BOARD MEETING DATE: August 18, 2000 AGENDA NO. 21

Regulation XIII - New Source Review (NSR) regulates and accounts for emissions increases from the permitting of new, modified and relocated sources within the AQMD, provided such emissions are not subject to Regulation XX – Regional Clean Air Incentives Market (RECLAIM)¹. Rule 1310 - Analysis and Reporting, requires the submittal of an annual report to the AQMD Governing Board on the status of Regulation XIII in meeting State and Federal NSR requirements.

The last annual report on the status of Regulation XIII – NSR was submitted to the Board on April 9, 1999 and covered the period from August 1997 to July 1998 for both State and Federal NSR requirements.

¹While the RECLAIM program is "non-traditional" and provides greater regulatory flexibility to businesses, its NSR requirements are designed to comply with the governing principles of NSR contained in the federal Clean Air Act (CAA) and the California Health and Safety Code.

The AQMD’s NSR program has evolved since 1976, in response to State and Federal legal requirements, and the changing needs of the local environment and economy. The most recent significant amendments to NSR rules occurred on December 7, 1995. The most notable change with that amendment was the reduction in the threshold allowances for requiring offsets. Since the filing of the last report on this subject there has been no substantive change to Regulation XIII - NSR.

The AQMD’s NSR program is required to achieve, at a minimum, emission reductions equivalent to State and Federal statutory NSR requirements. The AQMD’s NSR program implements the State and Federal statutory requirements for NSR and ensures that construction and operation of new and modified sources do not interfere with progress towards attainment of the National and State Ambient Air Quality Standards. Presented below are the specific requirements of Federal and State law.

Federal law requires the use of Lowest Achievable Emission Rate (LAER) and offsets for new, modified and relocated sources. Effective November 15, 1992, Section 182(e)(1) and (2) of the Federal CAA require 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 year². The South Coast Air Basin (SOCAB) is the only extreme ozone non-attainment area in the nation. An extreme ozone non-attainment 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)] which is a federal requirement for ozone attainment areas.

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… ." Because the statute uses the term "total emission reductions", the offset ratio requirements of Section 182(e)(1) can be met on an aggregate basis, provided the information is substantiated by an emissions tracking system. The AQMD’s NSR program meets the Federal offset requirements based upon the information retrieved from the AQMD’s NSR Tracking System.

²Section 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."

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 non-attainment classification of the area in which they are located.

Based on their classification, the SOCAB and Salton Sea Air Basin (SSAB)³ must comply with the requirements for extreme and severe non-attainment areas, respectively, for ozone precursors (i.e., VOC and NOx). Both the SOCAB and the SSAB must comply with the requirements for serious nonattainment areas for PM10 and its precursors. For CO, the SOCAB must comply with the requirements for serious nonattainment areas. The AQMD demonstrates compliance with the "no net emission increase" requirements of State law for the period from August 1998 to July 1999 by demonstrating compliance with the requirements for extreme ozone non-attainment areas (VOC and NOx) and with the requirements for serious nonattainment areas for CO, PM10, and precursors to PM10, i.e. SOx.

³ Southeast Desert Air Basin was recently changed to the Riverside County portion of the Salton Sea Air Basin (SSAB) and the non-Palo Verde Valley, Riverside County portion of the Mojave Desert Air Basin which is currently unclassified.

Beginning with the report submitted to the Board on March 13, 1998, the calculation methodology was amended to better reflect actual emissions to determine State law compliance. Prior to that change, the AQMD utilized "maximum allowable permitted" emissions to report emissions subject to the "no net emission increase" requirement of State law. The AQMD now uses "actual" emission levels to represent more realistic emission increases subject to State NSR requirements. The methodology using "permitted" emission levels had over estimated real emission increases and as a result had produced a deficit in the NSR equivalency program for nitrogen oxides (NOx ) emissions in the past. Since creditable emission reductions are based on actual emission decreases, ARB staff agreed with the AQMD staff that reporting emission increases with the use of "actual" emissions is an acceptable methodology for demonstrating compliance with the "no net emission increase" requirement of State law. The revised methodology resulted in a demonstration of equivalency that fully met the requirements of State law.

The AQMD presently uses a factor of 0.80 to calculate "actual" emissions from "maximum allowable permitted" emissions. This factor was derived based on analysis conducted by AQMD staff. ARB staff have reviewed the analysis, and agreed on the methodology.

BACT and offsetting emission increases are the primary requirements of Federal and State NSR requirements. The AQMD's BACT standards are at least as stringent as LAER and BACT, as respectively 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. The AQMD ensures through permitting that sources requiring offsets meet both Federal and State requirements. The AQMD, however, is responsible for offsetting emission increases that qualify for offset exemption pursuant to Rule 1304.

