Document ID: EPA-R06-OAR-2010-0148-0001
Agency: epa
Document Type: Proposed Rule
Title: TX092.13 Approval and Promulgation of Air Quality Implementation Plans: Texas; Revisions to the Discrete Emission Credit Banking and Trading Program
Posted Date: 2010-03-30T22:06:09Z

[Federal Register: March 30, 2010 (Volume 75, Number 60)]
[Proposed Rules]               
[Page 15648-15655]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30mr10-27]                         

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R06-OAR-2010-0148; FRL-9130-5]

 
Approval and Promulgation of Air Quality Implementation Plans; 
Texas; Revisions to the Discrete Emission Credit Banking and Trading 
Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing to approve severable portions of two 
revisions to the Texas State Implementation Plan (SIP) submitted by the 
State of Texas on October 24, 2006, and August 16, 2007. These 
revisions amend existing sections and create a new section in Title 30 
of the Texas Administrative Code (TAC), Chapter 101--General Air 
Quality Rules, Subchapter H--Emissions Banking and Trading, Division 
4--Discrete Emission Credit Banking and Trading, referred to elsewhere 
in this notice as the Discrete Emission Reduction Credit (DERC) 
Program. The October 24, 2006, submittal creates a new section for 
international emission reduction provisions and amends existing 
sections to prohibit the generation and use of DERCs from shutdown 
activities and further clarify procedures for using emission protocols. 
The August 16, 2007, submittal amends two sections of the DERC program 
to update cross-references to recently recodified 30 TAC Chapter 117 
provisions. Additionally, EPA is proposing to find that the Texas 
Commission on Environmental Quality (TCEQ) has satisfied all elements 
of our September 6, 2006, final conditional approval of the DERC 
program with the submittal of the October 24, 2006, SIP submittal; and 
as such, the DERC program conditional approval is proposed for full 
approval. EPA has determined that these SIP revisions comply with the 
Clean Air Act and EPA regulations, are consistent with EPA policies, 
and will improve air quality. This action is being taken under section 
110 and parts C and D of the Federal Clean Air Act (the Act or CAA).

DATES: Comments must be received on or before April 29, 2010.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R06-

[[Page 15649]]

OAR-2010-0148, by one of the following methods:
    (1) http://www.regulations.gov: Follow the on-line instructions for 
submitting comments.
    (2) E-mail: Mr. Jeff Robinson at robinson.jeffrey@epa.gov. Please 
also cc the person listed in the FOR FURTHER INFORMATION CONTACT 
paragraph below.
    (3) U.S. EPA Region 6 ``Contact Us'' Web site: http://epa.gov/
region6/r6coment.htm. Please click on ``6PD'' (Multimedia) and select 
``Air'' before submitting comments.
    (4) Fax: Mr. Jeff Robinson, Chief, Air Permits Section (6PD-R), at 
fax number 214-665-6762.
    (5) Mail: Mr. Jeff Robinson, Chief, Air Permits Section (6PD-R), 
Environmental Protection Agency, 1445 Ross Avenue, Suite 1200, Dallas, 
Texas 75202-2733.
    (6) Hand or Courier Delivery: Mr. Jeff Robinson, Chief, Air Permits 
Section (6PD-R), Environmental Protection Agency, 1445 Ross Avenue, 
Suite 1200, Dallas, Texas 75202-2733. Such deliveries are accepted only 
between the hours of 8:30 a.m. and 4:30 p.m. weekdays except for legal 
holidays. Special arrangements should be made for deliveries of boxed 
information.
    Instructions: Direct your comments to Docket ID No. EPA-R06-OAR-
2010-0148. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
http://www.regulations.gov, including any personal information 
provided, unless the comment includes information claimed to be 
Confidential Business Information (CBI) or other information the 
disclosure of which is restricted by statute. Do not submit information 
through http://www.regulations.gov or e-mail, if you believe that it is 
CBI or otherwise protected from disclosure. The http://
www.regulations.gov Web site is an ``anonymous access'' system, which 
means that EPA will not know your identity or contact information 
unless you provide it in the body of your comment. If you send an e-
mail comment directly to EPA without going through http://
www.regulations.gov, your e-mail address will be automatically captured 
and included as part of the comment that is placed in the public docket 
and made available on the Internet. If you submit an electronic 
comment, EPA recommends that you include your name and other contact 
information in the body of your comment along with any disk or CD-ROM 
submitted. If EPA cannot read your comment due to technical 
difficulties and cannot contact you for clarification, EPA may not be 
able to consider your comment. Electronic files should avoid the use of 
special characters and any form of encryption and should be free of any 
defects or viruses. For additional information about EPA's public 
docket, visit the EPA Docket Center homepage at http://www.epa.gov/
epahome/dockets.htm.
    Docket: All documents in the docket are listed in the http://
www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., CBI or other information 
the disclosure of which is restricted by statute. Certain other 
material, such as copyrighted material, will be publicly available only 
in hard copy. Publicly available docket materials are available either 
electronically in http://www.regulations.gov or in hard copy at the Air 
Permits Section (6PD-R), Environmental Protection Agency, 1445 Ross 
Avenue, Suite 700, Dallas, Texas 75202-2733. The file will be made 
available by appointment for public inspection in the Region 6 FOIA 
Review Room between the hours of 8:30 a.m. and 4:30 p.m. weekdays 
except for legal holidays. Contact the person listed in the FOR FURTHER 
INFORMATION CONTACT paragraph below to make an appointment. If 
possible, please make the appointment at least two working days in 
advance of your visit. A 15 cent per page fee will be charged for 
making photocopies of documents. On the day of the visit, please check 
in at the EPA Region 6 reception area on the seventh floor at 1445 Ross 
Avenue, Suite 700, Dallas, Texas.
    The State submittal related to this SIP revision, and which is part 
of the EPA docket, is also available for public inspection at the State 
Air Agency listed below during official business hours by appointment:
    Texas Commission on Environmental Quality, Office of Air Quality, 
12124 Park 35 Circle, Austin, Texas 78753.

