South Coast Air Quality Management District

Status Report on 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 status of Regulation XIII - New Source Review in meeting state and federal NSR requirements. This report, which presents data for August 1999 through July 2000, shows that AQMD’s NSR program was in compliance with applicable state and federal requirements during the period covered.

COMMITTEE: 

Stationary Source, September 28, 2001, Reviewed

RECOMMENDED ACTION:

Approve the attached report.

Barry R. Wallerstein, D.Env.
Executive Officer

SUMMARY

Regulation XIII - New Source Review regulates and accounts for emissions increases from the permitting of new, modified, and relocated sources within AQMD that 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 Board on the status of Regulation XIII in meeting federal and state New Source Review (NSR) requirements.

¹ While the RECLAIM program is different than command and control and provides greater regulatory flexibility to businesses, its NSR requirements, as specified in Rule 2005, 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 last annual report on the status of Regulation XIII was submitted to the Board on August 18, 2000 and covered the period from August 1998 through July 1999 for both federal and state NSR requirements. This report demonstrates compliance with federal and state NSR requirements by establishing aggregate equivalence with federal and state offset requirements for the period August 1999 through July 2000.

The results of the analysis for the August 1999 through July 2000 timeframe are summarized below in Tables 1 and 2. These results demonstrate that there were adequate offsets available to mitigate any emission increases during this period, resulting in no "net" emission increase. Therefore, AQMD’s NSR program continues to meet federal and state offset requirements and is equivalent to those requirements on an aggregate basis.

Table 1

Net Activity, Starting Balances, and Ending Balances for AQMD’s Federal Offset Accounts (August 1999 through July 2000)
 

Note that AQMD’s NSR program is deemed to be equivalent to federal offset requirements because AQMD’s ending account balances remained positive, indicating there were adequate offsets during this period.

Table 2

Net Activity, Starting Balances, and Ending Balances for AQMD’s State Offset Accounts (August 1999 through July 2000)
 

DESCRIPTION	VOC	NOx	SOx	CO	PM10
Starting Balance (ton/day)	50.34	4.74	18.81	27.05	45.65
Net Activity (ton/day)	-3.76	-0.44	0.00	-0.64	0.40
Ending Balance (ton/day)	46.58	4.30	18.81	26.41	46.05

Note that AQMD’s NSR program is deemed to be equivalent to federal offset requirements because AQMD’s ending account balances remained positive, indicating there were adequate offsets during this period.

BACKGROUND

AQMD originally adopted an NSR program in 1976. The original program has evolved into the current version of the Regulation XIII rules in response to federal and state legal requirements and the changing needs of the local environment and economy. The most recent significant amendments to the NSR rules were adopted on December 7, 1995. The most notable change in that amendment was the reduction in the threshold allowances for requiring offsets. Subsequent amendments to Regulation XIII since 1995 have in most part addressed other issues, such as Best Available Control Technology (BACT), with the exception of the April 20, 2001 NSR amendments which provided access to AQMD’s Priority Reserve for Electrical Generating Facilities (EGF) to obtain PM10 emission offsets. This amendment, however, does not impact the period covered by this report.

AQMD’s NSR program is required to achieve, at a minimum, emission reductions equivalent to federal and state statutory NSR requirements. To this end, AQMD’s NSR program implements the federal and state 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. AQMD’s computerized emission tracking system is utilized to demonstrate equivalence with federal offset requirements on an aggregate basis. Specific NSR requirements of federal and state law are presented below.

Federal Law

Federal law requires the use of Lowest Achievable Emission Rate (LAER) and offsets for new, modified, and relocated major stationary sources². Effective November 15, 1992, the federal Clean Air Act (CAA) requires a 1.5-to-1 external offset ratio and a 1.3-to-1 internal offset ratio for major stationary sources located in an extreme non-attainment area. 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 a 1.2-to-1 offset ratio if it requires implementation of federal Best Available Control Technology (as defined in CAA Section 169(3) for prevention of Significant Deterioration of Air Quality³) on major sources [CAA Section 182(e)(1)]. AQMD meets this criterion and uses a 1.2-to-1 offset ratio for federal sources⁴. This report demonstrates compliance with the federal NSR requirements.

² The "major stationary source" thresholds applicable to AQMD’s jurisdiction during the time period covered by this report are summarized below:
 

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

Based on their classification, the SOCAB and Salton Sea Air Basin (SSAB)⁵ 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 (i.e., VOC, NOx, and SOx). For CO, the SOCAB must comply with the requirements for serious nonattainment areas; however, SSAB is considered attainment for CO. Both SOCAB and SSAB are considered attainment for SO2. This report demonstrates AQMD’s compliance with the "no net emission increase" requirements of state law for the period from August 1999 to July 2000 by demonstrating compliance with the requirements for extreme ozone non-attainment areas for ozone precursors and with the requirements for serious nonattainment areas for CO, PM10, and precursors to PM10.

