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BOARD MEETING DATE: February 14, 1997 AGENDA NO.25

Report:

Effectiveness of Regulation XIII -New Source Review

Synopsis:

This report, submitted to the Board pursuant to subdivision (b) of Rule 1310 - Analysis and

Reporting, provides information on the effectiveness ofRegulation XIII in meeting the state

and federal NSR requirements for the period August 1, 1995 to July 31, 1996.

Committee:

Stationary Source Committee, January 24, 1997, Reviewed

Recommended Action:

Receive and file this report

James M. Lents, Ph.D.

Executive Officer

Background

Regulation XIII governs the permitting of new, modified, and relocated sources within the AQMD’s

jurisdiction, that are not subject to Regulation XX - RECLAIM. Rule 1310 - Analysis and Reporting,

subdivision (b), requires the submittal of an annual report to the AQMD’s Governing Board on the

effectiveness ofRegulation XIII in meeting the state and federal NSR requirements. This report provides

information for the period from August 1, 1995 to July 31, 1996.

Regulation XIII is designed to meet state and federal statutory requirements and ensure that the

construction and operation of new or modified sources will not interfere with progress towards

attainment ofthe National Ambient Air Quality Standards (NAAQS). Presented below are the specific

requirements offederal and state law.

Federal Law

Federal law requires the use of Lowest Achievable Emission Rate (LAER) and offsets. A 1.5-to-i

external offset ratio and a 1.3-to-i internal offset ratio is required for VOC or NOx sources that emit or

have the potential to emit 10 tons or more per year. [Section 182(e) ofthe CAA specifically defines a

“major source” and a “major stationary source” as follows “... any stationary source or group of sources

located within a contiguous area and under common control that emits or has the potential to emit, at

least 10 tons per year of volatile organic compounds.” Section 182 (0(1) of the CAA also states that

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the ... provisions required ... major stationary sources of volatile organic compounds shall also apply to

major stationary sources ... of oxides of nitrogen.”] However, the South Coast Air Basin (Basin) may

qualify for a 1.2-to-i offset ratio if it requires all existing major sources to use federally defined BACT.

In addition, the increased offset ratio requirements can be met on an aggregate basis. An aggregate

compliance approach for federal NSR is acceptable to EPA provided the information is substantiated by

an emissions tracking system. The AQMD’s NSR program meets the federal offset requirements in an

aggregate form. The AQMD uses a 1.5-to-i offset factor in its demonstration offederal NSR

equivalency. All the information provided in this report is substantiated by data retrieved from the

AQMD’s NSR Tracking System.

State Law

State law requires the use of BACT for new and modified sources, and “no net increase in

emissions” [Health & Safety Code Sections 40918-40920.5.] from permitted new or modified sources

based on their potential to emit and the nonattainment classification ofthe area in which they are

located.

The Basin must comply with the requirements for extreme nonattainment area for VOC and NOx, and

serious nonattainment area for PM1O, SOx, and CO. The Southeast Desert Air Basin (SEDAB) must

comply with the requirements for severe nonattainment area for VOC, NOx, PM1O, SOx, and moderate

nonattainment area for CO.

Based on recent changes to state law, only the Basin is required to demonstrate “no net increase” in

emissions, and only for the extreme nonattainment precursors of ozone (VOC and NOx).

Compliance Analysis

Federal LAER, state BACT, and offsetting emission increases are the primary requirements of federal

and state NSR. AQMD’s BACT standards are equivalent to, and in many cases more stringent than,

LAER as defined by federal law and BACT as defined by state law. Regulation XIII meets the federal

and state requirements for LAER and BACT, respectively. The second test for equivalency is the

requirement to offset emission increases. The balance ofthis report evaluates the effectiveness ofthe

rule in meeting federal and state emission offset requirements. The following chart provides a graphic

overview ofthe results of this analysis.

Chart I

Summary of Offset Analysis

Federal

Major Sources

• Meet all Requirements

• Surplus Supplies Offsets to

Small and Exempt Source

10 Tons/Year

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• Meet all Requirements

4 Tons/Year

Regulation XIII

Exempt Sources

Small Shortfall for NOx

• Problem meeting State Requirement for No Net Emission Increase” for all Permitted Sources Other

Sources

Emissions Growth

• Registrations, IC Engines and

Area Sources

Offset Requirements

The data and information presented in this report is limited to the supply and demand for creditable

emission reductions and offsets for sources for which the AQMD has taken responsibility to provide

offsets, i.e., previous Community Bank, Priority Reserve and emission increases exempted from offsets

pursuant to Rule 1304 - Exemptions. Emission increases mitigated by the applicant through the purchase

of external offsets or by internal mitigation are not included here since they meet the intent of both state

and federal law. Therefore, the estimates of total supply and demand of creditable emission reductions

and offsets respectively refers to the total supply and demand for sources for which the AQMD is

directly responsible to meet the offset requirements.

