BOARD MEETING DATE: May 6, 2005 AGENDA NO. 40

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

On January 7, 2005, the Board approved amendments to Regulation XX – RECLAIM to achieve additional NOx reductions pursuant to the 2003 AQMP Control Measure #2003CMB-10. The proposed amendments also addressed requirements for Best Available Retrofit Control Technology (BARCT) under state law and made changes to the NOx and SOx protocols.

To ensure effectiveness and consistent implementation of the RECLAIM program, staff is proposing the following administrative amendments to Regulation XX. The first proposed amendment is a clarification that total emissions to be offset at a new or relocated facility, pursuant to Rule 2005(b)(2) and (f), include ship emissions consistent with the requirements in Rule 1306 – Emission Calculations, for New Source Review for non-RECLAIM facilities. To ensure that facilities subject to this requirement under Rule 2005 will also monitor, report, and keep records of ship emissions, Rule 2011 and 2012 are also proposed to be modified to reflect these requirements. The definition of RECLAIM pollutant is also being amended to clarify that RECLAIM pollutants include ship emissions at a new or relocated facility subject to the offset requirements in Rule 2005, rental equipment, and equipment operated by a contractor at RECLAIM facilities. The amended rule language will ensure consistent interpretation of emissions required to be reported in the monthly emissions report and quarterly certification emissions described in Rule 2000 paragraphs (c)(49) and (58) respectively. Furthermore, it will also clarify the type of emissions that would be included in determining compliance with Allocations as specified in Rule 2004 – Requirements. Also, proposed amendments to Rule 2001 – Applicability would clarify that ship emissions specified in Rule 2000(c)(62)(C) and (D) will not be counted towards the applicability thresholds for RECLAIM.

Second is a proposed amendment to Rule 2005 – New Source Review for RECLAIM, which would provide an option for RECLAIM facilities with new or modified sources subject to the New Source Review offset requirements under Rule 2005 to sell unused RTCs prior to the end of the compliance year. Currently, Rule 2005 (f) requires new, relocated or modified RECLAIM facilities to acquire RTCs at the beginning of each compliance year at the maximum permitted amount. The RTCs must be held for the entire year and can be sold only at the end of the compliance year. The proposed amendment would allow a RECLAIM facility to sell unused RTCs after the end of the quarter if it voluntarily elects to accept an enforceable permit condition limiting quarterly emissions for each source (permit unit). Any facility found to be in violation of the quarterly limit in any given quarter will hold the Rule 2005 required RTCs until the end of the compliance year. If a facility is found to be in violation of the quarterly limit more than three times in any five consecutive compliance years will be ineligible to participate in this voluntary program and be required to hold the Rule 2005 required RTCs until the end of each compliance year.

Some facilities such as power plants often permit their equipment at maximum rating to ensure reliability of electricity supply to customers, but in most instances they operate their equipment at less than 50 percent of its annual maximum capacity. This situation creates a false demand for RTCs at the beginning of each compliance year that could cause an artificial price spike in the RECLAIM market. This amendment will help to reduce potential for a spike in NOx RTC prices.

The third is a proposed amendment to adjust the amount of RTCs required in Rule 2005 (c)(3) for change of operator of a RECLAIM facility to be consistent the RECLAIM amendments in January 2005 which prescribed an adjustment factor in Rule 2002 – Allocations for Oxides of Nitrogen and Oxides of Sulfur, to reduce the amount of NOx RTCs at all facilities over the next several years. The proposed amendment clarifies the RTC holdings requirements such that they are consistent with the NOx reductions required under Rule 2002, requiring the applicant to hold RTCs equal to the initial allocation multiplied by the adjustment factor from the January 2005 amendments. The proposed amendment also allows the amount of RTCs holding to be reduced consistent with installation of air pollution control technologies.

The fourth proposed amendment would reinstate rule language which was inadvertently omitted from Rule 2007 during the January 2005 amendments to RECLAIM. The omitted rule language allows power producing facilities to transfer credits to facilities under common ownership. The proposed amendment would correct the omission.

