ATTACHMENT J

317 - 1

SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT

SUPPLEMENTAL STAFF REPORT

PROPOSED AMENDED RULE 317 – CLEAN AIR ACT NON-ATTAINMENT 

FEES

April 2010

Deputy Executive Officer

Planning, Rule Development, and Area Sources

Elaine Chang, DrPH

Assistant Deputy Executive Officer

Planning, Rule Development, and Area Sources

Laki Tisopulos, Ph.D., P.E.

Author: Robert Pease, P.E. Program Supervisor

Henry Pourzand Air Quality Specialist

Reviewed by: Barbara Baird District Counsel

Contributors: John Olvera Principal Deputy District Counsel

Sue Lieu Program Supervisor, Socioeconomic Analysis

Greg Hunter Air Quality Specialist, Socioeconomic Analysis

Barbara Radlein Air Quality Specialist, CEQA
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Executive Summary

This supplemental staff reports incorporates by reference and builds upon the Final Staff 

Report on Proposed Rule 317 –Clean Air Act Non-Attainment Fees dated June 2009. 

Subsequent to the June 2009 staff report, several publications have been issued which 

have clarified the scope of and helped define the limitations of the proposed rule. Prior 

relevant publications are also included for reference. Those publications include the 

following (which are included as appendices to this supplemental staff report):

December 11, 2009 letter from Acting US EPA Regional Administrator to 

Governor Schwarzenegger on the failure of California to submit a Section 185 SIP

(Appendix A),

January 5, 2010 memo from US EPA on Section 185 guidance (Appendix B),

January 5, 2010 Federal Register notice on the failure of the SCAQMD to submit a 

Section 185 SIP (Appendix C),

January 13, 2010 Federal Register notice on partial approval/disapproval of San 

Joaquin Valley Unified Air Pollution Control District Rule 3170 for Section 185 

fees (Appendix D),

San Joaquin Valley Unified Air Pollution Control District Rule 3170 (Appendix 

E),

January 25, 2010 letter from US EPA Region VI to the Texas Commission on 

Environmental Quality regarding TCEQ Proposed Rule 1204 (implementing 

Section 185 requirements) Appendix F, 

TCEQ Proposed Rule 1204 (Appendix G), 

Sacramento APCD Rule 370 (Appendix H), and

Assembly Bill No. 118 – Nunez, Alternative fuels and vehicle technologies: 

funding programs (Appendix I).

The proposed amended rule was developed consistent with these latest developments on 

Section 185 fees.

Section 185 of the 1990 clean air act amendments requires major stationary sources in 

severe and extreme areas that do not attain the one-hour ozone standard by the requisite 

date to either reduce emissions by 20% or pay a fee. The fee payment is based on actual 

emissions in the post-attainment year compared to attainment year (or baseline 

emissions). Baseline year emissions are a key part in determining each source’s fee

obligation. Proposed Amended Rule (PAR) 317 provides a hybrid designed structured to 

comport with Section 185 requirements while utilizing Section 172(e) elements to 

minimize the economic impact to the regulated community. PAR 317 provides for 
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flexibility in determining baseline through optional provisions for a recessionary 

adjustment; an adjustment for sources with de minimus attainment year emissions; and 

aggregation of emissions. Once the baseline is established, the fees paid can be credited 

against the source’s annual operating and emissions fees. Staff has also included a fee 

equivalency component that reduces the fee burden for all sources. This alternative

provision was developed using Section 172(e) of the Clean Air Act and would require 

CARB and US EPA approval. The flexibilities and crediting mechanism included in 

PAR 317 will greatly minimize the Clean Air Act non-attainment fee burden imposed on 

the already well controlled major stationary sources in the South Coast District.

Background

Section 185 was included in the 1990 amendments to the clean air act as a backstop 

provision for those areas that did not attain the one hour standard for ozone by the 

attainment date. Section 185 requires that major stationary sources for VOC or NOx in 

those non-attainment areas to either reduce their emissions by 20% from a baseline 

amount or pay a fee. The South Coast air basin and the Salton Sea air basin both failed to 

attain the one hour ozone standard by the attainment date and are subject to Section 185 

fees (although the one-hour ozone standard was superseded by the eight-hour standard, 

Section 185 has been held by court decision to remain in effect. 

The only ozone non-attainment area to have an adopted and federally approved rule is 

Sacramento Metropolitan APCD. Their rule 307 was adopted in September 2002 and

was modeled on a strict construct of Section 185. Rule 307 has a fixed baseline of the 

attainment year and there was no provision for alternative or equivalent programs. As 

discussed below, other agencies that have proposed or adopted rules incorporating 

additional flexibility including clean unit exemptions or alternative baselines have either 

had those portions disapproved or notified by US EPA of deficiencies regarding those 

provisions. Staff has heeded the precedent established by these agencies in the 

development of Rule 317.

