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### TECHNICAL SUPPORT DOCUMENT 30 TAC CHAPTER 101, SUBCHA PTER H, DIVISION 5

System Cap Trading §§101.380, 101.382, 101.383, 101.385

November 18, 2010

FOR FURTHER INFORMATION CONTACT: Ms. Adina Wiley, United States Environmental Protection Agency Region 6, Air Permits Sec tion (6PD-R), 1445 Ross Avenue, Dallas, Texas 75202- 2733, (214) 665-2115.2 Subject: Review of Revisions to the State Im plementation Plan – Texas Administrative Code Title 30, Chapter 101, Subchapter H, Division 5 – System Cap Trading: § 101.380 – Definitions § 101.382 – Applicability § 101.383 – General Provisions § 101.385 – Recordkeeping and Reporting

Contents:

I. Executive Summary

II. Summary of State Submittal

III. Summary of the SCT Program

IV. Technical Review of the SCT Program

V. Conclusion3 I. Executive Summary

What actions are evaluated in this Technical Support Document?

This Technical Support Document (TSD) reviews portions of two revisions to the Texas State Implementation Plan (SIP) that involve the Te xas System Cap Trading (SCT) Program. This review will determine if the original subm ission of the SCT Program and the subsequent amendments will improve air quality, comply w ith the Clean Air Act and EPA regulations, and be consistent with EPA’s policies.

May 1, 2001

• On March 21, 2001, the Texas Natural Resour ce Conservation Co mmission (predecessor agency to the Texas Commission on Environmenta l Quality (TCEQ) and referred to as the TCEQ elsewhere in this document) adopted pr ovisions creating the SCT Program at 30 TAC Sections 101.380, 101.382, 101.383, and 101.385 on March 21, 2001. The SCT Program
establishes an emissions aver aging program for system caps established in 30 TAC Chapter 117. Governor Rick Perry submitted these provisi ons as a SIP revision in a letter dated May 1, 2001, for rule project number 2000-046-101-AI.

• On March 21, 2001, TCEQ also adopted revisi ons to Chapter 117 (Control of Air Pollution from Nitrogen Compounds) at 30 TA C sections 117.109, 117.110, and 117.139. These
revisions were also submitted to EPA on Ma y 1, 2001, as part of rule project number 2000- 046-101-AI. EPA has taken separate action on th e Chapter 117 provisions; therefore this TSD will not review the 2001 Chapter 117 revisions (see 73 FR 73562 on December 3, 2008).

August 16, 2007

• On July 25, 2007, the TCEQ adopted revisions to the SCT program to address the recodification of the nitrogen oxide (NO X ) rules at 30 TAC Chapter 117. The Chairman of the TCEQ, Ms. Kathleen Hartnett White, submitt ed these provisions as a SIP revision in a letter dated August 16, 2007, for rule project number 2006-053-101-PR.

• At the same time that TCEQ adopted revisi ons to the SCT program on July 25, 2007, TCEQ also adopted revisions to the general air qua lity rules, the Emi ssion Credit Banking and Trading Program (referred to as the Emi ssion Reduction Credit (ERC) program), the Mass Emissions Cap and Trade (MECT) program, a nd the Discrete Emission Credit Banking and Trading Program (referred to as the Discrete Emission Reduction Cred it (DERC) Program). These revisions were also submitted to EPA on August 16, 2007, as part of rule project number 2006-053-101-PR. EPA is taking separate action on the severable general air quality rules; therefore this TSD will not review the 2007 revisions to the general air quality rules. EPA has taken separate action to approve the ERC, MECT, and DERC program revisions;
therefore this TSD will not further review or discuss these program revisions. See 75 FR 27647 on May 15, 2010; 74 FR 34503 on July 16, 2009; and 75 FR 27644 on May 15, 2010, respectively.4 II. Background of Texas Emissions Banking and Trading Programs

What is Air Emissions Trading?

Air emissions trading programs are designed to promote flexibility and innovation in complying with State and Federal emission requirements. Air emissions trading programs create a marketplace for emission reductions implemen ted by source 1 and needed by source 2. For example, source 1 creates a marketable emissions reduction by reducing its emissions below the level it is required to meet, and be low the level it has been meeting. Source 1 then sells or trades

these reductions as credits to a nother source that is then allowe d to release emissions above its required levels. In return for this flexibil ity, source 2 must purchas e additional credits beyond those needed to comply, therefore reducing overa ll emissions. Emissions trading uses market forces to reduce the overall cost of compliance for sources, while maintaining emission
reductions and environmental benefits.

What is an Economic Incentive Program?

An EIP is a regulatory program that achieves an air quality objective by providing market-based
incentives or information to emission sources. A uniform emission reduc tion requirement, based

for instance on installation of a required emission control t echnology, does not take account of variations in processes, operati ons, and control costs across sources even of the same type, such as electric utilities, or petroleum refiners. By providing flexibility in how sources meet an emission reduction target, an EIP empowers sources to find the means that are most suitable and most cost-effective for their particular circumstances.

In addition, an EIP can create incentives for sour ces to go beyond an emission reduction target. By setting a price on pollution and pollution reductions throug h a fee-based approach or a trading program, some sources can realize an ec onomic gain or avoid additional costs by selling excess emission reductions, or making the reductions for less than the cost imposed by a fee. Because of the improved efficiency, EIPs may al so lead to achieving air quality goals more quickly.

What is the status of EIP programs in Texas?

TCEQ has adopted six EIP programs into stat e regulations. The re gulations are found in Divisions 1 through 6 of 30 TAC Chapter 101, Subc hapter H. The six EIP programs in Texas are summarized in Table II - 1. Additionally, TCEQ has adopted one federal trading program into state regulation, found in Division 7 of 30 TAC Chapter 101, Subchapter H.5 Table II – 1 TCEQ EIP Trading Programs and Regional Applicability

TCEQ Trading Program Geographical / Ozone Non-attainment Regions

DFW HGB BPA El Paso East and
Central Texas West Texas

ERC Optional Optional Optional n/a n/a n/a

EBTA n/a n/a n/a Mandatory Mandatory Mandatory

MECT n/a Mandatory n/a n/a n/a n/a

DERC Optional Optional Optional Optional Optional Optional

SCT Optional Optional Optional n/a Optional n/a

HECT n/a Mandatory n/a n/a n/a n/a

CAIR Federally Mandated Trading Program

Mandatory means that sources in the region must participate in the EIP program. Optional means that sources in the region have the option to pa rticipate in the EIP program.

n/a - The EIP does not apply to the geographical region.

DFW - Dallas Ft Worth ozone nonattainment ar ea for both 1-hour and 8-hour ozone standard.
HGB - Houston/Galveston/Brazoria ozone nonattainment area for both 1-hour and 8-hour ozone standard.
BPA - Beaumont/Port Arthur ozone nonattainment area for both 1- hour and 8-hour ozone standard.

El Paso - El Paso ozone nonattainment area for 1-hour ozone standard. El Paso is maintenance for 8-hour ozone standard.
East and Central Texas - Those coun ties east of Interstate Highway 35.
West Texas - Those counties west of the counties in the East and Cent ral Texas area, excluding El Paso.

The TCEQ EIP regulations are summarized below:

1. Emission Credit Banking and Trading (E RCs) (30 TAC Chapter 101, Subchapter H, Division 1)

The Emission Credit Banking and Tradi ng EIP or Emission Reduction Credit (ERC) program for VOC and NO X in ozone nonattainment areas was first adopted by Texas at 30 TAC § 101.29 on December 23, 1997. Effective January 18, 2001, § 101.29 was repealed and Chapter 101, Subchapter H, Divi sions 1, 3, and 4 were created. This action created separate divisions for the ERC, MECT, and DERC programs. The submittal effective April 14, 2002, amended §101.302. The submittal effective January 17, 2003, completely reorganized the ERC and DERC program rules into more standardized formats parallel to each other, with a ru le structure which followed a process of recognizing, quantifying, a nd certifying reductions as cr edits while explaining the guidelines for trading and using creditable reductions. The 2003 submittal amended §§101.300, 101.301, 101.302, 101.303, 101.304, 101.306, 101.309, and 101.311. The December 6, 2004, submittal amended §§101.300, 101.302, 101.303, 101.304, and 101.311. Our final approval on September 6, 20 06, acted on the original submission of the ERC program and all subsequent revisions through the December 6, 2004 submittal.6 Division 1 defines emission credits (ECs) in te rms of a rate (tons per year). Emission credits can be generated and banked from sta tionary sources as emission reduction credits (ERCs) or generated and banked from mobile sources as mobile emission reduction credits (MERCs). The ERCs from the bank ha ve traditionally been used as offsets for permitting major new or modified facilities. ERCs have also been banked and traded for alternative compliance with Reasonably Available Control Technology (RACT) requirements. MERCs have not been banked or traded under the program to date. On December 6, 2004, TCEQ submitted revisions to the SIP that expanded the ERC program
to cover reductions of crite ria pollutants (excluding lead) or precursors of criteria pollutants for which an area is designated nonattainment. EPA published a final approval of the ERC program on September 6, 2006, 71 FR 52698.

After EPA’s final approval on September 6, 2006, TCEQ revised the ERC program to

address the commitments of the DERC conditional approval. Additionally, the TCEQ adopted revisions to the ERC program consiste nt with the requirements of Senate Bill 784, adopted during regular session, 2005, of the 79 th Texas Legislature. Senate Bill 784 allows for greater flexibility in the ge neration and use of international emission reductions. These revisions were adopted by the TCEQ on October 4, 2006, and became effective on October 26, 2006. The adopted regu lations were submitted to EPA as a SIP revision on October 24, 2006. TCEQ also prom ulgated revisions to the ERC program that update the cross-references to the new numbering structure in 30 TAC Chapter 117. These revisions were adopted on July 25, 2007, and became effective on August 16, 2007. The adopted regulations were submitte d to EPA as a SIP revision on August 16, 2007. EPA fully approved the 2006 and 2007 re visions to the ERC program on April 30, 2010. See 75 FR 27647, May 15, 2010.

2. Emissions Banking and Trading of Allowances (EBTA) (30 TAC Chapter 101, Subchapter H, Division 2)

The TCEQ created the EBTA Program to impl ement the requirements of Senate Bill (SB) 7, from the 76 th Legislature, 1999, which deregulated the electric utility industry. Under SB 7, TCEQ was required to develop a permitting system and a mass cap and trade system to distribute allowances for use by electric generating facilities. The TCEQ created the EBTA Program to establish an emission reduction cap which provides for a
50% reduction in NO X emissions from EGFs and a 25 % reduction in SO 2 emissions from solid fuel EGFs. The permitting system required under SB 7 and established at 30 TAC Chapter 116, Subchapter I, is the subject of a separate rulemaking review and action by EPA (see Docket EPA-R06-OAR-2005- TX-0031). The EBTA program began operation in 2003. Allowances for NO X and SO 2 are deposited into each EGFs compliance account annually. The EGFs will be allowed to purchase, bank or sell allowances to meet operational demands. The EBTA program is divided into three regions; East and West Texas as divided by In terstate Highway 35 and the El Paso region (consisting of El Paso County; Juarez, Me xico; and Sunland Park, New Mexico).

The first SIP submittal to EPA on January 3, 2000, established the details of the emission trading program, including th e establishment of the trad ing regions, the allowance allocation formula, and the banking provisions for unused allowances. This submittal7 established new §§ 101.330-101.337 and was cont ained in rule log number 99033-101- AI. The second SIP submittal (rule log number 1999-029B-116-AI) sent to EPA on September 9, 2001, amended the Allocation of Allowances at § 101.333. The third revision to the EBTA was submitted to EPA on July 15, 2002, and established new § 101.338, which provided for the use of emi ssion reductions from outside the United
States to be used in lieu of EBTA allo wances. Section 101.338 was added to the EBTA in response to SB 1561 which allows surplu s emission reductions achieved outside the United States to satisfy emission reduction requirements in Texas by allowing reductions

in one air contaminant to subs titute for reductions in another criteria pollutant. This submittal was part of rule log number 2001-063-101-AI. The final revision to the EBTA was submitted to the EPA on October 24, 2006, for rule project number 2005-054-101- PR. The 2006 amendments to the EPA repeal ed and replaced the international provisions in section 101.338 and created section 101.339 for program a udits and reports.

