Robert J. Huston, Chairman

R. B. "Ralph" Marquez, Commissioner

Kathleen Hartnett White, Commissioner

Jeffrey A. Saitas, Executive Director

Rt'-",r-!,vt.-O r f'~' , Lt· .- b ~'UL

AIR PLANNING SEC

02 JUL 22 PH 3: 36

TEXAS NATURAL RESOURCE CONSERVATION COMMISSION

Protecting Texas by Reducing and Preventing Pollution

July 15, 2002

Mr. Gregg Cooke

Regional Administrator

U.S. Environmental Protection Agency, Region 6

1445 Ross Avenue

Dallas, Texas 75202-2733

Dear Mr. Cooke:

Enclosed are proposed revisions to the Texas State Implementation Plan (SIP) that the Texas Natural Resource

Conservation Commission (Commission) adopted on March 13, 2002.

The Commission adopted amendments to §lO1.302 and §lO1.372, and new §lO1.338 and §lO1.357 in Chapter

101, General Air Quality Rules; Subchapter H, Emissions Banking and Trading; and corresponding revisions to

the SIP in order to control ground-level ozone and other criteria pollutants in nonattainment areas in the state.

Section 101.357 applies in the Houston/Galveston (HGA) nonattainment area to allow substitution of nitrogen

oxides emissions reductions accomplished under the Texas Emissions Reduction Plan (TERP) for those otherwise

required under the rules ofthe Commission and the SIP; and §§101.302, 101.338, and 101.372 allow substitution

of emission reductions of criteria pollutants accomplished outside the United States for reductions in such

pollutants within Texas if it is determined that the substitution is of greater benefit to the area.

The Commission also adopted new §117.571 in Chapter 117, Control ofAir Pollution from NitrogenCompounds;

Subchapter E, Administrative Provisions; and corresponding revisions to the SIP to allow the substitution of

emissions reductions accomplished under the TERP for nitrogen oxides emissions reductions required in the HGA

and Dallas/Fort Worth nonattainment areas under other Commission rules and the SIP. This rule also specifies

the conditions, under which, owners and operators may use TERP reductions. The TERP was established by

Senate Bill 5 from the 77th Texas Legislature, 2001.

Public hearings certifications, complete records of the public hearings, and the accompanying orders are also

enclosed. I look forward to your expeditious approval of these SIP revisions.

RJP/lb

cc: The Honorable Rick Perry, Governor of Texas

Ms. Wendy Wyman, Environmental and Natural Resources Policy Director, Office of the Guvernor

Mr. Jeffrey A. Saitas, P.E., Executive Director, Texas Natural Resource Conservation Cor1lI11lssion

Enclosures

P.O. Box 13087 • Austin, Texas 78711-3087 • 512/239-1000 • Internet address: www.tnrcc,,,tdtctXUi
TEXAS NATURAL RESOURCE CONSERVATION COMMISSION

THE STATE OF TEXAS §

COUNTY OF TRAVIS §

This is to certify that the attached are true and correct copies of a revision to the Texas State

Implementation Plan, adopted on March 13, 2002, pursuant to 40 Code of Federal Regulations (CFR)

§51.104. Prior to the adoption ofthis revision, public hearings were heldpursuant to 40 CFR, §51.102(a),

and notice of the hearings was given which conformed to the requirements of 40 CFR, §51.102(d). I am

the custodian of the records of the Texas Natural Resource Conservation Commission (Commission).

To certify which, witness my hand and the seal of the Commission, this the 15th day ofJuly,

2002.
Texas Natural Resource

Conservation Commission

Public Hearings

December 17 and 18, 2001

Concerning revisions to 30 TAC Chapter 101

and the State Implementation Plan

Rule Log Number 2001-063-101-AI

SB 1561: Air Emissions Trading Across International Borders
INTRODUCTION

The Texas Natural Resource Conservation Commission (commission) held two public hearings: 1.) on

December 17, 2001 at 7:00 p.m. at the City Council Chambers, 2nd Floor, 2 Civic Center Plaza in EI

Paso; and 2.) on December 18, 2001 at 7:00 p.m. at the City Hall Chambers, 2nd Floor, 901 Bagby in

Houston to receive testimony concerning amendments to amendments to §101.302, General Provisions and

§101.372, General Provisions; and new §lO1.338, Emission Reductions Achieved Outside the United

States and §101.357, Use of Emission Reductions Generated from the Texas Emissions Reduction Plan

(TERP) and corresponding revisions to the State Implementation Plan (SIP).

The revisions are adopted in order to control ground-level ozone and other criteria pollutants in

nonattainment areas in the state, and to implement Senate Bill (SB) 5 and SB 1561, 77th Legislature, 2001.

Section 101.357 applies in the Houston/Galveston nonattainment area and allows substitution of nitrogen

oxides emissions reductions accomplished under the TERP for those otherwise required under the rules of

the commission and the SIP; and §§101.302, 101.338, and 101.372 allow substitution of emission

reductions of criteria pollutants accomplished outside the United States for reductions in such pollutants

within Texas if it is determined that the substitution is of greater benefit to the area.

The comment period closed on January 7, 2002 All testimony and comments have been reviewed and

seriously considered. This hearing record contains a complete record ofthe public hearings and is divided

into the following four sections:

o Public Notification and Proposal

o Written and Oral Testimony

o Evaluation of Testimony

o Staff Recommendations

Additional copies of this hearing record are maintained in the TNRCC central office at 12100 Park 35

Circle, Austin, Texas 78753. For further information, please contact Alan Henderson at (512) 239-1510.
PUBLIC

NOTIFICATION AND

PROPOSAL
PUBLIC NOTIFICATION

Notification to the public of the proposed revisions was conducted by the following procedures:

1. Publication of notice of public hearings in the following newspaper on the date listed:

El Paso Times; November 14, 2001

Houston Chronicle; November 11, 2001

2. Publication of the proposed rules in the November 23, 2001 issue of the Texas Register

(26 TexReg 9513)

3. Publication of the Notice of Public Hearing in the November 23, 2001 issue of the Texas Register

(26 TexReg 9656)

4. Correspondence forwarding the notice of public hearings to the following officials and agencies:

Speaker of the House

Lieutenant Governor

City of El Paso

City of Houston

City of Victoria Planning Department

Dallas Department of Health and Human Services

EI Paso City-County Health District

El Paso County Judge

Federal Highway Administration

Fort Worth Public Health Department
Galveston County Health District

Houston Department of Health and Human Services

Harris County Judge

Harris County Pollution Control Department

North Central Texas Council of Governments

Houston-Galveston Area Council

South East Texas Regional Planning Commission

Texas Department of Transportation

Texas Transportation Institute

Arkansas Department of Pollution Control and Ecology

Louisiana Department of Environmental Quality

New Mexico Air Quality Bureau

Oklahoma Department of Environmental Quality

U. S. Environmental Protection Agency
EXAMPLE OF

NEWSPAPER CLASSIFIED AD

\'

\"

legal Nolicei'::.,'j:(152

NOTICE OF PUBLIC

HEARINGS BY THE

TEXAS NATURAL

RESOURCE CONSERVATION COMMISSION

ON PROPOSED REVISIONS TO 30" TAC

CHAPTER 101 AND TO

THE STATE IMPLEMENTATION' "PLAN

(SIP)" The Texas Natural Re- source Can'servation

Commission "Jcommission) will con uct public hearings to receive

testimony regarding revisions to 30 TAC

Chapter 101 and to the

State Imrlementation

Plan (SIP under the.

requirements of theI

Texas Health and Safe-

!YCode, 382.017; Texas

Government Code, Subchapter B, Chapter 2001;. and 40 Code of

Federal Regulations, 51.102, of tne Unitea

Slates Environmental

Protection Agency

(EPA) regulations con- cerning SIPs. The

amendment to Chapter 101 is proposed as a re- vision to the SIP.

The amendments to 101.302,. General Provisions and 101.372, General Provisions; ond new 101.338, Emission

Reductions Achieved

Outside the United

Slates and 101.357, Use

of Emission Reductions

Generated from the

Texas Emissions Reduction Plan (TERP) are proposed in order to control ground-level OIane and other criteria

pollutants in nonaHain- ment (NA) areas in the state. . Some proposed revIsions to Chapter 101

would apply in the

Houston/Golveston NA area to allow substitution of nilrogen oxides

emissions reductions

accaml?lished under

the TERP for those

otherwise refluired un- der the rules" of the

ca"mmission and the

SIP, the other proposed revIsions would allow

substitution of emission

reductions in NA pol- "Iutants accomplished

outside the United

Slates for reductions in

such pollutants within

Texas if the executive

director and EPA determine that the substitution is of greater benefil to the area. " , The commission will

hold fwo public hearings on thIs proposal at the following locations

and times: I) in EI Paso on December 17t 2001, at 7:00 p.m., City oun- eil Chambers, 2nd

Floor,2 Civic Center

PlaIa; and 2) in Hous- ton on December 18,

2001, at 7:00 p.m., CitY.

Hall Chambers, 2na

Floor, 901 Bagby: The

hearings will lie struc- tured for the receipt of

oral or written com- ments by interested

persons. Registration will begin one hour pri- or to each hearing. Individuals may present oral statements when

called upon i,:,. order '?f

El Paso Times

November 14,2001

regisi~aiio-;'-" -ih.e~;-·,!"ili

be .no open dlscus~lon

dunng the' he9nrg; however, commiSSion

stoff members will be

available to discuss the

proposal one hour be- tore each hearing and

will answer guestions belore and alter each

hearing.

Persons with disabilities who have special communication or oth- er accommodation

needs; and who· are 'planning to attend a hearing.. should contact .,the Office of .Environmental Policy, Analy- sis and Assessment at (5 !2) 239-4900. Requests should be mode as for in advance as possible.

WriHen comments may be submilled to. Patri-

. cia Duron, OffIce of

Environmental Policy, Analysis, and Assess- ment MC 205, P.O. Box

13087, Austin, Texas

78711-3087; or by lox at (512) 239-4808.• All comments must be re- ceived bi' 5:00 p.m., Janua!'Y 7 2002 ana should re(erence' Rule

Log Number 2001-063-

lOT-AI. For further information, please con- tact Beecher"Cameron at (5121239-1495 or Joseph Thomas at (512) 239-4580.

Issued in Austin, Texas on November 7, 2001
Litigation Division, MC R-12, (713) 22-8918; REGIONAL OFFICE:

Houston Regional Office, 5425 Pol Ave., Suite H, Houston, Texas

77023-1486, (713) 767-3500.

(4) COMPANY: DallasIFort Wo International Airport Board;

DOCKET NUMBER: 2000-0799-1 D- E; TNRCC ID NUMBERS:

72593 and 01441; LOCATION: 200 East Airfield Drive, DFW

Airport, Dallas County and Tarrant ounty, Texas; TYPE OF FACILITY: international airport; RULES IOLATED: TWC, §26.I21, by

allowing the unauthorized discharg of waste into waters in the state

from the stormwater conveyance s stem that discharged into Trigg

Lake; TWC, §26.121, by allowin the unauthorized discharge of

waste into waters in the state-from e detention basin that contained

anti- icing and de-icing chemical; PENALTY: S9,375; STAFF

ATTORNEY: David Speaker, Liti ation Division, MC 175, (512)

239-2548; REGIONAL OFFICE: D lias-Fort Worth Regional Office,

2301 Gravel Drive, Forth Worth, Te as 76010-6499, (817) 588-5800.

(5) COMPANY: Live Oak Resort, I c.; DOCKET l'.'UMBER: 2000-

0280-MLM-E; TNRCC ID NUMB R: 2390050; LOCATION: 9751

Lone Star Road, Washington, Was ngton County, Texas; TYPE OF

FACILITY: public water system; RU ES VIOLATED: 30 TAC §330.5

and §3 I204, and TWC, §26. I21, b allowing the unauthorized discharge or imminent threat of disch rge of municipal solid waste including grit trap and septic tank was e into or adjacent to any water in

the state; 30 TAC §290. I06, and TH C, §341.033(d), by failing to submit monthly and repeat water sampl s for bacteriological analysis and

by failing to provide public notice 0 the failure to sample; PENALTY:

$5,438; STAFF ATTORNEY: Elisa oberts, Litigation Division, MC

175, (512) 239-6939; REGIONAL FFICE: Waco Regional Office,

6801 Sanger Ave., Suite. 2500, Wa 0, Texas 76710-7826, (254) 751-

0335.

(6) COMPANY: NL Industries, Inc., and Mainland Land & Equipment

Co.; DOCKET NUMBER: 1997- 214-IHW-E; TNRCC to NUMBER: 38182; LOCATION: 1000 Sa ent Road, Dallas, Dallas County,

Texas; TYPE OF FACILITY: forme secondary lead smelter; RULES

VIOLATED: 30 TAC §335A, by c sing, suffering, allowing, and/or

permitting the collection, handling, torage, processing, or disposal of

industrial solid waste or municipal hazardous waste in such a manner so as to cause the discharge 0 imminent threat of discharge of

industrial solid waste or municipal azardous waste into or adjacent

to waters in the state; TWC, §26.12 ,by causing, suffering, allowing,

and/or permitting the discharge of aste into or adjacent to waters in

the state; TWC, §26.266(a), by faili g to undertake all reasonable actions to abate and remove a discha e; PENALTY: SI5,OOO; STAFF

ATTORNEY: Booker Harrison, Li gation Division, MC 175, (512)

239-4113; REGIONAL OFFICE: lias-Fort Worth Regional Office,

230 I Gravel Drive, Forth Worth, Te as 760 I0-6499, (817) 588-5800.

(7) COMPANY: Samuel Alba d a Alba's Custom Iron Works;

DOCKET NUMBER: 2001-1358- IR-E; TNRCC ID NUMBER:

HX-1453-V; LOCATION: 7105 Iton, Houston, Harris County,

Texas; TYPE OF FACILITY: ste I manufacturing plant; RULES

VIOLATED: 30 TAC §IOIA, and THSC, §382.085(a) and (b), by

failing to prevent paint spray odor e issions from creating a nuisance

to the citizens in the area; 30 T C §115A26(1)(B) and (D), and

THSC, §382.085(b), .by failing to eep records of quantity and type

of each coating used and failed t keep records for two years; 30

TAC §116.110(a), and THSC, §3 2.0518(a) and §382.085(b), by

conducting outdoor surface coating perations without first obtaining

a permit or satisfying the conditi s of a permit-by-rule; 30 TAC

§115.421 (a)(9)(A)(ii), and THSC, §382.085(b), by failing to meet

volatile organic compound limit 0 3.5 pounds per gallon delivered

to the application system as a 10 bake coating, or that utilizes

air or forced air driers; PENALT : $3,000; STAFF ATTORNEY:

Laurencia Faso)iro, Litigation Di sion, MC R- 12, (713) 422-8914;

REGIONAL OFFICE: Houston egional Office, 5425 Polk Ave.,

Suite H, Houston, Texas 77023-14 6, (713) 767-3500.

(8) COMPANY: Union Tank Car Company; DOCKET NUMBER:

1999-0916-AIR-E; TNRCC to N BER: HG-081 I-R; LOCATION:

16923 Old Beaumont Highway 9 , Houston, Harris County, Texas;

TYPE OF FACILITY: rail tank car manufacturing and cleaning

.facility; RULES VIOLATED: 30 AC §1l6.1l5(c), TNRCC Permit

Number 5566, Special Conditions 0 and 27, and THSC, §382.085(b),

by failing to route emissions fro each hydrocarbon tank cleaning

operation to the hydrocarbon fla ,and also by failing to control

avoidable gaseous leaks during ra tank car cleaning operations; 30

TAC §1l6.110(a), and THSC, § 82.0518(a) and §382.085(b), by

modifying, and then operating its lant to include a tank car cleaning

operation without authorization from the TNRCC; PENALTY:

$17,500; STAFF ATTORNEY: J es Biggins, Litigation Division,

MC R-13, (210) 403-4017; REGI NAL OFFICE: Houston Regional

Office, 5425 Polk Ave., Suite H, ouston, Texas 77023-1486, (713) .

767- 3500.

TRD-200106991

Paul Sarahan

Director, Litigation Division

Texas Natural Resource Conservati n Commission

Filed: November 13, 2001

. .

Notice of Public Hearing on Proposed Revisions to 30 TAC

Chapter 101 and to the State Implementation Plan

The Texas Natural Resource Conservation Commission (commission)

will conduct public hearings to receive testimony regarding revisions to

30 TAC Chapter 101 and to the SIP under the requirements ofthe Texas

Health and Safety Code, §382.QI 7; Texas Government Code, Subchapter B, Chapter 2001; and 40 Code of Federal Regulations, §5I.102, of

the United States Environmental Protection Agency (EPA) regulations

concerning SIPs. The amendment to Chapter 101 is proposed as a revision to the SIP.

The amendments to §I0 1.302, General Provisions and §I0 1.372, General Provisions; and new §101.338, Emission Reductions Achieved

Outside the United States and §101.357, Use of Emission Reductions

Generated from the Texas Emissions Reduction Plan (TERP) are proposed in order to control ground-level ozone and other criteria pollutants in nonattainment (NA) areas in the state.

Some proposed revisions to Chapter 101 would apply in the Houston/Galveston nonattainment (NA) area to allow substitution of nitrogen oxides emissions reductions accomplished under the TERP for

those otherwise required under the rules of the commission and the

SIP; the other proposed revisions would allow substitution of emission

reductions in NA pollutants accomplished outside the United States for

reductions in such pollutants within Texas ifthe executive director and

EPA determine that the substitution is of greater benefit to the area.

The commission will hold two public hearings on this proposal at the

following locations and times: 1.) in EI Paso on December 17,2001

at 7:00 p.m. at the City Council Chambers, 2nd Floor, 2 Civic Center

Plaza; and 2.) in Houston on December 18,2001 at 7:00 p.m. at the

City Hall Chambers, 2nd Floor, 90 I Bagby. The hearings will be structured for the receipt oforal or written comments by interested persons.

Registration will begin one hour prior to each hearing. Individuals may

present oral statements when called upon in order ofregistration. There

will be no open discussion during the hearing; however, commission

staff members will be available to discuss the proposal one hour before

each hearing and will answer questions before and after each hearing.

~26 TexReg 9656 November 23, 2001 Texas Register
Persons with disabilities who have special communication or other accommodation needs, and who are planning to attend a hearing, should

contact the Office ofEnvironmental Policy, Analysis, and Assessment

at (512) 239-4900. Requests should be made as far in advance as possible.

Written comments may be submitted to Patricia Duron, Office ofEnvironmental Policy, Analysis, and Assessment, MC 205, P.O. Box 13087,

Austin, Texas 78711-3087; or by fax at (512) 239-4808. All comments

must be received by 5:00 p.m., January 7, 2002 and should reference

Rule Log Number 2001-063-101-AI. For further information, please

contact Beecher Cameron at(512) 239-1495 orJoseph Thomas at (512)

239-4580.

TRD-200106959

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Filed: November 12, 2001

Notice ofPublic Hearing on P posed Revisions to 30 TAC

Chapter I 17 and to the State I plementation Plan

The Texas Natural Resource Cons rvation Commission (commission)

will conduct pubHc hearings to rec ve testimony regarding revisions to

30 TAC Chapter 117 and to the SIP nder the requirements ofthe Texas

Health and Safety Code, §382.017; exas Government Code, Subchapter B, Chapter 2001; and 40 Code fFederal Regulations, §51.102, of

the United States Environmental P tection Agency (EPA) regulations

concerning SIPs. The amendment 0 Chapter 117 is proposed as a revision to the SIP.

New §117.57I, Use of Emission Reductions Generated From the

Texas Emissions Reductions Plan (TERP) would allow substitution

of reductions of nitrogen oxide e issions under the TERP for those

otherwise required in the Dallas/ ort Worth and Houston/Galveston

nonattainment areas.

The commission will hold two pu lie hearings on this proposal at the

following locations and times: I.) i Houston on December 18,2001 at

7:00 p.m. at the Houston City Hal Chambers, 2nd Floor, 901 Bagby;

and 2.) in Irving on December 2 , 2001 at 7:00 p.m. at the City of

Irving Central Library Auditoriu 801 West Irving Blvd. The hearings will be structured for the rec pt of oral or written comments by

interested persons. Registration ill begin 30 minutes prior to each

hearing. Individuals may present al statements when called upon in

orderofregistration. There will be 0 open discussion during the hearings; however, commission staff mbers will be available to discuss

the proposal 30 minutes before eac hearing and will answer questions

before and after each hearing.

Persons with disabilities who have pecial communication or other accommodation needs, and who are lanning to attend a hearing, should

contact the Office of Environment I Policy, Analysis, and Assessment

at (512) 239-4900. Requests shoul be made as far in advance as possible.

Written comments may be submitt d to Patricia Duron, Office ofEnvironmental Policy, Analysis, and As essment, MC 205, P.O. Box 13087,

Austin, Texas 78711-3087; or by f: at (512) 239-4808. All comments

must be received by 5:00 p.m. 0 January 7, 2002 and should reference Rule Log Number 2001-02 d-l J7-AI. For further information,

please contact Beecher Cameron a (512) 239-1495, or Joe Thomas at

(512) 239-4580.

TRD-200106960

Stephanie Bergeron

Director, Environmental Law Divisi n

Texas Natural Resource Conservat n Commission

Filed: November 12, 2001

Public Notice - State Superfun Registry

The Texas Natural Resource Con ervation Commission (TNRCC or

commission) is required under th Texas Solid Waste Disposal Act,

Texas Health and Safety Code, Ch ter 361 (the Act) to identify, to the

extent feasible, and evaluate facili ies which may constitute an imminent and substantial endangerment 0 public health and safety or to the

environment due to a release or t eatened release of hazardous substances into the environment. The first registry identifying these sites

was published in the Texas Regist r on January 16, 1987 (12 TexReg

205). Pursuant to the Act, §36I 18 I, the commission must update

the registry (state Superfund regi try) annually to add new facilities

in accordance with the Act, §361. 84(a) and §361.1 88(a)(I) (see also

30 TAC §335.343) or to delete fa i1ities in accordance with the Act,

§361.189 (see also the Act, §361. 83(a) and 30 TAC §335.344). The

current notice also includes faciliti s where state Superfund action has

ended, or where cleanup is being a equately addressed by other means.

Pursuant to the Act. §361.188. the tate Superfundregistry identifying

those facilities that are listed an have been determined to pose an

imminent and substantial endange ment in descending orderofhazard

ranking system (HRS) scores are follows.

I.) CoI-Tex Refinery. Located on oth sides of Business Interstate 20

(U.S. 80) in Colorado City, Mitch 11 County: tank farm and refinery.

2.) Precision Machine and Supp '. Located at 500 West Olive Street,

Odessa, Ector County: chrome pi ing and machine shop.

3.) Sonies International, Inc. L cated north of Farm Road lOI, approximately two miles west of nger, Eastland County: industrial

waste injection wells.

4.) Maintech International. Lo ated at 8300 Old Ferry Road, Port

Arthur, Jefferson County: chemi I cleaning and equipment hydroblasting.

5.) Federated :\-Ietals. Located at 200 Market Street, Houston, Harris

County: magnesium dross/sludge isposal, inactive landfill.

6.) Gulf Metals Industries. Lo ated on Telean Street, northeast of

the intersection of Mykawa Road nd Almeda-Genoa Road, Houston,

Harris County: disposal of hazard us materials.

7.) Texas American Oil. Locate approximately three miles north of

Midlothian on Old State Highway 7, Ellis County: waste oil recycling.

8.) Niagara Chemical. Located est ofthe intersection ofCommerce

Street and Adams Avenue, Harlin en, Cameron County: pesticide formulation.

9.) International Creosoting. Lo ated at 1110 Pine Street, Beaumont,

Jefferson County: wood treatmen .

10.) McBay Oil & Gas. Located pproximately three miles northwest

of Grapeland on Farm Road 127 ,Houston County: oil refinery and

oil reclamation plant.

II.) Solvent Recovery Services Located at 5502 FM 521 approximately 0.2 mile south of its inters ction with Highway 6, Arcola, Fort

Bend County: paint solvent recyc ing.

12.) Toups. Located on the west ide of Texas 326, 2.1 miles north of

its intersection with Texas 105, in our Lake, Hardin County: fencepost

treating facility and municipal w teo

• •

• •

IN ADDITION November 23, 2001 26 TexReg 9657
§500.805. Administration and L e ofFunds.

Thepennanentendow nent fund is composed of:

ill money transferred t the direction of the legislature'

ill gifts and grant contributions which may be solicited and

accepted bv the comptroHer or the Center subiect to any limitation or

requirement placed on the gift or , ant by the donor or granting entity;

ill investment returns and .

ill amounts recovered for breach of contract.

!Q} The fund may be admi istered bv the Center or at the Center's option, the ComptroHer.

{f2 The Center or the Co DotroHer shaH invest the fund in a

manner intended to preserve the p rchasing power ofthe fund's assets

and the fund's annual distribution.

@ Annual fund distribut ons shalI be detennined by the investment and distribution policy dooted bv the administrator of the

fund's assets.

The amount available for distribution from the fund, including any gift or grant may b aoorooriated only for stioend and

loan reimbursement provisions or und management expenses.

ill The Center shalI prov de a reoort on the endowment fund

to the Legislative Budget Board nc later than November 1 of each year.

pOO.807. Contracts.

A health professional may receive assistance under this

subchapter only if the health profi ssional signs a contract agreeing to

provide health care services in a n edicalIv underserved communitv.

!Q} A student enrolled in health orofessional degree program

may contract with the Center for tt loan reimbursement program prior

to obtaining the license required t practiCe as a health professional.

{f2 The Center may con act with a health professional for

part-time services under the stioe d program.

@ A health professional that participates in any loan reimbursement Program is not eligible for a stipend.

A contract under this s ction must orovide that a health professional that does not Provide the reauired services to the community

or provides those services for Jess than the required time is personally

liable to the state for:

ill two times the total mount of assistance the health orofessional received from the Center nd the medicalIv underserved community; -

ill interest on the am unt eaualto the prime rate accrued

quarterly; and

ill the state's reason Ible exoenses incurred in obtaining

payment including a reasonable tomey's fees' and

ill The participating heal professional must establish an office and residence in the medicall underserved area before receiving

any portion of the stipend.

§500.809. Advisory Committee.

The Advisory Committee is appe inted bv the Center to assist in the

Center's duties. The advisory pan I must consist of at least the foHowi!!.&:.

ill one representative from the Texas Higher Education

Coordination Board;

ill one representative rom the institutions of higher education that offer degrees in healthorofessions that are relevant to the

Investment Program;

ill one reoresentative om a hosnital in a medicalIv underserved community;

ill one physician ora ticing in a medicalIv underserved

community;

ill one health professi nal other than a ohvsician, PractiCing in a mediCally underserved co bmunitv: and

@ one public represen ~tive who resides in a medicalIv underserved community.

This agency hereby certifies tha the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Sec etary of State, on November 6,

2001.

TRD-200106849

Mike Easley

Executive Director

Center for Rural Health Initiatives

Earliest possible date of adoption: ecember 23, 2001

For further information, please call: (512) 479-8891

• •

TITLE 30. ENVIRONMENTAL QUALITY

PART 1. TEXAS NATURAL RESOURCE

CONSERVATION COMMISSION

CHAPTER 101. GENERAL AIR QUALITY

RULES

SUBCHAPTER H. EMISSION BANKING AND

TRADING

The Texas Natural Resource Conservation Commission

(commission) proposes amendments to §101.302, General

Provisions and §101.372, General Provisions; new §101.338,

Emission Reductions Achieved Outside the United States and

§101.357, Use of Emission Reductions Generated from the

Texas Emissions Reduction Plan (TERP) and corresponding

revisions to the state implementation plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS

FOR THE PROPOSED RULES

The commission proposes these amendments and new sections

in order to control ground-level ozone and other criteria pollutants

in nonattainment (NA) areas in the state, and to implement Senate Bill 5 (SB 5) and SB 1561, 77th LegiSlature, 2001.

The 77th Legislature adopted SB 5 to establish and provide

for the administration of the Texas Emissions Reduction Plan

(TERP). The TERP is a comprehensive plan to reduce emissions of air contaminants from mobile sources. The program

offers subsidies for the replacement of older diesel engines

with more efficient diesels with lower emissions and for the

purchase of automobiles with low emissions. The program is

funded in part through surcharges and fees on the lease, sale,

and registration of certain diesel powered vehicles. The plan is

PROPOSED RULES November 23, 2001 26 TexReg 9513
also partially funded by contributions from owners or operators

of stationary sources of nitrogen oxides (NO,) in the Houston/Galveston (HGA) or Dallas/Fort Worth (DFW) areas. These

owners or operators may substitute emissions reductions made

under the plan for those reductions otherwise required under

the commission's rules and make a contribution to the fund

based on the amount of emissions reductions substituted. This

proposed rulemaking would implement the relevant portions of

SB 5 concerning these contributions to the TERP fund in the

HGA area and are described in greater detail in the SECTION

BY SECTION DISCUSSION portion of this preamble.

This ru!emaking also implements the provisions ofSB 1561. This

legislation allows surplus emission reductions achieved outside

the United States to satisfy emission reduction requirements in

Texas by allowing reductions in one air contaminant to substitute for reductions in another criteria pollutant under specific conditions described in the SECTION BY SECTION DISCUSSION

portion of this preamble.

SECTION BY SECTION DISCUSSION

The proposed amendments to §1 01.302 address the relationship of the requirements of S8 1561 and the generation of emission reduction credits (ERCs). The amendments would allow

emission reductions from facilities located outside the United

States to be used to meet the requirements for reductions in

another pollutant in Texas, provided the substitution results in

a greater health benefit or is of equal or greater benefit to the

overall air quality of the area. The executive director (ED) would

make this determination. The proposal involves the substitution

of a reduction of a criteria pollutant for which the area has been

designated as a NA area for a required reduction for another criteria pollutant for which the area is also designated as a NA area,

and the substitution must clearly result in greater health benefits

for the community as a whole than would reductions at the original facility. In order for the reductions to be eligible for substitution, they must be real, permanent, quantifiable, and surplus

to any applicable international, federal, state, or local law. Reductions of contaminants other than volatile organic compounds

(VOG) and NO, would not qualify as ERCs.

Proposed new §101.338 would apply the provisions of S8 1561

to the existing emission credit system for electric generating facilities created under the implementation of S8 7 from the 76th

Legislature, 1999. This new section would allow the substitution

of reductions of one criteria pollutant for another criteria pollutant prOVided the substitution meets the same requirements as

stated in the description of §101.302.

Proposed new §101.357 would allow site owners or operators in

the HGA NA area to defer a portion of their required NO, emissions under applicable commission rules by using emissions reductidns generated under the TERP. The TERP reductions may

be used if the owner or operator does the following: contributes

to the TERP fund $75,000 per ton of NO, reductions used, not

to exceed 25 tons per year (tpy) or 0.5 tons per day (tpd) on a

site-wide basis; demonstrates to the ED that the site will be in full

compliance with applicable rules no later than the fifth anniversary of the date the emissions reductions would have normally

been reqUired; reduces emissions from the site at least 80% from

the established baseline; and receives approval from the ED of

a petition from the owner or operator that demonstrates that it

is technically infeasible to comply with the applicable emission

reductions of 30 TAC Chapter 117, Control of Air Pollution from

Nitrogen Compounds.

