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

Rule 1310 — Analysis and Reporting, provides information on the

status of Regulation XIII — New Source Review (NSR) in meeting

federal and state NSR requirements. This report, which presents data

for August 2001 through July 2002, shows that AQMD’s NSR pro

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 from new and modified sources do not interfere

with such efforts, while maintaining economic growth in the South Coast region. Regula

tion XIII -New Source Review regulates emissions increases and accounts for all emis

sion changes (both increases and decreases) from the permitting of new, modified, and

relocated sources within AQMD with the exception of NOx and SOx sources subject to

Regulation XX — Regional Clean Air Incentives Market (RECLAIM) 1.Rule 1310-

While the RECLAIM program is different than command and control rules for NOx and SOx and it provides

greater regulatory flexibility to businesses, its NSR requirements, as specified in Rule 2005, are designed to com

ply with the governing principles of NSR contained in the federal Clean Air Act (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 attached report.

312k

CC:MN:WCT:GLT:MH

Barry R. Wallerstein, D.Env.

Executive Officer
Analysis and Reporting requires the submittal of an annual report to the Board on the

status of Regulation XIII in meeting federal and state NSR requirements.

The annual reports on the status of Regulation XIII cover NSR activities for a twelvemonth period and the last report submitted to the Board on August 2, 2002 covered the

period from August 2000 through July 2001 for both federal and state NSR requirements.

This annual report covers the period August 2001 through July 2002 and demonstrates

compliance with federal and state NSR requirements by establishing aggregate equiva

lence with federal and state offset requirements.

The results of the analysis for the 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 offset re

quirements and is equivalent to those requirements on an aggregate basis 2.

In 2001 and 2002 AQMD amended portions of Regulation XIII — NSR related to emis

sion reduction 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 mainly change the applicability determinations for

modifications subject to the federal NSR program. As a result of discussions with U.S.

EPA on SIP approval of AQMD’s 2001 and 2002 NSR amendments and U.S. EPA’s

NSR Reforms, the result of our analysis may change, at which time AQMD staff will

provide an updated status of our analysis.

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

ing account balances remained positive, indicating there were adequate offsets during this period.

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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 *

Refer to Appendix A for an explanation of the sources of credits and debits. Credits are shown as

positive and Debits as negative, while sum of Credits/Debits, Refinements, and Net Activity are shown

as positive or negtive, as appropriate. **

“Ending Balance” equals the “Starting Balance” plus the “Net Activity.”

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 NSR program in 1976. U.S. EPA approved AQMD’s NSR

program into California’s State Implementation Plan initially on January 21, 1981

(46FR5965) and again on December 4, 1996 (61FR64291). The original program has

evolved into the current version of the Regulation XIII rules in response to federal and

state legal requirements and the changing needs of the local environment and economy.

The most recent amendments to the NSR rules were adopted on December 6, 2002 to fa

Starting Balance (ton/day) 43.45 4.66 18.75 26.50 42.85

*

Refer to Appendix A for an explanation of the sources of credits and debits. Credits are shown as

positive and Debits as negative, while sum of Credits/Debits, Refinements, and Net Activity are shown

as positive or negative, as appropriate. **

“Ending Balance” equals the “Starting Balance” plus the “Net Activity.”

-3-
cilitate and provide additional options for credit generation. The most notable 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 for the generation and use of short term offsets for stationary

sources. These credits can be generated by stationary sources (Emission Reduction

Credits or ERCs), 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 after to 180 days after the emission reduc

tion occurring.

• Offset Budget

Rule 1309.2 — Offset Budget creates a “bank of last resort” 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 NSR program is designed, amongst other things, to, at a minimum, offset emis

sion increases in a maimer equivalent to federal and state statutory NSR requirements. To

this end, AQMD’s NSR program implements the federal and state statutory requirements

for NSR and ensures that construction and operation of new and modified sources does

not interfere with progress towards attainment of the National and State Ambient Air

Quality Standards. AQMD’s computerized emission tracking system is utilized to dem

onstrate equivalence with federal offset requirements on an aggregate basis. Specific

NSR requirements of federal and state law are presented below.

