BOARD MEETING DATE: February 14, 1997 AGENDA NO. 2
Proposal:
Set Public Hearing March 14, 1997 to Adopt Proposed Rule 2506 - Area Source Credits
Synopsis:
Proposed Rule 2506 will establish a voluntary emissions reduction credit program 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, January 24, 1997, Reviewed
Recommended Action:
Set Public Hearing March 14, 1997 to adopt Proposed Rule 2506 - Area Source Credits
James M. Lents, Ph.D.
Executive Officer
Background
On October 15, 1993, the AQMD Governing Board launched a new approach to environmental regulation with the October 15, 1993 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 emissions 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 - Area Source Credits.
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 ten percent discount. This discount is necessary in order to comply with the environmental benefit requirements of EPA’s proposed Open Market Trading Guidance. 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 emission impact 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).
CEQA & Socioeconomic Analysis
Pursuant to CEQA and AQMD’s Certified Regulatory Program (Rule 110), the AQMD has prepared a Draft Subsequent Environmental Assessment (EA) for Proposed Rule 2506. The Draft Subsequent EA has determined that the proposed rule may result in potentially significant adverse air quality and cumulative water quality and human health impacts. The Draft Subsequent EA was released for a 45-day public review period which ended December 27, 1996. All written comments received on the Draft Subsequent EA will be responded to in the final document.
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 to 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
Draft Rule Language
Draft Staff Report
Socioeconomic Report
CEQA Analysis