Staff Report: page 1 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions 

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Proposed Regulation 1, Rule 221: Federal Permitting for Sources of Greenhouse Gases

Staff Report

Executive Summary

The Northern Sonoma County Air Pollution Control District is proposing to adopt a new regulation and to modify an existing regulation, in response to federal requirements. Proposed new Regulation 1, Rule 221, Federal Permitting of Greenhouse Gas Emissions, will i mplement the requirements of the U.S. Environmental Protection Agency’s T ailoring Rule for greenhouse

gases . Proposed changes to Regulation 1, Rule 130 will incorporate definitions and thresholds required to maintain federal approval of the District’s program. The proposals are expected to have a net positive environmental im pact, and no significant adverse economic impacts. The proposals also comply with restrictions in California law that prohibit the District from adopting changes to certain rules that make them less stringent.

Background

The federal Clean Air Act (CAA

, or “the Act” ) establishes requirements for specified sources of air pollution to obtain preconstruction permits under a program called “Prevention of Significant Deterioration” or “PSD.” This program was created to ensure that, in areas that meet federal standards for ambient air quality, new industrial activity does not significantly degrade air quality. The U.S. Environmental Protection Agency (EPA) has established regulations to implement the PSD program, and these regulations are cod ified under 40 CF R Part 52.21. The Northern Sonoma County Air Pollution Control District (District) implements these federal permitting requirements with its Regulation 1, Rule 220, which has been approved by EPA into the State Implementation Plan (SIP). Because the Dist rict’s rule is in the SIP, it is federally enforceable and operates in place of the otherwise applicable federal rule. The District’s Regulation 1, Rule 220 integrates federal requirements with state and local requirements for preconstruction review of ne w or modified industrial activities into one, seamless program. This includes, among other things, requirements needed to protect the Sonoma and Lake County region from degradation of air quality due to hydrogen sulfide emissions from geothermal power pla nts in the Geysers area. The District’s rule is therefore more restrictive than the federal requirements in certain respects.

The CAA also requires that certain large industrial sources (referred to as “Major Sources”) of air pollution obtain and maintai n federally enforceable operating permits under Title V of the

Act. EPA has specified the requirements for these permits under 40 CFR Part 70. The District implements an EPA

- approved Title V permitting program through its Regulation 5.

Federal PSD: F ederal PSD requires that new sources with air pollution emissions above specified levels , and modifications to existing sources that result in air pollution emissions aboveStaff Report: page 2 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions specified levels, undergo analysis to determine their impacts on the surrounding ai rshed, and on any Class I, Class II, or Class III designated areas 1 . This analysis can include computer modeling of dispersion of the pollutants in the air, air quality monitoring, and assessment of the use of pollution growth increments, depending on the pollutant in question. The project must also use “Best Available Control Technology” (BACT) to minimize pollutant emissions.

The levels at which PSD applies, and the type of analysis required, depends on the pollutants emitted by the project. Emission thresholds are provided for “criteria” air pollutants, which are the pollutants for which EPA has established individual criteria for regulation. These include

smog

- forming poll utants, particulate matter, sulfur dioxide , other sulfur compounds, as well as certain toxic pollutants, such as asbestos, beryllium, lead, and mercury

. There is also a general threshold for “other regulated pollutants.”

Federal Title V Permits: Title V of the Act requires large industrial sources to hold federally enforceable ope rating permits. Under this program, federal permits are issued to affected sources for a term of five years. The permits are required to contain all applicable requirements under the Act. This includes any limitations, monitoring, testing, recordkeeping , and reporting, that apply to the source as a result of preconstruction reviews (e.g., PSD), or from other regulations adopted by EPA, or the state or local air agency with jurisdiction. In California, the permit must therefore include the rules and regu lations of the state Air Resources Board (ARB) and the local air district that have been approved into the SIP. Unlike other local operating permits, these permits are enforceable by EPA and by independent, third parties through action

in federal court.

One important element of Title V and the Part 70 program is that the applicability of permitting requirements is based on the source’s “Potential to Emit” rather than its actual emissions. For some sources, especially those that routinely operate at or ne ar their maximum capacity nearly all of the time, actual and potential emissions may be very close. These kinds of sources typically include large manufacturing facilities, petroleum refineries, and power plants. But for other sources, actual and potenti al emissions can be widely disparate. For example, an autobody shop with a paint spray gun could potentially operate that spray gun at its maximum coating throughput, twenty

- four hours per day, three

- hundred and sixty five days per year. Without

emission s control equipment, that single paint spray gun could release enough air pollution to exceed the federal thresholds to be considered a Major Source. However, in actual practice, the operator of the spray gun works a forty

- hour week, and even then is not spraying paint the entire time, so the actual emissions are much smaller than the potential emissions.

Federal Regulatory Changes: EPA has made several regulatory changes that necessitate changes to the District’s implementation of PSD and Title V . The se include : ( 1) the inclusion of greenhouse gases (GHGs) as a “regu lated pollutant” under the CAA; ( 2) the passage of an

1 EPA designates areas based on the degree to which the natural habitat requires protection . Class I areas ar e assigned the most string ent growth increments. These are areas of special national or regional natural, scenic,

recreational, or historic value . In addition to the growth increments, when a project is predicted to impact a Class I

area, the Federal Lan d Manager for that area determines whether the project will have an unacceptable impact on

“air quality related values.”Staff Report: page 3 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions “Interstate Transport Regulation” that mandates the use of certain definitions; and ( 3) the

establishment of thresholds and growth incr ements

.

1. New Federal Requirements for GHGs

– In 2009, following a decision of the U.S. Supreme Court 2 , EPA issued an “Endangerment Finding” for GHGs under the CAA. This was the first step towards regulating this group of pollutants under the Act. Then in April of 2010, the Administrator of EPA signed new regulations under the CAA with emission standards for GHGs from motor vehicles. At the same time, EPA issued an Interpretive Ruling to clarify that GHGs would not become “regulated pollutants” under

the Act until the first compliance date of the effective emission standard.

