SACRAMENTO METROPOLITAN 

AIR QUALITY MANAGEMENT DISTRICT

For Agenda of January 27, 2011

To: Board of Directors 

Sacramento Metropolitan Air Quality Management District 

From: Larry Greene 

Executive Director/Air Pollution Control Officer 

Subject: Public Hearing to Adopt Resolutions Approving Amendments to Rule 203, 

Prevention of Significant Deterioration

Recommendations 

1. Conduct a public hearing; 

2. Determine that the amendments to Rule 203 are exempt from the California 

Environmental Quality Act (CEQA); and 

3. Adopt the attached resolution approving the amendments to Rule 203. 

Executive Summary 

Regulation of pollutants under the federal Clean Air Act (CAA) is divided roughly into two 

programs. The New Source Review program regulates pollutants for which the District has not 

attained the federal standard, and the Prevention of Significant Deterioration (PSD) program 

governs pollutants for which the District meets the federal standard or for which the District is 

listed as unclassifiable. The permit thresholds in the PSD program are high and consequently 

only likely to impact 10 of the existing facilities within the District, or any new major sources that

exceed the high permit thresholds in the PSD program. 

In 2002, the U.S. Environmental Protection Agency (EPA) adopted substantial revisions to the 

federal PSD program, referred to as PSD Reform. In 2010, EPA adopted further revisions, 

which established new Greenhouse Gas (GHG) PSD requirements and are referred to as the 

Tailoring Rule1. Staff is proposing amendments to the District’s existing PSD rule, Rule 203, to 

address both sets of revisions to the federal CAA requirements. The provisions apply to new or 

modifying large industrial sources, and are intended to prohibit the permitting or operation of any 

facility that will cause or contribute to a new violation of health-based air quality standards. 

On September 2, 2010, EPA took two actions regarding the District: (i) EPA made a preliminary 

finding2

 (referred to as a SIP Call) that California’s State Implementation Plan (SIP) is 

“substantially inadequate” because Sacramento’s approved PSD rule does not specifically 

require emission controls for GHG-emitting sources and (ii) EPA published a draft Federal 



1

 “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, Final Rule”, Federal 

Register, Volume 75 page 31514, June 3, 2010 

2

 Action to Ensure Authority to Issue Permits under the Prevention of Significant Deterioration Program to 

Sources of Greenhouse Gas Emissions: Finding of Substantial Inadequacy and SIP Call, Proposed 

Rule”, Federal Register, Volume 75, page 53892. September 2, 2010 (75 FR 53892) 

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Board Memo 

Rule 203 

January 27, 2011, Page 2 

Implementation Plan (FIP), which EPA will be required to finalize if the District fails to cure the 

SIP inadequacies. The District Staff worked with EPA to reverse the SIP Call, but EPA 

ultimately finalized the determination on December 13, 20103. The final SIP Call set a deadline 

of January 31, 2011 for the District to submit a PSD rule revision. If the District does not submit 

a SIP revision before the January 31, 2011 deadline, EPA will finalize the draft FIP4. While a 

FIP is in place, only EPA would have the authority to issue a federal PSD permit regulating 

GHG emissions; however, separate state and local PSD requirements would still require 

issuance of a District PSD permit, resulting in a duplicative federal-state two permit system. 

The FIP would remain in place until EPA approves the Rule 203 revisions. 

EPA’s December SIP Call resulted in a construction moratorium that precludes the District from 

issuing federal PSD permits authorizing new construction or modifications if the facility will emit 

GHGs above specified thresholds. The moratorium will remain in effect until EPA adopts a FIP 

or approves the Rule 203 revisions. District staff spoke with potentially impacted sources, and 

confirmed that none of the sources have any plans that would require a PSD permit in 2011. 

The proposed rule revisions are subject to special restrictions imposed by state law SB288. 

That legislation was adopted in 2003 in response to the federal PSD Reform. Under SB288, the 

Air Resources Board (ARB) must review all proposed rule revisions and ensure that the revision 

does not weaken prior requirements. In anticipation of this review, District Staff identified 

certain federal provisions that would have weakened the regulations and has proposed 

replacement language for those provisions. The replacement language simply keeps the 

existing district program intact and does not include new requirements (with the exception of 

including GHGs into the PSD program). Since the proposed rules do not incorporate the federal 

rules verbatim, Staff has also prepared an equivalency determination for EPA’s use in finding 

that the District program is at least as stringent as the federal program. This item will be 

forwarded to the Board under separate cover. 

