94-6828. Economic Incentive Program Rules; Final Rule ENVIRONMENTAL PROTECTION AGENCY  

  • [Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
    [Unknown Section]
    [Page 0]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 94-6828]
    
    
    [[Page Unknown]]
    
    [Federal Register: April 7, 1994]
    
    
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    Part II
    
    
    
    
    
    Environmental Protection Agency
    
    
    
    
    
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    40 CFR Part 51
    
    
    
    
    Economic Incentive Program Rules; Final Rule
    ENVIRONMENTAL PROTECTION AGENCY
    
    40 CFR Part 51
    
    [FRL-4853-8]
    RIN 2060-AD58
    
     
    Economic Incentive Program Rules
    
    AGENCY: Environmental Protection Agency (EPA).
    
    ACTION: Final rule and guidance.
    
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    SUMMARY: This action promulgates rules for economic incentive programs 
    (EIP's) which either may or must be adopted by States for certain ozone 
    (O3) and carbon monoxide (CO) nonattainment areas upon the failure 
    of a State to submit an adequate showing that an applicable reasonable 
    further progress (RFP) or a specific emissions reductions milestone has 
    been met (in serious, severe, and extreme O3 and serious CO 
    nonattainment areas) or upon the failure of a serious CO nonattainment 
    area to attain the national ambient air quality standards (NAAQS) for 
    CO. Under the Clean Air Act as amended in 1990 (Act), the EPA was 
    required to promulgate final EIP rules for stationary, area, and mobile 
    sources by November 15, 1992; this action is that rulemaking.
        The provisions of today's rules are also guidance for discretionary 
    EIP's that any State may choose to adopt for any criteria pollutant, as 
    explicitly allowed for in the Act. The Agency views this action as an 
    opportunity to encourage the development and early implementation of 
    appropriate EIP's. In so doing, the Agency hopes these rules and 
    guidance will stimulate the adoption of incentive-based, innovative 
    programs, where appropriate, that will assist States in meeting air 
    quality management goals through flexible approaches which benefit both 
    the environment and the regulated entities, allow for less costly 
    control strategies, and provide stronger incentives for the development 
    and implementation of pollution prevention measures and innovative 
    emissions reductions technology.
        The EPA intends that the portion of the preamble and rules 
    published today that concern discretionary EIP's constitute guidance, 
    not final action. Final action with respect to discretionary EIP's will 
    occur when the EPA approves or disapproves State implementation plan 
    (SIP) revisions containing discretionary EIP's.
    
    EFFECTIVE DATE: The regulations in this rulemaking go into effect on 
    April 7, 1994.
    
    ADDRESSES: The public docket for this action, A-91-56, including copies 
    of the public comments on the EPA's February 23, 1993 proposed 
    rulemaking, is available for public inspection and copying between 8 
    a.m. and 4 p.m., Monday through Friday, at the address listed below. A 
    reasonable fee for copying may be charged. The address of the EPA Air 
    Docket is EPA Central Docket Section, South Conference Center, room 4, 
    401 M Street, SW, Washington, DC 20460.
    
    FOR FURTHER INFORMATION CONTACT:
    Mr. Willis P. Beal, U.S. EPA, MD-12, Research Triangle Park, North 
    Carolina 27711, telephone (919) 541-5667.
    
    SUPPLEMENTARY INFORMATION: The contents of today's preamble are listed 
    in the following outline:
    
    I. Background and Purpose
        A. Introduction
        B. Overview
        C. Principles and Regulatory Elements
    II. Summary of Rules and Guidance
        A. Applicability
        B. Definitions
        C. State Program Election and Submittal
        D. State Program Requirements
        E. Use of Program Revenues
    III. Discussion of Rules and Guidance
        A. Applicability
        B. Definitions
        C. State Program Election and Submittal
        D. State Program Requirements
        E. Use of Program Revenues
    IV. Discussion of Comments and Regulatory Changes
        A. Program Goals
        B. Interface With Reasonably Available Control Technology (RACT) 
    and Other Statutory Requirements
        C. Program Baseline
        D. Emission Quantification
        E. Monitoring, Recordkeeping, Reporting (MRR)
        F. State Implementation Plan (SIP) Creditability
        G. Audit/Reconciliation Procedures
        H. Penalties for Noncompliance
        I. Interface With Existing Emission Trading Policies
        J. General Issues
    V. Administrative Requirements
        A. Executive Order 12866
        B. Paperwork Reduction Act
        C. Regulatory Flexibility Act
    
    I. Background and Purpose
    
    A. Introduction
    
        The Act, as amended in 1990, broadly encourages the use of 
    incentive-based approaches to control air pollution. This encouragement 
    is reflected not only in the title IV acid rain program, but also in 
    the title I general provisions for State and Federal implementation 
    plans for achieving the NAAQS for criteria pollutants, as well as in 
    the provisions for certain Federal O3 measures. In title I, 
    incentive-based approaches are encouraged, and, in certain cases, 
    mandated, through the use of what has been termed an ``economic 
    incentive program.'' Today's notice promulgates rules and guidance for 
    EIP's adopted by the States pursuant to title I of the Act.
        The Agency views this action as an opportunity to encourage and 
    provide guidance on the early implementation of appropriate 
    discretionary EIP's, as well as to provide mandated rules for use by 
    States after certain specific failures occur. The Agency hopes that 
    this guidance will stimulate the early adoption of innovative, 
    incentive-based approaches, where appropriate, that will assist the 
    States in avoiding such failures, reaching attainment of the NAAQS 
    faster than might otherwise occur solely through the use of traditional 
    regulatory strategies, and lowering the cost of attaining and 
    maintaining the NAAQS. Through this action, the Agency intends to 
    encourage the development of EIP's which benefit both the environment 
    and the regulated entities by increasing flexibility and stimulating 
    the use of less costly strategies, as well as by providing stronger 
    incentives for development and implementation of pollution prevention 
    measures, innovative emissions reductions technology, and strategies 
    beyond those specifically mandated through State and Federal standards 
    and regulations. The Agency believes that these goals can be met by 
    EIP's that also meet the standards of accountability and enforceability 
    currently found in traditional regulatory programs.
    
    B. Overview
    
        Today's notice promulgates rules for EIP's which may be adopted by 
    an authorized governing body, including States, local governments, and 
    Indian governing bodies (henceforth State), for certain O3 and CO 
    nonattainment areas pursuant to sections 182(g)(3), 182(g)(5), 
    187(d)(3), and 187(g) of the Act. These sections mandate for certain 
    areas, and identify as one of three options for certain other areas, 
    the use of EIP's in certain cases. An EIP is mandated upon the failure 
    of a State to submit an adequate demonstration showing that the area 
    has met applicable milestones for RFP in extreme O3 nonattainment 
    areas (section 182(g)(5)). An EIP is identified as one of three options 
    upon such failure in serious and severe O3 nonattainment areas 
    (section 182(g)(3)).1 Further, an EIP is also mandated upon the 
    failure of a State to submit a milestone demonstration showing 
    adequately that the area has met a required specific emissions 
    reductions milestone or to attain the CO NAAQS in serious CO 
    nonattainment areas (section 187(d)(3), 187(g)).
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        \1\The other two options are to have the area reclassified to 
    the next higher classification and to implement specific additional 
    measures adequate to meet the next milestone as provided in the 
    applicable contingency plan.
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        Section 182(g)(4)(A) of the Act requires that EIP's adopted by 
    States pursuant to the sections of the Act cited above, characterized 
    in today's notice as statutory EIP's, be consistent with the Agency's 
    final rules for EIP's. This section also requires that such EIP's be 
    nondiscriminatory with regard to applicable laws regarding interstate 
    commerce. In addition, section 182(g)(4)(B) imposes constraints on how 
    any revenues generated by such programs shall be used. The scope of the 
    EIP rules includes programs which may be adopted for ``reducing 
    emissions from permitted stationary sources, area sources, and mobile 
    sources.''
        Other sections of title I also explicitly allow for EIP's to be 
    included as provisions in SIP's in general (section 110(a)(2)(A)), as 
    well as specifically in nonattainment area SIP's (section 172(c)(6)). 
    Economic incentives are allowable in Federal implementation plans 
    (FIP's) by definition (section 302(y)), and in Federal O3 measures 
    through the system of regulations for control of emissions from 
    consumer or commercial products (section 183(e)(4)). Today's notice 
    serves as the Agency's final guidance for EIP's adopted by States 
    pursuant to the sections of the Act relating to general SIP provisions, 
    characterized in today's notice as discretionary EIP's. Discretionary 
    EIP's may be adopted for any criteria pollutant in both nonattainment 
    and attainment areas.
    
    C. Principles and Regulatory Elements
    
        The rules and guidance in today's notice are broadly applicable to 
    any type of statutory or discretionary EIP, respectively. This notice 
    requires that EIP's submitted for approval to the EPA as part of a SIP 
    for a nonattainment area contain design features that will ensure that 
    the program will not interfere with other requirements of the Act and 
    that emissions reductions credited to the program will be quantifiable; 
    consistent with SIP attainment and RFP demonstrations; surplus to 
    reductions required by, and credited to, other implementation plan 
    provisions to avoid double counting of reductions; enforceable at both 
    the State and Federal levels; and permanent over the entire duration of 
    the program.2 The Agency does not intend to limit flexibility and 
    innovation beyond those constraints that are necessary to meet these 
    requirements.
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        \2\The program need not continue forever to generate permanent 
    emissions reductions. Such reductions can be discrete or continuous, 
    depending on the nature of the program. Discrete (i.e., temporary) 
    reductions can be used to defer but not solely to satisfy continuous 
    emission reduction requirements (e.g., RACT).
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        This notice identifies key program provisions which must generally 
    be included to ensure that the above requirements will be met. Adequate 
    program designs will generally include the following elements: Clearly 
    defined goals and an incentive mechanism that can be rationally related 
    to accomplishing the goals; a clearly defined scope, which identifies 
    affected sources and assures that the program will not interfere with 
    any other applicable Federal regulatory requirements; a program 
    baseline from which projected program results (e.g., quantifiable 
    emissions reductions) can be determined; credible, workable, replicable 
    procedures for quantifying emissions and/or emission-related 
    parameters, as appropriate; source requirements, including those for 
    MRR, that are consistent with specified quantification procedures and 
    allow for compliance certification and enforcement; requirements for 
    projecting program results and dealing with uncertainty; and an 
    implementation schedule, administrative system, and enforcement 
    provisions adequate for ensuring Federal and State enforceability of 
    the program. All EIP's for which SIP credit is taken in attainment and 
    RFP demonstrations must include additional elements, such as audit 
    procedures to evaluate program implementation and track results, and, 
    in certain cases, reconciliation procedures to trigger corrective or 
    contingency measures to make up any shortfall between projected 
    emissions reductions and emissions reductions actually achieved in 
    practice.
        The rules are, of necessity, general in nature with regard to 
    criteria for designing adequate program elements. This generality 
    arises due to the large variety of EIP types and designs which may be 
    submitted, and the Agency's goal of encouraging creativity and 
    innovation on the part of the States developing such programs. There 
    are three broad, interrelated aspects of any program design that 
    significantly affect the approvability of an EIP: How the EIP relates 
    to other SIP provisions, the level of certainty in quantifying 
    emissions and projecting EIP results, and the nature and extent of MRR 
    requirements for enabling determinations of compliance. For example, 
    today's notice reflects the Agency's view that the scope and nature of 
    MRR requirements, including the extent to which an EIP exceeds the 
    minimum requirements for such, would be among the factors to be 
    considered in assessing the adequacy of any demonstration of projected 
    EIP program results. The Agency anticipates preparing additional 
    guidance on specific aspects of program design as it gains experience 
    with EIP's, partly through participation in feasibility and 
    demonstration projects.
        Descriptions of a broad range of general types of incentive 
    strategies which exemplify potential EIP's are appended to the final 
    rules. These descriptions identify key provisions which distinguish the 
    different model program types. These examples are general in nature so 
    as to avoid limiting innovation on the part of the States in developing 
    programs tailored to individual State needs. The EPA has placed in the 
    docket support documents which survey a wide range of EIP's that have 
    actually been implemented, as well as programs in the design stage. The 
    EPA has also issued information and guidance, as required by section 
    108(f)(1)(A) of the Act, regarding the formulation and emissions 
    reductions potential of various transportation control measures 
    (TCM's).3
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        \3\Further information on potential TCM's and other mobile 
    source measures is also contained in a staff memorandum, 
    ``Preliminary Mobile Source Economic Incentive Program Strategies,'' 
    from P. Okurowski to P. Lorang, March 30, 1992, which is available 
    in the docket.
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        The EPA also published interim guidance on the generation of 
    emissions reductions credits (ERC's) from mobile source control 
    programs at the same time the EIP rule was proposed.4 The EPA 
    intends to respond to comments received on this interim guidance and 
    publish final guidance in conjunction with other EIP-related guidance 
    on ERC banking currently being developed.
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        \4\Interim Guidance on the Generation of Mobile Source Emission 
    Reduction Credits, 58 FR 11134, February 23, 1993. For information 
    and copies of the associated technical addendum entitled Guidance 
    for the Implementation of Accelerated Retirement of Vehicles 
    Programs, please contact: Mr. Mark Simons, U.S. EPA, 2565 Plymouth 
    Road, Ann Arbor, MI 48105, (313) 668-4417. For information and 
    copies of the associated technical addenda entitled (1) Guidance for 
    Emission Reduction Credit Generation by Clean Fuel Fleets and 
    Vehicles or (2) Guidance for Mobile Emission Credit Generation by 
    Urban Buses, please contact: Mr. Glenn Passavant, U.S. EPA, 2565 
    Plymouth Road, Ann Arbor, MI 48105, (313) 668-4408.
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        The EPA intends that today's notice be consistent with other 
    related rules and policies, either in place or under development, such 
    as the title V operating permits rules, the title VII rules for 
    enhanced monitoring, general guidance on the implementation of title I, 
    and policies on emission trading.
    
    II. Summary of Rules and Guidance
    
    A. Applicability
    
        The rules promulgated in today's notice apply to any statutory EIP 
    submitted to the EPA as a SIP revision to comply with sections 
    182(g)(3), 182(g)(5), 187(d)(3), or 187(g) of the Act, which either may 
    or must be adopted by States upon the failure of a State either to meet 
    or to submit an adequate showing that an applicable RFP or a specific 
    emissions reductions milestone has been met (in serious, severe, and 
    extreme O3 nonattainment areas, and serious CO nonattainment 
    areas), or upon the failure of a serious CO nonattainment area to 
    attain the NAAQS for CO. The provisions contained in these rules, 
    except as explicitly exempted, also serve as the Agency's policy 
    guidance on any discretionary EIP's submitted as SIP revisions.
    
    B. Definitions
    
        The term ``EIP'' is defined to include State established emission 
    fees, marketable permits, State fees on the sale or manufacture of 
    products the use of which contributes to O3 formation, TCM's, or 
    any combination of such measures.
    
    C. State Program Election and Submittal
    
        Under today's rules, statutory EIP's submitted as SIP revisions, 
    when applicable, must be sufficient, in combination with other elements 
    of the plan, to achieve the next applicable milestone (for serious, 
    severe, and extreme O3 nonattainment areas), or to reduce the 
    total tonnage of emissions of CO in the area by at least 5 percent per 
    year until attainment is achieved (for serious CO nonattainment areas). 
    Discretionary EIP's must not interfere with any applicable requirement 
    concerning attainment and RFP, or any other applicable requirement of 
    the Act (section 110(l)).
    
    D. State Program Requirements
    
        Today's rules and guidance establish as a goal for all EIP's that 
    they be designed to benefit both the environment and the regulated 
    entities. In addition, EIP's must be State and federally enforceable, 
    nondiscriminatory (with respect to interstate commerce), and consistent 
    with the timely attainment and maintenance of NAAQS, all applicable RFP 
    and visibility requirements, applicable prevention of significant 
    deterioration (PSD) increments, and all other applicable requirements 
    of the Act. Programs in nonattainment areas for which credit is taken 
    in attainment and RFP demonstrations shall be designed to ensure that 
    the effects of the program are quantifiable, and that the credit taken 
    is limited to that which is surplus to other SIP-credited requirements. 
    Statutory EIP's must be designed to result in quantifiable, significant 
    reductions in actual emissions.
        A number of program elements are outlined in the rules which must 
    be included, as applicable, as part of any EIP design. These elements 
    are required to delineate program scope, to specify credible, workable, 
    replicable emission quantification procedures and all affected source 
    requirements, to project program results, to specify audit and, if 
    appropriate, reconciliation procedures (to evaluate program 
    implementation, track results, and, as appropriate, trigger corrective 
    or contingency measures), and to define an implementation schedule, 
    administrative procedures, and effective enforcement mechanisms.
    
    E. Use of Program Revenues
    
        The rules incorporate statutory restrictions on the use of revenues 
    generated by statutory EIP's. Specifically, any such revenues may be 
    used by a State for providing incentives for achieving emissions 
    reductions, providing assistance (up to 75 percent of the costs) for 
    the development of innovative technologies for the control of O3 
    air pollution and for the development of lower-polluting solvents and 
    surface coatings, and funding (with up to 50 percent of the revenues) 
    administrative costs of State programs under this Act. These 
    restrictions on the use of revenues do not apply to discretionary 
    EIP's.
    
    III. Discussion of Rules and Guidance
    
        This portion of the notice provides more detail on the provisions 
    of the final rules and guidance.
    
    A. Applicability
    
        The rules published in today's notice apply to any statutory EIP 
    submitted to the EPA as a SIP revision to comply with sections 
    182(g)(3), 182(g)(5), 187(d)(3), or 187(g) of the Act, which either may 
    or must be adopted by States upon the failure of a State either to meet 
    or to submit an adequate showing that an applicable RFP or a specific 
    emissions reductions milestone has been met (in serious, severe, and 
    extreme O3 nonattainment areas, and serious CO nonattainment 
    areas), or upon the failure of a serious CO nonattainment area to 
    attain the NAAQS for CO. The provisions contained in these rules, 
    except as explicitly exempted, also serve as the Agency's policy 
    guidance on any discretionary EIP's submitted as SIP revisions. 
    Further, the EPA will use the provisions contained in these rules as 
    guidance in preparing EIP's, when appropriate, for FIP's necessitated 
    by State failures and for other Federal measures.
        The EPA intends to review EIP's submitted as plan revisions based 
    on the general SIP review requirements contained in sections 110(k), 
    110(l), 182, and 187 of the Act, as applicable, and associated Agency 
    policies. For statutory programs, the Agency intends to review the plan 
    revision and either approve or disapprove all or part of the revision 
    within 9 months after the date of the State's submission of the plan 
    revision, consistent with section 182(g)(3) and 182(g)(5) of the Act. 
    For discretionary EIP's, Agency action on plan revisions submitted for 
    review will be taken according to the same schedule as is applicable to 
    any other type of plan revision. An EIP submitted as a plan revision 
    will be deemed to be approved only upon an affirmative decision by the 
    Agency.
    
    B. Definitions
    
        The definitions in today's notice include many terms drawn from the 
    Act or other regulations or guidance documents, as well as new terms 
    relating to EIP's. Key new terms are discussed below.
    1. Economic Incentive Program
        Consistent with section 182(g)(4)(A) of the Act, for purposes of 
    today's rulemaking, ``EIP'' is defined to mean a program which may 
    include ``State established emission fees or a system of marketable 
    permits, or a system of State fees on sale or manufacture of products, 
    the use of which contributes to O3 formation, or any combination 
    of the foregoing or other similar measures.'' In addition, the Act 
    expands this definition to include ``incentives and requirements to 
    reduce vehicle emissions and vehicle miles traveled in the area, 
    including any of the transportation control measures identified in 
    section 108(f).''
        For purposes of this rulemaking, this notice classifies EIP's into 
    three broad categories: emission limiting, market response, and 
    directionally-sound. This categorization is based on whether a 
    quantifiable emission-related requirement is directly specified as an 
    integral element of the program or whether the program depends upon 
    marketplace decisions, in response to a program's incentive, to produce 
    the intended emission-related objective of the program. Further, the 
    categorization is a function of whether the results of the program are 
    quantifiable.
        Emission-limiting strategies directly specify limits on total mass 
    emissions, emission-related parameters (e.g., emission rates per unit 
    of production, product content limits), or levels of emissions 
    reductions relative to a program baseline that are required to be met 
    by affected sources, while providing flexibility to sources to reduce 
    the cost of meeting such limits. A marketable permits program (i.e., 
    emission trading with source-specific mass emissions limitations, or 
    caps) is a primary example of such a program. If every affected source 
    in such a program complies with its emissions cap (taking into account 
    both emissions generated by the source as well as any emissions 
    trading), the program will necessarily achieve the specified emissions 
    limits.
        A market-response strategy creates one or more incentives for 
    affected sources to reduce emissions, without directly mandating 
    emission-related requirements for individual sources or even for all 
    sources in the aggregate. An emission fee program may be an example of 
    a market-response strategy. In such a program, each source might be 
    required to pay a fee on each unit of emissions. The response to the 
    incentive, in terms of actions which affect emissions levels, will be 
    determined by each source according to its abatement opportunities, 
    costs, and other factors. Thus, each source has flexibility in 
    determining its ultimate level of emissions (within any constraints 
    imposed by other regulatory requirements).
        A consequence of programs based on market-response strategies is 
    that actual emissions from affected sources may differ from the pre-
    implementation projected emissions level even if every affected source 
    is in full compliance with the EIP requirements. This added degree of 
    uncertainty in program results must be accounted for in designing such 
    a strategy (see paragraph III.D.6.).
        Directionally-sound strategies do not yield quantifiable emissions 
    reductions creditable towards RFP or attainment demonstrations. Such 
    strategies may be included in an area's attainment plan, without 
    credit, or in a maintenance plan if the strategy contributes to the 
    area coming into or maintaining attainment. Emissions reductions from 
    such programs are not creditable towards RFP or attainment 
    demonstrations because the program lacks one or more of the basic 
    program elements, such as a quantifiable program baseline or adequate 
    emissions quantification procedures. However, a State may want to 
    pursue such a strategy as a part of their overall program to attain and 
    maintain the NAAQS. Directionally-sound strategies must not be used as 
    the primary basis for any statutory EIP submitted pursuant to sections 
    182(g)(3), 182(g)(5), 187(d)(3), and 187(g) of the Act.
        A number of different types of incentive strategies have been 
    identified upon which EIP's could be based. Appendix X contains 
    descriptions of different types of strategies, together with a listing 
    of the TCM's included in section 108(f) of the Act. There is not, 
    however, in all cases a direct correspondence between a type of 
    strategy and the regulatory categories described above, since program 
    design details can in some cases make a difference in the extent to 
    which program results are quantifiable or dependent on market response.
    2. Program Baseline
        The determination of a program baseline is the first step in 
    projecting program results. Results from EIP's can be projected in 
    terms of quantifiable emissions reductions, or, in the case of 
    directionally-sound programs, in terms of other emission-related 
    parameters. Further, some types of incentive strategies depend upon the 
    establishment of a program baseline, in terms of a level of mass 
    emissions or emission-related parameter(s), for each affected source or 
    aggregated overall affected sources, as a starting point for the 
    incentive program mechanism. For example, a marketable emissions permit 
    program could be initialized by a program baseline that allocates to 
    each source a cap on mass emissions that serves as its starting point 
    for any emissions trading transactions or future emissions reductions 
    requirements. For other types of programs, this program baseline could 
    be defined in terms of emission-related parameters, such as average 
    emission rates, solvent content, or vehicle ridership factors.
    3. Nondiscriminatory
        Section 182(g)(4) provides that statutory EIP's must be 
    ``nondiscriminatory'' and must be ``consistent with applicable law 
    regarding interstate commerce.'' The EPA interprets these requirements 
    to mean that a statutory EIP must not discriminate in favor of 
    intrastate commerce and against interstate commerce. In addition, an 
    EIP must meet any other applicable limitations under the Commerce 
    Clause of the U.S. Constitution. For example, State taxes must meet the 
    requirements, to the extent applicable to the tax, set out by the U.S. 
    Supreme Court in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 
    (1977). There, the Court stated that a State tax will pass scrutiny 
    under the Commerce Clause only if ``the tax is applied to an activity 
    with a substantial nexus with the taxing State, is fairly apportioned, 
    does not discriminate against interstate commerce, and is fairly 
    related to the services provided by the State.'' Id. at 279. Under the 
    EPA's interpretation, Congress did not intend, by the provisions 
    authorizing EIP's, either statutory or discretionary, to delegate its 
    authority under the Commerce Clause to the States, and thereby release 
    State EIP's from the limitations that would apply under the Commerce 
    Clause had Congress not specifically authorized the EIP; rather, 
    Congress intended to maintain those limitations.
    
