MEMORANDUM

SUBJECT:  Options for Limiting the Potential to Emit (PTE) of a
          Stationary Source Under Section 112 and Title V of the
          Clean Air Act (Act)

FROM:     John S. Seitz, Director
          Office of Air Quality Planning and Standards (MD-10)

          Robert I. Van Heuvelen, Director
          Office of Regulatory Enforcement (2241)

TO:       Director, Air, Pesticides and Toxics 
            Management Division, Regions I and IV
          Director, Air and Waste Management Division,
            Region II
          Director, Air, Radiation and Toxics Division,
            Region III
          Director, Air and Radiation Division,
            Region V
          Director, Air, Pesticides and Toxics Division,
            Region VI
          Director, Air and Toxics Division,
            Regions VII, VIII, IX, and X


     Many stationary source requirements of the Act apply only to
"major" sources.  Major sources are those sources whose emissions
of air pollutants exceed threshold emissions levels specified in
the Act.  For instance, section 112 requirements such as MACT and 
section 112(g) and title V operating permit requirements largely
apply only to sources with emissions that exceed specified levels
and are thus major.  To determine whether a source is major, the
Act focuses not only on a source's actual emissions, but also on
its potential emissions.  Thus, a source that has maintained
actual emissions at levels below the major source threshold could
still be subject to major source requirements if it has the
potential to emit major amounts of air pollutants.  However, in
situations where unrestricted operation of a source would result
in a potential to emit above major-source levels, such sources
may legally avoid program requirements by taking federally-
enforceable permit conditions which limit emissions to levels
below the applicable major source threshold.  Federally-
enforceable permit conditions, if violated, are subject to
enforcement by the Environmental Protection Agency (EPA) or by
citizens in addition to the State or Local agency.

     As the deadlines for complying with MACT standards and    
title V operating permits approach, industry and State and local
air pollution agencies have become increasingly focused on the
need to adopt and implement federally-enforceable mechanisms to
limit emissions from sources that desire to limit potential
emissions to below major source levels.  In fact, there are
numerous options available which can be tailored by the States to
provide such sources with simple and effective ways to qualify as
minor  sources.  Because there appears to be some confusion and
questions regarding how potential to emit limits may be
established, EPA has decided to:  (1) outline the available
approaches to establishing potential to emit limitations, 
(2) describe developments related to the implementation of these
various approaches, and (3) implement a transition policy that
will allow certain sources to be treated as minor for a period of
time sufficient for these sources to obtain a federally-
enforceable limit.

     Federal enforceability is an essential element of
establishing limitations on a source's potential to emit. 
Federal enforceability ensures the conditions placed on emissions
to limit a source's potential to emit are enforceable by EPA and
citizens as a legal and practical matter, thereby providing the
public with credible assurances that otherwise major sources are
not avoiding applicable requirements of the Act.  In order to
ensure compliance with the Act, any approaches developed to allow
sources to avoid the major source requirements must be supported
by the Federal authorities granted to citizens and EPA.  In
addition, Federal enforceability provides source owners and
operators with assurances that limitations they have obtained
from a State or local agency will be recognized by EPA.  

     The concept of federal enforceability incorporates two
separate fundamental elements that must be present in all
limitations on a source's potential to emit.  First, EPA must
have a direct right to enforce restrictions and limitations
imposed on a source to limit its exposure to Act programs.  This
requirement is based both on EPA's general interest in having the
power to enforce "all relevant features of SIP's that are
necessary for attainment and maintenance of NAAQS and PSD
increments" (see 54 FR 27275, citing 48 FR 38748, August 25,
1983) as well as the specific goal of using national enforcement
to ensure that the requirements of the Act are uniformly
implemented throughout the nation (see 54 FR 27277).  Second,
limitations must be enforceable as a practical matter.
   
     It is important to recognize that there are shared
responsibilities on the part of EPA, State, and local agencies,
and on source owners to create and implement approaches to
creating acceptable limitations on potential emissions.  The lead
responsibility for developing limitations on potential emissions
rests primarily with source owners and State and local agencies. 
At the same time, EPA must work together with interested parties,
including industry and States to ensure that clear guidance is
established and that timely Federal input, including Federal
approval actions, is provided where appropriate.  The guidance in
this memorandum is aimed towards continuing and improving this
partnership.            
          
