. State Planning Approach Can Meet Requirements of Section 166 of 
Clean Air Act
    We believe EPA's obligation under section 166 to promulgate 
pollutant-specific regulations for NOX could be satisfied by 
permitting States to demonstrate that ``other measures'' besides 
increments will prevent significant deterioration of air quality due to 
NOX emissions, so long as those measures are consistent with 
the requirements of sections 166(c) and 166(d) of the Act. The EPA 
could satisfy these requirements by establishing a planning goal based 
on the requirements of these provisions and then providing a process 
for States to demonstrate how the measures in their SIPs would achieve 
this goal.
    (1) State planning framework fulfills many of the factors 
applicable under section 166. A State planning framework has many 
characteristics that satisfy the requirements of section 166(c), and 
such an approach could qualify as an ``other measure'' that is 
permissible under section 166(d). A State planning program framework, 
in combination with the specific measures in the State SIP and other 
Federal measures, could fulfill the requirements of sections 166(c) and 
166(d).
    Under a State planning framework, an emissions inventory could 
function as a specific numerical measure that could be used to evaluate 
permit applications. The inventory could be expressed in terms of a 
mass of total emissions (tons) across the State rather than an air 
quality concentration ([mu]g/m3) as is the case with 
increments and NAAQS. The State permitting authority could evaluate the 
permit application against the inventory of total emissions for all 
sources and determine if there was room in the inventory for a new 
source or an increase in emissions from a modified source. If so, then 
a preconstruction permit could be issued without causing emissions to 
exceed the level of the inventory. If there was not room in the 
inventory for emissions from a new or modified source, then the permit 
applicant would have to obtain offsetting reductions from other 
sources. This type of numerical measure could also streamline 
permitting because the evaluation of a permit application against an 
emissions inventory would be a relatively simple exercise that does not 
require extensive air quality modeling by the permit applicant.

[[Page 8912]]

