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 

1445 Ross 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 OF TEXAS $ 

COUNTY OF TRAVIS 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 

Corninission on Environmental Quality. 

Kevin McCalla 

Director, General Law Division 

Texas Coininission on 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 Revisions to 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 in Austin on 

May 22, 2006, to receive testimony regardirrg proposed revisions to 30 TAC 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 copies of this hearing record are maintained in the TCEQ central office at 121 00 Park 35 

Circle, Austin, Texas 78753. For further information, please contact Beecher Cameron at (512) 239- 

1495 or Steve Sun at (512) 239-3554. 
PUBLIC

NOTIFICATION AND

PROPOSAL
PUBLIC NOTIFICATION 

Notification to the public of the proposed revisions was conducted by the following procedures: 

1. Publication of notice of public hearing in the following newspapers on 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. Publication of the Notice of Public Hearing in the April 28, 2006, issue of the Texas Register 

(31 TexReg 3630). 

4. Correspondence forwarding the notice of public hearings to 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 Department of Environmental and Health Services 

Dallas Department of Aviation 

East Texas Council of Governments 

El Paso City-County Health and 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-Galveston Area 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, 2006 
volume of effluent routed to the evapo pond on a monthly basis 

,for an entire yea,: 

(ii) Evaporation pond shall be to maintain a n~inimum,f;eeboard of two jeet. 

(iii) There shall be no discharge of wa tewater to surface water in the 

state. i 

Change Number 10. Part V.9. was evised to clarify that 30 TAC 

$205.4 governs the suspension and re cation of an authorization under the general permit. The section no reads in its entirety: "Authorization under this general permit may e suspended or revoked for the 

reasons stated in 30 TAC $205.4 (rela ing to Authorizations and Notices of Intent). The filing of a notificat n by the discharger of planned 

changes 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 10 1 and 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, $382.0 17; Texas Government Code, Chapter 2001, Subchapter B; and 40 Code of Federal Regulations $5 1.102, of the United States Environmental Protection Agency 

(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 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, $382.0172(c), as required by Senate Bill 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 prior to the hearing, lndividuals may present oral statements when 

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 acconlmodation needs, should contact Lola Brown, Office 

of Legal Services at (512) 239-0348. Requests should be made as far 

in advance as possible. 

Comments may be submitted to Lola Brown, MC 205, Texas Register 

Team, Office of Legal 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. Comments must be received by 5:00 p.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 

(5 12) 239-3554. 

Stephanie Bergeron Perdue 

Acting Deputy Director, Ofice of Legal Services 

Texas Commission on Environmental Quality 

Filed: April 13. 2006 

Notice of Water 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 Texas Register 
of 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 Continuing Pmfesxional bducation 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 proposal has been reviewed 

by legal counsel and found to 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 §§I 01.302, 101.306, 101.372, 

101.373, 101.376, and 101.378; and the repeal of 51 01.338. 

The commission proposes new §§I 01.305, 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 published the proposed conditional approval of 

the DERC program as part of the SIP. The conditional approval 

was based on the commission submitting corrected program deficiencies to the EPA by December 1,2006. Unless the 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 September 8, 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 requirements for open market trading programs. 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. 

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 to 

federal statute of limitations defense 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. 

31 TexReg 3492 April 28, 2006 Texas Register 
The 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 

51 01.302. 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 proposes to delete §101.302(a)(2) and relocate this language concerning emission creditable reductions occurring outside the United States to a new §101.305, Emission Reductions 

Achieved Outside the United States. 

The commission proposes to 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 Federal Registera disapproval of the protocol. This does not impact the procedures 

to approve the quantification protocol. The commission has in 

practice always worked with the EPA to approve new quantification protocols. This revision clarifies in the rule that the quatification protocols would not be approved if the 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 

reclassified as 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 considered separately by EPA for approval into the 

SIP and will not delay approval of other portions of the EBTP. 

51 01.306. 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 

§I 01.399, 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. 

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 revisions to 'THSC, §382.0172(c) and 

provide the commission more discretion in approving the substitution of emission reductions achieved outside the United States .. -. .- 

for emissions from electric generating or grandfathered facilities. 

The commission would also modifv the arranaement of the existing section to parallel the arrang&ent of laiguage in §101.305 

and S101.375. 

5101.339. Program Audits and Reports. 

'The proposed new 5101.339 includes program audits and report 

requirements for emission credit programs applicable to electric 

generating and grandfathered facilities. The proposed section 

contains similar audit and report requirements as are applicable 

to the commission's other open market trading 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. 

5101.372. General Provisions. 

In order to better organize similar rule requirements, the commission proposes to delete §101.372(a)(2) and relocate this language concerning emission creditable reductions occurring outside 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 require the rejection of a quantification protocol if the EPA objects to 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 practice always 

worked with the EPA to approve new quantification protocols. 

This revision clarifies in the rule that the quantification protocols 

would not be approved if the EPA objects. The commission also 

proposes to remove 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, 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 ability to generate DERCs from facility shutdowns. The 

commission proposes this action to respond 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 

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 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 have the potential to interfere with attainment. 

PROPOSED RULES April 28,2006 31 TexReg 3493 
5101.375. 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 moving the rules governing optional credit to 

their own sections ($§I 01 305, 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. 

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 generated from shutdowns strategy. Companies 

that have previously certified DERCs from shutdown strategies 

will have no more than five years from the September 8, 2005, 

commitment letter to the EPA to use the DERCs. As a result, 

DERCs that were generated from shutdowns prior to September 

30,2002, would be available for use until September8,2010. 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 reason for this action is included in the discussion of 

changes to 5101.373 in this preamble. 

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT 

Nina Chamness, Analyst. Strategic Planning and Assessment 

Section, has determined that, forthe firstfive-year period the proposed rules are in effect, no fiscal implications are anticipated for 

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, governmental organizations do not participate in the DERC program. 

The proposed rules implement EPA requirements concerning the 

EB'rP, implement changes made by SB 784, 79th Legislature, 

and make other organizational and administrative changes to 

allow for more clarity in the administration of the EBTP. 

The EPA is requiring the removal from the commission's DERC 

registry of credits generated after September 30,2002, 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, 201 0. 

The proposed rules also clarify that the EPA has to 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 rules are in effect, the public benefit anticipated from the changes seen in the proposed rules will be the 

reduction of air contaminants and improved health and safety 

of Texas citizens. By disallowing DERCs for shutdown activities, 

staff estimates that approximately 19,774 tons of NOx emissions, 

576 tons of VOC emissions, and 80 tons of other hazardous air 

pollutant emissions will be reduced. 

The loss of post-September 30, 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-Brazoria nonattainment area (HGB), the 

value of NO, DERCs range from $145 per ton to $2,100 per 

ton. In the Beaumont-Port Arthur nonattainment area (BPA), the 

value of NOx DERCs 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 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 this rule. 

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT 

No adverse fiscal implications are anticipated for 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 reviewed this proposed rulemaking 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 shut31 TexReg 3494 April 28, 2006 Texas Register 
downs 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 requirements of 

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, nonattainment areas of the state will be brought into attainment 

and add a reference to the highly-reactive volatile organic com- on schedule. 

pound cap and trade program. With the exception of the portions of the rulemaking regarding shutdown DERCs, the proposed amendments to 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 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 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, 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 representative of 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 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 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), 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 Prevention and Control). It is true that 

the Federal Clean Air Act (FCAA) does require some specific 

measures for SIP purposes, such as the inspection and maintenance program, hut those programs are the exception, not the 

rule, in the SIP structure of 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, and the public, to 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 proarams. this flexThe 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 

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 conclusion 

was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unless the rule was 

a major environmental rule that exceeds a federal law. As discussed earlier in this preamble, 42 USC, 57410 does not require 

specific programs, methods, or reductions in order to meet the 

NAAQS; thus, states must develop programs for 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 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 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 presumed to 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), requires states 

to submit ozone attainment demonstration SIPS for ozone nonattainment areas such as the 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 are necessary to address some of the elevated criteria pollutant levels observed in various nonattainment areas in Texas; 

this scheme will result in reductions in criteria pollutants in nonattainment areas and help bring areas into compliance with the air 

quality standards established under federal law as NAAQS. 

ibility does not relieve a state from developjnga program that The commission has consistently applied this construction to its 

meets the requirements of 42 USC, 57410. Thus, while specific rules since this statute was enacted in 1997. Since that time, the 

PROPOSED RULES April 28,2006 31 TexReg 3495 
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 deemed to 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 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. 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 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 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 regulatory analysis provisions 

of Texas Government Code, §2001.0225(b), because the rulemaking does not meet any of the four applicability requirements. 