FOR FURTHER INFORMATION CONTACT: If you have questions concerning 
today's proposed rule, please contact Ms. Adina Wiley (6PD-R), Air 
Permits Section, Environmental Protection Agency, Region 6, 1445 Ross 
Avenue (6PD-R), Suite 1200, Dallas, TX 75202-2733. The telephone number 
is (214) 665-2115. Ms. Wiley can also be reached via electronic mail at 
wiley.adina@epa.gov.

SUPPLEMENTARY INFORMATION: Throughout this document wherever, any 
reference to ``we,'' ``us,'' or ``our'' is used, we mean EPA.

Table of Contents

I. What Action Is EPA Taking?
II. What Did Texas Submit?
III. What Is EPA's Evaluation of These SIP Revisions?
IV. What Is EPA's Evaluation of the TCEQ's Response to the DERC 
Conditional Approval?
V. Final Action
VI. Statutory and Executive Order Reviews

I. What Action Is EPA Taking?

    We are proposing to approve severable portions of two revisions to 
the Texas SIP submitted by the TCEQ on October 24, 2006 and August 16, 
2007, specific to the DERC Program. The DERC Program, conditionally 
approved by EPA on September 6, 2006, establishes an open market 
trading program to provide flexibility for sources in complying with 
certain State and Federal requirements. In an open market trading 
program, a source generates emission credits by reducing its emissions 
during a discrete period of time. These credits, called discrete 
emission credits, or DECs, in the Texas program, are quantified in 
units of mass. Discrete emission credit (DEC) is a generic term that 
encompasses reductions from stationary sources (discrete emission 
reduction credits, or DERCs) and reductions from mobile sources (mobile 
discrete emission reduction credits, or MDERCs).\1\ The revisions we 
are proposing to approve amend existing sections and create a new 
section in the DERC Program at Title 30 of the Texas Administrative 
Code (TAC), Chapter 101--General Air Quality Rules, Subchapter H--
Emissions Banking and Trading, Division 4--Discrete Emission Credit 
Banking and Trading. The October 24, 2006 submittal creates a new 
section for international emission reduction provisions and amends 
existing sections to prohibit the generation and use of DERCs from 
shutdown activities and further clarifies procedures for using emission 
protocols. Additionally, EPA is proposing to find that the TCEQ has 
satisfied all elements of our September 6, 2006 final conditional 
approval of the DERC program with the submittal of the October 24, 2006 
SIP submittal; and as such, the DERC program conditional approval is 
proposed for full approval.\2\ The severable portions of the August 16, 
2007 submittal that we are proposing to approve non-substantively 
revise the DERC Program to correctly update the

[[Page 15650]]

cross-references to the stationary source nitrogen oxide 
(NOX) rules found in the Texas SIP at 30 TAC Chapter 117 as 
a result of the non-substantive recodification of Chapter 117 approved 
by EPA as part of the Texas SIP on December 3, 2008 (see 73 FR 73562). 
Additionally, in both the October 24, 2006 and August 16, 2007 SIP 
submittals TCEQ has made several non-substantive revisions to update 
grammar and document style. Consequently, we are proposing to approve 
the revisions to the Texas SIP at 30 TAC sections 101.372(a), 
101.372(d), 101.372(f), 101.372(j), 101.373(a), 101.376(c)(4), and 
101.378(b) and the creation of new section 101.375 submitted on October 
24, 2006. Additionally, we are proposing to approve revisions to the 
Texas SIP at 30 TAC sections 101.372(d) and 101.376(d) submitted on 
August 16, 2007 by the TCEQ.
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    \1\ In this action, when we refer to the program as the ``DERC 
Rule'' or the ``DERC Program'' we are speaking of the entire 
Discrete Emission Credit Banking and Trading Program, which 
encompasses both DERCs and MDERCs.
    \2\ Today's action proposes to find that the TCEQ has satisfied 
all conditions of the September 6, 2006 final DERC conditional 
approval. See 71 FR 52703. This action is separate from, and 
unrelated to, the Dallas/Fort Worth 1997 8-hour Ozone Attainment 
Demonstration conditional approval finalized by EPA on January 14, 
2009, at 74 FR 1903.
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II. What Did Texas Submit?

