GOVERNING BOARD

Skip Barwick, Chair

Councilmember , City of Tulare

Hub Walsh, Vice Chair Supervisor, Merced County

Oliver L. Baines III Councilmember, City of Fresno

Tony Barba Supervisor, Kings County

Sally J. Bomprezzi Councilmember, City of Madera

Dennis Brazil Mayor, City of Gustine

Judith G. Case Supervisor, Fresno County

David Couch Supervisor, Kern County

Bob Elliott Supervisor, San Joaquin County

Harold Hanson Councilmember, City of Bakersfield

William O’Brien Supervisor, Stanislaus County

Alexander C. Sherriffs, M.D.
Appointed by Governor

Tom Wheeler Supervisor, Madera County

J. Steven Worthley Supervisor, Tulare County

Seyed Sadredin

Executive Director
Air Pollution Control Officer

Northern Region Office 4800 Enterprise Way Modesto, CA 95356

- 8718 (209) 557

- 6400 • FAX (209) 557

- 6475

Central Region Office 1990 East Gettysburg Avenue Fresno, CA 93726

- 0244 (559) 230

- 6000 • FAX (559) 230

- 6061

Southern Region Office 34946 Flyover Court Bakersfield, CA 93308

- 9725 (661) 392

- 5500 • FAX (661) 392

- 5585

www.valleyair.org DATE: June 20, 2013

TO: SJV UAP CD G overning B oard

FROM: Seyed Sadredin, Executive Director/APCO

Project Coordinator: Samir Sheikh /Todd DeYoung

RE: ITEM NUMBER 10: ADOPT PROPOSED RULE

9610 AND RECEIVE AND FILE THE 2013 ANNUAL

DEMONSTRATION REPORT

RECOMMENDATION S :

1. Adopt Proposed Rule 9610 (State Implementation Plan Credit for Emission Reductions Generated through Incentive Programs) ;

2. Authorize the Chair to sign the resolution for new Rule 9610;

and

3. Receive and File the 2013 Annual Demonstration Report , and authorize the Executive Director/APCO to submit the report to the California Air Resources Board (ARB) and U.S. Environmental Protection Agency (EPA)

.

BACKGROUND :

The San Joaquin Valley Air Pollution Control District (District) currently operates one of the largest and most well

- respected incentive programs in California . Since 1992, the District’s incentive programs have provided over $500 million in incentive fun ds, resulting in over 100,000 tons of lifetime emission reductions. Each District incentive investment is matched by investments on the part of the participating businesses, public agencies, and residents, who together have also invested over $400 million on these projects. These combined efforts

have accelerated the adoption of cleaner technologies beyond what is achieved by stringent regulations alone , and in sectors for which the District has limited regulatory authority (mobile sources). The signific ant reductions seen through these voluntary incentive programs have resulted in significant improvements to air quality and public health, and have advanced the San Joaquin Valley Air Basin ( Valley )SJV

U APCD Governing Board

ITEM NUMBER 10: ADOPT PROPOSED RULE 9610 AND RECEIVE AND FILE THE 2013 ANNUAL

DEMONSTRATION REPORT June 20, 2013

2 towards attainment of increasingly stringent federal air quality standards. The District’s incentive programs have been developed around several core principles, including cost

- effectiveness, integrity, effective program administration, excellent customer service, the efficient use of District resources, fiscal transparency and public accountability. As a result of focused efforts, the D istrict has become a statewide leader in incentive programs with programs held as models for other air districts throughout

California. The ARB has routinely called upon the District to administer statewide incentive programs on their behalf and on behalf of other local air districts.

The District is regularly audited by independent outside agencies including professional accountancy corporatio ns on behalf of the federal government, ARB, the California Department of Finance and the California Bureau of State Audits. These comprehensive and rigorous independent audits focus on every aspect of the District’s

incentive programs including programma tic and fiscal controls. These audits are

conducted to ensure that the public funds to which the District has been entrusted are spent appropriately and in the manner in which they were intended. In these audits, the District’s incentive program has been lauded as a “shining example” for efficiency and streamlining. I n the most recent audit, ARB noted that the District’s incentive program is

“ efficiently and effectively achieving their emission reduction objectives .”

