j South Coast Air QualIty Management District 21865 E. Copley Drive, Diamond Bar, CA 91765-4182 i4 (909) 396-2000 http://www.aqmd.gov BOARD MEETING DATE: November 9,2001 AGENDA NO.20 REPORT: Status Report on Regulation XIII —New Source Review SYNOPSIS: This report, submitted tothe Board pursuant to subdivision (b)of Rule 1310— Analysis and Reporting, provides information onthe status of Regulation XIII —New Source Review in meeting state and federal NSR requirements. This report, which presents data for August 1999 through July 2000, shows that AQMI)’s NSR program wasin compliance with applicable state and federal requirements during the period covered. COMMITFEE: Stationary Source, September 28, 2001, Reviewed RECOMMENDED ACTION: Approve the attached report.0 S,uth ‘;oast Air Quality

Map, yard Barry R. Wallerstein, D.Env. Executive Officer MN:WCT:GT:MH r: SUMMARY Regulation XIII -New Source Review regulates and accounts for emissions increases from the permitting ofnew, modified, and relocated sources within AQMD that arenot subject to Regulation XX — Regional Clean Air Incentives Market (RECLAIM)’. Rule 1310 - Analysis and Reporting requires the submittal ofan annual report tothe Board on the status of Regulation XIIIin meeting federal and state New Source Review (NSR) re quirements. While the RECLAIM program is different than command and control and provides greater regulatory flexibility to

businesses, its NSR requirements, as specified inRule 2005, are designed to comply with the governing principles ofNSR contained inthe federal Clean Air Act (CAA) andthe California Health and Safety Code.The last annual report onthe status of Regulation XIII was submitted tothe Board on August 18, 2000 and covered the period from August 1998 through July 1999 for both federal and state NSR requirements. This report demonstrates compliance with federal and state NSR requirements by establishing aggregate equivalence with federal and state offset requirements forthe period August 1999 through July 2000. The results ofthe analysis forthe August 1999 through July 2000 timeframe are summa rized below in Tables 1and2. These results demonstrate that there were adequate offsets available to mitigate any emission increases during this period, resulting inno “net” emis sion increase. Therefore, AQMD’s NSR program continues to meet federal and state off

set requirements andis equivalent to those requirements onan aggregate basis. Table 1 Net Activity, Starting Balances, and Ending Balances for AQMD’s Federal Offset Accounts (August 1999 through July 2000) ) Table 2 Net Activity, Starting Balances, and Ending Balances for AQMD’s State Offset Ac counts (August 1999 through July2000) Starting Balance (ton!day)J 50.34 ‘‘ 18.81 27.05 Net Activity (tonlday)j -3.76 I 1 ) Starting Balance (tonlday)I 105.08j 21.39 Net Activity (tonlday)I -009J -063J000 -1 -017 18.64 27.70 44.69 Note that, .... .. ... . tram is . .viiiif.,.. . . ..ements L....._a AQMD s ending account balances remained positive indicating there were adequate offsets dunng this period 0.00 45.65 -0.64 0.40 tethat .‘ -. program is deemed tobe equivalent to federal . requirements because AQMD’s ending account balances remained positive, indicating there were adequate offsets during this

period. - j.1 -2-BACKGROUNDAQMD originally adopted an NSR program in 1976. The original program has evolved into the cuirent version ofthe Regulation XIII rules in response to federal and state legal requirements andthe changing needs ofthe local environment and economy. The most recent significant amendments tothe NSR rules were adopted on December 7, 1995. The

