[Federal Register Volume 70, Number 192 (Wednesday, October 5, 2005)]
[Proposed Rules]
[Pages 58112-58118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-19995]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[R06-OAR-2005-TX-0023; FRL-7981-3]
Approval and Promulgation of Air Quality Implementation Plans;
Texas; Emissions Banking and Trading Revisions for the Mass Emissions
Cap and Trade Program for the Houston/Galveston/Brazoria Ozone
Nonattainment Area
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
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SUMMARY: EPA is proposing to approve revisions to the Texas State
Implementation Plan (SIP) concerning the Mass Emissions Cap and Trade
(MECT) program for emissions of nitrogen oxides (NOX) in the
Houston/Galveston/Brazoria (HGB) ozone nonattainment area.
Additionally, EPA is proposing approval of several subsections of
Chapter 116 of the Texas Administrative Code (TAC) (Control of Air
Pollution by Permits for New
[[Page 58113]]
Construction or Modification) that provide cross-references to the MECT
Program.
DATES: Comments must be received on or before November 4, 2005.
ADDRESSES: Submit your comments, identified by Regional Materials in
EDocket (RME) ID No. R06-OAR-2005-TX-0023, by one of the following
methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the on-line instructions for submitting comments.
Agency Web site: http://docket.epa.gov/rmepub/ RME, EPA's
electronic public docket and comment system, is EPA's preferred method
for receiving comments. Once in the system, select ``quick search,''
then key in the appropriate RME Docket identification number. Follow
the on-line instructions for submitting comments.
U.S. EPA Region 6 ``Contact Us'' Web site: http://epa.gov/region6/r6coment.htm. Please click on ``6PD'' (Multimedia) and select
``Air'' before submitting comments.
E-mail: Mr. David Neleigh at [email protected]. Please
also cc the person listed in the FOR FURTHER INFORMATION CONTACT
section below.
Fax: Mr. David Neleigh, Chief, Air Permitting Section
(6PD-R), at fax number 214-665-6762.
Mail: Mr. David Neleigh, Chief, Air Permitting Section
(6PD-R), Environmental Protection Agency, 1445 Ross Avenue, Suite 1200,
Dallas, Texas 75202-2733.
Hand or Courier Delivery: Mr. David Neleigh, Chief, Air
Permitting Section (6PD-R), Environmental Protection Agency, 1445 Ross
Avenue, Suite 1200, Dallas, Texas 75202-2733. Such deliveries are
accepted only between the hours of 8 a.m. and 4 p.m. weekdays except
for legal holidays. Special arrangements should be made for deliveries
of boxed information.
Instructions: Direct your comments to RME ID No. R06-OAR-2005-TX-
0023. EPA's policy is that all comments received will be included in
the public file without change, and may be made available online at
http://docket.epa.gov/rmepub/, including any personal information
provided, unless the comment includes information claimed to be
Confidential Business Information (CBI) or other information the
disclosure of which is restricted by statute. Do not submit information
through RME, regulations.gov, or e-mail if you believe that it is CBI
or otherwise protected from disclosure. The EPA RME Web site and the
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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 RME or regulations.gov, your e-
mail address will be automatically captured and included as part of the
comment that is placed in the public file 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, any form of
encryption, and be free of any defects or viruses. Guidance on
preparing comments is given in the SUPPLEMENTARY INFORMATION section of
this document under the General Information heading.
Docket: All documents in the electronic docket are listed in the
RME index at http://docket.epa.gov/rmepub/. Although listed in the
index, some information is not publicly available, i.e., CBI or other
information the disclosure of which 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 RME or in the official file, which is available at the Air
Permitting Section (6PD-R), Environmental Protection Agency, 1445 Ross
Avenue, Suite 700, Dallas, Texas 75202-2733. The file will be made
available by appointment for public inspection in the Region 6 FOIA
Review Room between the hours of 8:30 a.m. and 4:30 p.m. weekdays
except for legal holidays. Contact the person listed in the FOR FURTHER
INFORMATION CONTACT paragraph below to make an appointment. If
possible, please make the appointment at least two working days in
advance of your visit. There will be a 15 cent per page fee for making
photocopies of documents. On the day of the visit, please check in at
the EPA Region 6 reception area at 1445 Ross Avenue, Suite 700, Dallas,
Texas.
The State submittal is also available for public inspection at the
State Air Agency listed below during official business hours by
appointment: Texas Commission on Environmental Quality, Office of Air
Quality, 12124 Park 35 Circle, Austin, Texas 78753.