Amendments are proposed to clarify that total emissions to be offset at a new or relocated facility pursuant to Rule 2005(b)(2) include ship emissions consistent with the requirements in Rule 1306 for non-RECLAIM facilities. Proposed amendments to Rule 2000 – General, Rule 2005 – New Source Review for RECLAIM, and the Protocols for Rules 2011 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions and 2012 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions would specify that RECLAIM pollutants include ship emissions as defined by Rule 1306 – Emission Calculations, and, therefore, offsets are required for these emissions. This proposal clarifies the inclusion of ship emissions in RECLAIM for the purpose of offsets and parallels the requirements of Regulation XIII – New Source Review which applies to non-RECLAIM sources. Also, proposed amendments to Rule 2001 – Applicability would clarify that ship emissions specified in Rule 2000(c)(62)(C) and (D) will not be counted towards the applicability thresholds for RECLAIM.

Proposed Amended Rule 2000 – General
Rule 2000 provides definitions for terms found in Regulation XX – RECLAIM. The proposed amendment to Rule 2000 is the addition of language in paragraph (c)(62) that clarifies the definition of RECLAIM pollutants. The amended definition specifies that NOx and SOx emissions from ships are part of the total RECLAIM pollutants at a RECLAIM facility. These include emissions from rental equipment and contractor’s equipment. Mobile sources for RECLAIM exclude on-site, off-road mobile equipment. For new sources subject to the requirements of Rule 2005(b)(2), RECLAIM pollutants, however, include emissions from ships loading and unloading cargo, as well as non-propulsion emissions from ships traveling to and from a RECLAIM facility within Coastal Waters under District jurisdiction. Offsets are required for the ship emissions listed in the definition for new sources and this requirement parallels the inclusion of ship emissions as part of the facility emission for non-RECLAIM sources as defined in subdivision (g) of Rule 1306 – Emission Calculations.

Proposed Amended Rule 2001 – Applicability
The proposed amendments to Rule 2001 add subparagraphs (b)(1)(D) (NOx emissions) and (b)(2)(E) (SOx emissions) to clarify that ship emissions specified in Rule 2000(c)(62)(C) and (D) will not be counted towards the applicability thresholds for RECLAIM.

Proposed Amended Rule 2005 – New Source Review for RECLAIM
The proposed amendments to Rule 2005 add subparagraph (b)(2)(C) to clarify that ship emissions are part of the total RECLAIM facility emissions for new RECLAIM sources subject to the offsetting requirements of subparagraph (b)(2)(A).

Proposed Amended Protocols for Rule 2011 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions and 2012 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions
Rules 2011 and 2012 establish the monitoring, reporting, and recordkeeping requirements for emissions of SOx and NOx, respectively, under the RECLAIM program. The proposed amendments clarify that new RECLAIM sources subject to Rules 2005(b)(2) and (f) shall monitor and keep records of the ship emissions as specified in Rule 2005(b)(2)(C). The emissions from these sources are to be determined according to the methodology specified for the process units elsewhere in the protocols.

Proposed Amended Rule 2005 – New Source Review for RECLAIM
Rule 2005 sets forth requirements for new or modified equipment or processes at RECLAIM facilities, and for allocation increases. The purpose of the rule is to ensure that the operation of such facilities does not interfere with progress in attainment of the National Ambient Air Quality Standards, and that future economic growth in the South Coast Air Basin is not unnecessarily restricted.