EPA approved the EBTA program through di rect final action on November 16, 2010 (see 75 FR 69884).

3. Mass Emissions Cap and Trade (MECT) Progr am (30 TAC Chapter 101, Subchapter H, Division 3)

The MECT program was adopted as a State regulation on December 6, 2000. This program is mandatory for stationary facilities that emit NO X in the HGB ozone nonattainment area which are subject to emission specifications in the TCEQ NO X rules at 30 TAC Chapter 117.310, 117.1210, and 117.2010; and which are located as a site where they collectively have an uncontrolled design capacity to emit 10 tons per year or
more of NO X . The program set a cap on NO X emissions beginning January 1, 2002, with a final reduction to the cap occurring in 2007. Facilities are required to meet NO X allowances on an annual basis. Facilities ma y purchase, bank, or se ll their allowances. The program has a provision to allow a fac ility to use credit generated through the Division 1 EIP (ERCs) to permanently increase the allowances for the individual facility in the MECT if the credits were generated for NO X in the HGB area before December 1, 2000. The program also has a provision to al low a facility to us e credits generated through the Division 4 EIP (DERCs) in lieu of allowances if they are generated in the HGB area. EPA published a final rule appr oving the MECT program (except for the use of DERCs in the MECT, which we deferred acting on until our action on the DERC rule) on November 14, 2001 (66 FR 57252). Texas su bsequently revised the MECT program in SIP submittals dated January 31, 2003 a nd December 6, 2004. EPA published a final approval of the MECT program revisions on September 6, 2006 (71 FR 52698), including revisions to the MECT necessary to accomplish the shift in attainment strategy from 90 percent control of industrial NO X sources to 80 percent control in the HGB area. The approved revisions also approved the use of discrete emissions credits generated from stationary sources (DERCs) or mobile sources (MDERCs) in lieu of MECT allowances. Since our 2006 final approval, TCEQ has promulgated revisions to the MECT to update the cross-refe rences to the Chapter 117 NO X rules. EPA subsequently approved the revisions to the MECT through a direct final action on July 16, 2009 (see 74 FR 34503).8 4. Discrete Emission Credit Banking an d Trading (DERCs) (30 TAC Chapter 101, Subchapter H, Division 4)

The DERC program was first adopted by the state at 30 TAC § 101.29 on December 23, 1997. Effective January 18, 2001, § 101.29 was re pealed and Chapter 101, Subchapter H, Divisions 1, 3, and 4 were created. This action created separate divisions for the ERC, MECT, and DERC programs. Discrete emi ssion credits (DECs) are quantified, banked and traded in terms of mass (t ons), not a rate as is the cas e with ECs. DECs may be generated from stationary sources and banke d as discrete emission reduction credits (DERCs) or may be generated from mobile sources and banked as mobile discrete emission reduction credits (MDERCs). DECs may be generated and used statewide and can apply to all criteria pollutants, with the exception of lead. Traditionally DECs have been used for RACT compliance for VOCs and NOx. Amendments to the MECT program were adopted on October 18, 2001; these amendments also included changes made primarily for clarificati on to §§ 101.370, 101.372, and 101.373 in the DERC program. The DERC program was amended ag ain effective April 14, 2002, to include the provisions in Texas Senate Bill 1561 for air emissions trading across international boundaries. The submittal effective January 17, 2003, completely reorganized the ERC and DERC program rules into more standardized formats parallel to each other, with a rule structure which followed a process of recognizing, quantifying, and certifying reductions as credits while explaining the guidelines for trading and using creditable reductions. The December 6, 2004 submittal amended §§ 101.370, 101.373, 101.374, and 101.376. Our final conditional approval on September 6, 2006, acted on the original submission of the DERC program and all s ubsequent revisions through the December 6, 2004, submittal (71 FR 52703). Our conditiona l approval is contingent upon TCEQ satisfactorily addressing the terms of th eir September 8, 2005, commitment letter.

After EPA’s final conditional approval on September 6, 2006, TCEQ revised the DERC program to address the commitments of th e conditional approval. Additionally, the TCEQ adopted revisions to the DERC program consistent with the requirements of Senate Bill 784, adopted during regular session, 2005, of the 79 th Texas Legislature. Senate Bill 784 allows for greater flexibility in the generation and use of international
emission reductions. These revisions we re adopted by the TCEQ on October 4, 2006, and became effective on October 26, 2006. The adopted regulations were submitted to EPA as a SIP revision on October 24, 2006. TCEQ also promulgate d revisions to the DERC program that update the cross-referen ces to the new numbering structure in 30 TAC Chapter 117. These revisions were adopt ed on July 25, 2007, and became effective on August 16, 2007. The adopted regulations we re submitted to EPA as a SIP revision on August 16, 2007. EPA fully approved the 2006 and 2007 revisions to the DERC program on April 30, 2010. See 75 FR 27644, May 18, 2010.

5. System Cap Trading (SCT) (30 TAC Chap ter 101, Subchapter H, Division 5)

The TCEQ adopted system caps for electric ge nerating facilities ope rating in the BPA, DFW, and HGB ozone nonattainment areas a nd the attainment counties of east and central Texas at 30 TAC § 117.138 on September 26, 2001, effective October 18, 2001.9 EPA approved the system caps on November 14, 2001 (66 FR 57244). The System Cap Trading (SCT) program adopted by TCEQ on March 21, 2001, and submitted to EPA as a revision to the SIP in Rule Log Number 2000-046-101-AI, provides flexibility for the electric industry in achieving the NO X emissions reductions necessary to achieve ozone attainment in the BPA, DFW, and HGB oz one nonattainment area and the attainment
counties of east and central Texas while mainta ining reliability of se rvice. Individual sources under common ownership or control may be voluntarily gr ouped together in a system with a system cap on total emissions from the sources in the system, established under 30 TAC Chapter 117 emissions limita tions. Emission allowables may be
transferred from source to source within the system, provided the cap is not exceeded. The SCT provides a mechanism that streamlin es the steps necessary for daily emission trading by allowing the increas e of system caps from corresponding system cap emission reductions in the same nonattainment or attainment area. The system cap may be increased daily using a daily surplus, or on a 30-day rolling average using a 30-day rolling average surplus for the same time peri od. TCEQ has promulgated revisions to the SCT program to update the cross-re ferences to the Chapter 117 NO X rules.

6. Highly-Reactive Volatile Organic Compound Emission Cap and Trade (HECT) Program (30 TAC Chapter 101, Subchapter H, Division 6)

The HECT program was adopted as a State regulation on December 1, 2004. This program is mandatory for covered facilities including vent gas streams, flares, and cooling tower heat exchange systems that emit highly-reactive VOCs, as defined in § 115.10, and that are located at a site subject to Chapter 115, Subcha pter H. Facilities are required to meet HRVOC allowances on an annual basis. Faci lities may purchase,
bank or sell their allowances for use in th e following control period. The program has a provision to allow a facility to use credits of less-reac tive VOCs generated through the Division 1 EIP (ERCs) in lieu of allowances if they are generated in the HGB area. EPA published final approval of the HECT pr ogram on September 6, 2006. (see 71 FR 52659)

7. Clean Air Interstate Rule (CAIR) Program (30 TAC Chapter 101, Subchapter H, Division 7)

The Texas CAIR program was adopted as a State regulation on July 12, 2006, and submitted as a SIP revision on August 4, 2006. The Division 7 regulations incorporate by reference the CAIR NO X Annual and SO 2 trading programs as adopted by EPA on May 12, 2005 (70 FR 25162). Additionally, the Texas CAIR program establishes a NO X allocation methodology and provisions for the compliance supplement pool to replace the provisions at subpart EE of 40 CFR part 97, the CAIR Fede ral Implementation Plan. EPA published a direct final a pproval of the Texas CAIR NO X Abbreviated SIP for the Phase I allocation methodology on July 30, 2007 (72 FR 41453). TCEQ adopted revisions to the CAIR program on February 10, 2010, to update the NO X allocation methodology and the incorporation by reference dates for the NO X annual and SO 2 trading programs. These revisions were submitted to EPA as a SIP revision on March 4,

2010.10 What has EPA considered in reviewing and evaluating the TCEQ EBTA EIP SIP submittal?

“Improving Air Quality with Economic Incen tive Programs” (EPA-452/R-01-001, January 2001) is the EPA guidance document for reviewing and approving discretionary EIP submittals. The EIP Guidance applies to the establishment of a di scretionary EIP for attaining or maintaining the national ambient air quality standa rds (NAAQS) for criteria pollutants. The EIP Guidance takes precedence over the discretionary EIP guidance pr ovided in prior documents such as the 1994 EIP (See 59 FR 16690; and 40 CFR part 51, subpart U) and the guidance in the emission trading policy statement (ETPS) (December 4, 1986, 51 FR 43813). The January 2001 EIP Guidance is the most recent statement of agency policy and it supersedes prior statements of agency policy.

The above documents and other material considered will be included in th e administrative record for the proposed rule.

What does EPA mean by guidance?

The EIP Guidance applies to discretionary EIPs , but it does not repres ent EPA’s final action regarding discretionary EIPs. Fi nal action on any particular discre tionary EIP, such as the EBTA Program, occurs when EPA has approved or di sapproved the EIP submitted as a SIP revision.
The EIP Guidance describes elements of various types of discretionary EIPs, and phrases these elements in the imperative– that is, using the terms “must” or “shall.” This is done only to signify that EPA would propose to approve a SIP submittal of a program containing the indicated elements on grounds that under section 110(l) of the Clean Air Act (CAA), the SIP revision does not interfere with any applicable requirement c oncerning attainment, reasonable further progress, or any other applicable requirement.

How will EPA act on an EIP SIP submittal?

Once an EIP SIP revision is submitted, EPA will take action through notice-and-comment rulemaking to determine if the statutory requirement s have been met. Only action taken after the conclusion of that rulemaking would constitute final Agency action. EPA would take steps to expedite its proposed approval in the case of SIP revisions containing prog rams that contain the elements of the EIP guidance.

If a program that does not contain the elements of the EIP guidance for the type of program that is submitted, EPA will still seek to determine whether the applicable CAA requirements were met, and if so EPA would approve the submi ssion. EPA would make the determination through notice-and-comment rulemaking.11 III. Summary of the System Cap Trading Program

What is a System Cap Trading Program?

The SCT Program provides an additional layer of flexibility to the currently SIP-approved system caps at 30 TAC Chapter 117. The Chapter 117 system caps are emission averaging programs. In Houston, the system caps are mandatory for EGUs and industrial sources. EGUs in BPA, DFW, and East/Central Texas have the option to participate in system caps.

The Chapter 117 system cap program groups all s ources with common ownership under one cap. For example, under the HGB EGU system cap, all EGUs owned by Reliant Energy would be under one system cap. Participati on in the system cap is an all- or-nothing approach; either every unit with common ownership is in cluded or none are. Within a given system cap, sources are allowed to average their emissions over a given ti me period. If the system cap is for 24-hours, then during a given 24-hour period unit A would in crease while unit B decreases – the net result is that the emission increase and decrease average to no net increase. The emission averaging for the system caps must occur over the same time period and be within the same system cap.