The proposed amendments to §101.372 address the relationship of S8 1561 requirements and the generation of discrete

emission reduction credits (DERCs). The proposed amendments allow the substitution of emission reductions in one

criteria pollutant for reductions of another contaminant under

the same restrictions as described for §101.302. Reductions

of contaminants other than VOC and NO, would not qualify as

DERCs.

.. New §117.571, proposed concurrently in Rule Log Number

2001-025d-117-AI, would allow site owners or operators to

defer NO, emissions reductions in the DFW NA area by using

reductions under the TERP. The conditions on the use of these

reductions would be identical to those described for §101.357.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

John Davis, Technical Specialist with Strategic Planning and Appropriations, has determined for each year of the first five-year

period the proposed rulemaking is in effect that there will be no

significant fiscal implications for units of state and local government due to administration and enforcement of the proposed

rulemaking. The commission anticipates that the majority of affected units of government will use less expensive alternatives

for emission reductions than provisions available in this rulemaking. The proposed rulemaking would allow units of state and

local government to use emission reductions generated by the

TERP to help meet required emission reductions. Units of government using these credits would have to remit to the TERP

fund $75,000 per ton of emission reduction credits used.

The proposed rulemaking is intended to implement certain provisions of both S8 5 (an act relating to the TERP) and S8 1561

(an act relating to the acceptance by the commission of certain emissions reductions in exchange for other emissions reduc-"

tions). This rulemaking would implement the provisions in S8 5

that allow affected site owners or operators in the HGA NA area

to defer a portion of their required NO, emissions reductions by

using emissions reductions generated under the TERP. Senate

8i111561 allows affected facilities in Texas to substitute required

emission reductions for reductions in air emissions generated at

facilities outside the United States.

S8 5 established the TERP, providing financial incentives for reducing emissions of on-road and non-road motor vehicles and

equipment, grants for the development of new emission control

technology, and new building energy efficiency standards. The

commission anticipates that the provisions in S8 5 will result in

a pool of excess emission reductions available for purchase. Affected entities that seek to use TERP emission reductions would

have to remit to the TERP fund $75,000 per ton of TERP emission credits used, and each entity would be limited to 25 tpy or

0.5 tpd per site. The maximum annual expense per site forTERP

emission credits would be $1,875,000. Additional requirements

include a demonstration to the ED that the site will be in full

compliance within five years of applicable deadlines, reduction

in emissions from the site by 80% of the established baseline,

and determination by the ED that the required emission reductions are not technically feasible.

Senate 8ill1561 would allow sites in Texas that emit criteria pollutants regulated underthe Federal Clean Air Act (FCAA) (VOCs,

NO, carbon monoxide (CO), sulfur dioxide (SO,), and ten microns (PM,.)), to use emission reductions in criteria pollutants

generated at adjacent facilities across the border in Mexico. In

order to utilize the reductions, the emission reductions would

26 TexReg 9514 November 23, 2001 Texas Register

, ,
have to be quantifiable, real, and surplus to any applicable international, federal, state, or local law and the result would provide a greater health benefit to the area as determined by ·the

ED. An example would be a facility in EI Paso that is required to

reduce its output of NO, by ten tpy. The bill allows this site to

utilize a ten-ton reduction of CO or other criteria pollutant generated at a site across the border in Mexico. Sites would be required to provide regulators with proof detailing the reduction in

Mexico. Because the site in Texas would not have to purchase

these emission reduction credits, there may be cost savings, in

an amount that cannot be determined at this time, for affected

entities that would normally have to make reductions.

The voluntary provisions of the proposed rulemaking would affect over 6,000 pieces of equipment, some of which are owned

and operated by units of state or local government, at sites and

operations operating in the HGA NA area and along the border

with Mexico. Owners and operators of affected equipment would

have the option to utilize the voluntary provisions of this rulemaking to help meet emission reduction requirements. Examples

of equipment and processes at sources that would be affected

by the proposed rulemaking include: electric utility boilers and

stationary gas turbines; industrial commercial institutional (ICI)

boilers and stationary gas turbines; duct burners used in turbine

exhaust ducts; process heaters and furnaces; stationary internal

combustion engines; fluid catalytic cracking units (including catalyst regenerators and CO boilers and furnaces); pulping liquor

recovery furnaces; lime kilns; lightweight aggregate kilns; heat

treating and reheat furnaces; magnesium chloride fluidized bed

dryers; incinerators; and boiler and industrial furnace (BIF) units.

The proposed rulemaking is intended to provide affected facilities

additional compliance options to meet required emission reductions. The decision to utilize provisions in this rulemaking would

be a business decision by owners and operators of affected sites.

The proposed rulemaking does not introduce additional regulatory requirements and is not anticipated to result in significant

fiscal impacts unless affected entities voluntarily seek to utilize

emission reductions generated by the TERP program. The commission does not anticipate significant increases in revenues to

the TERP fund due to implementation of the proposed rulemaking, because the majority of affected entities will utilize less expensive emission reduction compliance alternatives.

PUBLIC BENEFITS AND COSTS

Mr. Davis has also determined that for each of the first five years

the proposed amendments are in effect, the public benefit anticipated as a r~sult of implementing the proposal will be providing

flexibility to those affected sources which will potentially facilitate

the reduction of emissions of NO in the HGA ozone NA area and

along the Texas/Mexico border. '

The proposed rulemaking is intended to implement certain provisions of both SB 5 and SB 1561. This rulemaking would implement the provisions in SB 5 that allows affected site owners

or operators in the HGA NA area to defer a portion of their required NO, emissions reductions by using emissions reductions

generated under the TERP. SB 1561 allows affected facilities in

Texas to substitute required emission reductions for reductions

in air emissions generated at facilities outside the United States.

SB 5 established the TERp, providing financial incentives for reducing emissions of on-road and non-road motor vehicles and

equipment, grants for the development of new emission control

technology, and new building energy efficiency standards. The

commission anticipates that the provisions in SB 5 will result in

a pool of excess emission reductions available for purchase. Affected entities that seek to use TERP emission reduction credits

would have to remit to the TERP fund $75,000 per ton of TERP

emission credits used, and each entity would be limited to 25

tpy or 0.5 tpd per site. The maximum annual expense per site

for TERP emission credits would be $1,875,000. Additional requirements include a demonstration to the ED that the site will

be in full compliance within five years of applicable deadlines,

reductions in emissions from the site by 80% of the established

baseline, and determination by the ED that the required emission reductions are not technically feasible.

Senate Bill 1561 allows sites in Texas that emit criteria pollutants

regulated under the FCAA (VOCs, NO,. CO, SO" and PM,.). to

use emission reductions in criteria pollutants generated at adjacent facilities across the border in Mexico. Sites would be required to provide regulators with proof detailing the emission reduction in Mexico. Because the site in Texas would not have to

purchase these emission reduction credits, there may be cost

savings, in an amount that cannot be determined at this time, for

affected entities that would normally have to make reductions:-

The voluntary provisions of the proposed rulemaking would affect over 6,000 pieces of equipment, the majority of which are

owned and operated by industry, at sites and operations operating in the HGA NA area and along the border with Mexico. Owners and operators of affected equipment would have the option

to utilize the voluntary provisions of this rulemaking to help meet

emission reduction requirements. Examples of equipment and

processes at sources that would be affected by the proposed

rulemaking include: electric utility boilers and stationary gas turbines; lei boilers and stationary gas turbines; duct burners used

in turbine exhaust ducts; process heaters and furnaces; stationary internal combustion engines; fluid catalytic cracking units

(inclUding catalyst regenerators and CO boilers and furnaces);

pulping liquor recovery furnaces; lime kilns; lightweight aggregate kilns; heat treating and reheat furnaces; magnesium chloride fluidized bed dryers; incinerators; and BIF units.

The proposed rulemaking is intended to proVide affected facilities

additional compliance options to meet reqUired emission reductions. The decision to utilize provisions in this rulemaking would

be a business decision by owners and operators of affected sites.

The proposed rulemaking does not introduce additional regulatory requirements and is not anticipated to result in significant

fiscal impacts unless affected entities voluntarily seek to utilize

emission reductions generated by the TERP program.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT

There will be no adverse fiscal impacts for small or micro-businesses, if the affected entities use cheaper alternatives for

emission reductions than provisions available in this rulemaking.

Small or micro-businesses would only incur fiscal impacts if they

voluntarily decided to utilize emissions reductions generated

by the TERP program. The proposed rulemaking is intended

to implement certain provisions of both SB 5 and SB 1561.

This rulemaking would implement the provisions in SB 5 that

allow affected site owners or operators in the HGA NA area

to defer a portion of their required NO, emissions reductions

by using emissions reductions generated under the TERP. SB

1561 allows affected facilities in Texas to substitute required

emissions reductions for reductions in air emissions generated

at facilities outside the United States.

Senate Bill 5 established the TERP, providing financial incentives

for reducing emissions of on- road and non-road motor vehicles

PROPOSED RULES November 23,2001 26 TexReg 9515
and equipment, grants for the development of new emission control technology, and new building energy efficiency standards.

The commission anticipates that the provisions in SB 5 will result in a pool of excess emissions reduction credits available for

purchase. Affected entities that seek to use TERP emissions reduction credits would have to remit to the TERP fund $75,000

per ton of TERP emission credits used, and each entity would

be limited to 25 tpy or 0.5 tpd per site. The maximum annual expense per site for TERP emission credits would be $1,875,000.

Additional requirements include a demonstration to the ED that

the site will be in full compliance within five years of applicable

deadlines, reduction in emissions from the site by 80% of the

established baseline, and determination by the ED that the required emissions reductions are not technically feasible.

Senate Bill 1561 would allow sites in Texas that emit criteria pollutants regulated under the FCAA (VOCs, NO., CO, SO" and

PM,.), to use emissions reductions in criteria pollutants generated at adjacent facilities across the border in Mexico. Sites

would be required to provide regulators with proof detailing the

emission reduction in Mexico. Because the site in Texas would

not have to purchase these emissions reduction credits, there

may be cost savings, in an amount that cannot be determined at

this time, for affected entities that would normally have to make

reductions.

Of the more than 6,000 identified pieces of equipment at sources

in the affected areas, some will be owned and operated by small

or micro-businesses. Examples of likely equipment at sources

operated by small or micro-businesses include boilers, process

heaters, and internal combustion engines.

The following is an analysis of the potential costs per employee

for small or micro-businesses affected by the proposed rulemaking. Small and micro-businesses are defined as having fewer

than 100 or no more than 20 employees respectively. A small

business that decides to utilize five tons of TERP emissions reductions would incur costs up to approximately $3,750 per employee. A micro- business that decides to utilize five tons of

TERP emissions reductions would incur costs up to approximately $18,750 per employee.

LOCAL EMPLOYMENT IMPACT STATEMENT

The commission has reviewed this proposed rulemaking and determined that a local employment impact statement is not required because the proposed rulemaking does not adversely affect a local economy in a material way for the first five years that

the proposal is in effect.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the proposed rulemaking in light of the

draft regUlatory analysis (RIA) requirements of Texas Government Code, §2001.0225 and has determined that the proposed

rulemaking does not meet the definition of "major environmental

rule," Furthermore, it does not meet any of the four applicability requirements listed in §2001.0225(a). "Major environmental

rule" means a rule, the specific intent of which, is to protect the

environment or reduce risks to human health from environmental exposure, and that may adversely affect in a material way

the economy, a sector of the economy, productivity, competition,

jobs, the environment, or the public health and safety of the state

or a sector of the state. The proposed rules would implement

S8 1561 and would allow the substitution of emissions reductions of one criteria pollutant, accomplished outside the United

States, for emissions reductions of another criteria pollutant in

Texas. This substitution would occur only under specific conditions as described in the SECTION BY SECTION DISCUSSION.

The proposed rules would also implement certain requirements

of SB 5 and would allow the deferral of NO emissions reductions

in the HGA NA under specific conditions described in the SECTION BY SECTION DISCUSSION portion of this preamble. The

proposed rulemaking would increase the compliance options for

industries currently regulated by the commission. The proposed

.I'lmendments and new sections do not increase the stringency

of existing rules and will not adversely affect, in a material way,

the economy, a sector of the economy, prOductivity, competition,

jobs, the environment, or the public health and safety of the state

or a sector of the state.

In addition, Texas Government Code, §2001.0225, only applies

to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of

state law, unless the rule is specifically reqUired by federal law;

3) exceed a requirement of a delegation agreement or contract

between the state and an agency or representative of the federal government to implement a state and federal program; or

4) adopt a rule solely under the general powers of the agency

instead of under a specific state law. This rulemaking is not

subject to the regulatory analysis provisions of §2001.0225(b),

because the proposed rules do not meet any of the four applicability requirements. Specifically, the amendments and new

sections would implement the requirements of Texas Health and

Safety Code (THSC), Texas Clean Air Act (TCAA), §386.056 and

§382.0172. The commission invites public comment regarding

the draft RIA determination during the public comment period.

TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact assessment for the

proposed rules. The following is a summary of that assessment.·

Promulgation and enforcement of the rules will not burden private

real property. The proposed rules do not affect private property

in a manner which restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental

action. Consequently, these rules do not meet the definition of

a takings under Texas Government Code, §2007.002(5). These

rules are specifically proposed to implement the requirements

of THSC, TCAA, §386.052 and §382.0172 and address alternative methods of meeting emission reduction requirements and

emissions reduction substitutions respectively. Therefore, these

revisions do not constitute a takings under Texas Government

Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that the rulemaking relates to an

action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of

1991, as amended (Texas Natural Resources Code, §§33.201

et seq.), and the commission's rules in 30 TAC Chapter 281,

Subchapter B, concerning Consistency with the Texas Coastal

Management Program. As required by 30 TAC §281.45(a)(3)

and 31 TAC §505.11(b)(2), relating to actions and rules subject

to the CMp, commission rules governing air pollutant emissions

must be consistent with the applicable goals and policies of the

CMP. The commission reviewed this action for consistency with

the CMP goals and policies in accordance with the regulations

of the Coastal Coordination Council and has determined that the

proposed rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) of protecting and preserving the

26 TexReg 9516 November 23,2001 Te.r:as Register
quality and values of coastal natural resource areas, and the policy in §501.14(q), which requires that the commission protect air

quality in coastal areas. The proposed rulemaking addresses alternative methods of meeting emission reduction requirements

and emissions reduction substitutions. No new emissions of criteria pollutants are authorized by these rules. The commission

invites public comment regarding the consistency of the proposed rules with the CMP during the public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING

PERMITS PROGRAM

The proposed rulemaking is part of the state's ozone attainment

strategy; therefore, these rules will be submitted as part of the

SIP. As a result, the rules would become applicable requirements

under the federal operating permit program.

ANNOUNCEMENT OF HEARINGS

The commission will hold two public hearings on this proposal

at the following locations and times: 1.) in EI Paso on December 17, 2001 at 7:00 p.m. at the City Council Chambers, 2nd

Floor, 2 Civic Center Plaza; and 2.) in Houston on December

18,2001 at 7:00 p.m. at the City Hall Chambers, 2nd Floor, 901

Bagby. The hearings will be structured for the receipt of oral or

written comments by interested persons. Registration will begin one hour prior to each hearing. Individuals may present oral

statements when called upon in order of registration. There will

be no open discussion during the hearing; however, commission

staff members will be available to discuss the proposal one hour

before each hearing and will answer questions before and after

each hearing.

Persons planning on attending a hearing who have special

communication or other accommodation needs should contact

the Office of Environmental Policy, Analysis, and Assessment

at (512) 239-4900. Requests should be made as far in advance

as possible.

SUBMITTAL OF COMMENTS

Written comments may be submitted to Patricia Duron, Office

of Environmental Policy, Analysis, and Assessment, MC 205,

P.O. Box 13087, Austin, Texas 78711-3087; or by fax at (512)

239-4808. All comments should reference Rule Log Number

2001-063-101-AI. Comments must be received by 5:00 p.m.,

January 7, 2002. For further information, please contact

Beecher Cameron at (512) 239·1495 or Joseph Thomas at

(512) 239-4580.

DIVISION 1. EMISSION CREDIT BANKING

AND TRP:DING

30 TAC §101.302

STATUTORY AUTHORITY

The amendment is proposed under Texas Water Code (TWC),

§5.103, concerning Rules, which authorizes the commission to

adopt rules necessary to carry out its powers and duties under

the TWC; and under THSC, TCM, §382.017, concerning Rules,

which authorizes the commission to adopt rules consistent with

the policy and purposes of the TCM. The amendment is also

proposed under TCM, §382.011, concerning General Powers

and Duties, which authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control

Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control of the state's air. The

amendment is also proposed under §382.0172(b), concerning

International Border Area, as amended by SB 1561, which authorizes the commission to make certain emission reduction substitutions for emission reductions outside the United States. The

amendment is also proposed under SB 5 (an act relating to the

Texas Emissions Reduction Plan), and SB 1561 (an act relating

to the acceptance by the TNRCC of certain emissions reductions in exchange for other emissions reductions) as passed by

the 77th Legislature, 2001.

The proposed amendment implements TCM, §§382.002,

382.011, 382.012, 382.017, and 382.0172(b). The proposed

amendment also implements certain sections of SB 5, as

passed by the 77th Legislature, 2001, which allows owners

or operators to substitute emissions reductions made under.

the plan for those reductions otherwise required under the

commission's rules and to make a contribution to the fund

based on the amount of emissions reductions substituted. The

new section also implements SB 1561, as passed by the 77th

Legislature, 2001, which allows surplus emission reductions

achieved outside the United States to satisfy emission reduction

requirements in Texas by allowing reductions in one criteria

pollutant to substitute for reductions in another criteria pollutant

under specific conditions.

§JOJ.302. General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs) and nitrogen oxides (NO) may qualify as emission

credits. Reductions ofother pollutants do not qualify as emission credits under this division. Reductions of one pollutant may not be used

to meet the requirements of another pollutant, unless: [eJteept ftt 5t!eft

time as]

ill urban airshed modeling demonstrates that one ozone

precursor may be substituted for another, subject to executive director and the (EPA) [Yfflted State5 Elwironmental Proteetien-Ageaey]

approval.i...Q!: H

ill the facility(ies) generating the emission reductions is

(are) located outside the United States; and

fA} the substitution results in a greater health benefit

and is of equal or greater benefit to the overall air quality ofthe area as

determined by the executive director;

@ the substitution is from the reduction of an air contaminant for which the area has been designated as nonattainrnent or

which leads to the formation of a criteria pollutant for which an area

has been designated as nonattainment; and

i9 the substitution is for another air contaminant for

which the area has been designated as nonattainment or leads to the

formation of a criteria pollutant for which the area has been designated

as nonattainrnent.

(b) - (d) (No change.)

(e) Geographic scope. Except as provided in paragraph (4) of

this subsection, only [ffflly] emission reductions generated in ozone

nonattainment areas can be certified. The trading of emission credits

may be discontinued by the executive director in whole or in part and in

any manner, with commission approval, as a remedy for problems resulting from trading in a localized area of concern. An emission credit

must be used in the nonattainment area in which it is generated unless:

(1) a demonstration has been made and approved by the executive director and the EPA [YtHree States ProteetioR

Ageftey fEPA)] to show that the emission reductions achieved in another county, state, or nation provide an improvement to the air quality

in the county of use; or

PROPOSED RULES November 23,2001 26 TexReg 9517
(2) (No change.)

(3) the user has obtained prior written approval of the executive director and the EPAi-H

ill a facility is using emission reductions generated outside

the United States which have been determined by the executive director to be real, permanent, enforceable, quantifiable, and surplus to any

applicable international, federal, state, or local law and the result would

. provide a greater health benefit to the area.

(f) - (j) (No change.)

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority 10 adopt.

Filed with the Office of the Secretary of State, on November 12,

2001.

TRD-200106965

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Earliest possible date of adoption: December 23, 2001

For further information, please call: (512) 239-4712

DIVISION 2. EMISSIONS BANKING AND

TRADING ALLOWANCES

30 TAC §lO1.338

STATUTORY AUTHORITY

The new section is proposed under TWC, §5.103, concerning

Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and

under THSC, TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy

and purposes of the TCAA. The new sectiori is also proposed

under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the

state's air; §382.012, concerning State Air Control Plan, which

authorizes the commission to prepare and develop a comprehensive plan for proper control of the state's air. The new section

is also proposed under §382.0172(b), concerning International

BorderAreas, as amended by SB 1561 and which authorizes the

commission to make certain emission reduction substitutions for

emission reductions achieved outside the United States. This

rulemaking is also proposed under S6 5 (an act relating to the

Texas Emissions Reduction Plan), and S8 1561 (an act relating

to the acceptance by the TNRCC of certain emissions reductions in exchange for other emissions reductions) as passed by

the 77th Legislature, 2001.

The new section implements TCAA, 382.002, 382.011,382.012,

382.017, and 382.0172(b). The new section also implements

certain sections of 58 5, as passed by the 77th Legislature,

2001, which allows owners or operators to substitute emissions

reductions made under the plan for those reductions otherwise

required under the commission's rules and to make a contribution to the fund based on the amount of emissions reductions substituted. The new section also implements 58 1561,

as passed by the 77th Legislature, 2001, which allows surplus

emission reductions achieved outside the United States to satisfy

emission reduction requirements in Texas by allowing reductions

Filed with the Office of the Secretary of State, on November 12,

2001.

TRD-200106966

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Earliest possible date of adoption: December 23, 2001

For further information. please call: (512) 239-6087

in one criteria pollutant to substitute for reductions in another criteria pollutant under specific conditions.

flOl.338. Emission Reductions Achieved Outside the United States.

f!l A grandfathered or electing electric generating facility

(EGF) may use emission reductions achieved outside the United States

in substitution of allowances for the purposes of compliance with

this division provided that the emission reductions are enforceable,

_quantifiable, and surplus to any applicable international, federal, state,

- or local law and are of equal or greater benefit to overall air quality of

the area as determined by the executive director.

(Q} A grandfathered or electing EGF may only use subsection

(al of this section ifreductions of criteria pollutants for which an area

has been designated as nonattainment or air contaminants which lead

to the formation ofa criteria pollutant for which an area has been designated as nonattainment may be substituted for another criteria pollutant

for which the area has been designated as nonattainmen~ or for air contaminants which lead to the formation of a criteria pollutant for which .

an area has been designated as nonattainment.

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt.

• • •

DIVISION 3. MASS EMISSIONS CAP AND

TRADE PROGRAM

30 TAC §101.357

STATUTORY AUTHORITY

The new section is proposed under TWC, §5.103, concerning

Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and under

THSC, TCAA, §382.017, concerning Rules, which authorizes the

commission to adopt rules consistent with the policy and purposes of the TCAA. The new section is also proposed under

TCAA,§382.011, concerning General Powers and Duties, which

authorizes the commission to control the quality of the state's

air; §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive

plan for proper control of the state's air. The new section is also

proposed under §386.056, concerning Availability of Emissions

Reductions in Certain Nonattainment Areas, as amended by 58

5, which authorizes the commission to allow alternative methods

of compliance with air pollution regulations.

The new section implements TCAA, §§382.002, 382.011,

382.012, 382.017, and 386.056.

flOl.357. Use of Emission Reductions Generated {7om the Texas

Emissions Reduction Plan.

An owner or operator ofa site as defined in §122.10 ofthis title (relating

to General Definitions) in the Houston/Galveston ozone nonattainment

•• • •

26 TexReg 9518 November 23,2001 Texas Register
Filed with the Office of the Secretary of State, on November 12,

2001.

TRD-200106967

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Earliest possible date of adoption: December 23, 2001

For further information, please call: (512) 239-6087

area may use nitrogen oxides (NO ) emission reductions generated under the Texas Emissions Reduction Plan (TERP) in lieu of allowances

for compliance with this division provided that:

ill the owner or operator ofthe site contributes to the TERP

fund $75,000 per ton ofNO. emissions used, not to exceed 25 tons per

year or 0.5 tons per day on asite- wide basis;

ill the owner or operator ofthe site demonstrates to the executive director that the site will be in full compliance with the applicable emission reduction requirements of this division and Chapter 117

ofthis title (relating to Control of Air Pollution from Nitrogen Compounds) no later than the fifth anniversary of the date on which the

emission reductions would otherwise be required;

ill emissions from the site are reduced by at least 80%

from the established baseline; and

ill the executive director approves a petition submitted by

the owner or operator ofthe site that demonstrates that it is technically

infeasible to comply with applicable emission reduction requirements

of this division and Chapter 117 of this title above 80% of the established baseline.

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt.

DIVISION 4. DISCRETE EMISSION CREDIT

BANKING AND TRADING

30 TAC §101.372

STATUTORY AUTHORITY

The amendment is proposed under TWC, §5.103, concerning

Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and under

THSC, TCAA, §382.017, concerning Rules, which authorizes the

commission to adopt rules consistent with the policy and purposes of the TCAA. The amendment is also proposed under

TCAA,§382.011, concerning General Powers and Duties, which

authorizes the commission to control the quality of the state's

air; §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive

plan for proper control of the state's air. The amendment is also

proposed under §382.0172(b), concerning International Border

Area, as amended by SB 1561, which authorizes the commission to make certain emission reduction substitutions for emission reductions achieved outside the United States.

The proposed amendment implements TCM, §§382.002,

382.011, 382.012, 382.017, and 382.0172(b).

§lOl.372. General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (YOCs), nitrogen oxides (NO,), carbon (CO), sulfur dioxide

• • •

(SO,), and particulates with an aerodynamic diameter of less than or

equal to a nominal ten microns (pM,,) may qualitY as discrete emission

credits as appropriate. Reductions of other criteria pollutants are not

creditable. Reductions of one pollutant may not be used to meet the

reduction requirements for another pollutant, unless: [~at 500ft

time as]

ill urban airshed modeling demonstrates that one may be

substituted for another or as approved by the executive director and the

EPA [Yffited States Ellyirellmelltal Preleeliell AgeIley tEPA1]LQ!: H

ill the facility(s) generating and using the emission reductions is located outside the United States and the following conditions

are met:

fA) the substitution results in a greater health benefit

and is ofequal or greater benefit to the overall air quality ofthe area as

determined by the executive director;

@2 the substitution is from the reduction of an criteria

pollutant for which the area has been designated as nonattainment or

which leads to the formation of an criteria pollutant for which an .area

has been designated as nonattainment; and

.e.g the substitution is for another criteria pollutant for

which the area has been designated as nonattainment.

(b) - (d) (No change).

(e) Geographic scope. Except as provided in paragraph (6) of

this subsection, only emission [Emissiell] reductions generated in the

State ofTexas may be creditable and used in the state with the following

limitations.

(I) - (5) (No change.)

@ A facility may use discrete emission reductions gener-·

ated outside the United States provided that the emission reductions are

quantifiable, real, and surplus to any applicable international, federal,

state, or local law and the result would provide a greater health benefit

to the area as determined by the executive director.

(I) - (I) (No change.)

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on November 12,

2001.

TRD-200106964

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Earliest possible date of adoption: December 23, 2001

For further information, please call: (512) 239-6087

• •

CHAPTER 117. CONT OL OF AIR

POLLUTION FROM NI ROGEN COMPOUNDS

SUBCHAPTER E. AD INISTRATIVE

PROVISIONS

30 TAC §117.571

The Texas Natural Resour e Conservation Commission

(TNRCC or commission) pro oses new §117.571, Use of

PROPOSED RULES November 23, 2001 26 TexReg 9519
Robert J. Huston, Chairman

R. B. "Ralph" Marquez, Commissioner

Kathleen Hartnett White, Commissioner

Jeffrey A. Saitas, Executive Director

TEXAS NATURAL RESOURCE CONSERVATION COMMISSION

Protecting Texas by Reducing and Preventing Pollution

NOTICE OF PUBLIC HEARING BY THE

TEXAS NATURAL RESOURCE CONSERVATION COMMISSION

ON PROPOSED REVISIONS TO 30 TAC CHAPTER 101

AND TO THE STATE IMPLEMENTATION PLAN (SIP)

The Texas Natural Resource Conservation Conunission (conunission) will conduct public hearings to

receive testimony regarding revisions to 30 TAC Chapter 101 and to the SIP under the requirements of

the Texas Health and Safety Code, §382.017; Texas Government Code, Subchapter B, Chapter 2001; and

40 Code of Federal Regulations, §51.102, of the United States Environmental Protection Agency (EPA)

regulations concerning SIPs. The amendment to Chapter 101 is proposed as a revision to the SIP.

The amendments to §101.302, General Provisions and §101.372, General Provisions; and new §101.338,

Emission Reductions Achieved Outside the United States and §101.357, Use of Emission Reductions

Generated from the Texas Emissions Reduction Plan (TERP) are proposed in order to control ground-level

ozone and other criteria pollutants in nonattainment (NA) areas in the state.

. Some proposed revisions to Chapter 101 would apply in the Houston/Galveston nonattainment (NA) area

to allow substitution of nitrogen oxides emissions reductions accomplished under the TERP for those

otherwise required under the rules of the conunission and the SIP; the other proposed revisions would

allow substitution of emission reductions in NA pollutants accomplished outside the United States for

reductions in such pollutants within Texas ifthe executive director and EPA determine that the substitution

is of greater benefit to the area.

The commission will hold two public hearings on this proposal at the following locations and times: 1.)

in El Paso on December 17, 2001 at 7:00 p.m. at the City Council Chambers, 2nd Floor, 2 Civic Center

Plaza; and 2.) in Houston on December 18, 2001 at 7:00 p.m. at the City Hall Chambers, 2nd Floor, 901

Bagby. The hearings will be structured for the receipt of oral or written conunents by interested persons.

Registration will begin one hour prior to each hearing. Individuals may present oral statements when

called upon in order of registration. There will be no open discussion during the hearing; however,

conunission staff members will be available to discuss the proposal one hour before each hearing and will

answer questions before and after each hearing.

Persons with disabilities who have special conununication or other accommodation needs, and who are

planning to attend a hearing, should contact the Office of Environmental Policy, Analysis, and Assessment

at (512) 239-4900. Requests should be made as far in advance as possible.

Written comments may be submitted to Patricia Duron, Office of Environmental Policy, Analysis, and

Assessment, MC 205, P.O. Box 13087, Austin, Texas 78711-3087; or by fax at (512) 239-4808. All

comments must be received by 5:00 p.m., January 7,2002 and should reference Rule Log Number 2001-

063-101-AI. For further information, please contact Beecher Cameron at (512) 239-1495 or Joseph

i_Thomas at (512) 239-4580. ,

Issued in Austin, Texas on November 7, 2001

P.O. Box 13087 • Austin, Texas 78711-3087 • 512/239-1000 • Internet address: \vww.tnrcc.state.lx.us
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

The Texas Natural Resource Conservation Commission (commission) proposes amendments to

Page 1

i

§101.302, General Provisions and §101.372, General Provisions; new §101.338, Emission Reductions

Achieved Outside the United States and §101.357, Use of Emission Reductions Generated from the

Texas Emissions Reduction Plan (TERP) and corresponding revisions to the state implementation plan

(SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULES

The commission proposes these amendments and new sections in order to control ground-level ozone

and other criteria pollutants in nonattainment (NA) areas in the state, and to implement Senate Bill 5

(SB 5) and SB 1561, 77th Legislature, 2001.

