**UNITED STATES ENVIRONMENTAL PROTECTION AGENCY**

**REGION IX AIR DIVISION**

Technical Support Document

for

EPA's Proposed Rulemaking

for the

California State Implementation Plan

South Coast Air Quality Management District ("SCAQMD")

Regional Clean Air Incentives Market ("RECLAIM") program rule:

SCAQMD Rule 2015 Backstop Provisions

Prepared by: Thomas C. Canaday

July 6, 2004

**TABLE 1 - RULE IDENTIFICATION**

  -----------------------------------------------------------------------
  Rule Number                                   SCAQMD 2015
  --------------------------------------------- -------------------------
  Rule Title                                    Backstop Provisions

  Current Subject Version Adopted               06/04/04

  Current Subject Version Submitted             07/29/04

  Existing SIP-Approved Version Adopted         05/11/01

  Existing SIP-Approved Version Submitted       05/31/01

  Existing SIP-Approved Version Approved        09/04/03, 68 FR 52512

  Interim Superseded Submittals                 None
  -----------------------------------------------------------------------

**BACKGROUND**

The RECLAIM program was initially adopted by SCAQMD in October 1993. The
program sets an emissions cap and declining balance for many of the
largest NOx and SOx facilities in the South Coast Air Basin. The program
was designed to provide additional incentives for industry to reduce
emissions and advance pollution control technologies. In addition, the
program was designed to give facilities added flexibility in meeting
emission reduction requirements. Facilities within the RECLAIM program
have the option of complying with their allocation allowance by either
installing control equipment, modifying their activities, or purchasing
RECLAIM Trading Credits (RTCs) from other facilities. RECLAIM applies to
facilities emitting 4 tons or more per year of NOx and/or SOx in the
year 1990 or any subsequent year, excluding certain essential public
services that remain under command-and-control such as landfills, public
transit, and fire fighting facilities. There are currently 332
facilities under the RECLAIM NOx program.

Beginning in June 2000, RECLAIM program participants experienced a sharp
and sudden increase in NOx RTC prices for both the 1999 and 2000
compliance years. In response to this SCAQMD adopted, and EPA
subsequently approved into the California State Implementation Plan
(SIP), rule amendments designed to lower and stabilize RTC prices by
increasing supply, reducing demand, and increasing the exchange of RTC
trading information. These rule amendments were adopted by the SCAQMD
Governing Board on May 11, 2001. EPA proposed approval of the RECLAIM
program rule amendments on May 13, 2002 (67 FR 31998) and finalized this
action on September 4, 2003 (68 FR 52512).

During our review of the May 2001 RECLAIM amendments, EPA raised
concerns regarding a previously SIP-approved provision (Rule 2004(i)(3))
that allowed facilities, under certain conditions, to not deduct excess
emissions associated with equipment breakdowns from the facility's RTC
Allocation. EPA notified SCAQMD that this provision conflicted with the
Clean Air Act as interpreted by a September 20, 1999 EPA policy that,
where possible, requires mitigation of all excess emissions during
equipment malfunctions, startup, and shutdown.

SCAQMD staff committed in a letter dated April 2, 2002 to address the
issue of breakdown emissions under Regulation XX. On May 13, 2002, EPA
proposed conditional approval of the May 2001 RECLAIM amendments into
the SIP. The conditional approval was finalized on September 4, 2003.
Specifically, the conditional approval required that SCAQMD adopt
amendments to RECLAIM which would establish a mechanism within the
RECLAIM program to ensure mitigation of all excess emissions resulting
from breakdowns. The commitment made in the April 2^nd^ letter
stipulated that SCAQMD would monitor and track excess emissions from
breakdowns and compare the total amount of these excess emissions to
unused RTCs each year for the entire RECLAIM program. If the yearly
breakdown emissions from all RECLAIM sources exceeded the unused RTCs,
programmatic reductions from RECLAIM allocations in the following year
would be made to mitigate the excess emissions.

**RULE SUMMARY**

SCAQMD has adopted and the State of California Air Resources Board has
submitted revisions to SCAQMD Rule 2015 to address EPA's concerns. The
revised Rule 2015 establishes a mechanism for addressing breakdown
emissions as an element of the RECLAIM Annual Audits. Excess emissions
resulting from equipment breakdown that are exempted pursuant to Rule
2004 must be reported in each facility's Annual Permit Emissions Program
(APEP) report. The APEP is an annual emissions reporting program
required of all RECLAIM facilities. These emission reports are the
subject of an annual audit under the RECLAIM program, which also tracks
the level of unused NOx and SOx RTCs annually.