To help states develop programs to implement the Section 185 requirements, US EPA 

issued guidance in March 2008 on determining baseline emissions. That memo provided 

that an alternative baseline could be used if a “source’s emissions are irregular, cyclical, 

or vary significantly from year to year”. A 24 consecutive month period within the last 10 

years could be used as the alternative baseline subject to adjusting the emissions for 

regulatory effects. Unfortunately, US EPA did not provide guidance on how to determine 

if a source’s emissions are irregular, cyclical, or vary significantly. Staff developed a 

metric (the Student’s t-test) to be used to determine if a source was cyclical. A draft rule 

incorporating that concept was crafted, work-shopped, and proposed for adoption. That 
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rule was considered at the April 2009 Board Meeting and was criticized by many 

stakeholders as overly complex (that rule is included as Attachment D. Rule 317 was 

subsequently continued and that Student’s t-test metric was dropped.

The Rule was continued through the remainder of 2009. The continuance was done, in 

part, so that EPA could finalize a memo providing further guidance on Section 185 fees. 

US EPA had been working with the Clean Air Act Advisory Committee on issues relating 

to the Section 185 program. Several stakeholders in the Los Angeles Basin participated 

in that process. 

The December 11, 2009 letter to Governor Schwarzenegger effectively gave California 

notice that a sanctions clock would be started by the failure to adopt a rule for Section 

185. The 18 month sanctions clock officially started with the publication of the January 5 

Federal Register notice regarding the South Coast Air Basin. Should the District fail to 

timely adopt a Section 185 rule, sanctions including higher offset ratios and loss of 

highway funding could occur. Moreover, US EPA would be required to adopt a federal 

plan to implement Section 185 and would collect the fee money directly.

The Federal Register notice of January 13, 2010 and the US EPA Guidance memo of 

January 5, 2010 on Section 185 fees clarified the scope of and limitation on rules 

developed by states to implement the Section 185 program. San Joaquin Valley Unified 

Air Pollution Control District adopted their Rule 3170 in July 2003 to implement the 

Section 185 program. That rule contained a clean unit exemption, exempted new units 

constructed after the attainment date, and provided for executive officer discretion on 

baseline emissions which included both the attainment and preceding year. The Federal 

Register notice identified that all of these provisions were unapprovable under Section 

185.

The letter of January 25, 2010 on Texas’ Rule 1204 reinforced the requirement that new 

units subsequent to the attainment year are required to be included in the Section 185 fee 

program. Also reinforced was the requirement for alternative baselines for cyclical or 

irregular sources to be adjusted for regulatory requirements.

US EPA’s guidance memo of January 5, 2010 on Section 185 identified that other 

alternative baselines may be included in a Section 185 program. Those other baselines 

include the aggregation of NOx and VOC at a single site and the aggregation of multifacility operations providing the operations comport with the federal definition of major 

stationary source. Equivalent alternative programs may also be approvable. 
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Staff’s opinion is there is some further flexibility on baseline determination. Staff has 

developed a basin-wide approach that calculates the recessionary impact on the emissions 

of our local industries by NAICS code. That approach utilizes the REMI model to 

compare projected economic activity to actual economic activity. The ratio of those 

values give a macro-economic recessionary adjustment for sources in the District. 

The January 2010 memo also noted that Section 172 (e) of the act allows for programs 

that are “not less stringent” than the mandated program. Fee equivalent and emissions 

equivalent programs were identified as possible approaches under a Section 172 (e) 

construct. Fee equivalency may be approvable under the 172 (e) concept if the program 

“clearly raises at least as much revenue as otherwise required Section 185 fee program if 

the proceeds are spent to pay for emissions reductions that will further improve ozone air 

quality.” 

To utilize the 172 (e) provisions, staff researched what state programs are available and 

could be used for Section 185 fees. One highly promising program is AB 118. AB 118, 

Nunez, California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and 

Carbon Reduction Act of 2007 was adopted in October 2007. This bill imposes a fee on 

certain mobile sources with the monies to be used for projects that improve environmental

quality, increase efficiency, develop and deploy innovative technologies, and support 

energy conservation and activities. Staff’s opinion is that the AB 118 program is surplus 

to the SIP and can be included as a fee equivalent program under the Section 172 (e) 

rubric for Section 185 fees. Staff’s preliminary estimate is that approximately 10 million 

dollars in funding may be available under this program and can be used on a dollar for 

dollar basis to reduce the fee requirement. Staff is also researching other funding 

mechanisms that could be used under Section 172 (e). Provided the crediting of AB 118 

funds is approved by CARB and US EPA, it could potentially reduce the major stationary 

source Section 185 fee obligation by one-third.

