SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT 

Proposed SCAQMD NSR Offset Tracking System 

October 14, 2005 

Prepared by: 

Peter Greenwald, JD 

Senior Policy Advisor 

Mohsen Nazemi, PE 

Assistant Deputy Executive Officer 

Engineering and Compliance 

Mitch Haimov, M.S. 

Senior Air Quality Engineer 

Engineering and Compliance 

IN CONSULTATION WITH: 

BARBARA BAIRD – PRINCIPAL DEPUTY DISTRICT COUNSEL 

ELAINE CHANG, Dr.PH – DEPUTY EXECUTIVE OFFICER, PLANNING, RULE DEVELOPMENT, AND AREA 

SOURCES 

WILLIAM THOMPSON, PE – SENIOR MANAGER, ENGINEERING AND COMPLIANCE 

GARY L. TURNER, PE – AIR QUALITY ANALYSIS AND COMPLIANCE SUPERVISOR, ENGINEERING AND 

COMPLIANCE 
CONTENTS 

Background 1 

Proposal Summary 2 

SOURCES OF CREDITS 4 

Technical Support Document 5 

Pre-1990 Credits 6 

Existing Pre-1990 Accounting 8 

Proposed Pre-1990 Accounting 9 

1990-2004 Credits 12 

Existing 1990-2004 Accounting 12 

Proposed 1990-2004 Accounting 12 

Post-2004 Credits 15 

Existing Post-2004 Accounting 15 

Proposed Post-2004 Accounting 15 

Summary 19 

USE OF CREDITS 24 

TRACKING AND BACKSTOP 25

ATTACHMENT 1: SCAQMD’S NSR OFFSET TRACKING—FEDERAL 

RUNNING BALANCE 

ATTACHMENT 2: LIST OF SOURCES EXEMPT FROM OFFSET 

REQUIREMENTS AND PROVISIONS COVERED BY 

EQUIVALENCY SHOWING 

ATTACHMENT 3: REGULATION XIII NEW SOURCE REVIEW GUIDANCE 

MANUAL (October 1990) 

ATTACHMENT 4: EXAMPLES OF AVAILABLE PRE-1990 PERMIT

RECORDS 

ATTACHMENT 5: AREA SOURCE INVENTORY METHODOLOGY 

ATTACHMENT 6: STATUS REPORTS ON REGULATION XIII – NEW 

SOURCE REVIEW COVERING AUGUST 1999 THROUGH 

JULY 2002 
PROPOSED SCAQMD NSR OFFSET TRACKING SYSTEM 

BACKGROUND 

In general, the Federal and California Clean Air Acts require that, among other things, 

emission increases of non-attainment air pollutants from new and modified major sources 

be offset with emissions reductions. The SCAQMD has implemented an NSR Tracking 

System to demonstrate adequate emission reductions for sources exempt from emission 

offsets requirements under Regulation XIII – New Source Review, which are otherwise 

subject to offset requirements under federal and state NSR programs. SCAQMD staff 

has prepared annual reports which track credits and debits for each year and present the 

remaining balances of credits in SCAQMD’s offset accounts. The NSR tracking reports 

go back to the year 1990, which reflects the year when major amendments were made to 

SCAQMD’s Regulation XIII. A key source of credits in the tracking system has been 

“orphan” shutdowns of major sources. Other credit sources have been “negative NSR 

balances” resulting from permit actions prior to 1990, and the “BACT discount” currently 

required by Regulation XIII when banking emission reduction credits (ERCs). 

In 2002 SCAQMD adopted an Offset Budget rule (Rule 1309.2 – Offset Budget) as part 

of SCAQMD’s NSR program to address some of the shortage problems with ERCs. As 

part of the discussions with EPA regarding Rule 1309.2, EPA has raised some questions 

related to the credits in SCAQMD’s offset accounts for use in the Offset Budget rule. 

Among the key issues raised by EPA are the following: 

• creditability of pre-1990 emission reductions, particularly reductions for which no 

records are currently available; 

• creditability of reductions resulting from the BACT discount of newly-banked 

ERCs, since the discount is presumably also used to satisfy the federal “surplus at 

time of use” requirement; 

• baseline calculation procedures to assure an “actual” baseline; 

• surplus adjustment at time of use of credits in the tracking system; and 

• consistency of credit use with assumptions in the SIP. 

EPA staff has stated that these issues must be resolved in order for the federal agency to 

approve amendments to Regulation XIII as a result of adoption of Rule 1309.2, which 

establishes an “Offset Budget.” EPA staff has also requested that SCAQMD adopt a rule 

specifying how the tracking of debits and credits will occur in the future. The purpose of 

this document is to address issues raised by EPA with SCAQMD’s offset account credits 

and to propose an NSR offset tracking system to be used for the tracking of all future 

credits. Based on this, SCAQMD will then develop a new rule for tracking of NSR 

debits and credits and submit it to EPA so that EPA can SIP approve this rule along with 

Rule 1309.2 – Offset Budget. 
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PROPOSAL SUMMARY 

After numerous meetings and conference calls with EPA, SCAQMD staff agreed to 

review the offset accounts in consideration of EPA’s comments. Since that time, 

SCAQMD staff has spent over 6,000 person-hours reviewing the offset records in the 

NSR Tracking System. In addition, SCAQMD Executive, senior management and other 

staff have spent hundreds of hours evaluating offset accounts and the tracking system. In 

order to resolve EPA’s comments, SCAQMD staff is proposing several modifications to 

procedures to be used in the tracking system. In the revised procedures SCAQMD has 

proposed elimination of all credits for which SCAQMD no longer retains documentation. 

SCAQMD has also included additional classes of credits in the tracking system, namely 

orphan shutdowns of minor sources and other surplus reductions. As a result of these 

proposed modifications, and even with the inclusion of the minor source orphan 

shutdowns and other surplus reductions, SCAQMD’s previously-reported 2002 NSR 

federal offset account balances for all pollutants, except for NOx, will be reduced, 

depending on the pollutant, by from about 12 % to 74 %. Several elements of the 

proposed revisions to SCAQMD’s tracking system contribute to these reductions, as 

discussed below, but the single element of the proposal with the greatest contribution is 

the reevaluation of pre-1990 credits and proposed elimination of all credits for which 

SCAQMD no longer retains documentation. As a result of this proposed change, 

SCAQMD’s pre-1990 credits will be reduced, depending on the pollutant, by from 7 % to 

92 %. The specific amounts of reductions for each pollutant for the pre-1990 credit 

account balance and the 2002 NSR federal offset account balance are shown in Table 1. 

Table 1 

Reductions in SCAQMD’s Pre-1990 Credit Account and 2002 

NSR Federal Offset Account Balances Resulting from 

Implementation of Proposed Changes to the NSR Tracking System

 VOC NOx SOx CO PM10 

Reduction in SCAQMD’s Pre1990 Credit Account Balances 58 % 7 % 56 % 76 % 92 % 

Reduction in SCAQMD’s 2002 

NSR Federal Offset Account 

Balances 

12 % -38 % 33 % 60 % 74 % 

The proposed modifications to SCAQMD’s NSR tracking procedure are described in 

more detail below. Also, the detailed line-by-line adjusted credit balances that result 

from the proposed modified procedures are shown in Attachment 1: SCAQMD’s NSR 

Offset Tracking—Federal Running Balance. We anticipate that changes to the 

SCAQMD’s NSR tracking procedures for all future credit accounting will be 

incorporated into a proposed tracking rule that will be subject to a public workshop prior 

to final adoption. 
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In summary, the key elements of SCAQMD’s proposal are as follows: 

Sources of Credits.

