Linda S. Adams Secretary for

Environmental Protection

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. California Environmental Protection Agency

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# Air Resources Board

Robert F. Sawyer, Ph.D., Chair

1001 I Street • P.O. Box 2815 Sacramento, California 95812 • www.arb.ca.gov Arnold Schwarzenegge r Governor

May 30, 2007

Brent Newell Center on Race, Poverty and the Environment 450 Geary Street, Suite 500 San Francisco, CA 94102

Dear Mr. Newell:

The Office of Legal Affairs of the Air Resour ces Board (ARB or Board) has completed its review of your petition, dated October 18, 2006, requesting ARB to conduct a public hearing to review September 21, 2006 amendments adopted by the San Joaquin Valley Unified Air Pollution Control District (SJV UAPCD or District) to its Rules 2020 (“Exemptions”) and 2201 (“New and Modified Stat ionary Source Review Rule.” Your

Petition asserts that two elements of the amendments constitute impermissible weakenings of the District’s new source re view (NSR) rule. Amendments to NSR rules that make them less stringent than the rule as it existed on December 30, 2002, are generally prohibited by Senate Bill 288 (Stats 2003 ch 476, Sher), the Protect California Air Act of 2003, which enacted Health and Safety Code (HSC) sections 42500-42507. We have also considered your letter of De cember 21, 2006, in which you offer your interpretation of provisions of SB 288 and SB 700 (Stats 2003 ch 479, Flores)

As enacted by SB 288, HSC section 42504(a) establishes a mechanism under which ARB may conduct a hearing to review whether a district’s amendment s to its NSR rule

meet SB 288 criteria. There ar e no provisions for petitions requesting ARB to conduct a HSC section 42504(a) hearing to review a di strict’s NSR rule amendments. As discussed below, I have concluded that t he challenged amendments do not violate

SB 288 as a matter of law and therefore do no t trigger a need for an ARB hearing. If such a hearing were to be conducted, based on the information we have received I

would advise the Board that as a matter of law the challenged amendments do not weaken the District’s NSR rule. Nevertheless, if you wish we are prepared in this particular instance to schedule a hearing by our Board at which you could present the basis for your position that the Board should find that adoptio n of the amendments

violated SB 288.

As you know, SB 700 was enacted both to remove the exemption from permit requirements for agricultural sources of air pollution and to impose numerous substantive and procedural control require ments on agricultural sources and airMr. Newell May 30, 2007 Page 2

pollution control agencies. The bill becam e effective January 1, 2004 and offers many opportunities for interpretation of its provisions. SB 288 was enacted the same day as SB 700 and was chaptered first. It is important to not e that public agencies may exercise only those powers given to them by law. ( See Mountain Lion Foundation v.

Fish & Game Com. (1997) 16 Cal.4th 105; Sierra Club v. Cal. Coastal Com. (2005) 34 Cal.4th 839, and 3 Sutherland St atutory Construction sec. 65: 2 (6th ed.)). Thus if the Legislature enacts a law that has the effect of directly prohibiting a district from taking certain actions under its NSR rule, thos e prohibitions apply to the district whether

or not the district has amended its rule to conform to the stat utory prohibition.

The Challenged Amendment to Rule 2201

Federal NSR regulates the construction and m odification of source s that result in significant increases in emissions of air pollutants such as volatile organic compounds, oxides of nitrogen, and particulate matter. Along with requiring the use of highly effective emission controls by the new or modified source, federal NSR requires that all new emissions from the source be offset by emission reductions fr om other sources in

the area.

The District’s September 21, 2006 amendments to Rule 2201 added section 4.6.9, which provides that agricultu ral sources are not required to provide emission offsets to mitigate pollution from new and modified source s “to the extent provided by California Health and Safety Code, section 42301.18(c).” HSC section 42301.18(c), in turn, which was added to the Health and Safety Code by SB 700, provides:

(c) A district may not require an agri cultural source to obtain emission offsets for criteria pollutants for that source if emission reductions from

that source would not meet the crit eria for real, permanent, quantifiable,

and enforceable emission reductions.

