ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R06-0AR-2010-0148; FRL- --'

Approval and Promulgation of Air Quality Implementation Plans;

Texas; Revisions to the Discrete Emission Credit Banking and Trading Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

SUMMARY: EPA is proposing to approve severable portions of two revisions to the Texas

State Implementation Plan (SIP) submitted by the State of Texas on October 24, 2006, and

August 16,2007. These revisions amend existing sections and create a new section in Title 30 of

the Texas Administrative Code (TAC), Chapter 101 - General Air Quality Rules, Subchapter H

- Emissions Banking and Trading, Division 4 - Discrete Emission Credit Banking and Trading,

referred to elsewhere in this notice as the Discrete Emission Reduction Credit (DERC) Program.

The October 24, 2006, submittal creates a new section for international emission reduction

provisions and amends existing sections to prohibit the generation and use of DERCs from

shutdown activities and further clarify procedures for using emission protocols. The August 16,

2007, submittal amends two sections ofthe DERC program to update cross-references to

recently recodified 30 TAC Chapter 117 provisions. Additionally, EPA is proposing to find that

the Texas Commission on Environmental Quality (TCEQ) has satisfied all elements of our

September 6, 2006, final conditional approval of the DERC program with the submittal ofthe
2

October 24,2006, SIP submittal; and as such, the DERC program conditional approval is

proposed for full approval. EPA has determined that these SIP revisions comply with the Clean

Air Act and EPA regulations, are consistent with EPA policies, and will improve air quality.

This action is being taken under section 110 and parts C and D ofthe Federal Clean Air Act (the

Act or CAA).

DATE: Comments must be received on or before [Insert date 30 days from date of

publication in the Federal Registerl.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R06-0AR-20 I0-

0148, by one ofthe following methods:

(I) www.regulations.gov: Follow the on-line instructions for submitting comments.

(2) E-mail: Mr. Jeff Robinson at robinson.jeffrey@epa.gov. Please also cc the person listed

in the FOR FURTHER INFORMATION CONTACT paragraph below.

(3) U. S. EPA Region 6 "Contact Us" web site: http://epa.gov/region6/r6coment.htm. Please

click on "6PD" (Multimedia) and select "Air" before submitting comments.

(4) Fax: Mr. Jeff Robinson, Chief, Air Pennits Section (6PD-R), at fax number 214-665-

6762.

(5) Mail: MrJeffRobinson.Chief Air Permits Section (6PD-R), Environmental Protection

Agency, 1445 Ross Avenue, Suite 1200, Dallas, Texas 75202-2733.

(6) Hand or Courier Delivery: Mr. JeffRobinson, Chief, Air Permits Section (6PD-R),

Environmental Protection Agency, 1445 Ross Avenue, Suite 1200, Dallas, Texas 75202-

2733. Such deliveries are accepted only between the hours of8:30 AM and 4:30 PM
3

weekdays except for legal holidays. Special arrangements should be made for deliveries

of boxed information.

Instructions: Direct your comments to Docket 10 No. EPA-R06-0AR-2010-0148.

EPA's policy is that all comments received will be included in the public docket without change

and may be made available online at http://www.regulations.gov, including any personal

information provided, unless the comment includes information claimed to be Confidential

Business Information (CBI) or other information the disclosure of which is restricted by statute.

Do not submit information through http://www.regulations.gov or e-mail, if you believe that it is

CBI or otherwise protected from disclosure. The http://www.regulations.gov website is an

"anonymous access" system, which means that EPA will not know your identity or contact

information unless you provide it in the body of your comment. If you send an e-mail comment

directly to EPA without going through http://www.regulations.gov, your e-mail address will be

automatically captured and included as part ofthe comment that is placed in the public docket

and made available on the Internet. If you submit an electronic comment, EPA recommends that

you include your name and other contact information in the body of your comment along with

any disk or CD-ROM submitted. IfEPA cannot read your comment due to technical difficulties

and cannot contact you for clarification, EPA may not be able to consider your comment.

Electronic files should avoid the use ofspecial characters and any form of encryption and should

be free of any defects or viruses. For additional information about EPA's public docket, visit the

EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.

Docket: All documents in the docket are listed in the http://www.regulations.gov index.
4

Although listed in the index, some information is not publicly available, e.g., cm or other

information the disclosure of which is restricted by statute. Certain other material, such as

copyrighted material, will be publicly available only in hard copy. Publicly available docket

materials are available either electronically in http://www.regulations.gov or in hard copy at the

Air Permits Section (6PD-R), Environmental Protection Agency, 1445 Ross Avenue, Suite 700,

Dallas, Texas 75202-2733. The file will be made available by appointment for public inspection

in the Region 6 FOIA Review Room between the hours of 8:30 AM and 4:30 PM weekdays

except for legal holidays. Contact the person listed in the FOR FURTHER INFORMATION

CONTACT paragraph below to make an appointment. If possible, please make the appointment

at least two working days in advance of your visit. A 15 cent per page fee will be charged for

making photocopies of documents. On the day of the visit, please check in at the EPA Region 6

reception area on the seventh floor at 1445 Ross Avenue, Suite 700, Dallas, Texas.