Currently Rule 2005 requires a RECLAIM facility to hold sufficient RTCs to offset the emissions from a new or relocated facility for the first year prior to permit issuance. Subsequently, the facility is required to hold all the RTCs required at the beginning of the compliance year and hold the entire amount for the compliance year. It may sell any unused credits at the end of the compliance year. The proposed amendment would add an option for a facility to accept a quarterly emission limit and be able to sell the unused RTCs on a quarterly basis rather than waiting until the end of the year. The facility would be required to hold all RTCs necessary to offset emissions during the remaining quarters of the compliance year. For example, a new source has a permit condition limiting them to 100 tons per year. Quarterly emissions are 25 tons per quarter. Under the current Rule 2005 requirements, the facility shall hold 100 tons of RTCs at the beginning of a compliance year and may sell unused RTCs only at the end of the compliance year, during the annual reconciliation period. Under the proposal, the same facility could accept a quarterly emission condition of 25 tons. The facility would be required to hold 100 ton of RTCs at the beginning of the compliance year but could opt to sell unused RTCs at the end of each quarter, provided that 25 tons of RTCs are held for each of the remaining quarters. Therefore, the facility would be required to hold, at a minimum, 100 tons of RTCs at the beginning of the first quarter, 75 tons at the beginning of the second quarter, 50 tons at the beginning of the third quarter, and 25 at the beginning of the fourth quarter.

However, any facility found to be in violation of the quarterly limit in any given quarter will hold the Rule 2005 required RTCs until the end of the compliance year. Any facility with three exceedances in any five consecutive compliance years would be required to return to the annual option, and would only be allowed to sell excess RTCs after the end of the fourth quarter of any year following the three violations.

The quarterly option would relieve a facility of the burden of holding the RTCs at the permitted level for the entire year. It would also contribute to a more steady supply of RTCs available to the market, thus helping to avoid price spikes. The term RECLAIM Trading Credits has been replaced by RTCs throughout the rule for simplicity and consistency with other RECLAIM rules.

This proposal is an amendment to subparagraph (c)(3) of Rule 2005. The rule currently requires that, for change of ownership of a RECLAIM facility, the applicant must hold sufficient RTCs for the compliance year in which the change of ownership permit is issued. Currently, these RTCs must be equal to the annual Allocation initially issued to the original Facility Permit holder. The January 2005 amendments to RECLAIM required an annual reduction in NOx RTCs and prescribed an annual adjustment factor over the next few years to be used in calculating the amount of tradable or usable NOx RTCs for a facility. Under the proposed amendment, change of ownership facilities would be required to either hold RTCs in an amount equal to the original facility’s initial allocation multiplied by the adjustment factor or in an amount equal to the sum of the annual emissions of RECLAIM pollutants from all sources located at the facility. The sum of the annual emissions would be calculated using the maximum hourly potential to emit over an operating schedule of 24 hours per day and 365 days per year or, optionally, would be based on a permit condition limiting the source’s emissions.

One of the January 2005 amendments to Rule 2007 included changes to the trading provisions that apply to the power producers. As part of the revisions, language allowing power producers to transfer NOx RTCs among facilities under common ownership was inadvertently struck.

Proposed Amended Rule 2007 – Trading Requirements
Rule 2007 defines the RECLAIM trading unit and establishes trading requirements for the program. The January 2005 amendments included changes to Rule 2007 modifying trading restrictions that had been placed on power producers subject to Rule 2009 – Compliance Plans for Power Producers in May 2001. The intent of the amendments to Rule 2007 was to keep the trading restrictions in place for compliance years 2005 and 2006 and lift them on January 1, 2007 (i.e., compliance year 2007) at which time the power producers would rejoin the full NOx RECLAIM trading market. As previously mentioned, the January amendments inadvertently struck language from the power producer trading restrictions which, prior to the January amendments, had allowed power producers to transfer NOx RTCs to facilities under common ownership. It was not the intent of the January amendments to change that portion of the trading provisions.

Proposed amendments to Rule 2007 would reinstate the language which allowed power producers to transfer RTCs to facilities under common ownership. The proposed amendment would add paragraph (c)(10) to Rule 2007. The ability of power producers to transfer RTCs between facilities under their common ownership is essential because it allows them to distribute the RTCs based on electricity production at each facility. This amendment is being brought to the Board at this time because reinstating their ability to transfer RTCs to facilities under common ownership will allow them to do so during the first quarter reconciliation period beginning at the end of March 2005.