In May of 2010, the Administrator signed another rule, commonly referred to as the “Tailoring Rule” which adjusted, or “tailored”

, the applicability thresholds for federal permittin g requirements for GHGs and provided an implementation schedule

. The Tailoring Rule was needed because the primary GHG, carbon dioxide (CO2) is emi tted at vastly higher rates from most operations and processes than the pollutants historically regulated un der the CAA. Specifically, the emission threshold for “other regulated pollutants” is 100 tons per year for Title V , and is “any emission rate whatsoever” for

other sources under the District’s PSD program . Even a household water heater will emit

CO2 at these levels, and household water heaters are clearly not large industrial sources. The Tailoring Rule specifically does three things: ( 1) it establishes the list of GHG pollutants, along with their global warming potential (GWP), regulated as CO2 equiva lents (CO2e); ( 2) it establishes thresho lds for permitting requirements to apply;

and ( 3) it establishes schedules for the requirements to apply.

The term “CO2e” means that all GHGs are expressed in CO2 equivalents based on their global warming potential, or GWP, relative to CO2. CO2 has a GWP of 1. Methane is

twenty

- one times more effective at warming the atmosphere when compared to CO2, so it has a GWP of 21. To determine the CO2e emissions from a source, the mass emissions

of the individual GHG are m ultiplied by the GWP of that GHG; this is done for each GHG and then all are added together. To complete the example, a source with 1 ton of

CO2 and 1 ton of methane emissions is said to emit 22 tons of CO2e.

Under the Tailoring Rule, GHG permitting happ ens in two phases, as follows:

I. Beginning on January 2, 2011 , any source that is required to have a PSD permit

for other reasons must address GHG emissions if those emissions have the potential to e xceed 75,000 tons per year CO2e. Further, any source that is required to have a T itle V permit for other reasons must include any GHG requirements in that permit.

II. Beginning on July 1, 2011 , in addition to the thresholds above, a source must have a PSD permit based solely on its GHG emissions if it is a n ew source that has the potential to emit at least 10 0,000 tons per year of CO2e, or if it is an existing source with potential emissions of 100,000 tons per year of CO2e that

2 Massachusetts v. EPA, 549 U.S. 497 (2007)Staff Report: page 4 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions undertakes a modification with a potential emissions increase of 75,000 tons per

year. Further, any existing source with potential emissions of 100,000 CO2e must also have a Title V permit.

Note: There is also a “mass

- basis” requirement. This is a separate threshold for GHG

emissions that does NOT consider GWP. In addition to meeti ng the CO2e thresholds above, the source must also have potential to emit at least 100 tons per year of total GHGs without considering GWP in order to need a PSD or Title V permit if the source is in a specifically listed category, and 250 tons per year if the source is not in one of those special categories 3

.

2. New Federal Definitions

- EPA has adopted several new definitions, and also refined required language that regulations must contain in order to be approvable in the SIP. These updates are required when the District makes changes to its regulations for other reasons, and must be made in order to retain federal approval of the District’s program. EPA has identified chang es that are needed in three areas: the elimination of dates in

certain definitio ns, the inclusion of specific language in existing definitions related smog

forming pollutants, and the incorporation of specific definitions for separate size fractions of particulate matter

.

3. New Thresholds and Increments

- EPA has also adopted new and revised significant

emission levels and increments of allowable pollution growth for the PSD program.

Allowable increments represent the amount of pollution an in dividual project can add to existing ambient pollution levels , dep ending on the classificati on of the area. Allowable increments are most restrictive in pristine environments, designated as Class I areas.

Existing Local Program

The D istrict implements a comprehensive program to evaluate the expected air quality impacts of stationary, portable , and other non

- mobile sources, and where appropriate, to ensure those sources are constructed and operated in a manner that reduces the expected impacts. This program includes, among other things, review of new or modified sources through preconstruction permits, ongoing regulation of sources through operating permits and applicable emission standards, and regular inspection of these sources to ensure that they comply with all applicable re quirements. In addition to this program that applies to all sourc es, the District implements and enforces requirements of the ARB, and federal requirements from the CAA and its implementing regulations. These specifically include a SIP

- approved program for PSD pursuant to 40 CFR Part 52 .21 , and a federally approved Tit le V program under 40 CFR Part 70. These two federal programs are described in greater detail below.

3 Although it may seem unlikely that a source could emit less than 100 tons per year of GHG s on a mass basis and

emit more than 100,000 tons of CO2e, it is in fact possible. Some of the GWP factors are significantly higher than

1,000, especially the refrigerants. So a source could emit 5 tons per year of sulfur hexafluoride ( SF6) on a mass

bas is, and have 119,500 tons per year of CO2e emissions, because the GWP of SF6 is 23,900.Staff Report: page 5 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions District’s PSD Program: The District’s Regulation 1 sets forth the principle permitting requirements for stationary sources, including certain prohibitio ns and performance standards. Within Regulation 1, Rule 130 provides definit ions of terms that support and d irect implementation of other rules w ithin the Regulation. General permitting requirements are set forth in Rule 200. This rule requires that all stationary sources of air pollution obtain an Authority to Construct (ATC) prior to building, installing, or operating equipment or processes that may release, or change the release of any air pollutant, includi ng air pollution control equipment, unless t he equipment or activity has been exempted by the Air Pollution Control Officer (APC O). The ATC also serves as a tempora ry operating permit; upon start up of the equipment, the District verifies its compliance with the terms of the ATC, and then issues a

P ermit to Operate (PTO). The PTO is renewed on an annual basis and serves as the foundation for compliance and enforcement.

Rule 200 also requires that any stationary source with emissions defined as “significant” in Rule 130 must comply with the requir ements of Rule 220. This rule includes provisions for state and local requirements for review of new and modified stationary sources, for review in compliance

with the federal PSD program, and special provisions for the permitting of power plants that are also subject to licensing by the California Energy Commission. Rule 220 requires the source to install and implement BACT, as determined by the APCO. It also requires the source to undertake a modeling analysis and to comply with the “Increment” limitat ions of the federal PSD program for pollutants for which such increments have been established. These increments serve as a measure of the expected degradation of air quality due to the increased emissions associated with the new or modified stationary so urce. Allowable increments for PSD are defined in Rule

130 (p7)

, and are summarized in Appendix A.