    C. State Program Election and Submittal
    
        The mandated schedules for the development, submittal, review/
    approval, and implementation of statutory EIP's, submitted pursuant to 
    sections 182(g)(3), 182(g)(5), 187(d)(3), and 187(g) of the Act, may 
    leave as little as 6 months for the EIP to be operational prior to the 
    next milestone requirement. Thus, in these cases, the time available to 
    develop, implement, and achieve emissions reductions from an EIP will 
    be extremely limited if a State waits until a milestone failure occurs 
    to initiate the selection and development of a statutory EIP. As a 
    result, the EPA encourages States to initiate development of an EIP as 
    soon as they determine that a milestone failure is likely, or even 
    sooner, as part of their SIP.
        States are encouraged to consider inclusion of discretionary EIP's, 
    where appropriate, in the SIP's (or SIP revisions) due within the first 
    4 years after enactment of the amended Act (e.g., sections 182 (b)(1) 
    and (c)(2), 187(a)(1)). Submittal at that time would more likely allow 
    sufficient time to develop, implement, and evaluate the effectiveness 
    of the program. If such an early EIP submittal is made, States must 
    account for the effects of the EIP in any subsequent required SIP 
    submittals. Nothing in today's notice precludes a State from revisiting 
    and amending its original EIP, or any other pre-existing rules, as 
    necessary, to ensure consistency with any subsequent required SIP 
    submittals.
        The requirements of section 182(g)(3) and 182(g)(5) of the Act 
    apply any time that a State fails to submit an adequate milestone 
    compliance showing, or when the EPA determines that a milestone has 
    been missed by an area covered by these provisions. For example, if 
    such a milestone is not met by a serious or severe O3 
    nonattainment area, the area may elect among three options, including 
    an EIP. The Act does not provide any additional or different 
    requirements that would apply when a State that missed one milestone, 
    and makes a proper election, misses a subsequent milestone. 
    Accordingly, if a subsequent milestone is missed, the same choices are 
    available, including the election of an EIP. Thus, the imposed 
    requirements or specified options apply not only the first time that a 
    milestone is missed, but also if subsequent milestones are missed even 
    if an EIP had previously been implemented. Similarly, the EPA 
    interprets section 187(g) (requiring serious CO nonattainment areas 
    that fail to attain to adopt an EIP) as applying even if the area 
    previously missed a milestone and adopted an EIP pursuant to section 
    187(d)(3). A second missed-milestone program must provide reductions 
    beyond the reductions from a first statutory program. The second EIP 
    may either be a new program or a substantive revision of the first 
    program.
    
    D. State Program Requirements
    
        Under today's rules, EIP's must be State and federally enforceable; 
    nondiscriminatory (with respect to interstate commerce); and consistent 
    with the timely attainment and maintenance of NAAQS, all applicable RFP 
    and visibility requirements, applicable PSD increments, and all other 
    applicable requirements of the Act. Programs in nonattainment areas for 
    which credit is taken in attainment and RFP demonstrations shall be 
    designed to ensure that the effects of the program are quantifiable and 
    that the credit taken is limited to that which is surplus to other SIP-
    credited requirements. Statutory EIP's must be designed to result in 
    quantifiable, significant reductions in actual emissions.
        Each of the program elements that must be included, as applicable, 
    in an EIP submitted to the EPA as a plan revision are described below. 
    For EIP's that allow trading to meet existing source requirements, the 
    EPA will consider a two-step process for State submittal and EPA review 
    of the program elements outlined below. Under such a step-wise process, 
    the initial submittal shall include both a framework for all the 
    general elements of program design, as well as all the specific 
    regulatory details for a source-specific trade or for an entire source 
    category, which trade or source category is representative, with 
    respect to all program elements, of the types of trading to be allowed 
    under the general framework. For example, for an EIP designed to 
    directly implement trading within source categories, the initial 
    submittal shall include the full details of all program elements for at 
    least one source category. Alternatively, for an EIP designed to 
    implement trading on a source-by-source basis, with EPA review of each 
    trade, the initial submittal shall include the full details of all 
    program elements for at least one source-specific trade. Thus, required 
    specific aspects of the emission quantification procedures and MRR 
    requirements for additional sources and/or source categories could be 
    submitted at a later time to allow the State to phase-in the 
    application of the program to other individual sources or source 
    categories. Because adequate enforceability elements--including 
    emissions quantification procedures, test methods, and MRR 
    requirements--are integral to any SIP program, approval by the EPA of a 
    framework for trading would constitute approval only of the framework 
    elements included as part of the initial submission and of trading for 
    those sources or within those source categories submitted with the 
    framework and approved for trading by the EPA. Trading involving other 
    sources or source categories could not occur until all elements, 
    including enforceability elements, were approved by the EPA through a 
    subsequent step in the process. The EPA will apply the same criteria in 
    reviewing step-wise submittals of emission quantification and MRR 
    requirements as in reviewing such requirements submitted together with 
    the other program elements. Thus, a subsequent submittal must be fully 
    compatible with all the elements in the initial submittal, and, taken 
    together, both submittals must meet all the requirements of the EIP 
    rules and guidance. The EPA does not intend to consider use of this 
    step-wise process for EIP's that mandate new requirements for affected 
    sources (e.g., requiring mass emission caps on sources previously 
    required to meet emission rate limits).
    1. Program Goals and Rationale
        An acceptable EIP must clearly define the goals of the program and 
    provide a rationale relating how the program design will accomplish the 
    goals. These final rules and guidance establish as a goal for all EIP's 
    that they be designed to benefit both the environment and the regulated 
    entities. The final rules and guidance require States to design 
    programs that will meaningfully meet this goal, while providing 
    flexibility to the States to determine how best to accomplish such 
    ``benefits sharing'' in the context of each specific program.
        The term ``benefits'' is broadly defined to include not only 
    economic benefits, such as cost savings and compliance flexibility for 
    the regulated sources, but also environmental benefits that will result 
    in States reaching attainment of the NAAQS faster than might otherwise 
    occur solely through the use of traditional strategies. Environmental 
    benefits can be created most directly by EIP's that require increased 
    or more rapid emissions reductions beyond those that would be achieved 
    through a traditional regulatory program. Specifically, a 10 percent 
    increase in emissions reductions would presumptively meet this benefits 
    sharing goal. Alternatively, environmental benefits can also be 
    achieved by programs that incorporate, for example, improved 
    administrative mechanisms (e.g., that achieve emissions reductions from 
    sources not readily controllable through traditional regulation), 
    reduced administrative burdens on regulatory agencies that result in 
    increased environmental benefits through other regulatory programs, 
    improved emissions inventories that enhance and lend increased 
    certainty to State planning efforts, and the adoption of emission caps 
    which over time constrain or reduce growth-related emissions beyond 
    traditional regulatory approaches.
        Statutory EIP's will benefit the environment as a result of the 
    requirement that they be designed to result in significant reductions 
    in actual emissions. For discretionary EIP's, no standard formula for 
    benefit sharing is specified, although the EPA encourages States, to 
    the extent practicable, to design such programs so as to create most 
    directly increased or more rapid emissions reductions (see paragraph 
    IV.A.2).
        The EPA notes that any incentive-based program has the potential to 
    create incentives for pollution prevention and technological 
    innovation. Such an inherent potential benefit can only meaningfully 
    meet the goal of providing benefits to the environment if the program 
    is specifically designed to allocate some of the effects of such 
    innovation to enhancing environmental progress. Likewise, for the other 
    ways listed above in which environmental benefits can be accomplished, 
    the EPA intends that these approaches be meaningfully implemented so as 
    to produce real environmental benefits.
        A well-designed EIP will achieve a number of different kinds of 
    environmental benefits. For instance, a marketable emissions permit 
    program, with mass emissions caps declining over time, may achieve 
    several results. The declining cap aspect of the program can result in 
    real emissions reductions creditable towards RFP milestones and 
    attainment (to the extent that actual emissions are reduced). The 
    marketable aspect of the program allows emission sources facing 
    differing costs of further emission control to trade, lowering overall 
    control costs. Such programs also encourage sources already able to 
    meet their mass emissions caps to find ways of further reducing 
    emissions beyond what would otherwise be required by traditional 
    regulatory programs (e.g., through pollution prevention, technological 
    innovation, or changes in operational procedures).
        Statutory EIP's, submitted because of failures in achieving 
    required emissions reductions, must make a significant contribution to 
    the required reductions, while not necessarily bearing the full burden 
    of achieving all the required reductions or mandating any specific 
    percentage reduction. A program producing no additional emissions 
    reductions or one based solely on a directionally-sound strategy, 
    without quantifiable benefits, would not satisfy these criteria for an 
    acceptable statutory EIP. For discretionary EIP's, the final guidance 
    relies upon the new State planning, quantitative progress, and 
    attainment requirements in the Act to ensure expeditious attainment of 
    the NAAQS, regardless of the type of programs that States may choose to 
    include in their SIP's.
        Any EIP should include a rationale for how the incentive 
    mechanism(s) will achieve the stated goal(s). A State can create a 
    better overall program design by carefully examining and explaining the 
    linkage between a program's provisions and the desired outcome. The 
    provisions of a program must be sufficient to ensure the program goals 
    are successfully achieved without creating unintended detrimental side 
    effects.
    2. Program Scope
        As with any regulatory program, an EIP must identify the affected 
    sources covered by the program. The affected sources may be defined on 
    the basis of source type (e.g., manufacturing operations), activity 
    type (e.g., fuel storage tanks), location, firm size, quantity of 
    emissions, or other such characteristics. In addition, a State may 
    choose to grant exemptions from program requirements to sources meeting 
    specified criteria. For example, States may consider exempting zero-
    emitting vehicles from a new parking price program. In establishing the 
    affected source criteria, a State must assure that the resultant 
    program is nondiscriminatory within the meaning given that term in 
    these rules.
        The program must establish procedures for dealing with sources 
    entering or exiting affected source categories. In order to promote 
    economic growth consistent with achieving environmental goals, a 
    regulatory program should not create unwarranted barriers to entry for 
    new or expanding business entities.
        In addition, the program must establish criteria and procedures for 
    sources voluntarily choosing to opt-in to or to be exempted from the 
    program, to the extent that the program design allows for such movement 
    into or out of the universe of affected sources. For example, the title 
    IV acid rain allowance trading program includes provisions for sources 
    not originally in the program to opt-in to the program in order to sell 
    sulfur dioxide (SO2) emission allowances to sources already in the 
    program. Certain EIP's may also provide criteria for exempting sources 
    such that they can leave the program; such criteria must be described 
    and the procedures for leaving the program must be included in the EIP. 
    Any such procedures must ensure that movement into or out of the 
    program will not interfere with other statutory requirements nor result 
    in an increase in area-wide emissions that is not reflected in the 
    plan's attainment or RFP demonstrations. Finally, the opt-in program 
    language must specify that it will not allow sources to opt-in if the 
    net result of the opt-in program as a whole is to increase area 
    emissions, unless such increase has been accounted for in the 
    development of the EIP, and is consistent with attainment and 
    maintenance of the NAAQS, RFP, and all other SIP requirements.
        Affected sources in an EIP may also be covered by other Federal 
    regulatory requirements. An EIP may not interfere with applicable 
    requirements concerning attainment and RFP, or any other applicable 
    requirements of the Act. Thus, the program scope must be defined so as 
    not to interfere with any other Federal regulatory requirements which 
    apply to the affected sources. Such requirements for stationary sources 
    may include, but are not limited to, reasonably available control 
    technology (RACT), PSD and new source review (NSR) offset requirements, 
    lowest achievable emission rate (LAER), best available control 
    technology (BACT), new source performance standards (NSPS), national 
    emissions standards for hazardous air pollutants (NESHAP's), acid 
    deposition program requirements, reasonably available control measures 
    (RACM), and best available control measures (BACM). Such requirements 
    for mobile sources may include, but are not limited to, programs 
    integral to vehicle inspection and maintenance (I/M), clean-fueled 
    fleets, reformulated gasoline, oxygenated fuels, employee commute 
    options (ECO), TCM's, and Federal motor vehicle controls.
        In general, sources subject to these statutory requirements may 
    participate in emissions trades pursuant to an EIP as long as, apart 
    from their participation in such trades, they continue to meet the 
    statutory requirements. Thus, if these sources reduce their emissions 
    below what the applicable statutory requirements call for, the 
    reductions beyond the requirements may furnish credits for the 
    EIP.5 Following is a more specific discussion of the interplay of 
    the EIP rules with several of the statutory provisions listed above.
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        \5\For example, since VOC reductions that occur as a result of 
    controls put in place to meet NESHAP's are creditable to RFP, such 
    VOC reductions cannot be considered as surplus to supply VOC credits 
    through an EIP. However, if in such a case greater than required 
    reductions are made, the incremental VOC reductions could furnish 
    credits through an EIP.
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        RFP Requirements. Credits for emissions reductions from stationary, 
    mobile, or area sources may generally be used to meet the ``progress'' 
    requirements of the nonattainment provisions of the Act. The SIP's for 
    O3 nonattainment areas classified as moderate or higher under 
    section 181(a)(1) are required to provide for reductions in volatile 
    organic compounds (VOC) of at least 15 percent from baseline emissions 
    by 1996, and areas classified as serious or higher are required to 
    provide for reductions of at least 3 percent each year (averaged over a 
    3-year period) thereafter until the attainment date (section 182(b)(1), 
    182(c)(2)(B)). Emissions reductions from all sources may be used to 
    meet these progress requirements, except for those reductions 
    attributable to Federal motor vehicle programs and RACT and NSR 
    corrections (section 182(b)(1) (C)-(D)).
        RACT. An EIP may allow sources subject to the RACT requirement to 
    attain RACT-level emissions reductions in the aggregate, and thereby 
    trade among themselves. In designing such RACT trading programs (to 
    implement new and/or previously existing RACT requirements), as with 
    any EIP, States are encouraged, to the extent practicable, to meet the 
    benefits sharing goal directly, by requiring increased emissions 
    reductions beyond those that would be achieved through a traditional 
    RACT program.
        In addition, today's rules and guidance authorize emissions trading 
    between the stationary sources subject to the RACT requirement (``RACT 
    sources'') and any sources (i.e., stationary, mobile, and area sources) 
    not subject to the RACT requirement (``non-RACT sources'') when such 
    trading results in an exceptional environmental benefit, e.g., a level 
    of reductions that is significantly greater than RACT-level amounts. 
    With respect to the level of emissions reductions required from the 
    non-RACT sources, the appropriate amount of emissions reductions 
    generally should be set at a level that takes into account the severity 
    of the nonattainment status in a given area.
        Today's rules establish the statutory offset ratios for 
    nonattainment areas as the determinant of the amount of emissions 
    reductions that would be required from non-RACT sources generating 
    credits for RACT sources. The offset ratios are lower for lower-
    classified areas (e.g., compare section 182(a)(4), with a 1.1 to 1 
    offset ratio for marginal areas, and section 182(d)(2), with a 1.3 to 1 
    offset ratio for severe areas). Looking to offset ratios is instructive 
    because offsets are an aspect of emissions trading that is directly 
    addressed in the Act. The offset ratios provide a suitable analogy 
    because they represent the most substantial benefit to the environment 
    for a given area that is required in this statutory context of 
    emissions trading.
        However, today's rules authorize emissions trading between RACT and 
    non-RACT sources at less than the offset ratios if exceptional 
    environmental benefits are otherwise demonstrated, such as, for 
    example, an emissions trade that promoted the market penetration of 
    emissions reduction measures for non-RACT sources, such that future 
    emissions reductions from the universe of non-RACT sources would be 
    expected to increase over time. Such measures could include new vehicle 
    technologies that utilize alternative fuels, provided that such 
    technologies meet all relevant EPA standards and guidelines. Where a 
    lower trading ratio is authorized in order to promote the market 
    penetration of an environmentally-beneficial, new control measure, a 
    lower bound for the trading ratio of 1.1 to 1 will assure that in all 
    events some additional benefit will accrue to the environment. In 
    setting the appropriate ratio for trades between RACT and non-RACT 
    sources, States may also take into account additional State and 
    federally-enforceable emissions reductions that are achieved as a 
    result of other exceptional environmental features of an EIP (such as a 
    separate ``environmental bonus'' provision, as discussed in EPA's 
    Interim Guidance on the Generation of Mobile Source Emissions Reduction 
    Credits). In no case, however, can a trading ratio be lower than 1 to 
    1, and in no case can the effective trading ratio be less than the 
    appropriate offset ratio (or such ratio, as low as 1.1 to 1.0, as may 
    be authorized to promote the market penetration of environmentally-
    beneficial, new control measures).
        Offsets. Credits for emissions reductions generated by stationary, 
    mobile, or area sources may be used for purposes of meeting the offset 
    requirement for major new and modified sources in nonattainment areas 
    so long as they meet the restrictions imposed on offsets by section 173 
    of the Act and the EPA's new source review regulations (40 CFR 51.165 
    and part 51, appendix S). Under the nonattainment provisions, new or 
    modified major stationary sources may not receive permits for 
    construction and operation in a nonattainment area unless, among other 
    things, their new emissions are offset by reductions from other sources 
    in the area (section 172(c)(5), 173(a)(1)(A)). For O3 
    nonattainment areas, minimum offset ratios range from 1.1 to 1 for 
    marginal areas to 1.5 to 1 for extreme areas (section 182(a)(4), 
    182(b)(5), 182(c)(10), 182(d)(2), 182(e)(1)).
        However, the Act does not require that offsets be secured by the 
    new source. Rather, any portion of the necessary offsets may be 
    generated by the local air quality district or by the State. In other 
    words, a jurisdiction may set up an offset ``bank'' to supply new 
    sources with sufficient emissions reductions to satisfy their offset 
    obligations. To satisfy the requirements set forth in section 173, each 
    time a new source commences operations, the jurisdiction must have 
    already generated the necessary emissions reductions to offset the new 
    emissions. This means that the jurisdiction must be able to demonstrate 
    that the program has secured sufficient excess emissions reductions to 
    offset all new emissions at the proper ratio. If the source itself is 
    only held responsible for securing emissions reductions in an amount 
    equal to its new emissions (i.e., a 1 to 1 ratio), the SIP must 
    generate sufficient reductions to cover the extra reductions required 
    (e.g., 1.2 to 1 in serious O3 nonattainment areas).
        The Act limits offsets to emission reductions not ``otherwise 
    required by this Act.'' As part of the ``General Preamble for the 
    Implementation of Title I of the Clean Air Act Amendments of 1990,'' 
    the EPA described certain circumstances under which reductions would 
    not be creditable for offset purposes because those reductions are 
    required by other provisions of the Act (57 FR 13498, 13553 (April 16, 
    1992)). In addition, the EPA intends to provide additional guidance 
    regarding offsets in the near future.
        BACT and LAER. Both the PSD program and the nonattainment NSR 
    program contain technology-based emission limitations that are source 
    specific. The Act expressly requires that these emissions limitations 
    (i.e., BACT in the case of PSD and LAER in the case of NSR) be met by 
    the proposed major new source or major modification itself as a 
    condition of permit issuance. Consequently, neither of these 
    requirements can be met through emissions trading.
        Regarding BACT, section 165(a) of the Act provides that no major 
    new source or major modification may be constructed in a PSD area 
    unless the requirements in section 165(a)(1)-(8) are met. Section 
    165(a)(1) specifies that among these requirements is ``a permit * * * 
    setting forth emission limitations for such facility which conform to 
    the requirements of this part.'' Section 165(a)(3)(C) further specifies 
    that the proposed facility must demonstrate that emissions from the 
    facility will not exceed any applicable emission standard under the 
    Act.6 The applicable emissions limitations are those provided in 
    section 165(a)(4), which provides that the proposed facility must ``be 
    subject to the best available control technology for each pollutant 
    subject to regulation under this Act emitted from, or which results 
    from, such facility.''7
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        \6\Section 302(k) of the Act defines the terms ``emission 
    limitation'' and ``emission standard'' interchangeably.
        \7\Section 169(3) in turn defines BACT as ``an emission 
    limitation based on the maximum degree of reduction of each 
    pollutant subject to regulation under this Act emitted from or which 
    results from any major emitting facility, which the permitting 
    authority, on a case-by-case basis, taking into account energy, 
    environmental, and economic impacts and other costs, determines is 
    achievable for such facility.''
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        The Act sets forth a similar statutory scheme with respect to LAER. 
    Section 173(a) provides that the permit program applicable to major new 
    sources or major modifications, which is required to be included in 
    part D SIP's under section 172(b)(5),8 shall provide that permits 
    to construct and operate may be issued only if the requirements set 
    forth in section 173(a)(1)-(5) are met. Among these enumerated 
    requirements is section 173(a)(2), which specifies that ``the proposed 
    source is required to comply with the lowest achievable emission 
    rate.''9
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        \8\Section 173(a) incorrectly refers to the ``permit program 
    required by section 172(b)(6).'' Section 172(b)(6) was renumbered as 
    section 172(b)(5) by the 1990 Amendments. Apparently, this change 
    was not picked up by the drafters of revised section 173.
        \9\Section 171(3) defines LAER as ``that rate of emissions which 
    reflects'' either ``the most stringent emission limitation which is 
    contained in (any SIP) for such class or category of source,'' or 
    ``the most stringent emission limitation which is achieved in 
    practice by such class or category of source, whichever is more 
    stringent.''
    ---------------------------------------------------------------------------
    
