# San Joaquin Valley 

# dAIR 

### POLLUTIONCONTROL DlSlRlCT

GOVERNINGBOARD
LeroyOmellas. Chair DATE: October 16, 2008 Supervisor, San Joaquin County TO: SJVUAPCD Governing Boar Chris Vierra, Vice Chair Councilmember,City of Ceres
Tony Barba FROM: Seyed Sadredin, Executive Supervisor. Kings County Project Coordinator: Manuel Salinas

Judith G. Case Supervisor. Fresno County

Ronn Dominici Supervisor, Madera County

MichaelG. Nelson Supervisor, Merced County

William O'Brien Supervisor, Stanislaus County

HenrvT. Perea



## . Councilmember,City of Fresno

John G. Telles, M.D. Appointed by Governor
RaymondA. Watson Supervisor, Kern County

J. StevenWorthley Supervisor, Tulare County

Vacant Appointed by Governor

Vacant Large City

Vacant Small City, Central Region

Vacant Small City, Southern Region RE: ADOPT PROPOSED AMENDMENTS TO RULE 4306 (BOILERS, STEAM GENERATORS,AND PROCESS HEATERS 

### - PHASE 3) AND RULE 4307 (BOILERS, STEAM GENERATORS, AND PROCESS HEATERS 

## - 2.0 MMBTUIHRTO 5.0 MMBTUIHR)AND PROPOSED NEW RULE 4320 (ADVANCED EMISSION REDUC'TION OPTIONS FOR BOILERS, STEAM GENERATORS,AND PROCESS HEATERS GREATER THAN 5.0 MMBTUIHR)

RECOMMENDATION:

1. Approve, and authorize the Chair to sign, the Negative Declaration prepared for Rule 4306 (Boilers, Steam Generators, and Process Heaters 

### - Phase 3) and Rule 4320 (Advanced Emission Reduction Options For Boilers, Steam Generators,and Process Heaters Greater Than 5.0 MWIBtulhr).

2. Adopt proposed amendments to Rule 4306 (Boilers, Steam Generators, and Process Heaters

### - Phase 3) and Rule 4307 (Boilers, Steam Generators, and Process Heaters

## - 2.0 MMBtuIhr to 5.0 NlNIBtuIhr), and proposed new Rule 4320 (Advanced Emission Reduction Options For Boilers, Steam Generators,and Process Heaters Greater Than 5.0 MIVIBtuIhr).

Seyed Sadredin Executive Oirector Air Pollution Control Officer 

### 3. Authorize the Chair to sign the attached Resolution.

Northern RegionOffice 4800 EnterpriseWay Modesto, CA 95356-8718 BACKGROUND:

(209) 557-6400 FAX (209) 557-6475 Due40the Valley's geography, topography, and meteorology, the

Central Region Office challenges that we face in meeting the federal health-basedambient air 1990 East Gettysburg Avenue Fresno, CA 93726.0244 qua,litystandards for ozone and fine particulatesare unmatched by any
~559~~30~~000~~~~~559~~30-~0~i other region. The District's 2007 Ozone Plan calls for another 75 percent reduction in oxides of nitrogen (NOx) emissions. In 2007, the Southern Region Office 2700M Street,Suite 275 District had to seek an "Extreme" nonattainment classificationfor ozone Bakersfield,CA 93301-2373 (661)3264900 FAX (661)3264985SJVUAPCD Governing Board ADOPT PROPOSEDAMENDMENTS TO RULE 4306 AND RULE 4307, AND PROPOSED NEWRULE 4320 October 16, 2008
because enough reductions could not be identified with available technology. This shortfall in the needed reductions is commonly referred to as a "black box" and the District is legally bound to identify control measures needed to erase this shortfall. In implementing the Ozone and the PM2.5 plans, the District committed itself to leaving no stone unturned in identifying technologically and economically feasible measures that will brirlgthe District into attainment in an expeditious manner.