Air m onitoring is also required of pre

- and post

- project conditions ; however

, for geothermal power plants, the Geysers Air Monitoring Program 4 (GAMP) fulfi lls the air monitoring requirements of PSD.

Significant emission levels

, i.e. the emission increases from new or modified sources at which these requirements apply, are defined in Rule 130 (s2) and are summarized in Appendix A.

These thresholds are more r estrictive for new sources than the thresholds in the federal rule.

District’s Title V Program: The 1990 Amendments to the federal Clean Air Act (Amendments) established a national requirement for a federally enforcea ble operating permit program under Ti tle V of the Amendments. As previously mentioned, t hese permits are intended to incorporate all a pplicable requirements, and they must meet standards specified by EPA in

terms of form and content 5

4 GAMP is a public

- private partnership between the District, the geothermal plant operators, the Lake County Air

Quality Management District, the state Air Resources Bo ard, the California Energy Commission, and

representatives of the downwind community that operates air monitoring equipment throughout the geothermal

generating region in Sonoma and Lake Counties. . They are renewed on a five year cycle, and the renewal i s subject to the review of EPA, as well as formal public comment. Because of the complexity and cost

5 Reference 40 CFR Part 70Staff Report: page 6 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions associated with the federal standards and process, these permits are required only of sources that meet the federal definition of “Major Source” which is e missions

- based and is intended to include large industrial operations.

Federal permitting requirements are set forth in District Regulation 5. Regulation 5 applies to any stationary source with the potential to emit at least 100 tons per year of any re gulated air pollutant, or at least 10 tons per year of any hazardous air pollutant (HAP) 6 , or 25 tons per year of any combination of HAPs. A source’s “potential to emit” or PTE is based on the maximum capacity of the source, operating 24 hours per day, 36 5 days per year, without consideration of any limitations or control equipment, unless the limits or controls are federally enforceable 7

In order to make sure that federal permits are only required for the large sources that the Act envisioned as Major S ources, the District implements a General Prohibitory Rule to Limit Potential to Emit. This rule was developed as a model rule by the air districts, through the California Air Pollution Control Officers Association (CAPCOA), with ARB and EPA, in the

mid 1 990s. The District adopted the model rule under Regulation 1, Rule 494 in 1995. The rule establishes emission “limits” that shield smaller sources from federal permitting, provided the source keeps its actual emission less than half the threshold at whic h the source would be a Major Source based on potential emissions. So if the major source threshold is the potential to emit 100 tons per year of organic compounds, and the source keeps its actual emissions below 50 tons per year, the source does not have to get a Title V permit. The District currently has 12 sources subject to permitting under Regulation 5. .

Proposed Regulatory Changes

The District is proposing changes to adopt a separate regulation to implement the provisions of EPA’s Tailoring Rule, and to make revisions to definitions to Regulation 1, Rule 130, to address changes identified by EPA as necessary for approvability. The proposed changes include: (1) the adoption of a new rule, Regulation 1, Rule 221, Federal Permitting Requirements for Greenhouse Gases; (2) revisions to Rule 130 definitions to make them consistent with new and revised federal definitions; and (3) revisions to Rule 130 to include new thresholds under the definition of “significant” in 130(s2), and new allowable growth inc rements under the definition of “PSD Increment” in 130(p7).

Proposed New Regulation 1, Rule 221, Federal Permitting Requirements for Greenhouse

Gases: The District is proposing to adopt a new regulation to implement federal permitting requirements for gr eenhouse gas emissions. The proposed rule is based on a model rule developed by District staff with the staff of other air districts, ARB, and EPA Region IX.

6 Hazardous air pollutants are l isted pursuant to Section 112(b) of the CAA.

7 EPA was challenged on this definition of PTE and lost, with the courts finding that limits that are “legally and

practically enforceable” must also be considered in determining PTE, however EPA has not yet cha nged all

implementing regulations so the more restrictive definition is still in effect for certain programs.Staff Report: page 7 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions Proposed Regulation 1, Rule 221 does three things: (1) it establishes thresholds for new and

m odified sources to be reviewed under the District’s PSD program in Rule 220; (2) it establishes

thresholds for existing sources to obtain federal operating permits under the District’s Title V program in Regulation 5; and (3) it establishes limits on PTE f or GHGs (as was done for other regulated pollutants in Regulation 1, Rule 494) to ensure that sources whose actual emissions of GHGs are below thresholds do not have federal permitting requirements.

1. Pr oposed GHG Requirements for New Sources

- Proposed Re gulation 1, Rule 221, has two implementation phases, consistent with EPA’s Tailoring Rule. Under Phase I, which begins on January 2, 2011, any new source that is otherwise subject to review under Rule

220 must address its GHG emissions if those emissions are greater than or equal to 75,000 tons per year of CO2e. In Phase II, which begins on July 1, 2011, the thresholds of Phase I continue, and in addition, any new or modified source that has the potential to emit at least 100,000 tons per year of CO2e mus t also comply with Rule 221 for its GHG emissions, even if it is not otherwise sub ject to the rule.

2. Proposed GHG Requirements for Existing Sources

- During Phase I , the proposed Rule would require any source that i s otherwise required to hold a Title V pe rmit under District Regulation 5 to include in its permit any applicable requirements for GHGs. At this time, the only applicable requirements are reporting requirements and these may be incorporated at the time of permit renewal or other action, so the D istrict does not anticipate opening existing Title V permits for the sole purpose of incorporating these requirements. The GHG requirements will be incorporated when a new Title V permit is issued, or when an existing permit is renewed or amended for othe r reasons. During Phase II, sources otherwise required to hold Title V permits must still incorporate GHG requirements ; in addition, any source with the potential to emit at least 100,000 tons per year of CO 2e must obtain a Title V permit regardless of wh ether emissions of other pollutants trigger the permitting requirement. The proposed Rule will also limit PTE for GHGs, in the same way that District Regulation 1, Rule 494 does for other pollutants.

