EPA Approves New Jersey Generic Bubble Rule, Develops Consolidated Guidance for Controlled Trading Program

Ever since national programs to control pollution were first considered, policy makers and scholars have argued about whether the force of law, through regulation, or the force of the market, through economic incentives, would be the more effective and efficient approach.¹ The arguments for regulation are that it is a more direct and certain means of attaining environmental quality goals because it works through clear, measurable standards which specify exactly how much each polluter may emit, and that it demonstrates clearly the national moral commitment to eradicating pollution. The counter argument is that economic tools, such as a fee or tax on each pound of pollution, can be equally effective (people are as likely to respond to economic pressures as they are to obey the law) and can achieve any given level of pollution control at a lower cost.² It is also argued that economic systems are more efficient over the long run because while regulation encourages the search for cheaper ways of meeting a given standard, economic charges encourage a constant search for less expensive ways of reducing pollution to the lowest level possible. The proponents of regulation have largely prevailed in this debate. The Clean Air Act Amendments of 1970 and the Federal Water Pollution Control Act Amendments of 1972 rely almost exclusively on regulation to achieve their goals. Economic considerations are taken into account in developing many of the pollution control standards required by these acts, but in most cases only to avoid large-scale economic disruption such as numerous plant closings.³ This regulatory approach, unlike the economic approach, does not endeavor to identify the least-cost strategy for achieving air or water quality goals. In fact, the regulatory approach is considered by some to be inherently incapable of achieving the least cost result because it would assign regulators the impossible task of judging the optimal method and level of pollution control for each individual source.⁴

By the late 1970s, the conviction had spread that the regulatory approach to pollution control was simply too expensive. With hundreds of billions of dollars already invested in pollution controls, hundreds of billions more estimated to be required, and the economy in a sustained slowdown, pressure developed to cut the cost of environmental protection. The available options include relaxing basic environmental quality goals and the pollution control standards designed to implement them, selectively relaxing those pollution control standards which make a disproportionately small contribution to attainment of environmental goals, and finding more cost-effective ways of meeting the control standards. The last of the three remedies has appeal for environmentalists because it can cut costs while leaving the basic environmental goals and implementing standards intact. It has appeal for industry because it can cut costs, whatever set of environmental quality and pollution control standards are in force.

The controlled trading program developed by the Environmental Protection Agency (EPA) over the last several years is an initiative designed to make air pollution control regulation more cost-effective without sacrificing air quality goals. The program has three components: the "bubble policy," the "emission offset policy," and "emission reduction banking and trading."⁵ While each of the programs has different objectives, they are alike in that they make regulation more sensitive to the differences in emission control costs at different sources of a given pollutant. They attempt to accomplish this without the excessive administrative burdens cited by early critics of the regulatory approach by having industry rather than government provide the expertise in source-specific control technology and costs needed to identify cost-effective control programs.In the last few months, EPA has taken one step toward implementing this program, approving a relaxation on the limits to the bubble policy, and is close to taking a second, issuing coordinated controlled trading guidance, which together could trigger a significant expansion in the applicability and implementation of controlled trading.

The New Jersey Generic Bubble Rule

On April 6, 1981 EPA issued a final rule approving and promulgating a provision of the New Jersey state implementation plan (SIP) which allowed the state to authorize emission reduction trading under the bubble policy without [11 ELR 10120] EPA review and approval of each as an SIP revision.⁶ This development is significant for two reasons. First, it signals the lifting of an administrative roadblock that had severely limited the appeal of this cornerstone of the Agency's controlled trading program. Second, approval of the New Jersey rule will allow a test of the potential for streamlining the nation's air quality planning and management process by delegating more authority to states and reducing EPA's role from duplicate reviewer of proposed SIP revisions to auditor of state decisions.

