Robert J. Huston, Chairman R. B. "Ralph" Marquez, Commissioner Kathleen HartnettWhite, Commissioner Jeffrey A. Saitas, ExecutiveDirector 

## 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 andPreventing 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; SubchapterH, 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 ofnitrogen oxides emissions reductions accomplishedundertheTexas Emissions ReductionPlan (TERP) for those otherwise requiredunderthe rules oftheCommissionand 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 ifit is determined that the substitution is ofgreater benefit to the area. TheCommissionalso adoptednew §117.571 inChapter 117, ControlofAirPollutionfromNitrogenCompounds; Subchapter E, Administrative Provisions; and corresponding revisions to the SIP to allow the substitution of emissions reductions accomplishedundertheTERPfornitrogenoxides emissions reductions required intheHGA and Dallas/FortWorth 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 ofthe public hearings, and the accompanying orders are also enclosed. I look forward to your expeditious approval ofthese SIP revisions.

RJP/lb

cc: The Honorable Rick Perry, Governor ofTexas Ms. Wendy Wyman, Environmental and Natural Resources Policy Director, Office ofthe 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 ofFederal Regulations (CFR) §51.104. Priorto the adoptionofthis revision, publichearings wereheldpursuantto 40CFR, §51.102(a), and notice ofthe hearings was given which conformedto the requirements of40 CFR, §51.102(d). I am the custodian ofthe records ofthe Texas Natural Resource Conservation Commission (Commission).

To certify which, witness my hand and the seal ofthe 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 BordersINTRODUCTION
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 Houstontoreceivetestimonyconcerning amendmentsto amendmentsto §101.302, GeneralProvisions and §101.372, General Provisions; and new §lO1.338, Emission Reductions Achieved Outside the United States and §101.357, Use ofEmission 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 inthe state, andto implementSenateBill (SB) 5 and SB 1561, 77thLegislature, 2001. Section 101.357 applies in the Houston/Galveston nonattainment area and allows substitution ofnitrogen oxides emissions reductions accomplishedunder the TERPfor those otherwise requiredunderthe rules of the commission and the SIP; and §§101.302, 101.338, and 101.372 allow substitution of emission reductions ofcriteria pollutants accomplished outside the United States for reductions in such pollutants within Texas ifit is determined that the substitution is ofgreater 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 acomplete record ofthepublic hearings and is divided into the following four sections:

o PublicNotification and Proposal o Written and Oral Testimony
o Evaluation ofTestimony o StaffRecommendations
Additional copies ofthis hearing record are maintained in the TNRCC central office at 12100 Park 35 Circle, Austin, Texas 78753. Forfurther information, please contact Alan Henderson at (512) 239-1510.

# PUBLIC NOTIFICATION AND PROPOSALPUBLIC NOTIFICATION

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

1. Publication ofnotice ofpublic hearings in the following newspaper on the date listed: 

### ElPaso Times; November 14, 2001 

### Houston Chronicle; November 11, 2001

2. Publication ofthe proposed rules in the November 23, 2001 issue ofthe 

### Texas Register (26 TexReg 9513)

3. Publication ofthe Notice ofPublic Hearing in the November 23, 2001 issue ofthe 

### Texas Register (26 TexReg 9656)

4. Correspondence forwarding the notice ofpublic hearings to the following officials and agencies: Speaker ofthe House Lieutenant Governor City ofEl Paso City ofHouston City ofVictoria Planning Department Dallas Department ofHealth and Human Services EI Paso City-County Health District El Paso County Judge Federal Highway Administration FortWorth Public Health DepartmentGalveston County Health District Houston Department ofHealth and Human Services Harris County Judge Harris County Pollution Control Department North Central Texas Council ofGovernments Houston-Galveston Area Council South East Texas Regional Planning Commission Texas Department ofTransportation Texas Transportation Institute Arkansas Department ofPollution Control and Ecology Louisiana Department ofEnvironmental Quality New Mexico Air Quality Bureau Oklahoma Department ofEnvironmental Quality U. S. Environmental Protection Agency

### EXAMPLE OF NEWSPAPER CLASSIFIED AD

\'\" legalNolicei'::.,'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 the I 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, 2001Litigation 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 ofwaste 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 watersystem; RU ES VIOLATED: 30TAC §330.5 and §3I204, and TWC, §26.I21, b allowing the unauthorized discharge or imminent threat ofdisch rge ofmunicipal solid waste including grit trap and septic tank was e into or adjacent to any waterin the state; 30 TAC §290.I06, andTH 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 MainlandLand & 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, 230I Gravel Drive, Forth Worth, Te as 760I0-6499, (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 ofquantity 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; TNRCCto 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 Number5566, Special Conditions 0and 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 ofPublic Hearing on Proposed Revisions to 30 TAC Chapter 101 and to the State Implementation Plan The Texas Natural Resource Conservation Commission (commission) will conductpublic hearingstoreceive testimonyregardingrevisions to 30TAC Chapter 101 and to the SIPundertherequirements oftheTexas Health and SafetyCode, §382.QI7; Texas GovernmentCode, Subchapter B, Chapter2001; and 40 Code ofFederal 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 §I01.302, General Provisions and §I01.372, General Provisions; and new § 101.338, Emission Reductions Achieved Outside the United States and §101.357, Use ofEmission 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 ofnitrogen oxides emissions reductions accomplished under the TERP for those otherwise required under the rules ofthe commission and the SIP; the otherproposed revisions would allow substitution ofemission reductions in NApollutants accomplishedoutside the United States for reductions in such pollutants within Texas ifthe executive director and EPA determine that the substitution is ofgreaterbenefit 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, 90I Bagby. The hearings will be structured for the receipt oforal orwritten comments by interestedpersons. Registration will begin one hourpriorto eachhearing. Individuals may presentoral statements whencalledupon inorderofregistration. There will be no open discussion during the hearing; however, commission staffmembers will be available to discuss theproposal one hourbefore each hearing and will answerquestions before and aftereach hearing.**~26** 

### TexReg 9656 November 23, 2001 Texas RegisterPersons withdisabilities who have special communication orotheraccommodation needs, and who are planning to attend a hearing, should contactthe Office ofEnvironmental Policy, Analysis, and Assessment at (512) 239-4900. Requests should be made as farin advance as possible. Written comments maybe submittedto PatriciaDuron, Office ofEnvironmentalPolicy, Analysis, andAssessment, MC205, P.O. Box 13087, Austin, Texas 78711-3087; orby fax at(512) 239-4808. Allcomments 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 contactBeecherCameronat(512) 239-1495 orJosephThomas 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 I17 and to the State I plementation Plan The Texas Natural Resource Cons rvation Commission (commission) will conductpubHc hearings torec ve testimonyregardingrevisions to 30TAC Chapter 117 and to the SIP ndertherequirements oftheTexas Healthand SafetyCode, §382.017; exas Government Code, SubchapterB, Chapter2001; 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 ofreductions ofnitrogen 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 andtimes: 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 oforal 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 thehearings; however, commission staff mbers will be available to discuss the proposal 30 minutes before eac hearing and will answerquestions before and after each hearing. Persons with disabilities whohave pecial communication orotheraccommodation needs, and who are lanning to attend a hearing, should contact the Office ofEnvironment IPolicy, Analysis, and Assessment at (512) 239-4900. Requests shoul be made as far in advance as possible. Written comments maybe submitt d to PatriciaDuron, Office ofEnvironmental Policy, Analysis, andAs essment, MC205, P.O. Box 13087, Austin, Texas 78711-3087; orby f: at (512) 239-4808. All comments must be received by 5:00 p.m. 0 January 7, 2002 and should reference Rule Log Number2001-02 d-l J7-AI. For further information, please contact BeecherCameron a (512) 239-1495, orJoe 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 andSafety Code, Ch ter361 (the Act) to identify, to the extent feasible, and evaluate facili ies which may constitute an imminent and substantial endangerment 0 public health and safetyorto the environment due to a release or t eatened release ofhazardous 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 18I, 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 currentnotice also includes faciliti s where state Superfund action has ended, orwherecleanup is being a equatelyaddressedbyothermeans. Pursuantto theAct. §361.188. the tate Superfundregistry identifying thosefacilities that are listed an have been determined to pose an imminentandsubstantialendange mentin descendingorderof hazard ranking system (HRS) scores are follows. I.) CoI-Tex Refinery. Located on oth sides ofBusiness Interstate 20 (U.S. 80) in Colorado City, Mitch 11 County: tank farm and refinery. 2.) Precision Machine and Supp '. Located at 500 WestOlive Street, Odessa, Ector County: chrome pi ing and machine shop. 3.) Sonies International, Inc. L cated north ofFarm 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. Locatedat 200MarketStreet, Houston, Harris County: magnesium dross/sludge isposal, inactive landfill. 6.) GulfMetals Industries. Lo ated on Telean Street, northeast of the intersection ofMykawa Road nd Almeda-Genoa Road, Houston, Harris County: disposal ofhazard us materials. 7.) Texas American Oil. Locate approximately three miles north of Midlothianon Old State Highway 7, Ellis County: wasteoilrecycling. 8.) Niagara Chemical. Located est ofthe intersection ofCommerce Street andAdams Avenue, Harlin en, Cameron County: pesticide formulation. 9.) InternationalCreosoting. Lo ated at 1110Pine Street, Beaumont, Jefferson County: wood treatmen
. 10.) McBay Oil & Gas. Located pproximately three miles northwest ofGrapeland 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 ofits inters ction with Highway 6, Arcola, Fort Bend County: paint solvent recyc ing. 12.) Toups. Located on the west ide ofTexas 326, 2.1 miles north of its intersection withTexas 105, in ourLake, Hardin County: fencepost treating facility and municipal w teo 

# • 

# •

• 

# •

INADDITION November 23, 

### 2001 26 

### TexReg 9657§500.805. Administration and L e of Funds. Thepennanentendownent fund is composed of: 

### ill money transferred tthe direction ofthe legislature' 

### ill gifts and grantcontributions whichmaybe solicitedand accepted bv the comptroHeror 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 ofcontract. !Q} The fund maybe admi istered bv the Centeror at the Center's option, the ComptroHer. {f2 The Center or the CoDotroHer shaH invest the fund in a mannerintended 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 ofthe 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 BudgetBoard nc laterthanNovember 1 ofeach year. pOO.807. Contracts. A health professional may receive assistance under this subchapter only ifthe 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 maycontractwith the Centerfor tt loan reimbursementprogramprior 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. Acontractunderthis s ction mustorovidethat ahealthprofessional 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 ofassistance 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 ofthe stipend. §500.809. Advisory Committee. The Advisory Committee is appe inted bv the Center to assist in the Center's duties. The advisory pan Imust consist ofat least the foHowi!!.&:. 

### ill one representative from the Texas Higher Education Coordination Board; 

### ill one representative rom the institutions ofhigher education that offer degrees in healthorofessions that are relevant to the Investment Program; ill one reoresentative om ahosnital in amedicalIvunderserved community; 

### ill one physician ora ticing in a medicalIv underserved community; ill one healthprofessi nal otherthan a ohvsician, PractiCing in a mediCally underserved co bmunitv: and @ one public represen**~tive** whoresides inamedicalIvunderserved community. This agencyherebycertifies 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 ofadoption: ecember23, 2001 Forfurther 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 orderto control ground-level ozone and othercriteria 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 9513also 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 ofthis preamble. This ru!emaking also implementsthe 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 anothercriteria pollutant underspecificconditions 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 ofthe requirements ofS8 1561 and the generation ofemission 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 ofthe area. The executive director (ED) would make this determination. The proposal involves the substitution of a reduction of a criteria pollutant forwhich the area has been designated as a NAarea for a required reduction for another criteria pollutantforwhich the area is also designated as a NAarea, and the substitution must clearly result in greaterhealth 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 ofcontaminants otherthan 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 oroperators in the HGA NA area to defer a portion of their required NO, emissions underapplicable commission rules by using emissions reductidns generated underthe TERP. The TERP reductions may be used ifthe owner or operatordoes 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 thatthe 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 emissionsfrom the site at least80% 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 underthe 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 Specialistwith 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 forotheremissions reduc-" tions). This rulemaking would implement the provisions in S8 5 that allow affected site owners oroperators in the HGA NA area to defer a portion oftheir 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 ofexcess emission reductions available for purchase. Affected entities that seekto 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 persite. The maximum annual expense persite 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 AirAct (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 ofaffected equipmentwould have the option to utilize the voluntary provisions ofthis 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 boilerand 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 ofaffected 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 bythe TERP program. The commission does not anticipate significant increases in revenues to the TERP fund due to implementation ofthe 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 foreach ofthe 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 potentiallyfacilitate the reduction ofemissions of NO in the HGAozone NAarea 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 seekto use TERP emission reduction credits would have to remit to the TERP fund $75,000 per ton ofTERP 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% ofthe 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 proofdetailing 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 borderwith Mexico. Owners and operators of affected equipment would have the option to utilize the voluntary provisions ofthis 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 byowners and operators ofaffected 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 incurfiscal impacts ifthey 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


### PROPOSEDRULES November 23,2001 26 

### TexReg 9515and equipment, grants forthe 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 ofexcess emissions reduction credits available for purchase. Affected entities that seekto 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 or0.5 tpd persite. The maximum annual expense persite 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 Texasthat 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. Ofthe morethan 6,000 identified pieces ofequipmentatsources 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 forsmall 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 forthe first five years that the proposal is in effect. DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the proposed rulemaking in lightofthe 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 sectorofthe economy, productivity, competition, jobs, the environment, orthe public health and safety ofthe 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 ofSB 5 and would allowthe deferral of NO emissions reductions in the HGA NA underspecific conditions described in the SECTION BY SECTION DISCUSSION portion ofthis preamble. The proposed rulemaking would increase the compliance optionsfor industries currently regulated bythe 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 sectorofthe economy, prOductivity, competition, jobs, the environment, orthe public health and safety ofthe state or a sector ofthe 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 ofTexas Health and Safety Code (THSC), Texas Clean AirAct (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 assessmentforthe proposed rules. The following is a summary ofthatassessment.· Promulgation and enforcementofthe rules will notburden private real property. The proposed rules do not affect private property in a mannerwhich restricts or limits an owner's right to the property thatwould otherwise exist in the absence of agovernmental 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 ofTHSC, 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 oractions 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 ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regulations ofthe Coastal Coordination Council and has determined thatthe 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 Registerqualityand values ofcoastal natural resource areas, and the policy in §501.14(q), which requires thatthe 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. EFFECTON SITES SUBJECTTOTHE FEDERAL OPERATING PERMITS PROGRAM The proposed rulemaking is part ofthe 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 underTHSC, 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 ofthe 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 authorizesthe 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. GeneralProvisions. (a) Applicable pollutants. Reductions ofvolatileorganic compounds (VOCs) and nitrogen oxides (NO) may qualify as emission credits. Reductions ofotherpollutants do not qualify as emissioncredits under this division. Reductions ofone pollutant may not be used to meet the requirements ofanother 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 ofequal or greater benefit to the overall air quality ofthe area as determined by the executive director; @ the substitution is from the reduction ofan 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 ofa 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 ofemission credits may bediscontinuedby the executive directorin whole orinpart andin any manner, with commission approval, as a remedy for problems resulting from trading in a localized area ofconcern. An emission credit must be used in the nonattainment area in which it is generated unless: (1) a demonstration has been made and approved bytheexecutive director and the EPA [YtHree States ProteetioR Ageftey fEPA)] to show that the emission reductions achieved in anothercounty, state, ornation provide an improvement to the airquality in the county ofuse; or


