[Federal Register Volume 72, Number 127 (Tuesday, July 3, 2007)]
[Proposed Rules]
[Pages 36406-36413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12874]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 52 and Part 97

[Docket No. EPA-R02-OAR-2007-0233; FRL-8334-9]


Approval and Promulgation of Implementation Plans; New Jersey: 
Clean Air Interstate Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing action on a revision to New Jersey's State 
Implementation Plan (SIP) submitted on February 6, 2007. EPA is 
proposing to fully approve its incorporation into the SIP provided New 
Jersey's final rule is consistent with the modifications discussed 
herein.
    This revision incorporates provisions related to the implementation 
of EPA's Clean Air Interstate Rule (CAIR) and the CAIR Federal 
Implementation Plans (CAIR FIPs) concerning sulfur dioxide 
(SO2), and annual and ozone season oxides of nitrogen 
(NOX) emissions. EPA is not proposing to make any changes to 
the CAIR FIPs, but is proposing to the extent EPA approves New Jersey's 
SIP revision, to amend the appropriate appendices in the CAIR FIP 
trading rules simply to note that approval.
    On April 28, 2006, EPA promulgated CAIR FIPs for States covered by 
CAIR as a backstop to implement the requirements of CAIR until States 
have obtained fully approved SIPs to replace the FIPs. The FIPs require 
certain electric generating units (EGUs) to participate in the Federal 
CAIR cap-and-trade programs addressing SO2, NOX 
annual, and NOX ozone season emissions. The CAIR FIPs also 
provide that States may submit ``abbreviated'' SIP revisions to replace 
or supplement specific elements of the FIPs, leaving the remainder of 
the overall FIPs in place, rather than submitting full SIP revisions 
that replace the FIPs.
    The New Jersey SIP revision that EPA is proposing to approve is an 
abbreviated SIP revision that will replace two provisions of the CAIR 
FIP that allow the State to: (1) Use a methodology chosen by the State 
for allocation of annual and ozone season NOX allowances 
and; (2) use a methodology chosen by the State for allocation of 
NOX annual allowances from the NOX annual 
Compliance Supplemental Pool (CSP). The revision retires, rather than 
allocates allowances from the NOX annual CSP.
    The SIP revision that EPA is proposing to approve will also satisfy 
New Jersey's 110(a)(2)(D)(i) obligations to submit a SIP revision that 
contains adequate provisions to prohibit air emissions from adversely 
affecting another State's air quality through interstate transport.
    The intent of this proposed revision is to approve a State specific 
CAIR program which will result in emission reductions necessary to 
prevent the interstate transport of air pollutants. The revision also 
shows that the interstate transport of pollutants from the State has 
been adequately addressed in the applicable implementation plan.

DATES: Comments must be received on or before August 2, 2007.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R02-
OAR-2007-0233, by one of the following methods:
    1. http://www.regulations.gov: Follow the on-line instructions for 
submitting comments.
    2. E-mail: [email protected].
    3. Fax: (212) 637-3901.
    4. Mail: Docket ID No. EPA-R02-OAR-2007-0233, Raymond Werner, 
Chief, Air Programs Branch, Environmental Protection Agency, Region 2 
Office, 290 Broadway, 25th Floor, New York, New York 10007-1866.
    5. Hand Delivery or Courier: Raymond Werner, Chief, Air Programs 
Branch, Environmental Protection Agency, Region 2 Office, 290 Broadway, 
25th Floor, New York, New York 10007-1866. Such deliveries are only 
accepted during the Regional Office's normal hours of operation. The 
Regional Office's official hours of business is Monday through Friday, 
8:30 to 4:30, excluding Federal holidays.
    Instructions: Direct your comments to Docket ID No. EPA-R02-OAR-
2007-0233. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
www.regulations.gov, 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 through www.regulations.gov or e-
mail, information that you consider to be CBI or otherwise protected. 
The www.regulations.gov Web site is an ``anonymous access'' system, 
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

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to EPA without going through www.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 and any form of encryption and should be 
free of any defects or viruses. For additional information about EPA's 
public docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.
    Docket: All documents in the electronic docket are listed in the 
www.regulations.gov index. 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 www.regulations.gov or 
in hard copy at the Air Programs Branch, Environmental Protection 
Agency, Region 2 Office, 290 Broadway, 25th Floor, New York, New York 
10007-1866.

FOR FURTHER INFORMATION CONTACT: If you have questions concerning 
today's proposal, please contact Kenneth Fradkin, Air Programs Branch, 
Environmental Protection Agency, Region 2 Office, 290 Broadway, 25th 
Floor, New York, New York 10007-1866. The telephone number is (212) 
637-3702. Mr. Fradkin can also be reached via electronic mail at 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. What Action Is EPA Proposing To Take?
II. What Is the Regulatory History of CAIR and the CAIR FIPs?
III. What Are the General Requirements of CAIR and the CAIR FIPs?
IV. What Are the Types of CAIR SIP Submittals?
V. What Is the Result of EPA's Evaluation of New Jersey's CAIR SIP 
Submittal?
    A. State Budgets for Allowance Allocations
    B. CAIR Cap-and-Trade Programs
    C. Applicability Provisions for Non-EGUs NOX SIP Call 
Sources
    D. NOX Allowance Allocations
    E. Allocation of NOX Allowances From the Compliance 
Supplement Pool
    F. Individual Opt-In Units
    G. Satisfying Section 110(a)(2)(D)(i) of the Clean Air Act
VI. Conclusion
VII. Statutory and Executive Order Reviews

