## TECHNICAL SUPPORT DOCUMENT

30 TAC Chapter 101, Subchapter H, Division 4 Discrete Emission Credit Banking and Trading §§101. 372, 101.373, 101.375, 101.376, 101.378

Rule Project Number: 2005-054-101-PR

Rule Project Number: 20 06-053-101-PR



## March 16 , 20 10

FOR FURTHER INFORMATION CONTACT: Ms. Adina Wiley, United States Environmental Protecti on Agency Region 6, Air Permits Section (6PD-R), 1445 Ross Avenue, Dallas, Texas 75202-2733, (214) 665-2115.

### Subject : Review of Proposed Revisions to the Discrete Emission Credit Banking and Trading Program, submitted October 24, 2006 (Rule Project Number 2005- 054-101-PR) and August 16, 2007 (Rule Project Number 2006-053-101-PR)

Contents:

Executive Summary I. Background II. Summary of

State Subm

it tal s III. Technical Reviewof State Subm

it tal s IV. Conclusion V. 

### 2

### I. Executive Summary

What action is evaluated in this Technical Support Document?

This technical support document (TSD) reviews two proposed revisions to the Texas State Im plementation Plan (SIP) concerning the Discrete Emission Credit Banking and Trading Program , referred to el sewhere in this document as the Discrete Emission Reduction Credit (DERC) program

. This review will determine if the DERC program revisions are consistent with th e requirements of the Clean Air Act and EPA ’ s policy and guidance.

October 2 4, 2006 On October 4, 2006, the Texas Commission on Environmental Quality (TCEQ) adopted  revisions to the DERC program to address the condi

ti ons of EPA ’ s fin al conditional approval of the DERC Program , Septem ber 6, 2006 ( 71 FR 52703 ). Additionally, the TCEQ adopted revisions to the DERC program mandated by Texas Senate Bill (SB) 784. The Chairman of th e TCEQ, Ms. Kathleen Hartnett White, submitted these provisio ns as a SIP revision in a let ter dated October 24, 2006 , f or rul e proj ect number 2005-054-101-PR

. On October 4, 2006, TCEQ al so adopted revi sio ns to the Em issio n Credit Banking and  Tradi ng Program , referred to el sewhere in this document as the Emissi on Reduction Credit (ERC) program , and the Emissions Banking and Trading of Allowances (EBTA) Program. These revisions were also submitted to EPA on October 24, 2006, as part of rule project number 2005-054-101-PR. EPA is taking separate action on the ERC program revisions at a in a separate rulemaking(see EPA-R06-OAR-2010-0147) ; therefore this TSD will not review th e 2006 revisions to the ERC program. EPA is also taking separate action on the EBTA at a lat er date and in a separate rulemaking; therefore thi s TSD wi ll not review the 2006 revisions to the EBTA program

. August 16 , 2007 On July 25, 2007, the TCEQ adopted revisions to the DERC program to address the  recodi ficat io n of the nitrogen oxide (NO X 

### ) rul es at 30 TAC Chapter 117. The Chairman of th e TCEQ, Ms. Kathleen Hartnett White, submitted these provisions as a SIP revision in a let ter dated August 16, 2007, for rule project number 2006-053-101-PR

. At the same time that TCEQ adopted revisions to the DERC program on July 25, 2007,  TCEQ al so adopt ed revisions to the general air quality rules, the ERC Program, the Mass Em issio ns Cap and Trade (MECT) program, and the System Cap and Trade (SCT) Program

. These revisions were also submitted to EPA on August 16, 2007, as part of rule project number 2006 -053-101-PR. EPA i s taki ng separate action on the ERC program revisions at a in a separate rulemaking(see EPA-R06-OAR-2010-0147) ; therefore this TSD will not review th e 2007 revisions to the ERC program. EPA is also taking separate action on the SCT
pro gram at a later date and in a separate rulemaking; therefore this TSD will not review the 2007 revisions to the SCT program. EPA approved the 2007 revisions to the MECT program th rough a di

rect final action on July 16, 2009 (74 FR 34503). 3

### What action has EPA taken on the D ERC Program?

On Septem

ber 6, 2006, EPA prom

ulgated a final conditional approval of the DERC program (71 FR 52703 ). Our conditional approval of the DERC program is contingent upon TCEQ sati sfactorily addressing the terms of their Sept ember 8, 2005, commitment letter (available in the FDMS docket for this action)

. Our Federal Register noti ce for the final conditional approval noted that i f th e terms of the conditional approval were not com pleted and submitted to EPA by December 1, 2006 , the condi ti onal a pproval is automatically disapproved

.

4

### II. Background

What is Air Emissions Trading?

Air emissions trading programs are designed to promote flexibility and innovation in

com plying wit h State and Federal emission requirements. Air emissions t rading programs
create a market place for em issio n reductions implemented by source 1 and needed by source 2. For exam

ple, source 1 creates a marketable emissions reduction by reducingi ts emissio ns below the level it is required to meet, and below the level it has been meeting

. Source 1 then sell s or trades these reducti ons as credits to another source that i s then allo wed to rel ease emissions above its required levels. In return for this flexibility, source 2 m ust purchase additional credits beyond those needed to comply, therefore reducing

over all emissio ns. Emissions trading uses market forces to reduce the overall cost of

com pliance for sources, while maintaining emission reductions and environmental benefits.

What is an Economic Incentive Program (EIP)?

An EIP is a regulatory program that achieves an air quality objective by providing marketbased incentives or information to emission sources. A uniform emission reduction requirement, based for instance on installation of a required emission control technology, does not take account of vari ati ons in processes, operations, and control costs across sources even of the same type, such as electric utilities, or petroleum refiners. By providing flexibilit y in how sources meet an emission reduction target, an EIP empowers sources to fi

nd the me ans that are most suitable and most cost-effective for their particular circumstances.

In addition, an EIP can create incentives for sources to go beyond an emission reduction target. By

setti ng a price on pollution and pollution reductions throug h a fee-based approach or a tradi

ng program, some sources can realize an economic gain or avoid additional costs by selling excess emission reductions, or making the reductions for less th an the cost i

mposed by a fee. Because of the improved efficiency, E IPs may also lead to achieving air quality goals more quickly.

What is the status of EIP programs in Texas?

TCEQ has adopted six

EIP programs into state regulations. The regulations are found in Divisio ns 1 through 6 of

30 TAC Chapter 101, Subchapter H. The six EIP programs in Texas are summarized in Table II - 1. Additionally, TCEQ has adopted one federal tradi ng program into state regulation, found in Divisions 7 of 30 TAC Chapter 101, Subchapter H. 5Table II - 1 TCEQ EIP Trading Programs and Region al Applicability

TCEQ Trading Program Geographical / Ozone Non-attainment Regions

DFW HGB BPA El Paso East and Central Texas West Texas

ERC Optional Optional Optional n/a n/a n/a

EBTA n/a n/a n/a Mandatory Mandatory Mandatory

MECT n/a Mandatory n/a n/a n/a n/a

DERC Optional Optional Optional Optional Optional Optional

SCT Optional Optional Optional n/a Optional n/a

HECT n/a Mandatory n/a n/a n/a n/a

CAIR Federally Mandated Trading Program

Mandatory

means that sources in the region must particip ate in the EIP program. Optional means that sources in the region have the option to participate in the EIP program.

n/a - The EIP does not apply to the geographical region. DFW - Dallas Ft Worth ozone nonattainment area for both 1-hour and 8-hour ozone standard. HGB - Houston/Galveston/Brazoria ozone nonattainment area for both 1-hour and 8-hour ozone standard. BPA - Beaumont/Port Arthur ozone nonattainment area for both 1-hour and 8-hour ozone standard. El Paso - El Paso ozone nonattainment area for 1-h our ozone standard. El Paso is maintenance for 8-hour ozone standard. East and Central Texas - Those counties east of Interstate Highway 35. West Texas - Those counties west of the counties in the East and Central Texas area, excluding El Paso.



### The TC EQ EIP regul ati ons are summarized below:

1. Em

issio n Credit Banking and Trading (ERCs) (30 TAC Chapter 101, Subchapter H, Di visio n 1)

The Emission Credit Banking and Trading EIP or Emission Reduction Credit (ERC) program

f or VOC and NO X 

### in ozone nonattai nment areas was first adopted by Texas at 30 TAC § 101.29 on December 23, 1997. Effective January 18, 2001, § 101.29 was repealed and Chapter 101, Subchapter H, Divisions 1, 3, and 4 were created. Thi s acti on created separate di visio ns for the ERC, MECT, and DERC
programs. The submittal effective April 14, 2002, amended §101.302. The submit tal effective January 17, 2003, completely reorganized the ERC and DERC
program rul es into more standardized formats parallel to each other, wit h a rule structure whi ch followed a process of recognizing, quantifying, and certifying reducti ons as credits while explaining the guidelines for trading and using creditable reductions. The 2003 submittal amended §§ 101.300, 101.301, 101.302, 101.303, 101 .304, 101.306, 101.309, and 101.311. The December 6 , 2004, 6

### submit tal amended §§ 101.300, 101.302, 101.303, 101.304, and 101.311. Our final approval on September 6, 2006, acted on the original submission of the ERC
program and all subsequent revisions thro ugh the December 6 , 2004 submittal.

Divisio n 1 defines emission credits (ECs) in terms of a rate (tons per year). Em issio n credits can be generated and banked from stationary sources as emission reducti on credits (ERCs) or generated and banked from mobile sources as mobile emissio n reducti on credits (MERCS). The ERCs from the bank have traditionally been used as offsets for permitting major new or modified facilities. ERCs have also been banked and traded for alternative compliance with Reasonably Available Control Technology (RACT) requi rements. MERCs have not been banked or traded under the program to date. On December 6, 2004, TCEQ submitted revisions to the SIP that expand ed the ERC program

to cover reducti ons of criteria pollut ants (excluding lead) or precursors of criteria pollutan ts f or whi ch an area is designated nonattainment. EPA published a final approval of the ERC program on Septem ber 6, 2006, 71 FR 52698.

Si nce our final approval, TCEQ has revised the ERC program to address the

com mit ment s of the DERC conditional approva l. Additionally, the TCEQ adopted revisions to the ERC program consistent with the requirements of Senate Bill 784, adopted duri

ng regular session, 2005, of the 79 th

### Texas Legislature. Senate Bill 784 allows for great erf

lexibilit y in the generation and use of international emission reducti ons. These revisions were adopted by the TCEQ on October 4, 2006, and became effective on October 26, 2006. The adopted regulations were submitted to EPA as a SIP revision on October 24, 2006. TCEQ has also promulgat ed revisions to the ERC program that update the cross-references to the new numbering structure in 30 TAC Chapter 117. These revisions were adopted on July 25, 2007, and became effective on August 16, 2007. The adopted regulations were submitted to EPA a s a SIP revision on August 16, 2007. EPA i s proposi ng approval of the 2006 and 2007 ERC program revisions in a separate rulemaking (see EPA-R06-OAR-2010-0147).

2. Em

issio ns Banking and Trading of Allowances (EBTA) (30 TAC Chapter 101, Subchapter H, Divis io n 2)

The Texas legislature passed Senate Bill 7 (SB7) in 1999 to deregulate electric utilit ies. SB 7 provided for a cap and trade program for grandfathered electric generating facilities (EGFs). The EBTA program establishes an emission reducti on cap which provides for a 50% reduction in NO X

### em issio ns from EGFs and a 25 % reducti on i

n SO 2 

### em issio ns from solid fuel EGFs. The EBTA program began operation in 2003. Allowances for NO X

### and SO 2 

### are deposi ted i nt o each EGFs compliance account annually. The E GFs will be allowed to purchase, bank or sell allo wances to meet operati onal demands. The EBTA program i s divided int o three regi ons; East and West Texas as divided by Interstate Highway 35 and 7

### th e El Paso regi on (consisting of El Paso County; Juarez, Mex ico ; and Sunland Park, New Mexico). The TCEQ has revised the EBTA to restructure the int ernational trading provisions to parallel those found in the Division 1 and 4
programs, and to add an audit mechanism. EPA has taken no action on the EBTA
program to date.

3. Mass Emissions Cap and Trade (MECT) Program (30 TAC Chapter 101, Subchapter H, Division 3)

The MECT program

was adopted as a State regul ati on on December 6, 2000. This program is mandatory for stationary facilities that emit NO X

### i n the HGB

ozo ne nonattainment area which are subject to emission specifications in the TCEQ NO X

### rul es at 30 TAC Chapter 117.310, 117.1210, and 117.2010; and which are located as a site where they collectively have an uncontrolled design capacity to emit 10 tons per yea r or more of NO X 

### . The program set a cap on NO X 

### emissio ns beginning January 1, 2002, with a final reduction to the cap occurring in 2007. Facilities are required to meet NO X

### allo wances on an annual basis. Facilit ies may purchase, bank, or sell their allo wances. The program has a provision to allow a facility to use credit generated through the Division 1 EIP (ERCs) to permanently increase the allowances for the individual facility in the MECT i f th e credits were generated for NO X

### i n the HGB area before D ecember 1, 2000. The program

al so has a provision to allow a facility to use credits generated th rough the Division 4 EIP (DERCs) in lieu of allowances if they are generated in th e HGB area. EPA published a final rule approving the MECT program (except f or the use of DERCs in the MECT, which we deferred acting on until our action on the DERC rule) on November 14, 2001 (66 FR 57252). Texas subsequently revised the MECT program in SIP submittals dated January 31, 2003 and December 6, 2004. EPA published a f inal approval of the MECT program revisions on September 6, 2006 (71 FR 52698), including revisions to the MECT necessary to accomplish the shift in attainment strategy from 90 percent control of industrial NO X

### sources to 80 percent control i n the HGB ar ea. The approved revisions also approved the use of discrete emissions credits generated from stati onary sources (DERCs) or mobile sources (MDERCs) in lieu of MECT allo wances. Since our 2006 final approval, TCEQ has promulgated revisions to th e MECT to u

pdate the cross-references to the Chapter 117 NO X

### rul es. EPA subsequently approved the revisions to the MECT through a direct final action on July 16, 2009 (see 74 FR 34503).

4. Discrete Emission Credit Banking and Trading (DERCs) (30 TAC Chapter 101, Subchapter H, Division 4)

The DERC program was first adopted by the state at 30 TAC § 101.29 on December 23, 1997. Effective January 18, 2001, § 101.29 was repealed and Chapter101, Subchapter H, Divisions 1, 3, and 4 were created. This action 8

### created separate divisions for the ERC, MECT, and DERC programs. Discrete emissio n credits (DECs) are quantified, banked and traded in terms of mass (tons), not a rate as i s the case with ECs. DECs may be generated from stationary sources and banked as discrete emission reduction credits (DERCs) or may be generated from mobile sources and banked as mobile discrete emission reduction credits (MDERCs). DECs may be generated and used state wide and can apply to all criteria pollutants, with the exception o f lead. Tradi ti onally DECs have been used for RACT compliance for VOCs and NO X


### . Amendment s to th e MECT
program were adopted on October 18, 2001; these amendments also included changes ma de pri

marily fo r cl arification to §§ 101.370, 101.372, and 101.373 in th e DERC program . The DERC program was amended again effective April 14, 2002, to i nclude the provisions in Texas Senate Bill 1561 for air emissions trading across international boundar ies. The submitt al effective January 17, 2003,

com pletely reorganized the ERC and DERC program rules into more standardized fo rmats parallel to each other, with a rule structure which followed a process of recognizing, quantifying, and certifying reductio ns as credits while explaining the guidelines for trading and using creditable reductions. The December 6 , 2004 submit tal amended §§ 101.370, 101.373, 101.37 4 , and 101.376. Our final conditional approval on September 6, 2006, acted on the original submis sio n of the DERC program and all subsequent revisions through the December 6 , 2004, submit tal (71 FR 52703). Our conditional approval is contingent upon TCEQ sati sfactorily addressing the terms of their September 8, 2005, commitment letter.

Si nce our c onditional approval, TCEQ has revised the DERC program to address th e com mit ment s of the conditional approval. Additionally, the TCEQ adopted revisions to the DERC program consistent with the requirements of Senate Bill 784, adopted duri

ng regular session , 2005, of the 79 th

### Texas Legislature. Senate Bill 784 allows for great erf lexibilit y in the generation and use of international emissio n reductions. These revisions were adopted by the TCEQ on October 4, 2006, and became effective on October 26, 2006. The adopted regul ati ons were submit ted to EPA as a SIP revi sio n on October 24, 2006. TCEQ has also
prom ulgated revisions to the DERC program that update the cross-references to th e new numbering structure in 30 TAC Chapter 117. These revisions were adopt ed on July 25, 2007, and became effective on August 16, 2007. The adopted regulations were submitted to EPA as a SIP revision on August 16, 2007.

5. System

Cap Tradi

ng (SCT) (30 TAC Chapter 101, Subchapter H, Division 5)

The TCEQ adopted system caps forel ectri c generating facilities operating in the BPA, DFW, and HGB ozone nonattainment areas and the attainment counties of east and central Texas at 30 TAC § 117.138 on September 26, 2001, effective October 18, 2001. EPA approved the system caps on Novem

ber 14, 2001 (66 FR 57244). The System

Cap Tradi

ng (SCT) program

adopted by

TCEQ on March 21, 2001, and submitted to EPA as a revision to the SIP in Rule Log Number 2000- 9

### 046-101-AI, provides flexibility for the electric industry in achieving the NO X 

### emiss io ns reductions necessary to achieve ozone attainment in the BPA, DFW, and HGB ozone nonattainment area and the attainment counties of east and central Texas while maintaining reliability of service. Individual sources under common ownership or control may be voluntarily grouped together in a system with a syst em cap on total

em issio ns from the sources in the system, established under 30 TAC Chapter 117 emissions limitations. Emission allowables may be transferred from source to source wi

thin the system, provided the cap is not exceeded. The SCT provi des a mechanism that streamlines the steps necessary for daily emission tradi ng by allowing the increase of system caps from corresponding system cap emissio n reductions in the same nonattainment or attainmen t area. The system

cap may be increased daily using a daily surplus, or on a 30-day rolling average using a 30-day rolling average surpl

us for the same time period. TCEQ has promulgated revisions to the SCT program to update the cross-references to the C hapter 117 NO X

### rul es. EPA has taken no action on the SCT program to date.

6. Highly-Reactive Volatile Organic Compound Emission Cap and Trade (HECT) Program (30 TAC Chapter 101, Subchapter H, Division 6)

The HECT program

was adopted as a State regul ati on on December 1 , 2004. Thi s program i s mandatory for covered facilities including vent gas streams, flares, and cooling tower heat exchange systems that emit highly-reactive VOCs, as defined in § 115.10, and that are located at a si te subject to Chapter 115, Subchapter H. Facilit ies are required to meet HRVOC allowances on an annual basis. Facilities may purchase, bank or sell their allowances for use in the following control period. The program

has a provision to allow a facility to use credits of less-reactive VOCs generated through the Division 1 EIP (ERCs) in lieu of allow ances if they are generated in the HGB area. EPA published final approval of the HECT
program on Septem

ber 6, 2006.

Clean Air Interstate Rule (CAIR) Program (30 TAC Chapter 101, Subchapter H, 7. Divisio n 7)

The Texas CAIR program was adopted as a State reg ulation on July 12, 2006, and submit ted as a SIP revi sio n on August 4, 2006. The Division 7 regulations inco rporate by

reference the CAIR NO X

### Annual and SO 2 

### tradi ng programs as adopted by

EPA on May

12, 2005 (70 FR 25162). Additionally, the Texas CAIR
pr ogram establishes a NO X

### allo cati on methodology and provisions for the

com pliance supplement pool to replace the provisions at subpart EE of 40 CFR part 97, the CAIR Federal Implementation Plan. EPA published a direct final approval of the Texas CAIR NO X

### A bbreviated SIP for the Phase I allocation
met hodology

on July 30, 2007 (72 FR 41453). TCEQ adopt ed revisions to the CAIR program o n February 10, 2010, to update the NO X

### allo cati on methodology and the incorporation by reference dates for the NO X

### annual and SO 2 

### tradi ng 10

### programs. These revisions will be submitted to EPA as a SIP revision.

What has EPA considered in reviewing and evaluating the October 24, 2006 and August 16, 2007, DERC SIP revisionssubmittal s?

“ Im proving Air Quality with Economic Incenti ve Programs ” (EPA-452/R-01-001, January 2001) i s the EPA guidance document for reviewing and approving discretionary EIP submit tal s. The EIP Gui dance applies to the establishment of a discretionary EIP for attai ning or maintaining the national ambient air quality standards (NAAQS) for criteria pollut ants. The EIP Gui dance takes precedence over the discretionary EIP guidance provided in prior documents such as the 1994 EIP ( April 7, 1994, 59 FR 16690 , 40 CFR part 51, subpart U) and the gui dance in the emis sio n tradi ng policy statement (ETPS) (December 4, 1986, 51 FR 43813). In addition, the Guidance represents EPA ’ s final acti on on the Open Market Trading Rule (August 3, 1995, 60 FR 39668 and August 25, 1995, 60 FR 44290). The January 2001 EIP Gui dance is the most recent statement of agency policy and it supercedes prior statements of agency policy. We have also considered the report by

EPA ’ s Office of Inspector General, “ Open Market Trading Program f or Ai r Em issio ns Needs Strengthening ” (No. 2002-P-00019 , Septem ber 30, 2002) as well as EPA air program responses to that report.

Additionally, since these revisions to the DERC program were submitted as a result of our final conditional approval of the DERC program, we will evaluate the revisions to the DERC program

f or consi stency with the conditional approval commitments.

The above documents and other material considered will be included in the administrative record for the proposed rul e.

What does EPA mean by guidance?

The EIP Gui dance applies to discre ti onary EIPs, but i

t does not represent EPA ’ s final acti on regarding discretionary EIPs. Final action on any particular discretionary EIP, such as the DERC rule, occurs when EPA has approved or disapproved the EIP submitted as a SIP revision. The EIP Gui dance describes elements of various types of discretionary EIPs, and phrases these elements in the imperative

– that i s, using the terms “must ” or

“ shall. ” Thi s is done only to signify that EPA would propose to approve a SIP submittal of a program

contai ni ng the indicated elements on grounds that under section 110(l) of the Clean Air Act (CAA), the SIP revision does not interfere with any applicable requirement concerning attainment, reasonable further progress, or any other applicable requirement.

How will EPA act on an EIP SIP submittal?

Once an EIP SIP revision is submitted, EPA will take action through notice-and-comment rul e-making to determine if the statutory requirements have been met. Only action taken 11

### aft er the conclusion of that rule-making would constitute final Agency action. EPA would

take steps to expedi

te i ts proposed approval

i n the case of SIP revisions containing
programs that contai

n the elements of the EIP Guidance.

If a program that does not contai n the elements of the EIP Guidance for the type of
program that i s submitted, EPA will still seek to determine whether the applicable CAA requirements were met, and if so EPA would approve the submission. EPA would make th e determ

inat io n through noti ce-and-comment rule-making. 12

### III. Summary of the State Submittals

A complete section-by-section summary of the DERC program can be found in the DERC TSD dated Septem

ber 23, 2005 , i

ncluded in the docket for this action. EPA developed this original DERC TSD for our initial condit io nal approval action for the DERC program. This current TSD wi ll only evaluate the revisions to the DERC program as submitted on October 24, 2006 and August 16, 2007 by TCEQ.