Section 185 and subsequent guidance issued by US EPA provides local air districts and 

states complete flexibility in terms of how to utilize accrued fees. In that spirit, in an in 

an effort to minimize the financial burden imposed by such fees on the already very well 

controlled major stationary sources in the District, as part of a companion amendment to 

Regulation III – Fees, staff is proposing that Section 185 fees be credited towards 

facilities’ emission fee and annual operating permit fee obligations or invested in

emission reduction projects at facilities. Such crediting is projected to offset more than 

seventy five percent of the Section 185 fee obligation. Staff’s current proposal on Section 

185 fees was crafted consistent with this body of publicly available guidance and 

information.
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Proposed amendments

Applicability

PAR 317 becomes effective for the SOCAB when the Administrator of the United States 

Environmental Protection Agency (US EPA) or the Executive Officer, makes a finding 

that a Basin is not in attainment with the federal one-hour standard for ozone and the 

deadline for compliance as specified in the 1990 amendments to the Clean Air Act has 

passed. Rule 317 is currently in effect for the SSAB, the attainment year for the SOCAB 

is calendar year 2010. The rule becomes inoperative (for both basins) at such time as the 

US EPA determines that the 1-hour ozone standard has been attained due to permanent 

and enforceable measures, approves an equivalent program submitted by the District, or 

Congress amends the Clean Air Act such that Section 185 fees, or an equivalent program, 

are no longer required.

Major Stationary Source and Baseline Determination

Under the current mandatory federal requirements as specified in Sections 182(d), 182(e), 

182(f) and 185 of the 1990 amendments to the federal Clean Air Act (CAA), major 

stationary sources of NOx, VOC or both are required to reduce and maintain emissions of 

these pollutants by at least 20% from their Baseline emissions (the amount emitted in the 

applicable attainment year) for each and every subsequent non-attainment year. Under 

the federal definition and for the purposes of this rule a major stationary source is 

defined, in PAR 317 subparagraph (c)(5), based on its allowable or permitted emissions 

potential (know as the potential to emit or PTE) in subdivision (c) of the rule as follows:

Major STATIONARY Source shall, for the purposes of this rule:

(A) For a non-RECLAIM source have the same meaning as in Sections 

181(b)(4)(B) and 182(d) of the CAA, if applicable, or a Major Polluting 

Facility as defined in Rule 1302(s) – Definition of Terms. 

(B) For a RECLAIM source have the same meaning as in paragraph (b)(2) 

of Rule 3001 - Applicability where the potential to emit for a RECLAIM 

facility is the higher of:

(i) the starting allocation plus nontradeable credits; or

(ii) RECLAIM Trading Credits (RTCs) held in the allocation account 

after trading.

RTC’s held in the certificate account are not part of the allocation.

Based on this definition, sources in the South Coast Air Basin with a PTE of 10 or more 

tons per year of either NOx or VOC are defined as major stationary sources for the 

purposes of this rule. The Salton Sea Air Basin region of the AQMD is classified as 
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"severe non-attainment" and the threshold PTE for sources in this air basin is 25 tons per 

year.

For sources in the South Coast Air Basin the attainment year for the purposes of this rule 

is calendar year 2010. Baseline emissions for a major stationary source are defined in 

PAR 317 subparagraph (c)(2) of the rule as follows: 

BASELINE EMISSIONS for a major stationary source, are calculated for 

each air contaminant, VOC and NOx (including major stationary source 

fugitive and unpermitted emissions) separately, using source information as 

reported to or amended by the District, through the District’s Annual 

Emissions Report (AER) program, as follows:

(A) For an existing major stationary source prior to the attainment 

year, the baseline emissions shall be the amount of the actual 

emissions, including fugitives and unpermitted, during the 

attainment year (permitted emissions not to exceed permitted 

allowables).

(B) For sources that become subject to this rule during or after the 

attainment year:

(i) For a non-RECLAIM major stationary source the baseline 

emissions shall be the amount of emissions allowed under the 

applicable implementation plan or the potential to emit 

(annual emissions including fugitives and emissions from 

unpermitted equipment). 

(ii) For an existing RECLAIM source that subsequently qualifies 

as a major stationary source for the purposes of this rule the 

baseline emissions shall be the higher of the RTC holdings at 

the beginning of the year available for use during the same 

calendar year or actual emissions during the calendar year 

the source becomes a major stationary source that do not 

exceed the RTC holdings at the end of the reconciliation 

period.

(iii) For a new RECLAIM source that qualifies as a major 

stationary source for the purposes of this rule the baseline 

emissions shall be the higher of RTC holdings purchased at 

the beginning of the attainment year or the initial calendar 

year of operation, as applicable, or actual emissions during 

the calendar year, not to exceed RTC holdings at the end of 

the reconciliation period.
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If a major stationary source is operational for a period of 

less than one calendar year, the allowable emissions based 

on clause (c)(2)(B)(i through iii) as applicable, in the 

attainment year or initial year of operation, shall be 

extrapolated over one full calendar year. 