I. What Action Is EPA Proposing To Take?

CAIR SIP and 110(a)(2)(D)(i) Approval

    EPA is proposing to approve a revision to New Jersey's SIP, 
submitted on February 6, 2007, which was published in the New Jersey 
Register on February 5, 2007. The revision modifies the application of 
certain provisions of the CAIR FIP which requires emission reductions 
of SO2, NOX annual, and NOX ozone 
season emissions. (As discussed later, this less comprehensive CAIR SIP 
is termed an abbreviated SIP.) This revision includes a new proposed 
regulation, N.J.A.C. 7:27-30, Clean Air Interstate Rule (CAIR) 
NOX Trading Program. As part of the revision, New Jersey has 
also proposed at N.J.A.C. 7:27-31.23 the date when New Jersey's CAIR 
NOX Trading Program will replace New Jersey's NOX 
Budget Trading Program (Subchapter 31).
    This action is being proposed under a procedure called parallel 
processing. Under parallel processing, EPA proposes action on a State 
submission before it has been formally adopted and submitted to EPA, 
and will take final action on its proposal if the final submission is 
substantially unchanged from the submission on which the proposal is 
based, or if significant changes in the final submission are 
anticipated and adequately described in EPA's proposal as a basis for 
EPA's proposed action.
    This proposed approval is contingent upon New Jersey making the 
necessary changes to New Jersey's proposed CAIR rule in order to 
address EPA's concerns discussed in section V, Part D (NOX 
Allowance Allocations). If EPA determines New Jersey's final submission 
is consistent with the necessary changes outlined in this proposed 
action, EPA may proceed to publish its full approval of New Jersey's 
CAIR SIP in the Federal Register. The final rule that New Jersey 
submits to EPA must be consistent with the changes discussed in this 
action for EPA to fully approve its incorporation into the SIP.
    If New Jersey is unable to make the required changes upon adoption, 
and must repropose their rule, EPA will finalize a partial approval in 
lieu of a full approval. Under the partial approval alternative, EPA 
would approve those portions of the rule consistent with EPA 
requirements into the SIP and disapprove those not consistent. EPA 
believes the approvable portions of the rule strengthen New Jersey's 
SIP by allowing the State to be the implementing authority, and make 
allocations consistent with New Jersey's air quality goals. EPA 
recognizes that the Clean Air Act assigns first responsibility to the 
States, and it is EPA's preference to defer, wherever possible, to 
States the decisions about control mechanisms to prevent significant 
contribution, including States' decisions about allocation of 
NOX allowances. If EPA finalizes a partial approval, EPA 
would concurrently disapprove those portions of the rule for not 
meeting those applicable requirements.
    New Jersey is subject to the CAIR FIPs that implement the CAIR 
requirements by requiring certain Electric Generating Units (EGUs) to 
participate in the EPA-administered Federal CAIR SO2, 
NOX annual, and NOX ozone season cap-and-trade 
programs. The SIP revision provides a methodology for allocating 
NOX allowances for the NOX annual, and 
NOX ozone season trading programs. The CAIR FIPs provide 
that this methodology, if approved as EPA is proposing, will be used to 
allocate NOX allowances to sources in New Jersey, instead of 
the Federal allocation methodology otherwise provided in the FIPs. The 
SIP revision also retires rather than allocates allowances from the 
NOX annual Compliance Supplement Pool (CSP). Consistent with 
the flexibility provided in the FIPs, these provisions, if approved, 
will also be used to replace or supplement, as appropriate, the 
corresponding provisions in the CAIR FIPs for New Jersey. EPA is not 
proposing to make any changes to the CAIR FIP, but is proposing, to the 
extent EPA approves New Jersey's SIP revision, to amend the appropriate 
appendices in the CAIR FIP trading rules simply to note that approval. 
New Jersey's proposed rule does not modify the CAIR FIP regarding 
SO2.
    Because New Jersey's CAIR Program will replace the State's 
NOX Budget Program (subchapter 31) beginning with the 2009 
control period, it is necessary for New Jersey to establish at N.J.A.C. 
7:27-31.23 a transition date for the NOX Budget Trading 
Program to prevent an overlap of ozone season cap and trade programs 
for NOX. The NOX Budget Trading Program's non-
electric generating units and small electric generating units (EGUs) 
that are not covered under New Jersey's CAIR NOX Trading 
Program will be subject to New Jersey's Reasonable Available Control 
Technology (RACT) or state of the art

[[Page 36408]]

rules. EPA will propose a separate rulemaking on New Jersey's RACT at a 
later date.
    In addition, EPA is also proposing to approve a revision to New 
Jersey's SIP to address the requirements of section 110(a)(2)(D)(i) of 
the Clean Air Act. This section of the Act requires each State to 
submit a SIP that prohibits emissions that could adversely affect 
another State. The SIP must prevent sources in the State from emitting 
pollutants in amounts which will: (1) Contribute significantly to 
downwind nonattainment of the NAAQS, (2) interfere with maintenance of 
the NAAQS, (3) interfere with provisions to prevent significant 
deterioration of air quality, and (4) interfere with efforts to protect 
visibility.