### PROPOSED RULES November 23,2001 26 TexReg 9517(2) (No change.) (3) the user has obtained priorwritten approval ofthe executive director and the EPAi-H 

### ill a facility is usingemissionreductions generatedoutside the United States which have been determined by the executive directorto be real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, orlocal law andthe result would

. provide a greater health benefit to the area. (f)

- (j) (No change.) This agencyherebycertifiesthatthe proposal has been reviewed by legal counsel and found to bewithin the agency's legal authority 10 adopt. Filed with the Office ofthe Secretary of State, on November 12, 2001. TRD-200106965 Stephanie Bergeron Director, Environmental Law Division Texas Natural Resource Conservation Commission Earliest possible date ofadoption: December23, 2001 Forfurtherinformation, 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 qualityofthe state's air; §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive plan for propercontrol ofthe 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 newsection implementsTCAA, 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 ofthe Secretary of State, on November 12, 2001. TRD-200106966 Stephanie Bergeron Director, Environmental Law Division Texas Natural Resource Conservation Commission Earliest possible date ofadoption: December23, 2001 Forfurther information. please call: (512) 239-6087 in one criteria pollutant to substitutefor reductions in anothercriteria pollutant under specific conditions. flOl.338. Emission ReductionsAchievedOutside the UnitedStates. 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,

- orlocal law and are ofequal orgreaterbenefit to overall air quality of

the area as determined by the executive director. (Q} A grandfathered orelecting EGF may only use subsection (al ofthis section ifreductions ofcriteria pollutants for which an area has been designated as nonattainment or air contaminants which lead to the formation ofacriteriapollutantfor whichan areahas beendesignatedas nonattainmentmaybe substituted foranothercriteriapollutant for which the areahas been designated as**nonattainmen~** or for aircontaminants which lead to the formation ofa criteria pollutant for which
. an area has been designated as nonattainment. This agencyhereby certifies thatthe proposal has been reviewed by legal counsel and found to bewithin 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 necessaryto carryout its powers and duties undertheTWC; and under THSC, TCAA, §382.017, concerning Rules, which authorizesthe 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 ofthe state's air. The new section is also proposed under §386.056, concerning Availability of Emissions Reductions in Certain NonattainmentAreas, 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 ofEmission Reductions Generated {7om the Texas Emissions Reduction Plan. An owneroroperatorofa siteas defined in § 122.10ofthis title (relating to General Definitions) in the Houston/Galveston ozone nonattainment 

# • 

# • ••

26 TexReg 9518 

### November23,2001 Texas RegisterFiled 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 ofadoption: December 23, 2001 Forfurther information, please call: (512) 239-6087 area may use nitrogen oxides (NO ) emissionreductions generated under the Texas Emissions Reduction Plan (TERP) in lieu ofallowances for compliance with this division provided that: ill the owneroroperatorofthesitecontributes totheTERP fund $75,000 perton ofNO. emissions used, not to exceed 25 tons per year or 0.5 tons per day on

### asite- wide basis; 

### ill the owneroroperatorofthe site demonstrates to theexecutive directorthatthe site will be infull compliance with the applicable emission reduction requirements ofthis division and Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) no later than the fifth anniversary ofthe 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 apetition submittedby the owner or operatorofthe 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 established baseline. This agency hereby certifies thatthe 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 necessaryto carryout its powers and duties underthe TWC; and under THSC, TCAA, §382.017, concerning Rules, which authorizesthe 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 ofthe 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. GeneralProvisions. (a) Applicable pollutants. Reductions ofvolatile organic compounds (YOCs), nitrogen oxides (NO,), carbon (CO), sulfur dioxide 

# • • 

# • (SO,), and particulates with an aerodynamic diameter ofless than or equal to a nominal ten microns (pM,,) may qualitY as discrete emission credits as appropriate. Reductions ofother criteria pollutants are not creditable. Reductions ofone 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 anotheroras approved by the executive directorandthe EPA [YffitedStates Ellyirellmelltal PreleeliellAgeIleytEPA1]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 orgreaterbenefit to the overall air quality ofthe area as determined by the executive director; @2 the substitution is from the reduction ofan criteria pollutant for which the area has been designated as nonattainment or which leads to the formation ofan 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 StateofTexas maybecreditable andused inthe state withthe following limitations. (I)

- (5) (No change.) @ A facility may use discrete emission reductions gener-· ated outside the United States provided that the emissionreductions are quantifiable, real, and surplus to any applicable international, federal, state, or local law and the result would provide a greaterhealth 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 ofadoption: December23, 2001 Forfurther 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 9519Robert J. Huston, Chairman R. B. "Ralph" Marquez, Commissioner Kathleen HartnettWhite, Commissioner Jeffrey A. Saitas, ExecutiveDirector 

## TEXAS NATURAL RESOURCE CONSERVATION COMMISSION Protecting Texas byReducingandPreventingPollution
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 theTexas Health andSafetyCode, §382.017; Texas GovernmentCode, SubchapterB, Chapter2001; and 40 Code ofFederal Regulations, §51.102, ofthe United States Environmental ProtectionAgency (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 GeneratedfromtheTexasEmissions ReductionPlan (TERP) areproposedinordertocontrol ground-level ozone and other criteriapollutants 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 ofthe 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 suchpollutants withinTexas iftheexecutive directorandEPAdetermine thatthe substitution is ofgreater 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 at7:00 p.m. atthe City Hall Chambers, 2nd Floor, 901 Bagby. The hearings will be structured for the receiptoforal or written conunents by interestedpersons. 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 staffmembers will be available to discuss the proposal one hourbefore 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 attendahearing, shouldcontactthe Office ofEnvironmental Policy, Analysis, andAssessment 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 mustbe received by 5:00p.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.usTexas 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 ofEmission 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 criteriapollutants 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 ofthe Texas Emissions Reduction Plan (TERP). The TERP is a comprehensive plan to reduce emissions ofair contaminants from mobile sources. The program offers subsidies for the replacement ofolder diesel engines with more efficient diesels with lower emissions and for the purchase ofautomobiles with low emissions. The program is funded in part through surcharges and fees on the lease, sale, and registration ofcertain 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 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 ofemissions reductions substituted. This proposed rulemaking would implement the relevant portions ofSB 5 concerning these contributions to the TERPTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules 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 ofthis preamble. Page 2

i This rulemaking 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 ofthis preamble.

SECTION BY SECTION DISCUSSION The proposed amendments to §101.302 address the relationship ofthe requirements ofSB 1561 and the generation ofemission 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 ofequal or greater benefit to the overall air quality ofthe area. The executive director (ED) would make this determination. The proposal involves the substitution ofa reduction ofa 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 ofcontaminants other than volatile organic compounds (VOC) and NOx would not qualify as ERCs.Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI Page 3

Proposed new §101.338 would apply the provisions ofSB 1561 to the existing emission credit system for electric generating facilities created under the implementation ofSB 7 from the 76th Legislature, 1999. This new section would allow the substitution ofreductions ofone 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 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 ED ofa petition from the owner or operator that demonstrates that it is technically infeasible to comply with the applicable emission reductions of30 TAC Chapter 117, Control ofAir Pollution from Nitrogen Compounds.

The proposed amendments to §101.372 address the relationship ofSB 1561 requirements and the generation ofdiscrete emission reduction credits (DERCs). The proposed amendments allow the substitution ofemission reductions in one criteria pollutant for reductions ofanother contaminantunder the same restrictions as described for §101.302. Reductions ofcontaminants other than VOC and NOx would not qualify as DERCs.Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI
New §117.571, proposed concurrently in Rule Log Number 2001-025d-117-AI, would allow sitePage 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 ofthese 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 ofthe first five-year period the proposed rulemaking is in effect that there will be no significant fiscal implications for units ofstate and local government due to administration and enforcement ofthe proposed rulemaking. The commission anticipates that the majority ofaffected units ofgovernment will use less expensive alternatives for emission reductions than provisions available in this rulemaking. The proposed rulemaking would allow units ofstate and local government to use emission reductions generated by the TERP to help meet required emission reductions. Units ofgovernmentusing these credits would have to remit to the TERP fund $75,000 per ton ofemission reduction credits used.

The proposed rulemaking is intended to implement certain provisions ofboth SB 5 (an act relating to the TERP) and SB 1561 (an act relating to the acceptance by the commission ofcertain 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 aportion oftheir 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.Texas Natural Resource Conservation Commission Chapter 101 - General Air Quality Rules Rule Log No. 2001-063-101-AI Page 5

Senate Bill 5 established the TERP, providing financial incentives for reducing emissions ofon-road and non-road motor vehicles and equipment, grants for the development ofnew emission control technology, and new building energy efficiency standards. The commission anticipates that the provisions in SB 5 will result in a pool ofexcess 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 ofTERP 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 ofapplicable deadlines, reduction in emissions from the site by 80% ofthe 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 (PM

# 10», 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 ofNOx by ten tpy. The bill allows this site to utilize a ten-ton reduction ofCO or other criteria pollutant generated at a site across the border in Mexico. Sites would be required to provide regulators with proofdetailing the reduction in Mexico. Because the site in Texas would not have to purchase these emission reduction credits, there may be cost savings, in anTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI Page 6

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

The voluntary provisions ofthe proposed rulemaking would affect over 6,000 pieces ofequipment,

some ofwhich are owned and operated by units ofstate or local government, at sites and operations operating in the HGA NA area and along the border with Mexico. Owners and operators ofaffected equipment would have the option to utilize the voluntary provisions ofthis rulemaking to help meet emission reduction requirements. Examples ofequipment 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 ofaffected 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 toTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI Page 7

implementation ofthe proposed rulemaking, because the majority ofaffected entities will utilize less expensive emission reduction compliance alternatives.

PUBLIC BENEFITS AND COSTS Mr. Davis has also determined that for each ofthe first five years the proposed amendments are in effect, the public benefit anticipated as a result ofimplementing the proposal will be providing flexibility to those affected sources which will potentially facilitate the reduction ofemissions ofNOx in the HGA ozone NA area and along the Texas/Mexico border.

The proposed rulemaking is intended to implement certain provisions ofboth 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 oftheir required NOxemissions 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 ofon-road and non-road motor vehicles and equipment, grants for the development ofnew emission control technology, and new building energy efficiency standards. The commission anticipates that the provisions in SB 5 will result in a pool ofexcess 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 ofTERP emission credits used, and each entity would be limited to 25 tpy or 0.5 tpdTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI 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 ofapplicable deadlines, reductions in emissions from the site by 80% ofthe 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 ofthe proposed rulemaking would affect over 6,000 pieces ofequipment, the majority ofwhich 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 ofaffected equipment would have the option to utilize the voluntary provisions ofthis rulemaking to help meet emission reduction requirements. Examples ofequipment 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 andTexas Natural Resource Conservation Commission Chapter 101 - General Air Quality Rules 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 ofaffected 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, ifthe affected entities use cheaper alternatives for emission reductions than provisions available in this rulemaking. Small or micro-businesses would only incur fiscal impacts ifthey voluntarily decided to utilize emissions reductions generated by the TERP program. The proposed rulemaking is intended to implement certain provisions ofboth 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 oftheir 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 ofon-road and non-road motor vehicles and equipment, grants for the development ofnew emission controlTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules 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 ofexcess 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 ofTERP 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 ofapplicable deadlines, reduction in emissions from the site by 80% ofthe 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 proofdetailing 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.

Ofthe more than 6,000 identified pieces ofequipment at sources in the affected areas, some will be owned and operated by small or micro-businesses. Examples oflikely equipment at sources operated by small or micro-businesses include boilers, process heaters, and internal combustion engines.Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI Page 11

i The following is an analysis ofthe 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 ofTERP emissions reductions would incur costs up to approximately $3,750 per employee. A micro-business that decides to utilize five tons ofTERP 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 ofthe draft regulatory analysis (RIA) requirements ofTexas 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 ofthe four applicability requirements listed in §2001.0225(a). "Major environmental rule" means a rule, the specific intent ofwhich, 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 ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state
or a sector ofthe state. The proposed rules would implement SB 1561 and would allow the substitution ofemissions reductions ofone criteria pollutant, accomplished outside the United States, for emissionsTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI Page 12

reductions ofanother 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 ofSB 5 and would allow the deferral ofNOx emissions reductions 

### in the HGA NA under specific conditions described in the SECTION BY SECTION DISCUSSION portion ofthis 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 ofexisting rules and will not adversely affect, in a material way, the economy,
a sector ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state.

In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result ofwhich is to: 1) exceed a standard set by federal law, unless the rule is specifically required by
state law; 2) exceed an express requirement ofstate law, unless the rule is specifically required by federal law; 3) exceed a requirement ofa delegation agreement or contractbetween the state and an agency or representative ofthe federal government to implement a state and federal program; or 4) adopt a rule solely under the general powers ofthe agency instead ofunder 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 ofthe four applicability requirements. Specifically, the amendments and new sections would implement the requirements ofTexas 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 commentperiod.Texas Natural Resource Conservation Commission Chapter 101 - General Air Quality Rules Rule Log No. 2001-063-101-AI
TAKINGS IMPACT ASSESSMENT Page 13

i The commission completed a takings impact assessment for the proposed rules. The following is a summary ofthat assessment. Promulgation and enforcement ofthe 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 ofa governmental action. Consequently, these rules do not meet the definition ofa takings under Texas Government Code, §2007.002(5). These rules are specifically proposed to implement the requirements ofTHSC, TCAA, §386.052 and §382.0172 and address alternative methods ofmeeting 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 

### etseq.), 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 ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regulations ofthe Coastal Coordination Council and has determined that the proposed rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) ofprotecting and preserving the quality and values ofcoastal natural resource areas, andTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI Page 14

the policy in §501.14(q), which requires that the commission protect air quality in coastal areas. The proposed rulemaking addresses alternative methods ofmeeting emission reduction requirements and emissions reduction substitutions. No new emissions ofcriteriapollutants are authorized by these rules. The commission invites public comment regarding the consistency ofthe proposed rules with the CMP during the public commentperiod.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM The proposed rulemaking is part ofthe state's ozone attainment strategy; therefore, these rules will be submitted as part ofthe SIP. As a result, the rules would become applicable requirements under the federal.operating permitprogram.

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 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 staffmembers will be available to discuss the proposal one hour before each hearing and will answer questions before and after each hearing.Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2001-063-101-AI Page 15

Persons planning on attending a hearing who have special communication or other accommodation needs should contact the Office ofEnvironmental 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 ofEnvironmental 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 underTHSC, TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes ofthe TCAA. The amendment is also proposed under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe 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 ofthe 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 actTexas 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 ofcertain 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 ofSB 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 ofemissions 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 ofvolatile organic compounds (VOCs) and nitrogen oxides (NOx ) may qualify as emission credits. Reductions ofotherpollutants do not qualify as emission credits under this division. Reductions ofone 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 ofequal or greater benefit to the overall air quality ofthe 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 ofan air contaminant for which the

area has been designated as nonattainment or which leads to the formation ofa 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 ofa criteria pollutant for which the area has been designated as nonattainment.

