[Federal Register Volume 82, Number 177 (Thursday, September 14, 2017)]
[Proposed Rules]
[Pages 43202-43205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19451]



40 CFR Part 52

[EPA-R09-OAR-2017-0130; FRL-9967-68-Region 9]

Revisions to California State Implementation Plan; Bay Area Air 
Quality Management District; Emission Reduction Credit Banking

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.


SUMMARY: The Environmental Protection Agency (EPA) is proposing action 
on a revision to the Bay Area Air Quality Management District (BAAQMD 
or District) portion of the California State Implementation Plan (SIP). 
We are proposing a conditional approval of one rule. This revision 
consists of updates to provisions governing the issuance and banking of 
Emission Reduction Credits for use in the review and permitting of 
major sources and major modifications under part D of title I of the 
Clean Air Act (CAA). We are taking comments on this proposal and plan 
to follow with a final action.

DATES: Any comments must arrive by October 16, 2017.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R09-
OAR-2017-0130 at https://www.regulations.gov, or via email to 
[email protected]. For comments submitted at Regulations.gov, follow 
the online instructions for submitting comments. Once submitted, 
comments cannot be removed or edited from Regulations.gov. For either 
manner of submission, the EPA may publish any comment received to its 
public docket. Do not submit electronically any information you 
consider to be Confidential Business Information (CBI) or other 
information whose disclosure is restricted by statute. Multimedia 
submissions (audio, video, etc.) must be accompanied by a written 
comment. The written comment is considered the official comment and 
should include discussion of all points you wish to make. The EPA will 
generally not consider comments or comment contents located outside of 
the primary submission (i.e. on the web, cloud, or other file sharing 
system). For additional submission methods, please contact the person 
identified in the FOR FURTHER INFORMATION CONTACT section. For the full 
EPA public comment policy, information about CBI or multimedia 
submissions, and general guidance on making effective comments, please 
visit https://www2.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: Laura Yannayon, EPA Region 9, (415) 
972-3534, [email protected].

SUPPLEMENTARY INFORMATION: Throughout this document, the terms ``we,'' 
``us,'' and ``our'' refer to EPA.

Table of Contents

I. The State's Submittal
    A. What rule did the State submit?
    B. What is the existing BAAQMD rule governing banking of 
Emission Reduction Credits in the California SIP?
    C. What is the purpose of this proposed rule?
II. EPA's Evaluation
    A. How is EPA evaluating the rule?
    B. Does the rule meet the evaluation criteria?
III. Proposed Action and Public Comment
IV. Incorporation by Reference
V. Statutory and Executive Order Reviews

I. The State's Submittal

A. What rule did the State submit?

    On April 22, 2013, the California Air Resources Board (CARB) 
submitted an amended rule, BAAQMD Regulation 2, Rule 4 (Rule 2-4), for 
approval as a revision to the BAAQMD portion of the California SIP 
under the CAA. Regulation 2 contains the District's air quality 
permitting programs. Rule 2-4 contains requirements applicable to the 
banking of Emission Reduction Credits (ERCs) for use in the District's 
air quality permitting programs.
    Table 1 lists the rule addressed by this proposal with the dates 
that it was adopted by BAAQMD and submitted to the EPA by CARB, which 
is the governor's designee for California SIP submittals.

[[Page 43203]]

                                             Table 1--Submitted Rule
          Regulation & rule number                        Rule title                  amended        Submitted
Regulation 2, Rule 4 (Rule 2-4)............  Permits, Emissions Banking.........        12/19/12         4/22/13

    On June 26, 2013, Regulation 2, Rule 4 was deemed to meet the 
completeness criteria in 40 CFR part 51, appendix V, which must be met 
before formal EPA review. The submittal includes evidence of public 
notice and adoption of the amended rule. While we can only take action 
on the most recently submitted version of each regulation (which 
supersedes earlier submitted versions), we have reviewed materials 
provided with previous submittals.

