JUARI) MEETING DATE: April 9, 1999 AGENDA NO. 22 Page1of8 _____ BOARD MEETING DATE: April 9, 1999 AGENDA NO.22 PROPOSAL: Report onthe Effectiveness of Regulation XIII -New Source Review

SYNOPSIS: This report, submitted tothe Board pursuant to subdivision (b)of Rule 1310 - Analysis and Reporting, provides information onthe effectiveness of Regulation XIII -New Source Review (NSR), in meeting state and federal NSR requirements. This report presents data for August 1997toJuly 1998 for state and federal law compliance. COMMITTEE: Stationary Source, March 19, 1999, Reviewed RECOMMENDED ACTION: Receive and file. Barry R. Wallerstein, D.Env. Executive Officer INTRODUCTION Regulation XIII -New Source Review (NSR) governs the permitting of new, modified, and relocated sources within AQMD, provided such sources arenot subject to Regulation XX - Regional Clean Air Incentives Market (RECLAIM). Rule 1310 - Analysis and Reporting, requires the submittal ofan annual report tothe AQMD Governing Board onthe effectiveness of Regulation XIIIin meeting state and federal NSR requirements. The last annual report onthe effectiveness of Regulation XIII — NSR, was submitted tothe Board on March 13, 1998 and covered the period from October 1990toJuly 1997 for state compliance and the period of August 1996 toJuly 1997 for federal compliance. This report provides information from August 1997toJuly 1998 for both state and federal compliance with applicable NSR requirements. BACKGROUND AQMD’s NSR program has evolved since 1976, in response to state and federal legal requirements, and the changing needs ofthe local economy and the environment. The latest adjustment tothe NSR program was made in December 1995, when Regulation XIII was amended bythe Board to balance the needs of local business and air quality. While the non-RECLAIM NSR program is non-traditional and flexible, itmust comply with the governing principles of NSR contained inthe federal CAA and the http ://www. aqmd. gov/hb/990422a.html 3/22/2002BOARD MEETING DATE: April 9, 1999 AGENDA NO.22 l’agezo California Health and Safety Code. Ata minimum, the AQMD’s NSR program must achieve equivalent

emission reductions to what would have been achieved bythe implementation of state and federal NSR requirements. The AQMD’ s program is designed to meet the state and federal statutory requirements for NSR andto ensure that the construction and operation ofnewor modified sources donot interfere with progress towards attainment ofthe NAAQS. Presented below arethe specific requirements of federal and state law. Federal Law Federal law requires theuseof Lowest Achievable Emissions Rate (LAER) and offsets. Effective November 15, 1992, Section 182(e)(i) and(2)ofthe federal CAA required a 1.5-to-i ora 1.2-to-i external offset ratio anda 1.3-to-I internal offset ratio for VOC or NOx sources that emit or have the potential toemit 10tonsor more per year. [Section 182(e) ofthe CAA specifically defines a ‘major

source” anda “major stationary source” as follows “...any stationary source or group of sources located

within a contiguous area and under common control that emits or have the potential to emit, atleast 10 tons per year of volatile organic compounds.” Section 182 (f)(l) ofthe CAA also states that “the provisions required ... major stationary sources of volatile organic compounds shall also apply to major stationary sources ...of oxides of nitrogen.”] The South Coast Air Basin (Basin) isthe only extreme ozone nonattainment areainthe nation. An extreme ozone nonattainment area may qualify forthe 1.2- to-i offset ratio ifit requires all existing major sources touse federally defined BACT [CAA Section I 82(e)(1)] which isa federal requirement for ozone attainment areas. Section 182(e) states that “for purposes of satisfying the offset requirements pursuant tothis part, the ratio oftotal emission reductions of VOCs toall increased emissions of such air pollutant shall beat least 1.5-to-i ... .“ Because the statute uses the term “total emission reductions” the offset ratio requirements of Section 182(e)( 1)canbemetonan aggregate basis, provided the information is substantiated byan emissions tracking systent The AQIvID’s NSR program meets the federal offset requirements inan aggregate form. Allthe information provided inthis report is substantiated by data retrieved from the AQMD’s NSR Tracking System. State Law State law requires theuseof BACT for new and modified sources (Health and Safety Code Sections 40440(b)(1) and 40920.5) and “no net increase in emissions” from certain permitted newor modified sources based on their potential to emit andthe nonattainment classification ofthe areain which they are located.Based on their classification, the Basin and Southeast Desert Air Basin (SEDAB) must comply with the requirements for extreme and severe non-attainment areas for ozone precursors (i.e., VOC and NOx). Both the Basin and the SEDAB [SEDAB was recently changed tothe Riverside County portion ofthe Salton Sea Air Basin (SSAB) and the non-Palo Verde Valley, Riverside County portion ofthe Mojave Desert Air Basin.] must comply with the requirements for serious nonattainment areas for PM1O andits precursors. For CO, the Basin and the SEDAB must comply with the requirements for serious nonattainment areas and moderate nonattainment areas, respectively. The AQMD demonstrates compliance with the “no net emission increase” requirements of state lawforthe period from August 1997toJuly 1998 by demonstrating compliance with the requirements for extreme ozone non attainment areas (VOC and NOx) and with the requirements for serious nonattainment areas forPM10, SOx and CO. State Law Methodology