Staff has reviewed the proposed amendments to the following rules and protocols in Regulation XX – RECLAIM: Rule 2000 – General; Rule 2001 - Applicability, Rule 2005 – New Source Review for RECLAIM; Rule 2007 – Trading Requirements; Protocol for Rule 2011 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions; and Protocol for Rule 2012 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions, 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. The proposed amendments are covered by the general rule that CEQA applies only to projects, which may have a significant effect on the environment. Staff has reviewed the proposed amendments and has determined that they are primarily administrative in nature. In addition, further evaluation of the alternative quarterly holding period for RTCs for offsetting emissions from a new source as proposed in Rule 2005 did not reveal any significant adverse environmental impacts. Therefore, it can be seen with certainty that there is no possibility that the proposed amendments 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 Governing Board, a Notice of Exemption (NOE) will be prepared for the proposed project pursuant to CEQA Guidelines §15062 – Notice of Exemption, and mailed to the county clerks of Los Angeles, Orange, Riverside, and San Bernardino counties.

The clarification on the ship emissions at a RECLAIM facility codifies the intent of existing rule language and therefore would not result in additional costs. Additional demand placed on the RECLAIM market is not expected to be significant based on the past permitting activities and information available at this time for potential new projects (i.e., 25 32 tons per year (tpy) of NOx and 57 tpy of SOx). These emissions have a relatively small impact on the RECLAIM market. The impact of the potential demand amounts to about less than 1% 0.3% of RTCs in the program. Furthermore, a price trigger was put in place as part of the January 7, 2005 amendments as a mechanism to monitor unexpected demand and supply issues. The provision to allow a RECLAIM facility subject to Rule 2005 – New Source Review for RECLAIM to sell unused RTCs at the end of a quarter instead of waiting until the end of a year increases fluidity of the RECLAIM market. Reducing the RTC holding requirements at the time of change in ownership to reflect controls installed at the RECLAIM facility and the RTC shave in the program would lower the burden on facility operators as well as increasing market fluidity. Restoring RTC transfers under common ownership for power plants would eliminate potential costs to power plants due to inadvertent deletion of the provision.

Overall, the proposed amendments as a whole would not result in any adverse cost and other socioeconomic impacts.

The proposed amendments are administrative in nature and clarify existing requirements for ship emissions at new facilities, allow a quarterly option for offsetting new source emissions, clarify the RTC holding requirement at the time of change of ownership, and reinstate omitted language maintaining trading provisions for the power producers. Existing AQMD resources will be used to implement the amended rules.

California H&S Code §40727 requires that prior to adopting, amending or repealing a rule or regulation, the AQMD Governing Board shall make findings of necessity, authority, clarity, consistency, non-duplication, and reference based on relevant information presented at the public hearing and in the staff report.

Necessity
A need exists to amend Rules 2000 – General, 2001 – Applicability, 2005 – New Source Review for RECLAIM, 2007 – Trading Requirements, and the Protocols for Rules 2011 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions and 2012 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions to:

Authority
The AQMD Governing Board has authority to amend existing Rules 2000, 2001, 2005, 2007 and the Protocols for Rules 2011 and 2012 pursuant to California H&S Code §§ 39002, 39616, 40000, 40001, 40440, 40440.1, and 40702.

Clarity
The proposed amended rules are written or displayed so that their meaning can be easily understood by the persons directly affected by them.

Consistency
The proposed amended rules are in harmony with and not in conflict with or contradictory to, existing statutes, court decisions or state or federal regulations.

Non-Duplication
The proposed amended rules 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.

Reference
By adopting the proposed amended rules, the AQMD Governing Board will be implementing, interpreting and making specific the provisions of the California H&S Code §§ 39002, 39616, 40001, 40440 (a), 40440.1, 40702, and Title 42 U. S. C. Section 7410.

