[Federal Register Volume 72, Number 203 (Monday, October 22, 2007)]
[Rules and Regulations]
[Pages 59480-59488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-20249]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 52 and 97

[EPA-R05-OAR-2007-0140; FRL-8481-4]


Limited Approval of Implementation Plans of Indiana: Clean Air 
Interstate Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: EPA is promulgating a limited approval of a revision to the 
Indiana State Implementation Plan (SIP) submitted on February 28, 2007. 
This revision incorporates provisions related to the implementation of 
EPA's Clean Air Interstate Rule (CAIR), promulgated on May 12, 2005, 
and subsequently revised on April 28, 2006, and December 13, 2006, and 
the CAIR Federal Implementation Plans (CAIR FIP) concerning 
SO2, NOX annual, and NOX ozone season 
emissions for the State of Indiana, promulgated on April 28, 2006, and 
subsequently revised December 13, 2006. EPA is not making any changes 
to the CAIR FIP. It is, however, to the extent EPA approves Indiana's 
SIP revision, amending the appropriate appendices in the CAIR FIP 
trading rules simply to note that approval.
    On September 20, 2007, Indiana requested that EPA act on a portion 
of the February 28, 2007, submittal as an ``abbreviated SIP.'' 
Consequently, EPA is approving this abbreviated SIP revision, which 
addresses: The

[[Page 59481]]

applicability provisions for the NOX ozone season trading 
program and supporting definitions of terms; the methodology to be used 
to allocate NOX annual and ozone season NOX 
allowances and supporting definitions of terms; the compliance 
supplement pool (CSP) provisions for the NOX annual trading 
program; and provisions for SO2 and NOX opt-in 
units, all under the CAIR FIP.

DATES: This direct final rule is effective December 21, 2007 without 
further notice, unless EPA receives adverse comment by November 21, 
2007. If EPA receives such comments, it will publish a timely 
withdrawal of the direct final rule in the Federal Register and inform 
the public that the rule will not take effect.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R05-
OAR-2007-0140, by one of the following methods:
    1. www.regulations.gov: Follow the on-line instructions for 
submitting comments.
    2. E-mail: [email protected].
    3. Fax: (312) 886-5824.
    4. Mail: John M. Mooney, Chief, Criteria Pollutant Section, Air 
Programs Branch (AR-18J), U.S. Environmental Protection Agency, 77 West 
Jackson Boulevard, Chicago, Illinois 60604.
    5. Hand Delivery: John M. Mooney, Chief, Criteria Pollutant 
Section, Air Programs Branch (AR-18J), U.S. Environmental Protection 
Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. Such 
deliveries are only accepted during the Regional Office normal hours of 
operation, and special arrangements should be made for deliveries of 
boxed information. The Regional Office official hours of business are 
Monday through Friday, 8:30 a.m. to 4:30 p.m. excluding Federal 
holidays.
    Instructions: Direct your comments to Docket ID No. EPA-R05-OAR-
2007-0140. 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 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 Environmental Protection Agency, Region 5, Air and 
Radiation Division, 77 West Jackson Boulevard, Chicago, Illinois 60604. 
This Facility is open from 8:30 a.m. to 4:30 p.m., Monday through 
Friday, excluding legal holidays. We recommend that you telephone John 
Paskevicz, Engineer, at (312) 886-6084, before visiting the Region 5 
office.

FOR FURTHER INFORMATION CONTACT: John Paskevicz, Engineer, Criteria 
Pollutant Section, Air Programs Branch (AR-18J), Environmental 
Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, 
Illinois 60604, (312) 886-6084, [email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. What Action Is EPA Taking?
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. Analysis of Indiana's CAIR SIP Submittal
    A. State Budgets for Allowance Allocations
    B. CAIR Cap-and-Trade Programs
    C. Applicability Provisions for Non-EGU NOX SIP Call Sources
    D. NOX Allowance Allocations
    E. Allocation of Allowances From Compliance Supplement Pool
    F. Individual Opt-In Units
VI. Final Action
VII. Statutory and Executive Order Reviews