The tracking system uses credits derived from reductions not required by federal 

law. These primarily include “orphan shutdowns,” i.e. real, permanent, 

enforceable, surplus, and quantifiable emission reductions resulting from 

shutdowns of sources for which no ERCs were issued. In addition, these will also 

include surplus emission reductions otherwise not required by the federal NSR 

program. SCAQMD has in the past only utilized orphan shutdowns of major 

sources as credits. This in part has been due to the fact that SCAQMD’s offset 

account has held a large balance of credits and there has been no need for 

additional sources of credits to fund the offset account. The current proposal, 

however, also includes use of credits derived from orphan shutdowns of nonmajor sources for which no ERCs were issued and other surplus emission 

reductions otherwise not required by the federal NSR program in order to better 

utilize the sources of credits used for SCAQMD’s offset accounts. 

The proposed SCAQMD tracking system is also based on past use of a portion of 

the pool of credits which has been validated and generated through emission 

reductions at permitted stationary sources that occurred prior to 1990. As is 

described below, all of the pre-1990 CO and PM10 credits and a large portion of 

VOC and NOx pre-1990 credits were depleted in the mid 1990’s—prior to the 

time of EPA’s most recent SIP approval of Regulation XIII in 1996. As part of 

this proposal and to address EPA’s comments regarding the use of pre-1990 

credits, SCAQMD proposes retroactive elimination of all pre-1990 credits for 

which SCAQMD no longer retains documentation and in addition not to utilize 

from now on any remaining pre-1990 credits. 

Another source of credits used by SCAQMD in the past has been the BACT 

discount of the post-1990 ERCs issued by SCAQMD. As part of this new 

proposal, and specifically to address EPA’s comments, SCAQMD proposes to 

discontinue deriving credits from the “BACT discount” of emission reductions 

banked as ERCs. This credit was specifically authorized according to the 

Technical Support Document for EPA’s approval of Regulation XIII in 1996. 

EPA, however, has brought up the point that the BACT discount is used for 

another purpose—in lieu of a “surplus at time of use discount,” and thus should 

not be used as a tracking system credit. 

Furthermore, as part of this proposal and again specifically to address EPA’s 

comments, SCAQMD proposes from now on to further adjust the orphan 

shutdown credits by reducing their value to address EPA’s comments about actual 

emissions and to further adjust any orphan shutdown credits not used in the same 

time frame they are generated via a BARCT adjustment at time of use to address 

EPA’s comments regarding surplus adjustment at time of use. 
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Use of Credits 

The above-described credits will be used to fund the new Offset Budget as 

adopted by SCAQMD in Rule 1309.2, in addition to the previous use of credits to 

provide offsets for sources that are exempt from offset requirements under 

Regulation XIII (Rules 1304 – Exemptions and 1309.1 – Priority Reserve), which 

are otherwise subject to the offset requirements under federal NSR, as part of the 

demonstration of equivalence to federal NSR requirements. A complete list of 

Regulation XIII offset exemption provisions for which credits need to be used to 

demonstrate equivalency if offsets are required is included in Attachment 2. 

Tracking and Backstop

SCAQMD proposes to make an annual determination of equivalency pursuant to 

a tracking rule that it will develop and adopt. SCAQMD will also propose, as part 

of the tracking rule, backstop provisions to be triggered in the event that annual 

equivalency is not demonstrated. In such an event, the backstop provisions would 

require SCAQMD to: 

• provide additional credits within two years; such credits could be derived 

through SCAQMD purchase of credits or through SCAQMD funding of 

emission reduction projects using quantification protocols approved by 

EPA on a case-by case or programmatic basis; or 

• suspend issuance of Offset Budget credits and not resume the issuance of 

any such credits until SCAQMD has performed an evaluation of NSR 

program performance and made modifications, as needed, to assure the 

equivalency. 

The following is a more detailed description of the proposed changes. 

SOURCES OF CREDITS 

SCAQMD has described in its annual status reports on Regulation XIII a 1990 starting 

balance for federal and state offset accounts based on data available in 1990. While a 

large portion of pre-1990 credits were used years ago, EPA staff has requested an 

accounting of the validity of such credits to ensure that such credits were creditable. To 

that end, EPA staff has raised questions about the availability of all records relating to the 

pre-1990 credits. To address the issues raised by EPA, SCAQMD staff spent several 

thousand staff hours reviewing and evaluating all available data for the pre-1990 credits 

in its 1990 starting balances. The following is a description of sources of credits in 

SCAQMD’s tracking system organized by time period of credit generation including: pre 

1990, 1990-2004, and post 2004. This division is due to differing provisions of 

SCAQMD rules applicable to generation of credits in these time periods, and to new 

tracking system elements proposed for post-2004 credits. 
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Technical Support Document 

EPA issued a Technical Support Document for EPA’s Notice of Final Rulemaking for the 

California State Implementation Plan South Coast Air Quality Management District New 

Source Review (TSD) October 24, 1996 in support of EPA’s approval of SCAQMD 1996 

New Source Review amendments into California’s State Implementation Plan (SIP). The 

TSD identifies specific sources of emission reductions and emission increases that are 

approved for inclusion in SCAQMD’s tracking system for purposes of demonstrating 

equivalency between the federal Clean Air Act (CAA) and SCAQMD’s SIP-approved 

NSR program. The various approved sources of emission decreases (credits) referred to 

throughout this document are briefly discussed below: 

 Surplus Reductions Resulting from use of ERCs by Minor Sources 

Rule 1303 – Requirements specifies that minor sources must offset their emission 

increases by surrendering ERCs unless otherwise exempt pursuant to Rule 1304 but 

the CAA does not require emission offsets from minor sources. Therefore, emission 

offsets supplied by minor sources in the form of ERCs represent creditable, surplus 

reductions. The TSD only specifically identifies this source of emission 

reductions/credits for minor VOC sources, but the underlying logic applies equally to 

minor sources of NOx, SOx, CO, and PM10. 

 Surplus Reductions Resulting from Orphan Shutdown of Major and Minor Sources 

When permitted equipment operating at a major source is shutdown it results in 

creditable emission reductions. If these reductions are not used internally by the 

source or banked as an ERC, they are creditable to SCAQMD’s tracking system. 

Similarly, when permitted equipment operating at a minor source is shutdown it 

results in creditable emission reductions. If these reductions are not used internally 

by the source or banked as an ERC, they are creditable to SCAQMD’s tracking 

system. Note that the TSD does not differentiate between major sources and minor 

sources with regard to orphan shutdowns, but simply states that “emission reductions 

obtained from orphaned shutdowns” are creditable (page 17). 

 Zero BACT Threshold 

Rule 1303 requires that all new and modified sources resulting in an emission 

increase apply BACT (federal LAER), but the CAA only applies this requirement to 

major sources. Therefore, the emission reductions resulting to applying BACT to 

minor sources are creditable. 

 Discounting Newly-Banked ERCs to BACT 

Rule 1309 – Emission Reduction Credits and Short Term Credits specifies that the 

amount of emission reductions banked as a new ERC not be “greater than the 

equipment would have achieved if operationg with current Best Available Control 

Technology (BACT).” No similar requirement exists in the CAA. Therefore, the 

amount of any otherwise qualifying emission reductions not issued as an ERC due to 

implementation of this provision are creditable. 
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Pre-1990 Credits 

Pre-1990 Permitting Program 

SCAQMD had a robust stationary source permitting program for both major and minor 

sources in place well before 1990. Key elements of that program are summarized below: 

 Permit Rules 

Since prior to 1976, the year that SCAQMD adopted its initial NSR rules, virtually 

any construction or modification of a source has required the operator to obtain a 

permit to construct from SCAQMD (Rule 201 – Permit to Construct). The only 

exceptions to these permit requirements are, and at all times were, specified in 

SCAQMD Rule 219 – Equipment not Requiring a Written Permit Pursuant to 

Regulation II, which exempts certain equipment from permit requirements due to 

minimal potential to affect air quality. With the exception of the specific exemptions 

in Rule 219, there has never been an exemption from permit requirements for sources 

emitting even relatively small amounts of air contaminants; that is, all sources with 

potential to emit or control air contaminants, including all major and non-major 

sources, have been required to obtain permits when constructed or modified unless 

specifically exempted by Rule 219. 