The commission invites public comment regarding the draft regulatory impact analysis determination during the public comment 

period. 

TAKINGS IMPACT ASSESSMENT 

The commission completed a takings impact assessment for this 

rulemaking action under Texas Government Code, S2007.043. 

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 

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. Specifically, the banking and trading program amendments in this proposal 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 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 proposal 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 maintenance of NAAQS once the EPA has established them. Under 42 USC, S7410, and related provisions, 

states must submit, for approval by the EPA, SIPS that provide for 

the attainment and 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 (31 TAC 

§501.12(1)). No new sources of air contaminants will be authorized and the proposed revisions will maintain the same level of 

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 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 affirms that this rulemaking action is consistent with CMP goals 

and policies. 

The commission solicits comments on the consistency of the proposed rulemaking with the CMP during the public comment period. 

EFFECT ON SITES SUBJECTTO THE FEDERAL OPERA1-ING 

PERMITS PROGRAM 

The new and amended sections are applicable requirements under the Federal Operating Permits Program, but no revisions to 

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, Room 201A, 

at the commission's central 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 dis31 TexReg 3496 April 28, 2006 Texas Register 
cussion will not be permitted during 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. 

Persons who have special communication or other accommodation needs who 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, Office of Legal Services, MC 205, 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 obtained from the commission's Web 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 AUTHO RlTY 

The amended and new sections are proposed under Texas 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 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 amended and new sections are also proposed 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; 5382.011, 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 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 contaminant emissions to submit information to enable 

the commission to develop an emissions inventory; $382.016, 

concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring 

and monitoring of air contaminant emissions; and $382.051 and 

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 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 382.01 7; and Senate Bill 784, 

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] 

[HI urban 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) If the executive director has not submitted a protocol for the applicable facility or mobile source to the EPA 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 TexReg 3497 
(f) Geographic scope. Except as provided in 3 101.305 of this 

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 classification than the' 

nonattainment area of use, 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 Reductions Achieved Outside the 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 or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants if the 

facility meets the requirements of subsection (c) of this 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 greater benefit 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 leads to the formation of any criteria pollutant for which the area has 

been designated as nonattainment. 

The use of reductions outside the United States must be approved by the executive director and the United States Environmental 

Protection Agency, and the user of the emission reduction must: 

m demonstrate to the executive director that the reduction 

is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; 

demonstrate that the use ofthe reduction does not cause 

localized health 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 of the 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 certifies that the proposal has been reviewed 

by legal counsel and found to be within the agency's legal authority to adopt. 

Filed with 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 section proposed for repeal 

will not bepublished. Thesection may be examined in the ofices of the 

Term Commission on Environmental Quality or in the Term Regirter 

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 commission to adopt rules consistent 

with the policy and purposes of the Texas Clean Air Act. The repeal is also proposed 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 repeal is also proposed un31 TexReg 3498 April 28, 2006 Texas Register 
der 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, 

cause air contaminant emissions to submit information to enable marketable permits, and auction of emission rinhts. 

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 3382.051 and 

5382.0518, concerning Permitting Authority of Commission and 

Preconstruction Permit, that authorize the commission to issue 

preconstruction and operating air permits. The repeal is 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 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. 

This agency hereby certifies that the proposal has been reviewed 

by legal counsel and found to be within the agency's legal authority to adopt. 

Filed with 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 

rules consistent with the policy and purposes of 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) of this section; and 

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 greater benefit to the overall air quality of the 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 formation of any criteria pollutant for which the area has 

been designated as nonattainment. 

@ The use of reductions outside the United States must be approved by the executive director and the United States Environmental 

Protection Agency, and the user of the emission reduction must: 

(lJ demonstrate to the executive director that the reduction 

is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; 

demonstrate that the use of the reduction 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 100 kilometers of the Texas - Mexico 

border. 

This section does not apply to reductions in emissions of 

lead. 

,f101.339. Program Audits and Reports. 

No later than three years after the effective date of this 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 availability and cost of 

allowances, compliance by the participants, and any other elements the 

executive director may choose to include. 

122 The executive director will recommend measures to 

remedy any problems identified in the audit. The trading of allowances 

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) 

PROPOSED RULES April 28,2006 31 TexReg 3499 
and made available for public inspection within six months after the 

audit begins. 

(bJ 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: 

number of allowances allocated to each compliance ac- 

- 

count; 

(2J total number of allowances allocated under this division; 

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 certifies that the proposal has been reviewed 

by legal counsel and found to be within the agency's legal 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 

Earliest possible date of adoption: May 28, 2006 

For further information, 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 under Texas 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 under Texas Health and Safety Code (THSC), 

tj382.017, 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 proposed under THSC, 9382.002. concerning Policy and Purpose, 

that establishes the commission purpose to safeguard the state's 

air resources, consistentwith the protection of public health, general welfare, and physical property; tj382.011, 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 proposed 

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; 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 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 Bill 784, 

79th Legislature, 2005. 

J101.3 72. 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[+] 

[+I-)] 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). [w 

-1 

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

(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 

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 is required before the protocol can be used. Protocols shall be used as follows. 

(A) - (B) (No change.) 

(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) - (iii) (No change.) 

31 TexReg 3500 April 28, 2006 Texas Register 
(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 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 of the protocol 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 Reductions Achieved Outside the United States) [pmgmph f?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 should be construed to limit the authority of the commission or the EPA to terminate 

or limit such authorization. 

(k) - (m) (No change.) 

$101.373. Discrete Emission Reduction Credit Generation and Ceri$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 United Sta~ 

A facility may use discrete emission credits for 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. 

A facility 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) of this section; and 

111 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 greater benefit to the overall air quality of the 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 the formation of any criteria pollutant for which the area has 

been designated as nonattainrnent. 

The use of reductions outside the United States must be approved by the executive director and the United States Environmental 

Protection Agency, and the user of the emission reduction must: 

iJJ demonstrate to the executive director that the reduction 

is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, Ze, or local law; 

demonstrate that the use of the reduction does not 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 100 kilometers of the Texas - 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 use prohibitions. 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 TexReg 3501 
of this title (relating to Facilities (Emission Limitations)[: ad Rte& 

&Qzimw€md-- .. . I) except as approved by 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 allowances under $101.356(h) of this 

title; 

(5) - (6) (No change.) 

(d) - (e) (No change.) 

$1 01.3 78. Discrete Emission Credit Banking and Trading. 

(a) (No change.) 

(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 accordance with subsection (a) of this 

section, and may be used anytime thereafter except as stated in 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, 201 0. 

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

(c) (No change.) 

Thisagency hereby certifies that the proposal has been reviewed 

by legal counsel and found to be within the agency's legal authority to adopt. 

Filed with the Office of 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 further information, 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 repositories for documents. 

veyed down the Rio 

sistent with the 1944 tates and Mexico. The commissio if it determines 

mits. 

