Kathleen Hartnett White, Chairman

Larry R. Soward, CommL'isioner

Martin A. Hubert, Commissioner

Glenn Shankle, Executive Director

RECEIVED

2D06 NOV -I AM 10: 28

TEXAS COMMISSION ON ENVIRONMEMIj{AtLt~~f~'TION

Protecting Texas by Reducing and Preventing Pollution

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 of credits 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 of these SIP revisions.

Sincerely,

~·u.uJ~ athleen Hartnett White

hairman

KHWllb

Enclosures

cc: The Honorable Rick Perry, Governor of Texas

Mr. Zak Covar, Office of Budget, Planning and Policy, Office of the 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

2006 NOV -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 of documents 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 of the Texas

Commission on Environmental Quality.

Kevin McCalla

Director, General Law Division

Texas Commission on Environmental 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 seriously considered. This hearing record contains a complete record of the public hearing and

is divided into the following four sections:

o Public Notification and Proposal

o Written and Oral Testimony

o Evaluation of Testimony

o Staff Recommendations/Order

Additional copies of this hearing record are maintained in the TCEQ central office at 12100 Park 35

Circle, Austin, Texas 78753. For further information, please contact Beecher Cameron at (512) 239-

1495 or Steve Sun at (512) 239-3554.
PUBLIC

NOTIFICATION AND

PROPOSAL
PUBLIC NOTIFICATION

Notification to the public of the 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 of the proposed rules in the April 28, 2006, issue of the Texas Register

(31 TexReg 3492).

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

(31 TexReg 3630).

4. Correspondence forwarding the notice of public hearings to the following officials and agencies:

Speaker of the House

Lieutenant Governor

City of Victoria Planning Department

Alamo Area Council of Governments

Capital Area Planning Council

Dallas Department of Environmental and Health Services

Dallas Department of Aviation

East Texas Council of Governments

EI Paso City-County Health and Environmental District

EI Paso Metropolitan Planning Organization
Federal Highway Administration

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-Galveston Area Council

South East Texas Regional Planning Commission

Texas Department of Transportation

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, ' ,.(L5

·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:'. QualityA' 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 Number 2005-

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), as a 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;:~iI ;u?e'J.i

tlons outside the. J:lropose adopt html Uni~~.d ,States. For furlner Informa: "tlon, please contact Beecher Cameron, Air -' Permits Division, at (512) 239-1495 or Steve Sun, Air Perlr~1i'.. r~~~~on. at (512)

Issued in Austin 'Tex- as, on April 12,'2006.
•••

Comments may be submitted to Lola Brown, MC 205, Texas Register

Team, Office ofLegal Services, Texas Commission on Environmental

Quality, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512)

239-4808. All comments should reference Rule Project Number 2005-

054-IOI-PR. Comments must be received by 5:00 p.m., May 30,2006.

Copies of the proposed rules can be obtained from the commission's

Web site at http://www.tceq.state.tx.us/nav/rules/propose_adopt.html.

For further infonnation, please contact Beecher Cameron, Air Permits

Division, at (512) 239-1495 or Steve Sun, Air Permits Division, at

(512) 239-3554.

TRD-200602146

Stephanie Bergeron Perdue

Acting Deputy Director, Office of Legal Services

Texas Commission on Environmental Quality

Filed: April 13, 2006

Notice of Water Quality Applica ons

The following notices were issued d ring the period of April 5, 2006

through April 17, 2006.

The following require the applicants to publish notice in the newspaper. The public comment period, 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, Austin Texas 78711-

3087, WITHIN 30 DAYS OF THE TE OF NEWSPAPER PUBLICATION OF THIS NOTICE.

CHAMBERS COUNTY IMPROVE ENT DISTRICT NO. I has applied for a new permit, proposed Te as Pollutant Discharge Elimination System (TPDES) Permit No. QOOI4461001 to authorize the

discharge of treated domestic waste ater at a daily average flow not

to exceed 980,000 gallons per day. The facility will be located approximately 1,400 feet east ofFarm-t -Market Road 1405 and approximately 2,200 feet north of the inter ection of Farm-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 of TPDES

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 10 1. The

facility is located 3130 Farm-to-Mark t Road 521, approximately 2.25

miles north ofthe intersection of Fa -to- Market Road 521 and State

Highway 6, in the City of Fresno, Fo Bend County, Texas.

CHAPEL HILL INDEPENDENT S HOOL DISTRICT has applied

for a renewal of TPDES Permit No. 3821-00 I, which authorizes the

discharge oftreated domestic wastew ter at a daily average flow not to

exceed 32,000 gallons per day. The acility is located approximately

1,300 feet east of the intersection of arm-to-Market Road 1735 and

County Road SE-18 in Titus County, exas.

DELTA COUNTY MUNICIPAL UTI lTY DISTRICT has applied for

a renewal ofTPDES Permit No. 107 -001, which authorizes the discharge of treated domestic wastewat r at a daily average flow not to

exceed 40,000 gallons per day. The cility is located approximately

0.5 mile west and 0.3 mile south ofth intersection of Farm-to-Market

Road 64 and Farm-to-Market Road 12 and immediately west ofSouth

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 of treated domestic

•• •

TRD-200602217

Stephanie Bergeron Perdue

Acting Deputy Director, Office of Legal

Texas Commission on Environmental

Filed: April 18.2006

Notice of Public Hearings on Proposed Revisions to 30 TAC

Chapter 101 and 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 ofTexas Health and Safety Code, §3 82.0 17; Texas Government Code, Chapter 2001, Subchapter B; and 40 Code ofFederal Regulations §51.1 02, ofthe United States Environmental Protection Agency

(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

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 required by Senate Bill 784,

79th Legislature, 2005, which allow greater flexibility in the generation of credits 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 of oral 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 of registration. There will be no open discussion

during the hearing; however, a staff member will 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 contact Lola Brown, Office

of Legal Services at (512) 239-0348. Requests should be made as far

in advance as possible.

volume ofefJluent routed to the evapo ation pond on a monthly basis

for an entire year.

(2) The average net evaporation (fa the entire period of record)

or other appropriate data (i.e. aver ge precipitation and average

pan/lake evaporation). When two nsecutive average years are

reviewed, there should be no accumula ion q(water in the evaporation

system. The calculation should inclu the volume qj' effluent routed

to the evaporation pond on a monthly asisfor an entire year.

(ii) Evaporation pond shall be operat to maintain a minimum.freeboard qj'two feet.

(iii) There shall be no discharge qj'wa tewater to surface water in the

state.

Change Number 10. Part Y.9. was evised to clarify that 30 TAC

§205.4 governs the suspension and re cation of an authorization under the general permit. The section no reads in its entirety: "Authorization under this general permit may e suspended or revoked for the

reasons stated in 30 TAC §205.4 (rela ing to Authorizations and Notices ofIntent). The filing ofa notificat n by the discharger ofplanned

changes or anticipated noncompliance does not stay any permit condition."

31 TexReg 3630 April 28, 2006 Texas Register
of 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 necessary to 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. Continuing Professional ducation Programs.

(a) Course Materials--Begi ing in preparation for the 2000 -

2001 Continuing Professional Educ ion year (begins on July 1, 2000),

the Board will annually approve C se Materials to be used for the

Continuing Professional Education ( PE) required for renewal ofJourneyman 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 of a

CPE course and which are provided 0 the Licensees. Board approval

of Course Materials will be subject 0 all ofthe terms and conditions

of this Section. The following mini urn criteria will be used by the

Board in considering approval of C rse Materials:

Filed with the Office of the 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

For further 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 April 28, 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 offer flexibility 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 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. Unless the 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 letter to 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 for generators and users of

discrete emission credits. With the revision of these forms and

adoption of the 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 by the 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 or trading requirements.

SECTION BY SECTION DISCUSSION

§101.302. General Provisions.

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 proposes to 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 proposes to 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 if the EPA publishes in the Federal Register a disapproval of the 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 that the quatification protocols would not be approved if the 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 EPA for approval into the

SIP and will not delay approval of other 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 under the 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 reflect the revisions to THSC, §382.0172(c) and

provide the commission more discretion in approving the substitution of emission reductions achieved outside the United States

for emissions from electric generating or grandfathered facilities.

The commission would also modify the arrangement of the existing section to parallel the arrangement of language in §101.305

and §101.375.

§101.339. Program Audits 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's other open market trading 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 allowances or

credits traded, cost of allowances or credits, and number of allowances in each compliance account.

§101.372. General Provisions.

In order to better organize similar rule requirements, the commission proposes to 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 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 Federal Register a disapproval of the 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 that the quantification protocols

would not be approved if the EPA objects. The commission also

proposes to remove 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, 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 of other portions of the EBTP.

§101:373. Discrete Emission Reduction Credit Generation and

Certification.

The proposed amendments to §101.373(a)(1) and (2) would remove the ability to generate DERCs from facility shutdowns. The

commission proposes this action to respond to the Federal Register notice requiring the correction of program deficiencies prior

to the approval of the 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 are typically not required. Thus, allowing the generation

of tradable 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.

PROPOSED RULES April 28, 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 credit 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 of the 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 Credit Banking 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 that were generated from shutdowns prior to September

30,2002, would be available for 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 for this 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, for the first five-year period the proposed rules are in effect, no fiscal implications are anticipated for

the agency or other units of state or local governments as a result of administration or enforcement of the 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 of the EBTP.

The EPA is requiring the removal from the commission's DERC

registry of credits generated after September 30, 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 September 30, 2002, can be used in the EBTP, and they

must be used by September 8,2010.

The proposed rules also clarify that the EPA has 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 implement THSC,

§382.0172(c), as amended by SB 784, 79th Legislature, to give

the agency more discretion in approving the use, by a Texas facility, of emission 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 be the

reduction of air contaminants and improved health and safety

of Texas citizens. By disallowing DERCs for shutdown activities,

staff estimates that approximately 19,774 tons 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 nonattainment area (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 prior to 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 available for

compliance or trading by the 11 sites holding them until September 8,2010, and will retain their full 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 adverse fiscal 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 IMPACT ANALYSIS 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, or the 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 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. 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 government to 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 or a requirement

of a delegation agreement, and was not developed solely under

the general powers of the agency, but was specifically developed

under federal 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 "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 or techniques (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 or appropriate 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 of 42 USC, §7410. The provisions of the

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 methods to attain the NAAQS for the specific regions in the state. Even though

the FCAA allows states to develop their own 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 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 significant fiscal 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 must develop programs for each nonattalnment ar~a to ~nsure that area will meet the attainment deadlines.

Because of the 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 by the 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 ~xtraordinary in nature. While the SIP rules Will have a broad .Impact, that impact is no greater than is necessary or appropnate

to meet the requirements of 42 USC, §7410. For these 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 submit ozone attainment demonstration SIPs for ozone nonattainment areas such as the 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 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 of the 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 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

PROPOSED RULES April 28, 2006 31 TexReg 3495
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 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. Water Auth. v. Trinity Portland

Cement Div., 563 SW.2d 916 (Tex. 1978).