        The statutory provisions addressing both BACT and LAER clearly 
    require the permitting authority to set, and the source owner to comply 
    with, the applicable technology-based emission limitation. There is no 
    provision in the statute for lawfully complying with BACT or LAER 
    through obtaining emissions reductions at other sources that would 
    result in an equivalent reduction of emissions or ambient 
    concentrations.
        Inspection and Maintenance Programs. The I/M provisions of the Act 
    require a vehicle I/M program that meets specified performance 
    standards. The requirements of the I/M provisions cannot be met by 
    obtaining ERC's from sources other than vehicles, or from vehicles 
    through means other than I/M of the vehicle. An EIP may not substitute 
    entirely for an enhanced or basic periodic vehicle I/M program.
        This view is based on the provisions of the Act that set forth 
    requirements for a basic I/M program, as well as certain provisions 
    relating to enhanced I/M programs. Sections 182(a)(2)(B)(i) (I/M ``fix-
    ups'' for O3 nonattainment areas classified marginal and higher), 
    182(b)(4) (I/M ``catch-ups'' for O3 nonattainment areas classified 
    moderate and higher), and 187(a)(4) (I/M ``fix-up'' requirement for CO 
    nonattainment areas classified moderate and higher) each require a SIP 
    revision that includes provisions for a ``vehicle inspection and 
    maintenance program'' that meets a specified performance standard.
        The provision for an enhanced I/M program for CO nonattainment 
    areas classified as moderate and with a design value higher than 12.7 
    ppm, or classified as serious, requires the SIP to include provisions 
    for ``an enhanced vehicle inspection and maintenance program as 
    required in section 182(c)(3) (concerning serious O3 nonattainment 
    areas)'' (section 187(a)(6)). This provision confirms that the required 
    I/M program is in fact a vehicle I/M program. The primary provision for 
    an enhanced I/M program for O3 nonattainment areas classified as 
    serious or higher does not include a comparable ``inspection and 
    maintenance'' phrase (i.e., requires the SIP ``to provide for an 
    enhanced program to reduce hydrocarbon emissions and nitrogen oxides 
    (NOX) emissions from in-use motor vehicles''), but it further 
    includes specific requirements for various types of testing, 
    inspections, etc., that make clear that the program must obtain 
    reductions from vehicle I/M (section 182(c)(3)).
        Nevertheless, both the basic I/M program and the enhanced I/M 
    program requirements authorize a substantial degree of flexibility in 
    program design. The Act directs the EPA to require a specific amount of 
    emissions reductions, but also authorizes the State to design the 
    program in a manner that meets the EPA established performance standard 
    through different means. The EPA's final rule on I/M programs describes 
    the EPA's performance standards and the ways that States can meet those 
    standards (57 FR 52950-53014). In so doing, the State can take 
    advantage of economic efficiencies (e.g., have a better test on more 
    older cars to get greater performance, in exchange for some relaxation 
    in another element). In addition, States could address mal-maintenance 
    in the vehicle fleet in part by including an old car scrappage program 
    as an element of the overall package used to meet the performance 
    standard. However, the SIP must include a program obtaining the 
    required reductions through vehicle inspections.
    3. Program Baseline
        An EIP baseline must be fully defined within the EIP, and used as a 
    basis for projecting program results and, if applicable, for 
    initializing the incentive mechanism. States have flexibility in 
    defining the program baseline for EIP's that implement new RACT 
    requirements for previously unregulated source categories through 
    trading programs, as long as the new RACT requirements reflect, to the 
    extent practicable, increased emissions reductions beyond those that 
    would be achieved through a traditional RACT program. States may also 
    use a flexible baseline for EIP's that allow trading with respect to 
    newly imposed RACT requirements on previously unregulated sources in a 
    previously regulated source category (e.g., sources newly covered by 
    lower applicability cut-offs), as long as the EIP, in the aggregate, 
    yields reductions in actual emissions at least equivalent to those 
    which would result from source-by-source compliance with the existing 
    RACT limit for that source category. This requirement can be satisfied 
    by using existing data on actual and allowable emissions from the 
    previously regulated sources in the affected source category (see 
    paragraph IV.C.).
        A State also has flexibility in defining the program baseline for 
    any EIP submitted in conjunction with, or subsequent to, the submission 
    of any complete areawide progress plan due at the time of EIP submittal 
    (e.g., the 15 percent RFP plan (section 182(b)(1)) and subsequent 3 
    percent plans (section 182(c)(2))), and/or an attainment demonstration.
        In all such cases, the flexible program baseline may be based on 
    actual, allowable, or some other intermediate10 or lower level of 
    emissions, provided the State demonstrates that the program baseline is 
    consistent with and reflected in the associated RACT rule, progress 
    plans, or attainment demonstration. Further, for EIP's submitted prior 
    to the submittal of a required progress or attainment demonstration, 
    the State must include with its EIP submittal a commitment that its 
    subsequent attainment demonstration and all future progress plans will 
    be consistent with the EIP baseline in effect at that time, as well as 
    a discussion of how the baseline will be integrated into the State's 
    attainment demonstration. Further, in this discussion, the State should 
    take into account the potential that emission reduction credits issued 
    prior to the attainment demonstration may no longer be surplus relative 
    to the attainment demonstration.11
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        \1\0A typical intermediate baseline may consist of a SIP-
    allowable emission rate and an actual level of production.
        \1\1For example, the State could establish an escrow account or 
    a formula for pro rata reductions of credits to cover credits that 
    subsequently are no longer surplus.
    ---------------------------------------------------------------------------
    
        Conversely, for EIP's that do not meet the above conditions 
    relating to RACT and progress requirements, the program baseline must 
    be set no higher than the lower of actual or allowable emissions. 
    Actual emissions are to be taken from the most appropriate inventory, 
    such as the 1990 actual emission inventory (which was due for 
    submission in November 1992), and allowable emissions are the lower of 
    SIP allowable emissions or the level of emissions consistent with 
    source compliance with all Federal requirements related to attainment 
    and maintenance of the NAAQS.
        In addition, following submission of an EIP that incorporates a 
    flexible baseline, if the State fails to submit a complete attainment 
    demonstration, or if the EPA disapproves the attainment demonstration 
    on the grounds that it does not provide for attainment of the NAAQS, 
    the EPA may require the State to incorporate in the EIP a program 
    baseline set no higher than the lower of actual or allowable emissions.
        The baseline for an EIP submitted in conjunction with an attainment 
    demonstration must be consistent with the assumptions employed in the 
    attainment demonstration, including the location of emissions assumed 
    in the photochemical grid modelling, if applicable.
        In considering emissions trading, the EPA continues to focus on the 
    aspect of trading that involves the relaxation of a control requirement 
    on a particular emissions-producing unit (the credit-receiving unit). 
    Under trading programs, this relaxation is offset by tightening the 
    control requirements on another emissions-producing unit (the credit-
    generating unit). Under section 110(l), this relaxation is authorized 
    only if it, taken in conjunction with the tighter control requirements, 
    does not interfere with the ability of the SIP to meet the various 
    requirements of the Act--most importantly, for present purposes, the 
    RACT requirement and the requirements for progress (e.g., for RFP in 
    O3 nonattainment areas, 15 percent reductions in VOC emissions by 
    1996; and 3 percent-per-year over each 3-year period until the 
    attainment date), as well as attainment requirements. It is understood 
    that when the credit-generating unit's actual emissions are below the 
    level mandated by the applicable control requirement, relaxing a 
    control requirement on the credit-receiving unit in exchange for 
    tightening the requirement on the credit-generating unit may result in 
    an increase in aggregate actual emissions. Under these circumstances 
    (i.e., trading from an allowables baseline), the relaxation and its 
    resulting increase in actual emissions could, in some circumstances, 
    jeopardize RFP and attainment.
        As described above, notwithstanding the chance of actual emissions 
    increases, EIP's may authorize trading from an allowables baseline when 
    the EIP is submitted in conjunction with, or following, the submission 
    of the applicable progress plans, and the allowables baseline is 
    consistent with those plans. Under these circumstances, trading on the 
    basis of allowables would not jeopardize the progress requirements. In 
    some cases, the EPA will permit trading to occur on the basis of 
    allowables prior to submission of the attainment demonstration SIP. 
    However, once the State has submitted any applicable progress plans due 
    at the time of EIP submission, the State has made significant progress 
    towards attainment. This significant progress, coupled with the 
    sanctions provisions that provide strong safeguards that the State will 
    develop a SIP requiring any subsequent progress plans and an attainment 
    demonstration, provide, in the EPA's judgment, sufficient evidence that 
    an EIP authorizing an allowables baseline submitted in conjunction with 
    an applicable progress plan will not jeopardize continued progress or 
    attainment. In addition, States and sources should be aware that any 
    emission limit relaxations approved through an EIP may be subject to 
    ongoing scrutiny, and further tightening, if it is unexpectedly 
    necessary to do so as part of an attainment demonstration.
        In addition, as described above, the EPA will permit EIP's that 
    authorize trading from an allowables baseline in the case of source 
    categories, or portions of source categories, that are newly subjected 
    to the RACT requirement under the RACT ``catch-up'' provisions of 
    section 182(b)(2). Under these circumstances, the imposition of RACT-
    level controls meets the RACT requirement, as described above, and is 
    expected to result in emissions reductions with respect to the affected 
    source categories or sources taken as a whole, even if some of the 
    affected sources conduct emissions trades based on allowables. The fact 
    that overall emissions from these source categories or sources will be 
    reduced indicates that with respect to these source categories, 
    progress is being made towards attainment. This progress provides 
    adequate assurance that any such trades on an allowables basis will not 
    jeopardize progress or attainment requirements.
        If a SIP does not include a required RACT emission limit for a 
    source, that source may not participate in an EIP until an appropriate 
    RACT limit is determined.
        The provisions described above apply as well in the case of a 
    statutory EIP. That is, under the circumstances described above, a 
    statutory EIP may incorporate a flexible baseline as long as the EIP as 
    a whole provides the required reductions.
        A State may define a program baseline to address a variety of 
    equity considerations, such as differing degrees of emission control 
    among affected sources prior to the start of the EIP. While emissions 
    reductions creditable towards a specific required demonstration will be 
    calculated according to the requirements for that demonstration, the 
    EIP may use a different baseline. For example, a declining value 
    marketable permits program, submitted in conjunction with an areawide 
    RFP or attainment plan, could initially allocate mass emissions caps on 
    the basis of allowable emissions. However, to the extent that such a 
    program baseline exceeds the aggregate actual emissions for the sources 
    covered by the program, the EIP baseline allocation would be required 
    to decline at a rate consistent with achieving the areawide RFP 
    milestone as measured against the RFP baseline.
        The EIP must clearly specify whether the program baseline applies 
    to aggregate emissions from all affected sources (similar to the RFP 
    baseline) or to individual sources (similar to source-specific LAER 
    requirements, for example). If historic emissions are relevant in 
    setting the program baseline, the time period must be specified in the 
    program. Provisions must be made for determining baselines for sources 
    not active during the specified baseline time period. Also, the 
    averaging time associated with a program baseline for emissions must be 
    specified.
    4. Quantification Procedures
        An EIP must describe how emissions and changes in emissions will be 
    quantified for SIP credit. If other measurable factors are essential to 
    an EIP, the quantification procedures for those must be specified in 
    the program. For instance, if emissions reductions are generated by 
    reducing total usage of a type of solvent, procedures for measuring 
    solvent usage are critical. The program must specify the minimum 
    required credible, workable, replicable procedures for quantifying 
    emissions, which could include emission factor calculations, direct 
    emission monitoring, calculation procedures which are a function of 
    process parameters, production practices or volume, or inventory usage, 
    or other procedures, as appropriate. Criteria for selecting 
    quantification methods and time-averaging considerations are discussed 
    below.
        States must carefully consider matching their environmental goals 
    with various aspects of the program when determining adequate 
    quantification procedures. For example, a procedure wholly adequate for 
    determining compliance with long-term mass emissions caps may be 
    clearly inadequate for a program aimed at limiting peak daily 
    emissions.
        An EIP must establish procedures for quantifying emissions 
    reductions arising from sources that shut down or curtail production. A 
    State may not take credit for such emissions reductions as part of an 
    EIP if the same reductions have already received credit in the SIP's 
    attainment or RFP demonstrations. For example, SIP demonstrations may 
    include assumptions about equipment turnover rates and normal operating 
    levels which may already credit some assumed rate of source shutdowns 
    and curtailments. Credit also cannot be taken for shutdowns or 
    curtailments that do not result in a decrease in an area's aggregate 
    emissions. Changes in emissions at one source may merely increase 
    emissions at another. For example, if one retail operation goes out of 
    business, the total level of retail business will not necessarily 
    change. Instead, customers may shift their business to other merchants 
    in the area. The effect on aggregate emissions of such ``demand 
    shifting'' will depend upon the nature of the business, and should be 
    considered in the design of the EIP.
        An EIP also must establish procedures for quantifying emissions 
    from sources with uneven emission patterns due to batch, seasonal or 
    cyclical operations. The appropriate procedure for handling these 
    expected fluctuations in emissions will depend in part on the emissions 
    averaging time upon which the EIP is based.
        The EPA recognizes that the development of quantitative procedures 
    for mobile sources can present significant challenges. Such procedures 
    must consider, as appropriate, the factors which will affect or 
    determine the level of participation in a transportation program, as 
    well as how much and where vehicles are driven. Such procedures should 
    clearly address how double-counting will be avoided across various 
    mobile source programs (e.g., not double-counting I/M program 
    reductions in quantifying credits from an accelerated vehicle scrappage 
    program). Any assumptions or models which States may use to predict 
    behavioral modifications as a result of the implementation of an 
    economic incentive strategy must be presented as support information 
    with the EIP submittal. The EPA views the development of sound 
    incentive-based mobile source programs as an opportunity for the design 
    of better, more rigorous tools for accounting for and encouraging 
    mobile source emissions reductions beyond those required by traditional 
    programs.
        The final rules allow for long-term averaging, while requiring that 
    States make statistical showings that any such averaging is consistent 
    with applicable RACT, RFP, and short-term NAAQS. Any State that wishes 
    to use long-term averaging must include, with the plan revision 
    submittal, a statistical showing that the aggregate effect of the 
    specified averaging time is consistent with attaining the O3 NAAQS 
    and satisfying applicable RFP requirements on the basis of typical 
    summer day emissions; and, if applicable, a statistical showing that 
    aggregate daily emissions from all affected sources covered by a 
    Federal RACT requirement (net of any RACT/non-RACT trades) are no 
    greater than the aggregate daily emissions from such sources that would 
    result from the implementation of all applicable source-specific RACT 
    requirements (see paragraph IV.D.2.).
    5. Monitoring, Recordkeeping and Reporting
        Each affected source in an EIP must comply with requirements 
    imposed by the program, and must implement the MRR procedures necessary 
    to assure compliance with such requirements and to provide State and 
    Federal enforceability. Requirements imposed by an EIP could include 
    meeting mass emissions limits (either directly or through trading 
    marketable permits), paying an emission fee, using specified products 
    or procedures, providing product content labeling, or other measures 
    specified by the program. Thus, the final rules allow for a wide range 
    of alternative MRR procedures that provide sufficiently reliable and 
    timely information for determining compliance. Criteria to be 
    considered in the development of such procedures include 
    representativeness, accuracy, precision, reliability, frequency, and 
    timeliness.
        All source-specific program requirements must be structured in such 
    a way that both inspectors and facility owners can judge the compliance 
    status of a facility at any time, or, in the case of long-term 
    emissions limits, at the end of the compliance period. This will 
    require an authoritative, reliable repository of all relevant 
    information at each facility.
    6. SIP Creditability and Audit/Reconciliation Procedures
        A SIP revision that contains an EIP must include projections of the 
    emissions reductions the State expects to achieve through the 
    implementation of the program. The projections may be based on 
    federally-enforceable limits on mass emissions or on other emission-
    related parameters, estimates of market response, economic modelling, 
    or other relevant information. The State does not have to project 
    emission changes for each source, unless that is how the State chooses 
    to estimate the emissions reduction from the program. All EIP 
    submittals must include documentation which clearly states how sources 
    in an EIP are or will be addressed in the emissions inventory, RFP 
    plan, and attainment or maintenance plan, as applicable. This 
    documentation should include a description of the assumptions used in 
    measuring emissions and emissions reductions from affected sources.
        Credit in a nonattainment SIP may be taken for emission limiting 
    programs (e.g., emissions trading) and market-response programs (e.g., 
    emissions fees). Credit may not be taken for directionally-sound 
    programs until experience with such programs makes quantification 
    possible, at which time the program could be reclassified into one of 
    the other categories for which credit may be taken.
        For determining SIP credit, the projected emissions reductions must 
    be adjusted to reflect the uncertainties inherent in EIP's. This 
    adjustment is currently done for traditional stationary source control 
    measures through the use of a rule effectiveness factor, developed from 
    experience with traditional regulatory control programs. For EIP's, the 
    State must use two uncertainty adjustment factors, as appropriate, to 
    calculate creditable emissions reductions. The sources of uncertainty 
    that must be separately addressed are compliance uncertainty (i.e., the 
    extent to which sources will actually comply with program requirements) 
    and programmatic uncertainties (e.g., the extent to which voluntary 
    market responses to incentives actually occur and/or the use of various 
    quantification methods with differing confidence levels). These sources 
    of uncertainty must be accounted for through the use of a rule 
    compliance factor and a program uncertainty factor, respectively.
        The State must specify values for rule compliance and program 
    uncertainty factors, based on program elements such as the 
    quantification and enforcement procedures, and on the predictive 
    quality of the information used by the State to develop the projected 
    emissions reductions. Inherent in the way in which these factors are 
    defined, the value of either factor must be less than or equal to one. 
    The State must include with its EIP submittal a justification for the 
    values assigned to these factors. The State must use these factors in 
    determining the SIP credit for the program as a whole, or for each 
    source-specific trade, if appropriate, to ensure that quantification 
    uncertainties not lessen a source's emissions reductions requirements. 
    The uncertainty factors should be developed and justified by the State 
    by taking into account various aspects of the design of the EIP, 
    including but not limited to, the type of incentive mechanism upon 
    which the program is based; the variability in emissions from affected 
    sources and the nature and extent of uncertainty in the emissions 
    quantification procedures required by the program; the frequency and 
    type of MRR required by the program; sanctions for noncompliance; the 
    frequency, scope and committed responses to program audits; and the 
    nature of administrative procedures to be used by the State in 
    implementing and enforcing the program (see paragraph IV.F.).
        Unless otherwise provided in program-specific guidance issued by 
    the EPA, EIP's for which SIP credit is taken must also contain program 
    audit procedures designed to evaluate program implementation and track 
    program results in terms of both actual emissions reductions and, to 
    the extent practicable, cost savings realized during program 
    implementation. The auditing methods and the timing of the audits must 
    be specified in the EIP. The maximum time interval for conducting such 
    audits is 3 years, although States are encouraged to consider more 
    frequent audits. Further, the State must provide timely post-audit 
    reports to the EPA. For emission-limiting EIP's, program audit 
    provisions must include a State commitment to ensure timely 
    implementation of programmatic revisions or other measures which the 
    State, in response to the audit, deems necessary for the successful 
    operation of the program (see paragraph IV.G.).
        Program audit provisions for market-response EIP's must be 
    accompanied by reconciliation procedures, designed to compare credited 
    emissions (i.e., adjusted projected emissions) with actual emissions 
    achieved through the implementation of the program. The reconciliation 
    procedures must specify a range of appropriate actions (e.g., invoke 
    part of a general SIP contingency plan or a program-specific 
    contingency), revisions to the program requirements (e.g., increase the 
    fee, include more sources) that will make up for any shortfall between 
    credited and actual emissions revealed by the audit, or reductions in 
    the credit taken for the EIP in the SIP (provided that RFP and 
    attainment requirements continue to be satisfied area-wide based on 
    such reduced EIP credits in combination with the effects of all other 
    SIP programs). Such measures must be automatically executing to the 
    extent necessary to make up the shortfall, with State action required 
    only to identify which of the specified actions are necessary to make 
    up the shortfall. Such measures must not require a revision to the 
    implementation plan to be effectuated once identified by the State; 
    rather, the measures must be built into the original EIP design (or 
    incorporated by reference).
        Greater burdens should not necessarily be imposed on EIP's, 
    compared to traditional regulatory programs, by virtue of the audit and 
    reconciliation requirements. These audit and reconciliation procedures 
    are consistent with the general approach to implementing the Act being 
    taken by the EPA, as illustrated in the Agency's rules for vehicle I/
    M12 and for reformulated gasoline,13 and in the Agency's 
    general guidance on the implementation of title I dealing with the rule 
    effectiveness of stationary source control measures.14 Further, in 
    appropriate cases, routine ongoing air program management procedures 
    may be sufficient to fulfill the audit and reconciliation requirements. 
    In designing audit procedures, the State should consider the relative 
    uncertainty associated with the EIP and specify the scope and extent of 
    the audit procedures to be commensurate with that level of uncertainty.
    ---------------------------------------------------------------------------
    