The 77th Legislature adopted SB 5 to establish and provide for the administration of the Texas

Emissions Reduction Plan (TERP). The TERP is a comprehensive plan to reduce emissions of air

contaminants from mobile sources. The program offers subsidies for the replacement of older diesel

engines with more efficient diesels with lower emissions and for the purchase of automobiles with low

emissions. The program is funded in part through surcharges and fees on the lease, sale, and

registration of certain diesel powered vehicles. The plan is also partially funded by contributions from

owners or operators of stationary sources of nitrogen oxides (NOx) in the Houston/Galveston (HGA) or

Dallas/Fort Worth (DFW) areas. These owners or operators may substitute emissions reductions made

under the plan for those reductions otherwise required under the commission's rules and make a

contribution to the fund based on the amount of emissions reductions substituted. This proposed

rulemaking would implement the relevant portions of SB 5 concerning these contributions to the TERP
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Rule Log No. 2001-063-101-AI

fund in the HGA area and are described in greater detail in the SECTION BY SECTION

DISCUSSION portion of this preamble.

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i

This rulemaking also implements the provisions of SB 1561. This legislation allows surplus emission

reductions achieved outside the United States to satisfy emission reduction requirements in Texas by

allowing reductions in one air contaminant to substitute for reductions in another criteria pollutant

under specific conditions described in the SECTION BY SECTION DISCUSSION portion of this

preamble.

SECTION BY SECTION DISCUSSION

The proposed amendments to §101.302 address the relationship of the requirements of SB 1561 and the

generation of emission reduction credits (ERCs). The amendments would allow emission reductions

from facilities located outside the United States to be used to meet the requirements for reductions in

another pollutant in Texas, provided the substitution results in a greater health benefit or is of equal or

greater benefit to the overall air quality of the area. The executive director (ED) would make this

determination. The proposal involves the substitution of a reduction of a criteria pollutant for which

the area has been designated as a NA area for a required reduction for another criteria pollutant for

which the area is also designated as a NA area, and the substitution must clearly result in greater health

benefits for the community as a whole than would reductions at the original facility. In order for the

reductions to be eligible for substitution, they must be real, permanent, quantifiable, and surplus to any

applicable international, federal, state, or local law. Reductions of contaminants other than volatile

organic compounds (VOC) and NOx would not qualify as ERCs.
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Page 3

Proposed new §101.338 would apply the provisions of SB 1561 to the existing emission credit system

for electric generating facilities created under the implementation of SB 7 from the 76th Legislature,

1999. This new section would allow the substitution of reductions of one criteria pollutant for another

criteria pollutant provided the substitution meets the same requirements as stated in the description of

§101.302.

Proposed new §101.357 would allow site owners or operators in the HGA NA area to defer a portion

of their required NOx emissions under applicable commission rules by using emissions reductions

generated under the TERP. The TERP reductions may be used if the owner or operator does the

following: contributes to the TERP fund $75,000 per ton of NOx reductions used, not to exceed 25

tons per year (tpy) or 0.5 tons per day (tpd) on a site-wide basis; demonstrates to the ED that the site

will be in full compliance with applicable rules no later than the fifth anniversary of the date the

emissions reductions would have normally been required; reduces emissions from the site at least 80%

from the established baseline; and receives approval from the ED of a petition from the owner or

operator that demonstrates that it is technically infeasible to comply with the applicable emission

reductions of 30 TAC Chapter 117, Control of Air Pollution from Nitrogen Compounds.

The proposed amendments to §101.372 address the relationship of SB 1561 requirements and the

generation of discrete emission reduction credits (DERCs). The proposed amendments allow the

substitution of emission reductions in one criteria pollutant for reductions of another contaminant under

the same restrictions as described for §101.302. Reductions of contaminants other than VOC and NOx

would not qualify as DERCs.
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New §117.571, proposed concurrently in Rule Log Number 2001-025d-117-AI, would allow site

Page 4

owners or operators to defer NOx emissions reductions in the DFW NA area by using reductions under

the TERP. The conditions on the use of these reductions would be identical to those described for

§101.357.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

John Davis, Technical Specialist with Strategic Planning and Appropriations, has determined for each

year of the first five-year period the proposed rulemaking is in effect that there will be no significant

fiscal implications for units of state and local government due to administration and enforcement of the

proposed rulemaking. The commission anticipates that the majority of affected units of government

will use less expensive alternatives for emission reductions than provisions available in this rulemaking.

The proposed rulemaking would allow units of state and local government to use emission reductions

generated by the TERP to help meet required emission reductions. Units of government using these

credits would have to remit to the TERP fund $75,000 per ton of emission reduction credits used.

The proposed rulemaking is intended to implement certain provisions of both SB 5 (an act relating to

the TERP) and SB 1561 (an act relating to the acceptance by the commission of certain emissions

reductions in exchange for other emissions reductions). This rulemaking would implement the

provisions in SB 5 that allow affected site owners or operators in the HGA NA area to defer a portion

of their required NOx emissions reductions by using emissions reductions generated under the TERP.

Senate Bill 1561 allows affected facilities in Texas to substitute required emission reductions for

reductions in air emissions generated at facilities outside the United States.
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Page 5

Senate Bill 5 established the TERP, providing financial incentives for reducing emissions of on-road

and non-road motor vehicles and equipment, grants for the development of new emission control

technology, and new building energy efficiency standards. The commission anticipates that the

provisions in SB 5 will result in a pool of excess emission reductions available for purchase. Affected

entities that seek to use TERP emission reductions would have to remit to the TERP fund $75,000 per

ton of TERP emission credits used, and each entity would be limited to 25 tpy or 0.5 tpd per site. The

maximum annual expense per site for TERP emission credits would be $1,875,000. Additional

requirements include a demonstration to the ED that the site will be in full compliance within five years

of applicable deadlines, reduction in emissions from the site by 80% of the established baseline, and

determination by the ED that the required emission reductions are not technically feasible.

Senate Bill 1561 would allow sites in Texas that emit criteria pollutants regulated under the Federal

Clean Air Act (FCAA) (VOCs, NOx , carbon monoxide (CO), sulfur dioxide (S02)' and ten microns

(PM10», to use emission reductions in criteria pollutants generated at adjacent facilities across the

border in Mexico. In order to utilize the reductions, the emission reductions would have to be

quantifiable, real, and surplus to any applicable international, federal, state, or local law and the result

would provide a greater health benefit to the area as determined by the ED. An example would be a

facility in EI Paso that is required to reduce its output of NOx by ten tpy. The bill allows this site to

utilize a ten-ton reduction of CO or other criteria pollutant generated at a site across the border in

Mexico. Sites would be required to provide regulators with proof detailing the reduction in Mexico.

Because the site in Texas would not have to purchase these emission reduction credits, there may be

cost savings, in an
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Page 6

amount that cannot be determined at this time, for affected entities that would normally have to make

reductions.

The voluntary provisions of the proposed rulemaking would affect over 6,000 pieces of equipment,

some of which are owned and operated by units of state or local government, at sites and operations

operating in the HGA NA area and along the border with Mexico. Owners and operators of affected

equipment would have the option to utilize the voluntary provisions of this rulemaking to help meet

emission reduction requirements. Examples of equipment and processes at sources that would be

affected by the proposed rulemaking include: electric utility boilers and stationary gas turbines;

industrial commercial institutional (ICI) boilers and stationary gas turbines; duct burners used in turbine

exhaust ducts; process heaters and furnaces; stationary internal combustion engines; fluid catalytic

cracking units (including catalyst regenerators and CO boilers and furnaces); pulping liquor recovery

furnaces; lime kilns; lightweight aggregate kilns; heat treating and reheat furnaces; magnesium chloride

fluidized bed dryers; incinerators; and boiler and industrial furnace (BIF) units.

The proposed rulemaking is intended to provide affected facilities additional compliance options to

meet required emission reductions. The decision to utilize provisions in this rulemaking would be a

business decision by owners and operators of affected sites. The proposed rulemaking does not

introduce additional regulatory requirements and is not anticipated to result in significant fiscal impacts

unless affected entities voluntarily seek to utilize emission reductions generated by the TERP program.

The commission does not anticipate significant increases in revenues to the TERP fund due to
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Page 7

implementation of the proposed rulemaking, because the majority of affected entities will utilize less

expensive emission reduction compliance alternatives.

PUBLIC BENEFITS AND COSTS

Mr. Davis has also determined that for each of the first five years the proposed amendments are in

effect, the public benefit anticipated as a result of implementing the proposal will be providing

flexibility to those affected sources which will potentially facilitate the reduction of emissions of NOx in

the HGA ozone NA area and along the Texas/Mexico border.

The proposed rulemaking is intended to implement certain provisions of both SB 5 and SB 1561. . This

rulemaking would implement the provisions in SB 5 that allows affected site owners or operators in the

HGA NA area to defer a portion of their required NOx emissions reductions by using emissions

reductions generated under the TERP. Senate Bill 1561 allows affected facilities in Texas to substitute

required emission reductions for reductions in air emissions generated at facilities outside the United

States.

Senate Bill 5 established the TERP, providing financial incentives for reducing emissions of on-road

and non-road motor vehicles and equipment, grants for the development of new emission control

technology, and new building energy efficiency standards. The commission anticipates that the

provisions in SB 5 will result in a pool of excess emission reductions available for purchase. Affected

entities that seek to use TERP emission reduction credits would have to remit to the TERP fund

$75,000 per ton of TERP emission credits used, and each entity would be limited to 25 tpy or 0.5 tpd
Texas Natural Resource Conservation Commission

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Page 8

per site. The maximum annual expense per site for TERP emission credits would be $1,875,000.

Additional requirements include a demonstration to the ED that the site will be in full compliance

within five years of applicable deadlines, reductions in emissions from the site by 80% of the

established baseline, and determination by the ED that the required emission reductions are not

technically feasible.

Senate Bill 1561 allows sites in Texas that emit criteria pollutants regulated under the FCAA (VOCs,

NOx, CO, S02' and PMIO), to use emission reductions in criteria pollutants generated at adjacent

facilities across the border in Mexico. Sites would be required to provide regulators with proof

detailing the emission reduction in Mexico. Because the site in Texas would not have to purchase these

emission reduction credits, there may be cost savings, in an amount that cannot be determined at this

time, for affected entities that would normally have to make reductions.

The voluntary provisions of the proposed rulemaking would affect over 6,000 pieces of equipment, the

majority of which are owned and operated by industry, at sites and operations operating in the HGA

NA area and along the border with Mexico. Owners and operators of affected equipment would have

the option to utilize the voluntary provisions of this rulemaking to help meet emission reduction

requirements. Examples of equipment and processes at sources that would be affected by the proposed

rulemaking include: electric utility boilers and stationary gas turbines; ICI boilers and stationary gas

turbines; duct burners used in turbine exhaust ducts; process heaters and furnaces; stationary internal

combustion engines; fluid catalytic cracking units (including catalyst regenerators and CO boilers and
Texas Natural Resource Conservation Commission

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Rule Log No. 2001-063-101-AI

Page 9

furnaces); pulping liquor recovery furnaces; lime kilns; lightweight aggregate kilns; heat treating and

reheat furnaces; magnesium chloride fluidized bed dryers; incinerators; and BIF units.

The proposed rulemaking is intended to provide affected facilities additional compliance options to

meet required emission reductions. The decision to utilize provisions in this rulemaking would be a

business decision by owners and operators of affected sites. The proposed rulemaking does not

introduce additional regulatory requirements and is not anticipated to result in significant fiscal impacts

unless affected entities voluntarily seek to utilize emission reductions generated by the TERP program.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT

There will be no adverse fiscal impacts for small or micro-businesses, if the affected entities use

cheaper alternatives for emission reductions than provisions available in this rulemaking. Small or

micro-businesses would only incur fiscal impacts if they voluntarily decided to utilize emissions

reductions generated by the TERP program. The proposed rulemaking is intended to implement certain

provisions of both SB 5 and SB 1561. This rulemaking would implement the provisions in SB 5 that

allow affected site owners or operators in the HGA NA area to defer a portion of their required NOx

emissions reductions by using emissions reductions generated under the TERP. Senate Bill 1561 allows

affected facilities in Texas to substitute required emissions reductions for reductions in air emissions

generated at facilities outside the United States.

Senate Bill 5 established the TERP, providing financial incentives for reducing emissions of on-road

and non-road motor vehicles and equipment, grants for the development of new emission control
Texas Natural Resource Conservation Commission

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Rule Log No. 2001-063-101-AI

technology, and new building energy efficiency standards. The commission anticipates that the

Page 10

provisions in SB 5 will result in a pool of excess emissions reduction credits available for purchase.

Affected entities that seek to use TERP emissions reduction credits would have to remit to the TERP

fund $75,000 per ton of TERP emission credits used, and each entity would be limited to 25 tpy or 0.5

tpd per site. The maximum annual expense per site for TERP emission credits would be $1,875,000.

Additional requirements include a demonstration to the ED that the site will be in full compliance

within five years of applicable deadlines, reduction in emissions from the site by 80% of the established

baseline, and determination by the ED that the required emissions reductions are not technically

feasible.

Senate Bill 1561 would allow sites in Texas that emit criteria pollutants regulated under the FCAA

(VOCs, NOx, CO, S02' and PMlO), to use emissions reductions in criteria pollutants generated at

adjacent facilities across the border in Mexico. Sites would be required to provide regulators with

proof detailing the emission reduction in Mexico. Because the site in Texas would not have to

purchase these emissions reduction credits, there may be cost savings, in an amount that cannot be

determined at this time, for affected entities that would normally have to make reductions.

Of the more than 6,000 identified pieces of equipment at sources in the affected areas, some will be

owned and operated by small or micro-businesses. Examples of likely equipment at sources operated

by small or micro-businesses include boilers, process heaters, and internal combustion engines.
Texas Natural Resource Conservation Commission

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i

The following is an analysis of the potential costs per employee for small or micro-businesses affected

by the proposed rulemaking. Small and micro-businesses are defined as having fewer than 100 or no

more than 20 employees respectively. A small business that decides to utilize five tons of TERP

emissions reductions would incur costs up to approximately $3,750 per employee. A micro-business

that decides to utilize five tons of TERP emissions reductions would incur costs up to approximately

$18,750 per employee.

LOCAL EMPLOYMENT IMPACT STATEMENT

The commission has reviewed this proposed rulemaking and determined that a local employment

impact statement is not required because the proposed rulemaking does not adversely affect a local

economy in a material way for the first five years that the proposal is in effect.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the proposed rulemaking in light of the draft regulatory analysis (RIA)

requirements of Texas Government Code, §2001.0225 and has determined that the proposed

rulemaking does not meet the definition of "major environmental rule." Furthermore, it does not meet

any of the four applicability requirements listed in §2001.0225(a). "Major environmental rule" means a

rule, the specific intent of which, is to protect the environment or reduce risks to human health from

environmental exposure, and that may adversely affect in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, or the public health and safety of the state

or a sector of the state. The proposed rules would implement SB 1561 and would allow the substitution

of emissions reductions of one criteria pollutant, accomplished outside the United States, for emissions
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Page 12

reductions of another criteria pollutant in Texas. This substitution would occur only under specific

conditions as described in the SECTION BY SECTION DISCUSSION. The proposed rules would also

implement certain requirements of SB 5 and would allow the deferral of NOx emissions reductions in

the HGA NA under specific conditions described in the SECTION BY SECTION DISCUSSION

portion of this preamble. The proposed rulemaking would increase the compliance options for

industries currently regulated by the commission. The proposed amendments and new sections do not

increase the stringency of existing rules and will not adversely affect, in a material way, the economy,

a sector of the economy, productivity, competition, jobs, the environment, or the public health and

safety of the state or a sector of the state.

In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the

result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by

state law; 2) exceed an express requirement of state law, unless the rule is specifically required by

federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an

agency or representative of the federal government to implement a state and federal program; or 4)

adopt a rule solely under the general powers of the agency instead of under a specific state law. This

rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the proposed

rules do not meet any of the four applicability requirements. Specifically, the amendments and new

sections would implement the requirements of Texas Health and Safety Code (THSC), Texas Clean Air

Act (TCAA), §386.056 and §382.0172. The commission invites public comment regarding the draft

RIA determination during the public comment period.
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TAKINGS IMPACT ASSESSMENT

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i

The commission completed a takings impact assessment for the proposed rules. The following is a

summary of that assessment. Promulgation and enforcement of the rules will not burden private real

property. The proposed rules do not affect private property in a manner which restricts or limits an

owner's right to the property that would otherwise exist in the absence of a governmental action.

Consequently, these rules do not meet the definition of a takings under Texas Government Code,

§2007.002(5). These rules are specifically proposed to implement the requirements of THSC, TCAA,

§386.052 and §382.0172 and address alternative methods of meeting emission reduction requirements

and emissions reduction substitutions respectively. Therefore, these revisions do not constitute a

takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that the rulemaking relates to an action or actions subject to the Texas

Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as

amended (Texas Natural Resources Code, §§33.201 et seq.), and the commission's rules in 30 TAC

Chapter 281, Subchapter B, concerning Consistency with the Texas Coastal Management Program. As

required by 30 TAC §281.45(a)(3) and 31 TAC §505.11(b)(2), relating to actions and rules subject to

the CMP, commission rules governing air pollutant emissions must be consistent with the applicable

goals and policies of the CMP. The commission reviewed this action for consistency with the CMP

goals and policies in accordance with the regulations of the Coastal Coordination Council and has

determined that the proposed rules are consistent with the applicable CMP goal expressed in 31 TAC

§501.12(1) of protecting and preserving the quality and values of coastal natural resource areas, and
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the policy in §501.14(q), which requires that the commission protect air quality in coastal areas. The

proposed rulemaking addresses alternative methods of meeting emission reduction requirements and

emissions reduction substitutions. No new emissions of criteria pollutants are authorized by these

rules. The commission invites public comment regarding the consistency of the proposed rules with the

CMP during the public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM

The proposed rulemaking is part of the state's ozone attainment strategy; therefore, these rules will be

submitted as part of the SIP. As a result, the rules would become applicable requirements under the

federal. operating permit program.

ANNOUNCEMENT OF HEARINGS

The commission will hold two public hearings on this proposal at the following locations and times: 1.)

in EI Paso on December 17, 2001 at 7:00 p.m. at the City Council Chambers, 2nd Floor, 2 Civic

Center Plaza;. and 2.) in Houston on December 18,2001 at 7:00 p.m. at the City Hall Chambers, 2nd

Floor, 901 Bagby. The hearings will be structured for the receipt of oral or written comments by

interested persons. Registration will begin one hour prior to each hearing. Individuals may present

oral statements when called upon in order of registration. There will be no open discussion during the

hearing; however, commission staff members will be available to discuss the proposal one hour before

each hearing and will answer questions before and after each hearing.
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Persons planning on attending a hearing who have special communication or other accommodation

needs should contact the Office of Environmental Policy, Analysis, and Assessment at (512) 239-4900.

Requests should be made as far in advance as possible.

SUBMITTAL OF COMMENTS

Written comments may be submitted to Patricia Duron, Office of Environmental Policy, Analysis, and

Assessment, MC 205, P.O. Box 13087, Austin, Texas 78711-3087; or by fax at (512) 239-4808. All

comments should reference Rule Log Number 2001-063-101-AI. Comments must be received by 5:00

p.m., January 7,2002. For further information, please contact Beecher Cameron at (512) 239-1495 or

Joseph Thomas at (512) 239-4580.

STATUTORY AUTHORITY

The amendment is proposed under Texas Water Code (TWC), §5.103, concerning Rules, which

authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC;

and under THSC, TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules

consistent with the policy and purposes of the TCAA. The amendment is also proposed under TCAA,

§382.011, concerning General Powers and Duties, which authorizes the commission to control the

quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the

commission to prepare and develop a comprehensive plan for proper control of the state's air. The

amendment is also proposed under §382.0172(b), concerning International Border Area, as amended by

SB 1561, which authorizes the commission to make certain emission reduction substitutions for

emission reductions outside the United States.The amendment is also proposed under SB 5 (an act
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

Page 16

relating to the Texas Emissions Reduction Plan), and SB 1561 (an act relating to the acceptance by the

TNRCC of certain emissions reductions in exchange for other emissions reductions) as passed by the

77th Legislature, 2001.

The proposed amendment implements TCAA, §§382.002, 382.011, 382.012, 382.017, and

382.0172(b). The proposed amendment also implements certain sections of SB 5, as passed by the 77th

Legislature, 2001, which allows owners or operators to substitute emissions reductions made under the

plan for those reductions otherwise required under the commission's rules and to make a contribution

to the fund based on the amount of emissions reductions substituted. The new section also implements

SB 1561, as passed by the 77th Legislature, 2001, which allows surplus emission reductions achieved

outside the United States to satisfy emission reduction requirements in Texas by allowing reductions in

one criteria pollutant to substitute for reductions in another criteria pollutant under specific conditions.
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 1: EMISSION CREDIT BANKING AND TRADING

§101.302

§101.302. General Provisions.

Page 17

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs) and nitrogen

oxides (NOx) may qualify as emission credits. Reductions of other pollutants do not qualify as emission

credits under this division. Reductions of one pollutant may not be used to meet the requirements of

another pollutant, unless: [except at such time as]

ill urban airshed modeling demonstrates that one ozone precursor may be substituted

for another, subject to executive director and the (EPA) [United States Environmental Protection

Agency] approval; or [.]

(2) the facility(ies) generating the emission reductions is (are) located outside the

United States; and

(A) the substitution results in a greater health benefit and is of equal or greater

benefit to the overall air quality of the area as determined by the executive director;
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

Page 18

(B) the substitution is from the reduction of an air contaminant for which the

area has been designated as nonattainment or which leads to the formation of a criteria pollutant for

which an area has been designated as nonattainment; and

(C) the substitution is for another air contaminant for which the area has been

designated as nonattainment or leads to the formation of a criteria pollutant for which the area has been

designated as nonattainment.

(b) - (d) (No change.)

(e) Geographic scope. Except as provided in paragraph (4) of this subsection, only [Only]

emission reductions generated in ozone nonattainment areas can be certified. The trading of emission

credits may be discontinued by the executive director in whole or in part and in any manner, with

commission approval, as a remedy for problems resulting from trading in a localized area of concern.

An emission credit must be used in the nonattainment area in which it is generated unless:

(1) a demonstration has been made and approved by the executive director and the

EPA [United States Environmental Protection Agency (EPA)] to show that the emission reductions

achieved in another county, state, or nation provide an improvement to the air quality in the county of

use; or

(2) (No change.)
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

Page 19

(3) the user has obtained prior written approval of the executive director and the EPA.;.

[.]

(4) a facility is using emission reductions generated outside the United States which

have been determined by the executive director to be real, permanent, enforceable, quantifiable, and

surplus to any applicable international, federal, state, or local law and the result would provide a

greater health benefit to the area.

(t) - U) (No change.)
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 200l-063-101-AI

SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 2: EMISSIONS BANKING AND TRADING OF ALLOWANCES

§101.338

STATUTORY AUTHORITY

Page 20

i

The new section is proposed under TWC, §5.103, concerning Rules, which authorizes the commission

to adopt rules necessary to carry out its powers and duties under the TWC; and under THSC, TCAA,

§382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy

and purposes of the TCAA. The new section is also proposed under TCAA, §382.011, concerning

General Powers and Duties, which authorizes the commission to control the quality of the state's air;

§382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control of the state's air. The new section is also proposed under

§382.0172(b), concerning International Border Areas, as amended by SB 1561 and which authorizes

the commission to make certain emission reduction substitutions for emission reductions achieved

outside the United States. This rulemaking is also proposed under SB 5 (an act relating to the Texas

Emissions Reduction Plan), and SB 1561 (an act relating to the acceptance by the TNRCC of certain

emissions reductions in exchange for other emissions reductions) as passed by the 77th Legislature,

2001.

The new section implements TCAA, 382.002, 382.011,382.012,382.017, and 382.0172(b). The

new section also implements certain sections of SB 5, as passed by the 77th Legislature, 2001, which

allows owners or operators to substitute emissions reductions made under the plan for those reductions
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

Page 21

otherwise required under the commission's rules and to make a contribution to the fund based on the

amount of emissions reductions substituted. The new section also implements SB 1561, as passed by

the 77th Legislature, 2001, which allows surplus emission reductions achieved outside the United States

to satisfy emission reduction requirements in Texas by allowing reductions in one criteria pollutant to

substitute for reductions in another criteria pollutant under specific conditions.

§101.338. Emission Reductions Achieved Outside the United States.

fa) A grandfathered or electing electric generating facility <EGF) may use emission reductions

achieved outside the United States in substitution of allowances for the purposes of compliance with this

division provided that the emission reductions are enforceable. quantifiable. and surplus to any

applicable international, federal, state. or local law and are of equal or greater benefit to overall air

quality of the area as determined by the executive director.

fb) A grandfathered or electing EGF may only use subsection fa) of this section if reductions

of criteria pollutants for which an area has been designated as nonattainment or air contaminants which

lead to the formation of a criteria pollutant for which an area has been designated as nonattainment may

be substituted for another criteria pollutant for which the area has been designated as nonattainment or

for air contaminants which lead to the formation of a criteria pollutant for which an area has been

designated as nonattainment.
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 3: MASS EMISSIONS CAP AND TRADE PROGRAM

§101.357

STATUTORY AUTHORITY

Page 22

The new section is proposed under TWC, §5.103, concerning Rules, which authorizes the commission

to adopt rules necessary to carry out its powers and duties under the TWC; and under THSC, TCAA,

§382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy

and purposes of the TCAA. The new section is also proposed under TCAA,§382.011, concerning

General Powers and Duties, which authorizes the commission to control the quality of the state's air;

§382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control of the state's air. The new section is also proposed under

§386.056, concerning Availability of Emissions Reductions in Certain Nonattainment Areas, as

amended by SB 5, which authorizes the commission to allow alternative methods of compliance with

air pollution regulations.

The new section implements TCAA, §§382.002, 382.011, 382.012, 382.017, and 386.056.

§101.357. Use of Emission Reductions Generated from the Texas Emissions Reduction Plan.

An owner or operator ofa site as defined in §122.10 of this title (relating to General

Definitions) in the Houston/Galveston ozone nonattainment area may use nitrogen oxides (NOxl
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

Page 23

i

emission reductions generated under the Texas Emissions Reduction Plan (TERP) in lieu of allowances

for compliance with this division provided that:

(1) the owner or operator of the site contributes to the TERP fund $75,000 per ton of

NOx emissions used, not to exceed 25 tons per year or 0.5 tons per day on a site-wide basis;

(2) the owner or operator of the site demonstrates to the executive director that the site

will be in full compliance with the applicable emission reduction requirements of this division and

Chapter 117 of this title (relating to Control of Air Pollution from Nitrogen Compounds) no later than

the fifth anniversary of the date on which the emission reductions would otherwise be required;

(3) emissions from the site are reduced by at least 80% from the established baseline;

(4) the executive director approves a petition submitted by the owner or operator of the

site that demonstrates that it is technically infeasible to comply with applicable emission reduction

requirements of this division and Chapter 117 of this title above 80% of the established baseline.
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 4: DISCRETE EMISSION CREDIT BANKING AND TRADING

§101.372

STATUTORY AUTHORITY

Page 24

i

The amendment is proposed under TWC, §5.103, concerning Rules, which authorizes the commission

to adopt rules necessary to carry out its powers and duties under the TWC; and under THSC, TCAA,

§382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy

and purposes of the TCAA. The amendment is also proposed under TCAA,§382.011, concerning

General Powers and Duties, which authorizes the commission to control the quality of the state's air;

§382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control of the state's air. The amendment is also proposed under

§382.0172(b), concerning International Border Area, as amended by SB 1561, which authorizes the

commission to make certain emission reduction substitutions for emission reductions achieved outside

the United States.

The proposed amendment implements TCAA, §§382.002, 382.011, 382.012, 382.017, and

382.0172(b).
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

§101.372. General Provisions.

Page 25

i

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs), nitrogen oxides

(NOx)' carbon (CO), sulfur dioxide (S02)' and particulates with an aerodynamic diameter of less than

or equal to a nominal ten microns (PMIO) may qualify as discrete emission credits as appropriate.

Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may not be used

to meet the reduction requirements for another pollutant, unless: [except at such time as]

(1) urban airshed modeling demonstrates that one may be substituted for another or as

approved by the executive director and the EPA [United States Environmental Protection Agency

(EPA)]; or [.]

(2) the facility(s) generating and using the emission reductions is located outside the

United States and the following conditions are met:

(A) the substitution results in a greater health benefit and is of equal or greater

benefit to the overall air quality of the area as determined by the executive director;

(B) the substitution is from the reduction of an criteria pollutant for which the

area has been designated as nonattainment or which leads to the formation of an criteria pollutant for

which an area has been designated as nonattainment: and
Texas Natural Resource Conservation Commission

Chapter 101 - General Air Quality Rules

Rule Log No. 2001-063-101-AI

Page 26

(C) the substitution is for another criteria pollutant for which the area has been

designated as nonattainment.

(b) - (d) (No change).

(e) Geographic scope. Except as provided in paragraph (6) of this subsection, only emission

[Emission] reductions generated in the State of Texas may be creditable and used in the state with the

following limitations.

(1) - (5) (No change.)

(6) A facility may use discrete emission reductions generated outside the United States

provided that the emission reductions are quantifiable, real, and surplus to any applicable international,

federal, state, or local law and the result would provide a greater health benefit to the area as

determined by the executive director.

(f) - (1) (No change.)
WRITTEN AND

ORAL TESTIMONY
Reference Number

W-l

W-2

W-3

W-4

W-5

W-6

INDEX OF WRITTEN TESTIMONY

Submitted By

Luis H. Ito, El Paso Electric Company

Ramon Alvarez and Annie Petsonk, Environmental Defense

John D. Wilson, Galveston-Houston Association for Smog

Prevention; and Environmental Defense

Paul I. Newman, III, Harris County Public Health &

Environmental Services, Pollution Control Division

Brandt Mannchen, Sierra Club, Houston Regional Group

Thomas Diggs, United States Environmental Protection Agency
EI Paso Electric

January 7, 2002

PO. Box 982

El Paso, Texas

. 79960-0982

(915)

5483

RECEIVED . W-l

JAN 10 10021 .

OFr;~c. Gf E\\l\!\K:JNMENTAl.