October 2 4, 2006

30 TAC Chapter 101, Subchapter H, Division 4

The proposed S IP revision removes all references to international emission reductions from section 101.372 and relocates these requirements to new section 101.375. The proposed SIP revi sio n also revises section 101.372 to clarify the procedures for the use of an emissi on protocol

as specified in the September 8, 2005, commitment letter from TCEQ to EPA.

The proposed SIP revi sio n amends section 101.373 to remove the ability to generate DERCs from facility shutdowns, as specified in the September 8, 2005
, com mit ment l ett er from TCEQ to EPA.

The proposed SIP revi sio n creates new section 101.3 7 5 to contai n all requirements for int ernational emission reductions. TCEQ has created a separate section for optional reducti ons to allo w for separate federal rulemaking action as necessary.
The proposed SIP revi sio n amends section 101.3 7 6 to update cross-references to previously renumbered sections of the TAC.

The proposed SIP revi sio n amends section 101.378 to change the lifetime of DERCs generated from shutdowns. DERCs generate d from shutdowns before September 30, 2002, wi ll be available for use until September 8, 2010.

The TCEQ received four comment letters, one from EPA submitted on May 30, 2006.

August 16 , 2007

30 TAC Chapter 101, Subchapter H, Division 4

The proposed SIP revision amends sections 101.3 7 2 and 101. 37 6 to adopt the ref erences to the newl

y renumbered 30 TAC Chapter 117 sections.

The TCEQ received two comment letters for this rulemaking, one from EPA submitted on March 23, 2007. 13

### IV. Technical Reviewof State S ubmittal

This technical review of the October 24, 2006
, revisions to the DERC program at sections 101.372, 101.373, 101.375, 101.376, and 101.378 and the August 16, 2007 revisions to th e DERC program

at secti ons 101.372 and 101.376 consists of a compariso n between the relevant CAA requirements and the corresponding sections in the SIP submittal. Each SIP submit tal i s separately reviewed for completeness as a SIP submittal under Part 51, Appendix V. Next, a section-by-section review of the submittal in co mparison to 40 CFR Part 51 i s presented to determ ine whether the submittal satisfies the requirements for preparati on, adopti on, and submittal of a SIP revision. Then the proposed SIP revisions are analyzed with respect to the current SIP-approved ERC pro gram language and the EIP Gui dance. A comparison of the proposed SIP revisions with section 110(l) of the CAA is presented to determine whether the proposed revisions interfere with any applicable CAA provisions. Finally, since the TCEQ is under an oblig ati on to revi se the DERC program

t o sati sfy t he commitments of a conditional approval, the proposed October 24, 2006, SIP revisions and other associated TCEQ acti ons will be analyzed to determ ine if the conditional approval terms have been satisfied. Thes e analyses produce a wri tten evaluation that was used to make a determination of whether or not the October 24, 2006, and August 16, 2007, DERC program revisions are i

n agreement with the CAA, oth er EPA policies or guidance, and whether the October 24, 200 6, DERC program revisions in concert with other TCEQ actions have sati sfied the terms of the conditional approval.

A. October 24, 2006 1. Part 51, Appendix V Completeness Determination 2. Review with respect to Part 51 3. Review with respect to the current SIP-approved ERC Program and the EIP Gui dance 4. Review with respect to Section 110(l) of CAA 5. Evaluation of th e conditional approval terms

B. August 16 , 2007 1. Part 51, Appendix V Completeness Determination 2. Review with respect to Part 51 3. Review with respect to the current SIP-approved ERC Program and the EIP Gui dance 4. Review with respect to Section 110(l) of CAA 14

### IV. A. Evaluation of the October 24, 2006 SIP Submittal

1. Evaluation of the October 24, 2006 SIP S ubmittal with respect to Appendix V to Part 51

The criteria for completeness determination are found in Appendix V to Part 51 - Cri teri a fo r de term

ining the completeness of plan submissions and are outlined below:

1.0 Purpose: Thi s appendix V sets forth the minimum criteria for determining whether

a State implement ati on plan submit ted fo r consideration by EPA is an of ficial submissio n for purp oses of review under § 51.103.

1.1 The EPA shall return to th e submit ti ng of ficial any plan or revision th ereof which fails to meet the cri

teri a set f orth i n this appendix V, and request correcti ve acti on, identifying th e com

ponent(s) absent or insuffic ient t o perform a review of t he submit ted pl an.

1.2 The EPA shall info rm t he submit ti

ng of ficial whether or not a plan submissio n meets th e requirements of t his appendix V wit hin 60 days of E PA's receipt of

t he submit tal , but no l ater than 6 months after th e date which the State was requi red to submit t he plan or revision. I f a com pleteness determ

inat io n is not made by 6

mo nt hs from receipt of

a s ubmit tal
, th e submit tal s hall be deemed com

plete by operati on of

l aw on th e date 6 mo nt hs from receipt. A d et ermination of

com pleteness under this paragraph means th at th e submissio n is an of ficial submissio n for purposes of §51.103.

The attached checklist outlines th e basic criteria included under 2.1, 2.2, and 2.3 of Appendix V. 15

### SIP Completeness Checklistfor the October 24, 2006 SIP Submittal Rule Log No: 2005-054-101-PR

Administ rati

ve Materials (2.1)

1. The package is sent with a formal submittal letter from the Governor or his or her designee requesting EPA's approval of the revision.

The SIP revisi on w

as submitted by a letter from Kathleen Hartnett White, Chairman of the Texas Commission on Environmental Quality, dated October 24, 2006. The SIP submittal w as received by EPA Region 6 External Affairs on October 31, 2006. Governor Rick Perry designa ted that the Chairman of the Texas Commission on Environmental Quality w ould be his designee for SIP submittals in a letter dated May 21, 2002.

2. Evidence is included that the State has adopted the revision in the State code or body of regulations, or th at the State has i ssued the permit, order, consent agreement (hereafter document) in final form. This evidence would include the date of adopti on or f

inal issuance and the effective date of revision, if different from adoption/issuance date.

The revision s w

ere adopted by the Texas Comm ission on Environmental Quality on October 4, 2006, and became effective October 26, 2006.

3. Evidence is included that the State has necessary legal authority under State law to adopt and i

mplement the revision, e.g., a cit ati on of the appropri ate State authori ty

. The authority for promulgating changes to the Texas State Implementation Plan, Chapter 101 §§ 101.032, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of §§ 101.338; and new §§ 101.305, 101.338, 101 .339, and 101.375 is found in the Texas Clean Air Act, Chapter 382 of the Texas Health and Safety Code.

4. A copy

i s included of the actual regulation or document submitted for approval and incorporation by reference into the SIP including an indication o f th e changes made to the existing approved plan where applicable. The submittal shall be a
copy of the official State regulation document signed, stamped, and dated by the appropri ate State of

ficial indicat ing that it is fully enforceable by the State. The effective date of the regulation document shall, whenever possible, be indicated in th e document itself.

The October 24, 2006, submittal included a copy of the official State regulation document, signed, stamped, and dated by Kathleen Hartnett White, Chairman of 16

### the Texas Commission on Environmental Quality.

5. Evidence is included that the State followed all th e procedural requi

rements of its laws and/or its constitution in the conducting and completing the adopti on/issuance of the plan.

The SIP submittal package include d a certification signed by Kevin McCalla

, Director of the Texas Commission on Envi ronmental Quality General Law Division, that demonstrated the SIP submittal w as developed pursuant to 40 CFR 51.104.

6. Evidence is included that public notice was given of the proposed changes consistent with the procedures approved by EPA, including t he date of publication of such notice, (e.g., notarized or certified copies of any public notices published in newspapers). (The notice should be at least 30 days prior to the public hearing(s).

Notices of public hearings w ere published in the follow ing new spapers on the date listed: Austin American Statesman: April 19, 2006  Beaumont Enterprise: April 17, 2006  Fort Worth Star Telegram: April 17, 2006  Houston Chronicle: April 17, 2006. 
A public hearing w

as held in Austin, Texas, on May 22, 2006.

7. A certification is included indicating that public hearing(s) was/were held in accordance with the information provided in the public notice(s) and the State's laws and constitution, if applicable.

An order adopting revisions to the SIP signed by Kathleen Hartnett White, Chairman of the Texas Commission on Environmental Quality w as included. This order states that the public hearing w as conducted pursuant to Texas Health and Safety Code § 382.017, Texas Government Code Chapter 2001, and 40 CFR § 51.102.

8. A compilation of public comments and the State's response is included.

The SIP submittal package did include a compilation of comments. TCEQ received w

ritten testimony from four parties during the comment period, including EPA Region 6, and did not re ceive oral testimony.

Technical Support (2.2)

The State should i

nclude the following technical information in its SIP revision request 17

### package.

1. Identification of all regulated pollutants affected by the revision is included.

Chapter 101, Subchapter H, Division 1 (ERC Program) applies to criteria  pollutants, and precursors, for w hich an area is designated nonattianment wi th the exception of lead. How ever, the SIP revision under review does not change this applicability and therefore does not need to restate the list of regulated pollutants. Chapter 101, Subchapter H, Division 2 (EBTA Program) applies to NO X 

###  and SO 2



### . This SIP submittal amends a previously submitted SIP package for the EBTA program, in w hich the pollutants are identified. Chapter 101, Subchapter H, Division 4(DERC Program) applies to  criteria pollutants, and precursors, w ith the exception of lead. The SIP revision under review

does not change this applicability and therefore does not need to restate the list of regulated pollutants.

2. Identification of the locations of affected sources including the EPA attai nment /nonattai

nment designation of the locations and the status of the attai nment pl an for the affected area(s) is included.

The SIP submittal, covering the ERC, EBTA, and DERC Rules, amend existing regulations for statewide trading programs. Additionally, each rule does contain an international trading component.

3. Quantification of the changes in SIP allowable emissions from the affected sources is included. (Examples inclu de esti mat es of changes in current actual emissions from affected sources and/or, where appropriate, quantification of changes in actual emissions from affected sources through calculations of the differences between certain baseline levels and allowable e missio ns anticipated if the revisions were approved.)

The SIP submittal, covering the ERC, EBTA, and DERC rules, amend existing regulations for statewide trading programs. The ERC and DERC programs establish economic incentive programsfor voluntary gen eration and use of emission reductions . Each program includes provisions for quantifying creditable emission reductions and increases. The EBTA program is mandated by Texas SB 7; w

hich established reduction requirements of 50% from baseline NO X 

### emission levels and 25% from baseline SO 2 

### emission levels.

4. Demonstration is included that the NAAQS/PSD increments/RFP demonstration and visibilit y as applicable would be protected if the revision were approved and implement ed. 18

### The SIP submittal amends existing trading programs. While these trading
programs are part of the attainment demonstrations developed within the State, they are not the sole method of attaining or maintaining the NAAQS, PSD, RFP or visibility programs. Attainment demonstrations for each area using these programs must account for the em issions attributed to the banking and trading
programs.

5. FOR REDESIGNATIONS:

a. Is there a fully approved maintenance plan for the primary ambient air quality standards for at least 10 years as required by §175A of the Clean Air Act?

Not applicable

.

b. Are contingency measures included?

Not applicable.

Modeling information, if applicable, is required to support the propose d revision. 6.

Modeling information is not necessary to support th isSIP revision. Modeling is provided with attainment demonstrations accounting for the generation and use of emission reductions under the ERC, EBTA, and DERC programs.

7. Evidence is included where necessary, that emission limitations are based on conti nuous emission reduction technology (e.g., add-on cont rol s, i ndustrial/process equipment designs, reformulated materials, etc.).

This SIP submittal amends existing trading programs; it does not establish emission limitations.

8. Evidence is included indicating that a SIP revision contains emission limitatio ns, work practi ce standards, and recordkeeping/reporting requirements to ensure stated em issio n levels.

This SIP submittal amends existing trading programs and does not contain or revise emission limitations or w orkplace standards. Recordkeeping and repo rting requirements for the trading programs have previously been submitted to EPA.

9. Com

pliance/enforcement strategies including how compliance will be determined in practice (including at what frequency).

The SIP submittal amends existing trading programs. The compliance strategies 19

### for each program w ere previously submitted to EPA. Additionally, each source participating in banking and trading programs must abide by the conditions of its respective permit.

10. As appropriate, special economic and technological justifications are included per applicable EPA policies or an explanation why such justifications are not necessary should be included. For example, requests for alternative RACT may require such justification.

These justifications are no t necessary for this SIP revision.

The October 24, 2006 SIP submittal (Rule Project No. 2005-054-101-PR) meet s the completeness criteria established in 40 CFR part 51, Appendix V. 20

### IV.A. Evaluation of the October 24, 2006 SIP Submittal

Evaluation of the October 24, 2006 DERC revisions with respect to 40 CFR 2. 51

Requirements for the preparation, adoption, and submittal of implementation plans can be fo und in 40 CFR Part 51. The October 24, 2006
, proposed DERC revisions were evaluated against the applicab le requirements in Part 51. Thi s analysis is included in Table IV- A2 below. The revisions to th e ERC and EBTA programs al so submitted on October 24, 2006, as revisions to the SIP are not included in the analysis below. EPA is proposing approval of the 2 006 ERC revisions in a separate rulemaking (see EPA-R06-OAR-2010- 0147). The EBTA

program wi ll be acted on separately by EPA at a later date.

Table IV- A2 : Analysis of Part 51 Requirements

Part 51

– Requirements for Preparation, Adoption, and Submitt al of Implementation

Plans DERC Program Revisions 30 TAC §§ 101. 372, 101.373, 101.375, 101.376

and 101.378 Subpart A

–

Emission Inventory

Reporting Requirements The DERC Program is a discretionary EIP for voluntary participation. The program does not affe ct the current TX SIP requirements for Emission Inventory

Reporting.

Emission reporting requirements specific to the DERC program are contained in 30 TAC 101.379 and were approved by EPA in our September 6, 2006 conditional approval. Subparts B

–

E [Rese rv ed] Not applicable. Subpart F

–

Procedural Requirements Subpart F

– Procedural Requirements § 51.100 Definitions § 51.100 is not applicable to the SIP submittal under review in this TSD. § 51.101 Stipulations § 51.101 is not applicable to the SIP submittal under review in this TSD. § 51.102 Public Hearings States must conduct one or more public  hearings Public hearings will only be held after  reasonable notice, given at least 30 days prior to the date of the hearing The state must submit with the revision a  certification that the hearing was held in accordance with this section TCEQ held a public hearing on May 22, 2006  in Austin, Texas. The public hearing was held after reasonable  notice was given. TCEQ published notice of the public hearing i n the following newspapers on the dates listed below: April 17, 2006 in the Beaumont  Enterprise; April 17, 2006 in the Fort Worth Star Telegram; April 17, 2006 in the Houston Chronicle;  April 19, 2006 in the Austin American  Statesman. TCEQ submitted a cert ification that the public  hearings were held in accordance with § 51.102. 

### 21§ 51.103 Submission of plans, preliminary review of plans The state makes an official plan submission to  EPA only

when the submission conforms to the requirements of Part 51, Appen dix V. The state delivers 5 copies of the plan with a  letter giving notice of the action to the EPA regional office. Please see section IV.A of this TSD for the evaluation of this SIP revision with respect to the Part 51, Appendix V Checklist.

The SIP sub mission meets the requirements for completeness.

§ 51.104 Revisions States may

revise the plan from time to time  EPA will approve revisions only after  appropriate public hearing requirements have been met Revisions must be submitted in accordance  with 5 1.103 TCEQ submitted the revisions to the DERC Program on October 24, 2006 . This SIP revision, as demonstrated previously in this table and section IV.A of this document, has satisfied the public hear ing requirements of § 51.102 and the requirements of § 51.103.

Subpart G

–

Control Strategy Subpart G

– Control Strategy § 51.110 Attainment and Maintenance of National Standards Requirements found in § 51.110 are not applicable to the SIP submittal under review in this document. The DERC Program is a disc retionary EIP that provide s for the voluntary generation and use of discrete emission reduction credits . The DERC Programi s notan integral control s trategy in any of the Texas Attainment Demonstrations. However, EPA expects the TCEQ to account for the generation and use of DECs in all attainment demonstrations. § 51.111 Description of Control Measures Requirements found in § 51.110 are not applicable to the SIP submittal under review in this document. The DERC Program do es not establish control
strat egies for Texas, rather the program s provides for the voluntary

generation and use of DECs. § 51.112 Demonstration of Adequacy Requirements found in § 51.112 are not applicable to the SIP submittal under review in this document. Since the DERC programi s notan integral piece of an attainment strategy, it is not necessary that the DERC program demonstrate adequacy for maintaining a national standard. § 51.113 Reserved Not applicable. § 51.114 Emissions Data and Projections Requirements found in § 51. 114 are not applicable to the SIP submittal under review in this document. As the DERC programi s not part of an attainment demonstration, the DERC program SIP revision does not need to provide a detailed emission inventory and summary

of projected emissi on levels after the implementation of control strategies. However, the D ERC program do es require that generators and users submit applications to the TCEQ that estimate and verify the emission reductions that are generated and/or used. 

### 22§ 51.115 Air Quali ty Data and Projections Requirements found in § 51.115 are not applicable to the SIP submittal under review in this document. The DERC programi s not part of an attainment plan, therefore it is not necessary that the DERC revision SIP submittal include da ta on existing air quality or summarize expected air quality impacts from the implementation of control strategies. § 51.116 Data Availability

The State must make available to the public all data and calculations used in the preparation of each plan or plan revision.

Each plan must provide for public availability of emission data reported by source owners or operators. Requirements found in § 51.116 are applicable to the DERC program SIP revision.

TheTCEQ provided the public the opportunity to partici pate in stakeholder meetings in the rulemaking development process, and the public received comment periods on the proposed plan.

The Texas Clean Air Act, Texas Health and Safety Code at Section 382.040 requires that all information submitted to the TCEQ for compliance purposes be made available to the public, unless a

wr itten request for nondisclosure is approved. § 51.117 Additional provisions for lead Requirements found in § 51.117 are not applicable to the SIP submittal under review in this documen t. The DERC program at § 101.372(a) does not list lead as an applicable pollutant under the program. § 51.118 Stack Height Provisions Requirements found in § 51.118 are not applicable to the SIP submittal under review in this document. The DERC programi s adiscretionary program for voluntary generation and use of DECs and do es not involve good engineering practices for stack heights. § 51.119 Intermittent Control Systems Requirements found in § 51.119 are not applicable to the SIP submittal under review in this document. The DERC programi s a discretionary program for voluntary generation and use of DECs and do es not require intermittent control systems. § 51.120 Requirements for State Implementation Plan Revisions relating to Motor Vehicles Requir ements found in § 51.120 are not applicable to the SIP submittal under review in this document. The DERC program do es provide for the generation and use of mobile discrete emission reductions, but that is not related to the part 51 requirements for SIP re visions relating to motor vehicles. § 51.121 Findings and requirements for submission of State Implementation Plan Revisions relating to emissions of oxides of nitrogen Requirements found in § 51.121 are not applicable to the SIP submittal under review i n this document. § 51.121 establishes the requirements for the NO X SIP Call; Texas was not subject to the NO XSIP Call. § 51.122 Emissions reporting requirements for SIP revisions relating to budgets for NO Xemissions. Requirements found in § 51.122 are not applicable to the SIP submittal under review in this document. § 51.122 establishes the emission reporting requirements for the NO XSIP Call; Texas was not subject to the NO XSIP Call. 

### 23§ 51.123 Findings and requirements for

submission of State Imple mentation Plan Revisions relating to Emissions of Oxides of Nitrogen pursuant to the Clean Air Interstate Rule Requirements found in § 51.12 3 are not applicable to the SIP submittal under review in this document. § 51.12 3 establishes the requirements for the NO X Annual and Ozone season programs for the Clean Air Interstate Rule(CAIR). § 51.124 Findings and requirements for submission of State Implementation Plan Revisions relating to Emissions of Sulfur Dioxide pursuant to the Clean Air Interstate Rule Requirements found in § 51.124 are not applicable to the SIP submittal under review in this document. § 51.124 establishes the program requirements for the CAIR SO 2 Programs. § 51.125 Emissions reporting requirements for SIP revisions relating to budget s for SO 2 and NO X emissions. Requirements found in § 51.12 5 are not applicable to the SIP submittal under review in this document. § 51.12 5 establishes the emission reporting requirements for the CAIR NO Xand SO 2trading
programs. Subpart H

–

Prevention of Air Pollution Emergency Episodes Requirements found in 51, Subpart H are not applicable to the SIP submittal under review in this document. The DERC programi s a discretionary program for the generation and use of D ECs and is not part of the Texas air pollution emergency episode plan. Subpart I

–

Review of New Sources and Modifications § 101.376(b)(2) provides that DECs can be used as NSR permit offsets. § 101.376(c)(2) prohibits the use of DECs for NSR netting.

EPA reviewed the use of DERCs and MD ERCs as NSR offsets as part of our final conditional approval, and found this provision of the DERC program to meet the NSR offset requirements of section 173 of the CAA and 51.165. The revisions to the DERC program submitted in this SIP submittal do not revise § 101.376(b)(2) or (c)(2). Subpart J

–

Ambient Air Quality

Surveillance Requirements found in 51, Subpart J are not

applicable to the SIP submittal under review in this document. Ambient air quality surveillance is not part of the DERC program. Subpart K

–

Source Surveillance Subpart K

– Source Surveillance § 51.210 Each plan must provide for monitoring the status of compliance with rules and regulations that set forth any

portion of the control strategy

. The Texas DERC programwas developed an d submitted in accordance with the Texas Health and Safety Code. Texas enforcement provisions are not ty pically in the State ’ s individual rules but are separately codified. Texas Water Code Chapter 7 contains the State ’ s statutory provisions for enforcem ent of programs developed according to the Texas Health and Safety Code; i.e, the Texas DERC program . Section 382.111 of the Texas Health and Safety

Code provides the ability to enter and periodically

inspect stationary

sources. Section 382.021 establish es that the Texas Commission on Environmental Quality

can determine the necessary sampling and detection methods used to demonstrate compliance with an emission limitation. § 5 1.211 The plan must provide for l egally enforceable procedures for r equiring s tationary

sources to maintain records and report the following to the State: Information on the nature and amount of  emissions from the stationary source; and Other information as necessary for the State to  determine wh ether the sources are in compliance

. 

### 24§ 51.212 The plan must provide for periodic testing

and inspection of stationary sources. Additionally
, the plan must establish a system for detecting violations and include enforceable test methods. § 51.213 The plan must contain procedures for obt aining and maintaining data on actual emissions reductions achieved as a result of implementing transportation control measures. § 51.213 is not applicable to the DERC program. While the DERC program do es provide for the generation and use of mobile discr ete emission reductions, these reductions must be surplus to transportation control measures in the SIP.

§ 51.214 The plan must contain legally enforceable procedures to require stationary sources subject to emission standards as part of the applicable p lan to install, calibrate, maintain, and operate continuous emission monitoring systems. The DERC program do es not establish emission standards under the Texas SIP that would mandate the installation or use of continuous emission monitoring systems. Howev er, section 101.372(d)(2) provides the quantification procedures for DECs
, and continuous monitoring data is an acceptable data source for actual emissions data in the event that the SIP approved testing and monitoring methods in Chapter 115 and Chapter 11 7 are not available. Subpart L

–

Legal Authority Subpart L

– Legal Authority § 51.230 Each plan must show that the State has the necessary

legal authority

to carry out the plan, including the authority

to adopt emission standards and limitations necessar y for attainment of the NAAQS, enforce applicable laws and regulations and seek injunctive relief. The DERC programwas developed and submitted in accordance with the Texas Clean Air Act, Chapter 382 of the Texas Health and Safety Code. The Texas Health and Safety Code and the enforcement provisions in the Texas Water Code provide TCEQ the necessary legal authority

to implement the SIP. A more detailed discussion immediately

follows this table.

