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 to the Board pursuant to subdivision (b) of

Rule 1310— Analysis and Reporting, provides information on the

status ofRegulation 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

was in 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.

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 are not

subject to Regulation XX — Regional Clean Air Incentives Market (RECLAIM)’. Rule

1310 -Analysis and Reporting requires the submittal of an annual report to the Board on

the status ofRegulation XIII in 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 in Rule 2005, are designed to comply with the governing principles

ofNSR contained in the federal Clean Air Act (CAA) and the California Health and Safety Code.
The last annual report on the status ofRegulation XIII was submitted to the 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 for the period August 1999 through July 2000.

The results ofthe analysis for the August 1999 through July 2000 timeframe are summa

rized below in Tables 1 and 2. These results demonstrate that there were adequate offsets

available to mitigate any emission increases during this period, resulting in no “net” emis

sion increase. Therefore, AQMD’s NSR program continues to meet federal and state off

set requirements and is equivalent to those requirements on an 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 105.08 j 21.39

Net Activity (tonlday)I -009 J -063 J 0 00 -1 -0 17

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

te that .‘ -. program is deemed to be equivalent to federal . requirements because

AQMD’s ending account balances remained positive, indicating there were adequate offsets during this

period. -

j

.1

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BACKGROUND

AQMD 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 and the changing needs ofthe local environment and economy. The most

recent significant amendments to the NSR rules were adopted on December 7, 1995. The

most notable change in that amendment was the reduction in the threshold allowances for

requiring offsets. Subsequent amendments to Regulation XIII since 1995 have in most

part addressed other issues, such as Best 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 by this report

AQMD’s NSR program is required to achieve, at a minimum, emission reductions

equivalent to federal and state statutory NSR requirements. To this end, AQM1)’s NSR

program implements the federal and state statutory requirements for NSR and ensures that

construction and operation ofnew and modified sources do not 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 on an aggregate basis. Specific NSR requirements offederal and

state law are presented below.

Federal Law

Federal law requires the use.ofLowest Achievable Emission Rate LAER) and offsets for

new, modified, and relocated major stationary sources 2.Effective November 15, 1992,

2 The “major stationary source” thresholds applicable to AQMD’sjurisdiction during the time period covered by this report are summarized below:

voc

NOx 10 tons per year 25 tons per year

SOx 70 tons per year 100 tons per year

PM1O 70 tons per year 70 tons per year

CO 100 tons per year 100 tons per year

Note that the October 20, 2000 amendments to Rule 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), and the non-Palo Verde Riverside County portion ofthe Mo10 tons per year 25 tons per year

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the federal Clean Air Act (CAA) requires a 1 .5-to-i external offset ratio and a 1.3-to-i

internal offset ratio for major stationary sources located in an extreme non-attainment

area. The South Coast Air Basin (SOCAB) is the only extreme ozone non-attainment

area in the nation. An extreme ozone non-attainment area may qualify for a 1.2-to-i off

set ratio ifit requires implementation offederal 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 uses a

1.2-to-i offset ratio for federal sources 4.This report demonstrates compliance with the

federal NSR requirements.

State Law

State law requires the use ofBACT for new and modified sources (Health and Safety

Code Sections 40440(b)(i) and 40920.5) and “no net increase in emissions” from certain

permitted new or modified sources based on their potential to emit and the non-attainment

classification ofthe area in which they are located.

Based on their classification, the SOCAB and Salton Sea Air Basin (SSAB) 5must comply

with the requirements for extreme and severe non-attainment areas, respectively, for

ozone precursors (i.e., VOC and NOx). Both the SOCAB and the SSAB must comply

with the requirements for serious nonattainment areas for PM1O and its 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 for CO. Both SOCAB

and SSAB are considered attainment for S02. This report demonstrates AQMD’s com

pliance with the “no net emission increase” requirements ofstate law for the period from

August 1999 to July2000 by demonstrating compliance with the requirements for ex

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 offederal and state NSR requirements are LAERJBACT and

emission offsetting. AQMI)’s BACT requirements are at least as 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 and is less stringent than

AQMD’s definition ofBACT used for New Source Review purposes.

Non-federal sources that do not meet any ofthe exemption criteria ofRule 1304 and that do not qualify to obtain

offsets from the Priority Reserve are also required to provide offsets (i.e., ERCs) at a ratio of 1.2-to-I.

Southeast Desert Air Basin was recently changed to the Riverside County portion ofthe Salton Sea Air Basin

(SSAB) and the non-Palo Verde Valley, Riverside County portion ofthe Mojave Desert Air Basin which is cur

rently unclassified.