Available Approaches for Creating Federally-enforceable
Limitations on the Potential to Emit

     There is no single "one size fits all" mechanism that would
be appropriate for creating federally-enforceable limitations on
potential emissions for all sources in all situations.  The
spectrum of available mechanisms should, however, ensure that
State and local agencies can create federally-enforceable
limitations without undue administrative burden to sources or the
agency.  With this in mind, EPA views the following types of
programs, if submitted to and approved by EPA, as available to
agencies seeking to establish federally-enforceable potential to
emit limits: 

     1.  Federally-enforceable State operating permit programs
(FESOPs) (non-title V).  For complex sources with numerous and
varying emission points, case-by-case permitting is generally
needed for the establishment of limitations on the source's
potential to emit.  Such case-by-case permitting is often
accomplished through a non-title V federally-enforceable State
operating permit program.  This type of permit program, and its
basic elements, are described in guidance published in the
Federal Register on June 28, 1989 (54 FR 27274).  In short, the
program must:  (a) be approved into the SIP, (b) impose legal
obligations to conform to the permit limitations, (c) provide for
limits that are enforceable as a practical matter, (d) be issued
in a process that provides for review and an opportunity for
comment by the public and by EPA, and (e) ensure that there is no
relaxation of otherwise applicable Federal requirements.  The EPA
believes that these type of programs can be used for both
criteria pollutants and hazardous air pollutants, as described in
the memorandum, "Approaches to Creating Federally-Enforceable
Emissions Limits," November 3, 1993.  This memorandum (referred
to below as the November 1993 memorandum) is included for your
information as Attachment 1.  There are a number of important
clarifications with respect to hazardous air pollutants
subsequent to the November 1993 memorandum which are discussed
below (see section entitled "Limitations on Hazardous Air
Pollutants").     

     2.  Limitations established by rules.  For less complex
plant sites, and for source categories involving relatively few
operations that are relatively similar in nature, case-by-case
permitting may not be the most administratively efficient
approach to establishing federally-enforceable restrictions.  One
approach that has been used is to establish a general rule which
creates federally-enforceable restrictions at one time for many
sources (these rules have been referred to as "exclusionary"
rules and by some permitting agencies as "prohibitory" rules).  A
specific suggested approach for volatile organic compounds (VOC)
limits by rule was described in EPA's memorandum dated October
15, 1993 entitled "Guidance for State Rules for Optional
Federally-Enforceable Emissions Limits Based Upon Volatile
Organic Compound (VOC) Use."  An example of such an exclusionary
rule is a model rule developed for use in California.  (The
California model rule is attached, along with a discussion of its
applicability to other situations--see Attachment 2). 
Exclusionary rules are included in a State's SIP and generally
become effective upon approval by EPA.       
     
     3.  General permits.  A concept similar to the exclusionary
rule is the establishment of a general permit for a given source
type.  A general permit is a single permit that establishes terms
and conditions that must be complied with by all sources subject
to that permit.  The establishment of a general permit provides
for conditions limiting potential to emit in a one-time
permitting process, and thus avoids the need to issue separate
permits for each source within the covered source type or
category.  Although this concept is generally thought of as an
element of a title V permit program, there is no reason that a
State or local agency could not submit a general permit program
as a SIP submittal aimed at creating potential to emit limits for
groups of sources.  Additionally, general permits can be issued
under the auspices of a SIP-approved FESOP.  The advantage of a
general permit, when compared to an exclusionary rule, is that
upon approval by EPA of the State's permit program, a 
general permit could be written for one or more additional source
types without triggering the need for the formal SIP revision
process.    

     4.  Construction permits.  Another type of case-by-case
permit is a construction permit.  These permits generally cover
new and modified sources, and States have developed such permit
programs as an element of their SIP's.  As described in the
November 1993 memorandum, these State major and minor new source
review (NSR) construction permits can provide for federally-
enforceable limitations on a source's potential to emit.  Further
discussion of the use of minor source NSR programs is contained
in EPA's letter to Jason Grumet, NESCAUM, dated November 2, 1994,
which is contained in Attachment 3.  As noted in this letter, the
usefulness of minor NSR programs for the creation of potential to
emit limitations can vary from State to State, and is somewhat
dependent on the scope of a State's program.  