In addition to locally

- generated fund ing sources, support from federal and state sources has been critical in bringing much

- needed incentive funds to the Valley. Other public agencies, including ARB and the United States Department of Agriculture (USDA)

Natural Resources Conservation Service (NRCS), also implement effective incentive

programs to reduce emissions in the Valley. Since 2009, the District has successfully partnered with the NRCS to fund the replacement of mobile agricultural equipment within the Valley. This partnership between the District, NRCS and Valley agricultural stakeholders addresses the commitment made by ARB in the ir 2007 San Joaquin Valley 8

- Hour Ozone State Implementation Plan of achiev ing emission reductions of 5

- 10 tons per day of oxides of nitrogen (NOx) from mobile agricultural equipment in the Valley by 2017 to accelerate progress toward s attainment of EPA’s 1997 ozone

standard . Due to this partnership and the investment of Valley agr icultural stakeholders, the programs are on pace to exceed this commitment several years in advance of the 2017 target.

As part of developing new incentive programs aimed at reducing emissions from agricultural equipment , the District and NRCS collabora ted to ensure that both agencies’ incentive programs achieve emission reductions that can be credited in state implementation plans (SIPs)

. Towards that end, i n December 2010, the District, EPA, ARB, and NRCS signed a memorandum of understanding (MOU) com mitting to establish a framework for providing such SIP credit . All agencies agreed to work collaboratively to develop a mechanism to provide SIP credit for emission reductions from federal, state, and local incentive programs that meet the federal criter ia of

S urplus, Q uantifiable, E nforceable, and P ermanent.SJV

U APCD Governing Board

ITEM NUMBER 10: A DOPT PROPOSED RULE 9610 AND RECEIVE AND FILE THE 2013 ANNUAL

DEMONSTRATION REPORT June 20, 2013

3 NRCS and EPA continued to work together to develop a mechanism pursuant to the federal Clean Air Act (CAA) to quantify SIP credit for emission reductions from farm equipment, achieved through voluntary incentive programs at the state/local level. As a result of these continued efforts, EPA and NRCS signed Implementation Principles for Addressing Agricultural Equipment under the Clean Air Act, in July

2012

.

Proposed Rule 9610 provides an administrative mechanism to formally recognize future emission reductions from incentive programs in attainment plans. The District has been working closely with EPA thro ughout the development of Proposed Rule 9610 to ensure

that the rule is consistent with current EPA guidance and satisfies applicable CAA requirements.

DISCUSSION :

In the 2007 Ozone Plan , recognizing the need for additional emission reductions from sources outside of the District’s regulatory authority, the District and ARB called for a significant increase in funding for incentive programs to accelerate attainment. Since

then

, the District has seen a ten

- fold increase in funding for the incentive p rograms

. For regulatory measures contained in attainment plans, the District is able to incorporate

future reductions that are projected through implementation of such measures into the plan s . A similar mechanism has been lacking for projected reductions achieved through

incentive

- based m easures. With the significant growth in the District’s incentive

- based

programs and diminishing opportunities for further reducing emissions through regulatory measures on stationary sources, the lack of a similar SIP

- cr editability

mechanism for incentive

- based measures is now a major deficit in developing attainment plans.

The incentive programs are operated with adequate safeguards to ensure quantifiable, permanent, enforceable, and surplus emission reductions and result in real air quality

benefits . Therefore, incentive

- based emission reductions must be eligible for use to

meet federal CAA requirements

. These safeguards have been the cornerstone of the District’s incentive programs and are now incorporated into t he administrative mechanism under Proposed Rule 9610.

Proposed Rule 9610

T he purpose of Rule 9610 is to serve as an administrative mechanism for the District to receive credit towards SIP requirements for emission reductions achieved in the Valley throug h incentive programs administered by the District, NRCS, and ARB. These

incentive

- based emission reductions satisfy EPA’s four integrity principles (as defined in Section 2.0) :SJV

U APCD Governing Board

ITEM NUMBER 10: ADOPT PROPOSED RULE 9610 AND RECE IVE AND FILE THE 2013 ANNUAL

DEMONSTRATION REPORT June 20, 2013

4  Surplus: emission reductions are not otherwise required by any federal, state , or local regulation or other legal mandate. These emission reductions must also be in excess of the baseline inventories underlying a SIP attainment demonstration.

 Quantifiable: emission reductions can be reliably determined through the use of

well

- established, publicly available emission factors and calculation methodologies.

 Enforceable: based on the following:

 The emission reductions are independently and practicably verifiable through inspections, monitoring, and/or other mechanisms;

 Incentive program violations are defined through legally binding contracts, including identifying the party or parties responsible for ensuring that emission reductions are achieved;

 Grantees are obligated to provide all records needed to demonstrate that emission reductions are achieved; and

 The public has access to all emission

- related information for reductions claimed in the annual demonstration report, as outlined in Section 4.0 of

Rule 9610.

