# South Coast Air Quality Management District 21865 

### E. Copley Drive, Diamond Bar, CA 91 765-4182 (909) 396-2000 www.aqmd.gov BOARD MEETING DATE: August 2, 2002 

### AGENDA NO. 17 REPORT: Status Report on Regulation XIII—New Source Review This report, submitted to the Board pursuant to subdivision (b) of Rule 1310—Analysis and Reporting, provides information on the status ofRegulation Xffl

—New Source Review (NSR) in meeting federal and state NSR requirements. This report, which presents data forAugust 2000 throughJuly 2001, shows that AQMD’s NSRpro gram was in compliance with applicable federal and state require ments during the period covered. COMMiTTEE: Stationary Source, June 28, 2002, Reviewed RECOMMENDED ACTION: Receive and file the attached report.



### SUMMARY The AQMD’ s New Source Review (NSR) Rules and Regulations are 

### designedto ensure thatemissions increases fromnew and modified sources do notinterfere with efforts to attain 

### and maintain compliance with the federal and state air

### quality standards while maintaining economic growth in the South Coastregion. Regulation Xffl

- 

### New Source Review regulates and accounts foremissions increases fromthe permitting ofnew, modi fied, and relocated sources within AQMD that are 

### not subject to Regulation XX

—

### Re gional Clean AirIncentives Market (RECLAIM)’. Rule 1310

- 

### Analysis and Reporting requires the submittal ofan annual reportto the Board on the status 

### ofRegulation XIII in meeting federal and state NSRrequirements. 1 While the RECLAIIvIprogramis differentthan command and control and provides greaterregulatory flexibility to

businesses, its NSRrequirements, as specified in Rule 2005, are designedto comply with the governing principles ofNSR contained inthe federal CleanAirAct (CAA) and the California Health and Safety Code. SYNOPSIS:

Barry R. Wallerstein, D.Env. 

### Executive OfficerThe annual reports on the status ofRegulation XIII cover NSR activities for a twelvemonth period and the last report submitted to the Board covered the period from August 1999 through July 2000 forboth federal and state NSR requirements. This annual report covers the period August 2000 through July 2001 and demonstrates compliance with fed eral and state NSR requirements by establishing aggregate equivalence with federal and state offsetrequirements. The results ofthe analysis forthe August 2000 through July 2001 timeframe for federal and state offset accounts are summarized below in Tables 1 and 2, respectively. These results demonstrate that there were adequate offsets available to mitigate all emission in creases during this period, resulting in no “net” emission increase. The report, therefore, demonstrates that AQMD’s NSR program continues to meetfederal and state offsetre quirements and is equivalentto those requirements on an aggregate basis 2

. Table 1 NetActivity, Starting Balances, and Ending Balances for AQMD’s Federal Offset Accounts (August 2000 through July 2001) DESCRIPTION 

# 1 VOC NOx SOx CO PM1O Starting Balance (ton/day) 104.99 20.76 18.64 26.06 44.52 Credits* (ton/day) 1.24 1.04 0 0.78 0

Debits* (ton/day) -1.33 -0.59 0 -0.41 -1.31 Sum of Credits/Debits* (ton/day) -0.09 0.45 0 0.37 -1.31 Refinements* (ton/day) 0 0 0 0 -2.41

Net Activity* (ton/day) -0.09 0.45 0 0.37 -3.72 Ending Balance** (ton!day 10490 2121 1864 26A3 4O8O

* Referto Appendix A for an explanation ofthe sources ofcredits and debits, as well as ofrefinements from previous years’ reports. Credits are shown as (+) and Debits as 

### (-), while sum ofCredits/Debits, Refinements, and NetActivity are shown as (+) or 

### (-) depending on the values ofCredits and Debits.

** “Ending Balance” equals the “Starting Balance” plus the “NetActivity.”

2 The AQMD’s NSRprogramis deemed to be equivalent to federal and state offsetrequirements because AQMD’s ending accountbalances remained positive, indicating there were adequate offsets during this period.
-2-Table 2 Net Activity, Starting Balances, and Ending Balances for AQMD’s State Offset Ac counts (August 2000 through July 2001) DESCRIPTION VOC NOx SOx CO PMIO Starting Balance (ton/day) 46.58 4.30 18.81 26.41 46.05 Credits* (ton/day) 3.85 1.83 0.02 1.05 0.24 Debits* (ton/day) -6.98 -1.47 -0.08 -0.83 -1.03 Sum of Credits/Debits* (ton/day) -3.13 0.36 -0.06 0.22 -0.79 Refinements* (ton/day) 0 0 0 -0.13 -2.41