I. What Action Is EPA Taking?

CAIR SIP Approval

    EPA is approving a revision to Indiana's SIP, submitted on February 
28, 2007, that would modify the application of certain provisions of 
the CAIR FIPs concerning SO2, NOX annual, and 
NOX ozone season emissions. (As discussed more fully below, 
this less comprehensive CAIR SIP is termed an ``abbreviated SIP.'') 
Indiana is subject to the CAIR FIP that implements 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 will be used to allocate NOX 
allowances to sources in Indiana, instead of the federal allocation 
methodology otherwise provided in the FIPs. The SIP revision also 
provides a methodology for allocating the compliance supplement pool 
allowances in the CAIR NOX annual trading program, expands 
the applicability provisions of the CAIR NOX ozone season 
trading program, and allows for individual units not otherwise subject 
to the CAIR trading programs to opt into such trading programs under 
the opt-in provisions of the CAIR FIP. Consistent with the flexibility 
provided in the FIP, these provisions will also be used to replace or 
supplement, as appropriate, the corresponding provisions in the CAIR 
FIP for Indiana. EPA is not making any changes to the CAIR FIP, but is 
amending to the extent EPA approves Indiana's SIP revision, the 
appropriate appendices in the CAIR FIP trading rules simply to note 
that approval.

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

    EPA published CAIR 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

[[Page 59482]]

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 that the State shows 
will result in compliance with the applicable SO2 and 
NOX budgets.
    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 on April 
25, 2005 (70 FR 21147), 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, three years after the promulgation of 
the 8-hour ozone and PM2.5 NAAQS. These findings started a 
two-year clock for EPA to promulgate a 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 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 the 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 States 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.

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 promulgations 
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 instead of or in conjunction 
with, as appropriate, the corresponding provisions of the CAIR FIP 
(e.g., the NOX allowance allocation methodology).
    An abbreviated SIP revision may establish certain applicability and 
allowance allocation provisions that, as provided by CAIR FIPs, 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 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 using 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 using the 
State's choice of allowed, alternative methodologies; and/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.
    In some situations, EPA determines that a SIP submission does not 
fully meet all applicable CAA requirements but that the submission 
nonetheless strengthens the implementation plan. In such cases, EPA 
uses its ``limited approval'' authority under Sections 110(k)(3) and 
301(a) of the Act to adopt regulations that are considered necessary to 
further air quality. Abbreviated SIP revisions can be submitted in lieu 
of, or as part of, full CAIR SIP revisions. States may want to 
designate part of their full SIP as an abbreviated SIP for EPA to act 
on first

[[Page 59483]]

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 full 
CAIR SIP revision. In this case, although the February 28, 2007, 
submittal from Indiana was submitted as a full SIP revision, by a 
letter dated September 20, 2007, the State requested that certain 
portions be approved as an abbreviated SIP revision.

V. Analysis of Indiana'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 in the Acid Rain Program for the years in phase 1 
of CAIR (2010 through 2014) authorizes 0.50 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 FIPs established the budgets for Indiana as 108,935 tons 
(for 2009-2014) and 90,779 tons (for 2015 and thereafter) for 
NOX annual emissions, 55,729 tons (for 2009-2014) and 49,050 
tons (for 2015 and thereafter) for NOX ozone season 
emissions, and 254,599 tons (for 2009-2014) and 178,219 tons (for 2015 
and thereafter) for SO2 emissions. The NOX ozone 
season budget properly reflects the inclusion of NOX SIP 
Call trading program units that are brought into the CAIR 
NOX ozone season trading program, as discussed below. 
Indiana's SIP revision, approved in this action, sets these budgets as 
the total amounts of allowances available for allocation for each year 
under the EPA-administered cap-and-trade programs under the CAIR FIP.

B. CAIR Cap-and-Trade Programs

     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 after the 2008 ozone season and is coordinated 
with the NOX SIP Call program. 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. 
In addition, States have the option of continuing to meet their 
NOX SIP Call requirement by participating in the CAIR 
NOX ozone season trading program and including all their 
NOX SIP Call trading sources in that 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 one 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.
    Indiana 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 apply to sources in Indiana. 
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. The February 28, 2007, submission from Indiana is 
such an abbreviated SIP revision.

