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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R06-0AR-2010-0147; FRL- -'

Approval and Promulgation of Air Quality Implementation Plans;

Texas; Revisions to the Emission Credit Banking and Trading Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

SUMMARY: EPA is proposing to approve severable portions oftwo revisions to the Texas

State Implementation Plan (SIP) submitted by the State ofTexas on October 24, 2006, and

August 16, 2007. These revisions amend existing sections and create a new section in Title 30 of

the Texas Administrative Code (TAC), Chapter -101 - General Air Quality Rules, Subchapter H

- Emissions Banking and Trading, Division 1 - Emission Credit Banking and Trading, referred

to elsewhere in this notice as the Emission Reduction Credit (ERC) Program. The October 24,

2006, submittal creates a new section for international emission reduction provisions and amends

existing sections to further clarify procedures for using emission protocols and to update the

approved list of emission credit uses. The August 16, 2007, submittal amends two sections of

the ERC program to update cross-references to recently recodified 30 TAC Chapter 117

provisions. EPA has determined that these SIP revisions comply with the Clean Air Act and

EPA regulations, are consistent with EPA policies, and will improve air quality. This action is

being taken under section 110 and parts C and D ofthe Federal Clean Air Act (the Act or CAA).
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DATE: Comments must be received on or before [Insert date 30 days from date of

publication in the Federal Register].

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R06-0AR-2010-

0147, by one ofthe following methods:

(1) www.regulations.gov: Follow the on-line instructions for submitting comments.

(2) E-mail: Mr. JeffRobinson at robinson.jeffrey@epa.gov. Please also cc the person listed

in the FOR FURTHER INFORMAnON CONTACT paragraph below.

(3) U. S. EPA Region 6 "Contact Us" web site: http://epa.gov/region6/r6coment.htm. Please

click on "6PD" (Multimedia) and select "Air" before submitting comments.

(4) Fax: Mr. JeffRobinson, Chief, Air Permits Section (6PD-R), at fax number 214-665-

6762.

(5) Mail: Mr. JeffRobinson, Chief, Air Permits Section (6PD-R), Environmental Protection

Agency, 1445 Ross Avenue, Suite 1200, Dallas, Texas 75202-2733.

(6) Hand or Courier Delivery: Mr. JeffRobinson, Chief, Air Permits Section (6PD-R),

Environmental Protection Agency, 1445 Ross Avenue, Suite 1200, Dallas, Texas 75202-

2733. Such deliveries are accepted only between the hours of 8:30 AM and 4:30 PM

weekdays except for legal holidays. Special arrangements should be made for deliveries

of boxed information.

Instructions: Direct your comments to Docket ID No. EPA-R06-0AR-2010-0147.

EPA's policy is that all comments received will be included in the public docket without change
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and may be made available online at http://www.regulations.gov, including any personal

information provided, unless the comment includes information claimed to be Confidential

Business Information (CBI) or other information the disclosure ofwhich is restricted by statute.

Do not submit information through http://www.regulations.gov or e-mail, if you believe that it is

CBI or otherwise protected from disclosure. The http://www.regulations.gov website is an

"anonymous access" system, which means that EPA will not know your identity or contact

information unless you provide it in the body of your comment. If you send an e-mail comment

directly to EPA without going through http://www.regulations.gov, your e-mail address will be

automatically captured and included as part ofthe comment that is placed in the public docket

and made available on the Internet. If you submit an electronic comment, EPA recommends that

you include your name and other contact information in the body of your comment along with

any disk or CD-ROM submitted. If EPA cannot read your comment due to technical difficulties

and cannot contact you for clarification, EPA may not be able to consider your comment.

Electronic files should avoid the use ofspecial characters and any form of encryption and should

be free of any defects or viruses. For additional information about EPA's public docket, visit the

EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.

Docket: All documents in the docket are listed in the http://www.regulations.gov index.