The State submittal related to this SIP revision, and which is part ofthe EPA docket, is

also available for public inspection at the State Air Agency listed below during official business

hours by appointment:

Texas Commission on Environmental Quality, Office of Air Quality, 12124 Park 35

Circle, Austin, Texas 78753.

FOR FURTHER INFORMATION CONTACT: If you have questions concerning today's

proposed rule, please contact Ms. Adina Wiley (6PD-R), Air Permits Section, Environmental

Protection Agency, Region 6, 1445 Ross Avenue (6PD-R), Suite 1200, Dallas, TX 75202-2733.
5

The telephone number is (214) 665-2115. Ms. Wiley can also be reached via electronic mail at

wiley.adina@epa.gov.

SUPPLEMENTARY INFORMATION: Throughout this document wherever, any reference

to "we," "us," or "our" is used, we mean EPA.

Table of Contents

I. What Action is EPA Taking?

II. What Did Texas Submit?

III. What is EPA's Evaluation ofthese SIP Revisions?

IV. What is EPA's Evaluation ofthe TCEQ's Response to the DERC Conditional Approval?

V. Final Action

VI. Statutory and Executive Order Reviews

I. What Action is EPA Taking?

We are proposing to approve severable portions oftwo revisions to the Texas SIP

submitted by the TCEQ on October 24, 2006, and August 16,2007, specific to the DERC

Program. The DERC Program, conditionally approved by EPA on September 6, 2006,

establishes an open market trading program to provide flexibility for sources in complying with

certain State and Federal requirements. In an open market trading program, a source generates

emission credits by reducing its emissions during a discrete period oftime. These credits, called

discrete emission credits, or DECs, in the Texas program, are quantified in units of mass.
6

Discrete emission credit (DEC) is a generic term that encompasses reductions from stationary

sources (discrete emission reduction credits, or DERCs) and reductions from mobile sources

(mobile discrete emission reduction credits, or MDERCs).1 The revisions we are proposing to

approve amend existing sections and create a new section in the DERC Program at Title 30 of

the Texas Administrative Code (TAC), Chapter 101 - General Air Quality Rules, Subchapter H

- Emissions Banking and Trading, Division 4 - Discrete Emission Credit Banking and Trading.

The October 24, 2006, submittal creates a new section for international emission reduction

provisions and amends existing sections to prohibit the generation and use of DERCs from

shutdown activities and further clarify procedures for using emission protocols. Additionally,

EPA is proposing to find that the TCEQ has satisfied all elements of our September 6, 2006,

final conditional approval ofthe DERC program with the submittal ofthe October 24, 2006, SIP

submittal; and as such, the DERC program conditional approval is proposed for full approval.'

The severable portions of the August 16, 2007, submittal that we are proposing to approve nonsubstantively revise the DERC Program to correctly update the cross-references to the stationary

source nitrogen oxide (NOx) rules found in the Texas SIP at 30 TAC Chapter 117 as a result of

the non-substantive recodification ofChapter 117 approved by EPA as part ofthe Texas SIP on

December 3, 2008 (see 73 FR 73562). Additionally, in both the October 24, 2006, and August

16, 2007, SIP submittals TCEQ has made several non-substantive revisions to update grammar

and document style. Consequently, we are proposing to approve the revisions to the Texas SIP

I In this action, when we refer to the program as the "DERC Rule" or the "DERC Program" we are speaking ofthe

entire Discrete Emission Credit Banking and Trading Program, which encompasses both DERCs and MDERCs.

2 Today's action proposes to find that the TCEQ has satisfied all conditions ofthe September 6,2006, final DERC

conditional approval. See 71 FR 52703. This action is separate from, and unrelated to, the Dallas/Fort Worth 1997

8-hour Ozone Attainment Demonstration conditional approval finalized by EPA on January 14,2009, at 74 FR

1903.
7

at 30 TAC sections 101.372(a), 101.372(d), 101.372(t), 101.3720), 101.373(a), 101.376(c)(4),

and 101.378(b) and the creation of new section 101.375 submitted on October 24,2006.

Additionally, we are proposing to approve revisions to the Texas SIP at 30 TAC sections

101.372(d) and 101.376(d) submitted on August 16,2007 by the TCEQ.

II. What Did Texas Submit?

We are proposing to approve severable portions oftwo revisions to the Texas SIP

specific to the DERC Program. The first revision we are proposing action on was adopted by the

TCEQ on October 4, 2006, and submitted to EPA on October 24, 2006. At the same time that

TCEQ adopted and submitted revisions to the DERC Program, revisions were also adopted and

submitted for the Emission Credit Banking and Trading Program (referred to elsewhere in this

notice as the Emission Reduction Credit (ERe) Program) and the Emissions Banking and

Trading of Allowances (EBTA) Program. The revisions to the ERC and EBTA Programs are

specific to separate, distinct trading programs and, as such, are severable from the DERC

Program revisions. We are not proposing to act upon the severable revisions to the ERC

Program at 30 TAC Chapter 101, Subchapter H, Division 1, sections 101.302, 101.305, and