Background

On December 11, 1979 EPA announced a policy to encourage states to authorize "alternative emission reduction" options, or "bubbles."⁷ The bubble policy was EPA's first major regulatory reform designed to allow industry to develop emission control plans which both achieve the same air quality effect as the emission limits set out in the state implementation plans and do so at less cost.⁸ The original initiative in this area consisted of a simple notice to the states of a new policy pursuant to which EPA would approve such trades if a series of conditions were met. The conditions were intended to insure that the trades involve the same pollutants, be equal in quantity, prevent decreases in air quality or increases in emissions of toxic air pollutants, and preserve the enforceability of the applicable SIP. Among the conditions were requirements that (1) bubbles in ozone non-attainment areas without approved SIPs be barred unless they involved one category of sources as defined by a "Control Technique Guideline," (2) that all bubbled sources had to be in compliance with the SIP or an EPA-approved compliance schedule, and (3) that the bubble be approved by the EPA as a formal SIP revision.⁹

While a number of source owners expressed interest in developing bubbles, the administrative complexity of the program discouraged many others. Indeed, in September 1980 EPA announced that only 40-50 companies were known to be preparing bubble applications.¹⁰ Much of the opposition evidently centered on the need for SIP changes for each bubble, fueled by the prevailing general antagonism toward the SIP revision process.¹¹ Moreover, representatives of industry and state agencies vigorously opposed a number of the conditions imposed in the bubble policy.

The seeds of an alternative approach were planted even before the EPA issued the bubble policy. On December 29, 1978 New Jersey submitted to EPA a proposed revision to its SIP¹² designed to demonstrate attainment of the national ambient air quality standard for ozone.¹³ Included in the state regulations were new control technology requirements for stationary sources of hydrocarbons (which cause ozone formation) and a bubble provision¹⁴ allowing trades among hydrocarbon sources so long as the sum of the emissions under the bubble was the same as the sum allowed under the revised SIP. The New Jersey rule did not propose to submit the individual bubbles to EPA as SIP revisions. Because of this feature the proposed SIP provision has been called a "generic bubble rule"; by approving this rule, EPA would, in advance, be approving a whole class of bubbles.

Initially, EPA rejected New Jersey's proposal;¹⁵ But after considering the arguments concerning the New Jersey rule and a variety of conditions limiting its use, EPA eventually approved a relatively broad application of the generic bubble rule. The approval was announced by Vice President Bush on March 25, 1981, and promulgated on April 6, 1981.¹⁶

The New Jersey rule, as approved, expands or clarifies the bubble policy in key areas: (1) it eliminates the need for formal SIP revisions while maintaining an EPA oversight function; (2) it maintains federal, state, and public enforceability; and (3) it expands the categories of sources which can use the bubble. Also noteworthy is EPA's insistence on public participation in state bubble decisions.¹⁷

The aspect of the New Jersey generic bubble rule that has attracted the most attention is the substitution of a limited EPA review of individual bubble transactions for the cumbersome, time-consuming SIP revision process. In approving the New Jersey rule, EPA reasoned that the hydrocarbon trades anticipated to be approved could not result in adverse air quality impacts and therefore EPA [11 ELR 10121] review of each trade was superfluous. The New Jersey rule establishes a simple formula for determining which trades are allowable: the sum of the revised emission limitations for all sources involved in the trade must equal the sum of the limitations for the same sources as required by the SIP. Because the impact of hydrocarbon emissions on atmospheric concentration of ozone depends on the total volume of emissions in a region, not on the stack height or location of any individual emission source, EPA concluded that the New Jersey procedure for ensuring the equivalency of traded emissions would not result in air quality deterioration.¹⁸

EPA concluded that this arrangement was consistent with the requirements of § 110 of the Clean Air Act.¹⁹

When EPA approves the New Jersey rules, it really is approving the formula, which means that EPA approves in advance any set of emission limitations which satisfies the formula. As a result, when a source's applicable emission limitations are changed by use of a bubble under the New Jersey rules, EPA, by approving these New rules, has in effect already approved those alternative limitations. Therefore, although EPA ordinarily has a duty under §§ 110(a)(2), 110(a)(3) and 110(i) to review changes in the applicable requirements of a SIP, in this case it is not necessary to submit the source's bubble to EPA as a SIP revision.²⁰

Approval of the New Jersey generic bubble rules does not eliminate all EPA oversight of emission reduction trades made under the rule. The Agency will continue to review the state-approved bubbles (a responsibility it says it cannot give up under § 110(a)(2)(H)),²¹ and has directed the state to "promptly transmit notice of each bubble approval."²² Upon finding that a particular bubble violates the New Jersey formula, EPA will notify New Jersey and identify necessary changes.²³ If the state fails to correct the deficiency, the source will, according to EPA, be in violation of the SIP, since its bubble will be invalid as an SIP revision, and the source will be subject to EPA enforcement of original SIP standards. Thus, while EPA has given up advance review and approval of individual bubbles approved by the state under the generic rule, it reserves the right to come in after the fact and declare a transaction invalid.²⁴ In order to resolve quickly any questions about this approach, the EPA promulgation states that the announcement is a final agency action.²⁵

