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PROPOSAL:

Report on Effectiveness of Regulation XIII - New Source Review

SYNOPSIS:

This report, submitted to the Board pursuant to subdivision (b) of Rule 1310 - Analysis and Reporting, provides information on the effectiveness of Regulation XIII - New Source Review (NSR), in meeting state and federal NSR requirements. This report amends the previous calculation methodology for compliance with state law requirements for emission offsets, and presents data for October 1990 to July 1997 for state law compliance, and for August 1996 to July 1997 for federal law compliance. AQMD’s non-RECLAIM NSR program is shown to meet all state and federal NSR requirements for this reporting period.

COMMITTEE:

Stationary Source Committee, February 20, 1998, Reviewed

RECOMMENDED ACTION:

Receive and File.

Barry R. Wallerstein, D.Env.
Acting Executive Office

INTRODUCTION

Regulation XIII - New Source Review governs the permitting of new, modified, and relocated sources within AQMD, provided such sources are not subject to Regulation XX - Regional Clean Air Incentives Market (RECLAIM). Rule 1310 - Analysis and Reporting, requires the submittal of an annual report to the AQMD Governing Board on the effectiveness of Regulation XIII in meeting state and federal NSR requirements.

The last annual report on the effectiveness of Regulation XIII - NSR was submitted to the Board on February 14, 1997 and covered the period August 1995 to July 1996. Historic information for the period before 1995 may be found in the staff report submitted to the Board as part of the December 1995 amendment of Regulation XIII.

This report provides information from October 1990 to July 1997 for state law compliance and from August 1996 to July 1997 for federal law compliance. The state demonstration of equivalency covers the period from October 1990 to July 1997 instead of the past 12 months only, because the previous information is being revised based on an improved methodology that uses "actual" emissions to report emission increases subject to the state’s "no net emission increase" requirement. The previous methodology for calculating emission increases for state law compliance was based on "permitted" emission levels, and showed a small imbalance regarding emissions of Nitrogen Oxides (NOx).

BACKGROUND

AQMD’s NSR program has evolved since 1976, in response to state and federal legal requirements, and the changing needs of the local economy and the environment. The latest adjustment to the NSR program was made in December 1995, when Regulation XIII was amended by the Board to balance the needs of local business and air quality. While the non-RECLAIM NSR program is non-traditional and flexible, it must comply with the governing principles of NSR contained in the federal CAA and the California Health and Safety Code. At a minimum, the AQMD's NSR program must achieve equivalent emission reductions to what would have been achieved by the implementation of state and federal NSR requirements. The AQMD’s program is designed to meet the state and federal statutory requirements for NSR and to ensure that the construction and operation of new or modified sources do not interfere with progress towards attainment of the NAAQS. Presented below are the specific requirements of federal and state law.

Federal Law

Federal law requires the use of LAER and offsets. Effective November 15, 1992, Section 182(e)(1) and (2) of the federal CAA required a 1.5-to-1 or a 1.2-to-1 external offset ratio and a 1.3-to-1 internal offset ratio for VOC or NOx sources that emit or have the potential to emit 10 tons or more per year. [ 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 (f)(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."] The South Coast Air Basin (Basin) is the only extreme ozone nonattainment area in the nation. An extreme ozone nonattainment area may qualify for the 1.2-to-1 offset ratio if it requires all existing major sources to use federally defined BACT [CAA Section 182(e)(1)].

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-1 . . . ." By referring to the offset requirements pursuant to this part, which includes the basic offset requirement of Section 173(a)(1)(A) of the CAA, and by using the term "total emission reductions" -- language which is similar to Section 173(a)(1)(A) -- Section 182(e)(1) indicates that the increased offset ratio requirements can be met on an aggregate basis. An aggregate compliance approach for federal NSR is acceptable provided the information is substantiated by an emissions tracking system. The AQMD’s NSR program meets the federal offset requirements in an aggregate form. All the information provided in this report is substantiated by data retrieved from the AQMD’s NSR Tracking System.

State Law

State law requires the use of 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 new or modified sources based on their potential to emit and the nonattainment classification of the area in which they are located.

Based on their classification, the Basin and Southeast Desert Air Basin (SEDAB) must comply with the requirements for extreme and severe nonattainment areas for ozone precursors (i.e., VOC and NOx) . Both the Basin and the SEDAB must comply with the requirements for serious nonattainment areas for PM10 and its precursor (i.e., SOx). For CO, the Basin and the SEDAB must comply with the requirements for serious nonattainment areas and moderate nonattainment areas, respectively. The AQMD demonstrates compliance with the "no net emission increase" requirements of state law for the period from October 1990 to July 1997 by demonstrating compliance with the requirements for extreme nonattainment areas for VOC and NOx and with the requirements for serious nonattainment areas for PM10, SOx, and CO.

This report amends the calculation methodology for state law compliance. Based on the previous methodology, AQMD had used "permitted" emissions to report emissions subject to the "no net emission increase" requirement of state law instead of "actual" emission increases. The methodology using "permitted" emission levels has produced a deficit in the NSR equivalency program for NOx emissions. Since creditable emission reduction are based on actual emission decreases, the ARB staff has agreed with the AQMD staff that the appropriate methodology to report emission increases for compliance with the "no net emission increase" requirement of state law is to use "actual" emissions. The revision of the methodology makes the AQMD NSR program fully compliant with the requirements of state law.