most notable change inthat amendment was the reduction inthe threshold allowances for requiring offsets. Subsequent amendments to Regulation XIII since 1995 have in most part addressed other issues, suchasBest Available Control Technology (BACT), with the exception ofthe April 20, 2001 NSR amendments which provided access to AQMI)’s Priority Reserve for Electrical Generating Facilities (EGF) to obtain PM1O emission off sets. This amendment, however, does not impact the period covered bythis report AQMD’s NSR program is required to achieve, ata minimum, emission reductions equivalent to federal and state statutory NSR requirements. Tothis end, AQM1)’s NSR program implements the federal and state statutory requirements for NSR and ensures that construction and operation ofnew and modified sources donot interfere with progress towards attainment ofthe National and State Ambient Air Quality Standards. AQMD’s computerized emission tracking system is utilized to demonstrate equivalence with fed eral offset requirements onan aggregate basis. Specific NSR requirements of federal and state laware presented below. Federal Law Federal law requires the use.of Lowest Achievable Emission Rate LAER) and offsets for new, modified, and relocated major stationary sources 2. Effective November 15, 1992, 2The “major stationary source” thresholds applicable to AQMD’s jurisdiction during the time period covered by this report are summarized below: vocNOx 10tons per year 25 tons per year SOx 70tons per year 100 tons per year PM1O 70tons per year 70 tons per year CO 100 tons per year 100 tons per year Note that the October 20, 2000 amendments toRule 1302— Definitions established major stationary source thresholds for three regions with AQMD’s jurisdiction: the South Coast Air Basin (SOCAB), the Riverside County portion ofthe Salton Sea Air Basin (SSAB), andthe non-Palo Verde Riverside County portion ofthe Mo10tons per year 25 tons per year -3-the federal Clean Air Act (CAA) requires a1 .5-to-i external offset ratio anda 1.3-to-i internal offset ratio for major stationary sources located inan extreme non-attainment area. The South Coast Air Basin (SOCAB) isthe only extreme ozone non-attainment areainthe nation. An extreme ozone non-attainment area may qualify fora 1.2-to-i off

set ratioifit requires implementation of federal Best Available Control Technology (as defined in CAA Section 169(3) for prevention of Significant Deterioration ofAir Qual ity3)on major sources [CAA Section 1 82(e)(1)J. AQMD meets this criterion and usesa 1.2-to-i offset ratio for federal sources 4. This report demonstrates compliance with the

federal NSR requirements. State Law State law requires theuseof BACT for new and modified sources (Health and Safety Code Sections 40440(b)(i) and 40920.5) and “nonet increase in emissions” from certain permitted newor modified sources based on their potential toemit andthe non-attainment classification ofthe areain which they are located. Based on their classification, the SOCAB and Salton Sea Air Basin (SSAB)5 must comply

with the requirements for extreme and severe non-attainment areas, respectively, for ozone precursors (i.e., VOC and NOx). Both the SOCAB andthe SSAB must comply

with the requirements for serious nonattainment areas for PM1O andits precursors (i.e., VOC, NOx, and SOx). For CO, the SOCAB must comply with the requirements for seri ous nonattainment areas; however, SSAB is considered attainment forCO. Both SOCAB and SSAB are considered attainment for S02. This report demonstrates AQMD’s com pliance with the“no net emission increase” requirements ofstate lawforthe period from August 1999to July2000 by demonstrating compliance with the requirements forex

treme ozone non-attainment areas for ozone precursors and with the requirements forse

rious nonattainment areas for CO, PM1O, and precursors to PMIO. OVERVIEW OF ANALYSIS METHODOLOGY The two principle elements of federal and state NSR requirements are LAERJBACT and emission offsetting. AQMI)’s BACT requirements areatleastas stringent as federal jave Desert Air Basin (MDAB). These regions supercede the Non-South East Desert Air Basin and South East Desert Air Basin designations.