http ://www.aqmd.gov/hb/990422a.html 3/22/2002iOARD MEETING DATE: April 9, 1999 AGENDA NO.22 Page3of8 The previous report tothe Board, submitted March 13, 1998, amended the calculation methodology for state law compliance. Prior tothat change, the AQMD utilized “permitted” emissions to report emissions subject tothe“nonet emission increas&’ requirement of state law. The AQMD now uses “actual” emission levels to represent emission increases subject to state NSR requirements. The methodology using “permitted” emission levels had produced a deficit inthe NSR equivalency program for nitrogen oxides (NOx) emissions inthe past. Since creditable emission reduction are based on actual emission decreases, ARE staff agreed with the AQMD staff that reporting emission increases with theuseof “actual” emissions isan acceptable methodology for demonstrating compliance with the “nonet emission increase” requirement of state law. The revision ofthe methodology resulted ina demonstration of equivalency that fully meets the requirements of state law. The AQMD presently uses permitted emissions to estimate “actual” emissions increases witharatio of 0.80to calculate “actual” emissions from permitted emissions. This ratio was derived based on analysis conducted by AQMD staff. ARE staff have reviewed the analysis, and agreed onthe methodology. Further details ofthis analysis and review process may be found inthe attachment. AQMD Approach

BACT and offsetting emission increases arethe primary requirements of federal and state NSR requirements. AQMD’s BACT standards are equivalent to,andin many cases are more stringent than, LAER and BACT, respectively, as defined by federal and state laws. Therefore, the principal measure to determine equivalency with state and federal NSR lawsisthe requirement to offset emission increases. This report demonstrates compliance with federal and state NSR requirements byan aggregate demonstration of equivalency for federal and state offset requirements. FEDERAL OFFSET REQUIREMENTS The data and information presented inthis report is limited tothe supply and demand for creditable emission reductions and offsets for sources for which the AQMD has taken responsibility to provide offsets (i.e., previous Community Bank, Priority Reserve and emission increases exempted from offsets pursuant to Rule 1304). Emission increases mitigated bythe applicant through the purchase of external offset orby internal mitigation arenot included here. Therefore, the estimates oftotal supply and demand of creditable emission reductions and offsets, respectively, refers tothe total supply and demand for sources for which the AQMD is directly responsible to meet the offset requirements. The analysis performed to generate the data presented inthis report was based onthe emission thresholds that define a “major polluting facility” inthe Basin. [The thresholds that define major

polluting facilities inthe Basin are more stringent than the thresholds that define major polluting facilities inthe SEDAB. Therefore, the analysis is conservative since itmay over estimate the emission increases subject to federal offset requirements.J Table I-1 presents the cumulative creditable emission reductions available to offset the emission increases subject to federal NSR. Table 1-2 presents the emission increases for which AQMD is accountable to comply with federal NSR requirements forthe period from August 1,1997toJuly 31, 1998. Table 1-2 also presents the balance of creditable emission reductions available for future compliance with federal offset requirements. Table 1-1 Creditable Emission Reductions for Federal NSR Compliance http://www.aqmd.gov/hb/990422a.html 3/22/2002BOARD MEETING DATE: April 9, 1999 AGENDA NO.22 Page4ol (August 1997 -July 1998) Source Ivoc NOx SOX Co PM1O (tons/day) (tons/day) (tons/day) (tons/day) (tons/day) Orphan shutdowns 0.0 0.0 0.0 0.0 0.0 BACT Discount of ERCs 1.6 0.0 0.0 0.0 0.6 NSRBalance asof 105.3 22.9 18.7 32.0 41.4 August 1997 [Balance of Creditable Emissions Reductions presented in Table 1-2,pg.6,ofthe document entitled Effectiveness of Regulation XIII —New Source Review, report tothe AQMD governing Board, March 13, 1998.1Total 106.9jJ 22.91j 18.711 32j) 42.OI Source of Creditable Emission Reductions The sources of creditable emission reductions used by AQMD to demonstrate compliance with federal and state NSR requirements are described below. Orphan_Shutdowns Orphan shutdowns are emission decreases from stationary sources thatgooutof business, permanently cease emitting activities, anddonot apply for ERCs. These emission decreases are retained bythe AQMD tofund the NSR program. No orphan shutdowns were identified during this reporting period. BACT Discount of ERCs Emission reductions from shutdowns for which ERCs are issued are discounted to BACT levels. The

