[Federal Register Volume 66, Number 199 (Monday, October 15, 2001)]
[Rules and Regulations]
[Pages 52343-52359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25728]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[IL 165-2; FRL-7056-6]
Approval and Promulgation of Implementation Plans; Illinois
Trading Program
AGENCY: Environmental Protection Agency (USEPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: USEPA is approving the Illinois trading program, submitted on
December 16, 1997. This program is a cap and trade program, designed to
reduce emissions of volatile organic compounds (VOC) in the Chicago
ozone nonattainment area below the levels required by reasonably
available control technology (RACT) and other regulations. Illinois
requires participation by major industrial VOC sources. Each
participating source must hold allowances equivalent to its emissions,
and Illinois issues allowances to each source equivalent to 12 percent
less than baseline actual emissions. Sources may buy and sell
allowances, thereby redistributing allowable emissions, but the sum of
emissions from the sources involved must in any case reflect a 12
percent reduction from total baseline levels. USEPA reviewed Illinois'
estimates of program benefits and concluded that the program would
reduce VOC emissions by 10.9 tons per day.
On December 27, 2000, at 65 FR 81799, USEPA proposed to approve
this program provided Illinois satisfactorily resolved five issues.
Illinois' response to the proposed rulemaking resolved four of these
issues, by clarifying the timetable for suitable enforcement authority,
satisfying USEPA's environmental justice policy, prohibiting credit
issuance to minor sources in the absence of an area-wide net emissions
decrease (``demand shifting''), and committing to remedy any problems
identified in its annual program review. Illinois addressed the fifth
issue by a letter to USEPA dated August 23, 2001. In this letter,
Illinois requested that USEPA defer rulemaking on section 205.150(e),
which exempts new sources that satisfy the trading program's seasonal
offset requirements from the requirement for full year offsets. Because
USEPA is deferring rulemaking on this section, the State Implementation
Plan (SIP) continues to require full year offsets, satisfying the fifth
prerequisite for program approval.
USEPA received multiple comments on its proposed rulemaking,
regarding
[[Page 52344]]
environmental justice, ``open market trading program'' features of the
Illinois program, and numerous other topics. USEPA believes that the
Illinois program is designed to make environmental justice problems
unlikely, and believes that Illinois has suitable processes for
identifying and remedying such problems should they occur. USEPA
further believes that Illinois is providing suitable information to the
public and is providing suitable opportunities for public input, and
believes that Illinois has satisfied USEPA's environmental justice
policy in other respects as well. USEPA is satisfied that the Illinois
program is fundamentally a cap and trade program and cannot in any
significant way be considered an open market trading program. After
reviewing the various comments, and aside from one section of Illinois'
rules (pertaining to offsets for new sources and major modifications)
for which USEPA is deferring rulemaking, USEPA has concluded that the
Illinois program satisfies relevant guidance and Clean Air Act
requirements.
EFFECTIVE DATE: This action will be effective on November 14, 2001.
ADDRESSES: Copies of Illinois' submittals and other information are
available for inspection during normal business hours at the following
address: (We recommend that you telephone John Summerhays at (312) 886-
6067, before visiting the Region 5 Office.)
United States Environmental Protection Agency, Region 5, Air
Programs Branch (AR-18J), Regulation Development Section, 77 West
Jackson Boulevard, Chicago, Illinois 60604.
FOR FURTHER INFORMATION CONTACT: John Summerhays, Environmental
Scientist, United States Environmental Protection Agency, Region 5, Air
Programs Branch (AR-18J), Regulation Development Section, 77 West
Jackson Boulevard, Chicago, Illinois 60604, (312) 886-6067,
([email protected]).
SUPPLEMENTARY INFORMATION: This supplementary information section is
organized as follows:
I. What did USEPA propose?
II. What comments did USEPA receive?
III. How did Illinois EPA respond to prerequisites for approval?
IV. What are USEPA's responses to comments?
1. Environmental justice comments
2. Comments on ``open market trading features''
3. Additional comments by NRDC et al.
4. Additional comments by ED dated March 26, 2001
5. Additional comments by ED dated January 26, 2001
6. Additional comments by Alex Johnson
7. Additional comments by Richard Kosobud
8. Additional comment by IEPA
V. What action is USEPA taking?
VI. Administrative Requirements
I. What Did USEPA Propose?
USEPA proposed to approve the Illinois trading program provided
that Illinois took five specified actions. In particular, USEPA
proposed that Illinois must: (1) Clarify the timeline and penalties for
violating sources, (2) satisfy USEPA's trading program policy on
environmental justice, (3) provide for full-year offsets for new
sources and major modifications, (4) commit to discount credits where
emission reductions are potentially accompanied by emission increases
elsewhere, and (5) commit to remedy any problems identified in its
periodic program review.
USEPA published its notice of proposed rulemaking on December 27,
2000, at 65 FR 81799. This notice included an extensive description of
the Illinois trading program, followed by a discussion of the criteria
USEPA used to review the program, a review of the features of the
Illinois program, and a review of the emission reductions attributable
to the program.
In brief, the Illinois trading program is a cap and trade program
designed to reduce emissions of volatile organic compounds (VOC) in the
Chicago ozone nonattainment area. Major VOC sources, i.e. industrial
facilities emitting at least 25 tons per year, including at least 10
tons between May and September, are required to participate. Each such
source must determine its baseline actual emissions. The state issues
allowances generally equivalent to 12 percent less than the baseline
emissions.
The principal compliance obligation upon sources is to hold
allowances at least equal to emissions each year. Sources have several
options for complying with this requirement. The first option is simply
to reduce emissions to 12 percent below baseline emissions. Under this
option, the source has no need to buy or sell allowances. A second
option is to reduce emissions more than 12 percent below baseline
emissions. Under this option, the source would receive more allowances
from the state than it would need to accommodate its emissions, and the
source could choose to sell the excess allowances. A third option is to
reduce emissions less than 12 percent below baseline emissions or even
increase emissions. This option would require purchase of allowances,
presumably from a source that under the second option reduced its
emissions enough below its target 12 percent reduction level to
accommodate the excess emissions of the purchasing source, i.e., the
amount by which the purchasing sources exceeds its target, 12 percent
reduced, emission level.
The third option creates concern about environmental justice. This
concern arises because some of the VOC emissions include hazardous air
pollutants (HAPs). Particularly at issue is the potential for increased
emissions of HAPs in low income and minority communities and other
communities of concern. In one form of this issue, the fact that
companies not only may fail to achieve 12 percent emission reductions
but may in fact increase emissions means that the program allows
increases of emissions of VOC and potentially of HAPs. Another form of
this issue reflects concern that even when a source reduces emissions
by an amount short of 12 percent, the source may be viewed as reducing
its HAPs emissions by less than it should. This concern is discussed in
the notice of proposed rulemaking. Because several commenters commented
on this issue, a later section of this document discusses this issue at
length.
II. What Comments Did USEPA Receive?
USEPA received nine comment letters. Because the initial comment
period closed before being reopened, some groups sent comments on both
January 26, 2001, and March 26, 2001. USEPA received the following
comment letters from the following groups:
Citizens for a Better Environment (CBE)/American Lung Association of
Metropolitan Chicago (ALAMC)--comments sent March 26, 2001
Environmental Defense (ED)--comments sent January 26, 2001, and
comments sent March 26, 2001
Illinois Environmental Protection Agency (IEPA)--comments sent March
26, 2001
Alex Johnson--comments sent March 27, 2001
Richard Kosobud (professor at University of Illinois at Chicago)--
comments sent March 22, 2001
Natural Resources Defense Council (NRDC)/CBE/ALAMC/Public Employees for
Environmental Responsibility (PEER)--comments sent January 26, 2001
NRDC/ALAMC--comments sent March 26, 2001
PEER--Comments on several open market trading programs sent March 9,
2001
The letter from IEPA focuses on the issues identified in the notice
of
[[Page 52345]]
proposed rulemaking for the state to address. These issues are
addressed in a separate section immediately following. The section
after that will address one additional comment by IEPA and comments
from the other commenters.
Several commenters identified concerns regarding the potential that
trading of volatile organic compound emissions has to increase
emissions of HAPs in areas already overburdened with emissions of HAPs,
one form of an issue known as the environmental justice issue. In
addition, several comment letters presented the view that the Illinois
program has features of open market-type trading programs, and
commented that these features create a variety of problems. For
clarity, the section of this notice addressing comments has a
subsection for each of these two topics addressing all comments on each
topic. Since the remainder of the comments cannot be so readily
categorized, the remaining comments will be addressed in subsections
organized by commenter.
The comments submitted by NRDC and ALAMC on March 26, 2001,
generally include the comments submitted by NRDC, CBE, ALAMC, and PEER
on January 26, 2001. For convenience, these comment letters will be
addressed jointly, and this notice will refer to these commenters as
NRDC et al.
III. How Did Illinois EPA Respond to Prerequisites for Approval?
As noted previously, USEPA proposed to approve the Illinois trading
program provided Illinois resolved five issues. Illinois' comment
letter addresses each of these issues in turn. The following discussion
identifies Illinois' actions and USEPA's review for each of these five
items in the same order.
The first prerequisite for approval was that Illinois clarify the
timeline and penalties for violating sources. Illinois provided this
clarification. Illinois noted the need to complete the process of
accounting for one ozone season's emissions before the next ozone
season begins, and the state's comments include a detailed schedule by
which such accounting is achieved.
In Illinois' program, if a source fails to hold sufficient
allowances by December 31 to accommodate their emissions that ozone
season, it must provide ``excursion compensation.'' Illinois identifies
and notifies these sources within about a week of December 31. Pursuant
to section 205.720, sources must compensate for the excess emissions
plus a 20 percent (or, for repeat offenders, 50 percent) surcharge.
Sources may ask within 15 days that this 120 percent (or 150 percent)
compensation be taken in the form of a reduction of the next year's
issuance of allowances. Alternatively, 20 days after notifying the
source of its excess emissions, Illinois sends the source a bill for
the purchase of the necessary allowances from the State's special
compliance fund. If the company has not paid this bill within 45 days,
the source is in violation.
For example, if a source receives notification of an emissions
excursion on January 7, it would have until January 22 to request the
requisite deduction from the upcoming issuance of allowances. In
absence of such a request, Illinois would send the source a bill on
January 27 for the then mandatory purchase of allowances. Assuming 2
days for delivery of this bill, the source would have until March 15 to
pay the bill. After that date, if the source has not paid its bill, the
source would be in violation and traditional enforcement action could
begin. Violating sources are liable for full enforcement authorized
under Clean Air Act section 113, including penalties up to $27,500 per
day.
This schedule is consistent with the schedule inferred by USEPA in
its proposed rulemaking. USEPA finds this a suitable timetable for
enforcement action with penalties sufficient to deter noncompliance.