This federal defmition ofBest Available Control Technology is similar Best Available Retrofit Control Technol ogy which AQMD implements through its Regulation XI— Source Specific Standards andisless stringent than AQMD’s definition of BACT used for New Source Review purposes. Non-federal sources thatdonot meet anyofthe exemption criteria ofRule 1304 and thatdonot qualify to obtain offsets from the Priority Reserve are also required to provide offsets (i.e., ERCs) ataratio of 1.2-to-I. Southeast Desert Air Basin was recently changed tothe Riverside County portion ofthe Salton Sea Air Basin

(SSAB) andthe non-Palo Verde Valley, Riverside County portion ofthe Mojave Desert Air Basin which iscur

rently unclassified. -4-LAER for major sources and state BACT requirements forall sources. Furthermore, the emission offset requirements that AQMI) includes inits permitting process ensure that

sources provide emission reduction credits (ERC) to offset their emission increases in compliance with both federal and state requirements. Thus, these sources each comply with federal and state offset requirements; no further analysis to demonstrate equivalence with federal and state offset requirements is necessary for these sources. However, cer

tain sources are exempt from AQMD’s offset requirements pursuant toRule 1304or qualif’ for offsets from AQMI)’s Priority Reserve or Community Bank (applications re ceived between October 1,1990 and February 11996 only), pursuant toRule 1309.1. AQMD has determined that providing offset exemptions andthe Priority Reserve (as well asthe previously administered Community Bank) is important tothe NSR program and the local economy while encouraging installation of control equipment. Therefore, AQMI) has assumed the responsibility to provide the necessary offsets for exempt sources andforthe Priority Reserve andthe Community Bank. This report examines

credits toand debits from AQMD’s emission offset accounts and demOnstrates program

matic equivalence onan aggregate basis with federal and state emission offset require ments forthe sources exempt from providing offsets andthe sources that receive offsets

from the Priority Reserve orthe Community Bank. AQMD’s Offset and Credit Accounts Only emission increases originating at major stationary sources are subject to federal off set requirements, while state offset requirements apply toall increases of VOC or NOx from equipment subject to AQMD’s permitting program andto increases ofSOx, CO,

and PM10 from facilities that emit 15or more tons per year These same thresholds are usedto assign credits generated through emission reductions tothe federal and state offset accounts, respectively (eg, only emission reductions occumng at major statIonary

sources are creditable for federal equivalency purposes) Therefore, AQMD tracks two setsof accounts, one each for purposes of demonstrating equivalence with federal and state offset requirements. In addition, each ofthe five pollutants subjectto offset re quirements (VOC, NOx, SOx, CO, and PM10)hasits own federal account anditsown state account. AQMD’s NSR program is considered to provide equivalent or greater off

setsof emissions as required by federal and state requirements for each subject pollutant provided the balance of credits leftin AQMD’s accounts for each pollutant does notbe come negative, indicating that there were adequate offsets available. Credit Accounting When emissions froma permitted source are permanently reduced (e.g., installation of control equipment, removal ofthe source) andthe emission reduction isnot required by ruleorlaw andisnot called forbyanAir Quality Management Plan (AQMP) control -5-measure that has been assigned atarget implementation date6, the permit holder may ap plyfor ERCs forthe pollutants reduced. Priorto issuing an ERC, AQMD “discounts” the reduction tothe level of reduction that would have been realized ifthe source had been operating at current BACT levels. The difference between the actual quantified emission reduction andthe amount of ERCs issued are credited to AQMD’s account of available offsets. Additionally, ifthe permit holder forthe source generating the emission reduc tion had previously received offsets from an AQMI) account orhasa “positive balance” (i.e., net emission increase), the quantity of AQMD credits used orthe amount ofthe positive balance is subtracted from the reduction and “paid back” to AQMD’s accounts prior to issuance ofan ERC pursuant toRule 1306. Finally, permit holders donot always submit ERC applications for their eligible emission reductions. These unclaimed reduc. tions are termed “orphan reductions” and can,in principle, be credited to AQMDs ac counts In practice, itisonly practical for AQMD to track orphan reductions associated with the shutdown of equipment (orphan shutdowns), so these arethe only orphan reduc tions actually credited to AQMJ)’s accounts. Debit Accounting Onthe other hand, AQMD also tracks all emission increases that are offset through the Priority Reserve orthe Community Bank, aswellasall increases that are exempt from