     5.  Title V permits.  Operating permits issued under the
Federal title V operating permits program can, in some cases,
provide a convenient and readily available mechanism to create
federally-enforceable limits.  Although the applicability date
for part 70 permit programs is generally the driving force for
most of the current concerns with respect to potential to emit,
there are other programs, such as the section 112 air toxics
program, for which title V permits may themselves be a useful
mechanism for creating potential to emit limits.  For example,
many sources will be considered to be major by virtue of
combustion emissions of nitrogen oxides or sulfur dioxide, and
will be required to obtain part 70 permits.  Such permits could
be used to establish federally-enforceable limitations that could
ensure that the source is not considered a major source of
hazardous air pollutants.

Practicable Enforceability

     If limitations--whether imposed by SIP rules or through
individual or general permits--are incomplete or vague or
unsupported by appropriate compliance records, enforcement by the
States, citizens and EPA would not be effective.  Consequently,
in all cases, limitations and restrictions must be of sufficient
quality and quantity to ensure accountability (see 54 FR 27283).

     The EPA has issued several guidance documents explaining the
requirements of practicable enforceability (e.g., "Guidance on
Limiting Potential to Emit in New Source Permitting," June 13,
1989; memorandum from John Rasnic entitled "Policy Determination
on Limiting Potential to Emit for Koch Refining Company's Clean
Fuels Project," March 13, 1992).  In general, practicable
enforceability for a source-specific permit means that the
permit's provisions must specify:  (1) A technically-accurate
limitation and the portions of the source subject to the 
limitation; (2) the time period for the limitation (hourly,
daily, monthly, and annual limits such as rolling annual limits); 
and (3) the method to determine compliance including appropriate
monitoring, recordkeeping, and reporting.  For rules and general
permits that apply to categories of sources, practicable
enforceability additionally requires that the provisions:
(1) identify the types or categories of sources that are covered
by the rule; (2) where coverage is optional, provide for notice
to the permitting authority of the source's election to be
covered by the rule; and (3) specify the enforcement consequences
relevant to the rule.  More specific guidance on these
enforceability principles as they apply to rules and general
permits is provided in Attachment 4.    

Limitations on Hazardous Air Pollutants (HAP)

     There are a number of important points to recognize with
respect to the ability of existing State and local programs to
create limitations for the 189 HAP listed in (or pursuant to)
section 112(b) of the Act, consistent with the definitions of
"potential to emit" and "federally-enforceable" in 40 CFR 63.2
(promulgated March 16, 1994, 59 FR 12408 in the part 63 General
Provisions).  The EPA believes that most State and local programs
should have broad capabilities to handle the great majority of
situations for which a potential to emit limitation on HAP is
needed.    

     First, it is useful to note that the definition of potential
to emit for the Federal air toxics program (see the subpart A
"general provisions," section 63.2) considers, for purposes of
controlling HAP emissions, federally-enforceable limitations on
criteria pollutant emissions if "the effect such limitations
would have on "[hazardous air pollutant] . . . emissions" is
federally-enforceable (emphasis added).  There are many examples
of such criteria pollutant emission limits that are present in
federally-enforceable State and local permits and rules. 
Examples would include a limitation constraining an operation to
one (time limit specified) shift per day or limitations that
effectively limit operations to 2000 hours per year.  Other
examples would include limitations on the amount of material
used, for example a permit limitation constraining an operation
to using no more than 100 gallons of paint per month. 
Additionally, federally-enforceable permit terms that, for
example, required an incinerator to be operated and maintained at
no less than 1600 degrees would have an obvious "effect" on the
HAP present in the inlet stream.  

     Another federally-enforceable way criteria pollutant
limitations affect HAP can be described as a "nested" HAP limit
within a permit containing conditions limiting criteria
pollutants.  For example, the particular VOC's within a given
operation may include toluene and xylene, which are also HAP.  If
the VOC-limiting permit has established limitations on the amount
of toluene and xylene used as the means to reduce VOC, those
limitations would have an obvious "effect" on HAP as well.  