II. What Is the Regulatory History of the CAIR and the CAIR FIPs?

    The Clean Air Interstate Rule (CAIR) was published by EPA on May 
12, 2005 (70 FR 25162). In this rule, EPA determined that 28 States and 
the District of Columbia contribute significantly to nonattainment and 
interfere with maintenance of the national ambient air quality 
standards (NAAQS) for fine particles (PM2.5) and/or 8-hour 
ozone in downwind States in the eastern part of the country. As a 
result, EPA required those upwind States to revise their SIPs to 
include control measures that reduce emissions of SO2, which 
is a precursor to PM2.5 formation, and/or NOX, 
which is a precursor to both ozone and PM2.5 formation. For 
jurisdictions that contribute significantly to downwind 
PM2.5 nonattainment, CAIR sets annual State-wide emission 
reduction requirements (i.e., budgets) for SO2 and annual 
State-wide emission reduction requirements for NOX. 
Similarly, for jurisdictions that contribute significantly to 8-hour 
ozone nonattainment, CAIR sets State-wide emission reduction 
requirements for NOX for the ozone season (May 1st to 
September 30th). Under CAIR, States may implement these emission 
budgets by participating in the EPA-administered cap-and-trade programs 
or by adopting any other control measures.
    CAIR explains to subject States what must be included in SIPs to 
address the requirements of section 110(a)(2)(D) of the Clean Air Act 
(CAA) with regard to interstate transport with respect to the 8-hour 
ozone and PM2.5 NAAQS. EPA made national findings, effective 
May 25, 2005, that the States had failed to submit SIPs meeting the 
requirements of section 110(a)(2)(D). The SIPs were due in July 2000, 3 
years after the promulgation of the 8-hour ozone and PM2.5 
NAAQS. These May 25, 2005 findings started a 2-year clock for EPA to 
promulgate a Federal Implementation Plan (FIP) to address the 
requirements of section 110(a)(2)(D). Under CAA section 110(c)(1), EPA 
may issue a FIP anytime after such findings are made and must do so 
within two years unless a SIP revision correcting the deficiency is 
approved by EPA before the FIP is promulgated. On August 17, 2006 EPA 
issued guidance for SIP submissions states should make to address the 
requirements of section 110(a)(2)(D)(i) for the 8-hour ozone and 
PM2.5 NAAQS.
    On April 28, 2006 EPA promulgated FIPs for all States covered by 
CAIR in order to ensure the emissions reductions required by CAIR are 
achieved on schedule. Each CAIR State is subject to the FIPs until the 
State fully adopts, and EPA approves, a SIP revision meeting the 
requirements of CAIR. The CAIR FIPs require certain EGUs to participate 
in the EPA-administered CAIR SO2, NOX annual, and 
NOX ozone-season model trading programs, as appropriate. The 
CAIR FIP SO2, NOX annual, and NOX 
ozone season trading programs impose essentially the same requirements 
as, and are integrated with, the respective CAIR SIP trading programs. 
The integration of the CAIR FIP and SIP trading programs means that 
these trading programs will work together to create effectively a 
single trading program for each regulated pollutant (SO2, 
NOX annual, and NOX ozone season) in all States 
covered by a CAIR FIP or SIP trading program for that pollutant. The 
CAIR FIPs also allow States to submit abbreviated SIP revisions that, 
if approved by EPA, will automatically replace or supplement the 
corresponding CAIR FIP provisions (e.g., the methodology for allocating 
NOX allowances to sources in the State), while the CAIR FIP 
remains in place for all other provisions.
    On April 28, 2006, EPA published two more CAIR-related final rules 
that added the State of Delaware and New Jersey to the list of States 
subject to CAIR for PM2.5 and announced EPA's final 
decisions on reconsideration of five issues without making any 
substantive changes to the CAIR requirements. The five issues addressed 
SO2 allocation methodology; fuel adjustment factors used in 
establishing State NOX budgets; inputs to the fine particle 
(PM2.5) modeling used to determine whether Minnesota should 
be included in the CAIR region for PM2.5; EPA's 
determination that Florida should be included in the CAIR region for 
ozone; and the potential impact of a judicial opinion, New York v. EPA, 
413 F.3d 3 (DC Cir. 2005), on EPA's previous determination that CAIR is 
highly cost-effective and timing of compliance dates.

III. What Are the General Requirements of CAIR and the CAIR FIPs?

    CAIR establishes State-wide emission budgets for SO2 and 
NOX and is to be implemented in two phases. The first phase 
of NOX reductions starts in 2009 and continues through 2014, 
while the first phase of SO2 reductions starts in 2010 and 
continues through 2014. The second phase of reductions for both 
NOX and SO2 starts in 2015 and continues 
thereafter. CAIR requires States to implement the budgets by either: 
(1) Requiring EGUs to participate in the EPA-administered cap-and-trade 
programs: or, (2) adopting other control measures of the State's 
choosing and demonstrating that such control measures will result in 
compliance with the applicable State SO2 and NOX 
budgets.
    The May 12, 2005 and April 28, 2006 CAIR rules provide model rules 
that States must adopt (with certain limited changes, if desired) if 
they want to participate in the EPA-administered trading programs.
    With two exceptions, only States that choose to meet the 
requirements of CAIR through methods that exclusively regulate EGUs are 
allowed to participate in the EPA-administered trading programs. One 
exception is for States that adopt the opt-in provisions of the model 
rules to allow non-EGUs individually to opt into the EPA-administered 
trading programs. The other exception is for States that include all 
non-EGUs from their NOX SIP Call trading programs in their 
CAIR NOX ozone season trading programs.

IV. What Are the Types of CAIR SIP Submittals?

    States have the flexibility to choose the type of control measures 
they will use to meet the requirements of CAIR. EPA anticipates that 
most States will choose to meet the CAIR requirements by selecting an 
option that requires EGUs to participate in the EPA-administered CAIR 
cap-and-trade programs. For such States, EPA has provided two 
approaches for submitting and obtaining approval for CAIR SIP 
revisions. States may submit full SIP revisions that adopt the model 
CAIR cap-and-trade rules. If approved, these SIP revisions will fully 
replace the CAIR FIPs. Alternatively, States may submit abbreviated SIP 
revisions. These SIP revisions will not replace the CAIR FIPs; however, 
the CAIR FIPs provide that, when approved, the provisions in these 
abbreviated SIP revisions will be used

[[Page 36409]]

instead of or in conjunction with, as appropriate, the corresponding 
provisions of the CAIR FIPs (e.g., the NOX allowance 
allocation methodology).
    A State submitting an abbreviated SIP revision, may submit limited 
SIP revisions to tailor the CAIR FIP cap-and-trade programs to the 
State submitting the revision. Specifically, an abbreviated SIP 
revision may establish certain applicability and allowance allocation 
provisions that will be used instead of or in conjunction with the 
corresponding provisions in the CAIR FIP rules in that State. 
Specifically, the abbreviated SIP revisions may:
    1. Include all NOX SIP Call trading sources that are not 
EGUs under CAIR in the CAIR FIP NOX ozone season trading 
program;
    2. Provide for allocation of NOX annual or ozone season 
allowances by the State, rather than the Administrator, and use a 
methodology chosen by the State;
    3. Provide for allocation of NOX annual allowances from 
the CSP by the State, rather than by the Administrator, and use the 
State's choice of allowed, alternative methodologies; or
    4. Allow units that are not otherwise CAIR units to opt 
individually into the CAIR FIP cap-and-trade programs under the opt-in 
provisions in the CAIR FIP rules.