FOR FURTHER INFORMATION CONTACT: Ms. Adina Wiley, Air Permitting
Section (6PD-R), Environmental Protection Agency, Region 6, 1445 Ross
Avenue, Suite 700, Dallas, Texas 75202-2733, telephone (214) 665-2115;
fax number 214-665-6762; e-mail address [email protected].
SUPPLEMENTARY INFORMATION: Throughout this document wherever ``we,''
``us,'' or ``our'' is used, we mean the EPA.
Outline
I. Mass Emissions Cap and Trade Program
A. What is EPA proposing to approve?
B. Summary of MECT program revisions
1. What is the MECT program that has been Federally approved
into the Texas SIP?
2. How has TCEQ revised the MECT program?
C. EPA's Analysis
1. How did EPA review the MECT program revisions?
2. What criteria did EPA use to analyze the MECT program
revisions?
3. What is EPA's evaluation of the changes related to the switch
from 90 percent control to 80 percent control of NOX
emissions from industrial sources?
4. What is EPA's evaluation of the changes in applicability in
the MECT program?
5. What is EPA's evaluation of the use of DERCs and MDERCs in
the MECT program?
6. What is EPA's analysis of the other revisions to the MECT
program?
7. What is EPA's analysis of the Chapter 116 rule language?
8. What is EPA's analysis of the MECT program with respect to
section 110(l) of the Clean Air Act?
D. Conclusion
II. General Information
III. Statutory and Executive Order Reviews
I. Mass Emissions Cap and Trade Program
A. What is EPA proposing to approve?
The EPA is proposing to approve revisions to the MECT program for
NOX emissions in the HGB ozone nonattainment area
(consisting of Brazoria, Chambers, Fort Bend, Galveston, Harris,
Liberty, Montgomery, and Waller counties) published at Texas
Administrative Code (TAC) Title 30, Chapter 101 General Air Quality
Rules, Subchapter H, Division 3, sections 101.350-101.354, 101.356-
101.360, and 101.363. EPA is also proposing approval of the subsections
in 30 TAC Chapter 116, Control of Air Pollution by Permits for New
Construction or Modification, which provide cross-references to the
MECT program. The sections of Chapter 116 we are proposing to approve
are sections 116.111(a)(2)(L), 116.115(b)(2)(C)(iii), 116.176,
116.610(a)(6), and 116.615(5)(C). These revisions were provided in SIP
revisions
[[Page 58114]]
submitted to EPA on April 12, 2001; January 31, 2003; and December 6,
2004. The revisions make the following changes to the MECT:
The revisions make changes necessary to accomplish the
shift in attainment strategy from 90 percent control of industrial
sources to 80 percent control in the HGB area. For a further discussion
of this change in control strategy, please see the supporting record
for our separate action on the attainment demonstration (RME Docket
R06-OAR-2005-TX-0018).
The revisions expand the applicability of the MECT to
additional sources.
The revisions provide for the use of discrete emission
reduction credits (DERCs) and mobile source DERCs (MDERCs) in lieu of
MECT allowances, subject to our separate action on the Discrete
Emission Credit Banking and Trading program as explained below.
The revisions include a variety of minor changes to
correct grammar and reorganize the rule text for readability.
The revisions to the Texas Commission on Environmental
Quality's (TCEQ's) Chapter 116 permitting rules incorporate cross-
references to the MECT program in Chapter 101.
The MECT program is a significant element of the control strategy
for the HGB area to comply with the Clean Air Act (CAA) requirements to
achieve the ozone attainment standard. As such, the revisions to the
MECT and the corresponding sections in Chapter 116 must be evaluated as
an integral component of the HGB control strategy to reduce
NOX emissions. We are proposing approval of these revisions
to the rules that establish the MECT program, but because of the
relationship of the rules to the attainment demonstration, we will not
finalize approval of the rules until the revisions to the attainment
demonstration are approved. Further revisions allowing DERC and MDERC
use in the MECT program will not be fully approved until the rules for
DERC and MDERC generation and use have been approved. The rules for
DERC and MDERC use and generation and the attainment demonstration are
being considered in separate Federal Register notices. If our separate
actions on the DERC program and the attainment demonstration cannot be
finally approved, the MECT program will continue to operate as outlined
in our November 14, 2001, final approval of the program (66 FR 57252).
B. Summary of MECT program revisions
1. What is the MECT program that has been Federally approved into the
Texas SIP?
