BOARD MEETING DATE: June 4, 2004
AGENDA NO. 41

Public Hearing to Amend Rule 2015 – Backstop Provisions

SYNOPSIS:

The proposed amendment to Rule 2015 will address an U.S. EPA SIP approvability issue regarding breakdown emissions. The proposed changes would establish a procedure to monitor breakdown emissions and to mitigate any emissions not covered by RTCs.

COMMITTEE:

Stationary Source, April 23, 2004 and May 28, 2004, Reviewed

RECOMMENDED ACTION:

Adopt the attached resolution:

1. Certifying the Notice of Exemption for Proposed Amended Rule 2015 – Backstop Provisions; and
    
2. Adopting Proposed Amended Rule (PAR) 2015 – Backstop Provisions, Option A.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The Board adopted the Regional Clean Air Incentives Market (RECLAIM) program in 1993. The purpose of the RECLAIM program was to reduce NOx and SOx emissions through a market-based program. It was designed to provide facilities with the flexibility to seek the most cost-effective solution to reduce their emissions. The program replaced a series of existing command-and-control rules and control measures specified in the 1991 AQMP.

In May 2001, the AQMD amended RECLAIM to address the electrical generation crisis. Upon review, U.S. EPA raised concerns regarding a previously SIP approved provision (Rule 2004(i)(3)) that allowed facilities, under certain conditions, to not deduct excess emissions associated with equipment breakdowns from the facility’s RTC Allocation. It should be noted that although this provision exists, it has never been used. Any emissions that may have been associated with equipment breakdowns have been covered by facility RTC holdings. U.S. EPA notified the AQMD that this provision conflicts with a September 20, 1999 policy that requires mitigation of all excess emissions during equipment malfunctions, startup, and shutdown. Staff is proposing to add a requirement to Rule 2015 to monitor and ensure mitigation of emissions associated with equipment breakdowns.

After numerous discussions with U.S. EPA, staff committed in a letter dated April 2, 2002 to address the issue of unmitigated breakdown emissions under Regulation XX. The April 2^nd letter contained the following two elements:

• require monitoring and tracking of excess emissions from breakdowns, and compare that amount to unused RTCs each year for the entire RECLAIM program; and
• if the yearly unmitigated breakdown emissions from all RECLAIM sources exceeds the unused RTCs, programmatic reductions from all RECLAIM allocations in the following year will be made to mitigate the excess emissions.

On May 13, 2002, U.S. EPA proposed conditional approval of the May 2001 RECLAIM amendments into the SIP. The conditional approval was finalized and published on September 4, 2003. Specifically, amendments to RECLAIM would be proposed to the Board and, upon adoption, submitted to U.S. EPA. A conditional approval that is not adequately addressed in 12 months reverts to a disapproval. In this case, this would affect the entire May 2001 amendments.

Proposed Amendments to Rule 2015

To facilitate U.S. EPA final approval of the 2001 amendments and to address U.S. EPA’s concerns, staff is proposing to establish a mechanism in Rule 2015 for addressing unmitigated breakdown emissions as an element of the RECLAIM Annual Audits. Excess emissions resulting from equipment breakdowns that are approved pursuant to Rule 2004 must be reported in each facility’s Annual Permit Emissions Program (APEP) report. These emission reports are the subject of an annual audit of the RECLAIM program, which also tracks the level of unused NOx and SOx RTCs annually. Therefore, it is appropriate to implement the mechanism through this procedure.

Due to a substantive comment received during a RECLAIM Working Group meeting, staff is presenting two rule amendment options for the Board’s consideration. Option A contains the staff’s proposal, which reflects a suggestion provided during a RECLAIM Working Group meeting. Under Option A, excess breakdown emissions would be counted against the facilities’ RTC holdings if the available unused RTCs in the entire RECLAIM program are not sufficient to cover the total unmitigated breakdown emissions. If this occurs, a proportion of the total excess breakdown emissions would be subtracted from the facilities’ RTC holdings based on individual’s contribution to the total breakdown emissions. It should be noted that Option A does not fully reflect the intent of the Rule 2004 provision that was adopted by the Board in October 1993. A Rule 2004 provision exempts facilities from responsibility for breakdown emissions. Option A requires facilities with breakdown emissions to backstop any unmitigated breakdown emissions should programmatic unused RTCs not be sufficient.

