### Kathleen Hartnett White, 

### Chairman Larry R. 

### Soward, 

### Commissioner Martin A. Hubert, 

### Commissioner Glenn Shankle,

### Executive Director

Protecting Texas by 

### Reducing and Preventing Pollution 

### October 24, 2006 

## Docket No. 2006-0167-RUL

Richard E. Greene, Regional Administrator U.S. Environmental Protection Agency 

## - Region 6 1445Ross Avenue Dallas, Texas 75202-2733
Dear Mayor Greene:
On October 4, 2006, the Texas Coinrnission on Environmental Quality (Commission) adopted revisions to the State Iinplementation Plan (SIP).
The Commission adopted amendments to 30 TAC Chapter 101, General Air Quality Rules, §§101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of 9101.338; and new §§101.305, 101.338, 101.339, and 101.375, and corresponding revisions to the SIP. These amendments address deficiencies in the Commission's discrete emission reduction credit program as identified by the United States Environmental Protection Agency (EPA) in the October 5, 2005, edition of the 

## Federal Register (70 

## FR 58154). Changes include elimination of discrete emissioil reduction credits generated from shutdowns; EPA approval for transactions for emission reductions generated in another state or country, or from one nonattainment area to another, or from an attainment area to a nonattainment area; and formatting changes. The rules also impleinent revisions to Texas Health and Safety Code, $382.0172(c), as required by Senate Bill 784, 79th Texas Legislature, 2005, Regular Session, which allows greater flexibility in the generation of credits for emission reductions outside the United States.
The Commission requests that EPA take no federal action on 5101.337. The requirements of the El Paso region would only be a state requirement.
Enclosed are the proposed revisioils to the SIP, a public hearing certification, a complete record of the public hearing, and the accoinpanying order. I look forward to your expeditious approval of these SIP revisions. Sincerely,

athleen Hartnett White hairinan

Enclosures

cc: The Hollorable Rick Perry, Governor of Texas Mr. Zak Covar, Office of Budget, Planning and Policy, Office of the Governor Mr. Glenn Shankle, Executive Director, Texas Coinrnission on Environmental Quality
P.O. 

### Box 13087 Austin, Texas 78711-3087 512/239-1000 Internet address: www.tceq.state.tx.us

# 2006 

# NOV

# -I AH 10: 

# 28 AIR 

## PERHITS 

## SECTION GPO-R

THE STATE OFTEXAS $


## COUNTY OFTRAVIS 

# 5

This is to certify that the attached are true and correct copies of documents for revisions to the Texas State Iinplementation Plan, adopted on October 4, 2006, pursuant to 40 Code of Federal Regulations (CFR) $51.104. I 

## am the records administrator for the General Law Division of the Texas
Corninissionon Environmental Quality.

Kevin McCalla Director, General Law Division Texas Coininissionon Eilvironmental Quality

# RECEIVED 2006 

# NOV 

# - I 

# AH 10: 28 AIR 

## PERMITS 

## SECTION 

## GPD-R

Texas Commission on Environmental Quality Public Hearing May 22,2006 Concerning Revisionsto Chapter 101, General Air Quality Rules and the State Implementation Plan; Senate Bill 

### 784: Emissions Reduction

# - ERCIDERC Rule Project No. 2005-054-101-PR

### INTRODUCTIOIV

The Texas Commission on Environmental Quality (commission) held a public hearing inAustin on May 22, 2006, to receive testimony regardirrg proposed revisions to 30TAC Chapter 101, General Air Quality Rules and the State Implementation Plan.

The comment period closed on May 30,2006. All testimony and comments have been reviewed and seriously considered. This hearing record contains a complete record of the public hearing and is divided into the following four sections:

o 

### Public Notification and Proposal

0 

### Written and Oral Testimony

0 

### Evaluation of Testimony

o 

### Staff Recommendations/Order

Additional copiesofthis hearing record are maintained inthe TCEQ central office at 121 00 Park35 Circle, Austin, Texas 78753. Forfurther information, please contact Beecher Cameron at (512)239- 1495 or Steve Sun at (512) 239-3554.

# PUBLIC NOTIFICATION AND PROPOSAL

### PUBLIC NOTIFICATION

Notificationto the public of the proposed revisions was conducted by the following procedures:

1. Publicationof notice of public hearing in the following newspaperson the date listed: Austin American Statesman;April 19, 2006 Beaumont Enterprise;April 17,2006 Fort Worth Star-Telegram;April 17,2006 Houston Chronicle; April 17,2006

2. Publication of the proposed rules in the April 28, 2006, issue of the 

### Texas Register (31 TexReg 3492).

3. Publicationof the Noticeof Public Hearing in the April 28, 2006, issue of the 

### Texas Register (31 TexReg 3630).

4. Correspondence forwarding the notice of public hearingsto the following officials and agencies: Speaker of the House Lieutenant Governor City of Victoria Planning Department Alamo Area Council of Governments Capital Area Planning Council Dallas Departmentof Environmental and Health Services Dallas Department of Aviation East Texas Council of Governments El Paso City-County Healthand Environmental District El Paso Metropolitan Planning Organization

### Federal Highway Administration Fort Worth Environmental Management Department Galveston County Health District Houston Department of Health and Human Services Harris County Pollution Control Department North Central Texas Council of Governments Houston-GalvestonArea Council South East Texas Regional Planning Commission Texas Department of Transportation Texas Transportation Institute Arkansas Department of Pollution Control and Ecology Louisiana Department of Environmental Quality New Mexico Environmental Department Oklahoma Department of Environmental Quality 

### U. S. Environmental Protection Agency

### Example of Newspaper Classified Ad
Fort Worth Star-Telegram,

### April 17,2006volume ofeffluent routed to the evapo pond on a monthly basis ,foran entireyea,:

(ii)Evaporation pond shall be to maintain a n~inimum,f;eeboard of two jeet. (iii) There shall be no discharge of wa tewater tosurface water in the state. 

# i
Change Number 10. Part V.9. was evised to clarify that 30 TAC $205.4 governs the suspension andre cation of an authorizationunder the general permit. The section no reads in its entirety: "Authorization under this general permit may e suspended or revokedfor the reasons stated in 30 TAC $205.4 (rela ing to Authorizations and Notices of Intent). The filing ofanotificat nby the discharger ofplannedchanges or anticipated noncompliance does not stay any permit condition." 

# 1

Stephanie Bergeron Perdue

Filed: April 18. 2006

Notice of Public Hearings on Proposed Revisions to 30 TAC Chapter 101 and the State ImplementationPlan The Texas Commission on Environmental Quality (commission) will conductapublic hearingto receive testimony regarding proposed revisionsto 30 TAC Chapter 101, General Air Quality Rules, under the requirements ofTexas Health and SafetyCode, $382.017;TexasGovernment Code, Chapter 2001, SubchapterB; and40 Code ofFederal Regulations$5 1.102, ofthe United States Environmental ProtectionAgency (EPA) regulations concerning state implementation plans (SIPS). The repealed, new, and amended sections will be submitted to the EPA as revisions to the Texas SIP. The proposed rulemaking would address deficienciesin the commission's Discrete Emission Reduction Credit Program as identified by the EPA in the October 5,2005, edition oftheFederal Register (70FR 58154). The proposed rules would also implement revisions to Texas Health and Safety Code, $382.0172(c), as required by SenateBill 784, 79th Legislature, 2005, which allow greater flexibility in the generation of credits for emission reductions outside the United States. A public hearing on this proposal will be held in Austin on May 22, 2006, at 2:00 p.m. in Building B, Room 201A, at the Texas Commission on Environmental Quality complex located at 12100 Park 35 Circle. The hearing will be structured for the receipt of oral or written comments by interested persons. Registration will begin 30 minutes priorto the hearing, lndividualsmay present oral statementswhen called upon in order of registration. There will be no open discussion during the hearing; however, a staff member will be available to discuss the proposal 30 minutes before the hearing. Persons planning to attend the hearing who have special communication or other acconlmodationneeds, should contact Lola Brown,Office of Legal Services at (512) 239-0348. Requests should be made as far in advance as possible. Commentsmay be submitted to Lola Brown, MC 205, Texas Register Team, Office ofLegal Services,Texas Commission on Environmental Quality, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512) 239-4808. All comments should reference Rule Project Number 2005- 054-101-PR. Commentsmustbereceivedby 5:00p.m., May 30,2006. Copies of the proposed rules can be obtained from the commission's Web site at http://www.tceq.state.tx.us/nav/iules/prl. For further infonnation, please contact Beecher Cameron, Air Permits Division, at (512) 239-1495 or Steve Sun, Air Permits Division, at (512) 239-3554. Stephanie Bergeron Perdue Acting Deputy Director, Ofice of Legal Services Texas Commission on Environmental Quality Filed: April 13. 2006

Notice ofWater Quality Applica ons 

# 9 The following notices were issued d ring the period of April 5, 2006 through April 17, 2006. 

# t

CATION OF THIS NOTICE.

Third Street in Delta County, Texas.



## 31 TexReg3630 Apri128, 2006 TexasRegisterof Plumbing Examiners, 929 t 41st Street, P.O. Box 4200, Austin, Texas 78765-4200.

nse Law. Section 1301.404

sons who hold licenses or ements under the Plumbing License Law.

$365.14 ContinuingPmfesxionalbducation Programs. No other statute, article or code amendments.

(1) - (6) (No change.)

~~EeRwji ~regtsftakeRfefRts~ 

## ---I is affected by these proposed

(8) 

## - (18) (No change.) 

# 1 (b) - (c) (No change.) 

# i This agency hereby certifies that e proposalhas been reviewed by legalcounselandfoundto be thin the agency's legal authority to adopt. Filed with the Office of the Secret 

### ry of State on April 12, 2006. 

# I

TRD-200602125 Robert L. Maxwell Executive Director



## TITLE 30. 

## ENVIRONMENTAL QUALITY 

# PART 1. 

# TEXAS COMMISSION ON ENVIRONMENTAL QUALITY CHAPTER 10

## 1. GENERAL AIR QUALITY RULES SUBCHAPTER H. EMISSIONS BANKING 

## AND TRADING The Texas Commission on Environmental Quality (commission) proposes amendments to §§I01.302, 101.306, 101.372, 101.373, 101.376, and 101.378; and the repeal of 5101.338. The commission proposes new §§I01.305, 101.338, 101.339, and 101.375. The repealed, new, and amended sections will be submitted to the United States Environmental Protection Agency (EPA) as revisions to the Texas State Implementation Plan (SIP). BACKGROUND AND SLIMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RLILES The Emissions Banking and Trading Program (EBTP) has been designed to offer flexibility and provide a market-based method of meeting required emission reductions. The program makes use of several types of emission credits including emission reduction credits (ERCs), mobile emission reduction credits (MERCs), discrete emission reduction credits (DERCs), and mobile discrete emission reduction credits (MDERCs). Flexibility has been built into the rules to create incentives for the early or permanent retirement of volatile organic compounds (VOC) and nitrogen oxides (NOx) emissions credits. In the October 5, 2005, edition of the 

### Federal Register (70 FR 58154),the EPA publishedthe proposed conditionalapproval of the DERC program as part of the SIP. The conditional approval was based on the commission submittingcorrected programdeficiencies to the EPA by December 1,2006. Unlessthe commission adopts and submits these corrections, the EPA will have to issue a finding of disapproval. These proposed revisions address the deficiencies, which the commission committed to correct in a letter to the EPA dated September8, 2005. The proposed corrections include the prohibition of the future generation of DERCs from permanent shutdowns and allow only DERCs generated from permanent shutdowns before September 30, 2002, to remain available for use for no more than five years from the date of the commission's commitment letter. Any DERCs generated after September 30, 2002, would be removed from the DERC registry and not be available for use. The conditions also required revisions to §101.302(f) and §101.372(f)(7) and (8) to clarify that the EPA must approve individual transactions involving emission reductions generated in another state or nation as well as those transactions from one nonattainment area to another or from attainment counties into nonattainment areas. The proposed revisions would revise Subchapter H, Emissions Banking and Trading, to include program audit and reporting requirements to satisfy the EPA's requirementsfor open market trading programs. The requirements concerning program audits were not included in the EPA publication of conditional approvalbut were the subject of discussion between the commissionand the EPA. The conditions also required the changeto Form DEC-1, Notice of Generation and Generator Certificationof Discrete Emission Credits; Form MDEC-1, Notice of Generationand Generator of Mobile Discrete Emission Credits; and Form DEC-2, Notice of Intent to Use Discrete Emission Credits, to include a waiver to federal statute of limitationsdefense for generators and usersof discrete emission credits. With the revision of these forms and adoptionof the proposed rulechanges,the commission will have corrected all identified deficiencies inthe DERC program.



## 31 TexReg3492 April 28, 2006 

## TexasRegisterThe proposed rules also reflect changes to the Texas Health and Safety Code (THSC), §382.0172(c). Senate Bill (SB) 784 was adopted by the 79th Legislature, 2005, and allows additional options for credit from emission reductions achieved outside of the United States. 'The revisions would allow the commission more discretion in its authorization to approve the substitution and crediting of emission reductions outside the United States that may be used to satisfy reduction or trading requirements. SECTION BY SECTION DISCUSSION 5101.302. General Provisions. The commission proposes administrative changes throughout the rules to conform with Texas Register requirements and agency guidelines. In order to better organize similar rule requirements, the commission proposesto delete §101.302(a)(2) and relocatethis language concerning emission creditable reductionsoccurringoutside the United States to a new §101.305, Emission Reductions Achieved Outside the United States. The commission proposesto amend §I 01.302(d)(l)(C)(vi)to allow the rejection of an emission credit quantification protocol if the EPA objects to the protocol during a 45-day adequacy review period or if the EPA publishes in the FederalRegistera disapproval of the protocol. This does not impact the procedures to approve the quantification protocol. The commission has in practice always workedwith the EPAto approve new quantification protocols. This revision clarifies in the rule that the quatification protocols would not be approved ifthe EPA objects. 5101.305. Emission Reductions Achieved Outside the United States. The proposed new §101.305 would combine the existing language on using emission reductions from outside the United States that would be moved from §101.302(f)(3) and (a)(2) for better organization. The proposed revisions would also reflect the change to THSC, §382.0172(c), enacted under SB 784, which allows facilities to substitute emission reductions in criteria pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in 

### a greater overall health benefit for the area. This will allow the continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of El Paso being reclassifiedas an attainment area. The commission is moving the rules governing optional credit to their own sections (§§101.305, 101.338, and 101.375) so that they may be consideredseparately by EPA for approval intothe SIP and will not delay approval of other portionsof the EBTP. 5101.306. Emission Credit Use. The proposed amendment to §101.306(a)(5)would modify the section to be consistent with the allowed use of ERCs under §I01.399, Allowance BankingandTrading. This revision is necessary because of a previous adoption of Chapter 101, Subchapter H, Division 6, Highly-Reactive Volatile Organic Compound EmissionsCap and Trade Program, and allows facilities to use ERCs as allowances under the highly-reactivevolatile organic compound cap and trade program. 

## 5 101.338. Emission Reductions Achieved Outside the United States. The existing $101.338 would be repealed. The proposed new $101.338 would reflect the revisionsto 'THSC, §382.0172(c)and providethe commission more discretion in approving the substitution of emission reductions achieved outside the United States

.. -. .- for emissionsfrom electric generatingor grandfathered facilities. The commissionwould also modifvthe arranaement of the existing sectionto parallelthe arrang&ent of laiguage in §101.305 and S101.375. 5101.339. ProgramAudits and Reports. 'The proposed new 5101.339 includes programaudits and report requirements for emission credit programs applicable to electric generating and grandfatheredfacilities. The proposed section contains similar audit and report requirements as are applicable to the commission's other open market trading programs. 'These requirementsare used by the commission and the EPAto evaluatethe effectivenessof the program and includereportable items such as effect on ozone attainment, number of allowances or credits traded, cost of allowances or credits, and number of allowances in each compliance account. 5101.372. GeneralProvisions. In order to better organize similar rule requirements, the commission proposesto delete §101.372(a)(2)and relocatethis language concerning emissioncreditable reductions occurringoutside the United States to a new S101.375, Emission Reductions Achieved Outside the United States. The commission proposes to amend§101.372(d)(I)(C)(vi) to requirethe rejectionof a quantificationprotocol if the EPAobjectsto the quantification protocol during the 45day adequacy review period or if the EPA publishes in the Federal Registera disapproval of the quantification protocol. This does not impact the procedures to approve the quantification protocol. The commission has in practicealways worked with the EPA to approve new quantification protocols. This revision clarifies in the rule that the quantificationprotocols would not be approved if the EPA objects. The commission also proposesto remove language fromthis sectionconcerning creditsfor emission reductionsoutside the UnitedStates and the options for applying them. This language, modified to be consistent with the changes to THSC, §382.0172(c), enacted under SB 784, would be moved to the new 5101.375 in order to be considered separately by the EPA for approval into the SIP and not delay approval of other portions of the EBTP. 5101.'373. Discrete Emission Reduction Credit Generation and Certification. The proposed amendments to §101.373(a)(I)and (2) would remove the abilityto generate DERCsfrom facility shutdowns. The commission proposesthis actionto respondto the Federal Register notice requiring the correction of program deficiencies prior to the approvalof the EBTPinto the SIP. The EPA has stated that open market trading programs are intended to encourage innovative and creative emission reductions and shutdowns generally do not fall into this category. Shutdowns are also problematic for these programs because of the possibility that a facility may shut down in one area, generate and sell credits, but then relocate operations to other areas or states. Additionally, when activity level increases cause emission increases, mitigating reductionsaretypically not required. Thus, allowingthe generation of tradable credits as a result of activity leveldecreases (including shutdowns) maytendto promote emissions increases. Such patterns of activity relatedto shutdowns havethe potential to interfere with attainment.



## PROPOSED RULES April 28,2006 31 TexReg 34935101.375. Emission Reductions Achieved Outside the United States. The proposed new $101.375 would relocate the existing language on using emission reductions from outside the United States in $101.372(f)(8) and (a)(2). The proposed revisions would also reflect the SB 784 change to THSC, $382.0172(c), which allows facilities to substitute emission reductions in criteria pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. This will allow the continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of El Paso being reclassified as an attainment area. The commission is movingthe rules governing optional credit to their own sections ($§I01305, 101 338, and 101375) so that they may be consideredseparately by EPAfor approval intothe SIP and will not delay approval of other portions of the EBTP. 5101.376. Discrete Emission Credit Use. The proposed amendment to $101.376 would correct the rule references to reflect the pending reorganization of 30 TAC $106.261 and repeal of 30 TAC 5106.262 under Rule Project Number 2005-016-106-PR concerning maintenance, startup, and shutdown emissions. 5101.378. Discrete Emission Credit Banking and Trading. The proposed amendment to $101.378 would change the lifetime of DERCs generatedfrom shutdowns strategy. Companies that have previously certified DERCsfrom shutdown strategies will have no morethan five years from the September 8, 2005, commitment letter to the EPA to use the DERCs. As a result, DERCsthat were generatedfrom shutdowns priorto September 30,2002, would be availablefor use untilSeptember8,2010. After that date, the DERCs that were generated from shutdowns before September 30, 2002, will be removed from the DERC registry and will no longer be available for use. DERCs generated from shutdowns after September 30, 2002, may not be used. The reasonfor this action is included in the discussion of changes to 5101.373 inthis preamble. FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT Nina Chamness, Analyst. Strategic Planning and Assessment Section, has determinedthat, forthe firstfive-year periodthe proposed rules are ineffect, nofiscal implicationsare anticipatedfor the agency or other units of state or local governments as a result of administration or enforcement of the proposed rules. The proposed rules affect the EBTP and DERCs. Typically, governmentalorganizationsdo not participate in the DERC program. The proposed rules implement EPA requirements concerningthe EB'rP, implement changes made by SB 784, 79th Legislature, and make other organizational and administrative changes to allow for more clarity inthe administration of the EBTP. The EPA is requiringthe removal from the commission's DERC registry of credits generatedafter September30,2002,from permanent shutdowns so that the EBTP can be approved as a revision to the SIP. Only those DERCs generated from shutdowns prior to September 30, 2002, can be used in the EBTP, and they must be used by September 8, 2010. The proposed rules also clarifythat the EPA hasto approve inclusions in the EBTP of emission reductions generated in another state or nation. The rules further clarify that the EPA must approve the inclusion of emission reductions in the EBTP if they are generated in and traded between nonattainment areas as well as those generated in an attainment area and traded to a nonattainment area. The proposed rules also implement THSC, $382.0172(c), as amended by SB 784, 79th Legislature, to give the agency more discretion in approving the use, by a Texas facility,of emission reduction credits generated outside the United States to satisfy emission reduction requirements. PUBLIC BENEFITS AND COSTS Ms. Chamness also determined that for each year of the first five years the proposed rulesare in effect, the public benefit anticipatedfrom the changesseen inthe proposed rules will bethe reduction of air contaminants and improved health and safety of Texas citizens. By disallowing DERCs for shutdown activities, staff estimatesthat approximately 19,774 tons of NOx emissions, 576 tons of VOC emissions, and 80 tons of other hazardous air pollutantemissions will be reduced. The loss of post-September30, 2002, DERCs generated from permanent shutdowns will have a fiscal effect. The value of a DERC varies by nonattainment area and by contaminant. In the Houston-Galveston-Brazorianonattainmentarea (HGB),the value of NO, DERCs range from $145 per ton to $2,100 per ton. Inthe Beaumont-PortArthur nonattainment area (BPA),the value of NOxDERCs are estimated to be $750 per ton, and a carbon monoxide credit is estimated to be worth $700 per ton. The DERCs generated prior to September 30, 2002, represent the majority of the shutdown DERCs the commission currently has on its registry with an approximate total value of $40 million in HGB and $600,000 in BPA.These credits remain available for compliance or trading bythe 11 sites holding them until September 8, 2010, and will retain their full value untilthen. The loss of DERCs generated from permanent shutdowns after September 30,2002, is estimatedto cost, area wide, from $183,470 in HGB to $604,870 in BPA. These DERCs will expire on the effective date of this rule. SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT No adversefiscal implicationsare anticipatedfor small or microbusinesses as a result of the proposed rules because they do not generally participate in the EBTP. LOCAL EMPLOYMENT IMPACT STATEMENT The commission has reviewedthis proposedrulemaking and determined that a local employment impact statement is not required because the proposed rules do not adversely affect a local economy in a material way for the first five years that the proposed rules are in effect. DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the proposed rulemaking in light of the regulatory impact analysis requirements of Texas Government Code, $2001.0225, and determined that the rulemaking action does meet the definition of a "major environmental rule" as defined in that statute. A "major environmental rule" is a rule, the specific intent of which is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, productivity, competition, jobs, the environment,or the public health and safety of the state or a sector of the state. The proposed amendments to Chapter 101 and revisions to the SIP would phase out DERCs generated from shutdowns prior to September 30, 2002, require removal of DERCs generated from shut

## 31 TexReg3494 April 

## 28, 2006 TexasRegisterdowns after September 30,2002, from the DERC registry, imple- measures are not generally required, the emission reductions ment the provisions of SB 784, reorganize various rules, correct are required. States are not free to ignore the requirementsof one citation, specify the time the EPA has to object to quantifica- 42 USC, 57410, and must develop programs to assure that the tion protocols, eliminate future generation of shutdown DERCs, nonattainmentareas of the state will be brought into attainment and add a reference to the highly-reactivevolatile organic com- on schedule. pound cap and trade program. With the exception of the portions of the rulemaking regarding shutdown DERCs, the proposed amendmentsto Chapter 101are not specifically intended to protect the environment or reduce risks to human healthfrom environmental exposure to air pollutants; although, the underlying emissions banking and trading programs are intended to achieve these goals. The rulemaking provides flexibility regarding credits near the Texas-Mexico border by implementing SB 784 and makes various administrative changes. The changes to shutdown DERCs generation and use are proposed to bring the DERC program into compliancewith EPA program requirements, allowing the DERC program to be approved as part of the SIP and to ensure air quality standards will be met. This rulemaking does not meet any of the four applicability criteria of a "major environmental rule" as defined in the Texas Government Code. Texas Government Code, 52001.0225 applies only to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or representativeof the federal government to implement a state andfederal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. Specifically, the bankingand trading program amendments in this proposal were developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to bring the banking and trading program into compliance with federal requirements,and make several administrative changes. This rulemakingdoes not exceed an express requirement of federal or state law or a requirement of a delegation agreement, and was not developed solely under the general powers ofthe agency, but was specificallydeveloped under federal law and authorized under the THSC. The rulemaking implements requirements of 42 United States Code (USC), 57410, which requires states to adopt a SIP that provides for "implementation, maintenance, and enforcement" of the national ambient air quality standard (NAAQS) in each air quality control region of the state. While 42 USC, 57410 does not require specific programs, methods, or reductions to meet the standard, SIPS must include "enforceable emission limitations and other control measures, means or techniques (including economic incentives such as fees, marketable permits, and ahions of emissions rights), as well as schedules and timetables for compliance as may be necessary or appropriate to meet the applicable requirements of this chapter," (meaning 42 USC, Chapter 85, Air Pollution Preventionand Control). It is true that the Federal Clean Air Act (FCAA) does require some specific measures for SIP purposes, such as the inspectionand maintenance program, hut those programs are the exception, not the rule, inthe SIPstructureof 42 USC, 57410. The provisions of the FCAA recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry, andthe public, to collaborateon the best methodsto attain the NAAQS for the specific regions inthe state. Eventhough the FCAA allows states to developtheir own proarams.this flexThe requirementto provide a fiscal analysis of adopted regulations in the Texas Government Code was amended by SB 633 during the 75th Legislature, 1997. The intent of SB 633 was to require agencies to conduct a regulatory impact analysis of extraordinary rules. These are identified in the statutory language as major environmentalrulesthat will have a material adverse impact and will exceed a requirementof state law,federal law, or a delegated federal program, or are adopted solely under the general powers of the agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessmentof rules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implicationsfor the agency due to its limited application." The commissionalso noted that the number of rules that would require assessment under the provisions of the bill was not large. This conclusion was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unlessthe rulewas a major environmental rule that exceeds a federal law. As discussed earlier inthis preamble, 42 USC, 57410 does not require specific programs, methods, or reductions in order to meet the NAAQS;thus, states mustdevelop programsfor each nonattainmentarea to ensure thatareawill meetthe attainment deadlines. Because of the ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The legislature is presumed to understand this federal scheme. If each rule proposedfor inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full regulatory impact analysis contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board in its fiscal notes. Because the legislature is presumedto understand the fiscal impacts of the bills it passes,and that presumption is based on information provided by state agencies and the Legislative Budget Board, the commission contends that the intent of SB 633 was only to require the full regulatory impact analysis for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greater than is necessary or appropriate to meet the requirements of 42 USC, 57410. For these reasons, rules adopted for inclusion in the SIP fall under the exception in Texas Government Code, 52001.0225(a), because they are specifically required by federal law. In addition, 42 USC, 57502(a)(2) requires attainment as expeditiously as practicable,and 42 USC, 57511(a), requiresstates to submit ozoneattainment demonstration SIPS for ozone nonattainmentareas such as the HGB area. The adopted rules,which will reduceambient concentrations of ozone precursors in nonattainment areas, will be submitted to the EPA as one of several measures in the federally approved SIP. As discussed earlier in this preamble, the banking and trading scheme in the adopted rules are necessary to address some of the elevated criteria pollutant levels observed in various nonattainment areas in Texas; this schemewill result in reductions in criteria pollutants in nonattainmentareas and help bring areas into compliance with the air quality standardsestablished under federal law as NAAQS. ibility does not relieve a state from developjnga program that The commissionhas consistently applied this construction to its meets the requirementsof 42 USC, 57410. Thus, while specific rulessince this statutewas enacted in 1997. Since that time, the



## PROPOSED RULES April 

## 28,2006 31 TexReg3495legislature has revisedthe Texas Government Code but left this provision substantially unamended. The commission presumes that "when an agency interpretation is in effect at the time the legislature amends the laws without making substantial change in the statute, the legislature is deemed to have accepted the agency's interpretation." Central Power & Light Co. v. Sharp, 919 S.W.2d 485. 489 (Tex. App.-Austin 1995), writ deniedwith per curiam opinion respecting another issue, 960 S.W.2d 617 (Tex. 1997); Bullock v. Marathon Oil Co., 798 S.W.2d 353, 357 (Tex. App.-Austin 1990). no writ; Cf. Humble Oil & RefiningCo. v. Calved, 414 S.W.2d 172 (Tex. 1967); Sharp v. House 

### of Lloyd, Inc., 81 5 S.W.2d 245 (Tex. 1991 ); Southwestern Life Ins. Co. v. Montemayor, 24 S.W.3d 581 (Tex. App.-Austin 2000), pet. denied; and Coastal Indust. Water Auth. v. Trinity Portland Cement Div., 563 S.W.2d 916 (Tex. 1978). As discussed, this rulemaking action implements requirements of 42 USC, S7410. There is no contractor delegation agreement that coversthe topic that is the subject of this action. Therefore, the rulemaking does not exceed a standard set by federal law, exceed an express requirement of state law, exceed a requirement of a delegation agreement, nor is it adopted solely under the general powers of the agency. Finally, this rulemaking action was not developed solely under the general powers of the agency, but is authorized by specific sections of THSC, Chapter 382 (also known as the Texas Clean Air Act), and Texas Water Code that are cited in the STATUTORY AUTHORITY section of this preamble, including THSC, §§382.011, 382.012, 382.014, 382.016, 382.017, 382.021, and 382.034. Therefore, this rulemaking action is not subject to the regulatoryanalysis provisions of Texas Government Code, §2001.0225(b), because the rulemaking does not meet any of the four applicabilityrequirements. The commission invites public comment regarding the draft regulatory impactanalysis determination during the public comment period. TAKINGS IMPACTASSESSMENT The commissioncompletedatakings impactassessment forthis rulemaking action under Texas Government Code, S2007.043. The proposed amendmentsto Chapter 101 and revisionsto the SIP would phase out DERCsgeneratedfrom shutdowns priorto September 30, 2002, require removalof DERCs generatedfrom shutdowns after September 30, 2002, from the DERC registry, implement the provisions of SB 784, reorganizevarious rules, correct one citation, specify the time the EPA has to object to quantification protocols, eliminatefuture generationof shutdown DERCs, and add a reference to the highly-reactive volatile organic compound cap and trade program. Specifically,the banking and trading program amendments in this proposalwere developed to implement the provisionsof SB 784, limit the use of DERCs generated from shutdowns to comply with federal requirements, and make several administrativechanges. Promulgation and enforcement of the proposed amendments will not burden private real property. The proposed rules do not affect private property in a manner that restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Additionally, the credits created under these rules are not property rights (§101.372(j)). Because DERCs are not property, phasing out shutdown DERCs does not constitute a taking. Consequently, this rulemaking action does not meet the definition of a takings under Texas Government Code, §2007.002(5). Additionally, Texas Government Code, §2007.003(b)(4)provides that Chapter 2007 does not apply to this rulemaking action because it is reasonably taken to fulfill an obligation mandated by federal law. The changes regarding shutdown DERCs within this proposalwere developed to meet the EPA conditional program approvalso that these requirements can be approved into the SIP and used to meet NAAQS set by the EPA under 42 USC, S7409. States are primarily responsible for ensuring attainment and maintenance of NAAQS once the EPA has established them. Under 42 USC, S7410, and related provisions, states must submit,for approvalbythe EPA, SIPSthat providefor the attainmentand maintenance of NAAQS through control programs directed to sources of the pollutants involved. Therefore, one purpose of this rulemaking action is to meet the air quality standards established under federal law as NAAQS. However, this rulemaking is only one step among many necessary for attaining the ozone NAAQS. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined that this rulemaking action relates to an action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, SS33.201 et seq.), and the commission's rules in 30 TAC Chapter 281, Subchapter B, concerning Consistency with the CMP. As required by §281.45(a)(3)and 31 TAC §505.11(b)(2), relating to Actions and Rules Subject to the Coastal Management program, the commission's rules governing air emissions must be consistent with the applicable aoals and policies of the CMP. The commission reviewed this act& for consistency with the CMP goals and policies in accordance with the rules of the Coastal Coordination Council, and determined that the action is consistent with the applicable CMP goals and policies. The CMP goal applicable to this rulemaking action is the goal to protect, preserve, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (31TAC §501.12(1)). No new sources of air contaminantswill be authorized and the proposed revisions will maintain the same levelof emissions control as the existing rules. The CMP policy applicable to this rulemaking action is the policy that the commission's rules comply with federal regulations in40 Code of Federal Regulations, to protect and enhance air quality inthe coastal areas (31 TAC §501.14(q)). This rulemaking action complies with 40 Code of Federal Regulations Part 51, Requirementsfor Preparation, Adoption, and Submittal of ImplementationPlans. Therefore, in accordance with 31 TAC §505.22(e), the commission affirms that this rulemaking action is consistent with CMP goals and policies. The commissionsolicits comments on the consistencyofthe proposed rulemakingwith the CMP during the public comment period. EFFECTON SITES SUBJECTTO THE FEDERALOPERA1-ING PERMITS PROGRAM The newand amended sectionsare applicable requirements under the Federal Operating Permits Program, but no revisionsto operating permits will be required. ANNOUNCEMENT OF HEARING The commission will hold a public hearing on this proposal in Austin on May 22, 2006, at 2:00 p.m. in Building B, Room201A, at the commission'scentral office located at 12100 Park 35 Circle. The hearing is structured for the receipt of oral or written comments by interested persons. Individuals may present oral statements when called upon in order of registration. Open dis

## 31 TexReg3496 April 28, 2006 TexasRegistercussionwill not be permittedduring the hearing; however, commission staff members will be available to discuss the proposal 30 minutes before the hearing and will answer questions before and after the hearing. Personswho havespecialcommunicationor other accommodation needswho are planning to attend the hearing should contact Lola Brown, Office of Legal Services, at (512) 239-0348. Requests should be made as far in advance as possible. SUBMITTAL OF COMMENTS Comments may be submitted to Lola Brown, Texas Register Team, Officeof Legal Services, MC205, P.O. Box 13087, Austin, Texas 78711-3087, or faxed to (512) 239-4808. Comments must be received by 5:00 p.m., May 30, 2006, and should reference Rule Project Number 2005-054-101- PR. Copies of the proposed rules can be obtainedfromthe commission'sWeb site at http://www.tceq.state.tx.us/nav/rules/propose~adopt. html. For further information, please contact Beecher Cameron, Air Permits Division, at (512) 239-1495 or Steve Sun, Air Permits Division, at (51 

### 2) 239-3554. 

## DIVISION 1. 

## EMISSION CREDIT BANKING AND TRADING 30 

### TAC §§101.302, 101.305, 101.306 STATUTORY AUTHORlTY The amended and new sections are proposed underTexas Water Code, s5.103, concerning Rules, and 55.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Healthand Safety Code (THSC), s382.017, concerning Rules, that authorizes the commissionto adopt rules consistentwith the policy and purposesof the Texas Clean Air Act. The amended and new sections are also proposed under THSC, s382.002, concerning Policy and Purpose, that establishesthe commissionpurposeto safeguard the state's air resources, consistentwiththe protection of public health, general welfare, and physical property; 5382.011, concerning General Powers and Duties, that authorizes the commissionto control the quality of the state's air; and s382.012, concerning State Air Control Plan,that authorizesthe commissionto prepareand develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also proposed underTHSC, s382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities causeair contaminant emissionsto submit informationto enable the commission to develop an emissions inventory; $382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonablerequirementsfor the measuring and monitoringof air contaminant emissions; and $382.051 and s382.0518, concerning PermittingAuthority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also proposed under42 USC, $7410(a)(2)(A), that requires state implementation plans to include enforceable measuresor techniques, including economic incentives such as fees, marketablepermits, and auction of emission rights. The proposed amended and new sections implement THSC, 

### ~~382.002,382.011,382.012, and 382.017; and SenateBill784, 79th Legislature, 2005. j101.302. General Provisions. (a) Applicable pollutants. Reductions of criteria pollutants, excluding lead, or precursors of criteria pollutants for which an area is designated nonattainment, may qualify 

### as emission credits. Reductions of one pollutant may not be used to meet the requirements for another pollutant, unless [i] 

## [HIurban airshed modeling demonstrates that one ozone precursor may be substituted for another, subject to executive director and United States Environmental Protection Agency (EPA) approval: 

### [t

## -1

(b) - (c) (No change.) (d) Protocol. 

