PROPOSED ADOPTION OF RULE 516, RICE STRAW EMISSI ON REDUCTION CREDITS

STAFF REPORT

Executive Summary

On February 19, 2009, the Placer County Air Pollution Control (District) Board of Directors will consider the proposed a doption of Rule 516, RI CE STRAW EMISSION

REDUCTION CREDITS. This rule establis hes procedures which ensure federal recognition of the banking of Emission Reduction Credits (ERCs) resulting from the permanent reduction of open fiel d burning of rice straw.

The main requirements for Rule 516 will be:

1. An application will be required to bank E RCs under this program. There will be two (2) types of applications; new applications and re-certification applications. Those parties who previously banked rice straw ERCs may surrender their existing ERCs and apply to “re-certify” their credits. Any ot her parties who can substantiate that they grew rice and burned the straw during the 1988 -1992 baseline may submit a “new” banking application to obtain credits.

2. All applications must be received with in six (6) months of rule adoption.

3. Each applicant must show that the prope rty for which the application is submitted grew and burned rice in the ba seline period between 1988 and 1992.

4. Each applicant must show that the prope rty for which the application is submitted is limited by deed restriction to burning in any calendar year no more than 25% of the rice growing acreage.

This rule is expected to affect landowners whose parcels grew rice during the baseline period of 1988 to 1992. In our District, there was only one party who previously banked ERCs from this category. This party ba nked ERCs on eight (8) parcels totaling 1,334

acres.

It is expected that this party will re-bank hi s ERCs in accordance with this new rule. In addition, the program will be available to other landowners who either did not know about the program previously or who chose not to participate in the program. During the baseline years, rice plantings were on the order of 10,000 acres per year, so there is opportunity for significant new appl ications under this proposed rule.

Background

Rice straw burning in the Sacramento Valley was “phased down” pursuant to state law adopted in 1991 (California Health & Safe ty Code 41865). Some Districts in theRule 516, Rice Straw Emission Reduction Credits Staff Report January 26, 2009

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Sacramento Federal Non-attainment Area (SF NA) have previously used their existing banking rules to issue ERCs to growers. The United States Environmental Protection Agency (EPA) did not recognize the credits is sued as being valid offsets for “federal purposes” (i.e. major modification project s or new major stationary sources).

The SFNA Districts have worked in conj unction with the Sacramento Valley Basin Control Council (BCC) and the California Ri ce Commission to address all concerns and comments raised by the California Air Resour ces Board (ARB) and the US EPA. This working group created a white paper and model rule, upon which this local rule is based.

Discussion of Proposed Rule 516 Requirements

Listed below are descriptions of th e proposed requirements for Rule 516.

Section 100: General

As discussed above, our District has previously issued ERCs (in accordance with Rule 506, Biomass Emission Reduction Credits and Banking , however EPA did no t recognize these credits. Therefore, the purpose of this rule is to provide a federally recognized procedure for quantifying and certifying ri ce straw burning emission reduct ions. This will be the only process available for growers to receive fede rally recognized credits from cessation (phasedown) of rice straw burning.

Section 200: Definitions

Proposed Rule 516 provides definitions to clarify terms used in the rule, and to improve overall enforceability and compli ance. Many of the definition s come from other District

rules or the State and Federal law. The definiti on of Historic Burn Frac tion is of particular

interest.

Section 211—Historic Burn Fr action (HBF): The amount of rice (as a percentage of the amount planted) which was burned during the ba seline period, equal to 100%. As discussed in the White Paper, the average acres planted in rice in Placer Count y for the years between 1982 and 1991 were 10,190 acres. The single year during the baseline for which the acres planted was closest to this 10-year average acr es was 1989. In 1989 , there were 10,303 acres burned. Therefore, for PCAPCD, 1989 was the “represent ative” year for rice burning activity. This results in 100% historic burn fraction.

Section 300: Standards

Section 301—Determination if a parcel is e ligible: This section defines which parcels qualify to generate ERCs. The parcel has to be in the District and the applicant must demonstrate (see section 402 .2 & 402.3) that rice straw bu rning occurred on the parcel during the baseline. For example, if a grow er has a one thousand (1 ,000) acre parcel forRule 516, Rice Straw Emission Reduction Credits Staff Report January 26, 2009

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which credits are being sought, these sections will verify that the 1, 000 acres are in the

District and that rice stra w burning occurred on the pa rcel between 1988 and 1992.

Section 302—Determination of available acreag e: This section esta blishes the amount of acreage that is eligible for ba nking. This is done by adding up all of the acres which were used to grow rice during the baseline and multipl ying times the HBF. In the above example, for that 1,000 acre parcel, the available acreag e for banking is 1,000 acres (1,000 x 1.00).

The District knows the average acres burned during the baseline, and for four of the five years of the baseline, the daily burning by grower. As estab lished in the White Paper (and approved by ARB and EPA), the “representative” year for Placer is 1989, duri ng which time there were 10,303 acres burned. If the Distri ct receives applications with total available acreage more than 10,303 acres, the District will adjust the acres available for individual applications based on section 404.

Section 303—Determination of annual emission reductions available: As established between the Districts in the SFNA, the ARB, and EPA, 75% of th e emissions will be bankable under this program. This section establishes the formula as available acreage

times 0.75 times the emission factors. Thes e emission factor valu es come from an ARB memo released in 2000 (pre dominately from Brian Jenkin s’ “Atmospheric Pollutant Emission Factors from Open Burning of Agricultural and Forest Biomass by Wind Tunnel Simulations”, 1996, UC Davis).

Section 304—Determination of quarterly emis sion reductions available: This section establishes the quarterly breakdown of the annu al emissions. These values came from the Manual of Procedures (MOP).

Section 305—Priority reserve ad justment: The District will tr ansfer 5% of the calculated quantity of emission reduc tions to the District’s priority reserve bank,

Section 306—Deed restriction: This section requires that prior to issuing ERCs, a deed restriction be placed on the parcel. The deed restriction must limit the agricultu ral burning on the parcel to be consistent with the ERCs. This section (along with 307 and 308) was added at the request of the EPA to establis h federal enforceability of the program.

Section 307—Restricted burn list: This section requires that the District place the parcel on our “restricted burn list”, which is a feature of our agricultural burn program.

Section 308—Burning prohi bition: This section requires that any parcel that obtained ERCs pursuant to Rule 516 can not burn more than 25% of the rice growing acreage.

Section 400: Administrative Requirements

This section establishes all of the administrative re quirements associated with this program.Rule 516, Rice Straw Emission Reduction Credits Staff Report January 26, 2009

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Fiscal Impact

This rule is proposed as a service to Placer County growers who have reduced rice straw burning and may wish to acquire ERCs. This is voluntary on the part of growers and has no requirement that they partic ipate. There will be staff time involved with processing the ERC applications. Applications will re quire the usual application fee, currently $226.50. The costs of processing the applications will be tracked and the applicants will

be billed for actual costs when the ERCs are i ssued. The cost is expe cted to be less than $1,000 per applicant.

Analysis and Findings

The following Analysis and the subsequent Findings are intended to address the requirements set forth in the Health and Safety Code relating to adopt ion of a new District Rule, as well as other State statutes referenced herein.

Cost-Effectiveness of a Control Measure

California Health & Safety C ode (H&S) Section 40703 requires a District to consider and make public “the cost-effectiven ess of a control meas ure”. As the proposed rule is not a control measure, no analysis is needed.

However, proposed Rule 516 will have a direct cost impact on applicants for emission reduction credits for an application fee and an emission reduction analysis fee as specified in current Rule 601, Fees . The successful applic ants for ERCs will gain a financial asset in the value of the ERCs. For exampl e, recent sales of NOx ERCs have been in the range of $25,000 per ton.

Socioeconomic Impact

H&S Section 40728, in relevant part, requires the Board to consider the socioeconomic impact of any new rule if air quality or emissi on limits are significan tly affected. Proposed Rule 516 will not significantly affect air quality or emission li mitations in Placer County.

The evaluation set forth in H&S Section 40728 is not needed.

California Environmen tal Quality Act (CEQA)

Proposed Rule 516, if utilized , is not an activity that may cause a direct or reasonably foreseeable indirect physical ef fect in the environment therefor e not considered a “project”, as defined by Section 21065 of the Califo rnia Public Resource Code and Section 15378(b)(4)&(5) of the CEQA guidelines. A CEQA analysis is th erefore not necessary.

FindingsRule 516, Rice Straw Emission Reduction Credits Staff Report January 26, 2009

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A. Necessity – The adoption of proposed new Ru le 516 is necessary in order to obtain federal recognition of the ERCs which are spelled out in state law (section 41865 of the CH&SC).

B. Authority – California Health and Safe ty Code, Sections 40000, 40001, 40701, 40702, and 40716 are provisions of law that provide the District with the authority to adopt this proposed Rule.

C. Clarity – There is no indication, at this time, that the proposed Rule is written in such a manner that persons affect ed by the Rule cannot easily understand

them.

D. Consistency – The regulation is in harmony with, and not in conflict with or contradictory to, existing statutes, c ourt decisions, or state or federal regulations.

E. Non-duplication – The regulation does not impose the same requirements as an existing state or federal regulation.

F. Reference – All statutes, court decisions, a nd other provisions of law used by PCAPCD in interpreting this regulation is incorporated into this analysis and this finding by reference.