Net Activity* (ton/day) -3.13 0.36 -0.06 0.09 -3.20 Ending Balance** (tonIday 43.45 4.66 

### 18.75 26.50 

### 42.85

* Referto Appendix A for an explanation ofthe sources ofcredits and debits, as well as of refinements from previous years’ reports. Credits are shown as (+) and Debits as 

### (-), while sum of Credits/Debits, Refinements, and Net Activity are shown as (+) or 

### (-) depending on the values ofCredits and Debits. ** “Ending Balance” equals the “Starting Balance” plus the “NetActivity.” BACKGROUND 

### AQMD originally adopted its NSRprogram in 1976. The original programhas evolved into the current version ofthe Regulation Xffl rules inresponse to federal and state legal requirements and the changing needs ofthe local environment and economy. The most recent significant amendments to the NSR rules were adopted on December7, 1995. 

### The mostnotable change in that amendment was the reduction in the threshold allowances for requiring offsets. Subsequent amendments to Regulation Xffl since 1995 have in most part addressed other issues, such as BestAvailable Control Technology (BACT) fornonmajor sources. The only exceptions were the April 20, 2001, November9, 2001, and May 3, 2002 NSR amendments which, in order to address the state’s needs for increased electrical generation, provided access to AQMD’s Priority Reserve forElectrical Gener ating Facilities (EGF) to obtain PM10, SOx, and CO emission offsets. EPA approved AQMD’s NSRprograminto California’s State Implementation Plan on January 21, 1981 (46FR5965) and again on December4, 1996 (61FR64291). AQMD’s NSR program is required to achieve, at a minimum, emission reductions equivalent to federal and state statutory NSR requirements. To this end, AQMD’s NSR program implements the federal and state statutory requirements forNSR and ensures that construction and operation ofnew and modified sources do notinterfere with progress towards attainment ofthe National and State AmbientAir Quality Standards. AQMD’s -3-computerized emission tracking system is utilized to demonstrate equivalence with fed eral offset requirements on an aggregate basis. Specific NSR requirements offederal and state law are presented below. 

### Federal Law Federal law requires the use ofLowest Achievable Emission Rate (LAER) and offsets for new, modified, and relocated major stationary sources 3

. Effective November 15, 

### 1992, the federal Clean Air Act (CAA) requires a 1.5-to-i external offsetratio and a 1.3-to-i internal offsetratio for major stationary sources located in an extreme ozone nonattainment area. The South CoastAir Basin (SOCAB) is the only area in the nation that has been designated as extreme ozone non-attainment. An extreme ozone non-attainment

The October 20, 2000 amendments to Rule 1302

— Definitions changed the “major stationary source” thresholds applicable to AQMD’sjurisdiction. The applicablethresholds during the initial portion ofthe time period covered by this report were as summarized below:
Au2ust I. 2000

— October I
, 20(X):

Pollutant

# J Non-South East Desert Air Basin South East Desert AirBasin VOC 10 tons per year 25 tons peryear NOx 10 tons per year 25 tons per year SOx 70 tons per year 100 tons per year PM1O 70 tons per year 70 tons per year CO 100 tons per year 100 tons peryear The October 20, 2000 amendments divided AQMD’sjurisdiction into three airbasins that supercedethe NonSouth East DesertAirBasin and South East DesertAirBasin designations: South Coast AirBasin (SOCAB), the Riverside County portion ofthe Salton Sea AirBasin (SSAB), and the non-Palo Verde Riverside County portion ofthe Mojave DesertAir Basin (MDAB). The “major stationary source” thresholds forthese airbasins are as follows: October20. 2000—July 31. 2001:

Pollutant SOCAB SSAB 

# I MDAB VOC 10 tons peryear 25 tons per year 100 tons peryear NOx 10 tons peryear 25 tons per year 100 tons peryear SOx 100 tons per year 100 tons per year 100 tons peryear PM1 0 70 tons per year 70 tons peryear 100 tons peryear Co 50 tons peryear 100 tons peryear 100 tons peryear

-4-area may qualify for a 1.2-to-i offsetratio ifitrequires implementation offederal Best Available Control Technology (as defined in CAA Section 169(3) forprevention ofSig nificant Deterioration ofAir Quality) on all major sources [CAA Section i82(e)(1)]. The federal definition ofBest Available Control Technology (BACT) is equivalentto state BestAvailable Retrofit Control Technology (BARCT), which AQMD implements through its RegulationXI— Source Specific Standards and otherAQMD rules and regu lations. AQMD meets this criterion 