§ 51.231 The provision of law or regulation which the Statedetermines provides the authorities required must be specifically identified and copies must be submitted with the plan. Texas identified in the submittal package that the SIP revision was developed in accordance with the Texas Health and Safety

Code. E PA Region 6 does not require the State to submit copies of laws and regulations that have been submitted for prior SIP submittals.

§ 51.232 A state government agency other than the State air pollution control agency may be assigned responsibility

for c arry ing out a portion of the plan. The DERC Program SIP revisions identified the TCEQ as the agency

responsible for implementing the SIP. Subpart M

–

Intergovernmental Consultation

Each plan must identify

organizations by

title that will participate in the development, implementation, and enforcement of the plan. The DERC Program SIP revision identified the TCEQ as the agency

responsible for developing, implementing, and enforcing the SIP. 

### 25Subpart N

– Compliance Schedule The DERC program establish es an economic incentive program for the voluntary generation and use of DECs. Th is programdo es not establish a compliance schedule for any NAAQS, and therefore do es not need to address the requirements of 40 CFR part 51, subpart N.

However, the DERC progr am provide s mechanisms by which users of DECs must demonstrate they have enough credits to cover their use obligations,

see section 101.376 . Section 101.379 provide s for program audits and reporting through which the TCEQ will demonstrate to EPA and the p ublic that the DERC programi s operating effectively. Subpart O

–

Miscellaneous Plan Content Requirements The DERC program SIP revision identified that no fiscal implications are anticipated for TCEQ or any other state/local government through the imple mentation of these rules. Additionally, it was estimated that the public benefit as a result of implementing these revisions would be a continued reduction in air contaminants. Subpart P

–

Protection of Visibility The DERC program SIP revision is not sub mitted as part of Texas ’ s plan to protect visibility

. Subpart Q

–

Reports The DERC program SIP revision does not revise the existing reporting requirements for the emission inventory

in the Texas SIP. EPA approved the emission inventory requirements a t 30 TAC 101.10 on August 26, 1994 (59 FR 44036). Subpart R

–

Extensions Requirements found in 51, Subpart R are not applicable to the SIP submittal under review in this document. The DERC program SIP revision submittal is not a request for an 18-month

e xtension. Subpart S

–

Inspection/Maintenance Program Requirements Requirements found in 51, Subpart S are not applicable to the SIP submittal under review in this document

. The DERC program establish es discretionary

economic incentive program s and is
not related to an inspection/maintenance program. Subpart T

–

Conformity

to State or Federal Implementation Plans of Transportation Plans, Programs, and Projects Developed, Funded, or Approved Under Title 23 U.S.C or the Federal

Transit Laws The DERC program do es not interfere with the transportation conformity budgets developed for each nonattainment and maintenance area pursuant to subpart T. The DERC program provide s that mobile sources can generate mobile discrete emission reduction credits, but these cre dits most be surplus to the baseline emissions in the SIP (section 101.374(b)). 

### 26Subpart U

– Economic Incentive Programs 40 CFR part 51, s ubpart U establishes requirements for statutorily

mandated economic incentive programs under sections 182(g)(3), 182(g )(5), 187(d)(3), or 187(g) of the CAA

. The DERC
programi s a discretionary economic incentive program, and therefore not subject to the requirements of subpart U. Subpart W

–

Determining Conformity of General Federal Actions to State or Federal Implemen tation

Plans The DERC programdoes not interfere with the requirements for general conformity in subpart W. All discrete emission reductions, whether from stationary or mobile sources, must be surplus to the baseline emissions in the SIP. Subpart X

–

Pro visions for Implementation of 8-hr Ozone NAAQS Requirements found in 51, Subpart X are for the implementation of the 8-hour ozone NAAQS. While DECs can be generated and used in 8-hour nonattainment areas, the DERC program is not part of the implementation of the 8-hour ozone standard. EPA expects that the TCEQ will account for the generation and use of DECs in all 8-hour attainment demonstrations. Subpart Y

–

Mitigation Requirements The Chapter 101 revisions do not create procedures by which Texas could exclude air quality data due to exceptional events. Subpart Z

–

Provisions for Implementation of PM2.5 National Ambient Air Quality Standards Requirements found in 51, Subpart X are for the

implementation of the PM2.5 NAAQS. The Chapter 101 revisions do not establish procedures for implementing the PM2.5 NAAQS.



### Does TCEQ have the necessary legal authority to implement the revision s to 30 TAC Sections 101.372, 101.373, 101.375, 101.376, and 101.378as part of the SIP?

Texas enforcement provisions are not typically in the State ’ s individual rules but are separat ely codified. Texas Water Code Chapter 7 contains the State ’ s statutory provi sio ns fo r enforcement of the Texas DERC Program . In parti cular, TWC § 7.051 provides for th e assessment of administrative penalties by the TCEQ, and § 7.032 provides for injunct ive relief by the TCEQ. The TCEQ enf orcement rul e at 30 TAC § 70.5 inco rporates remedies found in the state statutes (Texas Water Code and the Texas Health and Safety Code), and permits referrals to EPA for civil, judicial or administrative action. It i s our concl

usion that TCEQ has adequate legal authority to enforce th e DERC program revisions as part of the SIP . Once we approve the revisions to the DERC program i nt o th e SIP, EPA wi ll be able to enforce it under section 113 of the Clean Air Act.

The 40 CFR part 70, / CAA Title V operating permits program and the 40 CFR part 63, Nati onal Emission Standards for Hazardous Air Pollutants (NESHAPs) have been reviewed and found to have sufficient enforcement provisions. These same enforcement provisions will

apply to the DERC Program. The Office of the Attorney General of the State of Texas has provided written opinions for these programs. The opinions state that 27

### TCEQ has the necessary legal authority to implement and enforce the programs. TCEQ

has the author it y to have reasonable requirements for measuring and monitoring air emissio ns and to require owners and operators of sources to make and maintain records of th e emissions.

The Office of the Attorney General of the State of Texas cited State laws and re gulations th at regul ate, at a m

inimum, t he same sources as the Clean Air Act and do so with standards that are no less stringent than those specified by the CAA. The cited laws and regulations are: Texas Health and Safety Code Ann. sections 382.016 (Monito ri ng Requirements, Examination of Records), 382.021 (Sampling Methods and Procedures), 382.0514 (Sampling, Monitoring and Certification); 30 TAC sections 122.132 (Application and Required Information for Initial Permit Issuance, Reopening, Renewal, or Gene ral Operating Permits), 122.134 (Complete Application), 122.136 (Application Deficiencies), 122.142 (Permit Content Requirements), 122.143 (General Terms and Conditions), 122.144 (Recordkeeping Terms and Conditions), 122.145 (Reporting Terms and Condition s), 122.146 (Com pliance Certification Terms and Conditions), 122.165 (Certi ficat io n by Responsible Official; 30 TAC sections 101.8 (Sampling), 101.9 (Sam pling Ports).

Recordkeeping requirements specific to the D ERC rule are set forth at § 101.372(h). Th e At torney General has determined that TCEQ is allowed to prescribe sampling methods and procedures to be used to determ ine violations of and compliance with the TCEQ rules and orders. The DERC rule provides that any use of monitoring protocols other than th ose specified in Chapter 115 and Chapter 117 will be approved by EPA (§ 101.372(d)(1)). The rul es also specify procedures in the event that monitoring and testi ng data are unavailable at § 101.372(d)(2). The opi nio ns of the Texas Attorney General indi cate that TCEQ has the necessary l egal authority to implement and enforce the DERC program

i n accordance with the requirements of the Clean Air Act.

EPA ’ s guidance on practicable enforceability (provided in the FDMS docket for thi s acti on) i s a series o f agency memos on limiting potential to emit. While this guidance is not di rectl y applicable to an emissions trading program, the requirements for sufficient

mo nit ori ng do apply to the DERC program . The sources generating and certifying emissio n reductio ns as DECs m ust be able to quantify the emission reduction over time. The DERC EIP meet s EPA ’ s expectations on practicable enforceability by requiring sites to calculate emission reductions using an EPA approved protocol. Facilities subject to the
contro l specifications in Chapters 115 and 117 must use the testing and monitoring
met hodologi es identified to show compliance with the emission standards. If this

mo nit ori ng or testi

ng data is unavailable or does not exist, the facility may report actual emiss io ns for that period of time using the methods listed below in the following order of preference: C onti nuous monitoring data; 1. Peri odi c monitoring data; 2. Testi

ng data; 3. 28

### Manufacturer ’ s data;

4. Materi al balance. 5. A facilit y must submit justification to the TCEQ when not using the monitoring and testing protocol s in Chapters 115 and 117.

For the above reasons EPA has concluded that the DERC program revisions meet the Clean Air Act requirements and EPA EIP Guidance expectations for penalties, corrective acti on, and practicable enforceability in the integrity element of enforceable. 29

### IV.A Evaluation of the Octob er 24, 2006 SIP Submittal

3. Evaluation of the October 24, 2006 Revisions to the Texas DERC Program with respect to the existing SIP-approved language and the EIP Guidance

The evaluation

of the DERC program

wi th respect to the EIP Gui dance was conducted wit h our proposed condi

ti onal approval on October 5, 2005 (70 FR 58154) and final conditional approval of the program on September 6, 2006 ( 71 FR 52703 ). The October 24, 2006, rul e package currently under review in this TSD does not change the type of
pro gram or functionality of the DERC trading program with respect to the EIP Guidance. Therefore, t he evaluation

of th e revisions to the DERC program at secti ons 101.372, 101.373, 101.375, 101.376, and 101.378 will include a line it em comparison of the feder ally approved DERC program and the S tate ’ s adopted revisions to determ ine approvability. Approvability of each revision will be based on the EIP Guidance and whether the measure strengthens the SIP. Note that thi s analysis will not reevaluate the porti on s of the DERC program that have not been revised since our final acti ons on Septem ber 6, 2006.

Table IV-A3.1: Revisions to § 101.372

– General Provisions

Federally Approved Version September 6, 2006 71 FR 52703 Adopted State Language October 4, 2006 Rule Project Number 2005-054-101-PR Applicable pollutants. Reductions of volatile (a)

or ganic compounds (VOC), nitrogen oxides (NO X ), carbon monoxide (CO), sulfur dioxide (SO 2 ), and particulate matter with an aerodynamic diameter of less than or equal to a nomin al ten microns (PM10) may qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may not be used to meet the reduction requirements for another pollutant, unless: Appli cable pollutants. Reductions of volatile (a)

or ganic compounds (VOC), nitrogen oxides (NO X ), carbon monoxide (CO), sulfur dioxide (SO 2 ), and particulate matter with an aerodynamic diameter of less than or equal to a nominal ten microns (PM10) may qualify as d iscrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant
may not be used to meet the reduction requirements for another pollutant, unless urban airshed modeling demonstrates that

onemay be substituted for another subject to approval by the executive director and the Un ited States Environmental Protection Agency (EPA). urban airshed modeling demonstrates that (1)
one may

be substituted for another subject to approval by the executive dir ector and the EPA; or Moved to 101.372(a)

the facility

generating the emission (2) reductions is located outside the United States and: International trading provisions have been m oved to 101.375, see discussion below

.

the substitution: (A) International trading provisions have been m oved to 101.375, see discussion below

. 

### 30results in a greater health benefit (i) and is of equal or greater benefit to the overall air quality

of the area, as determined by

the executive director; International trading provisions have bee n m oved to 101.375, see discussion below

.

is from the reduction of a criteria (ii) pollutant for which the area has been designated as nonattainment

or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment; and International trading provisions have been m oved to 101.375, see discussion below

.

is for any criteria pollutant for (iii) wh ich the area has been designated as nonattainment or leads to the formation of a criteria pollutant for which the area has been des ignated as nonattainment; and International trading provisions have been m oved to 101.375, see discussion below

.

the user: (B) International trading provisions have been m oved to 101.375, see discussion below

. demonstrates that the use of the (i) reduction does not cause localized health impacts, as determined by the executive director; International trading provisions have been m oved to 101.375, see discussion below

.

submits all supporting information (ii) for calculations and modeling, and
any additional information requested by the executive director; and International trading provisions have been m oved to 101.375, see discussion below

.

is located within 100 kilometers of (iii) the Texas - Mexico border. International trading provisions have been m oved to 101.375, see discussion below

. Eligible generator categories. Eligible (b) categories include the following: No change

facilities (including area sources); (1) No change mobile sources; or (2) No change
any facility, including area sources, or (3) mobile source associated with act ions by federal agencies under §101.30 of this title (relating to Conformity of General Federal Actions to State Implementation Plans). No change

Discrete emission credit requirements. (c) No change To be creditable as a discrete emission (1) reduction credit (D ERC), an emission reduction must meet the following: No change

the reduction be real, (A) quantifiable, and surplus at the time the discrete emission credit is generated; No change 

### 31the reduction must have (B) occurred after the most recent year of emissions inve ntory used in the state implementation plan (SIP) for all applicable pollutants; and No change

the facility

's annual emissions (C) prior to the reduction strategy must have been reported or represented in the emissions inventory used for the SIP. No change

T o be creditable as a mobile discrete (2) emission reduction credit (MDERC), an emission reduction must meet the following: No change

the reduction must be real, (A) quantifiable, and surplus at the time it is created; No change

the reduction must have (B) occurred a fter the most recent year of emissions inventory used in the SIP for all applicable pollutants; No change

the mobile source ’ s emissions (C) must have been represented in the emissions inventory

used for the SIP; and No change

the mobile sources must have (D) bee n included in the attainment demonstration baseline emissions inventory

. If a mobile reduction implemented is not in the baseline for emissions, this reduction does not constitute a discrete emission reduction. No change

Emission reductions from a facili ty or (3) mobile 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. No change

Protocol. (d) No change 

### 32All generators or users of discrete (1) emission credits must use a protocol wh ich has been submitted by the executive director to the EPA for approval, if existing for the applicable facility or mobile source, to measure and calculate baseline emissions. If the generator or user wish es to deviate from a protocol submitted by the executive director, EPA approval is required before the protocol can be used. Protocols shall be used as follows. No change

Facilities subject to the emission (A) specifications under §§117.106, 117.206, or 117. 475 of this title (relating to Emission Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in NO X using the testing and monitoring methodologies identified to show compliance with the emission specification

. No change

Facilities subject to the (B) requirements under §§115.112, 115.121, 115.122, 115.162, 115.211, 115.212, 115.352, 115.421, 115.541, or 115.542 (relating to Emission Specifications; and Control Requirements) shall quantify VOC reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or the requirements. No Change

If the executive director has not (C) submitted a protocol for the applicable facility or mobile source to the EPA for approval, the following applies: No Change 

### 33the amount of discrete emission (i) credits from a facility or mobile source, in tons, will be determined and certified based on quantification methodologies at least as stringent as the methods used to demonstrate compliancewith any

applicable requirements for the facility or mobile source; No Change

the generator must collect (ii) relevant data sufficient to characterize the facility ’ s or mobile source ’ s emissions of the affected pollutant and the facility ’ s or mobile source ’ s activity level for all representative phases of operation in order to characterize the facility ’ s or mobile source ’ s baseline emissions; No Change

facilities with continuous (iii) emissions monitoring systems or predictive emissions monitoring systems in place shall use this data in quantify

ing actual emissions; No Change

the chosen quantification (iv) protocol shall be made available for public comment for a period of 30 days and shall be viewable on the commission ’ s web site; the chosen quantification protocol sha ll (iv) be made available for public comment for a period of 30 days and shall be viewable on the commission ’ s Web web site;

the chosen quantification (v) protocol and any

comments received during the public comment period shall, upon approval by the executive dir ector, be submitted to the EPA for a 45-day

adequacy review; and No Change

quantification protocols shall (vi) not be accepted for use with this division (relating to Discrete Emission Credit Banking and Trading) after a proposed disapproval of the protocol by the EPA in the Federal Register

. quantification protocols shall not be (vi) accepted for use with this division (relating to Discrete Emission Credit Banking and Trading) if the executive director receives a letter objecting to the use of the protocol from theEPA during the 45-day

adequacy review or the EPA proposes disapproval of the protocol in the Federal Register

after a proposed disapproval of the protocol by the EPA in the Federal Register

. 

### 34In the event that the monitoring and testing (2) data required unde r paragraph (1) of this subsection is missing or unavailable, the facility may report actual emissions for that period of time using these listed methods in the following order of preference to determine actual emissions: No Change

continuous monitoring d ata; (A) No Change periodic monitoring data; (B) No Change testing data; (C) No Change manufacturer ’ s data; (D) No Change EPA Compilation of Air Pollution (E) Emission Factors (AP-42), September 2000; or No Change

M aterial balance. (F) No Change When quantify

ing actual emis sions in (3) accordance with paragraph (2) of this subsection, the generator shall use the most conservative method for replacing the missing data, submit the justification for not using the methods in paragraph (1) of this subsection, and submit the justifica tion for the method used. No Change

Credit certification. (e) No Change The amount of discrete emission credits (1) shall be rounded down to the nearest tenth of a ton when generated and shall be

rounded up to the nearest tenth of a ton wh en used. No Change

App lications for certification will be (2) reviewed in order to determine the credibility of the reductions. Reductions determined to be creditable will be certified by the executive director. No Change

The applicant will be notified in writing if (3) the executivedirector denies the discrete emission credit notification. The applicant
may submit a revised discrete emission credit notification in accordance with the requirements of this division. No Change

If a facility ’ s or mobile source ’ s emissions (4) exceed its a llowable emission limit, the amount of emissions exceeding the limit
may not be certified as discrete emission credits. No Change 

### 35Geographic scope. Except as provided in

(f) paragraphs (7) and (8) of this subsection, only emission reductions generated in theState of Texas may

be creditable and used in the state with the following limitations. Geographic scope. Except as provided in (f) paragraph (7) of this subsection and § 101.375 of this title (relating to Emission Reductions Achieved Outside the United State s) paragraphs (7) and (8) of this subsection , only

emission reductions generated in the State of Texas may be creditable and used in the state with the following limitations. VOC and NO X discrete emission credits (1) generated in an ozone attainment area may be used in any

county or portion of a county designated as attainment or unclassified, except as specified in paragraphs (4) and (5) of this subsection and may not be used in an ozone nonattainment area. No Change

VOC and NO x discrete emission credits (2)
gen erated in an ozone nonattainment area
may be used either in the same ozone nonattainment area in which they were generated, or in any

county or portion of a county designated as attainment or unclassified. No Change

VOC and NO x discrete emission credits (3)
g enerated in an ozone nonattainment area
may not be used in any

other ozone nonattainment area, except as provided in this subsection. No Change

VOC discrete emission credits are (4) prohibited from use within the covered attainment counties, as defined in §11 5.10 of this title (relating to Definitions), if generated outside of the covered attainment counties. VOC discrete emission credits generated in a nonattainment area may be used in the covered attainment counties, except those generated in El Paso. No Ch ange

NO x discrete emission credits are (5) prohibited from use within the covered attainment counties, as defined in §115.10 of this title, if generated outside of the covered attainment counties. NO x discrete emission credits generated in a nonattainment ar ea, except those generated in El Paso, may

be used in the covered attainment counties. No Change 

### 36CO, SO 2 , and PM10 discrete emission (6) credits must be used in the same metropolitan statistical area (as defined in Office of Management and Budget Bulletin Number 93-17 entitled "Revised Statistical Definitions for Metropolitan Areas" dated June 30, 1993) in which the reduction was generated. No Change

VOC and NO x discrete emission credits (7) generated in other counties, states, or nations may

be used in any

atta inment 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 improve the air quality

in the county

where the cr edit is being used. VOC and NO x discrete emission credits (7) generated in other counties, states, or emission reductions in other nations may be used in any

attainment or nonattainment county

provided a demonstration has been made and approved by the executiv e director and the EPA, to show that the emission reductions achieved in the other county
, state, or nation improve the air quality in the county

where the credit is being used. A facility may use discrete emission (8) 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: International trading provisions have been m oved to 101.375, see discussion below

.

demonstrate that the use of the (A) reduction does not cause localized health impacts, as determined by the executive director; International trading provisions have been m oved to 101.375, see discussion below

.

submit all supporting information for (B) calculations and modeling, and any additional information requested by the executive director; and International trading provisions have been m oved to 101.375, see dis cussion below

.

be located within 100 kilometers of the (C) Texas - Mexico border. International trading provisions have been m oved to 101.375, see discussion below

. Ozone Season. In areas having an ozone season (g) of less than 12 months (as defined in 40 CFR P art 58, Appendix D) VOC and NOx discrete emission credits generated outside this ozone
season may

not be used during the ozone

season. No Change 

### 37Recordkeeping. The generator must maintain a

(h) copy of all notices and backup information submitted to the regi stry

for a minimum of five years, following the completion of the generation period. The user must maintain a copy of all notices and backup information submitted to the registry

for a minimum of five years, following the completion of the use period. Other relevant reference material or

raw data must also be maintained on-site by the participating facilities or mobile sources. The user must also maintain a copy of the generator ’ s notice and backup information for a minimum of five years after the use is completed. The records shall include, but not necessarily

be limited to: No Change

the name, emission point number, and (1) facility

identification number of each facility or any other identifying number for mobile sources using discrete emission credits; N o Change

the amount of discrete emission credits (2) being used by each facility or mobile source; and No Change

the specific number, name, or other (3) identification of discrete emission credits used for each facility or mobile source. No Change

Public inform ation. All information submitted (i) with notices, reports, and trades regarding the nature, quantity

of emissions, and sales price associated with the use of generation of discrete emission credits is public information and may not be submitted as confidenti al. Any claim of confidentiality

for this ty

pe of information, or failure to submit all information may result in the rejection of the discrete emission reduction application. All nonconfidential notices and information regarding the generation, use, and availability

of discrete emission credits may be obtained from the registry

. No Change

Authorization to emit. A discrete emission (j) credit created under this division is a limited authorization to emit the specified pollutants in accordance with the provi sions of this section, the FCAA, and the TCAA, as well as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority of the commission or the EP A to terminate or limit such authorization. Authorization to emit. A discrete emission (j) credit created under this division is a limited authorization to emit the specified pollutants in accordance with the provisions of this section, the Federal Clean Air Act FCAA
, and the Texas Clean Air Act TCAA , as well as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority of the commission or the EPA t o terminate or limit such authorization. 