The MECT program was adopted as a State regulation on December 6,
2000. The program is mandatory for stationary facilities that emit
NOX in the HGB area which are subject to emission
specifications in TCEQ NOX rules at 30 TAC Chapter 117.106,
117.206 and 117.475, and which are located at a site where they have a
collective design capacity to emit 10 tons per year or more of
NOX. The program sets a cap on NOX emissions
beginning January 1, 2002, with a final reduction to the cap occurring
in 2007. Facilities are required to meet NOX allowances on
an annual basis. An allowance is the authorization to emit one ton of
NOX during a control period; a control period is the
calendar year. Facilities may purchase, bank or sell their allowances.
The amount of NOX allowances is determined by a formula
which uses emission rates established in 30 TAC Chapter 117. These
emission rates and resulting emission reductions were relied on in the
HGB attainment demonstration submitted in 2000. The rules at that time
were to reduce overall industrial NOX emissions by
approximately 90 percent. The MECT program has a provision to allow a
facility to use emission reduction credits (ERCs) generated through the
TCEQ Emission Credit Banking and Trading program to permanently
increase the allowances for the individual facility subject to the MECT
if the credits were generated for NOX in the HGB area before
December 1, 2000. The MECT also has a provision to allow a facility to
use DERCs and MDERCs generated through the TCEQ Discrete Emission
Credit Banking and Trading program in lieu of allowances if they are
generated in the HGB area. EPA published a final rule approving the
MECT program (except for the use of DERCs and MDERCs in the MECT, which
we deferred acting on until our action on the DERC program) on November
14, 2001 (66 FR 57252). Texas has subsequently revised the MECT program
in SIP submittals dated July 15, 2002, January 31, 2003, and December
6, 2004.
2. How has TCEQ revised the MECT program?
The TCEQ submitted a MECT revision to EPA on July 15, 2002,
establishing a new section 101.357, to allow the use of emission
reductions generated through the Texas Emission Reduction Program as
MECT allowances. EPA is not reviewing or proposing to act on this
revision to the MECT program in this document.
Today's action does address several revisions to the MECT that TCEQ
submitted to EPA on January 31, 2003, and December 6, 2004. These
revisions made changes to support the shift from 90 percent control of
industrial sources to 80 percent control in the HGB ozone nonattainment
area, expanded the applicability of the MECT, updated and revised the
provision of the MECT allowing for the use of DERCs and MDERCs in lieu
of MECT allowances, and included a variety of non-substantive changes
to correct grammar and reorganize the rule text for readability.
The shift from 90 percent to 80 percent control of industrial
sources in the HGB nonattainment area is one of a number of changes
made in Texas' mid-course review of the HGB ozone attainment plan. The
current plan was approved on November 14, 2001, and called for
approximately a 90 percent control of industrial NOX
emissions. As a result of a review of the modeling and data, including
an intensive summer study in 2000, TCEQ has revised the plan to
decrease the importance of NOX reductions and to add
controls on highly-reactive volatile organic compounds. The MECT, in
section 101.353, has been revised to support the shift in attainment
strategy from approximately 90 percent to approximately 80 percent
NOX reductions.
To determine the approvability of the change from 90 percent to 80
percent, EPA must consider its impact on the area's attainment plan,
and whether it is consistent with section 110(l) of the Clean Air Act.
We are examining these questions in our separate action on the
revisions to the HGB attainment demonstration, which is being processed
concurrently with this action. EPA will not take final action on the
changes to the MECT related to the change from 90 percent to 80 percent
until final approval of the attainment demonstration is published.
Please note that although the MECT was developed as part of the one-
hour ozone attainment demonstration, and EPA has revoked the one-hour
ozone standard, the MECT remains a necessary component of the SIP under
EPA's anti-backsliding provisions of the Phase I rule (40 CFR
51.905(a)(1)). For a further discussion and review of how the anti-
backsliding provisions are being met and other issues related to the
change in ozone attainment strategy from 90 percent to 80 percent
NOX control, please see the supporting record for our
separate
[[Page 58115]]
action on the attainment demonstration (RME Docket R06-OAR-2005-TX-
0018).
The next revisions we are addressing in this action involve the
expansion of the applicability of the MECT to cover all facilities in
the HGB ozone nonattainment area that are either at a site that meets
the definition of major source at 30 TAC section 117.10, or at a site
where they collectively have an uncontrolled design capacity to emit
ten tons or more of NOX per year. Additionally, once a
source has become classified as a major source the source will always
be subject to the MECT.