101.306. EPA is processing a separate rulemaking to address the 2006 and 2007 ERC Program

revisions (see EPA-R06-0AR-2010-0417). EPA has not yet taken action on the EBTA Program

at 30 TAC Chapter 101, Subchapter H, Division 2 and therefore is not proposing action today on

the repeal and replacement ofsection 101.338 and the revisions to section 101.339. The second

revision upon which we are proposing action was adopted by the TCEQ on July 25, 2007, and

submitted to EPA on August 16, 2007. Also at this time TCEQ adopted and submitted revisions
8

to the general air quality definitions, the ERC Program, and the System Cap Trading (SCT)

Program. We are not acting today upon revisions to the general air quality definitions at 30 TAC

Chapter 101, Subchapter A, section 101.1 because the DERC Program does not rely upon them

(therefore the revisions are severable from the DERC Program) and previous revisions to section

101.1 are still pending for review by EPA. We are also not acting today upon the revisions to the

ERC Program at 30 TAC Chapter 101, Subchapter H, Division 1,sections 101.302 and 101.306

because these revisions are severable from the DERC program and the October 24, 2006, SIP

revision is still under EPA review. EPA intends to take a separate rulemaking action to address

the 2006 and 2007 ERC Program revisions (see EPA-R06-0AR-20 10-04 17). EPA has not yet

taken action on the System Cap Trading Program at 30 TAC Chapter 101, Subchapter H,

Division 5 and therefore is not acting today upon the severable revisions to sections 101.383 and

101.385.

A copy ofthe October 24,2006, and August 16,2007, SIP submittals as well as our

Technical Support Document (TSD) can be obtained from the Docket, as discussed in the

"Docket" section above. A discussion ofthe specific Texas rule changes that we are approving

is included in the TSD and summarized below.

A. October 24,2006 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.372 - General Provisions

The existing SIP-approved version ofsection 101.372 was adopted by the TCEQ on

December 13,2002, and conditionally approved by EPA on September 6, 2006 (see 71 FR
9

52703). The revisions to section 101.372(a) and (f) adopted by the TCEQ on October 4,2006,

delete the information pertaining to international emission reductions and move these provisions

to new section 101.375. Additionally, section 101.372(d)(1)(C)(vi) is revised to clarify EPA's

approval process ofthe quantification protocols for the DERC Program. Several non-substantive

revisions for grammar and style were also made by the TCEQ in this submittal.

2. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.373 - Discrete Emission

Reduction Credit Generation and Certification

The existing SIP-approved version ofsection 101.373 was adopted by the TCEQ on

November 10, 2004, and conditionally approved by EPA on September 6, 2006 (see 71 FR

52703). The revisions to section 101.373(a) prohibit the generation ofDERCs from shutdown

activities; specifically, section 101.373(a)(1 ) is amended to delete permanent shutdowns as a

method of generating DERCs and section 101.373(a)(2) is amended to update the prohibited

generation strategy list to include permanent shutdowns.

3. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.375 - Emission Reductions

Achieved Outside the United States

On October 4,2006, TCEQ adopted new section 101.375. This new section contains the

previously SIP-approved international emission reduction provisions from sections 101.372(a)

and (f) and updates the international provisions consistent with the requirements ofTexas Senate

Bill 784.

4. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.376 - Discrete Emission
10

Credit Use

The existing SIP-approved version ofsection 101.376 was adopted by the TCEQ on

November 10, 2004, and conditionally approved by EPA on September 6, 2006 (see 71 FR

52703). The proposed SIP revision adopted by the TCEQ on October 4, 2006, amends section

101.376(c)(4) to update cross-references to 30 TAC Chapter 106 in the list of prohibited DEC

use strategies.

5. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.378 - Discrete Emission

Credit Banking and Trading

The existing SIP-approved version ofsection 101.378 was adopted by the TCEQ on

December 13,2002, and conditionally approved by EPA on September 6, 2006 (see 71 FR

52703). The revisions to section 101.378(b) revise the lifetime ofa discrete emission credit to

prohibit the use of discrete emission credits generated from shutdowns; specifically, section

101.378(b)( 1) states that discrete emission credits generated from shutdowns prior to September

30,2002, will be available for use until September 8,2010, and section 101.378(b)(2) prohibits

the use ofshutdown discrete emission credits generated after September 30, 2002.

B. August 16, 2007 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.372 - General Provisions

The revisions to section 101.372 adopted by the TCEQ on July 25,2007, further revise

the revisions adopted by the TCEQ on October 4, 2002. The 2007 revisions non-substantively

amend section 101.372(d)(l)(A) to correctly cross-reference the recodified stationary source
II

nitrogen oxide (NOx) rules to the Texas SIP at 30 TAC Chapter 117. Additionally, section

101.372(d)(l )(B) was non-substantively amended to include the correct title for the stationary

source volatile organic compound rules to the Texas SIP at 30 TAC Chapter 115.

2. 30 TAC Chapter 101, SUbchapter H, Division 4, Section 101.376 - Discrete Emission

Credit Use

The revisions to section 101.376 adopted by the TCEQ on July 25, 2007, further revise

the revisions adopted by the TCEQ on October 4,2002. The 2007 revisions non-substantively

amend section 101.376(d)(2)(A) to correctly cross-reference the recodified stationary source

NOx rules to the Texas SIP at 30 TAC Chapter 117.