### and uses a 1.2-to-i offsetratio for all federal 

### and non-federal sources 4 . This report demonstrates compliance with the federal NSRre quirements. State 

### Law State law requires the use ofBACT fornew 

### and modified sources (Health and Safety Code Sections 40440(b)(i) and40920.5) and “no net increase in emissions” from certain permitted new ormodified sources based on theirpotential to emit and the non-attainment classification ofthe area in which they 

### are located. Based on theirclassification, the SOCAB and Salton Sea

### AirBasin (SSAB) must comply with the requirements forextreme and severe non-attainment areas, respectively, for ozone precursors (i.e., VOC and NOx). Both the SOCAB and the SSAB must comply with the requirements for serious non-attainment areas forPM1O and its precursors (i.e., VOC, NOx, and SOx). For CU, the SOCAB must comply with the requirements for seri ous non-attainment areas, however SSAB is considered attainment forCO. Both SOCAB and SSAB 

### are considered attainment for SO 2 and NO 2

, however SOx and NOx are pre cursors to pollutants for which both SOCAB and SSAB are designated as non-attainment. The Mojave DesertAirBasin (MDAB) is currently unclassified for allpollutants. The various attainment statuses forthe VOC, NOx, SOx, PM 10, and CU in the three airbasins result in the major source thresholds presented by pollutant and airbasin in footnote 3 (page 4). This reportdemonstrates AQMD’s compliance with the “no net emission in crease” requirements ofstate law forthe period from August 2000 through July 2001 by demonstrating compliance with the requirements for extreme ozone non-attainment areas for ozone precursors and with therequirements for serious non-attainment areas for CU, PM1O, and precursors to PM1O. OVERVIEW OF ANALYSIS METHODOLOGY The two majorelements offederal and state NSRrequirements 

### are LAERJBACT and emission offsetting. AQMD’s BACT requirements are at least as stringent as federal 

### LAERfor major sources and state BACT requirements for all sources. Furthermore, the

‘ Non-federal sources that do notmeet any ofthe exemption criteria ofRule 1304 and that do not qualify to obtain

offsets from the Priority Reserve are also required to provide offsets (i.e., ERCs) at a ratio of 1.2-to-i. -5-

### NSR emission offsetrequirements thatAQMD implements through its permitting process ensure that sources provide emission reduction credits (ERCs) to offset their emission in creases in compliance with both federal and state requirements. As a result, these sources each comply with federal and state offsetrequirements by providing their own ERCs. However, certain sources are exempt from AQMD’s offsetrequirements pursuant to Rule 1304 or qualify for offsets fromAQMD’s Community Bank (applications received be tween October 1, 1990 and February 1, 1996 only) or Priority Reserve, pursuantto Rule 1309.1. AQMD has determinedthatproviding offsetexemptions andthe Priority Reserve (as well as the previously administered Community Bank) is important to the NSR pro gram and the local economy while encouraging installation ofcontrol equipment. There fore, AQMD has assumed the responsibility to provide the necessary offsets for exempt sources, the Priority Reserve, and the Community Bank. This report examines credits to and debits fromAQMD’s emission offset accounts and demonstrates programmatic equivalence on an aggregate basis with federal and state emission offsetrequirements for the sources exempt fromproviding offsets and the sources thatreceive offsets fromthe Priority Reserve orthe Community Bank. 

### AQMD’s Offset and CreditAccounts Only emission increases originating at major stationary sources are 

### subject to federal off setrequirements. However, state offsetrequirements apply to all increases ofVOC or NOx from equipment subjectto AQMD’s permitting program and to increases ofSOx, CO. and PM1O fromfacilities that emit 15 ormore tons peryear. These same thresholds are also usedto assign credits generatedthrough emission reductions to the federal and state offset accounts, respectively (e.g., only emissionreductions occurring atmajor sta tionary sources are 

### creditable forfederal equivalency purposes). Therefore, AQMD tracks two sets ofaccounts, one forpurposes ofdemonstrating equivalence with federal and one for state offsetrequirements. In addition, each ofthe five pollutants subject to offsetrequirements (VOC, NOx, SOx, CO, and PM 10) has its own federal account and its own state account. AQMD’s NSRprogramis considered to provide equivalent or greater offsets ofemissions as requiredby federal and staterequirements foreach subjectpollut antprovided the balance ofcredits left in AQMD’s accounts foreach pollutant does not become negative, indicating thatthere were adequate offsets available. 