To provide additional flexibility to system cap participants, TCEQ developed the SCT program. In this program, system caps in the same nonattain ment area or attainment area can trade surplus emission allowable. So, in HGB, if a source in the Reliant Energy system cap needs to increase but can find no offsetting decrease within it s own system cap, the Reliant Energy unit can coordinate its increase with a contemporane ous decrease by a unit in the NRG system cap.

The traded quantity in the SCT is called a surplus emission allowable – the difference between a source’s allowable emissions in the Chapter 117 system cap emission limit and the actual emissions. The SCT program also streamlined the reporting requirements for participating sources by only requiring notification to the TCEQ after the trades of surplus emission allowable between system caps were completed.

The SCT Program has not been used by any sour ce since the program was established in March

2001.12 IV. Technical Review of the SCT Program

This technical review of the SCT program will review the two separate SIP submittals with respect to the SIP completeness requirements of 40 CFR Part 51 to determine whether each submittal satisfies the requirements for preparation, adoption, and submittal of a SIP revision. Then, recognizing that the two SIP submittals have built upon each other, this technical review will analyze the entirety of the SCT program, us ing the most current regulatory language for each section, with respect to the requirements of 40 CFR Part 51 and section 110(l) of the CAA. Finally, this holistic view of the SCT Program w ill be used to analyze the program in comparison
to the EIP Guidance.

These analyses produce a written evaluation that will be used to make a determination of whether or not the SCT Program submissions from May 1, 2001 and August 16, 2007 are in agreement with the CAA, othe r EPA policies, or guidance.

A. Evaluation of the May 1, 2001 SIP Submittal with respect to the Part 51, Appendix V Completeness Determination

B. Evaluation of the August 16, 2007 SIP Submittal with respect to the Part 51, Appendix V Completeness Determination

C. Evaluation of the SCT Program with respect to 40 CFR Part 51

D. Evaluation of the SCT Program with respect to the EIP Guidance

E. Evaluation of the EBTA Program w ith respect to Sec tion 110(l) of CAA13 IV.A. Evaluation of the May 1, 2001, SIP Submitta l with respect to the Part 51, Appendix V Completeness Checklists

The criteria for completeness determination is Appendix V to Part 51 - Criteria for determining the completeness of plan submissions and is outlined below:

1.0 Purpose: This appendix V sets forth th e minimum criteria for determining whether a State implementation plan submitted for consideration by EPA is an official submission for purposes of review under § 51.103.

1.1 The EPA shall return to the submitting official any plan or revision thereof which fails to meet the criteria set forth in this appendi x V, and request corre ctive action, identifying the component(s) absent or insufficient to perform a review of the submitted plan.

1.2 The EPA shall inform the submitting official whether or not a plan submission meets the requirements of this appendix V within 60 days of EPA's receipt of the submittal, but no later than 6 months after the date which the State was required to submit the plan or revision. If a completeness de termination is not made by 6 months from receipt of a submittal, the submittal shall be deemed complete by operation of law on the date 6 months from receipt. A determination of co mpleteness under this paragraph means that

the submission is an official submission for purposes of § 51.103.

The attached checklist outlines the basic criter ia included under 2.1 and 2.2 of Appendix V.

Section 2.3 of Appendix V describe s the "parallel process procedur e" which EPA had previously adopted to expedite the review of plans. This feature, however , is being deleted from the next revised CFR on completeness. Therefore, it is not included in the checklist.14 SIP Completeness Checklist for the May 1, 2001 SIP Submittal

Rule Log No: 2000-046-101-AI

When preparing a SIP revision re quest, the SIP reviewer should go through this list to help identify that the package submitted to EPA is comp lete. States can use the check list to assure SIP submittals meet Appendix V criteria.

Administrative Materials (2.1)

1. The package is sent with a formal submitta l letter from the Governor or his or her designee requesting EPA's approval of the revision.

The SIP revision was submitted by a letter from Governor Rick Perry dated May 1, 2001.

2. Evidence is included that the State has adopt ed the revision in the State code or body of regulations, or that the State has issued th e permit, order, consen t agreement (hereafter document) in final form. This evidence would include the date of adoption or final issuance and the effective date of revision, if different from adoption/issuance date.

The revisions were adopted by the Texas Natural Resource Conservation Commission on March 21, 2001, and became effective April 12, 2001.

3. Evidence is included that the State has necessary legal authority under State law to adopt and implement the revision, e.g., a citati on of the appropriate State authority.

The authority for promulgating changes to th e Texas State Implementation Plan, Chapter 101, Subchapter H, Division 5, Sections 101.380, 101.382, 101.383, and 101.385 is found in Chapter 382 of the Texas Health and Safety Code.

4. A copy is included of the actual regulation or document submitted for approval and incorporation by reference into the SIP includin g an indication of the changes made to the existing approved plan where applicable. Th e submittal shall be a copy of the official State regulation document signed, stamped, and dated by the appropria te State official indicating that it is fully enforceable by the State. The effective date of the regulation document shall, whenever possible, be indicated in the document itself.

The May 1, 2001, submittal included a copy of the official State regulation document, signed, stamped, and dated by Robert J. Huston, Chairman of the Texas Natural

Resource Conservation Commission.

5. Evidence is included that the State followed all the procedural requirements of its laws and/or its constitution in the conducting a nd completing the adoption/issuance of the plan.15 A certification signed by LaDonna Castanuel a, Chief Clerk of the Texas Natural
Resource Conservation Commission was included that demonstrated the SIP submittal was developed pursuant to 40 CFR § 51.104.

6. Evidence is included that public notice was given of the proposed changes consistent with the procedures approved by EPA, including the date of publication of such notice, (e.g., notarized or certified copi es of any public notices publis hed in newspapers). (The notice should be at least 30 days prior to the public hearing(s).

Notices of public hearing were published on November 22, 2000, in the Austin American
Statesman and the Fort Worth Star-Tel egram, and on November 26, 2000, in the San Antonio Express-News. Public hearings were held in Irving, Texas on January 3, 2001, and in Austin, Texas on January 4, 2001.

7. A certification is included indi cating that public hearing(s) was/were held in accordance with the information provided in the pub lic notice(s) and the State's laws and constitution, if applicable.

A certification signed by LaDonna Castanuela, Chief Clerk, Texas Natural Resource
Conservation Commission was included. This ce rtification states that the public hearing was held pursuant to 40 CFR § 51.102(a) and th at notice of the hearing was given which conformed to 40 CFR § 51.102(d).

8. A compilation of public comments and the State's response is included.

The SIP submittal package did include a compilation of public comments and the State’s responses. Eight commenters submitted co mments during the public comment period.

Technical Support (2.2)

The State should include the followi ng technical information in its SIP revision request package.

1. Identification of all regu lated pollutants affected by the revision is included.

This SIP revision regulates emissions of nitrogen oxides. However, §§ 101.380, 382, 383, and 385 do not establish the requirements for NOx emissions. These limits are established in the revisions to Chapter 117 t hat are not being reviewed in this TSD.

2. Identification of the locations of affected sources including the EPA attainment/nonattainment design ation of the locations and th e status of the attainment plan for the affected area(s) is included.

Sources affected by this SIP revision ar e located in the Be aumont/Port Arthur, Dallas/Fort Worth, or Houston/Galveston/Br azoria nonattainment areas. Affected facilities can also be located in East and Central Texas. (§ 101.382)16 3. Quantification of the changes in SIP allowa ble emissions from the affected sources is included. (Examples include estimates of changes in current actual emissions from affected sources and/or, where appropriate, quantification of changes in actual emissions from affected sources through calculations of the differences between certain baseline levels and allowable emissions anticipat ed if the revisions were approved.)

§ 101.383 establishes how the system cap lim its established in Chapter 117 can be exceeded using the Division 5 trading program.

4. Demonstration is included that the NAAQ S/PSD increments/RFP demonstration and visibility as applicable would be prot ected if the revision were approved and implemented.

The system cap limits establis hed in Chapter 117 (not under r eview in this TSD) provide the necessary protection.

5. FOR REDESIGNATIONS:

a. Is there a fully approved maintenance plan for the primary ambient air quality standards for at least 10 years as requ ired by § 175A of the Clean Air Act?

Not applicable.

b. Are contingency measures included?

Not applicable.

6. Modeling information, if app licable, is required to s upport the propose revision.

Not applicable.

7. Evidence is included where necessary, that emission limitations are based on continuous emission reduction technology (e.g., add-on controls, industria l/process equipment designs, reformulated materials, etc.).

Reporting requirements in § 101.385 do not specif y how the emissions are calculated for compliance with the daily, 30- day, or annual cap. This sp ecification is provided in Chapter 117 (not under review in this SIP).

8. Evidence is included indicating that a SIP re vision contains emission limitations, work practice standards, and recordkeeping/reporti ng requirements to ensure stated emission
levels.17 Section 101.385 specifies the recordkeeping and reporting requirements for the SCT Program.

9. Compliance/enforcement strategies including how compliance will be determined in practice (including at what frequency).

Compliance with the Division 5 SCT is based on the recordkeeping and reporting requirements in § 101.385.

10. As appropriate, special economic and tec hnological jus tifications are included per applicable EPA policies or an explanation why such justificati ons are not necessary should be included. For example, requests for alternative RACT may require such justification.

Not applicable to the Division 5 SCT.

The SIP submittal of Rule Log No.: 2000-046-101-AI meets the completeness criteria.18 IV.B. Evaluation of the August 16, 2007, SIP submittal with respect to the Part 51, Appendix V Completeness Checklist

Part 51, Appendix V Completeness Checklists

The criteria for completeness determination is Appendix V to Part 51 - Criteria for determining the completeness of plan submissions and is outlined below:

1.0 Purpose: This appendix V sets forth th e minimum criteria for determining whether a State implementation plan submitted for consideration by EPA is an official submission for purposes of review under § 51.103.

1.1 The EPA shall return to the submitting official any plan or revision thereof which fails to meet the criteria set forth in this appendi x V, and request corre ctive action, identifying the component(s) absent or insufficient to perform a review of the submitted plan.

1.2 The EPA shall inform the submitting official whether or not a plan submission meets the requirements of this appendix V within 60 days of EPA's receipt of the submittal, but no later than 6 months after the date which the State was required to submit the plan or revision. If a completeness de termination is not made by 6 months from receipt of a submittal, the submittal shall be deemed complete by operation of law on the date 6 months from receipt. A determination of co mpleteness under this paragraph means that

the submission is an official submission for purposes of § 51.103.

The attached checklist outlines the basic criter ia included under 2.1 and 2.2 of Appendix V.

Section 2.3 of Appendix V describe s the "parallel process procedur e" which EPA had previously adopted to expedite the review of plans. This feature, however , is being deleted from the next revised CFR on completeness. Therefore, it is not included in the checklist.19 SIP Completeness Checklist for the August 16, 2007 SIP Submittal

Rule Log No: 2006-053-101-PR

When preparing a SIP revision re quest, the SIP reviewer should go through this list to help identify that the package submitted to EPA is comp lete. States can use the check list to assure SIP submittals meet Appendix V criteria.

Administrative Materials (2.1)

1. The package is sent with a formal submitta l letter from the Governor or his or her designee requesting EPA's approval of the revision.

The SIP revision was submitted by a letter fr om Kathleen Hartnett White, Chairman of the Texas Commission on Environmental Quality, dated August 16, 2007. Governor Rick Perry designated that the Chairman of th e Texas Commission on Environmental Quality would be his designee for SIP submit tals in a letter dated May 21, 2002.

2. Evidence is included that the State has adopt ed the revision in the State code or body of regulations, or that the State has issued th e permit, order, consen t agreement (hereafter document) in final form. This evidence would include the date of adoption or final issuance and the effective date of revision, if different from adoption/issuance date.

The revisions were adopted by the Texas Commission on Environmental Quality on July 25, 2007, and became effective August 10, 2007.