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-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 megawatt electrical (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 add the applicability 
provisions in the State's NOX SIP Call trading rule for non-
EGUs to the applicability provisions in 40 CFR 97.304 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 97.304. 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, 
Indiana has chosen to expand the applicability provisions of the CAIR 
NOX ozone season trading program to include non-EGUs in the 
State's NOX SIP Call trading program. However, Indiana's 
abbreviated SIP submission fails to cover all such units and to include 
certain related definitions. As such, the SIP submission fails to meet 
the requirements of 40 CFR 51.123(ee)(1), which requires a State that 
chooses this option to expand the applicability provisions in a way 
that brings into the CAIR NOX ozone season trading program 
all units that are subject to the State's NOX SIP Call 
trading program but are not covered by the applicability

[[Page 59484]]

provisions of the CAIR NOX ozone season FIP.
    Specifically, 326 IAC 24-3-1(a)(2) of Indiana's CAIR NOX 
ozone season rule expands the CAIR applicability provisions to include, 
as CAIR NOX ozone season units, NOX SIP Call 
units not otherwise subject to the CAIR program that do not generate 
electricity for sale (i.e., units defined as ``large affected units'' 
under 326 IAC 10-4-2(27)) but fails to bring into the CAIR program 
NOX SIP Call units not otherwise subject to CAIR that do 
generate electricity for sale (i.e., units defined as ``electric 
generating units'' under 326 IAC 10-4-2(16)). In addition, 326 IAC 24-
3-1(b) of Indiana's rule applies to these ``large affected units'' the 
exemptions established under the CAIR model rule for cogeneration units 
and solid waste incineration units even though the State's 
NOX SIP Call trading program lacks any such exemptions. 
Moreover, Indiana's rule does not include certain definitions that are 
necessary to apply the State's NOX SIP Call applicability 
provisions and to apply other provisions of the State's rule to 
NOX SIP Call units. The terms for which definitions are 
missing, or for which different definitions than those currently in 
Indiana's rule are needed, include: ``commence commercial operation,'' 
``electricity for firm sale to the electric grid,'' ``fossil-fuel-
fired,'' and ``unit''.
    In light of these deficiencies, EPA concludes that Indiana's 
abbreviated SIP submission does not fully meet the requirements for 
such submissions under CAIR. However, EPA finds that, despite these 
deficiencies concerning applicability, Indiana's submission strengthens 
the implementation plan for Indiana by bringing into the CAIR FIP 
trading program units from the NOX SIP Call that would not 
otherwise be covered by the requirements of the CAIR FIP and thereby 
making progress toward meeting Indiana's obligation under the 
NOX SIP Call to make NOX emission reductions.
    Under the NOX SIP Call, Indiana was required to make 
certain emissions reductions. Indiana met this requirement by making 
``large affected units'' under 326 IAC 10-4-2(27) and ``electric 
generating units'' under 326 IAC 10-4-2(16) subject to the 
NOX SIP Call trading program. Starting with the 2009 control 
period, EPA will no longer administer the NOX SIP Call 
trading program (i.e., the NOX Budget Trading Program), 
which will therefore cease to exist. See 40 CFR 51.121(r)(1). With 
EPA's termination of the NOX SIP Call trading program 
starting with the 2009 ozone season, Indiana will need to take further 
action to achieve the post-2009 reductions that would otherwise have 
been achieved under the NOX SIP Call trading program by 
those NOX SIP Call units that are not covered by the CAIR 
FIP NOX ozone season rule. See 40 CFR 51.121(r)(2) and 
51.123(bb)(1)(i). Consequently, Indiana will need to either bring all 
those units into the CAIR NOX ozone season trading program 
or adopt other controls that will achieve the necessary post-2009 
reductions. Indiana's abbreviated SIP makes progress toward achieving 
these needed reductions by bringing most, but not all, of such 
NOX SIP Call units into the CAIR FIP NOX ozone 
season trading program.
    EPA also notes that, as discussed below, despite having 
deficiencies concerning NOX ozone season applicability, 
Indiana's submission meets most of the requirements for abbreviated 
SIPs. Moreover, while these deficiencies create the potential for 
erroneous exclusion from the CAIR program of units that may meet the 
NOX SIP Call applicability criteria in the future, EPA is 
not aware of any existing NOX SIP Call units that would be 
erroneously excluded from the CAIR program at the present time because 
of these deficiencies. For these reasons and the additional reasons 
discussed below, EPA is proposing a limited approval of Indiana's 
abbreviated SIP submission.