We first had occasion to consider whether this amendment violated SB 288 in our review of an October 10, 2006 le tter from Paul Cort on behalf of Earthjustice petitioning ARB to conduct an SB 288 hearing on the amendm ent. In a December 18, 2006 letter

from Executive Officer Catherine Wither spoon, ARB denied the petition on the ground that the amendment simply references a pr ovision of State law, and accordingly does not constitute a weakening of Rule 2201 in cont ravention of state la w. We noted that the underlying issue raised by the petitioners was the District’s interpretation of HSC section 42301.18(c), rather than the Distr ict’s adding the reference to state law, and that the disputed interpretation was not cognizable under SB 288. Your December 21, 2006 letter asks ARB to expl ain our interpretation of HSC section 42301.18(c), and why incorporation of that provision into Ru le 2201 does not constitute an impermissible weakening of the rule in violation of SB 288.Mr. Newell May 30, 2007 Page 3

In addition, you ask us to reconcile the denial of the Earthjustice petition in light of HSC section 39011.5, added as part of SB 700, which had not been cited in Mr. Cort’s letter. HSC section 39011.5 provides in part:

* * * * (b) Any district rule or regulat ion affecting stationary sources on agricultural operations adopted on or bef ore January 1, 2004, is applicable to an agricultural source.

(c) Nothing in this section limits the authority of a distri ct to regulate a source, including, but not limited to , a stationary source that is an agricultural source, over which it otherwise has jurisdiction pursuant to this division [26] or pursuant to the federal Clean Air Act . . . or any rules or regulations adopted pursuant to that act that were in effect on or before January 1, 2003 . . . .

SB 700’s enactment of HSC section 42301.18 (c) on its face imposes an effective limitation on the offset requirements of any California air distri ct, regardless of the requirements in the District’s NSR rule. Ho wever, you appear to take the position that

since the District’s NSR rule on or befor e January 1, 2003 applied by its terms to agricultural sources, HSC section 39011.5 trum ps HSC section 42301. 18(c) in the case

of the District. You indicate that the decision in Association of Irritated Residents v. Fred Schakel Dairy , 2005 U.S. LEXIS 36769 (E.D. Cal. 2005) supports your position. There the Court held that the December 19, 2002 version of the District’s NSR rule applied to the defendant dairy operation, citing HSC section 3901 1.5(b) and (c).

The Challenged Amendment to Rule 2020

Your October 18, 2006, petition also reques ted the ARB to hold a public hearing to consider the San Joaquin Valley APC D’s September 21, 2006 amendments to Rule 2020, which added sect ion 6.20 to exempt specified agricultural sources from District permit requirements. As amended on September 21, 2006, section 6 of Rule 2020 provides:

6.0 District Exempt Source Categories

Except as required by Section 5.0, no Authority to Construct or Permit to Operate shall be required for an emissi on unit specified below. All other equipment within that source category shall requ ire an [Authority to Construct (ATC)] or [Permit to Operate (PTO)].Mr. Newell May 30, 2007 Page 4

* * * *

6.20. Agricultural sources, but only to the extent provided by California Health and Safety Code section 42301.16.

Enacted as part of SB 700, HSC section 42301.16 permits a dist rict to exempt specified agricultural sources from permi t requirements – including NS R requirements – if certain

criteria are met. Thus a c onfined animal facility (CAF) that is required to obtain the special operating permit provided for CAFs in section 40724.6 may be exempt from NSR permit requirements if the District finds, at a public hear ing, that a permit [other than the CAF permit] is “not necessary to impos e or enforce” emission limits for criteria pollutants and that requiring another permit from the CAFs “would impose a burden on those sources that is significantly more burdensome than permits required for similar sources of air pollution.” In addition, section 42301.16(c) exempts entirely from the permit requirements “an agricultural source of air pollution with actual emissions that are less than one-half of any applicable emission s threshold for a major source in the district, for any air contaminant [except fugi tive dust],” unless the District specifically finds that the source is not subject to the CAF permit requirement of section 40724.6; that a permit is necessary to impose or enforce emission reductions of criteria pollutants for which the District is nonattainment; and that the requirement to obtain a permit is not significantly more burdensome than it is fo r other similar source s of air pollution. (Permits are required for any agricultural so urce that must obta in a permit under the federal Clean Air Act; see section 42301.16(a)).