offset requirements pursuant toRule 1304 — Exemptions These mcreases areallde ducted from AQMI)’s accounts As discussed above, AQMD uses an offset ratio of12— ) to-i forits federal accounts. That is,1.2 pounds are deducted from AQMI)’s federal ac counts for each pound of permitted increase ata federal source. Conversely, state offet requirements are based on actual emissions rather than maximum permitted potential to emit AQMD estimates actual emissions as eighty percent of permitted potential to emit Thus, 08 pounds are deducted from AQMD’s state accounts for each pound of permitted increase There is another source of debits from AQMD’s offset accounts in addition to the permitted emission increases described above. This debit occurs ina situation where a permit that was previously inactivated dueto nonpayment offees and deemed an orphan shutdown is reactivated. These special reactivations are debited from AQMD’s federal and state accounts ata one-to-one offset ratio (the same ratio at which orphan shutdowns are credited). The various sources of credits toand debits from the federal and state offset accounts are discussed in greater detail in Appendix A. 6 Refer toRule 1309(b)(4) fora complete explanation of eligibility requirements ‘The eighty percent factor is based upon an anaiysis and demonstration previously conducted in 1998 by AQMD ) staffin coordination with CARB. -6-DEMONSTRATION OF EQUWALENCE WITH FEDERAL OFFSET REQUIREMENTSTable3 presents the total emission reductions credited to AQMD’s federal offset ac counts from August 1999 through July 2000. Debits from AQMD’s federal accounts in curred during the same period are summarized in Table 4. Finally, net activity (credits minus debits) forthe federal accounts is displayed in TableS. Table 3Credits to AQMD’s Federal Offset Accounts (August 1999 through July 2000) BACT Discount of ERCs (lb/day) 0 0 0 0 0 Orphan S6utdown Credits (lb/day) 610 68 Ô 139 0 Positive Balane Adjusttnent via ERG (lb/day)-7-Table 4Debits from AQMD’s Federal Offset Accounts (August 1999 through July 2000) 0 Other Exemptions (lb/day) 470 25T 0 961 208 Priority Reserve (lb/day) 170 777 0 1805 72 (August 1999 through July 2000) Total Debits (lb/day) 797 1,329 0 3,419 336 Net Credit/Debit(-) (lb/day) -187 -1,261 0 -3,280 -336

Any net credits and any net debits from this analysis are added toor subtracted from, re spectively, the starting federal account balance for each pollutant to determine compli ance with federal NSR requirements. Refer to Table 1fora summary of starting and ending federal account balances forthe August 1999 through July 2000 time period. Below Exemption Threshold (lb/day) 0 0 0 0 Community Bank Table5Net Activity in AQMD’s Federal Offset Accounts Total Credits (lb/day) 610 68 0 139 0 Net Credit!Debit(-) (ton/day) -0.09 -0.63 0.00 -1.64 -0.17 -8-DEMONSTRATION OF EQUIVALENCE WITH STATE OFFSET REQUIREMENTSTable 6 presents the total emission reductions credited to AQMD’s state offset accounts from August 1999 through July 2000. Debits from AQMD’s state accounts incurred during the same period are summarized in Table 7. Finally, net activity (credits minus debits) forthe state accounts is displayed in Table 8.

Table 6Credits to AQMD’s State Offset Accounts (August 1999 through July 2000) I BACT Discount of ERCs (lb/day)I 0 0 0 0 0 Table 7Debits from AQMD’s State Offset Accounts (August 1999 through July 2000) Positive Balance Adjustment via ERC (lb/day) I0.1 0 Below Exemption Threshold (lb/day)J 13,840 Other Exemptions (lb/day) 981 •0 813 Priority Reserve (lb/day)1 1,776 610—964 28 275 208 934 174 I.8f3 1.6•730 -9-j Table 8 Net Activity in AQMD’s State Offset Accounts (August 1999 through July 2000) 173 Total Debits (lb/day) 12,077 3,086 169 2,916 229 Net CreditlDebit(-) (lb/day) -7,527 -889 4 -1,271 809 ‘I