Based on the definition of baseline, a source that begins operations sometime after the 

beginning, but prior to the end of the attainment year is classified as an existing source. 

Since the Baseline for an existing source is determined based on the actual source 

emissions of NOx and VOC during the attainment year, an existing source that begins 

operations sometime after the beginning of the year may have an artificially low baseline, 

since had it operated for a full year its emissions of NOx, VOC or both pollutants might 

have been higher. In order to address this issue an existing source that begins operations 

sometime after the beginning of the attainment year is allowed to extrapolate its emissions 

to calculate a more representative baseline that would have resulted had the facility 

operated for a full year. The same principle applies at a RECLAIM source. The 

RECLAIM credits or holdings needed for the partial year emissions would be 

extrapolated over one full calendar year.

Importantly then while the determination of whether a source is a major stationary source 

for the purposes of this rule is dependent on the allowable or permitted level of source 

emissions of either NOx, VOC or both, the major stationary source baseline is determined 

by the actual emissions of NOX, VOC or both in the attainment year. Furthermore, once 

the baseline is established it cannot be changed. For any given post-attainment or 

assessment year a major stationary source is required to reduce emissions by at least 20% 

from the established static baseline emissions amount. The static baseline number is 

based on source Annual Emissions Report submissions.

Fees in Lieu of Emissions Reductions

Alternatively, if a major stationary source does not reduce emissions by at least 20% of its 

baseline in any given assessment year then pursuant to Section 185 (a) and (b) of the 

Clean Air Act it must pay a fee in lieu of the emissions reduction assessed on the amount 

of the shortfall. For example, for a major stationary source that has a baseline of 20 tons, 

and actual emissions of 18 tons in a subsequent assessment year would pay a fee for that 

assessment year on a shortfall in reductions of 2 tons. Based on the US EPA guidance 

memo dated January 5, 2010, by Stephen D. Page, Director, Office of Air Quality 
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Planning and Standards, the fee paid must either be in an amount that achieves an 

equivalent emissions reduction(s) from some other source or computed in accordance 

with Section 185 (b) of the CAA based on the amount of the emissions as follows:

Annual CAA Non-Attainment Fee = $5,000 x CPIF x [ A – ( 0.8 x B ) ]

Since a source may be a major stationary source for either VOC, NOx or both it can be 

subject to a fee for excess Rule 317 emissions for either VOC, NOx or both, for any given 

assessment year, where:

A = Total amount of emissions actually emitted during the applicable fee 

assessment year for pollutants included in B, in tons. If A is less than or 

equal to 80% of B; then there shall be no annual CAA non-attainment fee 

assessed for the subject year.

B = Baseline emissions, of VOC, NOx or both for which a source qualifies as 

a major stationary source as defined in this rule, in tons. 

CPIF = The annual Consumer Price Index (CPI) adjustment factor which is 

equivalent to the cumulative increase in the CPI beginning with the 1989 

change in the index up to and including the change in the year prior to the 

year for which the fees are due. For any calendar year the CPI is the 

average of the CPI for all-urban consumers published by the Department 

of Labor, as of the close of the 12-month period ending on August 31 of 

each calendar year or the revision of the CPI which is most consistent with 

the CPI for calendar year 1989 in accordance with Sections 

502(b)(3)(B)(v) and 185(b)(3) of the CAA.

Source and Emissions Aggregation

Based on Attachment C of the US EPA guidance memo dated January 5, 2010, by 

Stephen D. Page, Director, Office of Air Quality Planning and Standards, aggregation of 

NOx and VOC emissions at a major stationary sources may be allowable. Aggregation of 

sources under common ownership (multi source aggregation) may also be allowable if the 

sources comport with the federal definition of major stationary source. With respect to 

single site aggregation the guidance stipulates that: “provided that the aggregation is not 

used to avoid a major source applicability finding”. PAR 317 provides that a major 

stationary source or sources under common ownership may optionally aggregate their 

emissions for the purposes of computing both the baseline and emissions in subsequent 

assessment years as follows:
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Individual VOC and NOx emissions from a major stationary source; or

The aggregate of both the VOC emissions and NOx emissions at a single source; or

The aggregate of both the VOC emissions and NOx emissions at a single source 

which is a major stationary source for one of the pollutants; or

The aggregate of both VOC or NOx emissions or both pursuant to multisite 

aggregation.

Optional Alternative Baseline Adjustment Factor

The US EPA guidance memo dated March 21, 2008, by William T. Harnett, Director, Air 

Quality Policy division, supports language in Section 185(b)(2) of the CAA for an 

alternative baseline based on averaging emissions over a number of years “if that source’s 

emissions are irregular, cyclical, or otherwise vary significantly from year to year.” 

