10 t.PR -9 p;:j I: 5S

Bryan W. Shaw, Ph.D., Chairman

Buddy Garcia, Commissioner

Carlos Rubinstein, Commissioner

Mark R. Vickery, P.G., Executive Director

- ' . • \ "'. '..' •• 'I " ~., i . !'

TEXAS COMMISSION ON ENVIRONMENTAL QUALITY

Protecting Texas by Reducing and Preventing Pollution

April 6, 2010

Docket No. 2009-0802-SIP, Project No. 2009-017-SIP-NR

Docket No. 2009-0932-RUL, Rule Project No. 2009-006-101-EN

Docket No. 2009;.0867-RUL, Rule Project No. 2009-019-101-EN

Al Armendariz, Ph.D, Regional Administrator

U.S. Environmental Protection Agency - Region 6

1445 Ross Avenue

Dallas, Texas 75202-2733

Dear Dr. Armendariz:

On March 10, 2010, the Texas Commission on Environmental Quality (Commission) adopted revisions to the

State Implementation Plan (SIP) for the control of ozone air pollution for the Houston-Galveston-Brazoria

(HGB) area.

The Commission adopted amendments to 30 Texas Administrative Code (TAC) Chapter 101, Subchapter A,

General Rules, Section 101.1; and Subchapter H, Emissions Banking and Trading, Division 6, Highly Reactive

Volatile Organic Compound Emissions Cap and Trade Program. Sections 101.390 - 101.394. 101.396 and

101.399 - 101.401:1 30 TAC Chapter 101, Subchapter H, Emissions Banking and Trading, Division 3, Mass

Emissions Cap and Trade Program, Sections 101.350, 101.351, and 101.353 and corresponding revisions to the

SIP; and an HGB Attainment Demonstration SIP Revision for the 1997 Eight-Hour Ozone Standard. These rule

changes and SIP revisions demonstrate that the HGB area will attain the 1997 eight-hour ozone National

Ambient Air Quality Standard by June 15, 2019.

Enclosed are the proposed revisions to the SIP, a public hearing certification, a complete record of the public

hearings, and the accompanying orders. I look forward to your expeditious approval ofthese SIP revisions.

Sincerely,

B~~ B~haW, Ph.D.

Chairman

BWS/jmm

Enclosures

cc: The Honorable Rick Perry, Governor ofTexas

Mr. Toby Baker, Office ofBudget, Planning and Policy, Office ofthe Governor

Mr. Mark R. Vickery, P.G., Executive Director, Texas Commission on Environmental Quality

P.O. Box 13087 Austin, Texas 78711-3087 512-239-1000 Internet address: www.tceq.state.tx.lls
10 APR -9 Pr;1 I: 55

TEXAS COMMISSION ON ENVIRONMENTAL QUALITY

Bryan W. Shaw, Ph.D., Chairman

Buddy Garcia, Commissioner

Carlos Rubinstein, Commissioner

Mark R. Vickery, P.G., Executive Director

Protecting Texas by Reducing andPreventing Pollution

April 6, 2010

Docket No. 2009-0802-SIP, Project No. 2009-017-SIP-NR

Docket No. 2009-0932-RUL, Rule Project No. 2009-006-101-EN

Docket No. 2009-0867-RUL, Rule Project No. 2009-019-101-EN

Al Armendariz, Ph.D, Regional Administrator

U.S. Environmental Protection Agency - Region 6

1445 Ross Avenue

Dallas, Texas 75202-2733

Dear Dr. Armendariz:

On March 10, 2010, the Texas Commission on Environmental Quality (Commission) adopted revisions to the

State Implementation Plan (SIP) for the control of ozone air pollution for the Houston-Galveston-Brazoria

(HGB) area.

The Commission adopted amendments to 30 Texas Administrative Code (TAC) Chapter 101, Subchapter A,

General Ru1es, Section 101.1; and Subchapter H, Emissions Banking and Trading, Division 6, Highly Reactive

Volatile Organic Compound Emissions Cap and Trade Program, Sections 101.390 - 101.394, 101.396, and

101.399 - 101.401; 30 TAC Chapter 101, Subchapter H, Emissions Banking and Trading, Division 3, Mass

Emissions Cap and Trade Program, Sections 101.350, 101.351, and 101.353 and corresponding revisions to the

SIP; and an HGB Attainment Demonstration SIP Revision for the 1997 Eight-Hour Ozone Standard. These rule

changes and SIP revisions demonstrate that the HGB area will attain the 1997 eight-hour ozone National

Ambient Air Quality Standard by June 15, 2019.

Enclosed are the proposed revisions to the SIP, a public hearing certification, a complete record of the public

hearings, and the accompanying orders. I look forward to your expeditious approval ofthese SIP revisions.

Sincerely,

B QMW,/kzw- Bry~haW' Ph.D.

Chairman

BWS/jrnm

Enclosures

cc: The Honorable Rick Perry, Governor ofTexas

Mr. Toby Baker, Office ofBudget, Planning and Policy, Office ofthe Governor

Mr. Mark R. Vickery, P.G., 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

printed on recycled paper using soy-based ink
Texas Commission on Environmental Quality

Public Hearings

October 28 and 29, 2009

Conceming Revisions to 30 TAC Chapter 101

HECT Program Cap Reduction and Allowance Reallocation

Rule Project No. 2009-006-101-EN
INTRODUCTION

The Texas Commission on Environmental Quality (commission) held pUblic hearings in Houston on

October 28, 2009, and Austin on October 29, 2009, to receive testimony regarding 30 TAC Chapter

101, General Air Quality Rules, SUbchapterA, General Rules, §1 01.1; and SUbchapter H, Emissions

Banking and Trading, Division 6, Highly Reactive Volatile Organic Compound Emissions Cap and

Trade Program, §§101.390 - 101.394, 101.396, and 101.399 - 101.401; and corresponding

revisions to the state implementation plan.

The adoption reduces the total cap amount of Highly Reactive Volatile Organic Compounds

(HRVOC) allowances and revises the allocation methodology of allowances for participants of the

HRVOC Emissions Cap and Trade Program. The adopted rulemaking also updates the definition of

volatile organic compound to link the 30 TAC definition with the current definition in Title 40 Code of

Federal Regulations, and corrects the reportable quantity for 1,1,1 ,2,3,3,3-heptafluoropropane.

The comment period closed on November 9, 2009. All testimony and comments have been

reviewed and seriously considered. This hearing record contains a complete record of the public

hearings 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 ofthis hearing record are maintained in the TCEQ central office at 12100 Park 35

Circle, Austin, Texas 78753. For further information, please contact Jay Tonne at (512) 239-1453.
EVALUATION OF 

TESTIMONY 
To: Commissioners

lNTEROFFICEMEMORANDUM

Date: February 19, 2010

Thru: LaDonna Castaiiuela, ChiefClerk

MarkR. Vickery, P.G., Executive Director

From: ~susana M. Hildebrand, P.E., ChiefEngineer

Docket No.: 2009-Q932-RUL

r'

Subject: Commission ApprqvaJ. for Rulemalcing Adoption

Chapter 101, General AirRules

Highly Reactive Volatile Organic ComPounds (HRVOC) Emissions Cap and Trade

Program (HECT) Cap Reduction and Allowance Reallocation

Rule Project No. 2009-Q06~101-EN

Background and reason(s) for the rulem~kiDg:r.

The pmpose oftms rulemaking is to adopt a 25 percent reduction in the total HECT program

allowance cap and revise the BRVOC allocation methodology. The HECT program was

initially adopted as a control measUre for the Houston-Galveston-Brazoria (HGB) one-nour

ozone attainment demonstration state implementation plan (SIP) revision and continues to be

a conq-ol measure for the 1997 eight-hour ozone standard. The HECT program is currently

only applicable in Harris County.

The HGB metropolitan area was originally designated nonattaimIient for the 1997 eight-hour

ozone National Ambient Air Quality Standard (NAAQS) and classified as a moderate area

effective June 15, 2004. The United States Environmental Protection Agency (EPA)

reclassified the HGB area as a severe ozone nonattainment area effective October 31, 2008.

The HGB area is required to attain the 1997 eight-hour ozone standard of 0.08 parts per

million as expeditiously as practicable, but no later than June 15,2019. The EPA requires

submittal of the HGB Attainment Demonstration SIP Revision for the 1997 Eight-Hour

Ozone Standard by April 15, 2010.

Following the initial allocation 'of allowances in 2006, companies participating in the HECT

program commented that the allocation was not equitably distnbuted. Information from the

:first three years of monitoring data, 2006 through 2Q08, supports the assertion of an

inequitable distribution of allowances. Photochemical modeling analysis has also'

demonstrated a 25 percent reduction ofthe HRVOC cap in Harris County would contnbute

to attainment of the 1997 eight-hour ozone NAAQS by reducing the future 2018 ozone

design values at all HGB monitors. The largest reductions are projected at the Deer Park ' J

monitoring site. Revisions to the rule are anticipated to result in a more equitable approach

while contnbuting to the area's attainment of the NAAQS as expeditioUsly as practicable.

This rulemaking will be submitted as part of the HGB Attainment !?emonstration SIP

Revision for the 1997 Eight-Hom Ozone Standard.
Commissioners

Page 2

February 19, 2010

Re: Docket No. 2009-0932-RUL \

Scope ofthe rolem8kjDg~

A) Summary ofwhat the rolemaking will do:

The adopted rulemaking revises 30 Texas Administrative Code (TAC) Chapter 101,

Subchapter A and Subchapter H, Division 6, to reduce the total cap amount of BRVOC

allowances by 25 percent and revise the allocation· methodology for participants of the

BECT program. The adopted rulemaking updates the definition of volatile organic

compound to link the Chapter 101 definition with the current definition in the 40 Code of·

Federal Regulations. Theradopted rulemak:ing will also correct §101.1(88)(A)(i)(III)(y) to

include the reportable quantity of 5,000 pounds for l,l,l,2,3,3,3-heptafluoropropane that

was inadvertently OImtted in the adopted rule filed with the Secretary of State's Office in

December, 2005.

B) Scope required by federal regulations or state statutes:

None.

C) Additional staffrecommendations that are Dot required by federal rule or state statute:

• Amend the definition of ''Volatile organic compound" to link the Chapter 101 definition

with the current definition ih the 40 Code ofFedera1 Regulations.

• Correct the definition of i,l,l.2,3,3,3-heptafluoropropane to include the 5,000 pound

reportable quantity that was previously omitted.

• Add the definitions of''Baseline emissions period," "Industry Sector," and "Uncontrolled

emissions."

• Revise the allocation·methodology of the BECT program based on actual monitored

emissions data with the goals of fairly and equitably distributing the compliance burden

for HECT program participants, applying credit for controlling and reducing HRVOC

emissions, and not rewarding or encouraging emissionsfrom emissions events.

• Reduce the tOtal cap amount of HRVOC allowances using gradual annual percent

reductions in the total cap of allowances. The first step is a ten percent reduction in the

total cap in calendar-year control period 2014, followed by successive five percent·

reductions per calendar-year control period until the 25 percent total reduction in the cap

is reached in calendar year control period 2017.

Statutory authority:

Texas Water Code,

• §5.102;

• §5.103; and

• §5J05.

Texas Health and Safety Code (1HSC),

• §382.002;

• §382.011;

• §382.012;

• §382.017;

• §382.016; and'
Commissioners

Page 3

February 19, 2010

Re: Docket No. 2009-0932-RUL

• §382.021.

42 United States Code, §7410(a)(2)(A).

Effect on the:

A) Regulated community:

Sites with an BRVOC potential to emit greater than ten tons per year from flares, vents, and

cooling towers subject to Chapter 115 may have their existing HRVOC allowances reduced,

and other facilities could b,enefit from an :increase in HRVOC allowances. This rulemaking

is intended to al1e~atc the disparity of allocations that occurred as a result of the original

inequitable HECT aIlowance allocation. In addition, qualifying participants in the HECI'

program that had acquired future allowance streams, depending on uncontrolled emissions

during the baseline emissions period at the site, may apply a portion or the entire acquired

allowance stream toward their allocations. This provision therefore allows these sites to

receive an equitable allowance reflecting the site's acquired potential to emit tbrough use of

the allowance stream.

