UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION IX AIR DIVISION

Technical Support Document 

for

EPA’s Rulemaking for the

California State Implementation Plan

as submitted by the California Air Resources Board

Regarding

South Coast Air Quality Management District

Rule 317, “Clean Air Act Non-Attainment Fees”

Prepared by: Lily Wong

January 4, 2012
2

TABLE OF CONTENTS

1. Rule Identification

2. Background

a. Clean Air Act Section 185 Fees

b. South Coast 1-Hour Ozone Nonattainment Status

c. Legal Rationale For Alternative Programs

3. Rule Summary

a. Section 172(e) Fee Equivalency Account

b. Calculation of CAA Non-Attainment (Section 185) Fee Obligation 

c. Annual Demonstration of Equivalency

d. Annual Preliminary Determination of Equivalency

e. Reporting to CARB and EPA

f. Backstop Provision For Failure To Achieve Equivalency

4. EPA Review Criteria

a. Enforceability

b. Rule Relaxation

c. Section 185 of the Clean Air Act

5. EPA Evaluation

a. Enforceability

b. Rule Relaxation

c. Section 185 of the Clean Air Act

6. EPA Action

7. Attachments
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1. RULE IDENTIFICATION

Agency: South Coast Air Quality Management District (SCAQMD)

Subject of this TSD: Rule 317 “Clean Air Act Non-Attainment Fees”

Adopted: February 4, 2011

Submitted: April 22, 20111

Current SIP-Approved

Rule: None2

2. BACKGROUND: 

a. Clean Air Act Section 185 Fees

Under Sections 182(d)(3), (e), (f) and 185 of the 1990 Clean Air Act Amendments (CAA 

or the Act), States with ozone nonattainment areas classified as Severe or Extreme are required 

to submit a SIP revision that requires major stationary sources of volatile organic compounds 

(VOC) or oxides of nitrogen (NOx) emissions to pay a fee. Under CAA section 185(a), the 

required SIP revision must provide for payment of the fees,3computed in accordance with 

section 185(b), if the severe or extreme nonattainment area in which such sources are located has 

failed to attain the 1-hour ozone standard by the applicable attainment date, for each calendar 

year beginning after the attainment date.

Although EPA revoked the 1-hour ozone standard (effective June 15, 2005), EPA 

required, during the transition from the 1-hour ozone to the 8-hour ozone standard, that 1-hour 

nonattainment areas remain subject to certain requirements pertaining to the area’s previous 1-

hour classification, as ozone anti-backsliding requirements, for continued progress toward the 

1997 ozone standards. Initially, our rules to address the transition from the 1-hour to the 8-hour 

ozone standard did not include the section 185 fee penalty requirement as one of the measures 

necessary to meet CAA anti-backsliding requirements.4 On December 23, 2006, however, the 

United States Court of Appeals for the District of Columbia Circuit upheld the revocation of the 

1-hour standard but determined that EPA should not have removed from its anti-backsliding 

requirements the application of the section 185 fee provision for severe and extreme 

nonattainment areas that failed to attain the 1-hour ozone standard by their attainment date. 

South Coast Air Quality Management District v. EPA, 472 F.3d 882 (D.C. Cir. 2006). 

Consequently, on January 5, 2010, EPA determined that California failed to submit SIP revisions 

 

1 On December 21, 2011, SCAQMD provided supplemental information (see Attachment I to this Technical Support 

Document (TSD)). The supplemental information will be referred to in this TSD as SCAQMD’s “December 2011 

letter.”

2 There are no previous versions of Rule 317 in the SIP. Although the SCAQMD adopted an earlier version of Rule 

317 on December 5, 2008, that rule was never submitted to EPA for approval as a SIP revision. 

3 The fee rate is $5,000 per ton in 1990 dollars, which must be adjusted for inflation based on the Consumer Price 

Index. An estimate of the fee rate in 2011 is $8,967.33 (see Attachment II of this TSD). 

4

Final Rule to Implement the 8-hour Ozone National Ambient Air Quality Standard – Phase 1, 69 FR 23951 (April 

30, 2004).
4

for several air agencies, including the SCAQMD, to meet the section 185 requirements for the 1-

hour ozone standard (75 FR 232). 

b. South Coast 1-Hour Ozone Nonattainment Status

On November 6, 1991, EPA designated the Los Angeles-South Coast Air Basin Area 

(South Coast Air Basin) as “Extreme” nonattainment for the one-hour ozone standard, with an 

attainment date no later than November 15, 2010 (56 FR 56694).5 With the exception of Indian 

country, the South Coast Air Basin lies within the jurisdiction of the South Coast Air Quality 

Management District (SCAQMD).6 EPA also designated the Southeast Desert Modified Air 

Quality Maintenance Area (Southeast Desert Modified AQMA) as “Severe-17” nonattainment 

for the one-hour ozone standard, with an attainment date no later than November 15, 2007.7

Excluding Indian country, the Riverside County portion8of the Southeast Desert Modified 

AQMA lies within the SCAQMD; the Los Angeles County and the San Bernardino County 

portions of the Southeast Desert Modified AQMA lie within the Antelope Valley Air Quality 

Management District (AVAQMD), and the Mojave Desert Air Quality Management District 

(MDAQMD), respectively. On December 30, 2011, we published a finding that the South Coast 

Air Basin and the Southeast Desert Modified AQMA failed to attain the 1-hour ozone standard 

by their applicable attainment dates (76 FR 82133).