Requirement to Make Findings Pursuant to California Health & Safety Code Section 39616

California H&S Code § 39616(e) requires the AQMD Governing Board to ratify findings that, relative to the subsumed rules and control measures, RECLAIM (1) achieves equivalent or greater emission reductions at equivalent or less cost, (2) has comparable enforcement and monitoring, (3) does not delay attainment with California ambient air quality standards, (4) allows the use of emissions reduction from other sources such as mobile and area sources, and (5) promotes privatization of compliance and electronic availability of data. These findings were originally made in October 2000 and subsequently in May 2001, December 2003, and January 2005. The current proposed amendments to Rules 2000, 2001, 2005, 2007 and the Protocols for Rules 2011 and 2012 do not change these findings because the amendments are administrative in nature and have no emissions impacts. The amendments provide clarification on the inclusion of ship emissions as part of the total RECLAIM pollutants emitted from a new RECLAIM facility and that these ship emissions will not be counted towards the applicability thresholds for RECLAIM, add an optional quarterly holding period for RTCs to offset emissions from new sources, clarify the RTC holding requirement at the time of change of ownership, and reinstate a trading provision for the power producers which was inadvertently omitted during the previous amendment to Rule 2007 in January 2005.

In order to determine compliance with California H&S Code §§ 40727, 40727.2 require a written analysis comparing the proposed amended rules with existing regulations. Section 40727.2 analysis is traditionally done for source-specific rule requirements affecting specific types of equipment. Since RECLAIM is essentially a mass cap approach with a declining balance, such analysis is not directly applicable. Moreover, there are no other AQMD source-specific NOx and SOx emission-related rules that apply to RECLAIM equipment at RECLAIM facilities.

A comparative analysis, as required by H&S Code §40727.2, is applicable when an amended rule or regulation imposes, or has the potential to impose, a new emissions limit, or other air pollution control requirements. The proposed amendments do not impose new requirements.

California H&S Code § 40920.6 requires an incremental cost effectiveness analysis for BARCT rules or emission reduction strategies when there is more than one control option which would achieve the emission reduction objective of the proposed amendments, relative to ozone, CO, SOx, NOx, and their precursors. The proposed amendments are not BARCT requirements, therefore this provision does not apply to the proposed amendment.

The following comments include those received at the Public Consultation meeting held on March 30, 2005 as well as written comments received on or before April 15, 2005.