### (1) All generators or users of emission credits shall use a protocol that has been submitted by the executive director to the EPA for approval, if existing for the applicable facility or mobile source, to measure and calculate baseline emissions. If the generator or user wishes to deviate from a protocol submitted by the executive director, EPA approval is required before the protocol can be used. Protocols must be used as follows. (A) 

## - (J3) (No change.) 

### (C) Ifthe executive director has not submitted a protocol forthe applicable facility ormobile source to theEPA for approval, the following requirements apply: (i) 

## - (v) (No change.) (vi) quantification protocols shall not be accepted for use with this division if the executive director receives a letter objecting to the use of the protocol from the EPA during the 45-day adequacy review or the EPA proposes disapproval of the protocol in the Federa! Register [& e 

### # chppwvd efk 

### & by 

### HteEl?4iRh~~]. (2) - (3) (No change.) (e) (No change.)



### .



## PROPOSED RULES April 

## 28,2006 31 

## TexReg3497(f) Geographic scope. Except as provided in

## 3 101.305 ofthis title (relating to Emission Reductions Achieved Outside the United States) 

# [m f3j 

### ef +.his 

### s&se&m], only emission reductions generated in nonattainment areas can be certified. An emission credit must be used in the nonattainment area in which it is generated unless the user has obtained prior written approval of the executive director and the EPA; and[+] (1) (No change.) 

### (2) the emission credit was generated in a nonattainment area that has an equal or higher nonattainment classificationthan the' nonattainment area ofuse, and a demonstration has been made and approved by the executive director and the EPA to show that the emissions from the nonattainment area where the emission credit is generated contribute to a violation of the national ambient air quality standard in the nonattainment area of use: [i er]

(g) 

## - (1) (No change.) $101.305. Emission ReductionsAchieved Outsidethe United States. A facility may use reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section. @J A facility may use reductions achieved outside the United States of criteria pollutants orprecursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants ifthe facility meets the requirements of subsection (c) ofthis section; and 

# m the reduction is substituted for the reduction of another criteria pollutant if the substitution results in a greater health benefit and is of equal or greaterbenefit to the overall air quality of the area; or
a reduction of an air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leadsto the formation ofany criteria pollutant for which the area has been designated as nonattainment. The use ofreductions outside the United States mustbe approved by the executive director and the United States Environmental ProtectionAgency, and the user of the emission reduction must: 

# m demonstrateto the executive director thatthereduction is real, permanent, enforceable, quantifiable, and surplusto any applicable international, federal, state, or local law; demonstrate that the use ofthereduction doesnot cause localizedhealth impacts, as determined by the executive director; QJ submit all supporting information for calculations and modeling, and any additional information requested by the executive director; and 

### & be located within 100 kilometers ofthe Texas - Mexico border. This section does not apply to reductions in emissions of lead. $101.306. Emission Credit Use. (a) Uses for emission credits. Unless precluded by a commission order or a condition or conditions within an authorization under the same commission account number, emission credits may be used as the following: (1) 

## - (4) (No change.) (5) an annual allocation of allowances as provided in $101.356 and 6101.399 of this title' (relating to Allowance Banking and Trading); (6) 

## - (7) (No change.) (b) - (c) (No change.) This agency hereby certifiesthatthe proposal has been reviewed by legal counselandfoundto be withintheagency's legalauthority to adopt. Filedwith the Office of the Secretary of State on April 13,2006. TRD-200602 142 Stephanie Bergeron Perdue Acting Deputy Director, Of ce of Legal Services Texas Commission on Environmental Quality Earliest possible date of adoption: May 28, 2006 For further information,please call: (512)239-0348


## DIVISION 2. 

## EMISSIONS BANKING AND TRADING ALLOWANCES 30 

### TAC 5101.338 (Editor's note: The text of the following sectionproposedfor repeal will not bepublished. Thesection

### may be examinedin the ofices of the Term Commissionon Environmental Quality or in the TermRegirter ofice, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.) STATUTORY AUTHORITY The repeal is proposed under Texas Water Code, $5.103, concerning Rules, and s5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), s382.017, concerning Rules, that authorizes the commissionto adopt rules consistent with the policy and purposesof the Texas CleanAir Act. The repeal is also proposed underTHSC, s382.002, concerning Policy and Purpose, that establishesthe commission purposeto safeguard the state's air resources, consistent with the protectionof public health, generalwelfare, and physical property; s382.011, concerningGeneral Powersand Duties, thatauthorizes the commission to control the quality of the state's air; and s382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The repeal is also proposed un

## 31 TexReg3498 April 28, 2006 TexasRegisterder THSC, 5382.014, concerning Emission Inventory, that au- state implementation plans to include enforceable measures thorizes the commission to require a person whose activities or techniques, including economic incentives such as fees, causeair contaminant emissionsto submit informationto enable marketable permits, and auction of emission rinhts. the commission to develop an emissions inventory; 5382.016, concerning Monitoring Requirements, that authorizes the commissionto prescribe reasonable requirementsfor the measuring and monitoringof air contaminant emissions; and 3382.051and 5382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstructionand operating air permits. The repeal isalso proposed under 42 USC, §7410(a)(2)(A),that requires state implementation plansto include enforceable measuresor techniques, includingeconomic incentives such as fees, marketablepermits, and auction of emission rights. The proposed repeal implements THSC, $5382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. $101.338, 

### Emission Reductions Achieved Outside the United States. Thisagency herebycertifies that the proposalhas been reviewed by legalcounsel andfoundto bewithin the agency's legalauthority to adopt. Filedwith the Office of the Secretary of State on April 13, 2006. TRD-200602143 Stephanie Bergeron Perdue Acting Deputy Director, Of ce of Legal Services Texas Commission on Environmental Quality Earliest possible date of adopt~on: May 28, 2006 For further information,please call: (512)239-0348 

# + + + 30 TAC 

### §101.338,§101.339 STATUTORY AUTHORITY The new sections are proposed under Texas Water Code, 55.103, concerning Rules, and 55.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), $382.017, concerning Rules, that authorizes the commission to adopt rulesconsistent with the policy and purposesof the Texas Clean Air Act. The new sections are also proposed under THSC, $382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; 5382.011, concerning General Powers and Duties, that authorizes the commission to control the quality of the"statels air; and 5382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The new sections are also proposed under THSC, $382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; 5382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and $382.051 and 5382,0518,concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The new sections are also proposed under 42 USC, §7410(a)(2)(A),that requires The proposed new sections implement THSC, 55382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. Jl01.338. 

### Emission Reductions Achieved Outside the United States. @J A grandfathered or electing electric generating faciliQ (EGF) may use reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section. (bJ A grandfathered or electing EGF may use reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants if the facility meets the requirements of subsection (c) ofthis section; and the reduction is substituted for the reduction of another criteria pollutant if the substitution results in a greater health benefit and isof equal orgreaterbenefit totheoverall air quality ofthe area; or 

# a a reduction of an air contaminant for which the area in which the facility is located has been designated 

### as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leads to the formationofanycriteria pollutant for which theareahas been designated as nonattainment. @ The use ofreductions outsidetheUnited States mustbe approved by the executivedirector and the United States Environmental Protection Agency, and the user of the emission reduction must: (lJ demonstrate to the executive directorthat thereduction is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; demonstrate that theuse of thereduction does not cause localized health impacts, 

### as determined by the executive director; submit all supporting information for calculations and modeling, and any additional information requested by the executive director; and be located within 100kilometers oftheTexas - Mexico border. This section does not apply to reductions in emissions of 

## lead. ,f101.339. 

### Program Audits and Reports. No later than three years aftertheeffective date ofthis division, and every three years thereafter, the executive director will audit this program. The audit will evaluate the impact of the pro.gram on the state's ozone attainment demonstration, the availabilityand cost of allowances, compliance by the participants, andany other elements the executive director may choose to include. 

## 122 The executive director will recommend measures to remedy anyproblems identified in the audit. The trading ofallowances may be discontinued by the executive director in part or in whole and in any manner, with commission approval, as a remedy for problems identified in the program audit. (3J The audit data and results will be completed and submitted to the United States Environmental Protection Agency (EPA)



## PROPOSEDRULES April 

## 28,2006 31 

## TexReg3499and made available for public inspection within six months after the audit begins. (bJ No laterthan September30 following the end of each control period, the executive director shall develop and make available to the general public and EPA, a report that includes: number of allowancesallocated to each compliance ac- count; - (2J total number of allowances allocated under this divi

## sion; number of actual nitrogen oxides (NO.) allowances subtracted from each compliance account based on th-e actual NO" emissions from the site; and 

# a a summary of all trades completed under this division. This agency hereby certifiesthatthe proposal has been reviewed by legalcounsel andfoundto be within the agency'slegal authority to adopt. Filed with the Office of the Secretary of State on April 13, 2006. TRD-200602144 Stephanie Bergeron Perdue Acting Deputy Director,Of ce of Legal Services Texas Commission on Environmental Quality Earliestpossible date of adoption: May 28, 2006 For furtherinformation, please call: (512)239-0348



## DIVISION 4. DISCRETE EMISSION CREDIT BANKING AND TRADING 30 TAC 

### §~101.372,101.373, 101.375, 101.376,101.378 STATUTORY AUTHORITY The amended and new sections are proposed underTexas Water Code, 95.103, concerning Rules, and s5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and underTexas Health and Safety Code (THSC), tj382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policyand purposesof the Texas Clean Air Act. The amended and new sections are also proposed under THSC, 9382.002. concerning Policy and Purpose, that establishesthe commission purposeto safeguard the state's air resources, consistentwith the protectionof public health,general welfare, and physical property; tj382.011, concerning General Powers and Duties, that authorizesthe commission to control the quality of the state's air; and 5382.012, concerning State Air Control Plan, that authorizes the commissionto prepareand develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also proposed underTHSC, 5382.014, concerning Emission Inventory,that authorizes the commission to require a person whose activities causeair contaminantemissionsto submit informationto enable the commission to develop an emissions inventory; s382.016, concerning Monitoring Requirements, that authorizes the commissionto prescribe reasonablerequirementsfor the measuring and monitoringof air contaminant emissions; and s382.051 and s382.0518, concerning PermittingAuthority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also proposed under 42 USC, §7410(a)(2)(A), that requires state implementation plans to include enforceable measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The proposed amended and new sections implement THSC, ~~382.002,382.011,382.012, and 382.017; and Senate Bill784, 79th Legislature,2005. J101.372. GeneralProvisions. (a) Applicablepollutants. Reductions of volatile organiccompounds (VOC), nitrogen oxides (NO,), carbon monoxide (CO), sulfur dioxide (SO,), and particulatematter with an aerodynamic diameter of less than or equal to a nominal ten microns (PM,,) may qualify as discrete emission credits as appropriate. Reductions of other criteriapollutants are not creditable. Reductions of one pollutant may not be used to meet the reduction requirements for another pollutant,unless[+] [+I-)] urban airshed modeling demonstrates that one may be substituted for another subjectto approvalby the executive director and the United States Environmental Protection Agency (EPA). 

# [w -1

(b) - (c) (No change.) (d) Protocol. (1) All generatorsorusersofdiscrete emission credits must use a protocol which has been submitted by the executive director to the EPA for approval, if existing for the applicable facility or mobile sourci, to measure and calculate baseline emissions. If the generator or user wishes to deviate from a protocol submitted by the executive director,EPA approval isrequiredbefore theprotocol can be used. Protocols shall be used as follows. (A) - 

### (B) (No change.) (C) If the executive directorhas not submitted a protocol for the applicable facilityormobile sourceto the EPA for approval, the following applies: (i) - (iii) (No change.)



## 31 TexReg3500 April 28, 

## 2006 TexasRegister

### (iv) thechosen quantification protocol shallbemade available forpublic comment for aperiod of30daysand shallbeviewable on the commission's VJeJ 

### [&] site; 

### (v) (No change.) 

### (vi) quantification protocols shall not be accepted for use with this division (relating to Discrete Emission Credit Banking and Trading) if the executive director receives a letter objectinp to the use of the protocol from the EPA during the 45-day adequacy review or the EPA proposes disapproval oftheprotocol in the

### Federal Register[& ft piepeed dmppwzd 

### ef %he 

### peteeel 

### by &e 

### EPA 

### i~ *~~]. (2) 

## - (3) (No change.) (e) (No change.) 

### (0 Geographic scope. Except as provided in paragraph 

### (7) of this subsection and $101.375 of this title (relating to Emission Reduc- tions Achieved Outside the United States) [pmgmphf?j 

### ti4 fgf 

### ef &is 

### sthe&k], only emission reductions generated in the State of Texas may be creditable and used in the state with the following limitations. (1) 

## - (7) (No change.)

[(A) f&EWM&&&&ttseeF(ke~aees& eettse4Eldi£d~~af$eteffftiffe8~*~+ 

## *I

(g) 

## - (i) (No change.) (j) Authorization to emit. A discrete emission credit created under this division is a limited authorization to emit the specified pollutants in accordance with the provisions of this section, the Federal Clean Air Act 

### [KAA], and the Texas Clean Air Act 

### [W], as well as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division shouldbe construed to limit theauthority ofthe commission or theEPA to terminate or limit such authorization. (k) 

## - (m) (No change.) $101.373. 

### Discrete Emission Reduction Credit Generationand Ceri$cation. (a) Methods of generation. (1) Discrete emission reduction credits (DERC) may be generated using one of the following methods or any other method that is approved by the executive director: [(A) 

### Htem-eFftm&-ft ~eF~&f3Fe$ttee~] [@I the installation and operation of pollution control equipment that reduces emissions below the level required of the facility; or 

### [@I a change in the manufacturing process that reduces emissions below the level required of the facility. (2) DERCs may not be generated by the following strategies: (A) permanent or temporary shutdowns [kmpmwy 

### s&dwm] or permanent curtailment of an activity at a facility; (B) 

## - (K) (No change.) (b) 

## - (d) (No change.) .$101.375. 

### Emission Reductions Achieved Outside the UnitedSta~ A facility may use discrete emission credits for reductions achieved outside the United States of criteria pollutants or precursors of criteriapollutants ifthe facility meets therequirements of subsection {c) of this section. 

### A facility may use reductions achieved outside the United States ofcriteria pollutants orprecursors ofcriteriapollutants and substitute these reductions for reductions in other criteria pollutants if the facility meets therequirements of subsection 

### (c)of this section; and 

## 111 the reduction is substituted for thereduction of another criteria pollutant if the substitution results in a greater health benefit and is ofequal orgreater benefit to theoverall airquality ofthe area; or

- 

# rn a reduction of an air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leads to theformation of any criteria pollutant for which the areahas been designated as nonattainrnent. The use ofreductions outsidetheUnited States must be approved by the executive director and the United States Environmental Protection Agency, andtheuser ofthe emission reduction must:
iJJ demonstrate to the executive directorthat thereduction is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, Ze, or local law; demonstrate thattheuse ofthereduction doesnot cause localized health impacts, as determined by the executive director; 

### & submit all supporting information for calculations and modeling, and any additionhl information requested by the executive director; and 

### & be located within 100kilometers oftheTexas

## - Mexico border. QdJ This section does not apply to reductions in emissions of 

## lead. $101.3 76. 

### Discrete Emission Credit Use. (a) 

## - (b) (No change.) (c) Discrete emission credit useprohibitions. A discrete emission credit may not be used under this division: (1) 

## - (3) (No change.) (4) to allow an emissions increase of an air contaminant above a level authorized in a permit or other authorization that exceeds the limitations of 5106.261 [- 

### e~@j 

# = +NFS&@j]



## PROPOSED RULES April 

## 28,2006 31 TexReg3501of this title (relating to Facilities (Emission Limitations)[: 

### ad Rte& 

### &Qzimw€md-- .. 

### . 

## I) except as approvedby the executive director. This paragraph does not apply to limit the use of discrete emission reduction credits (DERC) or mobile discrete emission reduction credits in lieu of allowancesunder $101.356(h)of this title; (5) 

## - (6) (No change.) (d) - (e) (No change.) $101.378. Discrete Emission CreditBanking and Trading. (a) (No change.) (b) Life of a discrete emission credit. A discrete emission credit is available foruse afterthe DEC-1 Form, Notice of Generation and GeneratorCertification ofDiscreteEmission Credits, has been received, deemed creditable by the executive director, and deposited in the commissioncreditregistryin accordance with subsection (a) ofthis section,andmay be used anytimethereafter except as statedin this subsection. All credits are deposited in the credit registry and reported as available credits until they are used or withdrawn. (lJ Discrete emission credits generated from shutdown strategies prior to September 30,2002, will be available for use until September 

### 8, 2010. (2J Discrete emission credits certified from facility shutdowns after September 30,2002,may not be used. (c) (No change.) Thisagency herebycertifiesthatthe proposal has been reviewed by legalcounsel andfound to bewithinthe agency's legalauthority to adopt. Filedwith the Officeof the Secretary of State on April 13,2006. TRD-200602145 Stephanie Bergeron Perdue Acting Deputy Director, Of ce of Legal Services Texas Commission on Environmental Quality Earliest possible date of adoption: May 28, 2006 For furtherinformation, please call: (512)239-0348 

# + + + CHAPTER 295. 

## PROCEDURAL SUBCHAPTER A. WATER RIGHTS PROVISIONS DIVISION 1. 

## G 30 

### TAC 

### 8295.17 

# I The Texas Commission on dnvironmental Quality (commission) proposes new 5295.17. BACKGROUND AND SUM ARY OF THE FACTUAL BASIS FOR THE PROPOSED RUG in the rest of the state.

central repositoriesfor documents.

veyed down the Rio sistentwiththe 1944 tates and Mexico. The commissio if it determines

mits. Subsection

### (j)of the two bills require the watermaster to maintain a placeavailableto the publicth will contain copies of documents which the commission requir s to befiled in connection with water rights in the lower, middle or upper basin of the Rio Grande. SB 1902 provides that the atermaster is the "official recorder" of "all instruments, includi deeds, deeds of trust, 

### financing statements, security agreem

# 1

nts, and liens"filed in conSB 1902also providesthat an instrurhent should befiled "in the same manner as required by other I w for the same type of instrument," and that "the filing of an i strument under this subsection results in the same legal an administrative status and consequences as a filing under othe, 

# \

law for the same type of instrument." Further, an instrumentfil d under this law "shall be construed by a court, financial institu ion, or other affected person in the same manner as an instru ent of the same type that is filed under other law." HB 2250 d

# 1

es not include any of this quoted language, but instead provide that "a lien againsta water right shall not be effective against third parties unless a certified copy of the instrument is filed ith the watermaster," but that the law "does not affect the validi of a lien as between the 

# I

holder of the water right and the holdqr of the lien or the requirements or validity of any other law gouerning the perfection and recordationof these instruments." ! Both bills allow a fee to be collected for filing these instruments. SB 1902 further states that the commission shall adopt rules which "prescribe the procedures necessary for the proper implementation of this subsection, including reasonable transition provisions, if appropriate."



### 31 TexReg3502 April 28, 2006 TexasRegister

### Kathleen HartnettWhite, 

### Chairman R. 

### B. "Ralph" Marquez, 

### Commissioner Larry R. Soward, 

### Commissioner Glenn Shankle, 

### Executive Director 

# TEXAS COMMISSION ON 

# ENVIRONMENTAL QUALITY Protecting Texas by

### Reducing and PreventingPollution



## NOTICE OF PUBLIC HEARING BY THE TEXAS COMMISSIONON ENVIRONMENTALQUALITY ON PROPOSED REFISIONS TO 30 TAC CHAPTER 101

# AND TO THE STATE IMPLEMENTATION PLAN
The Texas Commission on Environmental Quality (commission) will conduct a public hearing to receive testimony regarding proposed revisions to 30 TAC Chapter 101, General Air Quality Rules, under the requirements of Texas Health and Safety Code, 5382.017; Texas Government Code, Chapter 2001, SubchapterB; and 40 Code of Federal Regulations551.102, of the United States Environmental Protection Agency (EPA) regulations concerning stateimplementationplans (SIPS). The repealed, new, and amended sections will be submittedto the EPA as revisions to the Texas SIP. The proposed rulemaking would address deficiencies in the commission's Discrete Emission Reduction Credit Program as identified by the EPA in the October 5, 2005, edition of the Federal Register 

## (70 

## FR 58154). The proposed rules would also implement revisions to Texas Health and Safety Code, 5382.0172(c), as required by SenateBill 784, 79th Legislature, 2005, which allow greater flexibility inthe generation of credits for emission reductions outside the United States.
Apublic hearing on this proposal will be held in Austin on May 22,2006, at 2:00 p.m. in BuildingB, Room 201A, at the Texas Commission on Environmental Quality complex located at 12100Park 35 Circle. The hearing will be structured for the receipt of oral or written coinments by interested persons. Registration will begin 30 minutes prior to the hearing. Individualsmay present oral statements when called upon in order ofregistration. Therewill be no open discussion during the hearing;however, a staff member will be available to discuss the proposal 30 minutes before the hearing.
Persons planning to attend the hearing who have special coinmunication or other accommodation needs, should contact Lola Brown, Office of Legal Servicesat (512) 239-0348. Requests shouldbe made as far in advance as possible.
Coimnents inay be submitted to Lola Brown, MC 205, Texas Register Team, Office of Legal Services, Texas Coinmissionon Environmental Quality,P.O. Box 13087,Austin, Texas 78711-3087or faxed to (512) 239-4808. All comments should reference Rule Project Number 2005-054-101-PR, Coimnents inust be receivedby 5:00 p.m., May 30,2006. Copies ofthe proposed rules canbe obtained froin the commission's Web site at 

## 1zttp://www.tceq.state.tx.us/izav/rules/yropose adopt.htm1. 

## For further information, please contact Beecher Cameron, Air Permits Division, at (512) 239-1495 or Steve Sun, Air Perinits Division, at (5 

## 12) 239-3554.
Issued iizAustin, Texas, oiz April 12, 2006.

P.O. 

### Box 13087 Austin, Texas 78711-3087 512123'3-1000 Internet address: www.tceq.state.tx.us

# WRITTEN AND ORAL TESTIMONY

### Reference Number W-I

W-2 W-3

W-4 INDEX OF WRITTEN TESTIMONY

Submitted by Eric Groten, Vinson & Elkins, L.L.P., on behalfof El Paso Electric Company (EPE) Brandt Mannchen, Houston Sierra Club Whitney L. Swift, Baker Botts, L.L.P., on behalfof the Texas Industry Project (TIP) David Neleigh, United States Environmental Protection AgencyEric Groten egrotenOveIaw.com



### . Te1512.542.8709 Fax512236.3272 ' 

# RECEIVED

May 30,2006 Lola Brown TexasRegisterTeam

. 

## Texas Commissionon EnvironmentalQuality Office ofLegal Services,MC 205 P.O. Box 13087 Austin, Texas 78711-3087 

## Fax: 512.239.4808 Via fax 

### and 

## U.S.



## Re: RuleProjectNumber 2005-054-101-PR Dear

## Ms. Brown, 

## I am writing on behalf of El Paso Electric Company ('WE") 

## to offer the following comments on the above-referenced rulemaking proposal concerning TCEQYs Emissions Banking and Trading Program (EBTP), which appeared 

## in the April 28, 2006, issue of the TexasRegister. 

## EPE

## has long supported TCEQYs pioneering efforts to create incdvesfor cross-border and even cross-pollutant emission trades, where such trades lead to economic and environmental benefits relative to the otherwise required emission reductions. These comments are offered to encourage TCEQ to maximize the opportunities created by the TexasLegislaturewith its 

## enactmentof S.B. 784in

## the 2005 Session.
Comment 1: 

## Proposed 30T.A.C.

# 5 101.302(a)should be revised as follows: (a) Applicable pollutants. Reductions of criteriapollutants, 'excluding lead, orprecursors ofcriteria pollutants may qualzfi 

## as emission credits. 

## 4'k&&ms Excevt 

## as provided bv 

## 6 101.305frelatinp toEmission ReductionsAchieved Outside the UnitedStates),reductions of onepollutant may not be used to meet the requirements for another pollutant, unless urban airshed modeling demonstrates that one ozoneprecursor may 

## be substitutedfor another, subject to executive director and United States Environmental Protection Agenq (EPA)approval.

Vinson & Elklns LLP Attorneys at Law Austin Beijing Dallas Dubai 2801 Via Fortuna, Suite 100,Austin, TX 78746-7568 Houston London Moscow NewYork Shanghai Tokyo Washington Tel 512.542.8400 Fax 512.542.8612 www.velaw.comLola Brown May 30.2006 Page 2



## Thebasic problem with 

# 5 101.302 as proposed is that it is part of Subchapter

## H, Division 1, 

## and so affects all tradingprograms administeredby TCEQ under SubchapterH. 

## Withrespect to the first revision noted above, the general limitation on emission credit generation to pollutants (or precursors) for which an area is designated nonattainment is 

## (I) incompatible with recent changes to Health & 

## Safety Code $ 

## 382.0172(c)effectuated by SenateBill 784,' and (2) unnecessary given that TCEQ sets pollutant- and geography-specific parameters for each emission trading program under Subchapter H, in 

## some cases limiting emission credit use to nonattainment areas (see the Mass Emissions Cap and Trade Program under SubchapterH, Division 3), 

## and in 

## other cases placing different geographical limitations (see the System Cap Trading Program under Subchapter H, 

## Division 5), 

## or no geographical limitations at all (seethe SB 7 allowance trading programukder SubchapterH, 

## Division 2).
As noted in TCEQ's rule proposal preamble, S.B. 784 eliminated the pre-existing requirement in 

# 5 382.0172(c) that substitution of emission reductions be for pollutants for which the area is designated nonattainment. As also noted in 

## the preamble, SenateBill 784 preserves cross-border emissions trading in the only nonattainrnent area located on ah 

## international border, El Paso, which is expected to be redesignated as attainment for all criteria pollutants 

## in the near future: 

## If a reduction in emissions of a particular pollutant in Mexico 

## otherwise satisfies all criteria and goals of the emissions trading and banking program (e.g., enforceable,permanent, quantifiable,real, and surplus,etc.), it canbe certified as an emissions reduction creditfor 

## a dzffereatpollutant,regardless ofthe surrounding area's attainment status with respect to eitherpollutant. It must be, then, that an area's attainment statusisnotunivers&lyan obstacleto emission reduction credit generationor use, althoughit maybein specific circumstances,depending on which emissionstrading program applies:
Whether and how an emission reduction credit canbeused is governedby the pollutant- and geography-specific parameters of the particular emissions trading program under 

## which use ofthe creditisbeing sought, of which there are only a limitednumber: (1) Subchapter 

## H, Division 2, governing the State-wide trading and use of so-called Senate Bill 7 ("SB 7") NO, 

## and SO2allowances held by grandfathered or electing power plants; (2) Subchapter H, 

## Division 3, governing the Houston-Galveston area's Mass EmissionsCap andTradeProgram forNOx;

Enactedbythe 79th 

### Legislature in 2005.Lola Bmwn May 30,2006 Page3



## (3) SubchapterH, Division 5, governing the System Cap Trading Program applicable topower plants subjectto Chapter 117NOxemission limits; and (4) 

## SubchapterH, Division 6, 

## governingthe Houston-Galveston area's High-Reactive VOC Emissions Cap and TradeProgram.
Each of these programs relates to specific pollutants and specific geographic area within which emission credits must be used. For example, the Mass Cap and Trade Program for NOxapplies only within the Houston/Galveston ozone nonattainment areq2the NO, System Cap Tradingprogram appliesonly within singlenonattainment areas orwithin another single area with unique emission limits identified in 

## Chapter 117; and there are no geographic limits governing the generation and use of SB 7 NOxand SO2 allowances, which are traded and used in large regions across the State. 