(b)

- (d) (No change.)

(e) Geographic scope. Except as provided in paragraph (4) ofthis subsection, only [Only] emission reductions generated in ozone nonattainment areas can be certified. The trading ofemission 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 ofconcern. 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 ofthe 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 ofthe TCAA. The new section is also proposed under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe state's air; §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control ofthe 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 ofcertain 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 ofSB 5, as passed by the 77th Legislature, 2001, which allows owners or operators to substitute emissions reductions made under the plan for those reductionsTexas 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 ofemissions 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 ofallowances for the purposes ofcompliance with this division provided that the emission reductions are enforceable. quantifiable. and surplus to any applicable international, federal, state. or local law and are ofequal or greater benefit to overall air quality ofthe area as determined by the executive director.

fb) A grandfathered or electing EGF may only use subsection fa) ofthis section ifreductions ofcriteria 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 nonattainment or for air contaminants which lead to the formation ofa 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 ofthe TCAA. The new section is also proposed under TCAA,§382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe state's air; §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control ofthe state's air. The new section is also proposed under §386.056, concerning Availability ofEmissions Reductions in Certain Nonattainment Areas, as amended by SB 5, which authorizes the commission to allow alternative methods ofcompliance with airpollution regulations.

The new section implements TCAA, §§382.002, 382.011, 382.012, 382.017, and 386.056.



### §101.357. Use ofEmission Reductions Generated from 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 area may use nitrogen oxides (NOxlTexas 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 ofallowances for compliance with this division provided that:

(1) the owner or operator ofthe site contributes to the TERP fund $75,000 per ton of NOxemissions 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 ofthis division and Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) no later than the fifth anniversary ofthe 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 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 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 ofthe TCAA. The amendment is also proposed under TCAA,§382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe state's air; §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop

a comprehensive plan for proper control ofthe 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 ofvolatile organic compounds (VOCs), nitrogen oxides (NOx)' carbon (CO), sulfur dioxide (S02)' and particulates with an aerodynamic diameter ofless than

or equal to a nominal ten microns (PM IO) may qualify as discrete emission credits as appropriate. Reductions ofother criteriapollutants are not creditable. Reductions ofone 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 ofequal or greater benefit to the overall air quality ofthe area as determined by the executive director;

(B) the substitution is from the reduction ofan criteria pollutant for which the

area has been designated as nonattainment or which leads to the formation ofan criteria pollutant for which an area has been designated as nonattainment: andTexas 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 inparagraph (6) ofthis subsection, only emission [Emission] reductions generated in the State ofTexas 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 AgencyEI Paso Electric



### January 7, 2002 PO. Box 982 El Paso,Texas

. 79960-0982

(915) 54

# 8

3 

## RECEIVED

. W-l 

## JAN 10

# 10021
.**OFr;~c.** Gf

### E\\l\!\K:JNMENTAl. POLICY.ANKLYSIS

### 3.ASSESSMtNt By RegularMail and ByFacsimile to (512) 239-4808 Ms. PatriciaDuron Office ofEnvironmental Policy, Analysis and Assessment Texas Natural Resource Conservation Commission P. O. Box 13087, MC 205 Austin, Texas 78711-3087 Re: ProposedRules Implementing SenateBill 1561, 26 Tex. Reg. 9513 (Nov. 23, 2001) TNRCC Rule Log No. 2001-063-101-AI DearMs. 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 ofthe statute. EPE's only concern is that there is no express provision for the creation ofoffsets 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 ofongoing research into brick kiln emission controls and quantification. Nothing in the rules expressly authorizes the creation ofoffsets (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 ofmeeting 

### "any emission control or permit program adopted or administered by the Commission," which certainly includes the NNSR permitprogram. 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. PatriciaDuron

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) ofthe Texas Clean Air Act (as added by Senate Bill 1561). If 

### the Commission would reaffirm its commitment to this interpretation in its adoption ofthe final rules, then the absence ofspecific rule language concerning offsets shouldnot undulyimpede 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 airquality controls in theEl Paso-CuidadJuarez airshed. Thank you in advance for yourcareful consideration ofthe above comments. Ifyou have any comments please feel free to contact myselfat (915) 543-5942 orMark Rodriguez ofmy Air Quality staff at (915) 543-5993 Sincerely,

Luis H. 

### Ito Manager, Environmental Affairs
la
cc: Mr. BeecherCameron 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 

### January7, 2002. PatriciaDuron Office ofEnvironmentalPolicy, Analysis, andAssessment MC205 P.O. Box 

### 13087 Austin, 

### TX78711-3087 

## IJA)f IJ

# 8**2~U2**

## ~OJtJGE OF

# ENY1RQNMErifAh

of )f.P.J!JJI

## ANAL YSJS

## & ASSESSMefff

DearMs. Duron, Re: Rwe LogNumber

### 200l-063-101-AI Senate Bill 

### 1561, 7t h 

### Texas Legislature, allows sources locatedin El Paso County to use emissions reductions ofan aircontaminantachieved outside the United States to satisfyotherwise applicable emissions reduction requirements for thesame 

### aircontaminant. S.B. 

### 1561 also authorizes the use of "inter-pollutanttrading," wherebyreductions in emissions ofone air contaminantachieved outside the United States maybe used to satisfyotherwise applicable requirements for reductions in emissions ofa different

### aircontaminantin E1 Paso County. In both cases, it mustbe shown that emissions trades 

### will clearlyreswtin greaterhealthbenefits, in addition to enhancing airquality. Environmental Defense has long supportedcross-border emission trading in the El Paso/CiudadJuarez airshed as an important tool thatcan, in appropriate circumstances, promote innovation and the most cost-effective solutions to airpollution. Well-designed emissions trading systems offerindustrygreater flexibility andreward efforts thatreswt in greateremission reductions than otherwise requiredbylaw or regu1ation. However, we are very concerned that the proposed ru1es implementing the inter-pollutant trading provision o(S.B. 

### 1561 maytransform emissions trading into an undesirable loophole ratherthan a**mechanism~** 

### that delivers better environmental results in an economicallyefficient manner. The TNRCC shouldrevise the proposed rules to ensure the credibility and integrityofinternational emission trades.



# .. \ 

### Ofparticularconcern is the lackofdetail in the proposedrules about the operation ofinter-pollutant trades. The proposed rules do notindicate on whatbasis the determination willbe made that a trade between two differentpollutants will resultin equal orgreater airquality improvement. Moreover, the proposedru1es fail to define any substantive criteria orproceduralrequirements that mustbe metin orderto demonstrate that a specific tradewowd satisfy the additional "greaterhealthbenefits" standard established in the statute. The draftrules leave the determination ofequal orgreater airqualitybenefit and greaterhealthbenefit entirelyto the discretion ofthe executive director on a casebycase basis, an approach thatthe United States Environmental Protection Agency (EPA) rejected in California 

### (63 FR 59925) and, we would urge, should rejectinTexas as well
.

T 0 ,' 44E tA A st'n**TX~/;<701,TeI5124785161·Fax5124788140·www,environmentaldefense,org** exas .lice' as venue, u I., , ' CA N<;w Yorl<, NY , Washington, DC

. Oak!and. CA ' Bouider, CO

. Raleigh.**~JC** Project Offices' Boston, MA

. Los Angeles, T.·
-**~-** _r :--": f- }>:: 1C0 :/')**~':;'ir** cr:.n**",~~':'** _,:r':j':";-:: ::'clper

### Further, the proposed rules ignore environmentaljustice concerns, namely, how to address trades involvingpollutants with localizedhealth effects, like many VOCs that are also hazardous airpollutants. We oppose this type ofemissions trading and urge the commission to prohibit such trades in these rules. We urge the TNRCC to develop aregulatoryframework under S.B. 1561 thatproceeds first with the establishmentofdemonstrable institutional comparabilityfor trading ofemissions reductions for a single pollutantin across-bordercontext. Only afterthatframeworkis well established shouldregulators considerexpanding it to cover, on a case-by-case basis, inter-pollutanttransactions with adequate safeguards to ensure comparability, equivalency, and overallreductions in risks to human health and the environment. This is discussed in more detail below. In ourview, any application for obtaining transboundary emission reduction credits would need to be subjected to public review. As an important component ofthatpublic review, we urge the TNRCC to workwith theJointAdvisory Committee forAir Q1lalityImprovement GAC) to identifY and conduct prototypeprojects for undertaking, in the first instance, cross-bordertrading ofa 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 associatedwith transboundary emissions trading. TheJAC could help to negotiate appropriate conditions, develop suitable instruments, and provide oversightofthe review andverification ofthe validityofemissionreduction transactions. It could also help provide much-needed transparencyin terms ofmonitoring compliance Policy Considerations The prospect ofinternational, inter-pollutant transactions in criteriapollutants presents adoublebarreled setofchallenges

- the international characterofthe transactions, and the inter-pollutant character ofthe transactions. A successful trading program for anypollutant mustbe guided bythe overarchingprinciple ofequivalencyorcomparability. This principle ofequivalency applies not onlyto the environmental aspects oftrading one pollutantagainst a different pollutant, but also to the institutional aspects ofinternational trading such as the adequacy ofmonitoring, the permanence ofthe reduction, and the enforceabilityofthe emissions reduction project thatgave rise to tradable "credits." Applying the principle ofequivalency orcomparability, we believe it is preferable for the program to begin to establish its environmentalbona fides by creating transparentframeworks for conducting, with environmental integrity, internationaltrades for a singlepollutant. These pose significant and difficult institutional problems, andwill provide importantlearning thatwill be neededbefore anyinterpollutant trading should occur. Forexample, for international trades involving a single pollutant, how will comparabilityofmonitoring systems be established? Howwill comparabilityofpermanencebe 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 internationalpollution trade arguablywould subject the foreign source to the jurisdiction ofUS courts, would aUS orTexas state regulatoryagencyhave authorityto inspect monitoring systems and documentation as part ofensuring comparability? To the extentthat the TNRCC rules allow anyinter-pollutanttrades, they should be limited to those involvingprecursors for the same environmental endpoint (so-called "inter-precursor" trading in EPA's ;, ElPguidance). Even then, inter-precursortradingwould need to be undertaken with greatcaution in 2

### orderto ensure equivalency orcomparability, and to address environmentaljustice. Unfortunately, the scientific understanding ofvarious pollutants and health riskpathways varies greatly across pollutants and across pathways. The uncertainty surrounding the calculation ofhealth riskfrom an individual pollutantraises serious challenges for framing inter-pollutantequivalencyin health terms. And, while two differentpollutants maybe precursors for a single environmental endpoint (e.g., NOx and VOCs areboth ozone precursors), ifone ofthose also is aprecursorfor multiple environmentalproblems.(e.g., some VOCs are bythemselves directlyhazardous to human health in addition to contributing to ozone formation), an inter-pollutanttrade between themmightbe robbing Peterto payPaul. Finally, the TNRCC should keep in mind thatprimarygoal ofair qualityregulation is environmental performance. Emissions trading canprovide a means to achieve a secondarygoal

- costreduction

- but costreduction should not substitute for environmental performance. Therefore, an entitythat voluntarily elects to use emissions trading

- and thus receives aprivatebenefit ofreduced compliance cost
- has an affirmative obligation to demonstrate thattheirprivatebenefitdoes not come at apublic cost oflower environmental performance. General comments aboutinter-pollutanttrading We know ofno regulatoryprograms in the United States that allow unlimited inter-pollutanttrading. Some states and EPA have policies (mostly

### adhoc) thatgovern "inter-precursor" trading, where emission reductions ofone ofapollutant's precursors are exchanged for emission reductions ofa different precursorfor thatpollutant. Forexample, we have seen cases where VOC emissionreductions have been made in lieu ofNOx emission reduction obligations, as bothpollutants are ozone precursors.· Similarly, S02 and NOx reductions have been substitutedfor PM obligations in California, where both S02 and NOxare precursors to particulate matter. Even though the inter-pollutant trading rules orpolicies in place in California are much narrowerin scope (limited to certain common precursors, e.g.), EPA has still found key aspects objectionable. For example, EPA rejected portions ofthe BayAreaAir Q!talityManagementDistrict's inter-pollutant trading rules that are relevant to TNRCC's proposed rules, and theTNRCC should anticipate that similar issues willbe raised when it seeks to incorporate the Texas trading rules into the SIP. These sections ofRegulation 2, Rule 2 are not approvable in their currentform because 

### theydo notcontain adequatesafeguardsto ensurean overallairqualitybenefit from this type

## of trading. For example, as currentlydrafted, the rule allows for the same trading ratio for 

## pac [precursororganic compound] to 

## pac trades as it does for

## pac for NOx trades, 

### withoutanydemonstration thatsuch trades willresultin an equalairqualitybenefit. EPA continues to discourage inter-pollutanttradingdue to thescientific uncertainty

## of acceptable pollutanttrading ratios. However, ifthe Districtwishes to allow inter-pollutant trading, the rule mustbe consistentwith EPAguidance. Forinstance, 

### the rule mustrestrictinterpollutanttradingtoprecursor pollutantscontributingto thesamesecondary non-attainment pollutant(such as trading

## poe ftrNOx). TheDistrictmusteither peifOrm adequate modelling studies to includeascientificallydetermined pollutanttradingratio anddefine thatratio in the rule, or peifOrm acase-by-caseanalysis

## of the ratio, andstate in the rule thatthe ratio willbe determinedafteradequate modelling,publicnotice, andEPAconcurrence. (63 FR 59925, emphasis added)


### 3

### We share the same concerns aboutTNRCC's proposed rules thatEPAraisedregarding the BAAQMD rules. We suggest the following modifications to the proposed rules. The proposed rules do not indicate onwhatbasis the determination

### willbe made thata tradebetween two differentpollutants will resultin equal orgreater air qualityimprovement. Ifthe commission decides to allow inter-pollutanttrades (we argue thatthey should notbe allowed until international trades ofasingle pollutant are proven effective), itmustmodify the rules to include explicittrading ratios, orspecifyin the rule thata case-by-case determination ofthe ratio will be required, and thatthe ratio willbe determined through appropriate modeling, public notice, and EPA concurrence. For commonprecursors (like VOC for NOx, e.g.), the trading ratios mustbe scientificallydetermined throughphotochemical modeling orsome other equallyrigorous technique (we oppose any trading in lieu ofrequired VOC reductions). Forpollutants that are not commonprecursors, the commission must develop and include in the rule a scientifically sound methodologyto determine trading ratios thatresult in equal orgreater air qualityimprovement. One possible measure ofcomparabilitycouldbe the predictedreduction in the region's design value for the nonattainmentpollutants being traded. The proposed rules also fail to define any substantive criteriaorprocedural requirements that mustbe metin orderto demonstrate that a specific trade would satisfythe "greaterhealth benefits" condition established in the statute. The statute requires thatthe commission mustfind that a trade "will

