Technical Support Document for

EPA’s Notice of Proposed Rulemaking for the

California State Implementation Plan,

San Joaquin Valley Unified Air Pollution Control District:

Rule 2020, Exemptions

Rule 2201, New And Modified Stationary Source Review Rule

Ed Pike

Air Division

Region IX

United States Environmental Protection Agency

September 1, 2000 TSD update
Summary of Technical Support Document Update

EPA is proposing a limited approval and limited disapproval of two San Joaquin Valley

Unified Air Pollution Control District (SJVUAPCD) permitting and New Source Review (NSR)

rules for stationary sources. These rules were submitted as revisions to the California State

Implementation Plan (SIP). EPA originally proposed full approval of these rules in the Federal

Register (64 FR 51493) on September 23, 1999. However, based on comments EPA received on

the proposed approval and further review of the rules, EPA has determined that the rules as

submitted are not fully approvable. Therefore, in this action, EPA is proposing a limited

approval and limited disapproval of the rules. EPA is also revising the Technical Support

Document by replacing the prior definition of net emissions increase in section IV.9, replacing

sub-sections A and D of Section VII, Additional Rule Topics, and by adding a new sub-section E

to section VII as follows’:

IV. EPA Evaluation of District Rule 2201

9. Definitions

Net Emissions Increase

The District has not adopted the federal definition of “net emissions increase” at

51. 165(a)(1)(vi)(A) to calculate emission increases. We believe that the District’s requirement

for LAER on all new sources with emissions greater than two pounds per year (without the

opportunity for netting) will ensure that LAER is required for all new major sources. The basis

for calculating whether an increase at an existing source has occurred, however, can be less strict

than the federal method. The effect that the difference between federal regulations and District

regulations will have for offset requirements and LAER applicability for major modified sources

is discussed in Section VII.E., “Additional Rule Topics.”

VIII. Additional Rule Topics

A. Offset Eciuivalency Tracking System

The District has requested that EPA determine that the offset requirements of the District

rule are equivalent to federal requirements on a program-wide basis, rather than meeting federal

requirements on a source-by-source basis. The District Governing Board adopted a resolution on

‘Please note that this update to the Technical Support Document is not intended as

Response to Comments documents. EPA will prepare a separate Response to Comments

document that addresses all comments received during the comment periods on the September

1999 proposal and this current proposal.

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August 20, 1998 to demonstrate that the NSR rule will require offsets that are, in the aggregate,

equivalent to federal non-attainment NSR program requirements. The District intends to show

that the program compensates for requiring fewer federally recognized offsets in some cases by

requiring more offsets than the federal program in other cases, but has not yet begun collecting

data for the demonstration. The District program varies from federal requirements in several

ways, which must be included in the offset tracking system and are identified below.

1. Potential-to-potential test

First District Rule 2201 allows sources to use their permitted emissions (i.e. potential to

emit) rather than their actual emissions as a baseline for offset applicability and quantification in

several cases (see sections 3.7, 3.12, 3.20, 3.22), and these sources must be included in the

tracking system. The first example is a “highly utilized unit” where the actual emissions are at

least 80% of the permitted emissions.2 The second is a “clean unit” that has installed emission

controls comparable to a recent BACT determination, or achieved 95% emissions control (85%

for lean-burn internal combustion engines). The final category includes emissions units or

sources which have been offset. This category also includes emission units at sources that offset

an NSR “balance” consisting of emission increases that have occurred since the time that the

District established an NSR “baseline”, if the units are offset by offsetting the “balance”.3

Sources allowed to use potential to emit to set their baseline emissions can more easily net out of

offset requirements and/or reduce the amount of offsets by using potential to emit rather than

actual emissions as a baseline. (Sources must use actual emissions as the baseline emissions for

emission units that do not qualify for one of these categories.) EPA is proposing to allow the

limited use of the potential-to-potential test conditioned on the District showing equivalency

annually.

2. Surplus at Time-of-Use

The District also differs from federal requirements because the District rule does not

ensure that offsets are surplus of all regulatory requirements, including RACT or other SIP or

attainment plan requirements, at time-of-use4. Instead, the credits must only be surplus at the

2EPA believes that “netting” within an individual “highly utilized unit” for applicability

purposes would not have to be included in the tracking system, while all other types of netting

involving a highly utilized unit would have to be included in the tracking system.

3EPA is aware of a project where the District determined that a source that “netted out”

certain units from review were “fully offset”. This determination was made prior to the current

definition of “fully offset” becoming effective. EPA would like to note that “netting out” of

review would not qualify a source as “fully offset” when this new definition becomes effective.