## In addition to the Agency's four existing emissions-trading programs, a fifth

## use for emissionreduction credits is, of course, as offsets within the context of NNSR permitting, for which use of credits is limited to the nonattainment area within which they were generated. Because all of the emission credit trading programs have their own geographical limitations, it is not necessary (and, 

## in fact, it is not appropriate for some oftheprograms) to generally require that 

## an emissions reduction be for a pollutant for which an 

## area is designated nonattainment 

## in order to qualify as 

## an emissions reduction credit.
The second revision noted above, addition of the phrase, "Except as 

## arovided by 

# 6101.305 [relatina toEmission ReductionsAchieved Outside the United States)," 

## is needed to resolve 

## an internal inconsistency between this provision and proposed 

# 8 101.305, which, 

# in effectuating SB 784, will expressly authorizeuse of reductions of one pollutant to meet the requirements for another under certaincircumstances.
Comment 2: 

## The following subsections of proposed 30 T.A.C. 

# 8 101.302(c) should be revised as follows: (l)(C) 

## exceutfor emission reductions achieved outside the United States, in order to become certijed, the reduction must have occurred after the most recentyear of emissions inventory wed in the state implementation plan (SLP); 

## and

see 30 

### T.A.C.

## 5 101.351. 

# 'See 30 

### T.A.C.$ 101.382.Lola Brown May 30.2006 Page4



## (I)@) exceptfor emission reductions achieved outside the United States, the facility's annual emissionsprior to the reduction strategy must have been reported or represented in theemissions inventorymed in the SLP. (2)(C) except.foremission reductions achieved outside the United Stutes, in order to become certified, the reduction must have occurred after the most recentyear ofemissions inventory used in the state implementation plan (SIP); (2)@) exceptfor emission reductions achieved outside the UnitedStates, the mobile source's annual emissions prior to the emission credit applicationmust have been represented in the emissions inventorywed in the SP;and (2)(E) 

## exceptfor emission reductions achieved outside the UnitedStates, the mobile sources must have been included in the attainment demonstration baseline emissions inventory.
The requirements for certification set forth 

## in these subsections, namely that the source's emissions must have been included in the emissions inventory used 

## in the SIP, are inapplicable to emission reductions achieved outside the United States, which are never 

# - included

## in the emissions inventoryused 

## in the SP.


## Comment 3: Proposed 30 T.A.C. 

# 8 101.302(f)should be deleted. As 

## explained above 

## in Comment 

## #I, it is unnecessary to limit emission reduction credit certification to emissions reductions achieved 

## within nonattainment areas, as 

## each individual emissions trading program setsforthits own geographicallimitations on emission credit use. This subsection, even 

## as proposed to be revised, presents 

## an inappropriate obstacle to certificationof emission reductions achieved outside ofthe United States. Theproposed rule would prohibit certification of emissions reductions achieved outside ofnonattainment areas (such as 

## in Mexico), "[elxcept 

## as provided in 

# 5 101.305 of this title." An 

## applicant seeking certification of an 

## emission reduction achieved in Mexico presumably would have to make the demonstrations required by $ 

## 101.305 in order to get around the prohibition against certification of emission reductions achieved outsidenonattainrnent areas. The problem isLola Brown May 30,2006 Page 5



## that all of the demonstrations required by 

# 5 101.305 pertain to 

## use of emission reduction credits:


## A

facility may use 

## reductions achievedoutside the UnitedStates ofcriteria pollutants or precursors of criteria pollutants 

## if thefacility meets the requirements ofsubsection (c)ofthis~ection.~
Section 101.305(c) goes on to require, for example, a demonstration that 

## use ofthe reduction 

## will not cause localized health impacts. Strictly applied, this regulatory scheme would prevent an applicant from certifying emission reductions achieved outside of the United States for 

## anunknown future use by an unknown future

## user, because it would be impossible to makethe required demonstrations regarding 

## use at thetime of

## certiJication.


## EPE believes 

## that 

# 5 101.302(f) should be removed because it serves no purpose and is problematic for the reasons stated above

## in Comment 

## 1, above. However, ifnot removed, it should be revised as 

## follows to correct the internal inconsistency discussed immediately above: 

# fl Geographic scope. Except 

# . .

. . 

## 4r emission reduction achieved outside the UnitedStates. but within 100 km 

## of the US.-Mexico border, only emission reductions generated in nonattainrnent areas can be certi$e-, and an emission'creditmust be used in the nonattainmentarea in which it isgenerated unless the userhas obtainedprior written approval of the executive director and the EPA; and:
Comment 4: 

## Proposed 

# 5 101.305(b) should be revised 

## as follows to correct 

## an apparent typographical omission: (3) 

## A facility may use reductions achieved outside the United States of criteriapollutants orprecursors of criteria pollutants and substitute these reductionsfor reductions in other criteria pollutants or precursors of criteria wollutants ifthe facility meets the requirementsofsubsection (c) of this section; and:
Proposed $ 

### 101.305(a). 

### Emphasis added.Lola Brown May 30,2006 Page 6



## Comment 5: 

## Proposed 

# 5 101.338(a) &' 

## (b) should be revised as follows to clarify the meaning of the rule and to correct a repetition 

## of the typographical omission noted 

## in Comment4: (a) +To meet the allowance-holdina reauirements 

## ofthis Division. a grandfathered or electing electric generating facility (EGF) may use reductions achieved outside the United States of criteria pollutants or precursors of criteriapollutants if 

## thefacility meets the requirements of subsection (c) of thissection. @) 

## &To meet the allowance-holdina reauirements ofthis Division, a grandfathered or electing EGF may use reductions achieved outside the UnitedStates ofcriteriapollutants orprecursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants 

# or precursors ofcriteria vollutants 

## if the facility meets the requirements'of subsection (c) ofthissection; and:
Comment 

## 6: Proposed 

## $ 101.372fa)should be revised as follows to reflect 

## the addition of proposed $ 

## 101.375: (a) Applicable pollutants. Reductions of volatile organic compounds (VOC), nitrogen oxides (NOx), 

## carbon monoxide (CO), sulfir dioxide 

## (S02), andparticulate matter with an aerodynamic diameter of less than or equal to a nominal ten microns (PMIO) may qualzjj 

## as discrete emission credits 

## as appropriate. Reductions of other criteriapollutants are not creditable. 

## J&th&ewExcept 

## as arovided in 

## 6 101.375 (relating toEmissionReductions Achieved Outside the UnitedStates),reductions of one pollutant 

## may not be used to meet the reduction requirementsfor another pollutant, unless:
Comment 7: 

## For the reason provided in Comment 2, above, the following subsections of proposed $ 

## 101.372fc)shouldbe amended 

## asindicated: (I)(C) exceptfor emission reductions achieved outside the united States, the facility's annual emissionsprior to the reduction strategy must have been reported orrepresented in the emissionsinventoryused for the

# SP.Lola Bmwn May 30,2006 Page 7



## (2)(C) exceptfor emission reductions achieved outside the United States, the mobile source's emissionsmust have been represented inthe emissions inventoryused for the SIP; and (2)(D) exceptfor emission reductions achieved outside the United States, the mobile sources must have been included in the attainment demonstration baseline emissions inventory. 

# If a mobile reduction implemented is not in the baseline for emissions, this reduction does not constitutea discrete emission reduction.
Comment 8: Proposed's 101.372 shouldbe deleted or amknded 

## asindicated

## in Comment

## 3.
Comment 

## 9: For the reason provided 

## in Comment 2, above, the following subsections of proposed 101.373 shouldbe revised as indicated: 

## (b)(l)Except.foremission reductions achieved outside the UnitedStates, the baseline emissions may not exceed the quantity ofemissions reported in the most recentyear of emissions inventoly used in the SF, and for 

# + reductions being certz$ed in accordance with $116.1 70@)

## of this title (relatingto Applicability ofEmission Reductions as Oflsets), the baseline emissions may not exceed the quantity of emissions reported in the emissions inventory used in the SIP in place at the time the reduction strategy was implemented. @)(2) 

## Exceptfor emission reductions achieved outside the United States, the two consecutive calendar years for the baseline activiq and emissiom rate must be selectedfiom either aperiod including or following the most recentyear of emission inventory used in the SIP or, ifthatperiod is less than ten years, the ten consecutive years immediately preceding the emission reduction. @)(3) 

## For facilities in an area in which a SIP demonstration is not required for a criteria pollutant, including facilities located in extraterritorial areas, the two consecutiveyears must include or follow the 1990

## emission inventory.Lola Brown May 30.2006 Page 8



## (c)(2) Exceptfo; emission reductions achieved outside the UnitedStates, the sum ofthe reduction generated and the totalsaategy emissions must not be greater than the quantity of emissions reported 

## or represented in the emissions inventory used for 

## SIP determination or the two-year average baseline emissions, whicheveris less.
Comment 

## 10: 

## Proposed 

# 5 101.375(b) 

## should be revised as 

## follows to correct an 

## apparent typographical omission: (b) 

## A

## facility may use reductions achieved outside the United States of criteriapollutants orprecursors of criteria pollutants and substitute these reductionsfor reductions in other criteria pollutants or vrecursors of criteriavollutantsifthe facility meets the requirementsof subsection (c) of this section;and:


# Thank you for your careful consideration of these comments. 

## We would welcome the opportunityto discuss them 

## with you or your colleagues. If you have any questions, please callme at 512.542.8709. 

# sEk

Eric Groten

cc. Mr. 

## Beecher Cameron, TCEQ 

## Mr. Luis Ito, El Paso Electric Co. Ms. LauraUribarri, El Paso ElectricCo.

# SIERRA CLUB

FOUNDED 18:92 *'

. s 

## April 23, 2006 

# REcENED Ms. Lola Brown Texas RegisterTeam 

## ~~MNTY~NS 

# DEvPUENT Office of Legal Services MC 205 

## Texas Commission on EnvironmentalQuality P.O. 

## Box 13087 Austin, Texas 78711-3087 

# Houston Regional Group 

## P. 0. 

## Box 3021 

## Houston,

## Texas 77253-3021 713-895-9309 http://texas.sierraclub.org/houston/



## Dear Lola, Enclosed are the comments of the Houston Regional Group of the Sierra Club (HSC) regarding the proposed amendments to 101.302, 1 01.306, 101.372, 101.373, 101.376, and 101.378; the repeal of 101.358; and the proposed new 101.305, 101.338, 101.339, and 1010.375, regarding the Emissions Banking and Trading Program (EBTP). 1) Under 101.305, 101.338, and 101.375, 

## the HSC is not in favor of using air pollution reductions outside the United States of America unless three conditions are met. First, the entity responsiblefor the regional air pollution reduction plan must show that all reasonably available emission control measures have been implemented on the United States side of the border. Second, this entity must also show that there are insufficient air pollution reductions available on the United States side of the border to meet needed air pollution reductions. Third, grandfathered facilities must not be allowed to reduce air pollution in this manner. 2) 

## Under 101.305(b, 101.338(b), and 101.375(b), 

## the HSC is opposed to allowing substitution of one criteria air pollutant or precursors of criteria air pollutants for another criteria air pollutant. All criteria air pollutants or their precursors that needto be reduced to eliminate health and welfares effects must be reduced. There is no known scientific method that allows TCEQ to know and trade one health effect from one cirteria air pollutant for another. Such Intrapollutant trading is unethical and not scientific. 3) Under 101.339(a)(I), 

## TCEQ should also audit whether the air pollutant reductions actually occurred for each of the facilities they were to applied to and should determine what the compliancestatus of the each company who used the credits 

# is.

%en we

### tryto pick out 

### anydung

## by itself, we hd 

### it hitchedto eve+g else 

### inthe universe." 

## ]oh

# Yuir

Printed on 103%Kenaf tree freepaper

## 4) 

## Under 101;378(b), 

## the HSC is opposed to giving a company with discrete emission credits from.a shutdown (before September 30, 2002), 8 

## years (to September 8, 

## 2010) to use these credits. Five years should be more than sufficient and the deadline for use should be September 30, 2007 arid not September 30,2010. The HSC appreciates this opportunityto comment. Thank you. Sincerely, Brandt Mannchen Chair, Air Quality Committee Houston Regional Group of the Sierra Club Lone Star Chapter 5431 

## Carew Houston,Texas 77096 ' 

## . 7

## 1 

## 3-664-596205/30/2006 16:59 

### FAX 512 322 2502 

### BAKER 

### BOTTS


# IBAKEIR

# B43TTS LLP


## lvfay 30,2006
f3y Facsinlile and

## U.S. Mail 1509SAN 

### JACINTOCENTER AUmN 98 SAN

### JACINTOBLVD. DNLAS AUSTIN, TEXAS DWl 78701-4078 

### HONG KONG 

### HOUSTON TEL 

### + 1 5 12.322.2500 

### LONDON FAX +I 512.322.2501 MOSCOW www.bakerbo~s.corn NEW YORK RIYADH WASHINGTON
Whlmey Swift 

### TEL +I 512.322.2672 FAX +1 512.322.8339 whitney.swift@bakerbots.com 

## 'vls.Lola :I 1-own rexas Reg.;ster Team :Ifficeof 

# : -egal Sr:rvices 

## :\/IC 205
'

## Texas Co~r mission 

## on Environmental Quality 

## ?O. Box 

## 1:I807 lustin, Te:ras, 78711-3087
Re Comments'ofthe Texas Industry Project 01 

## Emissions Trading Rule Revisions 30 

## TAC 

# 44 101.302--378' Rule ProjectNo. 2005-054-101 

## -PR )ear Ms. 3rown: Bdrer 

## L.L.P., on behalf ofthe Texas 1. 

## dustry Project ("TIP"),' submitsthese 1;ornrnent.s on the Texas Commission on Environme~ 1:a.l 

## Quality's ("TCEQ7s") proposed :

## evisions .:I) 

## 3 0 TAC Chapter 10

## 1, Subchapter 

## H (regard ng Emissions Banking and 

## Trading), ..vhichare 5 

## et forth at 3 

## 1 

## Tex..Reg.3492 (April 

## 28, 2006). 

## The proposed revisions to the emissions t 

## ding rules implement both 

## a change I 

## equired 

## t :I 

## a 2005 revision ,to Texas Clean Air Act 

# 5 !82.0172(c) and the trading program

I 

## .ornmitmcilts 

## idextified 

## in a 

## letter dated September 8, !005 from Executive Director Glenn 

## :ihankle tc. EPA R.egion6 

## Administrator Richard Greene. 

## I'IP supportsTCEQys effortsto ensure :

## ull approlrd ofthe Texas emissions

## trading rules into the date Implementation Plan ("SIP"). 

## TIP 

## has worked diligently 

## with TCEQ for E 

## number 

## of years 

## to support emissions i

## rading p~ograms and 

## open-market trading ruIes 

## that vill 

## enable' sources to comply with 

## ~.:nvironme.lltal requirements with greater flexibility and at 

## .sreduced overall cost. 

## TLP has been :.upportivtof TCISQ's efforts to adopt and 

## implement the. 

## :dingprograms, and believes thatthe 1

## ~roposed I 

## r:visions to the emissionstrading rules are consi \lentwith the Texas CleanAir Act, the :

## ederal Cl:.~m Air Act, applicable 

# SIP requirements, 

## anc appIicable EPA guidance, including ' 

## Tmprovini: Air C!uality 

## with Economic Incentive Progrt .ns" @PA-452lR-01-001). Full EPA
i 

## .pproval c.:'the Texas emissions trading rules will ensure hat the emissions trading rules, which I lave beco::le an 

## integral part 

## ofthe regulatory scheme in 'I 

## i:xasy will remain 

## in the 

## Texas 

## SIP.



# ' The 

### Texas Industry Project 

# ("F) is a coalition of 61 

### companies in :he 

### chemical, refining, oil 

### and gas, 

### electronic, l'xest 

### products, terminal, electric utility and transporhrtion industtie: 

### with operations 

### in Texas. A 

### member 

### list is altached.05/30/2006 16:59 

### FAX 512 322 2502 

### BAKER BOTTS



# Ms.Lola 'Elrown 2 

## May 30,2006



## TIP requests that 

## TCEQ provide clarificat 

## :Inon one important issue as it relates :o the rev:.ions

## tct 

## 30 TAC 

# 5 101.378(b), regarding the lif ! 

## of discrete emission reduction credits generated From sliutdown strategies. Such credits are avi ilable for use until September 

## 8, 2010 .rnder the 

## terms of the proposed rule. How this date utoff would apply to certain uses of shutdown credits..for example, credits used for emission : 

## offsets for 

## a new permit application, 3ppears cim. 

## Fc~r other uses, such'as compliance with 

## a I 

## annual emissions limitationunder 30

. 

## TAC Chzl~ter117, the impact of this date cutoff is 

## n. t 

## clear. 

## TIP seelts confirmation that shutdown credits generated from shutdown strategies ~rior to September 30, 2002 will be 

## wailable :Ibr use to comply with an 

## annual emissions lh fitfor calendar yew 2010, even if 

## the ;redits, wider the proposed revisionsto $ 

## 101.378(b)(l),v 

## i.11expire during 

## 2010.

' 

### 7l.e 

## Texas 

## Industry Project appreciates 

## rhe opportunity to comment on the proposed revisio:ns to 

## the emissions trading rules. If !leu 

## have 

## .any questions about TIP'S zomment:;.please do 

## not hesitate 

## to contact me at 322-26 

## :I.
Sincerely,

Whitney

## L. 5 

## ivift

. 

## For the Texa Industry Project.. .. 

### . 05/30/2006 16:59 

### FAX 512 322 2502 

# -- BAKER 

### BOTTS @004/004



## Baker Botts 

### L.L.P. ErivironrnentalClients Group (Texas 

## Inc ustry Project)

-.-=- 

# -

1. .4dvanced I'rl

### icro Devices, Inc. 

### 32. Intern: :ional Paper Company


### 2. 4lbemarle :::orporalion 

### 33. Kinder idorgan Liquids Terminals, LLC 

### 3. 14rkerna 34. LANXE 

### iiS Corporatlon 4. BASF 

### Corpl: ration 

### 35. 

### LBCH uston, LP

' 5. 

### 13P 

### 36. Lockhs ed MartinAeronautics Company 

### 6. Calpine CCIIporatiorl 37. Lyond .I1 

### Chemical Company 7. Celanese 

## Chemica

### s, Ltd. 38, LYONt ELL-CITGO 

### Refining LP 8. ~>enterPoirr: Energy Houston Electric, LLC 39. Maratl on Ashland Petroleum LLC 9. 

### Chevron Cc~rporation 40. Mead\ ,'estvaco Corporation



## . 10. 

### chevron 

### PIillips Cliemical Company LP

. . 

### 11. ,:ITGO 

### Petr~leum C:orporation 

### '12. 2onocoPh llips 

### 13. Degussa 

### E ~gineertsd Carbons, LP 14.

. 

### Delek 

### Refir ing Ltd. 15. 

### Dixie Cherr ical Company, Inc. 16. Dow Chemcal Cornpany,The 

### 17. '~uke En'ergy Field 

### Services, LP 18. 

### Dynegy Inc': 

### 19. Eastman ChemicalCompany 20. E. I. 

### Du Pc~t~t de -N~mours & Company 21.. 

### Entergy Texas 22. Enterprise ?roducts Operating L.P. 

### 23. Exelon PcwerTexas 24. 

### ExxonMot:~ I Chemcal Company 

### 25. Firestone Polymer;, LLC 26. GB 

### Bioscirsnces Corporation 

### 41. Merisc USA, 

### L.L.C. 

### 42. NOVA 

### :;hemica15 Corporation 43. NRG 

### 1i!xas LP 

### 44. Occid ital Chemical Corporation 

### 45. Odflel 'Terminals (Houston) LP 

### 46. Praxa 

### ; Inc. 

### 47. Reliar 

### : Energy, Inc. 

### 48. Rohrr and HaasTexas, Incorporated 49. 

### Shell :hemica1 Company 50. 

### Soluti



## . lnc. 51. ST 

### SEvices 52. 

### Sterlil 

### 3 Chemicals, Inc. 53. 

### Stew: .t & Stevenson Services, Inc. 54. 

### Stolth tven Houston Inc. 55. 

### TARC 

### 4 56, Temp e-Inland Forest Products Corporation 

### 57. Texa: Instruments Incorporated



## . 27. 

### Goodyear 'Tire & Lubber Company, The 58. 

### Unior Pacific RailroadCompany 28. 

### Hexion Spscialty Chemicals, Inc. 59. 

### Valer I 

### Energy Corporation 29. 

### Huntsmarl Corporation 60. 

### Vopa



## . Logistics NorthAmerica, Inc. 30. INEOS 

### Olci!ins & 

### Polymers, USA 61. 

### West 

### !m Refining Co., 

### L.P. 31. 

### intercontinsntal Terminals Company

# I ..*om 

# =4*. 

# "j UNITED STATES ENVIRONMEHTALPROTECTIONAGENCY 

### REGION 6 

# (wJ 1445 

### ROSS AVENUE, SUITE 

### 1200 DALLAS,

### TX 75202-2739 dl m~~* 

# MAY 30 

# 20% Ms- 

## Lola

### Brown 

## TcxasRcgistcrTcam 

## Officc of

## Lcgal Serviccs 

## (MC 

## 205) Texas 

## Commission on Environmental 

## Quality P.O. Box 

## 13087 

## Austin, TX 

## 78711-3087 

# RE: Comments on Texas's Proposed Revisionsto the 

## StateImplementation

## Plan (STP) 

## and 30

## Tmas Administrative Code

## (TAC) Chapter 

## 101 (Rule 

## ProjectNumber 2005-054-101-AI)
Dear

## Ms.Bmwn: 

## Thankyou forthe 

## opportunityto review

## theproposcdrevisionsto the 

## STP and 

## 30 TAC Chapter 101

# -General

## Air Quality

## Rules, SubchapterH

# -Emissions

## Banking and 

## Trading,Divisions 

## 1,2,and

## 4. With

## th~se revisions,Texas 

## is making 

## siwcant progress towards 

## satisfyingthe terms 

## of

## the September 

## 8,2005, 

## commitment letter. As 

## youhow,

## thenecessary 

## rulerevisions

## must

## be 

## submittedto our 

## officeby December 1, 2006. We 

## appreciatethe he 

## and attentionyour stfi hasdevoted to

## processing these revisions so 

## quicklyand your

## willingness to consultRcgion 6 

## during

## thismIe development. We

## believethat the incorporationof

## ourcomments

## bclow will 

## clarify'and strcngthcn

## the

## proposed revisions. 

## The followingcomments are specific

## to 

## the

## proposedrevisions to 30 TAC Chapter 101, Subchapter

## H, Division 1

# -Emission Credit

## B6g and 

## Tradingprogram, also referred to 

## as the

### Emission

### Reduction Credit 

## (ERC) program. 

## L. Theproposedrcvision to § 

## 101.302(d)(l)(C)(vi)will 

## address commitment 

## number

## 5hrn 

## the commitment

## letter. 

## Theproposed

## rulelanguageclearly describes 

## theprocessby which lhe

## U.S. EnvironmentalProtectionAgency (EPA) 

## can object 

## to a 

## quantificationprotocol. 

## This languageis collsistmt 

## with the 

## approach described

## in EPA's Economic 

## Incentive

## Program Guidance document, "Improving 

## Air Qualitywith

## EconomicLnccntivc 

## Programs" (EPA-452/R-01-001, January 

## 2001). 

## 2. 

# Inthe 

## commitment

## letter, the 

## Texas Commission onEnviromnenld Quality (TCEQ) committed

## to revising

# 9 101.302(f)to 

## clarifythat EPA approval is required 

## forindividual 

## lmsactions involving emission

InternetAddress (URL) Pttp:/hv~.epa.gov RecycledlRecyelablr *Prinlod wllh Vegetable Oil Besed Ink on RecycledPapw (Mmhnum25% Postconsumer)

## reductionsgenerated

## in another StateorNution, as well as thosc &snsactions

## hm onenonattainmcnt arca to 

## another, or hrn 

## attainment countiesinto 

## nonattainnlentareas. 

## The tstablishmcnt ofanew 

## C) 1 01.305 for

## internationalreductionsis a step towards

## meeting

## this commitmentand 

## improving rule clarity. 

## TheEPA is concerned, however, 

## that this rule revisionchanges the 

## intent ofthe 

# ERC rule,

## which 

## isto provide flexibility 

## solely

## in nonatthmt areas. With 

## theremoval oftllc 

## "and'' statcrncnt

## from the approval criteria, thereisno 

## clear requirement for

## the reductionto 

## be generatedor used 

## in a 

## nonattainment area. 

## Thisproposedrevision would allow sources anywhere

## within 100 kilometers 01 

## theborder 

## to generate 

## and use 

## ERCs from ~exico. The

# TCBQhas not dalonstrated tlmt this

## revision would 

## not violate $ 

## 1lO(1) ofthe 

## Clean 

## Air Act. Further, use 

## of

## EKCs gcncrated outsidethc 

## United Stales

# as New SourceReview oirsels would

## be contrary to 

## section 

## 173(c)(l) ofthe 

## ClcanAir 

### Act. 

## The EPA 

## understands that this de 

## revision is aresult ofSenate 

## Bi11.784, 

## which a~~ording to the. rulepreamble, 

## was to 

## allow for 

## the continuance

## of beneficial 

## emission creditprogram 

# inCiudad 

## Juarez inthc cvcnt

## ofEl Paiobeiug

## reclassified as 

### an 

## attainment 

## area. The

## EPA feels 

## that tlus 

## flexibilityis unnecessary and 

## couldpotentially

## weaken 

## thsprogram. 

## The 

## DiscreteEmissionReduction Credits (DERC) pmgram, 

## which EPA proposed to 

## conditionallyapprove

## in Octobcr2005, 

## containsprovisions. that allow forthc gensration 

## and use ofinternational discretemission 

## credits. The

## DERCprovisions could be 

## used

## inElPaso 

# inthe 

## eventthe area

## is

## reclassified as 

## attainment. 

## 3. Theproposed

## revision 

## to 

# 4 101.306(a)(S) 

## will address commitmei~t number 

## 6 

## hrn the commih~ent letter. 

# Thonew wordingmore 

## dearly provides that 

## ERCs can

## beused in 

## theHighly 

## ReactiveVolatileOrganic Compound

## Emissions 

## Cap and 

## Tradeprogram, subjectto 

# 4 101.399.
4. 

## Inthe proposed

## uew $ 

## 101.305(b)(I),the word "if' is 

## confilsing. 

## It appears 

## that 

## "and" might 

## be 

## amore 

## appropriateword choice.


## 5. 

## Ln the proposed

## new 

## fi 101.305(c)(l), theword "foreign" or "Mexican" 

## shouldbe added to 

## the list oflaws to which 

## thereduction mustbe 

## surplus. ("lnternntionnl" 

## law would rcfcr to 

## atrcaty

## or othcr article of law between 

## nations rather than 

## a law 

## of a singlenation such 

## as Mcxico.)
6. In 

## theproposed new 

# 8 101.305(c)(l), (c)(2), 

## and 

## (c)(3), the referencesto the 

## executive 

## clirector are ~onfusing, because thc 

## ovcrarcl~ing approval, requircmmt incorporatesboth 

## EPA and the 

## executive director. That is, EPA's co-approval authority clearlyimplies the 

## authority

## to independently determine

## whether thc

## reduction is 

## real, surplus, etc., as 

## in 

## (c)(l), and

## wherher the 

## reduction causes 

## locdizcd health impacts under (c)(2); also 

## implied wouldhe 

## the authaii

## ty to ~cqnire adclirional supporting information 

## as in (c)(3).

, 

## The 

## following comments 

## arc specific to 

## rhe propwed ~xvisions to 

## 30 

## TAC Chaprer 

## 101, Subchapter 

# H, Division 

## 2 -Emissions Banking and 

## Trading

## of AlIowanccs 

## (EBTA)

## pro,oram. 1. The 

## SLPpimblcon pages 

## 2 and 5 

### incorrectly

## refers to the

## EBTA program as 

## an open market trading 

## program. The

## EBTA program is 

## a capmd-trade 

## pmgi-ambecause it establishes 

## cmission ~ps 

## rur 

## nitrogen oxides 

## (NO,) and sulrur dioxide 

## (302) and provides al3ocations LO 

## a defined 

## set of subjcct facilities for Lhe emission of these pollutants.


## 2. 

## TheEPA rccommcnds Lhal$ 

## 10

## 1.338 be 

## furtherrevised to scatethat international reductions under rhis provision are 

## only used to substitute 

## for allowances

## forpuposes of 

## compIiancewith he 

## Divisinn 2

## EBTA propam. Language 

## to this 

## effectwas originally 

## part of § 

### 101 

## -338 

## bulwslv 

## l~rnoved in the

## proposcd revision. 3. The 

## EPA also

## recommendsthat

## 9 101.338

## bo furtherrevised

## to clarify that international

## reductionscannot he uskd

## in 

## thcEast 

## TcxasRegion

## because of

## the distance limitarions.
4. 

## The 

## rule language in 

## 8 101.338docs require 

## rhar.EPA approval

## is required for intcmationalreductions. 

## Thel3PA notes that 

## thesereductions 

## would be addtesscd 

## in the 

## same

## manner 

## as inte~national reductions 

## for use 

## under the Division 

## 1

## ERC orDivision 

## 4

## Discrete

## Emission Credit 

## Banking and Trading

## programs. The 

## EPA intcnds to 

## mquire 

## a further 

## SIPrevision (either 

## a dctdled trading

## program, such as a

## Memordnrlum or 

## Understandmg, or 

## ii.rradespecific submission) before 

## approving

## any internationaltmdes, 

## intcrsrate 

## mules, or

## intrastatetrades that involve 

## reductions .From

## beyond the nonattainment area. 

## 5. 

## In the 

## proposcd ncw 

# 5 101.338@)(1), the 

## word 'if' is confusing. It 

## appears that 

## "and" might 

## be a more appropriate

## word choice. 

## 6. In the 

## proposednew 

# S 101.338(~)(1), thc word "foreign" 

## or "Mexican" should be added to the

## list of

## laws to,whichthe 

## reduction 

## must be 

### surplus. 

## ("International" law wouId refer to 

## atreaty 

## or other 

## articlc

## oflaw 

## between nations 

## rathcrthan a law 

## of 

## a singleniltion 

## such as Mexico.)


## 7. In the proposed new 

# 5 101.338(c)(l), (c)(2),

## and (c)(3),

## the i~fcrenccs to 

## the cxecutive director are confusing, becausc the overarching approval requirement incorporates 

## both EPA and 

## the excculive direclor. That 

## is. 

## EPA's co-approval authorityclearly implies the 

## authority toindependently

## determinewhether thc 

## rcd~lction is real, 

## surplus,etc., 

## as 

## in 

## (c)(l), and 

## whether the reduction causcs localized health impacts 

## under (c)(2); also implied wo~lld be 

## the 

## authority to require additionalsupporting 

## information 

## as in (c)(3). 

## 8. 'J'he proposed ncw scction 101.339 is zl 

## first steptowards co~recting a program 

## deficiencywe identified 

## in a July 19,2005,letter to Mr, Cory Chism. 

## However, to f~~lly addressthc 

## conccms described 

### in 

## scction 5.3(b) of the Econolnic incentive

## Program Guidance,the audit and 

## annual reportingrcquiremenLsmust 

## apply notjust 

## to

## NOxhut also 

## to the allowances 

## and 

## emissions of SO2

## in 

## the East 

## Texas Region. Specificdly, wc:

## recommend Lhat $ 

## 101.339(b) be

## revised to 

## include a new 

## subseclic~n that 

## viould rcporr the nrrmber of 

## actual $02 

## allowances subtractocl 

## from each co~llpliance account bascd 

## on 

## the actual SO2 

## emissions 

## fromthe 

## site.
The 

## following cornmenu are 

## specific to 

## the proposed revisions 

## to 30 

## TAC Chapter 101,SubchapterH, 

## Division4 

## -Discrete 

## Emission 

## CreditBanlung and Trading 

## program, re~emd to 

### as the 

### II~RC 

## program. I. Thc 

## proposed revision Lu $ 

## 101.372(cl)(l)(C)(vi)will 

## address

## commitment 

## number 5 

## fiom the commilrnent letter. 

## The proposedrulc languageclearly describes

## the 

## process by 

## which 

## EPA 

## can object

## to 

## a quantification pro~ocol. 

## This language is 

## consistent with 

## the approach described

## in the EconomicIncendve

## Prr~grtun 

## Guidance. 2. 

## In the 

## commitment letter,

## TCEQ committedto

## rcvising 

# $9 101.372(f)(7) and 

## 101.372(f)(S) 

## to clarify 

## that EPA approval

## ,isrcqrrircd 

## TOT individual 

## transactions involvingemission reductions generated in anothcr Stateor 

## Ndtion, as well as for thosc transaction^ 

### hm 

## one nonattainmentarea to another, or From 

## athiinmeritcounties into 

## nonattainmentarens. The establishmcriL or u new 

## section 101.375for intanntiond

## reductionsis 

## a step 

## towards

## mating this commitment and 

## im.provingrule clarity. However,EPA continues to believe

## that 

## 5 101.372(f)(7) 

## needs to 

## be revised 

## to adclrcss this commitment. As currentlywritten, 

## 5 101.372(f)(7) still 

## includes language pertaining to international 

## reductions ofNOx 

## nnd VOC. 

## The

## BPA fcels

## that this 

## information shouldbe 

## incorporatedinto 

# 5 101.375 

## so here 

## is no confusion about whether 

## S 101372(f)(7)

## is furtl~er 

## modified by 

# 8 101.375. 

## TheEPA contcndsthat in 

## addition 

## to demonstrating

## that the 

## usc of internationalNOx 

## and Volatile 

## Organic Con~pound reductionsunder $ 

## 101.372(f)(7)improvcs 

## air quality in the 

## county of 

## use, that the user

## of 

## these credits 

## should have to meet the 

## requiremenlsof 

## 8 10'1 

## 375, Also, stated 

## in our proposed conditionalapprovd ofthe 

## DERC

## program (70

## Federal Re~ister 

## 58154), 

## in exercising

## itsreview under 

# 5 101.375(c) 

## EPA 

## intends to require 

## a further

# SLP revision before approving my

## international ttaclcs, 

### inh~kle kales, 

## or intrastate tradesthat involve reductions 

## hm beyond 

## thenonattahmcnt 

## area.

. 

