Kathleen HartnettWhite, 

### Chairman Larry 

### R. Soward, 

### CommL'isioner Martin A. Hubert, 

### Commissioner Glenn Shankle, 

### ExecutiveDirector 

# RECEIVED 2D06

# NOV -I AM 10: 28 TEXAS COMMISSION ON**ENVIRONMEMIj{AtLt~~f~'TION** Protecting Texas by

### Reducing andPreventingPollution 

## October 24, 2006 Docket No. 2006-0167-RUL

Richard E. Greene, Regional Administrator U.S. Environmental Protection Agency

- Region 6 1445 Ross Avenue Dallas, Texas 75202-2733 Dear Mayor Greene: On October 4, 2006, the Texas Commission on Environmental Quality (Commission) adopted revisions to the State Implementation Plan (SIP). The Commission adopted amendments to 30 TAC Chapter 101, General Air Quality Rules, §§101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of §101.338; and new §§101.305, 101.338, 101.339, and 101.375, and corresponding revisions to the SIP. These amendments address deficiencies in the Commission's discrete emission reduction credit program as identified by the United States Environmental Protection Agency (EPA) in the October 5, 2005, edition of the Federal Register 

## (70 FR 58154). Changes include elimination of discrete emission reduction credits generated from shutdowns; EPA approval for transactions for emission reductions generated in another state or country, or from one nonattainment area to another, or from an attainment area to a nonattainment area; and formatting changes. The rules also implement revisions to Texas Health and Safety Code, §382.0172(c), as required by Senate Bill 784, 79th Texas Legislature, 2005, Regular Session, which allows greater flexibility in the generation ofcredits for emission reductions outside the United States. The Commission requests that EPA take no federal action on §101.337. The requirements of the El Paso region would only be a state requirement. Enclosed are the proposed revisions to the SIP, a public hearing certification, a complete record of the public hearing, and the accompanying order. I look forward to your expeditious approval ofthese SIP revisions. Sincerely,

# ~·u.uJ~

athleen HartnettWhite hairman KHWllb Enclosures

cc: The Honorable Rick Perry, Governor ofTexas Mr. Zak Covar, Office ofBudget, Planning and Policy, Office ofthe Governor Mr. Glenn Shankle, Executive Director, Texas Commission on Environmental Quality
P.O. Box 13087 • Austin, Texas 78711-3087 • 512/239-1000 • Internet address: www.tceq.state.tx.us

## TEXAS COMMISSION ON ENVIRONMENTAL

# Qs..£.I~ IVE0 2006NOV -I AM 10: 28 AIR PERMITS 

## SECTION 

# 6PD-R

THE STATE OF TEXAS § 

## COUNTY OF TRAVIS §



## This is to certify that the attached are true and correct copies ofdocuments for revisions to the Texas State Implementation Plan, adopted on October 4, 2006, pursuant to 40 Code of Federal Regulations (CFR) §51.104. I am the records administrator for the General Law Division ofthe Texas Commission on Environmental Quality.

KevinMcCalla Director, General Law Division Texas Commission onEnvironmental Quality

# RECEIVED 200&

# NOV -I AM 10: 28 AIR PERHITS 

# SECTION 

# 6PD-R

Texas Commission on Environmental Quality Public Hearing May 22,2006 Concerning Revisions to Chapter 101, General Air Quality Rules and the State Implementation Plan; Senate Bill 784: Emissions Reduction
- ERC/DERC Rule Project No. 2005-054-101-PR

### INTRODUCTION

The Texas Commission on Environmental Quality (commission) held a public hearing in Austin on May 22, 2006, to receive testimony regarding proposed revisions to 30 TAC Chapter 101, General Air Quality Rules and the State Implementation Plan.

The comment period closed on May 30, 2006. All testimony and comments have been reviewed and seriouslyconsidered. This hearing record contains a complete record ofthe public hearing and is divided into the following four sections:

o Public Notification and Proposal
o Written and Oral Testimony

o Evaluation ofTestimony
o Staff Recommendations/Order

Additional copies ofthis hearing record are maintained in the TCEQ central office at 12100 Park35 Circle, Austin, Texas 78753. Forfurther information, please contact BeecherCameron at (512) 239- 1495 or Steve Sun at (512) 239-3554.

# PUBLIC NOTIFICATION AND PROPOSAL

### PUBLIC NOTIFICATION

Notification to the public ofthe proposed revisions was conducted by the following procedures:

1. Publication of notice of public hearing in the following newspapers on the date listed: Austin American Statesman; April 19, 2006 Beaumont Enterprise; April 17, 2006 Fort Worth Star-Telegram; April 17, 2006 Houston Chronicle; April 17, 2006

2. Publication ofthe proposed rules in the April 28, 2006, issue ofthe Texas Register 

### (31 TexReg 3492).

3. Publication ofthe Notice of Public Hearing in the April 28, 2006, issue ofthe Texas Register 

### (31 TexReg 3630).

4. Correspondence forwarding the notice of public hearings to the following officials and agencies: Speaker ofthe House Lieutenant Governor City ofVictoria Planning Department Alamo Area Council of Governments Capital Area Planning Council Dallas Department of Environmental and Health Services Dallas Department ofAviation East Texas Council of Governments EI Paso City-County Health and Environmental District EI Paso Metropolitan Planning Organization

### Federal HighwayAdministration Fort Worth Environmental Management Department Galveston County Health District Houston Department of Health and Human Services Harris County Pollution Control Department North Central Texas Council of Governments Houston-GalvestonArea Council South East Texas Regional Planning Commission Texas Department ofTransportation Texas Transportation Institute Arkansas Department of Pollution Control and Ecology Louisiana Department of Environmental Quality New Mexico Environmental Department Oklahoma Department of Environmental Quality U. S. Environmental Protection Agency

### Example of Newspaper Classified Ad Fort Worth Star-Telegram, 

### April 17, 2006

### NOTIC,fE2~I~gBl.IC**Aif~g~~~le~\r%~n~~I~** BY"l1HETEXAS m,Austln,on May 22;

## ~~t1I~~~~ENNt'lL§~?i~ln~~'**2:g~' Pifoo~** **~.** "QUAl.ITY

. 201A;. at, the Texas

.,. 0N. PROPOSED:'

. Commission '

.. on En- ':' '.REVIS/aNS Ta.:, vlronmenlaL.. Quality '30

..

### ·T:\~1**C~~bTER;. ~~'rJ'~~~arkog~t~~rcl:~** 

. TO THE STATE Ths. hesring will be

### IM~~E~~~AT'ON,**.~~%~lgr~~~1°6~A~~t{:~** Th.e,· ,Texas.'CbrilTllls- comments by inter-,

slonon.Envlronmsntsl' 'esledpersons; 'Reg- "'Qualltyv'(commisslon) ISlration'wili begin .30; .•wlll. conduct a.•publlc , .mlnules" prior fo. the

. hearing' ,'10,' rsceive'

.. hssrlng/··Indlviduals. testimony· regarding**'.".'."smtsaYe·'m··'ePnrtes~~~.·.,t..·.** w'

.oh·erai'll.' poroQosed,:revislons,lo. (I

. 3 TAC,Chapler 101,**:,.,'called·upo~,;ln:Order** .Gel'leral' Air,' Quality .:'of' regletratlon,·There AUies,.uoder'''the'''re-' .wlJl: ,tie,:no"open' dllh !1ulrements of' Texas :cuselom""durlng, 'the Health:, and Safety. .hearlng;'".·however,a .Code, ,382;017: Tex- 'staff'member' will be as;Governmenl'Code " "available:. to'dlscuss Chapter., 200,1,.**Sub~** .>the"proposel';30. min.

. chapter. B; .' and 40' /.. ,utes'.:: before

.. ,. the' :,Code" ';';"of'\,:. Federal "'- hearing,

.. ', ,.,,,',';':. '

..

.**:Regulationsr'~51;,1** 02 ,,PerSons,; ::.planning,to "of; ltle. United. Slstes attend.,:.·'-the.:,··hearing Environmental' Pro- who"'.:-,have·speclal: lectlon.Agency. (EPA) communication

. 'or ;' regUlations, concern- other:accommodation

## ~~~o~ta~Ta~~Pl'§rP",:r**U~l:.~~~~~~li'iHc\'~ag~** "The.-, repealed"., new, ' ,.(L 5 ·e9a)I."2' ;3sge_Orv3ic4e8s."R

..**,~** and, emended' sec- 12 ,tlons.wlll be SUbmitted ,queets" 'should· be t9" the",EPA, asrevi" made 'as far In ad-

### '·~flr.s**:~,,:the;** .

### Tex~s; \'

### c~~~e~t';**po~~~:e,** be :The;" proposed' ·rlile.'Submltled,<to:.l=ola ,making would ad· Brown**"~MC-:** 205"

drees deficiencies In

...Texas,ReglsterTeam,'**the,commlsslon~s** Office of l.egal Ser" Discrete, ",Emisslon : ,vices,. ",exas Com" Reduction

. Credit!' mlsslon··

...on Environ-

, Program as: Identified! mental:'. Quality A' P,O:'

### t!fc:1~~:rE~~**I~o!nr: i!f.~:as1f~~+i:30~~t1gr**  edilion Of the Federal 'faxed' to ,(512) 239- Register (70 FR 4808: All comments 581'54). The'proposed should'reference Rule rules would also 1m. ' Project Number2005- Qlement reVisions to 

### 1 '054·1 01-PR.

. ComTexas Health and**':m~nts'** must be re- SafelY
- .. C d celved .by 5;00 p.m., '382.0172(C), asa**r:~** May 30,2006. Copies qulred by Senate Bill ' of the proposed rules 784

....79tl1 Legislature can be.obtalned from , : 200<>. whlcl1 'allow the·. commission's,' greaterflexibility In the .Web,

.site at

### ro-:.ne~~I~~lo~t**~~':JdJ~ '~t~t~.:~~J'str;:~i** I ;u?e'J.i tlons outside the. J:lropose adopt html**Uni~~.d** ,States. For furlner Informa: "tlon, please contact

BeecherCameron, Air -' Permits Division, at (512) 239-1495 or Steve Sun, Air Per**lr~1i'**

# ..**r~~~~on.** at (512) Issued in Austin 'Tex- as, on April 12,'2006.

# ••• Comments maybe submittedto Lola Brown, MC 205, Texas Register Team, Office ofLegal Services, Texas Commission on Environmental Quality, P.O. Box 13087, Austin, Texas 78711-3087 orfaxed to (512) 239-4808. All comments shouldreferenceRule ProjectNumber2005- 054-IOI-PR. Comments mustbereceivedby5:00p.m., May 30,2006. Copies ofthe proposed rules can be obtained from the commission's Web site at http://www.tceq.state.tx.us/nav/rules/propose_adopt.html. For furtherinfonnation, please contactBeecherCameron, AirPermits Division, at (512) 239-1495 or Steve Sun, Air Permits Division, at (512) 239-3554. TRD-200602146 Stephanie Bergeron Perdue Acting Deputy Director, Office ofLegal Services Texas Commission on Environmental Quality Filed: April 13, 2006

Notice ofWater Quality Applica ons The following notices were issued d ring the period ofApril 5, 2006 through April 17, 2006. The following require the applicants to publish notice in the newspaper. The public commentperiod, re ests for public meetings, or requests for a contested case hearing ay be submitted to the Office of the ChiefClerk, Mail Code 105, PO ox 13087, AustinTexas 78711- 3087, WITHIN 30 DAYS OF THE TE OF NEWSPAPER PUBLICATION OF THIS NOTICE

. CHAMBERS COUNTY IMPROVE ENT DISTRICTNO. I has applied for a new permit, proposed Te as Pollutant Discharge Elimination System (TPDES) Permit No. QOOI4461001 to authorize the discharge oftreated domestic waste ater at a daily average flow not to exceed 980,000 gallons per day. The facility will be located approximately 1,400feet eastofFarm-t -MarketRoad 1405 andapproximately 2,200 feet north ofthe inter ection ofFarm-to-Market Road 1405 and McKinney Street in Cham rs County, Texas. CHAMPION TECHNOLOGIES, I C. which operates an organic chemical manufacturing plant, has a plied for a renewal ofTPDES Permit No. WQ0004306000, whi h authorizes the discharge of cooling tower blowdown, storm w ter, and previously monitored effluent (PME) at a daily average ry weather flow not to exceed 0.0044 million gallons per day via tfal1 001; boiler blowdown on an intermittent and flow variable bas s via internal Outfall 101. The facility is located 3130 Farm-to-Mark tRoad 521, approximately 2.25 miles north ofthe intersection ofFa -to- MarketRoad 521 and State Highway 6, in the City ofFresno, Fo Bend County, Texas. CHAPEL HILL INDEPENDENT S HOOL DISTRICT has applied for a renewal ofTPDES PermitNo. 3821-00I, which authorizes the discharge oftreateddomestic wastew teratadaily averageflow notto exceed 32,000 gallons per day. The acility is located approximately 1,300 feet east ofthe intersection of arm-to-Market Road 1735 and County Road SE-18 in Titus County, exas. DELTA COUNTYMUNICIPALUTI lTYDISTRICThas applied for arenewal ofTPDES PermitNo. 107 -001, which authorizes the discharge oftreated domestic wastewat r at a daily average flow not to exceed40,000 gallons per day. The cility is located approximately 0.5 milewestand 0.3 mile south ofth intersection ofFarm-to-Market Road64 andFarm-to-MarketRoad 12 and immediatelywestofSouth Third Street in Delta County, Texas. CITY OF EDGEWOOD has applie for a new permit, proposed Texas Pollutant Discharge Elimina ion System (TPDES) Permit No. WQOOI4648001, to authorize t discharge oftreated domestic 

# • •• TRD-200602217 Stephanie Bergeron Perdue Acting Deputy Director, Office ofLegal Texas Commission on Environmental Filed: April 18.2006

Notice ofPublic Hearings on Proposed Revisions to 30 TAC Chapter 101 and the State Implementation Plan The Texas Commission on Environmental Quality (commission) will conductapublic hearingtoreceivetestimonyregardingproposedrevisions to 30 TAC Chapter 101, General AirQualityRules, undertherequirements ofTexas Health andSafetyCode, §382.017; TexasGovernmentCode, Chapter2001, SubchapterB; and40CodeofFederalRegulations §51.1 02, oftheUnitedStatesEnvironmentalProtectionAgency (EPA) regulations concerning state implementation plans (SIPs). The repealed, new, and amended sections will be submitted to the EPA as revisions to the Texas SIP. The proposed rulemaking would address deficiencies in the commission's Discrete Emission Reduction Credit Program as identified by theEPA in the October5, 2005, edition oftheFederalRegister(70FR 58154). The proposed rules would also implement revisions to Texas Health and Safety Code, §382.0172(c), as requiredby SenateBill 784, 79th Legislature, 2005, which allow greater flexibility in the generation ofcredits for emission reductions outside the United States. A public hearing on this proposal will be held in Austin on May 22, 2006, at 2:00 p.m. in Building B, Room 201A, at the Texas Commission on Environmental Quality complex located at 12100 Park 35 Circle. The hearing will be structured for the receipt oforal or written comments by interested persons. Registration will begin 30 minutes priorto thehearing. Individualsmaypresentoral statementswhen called upon in order ofregistration. There will be no open discussion during the hearing; however, a staffmember will be available to discuss the proposal 30 minutes before the hearing. Persons planning to attend the hearing who have special communicationorotheraccommodationneeds, shouldcontactLolaBrown, Office ofLegal Services at (512) 239-0348. Requests should be made as far in advance as possible. volume of efJluent routedto the evapo ationpondon a monthly basis for an entireyear. (2) The average net evaporation 

### (fa the entire period ofrecord) or other appropriate data (i.e. aver ge precipitation and average pan/lake evaporation). When two nsecutive average years are reviewed, thereshouldbeno accumula ion q(waterin the evaporation system. The calculation shouldinclu the volume qj'effluent routed to the evaporationpondon a monthly asisforan entireyear. (ii) Evaporationpondshall be operat to maintain a minimum.freeboardqj'twofeet. (iii) There shallbe no discharge qj'wa tewaterto surface water in the state. Change Number 10. Part Y.9. was evised to clarify that 30 TAC §205.4 governs the suspension andre cation ofan authorization underthe general permit. The section no reads in its entirety: "Authorization underthis general permitmay e suspendedorrevokedfor the reasons stated in 30 TAC §205.4 (rela ing to Authorizations and Notices ofIntent). The filing ofanotificat nbythe dischargerofplanned changes or anticipated noncompliance does not stay any permit condition."



## 31 TexReg 3630 April28, 

## 2006 Texas Registerof Plumbing Examiners, 929 Ea t 41 st Street, P.O. Box 4200, Austin, Texas 78765-4200. The amendments to §365.14 a e proposed under and affect Title 8, Chapter 1301, Occupati ns Code ("Plumbing License Law"), §1301.251, §1301.404 a d the rule it amends. Section 1301.251 requires the Board to dopt and enforce rules necessaryto administerthe Plumbing icense Law. Section 1301.404 provides the Board with author to recognize, approve and administer continuing profession I education programs for persons who hold licenses or end sements under the Plumbing License Law. No other statute, article or code is affected by these proposed amendments. §365.14. ContinuingProfessional ducation Programs. (a) Course Materials--Begi ing inpreparation for the 2000

- 2001 ContinuingProfessionalEduc ionyear(begins onJuly 1, 2000), the Board will annually approve C se Materials to be used for the ContinuingProfessionalEducation( PE)requiredforrenewalofJourneyman Plumber, Master Plumber, Tradesman Plumber-Limited Licensee and Plumbing Inspector Lic nses. The Course Materials are the printed materials that are the b is for a substantial portion ofa CPE course andwhich are provided 0 the Licensees. Board approval ofCourse Materials will be subject 0 all ofthe terms and conditions ofthis Section. The following mini urn criteria will be used by the Board in considering approval ofC rse Materials:

Filed with the Office ofthe Secret ry of State on April 12, 2006. TRD-200602125 Robert L. Maxwell Executive Director Texas State Board of Plumbing Exam ners Earliest possible date of adoption: M 28, 2006 Forfurther information, please call: ( 12) 936-5224 

# • • • TITLE 30. ENVIRONMENTAL QUALITY 

# PART 1. TEXAS COMMISSION ON ENVIRONMENTAL QUALITY CHAPTER 101. GENERAL AIR QUALITY RULES



## 31 TexReg 3492 

## April28, 

## 2006 Texas Register SUBCHAPTER H. EMISSIONS BANKING AND TRADING The Texas Commission on Environmental Quality (commission) proposes amendments to §§101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; and the repeal of §101.338. The commission proposes new §§101.305, 101.338, 101.339, and 101.375. The repealed, new, and amended sections will be submitted to the United States Environmental Protection Agency (EPA) as revisions to the Texas State Implementation Plan (SIP). BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULES The Emissions Banking and Trading Program (EBTP) has been designed to offerflexibility and provide a market-based method of meeting required emission reductions. The program makes use of several types of emission credits including emission reduction credits (ERCs), mobile emission reduction credits (MERCs), discrete emission reduction credits (DERCs), and mobile discrete emission reduction credits (MDERCs). Flexibility has been built into the rules to create incentives for the early or permanent retirement of volatile organic compounds (VOC) and nitrogen oxides (NO,) emissions credits. In the October 5, 2005, edition ofthe Federal Register(70 FR 58154), the EPA published the proposed conditional approval of the DERC program as part ofthe SIP. The conditional approval was based on the commission submitting corrected program deficiencies tothe EPA by December 1, 2006. Unlessthe commission adopts and submits these corrections, the EPA will have to issue a finding of disapproval. These proposed revisions address the deficiencies, which the commission committed to correct in a letterto the EPA dated September 8, 2005. The proposed corrections include the prohibition of the future generation of DERCs from permanent shutdowns and allow only DERCs generated from permanent shutdowns before September 30, 2002, to remain available for use for no more than five years from the date of the commission's commitment letter. Any DERCs generated after September 30, 2002, would be removed from the DERC registry and not be available for use. The conditions also required revisions to §101.302(f) and §101.372(f)(7) and (8) to clarify that the EPA must approve individual transactions involving emission reductions generated in another state or nation as well as those transactions from one nonattainment area to another or from attainment counties into nonattainment areas. The proposed revisions would revise Subchapter H, Emissions Banking and Trading, to include program audit and reporting requirements to satisfy the EPA's requirements for open market trading programs. The requirements concerning program audits were not included in the EPA publication of conditional approval but were the subject of discussion between the commission and the EPA. The conditions also required the change to Form DEC-1, Notice of Generation and Generator Certification of Discrete Emission Credits; Form MDEC-1, Notice of Generation and Generator of Mobile Discrete Emission Credits; and Form DEC-2, Notice of Intent to Use Discrete Emission Credits, to include a waiver to federal statute of limitations defense forgenerators and users of discrete emission credits. With the revision of these forms and adoption ofthe proposed rule changes, the commission will have corrected all identified deficiencies in the DERC program.The proposed rules also reflect changes to the Texas Health and Safety Code (THSC), §382.0172(c). Senate Bill (SB) 784 was adopted bythe 79th Legislature, 2005, and allows additional options for credit from emission reductions achieved outside of the United States. The revisions would allow the commission more discretion in its authorization to approve the substitution and crediting of emission reductions outside the United States that may be used to satisfy reduction ortrading requirements. SECTION BY SECTION DISCUSSION §101.302. GeneralProvisions. The commission proposes administrative changes throughout the rules to conform with Texas Register requirements and agency guidelines. In order to better organize similar rule requirements, the commission proposesto delete §101.302(a)(2) and relocate this language concerning emission creditable reductions occurring outside the United States to a new §101.305, Emission Reductions Achieved Outside the United States. The commission proposesto amend §1 01.302(d)(1 )(C)(vi) to allow the rejection of an emission credit quantification protocol if the EPA objects to the protocol during a 45-day adequacy review period or ifthe EPA publishes in the FederalRegistera disapproval of the protocol. This does not impact the procedures to approve the quantification protocol. The commission has in practice always worked with the EPAto approve new quantification protocols. This revision clarifies in the rule that the quatification protocols would not be approved ifthe EPA objects. §101.305. Emission Reductions Achieved Outside the United States. The proposed new §101.305 would combine the existing language on using emission reductions from outside the United States that would be moved from §101.302(f)(3) and (a)(2) for better organization. The proposed revisions would also reflect the change to THSC, §382.0172(c), enacted under SB 784, which allows facilities to substitute emission reductions in criteria pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. This will allow the continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of EI Paso being reclassified as an attainment area. The commission is mOVing the rules governing optional credit to their own sections (§§101.305, 101.338, and 101.375) so that they may be considered separately by EPAfor approval into the SIP and will not delay approval ofother portions of the EBTP. §101.306. Emission Credit Use. The proposed amendment to §101.306(a)(5) would modify the section to be consistent with the allowed use of ERCs under §1 01.399, Allowance Banking and Trading. This revision is necessary because of a previous adoption of Chapter 101, Subchapter H, Division 6, Highly-Reactive Volatile Organic Compound Emissions Cap and Trade Program, and allows facilities to use ERCs as allowances underthe highly-reactive volatile organic compound cap and trade program. §101.338. Emission Reductions Achieved Outside the United States. The existing §101.338 would be repealed. The proposed new §101.338 would reflectthe revisions to THSC, §382.0172(c) and provide the commission more discretion in approving the substitution ofemission reductions achieved outsidethe United States foremissionsfrom electricgenerating orgrandfathered facilities. The commission would also modifythe arrangementofthe existing section to parallel the arrangement of language in §101.305 and §101.375. §101.339. ProgramAudits and Reports. The proposed new§101.339 includes program audits and report requirements for emission credit programs applicable to electric generating and grandfathered facilities. The proposed section contains similar audit and report reqUirements as are applicable to the commission'sotheropen markettrading programs. These requirements are used bythe commission and the EPAto evaluatethe effectiveness ofthe program and include reportable items such as effect on ozone attainment, number of allowances or credits traded, cost of allowances or credits, and number of allowances in each compliance account. §101.372. GeneralProvisions. In order to better organize similar rule requirements, the commission proposesto delete §101.372(a)(2) and relocate this language concerning emission creditable reductions occurring outside the United States to a new §1 01.375, Emission Reductions Achieved Outside the United States. The commission proposes to amend §101.372(d)(1 )(C)(vi) to requirethe rejection ofa quantification protocol ifthe EPAobjectsto the quantification protocol during the 45-day adequacy review period or if the EPA publishes in the FederalRegistera disapproval ofthe quantification protocol. This does not impact the procedures to approve the quantification protocol. The commission has in practice always worked with the EPA to approve new quantification protocols. This revision clarifies in the rule thatthe quantification protocols would not be approved ifthe EPA objects. The commission also proposesto remove languagefrom this section concerning credits for emission reductions outside the United States and the options for applying them. This language, modified to be consistentwith the changes to THSC, §382.0172(c), enacted underSB 784, would be moved to the new §101.375 in order to be considered separately by the EPA for approval into the SIP and not delay approval ofother portions of the EBTP. §101:373. Discrete Emission Reduction Credit Generation and Certification. The proposed amendments to §101.373(a)(1) and (2) would removethe abilitytogenerate DERCsfrom facility shutdowns. The commission proposes this action to respond to the FederalRegisternotice requiring the correction of program deficiencies prior to the approval ofthe EBTP into the SIP. The EPA has stated that open market trading programs are intended to encourage innovative and creative emission reductions and shutdowns generally do not fall into this category. Shutdowns are also problematic for these programs because of the possibility that a facility may shut down in one area, generate and sell credits, but then relocate operations to other areas or states. Additionally, when activity level increases cause emission increases, mitigating reductions aretypically not required. Thus, allowing the generation of tradable credits as a result of activity level decreases (including shutdowns) maytend to promote emissions increases. Such patterns ofactivity related to shutdowns have the potential to interfere with attainment.



## PROPOSEDRULES April28, 

## 2006 31 

## TexReg 3493§101.375. Emission Reductions Achieved Outside the United States. The proposed new §101.375 would relocate the existing language on using emission reductions from outside the United States in §101.372(f)(8) and (a)(2). The proposed revisions would also reflect the SB 784 change to THSC, §382.0172(c), which allows facilities to substitute emission reductions in criteria pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. This will allow the continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of EI Paso being reclassified as an attainment area. The commission is moving the rules governing optional creditto their own sections (§§101.305, 101.338, and 101.375) so that they may be considered separately by EPAfor approval into the SIP and will not delay approval of other portions ofthe EBTP. §101.376. Discrete Emission Credit Use. The proposed amendment to §101.376 would correct the rule references to reflect the pending reorganization of 30 TAC §106.261 and repeal of 30 TAC §106.262 under Rule Project Number 2005-016-106-PR concerning maintenance, startup, and shutdown emissions. §101.378. Discrete Emission CreditBanking and Trading. The proposed amendment to §101.378 would change the lifetime of DERCs generated from shutdowns strategy. Companies that have previously certified DERCs from shutdown strategies will have no more than five years from the September 8, 2005, commitment letter to the EPA to use the DERCs. As a result, DERCs thatwere generated from shutdowns priorto September 30,2002, would be availablefor use until September8,2010. After that date, the DERCs that were generated from shutdowns before September 30, 2002, will be removed from the DERC registry and will no longer be available for use. DERCs generated from shutdowns after September 30, 2002, may not be used. The reason forthis action is included in the discussion of changes to §1 01.373 in this preamble. FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT Nina Chamness, Analyst; Strategic Planning and Assessment Section, has determined that, forthefirstfive-yearperiod the proposed rules are in effect, nofiscal implicationsare anticipated for the agency or other units of state or local governments as a result ofadministration or enforcement ofthe proposed rules. The proposed rules affect the EBTP and DERCs. Typically, governmental organizations do not participate in the DERC program. The proposed rules implement EPA requirements concerning the EBrp, implement changes made by SB 784, 79th Legislature, and make other organizational and administrative changes to allow for more clarity in the administration ofthe EBTP. The EPA is requiring the removal from the commission's DERC registryofcredits generated after September30, 2002, from permanent shutdowns so that the EBTP can be approved as a revision to the SIP. Only those DERCs generated from shutdowns prior to September30, 2002, can be used in the EBTP, and they must be used by September 8,2010. The proposed rules also clarifythatthe EPAhas to approve inclusions in the EBTP of emission reductions generated in another



## 31 TexReg 

## 3494 April

## 28, 2006 Texas Register state or nation. The rules further clarify that the EPA must approve the inclusion of emission reductions in the EBTP if they are generated in and traded between nonattainment areas as well as those generated in an attainment area and traded to a nonattainment area. The proposed rules also implementTHSC, §382.0172(c), as amended by SB 784, 79th Legislature, to give the agency more discretion in approving the use, by a Texas facility, ofemission reduction credits generated outside the United States to satisfy emi!,sion reduction requirements. PUBLIC BENEFITS AND COSTS Ms. Chamness also determined that for each year of the first five years the proposed rules are in effect, the public benefit anticipated from the changes seen in the proposed rules will bethe reduction of air contaminants and improved health and safety ofTexas citizens. By disallowing DERCs forshutdown activities, staffestimatesthatapproximately 19,774tons of NO, emissions, 576 tons of VOC emissions, and 80 tons of other hazardous air pollutant emissions will be reduced. The loss of post-September 30, 2002, DERCs generated from permanent shutdowns will have a fiscal effect. The value of a DERC varies by nonattainment area and by contaminant. In the Houston-Galveston-Brazoria nonattainment area (HGB), the value of NO DERCs range from $145 per ton to $2,100 per ton. In the Beaumont-Port Arthur nonattainmentarea (BPA), the value of NO DERCs are estimated to be $750 per ton, and a carbon monoxide credit is estimated to be worth $700 per ton. The DERCs generated priorto September 30, 2002, represent the majority of the shutdown DERCs the commission currently has on its registry with an approximate total value of $40 million in HGB and $600,000 in BPA. These credits remain availablefor compliance ortrading bythe 11 sites holding them until September8,2010, and will retain theirfull value until then. The loss of DERCs generated from permanent shutdowns after September 30,2002, is estimated to cost, area wide, from $183,470 in HGB to $604,870 in BPA. These DERCs will expire on the effective date of this rule. SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT No adversefiscal implications are anticipated for small or microbusinesses as a result of the proposed rules because they do not generally participate in the EBTP. LOCAL EMPLOYMENT IMPACT STATEMENT The commission has reviewed this proposed rulemaking and determined that a local employment impact statement is not required because the proposed rules do not adversely affect a local economy in a material way for the first five years that the proposed rules are in effect. DRAFT REGULATORY IMPACTANALYSIS DETERMINATION The commission reviewed the proposed rulemaking in light of the regulatory impact analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking action does meet the definition of a "major environmental rule" as defined in that statute. A "major environmental rule" is a rule, the specific intent of which is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, productivity, competition, jobs, the environment, orthe public health and safety of the state or a sector of the state. The proposed amendments to Chapter 101 and revisions to the SIP would phase out DERCs generated from shutdowns prior to September 30, 2002, require removal of DERCs generated from shut-downs afterSeptember30,2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, correct one citation, specifythe time the EPA has to objectto quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactive volatile organic compound cap and trade program. With the exception of the portions of the rulemaking regarding shutdown DERCs, the proposed amendments to Chapter 101 are not specifically intended to protect the environment or reduce risks to human health from environmental exposure to air pollutants; although, the underlying emissions banking and**tradi~g** prowams**ar~ i.~tended**  to achieve these goals. The rulemaklng prOVides fleXibility regarding credits near the Texas-Mexico border by implementing SB 784 and makes various administrative changes. The changes to shutdown DERCs generation and use are proposed to bring the DERC program into compliance with EPA program requirements, allowing the DERC program to be approved as part ?f the SIP and to ensure air quality standards will be met. ThiS rulemaking does not meet any of the four applicability criteria of a "major environmental rule" as defined in the Texas Government Code. Texas Government Code, §2001.0225 applies only to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically reqUired by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal governmentto implement a state and federal program; or.4) adopt a rule solely under the general**p~wers** of the**ag~ncy** instead of under a specific state law. SpeCifically, the banking and trading program amendments in this proposal were developed to implement the provisions of SB 784,**Iimi~** the use of**~ERCs** generated from shutdowns to bring the .banklng and trading program into compliance with**fed~r~1 reqUlre~ents,**  and make several administrative changes. rhls rulemaklng does not exceed an express requirement of federal or state law ora requirement of a delegation agreement, and was not developed solely under the general powers ofthe agency, butwas specificallydeveloped underfederal law and authorized underthe THSC. The rulemaking implements requirements of 42 United States Code (USC), §7410, which requires states to adopt a SIP that provides for "irnplementation, maintenance, and**enf?rcemen~"** of the national ambient air quality standard (NAAQS) In each air quality control region of the state. While 42 USC,.§7410 does not require specific programs, methods, or**reduct~on.s** to**.m~et** the standard SIPs must include "enforceable emiSSion limitations and

### oth~r control measures, means ortechniques (including economic incentives such as fees, marketable**permit~,** and auctions of emissions rights), as well as schedules and timetables for compliance as may be necessary orappropriate to meet the applicable requirements of this chapter,"**(meanin~** 42 USC, Chapter 85, Air Pollution Prevention and**Cont~ol).** It IS true**t~at** the Federal Clean Air Act (FCAA) does require some speCIfic measures for SIP purposes, such as the inspection and maintenance program but those programs are the exception, not the rule in the SIP

### ~tructure of42 USC, §7410. The provisions ofthe FCAA recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry, and the public, to collaborate on the best methodsto attain the NAAQS forthe specific regions in the state. Even though the FCAA allows states to develop theirown programs, this flexibility does not relieve a state from developing a**pr~gram t~~t**  meets the requirements of 42 USC, §7410. Thus, while speCifiC measures are not generally reqUired, the emission reductions are required. States are not free to ignore the reqUirements of 42 USC, §7410, and must develop programs to assure that the nonattainment areas of the state will be brought into attainment on schedule. The requirement to provide a fiscal analysis of adopted regulations in the Texas Government Code was amended by SB 633 during the 75th Legislature, 1997. The inte.nt of SB 633.was to require agencies to conduct a regulatory Impact analySIS of extraordinary rules. These are identified in the statutory language as major environmental rules thatwill have a material adverse impact and will exceed a requirement ofstate law, federal law, or a delegated federal program, or are adopted solely under the general powers of the agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment of rules adopted bythe agency in the past, it is not anticipated thatthe bill will have significantfiscal**impli.ca~ions** for the agency due to its limited application." The commission also noted that the number of rules that would require assessment under the provisions of the bill was not large. This conclusion was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unless the rule**w~s** a major environmental rule that exceeds a federal law. As d!scussed earlier in this preamble, 42 USC, §7410 does not require specific programs, methods, or reductions in order to meet**t~e** NAAQS' thus states mustdevelop programs for each nonattalnment

