'JUL 19 2005

Mr. Cory Chism

Air Permits Division (MC-163)

Texas Commission on Environmental Quality

P.G.Box 13087

Austin, TX 78711

Dear Mr. Chism:

After review ofthe rules and discussions with the Texas Commission on Environmental

Quality (TCEQ) staff, the Environmental Protection Agency (EPA) believes a conditional

approval is appropriate for the Emissions Banking and Trading ofAllowances (EBTA) rule. To

allow this approach, it is necessary that TCEQ provide a commitment letter explaining how and

by when TCEQ will address areas of concern with the EBTA rule. We will need this letter

before we can propose approval. We are prepared to propose conditional approval by the end of

August 2005. We are requesting this letter be prepared and submitted to EPA by August 1,2005,

for inclusion in the rule docket and to facilitate drafting ofthe Federal Register. Region 6 would

also like to offer our support in drafting and reviewing the commitment letter to ensure it meets

our mutual goals.

The letter must include the commitment that TCEQ will revise the EBTA rule and

procedures so that the following items are addressed:

1. The TCEQ should commit to revise § 101.338 to make clear that EPA review

and approval is required for all uses of emission reductions achieved outside

the United States in substitution of allowances for purposes of compliance with

the Division 2, EBTA Program. This condition for EPA review and approval

will be the mechanism by which EPA ensures that inappropriate trades do not

take place. In particular, EPA requires a further State Implementation Plan

(SIP) revision before approving any trades that involve reductions generated

outside the United States.

2. The TCEQ should commit to revise the EBTA rules to include a provision

for auditing the EBTA Program. This condition for an audit provision ensures

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that the EBTA accomplishes the reduction goals assumed in SIP. At a

minimum, the program evaluation procedures should address the concerns

outlined in Section 5.3(b) ofthe Economic Incentive Program Guidance.

3. The EPA is unable to approve the portions ofthe EBTA program referring to

the El Paso Region (defined as El Paso County, Ciudad Juarez, Mexico, and

Sunland Park, New Mexico). The TCEQ should either commit to removing

the El Paso portions ofthe rule or should request no Federal action on these

portions ofthe rule. If possible, TCEQ should also commit to further revising

the rule language to reflect that the El Paso rule language would only be a State

requirement.

The commitment letter should explain how each ofthe above issues will be addressed

and provide a specific date for achieving each ofthe changes. The date can be no later than one

year after our final conditional approval, currently scheduled for December 2005.

Although we have discussed the commitments required for approval with other EPA

offices, we will also need to review the language ofthe commitment letter with them, and

therefore, please send the draft letter to me before submitting it to TCEQ management for final

signature. We appreciate your continuing assistance. If you have any questions, please call

Ms. Adina Wiley ofmy staff at (214) 665-2115.

Sincerely yours,

Originally Signed

by David Neleigh

David Neleigh

Chief

Air Permits Section