     In cases as described above, the "effect" of criteria
pollutant limits will be straightforward.  In other cases,
information may be needed on the nature of the HAP stream
present.  For example, a limit on VOC that ensured total VOC's of
20 tons per year may not ensure that each HAP present is less
than 10 tons per year without further investigation.  While the
EPA intends to develop further technical guidance on situations
for which additional permit terms and conditions may be needed to
ensure that the "effect" is enforceable as a practical matter,   
the EPA intends to rely on State and local agencies to employ
care in drafting enforceable requirements which recognize obvious
environmental and health concerns. 

     There are, of course, a few important pollutants which are
HAP but are not criteria pollutants.  Example of these would
include methylene chloride and other pollutants which are
considered nonreactive and therefore exempt from coverage as
VOC's.  Especially in cases where such pollutants are the only
pollutants present, criteria pollutant emission limitations may
not be sufficient to limit HAP.  For such cases, the State or
local agency will need to seek program approval under section
112(l) of the Act.

     Section 112(l) provides a clear mechanism for approval of
State and local air toxics programs for purposes of establishing
HAP-specific PTE limits.  The EPA intends, where appropriate,
that in approving permitting programs into the SIP, to add
appropriate language citing approval pursuant to section 112(l)
as well.  An example illustrating section 112(l) approval is the
approval of the State of Ohio's program for limiting potential to
emit (see 59 FR 53587, October 25, 1994).  In this notice, EPA
granted approval under section 112(l) for hazardous air
pollutants aspects of a State program for limiting potential to
emit.  Such language can be added to any federally-enforceable
State operating permit program, exclusionary rule, or NSR program
update SIP approval notice so long as the State or local program
has the authority to regulate HAP and meets other section 112(l)
approval criteria.  Transition issues related to such      
section 112(l) approvals are discussed below.  

Determination of Maximum Capacity

     While EPA and States have been calculating potential to emit
for a number of years, EPA believes that it is important at this
time to provide some clarification on what is meant in the
definition of potential to emit by the "maximum capacity of a
stationary source to emit under its physical and operational
design."  Clearly, there are sources for which inherent physical
limitations for the operation restrict the potential emissions of
individual emission units.  Where such inherent limitations can
be documented by a source and confirmed by the permitting agency,
EPA believes that States have the authority to make such
judgements and factor them into estimates of a stationary
source's potential to emit.

     The EPA believes that the most straightforward examples of
such inherent limitations is for single-emission unit type
operations.  For example, EPA does not believe that the "maximum
capacity" language requires that owner of a paint spray booth at
a small auto body shop must assume that (even if the source could
be in operation year-round) spray equipment is operated 8760
hours per year in cases where there are inherent physical
limitations on the number of cars that can be painted within any
given period of time.  For larger sources involving multiple
emissions units and complex operations, EPA believes it can be
more problematic to identify the inherent limitations that may
exist.

     The EPA intends, within its resource constraints, to issue
technical assistance in this area by providing information on the
type of operational limits that may be considered acceptable to
limit the potential to emit for certain individual small source
categories.

Transition Guidance for Section 112 and Title V Applicability

     Most, if not all, States have recognized the need to develop
options for limiting the potential emissions of sources and are
moving forward with one or more of the strategies described in
the preceding sections in conjunction with the submission and
implementation of their part 70 permit programs.  However, EPA is
aware of the concern of States and sources that title V or
section 112 implementation will move ahead of the development and
implementation of these options, leaving sources with actual
emissions clearly below the major source thresholds potentially
subject to part 70 and other major source requirements.  Gaps
could theoretically occur during the time period it takes for a
State program to be designed and administratively adopted by the
State, approved into the SIP by EPA, and implemented as needed to
cover individual sources.  

     The EPA is committed to aiding all States in developing and
implementing adequate, streamlined, and cost-effective vehicles
for creating federally-enforceable limits on a source's potential
emissions by the time that section 112 or title V requirements
become effective.  To help bridge any gaps, EPA will expedite its
reviews of State exclusionary rules and operating permit rules
by, among other things, coordinating the approval of these rules
with the approval of the State's part 70 program and by using
expeditious approval approaches such as "direct final" Federal
Register notices to ensure that approval of these programs does
not lag behind approval of the part 70 program.

     In addition, in such approval notices EPA will affirm any
limits established under the State's program since its adoption
by the State but prior to Federal approval if such limits were
established in accordance with the procedures and requirements of
the approved program.  An example of language affirming such
limits was recently used in approving an Illinois SIP revision
(see 57 FR 59931, included as Attachment 5).