Under Proposed Rule 221 , if a source maintain s records that its actual emissions are below 50,000 tons per year of CO2e and submit s an annual report to the District

demonstrat ing this, the source does not have to obtain a Title V permit even if its PTE exceeds 100,000 tons per year.

3. Proposed GHG Requirements for Modified Sources

- During Phase I, proposed Rule 221 would require any source that is otherwise subject to review under Rule 220, that undertakes a modification which will result in a net emissions increase greater than or equal to 75,000 tons per yea r of CO2e, will be required to comply with the requirements of District Regulation 1, Rule 220 for its GHG emissions . During Phase II, the proposed Rule would continue the requirements of Phase I for modified sources. In addition, the proposed Rule would require that if , before modification, a source has the potential to emit 100,000 tons per year of CO2e and undertakes a modification that will increase its emissions by 75,000 tons per year or more of CO2e , the source must comply with District Regulation 1, Rule 220. Further, the proposed Rule would also require a source to comply with District Regulation 1, Rule 220 if it undertakes a modification that wouldStaff Report: page 8 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions increase its emissions by at least 100,000 tons per year of CO2e regardless of whether it

was sub ject to Regulation 5 before the modification.

Note that thresholds for new and existing sources include the caveat that GHG emissions on

a mass

- basis (excluding global warming potential) must exceed 100 tons per year for source categories listed in Appe ndix B, or 250 tons per year for other sources. As explained above

, the mass

- basis provision ensures that sources with small emissions of GHGs with very high global warming potential are not subject to federal permitting requirements. In the case of

modi fications, the GHG emissions on a mass

- basis must be greater than zero (that is, there

must be some net emission increase ).

The provisions of EPA’s Tailoring Rule will take effect regardless of whether the District implements them or not. The District wo uld face EPA’s disapproval of its permitting programs for failure to incorporate these new requirements, and disapproval of the Title V program would

result in federal sanctions.

It is important , however, to understand that the District’s PSD program is s omewhat different from EPA’s regulation (40 CFR Part 52.21) . The District’s program is a SIP

- approved PSD program, which means that it replaces the federal rule within the jurisdiction of the District. That

means that the interaction of the EPA’s Tailori ng Rule with the District’s existing PSD program is also a different than the interaction between the Tailoring Rule with EPA’s PSD rule. The most important distinction here is that the emissions thresholds at which new sources are

reviewed under the Dist rict’s program are lower than the thresholds in the federal rule.

The effect of the different thresholds in the District’s program is in determining which new sources of air pollution would have to comply with PSD “anyway .” Under the District’s

program, the thresholds defined as “significant” determine which new sources must comply with PSD requirements 8 . If a new source that exceeds one of these thresholds also emits at least 75,000 tons per year of CO2e, it will have to address its GHG emissions as we ll. In the past 10 years, the District has received only two applications that meet this test, but would otherwise not be required to comply if the thresholds in the EPA’s PSD rule were in effect.

Proposed Changes to Regulation 1, Rule 130, Definitions: The District is proposing to make the following changes to Regu lation 1, Rule 130: (1) eliminate certa in references to dates; (2) change definitions for certain smog

- forming pollutants and particulate matter; and (3) add significant emission rate threshol ds and allowable growth increments for the PSD program

. Each of the changes is described below.

1. Eliminating Certain References to Dates: The current language of Rule 130 references the “Federal Clean Air Act of 1977” in its preamble and in several of th e individual definitions. The identification of the date of the Act may be argued to exclude subsequent revisions to the Act, and EPA has requested that this reference be struck. Further, Rule 130 also incorporates by reference the terms of the federal r egulation in 40

8 Thresholds are listed in Appendix A in the table of Significant Emission Rates.Staff Report: page 9 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions CFR Part 52.21 (which includes PSD), but identifies the rule as of the date August 7, 1980. EPA has requested that this date also be struck from the rule.

The result of these changes is that as each subsequent revision of the Act, or of 4 0 CFR Part 52.21, either includes new definitions of terms, or revises prior definitions, those new or revised terms will automatically be included in the District’s rule, unless Rule 130 specifically defines them in a different way. If the District’s rul e has a specific definition, that definition will stand. Generally speaking, EPA requires that its definitions be used unless the District’s definition is more stringent. If the District has an existing definition that differs from a new or revised feder al definition, and EPA determines the definition is not more stringent, EPA may then require the District to change it in order to retain approval of its program.

Referencing federal definitions minimizes the number of changes the District must make

to its rules. However, including specific definitions provides greater clarity and transparency for the regulated community and the public. The District endeavors to find

an appropriate balance between the two by including specific definitions of terms that are most frequently used, or that are most important in determining requirements.

2. Changing Definitions: EPA is requiring changes to certain definitions in Rule 130. First, EPA is requiring that all PSD programs include definitions of two size fractions of particulate matter for which there are National Ambient Air Quality Standards: these

include PM 10 , which is the size fraction of 10 microns or smaller, and PM 2.5 , which is the size fraction of 2.5 microns and smaller. The District is proposing to add these clarifying definitions into the existing definition of “particulate matter” in Rule 130(p1). Second, pursuant to rulemaking signed by the Administrator to address interstate transport of

ozone and ozone

- forming pollutants, EPA is requiring that all PSD programs include specific language defining air pollutants that react to form ozone. Specifically, EPA has requested that language be added to the definition of “precursor” under Rule 130(p6) to clarify that: volatile organic compounds (VOCs) are prec ursors to ozone; oxides of nitrogen (NOx) are precursors to both ozone and PM 2.5 ; and oxides of sulfur (SOx) are precursors to PM 2.5

. EPA provided specific language for these new and revised definitions, and the District is proposing to use the exact lang uage EPA provided.

