Mr. Chairman, Members of the Committee, thank you for inviting me to discuss the Environmental Protection Agency's (EPA's) rulemakings to revise the national ambient air quality standards (NAAQS) for ground-level ozone and particulate matter.

Setting the Revised Standards

As you know, the Clean Air Act directs EPA to set national standards for certain air pollutants to protect public health and the environment. For each of these pollutants, Congress directed EPA to set what are known as "primary" standards to protect public health without consideration of cost. Under the Act, Congress directs EPA to review these standards every five years to determine whether the latest scientific research indicates a need to revise that standards.

This month, the Administrator set new standards for ozone and particulate matter (PM) that will be a major step forward in public health and welfare protection. Each year, these updated standards have the potential to prevent as many as 15,000 premature deaths; as many as 350,000 cases of aggravated asthma; and as many as one million cases of significantly decreased lung function in children.

Numerous other public health and welfare benefits will result from implementation of the new standards. Additional public health benefits include: reduced respiratory illnesses, reduced acute health effects, reduced cancer from air toxics reductions, and the avoidance of various other air pollution-related illnesses and health effects. Public welfare benefits will include: reduced adverse effects on vegetation, forests, and natural ecosystems, improved visibility, and protection of sensitive waterways and estuaries from deposition of airborne nitrogen that can cause algal blooms, fish kills, and loss of aquatic vegetation. Estimated total monetized health and public welfare benefits associated with the new standards are enormous, ranging in the tens of billions of dollars annually. Many additional potentially large benefit categories, such as reduced chronic respiratory damage, possibly infant mortality, and other health and welfare benefit categories, have not been monetized.

The new ozone and particulate matter standards are based on an extensive scientific and public review process. Congress directs EPA to consult with an independent scientific advisory board, the Clean Air Scientific Advisory Committee (CASAC). In conducting these reviews, EPA analyzed thousands of peer-reviewed scientific studies that had been published in well-respected scientific journals. These studies were then synthesized and, along with a recommendation on whether the existing standards were adequately protective, presented to CASAC. After three-and-a-half years of work, including 11 meetings totaling more than 125 hours of public discussion, and based on 250 of the most relevant studies, the CASAC panel concluded that EPA's air quality standards for ozone and particulate matter should be revised.

CASAC unanimously supported changing the ozone standards from a 1-hour averaging period to an 8-hour average to reflect increasing concern over prolonged exposure to ozone, particularly for children. Ten of the 16 CASAC members who took part in reviewing the ozone standard expressed their preferences as to the level of the standard, with all ten favoring a multiple exceedance form. Of the four human health experts on the CASAC panel, three favored a level of 0.08 ppm and the other favored a level of either 0.08 or 0.09 ppm. Three other panel members favored 0.09 ppm, and one favored either 0.09 or 0.10 ppm combined with new public health advisories when ozone concentrations are at or above 0.07 ppm. Two panel members endorsed a standard within the range recommended by EPA of 0.07 to 0.09 ppm.

Nineteen of the 21 CASAC panel members who reviewed the particulate standard recommended establishment of new standards (daily and/or annual) for fine particles, which are inhaled more deeply into the lungs. The individual members of CASAC expressed a range of opinions about the level of a fine particle standard based on a variety of factors. Four panel members supported specific ranges or levels within, or toward the lower end of, the ranges recommended by the EPA staff paper. Seven panel members recommended ranges or levels near, at, or above the upper end of the ranges specified in the EPA staff paper. Eight other panel members declined to select a specific range or level.

Prior to proposing revised standards, EPA also consulted extensively with representatives of state and local governments, industry, environmental groups and other stakeholders. In compliance with the Unfunded Mandates Reform Act of 1995, Agency officials briefed state and local air pollution control officials at several national meetings about issues related to revising the standards, including possible ranges of revised standards, monitoring requirements and potential implementation strategies. EPA also held discussions with state and local officials at meetings set up by the National Governors' Association, the U.S. Conference of Mayors and the Council of State Governments. In addition, officials in our regional offices met with their counterparts in state pollution control agencies.

Under the Federal Advisory Committee Act, EPA established a subcommittee of its Clean Air Act Advisory Committee composed of representatives of state and local agencies, large and small businesses, environmental groups, other federal agencies and other groups, and including five working groups comprised of other members of these same types of organizations. The Subcommittee on Implementation of Ozone, Particulate Matter and Regional Haze Rules has been meeting regularly to consider the issues that would be posed by revising the standards and to help develop potentially more cost-effective, flexible strategies for implementing any revised standards.

