BOARD MEETING DATE: April 3, 2009
AGENDA NO. 29

PROPOSAL:

Proposed Amended Rule 317 – Clean Air Act Non-Attainment Fees

SYNOPSIS:

Rule 317 was adopted by the Board at its December 5, 2008 meeting for the Salton Sea Air Basin only. The public hearing for the provisions that apply to the South Coast Air Basin was continued to the April 3, 2009 Board meeting. Staff has prepared two options for the Board's consideration.

COMMITTEE:

Stationary Source, January 23, 2009 and March 20, 2009, Reviewed

RECOMMENDED ACTIONS:

Adopt the attached resolution:

1. Certifying the Notice of Exemption for Proposed Amended Rule 317 – Clean Air Act Non-Attainment Fees; and
2. Adopt Proposed Amended Rule 317 – Clean Air Act Non-Attainment Fees.
3. Option A; or
4. Option B
    

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The Governing Board adopted Rule 317 – Clean Air Act Non-attainment Fees for the Salton Sea Air Basin (Coachella Valley) at the December 5, 2008 meeting and directed staff to return in February (subsequently continued to April) for consideration of the rule for the South Coast Air Basin. The Board directed staff to review the baseline and averaging issue under the available guidelines and the application of fees.

Subsequently, staff has actively researched the issue on a number of fronts. Staff has contacted Congressman Waxman’s staff to review the congressional intent of the Section 185 fees. Staff has been in contact with U.S. EPA staff at both Region IX and OAQPS to discuss rule and compliance issues. Finally, staff is participating on the Clean Air Act Advisory Committee on Section 185 with U.S. EPA. Staff has provided input and reviewed draft guidance as part of the latter effort.

Based on the foregoing, staff does not anticipate U.S. EPA providing specificity on the subject of Section 185 fees beyond the general draft guidance that has already been provided in the near future. Staff has therefore developed a proposal consistent with the Board’s direction, the draft guidance, and requirements of the Clean Air Act.

Staff developed a statistical methodology to identify facilities with cyclical emissions and determine, based on a source’s annual emissions, whether a facility’s baseline emissions should be determined based on a multi-year average or a single year. Staff held public consultation meetings with interested stakeholders in January and February and presented their work to the Stationary Source Committee at the January and March meetings and reported on our progress at the February Governing Board meeting.
 

Proposal

Staff has developed two rule options for the Board’s consideration. Both options were developed based on the rule adopted by the Board in December. Option A mirrors the rule adopted in December and extends the provisions to the South Coast Air Basin. Under this option, the attainment year emissions constitute a facility’s baseline emissions. Option B allows for sources claiming to be cyclical to voluntarily petition for the alternative baseline. Option B further requires that sources normalize prior year’s emissions to account for any subsequent regulatory requirements that would have reduced emissions. Sources seeking cyclical classification are required to file a plan and pay a time and material fee under Option B.

The approach that staff has developed to determine if an alternative baseline is warranted is a statistical method known as the Student’s T-test. In essence, the method compares emissions in the baseline year with the average of the emissions in the five prior years. If two values vary significantly, the source is considered cyclic. A detailed write-up of this method is provided in Appendix 2 of the Final Staff Report.

All other rule provisions largely mirror the rule that was adopted by the Board at the December meeting. Once a baseline has been established (either the cyclic or attainment year baseline) fees are billed based on emissions in the years subsequent to the attainment year. All subsequent year emissions that are greater than 80% of the baseline are assessed a clean air act non-attainment fee. The fee is annually indexed for inflation.

CAA non-attainment fees will be billed and due in the year immediately following the assessment year in accordance with the annual emissions fee billing requirements as established in Rule 301(e)(10). A major stationary source that does not pay any or all of the required CAA non-attainment fees, by the specified due date, shall be subject to the late payment surcharge and permit revocation provisions of Rule 301(e)(10). For major stationary sources in the SSAB the calendar year for baseline emissions is 2007, the first assessment year is 2008 and the first year for remittance is 2009. For major stationary sources in the SOCAB the calendar year for baseline emissions is 2010, the first assessment year is 2011 and the first year for remittance is 2012.

Revenues from the non-attainment fees collected will be invested in air quality improvement projects. The guidelines for investing the non-attainment fees will be developed soon after the adoption of Rule 317 through a public process that takes into account input from all interested parties and will be presented to the Board for approval.
 