 New Source Review Rules 

SCAQMD adopted its initial New Source Review rules in October, 1976 even prior to 

the adoption of the New Source Review requirements into the CAA. Originally 

included in Rule 213 – Standards for Permits to Construct: Air Quality Impact, the 

NSR rules were moved into a series of rules in Regulation XIII – New Source Review 

in 1979. The rules required offsetting of emissions increases that exceeded certain 

thresholds. The thresholds were decreased over time pursuant to rule amendments. 

For example, for volatile organic compounds and nitrogen oxides, the offset threshold 

initially was 250 pounds per day, and was reduced by rule amendments during the 

1980’s to 150 pounds per day, 75 pounds per day, 30 pounds VOC per day and 40 

pounds NOx per day, and finally down to zero, requiring no net increase in emissions, 

unless specifically exempt from offset requirements pursuant to NSR rules. 

 NSR Balance 

Prior to 1990, in order to implement the offset requirements, SCAQMD kept a 

running “NSR balance” for each facility with permitted sources. The NSR balance 

included an entry for every increase and every decrease in emissions at the facility 

that resulted from a permit action. The entries in the NSR balance were maximum 

allowable emissions, i.e. the maximum amount of emissions that a source could emit 

given its physical capabilities and permit limitations and rule requirements. 

However, the NSR balance was initially determined for each piece of equipment 

which had not previously undergone NSR analysis (i.e., pre-NSR equipment) from an 

 

1

The Community Bank provides emission offsets to sources with potential to emit below identified pollutant-specific 

thresholds for applications received on or before December 7, 1995. The Priority Reserve provides emission offsets 

to certain specified categories of sources, such as essential public services, research operations, and innovative 

technologies. 
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actual emissions baseline for that equipment. Any subsequent NSR activity for such 

equipment was conducted on a potential-to-potential basis. Therefore, a pre-NSR 

source modified under NSR would be subject to NSR on an actual-to-potential basis 

(i.e., actual pre-modification emissions to potential post-modification emissions)—a 

very conservative approach. 

Prior to 1990, emissions offsets were required when a permit was sought for 

construction of a new source, or for modification of an existing source, that would 

cause the sum of increases and decreases at a facility (i.e. the NSR balance) to exceed 

the pre-1990 offset threshold levels. 

NSR balance entries had to be quantifiable and enforceable. Such entries only 

occurred pursuant to permit applications with sufficient substantiating data to ensure 

quantifiability, after evaluation by SCAQMD engineers and review by multiple 

supervisory staff pursuant to Regulation XIII rules and implementing policies 

established by the agency, and upon issuance of permits or permit modifications 

which were enforceable under state law. 

SCAQMD applied substantial resources to implementing these rules. For example, 

from 1985 through 1989 SCAQMD’s engineering staff which processed permits 

consisted of between 97 and 175 professional engineers and supervisory and 

management staff. In sum, at all times including, but not limited to, prior to 1990, 

SCAQMD has had a robust air quality permitting system—a system which we believe 

was qualitatively superior in terms of quantification and reliability to any other NSR 

permitting system in the nation. 

 Compliance with Federal NSR Requirements 

In addition to being reliable, the above-described pre-1990 SCAQMD NSR rules 

fully complied with all federal requirements. Indeed, SCAQMD’s NSR rules were 

more stringent than required by federal law in the following important respects: (1) 

offset thresholds were lower than required by federal law and a 1.2 to 1.0 offset ratio 

was used for all sources; (2) unlike federal requirements which allowed “bubbling” or 

netting out of NSR, SCAQMD’s BACT requirement (equivalent to LAER) applied to 

any emissions increase from an individual piece of equipment; i.e., there was no 

netting out of LAER; (3) offset ratios for CO and PM10 were greater than 1 to 1 (i.e., 

were at 1.2 to 1); (4) offsets were required for SOx at a ratio of 1.2 to 1 after 

SCAQMD reached attainment with SO2 NAAQS, even though EPA had not 

determined SOx to be a precursor to PM10; and (5) SCAQMD had a zero BACT 

threshold; and (6) the fact that the NSR balance was initially based upon an actual 

emissions baseline ensured that any increase in potential emissions that exceeded the 

actual emissions baseline resulted in total potential emissions in excess of the offset 

threshold amount (which, again, was more restrictive than federally-required) would 

be subject to NSR requirements. Additionally, EPA SIP-approved SCAQMD’s Rule 

201 as amended January 5, 1990, and SCAQMD’s NSR rules as adopted or amended 

on the dates identified in Table 2. 
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Table 2 

SIP-Approved Revisions of SCAQMD’s NSR Rules 

 Rule SCAQMD Adoption Date(s) 

 213 10/8/1976 (Rescinded by SCAQMD 6/28/1990) 

 1300 (Rescinded by SCAQMD 6/28/1990) 

 1301 12/7/1995 

 1302 12/7/1995, 6/13/1997 

 1303 5/10/1996 

 1304 6/14/1996 

 1305 4/6/1984 (Rescinded by SCAQMD 6/28/1990) 

 1306 6/14/1996 

 1307 (Rescinded by SCAQMD 6/28/1990) 

 1308 10/5/1979 or 3/7/1980 or 4/4/1980 or 7/11/1980 (Rescinded by 

SCAQMD 6/28/1990) 

 1309 12/7/1995 

 1309.1 12/7/1995 (2001 and 2002 Amendments Pending SIP Approval) 

 1309.2 (Pending SIP Approval) 

 1310 12/7/1995 

 1311 10/5/1979 (Rescinded by SCAQMD 6/28/1990) 

 1312 (Rescinded by SCAQMD 6/28/1990) 

 1313 12/7/1995 

 Negative Balances 

By 1990, some facilities had negative NSR balances. These negative balances were 

the result of equipment shutdowns or process changes since October 1976 which 

resulted in reductions in emissions from a source. The majority of negative balances 

resulted from equipment shutdowns. Like all entries in the NSR balance, negative 

balances only occurred pursuant to permit actions—i.e. either modification of a 

SCAQMD permit or use of reductions for mitigations. Negative balances were 

quantified by SCAQMD engineers based upon the physical capabilities of the 

modified or shut down equipment and applicable permit requirements. 

Existing Pre-1990 Accounting 

SCAQMD’s offset accounts were established with starting balances based on pre-1990 

emissions reductions. The primary source of these pre-1990 reductions was a portion of 

facilities’ negative NSR balances which were discounted as specified in the 1990 

amendments to Regulation XIII (described below). The 1990 Regulation XIII 

amendments also directed the Executive Officer to recall all existing pre-1990 ERCs 

which had resulted from shutdowns, discount them by eighty percent, and issue new 

ERCs at twenty percent of their original values. The eighty percent discount of the pre1990 shutdown ERCs was deposited into SCAQMD’s offset accounts along with the 

amounts derived from the discount of pre-1990 negative balances (further explanation of 

the implementation of the 1990 amendments to Regulation XIII is provided with the 

discussion of SCAQMD’s proposed revisions to its pre-1990 accounting). All of 

SCAQMD’s annual status reports prepared to date have included the starting 
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balances from these sources (discount of pre-1990 negative balances and pre-1990 

shutdown ERCs); SCAQMD has not taken credit for any other pre-1990 sources of 

credits, such as the zero BACT threshold, use of ERCs by minor sources, or the 

additional 20 % of ERCs provided by major sources for CO and PM10 at a ratio of 

1.2 to 1.0 compared to 1.0 to 1.0, or ERCs provided by major sources for SOx at a 

ratio of 1.2 to 1.0 after SCAQMD reached attainment for SO2 NAAQS.