⁵ 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.

OVERVIEW OF ANALYSIS METHODOLOGY

The two principle elements of federal and state NSR requirements are LAER/BACT and emission offsetting. AQMD’s BACT requirements are at least as stringent as federal LAER for major sources and state BACT requirements for all sources. Furthermore, the emission offset requirements that AQMD includes in its permitting process ensure that sources provide emission reduction credits (ERC) to offset their emission increases in compliance with both federal and state requirements. Thus, these sources each comply with federal and state offset requirements; no further analysis to demonstrate equivalence with federal and state offset requirements is necessary for these sources. However, certain sources are exempt from AQMD’s offset requirements pursuant to Rule 1304 or qualify for offsets from AQMD’s Priority Reserve or Community Bank (applications received between October 1, 1990 and February 1 1996 only), pursuant to Rule 1309.1. AQMD has determined that providing offset exemptions and the Priority Reserve (as well as the previously administered Community Bank) is important to the NSR program and the local economy while encouraging installation of control equipment. Therefore, AQMD has assumed the responsibility to provide the necessary offsets for exempt sources and for the Priority Reserve and the Community Bank. This report examines credits to and debits from AQMD’s emission offset accounts and demonstrates programmatic equivalence on an aggregate basis with federal and state emission offset requirements for the sources exempt from providing offsets and the sources that receive offsets from the Priority Reserve or the Community Bank.

AQMD’s Offset and Credit Accounts

Only emission increases originating at major stationary sources are subject to federal offset requirements, while state offset requirements apply to all increases of VOC or NOx from equipment subject to AQMD’s permitting program and to increases of SOx, CO, and PM10 from facilities that emit 15 or more tons per year. These same thresholds are used to assign credits generated through emission reductions to the federal and state offset accounts, respectively (e.g., only emission reductions occurring at major stationary sources are creditable for federal equivalency purposes). Therefore, AQMD tracks two sets of accounts, one each for purposes of demonstrating equivalence with federal and state offset requirements. In addition, each of the five pollutants subject to offset requirements (VOC, NOx, SOx, CO, and PM10) has its own federal account and its own state account. AQMD’s NSR program is considered to provide equivalent or greater offsets of emissions as required by federal and state requirements for each subject pollutant provided the balance of credits left in AQMD’s accounts for each pollutant does not become negative, indicating that there were adequate offsets available.

Credit Accounting

When emissions from a permitted source are permanently reduced (e.g., installation of control equipment, removal of the source) and the emission reduction is not required by rule or law and is not called for by an Air Quality Management Plan (AQMP) control measure that has been assigned a target implementation date⁶, the permit holder may apply for ERCs for the pollutants reduced. Prior to issuing an ERC, AQMD "discounts" the reduction to the level of reduction that would have been realized if the source had been operating at current BACT levels. The difference between the actual quantified emission reduction and the amount of ERCs issued are credited to AQMD’s account of available offsets. Additionally, if the permit holder for the source generating the emission reduction had previously received offsets from an AQMD account or has a "positive balance" (i.e., net emission increase), the quantity of AQMD credits used or the amount of the positive balance is subtracted from the reduction and "paid back" to AQMD’s accounts prior to issuance of an ERC pursuant to Rule 1306. Finally, permit holders do not always submit ERC applications for their eligible emission reductions. These unclaimed reductions are termed "orphan reductions" and can, in principle, be credited to AQMD’s accounts. In practice, it is only practical for AQMD to track orphan reductions associated with the shutdown of equipment (orphan shutdowns), so these are the only orphan reductions actually credited to AQMD’s accounts.

⁶ Refer to Rule 1309(b)(4) for a complete explanation of eligibility requirements.

Debit Accounting

On the other hand, AQMD also tracks all emission increases that are offset through the Priority Reserve or the Community Bank, as well as all increases that are exempt from offset requirements pursuant to Rule 1304 - Exemptions. These increases are all deducted from AQMD’s accounts. As discussed above, AQMD uses an offset ratio of 1.2-to-1 for its federal accounts. That is, 1.2 pounds are deducted from AQMD’s federal accounts for each pound of permitted increase at a federal source. Conversely, state offset requirements are based on actual emissions rather than maximum permitted potential to emit. AQMD estimates actual emissions as eighty percent of permitted potential to emit⁷. Thus, 0.8 pounds are deducted from AQMD’s state accounts for each pound of permitted increase. There is another source of debits from AQMD’s offset accounts in addition to the permitted emission increases described above. This debit occurs in a situation where a permit that was previously inactivated due to nonpayment of fees and deemed an orphan shutdown is reactivated. These special reactivations are debited from AQMD’s federal and state accounts at a one-to-one offset ratio (the same ratio at which orphan shutdowns are credited).