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LAER for major sources and state BACT requirements for all sources. Furthermore, the emission offset requirements that AQMI) includes in its 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 to Rule 1304 or

qualif’ for offsets from AQMI)’s Priority Reserve or Community Bank (applications re

ceived between October 1, 1990 and February 11996 only), pursuant to Rule 1309.1.

AQMD has determined that providing offset exemptions and the Priority Reserve (as well

as the previously administered Community Bank) is important to the 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 and for the Priority Reserve and the Community Bank. This report examines

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

matic equivalence on an aggregate basis with federal and state emission offset require

ments for the sources exempt from providing offsets and the sources that receive offsets

from the Priority Reserve or the 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 to all increases ofVOC or NOx

from equipment subject to AQMD’s permitting program and to increases of SOx, CO, and PM 10 from facilities that emit 15 or more tons per year These same thresholds are

used to assign credits generated through emission reductions to the federal and state offset

accounts, respectively (e g, only emission reductions occumng at major statIonary

sources are creditable for federal equivalency purposes) Therefore, AQMD tracks two

sets of 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 PM 10) has its own federal account and its own

state account. AQMD’s NSR program is considered to provide equivalent or greater off

sets of emissions as required by federal and state requirements for each subject pollutant

provided the balance of credits left in AQMD’s accounts for each pollutant does not be

come negative, indicating that there were adequate offsets available.

Credit Accounting

When emissions from a permitted source are permanently reduced (e.g., installation of

control equipment, removal ofthe source) and the emission reduction is not required by

rule or law and is not called for by an Air Quality Management Plan (AQMP) control

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measure that has been assigned a target implementation date 6,the permit holder may ap

ply for ERCs for the pollutants reduced. Prior to issuing an ERC, AQMD “discounts” the

reduction to the level ofreduction that would have been realized ifthe source had been

operating at current BACT levels. The difference between the actual quantified emission

reduction and the amount ofERCs issued are credited to AQMD’s account of available

offsets. Additionally, ifthe permit holder for the source generating the emission reduc

tion had previously received offsets from an AQMI) account or has a “positive balance”

(i.e., net emission increase), the quantity of AQMD credits used or the amount ofthe

positive balance is subtracted from the reduction and “paid back” to AQMD’s accounts

prior to issuance of an ERC pursuant to Rule 1306. Finally, permit holders do not 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, it is only practical for AQMD to track orphan reductions associated

with the shutdown of equipment (orphan shutdowns), so these are the only orphan reduc

tions actually credited to AQMJ)’s accounts.

Debit Accounting

On the other hand, AQMD also tracks all emission increases that are offset through the

Priority Reserve or the Community Bank, as well as all increases that are exempt from

offset requirements pursuant to Rule 1304 — Exemptions These mcreases are all de

ducted from AQMI)’s accounts As discussed above, AQMD uses an offset ratio of 1 2— )

to-i for its federal accounts. That is, 1.2 pounds are deducted from AQMI)’s federal ac

counts for each pound ofpermitted increase at a 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 ofpermitted potential to emit

Thus, 08 pounds are deducted from AQMD’s state accounts for each pound ofpermitted

increase There is another source of debits from AQMD’s offset accounts in addition to

the permitted emission increases described above. This debit occurs in a situation where

a permit that was previously inactivated due to nonpayment offees and deemed an orphan

shutdown is reactivated. These special reactivations are debited from AQMD’s federal

and state accounts at a one-to-one offset ratio (the same ratio at which orphan shutdowns

are credited).

The various sources of credits to and debits from the federal and state offset accounts are

discussed in greater detail in Appendix A.

6 Refer to Rule 1309(b)(4) for a 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.

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DEMONSTRATION OF EQUWALENCE WITH FEDERAL OFFSET

REQUIREMENTS

Table 3 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) for the federal accounts is displayed in TableS.

Table 3

Credits 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 4

Debits 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 1 805 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 to or subtracted from, re

spectively, the starting federal account balance for each pollutant to determine compli

ance with federal NSR requirements. Refer to Table 1 for a summary ofstarting and

ending federal account balances for the August 1999 through July 2000 time period.

Below Exemption Threshold (lb/day) 0 0 0 0

Community Bank

Table5

Net 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

REQUIREMENTS

Table 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) for the state accounts is displayed in Table 8.

Table 6

Credits 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 7

Debits from AQMD’s State Offset Accounts (August 1999 through July 2000)

Positive Balance Adjustment via ERC (lb/day) I 0.1 0

Below Exemption Threshold (lb/day)J 13,840

Other Exemptions (lb/day)

981 •0

813

Priority Reserve (lb/day) 1

1,776

610

—

28 964

275

208

934 174 I .8f3

1.

6

• 73

0

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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 any net debits from this analysis are added to or subtracted from, re

spectively, the starting state account balance for each pollutant to determine compliance

with state NSR requirements. Refer to Table 2 for a summary ofstarting and ending state

account balances for the August 1999 through July2000 time period.