Consistent with the previous annual report, the information presented in this report is focused on the supply and demand for creditable emission reductions and required 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 such as Emission Reduction Credits (ERCs) or by internal mitigation are not included. 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.

This report demonstrates compliance with Federal and State NSR requirements by demonstration of equivalency in aggregate with Federal and State offset requirements for this reporting period.

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

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 as Orphan Shutdown Credits (OSC) to fund the NSR program. Three different criteria were applied to determine OSC amounts:

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 emission reduction, since they are in excess of the Federal NSR requirements.

Discounting negative NSR balances in 1990 generated this source of creditable emission reductions. Negative NSR balances represented a facility’s positive emission reduction credit balance that has not yet been converted to ERC. Negative NSR balances were generated by emission reductions (that were the result of equipment or facility modifications or shutdowns). 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.

The AQMD’s 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.

Until February 1996 no offsets were required for projects whose emission increases, for that project, were below a specified threshold of 30 lbs/day VOC, 40 lbs/day NOx, 60 lbs/day SOx, 220 lbs/day CO, and 30 lbs/day PM10. This feature was replaced with a facility exemption for small emission sources effective February 1, 1996. The facility exemption provides an exemption from offsets for facilities permitted to emit no more than 4 tons per year of VOC, NOx, SOx and PM10, and 29 tons per year of CO.

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, for example, landfills, sewage treatment plants and other operations.

Several offset exemptions are provided in Rule 1304 in keeping with AQMD policy for fair and equitable treatment of businesses. Most of these exemptions are either beneficial to the environment or driven by severe economic needs. A more complete explanation of exempted sources can be found in earlier staff reports for Regulation XIII revisions.

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 SOCAB⁴. 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, 1998 to July 31, 1999. Table 1-3 presents the balance of creditable emission reductions available for future compliance with Federal offset requirements.

⁴ The thresholds that define major polluting facilities in the SOCAB are more stringent than the thresholds that define major polluting facilities in the SSAB. Therefore, the analysis is conservative since it may over estimate the emission increases subject to federal offset requirements.

Table 1-1 - Creditable Emission Reductions for Federal NSR Compliance
(August 1998 - July 1999)

Source	VOC (tons/day)	NOx (tons/day)	SOX (tons/day)	CO (tons/day)	PM10 (tons/day)
Orphan shutdowns	0.09	0.04	0.00	0.04	0.01
BACT Discount of ERCs	0.63	0.00	0.00	0.00	2.75
Carry Over Balance from August 1998⁵	106.10	22.90	18.70	32.00	42.00
Total	106.82	22.94	18.70	32.04	44.76

⁵ Balance of Creditable Emissions Reductions presented in Table 1-2, pg. 6, of the document entitled Effectiveness of Regulation XIII – New Source Review, report to the AQMD Governing Board, April 9, 1999.

Table 1-2 presents the "Permitted" emission increases and the calculated emission increases (based on a 1.5 to 1 offset ratio) from Federally recognized facilities which the AQMD is accountable. The table also identifies Community Bank, Priority Reserve, and Rule 1304 Exemptions used by the AQMD to offset the calculated emission increases from Federally recognized facilities.

Table 1-2 - Increases and AQMD Funded Offsets for Federal NSR
(August 1998 - July 1999)

Source	VOC (tons/day)	NOx (tons/day)	SOX (tons/day)	CO (tons/day)	PM10 (tons/day)
Community Bank Offsets	0.03	0.04	0.00	0.00	0.00
Priority Reserve Offsets	0.09	0.07	0.00	0.11	0.00
Rule 1304 Offset Sources	1.04	0.92	0.04	2.78	0.05
Permitted Emission Increase	1.16	1.03	0.04	2.89	0.05
Permitted Emission Increase @ 1.5 to 1	1.74	1.55	0.06	4.34	0.07

Table 1-3 summarizes the creditable emission reduction and emission increase and offsets provided in Tables 1-1 and 1-2.

Table 1-3 - Emission Increases for which the AQMD is Accountable⁶ Compared with
Creditable Emission Reductions for Federal NSR Compliance
(August 1998 to July 1999)

Source	VOC (tons/day)	NOx (tons/day)	SOx (tons/day)	CO (tons/day)	PM10 (tons/day)
Total Emission Increases (From Table 1-2)	1.74	1.55	0.06	4.34	0.07
Creditable Emission Reductions (From Table 1-1)	106.82	22.94	18.70	32.04	44.76
NSR Balance - August 1999	105.08	21.39	18.64	27.70	44.69

As presented in Table 1-3, the AQMD’s NSR program meets the offset requirements of Federal law. Since the AQMD’s BACT standards are equivalent to Federally defined LAER and the program contains and implements all the Federal NSR requirements for major sources (Rule 1303), the AQMD’s program is equivalent to and in compliance with all Federal NSR requirements.