POLICY. ANKLYSIS 3. ASSESSMtNt

By Regular Mail and

By Facsimile to (512) 239-4808

Ms. Patricia Duron

Office of Environmental Policy, Analysis and Assessment

Texas Natural Resource Conservation Commission

P. O. Box 13087, MC 205

Austin, Texas 78711-3087

Re: Proposed Rules Implementing Senate Bill 1561,

26 Tex. Reg. 9513 (Nov. 23, 2001)

TNRCC Rule Log No. 2001-063-101-AI

Dear Ms. Duron:

EI Paso Electric Company ("EPE") appreciates the Commission's prompt development of

rules implementing Senate Bill 1561 (77th Legislature, 2001). EPE strongly supports this

legislation and its promise for encouraging cost-effective strategies for air quality

improvements along the Border, and specifically in the EI Paso-Cuidad Juarez-Sunland

Park, New Mexico airshed.

The rules as proposed faithfully, but perhaps quite fully, implement the language of the

statute. EPE's only concern is that there is no express provision for the creation of offsets

for use in nonattainment new source review ("NNSR") permitting. EPE believes that

offsetJequirements (under 30 T.A.C. § 116.150 and 116.151) create a substantial

incentive for U.S. companies to provide substantial support (financial and otherwise) to

cross-border and inter-pollutant emission reduction projects. In fact, the possibility of

creating offsets is a primary reason for EPE's substantial support of ongoing research into

brick kiln emission controls and quantification. Nothing in the rules expressly authorizes

the creation of offsets (as defined in 30 T.A.C. § 116.12(14» from emission reductions

achieved outside the United States or in pollutants other than the pollutant being offset.

Senate Bill 1561 expressly authorizes the use of cross-border and inter-pollutant

reductions for purposes of meeting "any emission control or permit program adopted or

administered by the Commission," which certainly includes the NNSR permit program.

EPE specifically raised this concern in comments at the public hearing held in EI Paso on

December 17, 2001. Based on TNRCC Staffs response to this comment, it is EPE's

understanding that the Commission agrees with this view of Senate Bill 1561, anddespite the absence of specific rules relating Senate Bill 1561 to the offset creation and
, ,-

Ms. Patricia Duron

January 7, 2002

Page 2 , .

use provisions of 30 T.A.C. §§ 116.12(14), 116.150 and 116.151-that TNRCC would

approve cross-border and cross-pollutant offsets created by reduction projects otherwise

meeting the requirements of § 382.0172(b) and (c) of the Texas Clean Air Act (as added

by Senate Bill 1561). If the Commission would reaffirm its commitment to this

interpretation in its adoption of the final rules, then the absence of specific rule language

concerning offsets should not unduly impede international emission reduction efforts.

EPE would welcome the opportunity to discuss with TNRCC staff any question it may

have concerning these comments or EPE's other efforts to foster creative and costeffective air quality controls in the El Paso-Cuidad Juarez airshed. Thank you in advance

for your careful consideration of the above comments. If you have any comments please

feel free to contact myself at (915) 543-5942 or Mark Rodriguez of my Air Quality staff

at (915) 543-5993

Sincerely,

Luis H. Ito

Manager, Environmental Affairs

la

cc: Mr. Beecher Cameron

Texas Natural Resource

.. Conservation Commission

P. O. Box 13087, MC 162

Austin, Texas 78711-3087

Mr. Terry Bassham, EVP

El Paso Electric Company

100 N. Stanton, El Paso, TX 79901

Mr. Eric Groten

Bracewell & Patterson, L.L.P.

111 Congress Avenue, Suite 2300

Austin, Texas 78701-4043
e

eNVIRONMeNTAL DeFeNse

finding the ways that work

January 7, 2002.

Patricia Duron

Office ofEnvironmental Policy, Analysis, and Assessment

MC205

P.O. Box 13087

Austin, TX 78711-3087

IJA)f IJ 8 2~U2

~OJtJGE OF ENY1RQNMErifAh of )f.P.J!JJI ANALYSJS&ASSESSMefff

Dear Ms. Duron,

Re: Rwe Log Number 200l-063-101-AI

Senate Bill 1561, 7th Texas Legislature, allows sources located in El Paso County to use emissions

reductions of an air contaminant achieved outside the United States to satisfy otherwise applicable

emissions reduction requirements for the same air contaminant. S.B. 1561 also authorizes the use of

"inter-pollutant trading," whereby reductions in emissions of one air contaminant achieved outside the

United States may be used to satisfy otherwise applicable requirements for reductions in emissions of a

different air contaminant in E1 Paso County. In both cases, it must be shown that emissions trades will

clearly reswt in greater health benefits, in addition to enhancing air quality.

Environmental Defense has long supported cross-border emission trading in the El Paso/Ciudad Juarez

airshed as an important tool that can, in appropriate circumstances, promote innovation and the most

cost-effective solutions to air pollution. Well-designed emissions trading systems offer industry greater

flexibility and reward efforts that reswt in greater emission reductions than otherwise required by law or

regu1ation.

However, we are very concerned that the proposed ru1es implementing the inter-pollutant trading

provision o(S.B. 1561 may transform emissions trading into an undesirable loophole rather than a

mechanism~ that delivers better environmental results in an economically efficient manner. The

TNRCC should revise the proposed rules to ensure the credibility and integrity ofinternational

emission trades.

..\

Ofparticular concern is the lack ofdetail in the proposed rules about the operation ofinter-pollutant

trades. The proposed rules do not indicate on what basis the determination will be made that a trade

between two different pollutants will result in equal or greater air quality improvement. Moreover, the

proposed ru1es fail to define any substantive criteria or procedural requirements that must be met in

order to demonstrate that a specific trade wowd satisfy the additional "greater health benefits" standard

established in the statute. The draft rules leave the determination of equal or greater air quality benefit

and greater health benefit entirely to the discretion ofthe executive director on a case by case basis, an

approach that the United States Environmental Protection Agency (EPA) rejected in California (63 FR

59925) and, we would urge, should reject in Texas as well.

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Further, the proposed rules ignore environmental justice concerns, namely, how to address trades

involving pollutants with localized health effects, like many VOCs that are also hazardous air pollutants.

We oppose this type of emissions trading and urge the commission to prohibit such trades in these rules.

We urge the TNRCC to develop a regulatory framework under S.B. 1561 that proceeds first with the

establishment of demonstrable institutional comparability for trading of emissions reductions for a single

pollutant in a cross-border context. Only after that framework is well established should regulators

consider expanding it to cover, on a case-by-case basis, inter-pollutant transactions with adequate

safeguards to ensure comparability, equivalency, and overall reductions in risks to human health and the

environment. This is discussed in more detail below.

In our view, any application for obtaining transboundary emission reduction credits would need to be

subjected to public review. As an important component ofthat public review, we urge the TNRCC to

work with the Joint Advisory Committee for Air Q1lality Improvement GAC) to identifY and conduct

prototype projects for undertaking, in the first instance, cross-border trading of a single pollutant. Thiswould not only stimulate pollution reductions but also help develop, through learning-by-doing,

practical and effective solutions to many ofthe legal, administrative, political and scientific issues

associated with transboundary emissions trading. The JAC could help to negotiate appropriate

conditions, develop suitable instruments, and provide oversight ofthe review and verification ofthe

validity of emission reduction transactions. It could also help provide much-needed transparency in

terms ofmonitoring compliance

Policy Considerations

The prospect ofinternational, inter-pollutant transactions in criteria pollutants presents a doublebarreled set of challenges - the international character ofthe transactions, and the inter-pollutant

character ofthe transactions. A successful trading program for any pollutant must be guided by the

overarching principle of equivalency or comparability. This principle of equivalency applies not only to

the environmental aspects oftrading one pollutant against a different pollutant, but also to the

institutional aspects ofinternational trading such as the adequacy ofmonitoring, the permanence ofthe

reduction, and the enforceability ofthe emissions reduction project that gave rise to tradable "credits."

Applying the principle of equivalency or comparability, we believe it is preferable for the program to

begin to establish its environmental bona fides by creating transparent frameworks for conducting, with

environmental integrity, international trades for a single pollutant. These pose significant and difficult

institutional problems, and will provide important learning that will be needed before any interpollutant trading should occur. For example, for international trades involving a single pollutant, how

will comparability ofmonitoring systems be established? How will comparability ofpermanence be

established to ensure that emission reductions will be contemporaneous with and assured for the life of

emission reductions otherwise required? What steps are needed to ensure comparable enforceability?

While participation in an international pollution trade arguably would subject the foreign source to the

jurisdiction ofUS courts, would a US or Texas state regulatory agency have authority to inspect

monitoring systems and documentation as part of ensuring comparability?

To the extent that the TNRCC rules allow any inter-pollutant trades, they should be limited to those

involving precursors for the same environmental endpoint (so-called "inter-precursor" trading in EPA's

;, ElP guidance). Even then, inter-precursor trading would need to be undertaken with great caution in

2
order to ensure equivalency or comparability, and to address environmental justice. Unfortunately, the

scientific understanding ofvarious pollutants and health risk pathways varies greatly across pollutants

and across pathways. The uncertainty surrounding the calculation of health risk from an individual

pollutant raises serious challenges for framing inter-pollutant equivalency in health terms. And, while

two different pollutants may be precursors for a single environmental endpoint (e.g., NOx and VOCs

are both ozone precursors), ifone ofthose also is a precursor for multiple environmental problems.(e.g.,

some VOCs are by themselves directly hazardous to human health in addition to contributing to ozone

formation), an inter-pollutant trade between themmight be robbing Peter to pay Paul.

Finally, the TNRCC should keep in mind that primary goal of air quality regulation is environmental

performance. Emissions trading can provide a means to achieve a secondary goal - cost reduction - but

cost reduction should not substitute for environmental performance. Therefore, an entity that

voluntarily elects to use emissions trading - and thus receives a private benefit ofreduced compliance

cost - has an affirmative obligation to demonstrate that their private benefit does not come at a public

cost oflower environmental performance.

General comments about inter-pollutant trading

We know ofno regulatory programs in the United States that allow unlimited inter-pollutant trading.

Some states and EPA have policies (mostly ad hoc) that govern "inter-precursor" trading, where emission

reductions ofone of a pollutant's precursors are exchanged for emission reductions of a different

precursor for that pollutant. For example, we have seen cases where VOC emission reductions have

been made in lieu ofNOx emission reduction obligations, as both pollutants are ozone precursors.·

Similarly, S02 and NOx reductions have been substituted for PM obligations in California, where both

S02 and NOx are precursors to particulate matter.

Even though the inter-pollutant trading rules or policies in place in California are much narrower in

scope (limited to certain common precursors, e.g.), EPA has still found key aspects objectionable. For

example, EPA rejected portions of the Bay Area Air Q!tality Management District's inter-pollutant

trading rules that are relevant to TNRCC's proposed rules, and the TNRCC should anticipate that

similar issues will be raised when it seeks to incorporate the Texas trading rules into the SIP.

These sections ofRegulation 2, Rule 2 are not approvable in their current form because

they do not contain adequate safeguards to ensure an overallair quality benefitfrom this type of

trading. For example, as currently drafted, the rule allows for the same trading ratio for

pac [precursor organic compound] to pac trades as it does for pac for NOx trades,

without any demonstration that such trades willresult in an equal air quality benefit. EPA

continues to discourage inter-pollutant trading due to the scientific uncertainty ofacceptable

pollutant trading ratios. However, ifthe District wishes to allow inter-pollutant trading,

the rule must be consistent with EPA guidance. For instance, the rule mustrestrict interpollutant trading to precursorpollutants contributing to the same secondary non-attainment

pollutant (such as trading poeftr NOx). The District must eitherpeifOrm adequate modelling

studies to include a scientifically determinedpollutant trading ratio and define that ratio in the

rule, orpeifOrm a case-by-case analysis ofthe ratio, andstate in the rule that the ratio will be

determined after adequate modelling, public notice, andEPA concurrence. (63 FR 59925,

emphasis added)

3
We share the same concerns about TNRCC's proposed rules that EPA raised regarding the BAAQMD

rules. We suggest the following modifications to the proposed rules.

The proposed rules do not indicate on what basis the determination will be made that a trade between

two different pollutants will result in equal or greater air quality improvement. Ifthe commission

decides to allow inter-pollutant trades (we argue that they should not be allowed until international

trades of a single pollutant are proven effective), it must modify the rules to include explicit trading

ratios, or specify in the rule that a case-by-case determination ofthe ratio will be required, and that the

ratio will be determined through appropriate modeling, public notice, and EPA concurrence. For

common precursors (like VOC for NOx, e.g.), the trading ratios must be scientifically determined

through photochemical modeling or some other equally rigorous technique (we oppose any trading in

lieu ofrequired VOC reductions). For pollutants that are not common precursors, the commission must

develop and include in the rule a scientifically sound methodology to determine trading ratios that result

in equal or greater air quality improvement. One possible measure of comparability could be the

predicted reduction in the region's design value for the nonattainment pollutants being traded.

The proposed rules also fail to define any substantive criteria or procedural requirements that must be

met in order to demonstrate that a specific trade would satisfy the "greater health benefits" condition

established in the statute. The statute requires that the commission must find that a trade "will clearly

result in greater health benefits for the community as a whole than would reductions in emissions at the

original facility." TCAA, § 382.0172(c)(2) (emphasis added). The TNRCC should add language to the

rules that define the substantive criteria and procedural requirements that must be met in order to

demonstrate that a specific trade would satisfy the "greater health benefits" condition. This language

should include specific health effects that need to be addressed, and a rebuttable presumption about the

margin ofsafety necessary to show that a trade will "clearly result" in greater health benefits. Finally, the

TNRCC needs to clarify how the impacted "community" is to be defined.

To the extent that the commission will need to make case-by-case determinations about the precise

trading ratio between two different pollutants necessary to meet the requirements of equal or greater air

quality benefit and greater health benefits, then it must allow for public notice and comment. This will

promote transparency and increase the likelihood that the first few trades will result in real

environmental improvement.

EnvironmentalJustice Issues

The proposed rules do not address environmental justice issues, i.e. the protection ofminority or lowincome populations from potential disproportionate impacts of an emissions trading program.

In the case ofpollutants with localized health effects, like many VOCs that are also hazardous air

pollutants, emissions trading may make air quality worse in certain communities by increasing toxic

emissions. Alternatively, trading of hazardous air pollutants may diminish the benefits that a

community already overburdened with toxic exposures would have enjoyed under a traditional regulatory

program. For example, a facility facing an obligation to reduce a hazardous air pollutant like benzene

could acquire emissions credits of another hazardous air pollutant or - in the case ofinter-pollutant

trading - another criteria pollutant, instead ofreducing its own benzene emissions. As a result ofthe

trade, the neighborhood adjacent to the facility would continue to face the same historical pollution

burden. EPA's guidance on Economic Incentive Programs discusses the safeguards that an emissions

4
II

trading must include in order to prevent disproportionate impacts on lo~-incomeor minority

communities (see generally, sections 4.2 and 16.2.)

The TNRCC's rules must include safeguards to protect low-income or minority populations adjacent to

sources oftoxic emissions. We strongly recommend that the commission prohibit trading in situations

where VOC reductions are otherwise required. If, at some time in the future, the commission decides to

allow trades in lieu ofVOC reductions, then it must, at a minimum, include an adequate public

participation process. Such a process must ensure that adequate financial resources are provided for

technical experts so that neighborhoods can adequately evaluate the impacts of proposals that involve

trading of air toxics.

Legal and Enforcement issues

The proposed regulations raise important and complex issues of extraterritoriality, including

enforcement considerations in a transboundary context.

a'. The definition ofnonattainment area under the US Clean Air Act (USCAA) sec. 171(2) refers to

USCAA sec. 107(d). That provision in turn defines nonattainment areas to be limited to "states."

"States" are in turn defined in USCM sec. 302 to include a specific list ofU.S. states and territories.

Thus, there may be an issue whether, under the USCAA and the Supreme Court's doctrines in the

Foley, Aramco, and subsequent decisions, cross-border transaction can be approved for compliance

with federal nonattainment area requirements. IfTexas does not intend to utilize emissions

reductions achieved in Mexico to meet federal requirements for non-attainment areas, the issue of

extra-territoriality would not arise. By contrast, a cross-border, inter-pollutant transaction,

undertaken with a vague or unclear demonstration of o~erall health and environmental benefits, that

is submitted to the federal government for purposes ofsatisfying federal non-attainment area

requirements, likely would be subject to stricter scrutiny in the context of concerns about

extraterritoriality.

b. Regarding enforcement: There are several ways the TNRCC could approach the enforcement

issue. The commission could impose requirements that emission reduction strategies be set forth in

permit conditions or regulation changes, memorandum of understanding between government

agencies, 9r contracts between private parties. Legal enforceability must be coupled with an

assurance ofpractical enforceability - i.e., resources must be available to devote to inspection and

enforcement activities.

With regard to legal enforceability, we recommend that the views ofthe US-Mexico Border

Environmental Enforcement Working Grouping be sought. This group, comprising environmental

enforcement officials at federal, state and local levels, has developed considerable understanding of

the complex legal and practical issues that arise in the context ofjoint governmental environmental

enforcement work in the border region.

If a private contractual arrangement is used, the contract between affected parties could incorporate

certain incentives to ensure the permanence and enforceability ofthe emission reductions. For

example, if a US firm has financed the cost ofpollution control equipment and periodic loan

payments are established, the payment schedule could be accelerated in the event of noncompliance;

Of the sponsoring company could agree to pay their partner periodically for operation and

5
maintenance costs so long as compliance occurs. At a minimum, the US firm must agree to be held

liable for any violations in order to ensure practical enforceability, namely jurisdiction in US courts.

Applicability

S.B. 1561 should be construed to apply only in nonattainment areas on an international border,

effectively limiting the applicability to trades involving a source in El Paso County. First, S.B. 1561

amended § 382.0172, Texas Clean Air Act concerning International Border Areas. Ifthe bill was

intended to apply anywhere other than an international border area, it would have amended a different,

more generic section ofthe statute, or added a new section. It is also notable that both the Senate and

House sponsors ofthe bill represent El Paso County. Second, § 382.0172 (c)(1) limits trades to air

contaminants for which an area has been designated nonattainment; this limitation could only pertain to

a nonattainment area. El Paso County is the only nonattainment area in Texas on an international

border.

In determining the applicability ofthis statute, we do not believe that § 311.024 Government Code

(which states that the heading ofasection does not limit or expand the meaning of a statute) can be read

in isolation. The commission must consider both the legislative history and the intent (the object

sought to be attained). § 311.023, Government Code. In this regard, the testimony ofthe bill's sponsor,

Sen. Eliot Shapleigh, clearly indicates that the bill was intended to apply only in the border region and

not in other parts ofthe state. When introducing the bill, Sen. Shapleigh referred explicitly to "airsheds

along the border" and stated:

S.B. 1561 would give the TNRCC the necessary authority to allow for greater flexibility

in improving the air quality along the border region (Senate Natural Resources

Committee Hearing, March 27, 2001)

In an ensuing discussion with Sen. Bernsen, it was evident that Sen. Bernsen understood that the

geographic extent ofthe "border region" that Sen. Shapleigh claimed his bill would affect was narrowly

limited to the £1 Paso nonattainment area. Sen. Bernsen alluded to the air pollution problem in El

Paso, influenced by pollution transport from Mexico, and concluded that "this is an innovative plan to

help with an international problem." No one, including Sen. Bernsen, would characterize the ozone

pollution in the state's three other nonattainment areas as an "international problem." While the state's

ozone control strategy (rightfully) addresses pollution transport, the ozone control region is limited to

the eastern part ofTexas (east ofI-35 and north ofI-37). We know of no evidence showing a

significant contribution ofMexican emissions on ozone nonattainment in Texas cities other than El

Paso. Consequently, the most reasonable interpretation ofthe intended applicability ofS.B. 1561 is that

it applies only to the El Paso nonattainment area.

In light ofthe section ofthe statute amended by S.B. 1561, and the clear legislative intent that the bill

should apply only in £1 Paso, the TNRCC must explicitly restrict the proposed rules to trades involving

sources in £1 Paso County.

Specific section by section comments

§ 101.338(a). The preamble states that § 101.338 would allow substitution of emission reductions

~provided the substitution meets the same requirements as stated in the description of § 101.302. , ,

6
\,

However, the proposed rule language does not contain the same level ofdetail as § 101.302. At a

minimum, the commission should add language in § 101.338(a) that clarifies that emission reductions

achieved outside the United States used in substitution for allowances under the S.B. 7 trading program

must be permanent (in addition to enforceable, quantifiable and surplus) and provide a greater health

benefit to the area (in addition to providing a greater benefit to overall air quality).

§ 101.338(b). There appears to be a typographical error in § 101.338(b). The words "may be" after the

second occurrence ofthe word "nonattainment" should be changed to "are" for clarity and consistency

with the statute.

§ 101.372(a). In 101.372(a) the word "monoxide" should be inserted after 'the word "carbon."

§ 101.372(a)(2). In 101.372(a)(2) the words "and using" appear to be superfluous and inconsistent with

the statutory purpose.

§ 101.372(a)(2)(B). In 101.372(a)(2)(B) the word "an," appearing twice before the word "criteria"

should be changed to "a." .

Thank you for the opportunity to provide these comments. We would be pleased to visit with

Commission staffto further discuss our concerns or share our experience with emissions trading

programs in other locations. Please do not hesitate to contact me at 478-5161.

Sin,rely,'

~AJ!

