This report, submitted to the Board pursuant to subdivision (b) of Rule 1310

—Analysis and Reporting, provides information on the status ofRegulation XIII

—New Source Review (NSR) in meeting federal and state NSRrequirements. This report, whichpresents data forAugust 2001 through July 2002, shows that AQMD’s NSRpro gram was in compliance with applicable federal and state require ments during the period covered.



### SUMMARY The AQMD’s New Source Review (NSR) Rules and Regulations are designed to support-s efforts to attain and maintain compliance with the federal and state air quality standards and to ensure that emissions increases fromnew and modified sources do not interfere with such efforts, while maintaining economic growth in the South Coastregion. Regula tion XIII

- New Source Review regulates emissions increases and accounts for all emis sion changes (both increases and decreases) from the permitting ofnew, modified, and relocated sources within AQMD with the exception ofNOx and SOx sources subject to Regulation XX

—Regional Clean AirIncentives Market (RECLAIM) 1

. Rule 1310-
While the RECLAIM program is different than command and control rules forNOx and SOx and itprovides greaterregulatory flexibility to businesses, its NSR requirements, as specified in Rule 2005, are designed to com ply with the governing principles ofNSR contained inthe federal Clean AirAct (CAA) and the California State Health and Safety Codes. 

# South Coast Air Quality Management District 21865 Copley Drive, Diamond Bar, CA 91765-4178 (909) 396-2000 www.aqmd.gov BOARD MEETING DATE: April 2, 2004 AGENDA NO. 25 REPORT: Status Report on Regulation XIII

—New Source Review SYNOPSIS:

COMMITTEE: Stationary Source, March 26, 2004, Reviewed RECOMMENDED ACTION: Receive and flle the attachedreport. 

# 312k

CC:MN:WCT:GLT:MH Barry R. Wallerstein, D.Env. Executive OfficerAnalysis and Reporting requires the submittal ofan annual report to the Board on the status ofRegulation XIII in meeting federal and state NSR requirements. The annual reports on the status ofRegulation XIII coverNSR activities for a twelvemonth period and the lastreport submitted to the Board on August 2, 2002 covered the period from August 2000 through July 2001 forboth federal and state NSR requirements. This annual report covers theperiod August 2001 through July 2002 and demonstrates compliance with federal and state NSR requirements by establishing aggregate equiva lence with federal and state offsetrequirements. The results ofthe analysis forthe August 2001 through July 2002 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 meet federal and state offsetre quirements and is equivalentto those requirements on an aggregate basis 2

. In 2001 and 2002 AQMD amended portions ofRegulationXIII

—NSR related to emis sionreduction credits. U.S. EPA has not yet approved the December 2002 amendments to Regulation XIII. in addition, U.S. EPA recently adopted revisions to the federal NSR regulations (i.e., NSR Reforms) which mainlychange the applicability determinations for modifications subject to the federal NSR program. As aresult ofdiscussions with U.S. EPA on SIP approval ofAQMD’s 2001 and 2002 NSR amendments and U.S. EPA’s NSR Reforms, the result ofour analysis may change, at which time AQMD staffwill provide an updated status ofour analysis.

2 AQMD’s NSR program is deemed to be equivalent to federal and state offsetrequirements because AQMD’s end- 

### ( ing accountbalances remained positive, indicating there were adequate offsets during this period.
-2-Table 1 

### Net Activity, Starting Balances, and Ending Balances for AQMD’s Federal Offset Accounts (August 2001 through July 2002) DESCRIPTION VOC NOx SOx CO. PM1O Starting Balance (ton/day) 104.90 21.21 18.64 26.43 40.80 Total Credits* (lb/day) 7,454 2,394 230 1 ,379 1,038 Total Debits* (lb/day) -1,946 -1,622 0 -6,066 -157 Sum of Credits/Debits* (lb/day) 5,508 772 230 -4,687 881 Sum of Credits/Debits* (ton/day) 2.75 0.39 0.12 -2.34 0.44 Ending Balance** (ton/day) 107.65 21.60 18.76 24.09 41.24
* Referto Appendix A for an explanation ofthe sources ofcredits and debits. Credits are shown as positive and Debits as negative, while sum of Credits/Debits, Refinements, and NetActivity are shown as positive ornegtive, as appropriate.
** “Ending Balance” equals the “Starting Balance” plus the “NetActivity.” Table 2 Net Activity, Starting Balances, and Ending Balances for AQMD’s State Offset Ac counts (August 2001 through July 2002)

