BOARD MEETING DATE: January 7, 2005
AGENDA NO. 26

Amend Rule 1146.2 - Emissions of Oxides of Nitrogen from Large Water Heaters and Small Boilers

SYNOPSIS:

Rule 1146.2 was adopted in January 1998 to establish NOx emission limits for small boilers and large water heaters ranging from 75,000 Btu/hr to 2 million (MM) Btu/hr. Since the rule adoption, staff has prepared and submitted to the Board three implementation studies required by the rule. The proposed amendments reflect recommendations of the implementation studies and address technical feasibility issues. Specifically, the amendments extend the January 1, 2006 compliance date for retrofitting or replacing smaller units (400,000 to 1 MM Btu/hr) and extend the January 1, 2005 compliance date for larger units (1 to 2 MM Btu/hr) manufactured between 1992 and 1999 inclusive. For both size categories, compliance with the rule limits will be required when the units become 15 years old.

COMMITTEE:

Stationary Source, November 19, 2004, Reviewed

RECOMMENDED ACTION:

Adopt the attached resolution:

1. Certifying the Final Environmental Assessment (EA) for Proposed Amended Rule 1146.2 - Emissions of Oxides of Nitrogen from Large Water Heaters and Small Boilers;
    
2. Adopting the Statement of Findings and Statement of Overriding Considerations;
    
3. Making a finding of infeasibility regarding the January 1, 2005 and January 1, 2006 compliance dates for Rule 1146.2; and
    
4. Amending Rule 1146.2 - Emissions of Oxides of Nitrogen from Large Water Heaters and Small Boilers.

Barry R. Wallerstein, D. Env.
Executive Officer

Background

Rule 1146.2 - Emissions of Oxides of Nitrogen from Large Water Heaters and Small Boilers, was adopted in January 1998 to establish NOx emission limits for new and in-use small boilers and large water heaters ranging from 75,000 Btu/hr to 2 million (MM) Btu/hr. Since the rule adoption, staff has prepared and submitted to the Board three implementation studies required by the rule. A Working Group comprised of manufacturers, end-users, utilities, and other interested parties was convened to provide input and guidance to AQMD staff during each of the implementation studies. The purpose of the third and final implementation study (Phase III implementation study) was to evaluate the requirement for retrofit of units greater than 0.4 MM Btu/hr and less than or equal to 1 MM Btu/hr (smaller Type 2 units). The effective date for the retrofit or replacement requirement for the units in this size range is January 1, 2006. The findings of the third study were presented at the July 2004 Board meeting.

For retrofitting equipment, it was anticipated that equipment manufacturers would certify retrofit kits for popular types of units in order to provide an easy way to retrofit existing equipment. Manufacturers and suppliers of low NOx burners have also had the option to conduct source tests after installation of burners in each individual unit. However, for equipment covered in the Phase III implementation study (0.4 MM Btu/hr - 1 MM Btu/hr), the availability of retrofits did not materialize as expected and only one manufacturer has chosen to obtain retrofit certification. This certification is only applicable to their product line. In summary, although low NOx burners capable of meeting the rule limit are available for retrofit, they are only applicable to a limited number of boilers and water heaters in the size range of 0.4 MM Btu/hr to 1 MM Btu/hr. Retrofit costs are also high relative to the cost of replacing one of these smaller units with a new unit. Therefore, based on the findings of the Phase III implementation study and the infeasibility of the January 1, 2006 compliance date for all units, staff recommends extending this compliance date to retrofit or replace units in the size range of 0.4 MM Btu/hr to 1 MM Btu/hr.

In addition, under the proposed amended rule, the 2005 retrofit requirement for units greater than 1 MM Btu/hr (manufactured in 1992 and later) is also extended because many of the owners of these units are finding it difficult to retrofit or replace in time to meet the January 1, 2005 compliance date. Because certified retrofit kits are not available (not developed by most manufacturers), it takes a longer time for units to be retrofitted and source tested. There are also a limited number of installers available to provide the retrofit services in time to meet the January 1, 2005 compliance date. Furthermore, the unavailability of certified retrofit kits would necessitate replacement of many newer model units prematurely before they realize their useful life (e.g., replacement of 1999 model units by January 1, 2005 would only provide six years of use, which is significantly less than the average useful life of 15 years). Therefore, the January 1, 2005 compliance date is currently not feasible and under the proposed amendments, staff is also recommending to extend the compliance date for units greater than 1 MM Btu/hr manufactured from 1992 to 1999.

Affected Facilities

Based on a survey conducted by the AQMD staff for rule adoption in 1997, small boilers and water heaters covered under this rule can be found in every sector of the economy. The units are used in apartment and office buildings, and by commercial and industrial operations such as hotels, laundering, restaurants, and a wide variety of manufacturing businesses. As part of the 1998 rule adoption, staff estimated that there were over 65,600 units in the District in the size range (75,000 to 2 MM Btu/hr) affected by this rule, of which the number of units in the size range of 0.4 to 1 MM Btu/hr is 9,000 and for units greater than 1 MM Btu/hr is 13,000.