B. What is the existing BAAQMD rule governing banking of Emission 
Reduction Credits in the California SIP?

    The existing SIP-approved banking rule in the Bay Area consists of 
the rule identified in Table 2. This rule includes requirements for the 
generation and use of ERCs in nonattainment areas.
    Consistent with the District's stated intent to have the submitted 
banking rule replace the existing SIP-approved banking rule in its 
entirety, EPA's conditional approval of the regulation identified in 
Table 1 would have the effect of entirely superseding our prior 
approval of the same rule in the current SIP-approved program.

                                           Table 2--Existing SIP Rule
                                                               BAAQMD       EPA approval
      Regulation & rule No.              Rule title         adoption date       date            FR citation
2-4.............................  Permits, Emissions            6/15/1994       1/26/1999  64 FR 3850.

C. What is the purpose of this proposed rule?

    The purpose of this proposed rule is to present our evaluation 
under the CAA and EPA's regulations of the amended banking rule 
submitted by CARB on April 22, 2013, as identified in Table 1. We 
provide our reasoning in general terms later in this preamble and 
provide a more detailed analysis in our Technical Support Document 
(TSD), which is available in the docket for this proposed rulemaking.

II. EPA's Evaluation

A. How is EPA evaluating the rule?

    In general, banking rules allow a permitting authority to evaluate 
whether certain emission reductions meet the offset integrity criteria 
found in 40 CFR 51.165(a)(3)(ii)(C)(1)(i) and CAA section 173(c)(1) at 
the time of ERC issuance, and, if found to meet these criteria, to 
certify that finding by issuing an ERC Certificate. This process 
provides the Certificate-holder with a greater degree of certainty as 
to the validity of their ERCs for future use as offsets. Since the 
intent of a banking program is to pre-review an emission reduction to 
determine whether it will meet the offset integrity criteria, we 
considered these criteria in our evaluation. In addition, we used EPA's 
Emissions Trading Policy Statement (ETPS),\1\ which provides guidance 
on emissions trading, including the banking of ERCs for future use. EPA 
also evaluated the rules for compliance with the CAA requirements for 
SIP revisions in CAA sections 110(a)(2) and 110(l), and the additional 
requirements laid out in 40 CFR 51.165(a)(3).

    \1\ 51 FR 43814, December 4, 1986.

    Our TSD, which can be found in the docket for this rule, contains a 
more detailed evaluation and discussion of the approval criteria.

B. Does the rule meet the evaluation criteria?

    With respect to procedural requirements, CAA sections 110(a)(2) and 
110(l) require that revisions to a SIP be adopted by the State after 
reasonable notice and public hearing. Based on our review of the public 
process documentation included in the April 22, 2013 submittal, we find 
that the BAAQMD has provided sufficient evidence of public notice, and 
an opportunity for comment and a public hearing prior to adoption and 
submittal of these rules to EPA.
    With respect to substantive requirements, we have evaluated Rule 2-
4 to ensure it does not conflict with the requirements applicable to 
offsets in accordance with the CAA and regulatory requirements that 
apply to nonattainment NSR permit programs under part D of title I of 
the Act. For the most part, the submitted banking rule satisfies the 
applicable requirements and will strengthen the SIP by updating the 
rule and adding requirements to address fine particulate matter 
(PM2.5). However, the submitted banking rule also contains 
three deficiencies that prevent full approval. Further in this 
preamble, we discuss generally our evaluation of BAAQMD's submitted 
rule and describe the identified deficiencies. Our TSD contains a more 
detailed evaluation and recommendations for program improvements.
    First, Rule 2-4 is deficient because, while it defines the term 
ERCs as emission reductions ``that are in excess of the reductions 
required by applicable regulatory requirements, and that are real, 
permanent, quantifiable, and enforceable,'' it does not contain any 
enforceable provisions requiring the Air Pollution Control Officer to 
determine that the emission reductions under review meet the offset 
integrity criteria prior to issuing an ERC Certificate.
    Second, Rule 2-4 is deficient because it incorporates the emission 
reduction calculation procedures found in Rule 2-2 subsection 605.2. On 
August 1, 2016, EPA finalized a limited approval and limited 
disapproval of BAAQMD's Rule 2-2--New Source Review \2\ because it 
contained deficiencies regarding the calculation of emission 
reductions. Specifically, EPA disapproved Rule 2-2 subsection 605.2 
because it allows existing ``fully-offset'' sources to generate ERCs 
based on the difference between the post-modification potential to emit 
(PTE) and the pre-modification PTE. This may result in crediting 
emission reductions that are not ``actual'' reductions, as required by 
the Act. See 42 U.S.C. 7503(c)(1).