Also before proposing and before promulgation of these revised standards, EPA prepared draft analyses of the potential costs and benefits of implementing revised standards, including the potential impact on small businesses. While the Clean Air Act does not permit EPA to consider costs in setting the NAAQS, the Agency's analysis provided important information about the potential effects of implementing revised standards. At the same time, EPA made clear that its analysis of cost and small business impacts included numerous uncertainties. As you know, states are primarily responsible for implementing NAAQS through implementation plans containing state-developed control requirements. Consequently, to estimate the potential costs and small entity impacts of implementing any revised standards, the Agency had to make assumptions about how states would implement the standards. As the Regulatory Flexibility Act (RFA) itself states, the purpose of a regulatory flexiblity analysis is to encourage federal agencies to "fit regulatory and informational requirements to the scale of the businesses . . . subject to regulation" (P.L. 96-354, section 2(b)). As the federal courts have ruled, that purpose can only be served in the case of federal rules that apply to small businesses. National ambient air quality standards, by contrast, do not apply to small (or large) businesses, but are instead implemented primarily through state regulation. EPA therefore concluded that rules revising the standards are exempt from the RFA requirement to prepare a regulatory flexibliity analysis and thus from the SBREFA requirement to convene a small business panel prior to proposing a rule for which such an RFA analysis is required. Still, EPA attempted to shed light on the potential small business impact of revising the standards by analyzing hypotheticial state strategies for implementing the standards.

Based on the scientific evidence reviewed by EPA staff and CASAC, EPA proposed revised standards and conducted an extensive public comment process, receiving approximately 57,000 comments at public hearings across the country and through written, telephone and E-mail message communications. As part of this process, officials from EPA, the Small Business Administration (SBA) and the Office of Management and Budget (OMB) met with representatives of small businesses to ensure that their concerns about revising and implementing the standards were heard. EPA then prepared a report documenting their concerns for the Administrator and placed it in the record for the NAAQS rulemakings. The Agency also took steps to further expand the membership of the Federal Advisory Subcommittee on implementation of the standards to include more representation from small business and local governments. Within the federal government, EPA took part in a lengthy interagency review process that involved all interested departments and agencies.

After carefully considering the results of this extensive process, the Administrator, with the support of the President, issued a final rule updating the ozone standard from 0.12 parts per million (ppm) of ozone measured over one hour to a standard of 0.08 ppm measured over eight hours, with the three-year average of the annual fourth highest concentrations determining whether an area is out of compliance. The new standard will reduce "flip-flopping" in and out of attainment by changing it from an "expected exceedance" to a "concentration-based" form. For particulate matter, the final rule adds new standards for particles smaller than 2.5 micrometers in diameter (known as PM2.5 or fine particles). These are two new fine particle standards: an annual standard, set at 15 micrograms per cubic meter, and a 24-hour standard, set at 65 micrograms per cubic meter. EPA has also changed the form of the current 24-hour PM10 standard to provide some additional stability and flexibility to states in meeting that standard.

Implementing the Revised Air Standards

The Clean Air Act gives states the lead in implementing new or revised NAAQS so that each state can develop a pollution control program that best meets its needs. EPA has an important role to play in the implementation process by working with states on their plans and by implementing Clean Air Act provisions that call for federal controls on certain sources of NAAQS pollutants or their precursors (for example, motor vehicles and gasoline). In a July 16, 1997 memorandum, President Clinton called on EPA to employ an interagency strategy for promoting flexible, common sense, cost-effective means for communities and businesses to meet the standards. As I will describe, the rules revising the standards and the President's interagency strategy will provide state and local governments and their stakeholders with the time, information and help they need to determine whether any additional controls will be required to attain the revised standards, and if so, what low-cost options are available.

The PM2.5 Standard

The PM2.5 rule requires three years of federal reference method air quality monitoring data to determine whether an area does or does not meet the new PM2.5 standards. To obtain these data, a comprehensive network of monitors must be put in place. EPA has agreed to cover the cost of establishing that network through grants to states. In view of the time needed to establish the network and collect data, EPA expects that three years of data will not be available until between 2001 and 2004, depending on when monitors are installed in a given locality. Therefore, actual designations of attainment or nonattainment will not take place until between 2002 and 2005. If an area is designated nonattainment, the Clean Air Act gives the state up to three years to develop a plan to control the problem. Areas will thus have ample time to review and analyze the nature of their particulate matter problem and to develop technically sound and cost-effective control strategies.

As contemplated by the Clean Air Act, EPA will complete its next periodic review of the particulate matter national ambient air quality standards, including review by the Clean Air Scientific Advisory Committee, within five years of issuing these new standards. By July 2002, EPA will have determined, based on data available from its review, whether to revise or maintain the new standards. This determination, therefore, will be made before any areas have been designated nonattainment under the PM2.5 standards and before any new controls related to the PM2.5 standards are imposed.

In developing strategies for attaining the PM2.5 standards, it will be important to focus on measures that decrease emissions that contribute to regional pollution. Available information indicates that nearly one-third of the areas projected to not meet the new PM2.5 standards, primarily in the Eastern U.S., could come into compliance as a result of the regional SO2 emission reductions already mandated under the Clean Air Act's acid rain program, which will be fully implemented between 2000 and 2010. Similarly, the Grand Canyon Visibility Transport Commission, consisting of western states and tribes, committed to reductions in regional emissions of PM2.5 precursors (sulfates, nitrates, and organics) to improve visibility across the Colorado Plateau. EPA expects that reductions in PM2.5 precursors will help address the need for further particulate control in that region.