Total Credits* (lb/day) 11,893 4,074 192 1,280 1,128 Total Debits* (lb/day) -9,966 -1,606 -25 -5,769 -340 Sum of Credits/Debits* (lb/day) 1,927 2,468 167 -4,489 788 Sum of Credits/Debits* (ton/day) 0.96 1.23 0.08 -2.24 0.39 Ending Balance** (ton/day 44.41 5.89 18.83 24.26 43.24



### BACKGROUND AQMD originally adopted its NSRprogram in 1976. U.S. EPA approved AQMD’s NSR program into California’s State ImplementationPlan initially onJanuary 21, 1981 

### (46FR5965) and again on December4, 1996 (61FR64291). The originalprogramhas evolved into the current version ofthe Regulation XIII rules in response to federal and state legalrequirements and the changing needs ofthe local environment and economy. The mostrecent amendments to the NSRrules were adopted on December 6, 2002 to fa Starting Balance (ton/day) 43.45 4.66 18.75 26.50 42.85

* Referto Appendix Afor an explanation ofthe sources ofcredits and debits. Credits are shown as positive and Debits as negative, while sum ofCredits/Debits, Refinements, and NetActivity are shown as positive or negative, as appropriate.
** “Ending Balance” equals the “Starting Balance” plus the “NetActivity.”

-3-cilitate and provide additional options for credit generation. The mostnotable changes in those amendments are summarized below:

• Short Term Credits (STC) Rules 1303

—Requirements and 1309

—Emission Reduction Credits and Short Term Credits now provide forthe generation and use ofshort term offsets for stationary sources. These credits can be generatedby stationary sources (Emission Reduction Credits orERCs), mobile sources (MSERCs), and area sources (ASERCs).

• Extended ERC Filing Deadline Rule 1309

—Emission Reduction Credits and Short Term Credits’ deadline to apply to bank an ERC was extended from 90 days afterto 180 days after the emission reduc tion occurring.
• OffsetBudget Rule 1309.2

— Offset Budget creates a “bank oflastresort” to provide offsets for sources that are unable to otherwise obtain needed offsets. Also in April and November 2001, AQMD amended Rule 1309.1 to allow electric gener ating facilities (EGFs) to be able to access the Priority Reserve to purchase emission cred its. All these amendments are pending U.S. EPA Review and approval into the SIP. AQMD’s NSRprogram is designed, amongst otherthings, to, at a minimum, offsetemis sion increases in amaimerequivalent to federal and state statutoryNSRrequirements. To this end, AQMD’s NSR programimplements the federal and state statutoryrequirements forNSR and ensures that construction and operation ofnew and modified sources does not interfere withprogress towards attainment ofthe National and State Ambient Air Quality Standards. AQMD’s computerized emission tracking systemis utilized to dem onstrate equivalence with federal offsetrequirements on an aggregate basis. Specific NSR requirements offederal and state law are presentedbelow. 

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

. Effective November 15, 1992,
The October 20, 2000 amendments to Rule 1302

— Definitions changed the “major stationary source” thresholds applicable to AQMD’sjurisdiction. The applicable thresholds during the time period covered by this report were as summarized below: tJlutasf t. ê dOAB SSA r MDAR VOC 10 tons ner year 25 tons ner year 100 tons oer year NOx 10 tons oer year 25 tons Der year 100 tons oer year SOx 100 tons Der year 100 tons ner year 100 tons oer year PM1 0 70 tons oer year 70 tons oer year 100 tons Der year CO 50 tons er year 100 tons oer year 100 tons oer year

