BOARD MEETING DATE: October 1, 2004
AGENDA NO. 30

Informational Hearing and White Paper for Proposed Amendments to RECLAIM

SYNOPSIS:

This agenda item constitutes an informational hearing on proposed amendments to RECLAIM rules. In conjunction with this hearing, staff is providing a White Paper which highlights BARCT determinations, cost-effectiveness, and options for achieving reductions from the program. The White Paper and the informational hearing are intended to provide the Board with a status update on the rule development process, identify key issues and viewpoints, and give the public an opportunity to comment.

COMMITTEE:

Stationary Source, July 23 and August 27, 2004, Reviewed

RECOMMENDED ACTION:

Direct the staff to continue with developing proposed rule amendments to the RECLAIM program, giving consideration to Board and public input received at the meeting.

Barry R. Wallerstein, D.Env.
Executive Officer

Introduction

The AQMD Board adopted the Regional Clean Air Incentives Market (RECLAIM) program in 1993. The purpose of the RECLAIM program is to reduce NOx and SOx emissions through a market-based program. It is 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.

AQMD staff is proposing amendments to Regulation XX – RECLAIM to achieve additional NOx reductions pursuant to the 2003 AQMP Control Measure #2003CMB-10. The proposed amendments also address requirements for Best Available Retrofit Control Technology (BARCT) in accordance with California Health and Safety (H&S) Code §40440, which is applicable to market-based incentive programs, as well as equivalency to command-and-control regulations, as required under H&S Code § 39616(c)(1). Reductions in NOx will help the Basin attain ozone and PM2.5 standards. Other proposed rule amendments include clarifications and changes to the protocols.

Public Process

The working group process has been used extensively throughout this rule development process. The RECLAIM Working Group was first established at the time of original program development in the early 1990s and has been consulted numerous times over the years regarding amendments to the program. The RECLAIM Working Group includes members representing small and large businesses, the environmental community, as well as CARB and U.S. EPA. A Working Group meeting was first held on March 19, 2004 to receive input on the staff’s initial proposal, which included discussions of the methodology to reduce RTC holdings, preliminary impact analysis, and proposed amended rule language. Additional Working Group meetings were held April 1 and 15, May 11, June 23, and July 14, August 12, and September 10, 2004 to review staff’s assessment of BARCT and cost effectiveness; method, timing, and amount of RTC holding reductions; and to provide feedback on the rule proposals. Subcommittee meetings were also held to address specific issues of the petroleum refining and power producing industries.

A Public Consultation meeting was held on November 19, 2003 to discuss the December 2003 amendments and to introduce the concepts for the current proposal. A Public Workshop was held April 7, 2004 regarding staff’s initial proposal. A subsequent Public Consultation meeting was held on August 12, 2004 to summarize the proposed amendments and to provide a forum for additional public input.

The White Paper was posted on the AQMD web-page on August 27, 2004, two weeks in advance of the September 10^th Working Group meeting and five weeks prior to the October 1, 2004 Informational Hearing. Notification was sent electronically to the entire RECLAIM mailing list on August 27^th to announce the posting.

Current Staff Proposal for NOx RTC Reductions

The current staff proposal was developed using a selected method to calculate BARCT and subsequently, demonstrate equivalency to command and control. BARCT was evaluated for all equipment categories covered by RECLAIM. Based on the 2003 AQMP base year inventory (i.e., 1997) and associated growth projections, this method results in a projection of future actual emissions. Results from the application of this methodology reflect the most recent benchmark for command and control equivalency determination. Control factors representing new BARCT levels were then applied to derive the remaining emissions, thereby quantifying the reductions feasible from current RTC holdings. Since the remaining emissions reflect projected actual emissions after application of BARCT, the proposal includes adding a 10% adjustment (increase) to remaining emissions to account for inaccessible RTCs due to imperfect market conditions and RTCs held by facilities to ensure compliance with annual audits.

Under the proposal, total RTC reductions would be 7.8 tons per day and implemented across-the-board based on equal percent reductions to all RTC holdings. The reductions would be implemented in phases: 4 tons per day of reductions in compliance year 2007 and the remaining 3.8 tons per day of reductions would be implemented in equal increments beginning in compliance year 2008 and continuing through compliance year 2010, on a straight-line rate of reduction. Current trading restrictions on power producers would remain in effect until the 2007 compliance year to retire excess emissions from power plant RTC holdings rather than have them enter the trading market and potentially allow emission increases, thereby delaying controls from other facilities.

The proposal states that the RTC reductions during the last year (compliance year 2010) will not occur if the price exceeds $15,000 per ton. It should be noted that in Rule 2015 – Backstop Provisions, exceeding an RTC price of $15,000 would result in a RECLAM program evaluation. Staff also proposes criteria by which a facility would be exempt from RTC holding reductions. These criteria are only applicable to original RTCs, not additional holdings, as follows.

• Facilities are in the RECLAIM program since 1994 and have 1994 allocations equivalent to 2000 allocations;
• All equipment except those exempt under Rule 219 are at or below the proposed new BARCT; and
• Facilities have not sold their RTCs for 2005 or any compliance year thereafter.

Staff analysis indicates that there are potentially 3 facilities that would qualify for the exemption, resulting in about 0.02 tons per day of reductions foregone.

Staff proposes that the RTC reductions (6.5 tpd) be submitted to the SIP for compliance years 2007 through 2009. The additional 1.3 tpd reductions for compliance year 2010, however, would not be submitted to the SIP; this is due to the potential for some or all of the 1.3 tpd to be used in the event RTC prices rise beyond $15,000 per ton and the program is subject to review pursuant to Rule 2015.

Staff held numerous briefing sessions with CARB staff in the last several months regarding staff approaches/methodologies, and technology and policy issues. CARB staff supports AQMD staff’s technical analysis and approach.

CEQA and socioeconomic analyses for the project are currently in progress. Rule development is ongoing and staff is committed to working with all stakeholders throughout the process.

White Paper

The attached White Paper includes technical information related to BARCT and cost-effectiveness, describes some of the key policy issues, describes different viewpoints, and makes preliminary staff recommendations.

Key issues discussed in the White Paper include:

• BARCT determinations;
• Cost-effectiveness;
• Method of determining reductions;
• Amount of NOx RTC reductions;
• Timing of reductions;
• Method of applying reductions (program wide vs. industry specific); and
• Exemption from reductions for facilities already at BARCT.

In addition to staff’s proposal, industry proposals are also provided. An assessment has been conducted relative to the reductions resulting from the staff proposal, industry proposals, current allocations, and the projected actual emissions based on the most recent reported emissions.

White Paper Changes Since Publicly Released on August 27, 2004

Since the release of the draft White Paper on August 27, 2004, there have been a few changes/updates to the document to better reflect staff’s proposal and make corrections. The changes/updates are summarized as follows:

• Update to the feasible schedule for BARCT implementation;
• Clarifying the basis of control factors used to derive reductions;
• Clarifying elements of the staff’s proposal;
• Inclusion of a proposal by representatives of the environmental community; and
• Grammatical and other general corrections.

In addition to the changes made to the White Paper, staff has received and fulfilled several requests for data and information.

Attachment

White Paper:
Key Issues Relative to Proposed Amendments to Regulation XX – Regional Clean Air Incentives Market (RECLAIM)

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