Final Approval and Promulgation of Implementation Plans; California State Implementation Plan Revision, San Joaquin Valley Unified Air Pollution District

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Final rule.

SUMMARY:

EPA is finalizing limited approval and limited disapproval of revisions to the California State Implementation Plan (SIP) proposed in the Federal Register on September 28, 2000. This limited approval and limited disapproval action will incorporate Rules 2020 and 2201 of San Joaquin Valley Unified Air Pollution District (District) into the federally approved SIP.

The intended effect of finalizing this limited approval is to strengthen the federally approved SIP by incorporating these rules and by satisfying Federal requirements for an approvable nonattainment area New Source Review (NSR) SIP for the District. While strengthening the SIP, however, this SIP revision contains deficiencies which the District must correct before EPA can grant full approval under section 110(k)(3). Thus, EPA is finalizing simultaneous limited approval and limited disapproval as a revision to the California SIP under provisions of the Act regarding EPA action on SIP submittals, and general rulemaking authority.

DATES:

This action is effective on August 20, 2001.

ADDRESSES:

Copies of the state submittal and other supporting information used in developing the final action are available for public inspection (Docket Numbers NSRR 00-13-CA and NSRR 00-16-CA) at EPA's Region IX office during normal business hours. Copies of the District Rules and submittal are also available at the following locations: San Joaquin Valley Unified Air Pollution Control District, 1990 E. Gettysburg Avenue, Fresno, California 93726. California Air Resources Board, Stationary Source Division, Rule Evaluation Section, 1001 “I” Street, Sacramento, CA 95812.

FOR FURTHER INFORMATION CONTACT:

Ed Pike, Permits Office, (AIR-3), Air Division, U.S. Environmental Protection Agency, Region IX, 75 Hawthorne Street, San Francisco, CA 94105-3901; by telephone at (415) 744-1211; or by email at Pike.Ed@epa.gov.

SUPPLEMENTARY INFORMATION:

Throughout this document wherever “we,” “us,” or “our” are used we mean EPA.

Table of Contents

I. What Action Is EPA Finalizing?

II. Background

III. Public Comments and EPA Response

IV. EPA Final Action and Required Corrections to District Rules 2020 and 2201

V. Administrative Requirements

I. What Action Is EPA Finalizing?

EPA is finalizing a limited approval and limited disapproval of revisions to the California SIP for District Rules 2020 and 2201. This final action replaces previous New Source Review and Permit Exemption Rules in the following SIPs: Fresno County, a portion of Kern County, Kings County, Madera County, Merced County, San Joaquin County, Stanislaus County, and Tulare County. Please see the Technical Support Document for a complete list of the Rules that will be replaced.

Rule 2020 was adopted by the San Joaquin Valley Unified Air Pollution Control District on September 17, 1998, and submitted to EPA by the California Air Resources Board (CARB) on October 27, 1998. Rule 2201 was adopted by the District on August 20, 1998 and submitted to EPA by CARB on September 29, 1998. This proposed limited approval and limited disapproval does not include sections 5.9 and 6.0 of Rule 2201, which specify requirements for sources that request permit modifications that also meet title V requirements. The title V requirements in Rule 2201 (based on a prior version of Rule 2201) were given interim approval as part of the District's title V operating permits program in EPA's April 24, 1996 rulemaking on that program (see 60 FR 55517 and 61 FR 18083). The District has not submitted any substantive changes to the title V sections of Rule 2201 since that approval.

II. Background

The background of this action is more lengthy than our usual consideration of SIP rules. Initially, on September 23, 1999, EPA proposed to grant full approval of Rules 2201 and 2020 and requested public comment (64 FR 51493). On October 25, 1999, EPA received a comment (as explained in the “Response to Comments” section below) from the California Unions for Reliable Energy (“CURE”) contending that full approval of a provision of Rule 2201 would be inconsistent with federal law. After we evaluated the comment, we determined that finalizing full approval of Rule 2201 would be inappropriate, but we also determined that full disapproval would be inappropriate because Rules 2201 and 2020 overall will strengthen the SIP.

EPA, instead, proposed on September 28, 2000, to grant Rules 2201 and 2020 limited approval and limited disapproval (65 FR 58252). In our September 28, 2000, proposal, EPA stated that we would respond to the comments submitted on both proposals (i.e. the proposal to grant full approval in September 1999 and subsequent proposal to grant limited approval and limited disapproval in September 2000) when taking final action. In that proposed limited approval and limited disapproval, EPA concluded that including Rules 2020 and 2201 would generally strengthen the SIP. However, EPA also identified the following deficiencies in District Rules 2020 and 2201 preventing full approval. (See the September 28, 2000, proposal at 65 FR 58252 for an additional description of the necessary corrections to these two rules).