## ar~a to

## ~nsure thatareawill meetthe attainmentdeadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The legislature is presumed to understand this federal scheme. If each rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds fe.deral law, then every SIP rule would require the full regulatory Impact analYSIS contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and bythe Legislative Budget Board in its fiscal notes. Because the legislature is presumed to**understa~d** the fiscal.**impact~** of the bills it passes, and that presumption IS based on mformatlon provided by state agencies and the Legislative Budget Board, the commission contends that the intent of SB 633 was only to

. require the full regulatory impact analysis**f~r** rules that are**~x** traordinary in nature. While the SIP rules Will have a broad .Impact, that impact is no greaterthan is necessary or appropnate to meetthe requirements of42 USC, §7410. Forthese**reaso~s,** rules adopted for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are specifically required by federal law. In addition, 42 USC, §7502(a)(2) requires attainment as expeditiously as practicable, and 42 USC, §7511(a), requires states to submitozone attainmentdemonstration SIPsforozone nonattainment areas such as the HGB area. The adopted rules, which will reduce ambientconcentrations ofozone precursors in nonattainment areas, will be submitted to the EPA as one of**se~er~1** measures in the federally approved SIP. As discussed earlier In this preamble, the banking and trading scheme in the. ad.opted rules are necessary to address some ofthe elevated cn.tena pollutant levels observed in various nonattainment areas In Texas; this scheme will result in reductions in criteria pollutants in nonattainment areas and help bring areas into compliance with the air quality standards established underfederal law as NAAQS. The commission has consistently applied this construction to its rules since this statute was enacted in 1997. Sincethattime, the



## PROPOSED RULES April28, 

## 2006 31 

## TexReg 3495legislature has revised the Texas Government Code but left this provision substantially unamended. The commission presumes that "when an agency interpretation is in effect at the time the legislature amends the laws without making substantial change in the statute, the legislature is deemed to have accepted the agency's interpretation." Central Power& Light Co. v. Sharp, 919 SW.2d 485. 489 (Tex. App.-Austin 1995), writ denied with per curiam opinion respecting another issue, 960 S.W.2d 617 (Tex. 1997); Bullock v. Marathon Oil Co., 798 SW.2d 353, 357 (Tex. App.-Austin 1990), no writ; Cf. Humble Oil& Refining Co. v. Calvert, 414 SW.2d 172 (Tex. 1967); Sharp v. House of Lloyd, Inc., 815 SW.2d 245 (Tex. 1991); Southwestern Life Ins. Co. v. Montemayor, 24 SW.3d 581 (Tex. App.-Austin 2000), pet. denied; and Coastallndust. WaterAuth. v. TrinityPortland Cement

### Div., 563 SW.2d 916 (Tex. 1978). As discussed, this rulemaking action implements requirements of42 USC, §7410. There is no contract ordelegation agreement that covers the topic that is the subject of this action. Therefore, the rulemaking does not exceed a standard set by federal law, exceed an express requirement of state law, exceed a requirement of a delegation agreement, nor is it adopted solely under

. the general powers of the agency. Finally, this rulemaking action was not developed solely under the general powers of the agency, but is authorized by specificsections ofTHSC, Chapter 382 (also known as the Texas Clean Air Act), and Texas Water Code that are cited in the STATUTORY AUTHORITY section of this preamble, including THSC, §§382.011, 382.012, 382.014, 382.016, 382.017, 382.021, and 382.034. Therefore, this rulemaking action is notsubjectto the regulatory analysis provisions of Texas Government Code, §2001.0225(b), because the rulemaking does not meet any ofthe four applicability requirements. The commission invites public comment regarding the draft regulatory impact analysis determination during the public comment period. TAKINGS IMPACT ASSESSMENT The commission completed a takings impactassessmentforthis rulemaking action under Texas Government Code, §2007.043. The proposed amendments to Chapter 101 and revisions to the SIP would phase out DERCs generated from shutdowns priorto September 30, 2002, require removal of DERCs generated from shutdowns after September 30, 2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, correct one citation, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactive volatile organic compound cap and trade program. Specifically, the banking and trading program amendments in this proposal were developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to comply with federal requirements, and make several administrative changes. Promulgation and enforcement of the proposed amendments will not burden private real property. The proposed rules do not affect private property in a manner that restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Additionally, the credits created under these rules are not property rights (§101.372U)). Because DERCs are not property, phasing out shutdown DERCs does not constitute a taking. Consequently, this rulemaking action does not meet the definition of a takings under Texas Government Code, §2007.002(5). Additionally, Texas Government Code, §2007.003(b)(4) provides that Chapter 2007 does not apply to this rulemaking action be

## 31 TexReg 3496 

## April28, 

## 2006 Texas Register cause it is reasonably taken to fulfill an obligation mandated by federal law. The changes regarding shutdown DERCs within this proposal were developed to meet the EPA conditional program approval so that these requirements can be approved into the SIP and used to meet NAAQS set by the EPA under 42 USC, §7409. States are primarily responsible for ensuring attainment and maintenance of NAAQS once the EPA has established them. Under 42 USC, §7410, and related provisions, states mustsubmit, forapproval bythe EPA, SIPs that providefor the attainment and maintenance of NAAQS through control programs directed to sources ofthe pollutants involved. Therefore, one purpose of this rulemaking action is to meet the air quality standards established under federal law as NAAQS. However, this rulemaking is only one step among many necessary for attaining the ozone NAAQS. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined that this rulemaking action relates to an action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, §§33.201 etseq.), and the commission's rules in 30 TAC Chapter 281, SUbchapter B, concerning Consistency with the CMP. As required by §281.45(a)(3) and 31 TAC §505.11(b)(2), relating to Actions and Rules Subject to the Coastal Management Program, the commission's rules governing air pollutant emissions must be consistent with the applicable goals and policies ofthe CMP. The commission reviewed this action forconsistency with the CMP goals and policies in accordance with the rules of the Coastal Coordination Council, and determined that the action is consistent with the applicable CMP goals and policies. The CMP goal applicable to this rulemaking action is the goal to protect, preserve, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (31 TAC §501.12(1)). No new sources of air contaminants will be authorized and the proposed revisions will maintain the same level of emissions control as the existing rules. The CMP policyapplicable to this rulemaking action is the policy that the commission's rules complywith federal regulations in 40 Code of Federal Regulations, to protect and enhance air quality in the coastal areas (31 TAC §501.14(q)). This rulemaking action complies with 40 Code of Federal Regulations Part 51, Requirements for Preparation, Adoption, and Submittal of Implementation Plans. Therefore, in accordance with 31 TAC §505.22(e), the commission affirms that this rulemaking action is consistent with CMP goals and policies. The commission solicits comments on the consistencyofthe proposed rulemaking with the CMP during the public comment period. EFFECTON SITES SUBJECTTO THE FEDERAL OPERATING PERMITS PROGRAM The newand amended sections are applicable requirements underthe Federal Operating Permits Program, but no revisions to operating permits will be required. ANNOUNCEMENT OF HEARING The commission will hold a public hearing on this proposal in Austin on May 22, 2006, at 2:00 p.m. in Building B, Room 201 A, at the commission's central office located at 12100 Park 35 Circle. The hearing is structured for the receipt of oral or written comments by interested persons. Individuals may present oral statements when called upon in order of registration. Open dis-cussion will not be permitted during the hearing; however, commission staff members will be available to discuss the proposal 30 minutes before the hearing and will answer questions before and after the hearing. Persons who have special communication orotheraccommodation needs who are planning to attend the hearing should contact Lola Brown, Office of Legal Services, at (512) 239-0348. Requests should be made as far in advance as possible. SUBMITIAL OF COMMENTS Comments may be submitted to Lola Brown, Texas Register Team, Office of Legal Services, MC 205, P.O. Box 13087, Austin, Texas 78711-3087, or faxed to (512) 239-4808. Comments must be received by 5:00 p.m., May 30, 2006, and should reference Rule Project Number 2005-054-101- PRo Copies of the proposed rules can be obtained from the commission's Web site at http://www.tceq.state.tx.us/navlruleslpropose_adopt.html. For further information, please contact Beecher Cameron, Air Permits Division, at (512) 239-1495 or Steve Sun, Air Permits Division, at (512) 239-3554. 

## DIVISION 1. EMISSION CREDIT BANKING AND TRADING 30 TAC §§101.302, 101.305, 101.306 STATUTORY AUTHORITY The amended and new sections are proposed underTexas Water Code, §5.103, concerning Rules, and §5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and underTexas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposes ofthe Texas Clean Air Act. The amended and new sections are also proposed under THSC, §382.002, concerning Policy and Purpose, that establishes the commission purposeto safeguard the state's air resources, consistentwith the protection ofpublic health, general welfare, and physical property; §382.011, concerning General Powers and Duties, that authorizes the commission to control the quality ofthe state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also proposed underTHSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements forthe measuring and monitoring ofair contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also proposed under42 USC, §741 0(a)(2)(A), that requires state implementation plans to include enforceable measures ortechniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The proposed amended and new sections implement THSC, §§382.002, 382.011,382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. §101.302. GeneralProvisions. (a) Applicable pollutants. Reductions ofcriteria pollutants, excluding lead, or precursors ofcriteria pollutants for which an area is designated nonattainment, may qualify as emission credits. Reductions ofone pollutant may not be used to meet the requirements for another pollutant, unless [f] [EB] urban airshed modeling demonstrates that one ozone precursor may be substituted for another, subjectto executive director and United States Environmental Protection Agency (EPA)**approval~** [t ef]**[~** the.ffleility genemtiftg the 

### emis-sioo reooetiefls 

### is leeate6ootsi4e the Yffi.ted

### Statestafld] [(Ai #Ie substitutioH:] [fi) FeSlilts ill 

### a-greatefflealtfl

### befteft.tafI6

### is efet}llfr! efgreaterheHefitte #Ie6'reFall air eftftearea,asdetermiHedby the eKeeutive tiifeeteF,] {(it) 

### isffemthe reooetiofl efflfl air eOfltamillEmtfat' whiefitheareahas geeftdesignateEias flOHattaillffielltefwIHeh lea$te the formatioll efa eritertftpelluttillt

### ferwfti.eh all areahas geeft

### 6estg-- fItited as ftonattaillffient; lIftd] [{iii) 

### is 

### fer fiFfjo' air eontaminEmt fer wffiefl #Ie area has geeft desigftated as nonattaillfllent eF lea$ 

### te tfte formation efa 

### eriteHa pollutaHt

### ferwfti.eh the area has

### beeR designateEi as nenattaiH 

### FlIefitt tiEd] 

### [fB1 #Ie 

### user;] [fit demoHstrates that theuse eftfte reooetioH 

### dees ootcause localizedflealtfl impaets, as determiHedbytfte eKeeutive

### ffireeteF,] [(ii) submits aIt suppertiftg illformatioH fur eaIeulatieRs tiEd modeling, tiEd any additional informatien requested by #Ie e)(eeuti

...e 

### dtreeteF,- flfld] [{iii) 

### is leeateflwitffiH +00 kilometers**efthe~­ MeJHee~]**  (b)

- (c) (No change.) (d) Protocol. (1) All generators or users ofemission credits shall use a protocol that has been submittedby the executive director to the EPA for approval, ifexisting for the applicable facility or mobile source, to measure and calculate baseline emissions. Ifthe generator or user wishes to deviate from aprotocol submittedby the executive director, EPA approval is required before the protocol can be used. Protocols must be used as follows. (A)

- (B) (No change.) (C) Ifthe executive directorhas not submitted aprotocol forthe applicablefacility ormobile sourceto theEPAfor approval, the following requirements apply: (i)
- (v) (No change.) (vi) quantification protocols shall not be accepted for use with this division if the executive director receives a letter objecting to the use ofthe protocol from the EPA during the 45-day adequacy review or the EPA proposes disapproval ofthe protocol in the FederalRegister [after a proposed disapproval efthe 

### preteeel by the EPA ill the FedefflI**~].** (2)

- (3) (No change.) (e) (No change.)



## PROPOSED RULES April28, 

## 2006 31 

## TexReg 3497(f) Geographic scope. Except as provided in §101.305 ofthis title (relating to Emission Reductions Achieved Outside the United States)**[fl~h** ef this sl:II3seetien], only emission reductions generated in nonattainment areas can be certified. An emission credit must be used in the nonattainment area in which it is generated unless the user has obtained prior written approval ofthe executive director and the EPA; andH (I) (No change.) (2) the emission credit was generated in a nonattainment area that has an equal or higher nonattainment classification than the' nonattainment areaofuse, and a demonstrationhas beenmade and approved by the executive director and the EPA to show that the emissions from the nonattainment area where the emission credit is generated contribute to a violation ofthe national ambient air quality standard in the nonattainment area**ofuse~ [~6£]** **[~** a faeil4ty is ilsing emissien Feauetiens geneFateaeut5idethe

### YffiteEI States that hiwe been deteffilined bythe eKeeuti'.'e ElireeteF te be real; fleFFnllHent, enfeFeeabIe, qu!lfttifiabIe, and

### llUFfllus te 

### any aflfllieable intematienaI, fedeFal; 5tate; 6£ leeallaw andthe FeStIlt wettld a greateFhealtftbenefittethearea Its deteffilinedbythe elleeutive6iFeeteF, and**the~]** 

### [W demenstFatesthattheuseefthereduetiendeesoot eause Ieeali2Jed healtft 

### imflaets, as aeteFffiinea bythe ellee\;ltive 6iFeeteF,]**[~** -stibmitsall s\;lflflertingiftfeFffiatien

### feFeaIe\;lIatiens andmedeling, andany aaditienal infmmatienrequestedbythe eKe6\;!- ti¥e 6iFeeteF, and]**[~** is leeated within -lOO kiIemeteFs ef the

- MeKieebeFder.] (g)

- (I) (No change.) §101.305. Emission ReductionsAchievedOutside the UnitedStates. 

## ill A facility may use reductions achieved outside the United States ofcriteria pollutants or precursors ofcriteria pollutants ifthe facility meets the requirements ofsubsection (c) ofthis section. 

### {Q} A facility may use reductions achieved outside the United States ofcriteriapollutants orprecursors ofcriteriapollutants and substitute these reductions for reductions in other criteriapollutants ifthe facility meets the requirements ofsubsection (c) ofthis section; and 

## ill the reduction is substituted for the reduction ofanother criteria pollutant ifthe substitution results in a greater health benefit and is ofequal orgreaterbenefitto the overall airquality ofthe area; or 

## ill a reduction ofan air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation ofa criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment orleads to the formation ofany criteriapollutantforwhichthe areahas been designated as nonattainment. The use ofreductions outsidetheUnited States mustbeapproved by the executive director and the United States Environmental Protection Agency, and the user ofthe emission reduction must: 

## ill demonstrate to the executivedirectorthatthereduction is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; 

## ill demonstratethatthe use ofthereduction does notcause localized health impacts, as determined by the executive director;



## 31 TexReg 3498 

## April28, 

## 2006 Texas Register ill submit all supporting information for calculations and modeling, and any additional information requested by the executive director; and 

## ill be locatedwithin 100kilometers ofthe Texas

- Mexico border.

### @ This section does not apply to reductions in emissions of lead. §101.306. Emission Credit Use. (a) Uses for emission credits. Unless precluded by a commission order or a condition or conditions within an authorization under the same commission account number, emission credits may be used as the following: (I)

- (4) (No change.) (5) an annual allocation of allowances as provided in §101.356 and §101.399 ofthis title (relating to Allowance Banking and Trading); (6)

- (7) (No change.) (b)

- (c) (No change.) This agency herebycertifiesthatthe proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt. Filed with the Office ofthe Secretary of State on April 13, 2006. TRD-200602142 Stephanie Bergeron Perdue Acting Deputy Director, Of ce ofLegal Services Texas Commission on Environmental Quality Earliest possible date ofadoption: May 28, 2006 Forfurther information, please call: (512) 239-0348 

# • • • DIVISION 2. EMISSIONS BANKING AND TRADING ALLOWANCES 30 TAC §lOl.338 (Editor

# snote: The text ofthefollowing sectionproposed for repeal willnotbepublished. Thesectionmaybe examinedin the offices of the Texas Commission on Environmental Quality or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.) STATUTORY AUTHORITY The repeal is proposed under Texas Water Code, §5.103, concerning Rules, and §5.1 05, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposes ofthe Texas Clean AirAct. The repeal is also proposed underTHSC, §382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; §382.011, concerning General Powers and Duties, thatauthorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The repeal is also proposed un-der THSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissionsto submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements forthe measuring and monitoring ofair contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating airpermits. The repeal isalso proposed under42 USC, §741 0(a)(2)(A), that requires state implementation plans to include enforceable measures ortechniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The proposed repeal implements THSC, §§382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. 

### §101.338. Emission ReductionsAchievedOutside the UnitedStates. This agency herebycertifiesthatthe proposal has been reviewed by legal counsel and found to bewithin the agency's legal author-

. ity to adopt.

Filed with the Office of the Secretary of State on April 13, 2006. TRD-200602143 Stephanie Bergeron Perdue Acting Deputy Director, Of ce of Legal Services Texas Commission on Environmental Quality Earliest possible date ofadoption: May 26, 2006 Forfurther information, please call: (512) 239-0346 

# • • • 30 TAC §101.338, §101.339 STATUTORY AUTHORITY The new sections are proposed under Texas Water Code, §5.103, concerning Rules, and §5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposes ofthe Texas Clean Air Act. The new sections are also proposed under THSC, §382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; §382.Q11, concerning General Powers and Duties, that authorizes the commission to control the quality of the"state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control ofthe state's air. The new sections are also proposed under THSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The new sections are also proposed under 42 USC, §7410(a)(2)(A), that requires state implementation plans to include enforceable measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The proposed new sections implement THSC, §§382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. 

### f101.338. Emission ReductionsAchievedOutside the UnitedStates. A grandfathered or electing electric generating facility (EGF) may use reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants ifthe facility meets the requirements ofsubsection (c) ofthis section. 

### {Ql A grandfathered or electing EGF may use reductions achieved outside the United States ofcriteria pollutants orprecursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants ifthe facility meets the requirements of subsection (c) ofthis section; and 

## ill the reduction is substitutedfor the reductionofanother criteria pollutant ifthe substitution results in a greater health benefit andis ofequal orgreaterbenefittothe overall airqualityofthearea; or 

# m a reduction ofan air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment orleads to the formationofanycriteriapollutantforwhichtheareahas been designated as nonattainment. (£1 Theuseofreductions outsidetheUnited States mustbeapprovedby the executive director and the United States Environmental ProtectionAgency, and the userofthe emission reduction must: 

## ill demonstrate to the executive directorthatthereduction is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; 

# m demonstratethattheuseofthereductiondoesnotcause localizedhealth impacts, as determined bythe executive director; 

## ill submit all supporting information for calculations and modeling, and any additional information requested by the executive' director; and 

## l12 be locatedwithin 100kilometers oftheTexas

-Mexico border.

### @ This section does not apply to reductions in emissions of lead.**~101.339.** 

### ProgramAudits andReports. No laterthanthreeyears aftertheeffectivedateofthis division, and every three years thereafter, the executive directorwill audit this program. 

## ill The audit will evaluate the impact ofthe program on the state's ozone attainment demonstration, the availability and costof allowances, compliancebytheparticipants, andany otherelements the executive director may choose to include. 

## ill The executive director will recommend measures to remedy anyproblems identifiedin the audit. The trading ofallowances may be discontinued by the executive director in part or in whole and in any manner, with commission approval, as a remedy for problems identified in the program audit. 

## ill The audit data and results will be completed and submitted to the United States Environmental Protection Agency (EPA)


## PROPOSED RULES April28, 

## 2006 31 

## TexReg 3499and made available for public inspection within six months after the audit begins. iQ} No laterthan September30 following the end ofeachcontrol period, the executive director shall develop and make available to the general public and EPA, a report that includes: 

## ill numberofallowances allocated to eachcompliance ac

## ill total number ofallowances aUocated under this divi

## ill number of actual nitrogen oxides (NO) aUowances subtracted from each compliance account based on ilie actual NO, emissions from the site; and

- 

## ffi a summary ofall trades completed underthis division. This agency herebycertifies thatthe proposal has been reviewed by legal counsel and found to bewithin the agency's legal authority to adopt. Filed with the Office ofthe Secretary of State on April 13, 2006. TR0-200602144 Stephanie Bergeron Perdue Acting Deputy Director, Of ce ofLegal Services Texas Commission on Environmental Quality Earliest possible date ofadoption: May 28, 2006 Forfurther information, please call: (512) 239-0348 

# • • • DIVISION 4. DISCRETE EMISSION CREDIT BANKING AND TRADING 30 TAC §§101.372, 101.373, 101.375, 101.376, 101.378 STATUTORY AUTHORITY The amended and new sections are proposed underTexas Water Code, §5.103, concerning Rules, and §5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and underTexas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposes ofthe Texas Clean Air Act. The amended and new sections are also proposed underTHSC, §382.002, concerning Policy and Purpose, that establishesthe commission purposeto safeguard the state's airresources, consistentwith the protection ofpublic health, general welfare, and physical property; §382.011, concerning General Powers and Duties, that authorizes the commission to control the quality ofthe state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also proposed underTHSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also proposed under 42 USC, §7410(a)(2)(A),



## 31 TexReg 3500 April28, 

## 2006 Texas Register that requires state implementation plans to include enforceable measures ortechniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The proposed amended and new sections implement THSC, §§382.002, 382.011, 382.012, and 382.017; and Senate 8i1l784, 79th Legislature, 2005. 

### §lOl.372. GeneralProvisions. (a) Applicablepollutants. Reductions ofvolatile organic compounds (VOC), nitrogen oxides (NO), carbon monoxide (CO), sulfur dioxide (SO,), andparticulate matterwith an aerodynamic diameter of less than or equal to a nominal ten microns (PMIO) may qualify as discrete emission creditsas appropriate. Reductions ofother criteriapollutants are not creditable. Reductions ofonepoUutantmaynotbe used to meet the reduction requirements for another poUutant, unlessH [fB] urban airshed modeling demonstrates that one may be substituted for another subjectto approval by the executivedirector and the United States Environmental Protection Agency (EPA).**[~ ~]** **[~** the faeffity 

### geneFating the 

### emission feel:letions 

### ts -Ieeated emstde the 

### Yffi.tedStates 

### aD$.] 

# [w the 

### substimtion:] [{i} 

### FOStt!tsffi 

### agreaterhealth

### Beftefu

## anatsef

## eEfI:lBl greaterbenefi.ttethetweFallair efthe aFefr; lIS

### eetefFBineeby the 

### elteel:lti'le 6iFeeteF,] [{#) 

### ts fFem the 

### fedl:letion ef

### a eriteFiapollHtaHt

### fer wlHeh the

### areaftas been 

### designatedas nonattlHnment wlHeh leads te the 

### fofFBation ef

### a eriteFiapolh:ltant

### ferwlHeh 

### an area ftas been 6esig

### FlltteEIas nonattainment;

## ana] [{iiij 

### ts fer ilftj'

### eriteFiapolll:ltBBt

### fer whieh the 

### area hIlS Been 

### designatedasnonattainment leadstethe

### fofFBationef

### aefi... teFia

### polll:ltlUlt

### ferwlHehthe

### areaftasbeen

### designatedasnonattainment; flftti] 

### [fB1 the 

### tiS6F.] [{i} 

### demonstFates that the tISeef4fte 

### fedHetion dees BOt €ilIi-Se

### loealiz,edhealthimpaets, lIS 

### determinedbythe 

### elteeutiye Eli

### reeteF,] [{#) 5ubmits all 

### supporting infefFBation

### ferooI:eulaflons

## ana modeling, 

## ana ilftj' 

### additional infofFBation reql:lested by the 

### eJteeuti're 6iFeeteF, flftti] [{iiij 

### ts loeatedwithin +00 

### kiiometeFs efthe
- MeJtiw 

### l3eFder.] (b)

- (c) (No change.) (d) Protocol. (I) All generatorsorusers ofdiscreteemissioncreditsmust use a protocol which has been submitted by the executive director to the EPA for approval, ifexisting for the applicable facility or mobile source, to measure and calculate baseline emissions. Ifthe generator or user wishes to deviate from a protocol submitted by the executive director, EPA approvalis requiredbefore theprotocol canbeused. Protocols shall be used as follows. (A)

- (B) (No change.) (C) Ifthe executive director has not submitted a protocol for the applicable facility ormobile sourceto theEPA for approval, the following applies: (i)
- (iii) (No change.)(iv) thechosenquantificationprotocol shallbemade available forpublic commentforaperiod of30days and shallbeviewable on the commission's Web [web] site; (v) (No change.) (vi) quantification protocols shall not be accepted for use with this division(relatingto DiscreteEmissionCreditBanking and Trading) if the executive director receives a letter objecting to the use of the protocol from the EPA during the 45-day adequacy review orthe EPAproposes disapproval oftheprotocol in the Federal Register[ fIftef ft jlfOpesed dislljlpfOval efthe p!'8teool by the BFA ffi the FedefflI**~].** (2)

- (3) (No change.) (e) (No change.) (f) Geographic scope. Except as provided in paragraph (7) of this subsection and §101.375 ofthis title (relating to Emission Reductions Achieved Outside the United States) [flaragrlljlAs

## f71 -and ef tffis subseetion], only emission reductions generated in the State of Texas may be creditable and used in the state with the following limitations. (I)

- (7) (No change.)**[~** Afaei.l.itymaytllle

### di5erete emissienredaetions genet'- ated

### el:ltsi6e

### #IeUnitedStates that

### #Ieemissienreduetionsare quantifiable, real; and

### Sl:lI'flffis te any allfllieable international, federal; 5tate, 6fleettl law and theresult wooMjlI'EWi6e ft -greaterftettltfl

## eenelitte the area as detefffiined bythe exeeutive

### dHeeter. +he allplieant mus¥.] 

## [EA1 demenstrate -that

### #Ie tllle eftheredaetion

### dees not eaase loealized flealtft 

### Hnflaets, as detefffiined bythe**~{eeutive** direetoFt] [fBi submitaU Sliflporting infefffiation fur ealelilations andmodeling, 

### andany additional infefffiationreqliestedbythe ti-¥e 

### diFeetoF, -and] 

### [tG1 

## ee ffieated within 

### -1-00 kilometers efthe 

### :texas

-**~eerdeF.]** (g)

- (i) (No change.) U) Authorization to emit. A discrete emission credit created under this division is a limited authorization to emit the specified pollutants in accordance with the provisions ofthis section, the Federal Clean AirAct [FGAA], andthe Texas Clean Air Act [+bAA], as well asregulations promulgatedthereunder. A discreteemissioncreditdoes notconstitute aproperty right. Nothing in this division shouldbeconstruedto limitthe authority ofthe commission ortheEPAto terminate or limit such authorization. (k)

- (m) (No change.) §101.373. DiscreteEmission Reduction Credit Generation and Certification. (a) Methods ofgeneration. (I) Discrete emission reduction credits (DERC) may be generated using one of the following methods or any other method that is approved by the executive director: 

## [EA1 thejlemlflflent shlitdewnefftfaeffitythateauses ft lessefeapability teprodooe emissions;] {bJ [fBi] the installation and operation of pollution control equipment that reduces emissions below the level required of the facility; or 

### @ [fG1] a change in the manufacturing process that reduces emissions below the level required ofthe facility. (2) DERCs may not be generated by the following strategies: (A) permanent or temporary shutdowns [temporary slnudewn] orpermanent curtailment ofan activity at a facility; (B)

- (K) (No change.) (b)

- (d) (No change.) HOI.375. EmissionReductionsAchievedOutside the UnitedStates. .@) A facility may use discrete emission credits forreductions achieved outside the United States ofcriteria pollutants orprecursors ofcriteriapollutants ifthefacility meetstherequirements ofsubsection (c) ofthis section. 

## ill A facility may use reductions achieved outside the United States ofcriteriapollutants orprecursors ofcriteriapollutants and substitute thesereductions for reductions in other criteriapollutants ifthe facility meets therequirements ofsubsection (c) ofthis section; and 

## ill thereduction is substituted for thereduction ofanother criteria pollutant ifthe substitution results in a greater health benefit and is ofequal orgreaterbenefitto the overall airquality ofthearea; or 

## ill a reduction of an air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation ofa criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment orleads to theformation ofany criteriapollutantforwhichthe areahas been designated as nonattainrnent. if.) Theuse ofreductions outsidetheUnitedStates mustbeapprovedby the executive director and the United States Environmental Protection Agency, andtheuser ofthe emission reduction must: 

## ill demonstrateto the executive directorthatthereduction is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; 

## ill demonstratethattheuse ofthereductiondoesnotcause localized health impacts, as determined bythe executive director; 

## ill submit all supporting information for calculations and modeling, and any additional information requested by the executive director; and 

## ill be located within 100kilometers oftheTexas

-Mexico border.

### @ This section does not apply to reductions in emissions of lead. §lOl.376. Discrete Emission Credit Use. (a) - (b) (No change.) (c) Discreteemissioncredituseprohibitions. A discrete emission credit may not be used under this division: (I)

- (3) (No change.) (4) to allow an emissions increase ofan air contaminant above a level authorized in a permit or other authorization that exceeds the limitations of§106.261 [§ IQ6.261 (3) 6ff416f §1Q6.262(3)]



## PROPOSED RULES April

## 28, 2006 

## 31 TexReg3501ofthis title (relating to Facilities (Emission Limitations)[t aft6 I'a€Htties (Emissisn iIfI6 Distliflee Limitlltisns)]) except as approved by the executive director. This paragraph does not apply to limit the use of discrete emission reduction credits (DERC) or mobile discrete emission reduction credits in lieu ofallowances under §I01.356(h) ofthis title; No. 18,443 S.W.2d 728 (Tex. App.
- Corpus Christi 1969), writ ref'd n.r.e., and that below Amistad Reservoir, water rights are not based on the priority system 

### (ft t in time is first in right) as in the rest of the state. Senate Bill (SB) 1902, and House ill (HB) 2250, 78th Legislature, 2003, amended Texas Water C de (TWC), §11.3271, Powers and Duties of Rio Grande Wate master, by amending Subsection (e), and adding Subsection (f)
- (k). The provisions of the two bills are identical except fo Subsection 

### 0), relating to central repositories for documents. Subsection (e) ofthe bills was arne ded to provide that the Rio Grande Watermaster's duties shall clude activities relating to situationsofimminentthreatto publi health and safetyorthe environment and required that the co mission adopt rules which define situations of imminentthreat nd address the watermaster's duties in response to terrorism. Subsections (f)
- (I) providethatthe c mmission may issue a permit which allows a person to place g oundwater in the river and store it in a reservoirfor release at a atertime. The commission is to write rules which will account r any discharge, delivery, conveyance, storage, diversion, ora sociated loss ofwaterconveyed down the Rio Grande. The r es must also protect other water right holderswhich storewater nthe reservoirand be consistentwith the 1944Treaty between he United States and Mexico. The commission may not issue this permit if it determines that the water to be conveyed will d grade the water quality of the Rio Grande. These permitswill blcalled water-in-transit permits. Subsection 

### 0) ofthe two bills require the watermaster to maintain a place availabletothe publicth will contain copies ofdocuments which the commission requir s to be filed in connection with water rights in the lower,

### middle~or upper basin of the Rio Grande. SB 1902 provides that the atermaster is the "official recorder" of "all instruments, includi deeds, deeds oftrust, financing statements, security agreem nts, and liens" filed in connection with water rights. HB 2250

# Pj vides that the watermaster shall "maintain a central reposit ry" that includes "certified copies of all instruments, including eeds, deeds of trust, and liens" filed in connection with water r hts

. SB 1902 also provides that an instru ent should be filed "in the same manner as required by other

# I;W for the same type of instrument," and that "the filing of an i strument under this subsection results in the same legal an administrative status and consequences as a filing under othe law for the same type of instrument." Further, an instrument

### fi~' d underthis law "shall be construed by a court, financial institu ion, or other affected person in the same manner as an instru ent ofthe same type that is filed under other law." HB 2250 d es not include any of this quoted language, but instead

### prOVide~that "a lien against a water right shall not be effective against third parties unless a certified copy of the instrument is filed ith the watermaster," but that the law "does not affect the validi ofa lien as between the holderofthe water right and the**hold~r** ofthe lien orthe requirements or validity of any other law**go~erning** the perfection and recordation ofthese instruments." : Both bills allow a fee to be collected

### f~r filing these instruments. SB 1902 further states that the commission shall adopt rules which "prescribe the procedures necessary for the proper implementation of this subsection, including reasonable transition provisions, if appropriate." 

# •

L REQUIREMENTS 

# •

QUIREMENTS OF ICATIONS GENERAL 

# • CHAPTER 295. WATER RIGHTS, PROCEDURAL SUBCHAPTER A. WATER RIGHTS APP PROVISIONS DIVISION 1. 30 TAC §295.17 The Texas Commission on nvironmental Quality (commission) proposes new §295.17. 

# I BACKGROUND AND SUM ARY OF THE FACTUAL BASIS FOR THE PROPOSED RU E The Rio Grande below Fo Quitman is regulated by the Rio Grande Watermaster unde Texas Water Code, §11.326 and §11.327. 30 TAC Chapter 03, Operation of the Rio Grande contains the Rio Grande atermaster's rules. These rules recognize that the water rig ts in this area were adjudicated by a court, State v. Hidalgo C nty Water Control & Improv. Dist. (5)

- (6) (No change.) (d)

- (e) (No change.) §101.378. DiscreteEmission CreditBanking andTrading. (a) (No change.) (b) Life ofa discrete emission credit. A discrete emission creditis available for use afterthe DEC-I Form, Notice ofGeneration and Generator Certification ofDiscrete Emission Credits, has been received, deemed creditable by the executive director, and deposited in thecommission creditregistry in accordancewithsubsection (a) ofthis section, andmaybeusedanytimethereafterexceptas statedinthis subsection. All credits are deposited in the credit registry and reported as available credits until they are used orwithdrawn. 