From a practical standpoint, it remains to be see how smoothly the EPA review and invalidation process will work. A company planning a substantial investment in controls to carry out a state-approved bubble may well require a stronger assurance that EPA will not subsequently invalidate the bubble than is offered by the knowledge that if 60 days have passed, EPA probably will not do so. In other words, doubts linger as to whether the self-imposed 60-day deadline is binding. As a result, sources with state-approved bubbles may pressure EPA for review and some indication of approval, thereby building back into the system some of the administrative complexity that EPA is trying to weed out.

The second key issue addressed by the EPA approval of the New Jersey generic bubble rule is maintaining the enforceability of the SIP as it becomes more complicated as a result of bubble policy changes in the emission limitations applicable to numerous sources. The New Jersey rule lays the foundation for effective state enforcement by requiring that each bubble application dictate specific new emission limitations for each source. The new limitations recorded in the approved bubble application would presumably also be included in each source's operating permit.²⁶ EPA has concluded that enforcing new limits would not require more resources than enforcing the SIP limits which would otherwise apply, because in both cases there would be a specific limit applicable to each source.²⁷ That analysis may prove too simplistic, however. If the bubble policy results in the relatively widespread use of innovative control technologies which are unfamiliar to Agency staff, there could well be a period when enforcement would be more difficult as the Agency developed appropriate new methods for monitoring compliance. On the other hand, enforcement could be easier. Some hydrocarbon bubbles may involve very stringent controls on a small number of large sources and no controls at all on numerous small sources. With fewer sources to worry about, the logistics of enforcement would be simplified.

A third key aspect of the generic bubble approach is preserving federal and citizen enforcement, both of which were envisioned by Congress as a crucial backstop to state enforcement. When it first proposed to approve the New Jersey generic bubble rule EPA considered requiring the parties to a bubble transaction to acknowledge in writing that it would be enforceable by both the EPA and private citizens.²⁸ In the final approval, however, it simply inserted into the New Jersey rule a statement that emission trades properly approved by the state under the generic bubble rule are enforceable by EPA and citizens.²⁹

In approving the New Jersey generic bubble rule, EPA [11 ELR 10122] suggested other opportunities for emission reduction trading to two categories of sources hitherto denied them. First, EPA allowed emission reduction trading in non-attainment areas for which there was no EPA-approved SIP, provided that effective state regulations would offset the lack of an SIP.³⁰ The original bubble policy allowed such trading only if all the sources involved were in an industry category covered by the same Control Technologies Guideline (CTG).³¹ In approving the New Jersey generic bubble rule, EPA authorized trading among sources from different CTG categories and even among sources for which no CTGs have been established.³² The Agency justified this liberalization on the basis of the fact that the New Jersey plan required an 85 percent emission reduction for all stationary hydrocarbon sources — a limit as stringent or more stringent than any CTGs likely to be issued by EPA.³³

In addition, the New Jersey action represents EPA's first approval of trading involving sources neither in compliance with applicable SIP provisions, nor subject to compliance schedules. This step does not mean much in the context of the New Jersey rules. Such trades had previously been barred on the grounds that violators should not be able to reap the economic benefits of trading. However, this safeguard was deemed inappropriate where the applicable SIP provisions were new and compliance deadlines were in the future, not the past, and the source, while not yet in compliance was also not yet a violator. Moreover, New Jersey rules already required that any source subject to an alternative emission limitation approved under the generic bubble rule would have to also agree to a binding compliance schedule.³⁴ However, the New Jersey approval might be construed to modify the bubble policy generally to allow violators to use the bubble as long as they agree to a binding compliance schedule.³⁵