With approval of an abbreviated SIP revision, the CAIR FIP remains in 
place, as tailored to sources in the State by that approved SIP 
revision.
    Abbreviated SIP revisions can be submitted in lieu of, or as part 
of, CAIR full SIP revisions. States may want to designate part of their 
full SIP as an abbreviated SIP for EPA to act on first when the timing 
of the State's submission might not provide EPA with sufficient time to 
approve the full SIP prior to the deadline for recording NOX 
allocations. This will help ensure that the elements of the trading 
programs, where flexibility is allowed, are implemented according to 
the State's decisions. Submission of an abbreviated SIP revision does 
not preclude future submission of a CAIR full SIP revision. In this 
case, the February 6, 2007 submittal from New Jersey has been submitted 
as an abbreviated SIP revision.

V. What Is the Result of EPA's Evaluation of New Jersey's CAIR SIP 
Submittal?

A. State Budgets for Allowance Allocations

    The CAIR NOX annual and ozone season budgets were 
developed from historical heat input data for EGUs. Using these data, 
EPA calculated annual and ozone season regional heat input values, 
which were multiplied by 0.15 lb/mmBtu, for phase 1, and 0.125 lb/
mmBtu, for phase 2, to obtain regional NOX budgets for 2009-
2014 and for 2015 and thereafter, respectively. EPA derived the State 
NOX annual and ozone season budgets from the regional 
budgets using State heat input data adjusted by fuel factors.
    The CAIR State SO2 budgets were derived by discounting 
the tonnage of emissions authorized by annual allowance allocations 
under the Acid Rain Program under title IV of the CAA. Under CAIR, each 
allowance allocated under the Acid Rain Program for the years in phase 
1 of CAIR (2010 through 2014) authorizes 0.5 ton of SO2 
emissions in the CAIR trading program, and each Acid Rain Program 
allowance allocated for the years in phase 2 of CAIR (2015 and 
thereafter) authorizes 0.35 ton of SO2 emissions in the CAIR 
trading program.
    The CAIR FIP established the EGU budgets for New Jersey as 12,670 
tons for the years 2009-2014 (Phase I) and 10,558 tons for the years 
2015 and beyond (Phase II) for NOX annual emissions; 6,654 
tons for the years 2009-2014 (Phase I) and 5,545 tons for the years 
2015 and beyond (Phase II) for NOX ozone season emissions; 
and 32,392 tons for the years 2010-2014 (Phase I) and 22,674 tons for 
the years 2015 and beyond (Phase II) for SO2 emissions. New 
Jersey's SIP revision, proposed for approval in today's action, does 
not affect these budgets, which are the total amount of allowances 
available for allocation for each year under the EPA-administered cap-
and-trade program under the CAIR FIP. In short, the abbreviated SIP 
revision only affects allocations of allowances under the established 
budgets.

B. CAIR Cap-and-Trade Programs

    The CAIR NOX annual and ozone-season FIPs both largely 
mirror the structure of the NOX SIP Call model trading rule 
in 40 CFR part 96, subparts A through I. While the provisions of the 
NOX annual and ozone-season FIPs are similar, there are some 
differences. For example, the NOX annual FIP (but not the 
NOX ozone season FIP) provides for a CSP, which is discussed 
below and under which allowances may be awarded for early reductions of 
NOX annual emissions. As a further example, the 
NOX ozone season FIP reflects the fact that the CAIR 
NOX ozone season trading program replaces the NOX 
SIP Call trading program for EGUs after the 2008 ozone season and is 
coordinated with the NOX SIP Call program. States also have 
the option of continuing to meet their NOX SIP Call non-EGU 
reduction obligations by participating in the CAIR NOX ozone 
season trading program and including all their NOX SIP Call 
trading sources in that program. In addition the NOX ozone 
season FIP provides incentives for early emissions reductions by 
allowing banked, pre-2009 NOX SIP Call allowances to be used 
for compliance in the CAIR NOX ozone-season trading program.
    The provisions of the CAIR SO2 FIP are also similar to 
the provisions of the NOX annual and ozone season FIPs. 
However, the SO2 FIP is coordinated with the ongoing Acid 
Rain SO2 cap-and-trade program under CAA title IV. The 
SO2 FIP uses the title IV allowances for compliance, with 
each allowance allocated for 2010-2014 authorizing only 0.50 ton of 
emissions and each allowance allocated for 2015 and thereafter 
authorizing only 0.35 ton of emissions. Banked title IV allowances 
allocated for years before 2010 can be used at any time in the CAIR 
SO2 cap-and-trade program, with each such allowance 
authorizing 1 ton of emissions. Title IV allowances are to be freely 
transferable among sources covered by the Acid Rain Program and sources 
covered by the CAIR SO2 cap-and-trade program.
    EPA used the CAIR model trading rules as the basis for the trading 
programs in the CAIR FIPs. The CAIR FIP trading rules are virtually 
identical to the CAIR model trading rules, with changes made to account 
for Federal rather than State implementation. The CAIR model 
SO2, NOX annual, and NOX ozone season 
trading rules and the respective CAIR FIP trading rules are designed to 
work together as integrated SO2, NOX annual, and 
NOX ozone season trading programs.
    New Jersey is subject to the CAIR FIPs for ozone and 
PM2.5 and the CAIR FIP trading programs for SO2, 
NOX annual, and NOX ozone season applies to 
sources in New Jersey. Consistent with the flexibility it gives to 
States, the CAIR FIPs provide that States may submit abbreviated SIP 
revisions that will replace or supplement, as appropriate, certain 
provisions of the CAIR FIP trading programs. New Jersey has elected to 
propose these rules for its EGU sources as part of the abbreviated SIP 
which was submitted on February 6, 2007.