Although listed in the index, some information is not publicly available, e.g., CBI or other

information the disclosure ofwhich is restricted by statute. Certain other material, such as

copyrighted material, will be publicly available only in hard copy. Publicly available docket

materials are available either electronically in http://www.regulations.gov or in hard copy at the

Air Permits Section (6PD-R), Environmental Protection Agency, 1445 Ross Avenue, Suite 700,
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Dallas, Texas 75202-2733. The file will be made available by appointment for public inspection

in the Region 6 FOIA Review Room between the hours of8:30 AM and 4:30 PM weekdays

except for legal holidays. Contact the person listed in the FOR FURTHER INFORMATION

CONTACT paragraph below to make an appointment. Ifpossible, please make the appointment

at least two working days in advance of your visit. A 15 cent per page fee will be charged for

making photocopies of documents. On the day ofthe visit, please check in at the EPA Region 6

reception area on the seventh floor at 1445 Ross Avenue, Suite 700, Dallas, Texas.

The State submittal related to this SIP revision, and which is part ofthe EPA docket, is

also available for public inspection at the State Air Agency listed below during official business

hours by appointment:

Texas Commission on Environmental Quality, Office of Air Quality, 12124 Park 35

Circle, Austin, Texas 78753.

FOR FURTHER INFORMATION CONTACT: If you have questions concerning today's

proposed rule, please contact Ms. Adina Wiley (6PD-R), Air Permits Section, Environmental

Protection Agency, Region 6, 1445 Ross Avenue (6PD-R), Suite 1200, Dallas, TX 75202-2733.

The telephone number is (214) 665-2115. Ms. Wiley can also be reached via electronic mail at

wiley.adina@epa.gov.

SUPPLEMENTARY INFORMATION: Throughout this document wherever, any reference

to "we," "us," or "our" is used, we mean EPA.
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Table of Contents

I. What Action is EPA Taking?

II. What Did Texas Submit?

III. What is EPA's Evaluation ofThese SIP Revisions?

IV. Final Action

V. Statutory and Executive Order Reviews

I. What Action is EPA Taking?

We are proposing to approve severable portions oftwo revisions to the Texas SIP

submitted by the Texas Commission on Environmental Quality (TCEQ) on October 24, 2006,

and August 16, 2007, specific to the ERC Program. The ERC Program, SIP-approved by EPA

on September 6, 2006, establishes a market-based trading program for the generation and use of

emission credits (generated and used at a specified emission rate, tons per year) to provide

flexibility for sources in complying with certain State and Federal requirements. The revisions

we are proposing to approve amend existing sections and create a new section in the ERC

Program at Title 30 ofthe Texas Administrative Code (TAC), Chapter 101 - General Air Quality

Rules, Subchapter H - Emissions Banking and Trading, Division 1- Emission Credit Banking

and Trading. The October 24,2006, submittal creates a new section for international emission

reduction provisions and amends existing sections to further clarify procedures for using

emission protocols and to update the approved list of emission credit uses. The severable

portions ofthe August 16, 2007 submittal that we are proposing to approve non-substantively
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revise the ERC Program to correctly update the cross-references to the stationary source nitrogen

oxide (NOx) rules found in the Texas SIP at 30 TAC Chapter 117 as a result ofthe nonsubstantive recodification ofChapter 117 approved by EPA as part ofthe Texas SIP on

December 3, 2008 (see 73 FR 73562). Consequently, we are proposing to approve the revisions

to the Texas SIP at 30 TAC sections 101.302(a), 101.302(d)(1)(C)(vi), 101.302(f), and

101.306(a)(5) and the creation of new section 101.305 submitted on October 24,2006.

Additionally, we are proposing to approve revisions to the Texas SIP at 30 TAC sections

101.302(d)(I)(A) and 101.306(b)(3) submitted on August 16,2007 by the TCEQ.

II. What Did Texas Submit?

We are proposing to approve severable portions oftwo revisions to the Texas SIP

specific to the ERC Program. The first revision we are proposing action on was adopted by the

TCEQ on October 4, 2006 and submitted to EPA on October 24,2006. At the same time that

TCEQ adopted and submitted revisions to the ERC Program, revisions were also adopted and

submitted for the Discrete Emission Credit Banking and Trading Program (referred to elsewhere

in this notice as the Discrete Emission Reduction Credit (DERC) Program) and the Emissions

Banking and Trading of Allowances (EBTA) Program. The revisions to the DERC and EBTA

Programs are specific to separate, distinct trading programs and, as such, are severable from the

ERC Program revisions. We are not proposing to act upon the severable revisions to the DERC

Program at 30 TAC Chapter 101, Subchapter H, Division 4, sections 101.372, 101.373, 101.375,

101.376 and 101.378. EPA is processing a separate rulemaking to address the 2006 and 2007