)

CONCLUSIONS

The analysis presented in this, report demonstrates that AQMI)’s NSRprogram provides

equivalent offsets to those required by federal and state NSR requirements and is equiva

lent to the federal and state requirements on an aggregate basis. AQMD’s federal offset

accounts appear to have balances adequate for the potential demand that may be experi

enced in the foreseeable future. The majority ofsources subjectto AQMD’s permitting

program are not major stationary sources and, therefore, not subject to federal offset re

quirements. Balances in AQMD’s state accounts also seem to be adequate for the fore

seeable future, and staffwill continue to monitor and report back to the Board their status.

The pollutant of greatest concernis NOx. The state NOx balance was 4.74 tons per day

at the beginning ofthe reporting period and was reduced by 0.44 ton per day during the

twelve months covered by this report. AQMI)’s state VOC account also needs to be

closely monitored even though the balance (50.34 tons per day at the beginning ofthe re

porting period) is significantly higher than the NOx balance. The reason for concern re

garding the VOC account is that it has been experiencing a greater rate of 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 ton per 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

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Staffwill continue to track credits to and 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 to and Debits from AQMD’s Emission Offset Accounts

Sources of Credits to and 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 for an emission reduction not be “greater than

the equipment would have achieved if operating with current [BACT].” In other

words, ERCs are only issued for the portion ofthe emission reduction beyond what

would be achieved by the installation of current BACT on the source providing the re

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 ofERC-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 that all ofthe 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 to the facility generating the

emission reduction;

• All Priority Reserve allocations previously issued to the facility generating the

emission reduction; and

All offsets obtained by the 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 and are 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, and are not 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 to be credited to AQMD’s offset accounts is dependent on the na

ture ofthe offsets originally used for the source that has shut down and is generating

the emission reduction:

Ifthe shut down source was originally offset from the Community Bank, the Pri

ority Reserve, or a Rule 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 at a

source where a prior permit for the same source obtained offsets from the Com

munity Bank, the Priority Reserve, or a Rule 1304 exemption.

• The quantity of offsets to be credited to AQMD’s offset accounts for orphan shutdowns other than those described above was calculated on a case-by-case basis

from the following two cases, whichever results in lower emissions:

• Twenty-three percent 8ofthe amount originally offset for the source in NSR; or

• Twenty-three percent oftwenty-four times the hourly controlled emissions

from the source as recorded in AQMD’s automated emission inventory system

(AEIS).

This provides a very conservative approach to ensure that the creditable emission re

ductions are not overestimated.

D. Negative NSR Balances

Prior to the 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 or fa

cility modifications, over controls, or shutdowns. The 1990 amendments toRegula

tion XIII specified that all negative NSR balances be reduced by eighty percent and

converted to ERCs. The eighty percent portion ofthe negative balances from all such

facilities were used to fund both AQMD’s federal and state offset accounts. This was

a one-time source offunding for the federal and state offset accounts and is not on

going.

Sources of Emission Increases Debited from AQMD Accounts

A. Priority Reserve

Pursuant to AQMD Rule 1309.1, essential public services (e.g., sewage treatment fa

cilities, police and fire fighting facilities, schools) are not required to provide emission

S An eight hour per day, five days per week, fifty weeks per year operating schedule represents twenty-three percent

ofthe operating time of a twenty-four hour per day, seven days per week, fifty-two weeks per year operating

schedule. -

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offsets in the form ofERCs when they receive permits involving emission increases.

• Instead, AQMD provides their offsets through the Priority Reserve. These offsets are

deducted from AQMD’s federal (for the case ofmajor 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 per day ofVOCs;

• 40 pounds per day ofNOx;

• 60 pounds per day of SOx;

• 220 pounds per day of CO; and -

• 30 pounds per day 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 and all 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 in or after February 1996. Facilities with aggregate potential to emit below

these thresholds are eligible to receive emission offsets from AQMD’s offset ac

counts, up to the levels ofthe thresholds. The exemption thresholds specified in Rule

1304 are as follows:

• 4 tons per year ofVOCs;

• 4 tons per year ofNOx;

• 4 tons per year of SOx;

• 4 tons per year of PM1O; and

• 29 tons per year of CO.

Rule 1304 also includes offset exemptions for a variety ofsource types such as re

placement of ozone-depleting compounds, methyl bromide fumigation, emergency

equipment, and certain modifications and process changes implemented to reduce is

suance of air contaminants. The majority ofthese 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.

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Note that only offsets provided to sources at major stationary sources are deducted

from AQMI)’s federal accounts.

D. Special Permit Reactivations

In a few 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.

)

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