Attachments 

The following table identifies the attachments to this memo. 

Item Attachment Page Number 

Board Resolution A 9 

Proposed Rule 203 B 13 

Staff Report C 22 

Evidence of Public Notice D 33 

Public Comments and Responses E 44 



3

 Action to Ensure Authority to Issue Permits under the Prevention of Significant Deterioration Program to 

Sources of Greenhouse Gas Emissions: Finding of Substantial Inadequacy and SIP Call, Final Rule”, 

Federal Register, Volume 75, page 77698. December 13, 2010 (75 FR 777698) 

4

 75 FR 7770, December 13, 2010 

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Board Memo 

Rule 203 

January 27, 2011, Page 3 

Background 

The federal Clean Air Act:5 1) requires owners to obtain a permit before beginning construction 

or operation of any new major stationary source6, or commencing a major modification of an 

existing source7

, 2) requires facilities to use best available emissions control technology, 3) 

prohibits operation of any facility that may cause or contribute to a new violation of health-based 

air quality standards where the area meets those standards, and 4) includes other provisions to 

protect national parks, monuments and wilderness areas. 

The PSD program applies to all EPA-regulated air pollutants. Recently, EPA began regulating 

GHGs8

. Other regulated air pollutants include fluorides, hydrogen sulfide, and total reduced 

sulfur. The District currently meets the federal health-based air quality standards for nitrogen 

dioxide (NO2), lead (Pb), sulfur dioxide (SO2) and carbon monoxide (CO). We recently 

requested that EPA formally recognize that the District meets the federal PM10 standards, 

which will make emissions of that pollutant subject to PSD requirements. 

The EPA-approved PSD rules are contained in the 1984 version of Rule 202- New Source 

Review. In 1991, the District adopted a new PSD rule, Rule 203, which adopted by reference 

the 1991 version of the federal PSD requirements in 40 CFR 52.21. The 1991 rule was 

submitted to EPA but the agency has not approved that version of Rule 203. 

In September, 2010, EPA issued a preliminary SIP Call finding that the District’s 1984 rule did 

not authorize the District to regulated GHGs. Although we worked with EPA to reverse this 

determination, EPA issued a final SIP Call on December 13, 2010, giving the District until 

January 31, 2011 to submit a revised SIP. Today’s rule amendments update the 1984 and 

1991 rule and include provisions to clarify our authority to regulate GHGs. The rule also 

includes provisions to address PSD Reform and SB288. Under SB288, the 1991 rule provides 

the baseline for determining whether the proposed revisions constitute a relaxation of the PSD 

requirements. 

Necessity for the Rule Changes 

The SIP Call precludes the District from issuing a federal PSD permit to a facility that plans new 

construction that will emit GHGs above specified thresholds. PSD permit triggers are high and 

historically are rarely exceeded within the District. District staff has spoken to all potentially 

impacted sources, and was informed by them that they do not anticipate making any changes in 

2011 that would trigger a PSD permit. 

The September preliminary SIP Call included a proposed FIP rule9

 that, if finalized by EPA, 

would give EPA the authority to issue a GHG PSD permit to sources in Sacramento. This 

action would lift the construction moratorium created by the Tailoring Rule and SIP Call. EPA 

may finalize the FIP rule if Rule 203 is not submitted before the January 31, 2011 deadline or if 

EPA finds that the submitted Rule 203 does not meet Clean Air Act requirements. If finalized, 



5

 42 U.S.C.A. Section 7470 et. seq. and Code of Federal Regulations (CFR) Title 40, Part 52.21 

6

 40 CFR 52.21(b)(1) 

7

 40 CFR 52.21(b)(2) 

8

`75 FR 17004, April 2, 2010 

9

 75 FR 53883 September 2, 2010 

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Rule 203 

January 27, 2011, Page 4 

EPA would implement the FIP and issue PSD permits. The District would still be required to 

issue PSD permits to satisfy state law requirements. 