amount discounted is credited tothe NSR account asa creditable emission reduction, since they arein

excess ofthe federal NSR requirements. The emissions shown in Table 1-1 represent data forthe period August 1997toJuly 1998. NSR BalancesDiscounting negative NSR balances in 1990 generated this source of creditable emission reductions. Negative NSR balances represented a facility’s emission reduction credit balance. Negative NSR balances were generated by emission reductions (which were the result of equipment or facility modifications or shutdowns) that were credited toa facility’s NSR account and not issued asa certificate. As part ofthe 1990 amendments to Regulation XIII, the AQMD reduced these credit

balances by80 percent to generate emission reductions to fund the Community Bank, Priority Reserve and Rule 1304 exemptions. The NSR balance reported in Table 1-1 represent the creditable emissions reductions balance asof httn://wwwacjmd ov/hb/99O422a.html 3/22/2002OARD MEETING DATE: April 9, 1999 AGENDA NO.22 Page5of8 August 1997as calculated inthe previous annual NSR report of March 1998. Table 1-2 Emission Increases for Which AQMD is Accountable [Based ona1.5to1 Offset Factor.] Compared with Creditable Emission Reductions for Federal NSR Compliance (August 1997toJuly 1998) Source Amount (tons/day) I voc NOx SOx CO PMIO (tons/day)][ (tons/day) (tons/day) (tons/day) (tons/day) Community Bank 0.Ojj o.oil 0.JI 0.Ojj 0.0 Priority Reserve o.olr 0.011 0.011 0.011 0.0 Exempt Emissions 0.8 0.0 0.0 0.0 0.0 (Rule 1304) Total Emission Increases 0.8 0.0 0.0 0.0 0.0 Creditable Emission 106.9 22.9 18.7 32.0 42.0 Reductions(from Table 1-1) Balance l06.lj 18.711 32.011 42.0

Source of Creditable Emission Reductions AQMD’s non-traditional NSR program provides an exception from the offset requirements of Regulation XIII for newor modified sources that meet the requirements to obtain exemptions under Rule 1304. However, the federal CAA does not recognize such exemptions, and requires the AQMD to account for these emission increases with the creditable emission reductions discussed earlier inthis

report. CommuniiynkUntil February 1996 no offsets were required for projects whose emission increases, for that project,

were below a specified threshold of30 lb/day VOC, 40 lb/day NOx, 60 lb/day SOx, 220 lb/day CO, and 30 lb/day PM1O. This feature was replaced witha facility exemption for small emission sources effective February 1, 1996. The facility exemption provides an exemption from offsets for facilities emitting less thanor equal to4tons per year. Prjoijt{e serve No offsets are required for essential public service projects that increase emissions from new and modified sources. Essential public services are defined in Rule 1302 and include landfills, sewage treatment plants and similar operations. Other ExernpilpnsSeveral offset exemptions are provided in Rule 1304 in keeping with AQMD’s policy for fair and equitable treatment of businesses. While a complete explanation may be found in earlier staff reports for Regulation XIII revisions, most of these exemptions are either beneficial tothe environment or driven http ://www.aqmd. gov/hb/990422a.html m/7oft)BOARD MEETING DATE: April 9, 1999 AGENDA NO.22 Page 601 by severe economic needs. Compliance with Federal NSR Requirements As presented in Table 1-2,the AQMD’s NSR program meets the offset requirements of federal law. Since the AQMD’s BACT standards are equivalent to federally-defined LAER and the program contains