### CreditAccounting When emissions from a

### permitted source are permanently reduced (e.g., installation of control equipment, removal ofthe source) and 

### the emission reduction is notrequiredby rule or law and is notcalled forby an AQMP control measure thathas been assigned a target implementation date 5

, the permitholder may apply forERCs forthe pollutants re
Referto Rule 1309(b)(4) for a complete explanation ofeligibilityrequirements.
-6-duced. Priorto issuing an ERC, AQMD “discounts” this reduction to the level ofreduc tion that wouldhave been realized ifthe source had been operating at current BACT lev els. The differencebetween the actual quantified emission reduction and the amount of ERCs issued are credited to AQMD’s account ofavailable offsets. Additionally, ifthe permit holderforthe source generating the emission reduction had previously received offsets from an AQMD account orhas a “positive balance” (i.e., net emission increase), the quantity ofAQMD credits used orthe amount ofthe positive balance is subtracted fromthe reduction and “paid back” to AQMD’s accounts priorto issuance ofan ERC pursuant to Rule 

### 1306. In othercases, permitholders do not always submit applications to claimERCs fortheir equipment shutdowns or othereligible emission reductions. Theseunclaimedreductions are referred to as “orphan shutdowns” or “surplus reduc tions” and can be credited to AQMD’s accounts. 

### DebitAccounting On the other

### hand, AQMD also tracks all emission increases that are offsetthrough the Priority Reserve orthe Community Bank, as well as all increases that are exempt from offsetrequirements pursuant to Rule 1304

—Exemptions. These increases are all debited fromAQMD’s accounts. As discussed above, AQMD uses an offset ratio of 1.2-to-i for its federal accounts. That is, 1.2 pounds are deducted from AQMJJ’ s federal accounts for each pound ofpermitted increase at a federal source. Conversely, state offsetrequire ments 

### aie based on actual emissions ratherthan maximumpermitted potential to emit. AQMD considers actual emissions as eightypercent ofpermitted potential to emit 6

. Thus, 0.8 pound is debited to AQMD’s state accounts for each pound ofpermitted emis sions increase. There is another source ofdebits fromAQMD’s offset accounts in addi tion to the permitted emission increases described above. This debit is very infrequent, but it occurs in a situation in which a permitthat was previously inactivated due to non payment offees and deemed an orphan shutdown is reactivated. These special reactiva tions are debited from AQMD’s federal and state accounts atthe same ratios as are the otheremissions increases identified above. The various sources ofcredits to and debits fromthe federal and state offset accounts are discussed in greater detail in Appendix A. 

### DEMONSTRATION OF EQUIVALENCE WITHFEDERAL OFFSET REQUIREMENTS Table 3 

### presents the total emission reductions credited to AQMD’s federal offset ac counts from August 2000 through July 2001. Debits fromAQMD’s federal accounts in

6 The eighty percent factoris based upon an analysis and demonstration previously conducted in 1998 by AQMD

staffin coordination with CARB.
-7-curred during the same period are summarized in Table 4. Finally, sum ofcreditldebit activity (credits minus debits) forthe federal accounts is displayed in Table 5.
Table 3 Credits to AQMD’s Federal Offset Accounts (August 2000 through July 2001) CREDITS RECEIVED* VOC NOx SOx CO PM1O Orphan Shutdown Credits (lb/day) 1,765 2,060 0 1,561 0 Surplus Reduction Credits (lb/day) 703 35 0 0 0 BACT and Other Discount of ERCs (lb/day) 0 0 0 0 0 Positive Balance Adjustment via ERC (lb/day) 18 0 0 0 0 Total Credit to AQMD Account (lb/day) 2,486 2,095 0 1.561 0 Total Credit to AQMD Account (ton/day 1.24 1.05 0.0 0.78 0.00

* For a more detailed description of credits received see Appendix A Table 4 Debits from AQMD’s Federal Offset Accounts (August 2000 through July 2001)

Priority Reserve (lb/day) 137 321 0 360 296 Community Bank (lb/day) 0 31 0 0 0 Other Rule 1304 Exemptions (lb/day) 2,080 621 0 323 1,881 Special Permit Reactivations (lb/day) 1 14 0 0 0 Sum Total of AQMD Offsets (lb/day) 2,218 987 0 683 2,177 120 % Offset Ratio (lb/day) 2.662 1.184 0 820 2.612