## ill Discrete emission credits generated from shutdown strategies prior to September 30, 2002, will be available for use until September 8, 2010. 

## ill Discrete emission credits certified from facility shutdowns after September 30, 2002, may not be used. (c) (No change.) Thisagency herebycertifiesthatthe proposal has been reviewed by legal counsel and found to bewithinthe agency's legal authority to adopt. Filed with the Office ofthe Secretary of State on April 13, 2006. TRD-200602145 Stephanie Bergeron Perdue Acting Deputy Director, Of ce ofLegal Services Texas Commission on Environmental Quality Earliest possible date ofadoption: May 28, 2006 Forfurther information, please call: (512) 239-0348



## 31 TexReg 3502 April28, 

## 2006 Texas RegisterKathleen HartnettWhite, 

### Chairman R. 

### B. "Ralph" Marquez, 

### Commissioner Larry 

### R. Soward, 

### Commissioner Glenn Shankle, 

### ExecutiveDirector 

# TEXAS COMMISSION ON ENVIRONMENTAL QUALITY Protecting Texas by

### ReducingandPreventingPollution



## NOTICE OF PUBLIC HEARING BY THE TEXAS COMMISSION ON ENVIRONMENTAL QUALITY ON PROPOSED REVISIONS TO 30 TAC CHAPTER 101 AND TO THE STATE IMPLEMENTATION PLAN The Texas Commission on Environmental Quality (commission) will conduct a public hearing to receive testimony regarding proposed revisions to 30 TAC Chapter 101, General Air Quality Rules, under the requirements of Texas Health and Safety Code, §382.017; Texas Government Code, Chapter 2001, SubchapterB; and40 Code ofFederal Regulations §51.102, ofthe United States Environmental Protection Agency (EPA) regulations concerning state implementationplans (SIPs). The repealed, new, and amended sections will be submitted to the EPA as revisions to the Texas SIP. The proposed rulemaking would address deficiencies in the commission's Discrete Emission Reduction Credit Program as identified by the EPA in the October 5, 2005, edition ofthe Federal Register 

## (70 FR 58154). The proposed rules would also implement revisions to Texas Health and Safety Code, §382.0172(c), as requiredby SenateBill 784, 79th Legislature, 2005, which allow greater flexibility inthe generation ofcredits for emission reductions outside the United States. Apublichearing onthis proposal willbeheldinAustinonMay 22,2006, at2:00 p.m. inBuildingB, Room 201A, at the Texas Commission on Environmental Quality complex located at 12100 Park 35 Circle. The hearing will be structured for the receipt oforal or written comments by interested persons. Registration will begin 30 minutes prior to the hearing. Individuals may present oral statements when called upon in order ofregistration. There will be no opendiscussionduring thehearing; however, a staffmemberwill be available to discuss the proposal 30 minutes before the hearing. Persons planning to attend the hearing who have special communication or other accommodation needs, should contactLola Brown, Office ofLegal Services at (512) 239-0348. Requests shouldbe made as far in advance as possible. COlmnents may be submitted to Lola Brown, MC 205, Texas Register Team, Office ofLegal Services, Texas CommissiononEnvironmental Quality, P.O. Box 13087, Austin, Texas 78711-3087 orfaxed to (512) 239-4808. All comments should reference Rule Project Number 2005-054-101-PR. COlmnents must be receivedby 5:00 p.m., May 30, 2006. Copies oftheproposedrules canbe obtained from the commission's Web site at http://www.tceq.state.tx.us/nav/rules/propose_adopt.html. 

## For further information, please contactBeecher Cameron, Air Permits Division, at (512) 239-1495 or Steve Sun, Air Permits Division, at (512) 239-3554. Issued inAustin, Texas, 011

### April 12, 2006.

P.O. Box 13087 • Austin, Texas 78711-3087 • 512/239-1000 • Internet address: www.tceq.state.tx.us

# WRITTEN AND ORAL TESTIMONY

### Reference Number W-1

W-2 W-3

W-4 INDEX OF WRITTEN TESTIMONY
Submitted by Eric Groten, Vinson 

## &Elkins, L.L.P., on behalfof EI Paso Electric Company (EPE) Brandt Mannchen, Houston Sierra Club Whitney L. Swift, Baker Botts, L.L.P., on behalfofthe Texas Industry Project (TIP) David Neleigh, United States Environmental Protection Agency

# Vinson

# &Elkins

Eric Groten egroten@velaw.com Tel 512.542.8709 Fax512236.3272'



## LolaBrown TexasRegisterTeam Texas CommissiononEnvironmental Quality OfficeofLegal Services, MC 205 P.O. Box 13087 Austin, Texas 78711-3087 Fax: 512.239.4808 May 30, 2006 

# RECEIVED 

# HAY 302006 REGULATIONSDEVELOPJmn

# SETlDN 

# Q Via faxand U.S.



## Re: RuleProjectNumber2005-054-101-PR DearMs. Brown, I ani. 

## writing on behalf of EI Paso Electric Company ("EPE") to offer the following comments on the above-referenced rulemaking proposal concerning TCEQ's Emissions Banking and Trading Program (EBTP), which appeared in the April 28, 2006, issue ofthe Texas Register. 

## EPEhas long supported TCEQ's pioneering efforts to create incentives for cross-border and even cross-pollutant emission trades, where such trades lead to economic and environmental benefits relative to the otherwise required emission reductions. These comments are offered to encourage TCEQ to maximize the opportunities created by the Texas Legislaturewithits enac1mentofS.B. 784inthe2005 Session. Comment 1: Proposed30T.A.C 

## § 101.302(a) shouldberevised as follows: (a) Applicable pollutants. Reductions ofcriteriapollutants, 'excluding lead, orprecursors of criteriapollutantsfar ..,'lhieh an aFCa 

## is dcsignatcd nB1taHain'f'l'tC'ftt, may qualify as emission credits. Rcd'l:lcHens Except as providedby {101.305 (relatinfto Emission ReductionsAchieved Outside the UnitedStates), reductions of onepollutantmaynotbe usedto meetthe requirements for another pollutant, unless urban airshed modeling demonstrates that one ozoneprecursor may 

## be substitutedfor another, subject to executive director and United States EnvironmentalProtection Agency (EPA) approval.

Vinson & Elkins LLP Attorneys at Law Austin Beijing Dallas Dubai Houston London Moscow NewYork Shanghai Tokyo Washington 2801 Via Fortuna. Suite 100, Austin, TX 78746-7568 Tel 512.542.8400 Fax 512.542.8612 www.velaw.com

# V&E Lola Brown May 30. 2006 Page 2



## Thebasic problem with § 

## 101.302 as proposed is that it is part ofSubchapterH, Division 1, and so affects all tradingprograms administeredbyTCEQ underSubchapterH. Withrespect to the first revision noted above, the general limitation on emission credit generation to pollutants (orprecursors) for which an area is designated nonattainment is (1) incompatible withrecent changes to Health & 

## Safety Code § 

## 382.0172(c) effectuatedby Senate Bill 784,1 and (2) unnecessary given that TCEQ sets pollutant- and geography-specific parameters for each emission trading program under Subchapter H, in some cases limiting emission credit use to nonattainment areas (see 

## the Mass Emissions Cap and Trade Program under SubchapterH, Division 3), and in 

## other cases placing different geographical limitations (see 

## the System Cap Trading Program under Subchapter H, Division 5), or no geographical limitations at all (see 

## the SB 7 allowancetradingprogramunder SubchapterH, Division2). As noted in TCEQ's rule proposal preamble, S.B. 784 eliminated the pre-existing requirement in 

## § 382.0172(c) that substitution ofemission reductions be for pollutants for which the area is designated nonattainment. As also noted inthe preamble, Senate Bill 784 preserves cross-border emissions trading in the only nonattainment area located on 

# an intemational border, El Paso, which is expected to be redesignated as attainment for all criteria pollutants in the near future. Ifareduction in emissions ofaparticular pollutant in 

## Mexico otherwise satisfies all criteria and goals of the emissions trading and banking program (e.g., 

## enforceable, permanent, quantifiable, real, and surplus, etc.), it canbe certified as an emissions reduction creditfora differentpollutant, 

## regardless ofthe surrounding area's attainment status withrespect to either

## pollutant. It must be, then, that an area's attainment status is notuniversally anobstacleto emissionreduction credit generation oruse, althoughit maybein specific circumstances, depending onwhichemissionstradingprogram applies: Whether andhow an emissionreduction creditcanbeusedis governedbythepollutant- and geography-specific parameters ofthe particular emissions trading program under which use ofthe creditis being sought, ofwhichthere areonly alimitednumber: (1) Subchapter H, Division 2, governing the State-wide trading and use ofso-called Senate Bill 7 ("SB 7") NOx: and S02 allowances held by grandfathered or electing power plants; (2) Subchapter H, Division 3, governing the Houston-Galveston area's Mass Emissions Cap andTradeProgramforNOx:;

J

### Enacted

### bythe 79thLegislature 

### in 2005.

# V&E Lola Brown May 30, 2006 Page 3



## (3) SubchapterH, Division 5, governing the System Cap TradingProgram applicable topowerplants subjectto Chapter 117NOx

## emissionlimits; and (4) SubchapterH, Division 6, governingthe Houston-Galveston area's High-Reactive VOCEmissions Cap andTradeProgram. Each ofthese programs relates to specific pollutants and specific geographic area within which emission credits must be used. For example, the Mass Cap and Trade Program for NOx 

## applies only within the Houston/Galveston ozone nonattainment area,2 the NOx 

## System Cap Tradingprogram applies onlywithin singlenonatlainmentareas orwithin another single area with unique emission limits identified 

## in Chapter 117,3 and there are no geographic limits governing the generation and use ofSB 7 NOx 

## and S02 allowances, which are traded and used in large regions across the State. 

## In addition to the Agency's four existing emissions-tradingprograms, a 

## fifth use for emissionreduction credits is, ofcourse, as offsets within the context of NNSR permitting, for which Use of credits is limited to the nonattainment area within which they were generated. Because all ofthe emission credit trading programs have theirown geographical limitations, it is not necessary (and, in fact, it is not appropriate for some oftheprograms) to generallyrequire that an emissions reduction be for a pollutant for which an area is designated nonattainment 

## in order to qualify as an emissions reduction credit.
The second revision noted above, addition ofthe phrase, 

## "Exceptas providedby 

## § 101.305 (relating to Emission ReductionsAchieved Outside the UnitedStates)," is needed to resolve an internal inconsistency between this provision and proposed 

## § 101.305, which, in effectuating SB 784, will expressly authorize use ofreductions ofone pollutant to meet the requirements for anotherundercertaincircumstances. Comment 2: The following subsections ofproposed 30 T.A.C. 

## § 101.302(c) should be revised as follows: 

## (l)(C) exceptfor emission reductions achieved outside the United States. in order to become certified, the reduction must have occurred after the most recentyear ofemissions inventory used in the state implementation plan (SIP); and

2 See

### 30TAC. § 

### 101.35l. 3 See

### 30T.A.C. § 101.382.

# V&E Lola Brown May 3D, 2006 Page4



## (l)(D) exceptfor emission reductions achieved outside the United States. thefacility's annual emissionsprior to the reduction strategy must have been reportedorrepresentedin the emissions inventory usedin the SIP. (2)(C) exceptfor emission reductions achieved outside the United States. in order to become certified, the reduction must have occurredafter the most recentyear of emissions inventory used in the state implementation plan (SIP); (2)(D) exceptfor emission reductions achieved outside the UnitedStates. the mobile source's annual emissions prior to the emission credit application musthave been representedin the emissions inventory usedin the SIP; and (2)(E) exceptfor emission reductions achieved outside the UnitedStates. the mobile sources must have been included in the attainment demonstration baseline emissions inventory. 

## The requirements for certification set forth in these subsections, namely that the source's emissions must have been included in the emissions inventory used in the SIP, are inapplicable to emission reductions achieved outside the United States, which are never includedinthe emissions inventoryusedinthe SIP. Comment 3: Proposed 30 T.A.C. § 

## 101.302(f) should be deleted. As 

## explained above in Comment #1, it is unnecessary to limit emission reduction credit certification to emissions reductions achieved within 

## nonattainment areas, as each individual emissions trading program sets forthits owngeographicallimitations on emission credituse. This subsection, even as proposed to be revised, presents an inappropriate obstacle to certificationofemissionreductions achievedoutside ofthe United States. Theproposedrule wouldprohibit certification ofemissions reductions achieved outside ofnonattaimnent areas (such as in Mexico), "[e]xcept as provided in 

## § 101.305 ofthis title." An 

## applicant seeking certification ofan emission reduction achieved in Mexico presumably would have to make the demonstrations required by § 

## 101.305 in order to get around the prohibition against certification ofemission reductions achieved outside nonattainment areas. The problem is

# V&E Lola Brown May30, 2006 Page 5



## that all ofthe demonstrations required by § 101.305 pertain to use 

## ofemission reduction credits:Afacilitymay use reductions achievedoutside the UnitedStates of criteria pollutants orprecursors ofcriteria pollutants ifthefacility meets the requirements of subsection (c) of thissection.4


## Section 101.305(c) goes on to require, for example, a demonstrationthat use 

## ofthe reduction 

## will not cause localized health impacts. Strictly applied, this regulatory scheme would prevent an applicant from certifying emission reductions achieved outside ofthe United States for anunknown future useby anunknown future user, becauseit wouldbe impossible to maketherequireddemonstrationsregarding use 

## atthetime ofcertification.


## EPE believes that § 101.302(f) should be removed because it serves no purpose and is problematic for the reasons stated above in Comment 1, above. However, ifnotremoved, it should be revised as follows to correct the internal inconsistency discussed immediately above: (j) Geographic scope. Except f:lS 

### fJf'8';itieti ilt 

## § J(}].3Q5 

# 8fthis 1Jitle (f'ela1Jirtg t8 En,issi81't Reti1;/;e#8n9Aehie:Yeti 01;/;tsitie the UnitedStr:ztesl..../QL 

## emission reduction achievedoutside the United States. but within 100 

## km of the U.S.-Mexico border. only emission reductions generated in nonattainmentareas can be**certifie~** ! 

## andan emission'creditmustbe usedin the nonattainmentarea in which itis generatedunless the userhas obtainedprior written approval ofthe executive director and the EPA; and:


## Comment 4: Proposed § lO1.305(b) should be revised as follows to correct an apparent typographical omission: 

## (b) Afacility may use reductions achieved outside the United States of criteriapollutants orprecursors of criteriapollutants andsubstitute these

. reductionsfor reductions in other criteria pollutants or precursors of criteriapollutants if thefacility meets the requirements of subsection (c) of this section; and:

4

### Proposed § 

### lO1.305(a). Emphasis added.

# V&E Lola Brown May30, 2006 Page 6



## Comment 5: Proposed 

## § 101.338(a) 

# lSi: (b) should be revised as follows to clarify the meaning of the rule and to correct a repetition of the typographical omission noted 

## in Comment4: 

## (a) -A-To meet the allowance-holding requirements ofthis Division. a grandfathered or electing electric generatingfacility (EGF) may use reductions achieved outside the United States ofcriteria pollutants or precursors ofcriteriapollutants 

# ifthefacility meets the requirements of subsection (c) of thissection. (b) 

## A-To meet the allowance-holding requirements ofthis Division. a grandfathered or electing EGF may use reductions achieved outside the UnitedStates of criteriapollutants orprecursors of criteriapollutantsand substitute these reductionsfor reductions in other criteriapollutants QL 

## precursors ofcriteria pollutants 

# ifthefacility meets the requirements'of subsection (c) of thissection; and:
Comment 6: Proposed 

## § 101.372(a) should be revised as follows to reflect the addition of proposed § 101.375: 

## (a) Applicable pollutants. Reductions ofvolatile organic compounds (VOC), nitrogen oxides (NOx), carbon monoxide (CO), sulfur dioxide (S02), andparticulate matter with an aerodynamic diameter ofless than or equal to a nominal ten microns 

## (PM10) may qualify as discrete emission credits as appropriate. Reductions ofother criteriapollutants are not creditable.**Re~effieRS** 

## Except as providedin 

# f 101.375 (relating to EmissionReductionsAchieved Outside the UnitedStates), reductions of one pollutant 

## may not be used to meet the reduction requirementsfor anotherpollutant, unless: Comment 7: For the reason provided 

## in Comment 

## 2) above, the following subsections of proposed 

## § 101.372(c) shouldbe amended as indicated: (l)(C) 

## exceptfor emission reductions achievedoutside the UnitedStates, thefacility's annual emissionsprior to the reduction strategy must have been reportedorrepresentedin the emissions inventory usedfortheSIP.

# V&E Lola Brown May30, 2006 PagEl 7



## (2)(C) exceptfor emission reductions achievedoutside the United States. the mobilesource's emissionsmusthave been representedin the emissions inventory used for the SIP; and (2)(D) exceptfor emission reductions achieved outside the United States, the mobile sources must have been included in the attainment demonstration baseline emissions inventory. If a mobile reduction implemented is not in the baselinefor emissions, this reduction does not constitute adiscrete emission reduction. Comment 

## 8: Proposed"§ 101.372 shouldbe deleted oramended

## as indicatedin Comment3. Comment 

## 9: For the reason provided 

## in Comment 2, above, the following subsections of proposed § 101.373 shouldberevised as indicated: 

## (b)(1) Exceptfor emission reductions achieved outside the United States, the baseline emissions may not exceed the quantity of emissions reported in the most recentyear ofemissions inventory used in the SIP. andfor -:Ji:fH

## reductions beingcertifiedin accordance with §116.170(b) of this title (relating toApplicability of Emission Reductions as Offsets), the baseline emissions may not exceed the quantity ofemissions reported in the emissions inventory used in the SIP in place at the time the reduction strategywas implemented. (b)(2) Exceptfor emission reductions achieved outside the United States. the two consecutive calendaryearsfor the baseline activity andemissions rate mustbe selected from eitheraperiodincluding or following the most recentyear of emission inventory usedin the SIP or, 

# if thatperiodis less than ten years, the ten consecutive years immediately preceding the emission reduction. (b)(3) Forfacilities in an area in which a SIP demonstration is not required for a criteria pollutant, including facilities located in extraterritorialareas. the two consecutiveyears mustinclude or follow the 1990emission inventory.

# V&E Lola Brown May 30. 2006 Page 8



## (c)(2) Exceptfor'emission reductions achievedoutside the UnitedStates, the sum of the reduction generated and the totalstrategy emissions must not be greater than the quantity ofemissions reported or represented in the emissions inventory usedfor SIP determination or the two-year average baseline emissions, whicheveris 

## less.
Comment 10: 

## Proposed 

## § 101.375(b) 

## should be revised as 

## follows to correct an 

## apparent typographical omission: 

## (b) Afacility may use reductions achieved outside the United States of criteriapollutants orprecursors of criteriapollutants andsubstitute these reductionsfor reductions in other criteria pollutants or precursors of criteriapollutants ifthefacilitymeets the requirements o/subsection (c) of this section; and: Thank you for your careful consideration of these comments. We would welcome the opportunityto discuss 

## them. with you oryour colleagues. Ifyou have any questions, please call

## me at512,542,8709.



## cc. Mr. 

## BeecherCameron, TCEQ 

## Mr, Luis Ito, ElPaso Electric Co. Ms. LauraUribarri, ElPaso ElectricCo.

# SIERRA CLUB

FOU N DED 18:92 j11 

# HoustonRegional Group P. O. Box3021 Houston, 

## Texas 77253·3021 713·895·9309



## .http://texas.sierraclub.org/houston/ 

# 8 RECEIVED

# ~~R 

# 26 2006 REGULATIONSDEVr.lOPUENTSECTION 

## April 23, 2006 Ms. Lola Brown Texas RegisterTeam Office of Legal Services MC205 Texas Commission on Environmental Quality P.O. Box 13087 Austin, Texas 78711-3087 Dear Lola, Enclosed are the comments of the Houston Regional Group of the Sierra Club (HSC) regarding the proposed amendments to 101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of 101.358; and the proposed new 101.305,101.338, 101.339, and 1010.375, regarding the Emissions Banking and Trading Program (EBTP). 1) Under 101.305, 101.338, and 101.375, the HSC is not in favor of using air pollution reductions outside the United States ofAmerica unless three conditions are met. First, the entity responsible for the regional air pollution reduction plan must show that all reasonably available emission control measures have been implemented on the United States side of the border. Second, this entity must also show that there are insufficient air pollution reductions available on the United States side of the border to meet needed air pollution reductions. Third, grandfathered facilities must not be allowed to reduce air pollution in this manner. 2) Under 101.305(b, 101.338(b), and 101.375(b), the HSC is opposed to allowing substitution of one criteria air pollutant or precursors of criteria air pollutants for another criteria air pollutant. All criteria air pollutants or their precursors that need to be reduced to eliminate health and weIfares effects must be reduced. There is no known scientific method that allows TCEQ to know and trade one health effect from one criteria air pollutant for another. Such Intrapollutanttrading is unethical and not scientific. 3) Under 101.339(a)(1), TCEQ should also audit whether the air pollutant reductions actually occurred for each ofthe facilities they were to applied to and should determine whatthe compliance status ofthe each company who used the credits is.

"Whenwetry

### to pickout anything

## byitself, we findithitchedto everything else 

## in the universe."

## John

# Afuir
Printed on 100% Kenaitree free paper

## 4) Under**101~378(b),** 

## the HSC is opposed to giving a company with discrete emission credits from. a shutdown (before September 30, 2002), 8 years (to September 8, 2010) to use these credits. Five years should be more than sufficient and the deadline for use should be September 3D, 2007 arid not. September 30,2010. The HSC appreciates this opportunityto comment. Thankyou
.. Sincerely, Brandt Mannchen Chair, Air Quality Committee Houston Regional Group ofthe Sierra Club Lone Star Chapter 5431 Carew Houston, Texas 77096

. 713-664-5962 brandtshnfbt@juno.com

205/30/2006 

### 16:59 FAX 512 322 2502


# IBAKI:R

# BC)TTS LLP.


## ,May 30, 2006 BAKER BOITS

1500 SANJACINTO CENlCR 98 SANJACINTO BLVD. AUSTIN. TEXAS 78701·4078 TEL +1512.322.2500 FAX +1 512.322.2501 www.bokarbotts.com 

### 0021004

AUSTIN DALlAS DUBAI HONG KONG HOUSTON LONDON MOSCOW NEWYORK RIYADH WASHINGTON 

## 3y Facsimile and

## US. Mail

·l1s. Lola:: rown rexas**Re~.;** 

## sterTeam :):ffice of:.ega! Services 'v.IC 205

.rexas Commission on Environmental Quality**:~O.** 

## Box 

## 1:1807**~ustin,** 

## Teres, 78711-3087 Whitney SWift 

# G

TEL

.. 1512.322.2672 FAX

.. 1512.322.8339 

### W-3 whilney.3wift@bokerbolts.com



## Re Comments'ofthe Texas Industry Project 01 

## Emissions Trading Rule Revisions 30 TAC §§ 101.302-.378' 

## Rule ProjectNo. 2005-054-101-PR )earMs.**~lrown;**

## Ba:~er Botts L.L.P., 

## on behalfofthe Texas 

## l' dustry Project ("TIP;'), I 

## submits these llOmments on the Texas Commission on Environmel 

## tal Quality's ("TCEQ's") proposed :evisions

.n 30 TA.C Chapter 101, SUbchapter H (regard ng Emissions Banking and Trading), ·.vhich are etforth at 31 

# rex. Reg. 3492 (April 28, 2006).**Thl~** 

## proposed revisions to the emissions t ading rules implement both a change I

## equired 

# t.:, a 2005 revision to Texas Clean Air Act 

## § !

## 82.0172(c) and the trading program (.Omnlltmt ;lts 

## ide::ltified in a letter dated September 8, !005 from Executive Director Glenn :ihankle tc. EPA Region 6 AdministratorRichard Greene. 

## 11P supports TCEQ's efforts to ensure 

## :uil appro'

## 'll ofthe Texas emissions trading rules into the ,tate Implementation Plan ("SIP"). TIl) 

## has worked diligently with TCEQ for number ofyears to support emissions 1

## rading plOgrams and open-market trading rules that 

## vill enable sources to comply with unviromm·ntal req.uirements with greater flexibility and al .9. 

## reduced overall cost. TIP has been :·upportive ofTCEQ's efforts to adopt and implement the' :ading programs, and believes that.the ]Iroposed 1

## l,vision:; to the emissions trading rules are consi tent with the Texas CleanAirAct., the :ederal Cl :·lffi 

## Air Act, applicable SIP requirements, ane applicable EPA guidance, including 'Improving Air Quality with Economic Incentive Progr, 'as" 

## (EPA-4521R-OI-OOl). Full EPA Lpproval c.:'

## the**T~:xas** 

## emissions trading rules will ensure Ilat the emissions trading rules, which 1lave**beco:~le** 

## an integral part ofthe regulatory scheme in 1 

## :,xas, will remain in the Texas SIP.

\The Texas J

### ndustry Project ("TIP") is a coalition of61 companies in :he chemical, refining, oil and gas, electronic, hrest 

### produ,:ts, 

### terminal, electric utility and transportation industriel with operations in 

### Texas. A member 

### list is HLtached. J·.USOl :42187505/30/2006 

### 16:59 FAX 512 322 2502



## IlJAKER

# 1I::0lTS LLP. 

## Yls. LolaBrown BAKER BOnS



## 2**~003/004**



## May 30, 2006

TIP requests that TCEQ provide clarificat :m onone important issue as it relates :0 

## the rev:. ;-ions

## to 30 TAC 

## § 101.378(b), regarding the 

## lif I 

## ofdiscrete emissionreduction credits**~enerated** 

## from shutdown strategies. Such credits are av; Hable for use until September 

## 8, 2010 .mder the 

## terms of the proposed rule. How this date utoff would apply to certain uses of shutdown credits

.. for example. credits used for emission l 

## offsets for a 

## new permit application, ippears**cj,~ar.** 

## For other uses, such'as compliance 

## with a I 

## arumal emissions limitation under 30 

## TAe**Cill~pter** 

## 117, the impact ofthis date cutoff is 

## no t 

## clear. TIP seeks confirmation that ,shutdown credits generated from shutdown strategies lrior to September 30, 2002 will be 3.vailable :Ibr use to comply with an aruma! emissions 

## Iii fit for calendar year 2010. even ifthe ::redits, ill k 

## ierthe proposedrevisions to § 

## 101.378(b)(

## 1), ,. i.n 

## expire during 2010.

n.e Texas Industry Project appreciates the opportunity to comment on the proposed revisio:ls to the emissions trading rules. If**~/OU** 

## have 'any questions about TIP's**~omment:;.** 

## please do nothesitateto contaCtme at**322~26~** 

## :L
Sincerely,

Whitney 

## L. i'Vift 

## FortheTexa 

## Industry Project**AUS01:4218~ ~.1** 

### _**~P/2006** 

### 16:59 FAX 512 322 2502 BAKER BOTTS**~004/004**


### Baker Botts L.L.P. Environmental Clients Group (Texas Inl ustry Project)

1. Advanced 1\licro Devices, [nco 2. r\lbemarle :::orporalion 

### 3. '\rkema 4. 13ASF 

### Corp': ration 5. I3P 

### 6. Galpine Cell poratioll 

### 7. (;elanese Chemica s, Ltd. 

### 8. GenterPoirr: Energy Houston Electric, LLC 

### 9. Ghevron CClI"porati()n 

### 10. Ghevron Pt illips Chemical Company LP 

### 11.**'~ITGO** 

### Petr:>/eum Corporation 

### '12. :onocoPh llips 13. Degussa E 19ineen!d Carbons, LP , 

### 14

.. Delek Refiring Ltd. 

### 15. Dixie CheHical Company, Inc. 

### 16. Dow Chem cal Company, The 

### 17. Duke Eneruy Field Services, LP 

### 18. Dynegy In:': 

### 19. Eastman Chemical Company 20. E. I. 

### Du PC'lIt de Nemours 

### & Company 

### 21. Entergy**T(~l(as** 

### 22. Enterprise ?roducts Operating L.P. 

### 23. Exelon 

### Pc\lIerTex;3s 24. 

### ExxonMob I 

### Chern cal Company 

### 25. Firestone Polymers, LLC 26. GB 

### Biosch:mces Corporation 

### 27. Goodyear Tire 

### &**~,ubber** 

### Company, The 

### 28. Hexion**SF"~cia'ty** 

### Chemicals, Inc. 

### 29. Huntsman Corportltion 30. INEOS 

### Ole 'ins & 

### Polymers, USA 

### 31. lntereontin**~ntal** 

### TE!rminals Company 

### 32. Intern. :ional Paper Company 

### 33. Kinder Morgan Liquids Terminals, LLC 34. LANXE 

## :is Corporation 35. LBCH ,uston, LP 

### 36. Lockh' ad Martin Aeronautics Company 

### 37. Lyond 

### ·11 Chemical Company 38. 

### LYON[ ELL-ClTGO 

### Refining LP 

### 39. Maratl on Ashland Petroleum LLC 40. Mead\ ,restvaco Corporation 41. 

### Meris( USA, L.L.C. 42, 

### NOVA ::hemicals Corporation 43. NRG 1 !lXaS 

### LP 

### 44. Occid 

### 1181 Chemical Corporation 

### 45. Odijel Terminals (Houston) LP 

### 46. Praxa " Inc. 

### 47. Reliar : Energy, Inc. 

### 48. Rohrr and Haas Texas, Incorporated 

### 49. Shell :hemical Company 

### 50. Soluti ,Inc. 

### 51. ST Se vices 52. 

### Sterlil 9 

### Chemicals, Inc. 

### 53.**Stew~** 

### ·t & 

### Stevenson Services, Inc. 54. Stolth Iven Houston Inc. 

### 55. TARC 

### 1\ 56. Tem!= a-Inland Forest Products Corporation 

### 57. Texa1 Instruments Incorporated. 58. Unior Pacinc Railroad Company 59. 

### Valer I 

### Energy Corporation 60. 

### Vopa , Logistics North America, Inc. 61. West 

## ,m Refining Co., L.P.

HOU03:891150.1

### UNITED STATES ENVIRONMENTAL PROTECTION AGENCY REGION 6 

### 1445 ROSS AVENUE, SUITE 1200 DALLAS, TX 75202-2733 

# MAY 30 

# 2006 Ms_ 

## Lala

## Brown Texas RegisterTeam Office ofLcgal Services (Me 

## 205) Texas CommissiononEnvironmental Quality P.O. Box 13087 Austin, TJe 78711-3087 

## RE: -Comments onTexas's ProposedRevisions to the StateImplementationPlan (SIP) and 30 Texas Administrative Code (TAC) Chapter 101 (Rule ProjectNumber 2005-054-101-AI) DearMs. Brown: 

## Thankyou forthe opportunityto reviewtheproposedrevisions to the SIP and

## 30- TAC Chapter 101

- General

## Air 

## QualityRules, Su.bchapterH - Emissions Banking and 

## TradIDg, Divisions 1, 2, and4. Withthe;serevisions, Texas is making significant progress towards satisfyingtheterms ofthe September 8, 2005, commitmentletter. As youknow, thenecessaryrulerevisionsmustbe submittedto our officebyDecember I, 2006. We appreciatethe time and attentionyour staffhas·devoted. toprocessingthese revisions so quickly and

## yourwillingness to consultRcgion 6 during

## this rule development. Webelievethatthe incorporationofourcommentsbelowwill clarify'

## and strengthentheproposedrevisions. The following comments are speoific to theproposedrevisions to 30 TAC Chapter 101, Su.bchapterH, Division 1-EmissionCreditBanking andTradingprogram. also referredto as theEmission 

## Reduction Credit (ERC) program. 1. 

## Theproposedrevisionto § lO1.302(d)(l)(C)(vi) will address commitment number5 from 

## the commitmentletter. Theproposedrule language

## clearly describes theprocess by 

## which theU.S. EnvironmentalProtectionAgency (EPA) 

# can object

## to a quantificationprotocol. 

## This languageis consistent 

## wtth the approach describedin EPA's Economic Incentive

## Program 

## Guidance document, "Improving

## Air QualitywithEconomic Incentive 

## Programs" (EPA-452/R-OI-OOl, January2001). 2. 

## Inthe commitmentletter, theTexas Commission onEnviromnental Quality (TCEQ) committedto revising 

## § 101.302(f) to 

## clarifythatEPA approval 

## ifirequired furindividual transactions involving emission**Int9rnl~t** Addross (URL).**i'lllp:/fw\w,I.ep~.gov** RecycledJRacyclllblt • F'r1nlod WIIh vogatablEi Oil BBSed Inks on Recycled**F'~er** (Mmlmum 25% POSIconsumer) 

# 8

## 2
reductions generated 

## in another StateorNa.tion, as well as those tnmsactions from onenonattainment areato another, orfrom attainment counties into nonaitainment areas. The establishmentofanew 

## § 101.305 forinternationalreductions is 

## a step towareL

.. meeting

## this commitment

## and improving

## rule clanty. TheEPAis concerned, however, tha.tthis rulerevision changes theintent ofthe ERC rule, whichis to provideflexibility solely

## in nonattainment areas. With theremoval oftho "and" statcmcntfrom the approval criteria, thereis

## no clear

## requirementforthereductionto

## be genm:ated

## orused 

## in 

## a nonattairunent area. Thisproposedrevision would allow sources anywherewithjn 100kilometers oftheborderto generate and use ERCs from Mexico. TheTCEQhas notdemonstratedthattins revision would notviolate 

## § 110(1) ofthe CleanAirAct. Further, use 

## of.b:RCs generated outsidethe United States as 

## New SourceReview**om~els** 

### WQuld 

## be contrary to section 

## 173(c)(1) ofthe Clean

## AirAct. TheEPA understands that this rulerevisionis aresult ofSenate Bill.784, which accordingto therulepreamble, 

## was to allow forthe continuanceof beneficial emission creditprograms

## in CiudadJuarez

## inthe eventofEl PaSobeingreclassiiied 

## as an attainment

## area. TheEPA feels thatthis flexibilityis unnecessary and couldpotentiallyweakentheprogram. 

## The DiscreteEmissionReductionCredits (DERC) program, whichEPA proposed to conditionally approve

## in October2005) containsprovisions 

## thatallow forthc generation and use ofintemational discrete emission credits. TheDERCprovisions couldbe usedinElPaso

## inthe eventthe areaisreclassified as 

## attammcnt. 3

.. Theproposedrevision to § 101.306(a)(5)

## will address commitment number 6 fromthe commitment letter. Thenewwordingmore clearly provides thatERCs canbeusedin theHighly Reactive Volatile Organic CompoundEmissions Cap and Tradeprogram, subjectto § 101.399. 4. 

