UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION IX AIR DIVISION

Technical Support Document 

for

EPA’s Rulemaking for the

California State Implementation Plan

regarding

South Coast Air Quality Management District (SCAQMD)

Regional Clean Air Incentives Market (RECLAIM)

SCAQMD Rule 2005 New Source Review for RECLAIM

Prepared by: Lily Wong

November 8, 2011
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RULE IDENTIFICATION

Agency: South Coast Air Quality Management District

Current SIP Approved Rule: Adopted: May 6, 2005

Submitted: October 20, 2005

Approved: August 29, 2006

Submittal Subject to this TSD: Rule 2005 New Source Review for RECLAIM

Adopted: June 3, 2011

Submitted: September 27, 2011

BACKGROUND

RECLAIM

The RECLAIM program (Regulation XX) was initially adopted by SCAQMD in October 1993 

and covers stationary sources emitting 4 tons or more per year of NOx or SOx in 1990 or in any 

subsequent year. The program established a NOx and SOx emissions cap and trade program in 

the South Coast air basin, with the emissions cap declining over time until 2003. SCAQMD 

further amended RECLAIM to lower the NOx and SOx emissions caps in 2005 and 2010 

respectively. 

The program was designed to provide facilities with incentives to reduce emissions and advance 

pollution control technologies by giving facilities added flexibility in meeting emission reduction 

requirements. A NOx or SOx RECLAIM Trading Credit (RTC) is a limited authorization to emit 

one pound of NOx or SOx during a specified one year period. A RECLAIM facility’s emissions

may not exceed its holding of RTCs for any compliance year. If a RECLAIM facility does not 

hold sufficient RTCs to cover its emissions, it may choose among these compliance options: 

install control equipment to lower its emissions, modify its activities to lower emissions, or it 

may purchase additional RTCs from other facilities to cover its emissions. The RECLAIM 

program consists of Rules 2000 through 2020. 

Rule 2005

It was necessary to address how the Federal Clean Air Act’s New Source Review (NSR)

program requirements would be implemented in the context of a cap and trade program. Rule 

2005, “New Source Review for RECLAIM,” sets forth the pre-construction review requirements

for new or modified equipment or processes at RECLAIM facilities. The purpose of the rule is to 

ensure that the RECLAIM program is equivalent to the federal and state NSR program 

requirements. Rule 2005 provides three separate requirements to meet the NSR programmatic

equivalency. Sources causing emissions increases must: 1) be equipped with Best Available 

Control Technology (BACT), 2) demonstrate by modeling that the operation will not result in a 

significant increase in the air quality concentration of nitrogen dioxide (NO2) if the facility total 

emissions exceed its 1994 starting allocation1plus non-tradable credits, and 3) the facility must 

 

1 Rule 2002 “Allocations for Oxides of Nitrogen (NOx) and Oxides of Sulfur (SOx)” at section (c) sets forth the 
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hold sufficient RTCs to offset emission increases for one year prior to commencement of 

operation and at the beginning of every compliance year thereafter. 

RULE SUMMARY 

The amendment to Rule 2005 affects the offset requirements in section (f)(1) of the rule as 

follows: 

“(f) Offsets

The Facility Permit for a new or modified facility shall require compliance with this 

subdivision, if applicable.

(1) Any facility which was required to provide offsets pursuant to paragraphs (b)(2), 

(c)(2), or subparagraph (c)(4)(B) or any new facility required to provide offsets pursuant 

to paragraph (c)(2) shall, at the commencement of each compliance year, hold RTCs in 

an amount equal to the amount of such required offsets...”

Rule 2005 distinguishes between “new facility” (defined at Rule 2000(c)(51) – “any facility 

which has received all District Permits to Construct on or after October 15, 1993”) and “existing 

facility” (defined at Rule 2000(c)(35) – “any facility that submitted Emission Fee Reports 

pursuant to Rule 301- Permit Fees, for 1992 or earlier years, or with valid District Permits to 

Operate issued prior to October 15, 1993, and continued to be in operation or possess valid 

District permits on October 15, 1993”). 

The amendment affects existing facilities subject to Rule 2005 whose annual allocations do not 

exceed their 1994 starting allocations plus non-tradable credits. While such facilities are 

required to hold sufficient RTCs to offset emissions increases at the beginning of the first year of 

operation of the new or modified source,

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this rule amendment eliminates the requirement to 

hold sufficient RTCs to offset emissions increases at the beginning of the second and subsequent 

years. 

The SCAQMD staff report explains that the purpose of the amendment to Rule 2005 is to 

alleviate the disincentive to existing facilities to modernize and replace older, more polluting 

equipment with newer, cleaner equipment. The former offset requirement of Rule 2005(f)(1) 

required a facility to hold, prior to each compliance year, RTCs in the amount at least equal to 

the increase in the maximum daily potential to emit from new or modified sources. Most of the 

time, however, facilities do not emit at their maximum permitted level on a daily basis. As a 

result, an artificially high demand of RTCs is created at the beginning of a compliance year to 

meet the holding requirements.

 

methodology for determining an existing facility’s 1994 starting allocation. An existing facility’s starting allocation 

is an important benchmark in the RECLAIM program. If a modification at an existing facility results in an 

emissions increase that exceeds the facility’s 1994 starting allocation, it triggers the applicability of several federal 

NSR requirements including the requirement to offset all emissions increases before the compliance year. Although 

South Coast Rule 2000(c)(3) defines “allocation” as “the number of RECLAIM Trading Credits (RTCs) [as defined 

in paragraph (c)(63)] a RECLAIM facility holds for a specific compliance year, as referenced in the Facility 

Permit,” the use of the term “starting allocation” in Rule 2002 and Rule 2005 clearly means the amount of RTCs that 

were determined by the Executive Officer and assigned to the facility in 1994 consistent with Rule 2002(c). 