Socio-economic staff has developed a model that determines the recessionary effect that 

has resulted in irregular emissions for various industry sectors based on the North 

American Industrial Classification System (NAICS). The model was developed 

analyzing economic data for the past several years to determine the difference between 

prior year emissions and projected emissions anticipated with a regular business cycle. 

The model provides a factor by which the attainment year baseline can be adjusted to 

correct for the recessionary effect on the baseline computed solely as the emissions on the 

attainment year. Example 1 below demonstrates the application of an alternative baseline 

factor:

Example 2: Application of Optional Baseline Adjustment Factor

A major stationary source with a NAICS number of 33120 would use PAR 317 -

Table A (Adjustment Factors by NAICS Industry Category) to determine the 

applicable optional adjustment factor. The NAICS column provides the 3 digit 

reference (based on the first three digits of the NAICS number) as 333. The source 

then may optionally (though if selected the baseline is fixed for all future assessment 

years) adjust the baseline as follows:

NOx Attainment year baseline (unadjusted) 18.500 tons NOx

VOC Attainment year baseline (unadjusted) 6.799 tons VOC

NAICS Industry Category (PAR 317 Table A) Adj. Factor 1.218

Adjusted NOx baseline 22.533 tons NOx

Adjusted VOC baseline 8.281 tons VOC
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Extraordinary Attainment Year Baseline Emissions

PAR 317 also provides that any major source with actual emissions in the attainment year 

that are not more than ten percent (10%) of their immediately preceding year emissions, 

may request a more representative twenty four (24) month consecutive actual emission 

period (averaged to annual emissions) during the five (5) year period immediately 

preceding the attainment year. Such extraordinary attainment year baseline emissions are 

considered to be irregular for a source that previously had such higher annual emissions 

of PAR 317 pollutants. The source must adjust emissions in the selected averaged time 

period for regulatory effects, on the baseline and submit for such an alternative baseline in 

writing to the Executive Officer with the request subject to review and approval. The 

Executive Officer shall determine whether or not the emissions and regulatory adjustment 

factor(s) were properly determined and applied. 

172(e) Program Funds Applied to PAR 317 Aggregate Fees

US EPA’s memo of January 5, 2010 provided for the use of “alternative programs to 

satisfy the Section 185 fee program SIP provision requirement” provided it comports with 

the principles of Section 172 (e) of the act. Section 172 (e) is an anti-backsliding 

provision that requires EPA to develop regulations to ensure that controls are “not less 

stringent” than the mandated program. One alternative specifically identified by US EPA 

was a fee equivalent program. Such a program “that clearly raises at least as much 

revenue as the otherwise required Section 185 fee program if the proceeds are spent to 

pay for emissions reductions of ozone-forming pollutants (NOx and/or VOC ) in the same 

geographic area subject to the Section 185 program” may be approvable. Two steps are 

required under this equivalency concept – fees from 185 sources and the process to spend 

and pay for emission reductions.

Key to utilization of this alternative provision is a program that spends money for 

emissions reductions of ozone precursors. Staff’s opinion is that AB 118 Nunez -

Alternative fuels and vehicle technologies: funding programs (adopted October 2007) is 

one such program that can be used for this purpose. AB 118 increases vehicle 

registration fees to fund an alternative and renewable energy fund under the auspices of 

the California Energy Commission. The fund is used to develop technologies to develop 

and deploy innovative technologies that transform California’s fuel and vehicle types to 

help attain the state’s climate change policies. Part of the AB 118 monies are channeled 

to the District for use in administering program requirements in the basin. Staff’s 

preliminary conclusion is that AB 118 monies are surplus to the SIP and are used to pay 

for emissions reductions projects in the effected geographic area, squarely comporting 

with US EPA requirements. Staff is actively working to identify other programs that can 

be used under the fee equivalency umbrella of Section 172 (e). Staff’s filter on such 
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programs is that they are surplus to the SIP and the program revenues are used to reduce 

ozone precursors. 

Staff has incorporated this alternative equivalent approach for fees into the framework for 

proposed amended Rule 317 using the required two steps. To ensure fee equivalency, the 

rule first aggregates the fees from all sources subject to Rule 317. This aggregated total is 

then compared to the amount available from the fee equivalent program (AB 118 or 

others). The 317 total is then reduced on a dollar for dollar basis by the amount of 

monies available from the fee equivalent programs. The remaining 317 balance is then 

prorated back to the 317 universe which remit the balance to the District. The second 

step is the spending and tracking of the equivalent program monies on projects to reduce 

ozone precursors. The District’s Technology Advancement Office will administer and 

track the fee equivalent programs.
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Step 1 - Source baseline is determined and optional alternative baseline factor may 

be applied. 

Step 2 – Any available 172(e) program monies are credited in aggregate to all 

sources to the extent of their fee obligation only. 