The final substantive revision to the MECT that we are considering
in this action involves the sections of the MECT providing for the use
of DERCs and MDERCs in lieu of MECT allowances. Under the Texas
Discrete Emission Credit Banking and Trading program (referred to as
the DERC program), a source can generate short-term emission credits by
reducing its emissions. Reductions from stationary sources are
generated as discrete emission reduction credits (DERCs), and
reductions from mobile sources are generated as mobile discrete
emission reduction credits (MDERCs). DERCs and MDERCs are quantified,
banked and traded in terms of mass (tons) and may be generated and used
statewide. Sources can certify reductions of all criteria pollutants,
with the exception of lead, but the MECT rules only allow
NOX and VOC DERCs and MDERCs to be used in lieu of MECT
allowances. The EPA and the TCEQ Executive Director must approve a
demonstration that the use of VOC DERCs or MDERCs would be equivalent
to the use of NOX allowances in reducing ozone. In our
November 14, 2001, Federal Register action, EPA deferred acting on
these provisions until we proposed action on the DERC program. EPA is
now considering action on the DERC program in a separate action (RME
Docket R06-OAR-2005-TX-0029). TCEQ's revisions to section 101.356 of
the MECT establish limits on the quantity of DERCs that can be used in
a given control period and on the quantities that TCEQ can allow a
given source to use for demonstrating compliance. The use of DERCs and
MDERCs in the MECT program will not be Federally approved until the
approval of both the revisions to section 101.356 being reviewed here
and of the DERC program generally, which is being reviewed in a
separate action.
C. EPA's Analysis
1. How did EPA review and evaluate the MECT program revisions?
Generally, SIP rules must be enforceable and must not relax
existing requirements. See Clean Air Act sections 110(a), 110(l), and
193.
A guidance document that we used to define evaluation criteria is
``Improving Air Quality with Economic Incentive Programs'' (EPA-452/R-
01-001, January 2001) (EIP Guidance). This guidance applies to
discretionary EIPs adopted to attain national ambient air quality
standards (NAAQS) for criteria pollutants, but the EIP Guidance is not
EPA's final action on discretionary EIPs. Final action as to any such
EIP occurs when EPA acts on it after its submission as a SIP revision.
Because the EIP Guidance is non-binding and does not represent final
agency action, EPA is using the guidance as an initial screen to
determine whether potential approvability issues arise. A more detailed
review of the MECT revisions as compared to the EIP Guidance is in the
Technical Support Document (TSD) for the TCEQ Mass Emissions Cap and
Trade Program for the HGB Nonattainment Area. The TSD is available at
the location given in the ADDRESSES section of this document.
2. What criteria did EPA use to analyze the MECT program revisions?
As described in detail in the EIP Guidance, EPA has identified
three fundamental principles that apply to all EIPs: integrity, equity,
and environmental benefit. The integrity principle provides that
emission reductions in EIPs must be surplus, enforceable, quantifiable,
and permanent. The equity principle consists of both general equity and
environmental justice. The third principle provides that all EIPs
should show environmental benefit, whether through faster attainment,
more rapid reductions, or greater emission reductions. In our previous
approval action, EPA evaluated the MECT against these three principles,
specific concerns applicable to multi-source cap-and-trade programs,
and applicable CAA requirements. See 66 FR 38231 (July 23, 2001); 66 FR
57252 (Nov. 14, 2001). In the current action, to evaluate the MECT
revisions EPA conducted a line-item comparison of the Federally
approved and newly adopted state rule language. This comparison
included a discussion of applicable EIP Guidance provisions and CAA
requirements. Our complete analysis of the MECT revisions is contained
in the TSD for this action.
3. What is EPA's evaluation of the changes related to the switch from
90 percent control to 80 percent control of NOX emissions
from industrial sources?
To support the shift from a 90 percent to an 80 percent
NOX control strategy, TCEQ revised the MECT at section
101.353 to include new emission reduction factors for the allocation of
allowances. The changes to the reduction factors are based on the
corresponding changes to the HGB attainment demonstration. The analysis
behind the new reduction factors is evaluated in the TSD reviewing the
revisions to the attainment demonstration (RME Docket R06-OAR-2005-TX-
0018). EPA will not finally approve these changes until the attainment
demonstration revisions including the relaxation of NOX
control to 80 percent are approved. Comments on the appropriateness of
the changes from 90 to 80 percent should be directed to the attainment
demonstration docket.
4. What is EPA's evaluation of the changes in applicability in the MECT
program?
The revisions to MECT applicability at sections 101.350 and 101.351
are approvable because they are not inconsistent with the CAA and
because they strengthen the SIP in two ways. First, applicability is
now based on the uncontrolled design capacity. By basing the inclusion
of facilities on the uncontrolled design capacity, TCEQ has
strengthened the cap by preventing sources from installing control
equipment to remain outside of the cap. Second, TCEQ has established
that once a source is subject to the MECT it will always be subject to
the MECT. Combined, these revisions will help ensure that the intended
emission reductions will occur and also establish a more viable
allowance trading market by increasing and maintaining the number of
sources subject to the MECT.