3. Evidence is included that the State has necessary legal authority under State law to adopt and implement the revision, e.g., a citati on of the appropriate State authority.

The authority for promulgating changes to th e Texas State Implementation Plan, Chapter 101, Subchapter A – General Rules; Subchapter H – Emissions Banking and Trading is found in Chapter 382 of the Texas Health and Safety Code.

4. A copy is included of the actual regulation or document submitted for approval and incorporation by reference into the SIP includin g an indication of the changes made to the existing approved plan where applicable. Th e submittal shall be a copy of the official State regulation document signed, stamped, and dated by the appropria te State official indicating that it is fully enforceable by the State. The effective date of the regulation document shall, whenever possible, be indicated in the document itself.

The August 16, 2007, submittal included a copy of the official State regulation document, signed, stamped, and dated by Kathleen Hartne tt White, Chairman of the Texas Natural

Resource Conservation Commission.20 5. Evidence is included that the State followed all the procedural requirements of its laws and/or its constitution in the conducting a nd completing the adoption/issuance of the plan.

The authority for promulgating changes to the Texas State Implementation Plan is found in the Texas Clean Air Act, Chapter 382 of the Texas Health and Safety Code.

6. Evidence is included that public notice was given of the proposed changes consistent with the procedures approved by EPA, including the date of publication of such notice, (e.g., notarized or certified copi es of any public notices publis hed in newspapers). (The notice should be at least 30 days prior to the public hearing(s).

Notices of public hearing were published on February 12, 2007, in the Austin American Statesman, the Fort Worth Star-Tel egram, and the Houston Chronicle.

7. A certification is included indi cating that public hearing(s) was/were held in accordance with the information provided in the pub lic notice(s) and the State's laws and constitution, if applicable.

The order adopting the new, amended, and re pealed sections to 30 TAC Chapter 101 provided evidence that the public hearing was conducted pursuant to Texas Health and Safety Code § 382.017 and 40 CFR § 51.102.

8. A compilation of public comments and the State's response is included.

The SIP submittal package did include a compilation of public comments and the State’s responses. The TCEQ received written comments from EPA Region 6 and Michelle Bonilla, a public citizen with Eternal Springs Wellness.

Technical Support (2.2)

The State should include the followi ng technical information in its SIP revision request package.

1. Identification of all regu lated pollutants affected by the revision is included.

This SIP revision repeals an effective date established in Chapter 101, Subchapter A. This section has no applicabl e regulated pollutants.

Chapter 101, Subchapter H, Division 1 (ERC Pr ogram) applies to criteria pollutants, and precursors, for which an area is designat ed nonattainment with the exception of lead. Chapter 101, Subchapter H, Division 3 (MECT Program) applies to NO X emissions. Chapter 101, Subchapter H, Divisi on 4 (DERC Program) applies to criteria pollutants, and precursors, with the excep tion of lead. Chapter 101, Subchapter H, Division 5 (SCT Program) applies to NO X emissions. However, the SIP revision under review does not change the applicability of these programs and therefore does not need21 to restate the list of regulated pollutants that were submitted as par t of the original SIP submittals establishing each program.

2. Identification of the locations of affected sources including the EPA attainment/nonattainment design ation of the locations and th e status of the attainment plan for the affected area(s) is included.

The revisions to Chapter 101, Subc hapter A apply statewide. The revisions to the ERC program at Chapt er 101, Subchapter H, Division 1 apply to all
nonattainment areas statewide. The revisions to the MECT program at Chapter 101, Subchapter H, Division 3 apply only to facilities in the Houston/Galves ton/Brazoria ozone nonattainment area. The revisions to the DERC program at Chapter 101, Subchapter H, Division 4 apply
statewide. The revisions to the SCT program at C hapter 101, Subchapter H, Division 5 apply to
nonattainment areas statewide and areas with unique emission lim its established in Chapter 117.

3. Quantification of the changes in SIP allowa ble emissions from the affected sources is included. (Examples include estimates of changes in current actual emissions from affected sources and/or, where appropriate, quantification of changes in actual emissions from affected sources through calculations of the differences between certain baseline levels and allowable emissions anticipat ed if the revisions were approved.)

Quantification of the changes in SIP allowable em issions from the affected sources is not applicable to this SIP revision.

4. Demonstration is included that the NAAQ S/PSD increments/RFP demonstration and visibility as applicable would be prot ected if the revision were approved and implemented.

The SIP submittal does not include revisions to the PSD and NSR permitting programs.

5. FOR REDESIGNATIONS:

a. Is there a fully approved maintenance plan for the primary ambient air quality standards for at least 10 years as requ ired by §175A of the Clean Air Act?

Not applicable.

b. Are contingency measures included?

Not applicable.

7. Modeling information, if app licable, is required to s upport the propose revision.22 Modeling information is not nece ssary to support the SIP revision.

7. Evidence is included where necessary, that emission limitations are based on continuous emission reduction technology (e.g., add-on controls, industria l/process equipment designs, reformulated materials, etc.).

Evidence of emission limitations based on CEM technology is not applicable.

8. Evidence is included indicating that a SIP re vision contains emission limitations, work practice standards, and recordkeeping/reporti ng requirements to ensure stated emission
levels.

Not applicable. Enforceability is determined on case-by-case basis in each individual permit.

9. Compliance/enforcement strategies including how compliance will be determined in practice (including at what frequency).

Not applicable. Determination of compliance is specified on case-by-case basis in each individual permit.

10. As appropriate, special economic and tec hnological jus tifications are included per applicable EPA policies or an explanation why such justificati ons are not necessary should be included. For example, requests for alternative RACT may require such justification.

These justifications are not n ecessary for this SIP revision.

The SIP submittal of Rule Log No.: 2006-053-101-AI meets the completeness criteria.23 IV.C. Evaluation of the SCT Program wi th respect to respect to 40 CFR 51

Requirements for the preparation, adoption, and submittal of implementation plans can be found in 40 CFR Part 51. EPA is taking action on th e entirety of the SCT program as submitted originally on May 1, 2001, and revised on Augus t 16, 2007. Therefore, th e evaluation of the applicability of the requirement s in 40 CFR part 51 is conducted against the entirety of the program. This analysis is included in Table IV.C.1 below.

The analysis of these two SIP submittals with respect to 40 CFR part 51 is specific to the SCT program. Because EPA has taken, or will take separate action, on the other, unrelated SIP revisions submitted at the same time as the SCT program amendments, we defer our analysis of the part 51 applicability to those sp ecific rulemaking actions.

Table IV.C.1: Analysis of the SCT and 40 CFR part 51 Requirements

Part 51 – Requirements for Preparation, Adoption, and Submittal of Implementation

Plans SCT Program Revisions 30 TAC §§101.380, 101.382, 101.383, 101.385

Subpart A – Emission Inventory Reporting Requirements The SCT Program is a discretionary EIP for voluntary participation. The program does not affect the current TX SIP requirements for Emission Inventory Reporting.

Emission reporting requirements specific to the SCT program are contained in 30 TAC § 101.385. Subparts B – E [Reserved] Not applicable. Subpart F – Procedural Requirements Subpart F – Procedural Requirements § 51.100 Definitions § 51.100 is not applicable to the 2 SIP submittals
under review in this TSD. § 51.101 Stipulations § 51.101 is not applicable to the 2 SIP submittals
under review in this TSD. § 51.102 Public Hearings

• States must conduct one or more public hearings

• Public hearings will only be held after reasonable notice, given at least 30 days prior to the date of the hearing

• The state must submit with the revision a certification that the hearing was held in
accordance with this section • TCEQ held public hearings for each of the 2
SIP submittals under review.

• The public hearings were held after reasonable notice was given. TCEQ published notice of the public hearing widely-circulated

newspapers.

• TCEQ submitted a certification with each SIP submittal that the public hearings were held in accordance with § 51.102.

• Section IV.A and B of this TSD for the Part 51, Appendix V Completeness Checklist for
each of the 2 SIP submittals. This checklist provides the names of the newspapers and dates on which notice of public hearings were provided, as well as the dates of each public hearing. § 51.103 Submission of plans, preliminary review of plans

• The state makes an offici al plan submission to Please see section IV.A and B of this TSD for the evaluation of the 2 SIP submittals with respect to the Part 51, Appendix V Checklist.24 EPA only when the submission conforms to the requirements of Part 51, Appendix V.

• The state delivers 5 copies of the plan with a letter giving notice of the action to the EPA regional office. The 2 SIP submissions meet the requirements for completeness.

§ 51.104 Revisions

• States may revise the plan from time to time

• EPA will approve revisions only after appropriate public hearing requirements have
been met

• Revisions must be submitted in accordance
with 51.103 TCEQ originally submitted the SCT program on May 1, 2001, and submitted revisions to the SCT Program on August 16, 2007. These SIP revisions, as demonstrated previously in this table and section IV.A and B of this document, have satisfied the public hearing requirements of § 51.102 and the requirements of § 51.103.
Subpart G – Control Strategy Subpart G – Control Strategy § 51.110 Attainment and Maintenance of National
Standards Requirements found in § 51.110 are not applicable
to the 2 SIP submittals under review in this

document. The SCT program does not create an attainment demonstration strategy for any area of Texas. The SCT Program provides compliance flexibility and does not generate reductions that can be applied towards attainment strategies. § 51.111 Description of Control Measures Requirements found in § 51.110 are not applicable
to the 2 SIP submittals under review in this document. The SCT program does not establish control strategies for Texas, but rather provides a layer of compliance flexibility to the SIP-approved Chapter 117 control strategies. § 51.112 Demonstration of Adequacy Requirements found in § 51.112 are not applicable
to the 2 SIP submittals under review in this document. Since the SCT program is not an integral piece of an attainment strategy, it is not necessary that the SCT program de monstrate adequacy for maintaining a national standard. § 51.113 Reserved Not applicable. § 51.114 Emissions Data and Projections Requirements found in § 51.114 are not applicable
to the 2 SIP submittals under review in this document, that establish and revise the SCT program. The SCT Program is not an integral piece of attainment strategy and does not provide

emission reductions that can be relied on for attainment. The SCT Program is a compliance flexibility program for the SIP-approved control strategies in Chapter 117. § 51.115 Air Quality Data and Projections Requirements found in § 51.115 are not applicable
to the 2 SIP submittals under review in this document, that establish and revise the SCT program. The SCT Program is not an integral piece of attainment strategy and does not provide

emission reductions that can be relied on for attainment. The SCT Program is a compliance flexibility program for the SIP-approved control strategies in Chapter 117. The SCT Program therefore does not need to provide air quality data or projections for the attainment demonstration modeling.25 § 51.116 Data Availability

The State must make available to the public all data
and calculations used in the preparation of each plan or plan revision.

Each plan must provide for public availability of emission data reported by source owners or
operators. Requirements found in § 51.116 are applicable to the 2 SIP submittals establishing and revising the SCT program.

The TCEQ provided the public the opportunity to participate in stakeholder meetings, in the rulemaking development process, and the public received comment periods on the proposed plan.