Step 3 - The remaining aggregate balance is prorated to each source based on their 

PAR 317 emissions fee obligation. 

Step 4 - Prorated credits applied to individually established source escrow 

accounts.

Step 5 - Escrow accounts available for first use for emissions reductions projects 

at sources.

Additional Source Credits Offsetting PAR 317 Source Fee Obligation

In addition, the following language is being proposed as PAR 301(i) to allow for the use 

of PAR 317 funds remitted to the AQMD to be used to offset any annual operating 

renewal and annual operating emissions fees (exclusive of Rule 317 emissions):
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Any fees remitted to the District pursuant to Rule 317 – Clean Air Act 

Non-attainment Fees shall be held in escrow accounts unique to each 

source. Fees accrued in such escrow accounts may be used for either 

of the following at the discretion of the source’s owner or operator. 

(1) Creditable up to the amount of fees due by the same source 

during the calendar year or subsequent calendar(s) year for 

annual emissions fees due pursuant to Rule 301(e)(2), (4), (6), (7) 

and (11) and annual operating permit renewal fees due pursuant 

to Rule 301(d)(1), (2) and (4). In no case shall the credit be 

greater than the fees paid; or

(2) Use by the owner or operator for VOC and NOx reduction 

programs at their source. Up to five percent of funds can be used 

by the South Coast Air Quality Management District for 

administrative support.

Neither the CAA nor US EPA guidance restricts how PAR 317 funds may be used. Since 

the goal of CAA non-attainment fee expenditures is to bring the air basin(s) in to 

attainment with the ozone standard any residual PAR 317 fees paid by major stationary 

sources, after any and all source credits have been applied, may be used to fund stationary 

and/or mobile source VOC and NOx emission reduction programs. 

Fee Payment

Owners/operators of major stationary sources must begin payment of CAA nonattainment fees commencing with the second year after the attainment year and thereafter 

until a determination has been made by the Administrator of the US EPA that the Basin is 

in attainment of the federal one-hour standard for ozone, both the VOC and NOx annual 

CAA fees shall be remitted in accordance with the annual emissions fee billing 

requirements as established in paragraphs (e)(2) and (e)(10) of Rule 301 – Permit Fees. 

A major stationary source that does not pay any or all of the required CAA fees, by the 

specified due date, shall be subject to the late payment surcharge and permit revocation 

provisions of subdivision (e) of Rule 301 and is also in violation of this rule and subject 

to the civil and criminal penalties as provided for in Health and Safety Code 42400 et seq.

While staff appreciates the recessionary times that all businesses are operating in, should 

the AQMD fail to either adopt or enforce the a rule that carries out the intent of Section 

185 of the CAA and the Administrator of the US EPA finds that the fee provisions of this 

rule do not meet the fee requirements of Section 185, or the SCAQMD is not 

administering and enforcing the fee as required, unpaid fees required plus interest 
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required under Section 185 as specified in 26 United States Code §6621(a)(2) may be 

collected by the Administrator. 

PAR 317 includes a provision such that if any provision of the rule is held by USEPA or 

CARB finding or decision to be invalid, such finding or decision (including any court 

decision) will not affect the validity of the remainder of the rule and major stationary 

sources shall be subject to and must comply with the provisions contained in the reminder 

of the rule.

California Environmental Quality Act

SCAQMD staff has reviewed the proposed project pursuant to CEQA Guidelines §15002 

(k)(1), the first step of a three-step process for deciding which document to prepare for a 

project subject to CEQA. The SCAQMD has also determined that the proposed project is

exempt since it can be seen with certainty that there is no possibility that the proposed 

project in question has the potential to have a significant adverse effect on the 

environment. Therefore, the SCAQMD has determined that the proposed project is 

exempt from CEQA pursuant to CEQA Guidelines §15061 (b)(3) - Review for 

Exemption (General Rule Exemption). If approved, a Notice of Exemption, prepared 

pursuant to CEQA Guidelines §15062 - Notice of Exemption, will be sent to the county 

clerks for each county in the district for filing.

Socio-Economic Analysis

The preliminary initial staff projections on the total fees paid pursuant to 317 was about 

$32 million. This figure was based on 2006 emissions data and using very conservative 

assumptions. Staff’s more recent projections are that the fees paid using more 

representative assumptions is on the order of $19 million (See Appendix J Graph -

“Comparison of Annual Operating and Emissions Fees with PAR 317 Fees (Projected)”). 

Staff’s projection is that, on aggregate, 75% of the Rule 317 fee burden will be offset 

through crediting such fees based on the facilities annual emissions and permit renewal 

obligations pursuant to Rule 301. Crediting of AB 118 and other similar state program 

funds should they become available will further reduce the fee burden.

The Socio-Economic Analysis prepared in May 2009 is still applicable and is 

incorporated by reference and included as an attachment.