The second prerequisite for approval was that Illinois satisfy
USEPA's policy on environmental justice. In particular, USEPA noted a
need for Illinois to ``commit to review effects of the trading program
on the distribution of hazardous air pollutant emissions in its annual
program review, distribute that review for public comment, and commit
to address any identified problems. Illinois noted that its rule in
fact requires the state to conduct the review sought by USEPA
(including reviewing program effects on ``trends and spatial
distributions of hazardous air pollutants'' (cf. section 205.760(a)(9))
and to make the report available to all interested parties. Illinois
committed to widespread distribution of the report, sending copies to
everyone that expressed interest in the program and making the report
available on its internet site.
Illinois described its ongoing efforts for continuing public review
during the implementation of the program. Illinois noted in particular
the proposal of a rule to require HAPs emissions reporting so that the
impact of the program on HAPs emissions can be analyzed more precisely.
Finally, Illinois committed in its letter to address any problems
identified in its annual program review. These statements satisfy the
second prerequisite for approval, and lead USEPA to conclude that
Illinois has satisfied USEPA's environmental justice policy for trading
programs. Subsequent sections of this notice provide further discussion
of environmental justice issues.
The third prerequisite for approval was that Illinois modify its
new source requirements to assure that emission reductions (from any
time during the year) be obtained to offset the full year emissions
from new sources and major modifications in the Chicago area. Illinois'
comment letter, dated March 26, 2001, objects to this proposed USEPA
view and argues that providing offsets on an ozone season basis is
fully consistent with the Clean Air Act and should be approved by
USEPA.
Subsequently, on August 23, 2001, Illinois amended its rulemaking
request, requesting that USEPA conduct rulemaking on section 205.150(e)
separately from rulemaking on the remainder of Part 205. Section
205.150(e) states that major new sources and sources with major
modifications that obtain the necessary allotment trading units (ATUs,
providing offsets on a ozone season basis) are considered to satisfy
applicable offset requirements (otherwise requiring offsets on a full
year basis).
USEPA is in fact deferring action on section 205.150(e). By this
deferral, USEPA is excluding the exemption from and retaining the
requirement for full year offsets. Thus, pending further rulemaking on
section 205.150(e), the prerequisite for program approval is satisfied
because the approved SIP continues to require offsets on a full year
basis.
USEPA is continuing to review whether Illinois may provide offsets
on an ozone season basis. USEPA has solicited comments on a proposed
view that Illinois must require full year offsets and is not soliciting
comments on this issue at this time. Depending on the results of its
review, USEPA intends either to publish final disapproval or proposed
approval of section 205.150(e).
The fourth prerequisite for approval was that Illinois avoid
issuing credits for ``demand shifting,'' i.e., that Illinois assure
that no credits would be issued to the extent an emission reduction at
one source simply reflects a shift in production to another source that
is not accountable for its emission increase. The notice of proposed
rulemaking noted that Illinois' rules explicitly prohibit credit
issuance to small industrial sources whose emissions may
[[Page 52346]]
be shifting to another small source in the area. However, the notice
requested that Illinois commit to avoid credit issuance in cases of
demand shifting involving commercial and mobile sources.
Illinois responded that its rules in fact already prohibit credit
issuance to the extent mobile and area sources experience demand
shifting. The rules provide for credit issuance only to the extent that
emissions are reduced in the overall business sector. Thus, Illinois
will issue no credits in cases where demand shifting results in no net
emission reduction. This satisfies USEPA's concern.
The fifth prerequisite for approval was that Illinois commit to
remedy any problems identified in its periodic program review. Illinois
noted that the periodic program review was intended to help fulfill the
purpose of identifying and thus facilitating resolution of problems.
Illinois then stated that ``Illinois EPA is committed to addressing any
problems'' identified in the annual program review or identified
elsewhere. USEPA is satisfied with this commitment.
IV. What Are USEPA's Responses to Comments?
1. Environmental Justice Comments
Comment: Several commenters expressed concern that Illinois'
program has the potential to foster redistributions of emissions
causing areas already having excessive air pollution to become exposed
to even more emissions. These commenters recognize that Illinois'
program targets emissions of volatile organic compound (VOC) emissions;
their concern focuses on the components of VOC such as benzene that are
hazardous. All commenters addressed this concern.
NRDC et al., quote from Executive Order 12898 (requiring agencies
to assure environmental justice) and quote the description of the issue
that USEPA provided in its notice of proposed rulemaking (65 FR 81804,
December 27, 2000). NRDC et al., further quote USEPA's proposed view
that features such as Illinois' emissions cap ``help assure that a
participating source would be unlikely to increase its HAP emissions to
unacceptable levels.'' NRDC et al., find this a ``reprehensible failure
by USEPA to recognize the disproportionate potential risk that adjacent
communities are being forced to accept from increased HAP emissions
made possible under the Illinois Trading Program.''
NRDC et al., dispute USEPA's view that the public has had
``suitable opportunities to provide informed input into the development
and implementation of the program.'' NRDC et al., cite several examples
of gaps in public information. According to these commenters, Illinois
has provided no information as to how emissions information for HAPs
will be tracked, and no agreement has been reached on how the Annual
Report will address HAPs emissions information.
NRDC et al., state that Illinois had sufficient information to
consider the control costs of the finite number of program participants
and thereby to assess ``the shifts in emissions reductions likely to
occur.'' NRDC et al., have no doubt that some of these sources are in
``communities disproportionately comprised of low income and/or
minority populations * * * already overburdened with pollutants.'' NRDC
et al., state that ALAMC raised these concerns during Illinois'
development of its rule. In NRDC et al.'s, view, IEPA had the data ``to
anticipate and protect against the shifting of the burden of HAPs into
[communities of concern], IEPA had the responsibility to provide such
an analysis, and USEPA has the responsibility to require such an
analysis.
CBE/ALAMC comment that ``we agree with USEPA'' that one may be
concerned about ``the potential [this] program has to worsen air
quality in any location.'' CBE/ALAMC then argue that low income and
minority communities will be most likely to be subject to such
disparate impacts, because these communities ``tend to live in the
vicinity of older stationery sources [that are] most likely to * * *
`buy' their way out of [emission reduction requirements].''
IEPA supports USEPA's policy and the proposed views on the Illinois
program. IEPA observes that its trading program imposes requirements
for reductions of emissions below the levels permissible under other
regulations, and allows no emissions that are prohibited by other
regulations. IEPA agrees with USEPA that the Illinois program for this
and other reasons is unlikely to yield localized increases in HAPs
emissions.
IEPA describes the workgroup of interested parties that has led to
proposed rule revisions to require enhanced reporting of hazardous air
pollutant emissions by program participants, demonstrating the
continuing involvement of the public in review of the program during
its implementation. IEPA observes that the program provides an annual
program review, which IEPA commits to provide ``to all members of the
public that have expressed interest'' and to make the report available
via its Internet site. IEPA further commits to address any problems
identified during this review.
ED observes that emissions trading can help address environmental
justice concerns. ED states that cap and trade programs hold sources
directly accountable for their overall emission levels and are likely
to outperform command and control regulations in achieving sustained
reductions in emissions. ED observes that ``the cost-savings and
flexibility produced through emissions trading [allows] policy-makers
[to] set more ambitious emissions reduction requirements''. ED cites
particular benefits to programs that pursue substantial reductions, for
example to achieve air quality standards. ED states that emissions
trading markets can stimulate emissions overcontrol and encourage
environmental innovation, benefitting all affected populations
including communities of concern.
ED comments that ``the fundamental economic benefit of emissions
trading allowing environmental objectives and mandates to be met more
cost-effectively'' are particularly important to communities of concern
because ``they are, arguably, most in need both of protection from
environmental threats and of access to economic opportunity, the
development of which can be blunted by unnecessarily costly emissions
control programs.'' ED states further that command and control-based
limitations are inevitably subject to political considerations, which
can be affected by the socio-economic status or racial or ethnic
identity of the affected populations, whereas emissions trading
programs all but eliminate the role of political discretion.
Finally, ED comments on the benefits of ``transparency,'' i.e.,
that the trading program enhances public knowledge of existing problem
areas and whether emissions trading is having beneficial or detrimental
effects in particular areas. ED states ``[i]t is difficult to know a
priori'' how emission trades themselves will affect communities of
concern, and so ED believes it is incumbent on Illinois to obtain data
on program results and to identify ``sound analytical methods to be
used in assessing the performance of the program as it affects
communities of concern.'' ED believes that ``assessing individual
trades is likely to be misleading * * *, while assessing overall
program impacts will be key to understanding its effects on communities
of concern.'' ED concludes that this process will also help Illinois
identify remedies if the program is found to cause disparate impacts.
[[Page 52347]]
Kosobud notes that fundamentally, as a result of the trading
program, ``[e]veryone in the region benefits from cleaner air''.
Kosobud addresses concerns ``that trading could cluster emissions in
certain neighborhoods. [His] appraisal of the early results indicates
no such clusters have occurred.'' While noting that further information
on HAPs emissions will provide a better basis for assessing this
question in the future, Kosobud observes that potential impacts are
limited because sources remain ``subject to traditional regulation
including the more rigorous rules for HAPs'', and sources ``have
discretion only for'' the 12 percent reduction requirement of the
trading program.
PEER comments on the environmental justice impacts of open market
trading. These comments are addressed in the next section, concerning
comments relating to open market trading.
Response: Comments regarding environmental justice generally
involve an implicit comparison. The first step in responding to these
comments is to define the comparison. Most commenters appear to be
comparing conditions after the program begins to conditions before the
program begins. For example, NRDC et al., express concern about the
potential for ``increased HAP emissions made possible by the Illinois
trading program.''
Comparing emissions before and after program start-up includes
changes over time that are not effects of the program. For example, a
source may increase production over time without installing pollution
controls. This would yield an emission increase that would be included
in a comparison of before versus after program start-up that should not
be attributed to the program.
A more appropriate comparison is to compare prospective emissions
after program startup to prospective emissions at the same time
assuming no program. This comparison actually assesses the impact of
the program, assessing whether the trading program can yield emission
increases that would not otherwise be allowed.
Current programs allow emissions to increase. The Illinois trading
program does not allow any emissions increases that are not allowable
under other applicable regulations. With the trading program just as
without it, emissions per unit production may not increase above levels
reflecting reasonably available control technology (RACT). The trading
program also provides no incentive to increase emissions; no source
would increase emissions simply because Illinois has adopted a trading
program. In fact, the trading program provides strong incentives
against emission increases, both because the program requires that most
sources reduce emissions and because the trading program imposes a cost
for purchasing credits that discourages emission increases. Therefore,
USEPA concludes that a comparison based on projected emissions would
show no sources having greater emissions and numerous sources showing
lesser emissions with versus without the trading program.
A second appropriate comparison is to compare the scenario
involving the trading program against a scenario involving the same
emission reductions achieved by alternative means. This begs the
question of how the alternative reductions are obtained.
One form of this comparison is to define the alternative to reflect
Illinois adoption of RACT regulations to achieve equivalent reductions.