B) Public:

The general public in HGB and SUII'ounding areas will benefit from reduced ground level

ozone concentrations due to the impact ofthe proposed HRVOC cap reduction. There will

be no fiscal impacts to the public. '

C) Agency programs:

The Emissions BllIlking and Trading Program will be responsible for the reallocation and

oversight of the program. The Office of Compliance and Enforcement may benefit from

improved clarity and enforceability ofthe rules.

Stakeholder meetings:

Stakeholder meetings were held on June 10, 2009, and July 2, 2009, at the 'HoustonGalveston Area Council (H-GAC) in Houston, Texas. The BRVOC Stakeholder Group

includes participants from: industry' representatives, environmental groups, brokers,

consultants, and the general public. There was overall support for the HECT program and

for the equitable reallocation ofHRVOC allowances. There was little support for delaying

the reallocation until more representative data was collected and using a reallocation

methodology based on historical emissions. Most oft1?-e regulated community requested that

the reallocation ocCUTseparate1y from the step down (25 percent cap reduction) in order to'

allow businesses to plan for these reductions. In response to stakeholder comments, the

adopted rule package separates the reallocation :in 2011 from the cap reduction and

postpones the first step down often percent unti12014, followed by five ~ent reductions

each year therea.fter until a total step down of25 percent is reached in 2017.
Commissioners

Page 4

February 19,2010

Re: Docket No. 2009-Q932-RUL

Public comment:

Public hearings for the proposed SIP revision and associated rulemakings were held on

October 28. 2009, at 2:00 p.m and 6:00 p.m., at the H-GAC offices in Houston; and on

October 29~ 2009, at 3:00 p.m., at the Texas Commission on Environm.ental Quality (TCEQ)

headquarters in Austin. Question and answer sessions were held 30 minutes prior to the

hearings. Neither the October 28, 2009, hearing scheduled for 6:00 p.m. nor the October 29,

2009, hearing was officially opened because no party indicated a desire to provide comment.

Five persons presented oral comments concerning this SIP revision at the public hearing held

at 2:00 p.m on October 28r2009, in Houston.

The public comment period opened on pctober 9,2009, and closed on November 9, 2009.

Written comments were accepted via mail, fax, and through the eComments system. There

were 26 written comments received. Oral comments regarding the' BEeT rulemaking and

HGB attainment demonstration SIP revision were provided by Kaneka Texas Corporation

(Kaneka), Bigler, L.P. (Bigler), Environmental Defense Fund (EDF), and GalvestonHouston Association for Smog Prevention (GRASP). Written comments regarding the

BECT rulemaking and Reasonably Available Con11"ol Measures (RACM) were provided by

EPA, EDF, GRASP, and Kaneka. Written comments regarding the HECT rulemaking and

HGB attainment demonstration SIP .revision were provided by BCCA Appeal Group .

(BCCA), 8-Hour Ozone SIP Coalition (Coalition), Texas Oil and Gas Association (TxOGA),

and Texas Association ofBusiness (TAB). .

Written comments regarding the HECT rulemaking were provided by Texas Chemical

Council (TCC), LyondellBasell (Lyondell), Texas Petrochemicals (TPC), Coalition of

Manufacturers for Air Quality (COMAQ), DuPont Packaging and Industrial Polymers

(DuPont), Albemarle CoIporation (Albemarle), Sunoco Chemicals Inc. (Sunoco), INEOS

Olefin & Polymers: USA (lNEOS), PetroLogistics/PL Propylene L.L.C. (pL Propylene),'

Coalition, BCCA,. TxOGA, TAB,' Total Petrochemicals (Total), Kaneka, Bigler,

AmericanAcryl, Arkema Inc. (Arkema), EPA, and the Houston Regional Group and the

Lone Star Chapter ofthe Sierra Club (lISC). Kids for Clean Air, the Sustainable Energy and

Economic Development (SEED) Coalition, Clean Air Institute of Texas, and one individual

expressed support for any comments submitted by EDF and HSC.

Comments were received on the allocation methodologies discussed in the proposal

preamble. Comments were also received regarding tl;1e alternative baseline provision

qualifying factors. In addition, the TCEQ received comments regarding allowance credit for

flare and vent gas recovery, the application of actual monitored con11"ol efficiencies for

thermal oxidizers and other combustion con11"ols, and appropriate methodologies for

honoring stream ~s or applying acquired allowance streams to the allocation\

methodology. Finally, a majority of commenters requested the commission exclude the

proposed emission event set-aside pool.

SignUieant changes from proposal:

Due to numerous public comments. the 250 tons set-aside to cover emission events has been

remo~ and the 250 tons of allowances retumed to the pool of allowances available for

allocation.

.J
Commissioners

Page 5

February 19,2010

Re: DocketNo. 2009-0932-RUL

Albemarle, Bigler, KTC, Lyondell, TCC, and TPC all expressed their opposition to

nullifying or voiding purchased stream trades. In response, acquired allowance s1reams may

be applied to the calculation of''uncontrolled emissions" as actual emissions for qualifying

sites. .

Albemarle, AmericanAcryl, Lyonc1el!, and TCC all expressed concern with increasing the

minimum allocation for applicable sites from five to ten tons. The commission is therefore

revising the minimum allocation to five tons for sites that would have received less than five

tons based on the revised(ailocation method and a minimum ,often tons for sites that would

.have received between five and ten tons based on the revised allocation method. The

minimum illocations to these sites will not be subject to the stepdown provisions ofthe rule

and will maintain the original reallocated amount ~ugh the 2017 calendar-year control

period and beyond. .

Potential controversial concerns and,leglslative interest remaining after proposal and public comment:

Stakeholders have commented that the reallocation of BECT allowances is not explicitly

required to model attainment of the 1997 eight-hour attainment ~nstra.tion HGB SIP

revision. However, the commission has been committed to a reallOcation of the HECT

allowances as soon as a sufficient amount of actual monitored emissions data was available.

A more equitable allocation of allowances will stimulate the market, creating incentives for

further reductions in the industry regulated by the program. .

Stakeholders have commented that monitoring data indicates that reductions in the cap

beyond the adopted 25 percent reduction could be realized before any HECT participating

sites would. be required to make actual HRVOC emissions reductions. The total actual

emissions from sources in the HECT program have been approximately 50 percent of the

total cUlTent HRVOC cap. However, becapse the BRVOC rules in Chapter 115, Subchapter

,n, Divisions 1 and 2, require emissions from scheduled maiIitenance, startup, and shutdown

activities and emissions events be included in the HECT program, the total surplus observed

in the two years that the program has been active cannot be removed. Therefore, a buffer in

the cap is still needed to account for the inherent variability ofHRVOC emissions associated

with these activities. The 2S percent reduction in the Harris County HRVOC cap allows for

.a sufficient buffer to protect against the inherent variability in HRVOC emissions while

contn.'buting to the attainment ofthe 1997 eight-hour ozone standard by reducing the future

2018 design values at all HGB monitors. .

. Doesthis rulemaking affect any current policles or require develop~entof new policles?

No.

"What are the consequences «thisrulemaking does not go forward?

Potential consequences include hampering ofthe HGB area's ability to attain the 1997 ozone

NAAQS as ~ll asjeopardizing EPA approval ofthe SIP.

Are there alterna1ives to rulemakjng?

J
Commissioners

Page 6

February 19,2010

Re: Docket No. 2009-o932-RUL

The commission could retain the existing HRVOC allocation methodology and lower the

HRVOC cap. This option would further exacerbate the inequities in the HRVOe allocation

methodology with possible severe consequences to regulated entities in HGB, including the

inability to operate units or entire p1ai:lts. Another option would be to change the HRVOe

allocation methodology without reducing the existing HRVOe cap. This option could limit

the HGB area's efforts to attain the 1997 ozone NAAQS as well asjeopardize EPA approval.

ofthe SIP.

The commission could also choose to repeal the HEeT program and replace it with

speciated HRVOC permit allowable limits. This option could involve the 25 percent cap

reduction or retaining the existing HRVOe cap.

A final option would be for the commission to leave the rule as is. This option would likely

have severe consequences to the regulated entities in HGB who do not currently have

sufficient allowances to operate as well as jeopardize the approval of the HGB attainment

demonstration SIP revision.

To alleviate the inequities in the current system, one HRVOe allowance owner has

voluntarily "donated" allowances,. which the executive director has subsequently

redistnbuted to prevent non-compliance resulting from inequities in the allocation

methodology. Ifthe rules were not revised, the agency would have to depend on the same

"donations" indefinitely.

Key pointsin adoption ruIemaJdng schedule:

TextlS hgister proposal publication date:

Anticipated Texas Register publication date:

Anticipated effective date:

Slx-mo~th Texas hgister ming deadline:

October 9, 2009

March 26,2010

April 1, 2010

April 9, 2010

Agency contacts:

Jay Tonne, Rule Project Manager, 239-1453, Air Quality Division

Amy Browning, StaffAttorney, 239-0891

Devon Ryan, Texas Register Coordinator, 239-6090

Attaebments

cc: ChiefClerk, 5 copies

Executive Director's Office

Susana M. Hildebrand, P.E.

Kevin Patteson

Curtis Seaton

Daniel Womack

. Office ofGeneral ColmSel

Jay Tonne

DevonRyan
EVALUAnON OF TESTIMONY

The Texas Commission on Environmental Quality (TCEQ or commission) adopts amendments

to §§101.1, 101.390 - 101.394, 101.396, and 101.399 - 101.401.

Sections 101.390 - 101.392, 101.394, 101.396, 101.399, and 101.401 are adopted with changes

to the proposed text as published in the October 9,2009, issue ofthe Texas Register (34 TexReg

6989). Sections 101.1, 101.393, and 101.400 are adopted without changes and will not be

republished.

These amendments will be submitted to the United States Environmental Protection Agency

(EPA) as a revision to the state implementation plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED

RULES

The Houston-Galveston-Brazoria (HGB) metropolitan area was designated nonattainment for

the 1997 eight-hour ozone National Ambient Air Quality Standard (NAAQS) as a moderate

area effective June 15, 2004. In October 2008, the HGB area was reclassified as a severe ozone

nonattainment area by the EPA as requested by the governor ofTexas. The HGB area is

required to attain the 1997 eight-hour ozone standard of 0.08 parts per million as expeditiously

as practicable, but no later than by June 15, 2019. The EPA requires submittal ofthe HGB

Attainment Demonstration SIP Revision for the 1997 Eight-Hour Ozone Standard by April 15,

2010. This rulemaking will be submitted as part ofthe HGB Attainment Demonstration SIP

Revision for the 1997 Eight-Hour Ozone Standard.

Photochemical modeling analysis demonstrates that a 25% reduction ofthe highly reactive

1
volatile organic compound (HRVOC) cap in Harris County would contribute to attainment of

the 1997 eight-hour ozone NAAQS by reducing the future 2018 ozone design values for all

HGB area monitors. The largest reductions are projected at the Deer Park monitoring site,

which is the area's driving design value monitor.

In addition, some regulated entities participating in the HRVOC Emissions Cap and Trade

(HECT) program have commented that the initial allocation ofHRVOC allowances was not

equitably distributed. The existing allocation methodology is based on the total amount, in

pounds, ofHRVOC produced as an intermediate, byproduct, or fmal product, or used by a

process unit at each participating site. Subsequent analysis ofthe HRVOC emissions data

reported under the HECT program for the 2007 and 2008 calendar- year control periods

supports the assertion that some industry sectors may have been over-allocated while others

may have received an insufficient allocation. Although reallocation is not required to model

attainment ofthe 1997 eight-hour attainment demonstration HGB SIP revision, the adopted

reallocation methodology is designed to result in a more equitable allocation ofallowances

while establishing an enforceable cap in HRVOC allowances in Harris County in support of

HGB's attainment ofthe NAAQS as expeditiously as practicable.