### clearly resultingreaterhealth benefits for the community as awhole than wouldreductions 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 mustbe metin orderto demonstrate that a specific trade would satisfythe "greaterhealth benefits" condition. This language shouldinclude specific health effects that need to be addressed, and arebuttable presumption aboutthe margin ofsafety necessaryto showthat a trade will "clearlyresult" in greaterhealth benefits. Finally, the TNRCC needs to clarifyhow the impacted "community" is to be defined. To the extentthat the commission will need to make case-by-case determinations aboutthe precise trading ratio between two differentpollutants necessary to meet the requirements ofequal orgreater air qualitybenefit and greaterhealthbenefits, then it must allowfor public notice and comment. This

### will promote transparency and increase the likelihood that the first few trades will resultin real environmental improvement. EnvironmentalJustice Issues The proposedrules do not address environmentaljustice issues, i.e. the protection ofminority orlowincome populations from potential disproportionate impacts ofan emissions trading program. In the case ofpollutants with localized health effects, like manyVOCs that are also hazardous air pollutants, emissions trading may make air qualityworse in certain communities byincreasingtoxic emissions. Alternatively, trading ofhazardous airpollutants may diminish thebenefits that a community alreadyoverburdened with toxic exposures would have enjoyedunder atraditional regulatory program. Forexample, a facility facing an obligation to reduce ahazardous airpollutantlike benzene could acquire emissions credits ofanother hazardous airpollutant or- in the case ofinter-pollutant trading

- another criteriapollutant, instead ofreducing its own benzene emissions. As aresultofthe trade, the neighborhood adjacent to the facilitywould continue to face the same historicalpollution burden. EPA's guidance on Economic Incentive Programs discusses the safeguards that an emissions
4II 

### trading mustinclude in orderto prevent disproportionate impacts on**lo~-income** 

### orminority communities (see generally, sections 4.2 and 16.2.) The TNRCC's rules mustinclude safeguards to protectlow-income or minoritypopulations adjacentto sources oftoxic emissions. We stronglyrecommend thatthecommissionprohibit 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 participationprocess. Such aprocess must ensurethat adequate financial resources are provided for technical experts so thatneighborhoods can adequately evaluate the impacts ofproposals that involve trading ofairtoxics. Legal and Enforcement issues The proposedregulations raise important and complex issues ofextraterritoriality, including enforcementconsiderations in a transboundary context. a'. The definition ofnonattainment area under the US CleanAirAct (USCAA) sec. 171(2) refers to USCAA sec. 107(d). Thatprovision 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 maybe an issue whether, underthe USCAA and the Supreme Court's doctrines in the Foley, Aramco, and subsequentdecisions, cross-bordertransaction canbe approved for compliance with federal nonattainment arearequirements. IfTexas does notintend to utilize emissions reductions achieved in Mexico to meetfederal requirements for non-attainment areas, the issue of extra-territorialitywould not arise. By contrast, a cross-border, inter-pollutanttransaction, undertaken with avague oruncleardemonstration of**o~erall** 

### health and environmentalbenefits, that is submitted to the federal governmentfor purposes ofsatisfying federal non-attainment area requirements, likelywouldbe subject to stricter scrutinyin the context ofconcerns about extraterritoriality. b. Regarding enforcement: There are severalways the TNRCC could approach the enforcement issue. The commission could impose requirements thatemission reduction strategies be setforth in permitconditions orregulation changes, memorandum ofunderstandingbetween government agencies, 9rcontracts betweenprivateparties. Legal enforceability mustbe coupledwith an assurance ofpractical enforceability

- i.e., resources mustbe available to devote to inspection and enforcement activities. Withregard to legal enforceability, we recommend that the views ofthe US-Mexico Border Environmental EnforcementWorking Groupingbe sought. This group, comprising environmental enforcement officials atfederal, state and local levels, has developed considerable understanding of the complexlegal and practical issues that arise in the context of jointgovernmental environmental enforcementworkin the borderregion. Ifaprivate contractual arrangementis used, the contractbetween affectedparties could incorporate certain incentives to ensure the permanence and enforceability ofthe emission reductions. For example, ifaUS firm has financed the cost ofpollution control equipment and periodic loan payments are established, the payment schedule couldbe accelerated in the event ofnoncompliance; Of

### the sponsoring company could agree to pay theirpartnerperiodicallyfor operation and 

### 5

### maintenance costs so long as compliance occurs. At a minimum, the US firm must agree to be held liable for anyviolations in orderto ensure practical enforceability, namelyjurisdictionin US courts. Applicability S.B. 1561 shouldbe construed to apply onlyin nonattainment areas on an internationalborder, effectivelylimiting the applicabilityto trades involving a source in El Paso County. First, S.B. 1561 amended 

### § 382.0172, Texas Clean AirActconcerningInternational BorderAreas. Ifthe billwas intended to apply anywhere otherthan an international border area, itwould have amended a different, more generic section ofthe statute, oradded a new section. Itis also notable thatboth the Senate and House sponsors ofthe bill representEl Paso County. Second, 

### § 382.0172 (c)(1) limits trades to air contaminants forwhich an areahas been designated nonattainment; this limitation could onlypertain to anonattainment area. El Paso Countyis the onlynonattainment area in Texas on an international border. In determining the applicability ofthis statute, we do notbelieve that 

### § 311.024 Government Code (which states that the heading of

# asection does notlimitor expand the meaningofa statute) canbe read in isolation. The commission must considerboth the legislative history and the intent (the object soughtto be attained). 

### § 311.023, Government Code. In this regard, the testimony ofthe bill's sponsor, Sen. Eliot Shapleigh, clearlyindicates thatthe billwas intended to apply onlyin the borderregion and notin otherparts ofthe state. When introducing the bill, Sen. Shapleigh referred explicitlyto "airsheds along the border" and stated: S.B. 1561 would give the TNRCC the necessary authority to allow for greaterflexibility in improving the air quality along the borderregion (Senate Natural Resources Committee Hearing, March 27, 2001) In an ensuing discussion with Sen. Bernsen, itwas evident that Sen. Bernsen understood that the geographic extent ofthe "borderregion" that Sen. Shapleigh claimed his billwould affectwas narrowly limited to the £1 

### Paso nonattainment area. Sen. Bernsen alluded to the airpollutionproblem in El Paso, influenced bypollution transportfrom Mexico, and concluded that "this is an innovative planto help with an international problem." No one, including Sen. Bernsen, would characterize the ozone pollution in the state's three othernonattainment areas as an "internationalproblem." 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 ofno evidence showing a significantcontribution ofMexican emissions on ozone nonattainment in Texas cities otherthan El Paso. Consequently, the mostreasonable interpretation ofthe intended applicability ofS.B. 1561 is that it applies onlyto the El Paso nonattainment area. Inlightofthe section ofthe statute amended by S.B. 1561, and the clearlegislative intent thatthe bill should apply onlyin £1 

### Paso, the TNRCC must explicitlyrestrictthe 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 ofemissionreductions**~provided** 

### the substitution meets the same requirements as stated in the description of

### § 101.302. , 

### , 6\, 

### However, the proposedrule language does notcontain the same level ofdetail as 

### § 101.302. At a minimum, the commission should add language in 

### § 101.338(a) thatclarifies thatemissionreductions achieved outside the United States used in substitution for allowances underthe S.B. 7 trading program mustbepermanent (in addition to enforceable, quantifiable and surplus) and provide agreaterhealth benefitto the area (in addition to providing a greaterbenefit to overall airquality). 

### § 101.338(b). There appears to be atypographical errorin 

### § 101.338(b). Thewords "maybe" afterthe 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" shouldbe inserted after'the word "carbon." 

### § 101.372(a)(2). In 101.372(a)(2) the words "andusing" appearto be superfluous and inconsistentwith the statutorypurpose. 

### § 101.372(a)(2)(B). In 101.372(a)(2)(B) the word "an," appearing twice before the word "criteria" shouldbe changed to "a."
.
Thankyou for the opportunityto provide these comments. We would be pleased to visitwith Commission staffto further discuss ourconcerns or share ourexperiencewith emissions trading programs in otherlocations. Please do nothesitate to contact me at478-5161. Sin,rely,'

# ~AJ! Ramon

# A1va~J~~ Scientist 

# G " 

# I**~~~/M** Annie Petsonk International Counsel

7From: 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 peryear 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 perton. the TERP should be able to produce more than 1 ton of emission reductions. We ask TNRCC staffto 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 ofverification that the TERP reductions remain in effect through the period overwhich 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: 9:02:08I'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 howthese emission reductions will be above and beyond those measures"included inJhe SIP approved bythe 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 ifthis option is utilized by any companies. " Thank you forthe opportunity to comment. Sincerely,

John D. Wilson Executive Director
cc: Ramon Alvarez, Ph.D. Environmental DefenseFrom: 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 PageChauBun,M.D.,l\LP.H. Acting Director (713)**439~OOO** Fax: (713)439·6080 

# 8 -4 Rob Barrett;

AssistantDirector Pollution Control (713) 920·2831 Fax: (713) 471-8963


### January 4, 2002

Ms. PatriciaDuron Texas NaturalResource Conservation Commission Office ofEnvironmentalPolicy 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 Generated from the Texas EmissionsReduction Plan. DearMs. 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 submitthe following comments: The Section by Section Discussion portion ofthe Preamble regarding the proposed amendments to 30 TAC 101.302 states that theproposed amendments address the relationship ofthe requirements of SB 1561 and the generation ofemission reduction credits (ERCs). The amendments would allow emission reductions from facilities located outside the United States to be used to meet the requirements ofreductions 

### in another pollutant in Texas. SB 1561 authorizes the TNRCC to allow the use ofemissions 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 reductionrequirements. 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 correspondingborder areas inTexas.

### Ms. PatriciaDuron January 4, 2002 PageTwo 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 areaas determinedby the executive director." 

### As previously stated, HCPC believes thatthis 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 Areain Mexico and the reductions can onlybe used inthe correspondingborder areas inTexas. Proposed new 30 TAC 101.338 addresses emission reductions achieved outsidethe United States for grandfathered or electing electric generating facilities. As previously stated, HCPC believes thatthis section is to broad in scope and needs additional language consistentwith SB 1561 to clarify thatthe facilities outside the United States are in the International Border Area inMexico and the reductions can only beused inthe correspondingborder areas inTexas. Once again, thank you for the opportunity to comment on the proposed rules. Ifyou have any questions orneed additional informationregarding this matterplease contactme 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 December23,2001 Ms. PatriciaDuron OfficeEnvironmentalPolicy, Analysis, andAssessment TNRCC MC205 P. O. Box 13087 Austin, Texas 78711-3087 

### RECEIVED 

## DEC 2'( '1001 OFFICEOr:

## BMRqNMEN1S~LENT POLICY.**Ai~?,LYS!S** 

### & r\SSES ,III

\ \ DearMs. Duron, Enclosedarethe commentsoftheHoustonSierraClub (HSC) regardingtheproposedchari.gesto 30T AC 101.302,338,357,372, and 117.571. Thisproposalto implementtheTexasEmissions reductionPlan (fERP) has manyfeatures thatare undesirable. Under 101.302, 101.372, and elsewhere intheserules, wedo not supportallowingemissionreductions madeunderthelERPto substituteforemissionreductionsthatarerequiredbythe StateImplementation Plan(SIP). TherearenocriteriathatprovideguidanceforhowTNRCC will weight whether"the substitutionresults inagreaterhealthbenefitandis ofequal orgreaterbenefits to the overall airqualityof the area.'" lbis allows theExecutiveDirectorto operateinanarbitraryandcapricious mannerwithno safe guards to protectthePublic's health, safety, welfare, andenvironment. ..'
. Under 101.302, 101.338,and 101.372,therearenocriteriafordeterminingwhenthe emissionreductions are "enforceable, quantifiable, andsurplus to anyapplicableinternational,federal, state, orlocallawand are ofequal orgreaterbenefitto overall airquality ofthe area" TNRCCgives itselftheleewaytobe arbitrary andcapriciousandtake advantageofpeoplewho do nothavepolitical strengthtofightthese proposals. TNRCC takes advantage ofthe weakforthebenefit ofthepowerful. Under 101.302, 101.338, and 101.372, thereis nothingthatensurestheremoval ofairpollutants overthe lifetimeofasourcethatisnotintheU.S. Ifasourcereduces itspollutants inMexico, buttwo year's later turns offits airpollution control equipmentorthe equipmentbreaks andthereis nomoneyto fix it, how will theTNRCCknow andhave anyrecourseto stopthepollution? Thereisnorequirementfor investigationandenforcementto ensurethatpollutionreductionshavebeenmade andcontinuetobemade as requiredby any agreement. HowcanTNRCC enforceits will onaforeign count:Iy? Itcannot. This is a house ofcards thathas no foundation. Under 101.302, 101.338, and 101.372, we oppose allowingemissionreductionsacquiredfromoutsidethe U.S. tobeusedto meetreductions foranotherpollutantinthe StateofTexas. This is anexampleofintrapollutanttrading. There is no criteriaorguidanceto determine "greaterhealthbenefitthatis ofequalor greaterbenefitto theoverall airqualityofthe area" intherules. Studyafterstudyhas shownthatitisthe total mixofairpollutantsinurbanairthatleadsto increasedorbanmortalityand urbanmorbidityandnot justone airpollutant The S)nergisticeffectofairpollutants is totallyignoredbyTNRCC inthisproposed trading schemeto implementTERP. We object! lbis allows companies ontheU.S. sideoftheborderto escapetheirresponsibilityto reduce airpollutionandprotectU.S. andforeign citizens. Under 101.357 and 117.571, itis obvious thata severeOzone nonattainmentarea, liketheHoustonGalvestonArea (HGA), whichhas ledtheU.S. inOzonedayviolationsfortwooutofthe pastthreeyears, shouldbe requiredto implementallavailablecontrols. This is particularlyimportant sincethe SIPthat TNRCC has submittedto U. S. EPA, andwhichEPA agreeswith, documents thatthere is a56TPD deficit

. "When we try to pick out anything by itself. we find it hitched to everything else in the universe." John Muiri \ ofNOxemissionreductions. ThisdeficitmeansthattheHGA SIPcanno, today, assurethatattainmentof theOzone standardwilloccurbythe 2007 deadline. TNRCCisminimizingemissionreductionsandendangeringtheattainmentofthe Ozone standardon-time. This is afailed strategywhichTNRCC'spredecessor, theTexasAirControlBoard, usedseveraltimes. A trackrecordofabjectfailure hasbeen setandTNRCC isintentonrepeatingthis failure. Under 101.357 and 117.571, we opposedeferringNOXemissionreductions byusing 1ERPreductions instead Both sets ofreductionsmustbeimplemented so theHGA