Subsection (j) of the two bills require the watermaster to maintain a place available to the public th will contain copies of documents which the commission requir s to be filed 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 1902 also provides that an instrurhent should be filed "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 instrument fil 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 against a 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 I a lien as between the 

holder of the water right and the holdqr of the lien or the requirements or validity of any other law gouerning the perfection and 

recordation of 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 TexReg 3502 April 28, 2006 Texas Register 
Kathleen Hartnett White, Chairman 

R. B. "Ralph" Marquez, Commissioner 

Larry R. Soward, Commissioner 

Glenn Shankle, Executive Director 

TEXAS COMMISSION ON ENVIRONMENTAL QUALITY 

Protecting Texas by Reducing and Preventing Pollution 

NOTICE OF PUBLIC HEARING BY THE 

TEXAS COMMISSION ON ENVIRONMENTAL QUALITY 

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, 

Subchapter B; and 40 Code of Federal Regulations 551.102, of the United States Environmental Protection 

Agency (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 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 Senate Bill 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 coinments by interested persons. Registration 

will begin 30 minutes prior to the hearing. Individuals may present oral statements when 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 coinmunication or other accommodation needs, 

should contact Lola Brown, Office of Legal Services at (512) 239-0348. Requests should be made as far in 

advance as possible. 

Coimnents inay be submitted to Lola Brown, MC 205, Texas Register Team, Office of Legal Services, 

Texas Coinmission on Environmental Quality, P.O. Box 13087, Austin, Texas 7871 1-3087 or faxed to (512) 

239-4808. All comments should reference Rule Project Number 2005-054-101-PR, Coimnents inust be 

received by 5:00 p.m., May 30,2006. Copies of the proposed rules can be 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 iiz Austin, 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 

Agency 
Eric Groten egrotenOveIaw.com . 

Te1512.542.8709 Fax 51 2236.3272 ' 

RECEIVED 

May 30,2006 

Lola Brown 

Texas Register Team . 

Texas Commission on Environmental Quality 

Office of Legal Services, MC 205 

P.O. Box 13087 

Austin, Texas 7871 1-3087 

Fax: 512.239.4808 

Via fax and U.S. 

Re: Rule Project Number 2005-054-1 01 -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 

Texas Register. EPE has long supported TCEQYs pioneering efforts to create incdves for 

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 

Texas Legislature with its enactment of S.B. 784 in the 2005 Session. 

Comment 1: Proposed 30 T.A.C. 5 101.302(a) should be revised as follows: 

(a) Applicable pollutants. Reductions of criteria pollutants, 'excluding 

lead, or precursors of criteria pollutants 

may qualzfi as emission credits. 4'k&&ms Excevt as 

provided bv 6 101.305 frelatinp to Emission Reductions Achieved Outside 

the United States), 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 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 51 2.542.8400 Fax 512.542.8612 www.velaw.com 
Lola Brown May 30.2006 Page 2 

The basic problem with 5 101.302 as proposed is that it is part of Subchapter H, Division 1, 

and so affects all trading programs administered by TCEQ under Subchapter H. With respect 

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 Senate Bill 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 

Subchapter H, 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 (see the SB 7 allowance trading program ukder Subchapter H, 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, Senate Bill 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 can be certified 

as an emissions reduction credit for a dzffereat pollutant, regardless of the surrounding area's 

attainment status with respect to either pollutant. It must be, then, that an area's attainment 

status is not univers&ly an obstacle to emission reduction credit generation or use, although it 

may be in specific circumstances, depending on which emissions trading program applies: 

Whether and how an emission reduction credit can be used is governed by the pollutant- and 

geography-specific parameters of the particular emissions trading program under which use 

of the credit is being sought, of which there are only a limited number: 

(1) Subchapter H, Division 2, governing the State-wide trading and use of so-called 

Senate Bill 7 ("SB 7") NO, and SO2 allowances held by grandfathered or electing power 

plants; 

(2) Subchapter H, Division 3, governing the Houston-Galveston area's Mass 

Emissions Cap and Trade Program for NOx; 

Enacted by the 79th Legislature in 2005. 
Lola Bmwn May 30,2006 Page 3 

(3) Subchapter H, Division 5, governing the System Cap Trading Program applicable 

to power plants subject to Chapter 117 NOx emission limits; and 

(4) Subchapter H, Division 6, governing the Houston-Galveston area's High-Reactive 

VOC Emissions Cap and Trade Program. 

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 

NOx applies only within the Houston/Galveston ozone nonattainment areq2 the NO, System 

Cap Trading program applies only within single nonattainment areas or within 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 NOx and 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 emission reduction 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 of the programs) 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 6 101.305 

[relatina to Emission Reductions Achieved 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 authorize use of reductions of one pollutant to meet the 

requirements for another under certain circumstances. 

Comment 2: The following subsections of proposed 30 T.A.C. 8 101.302(c) should be 

revised as follows: 

(l)(C) exceut for emission reductions achieved outside the United States, 

in order to become certijed, the reduction must have occurred after the 

most recent year 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 Page 4 

(I)@) except for emission reductions achieved outside the United States, 

the facility's annual emissions prior to the reduction strategy must have 

been reported or represented in the emissions inventory med in the SLP. 

(2)(C) except .for emission reductions achieved outside the United Stutes, 

in order to become certified, the reduction must have occurred after the 

most recent year of emissions inventory used in the state implementation 

plan (SIP); 

(2)@) except for emission reductions achieved outside the United States, 

the mobile source's annual emissions prior to the emission credit 

application must have been represented in the emissions inventory wed in 

the SP; and 

(2)(E) except for emission reductions achieved outside the United States, 

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 inventory used 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 sets forth its own geographical limitations on emission credit use. 

This subsection, even as proposed to be revised, presents an inappropriate obstacle to 

certification of emission reductions achieved outside of the United States. The proposed rule 

would prohibit certification of emissions reductions achieved outside of nonattainment 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 outside nonattainrnent areas. The problem is 
Lola 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 achieved outside the United States of criteria 

pollutants or precursors of criteria pollutants if the facility meets the 

requirements of subsection (c) of this ~ection.~ 

Section 101.305(c) goes on to require, for example, a demonstration that use of the 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 an unknown future use by an unknown future user, because it would be impossible 

to make the required demonstrations regarding use at the time 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, if not 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 United States. but within 100 km 

of the US.-Mexico border, only emission reductions generated in 

nonattainrnent areas can be certi$e-, and 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: 

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 

criteria pollutants or precursors of criteria pollutants and substitute these 

reductions for reductions in other criteria pollutants or precursors of 

criteria wollutants ifthe facility meets the requirements of subsection (c) of 

this section; and: 

Proposed $ 10 1.305(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 

Comment 4: 

(a) +To meet the allowance-holdina reauirements of this Division. a 

grandfathered or electing electric generating facility (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. 

@) &To meet the allowance-holdina reauirements of this Division, 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 vollutants if the facility meets the requirements'of 

subsection (c) of this section; 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), and particulate 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 criteria pollutants 

are not creditable. J&th&ew Except as arovided in 6 101.375 (relating 

to Emission Reductions Achieved Outside the United States), reductions of 

one pollutant may not be used to meet the reduction requirements for 

another pollutant, unless: 

Comment 7: For the reason provided in Comment 2, above, the following subsections of 

proposed $ 101.372fc) should be amended as indicated: 

(I)(C) except for emission reductions achieved outside the united States, 

the facility's annual emissions prior to the reduction strategy must have 

been reported or represented in the emissions inventory used for the SP. 
Lola Bmwn May 30,2006 Page 7 

(2)(C) except for emission reductions achieved outside the United States, 

the mobile source's emissions must have been represented in the emissions 

inventory used for the SIP; and 

(2)(D) except for 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 

constitute a discrete emission reduction. 

Comment 8: Proposed's 101.372 should be deleted or amknded as indicated in Comment 3. 

Comment 9: For the reason provided in Comment 2, above, the following subsections of 

proposed 101.373 should be revised as indicated: 

(b)(l) Except .for emission reductions achieved outside the United States, 

the baseline emissions may not exceed the quantity of emissions reported 

in the most recent year of emissions inventoly used in the SF, and for 

+ reductions being certz$ed in accordance with $1 16.1 70@) of this title 

(relating to Applicability of Emission 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) Except for emission reductions achieved outside the United States, 

the two consecutive calendar years for the baseline activiq and emissiom 

rate must be selectedfiom 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 in which a SIP demonstration is not 

required for a criteria pollutant, including facilities located in 

extraterritorial areas, the two consecutive years must include or follow the 

1990 emission inventory. 
Lola Brown May 30.2006 Page 8 

(c)(2) Except fo; emission reductions achieved outside the United States, 

the sum of the reduction generated and the total saategy 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. 