Ramon A1va~J~~ Scientist G " I

~~~/M

Annie Petsonk

International Counsel

7
From: John D. Wilson To: Patricia Duron

January 7. 2002

Date: 1/8/2002 lime: 9:02:08 Nvl Page 2 of3

8

Ms. Patricia Duron

Office of Environmental Policy, Analysis. and Assessment

Texas Natural Resource ConseNation Commission

MC205

P. O. Box 13087

Austin. Texas 78711-3087

Re: Rule Log Number2001-025d-117-AI

Dear Ms. Duron:

Please accept the enclosed comments from the Galveston-Houston Association for Smog

Prevention and Environmental Defense on the proposed actions to revise 30 TAC Chapter 117

and the state implementation plan for ozone (SIP). These comments are limited to the portions

of the proposal related to the Houston-Galveston Area SIP.

We support the proposed option to defer NOx emission reductions from an industrial site for up

to 25 tons per year by paying $75,000 per ton emitted into the Texas Emissions Reduction

Program (TERP) fund. This is a reasonable measure to provide flexibility for the scheduling of

industrial emissions reduction controls. However, our support is contingent on certain conditions

being met.

1. The funds must be used to result in a greater amount of emissions reduction than would

otherwise have occurred. We believe that for $75.000 per ton. the TERP should be able

to produce more than 1 ton of emission reductions. We ask TNRCC staff to monitor

TERP to ensure that the goal is reached.

2. The funds added to the TERP should be used to fund emission reductions that are

distinctfrom reductions already in the SIP, inclUding those contemplated as "enforceable

commitments" or "gap measures." There must be full Implementation of other SIP

measures plus any additional measures funded through this option - otherwise there will

be effectively "double counting" of emission reductions. which will not contribute towards

achieving federal health standards.

3. TNRCC must include some sort of verification that the TERP reductions remain in effect

through the period over which the substitution is granted and that the industrial site is

achieving the level of actual emission reductions required by rule. as modified by this

option. .

,

--'-,

518 Woodland St•• Houston, TX 77009·7249 • 713-868-2601 • Wllson~hasp.org

\ .
From: John D. Wilson To: Patricia Duron Date: 1/812002 Time: 9:02:08 I'M Page 3 of3

4. The definition of "site" must encompass the entire facility, and must not be construed to

Indicate a single unit or component at a facility.

In particular, the TNRCC must indicate in its SIP revision how these emission reductions will be

above and beyond those measures"included inJhe SIP approved by the U.S. Environmental

Protection Agency on October 15, 2001. Failure to clearly explain how "double counting" is

avoided will inevitably lead to future problems with the SIP if this option is utilized by any

companies. "

Thank you for the opportunity to comment.

Sincerely,

John D. Wilson

Executive Director

cc: Ramon Alvarez, Ph.D.

Environmental Defense
From: John D. Wilson To: Patricia Duron

I

To: Patricia Duron

Date: 1/812002 lime: 9:02:08 AM

Fax Cover Sheet

1/8/2002

From: John D. Wilson

I

Page 1 of3

Company: Office of Environmental Policy, Analysis, '. Company: GHASP

Fax Number: 1 (512) 239-4808 Fax Number: call first

Pages Including this cover page: 3

Voice: 713-868-2601

SUbject : Comments on TEnp Substitution nule

Proposal

Message:

Ms. Duron:

Yesterday, I inadvertently faxed a draft copy of ou~ comments rather than the final

version. Please accept this revised version as our final comments and substitute it for.

the version faxed yesterday.

Dleuce tind uttuched (2 pugec) the commentc ot CHASD und Environmentul Detence on u

portion ot the TERD Subctitution Rule Dropocul.

Thank you,

John D. Wilson

Executive Director

Galveston - Houston Association

71 ~-AfiA-?fi01 (vni r.P.)

713-q1 ?-BO:1 (pil\Jp.r)

jwpar:lf:n@yhasp.or:y (Lex L payer:)

call [OL" [ax

for Smog Prevention (GHASP)

Symantec W1nFax Starter Edition Cover Page
Chau Bun, M.D.,l\LP.H.

Acting Director

(713) 439~OOO

Fax: (713) 439·6080

8-4

Rob Barrett;

Assistant Director

Pollution Control

(713) 920·2831

Fax: (713) 471-8963

January 4, 2002

Ms. Patricia Duron

Texas Natural Resource Conservation Commission

Office ofEnvironmental Policy

Analysis and Assessment, MC 205

P. O. Box 13087

Austin, TX 78711-3087

Re: Rule Log Number 2001-063-101-AI, Amendments to 30 TAC Chapter 101.302,

General Provisions, 101.372, General Provisions, new 101.338, Emission Reductions

Achieved Outside the United States and 101.357, Use of Emission Reductions

Generatedfrom the Texas Emissions Reduction Plan.

Dear Ms. Duron,

Thank you for the opportunity to submit comments on the referenced proposed rules. Harris

County Public Health & Environmental Services Pollution Control Division (HCPC) is pleased

to submit the following comments:

The Section by Section Discussion portion of the Preamble regarding the proposed amendments to

30 TAC 101.302 states that the proposed amendments address the relationship ofthe requirements of

SB 1561 and the generation of emission reduction credits (ERCs). The amendments would allow

emission reductions from facilities located outside the United States to be used to meet the

requirements of reductions in another pollutant in Texas. SB 1561 authorizes the TNRCC to allow

the use of emissions reductions achieved outside the United States to satisfy otherwise applicable

emissions reduction requirements. SB 1561 also appears only to authorize emissions reductions in

the International Border Area in Mexico to be utilized to satisfy the otherwise applicable emission

reduction requirements.

Proposed amended 30 TAC 101.302(e) addresses geographic scope. Specifically, 30 TAC

101.302(e)(4) states "... a facility is using emission reductions generated outside the United States

which have been determined by the executive director to be real, permanent, enforceable,

quantifiable and surplus to any applicable international, federal, state, or local law and the result

would provide a greater health benefit to the area" HCPC believes that this section is to broad in

scope and needs additional language consistent with SB 1561 to clarify that the facilities outside the

United States are in the International Border Area in Mexico and the reductions can only be used in

" the corresponding border areas in Texas.
Ms. Patricia Duron

January 4, 2002

Page Two

Proposed amended 30 TAC 101.372(e) addresses geographic scope. Specifically, 30 TAC

101.372(e)(6) states " ... A facility may use discrete-emission reductions generated outside the United

States provided that the emission reductions are quantifiable, real and surplus to any applicable

international, federal, state, or local law and the result would provide a greater health benefit to the

area as determined by the executive director." As previously stated, HCPC believes that this section

is to broad in scope and needs additional language consistent with SB 1561 to clarify that the

facilities outside the United States are in the International Border Area in Mexico and the reductions

can only be used in the corresponding border areas in Texas.

Proposed new 30 TAC 101.338 addresses emission reductions achieved outside the United States for

grandfathered or electing electric generating facilities. As previously stated, HCPC believes that this

section is to broad in scope and needs additional language consistent with SB 1561 to clarify that the

facilities outside the United States are in the International Border Area in Mexico and the reductions

can only be used in the corresponding border areas in Texas.

Once again, thank you for the opportunity to comment on the proposed rules. If you have any

questions or need additional information regarding this matter please contact me at 713/920-2831.

?JrL£

Paul I. Newman, ill

Environmental Coordinator
SIERRA

CLUB

Houston Regional Group 0

P.O. Box 3021 . \:J

Houston, Texas 77253-3021

713/895-9309

December 23,2001

Ms. Patricia Duron

Office Environmental Policy, Analysis, and Assessment

TNRCC

MC205

P. O. Box 13087

Austin, Texas 78711-3087

RECEIVED

DEC 2'( '1001

OFFICE Or: BMRqNMEN1S~LENT POLICY. Ai~?,LYS!S &r\SSES ,III

\ \

Dear Ms. Duron,

Enclosed are the comments ofthe Houston Sierra Club (HSC) regarding the proposed chari.ges to 30 TAC

101.302,338,357,372, and 117.571.

This proposal to implement the Texas Emissions reduction Plan (fERP) has many features that are

undesirable.

Under 101.302, 101.372, and elsewhere in these rules, we do not support allowing emission reductions

made under the lERP to substitute for emission reductions that are required by the State Implementation

Plan (SIP). There are no criteria that provide guidance for how TNRCC will weight whether "the

substitution results in a greater health benefit and is of equal or greater benefits to the overall air quality of

the area.'" lbis allows the Executive Directorto operate in an arbitrary and capricious manner with no safe

guards to protect the Public's health, safety, welfare, and environment. ..' .

Under 101.302, 101.338, and 101.372, there are no criteria for determining when the emission reductions

are "enforceable, quantifiable, and surplus to any applicable international, federal, state, orlocal law and

are of equal or greater benefit to overall air quality ofthe area" TNRCC gives itselfthe leeway to be

arbitrary and capricious and take advantage ofpeople who do not have political strength to fight these

proposals. TNRCC takes advantage ofthe weak for the benefit ofthe powerful.

Under 101.302, 101.338, and 101.372, there is nothing that ensuresthe removal ofair pollutants over the

lifetime of a source that is not in the U.S. Ifa source reduces its pollutants in Mexico, but two year's later

turns offits air pollution control equipment or the equipment breaks and there is no money to fix it, how

will the TNRCC know and have any recourse to stop the pollution? There is no requirement for

investigation and enforcement to ensure that pollution reductions have been made and continue to be made

as required by any agreement. How can TNRCC enforce its will on a foreign count:Iy? It cannot. This is a

house of cards that has no foundation.

Under 101.302, 101.338, and 101.372, we oppose allowing emission reductions acquired from outside the

U.S. to be used to meet reductions for another pollutant in the State ofTexas. This is an example ofintrapollutant trading. There is no criteria or guidance to determine "greater health benefit that is of equal or

greater benefit to the overall air quality ofthe area" in the rules. Study after study has shown that it is the

total mix ofair pollutants in urban air that leads to increased orban mortality and urban morbidity and not

just one air pollutant The S)nergistic effect of air pollutants is totally ignored by TNRCC in this proposed

trading scheme to implement TERP. We object! lbis allows companies on the U.S. side ofthe borderto

escape their responsibility to reduce air pollution and protect U.S. and foreign citizens.

Under 101.357 and 117.571, it is obvious that a severe Ozone nonattainment area, like the HoustonGalveston Area (HGA), which has led the U.S. in Ozone day violations for two out ofthe past three years,

should be required to implement all available controls. This is particularly important since the SIP that

TNRCC has submitted to U. S. EPA, and which EPA agrees with, documents that there is a 56 TPD deficit

. "When we try to pick out anything by itself. we find it hitched to everything else in the universe." John Muir
i \

ofNOx emission reductions. This deficit means that the HGA SIP canno, today, assure that attainment of

the Ozone standard will occur by the 2007 deadline.

TNRCC is minimizing emission reductions and endangering the attainment ofthe Ozone standard on-time.

This is a failed strategy which TNRCC's predecessor, the Texas Air Control Board, used several times. A

track record of abject failure has been set and TNRCC isintent on repeating this failure.

Under 101.357 and 117.571, we oppose deferring NOX emission reductions by using 1ERP reductions

instead Both sets ofreductions must be implemented so the HGA has a real opportunity to attain the

Ozone standard by 2007. The idea that paying to allow pollution is poor public policy. The idea that

allows only an 80% emission reduction from the baseline, for use ofthe TERP, when Best Available

Control Technology and Lowest Achievable Emissions Rate is required and needed, is hypocritical.

Under 101.357 and 117.571, the TNRCC gives no criteria for how it will judge if"it is technically

infeasible to comply with applicable emission reductions" for NOx. There is no definition of "technically

infeasible" and there is no explanation what it takes to prove thatsuch reductions cannot be made.

Under 101.302 and 101.372, TNRCC gives no guidance and provides no criteria in its rule-making to show

how "substitution must clearly result in greater health benefitsfor the community as a whole than would

reductions at the original facility." The tenn community, is not defined. This could mean the entire HGA,

El Paso, or other nonattainment area or it could cover a neighborhood.

The bottom line is that those who live near large businesses that emit air pollution, with implementation of

TNRCC's 1ERP program, will continue to have to breathe air pollution that should be eliminated to protect

their health, welfare, safety, and environment TNRCC is sacrificing these people for the greater good of

"the community as a whole." This ensures that those who are politically weakest in our Society bear the

brunt ofthe ills that the rest ofSociety creates. This is called Environmental Injustice, and in cases where

those people are minority populations is called Environmental Racism, and in cases where these people are

poor is called Environmental Classism. That a state agency charged with protecting the public's health,

welfare, safety, and environment should be the originator ofsuch rules is shameful.

We appreciate the opportunity to comment Thank you.

Sincerely, f?J~tJ~ Brandt Mannchen

ConservationCommittee

Houston Sierra Club

5115 Maple

Bellaire; Texas 77401

H713-664-5962, W713-640-4313

2
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY - REGION 6

1445 ROSS AVENUE, SUITE 1200RECEIVEODALLAS, TX 75202-2733

JAN 7 2002 'JAN 1 7002

OFfiCE OF ENViRONMENTAL POuey, ANALYSIS &ASSESSMENT

8

\ \-

Patricia Duron

Office ofEnvironmental Policy, Analysis, and Assessment

MC205

P.O. Box 13087

Austin, TX 78711-3087

Reference: Rule Log Number 2001-063-101-AI

Dear Ms. Duron:

Thank you for providing the opportunity to comment on proposed changes to 30 TAC

101 regarding Emissions Banking and Trading. Weare encouraged by the direction you are

taking with the proposed rule changes. It should be noted that, generally, the concept of

allowing foreign sources to generate credits for U.S. sources is a novel one that will require

further review within EPA before the agency can provide more definitive comments. Our

comments with regard to Mass Emissions Cap and Trade Program are closely related to our

comments on the Administrative Provisions ofthe Control of Air Pollution from Nitrogen

Compounds in 30 TAC 117. We are also submittingthe comments for §101.357 for §117.571.

Our comments are enclosed

Region 6 continues to offer Texas our support during your rulemaking process. Please

let us know how we may be offurther assistance.

Sincerely yours,

~fY-~

Thomas Diggs

Chief

Air Planning Section

Enclosure

Internet Address (URL) - http://www.epa.90v/earth1 r6/

Recycled/Recyclable· Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)
Comments on TNRCC Rule Log No. 2001-063-101-AI

Chapter 101 - General Air Quality Rules

The Texas Natural Resource Conservation Commission (TNRCC) proposed amendments to

several emissions banking and trading rules contained in TAC §101 Subchapter H. The purpose

ofthese comments is to formally comment on the TNRCC Rule Log No. 2001-063-101-AI..

The TNRCC Emission Reduction Credits, Discrete Emission Reduction Credits and Senate Bill

7 rules have not received final SIP approval by EPA. In order to be approvable the rules must

meet the EPA Economic Incentive Program (EIP) Guidance which includes procedures to

measure and track results through annual compliance and three year audits. Such procedures

must include audits, evaluation and corrective actions to determine the overall effects ofthe

programs on emissions. A review ofthe reduction credits generated outside the United States

(U.S.) must be included in these annual and three year reviews and audits. TNRCC must ensure

that ifthe program evaluation shows a problem with the emission reductions, the problem will

be corrected as expeditiously as possible. However, it will be very difficult to determine

whether emissions reductions from sources outside the United States have, in fact, occurred.

Some mechanism to ensure the permanence ofthese reductions will be necessary. The inability

to inspect the facilities outside the United States to verify reductions will be a major hurdle to

approval ofthis program.

We understand that the proposed rules are intended to control ground-level ozone and other

criteria pollutants in ilonattainment (NA) areas in the state, and to implement Senate Bill 5 (SB

5) and SB 1561, passed by the Texas 77th Legislature in 2001. The 77th Legislature adopted SB

5 to establish and provide for the administration ofthe Texas Emissions Reduction Plan (TERP).

The TERP is a comprehensive plan to reduce emissions of air contaminants from mobile sources.

The program offers subsidies for the replacement of older diesel engines with more efficient

diesels with lower emissions and for the purchase of automobiles with low emissions. The

program is funded in part through surcharges and fees on the lease, sale, and registration of

certain diesel powered vehicles. The plan is also partially funded by contributions from owners

or operators ofstationary sources ofnitrogen oxides (NOx) in the Houston-Galveston (HGA) or

DallaslFod Worth (DFW) areas. These owners or operators may substitute emissions reductions

made under the plan for those reductions otherwise required under the commission's rules and

make a contribution to the fund based on the amount of emissions reductions substituted. This

proposed rulemaking would implement the relevant portions of SB 5 concerning these

contributions to the TERP fund in the HGA area.

This rulemaking also implements the provisions of SB 1561 which allows surplus emission

reductions achieved outside the United States to satisfy emission reduction requirements in

Texas by allowing reductions in one air contaminant to substitute for reductions in another

criteria pollutant under specific conditions.

The proposed amendments to §101.302 address the relationship ofthe requirements ofSB 1561

and the generation ofERCs under Subchapter H Division 1. The amendments would allow

.emission reductions from facilities located outside the United States to be used to meet the
"

requirements for reductions in another pollutant in Texas, provided the substitution results in a

greater health benefit or is of equal or greater benefit to the overall air quality ofthe area. The

TNRCC Executive Director (ED) would make this determination. The proposal involves the

substitution of a reduction of a criteria pollutant for which the area has been designated as aNA

area for a required reduction for another criteria pollutant for which the area is also designated as

a NA area, and the substitution must clearly result in greater health benefits for the community

as a whole than would reductions at the original facility. In order for the reductions to be eligible

for substitution, they must be real, permanent, quantifiable, and surplus to any applicable

international, federal, state, or local law. Reductions of contaminants other than volatile organic

compounds (VOC) and NOx would not qualify as ERCs.

We agree with the proposed rule in that the reductions from sources located outside the United

States must be real, permanent, quantifiable, and surplus to any applicable international, federal,

state, or local law. Sources located outside the United States must have a qualitative and

quantitative effect on an ozone nonattainment area. At present the only nonattainment area in

Texas which may benefit from international trading is El Paso. In the response to comments

TNRCC must clarify that:

the reductions must also be enforceable in accordance with the EPA Guidance document,

"Improving Air Quality with Economic Incentive Programs", EPA-452/R-OI-00l,

January 2001;

the area referred to in §101.302(a)(2)(B) is the El Paso nonattainment area. Stationary

sources in ozone nonattainment areas such as DFW, Beaumont (BPA) or HGA could not

participate in trading emission reductions with sources outside the United States;

the reductions, in order to be surplus, must have been relied upon in the most recent

attainment demonstration approved by EPA or have the same qualitative and qualitative

effect on the environment;

the reductions of one pollutant to meet the requirements of another pollutant must be

d~monstratedon a case-by-case basis which may contain but not be limited to urban

airshed modeling. The criteria and protocol for each case-by-case demonstration must be

pre-approved by TNRCC and EPA;

the reductions, in order to be enforceable, must have been established by use of an

emissions quantification protocol in accordance with the EPA EIP Guidance document.

The protocol must have been submitted to EPA for approval prior to the generation of

emission reduction credits; and

the reductions, in order to be enforceable, must be subject to monitoring, recordkeeping

and reporting requirements ofthe EPA EIP Guidance document at a minimum. In the

absence of an agreement specifically addressing this item, the source receiving the

emission reduction credits will be subject to enforcement action and subject to the

immediate installation of control equipment, should the source generating the ERCs

outside the U.S. not monitor, keep records and/or report promptly in English. Records
\ \

-

from the source generating the ERCs must be kept at the U.S. facility receiving the

credits. TNRCC needs to adequately address how the monitoring, recordkeeping, and

reporting from a foreign source generating ERCs for U.S. credits can be assured for

accuracy.

In addition, § 101.302 (a)(2)(A) and (e) (4) are impermissible Executive Director (ED)

discretion. These subsections allow a determination of greater health benefit and of overall air

quality benefit by the ED with no criteria on which to base a decision. The rule needs criteria

that the ED uses to make consistent decisions. In (e)(4), though it purports to have enforceability

as one ofthe criteria, there is no mechanism for enforcement against facilities located outside the

U.S.

Proposed new §101.338 would apply the provisions ofSB 1561 to the existing emission credit

system for electric generating facilities created under the implementation of SB 7 from the 76th

Legislature, 1999. This new section would allow the substitution ofreductions of one criteria

pollutant for another criteria pollutant provided the substitution meets the same requirements as

stated in the description of §101.302.

We agree, in general, with the proposed new rule §101.338 to allow a grandfathered or electing

EGF source to use reductions to meet the New Source Review compliance provisions ofSection

101 Subchapter H Division 2 for Senate Bill 7 implementation.

The reductions from sources located outside the United States must be real, permanent,

quantifiable, enforceable and surplus to any applicable international, federal, state, or local law....

In the response to comments TNRCC must clarify that:

the area referred to in §101.338(b) is the EI Paso nonattainment area. Stationary sources

in ozone nonattainment areas such as Dallas (DFW), Beaumont (BPA) or Houston

(HGA) or any attainment areas could not participate in trading emission reductions with

sources outside the United States. This rule only applies to grandfathered sources subject

to SB 7 which are located in EI Paso county;

th-at the reductions, in order to be surplus, must have been relied upon in the most recent

attainment demonstration approved by EPA or have the same qualitative and quantitative

effect on the environment;

that the reductions, in order to be enforceable, must have been established by use of an

emissions quantification protocol in accordance with the EPA EIP Guidance document.

The protocol must have been submitted to EPA for approval prior to the generation of

emission reduction credits; and

that the reductions, in order to be enforceable, must be subject to monitoring,

recordkeeping and reporting requirements ofthe EPA EIP Guidance document at a

minimum. In the absence of a treaty specifically addressing this item, the source

receiving the emission reduction credits will be subject to enforcement action and subject

to the immediate installation of control equipment, should the source generating the
,,

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ERCs outside the US not monitor, keep records and/or report promptly in English.

Records from the source generating the ERCs must be kept at the U.S. facility receiving

the credits. TNRCC needs to adequately address how the monitoring, recordkeeping, and

reporting from a foreign source generating ERCs for U.S. credits can be assured for

accuracy.

Like §101.302(a)(2), §101.338 (a) is impermissible ED discretion. This subsection allows a

determination of overall air quality benefit by the ED with no criteria on which to base a

decision. The rule needs criteria that the ED uses to make consistent decisions.

Proposed new §101.357 would allow site owners or operators in the HGA nonattainment area to

defer a portion oftheir required NOx emissions under applicable commission rules by using

emissions reductions generated under the TERP. The TERP reductions may be used ifthe owner

or operator does the following: contributes to the TERP fund $75,000 per ton ofNOx reductions

used, not to exceed 25 tons per year (tpy) or 0.5 tons per day (tpd) on a site-wide basis;

demonstrates to the ED that the site will be in full compliance with applicable rules no later than

the fifth anniversary ofthe date the emissions reductions would have normally been required;

reduces emissions from the site at least 80% from the established baseline; and receives approval

from the TNRCC of a petition from the owner or operator that demonstrates that it is technically

infeasible to comply with the applicable emission reductions of 30 TAC Chapter 117, Control of

Air Pollution from Nitrogen Compounds.

We agree in general with the proposed new rule §101.357 to allow a source subject to the Mass

Cap and Trade rule in the HGA ozone nonattainment area to comply with the Chapter 117

requirements by purchasing TERP emission reductions. TNRCC has not proposed a rule to

certify that TERP emission reductions must be real, permanent, quantifiable, enforceable and

surplus to any applicable international, federal, state, or local law. In the response to comments

TNRCC must clarify that until a TERP rule is proposed, promulgated and approved by EPA,

§101.357(2) must demonstrate to the executive director and be subject to EPA review and

comment. Should EPA not respond/comment within 45 days TNRCC may proceed with the

approval process. Should EPA comment within 45 days, TNRCC will incorporate the EPA

comments into the approval process. Section101.357(4) must require the petition approval by

the executive director and be subject to EPA review and comment. Should EPA not

respond/comment within 45 days TNRCC may proceed with the approval process. Should EPA

comment within 45 days, TNRCC will incorporate the EPA comments into the approval process.

In addition, SectionlO1.357(4) refers to first achieving an 80% reduction from the established

baseline. Please explain how the baseline is determined. It is our understanding that the

baseline is the Mass Cap and Trade baseline used to determine allowances.

Section 101.357(4) is also impermissible ED discretion. There needs to be direction or criteria

for the ED in determining the validity ofthe demonstration oftechnical infeasibility.

The proposed amendments to §101.372 address the relationship of SB 1561 requirements and the

generation ofDERCs under Subchapter H Division 4. The proposed amendments allow the

substitution of emission reductions in one criteria pollutant for reductions of another contaminant

under the same restrictions as described for §101.302. Reductions of contaminants other than
VOC and NOx would not qualify as DERCs.

We have the same concerns for this proposed rule as stated in the comments for §101.302.

These comments are incorporated by reference. This includes our ED discretion comment as it

applies to §101.372 (e)(6).
Reference Number

0-1

INDEX OF ORAL TESTIMONY

EL PASO HEARING

December 17, 2001

Submitted by

Mark A. Rodriguez, El Paso Electric Company

(Similar to W-1)

HOUSTON HEARING

December 18, 2001

No oral testimony was received at this hearing pertaining to this proposal.
C.

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TRANSCRIPT OF PROCEEDINGS

BEFORE THE

TEXAS NATURAL RESOURCE CONSERVATION COMMISSION

AUSTIN, TEXAS

IN THE MATTER OF: )

PROPOSED REVISIONS TO )

30 TAC CHAPTER 101 AND TO )

THE STATE IMPLEMENTATION )

PLAN (SIP) )

PUBLIC HEARING

MONDAY, DECEMBER 17, 2001

BE IT REMEMBERED THAT at 7:00 p.m. on

Monday, the 17th day of December 2001, the

above-entitled matter carne on for public comment

at the City Council Chambers, 2nd Floor, 2 Civic

Center Plaza, El Paso, Texas, before BEECHER

CAMERON, and the following proceedings were tape i

recorded and transcribed by Janis Simon, a

Certified Shorthand Reporter of:

81Dl1:\?lC1D

a record ofexcellence

1801 Lavaca • Suite 115 • Austin, Texas 78701 • 512-474-2233

l
1

2

TABLE OF CONTENTS

2

PAGE NO.

3 PROCEEDINGS - MONDAY, DECEMBER 17, 2001 3

4 COMMENT ON BEHALF 9F

EL PASO ELECTRIC (RODRIGUEZ) 3

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PROCEEDINGS ADJOURNED

KENNEDY REPORTING SERVICE, INC.

(512)474-2233

6
1

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PRO C E E DIN G S

MONDAY, DECEMBER 17, 2001

(7:00 p.m.)

3

4 MR. c;AMERON: Good evening. I

5 would like to welcome everyone to this public

6 hearing conducted by the Texas Natural Resource

7 Conservation Commission. My name is Beecher

8 Cameron. I'm with the Office of Air Permitting,

9 and joining me is Matt Baker, also with the Air

10 Permitting Division.

11 We're here this morning -- or actually

12 we're here this evening to discuss oral and/or

13 written comments on proposed revisio~s to 30

14 Texas Administrative Code Chapter 101 Air

15 Quali ty Rules. If you intend to present oral

16 testimony and haven't already signed in, please

17 do so, please. These hearings are structured

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18 for the receipt of oral testimony only. There

19 is no cross-examination and/or discussion of

20 testimony once the hearing is open.

21 With those statements being made, I

22 will check the sign-up sheet, and we'll go ahead

23 and open the hearing and call Mr. Mark

24 Rodriguez.

25 MR. RODRIGUEZ: All right. Thank \-

\

KENNEDY REPORTING SERVICE, INC.

(512)474-2233
1 you. I represent El Paso Electric, and for the

4

2 record, my name is Mark Rodriguez. And we would

3 first like to start off by complementing the

4 rule developmentpfocess and the TNRCC's effort

5 in that and, of course, the Agency's proposal.

6 But I would like to point out, also,

7 that El Paso Electric will file more specific

8 written comments. And for tonight there's just

9 one threshold issue that would be helpful to

10 El Paso Electric to have clarified before

11 El Paso Electric files its comments; and that

12 is, this proposal seeks to effectuate Senate

13 Bill 1561 primarily by a~endments to 10 --

14 Section 101.302, which is limited by its first

15 sentence to emission reduction credits for VOC

16 and NOx. El Paso Electric believes this is

\' ,.

17 likely inadvertent or an oversight because

IS nothing about Senate Bill 1561 or the policy

19 intent behind it would suggest that only VOC and

20 NOx reductions should be used to create emission

21 reduction credi ts.

22 All other criteria pollutants should be

23 subject to ERe creation and transfer for use in

24 the United States for such regulatory purposes

25 as they may serve, including but not limited to,

KENNEDY REPORTING SERVICE, INC.

(512)474-2233
5

1 offsets for NSR purposes, assuming they meet the

2 appropriate criteria of permanence,

3 quantifyability, surplus, and enforceability,

4 et cetera.

5 As published, the rules don't seem to

6 authorize the creation of ERCs from other

7 pollutants except for SB7 purposes, and that's

8 in Section 101.338, or to create discrete

9 emission reduction credits, which is in Section

10 101.372. Because of this, this would not allow

11 for complete fulfillment of Senate Bill 1561's

12 intent and promise.

13 intended?

Is that what TNRCC

14 Those are my remarks for this evening

15 and I do wish to add, again, that El Paso

16 Electric will file more specific written

1 7 comment s . Thank you for your considerations

18 this evening.

19

20 Mr. Rodriguez.

MR. CAMERON: Thank you,

21 Anyone else that would like to provide

22 testimony this evening?

23 (No response)

24 MR. CAMERON: Okay.' I would

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25 remind everyone that the closing comment period

KENNEDY REPORTING SERVICE, INC.

(512)474-2233
1 for this particular rule proposal is Monday,

6

2 January 7th, at 5:00 p.m. Seeing no further

i~\

3 comments, I will close the hearing.

4 (Proeeedings adjourned)

5 (End of requested tape

6 transcription)

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Thank you.

KENNEDY REPORTING SERVICE, INC.

(512)474-2233
Concerning: The amendments to §101.302, General Provisions and §101.372, General Provisions; and new §101.338, Emission

Reductions Achieved Outside the United States and §101.357, Use of Emission Reductions Generated from the Texas Emissions

Reduction Plan (TERP) are proposed in order to control ground-level ozone and other criteria pollutants in nonattainrnent (NA) areas in

the state.

Public Hearing Registration

Rule Log No. 2001-063-101-AI

'1

.~. ••-- -- --- - -.,.

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TNRCC

Date: December 17, 2001

Plaza

Time: 7:00 p.m. Location: EI Paso, City Council Chambers, 2nd Floor, 2 Civic Center

Name and Address

(Please Print)

If.l- ~.E'.LE/U)

) I -f..'b A ;yow"q.yJ'

F.L ~JrJ 7K ?f'P.2.S

Representing

(Please Print)

Presenting Oral Testimony?

(Circle One)

eJNO

Yes €J

Yes No

Yes No

Yes No
EVALUATION OF

TESTIMONY
Texas Natural Resource Conservation Commission

INTEROFFICE MEMORANDUM

To:

Thru:

Commissioners

LaDonna Castafiuela

Chief Clerk

Date: February 22, 2002

From:

Subject:

Caption:

Randolph Wood, Deputy Director

Office of Environmental Policy, Analysis, and Assessment

Commission Approval for Adoption of Proposed Rulemaking

Docket No. 2001-1281-RUL. Consideration for adoption of amended Sections 101.302

and 101.372, and new Sections 101.338 and 101.357 in 30 TAC Chapter 101, General

Air Quality Rules, and corresponding revisions to the state implementation plan (SIP).

The new adopted Section 101.357 would apply in the Houston/Galveston and the

Dallas/Fort Worth ozone nonattainment areas to allow substitution of nitrogen oxides

emissions reductions accomplished under the Texas Emissions Reduction Plan for those

emission reductions otherwise required under the rules of the commission and the SIP.

New Section 101.338 and amended Sections 101;302 and 101.372 would allow

substitution of emission reductions of criteria pollutants accomplished outside the United

States for reductions in such pollutants within Texas if the executive director and the

United States Environmental Protection Agency determine that the substitution will result

in greater overall health benefit to the area. The proposed rules were published in the

November 23,2001 issue ofthe Texas Register (26 TexReg 9513). (Beecher Cameron,

Alan Henderson) (Rule Log No. 2001-063-101-AI)

What the Adopted Rules Would Do:

These adopted rules will allow the substitution of emissions reductions accomplished under the

Texas Emissions Reduction Plan (TERP) for nitrogen oxides (NOX> reductions required in the

Houston/Galveston (HGA) and Dallas/Fort Worth (DFW) ozone nonattainment areas under other

commission rules and the SIP. The TERP was established by Senate Bill (SB) 5, 77th Legislature,

2001. The rules will affect NOx sources in the HGA and DFW areas by allowing owners or

operators of these sources additional compliance options for achieving reductions required under

the SIP. These rules also specify the conditions under which owners and operators may use TERP

reductions.

These adopted rules will also implement the requirements ofSB 1561, 77th Legislature, 2001. The

adopted rules will allow the substitution of criteria pollutant emissions reductions accomplished

outside the United States, for reductions of criteria pollutants and precursors in Texas

nonattainment areas. The adopted rules will primarily affect sources in the EI Paso nonattainment

areas.
Commissioners

Page 2

February 22, 2002

Re: Docket No. 2001-1281-RUL

Applicable Law:

This rulemaking action is adopted under Texas Health and Safety Code (THSC), §386.056,

concerning Availability ofEmissions Reductions in Certain Nonattainment Areas, which authorizes

the commission to allow alternative methods ofcompliance with air pollution regulations and under

Texas Clean Air Act (TCAA), §382.0172(b), concerning International Border Area, as amended

by SB 1561, and which authorizes the commission to make certain emission reduction substitutions

for emission reductions achieved outside the United States.

Reason Rules Are Needed:

The rules are needed to implement SB 5 and SB 1561.

Public Comment:

The El Paso Electric Company (EPE); Environmental Defense (ED); Galveston-Houston

Association for Smog Prevention (GHASP); Harris County Public Health and Environmental

Services, Pollution Control Division (HCPC); Sierra Club, Houston Regional Group (SierraHouston); and United States Environmental Protection Agency (EPA) submitted comments during

the public comment period which closed on January 7, 2002. ED, EPE, EPA, GHASP, and

HCpe generally supported the proposal with suggested changes. Sierra-Houston generally

opposed the proposal.

The major issues raised by public comment and the staff suggested responses are as follows.

• The proposal had no criteria to determine if an emission substitution would result in a

greater health benefit in the nonattainment area. Staff added criteria to the rule language

which requires air dispersion modeling to determine that there is no harmful local health

effects as a result of the trade, and the trade must result in a greater reduction (by

percentage) of the concentration of any of the criteria pollutants for which the area has

been designated nonattainment.

• The proposal had no means of enforcing or monitoring compliance with the emissions

reductions in Mexico and traded to a Texas user. Staff disagreed and stated that

enforcement conditions could be placed in the air permit of the Texas user requiring a

contract or memorandum of understanding with a third party to inspect the facilities on the

other side of the border, and the records documenting the emissions reductions be kept in

the Texas user facility.

• The proposal did not specify that only Texas nonattainment areas which share a common

border with Mexico be· allowed to participate in the international trading as SB 1561

intends. Staff changed the rule language to specify that the only current affected

nonattainment areas would be El Paso which is nonattainment for carbon monoxide,

particulate, and ozone. Staff also noted that El Paso would be in attainment of all three

of these criteria pollutants were it not for the emissions from Mexico, therefore
Commissioners

Page 3

February 22, 2002

Re: Docket No. 2001-1281-RUL

international trading in accordance with these rules would be beneficial to the El Paso air

quality.

Final Regulatory Impact Analysis Determination:

The staffreviewed this rulemaking action in light ofthe regulatory analysis requirements ofTexas

Government Code, §2001.0225 and determined that the rules do not meet the defmition of a major

environmental rule. The adopted rules will increase the compliance options for industries currently

regulated by the commission, but will not increase the stringency of existing rules. This

rulemaking action will not adversely affect, in a material way, the economy, a sector of the

economy, productivity, competition, jobs, the environment, or the public health and safety of the

state or a sector of the state.

Takings Impact Assessment:

Promulgation and enforcement of the rules will not burden private real property. The adopted

rules will not affect private property in a manner which restricts or limits an owner's right to the

property that would otherwise exist in the absence of a governmental action. Consequently, this

rulemaking action does not meet the definition of a takings under Texas Government Code,

§2007.002(5).

Consistency with the Coastal Management Program:

The staffreviewed this action for consistency with the Texas Coastal Management Program (CMP)

goals and policies in accordance with the regulations of the Coastal Coordination Council and has

determined that the rulemaking action is consistent with the applicable CMP goal expressed in 31

TAC §501.12(1) of protecting and preserving the quality and values of coastal natural resource

areas, and the policy in 31 TAC §501.14(q), which requires that the commission protect air quality

in coastal areas.

Affected Agency Programs:

The adopted rules will primarily affect the Air Permits Division, Mass Cap and Trade Program,

and the Strategic Assessment Division, SIP Development Team.

Agency Contacts:

Alan Henderson, Office of Environmental Policy, Analysis, and Assessment, 239-1510.

