BOARD MEETING DATE: November 11, 2005 AGENDA NO. 35

In 1998, the Board adopted Rule 1118 - Emissions from Refinery Flares, as a first step to better define the emissions inventory for oil refineries, sulfur recovery plants and hydrogen production plants. In the Resolution, the Board directed staff to analyze the quarterly reports provided by the subject facilities during the first two years of monitoring and make a determination whether emissions are significant and determine if controls are necessary. Staff has compiled the 1999 (fourth quarter) through 2003 data and categorized the circumstances that result in flaring activities and presented the data and its analysis to the Board on September 3, 2004 in the “Evaluation Report on Emissions from Flaring Operations at Refineries.” Staff concluded that emissions, especially SO2, are significant and that these emissions could be further minimized and controlled. Staff recommends that emissions data gathering, monitoring and reporting procedures of the rule be strengthened. The Board directed staff to amend Rule 1118 to implement the recommendations stated in the report. AQMD staff evaluated control strategies and has determined that emission reductions are technically feasible and cost effective.

Sources subject to this rule include refineries, sulfur recovery plants and hydrogen production plants operated by the following facilities:

Air Products and Chemicals, Inc. BP West Coast Products
Chevron USA Inc. ConocoPhillips
ExxonMobil Corp. Equilon Enterprises LLC, Shell Oil US
Paramount Petroleum Corp. Ultramar Inc.

During the rulemaking process, staff worked closely with impacted parties. A working group comprised of representatives from industry and community was formed to provide input towards the development of PAR 1118. The working group met 9 times during the course of the rule development process, and a public workshop was held on June 29, 2005. The Refinery Committee, formed at Board‘s direction and led by Board members, met on three occasions and provided valuable guidance in developing PAR 1118. In addition, staff met on numerous occasions separately with individual stakeholders on the proposed amended rule.

Initially, PAR 1118 was on the Board calendar for a set hearing on July 8, 2005. PAR 1118 was continued at the September 2, 2005 regular Board meeting. PAR 1118 was on the Board calendar again for a set hearing on October 7, 2005, with the public hearing set for November 4, 2005, to provide impacted parties with additional time to review the staff proposal and resolve outstanding issues. Due to significant changes to the originally noticed proposal, PAR 1118 was again publicly noticed on October 5, 2005. The proposed amended rule, the draft staff report and the draft socioeconomic report were released to the public on October 4, 2005.

The primary objective of PAR 1118 is to minimize flaring and reduce criteria pollutant emissions, such as SOx, NOx, ROG, PM10 and CO emissions from flares at petroleum refineries, sulfur recovery plants and hydrogen production plants. The proposed amendment will be implemented starting in January 2006 and fully implemented by January 2012. PAR 1118 prohibits flaring of vent gases except for those situations resulting from emergencies, shutdowns and startups, turnarounds and specific essential operational needs; establishes operational requirements and diagnostic practices to minimize flaring; and sets refinery specific annual SO2 performance targets that decrease with time from 2006 to 2012 to ensure that emissions from flares are reduced on a permanent basis. Exceedance of the annual performance target by a subject facility would trigger mitigation fees and the submittal of a Flare Minimization Plan subject to public review and comment. The plan will outline any equipment installations and policies and procedures to be implemented by the facility to avoid future exceedances.

PAR 1118 also requires facilities to operate flares in a smokeless manner, maintain a pilot flame present at all times the flare is in operation and conduct annual inspections of pressure relief devices directly connected to flares to identify and repair those that leak, contributing to flaring. Facilities are required to submit detailed descriptions of their flare systems, audits of the vent gas recovery, storage and treating capacity and a summary of the flaring emission reductions achieved to date and future planned emission reductions. For significant flare events exceeding certain thresholds the facilities have to conduct specific cause analyses to identify the cause, implement corrective measures and prevent future recurrence; for smaller flare events they are also required to identify the cause, where feasible.

