UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION IX AIR DIVISION

Technical Support Document

for

EPA ’ s Rulemaking for the California State Implementation Plan

regarding

South Coast Air Quality Management District ( “ SCAQMD ” ) Regional Clean Air Incentives Market ( “ RECLAIM ” ) program rules:

SCAQMD Rule 2000 General SCAQMD Rule 2001 Applicability SCAQMD Rule 2002 Allocation s for Oxides of Nitrogen (NOx) and Oxides of Sulfur (SOx) SCAQMD Rule 2005 New Source Review for RECLAIM SCAQMD Rule 2007 Trading Requirements SCAQMD Rule 2010 Administrative Remedies and Sanctions SCAQMD Rule 2011 Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions SCAQMD Rule 2011 Protocol Appendix A Protocol for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions SCAQMD Rule 2012 Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions SCAQMD Rule 2012 Protocol Appendix A Protocol for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions

Prepared by: Lily Wong

March 27 , 2006RULE IDENTIFICAT ION

Table 1

SCAQMD Date of:

Rule No. Rule Title Adoption

Current

Version of

Rule Subject to Today ’ s Action Submittal

Current

Version of

Rule Subject to Today ’ s Action Adoption

Existing

SIP

Approved

Version Submittal

Existing

SIP

Approved

Version Approval

Existing SIP

Approved

Version Submittal

Interim

Version of

Rule Now Superseded

2000 General 5/6/05 10/20/05 5/11/01 5/31/01 9/4/03

68 FR 52512 n/a

2001 Applicability 5/6/05 10/20/05 5/11/01 5/31/01 9/4/03

68 FR 52512 7/15/05

2002 Allocations for

Oxides of Nitrogen (NOx) and Oxides of Sulfur (SOx) 1/7/05 12/21/05 1 5/11/01 5/31/01 9/4/03

68 FR 52512 n/a 1

2005 New Source Review

for RECLAIM 5/6/05 10/20/05 4/20/01 10/30/01 9/04/03

68 FR 52512 n/a

2007 Trading

Requirements 5/6/05 10/20/05 12/5/03 2/20/04 7/26/04

69 FR 44461 4/26/05 2

2009 3

2010 Administrative

Remedies and

Sanctions 1/7/05 7/15/05 5/11/01 5/31/01 9/4/03

68 FR 52512 n/a

1 Rule 2002, amended 01/07/05, was submitted on 07/15/05. By letter to California Air Resources Board ( “ CARB ” ) dated 11/04/05, SCAQMD clarified that parts of provision (f) (1)(A) and (f)(1)(G) of Rule 2002 should not have been submitted for inclusion into the State Implementation Plan ( “ SIP ” ). SCAQMD corrected the rule by deleting text from provisions (f)(1)(A) and (f)(1)(G). Therefore, on 12/21/05, CARB withdrew the versi on of Rule 2002 submitted on 07/15/05, and submitted the corrected version of Rule 2002 (Attachment 3).

2 SCAQMD amended Rule 2007 on 01/07/05, along with other RECLAIM rules, but requested that Rule 2007 not be submitted to the SIP (Attachment 4). Consequently, CARB ’ s 07/15/05 submittal did not include Rule 2007, and that version of the rule is not listed here as an interim superceded submittal.

3 While Rule 2009 was submitted on 07/15/05, based on a request from SCAQMD, CARB withdrew Rule

2009 from the SIP on 10 /20/05 (Attachment 5).3

SCAQMD Date of:

Rule No. Rule Title Adoption

Current

Version of

Rule Subject to Today ’ s Action Submittal

Current

Version of

Rule Subject to Today ’ s Action Adoption

Existing

SIP

Approved

Version Submittal

Existing

SIP

Approved

Version Approval

Existing SIP

Approved

Version Submittal

Interim

Version of

Rule Now Superseded

2011 Requirements for

Monitoring, Reporting, and Recordkeeping for

Oxides of Sulfur (SOx) Emissions 1/7/05 7/15/05 12/5/03 2/20/04 7/26/04

69 FR 44461 n/a

2011

Protocol Appen

- di

x A 4 Protocol for

Monitoring, Reporting, and Recordkeeping for

Oxides of Sulfur (SOx) Emissions 5/6/05 10/20/05 5 3/16/01 5/31/01 9/4/03

68 FR 52512 7/15/05

2012 Requirements for

Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions 1/7/05 7/15/05 12/5/03 2/20/04 7/26/04

