BOARD MEETING DATE: June 4, 2010
AGENDA NO. 34
(Continued from May 7, 2010 Board Meeting by operation of procedures)
PROPOSAL:
Proposed Amended Rule 317 – Clean Air Act Non-Attainment Fees
SYNOPSIS:
The public hearing for the proposed amended rule was continued to the May Board meeting. The newly proposed amendments are designed to comply with Section 185 of the federal CAA and incorporate flexibilities afforded pursuant to the recently released guidance by U.S. EPA.
COMMITTEE:
Administrative, November 14, 2008; Stationary Source, October 17, 2008, January 23, 2009, March 20, 2009, May 22, 2009, June 19, 2009, July 24, 2009, January 22, 2010, March 19, 2010, April 16, 2010 Reviewed
RECOMMENDED ACTIONS:
Adopt the attached resolution:
1. Certifying the Notice of Exemption for Proposed Amended Rule 317 – Clean Air Act Non-Attainment Fees
2. Amending Rule 317 – Clean Air Act Non-Attainment Fees.
Barry R. Wallerstein, D.Env.
Executive Officer
Background
Rule 317 implements Section 182 of the 1990 amendments to the Clean Air Act. That section, in essence, requires that major stationary sources in severe and extreme ozone non-attainment areas that fail to attain the one-hour ozone standard by the attainment date to either reduce emissions of VOC or NOx by 20% of their attainment year emissions or pay a fee. Rule 317 was originally considered at the December 2008 Board Meeting. The Rule was adopted at that time for the Salton Sea Air Basin and continued for applicability to the South Coast Air Basin. The Rule was continued throughout 2009 to allow for development of further U.S. EPA guidance and for staff to meet and confer with all interested stakeholders. Supplemental U.S. EPA guidance was issued in January 2010 and the District was also formally notified in January 2010 that it was under a SIP sanction clock for failure to adopt a rule implementing Section 185 requirements.
Staff met and conferred with all stakeholders throughout 2009 including the effected industry, environmental organizations, and U.S. EPA. Staff has conducted three public consultation meetings in 2010. Based on considerable input from all stakeholders, staff has developed a proposal that incorporates flexibility to lessen the fee burden while maintaining the key characteristics of the underlying program elements.
Proposal
Proposed Amended Rule (PAR) 317 provides a hybrid structure, designed to comport with Section 185 of the Clean Air Act while utilizing a Section 172 (e) element to minimize the economic impact on the regulated community.
The proposal relies on attainment year emissions to establish baseline emissions for impacted facilities and provides for flexibility in adjusting this baseline through several optional provisions to account for :
Recessionary Impacts
De minimus attainment year emissions
Aggregation of NOx/VOC baselines
Multisite baseline aggregation
To reduce the economic burden on the impacted facilities, PAR 317 incorporates two crediting mechanisms. Specifically, through a companion amendment to Regulation III, fees paid pursuant to this program will be credited against the source’s annual operating and emissions fees. Alternatively, these fees can also be made available at the facility’s request to pay for emission reduction projects. This crediting mechanism is projected to reduce the overall fee burden on stationary sources in the South Coast Air Basin by more than 75 percent.
In addition, PAR 317 incorporates a fee equivalency component to further reduce the fee burden on all impacted sources. This fee equivalency component was designed pursuant to the flexibility provided in U.S. EPA’s guidance memo of January 2010 on Section 185 fees. Section 172 (e) of the Clean Air Act allows for programs that are “not less stringent” than the mandated program. Staff has proposed an emission equivalency approach under this “not less stringent” than criteria. Specifically, under this component of the staff proposal, funds available for air pollution control programs in the South Coast Air Basin that are surplus to the SIP will be credited on a dollar-for-dollar basis against the aggregate fee burden from all sources paying Section 185 fees. Staff has identified one state program – AB 118 (Nunez, California Alternative and Renewable Fuel Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007) that may be surplus to the SIP and applicable to Section 185 fees. While the magnitude of this Section 172 (e) element remains to be determined, the two crediting mechanism incorporated above will greatly minimize the potential economic burden.
Subsequent to the set hearing package, staff has amended the proposal to provide sources with additional flexibility for the use of 317 fee monies (included as part of Rule 301 (i)) and to include a provision for experimental research operations as an adjustment to baseline emissions. Additionally, staff modified the recessionary impact factor to be an automatic adjustment with a voluntary opt out. These changes are highlighted by a double underline.
Key Policy Issues
Section 172(e) Provision
Representatives from the environmental community are challenging the applicability of Section 172 (e) to Section 185 programs and are objecting to the incorporation of such a provision into Rule 317. PAR 317 indeed incorporates an emissions equivalency provision as identified in U.S. EPA’s memo of January 2010 on Section 185 fees. Section 172 (e) of the Clean Air Act allows for programs that are “not less stringent” than the mandated program and surplus to the SIP. It is staff’s opinion that AB 118 satisfies this criterion.
Baseline Flexibility
Some stakeholders have requested additional flexibility in the determination of baseline such as an alternative period of 24 months in the last 10 years. Staff’s position is that this element is administratively complex and subject to challenge. Instead, staff is proposing a mechanism that would account for the recessionary impact. This mechanism is based on the well established and widely recognized REMI model used for the District’s socioeconomic assessments. Furthermore, staff is also proposing an alternative baseline method for facilities with severely low emissions in 2010. Additionally, the staff proposal would allow for the aggregation of NOx and VOC emissions as well as the aggregation of baselines across multiple sites under common ownership that meet the U.S. EPA definition of major source. Staff is proposing that emission reductions from experimental control equipment not be included in the baseline. The proposed baseline adjustments coupled with other flexibility and the crediting of Rule 317 fees toward the facility’s annual operating and emissions fees overall will offset more than 75 percent of the fee burden that stationary sources in the South Coast Air Basin would otherwise be subject to. Employment of the Section 172 (e) provision, if approved, will further offset the remaining economic burden.
Shift Fee Burden to Mobile Sources
Stakeholders have also requested that the District shift more of the fee burden to mobile sources. Such an approach would require legislation and the outcome is uncertain and most likely would not be completed within the time frame to avoid sanctions.
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.
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 only requires the payment of fees, it can be seen with certainty that there is no possibility of significant adverse environmental impacts. It is exempt from CEQA pursuant to CEQA Guidelines §15061(b). 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 preliminary initial staff projections on the total fees paid pursuant to Rule 317 was approximately $30 million. The figure was based on the 2006 emissions data and very conservative assumptions. Based on more representative assumptions, the fees paid pursuant to Rule 317 are projected to be much less. Further, this estimate reflects the potential fee impact based on an earlier version of Rule 317 that did not account for any of the new flexibilities and fee crediting provisions included in the most recent staff proposal. The new flexibility and crediting provisions included in the most recent staff proposal are expected to significantly reduce the Rule 317 fee burden. Specifically, 75 percent of the Rule 317 fee burden will be offset by fees paid by impacted facilities to the AQMD pursuant to Rule 301—Permitting and Associated Fees—for annual emissions and permit renewal fees. Crediting of AB 118 and other similar state program funds will further reduce the fee burden, should they become available
Authority to Assess Fees
Section 185 (b) of the 1990 amendments to the Clean Air Act specifically mandates 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.
Attachments (EXE 4.1mb)
Summary of Proposed Amendments
Rule Development Process Flow Chart
Key Contacts
Resolution
Proposed Amended Rule 317
Supplemental Staff Report
Appendices to the Supplemental Staff Report
Supplemental Socioeconomic Assessment
CEQA – Notice of Exemption