As part ofthe December 2004 HGB SIP revisions ofthe mid-course review for the one-hour

ozone standard, the commission developed a dual approach to achieve the necessary HRVOC

reductions: address variable short-term emissions through a not-to-exceed hourly emission limit

and address steady-state and routine emissions through an annual cap. The annual HRVOC cap

reduced the overall reactivity in the airshed by removing the compounds that are most prevalent

and most likely to react rapidly enough to cause one-hour ozone exceedances.

For Harris County, the annual HRVOC cap was distributed and enforced through the HECT

2
program under Chapter 101, SubchaptetH, Division 6. This program established a mandatory

annual HRVOC emissions cap on all sites subject to the HRVOC control requirements of 30

TAC Chapter 115, Subchapter H, Division 1 or Division 2, and having a potential to emit (PTE)

greater than ten tons per year (tpy). The cap is enforced through the allocation, trading, and

banking of allowances. An allowance is the equivalent of one ton ofHRVOC emissions. This

HRVOC cap, initially implemented on January 1,2007, was established at a level demonstrated

as necessary to allow the HGB area to attain the one-hour ozone standard along with a 5%

reduction to safeguard against potential emissions variations. The HECT program also requires

subject sites with new or modified HRVOC sources to obtain unused allowances from other

sites already participating in the program for any increased HRVOC emissions. For sites that

have a PTE often tpy or less ofHRVOC from sources subject to the HRVOC control

requirements ofChapter 115, Subchapter H, Divisions 1 or 2, the total, aggregate HRVOC

emissions from those sources is limited to ten tpy. Sites exempt from the HECT program were

extended an opportunity to opt-in, receive an HRVOC allocation, and thereby not be restricted

to the ten tpy limit.

Revisions to the HECT program under this rulemaking will reduce the total HECT cap by 25%

prior to the attainment year and revise the HRVOC allocation methodology to address inequities

from the initial allocation. Photochemical modeling analysis demonstrates that a 25% reduction

ofthe total HRVOC cap in Harris County will advance attainment ofthe 1997 eight-hour ozone

NAAQS by reducing the future 2018 ozone design values at all HGB monitors. The largest

decrease in the projected design value was at the Deer Park monitor. The average decrease for

all sites was 0.13 parts per billion (ppb).

HRVOC monitoring data reported for 2006 - 2008 indicates that the total actual emissions from

sources in the HECT program have been approximately 50% ofthe total current HRVOC cap.

3
Because the HRVOC rules in Chapter 115, Subchapter H, Divisions 1 and 2, require emissions

from maintenance, startup, and shutdown activities and emissions events be included in the

HECT program, the total surplus observed in the two years that the program has been active

cannot be removed. Therefore, a buffer in the cap is still needed to account for the inherent

variability ofHRVOC emissions associated with these activities.

The adopted rules will implement an initial 10% reduction ofthe existing available cap of

3,451.5 tons beginning with the 2014 calendar-year control period. The available cap will then

be reduced in a "stepdown" fashion, similar to the existing Mass Emissions Cap and Trade

Program (MECT) for nitrogen oxides (NOx), in 5% increments at the start of each calendar-year

control period for 2015,2016, and 2017. Therefore, the full 25% cap reduction will have been

in effect for one full calendar-year control period by January 1,2018. While historical data

demonstrates an overall surplus in the HRVOC cap, the cap reduction and reallocation may

require some individual sites to install additional controls. The commission is therefore

adopting this stepdown approach to allow companies time to install controls if necessary.

Following the initial allocation of allowances, companies participating in the HECT program

commented that the allocation was not equitably distributed. Emissions reported by industry

based on their HRVOC monitoring data supports the assertion ofan inequitable distribution of

allowances. In addition, BECT program participants commented that certain HRVOC-emitting

industry sectors were more adversely affected under the existing allocation methodology due to

different HRVOC emission rates associated with production throughput. Facilities that use

HRVOC as a raw material in the production of olefms have higher HRVOC emissions

associated with their process as compared to other chemical manufactures and refineries.

Therefore, under the existing BECT program, sites in the refmery and non-polymer chemical

sectors generally have the largest excess HRVOC allowances as compared to actual emissions.

4
HECT program participants also commented on the reluctance ofsites to trade due to the

inclusion of emissions events in determining compliance with the program and the risk of

trading away allowances that may be needed for compliance due to an emissions event later in

the calendar-year control period. The commission will reallocate HRVOC allowances under the

HECT program based on actual emissions data and implement significant program changes to

encourage market activity through trading.

The existing HECT allocation methodology is a level of activity production-based calculation of

the total amount ofHRVOC, in pounds, produced or used by a process unit. This productionbased methodology was developed prior to the implementation ofmonitoring requirements for

applicable sources of HRVOC in Harris County. HECT program participants have been

reporting actual monitored emissions data to the HECT program since 2006 as required under

Chapter 115.

The adoption ofthis rulemaking creates a new allocation methodology based on actual

emissions data with the goals offairly and equitably distributing the compliance burden for

HECT program participants, applying credit for controlling and reducing HRVOC emissions,

and not rewarding or encouraging emissions from emissions events. Cap and trade programs

aim to provide economic incentives for reducing emissions through controls by allowing excess

allowances to be sold to other program participants. However, an allocation methodology based

solely on actual emissions has the potential of penalizing sites that are well controlled and/or

rewarding sites that are not well controlled. To allow for applicable sites to establish a

representative baseline emission period, the rules allow sites to use their two highest

consecutive calendar-year control periods out ofthe four years from 2006 - 2009.

Allocations will be distributed based on the new allocation methodology beginning with the

5
2011 calendar-year control period. Baseline emissions for the purpose ofcalculating the site

allocations would be the average ofthe actual emissions for the two highest consecutive

calendar-year control periods as submitted in the Form ECT-6H, Highly-Reactive Volatile

Organic Compound Emissions Cap and Trade Baseline Emissions Certification Form. The

deadline for ECT-6H submission is July 1, 2010.

The adopted rulemaking includes a provision for HECT participants that qualify to have the

ability to request from the executive director the use of an alternate baseline period from 2004

and 2005 for the purpose ofestablishing baseline emissions. The owner or operator of a site

must submit a request to the executive director by July 1, 2010, demonstrating that they were

performing speciated testing and continuous flow monitoring ofHRVOC emissions during the

requested alternative baseline period. This provision is available for participants with substantial

HRVOC reductions. In addition, the emission reductions must be permanent, voluntary, and

quantifiable of an amount equal to or greater than 25% ofthe site's total annual HRVOC

emissions and a site-wide reduction in HRVOC emissions subject to the HECT program of 25

tons or greater. The adopted rulemaking also provides an alternative to the use of an alternative

baseline for qualifying sites that made early permitted HRVOC emissions reductions through

the installation offlare gas recovery, vent gas recovery, or flare gas minimization control

strategies. This alternative includes a provision in which quantified and monitored HRVOC

emissions reductions from flare or vent gas recovery or flare minimization is added to the

calculation of "Uncontrolled emissions" using the flare's average control efficiency. The

average actual HRVOC emissions used for quantifying reductions from flare or vent gas

recovery or flare minimization control strategies must be determined through the use of

continuous flow rate monitoring and HRVOC speciation testing in order to be applied towards a

site's "Uncontrolled emissions." The emissions reductions must have been made enforceable

under a permit action submitted to the executive director no later than April 1, 2010.

6
Additionally, qualifying sites not in operation or with HRVOC emissions that are not

representative ofpermitted normal routine operation, due to an authorized modification that

resulted in an HRVOC emission reduction during the baseline emissions period, may request

from the executive director the use ofany allowance stream acquired from facilities previously

participating in the HECT program in lieu ofreallocation until an alternative consecutive 24-

month baseline emissions period can be established from nonnal permitted operation from 2010

- 2012. Sites approved by the executive director to use this alternative will receive an allocation

in accordance with the adopted allocation methodology in the 2014 calendar-year control

period.

Recent economic conditions have prompted concerns from industry that the 2006 - 2009 years

adopted for establishing baseline emissions activity may not be representative of general

production and emission rates due to the recent economic downturn. However, the reallocation

methodology is based on the percentage ofindividual site emissions contributing to the total

industry sector emissions and the fraction that each industry sector's emissions make up toward

the total ofall HRVOC emissions in the county. Therefore, the allocation of allowances for any

individual site would not be significantly affected by general changes in economic conditions.

An individual site's allocations would only be significantly altered iftheir uncontrolled

emissions changed as a proportion ofthe total industry sector emissions.

The adopted reallocation methodology is based on calculating "Uncontrolled emissions" or precontrolled emissions for facilities using reported control efficiencies based on the specifications

for flares in §115.725(d). Heaters, boilers, furnaces, thermal and catalytic oxidizers, and other

combustion control devices combusting HRVOC streams would calculate "Uncontrolled

emissions" using control efficiencies up to 99.9% with actual monitored control efficiency data

derived from stack testing. In the event that actual stack testing data is not available for

7
combustion control devices other than flares, the commission will assign a default control

efficiency of 99% due to their closed combustion design and higher flame temperatures.

Dividing actual emissions by one minus the percent control efficiency calculates the amount of

emissions before controls, therefore allowing sites to receive credit for these reductions in the

allocation. HRVOC emissions from other facilities subject to Chapter 115, Subchapter H,

Divisions 1 and 2, and the HECT program, such as vents and cooling towers, will be included in

the equation for calculating uncontrolled emissions, however because they do not have

combustion control efficiencies, uncontrolled emissions from these facility types will be equal

to their actual emissions. Only HRVOC emissions from routine, permitted, normal activity will

be counted as actual emissions in the calculation ofuncontrolled emissions. Emissions from

emission events subject to §101.20 I will not be included in the determination ofuncontrolled

emissions and will not be applied towards site allocations. As discussed elsewhere in this

preamble, the adopted rules contain a provision for applying credit towards a site's uncontrolled

emissions for quantified and monitored BRVOC emission reductions from flare minimization

programs and flare and vent gas recovery systems. In addition, sites that have purchased

allowance streams under the existing HECT allocation will be allowed to receive allowance

credit for an amount equal to the difference between each site's allowance stream plus its

current existing allocation and the amount ofits two highest average actual emission years

during the baseline period. The amount ofthe difference may be applied to a site's

"Uncontrolled emissions" as actual emissions for the calculation of allowances. Sites with

emissions from their two highest average actual emission years during the baseline period that

are greater than their existing allocation plus any acquired allowance stream will receive an

allocation based on their "Uncontrolled emissions" without the benefit ofthe allowance stream.

The adopted rules define four industry-type sector pools to account for different BRVOC

emission rates associated with the processes ofthe industry sectors with BRVOC emissions in

8
Harris County. The industry sector definition reflects those used in existing regulations and are

readily defmed by process type and product. The existing application ofBest Available Control

Technology (BACT) and other federal standards within industry sectors would assure a

comparable cost of control within the industry sector, and the division ofthe cap into industry

sector share will therefore reflect a more equitable allocation methodology. In addition, the

amount ofHRVOC product that is recycled and recovered for sites within the same industry

sector should be comparable due to market forces and competition within the sector. Sites

within common industry sectors with HRVOC as product share the economic incentive to

reduce emissions using similar recovery techniques.

The four industry sectors are petroleum refming, nonpolymer chemical producers, polymer

producers, and storage/loading/other. The reallocation methodology then calculates each

sector's share ofthe available cap by dividing the total amount of actual average emissions over

the emissions baseline period for the sector by the total available cap. The resulting fraction

expressed as a percentage becomes the industry sector share. Applying this sector share to the

individual site allocation equation creates a methodology in which only facilities within the

individual industry sectors compete with one another for allowances. Sites containing facilities

from two or more industry sectors will be included in the industry sector for which the majority

oftheir baseline activity is generated, with emissions and allocations for the industry sector and

site calculated accordingly.

