1 Final Draft Staff Report with Appendices For Proposed Amendments to Ru le 4401 SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

FINAL DRAFT STAFF REPORT

Proposed Amendments to Rule 4401 (Steam-Enhanced Crude Oil Production Wells)

June 16, 2011

Prepared by: Anna Myers, Air Quality Specialist

Reviewed by: George Heinen, Rule Development Superv isor

Mike Oldershaw, Compliance Manager Leonard Scandura, Permit Services Manager Scott Nester, Senior Project Advisor Errol Villegas, Strategies and Incentives Manager Samir Sheikh, Director of Strategies and Incentives

I. SUMMARY

On December 14, 2006 the San Joaquin Valley Unified Air Pollution Control District’s (District) Governing Board amended Rule 4401 (Steam -Enhanced Crude Oil Production Well Vents) to satisfy commitments in the District 2004 Extreme Ozone Attainment

Demonstration Plan (EOADP) and in the District 2003 and 2006 PM10 Plan s. On July 17, 2009, upon evaluation of Rule 4401, EPA made th e following action:

The December 14, 2006 amended Rule 4401 – Steam-Enh anced Crude Oil Production Wells implements RACT [Reasonably Available Control Technology] , strengthens the SIP, and is generally enforceable . As a result, EPA staff recommends a limited approval of the rule pursuant to

CAA [Clean Air Act] §110(k)(3) and §301(a). However, EPA staff simultaneously recommends a limited disapproval of ... section 6.2.4 of

the Rule. (EPA TSD, 5)

This action was published in Federal Register Vol. 75, No.16 as 40 CFR Part 52 on January 26, 2010. A copy of this Federal Register publication is included as Appendix D of this final draft staff report.

Pursuant to §179 of the CAA, unless the rule has be en updated and approved into the State Implementation Plan (SIP) within 18 months af ter the disapproval, one, or more sanctions shall be imposed, as selected by the EPA, until EPA determines that the State has come into compliance. The sanctions available to the EPA are as follows:SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 1. Highway Sanctions EPA may impose prohibitions, applicable to a nonatt ainment area, on the approval by the Secretary of Transportation of any projects or the awarding by the Secretary of any grants, under title 23 other t han projects or grants for safety.

2. Offsets In applying the emissions offset requirements of §7 503 of this title to new or modified sources or emissions units for which a per mit is required under this part, the ratio of emission reductions to increased emissions shall be at least

two to one.

The purpose of this rule-amending project is to upd ate Section 6.2.4 of Rule 4401 as cited by EPA, and to clarify existing rule standards by r emoving expired language.

A. Background

On April 19, 1991 the District Governing Board adop ted Rule 4401 (Steam-Enhanced Crude Oil Production Well Vents). Rule 4401 has be en amended four times, the most recent amendments occurring in December of 2006. T he 2006 amendments added definitions; revised exemptions; added leak standar ds; updated and extended record maintenance requirements; provided criteria that al lowed for a waiver of annual source test provisions; and amended the title of the rule to remove “Vents”. The 2006 Rule 4401 (Steam-Enhanced Crude Oil Production Wells) am endments satisfied

commitments in the District EOADP and in the Distri ct 2003 and 2006 PM10 Plans.

B. Rule Development Process

As part of the rule development process, District s taff held public workshops on March 16 and 18, 2011, and a technical workgroup meeting on April 5, 2011. Staff solicited comments from the public, stakeholders, ARB and EPA at the workshops and for a two week commenting period after the workshops. Commen ts received during the commenting period were evaluated and incorporated i nto the proposed rule as appropriate.