The District does not anticipate that the changes to these definitions will result in any practical change in the implementation of the program, however the changes are necessary in order to maintain federal approval of the program.

3. Ad ding New Thresholds and Increments for PSD : Since the last changes were made to

the District’s PSD program, EPA identified significant emission rates for several new pollutants, and is requiring the District to include them now. These include si gnificanc e thresholds for PM2.5; the emissions of organic compounds, metals, and acid gases from municipal waste combustors; and emissions of non

- methane gases from municipal solid waste landfills. The District is proposing to include these new thresholds in the e xisting definition of “significant” in Rule 130(s2). The proposed new thresholds are shown in Appendix A, in the table of Significant Emission Rates.Staff Report: page 10 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions The District does not currently have any municipal waste incinerators, or any a ctive municipal waste la ndfills; adding significant emission thresholds for the ir associated pollutants is only expected to affect any applications for new sources in these categories, and then only very large ones. The District does not expect such sources

. It is important

to note that these thresholds are techn ically in place already at the federal level, and failure to include them would result in loss of federal approval of the program.

The District is also proposing to add a threshold for GHGs in the definition of “signifi cant” in 130(s2). This threshold references the thresholds in proposed Rule 221

. This revision is being included because, as dicussed above , the District is removing a date

from this definition as requested by EPA and without the added clarification for GHGs, there may be some unintended consequences. Specifically, the original definition of “significant” included a catch

- all for “Other pollutants regulated under the Clean Air Act of 1977” and the District is proposing to strike the “1977” date. The Act of 1977 did not regulate GHGs; without that date, however, and as of 2010, GHGs are regulated pollutants under the Act. The emission rate associated with this significance threshold for “other pollutants” is “any emission rate whatsoever” which would mea n virtually every combustion device no matter how small would then be subject to PSD permitting. By including a separate threshold for GHGs, the District will avoid that unintended outcome. The proposed threshold references the definitions in Rule 221 in part because they are so complicated, but also because EPA has indicated they will be reviewed and potential ly revised. Having the thresholds in one place will limit the extent of rulemaking needed to respond to future changes by EPA.

As discussed previ ously, the PSD program includes allowable growth increments as a measure of the impact of a project on ambient air quality. EPA is requiring changes to the growth increments in the District’s program to reflect changes made in the federal program. These changes include the elimination of increments for “Total Suspended Particulate” and replacing them with increments for PM 10 and PM 2.5 . EPA has also requested a clarification that for the increments for Nitrogen Dioxide, the phrase “annual average” means “ annual arithmetic mean.”

The new increments for PM 10 are very close to the previous increments for total particulate, and are not likely to have any practical impact on the District’s program. The

PM 2.5 increments are substantially lower, however, and ma y result in additional controls being required for certain large projects. The District receives, on average, less than one project per five years that might be affected by these new increments. Further, the increments are required by federal regulations , and failure to include them will result in the loss of federal approval of the District’s program.

Statutory Limitations and Statement of Compliance

In 2003, the California Legislature passed SB 288 (Sher) that restricts changes local air districts

ma y make to their programs that implement federal New Source Review (NSR) and PSD. The bill was intended to prevent the weakening of these programs which would otherwise haveStaff Report: page 11 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions resulted from the implementation of certain federal regulatory reforms promulgated by EPA. The bill prohibits a district from adopting changes to its NSR or PSD program that have the effect of making the program less stringent than it was on December 31, 2002. The bill charges the ARB with reviewing program changes made by the distric ts to determine if the changes comply with SB 288.

The District’s PSD program on December 31, 2002, did not include any regulation of GHGs; including the regulation of GHGs has the effect of making the program more stringent, not less.

The District’s PSD program on December 31, 2002, did not include any significance thresholds for PM2.5, or for emissions from municipal waste combustors or municipal solid waste landfills.

The addition of new thresholds for PM2.5, and for the various emissions from municip al waste combustors and landfills, make the program more stringent, not less stringent.

The District’s PSD program on December 31, 2002, had one set of PSD increments for total particulate. The proposed changes will include separate thresholds for PM10 a nd PM2.5. The PM2.5 thresholds are more stringent when compared on a size fraction basis to the previous threshold for total particulate that they replace

.

The other changes and clarifications do not materially affect the interpretation of the rules that make up the District’s PSD program.

Alternatives to Proposed Changes

The District is proposing to address two different requirements in a single rule

- making ; namely, the requirements for GHG permitting in the EPA’s Tailoring Rule, and revisions to the District’s

SIP

- approved PSD program required by EPA to retain federal approval of the program. Alternatives will be discussed separately for each requirement.

Alternatives to Proposed Regulation 1, Rule 221: Instead of proposing to implement the

federal Tailoring Rule through proposed Regulation 1, Rule 221, the District could have proposed a different implementation approach, or could choose not to implement the requirements at all. There are clear consequences for each of these alternatives.

1. Alternat ive Approaches to Implementing the Tailoring Rule

- The primary decision the District had to make in deciding how to implement the Tailoring Rule was whether to make individual changes to each of the rules in the programs that impl ement the

District’s PSD and Title V program s, or to adopt a separate rule

. The District chose to adopt a separate rule in part because staff believes it is simpler and clearer for the regulated community to have the new requirements in a single place. More importantly,

the ARB has indicated that adopting a separate rule for the new requirements for GHGs is an important component of their determination that the action does not make the existing program less stringent, and thereby potentially violate the restrictions of SB 288.

The next implementation choice is whether the District should rely on the Model Rule developed by CAPCOA and EPA or to develop its own rule format. District staffStaff Report: page 12 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions participated in the development of the Model Rule and is confident that the model would

int egrate properly with the District’s existing program. The Model Rule took three months to negotiate with EPA staff. This is a very short time frame for rule negotiations, and was possible because the M odel Rule relies substantially on previously negotiat ed language that all parties found acceptable; only minor adjustments were needed to incorporate the specific requirements of the Tailoring Rule. Had the District chosen to develop its own, different rule, the negotiation would likely have taken much long er and the District would not have met the deadline to adopt the Tailoring Rule provisions. The actual requirements would still be the same even if the form of the regulation were different. However, failure to meet the deadline would mean tha t EPA would be implementing Tailoring Rule permitting requirements in lieu of the District which has certain consequences (see No Program Alternative discussion below)

.