    We are proposing to approve severable portions of two revisions to 
the Texas SIP specific to the DERC Program. The first revision we are 
proposing action on was adopted by the TCEQ on October 4, 2006, and 
submitted to EPA on October 24, 2006. At the same time that TCEQ 
adopted and submitted revisions to the DERC Program, revisions were 
also adopted and submitted for the Emission Credit Banking and Trading 
Program (referred to elsewhere in this notice as the Emission Reduction 
Credit (ERC) Program) and the Emissions Banking and Trading of 
Allowances (EBTA) Program. The revisions to the ERC and EBTA Programs 
are specific to separate, distinct trading programs and, as such, are 
severable from the DERC Program revisions. We are not proposing to act 
upon the severable revisions to the ERC Program at 30 TAC Chapter 101, 
Subchapter H, Division 1, sections 101.302, 101.305, and 101.306. EPA 
is processing a separate rulemaking to address the 2006 and 2007 ERC 
Program revisions (see EPA-R06-OAR-2010-0417). EPA has not yet taken 
action on the EBTA Program at 30 TAC Chapter 101, Subchapter H, 
Division 2 and therefore is not proposing action today on the repeal 
and replacement of section 101.338 and the revisions to section 
101.339. The second revision upon which we are proposing action was 
adopted by the TCEQ on July 25, 2007, and submitted to EPA on August 
16, 2007. Also at this time TCEQ adopted and submitted revisions to the 
general air quality definitions, the ERC Program, and the System Cap 
Trading (SCT) Program. We are not acting today upon revisions to the 
general air quality definitions at 30 TAC Chapter 101, Subchapter A, 
section 101.1 because the DERC Program does not rely upon them 
(therefore the revisions are severable from the DERC Program) and 
previous revisions to section 101.1 are still pending for review by 
EPA. We are also not acting today upon the revisions to the ERC Program 
at 30 TAC Chapter 101, Subchapter H, Division 1, sections 101.302 and 
101.306 because these revisions are severable from the DERC program and 
the October 24, 2006 SIP revision is still under EPA review. EPA 
intends to take a separate rulemaking action to address the 2006 and 
2007 ERC Program revisions (see EPA-R06-OAR-2010-0417). EPA has not yet 
taken action on the System Cap Trading Program at 30 TAC Chapter 101, 
Subchapter H, Division 5 and therefore is not acting today upon the 
severable revisions to sections 101.383 and 101.385.
    A copy of the October 24, 2006 and August 16, 2007 SIP submittals 
as well as our Technical Support Document (TSD) can be obtained from 
the Docket, as discussed in the ``Docket'' section above. A discussion 
of the specific Texas rule changes that we are approving is included in 
the TSD and summarized below.

A. October 24, 2006 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.372--
General Provisions
    The existing SIP-approved version of section 101.372 was adopted by 
the TCEQ on December 13, 2002, and conditionally approved by EPA on 
September 6, 2006 (see 71 FR 52703). The revisions to section 
101.372(a) and (f) adopted by the TCEQ on October 4, 2006, delete the 
information pertaining to international emission reductions and move 
these provisions to new section 101.375. Additionally, section 
101.372(d)(1)(C)(vi) is revised to clarify EPA's approval process of 
the quantification protocols for the DERC Program. Several non-
substantive revisions for grammar and style were also made by the TCEQ 
in this submittal.
2. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.373--
Discrete Emission Reduction Credit Generation and Certification
    The existing SIP-approved version of section 101.373 was adopted by 
the TCEQ on November 10, 2004, and conditionally approved by EPA on 
September 6, 2006 (see 71 FR 52703). The revisions to section 
101.373(a) prohibit the generation of DERCs from shutdown activities; 
specifically, section 101.373(a)(1) is amended to delete permanent 
shutdowns as a method of generating DERCs and section 101.373(a)(2) is 
amended to update the prohibited generation strategy list to include 
permanent shutdowns.
3. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.375--
Emission Reductions Achieved Outside the United States
    On October 4, 2006, TCEQ adopted new section 101.375. This new 
section contains the previously SIP-approved international emission 
reduction provisions from sections 101.372(a) and (f) and updates the 
international provisions consistent with the requirements of Texas 
Senate Bill 784.
4. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.376--
Discrete Emission Credit Use
    The existing SIP-approved version of section 101.376 was adopted by 
the TCEQ on November 10, 2004, and conditionally approved by EPA on 
September 6, 2006 (see 71 FR 52703). The proposed SIP revision adopted 
by the TCEQ on October 4, 2006, amends section 101.376(c)(4) to update 
cross-references to 30 TAC Chapter 106 in the list of prohibited DEC 
use strategies.
5. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.378--
Discrete Emission Credit Banking and Trading
    The existing SIP-approved version of section 101.378 was adopted by 
the TCEQ on December 13, 2002, and conditionally approved by EPA on 
September 6, 2006 (see 71 FR 52703). The revisions to section 
101.378(b) revise the lifetime of a discrete emission credit to 
prohibit the use of discrete emission credits generated from shutdowns; 
specifically, section 101.378(b)(1) states that discrete emission 
credits generated from shutdowns prior to September 30, 2002, will be 
available for use until September 8, 2010, and section 101.378(b)(2) 
prohibits the use of shutdown discrete emission credits generated after 
September 30, 2002.

B. August 16, 2007 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.372--
General Provisions
    The revisions to section 101.372 adopted by the TCEQ on July 25, 
2007, further revise the revisions adopted by the TCEQ on October 4, 
2002. The 2007 revisions non-substantively amend section 
101.372(d)(1)(A) to correctly cross-reference the recodified stationary 
source nitrogen oxide (NOX) rules to the

[[Page 15651]]

Texas SIP at 30 TAC Chapter 117. Additionally, section 101.372(d)(1)(B) 
was non-substantively amended to include the correct title for the 
stationary source volatile organic compound rules to the Texas SIP at 
30 TAC Chapter 115.
2. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.376--
Discrete Emission Credit Use
    The revisions to section 101.376 adopted by the TCEQ on July 25, 
2007, further revise the revisions adopted by the TCEQ on October 4, 
2002. The 2007 revisions non-substantively amend section 
101.376(d)(2)(A) to correctly cross-reference the recodified stationary 
source NOX rules to the Texas SIP at 30 TAC Chapter 117.