4EPA’s guidance on surplus-adjusting credits at time of use and the equivalency system

focuses on Reasonably Available Control Technology (“Response to Request for Guidance on

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time that a source files an application to make the reduction. Thus, sources may use credits that

are not “surplus” under federal requirements. As noted in section IV.4, EPA has proposed to

allow the District’s equivalency demonstration in lieu of adjusting credits at the time of use.

3. Offsetting Less Than the Full Emissions Increase

The District program also does not require new sources or modified sources that

previously had’emissions below the offset trigger to provide offsets for the full amount of an

emission increase. Instead, sources are only required to offset the amount of the emission

increase in excess of the offset tr gger levels listed in section 4.5. For instance, a new 50 tons per

year source would provide 40 tons per year of offsets times the appropriate offset ratio. In

addition, major sources may have portable equipment that is federally required to provide offsets

but exempt under section 4.6.3 of the District Rule and must be included in the offset tracking

system. We are proposing to .approYe these provisions, conditioned on the District showing

overall offset equivalency with EPA requirements.

4. Minor.Sources

On the other hand, many sources will be required to provide offsets that are not required

under the federal program.. For instance, the District’s offset thresholds.for’new sources are

lower than ~he federal major source levels. Once a source’s potential to emit exceeds the offset

trigger levels, there is no de minimis exemption for modifications - all modifications that result

in an emission increase must be offset. The District may include these credits, if they meet all

EPA requirements, as “creditable reductions” in the ERC tracking system.

5. Air Oualitv Deductions

In addition, the District rule requires a 10% air quality deduction from all new offsets,

which are referred to as “Emission Reduction Credits” or “ERCs” (the rule does not require a

10% air quality deduction from ERCs banked before this provision of District Rule 2201 was

adopted). The District may include these deductions, if they meet all EPA requirements, as

“creditable reductions”in the ERC tracking system.

6. Offset Ratios

The District rule contains offset ratios that differ from EPA requirements. The District

rule contains an 1.5:1 ratio for offsets obtained more than 15 miles away, while Offsets

previously generated on-site are subject to only a 1:1 offset ratio. Other offsets are subject to the

Use of Pre-1990 ERC’s and Aadjusting for RACT at Time of Use, dated August 26, 1994). EPA

believes that “surplus” requirements for stricter SIP rules that go beyond federal minimum

RACT requirements could also be covered by the District’s offset equivalency demonstration.

EPA has reviewed many District offsets as part of our program oversight responsbilities, and

does not expect that credits that are not surplus to Maximum Achievable Control Technology

requirements will be issued by the District.

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federal minimum 1.2:1 ratio (which would change to 1.3:1 if the District is redesignated as

severe non-attainment, see 65 CFR 37926 published on June 19, 2000). The District must

include any sources providing insufficient offsets due to the 1.0:1 ratio as a deficiency under the

tracking system, but may include additional credits due to the 1.5:1 ratio when not necessary for

air quality needs.

EPA would like to note that offset ratios in excess of 1.2:1 (or 1.3:1 if the District is

redesigf~ated) would not be available for credit under the tracking system if necessary to mitigate

the air quality impact of a new sourâe. For instance, some sources have used inter-pollutant

trading where a higher ratio is necessary to ensure that the source mitigates the emissions of the

pollutant of concern. In some cases, a 1.5:1 ratio is necessary due to the large distance between

the generator of the offsets, and the user of the offsets. The District must clearly show that any

offset ratio in excess of.1.2:1 (or 1.3:1) was not necessary as air quality mitigation if it wishes to

includeit as a “credit” in the tracking system.

7. Offset Tracking System

The District must calculate, through the offset tracking system, the quantity of offsets that

meet all EPA requirements and are retired under the District program. An ERC that meets all

federal requirements, including “surplus” requirements, at time of use and is permanently retired

is “creditable” toward showing offset equivalency. An ERC that does not meet all federal

requirern~ts cannót’be counted toward demonstrating equivalency. The District must also

calculate the, quantity of offsets necessary under federal requirements each year, and any surplus

or deficit, üsiñg a rolling average that includes the previous three years. During the first two

years, the District may use just the data collected since the beginning of the tracking system or

may use a~three-year average that includes data from prior years. Additional details of the

tracking system are listed in the August 24, 1999 EPA-District “NSR Offset Tracking System”

agreement.