9

As explained above, although the D.C. Circuit Court upheld EPA’s decision to revoke the 

1-hour standard, it also ruled that the requirements of CAA section 185 continue to apply to 

areas that failed to meet the standard. Therefore, given the Court’s decision and South Coast Air 

Basin’s classification as an “Extreme” 1-hour ozone nonattainment area and the Southeast Desert

Modified AQMA’s classification as a “Severe” 1-hour ozone nonattainment area, the State of 

California was required to submit a SIP providing for a section 185 fee program in South Coast

Air Basin and the portion of the Southeast Desert Modified AQMA under SCAQMD 

jurisdiction. 

 

5 The South Coast Air Basin includes Orange County, the southwestern two-thirds of Los Angeles County, 

southwestern San Bernardino County, and western Riverside County (see 40 CFR section 81.305). 

6

Indian country as defined at 18 U.S.C. 1151 refers to: (a) all land within the limits of any Indian reservation under 

the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and, including rightsof-way running through the reservation, (b) all dependent Indian communities within the borders of the United 

States whether within the original or subsequently acquired territory thereof, and whether within or without the 

limits of a state, and (c) all Indian allotments, the Indian titles to which have not been extinguished, including rightsof-way running through the same.

7 The Southeast Desert Modified AQMA covers the Victor Valley/Barstow region in San Bernardino County, the 

Coachella Valley region in Riverside County, and the Antelope Valley portion of Los Angeles County (see 40 CFR 

section 81.305).

8 The Riverside County portion of the Southeast Desert AQMA, which is in SCAQMD, has also been referred to as 

“the portion of the Southeast Desert Modified AQMA that is located in SCAQMD,” “the Coachella Valley portion 

of the Southeast Desert Modified AQMA,” and “the Riverside County portion of the Salton Sea Air Basin.” These 

are names for the same geographic area. Rule 317 uses the terminology “Riverside County portion of the Salton Sea 

Air Basin”.

9 On April 30, 2004, EPA promulgated ozone area designations for the 1997 8-hour ozone standard, and revoked the 

1-hour standard, effective, as noted above, June 15, 2005. See 69 FR 23951. The South Coast Air Basin is 

classified as an “Extreme” area under the 1997 8-hour ozone national ambient air quality standard (NAAQS). The 

Coachella Valley portion of the former Southeast Desert Modified AQMA (which does not exist for purposes of the 

1997 8-hour ozone NAAQS) is classified as a Severe-17 area under the 1997 8-hour ozone NAAQS.
5

c. Legal Rationale For Alternative Program

EPA is proposing that states can meet the section 185 obligation arising from the revoked 

1-hour ozone NAAQS through a SIP revision containing either the fee program prescribed in 

section 185 of the Act, or an equivalent alternative program. As further explained below, EPA is 

proposing that an alternative program may be acceptable if EPA determines, through notice-andcomment rulemaking, that it is consistent with the principles of section 172(e) of the CAA and is 

not less stringent than a program prescribed by section 185.10 

Section 172(e) is an anti-backsliding provision of the CAA that requires EPA to develop 

regulations to ensure that controls in a nonattainment area are “not less stringent” than those that 

applied to the area before EPA revised a NAAQS to make it less stringent. In the Phase 1 Ozone 

Implementation Rule for the 1997 ozone NAAQS published on April 30, 2004 (69 FR 23951), 

EPA determined that although section 172(e) does not directly apply where EPA has 

strengthened the NAAQS, as it did in 1997, it was reasonable to apply to the transition from the 

1-hour NAAQS to the more stringent 1997 8-hour NAAQS, the same anti-backsliding principle 

that would apply to the relaxation of a standard. Thus, as part of applying the principles in 

section 172(e) for purposes of the transition from the 1-hour standard to the 1997 8-hour 

standard, EPA can either require states to retain programs that applied for purposes of the 1-hour 

standard, or can allow states to adopt equivalent alternative programs, but only if such 

alternatives are determined through notice-and-comment rulemaking to be “not less stringent” 

than the mandated program. EPA has previously identified three types of alternative programs 

that could satisfy the section 185 requirement: (i) those that achieve the same emissions 

reductions; (ii) those that raise the same amount of revenue and establish a process where the 

funds would be used to pay for emission reductions that will further improve ozone air quality; 

and (iii) those that would be equivalent through a combination of both emission reductions and 

revenues.