## 3. Theproposed revisions to 

# 9 1 

## 01.373 will 

## addrcss commitment

## number 1 from the commitmentlmer. The

## proposed rule

## prohibits thc generation of 

## DERCs ikom

## pennanernt 

## ortemporary shutdowns. The

## proposedlanguage is consistent

## with

## the EkonomicTncentive

## ProgmGuidance expectations 

## of open markettrading programs. t 

### 4. 

## Ln the commitment 

## letter, 

# TCEQ committedto

## revising 

# 5 lOS.372(f)(7) 

## and (f)(8) to 

## clarify hat

## EPA 

## approvalisrequired forindividual 

## trnnsaotionsinvolvingcmissionreductions generatedin

## mother state or Nation, 

# aswell as 

## those transactions

## from one nonattainment 

## ma to 

## anohm,or iiom attainment 

## counties into 

## nomttainment areas. 

## The 

## establishmentof a new 

## section

# 4 101.375 

## forinternational reductions

## is 

## n step towards

## meeting

## thisconunitmeut

## aud improvingrule 

## clarity.

. . 

## ThcEPA

## is concerned,however,

## that thisrulerevision changesthe 

## scope of

## the international provisions for the

## DERC 'rule. 

## currentadopted State

## rule languagc limit 

## the generation 

## and 

## use of

## ir~tm'ational discrctc reductionsto nonattainmcnt areas, i.e.

## El Paso. Thisproposed

## revision 

## would allow sources 

## anywhere

## within 100

## kilometers of

## the .border

## to generate

## and useDERCs fromMexico. 

## Thc TCEQ

## has not 

## demonstrated lhal

## lhis 

## revision would notviolate § 

## 1100)of

# the Clean

## AirAct 

## TheEPA undarstands

## that 

## this rulerevision is 

## a

## result of 

## SenateBill 784,



## . 

## which according

## to 

## therulepreamble, was 

## to allow 

## forthe continuance

## uT beneficial emission creditprograms 

## in Ciudad

## Jumz in

## the 

## event of El Paso 

## being

## reclassified as ar! 

## attainment area. 

## The

## EPA questionswhy 

## thisprovision was 

## expanded to covmthe 

## entirety ofthe 

## Texas-Mexico border.
5. The

## proposed 

## revisions to § 

### 101.376(c)(4) 

## correct the 

## citation errors

## that we 

## identified 

## in an April 

## 14; 2004, 

## letterto Mr. Cory Chism. 

## 6. The

## proposed revisionsto

# ~ 1 0

## 1.378@)will address commitmentsnumber 1 

## md 

## 2 

## fromthe commitmentletter. 

## Theproposed revisions establishthe 

## remaining lifetime. 

## forthe shutdown

# DERCs generated before Septmber30,2002, 

## and establishthat shutdown DERCs generated after 

## September 30,2002, 

## arenot creditable.


## 7. 

## Thcproposed new 

# 5 101.375(a)and 

## (b) 

## use non-parallel language,

## inthal @)



## says that,facilities 

## can 

## "use discrete emissioncrcditsforreductions" outsidethe

## U.S., while 

## (b) says that 

## facilities can 

## "use reductions" outside

## the

## U.S. It appears

## thatparue1structurefor 

## thesephrases would 

## be 

## appropriate, 

## and 

## furtherthat

## neither ofthe 

## existingphrases 

## is clcar. 8. 

## Inthe

## proposed

## new 

# 5 1~01.375(b)(l), tha 

## word "if' 

## is confusing, 

## It appears

## that "and" mightbe amorc appropriatcword 

## choicc.
9. 

# Intheproposcd 

## ncw 101.375(~)(1), the word 

## "foreign" 

## or 'Wexican" shouldbe 

## added 

## to 

## the list oflaws

## to which thc 

## reduction must be 

## surplus. ("Intmtional" law would 

## refer

## to atrcaty

## or othcrarticlaof

## law

## between nations rather than 

## alaw of 

## a single

## nation such 

## as Mexico.) 10.

## Jn theproposed new 

# 5 101.375(~)(1), (c)(2), 

## and (c)(3), the

## references

## to the 

## executive director 

## are confusing,becausethe overarching 

## approval 

## requirementincorporates

## both EPA and the executive

## director. That

## is, EPA's 

## GO-approvalauthorityclearly

## impliesthe 

## authority

## to independently determine

## whether the

## reduction 

## isreal, surplus, 

## ctc., as in 

## (c)(l ), 

## and whether 

## the

## reduction causes 

## localizedhealthhipacts 

## urldcr (c)(2);

### also 

## implied

## would 

## bethe authority

## to

## require 

## additional supporting information 

## as in (~)(3). Thank

## you Torttlc 

## opportunily

## to provide:

## comments. Please

## note 

## that our 

## comments do 

## not constitute

## a final decision

## on npprovability 

## of

## rule language. 

## We look 

## forward 

## to 

## seeingthe adopted

## rulewhen 

## it 

## is submitted. Tfyou

## have 

## any questions, please call

## Ms.Adha 

## R. Wiley ofmy 

## staffat (214) 665-2115. 

## Sincerelyyours,

Chief 

## Air Pem~its 

## Section

### INDEX OF ORAL TESTIMONY May 22, 2006, 2:00 p.m., Texas Commission on Environmental Quality, Austin, Texas

No oral testimony was received pertaining to this proposal.

## Page 

## 1 

# Texas Commission on Environmental Quality Public Hearing Registration
Location: 

# Austin Date: May 22, 2006 Concerning: 30 TAC Chapter 101, General Air Quality Rules 

## (SB 784: Emissions Reduction - 

## ERCIDERC)
Presenting Oral Testimony? (Circle One)

Yes 

# @

Yes 

# 6

Yes No

Yes No



## Yes No

Yes No

Yes No 

## Rule Project No. 2005-054-101-PR Name and Address (Please Print)


# STE1..s /&A/& 

# 7~ L

# 2.dRepresenting



# k>70~,., 

# hLd ROT%

# EVALUATION OF

TESTIMONY

# Texas Commission on 

# Environmental Quality INTEROFFICE

### MEMORANDUM



## To: Commissioners Date: September 15, 2006

Thru: LaDonna Castaiiuela, Chief Clerk Glenn Shankle, Executive Director
From: pan Eden, Deputy Director Office of Permitting, Remediation, and Registration

Docket No. : 

## 2006-0 167-RUL Subject: Commission Approval for Rulemaking Adoption Chapter 101, General Air Quality Rules Senate Bill 784: Emission Reduction Credits ERCIDERC Rule Project NO'.2005-054-101-PR
Reasons 

## for the rule package:
Under what authorityare

## we adoptingthese changes? The rulemaking is adopted under Texas Water Code, 55.103,concerningRules; and 55.105, concerning GeneralPolicy, which authorizes the commission to adopt rules necessaryto carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC); $382.017, concerning Rules, which authorizes the cornmission to adopt rules consistent with the policy and purposes of the Texas Clean Air Act. The rulemaking is also adopted under THSC, 5382.002, concerning Policy and Purpose, which establishes the commission purpose to safeguard the state's air resources, consistent with the protection ofpublichealth, general welfare, and physical property; 5382.01 1, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air; 5382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air; 5382.05 1, concerning Permitting Authority of Commission;Rules, which authorizes the commissionto issue permits and adopt rules necessary for permits issued under THSC, Chapter 382; $382.0512, concerning Modification of Existing Facility, which establishes a modification and its limits; and $382.0518, concerning PreconstructionPermit, which requires that apermit be obtained from the commission prior to new construction or modification of an existing facility.


## Is this rulemaking required by 

## federal rule or state statute? Yes. Which 

## ones? In the October 5, 2005, edition of the Federal Register (70

## FR 58154), the United States Environmental Protection Agency (EPA) published the proposed conditional approval of the discrete emission reduction credit (DERC)program as part of the state implementationplan (SIP). The conditional approval was based on the commission submitting corrected program deficiencies to the EPA by December 1, 2006. The recommended rules also reflect changes to THSC, $382.0172(c)from SenateBill (SB)784 that was adopted by the 79th Texas Legislature, 2005, 

## Regular Session, and allow additional options for credit from emissionreductions achieved outside of the United States. The revision would allow the commission greater latitude in its ability to approve the substitution and crediting of emission reductions outside the United States that may be used to satisfy emission trading'orreduction requirements.

## Cormnissio~lers Page 2 September 15,

## 2006
Re: Llocket No. 2006-0167-RUL
Are there any legal deadlines by which these rules must be adopted or effective? The commission must submit rules correcting DERC program deficiencies to the EPA by December 

## 1,2006.

o 

## What issue or problem are we trying to solve? These rules will correct EPA-identified deficiencies in the DERC program and implement SB 

## 784. Why is it important that we do this rule package? EPA's conditional approval of the commission's DERC program will automatically become a disapproval if these rules are not submitted by the December 

## 1,2006, deadline. These rules will also implement state legislation.

e 

## Otherimportant background or historical information. None. Scope of therulemaking: Changes required by federalrule: The recommended corrections include the prohibition of the future generation of DERCs from permanent shutdowns and allow only DERCs generated from permanent shutdowns before September 30, 2002, to rehain available for use until September 

## 8, 2010. Any DERCs generated after September 30, 2002, would be removed from the DERC registry and not be available for use. The corrections also require EPA approval for individual transactions involving emission reductions generated in another stateornation as well as those transactions from onenonattainment areatoanother or from attainment countiesintononattainment areas. Therecommended revisions include a program audit and report requirements to satisfy the EPA's requirements. The requirements concerning program audits were not included in the EPA publication of conditional approval but were the subject of discussion between the commission and the EPA.

'0 

## Changes required by state statute: The rule changes implementing SB 

## 784 allowfacilities to substitute emission reductions in criteria pollutants outside the United States if they are reductions in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. This will allow the continuance of beneficial einission reduction programs 

## in Ciudad Juirez in the event of El Paso's redesignation as 

## an attainment area. Staff reconlrnendations that arenot expressly required by federalrule or state statute: Citations in Chapter 101would be updated and a reference to the highly-reactive volatile organic compound (HRVOC) rule has been included to specify that HRVOCs nlay also be sources of emission credits and allowances. Impact on theregulated community:

o 

## Who will be affected? Eleven sites in the Houston-Galveston-Brazoria (HGB) and Beaumont-Port Arthur (BPA) noilattaiml~ent areas will be affected by the removal of DERCs froin the registry.

## Commissioners Page 3 September 15, 2006
Re: Docket No. 2006-0167-RUL
Does 

## it create a group of affected persons who were not affected previously? How? 

## No.
Will 

## there be a 

## fscal impact? 

## Yes. If so, estimate. 

## The DERCs generated prior to September 30, 2002, represent the majority of the shutdown DERCs the commission currently has on its registry with 

## an approximate total value of $40,000,000 in HGB and $600,000 in BPA. These credits remain available for compliance or trading by the 11 sites holding them

## until September 8, 2010, and 

## will retain their full value 

## until then. The loss of DERCs generated from permanent shutdowns after September 30, 2002, is estimated to cost, area wide, from $183,470 in HGB to $604,870 

## in BPA. These DERCs will expire on the effective date of these rules. Impact on the public: Who 

## will be affected? 

## The expiration of DERCs 

## will mean that they 

## will not reappear in the form of 

## air contaminants.
Does 

## it create a group of affected persons who were not affected previously? How? 

## No.
Will 

## there be a 

## fscal impact? If so, estimate. 

## No. Impact on agency programs: 

## None.
Stakeholder meetings:
Have any stakeholder meetings been held? 

## Yes, January 4, 

## 2006.
With 

## whom? 

## Industrial and environmental organizations and EPA representatives.
Whatwerethegeneral sentiments? 

## Someindustrial stakeholders opposed thepending retirement of shutdown DERCs.
Were any changes made in response to stakeholder concerns? 

## No. Policy issues: What policy issues are affected? 

## None.
Are any policies that arenot currently based on 

## rule being made into a rule? No


### What 

## are the consequences if this rulemaking is 

## not approved to go forward? 

## EPA disapproval of the 

## DERC program.

## Co~nmissioners Page 4 

## September 15, 

## 2006
Re: Docket No. 2006-0167-RUL

e 

## Are there alternatives? No. 

## Potentially controversialmatters: The retirement of shutdownDERCs will likely causeconcern,butthis requirement is a key point in EPA's conditional approval of the 

## DERC program. 

## Key points in rulemaking schedule:

e 

## TexasRegister 

## proposal publication date: April 28, 2006

e. 

## Anticipated effective date: October 26, 2006

e 

## Six-month TexasRegister filing 

## deadline: October 30, 2006 

## Public Comment:
Vinson & 

## Elkins, LLP on behalf of El Paso Electric Company, EPA, Houston Regional Group of the Sierra Club (HSC), and Baker Botts, 

## L.L.P. on behalf of the Texas Industry Project (TIP) submitted comments during the public comment period, which closed on May 30, 2006.
EPA commented that they should be added as 

## an approving authority for international emission substitutions in 

# 5 101.305. EPA also commented that the implementationof SB 784 could circumvent the intention of the emission reduction credit program, which was structured to allow credituse only within nonattainment areas. 

## El Paso Electric Company requested that the rules be modified to allow reductions outside the United States to be eligible as credits. 

## The executive director recommends adding EPA as 

## an approving authority 

## in §101.305. The executive director is also recommeilding that no further changes be made in response to these comments. The rules have been structured such that emission reductions made outsidethe United Statesmay be substitutedfor reductionswithin the United States as required under SB 784. Thereductions made outsidethe United Statesarenot eligible for credits which arebankable and have an indefinite life. In response 

## to a commentfromTIP, the executive director recommends a response explainingthat credits expiring on September 20, 2010, mustbe used by that date if they are to be consideredlforuse in meeting annual emission limits for calendar year 2010.
HSC opposesusing creditable reductionsoutside the United States unless all

## reasonably availabledomestic control measures have been implemented, there are insufficient domestic reductions available, and grandfathered facilitiesmay notparticipate. The executive director recommendsno change to the rule in response to thiscomment because SB784is intendedto provideincentivesfor cooperative efforts to reduce emissions in Mexico, where those emissions directly affect Texas. The three conditions listed by HSC would work against those incentives. 

## Significant changes from proposal: In response to comments, the executivedirectoris recommending includingEPA as an approvingauthority for emission substitutions. This is consistentwith current agencypractice.

## Commissioners Page 5 September 15, 2006
Re: Docket No. 2006-0167-RUL Agency contacts: 

## Beecher Cameron, Rule Project Manager, Air Permits Division, 239-1495 Steve Sun, Technical Lead, 239-3554 Dan Long, Staff Attorney, 239-5373 Lola Brown, Texas Register Coordinator, 239-0348
Attachments

cc: Chief Clerk, 5 copies Executive Director's Office David C. Schanbacher, P.E. Jason Skaggs Ashley 

## K. Wadick Bertha Valadez Office of General Counsel Beecher Cameron Steve Sun Lola Brown

cc (without attachments): 

## Dan Long, StaffAttorney Debi Dyer, Program Office Liaison Tara Capobianco, Division Liaison Booker Harrison, OLS Liaison Russ Kirnble, OLS

### EVALUATION OFTESTIMONY

The Texas Commission on Environmental Quality (commission) adopts amendments to 

## %I 01.302, 101.306, 101.372, 101.373, 101.376, and 101.378; new §§I01.305, 101.338, 101.339, and 101.375; and the repeal of §I 01.338. The commission adopts 

## %I 01.302, 101.305, 101.338, 101.339, 101.372, 101.375, and 101.376 with changes

### to the proposed text

as published in the April 28, 2006, issue of the Texas Register

### (31 TexReg 3492). The commission adopts §§I01.306, 101.373, and 101.378 and the repeal of §I 01.338 without changes

### to the proposed text, and they will not be republished.

The repealed, new, and amended sections will be submitted to the United States Environmental Protection Agency (EPA) as revisions to the Texas State Implementation Plan (SIP).

BACKGROUND AND SUMMARY OFTHE FACTUAL BASIS FOR THE ADOPTED RULES The Emissions Banking and Trading Program (EBTP) has been designed to offer flexibility and provide a market-based method of meeting required emission reductions. -The program makes

use of several types of emission credits including emission reduction credits (ERCs), mobile emission reduction credits (MERCs), discrete emission reduction credits (DERCs), and mobile discrete emission reduction credits (MDERCs). Flexibility has been built into the rules to create incentives for the early or permanent retirement of volatile organic compounds (VOC) and nitrogen oxides (NO,) emissions credits.

In the October 5, 2005, edition of the Federal Register 

### (70 FR 58154), the EPA published the proposed conditional approval of the DERC program as part of the SIP. The conditional approval was based on the corr~rr~ission submitting corrected program deficiencies to the EPA

## by December 1, 2006. These revisions address the deficiencies, which the commission committed to correct in a letter to the EPA dated September 8, 

## 2005.

The corrections include the prohibition of the future generation of DERCs from permanent shutdowns and allow only DERCs generated from permanent shutdowns before September 30, 2002, to remain available for use for no more than five years from the date of the commission's commitment letter. Any DERCs generated after September 30, 2002, would be removed from the DERC registry and not be available for use. The conditions also required revisions to §101.302(f) and 5101.372(f)(7) and (8) 

## to clarify that the EPA must approve individual transactions involving emission reductions generated in another state or nation as well as those transactions from one nonattainment area to another or from attainment counties into nonattainment areas. The amendments revise Chapter 101, Subchapter 

## H, Emissions Banking and Trading, to include program audit and reporting requirementsto satisfy the EPA's requirements for cap and trade programs. The requirements concerning program audits were not included in the EPA publication of conditional approval but were the subject of discussion between the comrrrission and the EPA.

The conditions also required the change to Form DEC-1, Notice of Generation and Generator Certification of Discrete Emission Credits; Form MDEC-1, Notice of Generation and Generator of Mobile Discrete Emission Credits; and Form DEC-2, Notice of Intent to Use Discrete Emission Credits, to include a waiver of the federal statute of limitations for generators and

users of discrete emission credits. With the revision of these forms and adoption of the proposed rule changes, the commission will have corrected all identified deficiencies in the DERC program.

### The adopted rules also reflect changes to the Texas Health and Safety Code (THSC), 5382.0172(c). Senate Bill (SB) 784 was adopted by the 79th Legislature,2005, and allows additional options for credit from emission reductions achieved outside of the United States. The revisions allow the commission greaterflexibility in its ability to approve the substitution of emission reductions outside the United States that may be used to satisfy reduction or trading requirements.

SECTION BY SECTION DISCUSSION g01.302. 

## General Provisions. The commission adopts administrative changes throughout the rulesto conform with 

## Texas Registerrequirements and agency guidelines.

In order to better organize similar rule requirements,the commission deletes §101.302(a)(2) and (f)(3) and relocatesthis language concerning emission creditable reductions occurring outside the United States to new 5101.305, Emission ReductionsAchieved Outside the UnitedStates.

The commission amends ~101.302(d)(l)(C)(vi) to allow the rejection of an emission credit quantification protocol if the EPA objects to the protocolduring a 45-day adequacy review period or if the EPA publishes in the 

## Federal Registera disapproval of the protocol. This does
not substantially affect the proceduresto approve the quantification protocol. The commission has, and will continue, to work with the EPA to approve new quantification protocols. This revision clarifies in the rule that the quantification protocolswould not be approved if the EPA objects to them. To be consistent with the reorganization of requirements applicable to emission reductions outside the United States, the commission is deletingthe referenceto "nation" in 5101.302(f)(l).

### $101.305. Emission Reductions Achieved Outside the United States. 

## The new 3101.305 combines the existing language concerning the use of emission reductions from outside the United States that is moved from 3101.302(f)(3) and (a)(2) for better organization. Emission reductions in Mexico used under THSC, 3382.0172(b), must be generated and used consistent with federal requirements which restrict the generation and use of ERCs to nonattainment areas. The revisions reflect the SB 784 change to THSC, §382.0172(c),which allows facilities to substitute emission reductions in criteria or precursor pollutants outsidethe United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment,or if the reduction will result in a greater overall health benefit for the area. Should El Paso remain in nonattainment status, emission reductionsand the generation of ERCs must meet federal requirements and are subject to EPA approval. If, as expected, El Paso is redesignatedas an attainment area, the adopted rule change will allow beneficial emission reduction substitutions to continue as a result of reductions achieved in Ciudad Juarez without relating those emission reductionsto the attainment status of El Paso.

In responseto public comment,the commission is insertinga referenceto precursors of criteria pollutants into §101.305(b) and substituting the word "and" for "if" in regard to reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican"for "international" in 3101.305(c)for greater specificity. The commission is also adding the EPA as

an approving authority for the validity of creditable reductions.

The commission is moving the rules governing optional reductions to their own sections (35101.305, 101.338,and 101.375) so that they may be considered separately by the EPAfor approval intothe SIP and will not delay approval of other portions of the EB'rP.

### $101.306. Emission Credit Use. 

## The amendment to §I 01.306(a)(5) modifies the section to be consistent with the allowed use of ERCs under S101.399,Allowance Banking and Trading. This revision is necessary because of a previous adoption of Chapter 101, Subchapter H, Division6, Highly-Reactive Volatile Organic Compound Emissions Cap and Trade Program, and allows facilities to use ERCs as allowances under the highly-reactive volatile organic compound cap and trade program.

$701.338. Emission Reductions Achieved Outside the United States. 

## The existing §I 01.338 is repealed. The new §I 01.338 reflectsthe revisions to THSC, §382.0172(c) and providesthe commission more discretion in approving the substitution of emission reductions achieved outside the United States for emissions from electric generating

or grandfathered facilities. In response to public comment, the commission is inserting the phrase "to meet the allowance holding requirements of this division" in §101.338(a) and (b).

In responseto public comment, the commission is inserting a referenceto precursors of criteria pollutants into §I 01.338(b) and substituting the word "and" for "if" in regardto reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican1' for "international" in §101.338(c)for greater specificity. The commission is also adding the EPA as an approving authority for the validity of creditable reductions.

$101.339. Program Audits and Reports. 

## The new S101.339 includes program audit and report requirementsfor emission credit programs applicableto electric generating and grandfatheredfacilities. The section contains similar audit and repoi-t requirements as are applicable to the commission's other cap and trade programs. These requirements are used by the commission and the EPA to evaluate the effectiveness of the program and include reportable items such as effect on ozone attainment, number of

## allowances or credits traded, cost of allowances or credits, and number of allowances in each compliance account. In response to public comment, the commission is adding sulfur dioxide (SO2)as a pollutant that is subject to program audit requirements because grandfathered facilities are required to hold SO2allowances.

9101.372. General Provisions. 

## In order to better organize similar rule requirements, the commission deletes §I 01.372(a)(2) and relocates this language concerning emission creditable reductions occurring outside the United States to new 5101.375, Emission Reductions Achieved Outside the United States. The commission amends §I01.372(d)(I)(C)(vi) to require the rejection of a quantification protocol if the EPA objects to the quantification protocol during the 45-day adequacy review period or if the EPA publishes inthe Federal Register 

## a disapproval of the quantification protocol. This does
not substantially affect the procedures to approve the quantification protocol. This revision clarifies in the rule that the quantification protocols would not be approved if the EPA objects to them. The commission also removes language from this section concerning credits for emission reductions outside the United States and the options for applying them. This language, modified to be consistent with the changes to THSC, §382.0172(c),enacted under SB 784, is moved to the new §101.375 in order to be considered separately by the EPA for approval into the SIP and not delay approval of other portions of the EBTP. In response to public comment, the commission is removing the referenceto credits for emission reductions in other nations in §101.372(f)(7) and will use "emission reductions" instead.



## §-I 01.373. Discrete Emission Reduction Credit Generation and Certification. 

## The amendment to 5101.373(a)(I) and (2) removes the ability to generate DERCsfrom facility shutdowns. The commission adopts this amendment in response to the Federal Register 

## notice requiring the correction of program deficiencies prior to the approval of the EBTP into the SIP.

## The EPA has stated that banking and trading programs are intended to encourage innovative and creative emission reductions and shutdowns generally do not fall into this category. Shutdowns are also problematic for these programs because of the possibility that a facility may shut down in one area, generate and sell credits, but then relocate operations to other areas or states. Additionally, when activity level increases cause emission increases, mitigating reductions are typically not required. Thus, allowing the generation of tradable credits as a result of activity level decreases (including shutdowns) may tend to promote emissions increases. Such patterns of activity related to shutdowns havethe potential to interfere with attainment.

$1 

### 01.375. 

## Emission Reductions Achieved Outside the United States. The new S101.375 relocates existing language concerning use of emission reductions from outsidethe United States in §101.372(a)(2) and (9(8). The revisions reflect the SB 784 change to THSC, §382.0172(c),which allows facilities to substitute emission reductions in criteria or precursor pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefitfor the area. This will allow the continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of El Paso being reclassified as an attainment area.

The corr~mission is movirlg the rules governing optional reductions to their own sections (55101.305, 101.338,and 101.375) so that they may be considered separately by EPA for approval into the SIP and will not delay approval of other portions of the EBTP. In response to public comment, the commission is removing the referenceto credits for emission reductions in §101.375(a) and will instead refer to the use of emission reductions in both §101.375(a) and (b).

## In response to public comment, the commission is inserting a referenceto precursors of criteria pollutants into 5101.375(b) and substituting the word "and" for "if" in regardto reducing a criteria pollutant and its greater health benefit. 'The commission is substituting "Mexican" for "international" in 5101.375(c) for greater specificity. The commission is also adding the EPA as an approving authority for the validity of creditable reductions.

§f Of.376. Discrete Emission Credit Use. The commission is amending this section to refer only to 5106.261 and 5101.262 to update references due to previous rule changes.

$101.378. Discrete Emission Credit Banking and Trading. 'The amendment to §I 01.378 changes the lifetime of DERCs generated from shutdowns. Companies that have previously certified DERCs from shutdowns will have no more than five
years from the September 8, 2005, commitment letterto the EPA to use the DERCs. As a result, DERCs that were generated from shutdowns prior to September 30, 2002, are available for use until September 8, 2010. After that date, the DERCs generated from shutdowns before September 30, 2002, will be removed from the DERC registry and will no longer be available for use. DERCs generatedfrom shutdowns after September 30,2002, may not be used. The reason for this action is included in the discussion of changes to 5101.373 in this preamble.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the rulemaking in light of the regulatory impact analysis requirements of

# ex as Government Code, 52001.0225,and determined that the rulemaking action does meet the definition of a "major environmental rule" as defined in that statute. A "major environmental rule" is a rule, the specific intent of which is to protect the environment or reduce risks to human healthfrom environmental exposure and that may adversely affect in a materialway the

### economy, productivity, competition, jobs, the environment, or the public health and safety of the
state or a sector of the state. The amendmentsto Chapter 101 and revisions to the SIP phase out DERCs generated from shutdowns priorto September 30, 2002, require removal of DERCs generated from shutdowns after September 30, 2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, correct one citation, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a referenceto the highly-reactive volatile organic compound cap and trade program. With the exception of the portions of the rulemaking regarding shutdown DERCs, the amendments to Chapter 101 are not specifically intendedto protect the environment or reduce risks to human health from environmental exposure to air pollutants; although, the underlying emissions banking and trading programs are intendedto achieve these goals. The rulemaking provides flexibility regarding credits near the Texas

# - Mexico border by implementing SB 784 and makes various administrative changes. The changes to shutdown DERCs generation and use are adopted to bring the DERC program into compliance with EPA program requirements, allowing the DERC program to be approved as part of the SIP and to ensure air quality standards will be
met. This rulemaking does not meet any of the four applicability criteria of a "major environmental rule" as defined in the Texas Government Code. Texas Government Code, §2001.0225 applies only to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirementof state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency

or representativeof the federal government to implement a state and federal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. Specifically, the banking and trading program amendments were developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to bring the banking and trading program into compliance with federal requirements, and make several

## administrative changes. This rulemaking does not exceed an express requirement of federal or state law or a requirement of a delegation agreement, and was not developed solely under the general powers of the agency, but was specifically developed under federal law and authorized under the THSC.

The rulemaking implements requirements of 42 

## United States Code (USC), $7410, 

## which requires states to adopt a SIP that provides for "implementation, maintenance, and enforcement" of the national ambient air quality standard (NAAQS) in each air quality control region of the state. While 42 

## USC, $7410 

## does not require specific programs, methods, or reductions to meet the standard, SIPSmust include "enforceable emission limitations and other control measures, means or techniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights), as well as schedules and timetablesfor compliance as may be necessary or appropriateto meet the applicable requirements of this chapter," (meaning 42 

## USC, Chapter 85, 

## Air Pollution Prevention and Control). It istrue that the Federal Clean Air Act (FCAA) does require some specific measures for SIP purposes, such as the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of 42 

## USC, $7410. 

## The provisions of the FCAA recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order
to meet the NAAQS. This flexibility allows states, affected industry, and the publicto collaborate

on the best methods to attain the NAAQS for the specific regions in the state. Even though the FCAA allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of 42 

## USC, $7410. 

## Thus, while specific

measures are not generally required, the emission reductions are required. States are not free
to ignore the requirements of 42 

## USC, s7410, 

## and must develop programs to assure that the nonattainment areas of the state will be brought into attainment on schedule.

### The requirement to provide a fiscal analysis of adopted regulations in the Texas Government Code was amended by SB 633 during the 75th Legislature, 1997. The intent of SB 633 was to require agencies to conduct a regulatory impact analysis of extraordinary rules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirementof state law, federal law, or a delegated federal
program, or are adopted solely under the general powers of the agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment of rules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment under the provisions of the bill was not large. This conclusionwas based, in part, on the criteria set forth in the billthat exempted proposed rulesfrom the full analysis unlessthe rule was a major environmental rulethat exceeds a federal law. As discussed earlier
in this preamble,42 USC, S7410 does not require specific programs, methods, or reductions in orderto meet the NAAQS;thus, states must develop programsfor each nonattainment area to ensure that area will meet the attainment deadlines. Because of the ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The legislature is presumedto understand this federal scheme. If each rule proposedfor inclusion in the SIP

was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full regulatory impact analysis contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board in its fiscal notes. Because the legislature is presumedto understand the fiscal impacts of the bills it passes, and that presumption is based on information provided by state agencies and the Legislative Budget Board,the commission contends that the intent of SB 633 was only to require the full regulatory impact analysisfor rules that are extraordinary in nature. While the SIP rules will have a broad impact,that impact is no greater than is necessary

## or appropriate to meet the requirements of 42 USC, S7410. For these reasons, rules adopted for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are specifically required by federal law.