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 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, 
Indiana has chosen to replace the provisions of the CAIR NOX 
annual FIP concerning the allocation of NOX annual 
allowances with its own methodology. Indiana has chosen to distribute 
NOX annual allowances based on the methodology in the CAIR 
FIP with some minor modifications. For example, the allocation 
methodology in both the CAIR FIP and in Indiana's rule makes a 
proportional allocation of allowances to individual EGUs based on 
baseline heat input to the boiler or combustion turbine. However, 
unlike the CAIR FIP methodology that uses a fixed baseline heat input 
value based on five years of data, the Indiana rule updates the 
baseline heat input information using the most current eight years of 
data every six years. Indiana believes that the longer look back period 
for the initial allocation (1998-2005) is more appropriate than the 
timeframe in the CAIR FIP because many Indiana sources were installing 
equipment to comply with the NOX SIP Call, thus making the 
shorter time period in the CAIR FIP non-representative of normal 
operations. Further, with the Indiana heat input baseline being updated 
over time, retired units, no longer in operation and no longer part of 
the State's inventory, would eventually stop receiving allowances.
    The Indiana rule also includes a new unit set-aside for the 
NOX annual trading program. The annual trading program in 
Indiana includes a new unit set-aside equal to 4.5 percent and 2.5 
percent respectively for Phase I and Phase II unlike the CAIR FIP rule, 
which provides for a new unit set-aside of 5 percent and three percent 
for these periods. The one-half percent difference from the CAIR 
NOX annual FIP is used to provide annual NOX 
allowances for an energy efficiency and renewable (EE/RE) set-aside 
consistent with the NOX SIP Call EE/RE program.
    Indiana's CAIR EE/RE program is intended to provide incentives for 
EE/RE projects that reduce NOX emissions starting in 2009. 
Applicants apply for allowances in one year, and the actual transfer of 
allowances occurs after the year is over, based on the emission 
reductions actually achieved. Half of any unallocated allowances for a 
year in the set-aside will be allocated to the CAIR units, and the 
other half of such

[[Page 59485]]

unallocated allowances will be retained by Indiana, and transferred to 
the Indiana Office of Energy and Defense Development, to fund a grant 
program for smaller scale EE/RE projects.
    Consistent with the flexibility given to States in the CAIR FIPs, 
Indiana has chosen to replace the provisions of the CAIR NOX 
ozone season FIP concerning allowance allocations with its own 
methodology. Indiana will distribute NOX ozone season 
allowances based upon the methodology in the CAIR FIP with some 
changes. For example, Indiana's rule takes into account the fact that 
allowances for the 2009 ozone season trading period have already been 
allocated, and recorded by the Administrator, under Indiana's 
NOX SIP Call trading program. This is the first year for 
which allowances are allocated under the CAIR FIP NOX ozone 
season trading rule. The Indiana rule provides that these 2009 
NOX SIP Call allowances are the CAIR NOX ozone 
season allowances for 2009, and thus no additional allocations for the 
2009 ozone season for Indiana sources (except for CAIR NOX 
ozone season opt-in units, as discussed below) will be made under the 
CAIR NOX ozone season trading program. Consistent with this 
provision of Indiana's rule, the Administrator, in operating the CAIR 
NOX Ozone Season Tracking System, will treat each 2009 
NOX SIP Call allowance issued by Indiana as usable for 
compliance with the allowance-holding requirements of the CAIR 
NOX Ozone Season Trading Program by any CAIR NOX 
ozone season source that holds the allowance in the source's compliance 
account as of the allowance transfer deadline, regardless of the State 
in which the source is located.
    For control periods after 2009, Indiana's rule provides for the 
allocation of new allowances for the CAIR NOX ozone season 
program. For units covered by the CAIR NOX ozone season 
program under the applicability provisions of the CAIR FIP, Indiana's 
rule adopts an allocation methodology similar to that described above 
concerning CAIR NOX annual allowance allocations. For 
NOX SIP Call units brought into the CAIR trading program, 
Indiana's rule adopts a methodology that allocates allowances based on 
maximum design heat input as well as on baseline heat input. The 
Indiana rule also provides separate new unit set-asides for units 
covered by the applicability provisions in the CAIR FIP and for 
NOX SIP Call units brought into the CAIR program.
    Further, Indiana included in its NOX ozone season 
trading program an EE/RE set-aside program and a hardship set-aside for 
NOX SIP Call units brought into the CAIR program. The 
NOX ozone season EE/RE set-aside is similar to the 
NOX annual EE/RE set-aside except that half of any 
unallocated allowances for a year in the set-aside will be returned to 
the NOX SIP Call units in the program, and the rest will go 
to the grant program.
    EPA's limited approval of Indiana's abbreviated SIP will allow 
implementation of the allocation methodologies selected by Indiana and, 
in particular, Indiana's methodology to address the allowances already 
issued, and recorded by the Administrator, in the NOX SIP 
Call trading program for the 2009 ozone season.

