UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION IX AIR DIVISION

Technical Support Document

for

EPA’s Rulemaking for the California State Implementation Plan

regarding

South Coast Air Quality Management Dist rict (SCAQMD) Regional Clean Air Incentives Market (RECLAIM)

SCAQMD Rule 200 2 Allocations for Oxides of Nitrogen (NO

x ) and Oxides of Sulfur (SO

x )

Prepared by: Lily Wong

May 13 , 20112

RULE IDENTIFICATION

Agency: South Coast Air Quality Management District

Current SIP Approved Rule: Adopted: January 7, 2005

Submitted: December 21, 2005 Approved: August 29, 2006

Submittal Subject to this TSD: Rule 2002

“ Allocations for Oxides of Nitrogen (NO

x ) and Oxides of Sulfur (S O

x )” Adopted: November 5, 2010

Submitted: April 5, 2011

BACKGROUND

RECLAIM The RECLAIM program (Regulation XX) was initially ad opted by SCAQMD in October 1993 and covers stationary sources emitting 4 tons or more per year of NO

x or SO

x in 1990 or in an y subsequent year. The program establishe d a NO

x and a SO

x emissions cap and trade program in

the South Coast air basin , with the emissions cap declining o ver time until 2003 . The program was designed to provide sources with incentives to reduce emissions and advance pollution control technologies by giving sources added flexibility in meeting emission reduction requirements. A NO

x or SO

x RECLAIM Trading Credit (RTC) is a limited authorization to emit one pound of NO

x or SO

x during a specified one year pe riod. A RECLAIM source’s emissions may not exceed its holding of RTCs for any compliance year. If a RECLAIM source ’s emissions exceed its allowance allocation, it may choose among these compliance options: it may install control equipment to lower its e missions

, it may modify its activities to lower emissions

, or it

may purchas e additional RTCs from other facilities to cover its emissions. T he RECLAIM program consists of Rules 2000 through 2020

.

Chemical Composition of PM 2.5 in the South Coast

PM 2.5 in the air is a complex mixture of components. Common components include: various

forms of nitrate (NO 3 ), sulfate (SO 4 )

, and ammonium compounds ; elemental carbon; a great variety of organic compounds; and inorganic material (including metals, dust, sea sal t, and other trace elements) generally referred to as “crustal” material, although it may contain material from other sources. “Primary” particles are emitted directly into the air as a solid or liquid particle (e.g., elemental carbon from diesel engines o r fire activities, or condensable organic particles from gasoline engines). “Secondary” particles (e.g., nitrate and sulfate compounds ) form in the atmosphere as a result of chemical reactions between precursor pollutants such as NO

x , SO 2 , VOC, and ammoni a. PM 2.5 in the South Coast Air Basin is overwhelmingly formed as a

second ary pollutant. (South Coast 2007 Air Quality Management Plan (AQMP), page ES

- 9). Therefore, the AQMP relies on reducing precursors to PM 2.5 and some directly

- emitted PM 2.53

rather th an fugitive dust (PM 10 ) . The AQMP includes a commitment to achieve 2.9 t ons p er d ay (tpd) of SO

x emission reductions in 2014 from the RECLAIM program.

RULE SUMMARY

Amendments to SO X RECLAIM Rule 2002 provides the methodology for allocating RTC s to RECLAIM sources and making adjustments to sources’ RTC holdings. The primary purposes of the current amendment s to Rule

2002 w ere to achieve additional SO

x emission reductions as committed in AQMP , and to address a state requirement that Best Available Re trofit Control Technology be required at RECLAIM

facilities. The amendment s reduce the SO

x RECLAIM emissions cap by lowering a source’s SO

x RTC holdings in accordance with a calculation procedure (the “ shave”). The amendments are projected to result in 5 .7 tpd RTC reduction (51.4% shave) in 4 phases: 3 tpd in C alendar Y ear 2013, 4 tpd in CY 2014, 5 tpd in CY 2017, and 5.7 tpd in C Y 2019, although emission reductions achieved in years 2017 through 2019 would not be credited to the SIP unless the Executive Officer takes certain actions in accordance with provision (f)(1)(P).