The Texas Clean Air Act, Texas Health and Safety Code at Section 382.040 requires that all information submitted to the TCEQ for compliance purposes be made available to the public, unless a written request for nondisclosure is approved. § 51.117 Additional provisions for lead Requirements found in § 51.117 are not applicable
to the SIP submittal under review in this document. The SCT program only applies to emissions of

NOx. § 51.118 Stack Height Provisions Requirements found in § 51.118 are not applicable
to the SIP submittal under review in this document. The SCT program is a discretionary trading program for sources participating in a Chapter 117 system cap and does not revise or interact with the good engineering stack height provisions of 51.118. § 51.119 Intermittent Control Systems Requirements found in § 51.119 are not applicable
to the 2 SIP submittals under review in this document. The SCT program is a discretionary program for sources participating in a Chapter 117 system cap and does not require intermittent control
systems. § 51.120 Requirements for State Implementation Plan Revisions relating to Motor Vehicles Requirements found in § 51.120 are not applicable to the SCT program. The SCT does not cover
mobile sources. § 51.121 Findings and requirements for submission of State Implementation Plan Revisions relating to emissions of oxides of nitrogen Requirements found in § 51.121 are not applicable
to the 2 SIP submittals under review in this document. § 51.121 establishes the requirements
for the NO X SIP Call; Texas was not subject to the

NO X SIP Call. § 51.122 Emissions reporting requirements for SIP revisions relating to budgets for NO X emissions. Requirements found in § 51.122 are not applicable
to the 2 SIP submittals under review in this document. § 51.122 establishes the emission reporting requirements for the NO X SIP Call; Texas was not subject to the NO X SIP Call. § 51.123 Findings and requirements for submission of State Implementation Plan Revisions relating to Emissions of Oxides of Nitrogen pursuant to the
Clean Air Interstate Rule Requirements found in § 51.123 are not applicable
to the 2 SIP submittals under review in this document. § 51.123 establishes the requirements
for the NO X Annual and Ozone season programs for the Clean Air Interstate Rule (CAIR). § 51.124 Findings and requirements for submission of State Implementation Plan Revisions relating to Emissions of Sulfur Dioxide pursuant to the Clean
Air Interstate Rule Requirements found in § 51.124 are not applicable
to the 2 SIP submittals under review in this document. § 51.124 establishes the program requirements for the CAIR SO 2 Programs. § 51.125 Emissions reporting requirements for SIP revisions relating to budgets for SO 2 and NO X emissions. Requirements found in § 51.125 are not applicable
to the 2 SIP submittals under review in this document. § 51.125 establishes the emission26 reporting requirements for the CAIR NO X and SO 2 trading programs. Subpart H – Prevention of Air Pollution Emergency Episodes Requirements found in 51, Subpart H are not applicable to the 2 SIP submittals under review in this document. The SCT program is a discretionary program and is not part of the Texas air pollution emergency episode plan. Subpart I – Review of New Sources and
Modifications Requirements found in 51, Subpart I are not applicable to the SCT program. The SCT program surplus emission allowables can only be used in the SCT program. Subpart J – Ambient Air Quality Surveillance Requirements found in 51, Subpart J are not applicable to the 2 SIP submittals under review in this document. Ambient air quality surveillance is not part of the SCT program. Subpart K – Source Surveillance Subpart K – Source Surveillance § 51.210 Each plan must provide for monitoring the status of compliance with rules and regulations that set forth any portion of the control strategy. The Texas SCT program was developed and
submitted in accordance with the Texas Health and Safety Code. Texas enforcement provisions are not typically in the State’s individual rules but are separately codified. Texas Water Code Chapter 7 contains the State’s statutory provisions for enforcement of programs developed according to the Texas Health and Safety Code; i.e., the Texas ERC program. Section 382.111 of the Texas Health and Safety Code provides the ability to enter and periodically inspect statio nary sources. Section
382.021 establishes that the Texas Commission on Environmental Quality can determine the necessary sampling and detection methods used to demonstrate compliance with an emission
limitation. § 51.211 The plan must provide for legally enforceable procedures fo r requiring stationary sources to maintain records and report the following
to the State:

• Information on the nature and amount of emissions from the stationary source; and

• Other information as nece ssary for the State to
determine whether the sources are in compliance. § 51.212 The plan must provide for periodic testing and inspection of stationary sources. Additionally, the plan must establish a system for detecting
violations and include enforceable test methods.

§ 51.213 The plan must contain procedures for obtaining and maintaining data on actual emissions reductions achieved as a result of implementing transportation control measures. § 51.213 is not applicable to the SCT program
because it does not cover mobile sources.

§ 51.214 The plan must contain legally enforceable procedures to require stationary sources subject to emission standards as part of the applicable plan to install, calibrate, maintain, and operate continuous emission monitoring systems. The SCT Program is a compliance flexibility program. Participating sources must be part of a SIP-approved system cap under 30 TAC Chapter 117. The legally enfor ceable requirements for emission standards, etc ar e included in Chapter 117. Subpart L – Legal Authority Subpart L – Legal Authority § 51.230 Each plan must show that the State has the necessary legal authority to carry out the plan, including the authority to adopt emission standards and limitations necessary for attainment of the NAAQS, enforce applicable laws and regulations and seek injunctive relief. The SCT program was developed and submitted in
accordance with the Texas Clean Air Act, Chapter 382 of the Texas Health and Safety Code. The Texas Health and Safety Code and the enforcement provisions in the Texas Water Code provide TCEQ the necessary legal authority to implement the SIP. A more detailed discussion immediately follows this

table.

§ 51.231 The provision of law or regulation which the State determines provides the authorities required must be specifically identified and copies Texas identified in the 2 submittal packages that the SIP revision was developed in accordance with the Texas Health and Safety Code. EPA Region 6 does27 must be submitted with the plan. not require the State to submit copies of laws and regulations that have been submitted for prior SIP

submittals.

§ 51.232 A state government agency other than the State air pollution control agency may be assigned responsibility for carrying out a portion of the plan. The 2 SIP revisions identified the TCEQ as the agency responsible for implementing the SIP.

Subpart M – Intergovernmental Consultation

Each plan must identify organizations by title that will participate in the development, implementation,
and enforcement of the plan. The 2 SIP revisions identified the TCEQ as the agency responsible for developing, implementing, and enforcing the SIP.

Subpart N – Compliance Schedule The SCT program establishes a compliance flexibility trading program for sources subject to the Chapter 117 system cap requirements. This program does not establish a compliance schedule for any NAAQS, and therefore does not need to address the requirements of 40 CFR part 51, subpart

N. Subpart O – Miscellaneous Plan Content Requirements The 2 SIP revisions identified that no fiscal implications are anticipated for TCEQ or any other state/local government through the implementation of these rules. Additionally, it was estimated that the public benefit as a result of implementing these
revisions would be a continued reduction in air

contaminants. Subpart P – Protection of Visibility The SCT program is not submitted as part of Texas’s plan to protect visibility. Subpart Q – Reports The SCT program SIP revisions do not revise the existing reporting requirements for the emission inventory in the Texas SIP. EPA approved the emission inventory requirements at 30 TAC § 101.10 on August 26, 1994 (59 FR 44036). Subpart R – Extensions Requirements found in 51, Subpart R are not applicable to the 2 SIP submittals under review in this document. The SCT program is not a request
for an 18-month extension. Subpart S – Inspection/Maintenance Program Requirements Requirements found in 51, Subpart S are not applicable to the 2 SIP submittals under review in this document. The SCT program establishes a discretionary compliance flexibility economic incentive program and is not related to an inspection/maintenance program. Subpart T – Conformity to State or Federal Implementation Plans of Transportation Plans, Programs, and Projects Developed, Funded, or Approved Under Title 23 U.S.C or the Federal
Transit Laws The SCT program is not applicable to mobile

sources and therefore does not interfere with the transportation conformity budgets developed for each nonattainment and maintenance area pursuant to subpart T. Subpart U – Economic Incentive Programs 40 CFR part 51, subpart U establishes requirements for statutorily mandated economic incentive programs under sections 182(g)(3), 182(g)(5), 187(d)(3), or 187(g) of the CAA. The SCT program is a discretionary economic incentive program, and therefore not subject to the requirements of subpart

U.28 Subpart W – Determining Conformity of General Federal Actions to State or Federal Implementation

Plans The SCT program does not interfere with the requirements for general conformity in subpart W. Mobile sources cannot participate in the SCT

program. Subpart X – Provisions for Implementation of 8-hr Ozone NAAQS Requirements found in 51, Subpart X are for the implementation of the 8-hour ozone NAAQS. The SCT Program is a compliance flexibility trading program that does oper ate in attainment and nonattainment areas, but the nature of the program does not establish any provisions for implementing the 8-hour ozone NAAQS. Subpart Y – Mitigation Requirements The SCT program does not create procedures by which Texas could exclude air quality data due to exceptional events. Subpart Z – Provisions for Implementation of PM2.5 National Ambient Air Quality Standards Requirements found in 51, Subpart X are for the implementation of the PM2.5 NAAQS. The SCT program revisions do not establish procedures for implementing the PM2.5 NAAQS.

Does TCEQ have the necessary legal authority to implement the revisions to 30 TAC Sections 101.380, 101.382, 101.383, and 101.385 as part of the SIP?

Texas enforcement provisions are no t typically in the State’s indi vidual rules but are separately codified. Texas Water Code Chapter 7 contains the State’s statutory provisions for enforcement of the Texas SCT program. In particular , TWC § 7.051 provides for the assessment of administrative penalties by the TCEQ, and § 7.032 pr ovides for injunctive relief by the TCEQ. The TCEQ enforcement rule at 30 TAC § 70.5 incor porates remedies found in the state statutes (Texas Water Code and the Texas Health and Safety Code), and permits referrals to EPA for civil, judicial or administrative action. It is our conclusion that TC EQ has adequate legal authority to enforce the SCT program revisions as part of the SIP. If we approve the revisions to the SCT program into the SIP, EPA will be able to enforce it under section 113 of the Clean Air

Act.

The 40 CFR part 70 / CAA Title V operating perm its program and the 40 CFR part 63, National
Emission Standards for Hazardous Air Pollutants (NESHAPs) have been reviewed and found to have sufficient enforcement provisions. These sa me enforcement provisions will apply to the SCT Program. The Office of the Attorney Genera l of the State of Texas has provided written opinions for these programs (included in the docke t for this rulemaking). The opinions state that TCEQ has the necessary legal authority to impl ement and enforce the programs. TCEQ has the authority to have reasonable requirements for measuring and monitoring air emissions and to require owners and operators of sources to make and maintain records of the emissions.

The Office of the Attorney General of the State of Texas cited State laws and regulations that regulate, at a minimum, the same sources as the Clean Air Act and do so with standards that are no less stringent than those specified by the CAA. The cited laws and regulations are: Texas Health and Safety Code Ann. sections 382.016 (Monitoring Requirements, Examination of Records), 382.021 (Sampling Methods and Pro cedures), 382.0514 (Sampling, Monitoring and29 Certification); 30 TAC sections 122.132 (Applic ation and Required Information for Initial Permit Issuance, Reopening, Renewal, or Ge neral Operating Permits), 122.134 (Complete Application), 122.136 (Application Deficienci es), 122.142 (Permit Content Requirements), 122.143 (General Terms and Cond itions), 122.144 (Recordkeepi ng Terms and Conditions), 122.145 (Reporting Terms and Conditions), 122.146 (Compliance Certif ication Terms and Conditions), 122.165 (Certification by Responsible O fficial); 30 TAC sections 101.8 (Sampling), 101.9 (Sampling Ports). The opinions of the Texas Attorney General indicate that TCEQ has the necessary legal authority to implement and en force the SCT program in accordance with the requirements of the Clean Air Act.30 IV.D. Analysis of the SCT Program with respect to the EIP Guidance

This portion of the SCT Program t echnical review consists of a s ection-by-section analysis of the EIP Guidance document and relevant CAA requireme nts, and the corresponding section(s) in the EBTA Program.

The EIP guidance is divided into 16 chapters, wh ich are categorized into four segments.

The first segment, Selecting and Approving EIPs, consists of Chapter 1.0 (General), Chapter 2.0 (Defining an EIP), and Chapter 3.0 (Selecting Your EIP Type).