As discussed, this rulemaking action implements requirements

of 42 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 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 of THSC, 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 not subject to the regulatory analysis provisions

of Texas Government Code, §2001.0225(b), because the rulemaking does not meet any of the 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 impact assessment for this

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 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,

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 be31 TexReg 3496 April 28, 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 must submit, for approval by the EPA, SIPs that provide for

the attainment and maintenance of NAAQS through control programs directed to sources of the 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 et seq.), 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

of the CMP. The commission reviewed this action for consistency

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 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 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 consistency of the proposed rulemaking with the CMP during the public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING

PERMITS PROGRAM

The new and amended sections are applicable requirements under the 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-
cuss ion 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 or other accommodation 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 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 of the Texas

Clean Air Act. The amended and 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; §382.011, 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 for the control of the

state's air. The amended and 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 amended and

new sections are also proposed under 42 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 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. General Provisions.

(a) Applicable pollutants. Reductions of criteria pollutants,

excluding lead, or precursors of criteria pollutants for which an area

is designated nonattainment, may qualify as emission credits. Reductions of one 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, subject to executive director

and United States Environmental Protection Agency (EPA) approval~

[t ef]

[~ the.ffleility genemtiftg the emis-sioo reooetiefls is leeate6 ootsi4e the Yffi.ted Statest afld]

[(Ai #Ie substitutioH:]

[fi) FeSlilts ill a -greatefflealtfl befteft.t afI6 is efet}llfr!

efgreater heHefit te #Ie 6'reFall air eftfte area, as determiHed by

the eKeeutive tiifeeteF,]

{(it) is ffem the reooetiofl efflfl air eOfltamillEmt fat'

whiefi the area has geeft designateEi as flOHattaillffiellt ef wIHeh lea$ te

the formatioll ef a eritertft pelluttillt fer wfti.eh all area has 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 ef a

eriteHa pollutaHt fer wfti.eh the area has beeR designateEi as nenattaiH

FlIefitt tiEd]

[fB1 #Ie user;]

[fit demoHstrates that the use eftfte reooetioH dees

oot cause localized flealtfl impaets, as determiHed by tfte eKeeutive ffireeteF,]

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

e)(eeuti...e dtreeteF,- flfld]

[{iii) isleeateflwitffiH +00 kilometers efthe~­

MeJHee~]

(b) - (c) (No change.)

(d) Protocol.

(1) All generators or users of emission credits shall use a

protocol that 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

must be used as follows.

(A) - (B) (No change.)

(C) Ifthe executive director has not submitted a protocol for the applicable facility or mobile source to the EPA for 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 of the protocol from the EPA during the 45-day

adequacy review or the EPA proposes disapproval of the protocol in

the Federal Register [after a proposed disapproval efthe preteeel by

the EPA ill the FedefflI ~].

(2) - (3) (No change.)

(e) (No change.)

PROPOSED RULES April 28, 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 of the 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 area of use, and a demonstration 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 of the national ambient air quality standard in the nonattainment area ofuse~ [~6£]

[~ a faeil4ty is ilsing emissien Feauetiens geneFatea eut5ide the YffiteEI States that hiwe been deteffilined by the eKeeuti'.'e ElireeteF te be real; fleFFnllHent, enfeFeeabIe, qu!lfttifiabIe, and llUFfllus te

any aflfllieable intematienaI, fedeFal; 5tate; 6£ leeallaw and the FeStIlt

wettld a greateF healtft benefit te the area Its deteffilined by the

elleeutive 6iFeeteF, and the~]

[W demenstFatesthat the useefthe reduetien dees oot

eause Ieeali2Jed healtft imflaets, as aeteFffiinea by the ellee\;ltive 6iFeeteF,]

[~ -stibmits all s\;lflflerting iftfeFffiatien feF eaIe\;lIatiens

and medeling, and any aaditienal infmmatien requested by the eKe6\;!-

ti¥e 6iFeeteF, and]

[~ is leeated within -lOO kiIemeteFs ef the -

MeKiee beFder.]

(g) - (I) (No change.)

§101.305. Emission Reductions Achieved Outside the United States.

ill A facility may use reductions achieved outside the United

States of criteria pollutants or precursors of criteria pollutants if the

facility meets the requirements ofsubsection (c) ofthis section.

{Q} A facility may use reductions achieved outside the United

States of criteria pollutants or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants ifthe

facility meets the requirements ofsubsection (c) ofthis section; and

ill the reduction is substituted for the reduction of another

criteria pollutant if the substitution results in a greater health benefit

and is of equal or greater benefit to the overall air quality ofthe area; 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 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

or leads to the formation of any criteria pollutant for which the area has

been designated as nonattainment.

The use ofreductions outside the United States must be approved by the executive director and the United States Environmental

Protection Agency, and the user of the emission reduction must:

ill demonstrate to the executive director that the reduction

is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law;

ill demonstrate that the use ofthe reduction does not cause

localized health impacts, as determined by the executive director;

31 TexReg 3498 April 28, 2006 Texas Register

ill submit all supporting information for calculations and

modeling, and any additional information requested by the executive

director; and

ill be located within 100 kilometers 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 of this title (relating to Allowance Banking

and Trading);

(6) - (7) (No change.)

(b) - (c) (No change.)

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 13, 2006.

TRD-200602142

Stephanie Bergeron Perdue

Acting Deputy Director, Of ce of Legal Services

Texas Commission on Environmental Quality

Earliest possible date of adoption: May 28, 2006

For further information, please call: (512) 239-0348

• • •

DIVISION 2. EMISSIONS BANKING AND

TRADING ALLOWANCES

30 TAC §lOl.338

(Editor s note: The text of the following section proposed for repeal

will not be published. The section may be examined in the offices ofthe

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 of the Texas Clean Air Act. The repeal is 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; §382.011,

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 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 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 repeal is also proposed under 42 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 proposed repeal implements THSC, §§382.002, 382.011,

382.012, and 382.017; and Senate Bill 784, 79th Legislature,

2005.

§101.338. Emission Reductions Achieved Outside the United States.

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within 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 of adoption: May 26, 2006

For further 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 of the 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 of the 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 Reductions Achieved Outside the United States.

A grandfathered or electing electric generating facility

(EGF) may use reductions achieved outside the United States of

criteria pollutants or precursors of criteria pollutants if the facility

meets the requirements ofsubsection (c) of this section.

{Ql A grandfathered or electing EGF may use reductions

achieved outside the United States of criteria pollutants or precursors

of criteria pollutants and substitute these reductions for reductions

in other criteria pollutants if the facility meets the requirements of

subsection (c) ofthis section; and

ill the reduction is substituted for the reduction of another

criteria pollutant if the substitution results in a greater health benefit

and is of equal or greater benefit to the overall air quality ofthe area; or

m 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 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

or leads to the formation ofany criteria pollutant for which the area has

been designated as nonattainment.

(£1 The use ofreductions outside the United States must be approved by the executive director and the United States Environmental

Protection Agency, and the user of the emission reduction must:

ill demonstrate to the executive director that the reduction

is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law;

m demonstrate that the use ofthe reduction does not cause

localized health impacts, as determined by the executive director;

ill submit all supporting information for calculations and

modeling, and any additional information requested by the executive'

director; and

l12 be located within 100 kilometers ofthe Texas - Mexico

border.

@ This section does not apply to reductions in emissions of

lead.

~101.339. Program Audits and Reports.

No laterthan three years after the effective date ofthis division, and every three years thereafter, the executive director will audit

this program.

ill The audit will evaluate the impact of the program on

the state's ozone attainment demonstration, the availability and cost of

allowances, compliance by the participants, and any other elements the

executive director may choose to include.

ill The executive director will recommend measures to

remedy any problems identified in the audit. The trading of allowances

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 April 28, 2006 31 TexReg 3499
and made available for public inspection within six months after the

audit begins.

iQ} No later than September 30 following the end of each control period, the executive director shall develop and make available to

the general public and EPA, a report that includes:

ill number of allowances allocated to each compliance acill total number of allowances aUocated under this diviill 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 of all trades completed under this division.

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 13, 2006.

TR0-200602144

Stephanie Bergeron Perdue

Acting Deputy Director, Of ce of Legal Services

Texas Commission on Environmental Quality

Earliest possible date of adoption: May 28, 2006

For further 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 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 of the Texas

Clean Air Act. The amended and 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; §382.011, 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 for the control of the

state's air. The amended and 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 amended and

new sections are also proposed under 42 USC, §7410(a)(2)(A),

31 TexReg 3500 April 28, 2006 Texas Register

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 amended and new sections implement THSC,

§§382.002, 382.011, 382.012, and 382.017; and Senate 8i1l784,

79th Legislature, 2005.

§lOl.372. General Provisions.

(a) Applicable pollutants. Reductions ofvolatile organic compounds (VOC), nitrogen oxides (NO), carbon monoxide (CO), sulfur

dioxide (SO,), and particulate matter with an aerodynamic diameter of

less than or equal to a nominal ten microns (PMIO) may qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions ofone poUutant may not be used

to meet the reduction requirements for another poUutant, unlessH

[fB] 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). [~

~]

[~ the faeffity geneFating the emission feel:letions ts -Ieeated emstde the Yffi.ted States aD$.]

[w the substimtion:]

[{i} FOStt!ts ffi a greater health Beftefu ana ts efeEfI:lBl

greater benefi.t te the tweFall air efthe aFefr; lIS eetefFBineeby

the elteel:lti'le 6iFeeteF,]

[{#) ts fFem the fedl:letion ef a eriteFia pollHtaHt fer

wlHeh the area ftas been designated as nonattlHnment wlHeh leads te

the fofFBation ef a eriteFia polh:ltant fer wlHeh an area ftas been 6esigFlltteEIas nonattainment; ana]

[{iiij ts fer ilftj' eriteFia polll:ltBBt fer whieh the area

hIlS Been designated as nonattainment leads te the fofFBati on efa efi...

teFia polll:ltlUltferwlHeh the area ftas been designated as nonattainment;

flftti]

[fB1 the tiS6F.]

[{i} demonstFates that the tISe ef4fte fedHetion dees

BOt €ilIi-Se loealiz,ed health impaets, lIS determined by the elteeutiye ElireeteF,]

[{#) 5ubmits all supporting infefFBation fer ooI:eulaflons ana modeling, ana ilftj' additional infofFBation reql:lested by the

eJteeuti're 6iFeeteF, flftti]

[{iiij ts loeated within +00 kiiometeFs efthe -

MeJtiw l3eFder.]

(b) - (c) (No change.)

(d) Protocol.

(I) All generators or users ofdiscrete 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) - (B) (No change.)

(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) - (iii) (No change.)
(iv) the chosen quantification protocol shall be made

available for public comment for a period of30 days and shall be viewable on the commission's Web [web] site;

(v) (No change.)

(vi) quantification protocols shall not be accepted

for use with this division (relating to Discrete Emission CreditBanking

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 or the EPA proposes disapproval ofthe protocol in the Federal

Register[fIftef ft jlfOpesed dislljlpfOval ef the 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 of this 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.)

[~ A faei.l.ity may tllle di5erete emissien redaetions genet'-

ated el:ltsi6e #Ie UnitedStates that #Ie emissien reduetions are

quantifiable, real; and Sl:lI'flffis te any allfllieable international, federal;

5tate, 6f leettl law and the result wooM jlI'EWi6e ft -greater ftettltfl eenelit te the area as detefffiined by the exeeutive dHeeter. +he allplieant

mus¥.]