III. What is EPA's Evaluation of These SIP Revisions?

A. October 24, 2006 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.302 - General Provisions

The October 4, 2006, revisions to sections 101.372(a), 101.372(d), 101.372(t) and

101.3720) are approvable. Sections 101.372(a) and 101.372(t) were revised to delete the

information pertaining to international emission reductions and relocate these provisions to new

section 101.375. This consolidation ofthe international emission reduction provisions improves

the clarity of the DERC Program by creating a new section specific to international emission

reductions. Section 101.372(d)(l)(C)(vi) was revised to clarify EPA's role in the approval of

emission quantification protocols. While the previous SIP-approved provisions were accurate
12

and consistent with EPA's Economic Incentive Program (EIP) Guidance ("Improving Air

Quality with Economic Incentive Programs" (EPA-452/R-OI-00l, January 2001)), the revised

language has been restructured to more closely follow the provisions for approving emission

quantification protocols at section 5.2(c) ofthe EIP Guidance. The non-substantive revisions to

sections 101.372(d)(1)(C)(iv) and 101.3720) update the formatting and grammar ofthe DERC

General Provisions.

The revisions to section 101.372 described above were made pursuant to TCEQ's

September 8, 2005, commitment letter for the DERC Program conditional approval (included in

the docket for this action). In this commitment letter, TCEQ committed to revising, among

others things, section 101.372 to more clearly require EPA approval for international emission

reduction transactions and to clarify the EPA's role in approving emission quantification

protocols. Please see section IV. ofthis notice for a discussion of how the TCEQ has addressed

the elements of DERC conditional approval and the September 8, 2005, commitment letter.

2. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.373 - Discrete Emission

Reduction Credit Generation and Certification

The October 4,2006, revisions to sections 101.373(a)(1) and 101.373(a)(2) are

approvable. The revisions to section 101.373(a)(1) and (a)(2) amend the allowable and

prohibited generation strategy lists to reflect that permanent shutdowns are a prohibited DERC

generation strategy. These amendments are consistent with the Open-Market Trading provisions

at section 7.5(b) ofthe EIP Guidance.
13

The revisions to section 101.373 described above were made pursuant to TCEQ's

September 8,2005, commitment letter for the DERC Program conditional approval (included in

the docket for this action). In this commitment letter, TCEQ committed to revising the DERC

program to prohibit the future generation ofDERCs from shutdowns. Please see section IV. of

this notice for a discussion of how the TCEQ has addressed the elements of DERC conditional

approval and the September 8, 2005, commitment letter.

3. 30 TAC Chapter 10I, Subchapter H, Division 4, Section 101.375 - Emission Reductions

Achieved Outside the United States

New section 101.375 adopted on October 4,2006, is approvable. EPA finds that in

addition to relocating the SIP-approved international emission reduction language from section

101.372, new section 101.375 has expanded the scope of our original DERC program approval

to allow the use of international reductions in lieu of DERCs to occur in attainment areas within

100-km ofthe Texas-Mexico border, consistent with the requirements of Texas Senate Bill 784.

However, the continued requirement at section 101.375 for EPA approval before any such use is

consistent with the intent of our DERC program conditional approval on September 6, 2006.

EPA approval continues to be through a case-specific SIP revision that must clearly demonstrate

through a detailed CAA section 110(1) analysis that the use of such international reductions will

not jeopardize attainment or maintenance ofthe National Ambient Air Quality Standards or any

other applicable standards. As noted in our September 6, 2006, final conditional approval ofthe

DERC Program " ... international trades present an especially difficult case. For instance,

currently there is no mechanism for demonstrating that reductions made in another country are

surplus or enforceable. Nonetheless, emission reductions in other countries could offer
14

substantial air quality benefits in the United States." See 71 FR 52703,52705. In approving this

revision to the DERC program, "EPA is recognizing the concept ofinternational trading and

describing a framework (i.e., the submission of a SIP revision demonstrating among other things

the validity and enforceability of foreign reductions) for such trading, in the event that a suitable

and approvable mechanism is ever developed for resolving concerns including enforceability and

surplus. Until such a mechanism is developed and approved by EPA, however, EPA will not

approve international trades under the DERC rule." See 71 FR 52703,52705. Further, it is

important to note, that even though we are approving the use of international reductions in lieu of

DERCs along the Texas-Mexico border, the use ofthese reductions must still meet the

requirements ofthe CAA. Therefore, the international reductions are not available for use as

federal NSR offsets since section 173(c)(l) ofthe CAA requires that offset reductions come from

the same nonattainment area as the proposed source or modification or another nonattainment

area with an equal or higher nonattainment classification.

4. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.376 - Discrete Emission

Credit Use

The October 4,2006, revisions to section 101.376(c)(4) are approvable. TCEQ correctly

updated the cross-references to Chapter 106 in response to our final conditional approval notice.