The analysis performed to generate the data presented in this report was based on the emission

thresholds that define a “major polluting facility” in the Basin. [The thresholds that define major

polluting facilities in the Basin are more stringent than the thresholds that define major polluting

facilities in the SEDAB. Therefore, the analysis is conservative since it may overestimate the emission

increases subject to federal offset requirements.)

Sources of Creditable Emission Reductions

The sources of creditable emission reductions used by the AQMD to demonstrate compliance with

federal and state NSR requirements are described below.

Oiphan Shutdowns

Orphan shutdowns are emission decreases from stationary sources that go out of business, permanently

cease emitting activities, and do not apply for emission reduction credits (ERCs). These emission

decreases are retained by the AQMD to fund the NSR program.

BAiLDLscount of ERCs

Emission reductions from shutdowns for which ERCs are issued are discounted to BACT levels. The

amount discounted is credited to the NSR account as creditable emission reductions, since they are in

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excess ofthe federal NSR requirements.

Nçgflve NSR Balances - 1990 Discounts

This source of creditable emission reductions was generated by discounting negative NSR balances in

1990. Negative NSR balances represented a facility’s emission reduction credit balance. Negative NSR

balances were generated by emission reductions, which were the result of equipment or facility

modifications or shutdowns, that were credited to a facility’s NSR account and not issued as a

certificate. As part ofthe 1990 amendments to Regulation XIII, the AQMD reduced these credit

balances by 80% to generate emission reductions to fund the Community Bank, Priority Reserve and

Rule 1304 exemptions. The amounts presented here are the balance left over, after July 1995.

Table 1-1 presents the supply of emission reductions available to offset the emission increases subject to

federal NSR.

Table 1-1

Supply of Emission Reductions for Federal NSR Compliance

(August 1995 -July 1996)

j Source Amount (tons/day) VOC - NOx SOx CO f PM1O

I_________________________ (tons/day) I (tons/day) (tons/day) (tons/day) (tons/day)

Orphan Shutdowns 1.7 j 0.3 0.0 0.2 0.8

BACT Discount of ERCs 3.5 -

0.7 0.0 0.0 0.2

1990 Discounts Balance 98.0 25.7 18.7 31.9 39.6

[ Balance of Creditable

Emissions Reductions

presented in Table 2-2, p 2-9,

of the document entitled Staff

Report for: Proposed

Amended Regulation XIII -

New Source Review &

Proposed Amended Rule 212

- Standards for Approving

Permits, October 12, 1995. J

Total 103.2 26.7 18.7 32.1 40.6

Sources for which AQMD Provided Offsets

AQMD’s NSR program provides an exception from the offset requirement of Regulation XIII for a

number of sources. However, federal and state laws generally do not recognize such exceptions, and

require these emission increases to be fully offset.

Community Bank

Until February 1996, no offsets were required for projects whose emission increases were below 30

lb/day VOC; 40 lb/day NOx; 60 lb/day SOx; 220 lb/day CO; and 30 lb/day PM 10. This feature was

replaced with a facility exemption for small business operators, effective February 1, 1996. Permits filed

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prior to this last rule amendment were processed under the old Community Bank. This report continues

to show Community Bank permitting activity.

PrjQiEilYEeseYc

No offsets are required for essential public service projects that increase emissions from new and

modified sources. Essential public services are defined in Rule 1302 -Definitions and include landfills,

sewage treatment plants and similar operations.

Exempt Emissions

Several offset exemptions are provided in Rule 1304 in keeping with the AQMD’s policy for fair and

equitable treatment of business. While a complete explanation may be found in earlier staff reports for

Regulation XIII revisions, most of these exemptions are either beneficial to the environment or driven

by severe economic needs.