and implements allthe federal NSR requirements for major sources (Rule 1303), the AQMD’s program

is hereby deemed equivalent toandin compliance with all federal NSR requirements. STATE “NO NET EMISSION INCREASE” REQUIREMENTS The analysis presented hereis based onthe fact that the “no net emission increase” requirement for extreme nonattainment pollutants is applicable onlyto VOC and NOx. The “no net emission increase” requirements for serious non-attainment pollutants are applicable toPM10, SOx and CO. Table 1-3 presents the cumulative creditable emission reductions available for compliance with the state’s “nonet emission increase” requirement forthe period from August 1,1997toJuly 31, 1998. Table 1-4 presents the cumulative amount of emission increases subject tothe state’s “no net emission increase” requirements forthe same period for sources for which the AQMD was responsible to meet the state’s offset requirement. Explanation forthe source categories may be found earlier under the heading “Federal offset Requirements.” Table 1-3 Creditable Emission Reductions for State NSR Compliance (August 1997toJuly 1998) [ Source Amount (tons/day) IVOC IINOx }lSOx I1CO 11PM10 II(tons/day) ](tons/day) II(tons/day) II(tons/day) 1l(tons/day) [orphan Shutdowns 0.011 0.011 0.011 0.011 0.0

BACT Discount of ERCs 1.611 0.011 o.oj 0.011 0.6 Balance[Creditable 61.4 6.8 18.9 30.4 41.4 Emissions Reductions balance presented in Table 1 - 4,pg.10,ofthe document entitled Report on Effectiveness of Regulation XIII —New Source Review, March 13, 1998.] [Total 63.011 6.811 18.911 30.4IL 42.0] Table 1-4 Emission Increases for Which AQMD is Accountable Compared to Creditable Emission Reductions for State NSR Compliance [All new and modified VOC and NOx sources (regardless of their potential to emit), andall new and modified SOx,CO and PM10 sources that emit, or have the potential to emit 15 tonsor more per year.] (August 1997toJuly 1998) hffn://wwwaomckov/hh/99O422ahtml 3/22/20023OARD MEETING DATE: April 9, 1999 AGENDA NO.22 Page7of8 Source Amount (tons/day) Ilvoc IINOx ff50x fö jfPMlO I___________________________ II(tons/day) Iktonslday) Iktons/day) If (tons/day) s/day) fcommuni Bank 0.3]f 0.211 0.011 0.011 0.0 Priority Reserve 0.211 0.2f( 0.011 o.o[ o.oj Exempt Emissions(Rule 9.0 1.5 0.0 1.3 0.0 1304)Total Emission Increases 9.5 1.91 0.0 1.3 0.0 Creditable Emission 63.0 6.8 18.9 30.4 42.0 Reductions(from Table 1-3) Balance 4.9jj 18.9jJ 29.1 42.0 Revision of Calculation Methodology Table 1-4, presents emission increases subject tothe State’s “nonet emission increase” requirement compared to creditable emission reductions. The emission increases reported above are based onthe revised methodology, which calls fortheuseof “actual” emissions. AQMD calculates “actual” emission asa percentage of “permitted” emissions. Emission increases using “permitted” emissions were extracted from the NSR Tracking system and reduced by20 percent to represent “actual” emissions. Based on previous analysis, AQMD believes that estimating “actual” emissions as80 percent of “permitted” emission yields a conservative estimate. Therefore, AQMD staffis confident that the

AQMD’s NSR program fully meets the NSR requirements of State law. Compliance with State Law Requirements As presented in Table 1-4, the AQMD’s NSR program meets the offset requirements of state law forthe period of August 1997toJuly 1998. CONCLUSION & RECOMMENDATION AQMD’s NSR program meets all federal and state NSR requirements. Available NOx creditable emission reductions for compliance with the State offset requirements are low and may represent a problem inthe future. Therefore, AQMD staff propose to analyze the program in detail tofind solutions to meet the State NSR requirements. Attachments1. Letter dated February 12, 1998 toMr. Ray Menebroker, CARB from Dr. Anupom Ganguli, AQMD 2. Letter dated June 12, 1998toMr. Ray Menebroker, CARB from Dr. Anuporn Ganguli, AQMD 3. Letter dated July 28, 1998toMr. Ray Menebroker, CARB from Dr. Anupom Ganguli, AQMD 4. Letter dated October 30, 1998 toDr. Anupom Ganguli from Mr. Peter Venturini, CARB

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