In our final notice we stated that "We are not approving section 101.376(c)(4) into the Texas SIP

because the cross-references to 30 TAC Chapter 106 Permit by Rule, sections 106.261(3) or (4)

or section 106.262(3) are incorrect and do not exist in State law, the Texas SIP, or the Texas

Federal Operating Permits program. Consequently, unless and until the State adopts and

submits a revision to EPA for approval as a SIP revision and EPA approves it, the use of
15

discrete emission credits to exceed the provisions in certain types ofpre-construction permits

termed Permits by Rule is not available under the Texas SIP."

While EPA has not approved sections 106.261 and 106.262 into the Texas SIP, we are

able to approve the revisions to section 101.376(c)(4). By approving the revisions to section

101.376(c)(4) we are not approving a use ofDERCs that conflicts with the Texas SIP, rather we

are approving a listed prohibition of DERC usage that would further support the Texas SIP.

Additionally, if an owner or operator of a facility wished to use DERCs in a manner that

exceeded limitations from sections 106.261 or 106.262, the use would have to be approved by

TCEQ and EPA; EPA anticipates our approval would only occur through a case-specific SIP

revision following a demonstration from the owner/operator that useage of DERCs in this

manner would not undermine the attainment strategy ofthe area or constitute a violation of CAA

section 110(1).

5. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.378 - Discrete Emission

Credit Banking and Trading

The October 4, 2006, revisions to section 101.378 are approvable. The revisions to

section 101.378(b)(1) and (b)(2) limit the lifetime of certain discrete emission credits generated

from shutdowns. Discrete emission credits generated from shutdowns prior to September 30,

2002, remain available for use until September 8, 20 IO. Any discrete emission credits certified

from shutdowns after September 30, 2002, may not be used. These amendments are consistent

with the Open-Market Trading provisions at section 7.5(b) ofthe EIP Guidance.
16

The revisions to section 101.378 described above were made pursuant to TCEQ's

September 8, 2005, commitment letter for the DERC Program conditional approval (included in

the docket for this action). In this commitment letter, TCEQ committed to revising the DERC

program to restrict the lifetime of previously generated shutdown DERCs. Please see section IV.

ofthis notice for a discussion of how the TCEQ has addressed the elements ofDERC conditional

approval and the September 8, 2005, commitment letter.

B. August 16, 2007 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.372 - General Provisions

The July 25,2007, revisions to section I01.372(d)(l)(A) and (B) are approvable. As

demonstrated further in our TSD, the non-substantive revisions to section 10I.372(d)(l )(A)

correctly cross-reference the recodified stationary source NOx rules in the Texas SIP at 30 TAC

Chapter 117. The non-substantive revisions to section 101.372(d)( 1)(B) correctly update the

titles ofthe stationary source VOC rules in the Texas SIP at 30 TAC Chapter 115. These nonsubstantive revisions do not affect the approved emission quantification protocols established for

the DERC Program.

2. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.376 - Discrete Emission

Credit Use

The July 25, 2007, revisions to section I01.376(d)(2)(A) are approvable. As

demonstrated further in our TSD, these non-substantive revisions correctly cross-reference the

recodified stationary source NOx rules in the Texas SIP at 30 TAC Chapter 117. These non-
17

substantive revisions do not affect the emission use calculations established for the DERC

Program.

IV. What is EPA's Evaluation of the TCEQ's Response to the DERC Conditional

Approval?

A. What is a conditional approval?

Under section 11O(k)(4) ofthe Clean Air Act, EPA may conditionally approve a plan

based on a commitment from the State to adopt specific enforceable measures within one year

from the date of approval. The conditional approval remains in effect until EPA takes its final

action - either a final approval or disapproval.

If EPA determines that the revised rule is approvable, EPA will propose approval ofthe

rule through a notice and comment rulemaking. After responding to comments received, EPA

will publish a final approval ofthe rule and the conditional approval is no longer in effect.

However, ifthe State fails to meet its commitment within the one year period, then EPA must

proceed with a disapproval action. EPA will propose disapproval of the rule through notice and

comment rulemaking, and will finalize the disapproval after responding to all comments

received. Note that EPA will conditionally approve a certain rule only once. Subsequent

submittals ofthe same rule that attempt to correct the same specifically identified problems will

not be eligible for conditional approval.
18

B. What are the terms ofthe DERCprogram conditional approval?

EPA conditionally approved the DERC program on September 6, 2006. Our conditional

approval was based on a commitment letter submitted by the TCEQ on September 8, 2005. The

September 8, 2005, commitment letter included the following provisions that the TCEQ agreed

to address by December 1, 2006. Additionally, TCEQ agreed to comply with these

commitments during the conditional approval period. Specifically, TCEQ agreed to not approve

any trades involving the types ofreductions described in item (3) below, not approve any use of

discrete shutdown credits that were generated after September 30, 2002, and to require the

waiver described in item (4) below for generators and users of discrete emission credits.

1. Revise 30 TAC § 101.373 to prohibit the future generation ofDERCs from permanent

shutdowns and to allow DERCs generated and banked from permanent shutdowns prior

to September 30, 2002, to remain available for use for no more than five years from the

date of this letter.