Table 1-2 presents the permitting demand for offsets for the period from August 1, 1995 to July 31,

1996. Table 1-2 also presents the carry over balance of emission reductions available for future years.

Table 1-2

Demand for Offsets Required to Meet Federal Offset Requirements [Based on a 1.5-to-i Offset Factor]

Compared with Creditable Emission Reductions

(August 1995 to July 1996)

Source Amount (tons/day) VOC NOx SOx CO PM1O

(tons/day) (tons/day) (tons/day) )[ (tons/day) j (tons/day)

Community Bank 0.3 0.4 0.0 0.1 0.0

Priority Reserve 0.1 0.3 0.0 0.0 0.0

Exempt Emissions 0.4 3.3 0.0 0.3 0.0

(Rule 1304)

Total Emission Increases 0.8 4.0 0.0 0.4 0.0

Creditable Emission 103.2 26.7 18.7 32.1 40.6

Reductions

(from Table 1-1)

Balance 102.4 22.7 18.7 1 31.7 1 40.6

Federal Equivalency

As presented in Table 1-2, the AQMD’s NSR program meets the offset requirement of federal law.

State “No Net Emission Increase” Requirements

The analysis presented here is based on the fact that the “no net emission increase” requirement for

extreme nonattainment pollutants is applicable only to VOC and NOx. The “no net emission increase”

requirements for serious nonattainment pollutants is applicable to PM1O, SOx, and CO.

Supply and Demand Balance (August 1995 -July 1996)

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Table 1-3 presents the supply of reductions available for compliance with the state’s “no net emission

increase” requirement for the period from August 1, 1995 to July 31, 1996. Table 1-4 presents the

demand for emission increases subject to the state’s “no net emission increase” requirements, and the

balance of emission reductions available for future.

Table 1-3

Supply of Emission Reductions for State Law Compliance

(August 1995 to July 1996)

) Source Amount (tons/day) VOC J NOx SOx CO jj PM1O

I_________________________ (tons/day) j (tons/day) (tons/day) (tons/day) (tons/day)

IO1phan Shutdowns 1.7 0.3 0.0 0.2 ( 0.8

BACT Discount of ERCs 3.5 0.7 0.0 0.0 0.2

1990 Discounts Balance 56.1 5.0 18.9 29.9 39.6

[ Balance of Creditable

Emissions Reductions

presented in Table 2-5, p 2-

13, ofthe document entitled

StaffReport for: Proposed

Amended Regulation XIII -

New Source Review &

Proposed Amended Rule 212

- Standards for Approving

Permits, October 12, 1995.]

Total 61.3 6.0 18.9 30.1 40.6

Table 1-4

Demand for Emission Offsets Required to Meet the State’s “No Net Emission Increase” Requirement

[All new and modified VOC and NOx sources (regardless oftheir potential to emit), and all new and

modified SOx, CO and PM1O sources that emit, or have the potential to emit 15 tons or more per year.]

Compared to Creditable Emission Reductions

August 1995 to July 1996)

Source Amount (tons/day) VOC NOx — SOx CO PM1O

(tons/day) (tons/day) (tons/day) (tons/day) (tons/day)

Community Bank 7.0 2.6 [ 0.0 0.2 0.0

Priority Reserve 0.1 0.4 0.1 0.3 0.0

Exempt Emissions(Rule 6.0 3.3 0.0 1.5 0.0

1304)

Total Emission Increases 13.1 6.3 0.1 2.0 0.0

Creditable Emission 61.3 6.0 18.9 30.1 40.6

Reductions

(from Table 1-3)

Balance 48.2 -0.3 18.8 28.1 j 40.6

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State Equivalency

Except for NOx, the AQMD’s NSR program meets the offset requirements of state law.

During this reporting period, there has been a sharp increase in NOx emissions from the permitting of

many smaller internal combustion engines (ICEs), as compared to similar periods in the past. Since the

state law regarding NSR is focused on emission increases from permitted equipment and not area

sources, the situation is expected to improve in the future since most of these ICEs are now being

registered under AQMD’s Rule 2100 -Registration of Portable Equipment. Registered equipment is

exempt from permits and all provisions of AQMD’s Regulation XIII. The state is expected to adopt a

similar rule in the near future, for registration of ICEs on a statewide basis. Since the AQMD’s BACT

standards are equivalent to state-defined BACT, the AQMD’s program, with the exception for NOx, is

equivalent to the state NSR requirements.

Conclusion and Recommendations

AQMD’s NSR program, as demonstrated, meets all federal NSR requirements for the period from

August 1995 to July 1996. The AQMD’s NSR program also meets the state NSR requirements of “no

net emission increase” for VOC, SOx, CO and PM1O, but shows a small shortfall for NOx. This analysis

and report applies to sources not subject to Regulation XX -RECLAIM. AQMD staff will evaluate the

NOx shortfall and will provide recommendations to the Board on a future policy course to meet the state

NSR requirements.

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