    A State planning framework that utilizes an emissions inventory 
would also stimulate improvements in control technology at both new and 
existing sources. In order to make room in the inventory for growth 
from new sources or modifications to existing sources, a State may 
elect to establish additional control measures on existing sources. 
This would stimulate improvements in control technology at those 
sources. However, a State might instead elect to require that new and 
modified sources bear a greater burden of controlling emissions and 
thus stimulate these sources to make improvements in control 
technology. Major new and modified sources would still have to install 
BACT under this option, but the State could also establish limitations 
that give minor sources incentive to employ improved control technology 
to keep emissions below the inventory. A State could also develop some 
combination of these approaches that balances the burdens across new 
and existing sources. Thus, a State planning approach of this nature 
would stimulate improvements in control technology while also providing 
the States with the flexibility to identify the sources in that State 
that can most cost-effectively install improved controls.
    A State planning framework could also address the goal in section 
160(4) of the Act to assure that emissions in one State do not 
interfere with the PSD program in another State. The EPA could adopt 
this goal as a criterion that must be met in order for the State 
planning process to prevent significant deterioration of air quality 
due to emissions of NOX. Thus, in addition to showing that 
emissions would not exceed the inventory, States might have to 
demonstrate that their SIPs will not cause the inventory to be exceeded 
in neighboring or downwind States. The EPA would not approve a SIP that 
does not meet this goal and could thereby ensure that emissions from 
upwind States are effectively managed to prevent significant 
deterioration of air quality in other States. This goal is to a large 
extent already embodied in the State planning process based on section 
110(a)(2)(D)(i)(II) of the CAA. This section requires that SIPs contain 
adequate provisions to prohibit emissions from any source from 
interfering with the part C (PSD) program in another State. Thus, we 
may not need to make any changes to our SIP planning regulations to 
satisfy the section 160(4) goal if we allowed States to use the State 
planning approach to satisfy section 166 of the Act.
    With respect to the PSD goal in section 160(5) that any decision to 
increase air pollution be made only after careful evaluation and public 
participation, the evaluation would be conducted and opportunities for 
public participation would occur under the State's planning approach 
when the baseline year for the statewide emissions inventory is 
proposed. The EPA or the State would conduct a careful evaluation at 
that time and provide an opportunity for public comment. Once the 
inventory baseline is established, it will guide future permit 
evaluations. If a project subject to the permit requirement would not 
cause statewide emissions to exceed this level, the permit could be 
issued without as extensive a review at the permitting stage as would 
be required under the increment system. The careful evaluation 
conducted at the time the baseline year is selected will have already 
established whether an emissions increase could be allowed without 
preventing significant deterioration of air quality. In addition, major 
sources will still need to obtain permits and achieve BACT, so there 
would continue to be some case-by-case review and public participation 
under a State planning framework.
    To satisfy the minimum requirements of section 166(d) under the 
``contingent safe harbor'' approach, the baseline inventory selected 
for a State planning program would have to represent a level that is at 
least as effective as the increments for PM and SO2. As 
discussed above, these statutory increments were established as a 
percentage of the NAAQS, which are expressed as a concentration of air 
pollution. To make a quantitative showing that the mass-based emissions 
inventory is as effective as the concentration-based increments for PM 
and SO2, EPA or the States (depending on who establishes the 
inventory) could conduct ambient air quality modeling to predict the 
statewide concentrations of NO2 achieved by maintaining the 
inventory of emissions at a specific level. The EPA or the State might 
then be able to show that the selected emissions inventory will 
maintain NO2 concentrations within a certain percentage of 
the ambient concentrations of NO2 as of the applicable 
baseline date (or dates) in the area. We request comment on whether 
there are other equally effective approaches (both qualitative and 
quantitative) that we might use to show that maintaining statewide 
emissions at a specific level is at least as effective as the 
increments for PM and SO2.
    The statewide emissions level that is as effective as the 
increments for PM and SO2 would represent the ``safe 
harbor'' under the contingent safe harbor interpretation of section 166 
of the Act. Once the safe harbor level is identified in this manner, we 
would conduct further review to determine whether it satisfies the 
requirements of section 166(c) by using the same balancing test 
discussed above. We would use this balancing test to determine whether 
an emissions level other than the ``safe harbor'' level should be 
maintained to protect air quality values, public health and welfare, 
and parks and other special areas, while also ensuring economic growth 
consistent with the preservation of existing clear air resources.
    (2) A SIP that allows no increase in total NOX emissions above 1990 
levels could satisfy section 166 requirements. To achieve both the 
environmental protection and the economic growth goals of the PSD 
program in our pollutant-specific PSD regulations for NOX, 
we propose, under this State planning option, to establish a goal that 
the State maintain an emissions inventory for NOX emissions 
at the levels observed in 1990. The year 1990 is one for which we have 
developed sound NOX emissions inventories for all States as 
a result of our work on the CAIR proposal. We propose the use of this 
year based in part on an assumption that the NO2 increment 
baseline date (i.e., minor source baseline date) has already been set 
as of that year, for all or most of the State. Relying on this 
assumption, we generally believe that by maintaining statewide 
NOX emission levels at 1990 levels, many States could 
prevent significant deterioration of air quality due to emissions from 
NOX and protect AQRVs, health and welfare, and parks and 
other special areas, while also ensuring economic growth, although a 
specific statewide demonstration would still need to be submitted to 
EPA in each case.
    The EPA recognizes that in some States, using a 1990 baseline 
inventory for NOX may not represent a measure at least as 
effective as the increments under a SIP planning approach, even though 
NOX emissions reductions are achieved and air quality 
improvements result in subsequent years when the NO2 
increment baseline concentration date has not yet been set for all or 
most areas in the State. Until the baseline date is set for most of the 
State, reductions in ambient concentrations of NO2 would be 
counted as part of the baseline concentration and would not affect the 
amount of NO2 increment. Reductions of NOX 
emissions in the years following 1990 would result in lower ambient 
concentrations of NO2 and thus result in a lower 
NO2