Proposed Pre-1990 Accounting 

SCAQMD is now proposing to significantly reduce (by more than 60 % overall) its pre1990 emission credits by eliminating any present or past use of any credits for which 

SCAQMD presently has no records and cannot re-verify the validity of such credits and 

to only utilize the portion of the previously-reported pre-1990 emission reductions which 

has been originally validated in 1990/91 and revalidated in 2004/05 as credits in its 

tracking system and for which SCAQMD has all or some records. Most of such NOx 

reductions (almost 2/3) and all of such CO and PM10 reductions were utilized as offsets 

in SCAQMD’s tracking system during the 1990’s; however, some of the pre-1990 NOx 

reductions and a significant portion of the pre-1990 VOC and SOx reductions remain in 

SCAQMD’s offset account. The emission reductions that underlie those credits occurred 

between 15 and 29 years ago, and not all records related to them are available today. In 

many cases, however, summary data based on previous analyses are available. While not 

all records are available, SCAQMD at all relevant times prior to and after 1990 had a 

sufficiently robust permitting program and record validation procedure to provide 

confidence regarding the validated emission reductions for which SCAQMD proposes to 

take pre-1990 credits. This conclusion is supported by the preceding discussion of 

SCAQMD’s pre-1990 permitting program and the following summary of the 1990 

Regulation XIII amendments and their implementation: 

 1990 Regulation XIII Amendments

SCAQMD substantially modified Regulation XIII in 1990. The offset threshold was 

dropped to zero, although relatively small emitting facilities (e.g. less than 30 pounds 

per day of VOC or 40 pounds per day of NOx) were eligible to obtain needed credits 

from a new “Community Bank.” Under the 1990 amendments, negative balances 

were to be “verified by the Executive Officer” and discounted by 80%. The rules 

specified that “upon validation” the remaining amount was to be issued to the permit 

holder in the form of an ERC (Rule 1309(a)). 

 Implementation of 1990 Amendments 

Shortly after adoption of the 1990 amendments to Regulation XIII, SCAQMD staff 

drafted a detailed internal guidance document titled “Regulation XIII – New Source 

Review Guidance Manual” (copy provided in Attachment 3) specifying how the 

amendments would be implemented by agency permit processing engineers. (Section 

1, Regulation XIII Transition). The required treatment of negative balances was 

described on pages 40 to 48 and page 68 of this document. The transition document 

specified that negative balances would have to be “verified” in accordance with 

standard procedures. Page 68, titled “NSR Database Validation,” specified that each 

facility’s NSR account would be searched by computer to determine if any 
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“forgivenesses” (i.e. negative entries due to prior rule amendments lowering offset 

thresholds) contributed to the facility’s negative balance. The document further 

provided that NSR balances “shall be recalculated” since these forgivenesses were 

not “real” emission reductions and therefore did not qualify for an ERC under Rule 

1309 (b)(1) (p.40). The transition document also specified that any negative 

particulate matter emissions balances would be converted to PM10 by multiplying the 

particulate matter emissions by an average factor of 0.5 (p.40). Finally, the document 

stated that any facility with a negative balance of 500 pounds per day or greater was 

to have each negative entry “confirmed by reviewing the application file which 

resulted in the negative NSR entry” (p. 68). The vast majority of negative balances at 

the time (in excess of 80%) were associated with facilities with negative balances 

exceeding 500 pounds. 

In 1991, SCAQMD’s engineering staff commenced the verification and validation 

processes described in the transition document. The result of these processes was a 

substantial reduction in the amount of the negative balances for some pollutants, even 

prior to the 80% discount. These reductions were the result of (1) addressing the 

“forgivenesses,” (2) determinations that some reductions were required by SCAQMD 

rules and thus ineligible for ERCs, and (3) in some cases simple data entry errors. 

Table 3 presents the 80 % portion of the 1990 negative balances that were deposited 

in SCAQMD’s offset accounts. The larger amount shown for each pollutant is the 

amount originally deposited as the result of this process in the early 1990s and which 

has been previously reported as the 1990 starting balance in the annual NSR status 

reports and the lower amount is revised based upon recent re-validation of these 

numbers by SCAQMD staff based on records that are still available to address EPA’s 

comments and consistent with EPA policy guidance which allows use of pre-1990 

credits that are explicitly included and quantified as growth in the SIP. Such 

guidance provides that the permitting agency must maintain information including, at 

a minimum, the name of the source that generated the credit, the source category, 

credit quantity, specific action that generated the credit, date the credit was generated 

and “enough other information to determine the creditability . . . .” (Memorandum 

from John Seitz to David Howekamp August 26, 1994).
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Table 3 

Pre-1990 Credits Deposited in SCAQMD’s Offset Accounts 

Tons per Day 

 VOC NOx SOx CO PM10 Overall

 Previously-Reported Pre-1990 

Credits 

92.4 25.8 18.4 34.9 34.5 206 

 Revised Pre-1990 Credits 

Verified with Records or 

Validation Procedures 

38.46 23.92 8.04 8.45 2.67 81.5 

 Percent Reduction in Pre-1990 

Credits 58 % 7 % 56 % 76 % 92 % 60 % 

Records for pre-1990 emission credits are from 15 to 29 years old. SCAQMD staff 

recently conducted an extensive review of the pre-1990 credits and determined that 

the types of records available today include printouts of NSR data captured in 

SCAQMD’s permitting database at the time of permit issuance and complete 

engineering files, which include the materials and documentation submitted by the 

applicant and SCAQMD’s engineering evaluation (refer to Attachment 4 for 

examples of available pre-1990 NSR data). 

In this proposal, SCAQMD is proposing to only use the revised and verified pre-1990 

credits (as set forth in Table 3). There are pre-1990 credits which can reasonably be 

concluded to be creditable based on presently available records. In some cases, such 

conclusion can be reached because all of the information described in the 1994 Seitz 

memorandum is currently available. In other cases, all of such information is not 

currently available, but the above-described permitting procedures provide “enough 

other information to determine the creditability . . . .” However, for the majority of 

the pre-1990 emission reduction credits (more than 60 % overall), the SCAQMD 

cannot substantiate the validity of the records based on the available records. 

SCAQMD is now proposing to significantly reduce its pre-1990 emission reduction 

credits by eliminating any past or present use of any credits for which SCAQMD 

presently cannot substantiate the validity of such records. 

 Remaining Pre-1990 Credits

The SCAQMD’s Tracking System has not previously specified the age of credits held 

in SCAQMD’s offset accounts. However, in response to EPA’s comments about the 

use of pre-1990 credits, staff has completed a “First In/First Out” analysis of these 

accounts. This analysis shows that significant portions of the pre-1990 VOC and SOx 

credits remain in SCAQMD’s accounts, about one quarter of the pre-1990 NOx 

credits remained in SCAQMD’s accounts as of July 2002, and all of the pre-1990 CO 

and PM10 credits were depleted by 19972

. In order to address EPA’s comment 

regarding continued use of pre-1990 credits from SCAQMD’s accounts, SCAQMD 

proposes to eliminate any unused pre-1990 VOC, NOx, and SOx credits remaining in 

 

2

 All data for 1991 to 1997 is aggregated, so it is uncertain when in this time period the 1990 starting account balances 

for CO, and PM10 were depleted. However, by assuming that these credits were consumed at an approximately 

constant rate, it is estimated that PM10 was depleted in 1994, and CO was depleted in 1995. 
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its account at the end of the 2003-2004 reporting period and not use any pre-1990 

credits in its accounts post 2004. 

 Other Potential Credits 

SCAQMD is not proposing to take any credits for pre-1990 sources of credits such as 

the zero BACT threshold, use of ERCs by minor sources, the additional 20% of ERCs 

provided by major sources for CO and PM10 at a ratio of 1.2 to 1.0 compared to 1.0 

to 1.0, or ERCs provided by major sources for SOx at a ratio of 1.2 to 1.0 after 

SCAQMD reached attainment with SO2 NAAQS and since EPA had not designated 

SOx as a precursor to PM10. 