To avoid the FIP, the District must approve and submit a revised Rule 203 before the January 

31st deadline. As required by SB288, when Staff revised Rule 203 to address the SIP Call and 

PSD Reform, it reviewed the regulations to determine whether the PSD Reform provisions 

weakened the existing regulation10. Staff determined, in consultation with ARB, that certain 

PSD Reform provisions, if included, would weaken current PSD requirements. Proposed Rule 

203 explicitly excludes those specific provisions and establishes replacement requirements. 

The differences relate to methods for determining whether a PSD permit is required, and 

associated monitoring and recordkeeping provisions. The replacement language substitutes the 

current rule language in the 1991 version of Rule 203. As a result, with one exception, it will not 

alter the existing regulatory program for sources. The exception is the inclusion of language to 

incorporate GHG and any other pollutants identified by EPA in the future. That provision will 

avoid the need for future rule amendments whenever EPA augments the list of regulated 

pollutants. 

As discussed above, if EPA finalizes the FIP rule, and assumes authority for issuing a federal 

PSD permit, the District would still be required to issue a separate state PSD permit to the 

source under state law and existing Rule 203. To prevent sources from being subject to two 

sets of PSD permit requirements, it is critical that the submittal of revised Rule 203 occur before 

the January 31st deadline. This approach eliminates the duplicative state-federal PSD permit 

process and preserves local authority. This approach also offers a reasonable strategy for 

lifting the construction moratorium, since: (1) EPA states in the SIP Call that it would expedite 

review of the District’s rule, and (2) affected sources have stated that their operations will not be 

impacted by the moratorium for at least one year. District staff has been working closely with 

both EPA and ARB staff to ensure that the rule is submitted before the deadline and will meet 

federal laws and rules. 

Summary of Proposed Rule Amendments 

The proposed amendments to Rule 203 will add GHG requirements to the District’s PSD 

permitting program. The proposed changes also update other provisions of the regulations 

including explicit public noticing requirements. The federal PSD provisions contain more 

extensive public noticing and public participation requirements than other rules. 

Several sections of the current federal PSD rules are excluded or replaced because they would 

violate SB288 by establishing less stringent methods to determine whether modifications trigger 

PSD and allow sources to avoid District review of modifications if a source determines (without 

the District’s regulatory oversight) that the resulting emissions are below a specified facility-wide 

emissions limit (Plantwide Applicability Limit). For example, under the EPA approach, a source 

could avoid all pre-construction review and emission control requirements if, at the time it adds 

a new process it offsets any associated emission increases with reductions elsewhere at the 

facility. The facility would be required to submit biannual reports to the District, but at that 

juncture if the District disagrees with the facility’s emissions estimates, the facility would be 

required to install more costly retrofit controls. In addition, the District will not have the benefit of 



10 Health and Safety Code Section 42504 

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Rule 203 

January 27, 2011, Page 5 

the emission reductions achieved by requiring emission controls at the outset. The prior and 

proposed rules do not consider offsetting reductions because that would prevent evaluation of 

emissions and available controls at the time of construction, when installation is most cost 

effective. Furthermore, under the PSD Reform provisions it may be very difficult to review the 

sources claims that its emissions fall below the PAL. 

Staff also prepared an equivalency determination to assure EPA that proposed Rule 203 is at 

least as stringent as the federal PSD rules. EPA recently approved New York’s PSD rule and 

equivalency determination, which affected the same PSD requirements at issue in Rule 20311. 

The District’s equivalency determination is consistent with New York’s approach, but also 

includes additional analysis based on District-specific information. 

For more details of the proposed changes, please see Appendix B of the Staff Report. 

Cost Impacts and Emissions Benefits 

The cost impacts and emission benefits of the proposed amendments to Rule 203 depend on 

the following factors: 

• The size of the new major source or modification. Most projects are below PSD 

applicability thresholds. 

• Whether the source plans include controls or other strategies that are considered the 

best available control technologies (BACT) for GHGs. If not, costs would include the 

actual cost to implement BACT. 

The actual BACT requirements, and associated costs, are determined on a case-by-case basis 

considering factors such as technical feasibility and control levels achieved in practice by similar 

sources. EPA recently published a GHG guidance document12 with information on potential 

GHG BACT; but the guidance does not provide any final BACT determinations. However, the 

BACT determination itself includes consideration of the cost of the controls, and controls that 

are overly costly would not be considered BACT. 

