3OARD MEETFNG DATE: February 14, 1997 AGENDA NO.25 Page1of7 _____ BOARD MEETING DATE: February 14, 1997 AGENDA NO.25

Report: Effectiveness of Regulation XIII -New Source Review Synopsis: This report, submitted tothe Board pursuant to subdivision (b)of Rule 1310 - Analysis and Reporting, provides information onthe effectiveness of Regulation XIIIin meeting the state and federal NSR requirements forthe period August 1,1995toJuly 31, 1996. Committee: Stationary Source Committee, January 24, 1997, Reviewed Recommended Action:

Receive and file this report James M. Lents, Ph.D. Executive OfficerBackground Regulation XIII governs the permitting of new, modified, and relocated sources within the AQMD’s jurisdiction, that arenot subject to Regulation XX - RECLAIM. Rule 1310 - Analysis and Reporting, subdivision (b), requires the submittal ofan annual report tothe AQMD’s Governing Board onthe effectiveness of Regulation XIIIin meeting the state and federal NSR requirements. This report provides

information forthe period from August 1,1995toJuly 31, 1996.

Regulation XIIIis designed to meet state and federal statutory requirements and ensure that the construction and operation ofnewor modified sources will not interfere with progress towards

attainment ofthe National Ambient Air Quality Standards (NAAQS). Presented below arethe specific requirements of federal and state law. Federal Law Federal law requires theuseof Lowest Achievable Emission Rate (LAER) and offsets. A 1.5-to-i external offset ratio anda 1.3-to-i internal offset ratiois required for VOC or NOx sources that emit or have the potential to emit 10tonsor more per year. [Section 182(e) ofthe CAA specifically defines a “major source” anda “major stationary source” as follows “...any stationary source or group of sources located within a contiguous area and under common control that emits orhasthe potential to emit, at least 10tons per year of volatile organic compounds.” Section 182 (0(1) ofthe CAA also states that http://www.aqmd.gov/hb/970225a.html 2/28/2002BOARD MEETING DATE: February 14, 1997 AGENDA NO.25 Page2of/ 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 fora 1.2-to-i offset ratio ifit requires all existing major sources touse federally defined BACT. In addition, the increased offset ratio requirements canbemetonan 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 inan aggregate form. The AQMD usesa 1.5-to-i offset factor inits demonstration of federal NSR equivalency. Allthe information provided inthis report is substantiated by data retrieved from the AQMD’s NSR Tracking System. State Law State law requires theuseof BACT for new and modified sources, and “nonet increase in emissions” [Health & Safety Code Sections 40918-40920.5.] from permitted newor modified sources based on their potential to emit and the nonattainment classification ofthe areain 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 forthe extreme nonattainment precursors of ozone (VOC and NOx). Compliance Analysis Federal LAER, state BACT, and offsetting emission increases arethe primary requirements of federal and state NSR. AQMD’s BACT standards are equivalent to,andin 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 testfor equivalency isthe requirement to offset emission increases. The balance ofthis report evaluates the effectiveness ofthe rulein meeting federal and state emission offset requirements. The following chart provides a graphic overview ofthe results ofthis analysis. ChartISummary of Offset Analysis FederalMajor Sources •Meet all Requirements • Surplus Supplies Offsets to Small and Exempt Source 10 Tons/Year http://www.aqmd.gov/hb/970225a.html 2/28/2002BOARD MEETING DATE: February 14, 1997 AGENDA NO.25 Page3of7 •Meet all Requirements 4 Tons/Year Regulation XIII Exempt Sources Small Shortfall for NOx • Problem meeting State Requirement for No Net Emission Increase” forall Permitted Sources Other Sources Emissions Growth • Registrations, IC Engines and Area SourcesOffset Requirements

The data and information presented inthis report is limited tothe 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 bythe applicant through the purchase of external offsets orby internal mitigation arenot included here since they meet the intent of both state and federal law. Therefore, the estimates oftotal supply and demand of creditable emission reductions and offsets respectively refers tothe 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 inthis report was based onthe emission thresholds that define a “major polluting facility” inthe Basin. [The thresholds that define major

polluting facilities inthe Basin are more stringent than the thresholds that define major polluting facilities inthe SEDAB. Therefore, the analysis is conservative since itmay overestimate the emission increases subject to federal offset requirements.)