The existing rules' "opt-in" clause specifies that any site wishing to opt-in must have requested

to participate by April 30, 2005. The adopted rule revision will not provide an additional opt-in

provision. All sites with an HRVOC PTE that is greater than ten tons are required to participate

in the HECT program. Sites with a calculated allocation ofless than five tons based on the

revised allocation methodology will be eligible to receive a minimum allocation offive tons.

9
Sites with a calculated allocation greater than or equal to five but less than ten tons based on the

revised allocation methodology will be eligible to receive a minimum allocation often tons.

Sites receiving a minimum allocation under the adopted rulemaking will not have their

allocations "stepped down" and will continue to receive the minimum allocation.

According to the reallocation principals above, including a methodology based on average

actual emissions during the emissions baseline period and calculating "Uncontrolled emissions"

or pre-controlled emissions using reported control efficiencies, the commission adopts a revised

reallocation methodology for HRVOC allowances beginning with the 2011 calendar-year

control period. The total modeled (future base) cap on HRVOC emissions in Harris County is

currently 3,633.1 tons. After deducting the required 5% EPA environmental contribution of

181.65 tons, the total HRVOC cap is 3,451.5 tons. The first 10% cap stepdown will occur at the

beginning ofthe 2014 calendar-year control period. The total amount ofHRVOC allowances

available in 2014 will therefore be 3,106.3 tons. At the request ofstakeholders, the proposed

rule initially included an emissions event set-aside pool, however in response to comment, the

250-ton set-aside has been returned to the available cap for allocation.

The adopted rulemaking will then continue to reduce the cap to a total of25% in annual 5%

reductions from 2015 to 2017. Therefore, the fmal available cap beginning with the 2017

calendar-year control period will be the 2,588.6-ton value representing the amount modeled in

the 2018 future case 25% HECT Cap Reduction sensitivity run. The allocation methodology for

each calendar-year control period will be identical to the adopted methodology for 2011.

Sites that have made investments on HRVOC stream trades may receive credit for the

allowance stream as actual emissions in the calculation of "Uncontrolled emissions." However,

in order to prevent the double counting ofthe stream and the emissions during the baseline

10
emissions period that the stream allowed them to achieve, the "Uncontrolled emissions" for sites

owning a stream of allowances will be considered the greater oftheir actual emissions during

the baseline emissions period or the amount ofthe original allocation plus the allowance stream.

Therefore, if a site's highest emissions during the baseline period were less than its original

allocation plus the allowance stream, the difference would be applied toward its "Uncontrolled

emissions." Although some qualifying sites may receive credit for acquired allowance streams

after reallocation, HECT allowances are not a property right and site allocations are maintained

at the executive director's discretion under §101.394(h).

SECTION BY SECTION DISCUSSION

In addition to the adopted amendments to §§ 101.1, 101.390 - 101.394, 101.396, and 101.399 -

10 lAO1 discussed elsewhere in this preamble, the commission is also making various stylistic

non-substantive changes to update rule language to current Texas Register style and format

requirements, as well as establish more consistency in the rules. Such changes include

appropriate and consistent use of acronyms, punctuation, section references, and certain terms,

such as "must" and "shall." These changes are non-substantive and generally are not specifically

discussed in this preamble.

§JOJ.J, Definitions

Adopted changes to §101.1 amend the defmition ofreportable quantity for 1,1,1,2,3,3,3-

heptafluoropropane (HFC-227ea) in §101.l(88)(A)(i)(III)(-y-). The commission adopted a

reportable quantity of 5,000 pounds for HFC-227ea in 2005 and the adopted rule was published

in the December 30,2005, issue ofthe Texas Register (30 TexReg 8886). However, the

reportable quantity value of5,000 pounds was inadvertently omitted in the version filed with

the Secretary of State's Office. The commission is only adopting the corrected omission in

§101.1(88)(A)(i)(lII)(-y-) and no other changes to the defmition ofreportable quantity will be

11
addressed in this rulemaking. Additionally, the commission adopts the updated defmition of

volatile organic compound in §I01.1(115) to be consistent with the current definition in the 40

Code ofFederal Regulations, §57.l00(s) amended on January 21,2009 (74 Federal Register

3441).

§101.390, Definitions

The commission adopts revised §101.390(4) and adds §101.390(9) to include the defmitions of

"Baseline emissions period," "Industry sectors," and "Uncontrolled emissions." "Baseline

emissions period" is defined as consecutive calendar-year control periods designated by the site

for the purpose of establishing baseline emissions for the allocation of allowances. In response

to comment, "Uncontrolled emissions" is defmed as taking the total emissions from each

applicable facility calculated as pre-controlled using the applicable control efficiency for the

purpose ofdetermining site allocations under §101.394(a)(l)(B). In response to comment, the

defmition of "Industry sectors" for the purpose of generating the industry sector share for the

allocation ofHRVOC allowances is included in the adopted rules for clarity. The commission

also adopts renumbering the subsequent paragraphs of §101.390.

§101.391, Applicability

The commission adopts deleting the term "covered" and replacing it with "applicable" in

describing sites and facilities subject to the rulemaking for rule consistency and clarity.

§101.392, Exemptions

The commission adopts deleting the term "covered" and replacing it with "applicable" in

describing sites and facilities subject to the rulemaking for consistency and clarity. In response

to comment, the commission adopts language clarifying the applicability ofsubsection (b) to

only Harris County.

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§lOl.393, General Provisions

The commission adopts deleting the term "covered" and replacing it with "applicable" in

describing sites and facilities subject to the rulemaking for rule consistency and clarity.

§lO1.394. Allocation ofAllowances

In response to comment, the commission adopts the deletion ofthe reference to January 1,2007,

from §101.394(a). The commission also adopts the removal ofthe figure located at

§101.394(aXl) and adding a new figure to be located at §101.394(aXIXA). In addition, the

commission adopts §101.394(aX 1XB) to revise the reallocation methodology for allowances

beginning in the calendar-year control period 2011. The adopted figure located at

§101.394(aXl)(B) provides the equation for calculating the new allocation methodology and for

a stepped down reduction in the total cap ofallowances. The rust reduction is a 10% reduction

ofthe total cap in calendar-year control period 2014, followed by successive 5% reductions per

calendar-year control period until the 25% total reduction in the cap is reached in calendar-year

control period 2017.

In response to comment, the commission also adopts the addition of §101.394(aXIXC) to allow

qualifying sites not in operation or with HRVOC emissions that are not representative of

permitted nonnal routine operation due to an authorized modification that resulted in an

HRVOC emission reduction during the baseline emissions period to request from the executive

director the use of any allowance stream acquired from facilities previously participating in the

HECT program in lieu ofreallocation until the alternate baseline emissions are established

where the site has made HRVOC reductions. The owner or operator of applicable qualifying

sites should note that beginning with the 2014 calendar-year control period, all sites will receive

an allocation in accordance with the proposed methodology under §101.394(a)(1XB).

13
The commission also adopts the addition of §101.394(a)(1)(D) for HECT participants that

implemented pennanent, voluntary, and quantifiable HRVOC emission reductions and

monitoring programs before the beginning ofthe 2006 calendar-year control period. The

adopted subparagraph (D) provides the ability to request from the executive director the use of

an alternative baseline period from 2004 and 2005 for the purpose of establishing baseline

emissions. To qualify for this provision, owners or operators ofsites must be able to

demonstrate to the executive director that they were perfonning speciated testing and

continuous flow rate monitoring ofHRVOC emissions during the requested alternative baseline

period. In addition, the emission reductions must be permanent, voluntary, and quantifiable of

an amount equal to or greater than 25 tons resulting in a site-wide reduction in HRVOC

emissions of at least 25%. The emissions reductions must also have been made enforceable

under an action submitted to the executive director no later than April I, 2010. This provision

will ensure that sites that made early reductions before the adopted baseline emissions period of

2006 - 2009 would receive adequate credit for those early reductions.

In response to comment, the commission adopts §I01.394(a)(3) detailing the calculation

methodology for uncontrolled emissions for various applicable facility types.

The commission adopts the deletion of §I 01.394(c) because it is no longer applicable. The

existing §I 01.394(d) will be relettered as subsection (c). Adopted §101.394(d) will ensure that

sites with a calculated allocation ofless than five tons based on the revised allocation

methodologies will be eligible to receive a minimum allocation offive tons. Sites to be

allocated greater than or equal to five tons but less than ten tons of allowances would be eligible

to receive a minimum allocation often tons ofallowances per calendar-year control period.

14
§lOl.396, Allowance Deductions

In response to comment, the commission adopts the deletion ofproposed subsections (c) and (d)

in order to remove the emissions event set-aside and the application for the use ofthe emissions

event set-aside allowances. The commission also adopts non-substantive changes for clarity and

consistency. The commission also adopts relettering subsequent subsections in §101.396.

§lOl.399, Allowance Banking and Trading

In response to comment, the commission adds clarifying language to subsection (a). The

commission adopts amended §101.399(i)(5) to delete the reference to §101.394(c) because it is

no longer applicable. In addition, the commission adopts §101.399(e) to prohibit the transfer of

allowances allocated to sites under §101.394(a)(I)(C) that have yet to establish a baseline

emissions period. Therefore, sites allowed to maintain an acquired allowance stream derived

from the original allocation methodology under §101.394(a)(l)(A) may not benefit from the

transfer ofthese allowances. The commission also adopts relettering the remaining subsections

in §101.399.

§lOl.400, Reporting

The commission adopts §101.400(a)(4) to require sites to report the total amount and respective

dates ofHRVOC emissions from emissions events.

§lOl.401, Level ofActivity Certification

The commission adopts §101.401(f) and (g). Adopted §101.401(f) will require the Fonn ECT6H, Highly-Reactive Volatile Organic Compound Emissions Cap and Trade Baseline Emissions

Certification Fonn, to be submitted no later than July 1,2010. Adopted §101.401(g) will require

sites to select two consecutive caleridar-year control periods to establish a baseline emissions

period.

15
FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed this adopted rulemaking in light ofthe regulatory impact analysis

requirements ofTexas Government Code, §2001.0225, and determined that the adopted

rulemaking action meets the definition of a "major environmental rule" as defmed in that

statute. A "major environmental rule" is a rule, the specific intent ofwhich is to protect the

environment or reduce risks to human health from environmental exposure and that may

adversely affect in a material way the economy, productivity, competition, jobs, the

environment, or the public health and safety ofthe state or a sector ofthe state.

The adopted amendments to Chapter 101 and revisions to the SIP would reduce the total cap

amount ofHRVOC allowances for the BECT program by 25% and revise the allocation

methodology for allowances for participants ofthe BECT program. The BECT program was

adopted as a control measure for the HGB one-hour attainment demonstration SIP revision, and

it is currently only applicable in Harris County. Photochemical modeling analysis demonstrates

that a 25% reduction ofthe cap on the total Harris County HRVOC allocation would contribute

to attainment ofthe 1997 eight-hour ozone NAAQS by reducing future ozone design values at

all HGB monitors.

Following the initial allocation ofallowances, stakeholder comments indicated that the

allocation was not equitably distributed. Information from the first three years ofmonitoring

data supports the assertion ofan inequitable distribution of allowances. The adopted revisions

are necessary to implement a more equitable allocation methodology, while contributing to

HGB's attainment ofthe 1997 eight-hour ozone NAAQS as expeditiously as practicable. The

adopted change in allocation methodology will result in allowance reductions for certain

facilities, and it is possible facilities that have made significant investments on future HRVOC

16
stream trades may see the value ofthese investments reduced or nullified. Facilities that have

their HRVOC allowances reduced, either through the reallocation or reduction ofthe total

HRVOC cap, may incur costs from the installation of additional controls or having to purchase

allowances from other sources ifnecessary to comply with their lower allowances. Ifthe cap is

reduced, the price ofHRVOC allowances available in the market may increase.