## Intheproposed

## new § 101.305(b)(I). theword 

## "if' is confusing. It appears that "and" might be amore appropriatewordchoice. 5. In

# the proposednew

## § 101.305(c)(1), theword "foreign" or "Mexican" 

## 6houldbe added to the listoflaws to which thereductionmustbe surplus

.. ("International" law wouldreferto atreatyorother article oflawbetween nations ratherthan alaw ofa singlenation such as Mexico.) ,6. 

## In theproposed new 

## § 101.305(c)(1), (c)(2), and (c)(3), the references to the executive director are confusing, becausethe ovcrarching approval. requirementincorporates bothEPA and the executive director. Thatis, EPA's co-approval authority clearlyimplies the authorityto independently determinewhetherthereduction is real, surplus, etc., as 

## in (c)(l), and

I 

# I

### 3


## whetherthe reduction causes localized healthimpacts under(c)(2); also implied wouldhe the authodtyto require adclitional supporting information as in (c)(3)

.

. The 

## foUowing comments arc specific to 

## the propol;edrevisions to 30 TAC



## . Chapter 101, SubchapterH, Division 2 - Emissions Banking and Trading of

Allowances (EBTA) program. 1. The 

## SIP preamble on pages 2 and5 incorrectly refers to theEBTA program as an open markettrading 

## program. TheEBTA 

## programis a cap-and-tradeprogram because itestablishes cmi::;::;iun**cap~** 

## for nitrogen oxides (NOx,) and sulfurdiox.ide (S02) 

## andprovides allocations LO 

## a defined setofsubjectfacilities for the emission ofthese pollutants. 2. TheEPArecummends that 

## § 101.338 be

## furtherrevised to state that. international reductions underthis provision are only usedto substitute for allowances 

## forPW'P0ses ofcompliance with Lhe 

## Division 2 RET.A 

## program. Language to this effectwas originally partof

## § 101.338 butwas removed in the 

## proposedrevisiun. 3. TheEPA 

## a.h;() recommends 

## that§ 

## lO!.338 befurtherrevisedto cla'rifY

## that international reductions cannot be usedin tIleEastTexas Region because of

## the distance limitations. 4. The rule language in 

## § 101.338 does require thatEPA approval is required forintemationalTeductions. 

## TheEPAnotes thatthesereductions would be addressedin the samemanneras intemational reductions for use under the Division 1 ERe 

## orDivision 4 DiscreteEmission CreditBanking and Tradingprograms. The EPA intends to require a furtherSIP revision (either

## adetailedtrading program, such as Ii

## Memordm1um

# or Understanding, or atrade specific submission) before 

## approving 

## any intemationaJ trades, interstate trades, orintrastatetrades thatinvolve reductions from beyondthe nonattainmenr area. 5- In 

### the

## proposed new § 

## 101.338(b)(1), the word "if' is confusing. It appears that "and" mightbe amore appropriate word choice.

. 

## 6. In

## theproposednew § 

## lO1.338(c)(1), the word "foreign" or "Mexican" should be added to the listoflaws towhich thereduction mustbe surplus. ("International" law wouldTefer

## to atreaty orother article oflaw between nations 

## ratherthan alaw ofa singlenation such as Mexico.) 7. In theproposednew 

## § 101.338(c)(1). (c)(2), and (c)(3), the references to the executive director are confusing. because the overarching approval requirementincorporates bothEPA and the executive diTector. Thatis, EPA's co-approval authority clearlyimplies the authority to independently

### 4
determine whether the reduction is real, surplus. etc., as 

## in (c)(l), and whetherthe reduction causes localized health impaclS under(c)(2); also implied w()Llld be the authority to

## require additional supporting information as in (c)(3).·

. 8. The 

## pl'oposed new section 101.339 is a first step towards 

## cOlTecting a prc>gram deficiency we identified in aJuly 19,2005, letterto Mr, Cory Chism. However, to fully address the concernll Uescribedin section 5.3(b) ofthe**~conomic** 

### IncentivePl'ogram 

## Guidance. the audit and annualreporting requirements mm;tapplynotjustto NOx 

### but also to the allowances and emissions ofSOlin the EastTexas Region. 

## Specifically, we recommend lhat 

### § 101.339(b) berevised to include anew sub!'leCllon that wouldreport the numberofactual 

## S02 allowances subtracted from each compliance accountbased on the actual S02 emissions fromthe site. The following comments are**~pec.:ific** 

### to the proposed revisions to 30

## TAe Chapter 101, Subchapter

## H, Division4 -DiscreteEmission CreditBanking and Trading program, referred to as the DERC 

## program. 1. The proposedrevision lo 

### § 101.372(d)(l)(C)(vi) will address commitment 

## number5 from the commilmentletter. The proposedrule language clearly describes the process 

## by which 

## EPA can objectto a quantification protocol. 

## This language is consistentwith the approach describedin the Economic Incentive PrQgnun 

### Guidance. 

## 2. 

## In the commitment letter, TCEQ committed torevising 

## §§ lOL372(f)(7) and lO1.372(f)(8) tC'J 

### clarifythatEPA approvalis required rOT

### individual transactions involving emission reductions 

## generatedin another State or Nation. as well as for those transactionR from nne nonattainment areato another, or from 

### attainmentcounties into nonattainment nrell&. The establishmenl u[anew section 101.375 for intemationalreductions is a 

## step towards 

## meeting this commitment and improvingrule clarity, However, EPA continues to believethat § 

### 101.

### 372(f)(7) needS to be revised to address this commitment. As currently written, § 

### 101.372(f)(7) still includes languagepertaining to international reductions ofNOx and VQC. 

### TheEPA feels thatthis information shouldbeincorporated

## into § 101.375 so there is no confusion about whether 

### § lO1.372(f)(7) is fw.thel' modified 

## by § 101.375. TheEPA contends that in addition to demonstrating thatthe use of international NOx**an~** 

### Volatile Organic Compoundreductions under 

### § 101.372(f)(7) improves air

### qualityin the county ofuse, thatthe userof these credits should have to meetthe**requirement~** 

### of 

### § 101.375. Also, a.5 

### statedin ourproposedconditional approval ofthe DERC program (70

### 5


## Federal Register58154), 

## in exercisingitsreview under § 101.37S(c) EPA intends to require a further SIPrevisionbefore approving any international trades, interslaLe 

## trades, orintrastatetrades thatinvolvereductions from beyond theno.n.attainmentarea. 3. Theproposed r8V'isions to 

## § 101.373 will address commitmentnumber 1 from the commitmentletter. Theproposedruleprohibits the generation of DERCs frompermanentortemporary shutdowns. Theproposedlanguage is consistentwiththeEconomic IncentiveProgram Guidance expectations ofopenmarkettrading programs. 4. 

## Inthe commitment letter, TCEQ committed

# torevising § 101'.372(£)(7) 

## and (£)(8) to 

## clarifythatEPA approval

## isrequired forindividual " transactions involving emissionreductions generatedin**anothel~** 

## State or Nation, as well 

## as thosetransactions from onenonattainment areato another, orfrom attainmentcounties into nonattainment areas. The establishmentofa

## new section 

## § lOl.375 forinternationalreductions is a step towards meetingthis**c~mrnitmellt** 

## and improvingrule clarity. TheEPAis concerned, however, thatthisrule-revision ohanges the scope ofthe internationalprovisions fortheDERCrule. Thecurrentadopted Staterule language limits the generation anduse ofirtternational discrete reductions to nonattainmc.nt areas, i.e. El Paso. Thisproposedrevision would 

## allow sources anywherewithin 100kilometers ofthe·borderto generate anduseDERCs from Mexico. The TCEQhas not domonstratcd that this revision

## wO'l.1ldnotviolate § 110(1) 

## oftheCleanAirAct. TheEPA understands that

## this rulerevisionis aresult ofSenateBill 784, 

## which according

## to therulepreamble, 

## was to allow forthecontinuance of beneficial emission creditprograms 

## in CiudadJuarezinthe eventof

- El Pasobeingreclassified as an attainment area. TheEPA questions why

this provisionwas expanded to coverthe entirety ofthe Texas-Mexico border. 5. Theproposedrevisions

# to § 101.376(0)(4) correot the citation errors that we identified 

## in an April 14, 2004, letterto 

## Mr. Cory Chism. 6. Theproposedrevisions to § 

## 101.378(b) will address commitnlentsnumber 

## 1 and 2 fromthe commitment

## letter. ThepToposedrevisions 

## establish the 

## remaining lifetime.furthe 

## shutdownDBRCs generatedbefore September30, 2002, and establishthat shutdownDERCs generated after September30, 2002, arenot 

## creditable. 7. Thcproposednew 

## §§ lO1.375(a) and (b) 

## usenon-parallel language, 

## inthai (a) says that.facilities can "use discrete emissioncredits forreductions" outsidethe

## U.S., while (b) 

## says that facilities can "usereductions" outside

## 6
the 

## U.S. It appearsthatparallel structure forthesephrases 

## wouldbe appropriate, andfurtherthatneitherofthe existingphrases is clear. 8. Inthe

### proposednew § lO1.37S(b)(1), 

### the word 

### "if' is 

### confusing. It appears that "and" mightbe amore appropriate word choice. 

## 9. In

## theproposed

## new § 101.375(c)(1), the word "foreign" or"Mexican" shouldbe added to the listoflaws to whichthereduction mustbe surplus. ("International" law wouldreferto atreatyorotherarticle oflawbetween nations ratherthan a law ofa singlenation such as Mexico.)

. 

## 10. Intheproposednew 

## § 101.375(c)(1), (c)(2), and (c)(3), thereferences 

## to the executivedirectorare confusing, becausethe overarching approval requirementincorporates bothEPA and the executive director. ThatIs, EPA's co-approval authorityclearlyimplies the authorityto independently determine whetherthereductionis real, surplus, etc., as in (e)(1), and whetherthereduction causes localizedhealthlmpacts under (c)(2); also 

### impliedwould

## bethe authorityto require a.dditional supporting information as 

## in (c)(3). Thankyou [orthe opportunity Loprovide 

### comments. Pleasenote that 

### our comments do notconstitute afinal decisionon approvabilityofrulelanguage. We look forward to seeingthe adoptedrulewhen

## itis submitted. Ifyou

## have any questions, please callMs. AdinaR. Wileyofmy staffat(214) 665-2115. Sincerelyyours,



# rJ

# M~**~~Feigh~** Chief

. Air

## Pemlits Section

### INDEX OF ORAL TESTIMONY May 22,2006, 2:00 p.m., Texas Commission on Environmental Quality, Austin, Texas

No oral testimony was received pertaining to this proposal.

### Page 1 

# Texas Commission on Environmental Quality Public Hearing Registration Location: 

# Austin Date: May 22,2006 Concerning: 30 TAC Chapter 101, General Air Quality Rules (SB 784: Emissions Reduction

- ERC/DERC) Rule Project No. 2005-054-101-PR Name and Address Representirig Presenting Oral Testimony? (Circle One) (Please Print)

# /6A/41/l~L'/£ Yes 

# 61**5-TEf/r~**

## A~JO/- / 

# LA)

# 11 

# ,·t 

# S'W{!1- @ak-( ()DtJe;· Yes

Yes No

Yes No

Yes No

Yes No

Yes No

# EVALUATION OF TESTIMONY

### INTEROFFICE MEMORANDUM 

# Texas Commission on Environmental Quality

To: 

## Commissioners Date: September 15, 2006


## Thru:

From: LaDonna Castanuela, Chief Clerk Glenn Shankle, Executive Director

# ~an Eden, Deputy Director Office ofPermitting, Remediation, and Registration

Docket No.: 2006-0167-RUL Subject: Commission Approval for Rulemaking Adoption Chapter 101, General Air Quality Rules Senate

## Bill 784: EmissionReduction Credits 

## ERC/DERC Rule Project No. 2005-054-101-PR
Reasons for the rule package:

• Under whatauthority areweadoptingthese changes? The rulemaking is adoptedunderTexas WaterCode, §5.103, concerningRules; and §5.105, concerning General Policy, which authorizes the commissionto adoptrules necessary to carry outits powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC); §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes ofthe Texas Clean Air Act. The rulernaking is also adopted under THSC, §382.002, concerning Policy and Purpose, which establishes the commission purpose to safeguard the state's air resources, consistentwith theprotectionofpublichealth, general welfare, and physical property; §382.011, concerning General Powers andDuties, which authorizes the commission to control the quality of the state's air; §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a general, comprehensive plan for the control ofthe state's air; §382.051, concerningPermitting Authority ofCommission; Rules, which authorizes the commissionto issue permits and adopt rules necessary for permits issued under THSC, Chapter 382; §382.0512, concerning Modification ofExisting Facility, which establishes amodification and its limits; and §382.0518, concerning PreconstructionPermit, which requires that apermitbeobtained from the commission prior to new construction or modification ofan existing facility.

• Is this rulemaking required by federal rule or state statute? Yes. Which ones? In the October5,2005, edition ofthe FederalRegister 

## (70 FR 58154), the United States Environmental Protection Agency (EPA) published the proposed conditional approval ofthe discrete emission reduction credit (DERC) program as part ofthe state implementation plan (SIP). The conditional approval was based on the commission submitting corrected program deficiencies to the EPA by December 1, 2006. The recommended rules also reflect changes to THSC, §382.0172(c) from Senate Bill (SB) 784 that was adopted by the 79th Texas Legislature, 2005, Regular Session, and allow additional options for creditfrom emissionreductions achieved outside ofthe United States. The revision would allow the commission greater latitude in its ability to approve the substitution and crediting ofemission reductions outside the United States thatmay be used to satisfy emission trading or reduction requirements.

### Commissioners Page 2 September 

### 15, 2006
Re: Docket No. 2006-0167-RUL

• Are there any legal deadlines by which these rules must be adopted or effective? The commission must submit rules correcting DERC program deficiencies to the EPA by December 

### 1, 2006.

• What issue or problem are we trying to solve? These rules will correct EPA-identified deficiencies in the DERC program and implement SB 784.

• Why is it important that we do this rule package? EPA's conditional approval of the commission's DERC program will automatically become a disapproval if these rules are not submitted by the December 1, 2006, deadline. These rules will also implement state legislation.

• Otherimportant background or historical information. None. Scope ofthe rulemaking:

• Changes required by federal rule: The recommended corrections include the prohibition ofthe future generation of DERCs from permanent shutdowns and allow only DERCs generated from permanent shutdowns before September 30,2002, to remain available foruseuntil September 8, 2010. Any DERCs generated after September 30, 2002, would be removed from the DERC registry and not be available for use. The corrections also require EPA approval for individual transactions involving emission reductions generated inanother stateornationas well as thosetransactions from**on~** 

### nonattainment areato another orfrom attainmentcountiesintononattainment areas. Therecommendedrevisions include a program audit and report requirements to satisfy the EPA's requirements. The requirements concerning program audits were not**includ~d** 

### in the EPA publication ofconditional approval but were the subject ofdiscussion between the commission and the EPA.

• Changes required by state statute: The rule changes implementing SB 784 allow facilities to substitute emissionreductions in criteria pollutants outside the United States ifthey are reductions in an air contaminantfor which the area, where the facility is located, has been designated as nonattainment, or ifthe reduction will result in a greater overall health benefit for the area. This will allow the continuance of beneficial emission reduction programs 

## in Ciudad Juarez in the event of El Paso's redesignation as an attainment area.

• Staffrecommendations that are not expressly required by federal rule or state statute: Citations in Chapter 101 would be updated and a reference to the highly-reactive volatile organic compound (HRVOC) rule has been included to specify that HRVOCs may also be sources of emission credits and allowances. Impact on·theregulated community:

• Who will be affected? Eleven sites in the Houston-Galveston-Brazoria (HGB) and Beaumont-Port Arthur (BPA) nonattainment areas will be affected by the removal ofDERCs from the registry.

## Commissioners Page 3 September 15, 2006 Re: Docket No. 2006-0167-RUL

• Does it create a group ofaffected persons who were not affectedpreviously? How? No.

• Will there be a fIScal 

## impact? Yes. If

## so, estimate. The DERCs generated prior to September 30, 2002, represent the majority ofthe shutdown DERCs the commission currently has 

## on its registry with an approximate total value of $40,000,000 in HGB and $600,000 in BPA. These credits remain available for compliance or trading bythe 11 sites holding themuntil September 8,2010, and will retaintheir full 

## value until then. The loss ofnERCs generated from pennanent shutdowns after September 30, 2002, is estimated to cost, area wide, from $183,470 in HGB to $604,870 in BPA. These DERCs will expire onthe effective date ofthese rules. Impact onthe public:

• Who will

## be affected? The expiration ofDERCs will mean thatthey will not reappear in the form ofair 

## contaminants.

• Does it 

## create a group ofaffected persons who were not affected previously? How? No.

• Willthere be a fIScal 

## impact? If

## so, estimate. No. Impact on agency progranIS: None. Stakeholder meetings:

• Have any stakeholdermeetillgs been held? Yes, January 4,2006.

• With whom? Industrial and environmental organizations and EPA representatives.

• Whatwerethegeneralsentiments? Someindustrial stakeholders opposedthependingretirement ofshutdown DERCs.

• Were any changes made in response to stakeholder concerns? No. Policy issues:

• What policy issues are affected? None.

• Are any policies that are not currently based on rule being made into a rule? No.

• What are the consequences if this rulemaking is not approved to go forward? EPA disapproval of

## the DERC program.

### Commissioners Page 4 September 15, 2006 Re: Docket No. 2006-0167-RUL



## • Are there alternatives? No. 

## Potentiallycontroversialmatters: TheretirementofshutdownDERCs will likely causeconcern, butthis requirement is a key point in EPA's conditional approval ofthe DERC program. 

## Key points in 

## rulemaking schedule:

• Texas Register

## proposal publication date: April 28, 2006 

## •. Anticipated effective date: October 26, 2006



## • Six-month Texas Register

## filing deadline: October 30, 2006 

## Public Comment: Vinson & Elkins, LLP on behalf ofEl Paso Electric Company, EPA, Houston Regional Group ofthe Sierra Club (HSC), and Baker Botts, L.L.P. on behalf ofthe Texas Industry Project (TIP) submitted comments during the public comment period, which closed on May 30, 2006.
EPA commented that they should be added as an approving authority for international emISSIOn substitutions in §101.305. EPA also commented thatthe implementation ofSB 784 could circumventthe intention of the emission reduction creditprogram, which was structured to allow credituse only within nonattainment areas. El Paso Electric Company requested thatthe rules be modified to allow reductions outside the United States to be eligible as credits. The executive director recommends adding EPA as an approving authority 

## in §101.305. The executive director is also recommending that no further changes be made in response to these comments. The rules have been structured such that emission reductions made outsidethe United States maybe substitutedfor reductions withinthe United States as requiredunder SB 784. Thereductions made outside the United States are noteligible for credits whicharebankable and have an indefinite life.
Inresponse 

## to acommentfromTIP, the executive directorrecommends aresponse explaining thatcredits expiring on September 20, 2010, mustbeused by thatdate ifthey are to be considered:foruse in meeting annual emission limits for calendar year 2010. HSC opposesusing creditablereductions outsidethe UnitedStatesunless allreasonably available domestic control measures have been implemented, there are insufficient domestic reductions available, and grandfathered facilities may notparticipate. The executive directorrecommends no change to the rule in response to this commentbecauseSB 784is intendedtoprovideincentives forcooperativeefforts toreduce emissions in Mexico, where those emissions directly affect Texas. The three conditions listed by HSC would work against those incentives. 

## Significant changes from proposal:
Inresponse tocomments, the executivedirectoris recommending including EPAas anapproving autllority for emission substitutions. This is consistent with current agency practice.

## Commissioners Page 5 September 15, 2006 Re: Docket No. 2006-0167-RUL Agency contacts: 

## Beecher Cameron, Rule ProjectManager, Air Permits Division, 239-1495 Steve Sun, Technical Lead, 239-3554 Dan Long, StaffAttorney, 239-5373 Lola Brown, Texas Register Coordinator, 239-0348 Attachments

cc: ChiefClerk, 5 copies Executive Director's Office David 

## C. Schanbacher, P.E. Jason Skaggs Ashley K. 

## Wadick BerthaValadez Office ofGeneral Counsel Beecher Cameron Steve Sun LolaBrown

cc (without attachments): Dan Long, StaffAttorney Debi Dyer, Program Office Liaison Tara Capobianco, Division Liaison Booker Harrison, OLS Liaison Russ Kimble, OLS

### EVALUATION OF TESTIMONY

The Texas Commission on Environmental Quality (commission) adopts amendments to §§1 01.302, 101.306, 101.372, 101.373, 101.376, and 101.378; new §§1 01.305, 101.338, 101.339, and 101.375; and the repeal of§101.338. The commission adopts §§101.302, 101.305, 101.338, 101.339, 101.372, 101.375, and 101.376 

### with changesto the proposed text
as published in the April 28, 2006, issue ofthe 

### Texas Register(31 TexReg 3492). The commission adopts §§1 01.306, 101.373, and 101.378 and the repeal of §1 01.338 

### without changesto the proposed text, and they will not be republished.

The repealed, new, and amended sections will be submitted to the United States Environmental Protection Agency (EPA) as revisions to the Texas State Implementation Plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES The Emissions Banking and Trading Program (EBTP) has been designed to offerflexibility and provide a market-based method of meeting required emission reductions. The program makes

use of several types of emission credits including emission reduction credits (ERCs), mobile emission reduction credits (MERCs), discrete emission reduction credits (DERCs), and mobile discrete emission reduction credits (MDERCs). Flexibility has been built into the rules to create incentives for the early or permanent retirement ofvolatile organic compounds (VOC) and nitrogen oxides (NOx ) 

### emissions credits.

In the October 5, 2005, edition ofthe 

### FederalRegister(70 FR 58154), the EPA published the proposed conditional approval ofthe DERC program as part ofthe SIP. The conditional approval was based on the commission submitting corrected program deficiencies to the EPA

1

### by December 1, 2006. These revisions address the deficiencies, which the commission committed to correct in a letterto the EPA dated September 8,2005.

The corrections include the prohibition ofthe future generation of DERCs from permanent shutdowns and allow only DERCs generated from permanent shutdowns before September 30, 2002, to remain available for use for no more than five years from the date of the commission's commitment letter. Any DERCs generated afterSeptember 30, 2002, would be removed from the DERC registry and not be available for use. The conditions also required revisions to §1 01.302(f) and §1 01.372(f)(7) and (8) to clarify that the EPA must approve individual transactions involving emission reductions generated in another state or nation as well as those transactions from one nonattainment area to another or from attainment counties into nonattainment areas. The amendments revise Chapter 101, Subchapter H, Emissions Banking and Trading, to include program audit and reporting requirements to satisfy the EPA's requirements for cap and trade programs. The requirements concerning program audits were not included in the EPA publication of conditional approval but were the subject of discussion between the commission and the EPA.

The conditions also required the change to Form DEC-1, Notice of Generation and Generator Certification of Discrete Emission Credits; Form MDEC-1, Notice of Generation and Generator of Mobile Discrete Emission Credits; and Form DEC-2, Notice of Intent to Use Discrete Emission Credits, to include a waiver of the federal statute of limitations for generators and
users of discrete emission credits. With the revision ofthese forms and adoption ofthe proposed rule changes, the commission will have corrected all identified deficiencies in the DERC program.



## 2

### The adopted rules also reflect changes to the Texas Health and Safety Code (THSC), §382.0172(c). Senate Bill (SB) 784 was adopted by the 79th Legislature, 2005, and allows additional options for credit from emission reductions achieved outside ofthe United States. The revisions allow the commission greaterflexibility in its ability to approve the substitution of emission reductions outside the United States that may be used to satisfy reduction ortrading requirements.

SECTION BY SECTION DISCUSSION 

## §101.302. GeneralProvisions. The commission adopts administrative changes throughout the rules to conform with 

## Texas Registerrequirements and agency guidelines.

In orderto better organize similar rule requirements, the commission deletes §1 01.302(a)(2) and (f)(3) and relocates this language concerning emission creditable reductions occurring outside the United States to new §1 01.305, Emission Reductions Achieved Outside the United States.

The commission amends §1 01.302(d)(1 )(C)(vi) to allow the rejection of an emission credit quantification protocol if the EPA objects to the protocol during a 45-day adequacy review period or if the EPA publishes in the 

## FederalRegistera disapproval ofthe protocol. This does not substantially affect the procedures to approve the quantification protocol. The commission has, and will continue, to work with the EPA to approve new quantification protocols. This revision clarifies in the rule that the quantification protocols would not be approved ifthe EPA objects to them. To be consistent with the reorganization of requirements applicable to emission reductions outside the United States, the commission is deleting the reference to "nation" in §1 01.302(f)(1).



## 3

### §1 

### 01. 305. Emission Reductions Achieved Outside the United States. 

### The new §1 01.305 combines the existing language concerning the use of emission reductions from outside the United States that is moved from §101.302(f)(3) and (a)(2) for better organization. Emission reductions in Mexico used underTHSC, §382.0172(b), must be generated and used consistent with federal requirements which restrict the generation and use of ERCs to nonattainment areas. The revisions reflect the SB 784 change to THSC, §382.0172(c), which allows facilities to substitute emission reductions in criteria or precursor pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or ifthe reduction will result in a greater overall health benefit for the area. Should EI Paso remain in nonattainment status, emission reductions and the generation of ERCs must meet federal requirements and are subject to EPA approval. If, as expected, EI Paso is redesignated as an attainment area, the adopted rule change will allow beneficial emission reduction substitutions to continue as a result of reductions achieved in Ciudad Juarez without relating those emission reductions to the attainment status of EI Paso.

In response to pUblic comment, the commission is inserting a reference to precursors of criteria pollutants into §1 01.305(b) and substituting the word "and" for "if" in regard to reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican" for "international" in §1 01.305(c) for greater specificity. The commission is also adding the EPA as
an approving authority forthe validity of creditable reductions.

The commission is moving the rules governing optional reductions to their own sections (§§1 01.305, 101.338, and 101.375) so that they may be considered separately by the EPAfor approval into the SIP and will not delay approval of other portions ofthe EBTP.



## 4

### §1 

### 01. 306. Emission Credit Use. 

### The amendment to §1 01.306(a)(5) modifies the section to be consistent with the allowed use of ERCs under §1 01.399, Allowance Banking and Trading. This revision is necessary because of
a previous adoption of Chapter 101, Subchapter H, Division 6, Highly-Reactive Volatile Organic Compound Emissions Cap and Trade Program, and allows facilities to use ERCs as allowances underthe highly-reactive volatile organic compound cap and trade program.



## §1 01.

## 338. Emission ReductionsAchieved Outside the UnitedStates. 

### The existing §1 01.338 is repealed. The new §1 01.338 reflects the revisions to THSC, §382.0172(c) 

### and provides 'the commission more discretion in approving the substitution of emission reductions achieved outside the United States for emissions from electric generating

or grandfathered facilities. In response to public comment, 

### the commission is inserting the phrase "to meet the allowance 

### holding requirements ofthis division" in §1 01.338(a) and (b).

In response to public comment, the commission is inserting a reference

### to precursors of criteria pollutants into §1 01.338(b) and substituting the word "and" for "if" in regard to reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican" for "international" in §1 01.338(c) for greater specificity. The commission is also adding the EPA as
an approving authority forthe validity of creditable reductions.

§101.339. Program Audits andReports. 

### The new §1 01.339 includes program audit and report requirements for emission credit programs applicable to electric generating and grandfathered facilities. The section contains similar audit and report requirements as are applicable to the commission's other cap and trade programs. These requirements are used by the commission and the EPA to evaluate the effectiveness of the program and include reportable items such as effect on ozone attainment, number of


## 5

### allowances or credits traded, cost of allowances or credits, and number of allowances in each compliance account. In response to public comment, the commission is adding sulfur dioxide (S02) as a pollutant that is subject to program audit requirements because grandfathered facilities are required to hold S02 allowances.

§101.372. GeneralProvisions. In order to better organize similar rule requirements, the commission deletes §1 01.372(a)(2) and relocates this language concerning emission creditable reductions occurring outside the United States to new §1 01.375, Emission Reductions Achieved Outside the United States. The commission amends §1 01.372(d)(1 )(C)(vi) to require the rejection of a quantification protocol if the EPA objects to the quantification protocol during the 45-day adequacy review period or ifthe EPA publishes in the Federal Registera disapproval ofthe quantification protocol. This does not substantially affectthe procedures to approve the quantification protocol. This revision clarifies in the rule that the quantification protocols would not be approved ifthe EPA objects to them. The commission also removes language from this section concerning credits for emission reductions outside the United States and the options for applying them. This language, modified to be consistent with the changes to THSC, §382.0172(c), enacted under SB 784, is movedto the new §101.375 in orderto be considered separately by the EPA for approval into the SIP and not delay approval of other portions ofthe EBTP. In response to public comment, the commission is removing the reference to credits for emission reductions in other nations in §1 01.372(f)(7) and will use "emission reductions" instead.

§101.373. Discrete Emission Reduction Credit Generation and Certification. The amendmentto §1 01.373(a)(1) and (2) removes the ability to generate DERCs from facility shutdowns. The commission adopts this amendment in response to the Federal Registernotice requiring the correction of program deficiencies priorto the approval ofthe EBTP into the SIP.



## 6

### The EPA has stated that banking and trading programs are intended to encourage innovative and creative emission reductions and shutdowns generally do not fall into this category. Shutdowns are also problematic forthese programs because ofthe possibility that a facility may shut down in one area, generate and sell credits, but then relocate operations to other areas or states. Additionally, when activity level increases cause emission increases, mitigating reductions are typically not required. Thus, allowing the generation oftradable credits as a result of activity level decreases (including shutdowns) may tend to promote emissions increases. Such patterns of activity related to shutdowns have the potential to interfere with attainment.

§101.375. Emission ReductionsAchieved Outside the United States. The new §101.375 relocates existing language concerning use of emission reductions from outside the United States in §1 01.372(a)(2) and (f)(8). The revisions reflect the SB 784 change to THSC, §382.0172(c), which allows facilities to substitute emission reductions in criteria or precursor pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or ifthe reduction will result in a greater overall health benefit forthe area. This will allowthe continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of EI Paso being reclassified as an attainment area.

The commission is moving the rules governing optional reductions to their own sections (§§101.305, 101.338, and 101.375) so that they may be considered separately by EPA for approval into the SIP and will not delay approval of other portions ofthe EBTP. In response to public comment, the commission is removing the reference to credits for emission reductions in §1 01.375(a) and will instead referto the use of emission reductions in both §1 01.375(a) and (b).



## 7

### In response to public comment, the commission is inserting a reference to precursors of criteria pollutants into §1 01.375(b) and substituting the word "and" for "if" in regard to reducing a criteria pollutant and its greater health benefit. The commission is sUbstituting "Mexican" for "international" in §1 01.375(c) for greater specificity. The commission is also adding the EPA as
an approving authority for the validity of creditable reductions.



## §1 01.

## 376. Discrete Emission Credit Use. The commission is amending this section to refer only to §106.261 and §1 01.262 to update references due to previous rule changes.



### §101.378. Discrete Emission CreditBanking and Trading. The amendment to §1 01.378 changes the lifetime of DERCs generated from shutdowns. Companies that have previously certified DERCs from shutdowns will have no more than five years from the September 8, 2005, commitment letterto the EPA to use**th~** 

### DERCs. As a result, DERCs that were generated from shutdowns prior to September30, 2002, are available for use until September 8, 2010. Afterthat date, the DERCs generated from shutdowns before September 30,2002, will be removed from the DERC registry and will no longer be available for

use. DERCs generated from shutdowns after September 30, 2002, may not be used. The

reason for this action is included in the discussion of changes to §101.373 in this preamble.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the rulemaking in light ofthe regulatory impact analysis requirements ofTexas Government Code, §2001.0225, and determined that the rulemaking action does meet the definition of a "majorenvironmental rule" as defined in that statute. A "major environmental rule" is a rule, the specific intent ofwhich is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the


## 8

### economy, productivity, competition, jobs, the environment, orthe public health and safety ofthe state or a sector ofthe state. The amendments to Chapter 101 and revisions to the SIP phase out DERCs generated from shutdowns priorto September 30, 2002, require removal of DERCs generated from shutdowns after September 30,2002, from the DERC registry, implement the provisions of S8 784, reorganize various rules, correct one citation, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactive volatile organic compound cap and trade program. With the exception ofthe portions of the rulemaking regarding shutdown DERCs, the amendments to Chapter 101 are not specifically intended to protect the environment or reduce risks to human health from environmental exposure to air pollutants; although, the underlying emissions banking and trading programs are intended to achieve these goals. The rulemaking provides flexibility regarding credits nearthe Texas
- Mexico border by implementing S8 784 and makes various administrative changes. The changes to shutdown DERCs generation and use are adopted to bring the DERC program into compliance with EPA program requirements, allowing the DERC program to be approved as part ofthe SIP and to ensure air quality standards will be met. This rulemaking does not meet any ofthe four applicability criteria of a "major environmental rule" as defined in the Texas Government Code. Texas Government Code, §2001.0225 applies only to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency
or representative ofthe federal government to implement a state and federal program; or 4) adopt a rule solely underthe general powers ofthe agency instead of under a specific state law. Specifically, the banking and trading program amendments were developed to implement the provisions of S8 784, limit the use of DERCs generated from shutdowns to bring the banking and trading program into compliance with federal requirements, and make several



## 9

### administrative changes. This rulemaking does not exceed an express requirement offederal or state law or a requirement of a delegation agreement, and was not developed solely underthe general powers ofthe agency, but was specifically developed underfederal law and authorized underthe THSC.

