BOARD MEETING DATE: April 11, 1997 AGENDA NO. 37
Proposal:
Adopt Proposed Rule 2506 - Area Source Credits
Synopsis:
Proposed Rule 2506 will establish a voluntary emissions reduction credit program in order to accelerate the introduction of lower-emitting technologies. It provides for the issuance of marketable Area Source Credits (ASCs) to entities that reduce emissions of NOx, VOC, SOx, CO, and PM10 from area sources. Regulated facilities could use ASCs as RECLAIM Trading Credits or as an alternative means of compliance with other AQMD regulations which allow the use of such credits.
Committee:
Stationary Source, March 21, 1997, reviewed.
Recommended Action:
1. Certify the Final Subsequent EA for Proposed Rule 2506 - Area Source Credits.2. Adopt the Statement of Findings and Statement of Overriding Considerations for Proposed Rule 2506 - Area Source Credits.
3. Approve the Socioeconomic Impact Assessment for Proposed Rule 2506 - Area Source Credits.
4. Adopt Proposed Rule 2506 - Area Source Credits.
James M. Lents, Ph.D.
Executive Officer
The AQMD Governing Board held a public hearing regarding this proposed rule at its March 14, 1997 meeting. The public testimony presented at that hearing indicated that there were some issues remaining regarding the proposed rule. The primary issues raised in this testimony pertained to determination of appropriate baseline emission rates, discounts for environmental benefit, and public notification. Therefore the hearing was continued to the April 11, 1997 meeting of the Governing Board. Staff has engaged in extensive discussion with interested parties and US EPA during the interval between the Board meetings in an attempt to establish consensus between business and environmental interests. Several changes have been made to the proposed rule in order to clarify intent and resolve certain issues. However, it has not been possible to reach consensus regarding the issue of determining appropriate baseline emission rates. Therefore, the definition of baseline emission rate is unchanged from the March 14, 1997 proposal, although a sentence has been added to clarify its intent. Discussions with interested parties are ongoing in an attempt to establish a consensus on the baseline issue.
Background
On October 15, 1993, the AQMD Governing Board launched a new approach to environmental regulation with the adoption of Regulation XX - Regional Clean Air Incentives Market (RECLAIM). In order to meet the challenge of achieving healthful air quality at a lower cost and with greater flexibility, RECLAIM establishes two emission trading markets--one each for NOx and SOx. Participants in these trading markets have the flexibility to reduce emissions in order to comply with declining annual mass emission limits or to purchase emission credits to increase their emission limits. Therefore, the RECLAIM program creates a demand for emission credits. Availability of a variety of credit generation mechanisms is key to optimizing the flexibility provided by RECLAIM. Therefore, AQMD has worked to develop several credit generation rules since RECLAIM’s adoption, including Proposed Rule 2506.
Proposed Rule 2506 was developed with the intent of encouraging emission reductions and technology advancement for unpermitted sources and the accelerated turnover of old, higher-emitting equipment while generating low-cost emission credits. The following design principles were used to guide the development of Proposed Rule 2506 in order to ensure compliance with state and federal requirements and compatibility with existing AQMD regulations:
Proposal
Proposed Rule 2506 is a voluntary credit generation rule. This rule will create a mechanism to translate emission reductions from stationary sources which do not require AQMD operating permits into fungible emission credits. Many of the sources which fall under the broad category of "area sources" are either unregulated from an emissions perspective or are subject to minimal emissions regulation. Therefore, these sources hold the potential for significant emission reductions at substantially reduced costs as compared with achieving additional emission reductions from the traditionally regulated point sources.
The proposed rule includes provisions which specify:
The proposed rule specifies that ASCs may be converted to RECLAIM Trading Credits for use in the RECLAIM program with a 10% discount for environmental benefit. The rule language also specifies that ASCs may be used for alternative compliance with other AQMD rules pursuant to enabling language in other AQMD rules. Such enabling language does not currently exist, but will be developed in conjunction with AQMD’s continuing development of intercredit trading. Enabling language will also have to comply with the environmental benefit language of EPA’s proposed Open Market Trading Guidance.