This rulemaking does not meet any ofthe four applicability criteria of a "major environmental

rule" as defmed in the Texas Government Code. Texas Government Code, §2001.0225 applies

only to a major environmental rule, the result ofwhich is to: 1) exceed a standard set by federal

law, unless the rule is specifically required by state law; 2) exceed an express requirement of

state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a

delegation agreement or contract between the state and an agency or representative ofthe

federal government to implement a state and federal program; or 4) adopt a rule solely under the

general powers ofthe agency instead of under a specific state law. Specifically, the proposed

amendments will result in a decrease in the HECT program cap, and will adjust the allocation

methodology for allowances under the program. The HECT program was adopted as a control

measure for the HGB one-hour attainment demonstration SIP, and the proposed changes to the

program will contribute to HGB's attainment ofthe 1997 eight-hour ozone NAAQS as

expeditiously as practicable. The rulemaking does not exceed an express requirement offederal

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

general powers ofthe agency, but was specifically developed under federal law and authorized

under the Texas Health and Safety Code (THSC).

The rulemaking implements requirements of 42 United States Code (USC), §7410, which

requires states to adopt a SIP that provides for "implementation, maintenance, and enforcement"

ofthe NAAQS in each air quality control region ofthe state. While 42 USC, §7410 does not

17
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 ofthis 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, in the SIP structure of 42 USC, §741O. The provisions

ofthe FCAA recognize that states are in the best position to determine what programs and

controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states,

affected industry, and the public to collaborate on the best 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 of42 USC,

§7410, and must develop programs to assure that the nonattainment areas ofthe state would be

brought into attainment on schedule. The adopted amendments will help the HBG area attain

the 1997 eight-hour ozone NAAQS as expeditiously as practicable.

The requirement to provide a fiscal analysis of adopted regulations in the Texas Government

Code was amended by Senate Bill (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 would have a

material adverse impact and would exceed a requirement ofstate law, federal law, or a

delegated federal program, or are adopted solely under the general powers ofthe agency. With

the understanding that this requirement would seldom apply, the commission provided a cost

18
estimate for SB 633 that concluded "based on an assessment ofrules adopted by the agency in

the past, it is not anticipated that the bill would have significant fiscal implications for the

agency due to its limited application." The commission also noted that the number ofrules that

would require assessment under the provisions ofthe 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

previously in this preamble, 42 USC, §7410 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 would meet the attainment deadlines. Because ofthe

ongoing need to address nonattainment issues, the commission routinely proposes and adopts

SIP rules. The legislature is presumed to understand this federal scheme. Ifeach rule proposed

for inclusion in the SIP was considered to be a major environmental rule that exceeds federal

law, then every SIP rule would require the full regulatory impact analysis contemplated by SB

633. This conclusion is inconsistent with the conclusions reached by the commission in its cost

estimate and by the Legislative Budget Board in its fiscal notes. Because the legislature is

presumed to understand the fiscal impacts ofthe bills it passes, and that presumption is based on

information provided by state agencies and the Legislative Budget Board, the commission

contends that the intent of SB 633 was only to require the full regulatory impact analysis for

rules that are extraordinary in nature. While the SIP rules would have a broad impact, that

impact is no greater than is necessary or appropriate to meet the requirements of42 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(aX2) 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 eight-hour ozone nonattainment area. As discussed

19
previously in this preamble, the adopted amendments will help the HBG area attain the 1997

eight-hour ozone NAAQS as expeditiously as practicable.

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 un-amended. The commission presumes that "when an agency

interpretation is in effect at the time the legislature amends the laws without making substantial

change in the statute, the legislature is deemed to have accepted the agency's interpretation."

Central Power & Light Co. v. Sharp, 919 S.W.2d 485, 489 (Tex. App. Austin 1995), writ

denied with per curiam opinion respecting anotherissue, 960 S.W.2d 617 (Tex. 1997); Bullock

v. Marathon Oil Co., 798 S.W.2d 353, 357 (Tex. App. Austin 1990), no writ; Cf Humble Oil &

Refining Co. v. Calvert, 414 S.W.2d 172 (Tex. 1967); Sharp v. House ofLloyd, Inc., 815

S.W.2d 245 (Tex. 1991); Southwestern Life Ins. Co. v. Montemayor, 24 S.W.3d 581 (Tex. App.

Austin 2000), pet. denied; and Coastal Indust. Water Autk 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 ofthis action.

Therefore, the rulemaking does not exceed a standard set by federal law, exceed an express

requirement ofstate law, exceed a requirement ofa delegation agreement, nor is it adopted

solely under the general powers ofthe agency. Finally, this rulemaking action was not

developed solely under the general powers ofthe agency, but is authorized by specific sections

ofTHSC, Chapter 382, Texas Clean Air Act (TCAA), and the Texas Water Code that are cited

in the STATUTORY AUTHORITY section ofthis rulemaking, including THSC, §§382.002,

382.011,382.012,382.016, and 382.017. Therefore, this rulemaking action is not subject to the

regulatory analysis provisions ofTexas Government Code, §2001.0225(b), because the

20
rulemaking does not meet any ofthe four applicability requirements.

The commission invited public comment regarding the draft regulatory impact analysis

determination during the public comment period. No comments were received on the draft

regulatory impact analysis determination.

TAKINGS IMPACT ASSESSMENT

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

Government Code, §2007.043. The adopted amendments would reduce the total cap amount of

HRVOC allowances for the HECT program by 25% and revise the allocation methodology for

allowances for participants ofthe HECT program. Photochemical modeling analysis

demonstrates that a 25% reduction ofthe cap on the total Harris County HRVOC allocation

would contribute to attainment ofthe 1997 eight-hour ozone NAAQS by reducing future ozone

design values at all HGB monitors. The adopted changes to the HECT program will result in

allowance reductions for certain facilities and it is possible facilities that have made significant

investments on future HRVOC stream trades may see the value ofthese investments reduced or

nullified. Facilities that have their HRVOC allowances reduced, either through the reallocation

or reducing the total HRVOC cap, may incur costs from the installation of additional controls or

having to purchase allowances from other sources if necessary to comply with their lower

allowances. Ifthe cap is reduced, the price ofHRVOC allowances available in the market may

increase. However, the allowances that will be affected by these rules are not property rights

(§101.393(e», and therefore reductions or changes in the allowances do not constitute a taking.

Consequently, this rulemaking action does not meet the defmition of a takings under Texas

Government Code, §2007.002(5).

Additionally, Texas Government Code, §2007.003(b)(4) provides that Chapter 2007 does not

21
apply to this rulemaking action because it is reasonably taken to fulfill an obligation mandated

by federal law. The adopted changes to the HECT program within the HGB area that would be

implemented by these adopted rules were developed to advance attainment ofthe 1997 eighthour ozone NAAQS in the HGB ozone nonattainment area. States are primarily responsible for

ensuring attainment and maintenance ofNAAQS 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 ofNAAQS through control programs directed to

sources ofthe pollutants involved. Therefore, one purpose ofthis adopted 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 reviewed the adopted rulemaking and found that the adoption is subject to the

Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act,

Texas Natural Resources Code, §§33.201 et seq., and therefore, must be consistent with all

applicable CMP goals and policies. The commission conducted a consistency determination for

the adopted rules in accordance with Coastal Coordination Act Implementation Rules, 31 TAC

§505.22 and found the adopted rulemaking is consistent with the applicable CMP goals and

policies. CMP goals applicable to the adopted amendments are the goals to protect, preserve,

restore, and enhance the diversity, quality, quantity, functions, and values of coastal natural

resource areas (31 TAC §501.12(1». This rulemaking will advance these goals through updating

a definition, reallocating allowances, and lowering the HRVOC cap. No new sources ofair

contaminants will be authorized and the revisions will maintain the same level of emissions

control as previous rules. CMP policies applicable to the proposed amendments are 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 §501.32). Promulgation and

22
enforcement ofthese rules will not violate or exceed any standards identified in the applicable

CMP goals and policies because the proposed rules are consistent with these CMP goals and

policies because these rules do not create or have a direct or significant adverse effect on any

coastal natural resource areas. The commission invited public comment regarding the

consistency with the coastal management program during the public comment period. No

comments were received regarding consistency with the CMP.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM

Chapter 101, Subchapter H is an applicable requirement under 30 TAC Chapter 122, Federal

Operating Permits Program. Owners or operators subject to the Federal Operating Permits

Program must, consistent with the revision process in Chapter 122, upon the effective date of

the rulemaking, revise their operating permit to include the new Chapter 10I, Subchapter H

requirements.

PUBLIC COMMENT

Public hearings for the proposed SIP revision and associated rulemakings were held on October

28, 2009, at 2:00 p.m. and 6:00 p.m., at the Houston-Galveston Area Council (H-GAC) offices

in Houston, Texas; and on October 29,2009, at 3:00 p.m., at the Texas Commission on

Environmental Quality (TCEQ) headquarters in Austin, Texas. Question and answer sessions

were held 30 minutes prior to the hearings. Neither the October 28, 2009, hearing scheduled for

6:00 p.m., nor the October 29, 2009, hearing was officially opened because no party indicated a

desire to provide comment. Five persons presented oral comments concerning this SIP revision

at the public hearing held at 2:00 p.m. on October 28,2009, in Houston. The public comment

period opened on October 9,2009, and closed on November 9,2009. Written comments were

accepted via mai~ fax, and through the eComments system. There were 26 written comments

received. Oral comments were provided by Kaneka Texas Corporation (Kaneka), Bigler, L.P.

23
(Bigler), Environmental Defense Fund (EDF), and Galveston-Houston Association for Smog

Prevention (GRASP). Written comments regarding the HECT rulemaking and Reasonably

Available Control Measure (RACM) were provided by the EPA, EDF, GRASP, and Kaneka.

Written comments regarding the HECT rulemaking and SIP revision were provided by BCCA

Appeal Group (BCCA), 8-Hour Ozone SIP Coalition (Coaltion), Texas Oil and Gas Association

(TxOGA), and Texas Association ofBusiness (TAB).

Written comments regarding the HECT rulemaking were provided by Texas Chemical Council

(TCC), LyondellBasell (Lyondell), Texas Petrochemicals (TPC), Coalition of Manufacturers for

Air Quality (COMAQ), DuPont Packaging and Industrial Polymers (DuPont), Albemarle

Corporation (Albemarle), Sunoco Chemicals Inc. (Sunoco), INEOS Olefin & Polymers USA

(INEOS), PetroLogisticslPL Propylene L.L.C. (PL Propylene), Coalition, BCCA, TxOGA,

TAB, Total Petrochemicals (Total), Kaneka, Bigler, AmericanAcryl, Arkema Inc. (Arkema),

EPA, and the Houston Regional Group and the Lone Star Chapter ofthe Sierra Club (HSC).

Kids for Clean Air, the Sustainable Energy and Economic Development (SEED) Coalition,

Clean Air Institute ofTexas, and one individual expressed support for any comments submitted

by EDF and HSC.

RESPONSE TO COMMENTS

HECTRULE, HGB 1997 EIGm-HOUR OZONEAITAINMENTDEMONSTRATIONSIP

REVISION, AND RACMCOMMENTS

BCCA and the Coalition commented th~t the reallocation of HRVOC allowances in the HECT

program rulemaking included in the proposed attainment demonstration SIP revision is not

required for purposes of providing ozone precursor reductions for the 1997 eight-hour ozone

attainment demonstration HGB SIP revision package. TxOGA and TAB commented that the

proposed attainment demonstration SIP revision does not rely on the reallocation rulemaking.

24
PL Propylene commented that the reallocation ofHECT allowances is fair and necessary to

protect the integrity ofthe SIP.

The commission agrees with BCCA, the Coalition, TxOGA, and TAB that the reallocation

ofHECT allowances is not required to model attainment ofthe 1997 eight-hour

attainment demonstration HGB SIP revision. The reallocation ofHRVOC allowances does

not in itselfinclude a mandatory reduction in the BRVOC cap in Harris County.

