BOARD MEETING DATE: December 2, 2005
AGENDA NO. 27

Adopt Proposed Rule 1316 – Federal Major Modifications

SYNPOSIS:

Proposed Rule 1316 implements the mandatory EPA regulatory reform requirements for major sources, while ensuring compliance with state law for New Source Review.

COMMITTEE:

Stationary Source, November 18, 2005, Reviewed

RECOMMENDED ACTIONS:

Adopt the attached resolution:

1. Certifying the Notice of Exemption for Proposed Rule 1316 – Federal Major Modifications
2. Adopt Proposed Rule 1316 – Federal Major Modifications

Barry R. Wallerstein, D.Env.
Executive Officer

Background

On December 31, 2002, the United States (federal) Environmental Protection Agency (U.S. EPA) promulgated amendments to the Clean Air Act revising New Source Review (NSR) requirements for modifications of major sources and adding other provisions. U.S. EPA mandated the amendments to be implemented in state and local NSR rules by January 1, 2006. Although legally challenged by CARB, the AQMD and numerous other local and state agencies, the amendments were partially upheld upon appeal in a decision rendered June 24, 2005. Following promulgation by U.S. EPA, California Senate Bill 288 – Protect California Air Act (SB288), introduced by Senator Byron Sher on February 19, 2003 and signed into law by the Governor on September 22, 2003 specified that “No air quality management district or air pollution control district may amend or revise its New Source Review rules or regulations to be less stringent than those that existed on December 30, 2002”, (Health & Safety Code § 42504). Furthermore, SB 288 states that “If the state board finds, after a public hearing, that a district’s rules or regulations are not equivalent to or more stringent than the rules or regulations that existed on December 30, 2002, the state board shall promptly adopt for that district the rules or regulations that may be necessary to establish equivalency…”. Proposed Rule 1316 – Federal Major Modifications (PR 1316) will maintain the stringency of AQMD’s NSR program existing as of December 30, 2002 while complying with federal mandates to incorporate NSR Reform requirements into AQMD rules.

Proposal

PR 1316 consists of three sections. Section (a), defines “Federal Major Modification” to be as defined in 40 CFR Section 51.165 with specified exceptions and also defines the following specific terms:

1. “reviewing authority” to mean the AQMD,
2. “major stationary source’ to mean a stationary source that either emits or has the potential to emit the amounts specified in Rule 1302(s), and
3. “significant” to mean a rate of emissions equal to or greater than those specified in Rule 1302(r).

Section (b), establishes that an applicant demonstrating that a proposed modification to an existing stationary source would not constitute a Federal Major Modification, would not be subject to requirements of Rule 1303(b)(5)(A) (Alternative Analysis) and Rule 1303(b)(5)(B) (Statewide Compliance Certification), and Section (c), provides the option for qualifying facilities to file for a PAL plan subject to the provisions of Rule 306 - Plans, and conforming to all PAL provisions specified in 40 CFR Section 51.165. Modifications Under an Approved PAL are not subject to the requirements of Rules 1303 (b)(5)(A) and 1303 (b)(5)(B). All other requirements of Regulation XIII apply. These provisions are not a relaxation under state law since compliance with CEQA will address the analysis of alternatives and the compliance certification in Rule 1303 (b)(5)(B) does not have a direct effect on air quality since all facilities are required to comply with applicable rules.

Rationale for Rule Amendments

On December 31, 2002, U.S. EPA promulgated amendments to the regulations for NSR of permits for federal major sources, which are required by Clean Air Act sections 172 and 173. These amendments, known as NSR Reform, changed the definition of “major modification” which the Clean Air Act requires to be subject to Federal NSR requirements. The most important requirements of Federal NSR are the requirement that the source meet the Lowest Achievable Emissions Rate (LAER), which is defined under state law as Best Available Control Technology (BACT), the requirement that the source provide offsets (emission reduction credits) from other sources to more than offset the increased emissions from the new source or modification, and the requirement that the source demonstrate through modeling that its emissions will not cause a violation or make significantly worse an existing violation of national ambient air quality standards. Under the Clean Air Act, these requirements are only applicable to new major sources (10 tons per year or more for VOC and NOx), and major modifications to major sources. However, under state law the AQMD has requirements to apply BACT and offsets to all new sources and modifications to such sources. Therefore, SCAQMD’s NSR program applies these requirements to all new and modified sources.