The rulemaking implements requirements of 42 United States Code (USC), §7410, which requires states to adopt a SIP that provides for "implementation, maintenance, and enforcement" ofthe national ambient air quality standard (NMOS) in each air quality control region of the state. While 42 USC, §7410 does not require specific programs, methods, or reductions to meet the standard, SIPs must include "enforceable emission limitations and other control measures, means ortechniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights), as well as schedules and timetables for compliance as may be necessary or appropriate to meet the applicable requirements ofthis chapter," (meaning 42 USC, Chapter 85, Air Pollution Prevention and Control). It is true that the Federal Clean AirAct (FCM) does require some specific measures for SIP purposes, such as the inspection and maintenance program, butthose programs are the exception, not the rule, in the SIP structure of 42 USC, §7410. The provisions ofthe FCM recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NMOS. This flexibility allows states, affected industry, and the public to collaborate
on the best methods to attain the NMOS forthe specific regions in the state. Even though the FCM allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of 42 USC, §741 

## O. Thus, while specific
measures are not generally required, the emission reductions are required. States are not free to ignore the requirements of 42 USC, §7410, and must develop programs to assure that the nonattainment areas of the state will be brought into attainment on schedule.

10

### The requirement to provide a fiscal analysis of adopted regulations in the Texas Government Code was amended by SB 633 during the 75th Legislature, 1997. The intent of SB 633 was to require agencies to conduct a regulatory impact analysis of extraordinary rules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement of state law, federal law, or a delegated federal program, or are adopted solely underthe general powers ofthe agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment of rules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment underthe provisions ofthe bill was not large. This conclusion was based, in part, on the criteria setforth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As discussed earlier in this preamble, 42 USC, §741 

## 0 does not require specific programs, methods, or reductions in orderto meet the NMOS; thus, states must develop programs for each nonattainment area to
ensure that area will meet the attainment deadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SI P rules. The legislature is presumed to understand this federal scheme. If each rule proposed for inclusion in the SIP

was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full regulatory impact analysis contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board in its fiscal notes. Because the legislature is presumed to understand the fiscal impacts ofthe bills it passes, and that presumption is based on information provided by state agencies and the Legislative Budget Board, the commission contends that the intent of SB 633 was only to require the full regulatory impact analysis for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greaterthan is necessary
11

### or appropriate to meet the requirements of42 USC, §7410. For these reasons, rules adopted for inclusion in the SIP fall underthe exception in Texas Government Code, §2001.0225(a), because they are specifically required by federal law.

In addition, 42 USC, §7502(a)(2) requires attainment as expeditiously as practicable, and 42 USC, §7511 (a), requires states to submit ozone attainment demonstration SIPs for ozone nonattainment areas such as the Houston
- Galveston
- Brazoria (HGB) area. The adopted rules, which will reduce ambient concentrations of ozone precursors in nonattainment areas, will be submitted to the EPA as one of several measures in the federally approved SIP. As discussed earlier in this preamble, the banking and trading scheme in the adopted rules is necessary to address some ofthe elevated criteria or precursor pollutant levels observed in various nonattainment areas in Texas; this scheme will result in reductions in criteria or precursor pollutants in nonattainment areas and help bring areas into compliance with the air quality standards established underfederal law as NAAQS.

The commission has consistently applied this construction to its rules since this statute was enacted in 1997. Since that time, the legislature has revised the Texas Government Code but left this provision substantially unamended. The commission presumes that "when an agency interpretation is in effect at the time the legislature amends the laws without making substantial change in the statute, the legislature is deemed to have accepted the agency's interpretation." Central Power

## &Light Co. v. Sharp, 

### 919 S.W.2d 485. 489 (Tex. App.-Austin 1995), writ denied with percuriam opinion respecting anotherissue, 

### 960 S.W.2d 617 (Tex. 1997); Bullock v. Marathon Oil Co., 

### 798 S.W.2d 353, 357 (Tex. App.-Austin 1990), no writ; 

### Cf Humble Oil

## & Refining Co. v. Calvert, 

### 414 S.W.2d 172 (Tex. 1967); Sharp v. House ofLloyd, Inc., 

### 815 S.W.2d 245 (Tex. 1991); Southwestern Life Ins. Co. v. Montemayor, 

### 24 S.W.3d 581 (Tex. App.-Austin

12

### 2000), pet. denied; and Coastal Indust. WaterAuth. v. TrinityPortland CementDiv., 563 S.W.2d 916 (Tex. 1978).

As discussed, this rulemaking action implements requirements of42 USC, §7410. There is no contract or delegation agreement that covers the topic that is the subject of this action. Therefore, the rulemaking does not exceed a standard set by federal law, exceed an express requirement of state law, exceed a requirement of a delegation agreement, nor is it adopted solely underthe general powers ofthe agency. Finally, this rulemaking action was not developed solely underthe general powers ofthe agency, but is authorized by specific sections ofTHSC, Chapter 382 (TCAA), and Texas Water Code that are cited in the STATUTORY AUTHORITY section ofthis preamble, including THSC, §§382.011, 382.012, 382.014, 382.016, and 382.017. Therefore, this rulemaking action is not subject to the regulatory analysis provisions ofTexas Government Code, §2001.0225(b), because the rulemaking does not meet any ofthe four applicability requirements.

TAKINGS IMPACTASSESSMENT The commission completed a takings impact assessment forthis rulemaking action underTexas Government Code, §2007.043. The amendments to Chapter 101 and revisions to the SIP phase out DERCs generated from shutdowns priorto September 30,2002, require removal of DERCs generated from shutdowns after September 30, 2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactive volatile organic compound cap and trade program. Specifically, the banking and trading program amendments in this adoption were developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to comply with federal requirements, and make several administrative changes. Promulgation and enforcement of the

13

### amendments will not burden private real property. The rules do not affect private property in a
mannerthat restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Additionally, the credits created underthese rules are not property rights (§101.3720)). Because DERCs are not property, phasing out shutdown DERCs does not constitute a taking. Consequently, this rulemaking action does not meet the definition of a takings underTexas Government Code, §2007.002(5).

Additionally, Texas Government Code, §2007.003(b)(4) provides that Chapter 2007 does not apply to this rulemaking action because it is reasonably taken to fulfill an obligation mandated by federal law. The changes regarding shutdown DERCs within this adoption were developed to meet the EPA conditional program approval so that these requirements can be approved into the SIP and used to meet NAAQS set by the EPA under42 USC, §7409. States are primarily responsible for ensuring attainment and maintenance of NAAQS once the EPA has established them. Under42 USC, §7410, and related provisions, states must submit, for approval by the EPA, SIPs that provide for the attainment and maintenance of NAAQS through control programs directed to sources ofthe pollutants involved. Therefore, one purpose ofthis rulemaking action is to meet the airquality standards established underfederal law as NAAQS. However, this rulemaking is only one step among many necessary for attaining the ozone NAAQS.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined that this rulemaking action relates to an action or actions subjectto the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, §§33.201 etseq.), 

### and the commission's rules in 30 TAC Chapter 281 t 

### Subchapter B, concerning Consistency with the CMP. As required by §281.45(a)(3) and 31 TAC §505.11 (b)(2), relating to Actions and Rules SUbject to the Coastal Management Program, the commission's rules governing air pollutant

14

### emissions must be consistent with the applicable goals and policies ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the rules ofthe Coastal Coordination Council, and determined that the action is consistent with the applicable CMP goals and policies. The CMP goal applicable to this rulemaking action is the goal to protect, preserve, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (31 TAC §501.12(1)). 

## 1'.10 new sources of air contaminants will be authorized and the revisions will maintain the same level ofemissions control as previous rules. The CMP policy applicable to this rulemaking action is the policy that the commission's rules comply with federal regulations in 40 Code of Federal Regulations, to protect and enhance airquality in the coastal areas (31 TAC §501.14(q)). This rulemaking action complies with 40 Code of Federal Regulations Part 51, Requirements for Preparation, Adoption, and Submittal of Implementation Plans. Therefore, in accordance with 31 TAC §505.22(e), the commission affirms that this rulemaking action is consistent with CMP goals and policies.

EFFECT ON SITES**SUB~'ECT** 

### TO THE FEDERAL OPERATING PERMITS PROGRAM The new and amended sections are applicable requirements underthe Federal Operating Permits Program, but no revisions to operating permits will be required.

PUBLIC COMMENT The commission conducted a public hearing on this proposal in Austin on May 22, 2006. Vinson & 

### Elkins, LLP on behalf of EI Paso Electric Company (ELPE), EPA, Houston Regional Group ofthe Sierra Club (HSC), and Baker Botts, L.L.P. on behalf ofthe Texas Industry Project (TIP) submitted comments during the public comment period, which closed on May 30,2006.

15

### RESPONSE TO COMMENTS TIP expresses general support forthe proposal. The EPA expresses general support for these parts ofthe proposal as having met the conditions ofthe letter of commitment to address deficiencies in the banking program: §§1 01.302(d)(1 )(C)(vi); 101.305; 101.306(a)(5); 101.372(d)(1 )(C)(vi); 101.373; 101.375; 101.376(c)(4); and 101.378(b).

The EPA comments that the proposal preamble incorrectly refers to the EBTP as an open market program when it is more correctly referenced as a cap and trade program.



## The commission agrees with this statement and is changing the preamble.

EPLE requests that the commission modify §1 01.302 to remove restrictions on which criteria pollutant reductions outside the United States may be creditable. ELPE states that SB 784 allows reductions in any criteria pollutant outside the United States that otherwise meets requirements for a creditable reduction (real, enforceable, quantifiable, permanent, and surplus), to be certified as a reduction for a different pollutant regardless ofthe surrounding area's attainment status with respect to either pollutant. EPLE requests that §101.302(f) be deleted or modified so that emission reductions outside the United States, but within 100 kilometers ofthe United States
- Mexico border, are eligible for certification. ELPE suggests that §101.305 be modified to reference the certification of reductions outside the United States instead oftheir

use.



## The commission is not changing the rule in response to this comment. Section 101.302(a) and (c) reference the certification of emission reductions as emission credits. Section 101.305 and S8 

## 784 only allow emission reductions generated outside ofthe United States to be used to satisfy applicable emission reduction requirements.

16

## Emission reductions generated outside of the United States may not be certified as credits, which may be banked and traded statewide. UnderTHSC, §382.0172(b), the use of emission reductions outside the United States is intended to provide air quality benefits to specific areas within the Texas
- Mexico border area. A person using the reduction achieved in Mexico must have a specific use in mind. Additionally, emission reductions in Mexico used underTHSC, §382.0172(b) must be applied consistent with federal requirements, which restrict the generation and use of ERCs to nonattainment
areas.

The EPA comments that the change of "and" to "or" in §1 01.305 would allow reductions made in Mexico to be used in attainment areas circumventing the intent ofthe ERCs, which are only intended to provide flexibility in nonattainment areas. Also, the EPA states the commission has not demonstrated that this revision would not violate §11

# Om of the Federal Clean AirAct.



## The commission is not changing the rule in response to this comment. Emission reductions in Mexico used underTHSC, §382.0172(b) must be applied consistent with federal requirements which restrict the generation and use ofemission reduction credits to nonattainment areas. Emission reductions in Mexico are substitutions only, not credits, and are not freely tradable. Should EI Paso remain in nonattainment status, emission reductions and the generation of emission reduction credits must meet federal requirements and are subject to EPA approval. Ifas expected, EI Paso is reclassified as
an attainment area, the adopted rule change will allow beneficial emission reduction substitutions to continue as a result of reductions achieved in Ciudad Juarez without relating those emission reductions to the attainment status of EI Paso. Because each generation and use will be subjected to case-by-case review by both the executive

17

## director as well as the EPA to ensure a greater health benefit, §11 0(1) ofthe Clean Air Act will not be violated.

ELPE suggests adding the phrase "exceptfor emissions reductions achieved outside the United States" in several places in §1 01.302(c) and §1 01.373(b) to indicate that the requirements ofthe subsections, which relate to SIP development, do not apply to emission reductions outside the United States.



## The commission is not changing the rule in response to this comment. Adding the suggested language would indicate that emission reductions outside the United States
are certifiable as credits; they are not. Reductions outside the United States may be substituted for required emission reductions within a specific area, but cannot be banked
as a credit fortrading that has an indefinite life.

ELPE suggests that §1 01.305(b) and §1 01.375(b) be amended to correct an apparent omission and include the phrase "or precursors of criteria pollutants." ELPE and EPA commented that a reference to precursors of criteria pollutants should be included in §1 01.338(b).



## The commission agrees with this comment and is making the necessary change in these two sections as well as §101.338(b).

The EPA comments that the word "if" in §1 01.305(b)(1) is confusing and suggests substitution ofthe word "and." The EPA comments that the use ofthe term "executive director" in §1 01.305(c)(1)
- (3) is confusing because it omits EPA's co-approval authority. The EPA also comments that the word "foreign" or "Mexican" should be added to indicate that reductions must also be surplus to Mexican law.
18

## The commission agrees with these comments and is making the necessary changes. The commission is removing the reference to "international law."

ELPE and EPA comment that §1 01.338(a) and (b) be modified to include the phrase "to meet the allowance holding requirements ofthis division" for clarification.



## The commission agrees with these comments and has added the references to allowance holding requirements and precursor pollutants.

The EPA recommends that §1 01.338 be revised to state that international reductions under the section are only used to comply with the Chapter 101, Subchapter H, Division 2, Emission Banking and Trading Allowances, and cannot be used in the East Texas Region because of distance limitations.



## The commission is not changing the rule in response to this comment. Distance limitations on the use of§1 01.338 are included within the section.

The EPA comments that the word "if" in §1 01.338(b)(1) is confusing and suggests substitution ofthe word "and." The EPA comments that the word "foreign" or "Mexican" be added in §101.338(c)(1) to indicate that reductions must also be surplus to Mexican law. The EPA also comments that the use ofthe term "executive director" in subsection (c)(1)
- (3) is confusing because it omits EPA's co-approval authority.



## The commission agrees with these comments and is making the necessary changes. The commission is removing the reference to "international law."



## 19

### The EPA comments that §1 01.339(b) should be revised to include reporting requirements of actual S02 allowances used. HSe comments that the commission should verify emission reductions resulting in credits and determine the compliance status of the company using the credit.



## The commission agrees with the EPA and is adding S02 to the required reporting requirements. The commission also agrees with HSC but no rule change is necessary. These procedures are currently part ofthe banking program.

ELPE comments that §1 01.372 be deleted orthat §1 01.372(a) be modified to allow reductions outside the United States to be creditable provided the conditions of §1 01.375, Emission Reductions Achieved Outside the United States, are met.



## The commission is not changing the rule in response to this comment. Adding the suggested language would indicate that emission reductions outside the United States
are certifiable as credits; they are not. Reductions outside the United States may be substituted for required emission reductions within a specific area, but cannot be banked
as a credit for trading that has an indefinite life.

The EPA comments that language in §1 01.372(f)(7) pertaining to reduction ofvoe and NOx 

### be moved to §101.375 so there is no confusion whether §101.372 is further modified by §101.375. The EPA also states that the use in Texas of reductions made in Mexico should improve Texas's air quality by complying with §101.375.

20

## The commission is changing the language in §1 01.372(f)(7) to refer to "emission reductions in other nations" instead of "emission credits." This will make the language consistent with other references to reductions outside the United States.

The EPA expresses concern that the incorporation of S8 784 in §1 01.375 would allow sources anywhere within 100 kilometers ofthe Texas
- Mexico borderto generate and use credits from Mexico. The EPA states that this provision can weaken the credit program and recommends the use of international DERCs in the event EI Paso is designated as attainment. The EPA states Texas has not demonstrated that this revision will not violate FCAA, §11 O(/).



## Senate Bill 784 allows the use of emission reductions in Mexico as a substitution for required emission reductions in Texas. The Mexican emission reductions are not certifiable as credits and may only be applied for a specific use in an area ofTexas affected by the emissions orwhere a greater health benefit, as determined by the executive directorand the EPA, is realized. Because each generation and use will be subjected to case-by-case review by both the executive directoras well as the EPA to
ensure a greater health benefit, FCAA, §11 0(1) will not be violated.

HSC opposes using creditable reductions outside the United States unless three conditions are met: the authority responsible forthe regional air pollution control plan must demonstrate that all reasonably available domestic control measures have been implemented; there are insufficient domestic reductions available; and grandfathered facilities may not participate.



## The commission is not changing the rule in response to this comment. The implementation of 5B 784 is intended to provide incentives for cooperative efforts to



## 21

### reduce emissions in Mexico where those emissions directly affect Texas. The three. conditions listed by HSC would work against those incentives.

HSC opposes substituting reductions in one pollutant for reductions of another, and there is no scientific method to know the relative benefits of this substitution.



### The commission is not changing the rule in response to this comment. The substitution of reductions will be based on nonattainment criteria pollutants or on a finding of greater health benefit.

The EPA notes that §1 01.375(a) uses the phrase "use discrete emission credits for reductions" and §101.375(b) uses the phrase "use reductions." The EPA comments that the language should be made parallel.



### The commission agrees with the EPA comment and is changing §101.375(a) and (b) to refer to "emission reductions."

The EPA comments that the word "if" in §1 01.375(b)(1) is confusing and suggests substitution of the word "and." The EPA comments that the word "foreign" or "Mexican" be added in §1 01.375(c)(1) to indicate that reductions must also be surplus to Mexican law. The EPA also comments that the use ofthe term "executive director" in §1 01.375(c)(1)
- (3) is confusing because it omits EPA's co-approval authority.



### The commission agrees with these comments and is making the necessary changes. The commission is removing the reference to "international law."



## 22

### HSC opposes the revisions in §1 01.378(b) and the allowed use of shutdown credits generated priorto September 30, 2002 until September 30, 2010, and supports a five-year life forthese credits.



## The commission is not changing the rule in response to this comment. The proposed expiration date is consistentwith federal policy.

TIP requests clarification on whether credits that will expire on September 30, 2010, can be used to meet annual emission limits for calendar year 2010.



## Allowance account reconciliation must occur by March 31 ofthe yearfollowing the control period. Discrete emission credits will have expired by the reconciliation date. Facilities not subjectto a cap and trade program may use credits to meet allowable emission rates until the expiration date of September30, 2010, butthen must reduce emissions to remain in compliance with allowables forthe remainder of calendaryear 2010.

23

# STAFF RECOMMENDATIONS

### SUBCHAPTER H: EMISSIONS BANKING AND TRADING DIVISION 4: DISCRETE EMISSION CREDIT BANKING AND TRADING §§1 01.372, 101.373, 101.375, 101.376, 101.378



### STATUTORY AUTHORITY The amended and new sections are adopted underTexas Water Code, §5.1 03, concerning Rules, and §5.1 05, concerning General Policy, that authorize the commission to adopt rules necessaryto carry out its powers and duties under the Texas Water Code; and underTexas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposes ofthe Texas Clean Air Act. The amended and new sections are also adopted under THSC, §382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; §382.011, concerning General Powers and Duties, that authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan forthe control of the state's air. The amended and new sections are also adopted under THSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also adopted under42 USC, §741 O(a)(2)(A), that requires state implementation plans to include enforceable measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights.


## 1

### The amended and new sections implement THSC, §§382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005.



## §101.372. General Provisions.

(a) Applicable pollutants. Reductions of 

## volatile organic compounds 

### (voC), nitrogen oxides (NOx), 

### carbon monoxide (CO), sulfur dioxide (S02), and particulate matterwith an aerodynamic diameter of less than or equal to a nominal ten microns (PM 10) 

### may qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may not be used to meet the reduction requirements for another pollutant, unless urban airshed modeling demonstrates that one may be substituted for another subject to approval by the executive director and the United States Environmental Protection Agency (EPA).

(b) Eligible generator categories. Eligible categories include the following:

(1) facilities (including area sources);

(2) mobile sources; or

(3) any facility, including area sources, or mobile source associated with actions by federal agencies under 

## §101.30 ofthis title (relating to Conformity of General Federal
/' 

### Actions to State Implementation Plans).



## 2

### (c) Discrete emission credit requirements.

(1) To be creditable as a discrete emission reduction credit (DERC), an emission reduction must meet the following:

(A) the reduction be real, quantifiable, and surplus at the time the discrete emission credit is generated;

(B) the reduction must have occurred afterthe most recent year of emissions inventory used in the state implementation plan (SIP) for all applicable pollutants; and

(C) the facility's annual emissions prior to the reduction strategy must have been reported or represented in the emissions inventory used for the SIP.

(2) To be creditable as a mobile discrete emission reduction credit (MDERC), an emission reduction must meet the following:

(A) the reduction must be real, quantifiable, and surplus at the time it is created;

(B) the reduction must have occurred after the most recent year of emissions inventory used in the SIP for all applicable pollutants;



## 3

### (C) the mobile source's emissions must have been represented in the emissions inventory used for the SIP; and

(D) the mobile sources must have been included in the attainment demonstration baseline emissions inventory. If a mobile reduction implemented is not in the baseline for emissions, this reduction does not constitute a discrete emission reduction.

(3) Emission reductions from a facility or mobile source which are certified as discrete emission credits underthis division cannot be recertified in whole or in part as emission credits under another division within this subchapter.

(d) Protocol.

(1) All generators or users of discrete emission credits must use a protocol which has been submitted by the executive director to the EPA for approval, if existing for the applicable facility or mobile source, to measure and calculate baseline emissions. Ifthe generator or user wishes to deviate from a protocol submitted by the executive director, EPA approval is required before the protocol can be used. Protocols shall be used as follows.

(A) Facilities subject to the emission specifications under §§117.106, 117.206, or 117.475 of this title (relating to Emission Specifications forAttainment Demonstrations; and Emission Specifications) shall quantify reductions in NOx 

### using the testing and monitoring methodologies identified to show compliance with the emission specification.



## 4

### (8) Facilities subject to the requirements under 

## §§ 115.112, 115.121, 115.122,115.162,115.211,115.212,115.352, 115.421, 115.541, or 115.542 (relating to Emission Specifications; and Control Requirements) shall quantify

# vac reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or the requirements.

(C) If the executive director has not submitted a protocol for the applicable facility or mobile source to the EPA for approval, the following applies:

(i) the amount of discrete emission credits from a facility or mobile source, in tons, will be determined and certified based on quantification methodologies at least as stringent as the methods used to demonstrate compliance with any applicable requirements for the facility or mobile source;

(ii) the generator must collect relevant data sufficient to characterize the facility's or mobile source's emissions of the affected pollutant and the facility's

or mobile source's activity level for all representative phases of operation in order to characterize the facility's or mobile source's baseline emissions;

(iii) facilities with continuous emissions monitoring systems or predictive emissions monitoring systems in place shall use this data in quantifying actual emissions;



## 5

### (iv) the chosen quantification protocol shall be made available for public comment for a period of 30 days and shall be viewable on the commission's Web site;

(v) the chosen quantification protocol and any comments received during the public comment period shall, upon approval by the executive director, be submitted to the EPA for a 45-day adequacy review; and

(vi) quantification protocols shall not be accepted for use with this division (relating to Discrete Emission Credit Banking and Trading) if the executive director receives a letter objecting to the use of the protocol from the EPA during the 45-day adequacy review orthe EPA proposes disapproval ofthe protocol in the Federal Register.

(2) In the event that the monitoring and testing data required under paragraph (1) of this subsection is missing or unavailable, the facility may report actual emissions for that period oftime using these listed methods in the following order of preference to determine actual emissions:

(A) continuous monitoring data;

.
(B) periodic monitoring data;

(C) testing data;



### (0) manufacturer's data;



## 6

### (E) 

### EPA Compilation 

## ofAirPollution Emission Factors (AP-42), September 2000; or

(F) material balance.

(3) When quantifying actual emissions in accordance with paragraph (2) ofthis subsection, the generator shall use the most conservative method for replacing the missing data, submit the justification for not using the methods in paragraph (1) ofthis subsection, and submit the justification for the method used.

(e) Credit certification.

(1) The amount of discrete emission credits shall be rounded down to the nearest tenth of a ton when generated and shall be rounded up to the nearest tenth of a ton when used.

(2) Applications for certification will be reviewed in order to determine the credibility ofthe reductions. Reductions determined to be creditable will be certified by the executive director.

(3) The applicant will be notified in writing ifthe executive director denies the discrete emission credit notification. The applicant may submit a revised discrete emission credit notification in accordance with the requirements ofthis division.



## 7

### (4) If a facility's or mobile source's emissions exceed its allowable emission limit, the amount of emissions exceeding the limit may not be certified as discrete emission credits.

(f) Geographic scope. Except as provided in paragraph (7) of this subsection and §1 01.375 ofthis title (relating to Emission Reductions Achieved Outside the United States), only emission reductions generated in the State of Texas may be creditable and used in the state with the following limitations.

(1) 

# voe and NOx

### discrete emission credits generated in an ozone attainment
area may be used in any county or portion of a county designated as attainment or unclassified, except as specified in paragraphs (4) and (5) of this subsection and may not be used in an
ozone nonattainment area.

(2) 

# voe and NOx

### discrete emission credits generated in an ozone nonattainment area may be used either in the same ozone nonattainment area in which they

were generated, or in any county or portion of a county designated as attainment or unclassified.

(3) 

# voe and NOx

### discrete emission credits generated in an ozone nonattainment area may not be used in any other ozone nonattainment area, except as provided in this subsection.

(4) 

# voe discrete emission credits are prohibited from use within the covered attainment counties, as defined in §115.1 0 ofthis title (relating to Definitions), if generated



## 8

### outside ofthe covered attainment counties. VOC discrete emission credits generated in a nonattainment area may be used in the covered attainment counties, except those generated in EI Paso.

(5) NOx

### discrete emission credits are prohibited from use within the covered attainment counties, as defined in §115.1 0 of this title, if generated outside of the covered attainment counties. NOx 

### discrete emission credits generated in a nonattainment area, except those generated in EI Paso, may be used in the covered attainment counties.

(6) CO, S02' and PM lO 

### discrete emission credits must be used in the same metropolitan statistical area (as defined in Office of Management and Budget Bulletin Number 93-17 entitled "Revised Statistical Definitions for Metropolitan Areas" dated June 30, 1993) in which the reduction was generated.

(7) VOC and NOx 

### discrete emission credits generated in other counties, states,

or emission reductions in other nations may be used in any attainment or nonattainment county provided a demonstration has been made and approved by the executive director and the EPA, to show that the emission reductions achieved in the other county, state, or nation improve the air quality in the county where the credit is being used.

(g) Ozone season. In areas having an ozone season of less than 

## 12 months (as defined in 

## 40 Code of Federal Regulations Part 58, Appendix D) VOC and NOx 

### discrete emission credits generated outside the ozone season may not be used during the ozone
season.



## 9

### (h) Recordkeeping. The generator must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion of the generation period. The user must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion of the use period. Other relevant reference material or raw data must also be maintained on-site by the participating facilities or mobile sources. The user must also maintain a copy of the generator's notice and backup information for a minimum of five years afterthe use is completed. The records shall include, but not necessarily be limited to:

(1) the name, emission point number, and facility identification number of each facility or any other identifying numberfor mobile sources using discrete emission credits;

(2) the amount of discrete emission credits being used by each facility or mobile
source; and

(3) the specific number, name, or other identification of discrete emission credits used for each facility or mobile source.

(i) Public information. All information submitted with notices, reports, and trades regarding the nature, quantity of emissions, and sales price associated with the use or generation of discrete emission credits is public information and may not be submitted as confidential. Any claim of confidentiality for this type of information, orfailure to submit all information may result in the rejection ofthe discrete emission reduction application. All



## 10

### nonconfidential notices and information regarding the generation, use, and availability of discrete emission credits may be obtained from the registrY.



## U) Authorization to emit. A discrete emission credit created underthis division is a limited authorization to emit the specified pollutants in accordance with the provisions ofthis section, the Federal Clean AirAct, and the Texas Clean AirAct, as well as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority of the commission orthe EPA to terminate or limit such authorization.

(k) Program participation. The executive director has the authority to prohibit a companyfrom participating in discrete emission credit trading either as a generator or user, if the executive director determines that the company has violated the requirements of the program or abused the privileges provided by the program.

(I) Compliance burden and enforcement.

(1) The user is responsible for assuring that a sufficient quantity of discrete emission credits are acquired to cover the applicable facility or mobile source's emissions for the entire use period.

(2) The user is in violation of this section ifthe user does not possess enough discrete emission credits to cover the compliance need forthe use period. Ifthe user possesses an insufficient quantity of discrete emission credits to cover its compliance need, the

11

### userwill be out of compliance for the entire use period. Each day the user is out of compliance may be considered a violation.

(3) Users may not transfer their compliance burden and legal responsibilities to
a third-party participant. Third-party participants may only act in an advisory capacity to the
user.

(m) Credit ownership. The owner ofthe initial discrete emission credit certificate shall be the owner or operator ofthe facility or mobile source creating the emission reduction. The executive director may approve a deviation from this subsection considering factors such as, but not limited to:

(1) whether an entity other than the owner or operator ofthe facility or mobile

source incurred the cost of the emission reduction strategy; or

(2) whether the owner or operator ofthe facility or mobile source lacks the potential to generate one tenth of aton of credit.

§101.373. Discrete Emission Reduction Credit Generation and Certification.

(a) Methods of generation.

(1) Discrete emission reduction credits (DERC) may be generated using one of the following methods or any other method that is approved by the executive director:



## 12

## (A) the installation and operation of pollution control equipment that reduces emissions below the level required ofthe facility; or

(8) a change in the manufacturing process that reduces emissions below the level required ofthe facility.

(2) OERCs may not be generated by the following strategies:

(A) permanent ortemporary shutdowns or permanent curtailment of an activity at a facility;

(8) modification or discontinuation of any activity that is otherwise in violation of a federal, state, or local law;

(C) emission reductions required to comply with any provision under42 United States Code (USC), Subchapter I regarding tropospheric ozone, or 42 USC, Subchapter IV-A regarding acid deposition control;

(0) emission reductions of hazardous air pollutants, as defined in 42 USC, §7412, from application of a standard promulgated under42 USC, §7412;

(E) emission reductions that occurred as a result of transferring the emissions to anotherfacility at the same site;



## 13

### (F) emission reductions credited or used under any other emissions trading program;

(G) emission reductions occurring at a facility that received an alternative emission limitation to meet a state reasonably available control technology requirement, except to the extent that the emissions are reduced below the level that would have been required had the alternative emission limitation not been issued;

(H) emission reductions at a site facility with a flexible permit, unless the reductions are made permanent and enforceable or the generator can demonstrate that the emission reductions were not used to satisfy the conditions for the facilities underthe flexible permit;

(I) that portion of emission reductions funded through a state or federal program, unless specifically allowed underthat program;

(J) emission reductions from a facility sUbject to Division 3 of this subchapter (relating to Mass Emissions Cap and Trade Program); or

(K) emission reductions from the shutdown of a facility that was not included in the state implementation plan (SIP).

(b) DERC baseline.



## 14

### (1) The baseline emissions may not exceed the quantity of emissions reported in the most recent year of emissions inventory used in the SIP. For reductions being certified in accordance with 

## §116.170(b) of this title (relating to Applicability of Emission Reductions as Offsets), the baseline emissions may not exceed the quantity of emissions reported in the emissions inventory used in the SIP in place at the time the reduction strategy was implemented.

(2) The two consecutive calendar years for the baseline activity and emissions rate must be selected from either a period including orfollowing the most recent year of emission inventory used in the SIP or, ifthat period is less than ten years, the ten consecutive years immediately preceding the emission reduction.

(3) Forfacilities in an area in which a SIP demonstration is not required for a criteria pollutant, the two consecutive calendar years must include orfollow the 1990 emission inventory.

(4) For reduction strategies that exceed 12 months, the baseline and SIP emissions inventory are established after the first year of generation and are fixed for the life of the strategy. A new baseline is established for each unique emission reduction strategy.

(5) Forfacilities in existence less than 24 months or not having two complete calendar years of activity data, a shortertime period of not less than 12 months may be considered by the executive director.



## 15

### (c) DERC calculation.

(1) DERCs, except for shutdowns, are calculated according to the following equation. Figure: 30 TAC §101.373(c)(1) (No change.) DERC Calculation (SA) * 

### (BER
- SER) 

## = reduction generated
Where:
SA 

# = BER =



### SER 

# = emission reduction strategy activity baseline emission rate, the lower of the emission rate used in reporting or representing emissions in the emissions inventory used for the state implementation plan or the average of the actual emission rates during the two-year baseline period. emission reduction strategy emission rate

(2) The sum ofthe reduction generated and the total strategy emissions must not be greaterthan the quantity of emissions reported or represented in the emissions inventory used for SIP determination orthe two-year average baseline emissions, whichever is less.

(3) For shutdown emission reduction strategies, the quantity of emission reduction generated is equivalent to the baseline emissions.

(4) The generation period for a shutdown is five years. Shutdown DERCs must be generated and noticed to the registry on an annual basis.

(d) DERC certification.



## 16

### (1) A OEC-1 Form, Notice of Generation and Generator Certification of Discrete Emission Credits, shall be submitted to the executive director no laterthan 90 days afterthe end of the generation period, or no laterthan 90 days afterthe completion of the first 12 months of generation. Submission of the DEC-1 Form should continue every 12 months thereafter for each subsequent year of generation.

(2) OERCs must be quantified in accordance with §101.372(d) ofthis title (relating to General Provisions). The executive director shall have the authority to inspect and request information to assure that the emission reductions have actually been achieved.