### has areal opportunityto attainthe Ozone standardby 2007. Theideathatpayingtoallowpollutionispoorpublicpolicy. Theideathat allows only an 80% emissionreductionfromthebaseline,foruse oftheTERP, whenBestAvailable ControlTechnology andLowestAchievableEmissionsRateisrequiredandneeded, ishypocritical. Under 101.357 and 117.571,theTNRCC gives no criteriaforhowitwilljudgeif"itistechnically infeasibleto complywithapplicableemissionreductions" forNOx. Thereisno definitionof"technically infeasible" andthereisno explanationwhatittakestoprovethatsuchreductions cannotbe made. Under 101.302 and 101.372, TNRCCgives no guidance andprovides no criteriainitsrule-makingto show how "substitutionmustclearlyresultingreaterhealthbenefitsforthecommunityas awhole thanwould reductions atthe originalfacility." Thetenncommunity, is notdefined. This couldmeantheentireHGA, ElPaso, orothernonattainment

### areaoritcouldcoveraneighborhood. Thebottomlineisthatthose who livenearlargebusinesses thatemitairpollution, withimplementationof TNRCC's 1ERPprogram, will continueto havetobreathe airpollutionthat shouldbeeliminatedtoprotect theirhealth, welfare, safety, andenvironment TNRCC is sacrificingthesepeopleforthegreatergoodof "thecommunityas awhole." This ensuresthatthosewho arepoliticallyweakestinourSocietybearthe bruntoftheillsthattherestofSocietycreates. This is calledEnvironmentalInjustice, and incaseswhere thosepeople are minoritypopulationsis calledEnvironmentalRacism, andincases wherethesepeople are pooriscalledEnvironmental Classism. Thata stateagency chargedwithprotectingthepublic'shealth, welfare, safety, and environment shouldbethe originatorofsuchrules is shameful. We appreciatethe opportunitytocomment Thankyou. Sincerely,

# f?J~tJ~ BrandtMannchen ConservationCommittee Houston SierraClub 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 72002 'JAN 1 

## 7002 OFfiCEOF ENViRONMENTAL 

# POuey,ANALYSIS 

### & ASSESSMENT

# 8

\

# - \ 

### PatriciaDuron Office ofEnvironmental Policy, Analysis, and Assessment MC205 P.O. Box 13087 Austin, TX 78711-3087 Reference: Rule Log Number 2001-063-101-AI DearMs. Duron: Thankyou for providing the opportunity to comment onproposed changes to 30 TAC 101 regarding Emissions Banking and Trading. Weare encouraged by the direction you are taking with the proposedrule changes. It 

### shouldbe noted that, generally, the concept of allowing foreign sources to generate credits for U.S. sources is a novel one that will require furtherreview within EPA before the agency canprovide more definitive comments. Our comments withregard to Mass Emissions Cap and Trade Program are closely related to our comments onthe Administrative Provisions ofthe Control ofAirPollution from Nitrogen Compounds in 30 TAC 117. We are also submittingthe comments for §101.357 for §117.571. Ourcomments are enclosed Region 6 continues to offerTexas our support during yourrulemaking process. Please let us know how we may be offurther assistance. Sincerely yours,

# ~fY-~ Thomas Diggs Chief AirPlanning 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 SubchapterH. 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 orderto be approvable the rules must meet the EPA Economic Incentive Program (EIP) Guidance which includes procedures to measure and trackresults through annual compliance and three year audits. Suchprocedures 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 yearreviews and audits. TNRCC must ensure thatifthe program evaluation shows aproblemwith the emissionreductions, the problemwill be corrected as expeditiously as possible. However, it will be very difficult to determine whetheremissions 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 inspectthe facilities outside the United States to verify reductions will be a majorhurdle to approval ofthis program. We understand thatthe proposedrules are intendedto control ground-level ozone and other criteriapollutants in ilonattainment (NA) areas in the state, and to implement Senate Bill 5 (SB 5) and SB 1561, passedby 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 ofaircontaminants from mobile sources. The program offers subsidies for the replacement ofolderdiesel engines with more efficient diesels with lower emissions and for the purchase ofautomobiles 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 DallaslFodWorth (DFW) areas. These owners oroperators may substitute emissions reductions made under the plan for those reductions otherwise required underthe commission's rules and make a contribution to the fund based on the amount ofemissions reductions substituted. This proposedrulemaking would implement the relevantportions ofSB 5 concerning these contributions to the TERP fund in the HGA area. This rulemaking also implements the provisions ofSB 1561 which allows surplus emission reductions achieved outside the United States to satisfy emission reduction requirements in Texas by allowing reductions in one aircontaminantto substitute for reductions in another criteriapollutant under specific conditions. The proposed amendments to §101.302 address the relationship ofthe requirements ofSB 1561 and the generation ofERCs under SubchapterH Division 1. The amendments would allow .emissionreductions from facilities located outside the United States to be used to meet the" 

### requirements for reductions in anotherpollutant in Texas, provided the substitution results in a greaterhealth benefit or is ofequal orgreaterbenefit to the overall air quality ofthe area. The TNRCC Executive Director (ED) would make this determination. The proposal involves the substitution ofa reduction ofacriteriapollutant for which the areahas been designated as aNA area for a required reduction for another criteriapollutant for which the area is also designated as aNA area, and the substitution must clearly result in greaterhealth benefits for the community as a whole than would reductions atthe original facility. In orderfor the reductions to be eligible for substitution, they mustbe real, permanent, quantifiable, and surplus to any applicable international, federal, state, orlocal law. Reductions ofcontaminants otherthan volatile organic compounds (VOC) andNOx would not qualify as ERCs. We agree with the proposed rule in thatthe reductions from sources located outside the United States mustbe real, permanent, quantifiable, and surplus to any applicable international, federal, state, orlocal law. Sources located outside the United States musthave a qualitative and quantitative effect on an ozone nonattainment area. Atpresentthe 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, 

### "ImprovingAir Quality with EconomicIncentive Programs", EPA-452/R-OI-00l, January 2001; the areareferred to in §101.302(a)(2)(B) is the El Paso nonattainment area. Stationary sources in ozone nonattainment areas such as DFW, Beaumont (BPA) orHGA could not participate in trading emissionreductions with sources outside the United States; the reductions, in orderto be surplus, musthave been relied upon in the most recent attainment demonstration approved by EPA orhave the same qualitative and qualitative effect on the environment; the reductions ofone pollutantto meetthe requirements ofanotherpollutant mustbe**d~monstrated** 

### on a case-by-case basis which may containbut not be limited to urban airshed modeling. The criteria and protocol for each case-by-case demonstration mustbe pre-approved by TNRCC and EPA; the reductions, in orderto be enforceable, must have been established by use ofan emissions quantification protocol in accordance with the EPA EIP Guidance document. The protocol musthave been submitted to EPA for approval priorto the generation of emission reduction credits; and the reductions, in orderto be enforceable, must be subject to monitoring, recordkeeping and reporting requirements ofthe EPA EIP Guidance document at a minimum. In the absence ofan agreement specifically addressing this item, the source receiving the emission reduction credits will be subject to enforcement action and subject to the immediate installation ofcontrol equipment, shouldthe source generating the ERCs outside the U.S. not monitor, keep records and/orreportpromptly in English. Records\ 

# - \ 

### from the source generating the ERCs mustbe 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 forU.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 ofgreaterhealth benefit and ofoverall air quality benefitby 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 itpurports to have enforceability as one ofthe criteria, there is no mechanism for enforcementagainst facilities located outside the U.S. Proposednew §101.338 would apply the provisions ofSB 1561 to the existing emission credit systemfor electric generating facilities created underthe implementation ofSB 7 from the 76th Legislature, 1999. This new section would allow the substitution ofreductions ofone criteria pollutant for another criteriapollutantprovided the substitution meets the same requirements as statedin the description of

### §101.302. We agree, in general, with the proposed new rule 

### §101.338 to allow a grandfathered orelecting EGF source to use reductions to meetthe New Source Review complianceprovisions ofSection 101 SubchapterH Division 2 for Senate Bill 7 implementation. The reductions from sources located outside the United Statesmust bereal, permanent, quantifiable, enforceable and surplus to any applicable international, federal, state, or local law
.... In the response to comments TNRCC must clarify that: the areareferred to in 

### §101.338(b) is the EI Paso nonattainment area. Stationary sources in ozone nonattainment areas such as Dallas (DFW), Beaumont (BPA) orHouston (HGA) or any attainment areas could notparticipate 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-atthe reductions, in orderto be surplus, musthave been relied upon in the mostrecent attainment demonstration approved by EPA orhave the same qualitative and quantitative effect on the environment; that the reductions, in orderto be enforceable, musthave been established by use ofan emissions quantificationprotocol in accordance with the EPA EIP Guidance document. The protocol must have been submitted to EPA for approval priorto the generation of emission reduction credits; and that the reductions, in orderto be enforceable, must be subject to monitoring, recordkeeping and reporting requirements ofthe EPA EIP Guidance document at a minimum. In the absence ofatreaty specifically addressing this item, the source receiving the emissionreduction credits will be subject to enforcement action and subject to the immediate installation ofcontrol equipment, should the source generating the

### ,

# - , ERCs outside the US notmonitor, keep records and/orreportpromptly in English. Records from the source generating the ERCs mustbe 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 canbe assured for accuracy. Like §101.302(a)(2), §101.338 (a) is impermissibleED discretion. This subsection allows a determination ofoverall airquality benefitby the ED with no criteria on which to base a decision. The rule needs criteriathat the ED uses to make consistent decisions. Proposed new §101.357 would allow site owners oroperators in the HGA nonattainment area to defer aportion oftheirrequiredNOx emissions under applicable commissionrules by using emissions reductions generated underthe TERP. The TERP reductions may be used ifthe owner or operator does the following: contributes to the TERP fund $75,000 perton ofNOx reductions used, not to exceed 25 tons peryear (tpy) or0.5 tons perday (tpd) on a site-wide basis; demonstrates to the ED that the site will be in full compliance with applicable rules no laterthan the fifth anniversary ofthe date the emissions reductions would have normally been required; reduces emissions from the site at least 80% from the establishedbaseline; and receives approval from the TNRCC ofapetition from the owneror operatorthat demonstrates that it is technically infeasible to comply with the applicable emission reductions of30 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 complywith the Chapter 117 requirements by purchasing TERP emission reductions. TNRCC has notproposed arule to certify that TERP emission reductions mustbe 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 aTERP 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 commentwithin 45 days, TNRCC will incorporate the EPA comments into the approval process. Section101.357(4) mustrequire the petition approval by the executive director andbe subjectto EPA review and comment. Should EPA not respond/comment within 45 days TNRCC may proceed with the approval process. Should EPA commentwithin 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 ourunderstanding 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 orcriteria for the ED in determining the validity ofthe demonstration oftechnical infeasibility. The proposed amendments to §101.372 address the relationship ofSB 1561 requirements and the generation ofDERCs under SubchapterH Division4. The proposed amendments allow the substitution ofemission reductions in one criteriapollutant forreductions ofanothercontaminant underthe same restrictions as described for §101.302. Reductions ofcontaminants otherthan

### VOC andNOx would not qualify as DERCs. We have the same concerns for this proposedrule as stated in the comments for §101.302. These comments are incorporated byreference. This includes ourED 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. \



# .. . "-'.



### ... 

### 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 

# arecordof excellence
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

i-

\ 

### 5 6 7 

### 8 9 

### 10 11 

### 12 13 14 15 16 17 18 19 

### 20 21 22 

### 23 24 25 PROCEEDINGS ADJOURNED

KENNEDY REPORTING SERVICE, INC. (512)474-2233 6

### 1 2 3 

### 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

- 

### 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)474-22335 

### 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 comments . 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

i. \ 

### 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) 7 

### 8 9 

### 10 

### 11 12 13 14 15 16 17 18 

### 19 20 21 

### 22 23 24 

### 25 Thank you.

KENNEDY REPORTING SERVICE, INC. (512)474-2233Concerning: 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 ofEmission Reductions Generated from the Texas Emissions Reduction Plan (TERP) are proposed in order to control ground-level ozone and other criteriapollutants in nonattainrnent (NA) areas in the state. 

## PublicHearingRegistration Rule Log No. 2001-063-101-AI '1 

# ••**.~.** 

# -- - 

# - 

# - -- - - .,. 

# .. -- 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)



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## 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 ChiefClerk Date: February 22, 2002

From:
Subject: Caption: Randolph Wood, Deputy Director Office ofEnvironmental Policy, Analysis, and Assessment
Commission Approval for Adoption ofProposed Rulemaking DocketNo. 2001-1281-RUL. Consideration for adoption ofamended 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 ofnitrogen oxides emissions reductions accomplishedunder the Texas Emissions Reduction Plan for those emission reductions otherwise required under the rules ofthe commission and the SIP. New Section 101.338 and amended Sections 101;302 and 101.372 would allow substitution ofemissionreductions ofcriteriapollutants accomplished outside the United States for reductions in such pollutants within Texas if the executive director and the UnitedStatesEnvironmental ProtectionAgencydetermine thatthe substitutionwillresult in greater overall health benefit to the area. The proposed rules were published in the November 23,2001 issue ofthe 

### TexasRegister (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 ofemissions reductions accomplished under the Texas Emissions Reduction Plan (TERP) for nitrogen oxides (NOX> reductions required in the Houston/Galveston (HGA) and Dallas/FortWorth (DFW) ozone nonattainment areas underother commissionrules and the SIP. The TERP was establishedby SenateBill (SB) 5, 77thLegislature, 2001. The rules will affect NOx sources in the HGA and DFW areas by allowing owners or operators ofthese sources additional compliance options for achieving reductions required under the SIP. Theserules also specify theconditionsunderwhich owners andoperators mayuseTERP reductions. These adoptedrules will alsoimplementtherequirementsofSB 1561, 77thLegislature, 2001. The adopted rules will allow the substitution ofcriteria 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, concerningAvailabilityofEmissionsReductions inCertainNonattainmentAreas, whichauthorizes thecommissionto allowalternativemethodsofcompliancewithairpollutionregulations andunder Texas Clean AirAct (TCAA), §382.0172(b), concerning International BorderArea, as amended by SB 1561, andwhichauthorizesthecommissiontomakecertainemissionreductionsubstitutions 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 UnitedStates Environmental ProtectionAgency (EPA) submittedcomments 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 staffsuggested responses are as follows.

• The proposal had no criteria to determine ifan emission substitution would result in a greater health benefit in the nonattainment area. Staffadded 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) ofthe concentration ofany ofthe criteria pollutants for which the area has been designated nonattainment.

• The proposal had no means ofenforcing 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 ofthe Texas user requiring a contractormemorandumofunderstanding withathirdparty to inspectthe facilities onthe other side ofthe 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. Staffalso noted that El Paso would be in attainment ofall three of these criteria pollutants were it not for the emissions from Mexico, thereforeCommissioners Page 3 February 22, 2002 Re: Docket No. 2001-1281-RUL
international trading in accordance with these rules wouldbe beneficial to the El Paso air quality. 

### Final Regulatory Impact Analysis Determination: The staffreviewed this rulemaking action in lightofthe regulatory analysis requirements ofTexas GovernmentCode, §2001.0225 anddetermined thatthe rules do notmeetthe defmitionofamajor environmentalrule. The adoptedruleswillincreasethecomplianceoptions for industriescurrently 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 ofthe state or a sector ofthe state. 