[EA1 demenstrate -that #Ie tllle efthe redaetion dees not

eaase loealized flealtft Hnflaets, as detefffiined by the ~{eeutive direetoFt]

[fBi submit aU Sliflporting infefffiation fur ealelilations

and modeling, and any additional infefffiation reqliested by the

ti-¥e diFeetoF, -and]

[tG1 ee ffieated within -1-00 kilometers ef the :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 of this section, the Federal

Clean Air Act [FGAA], and the Texas Clean Air Act [+bAA], 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 terminate

or limit such authorization.

(k) - (m) (No change.)

§101.373. Discrete Emission Reduction Credit Generation and Certification.

(a) Methods of generation.

(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 the jlemlflflent shlitdewn efft faeffity that eausesft

less ef eapability te prodooe 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 of the facility.

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

(A) permanent or temporary shutdowns [temporary

slnudewn] or permanent curtailment of an activity at a facility;

(B) - (K) (No change.)

(b) - (d) (No change.)

HOI.375. Emission Reductions Achieved Outside the United States.

.@) A facility may use discrete emission credits for reductions

achieved outside the United States of criteria pollutants or precursors

of criteria pollutants ifthe facility meets the requirements ofsubsection

(c) of this section.

ill A facility may use reductions achieved outside the United

States of criteria pollutants or precursors of criteria pollutants and substitute these reductions for reductions in other criteria pollutants if the

facility meets the requirements of subsection (c) ofthis section; and

ill the reduction is substituted for the reduction of another

criteria pollutant if the substitution results in a greater health benefit

and is ofequal or greater benefit to the overall air quality ofthe area; 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 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

or leads to the formation of any criteria pollutant for which the area has

been designated as nonattainrnent.

if.) The use ofreductions outside the United States must be approved by the executive director and the United States Environmental

Protection Agency, and the user ofthe emission reduction must:

ill demonstrate to the executive director that the reduction

is real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law;

ill demonstrate that the use ofthe reduction does not cause

localized health impacts, as determined by the 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 100 kilometers ofthe Texas - Mexico

border.

@ This section does not apply to reductions in emissions of

lead.

§lOl.376. Discrete Emission Credit Use.

(a) - (b) (No change.)

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

(I) - (3) (No change.)

(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 [§ IQ6.261 (3) 6f f416f §1Q6.262(3)]

PROPOSED RULES April 28, 2006 31 TexReg 3501
of this 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 of allowances 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) of the bills was arne ded to provide that the Rio

Grande Watermaster's duties shall clude activities relating to

situations of imminent threat to publi health and safety or the environment and required that the co mission adopt rules which

define situations of imminent threat nd address the watermaster's duties in response to terrorism.

Subsections (f) - (I) provide that the c mmission may issue a permit which allows a person to place g oundwater in the river and

store it in a reservoir for release at a ater time. The commission

is to write rules which will account r any discharge, delivery,

conveyance, storage, diversion, or a sociated loss of water conveyed down the Rio Grande. The r es must also protect other

water right holders which store water n the reservoir and be consistentwith the 1944 Treaty 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 permits will blcalled water-in-transit permits.

Subsection 0) of the two bills require the watermaster to maintain a place available to the public th will contain copies of documents 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 of trust, 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 under this law "shall be

construed by a court, financial institu ion, or other affected person in the same manner as an instru ent of the 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 of a lien as between the

holder of the water right and the hold~r of the lien or the requirements or validity of any other law go~erning the perfection and

recordation of these 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. Discrete Emission Credit Banking and Trading.

(a) (No change.)

(b) Life of a discrete emission credit. A discrete emission

credit is available for use after the DEC-I 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) ofthis

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.

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.)

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 13, 2006.

TRD-200602145

Stephanie Bergeron Perdue

Acting Deputy Director, Of ce of Legal Services

Texas Commission on Environmental Quality

Earliest possible date of adoption: May 28, 2006

For further information, please call: (512) 239-0348

31 TexReg 3502 April 28, 2006 Texas Register
Kathleen Hartnett White, Chairman

R. B. "Ralph" Marquez, Commissioner

Larry R. Soward, Commissioner

Glenn Shankle, Executive Director

TEXAS COMMISSION ON ENVIRONMENTAL QUALITY

Protecting Texas by Reducing and Preventing Pollution

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,

Subchapter B; and 40 Code of Federal Regulations §51.102, ofthe United States Environmental Protection

Agency (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 the EPA in the October 5, 2005, edition of the Federal Register (70 FR

58154). The proposed rules would also implement revisions to Texas Health and Safety Code,

§382.0172(c), as required by Senate Bill 784, 79th Legislature, 2005, which allow greater flexibility in the

generation of credits 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 of oral 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 open discussion during the hearing; however, a staff member will 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 contact Lola Brown, Office of Legal Services at (512) 239-0348. Requests should be made as far in

advance as possible.

COlmnents may be submitted to Lola Brown, MC 205, Texas Register Team, Office of Legal Services,

Texas Commission on Environmental Quality, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512)

239-4808. All comments should reference Rule Project Number 2005-054-101-PR. COlmnents must be

received by 5:00 p.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 further information, please

contact Beecher Cameron, Air Permits Division, at (512) 239-1495 or Steve Sun, Air Permits Division, at

(512) 239-3554.

Issued in Austin, 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 Fax 512236.3272'

Lola Brown

Texas Register Team

Texas Commission on Environmental Quality

Office ofLegal Services, MC 205

P.O. Box 13087

Austin, Texas 78711-3087

Fax: 512.239.4808

May 30, 2006

RECEIVED

HAY 302006

REGULATIONS DEVELOPJmnSETlDN Q

Via fax and U.S.

Re: Rule Project Number 2005-054-101-PR

Dear Ms. 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 of the

Texas Register. EPE has 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 Legislature with its enac1ment of S.B. 784 in the 2005 Session.

Comment 1: Proposed 30 T.A.C § 101.302(a) should be revised as follows:

(a) Applicable pollutants. Reductions of criteria pollutants, 'excluding

lead, or precursors of criteria pollutants far ..,'lhieh an aFCa is dcsignatcd

nB1taHain'f'l'tC'ftt, may qualify as emission credits. Rcd'l:lcHens Except as

provided by {101.305 (relatinf to Emission Reductions Achieved Outside

the United States), reductions ofone pollutant may not be used to meet the

requirements for another pollutant, unless urban airshed modeling

demonstrates that one ozone precursor may be substituted for another,

subject to executive director and United States Environmental Protection

Agency (EPA) approval.

Vinson & Elkins LLP Attorneys at Law Austin Beijing Dallas Dubai

Houston London Moscow New York 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

The basic problem with § 101.302 as proposed is that it is part of Subchapter H, Division 1,

and so affects all trading programs administered by TCEQ under Subchapter H. With respect

to the first revision noted above, the general limitation on emission credit generation to

pollutants (or precursors) for which an area is designated nonattainment is (1) incompatible

with recent changes to Health & Safety Code § 382.0172(c) effectuated by 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

Subchapter H, 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 allowance trading program under Subchapter H, Division 2).

As noted in TCEQ's rule proposal preamble, S.B. 784 eliminated the pre-existing

requirement in § 382.0172(c) that substitution of emission reductions be for pollutants for

which the area is designated nonattainment. As also noted in the 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. If a reduction in emissions of a particular 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 creditfor a different pollutant, regardless ofthe surrounding area's

attainment status with respect to either pollutant. It must be, then, that an area's attainment

status is not universally an obstacle to emission reduction credit generation or use, although it

may be in specific circumstances, depending on which emissions trading program applies:

Whether and how an emission reduction credit can be used is governed by the pollutant- and

geography-specific parameters of the particular emissions trading program under which use

ofthe credit is being sought, ofwhich there are only a limited number:

(1) Subchapter H, Division 2, governing the State-wide trading and use of so-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 and Trade Program for NOx:;

J Enacted by the 79th Legislature in 2005.
V&E Lola Brown May 30, 2006 Page 3

(3) Subchapter H, Division 5, governing the System Cap Trading Program applicable

to power plants subject to Chapter 117 NOx emission limits; and

(4) Subchapter H, Division 6, governing the Houston-Galveston area's High-Reactive

VOC Emissions Cap and Trade Program.

Each of these 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 Trading program applies only within single nonatlainment areas or within another single

area with unique emission limits identified in Chapter 117,3 and there are no geographic

limits governing the generation and use of SB 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-trading programs, a fifth use for emission reduction credits is, of course, 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 of the emission credit

trading programs have their own geographical limitations, it is not necessary (and, in fact, it

is not appropriate for some ofthe programs) to generally require 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 of the phrase, "Except as provided by § 101.305

(relating to Emission Reductions Achieved Outside the United States)," is needed to resolve

an internal inconsistency between this provision and proposed § 101.305, which, in

effectuating SB 784, will expressly authorize use ofreductions of one pollutant to meet the

requirements for another under certain circumstances.

Comment 2: The following subsections of proposed 30 T.A.C. § 101.302(c) should be

revised as follows:

(l)(C) except for emission reductions achieved outside the United States.

in order to become certified, the reduction must have occurred after the

most recent year of emissions inventory used in the state implementation

plan (SIP); and

2 See 30 TAC. § 101.35l.

3 See 30 T.A.C. § 101.382.
V&E Lola Brown May 3D, 2006 Page 4

(l)(D) except for emission reductions achieved outside the United States.

the facility's annual emissions prior to the reduction strategy must have

been reported or represented in the emissions inventory used in the SIP.

(2)(C) except for emission reductions achieved outside the United States.

in order to become certified, the reduction must have occurred after the

most recent year ofemissions inventory used in the state implementation

plan (SIP);

(2)(D) except for emission reductions achieved outside the United States.

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

(2)(E) except for emission reductions achieved outside the United States.

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

included in the emissions inventory used in the 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 forth its own geographical limitations on emission credit use.

This subsection, even as proposed to be revised, presents an inappropriate obstacle to

certification of emission reductions achieved outside ofthe United States. The proposed rule

would prohibit certification of emissions reductions achieved outside of nonattaimnent areas

(such as in Mexico), "[e]xcept as provided in § 101.305 of this title." An applicant seeking

certification of an 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 of emission reductions achieved outside nonattainment areas. The problem is
V&E Lola Brown May 30, 2006 Page 5

that all of the demonstrations required by § 101.305 pertain to use of emission reduction

credits:

Afacility may use reductions achieved outside the United States ofcriteria

pollutants or precursors of criteria pollutants if the facility meets the

requirements ofsubsection (c) ofthis section. 4

Section 101.305(c) goes on to require, for example, a demonstration that use ofthe reduction

will not cause localized health impacts. Strictly applied, this regulatory scheme would

prevent an applicant from certifying emission reductions achieved outside of the United

States for an unknown future use by an unknown future user, because it would be impossible

to make the required demonstrations regarding use at the time 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, if not removed, 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 8f this 1Jitle

(f'ela1Jirtg t8 En,issi81't Reti1;/;e#8n9 Aehie:Yeti 01;/;tsitie the United Str:ztesl..../QL

emission reduction achieved outside the United States. but within 100 km

of the U.S.-Mexico border. only emission reductions generated in

nonattainment areas can be certifie~! and an emission 'credit must be

used in the nonattainment area in which it is generated unless the user has

obtained prior written approval of the executive director and the EPA;

and:

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

typographical omission:

(b) A facility may use reductions achieved outside the United States of

criteria pollutants or precursors ofcriteria pollutants and substitute these .

reductions for reductions in other criteria pollutants or precursors of

criteria pollutants ifthe facility meets the requirements ofsubsection (c) of

this section; and:

4 Proposed § lO1.305(a). Emphasis added.
V&E Lola Brown May 30, 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

Comment 4:

(a) -A-To meet the allowance-holding requirements of this Division. a

grandfathered or electing electric generating facility (EGF) may use

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.