    \2\ 81 FR 50339, August 1, 2016.

    Third, Rule 2-4 is deficient because Section 2-4-302.3 allows ERC 
Certificates to be issued that do not

[[Page 43204]]

adequately ensure the permanency of an emission reduction due to a 
facility closure.
    With respect to the substantive requirements of CAA section 110(l), 
we have determined that our approval of Rule 2-4, as described in more 
detail in our TSD, represents a strengthening of the rule as compared 
to the District's current SIP-approved banking rule that we approved on 
January 26, 1999 (64 FR 3850), and that our conditional approval of the 
current SIP submittal would not interfere with any applicable 
requirement concerning attainment and Reasonable Further Progress or 
any other applicable requirement of the Act.

III. Proposed Action and Public Comment

    Because the rule deficiencies described previously are 
inappropriate for inclusion in the SIP, EPA cannot grant full approval 
of this rule under section 110(k)(3) of the Act. However, in a letter 
dated August 28, 2017, the District committed to adopt and submit 
specific enforceable measures to address these deficiencies. The 
District committed to submit these revisions to CARB by October 1, 
2018. In addition, in a letter dated August 29, 2017, CARB committed to 
submit the adopted rule revisions to EPA no later than November 1, 
2018. Accordingly, pursuant to section 110(k)(4) of the Act, EPA is 
proposing a conditional approval of the submitted rule. We are 
proposing to conditionally approve the submitted rule based on our 
determination that separate from the deficiencies listed previously, 
the rule: Ensures that issued ERCs will meet the criteria laid out in 
40 CFR 51.165(a)(3)(ii)(C)(1)(i) at the time of ERC issuance; satisfies 
the requirements of 40 CFR 51.165(a)(3)(i); satisfies the applicable 
requirements found in the ETPS; and satisfies the requirements of 40 
CFR 51.165(a)(3)(ii)(C)(1)(ii), which requires pre-base year shutdown 
credits to be explicitly added back in to the most recent applicable 
air quality plans. Moreover, we conclude that if the District submits 
the changes it has committed to submit, these deficiencies will be 
    In support of this proposed action, we have concluded that our 
conditional approval of the submitted rule would comply with section 
110(l) of the Act because the amended rule, as a whole, would not 
interfere with continued attainment of the National Ambient Air Quality 
Standards in the Bay Area. The intended effect of our proposed 
conditional approval action is to update the applicable SIP with 
current BAAQMD rules and provide BAAQMD the opportunity to correct the 
identified deficiencies, as discussed in their commitment letter dated 
August 28, 2017. If we finalize this action as proposed, our action 
would be codified through revisions to 40 CFR 52.220 (Identification of 
plan) and 40 CFR 52.232 (Part D conditional approval).
    If the State meets its commitment to submit the required measures 
by November 1, 2018, the revisions to Rule 2-4 will remain a part of 
the SIP until EPA takes final action approving or disapproving the new 
SIP revisions. However, if the District fails to submit these revisions 
within the required timeframe, the conditional approval will 
automatically become a disapproval, and EPA will issue a finding of 
disapproval. EPA is not required to propose the finding of disapproval.
    There are no sanctions or Federal Implementation Plan (FIP) 
implications should the conditional approval become a disapproval. 
Sanctions would not be imposed under CAA section 179(b) because the 
submittal of Rule 2-4 is discretionary (i.e., not required to be 
included in the SIP). See ETPS, 51 FR 43,813 at 43,825 (``[S]tates are 
by no means required to adopt banking procedures, but . . . banks may 
help states and communities realize important planning and 
environmental benefits.''). A FIP would not be imposed under CAA 
section 110(c)(1) because the disapproval does not reveal a deficiency 
in the SIP that such a FIP must correct. Specifically: (1) The 
deficiencies identified herein do not impact or undermine the 
requirement that offsets satisfy the requirements of 40 CFR 51.165, 
including the requirement that offsets must satisfy the offset 
integrity criteria enumerated in 40 CFR 51.165(a)(3)(ii)(C)(1)(i) at 
the time of use; and (2) Rule 2-4 is not a required CAA submittal 
because states and air districts have the discretion, but are not 
required, to adopt banking rules.
    We will accept comments from the public on the proposed conditional 
approval of Rule 2-4 for the next 30 days.