In addition, 42 USC, §7502(a)(2) requires attainment as expeditiously as practicable, and 42 USC, s7511(a), requires states to submit ozone attainment demonstration SIPSfor ozone nonattainment areas such as the Houston

# - Galveston

# - Brazoria (HGB) area. The adopted rules, which will reduce ambient concentrations of ozone precursors in nonattainment areas, w~ll be submitted to the EPA as one of several measures in the federally approved SIP. As discussed earlier in this preamble, the banking and trading scheme in the adopted rules is necessary to address some of the elevated criteria or precursor pollutant levels observed in various nonattainment areas inTexas; this scheme will result in reductions in criteria or precursor pollutants in nonattainment areas and help bring areas into compliance with the air quality standards established under federal law as NAAQS.

The commission has consistently applied this constructionto its rules since this statutewas enacted in 1997. Since that time, the legislature has revised the Texas Government Code but left this provision substantially unamended. 'The commission presumes that "when an agency interpretation is in effect at the time the legislature amends the laws without making substantial change in the statute, the legislature is deemedto have accepted the agency's interpretation." Central Power

## & Light Co. v. Sharp,91 9 S.W.2d 485.489 (Tex. App.-Austin 1995), writ denied withper curiam opinion respecting another issue, 960 S.W.2d 617 (Tex. 1997); Bullock v. Marathon Oil Co.,798 S.W.2d 353, 357 (Tex. App.-Austin 1990), no writ; Cf. Humble Oil 

## & Refining Co. v. Calvert, 414 S.W.2d 172 (Tex. 1967); Sharp v. House of Lloyd, Inc.,81 5 S.W.2d 245 (Tex. 1991); Southwestern Life Ins. Co. v. Montemayor,24 S.W.3d 581 (Tex.App.-Austin

### 2000), pet. denied; and Coastal Indust. Water Auth. v. Trinity Portland Cement Div., 563 S.W.2d 916 (Tex. 1978).

As discussed, this rulemaking action implements requirementsof 42 USC, s7410. There is no contract or delegation agreement that covers the topic that is the subject of this action. Therefore, the rulemakingdoes not exceed a standard set by federal law, exceed an express requirement of state law, exceed a requirement of a delegation agreement, nor is it adopted solely under the general powers of the agency. Finally, this rulemaking action was not developed solely under the general powers of the agency, but is authorized by specific sections of THSC, Chapter 382 (TCAA), and Texas Water Code that are cited inthe STATUTORY AUTHORITY section of this preamble, including THSC, s382.011, 382.012, 382.014, 382.016, and 382.017. Therefore, this rulemaking action is not subject to the regulatory analysis provisions of Texas Government Code, §2001.0225(b), because the rulemaking does not meet any of the four applicability requirements.

TAKINGS IMPACTASSESSMENT The commission completed a takings impact assessment for this rulemaking action under Texas Government Code, s2007.043. The amendmentsto Chapter 101 and revisions to the SIP phase out DERCs generated from shutdowns prior to September 30, 2002, require removal of DERCs generated from shutdowns after September 30, 2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactivevolatile organic compound cap and trade program. Specifically, the banking and trading program amendments inthis adoptionwere developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to comply with federal requirements, and make several administrative changes. Promulgation and enforcement of the

## amendments will not burden private real property. The rules do not affect private property in a manner that restricts or limits an owner's right to the property that would otherwise exist in the absence of a goverr~mental action. Additionally, the credits created under these rules are not property rights (§101.372(j)). Because DERCs are not property, phasing out shutdown DERCs does not constitute a taking. Consequently, this rulemaking action does not meet the definition of a takings under Texas Government Code, §2007.002(5).

Additionally, Texas Government Code, §2007.003(b)(4) providesthat Chapter 2007 does not apply to this rulemaking action because it is reasonably taken to fulfill an obligation mandated by federal law. 'The changes regarding shutdown DERCswithin this adoption were developed
to meet the EPA conditional program approval so that these requirements can be approved into the SIP and used to meet NAAQS set by the EPA under 42 USC, S7409. States are primarily responsible for ensuring attainment and maintenanceof NAAQS once the EPA has established them. Under 42 USC, 57410, and related provisions, states must submit,for approval by the EPA, SIPSthat providefor the attainment and maintenanceof NAAQS through control programs directed to sources of the pollutants involved. Therefore, one purpose of this rulemaking action is to meet the air quality standards established under federal law as NAAQS. However, this rulemaking is only one step among many necessary for attaining the ozone NAAQS.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined that this rulemaking action relates to an action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, 3533.201 et seq.),

## and the commission's rules in 30 TAC Chapter 281, Subchapter 

## B, concerning Consistency with the CMP. As required by §281.45(a)(3)and 31 TAC 3505.11(b)(2), relating to Actions and Rules Subject to the Coastal Management Program, the commission's rules governing air pollutant

## emissions must be consistent with the applicable goals and policies of the CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the rules of the Coastal Coordination Council, and determined that the action is consistent with the applicable CMP goals and policies. The CMP goal applicable to this rulemaking action is the goal to protect, preserve, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (31 TAC 5501.12(1)). IVo new sources of air contaminants will be authorized and the revisions will maintainthe same level of,emissions control as previous rules. The CMP policy applicable to this rulemaking action is the policy that the commission's rules comply with federal regulations in40 Code of Federal Regulations,to protect and enhance air quality in the coastal areas (31 TAC 5501.14(q)). This rulemaking action complies with 40 Code of Federal Regulations Part 51, Requirements for Preparation, Adoption, and Submittalof Implementation Plans. Therefore, in accordance with 31 TAC 5505.22(e),the commission affirms that this rulemaking action is consistent with CMP goals and policies.

EFFECT ON SITES SUBJECTTO THE FEDERAL OPERATING PERMITS PROGRAM The new and amended sections are applicable requirements under the Federal Operating Permits Program, but no revisions to operating perrr~its will be required.

PUBI-IC COMMENT The commission conducted a public hearing on this proposal in Austin on May 22, 2006. Vinson & 

## Elkins, LLP on behalf of El Paso Electric Company (ELPE), EPA, Houston Regional Group of the Sierra Club (HSC), and Baker Botts, L.L.P. on behalf of the Texas Industry Project (TIP) submitted comments during the public comment period,which closed on May 30, 2006.

## RESPONSE TO COMMENTS TIP expresses general support for the proposal. The EPA expresses general support for these parts of the proposal as having met the conditions of the letter of commitment to address deficiencies in the banking program: §§I01.302(d)(l)(C)(vi); 101.305; 101.306(a)(5); 101.372(d)(l)(C)(vi); 101.373; 101.375; 101.376(~)(4); and 101.378(b).

The EPA comments that the proposal preamble incorrectly refersto the EBTP as an open market program when it is more correctly referenced as a cap and trade program.

The commissionagreeswith this statement and is changing the preamble.



## EPLE requeststhat the commission modify §I01.302 to remove restrictions on which criteria pollutant reductions outsidethe United States may be creditable. ELPE states that SB 784 allows reductions in any criteria pollutant outside the United States that otherwise meets requirements for a creditable reduction (real, enforceable, quantifiable, permanent, and surplus),
to be certified as a reductionfor a different pollutant regardless of the surrounding area's attainment status with respect to either pollutant. EPLE requests that §101.302(f) be deleted or modified so that emission reductions outside the United States, but within 100 kilometers of the United States 

# - Mexico border, are eligible for certification. ELPE suggests that §101.305 be modifiedto reference the certification of reductions outside the United States instead of their

use.

The commission is not changing the rule in response to this comment. Section 101.302(a) and (c) 

### referencethe certificationof emission reductionsas emission credits. Section 101.305 and SB 

### 784 only allow emission reductions generated outside of the United States to be used to satisfy applicableemission reduction requirements.

### Emission reductions generated outside of the United States may not be certified as credits, which may be banked and traded statewide. UnderTHSC, §382.0172(b), the use of emission reductions outside the United States is intended to provide air quality benefits to specific areas within the Texas 

# - Mexico border area. 

## A person using the reduction achieved in Mexico must have a specific use in mind. Additionally, emission reductions in Mexico used under THSC, §382.0172(b) must be applied consistent with federal requirements,which restrict the generation and use of ERCs to nonattainment

areas.



## The EPA comments that the change of "and" to "or" in §101.305 would allow reductions made in Mexico to be used in attainment areas circumventing the intent of the ERCs,which are only intended to provide flexibility in nonattainment areas. Also, the EPA states the commission has not demonstrated that this revision would not violate §I1O(1) of the Federal CleanAir Act.

'The commission is not changing the rule in responsetothis comment. Emission reductions in Mexico used under THSC, §382.0172(b) must be applied consistent with federal requirementswhich restrict the generation and use of emission reduction credits
to nonattainment areas. Emission reductions in Mexico are substitutions only, not credits, and are notfreely tradable. Should El Paso remain in nonattainment status, emission reductions and the generation of emission reduction credits must meet federal requirements and are subject to EPA approval. If as expected, El Paso is reclassified as an attainment area, the adopted rule change will allow beneficial emission reduction substitutions to continue as a 

### result of reductions achieved in Ciudad Juarez without relating those emission reductions tothe attainment status of 

## El Paso. Because each generation and usewill be subjected to case-by-case review by both the executive

### director as well as the EPA to ensure a greater health benefit, 91lo(/)of the Clean Air Act will not be violated.



## ELPE suggests adding the phrase "except for emissions reductions achieved outside the United States" in several places in $101.302(c) and $101.373(b)to indicatethat the requirements of the subsections, which relate to SIP development, do not apply to emission reductions outsidethe United States.

The commission is not changing the rule in responseto this comment. Adding the suggested languagewould indicate that emission reductions outside the United States

are certifiable as credits; they are not. Reductions outside the United States may be substituted for required emission reductionswithin a specific area, but cannot be banked

as a credit for trading that has an indefinite life.



## ELPE suggests that $101.305(b) and $101.375(b) be amended to correct an apparent omission and include the phrase "or precursors of criteria pollutants." ELPE and EPA commentedthat a referenceto precursorsof criteria pollutantsshould be included in $101.338(b).

'The commission agrees with this comment and is making the necessary change inthese
two sections as well as §101.338(b).



## 'The EPA commentsthat the word "if" in $101.305(b)(I) is confusing and suggests substitution of the word "and." The EPA comments that the use of the term "executive director" in $101.305(~)(1) 

# - (3) is confusing because it omits EPA's co-approval authority. The EPA also comments that the word "foreign" or "Mexican" should be added to indicate that reductions must also be surplus to Mexican law.

### The commission agrees with these comments and is making the necessary changes. The commission is removingthe referenceto "international law."



## ELPE and EPA comment that 5101.338(a) and (b) be modified to include the phrase "to meet the allowance holding requirements of.thisdivision" for clarification.

The commission agreeswith these comments and has addedthe referencesto allowance holding requirements and precursor pollutants.



## The EPA recommends that 5101.338 be revisedto state that international reductions under the section are only used to comply with the Chapter 101, Subchapter H, 

## Division 2, Emission Banking and Trading Allowances, and cannot be used in the East Texas Region because of distance limitations.

The commission is not changing the rule in responsetothis comment. Distance limitations on the use of s101.338 are includedwithin the section.



## The EPA comments that the word "if" 

## in §101.338(b)(I) is confusing and suggests substitution of the word "and." The EPA comments that the word "foreign" or "Mexican" be added in §101.338(~)(1) to indicate that reductions must also be surplus to Mexican law. The EPA also
commentsthat the use of the term "executive director" in subsection (c)(l)

# - (3) is confusing because it omits EPA's co-approval authority.

The commission agrees with these comments and is making the necessarychanges. The commission is removingthe referenceto "international law."

## The EPA comments that 5101.339(b) should be revised to include reporting requirements of actual SO2allowances used. HSC comments that the commission should verify emission reductions resulting in credits and determine the compliance status of the company using the credit.

The commission agrees with the EPA and is adding SO2to the required reporting requirements. 'The commission also agrees with HSC 

## but no rule change is necessary. These procedures are currently part of the banking program.

ELPE comments that S101.372 be deleted or that 5101.372(a) be modifiedto allow reductions outside the United States to be creditable providedthe conditions of §I 01.375, Emission Reductions Achieved Outside the United States, are met.

The commission is not changing the rule in responseto this comment. Adding the suggested languagewould indicate that emission reductions outside the United States

are certifiable as credits; they are not. Reductions outside the United States may be substituted for required emission reductionswithin a specific area, but cannot be banked

as a credit for trading that has an indefinite life.

The EPA comments that language in $101.372(f)(7) pertaining to reduction of VOC and NOxbe movedto s101.375 so there is no confusion whether $101.372 is further modified by $101.375. The EPA also states that the use in Texas of reductions made in Mexico should improve Texas's air quality by complying with $101.375.

### The commission is changing the language in§101.372(f)(7) to refer to "emission reductions in other nations" instead of "emission credits." This will make the language consistent with other references to reductions outside the United States.



## The EPA expresses concern that the incorporationof SB 784 in 5101.375 would allow sources anywhere within 100 kilometers of the Texas 

# - Mexico borderto generate and use credits from Mexico. The EPA states that this provision can weaken the credit program and recommends the use of international DERCs in the event El Paso is designated as attainment. The EPA states Texas has not demonstratedthat this revision will not violate FCAA, 51lo(/).

Senate Bill 784 allows the use of emission reductions in Mexico as a substitution for required emission reductions inTexas. 'The Mexicanemission reductions are not certifiable as credits and may only be applied for a specific use inan area of Texas affected by the emissions orwhere a greater health benefit, as determined by the executive director and the EPA, is realized. Because each generation and usewill be subjected to case-by-case review by both the executive director as well as the EPA to

ensure a greater health benefit, FCAA, §llO(I)will not be violated.



## HSC opposes using creditable reductions outside the United States unless three conditions are
met: the authority responsible for the regional air pollution control plan must demonstratethat all reasonably available domestic control measures have been irr~plernented; ,thereare insufficient domestic reductions available; and grandfathered facilities may not participate.

The commission is not changing the rule in response to this comment. The implementation of SB 784 is intendedto provide incentives for cooperative efforts to

### reduce emissions in Mexico where those emissions directly affect Texas. The three conditions listed by HSC would work against those incentives.



## HSC opposes substituting reductions in one pollutant for reductions of another, and there is no scientific method to know the relative benefits of this substitution.

The commission is not changingthe rule in responseto this comment. The substitution of reductionswill be based on nonattainmentcriteria pollutantsor on a finding of greater health benefit.



## The EPA notes that §I 01.375(a) usesthe phrase "use discrete emission credits for reductions" and §101.375(b) uses the phrase "use reductions." The EPA comments that the language should be made parallel.

The commissionagrees with the 

## EPA comment and is changing §IOl.37S(a) and (b)to refer to "emission reductions."



## The EPA comments that the word "if" in §I01.375(b)(I) is confusing and suggests substitution of the word "and." The EPA comments that the word "foreign" or "Mexican" be added in §I01.375(~)(1) to indicatethat reductions must also be surplus to Mexican law. The EPA also
comments that the use of the term "executive director" in §I01.375(~)(1) 

# - (3) is confusing because it omits EPA's co-approval authority.

The commission agrees with these comments and is making the necessary changes. The commission is removing the referenceto "international law."

### HSC opposes the revisions in §I01.378(b) and the allowed use of shutdown credits generated priorto September 30, 2002 until September 30, 2010, and supports a five-year life for these credits.



## The commission is not changing the rule in responseto this comment. The proposed expiration date is consistentwith federal policy.

TIP requests clarificationon whether creditsthat will expire on September 30, 2010, can be used to meet annual emission limits for calendar year 2010.



## Allowance account reconciliation must occur by March 31 

## of the year following the control period. Discrete emission creditswill have expired by the reconciliation date. Facilities not subject to a cap and trade program may use credits to meet allowable emission rates until the expirationdate of September 30, 2010, 

## but then must reduce emissions to remain in compliancewith allowablesfor the remainder of calendaryear 2010.

# STAFF RECOMMENDATIONS

### SUBCHAPTER H: EMISSIONS BANKING AND TRADING DIVISION 4: 

### DISCRETE EMISSION CREDIT BANKING AND TRADING 

### 55101.372, 1 01.373, 101.375, 101.376, 101.378

STATUTORY AUTHORITY The amended and new sections are adopted under Texas Water Code, 55.103, concerning Rules, and 55.105, concerning General Policy, that authorize the commission to adopt rules
necessaryto carry out its powers and duties underthe Texas Water Code; and under Texas Health and Safety Code (THSC), 5382.017, concerning Rules, that authorizes the commission
to adopt rules consistent with the policy and purposes of the Texas Clean Air Act. The amended and new sections are also adopted under THSC, 5382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; 5382.01 1, concerning General Powers and Duties, that authorizes the commission to control the quality of the state's air; and 5382.012, concerning State Air Control Plan, that authorizes the commission
to prepare and develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also adopted under THSC, 5382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; 5382.016, concerning Monitoring Requirements,that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and 5382.051 and 5382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also adopted under 42 USC, 57410(a)(2)(A), that requires state implementation plans to include enforceable measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights.

## The amended and new sections implement THSC, §§382.002, 382.011,382.012,and 382.017; and Senate Bill 784, 79th Legislature, 2005.

5101.372. 

## General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (VOC), nitrogen oxides (NO,), carbon monoxide (CO), sulfur dioxide (SO,), and particulate matter with an aerodynamic diameter of less than or equal to a nominal ten microns (PM,,) may qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may not be used to meet the reduction requirements for another pollutant, unless urban airshed modeling demonstrates that one may be substituted for another subject to approval by the executive director and the United States Environmental Protection Agency (EPA).

(b) Eligible generator categories. Eligible categories include the following:

(1) facilities (including area sources);

(2) mobile sources; or

(3) any facility, including area sources, or mobile source associated with actions by federal agencies under §101.30 of this title (relating to Conformity of General Federal Actions to State Implementation Plans).

## (c) Discrete emission credit requirements.

(1) 

## To be creditable as a discrete emission reduction credit (DERC), an emission reduction must meet the following:

(A) the reduction be real, quantifiable, and surplus at the time the discrete emission credit is generated;

(B) the reduction must have occurred after the most recent year of emissions inventory used in the state implementation plan (SIP) for all applicable pollutants; and

(C) the facility's annual emissions prior to the reduction strategy must have been reported or represented in the emissions inventory used for the SIP.

(2) To be creditable as a mobile discrete emission reduction credit (MDERC), an emission reduction must meet the following:

(A) the reduction must be real, quantifiable, and surplus at the time it is created;

(B) the reduction must have occurred after the most recent year of emissions inventory used in the SIP for all applicable pollutants;

## (C) the mobile source's emissions must have been represented in the emissions inventory used for the SIP; and



## (D) the mobile sources must have been included in the attainment demonstration baseline emissions inventory. If a mobile reduction implemented is not in the baseline for emissions, this reduction does not constitute a discrete emission reduction.



## (3) Emission reductions from a facility or mobile source which are certified as discrete emission credits under this division cannot be recertified in whole or in part as emission credits under another division within this subchapter.

(d) Protocol.

(1) All generators or users of discrete emission credits must use a protocol which has been submitted by the executive director to the EPA for approval, if existing for the applicable facility or mobile source, to measure and calculate baseline emissions. If the generator or user wishes to deviate from a protocol submitted by the executive director, EPA approval is required before the protocol can be used. Protocols shall be used as follows.

(A) Facilities subject to the emission specifications under §§I17.106, 117.206, or 117.475 of this title (relating to Emission Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in NO, 

### using the testing and monitoring methodologies identified to show compliance with the emission specification.

## (B) Facilities subject to the requirements under 55115.1 12, 115.121, 115.122, 115.162, 115.211, 115.212, 115.352, 115.421, 115.541, 

### or 115.542 

### (relating to Emission Specifications; and Control Requirements) shall quantify VOC reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or the requirements.



## (C) If the executive director has not submitted a protocol for the applicable facility or mobile source to the EPA for approval, the following applies:



## (i) the amount of discrete emission credits from a facility or mobile source, in tons, will be determined and certified based on quantification methodologies
at least as stringent as the methods used to demonstrate compliance with any applicable requirements for the facility or mobile source;

(ii) the generator must collect relevant data sufficient to characterize the facility's or mobile source's emissions of the affected pollutant and the facility's or mobile source's activity levelfor all representative phases of operation in order to characterize the facility's or mobile source's baseline emissions;

(iii) facilities with continuous emissions monitoring systems or predictive emissions monitoring systems in place shall use this data in quantifying actual emissions:

## (iv) the chosen quantification protocol shall be made available for public comment for a period of 30 days and shall be viewable on the commission's Web site;

(v) the chosen quantification protocol and any comments received during the public comment period shall, upon approval by the executive director, be submitted to the EPA for a 45-day adequacy review; and

(vi) quantification protocols shall not be accepted for use with this division (relating to Discrete Ernission Credit Banking and Trading) if the executive director receives a letter objecting to the use of the protocol from the EPA during the 45-day adequacy review or the EPA proposes disapproval of the protocol inthe 

## Federal Register.

(2) In the event that the monitoring and testing data required under paragraph 

## (1) of this subsection is missing or unavailable, the facility may report actual emissions for that period of time using these listed methods in the following order of preference to determine actual emissions:

(A) continuous monitoring data;



## (B) periodic monitoring data;

(C) testing data;

(D) manufacturer's data;

## (E) EPA Compilation ofAir Pollution Emission Factors (AP-42), September 2000; or

(F) material balance.

(3) When quantifying actual emissions in accordance with paragraph (2) of this subsection,the generator shall usethe most conservative method for replacing the missing data, submit thejustification for not using the methods in paragraph (1) of this subsection, and submit the justification for the method used.

(e) Credit certification.

(1) The amount of discrete emission credits shall be rounded down to the
nearest tenth of a ton when generated and shall be rounded up to the nearest tenth of a ton when used.

(2) Applications for certificationwill be reviewed in order to determinethe credibility of the reductions. Reductions determined to be creditablewill be certified by the executive director.

(3) The applicant will be notified in writing if the executive director denies the discrete emission credit notification. The applicant may submit a revised discrete emission credit notification in accordance with the requirements of this division.

### (4) If a facility's or mobile source's emissions exceed its allowable emission limit, the amount of emissions exceeding the limit may not be certified as discrete emission credits.

(f) 

### Geographic scope. Except as provided in paragraph (7) of this subsection and §101.375 of this title (relating to Emission Reductions Achieved Outside the United States), only emission reductions generated inthe State of Texas may be creditable and used in the state with the following limitations.

(1) VOC and NO, discrete emission credits generated in an ozone attainment

area may be used in any county or portion of a county designated as attainment or unclassified, except as specified in paragraphs (4) and 

## (5) of this subsection and may not be used in an ozone nonattainment area.



## (2) VOC and NO, discrete emission credits generated in an ozone nonattainment area may be used either in the same ozone nonattainment area inwhich they were generated, or in any county or portion of a county designated as attainment or unclassified.



## (3) VOC and NO, discrete emission credits generated in an ozone nonattainment area may not be used in any other ozone nonattainment area, except as provided in this subsection.

(4) 

### VOC discrete emission credits are prohibited from use within the covered attainment counties, as defined in §I15.1 0 of this title (relating to Definitions), if generated

## outside of the covered attainment counties. VOC discrete emission credits generated in a nonattainment area may be used in the covered attainment counties, except those generated in El Paso.

(5) NO, discrete emission credits are prohibited from use within the covered attainment counties, as defined in s115.10 of this title, if generated outside of the covered attainment counties. NO, discrete emission credits generated in a nonattainment area, except those generated in El Paso, may be used in the covered attainment counties.

(6) 

## CO, SO,, and PM,, discrete emission credits must be used in the same metropolitan statistical area (as defined in Office of Management and Budget Bulletin Number 93-17 entitled "Revised Statistical Definitions for Metropolitan Areas" dated June 30, 1993) in which the reductionwas generated.

(7) VOC and NO, discrete emission credits generated in other counties, states, or emission reductions in other nations may be used in any attainment or nonattainment county provided a demonstration has been made and approved by the executive director and the EPA,
to show that the emission reductions achieved in the other county, state, or nation improvethe air quality in the county where the credit is being used.

(g) Ozone season. In areas having an ozone season of less than 12 months (as defined in 40 Code of Federal Regulations Part 58, Appendix D) VOC and NO, discrete emission credits generated outside the ozone season may not be used during the ozone

season.

## (h) Recordkeeping. The generator must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion of the generation period. The user must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion of the use period. Other relevant reference material or raw data must also be maintained on-site by the participating facilities or mobile sources. The user must also maintain a copy of the generator's notice and backup information for a minimum of five years after the use is completed. The records shall include, but not necessarily be limited to:



## (1) the name, emission point number, and facility identification number of each facility or any other identifying number for mobile sources using discrete emission credits;



## (2) the amount of discrete emission credits being used by each facility or mobile
source; and



## (3) the specific number, name, or other identification of discrete emission credits used for each facility or mobile source.

(i) Public information. All information submitted with notices, reports, and trades regarding the nature, quantity of emissions, and sales price associated with the use or generation of discrete emission credits is public information and may not be submitted as confidential. Any claim of confidentiality for this type of information, or failure to submit all information may result in the rejection of the discrete emission reduction application. All

### nonconfidential notices and information regarding the generation, use, and availability of discrete emission credits may be obtained from the registry.



## (j) Authorization to emit. A discrete emission credit created under this division is a limited authorizationto emit the specified pollutants in accordance with the provisions of this section, the Federal Clean Air Act, and the Texas Clean Air Act, as well as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothirlg in this division should be construed to lirr~it the authority of the commission or the EPA to terminate or limit such authorization.



## (k) Program participation. The executive director has the authority to prohibit a company from participating in discrete emission credit trading either as 

## a generator or user, if the executive director determines that the company has violated the requirements of the program or abusedthe privileges provided by the program.

(I) Compliance burden and enforcement.

(1) 

### The user is responsible for assuring that a sufficient quantity of discrete emission credits are acquired to cover the applicable facility or mobile source's emissions for the entire use period.



## (2) The user is in violation of this section if the user does not possess enough discrete emission credits to cover the compliance need for the use period. If the user
possesses an insufficient quantity of discrete emission credits to cover its compliance need, the

### user will be out of compliance for the entire use period. Each day the user is out of compliance
may be considered a violation.



## (3) Users may not transfer their compliance burden and legal responsibilities to a third-party participant. Third-party participants may only act in an advisory capacity to the

user.



## (m) Credit ownership. The owner of the initial discrete emission credit certificate shall be the owner or operator of the facility or mobile source creating the emission reduction. The executive director may approve a deviation from this subsection considering factors such as, but not limitedto:

(1) whether an entity other than the owner or operator of the facility or mobile

source incurred the cost of the emission reduction strategy; or



## (2) whether the owner or operator of the facility or mobile source lacks the potential to generate one tenth of a ton of credit.

$101.373. Discrete Emission Reduction Credit Generationand Certification.

(a) Methods of generation.

(1) Discrete emission reduction credits (DERC) may be generated using one of the following methods or any other methodthat is approved by the executive director:

### (A) the installation and operation of pollution control equipment that reduces emissions below the level required of the facility; or

(B) a change inthe manufacturing process that reduces emissions below the level required of the facility.

(2) DERCs may not be generated by the following strategies:

(A) permanent or temporary shutdowns or permanent curtailment of an activity at a facility;

(B) modification or discontinuation of any activity that is otherwise in violation of a federal, state, or local law;

(C) emission reductions required to comply with any provision under 42 United States Code (USC), Subchapter I regarding tropospheric ozone, or 42 USC, Subchapter IV-A regarding acid deposition control;

(D) emission reductions of hazardous air pollutants, as defined in 42 USC, 57412, from application of a standard promulgated under 42 USC, 57412;

(E) emission reductions that occurred as a result of transferring the emissions to another facility at the same site;

### (F) 

## emission reductions credited or used under any other emissions trading program;

(G) emission reductions occurring at a facility that received an alternative emission limitation to meet a 

## state reasonably available controltechnology requirement, except
to the extent that the emissions are reduced below the level that would have been required had the alternative emission limitation not been issued;



## (H) emission reductions at a site facility with a flexible permit, unlessthe reductions are made permanent and enforceable or the generator can demonstrate that the emission reductions were not used to satisfy the conditions for the facilities under the flexible permit;

(I) that portion of emission reductions funded through a state or federal
program, unless specifically allowed under that program;

(J) 

## err~ission reductions from a facility subject to Division 

## 3 of this subchapter (relating to Mass Emissions Cap and Trade Program); or



## (K) emission reductions from the shutdown of a facility that was not included in the state implementation plan (SIP).

(b) DERC baseline.

### (1) The baseline emissions may not exceed the quantity of emissions 

### reported in the most recent year of emissions inventory used in the SIP. For reductions being certified in accordance with §I16.170(b) of this title (relating to Applicability of Emission Reductions as Offsets), the baseline emissions may not exceed the quantity of emissions reported in the emissions inventory used in the SIP in place at the time the reduction strategy was implemented.

(2) The two consecutive calendar years for the baseline activity and emissions
rate must be selected from either a period including or following the most recent year of emission inventory used in the SIP or, if that period is less than ten years, the ten consecutive
years immediately preceding the emission reduction.



## (3) For facilities in an area inwhich a SIP demonstration is not required for a criteria pollutant, the two consecutive calendar years must include or follow the 1990 emission inventory.

(4) For reduction strategies that exceed 12 months, the baseline and SIP emissions inventory are established after the first year of generation and are fixed for the life of the strategy. A 

### new baseline is establishedfor each unique emission reduction strategy.



## (5) For facilities in existence less than 24 months or not having two complete calendar years of activity data, a shorter time period of not less than 12 months may be considered by the executive director.

## (c) DERC calculation.

(I) DERCs, except for shutdowns, are calculated according to the following equation. Figure: 30 TAC §101.373(~)(1)(No charlge.) DERC Calculation (SA) 

## * (BER 

# - SER) 

## = reduction generated
Where: 

# I SA 

## = emission reduction strategy activity 

# I BER 

## = baseline emission rate, the lower of the emission rate used in reporting or representing emissions in the emissions inventory used for the state implementation plan or the average of the actual emission rates during the two-year baseline period. 

# I SER 

## = emission reduction strategy emission rate 

# I

(2) 'The sum of the reduction generated and the total strategy emissions must
not be greater than the quantity of emissions reported or represented in the emissions inventory used for SIP determination or the two-year average baseline emissions, whichever is less.

(3) For shutdown emission reduction strategies, the quantity of emission reduction generated is equivalent to the baseline emissions.

(4) 

## 'The generation period for a shutdown is five years. Shutdown DERCs must be generated and noticed to the registry on an annual basis.

(d) DERC certification.

### (1) A DEC-1 Form, Notice of Generation and Generator Certification of Discrete Emission Credits, shall be submitted to the executive director no later than 90 days after the end of the generation period, or no later than 90 days after the completion of the first 12 months of generation. Submission of the DEC-1 Form should continue every 12 months thereafter for each subsequent year of generation.

(2) DERCs must be quantified in accordance with §101.372(d) of this title (relating to General Provisions). The executive director shall have the authority to inspect and request information to assure that the emission reductions have actually been achieved.



### (3) An application for DERCs must include, but is not limited to, a completed DEC-1 Form signed by an authorized representative of the applicant along with the following information for each pollutant reduced at each applicable facility:

(A) the generation period;



## (B) a complete description of the generation activity;

(C) for shutdown emission reduction strategies, an explanation as to whether production shifted from the shutdown facility to another facility at the same site;

(D) the amount of discrete emission credits generated;

## (E) for volatile organic compound reductions, a list of the specific compounds reduced;



## (F) documentation supporting the baseline activity, baseline emission rate, strategy emission rate, and strategy activity;



## (G) emissions inventory data from the most recent year of emissions inventory used in the SIP and emissions inventory data for the two consecutive years used to determine the baseline activity for each applicable pollutant and emission point;



## (H) the most stringent emission rate for the applicable facility, considering all the local, state, and federal applicable regulatory and statutory requirements;

(I) a complete description of the protocol used to calculate the emission reduction generated; and



## (J) the actual calculations performed by the generator to determine the
amount of discrete emission credits generated.

5101.375. Emission ReductionsAchieved Outsidethe United States.

(a) 

## A facility may use emission reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section.

### (b) A facility may use emission reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants and substitute these reductionsfor reductions in other criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section; and

(1) the reduction is substituted for the reduction of another criteria pollutant and the substitution results in a greater health benefit and is of equal-orgreater benefit to the overall air quality of the area; or



## (2) a reduction of an air contaminant for which the area inwhich the facility is located has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leads to the formation of any criteria pollutant for which the area has been designated as nonattainment.