-4-the federal Clean Air Act (CAA) requires a 1.5-to-i external offsetratio and a 1.3-to-i internal offsetratio formajor stationary sources located in an extreme ozone nonattainment area. The South Coast AirBasin (SOCAB) is the only area in the nation that has been designated as extreme ozone non-attainment. An extreme ozone non-attainment areamay qualify for a 1.2-to-i offsetratio ifitrequires implementation offederal Best Available Control Technology (BACT), as defined in CAA Section 169(3) forprevention ofSignificant Deterioration ofAir Quality on all major sources [CAA Section 182(e)(1)j. The federal definition ofBACT is equivalentto state Best Available Retrofit Control Technology (BARCT), which AQMD implements through its Regulation XI— Source Specific Standards and otherAQMD rules and regulations. AQMD meets this criterion and uses a 1.2-to-i offsetratio. In addition, AQMD not only requires the 1.2-to-i offset ratio for all federal sources, but also requires the same offsetratio fornon-federal sources 4 . 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 CO, the SOCAB must comply with the requirements for seri ous non-attainment areas; however SSAB is considered attainment for CO. SOCAB had one federal CO exceedance in 2002 and none in 2003, and AQMD is in theprocess ofre questing U.S. EPA to redesignate SOCAB as attainment with federal CO standards. Both SOCAB and SSAB are considered attainment for SO 2 and NO 2

, however SOx and NOx are precursors to pollutants for whichboth SOCAB and SSAB are designated as nonattainment 5 . The Mojave Desert Air Basin (MDAB) is currently unclassified for all pol lutants. The various attainment statuses forthe VOC, NOx, SOx, PM1O, and CO in the three airbasins resultin the major source thresholds presented bypollutant and airbasin in footnote 3 on the previous page. This reportdemonstrates compliance with the federal NSR requirements. State 

### Law State law requires the use ofBACT fornew and modified sources (Health and Safety Code Sections 40440(b)(1) and 40920.5) and “no net increase in emissions” from certain permitted new or modified sources based on theirpotential to emit and the non-attainment classification ofthe area in which they are located. This report demonstrates AQMD’s compliance with the “no net emission increase” requirements ofstate law forthe period from August 2001 through July 2002 by demonstrating compliance with the requirements

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

offsets from the Priority Reserve are also required by AQMD to provide offsets (i.e., ERCs) at aratio of 1.2-to-i. SOx is a precursor to PM1O and NOx is aprecursorto both PM1O and ozone. -5-for extreme ozone non-attainment areas for ozone precursors and with the requirements for serious non-attainment areas for CO, PM10, andprecursors to PM10. 

### OVERVIEW OF ANALYSIS METHODOLOGY The two majorelements offederal and state NSRrequirements are LAER/BACT and emission offsetting. AQMD’s BACT requirements are at least as stringent as federal LAER formajor sources and state BACT requirements for all sources. Furthermore, the NSR emission offsetrequirements that AQMD implements through its permitting process ensure that sources provide emissionreduction credits (ERCs) to offsettheiremission in creases in compliance with both federal and state requirements. As aresult, these sources each comply with federal and state offsetrequirements by providing their own ERCs. However, certain sources are exemptfrom AQMD’s offsetrequirements pursuantto Rule 1304 or qualify for offsets from AQMD’s Community Bank (applications receivedbe tween October 1, 1990 and February 1, 1996 only) orPriority Reserve, both pursuantto Rule 1309.1. AQMD has determined thatproviding offset exemptions and the Priority Reserve (as well as the previously-administeredCommunity Bank) is importantto the NSR program and the local economy while encouraging installation ofcontrol equipment. Therefore, AQMD has assumed the responsibility ofproviding the necessary offsets for exempt sources, the Priority Reserve, and the Community Bank. This reportexamines credits to and debits from AQMD’s emission offset accounts and demonstrates program matic equivalence on an aggregate basis with federal and state emission offsetrequire ments forthe sources exempt fromproviding offsets and the sources thatreceive offsets from the Priority Reserve orthe Community Bank. 

### AQMD’s Offset and CreditAccounts Only emission increases originating atmajor stationary sources are subjectto federal off setrequirements. However, state offsetrequirements applyto all increases ofVOC or NOx from equipment subject to AQMD’s permitting program and to increases ofSOx, CO, and PM1O from facilities that emit 15 ormore tons peryear. For the purposes ofthis report, these same thresholds are also used to assign credits generated through emission reductions to the federal and state offset accounts, respectively. Due to the differences in offsetratios and applicability thresholds between federal and state NSRrequirements, AQMD tracks two sets ofaccounts—one forpurposes ofdemonstrating equivalence with federal and one with state offsetrequirements. In addition, each ofthe five pollutants subject to offsetrequirements (VOC, NOx, SOx, CO, and PM10) has its own federal ac count and its own state account. AQMD’s NSRprogram is considered to provide equiva lent or greater offsets ofemissions as requiredby federal and state requirements foreach subjectpollutantprovided the balance ofcredits left in AQMD’s accounts for eachpol lutant stays as a positive number, indicating that there were adequate offsets available.