1.	Comment:	The Rule 2007 language for power plant sale of Compliance Year 2004 RTCs to facilities other than under common ownership says it is only RTCs above the initial allocations. Is that correct?
	Response:	Yes, that is consistent with the original language allowing such transactions.
2.	Comment:	What is the District’s authority to regulate emissions from ships?
	Response:	The Clean Air Act allows local districts to require offsets for off-road engine emissions. It is also consistent with the New Source Review requirements in Rule 1306 for non-RECLAIM sources.
3.	Comment:	Quarterly emission limits may not address the issue of price spikes because the facility is still required to buy a full year of credits at the beginning of the year.
	Response:	U.S. EPA is opposed to allowing facilities to purchase offsets on a quarterly basis. Traditionally, non-RECLAIM New Source Review requires that a stream of offsets must be obtained before a project is given a permit to construct. The proposal, while it does not resolve the annual initial purchase of credits, should help RTC availability in the market and transfers under common ownership.
4.	Comment:	Please clarify that the ship emissions requirements only apply to new facilities, not modifications. Since no allocations were given in the beginning of RECLAIM based on ship emissions, it would not be appropriate to apply this requirement for modifications of existing facilities.
	Response:	Yes, the offset requirements for ship emissions apply only to new facilities, not modifications. The reason is as suggested, no allocations were initially given based on ship emissions, so no offsets are required for modifications of existing facilities.
5.	Comment:	Demand for RTCs for new facilities having to offset ship emission could be considerable and could have an impact on the market, which was not analyzed in the January 2005 amendments.
	Response:	Impacts on the RECLAIM market are not expected to be significant. Many port projects are not NOx projects and would not affect RECLAIM. New facilities may be able to purchase Emission Reduction Credits under traditional NSR at first rather than going into RECLAIM initially. This would be the same as under current Rule 1306. Ship emissions, in and of themselves, would not trigger NSR. Only when the new facility requires a District permit would this offsetting requirement be triggered. Based on past permitting activities and information available at this time for potential new projects (i.e., 25 tons per year (tpy) of NOx and 57 tpy of SOx), additional demand placed on the RECLAIM market is not expected to be significant. The impact of the potential NOx demand amounts to about less than 0.3% of RTCs in the program. (The commentor, in subsequent written communication, agreed with the staff assessment.)
6.	Comment:	If ship emissions are included for NSR, why are truck and rail emissions to and from facilities not also included?
	Response:	Ship emissions have been included in Regulation XIII – New Source Review for more than 10 years. This was originally placed in Regulation XIII at the request of CARB. Truck and rail emissions, on the other hand, have never been included. The proposed amendments for ship emissions make the offsetting requirements clear and equivalent to non-RECLAIM New Source Review rules.
7.	Comment:	It is not clear whether the ship emissions would be counted as part of the total facility emissions toward including a facility in RECLAIM.
	Response:	A clarification has been made in Rule 2001 to make clear that ship emission are not to be included as part of the total facility emissions for the purpose of including a facility in RECLAIM.
8.	Comment:	The commentor requests an amendment to Rule 2005(f)(1) to be consistent with Rule 1304(a)(2) which requires offsets only for the increased capacity when new combined cycle gas turbines or other acceptable equipment replace electric utility steam boilers. The commentor felt that this was an administrative change because this would have the same rationale as the inclusion of ship emissions in the RECLAIM program to be consistent with Regulation XIII.
	Response:	Staff is open to the proposed concept; however, the proposal here is quite different from the ship emissions scenario. Because the current rule language is clear about how the offsets would be calculated and staff has implemented as such, it cannot be viewed as an administrative change. Staff would consider this issue at the next RECLAIM revision.
9.	Comment:	In proposed amended Rule 2005(f)(3), it is unclear that after a facility has a total of three exceedances in any five consecutive years, the facility must comply with Rule 2005(f)(2) in lieu of (f)(3) on a permanent basis.
	Response:	Yes, it is the intent of this proposed rule language that after a facility has a total of three exceedances in any five consecutive years, the facility must comply with Rule 2005(f)(2) in lieu of (f)(3) on a permanent basis. Changes have been made to the rule reflecting this clarification.
10.	Comment:	The proposed amendments indicate that certain emissions from ocean going vessels (OGVs) are to be determined according to the methodology specified for process units. OGVs are quite different in many respects from traditional stationary source process units. Does the District believe that the monitoring, reporting and record keeping (MRR) methodology specified for process units provides sufficient flexibility to accommodate OGVs?
	Response:	District staff recognizes that OGVs are different from other types of process units and that it will be necessary to craft unique MRR requirements to accommodate OGVs. Staff believes that the current MRR methodology for process units provides sufficient flexibility to develop requirements that are feasible and appropriate for OGVs.
11.	Comment:	It seems evident that emissions from rental or contractor equipment operated by the contractor as a temporary replacement for a RECLAIM Facility’s process unit used during startup or shutdown or the process units is intended to be included in the RECLAIM pollutant definition.
	Response:	The proposed rule amendments do not change the requirements for reporting emissions from rental and contractor equipment. The changes merely seek to clarify the definition of RECLAIM Pollutants. Current Rules 2011 and 2012 language require emissions from certain rental or contractor equipment be reported provided that they meet the criteria. The criteria for exclusions of emission reporting from rental and contractor operated equipment are based on whether or not the process or function performed contributes directly to the manufacturing or production of a product, or the generation of revenue to the facility permit holder. The protocol provides exemptions for certain activities not contributing directly to the manufacturing process. The intention is to require emission reporting from rental or contractor equipment where such equipment replace or displace any equipment or process that otherwise would have to be operated by the facility permit holder in order to sustain the manufacturing process. The rule exempts such emissions if they last no more than 72 hours in a quarter. All emissions are reportable if the equipment not meeting the exemption is operated more than 72 hours in a quarter. Equipment that is required to startup or shutdown a process unit does contribute to the manufacturing process and does not meet the criteria for exemption. Therefore, operations of such equipment are required to be monitored and emissions from them are required to be reported if the operation exceeds 72 hours in a quarter.
12.	Comment:	Although less apparent, it appears that rental or contractor equipment not listed or not required to be listed in the Facility’s Permit operated by the contractor and used to repair a RECLAIM facility’s process unit, such as an air compressor powered by an internal engine under 50 horsepower, is not intended to be monitored and reported by RECLAIM Facility. Is this conclusion accurate?
	Response:	The conclusion is incorrect. The rule does not provide any exemption based on the size of the equipment or whether or not a permit is required for the operation of the equipment. In fact, emissions from equipment exempt from permit requirement under Rule 219 are specifically included within Rules 2011 and 2012, App. A, Chapter 1. Therefore, monitoring and reporting requirements are applicable to rental or contractor equipment, regardless of size or requirement for permits, if they are operated more than 72 hours in a quarter and do not fall within the exempted group.
13.	Comment:	Similarly, it appears that rental or contractor equipment powered by an internal combustion engine under 50 horsepower not listed or not required to be listed in the Facility’s Permit, operated by the contractor and used to wash or maintain a transportation vessel is not intended to be monitored and reported by the RECLAIM Facility. Is this conclusion accurate?
	Response:	The proposed rule amendment will not change the requirements to report emissions from the rental or contractor equipment. If under the current rules emissions from rental or contractor equipment qualify for the exclusion, the same emissions will continue to be exempted from reporting. In the example raised, the equipment being maintained qualifies as equipment not contributing to the manufacturing of the products because it is used to transport the finished product and not to manufacture the product itself. This qualifies as manufacturing equipment and therefore is not required to be reported under the protocol. The size of the rental equipment (i.e. whether greater or less than 50 HP) does not affect the applicability of the reporting requirement.