1. The District must remove the agricultural exemption from District Rule 2020.

2. The District must revise Rule 2201 to provide a mandatory and enforceable remedy to cure any annual shortfall and, in the future, prevent shortfalls in the District's New Source Review Offset Equivalency Tracking System.

3. The District must revise Rule 2201 to ensure that all sources meet the Lowest Achievable Emission Rate (LAER) if they are allowed to make a significant increase in their actual emission rate.

III. Public Comments and EPA Response

As noted above, we provided a 30-day public comment period on our September 23, 1999, proposal to grant full approval of Rules 2201 and 2020. EPA received comments from California Utilities for Reliable Energy (“CURE”) and Enron North America Corporation. EPA also provided a 30-day public comment period on its September 28, 2000, proposal to grant limited approval and limited disapproval. EPA received additional comments from CURE, and comments from the Sierra Club. The comments on our most recent proposal and our responses appear below. (EPA has provided responses to earlier comments in a separate Technical Support Document.)

CURE Comment #1

CURE's comment on EPA's September 2000 proposed limited approval and limited disapproval contends that the District's Offset Equivalency Tracking System (which aggregates and tracks Emission Reduction Credits, or ERCs, on an annual basis) is inconsistent with federal law. CURE asserts that federal law requires a demonstration that every ERC is surplus to all other requirements of the SIP before it can be used as a valid offset. The District's annual Offset Equivalency Tracking System will demonstrate that ERCs (which may have been used previously during the year to offset emissions increases) are surplus to other requirements only at the end of each year (on a 3 year rolling average).

EPA Response to Comment Regarding Tracking System

EPA's August 30, 1999, Technical Support Document (TSD) for its proposed full approval of Rules 2201 and 2020 discussed in detail the statutory offset requirements in the Clean Air Act and the reasons the District's Offset Equivalency Tracking System, combined with the requirement for a mandatory and enforceable remedy for any shortfall, complies with the Act. Generally, the Offset Equivalency Tracking System allows the District to demonstrate annually (at the end of each year) that it has required sufficient offsets that meet all federal offset requirements. EPA has also agreed that the District may include the prior two years' data (for a total of three years) to demonstrate equivalency, as long as the demonstration is still conducted annually. During each of the first two years of the tracking system, the District must either provide a demonstration using only the data collected since the beginning of the tracking system, or review all prior permitting actions during the prior year or two to create a three-year rolling average.

EPA's 1999 TSD explains that on a case-by-case basis the District's ERCs do not meet all federal requirements. Primarily, the District does not require an individual ERC to be “surplus at the time of use.” See, e.g., In Re: Operating Permit Formaldehyde Plant Borden Chemical, Inc., Petition No. 6-01-1 (Adm'r Dec. 21, 2000) (“Borden Order”), at page 18 (“Under Clean Air Act section 173(c)(2), ERCs must be surplus at the time they are used as offsets.”); Memorandum From John Seitz to David Howekamp Re: Response to Request for Guidance on Use of Pre-1990 ERC's and Adjusting for RACT at Time of Use “Seitz Memo”), at p. 2 (“At a minimum, States must ensure a RACT level of reductions on an area basis for all applicable RACT requirements at time of ERC use [footnote omitted] (e.g., at the time of NSR permit issuance).”) In contrast, the District evaluates whether ERCs are surplus to other legal requirements at the time a source submits an application to generate an ERC—not when the ERC is used. During the time between the initial application to generate the ERC and application to use an ERC, new legal requirements can become effective. Those new requirements affect whether the ERC, or a portion of the ERC, is surplus.

CURE's comment does not oppose EPA's conclusion that ERCs must be surplus at the time of use. Rather, CURE's comment challenges EPA's conclusion that an annual equivalency demonstration satisfies section 173 of the Clean Air Act. CURE contends that the Act requires the District to demonstrate that an ERC meets all federal requirements before any permit relying on that ERC may be issued.

EPA does not believe that our approval of the District's Offset Equivalency Tracking System allows the District to violate any federal requirement. The District must demonstrate compliance with all federal requirements, but only requires a demonstration of compliance on an aggregate basis at the end of each year (on a 3 year rolling average). Thus, The District must demonstrate that in the aggregate the ERCs it allowed to be used met or exceeded the surplus requirements and all other federal requirements. We have concluded that the Act allows EPA discretion to approve an annual demonstration of equivalency (in the aggregate) with the federal requirements, based in part on the express language in section 173(c)(1)(A), stating:

by the time the source is to commence operation, sufficient offsetting emissions reductions have been obtained, such that total allowable emissions from existing sources in the region, from new or modified sources which are not major emitting facilities and from the proposed source will be sufficiently less than total emissions from existing sources (as determined in accordance with the regulations under this paragraph) prior to the application for such permit to construct or modify so as to represent when considered together with the plan provisions required under section 7502 of this title) reasonable further progress (as defined in section 7501 of this title); (emphasis added)