2. No Program Alternative

- The District could decide not to implement the requirements

of the Tailo ring Rule. The consequences of that decision are different for the PSD program and the Title V program. The District is not required by federal law to implement a PSD program, however if the District does implement a PSD program, it

must meet minimum fed eral standards. The District currently implements an approved PSD program. If the District chose not to implement the Tailoring Rule, EPA would rescind its approval of the District’s PSD program, and would implement a PSD program

in the District. This w ould mean that projects subject to PSD review would have to receive permits from EPA instead of the District. The District can typically issue a PSD permit within 2 to 3 months of receiving a complete application, including time for

federal review of the draft permit, and public comment. EPA typically requires about two years because the Regional Office is not adequately staffed to provide quicker permit actions. In addition, appeals of EPA permit actions are to the federal Environmental Appeals Board in Washington D.C. and also take about 2 years, whereas appeals of District permits are to the District’s Hearing Board and can typically be completed in a

matter of months. It is likely that some level of dual process for PSD permitting would

continue afte r the effective date of the Tailoring Rule provisions, until EPA took final action to disapprove the District ’ s existing PSD program, which covers regulated pollutants other than GHGs; the District would issue the PSD permits for other pollutants,

and EPA would issue the permits for GHGs. Once EPA took final action to disapprove the District’s program , because SB 288 prevents the District from weakening its program, the District would still be required by state law to implement Regulation 1, Rule 220, but parallel permits would also be required from EPA. It should be noted here that, because

the Distr ict’s program is SIP

- approved, it replaces the underlying federal rules. This

means that while the Dist r ict’s program is approved, the District’s more string ent thresholds remain in effect; if EPA disapproved the District’s PSD program, the District’s thresholds would be enforceable as a matter of state law, and the PSD thresholds in EPA’s rules would apply for the purposes of the federal permits.

The implica tions of not implementing the Tailoring Rule are different for Title V. The District is required by federal and state law to implement an approved Title V program. Failure to implement an approved program will result in sanctions. Sanctions can take

two forms: mandatory permit offsets at 2:1, and/or the withholding of federal highwayStaff Report: page 13 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions funds. If permit offsets were required at a ratio of 2:1, that would mean that any new or modified source would be required to provide two tons of emission reductions for e very ton of proposed emissions increase, on a pollutant

- by

- pollutant basis. Depending on the pollutant, the cost can be anywhere from tens of thousands of dollars per ton to hundreds of thousands of dollars per pound. Typical projects in Northern Sonoma that would be subject to the offset penalty would need between ten and fifty tons of offsets for each of their particulate, NOx, and VOC emissions. The costs would likely be prohibitive for some projects. The loss of highway funds would affect road proje cts throughout the

District. In addition to imposing federal sanctions on the District for failure to implement an approved Title V program, EPA would implement its own program under 40 CFR Part 71, and would require facilities to comply with the same Tit le V requirements proposed in Regulation 1, Rule 221.

Alternatives to Proposed Revisions to Regulation 1, Rule 130: The District is proposing to make revisions to Regulation 1, Rule 130 that EPA has specified in order to update the District’s

program to be consistent with changes EPA made in its PSD requirements since the last time it reviewed the District’s program. The proposed changes use the exact language provided by EPA

and t he language implements existing federal requirements. If the District did not incorporate this language, the District’s PSD program would be disapproved by EPA, and EPA would implement a federal program that does include the language. Because of the provisions of SB 288 in state law, however, the District’s existing Rule 130 w ould also continue in effect. The net result would be that any project affected by the proposed revisions would be affected by equivalent rules of EPA and the District, even if the District did not adopt the changes. However, as stated previously, the le ngth of time needed to obtain PSD permits from EPA, or for appeals of such permits to be processed, is substantially longer than it would be under the District’s program.

Environmental Impacts of Proposal and Alternatives

Environmental Impacts of Propo sed Regulation 1, Rule 221: Regulation 1, Rule 221, if adopted, will impose requirements for permitting and emissions control on emissions of GHGs from large facilities and projects where there are currently no requirements. The proposed rule

will result in the application of Best Available Control Technology for GHG emissions on projects that have the potential to emit at least 100,000 tons per year of CO2e, or that are otherwise subject to review under PSD and have the potential to emit at least 75,000 tons per year of CO2e. These requirements will apply under federal regulations regardless of whether the District adopts Rule 221, except that the District’s PSD program includes specific significant emission rate thresholds that are more stringent for ne w sources than the thresholds in the underlying EPA regulations. As a result, certain new sources will be required to apply BACT for

GHGs at lower emission levels than would be required if the District’s PSD program were disapproved and EPA implemented it s own regulations instead. A review by District staff shows that in the last 10 years, there have been only two applications for new sources for which these thresholds, in combination with the Tailoring Rule thresholds for CO2e, result in BACT being requi red for GHGs where it would not be required under the EPA’s regulations.Staff Report: page 14 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions Identification of BACT is typically done by examination of the emission controls implemented at other similar sources to determine the best control that is available, considering c osts and other impacts. Options are ranked in order of effectiveness, and then, beginning with the most effect, reviewed for technological and cost feasibility. This is referred to as a “top

- down” BACT analysis. There is currently very little history of applying BACT for GHGs, and so there is not a large pool of comparable installations for comparison purposes. EPA recently released guidance on the determination of BACT for GHGs, and says it should include a review of available technology to reduce em issions, to increase efficiency (both process efficiency, and general energy use at the facility) , or to use alternative fuels (although this is less likely if it

results in a completely different facility, i.e. switching from coal to natural gas for elect rical power generation ).

In Northern Sonoma, the most likely sources to be subject to BACT for GHGs would be geothermal power plants, and possibly a large landfill, should one be sited in the District.