However, following the initial allocation of allowances, TCEQ received comments that the

allocation was not equitably distributed. Information from the first two years of

monitoring data supports the assertion of an inequitable distribution of allowances. A

more equitable allocation of allowances will stimulate the market, creating incentives for

further reductions by industry regulated under the program. The commission therefore

agrees with PL Propylene that revisions to the rule are anticipated to result in a more

equitable approach. Because the change in allowance allocation methodology will create

incentives for further reductions, it will contribute to the area's attainment ofthe NAAQS

as expeditiously as practicable. No changes were made in response to this comment.

EPA commented that the proposed reduction and reallocation ofthe Harris County HRVOC cap

does not require HRVOC levels to be reduced below currently reported levels. EPA stated that

the current 25% reduction in the HECT cap would still be higher than reported emissions and

would allow for growth and allowances for upset conditions. EPA added that the 25% cap

reduction would allow HRVOC emission increases at HECT applicable facilities compared to

the highest annual actual HECT emissions. EPA suggested that the commission consider as part

ofthe RACM analysis whether reductions in actual HRVOC emissions could accelerate

attainment.

25
EDF and GRASP stated that they see no reason to delay additional cap reductions beyond the

proposed 25% at this time. The commenters stated that to ensure that the area is meeting the

FCAA requirement to implement all RACM as expeditiously as practicable, the commission

must lower the cap to a meaningful level that will produce actual emissions reductions in the

near term, or provide a logical, reasoned explanation as to why doing so it not feasible. EDF and

GRASP stated that since this HECT cap reduction is based on the fact that emissions from

capped sources during the first two years ofthe program only averaged approximately 56% of

the total allocated allowances, the commission should not claim that a 25% reduction in the cap

would result in any actual emissions reductions. They added that since the reduction is only in

allowable emissions there will not be any improvement in actual air quality. EDF and GRASP

commented that a HECT cap reduction closer to 50% is necessary in order to achieve any actual

reductions and air quality improvement.

The commission agrees that the BECT reallocation does not require mandatory

reductions ofHRVOC emissions from program participants. The purpose ofthe

reaJJocation is to achieve a more equitable distribution of allowances based on actual

monitoring data. A more equitable allocation of allowances will stimulate the market,

creating incentives for further reductions by industry regulated under the program.

The commission acknowledges that HRVOC monitoring data reported for 2006 - 2008

indicates that the total actual emissions from sources in the BECT program have been

approximately 50% ofthe total current HRVOC cap. The HRVOC cap and trade rules

require emissions from scheduled maintenance, startup, and shutdown activities and

emissions events be included in determining compliance with the BECT program.

Therefore, a buffer in the cap is needed to account for the variability ofHRVOC emissions

associated with these activities.

26
Photochemical modeling analysis demonstrates an average ozone decrease of 0.13 ppb for

the three monitoring sites with 2018 projected eight-hour ozone design values greater than

the 1997 eight-hour ozone NAAQS, Deer Park, Dayland Park, and Wallisville. The Deer

Park monitor's design value was the highest in the BECT sensitivity modeling, which

showed a decrease in the Deer Park monitor design value from 86.49 ppb to 86.36 ppb

ozone. The 25% reduction in the Harris County BRVOC cap allows for a sufficient buffer

to protect against the inherent variability in BRVOC emissions while modeling an average

2018 future cap design value within EPA's range for weight of evidence discussion.

During this period, BECT regulated sources have experienced the same economic

downturn that other industrial sectors across the country have experienced resulting in

lower than normal emissions. The commission contends that in a better economic

environment BECT sources operating at normal production levels would have average

emissions at levels closer to the current BRVOC cap. No changes were made in response

to this comment.

EPA requested that the commission explain why the reductions cannot be implemented sooner

than the proposed 2015 - 2017 time frame. EDF and GHASP expressed support for reducing the

HECT cap for Harris County in stepwise fashion by 10% in 2014, followed by annual 5%

reductions through 2017.

The adopted rule revisions will reallocate the program in 2011 and implement an initial

10% reduction ofthe existing available BECT cap of3,451.5 tons beginning with the 2014

calendar-year control period. The available cap will then be reduced in 5% increments at

the start ofeach calendar-year control period for 2015, 2016, and 2017. The full 25% cap

27
reduction will have been in effect for one full calendar-year control period by January 1,

2018. While historical data demonstrate an overall surplus in the BRVOC cap, many

sources were operating near their individual cap limits and thus, may see a significant

change in their BRVOC emissions. The cap reduction and reallocation may require some

individual sites to install additional controls or otherwise modify their operations to

reduce their BRVOC emissions. The step-down approach allows companies time to install

controls if necessary. No changes were made in response to this comment.

Kaneka cited a portion ofthe RACM analysis in Appendix E ofthe 1997 eight-hour ozone

attainment demonstration HGB SIP revision proposed on September 23,2009, describing the

practicality issues identified with revising NOx allowances under the MECT program because

allowance streams have been traded and relied upon for compliance with the program. Kaneka

concluded that ifit is impractical to nullify MECT trades, then it is also impractical to nullify

HECT trades that have also been relied upon for compliance with the program.

The commission maintains that reducing the Harris County BECT program cap is

RACM. The commission acknowledges that practicality is one ofthe EPA's evaluation

criterion considered during the state's RACM analysis. In the portion ofthe RACM

analysis referenced by the commenter, the commission also acknowledges practicality

issues associated with revising MECT program NOx allocations. However, as discussed at

length in Appendix E, 1997 eight-hour ozone attainment demonstration HGB SIP revision,

Section 4.2.1: Mass Emission Cap and Trade (MECT) Program and 30 TAC Chapter 117

NOx Rules RACM ofthis 1997 eight-hour ozone attainment demonstration HGB SIP

revision, the commission concluded that further NOx reductions through the MECT

program did not constitute RACM on the basis of economic and technological feasibility,

rather than practicality. Therefore, the commission respectfully disagrees with the

28
commenter's conclusion that revising the BECT program should not be considered

RACM because it is impractical.

The commission agrees that the nullification issue should be addressed, and the rules have

been revised to allow sites that purchased allowance streams the potential to apply

allowances from the stream to the calculation of "Uncontrolled emissions" as actual

emissions. Revised §101.394(a)(1) allows sites holding stream trades to calculate their

"Uncontrolled emissions" as the greater oftheir actual average emissions oftheir two

highest emission years from 2006 - 2009 or the sum oftheir original existing BECT

HRVOC allowance and the amount ofthe allowance stream in tons. In the event that a

site's actual two highest year emissions is less than the sum ofits original existing BECT

HRVOC allowance and the amount ofthe allowance stream in tons, the difference shall be

added to the "Uncontrolled emissions" as actual emissions. The purchase of an allowance

stream also allowed some sites to operate with higher emissions during the baseline

emissions period. Sites that took advantage of allowance streams would therefore realize

the benefit ofthe higher emissions through the uncontrolled emissions-based reallocation

methodology.

HECT RULE COMMENTS

25% Cap Reduction

TCC, Lyondell, TPC, the Coalition, BCCA, TxOGA, and TAB expressed support for the 25%

reduction in the Harris County HRVOC Cap. TCC and TPC stated their agreement with the

"stepdown" approach, beginning with a 10% reduction in the cap in 2014, with 5% annual

reductions to reach a total 25% cap reduction in 2017. COMAQ stated their strong support for

the "stepdown" approach outlined in the defmition of "AC" located in the figure in

§101.394(aXI)(B) and believes that it is critical to the rulemaking.

29
The commission appreciates the comments.

Reallocation Methodology

Lyondell and TPC expressed their opposition to the HECT program uncontrolled emissionsbased reallocation methodology and their support for the alternative flat percent allocation

methodology discussed in the rule proposal preamble. TPC stated that the proposed

uncontrolled emissions-based realIocation methodology does not reward well-controlled

facilities and may actually have the opposite effect ofproviding insufficient alIowances for

well-controlled facilities, such as TPC. LyondeIl stated that some well-controlled facilities

receive some ofthe lowest estimated allocations while some ofthe least controlled facilities

appear to receive the largest allocations and well-controlled facilities that are under-allocated

have no option than to purchase allowances, thereby potentialIy affecting the viability ofthe

company. TPC commented that its Houston Plant is better controlled than most or all other

HECT participating facilities as a result of a Voluntary Emissions Reduction Agreement

(VERA) entered into with the commission in 2005. This agreement resulted in HRVOC

emissions reductions of more than 120 tpy when comparing 2002 to 2008 HECT emissions.

TPC achieved these emissions reductions through the implementation offlare gas recovery,

advanced technology for fence-line monitoring, and other operational changes. TPC stated that

despite these reductions, the initial estimated potential HECT allocation posted by the agency

awarded TPC with an insufficient allocation to cover its high 2007/2008 HRVOC emissions.

TPC further commented that although the flat allocation method does not penalize poorly

controlled facilities, the proposed uncontrolled emissions-based reallocation methodology does

not reward well-controlled facilities. TPC stated that the proposed methodology falls short

because it does not reward flare gas recovery, one ofthe most effective HRVOC emissions

controls and does not consider actual control efficiencies where this information is available.

30
TPC recommended that the commission correct the proposed allocation methodology by

accounting for flare gas recovery, addressing control mechanisms on vent gas streams, and

using actual measured control efficiencies where available. Lyondell stated that it strongly

supportsthe flat percent reallocation methodology as it is the most equitable for all participants,

is based on actual data, and is a much simpler and transparent methodology. Lyondell

commented that the estimated allocations using the proposed methodology demonstrate that

significantly more sites will be under-allocated as compared to their historic highest emissions

from 2007 and 2008 than the current allocation, and up to 11 sites may have allocations ofmore

than 200% oftheir highest emissions. Lyondell also stated that approximately 20% ofHECT

sites are owned and operated by Lyondell; 30% ofthe highest emissions from 2007 and 2008

are from Lyondell sites, but under the initial' estimated allocation derived from the proposed

methodology less than 25% ofthe allocations go to Lyondell sites. In addition, Lyondell stated

that sites that are under-allocated will be further disadvantaged when the HECT cap is further

reduced during the stepdown, while over-allocated sites will benefit from an arbitrary business

advantage. Albemarle, COMAQ, DuPont, INEOS, PL Propylene, and Sunoco expressed their

support for the proposed uncontrolled emissions-based reallocation methodology and their

opposition to the flat percent reallocation. Total stated that although they believe the original

allocation was fair and equitable, it supports the concept of an uncontrolled emissions-based

reallocation methodology. COMAQ stated that it has maintained a consistent position that the

existing HRVOC allowance allocation methodology is inequitable and is pleased that the

commission has proposed an allocation methodology that will result in the equitable allocation

of allowances. COMAQ and Albemarle commented that for a fair and equitable HECT

program, it is critical that the reallocation methodology recognize demonstrated controls

through the rewarding of high levels of control and not rewarding low levels of control and that

the program must be reallocated in the most immediate fashion possible.

31
The proposed alternative flat percent allocation methodology discussed in the proposal

preamble, by allocating allowances as a direct percentage of each site's highest actual

emissions, ignores reductions from controls, such as flares, heaters, boilers, furnaces, and

thermal and catalytic oxidizers, and rewards poorly controlled facilities with high actual

emissions while penalizing well-controlled facilities. This results in an inherently

inequitable allocation. The adopted uncontrolled emissions based reallocation provides

credit for controls through the use of control efficiencies in the calculation of uncontrolled

emissions. In order to account for reductions from flare and vent gas recovery and flare

minimization programs, the adopted reallocation methodology will allow qualifying sites

that achieved early reductions through the implementation ofthese controls to utilize

either an alternative baseline emissions period reflecting these emissions or apply the

quantified reductions toward the calculation ofthe site's uncontrolled emissions. In

addition, the elimination ofthe opt-in provision in combination with the adoption of a twotier minimum allocation offive and ten tons addresses overallocation to sites with actual

emissions substantially below ten tons. The uncontrolled emissions based allocation

methodology, with the addition ofthese special provisions, will therefore result in an

equitable, accurate, representative, and comprehensive allocation ofthe Harris County

HRVOCcap.