The proposed rule and final draft staff report was published and provided to affected sources and interested parties prior to a public he aring to consider the adoption of the rule by the District Governing Board. The proposed amendments are scheduled to be presented to the Governing Board for the public hea ring to consider adoption of the

amendments to the rule on June 16, 2011.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 II. DISCUSSION

A. Existing Rule 4401

Rule 4401 applies to crude oil production wells whe re production is enhanced by steam injection. Business establishments with Standard I ndustry Code (SIC) 1311 (Crude Oil and Natural Gas) operate such crude oil production wells. The rule establishes requirements for inspection, component replacement, re-inspection, maintenance, repair periods, and replacement/retrofit for leakin g components. It also describes associated administrative and recordkeeping require ments, such as an inspection log, for determining compliance. The purpose of the rul e is to limit volatile organic compound (VOC) emissions from steam-enhanced crude oil production well vents. The primary source of VOC emissions from the wells is t he casing vent. The emissions from a casing vent are usually controlled through the op eration of a VOC collection and

control device.

B. EPA Evaluation of Rule 4401

EPA used the following memoranda, guidance, and sta tute to review the submitted rule to evaluate compliance with RACT requirements of CA A §182(b)(2):

• SJVAPCD’s 2009 RACT SIP Demonstration (April 16, 2 009);

• “Preamble, Final Rule to Implement the 8-hour Ozon e National Ambient Air Quality Standard”: (70 FR 71612 November 29, 2005);

• Letter from William T. Hartnett to Regional Air Di vision Directors, “RACT Qs & As – RACT Questions and Answers” (May 18, 2006); an d

• Other state and local rules for this category.

EPA used the following memoranda, guidance, and sta tute to review the submitted rule to evaluate compliance with CAA §110(a)(2)(A) requirement for enforceability:

• The Bluebook (“Issues Relating to VOC Regulation C utpoints, Deficiencies, and Deviations,” EPA, May 25, 1988);

• The Little Bluebook (“Guidance Document for Correc ting Common VOC & Other Rule Deficiencies,” EPA Region 9, August 21, 2001); and

• “State Implementation Plans, General Preamble for the Implementation of Title I of the Clean Air Amendments of 1990” (57 FR 13498, April 16, 1992).

C. EPA Recommendations

On January 26, 2010, EPA published a limited approv al and limited disapproval of revisions to the District portion of the California SIP. This action was proposed in the Federal Register on July 17, 2009 regarding VOC emi ssions from steam-enhancedSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 crude oil production well vents. Under authority o f the CAA, as amended in 1990, this action simultaneously approves local rules tha t regulate these emission sources and directs California to correct rule language.

EPA finalized a limited approval of the submitted r ule, as authorized in §110(k)(3) and §301(a) of the CAA; EPA also simultaneously fin alized a limited disapproval of a portion of the rule. Because of the limited disapp roval, sanctions will be imposed on the District unless EPA approves subsequent SIP rev isions within 18 months of the

effective date of this action. These sanctions wil l be imposed under §179 of the CAA according to 40 CFR 52.31. In addition, EPA mu st promulgate a federal implementation plan (FIP) under §110(c) unless EPA approves subsequent SIP

revisions within 24-months of the effective date of this action. Note that EPA’s final limited disapproval does not prevent the District f rom enforcing the rule.

The Technical Support Document for the Notice of Pr oposed Rulemaking recommends the District remove the following senten ce from Section 6.2.4 of Rule 4401: “The District evaluation and the APCO request shall be deemed approved unless EPA or ARB objects to such approval in writi ng within 45 days of the receipt of the APCO request.” However, the Federal Registe r states “We note that the District may address these concerns by providing ex plicit and replicable procedures within the rule that tightly define how the Distric t’s discretion will be exercised to assure equivalent emission reductions.”

The previously mentioned sentence in Section 6.2.4 provides executive officer discretion in conflict with CAA §110(a) and (i) and long-standing national policy as

discussed in the bluebook and little bluebook. CAA §110(i) specifically prohibits EPA and the states from taking any “action modifyin g any requirement of an applicable implementation plan with respect to any stationary source” except as otherwise authorized by the CAA. Section 6.2.4 of Rule 4401 effectively allows the District to grant a waiver to federally-approved SI P requirements if EPA does not object within 45 days of receiving the District’s r equest for concurrence. Without a process that ensures that any such waiver is grante d only upon EPA approval in accordance with CAA requirements, this provision is inconsistent with the requirements of the CAA and cannot be approved.