11

We are proposing today to determine through notice-and-comment rulemaking that States 

can demonstrate an alternative program’s equivalency by comparing expected fees and/or 

emissions reductions directly attributable to application of section 185 to the expected fees, 

pollution control project funding, and/or emissions reductions from the proposed alternative 

 

10 EPA has previously set forth this reasoning in a memorandum from Stephen D. Page, Director, Office of Air 

Quality Planning and Standards, to Air Division Directors, “Guidance on Developing Fee Programs Required by 

Clean Air Act Section 185 for the 1-hour Ozone NAAQS,” January 5, 2010 (“Section 185 Guidance Memo”). On 

July 1, 2011, the D.C. Circuit Court of Appeals vacated this guidance, on the ground that it was final agency action 

for which notice-and-comment rulemaking procedures were required. NRDC v. EPA, No. 10-1056, 2011 WL 

2601560, C.A.D.C. 2011. EPA subsequently set forth this reasoning in a rulemaking action concerning an 

equivalent alternative 185 program submitted as a SIP revision to EPA by the State of California on behalf of the 

San Joaquin Valley Unified Air Pollution Control District (“SJVUAPCD”). 76 FR 45213 (July 28, 2011). In so 

doing, we were applying the court’s directive to follow the rulemaking requirements set forth in the Administrative 

Procedures Act to inform consideration of section 185 and equivalent alternative programs. In this action regarding 

SCAQMD Rule 317, we are again applying the court’s directive to follow rulemaking requirements with respect to 

section 185 and equivalent alternative programs. 

11 These types of programs were identified in our rulemaking action concerning SJVUAPCD’s alternative 185 fee 

program 76 FR 45213 (July 28, 2011). 
6

program. Under an alternative program, states might opt to shift the fee burden from a specific 

set of major stationary sources to non-major sources, such as owners of mobile sources that also 

contribute to ozone formation. EPA also believes that alternative programs, if approved as “not 

less stringent” than the section 185 fee program, would encourage one-hour ozone NAAQS 

nonattainment areas to reach attainment as effectively and expeditiously as a section 185 fee 

program, if not more so, and therefore satisfy the CAA’s goal of attainment and maintenance of 

the NAAQS. 

While section 185 focuses most directly on assessing emissions fees, we believe it is 

useful to interpret anti-backsliding requirements for section 185 within the context of the CAA’s 

ozone implementation provisions of subpart 2 (which includes section 185). The subpart 2 

provisions are designed to promote reductions of ozone-forming pollutant emissions to levels 

that achieve attainment of the ozone NAAQS. In this context, to satisfy the anti-backsliding 

requirements for section 185 associated with the 1-hour NAAQS we believe it is appropriate for 

states to implement equivalent alternative programs that maintain a focus on achieving further 

emission reductions, whether that occurs through the incentives created by fees levied on 

pollution sources or other funding of pollution control projects, or some combination of both. 

For any alternative program adopted by a state, the state’s demonstration that the program is not 

less stringent should consist of comparing expected fees and/or emission reductions directly 

attributable to application of section 185 to the expected fees, pollution control project funding, 

and/or emissions reductions from the proposed alternative program. For a valid demonstration to 

ensure equivalency, the state’s submissions should not underestimate the expected fees and/or 

emission reductions from the section 185 fee program, nor overestimate the expected fees, 

pollution control project funding, and/or emission reductions associated with the proposed 

alternative program. 

We also note that the structure established in Subparts 1 and 2 of the CAA recognizes 

that successful achievement of clean air goals depends in great part on the development by states 

of clean air plans that that are specifically tailored to the nature of the air pollution sources in 

each state. The Act recognizes that states are best suited to design plans that will be most 

effective. Allowing states to put forward an equivalent program under the circumstances that 

pertain here, and under the authority of 172(e), is consistent with this principle of the Act.

In sum, in order for EPA to approve an alternative program as satisfying the 1-hour ozone 

section 185 fee program SIP revision requirement, the state must demonstrate that the alternative 

program is not less stringent than the otherwise applicable section 185 fee program by collecting 

fees from owner/operators of pollution sources, providing funding for emissions reduction 

projects, and/or providing direct emissions reductions equal to or exceeding the expected results

of the otherwise applicable section 185 fee program. We are inviting public comment on 

whether it is appropriate for EPA to consider equivalent alternative programs, and, if so, whether

Rule 317 would constitute an approvable equivalent alternative program. 
7

3. RULE SUMMARY

This section summarizes the key provisions of Rule 317. EPA’s evaluation of these 

provisions is found in TSD section 5, “EPA Evaluation.”

The purpose of Rule 317 is to satisfy the requirements of sections 182 and 185 of the Act 

by utilizing a fee equivalency approach consistent with the principles of 172(e) of the Act. 

Under Rule 317, SCAQMD will track, calculate, analyze, and report to demonstrate that the 

requirements of section 185 of the Act have been met. Rule 317 includes: calculation of CAA 

non-attainment (Section 185) fee obligation (section (c)(2)), establishment of a Section 172(e) 

fee equivalency account (section (c)(1)); an annual demonstration of equivalency (section 

(c)(3)); an annual preliminary determination of equivalency (section (c)(4)); reporting to CARB 

and EPA (section (c)(5)); and a backstop provision for failure to achieve equivalency (section 

(c)(6)). In addition, by letter dated December 21, 2011 (see TSD Attachment I), SCAQMD 

clarified that it intends to separately track and evaluate the annual demonstration of equivalency 

and the annual preliminary determination of equivalency by non-attainment areas. 

a. Calculation of CAA Non-Attainment (Section 185) Fee Obligation 

Beginning August 1, 2012 and continuing annually thereafter, SCAQMD will calculate 

the total amount of major stationary source fees that would have been assessed in the prior 

calendar year under a direct implementation of section 185 of the Act (sections (c)(2) and (b) of

the rule). A fee is calculated for each major stationary source whose actual emissions of VOC or 

NOx exceed 80% of its baseline emissions (section (b)(4)). The fee rate is $5,000 per ton in 1990 

dollars, which must be adjusted for inflation based on the Consumer Price Index (CPI) (section 

(b)(5)). 