(b) A-To meet the allowance-holding requirements of this Division. a

grandfathered or electing EGF may use reductions achieved outside the

United States ofcriteria pollutants or precursors ofcriteria pollutants and

substitute these reductions for reductions in other criteria pollutants QL

precursors of criteria pollutants if the facility meets the requirements' of

subsection (c) ofthis section; and:

Comment 6: Proposed § 101.372(a) should be revised as follows to reflect the addition of

proposed § 101.375:

(a) Applicable pollutants. Reductions of volatile organic compounds

(VOC), nitrogen oxides (NOx), carbon monoxide (CO), sulfur dioxide

(S02), and particulate matter with an aerodynamic diameter ofless than

or equal to a nominal ten microns (PM10) may qualify as discrete

emission credits as appropriate. Reductions of other criteria pollutants

are not creditable. Re~effieRS Except as provided in f 101.375 (relating

to Emission Reductions Achieved Outside the United States), reductions of

one pollutant may not be used to meet the reduction requirements for

another pollutant, unless:

Comment 7: For the reason provided in Comment 2) above, the following subsections of

proposed § 101.372(c) should be amended as indicated:

(l)(C) except for emission reductions achieved outside the United States,

the facility's annual emissions prior to the reduction strategy must have

been reported orrepresented in the emissions inventory usedfor the SIP.
V&E Lola Brown May 30, 2006 PagEl 7

(2)(C) except for emission reductions achieved outside the United States.

the mobile source's emissions must have been represented in the emissions

inventory usedfor the SIP; and

(2)(D) except for 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 baseline for emissions, this reduction does not

constitute a discrete emission reduction.

Comment 8: Proposed"§ 101.372 should be deleted or amended as indicated in Comment 3.

Comment 9: For the reason provided in Comment 2, above, the following subsections of

proposed § 101.373 should be revised as indicated:

(b)(1) Except for emission reductions achieved outside the United States,

the baseline emissions may not exceed the quantity ofemissions reported

in the most recent year of emissions inventory used in the SIP. and for

-:Ji:fH reductions being certified in accordance with §116.170(b) ofthis title

(relating to Applicability ofEmission 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.

(b)(2) Except for emission reductions achieved outside the United States.

the two consecutive calendar yearsfor the baseline activity and emissions

rate must be selectedfrom either a period including orfollowing the most

recent year ofemission inventory used in the SIP or, ifthat period is less

than ten years, the ten consecutive years immediately preceding the

emission reduction.

(b)(3) For facilities in an area in which a SIP demonstration is not

required for a criteria pollutant, including facilities located in

extraterritorial areas. the two consecutive years must include orfollow the

1990 emission inventory.
V&E Lola Brown May 30. 2006 Page 8

(c)(2) Except for' emission reductions achieved outside the United States,

the sum ofthe reduction generated and the total strategy emissions must

not be greater than the quantity of emissions reported or represented in

the emissions inventory used for SIP determination or the two-year

average baseline emissions, whichever is less.

Comment 10: Proposed § 101.375(b) should be revised as follows to correct an apparent

typographical omission:

(b) A facility may use reductions achieved outside the United States of

criteria pollutants or precursors ofcriteria pollutants and substitute these

reductions for reductions in other criteria pollutants or precursors of

criteria pollutants ifthefacility meets the requirements o/subsection (c) of

this section; and:

Thank you for your careful consideration of these comments. We would welcome the

opportunity to discuss them. with you or your colleagues. If you have any questions, please

call me at 512,542,8709.

cc. Mr. Beecher Cameron, TCEQ

Mr, Luis Ito, El Paso Electric Co.

Ms. Laura Uribarri, El Paso Electric Co.
SIERRA

CLUB

F OU N DED 18:92j11

Houston Regional Group

P. O. Box3021

Houston, Texas 77253·3021

713·895·9309

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

8

RECEIVED

~~R 26 2006

REGULATIONS DEVr.lOPUENT SECTION

April 23, 2006

Ms. Lola Brown

Texas Register Team

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 of America 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 Intrapollutant trading is unethical and not scientific.

3) Under 101.339(a)(1), TCEQ should also audit whether the air pollutant

reductions actually occurred for each of the facilities they were to applied to and

should determine what the compliance status of the each company who used the

credits is.

"When we tryto pick out anything by itself, we find it hitched to everything else in the universe." John Afuir

Printed on 100% Kenai tree 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 opportunity to comment. Thank you..

Sincerely,

Brandt Mannchen

Chair, Air Quality Committee

Houston Regional Group of the Sierra Club

Lone Star Chapter

5431 Carew

Houston, Texas 77096 .

713-664-5962

brandtshnfbt@juno.com

2
05/30/2006 16:59 FAX 512 322 2502

IBAKI:R BC)TTS LLP.

,May 30, 2006

BAKER BOITS

1500 SAN JACINTO CENlCR

98 SAN JACINTO 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

NEW YORK

RIYADH

WASHINGTON

3y Facsimile and US. Mail

·l1s. Lola:: rown

rexas Re~.; ster Team

:):ffice of:. ega! Services

'v.IC 205

.rexas Commission on Environmental Quality

:~O. Box 1:1807

~ustin, Teres, 78711-3087

TEL

FAX

Whitney ..

..

1512.322.2672

1512.322.8339

SWift G

W-3

whilney.3wift@bokerbolts.com

Re Comments'ofthe Texas Industry Project 01 Emissions Trading Rule Revisions

30 TAC §§ 101.302-.378'

Rule Project No. 2005-054-101-PR

)ear Ms. ~lrown;

Ba:~er Botts L.L.P., on behalf ofthe Texas l' dustry Project ("TIP;'), I submits these

llOmments on the Texas Commission on Environmel tal Quality's ("TCEQ's") proposed

:evisions .n 30 T A.C Chapter 101, SUbchapter H (regard ng Emissions Banking and Trading),

·.vhich are et forth 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 Administrator Richard 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 of years 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 of TCEQ's efforts to adopt and implement the' :ading programs, and believes that.the

]Iroposed 1l,vision:; to the emissions trading rules are consi tent with the Texas Clean Air Act., 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 Jndustry Project ("TIP") is a coalition of 61 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 :421875
05/30/2006 16:59 FAX 512 322 2502

IlJAKER 1I::0lTS LLP.

Yls. Lola Brown

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 of discrete emission reduction 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 of this 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 if the

::redits, ill kier the proposed revisions 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 not hesitate to contaCt me at 322~26~ :L

Sincerely,

Whitney L. i'Vift

For the Texa 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 Refir ing 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 \lIer Tex;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. LBC H ,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_ La la Brown

Texas Register Team

Office ofLcgal Services (Me 205)

Texas Commission on Environmental Quality

P.O. Box 13087

Austin, TJe 78711-3087

RE: -Comments on Texas's Proposed Revisions to the State Implementation Plan (SIP)

and 30 Texas Administrative Code (TAC) Chapter 101 (Rule Project Number

2005-054-101-AI)

Dear Ms. Brown:

Thank you for the opportunity to review the proposed revisions to the SIP and 30-

TAC Chapter 101 - General Air Quality Rules, Su.bchapter H - Emissions Banking and

TradIDg, Divisions 1, 2, and 4. With the;se revisions, Texas is making significant

progress towards satisfying the terms ofthe September 8, 2005, commitment letter. As

you know, the necessary rule revisions must be submitted to our office by December I,

2006. We appreciate the time and attention your staffhas· devoted. to processing these

revisions so quickly and your willingness to consult Rcgion 6 during this rule

development. We believe that the incorporation ofour comments below will clarify' and

strengthen the proposed revisions.

The following comments are speoific to the proposed revisions to 30 TAC

Chapter 101, Su.bchapter H, Division 1-Emission Credit Banking and Trading program.

also referred to as the Emission Reduction Credit (ERC) program.

1. The proposed revision to § lO1.302(d)(l)(C)(vi) will address commitment

number 5 from the commitment letter. The proposed rule language clearly

describes the process by which the U.S. Environmental Protection Agency

(EPA) can object to a quantification protocol. This language is consistent

wtth the approach described in EPA's Economic Incentive Program

Guidance document, "Improving Air Quality with Economic Incentive

Programs" (EPA-452/R-OI-OOl, January 2001).

2. In the commitment letter, the Texas Commission on Enviromnental

Quality (TCEQ) committed to revising § 101.302(f) to clarify that EPA

approval ifi required fur individual 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 State or Na.tion, as well as those

tnmsactions from one nonattainment area to another, or from attainment

counties into nonaitainment areas. The establishment of a new § 101.305

for international reductions is a step towareL.. meeting this commitment and

improving rule clanty.

The EPA is concerned, however, tha.t this rule revision changes the intent

ofthe ERC rule, which is to provide flexibility solely in nonattainment

areas. With the removal oftho "and" statcmcntfrom the approval criteria,

there is no clear requirement for the reduction to be genm:ated or used in a

nonattairunent area. This proposed revision would allow sources

anywhere withjn 100 kilometers ofthe border to generate and use ERCs

from Mexico. The TCEQ has not demonstrated that tins revision would

not violate § 110(1) ofthe Clean Air Act. Further, use of.b:RCs generated

outside the United States as New Source Review om~els WQuld be contrary

to section 173(c)(1) ofthe Clean Air Act.

The EPA understands that this rule revision is a result ofSenate Bill.784,

which according to the rule preamble, was to allow for the continuance of

beneficial emission credit programs in Ciudad Juarez in the event ofEl

PaSo being reclassiiied as an attainment area. The EPA feels that this

flexibility is unnecessary and could potentially weaken the program. The

Discrete Emission Reduction Credits (DERC) program, whichEPA

proposed to conditionally approve in October 2005) contains provisions

that allow for thc generation and use ofintemational discrete emission

credits. The DERC provisions could be used inEl Paso in the event the

area is reclassified as attammcnt.

3.. The proposed revision to § 101.306(a)(5) will address commitment

number 6 from the commitment letter. The new wording more clearly

provides that ERCs can be used in the Highly Reactive Volatile Organic

Compound Emissions Cap and Trade program, subject to § 101.399.

4. In the proposed new § 101.305(b)(I). the word "if' is confusing. It

appears that "and" might be a more appropriate word choice.

5. In the proposed new § 101.305(c)(1), the word "foreign" or "Mexican"

6hould be added to the list oflaws to which the reduction must be surplus..