III. What Is EPA's Evaluation of These SIP Revisions?

A. October 24, 2006 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.302--
General Provisions
    The October 4, 2006, revisions to sections 101.372(a), 101.372(d), 
101.372(f) and 101.372(j) are approvable. Sections 101.372(a) and 
101.372(f) were revised to delete the information pertaining to 
international emission reductions and relocate these provisions to new 
section 101.375. This consolidation of the international emission 
reduction provisions improves the clarity of the DERC Program by 
creating a new section specific to international emission reductions. 
Section 101.372(d)(1)(C)(vi) was revised to clarify EPA's role in the 
approval of emission quantification protocols. While the previous SIP-
approved provisions were accurate and consistent with EPA's Economic 
Incentive Program (EIP) Guidance (``Improving Air Quality with Economic 
Incentive Programs'' (EPA-452/R-01-001, January 2001)), the revised 
language has been restructured to more closely follow the provisions 
for approving emission quantification protocols at section 5.2(c) of 
the EIP Guidance. The non-substantive revisions to sections 
101.372(d)(1)(C)(iv) and 101.372(j) update the formatting and grammar 
of the DERC General Provisions.
    The revisions to section 101.372 described above were made pursuant 
to TCEQ's September 8, 2005, commitment letter for the DERC Program 
conditional approval (included in the docket for this action). In this 
commitment letter, TCEQ committed to revising, among others things, 
section 101.372 to more clearly require EPA approval for international 
emission reduction transactions and to clarify the EPA's role in 
approving emission quantification protocols. Please see section IV. of 
this notice for a discussion of how the TCEQ has addressed the elements 
of DERC conditional approval and the September 8, 2005, commitment 
letter.
2. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.373--
Discrete Emission Reduction Credit Generation and Certification
    The October 4, 2006, revisions to sections 101.373(a)(1) and 
101.373(a)(2) are approvable. The revisions to section 101.373(a)(1) 
and (a)(2) amend the allowable and prohibited generation strategy lists 
to reflect that permanent shutdowns are a prohibited DERC generation 
strategy. These amendments are consistent with the Open-Market Trading 
provisions at section 7.5(b) of the EIP Guidance.
    The revisions to section 101.373 described above were made pursuant 
to TCEQ's September 8, 2005, commitment letter for the DERC Program 
conditional approval (included in the docket for this action). In this 
commitment letter, TCEQ committed to revising the DERC program to 
prohibit the future generation of DERCs from shutdowns. Please see 
section IV. of this notice for a discussion of how the TCEQ has 
addressed the elements of DERC conditional approval and the September 
8, 2005, commitment letter.
3. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.375--
Emission Reductions Achieved Outside the United States
    New section 101.375 adopted on October 4, 2006, is approvable. EPA 
finds that in addition to relocating the SIP-approved international 
emission reduction language from section 101.372, new section 101.375 
has expanded the scope of our original DERC program approval to allow 
the use of international reductions in lieu of DERCs to occur in 
attainment areas within 100-km of the Texas-Mexico border, consistent 
with the requirements of Texas Senate Bill 784. However, the continued 
requirement at section 101.375 for EPA approval before any such use is 
consistent with the intent of our DERC program conditional approval on 
September 6, 2006. EPA approval continues to be through a case-specific 
SIP revision that must clearly demonstrate through a detailed CAA 
section 110(l) analysis that the use of such international reductions 
will not jeopardize attainment or maintenance of the National Ambient 
Air Quality Standards or any other applicable standards. As noted in 
our September 6, 2006, final conditional approval of the DERC Program 
``* * * international trades present an especially difficult case. For 
instance, currently there is no mechanism for demonstrating that 
reductions made in another country are surplus or enforceable. 
Nonetheless, emission reductions in other countries could offer 
substantial air quality benefits in the United States.'' See 71 FR 
52703, 52705. In approving this revision to the DERC program, ``EPA is 
recognizing the concept of international trading and describing a 
framework (i.e., the submission of a SIP revision demonstrating among 
other things the validity and enforceability of foreign reductions) for 
such trading, in the event that a suitable and approvable mechanism is 
ever developed for resolving concerns including enforceability and 
surplus. Until such a mechanism is developed and approved by EPA, 
however, EPA will not approve international trades under the DERC 
rule.'' See 71 FR 52703, 52705. Further, it is important to note, that 
even though we are approving the use of international reductions in 
lieu of DERCs along the Texas-Mexico border, the use of these 
reductions must still meet the requirements of the CAA. Therefore, the 
international reductions are not available for use as Federal NSR 
offsets since section 173(c)(1) of the CAA requires that offset 
reductions come from the same nonattainment area as the proposed source 
or modification or another nonattainment area with an equal or higher 
nonattainment classification.
4. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.376--
Discrete Emission Credit Use
    The October 4, 2006, revisions to section 101.376(c)(4) are 
approvable. TCEQ correctly updated the cross-references to Chapter 106 
in response to our final conditional approval notice. In our final 
notice we stated that ``We are not approving section 101.376(c)(4) into 
the Texas SIP because the cross-references to 30 TAC Chapter 106 Permit 
by Rule, sections 106.261(3) or (4) or section 106.262(3) are incorrect 
and do not exist in State law, the Texas SIP, or the Texas Federal 
Operating Permits program. Consequently, unless and until the State 
adopts and submits a revision to EPA for approval as a SIP revision and 
EPA approves it, the use of discrete emission credits to exceed the 
provisions in certain types of pre-construction permits termed Permits 
by Rule is not available under the Texas SIP.''

[[Page 15652]]

    While EPA has not approved sections 106.261 and 106.262 into the 
Texas SIP, we are able to approve the revisions to section 
101.376(c)(4). By approving the revisions to section 101.376(c)(4) we 
are not approving a use of DERCs that conflicts with the Texas SIP, 
rather we are approving a listed prohibition of DERC usage that would 
further support the Texas SIP. Additionally, if an owner or operator of 
a facility wished to use DERCs in a manner that exceeded limitations 
from sections 106.261 or 106.262, the use would have to be approved by 
TCEQ and EPA; EPA anticipates our approval would only occur through a 
case-specific SIP revision following a demonstration from the owner/
operator that useage of DERCs in this manner would not undermine the 
attainment strategy of the area or constitute a violation of CAA 
section 110(l).
5. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.378--
Discrete Emission Credit Banking and Trading
    The October 4, 2006, revisions to section 101.378 are approvable. 
The revisions to section 101.378(b)(1) and (b)(2) limit the lifetime of 
certain discrete emission credits generated from shutdowns. Discrete 
emission credits generated from shutdowns prior to September 30, 2002, 
remain available for use until September 8, 2010. Any discrete emission 
credits certified from shutdowns after September 30, 2002, may not be 
used. These amendments are consistent with the Open-Market Trading 
provisions at section 7.5(b) of the EIP Guidance.
    The revisions to section 101.378 described above were made pursuant 
to TCEQ's September 8, 2005 commitment letter for the DERC Program 
conditional approval (included in the docket for this action). In this 
commitment letter, TCEQ committed to revising the DERC program to 
restrict the lifetime of previously generated shutdown DERCs. Please 
see section IV. of this notice for a discussion of how the TCEQ has 
addressed the elements of DERC conditional approval and the September 
8, 2005 commitment letter.

B. August 16, 2007 SIP Submittal

1. 30 TAC Chapter 101, Subchapter H, Division 4, Section 101.372--
General Provisions
    The July 25, 2007 revisions to section 101.372(d)(1)(A) and (B) are 
approvable. As demonstrated further in our TSD, the non-substantive 
revisions to section 101.372(d)(1)(A) correctly cross-reference the 
recodified stationary source NOX rules in the Texas SIP at 
30 TAC Chapter 117. The non-substantive revisions to section 
101.372(d)(1)(B) correctly update the titles of the stationary source 
VOC rules in the Texas SIP at 30 TAC Chapter 115. These non-substantive 
revisions do not affect the approved emission quantification protocols 
established for the DERC Program.
2. 30 TAC Chapter 101, Subchapter H, Division 1, Section 101.376--
Discrete Emission Credit Use
    The July 25, 2007 revisions to section 101.376(d)(2)(A) are 
approvable. As demonstrated further in our TSD, these non-substantive 
revisions correctly cross-reference the recodified stationary source 
NOX rules in the Texas SIP at 30 TAC Chapter 117. These non-
substantive revisions do not affect the emission use calculations 
established for the DERC Program.

IV. What Is EPA's Evaluation of the TCEQ's Response to the DERC 
Conditional Approval?

A. What is a conditional approval?

    Under section 110(k)(4) of the Clean Air Act, EPA may conditionally 
approve a plan based on a commitment from the State to adopt specific 
enforceable measures within one year from the date of approval. The 
conditional approval remains in effect until EPA takes its final 
action--either a final approval or disapproval.
    If EPA determines that the revised rule is approvable, EPA will 
propose approval of the rule through a notice and comment rulemaking. 
After responding to comments received, EPA will publish a final 
approval of the rule and the conditional approval is no longer in 
effect. However, if the State fails to meet its commitment within the 
one year period, then EPA must proceed with a disapproval action. EPA 
will propose disapproval of the rule through notice and comment 
rulemaking, and will finalize the disapproval after responding to all 
comments received. Note that EPA will conditionally approve a certain 
rule only once. Subsequent submittals of the same rule that attempt to 
correct the same specifically identified problems will not be eligible 
for conditional approval.

