This is a preliminary document prepared by a subgroup of members of the Base Programs Analyses and Policies Work Group as part of the Federal Advisory Committee Act (FACA) Subcommittee process. It is not an EPA document. It is subject to work group discussion. Interested persons should forward their comments to a member of the Base Programs Analyses and Policies Work Group or to the contact person shown below.

Sanctions

Date: January 22, 1997

Contact: Stephen Gerritson, LADCO, 847-296-2181

Status Line: Draft #1. Not yet discussed with Workgroup

Introduction

The goals of this paper are to create a climate for encouraging early reductions and preparation of state implementation plans (SIPs) and for discouraging delays and missed deadlines in the preparation and implementation of plans. The options presented in this paper are intended to supplement the existing set of sanctions provided by the Clean Air Act.

Note: This paper builds on the Economic Incentives and Disincentives as an Adjunct to Sanctions paper by Steve Gerritson (November 15, 1996?). Incentives for early actions by states and sources will be addressed in the forthcoming Safe Harbors/Early Incentives and Economic Incentives issue papers.

Background

Traditionally, a "sanctions clock" starts for a state when the EPA does one or more of the following: 1) finds that a state has failed to submit a state implementation plan (SIP) or one or more elements of the plan; 2) disapproves a submitted SIP (in whole or in part); 3) determines that a state has failed to submit any other Title I requirement, including an adequate maintenance plan; or 4) finds that any requirement of an approved SIP is not being implemented. If the state does not correct the deficiency within 18 months, the EPA may either impose a prohibition of federal highway fund approval or increase the offset ratio for new or modified sources in nonattainment areas to at least 2:1. The sanction would be applied until the EPA determines that the state has come into compliance. Furthermore, if the EPA finds a "lack of good faith," both of the sanctions would be applied until the state comes into compliance. In addition to offset and highway sanctions, the EPA may withhold section 105 funds to state air quality agencies.

The EPA may promulgate a federal implementation plan (FIP) within two years after finding that a state has failed to submit a SIP or determining that a state has submitted an inadequate SIP.

Within six months, the EPA must determine whether an area has attained the NAAQS by the applicable date based on air quality data. After this determination, states have one year to submit a revised SIP which must include additional measures prescribed by the EPA.

To be added: where have sanctions been applied and what effects have they had?

Proposed Incentives

A.	Principles

The assumptions or principles used to develop the proposed incentives are as follows:

1) no proposal should make any situation any worse (i.e. no backsliding);

2) positive incentives should encourage early compliance (states should not be rewarded	for merely meeting the deadlines); and

3) negative incentives should be applicable immediately and should "fit the crime."

B.	Positive Incentives

Several incentives or "rewards" are seen as possibilities in encouraging states toward early compliance with planning requirements. A reduced offset ratio could be granted to those areas which require offsets, making it easier to attract new industry. As an alternative, additional offset credits could be granted, although a pool of offset credits would have to be established. Finally, increased flexibility could be granted, either through a variation on the Flexible Attainment Region concept, whereby states are granted extra time to deal with future violations in a flexible manner, or through "trading" certain mandatory but onerous measures (such as NOx, RACT, NSR, or conformity) for other equivalent but less distasteful ones.

Reduced offset ratios: A state which complied with its requirements earlier than the deadline (just how early would qualify is an unanswered question) could be rewarded by a reduction in its offset ratio for new sources. Currently, (and presumably under the new AOV/AOI system), new sources locating within a nonattainment area must find offsets for their projected emissions at a ratio greater than one, depending upon the severity of the area's classification. That is, for every ton the new source would emit, reductions in "old" sources of 1.2 to 1.5 tons must be found. Reducing this ratio would make attracting new industry easier, and would help prevent the flight of new sources to attainment areas, where their emissions are uncontrolled.

Additional offset credits: States requiring offsets for new sources often maintain a bank or pool of credits, obtained from shutdowns, penalties, etc. States which meet the early compliance requirements could be awarded additional offset credits for this pool. These credits could be generated through setasides from USEPA's Open Market Trading Program, through penalties on others, or by some other means.

Flexible response: Currently, a state which has been redesignated to attainment and then experiences violations of the standard must implement a contingency plan which includes automatic measures. Flexible attainment regions (of which there are now three) have additional time to "cure" the violation in a more flexible manner, through a combination of voluntary and required measures. We suggest that states which met the early compliance requirements could be granted a similar flexibility in meeting their emissions reductions requirements. This could include a variation on the FAR concept, or relief from specific measures, such as Nox RACT, provided that equivalent reductions were made.

C. Negative Incentives

As noted above, negative incentives are intended to be applied immediately upon a missed deadline, and should be seen as appropriate punishment for the "crime," but not so onerous as to cause a political response. These could range, depending upon the offense committed, from accelerated future deadlines to additional requirements, such as lower RACT thresholds, denial of variances or AELs, discounted credits, or reduction requirements imposed on the agencies of the state.

Accelerated future deadlines: For a minor first offense, the state could be told that the next deadline has been moved up six months, to ensure that it would not be missed.

Lower RACT thresholds: Depending upon the severity of the nonattainment area, sources above a certain minimum (25 to 100 tons per year) are required to install RACT. A state which failed to meet a deadline for filing could have this minimum reduced. This would have the added advantage of creating a lobbying group among industry for meeting the deadline.

Denial of variances or AELs: Variances and alternative emission limits are a form of flexibility which USEPA and the states can grant under certain circumstances. Failure to meet deadlines could result in the loss of this flexibility.

Discounted credits: Under a trading program, emission reduction credits would be banked at a certain value (generally par, unless there is an environmental setaside). States failing to meet their deadlines could have these banked credits discounted by some percentage. (Possible legal problem here?)

Additional requirements on state agencies: Since it would be the state, rather than emission sources, which missed the deadline, perhaps it should be the state agencies which must generate the extra reductions. This could be done through the imposition of mandatory carpooling or some other VMT reduction program, acceleration of the AFV program, etc.

Issues

1. Sanctions for failing to plan or participate in multi-state planning bodies?

2. Sanctions for failing to implement by the applicable dates?

3. Sanctions for failing to attain by the applicable date?

4. Where would sanctions/incentives be applied? (e.g, states, AOIs, AOVs, RAMPs, etc.)