### 38Program participation. The executive director

(k) has the authority

to prohibit a company

from participating in discrete emission credit trading as a generator or user, if the executive director determines the company

has violated the requirements of the program or abused the privileges provided by the program. No Change

Compliance burden and enforcement. (l) No Change The user is responsible for assuring that a (1) sufficient quantity

of discrete emission credits are acquir ed to cover the applicable facility or mobile source ’ s emissions for the entire use period. No Change

The user is in violation of this section if the (2) user does not possess enough discrete emission credits to cover the compliance need for the use period. If the user possesses an insufficient quantity of discrete emission credits to cover its compliance need, the user will be out of compliance for the entire use period. Each day the user is out of compliance may be considered a violation. No Change

Users may

not transfer their compliance (3) burden and legal responsibilities to a third party participant. Third party participants
may only act in an advisory

capacity to the

user. No Change

Credit ownership. The owner of the initial (m) discrete emission credit certificate shall be the

own er or operator of the facility or mobile source creating the emission reduction. The executive director may approve a deviation from this subsection considering factors such as, but not limited to: No Change

wh ether an entity

other than the owner or (1) operator of the facility or mobile source incurred the cost of the emission reduction strategy ; or No Change

wh ether the owner or operator of the (2) facility

or mobile source lacks the potential to generate one tenth of a ton of credit. No Change



### TCEQ revised section 101.372 by moving t he international trading provisions to n ew section 101.375 in response to EPA ’ s conditional approval; in our conditional approval we

recom mended restructuring the rules to more clearly identify the international pro visio ns. The revisions to the protocol provisions at 101.372(d)(1)(C)(vi) were also made in response to EPA ’ s conditional approval; in our conditional approval we recommended revisions to more clearly align the Texas DERC program with the EIP Guidance Sec ti on 5.2(c). 39

### EPA submitted several comments on the revisions to section 101.372 in our May 30,

2006, com

ment l etter, speci fically questioning whether the revisions to 101.372(f)(7) and (f)(8) were sufficient to clarify the need for EPA approval for indi vidual transactions invo lving emissio n reductions generated in another State or Nation, as well as for those transactions from one nonattainment area to another or from attainment counties into nonattai nment areas. TCEQ adequatel y addressed each submitted com ment i n the Response to Com

ment s summary.
The revisions to 101.372 are approvable.

Table IV-A3.2: Revisions to § 101.373

– Discrete Emission Reduction Credit Generation and Certification

Federally Approved Version September 6, 2006 71 FR 52703 Ad opted State Language October 4, 2006 Rule Project Number 2005-054-101-PR Methods of generation (a) No Change Discrete emission reduction credits (1) (DERC) may

be generated using one of the following methods or any other method that is approved by

the executive director: No Change

the permanent shutdown of a facility (A) that causes a loss of capability to reduce emissions; the permanent shutdown of a facility (A) that causes a loss of capability to reduce emissions; the installation and operation of (B) pollution control equipment that reduces emission below the level required of the facility ; or (A) (B) the installation and operation of pollution control equipment that reduces emission below the level required of the facility ; or

Previous 101.373 (a)(1)(B). No change other than numbering. a change in the manufacturing (C) process that reduces emissions below the level required of the facility

. (B) (C) a change in the manufacturing process that reduces emissions below the level requi red of the facility

.

Previous 101.373 (a)(1)(C). No change other than numbering. DERCs may not be generated by the (2) following strategies: No Change

temporary shutdown or permanent (A) curtailment of an activity at a facility ; (A) permanent or temporary shutdowns

or permanent curtailment of an activity at a facility ;

Added permanent shutdow ns as a prohibited generation strategy of DERCs. 

### 40modification or discontinuation of (B)
any activity that is otherwise in violation of a federal, state, or lo cal law; No Change

emission reductions required to (C) comply with any provision under 42 Un ited States Code (USC), Subchapter I regarding tropospheric ozone, or 42 USC, Subchapter IV-A regarding acid deposition control; No Change

emission reductions of haza rdous air (D) pollutants, as defined in 42 USC, § 7412, from application of a standard promulgated under 42 USC, § 7412; No Change

emission reductions that occurred as (E) a result of transferring the emissions to another facility

at the same site; No Change

emi ssion reductions credited or used (F) under any

other emissions trading
program; No Change

emission reductions occurring at a (G) facility

that received an alternative emission limitation to meet a state reasonably

available control technology requirement, exceptto the extent that the emissions are reduced below the level that would have been required had the alternative emission limitation not been issued; No Change

emission reductions at a site facility (H) with a flexible permit, unless the reductions are made pe rmanent and enforceable or the generator can demonstrate that the emission reductions were not used to satisfy the conditions for the facilities under the flexible permit; No Change

that portion of emission reductions (I) funded through a state or federal
pro gram, unless specifically allowed under that program; No Change

emission reductions from a facility (J) subject to Division 3 of this subchapter (relating to Mass Emissions Cap and Trade Program);

or No Change

emission reductions from the (K) shutdown of a facil ity that was not included in the SIP. No Change

DERC baeline. (b) No Change 

### 41The baseline emissions may not exceed the (1) quantity

of emissions reported in the most recent y ear of emissions inventory used in the SIP. For reductions being certified in accordancewith § 116.170(b) of this title (relating to Applicability

of Emission Reductions as Offsets), the baseline emissions may

not exceed the quantity

of emissions reported in the emissions inventory used in the SIP in place at the time the reduction strategy was implemented. No Change

The two consecutive calendar years for the (2) baseline activity and emissions rate must be selected from either a period including or following the most recent y ear of emission inventory used in the SIP or, if that period is less than ten y

ears, the ten consecutive years immediately preceding the emission reduction. No Change

For facilities in an area in which a SIP (3) demonstration is not required for a criteria pollutant, the two consecutive calendar years must include or follow the1990 emission inventory

. No Change

For reduction strategies that exceed 12 (4) months, the baseline and SIP emissions inventory are established after the first y ear of generation and are fixed for the life of the strategy . A new baseline is established for each unique emission reduction strategy

. No Change

For facilities in existence less than 24 (5) months or not having two complete calendar y

ears of activity data, a shorter time period of not less than 12 months may be considered by the executive director. No Change

DERC calculation. (c) No Change DERCs, except for shutdowns, are (1) calculated according to the following equations: Figure: 30 TAC § 101.373(c)(1) No Change

The sum of the reduction generated and the (2) total strategy

emissions must not be greater than the quantity

of emissions reported or represented in the emissions inventory used for SIP determination or the two-y ear average baseline emissions, whichever is less. No Change 

### 42For shutdown emission reduction (3) strategies, the quantity of emission reduction generated is equivalent to the baseline emissions. No Change

The generation period for a shutdown is (4) five years. Shutdown DERCs must be generated and noticed to the registry on an annual basis. No Change

DERC certification. (d) No Change A DEC-1 Form, Noti ce of Generation and (1) Generator Certification of Discrete Emission Credits, must be submitted to the executive director no later than 90 days after the end of the generation period, or no later than 90 days after the completion of the first 12 months of gen eration. Submission of the DEC-1 Form should continue every 12 months thereafter for each subsequent year of generation. No Change

DERCs shall be quantified in accordance (2) with § 101.372(d) of this title (relating to General Provisions). The executive di rector shall have the authority to inspect and request information to assure that the emission reductions have actually been achieved. No Change

An application for DERCs must include, (3) but is not limited to, a completed DEC-1 Form signed by

an authorized

r epresentative of the applicant along with the following information for each pollutant reduced as each applicable facility : No Change

the generation period; (A) No Change a complete description of the (B) generation activity ; No Change

for shutdown emission reduction (C) strategies, an explanation as to wh ether production shifted from the shutdown facility

to another facility at the same site; No Change

the amount of discrete emission (D) credits generated; No Change

for volatile organic compound (E) reductions, a list of

the specific compounds reduced; No Change

documentation supporting the (F) baseline emission activity, baseline emission rate, emission reduction strategy emission rate, and emission reduction strategy

activity ; No Change



### 43emissions inventory data from the (G)

m ost recent y

ear of emissions inventory used in the SIP and emissions inventory

data for the two consecutive years used to determine the baseline activity

for each applicable pollutant and emission point; No Change

the most stringent emission rate (H) for the applicable facility, considering all the local, state, and federal applicable regulatory and statutory requirements; No Change

a complete description of the (I) protocol used to calculate the emission reduction generated; and No Change

the actual calculation s performed (J) by the generator to determine the amount of discrete emission credits generated. No Change



### The revisions to section 101.373 revise the allowable and prohibited generation strategies fo r DERCs to refl ect that permanent shutdowns are a prohibited strategy and make the necessary formatting revisions to capture this change. This revision is consis tent wi th the EIP Gui dance, Section 7.5(b) and with our conditiona l approval of the DERC program. The revisions to section 101.373 are approvable.

Table IV-A3.3: New§ 101.37 5 – Emission Reductions Achieved Outside the United States

Adopted State Lan guage October 4, 2006 Rule Project Number 2005-054-101-PR A facility may use emission reductions achieved outside the United States of criteria pollutants or (a) precursors of criteria pollutants if the facility meets the requirements of subsection (c) of thi s section. A facility may use emission reductions achieved outside the United States of criteria pollutants or (b) precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants or precursors of criteria pollutan ts if the facility meets the requirements of subsection (c) of this section; and
the reduction is substituted for the reduction of another criteria pollutant and thesubstitution (1) results in a greater health benefit and is of equal or greater benefit to th e overall air quality of the
area; or a reduction of an air contaminant for which the area in which the facility is located has been (2) designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leads to the formation of any criteria pollutant for wh ich the area has been designated as nonattainment. The use of reductions outside the Un ited States must be approved by the executive director and the (c) Un ited States Environmental Protection Agency (EPA) , and the user of the emission reduction must: 

### 44d emonstrate to the executive director and EPA that the reduction is real, permanent, enforce able, (1) quantifiable, and surplus to any applicable Mexican , federal, state, or local law; demonstrate that the use of the reduction does not cause localized health impacts, as determined (2) by the executive directorand EPA ; submit all supporting information for calculations and modeling, and any additional information (3) requested by the executive directorand EPA ; and be located within 100 kilometers of the Texas-Mexico border. (4) This section does not apply to reductions in emissions of lead. (d)



### TCEQ created ne w section 101.375 in response to EPA ’ s conditional approval of the DERC rule in which we requested more clarity that EPA approval is required for the int ernational trading provisions in the DERC program. EPA approved international reducti on l anguage on Se ptem ber 6, 2006 in our original DERC approval. At the ti me of our condi ti onal approval, s ecti on 101.372(a)(2) established requirements for substituting one pollut ant for another and section 101.372(f) provided the geographic restrictions for using internati onal emission reductions. The October 4, 2006 revisions to the DERC
program moved the international provisions to new section 101.375.

Secti on 101.375 does not provi de that a reducti on i n Mexico will be certified as a DERC in the TCEQ Emissions Bank, rather the reducti ons in Mexico would be used by a Texas

source in lieu of a DERC. The Mexican reductions can be used to meet requirements for criteria pollutants or precursors (VOC reductions used for ozone requirements) or can be substituted for a crit eria pollutant requirement in Texas. In either case, the use of Mexican reducti ons must be approved by the Executive Director and the EPA. The user must also demonstrate that the reducti ons are real, permanent, enforceable, quantifiable, and surplus
to any applicable Mexican, federal, state, or local law; demonstrate that the use does not cause localized health impacts; and be located within 100km of the Texas-Mexico border.

EPA com ment ed on May

30, 2006, that thi s new section 101.375 appeared to expand th e DERC rule beyond its intended scope and could pose section 110(l) concerns because it was outsi de of our original approval of the DERC program (although the DERC program in general applied statewide regardless of attainment status, the use of international reducti ons was approved only for nonattainment areas along the border, i.e, El Paso). TCEQ ’ s response to com ment s on this rulemaking states “ The Mexican emission reducti ons are not certi fiable as credits and may only be applied for a specific use in a n area of Texas affected by emissions or where a greater health benefit, as determined by the executive director and the EPA, is realized

. Because each generation and use will be subjected to case-by-case review by both the executive director as well as t he EPA to ensure a greater health benefit, FCAA § 110(l) will not be violated. ”

EPA finds that new section 101.3 7 5 has expanded the scope of our original D ERC
program conditional approval because it does allow the use of international reductions in lieu of D ERCs to occur i

n attai nment or nonattai

nment areas within 100-km of the Texas

Mexico border. However the continued requirement at section 101.3 7 5 for EPA approval before any such use is consistent with the intent of our D ERC program approval on 45

### Septem ber 6, 2006. EPA approval continues to be through a case-specific SIP revision
t hat must clearly demonstrate through a detailed 110(l) analysis that the use of such int ernational reductions will not jeopardize attainment or maintenance of the NAAQS or any other applicable standards. As noted in our September 6, 2006, final conditiona l approval of the DERC Program “... int ernational trades present an especially difficult case. For i nstance, currently there is no approvable mechanism for demonstrating that reducti ons made in another country are surplus or enforceable. Nonetheless, emission reducti ons in other countries could potentially offer substantial air quality benefits in the Unit ed States. ” See 71 FR 52 703 , 52 705 . In approvi ng this revision to the D ERC
program , EPA i s conti

nuing to recognize “th e concept of international trading and describing a framework (i.e., the submission of a SIP revision demonstrating
, among other things
, the validity and enforceability of foreign reductions) for such trading, in the event th at a sui table and approvable mechanism is ever developed for resolving concerns including enforceability and surplus. Until such a mechanism is developed and approved by EPA, however, EPA will not approve international trades under the D ERC rul e.” See 71 FR 52 703 , 52 705

. Further, it is important to note, that even thoug h we are approving th e use of international reductions in lieu of D ERCs along the Texas-Mexico border, the use of these reductions must still meet the requirements of the CAA. Therefore, the int ernational reductions are not available for use as federal NS R of fsets since section 173(c)(1) of the CAA requires that offset reductions come from the same nonattainment area as the proposed source or modi ficat io n or another nonattai nment area with an equal or hi gher nonattainment classification.

In addition to th e expansion of scope concern highlighted previously, EPA also made several other comments regarding new section 101.3 7 5 i n our May

30, 2006, com

ment let ter. These additional comments suggested alternate wording and requested clarification from TCEQ. The TCEQ adequately addressed these comments and revised the proposed section accordingly.

The provisions at new section 101.3 7 5 are approvable with the caveats specified above for EPA approval of any trades involving international emission reductions.

Revi sions to § 101.37 6 – Discrete Emission Credit Use

Federally Approved Version September 6, 2006 71 FR 52703 Adopted State Language October 4, 2006 Rule Project Number 2005-054-101-PR Requirements to use discrete emission credits. (a) Discrete emission credit s may be used if the following requirements are met. No Change

The user shall have ownership of a (1) sufficient amount of discrete emission credits before the use period for which the specific discrete emission credits are to be used. No Change 

### 46The user sha ll hold sufficient discrete (2) emission credits to cover the user ’ s compliance obligation at all times. No Change

The user shall acquire additional discrete (3) emission credits during the use period if it is determined the user does not possess enough discrete emission credits to cover the entire use period. The user shall acquire additional credits as allowed under this section prior to the shortfall, or be in violation of this section. No Change

Facility or mobile source operators may (4) acquire and use only di screte emission credits listed on the registry

. No Change

Use of discrete emission credits. With the (b) exception of uses prohibited in subsection (c) of this section or precluded by commission order

or condition within an authorization under the same commi ssion account number, discrete emission credits may

be used to meet or demonstrate compliance with an y facility or mobile regulatory

requirement including the following: No Change

to exceed any allowable emission level, if (1) the following conditions are met : No Change

in ozone nonattainment areas, (A) permitted facilities may

use discrete emission credits to exceed permit allowables by no more than ten tons for NOx or five tons for VOCs in a 12-month period as approved by the executive director. This use is li mited to one exceedance, up to 12 months, within any

24-month period, per use strategy . The user shall demonstrate that there will be no adverse impacts from the use of discrete emission credits at the levels requested; or No Change 

### 47at permitted faciliti es in counties (B)

or portions of counties designated as attainment or unclassified, discrete emission credits may

be used to exceed permit allowables by values not to exceed the PSD significance levels as provided in 40 CFR 52.21(b)(23), as approved by the

ex ecutive director prior to use. This use is limited to one exceedance, up to 12 months, within any 24-month period, per use strategy . The user shall demonstrate that there will be no adverse impacts from the use of discrete emission credits at the levels requested; No Change

as new source review (NSR) permit offsets, (2) if the following requirements are met: No Change

the user shall obtain the executive (A) director ’ s approval prior to the use of specific discrete emission credits to cover, at a minimum, one y e ar of operation of the new or modified facility in the NSR permit; No Change

the amount of discrete emission (B) credits needed for NSR offsets equals the quantity

of tons needed to achieve the maximum allowable emission level set in the user ’ s NSR permit. T he user shall also purchase and retire enough discrete emissions credits to meet the offset ratio requirement in the user ’ s ozone nonattainment area. The user shall purchase and retire either the environmental contribution of 10%

or the offset ratio, whichever is higher; and No Change

the NSR permit must meet the (C) following requirements: No Change

the permit must contain an (i) enforceable requirement that the facility obtain at least one additional y

ear of offsets before continuing operation in each subseque nt y

ear; No Change

prior to issuance of the permit the (ii) user shall identify

the discrete emission credits; and No Change 

### 48prior to start of operation the user (iii) shall submit a completed DEC-2 Form, Notice of Intent to Use Discrete Emission Credits, along wi th the original certificate; No Change

to comply with the Mass Emissions Cap (3) and Trade Program requirements as provided in § 101.356(g); or No Change

to comply with Chapters 114, 115, and 117 (4) of this title, as allowed. No Change

Discrete emission credi t use prohibition. A (c) discrete emission credit may not be used under this division: No Change

before it has been acquired by the user; (1) No Change for netting to avoid the applicability of (2) federal and state NSR requirements; No Change

to meet (as codified

in 42 USC) FCAA (3) requirements for; No Change

NSPS standards, § 111; (A) No Change LAER standards, § 173(a)(2); (B) No Change BACT, § 165(a)(4); (C) No Change HAPs, § 112 including the (D) requirements for MACT; No Change

Standards for solid waste (E) combustion, § 129; N o Change

Requirements for vehicle (F) inspection and maintenance, § 182(b)(4) or (c)(3); No Change

Ozone control standards, § 183(e) (G) and (f); No Change

Clean-fueled vehicle requirements, (H) § 246; No Change

Motor vehicle emission standards, (I) § 202; No Change

Standards for non-road vehicles, § (J) 213; No Change

Requirements for reformulated (K) gasoline, § 211(k) No Change

Requirements for Reid vapor (L) pressure standards, § 211(h) and (i); No Change 

### 49to allow an emissions increase of an air (4) contaminant above a level authorized in a permit or other authorization that exceeds the limitations of § 106.261(3) or (4) or § 106.262(3) of this title, except as approved by the executive director. This paragraph does not apply to limit the use of discrete emission reduction cre dits (DERCs) or mobile discrete emission reduction credits (MDERCs) in lieu of allowances under § 101.356(h). to allow an emissions increase of an air (4) contaminant above a level authorized in a permit or other authorization that exceeds the limitations of § 106.261 (3)

or (4) or § 106.262 (3) of this title, excep t as approved by the executive director and the United States Environmental Protection Agency . This paragraph does not apply to limit the use of discrete emission reduction credits (DERC) or mobile di screte em ission reduction credits (MDERC ) in lieu of allowances under § 101.356(h). to authorize a facility

whose emissions are (5) enforceable limited to below applicable major source threshold levels, as defined in § 122.10, to operate with actual emissions above those levels without triggering applicable requirements that would otherwise be triggered by such major source status; or No Change

to exceed an allowable emission level (6) wh ere the exceedance would cause or contribute to a condition of air pollution as determined by

the executive director. No Change

Notice of intent to use. (d) No Change A completed DEC-2 Form, signed by an (1) authorized representative of the applicant shall be submitted to the executive director in accordance with the following requireme nts. No Change

Discrete emission credits may be (A) used only after the applicant has submitted the notice and received executive director approval. No Change

The application must be submitted (B) at least 45 days prior to the first day of the use period if the discrete emission credits were generated from a facility, 90 days if the discrete emission credits were generated from a mobile source, and every 12 months thereafter for each subsequent year if the use period exceeds 12 months. No Change

A copy of the ap plication shall (C) also be sent to the federal land manager 30 days prior to use if the user is located within 100 kilometers of a Class I area, as listed in 40 CFR Part 81. No Change 

### 50The application must include, but (D) is not limited to, the following informa tion for each use: No Change

the applicable state and federal (i) requirements that the discrete emission credits will be used to comply with and the intended use period; No Change

the amount of discrete emission (ii) credits needed; No Change

the baseline emiss ion rate, activity (iii) level, and total emissions for the applicable facility or mobile
source; No Change

the actual emission rate, activity (iv) level, and total emissions for the applicable facility or mobile
source; No Change

the most stringent emission rate (v)

and the most stringent emission level for the applicable facility or mobile source, considering all applicable regulatory requirements; No Change

a complete description of the (vi) protocol, as submitted by the executive director to the EPA for approval, used t o calculate the amount of discrete emission credits needed; No Change

the actual calculations performed (vii) by the user to determine the amount of discrete emission credits needed; No Change

the date that the discrete (viii) emission credits were acquired or will b e acquired; No Change

the discrete emission credit (ix) generator and the original certificate of the discrete emission credits acquired or to be acquired; No Change

the price of the discrete emission (x) credits acquired or the expected price of the discrete emi ssion credits to be acquired, except for transfers between sites under common ownership or control; No Change 

### 51a statement that due diligence was (xi) taken to verify

that the discrete emission credits were not previously used, the discrete emission credits wer e not generated as a result of actions prohibited under this regulation, and the discrete emission credits will not be used in a manner prohibited under this regulation; and No Change

a certification of use, that must (xii) contain certification under penalty

o f law by a responsible official of the user of truth, accuracy, and completeness. This certification must state that based on information and belief formed after reasonable inquiry, the statements and information in the document are true, accurate, and

co mplete. No Change

DERC use calculation. (2) No Change

To calculate the amount of (A) discrete emission credits necessary to comply with § 117.108, 117.138, 117.210, or 117.223, a user may use the equations listed in those sections,

or the following equations. No Change

For the rolling average cap: (i) Figure: 30 TAC § 101.376(d)(2)(A)(i) No Change

For maximum daily

cap: (ii) Figure: 30 TAC § 101.376(d)(2)(A)(ii) No Change

The amount of discrete emission (B) credits needed to demonstrate compliance or meet a regulatory
requ irement is calculated as follows. Figure: 30 TAC § 101.376(d)(2)(B) No Change

The amount of discrete emission (C) credits needed to exceed an allowable emissions level is calculated as follows. Figure: 30 TAC § 101.376(d)(2)(C) No Change

The user shall retir e 10% more (D) discrete emission credits than are needed, as calculated in this paragraph, to ensure that the facility

or mobile source environmental contribution retirement obligation will be met. No Change 

### 52If the amount of discrete emission (E) credits needed to meet a regulatory requirement or to demonstrate compliance is greater than ten tons, an additional 5.0% of the discrete emission credits needed, as calculated in this paragraph, must be acquired to ensure that sufficient discrete emission credits are

av ailable to the user with an adequate compliance margin. No Change

A user may

submit a notice late in the case (3) of an emergency, but the notice must be submitted before the discrete emission credits can be used. The user shall include a complete description of the emergency situation in the notice of intent to use. All other notices submitted less than 45 days prior to use, or 90 days prior to use for a mobile source, will be considered late and in violation. No Change

The user is responsible for determin ing the (4) credits it will purchase and notify ing the executive director of the selected generating facility

or mobile source in the notice of intent to use. If the generator ’ s credits are rejected or the notice of generation is incomplete, the use of discre te emission credits by the user may be delayed by the executive director. The user cannot
use any discrete emission credits that have not been certified by the executive director. The executive director may reject the use of discrete emission credits by a facility or mobile source if the credit and use cannot be demonstrated to meet the requirements of this section. No Change