The Seitz Memo, referenced above, discusses in part the circumstances under which a state could use ERCs generated before 1990. The Seitz Memo concluded that such ERCs could be used if the state could “show that the magnitude of pre-1990 ERC's (in total tonnage) was included in the growth factor” and explicitly listed in attainment plan inventories as such. Seitz Memo , at p. 1. When the Seitz Memo further considered whether ERCs were required to be surplus at the time of use, EPA stated that “States must ensure a RACT level of reductions on an area basis for all applicable RACT requirements at the time of ERC use [footnote omitted] (e.g. at the time of NSR permit issuance).” Seitz Memo at p. 2. EPA's reasoning that we can approve the District's annual aggregate offset equivalency demonstration under the Act is further strengthened by our approval of the RECLAIM Trading Program for implementation of both RACT and NSR in the South Coast Air Quality Management District, based in part on an offset tracking system that operates on an aggregate basis (61 FR 64292).

Further support for EPA's determination that it can allow the District to demonstrate equivalency on an annual basis rather than for each permit lies in the fact that the Clean Air Act generally establishes pollution limitations on an annual basis for purposes of permit issuance. For example, section 182(c) defines major sources in serious ozone non-attainment areas based on the tons per year of pollutants emitted, and section 182(c)(10) relies on this definition to specify the quantity of ERCs that are required. In addition, although ERCs must be “enforceable” at the time of permit issuance, the language of section 173(c)(1) requires that an ERC be “in effect” when a major stationary source is ready to commence operations. As a practical matter, there is generally a lengthy time between when a source is permitted and when it commences operations, providing the District with time to conduct the equivalency demonstration.

The District will demonstrate annually that the offsets issued during the year are surplus to emission reductions required under the Clean Air Act and the State Implementation Plan. This demonstration does not change any of the requirements in the Clean Air Act for ERCs to be creditable. It is an accounting exercise allowing the District to demonstrate yearly that sufficient creditable offsets have been provided on an aggregate basis. EPA believes that it is reasonable to interpret section 173, as discussed in the August 26, 1994 memo and Borden Order, to allow approval of an annual equivalency demonstration.

CURE Comment #2

CURE also commented that EPA should clarify that the District's tracking system applies only to ozone precursors.

EPA Response to Comment Regarding Types of Pollutants Covered by Tracking System

EPA disagrees with CURE because we believe that Clean Air Act section 173 allows approval of an aggregate offset tracking system for pollutants other than ozone precursors to demonstrate that “surplus” requirements are met. Although the August 26, 1994 memo only specifically considered ozone precursor emissions, the reasoning underlying the memo was not limited to one pollutant. Therefore, EPA believes it is appropriate to extend the reasoning in the August 26, 1994 memo to pollutants contributing to nonattainment with National Ambient Air Quality Standards for particulate matter under 10 microns in diameter, including precursors such as sulfur oxides, provided the facts and science concerning other emissions are sufficiently similar to the science that was considered for ozone precursors.

For instance, we believe that PM₁₀ precursors in the San Joaquin Valley are similar to ozone precursors in several ways. These precursors must react with other compounds in the atmosphere before forming PM₁₀, and continue to react over time and distance as they encounter other pollutants in the atmosphere and different meteorological conditions. Therefore, they tend to have a Regional basis, rather than a localized basis, because they are generally dispersed outside of a localized area before reacting to form PM₁₀ and can appropriately be included in the aggregate system for demonstrating compliance with EPA offset requirements. In addition, the District rule prohibits any individual source from causing or making worse a violation of an Ambient Air Quality Standard (section 4.14.2). Sources must perform modeling using EPA-approved modeling guidelines (section 4.14.2) to verify that the stationary source will not cause or contribute to an Ambient Air Quality Standard (except for certain non-major sources that are below the public notice thresholds). These air quality and modeling requirements include PM₁₀ and PM₁₀ precursors (in addition to other pollutants).

In addition, the District has certified to EPA (see December 7, 1999 letter from Seyed Sadredin to Matt Haber) that the directly emitted PM₁₀ from stationary sources is only about 0.22% of the inventory of directly-emitted PM₁₀. For this reason, the exact location of an individual stationary source either generating or using offsets of directly-emitted PM₁₀ is unlikely to directly create or worsen a localized PM₁₀ non-attainment problem in the San Joaquin Valley. (Please note that the District must ensure, via the offset tracking system, that an amount of “surplus” PM₁₀ and PM₁₀ precursor offsets are provided in the District that are at least equal to the amount required under federal NSR requirements.) Instead, stationary sources are more likely to emit precursors that contribute to an area-wide problem and are appropriately regulated in the aggregate for the purposes of the offset tracking system.