Although EPA believes that the District’s system may be used to demonstrate

equivalency, EPA is proposing to give the District’s rule limited disapproval because it does not

contain a specific and enforceable mechanism to remedy any shortfall that may occur: The rule

currently requires that the DIstrict añalyzè whether equivalency is achieved, but it does not

require that the District take any specific steps if equivalency is not achieved. EPAbelieVes that

the rule must contain a remedy to make-up the prior deficit and avoid future deficits to qualify

for full approval. In addition, the remedy must be effective prior to the issuance of additional

permits to new major sources or major modifications.

D. Agricultural Exemption

District Rule 2020 contains an exemption for agricultural operations based on California

Health and Safety Code Section 42310(e). This exemption generally applies to “any equipment

used in agricultural operations in the growing of crops or the raising of fowl or animals.”

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EPA has discovered that the agricultural exemption in the District’s program could apply

to major sources. Unlike most other exemptions in District Rule 2201, this exemption does not

contain any limits on the type of equipment and/or size of the equipment that would be

exempted. For instance, an agricultural source could add internal combustion engines emitting

major amounts of NOx or other non-attaInment pollutants. In this situation, a new major source

or a major modification required. to obtain a permit under Federal Regulations could be

improperly exempted. EPA cannot fully approve a rule that would exempt major stationary

sources from the Clean Air Act’s NSR requirements. Therefore, EPA is proposing that the

District must eliminate this exemption far potential major sources from their Permit Exemption

rule so that the rule that is ultip~iately given full approval into the State Implementation Plan

would not exempt any major source.

E. Lowest Achievable Emission Rate for Major Modifications

EPA’s New Source Review regulation (40 CFR section 5 1.165) requires that modified

major sources of non-attainment pollutants calculate net emission increases based on the postproject allowable emissions minus the pre-project actual emissions, and requires LAER for

increases that exceed the major modification thresholds. The District rule, hoWever, requires

LAER for modified units with an increase in permitted emissions of greater than two pounds per

day (Section 4 of District Rule 2201).

EPA believes that the District rule will require LAER for most modified sources that

trigger federal LAER requirements sometimes. Nevertheless, this difference in how to calculate

emission increases could exempt a major modification (as defined under federal rules) from

LAER. In some cases, a source may have a permit rate that is substantially higher than its current

actual emissions. The facilit~j may also make a modification (incli~ding modernization, or c.~hange

to a different type of fuel or raw. material) that causes a significant increase in the actual emission

rate without increasing the permit limit. Additionally, EPA is concerned that some permits do

not contain any source-specific emission limits.

The tables below demonstrate that a major source that makes a modification regulated by

EPA’s New Source Review program can sometimes be subject to LAER under EPA

requirements but not the current District rule. These tables are based on a source that has not

made any other changes that would be counted towards NSR applicability.
LAER Applicability Comparison TableSource with one large emission unit

Pre-project Pre-project Post-Project Modificatio Is Increase a

Actual Permit Limit Allowable n Subject to Major

Emissions (in Emissions LAER Modification

tons per year) Under Under

District Federal NSR

Rule? Rules?

scenario A 80 tpy VOC 100 tpy VOC 100 tpy VOC No No, increase

or NOx or NOx or NOx is 20 tpy

VOC or NOx

scenario B 50 tpy VOC 100 tpy VOC 100 tpy VOC No Yes, increase

or NOx or NOx or NOx is 50 tpy

VOC or NOx

LAER Applicability Comparison Table - Source with five modified emission units

Pre-project Pre-Project Post-Project Modification Is Increase a

Actual Permit Limit Allowable Subject to Major

Emissions (in Emissions LAER Under Modification

tons per year) District Rule Under

? Federal NSR

Rules?

scenario C 5 at 23 tpy = 5 at 25 tpy = 5 at 25 tpy No No, increase

115 tpyof 125 tpyPM10 125 tpyPM10 is l0tpyof

PM10 PM10

scenario D 5 at 10 tpy = 5 at 25 tpy = 5 at 25 tpy = No Yes, increase

50 tpy PM10 125 tpy PM10 125 tpy PM10 is 75 tpy of

PM10

For example, EPA has reviewed emissions data for a glass furnace expansion. The post

project emissions were higher than their pre-project actual emissions, but the source believed that

the project was not subject to LAER under the current District rule. This occurred because the

source compared their pre-project permit limit (the source used their estimate of potential to emit

because the permit did not contain source-specific emission limitations) with the post-project

permit limit, rather than comparing their pre-project actual emissions to the new permit limit.
Because of this deficiency, EPA is proposing a limited disapproval, and requiring that the

District modify Rule 2201 to specifically require LAER for all significant increases in actual

emissions.