D. Proposed Amendments to Rule 4401

The primary purpose of this rule-amending project i s to update rule language as identified by EPA, and to remove expired language a nd redundant language from the rule for improved clarity.

Initially, staff proposed Section 6.2 be amended to remove the following sentence as specified by EPA: “The District evaluation and the APCO request shall be deemed approved unless EPA or ARB objects to such approval in writing within 45 days of the receipt of the APCO request.”SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 Based on language in the federal register and conve rsations with EPA and

stakeholders, staff revised the draft amendments to Section 6.2. Staff now proposes that Sections 6.2.1 and 6.2.2 be amended to list sp ecific activities that do not require annual source testing because they are subject to o ther District rule requirements. Section 6.2.2 in a previous version of the draft ru le presented at the technical workgroup meeting on April 5, 2011 had a subsection of 6.2.2. 5 that provided language for a VOC control system that is at least 99% effective. EPA addressed this section of the draft

rule in a comment letter sent to the District. The comment stated that Section 6.2.2.5 of the April 5, 2011 version of the draft rule could p rovide for exemptions for all VOC control systems that are at least 99% effective. S ince 99% VOC control is the default requirement of the rule by definition of VOC Collec tion and Control System (Section 3.50), this could seem to effectively exempt all so urces from source testing under this rule. Please delete this provision or demonstrate that it is necessary. Therefore, staff deleted Section 6.2.2.5 from the proposed rule.

The amended Section 6.2.1 and 6.2.2 would read as f ollows:

6.2.1 An operator shall source test annually all VO C collection and control systems used to control emissions from steam-enhanc ed crude oil production well vents to determine the control effi ciency of the device(s) used for destruction or removal of VOC. Compliance testing shall be performed annually by source teste rs certified by ARB. Testing shall be performed during June, July, August, or September of each year if the system's control effi ciency is dependent upon ambient air temperature. A process system is not subject to compliance source testing requirements.

6.2.2 If approved by the APCO, a VOC collection and control system is not subject to Section 6.2.1 if all uncondensed VOC emi ssions collected by the system are controlled by a device meeting on e of the requirements in Sections 6.2.2.1 through 6.2.2.3.

6.2.2.1 An internal combustion engine subject to Di strict Rule 4702

(Internal Combustion Engines – Phase 2); or

6.2.2.2 A combustion device subject to District Rul e 4320

(Advanced Emission Reduction Options for Boilers, S team Generators, and Process Heaters Greater than 5.0 MMBtu/hr); District Rule 4307 (Boilers, Steam Gener ators, and Process Heaters – 2 MMBtu/hr to 5 MMBtu/hr); or District Rule 4308 (Boilers, Steam Generators, and Process Heaters – 0.075 MMBtu/hr to 2.0 MMBtu/hr); orSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 6.2.2.3 A unit subject to District Rule 4311 (Flare s).

In addition to the proposed amendments to Section 6 .1 and 6.1, staff propose Section 6.2.3 be amended to remove outdated requirements. The amended Section 6.2.3

would read as follows:

6.2.3 An operator shall comply with the following r equirements for each gauge tank, as defined in Section 3.0:

6.2.3.1 An operator shall conduct periodic TVP test ing of each gauge tank at least once every 24 months during sum mer (July – September), and whenever there is a change in the source or type of produced fluid in the gauge tank.

6.2.3.2 The TVP testing shall be conducted at the a ctual storage temperature of the produced fluid in the gauge tank using the applicable TVP test method specified in Section 6.4 of Rule 4623 (Storage of Organic Liquids). The operat or shall submit the TVP testing results to the APCO as speci fied in

Section 6.1.9.

Staff originally suggested amending certain section s of rule language to improve clarity of currently enforced standards. The draft amendme nts included the following Sections:

• Sections 3.7 and 3.31 would be modified to exclude wells as process units or as critical process units with the addition of: “For p urposes of this rule, an individual well is not a process unit, and can not be a critic al process unit."