If the facility

is in an area with an ozone (5) season less than 12 months, the user shall calculate the amount of discrete emission

c redits needed for the ozone season separately from the non-ozone season. No Change

Notice of use. (e) No Change The user shall calculate: (1) No Change

the amount of discrete emission (A) credits used, including the amount of discrete emission credits retired to

co ver the environmental contribution, as described in subsection (d)(2)(C) of this section, associated with actual use; and No Change 

### 53the amount of discrete emission (B) credits not used, including the amount of excess discrete emission credits that were purcha sed to cover the environmental contribution, as described in subsection (d)(2)(C) of this section, but not associated with the actual use, and available for future use. No Change

DERC use is calculated by the following (2) questions. No Change

The amount of discrete emission (A) credits used to demonstrate compliance or meet a regulatory requirement is calculated as follows. Figure: 30 TAC § 101.376(e)(2)(A) No Change

The amount of discrete emission (B) credits used to comply with permit allowables is calculated as follows. Figure: 30 TAC § 101.376(e)(2)(B) No Change

A DEC-3 Form, Notice of Use of Discrete (3) Emission Credits, shall be submitted to the commission in accordance with the following requirements. No Change

The notice must be submitted (A) within 90 days after the end of the use period; No Change

The notice must be submitted (B) within 90 days of the conclusion of each 12-month use period, if applicable; No Change

The notice is to be used as the (C) mechanism to update or amend the notice of intent to use and must in clude any

information different from that reported in the notice of intent to use, including, but not limited to, the following items: No Change

purchase price of the discrete (i) emission credits obtained prior to the current use period, except for transfers between sites under common ownership or control; No Change

the actual amount of discrete (ii) emission credits possessed during the use period; No Change

the actual emissions during the (iii) use period for VOCs and NOx; No Change

the actual amount of discrete (iv)

em ission credits used; No Change

the actual environmental (v) contribution; and No Change 

### 54the amount of discrete emission (vi) credits available for future use. No Change

Discrete emission credits that are not used (4) during the use period are surplus and remain avai lable for transfer or use by the holder. In addition, any

portion of the calculated environmental contribution not attributed to actual use is also available. No Change

The user is in violation of this section if the (5) user submits the report of use later than the allowed 90 days following the conclusion of the use period. No Change



### TCEQ revised the prohibited DERC uses list at 101.376(c)(4) in response to our final conditional approval notice. In our final notice we stated that “ We are not approving section 101.376(c)(4) into the Texas SIP because the cross-references to 30 TAC Cha pter 106 Permit by Rule, sections 106.261(3) or (4) or section 106.262(3) are incorrect and do not exist in State law

, the Texas SIP, or the Texas Federal Operating Permits program. Consequently, unless and until the State adopts and submits a revision to EPA for approval as a SIP revision and EPA approves it, the use of discrete emission credits to exceed the provisions in certain types of pre-construction permits termed Permits by Rule is not available under the Texas SIP. ”

The references to Chapter 1 06 have been correctly updated. While EPA has not approved sections 101.261 and 106.262 into the Texas SIP, we are able to approve the revisions to section 101.376(c)(4). By approving the revisions to section 101.376(c)(4) we are not approving a use of D ERCs that conflicts with the Texas SIP, rather we are approving a list ed prohibition of DERC usage that would further support the Texas SIP. Additionally, if an owner or operator of a facilit y wished to use DERCs in a manner that exceeded limit ati ons from sections 106.261 or 106.262, the use woul d have to be approved by TCEQ and EPA; EPA anticipates our approval would only occur through a case-specific SIP revision following a demonstration from the owner/operator that useage of DERCs in this manner would not underm ine the attainment strategy of the area or constitute a vio lat io n of CAA section 110(l). The revisions to section 101.376 are approvable.

Revisions to § 101.37 8 – Discrete Emission Credit Banking and Trading

Federally Approved Version Septembe r 6, 2006 71 FR 52703 Adopted State Language October 4, 2006 Rule Project Number 2005-054-101-PR The credit registry . All discrete emission (a) credit generators, users, and holders will be included in the commission ’ s credit registry

. No Change 

### 55All notices submitted by a generator, (1) holder, or user will be reviewed for credibility ; and when deemed certified, posted to the credit registry

. No Change

The credit registry

will assign a unique (2) number to each certificate which will include the amount of emission reductions generated to the tenth of a ton. No Change

The credit registry

will maintain a listing (3) of all credits available or used for each ozone nonattainment area. One combined listing for all the counties or portions of counties designated as attainment or unclassifiable will be provided by the credit registry

. No Change

The registry

shall not contain proprietary (4) information. No Change

Life of a discrete emission credit. A discrete (b) emission credit is available for use after the DEC-1 Form, Notice of

Generation and Generator Certification of Discrete Emission Credits, has been received, deemed creditable by the executive director, and deposited in the commission credit registry in accordance with subsection (a) of this section, and may be used
any timethereafter. All credits are deposited in the credit registry

and reported as available credits until they

are used or withdrawn. Life of a discrete emission credit. A discrete (b) emission credit is available for use after the DEC-1 Form, Notice of Generati on and Generator Certification of Discrete Emission Credits, has been received, deemed creditable by the executive director, and deposited in the commission credit registry in accordance with subsection (a) of this section, and may be used
any time thereaft er except as stated in this subsection

. All credits are deposited in the credit registry

and reported as available credits until they

are used or withdrawn. No comparable language in existing SIP-approved § 101.378. Discrete emission credits generated fr om (1) shutdown strategies prior to September 30, 2002, will be available for use until September 8, 2010. No comparable language in existing SIP-approved § 101.378. Discrete emission credits certified from (2) facility shutdowns after September 30, 2002, may

notbe used. Trading. Discrete emission credits are freely (c) transferable in whole or in part, and may be traded or sold to a new owner at any time after certification. No Change

Prior to the transfer, the executive director (1) must be notified by means of a completed DEC-4 Form, Application for Transfer of Discrete Emission Credits. No Change 

### 56The executive director will issue a letter to (2) the discrete emission credit purchaser reflecting the discrete emission credits purchased by

the new owner, and a letter
to the discrete emission credit seller showing any remaining discrete emission credits available to the original owner. Discrete emission credits are considered transferred only

after the executive director grants approval of the transaction. No Change

The trading of discrete emission credits (3)
may be discontinued by the executive director in whole or in part and in any manner, with commission approval, as a remedy for problems resulting from trading in a localized area of concern. No Change



### The revisions to 101.378(b) further support the prohi bit io n on generation of DERCs from permanent shutdowns found in section 101.373. The revisions to 101.378 are consistent wit h the EIP Guidance, Section 7.5(b) and with our conditional approval of the D ERC
program . These revisions to secti on 101.378 are approvable. 57

### IV.A Evalution of the October 24, 2006, SIP Submittal

4. Evaluation of the October 24, 2006 , SIP submittal with respect to sect ion 110(l) of the Clean Air Act

Secti on 110(l) of the Clean Air Act states:

Each revision to an implementation plan submitted by a State under this Act shall be adopted by such State after reasonable notice and public hearing. The Administrator shall not approve a revision of a plan if the revision w ould interfere with any applicable requirement concerning attainment and reasonable further progress (as defined in section 171), or any other applicable requirement of this Act.

Thus, under section 110(l), this SIP revision must not interfere wi th attai nment or reasonable further progress or any other applicable requirement of the Act.

Because this analysis only focuses on the revisions to sections 101.372, 101.373, 101.375, 101.376, and 101.378 of the DERC program, the 110(l) analysis will al so onl y fo cus on th ese pieces of the October 24, 2006, SIP revision. The revisions to section 101.372 will not i nt erfere with attainment, reasonable further progress or any other applicable requirement of the Act because the revisions removed optional provisions for international reducti ons and clarified the already SIP-approved procedure to use an emission quantification protocol. The revisions to section 101.373 will not interfere with attai nment , reasonable further progress or any other applicable r equirement of the Act because this section has been revised to prohibit the generation of DERCs from permanent shutdowns, consistent with EPA ’ s EIP Gui dance. The revisions to section 101.376 will also not interfere with attainment, reasonable further prog ress or any other applicablerequirement of the Act because this section has been revised to update the crossreferences in the list of prohibited DERC uses. The revisions to section 101.378 will also not i nt erfere with attainment, reasonable further prog ress or any other applicable requirement of the Act because this section has been revised to limit the lifetime of DERCs generated from shutdowns, consistent with the terms of EPA ’ s Septem ber 6, 2006, conditional approval. The revisions to section 101.375 could possibly interfere with attai nment , reasonable further progress or any other applicable requirement of the Act because these revisions expand the use of international reductions to any location within 100-km of the Texas-Mexico border, rather than c onsolidating the use of international reducti ons to nonattai

nment areas within 100-km of the Texas-Mexico border. However, any use of international reductions in lieu of DERCs as specified in section 101.375 is subject to EPA approval. Our approval will be through a case-specific SIP revision and based on a thorough section 110(l) demonstration from the TCEQ or the source that demonstrates the use of international reductions does not interfere with attainment, reasonable further progress, or any other app licable requirement of the Act. 58

### IV.A. Evaluation of the October 24, 2006 SIP Submittal

5. Evaluation of the Terms of the DERC Conditional Approval

What is a conditional approval?

Under section 110(k)(4) of the Clean Air Act, EPA may conditionally appr ove a plan based on a commitment from the State to adopt specific enforceable measures within one year from the date of approval. The conditional approval remains in effect until EPA takes i ts f inal action

–

ei th er a final approval or disapproval.

If EPA determ ines that the revised rule is approvable, EPA will propose approval of the rul e through a noti ce and comment rulemaking

. After responding to comments received, EPA will publish a final approval of the rule and the conditional approval is no longer in effect. However, if the State f ails to meet its commitment within the one year period , then EPA must proceed with a disapproval action. EPA will propose disapproval of the rule th rough noti ce and comment rulemaking, and will finalize the disapproval a ft er responding to all com ment s received. Note that EPA will conditionally approve a certain rule only once. Subsequent submittals of the same rule that attempt to correct the same specifically identified problems will not be eligible for conditional appr oval.

What are the terms of the DERC program conditional approval?

EPA conditionally approved the DERC program on September 6, 2006. Our conditional approval was based on a commitment letter submitted by the TCEQ on September 8, 2005. The September 8, 2005, com mit ment l etter i

ncluded the following provisions that th e TCEQ agreed to address by December 1, 2006 :
Revise Title 30 Texas Administrative Code (30 TAC) § 101.373 to prohibit the 1. future generation of DERCs from permanent shutdowns and to allow DERCs generated and banked from permanent shutdowns prior to September 30, 2002, to remain available for use for no more than five years from the date of this letter. The TCEQ will perform a credit audit to remove from the emissions bank all 2. DERCs generated from permanent shutdowns after September 30, 2002. Even if th e shutdown itself occurred before September 30, 2002, no DERCs can be generated from that event after September 30, 2002. Revise 30 TAC §§ 101.302(f), 101.372(f)(7) and 101.372(f)(8) to clarify thatEPA 3. approval is required for individual transactions involving emission reductions generated in another state or nation, as well as those transactions from one nonattai nment area to another, or from attai nment counti es into nonattainment areas. The TCEQ further understands that the EPA would require a state 59

### implement ati on pl an revision prior to approving an transaction between another state or nati on, as well as, those transactions between counties not located within th e same nonattainment area. The TCEQ will revise Form DEC-1, Notice of Generation and Generator 4. Certi ficat io n of Discrete Emission Credits; Form MDEC-1, Notice of Generationand Generator Certification of Mobile Discrete Emission Credits; and Form DEC2, Noti ce of Intent to Use Di screte Em iss io n Credits, to i

nclude a waiver to the federal statute of limitations defense for generators, and users of DERCs and

mo bile discrete emission reduction credits (MDERCs). Please be reminded that th ere i s currently no applicable state statute of limitation s in the State of Texas. In addition, the TCEQ will maintain its current policy of preserving all records relating to DERC and MDERC generation and use for a minimum of five years aft er the use strategy

has ended. Revise 30 TAC §§ 101.302 and 101.372 to c larify t hat a proposed quanti ficat io n 5. protocol

may not be used if the TCEQ Executive Director receives a letter from th e EPA objecting to the use of the protocol during the 45-day adequacy review period or i f th e EPA proposes di sapproval of the protocol in the Federal Register. Revise 30 TAC § 101.306 to specify that Emission Reduction Credits may be used 6. wit hin the highly reactive volatile organic compounds Emissions Cap and Trade
program as an annual allocation of allowances as provided under 30 TAC § 101 .399.

Additionally, TCEQ agreed to comply with these commitments during the conditional approval period. Specifically, TCEQ agreed to not approve any trades involving the types of reducti ons described in item (3) above, not approve any use of discrete sh utdown credits that were generated after September 30, 2002, and to require the waiver described in it em (4) above for generators and users of discrete emission credits.

Were the terms of the DERC conditional approval met?

The September 8, 2005, commitment letter included several provisions specific to the ERC Program

(see com mit ment s 3, 5, and 6) but EPA i s not i ncluding these provisions in our analysis of the DERC conditional approval. The ERC and DERC programs operate independently of each other and have been approved as separate, stand alone programs by EPA. Even though the commitment letter included commitments to modify the ERC
program , the submission of these ERC provisions will not impact the functionality of the DERC program

nor were these revi sio ns to the ERC program necessary for the DERC
program to be consi dered consistent with EPA regulations, policy and guidance. EPA has evaluated the October 24, 2006, ERC program revisions in a separate rulemaking (see EPA-R06-OAR-2010-0147). The followi ng analysis of the September 8, 2005,

com mit ment s focuses solely on the DERC program-specific provisions.

Revise Title 30 Texas Administrative Code (30 TAC) § 101.373 to prohibit the 1. future generation of DERCs from permanent shutdowns and to allow DERCs 60

### generated and banked from permanent shutdowns prior to September 30, 2002, to remain available for use for no more than five years from the date of this letter.

TCEQ adopted revi sio ns to § 101.373 that removed shutdowns as a method of generation and added the following language under the list of prohibited generation activities at § 101.373(a)(2) : “permanent o r tem porary shutdowns or permanent curtailment of an activity at a facility ”. TCEQ adopted revi sio ns to § 101.378 (b)(1) th at revise the lifetime of a DEC . Secti on 101.378(b)(1) states that

“ Discrete emission credits generated from shutdown strategies prior to Septem ber 30, 2002, wi ll be available for use until September 8, 2010. ”

Note that the DERC cal culation procedures at sections 101.373(c)(1), (3), and (4) discuss how DERCs are calculated from shutdowns. Additionally, section 101.373(d)(3)(c) di s cusses how to certi fy th e generation of DERCs from shutdown activities. EPA believes that the inclusion of this language was an oversight on TCEQ ’ s part when responding to our conditional approval

com mit ment s. The DERC program at section 101.373(a)(2)(A) cl early prohibits th e generation of DERCs from shutdowns. Therefore, EPA feels that TCEQ should remove this language at their earliest convenience, but that the prohibition on generation of shutdown DERCs is not impacted by this erroneous calculation.

TC EQ met thi s com

mit ment of

the conditional approval. TCEQ adopted the appropri ate provi sio ns and submitted the revised rules as a SIP revision within the ti me frame.

The TCEQ will perform a credit audit to remove from the emissions bank all 2. DERCs generate d from permanent shutdowns after September 30, 2002. Even if th e shutdown itself occurred before September 30, 2002, no DERCs can be generated from that event after September 30, 2002.

TCEQ confirmed in a letter dated February 5, 2010, that the credit au dit was performed in January 2006. Additionally, TCEQ adopted two revi sio ns to the SIP th at will ensure that shutdowns after September 30, 2002, do not generate DERCs. First, the revision to § 101.373(a)(2) prohibits the future generation of DERCs from s hutdowns (as discussed in item 1 above). Second, the TCEQ revised § 101.378(b)(2) so that “ Discrete emission credits certified from facility shutdowns after September 30, 2002, may not be used. ”

TCEQ met thi s com

mit ment of

the conditional approval. TCEQ adopted the appropri ate provi sio ns and submitted the revised rules as a SIP revision within the ti me frame.

Revise 30 TAC §§ 101.372(f)(7) and 101.372(f)(8) to clarify that EPA approval is 3. required for individual transactions involving emission reduction s generated in 61

### another state or nati on, as well as those transactions from one nonattainment area to another, or f

rom attai nment counti es into nonattainment areas. The TCEQ further understands that the EPA would require a state implementation plan revisio n prior to approvi

ng a transaction between another state or nation, as well as, those transactions between counties not located within the same nonattainment

area.

Secti on 101.372(f) outlines the geographic scope of the DERC rule and generally provides th at, wi

th the exception of international reductions pursuant to section 101.375, onl

y reducti ons generated in the State of Texas can be certified as DERCs. Secti on 101.372(f)(7) was unchanged by TCEQ and continues to provide th at reducti ons from oth er coun ti es, states, or nations can be used in any attai nment or nonattai

nment county

provi ded a demonstration showing improvement in air quality has been approved by the TCEQ ED and EPA. The use of i nt ernational reductions under 101.372(f)(7) is further modifie d by the restri cti ons at secti on 101.375.

Secti on 101.372(f)(8) was moved to new section 101.375. Section 101.375 establishes two ways that a facility could use an international reduction. First, a facilit y could use reducti ons of a criteria pollutant or precursor of cri teri a pollut ant to meet requi

rements of the same criteria pollutant. This option would be used if a facilit y had a NO X



### requi rement in Texas and could find NO X 

### reducti ons in Mexico or an ozone requi

rement in Texas and could find VOC redu cti ons in Mexico. Alt ernately, a facility could use reductions of a criteria pollutant or its precursors to substi tute f or reducti ons in other criteria pollutants. For example, t his situation would be one in which a source could be subject to a PM2.5 req uirement and wants to use CO reducti ons to sati sfy t he requirement. Generally, both of these uses (the same criteria pollutant or the substitution) requires approval by EPA and th e TCEQ ED; the source must demonstrate that the reduction is real, permanent
, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or lo cal law; that the use of the reduction does not cause localized health impacts; submit all supporti

ng information for calculations and modeling; and be located wit hin 100km of the Texas-Mexico border.

There are additional requirements for the case where a facility wants to substitute th e i nt ernational reduction of a criteria pollutant or its precursor for the obligations of a di fferent criteria pollutant (the example above in which the facility used CO reducti ons for a PM2.5 requirement). The facility must either show that the reducti on i s substituted for the reduction requirement of another criteria pollutant and the substitution results in a greater health benefit and is of equal or greater benefit t o the overall air quality of the area; or, the source must show that the reducti on of

a cri teri a pollut ant (or precursor) for whi ch the area is nonattainment is substituted for another criteria pollutant (or precursor) requirement for which an area is nonattai

nment

. 62

### Even though section 101.372(f)(7) was not revised, EPA approval is clearly required for uses of reductions from other counties, states, or other nations . Uses of i nt ernational reductions under section 101.372(f)(7) are further modified by th e restri cti ons at section 101.375, which also clearly require EPA approval. TCEQ
met the DERC

- specific portion of this commitment.

The TCEQ will revise Form DEC-1, Notice of Generation and Generator 4. Certi ficat io n of Discrete Emission Credits; Form MDEC-1 , Noti ce of Generationand Generator Certification of Mobile Discrete Emission Credits; and Form DEC2, Noti ce of Intent to Use Di screte Em issio n Credits, to i

nclude a waiver to the federal statute of limitations defense for generators, and users of DERCs and

mo bile discrete emission reduction credits (MDERCs). Please be reminded that th ere i s currently no applicable state statute of limitations in the State of Texas. In addition, the TCEQ will maintain its current policy of preserving all records relating to DERC and MDERC generation and use for a minimum of five years aft er the use strategy

has ended.

In a letter dated February 5, 2010, the TCEQ stated that even though the

com mit ment i ncluded modifying Form MDEC-1, such form has never been created. How ever, Form MDEC-1 will include a waiver of the federal statute of limit ati ons defense if at any time in the future the TCEQ creates said form.

Also i n the February 5, 2010, letter, the TCEQ stated that the Forms DEC-1 and DEC-2 were modified in or before February 2007, but that the exact modification date could not be determ

ined since the TCEQ does not keep copies of old versions of the form. Additionally, the TCEQ modified Form DEC-3, Notice of Use of Discrete Emission Credits, to include the same waiver of the federal statute of limit ati ons defense even though modification of Form DEC-3 was not part of the

com mit ment . Copi es of the modified DEC-1, DEC-2, and DEC-3 forms were included with the letter. Note that the February 5, 2010, letter and attachmen ts are available in the FDMS docket for this action.

The TCEQ confirmed that during the time period between September 2006 and February 2007, there were no DERC generations submitted. So, even though Form DEC-1 was not revised until February 2007, there was not an instance where DERC generation did not have the appropriate waiver. However, between Septem ber 2006 and February 2007, there were 18 DEC-2 forms submitted to the TCEQ wi th out the wai

ver of federal statute of limit ati ons defense l anguage . But, under the DERC program, any notification of int ent to use DERCs submitted on a DEC-2 form, must be followed by a notification of use through the submission of a DEC-3 form. All 18 DEC-2 forms were followed by submissions of the DEC-3 fo rms with the approp ri ate wai ver language. 63

### Even though the DEC-1 and DEC-2 forms were not modified by the December 2006 deadline specified in the commitment letter, EPA finds that the intent of this

com mit ment has been satisfied. The intent of this commitment was to ensurethat all DERC generation and use activities were covered by a waiver of the federal statute of limit ati ons defense. Since no DERCs were generated during this time, th ere was no need for a DEC-1 form. The 18 DEC-2 forms provide notification th at a source i

nt ends to use DERCs, the verification that the use occurred is th rough the submission of a DEC-3 form. TCEQ verified that all 18 DEC-2 forms were followed by the submission of a modified DEC-3 form

– thereby covering all DERC usage activities with the w aiver of the federal statute of limitations defense.

Revise 30 TAC § 101.372 to cl arify that a proposed quantification protocol may 5. not be used if the TCEQ Executive Director receives a letter from the EPA objecting to the use of the protocol during the 45-day adequacy review period or if th e EPA proposes d isapproval of the protocol in the Federal Register.

TCEQ revised section

101.372(d)(vi) to state that “ quantification protocols shall not be accepted for use with this division if the executive director receives a letter objecting to the use of the protoc ol f rom the EPA during the 45-day adequacy review or the EPA proposes disapproval of the protocol in the Federal Register. ”

TCEQ met thi s com

mit ment of

the conditional approval. TCEQ ad opted the appropri ate provi sio n

and submitted the revised rule as a S IP revision within the ti me frame. 64

### IV. B. Evaluation of the August 16, 2007 SIP Submittal

1. Evaluation of the August 16, 2007 , SIP submittal with respect to the Part 51, Appendix V Completeness Checklist

Part 51, Appendix V Completeness Checklists

T he criteria fo r com

pleteness determ

inat io n is Appendix V to Part 51 - Criteria for determ ining the completeness of plan submissions and is outlined below:

1.0 Purpose: Thi s appendix V sets forth the minimum criteria for determining whether

a State imple ment ati on plan submit ted fo r consideration by EPA is an of ficial submissio n for purposes of review under § 51.103.

1.1 The EPA shall return to th e submit ti ng of ficial any plan or revision th ereof which fails to meet the cri

teri a set f orth i n this append ix V, and request correcti ve acti on, identifying th e com

ponent(s) absent or insufficient t o perform a review of t he submit ted pl an.

