Technical Support Documentfor EPA’s Notice ofProposed Rulemaking forthe 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 ofTechnical Support Document Update

EPA is proposing a limited approval and limited disapproval oftwo 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 ofthese rules in the Federal Register (64 FR 51493) on September23, 1999. However, based on comments EPA received on the proposed approval and further review ofthe rules, EPA has determined thatthe rules as submitted are notfully approvable. Therefore, in this action, EPA is proposing a limited approval and limited disapproval ofthe rules. EPA is also revising the Technical Support Document by replacing the priordefinition ofnet emissions increase in section IV.9, replacing sub-sections A and D ofSection VII, Additional Rule Topics, and by adding a new sub-section E to section VII as follows’:



### IV. EPA Evaluation ofDistrict 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 thatthe District’s requirement for LAER on all new sources with emissions greaterthan two pounds peryear (withoutthe opportunityfornetting) will ensure that LAER is required forall new majorsources. The basis forcalculating whetheran increase at an existing source has occurred, however, can be less strict than the federal method. The effectthat the difference between federal regulations and District regulations will have foroffset requirements and LAER applicability formajor modified sources is discussed in Section VII.E., “Additional Rule Topics.” 

### VIII. Additional Rule Topics
A. Offset EciuivalencyTracking System The District has requested that EPA determine thatthe offset requirements ofthe District rule are equivalentto federal requirements on a program-wide basis, ratherthan meeting federal requirements on a source-by-source basis. The District Governing Board adopted a resolution on

‘Please note thatthis 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. 1August 20, 1998 to demonstrate thatthe 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 fewerfederally recognized offsets in some cases by requiring more offsets than the federal program in othercases, but has notyet begun collecting data forthe demonstration. The District program varies from federal requirements in several ways, which must be included in the offsettracking system and are identified below.
1. Potential-to-potential test First District Rule 2201 allows sources to use theirpermitted emissions (i.e. potential to emit) ratherthan theiractual emissions as a baseline foroffset applicabilityand 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% ofthe permitted emissions.2 The second is a “clean unit” that has installed emission controls comparable to a recent BACT determination, orachieved 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 ofemission increases that have occurred since the time thatthe District established an NSR “baseline”, ifthe units are offset by offsetting the “balance”.3 Sources allowed to use potential to emit to set theirbaseline emissions can more easily net out of offset requirements and/or reduce the amount ofoffsets by using potential to emit ratherthan actual emissions as a baseline. (Sources must use actual emissions as the baseline emissions for emission units that do not qualifyforone ofthese categories.) EPA is proposing to allowthe limited use ofthe potential-to-potential test conditioned on the District showing equivalency annually.
2. Surplus atTime-of-Use The District also differs from federal requirements because the District rule does not ensure that offsets are surplus ofall regulatory requirements, including RACT orother SIP or attainment plan requirements, at time-of-use4. Instead, the credits must only be surplus atthe

2EPA believes that “netting” within an individual “highly utilized unit” forapplicability purposes would not have to be included in the tracking system, while all othertypes ofnetting involving a highly utilized unit would have to be included in the tracking system. 3EPA is aware ofa project where the District determined that a source that “netted out” certain units from review were “fully offset”. This determination was made priorto 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 attime ofuse and the equivalencysystem focuses on ReasonablyAvailable Control Technology (“Response to Request forGuidance on 2time that asource files an application to make the reduction. Thus, sources may use credits that

are not “surplus” underfederal requirements. As noted in section IV.4, EPA has proposed to allow the District’s equivalency demonstration in lieu ofadjusting credits atthe time ofuse. 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 triggerto provide offsets forthe full amount ofan emission increase. Instead, sources are only required to offsetthe amount ofthe emission increase in excess ofthe offsettrgger levels listed in section 4.5. For instance, a new 50 tons per yearsource would provide 40 tons peryearofoffsets times the appropriate offset ratio. In addition, major sources may have portable equipmentthat is federally required to provide offsets but exempt under section 4.6.3 ofthe 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 equivalencywith EPA requirements.
4. Minor.Sources On the other hand, many sources will be required to provide offsets that are not required underthe federal program.. For instance, the District’s offsetthresholds.for’new sources are lowerthan ~he federal majorsource 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, ifthey meet all EPA requirements, as “creditable reductions” in the ERC tracking system.
5. AirOualitv Deductions In addition, the District rule requires a 10% airquality deduction from all new offsets, which are referred to as “Emission Reduction Credits” or “ERCs” (the rule does not require a 10% airquality deduction from ERCs banked before this provision of District Rule 2201 was adopted). The District may include these deductions, ifthey meet all EPA requirements, as “creditable reductions”in the ERC tracking system.
6. Offset Ratios The District rule contains offset ratios that differfrom EPA requirements. The District rule contains an 1.5:1 ratio foroffsets obtained more than 15 miles away, while Offsets previouslygenerated on-site are subject to only a 1:1 offset ratio. Other offsets are subjecttothe

