Pareto Policy Solutions, LLC

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Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

The Ozone Standard: State Implementation

EPA has proposed lowering the primary standard for ozone (a major component of smog) from 75 parts per billion (ppb) to somewhere between 60 and 70 ppb.  If it is finalized, this regulation will be very costly, among the most expensive ever issued.

Should the Agency lower the current standard, attainment depends crucially on implementation by the states. And implementation is where the cost of attaining the standard comes into play.

This is how the implementation process works. States recommend designations for areas within its borders (attainment or non-attainment, and classification of the severity of non-attainment), usually within one year after a new standard is set.  EPA promulgates final areas designations, generally within two years of a new standard.  States then review and modify, if needed, the current state implementation plan (SIP).  “Infrastructure SIPs” (which contain basic program elements such as emission inventories, air quality modeling, monitoring, enforcement capability, etc.) are usually due within 3 years after a new standard is finalized.  “Attainment SIPs”—only for non-attainment areas—are usually due within 3-4 years after EPA finalized designations. 

Attainment SIPs must include a baseline analysis of expected air quality based on existing in-place measures, regulations, etc., an analysis of relevant emissions of ozone precursors—nitrogen oxides (NOx) and volatile organic compounds (VOC)—and a determination of reasonably available control measures (RACM) and reasonably available control technologies (RACT) that can be implemented by the emission sources.  Attainment demonstrations must include an analysis showing that no additional measures will lead to faster attainment.  These attainment SIPs must achieve “reasonable further progress” (RFP) toward meeting attainment by a date certain. 

In addition, the Clean Air Act and EPA regulations establish pre-construction review and permit programs for both new major stationary sources and major modification of existing stationary sources. These pre-construction review and permit programs are part of each state SIP.  Under the Non-attainment New Source Review (NNSR) program, new and modified sources in non-attainment areas must employ the Lowest Achievable Emission Reduction (LAER) and purchase “offsets” (emission reductions obtained from existing sources located nearby). Under the Prevention of Significant Deterioration (PSD) program (for attainment or maintenance areas), such sources require the application of Best Achievable Control Technology (BACT) plus an analysis to show the source will not contribute to a violation.  (Offsets may be utilized to ensure no violation). 

Another implementation issue is conformity, which applies to current non-attainment areas or in non-attainment areas that have previously come into attainment (maintenance areas).  Transportation conformity is a process to ensure that federal transportation projects will not cause or contribute to new air quality violations.  After an area is initially designated as non-attainment, a metropolitan planning organization and the Department of Transportation must make a conformity determination within one year, or a “conformity lapse” occurs, under which only certain projects can receive additional federal funding.  General conformity is a process to ensure that federal activities not covered under transportation conformity do not cause or contribute to air quality violations.  EPA has developed procedures under which certain federal activities are excluded from conformity requirements (e.g., projects where emissions are expected to be de minimis, certain activities are “presumed to conform”).

Complicating the challenge for states is the issue of background.  “US background” refers to the amount of ozone that is beyond the control of the United States:  either because of natural events (e.g., wild fires or stratospheric transport) or international transport.  According to EPA, in recent years between 25 ppb and 50 ppb of ground-level ozone is due to background, which varies by geography.  Rural areas in the intermountain west tend to have the highest percentage of background levels, whereas states along the east coast tend to have the least.  Eastern states may also be significantly impacted by emissions from upwind states.  A state cannot completely avoid a non-attainment designation or certain emission control requirements simply because of high background levels.

Air quality modeling plays a critical role in ozone implementation.  Designations, attainment SIPs, conformity, NSR, and estimates of US background -- all rely on sophisticated air quality modeling, which is sensitive to the assumptions underlying the model.

Perhaps the most important thing to keep in mind is that states differ in their ozone levels and in their degree of control over ozone precursors.  Depending on its unique features, a state may find itself arguing for greater control of emissions from other countries or from upwind states, for greater federal regulation of mobile source emissions, for lesser penalties if non-attainment is not reached, for more time to achieve compliance, for more accurate air quality models, and/or for greater flexibility in determining emission controls within its borders. 

If all of this sounds prescriptive, it is.  The statutory language of the Clean Air Act provides limited flexibility to EPA in setting a standard and in regulating emissions that contribute to violations of the standard.  Every time the ozone standard is lowered, EPA is under pressure to provide states and sources with additional flexibility to lessen the growing cost of this regulatory program. 

It is unclear how much additional flexibility, if any, can be allowed under the Act.  From an economics perspective, it would be good to provide states with the flexibility to direct resources where ozone levels can be reduced most cost-effectively.  This means directing resources toward those parts of the country where reduction in man-made emissions of pollutants will have the biggest impact in reducing human exposure to the highest levels of ozone.  To not do this would sacrifice human health as well as job creation.


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