Proposed Rule

The intent of the proposed Rule 1146.2 amendment is to address the upcoming compliance dates of January 1, 2005 and January 1, 2006 for retrofit or replacement of existing units. Staff proposes to extend the January 1, 2006 requirement to retrofit or replace units in the size range of 0.4 MM Btu/hr to 1 MM Btu/hr because of infeasibility. Specifically, retrofit burners for many of these units are not available (most of which are not pre-certified) and retrofit cost is as high as or higher than replacement cost. Consequently, staff is proposing that, effective January 1, 2006, these units must meet the emission limit when they become15 years old (i.e., 15 years from the date of manufacture). For example, a unit manufactured in 1991 or earlier must still meet the emission limit by 2006 and a unit manufactured in 1993 must meet the emission limit by 2008. The 15 years represents the average useful life of boilers and heaters.

Staff is also proposing to extend the compliance date for in-use units greater than 1 MM Btu/hr (up to 2 MM Btu/hr) and manufactured from 1992 to 1999. Currently these units must comply with the 30 ppm NOx emission limit by January 1, 2005. Staff's analysis indicates that many owners will not be able to retrofit or replace their units by the compliance date. This is largely due to certified retrofit kits not developed by most manufacturers, and therefore, it takes longer time and additional cost for individual units to be individually retrofitted and source tested. Therefore, staff is proposing, that effective January 1, 2006, these units must meet the emission limit when they become 15 years old. For example, the proposed amendment would remove the requirement for a 1999 model unit to be retrofitted or replaced with a new unit by January 1, 2005 and would instead require the retrofit or replacement of this unit to occur at the end of the 15-year average life in 2014. The proposed rule language also includes changes to remove requirements which are no longer applicable (i.e., implementation studies which have already been completed) and clarify existing requirements.

Public Process

During the rulemaking process, staff conducted two Rule 1146.2 Working Group Meetings (October 21^st and November 12^th) to discuss staff proposals with manufacturers, trade groups and equipment owners. A Public Workshop was also conducted on November 3, 2004 to present the proposed rule, receive public comments and provide responses.

AQMP and Legal Mandates

Rule 1146.2 is included in the Settlement Agreement for the 1999 AQMP amendment. A provision was included in the agreement for findings of infeasibility in the event technology forcing rules are not able to be met. An infeasibility finding can be made if the proposed control technology is not reasonably likely to be available by the implementation date. As indicated in the staff report, it is infeasible for many units to be retrofit to meet the NOx emission limit.

The NOx emission reductions foregone from the proposed amended rule are estimated to occur until 2014 when existing units will be replaced or retrofitted (e.g., 1.3 ton per day in 2005, 1.2 ton per day in 2006 and 0.6 ton per day in 2010). As indicated in the staff report, the emissions forgone will not jeopardize AQMD's PM10 or ozone attainment demonstrations. The NOx reductions forgone will have an insignificant impact on 2006 PM10 attainment demonstration because of the small contribution of the overall NOx reductions from adopted rules (in the 2003 AQMP) toward PM10 attainment demonstration. In addition, the 2003 AQMP attainment demonstration and State Implementation Plan (SIP) commitment will not be compromised because the 2003 AQMP includes a three ton set aside to account for delays in implementation when technical assessments for rules indicate that technology does not develop as anticipated. A portion of those emissions will be used to offset reductions forgone under this amended rule that would have occurred if the technology was available.

California Environmental Quality Act (CEQA) Analysis

Pursuant to the California Environmental Quality Act (CEQA) and AQMD Rule 110, the AQMD has prepared environmental documentation evaluating potential significant adverse environmental impacts associated with implementing the proposed amendments to Rule 1146.2. A draft Environmental Assessment (EA) was prepared and released for a 45-day public review and comment period from October 8, 2004 to November 23, 2004. A Final EA is included as a part of the attached package for the public hearing on the proposed rule.

Socioeconomic Analysis

The proposed amendments would extend the current compliance dates of January 1, 2005 for units from greater than 1 MM Btu/hr up to 2 MM Btu/hr and January 1, 2006 for units greater than 400,000 Btu/hr up to 1 MM Btu/hr to when these units become 15 years old. As a result, operators of affected units can postpone their expenditures on retrofit and/or replacement until a later date. Such postponement will lead to savings to these operators relative to the existing rule.

Conclusion and Staff Recommendation

As described in this staff report, it is infeasible to retrofit many existing units greater than 0.4 MM Btu/hr up to 1 MM Btu/hr and units greater than 1 MM Btu/hr up to 2 MM Btu/hr by the compliance dates in the rule. Therefore, staff recommends amending the rule to require these units to meet the emission limits when they become 15 years old. Staff also recommends that the Board make findings of infeasibility regarding the January 1, 2005 and January 1, 2006 compliances dates at the January 7, 2005 public hearing.

Based on staff's analysis of the impacts of the proposed amended rule, extension of the January 1, 2005 and January 1, 2006 compliance dates will result in emission reductions forgone through 2014 when existing units will be replaced or retrofitted (e.g., 1.3 ton per day in 2005, 1.2 ton per day in 2006, and 0.6 ton per day in 2010). However, the same total NOx reductions expected from the existing rule will occur by 2014 due to retrofit or replacement with compliant units. In addition, staff is initiating rulemaking efforts on Rule 1146 series rules in 2005 to offset the emission reductions foregone as early as possible (e.g., lower NOx limits for new units).

Existing staff resources are adequate to implement the proposed amendments. Staff will continue to work with manufacturers and suppliers on its outreach efforts.

Attachments (1,226 KB)

1. Summary of Proposal
2. Key Issues and Responses
3. Rule Development Process
4. Key Contacts List
5. Resolution
6. Proposed Amended Rule
7. Final Staff Report with Socioeconomic Impact Assessment
8. Final Environmental Assessment

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