• Total Debit to AQMD Account (lb/day) 2,662 1,184 0 820 2,612 Total Debitto AQMD Account (ton/day 1.33 0.59 0 0.41 1.31

* For a more detailed description of credits received see Appendix A Small Source Exemption (lb/day) 0 0 0 0 0

-8-Table 5 Sum ofCredit/Debit Activity in AQMD’s Federal Offset Accounts (August 2000 through July 2001) 

## voc NOx SOx, PM1O Total Credits* (lb/day) 2,486 2,095 0 1,561 0 Total Debits* (lb/day) -2,662 -1,184 0 -820 -2,612 Sum of CreditIDebit()* (lb/day) -176 911 0 741 -2,612 Sum ofCredftloebit(.)* (ton/day -0.09 0.46 0.00 0.37 -1.31

* Credits are shown as (+) and Debits as 

### (-), while their sum is shown as (+) or

### (-) depending on the val ues of Credits and Debits. 

### The sum ofcredit and debit activity (credits plus debits) from this analysis is added to or subtractedfromthe starting federal accountbalance for eachpollutantto determine com pliance with federal NSRrequirements. Referto Table 1 for a summary ofstarting and ending federal accountbalances forthe August 2000 through July 2001 time period. 

### DEMONSTRATION OF EQUIVALENCE WITH STATE OFFSET REQUIREMENTS Table 6 presents the total emission reductions credited to AQMD’s state offset accounts fromAugust 2000 through July 2001. Debits fromAQMD’ s state accounts incurred during the same period are summarized in Table 7. Finally, sum ofcredit/debit activity (credits plus debits) forthe state accounts is displayed in Table 8.

-9-Table 6 Credits to AQMD’s State Offset Accounts (August 2000 through July 2001) CREDITS RECEIVED* VOC NOx’ SOx CO PMIO Orphan Shutdown Credits (lb/day) 6,453 3,393 39 2,081 474 Surplus Reduction Credits (lb/day) 1,220 260 0 12 0 BACT and Other Discount of ERCs (lb/day) 0 0 0 0 0 Positive Balance Adjustment via ERC (lb/day) 18 0 0 1 0 Total Credit to AQMD Account (lb/day) 7,691 3,653 39 2,094 474 Total Creditto AQMD Account (ton/day 3.85 1.83 0.02 1.05 0.24

* For a more detailed description ofcredits received see Appendix A Table 7 Debits from AQMD’s State Offset Accounts (August 2000 through July 2001) DISTRICT OFFSETS USED* 

# 1 voc NOx SOx CO PM1O Small Source Exemption (lb/day) 14,119 779 0 885 40 Priority Reserve (lb/day) 181 370 205 807 489 Community Bank (lb/day) 354 32 0 50 5 Other Rule 1304 Exemptions (lb/day) 2,786 2,432 0 337 2,029 Special Permit Reactivations (lb/day) 1 56 0 0 0 Sum Total ofAQMD Offsets (lb/day) 17,441 3,669 205 2,079 2,563 80 % PTE Adjustment (lb/day) 13,953 2,935 164 1,663 2,050 Total Debit to AQMD Account (lb/day) 13,953 2,935 164 1,663 2,050 Total Debitto AQMD Account (ton/day) 6.98 1.47 0.08 0.83 1.03

* For a more detailed description ofcredits received see Appendix A

-10-Table 8 Sum of Credit/Debit Activity in AQMD’s State Offset Accounts (August 2000 through July 2001) VOC 

### NOx SOx CO PMIO Total Credits* (lb/day) 7,691 3,653 39 2,094 474 Total Debits* (lb/day) -13,953 -2,935 -164 -1,663 -2,050 Sum of CreditJDebit()* (lb/day) -6,262 718 -125 431 -1,576 Sum ofCredWDebit()* (ton/day) -3.13 0.36 -0.06 0..22 -079

* Credits are shown as (+) and Debits as 

### (-), while their sum is shown as (+) or

### (-) depending on the val ues of Credits and Debits. 

### The sum ofcredit and debit activity (credits plus debits) from this analysis is added to or subtracted fromthe starting state accountbalance foreach pollutantto determine compli ance with state NSR requirements. Referto Table 2 for a summary ofstarting and 

### ending state accountbalances forthe August 2000 through July 2001 time period. ENHANCEMENTS TO ANALYSIS METHODOLOGY The only “orphan” credits deposited in AQMD’s accounts inpriorreports were those re sulting fromequipment shutdowns (“orphan shutdowns”). This reportintroduces another type ofcredit—those resulting fromemission reductions associated with permitting ac tivity (“surplus reductions”). Surplus reductions were not included in previous analyses because this type ofemissionreduction could notbe automatically capturedby the track ing system and 

### itrequires the investment ofstaffresources required to authenticate such reductions. However, in orderto furtherenhance the tracking system, as well as the tightening ofthe emission offset market and the recently expanded use ofAQMD’ s offset accounts to include EGFs, the scope ofstaff’s analysis was expanded to include these credits. Further, AQMD staffconducted additional review and audit ofthe past credit and debit accounting and determined that in two instances an adjustment ofthe entries was neces sary. These resulted in areduced level ofavailable past credits and is reflected as Re finements in Tables 1 and 2.