("International" law would refer to a treaty or other article oflaw between

nations rather than a law of a single nation such as Mexico.)

,6. In the proposed new § 101.305(c)(1), (c)(2), and (c)(3), the references to

the executive director are confusing, because the ovcrarching approval.

requirement incorporates both EPA and the executive director. That is,

EPA's co-approval authority clearly implies the authority to independently

determine whether the reduction is real, surplus, etc., as in (c)(l), and

I

I
3

whether the reduction causes localized health impacts under (c)(2); also

implied would he the authodty to require adclitional supporting

information as in (c)(3).

. The foUowing comments arc specific to the propol;ed revisions to 30 TAC

. Chapter 101, Subchapter H, Division 2 - Emissions Banking and Trading of

Allowances (EBTA) program.

1. The SIP preamble on pages 2 and 5 incorrectly refers to the EBTA

program as an open market trading program. The EBTA program is a

cap-and-trade program because it establishes cmi::;::;iun cap~ for nitrogen

oxides (NOx,) and sulfur diox.ide (S02) and provides allocations LO a

defined set ofsubject facilities for the emission ofthese pollutants.

2. The EPA recummends that § 101.338 be further revised to state that.

international reductions under this provision are only used to substitute for

allowances for PW'P0ses of compliance with Lhe Division 2 RET.A

program. Language to this effect was originally part of § 101.338 but was

removed in the proposed revisiun.

3. The EPA a.h;() recommends that § lO!.338 be further revised to cla'rifY that

international reductions cannot be used in tIle East Texas Region because

of the distance limitations.

4. The rule language in § 101.338 does require that EPA approval is required

for intemationalTeductions. The EPA notes that these reductions would

be addressed in the same manner as intemational reductions for use under

the Division 1ERe or Division 4 Discrete Emission Credit Banking and

Trading programs. The EPA intends to require a further SIP revision

(either a detailed trading program, such as Ii Memordm1um or

Understanding, or a trade specific submission) before approving any

intemationaJ trades, interstate trades, or intrastate trades that involve

reductions from beyond the nonattainmenr area.

5- In the proposed new § 101.338(b)(1), the word "if' is confusing. It

appears that "and" might be a more appropriate word choice. .

6. In the proposed new § lO1.338(c)(1), the word "foreign" or "Mexican"

should be added to the list oflaws to which the reduction must be surplus.

("International" law would Tefer to a treaty or other article of law between

nations rather than a law of a single nation such as Mexico.)

7. In the proposed new § 101.338(c)(1). (c)(2), and (c)(3), the references to

the executive director are confusing. because the overarching approval

requirement incorporates both EPA and the executive diTector. That is,

EPA's co-approval authority clearly implies the authority to independently
4

determine whether the reduction is real, surplus. etc., as in (c)(l), and

whether the 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 a July 19,2005, letter to

Mr, Cory Chism. However, to fully address the concernll Uescribed in

section 5.3(b) of the ~conomic Incentive Pl'ogram Guidance. the audit and

annual reporting requirements mm;t apply not just to NOx but also to the

allowances and emissions of SOl in the East Texas Region. Specifically,

we recommend lhat § 101.339(b) be revised to include a new sub!'leCllon

that would report the number of actual S02 allowances subtracted from

each compliance account based on the actual S02 emissions from the site.

The following comments are ~pec.:ific to the proposed revisions to 30 TAe

Chapter 101, Subchapter H, Division 4 -Discrete Emission Credit Banking and Trading

program, referred to as the DERC program.

1. The proposed revision lo § 101.372(d)(l)(C)(vi) will address commitment

number 5 from the commilment letter. The proposed rule language clearly

describes the process by which EPA can object to a quantification

protocol. This language is consistent with the approach described in the

Economic Incentive PrQgnun Guidance.

2. In the commitment letter, TCEQ committed to revising §§ lOL372(f)(7)

and lO1.372(f)(8) tC'J clarify that EPA approval is required rOT individual

transactions involving emission reductions generated in another State or

Nation. as well as for those transactionR from nne nonattainment area to

another, or from attainment counties into nonattainment nrell&. The

establishmenl u[ a new section 101.375 for intemational reductions is a

step towards meeting this commitment and improving rule clarity,

However, EPA continues to believe that § 101.372(f)(7) needS to be

revised to address this commitment. As currently written, § 101.372(f)(7)

still includes language pertaining to international reductions of NOx and

VQC. The EPA feels that this information should be incorporated into

§ 101.375 so there is no confusion about whether § lO1.372(f)(7) is fw.thel'

modified by § 101.375.

The EPA contends that in addition to demonstrating that the use of

international NOx an~ Volatile Organic Compound reductions under

§ 101.372(f)(7) improves air quality in the county of use, that the user of

these credits should have to meet the requirement~of § 101.375. Also, a.5

stated in our proposed conditional approval ofthe DERC program (70
5

Federal Register 58154), in exercising its review under § 101.37S(c) EPA

intends to require a further SIP revision before approving any international

trades, interslaLe trades, or intrastate trades that involve reductions from

beyond the no.n.attainment area.

3. The proposed r8V'isions to § 101.373 will address commitment number 1

from the commitment letter. The proposed rule prohibits the generation of

DERCs from permanent or temporary shutdowns. The proposed language

is consistent with the Economic Incentive Program Guidance expectations

of open market trading programs.

4. In the commitment letter, TCEQ committed to revising § 101'.372(£)(7)

and (£)(8) to clarify that EPA approval is required for individual "

transactions involving emission reductions generated in anothel~ State or

Nation, as well as those transactions from one nonattainment area to

another, or from attainment counties into nonattainment areas. The

establishment of a new section § lOl.375 for internationalreductions is a

step towards meeting this c~mrnitmelltand improving rule clarity.

The EPA is concerned, however, that this rule -revision ohanges the scope

ofthe international provisions for the DERC rule. The current adopted

State rule language limits the generation and use ofirtternational discrete

reductions to nonattainmc.nt areas, i.e. El Paso. This proposed revision

would allow sources anywhere within 100 kilometers ofthe ·border to

generate and use DERCs from Mexico. The TCEQ has not domonstratcd

that this revision wO'l.1ld not violate § 110(1) ofthe CleanAir Act.

The EPA understands that this rule revision is a result of Senate Bill 784,

which according to the rule preamble, was to allow for the continuance of

beneficial emission credit programs in Ciudad Juarez in the event of

- El Paso being reclassified as an attainment area. The EPA questions why

this provision was expanded to cover the entirety ofthe Texas-Mexico

border.

5. The proposed revisions to § 101.376(0)(4) correot the citation errors that

we identified in an April 14, 2004, letter to Mr. Cory Chism.

6. The proposed revisions to § 101.378(b) will address commitnlents number

1 and 2 from the commitment letter. The pToposed revisions establish the

remaining lifetime.fur the shutdown DBRCs generated before

September 30, 2002, and establish that shutdown DERCs generated after

September 30, 2002, are not creditable.

7. Thc proposed new §§ lO1.375(a) and (b) use non-parallel language, in thai

(a) says that.facilities can "use discrete emission credits for reductions"

outside the U.S., while (b) says that facilities can "use reductions" outside
6

the U.S. It appears that parallel structure for these phrases would be

appropriate, and further that neither ofthe existing phrases is clear.

8. In the proposed new § lO1.37S(b)(1), the word "if' is confusing. It

appears that "and" might be a more appropriate word choice.

9. In the proposed new § 101.375(c)(1), the word "foreign" or "Mexican"

should be added to the list oflaws to which the reduction must be surplus.

("International" law would refer to a treaty or other article oflaw between

nations rather than a law of a single nation such as Mexico.) .

10. In the proposed new § 101.375(c)(1), (c)(2), and (c)(3), the references to

the executive director are confusing, because the overarching approval

requirement incorporates both EPA and the executive director. That Is,

EPA's co-approval authority clearly implies the authority to independently

determine whether the reduction is real, surplus, etc., as in (e)(1), and

whether the reduction causes localized health lmpacts under (c)(2); also

implied would be the authority to require a.dditional supporting

information as in (c)(3).

Thank you [or the opportunity Lo provide comments. Please note that our

comments do not constitute a final decision on approvability ofrule language. We look

forward to seeing the adopted rule when it is submitted. If you have any questions,

please call Ms. Adina R. Wiley ofmy staff at (214) 665-2115.

Sincerely yours,

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 of Permitting, Remediation, and Registration

Docket No.: 2006-0167-RUL

Subject: Commission Approval for Rulemaking Adoption

Chapter 101, General Air Quality Rules

Senate Bill 784: Emission Reduction Credits ERC/DERC

Rule Project No. 2005-054-101-PR

Reasons for the rule package:

• Under what authority are we adopting these changes? The rulemaking is adopted under Texas

Water Code, §5.103, concerning Rules; and §5.105, concerning General Policy, which authorizes

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, which

authorizes the commission to adopt rules consistent with the policy and purposes of the 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,

consistent with the protection ofpublic health, general welfare, and physical property; §382.011,

concerning General Powers and Duties, 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 of the state's air; §382.051,

concerning Permitting Authority of Commission; Rules, which authorizes the commission to issue

permits and adopt rules necessary for permits issued under THSC, Chapter 382; §382.0512,

concerning Modification of Existing Facility, which establishes a modification and its limits; and

§382.0518, concerning Preconstruction Permit, which requires that a permit be obtained from the

commission prior to new construction or modification of an existing facility.

• Is this rulemaking required by federal rule or state statute? Yes. Which ones? In the

October 5,2005, edition of the Federal Register (70 FR 58154), the United States Environmental

Protection Agency (EPA) published the proposed conditional approval of the discrete emission

reduction credit (DERC) program as part of the 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 credit from emission reductions achieved outside of the United States.

The revision would allow the commission greater latitude in its ability to approve the substitution

and crediting of emission reductions outside the United States that may 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.

• Other important background or historical information. None.

Scope of the rulemaking:

• Changes required by federal rule:

The recommended 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 until 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 in another state or nation as well as those transactions from on~ nonattainment

area to another or from attainment counties into nonattainment areas. The recommended revisions

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 of conditional

approval but were the subject of discussion between the commission and the EPA.

• Changes required by state statute:

The rule changes implementing SB 784 allow facilities to substitute emission reductions in criteria

pollutants outside the United States if they are reductions 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 reduction programs in Ciudad Juarez in the event of El Paso's redesignation as an

attainment area.

• Staff recommendations 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·the regulated 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 of DERCs from the registry.
Commissioners

Page 3

September 15, 2006

Re: Docket No. 2006-0167-RUL

• Does it create a group of affected persons who were not affected previously? How?

No.

• Will there be a fIScal impact? Yes. Ifso, estimate.

The DERCs generated prior to September 30, 2002, represent the majority of the 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 by the 11 sites holding them until September 8,2010, and will retain their full value until

then. The loss of nERCs 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 on the effective date of these rules.

Impact on the public:

• Who will be affected?

The expiration of DERCs will mean that they will not reappear in the form of air contaminants.

• Does it create a group of affected persons who were not affected previously? How?

No.

• Will there be a fIScal impact? Ifso, estimate.

No.