Use of Pre-1990 ERC’s and Aadjusting for RACT atTime ofUse, dated August26, 1994). EPA believes that “surplus” requirements forstricter SIP rules that go beyond federal minimum RACT requirements could also be covered bythe District’s offset equivalencydemonstration. EPA has reviewed many District offsets as part ofour program oversight responsbilities, and does not expect that credits that are not surplus to Maximum Achievable Control Technology requirements will be issued bythe District. 3federal minimum 1.2:1 ratio (which would change to 1.3:1 ifthe 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 underthe tracking system, but may include additional credits due to the 1.5:1 ratio when not necessaryfor airquality needs.
EPAwould like to note that offset ratios in excess of 1.2:1 (or 1.3:1 ifthe District is redesigf~ated) would not be available forcredit underthe tracking system ifnecessaryto mitigate the airquality impact of

# a new sourâe. Forinstance, some sources have used inter-pollutant trading where a higher ratio is necessaryto ensure thatthe source mitigates the emissions ofthe pollutant ofconcern. In some cases, a 1.5:1 ratio is necessarydue to the large distance between the generator ofthe offsets, and the userofthe offsets. The District must clearly show that any offset ratio in excess of.1.2:1 (or 1.3:1) was not necessary as airquality mitigation if it wishes to includeit as a “credit” in the tracking system.
7. OffsetTracking System The District must calculate, through the offset tracking system, the quantity ofoffsets that meet all EPA requirements and are retired underthe District program. An ERC that meets all federal requirements, including “surplus” requirements, at time ofuse 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 ofoffsets necessary underfederal requirements each year, and anysurplus ordeficit, üsiñg a rolling average that includes the previous three years. During the firsttwo years, the District may usejust the data collected since the beginning ofthe tracking system or may use a~three-year average that includes data from prioryears. Additional details ofthe tracking system are listed in the August24, 1999 EPA-District “NSR OffsetTracking System” agreement. Although EPA believes thatthe 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 mayoccur: The rule currently requires thatthe DIstrict añalyzè whetherequivalency is achieved, but it does not require thatthe Districttake any specific steps ifequivalency is not achieved. EPAbelieVes that the rule must contain a remedyto make-up the priordeficit and avoid future deficits to qualify forfull approval. In addition, the remedy must be effective priorto the issuance ofadditional permits to new majorsources or major modifications.
D. Agricultural Exemption District Rule 2020 contains an exemption for agricultural operations based on California Health and SafetyCode Section 42310(e). This exemption generally applies to “anyequipment used in agricultural operations in the growing ofcrops orthe raising offowl or animals.”
4EPA has discovered thatthe agricultural exemption in the District’s program could apply

to majorsources. Unlike most otherexemptions in District Rule 2201, this exemption does not contain any limits on the type ofequipment and/orsize ofthe equipmentthat would be exempted. For instance, an agricultural source could add internal combustion engines emitting major amounts ofNOx orother non-attaInment pollutants. In this situation, a new majorsource ora major modification required.to obtain a permit under Federal Regulations could be improperly exempted. EPA cannot fully approve a rule thatwould exempt majorstationary sources from the Clean AirAct’s NSR requirements. Therefore, EPA is proposing thatthe District must eliminate this exemption

## farpotential majorsources 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 majorsource. E. Lowest Achievable Emission Rate for Major Modifications EPA’s New Source Review regulation (40 CFR section 51.165) requires that modified majorsources 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 ofgreaterthan two pounds per day (Section 4 of District Rule 2201).
EPA believes thatthe District rule will require LAERfor most modified sources that triggerfederal LAER requirements sometimes. Nevertheless, this difference in how to calculate emission increases could exempt a major modification (as defined underfederal rules) from LAER. In some cases, a source may have a permit rate that is substantially higherthan its current actual emissions. The facilit~j may also make

# a modification (incli~ding modernization, orc.~hange to a different type offuel or raw.material) that causes a significant increase in the actual emission rate without increasing the permit limit. Additionally, EPA is concernedthat some permits do not contain any source-specific emission limits.
The tables below demonstrate that a majorsource that makes a modification regulated by EPA’s New Source Review program can sometimes be subject to LAER underEPA requirements but not the current District rule. These tables are based on a source that has not made anyotherchanges that would be countedtowards 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 Subjectto Major Emissions (in Emissions LAER Modification tons peryear) Under Under District Federal NSR Rule? Rules? scenario A 80 tpy VOC 100 tpyVOC 100 tpy

### VOC No No, increase

or NOx or NOx or NOx is 20 tpy VOC orNOx scenario B 50 tpyVOC 100 tpyVOC 100 tpyVOC 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 peryear) 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 tpyof 

### PM10
Forexample, EPA has reviewed emissions data fora glass furnace expansion. The post project emissions were higherthan theirpre-project actual emissions, but the source believed that the project was not subject to LAER underthe current District rule. This occurred because the source comparedtheirpre-project permit limit (the source used theirestimate ofpotential to emit because the permit did not contain source-specific emission limitations) with the post-project permit limit, ratherthan comparing theirpre-project actual emissions to the new permit limit.Because ofthis deficiency, EPA is proposing a limited disapproval, and requiring thatthe

District modify Rule 2201 to specifically require LAER forall significant increases in actual emissions.