69 FR 44461 n/a

4 Rule 2011, “ Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx)

Emissions ” includes “ Rule 2011 Protocol Appendix A

– Protocol for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions. ” Rule 2011 Protocol Appendix A contains Chapters 1 through 6 and Attachments A through F. In a previous SIP approval, the appendix was labelled, “ Rule 2011

- 2, ” but will be

referred to in this rulemaking as “ Rule 2011 Protocol Appendix A. ”

5 Only Chapter 1, “ Overview ” of Rule 2011 Protocol Appendix A was revised on May 6, 2005 and submitted on October 20, 2005. The remaining portions of Rule 2011 Protocol Appendix A (i.e. Chapters 2 through 6, and Attachments A through F) were not revised. Consequently, the version of Rule 2011 Protocol Appendix A, Chapters 2 through 6, and Attachments A through F that is subject to today ’ s action was adopted on January 7, 2005 and submitted on July 15, 2005.4

SCAQMD Date of:

Rule No. Rule Title Adoption

Current

Version of

Rule Subject to Today ’ s Action Submittal

Current

Version of

Rule Subject to Today ’ s Action Adoption

Existing

SIP

Approved

Version Submittal

Existing

SIP

Approved

Version Approval

Existing SIP

Approved

Version Submittal

Interim

Version of

Rule Now Superseded

2012

Protocol Appen

- di

x A 6 Protocol for

Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions 5/6/05 10/20/05 7 3/16/01 5/31/01 9/4/03

68 FR 52512 7/15/05

6 Rule 2012, “ Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx)

Emissions ” includes “ Rule 2012 Protocol Appendix A

– Protocol for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions. ” Rule 2012 Protocol Appendix A contains Chapters 1 through 8 and Attachments A through G. In a previous SIP approval, the append ix was labelled, “ Rule 2012

- 2, ” but will be referred to in this rulemaking as “ Rule 2012 Protocol Appendix A. ”

7 Only Chapter 1, “ Overview ” of Rule 2012 Protocol Appendix A was revised on May 6, 2005 and submitted on October 20, 2005. The remaining portions of Rule 2012 Protocol Appendix A (i.e. Chapters 2 through 8, and Attachments A through G) were not revised. Consequently, the version o f Rule 2012 Protocol Appendix A, Chapters 2 through 8, and Attachments A through G that is subject to today ’ s action was adopted on January 7, 2005 and submitted on July 15, 2005. BACKGROUND The RECLAIM program was initially adopted by SCAQMD in October 1993. The program establishes for many of the largest NOx and SOx facilities in the South Coast Air Basin a regional NOx and SOx emissions cap which declines over time. The program was designed to provide incentives for sources to reduce emissions and advance pollution control technologies by giving sources added flexibility in meeting emission reduction requirements. A RECLAIM source ’ s emissions may not exceed its holding of RECLAIM Trading Cr edits (RTCs) for any compliance year. A RECLAIM source may comply with this requirement by installing control equipment, modifying their activities, or purchasing RTCs from other facilities.

Beginning in June 2000, RECLAIM sources experienced a sharp an d sudden increase in NOx RTC prices for both 1999 and 2000 compliance years. In response, SCAQMD significantly amended the program in 2001. The amendments were designed to lower and stabilize RTC prices by increasing supply, reducing demand, and increasi ng the exchange of RTC trading information. The 2001 amendments separated the power producing facilities (i.e., electric utilities) from the rest of the5

RECLAIM market and placed other trading restrictions on the power producers. The 2001

amendments adde d the RECLAIM Air Quality Investment Program (AQIP) and the Mitigation Fee Program which provided additional compliance flexibility to certain sources. The 2001 amendments were approved into the SIP.