DERC Program revisions (see EPA-R06-0AR-201O-0418). EPA has not yet taken action on the
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EBTA Program at 30 TAC Chapter 101, Subchapter H, Division 2 and therefore is not proposing

action today on the repeal and replacement ofsection 101.338 and the revisions to section

101.339. The second revision upon which we are proposing action was adopted by the TCEQ on

July 25,2007, and submitted to EPA on August 16,2007. Also at this time TCEQ adopted and

submitted revisions to the general air quality definitions, the DERC Program, and the System

Cap Trading (SCT) Program. Weare not acting today upon revisions to the general air quality

definitions at 30 TAC Chapter 101, Subchapter A, section 101.1 because the ERC Program does

not rely upon them (therefore the revisions are severable from the ERC Program) and previous

revisions to section 101.1 are still pending for review by EPA. We are also not acting today

upon the revisions to the DERC Program at 30 TAC Chapter 101, Subchapter H, Division 4,

sections 101.372 and 101.376 because these revisions are severable from the ERC program and

the October 24, 2006, SIP revision is still under EPA review. EPA intends to take a separate

rulemaking action to address the 2006 and 2007 DERC Program revisions (see EPA-R06-0AR2010-0418). EPA has not yet taken action on the System Cap Trading Program at 30 TAC

Chapter 101, Subchapter H, Division 5 and therefore is not acting today upon the severable

revisions to sections 101.383 and 101.385.

A copy ofthe October 24,2006, and August 16,2007, SIP submittals as well as our

Technical Support Document (TSD) can be obtained from the Docket, as discussed in the

"Docket" section above. A discussion ofthe specific Texas rule changes that we are approving

is included in the TSD and summarized below.

A. October 24,2006 SIP Submittal
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1. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.302 - General Provisions

The existing SIP-approved version ofsection 101.302 was adopted by the TCEQ on

December 13,2002, and approved by EPA on September 6, 2006 (see 71 FR 52698). The

revisions to sections 101.302(a) and (f) adopted by the TCEQ on October 4,2006, delete the

information pertaining to international emission reductions and move these provisions to new

section 101.305. Additionally, section 101.302(d)(l)(C)(vi) is revised to clarify EPA's approval

process ofthe quantification protocols for the ERC Program.

2. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.305 - Emission Reductions

Achieved Outside the United States

On October 4,2006, TCEQ adopted new section 101.305. This new section contains the

previously SIP-approved international emission reduction provisions from sections 101.302(a)

and (f) and updates the international provisions consistent with the requirements ofTexas Senate

Bill 784.

3. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.306 - Emission Credit Use

The existing SIP-approved version ofsection 101.306 was adopted by the TCEQ on

December 13, 2002, and approved by EPA on September 6, 2006 (see 71 FR 52698). The

proposed SIP revision adopted by the TCEQ on October 4,2006, amends section 101.306(a)(5)

to update the list of approved uses of emission credits to include the use ofemission credits as

allowances in the Highly-Reactive Volatile Organic Compound Emission Cap and Trade

(RECT) Program at 30 TAC Chapter 101, Subchapter H, Division 6.
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B. August 16, 2007 SIP Submittal.

1. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.302 - General Provisions

The revisions to section 101.302 adopted by the TCEQ on July 25,2007, further revise

the revisions adopted by the TCEQ on October 4, 2002. The 2007 revisions non-substantively

amend section 101.302(d)(I)(A) to correctly cross-reference the recodified stationary source

nitrogen oxide (NOx) rules to the Texas SIP at 30 TAC Chapter 117.

2. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.306 - Emission Credit Use

The revisions to section 101.306 adopted by the TCEQ on July 25,2007, further revise

the revisions adopted by the TCEQ on October 4, 2002. The 2007 revisions non-substantively

amend section 101.306(b)(3) to correctly cross-reference the recodified stationary source NOx

rules to the Texas SIP at 30 TAC Chapter 117.