B. What are the terms of the DERC program conditional approval?

    EPA conditionally approved the DERC program on September 6, 2006. 
Our conditional approval was based on a commitment letter submitted by 
the TCEQ on September 8, 2005. The September 8, 2005 commitment letter 
included the following provisions that the TCEQ agreed to address by 
December 1, 2006. Additionally, TCEQ agreed to comply with these 
commitments during the conditional approval period. Specifically, TCEQ 
agreed to not approve any trades involving the types of reductions 
described in item (3) below, not approve any use of discrete shutdown 
credits that were generated after September 30, 2002, and to require 
the waiver described in item (4) below for generators and users of 
discrete emission credits.
    1. Revise 30 TAC Sec.  101.373 to prohibit the future generation of 
DERCs from permanent shutdowns and to allow DERCs generated and banked 
from permanent shutdowns prior to September 30, 2002 to remain 
available for use for no more than five years from the date of this 
letter.
    2. The TCEQ will perform a credit audit to remove from the 
emissions bank all DERCs generated from permanent shutdowns after 
September 30, 2002. Even if the shutdown itself occurred before 
September 30, 2002, no DERCs can be generated from that event after 
September 30, 2002.
    3. Revise 30 TAC Sec. Sec.  101.302(f), 101.372(f)(7) and 
101.372(f)(8) to clarify that EPA approval is required for individual 
transactions involving emission reductions generated in another state 
or nation, as well as those transactions from one nonattainment area to 
another, or from attainment counties into nonattainment areas. The TCEQ 
further understands that the EPA would require a state implementation 
plan revision prior to approving a transaction between another state or 
nation, as well as, those transactions between counties not located 
within the same nonattainment area.
    4. The TCEQ will revise Form DEC-1, Notice of Generation and 
Generator Certification of Discrete Emission Credits; Form MDEC-1, 
Notice of Generation and Generator Certification of Mobile Discrete 
Emission Credits; and Form DEC-2, Notice of Intent to Use Discrete 
Emission Credits, to include a waiver to the Federal statute of 
limitations defense for generators, and users of DERCs and mobile 
discrete emission reduction credits (MDERCs). Please be reminded that 
there is currently no applicable state statute of limitations in the 
State of Texas. In addition, the TCEQ will maintain its current policy 
of preserving all records relating to DERC and MDERC generation and use 
for a minimum of five years after the use strategy has ended.
    5. Revise 30 TAC Sec. Sec.  101.302 and 101.372 to clarify that a 
proposed quantification protocol may not be used

[[Page 15653]]

if the TCEQ Executive Director receives a letter from the EPA objecting 
to the use of the protocol during the 45-day adequacy review period or 
if the EPA proposes disapproval of the protocol in the Federal 
Register.
    6. Revise 30 TAC Sec.  101.306 to specify that Emission Reduction 
Credits may be used within the highly reactive volatile organic 
compounds Emissions Cap and Trade program as an annual allocation of 
allowances as provided under 30 TAC Sec.  101.399.

C. Were the terms of the DERC conditional approval met?

    Following is an analysis of each DERC program element of the 
September 8, 2005, commitment letter and TCEQ's response. EPA is not 
including the ERC program elements (see commitments 3, 5, and 6 above) 
in our analysis of the DERC conditional approval. The ERC and DERC 
programs operate independently of each other and have been approved as 
separate, stand alone programs by EPA. The submission of these ERC 
provisions will not impact the functionality of the DERC program nor 
were these revisions to the ERC program necessary for the DERC program 
to be considered consistent with EPA regulations, policy and guidance. 
EPA has evaluated the October 24, 2006, ERC program revisions in a 
separate rulemaking (see EPA-R06-OAR-2010-0147).
    1. Revise 30 TAC Sec.  101.373 to prohibit the future generation of 
DERCs from permanent shutdowns and to allow DERCs generated and banked 
from permanent shutdowns prior to September 30, 2002, to remain 
available for use for no more than five years from the date of this 
letter.
    TCEQ met this commitment of the conditional approval. TCEQ adopted 
the appropriate provisions and submitted the revised rules as a SIP 
revision within the time frame. TCEQ adopted revisions to section 
101.373 that removed shutdowns as a method of generation and added the 
following language under the list of prohibited generation activities 
at section 101.373(a)(2): ``permanent or temporary shutdowns or 
permanent curtailment of an activity at a facility''. TCEQ adopted 
revisions to section 101.378(b)(1) that revise the lifetime of a DEC. 
Section 101.378(b)(1) states that ``Discrete emission credits generated 
from shutdown strategies prior to September 30, 2002, will be available 
for use until September 8, 2010.''
    Note that the DERC calculation procedures at sections 
101.373(c)(1), (3), and (4) discuss how DERCs are calculated from 
shutdowns. Additionally, section 101.373(d)(3)(c) discusses how to 
certify the generation of DERCs from shutdown activities. EPA believes 
that the inclusion of this language was an oversight on TCEQ's part 
when responding to our conditional approval commitments. The DERC 
program at section 101.373(a)(2)(A) clearly prohibits the generation of 
DERCs from shutdowns. Therefore, EPA feels that TCEQ should remove this 
language at their earliest convenience, but that the prohibition on 
generation of shutdown DERCs is not impacted by this erroneous 
calculation.
    2. The TCEQ will perform a credit audit to remove from the 
emissions bank all DERCs generated from permanent shutdowns after 
September 30, 2002. Even if the shutdown itself occurred before 
September 30, 2002, no DERCs can be generated from that event after 
September 30, 2002.
    TCEQ met this commitment of the conditional approval. TCEQ adopted 
the appropriate provisions and submitted the revised rules as a SIP 
revision within the time frame. TCEQ confirmed in a letter dated 
February 5, 2010, that the credit audit was performed in January 2006 
(this letter is available in the docket for this rulemaking). 
Additionally, TCEQ adopted two revisions to the SIP that will ensure 
that shutdowns after September 30, 2002, do not generate DERCs. First, 
the revision to section 101.373(a)(2) prohibits the future generation 
of DERCs from shutdowns (as discussed in item 1 above). Second, the 
TCEQ revised section 101.378(b)(2) so that ``Discrete emission credits 
certified from facility shutdowns after September 30, 2002, may not be 
used.''
    3. Revise 30 TAC Sec. Sec.  101.372(f)(7) and 101.372(f)(8) to 
clarify that EPA approval is required for individual transactions 
involving emission reductions generated in another state or nation, as 
well as those transactions from one nonattainment area to another, or 
from attainment counties into nonattainment areas. The TCEQ further 
understands that the EPA would require a state implementation plan 
revision prior to approving a transaction between another state or 
nation, as well as, those transactions between counties not located 
within the same nonattainment area.
    TCEQ met the DERC-specific portion of this commitment. Section 
101.372(f) outlines the geographic scope of the DERC rule and generally 
provides that, with the exception of international reductions pursuant 
to section 101.375, only reductions generated in the State of Texas can 
be certified as DERCs. Section 101.372(f)(7) was unchanged by TCEQ and 
continues to provide that reductions from other counties, states, or 
nations can be used in any attainment or nonattainment county provided 
a demonstration showing improvement in air quality has been approved by 
the TCEQ ED and EPA. The use of international reductions under section 
101.372(f)(7) is further modified by the restrictions at section 
101.375.
    Section 101.372(f)(8) was moved to new section 101.375. Section 
101.375 establishes two ways that a facility could use an international 
reduction. First, a facility could use reductions of a criteria 
pollutant or precursor of criteria pollutant to meet requirements of 
the same criteria pollutant. This option would be used if a facility 
had a NOX requirement in Texas and could find NOX 
reductions in Mexico or an ozone requirement in Texas and could find 
VOC reductions in Mexico. Alternately, a facility could use reductions 
of a criteria pollutant or its precursors to substitute for reductions 
in other criteria pollutants. For example, this situation would be one 
in which a source could be subject to a PM2.5 requirement and wants to 
use CO reductions to satisfy the requirement. Generally, both of these 
uses (the same criteria pollutant or the substitution) requires 
approval by EPA and the TCEQ ED; the source must demonstrate that the 
reduction is real, permanent, enforceable, quantifiable, and surplus to 
any applicable Mexican, Federal, State, or local law; demonstrate that 
the use of the reduction does not cause localized health impacts; 
submit all supporting information for calculations and modeling; and be 
located within 100km of the Texas-Mexico border.
    There are additional requirements for the case where a facility 
wants to substitute the international reduction of a criteria pollutant 
or its precursor for the obligations of a different criteria pollutant 
(the example above in which the facility used CO reductions for a PM2.5 
requirement). The facility must either show that the reduction is 
substituted for the reduction requirement of another criteria pollutant 
and the substitution results in a greater health benefit and is of 
equal or greater benefit to the overall air quality of the area; or, 
the source must show that the reduction of a criteria pollutant (or 
precursor) for which the area is nonattainment is substituted for 
another criteria pollutant (or precursor) requirement for which an area 
is nonattainment.
    Even though section 101.372(f)(7) was not revised, EPA approval is 
clearly required for uses of reductions from other counties, states, or 
other nations.