C. Applicability Provisions for Non-EGU NOX SIP Call Sources

    In general, the CAIR FIP trading programs apply to any stationary, 
fossil-fuel-fired boiler or stationary, fossil-

[[Page 36410]]

fuel-fired combustion turbine serving at any time, since the later of 
November 15, 1990 or the start-up of the unit's combustion chamber, a 
generator with nameplate capacity of more than 25 MWe producing 
electricity for sale.
    States have the option of bringing in, for the CAIR NOX 
ozone season program only, those units in the State's NOX 
SIP Call trading program that are not EGUs as defined under CAIR. EPA 
advises States exercising this option to use provisions for 
applicability that are substantively identical to the provisions in 40 
CFR 96.304 and add the applicability provisions in the State's 
NOX SIP Call trading rule for non-EGUs to the applicability 
provisions in 40 CFR 96.304 in order to include in the CAIR 
NOX ozone season trading program all units required to be in 
the State's NOX SIP Call trading program that are not 
already included under 40 CFR 96.304. Under this option, the CAIR 
NOX ozone season program must cover all large industrial 
boilers and combustion turbines, as well as any small EGUs (i.e. units 
serving a generator with a nameplate capacity of 25 MWe or less), that 
the State currently requires to be in the NOX SIP Call 
trading program. Consistent with the flexibility given to States in the 
CAIR FIP, New Jersey has not chosen to expand the applicability 
provisions of the CAIR NOX ozone season trading program to 
include all non-EGUs in the State's NOX SIP Call trading 
program. New Jersey's non-EGUs and small electric generating units 
(EGUs) will be subject to Reasonable Available Control Technology 
(RACT) or state of the art rules.

D. NOX Allowance Allocations

    Under the NOX allowance allocation methodology in the 
CAIR model trading rules and in the CAIR FIP, NOX annual and 
ozone season allowances are allocated to units that have operated at 
least for five years, based on heat input data from a three-year period 
that are adjusted for fuel type by using fuel factors of 1.0 for coal, 
0.6 for oil, and 0.4 for other fuels. The CAIR model trading rules and 
the CAIR FIP also provide a new unit set-aside from which units without 
five years of operation are allocated allowances based on the units' 
prior year emissions.
    The CAIR FIP provides States the flexibility to establish a 
different NOX allowance allocation methodology that will be 
used to allocate allowances to sources in the States if certain 
requirements are met concerning the timing of submission of units' 
allocations to the Administrator for recordation and the total amount 
of allowances allocated for each control period. In adopting 
alternative NOX allowance allocation methodologies, States 
have flexibility with regard to:
    1. The cost to recipients of the allowances, which may be 
distributed for free or auctioned;
    2. The frequency of allocations;
    3. The basis for allocating allowances, which may be distributed, 
for example, based on historical heat input or electric and thermal 
output; and
    4. The use of allowance set-asides and, if used, their size.
    Consistent with the flexibility given to States in the CAIR FIP, 
New Jersey has chosen to replace the provisions of the CAIR 
NOX annual and ozone season FIP concerning allowance 
allocations with its own methodology.
    New Jersey will distribute NOX annual and ozone season 
allowances to CAIR units based upon historical electrical and thermal 
output. Allowances, which will be distributed (not auctioned), will be 
based on three years of data. For control periods 2009-2011, 
NOX annual and ozone season allowances will be calculated 
based on data from years 2003, 2004, and 2005. New Jersey will submit 
2009-2011 NOX allocations to EPA by April 30, 2007. For 
control periods in years 2012 and thereafter, the calculation of the 
allocation shall be based on data from the three most recent years 
prior to the year the allocation is due to the EPA (i.e. 2012 
calculations which is due October 31, 2008 will be calculated based on 
data from years 2005 through 2007). The allocations for the control 
periods beginning in 2012 are due to EPA by October 31, 2008 and 
October 31 of each year thereafter for the fourth year after the year 
of the notification deadline.
    New Jersey has established set-asides for new source/growth (``New 
Source/ Growth Reserve''), and energy efficiency and renewable energy 
programs or techniques (``Incentive Reserve''). New Jersey is 
allocating ten percent of the State's CAIR NOX annual and 
CAIR NOX ozone season budgets to the New Source/Growth 
Reserve, and five percent of the State's CAIR NOX annual and 
CAIR NOX ozone season budgets to the Incentive Reserve each 
year.
    The priority of the New Source/Growth Reserve is to hold aside 
allowances for distribution to new CAIR units. Any remaining allowances 
would be available for distribution to low NOX emission rate 
units that emit more tons of NOX than the number of 
allowances allocated for the control period.
    The purpose of the incentive reserve is to hold aside allowances so 
that they are available for distribution after the control period to 
persons who claim incentive allowances, based on their energy savings 
or the generation of electricity through the implementation of 
environmentally beneficial techniques.
    If the New Source/Growth Reserve or Incentive Reserve is under-
allocated, allowances will be distributed to units in equal proportion 
to the number of allowances available in the reserve. New Jersey will 
allow allowances from both reserves to be used interchangeably if one 
reserve is over-allocated while the other is under-allocated. Any 
allowances remaining in the reserves will remain in the Incentive 
Reserve or the New Source/Growth Reserve to be available for allocation 
in the following year.
    Unallocated allowances from the existing New Source/Growth and 
Incentive Reserves from New Jersey's NOX Budget Trading 
Program (Subchapter 31) for the 2008 control period will be carried 
over for use in the 2009 CAIR NOX ozone season.
    New Jersey is allocating to the New Source/Growth Reserve 1,267 
CAIR NOX annual allowances and 665 CAIR NOX ozone 
season allowances of the State budget each year for vintage years 2009 
through 2014. For years 2015 and thereafter, New Jersey will allocate 
1,056 CAIR NOX annual allowances and 555 CAIR NOX 
ozone season allowances of the State budget each year into the reserve.
    New Jersey is allocating to the Incentive Reserve 634 CAIR 
NOX annual allowances and 333 CAIR NOX ozone 
season allowances of the State budget each year into this reserve for 
vintage years 2009 through 2014. For years 2015 and thereafter, New 
Jersey will allocate 528 CAIR NOX annual allowances and 277 
CAIR NOX ozone season allowances of the State budget each 
year into the reserve.
    Several provisions of New Jersey's NOX allocation 
proposal are inconsistent with the NOX allocation timing 
requirements of the abbreviated SIP revision requirements and the CAIR 
FIP trading programs. Full approval of New Jersey's proposed regulation 
by EPA is contingent upon New Jersey modifying the proposed rule in 
order to clarify that EPA's NOX allocation timing 
requirements will be met under New Jersey's program as discussed in 
this section. Sections 51.123(p)(1)(ii)(B) and (ee)(2)(ii)(C) of CAIR 
require that the State determines and notifies the Administrator of 
each existing unit's allowance allocation at least 3 years in advance 
of the CAIR FIP NOX annual and ozone season programs. 
Sections 51.123(p)(1)(ii)(C) and (ee)(2)(ii)(D) require that the State 
determines, and notifies the Administrator of each new