Your analysis relies in large part on your construction of HSC section 39011.5(b) and (c):

Notwithstanding other provisions in SB 700, section 39011.5 specifically requires agricultural sources’ co mpliance with the December 19, 2002

versions of Rules 2020 and 2201. No r does SB 700 limit the authority of the District to regulate agricultural sources under the December 19, 2002

versions of Rules 2020 or 2201. The Legislature could not have spoken more clearly on this issue: agricultural sources must comply with the December 19, 2002 versions of Ru les 2020 and 2201 and the District has the authority to mandate such compliance.

Petition at 5-6.

The Requirements of SB 288

The key SB 288 restrictions on districts ame nding their NSR rules ar e contained in the

four subsections of HSC section 42504.Mr. Newell May 30, 2007 Page 5

HSC section 42504(a) provides:

No air quality management district or air pollution control district may amend or revise its new source review rules or regulations to be less stringent than those that existed on December 30, 2002. If the state board finds, after a public hearing, that a district's rule s or regulations are not equivalent to or more stringent than the rules or regulations that existed on December 30, 2002, the state board shall promptly adopt for that district the rules or regulations that may be necessary to establish equivalency, consistent with subdivision (b).

This provision sets forth an ov erall equivalency requirement that allows a district to relax one NSR element only as long as one or more other elements are sufficiently strengthened to result in overall equivalent st ringency. We interpret this broadly-worded provision to include offset requirements and to apply on a programmatic basis. For example, a district would not be allowed to relax NSR offset require ments if the overall

effect of the district’s amendments would render the NSR rules less stringent in the
aggregate.

HSC section 42504(b) supplements this general prohibition against weakening NSR rules and regulations by delineating four elements whic h cannot be revised if the revisions would “exempt, relax, or reduce the obligations of a stat ionary source. . . . ” These elements are listed in section 42504(b)(1):

(A) The applicability determination for new source review.

(B) The definition of modification, ma jor modification, routine maintenance, or repair or replacement.

(C) The calculation methodology, thresholds or other procedures of new

source review.

(D) Any definitions or requirements of the new source review regulations.

HSC section 42504(b)(2) provides that t he rule components listed above may not be amended if doing so would “exempt, relax, or reduce the obligations of a source” with regard to the follo wing requirements:

(A) Any requirements to obtain new s ource review or other permits to construct, prior to commenc ement of construction.

(B) Any requirements for best available control technology (BACT).Mr. Newell May 30, 2007 Page 6

(C) Any requirements for air quality impact analysis.

(D) Any requirements for recordke eping, monitoring and reporting in a manner that would make recordkeepi ng, monitoring, or reporting less representative, enforceable, or publicly accessible.

(E) Any requirements for regulating any air pollutant covered by the new source review rules and regulations.

(F) Any requirements for public partic ipation, including a public comment period, public notification, public hearing, or other opportunities or forms of public participation, prior to iss uance of permits to construct.

HSC section 42504(c) provides,

In amending or revising its new source review rules or regulations, a district may change any of the items in paragraph (1) of subdivision (b) only if the change is more stringent t han the new source review rules or regulations that existed on December 30, 2002.

Finally, notwithstanding the general anti-backsliding provision set forth in HSC section 42504(a) and the source-s pecific prohibitions set fort h in HSC section 42504(b),

SB 288 allows revisions that ma y result in less stringent di strict NSR rules under the carefully circumscribed circumstances descr ibed in HSC section 42504(d). The rule amendment must be accomplished at a public hearing based upon substantial evidence

in the record and the district must submit the amendment(s) to t he ARB for approval at a public hearing in order to ens ure that the several conditi ons for such rule revisions have been met. Since the SJVUAPCD has not attempted to invoke HSC section 42504(d) with respect to the amendments covered by y our Petition, I do not list

the conditions here.