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### ELECTRICAL GENERATING FACILITY ACCESS TO PRIORITY RESERVE The April 2001 amendments to Rule 1303— Requirements and Rule 1309.1

— Priority Re serve provided EGFs with access to PM1O offsets from the Priority Reserve 7 . Subse quently, the November 2001 and May 2002 amendments to Rule 1309.1 expanded EGF access to Priority Reserve offsets to include SOx and CO. Table 9 summarizes the Prior ity Reserve offsets provided to EGFs during the August 2000 through July 2001 time pe riod. These priority reserve offsets are included in (not in addition to) the offsets summa rized in Tables 4, 5, 7, and 8. Table 9 EGF Access to Priority Reserve Offsets (August 2000 through July 2001) PM’IO 

### SOx CO Priority Reserve Offsets Used (lb/day) 338 0 0 Priority Reserve Offsets Used (ton/day) 0.17 0 0 

### CONCLUSIONS 

# e The analysis presented in this report demonstrates that AQMD’s NSR programprovides equivalent offsets to those required by federal and state NSR requirements and is equiva lentto the federal and state requirements on an aggregate basis. The majority ofsources subject to AQMD’s permitting program are not major stationary sources and, therefore, are not subjectto federal offsetrequirements. AQMD’s federal accountbalances re mained relatively unchanged, with the exception ofan about eight percent reduction in the PM1O account. The PM1O reduction, however, is primarily due to arefinement ofthe amount credited to AQMD’s account during the August 1998 through July 1999 time pe riod. As such, this reduction is considered a one-time event and is not cause for concern. The pollutant oflowestbalance is NOx. The state NOx balance was 4.30 tons per day at the beginning ofthe reporting period and was increased by 0.47 ton per day during the twelve months coveredby this report. AQMD’s state VOC accountbalance (46.58 tons per day atthe beginning ofthe reporting period) is significantly higherthan the NOx bal ance. However, in the past, the VOC account has generally experienced a greaterrate of depletion than have the other accounts. The reductions ofAQMD’s state VOC and PM1O balances during this reporting period were each about seven percent during the August 2000 through July 2001 timeframe. As indicated above, the PM1O reduction is primarily due to the one-time refinement. AQMD’s state SOx and CO account balances remained relatively unchanged. Referto Rule 1309.1(a)(4) for eligibility requirements.
-12-Staffwill continue to trackcredits to and debits fromthe federal and state offset accounts and will provide annual reports and equivalency demonstrations to the Board to ensure that AQMD’s NSR program continues to operate in compliante with federal and state NSR requirements.

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# 0

### APPENDIX A Sources ofCredits to and Debits from AQMD’s Emission OffsetAccounts

### Sources ofCredits to and Debits from AQMD’s Emission Offset Accounts
This appendix provides a more detailed description ofthe sources ofCredits to and Deb its from AQMD’s federal and state offset accounts. 

### I. Sources ofEmission Reductions Creditable to AQMD Accounts A. BACT Discount ofERCs Rule 1309 specifies that ERCs issued for an emission reduction notbe “greater than the equipment would have achieved ifoperating with current [BACT].” In other words, ERCs 

### are not issued fortotal actual emissions reductions but 

### are only issued by AQMD for the portion ofthe emission reduction beyond what would be achieved by the installation ofcurrent BACT on the source providing the reduc tions. The BACT discountportion ofthe reduction is available for offsetting emission increases forpurposes ofdemonstrating equivalence with federal 

### and state NSR requirements. Thus, the BACT discountportion ofERC-generating emission reductions are credited to AQMD’s federal and state accounts. Note that only emission reductions originating at major stationary sources are credited to AQMD’s federal accounts and, for CO. PM10, and SOx, only reductions originat ing at facilities with the potential to emit at least 15 tons peryear ofthese pollut ants are credited to AQMD’s state accounts. ForNOx 