Landfill emissions of methane would be controlled co nsistent with BACT using existing technology that is otherwise required to reduce landfill gas emissions , however technologies that recover of energy from the waste stream will likely be required over technologies that do not

. Geothermal power plants emit both methane and CO2. The existing technology to remove non

condensable gases from the power plant emissions stream and abate those emissions by burning

them will reduce the meth ane emissions consistent with BACT, but will result in a slight increase

in CO2 emissions; there is a strong net benefit in reduction of CO2e, however, because methane has a much higher (21 times) GWP than CO2. There are currently no emissions control technology options for directly reducing CO2 from combustion processes. There fore BACT for the power plant will likely include an efficiency analysis of the process, and of the facility operations. Examples include process heat/energy recovery, increased insulation, and high

efficiency lighting, heating, etc. at the facility. It should also be noted that projects subject to

BACT for GHG emissions would most likely be required to mitigate impacts of GHG emissions under the California Environmental Quality Act as well. The bottom line, however, is that BACT is required as a matter of federal law and regulations.

Regulation 1, Rule 221 also will require facilities to obtain Title V permits for GHG emissions,

or address GHG

- related requirements in their otherwise applicable Title V permits, pursuant to District Regulation 5. Title V permits do not impose any additional environ mental requirements; they consolid ate all applicable air pollution

- related requirements in one permit. There are, therefore, no anticipated environmental impacts associated with the adoption of Regulation 1,

Ru le 221 as it relates to Title V permits. In any case, these permits would be required by EPA through its own permit program 9 if the District did not adopt the proposed changes

.

Overall, adoption of proposed Regulation 1, Rule 221, will result in the same or slightly more positive impacts on the environment (i .e., lower emissions of GHGs) compared to impacts that would result if the rule were not adopted, and EPA implemented its own program instead.

Environmental Impacts of Proposed Revisions to Regulatio n 1, Rule 130: The District is proposing changes to Regulation 1, Rule 130 as required by EPA. These changes include new

9 If the District fails to implement an approved program under 4 0 CFR Part 70, EPA implements one under Part 71.Staff Report: page 15 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions definitions, significant emission rate thresholds, and PSD increments. Although the new significant emission rate thresholds and PSD increments will result in certain projects needing improved emission controls, the proposed changes reflect federal requirements that are already in place, and which would otherwise apply. If the District did not adopt these changes, EPA would rescind ap proval of the District’s PSD program and implement the EPA regulations which include these thresholds and increments. As a result, the adoption of revisions to Regulation 1, Rule 130 will ultimately have the same environmental impacts as would occur if th e District did not adopt the changes and EPA implemented the federal regulations instead.

Economic Impacts of Proposal and Alternatives

The District is proposing two separate rulemaking actions. The economic impacts of each action are discussed separat ely.

Economic Impacts of Proposed Regulation 1, Rule 221: Economic impacts of the proposed new permitting requirem ents for GHGs will result in three areas. Affected sources will be subject to permit review and will be required to pay the costs of that i nitial review; there will be some additional costs for sources that are required to implement BACT for GHGs ; and the District is required by EPA to recover the costs of implementing the Title V program

. 1. Permit Review Costs

- In Phase I of the implementat ion, from January 2, 2011 until July 1, 2011, only facilities that are otherwise subject to PSD and Title V permitting requirements will be required to address their GHG emissions. Under the District’s fee regulations, there is no additional cost for the added review. In Phase II of the program, facilities may become subject to PSD and Title V permitting requirements solely on the

basis of their GHG emissions. T he District does not have or anticipate any facilities that

would be affected solely for GHG e missions . Therefore no additional permit review costs are expected as a result of the adoption of proposed Regulation 1, Rule 221.

2. BACT Implementation Costs

- Because there is very little history of BACT implementation, and because BACT is determined on a case

- by

- case basis, data on specific costs are difficult to find at this time. Certain conclusions are possible, however. First, in its guidance on BACT for GHGs, EPA specifically addresses the procedures for reviewing costs of each control option, and for eliminating options on the basis of cost. There are very few technological options for reducing CO2 emissions at this time, so for the foreseeable future, BACT is will likely be focused on increased process efficiency (including the recovery of heat and energy from processes and wastes), and increased efficiency of facilities operations (such as enhanced building envelope performance and high efficiency heating, cooling, and lighting). Generally speaking, these kinds of efficiency projects result in up front capital costs that may be recovered in whole or in part over the life of the project because of associated energy savings. In most cases, these costs would be incurred even if the District did not adopt proposed Regulation 1, Rule
221, because EP A would require that BACT be implemented.

3. Program Cost Recovery

- EPA requires the District recover all costs of implementing and enforcing the Title V program. The District will propose for the Board’s consideration, before the next fiscal year, a reason able fee to ensure these costs are recovered as required. EPA would recover its program costs implement ed the program in place of the District. The District currently charges less than the Agency’s presumptiveStaff Report: page 16 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions minimum for the program, because some of the District’s program costs are already recovered through existing permit fees. If the District did not implement the program, EPA would assess costs at the presumptive minimum, which would likely be higher.

Economic Impacts of Proposed Revisions to Regula tion 1, Rule 130: The changes proposed to Regulation 1, Rule 130 reflect existing federal requirements. The District does not have any municipal waste incinerators or large municipal solid waste landfills that would be affected by the proposed changes

. The new significant emission rate thresholds for PM2.5 could potentially result in a small number of facilities requiring permits and emission controls under PSD compared to the c urrent regulation. The only PSD permits required in the last ten years have been geothermal permits for drilling and for power plants

. B ased on a review of permitting history, the permits that would exceed the new PM2.5 thresholds were already subject to PSD for

other reasons. The District therefore does not expect that these ne w thresholds will result in any economic impacts. In any case, these thresholds are required by EPA and if the District does not include them in its PSD program, EPA will rescind approval of the District’s program and impose the thresholds through the Age ncy’s own regulations. The same is true of the proposed new PSD increments. No economic impacts are therefore expected to result from the District’s adoption of the proposed revisions to Regulation 1, Rule 130.