1990-2004 Credits 

Existing 1990-2004 Accounting 

SCAQMD’s tracking system currently takes credit for orphan shutdowns from major 

sources but not from minor sources. It also does not take credit for surplus reductions of 

SOx, CO, or PM10 provided as ERCs by major sources as a result of the differences in 

federal and local offset requirements for these pollutants (local requirement is 1.2 to 1.0 

while there is no federal requirement for SOx offsets since SCAQMD is designated 

attainment with SO2 NAAQS and EPA had not designated SOx as a precursor to PM10 

and federal law does not specify an offset ratio in excess of 1.0 to 1.0 for CO or PM10) or 

for surplus reductions resulting from minor sources providing ERCs as emission offsets. 

The tracking system also does not take credit for SCAQMD’s zero BACT threshold. 

BACT discounts applied to newly-banked ERCs are credited to SCAQMD’s offset 

accounts. Credits are withdrawn from SCAQMD’s accounts at 1.2 to 1.0 for all five 

pollutants when major sources that are not exempt pursuant to the CAA are permitted 

using Rule 1304 exemptions, including replacement of ODCs with VOC. 

Proposed 1990-2004 Accounting 

The proposed changes to the sources of credits to and debits from SCAQMD’s offset 

accounts for the 1990-2004 time period are summarized below: 

 Minor Source Orphan Shutdowns 

The NSR Tracking System has only used “orphan” shutdowns of major sources post1990 to fund SCAQMD’s offset accounts. However, shutdowns of permitted minor

sources also can meet the federal requirements that credits be real, permanent, 

enforceable, quantifiable, and surplus in the same way as do major source shutdowns. 

ERCs generated from minor sources are commonly used to fulfill the offset 

requirements for emission increases at major sources which are not exempt from 

offset requirements under SCAQMD’s NSR rules. Therefore, although SCAQMD 

has not previously used these credits due to the large balances available in its offset 
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accounts, it is appropriate to include emission reductions from minor source orphan 

shutdowns as credits in SCAQMD’s offset accounts. 

SCAQMD’s Rule 201 requires written authorization from the Executive Officer (i.e., 

a permit to construct) before a person may build, erect, install, alter or replace any 

equipment, the use of which may cause the issuance of air contaminants or the use of 

which may eliminate, reduce or control the issuance of air contaminants. Rule 203 – 

Permit to Operate similarly prevents the operation or use of such equipment without a 

permit issued by the Executive Officer. The only exceptions to these requirements 

are specifically identified in Rule 219. However, all of the minor sources which 

SCAQMD proposes to use as sources of orphan shutdown credits as described above 

have been through the permitting process. In fact, such minor sources are subject to 

the same Regulation IV - Prohibitions, Regulation XI - Source Specific Standards, 

and Regulation XIII rule requirements as are major sources. In some cases the 

operators of these sources go through the necessary steps to quantify and generate 

ERCs when they experience real, permanent, enforceable, quantifiable, surplus 

emission reductions (e.g., equipment or facility shutdown or modification). Such 

minor source ERCs are fully valid and eligible for use as major source offsets. 

Therefore, in cases where the operators do not go through the steps to generate ERCs 

from their emission reductions, it is appropriate for SCAQMD to treat these orphan 

shutdowns in the same manner as it does orphan shutdowns at major sources. 

 Major Source Use of CO and PM10 ERCs 

The tracking system will be updated to include credit for the 20 % additional CO and 

PM10 ERCs provided by major sources as emission offsets at a ratio of 1.2 to 1.0 

pursuant to Rule 1303 rather 1.0 to 1.0. The 20 % above a 1.0 to 1.0 offset ratio is 

creditable because the CAA only requires a 1.2 to 1.0 offset ratio for precursors to 

ozone; the required offset ratio for CO and PM10 pursuant to the CAA and the TSD 

is “at least 1 to 1” (TSD, pages 14 and 15). 

 Offset Ratio for Exempt Major Sources of CO and PM10 

SCAQMD proposes to change the offset ratio for major sources of CO and PM10 

offset from SCAQMD’s offset accounts from 1.2 to 1.0 to 1.0 to 1.0. This change is 

consistent with the CAA and the TSD, which only require a 1.2 to 1.0 offset ratio to 

precursors of ozone. 

 Major Source Use of SOx ERCs 

The tracking system will be updated to include credit for SOx ERCs provided by 

major sources as emission offsets pursuant to Rule 1303 because such offsets are not 

required pursuant to the CAA (SCAQMD is attainment with SOx NAAQS and EPA 

had not designated SOx as a precursor to PM10). 

 Offsets for Exempt Major Sources of SOx 

SCAQMD is in attainment with the NAAQS for SOx and EPA had not designated 

SOx a precursor to PM10. Therefore, it is not necessary for SCAQMD to provide 

SOx offsets for major SOx sources which are exempt from providing ERCs pursuant 

to Rule 1304. 
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 ERCs Provided by Minor Sources to Offset Emission Increases 

The CAA does not require minor sources to provide offsets for their emission 

increases. Therefore, the ERCs that these sources provide to offset their increases 

pursuant to Rule 1303 are creditable to SCAQMD’s offset accounts. 

Inventory Issues Related to Minor Source Orphan Shutdowns 

Emissions from small permitted sources (i.e., less than 4 tpy of any criteria pollutants or 

100 tpy of CO) are treated as area sources in the AQMP inventory. A detailed 

description of the area source inventory methodology for each source category tracked in 

the AQMP is provided in Attachment 5. Typically, a base year inventory is prepared 

based on the historical activity data and projected to future years based on the 

socioeconomic data provided by SCAG. The surrogates used for emission growth 

projection are documented in Appendix III, Table 2-3 of the 2003 AQMP. The growth 

factors for source categories are mostly greater than 1 with a few exceptions. When the 

growth factor is greater than 1, emissions are projected to grow without taking into 

account any potential NSR constraint that offsets may not be available. By the same 

token, if the growth factor is less than 1, future emissions are estimated to be lower than 

the base year emissions. 

EPA staff raised an issue that shutdown credits from source categories that are projected 

to decrease in the AQMP may not be appropriate to be used as offsets, since the AQMP 

has already reflected such decrease. This position suggests the potential for double 

counting in such situations. However, closer examination of the AQMP process and the 

assumptions made in the Plan reveals that use of shutdown credits from source categories 

with even negative projected growth does not result in double counting of emissions 

reductions. The AQMP assumes negative growth in some categories and positive growth 

in others. Further, the positive growth assumptions include no constraints on growth 

posed by cost or availability of emission offsets (and existing ERCs are also assumed to 

be “in the air” independent of the growth projections). Inherent in these AQMP 

assumptions is the assumption that emission decreases, including decreases associated 

with negative growth, result in emission credits that can be used to offset emission 

increases. Therefore, movement of potential emissions from a negative growth category 

to a positive growth category via appropriately quantified and discounted credits is 

entirely consistent with the AQMP and its assumptions. Furthermore, even though 

SCAQMD has never experienced actual growth greater than that projected in the AQMP, 

SCAQMD reevaluates the AQMP with each AQMP revision and makes appropriate 

changes and corrections as a part of this process (and commits to continue to do so 

consistent with state law). Finally, there is no restriction on the generation of ERCs by 

sources in categories with negative projected growth or on the use of such ERCs by 

sources within other categories. The standard for credits in SCAQMD’s accounts should 

not be higher than for privately held credits. 
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Other Potential Credits 

SCAQMD is not proposing to take any credits for 1990-2004 sources of credits such as 

the zero BACT threshold and or offsets provided for or by sources converting from 

ODCs to VOCs. 

Post-2004 Credits 

Existing post-2004 Accounting 

SCAQMD’s tracking system currently takes credit for orphan shutdowns from major 

sources but not from minor sources. It also does not take credit for surplus reductions of 

SOx, CO, or PM10 provided as ERCs by major sources as a result of the differences in 

federal and local offset requirements for these pollutants (the local requirement is 1.2 to 

1.0 while there is no federal requirement for SOx offsets and federal law does not specify 

an offset ratio in excess of 1.0 to 1.0 for CO or PM10) or for surplus reductions resulting 

from minor sources providing ERCs as emission offsets. The tracking system also does 

not take credit for SCAQMD’s zero BACT threshold. Pre-1990 credits remaining in 

SCAQMD’s offset accounts continue to be usable in the tracking system. BACT 

discounts applied to newly-banked ERCs are credited to SCAQMD’s offset accounts. 