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 

criteria pollutants or precursors of criteria pollutants and substitute these 

reductions for reductions in other criteria pollutants or vrecursors of 

criteria vollutants if the facility meets the requirements of subsection (c) of 

this section; and: 

Thank you for your careful consideration of these comments. We would welcome the 

opportunity to discuss them with you or your colleagues. If you have any questions, please 

call me at 512.542.8709. 

sEk 

Eric Groten 

cc. Mr. Beecher Cameron, TCEQ 

Mr. Luis Ito, El Paso Electric Co. 

Ms. Laura Uribarri, El Paso Electric Co. 
SIERRA 

CLUB 

FOUNDED 18:92 *' . s 

April 23, 2006 REcENED 

Ms. Lola Brown 

Texas Register Team ~~MNTY~NS DEvPUENT 

Office of Legal Services 

MC 205 

Texas Commission on Environmental Quality 

P.O. Box 13087 

Austin, Texas 7871 1-3087 

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 responsible for 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 need to 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 compliance status of the each company who used the 

credits is. 

%en we try to pick out anydung by itself, we hd it hitched to eve+g else in the universe." ]oh Yuir 

Printed on 103% Kenaf tree free paper 
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 opportunity to 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 3-664-5962 
05/30/2006 16:59 FAX 512 322 2502 BAKER BOTTS 

IBAKEIR B43TTS LLP 

lvfay 30,2 006 

f3y Facsinlile and U.S. Mail 

1509 SAN JACINTO CENTER AUmN 

98 SAN JACINTO BLVD. DNLAS 

AUSTIN, TEXAS DWl 

7870 1-4078 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 

:Iffice of : - egal Sr:rvices 

:\/IC 205 

' Texas Co~r mission on Environmental Quality 

?O. Box 1 :I807 

lustin, Te:ras, 78711-3087 

Re Comments 'of the Texas Industry Project 01 Emissions Trading Rule Revisions 

30 TAC 44 101.302--378' 

Rule Project No. 2005-054- 10 1 -PR 

)ear Ms. 3rown: 

Bdrer L.L.P., on behalf of the Texas 1. dustry Project ("TIP"),' submits these 

1;ornrnent.s on the Texas Commission on Environme~ 1:a.l Quality's ("TCEQ7s") proposed 

: evisions .:I) 3 0 T AC Chapter 10 1, Subchapter H (regard ng Emissions Banking and Trading), 

..vhich are 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 .ornmitmc ilts idextified in a letter dated September 8, !005 from Executive Director Glenn 

: ihankle tc. EPA R.egion 6 Administrator Richard Greene. I'IP supports TCEQys efforts to ensure 

: ull approlrd of the 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 .s reduced overall cost. TLP has been 

:.upportivt of TCISQ's efforts to adopt and implement the. :ding programs, and believes thatthe 

1 ~roposed I r:visions to the emissions trading rules are consi \lent with the Texas Clean Air 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 of the 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 :In on 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 limitation under 30 . 

TAC Chzl~ter 117, 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 fit for calendar yew 2010, even if the 

;redits, wider the proposed revisions to $ 101.378(b)(l), v i.11 expire 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. 

Erivironrnental Clients 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 Martin Aeronautics Company 

6. Calpine CCII poratiorl 37. Lyond .I1 Chemical Company 

7. Celanese C hemica 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 PI illips 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 Chem cal Cornpany, The 

17. '~uke En'ergy Field Services, LP 

18. Dynegy Inc': 

19. Eastman Chemical Company 

20. E. I. Du Pc~t~t de -N~mours &Company 

21.. Entergy Texas 

22. Enterprise ?roducts Operating L.P. 

23. Exelon Pcwer Texas 

24. ExxonMot:~ I Chem cal Company 

25. Firestone Polymer;, LLC 

26. GB Bioscirsnces Corporation 

41. Merisc USA, L.L.C. 

42. NOVA :;hemica15 Corporation 

43. NRG 1 i!xas LP 

44. Occid ital Chemical Corporation 

45. Odflel 'Terminals (Houston) LP 

46. Praxa ; Inc. 

47. Reliar : Energy, Inc. 

48. Rohrr and Haas Texas, Incorporated 

49. Shell :hemica1 Company 

50. Soluti . lnc. 

5 1. ST SE vices 

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 Railroad Company 

28. Hexion Spscialty Chemicals, Inc. 59. Valer I Energy Corporation 

29. Huntsmarl Corporation 60. Vopa . Logistics North America, Inc. 

30. INEOS Olci! ins & Polymers, USA 61. West !m Refining Co., L.P. 

31. intercontin sntal Terminals Company 
I ..*om =4*. " j UNITED STATES ENVIRONMEHTAL PROTECTION AGENCY 

REGION 6 (wJ 1445 ROSS AVENUE, SUITE 1200 

DALLAS, TX 75202-2739 

dl m~~* 

MAY 3 0 20% 

Ms- Lo la Brown 

Tcxas Rcgistcr Tcam 

Officc of Lcgal Serviccs (MC 205) 

Texas Commission on Environmental Quality 

P.O. Box 13087 

Austin, TX 7871 1-3087 

RE: Comments on Texas's Proposed Revisions to the State Implementation Plan (STP) 

and 30 Tmas Administrative Code (TAC) Chapter 1 01 (Rule Project Number 

2005-054-101-AI) 

Dear Ms. Bmwn: 

Thank you for the opportunity to review the proposcd revisions to the STP and 30 

TAC Chapter 101 - General Air Quality Rules, Subchapter H - Emissions Banking and 

Trading, Divisions 1,2, and 4. With th~se revisions, Texas is making siwcant 

progress towards satisfying the terms of the September 8,2005, commitment letter. As 

you how, the necessary rule revisions must be submitted to our office by December 1, 

2006. We appreciate the he and attention your stfi has devoted to processing these 

revisions so quickly and your willingness to consult Rcgion 6 during this mIe 

development. We believe that the incorporation of our comments bclow will clarify'and 

strcngthcn the proposed revisions. 

The following comments are specific to the proposed revisions to 30 TAC 

Chapter 101, Subchapter H, Division 1 - Emission Credit B6g and Trading program, 

also referred to as the Emission Reduction Credit (ERC) program. 

L. The proposed rcvision to § 10 1.302(d)(l)(C)(vi) will address commitment 

number 5 hrn the commitment letter. The proposed rule language clearly 

describes the process by which lhe U.S. Environmental Protection Agency 

(EPA) can object to a quantification protocol. This language is collsistmt 

with the approach described in EPA's Economic Incentive Program 

Guidance document, "Improving Air Quality with Economic Lnccntivc 

Programs" (EPA-452/R-01-001, January 2001). 

2. In the commitment letter, the Texas Commission on Enviromnenld 

Quality (TCEQ) committed to revising 9 101.302(f) to clarify that EPA 

approval is required for individual lmsactions involving emission 

Internet Address (URL) Pttp:/hv~.epa.gov 

RecycledlRecyelablr *Prinlod wllh Vegetable Oil Besed Ink on Recycled Papw (Mmhnum 25% Postconsumer) 
reductions generated in another State or Nution, as well as thosc 

&snsactions hm one nonattainmcnt arca to another, or hrn attainment 

counties into nonattainnlent areas. The tstablishmcnt of a new C) 1 0 1.3 05 

for international reductions is a step towards meeting this commitment and 

improving rule clarity. 