The usual presumption is that RACT regulations would yield a different
distribution of reductions, with emissions being higher at some sources
and lower at others. However, quantifying these differences is
difficult at best. First, Illinois in its rule adoption process
concluded that it could not identify RACT regulations that could
achieve reductions equivalent to its trading program. More generally,
no commenter identified a set of RACT regulations that could achieve
equivalent reductions, and it is in fact questionable whether such a
set of regulations can be identified. It is impossible to quantify how
the reductions from an undefined RACT program would compare to the
reductions from the Illinois trading program.
Second, even if one could define a RACT alternative, and assuming
that one could then quantify the distribution of reductions from the
alternative (as well as the increases due to production increases), the
comparison would still require quantifying the distribution of
reductions from the trading program. Such quantifying is difficult.
NRDC et al., argue that Illinois' economic impact analysis gave it
solid data to project which sources were likely to purchase credits
(i.e., emit more than baseline emissions minus 12 percent) and which
sources were likely to sell credits (i.e., emit less than baseline
emissions minus 12 percent). In USEPA's experience, such analyses do
not yield data that are sufficiently reliable to conduct the type of
assessment NRDC et al., seek. While economic impact analyses can give a
useful estimate of the overall impact of a set of regulations, these
analyses do not reflect the source-specific factors that would need to
be considered to judge which particular locations might be most likely
to experience net credit purchases. Consequently, USEPA does not
require Illinois to conduct the type of analysis sought by NRDC et al.
Elsewhere in their comments, NRDC et al. argue that large swings in
emissions could occur because ``the operations of market mechanisms are
anything if not unpredictable.'' This latter comment contradicts their
assertion that Illinois could have readily predicted source-specific
shifts in emissions. In fact, assessing stability of aggregate
emissions (for example by the examination of production data described
in the notice of proposed rulemaking) is more feasible than predicting
the future actions of individual sources.
One possibility is that the trading program would produce emission
reductions identical to those that would be imposed via RACT
rulemaking. RACT rulemakings tend to be dominated by issues of cost and
feasibility. Illinois' trading program is designed to allow sources
themselves to determine which combination of controls are feasible and
can be achieved at least cost. Thus, in theory, the Illinois trading
program could provide the same set of reductions that RACT rulemaking
would seek to provide. In practice, the trading program provides
incentive for process changes that may be very cost-effective but
generally cannot be imposed by regulation. Thus, speculation on the
difference between emission reductions with a trading program versus
with a RACT regulation must include speculation on the extent to which
sources in a trading program would reduce emissions via process changes
versus installation of control equipment.
Another form of this comparison is to define the alternative
scenario as one in which all sources subject to the trading program
regulations instead must reduce emissions by no more or less than 12
percent. This alternative scenario is as if Illinois' regulation could
be subdivided into an emission reduction component and a trading
component, and removing the trading component. As compared to this
alternative, the Illinois trading program will of course have higher
emissions in some locations and lower emissions in other locations.
However, USEPA believes that communities of concern (which are presumed
to have disparate pollution burdens) are as likely to experience lower
emission than higher emissions. In any case, it is doubtful that
Illinois could have adopted a
[[Page 52348]]
regulation that required all sources to reduce emissions by 12 percent
without option for trading. Therefore, an alternative constructed in
this fashion is probably not a realistic alternative.
CBE/ALAMC and ED provide rationales by which the Illinois trading
program would be likely to yield emission reductions that favor or
disfavor communities of concern. CBE/ALAMC argues that communities of
concern, in particular low income and minority communities, tend to
have older sources that are prone to be difficult to control and that
are therefore prone to have less emission reduction than other areas.
ED observes that such communities will tend to fare better with a
trading program than with traditional RACT-type regulations, because
``vulnerable populations' relative lack of political leverage'' will
tend to be a more important factor in developing RACT-type regulations
than in a trading program.
These comments by CBE/ALAMC and ED implicitly reflect comparison to
alternative control scenarios that may not be realistic alternatives.
Nevertheless, the annual program review will address the actual effects
of Illinois' program.
USEPA agrees with Kosobud that preliminary evidence indicates that
the program is providing relatively uniform reductions across the
Chicago area. USEPA intends to continue to monitor the distribution of
emission reductions that result from the Illinois trading program. If
the program results in a problematic distribution of emission
reductions, USEPA will request that Illinois remedy the situation.
Comment: CBE/ALAMC comment on USEPA's description of workgroup
efforts to define the HAPs emissions information that sources must
report and to define the information for Illinois to provide in its
annual report. CBE/ALAMC disagree with USEPA's claim that the workgroup
achieved consensus on emission reporting requirements. CBE/ALAMC
observe that rule revisions to adopt these emission reporting
requirements are being subject to unusual hearing requirements and have
not been adopted even as the second year of the trading program begins.
CBE/ALAMC note that the workgroup has had ``little, if any,
discussion'' of how to analyze and report the information on HAPs
emissions to be collected. CBE/ALAMC identify several questions that
remain to be addressed, including whether the annual report will give
community-specific information on trades and HAPs impacts, what
opportunity the public will have to comment on the annual reports, and
whether Illinois will address the public's comments and make any
warranted program changes.
CBE/ALAMC express concern in particular that the workgroup has not
defined what constitutes an environmental injustice. CBE/ALAMC describe
and dispute an industry view that environmental injustice cannot be
identified without a complete risk assessment. CBE/ALAMC argue instead
that ``any community that is subject to an increase in HAPs
[emissions]--or even a community whose HAP emissions are not reduced to
the level commensurate with those that are being achieved in other
communities--is suffering a disparate impact.''
CBE/ALAMC then note that even more difficult than defining
environmental justice is addressing problems after they occur. CBE/
ALAMC state that ``IEPA should have been required to address these
issues before the program was implemented.'' CBE/ALAMC state that ALAMC
urged during Illinois' rule development process that steps be taken to
``prevent the problem from happening in the first place.'' CBE/ALAMC
now doubt ``that IEPA will be able to identify and mitigate any EJ or
disparate impacts . . . in a timely manner, if at all. Not only do
these potential problems need to be well defined, but a detailed course
of action to correct them needs to be in place before USEPA should even
consider approving this program.''
Johnson comments that Illinois ``fails to address several critical,
common sense provisions'' of USEPA's guidance on environmental justice.
Johnson states that ``Illinois has yet to propose and commit to an
adequate program to evaluate [the program's] potential to increase
exposures of selected populations to hazardous air pollutants.''
Johnson disputes USEPA's statement that the workgroup on the annual
program review ``has achieved general consensus * * * to require
companies to report emissions of individual HAPs''. Johnson believes
that ``[n]o consensus * * * has been achieved. Rather, Illinois has
only proposed a rule based upon divergent concerns.'' Finally, Johnson
comments with respect to ``the most important element'' of USEPA's
recent guidance, namely that the state must ``provide for an
opportunity to remedy any problems that are identified following
[program] startup''. Johnson expresses the view that a ``sounder * * *
policy'' would go beyond providing an opportunity for mitigation and
instead require actual mitigation, but Johnson objects that Illinois
does not even provide the opportunity for mitigation.
Response: The primary purpose of this rulemaking is to evaluate the
rules that Illinois submitted and the emission reductions that these
rules are intended to achieve. Nevertheless, USEPA requires that states
submitting trading programs that include VOC (and thus potentially
involve trading of HAPs) must provide an ongoing public input and
review process to evaluate whether the programs yield an equitable
distribution of impacts on HAP emissions.
USEPA continues to believe that Illinois is taking appropriate
steps to assure an informed, public debate of the impacts of its
trading program on emissions of hazardous air pollutants. USEPA did not
claim that all parties agree on all details of a rule on emissions
reporting; USEPA instead more accurately observed that a workgroup
convened by the state had ``achieved general consensus on a draft
rule,'' in particular a general consensus ``to require companies to
report emissions of individual HAP species.'' Subsequent to USEPA's
notice of proposed rulemaking, Illinois has now published and
distributed its first annual report on the program. Contrary to CBE/
ALAMC's concerns about lack of discussion of methods for analyzing
whether disparate impacts had occurred, Illinois extensively solicited
input from the business and environmental members of its workgroup on
such methods and other aspects of this report.
USEPA acknowledges that business representatives and environmental
groups can have differing definitions of environmental justice and
disparate impacts. Given the variety of possible scenarios, it is
reasonable for Illinois to focus on analyzing actual data and to avoid
extensive preliminary debate on methods for analyzing an array of
hypothetical scenarios, most of which would not actually occur.
As sought by Johnson, Illinois has committed to an ongoing process
for reviewing the program's impact on hazardous air pollutant emissions
and to remedy any problems that are identified. USEPA does not share
Johnson's view that USEPA should require the state to adopt specific
provisions mandating mitigation of any environmental justice problems
that arise. USEPA further disagrees with Johnson's statement that
Illinois provides no opportunity for such mitigation.
USEPA reviewed Illinois' program according to guidance on three
elements of programs well designed to address environmental justice
concerns. The key first element is a program design that
[[Page 52349]]
makes environmental justice problems unlikely. Illinois does so by
requiring program participants to continue to comply with all RACT and
hazardous air pollutant regulations and establishing an overall
emission reduction requirement, which discourages the otherwise likely
local emission increases. The second element is an ongoing public
information and review process. This process should identify whether
problems are arising that can be addressed with simple permit
revisions, whether problems are arising that would require rule
revisions, or whether as expected no significant problems are arising.
It is important here to note that the range of potential issues is
wide, and so it is unrealistic to expect the state to adopt a rule that
provides for program revisions to address any possible desired remedy.
The third element is the state's commitment to remedy any problems that
are identified. By incorporating these elements into its program, USEPA
believes that Illinois has taken appropriate steps to address concerns
about environmental justice.
2. Comments on ``Open Market Trading Features''
Comment: ED comments extensively on the ``elements of an 'open
market' system'' incorporated in Illinois'' program. Because Illinois
allows generation of trading credits from small industrial, mobile, and
area sources, ED views Illinois' program as a hybrid and not a true cap
and trade program. ED believes that this incorporation of open market
features into Illinois' program should prompt USEPA to reconsider
whether Illinois' program will achieve the intended emission
reductions.
ED compares Illinois' program unfavorably with the acid rain
program. ED describes the acid rain program as allowing sources not
otherwise subject to the program to voluntarily opt into the program,
to receive allowances reflecting a cap on current actual emissions and
to be allowed to sell allowances to the extent the sources reduce
emissions below their cap. ED describes Subpart E of Illinois' trading
rules as providing short-term, ``discrete'' credits. ED concludes that
existence of these open market style credits ``fundamentally weakens
the integrity of the emissions cap [and] undermines the economic
incentives [for] investments in emissions reductions.''
NRDC et al., comment without elaboration that the Illinois program
``incorporates many features of the open market trading rule proposed
in 1995 * * *.'' NRDC et al., also claim that Illinois' program
``allows sources to meet (and circumvent) otherwise applicable
requirements with [unreliable] pollution credits'' and thus ``will
relax existing SIP measures.'' Elsewhere in their comments, NRDC et
al., `cite the ``use of credits from outside the 'capped' sources, from
mobile, area and small industrial sources,'' allowing ``inter-sector
trading of discrete (i.e., mass-based) credits, in many cases
quantified retrospectively.'' NRDC et al., view these features as
evidence that ``the Illinois trading program incorporates open market
trading mechanisms into its purported limited cap and trade system.''