(c) The use of reductions outside the United States must be approved by the executive director and the United States Environmental Protection Agency (EPA), and the user of the emission reduction must:

(1) demonstrate to the executive director and EPA that the reduction is real, permanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or local law;

### (2) 

### demonstrate that the use of the reduction does not cause localized health impacts, as determined by the executive director and 

## EPA;

(3) submit all supporting information for calculations and modeling, and any additional information requested by the executive director and 

## EPA; and

(4) 

### be located within 

## 100 kilometers of the Texas 

# - Mexico border.

(d) This section does not apply to reductions in emissions of lead.



## $101.376. Discrete Emission Credit Use.

(a) Requirements to use discrete emission credits. Discrete emission credits may be used if the following requirements are met.



## (1) The user shall have ownership of a sufficient amount of discrete emission credits before the use period for which the specific discrete emission credits are to be used.

(2) 

### The user shall hold sufficient discrete emission credits to cover the user's compliance obligation at all times.

(3) The user shall acquire additional discrete emission credits durirrg the use period if it is determined the user does not possess enough discrete emission credits to cover

### the entire use period. The user shall acquire additional credits as allowed under this section prior to the shortfall, or be in violation of this section.

(4) 

### Facility or mobile source operators may acquire and use only discrete emission credits listed on the registry.

(b) Use of discrete emission credits. With the exception of uses prohibited in subsection (c) of this section or precluded by commission order or condition within an authorization under the same commission account number, discrete emission credits may be used to meet or demonstrate compliance with any facility or mobile regulatory requirement including the following:

(1) to exceed any allowable emission level, if the following conditions are met:



## (A) in ozone nonattainment areas, permitted facilities may use discrete emission credits to exceed permit allowables by no more than ten tons for nitrogen oxides or five tons for volatile organic corr~pounds in a 12-month period as approved by the executive director. This use is limitedto one exceedance, up to 12 months within any 24-month period, per use strategy. The user shall demonstrate that there will be no adverse impacts from the

use of discrete emission credits at the levels requested; or



## (B) at permitted facilities in counties or portions of counties designated as attainment or unclassified, discrete emission credits may be used to exceed permit allowables by values not to exceed the prevention of significant deterioration significance levels

## as provided in 40 Code of Federal Regulations (CFR) s52.21(b)(23), as approved by the executive director prior to use. This use is limited to one exceedance, up to 12 months within any 24-month period, per use strategy. The user shall demonstrate that there will be no adverse impacts from the use of discrete emission credits at the levels requested;

(2) as new source review (NSR) permit offsets, if the following requirements are
met:

(A) 

## the user shall obtain the executive director's approval prior to the use of specific discrete emission credits to cover, at a minimum, one year of operation of the new or modified facility in the NSR permit;



## (B) the amount of discrete emission credits neededfor NSR offsets equals the quantity of tons needed to achieve the maximum allowable emission level set in the user's NSR permit. 'The user shall also purchase and retire enough discrete emission credits to meet the offset ratio requirement in the user's ozone nonattainment area. The user shall purchase and retire either the environmental contribution of 10% or the offset ratio, whichever is higher; and

(C) the NSR permit must meet the following requirements:

(i) the permit must contain an enforceable requirement that the facility obtain at least one additional year of offsets before continuing operation in each subsequent year;

### (ii) prior to issuance of the permit the user shall identify the discrete emission credits; and

(iii) prior to start of operation the user shall submit a completed DEC-2 Form, Notice of Intentto Use Discrete Emission Credits, along with the original certificate;

(3) to comply with the Mass Emissions Cap and Trade Program requirements as provided in §I01.356(g) of this title (relating to Allowance Banking and Trading); or

(4) to comply with Chapters 114, 11 5, and 11 

## 7 of this title (relating to Control of Air Pollutionfrom Motor Vehicles; Control of Air Pollutionfrom Volatile Organic Compounds; and Control of Air Pollution from Nitrogen Compounds), 

### as allowed.

(c) Discrete emission credit use prohibitions. A discrete emission credit may not be used under this division:

(1) before it has been acquired by the user;

(2) for netting to avoid the applicability of federal and state NSR requirements;

(3) to meet (as codified in 42 United States Code (USC), Federal Clean Air Act (FCAA)) requirements for:

### (A) 

## new source performance standards under FCAA, 51

## 11 (42 USC,



## (6) lowest achievable emission rate standards under FCAA, §I 73(a)(2) (42 USC, §7503(a)(2));

(C) best available control technology standards under FCAA, §165(a)(4) (42 USC, §7475(a)(4)) or Texas Health and Safety Code, §382.0518(b)(l);



## (D) hazardous air pollutants standards under FCAA, §112 (42 USC, §7412), including the requirements for maximum achievable control technology;



## (E) standards for solid waste combustion under FCAA, $129 (42 USC,

(F) requirements for a vehicle inspection and maintenance program under FCAA, §I 82(b)(4) or (c)(3) (42 USC, §7511a(b)(4) or (c)(3));

(G) 

## ozone control standards set under FCAA, §183(e) and (f) (42 USC, S7511b(e) and (f));



## (H) clean-fueled vehicle requirements under FCAA, §246 (42 USC,

## (I) motor vehicle emissions standards under FCAA, 5202 (42 USC,

(J) 

## standards for non-road vehicles under FCAA, 521 3 (42 USC, 57547);

(K) requirements for reformulated gasoline under FCAA, 521 1(k) (42 USC, 57545); or

(L) requirements for Reid vapor pressure standards under FCAA,
5211(h) and (i) (42 USC, 57545(h) and (i));

(4) to allow an emissions increase of an air contaminant above a level authorized in a permit or other authorizationthat exceeds the limitations of5106.261 or 5106.262 of this title (relating to Facilities (Emission Limitations); and Facilities (Emission and Distance Limitations)) except as approved by the executive director and the United States Environmental Protection Agency. This paragraph does not apply to limit the use of discrete emission reduction credits (DERC) or mobile discrete emission reduction credits in lieu of allowances under 5101.356(h) of this title;

(5) to authorize a facility whose emissions are enforceably limited to below applicable major source threshold levels, as defined in 5122.10 of this title (relating to General Definitions), to operate with actual emissions above those levels without triggering applicable requirements that would otherwise be triggered by such major source status; or

### (6) 

### to exceed an allowable emission level where the exceedance would cause or contribute to a condition of air pollution as determined by the executive director.

(d) Notice of intent to use.

(1) A completed DEC-2 Form, signed by an authorized representative of the applicant shall be submitted to the executive director in accordance with the following requirements.

(A) Discrete emission credits may be used only after the applicant has submitted the notice and received executive director approval.



## (B) The application must be submitted at least 45 days prior to the first day of the use period if the discrete emission credits were generated from a facility, 90 days if the discrete emission credits were generated from a mobile source, and every 12 months thereafter for each subsequent year 

## if the use period exceeds 12 months.

(C) A copy of the application shall also be sent to the federal land
manager 30 

### days prior to use if the user is located within 100 kilometers of a Class I area, as listed in 40 CFR Part 81 (2001).



## (D) The application must include, but is not limited to, the following information for each use:

## (i) the applicable state and federal requirements that the discrete emission credits will be used to comply with and the intended use period;

(ii) the amount of discrete emission credits needed;

(iii) the baseline emission rate, activity level, and total emissions for the applicable facility or mobile source;

(iv) the actual emission rate, activity level, and total emissions for the applicable facility or mobile source;

(v) the most stringent emission rate and the most stringent emission level for the applicable facility or mobile source, considering all applicable regulatory requirements;

(vi) a complete description of the protocol, as submitted by the executive director to the United States Environmental Protection Agency for approval, used to calculate the amount of discrete emission credits needed;

(vii) the actual calculations performed by the user to determine the amount of discrete emission credits needed;

(viii) the date that the discrete emission credits were acquired or will be acquired;

### (ix) the discrete emission credit generator and the original certificate of the discrete emission credits acquired or to be acquired;

(x) the price of the discrete emission credits acquired or the expected price of the discrete emission credits to be acquired, except for transfers between sites under common ownership or control;

(xi) a statement that due diligence was taken to verify that the discrete emission credits were not previously used, the discrete emission credits were not generated as a result of actions prohibited under this regulation, and the discrete emission credits will not be used in a manner prohibited under this regulation; and

(xii) a certification of use, that must contain certification under penalty of law by a responsible official of the user of truth, accuracy, and completeness. This certification must state that based on information and belief formed after reasonable inquiry, the
statements and information in the document are true, accurate, and complete.

(2) DERC use calculation.

(A) To calculate the amount of discrete emission credits necessaryto comply with §§I17.1 08, 117.138, 117.210, or 11 7.223 of this title (relating to System Cap; and Source Cap), a user may use the equations listed in those sections, or the following equations.



## (i) For the rolling average cap:

## Figure: 30 TAC 3101.376(d)(Z)(A)(i) (No change.)


## Amount ofDERCs Required = 

# f[(I i=l 

## (tons) 

# I d 

# - - the number of days in the use period i 

# - 

# - each emission unit in the source or system cap N 

# - - the total number of emission units in the source or system cap


## Hi 

# - - actualdaily heat input,in million Britishthermal units (MMBtu) per day, as calculatedaccordingto 33117.108(c)(l),117.1 38(c), 117.21 O(c)(l)or (2), or 117.223(b)(I)of this title (relatingto System Cap; and Source Cap) as applicable


## Ri 

# - - actual emission rate, in pounds (Ib)/lVIMBtu, as defined in §§I17.108(c)(l), 117.1 38(c), 117.210(c)(l)or (2),or 117.223(b)(I)ofthis title as applicable 

## EH, 

## = expected new daily heat input, in MMBtu per day 

## ER, 

## = expected new emission rate, in IbIMMBtu.

(ii) For maximum daily cap:

### Figure: 30 TAC §101.376(d)(2)(A)(ii) (No change.)


## Amount 

## of

## DERCS 1 

## Required = 

# [(EH, x 

# ER;) - (HM 

### x 

# R;)]~ i= 1 

## (tons)

Where: 

## i 

# - - each emission unit in the source or system cap 

## N 

# - - the total number of emission units in the source or system cap 

# Rj 

# - - in IbIMMBtu, is defined as in ~~117.108(~)(2), 117.21 0(c)(3), or 117.223(b)(I) of this title (relating to System Cap; and Source Cap) as applicable



# - HM~ 

# - the maximum daily heat input, in MMBtuIday, as defined in §§I17.108(~)(2), 1 17.21 0(c)(3), or 1 1 7.223(b)(I) of this title as applicable 

## EHM; = expected new maximum daily heat input, in MMBtu per day 

# ERi = expected new emission rate, in IblMMBtu.



## (B) The amount of discrete emission credits needed to demonstrate compliance or meet a regulatory requirement is calculated as follows.

### Figure: 30 TAC §101.376(d)(2)(B) (No change.)

(ELA) x (EER 

# - RER) 

## = discrete emission credits needed Where: ELA 

## = expected level of activity EER 

## = expected emission rate per unit activity RER 

## = regulatory emission rate per unit activity.

(C) The amount of discrete emission credits needed to exceed an allowable emissions level is calculated as follows.

Figure: 30 TAC §101.376(d)(2)(C) (No change.) (ELA 

# - PLA) x (PER) 

## = discrete emission credits needed Where: ELA 

## = expected level of activity
PLA 

## = permitted level of activity PER 

## = permitted emission rate per unit activity



## (D) The user shall retire 10% more discrete emission credits than are needed, as calculated in this paragraph, to ensure that the facility or mobile source environmental contribution retirement obligation will be met.

(E) If the amount of discrete emission credits needed to meet a regulatory requirement or to demonstrate compliance is greater than ten tons, an additional

## 5.0% of the discrete emission credits needed, as calculated in this paragraph, must be acquired
to ensure that sufficient discrete emission credits are available to the user with an adequate compliance margin.

(3) 

## A user may submit a notice late in the case of an emergency, but the notice
must be submitted before the discrete emission credits can be used. The user shall include a complete description of the emergency situation in the notice of intent to use. All other notices submitted less than 45 days prior to use, or 90 days prior to use for a mobile source, will be considered late and in violation.

(4) 

## The user is responsible for determining the credits it will purchase and notifying the executive director of the selected generating facility or mobile source in the notice of intent to use. Ifthe generator's credits are rejected or the notice of generation is incomplete, the use of discrete emission credits by the user may be delayed by the executive director. The
user cannot use any discrete emission credits that have not been certified by the executive director. The executive director may reject the use of discrete emission credits by a facility or mobile source if the credit and use cannot be demonstrated to meetthe requirements of this section.

(5) 

## Ifthe facility is in an area with an ozone season less than 12 

## months, the user shall calculate the amount of discrete emission credits needed for the ozone season separately from the non-ozone season.

(e) Notice of use

## (1) The user shall calculate:

(A) the amount of discrete emission credits used, including the amount of discrete emission credits retired to cover the environmental contribution, as described in subsection (d)(2)(C) of this section, associatedwith actual use; and



## (B) the amount of discrete emission credits not used, including the
amount of excess discrete emission credits that were purchasedto cover the environmental contribution, as described in subsection (d)(2)(C) of this section, but not associatedwith the actual use, and availablefor future use.

(2) DERC use is calculated by the following equations.

(A) The amount of discrete emission credits used to demonstrate compliance or meet a regulatory requirement is calculated as follows.

Figure: 30 TAC §I 01.376(e)(2)(A) (No change.)

(AM)x (AER 

# - RER) 

## = discrete emission credits used Where: ALA 

## = actual level of activity AER 

## = actual emission rate per unit activity RER 

## = regulatory emission rate per unit activity

## (B) The amount of discrete emission credits used to comply with permit allowables is calculated as follows.

Figure: 30 TAC §101.376(e)(Z)(B) (No change.) (AM

# - PLA) 

## x (AER) 

## = discrete emission credits used Where: AM 

## = actual level of activity PLA 

## = permitted level of activity AER 

## = permitted emission rate per unit activity

(3) A DEC-3 Form, Notice of Use of Discrete Emission Credits, shall be submitted to the commission in accordance with the following requirements.

(A) The notice must be submitted. within 90 days after the end of the use period.

(B) The notice must be submitted within 90 days of the conclusion of each 12-month use period, if applicable.

(C) The notice is to be used as the mechanism to update or amend the notice of intent to use and must include any information different from that reported in the notice of intent to use, including, but not limited to, the following items:

### (i) purchase price of the discrete emission credits obtained prior to the current use period, except for transfers between sites under common ownership or control;

(ii) the actual amount of discrete emission credits possessed duringthe use period;

(iii) the actual emissions during the use period for volatile organic compounds and nitrogen oxides;

(iv) the actual amount of discrete emission credits used;

(v) the actual environmental contribution; and

(vi) the amount of discrete emission credits available for future

use.

(4) 

### Discrete emission credits that are not used during the use period are surplus and remain available for transfer or use by the holder. In addition, any portion of the calculated environmental contribution not attributedto actual use is also available.



## (5) The user is in violation of this section if the user submits the report of use later than the allowed 90 

### days following the conclusion of the use period.

### 5101.378. 

### Discrete Emission Credit Banking and Trading.



## (a) The credit registry. All discrete emission credit generators, users, and holderswill be included in the commission's credit registry.

(I) All notices submitted by a generator, holder, or user will be reviewedfor credibility; and when deemed certified, postedto the credit registry.



## (2) The credit registrywill assign a unique number to each certificate which will include the amount of emission reductions generated to the tenth of a ton.

(3) 

## 'The credit registrywill maintain a listing of all credits available or usedfor each ozone nonattainment area. One combined listingfor all the counties or portions of counties designated as attainment or unclassifiedwill be provided by the credit registry.

(4) The registry shall not contain proprietary information.

(b) Life of a discrete emission credit. A discrete emission credit is available for use after the DEC-1 Form, Notice of Generation and Generator Certification of Discrete Emission Credits, has been received, deemed creditable by the executive director, and deposited in the commission credit registry in accordancewith subsection (a) 

## of this section, and may be used anytime thereafter except as stated in this subsection. All credits are deposited inthe credit registry and reported as available credits until they are used or withdrawn.

### (1) Discrete emission credits generated from shutdown strategies prior to September 30, 2002, will be availablefor use until September 8, 2010.

(2) Discrete emission credits certified from facility shutdowns after September 30,2002, may not be used.

(c) Trading. Discrete emission credits are freely transferable inwhole or in part, and
may be traded or sold to a new owner at any time after certification.

(1) Prior to the transfer, the executive director must be notified by means of a completed DEC-4 Form, Application for Transfer of Discrete Emission Credits.

(2) The executive director will issue a letter to the discrete emission credit purchaser reflecting the discrete emission credits purchased by the new owner, and a letter to the discrete emission credit seller showing any remaining discrete emission credits available to the original owner. Discrete emission credits are considered transferred only after the executive director grants approval of the transaction.

(3) The trading of discrete emission credits may be discontinued by the executive director in whole or-inpart and in any manner, with commission approval, as a remedyfor problems resulting from trading in a localized area of concern..

## ~]~MENT~~~~~A~'~'S'~'~~ Ihere 

### y

### cert~fy thatthis isatrw and mrfecfropy

### ofa TexasCommission on EnvironmentalQuality

### documen:, which isflledinthe permanent

### reds ofthe 

### Commission.

# 0

Tis Cornmiss~on 

### on Envimnmeml

### Q~lltY 

## ORDER ADOPTING AMENDED, NEW, 

## AND REPEALED RULES AND REVISIONS TO THE 

## STATE RMPLEWNTATION PLAN

Docket No. 2006-0167-RUL
On October 4, 2006, the Texas Commission on Environlnental Quality (Commission), during a public meeting, considered adoption of amendments to 30 TAC Chapter 101, General Air Quality Rules, 

# $5 101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of 

# 5 101.338; and new 

## $5 101.305, 101.338, 101.339, and 101.375, and corresponding revisions to the State Implementation Plan 

## (SIP). The Commission adopts these amendments to 30 TAC Chapter 101, General Air Quality Rules, 

# $5 101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of 

# 5 101.338; and new 

# $5 101.305, 101.338, 101.339, and 101.375, and corresponding revisions to the 

## SIP. These changes address deficiencies 

## in the Commission's discrete emission reduction credit program as identified by the United States Environmental Protection Agency (EPA) in the October 5, 2005, edition of the 

## Federal Register (70 

## FR 58154). Changes include elimination of discrete emission reduction credits generated from shutdowns; EPA approval for transactions for emission reductions generated in another state or country, or from one nonattainment area to another, or from an attainment area to a nonattainment area; and formatting changes. The changes also implement revisioils to Tex. Health & 

## Safety Code, 

# 9 382.0172(c), as required by Senate Bill 784, 79th Texas Legislature, 2005, Regular Session, which allows greater flexibility in the generation of credits for emission reductioils outside the United States. Under Tex. Health & 

## Safety Code 

# $9 382.011, 382.012, and 382.023, the Coinnlission has the authority to control the quality of the state's air and to issue orders coilsistent with the policies and purposes of the Texas Clean Air Act, Chapter 382 of the Tex. Health & 

## Safety Code. The proposed rules were published in the April 28, 2006, issue of the 

## Texas 

## Register (31 TexReg 3492).
Pursuant to Tex. Health & 

## Safety Code $ 

## 382.017, Tex. Gov't Code Chapter 2001, and 40 Code of Federal Regulations $ 

## 51.102 and after proper notice, the Comrnissioil coilducted a 

## public hearing to consider the changes to 30 TAC Chapter 101, and corresponding revisions to the SIP. Proper notice included proinine~lt advertise~nent 

## in the areas affected at least 30days prior to the date of the hearing. A public hearing was held at the Texas Commission on Environmental Quality complex in Austin, Texas, on May 

## 22, 2006.
The Commission circulated hearing notices of its intended action to the public, includiilg interested pel-sons, the Regional Administrator of the EPA, and all applicable local air pollution control agencies. The public was invited to submit data, views, and recolnlllelldatiolls on the proposed changes at the hearing or during the comment period. Prior to the scheduled hearing, copies of the proposed changes were available for public illspectioll at the Commission's central office and on the Commission's Web site.

## Data, views, and recoinineildations of interested persons regarding the proposed changes were subinitted to the Coimnission during the coinmeilt period, and were considered by the Coin~nissioil as reflected in the analysis of testiinoily incorporated by reference to this Order. The Coininission finds that the analysis of testi~nollyincludes the naines of all interested groups or associatioils offering comment on the proposed changes and their position concerning the same. IT IS THEREFORE ORDERED 

## BY 

## THE COMMISSION that the a~nendine~its o 30 TAC Chapter 101, General Air Quality Rules, 

## $5 101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of 

## 5 101.338; and new 

## $5 101.305, 101.338, 101.339, and 101.375, and correspoiiding revisions to the SIP incorporated by reference to this Order are hereby adopted. The Coiniiiission further autl~orizes staff to malce ally non-substaiitive revisioils to the rules necessary to coinply with 

## Texas Register ~-equirelnents. The 

## adopted rules and the preainble to the adopted rules and the revisio~ls to the SIP are i~lco~porated by reference in this Order as if set forth at length verbatim in this Order.
IT IS FURTI-IER ORDERED 

## BY THE COMMISSION that on behalf of the Cominission, the Chairinan should transinit a copy of this Order, together with the adopted rules and revisions to the SIP, to the Regional Adiniilistrator of EPA as a proposed revision to the Texas SIP pursuant to the Federal Clean Air Act, 

## 5 110, codified at 42 U.S. Code Ann. $$ 

## 7410 

# - 767

## 1 

## q, as amended.
This Order coilstitutes the Order of the Coininission required by the Administrative Procedure Act, Tex. Gov't Code, 

# 5 2001.033.
If ally portion of this Order is for any reason held to be invalid by a court of competent jurisdiction, the invalidity of any portion shall not affect the validity of the re~llaiiling portions.

Date issued: 

# OCT 

# 17 2006 TEXAS COMMISSION ON 

## EN~IRONMENTAL QUALITY C'



# -l(df,eb,R

$ath~eenHartnett White, Chair~nanto request a complete set of fingerprints from any applicant for any authorization, including a license or permit, issued under lnsurance Code Title 13. Section 4001.005 authorizes the Commissionerto adopt rules necessary to implement lnsurance Code Title 13. Section 36.001 provides that the Commissioner of lnsurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of lnsurance under the lnsurance Code and other laws of this state. This agency hereby certifiesthat the adoption has been reviewed by legal counsel andfound to be a valid exercise of the agency's legal authority. Filed with the Officeof the Secretaryof Stateon October 3,2006. TRD-200605418 Gene C. Jarmon General Counsel and Chief Clerk Texas Department of lnsurance Effective date: October 23, 2006 Proposal publication date: August 4, 2006 For further information, please call: (512) 463-6327


## TITLE 30. 

## ENVIRONMENTAL QUALITY 

# PART 1. 

# TEXAS COMMISSION ON ENVIRONMENTAL QUALITY CHAPTER 10

## 1. GENERAL AIR QUALITY RULES SUBCHAPTER H. EMISSIONS BANKING AND 

## TRADING The Texas Commission on Environmental Quality (commission) adopts amendmentsto §§101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; new §§101.305, 101.338, 101.339, and 101.375; and the repeal of S101.338. 'The commission adopts §§101.302, 101.305, 101.338, 101.339, 101.372, 101.375, and 101.376 with changes to the proposed text as published in the April 28, 2006, issue of the Texas Register (31 TexReg 3492). The commission adopts §§101.306, 101.373, and 101.378 and the repeal of S101.338 without changes to the proposed text, and they will not be republished. The repealed, new, and amended sections will be submitted to the United States Environmental Protection Agency (EPA) as revisions to the Texas State Implementation Plan (SIP). BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES The Emissions Banking and Trading Program (EBTP) has been designed to offer flexibility and provide a market-based method of meeting required emission reductions. The program makes use of several types of emission credits including emission reduction credits (ERCs), mobile emission reduction credits (MERCs), discrete emission reduction credits (DERCs), and mobile discrete emission reduction credits (MDERCs). Flexibility has been built into the rules to create incentives for the early or permanent retirement of volatile organic compounds (VOC) and nitrogen oxides (NO,) emissions credits. In the October 5, 2005, edition of the Federal Register (70 FR 58154),the EPA published the proposed conditional approval of the DERC program as part of the SIP. The conditional approval was basedon the commission submitting corrected program deficiencies to the EPA by December 1,2006. These revisionsaddress the deficiencies, which the commission committedto correct in a letter to the EPA dated September 8, 2005. The corrections includethe prohibitionof the future generationof DERCsfrom permanent shutdowns and allow only DERCs generated from permanent shutdowns before September 30, 2002, to remain available for use for no more than five years from the date of the commission's commitment letter. Any DERCs generated after September 30, 2002, would be removed from the DERC registry and not be available for use. The conditions also required revisions to §101.302(f)and §101.372(f)(7) and (8) to clarify that the EPA must approve individual transactions involving emission reductions generated in another state or nation as well as those transactions from one nonattainment area to another or from attainment counties into nonattainment areas. The amendments revise Chapter 101, Subchapter H, Emissions Bankingand Trading, to include program audit and reporting requirements to satisfy the EPA's requirements for cap and trade programs. The requirements concerning program audits were not included in the EPA publication of conditional approval but were the subject of discussion betweenthe commissionand the EPA. The conditions also requiredthe changeto Form DEC-1, Notice of Generation and Generator Certification of Discrete Emission Credits; Form MDEC-1, Notice of Generation and Generator of MobileDiscrete Emission Credits; and Form DEC-2, Noticeof Intent to Use Discrete Emission Credits, to include a waiver of the federal statuteof limitationsfor generators and users of discrete emission credits. With the revision of these forms and adoption of the proposed rule changes, the commissionwill have corrected all identified deficiencies in the DERC program. The adopted rules also reflect changes to the Texas Health and Safety Code (THSC), §382.0172(c). Senate Bill (SB) 784 was adopted by the 79th Legislature, 2005, and allows additional options for creditfrom emission reductions achieved outside of the United States. The revisions allow the commission greater flexibility in its ability to approve the substitution of emission reductions outside the United States that may be used to satisfy reduction or trading requirements. SECTION BY SECTION DISCUSSION §101.302. General Provisions. The commission adopts administrative changes throughout the rules to conform with Texas Register requirements and agency guidelines. In order to better organize similar rule requirements, the commission deletes§101.302(a)(2)and (f)(3) and relocates this language concerning emission creditable reductions occurring outside the United States to new S101.305, Emission Reductions Achieved Outside the United States. The commission amends §101.302(d)(l )(C)(vi)to allow the rejection of an emission credit quantification protocol if the EPA objects to the protocol during a 45-day adequacy review period or if the EPA publishes in the Federal Register a disapproval of the protocol. This does not substantiallyaffect the procedures to approve the quantification protocol. The commission has, and will continue,to work with the EPAto approve new quantification



### 31 TexReg8684 October 20, 2006 TexasRegisterprotocols. This revision clarifies inthe rule that the quantification protocols would not be approved if the EPA objects to them. To be consistent with the reorganization of requirements applicable to emission reductions outside the United States, the commission is deleting the reference to "nation" in §101.302(f)(l). $707.305. Emission Reductions Achieved Outside the United States. The new §101.305 combines the existing language concerning the use of emission reductions from outside the United States that is moved from §101.302(f)(3) and (a)(2) for better organization. Emission reductions in Mexico used under THSC, §382.0172(b), must be generated and used consistent with federal requirements which restrict the generation and use of ERCs to nonattainment areas. The revisions reflect the SB 784 change to THSC, §382.0172(c), which allows facilities to substitute emission reductions in criteria or precursor pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. Should El Paso remain in nonattainment status, emission reductions and the generation of ERCs must meet federal requirements and are subject to EPA approval. If, as expected, El Paso is redesignated as an attainment area, the adopted rule change will allow beneficial emission reduction substitutions to continue as a result of reductions achieved in Ciudad Juarez without relating those emission reductions to the attainment status of El Paso. In responseto public comment, the commission is inserting a reference to precursors of criteria pollutants into §101.305(b) and substituting the word "and" for 

### "if' in regard to reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican" for "internationai" in §101.305(c) for greater specificity. The commission is also adding the EPA as an approving authority for the validity of creditable reductions. The commission is moving the rules governing optional reductions to their own sections (§§101.305, 101.338, and 101.375) so that they may be considered separately by the EPA for approval into the SIP and will not delay approval of other portions of the EBTP. $7 07.306. Emission Credit Use. The amendment to §101.306(a)(5) modifies the section to be consistent with the allowed use of ERCs under 5101.399, Allowance Banking and Trading. This revision is necessary because of a previous adoption of Chapter 101, Subchapter H, Division 6, Highly-Reactive Volatile Organic Compound Emissions Cap and Trade Program, and allows facilities to use ERCs as allowances under the highly-reactive volatile organic compound cap and trade program. $707.338. Emission Reductions Achieved Outside the United States. The existing S101.338 is repealed. The new §101.338 reflects the revisions to THSC, §382.0172(c) and provides the commission more discretion in approving the substitution of emission reductions achieved outside the United States for emissions from electric generating or grandfathered facilities. In response to public comment, the commission is inserting the phrase "to meet the allowance holding requirements of this division" in §I

01.338(a) and (b). In responseto public comment, the commission is inserting a reference to precursors of criteria pollutants into §101.338(b) and substituting the word "and" for "if' in regardto reducing a criteriapollutant and its greater health benefit. The commission is substituting "Mexican" for "international" in §101.338(c) for greater specificity. The commission is also adding the EPA as an approving authority for the validity of creditable reductions. 

### $707.339. Program Audits and Reports. The new S101.339 includes program audit and report requirements for emission credit programs applicable to electric generating and grandfathered facilities. The section contains similar audit and report requirements as are applicable to the commission's other cap and trade programs. These requirements are used by the commission and the EPA to evaluate the effectiveness of the program and include reportable items such as effect on ozone attainment, number of allowances or credits traded, cost of allowances or credits, and number of allowances in eachcompliance account. In response to public comment, the commission is adding sulfur dioxide (SO,) as a pollutant that is subject to program audit requirements because grandfathered facilities are required to hold SO, allowances. $707.372. General Provisions. In order to better organize similar rule requirements, the commission deletes §101.372(a)(2) and relocates this language concerning emission creditable reductions occurring outside the United States to new S101.375, Emission Reductions Achieved Outside the United States. The commission amends §101.372(d)(l)(C)(vi) to requirethe rejection of a quantification protocol if the EPA objects to the quantification protocol during the 45-day adequacy review period or if the EPA publishes in the Federal Register a disapprovalofthe quantification protocol. This does not substantially affect the procedures to approve the quantification protocol. This revision clarifies in the rule that the quantification protocols would not be approved if the EPA objects to them. The commission also removes language from this section concerning credits for emission reductions outside the United States and the options for applying them. This language, modified to be consistent with the changes to THSC, §382.0172(c), enacted under SB 784, is moved to the new S101.375 in order to be considered separately by the EPA for approval into the SIP and not delay approval of other portions of the EBTP. In response to public comment, the commission is removing the reference to credits for emission reductions in other nations in §101.372(f)(7) and will use "emission reductions" instead. $707.373. Discrete Emission Reduction Credit Generation and Certification. The amendment to §101.373(a)(I) and (2) removes the ability to generate DERCs from facility shutdowns. The commission adopts this amendment in response to the Federal Register notice requiring the correction of program deficiencies prior to the approval of the EB'rP intothe SIP. The EPA hasstated that banking and trading programs are intended to encourage innovative and creative emission reductions and shutdowns generally do not fall into this category. Shutdowns are also problematic for these programs because of the possibility that a facility may shut down in'one area, generate and sell credits, but then relocate operations to other areas or states. Additionally, when activity level increases cause emission increases, mitigating reductions are typically not required. Thus, allowing the generation of tradable credits as a result of activity level decreases (includ

## ADOPTED RULES October

## 20,2006 31 TexReg 8685ingshutdowns) maytend to promote emissions increases. Such patternsof activity related to shutdowns have the potential to interfere with attainment. 