[[Page 8913]]

increment baseline concentration. Maintaining NOX emissions 
at a 1990 level when the NO2 increment baseline had not yet 
been set could allow for higher ambient NO2 concentrations 
than would be allowed by adding the NO2 increment to a lower 
NO2 baseline concentration. For this proposal, EPA believes 
that it is necessary for the baseline date to have already been set by 
1990 in most areas of the State in order for the State to use the 1990 
NOX inventory as its baseline NOX inventory.
    While we are proposing a 1990 baseline emissions inventory date, we 
believe it is possible for a State to choose a different baseline year 
that would accomplish the same objective. Therefore, we also solicit 
comment on how much flexibility States should be given in selecting a 
baseline year under this State planning option.
    (3) State planning approach satisfies ambient air quality review 
requirements. If we permit States to employ a State planning framework 
in lieu of NO2 increments to meet the requirements of 
section 166 for NOX, we believe it will no longer be 
necessary for sources to conduct a site-specific ambient air quality 
analysis for NO2 to comply with the requirements of section 
165(a)(3) of the Act. If there is room under a properly derived 
emissions inventory for a particular new or modified source, it will 
already be clear that the source will not cause or contribute to air 
pollution in excess of the NAAQS. Before the permit is evaluated, EPA 
or the State will have already performed an ambient air quality 
analysis across the State to show that holding NOX emissions 
at the chosen level is sufficient to prevent significant deterioration 
of air quality or avoid an exceedance of the NO2 NAAQS. The 
statewide emissions level would fill the role of the increment, so 
section 165(a)(3) would be satisfied without a source-specific showing 
that a source's proposed emissions increase does not cause or 
contribute to air pollution increases in excess of the increment. The 
permit applicant would only need to show that there is room in the 
State's emissions inventory for its emissions. As with the cap and 
trade approach discussed above, it would become redundant and 
unnecessarily costly in many respects to require an individual source 
to conduct a site-specific air quality analysis if EPA or the State has 
already established that maintaining emissions at a specific level does 
not cause air pollution to exceed standards and meets the goals and 
purposes of PSD and the requirements of section 166.
b. Using a State Planning Approach To Streamline the PSD Permitting 
Process
    If a State makes the necessary demonstration under this option, we 
would not require the State to implement some of the existing PSD 
preconstruction permitting requirements for NOX. A source-
specific ambient air quality, increment, and NAAQS analysis would not 
be required, as described in the above subsection. However, as with the 
cap and trade program option described above, we do not propose for 
this State planning approach to replace all aspects of the PSD 
permitting process.
    All new major stationary sources and major modifications would 
still have to obtain a permit prior to commencing construction on new 
projects that result in a significant net emissions increase for 
NOX. These sources will also have to comply with emissions 
limitations based on BACT. As discussed above, BACT is required under 
section 165(a)(4) of the Act, not section 166. We do not believe this 
source-specific technology requirement can be fulfilled through 
alternative means under a State planning approach.
    We request comment on whether other elements of the preconstruction 
analysis would remain necessary under this approach. If a State can 
maintain NOX emissions at levels that prevent significant 
deterioration of air quality, this might also eliminate the need for 
source-specific FLM review in Class I areas. See 40 CFR 52.21(p). As 
discussed above in the cap and trade option, we propose to interpret 
the Act not to require this process for NOX but to permit 
EPA in its discretion to require the process, as necessary, to meet the 
requirements of section 166. To the extent the State planning goal 
protects AQRVs, this process may not be necessary under this option for 
NOX. We also request comment on whether the additional 
impacts analysis (see CAA 165(a)(6) and 40 CFR 52.21(o)) could be 
performed through the State planning process and then not be required 
on each individual permit application. For the reasons discussed above, 
we request comment on whether, under this State planning option, it 
would be necessary to continue to require applicants to collect pre-
application air quality monitoring data over a 12-month period 
preceding the submittal data of an application. We believe that this 
kind of data may need to be gathered by the State in order to 
demonstrate that a SIP planning goal meets the PHS requirements.
c. What Are Some Issues That Still Need To Be Resolved?
    EPA recognizes certain significant issues that still need to be 
resolved before a comprehensive proposal can be set forth for public 
review and comment. These issues are presented here for public 
consideration. The EPA will review the comments submitted and present 
its findings in a supplemental notice in the future if the Agency 
intends to continue to pursue this option.
    (1) Failure to maintain statewide NOX emission at a level that 
prevents significant deterioration of air quality. The EPA recognizes 
that it may not be possible for every State to maintain its inventory 
of statewide total NOX emissions as necessary to ensure 
prevention of significant deterioration of air quality due to emissions 
of NOX. For example, this could occur where, over a period 
of time, the statewide NOX emissions from uncapped sources 
substantially exceed the NOX reductions achieved by 
regulating a specific group of sources. Also, unanticipated growth in a 
particular industry could cause a State's projection of NOX 
emissions for a particular source category to be exceeded. 
Consequently, in those States, it may be difficult to demonstrate the 
use of the State planning option as a substitute for the increment 
system for NOX. As stated earlier, it is the obligation of 
the State to demonstrate that the objectives of the statutory PSD 
program for NOX are being met, whether or not NOX 
emissions remain below the baseline at the end of a 10-year period.
    As part of the demonstration that States must make to support the 
State planning option, the State will have to make a comprehensive 
showing that total statewide NOX emissions will continue to 
prevent significant deterioration for future years. The EPA believes 
that it will be necessary for the State to conduct periodic assessments 
(e.g., 10-year intervals) of NO2 air quality trends for 
NOX in order to continue justifying the SIP as a substitute 
for an increment system to prevent significant deterioration of air 
quality due to emissions of NOX. The EPA seeks comments on 
the frequency of any necessary periodic assessment, as well as other 
possible mechanisms for determining when adjustments may need to be 
made to a SIP that does not employ an increment system to prevent 
significant deterioration of air quality due to emissions of 
NOX.
    (2) Potential for localized adverse impacts resulting from NOX 
emissions increases from new and modified sources. We recognize the 
possibility