The second segment, Elements of All EIPs, cons ists of Chapter 4.0 (Fundamental Principles of All EIPs), Chapter 5.0 (Common Elements of A ll EIPs), Chapter 6.0 (Ele ments of All Trading EIPs), Chapter 7.0 (Elements of Specific Tradi ng EIPs), Chapter 8.0 (Elements of Financial Mechanism EIPs), Chapter 9.0 (Elements of Clean Air Investment Funds), and Chapter 10.0 (Elements of Public Information EIPs).

The third segment, Other Requirements for EIPs , consists of Chapter 11.0 (Getting Your EIP Approved) and Chapter 12.0 (Runni ng Your Approved EIP).

The fourth segment, Other Important Informati on You Need to Know, consists of Chapter 13.0 (Additional Guidance That Applies to EIPs), Chapter 14.0 (Mobile Source Guidance You May Use Instead of This Guidance), Chapter 15.0 (Spe cial Terms You Need to Know), and Chapter 16.0 (Appendices).

This TSD will address elements in the pertinent Chapters of the EIP Guidance. This TSD will not delve into Chapter 3.0 (Selecting Your EIP T ype) because the TCEQ has already selected the EIP type which is evaluated in this TSD. Th e EIP type is an Emissions Averaging Program. There are seven main types of EIPs - Emissi on Averaging Program, Source Specific Emission Caps, Multi-Source Cap-and-Trade EIPs, Open Market Trading EIPs, Financial Mechanism EIPs, Clean Air Investment Funds, and Public Information EIPs - each with type-specific requirements. Chapter 7.0 - Elements of Specific Trading EIPs, outlines the specific requirements for an SSEC program. Chapter 8.0 - Elements of Financial Mechanism EIPs, Chapter 9.0 - Elements of Clean Air Investment Funds, and Chapter 10.0 - Elements of Public Information EIPs do not apply to the TCEQ SCT program and will not be addressed in this TSD. Specific appendices in Chapter 16.0 have requir ements germane to the TCEQ SCT program.

Selecting and Approving EIPs Chapter 1 - General

Chapter 1 covers general information items for EI Ps. The relevant items of the EIP guidance that apply to the SCT submittals are tabulated in Ta ble IV.D.1. Corresponding sections of the TCEQ submittals are provided for each guidance item.31 Table IV.D.1 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference Chapter 1 – General

EPA EIP Guidance Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

1.1 EPA guidance is for discretionary EIPs The TCEQ SCT Program is discretionary. Its development is not required by CAA sections 182(g)(3), 182(g)(5), 182(d)(3), or 187(g).

1.3 Discretionary EIPs are to increase flexibility, stimulate the use of less costly, i nnovative emission reduction measures, and provide greater incentives for developing and implementing pollution preventio n strategies, possibly with
fewer resources. The SCT Program is intended as an emissions averaging program to help facilities me et regulatory requirements for reducing emissions.

Chapter 2 - Defining an EIP

Chapter 2 is titled “Defining an EIP” and is summarized in Table IV.D.2. The SCT Program defines the sources and pollutants included in the program, as well as the objective of the EIP.

Table IV.D.2 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference CHAPTER 2 - Defining an EIP

EPA EIP Guidance Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

2.2 Pollutants covered: Any cr iteria pollutant or precursor, except for lead. NOx is the only pollutant covered by the SCT. The applicability of the SCT, at § 101.382, references unique

emission limitations established at 30 TAC Chapter 117 – Control of Air Pollution from Nitrogen Compounds.

2.3 Sources included in EIP § 101.382 – Trades of emission allowable under the SCT are limited to sources located within a single nonattainment area or within another single area with unique emission limitations under 30 TAC Chapter 117.

The SCT Program does not clearly identify the sources that can participate in the trading program. The rule language includes an incorrect citation at 30 TAC 101.380(2) and the applicability provision at 30 TAC 101.382 broadly references all of Chapter 117. The public and regulated entities are left to determine program applicability on their own and guess to what system caps are still viable.

2.4 Objectives of the EIP The SCT program meets the definition of a compliance flexibility EIP because it provides facilities with compliance flexibility to meet existing SIP requirements, and allows sources flexibility in comply ing with their emission limits.

Elements of All EIPs Chapter 4 - Fundamental Principles of All EIPs

Three fundamental principles appl y to all EIPs: integrity, equity, and environmental benefit. Four elements make up the integrity principle: surp lus, quantifiable, enforceable, and permanent.32 These four elements, which apply to all EIPs, ar e further defined with regard to programmatic integrity and source-specific integrity. The equity principle consists of two elements: general equity and environmental justice. The environm ental benefit principle is not further divided. Because the programmatic and source-specific requi rements of EIPs are different, the integrity elements do not apply to the two program levels in the same manner. In addition, depending on the nature of the EIP or the type of sources pa rticipating in the EIP, certain elements may only apply partially, if at all. The source-specific requirements contain general requirements and EIPspecific requirements.

How must my EIP meet the integrity principle?

Table IV.D.3 tabulates the require ments described in Chapter 4 of the EIP guidance pertaining to the integrity principle.

Table IV.D.3 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference CHAPTER 4 - Fundamental Principles of All EIPs 4.1

EPA EIP GUIDANCE expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

4.1(a) PROGRAMMATIC INTEGRITY ELEMENTS

SURPLUS - Emission reductions used to meet air quality attainment requirements are surplus as long as they are not otherwise relied on in your SI P, SIP-related requirements, other State air quality programs adopted but not in your SIP, a consent decree, or Federal rules that focus on reducing criteria pollutants or their precursors. In the event that your EIP’s programmatic emission reductions are relied on to meet air quality-related program requirements, they are no longer surplus.

SSEC Specific - If the program is claiming reductions, in addition to the general definition you must show that your

EIP results in more reducti ons than would have occurred without the program. The SCT Program does not satisfy the programmatic integrity element of surplus.

The SCT program does not clearly identify the participating sources; therefore there is no way to clearly identify the emission reductions under the program are surplus.

ENFORCEABLE - emission reductions are enforceable if:

• They are independently verifiable.

• Program violations are defined.

• Those liable can be identified (see 6.1(a)).

• Citizens have access to all emissions-related

information obtained from source.

• The state & EPA can apply penalties & obtain
corrective action.

• Emission reductions meet EP A guidance on practicable enforceability.

• Citizens can file suits against sources for violations.

• They are practicably enforceable in accordance with other EPA guidance on prac ticable enforceability. The SCT Program does not satisfy the programmatic integrity element of enforceable. The SCT Program does not identify violations, liable part ies, or penalties.

QUANTIFIABLE - Emissions and emission redu ctions are It is unclear that the SCT Program satisfies the programmatic33 Table IV.D.3 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference CHAPTER 4 - Fundamental Principles of All EIPs 4.1

EPA EIP GUIDANCE expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

quantifiable if they can reliably and replicably be measured
/determined. element of quantifiable. Becaus e the program does not clearly identify the subject sources and by extension the emission reductions, it will be difficul t to demonstrate that the reductions are reliably and replic ably quantifiable. However, because the sources that would participate in the program must base trades on the Chapter 117 SIP-approved monitoring and recordkeeping strategies, it is possible that the program would be quantifiable if there was more specificity in the subject

sources.

PERMANENT - For compliance flexibility EIPs, the emission reductions are permanent if the state is able to

ensure that no emission increases (compared to emissions if there were no EIP) occur over the time defined in the SIP. The SCT program by design should satisfy the programmatic element of permanent. The program only allows for an
increase in emissions with a corresponding contemporaneous

decrease.

EPA has concerns about the absence of a requirement that TCEQ verify that the trading program operates as designed.

4.1(b) SOURCE-SPECIFIC INTEGRITY ELEMENTS

SURPLUS - GENERAL

The creation of emission reductions is surplus if the reductions are not presently relied upon in your current air quality-related programs defined in section 4.1(a) for the time that the reductions occur, and if they are not required by a consent decree.

Generally, source-specific emi ssion reductions of a criteria pollutant resulting from a non-criteria pollutant program are surplus if they are not relied upon in your air quality-related program requirements for that criteria pollutant.

Emission reductions measured by sources on a prospective basis are surplus if the projec ted baseline emissions from the source or group of sources are properly accounted for in the applicable inventory (point and area sources) or by using an acceptable baseline (mobile sources).

Emission reductions measured by sources on a retrospective basis are surplus if the source’ s actual emissions are below
its baseline allowable or hi storical actual emissions - whichever is lower - and your retrospective inventories reflect actual emission information as appropriate. General surplus expectations are addressed earlier in this table.

The SCT Program does not satisfy the source-specific integrity element of surplus.

Because the SCT Program does not clearly identify subject sources, the TCEQ is unable to demonstrate that the emission reductions subject to the program are not relied upon for other

purposes.

ENFORCEABLE - GENERAL Actions, emission reductions or emission limits specified by the EIP are enforceable if a source may be held liable; the liable party is identifiable; and TCEQ, the public, and EPA can independently verify compliance. (see § 6.1(a)) The SCT Program does not satisfy the source-specific integrity element of enforceable because the program does not identify liable parties, viola tions or penalties.

QUANTIFIABLE - GENERAL The creation and use of emission reductions are quantifiable if the source or group of sour ces can reliably calculate the
amount of emissions and/or emission reductions occurring during implementation of the program, and replicate the calculations; generally, sources cannot include fugitive emissions when quantifying emissions associated with an

EIP. The programmatic requirements for integrity elements for quantifiable are covered ea rlier in this table.

The SCT Program relies on part icipating sources calculating the emission increase and requisi te contemporaneous decrease using SIP-approved Chapter 117 emission monitoring requirements. These methodolog ies will satisfy the sourcespecific element of quantifiable.34 When quantifying results, sources must use the same methodology used to measur e baseline emissions unless there are good technical reasons of why this is not appropriate and supporting documentation can be provided.

PERMANENT - GENERAL Emission reductions are permanen t if the source commits to
achieve or achieves reductions for a future period of time as

defined in the EIP. The SCT program by design should satisfy the source-specific element of permanent. The program only allows for an
increase in emissions with a corresponding contemporaneous
decrease.

EPA has concerns about the absence of a requirement that TCEQ verify that the trading program operates as designed.35 How must my EIP meet the equity an d environmental benefit principles?

Table IV.D.4 tabulates the require ments described in Chapter 4 of the EIP guidance pertaining to the equity and environmental benefit principles.

Table IV.D.4 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 4 - Fundamental Principles of All EIPs 4.2 - 4.3

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

4.2 EIP EQUITY ELEMENTS

4.2(a) & Table 4.3(a) GENERAL EQUITY

• all segments of the populatio n are protected from public health problems

• no segment of the population receives a disproportionate share of a program’s disbenefits

Local stakeholder involvement and public participation are important barometers to measure protection from disproportionate impacts. Sources participating in the SCT Program must be in the

same nonattainment or attain ment area. The program requires a contemporaneous decrease for each emission increase; therefore there is no net impact on the general population.

4.2(b) ENVIRONMENTAL JUSTICE EPA is committed to assuring that all persons:

• have an opportunity to participate meaningfully in environmental decision making

• live in a safe and healthful environment

The environmental justice element applies if the EIP

• covers VOCs, and

• could disproportionately impact communities populated by racial minorities, people with low incomes, and/or Tribes

To address environmental justice, the EIP should include provisions to protect co mmunities of concern. The Environmental Justic e requirements do not specifically apply to the SCT program because the SCT program is only for emission increases and decreases of
NOx emissions.

4.3 ENVIRONMENTAL BENEFIT
All EIPS must demonstrate environmental benefit.

This demonstration can show:

• faster attainment than would have occurred without the EIP

• more rapid emission reductions than would have happened
without the EIP

• more emission reductions (of HAPs or criteria pollutants) than would have happened without the EIP The SCT Program does not satisfy the environmental benefit requirement. The program purely provides compliance flexibility and does not encourage faster attainment or rapid emission reductions.