Draft Findings

Health and Safety Code Section 40727 requires that prior to adopting, amending or 

repealing a rule or regulation, the AQMD Governing Board shall make findings of 
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necessity, authority, clarity, consistency, non-duplication, and reference based on relevant 

information presented at the hearing. The draft findings are as follows:

Necessity - The AQMD Governing Board has determined that a need exists to adopt Rule 

317 – Clean Air Act Non-Attainment Fees to comply with the requirements of the 1990 

amendments to the Federal Clean Air Act.

Authority - The AQMD Governing Board obtains its authority to adopt, amend, or repeal 

rules and regulations from Health and Safety Code Sections 39002, 40000, 40001, 40440, 

40702, and 41508 and Section 182(d), 182(e), 182(f) and 185 of the 1990 amendments to 

the Federal Clean Air Act.

Clarity - The AQMD Governing Board has determined that Rule 317 – Clean Air Act 

Non-Attainment Fees is written and displayed so that the meaning can be easily 

understood by persons directly affected.

Consistency - The AQMD Governing Board has determined that the adoption of Rule 317 

– Clean Air Act Non-Attainment Fees is in harmony with, and not in conflict with or 

contradictory to, existing statutes, court decisions, federal or state regulations.

Non-Duplication - The AQMD Governing Board has determined that the adoption of 

Rule 317 – Clean Air Act Non-Attainment Fees does not impose the same requirement as 

any existing state or federal regulation, and the proposed amendments are necessary and 

proper to execute the powers and duties granted to, and imposed upon, the AQMD.

Reference - In adopting the Rule, the AQMD Governing Board references the following 

statutes which the AQMD hereby implements, interprets or makes specific: Health and 

Safety Code Sections 40001 (rules to achieve ambient air quality standards), 40440(a) 

(rules to carry out the Air Quality Management Plan), and Sections 181, 182 and 185 of 

the 1990 amendments to the Federal Clean Air Act.

Conclusions and Recommendations

The proposed amendments to Rule 317 were developed to comport with federal 

requirements while minimizing the fiscal impact of the proposed rule on the impacted 

industry. The hybrid approach crafted by staff initially reduces the fee burden across the 

universe of sources subject to Rule 317 fees through the application of the AB 118 funds 

or funds from other state programs that are surplus to the SIP at their use is approved by 

CARB and US EPA. The remaining fees that are remitted to the District can be used by 

the impacted sources to either pay for annual emissions and annual operating fees or to 

fund emissions reduction projects at their source. Staff’s projection is that, on aggregate, 

75% of the Rule 317 fee burden will be offset through crediting such fees based on the 

facilities’ annual emissions and permit renewal obligations pursuant to Rule 301. 

Crediting of AB 118 and other similar state program funds should they become available 

will further reduce the fee burden.
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Staff is recommending the adoption of this proposal. 

Comments and Response to Comments

Public Consultation Meetings were held on January 6, January 19, and March 23, 2010. 

A summary of the comments received and responses to these comments from those 

meetings are provided below.

Comment: Staff should include an alternative baseline option consistent with US EPA 

guidance of March 2008.

Response: An alternative baseline such as the one described in the March 2008 

guidance is administratively complex to implement and staff would still be 

required to develop a metric to determine if a source is cyclical or irregular. 

Instead, to provide more flexibility and address the impacts of the economic 

downturn on the attainment year baseline staff is proposing to include an 

inflationary adjustment to the baseline emissions, allow for single and 

multi-site aggregation, and allow an exception for extraordinary baseline 

year emissions. 

Comment: An adjustment for regulatory effects in the alternative baseline as outlined 

by US EPA in their March 2008 memo is not required.

Response: Staff disagrees. Conversations with US EPA and the comment letter by US 

EPA Region VI of January 25 indicate that a regulatory adjustment is 

required.

Comment: My agency is proposing a new power plant. We have filed the application 

and been issued a facility ID but have not been issued our permit. We are 

an existing source according to Clause 317 (C)(7)(c) and will purchase 

RTC prior to operation which is expected during the latter half of 2011. 

We will be a cycle 1 facility and only purchase sufficient credits for the 

operation during 2011. What is our baseline?

Response: The baseline for an existing source that subsequently becomes a RECLAIM 

source is calculated as given in subclause (c)(2)(B)(ii) of proposed 

amended Rule 317. The baseline will be determined from the higher of the 

RTC holdings or actual emissions that do not exceed the RTC holdings at 

the end of the reconciliation period. For a source that is in operation less 

than one calendar year, the baseline shall be determined based on subclause 

(c)(2)(B)(ii) extrapolated over one full calendar year as outlined in the last 

paragraph of subparagraph (c)(2).
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Comment: My facility manufactures foam. Much of our VOC emissions occurs offsite. 