E. Allocation of NOX Allowances From Compliance Supplement Pool

    The CAIR establishes a CSP to provide 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 
projected magnitude of the emission reductions required by CAIR in that 
State. 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 annual NOX 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 the States.
    Consistent with the flexibility given to States in the CAIR FIP, 
Indiana has chosen to modify the provisions of the CAIR NOX 
annual FIP concerning the allocation of allowances from the CSP. The 
CSP provision of the Indiana rule differs from the one included in the 
CAIR NOX annual FIP by providing a mechanism for Indiana to 
reserve allowances for all eligible units in advance of allocations to 
provide some certainty to sources regarding the minimum amount of 
allowances that will be available to them for early reduction credits. 
Under Indiana's rule, an eligible unit is one that has or will have 
post-combustion control equipment installed before December 31, 2008, 
or, for all other units, one that is able to achieve a NOX 
emission rate that is at least 10 percent lower than the heat input 
weighted average NOX emission rate for 2003 through 2005, 
excluding the ozone season of each year. Eligible units must be coal-
fired CAIR NOX units. The amount of reserved allowances 
reflects the difference between the eligible unit's non-ozone season 
emission rate in 2003-2005 and the unit's non-ozone season emission 
rate in 2007 and 2008.
    Indiana also included an incentive for control configurations that 
maximize mercury reduction co-benefits within the CSP program. The 
intent of this option is to encourage new selective catalytic reduction 
(SCR) installation and year-round SCR operation at units that have or 
will have electrostatic precipitators (ESP) and flue gas 
desulfurization (FGD) in 2007 and 2008. This option is offered to 
sources because the above control configuration of SCR, ESP and FGD can 
achieve up to 90 percent mercury reduction. The Indiana rule awards a 
bonus to units that achieve reductions in excess of their reserved 
allowances and, for units with SCR, ESP, and FGD, the bonus is 1.5 
times the NOX reductions achieved. However, the State's rule 
contains a limitation that precludes any eligible unit from receiving 
CSP allowances in excess of the actual NOX reductions 
achieved beyond the reserved amount.

F. Individual Opt-In Units

    The opt-in provisions of the CAIR FIP allow certain non-EGUs 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 make a choice to include a unit in 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 methodologies for 
allocating allowances for opt-in units, one that applies to opt-in 
units in general and a second that allocates allowances only to opt-in 
units that the owners and operators intend to re-power 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

[[Page 59486]]

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 opt-in 
provisions as provided for in Sec.  51.123(p)(3). 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 FIP, Indiana 
has chosen to allow non-EGUs meeting certain requirements to opt into 
the CAIR NOX annual trading program, the CAIR NOX 
ozone season trading program and the CAIR SO2 trading 
program. The State has allowed both opt-in allocation methodologies for 
each program as specified in 40 CFR part 97, subparts II, III, and 
IIII. EPA notes that Indiana's abbreviated SIP includes opt-in 
provisions for the CAIR NOX annual and ozone season and 
SO2 programs that are essentially the same as the opt-in 
provisions in the model rules for these programs and in the CAIR FIP. 
The Indiana opt-in provisions include most, but not all, of the most 
recent revisions that EPA made to the model rule and CAIR FIP opt-in 
provisions. Indiana has indicated that it intends to submit a revised 
full SIP that adopts all of the most recent revisions to the opt-in 
provisions. Consequently, EPA considers Indiana's rule to include 
provisions that are substantively identical to the opt-in provisions in 
part 96 of this chapter. Thus, units in Indiana may opt into the CAIR 
trading programs as provided for in subparts II, III, and IIII of the 
CAIR FIP.