        \1\2Inspection/Maintenance Program Requirements, 57 FR 52950, 
    November 5, 1992.
        \1\3Regulation of Fuels and Fuel Additives: Standards for 
    Reformulated and Conventional Gasoline, 59 FR 7716, February 16, 
    1994.
        \1\4Rule Effectiveness Guidance: Integration of Inventory, 
    Compliance, and Assessment Applications, EPA-452/4-94-001, January 
    1994.
    ---------------------------------------------------------------------------
    
    7. Implementation Schedule
        An EIP must contain a schedule for implementing the program. The 
    schedule must include dates for notifying potentially affected sources, 
    as early as possible, about the impending EIP; program initialization 
    and start-up procedures; compliance and submittal requirements for 
    affected sources; and audit and reconciliation processes, including 
    subsequent actions required to make up for any shortfall that occurs.
    8. Administrative Procedures
        As part of any EIP design, the State must establish appropriate 
    administrative procedures, specific to the type of incentive strategy, 
    necessary to implement all of the elements of the EIP. For example, in 
    a fee program a State must assure the proper administration of the fee 
    collection process, and if rebate provisions are included, the 
    administration of the rebate distribution process.
        Administrative procedures specific to marketable emissions permit 
    programs which the State must address in a program design are the 
    mechanisms required for conducting, approving, verifying, recording, 
    and tracking trades. The EIP must clearly describe the administrative 
    system, and any State commitments to implement and maintain the system, 
    that enables market participants to conduct valid and legally protected 
    transactions. The State must design the program to ensure that all 
    program requirements are met by sources involved in trades, such that 
    the trades result in enforceable changes in allowable emissions levels. 
    A well-designed EIP will include the minimum amount of transactional 
    oversight, approval, recording, and tracking provisions necessary to 
    create a verifiable and enforceable system. Unnecessary or excessive 
    administrative requirements in a trading system increase the cost of 
    the program and inhibit trading. An active trading market increases the 
    opportunities for cost-savings. However, a State must establish 
    sufficient administrative procedures to ensure that the environmental 
    goals of the EIP are met, and that the program is adequately 
    enforceable (see paragraph IV.J.2. and the discussion of emissions 
    trading markets in Appendix X).
    9. Enforcement Mechanisms
        An EIP must include adequate enforcement consequences for 
    noncompliance with any source requirements, including MRR requirements. 
    Each program must include provisions ensuring that State/local and 
    Federal statutory maximum penalties preserve the deterrent effect of 
    traditional regulatory programs. Enforcement provisions should preserve 
    the criminal sanctions (for knowing violations) authorized in the Act 
    for violations of SIP requirements per se.
        Traditional regulatory programs provide for enforcement against 
    noncompliance with emissions limits at both the Federal and State/local 
    levels. The statutory maximum Federal penalties under the Act are 
    $25,000 per day, per source in violation. To preserve the existing 
    level of deterrence under the Act, an EIP that imposes multiday and/or 
    multisource emission limits must define violations of those limits in 
    such a way that the violations will translate into some combination of 
    sufficient numbers of violations, sources in violation, and days of 
    violation. One possible approach would be for the EIP to authorize 
    predetermined penalties based on the amount of an exceedance of such a 
    cap, provided the predetermined amounts are sufficiently large (see 
    paragraph IV.H.).
        The EIP's that impose multisource emissions limits must require 
    facilities to develop enforceable plans for remedying noncompliance in 
    those cases where facilities have exceeded emissions limits for the 
    specified averaging period. Such plans must identify appropriate and 
    enforceable control measures or other procedures or strategies 
    sufficient to achieve and maintain compliance with applicable emissions 
    limits. Further, for sources subject to title V requirements, the 
    elements of such plans must, at a minimum, be consistent with any 
    applicable title V permit requirements concerning compliance plans.
        Compliance with MRR requirements is critical to the integrity and 
    success of EIP's. Thus, an EIP must include enforcement provisions that 
    establish a regulatory structure which clearly and effectively deters 
    inadequate or improper MRR, providing for both State/local and Federal 
    penalties. Further, the enforcement provisions must include methods for 
    determining required data when MRR violations result in missing, 
    inadequate, or erroneous monitoring and recordkeeping data. These 
    methods must ensure that sources have a sufficiently strong incentive 
    to properly perform monitoring and recordkeeping in the first place.
    
    E. Use of Program Revenues
    
        Today's rules incorporate statutory restrictions on the use of 
    revenues generated by statutory EIP's. These restrictions are mandated 
    by section 182(g)(4)(B) of the Act on the use of revenues generated by 
    statutory EIP's submitted pursuant to sections 182(g)(3), 182(g)(5), 
    187(d)(3), and 187(g) of the Act. Revenues may be generated by an EIP 
    from a wide variety of fees or charges, including emission or permit 
    fees, fees associated with approving and recording trades, application 
    fees associated with labelling or sources opting into an EIP, and fees 
    or charges associated with TCM's. Specifically, any such revenues may 
    be used by a State for providing incentives for achieving emissions 
    reductions, providing assistance (up to 75 percent of costs) for the 
    development of innovative technologies for the control of O3 air 
    pollution and for the development of lower-polluting solvents and 
    surface coatings, and funding (with up to 50 percent of the revenues) 
    administrative costs of State programs under the Act. These 
    restrictions on the use of revenues do not apply to discretionary 
    EIP's.
        Because the use of revenues from discretionary programs is not 
    constrained, some or all of the revenues generated by discretionary 
    EIP's may be rebated in order to create a revenue-neutral program, or 
    one with less revenue retained by the State. Rebate provisions of 
    revenue-generating EIP's can be designed to reduce the total cost to 
    the affected sources without diminishing the incentive to reduce 
    emissions created by the EIP. For example, an emission fee program 
    could place a fee on total emissions from affected sources, and rebate 
    an amount based on average emissions or percentage emissions reductions 
    of the affected sources. In a program with a large number of sources, 
    each source would only have a minor influence on the average emissions. 
    Thus, the rebate is not dependent on a source's own actions, and would 
    not distort the incentive of the fee on every unit of emissions created 
    by the source.
    
    IV. Discussion of Comments and Regulatory Changes
    
        This portion of the preamble is organized according to the 
    ``Discussion of Issues'' section in the proposal, with additional 
    discussion of general issues raised in public comments. The following 
    discussion highlights the changes and clarifications made in the final 
    rules in response to the public comments on these issues.
    
    A. Program Goals
    
    1. Statutory Programs
        Statutory EIP's are those programs submitted pursuant to sections 
    182(g)(3), 182(g)(5), 187(d)(3), and 187(g) of the Act, generally 
    because of failures in achieving required emissions reductions. The Act 
    does not specify the extent to which the EIP must, in and of itself, 
    make up for the specific failure in achieving the emissions reductions 
    necessary to meet the next milestone requirement. Rather, the 
    provisions specify only that the EIP ``shall be sufficient, in 
    combination with other elements'' of the plan, or together with a 
    ``transportation control plan,'' to achieve the necessary reductions.
        In the proposal, the EPA solicited comments on whether to require 
    that some specified minimum percentage of the required reductions be 
    met by a statutory EIP. Most commenters, including State and local 
    agencies, industry, and an environmental group, felt that EIP's should 
    not be required to meet a specified minimum percentage of emission 
    reductions. These comments were generally based on the premise that 
    opportunities for such reductions will vary because of potential 
    differences between nonattainment areas that may implement EIP's. A 
    specified minimum percentage would not provide recognition of these 
    differences nor the flexibility that needs to be an inherent part of 
    EIP's. On the other hand, an environmental group commented that a 
    specified minimum percentage of required reductions should be met by a 
    statutory EIP, equivalent to the percentage difference between what the 
    SIP is achieving and what the next milestone requires.
        The final rules retain the requirement that a statutory EIP make a 
    significant contribution to the required emissions reductions, without 
    mandating any percentage reduction requirement or that the EIP assume 
    the entire burden of making up for the shortfall. This position is most 
    consistent with statutory intent that the States have flexibility in 
    determining how best to combine an EIP with other emission reduction 
    programs to achieve the necessary emissions reductions. Further, this 
    position is consistent with meeting the benefits sharing goal 
    established for all EIP's.
    2. Discretionary Programs
        In explicitly allowing for discretionary (i.e., nonstatutory) EIP's 
    to be included as SIP provisions, the Act does not impose any specific 
    emissions reductions requirements on such programs (sections 
    110(a)(2)(A) and 172(c)(6)). Thus, the proposed rules imposed no 
    specific emissions reductions requirements on discretionary EIP's. The 
    proposal relied upon the new State planning, quantitative progress, and 
    attainment requirements in the Act to ensure expeditious attainment of 
    the NAAQS, regardless of the type of emissions reductions programs that 
    States may choose to include in their SIP's.
        Comments were received from an environmental group in support of an 
    alternative view outlined in the proposal. The alternative view is that 
    any savings in compliance costs resulting from discretionary EIP's 
    (relative to nonincentive-based programs) should be shared between two 
    accounts: the regulated sources should retain only as much savings as 
    is sufficient to maintain the incentive to participate in the EIP, with 
    the remainder of the savings being used by the State to reach 
    attainment more quickly than would be practicable under a nonincentive-
    based plan. This alternative view is based on the statutory requirement 
    that States should attain the NAAQS as expeditiously as practicable.
        In contrast, other commenters from State and local agencies, 
    industry, and a joint environmental/industry work group agreed with the 
    proposal that the EPA should not require discretionary EIP's to achieve 
    more rapid progress than other regulations. A joint environmental/
    industry work group emphasized that EIP's should be designed to 
    increase flexibility and cost effectiveness, and should not be held to 
    any stricter standard than traditional programs. Several industry 
    commenters felt that requiring more rapid progress towards attainment 
    in exchange for a more flexible program appears to be a penalty 
    provision. These commenters felt that, while EIP's should be structured 
    to produce reductions equivalent to traditional SIP rules that the 
    EIP's replace, the addition of further reductions as the price for 
    entry into an EIP will discourage participation and reduce benefits 
    that might otherwise result from broad participation. A State agency 
    disagreed with requiring greater emission reductions from discretionary 
    EIP's since different types of environmental benefits can be achieved 
    by EIP's, such as technological innovation, more available capital for 
    other control measures, conservation of natural resources, and 
    increased commitment from the regulated sources. Another State agency 
    believes that EIP's which replace traditional SIP requirements should 
    be equally effective, equitable, and enforceable as the program it 
    replaces.
        The final rules take into account the broad array of benefits that 
    can result from the use of discretionary EIP's, the statutory 
    requirement for expeditious attainment, and the fact that EIP's are 
    relatively new and controversial in principle as well as in practice. 
    Further, current experience with EIP's makes clear that successful 
    adoption and implementation of EIP's requires some degree of consensus 
    among the interested groups that both the regulated entities and the 
    environment will benefit from such programs. Thus, the final rules and 
    guidance establish as a goal for all EIP's that they be designed to 
    benefit both the environment and the regulated entities. In so doing, 
    the final rules and guidance require States to meet this benefits 
    sharing goal, while providing flexibility to the States to determine 
    how best to do so. As a result, EIP's will increase flexibility, lower 
    the cost of attaining and maintaining the NAAQS, and provide stronger 
    incentives for the development and implementation of pollution 
    prevention measures and innovative technologies.
        Benefits from discretionary EIP's can be defined in various terms, 
    as discussed in paragraph III.D.1. While the EPA encourages that 
    discretionary EIP's be designed to produce environmental benefits 
    directly, through increased or more rapid emissions reductions, States 
    should consider these and other benefits in designing a program to meet 
    the goal of sharing benefits between the regulated entities and the 
    environment. In many cases, benefits in terms of cost savings will not 
    be quantifiable prior to program implementation, due to the complex 
    market decisions that sources participating in an EIP will need to make 
    and changes in market conditions during the course of the program. 
    Thus, the final rules and guidance include analysis of control cost 
    savings, to the extent practicable, as a part of the required program 
    audit.
        However, the difficulty of quantifying cost savings and the extent 
    to which those cost savings constitute an incentive to trade leads the 
    EPA to conclude that it is not practicable to require that all EIP's 
    discount trades or otherwise require increased or more rapid emissions 
    reductions that directly benefit the environment. The authorization for 
    discretionary EIP's in sections 110(a)(2)(A) and 172(c)(6) may be 
    interpreted to indicate Congress' view that such programs may help 
    achieve emissions reductions more effectively or efficiently, but not 
    necessarily more expeditiously, than traditional regulatory 
    requirements.
        The final rules reflect that it most appropriately falls to the 
    States to determine the type and extent of benefits sharing that is 
    practicable and appropriate, given the unique circumstances that any 
    particular discretionary EIP is designed to address. Therefore, the 
    final rules do not require any specific formula for benefit sharing. 
    However, the final rules do recognize that the issue of benefits 
    sharing will be part of the political consensus building process 
    associated with designing a discretionary EIP. In assessing this issue, 
    States should not confuse this sharing with accounting for uncertainty 
    in an EIP. Since uncertainty is to be accounted for through compliance 
    and programmatic uncertainty factors (see paragraph III.F.), 
    determining a degree of sharing based on weighing the uncertainty in an 
    EIP would in essence be accounting twice for the same uncertainty.
        One commenter also argued that the requirements for attainment as 
    expeditiously as practicable [section 181(a)(1)] and for imposition of 
    reasonably available control measures [section 172(c)(1)] mandate the 
    inclusion of emission fees in EIP's. The EPA encourages States to 
    consider emissions fees, but does not believe that, at present, their 
    impacts are sufficiently well understood in all cases to conclude that, 
    for all EIP's, they are either practicable or reasonably available.
    
    B. Interface With Reasonably Available Control Technology (RACT) and 
    Other Statutory Requirements
    
    1. RACT
        The proposal was based on an interpretation of the statutory RACT 
    requirements that authorizes sources subject to the statutory RACT 
    requirements (RACT sources) to meet their RACT obligations in the 
    aggregate (i.e., through trading among themselves), and, when such 
    trading results in an exceptional environmental benefit, by acquiring 
    emissions reductions from non-RACT sources (as discussed in paragraph 
    II.D.2.). Further, the proposal defined exceptional environmental 
    benefits in terms of the statutory offset ratios for nonattainment 
    areas and other demonstrations of exceptional long-term environmental 
    benefits.
        With regard to meeting RACT in the aggregate, all but one commenter 
    agreed with the proposed position that trading be allowed among all 
    RACT sources. Further, these commenters generally felt that such RACT 
    trading should produce emissions reductions that are equivalent to 
    those that would be obtained if each source met its source category-
    specific RACT limit. On the other hand, one environmental group 
    disagreed with the proposed position allowing all sources covered by 
    RACT requirements to trade among themselves. This commenter stated that 
    nothing in the Act specifically authorizes substituting any trading 
    regime for source-specific RACT requirements. However, if the EPA 
    allows trading to meet RACT requirements, only trading within a given 
    RACT source category should be allowed since section 182(b)(2) 
    addresses RACT by source categories. Further, this commenter stated 
    that since RACT limits have historically been set based on source-
    specific economic and technical constraints, ``tradeable'' RACT limits 
    must be based on an analysis of the cost savings achievable by meeting 
    RACT through whatever trading approach is permitted in the RACT rule. 
    Since trading approaches provide increased compliance flexibility and 
    cost savings, the commenter believes that any ``tradeable'' RACT limits 
    should be lower than source-specific RACT limits.
        With regard to RACT/non-RACT trading in general, most commenters, 
    including industry, State and local agencies, and an environmental 
    group, supported such trading. Some stated that any regulation which 
    requires certain reductions to be obtained at specified sources, and 
    nowhere else, contradicts a ``market-based'' approach. They felt that 
    the broadest possible participation in a trading market should be 
    encouraged so as to achieve the most benefits from the program. Some 
    commenters felt that allowing RACT/non-RACT trading encourages the 
    development of new technologies and facilitates obtaining controls on 
    previously unregulated sources and source categories. Limiting trades 
    to particular source categories was thought by some to substantially 
    reduce both the incentives and savings available. Such comments were 
    premised on the belief that trading between different source categories 
    (involving both RACT and non-RACT categories) can have sufficient 
    controls and safeguards built in to ensure compliance.
        On the other hand, other environmental groups opposed RACT/non-RACT 
    trading. One such commenter asserted that statutory language regarding 
    RACT ``sources'' only refers to stationary sources, such that trading 
    between RACT sources and mobile sources would violate the Act. Further, 
    this commenter asserted that such trading would make it impossible for 
    States to manage mobile source and stationary source budgets properly 
    for purposes of demonstrating RFP and attainment. The other 
    environmental group commended the EPA's objectives, and approved its 
    means in theory, of allowing trades between mobile and stationary 
    sources, but concluded that the time for trading between stationary and 
    mobile sources has not arrived. This conclusion was premised in part on 
    the belief that trading between RACT sources and mobile sources 
    violates the Act, because it is impossible to determine whether a given 
    mobile source emission reduction is truly surplus. Further, both 
    commenters felt that mobile source emissions reductions could not be 
    reliably quantified.
        As to the conditions under which RACT/non-RACT trading may occur, 
    many commenters from industry expressed the view that such trading 
    should be allowed at a 1-to-1 ratio, i.e., that no exceptional 
    environmental benefit was required to justify RACT/non-RACT trading. 
    These commenters felt that any trading ratio greater than 1 to 1 would 
    limit the economic, technological, and environmental benefits that 
    could be derived from innovations brought about by RACT/non-RACT 
    trading. Other commenters, including State and local agencies and some 
    industries and environmental groups, supported the concept of requiring 
    RACT/non-RACT trades to achieve an exceptional environmental benefit in 
    general, and the use of the proposed statutory offset ratios in 
    particular. However, some of these commenters expressed concern that 
    the offset ratios may have a chilling effect on such trading, and 
    encouraged the EPA to identify justifiable circumstances under which 
    trading ratios could be lower than the offset ratios.
        The final rules continue to allow RACT to be met in the aggregate. 
    In addition, the final rules continue to allow RACT/non-RACT trading, 
    provided that an exceptional environmental benefit is achieved.
        Under the 1977 Act, the requirements specific to nonattainment 
    SIP's were found in part D of title I of the Act. Section 172 specified 
    the attainment date and the required SIP measures. Subsection (a) of 
    section 172 required that nonattainment SIP's provide for attainment by 
    specified dates; subsection (b)(2) required that those SIP's ``provide 
    for the implementation of all reasonably available control measures 
    (RACM) as expeditiously as practicable.'' Subsection (b)(3) required 
    that the SIP's provide for RFP, including RACT:
    
        (Nonattainment SIP's must) require, in the interim (prior to the 
    attainment date) reasonable further progress * * * including such 
    reduction in emissions from existing sources as may be obtained 
    through the adoption, at a minimum, of reasonably available control 
    technology.
    
        The EPA took the position that RACT requirements do not require 
    each affected emissions unit to achieve a prescribed amount of 
    reductions in emissions from its own processes, but rather require the 
    affected sources to achieve in the aggregate the reductions that would 
    be achieved if each applied RACT controls to itself. Under the EPA's 
    interpretation, the application of the requirement to impose RACT upon 
    ``existing sources'' meant that RACT applied in the aggregate, as 
    opposed to source by source. This interpretation, which is reflected in 
    the Emissions Trading Policy Statement (51 FR 43814 (December 4, 1986), 
    the ``Bubble Policy''), was upheld in NRDC v. EPA, 33 ERC 1657 (4th 
    Cir. 1991), an unpublished decision. There, the Court of Appeals for 
    the Fourth Circuit upheld as reasonable EPA's approval of a Maryland 
    SIP revision for the American Cyanamid Company relaxing the SIP limit 
    on several lines in exchange for tighter limits on other lines. The EPA 
    reasoned that the RACT requirement was met by the subject lines in the 
    aggregate.
        The Act revamped part D of title I by updating the general 
    requirements applicable to all nonattainment SIP's, placing those 
    requirements in subpart 1 of part D, and adding subparts 2-5 to cover 
    pollutant-specific nonattainment SIP's. Subpart 2 concerns ozone SIP's.
        Under the 1990 Amendments, the 1977 Act's requirements for 
    nonattainment SIP's were generally retained in subpart 1, but were 
    combined differently--the RACM and attainment date requirements were 
    consolidated into one provision and the RACT requirement was shifted to 
    the RACM provision. Those provisions (section 172(c)(1)-(2)) now read:
    
        (1) In General--Such (nonattainment SIP) provisions shall 
    provide for the implementation of all reasonably available control 
    measures as expeditiously as practicable (including such reductions 
    in emissions from existing sources in the area as may be obtained 
    through the adoption, at a minimum, of reasonably available control 
    technology) and shall provide for attainment of the national primary 
    ambient air quality standards.
        (2) RFP--Such plan provisions shall require reasonable further 
    progress.
    