Sources of Creditable Emission Reductions The sources of creditable emission reductions used bythe AQMD to demonstrate compliance with federal and state NSR requirements are described below. Oiphan Shutdowns Orphan shutdowns are emission decreases from stationary sources thatgooutof business, permanently cease emitting activities, anddonot apply for emission reduction credits (ERCs). These emission decreases are retained bythe 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 tothe NSR account as creditable emission reductions, since they arein http://www.aqmd.gov/hb/970225a.html 2/28/2002BOARD MEETING DATE: February 14, 1997 AGENDA NO.25 Page4ofi 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 toa facility’s NSR account and not issued asa certificate. As partofthe 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 arethe 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 1-1Supply of Emission Reductions for Federal NSR Compliance (August 1995 -July 1996) j Source Amount (tons/day) VOC - NOx SOx COf PM1O I_________________________ (tons/day)I (tons/day) (tons/day) (tons/day) (tons/day) Orphan Shutdowns 1.7j 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,p2-9, ofthe 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 fora

number of sources. However, federal and state laws generally donot recognize such exceptions, and require these emission increases tobe 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; and30 lb/day PM10. This feature was replaced witha facility exemption for small business operators, effective February 1, 1996. Permits filed htto://www.acimd.gov/hb/970225a.html 2/28/2002BOARD MEETING DATE: February 14, 1997 AGENDA NO.25 Page5of7 prior tothis last rule amendment were processed under theold Community Bank. This report continues to show Community Bank permitting activity. PrjQiEilYEeseYcNo 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 forfair 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 tothe environment or driven by severe economic needs. Table 1-2 presents the permitting demand for offsets forthe period from August 1,1995toJuly 31, 1996. Table 1-2 also presents the carry over balance of emission reductions available for future years. Table 1-2Demand for Offsets Required to Meet Federal Offset Requirements [Based ona 1.5-to-i Offset Factor] Compared with Creditable Emission Reductions (August 1995toJuly 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 18.71 31.71 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 hereis based onthe fact that the “no net emission increase” requirement for extreme nonattainment pollutants is applicable onlyto 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) http://www.aqmd.gov/hb/970225a.html 2/28/2002BOARD MEETING DATE: February 14, 1997 AGENDA NO.25 Page6of Table 1-3 presents the supply of reductions available for compliance with the state’s “no net emission increase” requirement forthe period from August 1,1995toJuly 31, 1996. Table 1-4 presents the

demand for emission increases subject tothe state’s “nonet emission increase” requirements, andthe balance of emission reductions available for future.

Table 1-3Supply of Emission Reductions for State Law Compliance (August 1995toJuly 1996) ) Source Amount (tons/day) VOCJ NOx SOx COjj 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,p2- 13,ofthe document entitled Staff Report 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 1-4Demand for Emission Offsets Required to Meet the State’s “No Net Emission Increase” Requirement

[All new and modified VOC and NOx sources (regardless of their potential to emit), andallnew and modified SOx, CO and PM1O sources that emit, or have the potential to emit 15tons or more per year.] Compared to Creditable Emission Reductions August 1995toJuly 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 28.1j 40.6 http://www.aqmd.gov/hb/970225a.html 2/28/20023OARD MEETING DATE: February 14,1997 AGENDA NO.25 Page7of7 State EquivalencyExcept for NOx, the AQMD’s NSR program meets the offset requirements of state law. During this reporting period, there has beenasharp increase in NOx emissions from the permitting of

many smaller internal combustion engines (ICEs), as compared to similar periods inthe 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 inthe 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 andall provisions of AQMD’s Regulation XIII. The stateis expected to adopt a similar ruleinthe near future, for registration of ICEs ona 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 tothe state NSR requirements. Conclusion and Recommendations AQMD’s NSR program, as demonstrated, meets all federal NSR requirements forthe period from August 1995toJuly 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 asmall 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 tothe Board ona future policy course to meet the state NSR requirements. r IAQMD 1eioüs Page4/ IHome Last Update 2/7/97

iage - URL http 1//www aqmdgov/hb/970225a html http://www,aqmd.govfhb/970225a.html 2/28/2002