On September 7, 2016, the United States Environmental Protection Agency (EPA) issued a final rule updating the Cross-State Air Pollution Rule (CSAPR) ozone season trading program.  The rule promulgates more stringent ozone season NOx budgets in several states.  CSAPR was promulgated to implement the “good neighbor” provision of the Clean Air Act, which requires states to address the transport of pollution across state lines.

The new rule seeks to help downwind areas in the eastern United States meet and maintain the 2008 ozone national ambient air quality standard (NAAQS).  It does this by setting stricter trading program budgets for ozone season nitrogen oxide (NOx) emissions from electric generating units (EGUs) in 22 states.  NOx is known to react in the atmosphere to create ozone pollution, particularly in the summer months.  The rule adopts new federal implementation plans (FIPs) for 22 states: Alabama, Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.  The FIPs update the NOx ozone season emission budgets belonging to each of the states’.  The new, stricter budgets will be implemented through the existing CSAPR NOx ozone season allowance trading program and will go into effect beginning with the 2017 ozone season, May 1 – September 30, 2017.

EPA promulgated the rule in part because it had to respond to a July 28, 2015, remand by the D.C. Circuit.  That remand called for EPA to reexamine the Phase 2 CSAPR ozone season NOx budgets that EPA had originally set for 11 states.  The rule withdraws the previous Phase 2 ozone season NOx budgets for the 11 states.   The rule sets new budgets for eight of the states (Maryland, New Jersey, New York, Ohio, Pennsylvania, Texas, Virginia, and West Virginia).  It removes the remaining three states (North Carolina, South Carolina, and Florida) from the program based on modeling indicating that the states do not contribute significantly to ozone air quality problems in downwind states.

EPA grappled with hard issues when formulating the final rule.  One was whether and how the relatively large number of banked NOx ozone season allowances under the original trading program could be used as compliance allowances under the updated program.  Under the final rule, a one-time allowance conversion will transition a limited number of banked 2015 and 2016 allowances to compliance allowances in the states impacted by the new rule.  The conversion limits the number of banked allowances to the equivalent of 1.5 years of the states’ aggregated CSAPR variability limits (approximately 99,700) to ensure that the updated trading program will result in NOx reductions sufficient to help achieve compliance with the 2008 ozone NAAQS in downwind states.  EPA will make the one-time conversion of banked 2015 and 2016 allowances using a calculated ratio in early 2017 so that they may be used for compliance starting with the 2017 ozone season.