Further, the District does not expect to adopt any new stationary source control measures for directly-emitted PM₁₀ and believes that existing ERCs are surplus of existing SIP requirements. Therefore, it is extremely unlikely that the District will need to make any special showing in its annual equivalency demonstration that the offsets being used for directly emitted PM₁₀ are surplus. In other words, all of the existing and generated offsets that could be used for a new source of directly-emitted PM₁₀ should already be surplus to SIP rule requirements. Therefore, EPA believes that demonstrating, via the offset tracking system, that sufficient PM₁₀ offsets are obtained on a program-wide basis will not cause or worsen any local air quality violation in the San Joaquin Valley.

CURE Comment #3

CURE commented favorably on (1) EPA's decision not to finalize a full approval of District Rule 2201 and (2) the decision to repropose the action as a limited disapproval based on the District's failure to include in Rule 2201 a specific and mandatory remedy for any shortfall in the annual equivalency system.

EPA Response

EPA agrees with this comment and is finalizing the requirement supported by the commentor.

Sierra Club Comment

The Sierra Club commented that it supports EPA's proposed limited approval and limited disapproval. In particular, the Sierra Club supports the disapproval of the blanket exemption for agricultural sources, and comments that large agricultural facilities must be required to comply with Clean Air Act standards to achieve clean air goals in the San Joaquin Valley.

EPA Response

EPA agrees with this comment and is finalizing the requirement supported by the commentor.

IV. EPA Final Action and Required Corrections to District Rules 2020 and 2201

For the reasons explained above, the comments submitted on our September 28, 2000 proposal have not changed our evaluation of the rules as described in our proposed limited approval and limited disapproval. EPA is, therefore, finalizing its limited approval and limited disapproval of District Rules 2020 and 2201. Our final action is a limited approval and limited disapproval because the Rules contain deficiencies and are not fully consistent with Clean Air Act requirements, EPA regulations and EPA policy. The District must revise Rule 2020 and 2201 to address the following deficiencies, as described in our September 28, 2000 proposal:

1. The District must remove the agricultural exemption from District Rule 2020.

2. The District must revise Rule 2201 to provide a mandatory and enforceable remedy to cure any annual shortfall and prevent future shortfalls in the District's New Source Review Offset Equivalency Tracking System. This remedy must take effect automatically if the District does not demonstrate equivalency each year. For instance, the District has suggested requiring that major sources and title I modifications meet federal offset requirements, including using credits that are surplus at time of use and using EPA requirements for calculating offset baselines and quantities.

3. The District must revise Rule 2201 to ensure that all sources install LAER if they are allowed to make a significant increase in their actual emission rate. (See 65 FR 58252 for additional information.) For instance, the District could adopt a rule amendment requiring that these sources comply with LAER.

Because these rule deficiencies are inappropriate for inclusion in the SIP, EPA cannot grant full approval of these rules under section 110(k)(3). Also, because the submitted rules are not composed of separable parts which meet all the applicable requirements of the CAA, EPA cannot grant partial approval of the rule under section 110(k)(3). However, EPA is granting final limited approval of the submitted rules under section 110(k)(3) in light of EPA's authority pursuant to section 301(a) to adopt regulations necessary to further air quality by strengthening the SIP. The final approval is limited because EPA's action also contains a simultaneous limited disapproval. In order to strengthen the SIP, EPA is finalizing limited approval and limited disapproval of District rules under sections 110(k)(3) and 301(a) of the CAA. It should be noted that the rules covered by this final rulemaking have been already been adopted by the District. EPA's final limited disapproval action does not prevent the District or EPA from enforcing these rules. Nothing in this action should be construed as permitting or allowing or establishing a precedent for any future request for revision to any SIP. Each request for revision to the State Implementation Plan shall be considered separately in light of specific technical, economic, and environmental factors and in relation to relevant statutory and regulatory requirements.

The District will have 18 months from the effective date of this final action to correct the deficiencies delineated by EPA in section IV above, to avoid federal sanctions. See section 179(b) of the CAA. The District's failure to correct the deficiencies will also trigger the Federal implementation plan requirements under 110(c).

V. Administrative Requirements

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. This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). This rule also does not have 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), nor will it 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), because it merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 (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. As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the executive order. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

The Congressional Review Act, 5 U.S.C. 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 September 17, 2001. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

List of Subjects in 40 CFR Part 52

• Environmental protection
• Air pollution control
• Hydrocarbons
• Incorporation by reference
• Intergovernmental relations
• Nitrogen dioxide
• Ozone
• Particulate matter
• Reporting and recordkeeping

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

Part 52, chapter I, title 40 of the Code of Federal Regulations is amended as follows:

PART 52—[AMENDED]

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

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

Subpart F—California

2. Section 52.220 is amended by adding paragraphs (c)(260)(i)(B) and (c)(266)(i)(B)( 3) to read as follows: