BOARD MEETiNG DATE: August 18, 2000 AGENDA NO. 21 REPORT: Status Report on Regulation XIII—New Source Review SYNOPSIS:
This report, submitted

to the Board pursuant
to subdivision
(b) of Rule 1310— Analysis and Reporting, provides information

onthe Status of Regulation XIII—New Source Review,
in meeting State and Federal NSR requirements. This report presents data for August 1998 to July 1999 for Stateand Federal law compliance. COMtv11TTEE: Stationary Source, July 28, 2000, Reviewed RECOMMENDED ACTION: Receiveand file.
Barry R. Wallerstein, D.Env. Executive Officer CC:MN:WCT:PB:vl INTRODUCTION Regulation XIII

-New Source Review (NSR) regulates and accountsfor emissions increases fromthe permitting
of new,modifiedand relocated sourceswithin the AQMD, provided such emissions arenot subject
to Regulation XX—Regional CleanAir Incentives Market (RECLAIM)1.Rule1310

-Analysis and Reporting, requiresthe submittal ofanannual reporttothe AQMI) Governing Boardonthestatusof Regulation XIII in meeting State and Federal NSR requirements. The lastannual report on thestatusof Regulation XIII—NSR was submitted

to the Board on April 9, 1999 and covered the period from August 1997 to July 1998 for both State and Federal NSR requirements. While the RECLAIM program

is “non-traditional”
and provides greater regulatory flexibility

to businesses,

its NSR requirements
are designed
to comply with the governing principles
of NSR contained

in the federal Clean Air Act (CAA) and the California Health and Safety Code.BACKGROUND



# 0 The AQMD’s NSR program has evolved since 1976, in response

to State and Federal legal requirements, and the changing needs of the local environment and economy. The most recent significant amendments

to NSR rules occurred on December

7, 1995. The most notable change with that amendment was the reduction

in the threshold allowances for requiring offsets. Since the filing of the last report on this subject there has been no substantive change to Regulation XIII

- NSR. The AQMD’s NSR program

is required
to achieve,
at a minimum, emission reductions equivalent

to State and Federal statutory NSR requirements.

The AQMD’s NSR program implements the State and Federal statutory requirements
for NSR and ensures that construction and operation of new and modified sources do not interfere with progress towards attainment
of the National and State Ambient Air Quality Standards. Presented below are the specific requirements

of Federal and State law. Federal Law Federal law requires the use of Lowest Achievable Emission Rate (LAER) and offsets for new, modified and relocated sources. Effective November
15, 1992, Section

1 82(e)(
1) and (2) of the Federal CAA require

a 1.5-to-i
or a 1.2-to-i external offset ratio and
a 1.3- to-i internal offset ratio for VOC or NOx sources that emit or have the potential
to emit 10 tons or more per year. 2 The South Coast Air Basin (SOCAB)

is the only extreme ozone non-attainment area in the nation. An extreme ozone non-attainment area may qualify for the 1.2-to-i offset ratio if it requires all existing major sources
to use federally defined BACT [CAA Section

1 82(e)( 

## 1)1

which
is a federal requirement
for ozone attainment areas. Section 182(e) states that “for purposes of satisfying the offset requirements pursuant
to this part, the ratio of total emission reductions
of VOCs to all increased emissions
of such air pollutant shall be at least 1.5-to-i...

.“ Because the statute uses the term “total emission reductions”,
the offset ratio requirements

of Section

1 82(e)(
1) can be met on an aggregate basis, provided the information

is substantiated

by an emissions tracking system. The AQMD’s NSR program meets the Federal offset requirements based upon the information retrieved from the AQMD’s NSR Tracking System. 2 Section 182(e) of the CAA specifically defines

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

a contiguous area and under common control that emits or have the potential

to emit, at least 10 tons per year of volatile organic compounds.” Section 182(0(1) of the CAA 

## (.) also states that “the

.. provisions required

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

... of oxides of nitrogen.” -2-State Law State law requires the useof BACT for new and modified sources (Health and Safety Code Sections 40440(b)(1) and 40920.5) and “no net increase
in emissions” from certain permitted newor modified sources based ontheir potential
to emit and the non-attainment classification

of the areain which they are located. Based on their classification,
the SOCAB and Salton Sea Air Basin (SSAB) 3 must comply with the requirements
for extreme and severe non-attainment areas, respectively,
for ozone precursors (i.e., VOC and NOx). Both the SOCAB and the SSAB must comply with the requirements
for serious nonattainment areas for PMI

0 and its precursors. For CO, the SOCAB must comply with the requirements
for serious nonattainment areas. The AQMD demonstrates compliance with the “no net emission increase” requirements of State law for the period from August 1998 to July 1999 by demonstrating compliance with the requirements
for extreme ozone non-attainment areas (VOC and NOx) and with the requirements
for serious nonattainment areasfor CO, PM1O, and precursors

to PM1O, i.e. SOx. State Law Methodology Beginning with the report submitted

to the Board on March 13, 1998, the calculation methodology was amended
to better reflect actual emissions

to determine State law compliance. Prior to that change, the AQMD utilized “maximum allowable permitted” emissions

to report emissions subject to the “no net emission increase” requirement

of State law. The AQMD nowuses “actual” emission levels to represent more realistic emission increases subject to State NSR requirements. The methodology using “permitted” emission levels had over estimated real emission increases and asaresult had produced

adeficit in the NSR equivalency program for nitrogen oxides (NOx) emissions in the past. Since creditable emission reductions are based on actual emission decreases, ARB staff agreed with the AQMD staff that reporting emission increases with the useof “actual” emissions

is an acceptable methodology
for demonstrating compliance with the “no net emission increase” requirement

of State law. The revised methodology resulted in a demonstration

of equivalency that fully met the requirements

of State law. The AQMD presently uses
afactor of 0.80 to calculate “actual” emissions from “maximum allowable permitted” emissions. This factor was derived based on analysis conducted
by AQMD staff. ARB staff have reviewed the analysis, and agreed onthe methodology. Southeast Desert Air Basin was recently changed
tothe Riverside County portion of the Salton Sea Air Basin (SSAB) and the non-Palo Verde Valley, Riverside County portion of the Mojave Desert Air Basin which
is currently unclassified.

-3-AQMD APPROACH



## 0 BACT and offsetting emission increases are the primary requirements

of Federal and State NSR requirements. The AQMIYs BACT standards are at least as stringent
as LAER and BACT,
as respectively defined by Federal and State laws. Therefore, the principal measure
to determine equivalency with State and Federal NSR laws is the requirement

to offset emission increases. The AQMD ensures through permitting that sources requiring offsets meet both Federal and State requirements. The AQMD, however,

is responsible for offsetting emission increases that qualif’ for offset exemption pursuant
to Rule 1304. Consistent with the previous annual report, the information presented

in this report
is focused on the supply and demand for creditable emission reductions and required offsets for sources for which the AQMD has taken responsibility

to provide offsets (i.e., previous Community Bank, Priority Reserve and emission increases exempted from offsets pursuant
to Rule 1304). Emission increases mitigated by the applicant through the purchase of external offset such as Emission Reduction Credits (ERCs) or by internal mitigation are not included. Therefore, the estimates of total supply and demand of creditable emission reductions and offsets, respectively, refers to the total supply and demand for sources for which the AQMD

is directly responsible

to meet the offset requirements. This report demonstrates compliance with Federal and State NSR requirements

by demonstration

of equivalency

in aggregate with Federal and State offset requirements
for this reporting period. Source of Creditable Emission Reductions The sources of creditable emission reductions used by the AQMD
to demonstrate compliance with Federal and State NSR requirements
are described below. A. Orphan Shutdowns Orphan shutdowns are emission decreases from stationary sources that go out of business, permanently cease emitting activities, and do not apply for ERCs. These emission decreases are retained by the AQMD
as Orphan Shutdown Credits (OSC) to fund the NSR program. Three different criteria were applied
to determine OSC amounts: 1. If the source was offset by a NSR Rule 1304 exemption, the Community Bank, or Priority Reserve, the OSC was not discounted
for Federal requirements and equals the Potential

to Emit (PTE). However, for State requirements
the OSC was discounted

to 80% of the potential

to emit to better reflect actual emissions. -4-2. If the sourcewas previously exempt from permit by Rule 219 and brought into the permit system through amendments

to Rule 219, its PTE wasalso discounted
by 80% to reflect actual emissions. Emissions from previously exempt Rule 219 sources were treated
in the same manner
asa negative NSR balance. The 80% discount

is derived from the 1990 amendments

to Regulation XIII to convert

a facility’s negative NSR balance. 3. For all casesnot covered by criteria

1 or2 above, the source’s PTE was calculated using the average hourly emissions and
amaximum operating schedule (24 hr/day,

7 day/week,
52 week/yr).

In order to provide

a conservative OSC, the source’s PTE was discounted
by 77% or reduced
to 23% of the calculated PTE. The 23% factor
is based on using

amore realistic

8 hr/day,

5 day/week,
50 week/yr operating schedule. B. BACT Discount of ERCs Emission reduëtions from shutdowns for which ERCs areissued are discounted

to BACT levels. The amount discounted

is credited
to the NSR account
asacreditable emission reduction, since they arein excessof the Federal NSR requirements. C. NSR Balances Discounting negative NSR balances
in 1990 generated this sourceof creditable emission reductions. Negative NSR balances represented

a facility’s positive emission reduction credit balance that has not yet been converted

to ERC. Negative NSR balances were generated by emission reductions (that werethe result of equipment

or facility modifications

or shutdowns).
As part of the 1990 amendments

to Regulation XIII, the AQMD reduced these credit balances by 80 percent
to generate emission reductions

to fund the Community Bank, Priority Reserve and Rule 1304 exemptions. Source of Debits from Creditable Emission Reductions The AQMD’s NSR program provides
an exception from the offset requirements

of Regulation XIII for newor modified sources that meet the requirements

to obtain exemptions under Rule 1304. However, the Federal CAA does not recognize such exemptions, and requires the AQMD
to account for these emission increases with the creditable emission reductions discussed earlier in this report. A. Community Bank Until February 1996 nooffsets were required for projects whose emission increases, for that project, werebelow

a specified threshold
of 30 lbs/day VOC, 40 lbs/day NOx, 60 -5-lbs/day SOx, 220 lbs/day CO, and 30 lbs/day PM10. This feature was replaced with

a facility exemption for small emission sources effective February

1, 1996. The facility


# 0 exemption provides
an exemption from offsets for facilities permitted

to emit no more than
4 tons per year of VOC, NOx, SOx and PM1O, and 29 tons per year of CO. B. Priority Reserve No offsets are required for essential public service projects that increase emissions from new and modified sources. Essential public services are defined
in Rule 1302 and include, for example, landfills, sewage treatment plants and other operations. C. Other Exemptions Several offset exemptions
are provided
in Rule 1304 in keeping with AQMD policy for fair and equitable treatment
of businesses. Most of these exemptions
are either beneficial to the environment

or driven by severe economic needs.
A more complete explanation
of exempted sources can be found in earlier staff reports for Regulation XIII revisions. FEDERAL OFFSET REQUIREMENTS The analysis performed

to generate the data presented

in this report was based on the emission thresholds that define

a “major polluting facility”
in the SOCAB. 4 Table 1-1 presents the cumulative creditable emission reductions available

to offset the emission increases subject to Federal NSR. Table 1-2 presents the emission increases for which AQMD

is accountable

to comply with Federal NSR requirements
for the period from August

1, 1998 to July 31, 1999. Table 1-3 presents the balance of creditable emission reductions available for future compliance with Federal offset requirements. ‘ The thresholds that define major polluting facilities

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

in the SSAB. Therefore, the analysis

is conservative since
it may over estimate the emission increases subject
to federal offset requirements. -6-Source
VOC NOx SOx CO PM1O (tons/day) (tons/day) (tons/day) (tons/day) (tons/day) Orphan shutdowns
0.09 0.05/, 0.09 0.04/’ 0.01 -‘

f

o

.

‘.\ BACT Discount of ERCs
0.63 0.00 0.00 0.00 2.75 Carry Over Balance from 106.10 22.90 18.70 32.00 42.00 August 1998

.82 22.94 18.70 32.04 44.76 Table 1-2 presents the “Permitted” emission increases and the calculated emission increases (based ona1.5 to

1 offset ratio) from Federally recognized facilities which the AQMD

is accountable. The table also identifies Community Bank, Priority Reserve, and Rule 1304 Exemptions used by the AQMD
to offset the calculated emission increases from Federally recognized facilities. Table 1-2

-Increases and AQMD Funded Offsets for Federal NSR (August 1998

-July 1999) Source
VOC NOx SOx CO PM1O (tons/day) (tons/day) (tons/day) (tons/day) (tons/day) Community Bank Offsets

0.03 0.04 0.00 0.00 0.00 Priority Reserve Offsets

0.09 0.07 0.00 0.1

1 0.00 Rule 1304 Offset Sources

1.04 0.92 0.04 2.78 0.05 Permitted Emission Increase

1.16 1.03 0.04 2.89 0.05 Permitted Emission Increase

.1.5 to.

1 1.74 1.55 0.06

..4.34 0.07 Balance of Creditable Emissions Reductions presented

in Table l2, pg.6,of the document entitled Effectiveness

of Regulation XIII—New Source Review, reporttothe AQMD Governing Board, April 9, 1999. Table 1-1

-Creditable Emission Reductions for Federal NSR Compliance (August 1998

-July 1999)

/• .
. I 4 -7-Compliance with Federal NSR Requirements Table 1-3 summarizes the creditable emission reduction and emission increase and offsets provided

in Tables 1-1 and 1-2.



# 0 Table 1-3- Emission Increases for which the AQMD

is Accountable 6 Compared with Creditable Emission Reductions for Federal NSR Compliance (August 1998 to July 1999) Source
VOC



# J

NOx SOx CO PM1O (tons/day) jjons/day (tons/day) (tons/day) tons/day Total Emission Increases

1.74



# I 1.55 0.06 4.34 0.07 ‘From Table 1-2) Creditable Emission Reductions (From Table 11)

106.82 22.94 18.70 32.04 44.76 NSR Balance- August 1999 105.08 21.39. 18.64 27.70 As presented

in Table 1-3, the AQMIYs NSR program meets the offset requirements

of Federal law. Since the AQMD’s BACT standards are equivalent

to Federally defined LAER and the program contains and implements

all the Federal NSR requirements
for major sources (Rule 1303), the AQMD’s program

is equivalent

to and in compliance with all Federal NSR requirements. 6 Based on a 1.5 to

I Offset Factor. Federal levels for offsetting
all new and modified VOC and NOx sources that emit 10 tons or more per year; all new and modified PMIO sources that emit 70 tons or more per year; all new and modified CO and SOx sources that emit 100 tons or more per year.



# 0 0 -8-STATE OFFSET REQUIREMENTS The analysis performed

to generatethedata presented

inthis reportwasbasedona“no netemission increase” requirement
for extreme nonattainment pollutants which applies onlytoVOCandNOx.The offset requirements
for serious non-attainment pollutants applytoemission increases from facilities exceeding

15 ton/year ofPM 10,SOxandCO. Table1-4 presentsthe cumulative creditable emission reductions available for compliance withtheState’s “nonetemission increase” requirement
forthe period from August

1, 1998to July 31,1999. Table1-5 presentsthe emission increases forwhich AQMD

is accountable

to comply withState NSR requirements
forthe period from August

1,1998 to July 31,1999. Table1-6 presentsthe cumulative amountofemission increases subject tothe State’s“nonetemission increase” requirements
forthesameperiodforsourcesfor whichthe AQMDwas responsible

tomeetthe State’s offset requirement. Explanation
for the source categories maybefound earlier under the heading “Federal Offset Requirements.” Table1-4

-Creditable Emission Reductions forStateNSR Compliance (August 1998to July 1999) Source
VOC NOxSOx CO PM1O (tons/day) (tons/day) (tons/day) (tons/day) (tons/day) Orphan Shutdowns

4.06 1.70 0.06 1.05 1.17 BACT Discount of ERCs
0.63 0.00 0.00 0.00 2.75 Carry Over Balancefrom 53.50 4.90 18.90 29.10 42.00 August 1998 Total

58.19 6.6018.96 30.15 45.92 Revision
of Calculation Methodology Table1-5 presentsthe “Permitted” increases andthe calculated “Actual” increases (based on80%ofthe “Permitted” increases) forallemission increases thatthe AQMD

is accountable
forin accordance with State NSR requirements. Thetablealso identifies the increases fromthe Community Bank, Priority Reserve,andRule1304 Exempt Emissions. Creditable Emissions Reductions balance presented

in Table 1-4, pg.9, of the document entitled Report on Effectiveness

of Regulation XIII—New Source Review, April 9, 1999. -9-Table 1-5

- Increases and AQMD Funded Offsets for State NSR (August 1998 to July 1999) Source
VOC NOx SOx CO PM1O (tons/day) (tons/day) (tons/day) (tons/day) (tons/day) Community Bank Offsets

0.48 0.09 0.00 0.15 0.00 Priority Reserve Offsets

0.09 0.13 0.09 0.23 0.01 Rule 1304 Offset Sources

9.24 2.10 0.09 3.50 0.33 Permitted Emission Increase

9.81 2.32 0.18 3.88 0.34 80% of Permitted Increase
or “Actual” 7.85 1.86 0.15

‘ 3.10 0.27 

# 0 Table 1-6, presents emission increases subject to the State’s “no net emission increase” requirement compared

to creditable emission reductions. The emission increases reported in Table 1-6 are based on the revised methodology, which calls for the use of “actual” emissions. AQMD calculates “actual” emission

as a percentage
of “permitted” missions. Emission increases using “permitted” emissions were extracted from the NSR Tracking System and reduced by 20 percent
to represent “actual” emissions. Based on previous analysis, AQMD believes that estimating “actual” emissions

as 80 percent of “permitted” emission 8 All new and modified VOC and NOx sources (regardless
of their potential
to emit), and all new and modified SOx, CO and PMIO sources that emit, or have the potential

to emit 15 tons or more per year. Table 1-6

- Emission Increases for which the AQMD

is Accountable Compared

to Creditable Emission Reductions for State NSR Compliance 8 (August 1998 to July 1999) Source
VOC NOx SOx CO PM1O (tons/day) (tons/day) (tons/day) (tons/day) (tons/clay) Creditable Emission
58.19 Reductions (From Table 1-4)
6.60 18.96 30.15 45.92


# 0 0 -10-yields

a conservative estimate. Therefore, the District’s NSR program fully meets the NSR requirements

of State law. Compliance with State Law Requirements As presented

in Table 1-6, the District’s NSR program meets the offset requirements

of State law for the period of August 1998 to July 1999. CONCLUSION

& RECOMMENDATION The District’s NSR program meets all Federal and State NSR requirements. Under Federal requirements
the AQMD received more emissions from Orphan Shutdowns and BACT discounting than it provided

asoffsets for all pollutants. For State requirements the AQMD provided more VOC, NOx, CO and SOx emission offsets than it received from Orphan Shutdowns and BACT discounting. The AQMD had to offset less PM1O emission increases than it received from Orphan Shutdowns and BACT discounting under the State requirements. The pollutant of greatest concern continues

to be NOx. During the period of August 1998 to July 1999, the AQMD offset 1.86 tons per day of NOx emission increases. During this same period the AQMD rçcovered 1.70 tons per day of NOx credits. The availability
of NOx emission offsets that the District

is responsible
for will continue
to be a primary focus. AQMD staff proposes
to continue
to assessthe program
in detail and ensure compliance with Federal and State NSR requirements. —Il—