 Permanent: for the lifetime of the project, assured by a ctions taken to physically destroy, or permanently disable baseline equipment or vehicles, or to permanently amend practices to ensure the reduction of emissions for the duration of the project life.

Incentive Program Guidelines

SIP

- creditable emission re ductions will be quantified in accordance with incentive program guidelines that provide SIP

- creditable emission reductions

. Section 3.0 of Rule

9610 identifies specific incentive program guidelines and associated project types approved by EPA as meeting SIP

- creditability requirements; including specific programs

under the Carl Moyer Program Guidelines, NRCS Combustion System Improvement Practice Standard 372 and associated NRCS Program Combustion System Improvement of Mobile Engine Guidelines, and specifi c programs under Proposition 1B Goods Movement Emission Reduction Program Guidelines. Rule language also allows for future development and approval of additional incentive program guidelines, provided the District submits to EPA a demonstration that such guidelines ensure emissions reduced are SIP

- creditable.

Manual of Procedures Pursuant to Section 3.3, the District’s Manual of Procedures website provides an increased level of transparency by ensuring that all incentive program guidelines used

for SIP

- creditability are publicly available, and maintained in a centralized location on the District’s website. To increase public understanding and awareness of the guidelines and the role they play in the SIP

- creditability of emission reductions, the website will also contain a description of how each incentive program guideline ensuresSJV

U APCD Governing Board

ITEM NUMBER 10: ADOPT PROPOSED RULE 9610 AND RECEIVE AND FILE THE 2013 ANNUAL

DEM ONSTRATION REPORT June 20, 2013

5 that the incentive program emission reductions are SIP

- creditable. Additionally,

p reviously submitted District annual demonstration report s will be maintained and made

available on the Manual of Procedures website. The draft Manual of Procedures website is available as Appendix D of the final draft staff report.

Annual Demonstration Reports Pursuant to Sections 4.0 and 5.0 of the rule, t he District will submit annual demonstration report s to ARB and EPA to quantify incentive

- based emission reductions

available for use to meet SIP commitments . The annual demonstration reports will provide all emissions

- related information for reductions c laimed in t he report, allowing for independent verification of claimed emission reductions. The report also will compare the total emission reductions from SIP

- creditable incentive programs to applicable SIP commitments to verify that all attainment plan needs associated with Rule 9610 have been met. Specifically, the annual demonstration report will include the following:

 Identification of incentive program guidelines with a description of how those guidelines ensure that emission reductions claimed ar e SIP

- creditable

.

 A summary of SIP

- creditable emission reductions generated through incentive programs, summarized by pollutant, years, cost effectiveness, funding amount, project type, and guideline used

.

 Any adjustments and a description for the cause of adjustments, to the emission reductions claimed in prior annual demonstration reports, as needed

.

 Identification of SIP commitments identified in District adopted SIPs by year, pollutant, and magnitude which the District has satisfied, in whole or in part through SIP

- creditable emission reductions.

 Project

- specific information

, including identification, location, type, life, implementation date, funding amount, incentive program guideli ne(s) used, quantified emission reductions , and descriptions of the make and model, horsepower or rating, model year, and historical and projected annual usage.

 A summary of project monitoring and enforcement activities, including the identification of project audits, usage reports, i nspections, and other project monitoring activities, and a list of actions taken to enforce emission reductions

.

 The District‘s retrospective evaluation of overall incentive program performance with any associated recommendations for future enhancements

.

The draft annual demonstration report will be released to the public and presented to the District Governing Board prior to submittal to ARB and EPA for concurrence no later than August 31 of each year.SJV

U APCD Governing Board

ITEM NUMBER 10: ADOPT PROPOSED RULE 9610 AND RECEIVE AND FILE THE 2013 ANNUAL

DEMONSTRATION REPORT June 20, 2013

6 Recordkeeping Recordkeeping requirements are un ique to each incentive program guideline ; as such,

Section 6.0 of Proposed Rule 9610 requires that all records created and/or used for the

a nnual d emonstration r eport be kept and maintained as required by the applicable incentive program guidelines . C onsi stent with the California Public Records Act and other related requirements, such records shall be made available for public review. Records related to the implementation of NRCS Program Combustion System Improvement of Mobile Engines incentive program ar e prohibited from mandatory disclosure, pursuant to the Federal Food Security Act of 1985 (7 U.S.C. §608d(2)).