-6-CreditAccounting When emissions from apermitted source are permanentlyreduced (e.g., installation of control equipment, removal ofthe source) and the emission reduction is notrequired by rule or law and is not called for by an AQMP control measure that has been assigned a target implementation date 6 , the permitholdermay apply for ERCs for the pollutants re duced. Prior to issuing an ERC, AQMD “discounts” this reduction to the level ofreduc tion that would have been realized ifthe source had been operating at current BACT lev els. The difference between the actual quantified emission reduction and the amount of ERCs issued is credited to AQMD’s account ofavailable offsets. Additionally, ifthe per mit holderforthe source generating the emission reduction had previously received off sets from an AQMD account orhas a “positive balance” (i.e., pre-1990 net emission in crease), the quantity ofAQMD credits used or the amount ofthe positive balance is sub tracted from the reduction and “paid back” to AQMD’s accounts priorto issuance ofan ERC pursuantto Rule 1306. In other cases, permitholders do not always submit applica tions to claimERCs for theirequipment shutdowns or othereligible emissionreductions. These unclaimed reductions are referred to as “orphan shutdowns” or “surplus reduc tions” and are credited to AQMD’s accounts. DebitAccounting On the otherhand, AQMD also tracks all emission increases that are offset through the Priority Reserve orthe Community Bank, as well as all increases that are exempt from offsetrequirements pursuantto Rule 1304

— Exemptions. These increases are all debited from AQMD’s accounts. As discussed above, AQMD uses an offsetratio of 1.2-to-i for its federal accounts. Thatis, 1.2 pounds are deducted fromAQMD’s federal accounts for each pound ofmaximum allowable permittedpotential to emit increase at a federal source. Conversely, state offsetrequirements are based on actual emissions ratherthan maximum allowable permittedpotential to emit. AQMD considers actual emissions as eightypercent ofpermittedpotential to emit 7

. Thus, 0.8 pound is debited from AQMD’s state accounts for each pound ofmaximum allowable permitted emissions increase. There is another source ofdebits from AQMD’s offset accounts in addition to the permit ted emission increases described above. This debit is very infrequent, but it occurs in a situation in which apermitthat was previously inactivated due to nonpayment offees and deemed an orphan shutdown is reactivated. These special reactivations are debited from AQMD’s federal and state accounts at the same ratios as are the other emissions increases identified above.

6 Referto Rule 1309(b) for a complete explanation ofeligibilityrequirements.

The eighty percent factor is based upon an analysis and demonstrationpreviously conducted in 1998 by AQMD staffin coordination with CARB.
-7-The various sources ofcredits to and debits from the federal and state offset accounts are discussed in greater detail in Appendix A. DEMONSTRATION OF EQUIVALENCE WITH FEDERAL OFFSET REQUIREMENTS Table 3 presents the total emission reductions credited to AQMD’s federal offset ac counts from August 2001 through July 2002. Debits from AQMD’s federal accounts incuffed during the same period are summarized in Table 4. Finally, the sum ofcredit/debit activity (credits minus debits) forthe federal accounts is displayed in Table 5. 