PEER, in its comments of March 8, 2001, objects at length to open
market trading programs in general and to New Jersey's and Michigan's
open market trading programs in particular. PEER does not discuss the
Illinois program in its comments. Nevertheless, the subject line of
this comment letter identifies the Illinois program as one of four
programs, ``each of which is based entirely or in substantial part on
`open market trading.' ''
Response: ED implicitly acknowledges that the core features of
Illinois' program subject major VOC sources in the Chicago area to a
cap and trade program. In addition, ED apparently supports voluntary
participation of minor sources in Illinois' program. ED's objections
focus more narrowly on the potentially short duration of such sources'
participation and the mechanism for accounting for emission reductions
from such sources, which ED views as open market features of the
Illinois program.
In general, cap and trade programs differ from open market trading
programs in several respects: (1) Cap and trade programs require
emission reductions beyond those required by RACT regulations and other
regulations, whereas open market trading programs characteristically
allow emissions above levels such regulations allow (provided another
source achieves more than compensating reductions). (2) Cap and trade
programs seek to cap the emissions of a category of sources at some
level lower than emissions would otherwise be, typically at a level
well below prior actual emissions. In contrast, open market programs
require net emission reductions as part of each trade but do not
foreordain any overall quantity of reductions to be achieved. (3) Cap
and trade programs have mandatory participation from a specified
category of sources, whereas participation in open market programs is
voluntary. (4) Cap and trade programs typically account for all
emissions from the participating sources, whereas open market programs
typically account only for net emission increases and decreases of
participating sources. Typically, cap and trade programs issue a finite
number of allowances and limit emissions of each source according to
the source's holdings of allowances, whereas open market programs only
track whether the emissions decreases of one source suitably compensate
for the emissions increases of a matched source.
The Illinois program clearly has these fundamental features of cap
and trade programs and lacks the contrasting features of open market
trading programs. (1) The Illinois program requires compliance with
RACT regulations and all other regulations. (2) The Illinois program
sets a cap on emissions which for most sources is 12 percent below
baseline actual emissions. Aside from ED's general concerns about
program effectiveness, no commenter objected to USEPA's proposed
conclusion that the program would reduce Chicago area VOC emissions by
10.9 tons per day. (3) The Illinois program requires participation by
major VOC sources in the Chicago ozone nonattainment area.
Participation by these sources is not voluntary. (4) The Illinois
program accounts for all emissions of the mandated program
participants, requiring that these sources limit their emissions to
correspond to the number of allowances the source holds out of the
finite overall set of allowances.
ED does not dispute that the core features of the Illinois program
are those of a cap and trade program; ED instead argues more narrowly
that the program is a hybrid in which the cap and trade characteristics
are supplemented by open market trading program features. However,
USEPA does not agree either that the Illinois program is in any
significant respect an open market trading program or that any features
of the Illinois program warrant its disapproval.
ED does not object to Illinois' provisions for voluntary
participation of small sources on an opt-in basis, which USEPA views as
the most significant element of the Illinois program that is
characteristic of open market trading programs. Instead, ED favors the
opt-in provisions of the acid rain program, a program which ED views as
a properly designed cap and trade program.
ED focuses on the duration and accounting of emission reductions by
opt-in sources in the acid rain program versus the Illinois program. ED
overstates the significance of these distinctions. The acid rain
program is set up to include predominantly long
[[Page 52350]]
term opt-ins and yet the program does not prohibit relatively short
term participation. In theory, the Illinois program is more
accommodative of short term participation. In practice, the opt-ins to
date have all been permanent. In any case, although the Illinois
program has the potential to have a greater fraction of short term
participants, it is not clear that even the realization of that
potential would significantly change the reliability level of the
reductions or otherwise cause the problems ED anticipates.
As for the accounting process, USEPA views the two processes as
fundamentally equivalent. Whether a source receives allowances equal to
baseline emissions and must retire allowances equal to actual
emissions, or alternatively the source receives allowances according to
the difference between baseline and actual emissions, both programs
result in the source having salable allowances equivalent to the
source's emission reductions.
USEPA does have related concerns arising from the issuance of
allowance pursuant to emission reductions from small sources,
particularly from mobile sources. The emission reductions from mobile
sources can be difficult to quantify, insofar as one cannot measure the
emissions directly and one must consider the time varying deterioration
and usage of the vehicles involved with and without the emission
reduction activity.
This issue is not a function of whether crediting for the
reductions is done in a characteristically open market trading manner
or in a characteristically cap and trade manner, e.g., whether the
state issues allowances according to the emission reduction or whether
the state issues allowances equal to a cap and allows sale of
allowances according to the eliminated emissions. The issue instead
pertains to the reliability with which the emission reduction can be
determined. Poorly quantified emission reductions result in a program
that does not as reliably obtain the intended emission reductions.
To date, Illinois has received no requests for issuance of
allowances pursuant to emission reductions by mobile or area sources.
USEPA expects this program feature never to involve significant
quantities of emissions.
Should such requests arise, USEPA has requested that Illinois
consult extensively with USEPA on the methods for evaluating emissions
and emission reductions, particularly for requests involving mobile
sources. With such consultation, USEPA believes that issuance of
allowances for emission reductions from these source types are an
acceptable program feature that will not significantly affect the
integrity of Illinois' program.
Other commenters provide less justification for suggesting that
their concerns about open market trading programs apply to the Illinois
program. Contrary to comments by NRDC et al., the Illinois program
retains RACT and other such limitations as independently enforceable
requirements irrespective of how many allowances a source holds. USEPA
continues to believe that the Illinois program is fundamentally a cap
and trade program that is unlikely to cause the problems identified by
these commenters.
3. Additional Comments by NRDC et al.,
Comment: NRDC et al., make a variety of comments in its
introductory remarks. NRDC et al., comment that ``EPA has had some
degree of success with the acid rain trading program'', but finds the
Illinois program to fall short of the acid rain program in several
respects.
Response: USEPA agrees that sulfur dioxide from large boilers is
easier to measure and quantify than VOC from various kinds of VOC
sources. This causes VOC programs generally to have greater uncertainty
that sulfur dioxide programs. However, the Clean Air Act does not
direct USEPA to evaluate whether Illinois' trading program is better or
worse than the acid rain program. USEPA must instead evaluate whether
the Illinois program provides an approvable addition to the Illinois
SIP. Further comments and responses below will address the specific
features of the Illinois program noted by NRDC et al., treating them as
features that NRDC et al., find problematic.
Comment: The Illinois program ``will relax existing SIP measures''
and ``allows sources to meet (and circumvent) otherwise applicable
requirements with pollution credits having the integrity of counterfeit
currency.''
Response: The Illinois program does not relax any existing SIP
measures.
Comment: ``Polluters [are] allowed to develop their own
quantification methods without the bother of EPA or public oversight.''
Response: Illinois set the general methods via rulemaking and sets
source-specific details of these methods via permit, processes that
provide opportunity for public input. USEPA's proposed rulemaking
provided a further opportunity for public input on the general methods,
though the commenters provided no such input.
Comment: NRDC et al., state that ``We are aware from internal EPA
documents * * * that there has been a raging debate within the Agency''
concerning trading program policy, debates which ``apparently began in
large part out of vociferous opposition to EPA's deplorable 1995 Open
Market Trading (OMT) proposal.''
Response: While NRDC et al., do not specify the internal USEPA
documents it examined, the comments do imply that USEPA's proposed
rulemaking is the outcome of a thorough internal debate on relevant
issues. These comments further imply that many of the issues raised by
NRDC et al. are issues that USEPA has already addressed in preparing
its proposed rulemaking. In these cases, and in the absence of new
input warranting a different conclusion, NRDC et al. should expect
USEPA's final rulemaking to reach the same conclusion as USEPA
proposed.
Comment: NRDC et al., comment that USEPA appears to be proposing
conditional approval, and yet the proposed action lacks key
prerequisites for conditional approvals. NRDC concludes that the Clean
Air Act provides no basis for the proposed action.
Response: USEPA did not propose conditional approval. USEPA
identified some concerns with the State's submittal but anticipated
that Illinois would address these concerns. USEPA proposed that if in
fact Illinois satisfactorily addressed these concerns, then USEPA would
publish full approval pursuant to section 110(k)(3).
Comment: NRDC et al., object to a failure to require that emission
reductions be surplus. NRDC et al., observe that the program fails to
define surplus. These commenters reference the definition of surplus
given in USEPA's regulations on trading programs (40 CFR 51.491 and
51.493), and specifically note the failure to avoid crediting
reductions already ``assumed in the relevant emission inventory or [in
the Chicago area's] most recent federally approved rate-of-progress or
attainment plan.'' The commenters further observe that surplus
reductions in fact cannot be identified because ``there has yet to be a
submission, let alone a federal approval, of an [attainment] plan
including detailed and specific measures.'' The commenter continues by
suggesting that USEPA should not approve Illinois' trading program
until a detailed attainment plan is in place to specify which emission
reductions should be considered surplus and thus creditable for a
trading program.
NRDC et al., further comment on the baselines from which Illinois
determines each source's target
[[Page 52351]]
emissions level (generally 12 percent below baseline level). NRDC et
al., object that USEPA's proposal does not describe ``whether or how
the baselines are consistent with the inventories included in the
approved SIP, rate of progress, or attainment demonstration.''
Response: USEPA's trading program regulations at 40 CFR 51.491
define surplus as ``at a minimum, emission reductions in excess of an
established program baseline which are not required by SIP requirements
or State regulations, relied upon in any applicable attainment plan or
demonstration, or credited in any reasonable further progress or
milestone demonstration, so as to prevent the double counting of
emission reductions.'' The Illinois program pursues emission reductions
relative to a baseline that reflects actual emissions (adjusted if
necessary to discount noncompliance) pursuant to ``applicable
requirements effective in 1996'' (Cf. Section 205.320). The regulations
Illinois submitted do not use the term ``surplus,'' nor do USEPA's
regulations require use of the term. Instead, Illinois has indirectly
addressed the issue by defining the applicability and the emission
reduction obligations of affected sources, and has designed its program
to achieve reductions beyond those required by or anticipated from
other programs. The notice of proposed rulemaking includes a
quantitative evaluation of the emission reductions expected from
Illinois' trading program beyond the reductions achieved by other
means. That evaluation reflects USEPA's belief that the Illinois
trading program in fact achieves reductions that are surplus to the
reductions from other elements of the SIP.
USEPA policy is that trading programs may be approved even before a
needed attainment demonstration has been approved, so long as the state
commits to assure that source emission estimates for the trading
program and for the ultimate attainment demonstration are consistent.
In this case, Illinois has submitted an attainment demonstration for
the Chicago area, which USEPA proposed to approve on July 11, 2001, at
66 FR 36369. The reductions from the trading program are surplus to the
other elements of this attainment demonstration. The baselines of the
trading program are fundamentally consistent with the attainment
demonstration inventory because they are based on the same set of
emissions data. The baselines are not identical to the attainment
demonstration inventory, particularly due to the adjustments noted by
the commenters, but USEPA accounted for the differences in its review
of program benefits described at length in the notice of proposed
rulemaking.