• Section 3.54 would be added to rule language to cl arify the definition of “Year”.

• Section 4.6.2 exempts “Components buried below gro und.” Update language for clarity with the addition of: "Components buried b elow the ground where no part of the component is accessible to check for leaks. Well casings are not considered buried components."

• Section 5.2.1 would be modified to clarify that al l leaks must be repaired for a facility to be in compliance with the addition of: “The violation shall persist until all leaking components are repaired according to the re quirements of Section 5.5.”

Industry has expressed concern regarding these draf t amendments and requested a full rule making process. Due to the shortened timeline for this rule project because of potential sanctions clocks, staff will move forward with the Section 6.2 amendments to satisfy the EPA limited disapproval. Staff is comm itted to continuing dialogue with stakeholders and continuing the rule development pr ocess to consider stakeholder concerns. It is important to note that this contin uation of the rule development process will not change current enforcement standards.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 E. Global Climate Change and Greenhouse Gases

The California Global Warming Solutions Act of 2006 (AB 32) created a comprehensive, multi-year program to reduce greenhouse gas (GHG) e missions in California, with the overall goal of restoring emissions to 1990 levels by the year 2020. In the coming years, the Air Resources Board (ARB) and the Legisl ature will be developing policies and programs to implement AB 32. The District beli eves that the evidence and the rationale that climate change is occurring is compe lling and convincing. In addition to the long-term consequences of climate change, the D istrict is concerned with the potential ramifications of more moderate but immine nt changes in weather patterns. The Valley depends heavily on agriculture for its e conomy and has developed agricultural practices based on the last several de cades of weather patterns. Unanticipated and large fluctuations in these patte rns could have a devastating effect on the Valley’s economy.

While there are many win-win strategies that can re duce both GHG and criteria/toxic pollutant emissions, when faced with situations tha t involve tradeoffs between the two, District staff believes that the more immediate pub lic health concerns that may arise from an increase in criteria or toxic pollutant emi ssions should take precedence. The San Joaquin Valley Air Pollution Control District’s Governing Board adopted the Climate Change Action Plan (CCAP) in August 2008. For Cali fornia Environmental Quality Act (CEQA) requirements, one of the goals of the CCAP i s to establish District processes for assessing the significance of greenhouse gas im pacts. The District has developed a policy and guidance for addressing greenhouse gases under CEQA.

Adoption of the proposed amendments would not lower emissions from this source category and there are no foreseeable changes in op erating practices resulting from implementation of these changes that would result i n increased GHG emissions.

Therefore, the District concludes that this rule de velopment project would have a less than cumulative impact on global climate change.

III. ANALYSIS

A. Emission Reduction & Cost Effectiveness Analysis

No emission reductions and no costs are anticipated from this rule-amending project

due to the administrative nature of the draft amend ments.

B. Socioeconomic Analysis

Pursuant to California Health and Safety Code (CH&S C) 40728.5(a), “Whenever a district intends to propose the adoption, amendment , or repeal of a rule or regulation that will significantly affect air quality or emiss ions limitations, that agency shall, to the extent data are available, perform an assessment of the socioeconomic impacts of theSAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 adoption, amendment, or repeal of the rule or regul ation. This section does not apply to the adoption, amendment, or repeal of any rule or r egulation that results in any less

restrictive emissions limit if the action does not interfere with the district's adopted plan to attain ambient air quality standards, or does no t result in any significant increase in emissions.” Proposed changes are based on federal requirements; additionally, this rule-amending project does not significantly affect air quality or strengthen any emission limitations, nor does it result in a significant in crease in emissions; therefore, no socioeconomic analysis is required.