The EPA is concerned, however, that this rule revision changes the intent 

of the ERC rule, which is to provide flexibility solely in nonatthmt 

areas. With the removal of tllc "and'' statcrncnt from the approval criteria, 

there is no clear requirement for the reduction to be generated or used in a 

nonattainment area. This proposed revision would allow sources 

anywhere within 100 kilometers 01 the border to generate and use ERCs 

from ~exico. The TCBQ has not dalonstrated tlmt this revision would 

not violate $ 1 lO(1) of the Clean Air Act. Further, use of EKCs gcncrated 

outside thc United Stales as New Source Review oirsels would be contrary 

to section 173(c)(l) of the Clcan Air Act. 

The EPA understands that this de revision is a result of Senate Bi11.784, 

which a~~ording to the. rule preamble, was to allow for the continuance of 

beneficial emission credit program in Ciudad Juarez in thc cvcnt of El 

Paio beiug reclassified as an attainment area. The EPA feels that tlus 

flexibility is unnecessary and could potentially weaken ths program. The 

Discrete Emission Reduction Credits (DERC) pmgram, which EPA 

proposed to conditionally approve in Octobcr 2005, contains provisions. 

that allow for thc gensration and use of international discrete mission 

credits. The DERC provisions could be used in El Paso in the event the 

area is reclassified as attainment. 

3. The proposed revision to 4 101.306(a)(S) will address commitmei~t 

number 6 hrn the commih~ent letter. Tho new wording more dearly 

provides that ERCs can be used in the Highly Reactive Volatile Organic 

Compound Emissions Cap and Trade program, subject to 4 101.399. 

4. In the proposed uew $ 101.305(b)(I), the word "if' is confilsing. It 

appears that "and" might be a more appropriate word choice. 

5. Ln the proposed new fi 101.305(c)(l), the word "foreign" or "Mexican" 

should be added to the list of laws to which the reduction must be surplus. 

("lnternntionnl" law would rcfcr to a trcaty or othcr article of law between 

nations rather than a law of a single nation such as Mcxico.) 

6. In the proposed new 8 101.305(c)(l), (c)(2), and (c)(3), the references to 

the executive clirec tor are ~onfusing, because thc ovcrarcl~ing approval, 

requircmmt incorporates both EPA and the executive director. That is, 

EPA's co-approval authority clearly implies 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 would he 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 SLP pimblc on pages 2 and 5 incorrectly refers to the EBTA 

program as an open market trading program. The EBTA program is a 

capmd-trade pmgi-am because it establishes cmission ~ps rur nitrogen 

oxides (NO,) and sul rur dioxide (302) and provides al3ocations LO a 

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

2. The EPA rccommcnds Lhal$ 10 1.338 be further revised to scate that 

international reductions under rhis provision are only used to substitute for 

allowances for puposes of compIiance with he Divisinn 2 EBTA 

propam. Language to this effect was originally part of § 101 -338 bul wslv 

l~rnoved in the proposcd revision. 

3. The EPA also recommends that 9 101.338 bo further revised to clarify that 

international reductions cannot he uskd in thc East Tcxas Region because 

of the distance limitarions. 

4. The rule language in 8 101.338 docs require rhar.EPA approval is required 

for intcmationalreductions. The l3PA notes that these reductions would 

be addtesscd in the same manner as inte~national reductions for use under 

the Division 1 ERC or Division 4 Discrete Emission Credit Banking and 

Trading programs. The EPA intcnds to mquire a further SIP revision 

(either a dctdled trading program, such as a Memordnrlum or 

Understandmg, or ii.rrade specific submission) before approving any 

international tmdes, intcrsrate mules, or intrastate trades 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,which the reduction must be surplus. 

("International" law wouId refer to a treaty or other articlc of law between 

nations rathcr than a law of a single niltion 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 authority clearly implies the authority to independently 
determine whether 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 additional supporting 

information as in (c)(3). 

8. 'J'he proposed ncw scction 101.339 is zl first step towards co~recting a

program deficiency we identified in a July 19,2005, letter to 

Mr, Cory Chism. However, to f~~lly address thc conccms described in 

scction 5.3(b) of the Econolnic incentive Program Guidance, the audit and 

annual reporting rcquiremenLs must apply not just to NOx hut 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 from the site. 

The following cornmenu are specific to the proposed revisions to 30 TAC 

Chapter 101, Subchapter H, Division 4 -Discrete Emission Credit Banlung 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 proposed rulc language clearly 

describes the process by which EPA can object to a quantification 

pro~ocol. This language is consistent with the approach described in the 

Economic Incendve Prr~grtun Guidance. 

2. In the commitment letter, TCEQ committed to rcvising $9 101.372(f)(7) 

and 101.372(f)(S) to clarify that EPA approval ,is rcqrrircd TOT individual 

transactions involving emission reductions generated in anothcr State or 

Ndtion, as well as for thosc transaction^ hm one nonattainment area to 

another, or From athiinmerit counties into nonattainment arens. The 

establishmcriL or u new section 101.375 for intanntiond reductions is a 

step towards mating this commitment and im.proving rule clarity. 

However, EPA continues to believe that 5 101.372(f)(7) needs to be 

revised to adclrcss this commitment. As currently written, 5 101.372(f)(7) 

still includes language pertaining to international reductions of NOx nnd 

VOC. The BPA fcels that this information should be incorporated into 

5 101.375 so here is no confusion about whether S 101372(f)(7) is furtl~er 

modified by 8 101.375. 

The EPA contcnds that in addition to demonstrating that the usc of 

international NOx and Volatile Organic Con~pound reductions under 

$ 101.372(f)(7) improvcs air quality in the county of use, that the user of 

these credits should have to meet the requiremenls of 8 10'1 375, Also, 

stated in our proposed conditional approvd of the DERC program (70 
Federal Re~ister 58 154), in exercising its review under 5 101.375(c) EPA 

intends to require a further SLP revision before approving my international 

ttaclcs, inh~kle kales, or intrastate trades that involve reductions hm 

beyond the nonattahmcnt area. . 

3. The proposed revisions to 9 1 01.373 will addrcss commitment number 1 

from the commitment lmer. The proposed rule prohibits thc generation of 

DERCs ikom pennanernt or temporary shutdowns. The proposed language 

is consistent with the Ekonomic Tncentive Progm Guidance expectations 

of open market trading programs. t 

4. Ln the commitment letter, TCEQ committed to revising 5 lOS.372(f)(7) 

and (f)(8) to clarify hat EPA approval is required for individual 

trnnsaotions involving cmission reductions generatedin mother state or 

Nation, as well as those transactions from one nonattainment ma to 

anohm, or iiom attainment counties into nomttainment areas. The 

establishment of a new section 4 101.375 for international reductions is n 

step towards meeting this conunitmeut aud improving rule clarity. . . 

Thc EPA is concerned, however, that this rule revision changes the scope 

of the international provisions for the DERC 'rule. current adopted 

State rule languagc limit the generation and use of ir~tm'ational discrctc 

reductions to nonattainmcnt areas, i.e. El Paso. This proposed revision 

would allow sources anywhere within 100 kilometers of the .border to 

generate and use DERCs from Mexico. Thc TCEQ has not demonstrated 

lhal lhis revision would not violate § 1100) of the Clean Air Act 

The EPA undarstands that this rule revision is a result of Senate Bill 784, 

. which according to the rule preamble, was to allow for the continuance uT 

beneficial emission credit programs in Ciudad Jumz in the event of 

El Paso being reclassified as ar! attainment area. The EPA questions why 

this provision was expanded to covm the entirety of the Texas-Mexico 

border. 

5. The proposed revisions to § 101.376(c)(4) correct the citation errors that 

we identified in an April 14; 2004, letter to Mr. Cory Chism. 

6. The proposed revisions to ~ 1 0 1.378@) will address commitments number 

1 md 2 from the commitment letter. The proposed revisions establish the 

remaining lifetime. for the shutdown DERCs generated before 

Septmber 30,2002, and establish that shutdown DERCs generated after 

September 30,2002, are not creditable. 

7. Thc @) proposed new 5 101.375(a) and (b) use non-parallel language, in thal 

says that ,facilities can "use discrete emission crcdits for reductions" 

outside the U.S., while (b) says that facilities can "use reductions" outside 
the U.S. It appears that parue1 structure for these phrases would be 

appropriate, and further that neither of the existing phrases is clcar. 