5. What is EPA's evaluation of the use of DERCs and MDERCs in the MECT
program?
In our initial MECT approval (66 FR 57252, Nov. 14, 2001), EPA
deferred action on the use of DERCs and MDERCs for compliance with the
MECT until our action on the DERC rule. In addition to the original
MECT submission, TCEQ has submitted revisions to section 101.356 twice
since EPA's approval of the MECT program. In this document and the
corresponding TSD, we are reviewing and proposing to approve the use of
DERCs and MDERCs in TCEQ's MECT program for the HGB area. We will
review and act on TCEQ's
[[Page 58116]]
rules for generation and use of DERCs and MDERCs in a separate action
(RME Docket R06-OAR-2005-TX-0029). The use of DERCs and MDERCs in the
MECT program will not be Federally approved until the approval of both
the revisions to section 101.356 being reviewed here and the DERC
program in 30 TAC Chapter 101, Subchapter H, Division 4 being reviewed
in a separate action. Here, EPA is only taking specific comment on the
use of DERCs and MDERCs as allowances in the MECT program. Under the
Texas program, DERCs and MDERCs can be used for a variety of other
purposes. Comments on the generation of DERCs or MDERCs or on the use
of DERCs or MDERCs for purposes other than as MECT allowances should be
directed to the docket on the DERC rule (RME Docket R06-OAR-2005-TX-
0029).
The DERC and MDERC program is what EPA describes as an open market
trading (OMT) program. Section 4.1 of the EIP Guidance explains that
certain types of EIPs may not be combined because their characteristics
and requirements are incompatible. By way of example, it states that an
OMT program and a multi-source cap-and-trade program are incompatible
and thus should not be combined. Therefore, the fact that the MECT
program provides for the use of DERCs and MDERCs in lieu of allowances
at section 101.356(h), with corresponding provisions in the DERC rule
at section 101.376(b), is contrary to the statement in the EIP
Guidance.
The EIP Guidance discourages the use of OMT credits in a multi-
source cap-and-trade program based on concerns that the use of OMT
credits in the cap program could potentially undermine the integrity of
the cap, thus preventing the goals that the cap was established to
achieve. EPA is concerned that including OMT credits in a cap-and-trade
system could lead to:
The possibility that more OMT credits will be used in a
given year than are generated;
The possibility that sources will shift production from
one source to another, generating credits at the reduced source while
no real net benefit in air quality is achieved; and
The possibility that reductions at unregulated sources
will not be real reductions and that they will be used to offset
increases at regulated sources.
When a program includes elements that are not consistent with the
approaches outlined in our guidance, EPA may still approve the rule if
it is consistent with CAA requirements and the rationales underlying
the provisions in EPA guidance. In this case, we must determine whether
the use of OMT credits (DERCs or MDERCs) in lieu of allowances will,
because of the above concerns, undermine the goal of the MECT program,
which is attainment of the one-hour ozone standard in the HGB area. EPA
should also consider whether there are adequate safeguards to ensure
that the additional flexibility provided by the interplay between the
DERC and MECT programs will not undermine the HGB rate or progress
(ROP) plan and attainment demonstration. We approved the HGB ROP plan
on February 14, 2005 (70 FR 07407). The HGB area met its ROP target by
a wide margin (over 100 tons per day) so the institution of DERCs in
the MECT would not be expected to interfere with ROP.
The reduction in industrial NOX emissions relied on in
the attainment demonstration is achieved by the MECT program, which
provides a finite cap on NOX emissions. Beginning in 2005,
the amount of allowances (the authorization to emit one ton of
NOX during a control period, which is the calendar year)
under the cap decreases to the final cap level in 2007. The final 2007
cap level was established based on photochemical modeling and other
evidence as necessary for the area to meet the one-hour ozone standard.
Even after the change from 90 percent to 80 percent NOX
control strategy, the final MECT level is among the most stringent
levels of NOX controls on industrial emissions in the United
States.
Because of the stringency of the needed NOX controls,
Texas linked the DERC and MECT programs, in an effort to provide
additional flexibility to sites subject to the program while
encouraging the development and use of cleaner technologies to reduce
NOX emissions from sources not covered by the cap-and-trade
program. Only DERCs and MDERCs generated in the HGB area are available
for use in lieu of allowances.
At the time the MECT rules were developed, the number of DERCs
available for use in the HGB area totaled over 37,000 tons (all
generated by stationary sources; no MDERCs had been generated).