U.S. EPA promulgated the NSR Reforms in response to complaints it had received over the years from regulated industry that the methods of calculating whether a change at a source constituted a “modification” had the effect of disincentivizing sources from making changes that improved efficiency and reduced emissions. Industry claimed that the methods of calculating emissions increases resulted in a “paper” increase in some cases where there would be no actual increase, thus triggering BACT and offsets, and that the expense of complying with NSR was so great that industry would choose not to make the change in question, even though it would be environmentally beneficial. In response, U.S. EPA changed the method of calculating emissions increases to more closely reflect actual increases in emissions, in U.S. EPA’s view. However, U.S. EPA did so in a way that would significantly change the method for calculating increases, by allowing sources to measure increases against the highest two of the last ten years’ emissions, instead of the two years immediately preceding the modification. U.S. EPA also made other changes which AQMD considered to be significant changes of the rule.

In 2003, the Governing Board authorized staff to join with a number of other states and environmental organizations in suing U.S. EPA to set aside the rule amendments on the ground that they were not consistent with the intent of the Clean Air Act provisions for NSR. On June 24, 2005, the D.C. Circuit Court of Appeals issued its opinion upholding most of U.S. EPA’s Reforms as based on a reasonable interpretation of the Clean Air Act, but vacating two portions of the rules as unauthorized by the statutory language. U.S. EPA has petitioned for rehearing; the Court has not yet ruled on the petition.

In the meantime, the California legislature in 2003 enacted SB288 (Sher) (Health & Safety Code § 42500 et seq.) , which prohibits California air pollution control districts from amending their NSR rules to be less stringent in specific respects than they were on December 30, 2002 (the day before U.S. EPA promulgated the Reforms). As a result, AQMD (and all other California air districts) is faced with the task of amending its rules to comply with the NSR Reforms by January 2, 2006, as required by U.S. EPA, yet not making its rules any less stringent than they were on December 30, 2000. Staff has worked closely with the California Air Pollution Control Officers’ Association, CARB, and U.S. EPA to develop a method of meeting these two conflicting requirements. The method that has been developed relies on the fact that under the Clean Air Act, state and local agencies are free to adopt rules that are more stringent than required by the Clean Air Act. Thus, U.S. EPA recognizes that state and local agencies are free to require BACT and offsets even to changes at a source that would not qualify as “modifications” under U.S. EPA’s NSR Reforms. The AQMD’s program does so. Based on verbal communications, U.S. EPA preliminarily concurs that local agencies may comply with the NSR Reforms by amending their rules such that changes that do not qualify as “modifications” under the NSR Reforms would not be treated as modifications for Federal purposes, but would continue to be subject to BACT, offsets and modeling under the AQMD’s pre-existing NSR program. PR 1316 accomplishes this result, by specifying that changes that do not qualify as “modifications” under the Federal rule implementing NSR Reform do not have to meet those requirements in AQMD’s rules that are only applicable to Federal major modifications. Such changes will continue to be subject to BACT, offsets, and modeling.