Under the revised Rule 2015, breakdown emissions would be subtracted
from future RTC holdings of those facilities experiencing breakdown
emissions if the available unused RTCs are not sufficient to cover the
total breakdown emissions. If this occurs, a proportion of the total
breakdown emissions would be subtracted from each facility's RTC
holdings.

Revised Rule 2015 includes the following steps:

48416. In conjunction with the RECLAIM Annual Audit, beginning with the
       2004 compliance year, SCAQMD will compare the total quantity of
       Rule 2004-exempted NOx and SOx breakdown emissions for all
       RECLAIM facilities combined to the amount of unused RTCs for the
       entire RECLAIM program for the same compliance year.

2\. SCAQMD will subtract the amount of exempted breakdown emissions from
the total quantity of unused RTCs available.

3\. If the exempted breakdown emissions exceed the unused RTCs for the
same compliance year, any excess breakdown emissions remaining will
either be offset:

> 3a. by reducing the RTC holdings of those facilities that experienced
> exempted breakdown emissions based on the proportion of each
> facility's contribution to the total amount of breakdown emissions.
> This proportional reduction would be applied to each facility's RTC
> Allocation for the compliance year following the completion of the
> Annual Audit, and rounded to the nearest pound; and/or
>
> 3b. with RTCs obtained by the SCAQMD Executive Officer from the
> compliance year following the Annual Audit in an amount sufficient to
> offset the unmitigated breakdown emissions.

Excess breakdown emissions would be subtracted from the RTC holdings of
the facilities that experienced Rule 2004-exempted breakdown emissions.
The deduction from each facility's RTC holdings would be based on the
proportion of that facility's contribution to the total amount of
exempted breakdown emissions and rounded to the nearest pound. Step 3b
was added to provide administrative flexibility in mitigating breakdown
emissions. If the excess breakdown emissions to be subtracted from each
RTC holding are less than a few pounds per year, then SCAQMD might
choose to obtain RTCs to cover the excess breakdown emissions. This
would eliminate the administrative burden of readjusting RTC holdings in
an instance where the total unmitigated breakdown emissions requires
only a small quantity of RTCs.

**EPA EVALUATION CRITERIA**

The following criteria were used in evaluating the submitted rules.

1\. Enforceability - The "Blue Book" ("Issues Relating to VOC Regulation
Cutpoints, Deficiencies, and Clarification to Appendix D," November 24,
1978, 52 FR 45044), was used to help evaluate compliance with the CAA
§110(a)(2)(A) requirement for enforceability.

2\. 110(l)/193 - Where previous versions of rules or plans were SIP
approved, EPA must evaluate whether new submittals comply with Sections
110(l) and 193 of the Clean Air Act regarding SIP relaxations.

3.  "State Implementation Plans; Nitrogen Oxides Supplement to the
    General Preamble; Clean Air Act Amendments of 1990 Implementation of
    Title I; Proposed Rule," (the NOx Supplement), 57 FR 55620, November
    25, 1992.

4.  Requirements applicable to emissions trading programs such as
    RECLAIM are contained in "Improving Air Quality with Economic
    Incentive Programs," January 2001, Office of Air and Radiation,
    EPA-452/R-01-001 ("EIP Guidance"). This guidance applies to
    discretionary economic incentive programs ("EIPs") and represents
    the agency's interpretation of what EIPs should contain in order to
    meet the requirements of the CAA. Because this guidance is
    non-binding and does not represent final agency action, EPA is using
    the guidance as an initial screen to determine whether approvability
    issues arise.

5.  Excess emissions provisions are addressed by "State Implementation
    Plans: Policy Regarding Excess Emissions During Malfunctions,
    Startup and Shutdown," EPA Office of Air and Radiation, and EPA
    Office of Enforcement and Compliance Assurance, September 20, 1999
    ("Excess Emissions Policy").

**EPA EVALUATION**

The submitted rule was evaluated using the guidance documents listed
above. The revisions were found to meet all of the applicable
requirements. Specifically, the submitted rule amendments were found to
fulfill the requirements of EPA's previous conditional approval of the
RECLAIM program rules and to address all concerns raised therein with
respect to our Excess Emissions Policy.

**EPA ACTION**

As authorized in section 110(k)(4) of the Act, EPA is proposing approval
of the submitted rule to improve the SIP. If finalized, this action will
incorporate the submitted rule into the SIP.

**ATTACHMENTS**

> 1\. SCAQMD Rule 2015, current subject version as identified in Table
> 1.
>
> 2\. SCAQMD Staff Report for the current subject rule submittal.