1.2 The EPA shall info rm t he submit ti

ng of ficial whether or not a plan submissio n meets th e requirements of t his appendix Vw it hin 60 days of E PA's receipt of

t he submit tal , but no l ater than 6 months after the date which the State was required to submit t he plan or revision. I f a com pleteness determ

inat io n is not made by 6

mo nt hs from receipt of

a s ubmit tal
, th e submit tal s h all be deemed com

plete by operati on of

l aw on th e date 6 mo nt hs from receipt. A d eterm inat io n of

com pleteness under this paragraph means th at th e submissio n is an of ficial submissio n for purposes of §51.103.

The attached checklist outlines th e basic cri teri a included under 2.1 and 2.2 of A ppendix V.

Secti on 2.3 of

A ppendix V describes th e "parallel process procedure" which EPA had previously adopted to expedite th e review of p lans. T his feature, however, is being deleted from th e next revised CFR on com pleteness. T herefore, it i s not included in th e checklist. 65

### SIP Completeness Checklist for the August 16, 2007 SIP Submittal

Rule Log No: 200 6 -0 5 3-1 01

- PR

When preparing a SIP revision request, the SIP reviewer should go through this list to help ide nt ify th at the package submitted to EPA is complete. States can use the check list to assure SIP subm

it tal s meet Appendix V criteria.

Administ rati

ve Materials (2.1)

1. The package is sent with a formal submittal letter from the Governor or his or her de signee requesting EPA's approval of the revision.

The SIP revision w

as submitted by a letter from Kathleen Hartnett White, Chairman of the Texas Commission on Environmental Quality, dated August 16, 2007. Governor Rick Perry designated that the Chairman of the Texas Commission on Environmental Quality w ould be his designee for SIP submittals in a letter dated May 21, 2002.

2. Evidence is included that the State has adopted the revision in the State code or body of regulations, or that the State has issue d the perm it , order, consent agreement (hereafter document) in final form. This evidence would include the date of adopti on or f

inal issuance and the effective date of revision, if different from adoption/issuance date.

The revisions w

ere adopted by the Texas Commission on Environmental Quality

on July 25, 2007

, and became effective August 10, 2007

.

3. Evidence is included that the State has necessary legal authority under State law to adopt and i

mplement the revision, e.g., a citation of the appropriate State authori ty

. The authority for promulgating changes to the Texas State Implementation Plan, Chapter 101, Subchapter A

– General Rules; Subchapter H

– Emissions Banking and Trading is found in Chapter 382 of the Texas Health and Safety Code.

4. A copy

i s included of

the actual

regul ati on or document submitted for approval and incorporation by reference into the SIP including an indication of the changes made to the existing approved plan where applicable. The submittal shall be a
copy of the official State regulatio n document signed, stamped, and dated by the appropri ate State of

ficial indicat ing that it is fully enforceable by the State. The effective date of the regulation document shall, whenever possible, be indicated in th e document itself. 66

### The August 16, 20 07, submittal included a copy of the official State regulation document, signed, stamped, and dated by Kathleen Hartnett White, Chairman of the Texas Natural Resource Conservation Commission.

5. Evidence is included that the State followed all the procedural requirements of its laws and/or its constitution in the conducting and completing the adopti on/issuance of the plan.

The authority for promulgating changes to the Texas State Implementation Plan is found in the Texas Clean Air Act, Chapter 382 of th e Texas Health and Safety Code.

6. Evidence is included that public notice was given of the proposed changes consistent with the procedures approved by EPA, including the date of publication of such notice, (e.g., notarized or certified copies of any public notices published in newspapers). (The notice should be at least 30 days prior to the public hearing(s).

Notices of public hearing w ere published on February 12, 2007, in the Austin American Statesman, the Fort Worth Star-Telegram, and the Houston Chronicle.

7. A certification is included indicating that public hearing(s) was/were held in accordance with the information provided in the public notice(s) and the State's laws and constitution, if applicable.

The order adopting the new , amended, and repe aled sections to 30 TAC Chapter 101 provided evidence that the public hearing w as conducted pursuant to Texas Health and Safety Code § 382.017 and 40 CFR § 51.102.

8. A compilation of public comments and the State's response is included.

The SIP submitta l package did include a compilation of public comments and the State ’ s responses. The TCEQ received w ritten comments from EPA Region 6 and Michelle Bonilla, a public citizen w ith Eternal Springs Wellness.

Technical Support (2.2)

The State should i

nclude the following technical information in its SIP revision request package.

1. Identification of all regulated pollutants affected by the revision is included.

This SIP revision repeals an effective date established in Chapter 101, Subchapter A. This sect ion has no applicable regulated pollutants. 67

### Chapter 101, Subchapter H, Division 1 (ERC Program) applies to criteria pollutants, and precursors, for w hich an area is designated nonattianment with the exception of lead. Chapter 101, Subchapter H, Division 3 (MECT Program) applies to NO

X 

### emissions. Chapter 101, Subchapter H, Division 4 (DERC Program) applies to criteria pollutants, and precursors, w ith the exception of lead. Chapter 101, Subchapter H, Division 5 (SCT Program) applies to NO X 

### emissions. How

ever, the SIP revision under review does not change the applicability of these programs and therefore does not need to restate the list of regulated pollutants that were submitted as part of the original SIP submittals establishing each program.

2. Identi ficat io n of the locations of affected sources including the EPA attai nment /nonattai

nment designation of the locations and the status of the attai nment pl an for the affected area(s) is included.

The revisions to Chapter 101, Subchapter A apply statewide. The revisions to the ERC program at Chapter 101, Subchapter H, Division 1 apply to all nonattainment areas statewide. The revisions to the MECT program at Chapter 101, Subchapter H, Division 3 apply only to facilities in the Houston/Galveston/Brazoria ozo ne nonattainment

area. The revisions to the DERC program at Chapter 101, Subchapter H, Division 4 apply statewide. The revisions to the SCT program at Chapter 101, Subchapter H, Division 5 apply to nonattainment areas statewide and areas with unique emission limits established i n Chapter 117.

3. Quantification of the changes in SIP allowable emissions from the affected sources is included. (Examples include estimates of changes in current actual emissions from affected sources and/or, where appropriate, quantification of change s in actual emissions from affected sources through calculations of the differences between certain baseline levels and allowable emissions anticipated if the revisions were approved.)

Quantification of the changes in SIP allow able emissions from the aff ected sources is not applicable to this SIP revision.

4. Demonstration is included that the NAAQS/PSD increments/RFP demonstration and visibilit y as applicable would be protected if the revision were approved and implement ed.

The SIP submittal does not include revisions to the PSD and NSR permitting
programs. 68

### 5. FOR REDESIGNATIONS:

a. Is there a fully approved maintenance plan for the primary ambient air quality standards for at least 10 years as required by §175A of the Clean Air Act?

Not appli cable.

b. Are contingency measures included?

Not applicable.

Modeling information, if applicable, is required to support the propose revision. 7.

Modeling information is not necessary to support the SIP revision.

7. Evidence is included where neces sary, that emission limitations are based on conti nuous emission reduction technology (e.g., add-on controls, industrial/process equipment designs, reformulated materials, etc.).

Evidence of emission limitations based on CEM technology is not applicable.

8. Evidence is included indicating that a SIP revision contains emission limitations, work practi ce standards, and recordkeeping/reporting requirements to ensure stated em issio n levels.

Not applicable. Enforceability is determined on case-by-case basisin each individual permit.

9. Com

pliance/enforcement strategies including how compliance will be determined in practice (including at what frequency).

Not applicable. Determination of compliance is specified on case-by-case basis in each individual p ermit.

10. As appropriate, special economic and technological justifications are included per applicable EPA policies or an explanation why such justifications are not necessary should be included. For example, requests for alternative RACT may require such justification.

These justifications are not necessary for this SIP revision. 69

### The SIP submittal of Rule Log No.: 2006-053-101-AI meets the completeness

criteria. 70

### IV. B. Evaluation of the August 16, 2007 , SIP Submittal

2. Evaluation of the August 16, 2007 , SIP submittal with respect to the requirements of 40 CFR Part 51

Requirements for the preparation, adoption, and submittal of implementation plans can be fo und in 40 CFR Part 51. The August 16, 2007
, proposed D ERC revisions were evaluated agai

nst the applicable requirements in Part 51. This analysis is included in Table IV- B2 below. The revisions to the ERC and SCT program also submitted on August 16, 2007, as revisions to the SIP are not included in the analysis below. EPA is proposing
appr oval of the 2007 ERC revisions in a separate rulemaking (see EPA-R06-OAR-2010- 0147). The revisions to the SCT program will be addressed by EPA at a later date and in a separate rulemaking. The revisions to the General Air Quality Rules and the MECT
progr am were evaluated in EPA ’ s July 16, 2009 direct final approval (see 74 FR 34503).

Table I V-B2 : Analysis of Part 51 Requirements

Part 51

– Requirements for Preparation, Adoption, and Submittal of Implementation

Plans D ERC Program Revisions 30 TAC §§ 101.3 7 2 and 101.3 76

Subpart A

–

Emission Inventory

Reporting Requirements The revisions to sections 101.3 7 2 and 101.3 76 update cross-references in the D ERC program and are not concerned with emissions inventory reporting, nor do they

modify current emissions inventory reporting requirements for TCEQ. Subparts B

–

E [Reserved] Not applicable. Subpart F

–

Procedural Requirements Subpart F

– Procedural Requirements § 51.100 Definitions § 51.100 is not applicable to the Chapter 101 sections under review in th is TSD. 51.100 establishes definitions used elsewhere in 40 CFR Part 51. § 51.101 Stipulations § 51.101 is not applicable to the Chapter 101 sections under review in this TSD. 51.101 establishes the stipulations that govern the use/intent of 40 CFR Part 51. 

### 71§ 51.102 Public Hearings States must conduct one or more public  hearings Public hearings will only be held after  reasonable notice, given at least 30 days prior to the date of the hearing The state must submit with the revision a  certification tha t the hearing was held in accordance with this section. Rule Log Number 2006-053-101-PR TCEQ held a public hearing on this rule  package in Austin, Texas on March 20, 2007. The public hearing was held after reasonable  notice was given. TCEQ published notic e of the public hearing in the following newspapers on the dates listed below for this rule package: Austin American Statesman

– February 12,  2007; Fort Worth Star Telegram

– February 12,  2007; Houston Chronicle

–

February 12, 2007.  The SIP submittal inclu ded certification that  the public hearing was held in accordance with Texas Health and Safety Code § 382.017 and 40 CFR 51.102. § 51.103 Submission of plans, preliminary review of plans The state makes an official plan  submission to EPA only when the sub mission conforms to the requirements of Part 51, Appendix V. The state delivers 5 copies of the plan with  a letter giving notice of the action to the EPA regional office. Please see Section IV.B.1. of this document for the completed Appendix V checklists f or the rule package.

The rule package meets the requirements for completeness.

§ 51.104 Revisions States may

revise the plan from time to  time EPA will approve revisions only after  appropriate public hearing requirements have been met Revisions must b e submitted in accordance  with 51.103 Kathleen Hartnett White submitted the Chapter 101 revisions as SIP revisions on August 16, 2007.

Subpart G

–

Control Strategy Subpart G

– Control Strategy § 51.110 Attainment and Maintenance of National Standards Re quirements found in § 51.110 are not applicable to the SIP submittal under review in this document.

The revisions to sections 101.3 7 2 and 101.3 76 update the D ERC program to appropriatelycrossreference the recodification of the Chapter 117 requirements and do not change the functionality of the D ERC program.

The D ERC program is a discretionary EIP that provides for the voluntary generation and use of discrete emission reduction credits. The D ERC program is not an integral control strategy in any of th e Texas Attainment Demonstrations. However, EPA expects the TCEQ to account for the generation and use of D ECs in all attainment demonstrations. 

### 72§ 51.111 Description of Control Measures Requirements found in § 51.110 are not applicable to the SIP submittal under review in this document. The D ERC program does not establish control strategies for Texas, rather the program provides for the voluntary

generation and use of D ECs. § 51.112 Demonstration of Adequacy Requirements found in § 51.112 are not appl icable to the SIP submittal under review in this document. Since the D ERC program is not an integral piece of an attainment strategy, it is not necessary that the D ERC program demonstrate adequacy for maintaining a national standard. § 51.113 Reserved N ot applicable. § 51.114 Emissions Data and Projections Requirements found in § 51.114 are not applicable to the SIP submittal under review in this document. As the D ERC program is not part of an attainment demonstration, the D ERC program SIP revision do es not need to provide a detailed emission inventory and summary

of projected emission levels after the implementation of control strategies. However, the D ERC program does require that generators and users submit applications to the TCEQ that estimate and

verify the emission reductions that are generated and/or used. § 51.115 Air Quality

Data and Projections Requirements found in § 51.115 are not applicable to the SIP submittal under review in this document. The D ERC program is not part of an attainment plan, therefore it is not necessary that the D ERC
programSIP submittal includes data on existing air quality or summarize expected air quality impacts from the implementation of control strategies. § 51.116 Data Availability

The State must make available to the public all data and calculations used in the preparation of each plan or plan revision.

Each plan must provide for public availability of emission data reported by source owners or operators. TheTCEQ provided the public the opportunity to part icipate in stakeholder meetings in the rulemaking development process, and the public received comment periods on the proposed plan.

The Texas Clean Air Act, Texas Health and Safety Code at Section 382.040 requires that all information submitted to the TC EQ for compliance purposes be made available to the public, unless a

wr itten request for nondisclosure is approved. § 51.117 Additional provisions for lead Lead r equirements found in § 51.117 are not applicable to the D ERC program. The D ERC program do es not apply

to lead emissions. § 51.118 Stack Height Provisions Requirements found in § 51.118 are not applicable to the SIP submittal under review in this document. The D ERC program is a discretionary program for voluntary generation and use of D ECs and does not involve good engineering practices for stack heights. 

### 73§ 51.119 Intermittent Control Systems Requirements found in § 51.119 are not applicable to the SIP submittal under review in this document. The D ERC program is a discretionary program for voluntary generation and use of D ECs and does not require intermittent control systems. § 51.120 Requirements for State Implementation Plan Revisions relating to Motor Vehicles Requirements found in § 51.120 are not applicable to the SIP submittal under review in this document. The DERC program does provide for the generation and use of mobile discrete emission reductions, but that is not related to the part 51 requirements for SIP revisions relating to motor vehicles. § 51.121 Findings and requiremen ts for submission of State Implementation Plan Revisions relating to emissions of oxides of nitrogen Requirements found in § 51.121 are not applicable to the SIP submittal under review in this document. § 51.121 establishes the requirements for the NO X SI P Call; Texas was not subject to the NO XSIP Call. § 51.122 Emissions reporting requirements for SIP revisions relating to budgets for NO Xemissions. Requirements found in § 51.122 are not applicable to the SIP submittal under review in this document. § 51.122 establishes the emission reporting requirements for the NO XSIP Call; Texas was not subject to the NO XSIP Call. § 51.123 Findings and requirements for submission of State Implementation Plan Revisions relating to Emissions of Oxides of Nitrogen
p ursuant to the Clean Air Interstate Rule Requirements found in § 51.12 3 are not applicable to the SIP submittal under review in this document. § 51.12 3 establishes the requirements for the NO X Annual and Ozone season programs for the Clean Air InterstateRule (CAIR). § 51.124 Findings and requirements for submission of State Implementation Plan Revisions relating to Emissions of Sulfur Dioxide pursuant to the Clean Air Interstate Rule Requirements found in § 51.124 are not applicable to the SIP submitta l under review in this document. § 51.124 establishes the program requirements for the CAIR SO 2 Programs. § 51.125 Emissions reporting requirements for SIP revisions relating to budgets for SO 2 and NO X emissions. Requirements found in § 51.12 5 are not applicable to the SIP submittal under review in this document. § 51.12 5 establishes the emission reporting requirements for the CAIR NO Xand SO 2trading
programs. Subpart H

–

Prevention of Air Pollution Emergency Episodes Requirements found in 51, SubpartH are not applicable to the SIP submittal under review in this document. The D ERC program is a discretionary program for the generation and use of D ECs and is not part of the Texas air pollution emergency episode plan. 

### 74Subpart I

– Review of New Sources and Modifications § 101.3 76(b(2 ) provides that D ECs can be used as NSR permit offsets. § 101.3 76(c )( 2 ) prohibits the use of DECs for netting to avoid the applicability of federal and state NSR requirements

.

EPA reviewed the use of D ERCs and M D ERCs as NSR offsets as part of our approval of the program, and found these provisions of the D ERC program to meet the NSR offset requirements of section 173 of the CAA and 51.165. The revisions to the D ERC program submitted in this SIP submittal do not revise § 101. 376(b )( 2 ) or ( c )( 2 ). Subpart J

–

Ambient Air Quality

Surveillance Requirements found in 51, Subpart J are not

applicable to the SIP submittal under review in this document. Ambient air quality surveillance is not part of the D ERC program. Subpart K

–

S ource Surveillance Subpart K

– Source Surveillance § 51.210 Each plan must provide for monitoring the status of compliance with rules and regulations that set forth any

portion of the control strategy

. The Texas D ERC program was developed and submitted in accordance with the Texas Health and Safety Code. Texas enforcement provisions are not ty pically in the State ’ s individual rules but are separately codified. Texas Water Code Chapter 7 contains the State ’ s statutory provisions for enforcement of program s developed according to the Texas Health and Safety Code; i.e, the Texas ERC program . Section 382.111 of the Texas Health and Safety

Code provides the ability to enter and periodically

inspect stationary

sources. Section 382.021 establishes that the Tex as Commission on Environmental Quality

can determine the necessary sampling and detection methods used to demonstrate compliance with an emission limitation. § 5 1.211 The plan must provide for l egally enforceable procedures for r equiring stationary

sour ces to maintain records and report the following to the State: Information on the nature and amount of  emissions from the stationary source; and Other information as necessary for the State to  determine wh ether the sources are in compliance. § 51.212 Theplan must provide for periodic testing and inspection of stationary sources. Additionally
, the plan must establish a system for detecting violations and include enforceable test methods. § 51.213 The plan must contain procedures for obtaining and maint aining data on actual emissions reductions achieved as a result of implementing transportation control measures. § 51.213 is not applicable to the D ERC program. While the DERC program does provide for the generation and use of mobile discrete emission red uctions, these reductions must be surplus to transportation control measures in the SIP. § 51.214 The plan must contain legally enforceable procedures to require stationary sources subject to emission standards as part of the applicable plan to install, c alibrate, maintain, and operate continuous emission monitoring systems. The D ERC program does not establish emission standards under the Texas SIP that would mandate the installation or use of continuous emission monitoring s ystems. However, section 101.3 7 2(d)(2) provides the quantification procedures for D ECs, and continuous monitoring data is an acceptable data source for actual emissions data in the event that the SIP approved testing and monitoring methods in Chapter 115 and Chapter 117 are not availab le. Subpart L

–

Legal Authority Subpart L

– Legal Authority 

### 75§ 51.230 Each plan must show that the State has

the necessary

legal authority

to carry out the plan, including the authority

to adopt emission standards and limitations necessary for attainment of the NAAQS, enforce applicable laws and regulations and seek injunctive relief. The D ERC program was developed and submitted in accordance with the Texas Clean Air Act, Chapter 382 of the Texas Health and Safety Code. The Texas Health and Safety Code an d the enforcement provisions in the Texas Water Code provide TCEQ the necessary legal authority

to implement the SIP. A more detailed discussion immediately

follows this table.

§ 51.231 The provision of law or regulation which the State determines provi des the authorities required must be specifically identified and copies must be submitted with the plan. Texas identified in the submittal package that the SIP revision was developed in accordance with the Texas Health and Safety

Code. EPA Region 6 does not require the State to submit copies of laws and regulations that have been submitted for prior SIP submittals. § 51.232 A state government agency other than the State air pollution control agency may be assigned responsibility

for carry ing out a port ion of the plan. The Chapter 101 revisions identified the TCEQ as the agency

responsible for implementing the SIP.

Subpart M

–

Intergovernmental Consultation The Chapter 101 revisions identified the TCEQ as the agency

responsible for developing, implement ing, and enforcing the SIP. Subpart N

–

Compliance Schedule The D ERC program establishes an economic incentive program for the voluntary generation and use of D ECs. This program does not establish a compliance schedule for any NAAQS, and therefore do es n ot need to address the requirements of 40 CFR part 51, subpart N.

However, the D ERC program provides mechanisms by which users of D ECs must demonstrate they have enough credits to cover their useobligations, see section 101.376. Section 101.37 9 provid es for program audits and reporting through which the TCEQ will demonstrate to EPA and the public that the D ERC program is operating effectively. 

### 76Subpart O

– Miscellaneous Plan Content Requirements

Each plan must include a description of  resources avai lable to the State at the date of the submittal of the plan and during the next 5-
years. Copies of all rules and regulations that are  necessary to attain and maintain the NAAQS must be submitted. Each plan must provide for public notification  wh en a standard has been violated During the development of the Chapter 101  SIP revisions , the TCEQ determined that their fiscal and manpower resources are adequate and will not be adversely

affected through the implementation of therevisions to the General Air Quality Rules

. This analysis is documented in the preamble to the proposed and final rulemakings. The revisions to Chapter 101 do not establish  new emission limits or control strategies, therefore it is not necessary that a copy

of all rules and regulations related to attaining or maintaining the NAAQS be submitted. The Chapter 101 the revisions do not revise the  public notice aspects of the Texas permit programs. Therefore it is not necessary for this SIP submittal to establish procedures whereby the publi c will be notified of NAAQS violations. Subpart P

–

Protection of Visibility The Chapter 101 revisions are not submitted as part of Texas ’ s plan to protect visibility

. Subpart Q

–

Reports The Chapter 101 revisions do not revise the existing reporting requirements for the emission inventory in the Texas SIP. EPA approved the emission inventory

requirements at 30 TAC 101.10 on August 26, 1994 (59 FR 44036). Subpart R

–

Extensions Requirements found in 51, Subpart R are not applicable to the SIP submitt al under review in this document. The Chapter 101 revisions submittal is not a request for an 18-month extension. Subpart S

–

Inspection/Maintenance Program Requirements Requirements found in 51, Subpart S are not applicable to the SIP submittal under re view in this document

. The Chapter 101 revisions are not related to an inspection/maintenance program. Subpart T

–

Conformity

to State or Federal Implementation Plans of Transportation Plans, Programs, and Projects Developed, Funded, or Approved Under Tit le 23 U.S.C or the Federal

Transit Laws The Chapter 101 revisions do not interfere with or change the transportation conformity budgets developed for each nonattainment and maintenance area pursuant to subpart T.

Subpart U

–

Economic Incentive Programs 4 0 CFR part 51, s ubpart U establishes requirements for statutorily

mandated economic incentive programs under sections 182(g)(3), 182(g)(5), 187(d)(3), or 187(g) of the CAA

. The D ERC program is a discretionary economic incentive program, and therefore not subject to the requirements of subpart U. Subpart W

–

Determining Conformity of General Federal Actions to State or Federal Implementation

Plans The Chapter 101 revisions do not change or modify the Texas procedures used to determine conformity of federa l actions, consistent with subpart W. 