AQMD’s Approach

BACT and offsetting emission increases are the primary requirements of federal and state NSR requirements. AQMD's BACT standards are equivalent to, and in many cases are more stringent than, BACT as 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. This report demonstrates compliance with federal and state NSR requirements by an aggregate demonstration of equivalency for federal and state offset requirements.

FEDERAL OFFSET REQUIREMENTS

The data and information presented in this report is limited to the supply and demand for creditable emission reductions, and 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 or by internal mitigation are not included here since they meet the intent of both state and federal law. 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.

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 Basin. [ The thresholds that define major polluting facilities in the Basin are more stringent than the thresholds that define major polluting facilities in the SEDAB. Therefore, the analysis is conservative since it may over estimate the emission increases subject to federal offset requirements.]

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, 1996 to July 31, 1997. Table 1-2 also presents the balance of creditable emission reductions available for future compliance with federal offset requirements.

Source of Creditable Emission Reductions

The sources of creditable emission reductions used by AQMD to demonstrate compliance with federal and state NSR requirements are described below.

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 to fund the NSR program. The emissions shown in Table 1-1 represent data for the period August 1996 to July 1997.

BACT Discount of ERCs

Emission reductions from shutdowns for which ERCs are issued are discounted to BACT levels. The amount discounted is credited to the NSR account as a creditable emissions reductions, since they are in excess of the federal NSR requirements. The emission shown in Table 1-1 represent data for the period August 1996 to July 1997.

NSR Balances

This source of creditable emission reductions was generated by discounting negative NSR balances in 1990. Negative NSR balances represented a facility’s emission reduction credit balance. Negative NSR balances were generated by emission reductions (which were the result of equipment or facility modifications or shutdowns) that were credited to a facility’s NSR account and not issued as a certificate. 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. Table 1-1 shows the balances as of August 1996 as calculated in the previous annual NSR report of February 1997.

Source of Emission Increases

AQMD’s non-traditional NSR program provides an exception from the offset requirements of Regulation XIII for new or 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.

Community Bank

Until February 1996 no offsets were required for projects whose emission increases, for that project, were below a specified threshold of 30 lb/day VOC, 40 lb/day NOx, 60 lb/day SOx, 220 lb/day CO, and 30 lb/day PM10. This feature was replaced with a facility exemption for small business operators, effective February 1, 1996. The facility exemption provides an exemption from offsets for facilities which emission are less or equal to 4 tons per year.

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 landfills, sewage treatment plants and similar operations.

Other Exemptions

Several offset exemptions are provided in Rule 1304 in keeping with AQMD’s policy for fair and equitable treatment of business. While a complete explanation may be found in earlier staff reports for Regulation XIII revisions, most of these exemptions are either beneficial to the environment or driven by severe economic needs.

Compliance with Federal NSR Requirements

As presented in Table 1-2 the AQMD’s NSR program meets the offset requirements of federal law. Since the AQMD’s BACT standards are equivalent to federally-defined BACT and the program contains and implements all the federal NSR requirements for major sources (Rule 1303), the AQMD’s program is hereby deemed equivalent to and in compliance with all federal NSR requirements.

STATE "NO NET EMISSION INCREASE" REQUIREMENTS

The analysis presented here is based on the fact that the "no net emission increase" requirement for extreme nonattainment pollutants is applicable only to VOC and NOx. The "no net emission increase" requirements for serious nonattainment pollutants is applicable to PM10, SOx and CO.

Table 1-3 presents the cumulative creditable emission reductions available for compliance with the state’s "no net emission increase" requirement for the period from October 1990 to July 31, 1997. Table 1-4 presents the cumulative amount of emission increases subject to the state’s "no net emission increase" requirements for the same period for sources for which the AQMD was responsible to meet the state’s offset requirement. Explanation for the source categories may be found earlier under the heading "Federal offset Requirements."

For State NSR Compliance [ All new and modified VOC and N o x sources (regardless of their potential to emit), and all new and modified SO X , CO and PM10 sources that emit, or have the potential to emit 15 tons or more per year.]

Revision of Calculation Methodology

Table 1-4, presents emission increases subject to the State’s "no net emission increase" requirement compared to creditable emission reductions. The emission increases reported above are based on the revised methodology which calls for the use of "actual" emissions. AQMD calculates "actual" emission as a percentage of "permitted" emissions. Emission increases using "permitted" emissions were extracted from the NSR Tracking system and reduced by 20 percent to represents "actual" emissions. Based on previous analysis, AQMD believes that estimating "actual" emissions as 80 percent of "permitted" emission yields a conservative estimate. Therefore, AQMD staff is confident that the AQMD’s NSR program fully meets the NSR requirements of State law.

Compliance with State Law Requirements

As presented in Table 1-4, the AQMD’s NSR program meets the offset requirements of state law for the period of October 1990 to July 1997. AQMD had previously presented a shortfall in creditable NOx emission reduction required to comply with state law requirements. However, based on the current interpretation of the "no net emission increase" requirement and a change in methodology that allows calculation based on actual emissions instead of permitted emissions, the AQMD is now in compliance with all NSR requirements of state law.

CONCLUSION & RECOMMENDATION

AQMD’s NSR program meets all federal and state NSR requirements. The previously presented deficit for state laws compliance has been resolved based on a change in calculation methodology. However, the available NOx creditable emission reductions for compliance with the state offset requirements are low and may represent a problem in the future. Therefore, AQMD staff proposed to analyze the NSR program in detail to find solutions to resolve potential shortfalls in creditable NOx emission reductions in the future.

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