See also Table IV.D.5.36 Chapter 5 - Common Elements of All EIPs

Many program elements are common to trading EIPs, financial mechanism EIPs, CAIFs, and public information EIPs. These elements include provisions requiring incorporation into an EIP SIP, provisions for quantifying EI P results (i.e., emission impact s), and the features requiring

inclusion in an EIP rule to measure and track results. Section 5.1 of the guidance includes provisions required of an EIP for incorporation into th e SIP, Section 5.2 incl udes requirements to quantify EIP results; and Secti on 5.3 includes requirements to measure and track EIP results. Table IV.D.5 tabulates the comparison of the SCT program with the elements of Chapter 5.1 of the EIP guidance.

Table IV.D. 5 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 5 - COMMON ELEMENTS of ALL EIPs 5.1

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

5.1 EIP SIP PROVISIONS

5.1(a) Environmental Benefit Provisions

Flexibility EIPs generally demonstrate an environmental benefit by reducing the am ount of surplus emission reductions generated for use in th e EIP by at least 10 percent. The SCT Program does not provide an environmental benefit.

The SCT Program provides compliance flexibility and does not encourage faster attainment or rapid emission reductions.

See also Table IV.D.4.

5.1(b) Localized Impacts of Hazardous Air Pollutants (HAPs)

Many VOC emissions contai n HAPs which are toxic air pollutants. EPA believes that localized impacts of HAP

emissions must be addressed for certain EIPs that affect VOC emissions. If your EIP is a tr ading program that allows VOC HAPs to be shifted from one facility to another then your EIP
must follow the HAP framework found in section 16.2.

Your EIP must also meet publi c participation requirements. Sections 16.2 and 16.5 contain guidance on how your EIP can meet the public participation requirements.

Appendix 16.2 VOC EIPs involving HAPs
“HAP framework” Not applicable to the SCT Pr ogram because the SCT Program is only for NOx emission increases and decreases.

5.1(c) Penalty provisions; Vi olation defined; Determine violation magnitude; Set potenti al penalties; Ability to impose maximum penalty of at least $10,000/day

EIP rule must contains provisions to assess:

• Monetary penalty if gaining economic benefit of $5,000

• Additional penalties to de ter future violations

• Penalties for violations of compliance measures, i.e. monitoring recordkeeping etc

• Statement that “Nothing herein restricts independent The SCT Program does not satisfy the penalty provisions requirements because no pe nalties are identified.

See also Table IV.D.3.37 Table IV.D. 5 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 5 - COMMON ELEMENTS of ALL EIPs 5.1

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

enforcement authorities under CAA by other parties.”
Also see EIP 6.1

5.1(d) Public Disclosure provisions

• EIP participants disclose violations in annual certification of compliance.

• Violating source notify affected community.

• Annual report on emissions and violations.

• Submit report to EPA and the public.

Appendix 16.5 Ensuring Adequa te Public Participation

• Public Notices

• Public Hearings

• Notices of availability of technical information Participating sources are required to notify the TCEQ when the Chapter 117 system caps are violated as a result of participation in the SCT Program, see 30 TAC 101.385.

The SCT Program does not require an annual certification of compliance.

5.1(e) Provisions for Federal Land Manager (FLM)
notification in Class I areas

Appendix 16.6 FLM Notification Requirements The FLM Notification Requirements under Appendix 16.6 are not applicable to the SCT Trading Program because the subject areas are not within 100 km of a Class I area.

5.1(f) Area-wide RACT provisions EIP may allow sources subject to RACT to avoid direct application of RACT technology by:

• trading with other sources subject to RACT

• trading with sources not subject to RACT

Appendix 16.7 Area-wide RACT provisions

EIP must ensure that the level of emi ssion reductions resulting from implementation of the EIP will be equal to those reductions expected from the direct application of

RACT The SCT Program is a compliance flexibility program to assist sources in satisfying the SIP-approved RACT requirements in Chapter 117.

Section 5.2 includes requirements to quan tify EIP results. Table IV.D.6 tabulates the comparison of the SCT Program with the el ements of Chapter 5.2 of the EIP guidance.

Table IV.D.6 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 5 - COMMON ELEMENTS of ALL EIPs 5.2

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

5.2 QUANTIFY EIP RESULTS

5.2(a) Predicting EIP results Projected results must show that the EIP will not interfere or
be inconsistent with SIP or SIP-related requirements. The SCT Program does not include provisions to predict results from the program.

EPA is concerned that the lack of an audit provision prevents the TCEQ from analyzing the impacts of the SCT program on

the attainment demonstrations.38 Table IV.D.6 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 5 - COMMON ELEMENTS of ALL EIPs 5.2

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

5.2(b) Addressing uncertainty

• determine uncertainty level.

• provide a range of attributable emission reduction
estimates.

• determine if EIP will interfere with State air quality planning.

• determine if uncertainty level is acceptable

• include the documentation in SIP submittal.

• adjust emission projections, at tainment demonstrations, and RFP/ROP plans to reflect the uncertainty.

• demonstrate that EIP will not interfere with attainment or maintenance of any NAAQS.

• evaluate results of EIP as per 5.3(b), &

• reconcile any problems as per 5.3(c). Because the SCT Program does not include an audit mechanism or the requirement for annual reporting, the TCEQ cannot demonstrate that the SCT Program will not
interfere with attainment demonstrations.

5.2(c) Quantification protocols - EIP SIP submittal includes:

• all protocols with the EIP for EPA approval or

• provide for EPA approval after EIP is SIP approved. Sources participating in the SCT program must use SIPapproved Chapter 117 emission monitoring provisions to identify the emission increases and decreases, see 30 TAC §

101.385.

5.2(d) Emission quantification methods. Recommended hierarchy for selecting emission measurement protocols:

• CEMS data on unit generating emissions.

• CEMS data on unit genera ting emissions not at generation time, but at representative conditions.

• Multiple emission tests at affected unit(s) at representative conditions.

• Emission test at affected unit(s) at representative
conditions.

• Emission test at maximum load or stack tests at identical
unit.

• Emission factor (if allowed) or material balance. 30 TAC 101.385 requires sources to use SIP-approved emission quantification met hodologies under Chapter 117.

Note that EPA has concerns that the SCT Program does not address the requirements for em issions monitoring, reporting and recordkeeping as discussed in Table IV.D.7.39 Section 5.3 includes requirements to measure and track EIP results. Tabl e IV.D.7 tabulates the comparison of the SCT Program with the el ements of Chapter 5.3 of the EIP guidance.

Table IV.D.7 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 5 - COMMON ELEMENTS of ALL EIPs 5.3

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

5.3 EIP FEATURES to MEASURE & TRACK RESULTS

5.3(a) Procedures for monito ring, record keeping & reporting (MRR). Examples of MRR:

• Continuous or periodic m onitoring of emissions, production, activity levels, or emission control equipment operation.

• Measurement devices to verify emission rate and operating condition.

• Measurement of mass emissions or emission rates using the EPA-approved reference test methods.

• Operating and maintenance procedures or other work practices.

• Record keeping of material usage, inventories, or throughput. The SCT Program requires participating sources to use SIPapproved Chapter 117 emission monitoring methods –
however there is no demonstratio n that this requirement is sufficient to satisfy the EIP Guidance requirements.

The SCT Program does not requi re recordkeeping throughout the subject trades.

5.3(b) EIP evaluation procedures At a minimum conduct program evaluation every 3 years. The SCT Program does not require an audit/program
evaluation.

The program evaluation must occur every 3 years at a minimum and must provide the TCEQ the ability to correct any issues identified.

The program evaluation must also identify impacts of the SCT Program on the state’s ozon e attainment demonstrations since the program functions in attainment and nonattainment

areas.

5.3(c) EIP Reconc iliation procedures

A list of possible forms of corrections includes:

• Amend EIP to address problem in the future.

• Amend another SIP program to address emission
shortfall.

• Add another program to SIP to address emission
shortfall.

• Adjust SIP emissions to account for actual emission profiles.

• Suspend EIP until problems remedied.

• Removing the EIP from SIP.

• Use insurance fund of unused emission reductions (establish before a problem discovered) to make up the

shortfall. The SCT Program does not include reconciliation procedures. The TCEQ has no ability to iden tify issues with the operation of the program or correct issues when they arise.40 Chapter 6 - Elements of All Trading EIPs

Chapter 6 introduces elements that are common to all trading EIPs. These elements include enforcement provisions, addressi ng specific pollutant effects, pr eventing interference with other air quality programs, addressing uncertainty, and a few other provisions such as elements for demonstrating environmental benefits. The elemen ts described in Chapter 6 apply in addition to those in Chapter 5. Each of the four main types of trading EIPs has its own unique characteristics and requirements. Section 6.1 in cludes enforcement requirements that all EIPs must contain, Section 6.2 contains provisions in a trading EIP to address specific pollutant effects, Section 6.3 describes elements to ensure that the trading EIP does not interfere with other programs, Section 6.4 contains pr ovisions to address uncertaint y, and Section 6.5 describes other provisions needed in a trading EIP. Table IV.D.8 tabulates th e comparison of the SCT Program
with the elements of Sections 6.1 and 6.2 of the EIP guidance.

Table IV.D.8 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference
CHAPTER 6 - ELEMENTS of ALL TRADING EIPs §§ 6.1-6.5

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

6.1 Enforcement elements of all trading EIPs

6.1(a) Provisions for assessing liability.

• All parties liable for truth & accuracy of information they provide

• 3 rd party not liable if using approved emission protocol.

• User liable for making up shortfalls due to disapproved protocols The requirements for most of this element are covered in Table IV.D.3 for Monitoring and Reporting.

The SCT Program does not id entify liable parties.

6.1(b) Penalty & corre ctive action provisions The trading EIP must include mechanisms that enable TCEQ to assess monetary penalties and impose corrective actions against the sources participating in the
EIP. These mechanisms must include:

• Making up any emission shortfall (e.g., purchase reductions by source that is “short”).

• Pay monetary penalty base d on statutory penalties for source noncompliance.

• Surrender additional punitive amount of emission
reductions.

• Implementing corrective actions to ensure non occurrence in future and compensate for environmental damage caused by emissions
violation such as:

- Better monitors.
- More effective controls. - More frequent monitoring & reporting. - Better monitoring procedures. The requirements for most of this element are covered in Tables
IV.D.3 and IV.D.5.

The SCT Program does not identify program penalties or
corrective actions.

6.1(c) Sources with Title V permits If your EIP covers sources with Title V operating Because the SCT Program is fundamentally flawed as described in previous tables, EPA has not analyzed the inclusion of the program into the Texas Title V permit structure.41 Table IV.D.8 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference
CHAPTER 6 - ELEMENTS of ALL TRADING EIPs §§ 6.1-6.5

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

permits your EIP must meet the requirements in Section

16.8.

6.2 Specific pollutant effect provisions Comply with provision in Appendices 16.11

Appendix 16.11 Provisions for localized increase of criteria pollutant a nd precursor emissions The SCT Program does not addre ss the requirements at 6.2 or Appendix 16.11.

The SCT Program requires a contemporaneous decrease for any
emission increase.

Section 6.3 describes elements to ensure that the trading EIP does not interfere with other programs. Table IV.D.9 tabulates the comparis on of the SCT Program with the elements of Chapter 6.3 of the EIP guidance.

Table IV.D.9 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 6 - ELEMENTS of ALL TRADING EIPs 6.3

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

6.3 Interference with other programs

6.3(a) Ensure consistency wi th transportation conformity

If your EIP covers mobile sources then you must meet the requirement in section 16.10.

Appendix 16.10 Provisions to ensure consistency with transportation conformity - notify Metropolitan Planning Organization (MPO) The SCT Program does not cover mobile sources.