        In addition, subpart 2 contains several RACT provisions. Most 
    importantly, section 182(b)(2) sets out the RACT requirement for areas 
    classified moderate or higher, as follows:
    
        The State shall submit a revision to the applicable 
    implementation plan to include provisions to require the 
    implementation of reasonably available control technology under 
    section 172(c)(1) with respect to each of the following:
        (A) Each category of VOC sources in the area covered by a CTG 
    document issued by the Administrator between the date of enactment 
    of the Clean Air Act Amendments of 1990 and the date of attainment.
        (B) All VOC sources in the area covered by any CTG issued before 
    the date of the enactment of the Clean Air Act Amendments of 1990.
        (C) All other major stationary sources of VOC's that are located 
    in the area.
        Each revision described in subparagraph (A) shall be submitted 
    within the period set forth by the Administrator in issuing the 
    relevant CTG document. The revisions with respect to sources 
    described in subparagraphs (B) and (C) shall be submitted by 2 years 
    after the date of the enactment of the Act, and shall provide for 
    the implementation of the required measures as expeditiously as 
    practicable but no later than May 31, 1995.
    
        Under the 1990 Act, the EPA continues to take the position 
    established under the 1977 Act that RACT applies in the aggregate 
    because the RACT requirement of section 172(c)(1) of the Act is phrased 
    identically to the RACT requirement of the 1977 Act (vis., ``existing 
    sources''). EPA does not read section 182(b)(2) to indicate to the 
    contrary. Rather, the cross-reference to section 172(c)(1) contained in 
    section 182(b)(2) indicates that RACT is to be interpreted in the same 
    manner under section 182(b)(2) as under section 172(c)(1).
        In addition, the EPA interprets the RACT requirement to authorize 
    emissions trading among the stationary sources subject to the RACT 
    requirement (``RACT sources'') and those not subject (``non-RACT 
    sources'') when emissions reductions result in an amount that provides 
    an exceptional environmental benefit, e.g., a level of reductions that 
    is significantly greater than RACT-level amounts. This interpretation 
    entails viewing the RACT requirement as generally requiring a specified 
    level of reduction of emissions from stationary sources subject to 
    RACT, but as authorizing those sources to substitute significantly 
    greater emissions reductions credits from non-RACT sources in lieu of 
    putting controls on themselves.
        The EPA acknowledges that the statute permits different 
    interpretations, including the interpretation that the universe of 
    sources subject to RACT must themselves implement RACT-level controls, 
    and therefore may not trade with non-RACT sources. However, the EPA 
    believes that its interpretation allowing such trading is permissible, 
    based on the language of section 172(c)(1). The EPA's interpretation 
    emphasizes that the RACT requirement is an emissions reduction 
    requirement for stationary sources that is designed to yield reductions 
    to facilitate the ultimate attainment of the NAAQS and, in the interim, 
    RFP towards attainment (sections 172(c)(1)-(2)).
        Section 172(c)(1), as quoted above, requires SIP provisions to 
    provide ``such reductions in emissions from existing sources in the 
    area as may be obtained through the adoption, at a minimum, of 
    reasonably available control technology. This provision requires an 
    amount of emissions reductions that equates to the amount that would 
    result from the imposition of ``RACT'', but does not require the 
    imposition of any particular set of controls or technologies. Further, 
    the term ``RACT'' is not defined in the statute. In light of the 
    function of this term--to identify the level of required emissions 
    reductions--the EPA believes the term may be defined either as a 
    specified level of emissions to be reduced from the RACT source itself, 
    or as little as a zero level of reductions from the RACT source, 
    coupled with the acquisition by the RACT source of emissions reductions 
    from sources other than RACT sources in an amount that will yield an 
    exceptional environmental benefit.
        With respect to the level of emissions reductions required from the 
    RACT source itself, the EPA believes that if the RACT source acquires 
    an appropriate amount of emissions reductions ``credits'' from non-RACT 
    sources, it is not reasonable to require additional reductions from the 
    source itself. Under these circumstances, control technology needed to 
    produce such reductions from the source itself is not ``reasonably 
    available''.
        With respect to the level of emissions reductions required from the 
    non-RACT sources, the final rules retain the proposed approach to 
    define such a benefit in terms of the statutory offset ratios in 
    general, although flexibility is provided if exceptional environmental 
    benefits are otherwise demonstrated, with a lower bound for the trading 
    ratio of 1.1 to 1 in such cases. EPA believes that these additional 
    amounts of reductions are required because it is ``reasonable''--within 
    the meaning of the amount of reductions required through ``RACT''--to 
    forego reductions that could be obtained at the RACT source itself only 
    when the trading program will result in an exceptionally strong benefit 
    to the environment. In addition, requiring substantial additional 
    emissions reductions credits from non-RACT sources is consistent with 
    the underlying purpose of the RACT requirement--to assure reductions 
    that result in an important step towards fulfilling the RFP and 
    attainment requirements.
        The EPA incorporated statutory offset ratios because offsets are an 
    aspect of emissions trading, and thus provide an indication of 
    Congress' view of benefits to the environment to be required in this 
    context of emissions trading.
        Section 182(b)(2), quoted above, does not alter EPA's analysis. 
    Section 182(b)(2) mandates ``the implementation of reasonably available 
    control technology under section 172(c)(1) with respect to (three 
    categories of stationary sources).'' The EPA interprets the cross-
    reference to section 172(c)(1) to incorporate into section 182(b)(2) 
    the definition of the phrase ``reasonably available control 
    technology'' and the RACT requirement generally under section 
    172(c)(1). In addition, the EPA interprets the phrase ``with respect 
    to'' to authorize RACT sources to acquire emissions reductions credits 
    in the manner described above, and not to mandate the imposition of 
    controls directly on the RACT sources. The EPA believes that this 
    provision may be interpreted to identify the source categories 
    responsible for securing RACT-level reductions, and to mandate the 
    time-frame for them to do so; but does not mandate that those sources 
    themselves implement the emissions reductions measures.
        The EPA believes that its interpretation is permissible under 
    Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 
    (1984), because the relevant statutory provisions are not defined in 
    the statute in a manner that makes clear whether sources subject to 
    RACT may acquire the necessary emissions reductions from other sources 
    in lieu of imposing the controls themselves. As a result, the EPA may 
    proceed to interpret the provision in a manner that is reasonable and 
    consistent with the purpose of the statute. (See generally sections 
    110(a)(2)(A) and 172(c)(6) (authorizing SIP measures to include 
    ``economic incentives such as * * * marketable permits'').)
        As discussed above in paragraph IV.A.2., the final rules and 
    guidance require that EIP's be designed to meet the goal of sharing 
    benefits between the environment and the regulated entities. For EIP's 
    that allow trading or other types of compliance flexibility to meet 
    RACT requirements, as with any EIP, the EPA encourages States, to the 
    extent practicable, to meet this benefits sharing goal most directly by 
    requiring increased emissions reductions beyond those that would be 
    achieved through a traditional RACT program. Increased reductions could 
    be created in a number of ways, such as by including more sources in 
    the program or requiring a greater than 1-to-1 trading ratio. Depending 
    on the scope and nature of an EIP, compliance flexibility might include 
    not only emissions trading between sources, but also alternative 
    compliance methods such as pollution prevention, energy conservation, 
    and fuel switching.
        RACT/non-RACT trading programs must, of course, also meet the other 
    requirements in the final rules, such as those that relate to credible, 
    workable, and replicable quantification methods and to monitoring, 
    recordkeeping, and reporting that allow for compliance determinations 
    and State and Federal enforceability. The EPA recognizes that several 
    commenters raised concerns about the technical workability of emissions 
    trades involving mobile sources. Congress arguably contemplated that 
    EIP's could incorporate trades involving mobile sources, as indicated 
    by the definition of an EIP in section 182(g)(4)(A) to include 
    ``incentives and requirements to reduce vehicle emissions and vehicle 
    miles traveled in the area, including any of the transportation control 
    measures identified in section 108(f).'' The EPA will address technical 
    concerns raised by commenters when it finalizes guidance on the 
    generation of ERC's from mobile source control programs.
        Beyond the requirements in the final rules, the EPA is developing 
    more specific guidance on the use of emissions trading to implement new 
    NOX RACT requirements. This guidance will address issues such as 
    setting tradeable NOX RACT limits and baselines, and is consistent 
    with the general RACT trading principles set out in paragraphs III.D.2. 
    and III.D.3. The EPA intends to work with States who want to develop 
    trading-based RACT programs to incorporate the requirements of the EIP 
    rules and related guidance into EIP's that are environmentally sound 
    and administratively efficient.
    2. Offsets
        The EPA received a number of comments specifically dealing with NSR 
    offset issues. These covered a range of issues, but focused primarily 
    on offsets banking. Such issues are beyond the scope of this EIP 
    rulemaking, but the EPA intends to address them in the near future in 
    guidance on ERC banking currently being developed. In the interim, the 
    EPA intends to work with States who want to develop offset banking 
    programs.
    3. ECO Programs
        The EPA received a number of comments dealing with ECO programs 
    which are beyond the scope of this EIP rulemaking. The EPA has 
    previously issued guidance on ECO programs and anticipates the 
    development of additional guidance. Final action with respect to ECO 
    programs will occur when the EPA acts on SIP revisions concerning ECO 
    programs.
    
    C. Program Baseline
    
        The proposed rules were based on the premise that a State can only 
    take credit in attainment and RFP demonstrations for emissions 
    reductions from EIP's that are surplus to what is otherwise required 
    and credited to other elements of a federally-approved SIP. This 
    restriction is necessary to ensure that a State does not double count 
    emissions reductions in SIP demonstrations. The general requirements 
    for program baselines are intended to ensure that such double counting 
    does not occur, while still providing as much flexibility as possible.
        The proposal solicited comments on the conditions under which 
    States should have the flexibility to use an ``allowable'' baseline. In 
    particular, comments were solicited on the proposed approach to accept 
    an ``allowable'' baseline in an EIP submitted in conjunction with the 
    submission of an applicable progress plan (e.g., 15 percent RFP plan 
    and/or subsequent 3 percent-per-year plans), prior to the submission of 
    an attainment demonstration. Further, comments were solicited on 
    approaches for achieving consistency between EIP's with ``allowable'' 
    program baselines and statutory RACT, RFP, and attainment requirements.
        There were many comments from industry and State and local agencies 
    in support of the proposed flexibility in setting baselines. These 
    comments generally supported the concept of considering the use of 
    allowable emissions in setting EIP baselines, provided the EIP is 
    consistent with RFP and attainment demonstrations. The commenters did 
    not, however, address how such consistency could be achieved or 
    demonstrated. Some State agencies commented that if allowable emissions 
    baselines are used, they should not lead to more actual emissions, in 
    the aggregate area-wide, than allowed under a traditional plan. The 
    commenters felt that this flexibility would allow States to select 
    baselines that were the most practicable and equitable to all sources 
    involved.
        An alternative view was expressed by an environmental group which 
    advocated that the final rules should require an actual emissions 
    baseline for all EIP's until the attainment demonstration is approved. 
    This comment was premised on the belief that an allowable emissions 
    baseline would violate the requirements for attainment as expeditiously 
    as possible and for noninterference with attainment. The commenter 
    asserted that relying only on a RFP demonstration and a commitment by 
    the State that a future attainment demonstration would be consistent 
    with the EIP baseline was a wholly inadequate constraint to ensure 
    expeditious as practicable attainment. Further, this commenter 
    expressed the view that ``surplus'' reductions should be defined 
    relative to those reductions which are necessary to achieve attainment. 
    As a result, the commenter concluded that the EPA should not approve 
    any EIP's based on emissions trading prior to approval of an attainment 
    demonstration.
        The final rules and guidance focus on consistency between progress 
    plans and EIP baselines. The rules recognize that RFP requirements are 
    defined in terms of actual areawide emissions reductions and annual 
    progress. Although such consistency and requirements may be made more 
    difficult by the use of an EIP baseline which incorporates allowable 
    emissions, the final rules provide States flexibility in designing an 
    EIP to achieve these requirements. Further, the final rules encourage 
    the development of EIP's as part of an overall attainment strategy that 
    lowers the cost of attainment. The final rules recognize that 
    attainment strategies that incorporate EIP's can reflect both 
    environmentally and economically sound policy choices. Therefore, the 
    final rules retain the proposed baseline flexibility and definition of 
    surplus, while requiring States to demonstrate in their EIP submittal 
    that the EIP baseline is consistent with their progress plans15 
    and RACT requirements, when applicable, and to commit that such 
    consistency will be reflected in any subsequent progress plans and 
    attainment demonstrations. The State should describe how the EIP 
    baseline will be integrated into a subsequent attainment demonstration. 
    The EPA takes the position that an allowables baseline, when consistent 
    with a submitted, complete, and potentially approvable RFP plan 
    generally is permissible. It is true, as one commenter emphasized, that 
    consistency with RFP does not automatically assure consistency with 
    attainment when additional reductions are needed for attainment. 
    However, the EPA takes the position that an allowables baseline that is 
    consistent with an RFP submittal does not specifically interfere with 
    attainment under section 110(l). The State's commitment that the 
    attainment demonstration, when submitted, will be consistent with the 
    allowables baseline lends additional support to the EPA's position. The 
    inducement to States to complete the attainment demonstration that is 
    presented by the sanctions/FIP requirement, as well as the fact that 
    emissions limits allowed under the EIP may be tightened if they 
    unexpectedly develop into impediments to attainment, further support 
    the EPA's positions.
    ---------------------------------------------------------------------------
    
        \1\5EPA has concluded that it is not necessary in this notice to 
    define RFP with any greater specificity than found in the statute; 
    that is, it is not necessary to identify the extent, if any, of 
    annual emissions reductions needed to comply with the statutory RFP 
    requirements.
    ---------------------------------------------------------------------------
    
        As stated above in paragraph IV.B.1., the EPA is developing 
    guidance that addresses baselines for EIP's implementing new NOX 
    RACT requirements. Further, the EPA intends to work with States who 
    want to develop trading-based RACT programs to incorporate the 
    requirements of the EIP rules and related guidance into EIP's that are 
    environmentally sound and administratively efficient.
    
    D. Emission Quantification
    
    1. Criteria for Adequacy of Approach
        The proposed rules and guidance were based on the premise that the 
    development and use of credible, workable, and replicable methods to 
    quantify emissions are necessary elements of any quantifiable EIP. The 
    proposed rules require EIP quantification methods to have a level of 
    certainty comparable to that for source-specific standards and 
    traditional methods of control strategy development. The proposal 
    explicitly allowed States to develop alternative approaches to meet 
    these emissions quantification requirements. The proposal solicited 
    comments on adequacy criteria for various types of source categories, 
    recognizing that no one approach is the most appropriate, or even 
    technically feasible, for all source categories.
        Most comments received on this issue were supportive of the general 
    requirements in the proposal. Of those supporting the general 
    requirements, no commenters offered any specific criteria for levels of 
    certainty or accuracy by which quantification approaches should be 
    evaluated. On the other hand, an environmental group commented that, 
    for trading programs, the EPA should require the use of the most 
    accurate available continuous emissions monitors (CEM's) on every 
    source in an emissions trading program, and, where such direct 
    emissions quantification is not possible, no emissions trading should 
    be allowed.
        The final rules reflect the importance of both ensuring 
    environmental protection with an adequate degree of accountability and 
    fostering the development of innovative and flexible programs. 
    Innovation and flexibility would be unduly restricted if the use of the 
    most accurate available CEM's were a prerequisite for all sources to be 
    included in any emissions trading program. The final rules recognize 
    that other approaches may be more appropriate for various source 
    categories. The final rules reflect that credible approaches 
    necessarily entail levels of accuracy and precision sufficient to 
    determine compliance and allow for effective enforcement of all 
    emission limits in any EIP. Subject to these enforceability 
    considerations, the final rules address uncertainty in emission 
    quantification in determining SIP credit through the use of a 
    programmatic uncertainty factor.
        A commenter stressed that the need to assure accuracy in trading 
    would further burden State agencies, and argued that EPA could not 
    approve an EIP absent a demonstration that the State agency has 
    adequate resources to handle the additional workload. Many of the 
    additional requirements Congress imposed on States through the Clean 
    Air Act Amendments of 1990 would place additional burdens on State 
    agencies--EPA intends to implement the Act's requirements that States 
    have sufficient resources (e.g., section 110(a)(2)(E)) in the context 
    of EIP submissions in the same manner as EPA implements these 
    requirements in the context of other SIP submissions.
    2. Extended Averaging Times
        The proposed rules recognize that long-term averaging by individual 
    sources can significantly relax standards that require compliance on a 
    short-term basis and jeopardize RFP and attainment demonstrations that 
    are based on ``typical summer day'' emissions. The proposal also 
    recognized that EIP's which require a number of sources to comply with 
    total emissions caps or average emission rate limits could potentially 
    mitigate this type of rule relaxation. In such programs, random daily 
    positive fluctuations in emissions that are likely to occur from any 
    given source (i.e., emission ``spikes'' that could jeopardize 
    attainment) may tend to be compensated for by random daily negative 
    fluctuations from other sources. Thus, the proposal allowed long-term 
    averaging, provided a statistical showing is made that the long-term 
    caps or limits are consistent with applicable demonstrations of RFP on 
    the basis of typical summer day emissions, demonstrations of attainment 
    of short-term NAAQS, and RACT requirements. The proposed approach 
    provided increased flexibility to sources and to States in their plan 
    development without undermining the EPA's traditional control programs 
    or the validity of RFP or attainment demonstrations.
        The proposal recognized the need for additional guidance on such 
    statistical ``equivalency'' showings. The proposal also solicited 
    comments on specific approaches for RACT equivalency showings, 
    including the use of a presumptive norm discount factor of 70 percent 
    to be applied to a RACT limit averaged over 30 days, other rule-
    specific discount factors determined by States to represent RACT 
    equivalency, and the use of short-term caps in conjunction with long-
    term caps or limits.
        Many commenters supported the proposed flexibility to allow for 
    long-term averaging. One State commenter strongly supported the 
    provision to allow States to relate long-term averaging to daily 
    emissions by statistical analysis. Another State agreed that the use of 
    long-term averaging should not come at the expense of attaining short-
    term standards or demonstrations of compliance. Other States noted the 
    need for consistency in the EPA's RACT guidance on averaging times. 
    Industry commenters endorsed the allowance of long-term averaging, 
    although they expressed differing views about the need for statistical 
    showings to demonstrate consistency with RACT and short-term standards. 
    Some felt that any such showing should not be burdensome, while others 
    disagreed that any such showing was necessary. An environmental group 
    agreed that increasing averaging periods can significantly relax 
    standards and threaten RFP and attainment. This group commented, 
    however, that the proposal understated the difficulties which would 
    flow from such a relaxation, and felt that discount factors would not 
    provide adequate protection against spikes in emissions which could 
    prevent attainment of short-term NAAQS.
        With regard to long-term averaging and RACT equivalency, many 
    commenters disagreed with the use of a presumptive 30-day RACT 
    equivalency factor, such as the 70 percent factor mentioned in the 
    proposal. One commenter felt that a RACT equivalency showing should not 
    be required if some statistical information was provided showing that 
    long-term averaging would not interfere with RFP or the attainment 
    demonstration. Many regulatory agency and industry commenters supported 
    allowing States flexibility in determining RACT equivalency factors.
        The final rules retain the proposed allowance for long-term 
    emissions averaging, as well as requirements that States make 
    statistical showings that any such emissions averaging is consistent 
    with applicable RACT, RFP, and short-term NAAQS. These statistical 
    showings are necessary to show equivalency to, or noninterference with, 
    each of these statutory requirements, although as a practical matter 
    the same showing may suffice to assure consistency with more than one 
    of the requirements. The statistical showings should take into account 
    the extent to which emissions variations from an individual source or 
    from all sources are random or systematic and, thus, the extent to 
    which the variations can be considered to be independent. The showings 
    must demonstrate that the pattern of emissions resulting from relaxed 
    averaging periods would approximate the pattern of emissions that would 
    occur without relaxed averaging periods to an extent sufficient to 
    reasonably conclude that the relaxed averaging periods would not 
    interfere with the statutory requirements.
        The final rules do not include any presumptive RACT discount 
    factor, on the basis that no one factor can adequately account for the 
    variations that may occur across different programs. However, the EPA 
    remains open-minded to discount factors, especially for specific 
    industries, that are substantiated by State analyses. The EPA will work 
    with States that want to develop EIP's that incorporate long-term 
    averaging requirements to ensure that such a program does not interfere 
    with RFP and the attainment of short-term standards. The EPA 
    anticipates that more general guidance will be developed in the course 
    of working with States on statistical approaches for such equivalency 
    demonstrations. In the case of EIP's implementing RACT requirements, 
    the guidance referenced above in paragraph IV.B.1. addresses long-term 
    averaging for NOX RACT.
    