### Takings Impact Assessment: Promulgation and enforcement ofthe rules will not burden private real property. The adopted rules will not affectprivate property in a manner which restricts or limits an owner's right to the property that would otherwise exist in the absence ofa 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 staffreviewedthis actionforconsistencywiththeTexas Coastal ManagementProgram(CMP) goals and policies in accordance with the regulations ofthe Coastal Coordination Council and has determined that the rulemaking action is consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) ofprotecting and preserving the quality and values ofcoastal natural resource areas, andthepolicy in 31 TAC §501.14(q), whichrequires thatthecommissionprotectairquality 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 DevelopmentTeam. 

### Agency Contacts: Alan Henderson, Office ofEnvironmental 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 ChiefClerk 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 ofthe 

### 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 ofcertain emissions reductions in exchange for other emissions reductions), 77th Legislature, 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 ofair contaminants from mobile sources. The program offers subsidies for the replacement ofolder diesel engines with more efficient diesels with lower emissions and for the purchase ofautomobiles with low emissions. The program is funded in part through surcharges and fees on the lease, sale, and registration ofcertain 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 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 

### 1emissions reductions substituted. This adopted rulemaking implements the relevantportions ofSB 5 concerning these contributions to the TERP fund in the HGA area, as described in greater detail in the SECTION BY SECTION DISCUSSIONportion ofthis preamble.

This rulemaking also implements the provisions ofSB 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 ofthis preamble.

SECTION BY SECTION DISCUSSION The adopted amendments to §101.302, General Provisions, address the relationship ofthe requirements ofSB 1561 and the generation ofemission 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 ofequal or greater benefit to the overall air quality ofthe area. The executive director will make this determination. The amendments involve the substitution ofa reduction ofa 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 ofgreater health benefit, the executive director may consider the amount ofair 

### 2contaminant removed, the frequency that concentrations ofan air contaminanthave 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 ofaproposed emission reduction. For example, consider a proposed reduction ofparticulate matter with an aerodynamic diameter ofless than or equal to a nominal ten microns (PMIO) instead ofa 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 ofgreater significance than a numerically equivalent reduction ofNOx' The commission believes that this greater significance could be part ofa demonstration that such a substitution would be ofgreater 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 ofdemonstration. The commission recognizes the influence ofair 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 NOxwill not qualify as ERCs.

The adopted new §101.338, Emission Reductions Achieved Outside the United States, applies the provisio.ns ofSB 1561 to the existing emission credit system for electric generating facilities. This system was created under the implementation ofSB 7 from the 76th Legislature, 1999. This new section allows the substitution ofreductions ofone criteria pollutant for another criteria pollutant 

### 3provided 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 ofEmission Reductions Generated from the Texas Emission Reduction Plan (TERP), allows site owners or operators in the HGA nonattainment area to defer a portion oftheir required NOxemissions 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 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

### % ofthe required reductions; and receives approval from the executive director ofa petition from the owner or operator that demonstrates that it is technically infeasible to comply with the applicable emission reductions of30 TAC Chapter 117, Control ofAir 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 beenpreviously 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 

### mustbe used to benefit the community in which the site using the TERP emission reduction credits is located.



### 4The adopted amendments to §101.372, General Provisions, address the relationship ofSB 1561 requirements to the generation ofdiscrete emission reduction credits (DERCs). The adopted amendments allow the substitution ofemission reductions in one nonattainment air contaminant for reductions ofanother nonattainment air contaminant under the same restrictions as described for §101.302. Reductions ofcontaminants other than VOC and NOxwill 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 ofthe 

### Texas Register (Rule Log Number 2001-025d-117-AI), allows site owners or operators to defer NOxemissions 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 ofthe draft regulatory analysis requirements ofTexas 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 ofthe 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 ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state. The adopted rules implement SB 1561 and allow the substitution ofemissions reductions ofone criteria pollutant, accomplished outside the U.S., for emissions reductions ofanother criteria pollutant in Texas. This substitution will occur only under specific conditions as described in the 

### 5SECTION BY SECTION DISCUSSION. The adopted rules also implement certain requirements ofSB 5 and allow the deferral ofNOx emissions reductions in the HGA nonattainment area under specific conditions described in the SECTION BY SECTION DISCUSSION portion ofthis 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 ofexisting rules and will not adversely affect, in a material way, the economy, a sector ofthe economy, productivity, competition,jobs, the environment, or the public health and safety ofthe state or a sector ofthe state.

In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result ofwhich is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement ofstate law, unless the rule is specifically required by federal law; 3) exceed a requirement ofa delegation agreement or contract between the state and an agency or representative ofthe federal government to implement a state and federal program; or 4) adopt a rule solely under the general powers ofthe agency instead ofunder 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 ofthe four applicability requirements. Specifically, the amendments and new sections implement the requirements ofTexas Health and Safety Code (THSC), Texas Clean Air Act (TCAA), §386.056 and §382.0172.

6TAKINGS IMPACT ASSESSMENT The commission completed a takings impact assessment for the adopted rules. Promulgation and enforcement ofthe 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 ofa governmental action. Consequently, these rules do not meet the definition ofa takings under Texas Government Code, §2007.002(5). These rules are specifically adopted to implement the requirements ofTHSC, TCAA, §386.052 and §382.0172, and address alternative methods ofmeeting 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 

### etseq.), 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 ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regulations ofthe Coastal Coordination Council and has determined that the adopted rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) ofprotecting and preserving the quality and values ofcoastal 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 ofmeeting emission reduction requirements and



### 7emissions reduction substitutions. No new emissions ofcriteriapollutants are authorized by these rules.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM The adopted rulemaking is part ofthe state's ozone attainment strategy; therefore, these rules will be submitted as part ofthe SIP. As a result, the rules will become applicable requirements under the federal operating permitprogram.

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 commentperiod 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 ofthe area, and that the lack ofcriteria will allow the executive director to operate in an arbitrary and capricious manner. They also stated that the criteria and procedures used to determine "greaterhealth benefit" should be defined in the rule. Sierra-Houston opposed the substitution ofreductions ofone pollutant from a source outside 

### 8

### the U.S. for reductions ofanother pollutant otherwise required in Texas. Sierra-Houston stated that the proposal ignored the effects ofthe mix ofair 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 ofgreater health benefit, the commission will 

### consider the amount ofair contaminantremoved, the frequency that concentrations ofan 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 ofa proposed emission reduction. While the commission will closely examine any proposed emission reduction under these rules, it does not wantto specify or endorse any particular method ofdemonstration. The commission recognizes the influence ofair 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 ofair 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 ofemission reductions. ED suggested enforcement strategies that included permit conditions, memoranda ofunderstanding 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 ofthe reduction. For example, an enforceable requirement could be a permit condition requiring a contractwith a third party to inspect facilities outside the U.S. If

### the inspection reveals violations, the user ofthe reductions would then be held accou.ntable by the commission. This type ofplan could also require that the
user ofreductions 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 importantbecause the
current Houston SIP has a 56 tpd reduction deficit. Sierra-Houston also stated that TERP emission reductions should not be allowedas a substitution for reduction currently required ofstationary
sources, but rather both sets ofreductions 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% ofits required emissions for five years. At the end ofthis 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.

10EPE expressed concern that the rule as proposed did not specifically mention any provisions for the creation ofemission offset credits. This possibility ofcreating 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 ofoffsets; however, the offsetuser must meetthe requirements and intent ofall 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 ofemission 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 ofSB 1561 which does not limit trades to one pollutant.

11ED 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 ofSB 1561 is to allow the substitution ofemission 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 ofreductions otherwise required in 

### Texas. The trade must also result in a greaterhealth benefit as determined by the executive director. Both ofthese 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 

### 12example ofa 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 oftoxic 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 ofa pollutant do not occur offthe 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 ofone 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, ifthe bill were intended to apply to any nonattainment area ofthe state, it would have amended a more generic statute. In its interpretation ofSB 1561, ED does not believe that Texas Government Code, §311.024, which states that the heading ofa section does not limit or expand the meaning ofa 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 13corresponding border areas in Texas. EPA stated that only sources in the El Paso nonattainment area could participate in the emissions substitution program.



### The commission changedthe 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 

### restrictthe use ofthis rule to facilities within 100 kilometers of the Texas

- Mexico border. This is consistent with the defInition ofthe border area contained in the 1983 La Paz agreement. EI Paso is currently the only nonattainment area on the international borderwith 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 ofdetail as §101.302 regarding the
nature ofacceptable 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.

14EPA stated that it will be very difficult to determine ifemissions reductions outside the 

### V.S. have / actually occurred and stated that some mechanism to ensure the permanence ofthe reductions is necessary. The inability to inspect sources outside the 

### V.S. will be a major difficulty in approval ofthe 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 ofthe 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 ofan 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 putenforceable requirements on the

user. For example, an enforceable requirement mightbe a permit condition requiring a contract with a third party to inspect facilities outside the U.S. If

### the inspection reveals violations, the user ofthe reductions could then be held accountable by the commission. This type ofplan could also require that the user ofreductions maintain records within Texas that demonstrate that the Mexican source has accomplished and is maintaining the emissions reduction. Any individual 

### 15plan 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 ofan 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 ofthe 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. Ifa 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 oftechnical 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 ofthese technologies within the rule, buthas added rule language stating that a technical review will 

### consider current technology, adaptability oftechnology to a particular source, age and projected useful life ofthe source, and cost benefits at the time ofapplication.

GHASP and ED commented that the $75,000 paid to the TERP fund for each ton ofemissions reduction deferrals should be used to finance reduction under TERP greater than one ton; and that to prevent double counting ofSIP 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



### 17granted. Finally, GHASP and ED stated that the definition of "site" must encompass an entire facility and notjust single emission units.



### The commission has not changed the rule in response to this comment. Money collected from the sale ofTERP reductions will go back into the TERP fund and be distributed under TERPrules. 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, ifa TERPreduction generates 100 tons ofreductions over one year, a facility could
use those reductions at a rate of50 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 ofthe 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 ofall stationary sources located on one or
more contiguous or adjacent properties, which are under common control ofthe same person (or persons under common control)..•."



### 18

# STAFF RECOMMENDATIONSSUBCHAPTER 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 ofthe TCAA. The amendment is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe 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 ofthe state's air. The amendment is also adopted under TCAA, §382.0172(b), concerning International BorderArea, 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 ofvolatile organic compounds (VOCs) and nitrogen oxides (NOJ 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:



### 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 ofequal or greater benefit to the overall air quality ofthe area, as determined by the executive director;

(B) is from the reduction ofan air contaminant for which the area has been designated as nonattainment or which leads to the formation ofa 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 ofemission 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 

### 2(C) 

### is located within 100 kilometers ofthe 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 ofemissions 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 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 ofemissions 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 ofthis title (relating to Conformity ofGeneral Federal Actions to State Implementation Plans).

(d) Life ofan emission credit.

(1) 

### Ifan 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 ofthe emission reduction except to the extent regulatory changes occur after the date ofreduction 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 ofthe emission reduction except to the extent regulatory changes occur after the date ofthe emission

4reduction that reduce the certified amount or invalidate the entire reduction for affected emission points.

(e) Geographic scope. Except as provided in paragraph (4) ofthis subsection, only emission reductions generated in ozone nonattainment areas can be certified. The trading ofemission 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 ofconcern. 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 ofuse;
(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 ofuse;

(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



### 5surplus 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 aunique number to each certificate which will include the amount ofemission reductions generated. The registry will maintain current listings ofall credits available or used for each ozone nonattainment area.
(g) Recordkeeping. The user must maintain a copy ofall notices and backup information submitted to the registry during, and for at least two years after, the beginning ofthe use period. The

user must 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:

(1) the name, emission point number, and facility identification number ofeach unit using emission credits;

(2) the amount ofemission credits being used by each unit; and

(3) the specific number, name, or other identification ofemission credits used for each unit.
(h) Public information. All information submitted with a notice or report regarding the nature and quantity ofemissions associated with the use or generation ofan emission credit is public 6information and may not be submitted as confidential. Any claim ofconfidentiality for this type of information, or failure to submit all information, may result 

### in the rejection ofthe emission reduction. All non-confidential notices and information regarding the generation, use, and availability ofemission 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 ofthe 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, ifthe executive director determines that the organization has violated the requirements ofthe program or abused the privileges provided by the program.

7SUBCHAPTER 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 ofthe TCAA. The new section is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe 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 ofthe 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 ofallowances for the purposes ofcompliance with this division provided that the emission reductions are enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; are ofgreater health benefit; and are ofequal or greater benefit to overall air quality ofthe area, as determined by the executive director. 8(b) A grandfathered or electing EGF may only use subsection (a) ofthis section ifreductions ofcriteria 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 are substituted for any criteria pollutant for which the area has been designated as nonattainment or for air contaminants which lead to the formation ofa criteriapollutant for which an area has been designated

as nonattainment. The applicant must:
(1) 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.

9SUBCHAPTER 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 ofthe TCAA. The new section is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe 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 ofthe 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.

§101.357. Use ofEmission Reductions Generated from the Texas Emissions Reduction Plan (TERP).

(a) An owner or operator ofa site as defined in §122.10 ofthis 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 ofallowances for compliance with this division provided that:

10(1) the owner or operator ofthe 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 ofthe site demonstrates to the executive director that the site will be in full compliance with the applicable emission reduction requirements ofthis division and Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) no later than the fifth anniversary ofthe date on which the emission reductions would otherwise be required;

(3) emissions from the site are reduced by at least 80% ofthe 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; 11(C) age and projected useful life ofa source; and

(D) cost benefits at the time ofapplication.

(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. Ifthere are no eligible emissions reduction projects within the community, the commission may authorize projects in an adjacent community. For purposes ofthis section, a community means a Justice ofthe Peace precinct.

12SUBCHAPTER 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 ofthe TCAA. The amendment is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality ofthe 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 ofthe 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 ofvolatile organic compounds (VOCs), nitrogen oxides (NOx ), carbon monoxide (CO), sulfur dioxide (S02)' and particulate matter with an aerodynamic diameter ofless than or equal to a nominal ten microns (PMIO) may qualify as discrete emission credits

as appropriate. Reductions ofother criteria pollutants are not creditable. Reductions ofone 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 greaterhealth benefit and is ofequal or greater benefit to the overall air quality ofthe area, as determined by the executive director;

(B) is from the reduction ofan criteria pollutant for which the area has been designated as nonattainment or which leads to the formation ofa 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 ofemission reductions substitutions underparagraph (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

14(C) is located within 100 kilometers ofthe 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 ofemissions 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 ofemissions 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. Ifa 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 ofthis title (relating to Conformity ofGeneral Federal Actions to State Implementation Plans).

(d) Life ofa discrete emission credit. A discrete emission credit is available for use after the notice ofgeneration, DC-1 Form, has been received and deemed creditable by the commission registry in accordance with subsection (h) ofthis section, and may be used anytime thereafter.

(e) Geographic scope. Except as provided inparagraph (6) ofthis subsection, only emission
. reductions generated in the State ofTexas may be creditable and used in the state with the following limitations.

(1) VOC and NOxdiscrete emission credits generated in an ozone attainment area may be used in any county orportion ofa county designated as attainment or unclassified, but may not be used in an ozone nonattainment area.