The primary purposes of the amendments to the RECLAIM rules in 2005 were to: 1) lower the NOx emissions cap in the RECLAIM program to achieve additional reductions 2) address California Health and Safety Code requirements on Best Available Retrofit Control Technology (BARCT) 3) remove the remaining trading r estrictions placed on the power producers 4) modify the monitoring, recordkeeping, and reporting requirements and protocols 5) modify the NSR requirements for RECLAIM sources 6) implement other administrative and clarifying changes

RULES SUMMARY

Lowe ring NOx Emissions Cap and Revisions to Allocation Methodology and RTC Holdings The amendments to RECLAIM would lower, from the year 2003 emissions cap, NOx emissions in the RECLAIM program by 4 tons per day beginning with the 2007 compliance year. The lo wering of the NOx emissions cap is accomplished through the amendment to Rule 2002, “ Allocations for Oxides of Nitrogen (NOx) and Oxides of Sulfur (SOx), ” where each RECLAIM source ’ s 2007 compliance year NOx RTC holdings, issued through the allocation proc ess, would be reduced by multiplying the NOx RTC holdings by an adjustment factor. RTCs are further designated as being

“ tradeable/usable ” or “ non

- tradable/non

- usable. ” The rule also specifies criteria and procedures

that would allow non

- tradable/non

- usa ble RTCs to become tradable or usable if the price of RTCs exceeded $15,000 per ton.

Other Rule 2002 changes include:
S specifying the allocations methodology and allocations for sources joining RECLAIM after t he

rule amendments
S specifying a limited exemption to the adjustment factors, provided certain criteria are met
S specifying a process whereby foregone reductions from exempt facilities will be proportionally redistributed among the remaining RTC holders
S adding a new emission factor for micro

- turbines and allowing the use of an emission factor that is equivalent to the permitted Best Available Control Technology (BACT) limits the internal combustion engine (ICE) achieves

Removing Trading Restrictions on Power Producers Power produce rs have been subject to provisions which restricted their ability to trade freely. While some restrictions were removed in 2003, the 2005 amendments remove most of the remaining trading restrictions.

Revisions to Monitoring, Recordkeeping, and Reportin g Provisions The amendments include several revisions to the monitoring, recordkeeping, and reporting provisions.
S Rule 2012:6

S includes a new NOx emission factor for micro

- turbines
S requires large sources and process units equipped with stack flow monitors to measure exhaust flow rate and clarifies the required operating parameters for large sources and process units and corresponding emission rates that are to be measured and reported
S establishes missing data provisions on an hourly basis versus the previous daily requirement
S allows alternative test to demonstrate compliance with RECLAIM NOx concen tration

limits

S Rules 2011 and 2012 and their respective protocols:
S allow a delay in the due date for Relative Accuracy Test Audits (RATA) for equipment that is operated intermittently, and by adding alternative methods of compliance testing for natural gas combustion sources with high oxygen contents in the exhaust stream
S allow reporting of emissions through the SCAQMD’s internet website
S specify that emission reports from sources that are not listed on the Facility Permit, such as contractor equipment, various location equipment, and equipment covered under applicati ons are due every quarter which is the same as reporting for process units
S include correction of typographical errors, and rule language clarifications

New Source Review (NSR) Sources that are subject to Rule 2005, “ New Source Review for RECLAIM ” are required to acquire RTCs at the beginning of the compliance year for the maximum permitted amount. Previously, sources were able to sell unused RTCs only at the end of the compliance year. The amendment allows sources the option of selling unused RT Cs at the end of a quarter, if the source voluntarily accepts an enforceable permit condition limiting the source ’ s quarterly emissions. A source that repeatedly violates the quarterly limit will no longer be eligible for this optional program to sell

unu sed RTC at the end of the quarter. The amendments to Rule 2005 do not change the core NSR provisions which require sources to hold sufficient RTC to offset emissions increases.

Ship Emissions While ship emissions are not counted toward the applicabilit y thresholds to determine if the source is subject RECLAIM, amendments to rules 2001, 2005, and 2012 clarify that ship emissions at a new or relocated RECLAIM facility subject to New Source Review is part of total emissions that needs

to be offset.

Oth er Miscellaneous or Adminstrative Changes
S Because of recent changes in state law that requires permitting and regulation of agricultural sources, Rule 2001 now clarifies that agricultural sources are exempt from the RECLAIM program and are subject to existing command and control rules.
S Rule 2010 is amended to clarify the procedures for reducing annual emissions allocations when

facilities have emissions in excess of the annual allocation.