Public health concerns and legal mandates provide ample justification for promulgating strong measures. However, in crafting today's 

### recommendations, the District staff also gave great weight to ensuring the economic feasibility of the proposed regulations. In addressing the economic feasibility issues, it is important to note that today's recommendations representthe third or fourth generation of rules impacting many of the businesses affected by these regulations. Infact, just last year, many businesses completed expe~isive retrofits and replacementsthat were mandated by the District in the current version of these regulations.
Today's recommendationscallfor the most effective controls 'that are available and are technologically feasible. The proposed regulations also provide businesses with costeffective options to comply. If adopted, Rule 4307 and Rule 4320 would bethe most stringent regulation in the country for the subject type of units, while offering affected businesses cost-effective compliance options. Specifically, the rule includes an innovative provision that allows operators who have previously installed Reasonably Available Control Technology (RACT) and are nowfaced with inordinately high retrofit costs to comply by funding District-administered emission reduction incentive projects. This will allow businesses to make case-by-case decisions based on their own unique economic and logistical circumstances while enabling the District to move forward with procuring reductions that are necessaryto protect public health.
Today's recommendations satisfy the District's control measure commitments in both the District's 2007 Ozone Plan and the District's 2008 PM2.5 Plan. The proposed amendments and new rule would establish more stringent emission limits for oxides of nitrogen (NOx) and impose limits for oxides of sulfur (SOX)and particulate matter with diameter of less than 10 microns (PMIO), which would generally be achieved through the use of low sulfur or gaseous fuels. Overall,the proposed amendments are estimatedto generate a total 4.5 tonsfday of NOx, which is a 47% reduction from the Rule 4320 NOx baseline and a 64% reduction from the Rule 4307 baseline of affected units. Also Rule 4320 would produce reductionsof 3.6 tonsfday of SOX,which is a 74% reduction from the affected units.

DISCUSSION:
Boilers, steam generators and process heaters are used throughout the Valley in many different industries. The District's permits system lists nearly 1,200 units affected bythis rule project. Boilers are used in a variety of manufacturing plants, hospitals, refineries,SJVUAPCD Governing Board ADOPT PROPOSEDAMENDMENTS TO RULE 4306 AND RULE 4307, AND PROPOSED NEW RULE 4320 October 16, 2008
schools, and large office buildings. Steam generators, particularlythe larger units, are primarily used in the oil production industry to generate steam for heavy oil production enhancement. Process heaters provide heatfor industrial and commercial processes including food production and manufacturing.
Control Technologies and Options

Control of NOxfrom boilers, steam generators, and process Iieaters istypically achieved by using either improved combustiontechnology such as ultra low-NOx burners (ULNB) and conventional low-NOx burners (LNB), or exhaust gas control technology such as selective catalytic reduction (SCR).

The most stringent NOx limits proposed in Rule 4320 aretechnologically feasible by using SCR or a combination of SCR and ULNB. Most of the units subjectto Rule4320 have undergoneseveral generations of NOx controls, and consequently, certain applications of SCR may not be feasible due to economic considerationsandlor space limitations. In consideration of the high costs for some units subjectto Rule4320, the rule includes an annualemissions fee option. Operators have the option of paying an annual emissions fee based on the actual emissions of the unit during the previous calendaryear. These fees would be used by the Districtto achieve cost effective NOx reductions. The first payment would be due in 2010 for the 2009 emissions. Payments would continue annually until the unit demonstrated compliance with appropriate limits.

The 12 ppmv and 9 ppmv NOx limits in Rule 4307 and 4320 are achievablewith ULNB, although some operators prefer the operational flexibility offered by the combination of LNB and SCR. The 30 ppmv NOx limit in Rule 4307 for schools and low-use units is normally achievable with readily available low-NOx burners and flue gas recirculation systems.
Summary of Proposed Rule 4320

Rule 4320 would impose new advanced NOx, SOXand PM control options that go well beyond ReasonablyAvailable Control Technology (RACT), on larger units based on their size, fuel type, and fuel usage. Numerous discussionswere held with operatorsto discuss possible compliance schedules and emission levels. Enhanced Schedules were includedwhich generate additional reductions while giving operators slightly longer compliance timelines. The rule also includes special Staged Enhanced Schedules that first require interim Initial Emission Limits be achievedwith a lower Final Emission Standards to be met at a later date. These schedules would produce required reductions at the earliest possible date with even greater reductions inthefuture.