Consultation with Affected Businesses

Ba sed on a review of permits, permit actions, and emissions from existing facilities, District staff estimates that the only businesses affected by the proposed rulemaking are geothermal power companies, including the generating plants and the steamfield ope rations. Staff met with the committee of the Geysers Geothermal Association on August 19, 2010, to discuss the Tailoring Rule and upcoming changes to the Districts program. Staff met with represent atives of affected companies on November 9, 2010 to revie w the proposal.

Conclusion and Recommendations

The proposed Regulation 1, Rule 221 implements the requirements of EPA’s Tailoring Rule for federal permitting of GHGs. Specifically, the rule establishes thresholds for permitting and

emissions control of new and modified sources of GHG emissions, establishes thresholds for permitting of existing sources of GHG emissions, and limits PTE for existing sources of GHG emissions to ensure that sources with small actual emissions are not inappropriately required to obtain federal permits. This permitting is required for all affected sources, and would be implemented by EPA if the District did not undertake it. Further, costly sanctions would apply if the District failed to implement the requirements for its Tit le V permit program.

The proposed revisions to Regulation 1, Rule 130 are required by EPA. If the District fails to implement these changes, EPA will rescind approval of the District’s PSD program and implement the changes through the Agency’s own regula tions.

The proposed rule and changes do not make the District’s existing PSD program less stringent, and therefore comply with the limitations of SB 288.Staff Report: page 17 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions No adverse environmental impacts are expected from the approval of the proposed rule and changes.

N o significant economic impacts are expected from the approval of the proposed rule and changes.

District staff recommends the approval of proposed Regulation 1, Rule 221, and the proposed changes to Regulation 1, Rule 130.Staff Report: page 18 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions Appendix A

Tables of Pollutant s, Emission Rates, and Growth Increments

Existing PSD Increments

Class I Class II Class III

Sulfur Dioxide

annual arithmetic mean 2 20 40

24

- hour maximum* 5 91 182

3

- hour maximum 25 512 700

Total Suspended Particulate

an nual geometric mean 5 19 37

24

- hour maximum* 10 37 75

Nitrogen Dioxide
Annual average 2.5 25 50

*Not to be exceeded more than once a year. Expressed as ug/m3.

Proposed PSD Increments

Class I Class II Class III

Sulfur Dioxide

annual arithmetic mean 2 20 40

24

- hour maximum* 5 91 182

3

- hour maximum 25 512 700

Particulate Matter (PM10)

annual geometric mean 4 17 34

24

- hour maximum* 8 30 60

Particulate Matter (PM2.5 )

an nual geometric mean 1 4 8

24

- hour maximum* 2 9 18

Nitrogen Dioxide

Annual arithmetic mean 2.5 25 50

*Not to be exceeded more than once a year. Expressed as ug/m3.Staff Report: page 19 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions Existing Significant Emission Rates

Air Contaminant: Significant Emission Rate

Carbon monoxide: 100 tons per year (tpy)
Nitrogen oxides: 40 tpy

Sulfur dioxide: 40 tpy

Particulate matter: 25 tpy

PM10: 15 tpy

Ozone: 40 tpy (of volatile organic compounds)

Lead: 0.6 tpy

Asbestos: 0.007 tpy Beryllium: 0.0004 tp y Mercury: 0.1 tpy Vinyl chloride: 1 tpy

Fluorides: 3 tpy

Sulfuric acid mist: 7 tpy Hydrogen sulfide (H 2 S): 10tpy Total reduced sulfur (including H 2 S) : 10tpy Reduced sulfur compounds (including H 2 S): 10tpy

Other pollutants regulated under the Clean Air A ct of 1977: any emissions rate whatsoever

In addition to listed emission rates, the definition also includes “any net emission increase from any new or modified
stationary source which would be constructed within 10 kilometers of a Class I area and have a n air quality impact on such area equal to or greater than 1 microgram per cubic meter (24 hour average).”Staff Report: page 20 of 20 November 12, 2010 Proposed Regulation 1, Rule 221 Proposed R egulation 1, Rule 130 Revisions Proposed Significant Emission Rates

Air Contaminant: Significant Emission Rate

Carbon monoxide: 100 tons per year (tpy)
Nitrogen oxides: 40 tpy

Sulfur dioxide: 40 tpy

Particulate matter: 25 tpy

PM10: 15 tpy

PM2.5: 10 tpy of direct PM2.5 emissions;
40 tpy of sulfur dioxide emissions;
40 tpy of nitrogen oxide emissions

Ozone: 40 tpy of volatile organic compounds or nitrogen oxide emissions

Lead: 0.6 tpy

Asbestos: 0.007 tpy Beryllium: 0.0004 tpy
Mercury: 0.1 tpy Vinyl chloride: 1 tpy

Fluorides: 3 tpy

Sulfuric acid mist: 7 tpy Hydrogen sulfide (H 2 S): 10 tpy Total reduced sulfur (including H 2 S) : 10 tpy Reduced sulfur compounds (including H 2 S): 10 tp y Municipal waste combustors

Organic emissions: 3.2 x 10 - 6 megagrams per year (3.5 x 10 - 6 tpy)
(measured as total tetra

- through octa

- chlorinated

dibenzo

- p

- dioxins and dibenzofurans)

Metal emissions 14 megagrams per year (15 tons per year) (measured as particulate matter)
Acid gas emissions 36 megagrams per year (40 tpy) (measured as sulfur dioxide and hydrogen chloride)
Municipal solid waste landfills

Nonmethane organic compounds 45 megagrams per year (50 tons per year)

Othe r pollutants regulated under the Clean Air Act: any emissions rate whatsoever

In addition to listed emission rates, the definition also includes “any net emission increase from any new or modified
stationary source which would be constructed within 10 kil ometers of a Class I area and have an air quality impact on such area equal to or greater than 1 microgram per cubic meter (24 hour average).”