There will be no change in costs, emission benefits, or cost effectiveness for any of the other 

PSD pollutants because the proposed rule does not substantially change the applicability 

thresholds, BACT, or any other requirements. 



11 “Approval and Promulgation of Implementation Plans; New York Prevention of Significant Deterioration

of Air Quality and Nonattainment New Source Review, Final Rule”, Federal Register, Volume 75, page 

70140. November 17, 2010 (75 FR 70140) 

12 U.S. EPA. PSD and Title V Permitting Guidance for Greenhouse Gases. November 2010.

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January 27, 2011, Page 6 

District Impacts 

Historically, there have been very few sources that have triggered PSD requirements. At a 

December 15, 2010 meeting with potentially impacted sources (major sources and those with 

high GHG emissions), Staff asked whether any source anticipated making modifications that 

might trigger a PSD review. No source indicated any plans for such a change in the next year. 

Given the historic infrequency and source projections, at the present time, no additional staff 

resources are needed to implement the proposed amendments. 

Environmental Review and Compliance 

The proposed rules are exempt from the California Environmental Quality Act because: (i) they 

constitute an action by a regulatory agency for protection of the environment (Class 8 

Categorical Exemption, Section 15308 State CEQA Guidelines) and (ii) it can be seen with 

certainty that there is no possibility that the activity in question may have a significant adverse 

effect on the environment (Section 15061(b)(3), State CEQA Guidelines). 

California Public Resources Code (Section 21159) requires an environmental analysis of the 

reasonably foreseeable methods of compliance. Staff compared the impact of the amendments 

of the rules with the existing rules. The proposed rule implements PSD permitting for GHG 

emissions. The analysis concludes the amendments to Rule 203 may result in an emission 

benefit; therefore, Staff has concluded that no adverse environmental impacts will be caused by 

compliance with the proposed rules. 

Public Outreach and Comments 

Staff conducted an informational meeting with sources to explain the changes to the PSD rules, 

specifically how inclusion of GHG will be implemented. As noted above, we also contacted 

each potentially impacted source directly to discuss the requirements and the impact of the rule 

changes on their current business plans. Because both the existing rules that are retained and 

the EPA rules that are adopted by reference have already been through an extensive public 

process we did not have a public workshop. This is consistent with past practice for rules 

adopted by reference. On December 27, 2010, a public hearing notice was published in the 

Sacramento Bee and sent via e-mail to interested and potentially affected parties. The draft rule 

was also posted on the District’s website on that day. One comment has been received. The 

comment letter and staff response are in Attachment E. 

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Board Memo 

Rule 203 

January 27, 2011, Page 7 

Non-substantive Change After Posting of Rule 203 

The proposed Rule 203 has been modified after posting of the public hearing notice to correct 

the date of the federal rule (40 CFR 52.21) that is incorporated by reference, to restructure the 

exemption sections, to prevent potential inconsistency of the rule applicability, and to more 

clearly specify the location for public review of materials related to proposed PSD permits. 

The noticed rule incorrectly stated that the effective date of the federal Tailoring Rule was July 

1, 2010. In fact, the effective date is August 2, 2010, and the final rule corrects the error. Since

this is simply a date correction, the change is non-substantive. This change was made in 

Sections 103, 104, and 105. 

Under the noticed rule language, the rule would apply to any major modification with a 

significant net emissions increase. However, the language inadvertently also included a federal 

definition of major modification that was inconsistent with this approach. To maintain the 

integrity and enforceability of the rule, Staff has replaced the federal definition with the existing 

language in the 1991 version of the District Rule. Staff considers this revision a non-substantive 

change to the proposed rule language since it simply clarifies application of the rule to major 

modifications. The change was made in Section 205.

In addition, the proposed Rule 203 has been modified to clarify and restructure the discussion of 

the subsections of 40 CFR 52.21 that are excluded and the corresponding replacement 

subsection. Rather than simply referencing the excluded and replacement sections, the rule 

language now includes the text. 

A clarification has also been made to Section 401.2 to state that proposed permits and related 

information would be made available at the District’s office. 

The revised proposed Rule 203 is included in Attachment B. 

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