Impact on agency progranIS: None.

Stakeholder meetings:

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

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

• What were the generalsentiments? Some industrial stakeholders opposed the pending retirement

of shutdown 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.

Potentially controversial matters: The retirement ofshutdown DERCs will likely cause concern, but this

requirement is a key point in EPA's conditional approval of the 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 of El Paso Electric Company, 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.

EPA commented that they should be added as an approving authority for international emISSIOn

substitutions in §101.305. EPA also commented that the implementation of SB 784 could circumvent the

intention of the emission reduction credit program, which was structured to allow credit use only within

nonattainment areas. El Paso Electric Company requested that the 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 outside the United States may be substituted for reductions within the United States as required under

SB 784. The reductions made outside the United States are not eligible for credits which are bankable and

have an indefinite life.

In response to a comment from TIP, the executive director recommends a response explaining that credits

expiring on September 20, 2010, must be used by that date if they are to be considered:for use in meeting

annual emission limits for calendar year 2010.

HSC opposes using creditable reductions outside the United States unless all reasonably available domestic

control measures have been implemented, there are insufficient domestic reductions available, and

grandfathered facilities may not participate. The executive director recommends no change to the rule in

response to this comment because 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.

Significant changes from proposal:

In response to comments, the executive director is recommending including EPA as an approving 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 Project Manager, Air Permits Division, 239-1495

Steve Sun, Technical Lead, 239-3554

Dan Long, Staff Attorney, 239-5373

Lola Brown, Texas Register Coordinator, 239-0348

Attachments

cc: Chief Clerk, 5 copies

Executive Director's Office

David C. Schanbacher, P.E.

Jason Skaggs

Ashley K. Wadick

Bertha Valadez

Office of General Counsel

Beecher Cameron

Steve Sun

Lola Brown

cc (without attachments):

Dan Long, Staff Attorney

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 changes to the proposed text

as published in the April 28, 2006, issue of the Texas Register (31 TexReg 3492). The

commission adopts §§1 01.306, 101.373, and 101.378 and the repeal of §1 01.338 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 offer flexibility 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 (NOx) emissions credits.

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

1
by December 1, 2006. These revisions address the deficiencies, which the commission

committed to correct in a letter to the EPA dated September 8,2005.

The 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

§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 of these forms and adoption of the

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 of the United States.

The revisions allow the commission greater flexibility 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 §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 Federal Register a disapproval of the 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 if the 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 under THSC, §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 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 for the 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 EPA for

approval into the SIP and will not delay approval of other portions of the EBTP.

4
§101. 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

under the highly-reactive volatile organic compound cap and trade program.

§101. 338. Emission Reductions Achieved Outside the United States.

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 of this 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 for the validity of creditable reductions.

§101.339. Program Audits and Reports.

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. General Provisions.

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 if the

EPA publishes in the Federal Register a disapproval of the 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 §1 01.372(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 Federal Register notice

requiring the correction of program deficiencies prior to the approval of the 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 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 are typically not required. Thus, allowing the generation of tradable 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 Reductions Achieved 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 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 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 of the 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 refer to 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 Credit Banking 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 letter to the EPA to use th~ DERCs. As a

result, DERCs that were generated from shutdowns prior to September 30, 2002, are available

for use until September 8, 2010. After that 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 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

8
economy, productivity, competition, jobs, the environment, or the public health and safety of the

state or a sector of the state. The amendments to 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 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 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 near the 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 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 government to implement a 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

9
administrative changes. This rulemaking does not exceed an express requirement of federal or

state law or a requirement of a delegation agreement, and was not developed solely under the

general powers of the agency, but was specifically developed under federal 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" of the 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 or techniques (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 of this

chapter," (meaning 42 USC, Chapter 85, Air Pollution Prevention and Control). It is true that the

Federal Clean Air Act (FCM) 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 structure of 42 USC, §7410. The provisions of the 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 for the 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 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 significant fiscal 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 earlier

in this preamble, 42 USC, §741 0 does not require specific programs, methods, or reductions in

order to meet the NMOS; thus, states must develop programs for each nonattainment area to

ensure that area will meet the attainment deadlines. Because of the 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 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

11
or appropriate to meet the requirements of 42 USC, §7410. For these 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 preamble, 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

precursor pollutants 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 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 per curiam opinion respecting another issue, 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 of Lloyd, 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. Water Auth. v. Trinity Portland Cement Div., 563 S.W.2d

916 (Tex. 1978).

As discussed, this rulemaking action implements requirements of 42 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 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

of THSC, Chapter 382 (TCAA), 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,

and 382.017. Therefore, this rulemaking action is not subject to the regulatory analysis

provisions of Texas Government Code, §2001.0225(b), because the rulemaking does not meet

any of the four applicability requirements.

TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact assessment for this rulemaking action under Texas

Government Code, §2007.043. The amendments to 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-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

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 (§101.3720)). 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 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 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 must submit, for approval by the

EPA, SIPs that provide for the attainment and maintenance of NAAQS through control programs

directed to sources of the 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 et seq.), 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 of the CMP. The

commission reviewed this action for consistency 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)). 1'.10 new sources of air

contaminants 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 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 under the 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 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.

15
RESPONSE TO COMMENTS

TIP expresses general support for the proposal. The EPA expresses general support for these

parts of the proposal as having met the conditions of the 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 of the 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 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 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 of the

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. Under THSC, §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 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 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 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 §11 Om of the 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 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. If as 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) 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 §1 01.302(c) and §1 01.373(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 §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

of the word "and." The EPA comments that the use of the 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

of the 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 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."

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 of the banking program.

ELPE comments that §1 01.372 be deleted or that §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 of voe 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 of the Texas - Mexico border to 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 of Texas

affected by the 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, §11 0(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 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 of the 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

prior to September 30, 2002 until September 30, 2010, and supports a five-year life for these

credits.

The commission is not changing the rule in response to this comment. The proposed

expiration date is consistent with 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 of the 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.

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 under Texas Water Code, §5.1 03, 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 of the 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 for the 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 under 42 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 matter with an

aerodynamic diameter of less than or equal to a nominal ten microns (PM10) 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 of this 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 after the 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 under this 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. If the

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 for Attainment

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 or the EPA proposes disapproval of the 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 of time 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 ofAir Pollution Emission Factors (AP-42),

September 2000; or

(F) material balance.

(3) When quantifying actual emissions in accordance with paragraph (2) of this

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) of this 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 of the reductions. Reductions determined to be creditable will be certified by the

executive director.

(3) The applicant will be notified in writing if the executive director denies the

discrete emission credit notification. The applicant may submit a revised discrete emission

credit notification in accordance with the requirements of this 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 of this 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 of this title (relating to Definitions), if generated

8
outside of the 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 PMlO 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 after the 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 number for 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, or failure to submit all

information may result in the rejection of the 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 under this division is a

limited authorization to emit the specified pollutants in accordance with the provisions of this

section, the Federal Clean Air Act, and the Texas Clean Air Act, 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 or the EPA

to terminate or limit such authorization.

(k) Program participation. The executive director has the authority to prohibit a

company from 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 if the user does not possess enough

discrete emission credits to cover the compliance need for the use period. If the user

possesses an insufficient quantity of discrete emission credits to cover its compliance need, the

11
user will 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 of the initial discrete emission credit certificate shall

be the owner or operator of the 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 of the facility or mobile

source incurred the cost of the emission reduction strategy; or

(2) whether the owner or operator of the facility or mobile source lacks the

potential to generate one tenth of a ton 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 of the facility; or

(8) a change in the manufacturing process that reduces emissions below

the level required of the facility.

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

(A) permanent or temporary 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 under 42

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 under 42 USC, §7412;

(E) emission reductions that occurred as a result of transferring the

emissions to another facility 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 under the flexible

permit;

(I) that portion of emission reductions funded through a state or federal

program, unless specifically allowed under that 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 or following the most recent year of

emission inventory used in the SIP or, if that period is less than ten years, the ten consecutive

years immediately preceding the emission reduction.

(3) For facilities in an area in which a SIP demonstration is not required for a

criteria pollutant, the two consecutive calendar years must include or follow 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) For facilities in existence less than 24 months or not having two complete

calendar years of activity data, a shorter time 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 of the reduction generated and the total strategy emissions must

not be greater than the quantity of emissions reported or represented in the emissions inventory

used for SIP determination or the 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 later than 90 days after the

end of the generation period, or no later than 90 days after the 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) of this 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 of the generation activity;

(C) for shutdown emission reduction strategies, an explanation as to

whether production shifted from the shutdown facility to another facility 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 generator to 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) of this 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 for the 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 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 or leads to the formation

of any criteria pollutant for which 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 of the

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 of the 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 under this section

prior to 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 under the 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, if the 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 for volatile 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 user shall 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 prior to 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 prior to the use

of specific discrete emission credits to cover, at a minimum, one year of operation of the new or

modified facility in the NSR permit;

(8) the amount of discrete emission credits needed for NSR offsets

equals the quantity of tons 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 either the environmental contribution of 10% or the 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 of the 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) of this title (relating to Allowance Banking and Trading); or

(4) to comply with Chapters 114, 115, and 117 of this title (relating to Control of

Air Pollution from Motor Vehicles; Control of Air Pollution from Volatile Organic Compounds;

and Control of Air Pollution from Nitrogen Compounds), as allowed.

(c) Discrete emission credit use prohibitions. A discrete emission credit may not be

used under this division:

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

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

(3) to meet (as codified in 42 United States Code (USC), Federal Clean Air Act

(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) motor vehicle 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 of this 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 after the applicant has

submitted the notice and received executive director approval.

(8) The application must be submitted at least 45 days prior to the first

day of the 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 if the 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

for the 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 director to 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 user to 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 of the discrete emission credits acquired or to be acquired;

(x) the price of the discrete emission credits acquired or the

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 under this regulation, and the discrete emission

credits will not be used in a manner prohibited under this 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 of this 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 [(EHi 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) per day, as

calculated according to §§117.1 08(c)(1), 117.138(c), 117.21 0(c)(1) or (2),

or 117.223(b)(1) of this 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

= [(EHM; x ER;) -(HMi X R;)] 20~O

Where:

= each emission unit in the source or system cap

N =

Rj =

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 or to demonstrate compliance is greater than ten tons, an additional

31
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) 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 of the emergency situation in the notice of intent to use. All other notices

submitted less than 45 days prior to use, or 90 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

notifying the executive director of the selected generatingfacility or mobile source in the notice

of intent to use. If the generator's credits are rejected or the 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) If the 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) of this 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 after the 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 of this section if the user submits the report of use

later than 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 user will be reviewed for

credibility; and when deemed certified, posted to the credit registry.

(2) The credit registry will assign a unique number to 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

after the 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 prior to

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 director will issue a letter to the discrete emission credit

purchaser reflecting the discrete emission credits purchased by the new owner, and a letter to

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 y certify that this is a true an corre copy 0 a .::~{Ic)i';>., Texas Commission on Environmental Quality document,

',~>-~'~3.;, whiCh is flied in the. permanent records ofthe Commission,

:~' ..... li/-! Given un er my hand ancllhll seal of offlce on

. ../, . a tIi OCT 1920 '''''-'-~

La onna Caslanuelii, Chief Clerk

Texas Commission 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 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 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 of the state's air and to issue orders consistent with

the policies and purposes of the Texas Clean Air Act, Chapter 382 of the 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. A public 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 of the 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 of testimony 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 of the 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 of any portion shall not affect the validity of the remaining portions.