Any net credits and anynet debits from this analysis are added toor subtracted from, re spectively, the starting state account balance for each pollutant to determine compliance with state NSR requirements. Refer to Table 2fora summary of starting and ending state account balances forthe August 1999 through July2000 time period. ) CONCLUSIONSThe analysis presented inthis, report demonstrates that AQMI)’s NSR program provides equivalent offsets to those required by federal and state NSR requirements andis equiva lenttothe federal and state requirements onan aggregate basis. AQMD’s federal offset accounts appear tohave balances adequate forthe potential demand that may be experi enced inthe foreseeable future. The majority of sources subjectto AQMD’s permitting program arenot major stationary sources and, therefore, not subject to federal offset re quirements. Balances in AQMD’s state accounts also seem tobe adequate forthe fore seeable future, and staff will continue to monitor and report backtothe Board their status. The pollutant of greatest concernis NOx. The state NOx balance was 4.74 tons per day atthe beginning ofthe reporting period and was reduced by0.44 tonper day during the twelve months covered bythis report. AQMI)’s state VOC account also needs tobe closely monitored even though the balance (50.34 tons per dayatthe beginning ofthere porting period) is significantly higher than the NOx balance. The reason for concern re garding the VOC account isthatithas been experiencing a greater rateof depletion— 3.76 tons per day during this reporting period. ‘For comparison purposes, the NOx and VOC net state account reductions during the August 1998 through July 1999 time period were 0.16 tonper day and 3.16 tons per day, respectively. I Total Credits (lb/day) 4,550 2,197 1,645 1,038 Net CreditlDebit(-) (ton/day) -3.76 -0.44 0.00 -0.64 0.40 -10-Staff will continue to track credits toand debits from the federal and state offset accounts and will provide annual reports and equivalency demonstrations to ensure that AQMD’s NSR program continues to operate in compliance with federal and state NSR require ments. —11—APPENDIX A Sources of Credits toand Debits from AQMD’s Emission Offset AccountsSources of Credits toand Debits from AQMD’s Emission Offset Accounts Sources of Emission Reductions Creditable to AQMD Accounts A. BACT Discount of ERCs Rule 1309 specifies that ERCs issued foran emission reduction notbe “greater than

the equipment would have achieved if operating with current [BACT].” In other words, ERCs are only issued forthe portion ofthe emission reduction beyond what would be achieved bythe installation of current BACT onthe source providing there ductions. The BACT discount portion ofthe reduction is available for offsetting emission increases for purposes of demonstrating equivalence with federal and state NSR requirements. Thus, the BACT discount portion of ERC-generating emission reductions are credited to AQMD’s federal and state accounts. Note that only reduc tions originating at major stationary sources are credited to AQMJ)’s federal accounts. B. Prior AQMJ) Offsets and Positive NSR Balances Rule 1306(e) specifies thatallofthe following be subtracted from an emission reduc

tion after the BACT discount is applied and before ERCs are issued: The Positive NSR balance ofthe facility generating the emission reduction;

All Community Bank allocations previously issued tothe facility generating the emission reduction; •All Priority Reserve allocations previously issued tothe facility generating the emission reduction; and All offsets obtained bythe facility generating the emission reduction pursuant to the exemption provisions ofRule 1304. This provision prevents facilities from generating salable ERCs from offsets originally obtained from AQMD’s accounts. Rather, these offsets are captured back into AQMI)’ s accounts andare available for demonstration of equivalence with federal and state offset requirements. Again, only reductions originating at major stationary sources are credited to AQMD’s federal accounts. C. Orphan Shutdowns Orphan shutdowns are emission reductions from AQMD-permitted sources that are removed from service and permanently cease emitting activities, have their permits in activated, andarenot claimed as emission reductions under an ERC application. AQMD tracks these accounts. Only orphan shutdown reductions originating at major stationary sources are credited to AQMD’s federal accounts. The calculation ofthe -Al-quantity of offsets tobe credited to AQMD’s offset accounts is dependent onthena tureofthe offsets originally used forthe source that has shut down andis generating