[[Page 36411]]

unit's allowances by October 31 (for the CAIR NOX annual 
trading program) or July 31 (for the CAIR NOX ozone season 
trading program) of the year for which the allowances are being 
allocated.
    New Jersey's proposed regulation does not meet NOX 
allocation timing requirements for existing or new units that must 
surrender and transfer allowances to EPA for retirement for the year in 
which the unit shuts down and any year thereafter. As currently written 
in the proposed rule, the owner or operator of an existing unit that is 
required to surrender allowances will no longer be able to buy or sell 
allowances, or undertake other allowance market activities, that were 
provided three years in advance and already recorded into their 
compliance account. Additionally, the owner or operator of a new unit 
could not buy or sell allowances, or undertake other allowance market 
activities, in reliance on its allocations provided in advance in 
October or July.
    It is not clear from New Jersey's proposal what the timing would be 
for surrendering the allowances, and whether the State intended for 
recorded allowances to be surrendered. New Jersey should clarify the 
provisions of the appropriate section regarding permanently shut down 
units to be retired, section 7:27-30.3(g), by either removing this 
section from the rule, or by clarifying that the State can discontinue 
making future allocations to units that permanently shut down.
    New Jersey's proposed regulation does not meet NOX 
allocation timing requirements with regard to the provision in New 
Jersey's proposed rule which provides that the Department may determine 
that allocations for existing (or new) units for current or past years 
had erroneously allocated too many or too few allowances based on 
inaccurate data or projections. As currently written in the proposed 
rule, it is unclear how long after determination and recordation of an 
allocation the Department may determine that the allocation was 
incorrect. The inclusion of the word ``projection'' also suggests New 
Jersey will be correcting allocations that were based on projections. 
New Jersey should correct this problem by either removing the 
allocation correction provision, 7:27-30.3(h), from the rule, or modify 
this section in order to address NOX allocation timing 
requirements. If NJ chooses to retain the provision, New Jersey may 
limit this provision to errors of calculation, errors in the allowable 
emission rates used, and/or errors in data on actual operations and 
that does not correct allocations once the allocations are recorded by 
the Administrator.
    New Jersey's proposed rule also provides that if the sum of new 
unit allocations (determined by October 31 or July 31 of the year for 
which allocations are made) and the existing unit growth allocations 
(determined by the end of the year for which allocations are made) 
exceeds the total amount of the New Source/Growth Reserve for the year, 
all the allocations from the reserve will be reduced on a pro-rata 
basis so that the total amount allocated to these new and existing 
units does not exceed the reserve. New Jersey should clarify that the 
allocation-proration provisions will be applied to new unit allocations 
before the October 31 deadline or July 31 deadline for submission of 
new unit allocations to EPA and applied to the existing unit growth 
allocations before the March 1 deadline for submission of those 
allocations to EPA.

E. Allocation of NOX Allowances From the Compliance 
Supplement Pool

    The CSP provides an incentive for early reductions in 
NOX annual emissions. The CSP consists of 200,000 CAIR 
NOX annual allowances of vintage 2009 for the entire CAIR 
region, and a State's share of the CSP is based upon the State's share 
of the projected emission reductions under CAIR. States may distribute 
CSP allowances, one allowance for each ton of early reduction, to 
sources that make NOX reductions during 2007 or 2008 beyond 
what is required by any applicable State or Federal emission 
limitation. States also may distribute CSP allowances based upon a 
demonstration of need for an extension of the 2009 deadline for 
implementing emission controls.
    The CAIR NOX annual FIP establishes specific 
methodologies for allocations of CSP allowances. States may choose an 
allowed, alternative CSP allocation methodology to be used to allocate 
CSP allowances to sources in those States.
    EPA has allocated to New Jersey allowances equal to 660 tons of 
NOX annual emissions for possible distribution.
    Consistent with the flexibility given to States in the FIP, New 
Jersey has chosen to modify the provisions of the CAIR NOX 
annual FIP concerning the allocation of allowances from the CSP. New 
Jersey has chosen to retire the CSP allowances budgeted for New Jersey 
by not allocating them to CAIR units. New Jersey has maintained in 
their rule that the CSP allowances, if allocated, would delay 
attainment in New Jersey of the NAAQS for ozone and PM2.5. 
New Jersey anticipates that New Jersey CAIR units will be able to meet 
their emission limits without risk to the reliability of the energy 
supply without resorting to the CSP.