Date issued: OCT 172005 TEXAS COMMISSION ON

EN) IRONMENTAL QUALITY

<::..1' tClJ,,~ef2pj/L ~j, L-{) ~.tR._)

~athleen Hartnett White, Chairman

2
to 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

Commissioner to 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 hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary of State on October 3,2006.

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

For further 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 changes to 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 offer flexibility 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 October 20,2006 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 letter to the EPA dated September 8, 2005.

The 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 §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 of these forms and adoption of the 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 by the 79th Legislature, 2005, and allows additional options for credit from emission reductions achieved outside of the

United States. The revisions allow the commission greater flexibility 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 if the EPA publishes in the Federal Register a disapproval of

the 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 if the 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 under THSC,

§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 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 under the 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 public comment, 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 authority for the validity of creditable reductions.

§101.339. Program Audits and Reports.

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 of the 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. In response to public comment, the commission is adding sulfur dioxide (SO,) as a pollutant that is subject to 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 Federal Register a disapproval of the 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 Federal Register notice requiring the correction of program deficiencies prior to the

approval of the EBTP into the SIP. 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 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 are typically not required. Thus, allowing the generation

of tradable credits as a result of actiVity level decreases (includADOPTED RULES October 20,2006 31 TexReg 8685
ing shutdowns) may tend to promote emissions increases. Such

patterns of activity 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 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 of the 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 response to public comment, 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 Credit Banking 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 September 8, 2005, commitment letter to the EPA

to use the DERCs. As a result, DERCs that were generated from

shutdowns prior to September 30, 2002, are available for use

until September 8, 2010. After that 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 §1 01.373 in this preamble.

FINAL REGULATORY IMPACT ANALYSIS 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 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, or the public health and safety

31 TexReg 8686 October 20,2006 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 prior to 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 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 near the 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 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 represEmtative of the federal government to implement a 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 of federal or state law or a requirement

of a delegation agreement, and was not developed solely under

the general powers of the agency, but was specifically developed

under federal 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"

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 reductions to meet

the standard, SIPs must include "enforceable emission limitations and other control measures, means or techniques (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 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 of 42 USC, §7410. The provisions of the

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 methods to attain the NAAQS for the specific regions in the state. Even though
the FCAA 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, §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 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 significant fiscal 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 earlier in this preamble, 42 USC, §741 0 does not require

specific programs, methods, or reductions in order to meet the

NAAQS; thus, states must develop programs for each nonattainment area to ensure that area will meet the attainment deadlines.

Because of the 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 by the 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 of 42 USC, §7410. For these 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 precursor pollutants

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 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

per curiam opinion respecting another issue, 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 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. Water Auth. v. Trinity Portland

Cement Div., 563 S.w.2d 916 (Tex. 1978).

As discussed, this rulemaking action implements requirements

of 42 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 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 of THSC, Chapter

382 (TCAA), and Texas Water Code that 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 of Texas Government Code, §2001.0225(b), because the rulemaking does not meet any of the four applicability

requirements.

TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact assessment for this

rulemaking action under Texas Government Code, §2007.043.

The amendments to 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-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

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 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).

ADOPTED RULES October 20, 2006 31 TexReg 8687
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 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 must submit, for approval by the EPA, SIPs that provide for

the attainment and maintenance of NAAQS through control programs directed to sources of the 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 et seq.), 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 for consistency

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 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

accordance with 31 TAC §505.22(e), the commission affirms that

this rulemaking action is consistent with CMP goals and policies.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING

PERMITS PROGRAM

The new and amended sections are applicable requirements under the 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 October 20, 2006 Texas Register

TIP expresses general support for the proposal. The EPA

expresses general support for these parts of the proposal as

having met the conditions of the letter of 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 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 §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 for a 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 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

SB 784 only allow emission red uctions generated outside of the

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 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 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 that the 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) of the 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 nonattainment areas. 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 of emission 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 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. 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 that the word "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 comment that §1 01.338(a) and (b) be modified to

include the phrase "to meet the 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 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 §101.338 are included

within the section.

The EPA comments that the word "if' in §101.338(b)(1) is

confusing and suggests substitution of the word "and." The EPA

comments that the word "foreign" or "Mexican" be added in

§1 01.338(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 of the 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 of VOC 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 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, §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 by the 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 not changing 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.

ADOPTED RULES October 20, 2006 31 TexReg 8689
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 §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 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 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 prior to September 30, 2002 until September 30, 2010, and supports a five-year life for these

credits.

The commission is not changing the rule in response to this comment. The proposed expiration date is consistent with 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 of the

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 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 of the Texas

Clean Air Act. The amended and new sections are also adopted

under THSC, §382.002, concerning Policy and 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 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 amended and new sections are also proposed

underTHSC, §382.014, concerning Emission Inventory, that au31 TexReg 8690 October 20,2006 Texas Register

thorizes 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 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 amended and new sections implement THSC, §§382.002,

382.011,382.012, and 382.017; and Senate 8iIl784, 79th Legislature, 2005.

§lOl.302. General Provisions.

(a) Applicable pollutants. Reductions of criteria pollutants,

excluding lead, or precursors of criteria pollutants for which an area is

designated nonattainment, may qualify as emission credits. Reductions

of one pollutant may not be used to meet the requirements for another

pollutant, unless urban airshed modeling demonstrates that one ozone

precursor may be substituted for another, subject to executive director

and United States Environmental Protection Agency (EPA) approval.

(b) Eligible generator categories. The following 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 of this title

(relating to Conformity ofGeneral Federal Actions to State Implementation Plans).

(c) Emission credit requirements.

(I) Emission reduction credits are certified reductions that

meet the following requirements:

(A) reductions must be enforceable, permanent, quantifiable, real, and surplus;

(B) the certified reduction must be surplus at the 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 of emissions inventory used

in the state implementation plan (SIP); and

(D) the facility's annual emissions prior to the reduction strategy must have been reported or represented in the emissions

inventory used in the SIP.

(2) Mobile emission reduction credits are certified reductions that meet the following requirements:

(A) reductions must be enforceable, permanent, quantifiable, real, and surplus;

(B) the certified reduction must be surplus at the 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 of emissions 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 recertified in whole or in part as credits under another division within this

subchapter.

(d) Protocol.

(l) All generators or users of emission credits shall use a

protocol that 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. If the 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

must be used as follows.

(A) Facilities subject to the emission specifications under §§1l7.106, 117.206, or 117.475 of this title (relating to Emission

Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in nitrogen oxide emissions using the

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 of this 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) If the executi ve director has not submitted a protocol for the applicable facil ity or mobile source to the EPA for approval,

the following requirements apply:

(i) the amount of emission credits from a facility or

mobile source, in tons per year, 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 shall 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;

(iv) the chosen quantification protocol must be made

available for public comment for a period ono days and must be viewable on the commission's Web site;

(v) the chosen quantification protocol and any comments received during the public comment period shall be submitted to

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 of the protocol from the EPA during the 45-day

adequacy review or the EPA proposes disapproval of the protocol in

the Federal Register.

(2) In the event that the monitoring and testing data required under paragraph (I) ofthis subsection is missing or unavailable,

the facility may report actual emissions for that period of time 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;

(D) manufacturer's data;

(E) EPA Compilation o/Air Pollution Emission Factors

(AP-42), September 2000; or .

(F) material balance.

(3) When quantifying actual emissions in accordance with

paragraph (2) of this subsection, the generator shall use the most conservative method for replacing the missing data, submit the justification

for not using the methods in paragraph (I) ofthis subsection, and submit the justification for the method used.

(e) Credit certification.

(I) The amount of emission credits in tons per year will be

determined and certified, to the nearest tenth of a ton per year.

(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 if the executive director denies the emission credit application. The applicant may

submit a revised application in accordance with the requirements of

this division.

(4) If a facility's or mobile source's actual emissions exceed its allowable emission limit, reductions of emissions exceeding

the limit may not be certified as emission credits.

(5) Applications for certification of emission credit from

reductions quantified under subsection (d)(I )(C) of this section may

only be approved upon completion ofthe public comment period.

(f) Geographic scope. Except as provided in §101.305 of this

title (relating to Emission Reductions Achieved Outside the United

States), 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 of the 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 improvement to the air

quality in the county of use; or

(2) the emission credit was generated in a nonattainment

area that has an equal or higher nonattainment classification than the

nonattainment area of use, and a demonstration 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 of the national ambient air quality standard in the nonattainment area of use.

(g) Recordkeeping. The generatorshall maintain a copy of all

notices and backup information submitted to the registry for a minimum of five years. The user shall maintain a copy of all notices and

backup information submitted to the creditregistry from the beginning

of the use period and for at least five years after. The user shall also

make such records available upon request to representatives ofthe exADOPTED RULES October 20,2006 31 TexReg 8691
ecutive 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 identification number of each facility or any other identifying number for each

mobile source using emission credits;

(2) the amount of emission 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 or mobile 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 of an

emission credit is public information and may not be submitted as confidential. Any claim of confidentiality for this type of information, or

failure to submit all information, may result in the rejection ofthe emission credit application. All nonconfidential notices and information regarding the generation, availability, use, and transfer of emission credits shall be immediately made available to the public.

(i) Authorization to emit. An emission credit created under

this division is a limited authorization to emit the pollutants identified in

subsection (a) of this section, unless otherwise defined, in accordance

with the provisions of this section, 42 United States Code, §§7401 et

seq., and Texas Health and Safety Code, Chapter 382, as well as regulations promulgated thereunder. An emission credit does not constitute

a property right. Nothing in this division may be construed to limit the

authority ofthe commission or the EPA to terminate or limit such authorization.

(j) Program participation. The executive director has the authority to prohibit an organization from participating in emission credit

trading either as a generator or user, ifthe executive director determines

that the organization has violated the requirements of the 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 of the initial 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:

(I) whether an entity other than the owner or operator of

the facility or mobile source incurred the cost ofthe emission reduction

strategy; or

(2) whether the owner or operator ofthe facility or mobile

source lacks the potential to generate 1/10 ton of credit.

§IOl.305. Emission Reductions Achieved Outside the United States.

(a) A facility may use reductions achieved outside the United

States of criteria pollutants or precursors of criteria pollutants if the

facility meets the requirements ofsubsection (c) of this section.

(b) A facility may use 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

(I) the reduction is substituted for the 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 ofthe area; or

31 TexReg 8692 October 20, 2006 Texas Register

(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 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

or leads to the formation ofany criteria pollutant for which the area has

been designated as nonattainrnent.

(c) The use ofreductions 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:

(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) demonstrate that the use ofthe 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.

This agency hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary of State on October 6,2006.