Under Option B, emissions in excess of the available unused RTCs would be offset programmatically from all RTC holdings.

Under both Options A and B, the Executive Officer can obtain some or all of the necessary RTCs to offset any excess unmitigated breakdown emissions.

Potential Impacts for Proposed Amendments to Rule 2015

There are negligible impacts anticipated for Option A or B. As previously stated, the provision of Rule 2004(i)(3) exempting facilities from deducting excess unmitigated breakdown emissions under certain conditions has not been used and all breakdown emissions have been mitigated by facility RTC holdings. Further, according to APEP reports, emissions from equipment breakdowns have not exceeded 0.5 tons per year. The worst single breakdown reported during the last seven compliance years was less than 1,000 pounds NOx for a single facility. Additionally, the recent 2002 RECLAIM annual report indicates that, programmatically, several hundred tons per year of RTCs are unused. Since no breakdown emissions have gone unmitigated, estimating any amount of unmitigated breakdown emissions would be speculative. In the event breakdowns occur and are not mitigated, staff would look at programmatic unused RTCs before initiating RTC deductions. Even if staff were to assume as a worst case that the 0.5 tons per year in breakdown emissions were to go unmitigated, the unused RTCs would more than adequately cover the emissions. Hence, it is highly unlikely that RTC deductions would be instituted. If deductions are necessary, Option A would have impacts only on specific facilities that had breakdowns that were not counted against their RTC holdings, whereas Option B would spread the impacts to all RTC holders. Furthermore, the Executive Officer may, under either option, choose to obtain RTCs to offset emissions.

California Environmental Quality Act (CEQA)

Staff has reviewed the proposed amendments to Rule 2015 – Backstop Provisions, pursuant to CEQA Guidelines § 15002(k)(1) - Three Step Process, and has determined that the proposed amendments are exempt from CEQA pursuant to CEQA Guidelines § 15061(b)(3) – Review for Exemption. CEQA applies only to projects which may have a significant effect on the environment. Staff has reviewed the proposed amendments and has determined that it can be seen with certainty that there is no possibility that proposed amended Rule 2015 will have a significant impact on air quality or other environmental areas and, therefore, the proposed project is exempt from CEQA. If approved by the Board, a Notice of Exemption (NOE) has been prepared (Attachment A of the staff report) for the proposed project pursuant to CEQA Guidelines §15062 – Notice of Exemption, and will be mailed to the county clerks of Los Angeles, Orange, Riverside, and San Bernardino counties.

Socioeconomic Assessment

No measurable socioeconomic impacts relating to this amendment are expected because, historically, very few emissions were reported as breakdown emissions and none of these emissions were unmitigated. In the future, it is unlikely that any reported unmitigated breakdown emissions will exceed the unused RTCs in the program and result in the need for either individual facilities or all facilities having to mitigate them. Therefore, the proposal is not expected to result in any market impacts.

Public Process

RECLAIM Working Group meetings were held on March 19, April 1, and April 15, and May 11, 2004 at which this proposed amendment was discussed along with other Regulation XX amendments being developed under a separate proposal to go before the Board at a later date. A Public Workshop was held on April 7, 2004 to discuss the staff proposal along with the other aforementioned proposed amendments under consideration. It was attended by approximately 40 people including representatives from the AQMD, CARB, and RECLAIM facilities. Separate discussions were held with U.S. EPA staff. Based on these discussions, U.S. EPA staff’s preliminary review indicated that either proposal meets with the intent of their policy on unmitigated breakdown emissions.

Implementation Plan

Existing AQMD resources will be used to implement the amended rule.

Attachments

	A1.	Summary of Proposal for Option A
	A2.	Summary of Proposal for Option B
	B.	Key Issues and Responses
	C.	Rule Development Process
	D.	Key Contacts List
	E.	Resolution
	F1.	Proposed Amended Rule Option A
	F2.	Proposed Amended Rule Option B
	G.	Staff Report (including Socioeconomic Assessment and Notice of Exemption from the California Environmental Quality Act)

ATTACHMENT C

RULE DEVELOPMENT PROCESS

Twelve (12) months spent in rule development.