Additionally, sources had the ability to make early reductions and
continue banking DERCs until the January 1, 2002, implementation date
of the MECT. After implementation of the MECT, sources subject to the
cap no longer had the ability to generate DERCs because those
reductions would take the form of unused allowances. The potential for
capped sites to hold these banked DERCs for use in 2005 and beyond was
significant enough to negatively impact the HGB ROP plan and attainment
demonstration. To guard against more DERCs being used in a given year
than are being generated, which might affect the goal of attainment,
Texas included the following provisions in the MECT rule limiting the
use of NOX DERCs in lieu of allowances.
First, beginning in 2005, annual use of DERCs within the MECT is
limited to 10,000 DERCs collectively for all sites within the HGB area.
This provision eliminates the potential for sites subject to the MECT
to use a large quantity of DERCs in a single year and negatively impact
the HGB ROP plan and attainment demonstration. All requests to use
DERCs (or MDERCs) in the MECT must be made by October 1 of the control
period for which the DERCs (or MDERCs) would be used. In terms of the
10,000 DERC limit, TCEQ will approve requests to use DERCs in the
amount of 250 tons or less for a given control period. After October 1,
when all requests to use DERCs have been received, TCEQ determines how
to respond to any requests to use DERCs in an amount exceeding 250
tons. TCEQ may reduce any such request so that the total amount of all
DERCs used collectively does not exceed 10,000. If all the requests to
use DERCs in a given control period are less than the 10,000 limit,
TCEQ will then address requests for more than 250 tons. For these
requests, TCEQ determines the number of remaining DERCs under the
10,000 limit that were not approved in the requests of 250 tons or
less. These extra DERCs may be apportioned based on the percentage of
DERCs in excess of 250 requested for use by those sites relative to the
total amount of extra DERCs available.
Second, depending on when the DERCs were generated, the MECT rule
requires the use of DERCs at specified ratios. Beginning in 2005, DERCs
generated before January 1, 2005, are required to be used at a ratio of
four DERCs to one allowance. The ratio of DERCs to allowances increases
to a 10 to 1 ratio for DERCs generated before 2005 and used in the
2007, or subsequent, control periods. By way of example, if DERC usage
equaling the full 10,000 limit is approved for use in the 2007 control
period, the overall cap would be increased by 1,000 allowances. Any
DERCs generated after January 1, 2005, are available for use within the
MECT at a one to one ratio, but are still included in the 10,000 DERC
collective limit. We believe these ratios guard against the possibility
that the availability of historic reductions would permit the use of
more DERCs in a year than are generated, which could
[[Page 58117]]
interfere with attainment or reasonable further progress.
As a further safeguard against the possibility of undermining the
attainment demonstration by allowing the use of more DERCs in any given
year than are generated, TCEQ added an additional 2.7 tons per day into
the attainment model beyond the emissions that would be allowed based
on source allocations. This additional 2.7 tons per day represents the
maximum amount of pre-2005 DERCs available for use in the attainment
year 2007. To arrive at this number, TCEQ divided the 10,000 DERC limit
by 10 to yield a total of 2.7 tons per day that could be reintroduced
into the cap. DERCs generated after 2005 by sources outside of the cap
could not be quantified as those reductions would be generated through
voluntary measures. TCEQ therefore assumed that all DERCs that would be
used in the 2007 control period were pre-2005 DERCs. Including these
added emissions in the attainment modeling is analogous to cap-and-
trade programs that set aside a percentage of the modeled emissions for
new source growth or other purposes.
The MECT program also provides that MDERCs can be used in lieu of
allowances at a ratio of one MDERC to one allowance. MDERCs are not
included in the 10,000 DERCs limit in any given control period. TCEQ
incorporated MDERCs into the MECT to provide incentives for mobile
reductions. Although there is no set limit for MDERC usage under the
MECT, from our experience with open market trading programs, we can
reasonably predict that a relatively small quantity of MDERCs will be
generated. Consistent with our prediction, we note that only 60 tons of
MDERCs have been banked as of August 1, 2005.
TCEQ has also committed to making certain revisions to the DERC
program to ensure that the DERCs used are real, surplus, and consistent
with the assumptions in the attainment demonstration. These revisions
will include:
Prohibiting the generation of DERCs from permanent
shutdowns (See RME Docket R06-OAR-2005-TX-0029);
Ensuring that reductions can only come from process
changes or the installation of control equipment that result in less
emissions per unit of production, thus preventing reductions from
production shifting as a method of DERC generation;
Clarifying the provisions that allow for public comment
and EPA approval of quantification protocols to ensure that the
reductions used for DERC generation are quantifiable.
A more complete description of the criteria for DERC generation is
included in the supporting documents for the DERC rule.
