September 12, 1996

Dear Mr. Schaefer:

This is a response to the issue paper titled "Discussion of New Source Review Program Considerations With New Air Quality Standards/Regulations" prepared by the Base Programs Analysis and Policies Work Group and dated 8/27/96. On behalf of the Economics Advisory Group consisting of Alan Krupnick, Deirdre Farrell, Rosalina Rodriguez, Ron Evans, Scott Mathias, Richard Chastain, Ed Watts, and Jane Hall, we would like to offer the following comments.

Background Section

We believe it would be useful for your discussion here to focus more on the historical impetus for the existence of special programs for controlling emissions from new sources, and less on the details of specific programs. Moreover, we believe it would be useful for your work group to included in this section a discussion of your philosophy or principles for controlling emissions from new and/or modified sources. EPA would benefit from an understanding of this philosophy or these principles, especially if the subcommittee recommends treating new and/or modified sources differently than existing sources. Lacking a clear understanding of the goal of new and/or modified source controls, EPA cannot evaluate how effective each option is at achieving the goal. We believe that any strategy for controlling emissions from new sources should be based on principles that: (1) allow site-specific ambient impacts to be addressed apart from the area-wide control scheme; and (2) provide a continuous incentive to move production toward less polluting processes if an area needs additional reductions.

Option 1 - The same planning and control requirements would be required for all sources in an AOI. This option addresses competitive equity (i.e., eliminates permit shopping) in the AOI. However, not all sources contribute equally to the AOV problem, and so it is not equitable to require all sources to control to the same level. This means this option, in addition to being the highest cost, as you have indicated, is also likely to be the least cost- effective. We think this point should be listed as a disadvantage for this option.

Option 2 - Different planning and control requirements would apply within the AOV. We suggest removing the example in the discussion of this option and instead focus on the overall concept. The example tends to reinforce consideration of the complexity and problems with the existing program and detracts from the basic elements of the option. We believe one unlisted advantage of this option is that it allows planners to use whatever modeling/monitoring information is available to make more equitable (see definition above) decisions about control requirements. However, as you point out, there may be "substantial difficulty and complexity in identifying the relevant areas of AOIs and sources to control."

Option 2a - Provide a rebuttable presumption for sources subject to controls in an AOI. This option could be a feature of any of the new source control options listed in your paper. While we do not wish to preclude this feature a priori, we suspect that it would be very difficult to demonstrate the effect of emissions from a single new and/or modified source on the AOV. Perhaps this feature would be more realistic if it included the principle that new and/or modified sources should be required, at a minimum, to offset their emissions until sound single-source modeling tools exist.

Option 3 - New/modified major sources in AOI must meet NSPS and offset requirements; minor sources subject to NSR. This option seems to be an example of how the broad concept of Option 2 might be implemented, i.e., different requirements for different sources in the AOI. It is not clear how the planks of this option form the bridge to Option 4. If you intend to suggest ways of implementing Option 2, we suggest listing a wide variety of schemes as suboptions under Option 2. Some of those schemes might entail creating a cap-and-trade program for some sectors of the overall emissions budget (see our comments on Option 4 below--e.g., impose a RECLAIM-type cap program on major sources and allow other sources to opt in if they get an allocation from the state).

Option 4 - Cap-and-trade system for all new and existing sources in the AOI regardless of source category. We believe that including new sources in a cap-and-trade program is a promising possibility. However, we do not believe that a cap-and-trade system for all new and existing sources is reasonable. An emissions cap program works best for well defined, easily measured pollutants from relatively large sources. It may be impossible to administer and enforce a cap on area and mobile sources. We agree, though, that elements of flexibility should be afforded to all source types, including area and mobile sources, regardless of whether they can be included in a cap program. Your group might explore a hybrid system (see our comments on Option 3 above) which might include an emissions fee program for these source types.