⁶ Based on a 1.5 to 1 Offset Factor. Federal levels for offsetting all new and modified VOC and NOx sources that emit 10 tons or more per year; all new and modified PM10 sources that emit 70 tons or more per year; all new and modified CO and SOx sources that emit 100 tons or more per year.

The analysis performed to generate the data presented in this report was based on a "no net emission increase" requirement for extreme nonattainment pollutants which applies only to VOC and NOx. The offset requirements for serious non-attainment pollutants apply to emission increases from facilities exceeding 15 ton/year of PM10, SOx and CO.

Table 1-4 presents the cumulative creditable emission reductions available for compliance with the State’s "no net emission increase" requirement for the period from August 1, 1998 to July 31, 1999. Table 1-5 presents the emission increases for which AQMD is accountable to comply with State NSR requirements for the period from August 1, 1998 to July 31, 1999. Table 1-6 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."

Table 1-4 - Creditable Emission Reductions for State NSR Compliance
(August 1998 to July 1999)

Source	VOC (tons/day)	NOx (tons/day)	SOx (tons/day)	CO (tons/day)	PM10 (tons/day)
Orphan Shutdowns	4.06	1.70	0.06	1.05	1.17
BACT Discount of ERCs	0.63	0.00	0.00	0.00	2.75
Carry Over Balance from August 1998⁷	53.50	4.90	18.90	29.10	42.00
Total	58.19	6.60	18.96	30.15	45.92

⁷ Creditable Emissions Reductions balance presented in Table 1-4, pg. 9, of the document entitled Report on Effectiveness of Regulation XIII – New Source Review , April 9, 1999.

Table 1-5 presents the "Permitted" increases and the calculated "Actual" increases (based on 80% of the "Permitted" increases) for all emission increases that the AQMD is accountable for in accordance with State NSR requirements. The table also identifies the increases from the Community Bank, Priority Reserve, and Rule 1304 Exempt Emissions.

Table 1-5 - Increases and AQMD Funded Offsets for State NSR
(August 1998 to July 1999)

Source	VOC (tons/day)	NOx (tons/day)	SOX (tons/day)	CO (tons/day)	PM10 (tons/day)
Community Bank Offsets	0.48	0.09	0.00	0.15	0.00
Priority Reserve Offsets	0.09	0.13	0.09	0.23	0.01
Rule 1304 Offset Sources	9.24	2.10	0.09	3.50	0.33
Permitted Emission Increase	9.81	2.32	0.18	3.88	0.34
80% of Permitted Increase or "Actual"	7.85	1.86	0.15	3.10	0.27

Table 1-6, presents emission increases subject to the State’s "no net emission increase" requirement compared to creditable emission reductions. The emission increases reported in Table 1-6 are based on the revised methodology, which calls for the use of "actual" emissions.

Table 1-6 - Emission Increases for which the AQMD is Accountable Compared to Creditable Emission Reductions for State NSR Compliance⁸(August 1998 to July 1999)

Source	VOC (tons/day)	NOx (tons/day)	SOx (tons/day)	CO (tons/day)	PM10 (tons/day)
Total Emission Increases (From Table 1-5)	7.85	1.86	0.15	3.10	0.27
Creditable Emission Reductions (From Table 1-4)	58.19	6.60	18.96	30.15	45.92
NSR Balance – August 1999	50.34	4.74	18.81	27.05	45.65

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 represent "actual" emissions. Based on previous analysis, AQMD believes that estimating "actual" emissions as 80 percent of "permitted" emission yields a conservative estimate. Therefore, the District’s NSR program fully meets the NSR requirements of State law.

⁸ All new and modified VOC and NOx sources (regardless of their potential to emit), and all new and modified SOx , CO and PM10 sources that emit, or have the potential to emit 15 tons or more per year.

As presented in Table 1-6, the District’s NSR program meets the offset requirements of State law for the period of August 1998 to July 1999.

The District’s NSR program meets all Federal and State NSR requirements. Under Federal requirements the AQMD received more emissions from Orphan Shutdowns and BACT discounting than it provided as offsets for all pollutants. For State requirements the AQMD provided more VOC, NOx, CO and SOx emission offsets than it received from Orphan Shutdowns and BACT discounting. The AQMD had to offset less PM10 emission increases than it received from Orphan Shutdowns and BACT discounting under the State requirements. The pollutant of greatest concern continues to be NOx. During the period of August 1998 to July 1999, the AQMD offset 1.86 tons per day of NOx emission increases. During this same period the AQMD recovered 1.70 tons per day of NOx credits. The availability of NOx emission offsets that the District is responsible for will continue to be a primary focus. AQMD staff proposes to continue to assess the program in detail and ensure compliance with Federal and State NSR requirements.

South Coast Air Quality Management District