1 

### ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R06-0AR-2010-0147; FRL- -' 

### Approval and Promulgation ofAir Quality Implementation Plans; Texas; Revisions to the Emission CreditBanking 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) submittedby the State ofTexas on October24, 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, SubchapterH

- 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 emissionreductionprovisions and amends existing sections to further clarify procedures for using emission protocols and to update the approved list ofemissioncredit 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 consistentwith EPA policies, and will improve air quality. This action is being taken under section 110 and parts C and D ofthe Federal CleanAir Act (the Act or CAA).2

DATE: Comments mustbe received on or before 

### [Insert date 30 days from date of publication in the Federal Register].

ADDRESSES: Submityour 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 FORFURTHER INFORMAnON CONTACT paragraph below. (3) U. S. EPA Region 6 "ContactUs" 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 of8:30 AM and 4:30 PM weekdays except for legal holidays. Special arrangements should be made for deliveries ofboxed information.

Instructions: Directyour 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

### 3 and may 

### bemade available online at http://www.regulations.gov, including any personal informationprovided, unless the comment includes informationclaimedto be Confidential Business Information (CBI) or other informationthe disclosure ofwhich is restricted by statute. Do not submit informationthrough http://www.regulations.gov or e-mail, ifyou 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 informationunless you provide it in the body ofyour comment. Ifyou 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 commentthat is placed in the public docket and made available on the Internet. Ifyou submit an electronic comment, EPA recommends that you include your name and other contact information in the body ofyour comment along with any disk or CD-ROM submitted. If EPA cannotread your comment due to technical difficulties and cannot contact you for clarification, EPA may not 

### be able to consideryour comment. Electronic files should avoid the use ofspecial characters and any form ofencryption and should be free ofany 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 bepublicly 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 ProtectionAgency, 1445 Ross Avenue, Suite 700,4 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. Contactthe person listed in the 

### FOR FURTHERINFORMATION CONTACT paragraph below to make an appointment. Ifpossible, please make the appointment at least two working days in advance ofyour visit. A 15 cent per page fee will be charged for making photocopies ofdocuments. On the day ofthe visit, please checkin 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 ofAir Quality, 12124 Park 35 Circle, Austin, Texas 78753.



### FOR FURTHERINFORMATION CONTACT: Ifyou have questions concerning today's proposed rule, please contactMs. 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.5



### Table ofContents 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 submittedby the Texas Commissionon Environmental Quality (TCEQ) on October24, 2006, andAugust 16, 2007, specific to the ERC Program. The ERC Program, SIP-approvedby EPA on September 6, 2006, establishes amarket-based trading programfor 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, SubchapterH - Emissions Banking and Trading, Division 1- Emission CreditBanking 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 ofemission credit uses. The severable portions ofthe August 16, 2007 submittal that we are proposing to approve non-substantively

### 6 revise the ERC Programto correctly update the cross-references to the stationary source nitrogen oxide (NOx) rules found in the Texas SIP at 30 TAC Chapter 117 as aresult ofthe nonsubstantive recodificationofChapter 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 ofnew section 101.305 submitted on October24,2006. 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. WhatDid 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 ofAllowances (EBTA) Program. The revisions to the DERC and EBTA Programs are specific to separate, distincttrading 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, SubchapterH, 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 Programrevisions (see EPA-R06-0AR-201O-0418). EPA has not yet taken action on the7 EBTA Program at 30 TAC Chapter 101, SubchapterH, 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, SubchapterA, 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, SubchapterH, 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 Programrevisions (see EPA-R06-0AR2010-0418). EPA has not yettaken action on the System Cap Trading Program at 30 TAC Chapter 101, SubchapterH, 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. October24,2006SIP Submittal8
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 emissionreductions 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 reductionprovisions 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-approvedversion 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 SIPrevision adopted by the TCEQ on October4,2006, amends section 101.306(a)(5) to update the list ofapproved uses ofemission 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, SubchapterH, Division 6.9


### B. August 16,

### 2007 SIP Submittal.
1. 30 TAC Chapter 101, SubchapterH, 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 nitrogenoxide (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, SubchapterH, 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 informationpertaining to international emission reductions and relocate these provisions to new10 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-approvedprovisions were accurate and consistentwith 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 committedto 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 October4,2006, is approvable. EPA finds that in

### 11 addition to relocating the SIP-approved international emission reduction language from section 101.302, new section 101.305 has expandedthe scope ofour original ERC Program approval to allow the use ofinternational reductions in lieu ofERCs 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 consistentwith the intent ofour ERC Program approval on September6, 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 AmbientAir 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 othercountries 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 ofa SIP revision demonstrating among otherthings the validity and enforceability offoreign reductions) for such trading, in the eventthat a suitable and approvable mechanism is ever developed forresolving
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 importantto note, that even though we are approving the use ofinternational reductions in lieu ofERCs along the Texas-Mexico border, the use ofthese reductions must still meet the requirements ofthe CAA. Therefore, the international reductions12 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, SubchapterH, Division 1, Section 101.306 - Emission Credit Use The October 4,2006, revision to section 101.306(a)(5) is approvable. TCEQ correctly updatedthe list ofapproved uses ofemission credits to include the use ofemission credits as allowances in the HECT. EPA approved the use ofemission credits as HECT allowances in our September 6,2006, approval ofthe HECT (see 71 FR 52659).

Therevision to section 101.306 described above was also made pursuantto TCEQ's September 8, 2005, commitment letterfor 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 Provisions13 The July25, 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 nonsubstantiverevisions do not affectthe approved emission quantification protocols established for the ERC Program.
2. 30 TAC Chapter 101, SubchapterH, 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 reductionrequirements 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 following14 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 OrderReviews

Under the CleanAir 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 merely15 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 "significantregulatory action" subjectto 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 significanteconomic 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 of1995 (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 significantregulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997); • is not a significant regulatory action subjectto Executive Order 13211 (66 FR 28355, May 22,2001); • is not subjectto requirements ofSection 12(d) ofthe National Technology Transfer and AdvancementAct of 1995 (15 V.S.c. 272 note) because application ofthose requirements would be inconsistent with the Clean Air Act; and16 • 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 preempttribal law.

List ofSubjects 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.