The various sources of credits to and debits from the federal and state offset accounts are discussed in greater detail in Appendix A.

⁷ The eighty percent factor is based upon an analysis and demonstration previously conducted in 1998 by AQMD staff in coordination with CARB.

DEMONSTRATION OF EQUIVALENCE WITH FEDERAL OFFSET REQUIREMENTS

Table 3 presents the total emission reductions credited to AQMD’s federal offset accounts from August 1999 through July 2000. Debits from AQMD’s federal accounts incurred during the same period are summarized in Table 4. Finally, net activity (credits minus debits) for the federal accounts is displayed in Table 5.

Table 3

Credits to AQMD’s Federal Offset Accounts (August 1999 through July 2000)
 

Table 4

Debits from AQMD’s Federal Offset Accounts (August 1999 through July 2000)
 

Table 5

Net Activity in AQMD’s Federal Offset Accounts (August 1999 through July 2000)
 

Any net credits and any net debits from this analysis are added to or subtracted from, respectively, the starting federal account balance for each pollutant to determine compliance with federal NSR requirements. Refer to Table 1 for a summary of starting and ending federal account balances for the August 1999 through July 2000 time period.

DEMONSTRATION OF EQUIVALENCE WITH STATE OFFSET REQUIREMENTS

Table 6 presents the total emission reductions credited to AQMD’s state offset accounts from August 1999 through July 2000. Debits from AQMD’s state accounts incurred during the same period are summarized in Table 7. Finally, net activity (credits minus debits) for the state accounts is displayed in Table 8.

Table 6

Credits to AQMD’s State Offset Accounts (August 1999 through July 2000)
 

Table 7

Debits from AQMD’s State Offset Accounts (August 1999 through July 2000)
 

Table 8

Net Activity in AQMD’s State Offset Accounts (August 1999 through July 2000)
 

Any net credits and any net debits from this analysis are added to or subtracted from, respectively, the starting state account balance for each pollutant to determine compliance with state NSR requirements. Refer to Table 2 for a summary of starting and ending state account balances for the August 1999 through July 2000 time period.

CONCLUSIONS

The analysis presented in this report demonstrates that AQMD’s NSR program provides equivalent offsets to those required by federal and state NSR requirements and is equivalent to the federal and state requirements on an aggregate basis. AQMD’s federal offset accounts appear to have balances adequate for the potential demand that may be experienced in the foreseeable future. The majority of sources subject to AQMD’s permitting program are not major stationary sources and, therefore, not subject to federal offset requirements. Balances in AQMD’s state accounts also seem to be adequate for the foreseeable future, and staff will continue to monitor and report back to the Board their status. The pollutant of greatest concern is NOx. The state NOx balance was 4.74 tons per day at the beginning of the reporting period and was reduced by 0.44 ton per day during the twelve months covered by this report. AQMD’s state VOC account also needs to be closely monitored even though the balance (50.34 tons per day at the beginning of the reporting period) is significantly higher than the NOx balance. The reason for concern regarding the VOC account is that it has been experiencing a greater rate of depletion—3.76 tons per day during this reporting period. For comparison purposes, the NOx and VOC net state account reductions during the August 1998 through July 1999 time period were 0.16 ton per day and 3.16 tons per day, respectively.

Staff will continue to track credits to and debits from the federal and state offset accounts and will provide annual reports and equivalency demonstrations to ensure that AQMD’s NSR program continues to operate in compliance with federal and state NSR requirements.

APPENDIX A

Sources of Credits to and Debits from AQMD’s Emission Offset Accounts

Sources of Credits to and Debits from AQMD’s Emission Offset Accounts

Sources of Emission Reductions Creditable to AQMD Accounts

1. BACT Discount of ERCs

Rule 1309 specifies that ERCs issued for an emission reduction not be "greater than the equipment would have achieved if operating with current [BACT]." In other words, ERCs are only issued for the portion of the emission reduction beyond what would be achieved by the installation of current BACT on the source providing the reductions. The BACT discount portion of the reduction is available for offsetting emission increases for purposes of demonstrating equivalence with federal and state NSR requirements. Thus, the BACT discount portion of ERC-generating emission reductions are credited to AQMD’s federal and state accounts. Note that only reductions originating at major stationary sources are credited to AQMD’s federal accounts.

2. Prior AQMD Offsets and Positive NSR Balances

Rule 1306(e) specifies that all of the following be subtracted from an emission reduction after the BACT discount is applied and before ERCs are issued:

• The Positive NSR balance of the facility generating the emission reduction;
• All Community Bank allocations previously issued to the facility generating the emission reduction;
• All Priority Reserve allocations previously issued to the facility generating the emission reduction; and
• All offsets obtained by the facility generating the emission reduction pursuant to the exemption provisions of Rule 1304.