2. The TCEQ will perform a credit audit to remove from the emissions bank all DERCs

generated from permanent shutdowns after September 30,2002. Even ifthe shutdown

itself occurred before September 30, 2002, no DERCs can be generated from that event

after September 30, 2002.

3. Revise 30 TAC §§ 101.302(t), 1o1.372(t)(7) and 101.372(t)(8) to clarify that EPA

approval is required for individual transactions involving emission reductions generated

in another state or nation, as well as those transactions from one nonattainment area to

another, or from attainment counties into nonattainment areas. The TCEQ further

understands that the EPA would require a state implementation plan revision prior to
19

approving an transaction between another state or nation, as well as, those transactions

between counties not located within the same nonattainment area.

4. The TCEQ will revise Form DEC-I, Notice of Generation and Generator Certification of

Discrete Emission Credits; Form MDEC-l, Notice of Generation and Generator

Certification of Mobile Discrete Emission Credits; and Form DEC-2, Notice of Intent to

Use Discrete Emission Credits, to include a waiver to the federal statute of limitations

defense for generators, and users of DERCs and mobile discrete emission reduction

credits (MDERCs). Please be reminded that there is currently no applicable state statute

of limitations in the State ofTexas. In addition, the TCEQ will maintain its current

policy of preserving all records relating to DERC and MDERC generation and use for a

minimum of five years after the use strategy has ended.

5. Revise 30 TAC §§ 101.302 and 101.372 to clarify that a proposed quantification protocol

may not be used ifthe TCEQ Executive Director receives a letter from the EPA objecting

to the use ofthe protocol during the 45-day adequacy review period or ifthe EPA

proposes disapproval ofthe protocol in the Federal Register.

6. Revise 30 TAC § 101.306 to specify that Emission Reduction Credits may be used within

the highly reactive volatile organic compounds Emissions Cap and Trade program as an

annual allocation of allowances as provided under 30 TAC § 101.399.

C. Were the terms ofthe DERC conditional approval met?

Following is an analysis of each DERC program element ofthe September 8, 2005,

commitment letter and TCEQ's response. EPA is not including the ERC program elements (see

commitments 3, 5, and 6 above) in our analysis of the DERC conditional approval. The ERC
20

and DERC programs operate independently of each other and have been approved as separate,

stand alone programs by EPA. The submission of these ERC provisions will not impact the

functionality ofthe DERC program nor were these revisions to the ERC program necessary for

the DERC program to be considered consistent with EPA regulations, policy and guidance. EPA

has evaluated the October 24, 2006, ERC program revisions in a separate rulemaking (see EPAR06-0AR-2010-0147).

1. Revise 30 TAC § 101.373 to prohibit the future generation of DERCs from permanent

shutdowns and to allow DERCs generated and banked from permanent shutdowns prior

to September 30, 2002, to remain available for use for no more than five years from the

date ofthis letter.

TCEQ met this commitment ofthe conditional approval. TCEQ adopted the appropriate

provisions and submitted the revised rules as a SIP revision within the time frame. TCEQ

adopted revisions to section 101.373 that removed shutdowns as a method of generation and

added the following language under the list of prohibited generation activities at section

101.373(a)(2): "permanent or temporary shutdowns or permanent curtailment of an activity at a

facility". TCEQ adopted revisions to section 101.378(b)(1) that revise the lifetime ofa DEC.

Section 101.378(b)( 1) states that "Discrete emission credits generated from shutdown strategies

prior to September 30, 2002, will be available for use until September 8, 2010."

Note that the DERC calculation procedures at sections 101.373(c)(1), (3), and (4) discuss

how DERCs are calculated from shutdowns. Additionally, section 101.373(d)(3)(c) discusses
21

how to certify the generation of DERCs from shutdown activities. EPA believes that the

inclusion ofthis language was an oversight on TCEQ's part when responding to our conditional

approval commitments. The DERC program at section 101.373(a)(2)(A) clearly prohibits the

generation of DERCs from shutdowns. Therefore, EPA feels that TCEQ should remove this

language at their earliest convenience, but that the prohibition on generation ofshutdown DERCs

is not impacted by this erroneous calculation.

2. The TCEQ will perform a credit audit to remove from the emissions bank all DERCs

generated from permanent shutdowns after September 30,2002. Even if the shutdown

itself occurred before September 30, 2002, no DERCs can be generated from that event

after September 30, 2002.

TCEQ met this commitment ofthe conditional approval. TCEQ adopted the appropriate

provisions and submitted the revised rules as a SIP revision within the time frame. TCEQ

confirmed in a letter dated February 5, 2010, that the credit audit was performed in January 2006

(this letter is available in the docket for this rulemaking). Additionally, TCEQ adopted two

revisions to the SIP that will ensure that shutdowns after September 30, 2002, do not generate

DERCs. First, the revision to section 101.373(a)(2) prohibits the future generation of DERCs

from shutdowns (as discussed in item 1 above). Second, the TCEQ revised section

101.378(b)(2) so that "Discrete emission credits certified from facility shutdowns after

September 30, 2002, may not be used."
22

3. Revise 30 TAC §§ 101.372(f)(7) and I01.372(f)(8) to clarify that EPA approval is

required for individual transactions involving emission reductions generated in another

state or nation, as well as those transactions from one nonattainment area to another, or

from attainment counties into nonattainment areas. The TCEQ further understands that

the EPA would require a state implementation plan revision prior to approving a

transaction between another state or nation, as well as, those transactions between

counties not located within the same nonattainment area.