# .

Table 3 Credits to AQMD’s Federal Offset Accounts (August 2001 through July 2002)

Surplus Reduction Credits (lb/day) 240 46 0 157 0 BACT and Other Discount of ERCs (lb/day) 3,229 0 38 357 0 Total Credit to AQMD Account (lb/day) 7,454 2,394 230 1,379 1,038 Total Credit to AQMD Account (ton/day 3.73 1.20 0.12 0.69 0.52

* For a more detailed description of credits received see Appendix A. Table 4 Debits from AQMD’s Federal Offset Accounts (August 2001 through July 2002)
Priority Reserve (lb/day) 481 536 0 Community Bank (lb/day) 0 0 0 0 0 Rule 1304 Exemptions/Adjustments (lb/day) 1,141 816 0 4,683 63 Special Permit Reactivations (lb/day) 0 0 0 0 0 Sum Total of AQMD Offsets (lb/day) 1,622 1352 0 5,055 131 120% Offset Ratio (lb/day) 1,946 1,622 0 6,066 157 Total Debit to AQMD Account (lb/day) 1,946 1,622 0 6,066 157 Total Debit to AQMD Account (ton/day) 0.97 0.81 0.00 3.03 0.08 Orphan Shutdown Credits (lb/day) 3,985 2,348 192 865 1,038

372 68

* For a more detailed description ofdebits from AQMD’s accounts see Appendix A.

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

# I VOC NOx SOx CO 

# f Total Credits* (lb/day) 7.454 2.394 230 1,379 1 .038 Total Debits* (lb/day) -1,946 -1,622 0 -6,066 -157 Sum of Credits(+)/Debits()* (lb/day) 5.508 772 230 -4,687 881 Sum of_Credits(+)/Debits()* (ton/day) 2.75 0.39 0.12 -2.34 0.44
* Credits are shown as positive and bbitsas negative, while their sum is shown as positive or negative, as appropriate. The sum ofcredits and debits activity from this analysis (the sum may be positive or negative) is added to the starting federal account balance for each pollutantto determine compliance with federal NSRrequirements. Referto Table 1 for a summary ofstarting and ending federal account balances forthe August 2001 through July 2002 time period. 

### DEMONSTRATION OF EQUIVALENCEWITH STATE OFFSET REQUIREMENTS Table 6 presents the total emission reductions credited to AQMD’s state offset accounts from August 2001 through July 2002. Debits from AQMD’s state accounts incurred dur ing the same period are summarized in Table 7. Finally, the sum ofcredits and debits ac tivity forthe state accounts is displayed in Table 8.
Table 6 Credits to AQMD’s State Offset Accounts (August 2001 through July 2002)
Surplus Reduction Credits (lb/day) 1,057 311 0 213 22 BACT and Other Discount of ERCs (lb/day) 3,229 0 38 357 0 Total Creditto AQMD Account (lb/day) 11,893 4,074 192 1,280 1,128 Total creditto AQMD Account (ton/day) 5.95 2.04 0.10 0.64 0.56 Orphan Shutdown Credits (lb/day) 7,607 3,763 154 710 1106

* For a more detailed description ofcredits received see Appendix A.

-9-Table 7 Debits from AQMD’s State Offset Accounts (August 2001 through July 2002) 

# IP:i óifr 

# ia a 1d1 Small Source Exemption (lb/day) 10,650 84 2 1,386 0 Priority Reserve (lb/day) 537 653 8 704 68 Community Bank (lb/day) 59 0 0 0 0 Other Rule 1304 Exemptions (lb/day) 1,212 1,271 21 5,121 357 Special Permit Reactivations (lb/day) 0 0 0 0 0 Sum Total ofAQMD Offsets (lb/day) 12,458 2,008 31 7,211 425 80% Offset Ratio (lb/day) 9,966 1,606 25 5,769 340 Total Debit to AQMD Account (lb/day) 9,966 1,606 25 5,769 340
S Total Debit

### to AQMD

### A ont Ooh/ay) 4,98 0.8O 2.88 O’17

* For a more detailed description ofdebits from AQMD’s accounts see Mppendix A. 

# 0

Table 8 Sum of Credits/Debits Activity in AQMD’s State Offset Accounts (August 2001 through July 2002) 

# II Total Credits* (lb/day) 11,893 4,074 192 1,280 1,128 Total Debits* (lb/day) -9,966 -1,606 -25 -5,769 -340 Sum of Credits(+)/Debits()* (lb/day) 1,927 2,468 167 -4,489 788 motCrefls(4)/DebIts&Y4toi/day) 

### O 96 P.23, O 08 -2.24 .O39

* Credits are shown as positive and Debits as negative, while their sum is shown as positive or negative, as appropriate. The sum ofcredits and debits activity from this analysis (the sum maybe positive or negative) is added to the starting state accountbalance for eachpollutantto determine compliance with state NSR requirements. Referto Table 2 for a summary ofstarting and ending state account balances forthe August 2001 through July 2002 time period. 