(3) An application for DERCs must include, but is not limited to, a completed OEC-1 Form signed by an authorized representative of the applicant along with the following information for each pollutant reduced at each applicable facility:

(A) the generation period;

(8) a complete description ofthe generation activity;

(C) for shutdown emission reduction strategies, an explanation as to whether production shifted from the shutdown facility to anotherfacility at the same site;

(0) 

### the amount of discrete emission credits generated;



## 17

### (E) for volatile organic compound reductions, a list of the specific compounds reduced;

(F) documentation supporting the baseline activity, baseline emission rate, strategy emission rate, and strategy activity;

(G) emissions inventory data from the most recent year of emissions inventory used in the SIP and emissions inventory data for the two consecutive years used to determine the baseline activity for each applicable pollutant and emission point;

(H) the most stringent emission rate for the applicable facility, considering all the local, state, and federal applicable regulatory and statutory requirements;

(I) a complete description of the protocol used to calculate the emission reduction generated; and

(J) the actual calculations performed by the generatorto determine the amount of discrete emission credits generated.



### §101.375. Emission Reductions Achieved Outside the United States.

(a) A facility may use emission reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) ofthis section.



## 18

### (b) A facility may use emission reductions achieved outside the United States of criteria pollutants or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants or precursors of criteria pollutants if the facility meets the requirements of subsection (c) of this section; and

(1) the reduction is substituted forthe reduction of another criteria pollutant and the substitution results in a greater health benefit and is of equal "or greater benefit to the overall air quality of the area; or

(2) a**reducti~m** 

### of an air contaminant for which the area in which the facility is located has been designated as nonattainment orwhich leads to the formation of a criteria pollutant forwhich an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment or leads to the formation of any criteria pollutant forwhich the area has been designated as nonattainment.

(c) The use of reductions outside the United States must be approved by the executive director and the United States Environmental Protection Agency (EPA), and the user ofthe emission reduction must:

(1) demonstrate to the executive director and EPA that the reduction is real, permanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or local law;



## 19

### (2) demonstrate that the use of the reduction does not cause localized health impacts, as determined by the executive director and EPA;

(3) submit all supporting information for calculations and modeling, and any additional information requested by the executive director and EPA; and

(4) be located within 100 kilometers ofthe Texas
- Mexico border.

(d) This section does not apply to reductions in emissions of lead.



## §101.376. Discrete Emission Credit Use.

(a) Requirements to use discrete emission credits. Discrete emission credits may be used if the following requirements are met.

(1) The user shall have ownership of a sufficient amount of discrete emission credits before the use period for which the specific discrete emission credits are to be used.

(2) The user shall hold sufficient discrete emission credits to cover the user's compliance obligation at all times.

(3) The user shall acquire additional discrete emission credits during the use period if it is determined the user does not possess enough discrete emission credits to cover



## 20

### the entire use period. The user shall acquire additional credits as allowed underthis section priorto the shortfall, or be in violation of this section.

(4) Facility or mobile source operators may acquire and use only discrete

.emission credits listed on the registry.

(b) Use of discrete emission credits. With the exception of uses prohibited in subsection (c) of this section or precluded by commission order or condition within an authorization underthe same commission account number, discrete emission credits may be used to meet or demonstrate compliance with any facility or mobile regulatory requirement including the following:

(1) to exceed any allowable emission level, ifthe following conditions are met:

(A) in ozone nonattainment areas, permitted facilities may use discrete emission credits to exceed permit allowables by no more than ten tons for nitrogen oxides or five tons forvolatile organic compounds in a 12-month period as approved by the executive director. This use is limited to one exceedance, up to 12 months within any 24-month period, per use strategy. The usershall demonstrate that there will be no adverse impacts from the
use of discrete emission credits at the levels requested; or

(8) at permitted facilities in counties or portions of counties designated
as attainment or unclassified, discrete emission credits may be used to exceed permit allowables by values not to exceed the prevention of significant deterioration significance levels



## 21

### as provided in 40 Code of Federal Regulations (CFR) §52.21 (b)(23), as approved by the executive director priorto use. This use is limited to one exceedance, up to 12 months within any 24-month period, per use strategy. The user shall demonstrate that there will be no adverse impacts from the use of discrete emission credits at the levels requested;

(2) as new source review (NSR) permit offsets, if the following requirements are met:

(A) the user shall obtain the executive director's approval priorto the use of specific discrete emission credits to cover, at a minimum, one year of operation ofthe new or modified facility in the NSR permit;

(8) the amount of discrete emission credits needed for NSR offsets equals the quantity oftons needed to achieve the maximum allowable emission level set in the user's NSR permit. The user shall also purchase and retire enough discrete emission credits to meet the offset ratio requirement in the user's ozone nonattainment area. The user shall purchase and retire eitherthe environmental contribution of 10% orthe offset ratio, whichever is higher; and

(C) the NSR permit must meet the following requirements:

(i) the permit must contain an enforceable requirement that the facility obtain at least one additional year of offsets before continuing operation in each subsequent year;



# 22

### (ii) prior to issuance ofthe permit the user shall identify the discrete emission credits; and

(iii) prior to start of operation the user shall submit a completed DEC-2 Form, Notice of Intent to Use Discrete Emission Credits, along with the original certificate;

(3) to comply with the Mass Emissions Cap and Trade Program requirements as provided in §1 01.356(g) ofthis title (relating to Allowance Banking and Trading); or

(4) to comply with Chapters 114, 115, and 117 ofthis title (relating to Control of Air Pollution from Motor Vehicles; Control ofAir Pollution from Volatile Organic Compounds; and Control ofAir Pollution from Nitrogen Compounds), as allowed.

(c) Discrete emission credit use prohibitions. A discrete emission credit may not be used underthis division:

(1) before it has been acquired by the user;

(2) for netting to avoid the applicability offederal and state NSR requirements;

(3) to meet (as codified in 42 United States Code (USC), Federal Clean AirAct (FCAA)) requirements for:



## 23

### (A) new source performance standards under FCAA, §111 (42 USC, §7411);

(8) lowest achievable emission rate standards under FCAA, §173(a)(2) (42 USC, §7503(a)(2));

(C) best available control technology standards under FCAA, §165(a)(4) (42 USC, §7475(a)(4)) or Texas Health and Safety Code, §382.0518(b)(1);

(D) hazardous air pollutants standards under FCAA, §112 (42 USC, §7412), including the requirements for maximum achievable control technology;

(E) standards for solid waste combustion under FCAA, §129 (42 USC, §7429);

(F) requirements for a vehicle inspection and maintenance program under FCAA, §182(b)(4) or (c)(3) (42 USC, §7511a(b)(4) or (c)(3));

(G) ozone control standards set under FCAA, §183(e) and (f) (42 USC, §7511 b(e) and (f));

(H) clean-fueled vehicle requirements under FCAA, §246 (42 USC, §7586);



## 24

### (I) motorvehicle emissions standards under FCAA, §202 (42 USC, §7521 );

(J) standards for non-road vehicles under FCAA, §213 (42 USC, §7547);

(K) requirements for reformulated gasoline under FCAA, §211 (k) (42 USC, §7545); or

(L) requirements for Reid vapor pressure standards under FCAA, §211 (h) and (i) (42 USC, §7545(h) and (i));

(4) to allow an emissions increase of an air contaminant above a level authorized in a permit or other authorization that exceeds the limitations of§106.261 or §106.262 ofthis title (relating to Facilities (Emission Limitations); and Facilities (Emission and Distance Limitations)) except as approved by the executive director and the United States Environmental Protection Agency. This paragraph does not apply to limit the use of discrete emission reduction credits (DERC) or mobile discrete emission reduction credits in lieu of allowances under §1 01.356(h) of this title;

(5) to authorize a facility whose emissions are enforceably limited to below applicable major source threshold levels, as defined in §122.10 of this title (relating to General Definitions), to operate with actual emissions above those levels without triggering applicable requirements that would otherwise be triggered by such major source status; or



## 25

### (6) to exceed an allowable emission level where the exceedance would cause or contribute to a condition of air pollution as determined by the executive director.

(d) Notice of intent to use.

(1) A completed DEC-2 Form, signed by an authorized representative of the applicant shall be submitted to the executive director in accordance with the following requirements.

(A) Discrete emission credits may be used only afterthe applicant has submitted the notice and received executive director approval.



### (8) The application must be submitted at least 45 days priorto the first day ofthe use period if the discrete emission credits were generated from a facility, 90 days if the discrete emission credits were generated from a mobile source, and every 12 months thereafter for each subsequent year if the use period exceeds 12 months.

(C) A copy of the application shall also be sent to the federal land manager 30 days prior to use ifthe user is located within 100 kilometers of a Class I area, as listed in 40 CFR Part 81 (2001).

(D) The application must include, but is not limited to, the following information for each use:



## 26

## (i) the applicable state and federal requirements that the discrete emission credits will be used to comply with and the intended use period;

(ii) 

### the amount of discrete emission credits needed;

(iii) the baseline emission rate, activity level, and total emissions forthe applicable facility or mobile source;

(iv) the actual emission rate, activity level, and total emissions for the applicable facility or mobile source;

(v) the most stringent emission rate and the most stringent emission level for the applicable facility or mobile source, considering all applicable regulatory requirements;

(vi) a complete description of the protocol, as submitted by the executive directorto the United States Environmental Protection Agency for approval, used to calculate the amount of discrete emission credits needed;

(vii) the actual calculations performed by the userto determine the amount of discrete emission credits needed;

(viii) the date that the discrete emission credits were acquired or will be acquired;



## 27

### (ix) the discrete emission credit generator and the original certificate ofthe discrete emission credits acquired orto be acquired;

(x) the price ofthe discrete emission credits acquired orthe expected price of the discrete emission credits to be acquired, except for transfers between sites under common ownership or control;

(xi) a statement that due diligence was taken to verify that the discrete emission credits were not previously used, the discrete emission credits were not generated as a result of actions prohibited underthis regulation, and the discrete emission credits will not be used in a manner prohibited underthis regulation; and

(xii) a certification of use, that must contain certification under penalty of law by a responsible official of the user of truth, accuracy, and completeness. This certification must state that based on information and belief formed after reasonable inquiry, the statements and information in the document are true, accurate, and complete.

(2) DERC use calculation.

(A) To calculate the amount of discrete emission credits necessary to comply with §§117.1 08, 117.138, 117.210, or 117.223 ofthis title (relating to System Cap; and Source Cap), a user may use the equations listed in those sections, or the following equations.



## (i) For the rolling average cap:



## 28

### Figure: 30 TAC §1 01.376(d)(2)(A)(i) (No change.)


## Amount ofDERCs N 

## Required =

# t [(EH i X 

## ERi )
- 

## (Hi X 

## Ri)] X 

## (2:00) (tons)
Where: 

### d 

## = the number of days in the use period



## = each emission unit in the source or system cap 

# N 

# = Hi 

# =

EH; 

# = the total number of emission units in the source or system cap actual daily heat input, in million British thermal units (MMBtu) perday, as calculated accordingto §§117.1 08(c)(1), 117.138(c), 117.21 0(c)(1) or(2), or 117.223(b)(1) ofthis title (relating to System Cap; and Source Cap) as applicable actual emission rate, in pounds (Ib)/MMBtu, as defined in §§117.1 08(c)(1), 117.138(c), 117.21 0(c)(1) or (2), or 117.223(b)(1) ofthis title as applicable expected new daily heat input, in MMBtu per day expected new emission rate, in Ib/MMBtu.

(ii) For maximum daily cap:



# 29

## Required (tons) Figure: 30 TAC §101.376(d)(2)(A)(ii) (No change.)



## Amount ofDERCS N


# = 

# [(EH M; 

### x

# ER;)

-(H Mi X

# R;)]

# 20~O

Where:



## = each emission unit in the source or system cap 

# N 

# = R

j 

## =

ER; 

# = the total number of emission units in the source or system cap in Ib/MMBtu, is defined as in §§117.108(c)(2), 117.210(c)(3), or 117.223(b)(1) of this title (relating to System Cap; and Source Cap) as applicable the maximum daily heat input, in MMBtu/day, as defined in §§117.108(c)(2), 117.210(c)(3), or 117.223(b)(1) of this title as applicable expected new maximum daily heat input, in MMBtu per day expected new emission rate, in Ib/MMBtu.

(8) The amount of discrete emission credits needed to demonstrate compliance or meet a regulatory requirement is calculated as follows.



## 30

### Figure: 30 TAG §101.376(d)(2)(B) (No change.)
(ELA) x (EER
- RER) 

# =discrete emission credits needed Where: ELA

# =expected level of activity EER

# =expected emission rate per unit activity RER = regulatory emission rate per unit activity.

(G) The amount of discrete emission credits needed to exceed an allowable emissions level is calculated as follows.

Figure: 30 TAG §101.376(d)(2)(G) (No change.) (ELA
- PLA) x (PER) 

## = discrete emission credits needed Where: ELA

# =expected level of activity PLA

# = permitted level of activity PER = permitted emission rate per unit activity

(0) 

### The user shall retire 10% more discrete emission credits than are needed, as calculated in this paragraph, to ensure that the facility or mobile source environmental contribution retirement obligation will be met.

(E) If the amount of discrete emission credits needed to meet a regulatory requirement orto demonstrate compliance is greaterthan ten tons, an additional


## 31

### 5.0% ofthe discrete emission credits needed, as calculated in this paragraph, must be acquired to ensure that sufficient discrete emission credits are available to the userwith an adequate compliance margin.

(3) A user may submit a notice late in the case of an emergency, but the notice must be submitted before the discrete emission credits can be used. The user shall include a complete description ofthe emergency situation in the notice of intent to use. All other notices submitted less than 45 days priorto use, or 90 days priorto use for a mobile source, will be considered late and in violation.

(4) The user is responsible for determining the credits it will purchase and notifying the executive director of the selected generatingfacility or mobile source in the notice of intent to use. Ifthe generator's credits are rejected orthe notice of generation is incomplete, the use of discrete emission credits by the user may be delayed by the executive director. The
user cannot use any discrete emission credits that have not been certified by the executive director. The executive director may reject the use of discrete emission credits by a facility or mobile source if the credit and use cannot be demonstrated to meet the requirements of this section.

(5) Ifthe facility is in an area with an ozone season less than 12 months. the
user shall calculate the amount of discrete emission credits needed for the ozone season separately from the non-ozone season.

(e) Notice of use.



## 32

### (1) The user shall calculate:

(A) the amount of discrete emission credits used, including the amount of discrete emission credits retired to cover the environmental contribution, as described in subsection (d)(2)(C) of this section, associated with actual use; and

(8) the amount of discrete emission credits not used, including the amount of excess discrete emission credits that were purchased to cover the environmental contribution, as described in subsection (d)(2)(C) ofthis section, but not associated with the actual use, and available for future use.

(2) DERC use is calculated by the following equations.

(A) The amount of discrete emission credits used to demonstrate compliance or meet a regulatory requirement is calculated as follows.

Figure: 30TAC §101.376(e)(2)(A) (No change.) (ALA) x (AER
- RER) 

## = discrete emission credits used Where: ALA 

## = actual level of activity AER 

## = actual emission rate per unit activity RER 

## = regulatory emission rate per unit activity



# 33

### (B) The amount of discrete emission credits used to comply with permit allowables is calculated as follows.

Figure: 30 TAC §101.376(e)(2)(B) (No change.) (ALA
- PLA) x (AER) 

# =discrete emission credits used Where: ALA 

## = actual level of activity PLA 

### = permitted level of activity AER 

## = permitted emission rate per unit activity
(3) A DEC-3 Form, Notice of Use of Discrete Emission Credits, shall be submitted to the commission in accordance with the following requirements.

(A) The notice must be submitted within 90 days afterthe end of the use period.

(B) The notice must be submitted within 90 days of the conclusion of each 12-month use period, if applicable.



## (C) The notice is to be used as the mechanism to update or amend the notice of intent to use and must include any information different from that reported in the notice of intent to use, including, but not limited to, the following items:



## 34

### (i) purchase price of the discrete emission credits obtained prior to the current use period, except for transfers between sites under common ownership or control;

(ii) the actual amount of discrete emission credits possessed during the use period;

(iii) the actual emissions during the use period for volatile organic compounds and nitrogen oxides;

(iv) the actual amount of discrete emission credits used;

(v) the actual environmental contribution; and

(vi) the amount of discrete emission credits available for future

use.

(4) Discrete emission credits that are not used during the use period are surplus and remain available for transfer or use by the holder. In addition, any portion of the calculated environmental contribution not attributed to actual use is also available.

(5) The user is in violation ofthis section if the user submits the report of use laterthan the allowed 90 days following the conclusion of the use period.



## 35

## §101.378. Discrete Emission Credit Banking and Trading.

(a) The credit registry. All discrete emission credit generators, users, and holders will be included in the commission's credit registry.

(1) All notices submitted by a generator, holder, or userwill be reviewed for credibility; and when deemed certified, posted to the credit registry.

(2) The credit registry will assign a unique numberto each certificate which will include the amount of emission reductions generated to the tenth of a ton.

(3) The credit registry will maintain a listing of all credits available or used for each ozone nonattainment area. One combined listing for all the counties or portions of counties designated as attainment or unclassified will be provided by the credit registry.

(4) The registry shall not contain proprietary information.

(b) Life of a discrete emission credit. A discrete emission credit is available for use afterthe DEC-1 Form, Notice of Generation and Generator Certification of Discrete Emission Credits, has been received, deemed creditable by the executive director, and deposited in the commission credit registry in accordance with subsection (a) of this section, and may be used anytime thereafter except as stated in this subsection. All credits are deposited in the credit registry and reported as available credits until they are used or withdrawn.



## 36

### (1) Discrete emission credits generated from shutdown strategies priorto September 30, 2002, will be available for use until September 8, 2010.

(2) Discrete emission credits certified from facility shutdowns after September 30, 2002, may not be used.

(c) Trading. Discrete emission credits are freely transferable in whole or in part, and may be traded or sold to a new owner at any time after certification.

(1) Prior to the transfer, the executive director must be notified by means of a completed DEC-4 Form, Application for Transfer of Discrete Emission Credits.

(2) The executive directorwill issue a letterto the discrete emission credit purchaser reflecting the discrete emission credits purchased by the new owner, and a letterto the discrete emission credit seller showing any remaining discrete emission credits available to the original owner. Discrete emission credits are considered transferred only after the executive director grants approval of the transaction.

(3) The trading of discrete emission credits may be discontinued by the executive director in whole or-in part and in any manner, with commission approval, as a remedy for problems resulting from trading in a localized area of concern.



## 37**"'l"O~'** Q"t'lm=**A~** 

### TF'}('AS 

## TEXAS COMMISSION ON**ENVIRONMENTA~ g~AVIS**  .. 'cJ ct f I here 

### ycertifythatthis isatrue an corre 

### copy0 a**.::~{Ic)i';>.,** TexasCommission on Environmental Qualitydocument,

### ',~>-~'~3.;, whiCh 

### isflied 

### inthe. permanent

### recordsofthe Commission,

### :~' 

### ..... li/-! Given un ermyhand ancllhll seal ofofflce on 

# . ../,

. a tIi 

# OCT 1920**'''''-'-~** 

### La onna Caslanuelii, Chief

### Clerk TexasCommission on Environmental Quality 

## ORDER ADOPTING AMENDED, NEW, AND REPEALED RULES AND REVISIONS TO THE STATE IMPLEMENTATION PLAN

Docket No. 2006-0167-RUL On October 4, 2006, the Texas Commission on Environmental Quality (Commission), during a public meeting, considered adoption of amendments to 30 TAC Chapter 101, General Air Quality Rules, §§ 

### 101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of § 

### 101.338; and new §§ 

### 101.305, 101.338, 101.339, and 101.375, and corresponding revisions to the S,tate Implementation Plan (SIP). The Commission adopts these amendments to 30 TAC Chapter 101, General Air Quality Rules, §§ 

### 101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of § 

### 101.338; and new §§ 

### 101.305, 101.338, 101.339, and 101.375, and corresponding revisions to the SIP. These changes address deficiencies in the Commission's discrete emission reduction credit program as identified by the United States Environmental Protection Agency (EPA) in the October 5, 2005, edition ofthe 

## FederalRegister (70 FR 58154). Changes include elimination of discrete emission reduction credits generated from shutdowns; EPA approval for transactions for emission reductions generated in another state or country, or from one nonattainrnent area to another, or from an attainment area to a nonattainment area; and formatting changes. The changes also implement revisions to Tex. Health & 

### Safety Code, § 382.0172(c), as required by Senate 

## Bill 784, 79th Texas Legislature, 2005,

. Regular Session, which allows greater flexibility in the generation of credits for emission reductions outside the United States. Under Tex. Health & 

### Safety Code 

## §§ 3'82.011, 382.012, and 382.023, the Commission has the authority to control the quality ofthe state's air and to issue orders consistent with the policies and purposes ofthe Texas Clean Air Act, Chapter 382 ofthe Tex. Health & 

### Safety Code. The proposed rules were published in the April 28, 2006, issue of the 

## Texas Register (31 TexReg 3492).
Pursuant to Tex. Health & Safety Code 

## § 382.017, Tex. Gov't Code Chapter 2001, and 40 Code of Federal Regulations § 

### 51.102 and after proper notice, the Commission conducted a public hearing to consider the changes to 30 TAC Chapter 101, and corresponding revisions to the SIP. Proper notice included prominent advertisement in the areas affected at least 30 days prior to the date of the hearing. Apublic hearing was held at the Texas Commission on Environmental Quality complex in Austin, Texas, on May 22, 2006. The Commission circulated hearing notices of its intended action to the public, including interested persons, the Regional Administrator ofthe EPA, and alJ applicable local air pollution control agencies. The public was invited to submit data, views, and recommendations on the proposed changes at the hearing or during the comment period. Prior to the scheduled hearing, copies of the proposed changes were available for public inspection at the Commission's central office and on the Commission's Web site.

### Data, views, ·and recommendations of interested persons regarding the proposed changes were submitted to the Commission during the comment period, and were considered by the Commission as reflected in the analysis oftestimony incorporated by reference to this Order. The Commission finds that the analysis of testimony includes the names of all interested groups or associations offering comment on the proposed changes and their position concerning the same. IT IS THEREFORE ORDERED BY THE COMMISSION that the amendments to 30 TAC Chapter 101, General Air Quality Rules, §§ 

### 101.302, 101.306, 101.372, 101.373, 101.376, and 101.378; the repeal of § 

### 101.338; and new §§ 

### 101.305, 101.338, 101.339, and 101.375, and corresponding revisions to the SIP incorporated by reference to this Order are hereby adopted. The Commission further authorizes staff to make any non-substantive revisions to the rules necessary to comply with 

## Texas Register requirements. The adopted rules and the preamble to the adopted rules and the revisions to the SIP are incorporated by reference in this Order as if set forth at length verbatim in this Order.
IT IS FURTHER ORDERED BY THE COMMISSION that on behalf ofthe Commission, the Chairman should transmit a copy of this Order, together with the adopted rules and revisions to the SIP, to the Regional Administrator of EPA as a proposed revision to the Texas SIP pursuant to the Federal Clean Air Act, § 

### 110, codified at 42 U.S. Code Ann. §§ 

### 7410

- 7671q, as amended. This Order constitutes the Order of the COlTimission required by the Administrative Procedure Act, Tex. Gov't Code, § 2001.033. 

### If any portion of this Order is for any reason held to be invalid by a court of competent jurisdiction, the invalidity ofany portion shall not affect the validity ofthe remaining portions.

Date issued: 

# OCT 172005 TEXAS COMMISSION ON EN) IRONMENTAL QUALITY 

# <::

.. 1'

# tClJ,,~ef2pj/L**~j,** L-{)

# ~.tR._)**~athleen** 

### Hartnett White, Chairman



### 2to request a complete set of fingerprints from any applicant for any authorization, including a license or permit, issued under Insurance Code Title 13. Section 4001.005 authorizes the Commissionerto adopt rules necessary to implement Insurance Code Title 13. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state. This agency herebycertifiesthatthe adoption has been reviewed by legal counsel and found to be avalid exercise ofthe agency's legal authority. Filed with the Office ofthe SecretaryofState on October3,2006. TRD-200605418 Gene C. Jannon General Counsel and Chief Clerk Texas Department of Insurance Effective date: October 23, 2006 Proposal publication date: August 4, 2006 Forfurther information, please call: (512) 463-6327


## TITLE 30. ENVIRONMENTAL QUALITY 

# PART 1. TEXAS COMMISSION ON ENVIRONMENTAL QUALITY CHAPTER 101. GENERAL AIR QUALITY RULES SUBCHAPTER H. EMISSIONS BANKING AND 

## TRADING The Texas Commission on Environmental Quality (commission) adopts amendments to §§1 01.302, 101.306, 101.372, 101.373, 101.376, and 101,378; new §§101.305, 101.338, 101.339, and 101.375; and the repeal of §1 01.338. The commission adopts §§101.302, 101.305, 101.338, 101.339, 101.372, 101.375, and 101.376 with changesto the proposed text as published in the April 28, 2006, issue of the Texas Register (31 TexReg 3492). The commission adopts §§101.306, 101.373, and 101.378 and the repeal of §101.338 without changes to the proposed text, and they will not be republished. The repealed, new, and amended sections will be submitted to the United States Environmental Protection Agency (EPA) as revisions to the Texas State Implementation Plan (SIP). BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES The Emissions Banking and Trading Program (EBTP) has been designed to offerflexibility and provide a market-based method of meeting required emission reductions. The program makes use of several types of emission credits including emission reduction credits (ERCs), mobile emission reduction credits (MERCs), discrete emission reduction credits (DERCs), and mobile discrete emission reduction credits (MDERCs). Flexibility has been built into the rules to create incentives for the early or permanent retirement of volatile organic compounds (VOC) and nitrogen oxides (NO,) emissions credits.



## 31 TexReg 8684 

## October20,2006 Texas Register In the October 5, 2005, edition of the Federal Register(70 FR 58154), the EPA published the proposed conditional approval of the DERC program as part of the SIP. The conditional approval was based on the commission submitting corrected program deficiencies to the EPA by December 1, 2006. These revisions address the deficiencies, which the commission committed to correct in a letterto the EPA dated September8, 2005. The corrections includethe prohibition ofthe future generation of DERCs from permanentshutdowns and allow only DERCs generated from permanent shutdowns before September 30, 2002, to remain available for use for no more than five years from the date of the commission's commitment letter. Any DERCs generated after September 30, 2002, would be removed from the DERC registry and not be available for use. The conditions also required revisionsto §1 01.302(f) and §1 01.372(f)(7) and (8) to clarify that the EPA must approve individual transactions involving emission reductions generated in anotherstate or nation as well as those transactions from one nonattainment area to another or from attainment counties into nonattainment areas. The amendments revise Chapter 101, Subchapter H, Emissions Banking and Trading, to include program audit and reporting requirements to satisfy the EPA's requirements for cap and trade programs. The requirements concerning program audits were not included in the EPA publication of conditional approval but were the subject ofdiscussion between the commission and the EPA. The conditions also required the change to Form DEC-1, Notice of Generation and Generator Certification of Discrete Emission Credits; Form MDEC-1, Notice of Generation and Generator of Mobile Discrete Emission Credits; and Form DEC-2, Noticeof Intent to Use Discrete Emission Credits, to include awaiver ofthe federal statute of limitations for generators and users of discrete emission credits. With the revision of these forms and adoption ofthe proposed rule changes, the commission will have corrected all identified deficiencies in the DERC program. The adopted rules also reflect changes to the Texas Health and Safety Code (THSC), §382.0172(c). Senate Bill (SB) 784 was adopted bythe 79th Legislature, 2005, and allows additional options for credit from emission reductions achieved outside ofthe United States. The revisions allow the commission greaterflexibility in its ability to approve the substitution of emission reductions outside the United States that may be used to satisfy reduction or trading requirements. SECTION BY SECTION DISCUSSION §101.302. General Provisions. The commission adopts administrative changes throughout the rules to conform with Texas Register requirements and agency guidelines. In order to better organize similar rule requirements, the commission deletes §101.302(a)(2) and (f)(3) and relocates this language concerning emission creditable reductions occurring outside the United States to new §101.305, Emission Reductions Achieved Outside the United States. The commission amends §1 01.302(d)(1 )(C)(vi) to allow the rejection of an emission credit quantification protocol if the EPA objects to the protocol during a 45-day adequacy review period or ifthe EPA publishes in the Federal Registera disapproval of the protocol. This does notsubstantially affect the procedures to approve the quantification protocol. The commission has, and will continue, to workwith the EPAto approve new quantificationprotocols. This revision clarifies in the rule thatthe quantification protocols would not be approved ifthe EPA objects to them. To be consistent with the reorganization of requirements applicable to emission reductions outside the United States, the commission is deleting the reference to "nation" in §101.302(f)(1). §101.305. Emission Reductions Achieved Outside the United States. The new §101.305 combines the existing language concerning the use of emission reductions from outside the United States that is moved from §101.302(f)(3) and (a)(2) for better organization. Emission reductions in Mexico used underTHSC, §382.0172(b), must be generated and used consistent with federal requirements which restrict the generation and use of ERCs to nonattainment areas. The revisions reflect the SB 784 change to THSC, §382.0172(c), which allows facilities to substitute emission reductions in criteria or precursor pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. Should EI Paso remain in nonattainment status, emission reductions and the generation of ERCs must meet federal requirements and are subject to EPA approval. If, as expected, EI Paso is redesignated as an attainment area, the adopted rule change will allow beneficial emission reduction substitutions to continue as a result of reductions achieved in Ciudad Juarez without relating those emission reductions to the attainment status of El Paso. In response to public comment, the commission is inserting a reference to precursors of criteria pollutants into §101.305(b) and substituting the word "and" for 

### "if' in regard to reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican" for "international" in §101.305(c) for greater specificity. The commission is also adding the EPA as an approving authority for the validity of creditable reductions. The commission is moving the rules governing optional reductions to their own sections (§§101.305, 101.338, and 101.375) so that they may be considered separately by the EPA for approval into the SIP and will not delay approval of other portions of the EBTP. §101.306. Emission Credit Use. The amendment to §101.306(a)(5) modifies the section to be consistent with the allowed use of ERCs under §101.399, Allowance Banking and Trading. This revision is necessary because ofa previous adoption of Chapter 101, Subchapter H, Division 6, Highly-Reactive Volatile Organic Compound Emissions Cap and Trade Program, and allows facilities to use ERCs as allowances underthe highly-reactive volatile organic compound cap and trade program. §101.338. Emission Reductions Achieved Outside the United States. The existing §101.338 is repealed. The new §101.338 reflects the revisions to THSC, §382.0172(c) and provides the commission more discretion in approving the substitution of emission reductions achieved outside the United States for emissions

. from electric generating or grandfathered facilities. In response

to public comment, the commission is inserting the phrase "to meet the allowance holding requirements of this division" in §101.338(a) and (b). In response to publiccomment, the commission is inserting a reference to precursors of criteria pollutants into §101.338(b) and substituting the word "and" for 

### "if' in regard to reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican" for "international" in §1 01.338(c) for greater specificity. The commission is also adding the EPA as an approving authorityfor the validity of creditable reductions. §101.339. Program Audits andReports. The new §101.339 includes program audit and report requirements for emission credit programs applicable to electric generating and grandfathered facilities. The section contains similar audit and report requirements as are applicable to the commission's other cap and trade programs. These requirements are used by the commission and the EPA to evaluate the effectiveness ofthe program and include reportable items such as effect on ozone attainment, number of allowances or credits traded, cost ofallowances orcredits, and numberofallowances in each compliance account. In response to public comment, the commission is adding sulfurdioxide (SO,) as a pollutant that is subjectto program audit requirements because grandfathered facilities are required to hold SO, allowances. §101.372. General Provisions. In order to better organize similar rule requirements, the commission deletes §101.372(a)(2) and relocates this language concerning emission creditable reductions occurring outside the United States to new §101.375, Emission Reductions Achieved Outside the United States. The commission amends §101.372(d)(1 )(C)(vi) to require the rejection of a quantification protocol if the EPA objects to the quantification protocol during the 45-day adequacy review period or if the EPA publishes in the FederalRegistera disapproval ofthe quantification protocol. This does not substantially affect the procedures to approve the quantification protocol. This revision clarifies in the rule that the quantification protocols would not be approved if the EPA objects to them. The commission also removes language from this section concerning credits for emission reductions outside the United States and the options for applying them. This language, modified to be consistent with the changes to THSC, §382.0172(c), enacted under SB 784, is moved to the new §101.375 in order to be considered separately by the EPA for approval into the SIP and not delay approval of other portions of the EBTP. In response to public comment, the commission is removing the reference to credits for emission reductions in other nations in §101.372(f)(7) and will use "emission reductions" instead. §101.373. Discrete Emission Reduction Credit Generation and Certification. The amendment to §1 01.373(a)(1) and (2) removes the ability to generate DERCs from facility shutdowns. The commission adopts this amendment in response to the FederalRegisternotice requiring the correction of program deficiencies prior to the approval ofthe EBTP intothe SIP. The EPAhasstated that banking and trading programs are intended to encourage innovative and creative emission reductions and shutdowns generally do not fall into this category. Shutdowns are also problematic for these programs because ofthe possibilitythat afacility may shut down in 'one area, generate and sell credits, but then relocate operations to other areas or states. Additionally, when activity level increases cause emission increases, mitigating reductions are typically not required. Thus, allowing the generation oftradable credits as a result of actiVity level decreases (includ

## ADOPTEDRULES October20,2006 

## 31 TexReg 8685ing shutdowns) maytend to promote emissions increases. Such patterns ofactivity related to shutdowns have the potential to interfere with attainment. §101.375. Emission Reductions Achieved Outside the United States. The new §101.375 relocates existing language concerning use of emission reductions from outside the United States in §101.372(a)(2) and (f)(8). The revisions reflect the S8 784 change to THSC, §382.0172(c), which allows facilities to substitute emission reductions in criteria or precursor pollutants outside the United States if it is a reduction in an air contaminant for which the area, where the facility is located, has been designated as nonattainment, or if the reduction will result in a greater overall health benefit for the area. This will allow the continuance of beneficial emission credit programs for reductions in Ciudad Juarez in the event of EI Paso being reclassified as an attainment area. The commission is moving the rules governing optional reductionstotheirown sections (§§101.305, 101.338, and 101.375) so thatthey may be considered separately by EPAforapproval into the SIP and will notdelay approval ofotherportions ofthe E8TP. In response to public comment, the commission is removing the reference to credits for emission reductions in §101.375(a) and will instead refer to the use of emission reductions in both §101.375(a) and (b). In responseto publiccomment, the commission is inserting a reference to precursors of criteria pollutants into §101.375(b) and substituting the word "and" for 