8. In the proposed new 5 1~01.375(b)(l), tha word "if' is confusing, It 

appears that "and" might be a morc appropriatc word choicc. 

9. In the proposcd ncw 101.375(~)(1), the word "foreign" or 'Wexican" 

should be added to the list of laws to which thc reduction must be surplus. 

("Intmtional" law would refer to a trcaty or othcr articla of law between 

nations rather than a law of a single nation such as Mexico.) 

10. Jn the proposed new 5 101.375(~)(1), (c)(2), and (c)(3), the references to 

the executive director are confusing, because the overarching approval 

requirement incorporates both EPA and the executive director. That is, 

EPA's GO-approval authority clearly implies the authority to independently 

determine whether the reduction is real, surplus, ctc., as in (c)(l ), and 

whether the reduction causes localized health hipacts urldcr (c)(2); also 

implied would be the authority to require additional supporting 

information as in (~)(3). 

Thank you Tor ttlc opportunily to provide: comments. Please note that our 

comments do not constitute a final decision on npprovability of rule language. We look 

forward to seeing the adopted rule when it is submitted. Tf you have any questions, 

please call Ms. Adha R. Wiley of my staff at (214) 665-21 15. 

Sincerely yours, 

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 authority are we adopting these changes? The rulemaking is adopted under Texas 

Water Code, 55.103, concerning Rules; and 55.105, concerning General Policy, which authorizes 

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, 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 of public health, 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 commission to 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 

$382.05 18, concerning Preconstruction Permit, which requires that a permit 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 implementation plan (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 

Senate Bill (SB) 784 that was adopted by the 79th Texas Legislature, 2005, Regular Session, and 

allow additional options for credit from emission reductions 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 'or reduction 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 Other important background or historical information. None. 

Scope of the rulemaking: 

Changes required by federal rule: 

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 state or nation as well as those transactions from one nonattainment 

area to another or from attainment counties into nonattainment areas. The recommended 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 allow facilities 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 are not expressly required by federal rule or state statute: 

Citations in Chapter 101 would 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 the regulated 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. 

What were the general sentiments? Some industrial stakeholders opposed the pending 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 are not 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 controversial matters: The retirement of shutdown DERCs will likely cause concern, but this 

requirement is a key point in EPA's conditional approval of the DERC program. 

Key points in rulemaking schedule: 

e Texas Register proposal publication date: April 28, 2006 

e. Anticipated effective date: October 26, 2006 

e Six-month Texas Register 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 implementation of SB 784 could circumvent the 

intention of the emission reduction credit program, which was structured to allow credit use 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 outside the United States may be substituted for reductions within the United States as required under 

SB 784. The reductions made outside the United States are not eligible for credits which are bankable and 

have an indefinite life. 

In response to a comment from TIP, the executive director recommends a response explaining that credits 

expiring on September 20, 2010, must be used by that date if they are to be consideredlfor use in meeting 

annual emission limits for calendar year 2010. 

HSC opposes using creditable reductions outside the United States unless all reasonably available domestic 

control measures have been implemented, there are insufficient domestic reductions available, and 

grandfathered facilities may not participate. The executive director recommends no change to the rule in 

response to this comment because 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. 

Significant changes from proposal: 

In response to comments, the executive director is recommending including EPA as an approving authority 

for emission substitutions. This is consistent with current agency practice. 
Commissioners 

Page 5 

September 15, 2006 

Re: Docket No. 2006-01 67-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, Staff Attorney 

Debi Dyer, Program Office Liaison 

Tara Capobianco, Division Liaison 

Booker Harrison, OLS Liaison 

Russ Kirnble, OLS 
EVALUATION OF TESTIMONY 

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 §§I 01.305, 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 §§I 01.306, 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 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 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 51 01.372(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 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 

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), 

5382.01 72(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 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 

g01.302. 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 51 01.305, 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 substantially affect the procedures to 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 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 51 01.302(f)(l). 
$1 01.305. Emission Reductions Achieved Outside the United States. 

The new 31 01.305 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, 3382.01 72(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 response to 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 

"international" in 31 01.305(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 

(351 01.305, 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 EB'rP. 
$1 01.306. 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, 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. 

$701.338. Emission Reductions Achieved Outside the United States. 

The existing §I 01.338 is repealed. The new §I 01.338 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 §101.338(a) and (b). 

In response to public comment, the commission is inserting a reference to precursors of criteria 

pollutants into §I 01.338(b) and substituting the word "and" for "if" in regard to 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 requirements for emission credit programs 

applicable to electric generating and grandfathered facilities. 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 SO2 allowances. 

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 51 01.375, Emission Reductions Achieved Outside the United States. The 

commission amends §I 01.372(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 in the 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 reference to 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 51 01.373(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 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 have the 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 

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 corr~mission is movirlg the rules governing optional reductions to their own sections 

(551 01.305, 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 reference to 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 reference to precursors of criteria 

pollutants into 5101.375(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 51 01.375(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. 

$1 01.378. 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 letter to 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, 201 0. 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 generated from 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 

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 amendments to 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, 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 amendments to 

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 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 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 representative of 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, SIPS must 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 timetables for 

compliance as may be necessary or appropriate to 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 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 public to 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, $741 0. 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 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 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 conclusion was based, 

in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis 

unless the rule was a major environmental rule that exceeds a federal law. As discussed earlier 

in this 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 

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 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 

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 presumed to 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, 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 SIPS for 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 in Texas; 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 construction to its rules since this statute was 

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 deemed to 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 

with per curiam opinion respecting another issue, 960 S.W.2d 61 7 (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 requirements of 42 USC, s7410. 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 sections 

of THSC, Chapter 382 (TCAA), and Texas Water Code that are cited in the 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 IMPACT ASSESSMENT 

The commission completed a takings impact assessment for this rulemaking action under Texas 

Government Code, s2007.043. The amendments to 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-reactive volatile organic compound 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 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) 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 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, 57410, and related provisions, states must submit, for approval by the 

EPA, SIPS that provide for the attainment and 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, 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 3505.1 1 (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 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 5501.14(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 

5505.22(e), the commission affirms that this rulemaking action is consistent with CMP goals and 

policies. 

EFFECT ON SITES SUBJECT TO 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: §§I 01.302(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 refers to the EBTP as an open 

market program when it is more correctly referenced as a cap and trade program. 

The commission agrees with this statement and is changing the preamble. 

EPLE requests that the commission modify §I 01.302 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 kilometers of 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 response to this comment. Section 

101.302(a) and (c) reference the certification of 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 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 §I 1 O(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 credits 

to nonattainment areas. Emission reductions in Mexico are substitutions only, not 

credits, and are not freely 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 to the attainment status of El Paso. 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, 91 lo(/) 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 $1 01.373(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 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. 

ELPE suggests that $1 01.305(b) and $1 01.375(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 $1 01.338(b). 

'The commission agrees with this comment and is making the necessary change in these 

two sections as well as §101.338(b). 

'The EPA comments that the word "if" in $1 01.305(b)(I) is confusing and suggests substitution 

of the word "and." The EPA comments that the use of the term "executive director" in 

$1 01.305(~)(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 removing the reference to "international law." 

ELPE and EPA comment that 51 01.338(a) and (b) be modified to 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 51 01.338 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 51 01.339(b) should be revised to include reporting requirements of 

actual SO2 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 SO2 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 51 01.372(a) be modified to allow reductions 

outside the United States to be creditable provided the conditions of §I 01.375, 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 $1 01.372(f)(7) pertaining to reduction of VOC and NOx be 

moved to 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 incorporation of SB 784 in 51 01.375 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 program and recommends 

the use of international DERCs in the event El Paso is designated as attainment. The EPA 

states Texas has not demonstrated that this revision will not violate FCAA, 51 lo(/). 

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, §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 demonstrate that 

all reasonably available domestic control measures have been irr~plernented; ,there are 

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 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. 