F. Individual Opt-In Units

    The opt-in provisions allow for certain non-EGUs (i.e., boilers, 
combustion turbines, and other stationary fossil-fuel-fired devices) 
that do not meet the applicability criteria for a CAIR trading program 
to participate voluntarily in (i.e., opt into) the CAIR trading 
program. A non-EGU may opt into one or more of the CAIR trading 
programs. In order to qualify to opt into a CAIR trading program, a 
unit must vent all emissions through a stack and be able to meet 
monitoring, recordkeeping, and recording requirements of 40 CFR part 
75. The owners and operators seeking to opt a unit into a CAIR trading 
program must apply for a CAIR opt-in permit. If the unit is issued a 
CAIR opt-in permit, the unit becomes a CAIR unit, is allocated 
allowances, and must meet the same allowance-holding and emissions 
monitoring and reporting requirements as other units subject to the 
CAIR trading program. The opt-in provisions provide for two 
methodologies for allocating allowances for opt-in units, one 
methodology that applies to opt-in units in general and a second 
methodology that allocates allowances only to opt-in units that the 
owners and operators intend to repower before January 1, 2015.
    States have several options concerning the opt-in provisions. The 
rules for each of the CAIR FIP trading programs include opt-in 
provisions that are essentially the same as those in the respective 
CAIR SIP model rules, except that the CAIR FIP opt-in provisions become 
effective in a State only if the State's abbreviated SIP revision 
adopts the opt-in provisions. The State may adopt the opt-in provisions 
entirely or may adopt them but exclude one of the allowance allocation 
methodologies. The State also has the option of not adopting any opt-in 
provisions in the abbreviated SIP revision and thereby providing for 
the CAIR FIP trading program to be implemented in the State without the 
ability for units to opt into the program.
    Consistent with the flexibility given to States in the FIPs, New 
Jersey has chosen not to allow non-EGUs meeting the FIP-specified 
requirements to participate in the CAIR NOX annual trading 
program, the CAIR NOX ozone season trading program, and the 
SO2 trading program. Therefore, non-EGUs in New Jersey 
cannot opt into either the CAIR trading program under EPA's

[[Page 36412]]

CAIR FIP or New Jersey's abbreviated SIP.

G. Satisfying Section 110(a)(2)(D)(i) of the Clean Air Act

    Section 110(a)(2)(D)(i) of the CAA requires each State to submit a 
SIP that prohibits emissions that could adversely affect another State. 
The SIP must prevent sources in the State from emitting pollutants in 
amounts which will: (1) Contribute significantly to downwind 
nonattainment of the NAAQS, (2) interfere with maintenance of the 
NAAQS, (3) interfere with provisions to prevent significant 
deterioration of air quality, and (4) interfere with efforts to protect 
visibility.
    EPA issued guidance on August 15, 2006, relating to SIP submissions 
to meet the requirements of section 110(a)(2)(D)(i). As discussed 
below, New Jersey's SIP revision with respect to the statutory 
requirements is consistent with the guidance.
    New Jersey addresses the first two of these four elements by 
complying with the requirements of CAIR. New Jersey satisfies these 
requirements either by relying on the existing CAIR FIPs, or through 
approval of this SIP revision.
    The third element New Jersey addresses was prevention of 
significant deterioration (PSD). In accordance with the guidance issued 
on August 15, 2006, States may continue to rely on their existing 
Nonattainment New Source Review (NNSR) and PSD permitting programs to 
prevent significant deterioration of air quality within their own 
boundaries and in adjacent States. For 8-hour ozone, the State has met 
the obligation by confirming that the existing ozone Nonattainment New 
Source Review (NNSR) permitting program remains in effect and applies 
to the 8-hour ozone NAAQS standard for the State's major stationary 
sources. New Jersey has noted that the State's current NNSR program 
retains the lower applicability levels and higher off-set ratios 
previously required under the States 1-hour ozone classification and 
therefore is more stringent than required under the 8-hour ozone 
classification. The State has indicated that it's on track to meet its 
June 15, 2007 obligations to submit a final attainment demonstration 
for the 8-hour ozone NAAQS by that date. For PM2.5, the 
State has confirmed that the State's NNSR and PSD programs are being 
implemented in accordance with EPA's interim guidance calling for the 
use of PM10 as a surrogate for PM2.5. New Jersey commits to 
revising its NNSR program and adopting a PSD program after EPA 
finalizes its PM2.5 implementation rule.
    It should be noted that the entire State of New Jersey is 
nonattainment for 8-hour ozone necessitating only a NNSR program (not 
PSD) for ozone. For PM2.5 the State has both attainment and 
non-attainment areas necessitating both NNSR and PSD programs.
    Consistent with EPA's August 15, 2006 guidance, at this time, it is 
impossible for New Jersey to accurately determine whether there is 
interference with measures in another State's SIP designed to protect 
visibility, which is the fourth element that was addressed. New Jersey 
has indicated that it will address the visibility protection 
requirements once the regional haze SIP is completed and submitted to 
EPA in December of 2007.