### ELECTRICAL GENERATING FACILITY ACCESS TO PRIORITY RESERVE The April 2001 amendments to Rule 1303

—Requirements and Rule 1309.1

— Priority

### Re serve provide EGFs with access to PM1O offsets from the Priority Reserve 8

. Subse

8 Referto Rule 1309.1 (a)(4) foreligibility requirements.
-10-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 2001 through July 2002 time pe riod. These priorityreserve debits are included in (not in addition to) the debits summa rized in Tables 4, 5, 7, and 8. Table 9 EGF Access to Priority Reserve Offsets (August 2001 through July 2002) PMIO ‘SOx CO Priority Reserve Offsets Used (lb/day) 98 0 0 Priority Reserve Offsets Used (ton/day) 0.05 0 0 CONCLUSIONS The analysis presented in this report demonstrates thatAQMD’s NSRprogramprovides equivalent offsets to those required by federal and state NSRrequirements and is at least equivalent to the federal and state requirements on an aggregate basis. The majority of sources subject to AQMD’s permitting program are not major stationary sources and, therefore, are not subject to federal offset requirements. The sum ofcredits to and debits fromAQMD’s federal and state offset accounts during the August 2001 through July 2002 time period was positive for all pollutants except CO. Both the federal and state CO accounts decreased by approximately two-and-one-third tons during this period. Staffwill continue to track credits 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 NSRprogram continues to operate in compliance with federal and state NSRrequirements. Attachment A. Sources ofCredits to and Debits from AQMD’s Emission Offset Accounts

-11-

# 0APPENDIX A Sources ofCredits to and Debits from AQMD’s Emission Offset AccountsSources 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(b)(4)(E) specifies thatERCs issued for an emission reduction not be “greaterthan the equipment would have achieved ifoperating with current [BACT].” In other words, ERCs are not issued fortotal actual emissions reduc tions but are only issued by AQMD forthe portion ofthe emission reductionbe yond what would be achievedby the installation ofcurrent BACT on the source providing the reductions. The BACT discountportion ofthe reduction is available for offsetting emission increases forpurposes ofdemonstrating equivalence with federal and state NSRrequirements. Thus, the BACT discountportion ofERC generating emission reductions are credited to AQMD’s federal and state accounts. B. Other Discounts ofERCs (PriorAQMD Offsets and Positive NSR Balances) Rule 1306(e)(3) specifies that all ofthe following be subtracted from an emission reduction afterthe BACT discountis applied and before ERCs are issued:

• The Positive NSRbalance ofthe facility generating the emission reduction;
• All Community Bank allocations previously issued to the facility generating the emission reduction;
• All Priority Reserve allocations previously issued to the facility generating the emission reduction; and
• All offsets obtainedby 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 cap tured back into AQMD’s accounts and are available for demonstration ofequiva lence with federal and state offsetrequirements. C. Orphan Shutdowns Orphan shutdowns are emission reductions from AQMD-permitted sources that are removed from service and permanently cease emitting activities, have their
-A2-permits inactivated, and do notresultin issuance ofERCs. AQMD tracks these accounts. The calculation ofthe quantity ofoffsets to be credited to AQMD’s off set accounts is dependent on the nature ofthe offsets originally used for the source thathas shut down and is generating the emission reduction:

• Orphan shutdowns ofequipment formerly exemptfrompermitrequirements pursuant to Rule 219 and, therefore, never subjectto NSR, are credited to AQMD’s federal and state accounts at twentypercent ofpermitted emission level. This also applies to orphan shutdowns ofequipment offsetbyprevious permits forequipmentformerly exempt frompermitrequirements pursuant to Rule 219.
• The actual amount ofthe offsetprovided (i.e., the potential to emit) is credited to AQMD’s federal accounts and eightypercent ofthe actual amount ofthe offsetprovided is credited to AQMD’s state offset accounts for all other orphan shutdowns. This provides a conservative approach to ensure that the creditable emission reduc tions 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 constructthatreceived emissions offsets fromAQMD’s ac counts are cancelledthe offsets provided are returned to AQMD’s accounts. • When a permit is modified in a mannerthatpermanently and enforceably re duces the equipment’s “potential to emit;” the reduction is notrequiredbyrule, proposedrule, law, orcontrol measure 9 ; and the facility does notreceive credit forthe reduction, the reduction is credited to AQMD’s accounts. Examples of these types ofemissionreductions include situations in which facilities install control equipmentthat is notrequired for compliance, process modifications thatreduce emissions below statutory and rule requirements, and retrofit down to BACT levels for sources pending change oflocation. E. Negative NSR Balances Priorto the 1990 amendments to Regulation Xffl, negative NSRbalances repre sented a facility’s emissionreduction balance thathad notbeen issued as ERCs. Referto Rule 1309(b)(5) for acomplete explanation ofeligibilityrequirements. -A3-Negative NSRbalances were generated by emission reductions resulting from onsite equipment or facility modifications, over controls, or shutdowns. The 1990 amendments to Regulation XIII specified that all negative NSR balances be re duced by eighty percent and converted to ERCs. The eighty percentportions of 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. PriorityReserve Pursuant to AQMD Rule 1309.1, essential public services (e.g., sewage treatment facilities, police and fire fighting facilities, schools), innovative technologies that “will resultin a significantly lower emission rate fromthe effected source than.

. .BACT” and “can be expected to serve as a model foremission reduction technology,” and certain research operations (referto Rule 1309.1 (a)(2)) are not required to provide emission offsets in the form ofERCs when they receive per mits involving emission increases. Instead, AQMD provides their offsets through the Priority Reserve. EGFs are also able to purchase PM 10, CO, and SOx emis sions offsets from the Priority Reserve. These offsets are deducted fromAQMD’s federal (forthe case ofmajor stationary sources) and state offset accounts (except CO, PM10, and SOx fromfacilities whose potential to emit these pollutants is be low 15 tons per year). B. Community Bank For applications deemed complete priorto February 1996, no offsets were required forprojects withproject emission increases below the following thresholds:

• 30 pounds perday ofVOCs;
• 40 pounds per day ofNOx;
• 60 pounds perday ofSOx;
• 220 pounds perday ofCO; and
• 30 pounds per day ofPM1O. AQMD provided offsets for these projects from its accounts through what was then termed the “Community Bank.” Community Bank offsets provided to major stationary sources are deducted fromAQMD’s federal accounts and all Commu nity Bank offsets are deducted fromAQMD’s state accounts (except CO. PM10,

-A4-and SOx provided to facilities whose potential to emitthese pollutants is below 15 tons peryear). C. OffsetExemptions The CommunityBankwas replaced with offset exemption thresholds for applica tions received on or afterFebruary 1996. Facilities with aggregate potential to emitbelow these thresholds are eligible to receive emission offsets fromAQMD’s offset accounts, up to the levels ofthe thresholds. The exemption thresholds speci fied in Rule 1304(d) are as follows:

• 4 tons peryear ofVOC; • 4 tons peryearofNOx; • 4 tons peryear ofSOx; • 4 tons peryearofPM10; and • 29 tons peryear ofCO. Rule 1304 also includes offset exemptions for some other source types such as re placement ofozone-depleting compounds, methyl bromide fumigation, emergency equipment, and certain modifications andprocess changes implemented to reduce issuance ofaircontaminants. The majority ofthese exemptions are intended to in centivize installation ofcontrol equipment orfacilitate compliance with otherregu latory mandates. These offsets are debited fromAQMD’ s federal and state offset accounts. Note that only offsets providedto sources atmajor stationary sources are deducted fromAQMD’s federal accounts. Similarly, only CO. PM10, and SOx offsets provided to facilities whosepotential to emitthese pollutants is greaterthan orequal to 15 tons peryear are deducted fromAQMD’s state accounts, whereas all NOx and VOC offsets are deducted fromthe state accounts. D. Special PermitReactivations Therehave beenrare cases where thepermits forequipmentthat was previously considered an orphan shutdown havebeen reactivated. The orphan shutdownre ductions previously credited to AQMD’s federal and state offset accounts forthese sources are debited fromthese accounts when such permits are reactivated.

-A5-