Although we pay AER fees on all of the off-gassing, we are only required to 

pay 317 fees on the actual emissions at our facility.

Response: Staff disagrees. This issue was discussed with US EPA Region IX staff and 

there is no known precedent not to count these emissions. All emissions 

that a source is responsible for, including foam off-gassing from its 

products, are part of Rule 317 emissions for baseline and subsequent years.

Comment: What impact will AB 118 monies have on our Rule 317 fee obligation?

Response: AB 118 monies are projected to be on the order of ten million dollars and 

317 fees are projected to be about 30 million dollars. Provided their use as 

a fee equivalent program under Section 172(e) is approved by CARB and 

US EPA, AB 118 monies should reduce the Rule 317 fee burden by about 

one-third.

Comment: Even after the AB 118 monies and the application of my 317 fees toward 

my annual emissions and annual operating fees, I will still have a net 

positive balance. These fees will impact my business.

Response: The hybrid approach developed by staff will eliminate about 75% of the 

aggregate Rule 317 fee burden for of all sources, leaving about half of all 

Rule 317 sources with no Rule 317 fee balance. For any source that has 

remaining fees, those fees can be carried forward for the facility’s future 

years’ payments of annual operating or annual emission fees. Alternatively, 

a source may use surplus funds to develop emission control projects at their 

facility. Staff’s projection is that the hybrid approach, if approved by 

CARB and US EPA may totally subsume the Rule 317 fee obligation within 

3 to 5 years.

Comment: Staff should pursue an alternative approach pursuant to Section 172 (e) to 

shift the fee burden to mobile sources which are responsible for the bulk of 

the ozone precursors.

Response: Mobile source fees are the funding source for AB 118 monies that are 

proposed to be credited towards Rule 317 fee obligations from mobile 

sources. An additional fee on vehicle registration would be problematic in 

this current economic and political climate and would require legislative

approval. Legislation to effect such a fee is highly uncertain.

Comment: Staff should pursue additional flexibilities as outlined in the US EPA 

guidance memo of January 2010.

Response: Staff’s goal in structuring proposed amended Rule 317 was to develop a 

rule that would not be administratively complex and minimized the impact 
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on the regulatory community. The hybrid approach crafted by staff meets 

those goals.

Comment: My facility is largely shut down for 2010. My baseline emissions are 

artificially low. Can some accommodation be made?

Response: Staff has added a provision under paragraph 317 (f) Alternative Baseline 

for Extraordinary Attainment Year Emissions. Sources with calendar year 

2010 emissions that are 10% or less than the preceding year emissions may 

use an alternative baseline to calculate a more representative attainment 

year emissions baseline.

Comment: My source is major for VOC and minor for NOx. Can I use single site 

aggregation?

Response: Yes. Aggregation can be used when a source is major for only one 

pollutant. The baseline will be calculated on the major source pollutant. A 

detailed example of the approach is included in this supplemental staff 

report.

Comment: Section 172 (e) is not applicable for and should not be applied to the 

Section 185 program.

Response: Staff disagrees. US EPA guidance in their January 5, 2010 memo clearly 

allows for alternative equivalent programs.

Comment: We need additional time to review the proposal.

Response: Staff is recommending the hearing be continued until the May Board 

meeting.

Comment: This rule has been exhaustively discussed. It is time to move forward.

Response: Staff is working to bring the rule to a resolution.

Comment: Staff should be seeking congressional action to amend Section 185.

Response: Staff has spoken with congressional aides and Congressman Waxman 

regarding the Section 185 program. It is problematic to amend the Clean 

Air act for a “surgical” correction for Section 185. Once opened for 

amendment, all aspects of the act could be reconsidered. 

Comment: US EPA should be at the table proposing concrete solutions.

Response: Staff is in close communication with US EPA staff at Region IX, OAQPS, 

and headquarters. US EPA has participated via conference call on the 

consultation meetings.

Comment: Staff should include aggregation in the proposed rule.
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Response: Aggregation for both single sites and multi-sites (that comport with the 

federal definition of a major stationary source) has been included.

Comment: Will the escrow accounts in REG III for 317 sources accrue interest? What 

will happen if the District goes bankrupt?

Response: The escrow accounts will not accrue interest and the District will not go 

bankrupt.

Comment: The proposed recessionary adjustment does not reflect the reality for 

individual small businesses. The model should use 4 digit NAICS codes 

and have an evaluation of modeled against actual impacts.

Response: The REMI model used to develop the recessionary adjustment is a macroeconomic tool designed to look on a regional basis. The model cannot 

predict the effect on a given small business. A more detailed analysis could 

be conducted but it may have different results than the factors given. Some 

NAICS code might have a smaller recessionary impact adjustment.

Comment: Are RECLAIM NOx credits surplus to the SIP?

Response: The RECLAIM program is part of the SIP and the credits are not surplus to 

it.