This provision prevents facilities from generating salable ERCs from offsets originally obtained from AQMD’s accounts. Rather, these offsets are captured back into AQMD’s accounts and are available for demonstration of equivalence with federal and state offset requirements. Again, only reductions originating at major stationary sources are credited to AQMD’s federal accounts.

3. Orphan Shutdowns

Orphan shutdowns are emission reductions from AQMD-permitted sources that are removed from service and permanently cease emitting activities, have their permits inactivated, and are not claimed as emission reductions under an ERC application. AQMD tracks these accounts. Only orphan shutdown reductions originating at major stationary sources are credited to AQMD’s federal accounts. The calculation of the quantity of offsets to be credited to AQMD’s offset accounts is dependent on the nature of the offsets originally used for the source that has shut down and is generating the emission reduction:

• If the shut down source was originally offset from the Community Bank, the Priority Reserve, or a Rule 1304 exemption, eighty percent of the actual amount of the offset provided (i.e., the potential to emit) is credited to AQMD’s federal and state offset accounts. This also includes equipment that has been shut down at a source where a prior permit for the same source obtained offsets from the Community Bank, the Priority Reserve, or a Rule 1304 exemption.
• The quantity of offsets to be credited to AQMD’s offset accounts for orphan shutdowns other than those described above was calculated on a case-by-case basis from the following two cases, whichever results in lower emissions:

• Twenty-three percent⁸ of the amount originally offset for the source in NSR; or
• Twenty-three percent of twenty-four times the hourly controlled emissions from the source as recorded in AQMD’s automated emission inventory system (AEIS).

This provides a very conservative approach to ensure that the creditable emission reductions are not overestimated.

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⁸ An eight hour per day, five days per week, fifty weeks per year operating schedule represents twenty-three percent of the operating time of a twenty-four hour per day, seven days per week, fifty-two weeks per year operating schedule

4. Negative NSR Balances

Prior to the 1990 amendments to Regulation XIII, negative NSR balances represented a facility’s emission reduction balance that had not been issued as ERCs. Negative NSR balances were generated by emission reductions resulting from equipment or facility modifications, over controls, or shutdowns. The 1990 amendments to Regulation XIII specified that all negative NSR balances be reduced by eighty percent and converted to ERCs. The eighty percent portion of the negative balances from all such facilities were used to fund both AQMD’s federal and state offset accounts. This was a one-time source of funding for the federal and state offset accounts and is not ongoing.

Sources of Emission Increases Debited from AQMD Accounts

1. Priority Reserve

Pursuant to AQMD Rule 1309.1, essential public services (e.g., sewage treatment facilities, police and fire fighting facilities, schools) are not required to provide emission offsets in the form of ERCs when they receive permits involving emission increases. Instead, AQMD provides their offsets through the Priority Reserve. These offsets are deducted from AQMD’s federal (for the case of major stationary sources) and state offset accounts.

2. Community Bank

For applications deemed complete prior to February 1996, no offsets were required for projects with project emission increases below the following thresholds:

•   30 pounds per day of VOCs;
•   40 pounds per day of NOx;
•   60 pounds per day of SOx;
• 220 pounds per day of CO; and
•   30 pounds per day of PM10.

AQMD provided offsets for these projects from its accounts through what was termed the "Community Bank." Community Bank offsets provided to major stationary sources are deducted from AQMD’s federal accounts and all Community Bank offsets are deducted from AQMD’s state accounts.

3. Offset Exemptions

The Community Bank was replaced with offset exemption thresholds for applications received in or after February 1996. Facilities with aggregate potential to emit below these thresholds are eligible to receive emission offsets from AQMD’s offset accounts, up to the levels of the thresholds. The exemption thresholds specified in Rule 1304 are as follows:

•   4 tons per year of VOCs;
•   4 tons per year of NOx;
•   4 tons per year of SOx;
•   4 tons per year of PM10; and
• 29 tons per year of CO.

Rule 1304 also includes offset exemptions for a variety of source types such as replacement of ozone-depleting compounds, methyl bromide fumigation, emergency equipment, and certain modifications and process changes implemented to reduce issuance of air contaminants. The majority of these exemptions are intended to incentivize installation of control equipment or facilitate compliance with other regulatory mandates. These offsets are debited from AQMD’s federal and state offset accounts. Note that only offsets provided to sources at major stationary sources are deducted from AQMD’s federal accounts.

4. Special Permit Reactivations

In a few exceptions, there have been cases where the permits for equipment that was previously considered an orphan shutdown have been reactivated. The orphan shutdown reductions previously credited to AQMD’s federal and state offset accounts for these sources are debited from these accounts when such permits are reactivated.

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