VI. Final Action

    EPA is approving Indiana's abbreviated CAIR SIP revision submitted 
on February 28, 2007, as amended by letter of September 20, 2007. 
Indiana is covered by the CAIR FIP, which requires 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, Indiana adopts provisions for allocating 
allowances under the CAIR FIP NOX annual and ozone season 
trading programs. Indiana also adopts in the abbreviated SIP revision 
provisions that establish a methodology for allocating allowances in 
the CSP, and expands the applicability provisions for the CAIR FIP 
NOX ozone season trading program. Indiana also allows units 
to opt-in to the CAIR NOX annual, NOX ozone 
season, and SO2 trading programs, and utilizes the two 
methodologies set forth in the FIP for allocating allowances to such 
units. Therefore, the opt-in provisions provided as an option in the 
CAIR FIP trading programs (in parts 40 CFR part 97, subparts II, III 
and IIII), will apply to units in Indiana. As provided for in the CAIR 
FIPs, these provisions in the abbreviated SIP revision will replace or 
supplement the corresponding provisions of the CAIR FIP in Indiana. EPA 
is not proposing to make any changes to the CAIR FIP, but is proposing, 
to the extent EPA approves Indiana's SIP revision, to amend the 
appropriate appendices in the CAIR FIP trading rules simply to note 
that approval.
    EPA is making limited approval of Indiana's abbreviated SIP 
revision because, despite the deficiencies in the NOX ozone 
season applicability provisions and related definitions that result in 
the submission not meeting the requirements of CAIR in 40 CFR 
51.123(ee)(1), the submission strengthens the implementation plan for 
Indiana. (A detailed description of how these deficiencies can be 
corrected is set forth in a technical support document that is included 
in the docket of this rulemaking.) As discussed above, Indiana's SIP is 
strengthened because it makes progress toward meeting Indiana's 
emission reduction requirements under the NOX SIP Call. EPA 
further believes that the limited approval is appropriate because 
incorporation of Indiana's rules into the SIP will allow EPA to 
implement the methodology selected by Indiana to address the allowances 
for the 2009 ozone season that already have been allocated, and 
recorded by the Administrator, under Indiana's NOX SIP Call 
trading program.
    This limited approval incorporates the rules in the abbreviated SIP 
revision into the SIP, including those provisions identified as 
deficient. EPA notes that Indiana has indicated in its September 20, 
2007, letter that it intends to submit revised elements of the full SIP 
that address the above-described deficiencies related to applicability, 
as well as some other issues concerning its current full SIP 
submission. EPA intends to propose subsequently a limited disapproval 
of the abbreviated SIP unless the deficiencies are corrected.

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 approves State law as making progress toward meeting Federal 
requirements and would impose no additional requirements beyond those 
imposed by State law. Accordingly, the Administrator certifies that 
this 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 approves 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 rule 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 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 approves a State rule 
making progress toward 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 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 making progress toward 
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

[[Page 59487]]

standards (VCS), EPA has no authority to disapprove a SIP submission 
for failure to use VCS. It would thus be inconsistent with applicable 
law for EPA, when it reviews a SIP submission, to use VCS in place of a 
SIP submission that otherwise satisfies the provisions of the Clean Air 
Act. Thus, the requirements of section 12(d) of the National Technology 
Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. 
This rule would not impose an information collection burden under the 
provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.).
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A major rule cannot 
take effect until 60 days after it is published in the Federal 
Register. This action is not a ``major rule'' as defined by 5 U.S.C. 
804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for 
judicial review of this action must be filed in the United States Court 
of Appeals for the appropriate circuit by December 21, 2007. Filing a 
petition for reconsideration by the Administrator of this final rule 
does not affect the finality of this rule for the purposes of judicial 
review nor does it extend the time within which a petition for judicial 
review may be filed, and shall not postpone the effectiveness of such 
rule or action. This action may not be challenged later in proceedings 
to enforce its requirements. (See section 307(b)(2).)

List of Subjects

40 CFR Part 52

    Environmental protection, Air pollution control, Electric 
utilities, Incorporation by Reference, 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.

    Dated: September 27, 2007.
Bharat Mathur,
Acting Regional Administrator, Region 5.