    E. Monitoring, Recordkeeping, Reporting (MRR)
    
        The proposed rules were based on the premise that EIP's depend more 
    strongly than traditional control programs on MRR to ensure compliance 
    and to allow for adequate enforcement because they are inherently more 
    flexible and less prescriptive than traditional technology or 
    performance standards. The proposal recognized that while a wide range 
    of MRR approaches are available that can be used to show compliance for 
    different types of sources, no one approach is necessarily the most 
    appropriate, or even technically feasible, for all types of sources 
    that may be included in an EIP. Thus, the proposal explicitly allowed 
    for alternative monitoring methods, while soliciting comments on 
    criteria for adequate MRR requirements for EIP's.
        Public comments focused on whether EIP's do depend more strongly on 
    MRR and on whether CEM's should be required for any or all sources 
    covered by an EIP. Several industry commenters disagreed with the 
    premise that EIP's depend more strongly on MRR to ensure compliance, 
    and, therefore, felt that no more stringent MRR requirements should be 
    required in EIP's than those required in traditional programs. These 
    commenters supported the provision allowing a range of MRR requirements 
    to be used in EIP's.
        One State commented that EIP's should be limited to source 
    categories for which emission quantification and compliance methods are 
    available and reasonably accurate. This State felt that the use of 
    CEM's was the optimal monitoring method, although it recognized that 
    other unit-specific field monitoring methods could be acceptable. An 
    environmental group commented that the rules should require use of the 
    most accurate available CEM's on every source involved in any emissions 
    trading program. Further, this group felt that the maximum amount of 
    CEM measurement inaccuracy should be reflected in a program discount 
    factor. On the other hand, some industry commenters urged that EIP's 
    not require the use of CEM's for any sources.
        The final rules retain the proposed flexibility for alternative 
    monitoring approaches that allow for adequate compliance determinations 
    and provide for effective State and Federal enforcement. As discussed 
    above (see paragraph IV.D.1.), innovation and flexibility would be 
    unduly restricted if CEM's were a prerequisite for all sources in any 
    emissions trading program. In the development of adequate MRR 
    requirements, criteria should be considered to assure that quality-
    assured, representative monitoring data will be obtained that can be 
    used to determine compliance.
        The EPA recognizes that special consideration should be given to 
    developing MRR requirements for small sources to avoid undue burdens, 
    consistent with assuring that all EIP sources are required to comply 
    with adequate and effective MRR requirements. For mobile source 
    programs, the State should refer to program-specific guidance from EPA, 
    if applicable.
    
    F. State Implementation Plan (SIP) Creditability
    
        The proposed rules identify various types of uncertainties 
    associated with different categories of EIP's, and required that States 
    apply discount factors in calculating SIP credit based on the 
    uncertainties inherent in the design of any given EIP. The proposal 
    separately addressed compliance-related uncertainty, through a rule 
    compliance factor, and programmatic uncertainties associated with 
    quantification methods and projected market responses, through a 
    program uncertainty factor. The proposal compared the need for a rule 
    compliance factor to the historical use of a rule effectiveness factor, 
    generally set at 80 percent for traditional stationary source SIP 
    programs. The proposal identified an option of setting presumptive 
    norms for these factors in lieu of the requirement that the State 
    develop and justify program-specific factors. The proposal solicited 
    comments on criteria for the development of such factors.
        Many commenters expressed different concerns with the proposed 
    approach to dealing with uncertainty. Some commenters interpreted the 
    proposal as allowing credit only for emission-limiting programs (e.g., 
    emission trading), and argued that credit should be allowed for market-
    response programs (e.g., emission fees) and even directionally-sound 
    programs (e.g., those that benefit the environment but cannot be 
    quantified). One such commenter, an environmental group, urged not only 
    that credit be given for emission fee programs, but that they must be 
    encouraged since they offer the most attractive opportunity for 
    environmental progress. In fact, the proposed and final rules allow 
    credit for market-response as well as emission limiting programs, and 
    encourage States to consider all such types of programs. The proposed 
    and final rules also encourage the use of directionally-sound programs, 
    but specify that SIP credit cannot be taken until sufficient experience 
    with the program results in the ability to adequately quantify the 
    results.
        Some State commenters expressed general concern with the use of any 
    up-front discounting of SIP credit, urging instead that alternative 
    approaches be allowed to account for uncertainty. In particular, some 
    State commenters recommended that the program audit procedures be used 
    to provide information on actual emissions reductions resulting from 
    program implementation. Such audit results would feed back into updated 
    emissions inventories, be compared to initially projected program 
    results, and if appropriate, result in additional credit or the need 
    for additional reductions if the audited results differ from those 
    credited to the EIP in the SIP. One State commenter recommended that 
    the State be allowed to adopt various back-up provisions in an EIP 
    instead of applying up-front discount factors.
        Some industry commenters disagreed with the use of two discount 
    factors, on the basis that such an approach would double count 
    uncertainty. These commenters also expressed the view that a 
    presumptive norm of 80 percent for a rule compliance factor is too low. 
    On the other hand, an environmental group commented that a presumptive 
    norm of 80 percent was too high. This commenter also urged that credit 
    not be given for prior reductions or for plant shutdowns and slowdowns 
    which would have occurred in the absence of a control program.
        The final rules generally retain the proposed approach of requiring 
    the State to develop and apply discount factors to account for 
    compliance-related and programmatic design uncertainties. In addition, 
    however, the final rules also include further guidance and criteria for 
    developing and justifying such factors. In particular, various aspects 
    of program design should be considered in developing such factors, 
    including but not limited to the type of incentive mechanism upon which 
    the program is based; the variability in emissions from affected 
    sources and the nature and extent of uncertainty in the emissions 
    quantification procedures required by the program; the type and 
    frequency of MRR required by the program; sanctions for noncompliance; 
    the frequency, scope, and committed responses to program audits; and 
    the nature of administrative procedures to be used by the State in 
    implementing and enforcing the program.
    
    G. Audit/Reconciliation Procedures
    
        The proposed rules specify that program audits be made at least 
    every 3 years, consistent with intervals associated with RFP milestones 
    and emission inventory requirements. Alternatively, the State could 
    specify a shorter period, so as to allow time to make programmatic 
    corrections or adjustments (in either direction) to SIP credited 
    emissions reductions, before an RFP milestone is reached. The proposal 
    solicited comments on the appropriate audit frequency.
        Several comments were received on the general issue of programs 
    audits. Most such comments were generally supportive of a requirement 
    for ongoing program tracking and feedback, although the commenters 
    differed on the role that the audit should have relative to other EIP 
    requirements. Some State commenters felt that ongoing audits should 
    serve as an alternative to many of the proposed regulatory requirements 
    for up-front technical analyses. Another State supported the use of 
    audits to assess EIP adequacy and the need to take corrective actions. 
    An environmental group recommended that the EPA require for all EIP's 
    contingency measures to compensate for shortfalls revealed through the 
    audits. Other State, environmental, and industry commenters felt that 
    requiring audits was reasonable, but expressed varying degrees of 
    concern that audits not become so burdensome as to serve as a 
    disincentive for developing an EIP. On the other hand, one industry 
    commenter felt that EIP's ought not be subject to any special audit 
    requirements different from those applicable to traditional programs.
        On the issue of audit frequency, most commenters generally agreed 
    with the proposed 3-year interval. One State commenter felt that annual 
    audits should be conducted to assess progress, with a summary of such 
    audits to be incorporated in triennial SIP RFP reports.
        The final rules and guidance retain the proposed requirements for 
    program audit and reconciliation procedures, and establish 3 years as 
    the maximum time interval for conducting such audits. The final rules 
    recognize that the State has flexibility in establishing the frequency 
    (within the 3-year constraint) and scope of audit provisions. Further, 
    the final rules recognize that there is an interplay between the 
    frequency, scope, and other design features of the audit provisions and 
    the nature and scope of other program design elements (such as the 
    justification for uncertainty factors). In addition, to better define 
    the benefits from EIP's, the final rules include analysis of control 
    cost savings, to the extent practicable, as a part of the required 
    program audit.
    
    H. Penalties for Noncompliance
    
        The proposed rules recognize that determination of statutory 
    maximum penalties for noncompliance is significantly complicated in the 
    case of EIP's that incorporate multisource emissions caps and/or long-
    term averaging times, since Federal statutory maximum penalty authority 
    is specified on a per-day, per-source basis. While establishing the 
    principle that such penalty provisions must create a deterrent effect 
    comparable to that of traditional programs, the proposal solicited 
    comment on criteria for the development of such penalty provisions.
        Commenters generally agreed with the principle of equivalent 
    deterrence. Several industry commenters opposed any criteria that would 
    suggest that any multisource emissions cap violation should be 
    considered to have occurred at each source. Some commenters recommended 
    that penalty provisions be based on the amount of the exceedence of a 
    cap, and one commenter suggested that the final rules should recommend 
    predetermined minimum penalties. Another commenter recommended that 
    penalty provisions differentiate between violations that are willful or 
    negligent and those that are determined not to be willful or negligent.
        The final rules and guidance continue to allow for a variety of 
    approaches to specifying statutory maximum penalties, although 
    exceedance-based approaches are encouraged. Thus, for example, where 
    emission limits are specified in units of mass emissions, statutory 
    maximum penalties can be specified as a function of the degree to which 
    the limits are exceeded, as measured in terms of some increment of mass 
    emissions. Alternatively, statutory maximum penalties could be 
    specified as a function of the cost of credits or allowances in trading 
    programs. The final rules and guidance require that EIP's be structured 
    in conjunction with applicable enforcement authorities, in such a way 
    that violations of multisource and/or multiday emission limits 
    translate into sufficient numbers of some combination of violations, 
    sources in violation, and days of violation. There are no criteria that 
    suggest that this requirement should necessarily be met by considering 
    that the violation occurred at each such source. The final rules 
    further identify supplemental provisions that may enhance deterrence, 
    such as mandatory minimum penalties, or address uncertainties inherent 
    in the design of a program, such as penalty triggers linked to measures 
    of compliance tracked through the program audit.
        The following criteria have been established for assessing the 
    adequacy of the deterrent effect of EIP penalty provisions. The primary 
    focus is on an assessment of the adequacy of the statutory maximum 
    penalties in the EIP, through an evaluation of deterrence ratios (i.e., 
    the ratio of the maximum penalty per violation to the cost of 
    compliance). In a program with tradeable emission allowances or ERC's, 
    the cost of compliance will be related to the market value of 
    allowances or credits. Under a range of foreseeable noncompliance 
    circumstances, this deterrence ratio must be high enough to deter 
    noncompliance to a degree comparable to traditional programs.
        Other aspects of deterrence should also be considered in evaluating 
    the adequacy of penalty provisions. These aspects include the 
    likelihood that noncompliance will be detected and the credibility and 
    predictability of responses to noncompliance. These aspects should be 
    considered in light of administrative procedures and resources 
    established within the EIP, as well as other program design elements 
    related to emission quantification and monitoring, recordkeeping, and 
    reporting.
    
    I. Interface With Existing Emission Trading Policies
    
        The EIP rules and guidance, being broadly applicable to any kind of 
    EIP, generally cover the same type of emission trading programs that 
    have historically been addressed by the EPA's previously released 
    guidance on emission trading, primarily contained in the Emissions 
    Trading Policy Statement (ETPS) and its appendices (51 FR 43831, Dec. 
    4, 1986). Although based upon the same general principles, the EIP 
    rules and guidance provide both greater flexibility and more 
    comprehensive programmatic requirements for such programs. The proposal 
    defined the relationship between the EIP rules and the ETPS such that 
    the provisions of the ETPS which apply to trading between existing 
    sources (i.e., the bubble and generic bubble provisions) would 
    represent one particular model for how States could choose to design 
    such a program that would be approvable under the EIP rules. The 
    proposal, however, in no way constrained EIP's involving emission 
    trading to the specific provisions of the ETPS. The proposal solicited 
    comments on this proposed relationship.
        Only a few commenters addressed this issue. Two commenters agreed 
    with the proposed approach. Another commenter disagreed with retaining 
    the elements of the ETPS that are now addressed by the EIP rules, on 
    the basis that such ETPS provisions are rendered obsolete by the new 
    rules, and the EPA should not encourage the use of less flexible 
    policies. Another commenter recommended that the ETPS should be updated 
    to include the flexibility contained in the EIP rules and that it 
    should then continue to be applied to trading done for the purpose of 
    meeting other statutory requirements (e.g., RACT/non-RACT trading).
        The final rules retain the proposed relationship between the ETPS 
    and the EIP rules. The final rules do not encourage States to limit 
    their design of EIP's to meet the specific provisions in the ETPS. 
    However, the final rules recognize that States may want to implement 
    emission trading without embarking on the design of new approaches to 
    emission trading. Retaining the ETPS provides a known regulatory option 
    for those States that want to apply it.
    
    J. General Issues
    
    1. Detailed vs. General Guidance
        Some commenters felt that the EIP proposal was overly specific and 
    limited flexibility. These commenters contended that it would be 
    difficult for EPA guidance to anticipate and identify all of the 
    specific elements of proposed programs that might be approvable until 
    actual programs are developed and adopted. They felt that the final EIP 
    rules should be limited to a detailed policy statement and discussion 
    of principles and criteria to which EIP's must adhere rather than 
    specific guidance on how EIP programs should be designed and 
    administered.
        Other commenters, including a State and an environmental group, 
    felt that the final rules should include more detailed guidance. One 
    such commenter felt that without more detailed guidance, technical 
    questions such as how to calculate emissions reductions or to establish 
    baselines might be so daunting as to discourage attempts to develop 
    EIP's. This commenter felt that the need for such guidance is 
    particularly great for EIP's relying on area and mobile source 
    emissions reductions. Another such commenter felt that without more 
    detailed guidance spelling out appropriate design criteria and policy 
    and legal limitations, States will succumb to pressures to develop 
    EIP's that do not effectively implement the requirements of the Act.
        Some commenters on both sides of this issue recommended that the 
    EPA provide examples of successful, appropriate EIP's. Such commenters 
    recommended that such information be provided through supplemental 
    documentation or through an EPA-established EIP information 
    clearinghouse.
        Just as an individual State EIP rule should balance flexibility 
    with specificity, the EPA's final EIP rules should do the same. Thus, 
    the final rules retain the balance between general statements of 
    principles and criteria and specific detailed guidance on technical 
    requirements that was reflected in the proposal. The final rules 
    provide sufficient detail to allow States to design and implement EIP's 
    that will effectively implement the requirements of the Act without 
    defeating the purpose of capturing the benefits of market-based 
    regulatory approaches.
        Although the final rules do not include specific examples of EIP's 
    that have been successfully implemented, the EPA agrees that such 
    information is a useful and important aspect of encouraging the 
    development of such programs. For the last 3 years, the EPA has funded 
    grants to support market-based initiatives by State, regional and local 
    agencies.16 All such initiatives have included strong involvement 
    from the State, affected local interests, and the relevant EPA Regional 
    Office(s). Final reports from these projects are available from the 
    States to further the EPA's goal of disseminating information about the 
    design and implementation of EIP's.
    ---------------------------------------------------------------------------
    
        \1\6The docket contains summaries of such programs and contacts 
    for information.
    ---------------------------------------------------------------------------
    
        Beyond this grant program, the EPA is committed to working with 
    individual States as they develop EIP's. In addition to the program 
    survey documents which have been placed in the docket, the EPA is 
    developing plans for future outreach activities to make information 
    about successful EIP initiatives as broadly available as possible.
    2. Administrative Simplicity
        Several commenters agreed that administrative complexity can be one 
    of the greatest impediments to a regulation and urged the EPA to 
    simplify the terms and processes of these rules. Such commenters felt 
    that undue administrative complexity would stifle the development of 
    EIP's and provide a significant disincentive for participation in 
    trading programs. These commenters generally felt that the EIP rules 
    should minimize regulatory barriers because they interfere with the 
    functioning of desirable market mechanisms which are necessary for the 
    success of the EIP.
        One type of complexity cited by two State commenters related to 
    excessive government process, and the associated lack of timeliness, in 
    the review of individual emissions trades. These commenters recommended 
    that individual emissions trading transactions not be required to be 
    submitted to the EPA for review once a State's generic trading rule has 
    been approved by the EPA. Further, one such commenter recommended more 
    focus on the audit and evaluation of an EIP program, rather than on 
    administrative burdens upfront in implementing emissions trades. This 
    commenter felt that the EPA should have the authority to conduct 
    periodic audits of emissions trading transactions approved by the 
    States to assure the integrity of the program.
        In seeking to provide States with the flexibility to implement 
    emissions trading programs effectively, the final EIP rules retain the 
    proposed requirement for the State to establish appropriate 
    administrative procedures for conducting, approving, verifying, 
    recording, and tracking trades. As part of an EIP program, these 
    procedures would then be reviewed by the EPA in the course of EPA 
    review of the SIP revision incorporating the EIP into the SIP. Thus, 
    the EIP does not necessarily envision single-source SIP revisions for 
    each trade conducted in the context of an EPA-approved generic 
    emissions trading program. Of course, EPA approval of such programs is 
    predicated on the program containing all the appropriate environmental 
    safeguards that are required by the EIP rules. One such safeguard is 
    the inclusion of program audits, to be conducted by the State, to 
    evaluate program implementation and track program results. The EIP 
    rules require that the State provide post-audit reports to the EPA, and 
    that the State commits to implement timely programmatic revisions or 
    other measures necessary for the successful operation of the program. 
    Additionally, the rules require that State and Federal enforceability 
    must be preserved, such that when ERC's generated within an emissions 
    trading program are used to offset increases in emissions from other 
    sources, the EIP must contain a mechanism for ensuring State and 
    Federal enforceability of the measures taken to generate the credits.
        The EPA is currently developing additional guidance on such issues 
    associated with banking of ERC's. The EPA intends to complete this 
    additional guidance as quickly as possible, and, in the interim, to 
    work with States developing EIP's involving banking of ERC's.
    3. Regional and Interstate Trading
        Neither the proposal nor final rules specifically address the issue 
    of regional and interstate emissions trading. Several commenters raised 
    this issue, however, particularly in the context of trading of 
    emissions offsets. Most such commenters felt that the EPA should 
    encourage interstate trading by establishing consistent rules and 
    prohibiting States from creating interstate barriers. One State group 
    felt that the final rules should provide for the fullest possible 
    implementation of trading strategies on a regional basis within the 
    Northeast Ozone Transport Region. One environmental group urged that 
    the final rules remind States of the statutory geographical constraints 
    on trading.
        The EPA has developed some preliminary guidance on this issue as it 
    relates to NOx offsets in the Northeast Ozone Transport 
    Region.17 Additional guidance on interstate or regional trading 
    will be developed in the context of the EPA's working with interested 
    States in program development activities.
    ---------------------------------------------------------------------------
    
        \1\7This guidance is contained in a March 31, 1993 letter from 
    Mr. John Seitz, Director of the EPA's Office of Air Quality Planning 
    and Standards, to Mr. Bruce Carhart, Executive Director of the Ozone 
    Transport Commission, which includes all or portions of the 
    northeastern States from Washington, DC, to the New England States. 
    This letter is available in the docket for this rule.
    ---------------------------------------------------------------------------
    
    V. Administrative Requirements
    
    A. Executive Order 12866
    
        Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the 
    Agency must determine whether the regulatory action is ``significant'' 
    and therefore subject to OMB review and the requirements of the 
    Executive Order. The Order defines ``significant regulatory action'' as 
    one that is likely to result in a rule that may:
        (1) Have an annual effect on the economy of $100 million or more or 
    adversely affect in a material way the economy, a sector of the 
    economy, productivity, competition, jobs, the environment, public 
    health or safety, or State, local, or tribal governments or 
    communities;
        (2) Create a serious inconsistency or otherwise interfere with an 
    action taken or planned by another Agency;
        (3) Materially alter the budgetary impact of entitlements, grants, 
    user fees, or loan programs or the rights and obligations of recipients 
    thereof; or
        (4) Raise novel legal or policy issues arising out of legal 
    mandates, the President's priorities, or the principles set forth in 
    the Executive Order.''
        It has been determined that these rules are not a ``significant 
    regulatory action'' under the terms of Executive Order 12866. This 
    action was submitted to OMB for review. Changes made in response to OMB 
    suggestions or recommendations will be documented in the public record.
    
    B. Paperwork Reduction Act
    
        These rules do not contain any information collection requirements 
    subject to review by the OMB under the Paperwork Reduction Act of 1980, 
    44 U.S.C. 3501, et seq.
    
    C. Regulatory Flexibility Act
    
        The Regulatory Flexibility Act of 1980 and applicable EPA 
    guidelines revised in 1992 require Federal agencies to identify 
    potentially adverse impacts of Federal rules upon small entities. Small 
    entities include small businesses, organizations, and governmental 
    jurisdictions. In instances where significant impacts are possible on a 
    substantial number of these entities, agencies are required to perform 
    a Regulatory Flexibility Analysis (RFA).
        This rule does not of itself impose any requirements on small 
    entities, nor require or exclude small entities from any EIP's which 
    may be implemented in the future. As a result, the EPA has determined 
    that these rules will not have a significant impact on a substantial 
    number of small entities.
        Therefore, as required under section 605 of the RFA, 5 U.S.C. 601 
    et seq., I certify that these rules do not have a significant impact on 
    a substantial number of small entities.
    
    List of Subjects in 40 CFR Part 51
    
        Administrative practice and procedure, Air pollution control, 
    Carbon monoxide, Intergovernmental relations, Lead, Nitrogen dioxide, 
    Ozone, Particulate matter, Reporting and recordkeeping requirements, 
    Sulfur oxides, Volatile organic compounds.
    
        Dated: March 15, 1994.
    Carol M. Browner,
    Administrator.
    
        For reasons set out in the preamble, 40 CFR part 51 is amended as 
    follows:
    
    PART 51--REQUIREMENTS FOR PREPARATION, ADOPTION, AND SUBMITTAL OF 
    IMPLEMENTATION PLANS
    
        1. The authority citation for part 51 continues to read as follows:
    
        Authority: 42 U.S.C. 7401-7671q.
    
        2. Part 51 is amended by adding a new subpart U, consisting of 
    Secs. 51.490 through 51.494, to read as follows:
    
    Subpart U--Economic Incentive Programs
    
    Sec.
    51.490 Applicability.
    51.491 Definitions.
    51.492 State program election and submittal.
    51.493 State program requirements.
    51.494 Use of program revenues.
    
    Subpart U--Economic Incentive Programs
    
    
    Sec. 51.490  Applicability.
    