TCEQ met the DERC-specific portion ofthis commitment. Section I01.372(f) outlines

the geographic scope ofthe DERC rule and generally provides that, with the exception of

international reductions pursuant to section 101.375, only reductions generated in the State of

Texas can be certified as DERCs. Section I01.372(f)(7) was unchanged by TCEQ and continues

to provide that reductions from other counties, states, or nations can be used in any attainment or

nonattainment county provided a demonstration showing improvement in air quality has been

approved by the TCEQ ED and EPA. The use ofinternational reductions under section

I01.372(f)(7) is further modified by the restrictions at section 101.375.

Section 101.372(f)(8) was moved to new section 101.375. Section 101.375 establishes

two ways that a facility could use an international reduction. First, a facility could use reductions

of a criteria pollutant or precursor of criteria pollutant to meet requirements ofthe same criteria

pollutant. This option would be used if a facility had a NOx requirement in Texas and could find

NOx reductions in Mexico or an ozone requirement in Texas and could find VOC reductions in

Mexico. Alternately, a facility could use reductions of a criteria pollutant or its precursors to
23

substitute for reductions in other criteria pollutants. For example, this situation would be one in

which a source could be subject to a PM2.5 requirement and wants to use CO reductions to

satisfy the requirement. Generally, both ofthese uses (the same criteria pollutant or the

substitution) requires approval by EPA and the TCEQ ED; the source must demonstrate that the

reduction is real, permanent, enforceable, quantifiable, and surplus to any applicable Mexican,

federal, state, or local law; demonstrate that the use of the reduction does not cause localized

health impacts; submit all supporting information for calculations and modeling; and be located

within 100km ofthe Texas-Mexico border.

There are additional requirements for the case where a facility wants to substitute the

international reduction of a criteria pollutant or its precursor for the obligations of a different

criteria pollutant (the example above in which the facility used CO reductions for a PM2.5

requirement). The facility must either show that the reduction is substituted for the reduction

requirement of another criteria pollutant and the substitution results in a greater health benefit

and is of equal or greater benefit to the overall air quality of the area; or, the source must show

that the reduction of a criteria pollutant (or precursor) for which the area is nonattainment is

substituted for another criteria pollutant (or precursor) requirement for which an area is

nonattainment.

Even though section 101.372(f)(7) was not revised, EPA approval is clearly required for

uses ofreductions from other counties, states, or other nations. Uses ofinternational reductions

under section 101.372(f)(7) are further modified by the restrictions at section 101.375, which

also clearly require EPA approval.
24

4. The TCEQ will revise Form DEC-I, Notice of Generation and Generator Certification of

Discrete Emission Credits; Form MDEC-I, Notice of Generation and Generator

Certification of Mobile Discrete Emission Credits; and Form DEC-2, Notice ofIntent to

Use Discrete Emission Credits, to include a waiver to the federal statute of limitations

defense for generators, and users of DERCs and mobile discrete emission reduction

credits (MDERCs). Please be reminded that there is currently no applicable state statute

of limitations in the State of Texas. In addition, the TCEQ will maintain its current

policy of preserving all records relating to DERC and MDERC generation and use for a

minimum of five years after the use strategy has ended.

TCEQ met this commitment of the conditional approval. In a letter dated February 5,

20 I0, the TCEQ stated that even though the commitment included modifying Form MDEC-I,

such form has never been created. However, Form MDEC-I will include a waiver ofthe federal

statute of limitations defense if at any time in the future the TCEQ creates said form. Also in the

February 5, 2010, letter, the TCEQ stated that the Forms DEC-I and DEC-2 were modified in or

before February 2007, but that the exact modification date could not be determined since the

TCEQ does not keep copies of old versions ofthe form. Additionally, the TCEQ modified Form

DEC-3, Notice of Use of Discrete Emission Credits, to include the same waiver ofthe federal

statute of limitations defense even though modification of Form DEC-3 was not part ofthe

commitment. Copies ofthe modified DEC-I, DEC-2, and DEC-3 forms were included with the

letter. Note that the February 5, 20 I0, letter and attachments is available in the FDMS docket for

this action.
25

The TCEQ confirmed that during the time period between September 2006 and February

2007, there were no DERC generations submitted. So, even though Form DEC-l was not

revised until February 2007, there was not an instance where DERC generation did not have the

appropriate waiver. However, between September 2006 and February 2007, there were 18 DEC2 forms submitted to the TCEQ without the waiver offederal statute oflimitations defense

language. But, under the DERC program, any notification of intent to use DERCs submitted on

a DEC-2 form, must be followed by a notification of use through the submission of a DEC-3

form. All 18 DEC-2 forms were followed by submissions ofthe DEC-3 forms with the

appropriate waiver language.