Because the affected units have typically had several levels of NOx controls, obtaining additional reductions can require expensive systems. Although the technology is available, for certain units, those technologies are not economicallyfeasible. Therefore, the rule provides an option allowing payment of an emissions fee rather than installationSJVUAPCD Governing Board ADOPT PROPOSED AMENDMENTS TO RULE 4306AND RULE 4307, AND PROPOSED NEWRULE 4320 October 16, 2008

of additional NOx controls. To comply with federal requirements, the fee would be based on the total actual emissions. The fees would be used by the District to fund projects which could achieve cost effective reductions. Fees would be paid annually and continue until the unit complies with the applicable limit. The affected sources will havethe option, on an annual basis, to stop the fee option and install controls specified in the rule.

Particulate emissions from these sources is primarily generated from the fuel sulfur content so the rule proposes PM2.5 controls based on fuel sulfur limits or SOXlimits on exhaust gases. Most of these units are fired on PUC-quality natural gas which is consideredto be a reasonable level of SOXcontrol. Units firing on field gas, refinery gas, or digester gas would either meet similar fuel sulfur levels or install an exhaust gas control. Extended compliance schedules have been provided for some larger unitsthat are currently in compliance with NOx limits but need appropriate time to design and install the additional SOXcontrols.
Summary of ProposedAmendments to Rule 4306
Units subject to Rule 4306 would also be subject to Rule 4320, when it is adopted. Rule 4306 amendments are administrative changesto address EPA concerns and make Rule 4306 approvablefor inclusion in the State Implementation Plan (SIP). Specifically, Section 5.3.4 of Rule 4306 would be modifiedto clarify that the exemption from BACT and offset requirements when adding start-up or shutdown conditions in the Permitto Operate (PTO) is not automatic but depends on Rule 2201 language.
Summary of the ProposedAmendments to Rule 4307

Amendments to Rule 4307 apply to smaller units and generate NOx emissions reductions by removing or altering existing exemptions from the rule. The total exemptionfor units used at schools would be removed, as well as the limited exemption for atmospheric units used in oilfields or refineries, and glycol reboilers. The low use unit threshold would drop from a limit of 5.0 billion Btu per year heat inputto no more than 1.8 billion Btu per calendar year. After July I, 2015 these units must meet all applicable requirements of the rule.

New and replacement units would haveto meet lower 

### 9 or 12 ppmv NOx limits. This provision allows operators to lengthen useful life of units that recently upgradedto meet the current limits. SOXand PM2.5 requirementswould be similar to Rule 4320 but these units are typically fired on Public Utility Corrlmission quality natural gas so the provisions serve as backstop languagewith little cost and nominal err~ission reductions.
Compliance Schedule

The proposed amendments set compliance schedules between 201 1 and 2014 based
on the corrlplexity of the control system to be installed and the final emission levelto beSJVUAPCD Governing Board ADOPT PROPOSED AMENDMENTS TO RULE 4306AND RULE 4307, AND PROPOSED NEWRULE 4320 October 16, 2008
achieved. In setting the compliance schedule for this rule project, District staff considered the existing controls and emission levels and gave earlier compliance dates to units that could reach intermediate levels with less system modifications. Lower emission limits requiring more significant physical modifications and controls were placed in later years on Enhanced schedules.

A Staged Enhanced schedule was also created for unitsthat could meet an initial lower emission level and a final, more stringent, emission level at a later date.

Cost Effectiveness Analysis
Cost effectiveness will depend on the current level of controls, unit size, fuel usage and final emission levels. Some units have previously installed state-of-the-art controls and are in compliance with the most stringent emission limits and will therefore have no additional compliance costs. For larger, full time units, SCR costs may be as low as $11,000 perton and as high as $200,000 perton for smaller units. To address
concerns about these costs, there is an option for an annual emissions fee, which was discussed above. Compliance dates for some of the lower emission limits have been extendedto allow additional time for development of new, lower-cost burners.

While staff does not expect the majority of conipliance costs to be infeasible,for situations with unusually high costs, Rule 4320 provides an annual fee option at $9,350 per ton. -TheAdvanced Emission Reduction Option annual emission fee isthe first of its kind and will achieve reductions without excessive cost.
Rule 4307 would require replacement of existiug burners for some units. The cost effectivenessfor units that would now be requiredto meet 'the rule emission limit ranges from about $10,000 to $23,000 perton of NOx reduced, depending on the size of the unit and its hours of operation. The cost effectiveness analysis is attached as Appendix C of the Final Draft Staff Report.