### 5707.375. Emission Reductions Achieved Outside the United States. The new S101.375 relocates existing language concerning use of emission reductions from outside the United States in §101.372(a)(2) and (9(8). The revisions reflect the SB 784 change to THSC, §382.0172(c), which allows facilities to substitute emission reductions in criteria or precursor pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. This will allow the continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of El Paso being reclassified as an attainment area. The commission is moving the rules governing optional reductionstotheir own sections (§§101.305, 101.338, and 101.375) so thatthey may be considered separately by EPAfor approval into the SIPand will notdelay approval of other portions of the EBTP. In response to public comment, the commission is removing the reference to credits for emission reductions in §101.375(a) and will instead refer to the use of emission reductions in both gl01.375(a) and (b). In responseto publiccomment,the commission is insertinga reference to precursors of criteria pollutants into §101.375(b) and substituting the word "and" for "if' in regard to reducinga criteria pollutant and its greater health benefit. The commission is substituting "Mexican" for "international" in §101.375(c) for greater specificity. The commission is also adding the EPA as an approvingauthority for the validity of creditable reductions. 

### 5707.376. Discrete Emission Credit Use. The commission is amending this section to refer only to s106.261 and s101.262 to update references due to previous rule changes. 

### 5707.378.Discrete Emission Credit Bankingand Trading. The amendment to s101.378 changes the lifetime of DERCs generated from shutdowns. Companies that have previously certified DERCs from shutdowns will have no more than five yearsfromthe September8,2005, commitment lettertothe EPA to usethe DERCs. As a result, DERCs thatweregenerated from shutdowns prior to September 30, 2002, are available for use until September 8, 2010. After that date, the DERCs generated from shutdowns before September 30, 2002, will be removed from the DERC registry and will no longer be availablefor use. DERCs generated from shutdowns after September 30, 2002, may not be used. The reason for this action is included in the discussion of changes to s101.373 in this preamble. FINAL REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the rulemaking in light of the regulatory impact analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking action does meet the definition of a "major environmental rule" as defined in that statute. A "major environmental rule" is a rule, the specific intent of which is to protect the environment or reduce risks to human healthfrom environmental exposure and that may adversely affect in a material way the economy, productivity, competition,jobs, the environment, or the public health and safety of the state or a sector of the state. The amendmentsto Chapter 101 and revisions to the SIP phase out DERCs generated from shutdowns prior to September 30,2002, requireremoval of DERCs generated from shutdowns after September 30, 2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, correct one citation, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactive volatile organic compound cap and trade program. With the exception of the portions of the rulemaking regarding shutdown DERCs, the amendmentsto Chapter 101 are not specifically intended to protect the environment or reduce risks to human health from environmental exposure to air pollutants; although, the underlying emissions banking and trading programs are intended to achieve these goals. The rulemaking provides flexibility regarding credits nearthe Texas

# - Mexico border by implementing SB 784 and makes various administrative changes. The changesto shutdown DERCs generation and use are adopted to bring the DERC program into compliance with EPA program requirements, allowingthe DERC programto be approved as part of the SIP and to ensure air quality standards will be met. This rulemaking does not meet any of the four applicability criteria of a "major environmental rulen as defined in the Texas Government Code. Texas Government Code, s2001.0225appliesonly to a major environmental rule, the result of which is to: 1)exceed a standard set byfederal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or representativeof thefederal government to implement a state and federal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. Specifically, the banking and trading program amendments were developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to bring the bankingandtrading program into compliance with federal requirements, and make several administrative changes. This rulemaking does not exceed an express requirement of federal or state law or a requirement of a delegation agreement, and was not developed solely under the general powersof theagency, but was specifically developed underfederal law and authorized under the THSC. The rulemaking implements requirements of 42 United States Code (USC), s7410, which requires states to adopt a SIP that provides for "implementation, maintenance, and enforcement" of the national ambient air quality standard (NAAQS) in each air quality control region of the state. While 42 USC, s7410 does not require specific programs, methods, or reductions to meet the standard, SIPS must include "enforceable emission limitations and other control measures, means or techniques (including economic incentivessuch as fees, marketable permits, and auctions of emissions rights), as well as schedules and timetables for compliance as may be necessaryor appropriateto meet the applicable requirements of this chapter," (meaning 42 USC, Chapter 85, Air Pollution Prevention and Control). It is true that the Federal Clean Air Act (FCAA) does require some specific measuresfor SIP purposes, such as the inspection and maintenance program, but those programs are the exception, not the rule, inthe SIPstructureof 42 USC,s7410. The provisionsof the FCAA recognizethat states are in the best positionto determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry,and the publicto collaborate on the best methodsto attain the NAAQSfor the specific regions in the state. Eventhough



### 31 

## TexReg8686 October 20,2006 TexasRegisterthe FCAA allows statesto developtheir own programs,this flexibility does not relieve a state from developing a program that meets the requirements of 42 USC, S7410. Thus, while specific measures are not generally required, the emission reductions are required. States are not free to ignore the requirements of 42 USC, 57410, and must develop programsto assure that the nonattainment areas of the state will be brought into attainment on schedule. The requirement to provide a fiscal analysis of adopted regulations in the Texas Government Code was amended by SB 633 during the 75th Legislature, 1997. The intent of SB 633 was to require agencies to conduct a regulatory impact analysis of extraordinary rules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement of state law, federal law, or a delegated federal program, or are adopted solely under the general powers of the agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessmentof rules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment under the provisions of the bill was not large. This conclusion was based, in part, on the criteria set forth in the b~llthat exempted proposed rulesfrom thefull analysis unlessthe rule was a major environmental rule that exceeds a federal law. As discussed earlier inthis preamble, 42 USC, S7410 does not require specific programs, methods, or reductions in order to meet the NAAQS; thus, states must develop programs for each nonattainment area to ensurethat area will meetthe attainment deadlines. Becauseof the ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The legislature is presumed to understand this federal scheme. If each rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full regulatory impact analysis contemplated by SB 633. This conclusion is inconsistentwith the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board in its fiscal notes. Because the legislature is presumed to understand the fiscal impacts of the bills it passes, and that presumption is basedon information provided by state agencies and the Legislative Budget Board, the commission contends that the intent of SB 633 was only to require the full regulatory impact analysis for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greater than is necessary or appropriate to meet the requirements of 42 USC, S7410. Forthese reasons, rules adopted for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are specifically required by federal law. In addition, 42 USC, §7502(a)(2) requires attainment as expeditiously as practicable, and 42 USC, §7511(a), requires states to submit ozone attainment demonstration SIPSfor ozone nonattainment areas such as the Houston 

## - Galveston 

## - Brazoria (HGB) area. The adopted rules, which will reduce ambient concentrations of ozone precursors in nonattainment areas, will be submitted to the EPA as one of several measures in the federally approved SIP. As discussed earlier in this preamble, the banking and trading scheme in the adopted rules is necessary to address some of the elevated criteria or precursor pollutant levels observed in various nonattainment areas in Texas; this schemewill result in reductions in criteriaor precursor pollutants in nonattainment areas and help bring areas into compliance with the air quality standards established under federal law as NAAQS. The commission has consistentlyapplied this constructionto its rules since this statute was enacted in 1997. Sincethat time, the legislature has revised the Texas Government Code but left this provision substantially unamended. The commission presumes that "when an agency interpretation is in effect at the time the legislature amends the lawswithout making substantial change in the statute, the legislature is deemed to have accepted the agency's interpretation." Central Power & Light Co. 

### v. Sharp, 919 S.W.2d 485. 489 (Tex. App. Austin 1995), writ denied with per curiam opinion respecting another issue, 960 S.W.2d 617 (Tex. 1997); Bullock 

### v. Marathon Oil Co., 798 S.W.2d 353, 357 (Tex. App. Austin 1990), no writ; Cf Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172 (Tex. 1967); Sharp v. House of Lloyd, Inc., 815 S.W.2d 245 (Tex. 1991 

### ); Southwestern Life Ins. Co. v. Montemayor, 24 S.W.3d 581 (Tex. App. Austin 2000), pet. denied; and Coastal Indust. Water Auth. 

### v. Trinity Portland Cement Div., 563 S.W.2d 916 (Tex. 1978). As discussed, this rulemaking action implements requirements of 42 USC, 57410. There is no contract or delegation agreement that covers the topic that is the subject of this action. Therefore, the rulemaking does not exceed a standard set by federal law, exceed an express requirement of state law, exceed a requirement of a delegation agreement, nor is it adopted solely under the general powers of the agency. Finally, this rulemaking action was not developed solely under the general powers of the agency, but is authorized by specific sectionsof THSC, Chapter 382 (TCAA), andTexas Water Codethat are cited inthe STATUTORY AUTHORITY section of this preamble, including THSC, §§382.011, 382.012, 382.014, 382.016, and 382.017. Therefore, this rulemaking action is not subject to the regulatory analysis provisionsof Texas Government Code, §2001.0225(b), becausethe rulemaking does not meet any of the four applicability requirements. TAKINGS IMPACTASSESSMENT The commissioncompletedatakings impact assessmentfor this rulemaking action under Texas Government Code, §2007.043. The amendments to Chapter 101and revisionsto the SIP phase out DERCs generated from shutdowns prior to September 30, 2002, require removal of DERCs generatedfrom shutdowns after September30, 2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactive volatile organiccompound cap and trade program. Specifically, the banking and trading program amendments in this adoption were developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to comply with federal requirements, and make several administrative changes. Promulgation and enforcement of the amendments will not burden private real property. The rules do not affect private property in a manner that restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Additionally, the credits created under these rules are not property rights (§101.372(j)). Because DERCs are not property, phasing out shutdown DERCs does not constitute a taking. Consequently,this rulemaking action does not meet the definitionof a takings under Texas Government Code, §2007.002(5).



## ADOP'TED RULES October20,2006 31 TexReg8687Additionally,Texas Government Code,§2007.003(b)(4)provides that Chapter 2007 does not apply to this rulemaking action because it is reasonably taken to fulfill an obligation mandated by federal law. The changes regarding shutdown DERCs within this adoption were developed to meet the EPA conditional program approval so that these requirementscan be approved into the SIP and used to meet NAAQS set by the EPA under 42 USC, S7409. States are primarily responsible for ensuring attainment and maintenance of NAAQS once the EPA has established them. Under 42 USC, S7410, and related provisions, states mustsubmit, for approval bythe EPA, SIPS that providefor the attainment and maintenanceof NAAQSthrough control programs directedto sources of the pollutants involved. Therefore, one purpose of this rulemaking action is to meet the air quality standards established under federal law as NAAQS. However, this rulemaking is only one step among many necessary for attaining the ozone NAAQS. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined that this rulemaking action relates to an action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, SS33.201 et seq.), and the commission's rules in 30 TAC Chapter 281, Subchapter B, concerning Consistency with the CMP. As required by §281.45(a)(3)and 31 TAC §505.11(b)(2), relating to Actions and Rules Subject to the Coastal Management Program, the commission's rules governing air pollutant emissions must be consistent with the applicable goals and policies ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the rules of the Coastal Coordination Council, and determined that the action is consistent with the applicable CMP goals and policies. The CMP goal applicable to this rulemaking action is the goal to protect, preserve, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (31 TAC §501.12(1)). No new sources of air contaminants will be authorized and the revisions will maintain the same level of emissions control as previous rules. The CMP policy applicable to this rulemaking action is the policy that the commission's rules comply with federal regulations in 40 Code of Federal Regulations, to protect and enhance air quality in the coastal areas (31 TAC §501.14(q)).This rulemaking action complies with 40 Code of Federal Regulations Part 51, Requirements for Preparation, Adoption, and Submittal of Implementation Plans. Therefore, in accordance with 31 TAC §505.22(e), the commission affirmsthat this rulemakingaction is consistentwith CMP goals and policies. EFFECTONSITES SUBJECTTO THE FEDERALOPERATING PERMITS PROGRAM The newand amended sections are applicable requirements under the Federal Operating Permits Program, but no revisions to operating permitswill be required. PUBLIC COMMENT The commission conducted a public hearing on this proposal in Austin on May 22, 2006. Vinson & Elkins, LLP on behalf of El Paso Electric Company (ELPE), EPA, Houston Regional Group of the Sierra Club (HSC), and Baker Botts, L.L.P. on behalf of the Texas Industry Project (TIP)submitted comments duringthe public comment period,which closed on May 30, 2006. RESPONSE TO COMMENTS TIP expresses general support for the proposal. The EPA expresses general support for these parts of the proposal as having metthe conditionsof the letterof commitment to address deficiencies in the banking program: ~~101.302(d)(l)(C)(vi); 101.305; 101.306(a)(5);101.372(d)(I)(C)(vi);101.373; 101.375; 101.376(~)(4); and 101.378(b). The EPAcommentsthat the proposal preambleincorrectly refers to the EBTP as an open market programwhen it is more correctly referenced as a cap and trade program. The commission agrees with this statement and is changing the preamble. EPLE requeststhat the commission modify §101.302 to remove restrictions on which criteria pollutant reductions outside the United States may be creditable. ELPE states that SB 784 allows reductions in any criteria pollutant outside the United States that otherwise meets requirements for a creditable reduction (real, enforceable, quantifiable, permanent, and surplus), to be certified as a reduction for a different pollutant regardless of the surrounding area's attainment status with respect to either pollutant. EPLE requests that §101.302(f) be deleted or modified so that emission reductions outside the United States, but within 100 kilometersof the United States 

## - Mexico border, are eligible for certification. ELPE suggests that §101.305 be modified to reference the certification of reductions outside the United States instead of their use. The commission is not changing the rule in responseto this comment. Section 101.302(a) and (c) reference the certificationof emission reductions as emission credits. Section 101.305 and SB 784 only allow emission reductions generated outside of the United States to be used to satisfy applicable emission reduction requirements. Emission reductions generated outside of the United States may not be certified as credits, which may be banked and traded statewide. Under THSC, §382.0172(b),the use of emission reductions outside the UnitedStates is intended to provide air quality benefits to specific areas within the Texas 

# - Mexico border area. A person using the reductionachieved in Mexico must have a specific use in mind. Additionally, emission reductions in Mexico used under THSC, §382.0172(b) must be applied consistent with federal requirements,which restrictthe generation and use of ERCsto nonattainmentareas. The EPA commentsthat the change of "and" to "or" in §101.305 would allow reductions made in Mexicoto be used in attainment areas circumventing the intent of the ERCs, which are only intended to provide flexibility in nonattainment areas. Also, the EPA states the commission has not demonstrated that this revision would not violate §110(1)of the Federal Clean Air Act. The commission is not changing the rule in response to this comment. Emission reductions in Mexico used under THSC, §382.0172(b) must be applied consistent with federal requirements which restrict the generation and use of emission reduction creditsto nonattainmentareas. Emissionreductions in Mexico are substitutions only, not credits, and are not freely tradable. Should El Paso remain in nonattainmentstatus, emission reductionsand the generation ofemission reductioncredits must meet federal requirements and are subject to EPA approval. If as expected, El Paso is reclassified as an attainment area, the adopted rule changewill allow beneficialemission reduction substitutionsto continue as a resultof reductionsachieved in Ciudad Juarez without relating those emission reductionsto the attainment status of El Paso. Because each generation and use will be subjectedto case-by-case review by boththe executive direc

## 31 

## TexReg 8688 October 20, 2006 TexasRegistertor as well as the EPA to ensure a greater health benefit, §110(1) of the Clean Air Act will not be violated. ELPE suggests adding the phrase "except for emissions reductions achieved outside the United States" in several places in §101.302(c) and §101.373(b) to indicate that the requirements of the subsections, which relate to SIP development, do not apply to emission reductions outside the United States. The commission is not changing the rule in response to this comment. Adding the suggested language would indicate that emission reductions outside the United States are certifiable as credits; they are not. Reductions outsidethe United States may be substituted for required emission reductions within a specific area, but cannot be banked as a credit for trading that has an indefinite life. ELPE suggests that §101.305(b) and §101.375(b) be amended to correct an apparent omission and include the phrase "or precursors of criteria pollutants." ELPE and EPA commented that a reference to precursors of criteria pollutants should be included in §101.338(b). The commission agrees with this comment and is making the necessary change inthese two sections as well as §101.338(b). The EPA comments that the word "if' in ~101.305(b)(l) is confusing and suggests substitution of the word "and." The EPA comments that the use of the term "executive director" in ~101.305(c)(l) 

## - (3) is confusing because it omits EPA's co-approval authority. The EPA also commentsthat the word "foreign" or "Mexican" should be added to indicate that reductions must also be surplus to Mexican law. The commission agrees with these comments and is makingthe necessary changes. The commission is removingthe reference to "international law." ELPEand EPA commentthat §101.338(a) and (b) be modifiedto include the phrase "to meet the allowance holding requirements of this division" for clarification. The commission agrees with these comments and has added the references to allowance holding requirements and precursor pollutants. The EPA recommends that 5101.338 be revised to state that international reductions under the section are only used to comply with the Chapter 101, Subchapter H, Division 2, Emission Banking and Trading Allowances, and cannot be used in the East Texas Region because of distance limitations. The commission is not changing the rule in response to this comment. Distance limitations on the use of S101.338 are included within the section. The EPA comments that the word "if' in §101.338(b)(I) is confusing and suggests substitution of the word "and." The EPA comments that the word "foreign" or "Mexican" be added in §101.338(~)(1) to indicate that reductions must also be surplus to Mexican law. The EPA also comments that the use of the term "executive director" in subsection (c)(l)

## - (3) is confusing because it omits EPA's co-approval authority. The commission agrees with these comments and is making the necessary changes. The commission is removing the reference to "international law." The EPA comments that §101.339(b) should be revised to include reporting requirements of actual SO, allowances used. HSC comments that the commission should verify emission reductions resulting in credits and determine the compliance status of the company using the credit. 'The commission agrees with the EPA and is adding SO, to the required reporting requirements. The commission also agrees with HSC but no rule change is necessary. These procedures are currently part of the banking program. ELPE comments that S101.372 be deleted or that §101.372(a) be modified to allow reductions outside the United States to be creditable providedthe conditions of 5101.375, Emission Reductions Achieved Outside the United States, are met. The commission is not changing the rule in response to this comment. Adding the suggested language would indicate that emission reductions outside the United States are certifiable as credits; they are not. Reductions outside the United States may be substituted for required emission reductions within a specific area, but cannot be banked as a credit for trading that has an indefinite life. The EPA comments that language in §101.372(f)(7) pertaining to reduction of VOC and NOxbe moved to 9101.375 so there is no confusion whether §I 01.372 is further modified by §I 01.375. The EPA also states that the use in Texas of reductions made in Mexico should improve Texas's air quality by complying with S101.375. The commission is changing the language in §101.372(f)(7) to refer to "emission reductions in other nations" instead of "emission credits." This will make the language consistent with other references to reductions outside the United States. The EPA expresses concern that the incorporation of SB 784 in S101.375 would allow sources anywhere within 100 kilometers of the Texas 

## - Mexico border to generate and use credits from Mexico. The EPA states that this provision can weaken the credit programand recommends the use of international DERCs inthe event El Paso is designated as attainment. The EPA states Texas has not demonstrated that this revision will not violate FCAA, §110(1). Senate Bill 784 allows the use of emission reductions in Mexico as a substitution for required emission reductions in Texas. The Mexican emission reductions are not certifiable as credits and may only be applied for a specific use in an area of Texas affected by the emissions or where a greater health benefit, as determined by the executive director and the EPA, is realized. Because each generation and use will be subjected to case-by-case review by both the executive director as well as the EPA to ensure a greater health benefit, FCAA, §110(/) will not be violated. HSC opposes using creditable reductions outside the United States unless three conditions are met: the authority responsible for the regional air pollution control plan must demonstrate that all reasonably available domestic control measures have been implemented; there are insufficient domestic reductions available; and grandfathered facilities may not participate. The commission is notchanging the rule in response to this comment. The implementation of SB 784 is intended to provide incentives for cooperative efforts to reduce emissions in Mexico where those emissions directly affect Texas. The three conditions listed by HSC would work against those incentives. HSC opposes substituting reductions in one pollutant for reductions of another, and there is no scientific method to know the relative benefits of this substitution.



## ADOPTED RULES October20,2006 31 TexReg8689Thecommission is not changing the rule in responseto this comment. The substitutionof reductions will be based on nonattainrnent criteria pollutantsor on a finding of greater health benefit. The EPA notes that §101.375(a) uses the phrase "use discrete emission credits for reductions" and §101.375(b) uses the phrase "use reductions." The EPA comments that the language should be made parallel. The commissionagrees with the EPA comment and is changing §101.375(a) and (b) to referto "emission reductions." The EPA comments that the word "if' in §101.375(b)(I) is confusing and suggests substitution of the word "and."The EPA comments that the word "foreign" or "Mexican" be added in §I

01.375(~)(1) to indicate that reductions must also be surplus to Mexican law. The EPA also comments that the use of the term "executive director" in §101.375(~)(1) 

# - (3) is confusing because it omits EPA's co-approval authority. The commissionagreeswith these comments and is makingthe necessary changes. The commission is removingthe reference to "international law." HSC opposesthe revisions in §101.378(b)and the allowed use of shutdown credits generated priorto September 30, 2002 until September 30, 2010, and supports a five-year life for these credits. Thecommissionis not changingthe rule in responseto thiscomment. The proposed expiration date is consistent with federal policy. TIP requests clarification on whether credits that will expire on September30,2010, can be usedto meet annual emission limits for calendar year 2010. Allowance account reconciliation must occur by March 31 of the year following the control period. Discreteemission credits will have expired by the reconciliation date. Facilities not subject to a cap and trade program may use credits to meet allowable emission rates until the expiration date of September 30, 2010, but then must reduce emissions to remain in compliance with allowablesfor the remainder of calendaryear 2010. 

## DIVISION 1. 

## EMISSION CREDIT BANKING 

## AND TRADING 30 

### TAC §§101.302, 101.305, 101.306 STATUTORY AUTHORIN The amended and new sections are adopted underTexas Water Code, s5.103, concerning Rules, and $5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), s382.017, concerning Rules, that authorizes the commissionto adopt rules consistentwith the policy and purposesof the Texas Clean Air Act. The amendedand new sections are also adopted under THSC, $382.002, concerning Policyand Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; s382.011, concerning General Powers and Duties, that authorizes the commissionto control the quality of the state's air; and s382.012, concerning State Air Control Plan, that authorizes the commissionto prepare and develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also proposed under THSC, s382.014, concerning Emission Inventory,that authorizes the commission to require a person whose activities cause air contaminantemissionsto submit information to enable the commission to develop an emissions inventory; s382.016, concerning Monitoring Requirements, that authorizes the commissionto prescribe reasonable requirementsfor the measuring and monitoring of air contaminant emissions; and $382.051 and s382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also adopted under 42 USC, §7410(a)(2)(A), that requires state implementationplans to include enforceable measuresor techniques, includingeconomic incentivessuch as fees, marketable permits,and auction of emission rights. The amended and new sections implement THSC, ss382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. 6101.302. General Provisions. (a) Applicable pollutants. Reductions of criteria pollutants, excluding lead,orprecursors of criteria pollutants for which an area is designated nonattainment,mayqualify as emission credits. Reductions of one pollutant may not be used to meet the requirements for another pollutant, unless urban airshed modeling demonstrates that one ozone precursor may be substituted for another, subject to executive director and United States Environmental ProtectionAgency (EPA) approval. (b) Eligible generator categories. The following categories are eligible to generate emission credits: (1) facilities, including area sources; (2) mobile sources; and 

### (3) any facility, including area sources, or mobile source associated with actions by federal agencies under 

## 5 101.30 of this title (relating to Conformity ofGeneral Federal Actions to State Implementation Plans). (c) Emission credit requirements. (1) Emission reduction credits are certified reductionsthat meet the following requirements: (A) reductions must be enforceable, permanent, quantifiable, real, and surplus; 

### (B) the certifiedreductionmust be surplus atthe time it is created, as well as when it is used; (C) in order to become certified, the reduction must have occurred after the most recent year of emissions inventory used in the state implementationplan (SIP); and 

### (D) the facility's annual emissions prior to the reduction strategy must have been reported or represented in the emissions inventoryused in the SIP. (2) Mobile emission reduction credits are certified reductions that meet the following requirements: (A) reductions must be enforceable, permanent, quantifiable, real, and surplus; (B) the certified reductionmust be surplus at the time it is created, as well as when it is used; (C) in order to become certified, the reduction must have occurred after the most recent year of emissions inventoryused in the SIP;



## 31 TexReg8690 October 20, 2006 TexasRegister(D) the mobile source's annual emissions prior to the emission credit application must have been represented in the emissions inventory used in the SIP; and (E) the mobile sources must have been included in the attainment demonstration baseline emissions inventory. (3) Emission reductions from a facility or mobile source that are certified as emission credits under this division cannot be recertifiedin whole orinpart as credits under another division within this subchapter. (d) Protocol. (1) All generators or users of emission credits shall use a protocol that has been submitted by the executive director to the EPA for approval, if existing for the applicable facility or mobile source, to measure and calculate baseline emissions. If the generator or user wishes to deviate from a protocol submitted by the executive director, EPA approval is required before the protocol can be used. Protocols must be used 

### as follows. (A) Facilities subject to the emission specifications under $9117.106, 117.206, or 117.475 of this title (relating to Emission Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in nitrogen oxide emissionsusing the testing and monitoring methodologies identified to show compliance with the emission specification. (B) Facilities subject to the requirements under $$115.112, 115.121, 115.122, 115.162, 115.211, 115.212, 115.352, 11

5.421, 115.541, or 11 5.542 of this title (relating to Control Requirements; and Emission Specifications) shall quantify volatile organic compound reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or requirements. (C) If the executive director has not submitted a protocol for the applicable facility ormobile source totheEPA for approval, the following requirements apply: (i) the amount of emission credits from a facility or mobile source, in tons per year, will bedetermined and certified based on quantification methodologies at least as stringent 

### as the methods used to demonstrate compliance with any applicable requirements for the facility or mobile source; 

### (ii) the generator shall collect relevant data sufficient to characterize the facility's or mobile source's emissions of the affected pollutant and the facility's or mobile source's activity level for all representative phases of operation in order to characterize the facility's or mobile source's baseline emissions; 

### (iii) facilities with continuous emissions monitoring systems orpredictive emissions monitoring systems in place shall use this data in quantifying actual emissions; (iv) the chosen quantification protocol mustbe made available forpublic commentfor a period of 30 days and mustbeviewable on the commission's Web site; 

### (v) thechosen quantification protocol and any commentsreceived duringthe public commentperiod shal

### I be submitted to the EPA for a 45-day adequacy review; and (vi) quantification protocols shall not be accepted for use with this division if the executive director receives a letter objecting to the use of the protocol fiom the EPA during the 45-day adequacy review or the EPA proposes disapproval of the protocol in the 

### Federal Register. (2) In the event that the monitoring and testing data re- quired under paragraph (1)ofthis subsection is missing or unavailable, the facility may report actual emissions for that period of time using these listed methods in the following order ofpreference to determine actual emissions: (A) continuous monitoring 

### data; (B) periodic monitoring data; 

### (C) testing data; (D) manufacturer's data; (E) 

### EPA CompilationofAirPollution Emission Factors (AP-42), September 2000; or (F) material balance. (3) When quantifying actual emissionsin accordancewith paragraph (2) of this subsection, the generator shall use the most conservative method for replacingthemissing data, submitthe justification for not using the methods in paragraph (1) ofthis subsection, and submit thejustification for the method used. (e) Credit certification. (1) Theamount of emission credits in tons per year will be determined and certified, to the nearest tenth of a ton per year. (2) Applications for certification will be reviewed in order to determine the credibility ofthe reductions. Reductions determined to be creditable will be certified by the executive director. (3) The applicant will be notified in writing if the executive director denies the emission credit application. The applicant may submit a revised application in accordance with the requirements of this division. (4) If a facility's or mobile source's actual emissions exceed its allowable emission limit, reductions of emissions exceeding the limit may not be certified as emission credits. (5) Applications for certification of emission credit from reductions quantified under subsection (d)(l)(C) of this section may only be approved upon completion ofthepublic comment period. 

### (f) Geographic scope. Except as provided in $101.305 of this title (relating to Emission Reductions Achieved Outside the United States), only emission reductions generated in nonattainment areas can be certified. An emission credit must be used in thenoilattainment area in which it is generated unless the user has obtained prior written approval of the executive director and the EPA; and (I) a demonstration has been made and approved by the executive director and the EPA to show that the emission reductions achieved in another county or state provide an improvement to the air quality in the county of use; or (2) the emission credit was generated in a nonattainment area that has an equal or higher nonattainrnent classification than the nonattainment area ofuse, and a demonstration has been made and approved by the executive director and the EPA to show that the emissions from the nonattainment area where the emission credit is generated contribute to a violation of the national ambient air quality standard in the nonattainment area of use. (g) Recordkeeping. The generator shallmaintain a copy of all notices and backup information submitted to the registry for a minimum of five years. The user shall maintain a copy of all notices and backup information submitted to the creditregistry from the beginning of the use period and for at least five years after. The user shall also make suchrecords available upon request to representatives of the ex

## ADOPTED RULES October 20, 2006 31 TexReg 8691ecutive director,EPA, and any local enforcementagency. The records (2) a reduction of an air contaminant for which the area must include.but not necessarily be limited to: in which the facility is located has been designated as nonattainment (1) the name, emission point number, and facility identification number ofeach facility or any other identifyingnumber for each mobile source using emission credits; (2) the amount of emission credits being used by each facility or mobile source; and (3) the specific number, name, or other identification of emission credits used for each facility or mobile source. (h) Public information. All information submitted with notices, reports, and trades regarding the nature, quantity, and sales price of emissions associated with the use, generation, and transfer of an emission credit is public information and may not be submitted as confidential. Any claim of confidentiality for this type of information,or failureto submit all information, may result in therejectionofthe emission credit application. All nonconfidentialnotices and informationregardingthe generation, availability, use, and transferof emission credits shall be immediately made available to the public. (i) Authorization to emit. An emission credit created under this division is a limited authorization to emitthepollutantsidentifiedin subsection (a) of this section, unless otherwisedefined, in accordance or which leads to Ihe formation of a criteria-pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leadsto the formation ofanycriteria pollutant for which the areahas been designated 

### as nonattainment. (c) The use ofreductionsoutside the United States mustbe approved by the executivedirector and the United States Environmental Protection Agency (EPA), and the user ofthe emission reductionmust: (1) demonstrateto the executive director and EPA that the reduction is real, permanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or local law; (2) demonstratethatthe use ofthe reduction does not cause localized health impacts, as determined by the executive director and EPA; (3) submit all supporting information for calculations and modeling, and any additional information requested by the executive director and EPA; and (4) be located within 100kilometers of the Texas

## - Mexico border. with the of this section, 42 United States Code, $$7401et seq.,and Texas Health and Safety Code, Chapter 382, as well as regu- lead, (d) This section does not apply to reductions in emissions of lations~romulgated thereunder. An emissioncredit does not constitute aproperty right. Nothing in this division may be construed to limit the This agency hereby certifiesthat the adoptionhas been reviewed authorityofthe commission or the EPA to terminate or limit such au- by legal counsel andfound to be a valid exercise of the agency's thorization. legal authority. 