### and VOC sources such emission reductions are credited to state accounts regardless ofthe facility’s po tential to emit. Also as part ofthe enhancements to the methodology, AQMD staffconducted ad ditionalreview 

### and audit ofpast credit 

### and debit accounts and determined that the reportprepared forthe August 1998 through July 1999 time 

### period reflected an overcrediting ofAQMD’s federal and state accounts by 2.41 tons ofPM1O per yearin the “BACT Discount ofERCs” line item. A refmementto AQMD’s fed eral 

### and state accounts forthis is shown as a line item in Tables 1 

### and 2. B. Other Discounts ofERCs 

### (PriorAQMD Offsets and Positive NSR Balances) Rule 1306(e) specifies that all ofthe following be subtracted from an emission re duction afterthe BACT discount is applied 

### and before ERCs are issued:

• The Positive NSR balance ofthe facility generating the emission reduction;
• All Community 

### Bank allocations previously issued to the facility generating the emission reduction;

-Al

-

### • All Priority Reserve allocations previously issued to the facility generating the emission reduction; and

‘ 

### All offsets obtained by the facility generating the emission reduction pursuant to the exemption provisions ofRule 1304. This provision prevents facilities from generating salable ERCs from offsets origi nally obtained from AQMD’s accounts. Therefore, these offset discounts are captured back into AQMD’s accounts and are available fordemonstration of equivalence with federal and state offsetrequirements. Again, only reductions originating at major stationary sources are credited to AQMD’s federal accounts and reductions ofCO, PM10, and SOx originating at facilities with the potential to emit at least 15 tons peryear ofthe pollutant and reductions ofNOx and VOC originating at all facilities are credited to AQMD’s state accounts. C. Orphan Shutdowns Orphan shutdowns are emission reductions from AQMD-permitted sources that are removed from service andpermanently cease emitting activities, have their permits inactivated, and are not claimed as emission reductions under an ERC ap plication. AQMD tracks these accounts. Only orphan shutdown reductions origi natmg at major stationary sources are credited to AQMD’s federal accounts and shutdowns ofCO, PM10, and SOx originating atfacilities with the potential to emit atleast 15 tons peryear ofthe pollutant and NOx and VOC shutdowns at all facilities are credited to AQMD’s state accounts. The calculation ofthe quantity ofoffsets to be credited to AQMD’s offset accounts is dependent on the nature of the offsets originally used forthe source thathas shut down and is generating the emission reduction:

• Ifthe shut down source was originally offset fromthe Community Bank, the Priority Reserve, or a Rule 1304 exemption, the actual amount ofthe offset provided (i.e., the potential to emit) is credited to AQMD’s federal accounts and eighty percent ofthe actual amount ofthe offsetprovided is credited to AQMD’s state offset accounts. The exception to this is orphan shutdowns of equipment formerly exempt frompermitrequirements pursuant to Rule 219 and, therefore, never subject to NSR, which are credited to AQMD’s federal and state accounts at twenty percent ofthe actual amount ofthe offsetpro vided. This also includes equipmentthathas been shut down at a source where a priorpermit forthe same source obtained offsets from the Community Bank, the Priority Reserve, or aRule 1304 exemption. • The quantity ofoffsets to be credited to AQMD’s offset accounts for orphan shutdowns otherthan those described above was calculated on a case-by-case basis from the following two cases, whicheverresults in lower emissions:
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### • Twenty-three percent 8 ofthe amount originally offset forthe source in NSR; or • Twenty-three percent oftwenty-fourtimes the hourly controlled emissions fromthe source as recorded in AQMD’s automated emission inventory system (AEIS). This provides a very conservative approach to ensure thatthe creditable emission reductions are not overestimated. D. Surplus Reductions Surplus reductions are creditable emission reductions (excluding orphan shut downs) associated with permitting activities. There are two basic categories of surplus reductions:

• When permits to construct that received emissions offsets fromAQMD’s ac counts are cancelled the offsets provided are returned to AQMD’s accounts.
• When apermit is modified in a mannerthatpermanently and enforceably re duces the equipment’s “potential to emit;” the reduction is notrequired by rule, proposedrule, law, orcontrol measure 9 ; and the facility does not receive credit forthe reduction, the reduction is credited to AQMD’s accounts. Examples of these types ofemission reductions include situations in which facilities install control equipmentthat is not required forcompliance, process modifications thatreduce emissions below statutory andrule requirements, andretrofit down to BACT levels for sources pending change oflocation. Only reductions occurring at facilities with potential to emit above the federal thresholds are credited to AQMD’s federal accounts and with potential to emit above the state thresholds are creditedto AQMD’s state accounts. E. Negative NSR Balances Priorto the 1990 amendments to Regulation Xffl, negative NSRbalances repre sented a facility’s emission reduction balance thathad not been issued as ERCs. Negative NSR balances were generated by emission reductions resulting from on site equipment orfacility modifications, overcontrols, or shutdowns. The 1990 amendments to Regulation XIII specifiedthat all negative NSR balances be re ducedby eighty percent and converted to ERCs. The eightypercentportions of