[[Page 15654]]

Uses of international reductions under section 101.372(f)(7) are 
further modified by the restrictions at section 101.375, which also 
clearly require EPA approval.
    4. The TCEQ will revise Form DEC-1, Notice of Generation and 
Generator Certification of Discrete Emission Credits; Form MDEC-1, 
Notice of Generation and Generator Certification of Mobile Discrete 
Emission Credits; and Form DEC-2, Notice of Intent to Use Discrete 
Emission Credits, to include a waiver to the Federal statute of 
limitations defense for generators, and users of DERCs and mobile 
discrete emission reduction credits (MDERCs). Please be reminded that 
there is currently no applicable state statute of limitations in the 
State of Texas. In addition, the TCEQ will maintain its current policy 
of preserving all records relating to DERC and MDERC generation and use 
for a minimum of five years after the use strategy has ended.
    TCEQ met this commitment of the conditional approval. In a letter 
dated February 5, 2010, the TCEQ stated that even though the commitment 
included modifying Form MDEC-1, such form has never been created. 
However, Form MDEC-1 will include a waiver of the Federal statute of 
limitations defense if at any time in the future the TCEQ creates said 
form. Also in the February 5, 2010, letter, the TCEQ stated that the 
Forms DEC-1 and DEC-2 were modified in or before February 2007, but 
that the exact modification date could not be determined since the TCEQ 
does not keep copies of old versions of the form. Additionally, the 
TCEQ modified Form DEC-3, Notice of Use of Discrete Emission Credits, 
to include the same waiver of the Federal statute of limitations 
defense even though modification of Form DEC-3 was not part of the 
commitment. Copies of the modified DEC-1, DEC-2, and DEC-3 forms were 
included with the letter. Note that the February 5, 2010, letter and 
attachments is available in the FDMS docket for this action.
    The TCEQ confirmed that during the time period between September 
2006 and February 2007, there were no DERC generations submitted. So, 
even though Form DEC-1 was not revised until February 2007, there was 
not an instance where DERC generation did not have the appropriate 
waiver. However, between September 2006 and February 2007, there were 
18 DEC-2 forms submitted to the TCEQ without the waiver of Federal 
statute of limitations defense language. But, under the DERC program, 
any notification of intent to use DERCs submitted on a DEC-2 form, must 
be followed by a notification of use through the submission of a DEC-3 
form. All 18 DEC-2 forms were followed by submissions of the DEC-3 
forms with the appropriate waiver language.
    Even though the DEC-1 and DEC-2 forms were not modified by the 
December 2006 deadline specified in the commitment letter, EPA finds 
that the intent of this commitment has been satisfied. The intent of 
this commitment was to ensure that all DERC generation and use 
activities were covered by a waiver of the Federal statute of 
limitations defense. Since no DERCs were generated during this time, 
there was no need for a DEC-1 form. The 18 DEC-2 forms provide 
notification that a source intends to use DERCs, the verification that 
the use occurred is through the submission of a DEC-3 form. TCEQ 
verified that all 18 DEC-2 forms were followed by the submission of a 
modified DEC-3 form--thereby covering all DERC usage activities with 
the waiver of the Federal statute of limitations defense.
    5. Revise 30 TAC Sec.  101.372 to clarify that a proposed 
quantification protocol may not be used if the TCEQ Executive Director 
receives a letter from the EPA objecting to the use of the protocol 
during the 45-day adequacy review period or if the EPA proposes 
disapproval of the protocol in the Federal Register.
    TCEQ met this commitment of the conditional approval. TCEQ adopted 
the appropriate provisions and submitted the revised rule as a SIP 
revision within the time frame. TCEQ revised section 101.372(d)(vi) to 
state that ``quantification protocols shall not be accepted for use 
with this division if the executive director receives a letter 
objecting to the use of the protocol from the EPA during the 45-day 
adequacy review or the EPA proposes disapproval of the protocol in the 
Federal Register.''