TRD-200605473

Robert Martinez

Director, Environmental Law Division

Texas Commission on Environmental Quality

Effective date: October 26,2006

Proposal publication date: April 28, 2006

For further 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 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 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 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 under 42 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 hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary of State on October 6, 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

For further information, please call: (512) 239-0348

30 TAC §101.338, §101.339

STATUTORY AUTHORITY

The new sections are adopted under Texas 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 policy and purposes of the Texas Clean Air Act. 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 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 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

new sections are also adopted 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 new sections implement TH SC, §§382.002, 382.011,

382.012, and 382.017; and Senate Bill 784, 79th Legislature,

2005.

§ 101.338. Emission Reductions Achieved Outside the United Slales.

(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 of this division if the facility meets

the requirements ofsubsection (c) of this section.

(b) A grandfathered or electing EGF may use 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 or to

meet the allowance holding requirements of this division ifthe facility

meets the requirements ofsubsection (c) of this section; and

(I) the reduction is substituted for the reduction of another

criteria pollutant and the substitution results in a greater health benefit

and is of equal or greater benefit to the ovemll air quality 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 formation of a 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

or leads to the fomlation of any criteria pollutant for which the area has

been designated as nonattainment.

(c) The use ofreductions 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:

(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) demonstrate that the use ofthe reduction docs not cause

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 100 kilometers ofthe Texas - Mexico

border.

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

lead.

§101.339. Program Audits and Reports.

(a) No later than three years after the effective date ofthis division, and every three years thereafter, the executive director will audit

this program.

(I) The audit will evaluate the impact of the program on

the state's ozone attainment demonstration, the availability and cost of

allowances, compliance by the participants, and any other elements the

executive director may choose to include.

(2) The executive director will recommend measures to

remedy any problems identified in the audit. The trading of allowances

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 October 20, 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 later than September 30 following the end of each control period, the executive director shall develop and make available to

the general public and EPA, a report that includes:

(I) number of allowances allocated to each compliance account;

(2) total number of allowances allocated under this division;

(3) number of actual nitrogen oxides (NOJ and sulfur dioxide (SO,) allowances subtracted from each compliance account based

on the actual NO, and SO, emissions from the site; and

(4) a summary of all trades completed under this division.

This agency hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary of State on October 6, 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

For further 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 under Texas 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 policy and purposes of the 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 for the 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

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 or techniques, 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 Bill 784, 79th Legislature, 2005.

§IOl.372. General Provisions.

(a) Applicable pollutants. Reductions ofvolatile organic compounds (VOC), nitrogen oxides (NO,). carbon monoxide (CO), sulfur

dioxide (SO,), and particulate matter with an aerodynamic diameter

of less than or equal to a nominal ten microns (PM,o) 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 of this title

(relating to Confonnity ofGeneral Federal Actions to State Implementation Plans).

(c) Discrete emission credit requirements.

(I) 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 after the 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;

(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 under this division cannot be recertified in whole or in part as emission credits under another

division within this subchapter.
(d) Protocol.

(I) All generators or users ofdiscrete 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. If the generator

or user wishes to deviate from a protocol submitted by the executive

director, EPA approval isrequired 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 1I7A75 of this title (relating to Emission

Specifications for Attainment Demonstrations; and Emission Specifications) shall quantify reductions in NO, using the testing and monitoring methodologies identified to show compliance with 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) 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;

(iv) the chosen quantification protocol shall be made

available for pub lic comment for a period of30 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 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 required under paragraph (1) ofthis subsection is missing or unavailable,

the facility may report actual emissions for that period of time 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;

(D) manufacturer's data;

(E) EPA Compilation ofAir-Pollution Emission Factors

(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 conservative method for replacing the missing data, submit the justification

for not using the methods in paragraph (I) ofthis subsection, and submit the justification for the method used.

(e) Credit certification.

(I) 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 of the reductions. Reductions determined

to be creditable will be certified by the executive director.

(3) The applicant will be notified in writing if the executive director denies the discrete emission credit notification. The applicant may submit a revised discrete emission credit notification in

accordance with the requirements of this division.

(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 §I01.375 of this 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.

(I) VOC and NO, 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) 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 of a county designated as attainment or unclassified.

(3) VOC and NO, 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) VOC discrete emission credits are prohibited from use

within the covered attainment counties, as defined in §115.10 of this

title (relating to Definitions), ifgenerated 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) NO, discrete emission credits are prohibited from use

within the covered attainment counties, as defined in §115.10 of this

title, if generated outside of the covered attainment counties. NO, discrete emission credits generated in a nonattainment area, except those

generated in EI Paso, may be 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

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 NO discrete emission credits generated in

other counties, states, or emis'sion reductions in other nations may be

ADOPTED RULES October 20, 2006 31 TexReg 8695
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 NO, discrete emission credits generated outside

the ozone season may not be used during the ozone season.

(h) Recordkeeping. The generator must maintain a copy of all

notices and backup infonnation submitted to the registry for a minimum offive years, following the completion ofthe generation period.

The user must maintain a copy of all notices and backup infonnation

submitted to the registry for a minimum of five years, following the

completion ofthe 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 ofthe generator's

notice and backup infonnation for a minimum of five years after the

use is completed. The records shall include, but not necessarily be limited to:

(I) the name, emission point number, and facility identification number of each facility or any other identifying number for

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 ofdiscrete emission credits used for each facility or mobile source.

(i) Public infonnation. All infonnation 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 infonnation and may not be submitted as confidential. Any claim of confidentiality for this type of infonnation, or

failure to submit all infonnation may result in the rejection of the discrete emission reduction application. All nonconfidential notices and

infonnation regarding the generation, use, and availability of discrete

emission credits may be obtained from the registry.

(j) 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 of this section, the Federal

Clean Air Act, and the Texas Clean Air Act, 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 or the EPA to tenninate or limit such

authorization.

(k) Program participation. The executive director has the authority to prohibit a company from participating in discrete emission

credit trading either as a generator or user, ifthe executive director detenninesthat the company has violated the requirements ofthe program

or abused the privileges provided by the program.

(I) Compliance burden and enforcement.

(I) 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 if the user does

not possess enough discrete emission credits to cover the compliance

need for the use period. Ifthe user possesses an insufficient quantity of

discrete emission credits to cover its compliance need, the user will be

out of compliance for the entire use period. Each day the user is out of

compliance may be considered a violation.

31 TexReg 8696 October 20, 2006 Texas Register

(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 of the initial discrete emission credit certificate shall be the owner or operator of the 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:

(I) whether an entity other than the owner or operator of

the facility or mobile source incurred the cost ofthe emission reduction

strategy; or

(2) whether the owner or operator of the facility or mobile

source lacks the potential to generate one tenth of a ton of credit.

§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 ifthe facility meets the requirements ofsubsection (c) ofthis section.

(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) ofthis section; and

(1) the reduction is substituted for the 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 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

or leads to the fonnation of any criteria pollutant for which the area has

been designated as nonattainment.

(c) The use ofreductions 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:

(I) demonstrate to the executive director and EPA that the

reduction is real, pennanent, enforceable, quantifiable, and surplus to

any applicable Mexican, federal, state, or local law;

(2) demonstrate that the use ofthe reduction does not cause

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 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 the entire use period.

The user shall acquire additional credits as allowed under this section

prior to the shortfall, or be in violation ofthis 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 under the same commission account number, discrete emission credits may be used to meet

or demonstrate compliance with any facility or mobile regulatory requirement includingthe following:

(I) 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 for volatile 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

(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 of significant deterioration significance levels

as provided in 40 Code of FederaJ Regulations (CFR) §52.21(b)(23),

as approved by the executive director prior to 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 prior to 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;

(B) 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 either the environmental contribution of

10% or the 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;

(ii) prior to issuance ofthe permit the usershall 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 §I0 1.356(g) ofthis title (relating to

Allowance Banking and Trading); or

(4) to comply with Chapters 114, 115, and 117 of this title

(relating to Control of Air Pollution from Motor Vehicles; Control of

Air Pollution from Volatile Organic Compounds; and Control of Air

Pollution from Nitrogen Compounds), as allowed.

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

(I) 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 Air Act (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» or Texas 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 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,

§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 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 of this 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 §101.356(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 ofthis title (relating to General Definitions), to operate with

actual emissions above those levels without triggering applicable reADOPTED RULES October 20, 2006 31 TexReg 8697
quirements 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 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 after

the applicant has submitted the notice and received executive director

approval.

(B) The application must be submitted at least 45 days

prior to the first day of the use period if the discrete emission credits

were generated from a facility, 90 days ifthe discrete emission credits

were generated from a mobile source, and every 12 months thereafter

for each subsequent year ifthe 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 if the 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:

(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 for the 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 director to 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 user to

determine the amount of discrete emission credits needed;

(viii) the date that the discrete emission credits were

acquired or will be acquired;

(ix) the discrete emission credit generator and the

original certificate of the discrete emission credits acquired or to be

acquired;

(x) the price ofthe discrete emission credits acquired

or the 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 under this regulation, and the discrete emission credits will not be

used in a manner prohibited under this regulation; and

(xii) a certification of use, that must contain certification under penalty oflaw by a responsible official ofthe user oftruth,

accuracy, and completeness. This certification must state that based on

31 TexReg 8698 October 20,2006 Texas Register

information and beliefformed after reasonable inquiry, the statements

and information in the document are true, accurate, and complete.

(2) DERC use calculation.

(A) To calculate the amount ofdiscrete emission credits

necessary to comply with §§117.108, 117.138, 117.210, or 117.223 of

this 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:

Figure: 30 TAC § I01.376(d)(2)(A)(i) (No change.)

(ii) For maximum daily cap:

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

(B) The amount of discrete emission credits needed to

demonstrate compliance or meet a regulatory requirement is calculated

as follows.

Figure: 30 TAC §101.376(d)(2)(B) (No change.)

(C) The amount of discrete 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 amount ofdiscrete emission credits needed to

meet a regulatory requirement or to 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) 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 of

the emergency situation in the notice ofintent to use. All other notices

submitted less than 45 days prior to use, or 90 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 notifying the executive director of the selected generating facility or mobile source in the notice of intent to use. If the

generator's credits are rejected or the 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) If the 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.

(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

(B) 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 sub-
section (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: 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: 30 TAC §101.376(e)(2)(B) (No change.)

(3) A DEC-3 Fonn, 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 after

the end of the use period.

(B) The notice must be submitted within 90 days ofthe

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 ofintent to use and must include any infonnation

different from that reported in the notice of intent to use, including, but

not limited to, the following items:

(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 ifthe user submits

the report ofuse laterthan the allowed 90 days following the conclusion

of the use period.

This agency hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary of State on·October 6,2006.

TRD-200605476

Robert Martinez

Director, Environmental Law Division

Texas Commission on Environmental Quality

Effective date: October 26, 2006

Proposal publication date: April 28, 2006

For further 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

changes to 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 authority to

create, supervise, and dissolve certain water and water-related

districts and to review the sale and issuance of bonds for district improvements in accordance with Texas Water Code (TWC),

Chapters 12, 36, and 49- 67. The commission oversees approximately 1,100 active water districts in Texas. Chapter 293 of the

commission's rules govems the 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 economic feasibility of district construction 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 of convenience and necessity (CCN) costs; allows a water supply corporation to request

only certain powers upon conversion to a SUD and requires the

ADOPTED RULES October 20, 2006 31 TexReg 8699