Federal Law

Federal law requires the use of Lowest Achievable Emission Rate (LAER) and offsets for

new, modified, and relocated major 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’s jurisdiction. 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

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the federal Clean Air Act (CAA) requires a 1.5-to-i external offset ratio and a 1.3-to-i

internal offset ratio for major stationary sources located in an extreme ozone nonattainment area. The South Coast Air Basin (SOCAB) is the only area in the nation that

has been designated as extreme ozone non-attainment. An extreme ozone non-attainment

area may qualify for a 1.2-to-i offset ratio if it requires implementation of federal Best

Available Control Technology (BACT), as defined in CAA Section 169(3) for prevention

of Significant Deterioration of Air Quality on all major sources [CAA Section 182(e)(1)j.

The federal definition of BACT is equivalent to state Best Available Retrofit Control

Technology (BARCT), which AQMD implements through its Regulation XI— Source

Specific Standards and other AQMD rules and regulations. AQMD meets this criterion

and uses a 1.2-to-i offset ratio. In addition, AQMD not only requires the 1.2-to-i offset

ratio for all federal sources, but also requires the same offset ratio for non-federal

sources 4.

Based on their classification, the SOCAB and Salton Sea Air Basin (SSAB) must comply

with the requirements for extreme 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 for PM1O 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 the process of re

questing U.S. EPA to redesignate SOCAB as attainment with federal CO standards. Both

SOCAB and SSAB are considered attainment for SO2and NO2,however SOx and NOx

are precursors to pollutants for which both 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 for the VOC, NOx, SOx, PM1O, and CO in the

three air basins result in the major source thresholds presented by pollutant and air basin

in footnote 3 on the previous page. This report demonstrates compliance with the federal

NSR requirements.

State Law

State law requires the use of BACT for new 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 their potential to emit and the non-attainment

classification of the area in which they are located. This report demonstrates AQMD’s

compliance with the “no net emission increase” requirements of state law for the period

from August 2001 through July 2002 by demonstrating compliance with the requirements

‘

Non-federal sources that do not meet any of the exemption criteria of Rule 1304 and that do not qualify to obtain offsets from the Priority Reserve are also required by AQMD to provide offsets (i.e., ERCs) at a ratio of 1.2-to-i. SOx is a precursor to PM1O and NOx is a precursor to 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, PM 10, and precursors to PM 10.

OVERVIEW OF ANALYSIS METHODOLOGY

The two major elements of federal and state NSR requirements are LAER/BACT and

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

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

NSR emission offset requirements that AQMD 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 offset requirements by providing their own ERCs.

However, certain sources are exempt from AQMD’s offset requirements pursuant to Rule

1304 or qualify for offsets from AQMD’s Community Bank (applications received be

tween October 1, 1990 and February 1, 1996 only) or Priority Reserve, both pursuant to

Rule 1309.1. AQMD has determined that providing offset exemptions and the Priority

Reserve (as well as the previously-administered Community Bank) is important to the

NSR program and the local economy while encouraging installation of control equipment.

Therefore, AQMD has assumed the responsibility of providing the necessary offsets for

exempt sources, the Priority Reserve, and the Community Bank. This report examines

credits to and debits from AQMD’s emission offset accounts and demonstrates program

matic equivalence on an aggregate basis with federal and state emission offset require

ments for the sources exempt from providing offsets and the sources that receive offsets

from the Priority Reserve or the Community Bank.

AQMD’s Offset and Credit Accounts

Only emission increases originating at major stationary sources are subject to federal off

set requirements. However, state offset requirements apply to all increases of VOC or

NOx from equipment subject to AQMD’s permitting program and to increases of SOx,

CO, and PM1O from facilities that emit 15 or more tons per year. For the purposes of this

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

offset ratios and applicability thresholds between federal and state NSR requirements,

AQMD tracks two sets of accounts—one for purposes of demonstrating equivalence with

federal and one with state offset requirements. In addition, each of the five pollutants

subject to offset requirements (VOC, NOx, SOx, CO, and PM 10) has its own federal ac

count and its own state account. AQMD’s NSR program is considered to provide equiva

lent or greater offsets of emissions as required by federal and state requirements for each

subject pollutant provided the balance of credits left in AQMD’s accounts for each pol

lutant stays as a positive number, indicating that there were adequate offsets available.