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See requirements at Rule 2005(c)(2), which were not revised.
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The rule amendment does not change the RECLAIM program requirement for facilities to hold 

sufficient RTCs to cover their emissions by the end of each quarter and each compliance year 

pursuant to Rule 2004 – Requirements.

EPA REVIEW CRITERIA 

EPA generally uses the following four criteria in evaluating state and local NOx rules for 

approval into the SIP, and for this rule a fifth criteria.

1. Enforceability - Section 110(a) of the Clean Air Act requires enforceable SIP requirements. 

Several EPA guidance documents are used to evaluate rule enforceability, including the 

“Bluebook” (Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Clarification to 

Appendix D), November 24, 1978, 52 FR 45044), and “the Little Bluebook” (Guidance 

Document for Correcting Common VOC & Other Rule Deficiencies), EPA Region 9, August 

21, 2001. 

2. Rule Relaxation - EPA must evaluate whether this SIP revision would interfere with any 

applicable requirement concerning attainment and reasonable further progress (RFP) or any 

requirement of the Act (CAA 110(l)) or modify, in a nonattainment area, any SIP-approved 

control requirement in effect before November 15, 1990 (CAA 193). 

3. Stringency - Section 182(b)(2) of the Clean Air Act requires certain SIP rules to apply 

Reasonably Available Control Technology (RACT). Other sections of the Act require other 

control levels. 

4. State Implementation Plans; General Preamble for the Implementation of Title I of the Clean 

Air Act Amendments of 1990," 57 FR 13498 (April 16, 1992); 57 FR 18070 (April 28, 

1992). State Implementation Plans; Nitrogen Oxides Supplement to the General Preamble; 

Clean Air Act Amendments of 1990 Implementation of Title I; Proposed Rule,” (the NOx

Supplement), 57 FR 55620, November 25, 1992.

5. Economic Incentive Programs - EPA published the guidance, “Improving Air Quality with 

Economic Incentive Programs” on January 2001 (EPA-452/R-01-001). The guidance 

available at http://www.epa.gov/ttncaaa1/t1/meta/m1201.html. This guidance applies to 

discretionary economic incentive programs (EIPs) and represents the agency’s interpretation 

of what EIPs should contain in order to meet the requirements of the Clean Air Act. Because 

this guidance is non-binding and does not represent final agency action, EPA is using the 

guidance as an initial screen to determine whether potential approvability issues arise.

EPA EVALUATION 

The submitted rules comply with the evaluation criteria as discussed below. 

1. Enforceability – The rules are generally clear and consistent with the Bluebook and the Little 

Bluebook and other relevant EPA guidance regarding enforceability.
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2. Rule Relaxation – EPA believes that this SIP revision would comply with CAA sections 

110(l) and 193, because it would not interfere with the on-going process for ensuring that 

requirements for RFP and attainment of the NAAQS are met. EPA evaluated whether this 

amendment could be viewed as a relaxation since it eliminates the requirement to hold, at the 

beginning of the second and subsequent compliance years, sufficient RTCs to offset 

emissions increases. In fact, this amendment has no effect on allowable emissions and would 

not result in emissions increases. The amendment: i) changes the time at which a facility 

must hold sufficient RTCs from the beginning of the compliance year to the end of each 

quarter and the compliance year, and ii) requires that the amount of RTCs to be held to be 

equal to actual emissions rather than its maximum potential to emit emissions for facilities 

with emissions still below their starting allocation. Furthermore, this amendment is 

consistent with EPA’s original understanding of how the NSR offset requirement would be 

implemented in the RECLAIM program. EPA’s November 8, 1996 limited approval and 

limited disapproval of RECLAIM (61 FR 57775) stated, “The NSR offset requirements 

would only be triggered if a particular facility exceeded its initial RECLAIM allocation plus 

nontradeable emission allocation.” (see 61 FR 57777)

3. Stringency – While the CAA RACT requirements do not specifically apply to Rule 2005 

because Rule 2005 addresses the NSR permit program requirements, the RECLAIM program

as a whole is subject to the CAA RACT requirements. In EPA’s original approval of the 

RECLAIM program, EPA determined that the program met the CAA RACT requirements. 

This amendment does not change EPA’s previous determination.

4. General Preamble and NOx Supplement – In EPA’s original approval of the RECLAIM 

program, EPA determined that the program is consistent with the General Preamble and NOx

Supplement. These amendments do not change EPA’s previous determination.

5. EIP Guidance – In EPA’s original approval of RECLAIM, EPA determined that the program 

was consistent EPA’s 1994 guidance for economic incentive programs at 40 CFR 51 Subpart 

U. These amendments do not significantly modify the operation of the SIP-approved 

program and are generally consistent with EPA’s 2001 guidance as well. 

EPA ACTION 

EPA staff recommends full approval of the submitted revision to Rule 2005 because it complies

with all relevant Clean Air Act requirements including those regarding enforceability and it is 

consistent with EPA’s guidance for economic incentive programs. 

RECOMMENDATION

While the RECLAIM program provides a definition of the term “allocation,

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” the term is much 

more nuanced and relies on the context, specific RECLAIM rule, and adjectives (e.g., “annual 

allocation,” “starting allocation,” and whether annual allocations are RTCs assigned by 

SCAQMD or merely held by the facility). We found the uses of the term confusing. We believe 

the program would benefit from additional clarifications in future actions.

 

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See footnote number 1. 
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REFERENCES

SCAQMD SIP approved Rules 2000, 2002, & 2004 are available at EPA Region 9’s SIP website 

under “South Coast Air Quality Management District” at: 

http://yosemite.epa.gov/r9/r9sips.nsf/Casips?readform&count=100&state=California