Previous NO

x Amendments to RECLAIM

Rule 2002 was previously amended on January 7, 2005 and originally submitted on July 15,

2005 . The 2005 amendments to Rule 2002 pertained to the NO

x provisions. However, it was SCAQMD ’ s intent at that time that part s of provision (f)(1)(A) and all of provision (f)(1)(G) of

Rule 2002 should not be submitted to EPA for approval into the SIP. At the request of SCAQMD, California Air Resources Board (“ CARB”) withdrew Rule 2002 submitted on July 15, 2005, and on December 21, 2005 submitted a revised version of Rule 2002 that deleted parts

of provision (f)(1)(A) and all of provision (f)(1)(G) . EPA approved this revised submittal on August 29, 2006

.

I n SCAQMD’s April 5, 2011 submittal of R ule 2002 , it includes the previously deleted provisions (f)(1)(A) and (f)(1)(G)

. Consequently, EPA’s proposed action on th is submitted rule

will also affect the previously deleted provision s (f)(1)(A) and (f)(1 )(G)

. The “new” p rovisions

in (f)(1)(A) and (f)(1)(G) specif y the “shave” ( in years 2008 through 2011 and after) to be applied to sources’ NO

x RTC holdings as a mechanism to reduce the NO

x RECLAIM emissions

cap . These provisions result in NO

x emission reduction s.

EPA REVIEW CRITERIA: EPA generally uses the following four criteria in evaluating state

and local NO

x prohibitory rules for approval into the SIP, and for th e s e rule s a fifth

consideration.

1. Enforceability

- Section 110(a) of the Clean Air Act req uires enforceable SIP requirements. Several EPA guidance documents are used to evaluate rule enforceability, including the “Bluebook” ( Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Clarification to Appendix D) , November 24, 1978, 52 FR 45 044), and “the Little Bluebook” (Guidance4

Document for Correcting Common VOC & Other Rule Deficiencies ), EPA Region 9, August 21, 2001.

2. Rule Relaxation

- EPA must evaluate whether new submittals comply with sections 110(l)

and 193 of the Clean Air Act re garding SIP relaxations.

3. Stringency

- Section 182(b)(2) of the Clean Air Act requires certain SIP rules to apply Reasonably Available Control Technology (RACT). Other sections of the Act require other

control levels.

4. “State Implementation Plans; Nitr ogen Oxides Supplement to the General Preamble; Clean Air Act Amendments of 1990 Implementation of Title I; Proposed Rule,” (the NO

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

5. Economic Incentive Programs

- EPA published the guidance, “Improving Air Qual ity with Economic Incentive Programs” on January 2001 (EPA

- 452/R

- 01

- 001). The g uidance

available at http://www.epa.gov/ttncaaa1/t1/meta/m1201.html

. This guidance applies to discretionary e conomic incentive programs (EIPs) and represents the agency’s interpretation of what EIPs should contain in order to meet the requirements of the Clean Air Act. Because this guidance is non

- binding and does not represent final agency action, EPA is using the guidance as an initial screen to determine whether potential approvability issues arise.

EPA EVALUATION: The submitted rules comply with the evaluation criteria as discussed

below.

1. Enforceability

– The rules are generally clear and consistent wit h the Bluebook and the Little Bluebook and other relevant EPA guidance regarding enforceability.

2. Rule Relaxation

– The amendments result in additional SO

x emission reductions in the SO

x RECLAIM program and thus are strengthening.

3. Stringency

– In EPA’s original approval of the RECLAIM program, EPA determined that the program met the CAA RACT requirements. These amendments do not undermine EPA’ s previous determination.

4. NO

x Supplement

– In EPA’s original approval of the RECLAIM program, EPA determined

th at the program is consistent with the NO

x Supplement. These amendments do not undermine EPA’s previous determination.

5. EIP Guidance

– In EPA’s original approval of RECLAIM, EPA determined that the program was consistent EPA’s 1994 guidance for economic in centive programs at 40 CFR 51 Subpart U. These amendments do not significantly modify the operation of the SIP

- approved program and are generally consistent with EPA’s 2001 guidance as well.5

EPA ACTION: EPA staff recommend s full approval o f the subm itted version to Rule 200 2

because it compl ies with all relevant Clean Air Act requirements including those regarding enforceability and they are consistent with EPA’s guidance for economic incentive programs.

ATTACHMENTS:

1. SCAQMD Rule 200 2 “ Allocatio ns for Oxides of Nitrogen (NO

x ) and Oxides of Sulfur (SO

x )

. ”

2. “Final Staff Report, SO

x RECLAIM, Part 1 BARCT Assessment & RTC Reductions Analysis,” SCAQMD

, dated November 2, 2010, and submitted to EPA on April 5, 2011

.