Key Policy Issues

Many stakeholders have requested that the rule amendments be further delayed in anticipation of U.S. EPA guidance. Staff does not support this position as our conversations and understanding indicate that formal U.S. EPA guidance will not provide any specificity beyond that already given in draft form and the proposed two options prepared for the Board’s consideration are consistent with draft guidance.

Stakeholders have requested that the baseline emissions be adjusted for clean units. Staff cannot find any support for this position in the Clean Air Act and has been informed verbally by U.S. EPA staff that this position may lead to disapproval.

Stakeholders have stated that the rule should not be adopted as it is inconsistent with Congressional intent. Based on staff’s communication with Congressman Waxman’s staff and U.S. EPA staff, there is no support to find that the provision was not intended to apply to areas such as the South Coast Air Basin that have actively strived to achieve the clean air standards.

Although many stakeholders expressed support for the voluntary aspect of the alternative baseline option under Option B, they commented that the three year look back window is too short, and reflects recessionary years. In response, staff extended the time frame to five years.

Many sources have asked that all or some portion of the monies generated from PR 317 be returned to them for air quality improvement projects. These sources argue that the facilities paying the non-attainment fees should have priority to use the money to reduce their emissions. Staff believes the best and most efficient use of the money is a Moyer-type program for both stationary and mobile sources that maximizes air quality benefit for each dollar invested. However, staff is open to the idea of investing a portion of the fees in air quality improvement projects within the facility and/or the surrounding communities or the advancement of the state of control technology. Staff intends to initiate the development of implementation guidelines soon after the rule adoption with input from all stakeholders and interested parties, and bring these guidelines back to the Board for approval.
 

Emission Inventory and Emission Reduction

Although the proposed fee structure may provide an incentive for a major stationary source to reduce emissions, the proposed rule does not explicitly establish emissions limitations. Therefore, staff does not plan to claim any up front emissions reduction credit in the State Implementation Plan (SIP) as a result of this rule. However, staff intends to invest these fees in air quality improvement projects, and to the extent such projects result in emission reductions that are surplus to the SIP, staff may claim SIP credit prospectively, as part of future SIP revisions.
 

CEQA

SCAQMD staff has reviewed the proposed project pursuant to CEQA Guidelines §15002 (k)(1), the first step of a three-step process for deciding which document to prepare for a project subject to CEQA. Because the proposed project is mandatory pursuant to the federal Clean Air Act, it is exempt from CEQA pursuant to CEQA Guidelines §15268 – Ministerial Projects and §15061(b)(1) - Review for Exemption (Exemption by Statute). If approved, a Notice of Exemption, prepared pursuant to CEQA Guidelines §15062 - Notice of Exemption, will be sent to the county clerks for each county in the district for filing.
 

Socioeconomic Analysis

The proposed amendments do not directly affect air quality or establish emissions limitations. Therefore, a socioeconomic assessment is not necessary or required. Nonetheless, staff conducted a socioeconomic analysis to assess the total impacts for all the sectors in the four-county economy and it was determined that of the 585 facilities identified, 500 are expected to pay fees. The majority of the 500 facilities are in the manufacturing sectors (57 percent) and the utility sector (9 percent). The rest are spread across other sectors in the local economy. In 2012, it is projected that close to $30 million will be collected from the non-attainment fee. The petroleum and coal manufacturing sector would pay the highest amount, $6.64 million or 23 percent of the total. The revenue from the non-attainment fee will be used on projects to reduce emission from stationary or sources. Specific projects will be determined in the future. The fee is required to be paid annually until the one-hour ozone standard is attained or a facility is 20 percent below baseline emissions.
 

Authority to Assess Fees

Section 185 (b) of the 1990 amendments to the Clean Air Act specifically mandate the collection of the fee provided for by this rule.
 

Implementations and Resources

Proposed Rule 317 will be implemented within current staffing levels. The billing and fee collection process will be integrated into the existing annual emissions billing process. Electronic based billing and submittals will be used to facilitate the implementation of the proposed rule. Administering the investment of non-attainment fee revenues in air quality improvement projects (approximately $30 million per year) will undoubtedly have some resource impacts which are expected to be covered by retaining up to five percent of the fees collected for such projects.
 

Attachments (EXE, 514k)

1. Summary of Proposed Amendments
2. Rule Development Process Flow Chart
3. Key Contacts
4. Resolution
5. Proposed Amended Rule 317 Option A Text
6. Proposed Amended Rule 317 Option B Text
7. Staff Report
8. Socioeconomic Report
9. CEQA – Notice of Exemption