(2) VOC and NOxdiscrete 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 ofa 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 NOxdiscrete 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 ofthe 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 ofthe Texas

- Mexico border.

17(t) Trading discontinuation. The trading ofdiscrete emission credits may be discontinued by the executive director in whole or inpart and in any manner, with commission approval, as a remedy for problems resulting from trading in a localized area ofconcern.
(g) Ozone season. In areas having an ozone season ofless 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 ofdiscrete 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 ofemission reductions generated. The registry will maintain current listings ofall 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 ofall 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 ofall notices and backup information submitted to the registry for a minimum offive years, following the completion ofthe use period. Other relevant reference material orraw 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) ofeach unit using discrete emission credits; 18(2) the amount ofdiscrete emission credits being used by each unit; and

(3) the specific number, name, or other identification ofdiscrete emission credits used for each unit.

(j) Public information. All information submitted with a notice or report regarding the nature and quantity ofemissions associated with the use or generation ofdiscrete emission credits is public information and may not be submitted as confidential. Any claim ofconfidentiality for this type of material or failure to submit all information may result in the rejection ofthe emission reduction. All non-confidential notices and information 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 ofthis 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 ofthe 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, ifthe executive director determines that the company has violated the requirements ofthe program or abused the privileges provided by the program.

19

### TEXAS NATURAL RESOURCE

## CONSERVATIQ~.~QMMl~SION COUNTY OF TRAVIS • Ihereby certifythat this is a true and correct copy ofa Texas Natural Resource Conservation Commission document. which is filed in the permanent records orthe Commission.
.



# .**~:C:;2J:~oZJ~1.** 1 52002**~~~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 ofamended §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 criteriapollutants in nonattainment areas in the state. Section 101.357 applies in the Houston/Galveston nonattainment area to allow substitution ofnitrogen oxides emissions reductions accomplished under the Texas Emissions Reduction Plan for those otherwise required under the rules ofthe Commission and the SIP; and §§101.302, 101.338, and 101.372 allow substitution ofemission reductions ofcriteriapollutants accomplished outside the United States for reductions in such pollutants within Texas ifthe executive director and the U.S. Environmental ProtectionAgency (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 ofthe state's air and to issue orders consistent with the policies and purposes ofthe Texas Clean Air Act, Chapter 382 ofthe Tex. Health & Safety Code. The proposed rules were published for comment in the November 23, 2001 issue ofthe 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 ofFederal 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 ofthe hearings. Public hearings were held in El Paso on December 17,2001 and Houston on December 18,2001. The Commission circulated hearing notices ofits intended action to the public, including interested persons, the Regional Administrator ofthe 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 ofthe 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 ofinterested 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 oftestimony incorporated by reference to this order. The Commission fmds that the analysis oftestimony includes the names ofall 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 staffto make any non-substantive revisions to the rules necessary to comply with 

### Texas Registerrequirements. The adopted rules and the preamble to the adopted rules and the revisions to the SIP are incorporated by reference in this Order as ifset forth at length verbatim in this Order. Legal counsel has reviewed and certified that these rules, as adopted, are a valid exercise ofthe Commission's legal authority. The certification is incorporated by reference in this Order as ifset forth verbatim. IT IS FURTHER ORDERED BY THE COMMISSION that on behalfofthe Commission, the Chairman should transmit a copy ofthis Order, together with the adopted rules and revisions to the SIP, to the Regional Administrator ofEPA as a proposed revision to the Texas SIP pursuant to the Federal Clean Air Act, §110, as amended. This Order constitutes the Order ofthe Commission required by the Administrative Procedure Act, Government Code, §2001.033. Ifany portion ofthis Order is for any reason held to be invalid by a court ofcompetent jw:isdiction, the invalidity ofany portion shall not affect the validity ofthe remaining portions.

Date issued: 

# JUL 10

# 2002 TEXAS NATURAL RESOURCE CONS nON COMMISSION

# J (a) Reportrequired. A tten reportshallbepreparedin connectionwith any auditauthorized rrequiredpursuanttothis subchapter. (b) Contents ofreport. T writtenreportmustincludeamanagementletter containing the foil 'ng items, as applicable; (1) the criteria selecte to measure effectiveness and efficiency; (2) internal controls; (3) compliance with s te orfederal laws; (4) conditions found y auditors and the effects ofsuch conditions; and (5) anyrecommendati ns forimproving operations orprogram effectiveness. (c) Requiredopinion. Th reportalso mustincludean opinion onfairpresentationoffinancial s ements whenincludedaspartofthe scope ofthe audit. (d) Supplemental items t be reported. The auditing entity's reportshouldalsoinclude, tothee tentnecessary, eachofthefollowing items: (1) an analysis ofthe verall performance ofthe entitybeing audited; (2) an analysis ofthe 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 ofthe auditing entity's report shallbe filed with th CommissionerofInsuranceno later than 30 days afterthe audits are resented to the board ofdirectors of the audited guaranty association. Any response to the report by the boardofdirectors mustbe submit edto the commissionerno laterthan the nextmeeting ofthe board of irectors. (t) Audits excluded. Thi subchapter shall not apply to audits made by the Office ofthe State uditor. This agencyherebycertifiesth tthe adoption has been reviewed by legal counsel and found to e avalid exercise ofthe agency's legal authority. Filed with the Office ofthe Sec etary ofState 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 er30, 2001 Forfurther 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 ofthe 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 orderto control ground-level ozone and other criteria pollutants in nonattainmentareas in the state, and to implementSenate Bill (SB) 5 (an actrelating totheTexas emissions reduction plan) and SB 1561 (an act relating to the acceptance by the Texas Natural Resource Conservation Commission ofcertain ,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 implementsthe relevant portions ofSB 5 concerning these contributions to the TERP fund in the HGA area, as described in greater detail in the SECTION BY SECTION DISCUSSION portion ofthis preamble. This rulemaking also implementsthe prOVisions ofSB 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 underthe 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 directordetermines that the substitution results in a greater health benefit or is of equal orgreaterbenefitto the overall air qualityofthe area. The executive directorwill make this determination. The amendments involve the SUbstitution ofa reduction ofa criteria pollutant for which the area has been designated as nonattainment for arequired 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 languageto statethatthe substitution mustnotcause harm to public health in the area around the facility using the emission substitution. When determining whetheran emissions reduction outside the U.S. will be of greater health benefit, the executive director may consider the amount of air contaminant removed, the frequencythat concentrations ofan aircontaminant have exceeded the national ambient air quality standard (NAAQS), existing air quality demonstrations performed under SIP requirements, the air quality index, and any otherinformation which would indicate a clear benefit of a proposed emission reduction. For example, considera proposed reduction ofparticulate matterwith an aerodynamic diameterof 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 peryear (tpy) while the threshold for PM,. is ten tpy. The lower netting threshold for PM,. indicates that a reduction in that pollutant would be ofgreatersignificance than a numerically equivalent reduction of NO,. The commission believes that this greatersignificance could be part ofa demonstration thatsuch a substitution would be ofgreaterhealth 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 ofaircontaminantsources 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 orderforthe reductions to be eligible forsU,bstitution, they must be real, permanent, quantifiable, enforceable, and surplusto 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 underthe implementation ofS8 7 from the 76th Legislature, 1999. This new section allows the substitution of reductions ofone criteria pollutant for anothercrUeria pollutant provided the substitution meets the same requirements as stated in the description of 101.302. In response to public comment, the commission addedadditional language in subsection (a) that describes underwhat conditions emissions substitutions maybe 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 oroperators in the HGA nonattainment area to defer a portion oftheir required NO, emissions underapplicable commission rules by using emissions reductions generated underthe TERP. The TERP reductions may be used ifthe owner or operator does the following: contributes to the TERP fund $75,000 perton of NO, reductions used, notto exceed 25 tpy or 0.5 tons per day (tpd) on a site-wide basis; demonstrates to the executive directorthat 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% ofthe reqUired reductions; and receives approval from the executive directorof a petition from the owner or operator that demonstrates that it is technically infeasible to comply with the applicable emission reductions of30 TAC Chapter 117, Control ofAir Pollution from Nitrogen Compounds. In orderto ensure that TERP reductions are not used twice to meetSIP reductions, the commission added a restriction that TERP emissions used to meet stationary source reduction requirements must not have been previously used to meetreduction requirements undera SIP attainmentdemonstration. For consistency with S8 5, the commission also added a restriction thatTERP 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, addressthe relationship ofS8 1561 requirements tothe 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 ofthe Texas Register(Rule Log Number2001-025d-117-AI), allows site owners oroperators to defer NO emissions reductions in the DFW ozone nonattainment area by using reductions underthe TERP. The conditions on the use ofthese reductions are identical to those described for §101.357. FINAL REGULATORY IMPACTANALYSIS DETERMINATION The commission reviewed the adopted rufemaking in light of the draft regulatory analysis requirements ofTexas 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 ofthe 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 ofthe 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 ofthis 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 ofthe economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state.



### ADOPTEDRULES March 29, 2002 27 TexReg 2511In 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 undera specific state law. This rulemaking is notsubject to the regulatory analysis provisions of §2001.0225(b), because the adopted rules do not meet any ofthe 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 meetthe definition of atakings underTexas 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 oractions subjectto 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 ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regUlations ofthe Coastal Coordination Council and has determined thatthe adopted rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) of protecting and preserving the qualityand values ofcoastal natural resource areas, and the policy in §501.14(q), which requires thatthe 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. EFFECTON SITES SUBJECTTOTHE FEDERALOPERATING PERMITS PROGRAM The adopted rulemaking is part ofthe 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 underthe federal operating' permit program. HEARINGS AND COMMENTERS



### 27TexReg 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 whetheran emissions substitutionwill result in agreater 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 ofone pollutantfrom a source outside the U.S. for reductions ofanother pollutantotherwise 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 outsidethe U.S. will be ofgreater health benefit, the commission will consider the amount of air contaminant removed, the frequencythat concentrations ofan aircontaminant have exceeded the NMOS, existing airqualitydemonstrations 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 underthese rules, it does notwant to specify or endorse any particular method ofdemonstration. The commission recognizes the influence of aircontaminantsources 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 enforcementstrategiesthat 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 putenforceable requirements on the user ofthe reduction. Forexample, 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 userofthe reductions would then be held accountable by the commission. This type of plan could also require that theuser 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 occuron aton-for-ton basis so that all reductions required under the HGA attainment demonstration will be accomplished. The TERP allows the userofTERP 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 underthe 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 thatthe rule as proposed did notspecifically mention any provisions for the creation of emission offset credits. This possibility of creating offsets is the principal motivation for EPE to continue workto reduce brick kiln emissions in Ciudad Juarez. ED expressed concern that emission reductions achieved in Mexico may not meetfederal nonattainment requirements for compliance with the Federal Clean AirAct (FCAA) because cross-border transactions seem to be limited to the U.S. underthe FCAA definitions. The commission has not changed the rules in response to these comments. The rules do not restrict the use ofoffsets; however, the offset user must meet the requirements and intent ofall 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 totrading within the U.S. However, the commission believesthat 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 userliabilitycan be effective. Finally, the adopted rules reflect the intent of SB 1561 which does not limit trades to one pollutant. ED recommended the inter-pollutanttrades be restricted tothose 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 airquality 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 lowerenvironmental 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 ofa 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 increasesthatare determined bythe commission to be a threat to public health. Priorto authorization to use emissions reductions from outsidethe U.S., the user's emissions are subject to a health effects review to ensure that harmful concentrations ofa pollutant do not occur offthe propertywhere the source is located. However, the commission believes that prohibiting

### vac trades would not be consistentwith 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 ofthe state, itwould 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 borderarea 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.



### ADOPTEDRULES March 29, 

### 2002 27 

### TexReg2513The 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 ofthe Texas
- MexIco border. This is consistent with the definition ofthe borderarea 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 nonattalnmentfor three cntena pollutants. ozone, carbon monoxide, and PM,.. Additionally, the commission has demonstrated underthe 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 thattrading across the international border will result in air quality improvement for this area. ED commented that §1 01.338(a) does notcontain the same level of detail as §101.302 regarding the nature of acceptable emissions substitutions. ED stated thatthe 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 ofthe reductions is necessary. The inability to inspect sources outside the U.S. will be a major difficulty in approval ofthe 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. EPAfurther 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. Priorto 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 contractwith athird partyto 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 thatthe userof 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


### 27TexReg 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 meetthe same criteria as ERC and DERC generation. EPAstated that, in orderto 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. EPAstated the emission reductions musthave 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 underTERP must be real, permanent, quantifiable, and enforceable, and that these issues should be addressed in proposed TERP rules. Until aTERP 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 EPAthat 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 underthe Mass Emissions Cap and Trade (MECT) program for HGA.lfa site is not SUbjectto the MECT, the baseline will be the 1997 EI. The commission has not included the baseline within the rule to allowflexibility 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 oftechnical infeasibility. The commission changed the rule in response to this comment. The commission will determine on a case-by case basiswhether a required reduction istechnically infeasible. Technical specifications and control technology are constantly changing and involve a wide range oftechnologies 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 foreach ton ofemissions reduction deferralsshould be used to finance reduction underTERP greaterthan 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 underTERP remainin 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 notjust 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 underTERP 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, ifa 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 notchanged the definition of"site" to encompass an eritire facility in this rulemaking. However, the definition is being considered forproposal in Chapter 101 as partofthe upset/maintenance rule package (Rule Log Number 2001-075-101-AI) in the near future. The definition, as currently planned forthat proposal, is: "(88) Site
- The total ofall stationarysources located on one or more contiguous or adjacent properties, which are under common control of the same person (or persons undercommon 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 necessaryto carryout its powers and duties underthe TWC; and underTCM, §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 StateAir Control Plan, which authorizesthe 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 authorizesthe commission to make certain emission reduction substitutions for emission reductions outsidethe U.S. The amendment is also adopted underSB 5 and SB 1561, as passed by the 77th Legislature, 2001. §IOI.302. GeneralProvisions. (a) Applicable pollutants. Reductions ofvolatileorganiccompounds (VOCs) and nitrogen oxides (NO.) may qualify as emission credits. Reductions ofotherpollutants do notqualify as emissioncredits underthis division. Reductions ofone pollutantmaynotbeused to meet the requirements ofanotherpollutant, 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 agreaterhealth benefit and is ofequal or greater benefit to the overall air quality ofthe 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 designatedas nonattainmentorleads to the formation ofacriteria pollutantfor which the areahas beendesignated as nonattainment; or (3) the user of emission reductions substitutions under paragraph (2) ofthis subsection: (A) demonstrates that the use ofthe reduction does not causelocalizedhealthimpacts, as determinedbytheexecutive director; (B) submits all supportinginformationforcalculations, modeling, and any additional information requested by the executive director; and(C) is locatedwithin 100kilometers oftheTexas