8 An eight-hourperday, five days perweek, fifty weeks per yearoperating schedule represents twenty-three percent

ofthe operating time ofa twenty-fourhourperday, seven days perweek, fifty-two weeks peryearoperating schedule. Referto Rule 1309.1 (b)(4) for a complete explanation ofeligibility requirements.
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### the negative balances from all such facilities were used to fund both AQMD’s fed eral and state offset accounts. This was a one-time source offunding forthe fed eral and state offset accounts and is not ongoing. II. Sources ofEmission Increases Debited from AQMD Accounts A. Priority Reserve Pursuant to AQMD Rule 1309.1, essential public services (e.g., sewage treatment facilities, police and fire fighting facilities, schools) are not required to provide emission offsets inthe form ofERCs when theyreceive permits involving emis sion increases. Instead, AQMD provides theiroffsets through the Priority Reserve. EGFs are also able to obtain PM10, CO, and SOx emissions offsets from the Pri ority Reserve. These offsets are deducted fromAQMD’s federal (forthe case of major stationary sources) and state offset accounts (except CO, PM1O, and SOx from facilities whose potential to emitthese pollutants is below 15 tons peryear). B. Community Bank For applications deemed complete priorto February 1996, no offsets were required forprojects with project emission increases below the following thresholds:

• 30 pounds per day ofVOCs;
• 40 pounds perday ofNOx;
• 60 pounds per day ofSOx; • 220 pounds per day ofCO; and • 30 pounds per day ofPM10. AQMD provided offsets forthese projects fromits accounts through what was then termed the “Community Bank.” Community Bank offsets providedto major stationary sources are deducted fromAQMD’s federal accounts and all Commu nity Bank offsets are deducted fromAQMD’s state accounts (except CO. PM10, and SOx provided to facilities whose potential to emitthese pollutants is below 15 tons peryear). C. OffsetExemptions The Community Bank was replaced with offset exemption thresholds for applica tions received in or afterFebruary 1996. Facilities with aggregatepotential to emit below these thresholds are eligible to receive emission offsets fromAQMD’s off

-A4-set accounts, up to the levels ofthe thresholds. The exemption thresholds speci fied in Rule 1304 are as follows:

• 4 tons peryear ofVOCs;
• 4 tons peryear ofNOx;
• 4 tons per

### year ofSOx;
• 4 tons peryear ofPM 10; and
• 29 tons peryear ofCO. Rule 1304 also includes offset exemptions for a variety ofsource types such as re placement ofozone-depleting compounds, methyl bromide fumigation, emergency equipment, and certain modifications 

### and process changes implemented to reduce issuance of

### air contaminants. The majority ofthese exemptions 

### are intended to in centivize installation ofcontrol equipment orfacilitate compliance with other regulatory mandates. These offsets are debited from AQMD’s federal and state offset accounts. Note that only offsets provided to sources at major stationary sources 

### are deducted fromAQMD’s federal accounts. Similarly, only CO. PM10, and SOx offsets provided to facilities whose potential to emitthese pollutants is greaterthan or equal to 15 tons peryear are deducted from AQMD’ s state ac counts, whereas all NOx 

### and VOC offsets 

### are deducted from the state accounts. Also as part ofthe enhancements to the methodology, AQMD staffconducted ad ditional review and audit ofpast credit and debit accounts and determined that CO under “OtherExemptions” (i.e., exemptions otherthan the small source exemp tion) were underreported forAQMD’s federal (6 pounds per day) and state (264 pounds per day) accounts forthe August 1999 through July 2000 time period. The appropriate refinements 

### are shown as line items in Tables 1 and 2. D. Special Permit Reactivations There have been rare cases where the permits for equipmentthat was previously considered an orphan shutdown have beenreactivated. The orphan shutdown re ductions previously credited to AQMD’s federal 

### and state offset accounts forthese sources are debited from these accounts when such permits 

### are reactivated.

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