Beecher Cameron, Air Permits Division, 239-1495.

Matt Baker, Air Permits Division, 239-1091

Lisa McClain, Environmental Law Division, 239-5885

Lola Brown, Texas Register/Administrative Support Team, 239-0348

cc: 7 copies to the Chief Clerk for distribution
EVALUATION OF TESTIMONY

The Texas Natural Resource Conservation Commission (commission) adopts amendments to §101.302

and §101.372; new §101.338 and §101.357; and corresponding revisions to the state implementation

plan (SIP). Sections 101.302, 101.338, 101.357, and 101.372 are adopted with changes to the

proposed text as published in the November 23, 2001 issue of the Texas Register (26 TexReg 9513).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES

The commission adopts these amendments and new sections in order to control ground-level ozone and

other criteria pollutants in nonattainment areas in the state, and to implement Senate Bill (SB) 5 (an act

relating to the Texas emissions reduction plan) and SB 1561 (an act relating to the acceptance by the

Texas Natural Resource Conservation Commission of certain emissions reductions in exchange for

other emissions reductions), 77th Legislature, 2001.

The 77th Legislature adopted SB 5 to establish and provide for the administration of the Texas

Emissions Reduction Plan (TERP). The TERP is a comprehensive plan to reduce emissions of air

contaminants from mobile sources. The program offers subsidies for the replacement of older diesel

engines with more efficient diesels with lower emissions and for the purchase of automobiles with low

emissions. The program is funded in part through surcharges and fees on the lease, sale, and

registration of certain diesel-powered vehicles. The plan is also partially funded by contributions from

owners or operators of stationary sources of nitrogen oxides (NOx) in the Houston/Galveston (HGA) or

Dallas/Fort Worth (DFW) ozone nonattainment areas. These owners or operators may substitute

emissions reductions made under the plan for those reductions otherwise required under the

commission's rules; such substitutions require a contribution to the fund based on the amount of

1
emissions reductions substituted. This adopted rulemaking implements the relevant portions of SB 5

concerning these contributions to the TERP fund in the HGA area, as described in greater detail in the

SECTION BY SECTION DISCUSSION portion of this preamble.

This rulemaking also implements the provisions of SB 1561. This legislation allows surplus emission

reductions achieved outside the United States (U.S.) to satisfy emission reduction requirements in

Texas by allowing reductions in one nonattainment air contaminant to substitute for reductions in

another nonattainment air contaminant under the specific conditions described in the SECTION BY

SECTION DISCUSSION portion of this preamble.

SECTION BY SECTION DISCUSSION

The adopted amendments to §101.302, General Provisions, address the relationship of the requirements

of SB 1561 and the generation of emission reduction credits (ERCs). The amendments allow emission

reductions from facilities located outside the U.S. to be used to meet the requirements for reductions in

another pollutant in Texas, provided the executive director determines that the substitution results in a

greater health benefit or is of equal or greater benefit to the overall air quality of the area. The

executive director will make this determination. The amendments involve the substitution of a

reduction of a criteria pollutant for which the area has been designated as nonattainment for a required

reduction for any criteria pollutant for which the area is also designated as a nonattainrnent area. The

substitution must clearly result in greater health benefits for the community as a whole than would

reductions at the original facility. In response to public comment, the commission has amended the

rule language to state that the substitution must not cause harm to public health in the area around the

facility using the emission substitution. When determining whether an emissions reduction outside the

U.S. will be of greater health benefit, the executive director may consider the amount of air

2
contaminant removed, the frequency that concentrations of an air contaminant have exceeded the

national ambient air quality standard (NAAQS), existing air quality demonstrations performed under

SIP requirements, the air quality index, and any other information which would indicate a clear benefit

of a proposed emission reduction. For example, consider a proposed reduction of particulate matter

with an aerodynamic diameter of less than or equal to a nominal ten microns (PMIO) instead of a

required NOx reduction. The de minimis netting threshold for NOx is 40 tons per year (tpy) while the

threshold for PMIO is ten tpy. The lower netting threshold for PMIO indicates that a reduction in that

pollutant would be of greater significance than a numerically equivalent reduction of NOx ' The

commission believes that this greater significance could be part of a demonstration that such a

substitution would be of greater health benefit and overall air quality improvement depending on the

documentation and the ability to enforce the reduction in Mexico. While the commission will closely

examine any proposed emission reduction under this rule, it does not at this time plan to specify or

endorse any particular method of demonstration. The commission recognizes the influence of air

contaminant sources outside the U.S. on the EI Paso airshed and will to encourage emission reductions

under this rule. This rule would not affect federally required reductions.

In order for the reductions to be eligible for substitution, they must be real, permanent, quantifiable,

enforceable, and surplus to any applicable international, federal, state, or local law. Reductions of

contaminants other than volatile organic compounds (VOC) and NOx will not qualify as ERCs.

The adopted new §101.338, Emission Reductions Achieved Outside the United States, applies the

provisio.ns of SB 1561 to the existing emission credit system for electric generating facilities. This

system was created under the implementation of SB 7 from the 76th Legislature, 1999. This new

section allows the substitution of reductions of one criteria pollutant for another criteria pollutant

3
provided the substitution meets the same requirements as stated in the description of §101.302. In

response to public comment, the commission added additional language in subsection (a) that describes

under what conditions emissions substitutions may be used and replaced the phrase "may be" with

"are" in subsection (b).

The adopted new §101.357, Use of Emission Reductions Generated from the Texas Emission

Reduction Plan (TERP), allows site owners or operators in the HGA nonattainment area to defer a

portion of their required NOx emissions under applicable commission rules by using emissions

reductions generated under the TERP. The TERP reductions may be used if the owner or operator

does the following: contributes to the TERP fund $75,000 per ton of NOx reductions used, not to

exceed 25 tpy or 0.5 tons per day (tpd) on a site-wide basis; demonstrates to the executive director that

the site will be in full compliance with applicable rules no later than five years after the anniversary of

the date the emissions reductions would have normally been required; reduces emissions from the site

at least 80 % of the required reductions; and receives approval from the executive director of a petition

from the owner or operator that demonstrates that it is technically infeasible to comply with the

applicable emission reductions of 30 TAC Chapter 117, Control of Air Pollution from Nitrogen

Compounds. In order to ensure that TERP reductions are not used twice to meet SIP reductions, the

commission added a restriction that TERP emissions used to meet stationary source reduction

requirements must not have been previously used to meet reduction requirements under a SIP

attainment demonstration. For consistency with SB 5, the commission also added a restriction that

TERP credits must be used in the same nonattainment area in which they are generated and a

requirement that emission reduction projects funded under TERP must be used to benefit the

community in which the site using the TERP emission reduction credits is located.

4
The adopted amendments to §101.372, General Provisions, address the relationship of SB 1561

requirements to the generation of discrete emission reduction credits (DERCs). The adopted

amendments allow the substitution of emission reductions in one nonattainment air contaminant for

reductions of another nonattainment air contaminant under the same restrictions as described for

§101.302. Reductions of contaminants other than VOC and NOx will not qualify as DERCs. In

response to public comment, the commission also corrected typographical errors and deleted the phrase

"and using" from §101.372(a)(2).

New §117.571, which is being adopted concurrently in this issue of the Texas Register (Rule Log

Number 2001-025d-117-AI), allows site owners or operators to defer NOx emissions reductions in the

DFW ozone nonattainment area by using reductions under the TERP. The conditions on the use of

these reductions are identical to those described for §101.357.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the adopted rulemaking in light of the draft regulatory analysis requirements

of Texas Government Code, §2001.0225 and has determined that the adopted rulemaking does not

meet the definition of "major environmental rule." Furthermore, it does not meet any of the four

applicability requirements listed in §2001.0225(a). A "major environmental rule" means a rule which

has as its specific intent to protect the environment or reduce risks to human health from environmental

exposure, and that may adversely affect in a material way the economy, a sector of the economy,

productivity, competition, jobs, the environment, or the public health and safety of the state or a sector

of the state. The adopted rules implement SB 1561 and allow the substitution of emissions reductions

of one criteria pollutant, accomplished outside the U.S., for emissions reductions of another criteria

pollutant in Texas. This substitution will occur only under specific conditions as described in the

5
SECTION BY SECTION DISCUSSION. The adopted rules also implement certain requirements of SB

5 and allow the deferral of NOx emissions reductions in the HGA nonattainment area under specific

conditions described in the SECTION BY SECTION DISCUSSION portion of this preamble. The

adopted rulemaking increases the compliance options for industries currently regulated by the

commission. The adopted amendments and new sections do not increase the stringency of existing

rules and will not adversely affect, in a material way, the economy, a sector of the economy,

productivity, competition, jobs, the environment, or the public health and safety of the state or a sector

of the state.

In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the

result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by

state law; 2) exceed an express requirement of state law, unless the rule is specifically required by

federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an

agency or representative of the federal government to implement a state and federal program; or 4)

adopt a rule solely under the general powers of the agency instead of under a specific state law. This

rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the adopted

rules do not meet any of the four applicability requirements. Specifically, the amendments and new

sections implement the requirements of Texas Health and Safety Code (THSC), Texas Clean Air Act

(TCAA), §386.056 and §382.0172.

6
TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact assessment for the adopted rules. Promulgation and

enforcement of the rules will not burden private real property. The adopted rules do not affect private

property in a manner which restricts or limits an owner's right to the property that would otherwise

exist in the absence of a governmental action. Consequently, these rules do not meet the definition of a

takings under Texas Government Code, §2007.002(5). These rules are specifically adopted to

implement the requirements of THSC, TCAA, §386.052 and §382.0172, and address alternative

methods of meeting emission reduction requirements and emissions reduction substitutions respectively.

Therefore, these revisions do not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that the rulemaking relates to an action or actions subject to the Texas

Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as

amended (Texas Natural Resources Code, §§33.201 et seq.), and the commission's rules in 30 TAC

Chapter 281, Subchapter B, concerning Consistency with the Texas Coastal Management Program. As

required by 30 TAC §281.45(a)(3) and 31 TAC §505.1l(b)(2), relating to actions and rules subject to

the CMP, commission rules governing air pollutant emissions must be consistent with the applicable

goals and policies of the CMP. The commission reviewed this action for consistency with the CMP

goals and policies in accordance with the regulations of the Coastal Coordination Council and has

determined that the adopted rules are consistent with the applicable CMP goal expressed in 31 TAC

§501.12(1) of protecting and preserving the quality and values of coastal natural resource areas, and

the policy in §501.14(q), which requires that the commission protect air quality in coastal areas. The

adopted rulemaking addresses alternative methods of meeting emission reduction requirements and

7
emissions reduction substitutions. No new emissions of criteria pollutants are authorized by these

rules.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM

The adopted rulemaking is part of the state's ozone attainment strategy; therefore, these rules will be

submitted as part of the SIP. As a result, the rules will become applicable requirements under the

federal operating permit program.

HEARINGS AND COMMENTERS

The commission held public hearings on this proposal in El Paso on December 17, 2001, and in

Houston on December 18, 2001. The comment period closed on January 7,2002. The El Paso

Electric Company (EPE); Environmental Defense (ED); Galveston-Houston Association for Smog

Prevention (GHASP); Harris County Public Health and Environmental Services, Pollution Control

Division (HCPC); Sierra Club, Houston Regional Group (Sierra-Houston); and U.S. Environmental

Protection Agency (EPA) submitted comments. ED submitted comments separately and also on

GHASP letterhead. The EPE, ED, GHASP, HCPC, and EPA generally supported the proposal with

suggested changes. Sierra-Houston generally opposed the proposal.

RESPONSE TO COMMENTS

Sierra-Houston, ED, and EPA stated that there is no criteria for deciding whether an emissions

substitution will result in a greater health benefit to the overall air quality of the area, and that the lack

of criteria will allow the executive director to operate in an arbitrary and capricious manner. They also

stated that the criteria and procedures used to determine "greater health benefit" should be defined in

the rule. Sierra-Houston opposed the substitution of reductions of one pollutant from a source outside

8
the U.S. for reductions of another pollutant otherwise required in Texas. Sierra-Houston stated that the

proposal ignored the effects of the mix of air pollutants.

The commission has not changed the rules in response to this comment. When determining

whether an emissions reduction outside the U.S. will be of greater health benefit, the commission

will consider the amount of air contaminant removed, the frequency that concentrations of an air

contaminant have exceeded the NAAQS, existing air quality demonstrations performed under SIP

requirements, the air quality index, and any other information which would indicate a clear

benefit of a proposed emission reduction. While the commission will closely examine any

proposed emission reduction under these rules, it does not want to specify or endorse any

particular method of demonstration. The commission recognizes the influence of air contaminant

sources outside the U.S. on the EI Paso airshed and wishes to encourage emission reductions

under these rules. These rules would not affect federally required reductions. Subsequent and

identical trades involving the same participants may not require any further demonstration.

Sierra-Houston stated that nothing ensures the permanent removal of air contaminants from sources

outside the U.S. and questioned how the commission can enforce against a source in Mexico. ED

questioned whether a U.S. or Texas regulatory agency would have the authority to inspect monitoring

systems and documentation to ensure comparability of emission reductions. ED suggested enforcement

strategies that included permit conditions, memoranda of understanding between government agencies,

and contracts between private parties with incentives to promote compliance.

The commission believes reductions outside the U.S. can be enforceable and has not changed the

rule in response to these comments. Prior to approving any emission substitution, the commission

9
intends to put enforceable requirements on the user of the reduction. For example, an

enforceable requirement could be a permit condition requiring a contract with a third party to

inspect facilities outside the U.S. Ifthe inspection reveals violations, the user of the reductions

would then be held accou.ntable by the commission. This type of plan could also require that the

user of reductions maintain records within Texas that demonstrate the Mexican source has

accomplished and is maintaining the emissions reduction. Any individual plan used to ensure that

reductions outside the U.S. are actually occurring and are maintained would be evaluated on a

case-by-case basis.

Sierra-Houston stated that a severe ozone nonattainment area such as HGA should be required to make

all available reductions. Sierra-Houston commented that this is particularly important because the

current Houston SIP has a 56 tpd reduction deficit. Sierra-Houston also stated that TERP emission

reductions should not be allowed as a substitution for reduction currently required of stationary

sources, but rather both sets of reductions should be made.

The commission has not changed the rules in response to this comment. The rules require that

emission substitution from the TERP occur on a ton-for-ton basis so that all reductions required

under the HGA attainment demonstration will be accomplished. The TERP allows the user of

TERP emission reductions to delay up to 20% of its required emissions for five years. At the end

of this period, any delayed reductions will be surplus to those required under the SIP. Regarding

the 56-ton emission reduction deficit, the commission will address the deficit in the 2004 review of

the HGA SIP.

10
EPE expressed concern that the rule as proposed did not specifically mention any provisions for the

creation of emission offset credits. This possibility of creating offsets is the principal motivation for

EPE to continue work to reduce brick kiln emissions in Ciudad Juarez. ED expressed concern that

emission reductions achieved in Mexico may not meet federal nonattainment requirements for

compliance with the Federal Clean Air Act (FCAA) because cross-border transactions seem to be

limited to the U.S. under the FCAA definitions.

The commission has not changed the rules in response to these comments. The rules do not

restrict the use of offsets; however, the offset user must meet the requirements and intent of all

federal, state, and local rules and regulations.

ED anticipated that emission reduction substitution will be a complex business when conducted across

an international border and recommended the commission first establish regulations that deal with the

single pollutant trading.

The commission has not changed the rule in response to this comment. The commission

acknowledges that the international trading of emission credits makes issues, such as enforcement

and verification, more complex as compared to trading within the U.S. However, the commission

believes that such a program can be successfully implemented and will be an effective program to

reduce air pollutants in the border area. The commission also believes that tools such as thirdparty inspections, contracts, and credit user liability can be effective. Finally, the adopted rules

reflect the intent of SB 1561 which does not limit trades to one pollutant.

11
ED recommended the inter-pollutant trades be restricted to those involving precursors for the same

resulting pollutant, and stated that this recommendation is consistent with EPA guidance concerning

inter-pollutant trading.

The commission has not changed the rule in response to this comment. The commission believes

that the intent of SB 1561 is to allow the substitution of emission reductions in one nonattainment

pollutant for reductions otherwise required in another, as long as there is an improvement to the

overall health benefit and general air quality in the affected area. The commission acknowledges

that some trades may not meet federal regulations and may not be approved.

ED stated that a source that elects to use emissions trading be required to demonstrate that the benefit

derived from the trade does not come at public health detriment or lower environmental performance.

The commission agrees and amended the rules in response to this comment. In order for a trade

to be considered a greater benefit, the emission reduction outside the U.S. must result in no

harmful local health effects through the avoidance of reductions otherwise required in Texas.

The trade must also result in a greater health benefit as determined by the executive director.

Both of these demonstrations would be accomplished using methods approved by the executive

director, including, but not limited to, air dispersion modeling. The commission may require this

demonstration only for the initial trade. Subsequent and identical trades involving the same

participants may not require further demonstration.

ED commented that emissions trading could increase local effects from hazardous air pollutants or

diminish the benefits a local community might have realized under a reduction program. ED used the

12
example of a source acquiring credits and using the credits to avoid a reduction in a hazardous air

pollutant such as benzene. ED stated that the commission rules should contain safeguards to protect

low-income and minority populations adjacent to sources of toxic emissions. In addition, ED stated

that the commission should prohibit trading in situations where VOC reductions are otherwise required.

The commission changed the rule to include the requirement to evaluate localized health effects.

These rules shall not be used to allow emissions increases that are determined by the commission

to be a threat to public health. Prior to authorization to use emissions reductions from outside the

U.S., the user's emissions are subject to a health effects review to ensure that harmful

concentrations of a pollutant do not occur off the property where the source is located. However,

the commission believes that prohibiting VOC trades would not be consistent with SB 1561, which

allows the trading of one nonattainment pollutant for another.

ED and HCPC commented that rules should be applied only in nonattainment areas on an international

border as SB 1561 amended the TCAA, §382.0172, International Border Areas. ED commented that,

if the bill were intended to apply to any nonattainment area of the state, it would have amended a more

generic statute. In its interpretation of SB 1561, ED does not believe that Texas Government Code,

§311.024, which states that the heading of a section does not limit or expand the meaning of a statute,

should be read in isolation, but that the commission should also consider legislative history and intent.

ED made a reference to the state senator who sponsored the bill, and who stated that SB 1561 would

give the commission the necessary authority to allow for greater flexibility in improving air quality

along the border region. HCPC commented that §§101.302(c)(4), 101.372(e)(6), and 101.338 are too

broad in scope and need additional language consistent with SB 1561 to clarify that the facilities outside

the U.S. are in the international border area with Mexico, and the reductions can only be used in the

13
corresponding border areas in Texas. EPA stated that only sources in the El Paso nonattainment area

could participate in the emissions substitution program.

The commission changed the rule in response to these comments. The commission believes the

legislature intended that SB 1561 apply to the border area because the statute amended TCAA,

§382.0172. The commission will restrict the use of this rule to facilities within 100 kilometers of

the Texas - Mexico border. This is consistent with the defInition of the border area contained in

the 1983 La Paz agreement. EI Paso is currently the only nonattainment area on the international

border with Mexico and is designated nonattainment for three criteria pollutants: ozone, carbon

monoxide, and PMlO" Additionally, the commission has demonstrated under the FCAA

Amendments of 1990, §818, that EI Paso would be in attainment for these pollutants were it not

for emissions from outside the U.S. Therefore, the commission believes that trading across the

international border will result in air quality improvement for this area.

ED commented that §101.338(a) does not contain the same level of detail as §101.302 regarding the

nature of acceptable emissions substitutions. ED stated that the word "are" should be substituted for

"may be" in §101.338{b). ED also commented that the commission should insert the word "monoxide"

after "carbon" in §101.372(a). ED also stated that the words "and using" in §101.372(a)(2) appear to

be unnecessary and inconsistent with the statute and that the word "an" appears twice in

§101.372(a)(2)(B).

The commission modilled the rule to make the requested changes and corrections.

14
EPA stated that it will be very difficult to determine if emissions reductions outside the V. S. have /

actually occurred and stated that some mechanism to ensure the permanence of the reductions is

necessary. The inability to inspect sources outside the V.S. will be a major difficulty in approval of the

emissions substitution program. Section 101.302(e)(4) names enforceability as a criterion, but there is

no mechanism for enforcement against facilities located outside the V.S. EPA stated that emission

reductions must be subject to monitoring, recordkeeping, and reporting requirements of the EPA

economic incentive programs (EIP) document. EPA added that the commission should clarify that

emission reductions used as credits must be enforceable in accordance with the EPA EIP guidance. In

the absence of an agreement that specifically addresses compliance, EPA suggested that the source

receiving the reduction credit will be subject to enforcement action and the immediate installation of

controls should the source that generates the credit outside the V.S. not monitor, keep records, or

report in English. EPA further stated that records from the source generating the credit must be kept at

the V.S. facility receiving the credits. The commission must address how the records from a foreign

source generating credits for use in the U.S. will be checked for accuracy. Sierra-Houston stated that

there are no criteria for determining when emission reductions are enforceable, quantifiable, and

surplus to any applicable federal, state, or local law.

The commission has not changed the rule in response to these comments. Prior to approving any

emissions reduction substitution, the commission intends to put enforceable requirements on the

user. For example, an enforceable requirement might be a permit condition requiring a contract

with a third party to inspect facilities outside the U.S. Ifthe inspection reveals violations, the user

of the reductions could then be held accountable by the commission. This type of plan could also

require that the user of reductions maintain records within Texas that demonstrate that the

Mexican source has accomplished and is maintaining the emissions reduction. Any individual

15
plan used to ensure that reductions outside the U.S. are actually occurring and are maintained

would be evaluated on a case-by-case basis. Any emission reductions from outside the U.S. must

meet the same criteria as ERC and DERC generation.

EPA stated that, in order to be surplus, reductions must not have been relied upon in the most recent

attainment demonstration approved by EPA or have the same qualitative effect on the environment.

The commission has not changed the rule in response to this comment. The commission agrees

with the EPA comment and will use these standards to help evaluate potential emission trades.

EPA stated the emission reductions must have been established by use of an emissions quantification

protocol that was pre-approved by EPA.

The commission has not changed the rule in response to this comment and intends to use EPAapproved protocols established by the new source review (NSR) section of the commission's Air

Permits Division.

EPA stated that emission reductions under TERP must be real, permanent, quantifiable, and

enforceable, and that these issues should be addressed in'proposed TERP rules. Until a TERP rule is

proposed, §101.357 must require that any emissions deferral be subject to EPA review and comment.

Section 101.357 must also clarify from which baseline an 80% emission reduction is accomplished.

The commission has not changed the rule in response to this comment, but agrees with EPA that

the reductions must be real, permanent, quantifiable, and enforceable. Any emission reduction

16
deferrals will be made available to the EPA until such time as a TERP rule is approved as a SIP

revision. Reductions will be determined from the 1997 emission inventory (EI) for DFW and

from the baseline as established under the Mass Emissions Cap and Trade (MEeT) program for

HGA. If a site is not subject to the MECT, the baseline will be the 1997 EI. The commission has

not included the baseline within the rule to allow flexibility should the baseline require a change.

Sierra-Houston stated that the proposal lacks the technical criteria that would determine whether it is

technically infeasible for a source to make a required reduction. EPA stated that §101.357(4) allows

impermissible executive director discretion in the determination of technical infeasibility.

The commission changed the rule in response to this comment. The commission will determine on

a case-by case basis whether a required reduction is technically infeasible. Technical

specifications and control technology are constantly changing and involve a wide range of

technologies and techniques. The commission does not believe it is possible to place a meaningful

summary of these technologies within the rule, but has added rule language stating that a

technical review will consider current technology, adaptability of technology to a particular

source, age and projected useful life of the source, and cost benefits at the time of application.

GHASP and ED commented that the $75,000 paid to the TERP fund for each ton of emissions

reduction deferrals should be used to finance reduction under TERP greater than one ton; and that to

prevent double counting of SIP reductions, the money should be used to finance reductions distinct

from those already in the SIP. GRASP and ED also stated that the rule should contain a provision that

any reductions accomplished under TERP remain in effect over the period for which the substitution is

17
granted. Finally, GHASP and ED stated that the definition of "site" must encompass an entire facility

and not just single emission units.

The commission has not changed the rule in response to this comment. Money collected from the

sale of TERP reductions will go back into the TERP fund and be distributed under TERP rules.

Reductions from the TERP will be based on mass tons; therefore, the reducing site does not

necessarily need to continue the reductions during the time span in which the reductions are used•.

For example, if a TERP reduction generates 100 tons of reductions over one year, a facility could

use those reductions at a rate of 50 tons over a two-year period. In addition, the commission has

not changed the dermition of "site" to encompass an entire facility in this rulemaking. However,

the dermition is being considered for proposal in Chapter 101 as part of the upset/maintenance

rule package (Rule Log Number 2001-075-101-AI) in the near future. The dermition, as currently

planned for that proposal, is: "(88) Site - The total of all stationary sources located on one or

more contiguous or adjacent properties, which are under common control of the same person (or

persons under common control)..•."

18
STAFF

RECOMMENDATIONS
SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 1: EMISSION CREDIT BANKING AND TRADING

§101.302

STATUTORY AUTHORITY

The amendment is adopted under Texas Water Code (TWC), §5.103, concerning Rules, which

authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC;

and under TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules

consistent with the policy and purposes of the TCAA. The amendment is also adopted under TCAA,

§382.011, concerning General Powers and Duties, which authorizes the commission to control the

quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the

commission to prepare and develop a comprehensive plan for proper control of the state's air. The

amendment is also adopted under TCAA, §382.0172(b), concerning International Border Area, as

amended by SB 1561, which authorizes the commission to make certain emission reduction

substitutions for emission reductions outside the U.S. The amendment is also adopted under SB 5 and

SB 1561, as passed by the 77th Legislature, 2001.

§101.302. General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs) and nitrogen

oxides (NOJ may qualify as emission credits. Reductions of other pollutants do not qualify as emission

credits under this division. Reductions of one pollutant may not be used to meet the requirements of

another pollutant, unless:

1
(1) urban airshed modeling demonstrates that one ozone precursor may be substituted

for another, subject to executive director and EPA approval;

(2) the facility(s) generating the emission reductions is located outside the United

States; and the substitution:

(A) results in a greater health benefit and is of equal or greater benefit to the

overall air quality of the area, as determined by the executive director;

(B) is from the reduction of an air contaminant for which the area has been

designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has

been designated as nonattainment; and

(C) is for any air contaminant for which the area has been designated as

nonattainment or leads to the formation of a criteria pollutant for which the area has been designated as

nonattainment; or

(3) the user of emission reductions substitutions under paragraph (2) of this subsection:

(A) demonstrates that the use of the reduction does not cause localized health

impacts, as determined by the executive director;

(B) submits all supporting information for calculations, modeling, and any

additional information requested by the executive director; and

2
(C) is located within 100 kilometers of the Texas - Mexico border.

(b) Emission reduction requirements.

(1) Emission reduction credits (ERCs) are generated from reductions beyond those

required. To be certified as an emission credit, an emission reduction must be enforceable, permanent,

quantifiable, real, and surplus. The emission credit must be surplus at the time it is created, as well as

when it is used. The certified reduction must have occurred after the most recent year of emissions

inventory used for state implementation plan (SIP) determinations for VOC and NOx, and the source's

annual emissions prior to the emission credit application must have been reported or represented in the

emissions inventory used for SIP determinations.

(2) Mobile emission reduction credits (MERCs) are generated from reductions beyond

those required, and derived from a calculation of the annual difference between the mobile source

emissions baseline and the projected emissions level after the MERC strategy has been put in place. To

be certified as a MERC, an emission reduction must be enforceable, permanent, quantifiable, real, and

surplus. The emission credit must be surplus at the time it is created, as well as when it is used. The

certified reduction must have occurred after the most recent year of emissions inventory used for SIP

determinations for VOC and NOx, the mobile source's emissions must have been represented in the

emissions inventory used for SIP determinations, and the applicable mobile sources must have been

included in the attainment demonstration baseline.

3
(3) Emission reductions from a source which are certified as emission credits under

this division cannot be recertified in whole or in part as credits under another division within this subchapter.

(c) Eligible sources. The following sources are eligible to generate emission credits:

(1) stationary sources (including area sources);

(2) any mobile source;

(3) any stationary source (including area sources) or mobile source associated with

actions by federal agencies under §101.30 of this title (relating to Conformity of General Federal

Actions to State Implementation Plans).

(d) Life of an emission credit.

(1) If an ERC is used prior to its expiration date, the ERC is effective for the life of

the applicable user source.

(2) Effective January 2, 2001, an ERC is available for use for 60 months from the date

of the emission reduction except to the extent regulatory changes occur after the date of reduction that

reduce the certified amount or invalidate the entire reduction for affected emission points. ERCs

certified or applied for prior to January 2, 2001 shall be available for use for 120 months from the date

of the emission reduction except to the extent regulatory changes occur after the date of the emission

4
reduction that reduce the certified amount or invalidate the entire reduction for affected emission points.

(e) Geographic scope. Except as provided in paragraph (4) of this subsection, only emission

reductions generated in ozone nonattainment areas can be certified. The trading of emission credits

may be discontinued by the executive director in whole or in part and in any manner, with commission

approval, as a remedy for problems resulting from trading in a localized area of concern. An emission

credit must be used in the nonattainment area in which it is generated unless:

(1) a demonstration has been made and approved by the executive director and the

EPA to show that the emission reductions achieved in another county, state, or nation provide an

improvement to the air quality in the county of use;

(2) the emission credit was generated in an ozone nonattainment area which has an

equal or higher nonattainment classification than the ozone nonattainment area of use, and a

demonstration has been made and approved by the executive director and the EPA to show that the

emissions from the ozone nonattainment area where the emission credit is generated contribute to a

violation of the national ambient air quality standard in the ozone nonattainment area of use;

(3) the user has obtained prior written approval of the executive director and the EPA;

or

(4) a facility is using emission reductions generated outside the United States which

have been determined by the executive director to be real, permanent, enforceable, quantifiable, and

5
surplus to any applicable international, federal, state, or local law and the result would provide a

greater health benefit to the area.

(f) The registry. All emission credit generators and users must register with the executive

director. A notice submitted by a generator or user will be posted to the registry. The registry will

assign a unique number to each certificate which will include the amount of emission reductions

generated. The registry will maintain current listings of all credits available or used for each ozone

nonattainment area.

(g) Recordkeeping. The user must maintain a copy of all notices and backup information

submitted to the registry during, and for at least two years after, the beginning of the use period. The

user must also make such records available upon request to representatives of the executive director,

EPA, and any local enforcement agency. The records shall include, but not necessarily be limited to:

(1) the name, emission point number, and facility identification number of each unit

using emission credits;

(2) the amount of emission credits being used by each unit; and

(3) the specific number, name, or other identification of emission credits used for each

unit.

(h) Public information. All information submitted with a notice or report regarding the nature

and quantity of emissions associated with the use or generation of an emission credit is public

6
information and may not be submitted as confidential. Any claim of confidentiality for this type of

information, or failure to submit all information, may result in the rejection of the emission reduction.

All non-confidential notices and information regarding the generation, use, and availability of emission

credits may be obtained from the executive director.

(i) Authorization to emit. An emission credit created under this division is a limited

authorization to emit VOC and/or NOx, unless otherwise defmed, in accordance with the provisions of

this section, the FCAA, and the TCAA, as well as regulations promulgated thereunder. An emission

credit does not constitute a property right. Nothing in this division may be construed to limit the

authority of the commission or the EPA to terminate or limit such authorization.

G) Program participation. The executive director has the authority to prohibit an organization