Comment: NRDC et al., comment extensively on the RECLAIM program in
the Los Angeles area. The commenter states that the NOX
RECLAIM program ``has failed spectacularly in recent months.'' The
commenter cites a lawsuit filed against a company participating in a
Los Angeles area trading program ``because of its redistribution of
pollution burdens to low income and minority communities'' near the
sources ``using credits rather than making the reductions required of
them under the Clean Air Act.'' The commenter observes that the public
has raised the same concerns about the Illinois program, and that
``alternatives with a lesser impact are available.''
Response: The commenters have not explained how their views of the
RECLAIM program are germane to USEPA's review of the Illinois trading
program. USEPA cannot disapprove a program that meets Clean Air Act
requirements simply because commenters identify ``lesser impact''
alternatives.
Comment: NRDC et al., state that the Illinois program has no
credible enforcement mechanisms. The commenters concede that the
program ``is ultimately enforceable under enforcement provisions of the
Clean Air Act.'' However, the comment expresses concern that the
timetable for such enforceability extends too long and in fact is
indeterminate. While noting that USEPA's proposed rulemaking requests
that Illinois clarify the timetable, the commenters find it
``unacceptable'' that the proposed rulemaking ``fails to specify how to
rectify [this] problem.''
Response: As discussed in more detail in section III above,
Illinois has clarified the timetable for enforcement of the
requirements of the trading program. In brief, sources that fail to
hold the necessary number of allowances as of December 31 and then fail
to cover the shortfall plus a surcharge under a timetable that ends
about mid-March are subject to enforcement action pursuant to Section
113 of the Clean Air Act. USEPA solicited comments on a similar
prospective resolution of this issue.
Comment: NRDC et al., comment that ``[t]he Illinois trading program
allows sources to borrow not only from the past, but also from the
future,'' and views this as an ``unlawful variance.'' By footnote, the
commenters specify that this concern applies particularly to the
program feature known as the Alternative Compliance Market Account.
Response: In Illinois' program, most emission reductions will occur
every year. Because allowances under the program have a two-year life,
in some cases excess reductions in earlier years will allow lesser
reductions in later years, consistent with the early reductions policy
that USEPA has adopted in several of its rules.
Even with the Alternative Compliance Market Account, ``regular
access'' to credits from this special account is for credits associated
with the year of purchase (also usable thereafter). Allowance of
emissions in one year based on credits from a later year occurs only
with ``special access'' to the Alternative Compliance Market Account.
Several restrictions assure that ``special access'' will occur rarely
if ever. ``Special access'' is prohibited if the source can obtain
credits from the marketplace or from ``regular access'' to the
Alternative Compliance Market Account. Credits via special access cost
twice as much as credits purchased on the market. (``Regular Access''
credits cost 50 percent above market prices.) The number of credits
accessible through special access is limited to one percent of the
number of credits issued to sources. This feature of the Illinois
program is designed as an emergency fund of high-priced credits in case
normally priced credits do not materialize.
USEPA generally requires that reductions occur before credit use to
avoid concerns about otherwise unallowable emissions occurring and then
having expected compensating emission reductions fail to occur. This is
unlikely to occur in Illinois, because the prerequisites for special
access are unlikely to be met. Even if the prerequisites for special
access are met, and under a worst case in which compensating reductions
do not occur, the risk is capped at one percent of overall emissions. A
further fallback is Illinois' annual program report and Illinois'
commitment to address problems identified in the annual report. While
the issue identified by the commenter raises the possibility of
achieving one percent less emission reduction, USEPA finds that this
issue does not raise concerns about the fundamental integrity of the
program, and USEPA finds further that the best estimate of the
reductions to be achieved by the program do not reflect any adjustment
pursuant to this program feature.
Comment: NRDC et al., express concern that provisions for measuring
emissions do not satisfy 1994 trading program guidance. The commenters
state that the notice of proposed
[[Page 52352]]
rulemaking ``misstates the standards of the 1994 Economic Incentive
Program guidance, asserting that they simply require `approaches or a
range of approaches' to quantification.'' The commenters state that
this guidance instead requires programs to include replicable emission
quantification methods, specified in detail in the state's submittal.
Separately, the commenters' introductory comments object that the
methods to be used ``are incapable * * * of directly measuring * * *
emissions,'' and allow use of ``emission factors that are * * * as
likely to be wrong as they are right and that will result in half of
sources using them being in noncompliance.''
Response: A full reading of the 1994 guidance requires considering
both the parts of 40 CFR 51.493(d) quoted by the commenter and the
parts quoted in the notice of proposed rulemaking. The heading of 40
CFR 51.493(d) is ``Replicable emission quantification methods''. Parts
of the introductory text under this heading are quoted by the
commenters. The introductory text additionally states that the methods
``shall yield results [with] a level of certainty comparable to that
for source-specific standards and traditional methods of control
strategy development.'' This text is followed by subparagraph (1),
entitled ``specification of quantification methods.'' Subparagraph 1 is
quoted in part in the notice of proposed rulemaking, including the
language quoted above under which the ``specified quantification
methods'' may include a combination or a range of methods.
``Traditional'' control programs give varying levels of details of
emission quantification methods. Source-specific limitations generally
specify a single test method from 40 CFR part 60, appendix A, leaving
only relatively modest details unspecified (e.g., types of process
materials used during the test). Category-specific rules generally
specify a range of methods; for example rules limiting stack emissions
of particulate matter would generally specify that any of the methods
from 5 or 5A to 5H may be used as appropriate. Even a wider range is
specified in rules on new source review, which generally give no
particulars on the test method to apply and instead specify that the
state is to identify limits (implicitly having an associated test
method) in a permit subject to 30-day public review.
The approach in the Illinois trading program is well within this
range of approaches. This trading program is limited to one pollutant
(VOC) but covers a wide range of VOC sources. Illinois' rules specify
methods for each type of source in this range, with more complete
details specified in each source's Title V permit. This approach is
appropriate for the range of sources in the program and is consistent
with the approaches taken with other comparable control programs. The
rules submitted by Illinois assure that each source will have a fully
replicable emission quantification method subject to appropriate public
review. Consequently, USEPA concludes that Illinois' program satisfies
the 1994 guidance on emission quantification methods.
Direct measurements of emissions usually provide more reliable data
than indirect methods. However, the level of VOC control achieved by
Illinois' program would not have been possible if sources needing to
use indirect methods had been excluded. All methods give results that
can be either too high or too low. In fact, in a trading context, it is
preferable to have approximately equal likelihood of obtaining results
that are too high versus too low. USEPA is satisfied that the indirect
methods that must be used to address sources in Illinois' program are
sufficiently reliable to have an acceptable level of confidence that
Illinois' program will achieve the anticipated emission reductions.
Comment: NRDC et al., state that ``the Illinois trading program is
devoid of any programmatic enforceability'' and therefore should not be
creditable for addressing rate of progress requirements.
Response: USEPA is satisfied that the requirements of the Illinois
trading program are clear and enforceable. Although the program started
too late to be creditable for purposes of the 1997 to 1999 rate of
progress plan, the program is creditable for attainment planning
purposes.
Comment: NRDC et al., comment that the Illinois trading program
interferes with reasonable further progress and attainment obligations.
NRDC et al., suggest that Illinois may adopt a trading program to add
flexibility to a required control program but may not use the program
as a ``substitute * * * for the required control stategy'' needed to
satisfy reasonable further progress and attainment requirements. NRDC
et al., object that USEPA ``attempts to trivialize this issue as one of
`spiking.' '' NRDC et al., further state that the Illinois program
lacks but needs ``safeguards against accumulation and rapid dumping of
credits'' (i.e., spiking). Since ``the operations of market mechanisms
are anything if not unpredictable,'' NRDC et al., reach ``the
conclusion that `spiking' needs to be addressed affirmatively and
proactively.''
Response: The Illinois trading program must be understood as
fundamentally being an emission control strategy. The commenters cite
nothing in the Clean Air Act or USEPA guidance to suggest that this
type of control strategy cannot be used to help achieve the
requirements for either reasonable further progress or attainment. The
notice of proposed rulemaking evaluates the emission reductions
expected from this program, and no commenter commented on this
evaluation. USEPA continues to believe that the Illinois trading
program is a control strategy that enforceably achieves a reduction
estimated at 10.9 tons per day, representing an appropriate element of
any reasonable further progress or attainment plan for which these
reductions are timely.
In practice, Illinois chose to delay implementing the trading
program by one year, so that the reductions were no longer timely for
the reasonable further progress plan for reductions by 1999. Illinois
submitted substitute measures for this plan, and USEPA approved the
revised plan on December 18, 2000 (see 65 FR 78961). The reductions
from the trading program are still timely for attaining the standards.
With respect to ``spiking,'' the notice of proposed rulemaking
presents economic data indicating that significant swings in emissions
are unlikely. The commenters implicitly prefer that the trading program
not accommodate significant swings in emissions should the causes of
such swings arise. Such swings in emissions are unregulated in absence
of a trading program and in fact are inhibited in the presence of
Illinois' trading program. The extent of spiking possible under
Illinois' program is limited by the two year lifetime of allowances. In
addition, the scenario with higher than average later year emissions by
definition has equivalently lower than average emissions in earlier
years. USEPA continues to believe that it has adequate assurances that
no spiking problem will arise in the Chicago area.
Comment: NRDC et al., find that ``section 173(c)(2) disallows the
use of `reductions otherwise required by this Act' for offsets.''
Response: If all sources emit the full amount allowed under the
Illinois trading program, no excess allowances would be available to
accommodate a new source. That is, if sources achieve no reductions
beyond those required by the program (which as part of the attainment
demonstration are
[[Page 52353]]
considered required by the Act), no offsets would be available. Only if
and to the extent that sources achieve reductions that are not
otherwise required will allowances representing offsets be available.
Comment: NRDC et al., object to the possibility in the Illinois
trading program that credits generated from mobile source emission
reductions may be used to offset emissions from major new stationary
sources. NRDC et al., state that the ``Clean Air Act, 40 CFR 61.165 and
part 51, appendix S make clear that offsets may be obtained only from
`stationary sources' and not `mobile sources.' '' The commenters
observe that this law and these regulations ``make no mention of
`mobile sources' '' as a possible origin of offsets. The commenters
quote Clean Air Act section 173(c)(1) and infer that the ``sources''
from which offsets must be obtained must be stationary sources. The
commenters justify this inference by noting that some uses of the term
``source'' by necessity mean ``stationary source,'' and by observing
that the terms ``source'' and ``stationary source'' are used
interchangeably in Part D of Title I of the Act.