The final key development in the EPA approval of the NewJersey generic rules concerns public participation.New Jersey public participation procedures provide for public notice of bubble applications through newspaper announcements, a 30-day comment period, and a public hearing if the state agency determines that one is warranted.³⁶ EPA determined that these procedures satisfied a condition in the earlier proposed approval.³⁷ The Agency rejected arguments that public participation at the time the generic rules were promulgated obviated the need for participation in "routine" technical reviews of bubble applications.³⁸

In summary, the New Jersey generic bubble rule represents a significant but controlled expansion of the bubble policy. It allows the state to approve bubble transactions without case-by-case SIP revisions. EPA retains the authority to invalidate bubbles violating the Clean Air Act, but its administrative involvement is reduced to a post hoc review which need not delay approval and an occasional program audit. State-approved bubbles will, in theory, be enforceable by the EPA and citizens, though the mechanism for establishing this backup enforcement is untested. Moreover, the New Jersey decision indicates that EPA will allow states with strong SIP provisions for stationary hydrocarbon sources and clear compliance deadlines for sources involved in bubble transactions to employ the bubble policy in non-attainment areas without approved SIPs and for sources which were not previously in compliance or on compliance schedules. Finally, the approval reiterates EPA's support for public participation in the state review and approval of bubble transactions.

To date EPA has approved four bubble transactions, proposed approval of six others, and will review about 20 additional bubble applications now being reviewed by state agencies.³⁹ New Jersey is reviewing 14 applications under its generic rule and reportedly expects to approve about 50 bubbles by the end of the year.⁴⁰ Furthermore, [11 ELR 10123] 12 other states are well into the process of developing generic bubble rules.⁴¹

In addition, EPA is considering further relaxations of the conditions limiting applicability of the bubble policy. These include:

allowing sulfur dioxide (SO₂) and particulate (TSP) bubbles in non-attainment areas.

allowing generic bubble rules for those pollutants

simplifying or eliminating the modelling requirements for SO[x] and TSP bubbles.

These and other changes to the bubble policy are included in the integrated Controlled Trading Guidance Document, which has been under development since last year and may be presented to the EPA Administrator for final decision by the end of this summer. In addition to revising the bubble policy, the draft guidance document attempts to present a consistent framework for administering the bubble policy.

The Offset Policy, and Emission Reduction Banking and Trading

While the bubble policy appears to be moving forward with increasing momentum, the other elements of EPA's controlled trading program are developing at a slower pace. The offset policy⁴² produced numerous transactions (over 1,000 offsets are cited by EPA⁴³), but the vast majority are "internal" offsets in which the company increasing its emissions found the offsetting reduction within its own plants. In the few cases where companies have found external offsets the trade typically followed a lengthy period of search and negotiation, active intervention by the state air pollution control agency, or both.⁴⁴

EPA developed the emission reduction banking and trading program to stimulate the development of emission reductions for offset trades.⁴⁵ There has been active interest in development of "banks,"⁴⁶ but to date only three localities have established emission reduction banking programs,⁴⁷ two of which have recorded over 60 deposits and about six withdrawals. However, most of the deposits have been emission reductions which would otherwise have been lost.⁴⁸ Apparently, few source owners are creating offsets for other firms, nor are they creating them to bank and reuse internally. Interest in banking and trading programs continues to spread (several new state and local government programs are nearly ready to go into operation⁴⁹) but the volume of emission reduction trading is still low.

There are several reasons why emission reduction banking and trading has developed more slowly than internal offsets and the bubble policy. First, banking and trading involves new methods of pollution control decisionmaking. Regulators and company officials have spent years learning the intricacies of the existing regulatory approach to pollution control. They cannot be expected to adapt quickly to the new and different approach entailed in banking and trading of emission reductions. Second, uncertainty in the emissions reductions market inhibits banking and trading. A company with potential emission reductions at its facilities has some incentive to enter into the banking and trading system, but has stronger reasons for not doing so. For example, it is conceivable that, once in the bank, deposits could be expropriated by regulatory agencies to achieve further progress toward attainment of the national ambient standards.⁵⁰ Moreover, once reductions have been traded away, there is no assurance that the company will be able to reacquire reductions it may need in the future for bubbles of offsets since the market is not well developed. If there were a deep and active market in emission reductions, they would have a more predictable value and individual companies would be able to bank or trade them on the basis of rational economic analysis.