Coalition and BCCA do not support reallocation as it would penalize facilities that made early

and substantial HRVOC emissions reductions and the reallocation is not required for the 1997

eight-hour attainment demonstration HGB SIP revision.

The commission respectfully disagrees with the comment. As discussed previously in this

response to comments, the commission has adopted an alternative baseline provision and

flare and vent gas minimization credits to account for early substantial emissions

32
reductions.

TxOGA and TAB stated their opposition to reallocation at this time. TxOGA stated that it

believes additional data is necessary before reallocation because all sites did not have reliable

monitoring and 2007 and 2008 control periods reflect active hurricane seasons and a slower

economy. TxOGA stated that well-controlled facilities need to be defined before an equitable

allocation can be implemented.

The commission respectfully disagrees with the comment. HRVOC stream monitoring

under Chapter 115 was required by December 31, 2005. As discussed elsewhere in this

preamble, the reallocation methodology is based on a comparison of each individual site's

HRVOC emissions relative to the total BRVOC emissions from all sites within the same

industry sector. Therefore, the commission contends that the allocation of allowances for

any individual site would not be significantly affected by general changes in economic

conditions. An individual site's allocations would only be changed iftheir uncontrolled

emissions significantly increased as a proportion ofthe total industry sector emissions. No

changes were made in response to this comment.

Tee expressed its support for the definition of "Baseline emissions period" under §101.390(4).

The commission appreciates the comment.

COMAQ requested that the commission revise §101.394(a) and (a)(l)(A) relating to the

allocation methodology such that the January 1,2007, allowance deposit date be clarified to

only refer to the calendar-year control periods 2007 - 2010.

33
The commission agrees with the comment. As the allowance deposit date for the existing

program has passed and will not be revised, the reference to January 1,2007, has been

deleted.

Lyondell commented that sites included in the chemical sector include a mix of processes that

are difficult to compare with one another and therefore, the commission should reallocate the

program without using industry sectors. TPC commented that the chemical sector includes

widely varying operations with varying HRVOC uses and throughput. COMAQ supports

including a definition of "Industry sector" in the HECT definitions. COMAQ and Albemarle

commented that the use ofindustry sectors is important in the reallocation methodology because

sites in the same industry sector use similar HRVOC recovery and recycle activities that

significantly affect HRVOC emissions, and prevent sites with significantly different industrial

processes from competing for the same allowance pools.

While the commission acknowledges that there will be some varying of operations within

industry sectors, it contends that the use ofindustry sectors is important to establishing an

equitable aUocation. The existing application ofBACT and other federal standards within

industry sectors would assure a comparable cost of control within the industry sector, and

the division ofthe cap into industry sector share would therefore reflect a more equitable

allocation methodology. In addition, the amount ofHRVOC product that is recycled and

recovered for sites within the same industry sector should be comparable due to market

forces and competition within the sector. Sites within industry sectors that produce

HRVOC as product share the economic incentive to reduce emissions using similar

recovery techniques. The rules have been revised to include definitions ofthe industry

sectors under §101.390.

34
COMAQ supported revising the definition of "Uncontrolled emissions" to clarify the term

"average percent control efficiency" for flares.

Tbe commission appreciates tbe comment. Revisions to tbe definition of "Uncontrolled

emissions" bave been made in response to comment and are discussed elsewbere in tbis

preamble.

Lyondell and TPC expressed their concern regarding the proposed use offlare control

efficiencies of99% for ethylene and propylene while allowing only 98% for all other HRVOCs

for the detennination of "Uncontrolled emissions." Lyondell and TPC asserted that this would

result in an inadequate allocation for sites with high butadiene and butane emissions as

compared to sites emitting primarily ethylene and propylene.

Tbe commission respectfully disagrees witb tbe comment. Tbe control efficiencies

specified in tbe rules for tbe determination of "Uncontrolled emissions" from flares are

consistent witb tbe Cbapter 115 specifications for tbe reporting ofHRVOC emissions from

flares for sites subject to tbe BECT program. Allowing sites to use control efficiencies

different from tbose specified for calculating actual emissions in Cbapter 115 would result

in an allocation metbodology tbat is fundamentally inconsistent witb HECT emissions

reporting. BECT allocations under tbe rule are to be used to cover actual emissions

reported in accordance witb Cbapter 115 requirements, and tberefore must be calculated

using consistent metbodologies. No cbanges were made in response to tbis comment.

Albemarle, TCC, and TPC commented that only HRVOC emissions from normal, routine, and

pennitted operations be attributable to the calculation of "Uncontrolled emissions," and all

emissions from emissions events subject to the requirements of §lOl.201 are disallowed from

35
being used for the determination ofHECT allowances.

The commission agrees and §101.394(a)(3) has been revised in response to this comment.

Only emissions from routine permitted operations shall be applied to the calculation of

"Uncontrolled emissions" and all emission subject to §lO1.201 will not be applied for the

determination of allocations.

Alternative Baseline Provisions and Early/Additional Reduction Credit

Lyondell and TCC strongly recommended that the commission expand the defmition of

"Uncontrolled emissions" to include the pre-control emissions that are routed to emission

control devices, such as thermal oxidizers and other generally recognized HRVOC emissions

control devices. TPC and TCC also recommended that the rule allow the use of actual control

efficiencies up to 99.9% when demonstrated and recorded during monitored stack performance

testing. Total recommended the determination ofuncontrolled emissions should allow for the

actual control efficiencies derived from performance or stack testing or from the device

manufacturer's specifications. Total stated that allowing for control efficiencies greater than

99% when actual testing data is available would provide consistency between what sites report

to the HECT program and the allocation methodology and will not penalize sites that have

invested in over-control ofHRVOC emissions. Albemarle expressed their support for the

provision in §101.390(9) applying control efficiencies for heaters, boilers, and furnaces as

HRVOC control devices in the defmition ofuncontrolled emissions and recommends allowing

control efficiencies for thermal oxidizers as well.

The commission agrees with the commenters and has revised §lOl.394(a)(3) to allow

credit for control efficiencies for combustion devices used in HRVOC control, such as

thermal, catalytic, and regenerative oxidizers. The rulemaking has also been revised to

36
allow for control efficiencies up to 99.9% for applicable units. The commission will allow

for the use of control efficiencies greater than 99% and up to 99.9% only for applicable

units for which stack performance testing data has been submitted by the owner or

operator as part ofthe Form ECT-6H, Level ofActivity. Allocating allowances based on

uncontrolled emissions using control efficiencies greater than 99.9% is impractical as it

leads to large variations in allocations on an order of magnitude larger than the highest

allocations. The commission will therefore assign a 99.9% control efficiency to any

combustion unit that demonstrates an actual measured control efficiency greater than

99.9%.

TPC recommended that the commission correct the proposed allocation methodology by

accounting for flare gas recovery, addressing control mechanisms on vent gas streams. TPC

strongly recommended allowance allocation credit for flare gas recovery and similar control

strategies. Total stated that allowance credit should be included for Vapor Recovery Units

(VRU) that recovers HRVOC emissions previously sent to a process flare. Total stated that

quantified HRVOC emission reductions achieved through the implementation of a VRU should

be added to a site's "Uncontrolled emissions" in the equation under §I01.394(a)(1)(B) for the

calculation ofthe site's allowance allocation.

The commission actively solicited comment on accurate and effective methods for

calculating allowance credit for flare gas recovery, vent gas recovery, flare minimization,

and other recovery and recycle mechanisms. The commission agrees with the commenters

and has added §101.394(a)(3) to allow sites that do not request the use of an alternative

emissions baseline period to apply the actual quantified amount ofHRVOC emissions

reduced through the implementation offlare or vent gas recovery to the site's

uncontrolled emissions for the calculation oftheir allowance allocation.

37
TCC and TPC expressed their support for the alternate baseline emissions period but

recommended the deadline for the alternate baseline request be extended to 150 days after the

rule effective date in order to allow regulated entities ample time to prepare and submit the

request for review.

The commission agrees with the comment and has revised the alternative baseline request

submittal deadline to July 1,2010.

Lyondell expressed its support for the alternative baseline provision, but requested that the

potential alternative baseline period be expanded to include 2002 - 2005 and the qualifying

reductions in HRVOC be revised from 50% or 50 tons to 25% or 25 tons. Total expressed

support for the alternative baseline provision, but stated that the qualifications for use are too

restrictive. Total requested that the commission allow for engineering calculations in lieu of

continuous flow monitoring, as speciated flow monitoring was not required prior to 2006. Total

also requested that the 50 tons or 50% reduction qualification provision be revised to 20 tons or

20% reductions. In addition, Total believes that reductions driven by permit conditions,

regulatory requirements, or consent decrees be included in the provision.

The commission has revised the qualifying reduction amount under §101.394(a)(I)(D)(ii)

to anow sites that implemented permanent, voluntary, and quantifiable BRVOC emissions

reductions in an amount equal to or greater than 25 tons ofsite-wide HRVOC emissions

resulting in at least a 25% reduction ofthe site's total annual HRVOC emissions for sites

. that used continuous speciated flow rate monitoring ofHRVOC. The commission has

implemented these revisions in response to comment, however it maintains that the 25-ton

reduction resulting in at least a 25% site-wide reduction in BRVOC qualification is

38
necessary to ensure that only sites implementing reductions that are significant to both the

site and the total Barris County HRVOC cap be considered for the provision. In addition,

the qualification of continuous speciated monitoring is critical to ensure that these

reductions are quantified using monitoring techniques consistent with those used under

the current BECT program. The consideration oflimiting the alternative baseline

emissions period to two consecutive calendar-year control periods immediately preceding

2006 - 2009 baseline emissions period is necessary to ensure that the reductions considered

occurred directly before the 2006 baseline period for the 1997 eight-hour attainment

demonstration HGB SIP revision.

Albemarle and COMAQ expressed their opposition to any revisions to the defmition of

"Baseline emissions period" and stated that it is critical that the restrictions on the qualifications

for exceptions to the use ofthe baseline period be sufficiently restrictive to impose at least the

use ofcontinuous monitoring, voluntary and pennanent reductions. In addition, Albemarle

stated that "site-by-site" evaluations should be avoided to the extent possible to avoid

inequitable allocations and the potential for unwarranted advantages to sites given special

consideration.

The commission agrees with the commenters. The revisions to the alternative baseline

emissions period qualifications, from a 50-ton total or 50% site-wide reduction to a 25-ton

reduction that results in at least a 25% site-wide reduction, is still consistent with the

commission's goal of considering only the reductions that are significant to the site's

overall emissions while having an impact in the total cap. In conjunction with this revision,

the commission has retained the continuous monitoring qualifications and will only

consider voluntary and permanent reductions in HRVOC emissions.

39
PL Propylene strongly supports the provision in §101.394(a)(1)(C) that allows the use ofan

alternate baseline for sites not in operation from 2006 - 2009. PL Propylene requested that

§101.394(a)(I)(C)(i) be revised to state "this allocation is less than the HRVOC permit

allowable limit in effect at the time the facility commences operation." In addition, PL

Propylene requested that the alternative baseline emissions period be revised from any two

consecutive calendar-year control periods from 2010 - 2012 to be any consecutive 24 months

from 2010 - 2012.

The commission agrees with the comments and the adopted rules have been revised in

accordance with the requests.

TCC, TPC, and Albemarle stated that they recommend emissions from emission events be

removed from the calculation for reallocation and each site's "Uncontrolled emissions" should

be based solely on actual emissions from routine operation. Albemarle stated that the inclusion

of emissions from emission events in the baseline emissions calculation unduly rewards

emission events.

The commission agrees with the comment and the definition of "Uncontrolled emissions"

has been modified accordingly.