[[Page 8914]]

under this proposed State planning option that sources may have 
potentially adverse localized impacts even when fulfilling statewide 
NOX emissions requirements. A related concern arises if not 
all source categories are subject to the statewide NOX 
emissions requirements under this option.
    Thus, while we are tentatively considering allowing States to avoid 
the need under their PSD rules to require case-by-case source impact 
analyses (including the process of involving FLMs) under the 
preconstruction review for PSD, we are at the same time soliciting 
comments on how to address the potential problem of localized adverse 
impacts. We believe the approach described under the cap and trade 
option could readily apply under the State planning option as well. 
That is, regulatory procedures could be established that would 
authorize the permitting authority (or FLM, in the case of a Class I 
area impact) to call for some type of source impact analysis when a 
proposed source locates within a specified distance of an area of 
concern, and the air quality in that area has shown little or no 
improvement since the State's planning approach took effect. We solicit 
comments on this and other possible ways of addressing this potential 
problem.
    (3) Additional measures under a SIP. We believe the SIP under the 
State planning option will have to include additional measures toward 
NOX emissions control and/or a fall-back increments program. 
A backstop for the State planning option might involve a margin of 
progress. The SIP would contain provisions for additional reductions or 
NO2 increments if the margin of progress is exceeded. For 
example, if a State's NOX emissions rate (tons per year) 
increases such that it is within 5 percent of the baseline rate, then 
the State would be obliged to employ the additional measures in its SIP 
to correct its NOX emissions. We solicit comment on whether 
States under option 3 should be required to continue to track 
NO2 increment consumption for new and modified sources.