While CAA section 185 requires baseline emissions to be based on the source’s actual 

emissions during the attainment year, it also allows the use of alternative baselines, consistent 

with EPA guidance. Rule 317 specifies that baseline emissions of an existing source in the South 

Coast Air Basin will be based on an average of the source’s actual emissions during fiscal years 

2005-06 and 2006-07 (which are not to exceed allowable emissions), and would be 

programmatically adjusted by SCAQMD to take into account the effects of new requirements or 

regulations from 2006 to 2010. In the Salton Sea Air Basin, an existing source’s baseline 

emissions are its reported emissions during 2007, the attainment year for the Southeast Desert 

Modified AQMA (section (b)(2)A)). 

Rule 317 specifies that, for sources that become subject to the rule after the attainment 

year, baseline emissions are based on allowable limits in the applicable implementation plan or 

potential to emit, or holdings of RECLAIM Trading Credits (RTC) (section (b)(2)(B)). 

b. Section 172(e) Fee Equivalency Account

Under Rule 317, SCAQMD will establish a “Section 172(e) fee equivalency account” 

that will be credited with expenditures from qualified programs that meet the criteria in section 

(c)(1)(A) of the rule: (i) surplus to the 1-hour ozone SIP and approved by the District, CARB, 
8

and EPA as being surplus to the SIP; (ii) designed to result in direct VOC or NOx reductions in 

SCAQMD, or to facilitate future VOC or NOx reductions in SCAQMD through vehicle/engine 

fueling infrastructure or advanced technology development efforts for implementation within the 

next 10 years, or for other uses approved by EPA; (iii) expenditures occurring only in calendar 

years subsequent to 2008 from eligible projects;12 and (iv) only monies actually expended from 

qualified programs during a calendar year shall be credited. Section (c)(1)(D) of the rule 

provides that the equivalency account may be pre-funded with expenditures from the programs 

listed in Attachment A of the rule.13

Rule 317 provides that eligible expenditures do not need to be held or disbursed directly 

by SCAQMD provided the underlying program has been approved by CARB and EPA (section 

(c)(1)(B)). Funds will be accounted for on a dollar for dollar basis, will not be discounted due to 

the passage of time, and may accumulate from year to year if a surplus exists in any given year 

(section (c)(1)(C)).

c. Annual Demonstration of Equivalency

Beginning August 1, 2012 and continuing annually thereafter, SCAQMD will 

demonstrate that the funds in the Section 172(e) fee equivalency account for the prior year are 

equal to or greater than the CAA non-attainment (Section 185) fee obligation that would have 

been assessed for the prior year in accordance with the equation in section (c)(3) of the rule. 

d. Annual Preliminary Determination of Equivalency

Beginning July 1, 2012 and continuing annually thereafter, SCAQMD will also project 

whether adequate funding is expected to be available in the Section 172(e) fee equivalency 

account in the current year in accordance with the equation in section (c)(4) of the rule. This 

preliminary determination of equivalency requires the projection to show that the amount of 

funds in the fee equivalency account are at least 110% of the previous year’s fee obligation, 

which serves as a surrogate for the current year’s fee obligation. 

e. Reporting to CARB and EPA

Beginning September 3, 2012 and continuing annually thereafter, SCAQMD will provide 

a report to CARB and EPA on the results of the demonstration of equivalency and preliminary 

determination of equivalency, as well as information on facilities’ fee obligations, programs and 

expenditures included in the fee equivalency account, and any surplus funding carried over to the 

subsequent calendar year (section (c)(5)).

 

12 In the SCAQMD December 2011 letter, SCAQMD clarified that for the South Coast Air Basin equivalency 

demonstration, SCAQMD intends to only include expenditures that occurred in calendar years 2010 and forward. 

The equivalency demonstration for the Southeast Desert Modified AQMA in SCAQMD will include expenditures 

that occurred in calendar year 2008 and forward. 

13 Attachment A of Rule 317 identifies potential sources of funds for the Section 172(e) Fee Equivalency Account. 

These potential funding mechanisms include: fees from motor vehicles pursuant to AB 118 and AB 2766 and 

federal grants to fund retrofitting of school buses and trucks. 
9

f. Backstop Provision For Failure To Achieve Equivalency

If the annual demonstration of equivalency fails to show sufficient funds in the Section 

172(e) fee equivalency account for the prior year, or the preliminary determination of 

equivalency shows that adequate funding may not be available in the current year, then Rule 317 

requires the SCAQMD Executive Officer (EO) to submit to the Governing Board within 90 days 

of the finding a back-stop rule that would require the EO to collect and/or track adequate fees for 

any shortfall. The Governing Board is required to act on the backstop rule within 120 days of 

the funding inadequacy finding (section (c)(6)). 