        (a) The rules in this subpart apply to any statutory economic 
    incentive program (EIP) submitted to the EPA as an implementation plan 
    revision to comply with sections 182(g)(3), 182(g)(5), 187(d)(3), or 
    187(g) of the Act. Such programs may be submitted by any authorized 
    governmental organization, including States, local governments, and 
    Indian governing bodies.
        (b) The provisions contained in these rules, except as explicitly 
    exempted, shall also serve as the EPA's policy guidance on 
    discretionary EIP's submitted as implementation plan revisions for any 
    purpose other than to comply with the statutory requirements specified 
    in paragraph (a) of this section.
    
    
    Sec. 51.491  Definitions.
    
        Act means the Clean Air Act as amended November 15, 1990.
        Actual emissions means the emissions of a pollutant from an 
    affected source determined by taking into account actual emission rates 
    associated with normal source operation and actual or representative 
    production rates (i.e., capacity utilization and hours of operation).
        Affected source means any stationary, area, or mobile source of a 
    criteria pollutant(s) to which an EIP applies. This term applies to 
    sources explicitly included at the start of a program, as well as 
    sources that voluntarily enter (i.e., opt into) the program.
        Allowable emissions means the emissions of a pollutant from an 
    affected source determined by taking into account the most stringent of 
    all applicable SIP emissions limits and the level of emissions 
    consistent with source compliance with all Federal requirements related 
    to attainment and maintenance of the NAAQS and the production rate 
    associated with the maximum rated capacity and hours of operation 
    (unless the source is subject to federally enforceable limits which 
    restrict the operating rate, or hours of operation, or both).
        Area sources means stationary and nonroad sources that are too 
    small and/or too numerous to be individually included in a stationary 
    source emissions inventory.
        Attainment area means any area of the country designated or 
    redesignated by the EPA at 40 CFR part 81 in accordance with section 
    107(d) as having attained the relevant NAAQS for a given criteria 
    pollutant. An area can be an attainment area for some pollutants and a 
    nonattainment area for other pollutants.
        Attainment demonstration means the requirement in section 
    182(b)(1)(A) of the Act to demonstrate that the specific annual 
    emissions reductions included in a SIP are sufficient to attain the 
    primary NAAQS by the date applicable to the area.
        Directionally-sound strategies are strategies for which adequate 
    procedures to quantify emissions reductions or specify a program 
    baseline are not defined as part of the EIP.
        Discretionary economic incentive program means any EIP submitted to 
    the EPA as an implementation plan revision for purposes other than to 
    comply with the statutory requirements of sections 182(g)(3), 
    182(g)(5), 187(d)(3), or 187(g) of the Act.
        Economic incentive program (EIP) means a program which may include 
    State established emission fees or a system of marketable permits, or a 
    system of State fees on sale or manufacture of products the use of 
    which contributes to O3 formation, or any combination of the 
    foregoing or other similar measures, as well as incentives and 
    requirements to reduce vehicle emissions and vehicle miles traveled in 
    the area, including any of the transportation control measures 
    identified in section 108(f). Such programs may be directed toward 
    stationary, area, and/or mobile sources, to achieve emissions 
    reductions milestones, to attain and maintain ambient air quality 
    standards, and/or to provide more flexible, lower-cost approaches to 
    meeting environmental goals. Such programs are categorized into the 
    following three categories: Emission-limiting, market-response, and 
    directionally-sound strategies.
        Emission-limiting strategies are strategies that directly specify 
    limits on total mass emissions, emission-related parameters (e.g., 
    emission rates per unit of production, product content limits), or 
    levels of emissions reductions relative to a program baseline that are 
    required to be met by affected sources, while providing flexibility to 
    sources to reduce the cost of meeting program requirements.
        Indian governing body means the governing body of any tribe, band, 
    or group of Indians subject to the jurisdiction of the U.S. and 
    recognized by the U.S. as possessing power of self-government.
        Maintenance plan means an implementation plan for an area for which 
    the State is currently seeking designation or has previously sought 
    redesignation to attainment, under section 107(d) of the Act, which 
    provides for the continued attainment of the NAAQS.
        Market-response strategies are strategies that create one or more 
    incentives for affected sources to reduce emissions, without directly 
    specifying limits on emissions or emission-related parameters that 
    individual sources or even all sources in the aggregate are required to 
    meet.
        Milestones means the reductions in emissions required to be 
    achieved pursuant to section 182(b)(1) and the corresponding 
    requirements in section 182(c)(2) (B) and (C), 182(d), and 182(e) of 
    the Act for O3 nonattainment areas, as well as the reduction in 
    emissions of CO equivalent to the total of the specified annual 
    emissions reductions required by December 31, 1995, pursuant to section 
    187(d)(1).
        Mobile sources means on-road (highway) vehicles (e.g., automobiles, 
    trucks and motorcycles) and nonroad vehicles (e.g., trains, airplanes, 
    agricultural equipment, industrial equipment, construction vehicles, 
    off-road motorcycles, and marine vessels).
        National ambient air quality standard (NAAQS) means a standard set 
    by the EPA at 40 CFR part 50 under section 109 of the Act.
        Nonattainment area means any area of the country designated by the 
    EPA at 40 CFR part 81 in accordance with section 107(d) of the Act as 
    nonattainment for one or more criteria pollutants. An area could be a 
    nonattainment area for some pollutants and an attainment area for other 
    pollutants.
        Nondiscriminatory means that a program in one State does not result 
    in discriminatory effects on other States or sources outside the State 
    with regard to interstate commerce.
        Program baseline means the level of emissions, or emission-related 
    parameter(s), for each affected source or group of affected sources, 
    from which program results (e.g., quantifiable emissions reductions) 
    shall be determined.
        Program uncertainty factor means a factor applied to discount the 
    amount of emissions reductions credited in an implementation plan 
    demonstration to account for any strategy-specific uncertainties in an 
    EIP.
        Reasonable further progress (RFP) plan means any incremental 
    emissions reductions required by the CAA (e.g., section 182(b)) and 
    approved by the EPA as meeting these requirements.
        RFP baseline means the total of actual volatile organic compounds 
    or nitrogen oxides emissions from all anthropogenic sources in an 
    O3 nonattainment area during the calendar year 1990 (net of growth 
    and adjusted pursuant to section 182(b)(1)(B) of the Act), expressed as 
    typical O3 season, weekday emissions.
        Replicable refers to methods which are sufficiently unambiguous 
    such that the same or equivalent results would be obtained by the 
    application of the methods by different users.
        Rule compliance factor means a factor applied to discount the 
    amount of emissions reductions credited in an implementation plan 
    demonstration to account for less-than-complete compliance by the 
    affected sources in an EIP.
        Shortfall means the difference between the amount of emissions 
    reductions credited in an implementation plan for a particular EIP and 
    those that are actually achieved by that EIP, as determined through an 
    approved reconciliation process.
        State means State, local government, or Indian-governing body.
        State implementation plan (SIP) means a plan developed by an 
    authorized governing body, including States, local governments, and 
    Indian-governing bodies, in a nonattainment area, as required under 
    titles I & II of the Clean Air Act, and approved by the EPA as meeting 
    these same requirements.
        Stationary source means any building, structure, facility or 
    installation, other than an area or mobile source, which emits or may 
    emit any criteria air pollutant or precursor subject to regulation 
    under the Act.
        Statutory economic incentive program means any EIP submitted to the 
    EPA as an implementation plan revision to comply with sections 
    182(g)(3), 182(g)(5), 187(d)(3), or 187(g) of the Act.
        Surplus means, at a minimum, emissions 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 RFP or milestone demonstration, so as 
    to prevent the double-counting of emissions reductions.
        Transportation control measure (TCM) is any measure of the types 
    listed in section 108(F) of the Act, or any measure in an applicable 
    implementation plan directed toward reducing emissions of air 
    pollutants from transportation sources by a reduction in vehicle use or 
    changes in traffic conditions.
    
    
    Sec. 51.492  State program election and submittal.
    
        (a) Extreme O3 nonattainment areas. (1) A State or authorized 
    governing body for any extreme O3 nonattainment area shall submit 
    a plan revision to implement an EIP, in accordance with the 
    requirements of this part, pursuant to section 182(g)(5) of the Act, 
    if:
        (i) A required milestone compliance demonstration is not submitted 
    within the required period.
        (ii) The Administrator determines that the area has not met any 
    applicable milestone.
        (2) The plan revision in paragraph (a)(1) of this section shall be 
    submitted within 9 months after such failure or determination, and 
    shall be sufficient, in combination with other elements of the SIP, to 
    achieve the next milestone.
        (b) Serious CO nonattainment areas. (1) A State or authorized 
    governing body for any serious CO nonattainment area shall submit a 
    plan revision to implement an EIP, in accordance with the requirements 
    of this part, if:
        (i) A milestone demonstration is not submitted within the required 
    period, pursuant to section 187(d) of the Act.
        (ii) The Administrator notifies the State, pursuant to section 
    187(d) of the Act, that a milestone has not been met.
        (iii) The Administrator determines, pursuant to section 186(b)(2) 
    of the Act that the NAAQS for CO has not been attained by the 
    applicable date for that area. Such revision shall be submitted within 
    9 months after such failure or determination.
        (2) Submittals made pursuant to paragraphs (b)(1) (i) and (ii) of 
    this section shall be sufficient, together with a transportation 
    control program, to achieve the specific annual reductions in CO 
    emissions set forth in the implementation plan by the attainment date. 
    Submittals made pursuant to paragraph (b)(1)(iii) of this section shall 
    be adequate, in combination with other elements of the revised plan, to 
    reduce the total tonnage of emissions of CO in the area by at least 5 
    percent per year in each year after approval of the plan revision and 
    before attainment of the NAAQS for CO.
        (c) Serious and severe O3 nonattainment areas. If a State, for 
    any serious or severe O3 nonattainment area, elects to implement 
    an EIP in the circumstances set out in section 182(g)(3) of the Act, 
    the State shall submit a plan revision to implement the program in 
    accordance with the requirements of this part. If the option to 
    implement an EIP is elected, a plan revision shall be submitted within 
    12 months after the date required for election, and shall be 
    sufficient, in combination with other elements of the SIP, to achieve 
    the next milestone.
        (d) Any nonattainment or attainment area. Any State may at any time 
    submit a plan or plan revision to implement a discretionary EIP, in 
    accordance with the requirements of this part, pursuant to sections 
    110(a)(2)(A) and 172(c)(6) and other applicable provisions of the Act 
    concerning SIP submittals. The plan revision shall not interfere with 
    any applicable requirement concerning attainment and RFP, or any other 
    applicable requirements of the Act.
    
    
    Sec. 51.493  State program requirements.
    
        Economic incentive programs shall be State and federally 
    enforceable, nondiscriminatory, and consistent with the timely 
    attainment of NAAQS, all applicable RFP and visibility requirements, 
    applicable PSD increments, and all other applicable requirements of the 
    Act. Programs in nonattainment areas for which credit is taken in 
    attainment and RFP demonstrations shall be designed to ensure that the 
    effects of the program are quantifiable and permanent over the entire 
    duration of the program, and that the credit taken is limited to that 
    which is surplus. Statutory programs shall be designed to result in 
    quantifiable, significant reductions in actual emissions. The EIP's 
    shall include the following elements, as applicable:
        (a) Statement of goals and rationale. This element shall include a 
    clear statement as to the environmental problem being addressed, the 
    intended environmental and economic goals of the program, and the 
    rationale relating the incentive-based strategy to the program goals.
        (1) The statement of goals must include the goal that the program 
    will benefit both the environment and the regulated entities. The 
    program shall be designed so as to meaningfully meet this goal either 
    directly, through increased or more rapid emissions reductions beyond 
    those that would be achieved through a traditional regulatory program, 
    or, alternatively, through other approaches that will result in real 
    environmental benefits. Such alternative approaches include, but are 
    not limited to, improved administrative mechanisms, reduced 
    administrative burdens on regulatory agencies, improved emissions 
    inventories, and the adoption of emission caps which over time 
    constrain or reduce growth-related emissions beyond traditional 
    regulatory approaches.
        (2) The incentive-based strategy shall be described in terms of one 
    of the following three strategies:
        (i) Emission-limiting strategies, which directly specify limits on 
    total mass emissions, emission-related parameters (e.g., emission rates 
    per unit of production, product content limits), or levels of emissions 
    reductions relative to a program baseline that affected sources are 
    required to meet, while providing flexibility to sources to reduce the 
    cost of meeting program requirements.
        (ii) Market-response strategies, which create one or more 
    incentives for affected sources to reduce emissions, without directly 
    specifying limits on emissions or emission-related parameters that 
    individual sources or even all sources in the aggregate are required to 
    meet.
        (iii) Directionally-sound strategies, for which adequate procedures 
    to quantify emissions reductions are not defined.
        (b) Program scope. (1) This element shall contain a clear 
    definition of the sources affected by the program. This definition 
    shall address:
        (i) The extent to which the program is mandatory or voluntary for 
    the affected sources.
        (ii) Provisions, if any, by which sources that are not required to 
    be in the program may voluntarily enter the program.
        (iii) Provisions, if any, by which sources covered by the program 
    may voluntarily leave the program.
        (2) Any opt-in or opt-out provisions in paragraph (b)(1) of this 
    section shall be designed to provide mechanisms by which such program 
    changes are reflected in an area's attainment and RFP demonstrations, 
    thus ensuring that there will not be an increase in the emissions 
    inventory for the area caused by voluntary entry or exit from the 
    program.
        (3) The program scope shall be defined so as not to interfere with 
    any other Federal requirements which apply to the affected sources.
        (c) Program baseline. A program baseline shall be defined as a 
    basis for projecting program results and, if applicable, for 
    initializing the incentive mechanism (e.g., for marketable permits 
    programs). The program baseline shall be consistent with, and 
    adequately reflected in, the assumptions and inputs used to develop an 
    area's RFP plans and attainment and maintenance demonstrations, as 
    applicable. The State shall provide sufficient supporting information 
    from the areawide emissions inventory and other sources to justify the 
    baseline used in the EIP.
        (1) For EIP's submitted in conjunction with, or subsequent to, the 
    submission of any areawide progress plan due at the time of EIP 
    submission (e.g., the 15 percent RFP plan and/or subsequent 3 percent 
    plans) or an attainment demonstration, a State may exercise flexibility 
    in setting a program baseline provided the program baseline is 
    consistent with and reflected in all relevant progress plans or 
    attainment demonstration. A flexible program baseline may be based on 
    the lower of actual, allowable, or some other intermediate or lower 
    level of emissions. For any EIP submitted prior to the submittal of an 
    attainment demonstration, the State shall include the following with 
    its EIP submittal:
        (i) A commitment that its subsequent attainment demonstration and 
    all future progress plans, if applicable, will be consistent with the 
    EIP baseline.
        (ii) A discussion of how the baseline will be integrated into the 
    subsequent attainment demonstration, taking into account the potential 
    that credit issued prior to the attainment demonstration may no longer 
    be surplus relative to the attainment demonstration.
        (2) Except as provided for in paragraph (c)(4) of this section, for 
    EIP's submitted during a time period when any progress plans are 
    required but not yet submitted (e.g., the 15 percent RFP plan and/or 
    the subsequent 3 percent plans), the program baseline shall be based on 
    the lower-of-actual-or-allowable emissions. In such cases, actual 
    emissions shall be taken from the most appropriate inventory, such as 
    the 1990 actual emission inventory (due for submission in November 
    1992), and allowable emissions are the lower of SIP-allowable emissions 
    or the level of emissions consistent with source compliance with all 
    Federal requirements related to attainment and maintenance of the 
    NAAQS.
        (3) For EIP's that are designed to implement new and/or previously 
    existing RACT requirements through emissions trading and are submitted 
    in conjunction with, or subsequent to, the submission of an associated 
    RACT rule, a State may exercise flexibility in setting a program 
    baseline provided the program baseline is consistent with and reflected 
    in the associated RACT rule, and any applicable progress plans and 
    attainment demonstrations.
        (4) For EIP's that are designed to implement new and/or previously 
    existing RACT requirements through emissions trading and are submitted 
    prior to the submission of a required RFP plan or attainment 
    demonstration, States also have flexibility in determining the program 
    baseline, provided the following conditions are met.
        (i) For EIP's that implement new RACT requirements for previously 
    unregulated source categories through emissions trading, the new RACT 
    requirements must reflect, to the extent practicable, increased 
    emissions reductions beyond those that would be achieved through a 
    traditional RACT program.
        (ii) For EIP's that impose new RACT requirements on previously 
    unregulated sources in a previously regulated source category (e.g., 
    RACT ``catch-up'' programs), the new incentive-based RACT rule shall, 
    in the aggregate, yield reductions in actual emissions at least 
    equivalent to that which would result from source-by-source compliance 
    with the existing RACT limit for that source category.
        (5) A program baseline for individual sources shall, as 
    appropriate, be contained or incorporated by reference in federally-
    enforceable operating permits or a federally-enforceable SIP.
        (6) An initial baseline for TCM's shall be calculated by 
    establishing the preexisting conditions in the areas of interest. This 
    may include establishing to what extent TCM's have already been 
    implemented, what average vehicle occupancy (AVO) levels have been 
    achieved during peak and off-peak periods, what types of trips occur in 
    the region, and what mode choices have been made in making these trips. 
    In addition, the extent to which travel options are currently available 
    within the region of interest shall be determined. These travel options 
    may include, but are not limited to, the degree of dispersion of 
    transit services, the current ridership rates, and the availability and 
    usage of parking facilities.
        (7) Information used in setting a program baseline shall be of 
    sufficient quality to provide for at least as high a degree of 
    accountability as currently exists for traditional control requirements 
    for the categories of sources affected by the program.
        (d) Replicable emission quantification methods. This program 
    element, for programs other than those which are categorized as 
    directionally-sound, shall include credible, workable, and replicable 
    methods for projecting program results from affected sources and, where 
    necessary, for quantifying emissions from individual sources subject to 
    the EIP. Such methods, if used to determine credit taken in attainment, 
    RFP, and maintenance demonstrations, as applicable, shall yield results 
    which can be shown to have a level of certainty comparable to that for 
    source-specific standards and traditional methods of control strategy 
    development. Such methods include, as applicable, the following 
    elements:
        (1) Specification of quantification methods. This element shall 
    specify the approach or the combination or range of approaches that are 
    acceptable for each source category affected by the program. Acceptable 
    approaches may include, but are not limited to:
        (i) Test methods for the direct measurement of emissions, either 
    continuously or periodically.
        (ii) Calculation equations which are a function of process or 
    control system parameters, ambient conditions, activity levels, and/or 
    throughput or production rates.
        (iii) Mass balance calculations which are a function of inventory, 
    usage, and/or disposal records.
        (iv) EPA-approved emission factors, where appropriate and adequate.
        (v) Any combination of these approaches.
        (2) Specification of averaging times.
        (i) The averaging time for any specified mass emissions caps or 
    emission rate limits shall be consistent with: attaining and 
    maintaining all applicable NAAQS, meeting RFP requirements, and 
    ensuring equivalency with all applicable RACT requirements.
        (ii) If the averaging time for any specified VOC or NOX mass 
    emissions caps or emission rate limits for stationary sources (and for 
    other sources, as appropriate) is longer than 24 hours, the State shall 
    provide, in support of the SIP submittal, a statistical showing that 
    the specified averaging time is consistent with attaining the O3 
    NAAQS and satisfying RFP requirements, as applicable, on the basis of 
    typical summer day emissions; and, if applicable, a statistical showing 
    that the longer averaging time will produce emissions reductions that 
    are equivalent on a daily basis to source-specific RACT requirements.
        (3) Accounting for shutdowns and production curtailments. This 
    accounting shall include provisions which ensure that:
        (i) Emissions reductions associated with shutdowns and production 
    curtailments are not double-counted in attainment or RFP 
    demonstrations.
        (ii) Any resultant ``shifting demand'' which increases emissions 
    from other sources is accounted for in such demonstrations.
        (4) Accounting for batch, seasonal, and cyclical operations. This 
    accounting shall include provisions which ensure that the approaches 
    used to account for such variable operations are consistent with 
    attainment and RFP plans.
        (5) Accounting for travel mode choice options, as appropriate, for 
    TCM's. This accounting shall consider the factors or attributes of the 
    different forms of travel modes (e.g., bus, ridesharing) which 
    determine which type of travel an individual will choose. Such factors 
    include, but are not limited to, time, cost, reliability, and 
    convenience of the mode.
        (e) Source requirements. This program element shall include all 
    source-specific requirements that constitute compliance with the 
    program. Such requirements shall be appropriate, readily ascertainable, 
    and State and federally enforceable, including, as applicable:
        (1) Emission limits.
        (i) For programs that impose limits on total mass emissions, 
    emission rates, or other emission-related parameter(s), there must be 
    an appropriate tracking system so that a facility's limits are readily 
    ascertainable at all times.
        (ii) For emission-limiting EIP's that authorize RACT sources to 
    meet their RACT requirements through RACT/non-RACT trading, such 
    trading shall result in an exceptional environmental benefit. 
    Demonstration of an exceptional environmental benefit shall require 
    either the use of the statutory offset ratios for nonattainment areas 
    as the determinant of the amount of emissions reductions that would be 
    required from non-RACT sources generating credits for RACT sources or, 
    alternatively, a trading ratio of 1.1 to 1, at a minimum, may be 
    authorized, provided exceptional environmental benefits are otherwise 
    demonstrated.
        (2) Monitoring, recordkeeping, and reporting requirements.
        (i) An EIP (or the SIP as a whole) must contain test methods and, 
    where necessary, emission quantification methodologies, appropriate to 
    the emission limits established in the SIP. EIP sources must be subject 
    to clearly specified MRR requirements appropriate to the test methods 
    and any applicable quantification methodologies, and consistent with 
    the EPA's title V rules, where applicable. Such MRR requirements shall 
    provide sufficiently reliable and timely information to determine 
    compliance with emission limits and other applicable strategy-specific 
    requirements, and to provide for State and Federal enforceability of 
    such limits and requirements. Methods for MRR may include, but are not 
    limited to:
        (A) The continuous monitoring of mass emissions, emission rates, or 
    process or control parameters.
        (B) In situ or portable measurement devices to verify control 
    system operating conditions.
        (C) Periodic measurement of mass emissions or emission rates using 
    reference test methods.
        (D) Operation and maintenance procedures and/or other work 
    practices designed to prevent, identify, or remedy noncomplying 
    conditions.
        (E) Manual or automated recordkeeping of material usage, 
    inventories, throughput, production, or levels of required activities.
        (F) Any combination of these methods. EIP's shall require that 
    responsible parties at each facility in the EIP program certify 
    reported information.
        (ii) Procedures for determining required data, including the 
    emissions contribution from affected sources, for periods for which 
    required data monitoring is not performed, data are otherwise missing, 
    or data have been demonstrated to have been inaccurately determined.
        (3) Any other applicable strategy-specific requirements.
        (f) Projected results and audit/reconciliation procedures. (1) The 
    SIP submittal shall include projections of the emissions reductions 
    associated with the implementation of the program. These projected 
    results shall be related to and consistent with the assumptions used to 
    develop the area's attainment demonstration and maintenance plan, as 
    applicable. For programs designed to produce emissions reductions 
    creditable towards RFP milestones, projected emissions reductions shall 
    be related to the RFP baseline and consistent with the area's RFP 
    compliance demonstration. The State shall provide sufficient supporting 
    information that shows how affected sources are or will be addressed in 
    the emissions inventory, RFP plan, and attainment demonstration or 
    maintenance plan, as applicable.
        (i) For emission-limiting programs, the projected results shall be 
    consistent with the reductions in mass emissions or emissions-related 
    parameters specified in the program design.
        (ii) For market-response programs, the projected results shall be 
    based on market analyses relating levels of targeted emissions and/or 
    emission-related activities to program design parameters.
        (iii) For directionally-sound programs, the projected results may 
    be descriptive and shall be consistent with the area's attainment 
    demonstration or maintenance plan.
        (2) Quantitative projected results shall be adjusted through the 
    use of two uncertainty factors, as appropriate, to reflect 
    uncertainties inherent in both the extent to which sources will comply 
    with program requirements and the overall program design.
        (i) Uncertainty resulting from incomplete compliance shall be 
    addressed through the use of a rule compliance factor.
        (ii) Programmatic uncertainty shall be addressed through the use of 
    a program uncertainty factor. Any presumptive norms set by the EPA 
    shall be used unless an adequate justification for an alternative 
    factor is included in supporting information to be supplied with the 
    SIP submittal. In the absence of any EPA-specified presumptive norms, 
    the State shall provide an adequate justification for the selected 
    factors as part of the supporting information to be supplied with the 
    SIP submittal.
        (3) Unless otherwise provided in program-specific guidance issued 
    by the EPA, EIP's for which SIP credit is taken shall include audit 
    procedures to evaluate program implementation and track program results 
    in terms of both actual emissions reductions, and, to the extent 
    practicable, cost savings relative to traditional regulatory program 
    requirements realized during program implementation. Such audits shall 
    be conducted at specified time intervals, not to exceed three years. 
    The State shall provide timely post-audit reports to the EPA.
        (i) For emission-limiting EIP's, the State shall commit to ensure 
    the timely implementation of programmatic revisions or other measures 
    which the State, in response to the audit, deems necessary for the 
    successful operation of the program in the context of overall RFP and 
    attainment requirements.
        (ii) For market-response EIP's, reconciliation procedures that 
    identify a range of appropriate actions or revisions to program 
    requirements that will make up for any shortfall between credited 
    results (i.e., projected results, as adjusted by the two uncertainty 
    factors described above) and actual results obtained during program 
    implementation shall be submitted together with the program audit 
    provisions. Such measures must be federally enforceable, as 
    appropriate, and automatically executing to the extent necessary to 
    make up the shortfall within a specified period of time, consistent 
    with relevant RFP and attainment requirements.
        (g) Implementation schedule. The program shall contain a schedule 
    for the adoption and implementation of all State commitments and source 
    requirements included in the program design.
        (h) Administrative procedures. The program shall contain a 
    description of State commitments which are integral to the 
    implementation of the program, and the administrative system to be used 
    to implement the program, addressing the adequacy of the personnel, 
    funding, and legislative authority.
        (1) States shall furnish adequate documentation of existing legal 
    authority and demonstrated administrative capacity to implement and 
    enforce the provisions of the EIP.
        (2) For programs which require private and/or public entities to 
    establish emission-related economic incentives (e.g., programs 
    requiring employers to exempt carpoolers/multiple occupancy vehicles 
    from paying for parking), States shall furnish adequate documentation 
    of State authority and administrative capacity to implement and enforce 
    the underlying program.
        (i) Enforcement mechanisms. The program shall contain a compliance 
    instrument(s) for all program requirements, which is legally binding 
    and State and federally enforceable. This program element shall also 
    include a State enforcement program which defines violations, and 
    specifies auditing and inspections plans and provisions for enforcement 
    actions. The program shall contain effective penalties for 
    noncompliance which preserve the level of deterrence in traditional 
    programs. For all such programs, the manner of collection of penalties 
    must be specified.
        (1) Emission limit violations. (i) Programs imposing limits on mass 
    emissions or emission rates that provide for extended averaging times 
    and/or compliance on a multisource basis shall include procedures for 
    determining the number of violations, the number of days of violation, 
    and sources in violation, for statutory maximum penalty purposes, when 
    the limits are exceeded. The State shall demonstrate that such 
    procedures shall not lessen the incentive for source compliance as 
    compared to a program applied on a source-by-source, daily basis.
        (ii) Programs shall require plans for remedying noncompliance at 
    any facility that exceeds a multisource emissions limit for a given 
    averaging period. These plans shall be enforceable both federally and 
    by the State.
        (2) Violations of MRR requirements. The MRR requirements shall 
    apply on a daily basis, as appropriate, and violations thereof shall be 
    subject to State enforcement sanctions and to the Federal penalty of up 
    to $25,000 for each day a violation occurs or continues. In addition, 
    where the requisite scienter conditions are met, violations of such 
    requirements shall be subject to the Act's criminal penalty sanctions 
    of section 113(c)(2), which provides for fines and imprisonment of up 
    to 2 years.
    