It also appears that some state and local agencies may be reluctant to adopt banking and trading for fear it will increase their work load and possibly open loopholes in their air pollution control programs. Processing numerous applications for emission reduction trades could strain the administrative and engineering resources of some air pollution control agencies, especially in the early months when the programs are unfamiliar. Careful review of emission reduction trading is necessary to prevent increases in emissions and deterioration of air quality.

Part of the uncertainty slowing implementation of banking and trading stems from the fact that EPA has [11 ELR 10124] not issued formal guidance on key issues affecting the operation of the programs. Absent this guidance, states and localities are reluctant to participate in existing programs for fear that subsequent EPA regulations or policy statements will invalidate their actions. Last fall EPA developed draft banking and trading regulations. These have now been reshaped into a consolidated controlled trading guidance document under development in the Agency. If this guidance document, which passed "Steering Committee" review in late May and must still go through "Red Border Review" before being presented to the Administrator, is issued, it will provide a boost to the banking and trading programs now under development.⁵¹ Even so, however, these ambitious elements of EPA's controlled trading program will probably develop slowly. Several local and state programs where need and interest are high may advance rapidly, but because of the novelty of the programs, there is likely to be far less banking and trading activity than bubble activity for several years.

1. For a relatively recent review of the debate, see ANDERSON et al., ENVIRONMENTAL IMPROVEMENT THROUGH ECONOMIC INCENTIVES (1977).

2. An effluent charge would tend to place the larger share of the pollution control burden on sources with relatively low control costs, while regulation, in order to be manageable and seem fair, would tend to require the same levels of effluent control of large categories of sources even though the cost of compliance would vary from one source to the next.

3. See generally Comment, National Crushed Stone: EPA Not Required to Grant "Economic Hardship" Variances From 1977 Effluent Limitations, 10 ELR 10215 (1980).

4. KNEESE & SCHULTZE, POLLUTION, PRICE AND PUBLIC POLICY 91 (1974).

5. The bubble policy allows companies with "existing" (as opposed to "new") sources to trade increases in emissions (above regulatory limits) from sources with relatively high unit-control costs for decreases in emissions (below regulatory limits) from sources with relatively low unit-control costs. The offset policy (41 Fed. Reg. 55524, Dec. 21, 1976; revised 44 Fed. Reg. 3274, Jan. 16, 1979; revised 45 Fed. Reg. 52676, Aug. 7, 1980) requires major new sources and modifications in non-attainment areas to offset any increase in emissions they cause by obtaining reductions at that source or other sources. This policy, like the bubble policy, creates an incentive for emission reductions at existing sources beyond what is required by applicable standards, because these reductions can be used as offsets (or bubbles). "Banking and trading" (authorized in the offset policy revision, 44 Fed. Reg. 3274, Jan. 16, 1979) is a system to develop a free market in emission reductions which can be used in bubbles or offsets.

6. 46 Fed. Reg. 20551 (Apr. 6, 1981).

7. 44 Fed. Reg. 71779 (Dec. 11, 1979).Such changes in emission control strategies are commonly referred to as bubbles because the image of a bubble placed over one or more multi-source industrial facilities is often used to explain the concept. Under most SIPs, each source of a given pollutant in the plant (or plants) would have to comply with a general emission limitation. The new policy allows the company to increase emissions at some sources and decrease them at others so long as the total is the same as that allowed under the applicable SIP, just as if the sources were enclosed in a bubble with one emission outlet.

8. See generally Comment, Economic Efficiency in Pollution Control: EPA Issues "Bubble Policy" for Existing Sources Under Clean Air Act, 10 ELR 10014 (1980).

9. 44 Fed. Reg. at 71782-85 (Dec. 11, 1979).

10. Environmental Protection Agency, Getting More for Less: Regulatory Reform at EPA at 9 (Sept. 1980) (materials prepared for conference on regulatory reform).