If SCAQMD adopts a backstop rule applicable to major stationary sources, Rule 317 

states that the backstop rule would include provisions that allow sources to request an alternate 

baseline period and multi-site aggregation of baseline and emissions (sections (c)(6)(A) and (B)). 

Rule 317 also states that stationary sources paying such fees in the backstop rule shall receive a 

credit for annual operating fees and annual operating emission fees paid to SCAQMD (section 

(c)(6)(C)).

4. EPA REVIEW CRITERIA

EPA considered the criteria described and set forth in the following sections of the CAA 

and guidance documents to evaluate this rule: 

a. Enforceability - Section 110(a) of the Clean Air Act requires enforceable SIP requirements. 

Several EPA guidance documents are used to evaluate rule enforceability, including the 

“Bluebook” (Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Clarification to 

Appendix D), November 24, 1978, 52 FR 45044), “the Little Bluebook” (Guidance 

Document for Correcting Common VOC & Other Rule Deficiencies), EPA Region 9, August 

21, 2001, and “Review of State Implementation Plans and Revisions for Enforceability and 

Legal Sufficiency; Section 110: State Implementation Plans,” EPA, September 23, 1987 

Memorandum. 

b. Rule Relaxation - EPA must evaluate whether this SIP revision would interfere with any 

applicable requirement concerning attainment and reasonable further progress (RFP) or any 

requirement of the Act (CAA 110(l)) or modify, in a nonattainment area, any SIP-approved 

control requirement in effect before November 15, 1990 (CAA 193).

c. Section 182(d)(3) of the Clean Air Act requires states with severe or extreme 1-hour ozone 

nonattainment areas to submit a SIP which includes the provisions required under section

185. CAA section 185 requires such SIPs to provide that, if the area has failed to attain the 

1-hour ozone NAAQS by the applicable attainment date, each major stationary source of 

VOCs must pay a fee, computed in accordance with section 185(b), for each calendar year 

beginning after the attainment date. Under section 185(b)(1), the state’s SIP revision must 

require each major stationary source to pay a fee for each ton of VOC emitted in excess of 

80% of baseline emissions. A source’s baseline emissions are its actual emissions during the 

required attainment year. Section 185(b)(2) allows use of an alternative baseline, as provided 
10

in EPA guidance. Section 182(f) extends the requirements of section 185 to major stationary 

sources of NOx.

An alternative program equivalent to section 185 may be acceptable if EPA determines, 

through notice-and-comment rulemaking, that it is consistent with the principles of section 

172(e) of the CAA. Section 172(e) is an anti-backsliding provision of the CAA. As part of 

applying the principles in section 172(e) for purposes of the transition from the 1-hour 

standard to the 1997 8-hour standard, EPA can either require states to retain programs that 

applied for purposes of the 1-hour standard, or alternatively can allow states to adopt 

equivalent alternative programs, but only if such alternatives are determined through noticeand-comment rulemaking to be “not less stringent” than the mandated program.

d. Memorandum from William Harnett, Director of the Air Quality Policy Division to the 

Regional Air Division Directors, entitled, “Guidance on Establishing Emissions Baselines 

under Section 185 of the Clean Air Act (CAA) for Severe and Extreme Ozone Nonattainment 

Areas that Fail to Attain the 1-hour Ozone NAAQS by their Attainment Date,” March 21, 

2008. This guidance can be found on the Internet at: 

http://www.epa.gov/ttn/oarpg/t1/memoranda/20080321_harnett_emissions_basline.pdf

5. EPA EVALUATION

Rule 317 complies with the evaluation criteria as discussed below. 

a. Enforceability – The rule is generally clear and consistent with the Bluebook and the Little 

Bluebook and other relevant EPA guidance regarding enforceability. The SCAQMD is 

required to follow the procedures in the rule to make the equivalency demonstration and to 

adopt a backstop rule to make up any shortfall if equivalency is not initially demonstrated. 

These provisions, if approved into the SIP, would be enforceable against SCAQMD. 

b. Rule Relaxation – EPA believes that this SIP revision would comply with CAA sections 

110(l) and 193, because it would not interfere with the on-going process for ensuring that 

requirements for RFP and attainment of the NAAQS are met. 

c. Sections 182 and 185 of the CAA – SCAQMD submitted Rule 317 to meet the requirements 

of sections 182 and 185, by utilizing a fee equivalency approach consistent with the 

principles of 172(e) of the Act. Under Rule 317, SCAQMD will annually demonstrate that 

their alternative fee program in Rule 317 is not less stringent than what is required by section 

185 of the CAA. 

Equivalency Demonstration in Two Non-Attainment Areas

As described in the background section of this TSD, there are two 1-hour ozone nonattainment areas within the jurisdiction of the SCAQMD – the South Coast Air Basin and the 

Southeast Desert Modified AQMA. In its December 2011 letter, SCAQMD clarified that it 

intends to provide separate equivalency demonstrations for the two non-attainment areas. 