     The EPA remains concerned that even with expedited approvals
and other strategies, sources may face gaps in the ability to
acquire federally-enforceable potential to emit limits due to
delays in State adoption or EPA approval of programs or in their
implementation.  In order to ensure that such gaps do not create
adverse consequences for States or for sources, EPA is announcing
a transition policy for a period up to two years from the date of
this memorandum.  The EPA intends to make this transition policy
available at the discretion of the State or local agency to the
extent there are sources which the State believes can benefit
from such a transition policy.  The transition period will extend
from now until the gaps in program implementation are filled, but
no later than January 1997.  Today's guidance, which EPA intends
to codify through a notice and comment rulemaking, provides
States discretion to use the following options for satisfying
potential to emit requirements during this transition period.

     1.  Sources maintaining emissions below 50 percent of all
applicable major source requirements.  For sources that typically
and consistently maintain emissions significantly below major
source levels, relatively few benefits would be gained by making
such sources subject to major source requirements under the Act. 
For this reason, many States are developing exclusionary rules
and general permits to create simple, streamlined means to ensure
that these sources are not considered major sources.  To ease the
burden on States' implementation of title V, and to ensure that
delays in EPA's approval of these types of programs will not
cause an administrative burden on the States, EPA is providing a
2-year transition period for sources that maintain their actual
emissions, for every consecutive 12-month period (beginning with
the 12 months immediately preceding the date of this memorandum),
at levels that do not exceed 50 percent of any and all of the
major stationary source thresholds applicable to that source.  A
source that exceeds the 50 percent threshold, without complying
with major source requirements of the Act (or without otherwise
limiting its potential to emit), could be subject to enforcement. 
For this 2-year period, such sources would not be treated as
major sources and would not be required to obtain a permit that
limits their potential to emit.  To qualify under this transition
policy, sources must maintain adequate records on site to
demonstrate that emissions are maintained below these thresholds
for the entire  as major sources and would not be required to
obtain a permit that limits their potential to emit that would be
considered to be adequate during this transition period. 
Consistent with the California approach, EPA believes it is
appropriate for the amount of recordkeeping to vary according to
the level of emissions (see paragraphs 1.2 and 4.2 of the
attached rule).        

     2.  Larger sources with State limits.  For the 2-year
transition period, restrictions contained in State permits issued
to sources above the 50 percent threshold would be treated by EPA
as acceptable limits on potential to emit, provided:  (a) the
permit is enforceable as a practical matter; (b) the source owner
submits a written certification to EPA that it will comply with
the limits as a restriction on its potential to emit; and (c) the
source owner, in the certification, accepts Federal and citizen
enforcement of the limits (this is appropriate given that the
limits are being taken to avoid otherwise applicable Federal
requirements).  Such limits will be valid for purposes of
limiting potential to emit from the date the certification is
received by EPA until the end of the transition period.  States
interested in making use of this portion of the transition policy
should work with their Regional Office to develop an appropriate
certification process.
       
     3.  Limits for noncriteria HAP.  For noncriteria HAP for
which no existing federally-approved program is available for the
creation of federally-enforceable limits, the 2-year transition
period provides for sufficient time to gain approval pursuant to
section 112(l).  For the 2-year transition period, State
restrictions on such noncriteria pollutants issued to sources
with emissions above the 50 percent threshold would be treated by
EPA as limiting a source's potential to emit, provided that:  
(a) the restrictions are enforceable as a practical matter;    
(b) the source owner submits a written certification to EPA that
it will comply with the limits as a restriction on its potential
to emit; and (c) the source owner, in the certification, accepts
Federal and citizen enforcement of the limits.  Such limits will
be valid for purposes of limiting potential to emit from the date
the certification is received by EPA until the end of the
transition period.

     The Regional Offices should send this memorandum, including
the attachments, to States within their jurisdiction.  Questions
concerning specific issues and cases should be directed to the
appropriate Regional Office.  Regional Office staff may contact
Timothy Smith of the Integrated Implementation Group at 
919-541-4718, or Clara Poffenberger with the Air Enforcement
Division at 202-564-8709.

Attachments

cc:  Air Branch Chief, Region I-X
     Regional Counsels