11. Numerous groups commenting on revisions to the Clean Air Act have cited the need to streamline the SIP revision process, which can take from months to several years to complete and ties up a large share of the resources of state air pollution control agencies and EPA regional offices. See, e.g., NATIONAL ECONOMIC DEVELOPMENT ASSOCIATION/CLEAN AIR ACT PROJECT, CLEAN AIR ACT AND INDUSTRIAL GROWTH 39 (1981); HERITAGE FOUNDATION, MANDATE FOR LEADERSHIP 978 (1981); STATE AND TERRITORIAL AIR POLLUTION PROGRAM ADMINISTRATORS, THE STATE IMPLEMENTATION PLAN UNDER THE CLEAN AIR ACT (Mar. 1981) (position paper); NATIONAL COMMISSION ON AIR QUALITY, TO BREATHE CLEAN AIR 2.2-5, 2.2-21, 3.2-30 (Mar. 1981).

12. N.J. ADMIN. CODE § 7:27-16.

13. See 45 Fed. Reg. 15531 (Mar. 11, 1980).

14. N.J. ADMIN. CODE § 7:27-16(c)(4) & (5).

15. Although 15 months after receiving the application the Agency conditionally approved the provisions of the state's SIP revision, it specifically excluded the bubble proposal. 45 Fed. Reg. 15531 (Mar. 11, 1980). The reason given for not approving the bubble rule was failure to provide for SIP revisions for each bubble. 45 Fed. Reg. at 15540.

16. See Statement by the Vice President Regarding Actions Taken by the President's Task Force on Regulatory Relief, March 25, 1981; 46 Fed. Reg. 20551 (Apr. 6, 1981).

17. The EPA action left several issues open for further consideration, including whether EPA will authorize generic bubbles for pollutants other than hydrocarbons. 46 Fed. Reg. 20553.

18. 46 Fed. Reg. at 20552-53.

19. 42 U.S.C. § 7410, ELR STAT. & REG. 42212-16.

20. 46 Fed. Reg. at 20552 (emphasis in original).

21. 42 U.S.C. § 7410(a)(2)(H), ELR STAT. & REG. 42213, 46 Fed. Reg. at 20553.

22. 46 Fed. Reg. at 20555. This represents a relaxation of one condition in the proposed EPA approval, which required submittal of all applications as well as approvals and announced possible EPA participation in public comments on proposed bubbles. See 45 Fed. Reg. at 77459.

23. EPA has not specified a deadline by which it must notify the state of deficiencies, but has stated that its Region II office will "attempt" to notify the state within 60 days of receiving the state-approved bubble. 46 Fed. Reg. at 20555 n.6.

24. 46 Fed. Reg. at 20555.

25. Id. Regarding the reviewability of EPA determinations generally, see Comment, High Court Rules All EPA Final Action Under Clean Air Act Reviewable Exclusively in the Courts of Appeals, 10 ELR 10121 (1980).

26. In New Jersey each emission point must have a renewable "Certificate to Operate" which specifies applicable emission limitations and other requirements.

27. 46 Fed. Reg. at 20554.

28. 45 Fed. Reg. at 77450.

29. See 46 Fed. Reg. at 20556, codified at 40 C.F.R. § 52.1582(a)(2). The EPA argument is that the bubble is automatically a part of the federally approved SIP, and is therefore automatically subject to EPA and citizen enforcement. Again, EPA noted that this position on enforcement is a final, binding Agency action, presumably in order to expedite judicial resolution of any questions on the issue.

30. Without an approved SIP, there is no federally approved baseline emission limitation against which to trade.

31. 44 Fed. Reg. at 71781. The CTG is federally issued guidance on what constitutes "reasonably available control technology" (RACT) for different categories of stationary hydrocarbon sources. The 1977 Clean Air Act Amendments required states to impose RACT on such sources in ozone non-attainment areas. Clean Air Act § 172(a), 42 U.S.C. § 7502(a), ELR STAT. & REG. 42238. The CTG is presumed to be RACT unless the state demonstrates to EPA that another technology qualifies. Thus the CTG is a reasonable surrogate for the SIP requirements. It is not clear why EPA proposed to limit trades to sources in one CTG category, however. The reason may have been to create an incentive for the states to push ahead with their non-attainment SIP provisions by simply restricting the number of possible bubble trades that could be approved before the SIP was approved.

32. 46 Fed. Reg. at 20553.