Response: USEPA disagrees with the commenters' assertion that
offsets under section 173 of the CAA are limited to those from
stationary sources. The language of section 173 and the statutory
framework and context are best read as allowing offsetting emissions
reductions to be provided by sources other than stationary sources. As
specified in section 173(a)(1)(A), the ultimate test as to whether
offsetting emissions reductions are sufficient is by reference to
whether they represent ``reasonable further progress as defined in
section 171.'' The definition of ``reasonable further progress'' in
section 171(1) plainly refers to the air quality goal of attainment of
the NAAQS, and since all sources of air pollution, including mobile,
stationary, and ``area'' sources, contribute to nonattainment, the
definition of reasonable further progress naturally does not exclude
any category of emissions. Accordingly, USEPA has not limited offsets
under section 173(a)(1)(A) to those derived from other stationary
sources, but has instead allowed other source categories, such as
mobile sources, to provide offsets. The statutory language cited by the
commenters, referencing ``other sources'' providing offsets, plainly
means sources other than the new or modified major stationary source.
This language should not be interpreted as requiring offsets to come
from that subset of other sources that are stationary.
Comment: NRDC et al., comment that the Illinois trading program
violates Clean Air Act section 173 by allowing emission reductions that
commence after new source construction to be used as offsets for the
new source's emissions. The commenters quote section 173(c)(1) as
requiring that emission reductions obtained for offsets ``shall be, by
the time a new or modified source commences operation, in effect and
enforceable''. Similarly, the commenters quote section 173(a)(1)(A)
that, ``by the time the source is to commence operation, sufficient
offsetting emissions reductions have been obtained''. The commenters
further quote the Draft NSR Workshop Manual (October 1993) that
``Offsets should be specifically stated and appear in the permit,
regulation or other document which establishes a Federal enforceability
requirement for the emissions reduction.''
NRDC et al., object to the rationale given in USEPA's notice of
proposed rulemaking for finding Illinois' offsets adequately permanent.
The commenters find this rationale inconsistent with section 173 and
related USEPA guidance. First, the commenters view USEPA's rationale as
tantamount to accepting a promise to obtain offsets in lieu of
requiring advance specification of actual offsets. The commenters state
that this `` `restatement' approach is little different from a
construction permit merely `restating' the requirement to meet BACT or
LAER upon operation''. The commenters are further concerned that the
public get adequate opportunity to review the origins of the offset and
to comment on whether the offsets are lawful, quantifiable, surplus,
enforceable, and permanent. The commenters further comment that section
173 requires advance securing of offsets, ``in order to prevent any
later complaints from the source'' if offsets subsequently cannot be
found.
Second, the commenters consider Illinois' approach unreliable. The
commenters dissect statements in USEPA's notice of proposed rulemaking
to demonstrate that offsets here would lack the necessary permanence.
The commenters observe that USEPA's rationale ``brims with the inherent
uncertainty, indeterminacy, and unenforceability'' of Illinois'
approach. The commenters believe that ``permits with temporary plans
that increase the likelihood in practice that sources will offset their
pollution increases prior to operation'' fall short of the guarantee of
permanent offsets established that the Clean Air Act mandates.
Response: The commenters have properly quoted section 173 but have
urged an overly restrictive interpretation of allowable approaches for
obtaining offsets. Section 173 does not use the term ``permanent,'' and
USEPA does not believe that section 173 requires permanent reliance on
a single action or set of actions to offset the new source's emissions
in all future years.
USEPA must evaluate what it means to obtain an emission reduction
for offset purposes. The commenters believe that obtaining an emission
reduction means securing an action (and establishing a mechanism for
assuring the permanence of the action) that will yield emission
reductions that will offset the new source or major modification
emissions starting by the time the new or modified source commences
operation and continuing in all future years. The Illinois program aims
to address the offset requirement in a slightly different manner,
requiring that the needed emission reductions occur each year but
allowing different years' reductions to reflect different actions.
Some hypothetical cases help illustrate the key issues here. In the
first hypothetical case, new source A obtains its first three years of
offsets from source B, its second three years of offsets from source C,
and thereafter switches between source B and source C as the origins of
its offsets. In this case, the commenters' interpretation of section
173 is violated because there is no single origins of emission
reductions that permanently offsets new source A's emissions, and
because the emission reductions from source C would perhaps not be in
effect when new source A commences operation. However, USEPA believes
that this case satisfies section 173. Source A has secured sufficient
emission reductions by the time it commences operation. These
``sufficient emission reductions'' occur in each subsequent year as
well, such that the combination of new emissions and emission offsets
represents reasonable further progress. USEPA interprets section
173(c)(1) to require sufficient emission reductions to commence by the
time the new source commences operation, not to require each action
yielding emission reductions ever to be used for offset purposes to
occur by commencement of source operation.
In a second hypothetical case, new source A receives a permit
specifying ofsets for the first 3 years, based on source B suspending
operations for 3 years, and requiring that source A obtain equal
offsets from unspecified other sources thereafter. Assuming that
[[Page 52354]]
the requirement for the subsequent offsets is adequately enforceable,
USEPA again would find section 173 satisfied. The permit assures
emission reductions offsetting new source A's emissions starting by the
time source A commences operation and assures that sufficient
offsetting emission reductions will be in effect at all subsequent
times as well. USEPA concludes that this scenario would satisfy the
section 173 requirements for offsets to be in effect by the time the
new source commences construction and to continue to assure reasonable
further progress.
Illinois' trading program addresses offsets in a manner similar to
this second case. A new source must purchase credits reflecting
emission reductions starting upon commencement of operations and at all
times thereafter. A new source must identify its plans for offsets for
the first three years but need not specify the origins of these offsets
for all future years. The Illinois trading program nevertheless
establishes an enforceable requirement for new sources to secure
offsets at all necessary times.
The approach stated in the proposed rulemaking is consistent with
the statements quoted from the document entitled ``Draft NSR Workshop
Manual''. In fact, the first hypothetical case above seems consistent
with even the commenters' presumed interpretation of the quoted
statement, insofar as the permit would specifically state the offsets
coming from Source B and the offsets coming from Source C in
alternating three year periods. However, USEPA applies a more flexible
interpretation of its guidance, wherein the specific statement of
offsets can have varying characteristics depending on the nature of the
offsets being provided. USEPA expects permits for major new VOC sources
in the Chicago area to specifically state that offsets will be obtained
via the purchase of surplus credits, and USEPA affirms that the trading
regulations that provide for Federal enforceability of the offsets
specifically state that surplus credits shall serve as offsets. The
flexibility of this USEPA guidance is highlighted by the use of the
terms ``should'' and ``must,'' i.e., that the document providing
enforceability of the offsets should specifically state the offsets,
whereas offsets must be established in a permit or a SIP revision.
More recent guidance makes even more clear that reductions from
trading programs, which are enforceable but which may not have
forecastable origins, provide suitable offsets. Specifically, guidance
on trading programs, dated January 2001, clarifies at several points
that emission reductions obtained pursuant to trading programs may be
used for offset purposes, notwithstanding that the sources providing
future offsetting reductions may not be known at the time of new source
construction. In section 16.14 of this guidance, entitled ``Provisions
for new source review and trading'', on page 255, the guidance states
that ``You may allow sources to use emission reductions generated by
your [trading program] to comply with PSD/NSR requirements [if, among
other things,] sources that are required to obtain offsets or netting
credits have an obligation to obtain such credits, when they are not
continuous credits, for the life of the source needing the credit.''
Similar guidance is provided in Chapter 7, including guidance for open
market trading programs that ``If a source wishes to use [credits] to
meet its NSR offset requirements it must * * * obtain sufficient
[credits] for at least 1 year of operation before receiving its permit
[and] commit in its NSR permit to obtain sufficient [credits]''
annually thereafter.
The commenters are concerned about the ``uncertainty,
indeterminacy, and unenforceability'' of Illinois' approach. This
comment reflects the commenters' concern about the possibility of
sources changing the origins of offsets. However, under section 173,
the critical issue is whether USEPA can be certain that emissions will
be offset at all times. The Illinois trading program provides for
offsets at all times, and provides a clear mechanism for enforcing this
requirement.
The commenters also express concern at the lack of opportunity for
public review and comment on the offsets that a new source would use.
Most USEPA policy on this issue reflects cases where a construction
permit is used to establish offsets. This case is different, insofar as
the public will have already had the opportunity to review the
mechanism for obtaining offsets (during the development and then this
USEPA review of the trading program), the public will have an
additional opportunity to comment on the mechanism when a draft
construction permit is issued, but then no convenient forum exists for
soliciting public input when a source purchases offsets from different
origins. Under these circumstances, USEPA believes that the public has
adequate opportunity to comment on the most significant issues
pertaining to satisfaction of the offset requirements.
The commenters find Illinois' approach to offsets to be analogous
to issuing a construction permit that simply restates a requirement to
meet the lowest achievable emission rate (LAER) upon operation. USEPA
disagrees with this analogy. First, new source permits in Illinois will
specify the precise obligation of the source for offset purposes under
the trading program, namely to obtain credits sufficient to offset the
new source emissions. Second, the key reason a permit simply restating
the LAER requirement is not enforceable, that such a permit does not
give the source fair notice as to its precise obligations for emissions
control, does not apply to a source mandated to obtain a determinate
number of credits for offset purposes.
Comment: NRDC et al., concur with the interpretation described in
the notice of proposed rulemaking that ``section 173 requires offsets
on a full year basis, rather than the ozone season basis allowed by
Illinois.''
Response: USEPA is deferring rulemaking on this issue, pending
further review including consideration of this comment and the contrary
comment by Illinois EPA. As discussed previously, by not rulemaking on
the exemption in section 205.150(e) of Illinois' rules, the standard
offset requirements in Part 203 of Illinois' rules remain in effect as
part of the Illinois SIP.
4. Additional Comments by ED Dated March 26, 2001
ED submitted comments both on January 26, 2001, and March 26, 2001.
The comments of March 26, 2001, include most but not all of the
comments of January 26, 2001. ED's comments express numerous concerns
about ``open market'' features of Illinois'' program. These comments
are addressed above, as are comments by ED concerning environmental
justice. The following discussion presents other ED comments of March
26, 2001 and USEPA's responses. The remaining comments submitted
January 26, 2001, are addressed in the section that follows.
Comment: ED comments generally that Illinois has begun to develop a
program with the potential to deliver significant environmental and
health benefits, but that USEPA should withhold approving the program
until a number of outstanding issues are remedied.
Response: USEPA responds generally that it believes that the
program Illinois submitted is approvable, and USEPA does not believe
that ED's concerns warrant withholding approval. Further details of
ED's concerns and USEPA's responses follow.
[[Page 52355]]
Comment: ED makes several comments expressing concern that the
Illinois program gives credits for small source emission reductions
beyond how much net area-wide emissions are actually reduced. ED
suggests that provisions for credit for small source emission
reductions should either be eliminated or reformed into an opt-in
approach. ED objects to section 205.500(a)(1) and (a)(3) calculating
emission reductions based on allowable emissions rather than on actual
emissions. ED recommends that a source emitting above allowable levels
not be allowed to generate credits, and objects that a source emitting
below its allowable levels may increase production and increase
emissions and nevertheless obtain credits for artificial reductions.