0
For the reasons set forth in the preamble, parts 52 and 97 of chapter 1 
of title 40 of the Code of Federal Regulations are amended as follows:

PART 52--[AMENDED]

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

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

Subpart P--Indiana

0
2. Section 52.770 is amended by adding paragraph (c)(185) to read as 
follows:


Sec.  52.770  Identification of plan.

* * * * *
    (c) * * *
    (185) The Indiana Department of Environmental Management submitted 
amendments on September 20, 2007 to the State Implementation Plan to 
Control Emissions from electric generating units (EGU) and non-EGUs. 
Rules affecting these units include: 326 Indiana Administrative Code 
(IAC) 24-1-2, 326 IAC 24-1-8, 326 IAC 24-1-12, 326 IAC 24-2-11, 326 IAC 
24-3-1, 326 IAC 24-3-2, 326 IAC 24-3-8 and 326 IAC 24-3-12 
respectively.
    (i) Incorporation by reference. The following sections of the 
Indiana Administrative Code (IAC) are incorporated by reference: 326 
IAC 24-1-2(36) ``Control period''; 326 IAC 24-1-2(38) ``Energy 
efficiency or renewable energy projects''; 326 IAC 24-1-2(60) ``Rated 
energy efficiency''; 326 IAC 24-1-8 ``CAIR NOX allowance 
allocations''; 326 IAC 24-1-12 ``CAIR NOX opt-in units''; 
326 IAC 24-2-11 ``CAIR SO2 opt-in units''; 326 IAC 24-3-1 
``Applicability''; 326 IAC 24-3-2(38) ``Energy efficiency or renewable 
energy projects''; 326 IAC 24-3-2(49) ``Large affected unit''; 326 IAC 
24-3-2(61) ``Rated energy efficiency''; 326 IAC 24-3-8 ``CAIR 
NOX ozone season allowance''; and 326 IAC 24-3-12 ``CAIR 
NOX ozone season opt-in units''. Approved by the Attorney 
General January 12, 2007. Approved by the Governor January 23, 2007. 
Filed with the Publisher January 26, 2007. Published on the Indiana 
Register Web site February 28, 2007, Document Identification Number 
(DIN): 20070221-IR-326050117FRA. Effective February 25, 2007.
* * * * *

PART 97--[AMENDED]

0
3. The authority citation for part 97 continues to read as follows:

    Authority: 42 U.S.C. 7401, 7403, 7410, 7426, 7601, and 7651, et 
seq.


0
4. Appendix A to subpart EE is amended by adding in alphabetical order 
the entry ``Indiana'' under paragraph 1. and 2. to read as follows:

Appendix A to Subpart EE of Part 97--States With Approved State 
Implementation Plan Revisions Concerning Allocations

    1. * * *

Indiana

    2. * * *

Indiana

* * * * *

0
5. Appendix A to Subpart II of Part 97 is amended by adding in 
alphabetical order the entry ``Indiana'' under paragraphs 1. and 2. to 
read as follows:

Appendix A to Subpart II of Part 97--States With Approved State 
Implementation Plan Revisions Concerning CAIR NOX Opt-In 
Units

    1. * * *

Indiana

    2. * * *

Indiana

* * * * *

0
6. Appendix A to Subpart III of Part 97 is amended by adding in 
alphabetical order the entry ``Indiana'' under paragraphs 1. and 2. to 
read as follows:

Appendix A to Subpart III of Part 97--States With Approved State 
Implementation Plan Revisions Concerning CAIR SO2 Opt-In 
Units

    1. * * *

Indiana

    2. * * *

Indiana

* * * * *

0
7. Appendix A to Subpart EEEE of Part 97 is amended by adding in 
alphabetical order the entry ``Indiana'' to read as follows:

Appendix A to Subpart EEEE of Part 97--States With Approved State 
Implementation Plan Revisions Concerning Allocations

* * * * *

Indiana

* * * * *

0
8. Appendix A to Subpart IIII of Part 97 is amended by adding in 
alphabetical order the entry ``Indiana'' under paragraphs 1. and 2. to 
read as follows:

[[Page 59488]]

Appendix A to Subpart IIII of Part 97--States With Approved State 
Implementation Plan Revisions Concerning CAIR NOX Ozone 
Season Opt-In Units

    1. * * *

Indiana

    2. * * *

Indiana

* * * * *

[FR Doc. E7-20249 Filed 10-19-07; 8:45 am]
BILLING CODE 6560-50-P