III. What is EPA's Evaluation of These SIP Revisions?

A. October 24, 2006 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.302 - General Provisions

The October 4,2006, revisions to sections 101.302(a), 101.302(d)(1)(C)(vi) and

101.302(f) are approvable. Sections 101.302(a) and 101.302(f) were revised to delete the

information pertaining to international emission reductions and relocate these provisions to new
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section 101.305. This consolidation ofthe international emission reduction provisions improves

the clarity ofthe ERC Program by creating a new section specific to international emission

reductions. Section 101.302(d)(1)(C)(vi) was revised to clarify EPA's role in the approval of

emission quantification protocols. While the previous SIP-approved provisions were accurate

and consistent with EPA's Economic Incentive Program (EIP) Guidance ("Improving Air

Quality with Economic Incentive Programs" (EPA-452/R-OI-001, January 2001», the revised

language has been restructured to more closely follow the provisions for approving emission

quantification protocols at section 5.2(c) ofthe EIP Guidance.

The revisions to section 101.302 described above were made pursuant to TCEQ's

September 8,2005, commitment letter for the DERC Program (included in the docket for this

action). In this commitment letter, TCEQ committed to revising, among others things, section

101.302 to more clearly require EPA approval for international emission reduction transactions

and to clarify the EPA's role in approving emission quantification protocols. Because EPA

granted full approval to the ERC Program on September 6, 2006, the ERC-specific elements in

the DERC commitment letter can be decoupled from EPA's analysis ofthe DERC-specific

elements submitted by TCEQ in response to our conditional approval ofthe DERC Program.

Therefore, EPA can propose approval ofthe revisions to section 101.302 without analyzing the

remainder ofthe DERC conditional approval commitments.

2. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.305 - Emission Reductions

Achieved Outside the United States

New section 101.305 adopted on October 4,2006, is approvable. EPA finds that in
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addition to relocating the SIP-approved international emission reduction language from section

101.302, new section 101.305 has expanded the scope of our original ERC Program approval to

allow the use ofinternational reductions in lieu of ERCs to occur in attainment areas within 100-

lan ofthe Texas-Mexico border, consistent with the requirements ofTexas Senate Bill 784.

However, the continued requirement at section 101.305 for EPA approval before any such use is

consistent with the intent ofour ERC Program approval on September 6, 2006. EPA approval

continues to be through a case-specific SIP revision that must clearly demonstrate through a

detailed CAA section 110(1) analysis that the use ofsuch international reductions will not

jeopardize attainment or maintenance ofthe National Ambient Air Quality Standards or any

other applicable standards. As noted in our September 6, 2006, final approval ofthe ERC

Program " .. .international trades present an especially difficult case. For instance, currentlythere

is no approvable mechanism for demonstrating that reductions made in another country are

surplus or enforceable. Nonetheless, emission reductions in other countries could potentially

offer substantial air quality benefits in the United States." See 71 FR 52698,52699. In

approving this revision to the ERC program, EPA is continuing to recognize "the concept of

international trading and describing a framework (i.e., the submission of a SIP revision

demonstrating among other things the validity and enforceability offoreign reductions) for such

trading, in the event that a suitable and approvable mechanism is ever developed for resolving

concerns including enforceability and surplus. Until such a mechanism is developed and

approved by EPA, however, EPA will not approve international trades under the ERC rule." See

71 FR 52698,52699. Further, it is important to note, that even though we are approving the use

of international reductions in lieu ofERCs along the Texas-Mexico border, the use ofthese

reductions must still meet the requirements ofthe CAA. Therefore, the international reductions
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are not available for use as federal NSR offsets since section 173(c)(I) ofthe CAA requires that

offset reductions come from the same nonattainment area as the proposed source or modification

or another nonattainment area with an equal or higher nonattainment classification.

3. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.306 - Emission Credit Use

The October 4,2006, revision to section 101.306(a)(5) is approvable. TCEQ correctly

updated the list of approved uses of emission credits to include the use of emission credits as

allowances in the HECT. EPA approved the use of emission credits as HECT allowances in our

September 6,2006, approval ofthe HECT (see 71 FR 52659).

The revision to section 101.306 described above was also made pursuant to TCEQ's

September 8, 2005, commitment letter for the DERC Program (included in the docket for this

action). In this commitment letter, TCEQ committed to revising, among others things, section

101.306 to identify that emission credits could be used as HECT allowances. Because EPA

granted full approval to the ERC Program on September 6, 2006, the ERC-specific elements in

the DERC commitment letter can be decoupled from EPA's analysis ofthe DERC-specific

elements submitted by TCEQ in response to our conditional approval ofthe DERC Program.

Therefore, EPA can propose approval ofthe revisions to section 101.306 without analyzing the

remainder ofthe DERC conditional approval commitments.