Applying SB 288 to the Challenged District Actions

The Amendment to Rule 2201 Refe rencing HSC Sect ion 42301.18(c)

The challenged amendments to Ru le 2201 pertain to offset requirements, which are not included in the list of requirements in HS C section 42504(b)(2). We accordingly evaluate them under the equivalency r equirements of HSC section 42504(a).

As state law, HSC section 4230 1.18(c) on its face prohibits every district in the state from requiring offsets from an agricultural source “if em ission reductions from that

source would not meet the criteria for real, permanent, quantifiable, and enforceable emission reductions” – regardless of any requ irements to the contrary in a particularMr. Newell May 30, 2007 Page 7

district’s NSR rule. The SJVUAPCD’s am endment to Rule 2201 simply acknowledges

the existence of HSC secti on 42301.18(c). The effect of 42301.18(c) on the District’s NSR program before and after the Septem ber 21, 2006 amendment to Rule 2201 was exactly the same. If the Legislature were to repeal HSC section 42301.18(c), the

District’s amendment would have no effect on the District’s NSR program. This is because all the amendment does is acknowledge t he existence of the state law; it does not change how HSC section 42301.18(c) applies to the Dis trict’s NSR program. I accordingly conclude that the District’s S eptember 16, 2006 amendment to Rule 2201 does not constitute a weakening of the Dis trict’s NSR rules under HSC section 42504(a) or (b).

You assert, however, that the clear and unambiguous limitation imposed on all districts by HSC 42301.18(c) does not apply to the SJVUAPCD because HSC section 39011.5(b) and (c) grandfathers in the District’s December 19, 2002 version of its NSR rule and immunizes that rule from any re strictions SB 700 imposes on District NSR programs. I cannot agree. First, HSC section 39011.5(c) clearly does not have this effect. Since it starts out “Nothing in this section limits the author ity of a district to regulate . . . ,” its only effect is to assure that the District’ s NSR rule is not diminished by HSC section 39011.5. However, the issue he re is not whether HSC section 39011.5

limits the effect of the Distr ict’s NSR rule, but whether HS C section 42301.18(c) limits

the effect of the rule.

That leaves HSC section 39011.5(b), which, as noted above, provides "Any district rule or regulation affecting stat ionary sources on agricultural operations adopted on or before January 1, 2004, is applicable to an agricultural source." The Legislature included this subsection for a simple reason – to clarify the applicability of district prohibitory and permit rules that were adopted when former HSC section 42310(e) (repealed by SB 700) prohibited di stricts from requiring a pe rmit for any equipment used in agricultural operations. Under HSC section 39011.5(b) , as soon as SB 700 became effective January 1, 2004, the District could as a matter of st ate law require NSR permits from new and modified agricultura l sources. (In accordance with HSC section 42301.18(a), agricultural sources that existed befor e January 1, 2004, were to be permitted as existing sources.) Other wise there could be some validity to the assertion raised by the dairy in the Fred Shackel Dairy case that follo wing enactment of SB 700 the District’s NSR rule was not applicable to an agricultural source that received its use permit from the county in 2003 wh en former HSC section 42310(e) was still in effect. Based on the terms of HSC section 39011.5(b), the Fred Shackel Dairy court rejected that assertion.

Given the Legislature’s obvious interest in enacting HSC section 39011.5(b) for the limited purpose of assuring that the Distr ict was not altogether precluded from administering its NSR rule after enactment of SB 700, there is no reason to give theMr. Newell May 30, 2007 Page 8

provision an interpretation so expansive that it nullifies other provisions of SB 700 as they apply to the District. Certainly the Fred Shackel Dairy court did not interpret HSC section 39011.5(b) so broadl y. On the contrary, the Court noted that HSC section 42301.16(c) allows the District to require a permit for agricultural sources with actual emissions of less than half the major s ource threshold only after certain findings are made, but dismissed def endants’ reliance on the prov ision because “[t]here are no allegations that support an infl uence that the Dairy ‘actually emits’ less than one-half of the threshold quantities.” (Order at p. 21). The court would not have had to reach the

factual issue had it believed that HS C section 39011.5(b) made HSC section 42301.16(c) inapplicable in the SJVUAPCD. Mo reover, there is no indication in the Court’s discussion of other SB 700 provisions such as HSC 42301.16(a) and (b) that section 39011.5(b) makes those SB 700 provis ions inapplicable to the District’s NSR

rule as in effect December 19, 2002. (Order at 21)