V. Final Action

    EPA is proposing to approve severable revisions to the Texas SIP 
submitted on October 24, 2006, and August 16, 2007. Specifically from 
the October 24, 2006 submittal, EPA is approving the amendments to 
section 101.372(a) and (f) that move the international emission 
reduction requirements to a new section, the amendments to section 
101.372(d)(1)(C)(vi) that clarify EPA's role in approving emission 
quantification protocols, the amendments to section 101.373 to prohibit 
the generation of DERCs from shutdowns, the amendment to section 
101.376(c)(4) that updates the cross-references to Chapter 106 
provisions, the amendments to section 101.378(b) to limit the lifetime 
of previously generated shutdown DERCs, and non-substantive revisions 
to sections 101.372(d) and 101.372(j). EPA is also proposing to approve 
provisions for international emission reductions at new section 101.375 
submitted on October 24, 2006. The October 24, 2006, DERC Program 
revisions satisfy the elements of the September 8, 2005, commitment 
letter; as such, EPA is proposing the DERC program for full approval. 
Additionally, we are proposing to approve the following nonsubstantive 
revisions to the Texas SIP submitted on August 16, 2007: revisions to 
sections 101.372(d)(1)(A) and 101.376(d)(2)(A) to update the cross-
references to recently recodified provisions in 30 TAC Chapter 117 and 
revisions to section 101.372(d)(1)(B) to update the cross-referenced 
title to provisions in Chapter 115.
    In a separate rulemaking, EPA is proposing action on the severable 
ERC Program revisions at 30 TAC sections 101.302, 101.305, and 101.306 
submitted on October 24, 2006, and 30 TAC sections 101.302 and 101.306 
submitted on August 16, 2007 (see EPA-R06-OAR-2010-0417).
    At this time, EPA is not taking action on the revisions to the 
Emissions Banking and Trading of Allowances Program at 30 TAC sections 
101.338 and 101.339 submitted on October 24, 2006. EPA is also not 
taking action at this time on the revisions to the general air quality 
definitions at 30 TAC Section 101.1 or the revisions to the System Cap 
Trading Program at 30 TAC sections 101.383, and 101.385 submitted on 
August 16, 2007. These severable revisions remain under review by EPA 
and will be addressed in separate actions.

VI. Statutory and Executive Order Reviews

    Under the Clean Air Act, the Administrator is required to approve a 
SIP submission that complies with the provisions of the Act and 
applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). 
Thus, in reviewing SIP submissions, EPA's role is to approve state 
choices, provided that they meet the criteria of the Clean Air Act. 
Accordingly, this action merely approves state law as meeting Federal 
requirements and does not impose additional requirements beyond those 
imposed by state law. For that reason, this action:
     Is not a ``significant regulatory action'' subject to 
review by the Office of Management and Budget under Executive Order 
12866 (58 FR 51735, October 4, 1993);

[[Page 15655]]

     Does not impose an information collection burden under the 
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact 
on a substantial number of small entities under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or 
uniquely affect small governments, as described in the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have Federalism implications as specified in 
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based 
on health or safety risks subject to Executive Order 13045 (62 FR 
19885, April 23, 1997);
     Is not a significant regulatory action subject to 
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of Section 12(d) of the 
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 
note) because application of those requirements would be inconsistent 
with the Clean Air Act; and
     Does not provide EPA with the discretionary authority to 
address, as appropriate, disproportionate human health or environmental 
effects, using practicable and legally permissible methods, under 
Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have tribal implications as specified 
by Executive Order 13175 (65 FR 67249, November 9, 2000), because the 
SIP is not approved to apply in Indian country located in the state, 
and EPA notes that it will not impose substantial direct costs on 
tribal governments or preempt tribal law.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Intergovernmental 
relations, Nitrogen oxides, Ozone, Reporting and recordkeeping 
requirements, Volatile organic compounds.

    Authority:  42 U.S.C. 7401 et seq.

    Dated: March 18, 2010.
Lawrence E. Starfield,
Acting Regional Administrator, Region 6.
[FR Doc. 2010-6801 Filed 3-29-10; 8:45 am]
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