The majority of these units are fired on PUC-quality natural gas or are able to meet the fuel sulfur limits based on existing controls so they will have no compliance costs. The remaining units would have to add sulfur controls at costs of approximately $89,000 per ton. An extended compliance schedule is providedto allow 'the necessary design and construction of these controls.

Issues and Responses
District staff has worked closely with stakeholders throughout the rule development process. Written public comment periods were held after each workshop. Comments have been sunimal-izedand a District response included in staff reports inAppendixA. The major issues are summarized below.SJVUAPCD Governing Board ADOPT PROPOSED AMENDMENTS TO RULE 4306AND RULE 4307, AND PROPOSED NEW RULE 4320 October 16, 2008

COMMENT: For the larger boilers, steam generators, and process heaters, the District should recognizethe great variety of units and operational constraints existing inthe Valley. A "one-size-fits-all"approach to emission limits will not work. The Valley is entering into a new era inwhich the most effective emission controls can only be applied by allowing corr~panies to incrementally reduce emissions as most appropriate, based on their unique equipment configuration and process demands. Implementing new rules over a sufficient time period would allow firms to make the necessary changes while ratcheting down emissions. We would strongly encourage the Districtto include all these concepts as "advanced emission reduction options."

RESPONSE: Districtstaff agrees that further emission reductions from this category rely on applying sophisticated and expensive controltechnology to units that are already well controlled. Staff also agrees that the different categories of boilers, steam generators and process heaters should be treated differently within the District's regulations. In Rule 4320, staff incorporatedthe Advanced Emission Reduction Option (AERO) concepts suggested by industry and proposed sever] major technology-based control categories, as well as an option for complyingthrough paynient of fees that will be used to achieve economically feasible NOx reductions.

COMMENT: The proposed NOxemission limit of 5 ppmv appears arbitrary and capricious. Currently, there appears to be only one NOx control method that is technologically feasible, which can achieve 5 ppmv NOx

### -selective catalytic reduction. By proposiug such a low emission limit, itwould appear that the District is endorsing one technology over another. The NOx emission limit should not be lowerthan 

### 9 ppmv NOx. The 

### 9 ppmv level has been demonstrated as technologically feasible with the District's BACT determinations and has been achieved at several steam generator installations throughout the air basin.

RESPONSE: District staff have carefully considered the technological and economic feasibility of numerous candidate controls, and have incorporatedas much flexibility into Rule 4320 as is possible. In order to maximize emission reductions, however,the proposed NOx limits necessarily reflect a limited range of technology choices. District staff worked closely with stakeholdersto tailor the compliance schedulesto achievethe maximum NOx reductions as expeditiously
as possible, while providingthe time needed to identifythe most economically feasible compliance options. Operators also have the option to pay the AERO NOx fee, which woi-~ld allow the Districtto fund NOx reduction projects.

COMMENT: Compliance with these low NOx limits will not be economically feasible in some cases, and this will force stakeholders to pay the AERO fee instead of adding NOx controls to their equipment. This fee should not exceed the actual costs the Districtwill haveto pay to obtain NOx reductions. Also, thisSJVUA PCD Governing Board ADOPT PROPOSED AMENDMENTS TO RULE 4306AND RULE 4307, AND PROPOSED NEWRULE 4320 October 16, 2008

fee should not be required in advance of any compliance deadlines; payment should coincide wit11 the cornpliance deadlines.

RESPONSE: The emission fee rate in Proposed Rule 4320 is the same as in Rule 9510 (Indirect Source Review), and reflectsthe actual cost for the Districtto obtain NOx emission reductions. The fee option is a lower cost option for operatorswho (1) believe that the controls are just too expensive, or (2) would like extra time for burner technologyto mature and produce lower-cost control options. Operators also have the third option of reducing their annualfees by reducing their NOx err~issions with additional controls that do not fully meet the final NOx limits in the rule. Fee paymentsare scheduled so that the District can obtain timely emission reductions.

COMMENT: The Refiners Council appreciates the cooperation of District staff in addressing the refining industry concerns, including with respect to additional particulate matter limits and thefinal compliance deadlines. The Refiners Council 

### still maintains, however, that the NOx limits are, in fact, unachievable through ultra low-NOx Burner technology and that SCR costs are prohibitively expensive.

RESPONSE: District staff will continueto work with the Refiners Council on the concept of a rule specifically addressing refinery units. The alternative refinery specific rule would replace and supersede Rule 4320 should the refiners wish to pursue development of an alternative rule.