    
    Sec. 51.494  Use of program revenues.
    
        Any revenues generated from statutory EIP's shall be used by the 
    State for any of the following:
        (a) Providing incentives for achieving emissions reductions.
        (b) Providing assistance for the development of innovative 
    technologies for the control of O3 air pollution and for the 
    development of lower-polluting solvents and surface coatings. Such 
    assistance shall not provide for the payment of more than 75 percent of 
    either the costs of any project to develop such a technology or the 
    costs of development of a lower-polluting solvent or surface coating.
        (c) Funding the administrative costs of State programs under this 
    Act. Not more than 50 percent of such revenues may be used for this 
    purpose. The use of any revenues generated from discretionary EIP's 
    shall not be constrained by the provisions of this part.
        3. Part 51 is amended by adding a new appendix X to read as 
    follows:
    
    Appendix X to Part 51--Examples of Economic Incentive Programs
    
    I. Introduction and Purpose
    
        This appendix contains examples of EIP's which are covered by 
    the EIP rules. Program descriptions identify key provisions which 
    distinguish the different model program types. The examples provide 
    additional information and guidance on various types of regulatory 
    programs collectively referred to as EIP's. The examples include 
    programs involving stationary, area, and mobile sources. The 
    definition section at 40 CFR 51.491 defines an EIP as a program 
    which may include State established emission fees or a system of 
    marketable permits, or a system of State fees on sale or manufacture 
    of products the use of which contributes to O3 formation, or 
    any combination of the foregoing or other similar measures, as well 
    as incentives and requirements to reduce vehicle emissions and 
    vehicle miles traveled in the area, including any of the 
    transportation control measures identified in section 108(f). Such 
    programs span a wide spectrum of program designs.
        The EIP's are comprised of several elements that, in combination 
    with each other, must insure that the fundamental principles of any 
    regulatory program (including accountability, enforceability and 
    noninterference with other requirements of the Act) are met. There 
    are many possible combinations of program elements that would be 
    acceptable. Also, it is important to emphasize that the 
    effectiveness of an EIP is dependent upon the particular area in 
    which it is implemented. No two areas face the same air quality 
    circumstances and, therefore, effective strategies and programs will 
    differ among areas.
        Because of these considerations, the EPA is not specifying one 
    particular design or type of strategy as acceptable for any given 
    EIP. Such specific guidance would potentially discourage States (or 
    other entities with delegated authority to administer parts of an 
    implementation plan) from utilizing other equally viable program 
    designs that may be more appropriate for their situation. Thus, the 
    examples given in this Appendix are general in nature so as to avoid 
    limiting innovation on the part of the States in developing programs 
    tailored to individual State needs.
        Another important consideration in designing effective EIP's is 
    the extent to which different strategies, or programs targeted at 
    different types of sources, can complement one another when 
    implemented together as an EIP ``package.'' The EPA encourages 
    States to consider packaging different measures together when such a 
    strategy is likely to increase the overall benefits from the program 
    as a whole. Furthermore, some activities, such as information 
    distribution or public awareness programs, while not EIP's in and of 
    themselves, are often critical to the success of other measures and, 
    therefore, would be appropriate complementary components of a 
    program package. All SIP emissions reductions credits should reflect 
    a consideration of the effectiveness of the entire package.
    
    II. Examples of Stationary and Mobile Source Economic Incentive 
    Strategies
    
        There is a wide variety of programs that fall under the general 
    heading of EIP's. Further, within each general type of program are 
    several different basic program designs. This section describes 
    common types of EIP's that have been implemented, designed, or 
    discussed in the literature for stationary and mobile sources. The 
    program types discussed below do not include all of the possible 
    types of EIP's. Innovative approaches incorporating new ideas in 
    existing programs, different combinations of existing program 
    elements, or wholly new incentive systems provide additional 
    opportunities for States to find ways to meet environmental goals at 
    lower total cost.
    
    A. Emissions Trading Markets
    
        One prominent class of EIP's is based upon the creation of a 
    market in which trading of source-specific emissions requirements 
    may occur. Such programs may include traditional rate-based 
    emissions limits (generally referred to as emissions averaging) or 
    overall limits on a source's total mass emissions per unit of time 
    (generally referred to as an emissions cap). The emissions limits, 
    which may be placed on individual emitting units or on facilities as 
    a whole, may decline over time. The common feature of such programs 
    is that sources have an ongoing incentive to reduce pollution and 
    increased flexibility in meeting their regulatory requirements. A 
    source may meet its own requirements either by directly preventing 
    or controlling emissions or by trading or averaging with another 
    source. Trading or averaging may occur within the same facility, 
    within the same firm, or between different firms. Sources with lower 
    cost abatement alternatives may provide the necessary emissions 
    reductions to sources facing more expensive alternatives. These 
    programs can lower the overall cost of meeting a given total level 
    of abatement. All sources eligible to trade in an emissions market 
    are faced with continuing incentives to find better ways of reducing 
    emissions at the lowest possible cost, even if they are already 
    meeting their own emissions requirements.
        Stationary, area, and mobile sources could be allowed to 
    participate in a common emissions trading market. Programs involving 
    emissions trading markets are particularly effective at reducing 
    overall costs when individual affected sources face significantly 
    different emissions control costs. A wider range in control costs 
    among affected sources creates greater opportunities for cost-
    reducing trades. Thus, for example, areas which face relatively high 
    stationary source control costs relative to mobile source control 
    costs benefit most by including both stationary and mobile sources 
    in a single emissions trading market.
        Programs involving emissions trading markets have generally been 
    designated as either emission allowance or emission reduction credit 
    (ERC) trading programs. The Federal Acid Rain Program is an example 
    of an emission allowance trading program, while ``bubbles'' and 
    ``generic bubbles'' created under the EPA's 1986 Emission Trading 
    Policy Statement are examples of ERC trading. Allowance trading 
    programs can establish emission allocations to be effective at the 
    start of a program, at some specific time in the future, or at 
    varying levels over time. An ERC trading program requires ERC's to 
    be measured against a pre-established emission baseline. Allowance 
    allocations or emission baselines can be established either directly 
    by the EIP rules or by reference to traditional regulations (e.g., 
    RACT requirements). In either type of program, sources can either 
    meet their EIP requirements by maintaining their own emissions 
    within the limits established by the program, or by buying surplus 
    allowances or ERC's from other sources. In any case, the State will 
    need to establish adequate enforceable procedures for certifying and 
    tracking trades, and for monitoring and enforcing compliance with 
    the EIP.
        The definition of the commodity to be traded and the design of 
    the administrative procedures the buyer and seller must follow to 
    complete a trade are obvious elements that must be carefully 
    selected to help ensure a successful trading market that achieves 
    the desired environmental goal at the lowest cost. An emissions 
    market is defined as efficient if it achieves the environmental goal 
    at the lowest possible total cost. Any feature of a program that 
    unnecessarily increases the total cost without helping achieve the 
    environmental goals causes market inefficiency. Thus, the design of 
    an emission trading program should be evaluated not only in terms of 
    the likelihood that the program design will ensure that the 
    environmental goals of the program will be met, but also in terms of 
    the costs that the design imposes upon market transactions and the 
    impact of those costs on market efficiency.
        Transaction costs are the investment in time and resources to 
    acquire information about the price and availability of allowances 
    or ERC's, to negotiate a trade, and to assure the trade is properly 
    recorded and legally enforceable. All trading markets impose some 
    level of transaction costs. The level of transaction costs in an 
    emissions trading market are affected by various aspects of the 
    design of the market, such as the nature of the procedures for 
    reviewing, approving, and recording trades, the timing of such 
    procedures (i.e., before or after the trade is made), uncertainties 
    in the value of the allowance or credit being traded, the legitimacy 
    of the allowance or credit being offered for sale, and the long-term 
    integrity of the market itself. Emissions trading programs in which 
    every transaction is different, such as programs requiring 
    significant consideration of the differences in the chemical 
    properties or geographic location of the emissions, can result in 
    higher transaction costs than programs with a standardized trading 
    commodity and well-defined rules for acceptable trades. Transaction 
    costs are also affected by the relative ease with which information 
    can be obtained about the availability and price of allowances or 
    credits.
        While the market considerations discussed above are clearly 
    important in designing an efficient market to minimize the 
    transaction costs of such a program, other considerations, such as 
    regulatory certainty, enforcement issues, and public acceptance, 
    also clearly need to be factored into the design of any emissions 
    trading program.
    
    B. Fee Programs
    
        A fee on each unit of emissions is a strategy that can provide a 
    direct incentive for sources to reduce emissions. Ideally, fees 
    should be set so as to result in emissions being reduced to the 
    socially optimal level considering the costs of control and the 
    benefits of the emissions reductions. In order to motivate a change 
    in emissions, the fees must be high enough that sources will 
    actively seek to reduce emissions. It is important to note that not 
    all emission fee programs are designed to motivate sources to lower 
    emissions. Fee programs using small fees are designed primarily to 
    generate revenue, often to cover some of the administrative costs of 
    a regulatory program.
        There can be significant variations in emission fee programs. 
    For example, potential emissions could be targeted by placing a fee 
    on an input (e.g., a fee on the quantity and BTU content of fuel 
    used in an industrial boiler) rather than on actual emissions. 
    Sources paying a fee on potential emissions could be eligible for a 
    fee waiver or rebate by demonstrating that potential emissions are 
    not actually emitted, such as through a carbon absorber system on a 
    coating operation.
        Some fee program variations are designed to mitigate the 
    potentially large amount of revenue that a fee program could 
    generate. Although more complex than a simple fee program, programs 
    that reduce or eliminate the total revenues may be more readily 
    adopted in a SIP than a simple emission fee. Some programs lower the 
    amount of total revenues generated by waiving the fee on some 
    emissions. These programs reduce the total amount of revenue 
    generated, while providing an incentive to decrease emissions. 
    Alternatively, a program may impose higher per-unit fees on a 
    portion of the emissions stream, providing a more powerful but 
    targeted incentive at the same revenue levels. For example, fees 
    could be collected on all emissions in excess of some fixed level. 
    The level could be set as a percentage of a baseline (e.g., fees on 
    emissions above some percentage of historical emissions), or as the 
    lowest emissions possible (e.g., fees on emissions in excess of the 
    lowest demonstrated emissions from the source category).
        Other fee programs are ``revenue neutral,'' meaning that the 
    pollution control agency does not receive any net revenues. One way 
    to design a revenue-neutral program is to have both a fee provision 
    and a rebate provision. Rebates must be carefully designed to avoid 
    lessening the incentive provided by the emission fee. For example, a 
    rebate based on comparing a source's actual emissions and the 
    average emissions for the source category can be designed to be 
    revenue neutral and not diminish the incentive.
        Other types of fee programs collect a fee in relation to 
    particular activities or types of products to encourage the use of 
    alternatives. While these fees are not necessarily directly linked 
    to the total amount of emissions from the activity or product, the 
    relative simplicity of a usage fee may make such programs an 
    effective way to lower emissions. An area source example is a 
    construction permit fee for wood stoves. Such a permit fee is 
    directly related to the potential to emit inherent in a wood stove, 
    and not to the actual emissions from each wood stove in use. Fees on 
    raw materials to a manufacturing process can encourage product 
    reformulation (e.g., fees on solvent sold to makers of architectural 
    coatings) or changes in work practices (e.g., fees on specialty 
    solvents and degreasing compounds used in manufacturing).
        Road pricing mechanisms are fee programs that are available to 
    curtail low occupancy vehicle use, fund transportation system 
    improvements and control measures, spatially and temporally shift 
    driving patterns, and attempt to effect land usage changes. Primary 
    examples include increased peak period roadway, bridge, or tunnel 
    tolls (this could also be accomplished with automated vehicle 
    identification systems as well), and toll discounts for pooling 
    arrangements and zero-emitting/low-emitting vehicles.
    
    C. Tax Code and Zoning Provisions
    
        Modifications to existing State or local tax codes, zoning 
    provisions, and land use planning can provide effective economic 
    incentives. Possible modifications to encourage emissions reductions 
    cover a broad span of programs, such as accelerated depreciation of 
    capital equipment used for emissions reductions, corporate income 
    tax deductions or credits for emission abatement costs, property tax 
    waivers based on decreasing emissions, exempting low-emitting 
    products from sales tax, and limitations on parking spaces for 
    office facilities. Mobile source strategies include waiving or 
    lowering any of the following for zero- or low-emitting vehicles: 
    vehicle registration fees, vehicle property tax, sales tax, taxicab 
    license fees, and parking taxes.
    
    D. Subsidies
    
        A State may create incentives for reducing emissions by offering 
    direct subsidies, grants or low-interest loans to encourage the 
    purchase of lower-emitting capital equipment, or a switch to less 
    polluting operating practices. Examples of such programs include 
    clean vehicle conversions, starting shuttle bus or van pool 
    programs, and mass transit fare subsidies. Subsidy programs often 
    suffer from a variety of ``free rider'' problems. For instance, 
    subsidies for people or firms who were going to switch to the 
    cleaner alternative anyway lower the effectiveness of the subsidy 
    program, or drive up the cost of achieving a targeted level of 
    emissions reductions.
    
    E. Transportation Control Measures
    
        The following measures are the TCM's listed in section 108(f):
        (i) Programs for improved public transit;
        (ii) Restriction of certain roads or lanes to, or construction 
    of such roads or lanes for use by, passenger buses or high occupancy 
    vehicles;
        (iii) Employer-based transportation management plans, including 
    incentives;
        (iv) Trip-reduction ordinances;
        (v) Traffic flow improvement programs that achieve emission 
    reductions;
        (vi) Fringe and transportation corridor parking facilities 
    serving multiple-occupancy vehicle programs or transit service;
        (vii) Programs to limit or restrict vehicle use in downtown 
    areas or other areas of emission concentration particularly during 
    periods of peak use;
        (viii) Programs for the provision of all forms of high-
    occupancy, shared-ride services;
        (ix) Programs to limit portions of road surfaces or certain 
    sections of the metropolitan area to the use of non-motorized 
    vehicles or pedestrian use, both as to time and place;
        (x) Programs for secure bicycle storage facilities and other 
    facilities, including bicycle lanes, for the convenience and 
    protection of bicyclists, in both public and private areas;
        (xi) Programs to control extended idling of vehicles;
        (xii) Programs to reduce motor vehicle emissions, consistent 
    with title II, which are caused by extreme cold start conditions;
        (xiii) Employer-sponsored programs to permit flexible work 
    schedules;
        (xiv) Programs and ordinances to facilitate non-automobile 
    travel, provision and utilization of mass transit, and to generally 
    reduce the need for single-occupant vehicle travel, as part of 
    transportation planning and development efforts of a locality, 
    including programs and ordinances applicable to new shopping 
    centers, special events, and other centers of vehicle activity;
        (xv) Programs for new construction and major reconstruction of 
    paths, tracks or areas solely for the use by pedestrian or other 
    non-motorized means of transportation when economically feasible and 
    in the public interest. For purposes of this clause, the 
    Administrator shall also consult with the Secretary of the Interior; 
    and
        (xvi) Programs to encourage the voluntary removal from use and 
    the marketplace of pre-1980 model year light-duty vehicles and pre-
    1980 model light-duty trucks.
    
    [FR Doc. 94-6828 Filed 4-6-94; 8:45 am]
    BILLING CODE 6560-50-P
    
    
    

Document Information

Effective Date:
4/7/1994
Published:
04/07/1994
Entry Type:
Uncategorized Document
Action:
Final rule and guidance.
Document Number:
94-6828
Dates:
The regulations in this rulemaking go into effect on April 7, 1994.
Pages:
0-0 (1 pages)
Docket Numbers:
Federal Register: April 7, 1994
CFR: (5)
40 CFR 51.490
40 CFR 51.491
40 CFR 51.492
40 CFR 51.493
40 CFR 51.494