-Mexico border. (b) Emission reduction requirements. (I) Emission reduction credits (ERCs) are generated from reductions beyondthoserequired. Tobecertifiedas anemissioncredit, an emission reduction must be enforceable, permanent, quantifiable, real, and surplus. The emission credit mustbe surplus at the time it is created, as well as when it is used. The certified reduction must have occurredafterthemostrecentyearofemissionsinventoryusedforstate implementation plan (SIP) determinations for VOC and NO , and the source'sannual emissionspriorto the emissioncreditapplicaiionmust have been reported orrepresented in the emissions inventory used for SIP determinations. (2) Mobileemissionreduction credits (MERCs) are generated from reductions beyond those required, and derived from a calculation ofthe annual differencebetweenthemobile source emissions baseline andthe projectedemissionslevel afterthe MERC strategyhas been put in place. To be certified as a MERC, an emission reduction must be enforceable, permanent, quantifiable, real, and surplus. The emission credit mustbesurplus atthetime itis created, as well as when itis used. The certifiedreductionmusthave occurredafterthemostrecentyear ofemissions inventory used for SIP determinations for VOC andNO., themobile source's emissions musthave beenrepresentedin the emissions inventoryusedforSIPdeterminations, andthe applicable mobile sources musthave been included in the attainmentdemonstration baseline. (3) Emission reductions from a source which are certified as emission creditsunderthis divisioncannotberecertifiedinwholeor in part as credits underanotherdivision within this subchapter. (c) Eligible sources. The following sources areeligibleto 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 (relatingto ConformityofGeneral Federal Actions to State Implementation Plans). (d) Life ofan emission credit. (I) Ifan ERC is used priorto its expiration date, the ERC is effective for the life ofthe applicable user source. (2) Effective January 2,2001, an ERC is available foruse for 60 months fromthe dateoftheemissionreduction excepttotheextentregulatorychanges occurafterthe date ofreductionthatreducethe certified amountorinvalidatetheentirereductionforaffectedemission points. ERCs certified orapplied forpriorto January 2,2001 shall be available for use for 120 months from the date ofthe emission reduction exceptto the extentregulatory changes occur afterthe date ofthe


### ADOPTEDRULES March 29,2002 27 

### TexReg2515emission 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 ofemission credits may bediscontinuedby the executive directorin whole orin partandin any manner, withcommission approval, as aremedyforproblemsresulting from trading in a localized area ofconcern. An emission credit must be used in the nonattainment area in which it is generatedunless: (1) a demonstration has been made and approved by the executive director and the EPA to show that the emission reductions achieved inanothercounty, state, ornationprovide animprovementto the air quality in the county ofuse; (2) the emission credit was generated in an ozone nonattainment area which has an equal or higher nonattainment classificationthan theozone nonattainmentareaofuse, and ademonstrationhas beenmade andapprovedbytheexecutive directorandtheEPAto show thatthe emissions from the ozone nonattainment area where the emissioncreditis generatedcontributeto aviolationofthe nationalambient airquality standard in the ozone nonattainment area ofuse; (3) the user has obtained prior written approval ofthe executive director and the EPA; or (4) afacility isusingemissionreductionsgeneratedoutside theUnited Stateswhichhave beendeterminedbytheexecutive director to bereal, permanent, enforceable, quantifiable, and surplusto any applicable international, federal, state, orlocal law and the result would provide a greaterhealthbenefit to the area. (f) The registry. All emission creditgenerators andusers must register with the executive director. Anotice submittedby a generator oruser will be posted to the registry. The registry will assign a unique number to each certificate which will include the amount ofemission reductions generated. The registry will maintain current listings ofall credits available or used for each ozone nonattainment area. (g) Recordkeeping. The usermust maintain a copy ofall notices andbackupinformation submittedtotheregistryduring, andforat leasttwo years after,thebeginning oftheuseperiod. Theusermustalso 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 ofeach unit using emission credits; (2) the amountofemission creditsbeing usedbyeachunit; and (3) the specific number, name, or other identification of emission credits used for each unit. (h) Public information. All information submitted with a noticeorreportregarding thenature and quantityofemissions associated with the use or generation ofan emission credit is public mformation andmaynotbe submittedas confidential. Anyclaimofconfidentiality for this type ofinformation, or failure to submit all information, may result in the rejection ofthe emission reduction. All non-confidential notices and information regarding the generation, use, and availability ofemission credits may be obtainedfrom the executive director. (i) Authorization to emit. An emission credit created under this division is a limitedauthorization to emitVOC and/orNO, unless otherwisedefined, inaccordance withtheprovisions ofthis section,the FCAA, and the TCAA, as well as regulations promulgatedthereunder. Anemissioncreditdoes notconstitute aproperty right. Nothing inthis


### 27TexReg 2516 

### March 29, 

### 2002 Texas Register division may be construed to limit the authority ofthe commission or the EPA to terminate orlimit such authorization. (j) Programparticipation. The executive director has the authoritytoprohibitan organizationfromparticipatingin emission credit tradingeitherasageneratororuser, iftheexecutive directordetermines that the organization has violated the requirements ofthe program or abused the privileges providedby the program. This agencyhereby certifiesthatthe adoption has been reviewed by legal counsel and found to be avalid exercise ofthe agency's legal authority. Filed with the Office ofthe SecretaryofState 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: November23, 2001 Forfurther 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 necessaryto carryoutits powers and duties undertheTWC; 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 ofthe 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 substitutionsfor emission reductions achieved outside the U.S. This new section is also adopted underSB 5 and SB 1561, as passed bythe 77th Legislature, 2001. §IOI.338. Emission ReductionsAchievedOutside the UnitedStates. (a) A grandfathered or electing electric generating facility (EGF) mayuseemissionreductions 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 ofgreater health benefit; and are ofequal or greater benefitto overall airquality ofthe area, as determinedby theexecutive director. (b) A grandfathered orelecting EGF may only use subsection (a) ofthis sectionifreductions ofcriteriapollutants for which anarea has been designated as nonattainrnent or air contaminants which lead to the formation ofa criteriapollutantfor which an areahas been designated as nonattainment are substituted for any criteria pollutant for whichthe areahasbeendesignatedas nonattainmentorforaircontaminants which lead to the formation ofa criteriapollutant for which an area has been designated as nonattainment. The applicantmust:(I) demonstratethattheuseofthereductiondoes notcause localizedhealth impacts, as determinedby 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 100kilometers oftheTexas

-Mexico border. This agencyherebycertifiesthatthe adoption has been reviewed by legal counsel and found to be avalid exercise ofthe agency's legal authority. Filed with the Office ofthe SecretaryofState 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: November23, 2001 Forfurtherinformation, 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 necessaryto carryoutits powers and duties undertheTWC; 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 ofthe state's air. The new section is also adopted underTHSC, §386.056, concerning AvailabilityofEmissions Reductions in Certain NonattainmentAreas, as amended by SB 5, which authorizes the commission to allow alternative methods of compliance with air pollution regulations. §lOJ.357. Use ofEmission Reductions Generatedfrom the Texas EmissionsReduction Plan (rERP). (a) An owneroroperatorofasite as definedin §122.10 ofthis title (relating to General Defmitions) in the Houston/Galveston ozone nonattainmentareamayusenitrogenoxides (NO) emissionreductions generated under the TERP in lieu ofallowances for compliance with this division provided that: (I) theowneroroperatorofthesitecontributestotheTERP fund $75,000 perton ofNO. emissions used, notto exceed 25 tons per year or 0.5 tons perday on a site-wide basis; (2) theowneroroperatorofthe site demonstratestotheexecutive directorthatthe sitewillbe in full compliance withthe applicable emission reduction requirements ofthis division and Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) no later than the fifth anniversary ofthe 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 beenpreviously usedto meetreduction requirements undera state implementation plan attainment demonstration; (5) the reductions accomplished underthe TERP are used in the same nonattainment areain which they are generated; and (6) the executive directorapproves apetition submittedby the owneroroperatorofthe site that demonstrates thatitis technically infeasible to comply with applicable emission reduction requirements ofthis division and Chapter 117 ofthis title above 80% oftherequired reductions. When considering technical infeasibility the executivedirectormay consider, but will notbe limitedto: (A) current technology; (B) adaptability oftechnology to a particularsource; (C) age and projecteduseful life ofa source; and (0) costbenefits atthe time ofapplication. (b) Theemissionsreductions fundedundertheTERP, andused 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, thecommissionmayauthorizeprojectsin anadjacentcommunity. Forpurposes ofthis section, a communitymeans a Justiceofthe Peace precinct. This agencyherebycertifiesthatthe adoption has been reviewed by legal counsel and found to be avalid exercise ofthe agency's legal authority. Filed with the Office ofthe SecretaryofState 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: November23, 2001 Forfurther information, please call: (512) 239-0348 

# • • • DIVISION 4. DISCRETE EMISSION CREDIT BANKING AND TRADING 30 TAC §101.372 STATUTORYAUTHORITY 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 BorderArea, as amended by SB 1561, which authorizes the commission to make certain emission


### ADOPTEDRULES March 29,2002 27 

### TexReg2517reduction substitutions for emission reductions aChieved outside the United States. §lOl.372. GeneralProvisions. (a) Applicablepollutants. Reductions ofvolatileorganiccompounds (VOCs), nitrogen oxides (NO,), carbon monoxide (CO), sulfur dioxide (SO,), and particulate matter with an aerodynamic diameter ofless than or equal to a nominal ten microns (PM,.) may qualify as discrete emission credits as appropriate. Reductions ofother criteria pollutants are not creditable. Reductions ofone pollutant may not be usedto meetthe reduction requirements for anotherpollutant, unless: (I) urban airshed modeling demonstrates that one may be substitutedfor anotheroras approvedbythe executive directorandthe EPA; (2) the facility(s) generating the emission reductions is located outside the United States and the substitution: (A) results in a greaterhealthbenefit andis ofequal or greater benefit to the overall air quality ofthe 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 ofa 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 causelocalizedhealthimpacts, as determinedbytheexecutivedirector; (B) submits all supportinginformation forcalculations, modeling, and any additional information requested by the executive director; and(C) is locatedwithin 100kilometers oftheTexas

-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 creditis generated. The creditable reduction must have occurred after the most recent year ofemissions 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 mustbe quantifiable, real, and surplus. The discrete emissioncreditmustbe surplus at the time it is created. The creditable reduction must have occurred after the most recent year ofemissions 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. Ifa 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 underthis division cannotberecertifiedin



### 27TexReg 2518 

### Nlarch 29, 

### 2002 Texas Register whole or in part as emissioncredits under anotherdivision within this subchapter. (c) Eligible sources includethe 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 (relatingto Conformity ofGeneral FederalActions to State Implementation Plans). (d) Life of a discrete emission credit. A discrete emission credit is available for use after the notice ofgeneration, DC-I Form, has beenreceived anddeemedcreditablebythecommissionregistryin accordance with subsection (h) ofthis section, and may be used anytime thereafter. (e) Geographic scope. Except as provided in paragraph (6) ofthis subsection, only emission reductions generated in the State of Texas may be creditable and used inthe state with the following limitations. (I) VOC andNO. discrete emissioncredits generatedinan ozone attainmentareamaybeusedinanycountyorportion ofacounty designated as attainment or unclassified, but may not be used in.an ozone nonattainment area. (2) VOC andNO. discreteemissioncredits generatedinan ozone nonattainmentareamay beused eitherinthe same ozone nonattainmentareainwhichtheyweregenerated, orinanycountyorportion ofa county designated as attainment orunclassified. (3) VOC andNO. discreteemissioncredits generated in an ozone nonattainment areamay 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 othercounties, states,ornations canbeusedinany attainmentornonattainmentcountyprovidedademonstrationhasbeenmadeandapproved by the executive director and the EPA to show that the emission reductions achieved inthe othercounty, state, ornation improves the air quality in the county where the credit is being used. (6) A facility may use discrete emission reductions generatedoutsidetheUnited Statesprovidedthattheemissionreductionsare quantifiable, real, and surplus to any applicable international, federal, state, orlocal law andthe resultwouldprovide a greaterhealthbenefit tothe areaas determinedbytheexecutive director. The applicantmust: (A) demonstrate that the use ofthe reduction does not causelocalizedhealthimpacts, as determinedbytheexecutivedirector; (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 ofdiscrete 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 ofconcern.(g) Ozone season. Inareashaving anozoneseasonoflessthan 12 months, VOC and NO, discrete emission credits generated outside the ozone season may not beused during the ozone season. (h) The registry. All required notices of discrete emission creditgenerators and users mustbe submitted to theregistry. 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 aunique numberto eachton ofemission 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 ofcounties designated as attainment or unclassified will be provided by the registry. (i) Recordkeeping. The generatormustmaintain a copy ofall notices and backup information submitted to the registry for a minimum offive years, following the completion ofthe generationperiod. The usermust maintain a copy ofall notices andbackup information submitted to the registry for a minimum offive years, following the completion ofthe liseperiod. Otherrelevantreference material orraw data must also be maintained on-site by the participating sources. The usermustalso maintain acopyofthegenerator'snoticeandbackup information for a minimum offive years afterthe use is completed. The records shall include, but are notnecessarily limited to: (1) the name, emission point number (EPN), and facility identification number (FIN) ofeachunitusing discrete emissioncredits; (2) the amount ofdiscrete 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 anotice orreportregarding the nature and quantityofemissions associated with the use orgeneration ofdiscrete emission credits is public information and may not be submitted as confidential. Any claimofconfidentiality for this type ofmaterial or failure to submit all information mayresultintherejection ofthe emissionreduction. 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 underthis division is alimitedauthorizationtoemitthespecifiedpollutants in accordance with the provisions ofthis section, the FCAA, and the TCAA, as well as regulations promulgated thereunder. A discrete emissioncreditdoes notconstitute apropertyright. Nothing inthis division should be construed to limitthe authority ofthe 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 credittrading eitheras a generatororuser, ifthe executivedirectordeterminesthatthecompanyhas violatedtherequirementsoftheprogram orabused the privileges provided by the program. This agencyherebycertifiesthatthe adoption has been reviewed by legal counsel and found to be a valid exercise ofthe agency's legal authority. Filedwith the Office ofthe SecretaryofState onMarch 15, 2002. TRD-200201617 Stephanie Bergeron Director, Environmental Law Division Texas Natural Resource Conservation Commission Effective dale: April 4, 2002 Proposal publication date: November23, 2001 Forfurther information, please call: (512) 239-0348 

# • • CHAPTER 117. CONT OL OF AIR POLLUTION FROMNI 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 changesto the proposed t xt as published inthe November 23, 2001 issue ofthe 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 ofcertain diesel- wered vehicles. The plan is also partially funded by contributio s from the owners oroperators 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 underthe commission rules; such substitutions require a contr ution to the fund based on the amount ofemissions 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 ofthis preamble. SECTION DISCUSSION The adopted new§117.571. se ofEmissionReductions 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 oft eir required NO, emissions under applicable commission rules yusing emissions reductions generated undertheTERP. The. ERPreductions maybe used ifthe owner oroperatorcontribute· to the TERPfund $75,000 perton ofNO,reductions used, nott exceed 25tons peryearor0.5tons per day (tpd) on a site-wide basis; demonstrates to the executive directorthatthe site will e infull compliance with applicable rules no laterthan the fifth a I nlversary ofthe date the emissions



### ADOPTEDRULES March 29, 2002 27 TexReg2519