Even though the DEC-l and DEC-2 forms were not modified by the December 2006

deadline specified in the commitment letter, EPA finds that the intent ofthis commitment has

been satisfied. The intent ofthis commitment was to ensure that all DERC generation and use

activities were covered by a waiver ofthe federal statute oflimitations defense. Since no

DERCs were generated during this time, there was no need for a DEC-I form. The 18 DEC-2

forms provide notification that a source intends to use DERCs, the verification that the use

occurred is through the submission of a DEC-3 form. TCEQ verified that all 18 DEC-2 forms

were followed by the submission of a modified DEC-3 form - thereby covering all DERC usage

activities with the waiver ofthe federal statute oflimitations defense.

5. Revise 30 TAC § 101.372 to clarify that a proposed quantification protocol may not be

used ifthe TCEQ Executive Director receives a letter from the EPA objecting to the use
26

ofthe protocol during the 45-day adequacy review period or if the EPA proposes

disapproval ofthe protocol in the Federal Register.

TCEQ met this commitment ofthe conditional approval. TCEQ adopted the appropriate

provisions and submitted the revised rule as a SIP revision within the time frame. TCEQ revised

section 101.372(d)(vi) to state that "quantification protocols shall not be accepted for use with

this division ifthe executive director receives a letter objecting to the use ofthe protocol from

the EPA during the 45-day adequacy review or the EPA proposes disapproval ofthe protocol in

the Federal Register."

V. Final Action

EPA is proposing to approve severable revisions to the Texas SIP submitted on October

24, 2006, and August 16, 2007. Specifically from the October 24, 2006 submittal, EPA is

approving the amendments to section 101.372(a) and (f) that move the international emission

reduction requirements to a new section, the amendments to section lO1.372(d)(l)(C)(vi) that

clarify EPA's role in approving emission quantification protocols, the amendments to section

101.373 to prohibit the generation of DERCs from shutdowns, the amendment to section

101.376(c)(4) that updates the cross-references to Chapter 106 provisions, the amendments to

section 101.378(b) to limit the lifetime of previously generated shutdown DERCs, and nonsubstantive revisions to sections 101.372(d) and 101.372(j). EPA is also proposing to approve

provisions for international emission reductions at new section 101.375 submitted on October 24,
27

2006. The October 24, 2006, DERC Program revisions satisfy the elements of the September 8,

2005, commitment letter; as such, EPA is proposing the DERC program for full approval.

Additionally, we are proposing to approve the following nonsubstantive revisions to the Texas

SIP submitted on August 16,2007: revisions to sections 101.372(d)(l)(A) and 101.376(d)(2)(A)

to update the cross-references to recently recodified provisions in 30 TAC Chapter 117 and

revisions to section 101.372(d)(l)(B) to update the cross-referenced title to provisions in Chapter

115.

In a separate rulemaking, EPA is proposing action on the severable ERC Program

revisions at 30 TAC sections 101.302, 101.305, and 101.306 submitted on October 24, 2006, and

30 TAC sections 101.302 and 101.306 submitted on August 16,2007 (see EPA-R06-0AR-201O0417).

At this time, EPA is not taking action on the revisions to the Emissions Banking and

Trading of Allowances Program at 30 TAC sections 101.338 and 101.339 submitted on October

24, 2006. EPA is also not taking action at this time on the revisions to the general air quality

definitions at 30 TAC Section 101.1 or the revisions to the System Cap Trading Program at 30

TAC sections 101.383, and 101.385 submitted on August 16,2007. These severable revisions

remain under review by EPA and will be addressed in separate actions.

VI. Statutory and Executive Order Reviews
28

Under the Clean Air Act, the Administrator is required to approve a SIP submission that

complies with the provisions of the Act and applicable Federal regulations. 42 U.S.c. 7410(k);

40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices,

provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely

approves state law as meeting Federal requirements and does not impose additional requirements

beyond those imposed by state law. For that reason, this action:

• is not a "significant regulatory action" subject to review by the Office of Management

and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• does not impose an information collection burden under the provisions ofthe Paperwork

Reduction Act (44 U.S.C. 3501 et seq.);

• is certified as not having a significant economic impact on a substantial number ofsmall

entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.);

• does not contain any unfunded mandate or significantly or uniquely affect small

governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law

104-4);

•

•

•

does not have Federalism implications as specified in Executive Order 13132 (64 FR

43255, August 10, 1999);

is not an economically significant regulatory action based on health or safety risks subject

to Executive Order 13045 (62 FR 19885, April 23, 1997);

is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355,

May 22, 2001);
29

• is not subject to requirements of Section 12(d) of the National Technology Transfer and

Advancement Act of 1995 (15 U.S.c. 272 note) because application ofthose

requirements would be inconsistent with the Clean Air Act; and

• does not provide EPA with the discretionary authority to address, as appropriate,

disproportionate human health or environmental effects, using practicable and legally

permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65

FR 67249, November 9,2000), because the SIP is not approved to apply in Indian country

located in the state, and EPA notes that it will not impose substantial direct costs on tribal

governments or preempt tribal law.

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, Intergovernmental relations, Nitrogen

oxides, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.

Authority: 42 U.S.c. 7401 et gq.

Dated: Lawrence E. Starfield

Acting Regional Administrator, Region 6.