Monitoring will be enhanced by requiring installation of analyzers to measure the vent gas higher heating value and total sulfur concentration, and flow meters for purge and pilot gas. PAR 1118 will require that the existing flare gas flow meters be installed in representative locations or to be upgraded with totalizing capability such that only an accurate flow to the flare is registered. Until the analyzers are installed, daily samples will be required unless there is no flare event. The amended rule will also establish uniform data substitution procedures and calculations for reporting emissions when flow meters are not operational, samples are not collected and analyzed, and during analyzer downtime periods.

Notification and reporting requirements will be enhanced. Based on input from the Board Refinery Committee, staff has included a provision requiring refineries to make available to the public a 24 hour telephone number for inquiries on flaring events. New notification requirements include a 24 hour notification to the AQMD prior to a large planned flaring event and to notify the AQMD within 1 hour of large unplanned flaring events. Quarterly reports detailing flow, emissions and the cause of flare events will be submitted electronically to the AQMD.

By December 31, 2012, PAR 1118 is expected to achieve a reduction of 1.18 tons per day of SO2 and 1.44 tons per day, less CO, in total criteria air contaminants. The cost effectiveness of the proposed amendments ranges from $5,524 and $8,620 per ton of SO2 reduced. When considering additional reductions in NOx, VOC and PM10, the cost effectiveness ranges between $4,527 and $7,063 per ton of pollutant reduced.

Staff has worked diligently with the impacted industry and the environmental community to resolve many of the issues that were raised during the rule development process. However, there are still concerns about key issues such as Flare Minimization Plans, annual performance targets with daily emissions targets, the data substitution procedure, the definition of Essential Operational Need, and better notification to the public of planned flaring and emergencies.

Flare Minimization Plans (FMPs)
The environmental community commented that the best way to protect communities is to institutionalize best practices in the form of requiring refineries to complete a Flare Minimization Plan, which will also allow for public participation. The petroleum refineries have stated that PAR 1118 should require annual SO2 performance targets or FMPs, not both since both approaches would be duplicative.

Staff believes that the multi-pronged strategy established under PAR 1118 that includes provisions that explicitly prohibit unnecessary flaring, multi-year performance targets of increasing stringency and a substantive mitigation fee structure is a more enforceable and effective strategy to minimize flare-related emissions. This comprehensive control strategy includes many of the elements that would be covered by a Flare Minimization Plan, such as conducting an audit of flare gas recovery and treatment capacity and analyzing the cause of significant flare events. Facilities will be required to submit a more detailed Flare Minimization Plan in the event they exceed their performance targets.

PAR 1118 will result in emission reductions that are real, quantifiable, enforceable and permanent. The performance targets, which have been recently strengthened, are technologically feasible and cost effective and are designated to exceed the AQMP targets by at least 75 percent.

Annual Performance Targets
The environmental community requests the AQMD lower the annual SO2 performance targets and establish daily targets for SO2 and VOC while the petroleum refineries have commented that the proposed annual targets are more stringent than needed due to the fact that reported emissions are well below the goals established in the 2003 AQMP.

The annual performance target has been lowered to 0.5 ton SO2 per million barrels of crude oil processed effective January 1, 2012. This revised proposed target is technologically feasible and cost effective to achieve and is approximately 70 percent lower than the baseline emissions used in the cost analysis for this proposed rule and approximately 75 percent lower than the AQMP Control Measure CMB-07 targets.

In addition to SO2 reductions, PAR 1118 will also reduce other criteria air contaminants, including VOC. PAR 1118 limits the types of flaring that are allowed, and requires facilities to minimize flaring. To meet the annual SO2 performance targets, refineries will have to reduce the amount of vent gas directed to their flares; reducing flow to the flare will have commensurate VOC reductions

Relative to establishing daily emission targets, flares are operated to reduce vent gases resulting, in large part from emergencies, and essential operational needs. These are random, episodic events and associated emissions vary significantly. Therefore, establishing a daily emission target for SO2 or other criteria pollutant may be impractical. However, staff is committed to further explore the viability of this control concept in the future. Although the annual SO2 performance targets are below the AQMP targets, staff believes that the refineries performance demonstrates that these targets are feasible.