HSC section 42301.18(c) imposes specific conditions that di stricts must meet before they require a permit in specific circumst ances. HSC section 390 11.5(b), on the other hand, states a more general r equirement regarding the applicabi lity of district NSR rules adopted before SB 700 became effe ctive. A general statutor y provision is normally controlled by a specific provision relating to a particular subject. ( See People v. Superior

Court , 28 Cal. 4th 798 (2002), Miller v. Superior Court , 21 Cal. 4th 883 (1999).) Had the Legislature included language that the preexisting NSR requirements applied “notwithstanding” the specific limits imposed by SB 700 on a ll district NSR programs, then section 39011.5(b) could be read as nullifyi ng those specific limits in the case of

the SJVUAPCD’s NSR rule. In the absence of such language, and given the reasonableness of according t he statutory language a more limit ed effect that does not partially nullify other s pecific statutory conditions enacted by SB 700, we have

concluded as a matter of law that HSC sect ion 39011.5(b) does not exempt the District’s NSR program fr om the requirements of HSC section 42301.18(c).

With respect to our interpretation of HSC section 42301.18(c), we believe that section 42301.18(c) does not ask whether or not the District has a regul atory protocol to verify whether ERC’s offered by agricultural source are creditable, but ra ther sets forth the objective, generic criteria that must be satisf ied by an agricultural source seeking credits

for its emission reductions. If the proffered reductions were re al (i.e. surplus to required reductions), quantifiable, and enforceable, then the source would be able to use (or bank) them as credits and the Dis trict may, therefore, requi re the source to provide offsets. The use of the subj unctive “would not meet” is crit ical in interpreting this provision; it focuses the inquiry on whether the emission reduc tions meet the generic

criteria that the U.S. EPA and the ARB and ai r districts have, since 1976, required of

sources in order for the reductions to “count” for purposes of attaining ambient standards and to qualify for use as offsets. The existence of a District rule allowing such offsets to be generated is not germane to determining whether emissionMr. Newell May 30, 2007 Page 9

reductions from a given agricultural source “w ould” meet the criteria for real, permanent, quantifiable, and enforceable.

The Amendment to Rule 2020

The amendments to Rule 2020 provide for the exemption of agricultural sources from District requirements to obtain an Authority to Operate or a Permit to Operate in certain circumstances – “only to the extent provi ded by [HSC] section 42301.16.” This falls under HSC section 42504(b)(2)(A) as it is a change to a requirement to obtain a permit

to construct. We accordingly review the amendment s under HSC section 42504(b) to determine whether they “exempt, relax, or reduce the obligations of any stationary

source” in the District.

A key issue is determining the applicability of HSC section 42301.16 to the District’s

NSR rule. For the reasons described abov e in the discussion of the amendments to Rule 2201, I have concluded that HSC sect ion 39011.5 does not affe ct the applicability

of HSC section 42301.16 to the District’s NSR ru le. As a state law applying to district permit requirements, HSC se ction 42301.16 applies to the District’s permit program whether or not the District adopt s an exemption from its Authority to Construct or Permit to Operate requirements for “ agricultural sources, but only to the extent provided by California Health and Safety Code secti on 42301.16.” But the issue regarding the

amendment to Rule 2020 is more nuanced th an the issue regarding the amendment to Rule 2201. The amendment to Rule 2201 clearly carved out an exemption only to the extent the exemption was otherwise required by law. With the amendment to Rule 2020, it is necessary to evaluate the effect of the am endment by determining whether there is any difference in the Distr ict’s mandate and authority before and after the amendment was adopted.