Response: These provisions do not in fact give credits beyond the
net area-wide emission reductions. Section 205.500(a)(1) allows credits
only to the extent installation of control equipment or use of cleaner
process inputs yields reductions below allowable levels. Section
205.500(a)(3) allows credit for production curtailments, provided no
demand shifting occurs, and according to the decrease in production
levels times the allowable emission rate per unit production. Thus, no
ATUs are issued for emission controls bringing a source into
compliance. Also, the baseline for calculating reductions from
production curtailments is not simply maximum allowable emissions but
rather is the allowable emission rate at the actual production level.
This approach is analogous to the determination of baselines for major
sources (Cf. section 205.320(d)), which provides adjustment to the same
type of level for sources that installed overcomplying emission
controls since 1990. By using a baseline that reflects mandated control
levels, subject to the provision that actual emission reductions have
resulted from emission controls since 1990, Illinois is operating from
the same baseline as is used in attainment and reasonable further
progress demonstrations and is rewarding sources that overcomply. In no
case does a source with artificial reductions but actual emission
increases obtain credits. USEPA views this approach as acceptable.
Comment: With sections 205.500(a)(2), (a)(3), and (a)(4), ED
expresses concern that credits may be granted for production
curtailments notwithstanding a possibility that the production is
shifting to another source that is not accountable for its increased
emissions. ED further believes that credits for shutdowns and
curtailments should not be granted, since they are not surplus to
``business as usual,'' the credits create ``a perverse incentive to
slow business production'', and USEPA's recent trading program guidance
states that `` `shutdowns and activity curtailments cannot generate
[discrete emissions reductions]' '' in open market trading programs.
Response: The section of this notice addressing the proposed
prerequisites for program approval discusses at length the provisions
that assure that ``demand shifting'' will not lead to undue issuance of
allowances. In short, Illinois' rules dictate that no ATUs shall be
issued when demand shifting may be occurring. USEPA expects most cases
to be clear as to whether other sources in the area make a product
similar to the product made by the source curtailing production. As
reviewed against 1994 guidance, USEPA is satisfied with Illinois'
prohibition against demand shifting for stationary sources.
USEPA has committed to reevaluate Illinois' program against the
2001 trading program guidance. USEPA will reconsider the
appropriateness of the creditability of small source shutdowns and
curtailments during that reevaluation.
Comment: For section 205.500(c), ED believes that Illinois should
apply a lower threshold for subjecting credit generation to public
notice.
Response: USEPA believes that Illinois has flexibility in choosing
a threshold for subjecting credit generation to public notice and
believes that the threshold chosen by Illinois is acceptable.
Comment: For section 205.500(d)(3), ED urges clarification that the
source has the burden of proof that claimed emission reductions in fact
represent a net reduction in Chicago area emissions.
Response: USEPA believes that the information requirements imposed
on the applicant establish an adequate inference that the source has
the requested burden of proof for showing that the requirements for a
net reduction are met.
Comment: ED comments on several specific Illinois rules that affect
the coverage and impact of the trading program. ED questions whether
sources that grow to 10 tons per ozone season become permanently
subject to an ATU holding requirement and receive a permanent ATU
allocation. ED objects that sources below 15 tons per ozone season may
increase emissions up to that level without securing compensating
emission reductions. ED urges that emissions from startup and
malfunction be incorporated into the program.
Response: A source that grows above 10 tons per ozone is
permanently subject to the requirement to hold adequate ATUs and
receives a permanent ATU allocation based on emissions prior to the
source growth. This is equivalent to enlarging the program to include
the source, and provides an offset for minor source growth that is
usually not obtained. Allowing emissions increases below 15 tons per
ozone season is effectively the standard practice of not regulating
emissions from small sources. Under section 205.225, sources with
authorization for higher emissions during startup and malfunction
exclude such emissions in determining the ATU holding requirement.
Under section 205.320(e)(4), all sources exclude excess emissions from
startup and malfunction from baseline emissions. Thus, such emissions
from ``authorized sources'' are excluded from the program, and such
emissions from sources without the authorization create an obligation
to obtain ATUs. While USEPA encouraged Illinois to expand the coverage
of its program to include these emissions for all sources, Illinois is
under no obligation to do so, and the approach Illinois adopted of
requiring ATU accommodation for these emissions for most sources is
fully acceptable.
Comment: ED asks whether the delayed determination of baselines for
recently constructed sources will significantly affect the impact of
the program.
Response: Illinois has adopted a reasonable approach for
determining baselines for recently constructed sources, for which it is
appropriate to obtain additional information before determining a
permanent allocation. There are few such sources, so the impact of this
program feature is minimal.
Comment: ED asks whether sources entering the program due to a
major modification will be issued ATUs for the pre-modification
emissions, thereby increasing the cap.
Response: Sources entering the program are in fact issued ATUs
according to pre-modification emissions, and have an obligation to
match each 0.1 ton of nonmodification-related emissions with 1 ATU and
each 0.1 ton of modification-related emissions with 1.3 ATUs. This
enlarges the cap but also enlarges the emissions to be covered by the
cap. The net effect of this incorporation of another source into the
program is approximately the 0.3 tons of reduction per ton of
modification-related emissions. As noted in a response to a comment by
NRDC et al., a source that has
[[Page 52356]]
undergone a major modification must purchase ATUs from another source
or sources that has made ATUs available by emitting less than they
would otherwise have been allowed to emit.
Comment: ED observes that the provisions of Rules 205.205 allow
some sources that would otherwise be subject to the trading program to
be exempt. Similarly, section 205.405 exempts some sources, such as
those subject to maximum achievable control technology (MACT)
requirements from the requirement for a 12 percent reduction. ED is
concerned that these exemptions may cause the program to fail to
achieve the 12 percent reduction being sought by the program.
Response: USEPA recognizes that these program elements can affect
the emission reductions achieved by the program. In fact, as described
in the notice of proposed rulemaking, USEPA's review of the state's
assessment of program benefits addressed the effect of these program
elements. While the exemption for sources emitting less than 15 tons
per ozone season forgoes a modest 12 percent reduction from these
sources, the exemption for sources that reduce emissions by 18 percent
(with credits equal to six percent going to a credit reserve fund) will
likely yield a net reduction greater than 12 percent. The exemption of
some sources from a 12 percent reduction requirement will slightly
reduce the benefits of the program. USEPA will continue to incorporate
these factors in its final assessment of expected emission reductions
from the program.
Comment: ED asks whether sources ``need to comply with the most
recent NESHAP and MACT levels.''
Response: Yes. Although new such regulations do not affect
baselines or other aspects of the trading program, new such
regulations, like existing such regulations (and like RACT regulations)
are independently enforceable compliance responsibilities of affected
sources.
Comment: ED objects to several features of the Alternative
Compliance Market Account. ED objects that ATUs stored in this account
do not expire. ED objects that under some circumstances a limited
number ATUs may be borrowed from the following year's account,
potentially having a cumulative effect of shifting ATUs between years
indefinitely. ED asks whether the transfer of expired ATUs into the
account which occurs under special circumstances offers sources the
option to seek cleaner air by requesting that the expired ATUs in fact
be retired. ED asks whether section 205.710(g) means that the borrowing
of ATUs is limited to 1 percent of the total cap.
Response: In reviewing the state's assessment of program benefits,
USEPA assessed benefits as if all ATUs in the Alternative Compliance
Market Account are used each year. The more this account has long-lived
ATUs, the more the area has benefited from earlier emissions levels
below expected levels. Borrowing from the following year will occur
rarely, if ever, because the price of such ATUs is twice that of normal
ATUs. Furthermore, USEPA interprets section 205.710(e)(1) to provide
that such borrowing yields a correspondingly reduced issuance of ATUs
in the following year. Although the rules provide no mechanism for
sources to request that their expired ATUs be retired, a case in which
the account must be populated with expired ATUs would be an extreme
circumstance in which there would likely be few expired ATUs. ED is
correct in its understanding that the rule language related to cases
``without a positive balance'' in the account means that Illinois is
limited to borrowing 1 percent from the following year's allotment of
ATUs.
Comment: ED objects to allowing the indefinite borrowing from the
future that is inherent in a source with an emissions excursion (i.e.,
emissions exceeding ATU holdings) providing compensation from its
following year ATU issuance.
Response: USEPA expects minimal quantities of emissions to be
``borrowed from the future.'' In fact, USEPA supports requiring sources
to provide emission reductions that compensate for prior excess
emissions. The source with excess emissions also incurs a penalty of 20
percent of the excess emissions, so that borrowing in such a case is
accompanied by a net emission reduction. This surcharge, which
increases to 50 percent if excess emissions recur for a second year,
also helps assure that emissions excursions cannot recur indefinitely.
USEPA believes these provisions are acceptable.
Comment: ED comments generally that the Illinois trading program
provides inadequate public information for tracking credit allocations
and trades. ED also requests a public registry that records annual as
well as seasonal emissions and differentiates those VOC that are
hazardous air pollutants.
Response: USEPA agrees that full public access to information on
allocations and trades improves the effectiveness of emission trading
market systems. USEPA believes that the public database mandated in
Rule 205.600 fulfills this purpose. This database is on the Internet at
``http://www.epa.state.il.us/air/erms/''. The other more detailed
information is not amenable to ongoing tracking on a registry, but much
of this information will be provided to the public in Illinois' annual
program report, and the public has access to detailed information by
requesting it from IEPA.
Comment: Sources that obtain an exemption from the program should
nevertheless be required to report seasonal emissions.
Response: Sources that obtain an exemption by reducing emissions by
at least 18 percent must report seasonal emissions, as the commenter
recommends. Sources that obtain an exemption by becoming limited to 15
tons per ozone season are exempt from seasonal emissions reporting but
must demonstrate compliance with permit restrictions that limit
seasonal emissions. USEPA believes that these requirements adequately
address the commenter's concerns.
Comment: Since sources can use different years for assessing
baseline emissions, it is possible that a 12 percent reduction from
baseline levels will yield a lesser reduction relative to the total
inventory for a single, typical year.
Response: USEPA agrees and has described this issue in its notice
of proposed rulemaking. USEPA examined Midwest manufacturing data in an
effort to assess the degree to which the sum of source baseline levels
can be expected to differ from total emissions for a single, typical
year. Since Midwest manufacturing production is fairly stable, USEPA's
estimate of emission reductions from Illinois' program reflects a
deduction of only 0.7 of the 12 percent targeted reduction pursuant to
this factor.
Comment: ED questions provisions in section 205.320(c) that seem to
allow a new source to establish an artificially low baseline.
Response: In fact, an artificially low baseline would increase the
source's need to purchase credits. These provisions are similar to
provisions for existing sources. Even if a source increases its
baseline through this provision, this will likely at worst cause only a
slight shrinking of the reductions from new sources. Since Illinois
took no credit for offsets from new sources, no adjustment to the
program benefits estimate is needed.
Comment: For sources with emissions above compliance levels, ED
recommends including noncompliance emissions in the trading program,
both as a basis for issuing credits (for so long as the established
compliance schedule
[[Page 52357]]
allows) and as emissions for which credits must be obtained. ED
believes this would use the market to encourage faster efforts at
compliance.