from participating in emission credit trading either as a generator or user, if the executive director

determines that the organization has violated the requirements of the program or abused the privileges

provided by the program.

7
SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 2: EMISSIONS BANKING AND TRADING OF ALLOWANCES

§101.338

STATUTORY AUTHORITY

The new section is adopted under TWC, §5.103, concerning Rules, which authorizes the commission

to adopt rules necessary to carry out its powers and duties under the TWC; and under TCAA,

§382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy

and purposes of the TCAA. The new section is also adopted under TCAA, §382.011, concerning

General Powers and Duties, which authorizes the commission to control the quality of the state's air;

and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and

develop a comprehensive plan for proper control of the state's air. The new section is also adopted

under TCAA, §382.0172(b), concerning International Border Areas, as amended by SB 1561, which

authorizes the commission to make certain emission reduction substitutions for emission reductions

achieved outside the U.S. This new section is also adopted under SB 5 and SB 1561, as passed by the

77th Legislature, 2001.

§101.338. -Emission Reductions Achieved Outside the United States.

(a) A grandfathered or electing electric generating facility (EGF) may use emission reductions

achieved outside the United States in substitution of allowances for the purposes of compliance with this

division provided that the emission reductions are enforceable, quantifiable, and surplus to any

applicable international, federal, state, or local law; are of greater health benefit; and are of equal or

greater benefit to overall air quality of the area, as determined by the executive director.

8
(b) A grandfathered or electing EGF may only use subsection (a) of this section if reductions

of criteria pollutants for which an area has been designated as nonattainment or air contaminants which

lead to the formation of a criteria pollutant for which an area has been designated as nonattainment are

substituted for any criteria pollutant for which the area has been designated as nonattainment or for air

contaminants which lead to the formation of a criteria pollutant for which an area has been designated

as nonattainment. The applicant must:

(1) demonstrate that the use of the reduction does not cause localized health impacts,

as determined by the executive director;

(2) submit all supporting information for calculations, modeling, and any additional

information requested by the executive director; and

(3) be located within 100 kilometers of the Texas - Mexico border.

9
SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 3: MASS EMISSIONS CAP AND TRADE PROGRAM

§101.357

STATUTORY AUTHORITY

The new section is adopted under TWC, §5.103, concerning Rules, which authorizes the commission

to adopt rules necessary to carry out its powers and duties under the TWC; and under TCAA,

§382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy

and purposes of the TCAA. The new section is also adopted under TCAA, §382.011, concerning

General Powers and Duties, which authorizes the commission to control the quality of the state's air;

and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and

develop a comprehensive plan for proper control of the state's air. The new section is also adopted

under THSC, §386.056, concerning Availability of Emissions Reductions in Certain Nonattainment

Areas, as amended by SB 5, which authorizes the commission to allow alternative methods of

compliance with air pollution regulations.

§101.357. Use of Emission Reductions Generated from the Texas Emissions Reduction Plan

(TERP).

(a) An owner or operator of a site as defined in §122.10 of this title (relating to General

Definitions) in the Houston/Galveston ozone nonattainment area may use nitrogen oxides (NOx)

emission reductions generated under the TERP in lieu of allowances for compliance with this division

provided that:

10
(1) the owner or operator of the site contributes to the TERP fund $75,000 per ton of

NOx emissions used, not to exceed 25 tons per year or 0.5 tons per day on a site-wide basis;

(2) the owner or operator of the site demonstrates to the executive director that the site

will be in full compliance with the applicable emission reduction requirements of this division and

Chapter 117 of this title (relating to Control of Air Pollution from Nitrogen Compounds) no later than

the fifth anniversary of the date on which the emission reductions would otherwise be required;

(3) emissions from the site are reduced by at least 80% of the required reductions;

(4) the reductions accomplished under the TERP have not been previously used to

meet reduction requirements under a state implementation plan attainment demonstration;

(5) the reductions accomplished under the TERP are used in the same nonattainment

area in which they are generated; and

(6) the executive director approves a petition submitted by the owner or operator of the

site that demonstrates that it is technically infeasible to comply with applicable emission reduction

requirements of this division and Chapter 117 of this title above 80% of the required reductions. When

considering technical infeasibility the executive director may consider, but will not be limited to:

(A) current technology;

(B) adaptability of technology to a particular source;

11
(C) age and projected useful life of a source; and

(D) cost benefits at the time of application.

(b) The emissions reductions funded under the TERP, and used to offset commission

requirements, shall be used to benefit the community in which the site using the emissions reductions is

located. If there are no eligible emissions reduction projects within the community, the commission

may authorize projects in an adjacent community. For purposes of this section, a community means a

Justice of the Peace precinct.

12
SUBCHAPTER H: EMISSIONS BANKING AND TRADING

DIVISION 4: DISCRETE EMISSION CREDIT BANKING AND TRADING

§101.372

STATUTORY AUTHORITY

The amendment is adopted under TWC, §5.103, concerning Rules, which authorizes the commission to

adopt rules necessary to carry out its powers and duties under the TWC; and under TCAA, §382.017,

concerning Rules, which authorizes the commission to adopt rules consistent with the policy and

purposes of the TCAA. The amendment is also adopted under TCAA, §382.011, concerning General

Powers and Duties, which authorizes the commission to control the quality of the state's air; and

§382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control of the state's air. The amendment is also adopted under

TCAA §382.0172(b), concerning International Border Area, as amended by SB 1561, which authorizes

the commission to make certain emission reduction substitutions for emission reductions achieved

outside the United States.

§101.372. General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs), nitrogen oxides

(NOx), carbon monoxide (CO), sulfur dioxide (S02)' and particulate matter with an aerodynamic

diameter of less than or equal to a nominal ten microns (PMIO) may qualify as discrete emission credits

as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant

may not be used to meet the reduction requirements for another pollutant, unless:

13
(1) urban airshed modeling demonstrates that one may be substituted for another or as

approved by the executive director and the EPA;

(2) the facility(s) generating the emission reductions is located outside the United

States and the substitution:

(A) results in a greater health benefit and is of equal or greater benefit to the

overall air quality of the area, as determined by the executive director;

(B) is from the reduction of an criteria pollutant for which the area has been

designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has

been designated as nonattainment; and

(C) is for any criteria polIutant for which the area has been designated as

nonattainment; or

(3) the user of emission reductions substitutions under paragraph (2) of this subsection:

(A) demonstrates that the use of the reduction does not cause localized health

impacts, as determined by the executive director;

(B) submits all supporting information for calculations, modeling, and any

additional information requested by the executive director; and

14
(C) is located within 100 kilometers of the Texas - Mexico border.

(b) Discrete emission credit requirements.

(1) Discrete emission reduction credit (DERC) - To be creditable as a DERC, an

emission reduction must be real, quantifiable, and surplus at the time the discrete emission credit is

generated. The creditable reduction must have occurred after the most recent year of emissions

inventory used for state implementation plan (SIP) determinations for all applicable pollutants and the

source's annual emissions prior to the discrete emission credit application must have been reported or

represented in the emissions inventory used for SIP determinations.

(2) Mobile discrete emission reduction credit (MDERC) - To be creditable as an

MDERC, an emission reduction must be quantifiable, real, and surplus. The discrete emission credi~

must be surplus at the time it is created. The creditable reduction must have occurred after the most

recent year of emissions inventory used for SIP determinations for all applicable pollutants, the mobile

source's emissions must have been represented in the emissions inventory used for SIP determinations,

and the mobile sources are in the attainment demonstration baseline. If a mobile reduction is

implemented that is not in the baseline for emissions, this would not constitute an emission reduction.

(3) Emission reductions from a source which are certified as discrete emission credits

under this division cannot be recertified in whole or in part as emission credits under another division

within this subchapter.

(c) Eligible sources include the following:

15
(1) stationary sources (including area sources);

(2) mobile sources; or

(3) any stationary source (including area sources) or mobile source associated with

actions by federal agencies under §101.30 of this title (relating to Conformity of General Federal

Actions to State Implementation Plans).

(d) Life of a discrete emission credit. A discrete emission credit is available for use after the

notice of generation, DC-1 Form, has been received and deemed creditable by the commission registry

in accordance with subsection (h) of this section, and may be used anytime thereafter.

(e) Geographic scope. Except as provided in paragraph (6) of this subsection, only emission .

reductions generated in the State of Texas may be creditable and used in the state with the following

limitations.

(1) VOC and NOx discrete emission credits generated in an ozone attainment area may

be used in any county or portion of a county designated as attainment or unclassified, but may not be

used in an ozone nonattainment area.

(2) VOC and NOx discrete emission credits generated in an ozone nonattainment area

may be used either in the same ozone nonattainment area in which they were generated, or in any

county or portion of a county designated as attainment or unclassified.

16
(3) VOC and NOx discrete emission credits generated in an ozone nonattainment area

may not be used in any other ozone nonattainment area, except as provided in this subsection.

(4) CO, S02' and PMIO discrete emission credits must be used in the same metropolitan

statistical area in which the reduction was generated.

(5) VOC and NOx discrete emission credits generated in other counties, states, or

nations can be used in any attainment or nonattainment county provided a demonstration has been made

and approved by the executive director and the EPA to show that the emission reductions achieved in

the other county, state, or nation improves the air quality in the county where the credit is being used.

(6) A facility may use discrete emission reductions generated outside the United States

provided that the emission reductions are quantifiable, real, and surplus to any applicable international,

federal, state, or local law and the result would provide a greater health benefit to the area as

determined by the executive director. The applicant must:

(A) demonstrate that the use of the reduction does not cause localized health

impacts, as determined by the executive director;

(B) submit all supporting information for calculations, modeling, and any

additional information requested by the executive director; and

(C) be located within 100 kilometers of the Texas - Mexico border.

17
(t) Trading discontinuation. The trading of discrete emission credits may be discontinued by

the executive director in whole or in part and in any manner, with commission approval, as a remedy

for problems resulting from trading in a localized area of concern.

(g) Ozone season. In areas having an ozone season of less than 12 months, VOC and NOx

discrete emission credits generated outside the ozone season may not be used during the ozone season.

(h) The registry. All required notices of discrete emission credit generators and users must be

submitted to the registry. A notice submitted by a generator or user will be reviewed for credibility

and when deemed certified, posted to the registry. The registry will assign a unique number to each

ton of emission reductions generated. The registry will maintain current listings of all credits available

or used for each ozone nonattainment area. One combined listing for all the counties or portions of

cOunties designated as attainment or unclassified will be provided by the registry.

(i) Recordkeeping. The generator must maintain a copy of all notices and backup information

submitted to the registry for a minimum of five years, following the completion of the generation

period. The user must maintain a copy of all notices and backup information submitted to the registry

for a minimum of five years, following the completion of the use period. Other relevant reference

material or raw data must also be maintained on-site by the participating sources. The user must also

maintain a copy of the generator's notice and backup information for a minimum of five years after the

use is completed. The records shall include, but are not necessarily limited to:

(1) the name, emission point number (EPN), and facility identification number (FIN)

of each unit using discrete emission credits;

18
(2) the amount of discrete emission credits being used by each unit; and

(3) the specific number, name, or other identification of discrete emission credits used

for each unit.

(j) Public information. All information submitted with a notice or report regarding the nature

and quantity of emissions associated with the use or generation of discrete emission credits is public

information and may not be submitted as confidential. Any claim of confidentiality for this type of

material or failure to submit all information may result in the rejection of the emission reduction. All

non-confidential notices and information regarding the generation, use, and availability of discrete

emission credits may be obtained from the registry.

(k) Authorization to emit. A discrete emission credit created under this division is a limited

authorization to emit the specified pollutants in accordance with the provisions of this section, the

FCAA, and the TCAA, as well as regulations promulgated thereunder. A discrete emission credit does

J

not constitute a property right. Nothing in this division should be construed to limit the authority of the

commission or the EPA to terminate or limit such authorization.

(1) Program participation. The executive director has the authority to prohibit a company from

participating in discrete emission credit trading either as a generator or user, if the executive director

determines that the company has violated the requirements of the program or abused the privileges

provided by the program.

19
TEXAS NATURAL RESOURCE CONSERVATIQ~.~QMMl~SION COUNTY OF TRAVIS •

I hereby certify that this is a true and correct copy of a Texas Natural

Resource Conservation Commission document. which is filed in the

permanent records orthe Commission. .

.~:C:;2J:~oZJ~1. 15 2002 ~~~astai\Uela. ChiefClerk

rex .. Natural Resource

(~ol1St;rvatlon Commission

ORDER ADOPTING NEW AND AMENDED RULES AND

REVISIONS TO THE STATE IMPLEMENTATION PLAN

Docket No. 2001-1281-RUL

On March 13, 2002, the Texas Natural Resource Conservation Commission (Commission),

during a public meeting, considered adoption of amended §101.302 and §101.372 and new §101.338

and §101.357. The Commission adopts these new and amended sections in Chapter 101, General Air

Quality Rules; Subchapter H, Emissions Banking and Trading; and corresponding revisions to the state

implementation plan (SIP) in order to control ground-level ozone and other criteria pollutants in

nonattainment areas in the state. Section 101.357 applies in the Houston/Galveston nonattainment area

to allow substitution of nitrogen oxides emissions reductions accomplished under the Texas Emissions

Reduction Plan for those otherwise required under the rules of the Commission and the SIP; and

§§101.302, 101.338, and 101.372 allow substitution of emission reductions of criteria pollutants

accomplished outside the United States for reductions in such pollutants within Texas if the executive

director and the U.S. Environmental Protection Agency (EPA) determine that the substitution is of

greater benefit to the area. Under Tex. Health & Safety Code Ann. §§382.011, 382.012, and 382.023

(Vernon 2001), the Commission has the authority to control the quality of the state's air and to issue

orders consistent with the policies and purposes of the Texas Clean Air Act, Chapter 382 of the Tex.

Health & Safety Code. The proposed rules were published for comment in the November 23, 2001

issue of the Texas Register (26 TexReg 9513).

Pursuant to Tex. Health & Safety Code Ann. §382.017 (Vernon 2001), Tex. Gov't Code

Chapter 2001 (Vernon 2000 & Vernon Supp. 2001) and 40 Code of Federal Regulations §51.102 and

after proper notice, the Commission conducted public hearings to consider the proposed new and

amended rules and revisions to the SIP. Proper notice included prominent advertisement in the areas

affected at least 30 days prior to the dates of the hearings. Public hearings were held in El Paso on

December 17,2001 and Houston on December 18,2001.

The Commission circulated hearing notices of its intended action to the public, including

interested persons, the Regional Administrator of the EPA, and all applicable local air pollution control

agencies. The public was invited to submit data, views, and recommendations on the proposed new and

amended rules and SIP revisions, either orally or in writing, at the hearings or during the comment

period. Prior to the scheduled hearings copies of the proposed new and amended rules and SIP

revisions were available for public inspection at the Commission's central office and regional offices.

Data, views, and recommendations of interested persons regarding the proposed new and

amended rules and SIP revisions were submitted to the Commission during the comment period, and

were considered by the Commission as reflected in the analysis of testimony incorporated by reference

to this order. The Commission fmds that the analysis of testimony includes the names of all interested

groups or associations offering comment on the proposed new and amended rules and the SIP revisions

and their position concerning the same.
IT IS THEREFORE ORDERED BY THE COMMISSION that the new and amended rules and

revisions to the SIP incorporated by reference to this Order are hereby adopted. The Commission

further authorizes staff to make any non-substantive revisions to the rules necessary to comply with

Texas Register requirements. The adopted rules and the preamble to the adopted rules and the revisions

to the SIP are incorporated by reference in this Order as if set forth at length verbatim in this Order.

Legal counsel has reviewed and certified that these rules, as adopted, are a valid exercise of the

Commission's legal authority. The certification is incorporated by reference in this Order as if set forth

verbatim.

IT IS FURTHER ORDERED BY THE COMMISSION that on behalf of the Commission, the

Chairman should transmit a copy of this Order, together with the adopted rules and revisions to the SIP,

to the Regional Administrator of EPA as a proposed revision to the Texas SIP pursuant to the Federal

Clean Air Act, §110, as amended.

This Order constitutes the Order of the Commission required by the Administrative Procedure

Act, Government Code, §2001.033.

If any portion of this Order is for any reason held to be invalid by a court of competent

jw:isdiction, the invalidity of any portion shall not affect the validity of the remaining portions.

Date issued: JUL 10 2002 TEXAS NATURAL RESOURCE

CONS nON COMMISSION
J

(a) Report required. A tten report shall be prepared in connection with any audit authorized r required pursuant to this subchapter.

(b) Contents ofreport. T written report must include a management letter containing the foil 'ng items, as applicable;

(1) the criteria selecte to measure effectiveness and efficiency;

(2) internal controls;

(3) compliance with s te or federal laws;

(4) conditions found y auditors and the effects of such

conditions; and

(5) any recommendati ns for improving operations or program effectiveness.

(c) Required opinion. Th report also must include an opinion

on fair presentation offinancial s ements when included as part ofthe

scope of the audit.

(d) Supplemental items t be reported. The auditing entity's

reportshould also include, to the e tent necessary, each ofthe following

items:

(1) an analysis ofthe verall performance ofthe entity being audited;

(2) an analysis of the udited entity's financial operations

and condition; and

(3) an analysis ofrec ipts and expenditures made by each

audited entity.

(e) Filing requirements r audits. Copies of the auditing entity's report shall be filed with th Commissioner ofInsurance no later

than 30 days after the audits are resented to the board of directors of

the audited guaranty association. Any response to the report by the

board ofdirectors must be submit ed to the commissioner no later than

the next meeting ofthe board of irectors.

(t) Audits excluded. Thi subchapter shall not apply to audits

made by the Office ofthe State uditor.

This agency hereby certifies th t the adoption has been reviewed

by legal counsel and found to e a valid exercise of the agency's

legal authority.

Filed with the Office ofthe Sec etary of State on March 14,2002.

TRD-200201582

Lynda Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: April 3, 2002

Proposal publication date: Nove er 30, 2001

For further information, please ca : (512) 463-6327

• • •

TITLE 30. ENVIRONMENTAL QUALITY

PART 1. TEXAS NATURAL RESOURCE

CONSERVATION COMMISSION

CHAPTER 101. GENERAL AIR QUALITY

RULES

27 TexReg 2510 March 29,2002 Texas Register

SUBCHAPTER H. EMISSIONS BANKING

AND TRADING

The Texas Natural Resource Conservation Commission (commission) adopts amendments to §101.302 and §101.372; new

§101.338 and §101.357; and corresponding revisions to the

state implementation plan (SIP). Sections 101.302, 101.338,

101.357, and 101.372 are adopted with changes to the proposed text as published in the November 23, 2001, issue of the

Texas Register, (26 TexReg 9513).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS

FOR THE ADOPTED RULES

The commission adopts these amendments and new-sections in

order to control ground-level ozone and other criteria pollutants

in nonattainment areas in the state, and to implement Senate Bill

(SB) 5 (an act relating to the Texas emissions reduction plan) and

SB 1561 (an act relating to the acceptance by the Texas Natural

Resource Conservation Commission of certain ,emissions reductions in exchange for other emissions reductions), 77th Legislature, 2001.

The 77th Legislature adopted SB 5 to establish and provide

for the administration of the Texas Emissions Reduction Plan

(TERP). The TERP is a comprehensive plan to reduce emissions of air contaminants from mobile sources. The program

offers subsidies for the replacement of older diesel engines

with more efficient diesels with lower emissions and for the

purchase of automobiles with low emissions. The program

is funded in part through surcharges and fees on the lease,

sale, and registration of certain diesel-powered vehicles. The

plan is also partially funded by contributions from owners or

operators of stationary sources of nitrogen oxides (NO.) in

the Houston/Galveston (HGA) or Dallas/Fort Worth (DFW)

ozone nonattainment areas. These owners or operators may

substitute emissions reductions made under the plan for those

reductions otherwise required under the commission's rules;

such substitutions require a contribution to the fund based on

the amount of emissions reductions substituted. This adopted

rulemaking implements the relevant portions of SB 5 concerning

these contributions to the TERP fund in the HGA area, as

described in greater detail in the SECTION BY SECTION

DISCUSSION portion of this preamble.

This rulemaking also implements the prOVisions of SB 1561. This

legislation allows surplUS emission reductions achieved outside

the United States (U.S.) to satisfy emission reduction requirements in Texas by allowing reductions in one nonattainment air

contaminant to substitute for reductions in another nonattainment air contaminant under the specific conditions described in

the SECTION BY SECTION DISCUSSION portion of this preamble.

SECTION BY SECTION DISCUSSION

The adopted amendments to §101.302, General Provisions, address the relationship of the reqUirements of SB 1561 and the

generation of emission reduction credits (ERCs). The amendments allow emission reductions from facilities located outside

the U.S. to be used to meet the requirements for reductions in

another pollutant in Texas, provided the executive director determines that the substitution results in a greater health benefit or

is of equal or greater benefit to the overall air quality of the area.

The executive director will make this determination. The amendments involve the SUbstitution of a reduction of a criteria pollutant

for which the area has been designated as nonattainment for a
required reduction for any criteria pollutant for which the area is

also designated as a nonattainment area. The substitution must

clearly result in greater health benefits for the community as a

whole than would reductions at the original facility. In response

to public comment, the commission has amended the rule language to state that the substitution must not cause harm to public

health in the area around the facility using the emission substitution. When determining whether an emissions reduction outside

the U.S. will be of greater health benefit, the executive director

may consider the amount of air contaminant removed, the frequency that concentrations of an air contaminant have exceeded

the national ambient air quality standard (NAAQS), existing air

quality demonstrations performed under SIP requirements, the

air quality index, and any other information which would indicate

a clear benefit of a proposed emission reduction. For example,

consider a proposed reduction of particulate matterwith an aerodynamic diameter of less than or equal to a nominal ten microns

(PM,.) instead of a required NO, reduction. The de minimis netting threshold for NO, is 40 tons per year (tpy) while the threshold

for PM,. is ten tpy. The lower netting threshold for PM,. indicates

that a reduction in that pollutant would be of greater significance

than a numerically equivalent reduction of NO,. The commission

believes that this greater significance could be part of a demonstration that such a substitution would be of greater health benefit

and overall air quality improvement depending on the documentation and the ability to enforce the reduction in Mexico. While

the commission will closely examine any proposed emission reduction under this rule, it does not at this time plan to specify or

endorse any particular method of demonstration. The commission recognizes the influence of air contaminant sources outside

the U.S. on the EI Paso airshed and will to encourage emission

reductions under this rule. This rule would not affect federally

required reductions.

In orderfor the reductions to be eligible for sU,bstitution, they must

be real, permanent, quantifiable, enforceable, and surplus to any

applicable international, federal, state, or local law. Reductions

of contaminants other than volatile organic compounds (VOG)

and NO, will not qualify as ERCs.

The adopted new §101.338, Emission Reductions Achieved Outside the United States, applies the provisions of S8 1561 to the

existing emission credit system for electric generating facilities.

This system was created under the implementation of S8 7 from

the 76th Legislature, 1999. This new section allows the substitution of reductions of one criteria pollutant for another crUeria pollutant provided the substitution meets the same requirements as

stated in the description of 101.302. In response to public comment, the commission added additional language in subsection

(a) that describes under what conditions emissions substitutions

may be used and replaced the phrase "may be" with "are" in subsection (b).

The adopted new §101.357, Use of Emission Reductions Generated from the Texas Emission Reduction Plan (TERP), allows

site owners or operators in the HGA nonattainment area to defer

a portion of their required NO, emissions under applicable commission rules by using emissions reductions generated underthe

TERP. The TERP reductions may be used if the owner or operator does the following: contributes to the TERP fund $75,000

per ton of NO, reductions used, not to exceed 25 tpy or 0.5 tons

per day (tpd) on a site-wide basis; demonstrates to the executive director that the sUe will be in full compliance with applicable

rules no later than five years after the anniversary of the date

the emissions reductions would have normally been required;

, ":

reduces emissions from the site at least 80% of the reqUired reductions; and receives approval from the executive director of a

petition from the owner or operator that demonstrates that it is

technically infeasible to comply with the applicable emission reductions of 30 TAC Chapter 117, Control of Air Pollution from Nitrogen Compounds. In order to ensure that TERP reductions are

not used twice to meet SIP reductions, the commission added a

restriction that TERP emissions used to meet stationary source

reduction requirements must not have been previously used to

meet reduction requirements under a SIP attainment demonstration. For consistency with S8 5, the commission also added a

restriction that TERP credits must be used in the same nonattainment area in which they are generated and a requirement that

emission reduction projects funded under TERP must be used

to benefit the community in which the site using TERP emission

reduction credits is located.

The adopted amendments to §101.372, General Provisions, address the relationship ofS8 1561 requirements to the generation

of discrete emission reduction credits (DERCs). The adopted

amendments allow the substitution of emission reductions in

one nonattainment air contaminant for reductions of another

nonattainment air contaminant under the same restrictions as

described for 101.302. Reductions of contaminants other than

VOC and NO, will not qualify as DERCs. In response to public

comment, the commission also corrected typographical errors

and deleted the phrase "and using" from §101.372(a)(2).

New §117.571, which is being adopted concurrently in this issue

of the Texas Register (Rule Log Number 2001-025d-117-AI), allows site owners or operators to defer NO emissions reductions

in the DFW ozone nonattainment area by using reductions under the TERP. The conditions on the use of these reductions are

identical to those described for §101.357.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the adopted rufemaking in light of

the draft regulatory analysis requirements of Texas Government

Code, §2001.0225 and has determined that the adopted rulemaking does not meet the definition of a "major environmental

rule." Furthermore, it does not meet any of the four applicability

requirements listed in §2001.0225(a). A "major environmental

rule" means a rule which has as its specific intent to protect the

environment or reduce risks to human health from environmental exposure, and that may adversely affect in a material way

the economy, a sector of the economy, productivity, competition,

jobs, the environment, or the public health and safety of the

state or a sector of the state. The adopted rules implementS8 1561 and allow the substitution of emissions reductions

of one criteria pollutant, accomplished outside the U.S.. for

emissions reductions of another criteria pollutant in Texas.

This substitution will occur only under specific conditions as

described in the SECTION 8Y SECTION DISCUSSION. The

adopted rules also implement certain requirements of S8 5

and allow the deferral of NO emissions reductions in the HGA

nonattainment area under specific conditions described in the

SECTION 8Y SECTION DISCUSSION portion of this preamble.

The adopted rulemaking increases the compliance options for

industries currently regulated by the commission. The adopted

amendments and new sections do not increase the stringency

of existing rules and will not adversely affect, in a material way,

the economy, a sector of the economy, productivity, competition,

jobs, the environment, or the public health and safety of the

state or a sector of the state.

ADOPTED RULES March 29, 2002 27 TexReg 2511
In addition, Texas Government Code, §2001.0225, only applies

to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of

state law, unless the rule is specifically required by federal law;

3) exceed a requirement of a delegation agreement or contract

between the state and an agency or representative of the federal government to implement a state and federal program; or

4) adopt a rule solely under the general powers of the agency

instead of under a specific state law. This rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the adopted rules do not meet any of the four applicability

requirements. Specifically, the amendments and new sections

implement the requirements of Texas Health and Safety Code

(THSC), Texas Clean Air Act (TCM), §386.056 and §382.0172.

TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact assessment for

the adopted rules. Promulgation and enforcement of the rules

will not burden private real property. The adopted rules do not

affect private property in a manner which restricts or limits an

owner's right to the property that would otherwise exist in the

absence of a governmental action. Consequently, these rules

do not meet the definition of a takings under Texas Government

Code, §2007.002(5). These rules are specifically adopted

to implement the requirements of THSC, TCM, §386.052

and §382.0172, and address alternative methods of meeting

emission reduction requirements and emissions reduction

substitutions respectively. Therefore, these revisions do not

constitute a takings under Texas Government Code, Chapter

2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that the rulemaking relates to an

action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of

1991, as amended (Texas Natural Resources Code, §§33.201

et seq.), and the commission's rules in 30 TAC Chapter 281,

Subchapter B, concerning Consistency with the Texas Coastal

Management Program. As required by 30 TAC §281.45(a)(3)

and 31 TAC §505.11(b)(2), relating to actions and rules subject

to the CM?, commission rules governing air pollutant emissions

must be consistent with the applicable goals and policies of the

CMP. The commission reviewed this action for consistency with

the CMP goals and policies in accordance with the regUlations

of the Coastal Coordination Council and has determined that the

adopted rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) of protecting and preserving the

quality and values of coastal natural resource areas, and the policy in §501.14(q), which requires that the commission protect air

quality in coastal areas. The adopted rulemaking addresses alternative methods of meeting emission reduction requirements

and emissions reduction substitutions. No new emissions of criteria pollutants are authorized by these rules.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING

PERMITS PROGRAM

The adopted rulemaking is part of the state's ozone attainment

strategy; therefore, these rules will be submitted as part of the

SIP. As a result, the rules will become applicable requirements

under the federal operating' permit program.

HEARINGS AND COMMENTERS

27 TexReg 2512 March 29, 2002 Texas Register

The commission held public hearings on this proposal in EI

Paso on December 17,2001, and in Houston on December 18,

2001. The comment period closed on January 7, 2002. The EI

Paso Electric Company (EPE); Environmental Defense (ED);

Galveston-Houston Association for Smog Prevention (GHASP);

Harris County Public Health and Environmental Services, Pollution Control Division (HCPC); Sierra Club, Houston Regional

Group (Sierra-Houston); and U.S. Environmental Protection

Agency (EPA) submitted comments. ED submitted comments

separately and also on GHASP letterhead. The EPE, ED,

GHASP, HCPC, and EPA generally supported the proposal with

suggested changes. Sierra-Houston generally opposed the

proposal.

RESPONSE TO COMMENTS

Sierra-Houston, ED, and EPA stated that there is no criteria for

deciding whether an emissions substitution will result in a greater

health benefit to the overall air quality of the area, and that the

lack of criteria will allow the executive director to operate in an

arbitrary and capricious manner. They also stated that the criteria and procedures used to determine "greater health benefit" should be defined in the rule. Sierra-Houston opposed the

substitution of reductions of one pollutant from a source outside

the U.S. for reductions of another pollutant otherwise reqUired in

Texas. Sierra-Houston stated that the proposal ignored the effects of the mix of air pollutants.

The commission has not changed the rules in response to this

comment. When determining whether an emissions reduction

outside the U.S. will be of greater health benefit, the commission

will consider the amount of air contaminant removed, the frequency that concentrations of an air contaminant have exceeded

the NMOS, existing air quality demonstrations performed under

SIP requirements, the air quality index. and any other information which would indicate a clear benefit of a proposed emission

reduction. While the commission will closely examine any proposed emission reduction under these rules, it does not want to

specify or endorse any particular method of demonstration. The

commission recognizes the influence of air contaminant sources

outside the U.S. on the EI Paso airshed and wishes to encourage emission reductions under these rules. These rules would

not affect federally required reductions. Subsequent and identical trades involving the same participants may not require any

further demonstration.

Sierra-Houston stated that nothing ensures the permanent removal of air contaminants from sources outside the U.S. and

questioned how the commission can enforce against a source

in Mexico. ED questioned whether a U.S. or Texas regulatory

agency would have the authority to inspect monitoring systems'

and documentation to ensure comparability of emission reductions. ED suggested enforcement strategies that included permit

conditions, memoranda of understanding between government

agencies, and contracts between private parties with incentives

to promote compliance.

The commission believes reductions outside the U.S. can be enforceable and has not changed the rule in response to these

comments. Prior to approving any emission substitution, the

commission intends to put enforceable requirements on the user

of the reduction. For example, an enforceable requirement could

be a permit condition requiring a contract with a third party to

inspect facilities outside the U.S. If the inspection reveals violations, the user of the reductions would then be held accountable

by the commission. This type of plan could also require that the
user of reductions maintain records within Texas that demonstrate the Mexican source has accomplished and is maintaining

the emissions reduction. Any individual plan used to ensure that

reductions outside the U.S. are actually occu'rring and are maintained would be evaluated on a case-by-case basis.

Sierra-Houston stated that a severe ozone nonattainment area

such as HGA should be required to make all available reductions. Sierra-Houston commented that this is particularly important because the current Houston SIP has a 56 tpd reduction

deficit. Sierra-Houston also stated that TERP emission reductions should not be allowed as a substitution for reduction currently required of stationary sources, but rather both sets of reductions should be made.

The commission has not changed the rules in response to this

comment. The rules require that emission substitution from the

TERP occur on a ton-for-ton basis so that all reductions required

under the HGA attainment demonstration will be accomplished.

The TERP allows the user of TERP emission reductions to delay

up to 20% of its required emissions for five years. At the end

of this period, any delayed reductions will be surplus to those

required under the SIP. Regarding the 56-ton emission reduction

deficit, the commission will address the deficit in the 2004 review

of the HGA SIP.

EPE expressed concern that the rule as proposed did not specifically mention any provisions for the creation of emission offset

credits. This possibility of creating offsets is the principal motivation for EPE to continue work to reduce brick kiln emissions in

Ciudad Juarez. ED expressed concern that emission reductions