-6-
Credit Accounting

When emissions from a permitted source are permanently reduced (e.g., installation of

control equipment, removal of the source) and the emission reduction is not required by

rule or law and is not called for by an AQMP control measure that has been assigned a

target implementation date 6,the permit holder may apply for ERCs for the pollutants re

duced. Prior to issuing an ERC, AQMD “discounts” this reduction to the level of reduc

tion that would have been realized if the 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 of available offsets. Additionally, if the per

mit holder for the source generating the emission reduction had previously received off

sets from an AQMD account or has a “positive balance” (i.e., pre-1990 net emission in

crease), the quantity of AQMD credits used or the amount of the positive balance is sub

tracted from the reduction and “paid back” to AQMD’s accounts prior to issuance of an

ERC pursuant to Rule 1306. In other cases, permit holders do not always submit applica

tions to claim ERCs for their equipment shutdowns or other eligible emission reductions.

These unclaimed reductions are referred to as “orphan shutdowns” or “surplus reduc

tions” and are credited to AQMD’s accounts.

Debit Accounting

On the other hand, AQMD also tracks all emission increases that are offset through the

Priority Reserve or the Community Bank, as well as all increases that are exempt from

offset requirements pursuant to Rule 1304 — Exemptions. These increases are all debited

from AQMD’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 AQMD’s federal accounts for

each pound of maximum allowable permitted potential to emit increase at a federal

source. Conversely, state offset requirements are based on actual emissions rather than

maximum allowable permitted potential to emit. AQMD considers actual emissions as

eighty percent of permitted potential to emit 7.Thus, 0.8 pound is debited from AQMD’s

state accounts for each pound of maximum allowable permitted emissions increase.

There is another source of debits 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 a permit that was previously inactivated due to nonpayment of fees 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 Refer to Rule 1309(b) for a complete explanation of eligibility requirements.

The eighty percent factor is based upon an analysis and demonstration previously conducted in 1998 by AQMD

staff in coordination with CARB.

-7-
The various sources of credits 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 of credit/debit

activity (credits minus debits) for the 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 of debits 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 of credits and debits activity from this analysis (the sum may be positive or

negative) is added to the starting federal account balance for each pollutant to determine

compliance with federal NSR requirements. Refer to Table 1 for a summary of starting

and ending federal account balances for the August 2001 through July 2002 time period.

DEMONSTRATION OF EQUIVALENCE WITH 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 of credits and debits ac

tivity for the 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 credit to 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 of credits 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 of AQMD 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 of debits 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 of credits and debits activity from this analysis (the sum may be positive or

negative) is added to the starting state account balance for each pollutant to determine

compliance with state NSR requirements. Refer to Table 2 for a summary of starting and

ending state account balances for the 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 Refer to Rule 1309.1 (a)(4) for eligibility 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 priority reserve 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 that AQMD’s NSR program provides

equivalent offsets to those required by federal and state NSR requirements 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 of credits to and debits

from AQMD’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.

Staff will continue to track credits to and debits from the 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 compliance with federal and state

NSR requirements.

Attachment

A. Sources of Credits to and Debits from AQMD’s Emission Offset Accounts

-11-
0
APPENDIX A

Sources of Credits to and Debits from AQMD’s Emission Offset Accounts
Sources of Credits to and Debits from AQMD’s Emission Offset Accounts

This appendix provides a more detailed description of the sources of Credits to and Deb

its from AQMD’s federal and state offset accounts.

I. Sources of Emission Reductions Creditable to AQMD Accounts

A. BACT Discount of ERCs

Rule 1 309(b)(4)(E) specifies that ERCs issued for an emission reduction not be

“greater than the equipment would have achieved if operating with current

[BACT].” In other words, ERCs are not issued for total actual emissions reduc

tions but are only issued by AQMD for the portion of the emission reduction be

yond what would be achieved by the installation of current BACT on the source

providing the reductions. The BACT discount portion of the reduction is available

for offsetting emission increases for purposes of demonstrating equivalence with

federal and state NSR requirements. Thus, the BACT discount portion of ERC

generating emission reductions are credited to AQMD’s federal and state accounts.

B. Other Discounts of ERCs (Prior AQMD Offsets and Positive NSR Balances)

Rule 1306(e)(3) specifies that all of the following be subtracted from an emission

reduction after the BACT discount is applied and before ERCs are issued:

• The Positive NSR balance of the 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 obtained by the facility generating the emission reduction pursuant

to the exemption provisions of Rule 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 of equiva

lence with federal and state offset requirements.