Proposed Amended Regulation XX - RECLAIM

The proposed amendments to Regulation XX – RECLAIM are summarized as follows:

Provide clarification in Rules 2000, 2005, and the Protocols for Rules 2011 and 2011 on the inclusion of ship emissions as part of the total RECLAIM pollutants emitted from a new RECLAIM facility subject to the requirements of Rule 2005(b)(2). This amendment would make RECLAIM more consistent with the new source requirements for non-RECLAIM sources. In addition, Rule 2001 would be amended to clarify that ship emissions specified in Rule 2000(c)(62)(C) and (D) will not be counted towards the applicability thresholds for RECLAIM;
An amendment to Rule 2005 – New Source Review for RECLAIM, would provide an option for RECLAIM facilities with new or modified sources subject to the New Source Review offset requirements under Rule 2005 to sell unused RTCs after the end of the quarter if it voluntarily elects to accept an enforceable permit condition limiting quarterly emissions for each source (permit unit). Any facility found to be in violation of the quarterly limit in any given quarter will hold the Rule 2005 required RTCs until the end of the compliance year. If a facility is found to be in violation of the quarterly limit more than three times in any five consecutive compliance years will be ineligible to participate in this voluntary program and be required to hold the Rule 2005 required RTCs until the end of each compliance year.
An adjustment to the amount of RTCs required in Rule 2005 (c)(3) is proposed for change of operator of a RECLAIM facility. This adjustment is consistent with the RECLAIM amendments in January 2005 which prescribed an adjustment factor in Rule 2002 – Allocations for Oxides of Nitrogen and Oxides of Sulfur, to reduce the amount of NOx RTCs at all facilities over the next several years. The proposed amendment clarifies the RTC holdings requirements such that they are consistent with the NOx reductions required under Rule 2002, requiring the applicant to hold RTCs equal to the initial allocation multiplied by the adjustment factor from the January 2005 amendments. The proposed amendment also allows the amount of RTCs holding to be reduced consistent with installation of air pollution control technologies.
This addresses a reinstatement of rule language which was inadvertently omitted from Rule 2007 during the January 2005 amendments to RECLAIM. The omitted rule language allows power producing facilities to transfer credits to facilities under common ownership. The proposed amendment would correct the omission.

Proposed Amended Regulation XX - RECLAIM

Issues raised in development of this rule amendment are:

The requirement for new facilities to offset ship emissions may impact the RECLAIM market.