The commission is not changing the rule in response to this comment. The substitution 

of reductions will be based on nonattainment criteria pollutants or on a finding of greater 

health benefit. 

The EPA notes that §I 01.375(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 commission agrees 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 §I 01.375(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 §I 01.375(~)(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 reference to "international law." 
HSC opposes the revisions in §I 01.378(b) and the allowed use of shutdown credits generated 

prior to September 30, 2002 until September 30, 201 0, and supports a five-year life for these 

credits. 

The commission is not changing the rule in response to this comment. The proposed 

expiration date is consistent with federal policy. 

TIP requests clarification on whether credits that 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 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, 201 0, but then must reduce 

emissions to remain in compliance with allowables for the remainder of calendar year 

201 0. 
STAFF

RECOMMENDATIONS
SUBCHAPTER H: EMISSIONS BANKING AND TRADING 

DIVISION 4: DISCRETE EMISSION CREDIT BANKING AND TRADING 

551 01.372, 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 

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 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 5382.051 8, 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, 382.01 1,382.012, and 382.017; 

and Senate Bill 784, 79th Legislature, 2005. 

51 01.372. 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 §§I 17.106, 

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 551 15.1 12, 1 15.121, 

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 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 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 in the 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 of Air 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 use the most conservative method for replacing the missing 

data, submit the justification 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 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 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 in the 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 in which 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 §I 15.1 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 

93-1 7 entitled "Revised Statistical Definitions for Metropolitan Areas" dated June 30, 1993) in 

which the reduction was 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 improve the 

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 authorization to 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 abused the 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 limited to: 

(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 Generation and Certification. 

(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) the installation and operation of pollution control equipment that 

reduces emissions below the level required of the facility; or 

(B) 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 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 control technology 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, unless the 

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 §I 16.170(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 in which 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 established for 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 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 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 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 and 

the substitution results in a greater health benefit and is of equal -or greater benefit to the overall 

air quality of the 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 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. 

$1 01.376. 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 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; 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 needed for 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 Intent to Use Discrete Emission Credits, along with the original 

certificate; 

(3) to comply with the Mass Emissions Cap and Trade Program requirements as 

provided in §I 01.356(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 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 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, $1 29 (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, 

S7511 b(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 authorization that 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 51 01.356(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 necessary to 

comply with §§I 17.1 08, 1 17.138, 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 31 01.376(d)(Z)(A)(i) (No change.) 

Amount of DERCs 

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 - - actual daily heat input, in million British thermal units (MMBtu) per day, as 

calculated according to 331 17.108(c)(l), 117.1 38(c), 117.21 O(c)(l) or (2), 

or 117.223(b)(I) of this title (relating to System Cap; and Source Cap) as 

applicable 

Ri - - actual emission rate, in pounds (Ib)/lVIMBtu, as defined in 

§§I 17.108(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), 1 17.21 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 

§§I 17.108(~)(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. 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 

(B) the amount of discrete emission credits not used, including the 

amount of excess discrete emission credits that were purchased to cover the environmental 

contribution, as described in subsection (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 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 

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) 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 holders will 

be included in the commission's credit registry. 

(I) All notices submitted by a generator, holder, or user will be reviewed for 

credibility; and when deemed certified, posted to the credit registry. 

(2) The credit registry will 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 registry will maintain a listing of all credits available or used for 

each ozone nonattainment area. One combined listing for all the counties or portions of 

counties designated as attainment or unclassified will 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 accordance with subsection (a) of this section, and may be used 

anytime thereafter except as stated in this subsection. All credits are deposited in the 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 available for 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 in whole 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-in part and in any manner, with commission approval, as a 

remedy for problems resulting from trading in a localized area of concern. 
. ~]~MENT~~~~~A~'~

I here y cert~fy that this is a trw and mrfecf ropy of a 

Texas Commission on Environmental Quality documen:, 

which is flled in the permanent reds of the 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 30 days 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~nolly includes 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~itso 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 byreference 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 1 7 2006 TEXAS COMMISSION ON 

EN~IRONMENTAL QUALITY 

C' -l(df,eb,R 

$ath~een Hartnett White, Chair~nan 
to 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 

Commissioner to 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 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 Office of the Secretary of State on 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 amendments to §§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 based on the commission 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 §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 

Banking and 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 between the commission 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), §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 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 substantially affect the procedures to 

approve the quantification protocol. The commission has, and 

will continue, to work with the EPA to approve new quantification 

31 TexReg 8684 October 20, 2006 Texas Register 
protocols. This revision clarifies in the 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 response to 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 response to 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 regard to reducing a criteria 

pollutant 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. 

$ 70 7.339. 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 each 

compliance 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 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 in 

the 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 

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 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 (includADOPTED RULES October 20,2006 31 TexReg 8685 
ing shutdowns) may tend to promote emissions increases. Such 

patterns of 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 reductions to their own sections (§§101.305, 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 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 response to publiccomment, the commission is inserting a reference to precursors of criteria pollutants into §101.375(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 §101.375(c) for greater 

specificity. The commission is also adding the EPA as an approving authority 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 Banking and 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 

years from the September 8,2005, commitment letter to 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 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 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 amendments to 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, 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 amendments to 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 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 rulen as defined in the Texas Government Code. Texas Government Code, 

s2001.0225 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 representative of 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), 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 incentives such as fees, marketable permits, and 

auctions 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 Prevention and Control). It is true 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, s7410. 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 public to collaborate on the best methods to attain the NAAQS for the specific regions in the state. Even though 

31 TexReg 8686 October 20,2006 Texas Register 
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, 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 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 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 

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 conclusion 

was based, in part, on the criteria set forth in the b~ll that exempted proposed rules from the full analysis unless the rule was 

a major environmental rule that exceeds a federal law. As discussed earlier in this 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 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 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 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 presumed to 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, 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, §7511(a), requires states to 

submit ozone attainment demonstration SIPS for 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 

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 construction to its 

rules since this statute was 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 deemed to 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 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., 8 15 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, 5741 0. 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 sections of THSC, Chapter 

382 (TCAA), 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, 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 IMPACT ASSESSMENT 

The commission completed a takings impact assessment for this 

rulemaking action under Texas Government Code, §2007.043. 

The amendments to 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-reactive volatile organic compound 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 definition of a takings under Texas Government Code, §2007.002(5). 

ADOP 'TED RULES October 20,2006 31 TexReg 8687 
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 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 maintenance of NAAQS once the EPA has established them. Under 42 USC, S7410, and related provisions, 

states must submit, for approval by the EPA, SIPS that provide for 

the attainment and 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 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 §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 affirms that 

this rulemaking action is consistent with CMP goals and policies. 

EFFECTON 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 permits will 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 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: ~~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 EPA comments that the proposal preamble incorrectly refers 

to the EBTP as an open market program when it is more correctly 

referenced as a cap and trade program. 

The commission agrees with this statement and is changing the 

preamble. 

EPLE requests that 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 kilometers of 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 response to this comment. Section 101.302(a) and (c) reference the certification of 

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 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 §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 credits to nonattainment areas. Emission reductions in Mexico are substitutions only, not credits, and are not freely 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 to the attainment status of El Paso. Because each generation and use will 

be subjected to case-by-case review by both the executive direc31 TexReg 8688 October 20, 2006 Texas Register 
tor 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 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. 

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 in these 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 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 removing the reference 

to "international law." 

ELPE and EPA comment that §101.338(a) and (b) be modified to 

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 provided the 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 NOx be 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 program and recommends the use of international DERCs 

in the 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 not changing 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 October 20,2006 31 TexReg 8689 
The commission is not changing the rule in response to this comment. The substitution of reductions will be based on nonattainrnent criteria pollutants or 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 commission agrees with the EPA comment and is changing 

§101.375(a) and (b) to refer to "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 commission agrees with these comments and is making the 

necessary changes. The commission is removing the reference 

to "international law." 

HSC opposes the revisions in §101.378(b) and the allowed use 

of shutdown credits generated prior to September 30, 2002 until September 30, 2010, and supports a five-year life for these 

credits. 