### "if' in regard to reducing a criteria pollutant and its greater health benefit. The commission is substituting "Mexican" for "international" in §101.375(c) for greater specificity. The commission is also adding the EPA as an approving authority for the validity of creditable reductions. §101.376. Discrete Emission Credit Use. The commission is amending this section to refer only to §106.261 and §101.262 to update references due to previous rule changes. §101.378. Discrete Emission CreditBanking and Trading. The amendment to §101.378 changes the lifetime of DERCs generated from shutdowns. Companies that have previously certified DERCs from shutdowns will have no more than five years from the September8, 2005, commitment lettertothe EPA to usethe DERCs. As a result, DERCsthatwere generated from shutdowns prior to September 30, 2002, are available for use until September 8, 2010. Afterthat date, the DERCs generated from shutdowns before September 30, 2002, will be removed from the DERC registry and will no longer be availablefor use. DERCs generated from shutdowns after September 30, 2002, may not be used. The reason for this action is included in the discussion of changes to §1 01.373 in this preamble. FINAL REGULATORY IMPACTANALYSIS DETERMINATION The commission reviewed the rulemaking in light of the regulatory impact analysis requirements of Texas Government Code, §2001.0225, and determined that the rulemaking action does meet the definition of a "major environmental rule" as defined in that statute. A "major environmental rule" is a rule, the specific intent ofwhich is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, productivity, competition, jobs, the environment, or the public health and safety



## 31 TexReg 8686 

## October20,2006 Texas Register of the state or a sector of the state. The amendments to Chapter 101 and revisions to the S.lP phase out DERCs generated from shutdowns priorto September30, 2002, require removal of DERCs generated from shutdowns after September 30, 2002, from the DERC registry, implement the provisions of S8 784, reorganize various rules, correct one citation, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactive volatile organiccompound cap and trade program. With the exception of the portions of the rulemaking regarding shutdown DERCs, the amendments to Chapter 101 are not specifically intended to protect the environment or reduce risks to human health from environmental exposure to air pollutants; although, the underlying emissions banking and trading programs are intended to achieve these goals. The rulemaking provides flexibility regarding credits nearthe Texas
- Mexico border by implementing S8 784 and makes various administrative changes. The changes to shutdown DERCs generation and use are adopted to bring the DERC program into compliance with EPA program requirements, allowing the DERC program to be approved as part of the SIP and to ensure air quality standards will be met. This rulemaking does not meet any of the four applicability criteria of a "major environmental rule" as defined in the Texas Government Code. Texas Government Code, §2001.0225 applies onlyto a majorenvironmental rule, the result ofwhich isto: 1) exceed astandard set byfederal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or represEmtative ofthefederal governmentto implementa state and federal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. Specifically, the banking and trading program amendments were developed to implement the provisions of S8 784, limit the use of DERCs generated from shutdowns to bring the banking and trading program into compliance with federal requirements, and make several administrative changes. This rulemaking does not exceed an express requirement offederal or state law or a requirement of a delegation agreement, and was not developed solely under thegeneral powers ofthe agency, butwas specificallydeveloped underfederal law and authorized under the THSC. The rulemaking implements requirements of 42 United States Code (USC), §7410, which requires states to adopt a SIP that provides for "implementation, maintenance, and enforcement" ofthe national ambient air quality standard (NAAQS) in each air quality control region of the state. While 42 USC, §7410 does not require specific programs, methods, or reductions to meet the standard, SIPs must include "enforceable emission limitations and other control measures, means ortechniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights), as well as schedules and timetables for compliance as may be necessary orappropriateto meet the applicable requirements of this chapter," (meaning 42 USC, Chapter 85, Air Pollution Prevention and Control). It is true that the Federal Clean Air Act (FCAA) does require some specific measures for SIP purposes, such as the inspection and maintenance program, but those programs are the exception, not the rule, inthe SIP structure of42 USC, §7410. The provisions ofthe FCAA recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry, and the publicto collaborate on the best methods to attain the NAAQSforthe specific regions in the state. Even thoughthe FCAA allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of42 USC, §7410. Thus, while specific measures are not generally required, the emission reductions are required. States are not free to ignore the requirements of 42 USC, §7410, and must develop programs to assure that the nonattainment areas ofthe state will be brought into attainment on schedule. The requirement to provide a fiscal analysis of adopted regulations in the Texas Government Code was amended by SB 633 during the 75th Legislature, 1997. The intent of SB 633 was to require agencies to conduct a regulatory impact analysis of extraordinary rules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement of state law, federal law, or a delegated federal program, or are adopted solely under the general powers of the agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment of rules adopted by the agency in the past, it is not anticipated that the bill will have significantfiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment under the provisions of the bill was not large. This conclusion was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As discussed earlierin this preamble, 42 USC, §741 0 does not require specific programs, methods, or reductions in order to meet the NAAQS; thus, states must develop programsforeach nonattainmentarea to ensurethatarea will meetthe attainmentdeadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The legislature is presumed to understand this federal scheme. If each rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full regulatory impact analysis contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and bythe Legislative Budget Board in its fiscal notes. Because the legislature is presumed to understand the fiscal impacts of the bills it passes, and that presumption is based on information provided by state agencies and the Legislative Budget Board, the commission contends that the intent of SB 633 was only to require the full regulatory impact analysis for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greater than is necessary or appropriate to meet the requirements of42 USC, §7410. Forthese reasons, rules adopted for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are specifically required by federal law. In addition, 42 USC, §7502(a)(2) requires attainment as expeditiously as practicable, and 42 USC, §7511 (a), requires states to submit ozone attainment demonstration SIPs for ozone nonattainment areas such as the Houston
- Galveston
- Brazoria (HGB) area. The adopted rules, which will reduce ambient concentrations of ozone precursors in nonattainment areas, will be submitted to the EPA as one of several measures in the federally approved SIP. As discussed earlier in this preambie, the banking and trading scheme in the adopted rules is necessary to address some of the elevated criteria or precursor pollutant levels observed in various nonattainment areas in Texas; this scheme will result in reductions in criteria or precursorpollutants in nonattainment areas and help bring areas into compliance with the air quality standards established under federal law as NAAQS. The commission has consistently applied this construction to its rules since this statute was enacted in 1997. Since thattime, the legislature has revised the Texas Government Code but left this provision substantially unamended. The commission presumes that "when an agency interpretation is in effect at the time the legislature amends the laws without making substantial change in the statute, the legislature is deemed to have accepted the agency's interpretation." Central Power& Light Co. 

### v. Sharp, 919 S.w.2d 485. 489 (Tex. App. Austin 1995), writ denied with per curiam opinion respecting anotherissue, 960 S.W.2d 617 (Tex. 1997); Bullock

### v. Marathon OilCo., 798 S.W.2d 353, 357 (Tex. App. Austin 1990), no writ; Cf Humble Oil & Refining Co. v. Calvert, 414 S.w.2d 172 (Tex. 1967); Sharp v. House of Lloyd, Inc., 815 S.w.2d 245 (Tex. 1991); Southwestern Life Ins. Co. v. Montemayor, 24 S.W.3d 581 (Tex. App. Austin 2000), pet. denied; and Coastal Indust. WaterAuth. 

### v. Trinity Portland Cement Div., 563 S.w.2d 916 (Tex. 1978). As discussed, this rulemaking action implements requirements of42 USC, §7410. There is no contract ordelegation agreement that covers the topic that is the subject ofthis action. Therefore, the rulemaking does not exceed a standard set by federal law, exceed an express requirement of state law, exceed a requirement of a delegation agreement, nor is it adopted solely under the general powers of the agency. Finally, this rulemaking action was not developed solely under the general powers of the agency, but is authorized by specific sections ofTHSC, Chapter 382 (TCAA), and Texas WaterCodethat are cited in the STATUTORY AUTHORITY section of this preamble, inciuding THSC, §§382.011, 382.012, 382.014, 382.016, and 382.017. Therefore, this rulemaking action is not subject to the regulatory analysis provisions ofTexas Government Code, §2001.0225(b), because the rulemaking does not meet any ofthe four applicability requirements. TAKINGS IMPACT ASSESSMENT The commission completed atakings impact assessmentforthis rulemaking action under Texas Government Code, §2007.043. The amendmentsto Chapter 101 and revisions to the SIP phase out DERCs generated from shutdowns prior to September 30, 2002, require removal of DERCs generated from shutdowns after September 30, 2002, from the DERC registry, implement the provisions of SB 784, reorganize various rules, specify the time the EPA has to object to quantification protocols, eliminate future generation of shutdown DERCs, and add a reference to the highly-reactivevolatile organiccompound cap and trade program. Specifically, the banking and trading program amendments in this adoption were developed to implement the provisions of SB 784, limit the use of DERCs generated from shutdowns to comply with federal requirements, and make several administrative changes. Promulgation and enforcement of the amendments will not burden private real property. The rules do not affect private property in a manner that restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Additionally, the credits created underthese rules are not property rights (§101.372U)). Because DERCs are not property, phasing out shutdown DERCs does not constitute a taking. Consequently, this rulemaking action does not meet the definition of a takings under Texas Government Code, §2007.002(5).



## ADOPTEDRULES October20, 2006 31 

## TexReg 8687Additionally, Texas Government Code, §2007.003(b)(4) provides that Chapter 2007 does not apply to this rulemaking action because it is reasonably taken to fulfill an obligation mandated by federal law. The changes regarding shutdown DERCs within this adoption were developed to meet the EPA conditional program approval so that these requirements can be approved into the SIP and used to meet NAAQS set by the EPA under 42 USC, §7409. States are primarily responsible for ensuring attainment and maintenance of NAAQS once the EPA has established them. Under 42 USC, §7410, and related provisions, states mustsubmit, forapproval bythe EPA, SIPsthat providefor the attainment and maintenance of NAAQS through control programs directed to sources ofthe pollutants involved. Therefore, one purpose of this rulemaking action is to meet the air quality standards established under federal law as NAAQS. However, this rulemaking is only one step among many necessary for attaining the ozone NAAQS. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined that this rulemaking action relates to an action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, §§33.201 etseq.), and the commission's rules in 30 TAC Chapter 281, Subchapter B, concerning Consistency with the CMP. As required by §281.45(a)(3) and 31 TAC §505.11(b)(2), relating to Actions and Rules Subject to the Coastal Management Program, the commission's rules governing air pollutant emissions must be consistent with the applicable goals and policies ofthe CMP. The commission reviewed this action forconsistency with the CMP goals and policies in accordance with the rules of the Coastal Coordination Council, and determined that the action is consistent with the applicable CMP goals and policies. The CMP goal applicable to this rulemaking action is the goal to protect, preserve, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (31 TAC §501.12(1)). No new sources ofaircontaminants will be authorized and the revisions will maintain the same level of emissions control as previous rules. The CMP policy applicable to this rulemaking action is the policy that the commission's rules comply with federal regulations in 40 Code of Federal Regulations, to protect and enhance air quality in the coastal areas (31 TAC §501.14(q)). This rulemaking action complies with 40 Code of Federal Regulations Part 51, Requirements for Preparation, Adoption, and Submittal of Implementation Plans. Therefore, in accordancewith 31 TAC §505.22(e), the commission affirmsthat this rulemaking action is consistentwith CMP goals and policies. EFFECTON SITES SUBJECTTO THE FEDERAL OPERATING PERMITS PROGRAM The newand amended sections are applicable requirements underthe Federal Operating Permits Program, but no revisions to operating permits will be required. PUBLIC COMMENT The commission conducted a public hearing on this proposal in Austin on May 22, 2006. Vinson & Elkins, LLP on behalf of El Paso Electric Company (ELPE), EPA, Houston Regional Group of the Sierra Club (HSC), and Baker Botts, L.L.P. on behalf of the Texas Industry Project (TIP) submitted comments during the public comment period, which closed on May 30, 2006. RESPONSE TO COMMENTS



## 31 TexReg 8688 

## October20, 2006 Texas Register TIP expresses general support for the proposal. The EPA expresses general support for these parts of the proposal as having metthe conditions ofthe letterof commitment to address deficiencies in the banking program: §§101.302(d)(1 )(C)(vi); 101.305; 101.306(a)(5); 101.372(d)(1 )(C)(vi); 101.373; 101.375; 101.376(c)(4); and 101.378(b). The EPAcommentsthatthe proposal preamble incorrectly refers tothe EBTP as an open market program when it is more correctly referenced as a cap and trade program. The commission agrees with this statement and is changing the preamble. EPLE requests thatthe commission modify §101.302 to remove restrictions on which criteria pollutant reductions outside the United States may be creditable. ELPE states that SB 784 allows reductions in any criteria pollutant outside the United States that otherwise meets requirements fora creditable reduction (real, enforceable, quantifiable, permanent, and surplus), to be certified as a reduction for a different pollutant regardless of the surrounding area's attainment status with respect to either pollutant. EPLE requests that §1 01.302(f) be deleted or modified so that emission reductions outside the United States, but within 100 kilometers of the United States
- Mexico border, are eligible for certification. ELPE suggests that §101.305 be modified to reference the certification of reductions outside the United States instead of their use. The commission is notchanging the rule in response tothis comment. Section 101.302(a) and (c) reference the certification of emission reductions as emission credits. Section 101.305 and SB 784 only allow emission red uctions generated outside ofthe United States to be used to satisfy applicable emission reduction requirements. Emission reductions generated outside of the United States may not be certified as credits, which may be banked and traded statewide. Under THSC, §382.0172(b), the use ofemission reductions outside the United States is intended to provide air quality benefits to specific areas within the Texas

- Mexico border area. A person using the reduction achieved in Mexico must have a specific use in mind. Additionally, emission reductions in Mexico used under THSC, §382.0172(b) must be applied consistent with federal requirements, which restrict the generation and use of ERCs to nonattainment areas. The EPA comments thatthe change of "and" to "or" in §101.305 would allow reductions made in Mexico to be used in attainment areas circumventing the intent of the ERCs, which are only intended to provide flexibility in nonattainment areas. Also, the EPA states the commission has not demonstrated that this revision would not violate §110(l) ofthe Federal Clean Air Act. The commission is not changing the rule in response to this comment. Emission reductions in Mexico used under THSC, §382.0172(b) must be applied consistent with federal requirements which restrict the generation and use of emission reduction credits to nonattainmentareas. Emission reductions in Mexico are substitutions only, not credits, and are not freely tradable. Should El Paso remain in nonattainment status, emission reductions and the generation ofemission reduction credits must meet federal requirements and are subject to EPA approval. If as expected, El Paso is reclassified as an attainment area, the adopted rule changewill allow beneficial emission reduction substitutionsto continue as a result of reductions achieved in Ciudad Juarez without relating those emission reductions to the attainment status of El Paso. Because each generation and use will be subjected to case-by-case review by both the executive direc-tor as well as the EPA to ensure a greater health benefit, §110(1) of the Clean Air Act will not be violated. ELPE suggests adding the phrase "except for emissions reductions achieved outside the United States" in several places in §101.302(c) and §101.373(b) to indicate that the requirements of the subsections, which relate to SIP development, do not apply to emission reductions outside the United States. The commission is not changing the rule in response to this comment. Adding the suggested language would indicate that emission reductions outside the United States are certifiable as credits; they are not. Reductions outside the United States may be substituted for required emission reductions within a specific area, but cannot be banked as a credit for trading that has an indefinite life. ELPE suggests that §101.305(b) and §101.375(b) be amended to correct an apparent omission and include the phrase "or precursors of criteria pollutants." ELPE and EPA commented that a reference to precursors of criteria pollutants should be included in §101.338(b). The commission agrees with this comment and is making the necessary change in these two sections as well as §101.338(b). The EPA comments that the word "if' in §101.305(b)(1) is confusing and suggests substitution of the word "and." The EPA comments that the use of the term "executive director" in §101.305(c)(1)
- (3) is confusing because it omits EPA's co-approval authority. The EPA also comments thattheword "foreign" or "Mexican" should be added to indicate that reductions must also be surplus to Mexican law. The commission agrees with these comments and is making the necessary changes. The commission is removing the reference to "international law." ELPE and EPA commentthat §1 01.338(a) and (b) be modified to include the phrase "to meetthe allowance holding requirements of this division" for clarification. The commission agrees with these comments and has added the references to allowance holding requirements and precursor pollutants. The EPA recommends that §1 01.338 be revised to state that international reductions underthe section are only used to comply with the Chapter 101, Subchapter H, Division 2, Emission Banking and Trading Allowances, and cannot be used in the East Texas Region because of distance limitations. The commission is not changing the rule in response to this comment. Distance limitations on the use of §101.338 are included within the section. The EPA comments that the word "if' in §101.338(b)(1) is confusing and suggests substitution ofthe word "and." The EPA comments that the word "foreign" or "Mexican" be added in §1 01.338(c)(1) to indicate that reductions must also be surplus to Mexican law. The EPA also comments that the use of the term "executive director" in subsection (c)(1)
- (3) is confusing because it omits EPA's co-approval authority. The commission agrees with these comments and is making the necessary changes. The commission is removing the reference to "international law." The EPA comments that §101.339(b) should be revised to include reporting requirements of actual SO, allowances used. HSC comments that the commission should verify emission reductions resulting in credits and determine the compliance status of the company using the credit. The commission agrees with the EPA and is adding SO, to the required reporting requirements. The commission also agrees with HSC but no rule change is necessary. These procedures are currently part ofthe banking program. ELPE comments that §101.372 be deleted or that §101.372(a) be modified to allow reductions outside the United States to be creditable provided the conditions of§1 01.375, Emission Reductions Achieved Outside the United States, are met. The commission is not changing the rule in response to this comment. Adding the suggested language would indicate that emission reductions outside the United States are certifiable as credits; they are not. Reductions outside the United States may be substituted for required emission reductions within a specific area, but cannot be banked as a credit for trading that has an indefinite life. The EPA comments that language in §101.372(f)(7) pertaining to reduction ofVOC and NO, be moved to §101.375 so there is no confusion whether §1 01.372 is further modified by §101.375. The EPA also states that the use in Texas of reductions made in Mexico should improve Texas's air quality by complying with §101.375. The commission is changing the language in §101.372(f)(7) to refer to "emission reductions in other nations" instead of "emission credits." This will make the language consistent with other references to reductions outside the United States. The EPA expresses concern that the incorporation of SB 784 in §101.375 would allow sources anywhere within 100 kilometers of the Texas
- Mexico border to generate and use credits from Mexico. The EPA states thatthis provision can weaken the credit program and recommends the use of international DERCs in the event EI Paso is designated as attainment. The EPAstates Texas has not demonstrated that this revision will not violate FCAA, §110(l). Senate Bill 784 allows the use of emission reductions in Mexico as a substitution for required emission reductions in Texas. The Mexican emission reductions are not certifiable as credits and may only be applied for a specific use in an area of Texas affected bythe emissions or where a greater health benefit, as determined by the executive director and the EPA, is realized. Because each generation and use will be subjected to case-by-case review by both the executive director as well as the EPA to ensure a greater health benefit, FCAA, §110(1) will not be violated. HSC opposes using creditable reductions outside the United States unless three conditions are met: the authority responsible for the regional air pollution control plan must demonstrate that all reasonably available domestic control measures have been implemented; there are insufficient domestic reductions available; and grandfathered facilities may not participate. The commission is notchanging the rule in response to this comment. The implementation of SB 784 is intended to provide incentives for cooperative efforts to reduce emissions in Mexico where those emissions directly affect Texas. The three conditions listed by HSC would work against those incentives. HSC opposes substituting reductions in one pollutant for reductions of another, and there is no scientific method to know the relative benefits of this substitution.



## ADOPTEDRULES October20, 2006 31 TexReg 8689The commission is notchanging the rule in response tothis comment. The substitution of reductions will be based on nonattainment criteria pollutants or on a finding of greater health benefit. The EPA notes that §101.375(a) uses the phrase "use discrete emission credits for reductions" and §101.375(b) uses the phrase "use reductions." The EPA comments that the language should be made parallel. The commission agrees with the EPA comment and is changing §101.375(a) and (b) to refer to "emission reductions." The EPA comments that the word "if' in §101.375(b)(1) is confusing and suggests substitution ofthe word "and." The EPA comments that the word "foreign" or "Mexican" be added in §1 01.375(c)(1) to indicate that reductions must also be surplus to Mexican law. The EPA also comments that the use of the term "executive director" in §101.375(c)(1)
- (3) is confusing because it omits EPA's co-approval authority. The commission agrees with these comments and is making the necessary changes. The commission is removing the reference to "international law." HSC opposes the revisions in §101.378(b) and the allowed use of shutdown credits generated priorto September 30, 2002 until September 30, 2010, and supports a five-year life for these credits. The commission is notchanging the rule in responsetothis comment. The proposed expiration date is consistent with federal policy. TIP requests clarification on whether credits that will expire on September30, 2010, can be usedto meetannual emission limits for calendar year 2010. Allowance account reconciliation must occur by March 31 ofthe year following the control period. Discrete emission credits will have expired by the reconciliation date. Facilities not subject to a cap and trade program may use credits to meet allowable emission rates until the expiration date of September 30, 2010, but then must reduce emissions to remain in compliance with allowables for the remainder of calendar year 2010. 

## DIVISION 1. EMISSION CREDIT BANKING AND 

## TRADING 30 TAC §§101.302, 101.305, 101.306 STATUTORY AUTHORITY The amended and new sections are adopted underTexas Water Code, §5.103, concerning Rules, and §5.1 05, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistentwith the policy and purposes ofthe Texas Clean AirAct. The amended and new sections are also adopted underTHSC, §382.002, concerning Policyand Purpose, that establishesthe commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; §382.011, concerning General Powers and Duties, that authorizes the commission to control the quality ofthe state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also proposed underTHSC, §382.014, concerning Emission Inventory, that au
## 31 TexReg 8690 October20,2006 Texas Register thorizes the commission to require a person whose activities cause aircontaminant emissions to submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements forthe measuring and monitoring of air contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also adopted under 42 USC, §7410(a)(2)(A), that requires state implementation plans to include enforceable measures ortechniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The amended and new sections implement THSC, §§382.002, 382.011,382.012, and 382.017; and Senate 8iIl784, 79th Legislature, 2005. 

### §lOl.302. GeneralProvisions. (a) Applicable pollutants. Reductions ofcriteria pollutants, excluding lead, orprecursors ofcriteriapollutants for which an area is designatednonattainment, mayqualifyas emissioncredits. Reductions ofonepollutantmay notbeused to meetthe requirements for another pollutant, unless urban airshed modeling demonstrates thatone ozone precursormay be substituted for another, subjectto executive director andUnited States Environmental ProtectionAgency (EPA) approval. (b) Eligiblegeneratorcategories. Thefollowing categories are eligible to generate emission credits: (I) facilities, including area sources; (2) mobile sources; and (3) any facility, including area sources, or mobile source associated with actions by federal agencies under §1OI.30 ofthis title (relatingto Conformity ofGeneral FederalActions to StateImplementation Plans). (c) Emission creditrequirements. (I) Emission reduction credits are certified reductions that meetthe following requirements: (A) reductions must be enforceable, permanent, quantifiable, real, and surplus; (B) the certifiedreductionmustbe surplus atthetime it is created, as well as when it is used; (C) in order to become certified, the reduction must have occurred after the most recent year ofemissions inventory used in the state implementation plan (SIP); and (D) the facility's annual emissions prior to the reduction strategy must have been reported orrepresented in the emissions inventory used in the SIP. (2) Mobile emission reduction credits are certified reductions that meetthe following requirements: (A) reductions must be enforceable, permanent, quantifiable, real, and surplus; (B) the certifiedreduction mustbe surplus atthe time it is created, as well as when it is used; (C) in order to become certified, the reduction must have occurred after the most recent year ofemissions inventory used in the SIP;(D) the mobile source's annual emissions prior to the emission credit application must have been represented in the emissions inventory used in the SIP; and (E) the mobile sources must have been included in the attainment demonstration baseline emissions inventory. (3) Emission reductions from a facility or mobile source that are certified as emission credits under this division cannot be recertifiedinwhole orinpartas creditsunderanotherdivisionwithinthis subchapter. (d) Protocol. (l) All generators or users ofemission credits shall use a protocol that has been submitted by the executive director to the EPA for approval, ifexisting for the applicable facility or mobile source, to measure and calculate baseline emissions. Ifthe generator or user wishes to deviate from aprotocol submitted by the executive director, EPA approval is required before the protocol can be used. Protocols mustbe used as follows. (A) Facilities subjectto the emission specificationsunder §§1l7.106, 117.206, or 117.475 ofthis title (relating to Emission Specifications for Attainment Demonstrations; and Emission Specifications) shallquantifyreductions innitrogen oxideemissionsusingthe testing and monitoring methodologies identified to show compliance with the emission specification. (B) Facilities subject to the requirements under §§115.112, 115.121,115.122,115.162, 115.211, 115.212, 115.352, IJ5.421, 115.541, or 115.542 ofthis title (relating to Control Requirements; and Emission Specifications) shall quantify volatile organic compound reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or requirements.(C) Ifthe executive director has not submitted aprotocol forthe applicable facilityormobile sourceto theEPA forapproval, the following requirements apply: (i) the amount ofemission credits from a facility or mobile source, in tons peryear, will bedetermined and certifiedbased on quantification methodologies at least as stringent as the methods used to demonstrate compliance with any applicable requirements for the facility or mobile source; (ii) the generator shall collect relevant data sufficient to characterize the facility's ormobile source's emissions ofthe affected pollutant and the facility's or mobile source's activity level for all representative phases ofoperation in order to characterize the facility's ormobile source's baseline emissions; (iii) facilities with continuous emissions monitoring systems orpredictive emissions monitoring systems in place shall use this data in quantifying actual emissions; (iv) thechosenquantificationprotocolmustbemade availableforpubliccommentforaperiod ono days andmustbeviewable on the commission's Web site; (v) thechosen quantification protocol and any comments received during the publiccommentperiodshallbe submittedto the EPA for a 45-day adequacy review; and (vi) quantification protocols shall not be accepted for use with this division if the executive director receives a letter objecting to the use ofthe protocol from the EPA during the 45-day adequacy review or the EPA proposes disapproval ofthe protocol in the Federal Register. (2) In the event that the monitoring and testing data requiredunderparagraph (I) ofthis subsectionis missingorunavailable, the facility may report actual emissions for that period oftime using these listed methods in the following orderofpreference to determine actual emissions: (A) continuous monitoring data; (B) periodic monitoring data; (C) testing data; (D) manufacturer's data; (E) EPA Compilation o/AirPollution EmissionFactors (AP-42), September 2000; or . (F) material balance. (3) When quantifying actual emissions in accordance with paragraph (2) ofthis subsection, the generator shall use the most conservativemethodforreplacingthemissingdata, submitthejustification for notusing the methods in paragraph (I) ofthis subsection, and submitthejustification for the method used. (e) Credit certification. (I) The amountofemission credits in tons per yearwill be determined and certified, to the nearesttenth ofatonperyear. (2) Applications for certification will be reviewed in order to determine the credibility ofthe reductions. Reductions determined to be creditable will be certified by the executive director. (3) The applicant will be notified in writing ifthe executivedirector denies the emission creditapplication. Theapplicantmay submit a revised application in accordance with the requirements of this division. (4) Ifa facility's or mobile source's actual emissions exceed its allowable emission limit, reductions ofemissions exceeding the limit may not be certified as emission credits. (5) Applications for certification ofemission credit from reductions quantified under subsection (d)(I)(C) ofthis section may only be approved upon completion ofthepublic commentperiod. (f) Geographic scope. Except as provided in §101.305 ofthis title (relating to Emission Reductions Achieved Outside the United States), only emissionreductions generatedinnonattainmentareas can becertified. An emission creditmustbeusedinthenonattainmentarea in which it is generated unless the userhas obtained prior written approval ofthe executive director and the EPA; and (l) a demonstration has been made and approved by the executive director and the EPA to show that the emission reductions achieved in another county or state provide an improvementto the air quality in the county ofuse; or (2) the emission credit was generated in a nonattainment area that has an equal or higher nonattainment classification than the nonattainment areaofuse, andademonstration has been made and approved by the executive director and the EPA to show that the emissions from the nonattainment area where the emission credit is generated contribute to a violation ofthe national ambient air quality standard in the nonattainment area ofuse. (g) Recordkeeping. The generatorshall maintain acopy ofall notices and backup information submitted to the registry for a minimum offive years. The user shall maintain a copy ofall notices and backup information submittedto the creditregistry from the beginning ofthe use period and for at least five years after. The user shall also make suchrecords available upon requestto representatives ofthe ex
## ADOPTEDRULES October20,2006 31 

## TexReg 8691ecutive director, EPA, and any local enforcement agency. The records must include, but not necessarily be limited to: (I) the name, emission point number, and facility identificationnumberofeach facility orany otheridentifyingnumberforeach mobile source using emission credits; (2) the amount ofemission credits being used by each facility or mobile source; and (3) the specific number, name, or other identification of emission credits used for each facility ormobile source. (h) Public information. All information submitted with notices, reports, and trades regarding the nature, quantity, and sales price of emissions associated with the use, generation, and transfer ofan emission creditis public informationandmay notbe submittedas confidential. Any claim ofconfidentiality for this type ofinformation, or failureto submitall information, mayresultintherejectionoftheemissioncredit application. Allnonconfidentialnotices and informationregarding the generation, availability, use, andtransferofemissioncredits shall be immediately made available to thepublic. (i) Authorization to emit. An emission credit created under thisdivisionisalimitedauthorizationtoemitthepollutants identifiedin subsection (a) ofthis section, unless otherwise defined, in accordance with the provisions ofthis section, 42 United States Code, §§7401 et seq., and Texas Health and Safety Code, Chapter 382, as well as regulations promulgatedthereunder. An emissioncreditdoesnotconstitute aproperty right. Nothing in this division maybe construedto limitthe authority ofthe commission orthe EPA to terminate or limit such authorization. (j) Program participation. The executive director has the authoritytoprohibitan organizationfrom participatinginemissioncredit tradingeitheras ageneratororuser, iftheexecutivedirectordetermines that the organization has violated the requirements ofthe program, or abused the privileges provided by the program. (k) Compliance burden. Users may not transfer their compliance burden and legal responsibilities to a third-party participant. Third-party participants may only act in an advisory capacity to the user. (I) Credit ownership. The owner ofthe initial emission credit certificate shallbetheowneroroperatorofthefacility ormobile source creating the emission reduction. The executive director may approve a deviation from this subsection considering factors such as, but not limited to:(I) whether an entity other than the owner or operator of the facility ormobile source incurredthe costofthe emissionreduction strategy; or (2) whether the owner or operatorofthe facility or mobile source lacks the potential to generate 1/10 ton ofcredit. §IOl.305. Emission ReductionsAchievedOutside the UnitedStates. (a) A facility may use reductions achieved outside the United States ofcriteria pollutants or precursors ofcriteria pollutants ifthe facility meets the requirements ofsubsection (c) ofthis section. (b) A facility may use reductions achieved outside the United States ofcriteriapollutants orprecursors ofcriteriapollutants and substitutethesereductions forreductions inothercriteriapollutants orprecursors ofcriteria pollutants ifthe facility meets the requirements of subsection (c) ofthis section; and (I) the reduction is substituted for the reduction ofanother criteria pollutant and the substitution results in agreaterhealth benefit andis ofequal orgreaterbenefitto the overall airqualityofthe area; or


## 31 TexReg 8692 

## October20, 2006 Texas Register (2) a reduction ofan air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation ofa criteria pollutant for which an area has been designated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment orleads to the formation ofanycriteriapollutantforwhichthe areahas been designated as nonattainrnent. (c) The useofreductions outsidetheUnitedStates mustbe approved by the executive director and the United States Environmental ProtectionAgency (EPA), and the userofthe emissionreductionmust: (I) demonstrate to the executive director and EPA that the reduction is real, permanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or local law; (2) demonstratethatthe use ofthereductiondoes notcause localized health impacts, as determined by the executive director and EPA; (3) submit all supporting information for calculations and modeling, and any additional information requested by the executive director and EPA; and (4) be locatedwithin 100kilometers ofthe Texas

- Mexico border.(d) This section does not apply to reductions in emissions of lead. This agency herebycertifiesthatthe adoption has been reviewed by legal counsel and found to be a valid exercise ofthe agency's legal authority. Filed with the Office ofthe SecretaryofStateon October6,2006. TRD-200605473 Robert Martinez Director, Environmental Law Division Texas Commission on Environmental Quality Effective date: October 26,2006 Proposal publication date: April 28, 2006 Forfurther information, please call: (512) 239-0348


## DIVISION 2. EMISSIONS BANKING AND TRADING ALLOWANCES 30 TAC §101.338 STATUTORY AUTHORITY The repeal is adopted under Texas Water Code, §5.103, concerning Rules, and §5.1 

### OS, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policy and purposes of the Texas Clean Air Act. The repeal is also adopted under THSC, §382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; §382.011, concerning General Powers and Duties, that authorizes the commission to control the quality ofthe state's air; and §382.012, concerning StateAir Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control ofthe state's air. The repeal is also adoptedunderTHSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measur· ing and monitoring of air contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority of Commission and Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The repeal is also adopted under42 USC, §741 0(a)(2)(A), that requires state implementation plans to include enforceable measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The repeal implements THSC, §§382.002, 382.011, 382.012, and 382.017; and Senate 8i1l784, 79th Legislature, 2005. This agency herebycertifies thatthe adoption has been reviewed by legal counsel and found to be avalid exercise ofthe agency's legal authority. Filed with the Office ofthe SecretaryofState on October6, 2006. TRD-200605474 Robert Martinez Director, Environmental Law Division Texas Commission on Environmental Quality Effective date: October 26, 2006 Proposal pUblication date: April 28, 2006 Forfurther information, please call: (512) 239-0348



### 30 TAC §101.338, §101.339 STATUTORY AUTHORITY The new sections are adopted underTexas Water Code, §5.1 03, concerning Rules, and §5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistent with the policyand purposesofthe Texas Clean AirAct. The new sections are also adopted under THSC, §382.002, concerning Policy and Purpose, that establishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; §382.011, concerning General Powers and Duties, that authorizes the commission to control the quality ofthe state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control ofthe state's air. The new sections are also adopted under THSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause air contaminant emissions to submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements for the measuring and monitoring of air contaminant emissions; and §382.051 and §382.0518, concerning Permitting Authorityof Commission and Preconstruction Permit, thatauthorizethe commission to issue preconstruction and operating air permits. The new sections are also adopted under 42 USC, §7410(a)(2)(A), that requires state implementation plans to include enforceable measures ortechniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The new sections implement THSC, §§382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. § 101.338. Emission ReductionsAchievedOutside the UnitedSlales. (a) A grandfathered or electing electric generating facility (EGF) may use reductions achicved outside the United States of criteria pollutants or precursors of criteria pollutants to meet the allowance holding requirements ofthis division ifthe facility meets the requirements ofsubsection (c) ofthis section. (b) A grandfathered or electing EGF may use reductions achieved outside the United States ofcriteriapollutants or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants or precursors of criteria pollutants or to meetthe allowance holding requirements ofthis division ifthe facility meets therequirements ofsubsection (c) ofthis section; and (I) the reduction is substituted for the reductionofanother criteria pollutant and the substitutionresults in agreaterhealth benefit and is ofequal orgreaterbenefitto the ovemll air quality ofthe area; or (2) a reduction ofan air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the formation ofa criteria pollutant for which an area has been desihTJ1ated as nonattainment is substituted for any air contaminant for which the area has been designated as nonattainment orleads to thefomlation ofany criteriapollutantforwhichthe area has been designated as nonattainment. (c) Theuseofreductions outsidetheUnited Statesmustbe approved by the executive director and the United States Environmental ProtectionAgency (EPA), and theuserofthe emission reductionmust: (I) demonstrate to the executive director and EPA that the reduction is real, permanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, orlocal law; (2) demonstratethattheuse ofthereduction docs notcause localized health impacts, as determined by the executive director and EPA; (3) submit all supporting infomlation for calculations and modeling, and any additional information requested by the executive director and EPA; and (4) be located within 100kilometers ofthe Texas

-Mexico border.(d) This section does not apply to reductions in emissions of lead. §101.339. ProgramAudits andReports. (a) No laterthan threeyears aftertheeffectivedateofthis division, and every three years thereafter, the executive director will audit this program. (I) The audit will evaluate the impact ofthe program on the state's ozone attainment demonstration, the availability and costof allowances, complianceby theparticipants, and any otherelements the executive director may choose to include. (2) The executive director will recommend measures to remedy any problems identifiedin the audit. Thetrading ofallowances may be discontinued by the executive director in part or in whole and in any manner, with commission approval, as a remedy for problems identified in the program audit.