Specifically, the expenditures in the 172(e) fee equivalency account will be tracked 

separately for each non-attainment area. The equivalency analyses will compare fee 
11

obligations within the non-attainment area to expenditures in the same non-attainment area. 

EPA agrees that the separate tracking of expenditures and demonstration for each nonattainment area is necessary. 

The Benchmark and Baseline Emissions

One initial step in the equivalency demonstration is to determine the benchmark for 

comparison, i.e., the amount of fees that would have been collected in any year under direct 

implementation of section 185. A fee should be calculated for each major stationary source 

whose actual emissions of VOC or NOx exceed 80% of its baseline emissions. The equation 

in section (b)(4) of Rule 317 to calculate a source’s fee obligation reflects the method for 

calculation of the fee set out in section 185(b)(1). 

Section 185(b)(2) of the Act provides that baseline emissions are the lower of the source’s 

actual or allowable emissions during the attainment year. Section 185 and EPA’s March 

2008 baseline guidance memorandum14 provide for determining baseline emissions over a 

longer period that is more representative of normal operations if a source’s emissions are 

irregular, cyclical, or otherwise vary significantly from year to year. As explained below, 

SCACMD provided documentation that emissions are irregular and variable and that fiscal 

years 2005/06 and 2006/07 are more representative than the attainment year.

SCAQMD’s staff report for Rule 317 and the December 2011 letter explain that because 

emissions from major stationary sources are irregular and variable, an alternative baseline 

period as allowed under the CAA and EPA’s 2008 baseline guidance is appropriate. 

SCAQMD provided data on various indicators such as Gross Domestic Product, regional 

employment, usage of gaseous fuels, and usage of coatings and solvents to show the 

recessionary effects on emissions throughout the area (see Exhibit D of SCAQMD’s 

December 2011 letter). 

SCAQMD also provided source-specific emissions data for all 234 sources subject to section 

185 fees that reported actual emissions in the year 2010 of > 10 tons/year (see Exhibit D, 

Figure F of SCAQMD’s December 2011 letter). A review of this data shows that each of 

these sources had variable emissions. In addition, for a subset of these facilities (112 

facilities), SCAQMD had 10 consecutive years’ of emissions data (see Exhibit D, Figure B of 

SCAQMD’s December 2011 letter). For this subset, SCAQMD analyzed variability by 

calculating the “variation in emissions (or irregularity)” called “V” (see Exhibit D, Figures B 

of SCAQMD’s December 2011 letter) where “V” is based on the following equation: 

V = Range of Emissions [(highest reported value) minus (lowest reported value)]

Median Emissions Value

SCAQMD’s analyses of source emissions variation for the 112 facilities are provided in 

graph form in Exhibit D, Figure C of the December 2011 letter. SCAQMD’s analyses show 

that the distribution of variation ranges from 20% to greater than 300% and that 84 of the 112 

facilities (e.g., 75% of the facilities) had variation in emissions between 40% and 140%. 

Because SCAQMD’s analyses cover all sources that reported actual emissions in 2010 > 10 

tons/year, EPA understands that the facilities not represented are those with the potential-to-

 

14 See TSD section 4.d above.
12

emit (PTE) > 10 tons/year, but reporting actual emissions below 10 tons in 2010. Thus, the 

234 facilities analyzed are the larger sources and represent the facilities that emit most of the 

emissions. EPA believes that SCAQMD’s analyses focus on the majority of emissions that 

would be subject to section 185 fees and agrees that South Coast’s reliance on an alternative 

baseline period for major stationary sources is appropriate. 

Rule 317 defines baseline emissions for most existing stationary sources in the South Coast 

Air Basin as an average of actual emissions from two consecutive years (fiscal years 2005-

2006, and 2006-2007), not to exceed allowable emissions. SCAQMD’s staff report for Rule 

317 and December 2011 letter explains that SCAQMD selected this two-year baseline period 

as more representative of typical production and emissions because it occurred before the 

economic recession that began in 2008 and that using 2010 actual emissions as the baseline 

year would lock sources to an atypically low production year. 

SCAQMD’s December 2011 letter states that the selection of fiscal years 2005-2006 and 

2006-2007 as the baseline period15 for all major stationary sources results in an alternative 

baseline amount that is conservative. SCAQMD explains that under EPA’s 2008 baseline 

guidance, sources are allowed to choose any 24-month consecutive period in the past 10 

years, including a period selected by the source. See 40 CFR 52.21(48) SCAQMD’s 

analyses show that the District’s selected baseline period results in a lower baseline overall 

compared to a regulatory approach that would allow sources to propose their own baseline

period (see SCAQMD’s December 2011 letter, Exhibit D, Response #3). A lower baseline 

amount is conservative because it establishes a lower threshold for calculating the assessment 

of section 185 fees. 

After SCAQMD determines the baseline emissions for a specific facility based on the Annual 

Emissions Reporting (AER) Program for the fiscal years 2005/06 and 2006/07, not to exceed

allowables, section (b)(2)(A) of Rule 317 requires SCAQMD to programmatically adjust the 

baseline to account for the effects of regulatory changes between 2006 and 2010. This 

programmatic adjustment also ensures that SCAQMD’s baseline determination will reflect 

the lower of actual or allowable emissions, even when the allowable emission limits 

subsequently became more stringent. For example, under SCAQMD Rule 2002, the NOx

emissions budget in the RECLAIM cap and trade program was reduced starting in 2007. 