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 not result in issuance of ERCs. AQMD tracks these

accounts. The calculation of the quantity of offsets to be credited to AQMD’s off

set accounts is dependent on the nature of the offsets originally used for the source

that has shut down and is generating the emission reduction:

• Orphan shutdowns of equipment formerly exempt from permit requirements

pursuant to Rule 219 and, therefore, never subject to NSR, are credited to

AQMD’s federal and state accounts at twenty percent of permitted emission

level. This also applies to orphan shutdowns of equipment offset by previous

permits for equipment formerly exempt from permit requirements pursuant to

Rule 219.

• The actual amount of the offset provided (i.e., the potential to emit) is credited

to AQMD’s federal accounts and eighty percent of the actual amount of the

offset provided 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 construct that received emissions offsets from AQMD’s ac

counts are cancelled the offsets provided are returned to AQMD’s accounts.

• When a permit is modified in a manner that permanently and enforceably re

duces the equipment’s “potential to emit;” the reduction is not required by rule,

proposed rule, law, or control measure 9;and the facility does not receive credit

for the reduction, the reduction is credited to AQMD’s accounts. Examples of

these types of emission reductions include situations in which facilities install

control equipment that is not required for compliance, process modifications

that reduce emissions below statutory and rule requirements, and retrofit down

to BACT levels for sources pending change of location.

E. Negative NSR Balances

Prior to the 1990 amendments to Regulation Xffl, negative NSR balances repre

sented a facility’s emission reduction balance that had not been issued as ERCs.

Refer to Rule 1 309(b)(5) for a complete explanation of eligibility requirements.

-A3-
Negative NSR balances 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 percent portions 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 of funding for the fed

eral and state offset accounts and is not ongoing.

II. Sources of Emission 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), innovative technologies that

“will result in a significantly lower emission rate from the effected source

than. . .BACT” and “can be expected to serve as a model for emission reduction

technology,” and certain research operations (refer to Rule 1309.1 (a)(2)) are not

required to provide emission offsets in the form of ERCs 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 from AQMD’s

federal (for the case of major stationary sources) and state offset accounts (except

CO, PM10, and SOx from facilities whose potential to emit these pollutants is be

low 15 tons per year).

B. Community Bank

For applications deemed complete prior to February 1996, no offsets were required

for projects with project emission increases below the following thresholds:

• 30 pounds per day of VOCs;

• 40 pounds per day of NOx;

• 60 pounds per day of SOx;

• 220 pounds per day of CO; and

• 30 pounds per day of PM1O.

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 from AQMD’s federal accounts and all Commu

nity Bank offsets are deducted from AQMD’s state accounts (except CO. PM 10,

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and SOx provided to facilities whose potential to emit these pollutants is below 15

tons per year).

C. Offset Exemptions

The Community Bank was replaced with offset exemption thresholds for applica

tions received on or after February 1996. Facilities with aggregate potential to

emit below these thresholds are eligible to receive emission offsets from AQMD’s

offset accounts, up to the levels of the thresholds. The exemption thresholds speci

fied in Rule 1304(d) are as follows:

• 4 tons per year of VOC;

• 4 tons per year of NOx;

• 4 tons per year of SOx;

• 4 tons per year of PM10; and

• 29 tons per year of CO.

Rule 1304 also includes offset exemptions for some other source types such as re

placement of ozone-depleting compounds, methyl bromide fumigation, emergency

equipment, and certain modifications and process changes implemented to reduce

issuance of air contaminants. The majority of these exemptions are intended to in

centivize installation of control equipment or facilitate compliance with other regu

latory 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 from AQMD’s federal accounts. Similarly, only CO. PM 10, and SOx

offsets provided to facilities whose potential to emit these pollutants is greater than

or equal to 15 tons per year are deducted from AQMD’s state accounts, whereas all

NOx and VOC offsets are deducted from the state accounts.

D. Special Permit Reactivations

There have been rare cases where the permits for equipment that was previously

considered an orphan shutdown have been reactivated. The orphan shutdown re

ductions previously credited to AQMD’s federal and state offset accounts for these

sources are debited from these accounts when such permits are reactivated.

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