The existing tracking system credits orphan shutdowns to SCAQMD’s offset accounts 

based upon the allowable permitted level of emissions of the shutdown source, and no 

further discount/adjustment is applied to the credits to specifically account for surplus at 

the time of use. SCAQMD’s portion of the California SIP does not include assumptions 

reflecting the NSR tracking system or commitments to make up any shortfall in 

SCAQMD’s offset accounts. Additionally, the tracking system does not take credit for 

surplus reductions resulting from modifications at major sources that do not constitute 

“major modifications” pursuant to the new NSR Reform Regulations. Credits are 

withdrawn from SCAQMD’s accounts at 1.2 to 1.0 for all five pollutants when major 

sources that are not exempt pursuant to the CAA are permitted using Rule 1304 

exemptions or Rule 1309.1 offsets, including replacement of ODCs with VOC. 

Proposed post-2004 Accounting 

The proposed changes to the sources of credits to and debits from SCAQMD’s offset 

accounts for the post-2004 time period are summarized below: 

 Minor Source Orphan Shutdowns 

The tracking system will be updated to include credit for future (post-2004) minor 

source orphan shutdowns, as described above for the 1990 to 2004 time period. 

 Minor Source Use of ERCs 

The tracking system will be updated to include credit for future ERCs provided by 
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minor sources as emission offsets pursuant to Rule 1303 because such offsets are not 

required pursuant to the CAA. 

 Major Source Use of SOx ERCs 

The tracking system will be updated to include credit for SOx ERCs provided by 

major sources as emission offsets pursuant to Rule 1303 because such offsets are not 

required pursuant to the CAA (SCAQMD is attainment with SOx NAAQS and EPA 

had not designated SOx as a precursor to PM10). 

 Major Source Use of CO and PM10 ERCs 

The tracking system will be updated to include credit for the 20 % additional CO and 

PM10 ERCs provided by major sources as emission offsets at a ratio of 1.2 to 1.0 

rather 1.0 to 1.0 pursuant to Rule 1303. The 20 % above a 1.0 to 1.0 offset ratio is 

creditable because the CAA only requires a 1.2 to 1.0 offset ratio for precursors to 

ozone; the required offset ratio for CO and PM10 pursuant to the CAA and the TSD 

is “at least 1 to 1” (TSD, pages 14 and 15). 

 Pre-1990 Credits in SCAQMD’s Offset Accounts 

SCAQMD proposes to eliminate any future use of any remaining pre-1990 credits, 

even though records were re-verified by SCAQMD in 2004-05, in its offset accounts 

which remain unused at the end of the 2003-2004 reporting period rather than use 

them to offset future emission reductions. 

 BACT Discount of ERCs 

EPA has raised an issue about the use of the amount of BACT discounts from ERCs 

issued by SCAQMD as credits in SCAQMD’s offset accounts. Although SCAQMD 

believes that this provision was specifically approved by EPA to be used as credits in 

the TSD (page 17), in order to resolve the outstanding issues raised by EPA, 

SCAQMD proposes to no longer take any credits for BACT discount of ERCs in 

SCAQMD’s offset accounts starting August 2004. 

 Surplus Discount at Time of Use 

Credits in SCAQMD’s accounts that resulted from post-1990 orphan shutdowns and 

which, based on a first-in/first-out analysis, are not used in the same timeframe they 

are banked are proposed to be subject to a BARCT at the time of use adjustment. 

This will be accomplished based on the percentage reduction in reported permitted 

emissions each year, potentially with an adjustment for sources at BACT and for 

growth. Specifically, SCAQMD is proposing that each year all credits in 

SCAQMD’s offset accounts carried over from the previous year be discounted by the 

amount of the percentage reduction between that year’s reported emissions and the 

previous year’s reported emissions for the pollutant in question. This analysis will be 

performed on an aggregate basis each year for credits carried over from the previous 

year. SCAQMD anticipates that this approach will be accurate in the aggregate 

because in general implementation of BARCT drives reductions in reported 

emissions. 
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 Actual Emissions Baseline

It is not feasible for SCAQMD to discount orphan shutdown credits to actual 

emissions because the actual emission data generally are unavailable. Therefore, staff 

proposes to use an average discount factor to account for the difference between 

potential and actual emissions. Since 1997, SCAQMD has used a twenty percent 

discount to convert potential emissions to estimated actual emissions for purposes of 

compliance with state “no net increase” requirements. This procedure has been used 

with concurrence of the California Air Resources Board. We propose to use the same 

factor for federal NSR tracking purposes. In light of the methodology used to 

quantify potential emissions (explained in more detail below), staff’s engineering 

judgment indicates that, on average, a twenty percent reduction from potential 

emissions is a reasonable estimate of actual emissions. Actual emissions for 

individual sources will range from the sources’ potential emissions down to less than 

eighty percent of potential emissions, but eighty percent of potential emissions 

represents an acceptable estimate of aggregate actual emissions. The use of eighty 

percent of potential emissions as a surrogate for actual emissions is well documented 

in SCAQMD’s annual status reports regarding Regulation XIII. The most recent 

three such reports are included in Attachment 6 (for example, refer to Table 7—

“Debits from AQMD’s State Offset Accounts”—in each of these reports). 

Facilities with potential to emit in excess of the Rule 1304 exemption thresholds (4 

tons per year for VOC, NOx, SOx, and PM10 and 29 tons per year for CO), provide 

ERCs to offset their increases in potential emissions so they have a strong incentive to 

keep their potential emissions in line with actual emissions at times of high 

production. Smaller facilities with potential to emit below the exemption thresholds 

may be inclined to request permits based potential emissions at the exemption 

threshold levels because the offsets are provided by SCAQMD at no cost to the 

facility. However, SCAQMD engineers perform a thorough evaluation of each 

permit application prior to recommending issuance of a permit to construct or a 

permit to operate. These evaluations include a determination of the actual controlled 

emission rate (based on source test results, VOC content of coatings, or sulfur content 

of fuel, for example) or expected actual controlled emission rate (based on established 

emission factors or manufacturers’ guarantees, for example). This data is then 

combined with the maximum anticipated production rate to determine the 

equipment’s potential to emit. Note that the maximum production rate used in these 

calculations is based on what is reasonably expected for the facility and source in 

question during periods of high production and is not based on either “24-7” 

operations (except for those facilities that actually do operate in such a manner) or an 

artificially highest permissible emission level for each source. Therefore, actual 

emissions are not expected to be considerably different than potential emissions and 

80 % of potential emissions provides a reasonable estimate of actual emissions. This 

conclusion is further supported by potential to emit data for facilities at or below the 

exemption thresholds. Table 4 shows that there are far more facilities with potentials 

to emit below the exemption thresholds than at the exemption thresholds. 
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Table 4

Ratio of Numbers of Facilities with Potential to Emit (PTE) Below Exemptions 

Thresholds to Numbers of Facilities with PTE at Exemption Thresholds 

 Facility Count Ratio 

(Below Threshold: 

 Pollutant PTE Range A1 PTE Range B2 PTE C3 at Threshold) 

 VOC 1,336 1,348 601 4.5:1 

 NOx 2,021 1,534 363 10:1 

 SOx 545 180 32 23:1 

 CO 2,789 330 10 310:1 

 PM10 1,686 940 188 14:1 

1

 PTE Range A is greater than zero but less than 2 tons per year for VOC, NOx, 

SOx, and PM10 and is greater than zero but less than 15 tons per year for CO. 