## ADOPTED RULES October20, 2006 31 TexReg 8693(3) The audit data and results will be completed and submitted to the United States Environmental Protection Agency (EPA) and made available for public inspection within six months after the audit begins. (b) No laterthan September30 following the end ofeach control period, the executive director shall develop and make available to the general public and EPA, areportthat includes: (I) numberofallowances allocatedto each compliance account; (2) total number of allowances allocated under this division; (3) numberofactualnitrogenoxides (NO

## J andsulfurdioxide (SO,) allowances subtracted from each compliance account based onthe actual NO, and SO, emissions from the site; and (4) a summary ofall trades completedunderthis division. This agency herebycertifiesthatthe adoption has been reviewed by legal counsel and found to be a valid exercise ofthe agency's legal authority. Filedwiththe OfficeoftheSecretaryofStateon October6, 2006. TRD-200605475 Robert Martinez Director, Environmental Law Division Texas Commission on Environmental Quality Effective date: October 26, 2006 Proposal pUblication date: April 28, 2006 Forfurther information, please call: (512) 239-0348


## DIVISION 4. DISCRETE EMISSION CREDIT BANKING AND TRADING 30 TAC §§101.372, 101.373, 101375, 101.376, 101.378 STATUTORY AUTHORITY The amended and new sections are adopted underTexas Water Code, §5.103, concerning Rules, and §5.105, concerning General Policy, that authorize the commission to adopt rules necessary to carry out its powers and duties under the Texas Water Code; and under Texas Health and Safety Code (THSC), §382.017, concerning Rules, that authorizes the commission to adopt rules consistentwith the policy and purposes ofthe Texas Clean AirAct. The amended and new sections are also adopted underTHSC, §382.002, concerning Policy and Purpose, thatestablishes the commission purpose to safeguard the state's air resources, consistent with the protection of public health, general welfare, and physical property; §382.011, concerning General Powers and Duties, that authorizes the commission to control the quality ofthe state's air; and §382.012, concerning State Air Control Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for the control of the state's air. The amended and new sections are also adopted underTHSC, §382.014, concerning Emission Inventory, that authorizes the commission to require a person whose activities cause aircontaminantemissionsto submit information to enable the commission to develop an emissions inventory; §382.016, concerning Monitoring Requirements, that authorizes the commission to prescribe reasonable requirements forthe measuring and monitoring ofaircontaminant emissions; and §382.051 and §382.0518, concerning Permitting Authority ofCommission and



## 31 TexReg 8694 

## October 20,2006 Texas Register Preconstruction Permit, that authorize the commission to issue preconstruction and operating air permits. The amended and new sections are also adopted under 42 USC, §7410(a)(2)(A), that requires state implementation plans to include enforceable measures ortechniques, including economic incentives such as fees, marketable permits, and auction ofemission rights. The amended and new sections implement THSC, §§382.002, 382.011, 382.012, and 382.017; and Senate Bill 784, 79th Legislature, 2005. 

### §IOl.372. GeneralProvisions. (a) Applicablepollutants. Reductions ofvolatileorganiccompounds (VOC), nitrogen oxides (NO,). carbon monoxide (CO), sulfur dioxide (SO,), and particulate matter with an aerodynamic diameter ofless than or equal to a nominal ten microns (PM,o) may qualifY as discrete emission credits as appropriate. Reductions ofother criteria pollutants are not creditable. Reductions ofone pollutant may not be used to meet the reduction requirements for anotherpollutant, unless urban airshed modeling demonstrates that one may be substituted for another subject to approval by the executive director and the United StatesEnvironmental ProtectionAgency (EPA). (b) Eligible generator categories. Eligible categories include the following: (1) facilities (including area sources); (2) mobile sources; or (3) any facility, including area sources, or mobile source associated with actions by federal agencies under §101.30 ofthis title (relating to ConfonnityofGeneral FederalActions to StateImplementation Plans). (c) Discrete emission creditrequirements. (I) To be creditable as a discrete emissionreduction credit (DERC), an emissionreduction must meet the following: (A) the reduction be real, quantifiable, and surplus at the time the discrete emission credit is generated; (B) the reduction musthave occurred afterthe most recentyearofemissions inventory used in the state implementationplan (SIP) for all applicable pollutants; and (C) the facility's annual emissions prior to the reduction strategy must have been reported orrepresented in the emissions inventory used for the SIP. (2) Tobe creditableasamobilediscreteemissionreduction credit (MDERC), an emission reduction must meet the following: (A) the reductionmustbereal, quantifiable, and surplus at the time it is created; (B) the reduction musthaveoccurred afterthe most recentyearofemissions inventory used in the SIP for all applicable pollutants; (C) the mobile source's emissions must have been represented in the emissions inventory used for the SIP; and (D) the mobile sources musthave been included in the attainmentdemonstrationbaseline emissions inventory. Ifamobilereduction implementedis notin thebaselineforemissions, thisreduction does not constitute adiscrete emission reduction. (3) Emission reductions from a facility or mobile source which arecertified as discrete emission credits underthis division cannotbe recertified in whole or in partas emission credits under another division within this subchapter.(d) Protocol. (I) All generators orusers ofdiscreteemissioncredits must use a protocol which has been submitted by the executive director to the EPA for approval, ifexisting for the applicable facility or mobile source, to measure and calculate baseline emissions. Ifthe generator or user wishes to deviate from a protocol submitted by the executive director, EPAapproval isrequiredbeforetheprotocolcanbeused. Protocols shall be used as follows. (A) Facilities subjectto the emission specifications under §§117.106, 117.206, or 1I7A75 ofthis title (relating to Emission Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in NO, using the testing and monitoring methodologies identifiedto show compliancewith the emission specification.(B) Facilities subject to the requirements under §§1I5.112, 115.121, ll5.122, 115.162, 115.21I, 115.212, 1I5.352, 1I5A21, 1I5.541, or 115.542 (relating to Emission Specifications; and Control Requirements) shall quantify VOC reductions using the testing and monitoring methodologies identified to show compliance with the emission specifications or the requirements. (C) Ifthe executive directorhas not submitted aprotocol forthe applicable facility ormobile source to theEPA forapproval, the following applies: (i) the amount ofdiscrete emission credits from a facility ormobile source, intons, willbedeterminedandcertifiedbased on quantification methodologies at least as stringent as the methods used to demonstrate compliance with any applicable requirements for the facility or mobile source; (ii) the generator must collect relevant data sufficient to characterize the facility's ormobile source's emissions ofthe affected pollutant and the facility's or mobile source's activity level for all representative phases ofoperation in order to characterize the facility's ormobile source's baseline emissions; (iii) facilities withcontinuous emissions monitoring systems orpredictive emissions monitoring systems in place shall use this data in quantifying actual emissions; (iv) thechosenquantificationprotocol shallbemade available forpublic commentforaperiodof30days and shall be viewable on the commission's Web site; (v) the chosen quantification protocol and any comments receivedduring the public commentperiodshall, upon approval by the executive director, be submitted to the EPA for a 45-day adequacy review; and (Vi) quantification protocols shall not be accepted foruse withthis division (relatingtoDiscreteEmissionCreditBanking and Trading) ifthe executive directorreceives a letterobjecting to the use oftheprotocol fromtheEPAduring the45-day adequacyreview or the EPA proposes disapproval ofthe protocol in theFederalRegister. (2) In the event that the monitoring and testing data required underparagraph (1) ofthis subsectionis missingorunavailable, the facility may report actual emissions for that period oftime using these listed methods in the following orderofpreference to determine actual emissions: (A) continuous monitoring data; (B) periodic monitoring data; (C) testing data; (D) manufacturer's data; (E) EPA Compilation of Air-PollutionEmissionFactors (AP-42), September 2000; or (F) material balance. (3) When quantifying actual emissions in accordance with paragraph (2) ofthis s.ubsection, the generator shall use the most conservativemethodforreplacingthemissing data, submitthejustification for notusing the methods in paragraph (I) ofthis subsection, and submit thejustification for the method used. (e) Credit certification. (I) The amount of discrete emISSIOn credits shall be rounded down to the nearest tenth ofa ton when generated and shall be rounded up to the nearest tenth ofa ton when used. (2) Applications for certification will be reviewed in order to determine the credibility ofthe reductions. Reductions determined to be creditable will be certifiedby the executive director. (3) The applicant will be notified in writing ifthe executive director denies the discrete emission credit notification. The applicant may submit a revised discrete emission credit notification in accordance with the requirements ofthis division. (4) Ifa facility's or mobile source's emissions exceed its allowable emission limit, the amount ofemissions exceeding the limit may not be certified as discrete emission credits. (f) Geographic scope. Except as provided in paragraph (7) of this subsection and §I01.375 ofthis title (relating to Emission Reductions Achieved Outside the United States), only emission reductions generated in the State ofTexas maybe creditable and used in the state with the following limitations. (I) VOC and NO, discrete emission credits generated in an ozone attainment area may be used in any county or portion ofa county designated as attainment or unclassified, except as specified in paragraphs (4) and (5) ofthis subsection and may not be used in an ozone nonattainment area. (2) VOC and NO, discrete emission credits generated in an ozone nonattainment area may be used either in the same ozone nonattainment area in which they were generated, or in any county or portion ofa county designated as attainment or unclassified. (3) VOC andNO, discreteemission credits generatedinan ozone nonattainment area may not be used in any other ozone nonattainment area, except as provided in this subsection. (4) VOC discrete emission credits are prohibited from use within the covered attainment counties, as defined in §115.10 ofthis title (relatingto Definitions), ifgenerated outsideofthe covered attainment counties. VOC discrete emission credits generated in a nonattainment area may be used in the covered attainment counties, except those generatedin EI Paso. (5) NO, discrete emission credits are prohibited from use within the covered attainment counties, as defined in §115.10 ofthis title, ifgenerated outside ofthe covered attainment counties. NO, discrete emission credits generated in anonattainment area, exceptthose generated in EI Paso, maybe used in the covered attainment counties. (6) CO, SO" and PM

.. discrete emission credits must be used in the same metropolitan statistical area (as defined in Office of ManagementandBudgetBulletinNumber93-17 entitled "RevisedStatistical Definitions for Metropolitan Areas" dated June 30, 1993) in which the reduction was generated. (7) VOC and NO discrete emission credits generated in other counties, states, or emis'sion reductions in other nations may be



## ADOPTEDRULES October20, 2006 31 

## TexReg 8695usedin any attainmentornonattainmentcountyprovidedademonstrationhasbeenmadeandapprovedbytheexecutivedirectorandtheEPA, to showthattheemissionreductions achievedintheothercounty, state, ornation improvethe airquality inthecountywherethecreditisbeing used. (g) Ozone season. In areas having an ozone season ofless than 12 months (as defined in 40 Code ofFederal Regulations Part 58, AppendixD)VOC andNO, discreteemissioncredits generatedoutside the ozone season may not be used during the ozone season. (h) Recordkeeping. The generatormustmaintain acopyofall notices and backup infonnation submitted to the registry for a minimum offive years, following the completionofthe generationperiod. The usermust maintain a copy ofall notices and backup infonnation submitted to the registry for a minimum offive years, following the completion ofthe use period. Otherrelevantreference material orraw data must also be maintained on-site by the participating facilities or mobile sources. The usermust also maintainacopy ofthe generator's notice and backup infonnation for a minimum offive years after the use is completed. Therecords shall include, butnotnecessarilybe limited to: (I) the name, emission point number, and facility identification number ofeach facility or any other identifying number for mobile sources using discrete emission credits; (2) the amount ofdiscrete emission credits being used by each facility or mobile source; and (3) the specificnumber, name, orotheridentificationofdiscrete emission credits used for each facility ormobile source. (i) Public infonnation. All infonnation submitted with notices, reports, and trades regarding the nature, quantity ofemissions, and sales price associated with the use orgeneration ofdiscrete emission credits is public infonnation and may not be submitted as confidential. Any claim ofconfidentiality for this type ofinfonnation, or failure to submit all infonnation may result in the rejection ofthe discrete emission reduction application. All nonconfidential notices and infonnation regarding the generation, use, and availability ofdiscrete emission credits may be obtained from the registry. (j) Authorization to emit. A discrete emission credit created underthis division is a limited authorization to emit the specifiedpollutants in accordance with the provisions ofthis section, the Federal CleanAirAct, andtheTexas Clean AirAct, as well as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority ofthe commission or the EPA to tenninate or limit such authorization. (k) Programparticipation. The executive directorhas the authority to prohibit a company from participating in discrete emission credittrading eitheras ageneratororuser, ifthe executive director detenninesthatthecompanyhas violatedtherequirementsoftheprogram or abused the privileges provided by the program. (I) Compliance burden and enforcement. (I) The user is responsible for assuring that a sufficient quantity ofdiscrete emission credits are acquired to cover the applicable facility ormobile source's emissions for the entire useperiod. (2) The user is in violation ofthis section ifthe user does not possess enough discrete emission credits to cover the compliance needfor the useperiod. Ifthe userpossesses an insufficientquantity of discrete emission credits to coverits complianceneed, the userwill be outofcompliance forthe entire useperiod. Each day the useris outof compliance may be considered a violation.



## 31 TexReg 8696 

## October20, 2006 Texas Register (3) Users maynottransfertheircomplianceburden and legalresponsibilities to athird-partyparticipant. Third-partyparticipants may only act in an advisory capacity to the user. (m) Creditownership. The ownerofthe initial discrete emission credit certificate shall be the owner or operator ofthe facility or mobile source creating the emissionreduction. The executive director may approve adeviation from this subsection consideringfactors such as, but not limited to: (I) whether an entity other than the owner or operator of thefacility ormobile sourceincurredthecostofthe emissionreduction strategy; or (2) whetherthe owner oroperatorofthe facility ormobile source lacks thepotential to generate one tenth ofaton ofcredit. 

### §101.375. EmissionReductionsAchievedOutside the UnitedStates. (a) A facility may use emission reductions achieved outside the United States ofcriteria pollutants or precursors ofcriteria pollutants ifthe facility meets therequirements ofsubsection(c) ofthis section. (b) A facility may use emission reductions achieved outside the United States ofcriteria pollutants or precursors ofcriteria pollutants and substitute these reductions for reductions in other criteria pollutants or precursors ofcriteria pollutants ifthe facility meets the requirements ofsubsection (c) ofthis section; and (1) the reduction is substitutedforthereduction ofanother criteriapollutant.and the substitutionresults in agreaterhealthbenefit andis ofequal orgreaterbenefitto theoverall airquality ofthe area; or (2) a reduction of an air contaminant for which the area in which the facility is located has been designated as nonattainment or which leads to the fonnation of a criteria pollutant for which an area has been designated as nonattainrnent is substituted for any air contaminant for which the area has been designated as nonattainment orleadstothefonnation ofany criteriapollutantforwhichthe areahas been designated as nonattainment. (c) TheuseofreductionsoutsidetheUnitedStatesmustbeapprovedby the executive director and the United States Environmental ProtectionAgency (EPA), andthe userofthe emissionreductionmust: (I) demonstrate to the executive director and EPA thatthe reduction is real, pennanent, enforceable, quantifiable, and surplus to any applicable Mexican, federal, state, or local law; (2) demonstratethattheuse ofthereductiondoesnotcause localized health impacts, as detennined by the executive director and EPA; (3) submit all supporting infonnation for calculations and modeling, and any additional infonnation requested by the executive director and EPA; and (4) be locatedwithin 100 kilometers ofthe Texas

-Mexico border.(d) This section does not apply to reductions in emissions of lead. 

### §101.376. Discrete Emission Credit Use. (a) Requirements to use discrete emission credits. Discrete emission credits may be used ifthe following requirements are met. (1) Theusershall have ownership ofasufficientamountof discrete emission credits before the use period for which the specific discrete emission credits are to be used.(2) The user shall hold sufficient discrete emission credits to coverthe user's compliance obligation at all times. (3) The user shall acquire additional discrete emission credits during the use period if it is determined the user does not possess enoughdiscrete emission credits to covertheentire useperiod. The user shall acquire additional credits as allowed under this section priorto the shortfall, orbe in violation ofthis section. (4) Facilityormobilesourceoperatorsmay acquireanduse only discrete emission credits listed on the registry. (b) Use ofdiscrete emission credits. With the exception of uses prohibited in subsection (c) ofthis section or precluded by commission orderorconditionwithinanauthorizationunderthe samecommission accountnumber, discreteemissioncredits maybeusedto meet or demonstrate compliance with any facility or mobile regulatory requirement includingthe following: (I) to exceedany allowableemissionlevel, ifthefollowing conditions are met: (A) in ozone nonattainment areas, permitted facilities may use discrete emission credits to exceed permit allowables by no more than ten tons for nitrogen oxides orfive tons for volatile organic compoundsina 12-monthperiodas approvedbytheexecutivedirector. This use is limited to one exceedance, up to 12 months within any 24-monthperiod,peruse strategy. Theusershalldemonstratethatthere will be no adverse impacts from the use ofdiscrete emission credits at the levels requested; or (B) at permitted facilities in counties or portions of counties designated as attainment or unclassified, discrete emission credits may be used to exceed permit allowables by values not to exceed the prevention ofsignificant deterioration significance levels as provided in 40 Code ofFederaJ Regulations (CFR) §52.21(b)(23), as approved by the executive directorpriorto use. This use is limited to one exceedance, up to 12 months within any 24-month period, per use strategy. The user shall demonstrate that there will be no adverse impacts from the use ofdiscrete emission credits atthe levels requested;(2) as new source review (NSR) permit offsets, ifthe following requirements are met: (A) the user shall obtain the executive director's approval prior to the use ofspecific discrete emission credits to cover, ataminimum, one year ofoperation ofthe new ormodified facility in the NSR permit; (B) the amount ofdiscrete emission credits needed for NSRoffsetsequalsthequantityoftonsneededto achievethemaximum allowable emission level set in the user's NSRpermit. The user shall also purchase and retire enough discrete emission credits to meet the offset ratio requirement in the user's ozone nonattainment area. The user shall purchase and retire eitherthe environmental contribution of 10% orthe offsetratio, whichever is higher; and (C) the NSR permit must meet the following requirements: (i) the permit must contain an enforceable requirement that the facility obtain at least one additional year ofoffsets before continuing operation in each subsequent year; (ii) priortoissuanceofthepermittheusershall identifY the discrete emission credits; and (iii) priorto start ofoperation the user shall submit a completed DEC-2 Form, Notice ofIntent to Use Discrete Emission Credits, along with the original certificate; (3) to complywiththeMass Emissions Cap andTradeProgram requirements as provided in §I01.356(g) ofthis title (relating to Allowance Banking and Trading); or (4) to comply with Chapters 114, 115, and 117 ofthis title (relating to Control ofAirPollution from MotorVehicles; Control of Air Pollution from Volatile Organic Compounds; and Control ofAir Pollution from Nitrogen Compounds), as allowed. (c) Discrete emission credituseprohibitions. Adiscreteemission credit may notbe used under this division: (I) before ithas been acquired by the user; (2) for nettingto avoidthe applicability offederal and state NSR requirements; (3) to meet (as codified in 42 United States Code (USC), Federal CleanAirAct (FCAA» requirements for: (A) new source performance standards under FCAA, §Ill (42 USC, §7411); (B) lowest achievable emission rate standards under FCAA, §I73(a)(2) (42 USC, §7503(a)(2»; (C) best available control technology standards under FCAA, §165(a)(4) (42 USC, §7475(a)(4» orTexas Health and Safety Code, §382.0518(b)(l); (D) hazardous air pollutants standards under FCAA, §112 (42 USC, §7412), including the requirements for maximum achievable control technology; (E) standards for solid waste combustionunderFCAA, §129 (42 USC, §7429); (F) requirements for a vehicle inspection and maintenance program under FCAA, §182(b)(4) or (c)(3) (42 USC, §751Ia(b)(4) or (c)(3»; (G) ozone control standards set under FCAA, §183(e) and (f) (42 USC, §751lb(e) and (f); (H) clean-fueled vehicle requirements under FCAA, §246 (42 USC, §7586); (I) motor vehicle emissions standards under FCAA, §202 (42 USC, §7521); (1) standards for non-road vehicles under FCAA, §213 (42 USC, §7547); (K) requirements for reformulated gasoline under FCAA, §211(k) (42 USC, §7545); or . (L) requirements for Reid vaporpressure standards underFCAA, §211(h) and (i) (42 USC, §7545(h) and (i»; (4) to allow an emissions increase ofan air contaminant above a level authorized in a permit or other authorization that exceeds the limitations of §106.261 or §106.262 ofthis title (relating to Facilities (EmissionLimitations); and Facilities (Emission and Distance Limitations» except as approved by the executive director and the United States Environmental Protection Agency. This paragraph does not apply to limit the use ofdiscrete emission reduction credits (DERC) or mobile discrete emission reduction credits in lieu of allowances under §101.356(h) ofthis title; (5) to authorize afacility whose emissions are enforceably limited to below applicable major source threshold levels, as defined in §122.10ofthis title (relatingto GeneralDefinitions), to operatewith actual emissions above those levels without triggering applicable re

## ADOPTED RULES October20, 2006 

## 31 TexReg 8697quirements that would otherwise be triggered by such major source status; or (6) to exceed an allowable emission level where the exceedance would cause or contribute to a condition ofair pollution as determined by the executive director. (d) Notice ofintent to use. (1) A completed DEC-2 Form, signed by an authorized representative ofthe applicant shall be submitted to the executive directorin accordance with the following requirements. (A) Discrete emission credits may be used only after the applicanthas submitted the notice and received executive director approval. (B) The application must be submitted at least45 days priorto the first day ofthe use period ifthe discrete emission credits were generatedfrom afacility, 90 days ifthe discrete emission credits were generated from amobile source, and every 12 months thereafter for each subsequentyearifthe use periodexceeds 12 months. (C) A copy ofthe application shall also be sent to the federal land manager 30 days priorto use ifthe user is located within 100 kilometers ofaClass I area, as listed in 40 CFRPart 81 (2001). (D) The application must include, but is not limited to, the following information for each use: (i) the applicable state and federal requirements that the discrete emission credits will be used to comply with and the intended use period; (ii) the amount ofdiscrete emission credits needed; (iii) thebaselineemissionrate, activity level, andtotal emissions for the applicable facility ormobile source; (iv) the actual emissionrate, activity level, and total emissions forthe applicable facility ormobile source; (v) the most stringent emission rate and the most stringent emission level for the applicable facility or mobile source, considering all applicable regulatory requirements; (vi) a complete description ofthe protocol, as submitted by the executive director to the United States Environmental Protection Agency for approval, used to calculate the amount ofdiscrete emission credits needed; (vii) the actual calculationsperformedbytheuserto determine the amount ofdiscrete emission credits needed; (viii) the datethatthe discrete emission credits were acquired or will be acquired; (ix) the discrete emission credit generator and the original certificate ofthe discrete emission credits acquired or to be acquired; (x) thepriceofthediscreteemissioncreditsacquired or the expected price ofthe discrete emission credits to be acquired, except fortransfersbetween sitesundercommonownershiporcontrol; (xi) a statementthat due diligencewas taken to verify thatthe discrete emission credits were notpreviouslyused, the discrete emission credits werenot generatedas aresult ofactions prohibited underthis regulation, and the discrete emission credits will notbe used in amannerprohibited under this regulation; and (xii) a certification ofuse, that must contain certification underpenaltyoflawby aresponsibleofficial ofthe useroftruth, accuracy, and completeness. This certificationmust state thatbased on



## 31 TexReg 8698 October20,2006 Texas Register information andbeliefformed afterreasonable inquiry, the statements and information in the documentare true, accurate, and complete. (2) DERC use calculation. (A) Tocalculatethe amountofdiscreteemissioncredits necessary to comply with §§117.108, 117.138, 117.210, or 117.223 of this title (relatingto SystemCap; and Source Cap), ausermay use the equations listed in those sections, orthe following equations. (i) Forthe rolling average cap: Figure: 30 TAC § I01.376(d)(2)(A)(i) (No change.) (ii) Formaximum daily cap: Figure: 30 TAC §101.376(d)(2)(A)(ii) (No change.) (B) The amount ofdiscrete emission credits needed to demonstrate complianceormeetaregulatoryrequirementis calculated as follows. Figure: 30 TAC §101.376(d)(2)(B) (No change.) (C) The amount ofdiscrete emission credits needed to exceed an allowable emissions level is calculated as follows. Figure: 30 TAC §I01.376(d)(2)(C) (No change.) (D) The user shall retire 10% more discrete emission credits than are needed, as calculated in this paragraph, to ensure that the facility or mobile source environmental contribution retirement obligation will be met. (E) Ifthe amountofdiscrete emission credits neededto meet aregulatory requirement orto demonstrate compliance is greater than ten tons, an additional 5.0% of the discrete emission credits needed, as calculated in this paragraph, must be acquired to ensure that sufficient discrete emission credits are available to the user with an adequate compliance margin. (3) Ausermay submit anotice late in the case ofan emergency, but the notice must be submitted before the discrete emission credits can be used. The user shall include a complete description of the emergency situation inthenotice ofintenttouse. All othernotices submitted less than 45 days prior to use, or90 days prior to use for a mobile source, will be considered late and in violation. (4) The user is responsible for determining the credits it will purchase and notifyingthe executive director ofthe selected generating facility or mobile source in the notice ofintent to use. Ifthe generator's credits are rejected or the notice ofgeneration is incomplete, the use ofdiscrete emission credits by the user may be delayed by the executive director. The user cannot use any discrete emission credits that have not been certified by the executive director. The executive director may reject the use ofdiscrete emission credits by a facility or mobile source ifthe credit and use cannot be demonstrated to meet the requirements ofthis section. (5) Ifthe facility is in an area with an ozone season less than 12 months, the user shall calculate the amount ofdiscrete emissioncredits neededfortheozone season separatelyfromthenon-ozone season. (e) Notice ofuse. (1) The user shall calculate: (A) the amount ofdiscrete emission credits used, includingthe amount ofdiscrete emission creditsretired to covertheenvironmental contribution, as described in subsection (d)(2)(C) ofthis section, associated with actual use; and (B) the amount ofdiscrete emission credits not used, includingthe amount ofexcess discrete emission credits that werepurchased to cover the environmental contribution, as described in sub-section (d)(2)(C) ofthis section, butnotassociated with the actual use, and available for future use. (2) DERC use is calculatedby the following equations. (A) The amount ofdiscrete emission credits used to demonstrate complianceormeetaregulatory requirementis calculated as follows. Figure: 30 TAC §101.376(e)(2)(A) (No change.) (B) The amount of discrete emission credits used to comply with pennit allowables is calculated as follows. Figure: 30TAC §101.376(e)(2)(B) (No change.) (3) A DEC-3 Fonn, Notice ofUse ofDiscrete Emission Credits, shall be submitted to the commission in accordance with the following requirements. (A) The notice must be submitted within 90 days after the end ofthe use period. (B) Thenotice mustbe submitted within 90 days ofthe conclusion ofeach 12-month use period, ifapplicable. (C) The notice is to beusedas themechanismtoupdate or amend the notice ofintent to use and must include any infonnation differentfromthatreportedin thenotice ofintenttouse, including, but not limited to, the following items: (i) purchase price ofthe discrete emission credits obtained prior to the current use period, except for transfers between sites under common ownership orcontrol; (ii) the actual amount ofdiscrete emission credits possessed during the use period; (iii) the actual emissions during the use period for volatile organic compounds and nitrogen oxides; (iv) the actual amount ofdiscrete emission credits used; (v) the actual environmental contribution; and (vi) the amount ofdiscrete emission credits available for future use. (4) Discrete emission credits that are not used during the use period are surplus and remain available for transfer or use by the holder. In addition, any portion ofthe calculated environmental contribution not attributed to actual use is also available. (5) Theuserisinviolationofthis sectioniftheusersubmits thereportofuse laterthanthe allowed90days followingtheconclusion ofthe use period. This agency hereby certifies thatthe adoption has been reviewed by legal counsel and found to be avalid exercise ofthe agency's legal authority. Filed with the Office ofthe SecretaryofState on·October6,2006. TRD-200605476 Robert Martinez Director, Environmental Law Division Texas Commission on Environmental Quality Effective date: October 26, 2006 Proposal publication date: April 28, 2006 Forfurther information, please call: (512) 239-0348


## CHAPTER 293. WATER DISTRICTS The Texas Commission on Environmental Quality (TCEQ or commission) adopts amendments to §§293.1, 293.11,293.12, 293.20, 293.22, 293.23, 293.32, 293.41, 293.44, 293.51, 293.69, and 293.111
- 293.113. Sections 293.12, 293.23, 293.32, and 293.44 are adopted with changesto the proposed text as published in the April 14, 2006, issue of the Texas Register(31 TexReg 3199). Sections 293.1, 293.11, 293.20, 293.22, 293.41, 293.51, 293.69, and 293.111
- 293.113 are adopted without changes to the proposed text and will not be republished. The commission also withdraws the proposal of §§293.54, 293.201, and 293.202 as published in the April 14, 2006, issue of the Texas Register. BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES The commission has the statutory responsibility and authorityto create, supervise, and dissolve certain water and water-related districts and to review the sale and issuance of bonds for district improvements in accordancewith Texas WaterCode (TWC), Chapters 12, 36, and 49- 67. The commission oversees approximately 1,100 active water districts in Texas. Chapter 293 ofthe commission's rules govemsthe creation, supervision, and dissolution of all general and special law districts and the conversion of certain districts. Chapter 293 also governs the commission's review of bond applications by districts relating to engineering standards and economicfeasibility ofdistrictconstruction project design and completion. This rulemaking establishes new and revises existing requirements relating to the administration of water districts and the commission's supervision over districts' actions under TWC, Chapters 36, 49, 51, 54, and 65. House Bill (HB) 828, 79th Legislature, 2005, amends TWC, §49.181 to exempt certain refunding bonds from having to obtain commission approval. HB 1208, 79th Legislature, 2005, amends provisions in TWC, Chapter 54 concerning a municipal utility district's (MUDs) eminent domain authority outside its boundaries. HB 1644, 79th Legislature, 2005, amends provisions in TWC, Chapter 51 (Water Control and Improvement Districts
- WCIDs) and Chapter 54 (MUDs) to allow more flexibility in contracting and funding, and to place limitations on a municipality annexing such districts. HB 1673, 79th Legislature, 2005, amends provisions in TWC, Chapter 65, to allow specific purposes to be requested upon conversion to a special utility district (SUD). HB 1763, 79th Legislature, 2005, amends provisions in TWC, Chapter 36, concerning notice, hearing, rulemaking, and permttting procedures for groundwater conservation districts (GCD), and to management planning and joint management planning requirements for GCDs. Senate Bill (SB) 693, 79th Legislature, 2005, amends provisions in TWC, Chapter 54, to place limitations on the filling of a vacancy on a district board. The revisions amend and clarify commission rule language to conform with the statutory changes made to TWC, Chapters 36, 49, 51, 54, and 65. Specifically, the rulemaking modifies requirements on when a district must obtain commission approval of refunding bonds; clarifies allowable land costs to reflect limitations on a MUD's eminent domain authority outside its boundaries; adds provisions allowing MUDs and WCIDs to contract with third parties for ownership and operation of facilities; adds provisions allowing districts to fund certain certificate ofconvenience and necessity (CCN) costs; allows a water supply corporation to request only certain powers upon conversion to a SUD and requires the



## ADOPTEDRULES October20, 2006 31 

## TexReg 8699