COMMENT: According to Rule 4320, operatorswho have a two-step, "Staged Enhanced" compliance schedule and who do not attain the NOx limits before the deadlines would be out of compliance. Operators should be able to stay compliant by starting to pay the fee if emission compliance can not be economically achievable.

RESPONSE: District staff added g provisionto proposed Rule 4320 to allow operators of units designated under the "Staged Enhanced" Scheduleto pay the emissions fee if they meet the irritial emissions limit but not the final emissions limit. This is in recognition of the difficulty that some units may have in meeting the final limit in an economic fashion but still ensures equity with those units that are initially designatedfor the fee option.

COMIVIENT: The first draft of Rule 4320 contained emission limitsfor particulate matter and sulfur that would have required add-on emission controls, such as electrostatic precipitators. The expected amount of reductionswas very small compared to the very significant costs to install the controls on these gas-fired units.SJVUAPCD Governing Board ADOPT PROPOSED AMENDMENTS TO RULE 4306 AND RULE 4307, AND PROPOSED NEW RULE 4320 October 16.2008

RESPONSE: District staff determined that the majority of the PM from gas-fired units would be secondary PMIO generated from the NOx and SOXemissions. District staff ultimately based the proposed particulate matter requirementson the District's BACT Clearinghouse, which indicated that for oil field steam generatorsthe District's achieved-in-practice BACT for PM10 and SOXisthe combustion of natural gas, liquefied petroleumgas (LPG), or wastelrecovered gas that is treated to remove 

### 95% byweight of sulfur compounds. In additionto the proposed PMIO and SOXcontrol requirements, District staff added another compliance option usingfuel sulfur limits. District staff worked together with stakeholders in designating the fuel sulfur limits.
Socioeconomic Analysis

State law req~.~ires the District to analyze the socioeconomic impacts of any proposed rule amendment that significantly affects air quality or strengthens an emission limitation. The socioeconomic report is attached as Appendix D to the final draft staff report. The final socioeconomic reportwill be presentedto the District Governing Board in order to disclose any expectedeconomic impacts.

RuleConsistency Analysis
Pursuant to California Health & Safety Code Section 40727.2, District staff have prepared a rule consistency analysis, Appendix El that comparesthe elements of new Rule 4320 with ttie corresponding elements of other District rules, federal regulations and guidelinesthat apply to the same source category or type of equipment.

Environmental Impacts

The proposed amendments to Rule 4306 and Rule 4307 and proposed new Rule4320 have undergone enviror~mental review in accordance with the requirements of the California Environmental Quality Act. A proposed negative declaration has been issued bythe District and made available for public review and comment. Upon approval of this project, a Notice of Determination will befiled for Rule 4320 and the amendments to Rule 4306.

District staff has investigated the likely environmental impacts of proposed amendments to Rule4307. Based on the lack of evidenceto the contrary, District staff has concluded that the proposed rule will not have any significant adverse effects onthe environment. Staff recommends filing a Notice of Exemption under the provisionsof Public Resource Code 15061 (b)(3).

Rule Development Process
District staff conducted public workshops in October 2007 and March and July 2008 to present and discuss the proposed amendments to Rules 4306, and the provisions ofSJVUAPCD Governing Board ADOPT PROPOSEDAMENDMENTS TO RULE 4306AND RULE 4307, AND PROPOSED NEW RULE 4320 October 16, 2008

Rule 4320. District staff solicited information from affected source operators, consultants, vendors, and manufacturers of control technologies, and trade associations on the technological feasib~lity and cost information used in developing the proposed amendments and new rule. The corr~ments received during the public workshop process have been incorporated in the draft rules, as appropriate.



### FISCAL IMPACT:
District staff expects no fiscal. impact to result from this action

Attachments: Negative Declaration for Proposed Amendments to Rule 4306 and Proposed New Rule 4320 (23 pages) Resolution for Proposed Amendments to Rule 4306 and Rule 4307 (6pages) Proposed Amendments to Rule 4306 (20 pages) Proposed Amendments to Rule 4307 (16 pages) Proposed Rule 4320 (20pages) Final Draft Staff Report with Appendices for Proposed Amendments to Rule 4306 and Rule 4307 and Proposed New Rule 4320 (108pages)