2

 PTE Range B is greater than or equal to two but less than four tons per year for 

VOC, NOx, SOx, and PM10 and is greater than 15 but less than 29 tons per year 

for CO. 

3

 PTE C is four tons per year for VOC, NOx, SOx, and PM10 and is 29 tons per year 

for CO. 
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 Offset Ratio for Exempt Major Sources of CO and PM10 

SCAQMD will provide offsets to major sources of CO and PM10 which are exempt 

from offset requirements pursuant to Rule 1304 or which receive Rule 1309.1 offsets 

but which are not exempt from offset requirements pursuant to the CAA at a ratio of 

1.0 to 1.0, rather than 1.2 to 1.0. 

 Offsets for Exempt Major Sources of SOx 

SCAQMD will no longer provide offsets for major sources of SOx which are exempt 

from offset requirements pursuant to Rule 1304 or which receive Rule 1309.1 offsets. 

Such offsets are not required (i.e., these sources are exempt pursuant to the CAA) 

because SCAQMD is in attainment with SOx NAAQS and EPA had not designated 

SOx a precursor to PM10. 

 Offsets for Major Sources Converting from ODCs to VOC 

SCAQMD will no longer provide offsets for major sources of VOC which switch 

from use of ODCs to use of VOCs. This change is consistent with SCAQMD’s 

attainment demonstration and the TSD. 

 SIP Inventory and Growth Assumptions

To date, the SCAQMD has incorporated a sufficient portion of available tracking 

system credits into the AQMP at the time of plan revision to assure that the growth 

assumptions in the plan are consistent with NSR credits used. In order to assure that 

the SIP assumes that all necessary credits are “in the air,” the SCAQMD proposes to 

provide EPA an enforceable commitment to make up any shortfall in the amount of 

credits assumed to be “in the air” at the time of the next triennial plan revision 

required by state law. 

 Other Potential Credits 

SCAQMD is not proposing to take any credits for post-2004 sources of credits such 

as the zero BACT threshold or any surplus reductions resulting from modifications at 

major sources that do not constitute major modifications pursuant to the NSR Reform 

Regulations at this time. 

Summary 

SCAQMD believes that the proposed revisions to the NSR credit tracking procedures 

represent a very conservative proposal in an effort to address EPA’s questions related to 

credits used for Offset Budget and NSR equivalency purposes. As indicated earlier, the 

proposed revisions will reduce SCAQMD’s previously-reported pre-1990 credits from a 

7 % reduction in NOx to a 92 % reduction in PM10 and will change the previouslyreported 2002 NSR federal offset account from a 38 % actual increase in NOx credits to a 

74 % reduction in PM10 credits. The overall impact on emission credits resulting from 

the proposals described above are summarized in Table 5 for both the 1990 starting 

balance and July 2002 running balance. 
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Table 5 

Summary of SCAQMD’s Offsets Account 

Tons per Day 

 VOC NOx SOx CO PM10 

 Previously-Reported 1990 Starting 

Balance 92.4 25.8 18.4 34.9 34.5 

 Final Proposed Revised 1990 Starting 

Balance 38.46 23.92 8.04 8.45 2.67 

Reductions in SCAQMD’s Pre-1990 

NSR Federal Account Balances 58 % 7 % 56 % 76 % 92 % 

 Previously-Reported 2002 Running 

Balance 107.65 21.60 18.76 24.09 41.24 

 Final Proposed Revised 2002 

Running Balance 95.01 29.74 12.60 9.71 10.67 

Reductions in SCAQMD’s 2002 NSR 

Federal Account Balances 11.7 % -37.7 % 32.8 % 59.7 % 74.1 %

In addition, SCAQMD’s proposed post-2004 emission credits adjustments, as described 

above, will address all of the issues raised by EPA prospectively. 

Table 6 summarizes the changes between SCAQMD’s existing and proposed revised 

NSR tracking systems. This table summarizes the existing and proposed revised NSR 

tracking system for pre-1990, 1990-2004, and post-2004 emission reductions. 
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Table 6 

Summary of Changes between SCAQMD’S Existing and 

Proposed Revised NSR Tracking Systems 

Pre-1990 Emission Reductions

SCAQMD’s Existing NSR Offset Account 

and Tracking System 

SCAQMD’s Proposed Revised NSR Offset 

Account and Tracking System 

 Starting Balance based on data generated 

in 1990 from facilities’ (both major and 

minor sources) emission reductions 

recorded as negative NSR balances. This 

data has been used and previously 

reported in all annual NSR status reports. 

 No credit taken for surplus reductions from 

SOx, CO, and PM10 offsets provided (at 

120 %) as ERCs for minor sources(1). 

 No credit taken for surplus reductions from 

SOx offsets (ERCs) for major sources 

provided at 120 % because SOx offsets not 

required since EPA had not determined 

SOx to be a precursor to PM10(2), or for the 

20 % additional CO and PM10 offsets 

(ERCs) for major sources provided at a 

ratio of 1.2 to 1.0 compared to 1.0 to 1.0(2). 

 No credit taken for emission reductions 

created from the application of zero BACT 

threshold(1)

. 

 Initial Starting Balance based on data from 

facilities’ (both major and minor sources) 

emission reductions recorded as negative 

NSR balances which were originally 

verified in 1990/91 and re-verified in 

2004/05 and all or some records currently 

exist. 

 No credit taken for surplus reductions from 

SOx, CO, and PM10 offsets provided (at 

120 %) as ERCs for minor sources(1)

. 

 No credit taken for surplus reductions from 

SOx offsets (ERCs) for major sources 

provided at 120 % because SOx offsets not 

required since EPA had not determined 

SOx to be a precursor to PM10(2), or for the 

20 % additional CO and PM10 offsets 

(ERCs) for major sources provided at a 

ratio of 1.2 to 1.0 compared to 1.0 to 1.0(2). 

 No credit taken for emission reductions 

created from the application of zero BACT 

threshold at this time(1)

. 

(1) EPA’s Technical Support Document (TSD) dated 10/24/96 for EPA’s Notice of Final 

Rulemaking (Federal Register 12/4/96) for SIP Approval of SCAQMD NSR Rules allows for 

such credits, page 17. 

(2) TSD, pages 14 and 15. 
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Table 6 continued 

1990-Present (2004) Emission Reductions

SCAQMD’s Existing NSR Offset Account 

and Tracking System 

SCAQMD’s Proposed Revised NSR Offset 

Account and Tracking System 

 No credit taken for orphan shutdowns from 

minor sources. 

 VOC and NOx offsets provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.2 to 1.0. 

 No credit taken for surplus reductions from 

CO and PM10 offsets provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.2 to 1.0 compared 

to 1.0 to 1.0. 

 No credit taken for surplus reductions from 

SOx offsets provided by SCAQMD for 

federal sources exempted by SCAQMD at 

a ratio of 1.2 to 1.0. 

 VOC offsets provided by SCAQMD at a 

ratio of 1.2 to 1.0 for federal sources 

exempted by SCAQMD which switch from 

ozone depleting compounds to VOCs. 

 No credit taken for surplus reductions 

created from offsets (ERCs) provided (at 

120 %) by minor sources which are not 

exempt from offset requirements under 

SCAQMD NSR rules (i.e., > 4 but < 10 TPY 

of VOCs and NOx, etc.). 

 No credit taken for surplus reductions 

created from SOx offsets (ERCs) provided 

(at 120 %) by major sources. 

 No credit taken for surplus reductions 

created from the 20 % additional CO and 

PM10 offsets (ERCs) provided by major 

sources at 1.2 to 1.0 ratio compared to 1.0 

to 1.0 ratio. 

 No credit taken for emission reductions 

created from the application of zero BACT 

threshold(4)

. 

 Orphan shutdowns include shutdowns of 

both major and minor sources. 

 VOC and NOx offsets provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.2 to 1.0. 

 CO and PM10 offsets provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.0 to 1.0(1). 