The commission is not changing the rule in response to this comment. The proposed expiration date is consistent with federal 

policy. 

TIP requests clarification on whether credits that 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 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 

allowables for the remainder of calendar year 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 under Texas 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 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, $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; 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 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 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; 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 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, ss382.002, 

382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. 

61 01.302. 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 urban airshed modeling demonstrates that one ozone 

precursor may be substituted for another, subject to executive director 

and United States Environmental Protection Agency (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 10 1.30 of this title 

(relating to Conformity of General Federal Actions to State Implementation Plans). 

(c) Emission credit requirements. 

(1) Emission reduction credits are certified reductions that 

meet the following requirements: 

(A) reductions must be enforceable, permanent, quantifiable, real, and surplus; 

(B) the certified reduction must 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 inventory used 

in the state implementation plan (SIP); and 

(D) the facility's annual emissions prior to the reduction strategy must have been reported or represented in the emissions 

inventory used 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 reduction must 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 inventory used 

in the SIP; 

31 TexReg 8690 October 20, 2006 Texas Register 
(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 recertified in whole or in part 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 $91 17.106, 117.206, or 117.475 of this title (relating to Emission 

Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in nitrogen oxide emissions 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, 

11 5.421, 11 5.541, 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 or mobile source to the EPA for approval, 

the following requirements apply: 

(i) the amount of emission credits from a facility or 

mobile source, in tons per year, 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 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 or predictive emissions monitoring systems in place shall use 

this data in quantifying actual emissions; 

(iv) the chosen quantification protocol must be made 

available for public comment for a period of 30 days and must be viewable on the commission's Web site; 

(v) the chosen quantification protocol and any comments received during the public comment period 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) 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 use the most conservative method for replacing the missing data, submit the justification 

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 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 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 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 of the public 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 the noilattainment 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 of use, 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 shall maintain 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 such records available upon request to representatives of the exADOPTED RULES October 20, 2006 31 TexReg 8691 
ecutive director, EPA, and any local enforcement agency. 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 of each facility or any other identifying number 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 

failure to submit all information, may result in the rejection of the emission credit application. All nonconfidential notices and information regarding the generation, availability, use, and transfer of 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 emit the pollutants identified in 

subsection (a) of this section, unless otherwise defined, 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 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. 

with the of this section, 42 United States Code, $$7401 et 

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 emission credit does not constitute 

aproperty right. Nothing in this division may be construed to limit the This agency hereby certifies that the adoption has been reviewed 

authority of the commission or the EPA to terminate or limit such au- by legal counsel and found to be a valid exercise of the agency's 

thorization. legal authority. 

6) Program participation. The executive director has the authority to prohibit an organization from participating in emission credit 

trading either as a generator or user, if the executive director determines 

that the organization has violated the requirements of the program, or 

abused the 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 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 

limited to: 

(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 111 0 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 pollutants and substitute these reductions for reductions in other criteriapollutants 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 or greater benefit to the overall air quality of the area; or 

Filed with the Office of the Secretary of State on 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 further information, 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 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 adopted 

31 TexReg 8692 October 20, 2006 Texas Register 
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; 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 plans to 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 Office of the Secretary of 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 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 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; 

and 5382.051 and s382.0518, concerning Permitting Authority of 

Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The 

new sections are also adopted 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 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 United Slates, 

(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 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 or greater benefit to the overall air quality of the 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 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: 

(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 of the reduction does not 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 of the 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 three years after the effective date of this 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, compliance by the participants, 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. The trading of allowances 

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 TexReg 8693 
(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 compliance account; 

(2) total number of allowances allocated under this division; 

(3) number of actual nitrogen oxides (NOx) and sulfur dioxide (SO,) allowances subtracted from each compliance account based 

on the actual NOx and SO, emissions from the site; and 

(4) a summary of all trades completed under this division. 

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 Office of the Secretary of State on October 6, 2006. 

TRD-200605475 

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 

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 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), 

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; 5382.011, 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, 55382.002, 

382.01 1, 382.01 2, and 382.017; and Senate Bill 784, 79th Legislature, 2005. 

$1 01.3 72. General Provisions 

(a) Applicable pollutants. Reductions of volatile 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 $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. 

31 TexReg 8694 October 20, 2006 Texas Register 
(d) Protocol. (E) EPA Compilation oj'Air-Pollution Emission Factors 

(I) A11 generators or users of discrete 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 is required before the protocol can be used. Protocols shall be used as follows. 

(A) Facilities subject to the emission specifications under $$117.106, 1 17.206, 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 or mobile source to the EPA for approval, 

the following applies: 

(3) When quantifying actual emissions in accordance with 

paragraph (2) of this s.ubsection, the generator shall use the most conservative method for replacing the missing data, submit the justification 

for not using the methods in paragraph (1) of this 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 as provided in paragraph (7) of facility or mobile source, in tons, will be determined 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 creditable and 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) 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 Emission 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 in the Federal Register. 

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

(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 and NOb 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 $1 15.10 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) 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, discreb 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 BulletinNumber 93-1 7 entitled "Revised Statistical Definitions for Metropolitan Areas" dated June 30, 1993) in 

which the reduction was generated. 

(7) VOC and NOx discrete emission credits generated in 

other counties, states, or emission reductions in other nations may be 

ADOPTED RULES October 20,2006 31 TexReg 8695 
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 othercounty, state, 

or nation improve the 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. 

6) 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, and the Texas Clean Air Act, as well 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, if the executive director determines that the company has violated the requirements 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. 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 limited to: 

(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. 

$101.375. 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 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 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,and the substitution results in a greater health benefit 

and is of equal or greater benefit to the overall air quality of the 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 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. 

31 TexReg 8696 October 20,2006 Texas Register 
(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 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 

compounds in a 12-month period as approved by the executive director. 

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; 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) 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 needed for 

NSR offsets equals the quantity oftons 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 Intent to Use Discrete Emission 

Credits, along with the original certificate; 

(3) to comply with the Mass Emissions Cap and Trade Program requirements as provided in $ 10 1.356(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 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, 

$1 l l (42 USC, $741 1); 

(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, $382.051 8(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, 

$75 1 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, $21 l(k) (42 USC, 97545); or 

(L) requirements for Reid vapor pressure standards under FCAA, $21 l(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 $ I0 1.356(h) of this title; 

(5) to authorize a facility whose emissions are enforceably 

limited to below applicable major source threshold levels, as defined 

in $ 122.10 of this title (relating to General Definitions), to operate with 

actual emissions above those levels without triggering applicable reADOPTED RULES October 20,2006 31 TexReg 8697 
quirements 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 discrete emission credits determined by the executive director. necessaw to comply with 661 17.108, 117.138, 117.210, or 117.223 of 

(d) Notice of intent to use. this titleirelatingtd ~~stek~a~; and Source Cap), a user may use the 

(1) A completed DEC-2 Form, signed by an authorized equations listed in those sections, or the 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 or meet 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 if the 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 if the 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 days prior 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 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 

(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. 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 of law by a responsible official of the user oftruth, including the amount of excess discrete emission credits that were puraccuracy, and completeness. This certification must state that based on chased to cover the environmental contribution, as described in sub31 TexReg 8698 October 20,2006 Taas Register 
section (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 a regulatory 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: 30 TAC 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) 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 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) The user is in violation of this section ifthe user submits 

the report of use later than the allowed 90 days following the conclusion 

of the use period. 

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 Office of the Secretary of State on.October 6,2006. 

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 (31 TexReg 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 in accordance with Texas Water Code (TWC), 

Chapters 12,36, and 49 - 67. The commission oversees approximately 1,100 active water districts in Texas. Chapter 293 of the 

commission'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 feasibility of 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, and to 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 in TWC, Chapter 36, concerning notice, hearing, rulemaking, and permftting procedures 

for groundwater conservation districts (GCD), and to management planning and joint management planning requirements for 

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 made to 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 conversion to a SUD and requires the 

ADOPTED RULES October 20,2006 31 TexReg 8699