We first consider the effect of HSC sect ion 42301.16(b), which mandates permits for all agricultural sources unless a district makes all of the three specified findings in (b)(1)-(3) or a permit is not required under HSC section 42301.16(c). Thus while the District’s amendment is couched as a blanket permit ex emption for agricultural sources “to the extent provided” in HSC sect ion 42301.16, section 423016(b) “f lips” that with the result that a permit remains mandated unless ei ther the section 42301.16(b) or the section 42301.16(c) exception applies. 1

With respect to agricultural sources t hat have been issued a confined animal feeding operation permit under HSC section 40724.6 and tr igger the other two findings listed in section 42301.16(b), the statut ory language indicates just that a permit is no longer

1 The blanket permit requirement in HSC section 42301.16(b) for agricultural sources except as otherwise provided makes the provisions of HSC section 42301. 16(a) irrelevant for purpose of an SB 288 analysis.Mr. Newell May 30, 2007 Page 10

required for these sources. Since the literal language only removes the mandate, a district theoretically may remain able to requi re a permit for these sources if it wishes to do so. If this were to be the case, the amendment impermissibly weakens the District’s NSR rule because the amendment changes a Distr ict default requirem ent for a permit to a default exemption from a permit for sources for which the three findings can be made. However, the context indicates that the legisl ative intent was to prohibit Districts from requiring ordinary permits for a source for wh ich the District makes the three findings,

and thus the effect of sect ion 42301.16(b) is the same with or without the challenged

amendment.

HSC section 42301.16(c) prohibits the District from requiring a permit for an agricultural

source “with actual emissions that are le ss than one-half of any applicable emissions source for a major source in the district “(excluding fugitive dust) prior to making the three findings listed in section 42301.16(c)(1)-(3 ). Because of the “flipping” effect of HSC section 42301.16(b) both before and after the District’s challenged amendment the District is obligated to require a permit for the smaller source s, but only if it makes the three specified findings. We accordingl y find that the chal lenged amendment does not in practice exempt, relax, or reduce the oblig ations of a smaller so urce that falls under HSC section 42301.16(c). In combination with the above analysis regarding the effect of HSC section 42301.16(b), th is means that the challe nged District amendment does

not violate SB 288 because it does not weak en the District’s NSR rule or effect an actual exemption, relaxation or reduction of the obligations of a source. Due to the existence of HSC section 42301.16 the applic able requirements for sources were not changed by the adoption of t he challenged amendments.

Conclusion

After considering the effect of the challe nged amendments, I have c oncluded that they do not cause the District’s NSR rule to be less stringent than the rule was on December 30, 2002 because they do not change the effect of the state law requirements and limitations enacted by SB 700. Consequently, should a public hearing before our Board occur on this matter, based on the information now before me I would advise the Board of my opinion t hat, as a matter of la w, the challenged

amendments do not weaken the District’s NS R rule or otherwise violate SB 288.

Notwithstanding my conclusions, we are prepared to schedule a hearing by the ARB Governing Board hearing on your Petition if y ou so desire. Please let us know if you wish to pursue that course of action. In the meantime, you have any questions about ARB’s legal analysis please contact me at ( 916) 323-9606 or Ms. Leslie Krinsk, SeniorMr. Newell May 30, 2007 Page 11

Staff Counsel at (805) 473-7325. For techni cal questions about the District’s NSR rule, please contact Mr. Chris Gallenstein, Staff Air Pollution Specialist in the Stationary Source Division at (916) 324-8017.

Sincerely,

/s/

W. Thomas Jennings

Chief Counsel

cc: Mr. Paul Cort Staff Attorney Earthjustice 426 Seventeenth Street, 5 th Floor Oakland, California 94612

Mr. Seyed Sadredin

Air Pollution Control Officer San Joaquin Valley Unified Air Pollution

Control District 1990 East Gettysburg Avenue Fresno, Califor nia 93726-0244Mr. Newell May 30, 2007 Page 12

bcc: Tom Jennings, OLA Leslie M. Krinsk, OLA Robert Fletcher, SSD Michael Tollstrup, SSD Chris Gallenstein, SSD Kitty Howard, SSD