Emission Event Set-Aside

TCC recommended that proposed §101.396(c) and (d) be deleted from the rule in order to

eliminate the proposed 250-ton emissions event set-aside. TCC stated that the elimination ofthe

set-aside would maximize program flexibility and the benefits of cap-and-trade. Albemarle,

COMAQ, Lyondell, TCC, Total, and TPC also requested eliminating the 250-ton set-aside for

emissions events. The commenters believe that emissions from emission events can best be

40
handled through each site's allocation or the purchase ofyearly allowances and the allocation of

the additional 250 tons would provide for more flexibility. Albemarle requested the commission

retain the emission event reporting requirement under §101.396(c) and (d) due to the value of

determining the impact ofemissions events on the HECT program. AmericanAcryl expressed

its support for the proposed 250-ton emissions event set aside or the elimination of emissions

events from applicability to the program.

In response to comment, the rule has been revised based on this comment to eliminate the

250-ton emissions event set-aside pool from §lOl.396(c). Emissions from emissions events

will be treated in the same manner as they are currently addressed in the BECT program.

All emissions during emissions events from BECT subject facilities up to the short-term

limits under §1l5.722(c) and §1l5.761(c) must be covered by an equivalent amount of

HRVOC allowances in each site's respective BECT account by March 1 after the end of

the control period.

EPA requested clarification that emissions events that exceed the 250-ton set aside will be

deducted from each site's account.

The commission has revised the rulemaking to omit the proposed emissions event setaside. All emissions from emissions events will be addressed in the same manner as they

are addressed currently under the BECT program.

EPA 5% Set-Aside

TCC, Lyondell, TPC, and COMAQ expressed their positions that the 5% set-aside to safeguard

against potential emission variations is no longer necessary. TCC understood that industry

originally agreed to this set-aside as a provision to address new actual HRVOC emissions under

41
the HECT program.

The reduction in the overall HRVOC cap by an initial 5% was implemented as a

compliance margin and not a provision for new HRVOC emissions. This compliance

margin was a negotiated agreement with EPA to address geographical emission variations,

or the potential (or emissions "spiking," and will remain necessary after allowance

reallocation. No changes were made in response to this comment.

Stream Trades and Reallocation

TCC expressed their concern with the nullification ofpurchased stream trades due to

reallocation ofthe program. TCC.stated that the nullification ofpurchased allowance streams

may adversely impact the integrity of emissions trading in Texas and may result in encouraging

emissions. TCC stated the commission must therefore honor past stream trades. Albemarle,

Bigler, Kaneka, Lyondell, and TPC stated their opposition to the automatic voidance ofexisting

HECT allowance stream trades due to reallocation. Albemarle proposed two alternatives to

stream trade voidance, a set-aside pool, or incorporating stream trades into a site's

"Uncontrolled emissions" calculation. ArnericanAcryl stated that any revised allocation

methodology should not reduce a site's allocation below the amount for which a site has traded

an allowance stream.

The rules have been revised in response to these comments to allow sites that purchased

allowance streams the potential to apply allowances (rom the stream to the calculation o(

"Uncontrolled emissions" as actual emissions. Revised §101.394(a)(3)(E) allows sites

holding stream trades to calculate their "Uncontrolled emissions" as the greater oftheir

actual average emissions oftheir two highest emission years from 2006 - 2009 or the sum

oftheir original existing BECT HRVOC allowance and the amount ofthe allowance

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stream in tons. In the event that a site's actual two highest year emissions is less than the

sum oftheir original existing BECT HRVOC allowance and the amount ofthe allowance

stream in tons, the difference shall be added to the "Uncontrolled emissions" as actual

emissions. In addition, qualifying sites not in operation or with HRVOC emissions that are

not representative of permitted normal routine operation, due to an authorized

modification that resulted in an HRVOC emission reduction during the baseline emissions

period, may request from the executive director the use of any allowance stream from

facilities previously participating in the BECT program in lieu of reaUocation until the

alternate baseline emissions are established. Although the revised rule contains provisions

allowing qualified sites to apply for credit for acquired allowance streams towards their

allocation in 2011, BECT allowances allocated or acquired do not constitute property

rights.

Minimum Allocation and Opt-In Provision

TCC recommended that §101.394 be modified such that only sites with a PTE greater than or

equal to ten tons and required to participate in the program receive a minimum allocation often

tons. TCC stated that the "opt-in" provision should be eliminated to allow for more allowances

to be available for sites that are required to participate in the program. TPC recommended sites

that opted-in to the program receive a five-ton allocation and these sites with a PTE less than

ten tons should be afforded the opportunity to opt-out. Lyondell commented that the opt-in

provision from the existing rule be eliminated and opposes the use ofthe ten ton PTE minimum

Lyondell requested that facilities that have reported less than five tons of actual emissions

should not be rewarded with additional allowances. Albemarle recommended increasing the

minimum allowance allocation to ten tons and allowing sites with a PTE less than ten tons be

allowed to "opt-out" ofthe program in a manner that allows any allowances that may have been

allocated to these sites to be available to the remaining sites required to participate.

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AmericanAcryl expressed their support for the ten-ton minimum allocation or to "freeze" all

allocations below ten tons at the current allocation amount.

The rules have been revised in response to the comments. Sites with a PTE, as defined in

§116.12, less than ten tons ofHRVOC are exempt from the BECT program and will not

be given an allowance allocation. The existing opt-in deadline ofApril 30, 2005, has

passed, no extension or additional opt-in provision has been adopted, and no sites took

advantage ofthe 2005 provision. Therefore, no sites in Harris County with a PTE less than

ten tons will participate in the BECT program and be assigned an HRVOC allocation.

Participating sites with a calculated allocation ofless than five tons based on the revised

allocation methodology wiD be allocated a minimum offive tons. Sites with a calculated

allocation of greater than or equal to five tons but less than ten tons will receive a

minimum allocation often tons. Sites provided the minimum allocation will not be subject

to the stepdown provisions ofthe rules and will retain the minimum allocation in 2017 and

beyond.

COMAQ, Lyondell, TCC, and TPC recommended that the submittal deadline ofthe Level of

Activity Certification, Form ECT-6H, be revised to Julyl, 2010, in order to allow regulated

entities sufficient time to compile and submit the necessary information.

The commission agrees with the comment and §101.401(t) has been revised accordingly.

General Rule Comments

TCC requested that the rule language in §101.392(b) be clarified to exclude the seven perimeter

counties from the requirements ofthis division except for §101.401(a) - (e), as the submittal of

the ECT-6H form is not required from sites in these counties.

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The commission agrees with the comment and §101.392(b) has been revised as requested

to clarify the applicability of §101.392(b) exclusively to Harris County.

Albemarle, COMAQ, DuPont, and Sunoco expressed their support for a provision preventing

HECT allowances being used in lieu ofFCCA, §185 fees.

The commission appreciates the comment; however, this comment is outside the scope of

this rulemaking.

COMAQ requested that §101.399(a) - (c) be revised such that that vintage allowances allocated

under §101.394(a)(1)(A) using the existing allocation methodology cannot be banked or traded

after the 2010 calendar-year control period.

The commission respectfully disagrees with the request. The commission does not intend

to restrict the banking and trading of allowances based on allocation methodology. The

use ofvintage 2010 allowances in the 2011 calendar-year control period will be necessary

to provide compliance flexibility during the first year under the revised allocation

methodology. All requests for allowance trades under Form ECT-2, Application for

Transfer ofAllowances, must be approved by the executive director. No change has been

made in response to this comment.

Albemarle, COMAQ, DuPont, and Sunoco strongly opposed any delay to the reallocation

beyond the beginning ofthe 2011 calendar-year control period. Dupont stated that any delay to

the reallocation would exacerbate the issues ofan already inequitable program and continue to

provide a significant economic advantage to companies that were over-allocated under the

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existing program.

The commission agrees with the comment and allowances will be reallocated for the

calendar-year control period 2011. No changes have been made in response to this

comment.

INEOS expressed its support for the inclusion ofthe 2006 calendar-year control period in the

baseline emissions period. INEOS pointed to the compliance requirements in Chapter 115

requiring the implementation ofHRVOC stream monitoring by December 31,2005, as

justification that 2006 emissions data should be as reliable as 2007 - 2009 data.

The commission appreciates the comment. No changes were made in response to this

comment. The baseline emissions period will continue to include the 2006 calendar-year

control period.

Lyondell commented that errors in the 2006 Special Inventory, differentiation in facilities

covered under each sector, and potential differences in reporting methodologies or assumptions

will impact the allocation of allowances under the proposed methodology. Lyondell provided

the example of various industry assumptions in the reporting ofHRVOC concentrations in fuel

streams and whether emissions should be reported when HRVOC concentrations are below the

detection limit in stack gas or when the concentration in the fuel stream is less than 0.5%.

The commission appreciates the comment. BECT participants will have an opportunity to

provide accurate emissions, control efficiencies, and other relevant data through the

submission ofthe Form ECT-6H, Level of Activity Certification. BRVOC stream

monitoring for all applicable BECT sources has been required since December 31,2005.

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Allocations for the 2011 calendar-year control period will be calculated using the most

accurate monitoring and testing data available for emissions and control efficiencies

during the baseline emission period.

HSC stated its preference for command and control regulation for HRVOC emissions in Harris

County, increasing the reductions in the cap to 30%,35%, or 40%, and speeding up the

implementation ofthe rulemaking.

Voidance ofthe BECT program and the implementation of command and control

emission specifications were not considered during proposal and are outside the scope of

this rulemaking. The commission maintains that the BECT program is the most cost

effective means of achieving HRVOC emissions reductions while providing compliance

flexibility and maximizing the efficiency of emission reductions through market forces.

Individual sources ofHRVOC emissions are subject to permit limits and any applicable

limit as established by rule. The BECT program provides for additional decreases in

HRVOC emissions limits above and beyond these basic requirements. This rulemaking is

part ofthe 1997 eight-hour attainment demonstration HGB 2010 SIP revision.

Reallo~ation ofthe program will take place in 2011, the first full calendar-year control

period following adoption ofthe rules, and the 25% cap reduction will be fully realized at

the beginning ofthe 2017 calendar-year control period, one full year before the 2018

attainment year. No changes were made in response to this comment.

STATUTORY AUTHORITY

The amendment is adopted under Texas Water Code (TWC), §5.102, concerning General

Powers, that provides the commission with the general powers to carry out its duties under the

Texas Water Code; TWC, §5.103, concerning Rules, that authorizes the commission to adopt

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rules necessary to carry out its powers and duties under the Texas Water Code; TWC, §S.lOS,

concerning General Policy, that authorizes the commission by rule to establish and approve all

general policy ofthe commission; and under Texas Health and Safety Code (THSC), §382.017,

concerning Rules, that authorizes the commission to adopt rules consistent with the policy and

purposes ofthe Texas Clean Air Act. The amendment is also adopted under THSC, §382.002,

concerning Policy and Purpose, that establishes the commission's purpose to safeguard the

state's air resources, consistent with the protection of public health, general welfare, and

physical property; §382.011, concerning General Powers and Duties, that authorizes the

commission to control the quality ofthe state's air; and §382.012, concerning State Air Control

Plan, that authorizes the commission to prepare and develop a general, comprehensive plan for

the proper control ofthe state's air. The amendment is also adopted under THSC, §382.016,

concerning Monitoring Requirements; Examination ofRecords, that authorizes the commission

to prescribe reasonable requirements for the measuring and monitoring ofair contaminant

emissions. The amendment is also adopted under Federal Clean Air Act (FCAA), 42 United

States Code (USC), §§7401, etseq., which requires states to submit state implementation plan

revisions that specify the manner in which the National Ambient Air Quality Standard will be

achieved and maintained within each air quality control region ofthe state.

The adopted amendment implements THSC, §§382.002, 382.011, 382.012, 382.016, and

382.017, FCAA, 42 USC, §§7401 et seq.

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