Data Substitution Procedure
The petroleum refineries commented that the data substitution procedure is critical to implementation of PAR 1118, based on the lower proposed annual SO2 performance targets and the high mitigation fees for exceedence of the targets, while the environmental community commented in support of staff’s proposal, which takes into account both maximum and average values over a five-year period.

Accurate flow and concentration data are the cornerstone to determine compliance with PAR 1118. The proposed amendments must provide incentives to regularly collect required data and yet provide reasonable estimates during flow meter, sampling and analyzer down periods or when the representative samples are not measured and recorded pursuant to the proposed rule requirements. Data substitution is not required if it can be demonstrated to the satisfaction of the Executive Officer that there was no flow to the flare during the flow meter and/or analyzer outage or a sample was not taken and analyzed. In the event there is flow to the flare, the proposed data substitution procedures allow the facility to use calculation procedures based on engineering principles to estimate their emissions. These calculation procedures and emission estimates are subject to the Executive Officer’s approval. The rule also establishes default calculation procedures that will serve as backstops in the event the Executive Officer disapproves the emission estimates submitted by a facility.

The default calculation procedure proposed by staff provides a method to conservatively estimate flow, higher heating value and concentration data that were not collected, as required by PAR 1118. The procedure was based on the operational history of the refinery flares operated in the AQMD. The large range and randomness exhibited by the flow, total sulfur concentration (reported as SO2), and the higher heating value data posed a challenge to staff in developing a procedure to reasonable estimate substitute data and at the same time provide a deterrent to facilities not collecting required data. Staff has determined that substituting data should be determined by looking at the last five years (20 quarters) of collected data and calculating the substituted value(s) based on the maximum value minus 50 percent of the difference between the maximum value minus the average value.

Essential Operational Need Definition
The definition of Essential Operational Need (EON) is critical to both parties. The petroleum refineries believe that a comprehensive list of EONs is necessary for safe operation of the refinery. The environmental community believes that without the FMP and the public comment process, the AQMD needs to tighten the list of acceptable EONs and to require the refineries to demonstrate to the AQMD why these practices are essential.

In developing the proposed definition of EON, staff carefully analyzed which specific operations are essential and can not be reasonably controlled by the facilities subject to PAR 1118. In addition, as suggested to alleviate any potential lack of clarity, the EON definition has been more clearly delineated by including language that allows the AQMD to make a determination that the EON meets the definition/description of the listed EONs.

Public Notification of Planned Flaring and Emergencies
Notification requirements during planned events and emergencies are inadequate and should be improved; the AQMD should facilitate this process through appropriate language in PAR 1118.

Effective January 1, 2006, PAR 1118 now requires refineries to provide a 24-hour telephone service to answer public inquiries about planned and current flare events. Staff has also committed through the Board Resolution to continue to work with industry and community members, and other public agencies to ensure that emergency notification procedures address the community needs.

PAR 1118 will implement Step II of 1997/99 AQMP and the 2005 AQMP Control Measure CMB – 07, which will result in emission reductions that are needed to meet federal and state standards for ozone, PM10 and PM2.5. Control Measure CMB-07 seeks to reduce SOX emissions to less than 2.1 tons per day. PAR 1118 far exceeds this target by reducing emissions to less than 0.5 ton per day.

Pursuant to California Environmental Quality Act (CEQA) Guidelines §15252 and AQMD Rule 110, the AQMD has prepared an Environmental Assessment (EA) for PAR 1118. The Draft EA was released for a 30-day public review and comment period beginning June 30, 2005 and ending July 29, 2005. Responses to the comments on the Draft EA are included in the Final EA, included as Attachment G of this Governing Board package.

The proposed rule will affect 7 refineries, one sulfur recovery plant and one hydrogen production plant located in the AQMD. The average annual cost of implementing the proposed amendments for all affected facilities is projected to be $5.22 million, of which refineries have a 99-percent share. Based on the $5.22 million cost and the resulting additional sales to vendors of control devices, macroeconomic analysis was performed to assess the overall job impacts of the proposed amendments on the entire local economy. It is projected that an average of nine jobs would be created annually from 2006 to 2020 in the four county area. There is nearly no job impact on the affected industries because these industries are capital intensive and the positive job impacts from the investment in control devices offset any potential negative job impact due to the additional control cost.