B. August 16, 2007 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.302 - General Provisions
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The July 25, 2007, revisions to section 101.302(d)(I)(A) are approvable. As

demonstrated further in our TSD, these non-substantive revisions correctly cross-reference the

recodified stationary source NOx rules in the Texas SIP at 30 TAC Chapter 117. These nonsubstantive revisions do not affect the approved emission quantification protocols established for

the ERC Program.

2. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.306 - Emission Credit Use

The July 25, 2007, revisions to section 101.306(b)(3) are approvable. As demonstrated

further in our TSD, these non-substantive revisions correctly cross-reference the recodified

stationary source NOx rules in the Texas SIP at 30 TAC Chapter 117. These non-substantive

revisions do not affect the emission use calculations established for the ERC Program.

IV. Final Action

EPA is proposing to approve severable revisions to the Texas SIP submitted on October

24, 2006, and August 16, 2007. Specifically from the October 24, 2006 submittal, EPA is

approving the amendments to section 101.302(a) and (f) that move the international emission

reduction requirements to a new section, the amendments to section 101.302(d)(I)(C)(vi) that

clarify EPA's role in approving emission quantification protocols, and the amendment to section

101.306(a)(5) that updates the approved uses for ERCs to include the HECT. EPA is also

proposing to approve provisions for international emission reductions at new section 101.305

submitted on October 24,2006. Additionally, we are proposing to approve the following
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nonsubstantive revisions to the Texas SIP submitted on August 16,2007: revisions to sections

101.302(d)(l)(A) and 101.306(b)(3) to update the cross-references to recently recodified

provisions in 30 TAC Chapter 117.

In a separate rulemaking, EPA is proposing action on the severable DERC Program

revisions at 30 TAC sections 101.372, 101.373, 101.375, 101.376, and 101.378 submitted on

October 24, 2006, and 30 TAC sections 101.372 and 101.376 submitted on August 16,2007 (see

EPA-R06-0AR-2010-0418).

At this time, EPA is not taking action on the revisions to the Emissions Banking and

Trading ofAllowances Program at 30 TAC sections 101.338 and 101.339 submitted on October

24,2006. EPA is also not taking action at this time on the revisions to the general air quality

definitions at 30 TAC Section 101.1 or the revisions to the System Cap Trading Program at 30

TAC sections 101.383, and 101.385 submitted on August 16,2007. These severable revisions

remain under review by EPA and will be addressed in separate actions.

V. Statutory and Executive Order Reviews

Under the Clean Air Act, the Administrator is required to approve a SIP submission that

complies with the provisions ofthe Act and applicable Federal regulations. 42 U.S.C. 7410(k);

40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices,

provided that they meet the criteria ofthe Clean Air Act. Accordingly, this action merely
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approves state law as meeting Federal requirements and does not impose additional requirements

beyond those imposed by state law. For that reason, this action:

• is not a "significant regulatory action" subject to review by the Office ofManagement

and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• does not impose an information collection burden under the provisions ofthe Paperwork

Reduction Act (44 U.S.C. 3501 et seq.);

• is certified as not having a significant economic impact on a substantial number ofsmall

entities under the Regulatory Flexibility Act (5 U.S.c. 601 et seq.);

• does not contain any unfunded mandate or significantly or uniquely affect small

governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law

104-4);

• does not have Federalism implications as specified in Executive Order 13132 (64 FR

43255, August 10, 1999);

• is not an economically significant regulatory action based on health or safety risks subject

to Executive Order 13045 (62 FR 19885, April 23, 1997);

• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355,

May 22,2001);

• is not subject to requirements ofSection 12(d) ofthe National Technology Transfer and

Advancement Act of 1995 (15 V.S.c. 272 note) because application ofthose

requirements would be inconsistent with the Clean Air Act; and
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• does not provide EPA with the discretionary authority to address, as appropriate,

disproportionate human health or environmental effects, using practicable and legally

permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65

FR 67249, November 9,2000), because the SIP is not approved to apply in Indian country

located in the state, and EPA notes that it will not impose substantial direct costs on tribal

governments or preempt tribal law.

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, Intergovernmental relations, Nitrogen

oxides, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.

Authority: 42 U.S.c. 7401 et seq.

, (IY( 10

Dated:

eP=J,~~ Lawrence E. Starfield,

Acting Regional Administrator, Region 6.