VII. Other Alternative Considered

    As noted above, under section 166(d) of the Act, the regulations to 
fulfill the objectives of the statutory program for PSD ``may contain 
air quality increments, emission density requirements, or other 
measures,'' provided such measures are at least as effective as the 
increments for SO2 and PM. Our proposed options, including 
option 2 (cap and trade approach) and option 3 (State planning 
approach), are such measures. The State planning option gives States 
broad discretion in designing their own approaches for satisfying PSD 
requirements.
    EPA is not proposing to utilize ``critical load'' as the basis for 
a regulatory measure to prevent significant deterioration of air 
quality due to emissions of NOX at this time, given that the 
science is still being developed for the concept. The EPA recognizes, 
however, that a State may choose to utilize a critical load concept as 
part of its air quality management approach to meet its broader air 
quality goals. Thus, if a State proposes to use such a concept, 
considering the state of the science and its developments over time, to 
satisfy the State's overall air quality goals, EPA would consider it 
when determining whether a State's approach satisfies PSD requirements. 
The EPA believes that a State might choose to pursue this concept under 
a State planning option.
    The National Park Service (NPS) has been focusing on the concept of 
a ``critical load'' to assess the risk to park ecosystems from 
atmospheric deposition. Critical loads can be defined as ``quantitative 
estimates of an exposure to one or more pollutants below which 
significant harmful effects on specified sensitive elements of the 
environment do not occur according to present knowledge'' (1995 Staff 
Paper at xi-xii). In its 1995 report entitled ``Acid Deposition 
Standard Feasibility Study: Report to Congress,'' EPA noted that 
critical loads had been developed in other countries and that, in the 
U.S., several States had developed critical loads for acid deposition, 
expressed as deposition rates for sulfur. Only in California had 
critical loads been established for nitrogen as recommendations to 
protect certain sensitive California resources (1995 Staff Paper at 53-
55).
    Ecosystems research over the last few decades has produced findings 
that may be sufficient to identify changes to sensitive elements of the 
environment resulting from exposure to atmospheric nitrogen in its 
various forms. In some cases, the available scientific literature has 
indicated the possibility of estimating levels of exposure at which a 
particular adverse impact will result.
    For exposure to nitrogen, deposition critical load determinations 
are based on indicators of harmful ecological change that include 
episodic and chronic acidification of streams and rivers, chemical 
changes in soils and vegetation, nutrient enrichment and 
eutrophication, and shifts in plant species composition. A more 
detailed description of these types of adverse effects is contained in 
section V of this preamble. Nitrogen critical load thresholds are 
expressed in kilograms or equivalents of nitrogen deposited per hectare 
per year. Federal Land Managers are beginning to evaluate the European 
approach for ecosystem assessment that uses the concept of critical 
loads.
    Nitrogen impacts have been documented in areas ranging from East 
Coast estuaries to southern California chaparral communities. These 
impacts are found in diverse ecological communities ranging from 
fisheries to grasslands to lichens. At a given location, different 
critical loads can be developed for different ecosystem changes (e.g., 
the loading at which episodic acidification begins to occur may be 
different than the loading at which plant species shifts occur in the 
same area).
    As noted above, a State may wish to identify a critical load level 
for nitrogen in order to develop a ``target load'' aimed at addressing 
a harmful ecosystem change, or preventing it in places where the 
critical load has not yet been reached as part of an air quality 
management approach. For areas where the critical load has already been 
exceeded, a State could establish, as part of such an approach, a 
target load higher than the critical load, as a progress goal towards 
the critical load. The target load could then be used to establish 
emissions goals through deposition modeling. The State might then 
choose to use efficient management mechanisms, such as cap and trade 
programs or regional emission control strategies, to ensure that target 
loads are not exceeded.
    As noted above, if a State wishes to pursue such an approach as 
part of its air quality management program, the Agency would work with 
the State to determine whether the approach would satisfy PSD 
requirements. In determining whether a State's approach satisfies PSD 
requirements, EPA will also consider other measures already established 
in a State's SIP. To the extent a State program focused on critical 
loads is needed to satisfy PSD requirements, it would also need to be 
incorporated into the SIP.

VIII. Statutory and Executive Order Reviews

A. Executive Order 12866--Regulatory Planning and Review

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore subject to review by the Office of

[[Page 8915]]

Management and Budget (OMB) and the requirements of the Executive 
Order. The Order defines ``significant regulatory action'' as one that 
is likely to result in a rule that may:

    (1) Have an annual effect on the economy of $100 million or more 
or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs, or the rights and obligations 
of recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.

    Pursuant to the terms of Executive Order 12866, it has been 
determined that this rule is a ``significant regulatory action'' 
because the cap and trade and State planning options in the proposal 
raise novel legal and policy issues. As such, this action was submitted 
to OMB for review. Changes made in response to OMB suggestions or 
recommendations will be documented in the public record.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden. 
Under the proposed action, one option is to retain the existing 
increments and regulatory framework of the PSD regulations for 
NOX. If the proposed action results in our retaining the 
existing increments program, the Office of Management and Budget (OMB) 
has previously approved the information collection requirements 
contained in the existing regulations (40 CFR parts 51 and 52) under 
the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501, et seq., 
and has assigned OMB control number 2060-0003, EPA ICR number 1230.17. 
A copy of the OMB-approved Information Collection Request (ICR) may be 
obtained from Susan Auby, Collection Strategies Division, U.S. 
Environmental Protection Agency (2822T), 1200 Pennsylvania Ave., NW., 
Washington, DC 20460, or by calling (202) 566-1672.
    Under the second and third options of the proposal, we are 
proposing to allow States to implement alternative programs to the 
NO2 increments. Option 2 would permit a State to implement a 
cap and trade program. Option 3 would permit a State to demonstrate 
that its SIP requirements satisfy the objectives of the PSD program. As 
presently constructed, the proposed options do not impose any new 
information collection burden on the States or regulated industries. If 
the proposed action results in our adopting the second or third 
options, then we will be publishing a supplemental notice and will at 
that time identify any changes in information collection requirements.
    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.
    An agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9.