The provisions of AQMD rules that are only applicable to Federal major modifications are the requirement that a source perform an alternatives analysis, and the requirement that the source operator certify that all the operator’s facilities in the state are in compliance with the Clean Air Act. These requirements would, under PR 1316, no longer be applicable to changes that do not qualify as Federal major modifications because of the NSR Reforms. Staff believes that this change can be made without violating SB288, which prohibits amending district NSR rules to be less stringent in specific respects than they were on December 30, 2002, because the method used to carry out the alternatives analysis under AQMD rules is to comply with the California Environmental Quality Act (CEQA). Changes that would have been subject to the alternatives analysis under AQMD rules before PR 1316 will still be subject to CEQA after PR1316 is adopted. Therefore, the AQMD’s NSR rules remain effectively the same as they were before December 31, 2002. After PR 1316 is adopted, source operators will still be required to comply with the Clean Air Act at all their facilities in the state, even though they are no longer required to certify that they so comply. Therefore, making this provision inapplicable to changes that are not major modifications is also not making the AQMD’s NSR Program less stringent in compliance with SB288.

U.S. EPA staff at both Region IX and Headquarters have indicated preliminary approval of this approach, and U.S. EPA staff has been involved in the rule development process. Of course, U.S. EPA notes that its approval of PR 1316 must go through a public comment process, so it cannot guarantee that the rule will ultimately be approved. However, AQMD staff believes that PR 1316 is essentially the only way to comply with the conflicting requirements of NSR Reform and SB288.

Staff conducted a public workshop on PR1316 on September 30, 2005, and held an in-depth discussion with the NSR Subcommittee of the AQMD’s Home Rule Advisory Group on October 5, 2005. Since U.S. EPA has established a deadline of January 2, 2006, for submittal of the state and local SIP amendments to comply with NSR Reform, staff recommends adoption of PR 1316 to avoid the potential of U.S. EPA imposing sanctions for failure to submit a required SIP revision on time.

Comments

U.S. EPA Region IX and CARB staff have indicated they believe PR 1316 satisfies their respective requirements for equivalency in the Federal NSR Reforms while still complying with SB 288.

CEQA Analysis

The AQMD has reviewed proposed Rule 1316 – Federal Major Modifications, pursuant to CEQA Guidelines §15002(k)(1) and has concluded that the proposed project is exempt from CEQA for the following reasons. The proposed project consists of adopting approved federal requirements and because the AQMD has not exercised discretion by modifying federal requirements, it is considered to be ministerial in nature and thus is statutorily exempt from CEQA, pursuant to state CEQA Guidelines § 15268 – Ministerial Projects, as defined by CEQA Guidelines §15369. The proposed project also qualifies for a general rule exemption pursuant to CEQA Guidelines §15061(b)(3) because it can be seen with certainty that there is no possibility that the proposed project in question has the potential to have additional significant adverse effect on the environment. A Notice of Exemption will be filed with the county clerks immediately following adoption of the proposed project pursuant to CEQA Guidelines §15062(c)(2).

Socioeconomic Impacts

It is not expected there will be a socioeconomic impact from the adoption of PR 1316.

AQMP And Legal Mandates

The California Health and Safety Code requires the AQMD to adopt an Air Quality Management Plan (AQMP) to meet state and federal ambient air quality standards in the South Coast Air Basin. In addition, the California Health and Safety Code requires that the AQMD adopt rules and regulations that carry out the objectives of the AQMP.

While Proposed Rule 1316 is not a control measure included in the AQMP, its requirements are consistent with the AQMP objectives. Furthermore, under the December 2002 NSR amendments for the Clean Air Act promulgated by the U.S. EPA, the AQMD is mandated to amend its NSR program and re-establish equivalency with the federal requirements and implement such a program no later than January 2, 2006. Proposed Rule 1316 fulfills this federal mandate.

Comparative Analysis and Retrofit Control Technology

Pursuant to California Health and Safety Code §40727.2(g), PR 1316 complies with the requirements of California Health and Safety Code §40727.2 since it does not impose a new emission limit or standard, make an existing emission limit or standard more stringent, or impose new or more stringent monitoring, reporting or recordkeeping requirements. Further, the requirements of California Health and Safety Code §40920.6 do not apply since PR 1316 is not a rule to require best available retrofit control technology.

Resource Impacts

No resource impacts are expected.

Attachment(s) (EXE 400KB)

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