 SOx offsets not provided by SCAQMD for 

exempt sources because SOx offsets not 

required since EPA had not determined 

SOx to be a precursor to PM10(2)

. 

 VOC offsets provided by SCAQMD at a 

ratio of 1.2 to 1.0 for federal sources 

exempted by SCAQMD which switch from 

ozone depleting compounds to VOCs, 

although not required because 

accounted for by attainment 

demonstration(3)

. 

 Credit taken for surplus reductions created 

from offsets (ERCs) provided (at 120 %) by 

minor sources which are not exempt from 

offsets requirements under SCAQMD 

rules(4)

. 

 Credit taken for surplus reductions created 

from SOx offsets (ERCs) provided (at 120 

%) by major sources because SOx offsets 

not required since EPA had not determined 

SOx to be a precursor to PM10(4). 

 Credit taken for surplus reductions created 

from the 20 % additional CO and PM10 

offsets (ERCs) provided by federal major 

sources at a ratio of 1.2 to 1.0 compared to 

1.0 to 1.0 ratio(1). 

 No credit taken for emission reductions 

created from the application of zero BACT 

threshold at this time(4). 

(1) EPA’s Technical Support Document (TSD) dated 10/24/96 for EPA’s Notice of Final 

Rulemaking (Federal Register 12/4/96) for SIP Approval of SCAQMD NSR Rules, pages 14, 

15, and 17. 

(2) TSD, page 15. 

(3) TSD, page 16 and 17. 

(4) TSD, page 17.
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Table 6 continued 

Future (Post-2004) Emission Reductions 

SCAQMD’s Existing NSR Offset Account 

and Tracking System 

SCAQMD’s Proposed Revised NSR Offset 

Account and Tracking System 

 Remaining pre-1990 credits still eligible for 

use. 

 BACT discount credit portion of newlyissued ERCs still eligible for crediting to 

SCAQMD’s offset accounts (as previously 

approved by EPA)(1)

. 

 Orphan shutdowns credited to SCAQMD’s 

offset accounts in the past only included 

shutdowns of major sources. 

 No further discount/adjustment for orphan 

shutdowns due to surplus/BARCT at time 

of use. 

 No further discount/adjustment applied to 

estimate actual emissions. 

 VOC and NOx offsets provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.2 to 1.0. 

 No credit taken for surplus reductions from 

CO and PM10 offsets provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.2 to 1.0 compared 

to 1.0 to 1.0. 

 No credit taken for surplus reductions from 

SOx offsets provided by SCAQMD for 

federal sources exempted by SCAQMD at 

a ratio of 1.2 to 1.0. 

 VOC offsets provided by SCAQMD at a 

ratio of 1.2 to 1.0 for federal sources 

exempted by SCAQMD which switch from 

ozone depleting compounds to VOCs. 

 No credit taken for surplus reductions 

created from offsets (ERCs) provided (at 

120 %) by minor sources which are not 

exempt from offset requirements under 

SCAQMD NSR rules (i.e., > 4 but < 10 TPY 

of VOCs and NOx, etc.). 

 No pre-1990 credits will be used post-2004.

 No BACT-discount credits from newlyissued ERCs will be eligible for crediting to 

SCAQMD’s offset accounts. 

 Post-1990 orphan shutdowns will include 

shutdown of both major and minor sources.

 All orphan shutdowns will be discounted/ 

adjusted to surplus/BARCT at time of use. 

 All orphan shutdowns will be discounted/ 

adjusted to reflect estimated actual 

emissions. 

 VOC and NOx offsets will be provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.2 to 1.0. 

 CO and PM10 offsets will be provided by 

SCAQMD for federal sources exempted by 

SCAQMD at a ratio of 1.0 to 1.0(1). 

 SOx offsets will not be provided by 

SCAQMD for exempt sources because 

EPA had not determined SOx to be a 

precursor to PM10(2). 

 VOC offsets will not be provided by 

SCAQMD for federal sources exempted by 

SCAQMD which switch from ozone 

depleting compounds to VOCs (3)

. 

 Credit will be taken for surplus reductions 

created from offsets (ERCs) provided (at 

120 %) by minor sources which are not 

exempt from offsets requirements under 

SCAQMD rules(4)

. 

(1) EPA’s Technical Support Document (TSD) dated 10/24/96 for EPA’s Notice of Final 

Rulemaking (Federal Register 12/4/96) for SIP Approval of SCAQMD NSR Rules, pages 14, 

15, and 17. 

(2) TSD, page 15. 

(3) TSD, page 16 and 17. 

(4) TSD, page 17.
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Table 6 continued 

Future (Post-2004) Emission Reductions (continued)

SCAQMD’s Existing NSR Offset Account 

and Tracking System 

SCAQMD’s Proposed Revised NSR Offset 

Account and Tracking System 

 No credit taken for surplus reductions 

created from SOx offsets (ERCs) provided 

(at 120 %) by major sources. 

 No credit taken for surplus reductions 

created from the 20 % additional CO and 

PM10 offsets (ERCs) provided at 1.2 to 1.0 

ratio compared to 1.0 to 1.0 ratio. 

 No SIP adjustment for NSR tracking 

system. 

 No credit taken for emission reductions 

crated from application of zero BACT 

threshold(4)

. 

 No credit taken for surplus reductions 

created from offsets (ERCs) provided (at 

120 %) by modifications to major sources, 

which are otherwise not defined as “major 

modifications” to a major source under the 

new federal NSR Reform Regulations. 

 Credit will be taken for surplus reductions 

created from SOx offsets (ERCs) provided 

(at 120 %) by major sources because SOx 

offsets not required since EPA had not 

determined SOx to be a precursor to 

PM10(4)

. 

 Credit will be taken for surplus reductions 

created from the 20 % additional CO and 

PM10 offsets (ERCs) provided by federal 

major sources at a ratio of 1.2 to 1.0 

compared to 1.0 to 1.0 ratio(1)

. 

 Appropriate assumptions in the SIP to 

reflect NSR tracking system with 

commitment to make up any shortfall in 

next AQMP revision pursuant to state law. 

 No credit taken for emission reductions 

crated from application of zero BACT 

threshold at this time(4). 

 No credit will be taken for surplus 

reductions created from offsets (ERCs) 

provided (at 120 %) by modifications to 

major sources, which are otherwise not 

defined as “major modifications” to a major 

source under the new federal NSR Reform 

Regulations at this time. 

(1) EPA’s Technical Support Document (TSD) dated 10/24/96 for EPA’s Notice of Final 

Rulemaking (Federal Register 12/4/96) for SIP Approval of SCAQMD NSR Rules, pages 14, 

15, and 17. 

(4) TSD, page 17.

USE OF CREDITS 

The above-described credits will be used to fund the Offset Budget as adopted by 

SCAQMD in Rule 1309.2 in addition to the current use of credits to provide offsets for 

sources that are exempt from offset requirements under SCAQMD Regulation XIII 

(Rules 1304 and 1309.1) and to provide equivalence to federal NSR requirements. As 

indicated earlier, a list of Regulation XIII provisions for which sources are exempt from 

offset requirements and credits may be used to demonstrate equivalency is presented in 

Attachment 2. 
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TRACKING AND BACKSTOP

SCAQMD proposes to make an annual determination of equivalency pursuant to a 

tracking rule that will be adopted by the agency consistent with the procedures described 

above for the post-2004 proposed accounting mechanism.

SCAQMD will also propose as part of the tracking rule a backstop provision to be 

triggered in the event that annual equivalency is not demonstrated. In such an event, the 

backstop provision would require: 

 SCAQMD to provide additional credits within two years; such credits could be 

derived through SCAQMD purchase of credits or through SCAQMD funding of 

emission reduction projects using quantification protocols approved by EPA on a 

case-by case or programmatic basis; or 

 SCAQMD to suspend issuance of Offset Budget credits and not resume the issuance 

of any such credits until SCAQMD has performed an evaluation of program 

performance and made modifications, as needed to correct the equivalency.