33. Id.

34. See 45 Fed. Reg. at 15540.

35. EPA noted that New Jersey could have gone even further to expand the use of the bubble. The New Jersey rule only covered sources within a single plant, but EPA stated that interplant trades would also be acceptable. 46 Fed. Reg. at 20553 n.3. Application of the bubble policy to new sources is one possible expansion that was not covered in the New Jersey generic bubble rule. At present, the only trading applicable to new sources is "netting," in which increased emissions from major source modifications can be offset to avoid new source review requirements. See 45 Fed. Reg. 52676 (Aug. 7, 1980). Netting opportunities are limited in non-attainment areas by the narrow definition of "source." EPA is considering supporting a change in the definition to expand the opportunity for netting in non-attainment areas. See 46 Fed. Reg. 16280 (Mar. 12, 1981). The change could also affect new sources. At present new sources cannot avoid stringent technology-based controls (e.g., new source performance standards)) through trading. ASARCO, Inc. v. EPA, 578 F.2d 319, 8 ELR 20164 (D.C. Cir. 1978); see Comment, D.C. Circuit Rejects EPA's Use of the "Bubble" Concept in Applying New Source Performance Standards, 8 ELR 10052 (1978). Segments of the utility industry are petitioning Congress to change this situation in order to get relief from the high cost of scrubbers needed to meet the NSPS for coal-fired power plants. See "The New Source Bubble," attachment to testimony presented by John P. Proctor to the Senate Environment and Public Works Committee, June 2, 1981. Such changes would greatly expand the applicability of the bubble policy, but would also change the basic new source technology forcing trust of the Clean Air Act.

36. 46 Fed. Reg. at 20554.

37. 45 Fed. Reg. at 77461.

38. 46 Fed. Reg. at 20554.

39. ENVIRONMENTAL PROTECTION AGENCY, THE BUBBLE POLICY: STATUS REPORT 2 (June 1981).

40. Id.

41. ENVIRONMENTAL PROTECTION AGENCY, THE BUBBLE POLICY: STATUS REPORT 1 (Apr. 1981).

42. See note 5, supra. For a detailed analysis of the offset policy, see R. LIROFF, AIR POLLUTION OFFSETS (1980).

43. ENVIRONMENTAL PROTECTION AGENCY, EMISSION REDUCTION BANKING AND TRADING: STATUS REPORT 1 (Mar. 1, 1981).

44. See Liroff, supra note 43, at 13-21.

45. Emission reduction banking is a system which allows firms to save emission reductions certified by the appropriate regulatory agency for later use in offsets or bubbles. By identifying potential buyers and sellers of emission reductions, banking can facilitate trading in such reductions. Banking was first authorized in early 1979 in an amendment to the offset policy. 44 Fed. Reg. 3274 (Jan. 16, 1979). Since that time EPA has produced extensive guidance to assist states in developing banking programs. See, e.g., ENVIRONMENTAL PROTECTION AGENCY, EMISSION REDUCTION BANKING MANUAL (1980). The trading component of the banking and trading program consists of rules governing transactions in emission reductions within institutions (e.g., individual firms) or between institutions (e.g., separate firms or a firm and a government agency).

46. See Liroff, supra note 43, at 31-36.

47. ENVIRONMENTAL PROTECTION AGENCY, EMISSIONS REDUCTION BANKING AND TRADING: STATUS REPORT at 102 (Mar. 1, 1981).

48. An example of an emission reduction that would be "lost" if not banked is that resulting from the closing of a production line in a plant. Since the timing of the reduction in most cases cannot be controlled for purposes of obtaining an offset or a bubble, if no such trade is immediately available, the reduction expires. Banking provides a means of obtaining a credit for such reductions that can be preserved over time.

49. As of March 1, 1981, at least six other jurisdictions — Maryland, Wisconsin, Oregon, Chicago, and the South Coast District in California — has drafted formal banking and trading rules. ENVIRONMENTAL PROTECTION AGENCY, EMISSION REDUCTION BANKING AND TRADING: STATUS REPORT at 1 (Mar. 1, 1981).

50. The 1977 Clean Air Act Amendments established new deadlines for attainment of national ambient air quality standards (1982 or 1987) and required that revised SIPs for meeting those deadlines "require, in the interim, reasonable further progress … 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. Section 172(b)(3), 42 U.S.C. § 7502(b)(3), ELR STAT. & REG. 42238.

51. The draft consolidated guidance document also incorporates modifications to the bubble policy, including those established in the approval of the New Jersey generic bubble rule, and other expansions of the program.