SCAQMD states that the vast majority of all NOx sources are RECLAIM sources. 

Consequently, NOx baseline emissions for RECLAIM sources will be adjusted to reflect the 

requirements of SCAQMD Rule 2002 where a source’s holding of RECLAIM Trading 

Credits are reduced (see SCAQMD’s December 2011 letter, Responses #6 & 7).

EPA agrees that the emissions baseline provisions of Rule 317 are appropriate.

Criteria for Expenditures from Qualified Programs

Rule 317 requires SCAQMD to establish a Section 172(e) fee equivalency account which 

will be credited with expenditures from qualified programs that meet the criteria outlined in 

section (c)(1)(A). One criterion is whether the expenditures, which result in emission 

 

15 If a facility does not have reported emissions during fiscal years 2005/06 and 2006/07, the facility’s baseline 

emissions will be its 2010 actual emissions, not to exceed allowables (see SCAQMD December 2011 letter), .
13

reductions, are surplus to the 1-hour ozone SIP. The approved 1-hour ozone SIP in the South 

Coast Air Basin is the 1997 Air Quality Management Plan, as revised in 1999.16 The 

approved 1-hour ozone SIP in the Southeast Desert Modified AQMA is the 1994 Air Quality 

Management Plan.17

EPA views as “surplus” reductions that are not relied upon in the SIP, i.e., reductions that are 

not required nor assumed by the SIP to provide for RFP or attainment.18 SCAQMD 

identified three preliminary lists of qualified programs: (i) Rule 317 Attachment A, “List of 

Programs Pre-funding Section 172(e) Fee Equivalency Account;” (ii) Attachment B in the 

staff report, “List of Potential Section 172(e) Fee Equivalent Account Funding Programs for 

Post-2011;” and (iii) Attachment C in the staff report, “List of Potential Future Section 

172(e) Fee Equivalent Account (Credit) Programs.” In its December 2011 letter, SCAQMD 

updated the lists of qualified programs,19 which are attached to the letter as: (i) Exhibit A 

“Qualified Programs and Estimated Actual Expenditures for 2010 and 2011 Pre-funding the 

Section 172(e) Fee Equivalency Account,” and (ii) Exhibit B “Qualified Programs Providing 

On-Going Funding for Post-2010 to Section 172(e) Fee Equivalent Account.”

20

 

The December 201l letter also elaborates on the bases for the conclusion that listed programs 

are surplus and meet the criteria at Rule 317(c)(1)(A) (see SCAQMD’s December 2011 

letter, Questions & Answers #1-4) SCAQMD evaluated the base year and future year 

baseline emission inventories. 

EPA has reviewed this documentation and agrees with SCAQMD that the programs 

previously listed in Attachment A of Rule 317 and Attachments B and C of the staff report 

and listed as Exhibits A and B to the December 2011 letter are surplus. As documented by 

SCAQMD in their December 2011 letter, the grant and funding programs in Exhibits A and 

B are not relied upon for SIP credit in the 1-hour ozone attainment demonstration approved 

based on the South Coast 1997 AQMP and 1999 Revisions (see Tables 2 and 3, 65 FR 6091, 

6096-6097, February 8, 2000). The South Coast 2003 AQMP did not assign emissions 

reduction credit to SCAQMD grant or funding programs. (See Table 2, 73 FR 63408, at 

63414, October 24, 2008). This determination, with respect to these programs only, 

addresses section (c)(1)(A)(i) of the rule, which requires EPA’s approval that the qualified 

programs are surplus to the SIP. Future determinations of “surplus” may be necessary if 

SCAQMD relies on programs or expenditures other than those identified in Exhibits A and B 

of their December 21, 2011 letter to offset section 185 fee obligations.

 

16 This SIP was approved by EPA on April 10, 2000 (see 65 FR 18903).

17 This SIP was approved by EPA on January 8, 1997 (see 62 FR 1150).

18 “Surplus” is discussed in EPA’s guidance, “Improving Air Quality with Economic Incentive Programs” published 

on January 2001 (EPA-452/R-01-001) and available at http://www.epa.gov/ttn/oarpg/t1/memoranda/eipfin.pdf

19 While Section (c)(1)(D) of Rule 317 states, “The Section 172(e) fee equivalency account may be pre-funded 

according to the projects listed in Attachment A,” SCAQMD was not limited to these projects. Any qualified 

project must meet the criteria in section (c)(1) of Rule 317. Because SCAQMD had more current information than 

what was available during rule adoption, they provided updates to the lists of qualified programs. 