VI. Conclusion

    New Jersey is covered by the CAIR FIPs, which require participation 
in the EPA-administered CAIR FIP cap-and-trade programs for 
SO2, NOX annual, and NOX ozone season 
emissions. Under this abbreviated SIP revision and consistent with the 
flexibility given to States in the FIPs, New Jersey has proposed to 
adopt under N.J.A.C. 7:27-30, Clean Air Interstate Rule (CAIR) 
NOX Trading Program, provisions for allocating allowances 
under the CAIR FIP NOX annual and ozone season trading 
programs. In addition, New Jersey has also proposed at N.J.A.C. 7:27-
31.23 the date when New Jersey's CAIR NOX Trading Program 
will replace New Jersey's NOX Budget Trading Program 
(Subchapter 31). In addition, New Jersey has proposed to adopt in the 
abbreviated SIP revision provisions that retire CSP allowances.
    EPA is proposing to approve New Jersey's abbreviated CAIR SIP 
revision. This proposed approval is contingent upon New Jersey making 
the necessary changes to New Jersey's proposed CAIR rule in order to 
address EPA's concerns discussed in section V, Part D (NOX 
Allowance Allocations) concerning shutdown units, correction of 
allocations to new and existing units, and prorating for the New 
Source/ Growth Reserve. If EPA determines New Jersey's final submission 
is consistent with the necessary changes outlined in this proposed 
action, EPA may proceed to publish its full approval of New Jersey's 
CAIR SIP in the Federal Register, and approve its incorporation into 
the SIP. To the extent EPA approves New Jersey's SIP revision, EPA 
would not make any changes to the CAIR FIP, but would amend the 
appropriate appendices of 40 CFR part 97 in the CAIR FIP trading rules 
simply to note approval.
    Although EPA expects New Jersey to make the necessary changes to 
their proposed rule upon final adoption, EPA will finalize a partial 
approval/ disapproval should New Jersey be unable to do so. Although 
the rule does not currently meet all of the applicable requirements in 
40 CFR 51.123(p) and (ee) with regard to NOX annual and 
NOX ozone season emissions, EPA believes that the approvable 
portions of the rule strengthen New Jersey's SIP by allowing the State 
to be the implementing authority, and making allocations consistent 
with New Jersey's air quality goals. Partial approval/disapproval will 
result in EPA approval of New Jersey's initial NOX 
allocations for existing units for the 2009-2011 control periods. EPA 
would not make any changes to the CAIR FIP, but would amend the 
appropriate appendices of 40 CFR part 97 in the CAIR FIP trading rules 
to note partial approval. If New Jersey is unable to make the necessary 
changes, EPA proposes partial approval/disapproval of New Jersey's 
proposed rule as follows: Subchapter 30 approval of all sections except 
``7:27-30.3 Allocation of CAIR NOX annual allowances and 
CAIR NOX ozone season allowances''. EPA is approving 
portions of 7:27-30.3 which address the allocation of NOX 
allowances to existing units and to the incentive reserve, rounding 
allowances to the nearest whole number, and consideration of other data 
by the department if the data is unusable. (7:27-30.3(a), (b), (c)2, 
(c)3, (c)4ii(1), (c)4ii(3), (e), and (f)). EPA is disapproving 
provisions for the allocation to the new source/growth reserve, post 
control period allocations, provisions that require any unit (existing 
or new) that permanently shuts down to surrender and transfer 
allowances to EPA for retirement, and correction of allowances 
allocated erroneously or were allocated based on data or projections 
that are determined to be inaccurate. (7:27-30.3(c)1, (c)4i, (c)4ii(2), 
(c)4iii, (d), (g), and (h).
    EPA is proposing approval of ``7:27-31.23 Replacement of the 
NOX Budget Program'', and ``7:27A-3.10 Civil administrative 
penalties for violation of the rules adopted pursuant to the Act''.
    EPA is also proposing that this revision adequately addresses the 
required elements of 110(a)(2)(D)(i) with the exception of the protect 
visibility requirement. This requirement will be re-evaluated after the 
regional haze SIP is completed and submitted to EPA in December 2007.

[[Page 36413]]

VII. Statutory and Executive Order Reviews

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
action is not a ``significant regulatory action'' and therefore is not 
subject to review by the Office of Management and Budget. For this 
reason, this action is also not subject to Executive Order 13211, 
``Actions Concerning Regulations That Significantly Affect Energy 
Supply, Distribution, or Use'' (66 FR 28355, May 22, 2001). This action 
merely proposes to approve State law as meeting Federal requirements 
and would impose no additional requirements beyond those imposed by 
State law. Accordingly, the Administrator certifies that this proposed 
rule would not have a significant economic impact on a substantial 
number of small entities under the Regulatory Flexibility Act (5 U.S.C. 
601 et seq.). Because this action proposes to approve pre-existing 
requirements under State law and would not impose any additional 
enforceable duty beyond that required by State law, it does not contain 
any unfunded mandate or significantly or uniquely affect small 
governments, as described in the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104 4).
    This proposal also does not have tribal implications because it 
would not have a substantial direct effect on one or more Indian 
tribes, on the relationship between the Federal Government and Indian 
tribes, or on the distribution of power and responsibilities between 
the Federal Government and Indian tribes, as specified by Executive 
Order 13175 (65 FR 67249, November 9, 2000). This proposed action also 
does not have Federalism implications because it would not have 
substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government, as 
specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This 
action merely proposes to approve a State rule implementing a Federal 
standard and to amend the appropriate appendices in the CAIR FIP 
trading rules to note that approval. It does not alter the relationship 
or the distribution of power and responsibilities established in the 
Clean Air Act. This proposed rule also is not subject to Executive 
Order 13045 ``Protection of Children from Environmental Health Risks 
and Safety Risks'' (62 FR 19885, April 23, 1997), because it would 
approve a State rule implementing a Federal Standard.
    In reviewing SIP submissions, EPA's role is to approve State 
choices, provided that they meet the criteria of the Clean Air Act. In 
this context, in the absence of a prior existing requirement for the 
State to use voluntary consensus standards (VCS), EPA has no authority 
to disapprove a SIP submission for failure to use VCS. It would thus be 
inconsistent with applicable law for EPA, when it reviews a SIP 
submission; to use VCS in place of a SIP submission that otherwise 
satisfies the provisions of the Clean Air Act. Thus, the requirements 
of section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (15 U.S.C. 272 note) do not apply. This proposed rule would 
not impose an information collection burden under the provisions of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

List of Subjects

40 CFR Part 52

    Environmental protection, Air pollution control, Electric 
utilities, Intergovernmental relations, Nitrogen oxides, Ozone, 
Particulate matter, Reporting and recordkeeping requirements, Sulfur 
dioxide.

40 CFR Part 97

    Environmental protection, Air pollution control, Electric 
utilities, Intergovernmental relations, Nitrogen oxides, Ozone, 
Particulate matter, Reporting and recordkeeping requirements, Sulfur 
dioxide.

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

    Dated: June 25, 2007.
Alan J. Steinberg,
Regional Administrator, Region 2.
 [FR Doc. E7-12874 Filed 7-2-07; 8:45 am]
BILLING CODE 6560-50-P