C. Regulatory Flexibility Act (RFA)

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of today's proposed rule on 
small entities, small entity is defined as: (1) A small business as 
defined by the Small Business Administration's (SBA) regulations at 13 
CFR 121.201; (2) a small governmental jurisdiction that is a government 
of a city, county, town, school district or special district with a 
population of less than 50,000; or (3) a small organization that is any 
not-for-profit enterprise which is independently owned and operated and 
is not dominant in its field.
    After considering the economic impacts of today's proposed rule on 
small entities, I certify that this action will not have a significant 
economic impact on a substantial number of small entities. In 
determining whether a rule has a significant economic impact on small 
entities, the impact of concern is any significant adverse economic 
impact on small entities, since the primary purpose of the regulatory 
flexibility analysis is to identify and address regulatory alternatives 
``which minimize any significant economic impact of the rule on small 
entities.'' 5 U.S.C. 603 and 604. Thus, an agency may certify that a 
rule will not have a significant economic impact on a substantial 
number of small entities if the rule relieves regulatory burden or 
otherwise has a positive economic effect on all of the small entities 
subject to the rule. The proposed rule will not impose any requirements 
on small entities and in fact may relieve some small entities of 
certain permit-related expenses. Under option 1 of the proposal, we 
would retain existing regulations without change and thus impose no new 
requirements. Under options 2 and 3 of this proposal, we propose to 
allow States to adopt alternative programs to relieve the burden of 
conducting specific ambient air quality and increment analyses under 
the PSD program. We continue to be interested in the potential impacts 
of the proposed rule on small entities and welcome comments on issues 
related to such impacts.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. Before promulgating an EPA rule for which a written statement 
is needed, section 205 of the UMRA generally requires EPA to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective, or least burdensome alternative 
that achieves the objectives of the rule. The provisions of section 205 
do not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows EPA to adopt an alternative other than the least 
costly, most cost-effective, or least burdensome alternative if the 
Administrator publishes with the final rule an explanation why that 
alternative

[[Page 8916]]

was not adopted. Before EPA establishes any regulatory requirements 
that may significantly or uniquely affect small governments, including 
tribal governments, it must have developed under section 203 of the 
UMRA a small government agency plan. The plan must provide for 
notifying potentially affected small governments, enabling officials of 
affected small governments to have meaningful and timely input in the 
development of EPA regulatory proposals with significant Federal 
intergovernmental mandates, and informing, educating, and advising 
small governments on compliance with the regulatory requirements.
    Today's action contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, or tribal 
governments or the private sector. The proposed rule imposes no 
enforceable duty on any State, local or tribal governments or the 
private sector. Under option 1 of the rule, we propose to retain 
existing requirements and do not impose any new Federal mandates. 
States are not required to adopt the approaches set forth in options 2 
and 3 of the rule, which may provide relief from some existing 
requirements. In any event, EPA has determined that this proposed rule 
does not contain a Federal mandate that may result in expenditures of 
$100 million or more for State, local, and tribal governments, in the 
aggregate, or in the private sector in any one year. Thus, today's 
proposed rule is not subject to the requirements of sections 202 and 
205 of the UMRA.

E. Executive Order 13132--Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires EPA to develop an accountable process to ensure 
``meaningful and timely input by State and local officials in the 
development of regulatory policies that have federalism implications.'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that 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.''
    This proposed rule does not have federalism implications. This 
proposed rule will 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. If the 
existing regulations for increments are retained under option 1, no new 
regulatory requirements will be imposed on States. Options 2 and 3 of 
the proposal would permit States to obtain relief from certain 
regulatory requirements by adopting alternative programs but do not 
require adoption of those programs. Furthermore, the cap and trade 
option of this proposed rule does not impose any requirements but 
rather allows States to obtain regulatory flexibility by implementing 
the requirements of another rule. Direct compliance costs associated 
with today's proposed rule could be incurred when States incorporate 
any changes into their State implementation plans, but these direct 
compliance costs would not be significant. Thus, Executive Order 13132 
does not apply to this proposed rule. In the spirit of Executive Order 
13132, and consistent with EPA policy to promote communications between 
EPA and State and local governments, EPA specifically solicits comment 
on this proposed rule from State and local officials.