Requirements

Effective January 1, 2006:
— Flares must operate in a smokeless manner.
— Flares must have pilot flames present whenever they are in operation.
— Annual inspections of pressure relief devices directly connected to flares.
— Specific Cause Analysis of flare events exceeding 500 pounds SO2, 100 pounds VOC, or 500,000 standard cubic feet of flared gas.
— Relative cause analysis, where feasible, for flare events exceeding 5,000 standard cubic feet of gas flared but less than amounts required for a specific cause analysis.

Effective September 1, 2006:
— Facilities must submit a detailed technical description of their flare system(s), including an audit of the vent gas recovery capacity, a summary of the flaring emissions reductions achieved to date and future planned flare emission reductions.

Effective January 1, 2007:
— Flaring of vent gases is prohibited except during an emergency, shutdown, startup, turnaround and essential operational need.

Effective January 1, 2009:
— H2S concentration of flared gas, averaged over 3 hours, cannot exceed 160 ppm, except for an emergency, shutdown, startup, process upset and relief valve leakage.

Performance Targets

— Refinery specific annual performance targets for SO2 emissions based on crude processing capacity in 2004 and averaged over one calendar year:

   - 1.5 tons per million barrels processing capacity, effective January 1, 2006;
   - 1.0 ton per million barrels processing capacity, effective January 1, 2008;
   - 0.7 ton per million barrels processing capacity, effective January 1, 2010; and
   - 0.5 ton per million barrels processing capacity, effective January 1, 2012.
   - Exceedance of the annual performance target may result in the issuance of a Notice of Sulfur Dioxide Exceedance by the Executive Officer.

Mitigation Fees

— Mitigation fees for SO2 are calculated as follows :

   - Exceedance less than 10%, $25,000/ton for each ton above the annual performance target;
   - Exceedance more than 10% but less than 20%, $50,000/ton for each ton above the annual performance target;
   - Exceedance more than 20%, $100,000/ton for each ton above the annual performance target.
   - Total mitigation fees in any one year not to exceed $4,000,000.

Flare Minimization Plans

— Required any time the annual performance target is exceeded;

— Must contain a description of equipment to be installed and policies and procedures to be implemented to avoid future exceedance;

— Subject to public review and comment.

— Must be complete and include all actions to be taken by the facility to meet the performance targets for approval.

— Disapproval of the Flare Minimization Plan or noncompliance with any of the provisions of an approved Flare Minimization Plan shall be considered a violation of the rule.

Monitoring and Recording
Effective January 1, 2006:
— Daily samples for flare events.

On or before June 30, 2006:
— Submit a Revised Flare Monitoring and Recording Plan.

Effective July 1, 2006:
— Video monitoring and recording with date and time stamp of flare activity.

Effective January 1, 2007:
— Vent gas flow meters to be located at representative locations or be equipped with low flow and totalizing capability; and
— Flow meters are required for purge and pilot gas lines.

Effective July 1, 2007:
— Continuous analyzers for monitoring vent gas higher heating value and total sulfur concentration.
Recordkeeping
— Video monitoring records to be kept for 90 days and all other required records for a period of five years.
Notification and Reporting
— Provide a 24-hour telephone service for access by the public for inquiries about flare events;
— 1 hour notification to AQMD of flare events exceeding 500 pounds SO2, 100 pounds VOC or 500,000 standard cubic feet of flared vent gas;
— 24 hour advance notification to AQMD of planned flare events exceeding 500 pounds SO2, 100 pounds VOC or 500,000 standard cubic feet of flared vent gas;
— Quarterly reports submitted in electronic form, certified by the responsible official, to include daily and quarterly emissions and cause of flare events.
Testing and Monitoring Methods
— Annual verification of the vent gas flow meter accuracy.
Exemptions
— No sampling required if not feasible due to catastrophic events or presents a safety hazard.
— Emissions resulting from natural disasters, acts of war or terrorism or external power curtailment do not count against the performance targets.
Flare Monitoring System Requirements
— Delineates specifications for flare monitoring systems.
Guidelines for Calculating Flare Emissions
— Specifies the procedure for substituting data when required measured data is not obtained.