Additionally, section 101.363 requires TCEQ to audit the MECT
program every three years. If the use of DERCs or MDERCs is shown to
negatively impact attainment, TCEQ will remove this flexibility from
the program.
With the restrictions outlined above, we believe that permitting
the use of DERCs and MDERCs in lieu of allowances provides additional
flexibility in compliance with the MECT program without undermining the
goal of attaining the one-hour ozone standard in the HGB area. EPA also
believes that the restrictions placed on the use of DERCs and MDERCs in
the MECT will prevent such use from damaging the integrity of the MECT
program and the HGB attainment demonstration. Because the basis for the
use of DERCs and MDERCs in the MECT is, in part, the modeling and
attainment demonstration for the HGB area, EPA cannot grant a final
approval of this provision of the MECT program until EPA issues a final
approval of the attainment modeling provided as a mid-course review SIP
revision. The attainment demonstration and DERC program are being
concurrently proposed for approval (RME Dockets R06-OAR-2005-TX-0018
and R06-OAR-2005-TX-0029).
6. What is EPA's Analysis of the Other Revisions to the MECT Program?
The additional revisions to the MECT at sections 101.352, 101.354,
101.359, and 101.360 are also approvable because they are consistent
with the EIP Guidance and meet the requirements of section 110(l) of
the Clean Air Act as explained below. In section 101.352(b), the TCEQ
changed the date for the true-up period from February 1st following the
control period to March 1st, beginning with the first control period of
January 1, 2003. This revision corrected a typographical error in the
Federally approved MECT that ended the true-up period on February 1st
and determined compliance with the cap on March 1st. Section 7.4 of the
EIP Guidance also recommends a true-up period of 60 days for control
periods up to a year. The revision to section 101.352(e) further
refines the group of facilities that can use MECT allowances for the
correlating one to one portion of NSR offsets as only new or modified
facilities that are not considered existing facilities under section
101.350(e). The majority of the revisions to section 101.354 are
corrections to grammar and section numbering. The new section
101.354(e) is a measure to strengthen the SIP by discouraging demand
shifting. If a facility subject to the MECT shifts production or
activity to a facility not subject to the MECT, the TCEQ will deduct
allowances from the MECT facility equal to the increase in emissions
that resulted from the demand shifting. The revisions to section
101.359 establish expanded reporting requirements for facilities
subject to the MECT and provide for the imposition of penalties on
facilities that miss reporting deadlines. The revisions to section
101.360 provide more detail on the requirements for level of activity
reporting. Our full review of these revisions can be found in the TSD.
7. What is EPA's Analysis of the Chapter 116 Rule Language?
The new subsections of Chapter 116, sections 116.111(a)(2)(L),
116.115(b)(2)(C)(iii), 116.176, 116.610(a)(6), and 116.615(5)(C),
submitted by TCEQ on April 12, 2001, are approvable. These subsections
establish the permitting requirements for the facilities subject to the
MECT. Collectively, these subsections reinforce the requirements of the
MECT program by stating that facilities must possess allowances before
operation and that an owner or operator of a new facility must identify
the source of allowances it will rely on in the permit.
8. What is EPA's Analysis of the MECT Program With Respect to Section
110(l) of the Clean Air Act?
Section 110(l) of the Clean Air Act states:
Each revision to an implementation plan submitted by a State
under this Act shall be adopted by such State after reasonable
notice and public hearing. The Administrator shall not approve a
revision of a plan if the revision would interfere with any
applicable requirement concerning attainment and reasonable further
progress (as defined in section 171), or any other applicable
requirement of this Act.
As a general matter, the satisfaction of the environmental benefit
principle and the other integrity principles applicable to trading
programs will tend to demonstrate that a trading program will be
consistent with section 110(l). Here, however, as previously noted, the
revisions to the MECT are a part of a revised ozone attainment strategy
for the HGB area. In addition, we are reviewing the limited use of
DERCs in the MECT. The revised strategy's reduced level of industrial
NOX control and the effect of the use of DERCs in the MECT
are being evaluated separately in the HGB attainment demonstration for
the 1-hour ozone standard. The section 110(l) analysis for our action
on the MECT
[[Page 58118]]
therefore relies on the analysis conducted for the HGB attainment
demonstration.