F. Executive Order 13175--Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 9, 2000), 
requires EPA to develop an accountable process to ensure ``meaningful 
and timely input by tribal officials in the development of regulatory 
policies that have tribal implications.'' This proposed rule does not 
have tribal implications, as specified in Executive Order 13175. The 
proposed action, whether to retain existing regulations or to obtain 
regulatory flexibility by choosing to implement an alternative program, 
does not impose any new regulatory restrictions. Thus, Executive Order 
13175 does not apply to this proposed rule. The EPA specifically 
solicits additional comment on the proposed rule from tribal officials.

G. Executive Order 13045--Protection of Children From Environmental 
Health and Safety Risks

    Executive Order 13045, ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997), applies 
to any rule that: (1) Is ``economically significant'' as defined under 
Executive Order 12866; and (2) concerns an environmental health or 
safety risk that EPA has reason to believe may have a disproportionate 
effect on children. If the regulatory action meets both criteria, the 
Agency must evaluate the environmental health or safety effects of the 
planned rule on children and explain why the planned regulation is 
preferable to other potentially effective and reasonably feasible 
alternatives considered by the Agency.
    This proposed rule is not subject to the Executive Order because it 
is not economically significant as defined in Executive Order 12866, 
and because the Agency does not have reason to believe the 
environmental health or safety risks of NOX addressed by 
this action present a disproportionate risk to children. Option 1 of 
the proposed rule is to retain existing regulations and does not impose 
any new regulatory requirements. Options 2 and 3 of the proposed rule 
would permit States to obtain relief from certain regulatory 
requirements by adopting alternative programs but do not require 
adoption of those programs. The public is invited to submit or identify 
peer-reviewed studies and data, of which the agency may not be aware, 
that assessed results of early life exposure to NOX.

H. Executive Order 13211--Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    This proposed rule is not a ``significant energy action'' as 
defined in Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 
28355, May 22, 2001), because it is not likely to have a significant 
adverse effect on the supply, distribution, or use of energy. Option 1 
of the proposed rule is to retain existing regulations and does not 
impose any new regulatory requirements. Options 2 and 3 of the proposed 
rule may provide relief from certain regulatory requirements if States 
adopt alternative programs. The cap and trade option (option 2) of this 
proposed rule does not impose any requirements but rather allows States 
to obtain regulatory flexibility by implementing the requirements of 
another rule.

I. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 
note), directs EPA to use voluntary consensus standards in its 
regulatory activities unless to do so would be inconsistent with 
applicable law or otherwise impractical.
    Voluntary consensus standards are technical standards (e.g., 
materials specifications, test methods, sampling procedures, and 
business practices) that are developed or adopted by voluntary 
consensus standards bodies. The

[[Page 8917]]

NTTAA directs EPA to provide Congress, through OMB, explanations when 
the Agency decides not to use available and applicable voluntary 
consensus standards. This proposed rule does not involve technical 
standards. Therefore, EPA is not considering the use of any voluntary 
consensus standards. The EPA welcomes comments on this aspect of the 
proposed rulemaking and specifically invites the public to identify 
potentially applicable voluntary consensus standards and to explain why 
such standards should be used in this regulation.

List of Subjects in 40 CFR Parts 51 and 52

    Environmental protection, Administrative practices and procedures, 
Air pollution control, Intergovernmental relations, Nitrogen oxides, 
Ozone, Particulate Matter, Reporting and recordkeeping requirements.

    Dated: February 14, 2005.
Stephen L. Johnson,
Acting Administrator.