Rule 9610 and SIP Commitments

I n individual SIPs, the District may identify specific amounts of SIP

- creditable emission reductions (if any) for a particular year or years to be used to satisfy CAA SIP requirements, including, but not limited to, demonstration of attainment, reasonable further progress, rate of progress

, con tingency measures, and “black box” reductions.

This enforceable SIP commitment would identif y incentive program guidelines to be

used and identif y an amount of emission reductions not to exceed the amount projected

to be achieve d through the use of sec ured or reasonably anticipated incentive program funding as well as the estimated availability of emission reductions projects and willing participants

, based on historical participation and estimates of remaining equipment

. The commitment for incentive

- b ased emission reductions would be accounted for in subsequent annual demonstration report s as SIP

- creditable emission reductions are

claimed through Rule 9610

. I f either the District or EPA finds that there is a SIP shortfall for a particular year, the Di strict will adopt and submit to EPA, by specified dates,

substitute rules or measures that will achieve equivalent emission reductions as expeditiously as practicable and no later than any applicable implementation deadline in the CAA or other EPA implemen ting regulations.

2013 Annual Demonstration Report

Pursuant to Sections 4.0 and 5.0, t he District has prepared the 2013 Draft Annual Demonstration Report , which includes SIP

- credit able incentive

- based emission reductions for projects implemented from 2009 through May 13 , 2013 (included as Attachment E)

. This report documents significant emission reductions in future years that will greatly assist the District in meeting federal SIP commitments.

Ta ble 1

- SIP

- creditable emission reductions achieved in the Valley

Pollutant Emissions Reduced (tons per day)

2013 2014 2015 2016 2017 2018 2019 2020

NOx 15.59 12.85 10.90 9.31 6.92 6.68 5.60 3.64

PM 0.57 0.48 0.44 0.38 0.29 0.28 0.24 0.16

ROG 1.23 1.03 1.00 0.98 0.97 0.95 0.76 0.50SJV

U APCD Governing Board

ITEM NUMBER 10: ADOPT PROPOSED RULE 9610 AND RECEIVE AND FILE THE 2013 ANNUAL

DEMONSTRATION REPORT June 20, 2013

7 Table 2

– District

- administered SIP

- creditable emission reductions

Projec t Type Incentive Funding Grantee

Investment Emissions

Reduc ed (tons )

Off

- Road Mobile Equipment Replacement/Repower/Retrofit $34,599,3 30 $28,836,00 8 7106.03

New Off

- Road Mobile Equipment $82,822 $193,29 6 3.94 Agricultural Pump Repower $25,945,807 $8,035,811 8086.21

New Electric Agricultural Pump $335,144 $1,463,62 5 387.81

Truck Replacement $89,409,800 $118,119,558 10593.76

Locomotive Repower $16,919,90 8 $4,509,370 1805.24

Rule 9610 Development Process

The District worked closely with EPA, ARB, and NRCS to develop P roposed Rule 9610 and supporting components such as the annual demonstration report and the Manual of Procedures web page.

Public Workshop for Rule 9610 The District hosted a public workshop to present, discuss, and hear comments on the draft rule and draft staff report on April 9, 2013. The draft rule and staff report were made available on the District’s website prior to th e public workshop, and a two week comment period followed the public workshop. All c omments received on or before April 23, 2013 were considered and incorporated into the draft rule or staff report.

Public Hearing for Rule 9610

In accordance with Califor nia Health and Safety Code (CH&SC) Section 40725, the proposed rule and final draft staff report were publicly noticed prior to the Governing Board public hearing to consider adoption of P roposed Rule 9610. The proposed rule, final draft staff report , and other supporting documents were made available for public

comment on May 21, 2013 . No comments were received during the subsequent two

week comment period . The public is also invited to provide comments during the public hearing for proposed adoption of this rule

.

FISCAL IMPACT :

No fiscal impacts are anticipated from this project.

Attachments:

Attachment A: Resolution for Proposed Rule 9610 ( 5 pages)

Attachment B : Addendum to Proposed Rule 9610 (1 page)

Attachment C: Revised Proposed Rule 9610 (10 pages)

Attachment D : Final Draft Staff Report with Appendices for Proposed Rule 9610 ( 7 0 pages)

Attachment E

: 2013 Draft Annual Demonstration Report (2 4 2 pages)