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

and local NOx prohibitory rules for approval into the SIP, and for this rule a sixth consideration.7

1. Enforceability

- Section 110(a) of the Clean Air Act requires enforceable SIP requirements. Several EPA guidance documents are used to evaluate rule enforceability, including the “Bluebook” ( Issues Relating to VOC Regulation Cutpoints, Deficiencies, a nd Clarification to Appendix D) , November 24, 1978, 52 FR 45044), and “the Little Bluebook” (Guidance Document for Correcting Common VOC & Other Rule Deficiencies ), EPA Region 9, August 21, 2001.

2. Rule Relaxation

- Where previous versions of rules or plans are SIP approved, EPA must evaluate whether new submittals comply with sections 110(l) and 193 of the Clean Air Act regarding SIP relaxations.

3. Stringency

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

control levels.

4. “State Implementation Plans; Nitrogen Oxides Supplement to the General Preamble; Clean Air Act Amendments of 1990 Implementation of Title I; Proposed Rule,” (the NOx Supplement),
57 FR 55620, November 25, 1992.

5. New Source Review

- Section 173 of the Clean Air Act requires certain sources to offset increased emissions by obtaining suffic ient offsetting emission reductions.

6. Economic Incentive Programs

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

- 452/R

- 01

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

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

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

below.

1. Enforceability

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

2. Rule Relaxation

– While some of the rule amendments could arguably be viewed as a rule relaxation (e.g. allowing sources to sell unused RTCs at the end of a quarter instead of at the end of the year), other rule amendments are strengthening (e.g. requiring such sources to be subject to a quarterly permit limit, and clarifying that ship emiss ions, at a new or relocated RECLAIM facility subject to New Source Review, are part of total emissions which must be offset). Also, the amendments result in significant additional emission reductions through the lowering of the emissions cap in the year 2 007. Consequently, EPA believes that the amendments on balance are strengthening.8

3. Stringency

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

4. NOx Supplement

– In EPA’s original approval of the RECLAIM program, EPA determined that the program is consistent withe the NOx Supplement. These amendments do not undermine EPA’s previous determination.

5. NSR

– In EPA’ s original approval of the RECLAIM program EPA had determined that the NSR criteria had been met. These amendments do not modify the NSR requirement that sources subject to NSR must offset increased emissions by obtaining sufficient offsetting

emission re ductions.

6. EIP Guidance

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

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

EPA ACTION: EPA staff recommend full approval of the submitted version to Rules because they comply with all relevant Clean Air Act requirements including those regarding enforceability and they are consistent with EPA ’ s guidance for economic incentive programs. SCAQMD projects

a reduction in emission associated with this SIP revision.

ATT ACHMENTS:

1. SCAQMD Rule 2000, Rule 2001, Rule 2002, Rule 2005, Rule 2007, Rule 2010, Rule 2011,

Rule 2011

- 2, Rule 2012, and Rule 2012

- 2; current versions of the rules subject to this proposed rulemaking as identified in Table 1.

2. SCAQMD Staff Report for amendments to Regulation XX

- RECLAIM, dated January 2005 and submitted to EPA on July 15, 2005.

3. CARB cover letter dated December 21, 2005 addressed to Wayne Nastri withdrawing Rule 2002 submitted on July 15, 2005 and replacing it with a corrected version of Rule 2002.

4. SCAQMD letter dated March 29, 2005 addressed to Sally Rump of CARB, transmitting rules adopted on January 7, 2005 and requesting that Rule 2007 be removed from the SIP submittal.

5. CARB letter dated October 20, 2005 addressed to Wayne Nastri withdrawing Rule 2009.

6. Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations; Clarification to Appendix D November 24, 1978 Federal Register, May 25, 1988 (the “Bluebook”), and Guidance Document for Correcting Common VOC & Other Rule Deficiencies , EPA Region 9, August 21, 2001 (the “Little Bluebook,” cover only).9

7. “State Implementation Plans; Nitrogen Oxides Supplement to the General Preamble; Clean Air

Act Amendments of 1990 Implementation of Title I; Proposed Rule,” (the NOx Supplement), 57 FR 55620, November 25, 1992 (cover only).

8. “Improving Air Quality with Economic Incentive Programs”, EPA

- 452/R

- 01

- 001, January 2001 (cover only; text available at http://www.epa.gov/ttncaaa1/t1/meta/m1201.html ).