the emission reduction: Ifthe shut down source was originally offset from the Community Bank, thePri ority Reserve, oraRule 1304 exemption, eighty percent ofthe actual amount of

the offset provided (i.e., the potential to emit) is credited to AQMIYs federal and state offset accounts. This also includes equipment that has been shut down ata source where aprior permit forthe same source obtained offsets from the Com munity Bank, the Priority Reserve, oraRule 1304 exemption. •The quantity of offsets tobe credited to AQMD’s offset accounts for orphan shutdowns other than those described above was calculated ona case-by-case basis

from the following two cases, whichever results in lower emissions: • Twenty-three percent 8 ofthe amount originally offset forthe source in NSR; or • Twenty-three percent of twenty-four times the hourly controlled emissions from the source as recorded in AQMD’s automated emission inventory system (AEIS). This provides avery conservative approach to ensure that the creditable emission re ductions arenot overestimated. D. Negative NSR Balances Prior tothe 1990 amendments to Regulation XIII, negative NSR balances represented a facility’s emission reduction balance that had not been issued as ERCs. Negative NSR balances were generated by emission reductions resulting from equipment orfa cility modifications, over controls, or shutdowns. The 1990 amendments toRegula

tion XIII specified thatall negative NSR balances be reduced by eighty percent and converted to ERCs. The eighty percent portion ofthe negative balances from all such

facilities were usedtofund both AQMD’s federal and state offset accounts. This was a one-time source of funding forthe federal and state offset accounts andisnoton going. Sources of Emission Increases Debited from AQMD Accounts A. Priority ReservePursuant to AQMD Rule 1309.1, essential public services (e.g., sewage treatment fa cilities, police and fire fighting facilities, schools) arenot required to provide emission SAn eight hour per day, five days per week, fifty weeks per year operating schedule represents twenty-three percent ofthe operating timeofa twenty-four hour per day, seven days per week, fifty-two weeks per year operating schedule. - -A2-offsets inthe form of ERCs when they receive permits involving emission increases. • Instead, AQMD provides their offsets through the Priority Reserve. These offsets are deducted from AQMD’s federal (forthe case of major stationary sources) and state offset accounts. B. Community Bank For applications deemed complete prior to February 1996, no offsets were required for projects with project emission increases below the following thresholds: •30 pounds perdayof VOCs; •40 pounds per dayof NOx; •60 pounds per dayof SOx; •220 pounds perdayofCO; and - •30 pounds perday ofPMlO. AQMD provided offsets for these projects from its accounts through what was termed the “Community Bank.” Community Bank offsets provided to major stationary sources are deducted from AQMD’s federal accounts andall Community Bank offsets are deducted from AQMI)’s state accounts. C. Offset Exemptions The Community Bank was replaced with offset exemption thresholds for applications received inorafter February 1996. Facilities with aggregate potential toemit below these thresholds are eligible to receive emission offsets from AQMD’s offset ac counts, uptothe levels ofthe thresholds. The exemption thresholds specified inRule 1304 areas follows: •4tons per year of VOCs; •4tons per year of NOx; •4tons per year of SOx; •4tons per yearof PM1O; and •29tons per yearofCO. Rule 1304 also includes offset exemptions fora variety of source types suchasre placement of ozone-depleting compounds, methyl bromide fumigation, emergency equipment, and certain modifications and process changes implemented to reduce is suance ofair contaminants. The majority of these exemptions are intended to incen

tivize installation of control equipment or facilitate compliance with other regulatory mandates. These offsets are debited from AQMD’s federal and state offset accounts. -A3-Note that only offsets provided to sources at major stationary sources are deducted from AQMI)’s federal accounts. D. Special Permit Reactivations Inafew exceptions, there have been cases where the permits for equipment that was previously considered an orphan shutdown have been reactivated. The orphan shut down reductions previously credited to AQMD’s federal and state offset accounts for these sources are debited from these accounts when such permits are reactivated. ) -A4-