Kathleen Hartnett White, Chairman

R . B . "Ralph" Marquez, Commissioner Larry R . Soward, Commissioner Glenn Shankle, Executive Director



### TEXAS COMMISSION ON ENVIRONMENTAL QUALITY

Protecting Texas by Reducing and Preventing Pollution

September 8, 2005

Richard E. Greene Regional Administrator U .S. Environmental Protection Agency, Region 6 1445 Ross Avenue, Suite 1200 Dallas, Texas 75202-2733 Dear Mayor Greene: I'm writing in response to your letter received July 22, 2005, requesting commitments by theTexas Commission on Environmental Quality (TCEQ) to address specific areas of concern the U .S. Environmental Protection Agency (EPA) has identified within the Discrete Emission Reduction Credit (DERC) rules andprocedures. Subj ect to Commission approval and public participation, the TCEQ Executive Director commits to making the following revisions to the DERC rules and procedures: l . Revise Title 30 Texas Administrative Code (30 TAC) § 101 .373 to prohibit the future generation of DERCs frompermanent shutdowns and to allowDERCs generated and banked frompermanent shutdowns prior to September 30, 2002, to remain available for use for no more than five years fromthe date of this letter . 2. The TCEQ will performa credit audit to remove from the emissions bank all DERCs generated frompennanent shutdowns after September 30, 2002. Even if the shutdown itself occurred before September 30, 2002, no DERCs can be generated fromthat event after September 30, 2002. 3. Revise 30 TAC §§ 101 .302(f), 101 .372(f)(7), and 101 .372(f)(8) to clarify that EPA approval is required for individual transactions involving emission reductions generated in another state or nation, as well as those transactions fromone nonattainment area to another, or fromattainment counties into nonattainment areas. The TCEQ further understands that the EPA would require a state implementation plan revision prior to approving any transaction between another state or nation, as well as, those transactions between counties not located within the same nonattainment area. 4. The TCEQ

will revise Form

DEC-1, Notice of Generation and Generator Certification of Discrete Emission Credits; Form MDEC-1, Notice of Generation and Generator

P .O. Box 13087 0 Austin, Texas 78711-3087 0 512/239-1000 0 Internet address: www .tceq.state.tx.usRichard E. Greene

Page 2 September 8, 2005

Certification of Mobile Discrete Emission Credits; and FormDEC-2, Notice of Intent to Use Discrete Emission Credits, to include a waiver to the federal statute of limitations defense for generators, and users of DERCs and mobile discrete emission reduction credits (MDERCs) . Please be reminded that there is currently no applicable state statute of limitations in the State of Texas. In addition, the TCEQwill maintain its current policy of preserving all records relating to DERC and MDERC generation and use for a minimum of five years after the use strategy has ended. 5. Revise 30 TAC§ § 101 .302 and 101 .372 to clarify that a proposed quantification protocol maynot be used if the TCEQExecutive Director receives a letter fromthe EPAobjecting to the use of the protocol during the 45-day adequacy reviewperiod or if the EPA proposes disapproval of the protocol in the Federal Register . 6 . Revise 30TAC§ 101 .306 to specify that Emission Reduction Credits maybe used within the highly reactive volatile organic compounds Emissions Cap and Trade programas an annual allocation of allowances as provided under 30 TAC § 101 .399. During the conditional approval period, the TCEQwill not approve any trades involving the types of reductions described in Item No. 3above

;will not approve anyuse of shutdown credits that were generated after September 30, 2002; and, will requirethe waiver described in ItemNo. 4 above for generators and users of discrete emission credits . The TCEQwill submit the revisions to the EPAby December 1, 2006 . The TCEQalso recognizes that the conditional approval will automatically become a disapproval if the revisions are not completed and submitted to the EPAby this date. Please feel free to contact me at (512) 239-3900, or Mr . Cory Chismat (512) 239-0539, should you have any questions regarding this correspondence or the Emissions Banking and Trading programs. Sincerely,

Glenn Shankle, Executive Director Texas Commission on Environmental Quality GS/RC/pl cc: Ms . Adina Wiley, Region 6, U .S. Environmental Protection Agency, Dallas