20 When SCAQMD adopted Rule 317, the programs listed in Attachment C were identified as “potential” programs 

for inclusion in the 172(e) equivalency account because SCAQMD did not have sufficient time to make a surplus 

determination. Subsequent to rule adoption, SCAQMD concluded in their December 2011 letter that the programs 

listed in Attachment C of the staff report are also surplus. Exhibit B of SCAQMD’s December 2011 letter included 

all programs that were previously included in Attachments B and C of the February 2011 staff report. 
14

Rule 317 requires that expenditures from qualified programs result in direct reductions or 

facilitate future reductions of VOC or NOx emissions. In contrast, section 185 of the Act 

requires states to assess fees on stationary sources but does not require that the fees be used 

for activities beneficial in reducing ozone formation. We believe this requirement in Rule 

317 to use the surplus funds for reducing ozone formation will result in further progress 

toward attainment. 

Demonstration of Equivalency and Reporting to EPA

SCAQMD is required to demonstrate equivalency for the previous year’s fee obligation in 

accordance with the equation in section (c)(3) of Rule 317 and report the results to CARB 

and EPA. The equation for demonstrating fee equivalency is correct. 

If the annual equivalency demonstration shows that expenditures exceed the amount of the 

fee obligations, the funds that were not “used” for equivalency are carried forward into the 

following assessment year. Since the expenditures have been determined to be surplus and 

there have been no other changes to the SIP for the 1-hour ozone standard, carrying these 

funds forward into the following year is acceptable because they would remain surplus. 

Also, if the expenditure occurred in a year prior to its use in an equivalency demonstration, 

the emission reductions would occur earlier, which is environmentally beneficial. 

As an added measure to demonstrate equivalency, Rule 317 also has a forward looking 

measure to estimate whether equivalency will likely be demonstrated. SCAQMD is required 

to preliminarily determine if expenditures in the Section 172(e) fee equivalency account are 

at least 110% of the previous year’s fee obligation, which serves as a surrogate for the 

current year’s fee obligation. If the preliminary determination does not project equivalency 

in accordance with Rule 317, that would trigger the requirement for SCAQMD to adopt a 

backstop rule in advance of the actual equivalency demonstration. We believe this measure 

provides an additional checkpoint for ensuring equivalency. 

Backstop for Failure to Achieve Equivalency

If SCAQMD fails to either demonstrate equivalency or the preliminary determination of 

equivalency does not show expenditures in the account at least equal to 110% of the 

estimated fee obligation, Rule 317 requires the EO to submit, within 90 days of the 

determination, a backstop measure to the Governing Board and the Governing Board to act 

on a measure, within 120 days of the determination, to either collect and/or track adequate 

fees to address the shortfall. 

Rule 317 identifies certain elements that would be included in a major stationary source 

backstop rule. If the backstop rule requires major stationary sources to pay fees, Rule 317 

states that the backstop rule would allow sources to receive a credit for fees paid to 

SCAQMD for operating fees and annual operating emissions fees. Title V regulations at 40 

CFR 70 require the assessment of fees sufficient to cover Title V program costs. While EPA 

has informed SCAQMD that any backstop rule would need to ensure that this fee credit 

provision would not adversely affect funds needed to cover Title V program costs, this issue 

ultimately needs to be addressed in the rulemaking process for the backstop rule. 
15

 

Conclusion

Rule 317 requires SCAQMD to demonstrate on an annual basis that the funds in the Section 

172(e) fee equivalency account are equal to or greater than the Section 185 fee obligation 

that would have been assessed. Furthermore, the funds in the equivalency account must be 

surplus to the SIP and used to fund projects that reduce emissions and improve air quality in 

the South Coast Air Basin and the Southeast Desert Modified AQMA. If the annual 

demonstration of equivalency in August or the annual preliminary demonstration of 

equivalency in July fails to show sufficient funds in the equivalency account, Rule 317 

requires SCAQMD to adopt a rule to address the shortfall. We believe that Rule 317 is “not 

less stringent” than the otherwise applicable section 185 fee program because it provides 

funding for emission reduction projects that are surplus to the 1-hour ozone SIP and are equal 

to or exceed the expected results of the otherwise applicable section 185 fee program. Once 

approved into the SIP, the provisions of the rule are enforceable against SCAQMD. We 

conclude that, in accordance with the principles of Section 172(e), Rule 317 is not less 

stringent than the program required by CAA Section 185. EPA therefore proposes to 

approve Rule 317 as satisfying the 1-hour ozone section 185 fee program requirements. If 

finalized as proposed, this action would also permanently terminate all CAA Section 110(c) 

Federal Implementation Plan (FIP) implications associated with our January 5, 2010 Finding 

of Failure to Submit a SIP revision to satisfy section 185 requirements for the SCAQMD (75 

FR 232). 

6. EPA ACTION

EPA staff recommends full approval of Rule 317 because it complies with all relevant 

Clean Air Act requirements including those regarding enforceability, and it is consistent with 

CAA sections 172(e) and 185. 

7. ATTACHMENTS

I. Letter and attachments from Elaine Chang, SCAQMD addressed to Lily Wong, USEPA 

dated December 21, 2011. This document will be referred to in this TSD as SCAQMD’s

“December 2011 letter.”

II. Memorandum dated November 16, 2011 from Lily Wong to the Administrative Record 

for Docket No. EPA-R09-OAR-2011- 0876 entitled “Annualized Section 185 Fee Rate

for 2011.”