6.3(b) Provision for inter-credit trading Inter-credit trading is the acqui sition and use of an emission reduction generated under one EI P to meet the requirements of another EIP. If your EIP includes inter-credit trading your EIP must meet the provisions in section 16.12. Inter-credit trading is not a feature of the SCT Program.

6.3(c) Provisions for EIPs that include RACT sources If your trading EIP covers RACT sources, you must include provisions contained in section 16.13.

Appendix 16.13 Provisions for EIPs that include RACT

sources RACT is an independent require ment that must be met by sources subject to the SCT Progr am in addition to complying with the trading program.42 Table IV.D.9 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference

CHAPTER 6 - ELEMENTS of ALL TRADING EIPs 6.3

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

6.3(d) Provisions for new source review and trading If you choose to allow emissi on reductions generated by your EIP to be used for NSR purposes then your EIP must meet the requirements in section 16.14.

Appendix 16.14 Provisions for new source review and trading:

• Sources are not exempted from any NSR or PSD requirement because of EIP.

• A major source or major modification may not avoid NSR review by using an EIP

• Ozone non-attainment areas credits used comply with the NSR offset requirement allowed if, all Federal NSR provisions met

• Emission reduction generated or used to comply with any other CAA requirement may not be used as an NSR
offset or vice versa.

• Be federally enforceable.

• Obtain offsets for the life of the source needing the
credit. The SCT Program is not used fo r new source review purposes.

6.3(e) Limitations on emission reduction uses - use prohibitions:

• VOC ERCs outside NA not a llowed unless EIP 6.5(b)

met.

• NO x ERCs generated outside modeling domain unless EIP 6.5(b) met.

• Emission reductions to meet NSPS, BACT, LAER, NSR offset requirements, Acid Rain, and any CAA § 112 air toxic require ment, MACT NESHAP requirements, require ments in urban air toxics program.

• Emission reductions for st atutory mobile source requirements.

• Emission reductions for netting to avoid major source NSR requirements. (see EIP 6.3(d)).

• Emission reductions to meet the mobile source sulfur in fuel reduction Tier II program.

• Municipal waste combustor rule Emission reductions. The SCT Program only applies to emission increases and
decreases in NOx emissions.

The SCT Program does not provide that any of the prohibitions are allowed under the program.

6.3(f) Provisions for ba nking emission reductions. If you choose for your trading EIP to contain banking, then the EIP must meet the requirements in section 16.15. The SCT Program does not provide for banking emission
reductions.43 Section 6.4 contains provisions to address uncertainty in a tradi ng EIP and Section 6.5 describes other provisions needed in a trading EIP. Table IV.D.10 tabul ates the comparison of the SCT Program with the elements of Chapter 6.4 and Chapter 6.5 of the EIP guidance.

Table IV.D.10 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference
CHAPTER 6 - ELEMENTS of ALL TRADING EIPs 6.4 & 6.5

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

6.4 Provisions to address uncertainty

6.4(a) Emissions bank uncertainty - follow requirements in Appendix 16.15 The SCT Program does not provide for emissions banking.

6.4(b) Seasonal trading - Not allow non-ozone season

emission reductions to be used in ozone season. The SCT Program does not provide for emissions banking. Because an emission increase must be accompanied by a contemporaneous emission decrease there is no concern about seasonal trading.

6.4(c) Emissions m easurement - Account for uncertainty in emission quantification methods:

• Use conservative estimates

• Include monitoring/testing

• Exclude certain source types

• Limit trades to similar sources The SCT Program does not provide a source the ability to account for uncertainty in emission quantification methods.

6.5 General Provisions for Trading EIPs

6.5(a) Demonstration of Environmental Benefit - Trading

EIPs

• Improved administrative mechanisms

• Reduced administrative burdens

• Improved emissions inventories The requirements for environmen tal benefit are covered in

Table IV.D.4.

The SCT Program does not addr ess environmental benefit.

6.5(b) Provisions for geographic trading across jurisdictional boundaries.

Appendix 16.16 Provisions for geographic trading across jurisdictional boundaries The SCT Program allows for contemporaneous trading within

the same attainment area or nonattainment area identified in Chapter 117.

6.5(c) Provisions for FLM notification in Class I areas. FLM notification in Class I areas is covered in Table IV.D.5. The FLM Notification Requirem ents under Appendix 16.6 are not applicable to the SCT Program.

6.5(d) Provisions for tracking systems and market clearinghouses

• Track generation / use of emission reductions

• Target enforcement resources

• Conduct EIP performance audits The SCT Program does not satisfy the requirements for tracking systems. 30 TAC Section 101.385 requires participating sources to notify the TCEQ only after trades have occurred. Because the TCEQ is not aware of trades until after the fact they cannot adequately monitor the functionality of the program and anticipate or respond to issues resulting from trading.

6.5(e) Provisions concerning multi-claimants.

Define the owner of the reduction. The SCT Program does not id entify liable parties.44 Table IV.D.10 EPA EIP Guidance and TCEQ SIP Submittal Cross Reference
CHAPTER 6 - ELEMENTS of ALL TRADING EIPs 6.4 & 6.5

EPA EIP GUIDANCE Expectation
EPA-452/R-01-001 System Cap Trading (SCT) §§101.380, 101.382, 101.383, 101.385

6.5(f) Provisions for emission reductions that occur prior to EIP approval

Appendix 16.17 Safeguards for EIPs that allow the use of

old emission reduction The SCT Program only provides for the use of contemporaneous emission increases and decreases. The SCT Program does not provide for the use of “old” reductions that occurred before the adoption of the EIP.

6.5(g) Provisions for compliance margin. Your trading EIP must include provisions to account for compliance margin when sources participating in an EIP are initially complying with an emission limit.

Allowing a source to calculate emission reductions for an EIP without accounting for a compliance margin is acceptable when the source’s historical actual emissions are
lower than its allowable emi ssions and historical actual

emissions are used to calculate emission reductions for an

EIP. The SCT Program does not provide for compliance margins in the calculation of compliance with the Chapter 117 system

caps.

6.5(h) Restricting use of A lternate Emission limits (AELs), Waivers, exemptions, exte nsions etc prohibited. The SCT Program cannot be used to satisfy requirements of other state or federal programs. Thus, the SCT Program does

not need to restrict the use of AELs.

Chapter 7 - Elements of Specific Trading EIPs

Chapter 7 introduces the different types of EIPs and the implementation requirements for each. There are four main types of emission tradi ng programs: emission averaging, source specific emission caps, multi-source emission cap-a nd-trade, and open market trading.

Because EPA has already determined that th e SCT Program does not satisfy the general requirements for a trading program, this TSD will not further review why it does not satisfy the requirements for emissions averaging programs.45 IV.G. Evaluation of the SCT Pr ogram with respect to CAA 110(l)

Section 110(l) of the Clean Air Act states:

Each revision to an implementation plan subm itted by a State under this Act shall be adopted by such State after reasonable notic e and public hearing. The Administrator shall not approve a revision of a plan if the revision would interfere with any applicable requirement concerning attainment and re asonable further progress (as defined in section 171), or any other applicab le requirement of this Act.

Thus, under section 110(l), these two SIP revisi ons creating and amending the SCT Program
must not interfere with attainment or reasona ble further progress or any other applicable requirement of the Act.

As a general matter, the satisfac tion of the environmental benefit principle and the other integrity principles applicable to trading programs will tend to demonstrate that a trading program will do no worse than maintain existing air quality. Acco rdingly, EPA has determined that discretionary

EIPs that are consis tent with the EIP Guidance are consistent with section 110(l):

Congress did not address specific requirements for EIPs in the CAA. Consistent with our mandate, the EPA has interpreted what an EIP should contain in order to meet the requirements of the CAA. This document is a guidance document that sets forth EPA’s non-binding policy for EIPs. This document does not represent final EPA action on the requirements for EIPs. Rather, this docum ent identifies several different types of economic incentive programs, and proposes elem ents for each type that, if met, EPA currently believes would assure that th e program would meet the applicable CAA provisions. The guidance phrases these elemen ts in the imperative – that is, using the
terms “must” or “shall”. This is done only to signify that EPA would propose to approve a SIP submittal of a program containing the indicated elements on grounds that under section 110(l) of the CAA, the SIP revi sion does not interfere with any applicable requirement concerning attainment, reasonable further progress, or any other applicable requirement. (EIP Guidance, section 1.9).

Thus, if the SCT Program is consistent with the EIP Guidance it will sa tisfy section 110(l).

As explained throughout this document, we have determined that the SCT program is not
consistent with the EIP Guidance and therefor e does not satisfy section 110(l). More specifically, the SCT Program does not include any provisions to assess the impact of the program on attainment, reasonable further progress, or any other applicab le requirement of the

Act.46 V. Conclusion

The technical analysis provided in the preceding s ections has compared the applicable sections of the CAA, 40 CFR Part 51, and EPA’s EIP Guidance to TCEQ’s May 1, 2001, revisions to the Texas SIP establishing the SCT Program. This tec hnical analysis also reviewed the subsequent revisions to the SCT Program adopted and s ubmitted as SIP revisions August 16, 2007.

This analysis found that the SCT Program in its entir ety is not consistent with the EIP Guidance. Specifically, EPA finds that the SCT Program fails to:

• satisfy the fundamental element of Surplus at 4.1(a) and (b) of the EIP Guidance because the participating sources are not clearly identifie d, and therefore EPA and the public are

unable to determine that all emission reductions under the SCT program are surplus. It is essential that a trading program have a clearl y identified group of pa rticipating sources to

ensure that the reductions from these sour ces are surplus to all federal and state requirements, and to facilitate trading among participating sources to promote a robust market. Therefore, the SCT Program must clearly identify sources subject to the program. Currently, 30 TAC section 101.380(2) includes an incorre ct citation and 30 TAC section 101.382 broadly references all of 30 TAC Chapter 117 instead of identifying the subject sections.

• satisfy the fundamental element of Enforceabil ity at 4.1(a) and (b) of the EIP Guidance because the SCT Program does not clearly identi fy violations and outline the penalties for the participating sources as described in S ections 5.1(c) and 6.1 of the EIP Guidance. Currently 30 TAC section 101.385 requires a source owner or operator to notify the TCEQ when a Chapter 117 system cap em ission limit is exceeded as a result of participating in the SCT Program. However, there are no penalty provisions or other mechanisms to provide a disincentiv e for violating the emission limits.

• provide an environmental benefit as descri bed in Sections 5.1(a) and 6.5 of the EIP
Guidance.

• provide a program evaluation as described in Section 5.3(b) of the EIP Guidance. Such a program evaluation must occur every 3 years a nd provide remedies if the trading program does not have the intended results, per Sect ion 5.3(c) of the EIP Guidance. A program
evaluation or audit is an essential feature of a trading program because it provides the TCEQ the time and authority to review the functionality of the program and suggest remedies. Additionally, EPA has SIP-appr oved audit provisions in the ERC, Mass Emissions Cap and Trade (MECT), and DERC programs that specifically require the TCEQ to evaluate the impact of the pr ogram on the state’s ozone attainment demonstrations and authorizes the TCEQ to suspend trading in whole or in part if problems are identified. Because the SC T Program operates in attainment and nonattainment areas, we find that analysis of the program impact s on the state’s ozone

attainment demonstrations is an essen tial feature that must be included.

• address requirements for monitoring, record keeping, and reporti ng consistent with Section 5.3(a) of the EIP Guidance.

• provide TCEQ visibility of the trading pro cess or establish reliable tracking mechanism for emissions trading consistent with Secti on 6.5(d) of the EIP Guidance. Participating sources in the SCT Program only notify the TC EQ after the trades between system caps47 occur. The TCEQ must have knowledge and vi sibility of the trad ing under this program to anticipate and respond to issues that result from trading between system caps.

It is recommended that EPA publish a pr oposed disapproval of the SCT Program.