IV. Incorporation by Reference

    In this rule, the EPA is proposing to include in a final EPA rule, 
regulatory text that includes incorporation by reference. In accordance 
with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by 
reference BAAQMD Regulation 2, Rule 4 (Permits, Emissions Banking), 
which is discussed in section I.A. of this preamble. The EPA has made, 
and will continue to make, this document generally available 
electronically through https://www.regulations.gov and in hard copy at 
the appropriate EPA office (see the ADDRESSES section of this preamble 
for more information).

V. Statutory and Executive Order Reviews

    Additional information about these statutes and Executive Orders 
can be found at https://www2.epa.gov/laws-regulations/laws-and-executive-orders.

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is not a significant regulatory action and was 
therefore not submitted to the Office of Management and Budget (OMB) 
for review.

B. Paperwork Reduction Act (PRA)

    This action does not impose an information collection burden under 
the PRA because this action does not impose additional requirements 
beyond those imposed by state law.

C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. This 
action will not impose any requirements on small entities beyond those 
imposed by state law.

D. Unfunded Mandates Reform Act (UMRA)

    This action does not contain any unfunded mandate as described in 
UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect 
small governments. This action does not impose additional requirements 
beyond those imposed by state law. Accordingly, no additional costs to 
state, local, or tribal governments, or to the private sector, will 
result from this action.

E. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government.

F. Executive Order 13175: Coordination With Indian Tribal Governments

    This action does not have tribal implications, as specified in 
Executive Order 13175, because the SIP is not approved to apply on any 
Indian reservation land or in any other area where the EPA or an Indian 
tribe has demonstrated that a tribe has

[[Page 43205]]

jurisdiction, and will not impose substantial direct costs on tribal 
governments or preempt tribal law. Thus, Executive Order 13175 does not 
apply to this action.

G. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    The EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that the EPA has reason to believe may disproportionately affect 
children, per the definition of ``covered regulatory action'' in 
section 2-202 of the Executive Order. This action is not subject to 
Executive Order 13045 because it does not impose additional 
requirements beyond those imposed by state law.

H. Executive Order 13211: Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    This action is not subject to Executive Order 13211, because it is 
not a significant regulatory action under Executive Order 12866.

I. National Technology Transfer and Advancement Act (NTTAA)

    Section 12(d) of the NTTAA directs the EPA to use voluntary 
consensus standards in its regulatory activities unless to do so would 
be inconsistent with applicable law or otherwise impractical. The EPA 
believes that this action is not subject to the requirements of section 
12(d) of the NTTAA because application of those requirements would be 
inconsistent with the CAA.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Population

    The EPA lacks the discretionary authority to address environmental 
justice in this rulemaking.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by 
reference, Intergovernmental relations, Nitrogen dioxide, Ozone, 
Particulate Matter, Reporting and recordkeeping requirements.

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

    Dated: August 31, 2017.
Deborah Jordan,
Acting Regional Administrator, Region IX.
[FR Doc. 2017-19451 Filed 9-13-17; 8:45 am]