ATTACHMENT D

KEY CONTACTS LIST
 

                            WHEREAS, it is appropriate to monitor breakdown emissions in conjunction with the RECLAIM annual audits pursuant to Rule 2015 – Backstop Provisions; and

                            WHEREAS, either Proposed Amended Rule 2015 Option A or B meets the intent of the commitment made by staff in its April 2, 2004 letter and as published in the September 4, 2003 Federal Register concerning conditional approval of the May 2001 RECLAIM program amendments; and

                            WHEREAS, the South Coast Air Quality Management District Governing Board finds and determines that proposed amended Rule 2015 – Backstop Provisions, is considered a "project" pursuant to the California Environmental Quality Act (CEQA); however, South Coast Air Quality Management District staff reviewed the proposed project and determined with certainty that the proposed amendments to Rule 2015 – Backstop Provisions are exempt from the requirements of CEQA pursuant to CEQA Guidelines §15061(b)(3); and

                            WHEREAS, the U.S. Environmental Protection Agency has a September 1999 policy, "Excess Emissions During Malfunctions, Startup, and Shutdown", that requires mitigation of excess emissions from equipment breakdowns; and

                            WHEREAS, AQMD Governing Board has determined that there is a problem of possible unmitigated breakdown emissions that the proposed amendments to Rule 2015 will alleviate (Health and Safety Code § 40001(c)); and

                            WHEREAS, AQMD staff reviewed the proposed project and determined, with certainty, consistent with the provisions of Health and Safety Code §§ 40440.8, 40728.5 and 40920.6, that no measurable socioeconomic impacts are expected relative to Proposed Amended Rule 2015; and

                            WHEREAS, the AQMD Governing Board obtains its authority to adopt Proposed Amended Rule 2015, pursuant to Health and Safety Code §§ 39002, 39616, 40000, 40001, 40440, 40440.1, and 40702; and

                            WHEREAS, the AQMD Governing Board has determined that a need exists to amend Rule 2015 to meet U.S. EPA requirements for monitoring and ensuring mitigation of emissions associated with equipment breakdowns; and

                            WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 2015 is written or displayed so that the meaning can be easily understood by the persons directly affected by them; and

                            WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 2015 is in harmony with and not in conflict with or contradictory to, existing statutes, court decisions or state or federal regulations; and

                            WHEREAS, the AQMD Governing Board has determined that Proposed Amended Rule 2015 will not impose the same requirements as any existing state or federal regulations. The amendments are necessary and proper to execute the powers and duties granted to, and imposed upon, AQMD; and

                            WHEREAS, the AQMD Governing Board has determined that by adopting Proposed Amended Rule 2015, the AQMD Governing Board will be implementing, interpreting and making specific the provisions of the Health and Safety Code §§ 39002, 39616, 40000, 40001, 40440 (a), 40440.1, 40702, and 40725 through 40728.5; and Title 42 U. S. C. §§ 7410 and 7511a; and

                            WHEREAS, the AQMD Governing Board has determined that the findings required pursuant to Health and Safety Code § 39616 (e) made in October 2000, and under subsequent amendments in May 2001 and December 2003, are not altered by these amendments; and

                            WHEREAS, the AQMD specifies the manager of Rule 2015 as the custodian of the documents or other materials which constitute the record of proceedings upon which the adoption of these proposed amendments 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 amendments to Rule 2015 should be adopted for the reasons contained in the staff report and that either Option A or B would adequately address the issue of ensuring mitigation of emissions associated with equipment breakdowns; and

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

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

                            NOW, THEREFORE, BE IT RESOLVED, that the South Coast Air Quality Management District Board does hereby certify the Notice of Exemption for Rule 2015 – Backstop Provisions, as proposed to be amended, completed in compliance with CEQA Guidelines §15002(k)(1) - Three Step Process and §15061(b)(3) – Review for Exemption (General Rule Exemption). This information was presented to the Governing Board, whose members reviewed, considered, and approved the information therein prior to acting on Proposed Amended Rule 2015; and

                            BE IT FURTHER RESOLVED, that the AQMD Governing Board does hereby approve the Socioeconomic Impact Assessment; and

                            BE IT FURTHER RESOLVED, that the AQMD Governing Board does hereby amend, pursuant to the authority granted by law, Rule 2015, as set forth in the attached, and incorporated herein by reference.

DATE: ____________________               ____________________________
                                                                          Clerk

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