Additional demand placed on the RECLAIM market is not expected to be significant based on the past permitting activities and information available at this time for potential new projects (i.e., 25 tons per year (tpy) of NOx and 57 tpy of SOx). The impact of the potential NOx demand amounts to about less than 0.3% of RTCs in the program.

Many port projects are not NOx projects and would not affect RECLAIM. New facilities may be able to purchase Emission Reduction Credits under traditional NSR at first rather than going into RECLAIM initially. This would be the same as under current Rule 1306. Clarification has been made that ship emissions are not counted toward the facility’s total emissions for the purpose of inclusion in RECLAIM. Also, ship emissions, in and of themselves, would not trigger NSR. Only when the new facility requires a District permit would this offsetting requirement be triggered.
Holdings for new sources based on quarterly emission limits in Rule 2005 does not totally address the possibility of price spikes brought on by the requirement to purchase all offsets at the beginning of the year.

U.S. EPA is opposed to allowing facilities to purchase offsets on a quarterly basis. Traditionally, non-RECLAIM New Source Review also requires that all offsets must be obtained before a project is given a permit to construct. The proposal, while it does not resolve the annual initial purchase of credits, should help with RTC availability in the market and transfers under common ownership.

A Resolution of the South Coast Air Quality Management District (AQMD) Governing Board certifying the Notice of Exemption for the proposed amendments to Regulation XX - RECLAIM: Rule 2000 – General; Rule 2001 – Applicability; Rule 2005 – New Source Review for RECLAIM; Rule 2007 – Trading Requirements; Protocol for Rule 2011 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Sulfur (SOx) Emissions; and Protocol for Rule 2012 – Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOx) Emissions.

A Resolution of the AQMD Governing Board Amending Regulation XX – Regional Clean Air Incentives Program (RECLAIM).

WHEREAS, clarification was needed on the inclusion of ship emissions as part of the total RECLAIM pollutants emitted from a new RECLAIM facility to be consistent with the new source requirements for non-RECLAIM sources and that these ship emissions will not be counted towards the applicability thresholds for RECLAIM; and

WHEREAS, an alternative quarterly RTC holding period to offset emissions from a new source would relieve a facility of the burden of holding the RTCs at the permitted level for the entire year, contribute to a more steady supply of RTCs available to the market, and thus helping to avoid price spikes; and

WHEREAS, clarification was needed on the RTC holdings requirements such that they are consistent with the NOx reductions required under Rule 2002, requiring the applicant to hold RTCs equal to the initial allocation multiplied by the adjustment factor from the January 2005 amendments, also allowing the amount of RTCs holding to be reduced consistent with installation of air pollution control technologies; and

WHEREAS, rule language, allowing power producing facilities to transfer credits to facilities under common ownership, inadvertently omitted from Rule 2007 during the January 2005 amendments to RECLAIM needs to be restored; and

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

WHEREAS, the AQMD Governing Board obtains its authority to adopt the proposed amendments to Regulation XX, pursuant to Health and Safety Code §§ 39002, 39616, 40000, 40001, 40440, 40440.1, and 40702; and

WHEREAS, the AQMD Governing Board has determined that the proposed amendments to Regulation XX are written or displayed so that the meaning can be easily understood by the persons directly affected by it; and

WHEREAS, the AQMD Governing Board has determined that the proposed amendments to Regulation XX are 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 the proposed amendments to Regulation XX 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 the proposed amendments to Regulation XX, 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, December 2003, June 2004, and January 2005 are not altered by these amendments and incorporates, by reference, these findings; and

WHEREAS, the AQMD specifies the manager of the proposed amendments to Regulation XX 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 the proposed amendments to Regulation XX should be adopted for the reasons contained in the staff report; 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 Governing Board does hereby certify the Notice of Exemption for Regulation XX, as proposed to be amended, is 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 the proposed amendments.

BE IT FURTHER RESOLVED, that the Socioeconomic Impact Assessment within the staff report is found to show no significant impacts due to providing relief from the RTC holdings requirement and demand on RTCs to offset ship emissions; and

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