D. Conclusion
EPA reviewed the MECT program revisions with respect to the
expectations of the EIP Guidance document and the requirements of the
Clean Air Act. EPA has concluded after review and analysis that the
revisions to the MECT program are approvable. EPA is proposing to
approve the revisions to sections 101.350-354, and 101.360 submitted by
TCEQ on January 31, 2003, for rule log number 2002-044-101-AI; and the
revisions to sections 101.356 and 101.359 submitted by TCEQ on December
6, 2004, for rule log number 2003-064-101-AI. EPA has also reviewed the
subsections in 30 TAC Chapter 116 which provide cross-references to the
MECT program, and has concluded that these subsections are necessary
for the implementation of the MECT program. We are proposing to approve
sections 116.111(a)(2)(L), 116.115(b)(2)(C)(iii), 116.176,
116.610(a)(6), and 116.615(5)(C) submitted by TCEQ on April 12, 2001,
for rule log number 2000-047-116-AI.
We will not take final action on these rules, however, until we
finally approve the attainment demonstration. In addition, revisions
allowing DERC use in the MECT program will not be fully approved until
the rules for DERC generation and use have been approved. The rules for
DERC generation and use and the attainment demonstration are being
considered in separate actions.
II. General Information
A. Tips for Preparing Your Comments
When submitting comments, remember to:
1. Identify the rulemaking by File ID number and other identifying
information (subject heading, Federal Register date and page number).
2. Follow directions--The agency may ask you to respond to specific
questions or organize comments by referencing a Code of Federal
Regulations (CFR) part or section number.
3. Explain why you agree or disagree; suggest alternatives and
substitute language for your requested changes.
4. Describe any assumptions and provide any technical information
and/or data that you used.
5. If you estimate potential costs or burdens, explain how you
arrived at your estimate in sufficient detail to allow for it to be
reproduced.
6. Provide specific examples to illustrate your concerns, and
suggest alternatives.
7. Explain your views as clearly as possible, avoiding the use of
profanity or personal threats.
8. Make sure to submit your comments by the comment period deadline
identified.
B. Submitting Confidential Business Information (CBI)
Do not submit this information to EPA through regulations.gov or e-
mail. Clearly mark the part or all of the information that you claim to
be CBI. For CBI information in a disk or CD ROM that you mail to EPA,
mark the outside of the disk or CD ROM as CBI and then identify
electronically within the disk or CD ROM the specific information that
is claimed as CBI). In addition to one complete version of the comment
that includes information claimed as CBI, a copy of the comment that
does not contain the information claimed as CBI must be submitted for
inclusion in the official file. Information so marked will not be
disclosed except in accordance with procedures set forth in 40 CFR part
2.
III. Statutory and Executive Order Reviews
Under Executive Order 12866 (58 FR 51735, October 4, 1993), this
proposed 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
proposed action merely proposes to approve state law as meeting Federal
requirements and imposes no additional requirements beyond those
imposed by state law. Accordingly, the Administrator certifies that
this proposed rule will not have a significant economic impact on a
substantial number of small entities under the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.). Because this rule proposes to approve pre-
existing requirements under state law and does not impose any
additional enforceable duty beyond that required by state law, it does
not contain any unfunded mandate or significantly or uniquely affect
small governments, as described in the Unfunded Mandates Reform Act of
1995 (Public Law 104-4).
This proposed rule also does not have tribal implications because
it will not have a substantial direct effect on one or more Indian
tribes, on the relationship between the Federal Government and Indian
tribes, or on the distribution of power and responsibilities between
the Federal Government and Indian tribes, as specified by Executive
Order 13175 (65 FR 67249, November 9, 2000). This action also does not
have Federalism implications because it does not have substantial
direct effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government, as specified
in Executive Order 13132 (64 FR 43255, August 10, 1999). This action
merely proposes to approve a state rule implementing a Federal
standard, and does not alter the relationship or the distribution of
power and responsibilities established in the Clean Air Act. This
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 is not economically significant.
In reviewing SIP submissions, EPA's role is to approve state
choices, provided that they meet the criteria of the Clean Air Act. In
this context, in the absence of a prior existing requirement for the
State to use voluntary consensus standards (VCS), EPA has no authority
to disapprove a SIP submission for failure to use VCS. It would thus be
inconsistent with applicable law for EPA, when it reviews a SIP
submission, to use VCS in place of a SIP submission that otherwise
satisfies the provisions of the Clean Air Act. Thus, the requirements
of section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (15 U.S.C. 272 note) do not apply. This proposed rule does
not impose an information collection burden under the provisions of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Intergovernmental
relations, Nitrogen oxides, Ozone, Reporting and recordkeeping
requirements, Volatile organic compounds.
Authority: 42 U.S.C. 7401 et seq.
Dated: September 27, 2005.
Richard E. Greene,
Regional Administrator, Region 6.
[FR Doc. 05-19995 Filed 10-4-05; 8:45 am]
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