The program audit provisions include a requirement for a public hearing regarding the rule after three years of implementation. This hearing will include an evaluation of program performance as well as consideration of the appropriateness of continuing the Area Source Credits program and of specific program enhancements.
AQMP & Legal Mandates
There is no impact on AQMP emissions from the proposed rule. This program implements the requirements of SB 1098 regarding credit programs (codified at California Health and Safety Code §40714.5) and AB 1054 regarding market incentive programs (codified at California Health and Safety Code §39616 and §40440.1).
Policy Issues
A public hearing was held regarding this proposed rule on March 14, 1997. The environmental community raised several issues pertaining to specific provisions of the proposed rule. Therefore, the hearing was continued to April 11, 1997. The issues raised are summarized below:
• Definition of baseline emission rate
The proposed rule defines baseline emission rate as the lowest of several parameters, including the median emission rate for the source category. The environmental community believes that the median emission rate is too lenient to ensure that all ASCs issued reflect real emission reductions. At the March hearing, Table 1 of the rule contained 25 types of equipment (or processes) eligible for credit with emission rates identified. Only seven of these source categories had an emission rate based on the median. The other 18 source categories had emission rates based on more restrictive standards.
Response: The seven source categories with emission rates based on the median have been dropped from Table 1 in the rule, as have two additional categories which were determined not to be area sources. The nine deleted source categories are:
Response: The draft rule language has been amended to specify Governing Board approval of such procedures.
Response: No change is proposed to the rule.
CEQA & Socioeconomic Analysis
Pursuant to CEQA and AQMD’s Certified Regulatory Program (Rule 110), the AQMD has prepared a Subsequent Environmental Assessment (EA) for Proposed Rule 2506. The Draft Subsequent EA determined that the proposed rule may result in potentially significant adverse air quality and cumulative water quality and human health/hazards impacts. The potentially significant air quality impact is due to implementing state law which requires the issuance of area source emission reduction credits retroactive to 1991. Potential cumulative water quality and human health/hazards impacts are due to reformulation of solvent cleaners and coatings to low-VOC formulations, respectively. If spent (contaminated) aqueous-based cleaners are improperly disposed of down the drain, the contaminants in the effluent may adversely affect the public sewer system. Flammable or otherwise hazardous materials may be components of reformulated coatings. Since the use of reformulated solvents and coatings by area sources is expected to eventually occur regardless of Proposed Rule 2506, the program would only shift any associated wastewater or hazard impacts forward in time. No additional wastewater or hazard impacts are expected from implementation of the proposed rule.
The Draft Subsequent EA was released for a 45-day public review period ending December 27, 1996. No comments were received on the document. The modifications to the proposed rule made subsequent to the release of the draft document do not alter any conclusions reached in the Draft Subsequent EA, nor provide new information of substantial importance relative to the draft document. The Final Subsequent EA is included as an attachment to this package.
It is not possible to project a cost effectiveness for Proposed Rule 2506 due to its voluntary nature and the subtle interaction between costs and benefits associated with credit generation and alternative compliance options. However, it is unlikely to result in increased compliance costs for participants. Individuals will not be inclined to participate in the program unless they perceive a financial benefit from doing so. Thus, Proposed Rule 2506 is expected to result in equivalent or better emission reductions at equivalent or reduced cost.
Implementation Plan
The proposed rule establishes a voluntary program and will not impose any additional regulatory burden on regulated communities. As always, staff will be available to assist any parties electing to participate in the Area Source Credits program.
Resource Impacts
Participation in the Area Source Credits program is uncertain due to its voluntary nature. Therefore, the level of staff effort required to implement the rule is unknown at this time. The financial impact of implementing this rule will be partially offset by the revenue associated with application fees.
Summary
Rule Development Process
Key Contacts
Resolution
Rule Language
Final Staff Report
Socioeconomic Report
CEQA Analysis