Response: USEPA supports ED's recommendation. However, USEPA is
currently evaluating whether Illinois' program is approvable, not
whether enhancements are possible. USEPA concludes that this suggestion
is not needed for Illinois' program to be approvable. In any case,
USEPA views noncompliance as a transient condition which in most cases
is quickly remedied by normal enforcement tools.
Comment: ED objects to USEPA judging Illinois' program against 1994
guidance. ED argues that USEPA should apply the guidance ``finalized
and published in January 2001'', which reflects the ``considerable
increase in our knowledge with respect to how air emissions trading
programs should be designed''.
Response: USEPA periodically updates various kinds of guidance to
reflect increases in knowledge. USEPA then faces the question of
whether State submittals developed on the basis of the older guidance
should be judged against the older or the newer guidance. In cases that
do not involve changes in law, USEPA commonly concludes that equity and
fairness dictate that USEPA offer to review state submittals based on
the guidance that applied when the state submittal was being developed.
For these reasons, USEPA is principally judging the Illinois program
against the 1994 guidance. This approach is stated in the January 2001
guidance.
USEPA has nevertheless taken steps to address ED's concern. First,
as acknowledged by the commenter, USEPA is applying the more recent
guidance with respect to the ``environmental justice'' issue. This
element of guidance is the most significant change between the old and
the new guidance documents. Second, as noted in the notice of proposed
rulemaking, USEPA intends to re-evaluate the program according to the
new guidance and, if warranted, request that Illinois make appropriate
changes. With these safeguards, USEPA finds it appropriate to conduct
this rulemaking principally on the basis of the 1994 guidance.
Comment: ED objects to USEPA finding in its proposed rulemaking
that the Illinois program has deficiencies but proposing to approve the
program if the deficiencies are remedied. ED particularly objects to
USEPA approving Illinois' program without offering the public an
opportunity to review the modifications that Illinois adopts to address
the deficiencies.
Response: Under section 553 the Administrative Procedures Act,
USEPA must publish a notice that (for rulemakings such as this)
includes ``description of the subjects and issues involved.'' USEPA
must then ``give interested persons an opportunity to participate in
the rule making through submission of written data, views, or
arguments.'' Finally, USEPA must consider such comments prior to taking
final action.
USEPA's obligation, then, is to assure that the public has the
opportunity to comment on significant issues inherent in the
rulemaking. USEPA recognized this obligation in its notice of proposed
rulemaking. That notice states that ``USEPA believes that submittal of
[materials addressing the prerequisites for approval] will not raise
any new issues not addressed in today's notice. Therefore, USEPA
anticipates that submittal of these materials will not necessitate
further proposed rulemaking.'' Implicit in those statements is an
acknowledgement that USEPA would publish an additional notice of
proposed rulemaking if it found that elements of Illinois' supplemental
materials or USEPA's intended final rulemaking posed significant issues
not identified in the notice of proposed rulemaking.
In this case, USEPA has found that the supplemental material
provided by Illinois (and USEPA's final rulemaking) raise no
significant new issues. For example, the first item requested by USEPA
dictated that Illinois describe the timeline for sources to obtain
ATUs, after which enforcement could commence. USEPA identified its
understanding of the timeline of the program, and Illinois submitted
material clarifying that USEPA's understanding was basically correct.
Thus, Illinois' material (and USEPA's rulemaking) pose no significant
issues not already raised by the notice of proposed rulemaking. More
generally, USEPA has concluded that the material Illinois has submitted
on all five prerequisites for approval raise no issues that were not
adequately addressed in the notice of proposed rulemaking.
5. Additional Comments by ED Dated January 26, 2001
ED made two additional comments in its January 26, 2001, comments
that were not included in its later comments.
Comment: Various types of emissions are exempted from Illinois'
program. ``Although this may be well-documented and justified, it still
suggests that the cap is being violated.''
Response: Illinois has considerable latitude choosing what types of
emissions are to be covered by its program. By exempting certain
emissions, Illinois has defined a program in which the cap applies to a
slightly more narrow range of emissions. Illinois does not allow
violations of this more narrowly defined cap. USEPA considered the
effects of these exemptions in assessing emission reductions from the
program.
Comment: ``The stated purpose in [section 205.710(a)] should be
expanded to include covering for emergency situations and otherwise
holding the environment harmless for excursions, etc.'' ED asks the
rationale for credits in the Alternative Compliance Market Account
having indefinite shelf life whereas normal ATUs have only a two year
life.
Response: USEPA believes the purpose need not be stated in the
rule. The Alternative Compliance Market Account is an emergency, backup
source of high priced credits, which justifies treating these ATUs
differently from normal ATUs.
6. Additional Comments by Alex Johnson
Comment: In addition to Alex Johnson's comments on environmental
justice issues, he comments that Illinois should have adopted different
control measures. Johnson notes that Illinois' own estimates show that
``an adequate AIM rule or cold cleaning degreaser rule would deliver
far more reductions in both HAPs and ozone precursors'' than the
trading rule. Johnson interprets section 182(e) of the Clean Air Act as
expressing Congressional intent that economic incentive programs be
used only as a last resort.
Response: The Clean Air Act provides no basis for USEPA to require
that Illinois choose the commenter's preferred measures. In areas that
fail to achieve milestones of progress toward attainment, section
182(g) identifies economic incentive programs as one of three options
required for Serious or Severe ozone nonattainment areas (cf. section
182(g)(3)) and as the only option for extreme areas (cf. Section
182(g)(5). The fact that such programs are required in such
circumstances does not signify that States cannot adopt such programs
in other circumstances.
7. Additional Comments by Richard Kosobud
Comment: In addition to commenting on the environmental justice
issue, Richard Kosobud generally supports the Illinois trading program.
He comments that this program provides incentives under which needed
emission reductions are achieved by the sources
[[Page 52358]]
that can achieve these reductions at lowest cost. He observes that the
first year of operation of the program ``already indicates [that
trading] saves compliance costs,'' thereby freeing ``resources for
other private and public uses,'' and at the same time achieves
significant benefits in reducing ozone precursor emissions. Kosobud
concludes that USEPA should support this program.
Response: USEPA's experience with the acid rain program, and
Illinois' experience to date with its program, indicates that such
programs indeed provide strong incentives for companies to reduce
emissions, often in ways that USEPA and the State could not otherwise
require. For example, some companies in the Chicago area have reduced
emissions by changing the nature of their process so as to use less
solvent. These reductions can be achieved at far less cost than the
industry-wide types of limitations that can be mandated by state
regulation. Therefore, USEPA supports Illinois' program.
8. Additional Comment by IEPA
Comment: Illinois objects to statements that USEPA will require the
trading program to be revised to conform to the economic incentive
program guidance finalized on January 19, 2001. Illinois argues that
states cannot provide the regulatory certainty that regulated sources
must have if USEPA judges programs according to guidance that becomes
available only after the state adopts its rule. Illinois observes that
the Clean Air Act does not authorize USEPA to ``require revisions to
state rules in the absence of identifying a specific deficiency with
the rule.'' Finally, Illinois urges USEPA to defer judgment on the
program until the program runs longer, both for USEPA guidance to
reflect live experience with state trading programs and to be able to
judge the successful and the problematic features of the program.
Response: USEPA recognizes Illinois' concerns about review of its
program. Given USEPA's limited experience with trading programs, the
operation of Illinois' program and other programs will provide valuable
insights that USEPA will use in its further evaluation of the Illinois
program. In fact, Illinois' decision to include an annual program
review in its rules undoubtedly reflects Illinois' recognition as well
that reassessing the features of the program is warranted as we gain
more experience with the Illinois program and other programs.
The guidance issued in January 2001 reflects USEPA's current
recommendations regarding the various elements of economic incentive
programs. If further experience with Illinois' and others' programs
leads USEPA to different views, the basis for assessing Illinois'
program will change accordingly. For features that differ from current
guidance, USEPA will also consider whether the feature differs from
guidance available at the time the State adopted its rules. As always,
judgments of full programs reflect an overall assessment of the
programs, wherein deviations from individual elements of USEPA guidance
may be acceptable depending on the significance and the consequences of
these deviations.
USEPA intends to coordinate its review of Illinois' program with
Illinois' annual review process. If USEPA believes that Illinois'
program has inadequacies needing correcting, USEPA would consult with
Illinois and the public on the applicable issues before requesting
program revisions.
V. What Action Is USEPA Taking?
USEPA is taking final action to approve the Illinois trading
program, except that USEPA is deferring action on section 205.150(e), a
section which exempts new sources and sources with major modifications
from a requirement for full year offsets. USEPA finds that Illinois has
satisfied the five prerequisites for approval of its program. USEPA's
review of comments lead to a conclusion that Illinois has taken and is
taking adequate steps to address hazardous air pollutant impacts of its
program, that the program is fundamentally a cap and trade program to
which concerns pertaining to open market programs are largely
irrelevant, and that various other features of the program are
appropriate elements of a fully approvable program. USEPA concludes
that these regulations provide enforceable emission reductions that
USEPA estimates at 10.9 tons per day in the Chicago ozone nonattainment
area.
VI. 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. 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 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 (Public Law 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, USEPA'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), USEPA has no
authority to disapprove a SIP submission for failure to use VCS. It
would thus be inconsistent with applicable law for USEPA, 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, USEPA has taken the necessary steps to eliminate
drafting errors and ambiguity, minimize potential litigation, and
provide a clear legal standard for affected conduct. USEPA has complied
with Executive Order 12630 (53 FR 8859, March 15,
[[Page 52359]]
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. USEPA 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). This rule will be effective November 14, 2001.
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 14, 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, Incorporation by
reference, Intergovernmental relations, Reporting and recordkeeping,
Volatile organic compounds.
Authority: 42 U.S.C. 7401 et seq.
Dated: September 6, 2001.
David A. Ullrich,
Deputy Regional Administrator, Region 5.
For the reasons stated in the preamble, part 52, chapter I, title
40 of the Code of Federal Regulations are 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 O--Illinois
2. Section 52.720 is amended by adding paragraph (c)(158), to read
as follows:
Sec. 52.720 Identification of plan.
* * * * *
(c) * * *
(158) On December 16, 1997, Bharat Mathur, Chief, Bureau of Air,
Illinois Environmental Protection Agency, submitted rules for a cap and
trade program regulating volatile organic compound emissions in the
Chicago area. By letter dated August 23, 2001, the state requested that
USEPA defer rulemaking on section 205.150(e), which exempts new and
modified sources obtaining offsets under the trading program from the
requirements for traditional, full year offsets.
(i) Incorporation by reference.
Illinois Administrative Code, Title 35, Subtitle B, Chapter I,
subchapter b, Part 205, entitled Emissions Reduction Market System,
adopted November 20, 1997, effective November 25, 1997, except section
205.150(e).
[FR Doc. 01-25728 Filed 10-12-01; 8:45 am]
BILLING CODE 6560-50-P