### 77Subpart X

– Provisions for Implementation of 8-hr Ozone NAAQS Requirements found in 51, Subpart X are for the implementation of the 8-hour ozone NAAQS. The Chapter 101 revisions, while updating air quality rules for use in ozone nonattainment areas, do not establish the measures by which an area will achieve attainment of the 8-hr ozone NAAQS. Subpart Y

–

Mitigation Requirements The Chapter 101 revisions do not create procedures by which Texas could exclude air qua lity data due to exceptional events. Subpart Z

–

Provisions for Implementation of PM2.5 National Ambient Air Quality Standards Requirements found in 51, Subpart X are for the

implementation of the PM2.5 NAAQS. The Chapter 101 revisions do not establish p ro cedures for implementing the PM2.5 NAAQS.



### Does TCEQ have the necessary legal authority to implement the revisions to 30 TAC Sections 101.372, 101.373, 101.375, 101.376, and 101.378 as part of the SIP?

Texas enforcement provisions are not typically in the State ’ s individual rules but are separat ely codified. Texas Water Code Chapter 7 contains the State ’ s statutory provi sio ns fo r enforcement of the Texas DERC Program . In parti cular, TWC § 7.051 provides for th e assessment of administrative penalties by the TCEQ, and § 7.032 provides for injunct ive relief by the TCEQ. The TCEQ enf orcement rul e at 30 TAC § 70.5 inco rporates remedies found in the state statutes (Texas Water Code and the Texas Health and Safety Code), and permits referrals to EPA for civil, judicial or administrative action. It i s our concl

usion that TCEQ has adequate legal authority to enforce th e DERC program revisions as part of the SIP . Once we approve the revisions to the DERC program i nt o th e SIP, EPA wi ll be able to enforce it under section 113 of the Clean Air Act.

The 40 CFR part 70, / CAA Title V operating permits program and the 40 CFR part 63, Nati onal Emission Standards for Hazardous Air Pollutants (NESHAPs) have been reviewed and found to have sufficient enforcement provisions. These same enforcement provisions will

apply to the DERC Program. The Office of the Attorney General of the State of Texas has provided written opinions for these programs. The opinions state that TCEQ has the necessary legal authority to implement and enforce the programs. TCEQ has the author it y to have reasonable requirements for measuring and monitoring air emissio ns and to require owners and operators of sources to make and maintain records of th e emissions.

The Office of the Attorney General of the State of Texas cited State laws and re gulations th at regul ate, at a m

inimum, t he same sources as the Clean Air Act and do so with standards that are no less stringent than those specified by the CAA. The cited laws and regulations are: Texas Health and Safety Code Ann. sections 382.016 (Monito ri ng Requirements, Examination of Records), 382.021 (Sampling Methods and Procedures), 382.0514 (Sampling, Monitoring and Certification); 30 TAC sections 122.132 (Application and Required Information for Initial Permit Issuance, Reopening, Renewal, 78

### or Gene ral Operating Permits), 122.134 (Complete Application), 122.136 (Application

Deficiencies), 122.142 (Permit Content Requirements), 122.143 (General Terms and Conditions), 122.144 (Recordkeeping Terms and Conditions), 122.145 (Reporting Terms and Condition s), 122.146 (Com pliance Certification Terms and Conditions), 122.165 (Certi ficat io n by Responsible Official; 30 TAC sections 101.8 (Sampling), 101.9 (Sam pling Ports).

Recordkeeping requirements specific to the DERC rule are set forth at § 101.372(h). Th e At torney General has determined that TCEQ is allowed to prescribe sampling methods and procedures to be used to determ ine violations of and compliance with the TCEQ rules and orders. The DERC rule provides that any use of monitoring protocols other than th ose specified in Chapter 115 and Chapter 117 will be approved by EPA (§ 101.372(d)(1)). The rul es also specify procedures in the event that monitoring and testi ng data are unavailable at § 101.372(d)(2). The opi nio ns of the Texas Attorney General indi cate that TCEQ has the necessary l egal authority to implement and enforce the DERC program

i n accordance with the requirements of the Clean Air Act.

EPA ’ s guidance on practicable enforceability (provided in the FDMS docket for this acti on) i s a series o f agency memos on limiting potential to emit. While this guidance is not di rectl y applicable to an emissions trading program, the requirements for sufficient

mo nit ori ng do apply to the DERC program . The sources generating and certifying emissio n reductio ns as DECs m ust be able to quantify the emission reduction over time. The DERC EIP meet s EPA ’ s expectations on practicable enforceability by requiring sites to calculate emission reductions using an EPA approved protocol. Facilities subject to the
contro l specifications in Chapters 115 and 117 must use the testing and monitoring
met hodologi es identified to show compliance with the emission standards. If this

mo nit ori ng or testi

ng data is unavailable or does not exist, the facility may report actual emiss io ns for that period of time using the methods listed below in the following order of preference: C onti nuous monitoring data; 1. Peri odi c monitoring data; 2. Testi

ng data; 3. Manufacturer ’ s data; 4. Materi al balance. 5. A facilit y must submit justification to the TCEQ when not using the monitoring and testing protocol s in Chapters 115 and 117.

For the above reasons EPA has concluded that the DERC program revisions meet the Clean Air Act requirements and EPA EIP Guidance expectations for penalties, corrective acti on, and practicable enforceability in the integrity element of enforceable. 79

### IV. B. Evaluation of the Aug ust 16, 2007 , SIP Submittal

3. Evaluation of the August 16, 2007 Revisions to the Texas D ERC Program with respect to the existing SIP-approved language and the EIP Guidance

The evaluation of the D ERC program wi th respect to the EIP Gui dance was conducted wit h our proposed conditional approval on October 5, 2005 (70 FR 581 54 ) and final approval on September 6, 2006 (71 FR 52 703 ). The August 16, 2007, rul e package currently under review in this TSD does not change the type of program or functionality of th e D ERC tradi

ng program with respect to the EIP Guidance. Therefore, t he evaluation

of th e revisions to the D ERC and program at secti ons 101.3 72 and 101.3 76 will include a line it em comparison of the federally approved D ERC program and the S tate ’ s adopted revisions to determ ine approvability. Approvability of each revision will be based on the EIP Guidance and whether the measure strengthens the SIP. Note that this analysis will not reevaluate the portions of the D ERC program that have not been revised si nce our final actions on September 6, 2006.

Table IV-B3.1: Revisions to § 101.3 72 – General Provisions

Federally Approved Version September 6, 2006 71 FR 52703 Adopted State Language October 4, 2006 Rule Project Number 2005-054- 101-PR Adopted State Langu age July 25, 2007 Rule Project Number 2006-053- 101-PR 

### 80Applicable pollutants.

(a) Reductions of volatile

or ganic compounds (VOC), nitrogen oxides (NO X ), carbon monoxide (CO), sulfur dioxide (SO 2 ), and particulate matter with an aerodynamic diameter of less th an or equal to a nominal ten microns (PM10) may

qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may

not be used to meet the reduction requirements for another
po llutant, unless: Applicable pollutants. (a) Reductions of volatile

or ganic compounds (VOC), nitrogen oxides (NO X ), carbon monoxide (CO), sulfur dioxide (SO 2 ), and particulate matter with an aerodynamic diameter of less than or equal to a nominal ten microns ( PM10) may

qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may

not be used to meet the reduction requirements for another pollutant, unless urban airshed modeling demonstrates that one may be substituted for another subject to approval by the executive director and the Un ited States Environmental Protection Agency (EPA). No Change

urban airshed (1) modeling demonstrates that one
may be substituted for another subject to approval by the executive director and the EPA; or Moved to 101.372(a) No Change

the facility

generating (2) the emission reductions is located outside the United States and: International trading provisions have been moved to 101.375, see discussion below

. No Change

the (A) substitution: International trading provisions

have been moved to 101.375, see discussion below

. No Change

results in a greater (i) health benefit and is of equal or greater benefit to the overall air quality

of the area, as determined by

the executive director; International trading provisions

have been moved to 101.375, see discussion below

. No Change 

### 81is from the (ii) reduction of a criteria pollutant for wh ich the area has been designated as nonattainment or wh ich leads to the for mation of a

cr iteria pollutant for wh ich an area has been designated as nonattainment; and International trading provisions

have been moved to 101.375, see discussion below

. No Change

is for any criteria (iii) pollutant for which the area has been designated as nonattainmentor leads to the for mation of a criteria pollutant for wh ich the area has been designated as nonattainment; and International trading provisions

have been moved to 101.375, see discussion below

. No Change

the user: (B) International trading provisions have be en moved to 101.375, see discussion below

. No Change

demonstrates that (i) the use of the reduction does not cause localized health impacts, as determined by

the executive director; International trading provisions

have been moved to 101.375, see discussion b elow

. No Change

submits all (ii) supporting information for calculations and modeling, and any additional information requested by the executive director; and International trading provisions

have been moved to 101.375, see discussion below

. No Change

is loca ted within (iii) 100 kilometers of the Texas - Mexico bor der. International trading provisions

have been moved to 101.375, see discussion below

. No Change

Eligible generator (b) categories. Eligible categories include the following: No change No Change 

### 82facilities (including (1) area sources); No change No Change

mobile sources; or (2) No change No Change
any facility, including (3)
area sources, or mobile source associated with actions by federal agencies under §101.30 of this title (relating to Conformity of General Federa l Actions to State Implementation Plans). No change No Change

Discrete emission credit (c) requirements. No change No Change

To be creditable as a (1) discrete emission reduction credit (DERC), an emission reduction must meet the following: No change No Change

the reduction (A) be real, quantifiable, and surplus at the time the discrete emission credit is generated; No change No Change

the reduction (B) must have occurred after the most recent y ear of emissions inventory used in the state implementation plan (SIP) for all applicable pollutants; and No change No Change

the facility

's (C) annual emissions prior to the reduction strategy must have been reported or represented in the emissions inventory used for the SIP. No change No Change 

### 83To be creditable as a (2) mobile discre te emission reduction credit (MDERC), an emission reduction must meet the following: No change No Change

the reduction (A) must be real, quantifiable, and surplus at the time it is created; No change No Change

the reduction (B) must have occurred after the most recent y ear of emissions inventory used in the SIP for all applicable pollutants; No change No Change

the mobile (C)

source ’ s emissions must have been represented in the emissions inventory used for the SIP; and No change No Change

the mobile (D) sources must ha ve been included in the attainment demonstration baseline emissions inventory

. If a mobile reduction implemented is not in the baseline for emissions, this reduction does not constitute a discrete emission reduction. No change No Change 

### 84Emission reductions (3) from a facility

or mobile 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. No change No Change

Protocol. (d) No change N o Change All generators or (1) users of discrete emission credits must use a protocol which has been submitted by the executive director to the EPA for approval, if existing for the applicable facility or mobile source, to measure and calculate baseline emiss ions. If the generator or user wishes to deviate from a protocol submitted by the executive director, EPA approval is required before the protocol can be used. Protocols shall be used as follows. No change No Change 

### 85Facilities (A) subject to the emission
sp ecifications under §§117.106, 117.206, or 117.475 of this title (relating to Emission Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in NO X using the testing and monitoring methodologies identified to s how compliance with the emission specification. No change Facilities subject to (A) the emission specifications under §§ 117.110, 117.210, 117.310, 117.410, 117.1010, 117.1110, 117.1210, 117.1310, 117.2010, 117.2110,

or 117.3310 117.106, 117.206, or 117.475 of this title (relating to Emission Specifications for Attainment Demonstration Demonstrations ; Emission Specifications for Eight-Hour Attainment Demonstration; and Emission Specifications) shall quantify reductions in NO X using the testing and monitoring
methodologies identified to show compliance with the emission specification. 

### 86Facilities (B) subject to the requirements under §§115.112, 115.121, 115.122, 115.162, 115.211, 115.212, 115.352, 115.421, 115.541,

or 115.542 (relating to Emission Specifications; and Control Requirements) shall quantify VOC reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or the requirements. No Change Facilities subject to (B) the requirements under §§115.112, 115.121 , 115.122, 115.162, 115.211, 115.212, 115.352, 115.421, 115.541, or 115.542 of this title (relating to Emission Specifications; and Control Requirements and Emission Specifications ) shall quantify VOC reductions using the testing and monitoring methodologi es identified to show compliance with the emission specifications or the requirements. If the executive (C) director has not submitted a protocol for the applicable facility or mobile source to the EPA for approval, the following applies: No Change No Change

the amount of (i) discrete emission credits from a facility or mobile source, in tons, will be determined and certified based on quantification methodologies at least as stringent as the methods used to demonstrate compliance with
any applicable requirements for the facility or mobile
source; No Change No Change 

### 87the generator must (ii) collect relevant data sufficient to characterize the facility ’ s or mobile

source ’ s emissions of the affected pollutant and the facility ’ s or mobile

source ’ s activity level for all

r epresentative phases of operation in order to characterize the facility ’ s or mobile

source ’ s baseline emissions; No Change No Change

facilities with (iii) continuous emissions monitoring systems

or predictive emissions monitoring systems in place shall use this data in quantify ing actual emissions; No Change No Change

the chosen (iv) quantification protocol shall be made available for public comment for a period of 30 days and shall be viewable on the commission ’ s web site; the chosen (iv) quantification protocol shall b e made available for public comment for a period of 30 days and shall be viewable on the commission ’ s Web web site; No Change

the chosen (v) quantification protocol and any comments received during the public comment period shall, upon approval by the executi ve director, be submitted to the EPA for a 45-day adequacy review; and No Change No Change 

### 88quantification (vi) protocols shall not be accepted for use with this division (relating to Discrete Emission Credit Banking and Trading) after a proposed disapproval of

the protocol by the EPA in the Federal Register

. quantification protocols (vi) shall not be accepted for use with this division (relating to Discrete Emission Credit Banking and Trading) if the executive director receives a letter objecting to the use of the p ro tocol from the EPA during the 45-day adequacy review or the EPA proposes disapproval of the protocol in the Federal Register after a proposed disapproval of the protocol by the EPA in the Federal Register

. No Change

In the event that the (2) monitoring and testing data required under paragraph (1) of this subsection is missing or unavailable, the facility
may report actual emissions for that period of time using these listed methods in the following order of preference to determine actual emissions: No Change No Change

continuous (A) monitoring data; No Change No Change

periodic monitoring (B) data; No Change No Change

testing data; (C) No Change No Change manufacturer ’ s (D) data; No Change No Change

EPA Compilation of (E) Air Pollution Emission Factors (AP-42), September 2 000; or No Change No Change

Material balance. (F) No Change No Change 

### 89When quantify ing actual (3) emissions in accordance with paragraph (2) of this subsection, the generator shall use the most conservative method for replacing the missing data, submit the justi fication for not using the methods in paragraph (1) of this subsection, and submit the justification for the method used. No Change No Change

Credit certification. (e) No Change No Change The amount of discrete (1) emission credits shall be

rounded down to the

n earest tenth of a ton wh en generated and shall be rounded up to the nearest tenth of a ton wh en used. No Change No Change

Applications for (2) certification will be reviewed in order to determine the credibility of the reductions. Reductions determined to becreditable will be certified by the executive director. No Change No Change

The applicant will be (3) notified in writing if the executive director denies the discrete emission credit notification. The applicant may

submit a revised discrete emission credit notification in accordance with the requirements of this division. No Change No Change 

### 90If a facility ’ s or mobile (4)

source ’ s emissions exceed its allowable emission limit, the amount of emissions exceeding the limit may not be certified as discrete emission credits. No Change No Change

Geographic scope. Except (f) as provided in paragraphs (7) and (8) of this subsection, only emission reductions generated in the State of Texas may be creditable and used in the state with the following limitations. Geographic s cope. Except (f) as provided in paragraph (7) of this subsection and § 101.375 of this title (relating to Emission Reductions Achieved Outside the United States) paragraphs (7) and (8) of this subsection , only emission reductions generated in the State of Tex as may

be creditable and used in the state with the following limitations. No Change

VOC and NO X discrete (1) emission credits generated in an ozone attainment area may

be used in any

county or portion of a county designated as attainment

or unclassified, exc ept as specified in paragraphs (4) and (5) of this subsection and
may not be used in an ozone nonattainment

area. No Change No Change

VOC and NO X discrete (2) emission credits generated in an ozone nonattainment area may be used either in the

same ozone nonat tainment area in wh ich they

were generated, or in any county or portion of a county designated as attainment or unclassified. No Change No Change 

### 91VOC and NO X discrete (3) emission credits generated in an ozone nonattainment area may not be used in any

other

o zone nonattainment area, except as provided in this subsection. No Change No Change

VOC discrete emission (4) credits are prohibited from use within the covered attainment counties, as defined in §115.10 of this title (relating to Definitions), if generated outside of the covered attainment counties. VOC discrete emission credits generated in a nonattainment area may be used in the covered attainment counties, except those generated in El Paso. No Change No Change

NO X discrete emission (5) credits are prohibited from use within the covered attainment counties, as defined in §115.10 of this title, if generated outside of the covered attainment counties. NO X discrete emission credits generated in a nonattainment area, except those generated in El Paso, may

be used in the covered attainment counties. No Change No Change 

### 92CO, SO 2 , and PM10 (6) discrete emission credits must be used in the same metropolitan statistical area (as defined in Office of Management and Budget Bulletin Number 93-17 entitled "Revised Statistical Definitions for Metropolitan Areas" dated June 30, 1993) in wh ich the reduction was generated. No Change No Change

VOC and NO X discrete (7) emission credits generated in other counties, states, or nations may

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 improve the air quality

in the county wh ere the credit is being used. No Change No Change

A facility may use (8) 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: International trading provisions have been moved to 101.375, see discussion below

. No Change 

### 93demonstrate that (A) the use of the reduction does not cause lo calized health impacts, as determined by

the executive director; International trading provisions

have been moved to 101.375, see discussion below

. No Change

submit all (B) supporting information for calculations and modeling, and any additional information

r equested by the executive director; and International trading provisions

have been moved to 101.375, see discussion below

. No Change

be located within (C) 100 kilometers of the Texas - Mexico bor der. International trading provisions

have been moved to 101.375, see discussion below

. No Change

Ozone Season. In areas (g) having an ozone season of less than 12 months (as defined in 40 CFR Part 58, Appendix D) VOC and NO X discrete emission credits generated outside this ozone
season may

not be used during the ozone s eason. No Change No Change 

### 94Recordkeeping. The

(h) generator must maintain a copy of all notices and backup information submitted to the registry

for a minimum of five y

ears, following the completion of the generation period. The user must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion of the use period. Other relevant reference material or raw data must also be maintained on-site by the participating facilities or mobile sources. The user must also maintain a copy of the generator ’ s notice and backup information for a minimum of five years after the use is completed. The records shall include, but not necessarily

be limited to: No Change No Change

the name, emission (1) poi nt number, and facility identification number of each facility

or any other identify

ing number for mobile sources using discrete emission credits; No Change No Change

the amount of discrete (2) emission credits being used by each facility or mobile source; an d No Change No Change

the specific number, (3) name, or other identification of discrete emission credits used for each facility

or mobile

source. No Change No Change 

### 95Public information. All

(i) information submitted with notices, reports, and trades regarding the nature, quantity of emissions, and sales price associated with the use of generation of discrete emission credits is public information and may not be submitted as confidential. Any

claim of confidentiality

for this ty

pe of information, or failure to submit all information may result in the rejection of the discrete emission reduction application. All nonconfidential notices and information regarding the generation, use, and availability

of discrete emission credits may

be obtained from the registry

. No Change No Change

Authorization to emit. A (j) discrete emission credit created under this division is a limited authorization to emit the specified pollutants in accordance with the provisions of this section, the FCAA, and the TCAA, as well as regulation s promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority

of the commission or the EPA to terminate or limit such authorization. Authorization to emit. A (j) discrete emission credit created under this division is a limited authorization to emit the specified pollutants in accordance with the provisions of this section, the Federal Clean Air Act FCAA , and the Texas Clean Air Act TCAA , as well as regulations p ro mulgated thereunder. A discrete emission credit does not constitute a property

right. Nothing in this division should be construed to limit the authority

of the commission or the EPA to terminate or limit such authorization. No Change 

### 96Program particip ation. The

(k) executive director has the authority to prohibit a
company from participating in discrete emission credit trading as a generator or user, if the executive director determines the company

has violated the requirements of the program or abused th e privileges provided by the
program. No Change No Change

Compliance burden and (l) enforcement. No Change No Change

The user is responsible (1) for assuring that a sufficient quantity

of discrete emission credits are acquired to cover the applicable facility or mobile source ’ s emissions for the entire use period. No Change No Change

The user is in violation (2) of this section if the user does not possess enough discrete emission credits to cover the compliance need for the use period. If the user possesses an ins ufficient quantity

of discrete emission credits to cover its compliance need, the user will be out of compliance for the entire use period. Each day the user is out of compliance may be considered a violation. No Change No Change

Users may not transfer (3)
their compliance burden and legal responsibilities to a third party

participant. Third party

participants
may only act in an advisory capacity to the

user. No Change No Change 

### 97Credit ownership. The

(m)

own er of the initial discrete emission credit certificat e shall be the owner or operator of the facility

or mobile source creating the emission reduction. The executive director may approve a deviation from this subsection considering factors such as, but not limited to: No Change No Change

wh ether an entity other (1) than the owner or operator of the facility

or mobile source incurred the cost of the emission reduction strategy ; or No Change No Change

wh ether the owner or (2) operator of the facility

or mobile source lacks the potential to generate one tenth of a ton of credit. No Change No Change



### The revisions to section 101. 372 submit ted on October 24, 2006, are approvabl e as discussed in Section IV.A of this TSD. The revisions to section 101.3 7 2 submitted on August 16, 2007 u

pdate the cross-references to th e recodi fied Chapter 117. EPA
propose d approval of the Chapter 117 recodification on July 11, 2008 (73 FR 39900) and finalized approval of the recodification on December 3, 2008 (73 FR 73562). The fo llo wing table details the cross-reference change s f rom the SIP-approved l anguage to the newly recodi fied Chapter 117 sections. This analysis shows that the cross-references have been updated correctly and no previously SIP-approved sections have been overlooked in th e recodi ficat io n. EPA identified several errors in the proposed cross-references i n our March 23, 2007 comment letter. The TCEQ addressed our comments and updated the cross-referenced citations prior to adoption. The revisions to section 101.3 7 2 submitted on August 16, 2007 are approvable.