References

    Allen, E.B., P.E. Padgett, A. Bytenerowicz, R. Minnich, 1998. 
``Nitrogen Deposition Effects on Coastal Sage Vegetation of Southern 
California.'' Expanded version of presentation at the International 
Symposium on Air Pollution and Climate Change Effects on Forest 
Ecosystems, Riverdale, CA, February 5-9, 1996. USDA Forest Service 
Gen. Tech. Rep. Pacific Southwest Research Station, PSW-GTR-166, p. 
131-139. 1998.
    Bowman, W.D., 2000. ``Biotic Controls over Ecosystem Response to 
Environmental Change in Alpine Tundra of the Rocky Mountains.'' 
Ambio, vol. 29, no. 7 (p. 396-400), November 2000.
    Butler, T.J., G.E. Likens, and B.J.B. Stunder, ``Regional-scale 
Impacts of Phase I of the Clean Air Act Amendments in the USA: the 
Relation Between Emissions and Concentrations, Both Wet and Dry.'' 
Atmospheric Environment, vol. 37 (p. 1015-1028), 2000. http://www.sciencedirect.com/science/journal/13522310.
    Butler, T.J., G.E. Likens, F.M. Vermeylen, and B.J.B. Stunder, 
``The Relation Between NOx Emissions and Precipitation 
NO3- in the Eastern USA.'' Atmospheric Environment, vol. 
37 (p. 2093-2104), 2003. http://www.sciencedirect.com/science/journal/13522310.
    Dahlgreen R.A., J.M. Holloway, ``Geologic Nitrogen as a Non-
point Source of Nitrate in Natural Waters.'' Soil Science: 
Confronting New Realities in the 21st Century (World Congress of 
Soil Science); 17th WCSS, 14-21 August 2002; Symposium no. 6, paper 
no. 83. http://www.sfst.org/Proceedings/17WCSS_CD/papers/0083.pdf.
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Cronan, C. Eagar, K.F. Lambert, G.E. Likens, J.L. Stoddard, and K.C. 
Weathers, ``Acid Rain Revisited: Advances in Scientific 
Understanding Since the Passage of the 1970 and 1990 Clean Air Act 
Amendments.'' Hubbard Brook Research Foundation Science Links' 
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Johnson, A.D. Lemly, S.G. McNulty, D.F. Ryan, and R. Stottlemyer, 
1997. ``Nitrogen Excess in North American Ecosystems: Predisposing 
Factors, Ecosystem Responses, and Management Strategies.'' 
Ecological Applications, vol. 8, no. 3 (p. 706-733), August 1998.
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Clarke, D. Hope, D.A. Jaffe, S. Copeland, L. Geiser, H.M. Rueth, and 
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2003.
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Dry Deposition. Air Resources Laboratory. http://www.arl.noaa.gov/research/projects.airmon_dry.html; August 5, 2004.
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Report to Congress: An Integrated Assessment. National Acid 
Precipitation Assessment Program. May 1998.
    U.S. Department of the Interior, ``Air Quality in the National 
Parks: Second Edition.'' September 2002.
    U.S. Environmental Protection Agency. (1993) Air Quality 
Criteria for Oxides of Nitrogen. (3 volumes). Office of Air Quality 
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Available at Docket No. AR-95-01.
    U.S. Environmental Protection Agency. (1995) Review of the 
National Ambient Air Quality Standards for Nitrogen Dioxide: 
Assessment of Scientific and Technical Information. (OAQPS Staff 
Paper.) Office of Air Quality Planning and Standards. EPA-452/R-95-
005, September 1995. http://www.epa.gov/ttn/naaqs/standards/nox/s_nox_pr_sp.html.
    U.S. Environmental Protection Agency. (1995) Acid Deposition 
Standard Feasibility Study: Report to Congress. Office of Air and 
Radiation. EPA 430-R-95-001a, October 1995. Available at Docket No. 
AR-95-01.
    U.S. Environmental Protection Agency. (1997) Nitrogen Oxides: 
Impacts on Public Health and the Environment. Office of Air Quality 
Planning and Standards. EPA 452/R-97-002, August 1997.
    Wang, X., ``Aluminum Mobilization from the Forest Land.'' The 
Roosevelt Wild Life Station. State University of New York; College 
of Environmental Science and Forestry. http://www.esf.edu/resorg/rooseveltwildlife/Research/Al/Al.htm; July 28, 2004.
[FR Doc. 05-3366 Filed 2-22-05; 8:45 am]
BILLING CODE 6560-50-P