### 6) Program participation. The executive director has the authority to prohibit an organizationfromparticipatingin emission credit trading either

### as a generator or user, if the executive director determines that the organization has violated the requirementsof the program, or abusedthe privileges provided by the program. (k) Compliance burden. Users may not transfer their compliance burden and legal responsibilities to a third-party participant. Third-party participants may only act in an advisory capacity to the user. (1) Credit ownership. The owner of the initial emission credit certificate shallbe the owneror operatorof the facility ormobile source creating the emission reduction. The executive director may approve a deviation from this subsection considering factors such as, but not limited to: (1) whether an entity other than the owner or operator of the facility ormobile source incurred the costof the emissionreduction strategy; or (2) whetherthe owner or operatorofthe facility or mobile source lacks the potential to generate 1110 ton of credit. $101.305. Emission Reductions Achieved Outside the United States. (a) A facility may use reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section. (b) A facility may use reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutantsand substitute these reductions for reductionsin other criteriapollutants orprecursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section; and (1) the reduction is substituted for the reduction of another criteria pollutant and the substitution results in a greaterhealth benefit and is ofequal or greaterbenefitto the overall airqualityofthe area; or Filedwith the Officeofthe Secretaryof Stateon October 6,2006. TRD-200605473 Robert Martinez Director, Environmental Law Division Texas Commission on Environmental Quality Effective date: October 26, 2006 Proposal publication date: April 28, 2006 For furtherinformation, please call: (512)239-0348



## DIVISION 

## 2. EMISSIONS 

## BANKING AND 

## TRADING ALLOWANCES 30 TAC 

### s101.338 STATUTORY AUTHORITY The repeal is adopted under Texas Water Code, s5.103, concerning Rules, and s5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), s382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposes of the Texas Clean Air Act. The repeal is also adopted under THSC, s382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; s382.011, concerning General Powers and Duties, that authorizes the commission to control the quality of the state's air; and s382.012, concerning StateAir Control Plan, that authorizesthe commissionto prepare and develop a general, comprehensive plan for the control of the state's air. The repeal is also adopted



## 31 TexReg 8692 October 20, 2006 TexasRegisterunder THSC, 5382.014, concerning Emission Inventory,that authorizes the commission to require a person whose activities cause air contaminant emissionsto submit information to enable the commission to develop an emissions inventory; s382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and s382.051 and s382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The repeal is also adopted under 42 USC, §7410(a)(2)(A), that requires state implementation plansto include enforceable measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The repeal implements THSC, ss382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Officeofthe Secretaryof State on October6,2006. TRD-200605474 Robert Martinez Director, Environmental Law Division Texas Commission on Environmental Quality Effective date: October 26, 2006 Proposal publication date: April 28, 2006 For further information,please call: (512)239-0348



### 30 

### TAC §101.338,9101.339 STATUTORY AUTHORITY The new sections are adopted underTexas Water Code, s5.103, concerning Rules, and s5.105, concerning General Policy, that authorize the commissionto adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), s382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposesofthe Texas CleanAir Act. The new sections are also adopted under THSC. s382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; s382.011, concerning General Powers and Duties, that authorizes the commission to control the quality of the state's air; and s382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The new sections are also adopted under THSC, s382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; s382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and5382.051 and s382.0518, concerning Permitting Authorityof Commissionand Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The new sections are also adopted under 42 USC, §7410(a)(2)(A), that requires state implementation plans to include enforceable measuresor techniques, including economic incentivessuch as fees, marketable permits, and auction of emission rights. The new sections implement THSC, ss382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. ,f101.338. 

### Emission Reductions Achieved Outside the UnitedSlates, (a) A grandfathered or electing electric generating facility (EGF) may use reductions achicved outside the Unitcd States of criteria pollutants or precursors of criteria pollutants to meet the allowance holding requirenients of this division if the facility meets the requirements of subsection (c) of this section. (b) A grandfathered or electing EGF may use reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants or precursors of criteria pollutants or to meet the allowance holding requirements of this division if the Pacility meets therequirements of subsection (c) of this section; and (1) the reduction is substituted for the reduction of another criteria pollutant and the substitution results in a greater health benefit and is ofequal or greater benefit to the overall air quality ofthe area;or (2) a reduction of an air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been desigmated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leads tothe formation ofany criteriapollutant forwhich the area has been designated as nonattainment. (c) The use ofreductions outside the United States mustbe approved by the executive director and the United States Environmental Protection Agency (EPA), and the user of the emission reduction must: (I) demonstrate to the executive director and EPA that the reduction is real. permanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or local law; (2) demonstrate that the use ofthe reduction doesnot cause localized health impacts, as determined hy the executive director and 

### EPA; (3) submit all supporting infomution for calculations and modeling, and any additional information requested by the executive director and EPA; and (4) be located within 100 kilometers ofthe Texas

## - Mexico border. (d) This section does not apply to reductions in emissions of lead. $101.339. 

### Program Azrdits and

### Reports. (a) No later than threeyears aftertheeffective dateofthis division, and evely three years thereafter, the executive director will audit this progam. (1) The audit will evaluate thc itnpact of the program on the state's ozone attainment demonstration, the availability and cost of allowances, complianceby theparticipants, and any other elenlents the executive director may choose to include. (2) The executive director will recommend measures to remedy any problems identified in the audit. Thetrading ofallowances may be discontinued by the executive director in part or in wlxole and in any manner, with commission approval, as a ren~edy for problems identified in the program audit.



## ADOPTED RULES October

## 20,2006 31 TexReg8693(3) The audit data and results will be completed and submitted to the United States Environmental Protection Agency (EPA) and made available for public inspection within six months after the audit begins. (b) No later than September 30 following the end of each control period, the executive director shall develop and make available to the general public and EPA, a report that includes: (1) number of allowances allocated to each complianceaccount; (2) total number of allowances allocated under this division; (3) numberofactual nitrogen oxides (NOx) and sulfur dioxide (SO,) allowances subtracted from each compliance account based on the actual NOxand SO, emissions from the site; and (4) a summary of all trades completed under this division. This agency hereby certifies thatthe adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Filed with the Officeof the Secretaryof Stateon October6, 2006. TRD-200605475 Robert Martinez Director, Environmental Law Division Texas Commission on EnvironmentalQuality Effective date: October 26, 2006 Proposal publication date: April 28, 2006 For further information,please call: (512) 239-0348



## DIVISION 4. 

## DISCRETE EMISSION CREDIT BANKING AND TRADING 30 

### TAC ~~101.372,101.373,101375,101.376,101.378 STATUTORY AUTHORITY The amended and new sections are adopted underTexas Water Code, 55.103, concerning Rules, and 55.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), 5382.017, concerning Rules, that authorizes the commissionto adopt rules consistent with the policy and purposes of the Texas CleanAir Act. The amendedand new sectionsare also adopted underTHSC, 5382.002, concerning Policyand Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection

## of public health, general welfare, and physical property; 5382.011, concerning General Powers and Duties, that authorizesthe commission to control the quality of the state's air; and 5382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also adopted underTHSC, 5382.014, concerning Emission Inventory,that authorizes the commission to require a person whose activities cause air contaminant emissionsto submit information to enable the commission to develop an emissions inventory; 5382.016, concerning Monitoring Requirements, that authorizesthe commissionto prescribe reasonable requirements for the measuring and monitoringof air contaminant emissions; and 5382.051 and 5382.0518, concerning Permitting Authority of Commissionand Preconstruction Permit, that authorize the commissionto issue preconstruction and operating air permits. The amended and new sections are also adopted under 42 USC, 57410(a)(2)(A), that requires state implementation plans to include enforceable measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The amended and new sections implement THSC, 55382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. $1 

### 01.3

### 72. GeneralProvisions (a) Applicable pollutants. Reductions ofvolatile organic com- pounds (VOC), nitrogen oxides O\JOt),carbon monoxide (CO), sulfur dioxide (SO,), and particulate matter with an aerodynamic diameter of less than or equal to a nominal ten microns (PM,")may qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may not be used to meet the reduction requirements for another pollutant. unless urban airshed modeling demons~ates that one may be substituted for another subject to approval by the executive director and the United States Environmental Protection Agency (EPA). (b) Eligible generator categories. Eligible categories include the following: (1) facilities (including area sources); (2) mobile sources; or (3) any facility, including area sources, or mobile source associated with actions by federal agencies under $10130of this title (relating to Conformity ofGeneral FederalActions to State Implementation Plans). (c) Discrete emission credit requirements. (1) To be creditable as a discrete emission reduction credit (DERC), an emission reduction must meet the following: (A) the reduction be real, quantifiable. and surplus at the time the discrete emission credit is generated; 

### (B) the reduction must have occurred afterthe most recent year of emissions inventory used in the state implementation plan (SIP) for all applicable pollutants; and (C) the facility's annual emissions prior to the reduction strategy must have been reported or represented in the emissions inventory used for the SIP. (2) To be creditable as a mobile discrete emissionreduction credit (MDERC), an emission reduction must meet the following: (A) the reduction must bereal, quantifiable, and surplus at the time it is created; 

### (B) the reduction must have occurred after the most recent year of emissions inventory used in the SIP for all applicable pollutants; (C) the mobile source's emissions must have been represented in the emissions inventory used for the SIP; and (D) the mobile sources must have been included in the attainment demonstration baseline emissions inventory. If a mobilereduction implemented is not in the baseline for emissions,thisreduction does not constitute a discrete emission reduction. (3) Emission reductions from a facility or mobile source which arecertified as discrete emission credits under this division cannot be recertified in whole or in part as emission credits under another division within this subchapter.



## 31 

## TexReg 8694 October 20, 2006 Texas Register(d) Protocol. (E) EPA Compilationoj'Air-Pollution Emission Factors (I) A11 generatorsorusers ofdiscrete emission credits must (AP-42), September 2000; or
use a ~rotocol which has been submitted by the executive director to (F) material balance. the EPA for approval, if existing for the applicable facility or mobile source, to measure and calculate baseline emissions. If the generator or user wishes to deviate from a protocol submitted by the executive director, EPA approval isrequired before the protocol canbe used. Protocols shall be used as follows. (A) Facilities subject tothe emission specifications under $$117.106, 117.206, or 117.475 of this title (relating to Emission Specificatiolls for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in NO. using the testing and monitoring methodologies identified to show compliance with the emission specification.(B) Facilities subject to the requirements under §$115.112, 115.121, 115.122, 115.162, 115.211, 115.212, 115.352, 115.421, 115.54 1, or 115.542 (relating to Emission Specifications; and Control Requirements) shall quantify VOC reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or the requirements. (C) If the executive director has not submitted a protocol for the applicable facility ormobile source to theEPA for approval, the following applies: (3) When quantifying actual emissions in accordance with paragraph (2) ofthis s.ubsection,the generator shall use the most conservative method forreplacing the missing data, submit thejustification for not using the methods in paragraph (1) ofthis subsection, and submit the justification for the method used. (e) Credit certification. (I) The amount of discrete emission credits shall be rounded down to the nearest tenth of a ton when generated and shall be rounded up to the nearest tenth of a ton when used. (2) Applications for certification will be reviewed in order to determine the credibility of the reductions. Reductions determined to be creditable will be certified by the executive director. (3) The applicant will be notified in writing if the execu- tive director denies the discrete emission credit notification. The applicant may submit a revised discrete emission credit notification in accordance with the requirements of this division. (4) If a facility's or mobile source's emissions exceed its allowable emission limit, the amount of emissions exceeding the limit may not be certified as discrete emission credits. (i) the amount of discrete emission credits from a (f) Geographic scope. Except asprovided in paragraph (7) of facility ormobile source, intons, willbedetermined and certified based this subsection and $ 101.375 of this title (relating to Emission Reduc- on quantification methodologies at least as stringent as the methods tions Achieved Outside the United States), only emission reductions used to demonstrate compliance with any applicable requirements for generated in the State

### of

### Texas may be creditableand used in the state the facility or mobile source; with the following limitations. - 

### (ii) the generator must collect relevant data sufficient to characterize the facility's or mobile source's emissions of the (1) VOC and NO. discrete emission credits generated in affected pollutant and the facility's or mobile source's activity level an ozone attainment area may be used in any county or portion of a for all representative phases of operation in order to characterize the county designated as attainment or unclassified, except as specified in facility's or mobile source's baseline emissions; paragraphs (4) and (5) of this subsection and may not be used in an ozone nonattainment area. 

### (iii) facilitieswith continuous emissions monitoring systems or predictive emissions monitoring systems in place shall use this data in quantifying actual emissions; 

### (iv) the chosen quantification protocol shallbe made available forpublic comment for a period of 30daysand shallbe viewable on the commission's Web site; 

### (v) the chosen quantification protocol and any comments received duringthe public comment period shall,upon approval by the executive director, be submitted to the EPA for a 45-day adequacy review; and 

### (vi) quantification protocols shall not be accepted for use with this division (relating to Discrete Emission CreditBanking and Trading) if the executive director receives a Letter objecting to the use ofthe protocol fromtheEPA during the45-day adequacy review or the EPA proposes disapproval ofthe protocol in theFederal Register. (2) In the event that the monitoring and testing data required under paragraph (I)of this subsection ismissing orunavailable, the facility may report actual emissions for that period of time using these listed methods in the following order of preference to determine actual emissions: (A) continuous monitoring data; (B) periodic monitoring data; (C) testing data; 

### (D) manufacturer's data; (2) VOC and NO, discrete emission credits generated in an ozone nonattainment area may be used either in the same ozone nonattainment area in which they were generated, or in any county or portion of a county designated as attainment or unclassified. (3) VOC andNOb discrete emission credits generatedin an ozone nonattainment area may not be used in any other ozone nonattainment area, except as provided in this subsection. (4) VOC discrete emission credits are prohibited from use within the covered attainment counties, as defined in $1 15.10 of this title (relating to Definitions),if generated outside ofthe covered attainment counties. VOC discrete emission credits generated in a nonattainment area may be used in the covered attainment counties, except those generated in El Paso. (5) NOA discrete emission credits are prohibited from use within the covered attainment counties, as defined in $115.10 of this title, if generated outside of the covered attainment counties. NO, discrebemission credits generated in a nonattainment area, except those generated in El Paso, may be used in the covered attainment counties. 

### (6) CO, SO,, and PM,, discrete emission credits must be used in the same metropolitan statistical area (as defined in Office of Management andBudgetBulletinNumber 93-17entitled "Revised Statistical Definitions for Metropolitan Areas" dated June 30, 1993) in which the reduction was generated. (7) VOC and NOxdiscrete emission credits generated in other counties, states, or emission reductions in other nations may be



## ADOPTED RULES October20,2006 31 

## TexReg 8695used in any attainment ornonattainment county provided a demonstration hasbeen made and approved bythe executive director andtheEPA, to show that the emission reductions achievedin the othercounty, state, ornation improve the air qualityin the county where the credit isbeing used. (g) Ozone season. In areas having an ozone season of less than 12months (as definedin 40 Code ofFederal Regulations Part 58, Appendix

### D)VOC andNO"discrete emission credits generated outside the ozone season may not be used during the ozone season. (h) Recordkeeping. The generator must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion ofthe generation period. The user must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion ofthe use period. Other relevant reference material orraw data must also be maintained on-site by the participating facilities or mobile sources. The user must also maintain a copy of the generator's notice and backup information for a minimum of five years after the use is completed. Therecords shall include,but not necessarily be limited to: (1) the name, emission point number, and facility identification number of each facility or any other identifying number for mobile sources using discrete emission credits; (2) the amount of discrete emission credits being used by each facility or mobile source; and (3) the specificnumber, name, or other identificationofdiscrete emission credits used for each facility ormobile source. (i) Public information. All information submitted with notices, reports, and trades regarding the nature, quantity of emissions,and sales price associated with the use or generation of discrete emission credits is public information and may not be submitted as confidential. Any claim of confidentiality for this type of information, or failure to submit all informationmay result in the rejection of the discrete emission reduction application. All nonconfidential notices and information regarding the generation, use, and availability of discrete emission credits may be obtained from the registry. 

### 6) Authorization to emit. A discrete emission credit created under this division is a limited authorizationto emit the specified pollutants in accordance with the provisions of this section, the Federal Clean Air Act, and theTexas Clean Air Act, aswell as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority of the commission or the EPA to terminate or limit such authorization. (k) Program participation. The executive director has the authority to prohibit a company from participating in discrete emission credit trading either as a generator or user, ifthe executive director determines that the companyhas violatedtherequirements of the program or abused the privileges provided by the program. (1) Compliance burden and enforcement. (1) The user is responsible for assuring that a sufficient quantity of discrete emission credits are acquired to cover the applicable facility or mobile source's emissions for the entire use period. (2) The user is in violation of this section if the user does not possess enough discrete emission credits to cover the compliance need for the use period. Ifthe user possesses an insufficient quantity of discrete emission credits to cover its compliance need, the user will be out ofcompliance for the entire use period. Each day the user is out of compliance may be considered a violation. (3) Users may not transfer their compliance burden and legal responsibilities to athird-party participant. Third-party participants may only act in an advisory capacity to the user. (m) Credit ownership. The owner of the initial discrete emission credit certificate shall be the owner or operator of the facility or mobile source creating the emission reduction. The executive director may approvea deviation from this subsection considering factors such as, but not limited to: (1) whether an entity other than the owner or operator of the facilityormobile source incurred the cost ofthe emission reduction strategy; or (2) whether the owner or operator of the facility or mobile source lacks the potential to generate one tenth of a ton of credit. $101.375. Emission Reductions Achieved Outside the United States. (a) A facility may use emission reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants ifthe facility meets the requirements of subsection (c) ofthis section. 

### (b) A facility may use emission reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section; and (1) the reduction is substituted for the reduction of another criteria pollutant,andthe substitution results in a greater healthbenefit and is ofequal or greaterbenefit to the overall air quality ofthe area; or (2) a reduction of an air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leadsto the formationof any criteria pollutant forwhich the area has been designated as nonattainment. (c) Theuse ofreductions outside theUnited States must be approved by the executive director and the United States Environmental ProtectionAgency (EPA), and the user ofthe emission reductionmust: (1) demonstrateto the executive director and EPA that the reduction is real, permanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or local law; (2) demonstrate that theuse ofthe reduction does not cause localized health impacts, as determined by the executive director and EPA; (3) submit all supporting information for calculations and modeling, and any additional information requested by the executive director and EPA; and (4) be located within 100 kilometers of the Texas

## -Mexico border. (d) This section does not apply to reductions in emissions of lead. $101.376. Discrete Emission Credit Use. (a) Requirements to use discrete emission credits. Discrete emission credits may be used if the following requirements are met. (1) The user shall have ownership of a sufficient amountof discrete emission credits before the use period for which the specific discrete emission credits are to be used.



### 31 TexReg 8696 October 20,2006 TexasRegister(2) The user shall hold sufficient discrete emission credits to cover the user's compliance obligation at all times. (3) The user shall acquire additional discrete emission credits during the use period if it is determined the user does not possess enough discrete emission credits to cover the entire use period. The user shall acquire additional credits as allowed under this section prior to the shortfall, or be in violation ofthis section. (4) Facility ormobilesource operators may acquireanduse only discrete emission credits listed on the registry. (b) Use of discrete emission credits. With the exception of uses prohibited in subsection (c) of this section or precluded by commission order orcondition within anauthorization underthe samecommission account number, discrete emission credits may be used to meet or demonstrate compliance with any facility or mobile regulatory requirement including the following: (1) toexceedany allowable emissionlevel, if thefollowing conditions are met: (A) in ozone nonattainment areas, permitted facilities may use discrete emission credits to exceed permit allowables by no more than ten tons for nitrogen oxides or five tons for volatile organic compounds in a 12-monthperiod as approved by theexecutivedirector. This use is limited to one exceedance, up to 12 months within any 24-month period, per use strategy. Theuser shall demonstrate that there will be no adverse impacts from the use ofdiscrete emission credits at the levels requested; or (B) at permitted facilities in counties or portions of counties designated as attainment or unclassified, discrete emission credits may be used to exceed permit allowables by values not to exceed the prevention of significant deterioration significance levels as provided in 40 Code of Federal Regulations (CFR) $52.21(b)(23), as approved by the executive director prior to use. This use is limited to one exceedance, up to 12 months within any 24-month period, per use strategy. The user shall demonstrate that there will be no adverse impacts from the use of discrete emission credits at the levels requested; (2) asnew source review (NSR) permit offsets, if the following requirements are met: (A) the user shall obtain the executive director's approval prior to the use of specific discrete emission credits to cover, at a minimum, one year of operation of the new or modified facility in the NSR permit; 

### (B) the amount of discrete emission credits needed for NSR offsetsequalsthequantity oftonsneeded to achievethemaximum allowable emission level set in the user's NSR permit. The user shall also purchase and retire enough discrete emission credits to meet the offset ratio requirement in the user's ozone nonattainment area. The user shall purchase and retire either the environmental contribution of 10% or the offset ratio, whichever is higher; and (C) the NSR permit must meet the following requirements: (i) the permit must contain an enforceable requirement that the facility obtain at least one additional year of offsets before continuing operation in each subsequent year; (ii) prior to issuance of the permittheuser shall identify the discrete emission credits; and (iii) prior to start of operation the user shall submit a completed DEC-2 Form, Notice of Intent to Use Discrete Emission Credits, along with the original certificate; (3) to complywith the Mass Emissions Cap andTrade Program requirements as provided in $ 101.356(g) of this title (relating to Allowance Banking and Trading); or (4) to comply with Chapters 114, 115,and 117 of this title (relating to Control of Air Pollution from Motor Vehicles; Control of Air Pollution from Volatile Organic Compounds; and Control of Air Pollution from Nitrogen Compounds), as allowed. (c) Discrete emission credit use prohibitions. A discrete emission credit may not be used under this division: (1) before it has been acquired by the user; (2) for netting to avoid theapplicability of federal and state NSR requirements; (3) to meet (as codified in 42 United States Code (USC), Federal Clean Air Act (FCAA)) requirements for: (A) new source performance standards under FCAA, $1ll (42 USC, $7411); (B) lowest achievable emission rate standards under FCAA, $ 173(a)(2) (42 USC, $7503(a)(2)); (C) best available control technology standards under FCAA, $ 165(a)(4)(42 USC, $7475(a)(4)) or Texas Health and Safety Code, $382.0518(b)(l); (D) hazardous air pollutants standards under FCAA, $1 12 (42 USC, $7412), including the requirements for maximum achievable control technology; (E) standards for solid waste combustion under FCAA, $ 129 (42 USC, $7429); (F) requirements for a vehicle inspection and maintenance program under FCAA, $182(b)(4) or (c)(3) (42 USC, $751 Ia(bl(4) or (c)(3)); (G) ozone control standards set under FCAA, 

### 5 183(e) and (f)(42 USC, $75 1 1 b(e) and (f)); (H) clean-fueled vehicle requirements under FCAA, $246 (42 USC, $7586); (I) motor vehicle emissions standards under FCAA, $202 (42 USC, $7521); (J) standards for non-road vehicles under FCAA, $213 (42 USC, $7547); 

### (K) requirements for reformulated gasoline under FCAA, $21l(k) (42 USC, 97545); or (L) requirements for Reid vapor pressure standards under FCAA, $21l(h) and (i) (42 USC, $7545(h) and (i)); (4) to allow an emissions increase of an air contaminant above a level authorized in a permit or other authorization that exceeds the limitations of $106.261 or $106.262 of this title (relating to Facilities (Emission Limitations); and Facilities (Emission and Distance Limitations)) except as approved by the executive director and the United States Environmental Protection Agency. This paragraph does not apply to limit the use of discrete emission reduction credits (DERC) or mobile discrete emission reduction credits in lieu of allowances under $I01.356(h) of this title; (5) to authorize a facility whose emissions are enforceably limited to below applicable major source threshold levels, as defined in $ 122.10of thistitle (relating to GeneralDefinitions), to operate with actual emissions above those levels without triggering applicable re

## ADOPTED RULES October

## 20,2006 

## 31 TexReg8697quirements that would otherwise be triggered by such major source information and belief formed after reasonable inquiry, the statements status; or and information in the document are true, accurate, and complete. (6) to exceed an allowable emission level where the ex- (2) DERC use calculation. ceedance would cause or contribute to a condition of air pollution 

### as (A) To calculate the amount of discreteemission credits determined by the executive director. necessaw to comply with 66117.108, 117.138, 117.210, or 117.223 of (d) Notice of intent to use. this titleirelatingtd ~~stek~a~; and SourceCap), a user may use the (1) A completed DEC-2 Form, signed by an authorized equations listed in those sections, orthe following equations. representative of the applicant shall be submitted to the executive di- (i) For the rolling average cap: rector in accordance with the following requirements. Figure: 30 TAC $101.376(d)(2)(A)(i) (No change.) 

### (A) Discrete emission credits may be used only after (ii) For maximum daily cap: the applicant has submitted the notice and received executive director Figure: 30 TAC $101.376(d)(2)(A)(ii) (No change.) approval. (B) The amount of discrete emission credits needed to (B) The application must be submitted at least 45 days demonstrate compliance ormeet a regulatory requirement is calculated urior to the first day of the use period if the discrete emission credits as follows. were generated from a facility, 90 days ifthe discrete emission credits Figure: 30 TAC $101.376(d)(2)(B) (No change.) were generated from a mobile source, and every 12 months thereafter (C) The amount of discrete emission credits needed to for each subsequent year ifthe use period exceeds 12 months. exceed an allowable emissions level is calculated as follows. (C) A copy of the application shall also be sent to the Figure: 30 TAC $101.376(d)(2)(C) (No change.) federal land manager 30 daysprior to use if the user is located within (D) The user shall retire 10% more discrete emission loo 

### of a 'lass I 

### as listed in 40 

### CFR Part (2001)' credits than are needed, as calculated in this paragraph, to ensure that (D) The application must include, but is not limited to, the facility or mobile source environmentai co&ibution retirement the following information for each use: obligation will be met. (i) the applicable state and federal requirements that the discrete emission credits will be used to comply with and the intended use period; (ii) the amount of discrete emission credits needed; (iii) the baseline emission rate, activity level, and total emissions for the applicable facility ormobile source; (iv) the actual emission rate, activity level, and total emissions for the applicable facility or mobile source; (v) the most stringent emission rate and the most stringent emission level for the applicable facility or mobile source, considering all applicable regulatory requirements; (vi) a complete description of the protocol, as submitted by the executive director to the United States Environmental Protection Agency for approval, used to calculate the amount of discrete emission credits needed; (vii) the actual calculations performed by the user to determine the amount of discrete emission credits needed; (viii) the date that the discrete emission credits were acquired or will be acquired; 

### (ix) the discrete emission credit generator and the original certificate of the discrete emission credits acquired or to be acquired; (x) the price of the discrete emission credits acquired or the expected price of the discrete emission credits to be acquired, except for transfers between sites under common ownership or control; (xi) a statement that due diligence was taken to verify that the discrete emission credits were not previously used, the discrete emission credits were not generated as a result of actions prohibited under this regulation, and the discrete emission credits will not be used in a manner prohibited under this regulation; and (E) If the amount ofdiscrete emission credits needed to meet a regulatory requirement or to demonstrate compliance is greater than ten tons, an additional 5.0% of the discrete emission credits needed, as calculated in this paragraph, must be acquired to ensure that sufficient discrete emission credits are available to the user with an adequate compliance margin. (3) A user may submit a notice late in the case of an emergency, but the notice must be submitted before the discrete emission credits can be used. The user shall include a complete description of the emergency situation in the notice of intent to use. All other notices submitted less than 45 days prior to use, or 90 days prior to use for a mobile source, will be considered late and in violation. (4) The user is responsible for determining the credits it will purchase and notifying the executive director of the selected generating facility or mobile source in the notice of intent to use. If the generator's credits are rejected or the notice of generation is incomplete, the use of discrete emission credits by the user may be delayed by the executive director. The user cannot use any discrete emission credits that have not been certified by the executive director. The executive director may reject the use of discrete emission credits by a facility or mobile source if the credit and use cannot be demonstrated to meet the requirements of this section. (5) If the facility is in an area with an ozone season less than 12 months, the user shall calculate the amount of discrete emission credits needed for the ozone season separately from the non-ozone season. (e) Notice of use. (1) The user shall calculate: (A) the amount of discrete emission credits used, including the amount of discrete emission credits retired to cover the environmental contribution, as described in subsection (d)(2)(C) of this section, associated with actual use; and (xii) a certification of use, that must contain certifi- 

### (B) the amount of discrete emission credits not used, cation under penalty oflaw by aresponsible official of the user oftruth, including the amount ofexcess discrete emission credits that were puraccuracy, and completeness. This certification must state that based on chased to cover the environmental contribution, as described in sub

### 31 TexReg 8698 October20,2006 Taas Registersection (d)(2)(C) of this section,but not associated with the actual use, and available for future use. (2) DERC use is calculated by the following equations. (A) The amount of discrete emission credits used to demonstrate compliance or meet aregulatory requirement is calculated as follows. Figure: 30 TAC 

### 4 101.376(e)(2)(A) (No change.) (B) The amount of discrete emission credits used to comply with permit allowables is calculated as follows. Figure: 30TAC 

### 9 101.376(e)(2)(B) (No change.) (3) A DEC-3 Form, Notice of Use of Discrete Emission Credits, shall be submitted to the commission in accordance with the following requirements. (A) The notice must be submitted within 90 days after the end of the use period. 

### (B) Thenotice must be submitted within 90days ofthe conclusion of each 12-month use period, if applicable. (C) Thenotice is to be used asthemechanism to update or amend the notice of intent to use and must include any information different from that reported in the notice of intent touse, including,but not limited to, the following items: (i) purchase price of the discrete emission credits obtained prior to the current use period, except for transfers between sites under common ownership orcontrol; 

### (ii) the actual amount of discrete emission credits possessed during the use period; (iii) the actual emissions during the use period for volatile organic compounds and nitrogen oxides; (iv) the actual amount of discrete emission credits used; (v) the actual environmental contribution; and (vi) the amount of discrete emission credits available for future use. (4) Discrete emission credits that are not used during the use period are surplus and remain available for transfer or use by the holder. In addition, any portion of the calculated environmental contribution not attributed to actual use is also available. (5) Theuser is in violation of this section iftheuser submits the report ofuse laterthan the allowed 90 daysfollowing the conclusion of the use period. This agency hereby certifies that the adoption has been reviewed by legal counsel andfound to be a valid exercise of the agency's legal authority. Filedwith the Office of the Secretary of State on.October6,2006. TRD-200605476 Robert Martinez Director, Environmental Law Division Texas Commission on Environmental Quality Effective date: October 26, 2006 Proposal publication date: April 28, 2006 For further information,please call: (512)239-0348



## CHAPTER 293. WATER DISTRICTS The Texas Commission on Environmental Quality (TCEQ or commission) adopts amendments to $5293.1, 293.11, 293.12, 293.20, 293.22, 293.23, 293.32, 293.41, 293.44, 293.51, 293.69, and 293.111 

## - 293.113. Sections 293.12, 293.23, 293.32, and 293.44 are adopted with changes to the proposed text as published in the April 14,2006, issue of the Texas Register (31TexReg 3199). Sections 293.1, 293.11, 293.20, 293.22, 293.41, 293.51, 293.69, and 293.111

# - 293.113 are adopted without changes to the proposed text and will not be republished. The commission also withdraws the proposal of 55293.54, 293.201, and 293.202 as published in the April 14, 2006, issue of the Texas Register. BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES The commission has the statutory responsibility and authority to create, supervise, and dissolve certain water and water-related districts and to review the sale and issuance of bonds for district improvements inaccordance with Texas Water Code (TWC), Chapters 12,36, and49

# - 67. The commission oversees approximately 1,100 active water districts in Texas. Chapter 293 of thecommission's rules governs the creation, supervision, and dissolution of all general and special law districts and the conversion of certain districts. Chapter 293 also governs the commission's review of bond applications by districts relating to engineering standards and economic feasibilityof district construction project design and completion. This rulemaking establishes new and revises existing requirements relating to the administration of water districts and the commission's supervision over districts' actions under TWC, Chapters 36, 49, 51, 54, and 65. House Bill (HB) 828, 79th Legislature, 2005, amends TWC, 549.181 to exempt certain refunding bonds from having to obtain commission approval. HB 1208, 79th Legislature, 2005, amends provisions in TWC, Chapter 54 concerning a municipal utility district's (MUDs) eminent domain authority outside its boundaries. HB 1644, 79th Legislature, 2005, amends provisions in TWC, Chapter 51 (Water Control and Improvement Districts 

# - WCIDs) and Chapter 54 (MUDs) to allow more flexibility in contracting and funding, andto place limitations on a municipality annexing such districts. HB 1673, 79th Legislature, 2005, amends provisions in TWC, Chapter 65, to allow specific purposes to be requested upon conversion to a special utility district (SUD). HB 1763,79th Legislature, 2005, amends provisions inTWC, Chapter 36, concerning notice, hearing, rulemaking, and permftting procedures for groundwater conservation districts (GCD), and to management planning and joint management planning requirementsfor GCDs. Senate Bill (SB) 693, 79th Legislature, 2005, amends provisions in TWC, Chapter 54, to place limitations on the filling of a vacancy on a district board. The revisions amend and clarify commission rule language to conform with the statutory changes madeto TWC, Chapters 36,49, 51, 54, and 65. Specifically, the rulemaking modifies requirements on when a district must obtain commission approval of refunding bonds; clarifies allowable land costs to reflect limitations on a MUD'S eminent domain authority outside its boundaries; adds provisions allowing MUDs and WClDs to contract with third parties for ownership and operation of facilities; adds provisions allowing districts to fund certain certificate of convenience and necessity (CCN) costs; allows a water supply corporation to request only certain powers upon conversionto a SUD and requires the



## ADOPTED RULES October20,2006 31 

## TexReg8699