Table IV-B3.2: Cross-References between Se ction 101.3 7 2 and Chapter 117

SIP-Approved References in § 101.3 72 Recodified Chapter 117 References in the August 16, 2007 SIP Submittal of Section

101.302 

### 98§ 117.106

– Emission Specifications for Attainment Demonstrations for Utility Electric Generation in Ozone Nonattainment Areas § 117.1010

– Emission Specifications for Attainment Demonstration at Major Utility Electric Generation Sources in the Beaumont-Port Arthur Ozone Nonattainment Area

§ 117.1110

–

Emission Specifications for Attainment Demonstr ation at Major Utility Electric Generation Sources in the Dallas-Fort Worth Ozone Nonattainment Area

§117.1210

–

Emission Specifications for Attainment Demonstration at Major Utility Electric Generation Sources in the HGB Ozone Nonattainment Area

§ 117.1 310 –Emission Specifications for Attainment Demonstration at Major Utility Electric Generation Sources in the Dallas-Fort Worth 8- Hour Ozone Nonattainment Area

§ 117.206

–

Emission Specifications for Attainment Demonstrations for Industrial, Commercial, and Institutional Combustion Sources in Ozone Nonattainment Areas § 117.110

– Emission Specifications for Attainment Demonstration for Combustion Control at Major Industrial, Commercial, and Institutional Sources in the Beaumont-Port Arthur Ozone Nonattai nment Area

§ 117.210

–

Emission Specifications for Attainment Demonstration for Combustion Control at Major Industrial, Commercial, and Institutional Sources in the Dallas-Fort Worth Ozone Nonattainment Area

§117.310

–

Emission Specifications for Attainm ent Demonstration for Combustion Control at Major Industrial, Commercial, and Institutional Sources in the Houston-Galveston-Brazoria Ozone Nonattainment Area

§ 117.410

–

Emission Specifications for Attainment Demonstration for Combustion Control at MajorIndustrial, Commercial, and Institutional Sources in the Dallas-Forth Worth 8-Hour Ozone Nonattainment Area 

### 99§ 117.475

– Emission Specifications for Boilers, Process Heaters, and Stationary Engines and Gas Turbines at Minor Sources §117.2010

– Emission S pecifications for Combustion Control at Minor Sources in the Houston-Galveston-Brazoria Ozone Nonattainment Area

§ 117.2110

–

Emission Specifications forCombustion Control at Minor Sources in the DallasFort Worth 8-Hour Ozone Nonattainment Area

§ 117.3 310 –

Emission Specifications for Combustion Control at Multi-Regional East Texas Sources for 8-Hour Ozone Attainment Demonstration



### Table IV-B 3.3 : Revisions to Section 101.3 76

Federally Approved Version September 6, 2006 71 FR 52703 Adopted State Langu age October 4, 2006 Rule Project Number 2005-054- 101-PR Adopted State Language July 25, 2007 Rule Project Number 2006-053- 101-PR Requirements to use discrete (a) emission credits. Discrete emission credits may

be used if the following requirements
are met. N o Change No Change

The user shall have (1)

own ership of a sufficient amount of discrete emission credits before the use period for which the specific discrete emission credits are to be used. No Change No Change

The user shall hold (2) sufficient discrete emissi on credits to cover the user ’ s compliance obligation at all times. No Change No Change 

### 100The user shall acquire (3) additional discrete emission credits during the use period if it is determined the user does not possess enough discrete emission credits
to cove r the entire use period. The user shall acquire additional credits as allowed under this section prior to the shortfall, or be in violation of this section. No Change No Change

Facility or mobile source (4) operators may

acquire and use only

discrete emission credits listed on the registry

. No Change No Change

Use of discrete emission (b) credits. With the exception of uses prohibited in subsection (c) of this section

or precluded by commission

or der or condition within an authorization under the same commission account number, discrete emission credits
may be used to meet or demonstrate compliance with an facility

or mobile regulatory

requirement including the following: No Change No Change

to exceed any allowable (1) emission level, if the following conditions ar e met: No Change No Change 

### 101in ozone (A) nonattainment areas, permitted facilities
may use discrete emission credits to exceed permit allowables by no more than ten tons for NO X
or five tons for VOCs in a 12-month period as approved by the executive director. This use is limited to one exceedance, up to 12 months, within any 24-month period, per use strategy . The user shall demonstrate that there will be no adverse impacts from the use of discrete emission credits at the levels requested; or No Change No Change

at permitted (B) facilities in counties

or portions of counties designated as attainment or unclassified, discrete emission credits may be used to exceed permit allowables by values not to exceed the PSD significance levels as provided in 40 CFR 52.21(b)(2 3), as approved by the executive director prior to use. This use is limited to one exceedance, up to 12 months, within any

24- month period, per use strategy . The user shall demonstrate that there will be no adverse impacts from the use of discrete emissi on credits at the levels requested; No Change No Change 

### 102as new source review (2) (NSR) permit offsets, if the following requirements are met: No Change No Change

the user shall (A) obtain the executive director ’ s approval prior to the use of specific discrete

em ission credits to cover, at a minimum, one year of operation of the new or modified facility in the NSR permit; No Change No Change

the amount of (B) discrete emission credits needed for NSR offsets equals the quantity of tons needed to achieve the maximum al lowable emission level set in the user ’ s NSR permit. The user shall also purchase and retire enough discrete emissions credits to meet the offset ratio requirement in the

user ’ s ozone nonattainment area. The user shall purchase and retire either the envi ro nmental contribution of 10%

or the offset ratio, wh ichever is higher; and No Change No Change

the NSR permit (C) must meet the following requirements: No Change No Change 

### 103the permit must (i) contain an enforceable requirement that the facility

obtain at least one additional y

ear of offsets before continuing operation in each subsequent year; No Change No Change

prior to issuance (ii) of the permit the user shall identify the discrete emission credits; and No Change No Change

prior to start of (iii) operation the user

s hall submit a completed DEC-2 Form, Notice of Intent to Use Discrete Emission Credits, along with the

or iginal certificate; No Change No Change

to comply with the Mass (3) Emissions Cap and Trade Program requirements as provided in § 101.356(g); or No Change No Change

to comply with Chapters (4) 114, 115, and 117 of this title, as allowed. No Change No Change

Discrete emission credit use (c) prohibition. A discrete emission credit may

not be used under this division: No Change No Change

before it has been (1) acquire d by the user; No Change No Change

for netting to avoid the (2) applicability

of federal and state NSR requirements; No Change No Change

to meet (as codified in (3) 42 USC) FCAA requirements for; No Change No Change

NSPS (A) standards, § 111; No Change No Change 

### 104LAER (B) standards, § 173(a)(2); No Change No Change

BACT, § (C) 165(a)(4); No Change No Change

HAPs, § 112 (D) including the requirements for MACT; No Change No Change

Standards for (E) solid waste combustion, § 129; No Change No Change

Requirements (F) for vehicle inspec tion and maintenance, § 182(b)(4) or (c)(3); No Change No Change

Ozone control (G) standards, § 183(e) and (f); No Change No Change

Clean-fueled (H) vehicle requirements, § 246; No Change No Change

Motor vehicle (I) emission standards, § 202; No Change No Change

S tandards for (J) non-road vehicles, § 213; No Change No Change

Requirements (K) for reformulated gasoline, § 211(k) No Change No Change

Requirements (L) for Reid vapor pressure standards, § 211(h) and (i); No Change No Change 

### 105to allow an emissions (4) increase of an ai r contaminant above a level authorized in a permit or other authorization that exceeds the limitations of § 106.261(3) or (4) or § 106.262(3) of this title, except as approved by the executive director. This paragraph does not apply to limit the use of di screte emission reduction credits (DERCs) or mobile discrete emission reduction credits (MDERCs) in lieu of allowances under § 101.356(h). to allow an emissions (4) increase of an air contaminant above a level authorized in a permit or other authorization that exceeds the limitations of § 106.261 (3) or (4) or § 106.262 (3) of this title,
excep t as approved by the executive director. This paragraph does not apply to limit the use of discrete emission reduction credits (DERCs) or mobile discrete emission reduction credits (MDERCs) in lieu of allowances under § 101.356(h). No Change

to authorize a facility (5) wh ose emissions are enforceable limited to below applicable major source threshold levels, as defined in § 122.10, to operate with actual emissions above those levels without triggering applicable requirements that would otherwise be triggered by

such major source status; or No Change No Change

to exceed an allowable (6) emission level where the exceedance would cause

or contribute to a condition of air pollution as determined by the executive director. No Change No Change

Notice of intent to use. (d) No Change No Change 

### 106A completed DEC-2 (1) Form, signed by

an authorized representative of the applicant shall be submitted to the executive director in accordance with the fo llowing requirements. No Change

Discrete (A) emission credits may be used only after the applicant has submitted the notice and received executive director approval. No Change No Change

The application (B) must be submitted at least 45 days prior to the first d ay

of the use period if the discrete emission credits were generated from a facility, 90 days if the discrete emission credits were generated from a mobile source, and every 12 months thereafter for each subsequent year if the use period exceeds 12 months. No Change No Change

A copy of the (C) application shall also be sent to the federal land manager 30 days prior to use if the user is located within 100 kilometers of a Class I area, as listed in 40 CFR Part 81. No Change No Change

The application (D) must inclu de, but is not limited to, the following information for each use: No Change No Change 

### 107the applicable (i) state and federal requirements that the discrete emission credits will be used to comply with and the intended use period; No Change No Change

the amoun t of (ii) discrete emission credits needed; No Change No Change

the baseline (iii) emission rate, activity level, and total emissions for the applicable facility or mobile
source; No Change No Change

the actual (iv) emission rate, activity level, and total emissions for the applicable facility or mobile
source; No Change No Change

the most stringent (v) emission rate and the most stringent emission level for the applicable facility or mobile
source, considering all applicable regulatory requirements; No Change No Change

a complete (vi) description of the protocol, as submitted by the executive director to the EPA for approval, used to calculate the amount of discrete emission credits needed; No Change No Change 

### 108the actual (vii) calculations performed by the user to determine the amount of discrete emission credits needed; No Change No Change

the date that (viii) the discrete emission credits were acquired or will be acquired; No Change No Change

the discrete (ix) emission credit generator and the

or iginal certificate of the discrete emission

cr edits acquired

or to be acquired; No Change No Change

the price of the (x) discrete emission credits acquired

or the expected price of the discrete emission credits to be acquired, except for transfers between sites under common

own ership or control; No Change No Change 

### 109a statement that (xi) due diligence was taken to verify that the discrete emission credits
were not previously used, the discrete emission credits
were not generated as a result of actions prohibited under this regulation, and the discrete emission credits will not be used in a manner prohibited under this regulation; and No Change No Change

a certification of (xii) use, that must contain certification under penalty

of law by a responsible official of the user of truth, accuracy, and completeness. This certification must state that based on information and belief formed after reasonable inquiry, the statements and information in the document are true, accurate, and complete. No Change No Change

DERC use calculation. (2) No Change No Change 

### 110To calculate the (A) amount of discrete emission credits necessary to comply with § 117.108, 117.138, 117.210, or 117.223 of this title (relating to System Cap; and Source Cap,
a user may

use the equations listed in those sections, or the following equations. No Change To cal culate the (A) amount of discrete emission credits necessary to comply with §§ 117.123, 117.223, 117.320, 117.323, 117.423, 117.1020, 117.1120, 117.1220, or 117.3020 of this title (relating toSystem Cap; and Source Cap ; System Cap ), § 117.108, 117.138, 117.21 0, or 117.223
, a user may

use the equations listed in those sections, or the following equations. For the rolling (i)
average cap: Figure: 30 TAC § 101.376(d)(2)(A)(i) No Change See below

.

For maximum (ii) daily cap: Figure: 30 TAC § 101.376(d)(2)(A)(ii ) No Change See below

.

The amount of (B) discrete emission credits needed to demonstrate compliance or meet a regulatory requirement is calculated as follows. Figure: 30 TAC § 101.376(d)(2)(B) No Change No Change

The amount of (C) discrete emission credits needed to

excee d an allowable emissions level is calculated as follows. Figure: 30 TAC § 101.376(d)(2)(C) No Change No Change 

### 111The user shall (D) retire 10% more discrete emission credits than are needed, as calculated in this paragraph, to ensure that the facility

or mobilesource environmental contribution retirement obligation will be met. No Change No Change

If the amount (E) of discrete emission credits needed to meet a regulatory requirement or to demonstrate compliance is greater than ten tons, an additional 5.0% of the discrete emission credits needed, as calculated in this paragraph, must be acquired to ensure that sufficient discrete emission credits are available to the user with an adequate compliance margin. No Change No Change

A user may

submit a (3) notice late in th e case of
an emergency, but the notice must be submitted before the discrete emission credits can be used. The user shall include a complete description of the emergency situation in the notice of intent to use. All other notices submitted less than 45 d ays prior to use, or 90 days prior to use for a mobile source, will be considered late and in violation. No Change No Change 

### 112The user is responsible (4) for determining the credits it will purchase and notify

ing the executive director of the selected generati ng facility or mobile source in the notice of intent to use. If the generator ’ s credits are rejected or the notice of generation is incomplete, the use of discrete emission credits by the user may be delay ed by the executive director. The user
cannot useany

discrete emission credits that have not been certified by the executive director. The executive director may

reject the use of discrete emission credits by a facility or mobile source if the credit and use cannot be demonstrated to meet the requireme nts of this section. No Change No Change

If the facility

is in an (5) area with an ozone season less than 12 months, the user shall calculate the amount of discrete emission credits needed for the ozone season separately

from the non-ozone season. No Change N o Change

Notice of use. (e) No Change No Change The user shall calculate: (1) No Change No Change 

### 113the amount of (A) discrete emission credits used, including the amount of discrete emission credits retired to cover the environmental contribution, as described in

subsection (d)(2)(C) of this section, associated with actual use; and No Change No Change

the amount of (B) discrete emission credits not used, including the amount of excess discrete emission credits that were purchased to cover the environmental contribution, as described in subsection (d)(2)(C) of this section, but not associated with the actual use, and available for future

use. No Change No Change

DERC use is calculated (2) by the following questions. No Change No Change

The amount of (A) discrete emission credit s used to demonstrate compliance or meet a regulatory requirement is calculated as follows. Figure: 30 TAC § 101.376(e)(2)(A) No Change No Change 

### 114The amount of (B) discrete emission credits used to comply with permit allowables is calculated as follows. Figur e: 30 TAC § 101.376(e)(2)(B) No Change No Change

A DEC-3 Form, Notice (3) of Use of Discrete Emission Credits, shall be submitted to the commission in accordance with the following requirements. No Change No Change

The notice (A) must be submitted within 90 days after the end of the use period; No Change No Change

The notice (B) must be submitted within 90 days of the conclusion of each 12-month use period, if applicable; No Change No Change

The notice is to (C) be used as the mechanism to update or amend the notice of intent to use and must include any information different from that reported in the notice of intent to use, including, but not limited to, the following items: No Change No Change 

### 115purchase price (i) of the discrete emission credits obtained prior to the

curr ent use period, except for transfers between sites under common

own ership or control; No Change No Change

the actual (ii) amount of discrete emission credits possessed during the use period; No Change No Change

the actual (iii) emissions during the use period for V OCs and NO X ; No Change No Change

the actual (iv) amount of discrete emission credits used; No Change No Change

the actual (v) environmental contribution; and No Change No Change

the amount of (vi) discrete emission credits available for future use. No Change No Change 

### 116Discrete emission (4) credits that are not used during the use period are surplus and remain available for transfer or use by the holder. In addition, any

portion of the calculated environmental contribution not attributed to actual use is also available. No Change No Change

The user is in violation (5) of this section if the user submits the report of use later than the allowed 90 days following the conclusion of the use period. No Change No Change



### On July 25, 2007, the TCEQ also adopted revisions to th e following Figures as detailed belo w.
Figure: 30 TAC § 101.376(d)(2)(A)(i): 

#     

#   2000 )( Re 1 

### d RH EREH tons quired DERCs of Amount N

i iiii 

###   

# 

 

### Where: d = the number of days in the use period i= each emission unit in the source or system cap N = the total

number of emission units in the source or system cap H i 

### = actual daily heat input, in million British thermal units (MMBtu) per day, as calculated according to §§ 117.108(c)(1), 117.138(c), 117.210(c)(1) or (2), or 117.223(b)(1) of thi s ti tl e (rel ati ng to System

Cap; and Source Cap) as applicable §§ 117.123(b)(1), 117.223(b)(1), 117.320(c)(1) and (2) , 117.323(b)(1), 117.423(b)(1), 117.1020(c)(1), 117.1120(c)(1)
, 117.1220(c)(1)
, or 117.3020 ( c ) of thi s ti tl e (rel ati ng to Source Cap; and Syste m Cap) as applicable R i 

### = actual emission rate , i

n pounds (lb)/MMBtu, is defined as in §§ 117.108(c)(1), 117.138(c), 117.210(c)(1) or (2), or 117.223(b)(1) §§ 117.123(b)(1)
, 117.223(b)(1), 117.320(c)(1) and (2) , 117.323(b)(1)
, 117.423(b)(1), 117.1020(c)(1), 117.1120(c)(1) 1 17.1220(c)(1)
, or 117.3020 ( c ) of

thi s ti tl e as applicable EH i 

### = expected new daily heat input, in MMBtu per day ER i 

### = expected new emission rate, in lb/MMBtu.

Figure: 30 TAC § 101.376(d)(2)(A)(ii): 117

#     

#   2000 1 )( Re 1 

### 

 

# 

 N

i i Mi i Mi 

### RH EREH tons quired DERCs of Amount



### Where: i= eac h emission unit in the source or system cap N = the total

number of emission units in the source or system cap R i 

### = i n lb/MMBtu, as defined in §§ 117.108(c)(2), 117.210(c)(3), or 117.223(b)(1) of this title (relating to System Cap; and Source Cap) as appli cable §§ 117.123(b)(2 ) , 117.223(b)(2), 117.320(c)(3 ), 117.323(b)( 2 )
, 117.423(b)( 2 ), 117.1020(c)( 2 ), 117.1120(c)( 2 ) 1 17.1220(c)( 2 ) of thi s ti tl e as applicable H Mi 

### = th e maximum daily heat input, in MMBtu/day, as defined in §§ 117.108(c)(2), 117.210(c)(3), o r 117.223(b)(1) of this title as applicable §§ 117.123(b)( 2 ), 117.223(b)( 2 ), 117.320(c)( 3 ) , 117.323(b)( 2 ), 117.423(b)( 2 ), 117.1020(c)( 2 ), 117.1120(c)( 2 )
, or 117.1220(c)( 2 ) of thi s titl e as applicable EH Mi 

### = expected new maximum daily heat input, in MMBtu p er day ER i 

### = expected new emission rate, in lb/MMBtu.

The revisions to section 101. 376 submit ted on October 24, 2006, are approvabl e as discussed in Section IV.A of this TSD. The revisions to section 101.3 7 6 and Figures 30 TAC § 101.376(d)(2)(A)(i) and ( ii) submit ted on August 16, 2007
, update the crossreferences to th e recodi fied Chapter 117. EPA proposed approval of the Chapter 117 recodi ficat io n on July 11, 2008 (73 FR 39900) and finalized approval of the recodification on December 3, 2008 (73 FR 735 62). The following table details the cross-reference change from the SIP-approved language to the newly recodified Chapter 117 sections. This analysis shows that the cross-references have been updated correctly and no previously SIP-approved sections hav e been overlooked in the recodification. In our March 23, 2007, comment letter EPA identified several errors in the cross-references. The TCEQ agreed with our comment s and made the necessary changes pri or to adopti on. The revisions to section 101.3 7 6 submit ted on August 16, 2007 are approvable. 118

### Table IV-B3.4: Cross-References between Section 101.3 7 6 and Chapter 117

SIP-Approved References in § 101.3 76 Recodified Chapter 117 References in the August 16, 2007 SIP Submittal of Section

101.3 76 § 117.108

–

System Cap for Utility

Electric Generation in Ozone Nonattainment Areas § 117.1020

– System Cap for Utility

Electric Generation Sources in Beaumont-Port Arthur Ozone Nonattainment Area

§117.1120

–

System Cap for Utility

Electric Generation Sources in Dal las-Fort Worth Ozone Nonattainment Area

§117.1220

–

System Cap for Utility

Electric Generation Sources in Houston-Galveston-Brazoria Ozone Nonattainment Area § 117.138

– System Cap for Utility Electric Generation in East and Central Texas § 117.3020

– System Cap for Utility

Electric Generation in East and Central Texas § 117.210

–

System Cap for Industrial, Commercial, and Institutional Combustion Sources in Ozone Nonattainment Areas §117.320

– System Cap for Industrial, Commercial, and Institutional Sources in Houston-GalvestonBr azoria Ozone Nonattainment Area § 117.223

–

Source Cap for Industrial, Commercial, and Institutional Combustion Sources in Ozone Nonattainment Areas § 117.123

– Source Cap for Industrial, Commercial, and Institutional Sources in Beaumont-Port Arthur Ozone Nonattainment Area

§ 117.223

–

Source Cap for Industrial, Commercial, and Institutional Sources in Dallas-Fort Worth Ozone Nonattainment Area

§ 117.323

–

Source Cap for Industrial, Commercial, and Institutional Sources in Housto n-GalvestonBr azoria Ozone Nonattainment Area

§ 117.423

–

Source Cap for Industrial, Commercial, and Institutional Sources in Dallas-Fort Worth 8- HR Ozone Nonattainment Area 

### 119

### IV. B. Evalution of the August 16, 2007 SIP Submittal

4. Evaluation of the August 16, 2007, SIP submittal with respect to sect ion 110(l) of the Clean Air Act

Secti on 110(l) of

the Clean Air Act states:

Each revision to an implem entation plan submitted by a State under this Act shall be adopted by such State after reasonable notice and public hearing. The Administrator shall not approve a revision of a plan if the revision w ould interfere with any applicable requirement concerning attainment and reasonable further progress (as defined in section 171), or any other applicable requirement of this Act.

Thus, under section 110(l), this SIP revision must not interfere with attainment or reasonable further progress or any other applic able requirement of the Act.

Because this analysis only focuses on the revisions to sections 101.372 and 101.376 of the DERC program , the 110(l) analysis will also only focus on these pieces of the August 16, 2007 SIP revision. The August 16, 2007, upd ates to the DERC program wi ll not i nt erfere wit h attai nment , reasonable further progress or any other applicable requirement of the Act because the revisions update references to the newly recodified Chapter 117 sections. These revisions are nonsubstantiv e and will not interfere with the SIP-approved functionality of the DERC program , which has already been demonstrated to be consistent wit h 110(l) through our Septem ber 6, 2006 approval.

120

### V. Conclusion

The technical analysis provid ed in the preceding sections has compared the applicable sections of the CAA and 40 CFR Part 51 to TCEQ ’ s October 24, 2006, proposed revisions to the SIP, enacted at 30 TAC Chapter 101, Sections 101.302, 101.305, 101.306, 101.338, 101.339, 101.372, 101.373 , 101.375, 101.376, and 101.378. The technical analysis also reviewed TCEQ ’ s August 16, 2007, proposed revisions to the SIP, enacted at 30 TAC Chapter 101, Sections 101.1, 101.22, 101.302, 101.306, 101.350, 101.351, 101.353, 101.354, 101.360, 101.372, 101 .376, 101.383, and 101.385.

This analysis found that the adoption of the revisions to sections 101.372, 101.373, 101.375, 101.376, and 101.378 submitted on October 24, 2006, is consistent with the CAA and 40 CFR Part 51. Our analysis of the October 24, 2006, DERC revisions has also shown that the TCEQ satisfactorily addressed all DERC-specific provisions of the Septem ber 8, 2005, com

mit ment l etter. As such, our final conditional approval from Septem ber 6, 2006, i s no longer necessary and EPA can propos e full approval of the DERC program

. EPA also finds that the adoption of the revisions to sections 101.372 and 101.376 submitted on August 16, 2007, is consistent with the CAA and 40 CFR Part 51. Therefore, i

t i s recom mended that a proposed approval of these sections be published.

The revisions to sections 101.338 and 101.339 submitted on October 24, 2006 remain available for EPA review and action at a later date. Likewise, the revisions to sections 101.1, 101.383, and 101.385 submitted on August 16 , 2007, remain available for EPA review and action at a later date. EPA is proposing approval of the October 24, 2006, and August 16, 2007, revisions to sections 101.302, 101.305, and 101.306 in a separate rul emaking (see EPA-R06-OAR-2010-0147). EPA has already finally approved the August 16, 2007, revisions to sections 101.350, 101.351, 101.353, and 101.354. 121