A Resolution of the South Coast Air Quality Management District Governing Board (AQMD Governing Board) certifying the Final Environmental Assessment for Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares.

A Resolution of the AQMD Governing Board adopting Amended Rule 1118 – Control of Emissions from Refinery Flares.

WHEREAS, the AQMD Governing Board has determined with certainty that Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, is a “project” pursuant to the terms of the California Environmental Quality Act (CEQA); and

WHEREAS, the AQMD has had its regulatory program certified pursuant to Public Resources Code §21080.5 and has conducted CEQA review pursuant to such program (AQMD Rule 110); and

WHEREAS, AQMD staff has prepared a Draft Environmental Assessment (EA) pursuant to its certified regulatory program and state CEQA Guidelines §15252 setting forth the potential environmental consequences of Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares; and

WHEREAS, the Draft EA was circulated for public review, comments received were responded to, and a Final EA has been prepared; and

WHEREAS, the adequacy of the Final EA, including responses to comments, has been determined by the AQMD Governing Board prior to its certification; and

WHEREAS, a Mitigation Monitoring Plan pursuant to Public Resources Code §21081.6, has not been prepared since no mitigation measures are necessary; and

WHEREAS, the AQMD Governing Board voting on Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, has reviewed, considered, and hereby certifies the Final EA; and

WHEREAS, the Governing Board finds and determines, taking into consideration the factors in §(d)(4)(D) of the Governing Board Procedures, that the modifications adopted which have been made to PAR 11118 – Control of Emissions from Refinery Flares, since notice of public hearing was published do not significantly change the meaning of the proposed rule within the meaning of Health and Safety Code §40726 and would not constitute significant new information requiring recirculation of the Draft CEQA document pursuant to CEQA Guidelines § 15088.5; and

WHEREAS, the AQMD Governing Board has determined that the Socioeconomic Impact Assessment and Final Staff Report of the Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, is consistent with the Governing Board March 17, 1989 and October 14, 1994 resolutions and the provisions of Health and Safety Code Sections 40440.8, 40728.5 and 40920.6; and

WHEREAS, the AQMD Governing Board has determined that the Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, will result in increased costs to industry, yet is considered cost-effective with a cost-effectiveness as described in the Socioeconomic Impact Assessment and Staff Report; and

WHEREAS, the AQMD Governing Board has actively considered the Socioeconomic Impact Assessment and has made a good faith effort to minimize such impacts; and

WHEREAS, the AQMD Governing Board has reviewed and considered the staff's findings related to cost and employment impacts of the Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, set forth in the Socioeconomic Impact Assessment and Final Staff Report made public with the agenda package for this meeting, and hereby find and determines that cost and employment impacts are as set forth in that assessment; and

WHEREAS, the AQMD Governing Board has determined that a need exists to adopt the Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, to reduce sulfur dioxide and other criteria pollutants from flare events at petroleum facilities by implementing Step II of Control Measure CMB-07 of the 1999 and 2003 AQMP and to achieve federal PM10 and ozone standards in 2006 and 2010 respectively; and

WHEREAS, the AQMD Governing Board of the South Coast Air Quality Management District obtains its authority to adopt, amend or repeal rules and regulations from Sections 39002, 40000, 40001, 40440, 40441, 40702, 41508 and 41700 of the California Health and Safety Code; and

WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 1118 - Control of Emissions from Refinery Flares, as proposed to be adopted is written or displayed so that its meaning can be easily understood by the persons directly affected by it; and

WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, as proposed to be adopted is in harmony with, and not in conflict with or contradictory to, existing federal or state statutes, court decisions, or regulations; and

WHEREAS, the AQMD Governing Board has determined that that Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, as proposed to be amended does not impose the same requirements as any existing state or federal regulation and the proposed rule is necessary and proper to execute the powers and duties granted to, and imposed upon the AQMD; and

WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, as proposed to be amended, references the following statutes which the AQMD hereby implements, interprets or makes specific: California Health and Safety Code sections 41700 (Nuisance), 40440(a) (Rules to Implement Plan), 40440(b) (Best Available Retrofit Technology) and Title 42 U.S.C. Section 7502(c)(1) (Reasonably Available Control Technology); and

WHEREAS, the AQMD Governing Board has determined that there is a problem that Proposed Amended Rule 1118 will help alleviate, i.e., the Basin does not meet the ambient air quality standards for ozone, PM10 and PM2.5 standards, and the Proposed Amended Rule will promote attainment of these standards; and

WHEREAS, a public hearing has been properly noticed in accordance with the provisions of Health and Safety Code Section 40725; and

WHEREAS, the AQMD Governing Board has held a public hearing in accordance with all provisions of law; and

WHEREAS, the AQMD Governing Board specifies the manager of Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, as the custodian of the documents or other materials which constitute the record of proceedings upon which the adoption of this proposed amendment is based, which are located at the South Coast Air Quality Management District, 21865 Copley Drive, Diamond Bar, California; and

WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, should be adopted instead of the more stringent option of recovering all vent gases routed to flares except for emergency vent gases because the incremental cost effectiveness of the more stringent option exceeds $155,918 per ton of sulfur dioxide reduced; and

WHEREAS, that the AQMD Governing Board hereby directs staff to work closely with Western States Petroleum Association and its members and other interested parties in conducting a pilot program to demonstrate the technical feasibility of total sulfur analyzers; evaluate all data collected from the use of higher heating value analyzers that may be presented by industry; and, no later than December 2006, report the results of the pilot program and data analysis, including any recommendations relative to these analyzers, to the Stationary Source Committee; and

WHEREAS, that the AQMD Governing Board hereby directs staff to provide annual status reports on overall industry performance and updates on annual sulfur dioxide performance targets exceedances to the Stationary Source Committee and to develop the air quality improvement projects to be funded by mitigation fees collected as a result of those exceedances, in cooperation with representatives of both the community impacted and the source of the release; and

WHEREAS, that the AQMD Governing Board hereby directs staff to continue to work with industry, community members and other regulatory agencies on community notification procedures; and

WHEREAS, that the AQMD Governing Board hereby directs staff to evaluate the feasibility of establishing a daily emission target and the appropriateness of annual emissions targets and whether any refinements to those targets are warranted and report back to the AQMD Governing Board with any recommendations; and

WHEREAS, that the AQMD Governing Board hereby directs staff to evaluate the use of the data substitution procedures by industry during the first year of implementation of PAR 1118 and report back to the AQMD Governing Board with any recommendations; and

WHEREAS, that the AQMD Governing Board hereby directs staff to evaluate the Bay Area Air Quality Management District Rule 12 – Flares at Petroleum Refineries requirement to implement Flare Minimization Plans and the resultant installation of controls and report back to the AQMD Governing Board with any recommendations;
WHEREAS, that the AQMD Governing Board hereby directs staff to review the definition of Essential Operational Need and report back to the AQMD Governing Board with any recommendations; and

WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 1118 - Control of Emissions from Refinery Flares, should be adopted for the reasons contained in the Final Staff Report, and

NOW, THEREFORE, BE IT RESOLVED, that the AQMD Governing Board hereby certifies, pursuant to the authority granted by law, the Final EA for Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, and

BE IT FURTHER RESOLVED, that because no significant adverse environmental impacts were identified as a result of implementing Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, a Statement of Findings, a Statement of Overriding Considerations, and a Mitigation Monitoring Plan are not required; and

BE IT FURTHER RESOLVED, that the AQMD Governing Board does hereby adopt, pursuant to the authority granted by law, Proposed Amended Rule 1118 – Control of Emissions from Refinery Flares, as set forth in the attached and incorporated herein by reference; and

BOARD MEETING DATE: November 4, 2005 AGENDA NO. 35

BOARD MEETING DATE: November 4, 2005
AGENDA NO. 35