C. Environmental Impact Analysis

Pursuant to §15061 of the Guidelines for Implementa tion of the California Environmental Quality Act (CEQA), District staff in vestigated the likely environmental impacts of the proposed amendments to Rule 4401. Th e purpose of this rule-amending project is to update Section 6.2 as cited by EPA, and to clarify existi ng rule standards by making minor changes to rule language. Proposed amendments are based on federal requirements do not change the meaning of current rule language. As such, District staff concludes that it can be seen with certainty that the propose d amendments to the rule will not have any significant adverse effect on the environment. Staff recommends filing a Notice of Exemption under the provisions of California Code o f Regulations §15061(b)(3).

D. Rule Consistency Analysis

Pursuant to CH&SC §40727.2, District staff has prep ared a rule consistency analysis that compares the elements of amendments with the c orresponding elements of other District rules, federal regulations and guidelines that apply to the same source category or type of equipment. District staff found that th e proposed amendments and requirements of this rule would not conflict with f ederal rules, regulations, or policies covering similar stationary sources. The rule cons istency analysis is presented in Appendix B of the final draft staff report.

E. RACT Analysis

CAA §182(b)(2) states that ozone attainment plans s hall assure that RACT for VOC is applied at certain sources. A RACT analysis requir es an examination of a rule against Federal rules, regulations, and technology guidelin es as well as comparing it against

rules from other air districts in California. On A pril 16, 2009, the District adopted its “2009 RACT SIP,” which provides the District’s demo nstration that RACT is implemented for all appropriate activities. The Di strict made the following two findings: (1) There is no national guidance or regulation to help define RACT for this activity; and, (2) overall, Rule 4401’s requirements are as string ent as other large California

nonattainment areas. As documented in the TSD for EPA’s Notice of Proposed Rulemaking on “EPA concurs with SJVAPCD’s findings and concludes that Rule 4401 implements RACT for three reasons.”SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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For Proposed Amendments to Rule 4401 1. Rule 4401 requires significant emissions control ; for example, steam-enhanced crude oil production wells can not be operated unle ss uncontrolled VOC emissions from any well vent are reduced by at leas t 99 percent by weight.

2. Rule 4401 leak detection and repair (LDAR) requi rements for crude oil production

wells are consistent with other similar LDAR rules, such as District Rule 4409 and Monterey Bay APCD Rule 427 – Steam Drive Crude Oil Production Wells.

3. SJVAPCD, South Coast AQMD, and other large Calif ornia large nonattainment agencies generally gave the most stringent stationa ry source requirements nationwide, and EPA is unaware of other reasonably available technological or operational controls likely to reduce significantly emissions from this activity.

In summary, EPA believes that Rule 4401 implements relevant RACT requirements. The RACT analysis is in Appendix C of this final dr aft staff report.

IV. REFERENCES

EPA. “The Bluebook: Issues Relating to VOC Regulat ion Cutpoints, Deficiencies, and Deviations”. May 25, 1988.

EPA Region IX. “Federal Register/Vol. 75, No. 16/Tu esday, January 26, 2010/Rules and Regulations: 40 CFR Part 52”. January 26, 2010

.

EPA Region IX. “Technical Support Document for EPA’ s Notice of Proposed Rulemaking on revisions to the California State Imp lementation Plan”. June 2009.

EPA Region IX. “The Little Bluebook: Guidance Docu ment for Correcting Common VOC & Other Rule Deficiencies”. August 21, 2001.

SCAQMD Rule 1148 (Thermally Enhanced Oil Recovery W ells). Adopted 11/5/82.

SCAQMD Rule 1173 (Control of Volatile Organic Compo und Leaks and Releases from Components at Petroleum Facilities and Chemical Pla nts). Adopted 7/7/89; Amended

12/7/90, 5/13/94, 12/6/02, 6/1/07, 2/6/09.

SJVUAPCD Extreme Ozone Attainment Demonstration Pla n for 1-Hour Ozone Standards. Adopted 10/8/04; Amended 8/21/08.

SJVUAPCD 2007 8-Hour Ozone Plan. Adopted 4/30/07; Amended 10/18/08.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DI STRICT

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