As detailed PM2.5 air quality data and data on the chemical composition of PM2.5 in different areas become available, EPA will work with the states to analyze potential regional strategies that could reduce PM2.5 levels. If further cost-effective regional reductions help areas meet the new standard, EPA will encourage states to work together to use a cap and trade approach similar to that used to curb acid rain. The acid rain program delivered environmental benefits at a greatly reduced cost.

The 8-hour Ozone Standard

Ozone is a pollutant that travels great distances, and it has become increasingly important to address it as a regional problem. For the past two years, EPA has been working with the 37 most eastern states through the Ozone Transport Assessment Group (OTAG) in the belief that reducing interstate pollution will help all areas in the OTAG region attain the NAAQS. The OTAG was an effort sponsored by the Environmental Council of States, with the objective of assessing ozone transport and recommending strategies for mitigating interstate pollution.

The OTAG completed its work in June 1997 and forwarded recommendations to EPA. Based on these recommendations, in September 1997, EPA will propose a rule requiring states in the OTAG region that are significantly contributing to nonattainment, or interfering with maintenance of attainment, in downwind states to submit state implementation plans (SIPs) to reduce their interstate pollution. EPA expects to issue a final rule by September 1998.

If the states choose to establish a voluntary regional emission cap and trade system, similar to the current acid rain program, reductions can be achieved at a lower cost. EPA will encourage and assist the states to develop and implement a NOx cap and trade program. Most important, based on EPA's review of the latest modeling, a regional approach, coupled with the implementation of other already existing state and Federal Clean Air Act requirements, will allow the vast majority of areas that currently meet the 1-hour standard but would not otherwise meet the new 8-hour standard to achieve healthful air quality without additional local controls.

Areas in the OTAG region that would still exceed the new standard after the regional strategy, including areas that do not meet the current 1-hour standard, will benefit as well, because the regional NOX program will reduce the extent of additional local measures needed to achieve the 8-hour standard. In many cases these regional reductions may be adequate to meet CAA progress requirements for a number of years, allowing areas to better plan for any additional local controls.

Cost-Effective Local Control Strategies

To the extent local controls are needed to attain the PM or ozone standards, EPA will encourage the states to design strategies that focus on getting low cost reductions and limiting the cost of control to under $10,000 per ton for all sources. Market-based strategies can be used to reduce compliance costs. EPA will encourage the use of concepts such as a Clean Air Investment Fund, which would allow sources facing control costs higher than $10,000 a ton for any of these pollutants to pay a set annual amount per ton to fund cost-effective emissions reductions from non-traditional and small sources. Compliance strategies like this will likely lower the costs of attaining the standards through more efficient allocation, minimize the regulatory burden for small and large pollution sources, and serve to stimulate technology innovation as well.

Future Activities

To help ensure cost-effective, common sense implementation of the standards, input is needed from many stakeholders including representatives of state and local governments, industry, small businesses, environmental groups, and Federal agencies. EPA will continue seeking advice from a range of stakeholders and, after evaluating their input, propose the necessary guidance to make these approaches work. In particular, EPA will continue working with the Subcommittee on Implementation of Ozone, Particulate Matter and Regional Haze Rules described above.

EPA will also continue working with SBA and OMB to ensure that small businesses, small governments and other small entities have an opportunity to participate in the development of implementation guidance and rules. We are following Small Business Regulatory Enforcement Fairness Act (SBREFA) procedures to conduct small-business panels for collecting advice and recommendations on how states can lessen the impacts on small business and other small entities as the states develop their implementation plans. A panel of EPA, SBA and OMB officials has already met with representatives of small businesses and governments about several implementation issues. The panel issued a report on June 10, 1997 recommending that the Agency continue to involve small entities in implementation planning and issue guidance to the states on minimizing impacts on small entities in their implementation plans. The Agency intends to follow both recommendations. EPA also intends to continue using the interagency panel process to develop its guidance. Since SBREFA's panel requirement applies only to binding rules that establish federal requirements applicable to small business, an interagency panel process is voluntary with respect to EPA's non-binding guidance to states. We have found that the panel process is an effective means of spotlighting the needs and concerns of small businesses and small goverments, and have decided, with SBA and OMB, to use the process in developing implementation guidance, as appropriate. As for any implementation-related rules EPA promulgates, the Agency will conduct panels under SBREFA as required. EPA plans to issue all guidance and rules necessary for smooth implementation of the revised standards by the end of 1998.

Conclusion

In summary, EPA believes that the new ozone and particulate matter standards will provide important new health protection and will improve the lives of Americans in coming years. We worked closely with state and local governments, large and small businesses, and all other interested parties in the rulemaking process, and will continue to work with these stakeholders to ensure that the new standards are implemented in a common sense, cost-effective and flexible manner. We have also submitted the new standards for congressional review, as required by SBREFA. Mr. Chairman, this concludes my written statement. I will be happy to answer any questions that you might have.

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