achieved in Mexico may not meet federal nonattainment requirements for compliance with the Federal Clean Air Act (FCAA) because cross-border transactions seem to be limited to the U.S.

under the FCAA definitions.

The commission has not changed the rules in response to these

comments. The rules do not restrict the use of offsets; however,

the offset user must meet the requirements and intent of all federal, state, and local rules and regulations.

ED anticipated that emission reduction substitution will be a

complex business when conducted across an international

border and recommended the commission first establish regulations that deal with the single pollutant trading.

The commission has not changed the rule in response to this

comment. The commission acknowledges that the international

trading of emission credits makes issues, such as enforcement

and verification, more complex as compared to trading within the

U.S. However, the commission believes that such a program can

be successfully implemented and will be an effective program to

reduce air pollutants in the border area. The commission also

believes that tools such as third- party inspections, contracts,

and credit userliability can be effective. Finally, the adopted rules

reflect the intent of SB 1561 which does not limit trades to one

pollutant.

ED recommended the inter-pollutant trades be restricted to those

involving precursors for the same resulting pOllutant, and stated

that this recommendation is consistent with EPA guidance concerning inter-pOllutant trading.

The commission has not changed the rule in response to this

comment. The commission believes that the intent of SB 1561

is to allow the substitution of emission reductions in one nonattainment pollutant for reductions otherwise required in another,

as long as there is an improvement to the overall health benefit

and general air quality in the affected area. The commission acknowledges that some trades may not meet federal regUlations

and may not be approved.

ED stated that a source that elects to use emissions trading be

required to demonstrate that the benefit derived from the trade

does not come at public health detriment or lower environmental

performance.

The commission agrees and amended the rules in response to

this comment. In order for a trade to be considered a greater

benefit, the emission reduction outside the U.S. must result in

no harmful local health effects through the avoidance of reductions otherwise required in Texas. The trade must also result in

a greater health benefit as determined by the executive director. Both of these demonstrations would be accomplished using methods approved by the executive director, including, but

not limited to, air dispersion modeling. The commission may require this demonstration only for the initial trade. Subsequent

and identical trades involving the same participants may not require further demonstration. .

ED commented that emissions trading could increase local effects from hazardous air pollutants or diminish the benefits a local community might have realized under a reduction program.

ED used the example of a source acquiring credits and using the

credits to avoid a reduction in a hazardous air pollutant such as

benzene. ED stated that the commission rules should contain

safeguards to protect low-income and minority populations adjacent to sources of toxic emissions. In addition, ED stated that

the commission should prohibit trading in situations where vac

reductions are otherwise required.

The commission changed the rule to include the requirement to

evaluate localized health effects. These rules shall not be used

to allow emissions increases that are determined by the commission to be a threat to public health. Prior to authorization to use

emissions reductions from outside the U.S., the user's emissions

are subject to a health effects review to ensure that harmful concentrations of a pollutant do not occur off the property where the

source is located. However, the commission believes that prohibiting vac trades would not be consistent with SB 1561, which

allows the trading of one nonattainment pollutant for another.

ED and HCPC commented that rules should be applied only

in nonattainment areas on an international border as SB 1561

amended the TCAA, §382.0172, International Border Areas.

ED commented that, if the bill were intended to apply to any

nonattainment area of the state, it would have amended a more

generic statute. In its interpretation of SB 1561, ED does not

believe that Texas Government Code, §311.024, Which states

that the heading of a section does not limit or expand the

meaning of a statute, should be read in isolation, but that the

commission should also consider legislative history and interit.

ED made a reference to the state senator who sponsored the

bill, and who stated that SB 1561 would give the commission the

necessary authority to allow for greater flexibility in improving

air quality along the border region. HCPC commented that

§§101.302(c)(4), 101.372(e)(6), and 101.338 are too broad in

scope and need additional language consistent with SB 1561 to

clarify that the facilities outside the U.S. are in the international

border area with Mexico, and the reductions can only be used in

the corresponding border areas in Texas. EPA stated that only

sources in the EI Paso nonattainment area could participate in

the emissions substitution program.

ADOPTED RULES March 29, 2002 27 TexReg 2513
The commission changed the rule in response to these comments. The commission believes the legislature intended that

SB 1561 apply to the border area because the statute amend~d

TCM, §382.0172. The commission will restrict the us~ of thIs

rule to facilities within 100 kilometers of the Texas - MexIco border. This is consistent with the definition of the border area contained in the 1983 La Paz agreement. EI Paso is currently the

only nonattainment area on ~he international b~rd~r with Mex~

ico and is designated nonattalnment for three cntena pollutants.

ozone, carbon monoxide, and PM,.. Additionally, the commission has demonstrated under the FCM Amendments of 1990,

§818, that EI Paso would be in attainment for these pollutants

were it not for emissions from outside the U.S. Therefore, the

commission believes that trading across the international border

will result in air quality improvement for this area.

ED commented that §1 01.338(a) does not contain the same level

of detail as §101.302 regarding the nature of acceptable emissions substitutions. ED stated that the word "are" should be substituted for "may be" in §101.338{b). ED also commented that

the commission should insert the word "monoxide" after "carbon" in §101.372{a). ED also stated that the words "and using" in §101.372{a){2) appear to be unnecessary and inc~nsi~­

tent with the statute and that the word "an" appears twIce In

§101.372{a)(2)(B).

The commission modified the rule to make the requested

changes and corrections.

EPA stated that it will be very difficult to determine if emissions

reductions outside the U.S. have actually occurred and stated

that some mechanism to ensure the permanence of the reductions is necessary. The inability to inspect sources outside the

U.S. will be a major difficulty in approval of the emissions substitution program. Section 101.302{e){4) names enforceability as

a criterion but there is no mechanism for enforcement against

facilities I~cated outside the U.S. EPA stated that emission reductions must be SUbject to monitoring, recordkeeping, and reporting requirements of the EPA economic incentive programs

(EIP) document. EPA added that the commission should clarify that emission reductions used as credits must be enforceable in accordance with the EPA EIP guidance. In the absence

of an agreement that specifically addresses compliance, EPA

suggested that the source receiving the reduction credit will be

SUbject to enforcement action and the immediate installation of

controls should the source that generates the credit outside the

U.S. not monitor, keep records, or report in English. EPA further

stated that records from the source generating the credit must

be kept at the U.S. facility receiving the credits. The commission must address how the records from a foreign source generating credits for use in the U.S. will be checked for accuracy.

Sierra-Houston stated that there are no criteria for determining

when emission reductions are enforceable, quantifiable, and surplus to any applicable federal, state, or local law.

The commission has not changed the rule in response to these

comments. Prior to approving any emissions reduction substitution, the commission intends to put enforceable requirements on

the user. For example, an enforceable requirement might be a

permit condition reqUiring a contract with a third party to inspect

facilities outside the U.S. If the inspection reveals violations, the

user of the reductions could then be held accountable by the

commission. This type of plan could also require that the user of

reductions maintain records within Texas that demonstrate that

the Mexican source has accomplished and is maintaining the

emissions reduction. Any individual plan used to ensure that

27 TexReg 2514 March 29, 2002 Texas Register

reductions outside the U.S. are actually occurring and are maintained would be evaluated on a case-by-case basis. Any emission reductions from outside the U.S. must meet the same criteria as ERC and DERC generation.

EPA stated that, in order to be surplus, reductions must not have

been relied upon in the most recent attainment demonstration

approved by EPA or have the same qualitative effect on the environment.

The commission has not changed the rule in response to this

comment. The commission agrees with the EPA comment and

will use these standards to help evaluate potential emission

trades.

EPA stated the emission reductions must have been established

by use of an emissions quantification protocol that was pre-approved by EPA.

The commission has not changed the rule in response to

this comment and intends to use EPA-app~oved protocols

established by the new source review (NSR) section of the

commission's Air Permits Division.

EPA stated that emission reductions under TERP must be real,

permanent, quantifiable, and enforceable, and that these issues

should be addressed in proposed TERP rules. Until a TERP rule

is proposed, §101.357 must require that any emissions deferral

be SUbject to EPA review and comment. Section 101.357 must

also clarify from which baseline an 80% emission reduction is

accomplished.

The commission has not changed the rule in response to this

comment, but agrees with EPA that the reductions must be real,

permanent, quantifiable, and enforceable. Any emission reduction deferral will be made available to the EPA until such time as

a TERP rule is approved as a SIP revision. Reductions will be

determined from the 1997 emission inventory (EI) for DFW and

from the baseline as established under the Mass Emissions Cap

and Trade (MECT) program for HGA.lf a site is not SUbject to the

MECT, the baseline will be the 1997 EI. The commission has not

included the baseline within the rule to allow flexibility should the

baseline require a change.

Sierra-Houston stated that the proposal lacks the technical

criteria that would determine whether it is technically infeasible

for a source to make a required reduction. EPA stated that

§101.357(4) allows impermissible executive director discretion

in the determination of technical infeasibility.

The commission changed the rule in response to this comment.

The commission will determine on a case-by case basis whether

a required reduction is technically infeasible. Technical specifications and control technology are constantly changing and involve

a wide range of technologies and techniques. The commission

does not believe it is possible to place a meaningful summary of

these technologies within the rule, but has added rule language

stating that a technical review will consider current technology,

adaptability of technology to a particular source, age and projected useful life of the source, and cost benefits at the time of

application.

GHASP and ED commented that the $75,000 paid to the TERP

fund for each ton of emissions reduction deferrals should be used

to finance reduction under TERP greater than one ton; and that

to prevent double counting of SIP reductions, the money should

be used to finance reductions distinct from those already in the

SIP. GHASP and ED also stated that the rule should contain a

provision that any reductions accomplished under TERP remain
in effect over the period for which the substitution is granted.

Finally, GHASP and ED stated that the definition of "site" must

encompass an entire facility and not just single emission units.

The commission has not changed the rule in response to this

comment. Money collected from the sale of TERP reductions

will go back into the TERP fund and be distributed under TERP

rules. Reductions from the TERP will be based on mass tons;

therefore, the reducing site does not necessarily need to continue the reductions during the time span in which the reductions

are used. For example, if a TERP reduction generates 100 tons

of reductions over one year, a facility could use those reductions

at a rate of 50 tons over a two-year period. In addition, the commission has not changed the definition of "site" to encompass an

eritire facility in this rulemaking. However, the definition is being

considered for proposal in Chapter 101 as part ofthe upset/maintenance rule package (Rule Log Number 2001-075-101-AI) in

the near future. The definition, as currently planned for that proposal, is: "(88) Site - The total ofall stationary sources located on

one or more contiguous or adjacent properties, which are under

common control of the same person (or persons under common

contrOl)...."

DIVISION 1. EMISSION CREDIT BANKING

AND TRADING

30 TAC §101.302

STATUTORY AUTHORITY The amendment is adopted under

Texas Water Code (TWC), §5.103, concerning Rules, which authorizes the commission to adopt rules necessary to carry out its

powers and duties under the TWC; and under TCM, §382.017,

concerning Rules, which authorizes the commission to adopt

rules consistent with the policy and purposes of the TeM. The

amendment is also adoptedunder TCM, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the commission

to prepare and develop a comprehensive plan for proper control of the state's air. The amendment is also adopted under

TCM, §382.0172(b), concerning International Border Area, as

amended by SB 1561, which authorizes the commission to make

certain emission reduction substitutions for emission reductions

outside the U.S. The amendment is also adopted under SB 5 and

SB 1561, as passed by the 77th Legislature, 2001.

§IOI.302. General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs) and nitrogen oxides (NO.) may qualify as emission

credits. Reductions ofother pollutants do not qualify as emission credits under this division. Reductions ofone pollutant may not be used to

meet the requirements of another pollutant, unless:

(I) urban airshed modeling demonstrates that one ozone

precursor may be substituted for another, subject to executive director and EPA approval;

(2) the facility(s) generating the emission reductions is located outside the United States; and the substitution:

(A) results in a greater health benefit and is of equal or

greater benefit to the overall air quality of the area, as determined by

the executive director;

(B) is from the reduction of an air contaminant for

which the area has been designated as nonattainment or which leads

to the formation of a criteria pollutant for which an area has been

designated as nonattainment; and

(C) is for any air contaminant for which the area has

been designated as nonattainment or leads to the formation ofa criteria

pollutant for which the area has been designated as nonattainment; or

(3) the user of emission reductions substitutions under

paragraph (2) ofthis subsection:

(A) demonstrates that the use ofthe reduction does not

cause localized health impacts, as determined by the executive director;

(B) submits all supporting information for calculations,

modeling, and any additional information requested by the executive

director; and

(C) is located within 100 kilometers ofthe Texas- Mexico border.

(b) Emission reduction requirements.

(I) Emission reduction credits (ERCs) are generated from

reductions beyond those required. To be certified as an emission credit,

an emission reduction must be enforceable, permanent, quantifiable,

real, and surplus. The emission credit must be surplus at the time it is

created, as well as when it is used. The certified reduction must have

occurred after the most recent year ofemissions inventory used forstate

implementation plan (SIP) determinations for VOC and NO , and the

source's annual emissions prior to the emission credit applicaiion must

have been reported or represented in the emissions inventory used for

SIP determinations.

(2) Mobile emission reduction credits (MERCs) are generated from reductions beyond those required, and derived from a calculation ofthe annual difference between the mobile source emissions

baseline and the projected emissions level after the MERC strategy has

been put in place. To be certified as a MERC, an emission reduction

must be enforceable, permanent, quantifiable, real, and surplus. The

emission credit must be surplus at the time it is created, as well as when

it is used. The certified reduction must have occurred after the most recent year of emissions inventory used for SIP determinations for VOC

and NO., the mobile source's emissions must have been represented in

the emissions inventory used for SIP determinations, and the applicable

mobile sources must have been included in the attainment demonstration baseline.

(3) Emission reductions from a source which are certified

as emission credits under this division cannot be recertified in whole or

in part as credits under another division within this subchapter.

(c) Eligible sources. The following sources are eligible to generate emission credits:

(I) stationary sources (including area sources);

(2) any mobile source;

(3) any stationary source (including area sources) or mobile source associated with actions by federal agencies under §101.30

ofthis title (relating to Conformity ofGeneral Federal Actions to State

Implementation Plans).

(d) Life of an emission credit.

(I) If an ERC is used prior to its expiration date, the ERC

is effective for the life ofthe applicable user source.

(2) Effective January 2,2001, an ERC is available for use

for 60 months from the date ofthe emission reduction except to the extent regulatory changes occur after the date ofreduction that reduce the

certified amount orinvalidate the entire reduction for affected emission

points. ERCs certified or applied for prior to January 2,2001 shall be

available for use for 120 months from the date ofthe emission reduction except to the extent regulatory changes occur after the date ofthe

ADOPTED RULES March 29,2002 27 TexReg 2515
emission reduction that reduce the certified amount or invalidate the

entire reduction for affected emission points.

(e) Geographic scope. Except as provided in paragraph (4) of

this subsection, only emission reductions generated in ozone nonattainment areas can be certified. The trading of emission credits may

be discontinued by the executive director in whole or in part and in any

manner, with commission approval, as a remedy for problemsresulting

from trading in a localized area of concern. An emission credit must

be used in the nonattainment area in which it is generated unless:

(1) a demonstration has been made and approved by the

executive director and the EPA to show that the emission reductions

achieved in another county, state, or nation provide an improvement to

the air quality in the county of use;

(2) the emission credit was generated in an ozone nonattainment area which has an equal or higher nonattainment classification than the ozone nonattainment area ofuse, and a demonstration has

been made and approved by the executive director and the EPA to show

that the emissions from the ozone nonattainment area where the emission credit is generated contribute to a violation ofthe national ambient

air quality standard in the ozone nonattainment area of use;

(3) the user has obtained prior written approval ofthe executive director and the EPA; or

(4) a facility is using emission reductions generated outside

the United States which have been determined by the executive director

to be real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law and the result would

provide a greater health benefit to the area.

(f) The registry. All emission credit generators and users must

register with the executive director. A notice submitted by a generator

or user will be posted to the registry. The registry will assign a unique

number to each certificate which will include the amount of emission

reductions generated. The registry will maintain current listings of all

credits available or used for each ozone nonattainment area.

(g) Recordkeeping. The user must maintain a copy of all notices and backup information submitted to the registry during, and for at

least two years after, the beginning ofthe use period. The usermust also

make such records available upon request to representatives ofthe executive director, EPA, and any local enforcement agency. The records

shall include, but not necessarily be limited to:

(I) the name, emission point number, and facility identification number of each unit using emission credits;

(2) the amount of emission credits being used by each unit;

and

(3) the specific number, name, or other identification of

emission credits used for each unit.

(h) Public information. All information submitted with a notice or report regarding the nature and quantity of emissions associated

with the use or generation of an emission credit is public mformation

and may not be submitted as confidential. Any claim ofconfidentiality

for this type ofinformation, or failure to submit all information, may

result in the rejection of the emission reduction. All non-confidential

notices and information regarding the generation, use, and availability

of emission credits may be obtained from the executive director.

(i) Authorization to emit. An emission credit created under

this division is a limited authorization to emit VOC and/or NO, unless

otherwise defined, in accordance with the provisions ofthis section, the

FCAA, and the TCAA, as well as regulations promulgated thereunder.

An emission credit does not constitute a property right. Nothing in this

27 TexReg 2516 March 29, 2002 Texas Register

division may be construed to limit the authority ofthe commission or

the EPA to terminate or limit such authorization.

(j) Program participation. The executive director has the authority to prohibit an organization from participating in emission credit

trading either as a generator or user, ifthe executive director determines

that the organization has violated the requirements of the program or

abused the privileges provided by the program.

This agency hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary of State on March 15, 2002.

TRD-200201614

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

• • •

DIVISION 2. EMISSIONS BANKING AND

TRADING ALLOWANCES

30 TAC §101.338

STATUTORY AUTHORITY

The new section is adopted under TWC, §5.103, concerning

Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties underthe TWC; and under

TCM, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes

of the TCM. The new section is also adopted under TCM,

§382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air;

and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive

plan for proper control of the state's air. The new section is also

adopted under TCM, §382.0172(b), concerning International

Border Areas, as amended by SB 1561, which author-izes the

commission to make certain emission reduction substitutions for

emission reductions achieved outside the U.S. This new section

is also adopted under SB 5 and SB 1561, as passed by the 77th

Legislature, 2001.

§IOI.338. Emission Reductions Achieved Outside the United States.

(a) A grandfathered or electing electric generating facility

(EGF) may use emission reductions achieved outside the United States

in substitution of allowances for the purposes of compliance with

this division provided that the emission reductions are enforceable,

quantifiable, and surplus to any applicable international, federal, state,

or local law; are of greater health benefit; and are of equal or greater

benefit to overall air quality ofthe area, as determined by the executive

director.

(b) A grandfathered or electing EGF may only use subsection

(a) ofthis section ifreductions of criteria pollutants for which an area

has been designated as nonattainrnent or air contaminants which lead

to the formation ofa criteria pollutant for which an area has been designated as nonattainment are substituted for any criteria pollutant for

which the area has been designated as nonattainment or for air contaminants which lead to the formation of a criteria pollutant for which an

area has been designated as nonattainment. The applicant must:
(I) demonstrate that the use ofthe reduction does not cause

localized health impacts, as determined by the executive director;

(2) submit all supporting information for calculations,

modeling, and any additional information requested by the executive

director; and

(3) be located within 100 kilometers ofthe Texas - Mexico

border.

This agency hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary of State on March 15, 2002.

TRD-200201615

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

• • •

DIVISION 3. MASS EMISSIONS CAP AND

TRADE PROGRAM

30 TAC §101.357

STATUTORY AUTHORITY

The new section is adopted under TWC, §5.103, concerning

Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties underthe TWC; and under

TCM, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes

of the TCM. The new section is also adopted under TCM,

§382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air;

and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive

plan for proper control of the state's air. The new section is also

adopted under THSC, §386.056, concerning Availability ofEmissions Reductions in Certain Nonattainment Areas, as amended

by SB 5, which authorizes the commission to allow alternative

methods of compliance with air pollution regulations.

§lOJ.357. Use of Emission Reductions Generated from the Texas

Emissions Reduction Plan (rERP).

(a) An owner or operatorofa site as defined in §122.10 ofthis

title (relating to General Defmitions) in the Houston/Galveston ozone

nonattainment area may use nitrogen oxides (NO) emission reductions

generated under the TERP in lieu of allowances for compliance with

this division provided that:

(I) the owner or operator ofthe site contributesto the TERP

fund $75,000 per ton ofNO. emissions used, not to exceed 25 tons per

year or 0.5 tons per day on a site-wide basis;

(2) the owner or operator ofthe site demonstrates to the executive director that the site will be in full compliance with the applicable emission reduction requirements of this division and Chapter 117

of this title (relating to Control of Air Pollution from Nitrogen Compounds) no later than the fifth anniversary of the date on which the

emission reductions would otherwise be required;

(3) emissions from the site are reduced by at least 80% of

the required reductions;

(4) the reductions accomplished under the TERP have not

been previously used to meet reduction requirements under a state implementation plan attainment demonstration;

(5) the reductions accomplished under the TERP are used

in the same nonattainment area in which they are generated; and

(6) the executive director approves a petition submitted by

the owner or operator ofthe site that demonstrates that it is technically

infeasible to comply with applicable emission reduction requirements

ofthis division and Chapter 117 ofthis title above 80% ofthe required

reductions. When considering technical infeasibility the executive director may consider, but will not be limited to:

(A) current technology;

(B) adaptability oftechnology to a particular source;

(C) age and projected useful life of a source; and

(0) cost benefits at the time of application.

(b) The emissionsreductions funded under the TERP, and used

to offset commission requirements, shall be used to benefit the community in which the site using the emissions reductions is located. If

there are no eligible emissions reduction projects within the community, the commission may authorize projectsin an adjacent community.

For purposes ofthis section, a community means a Justice ofthe Peace

precinct.

This agency hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary ofState on March 15, 2002.

TRD-200201616

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

• • •

DIVISION 4. DISCRETE EMISSION CREDIT

BANKING AND TRADING

30 TAC §101.372

STATUTORY AUTHORITY

The amendment is adopted under TWC, §5.103, concerning

Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and

under TCM, §382.017, concerning Rules, which authorizes

the commission to adopt rules consistent with the policy and

purposes of the TeM. The amendment is also adopted under

TCM, §382.011, concerning General Powers and Duties,

which authorizes the commission to control the quality of the

state's air; and §382.012, concerning State Air Control Plan,

which authorizes the commission to prepare and develop

a comprehensive plan for proper control of the state's air.

The amendment is also adopted under TCM §382.0172(b),

concerning International Border Area, as amended by SB 1561,

which authorizes the commission to make certain emission

ADOPTED RULES March 29,2002 27 TexReg 2517
reduction substitutions for emission reductions aChieved outside

the United States.

§lOl.372. General Provisions.

(a) Applicable pollutants. Reductions ofvolatile organic compounds (VOCs), nitrogen oxides (NO,), carbon monoxide (CO), sulfur

dioxide (SO,), and particulate matter with an aerodynamic diameter

of less than or equal to a nominal ten microns (PM,.) may qualify as

discrete emission credits as appropriate. Reductions of other criteria

pollutants are not creditable. Reductions of one pollutant may not be

used to meet the reduction requirements for another pollutant, unless:

(I) urban airshed modeling demonstrates that one may be

substituted for another or as approved by the executive director and the

EPA;

(2) the facility(s) generating the emission reductions is located outside the United States and the substitution:

(A) results in a greater health benefit and is of equal or

greater benefit to the overall air quality of the area, as determined by

the executive director;

(B) is from the reduction of an criteria pollutant for

which the area has been designated as nonattainment or which leads

to the formation of a criteria pollutant for which an area has been

designated as nonattainment; and

(C) is for any criteria pollutant for which the area has

been designated as nonattainment; or

(3) the user of emission reductions substitutions under

paragraph (2) ofthis subsection:

(A) demonstrates that the use ofthe reduction does not

cause localized health impacts, as determined by the executive director;

(B) submits all supporting information for calculations,

modeling, and any additional information requested by the executive

director; and

(C) is located within 100 kilometers ofthe Texas - Mexico border.

(b) Discrete emission credit requirements.

(I) Discrete emission reduction credit (DERC) - To be

creditable as a DERC, an emission reduction must be real, quantifiable, and surplus at the time the discrete emission credit is generated.

The creditable reduction must have occurred after the most recent

year of emissions inventory used for state implementation plan (SIP)

determinations for all applicable pollutants and the source's annual

emissions prior to the discrete emission credit application must have

been reported or represented in the emissions inventory used for SIP

determinations.

(2) Mobile discrete emission reduction credit (MDERC) -

To be creditable as an MDERC, an emission reduction must be quantifiable, real, and surplus. The discrete emission credit must be surplus

at the time it is created. The creditable reduction must have occurred

after the most recent year of emissions inventory used for SIP determinations for all applicable pollutants, the mobile source's emissions

must have been represented in the emissions inventory used for SIP

determinations, and the mobile sources are in the attainment demonstration baseline. If a mobile reduction is implemented that is not in

the baseline for emissions, this would not constitute an emission reduction.

(3) Emission reductions from a source which are certified

as discrete emission credits under this division cannot be recertified in

27 TexReg 2518 Nlarch 29, 2002 Texas Register

whole or in part as emission credits under another division within this

subchapter.

(c) Eligible sources include the following:

(I) stationary sources (including area sources);

(2) mobile sources; or

(3) any stationary source (including area sources) or mobile source associated with actions by federal agencies under §IOI.30

ofthis title (relating to Conformity ofGeneral Federal Actions to State

Implementation Plans).

(d) Life of a discrete emission credit. A discrete emission

credit is available for use after the notice of generation, DC-I Form,

has been received and deemed creditable by the commission registry in

accordance with subsection (h) of this section, and may be used anytime thereafter.

(e) Geographic scope. Except as provided in paragraph (6)

of this subsection, only emission reductions generated in the State of

Texas may be creditable and used in the state with the following limitations.

(I) VOC and NO. discrete emission credits generated in an

ozone attainment area may be used in any county or portion ofa county

designated as attainment or unclassified, but may not be used in.an

ozone nonattainment area.

(2) VOC and NO. discrete emission credits generated in an

ozone nonattainment area may be used either in the same ozone nonattainment area in which they were generated, orin any county or portion

of a county designated as attainment or unclassified.

(3) VOC and NO. discrete emission credits generated in an

ozone nonattainment area may not be used in any other ozone nonattainment area, except as provided in this subsection.

(4) CO, SO" and PM,. discrete emission credits must be

used in the same metropolitan statistical area in which the reduction

was generated.

(5) VOC and NO. discrete emission credits generated in

other counties, states, or nations can be used in any attainment or nonattainment county provided a demonstration has been made and approved

by the executive director and the EPA to show that the emission reductions achieved in the other county, state, or nation improves the air

quality in the county where the credit is being used.

(6) A facility may use discrete emission reductions generated outside the United States provided that the emission reductions are

quantifiable, real, and surplus to any applicable international, federal,

state, or local law and the result would provide a greater health benefit

to the area as determined by the executive director. The applicant must:

(A) demonstrate that the use of the reduction does not

cause localized health impacts, as determined by the executive director;

(B) submit all supporting information for calculations,

modeling, and any additional information requested by the executive

director; and

(C) be located within 100 kilometers of the Texas -

Mexico border.

(f) Trading discontinuation. The trading of discrete emission

credits may be discontinued by the executive director in whole or in

part and in any manner, with commission approval, as a remedy for

problems resulting from trading in a localized area of concern.
(g) Ozone season. In areas having an ozone season oflessthan

12 months, VOC and NO, discrete emission credits generated outside

the ozone season may not be used during the ozone season.

(h) The registry. All required notices of discrete emission

credit generators and users must be submitted to the registry. A notice

submitted by a generator or user will be reviewed for credibility

and when deemed certified, posted to the registry. The registry will

assign a unique number to each ton of emission reductions generated.

The registry will maintain current listings of all credits available or

used for each ozone nonattainment area. One combined listing for

all the counties or portions of counties designated as attainment or

unclassified will be provided by the registry.

(i) Recordkeeping. The generator must maintain a copy of all

notices and backup information submitted to the registry for a minimum offive years, following the completion ofthe generation period.

The user must maintain a copy of all notices and backup information

submitted to the registry for a minimum of five years, following the

completion ofthe lise period. Other relevant reference material or raw

data must also be maintained on-site by the participating sources. The

user must also maintain a copy ofthe generator's notice and backup information for a minimum offive years after the use is completed. The

records shall include, but are not necessarily limited to:

(1) the name, emission point number (EPN), and facility

identification number (FIN) of each unit using discrete emission credits;

(2) the amount of discrete emission credits being used by

each unit; and

(3) the specific number, name, or other identification of

discrete emission credits used for each unit.

(j) Public information. All information submitted with a notice or report regardi ng the nature and quantity of emissions associated

with the use or generation of discrete emission credits is public information and may not be submitted as confidential. Any claim of confidentiality for this type of material or failure to submit all information

may result in the rejection ofthe emission reduction. All non-confidential notices and infomlation regarding the generation, use, and availability ofdiscrete emission credits may be obtained from the registry.

(k) Authorization to emit. A discrete emission credit created

under this division is a limited authorization to emit the specified pollutants in accordance with the provisions of this section, the FCAA, and

the TCAA, as well as regulations promulgated thereunder. A discrete

emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority of the commission or

the EPA to terminate or limit such authorization.

(I) Program participation. The executive director has the authority to prohibit a company from participating in discrete emission

credit trading either as a generator or user, ifthe executive director determines that the company has violated the requirements ofthe program

or abused the privileges provided by the program.

This agency hereby certifiesthat the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office ofthe Secretary of State on March 15, 2002.

TRD-200201617

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective dale: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

• •

CHAPTER 117. CONT OL OF AIR

POLLUTION FROM NI OGEN COMPOUNDS

SUBCHAPTER E. AD INISTRATIVE

PROVISIONS

30 TAC §117.571

The Texas Natural Resource onservation Commission (commission) adopts new §117.571 and corresponding revisions to

the state implementation plan ( IP). Section 117.571 is adopted

with changes to the proposed t xt as published in the November

23, 2001 issue of the Texas Rister(26 TexReg 9519).

BACKGROUND AND SUMM RY OF THE FACTUAL BASIS

FOR THE ADOPTED RULE

The commission adopts this ew section in order to control

ground-level ozone in the Ho ston/Galveston (HGA) and Dallas/Fort Worth (DFW) ozone onattainment areas and as part

of the implementation of Sen te Bill (SB) 5 (an act relating to

the Texas emissions reductio plan), 77th Legislature, 2001 ..

The 77th Legislature adopte SB 5 to establish and provide

for the administration of the exas Emissions Reduction Plan

(TERP), which is compreh nsive plan to reduce emissions

of air contaminants from mo Ie sources. The program· offers

subsidies for the replacemet of older diesel engines with

more efficient engines. and 0 er diesel-powered vehicles with

vehicles with lower emission , and for the pU~hase of new

automobiles with lower emi ions. The program is funded

in part through surcharges d fees on the lease, sale, and

registratiori of certain diesel- wered vehicles. The plan is also

partially funded by contributio s from the owners or operators of

stationary nitrogen oxides (N J sources in the HGA and DFW

ozone nonattainment areas. These owners or operators may

substitute emission reductio made under the plan for those

reductions otherwise required under the commission rules; such

substitutions require a contr ution to the fund based on the

amount of emissions reducti ns substituted. This adopted new

section implements the rele ant portions of SB 5 concerning

these contributions to the RP fund for certain sources 'in

the HGA and DFW areas a described in greater detail in the

SECTION DISCUSSION po ion of this preamble.

SECTION DISCUSSION

The adopted new §117.571. se of Emission Reductions Generated from the Texas Emissi s Reduction Plan (TERP), allows

site owners or operators in he DFW and HGA nonattainment

areas to defer a portion of t eir required NO, emissions under

applicable commission rules y using emissions reductions generated underthe TERP. The. ERP reductions may be used if the

owner or operator contribute· to the TERP fund $75,000 per ton

of NO,reductions used, nott exceed 25 tons per yearor0.5 tons

per day (tpd) on a site-wide basis; demonstrates to the executive director that the site will e in full compliance with applicable

rules no later than the fifth a I nlversary of the date the emissions

ADOPTED RULES March 29, 2002 27 TexReg 2519