Title 30 TAC Chapter 117 Rule Change, December 23, 1997
Permanent Rule Adoption
1. Purpose. This change transmittal provides the page(s) that reflect changes and additions to the Texas Natural Resource Conservation Commission (commission) Volume of Permanent Rules.
2. Explanation of Change. On December 3, 1997, the commission adopted the repeal of existing § 101.29, concerning Emissions Banking, new § 101.29, concerning Emissions Banking and Trading, and revisions to the State Implementation Plan regarding these adoptions. New § 101.29 was adopted with changes to the proposed text as published in the June 10, 1997 issue of the Texas Register (22 TexReg 5641).
On December 3, 1997, the commission adopted new § 115.950, concerning Emissions Trading, in Subchapter J (Administrative Provisions), and revisions to the State Implementation Plan. New § 115.950 was adopted without changes to the proposed text as published in the June 10, 1997 issue of the Texas Register (22 TexReg 5651) and will not be republished.
On December 3, 1997, the commission adopted amendments to § 117.540, concerning Phased Reasonably Available Control Technology (RACT), and § 117.570, concerning Trading, in Subchapter D (Administrative Provisions), and revisions to the State Implementation Plan. The amendments were adopted without changes to the proposed text as published in the June 10, 1997 issue of the Texas Register (22 TexReg 5653) and will not be republished.
3. Effect of Change. This rulemaking action expands the scope of the current banking program by allowing for the use of emission reduction credits (ERCs) to meet reasonably available control technology (RACT) requirements for the control of volatile organic compounds (VOCs) and nitrogen oxides (NOx) under Chapter 115, concerning Control of Air Pollution From Volatile Organic Compounds, and Chapter 117, concerning Control of Air Pollution From Nitrogen Compounds respectively, and by creating a new type of credit known as the discrete emission reduction credit (DERC).
Since 1993, § 101.29 has allowed limited banking and trading of ERCs and mobile emission reduction credits (MERCs) to meet nonattainment new source review offset requirements. Due partly to limitations on use, banking activity has been almost non-existent. The ability to use credits for purposes of RACT compliance is intended to stimulate credit trading activity and provide more flexible alternatives for compliance by creating economic incentives for early, surplus emission reductions.
Additionally, this rulemaking will allow for the trading of a new type of credit, the DERC. In August 1995, the United States Environmental Protection Agency (EPA) introduced the concept of a DERC through a voluntary trading rule referred to as the Open Market Trading Rule (OMTR). Instead of promulgating the OMTR, EPA now intends to allow states to establish their own trading rules in accordance with EPA guidance. At this time the guidance has not been released, but agency staff has consulted with EPA in the development of this proposal to ensure consistency with the guidance once released.
ERCs and MERCs are generated by making enforceable, permanent emission reductions below the level required by state or federal regulations. The ERCs can then be banked and used later by the source which generated them, or they can be sold (traded) to another source and used to satisfy offset and other regulatory requirements. ERCs are created by eliminating future emissions, quantified during or before the period in which emission reductions are made, and are expressed in tons per year. By contrast, DERCs and mobile discrete emission reduction credits (MDERCs) are created during a discrete time period, quantified after the period in which emissions reductions are made, and expressed in tons. A MDERC is the counterpart of a MERC that has been quantified after the reduction has occurred.
Section 101.29(c)(1)(E), regarding Geographic scope, allows trading of ERCs or MERCs between ozone nonattainment areas for the purpose of nonattainment new source review (NNSR) offsets. Such trades may be allowed under the following conditions: 1) the ERC or MERC is used as an offset for a new or modified facility under Chapter 116, § 116.150 (relating to New Major Source or Major Modification in Ozone Nonattainment Area); 2) the ERC or MERC was generated in an ozone nonattainment area which has an equal or higher nonattainment classification than the ozone nonattainment area of use; 3) a demonstration has been made showing that emissions from the ozone nonattainment area where the ERC or MERC is generated contribute to a violation of the national ambient air quality standard in the ozone nonattainment area of use; and 4) the user has obtained prior written approval of the executive director. Using the Houston/Galveston (HGA) and Beaumont/Port Arthur (BPA) areas as an example, only reduction credits generated in HGA (classified severe) and used in BPA (classified moderate) would be allowed under the rule, assuming that all the above requirements are met. On the other hand, the reverse type of trading, with reduction credits generated in BPA and used in HGA, would not be allowed. This revision is being made because it provides additional flexibility in obtaining offsets, particularly in areas where reduction credits are in short supply. The revision requires a demonstration that emissions from the area of generation contribute to nonattainment of the ozone standard in the area of use, so reductions obtained in Houston may be beneficial to air quality in Beaumont, for example. The revision also ensures consistency with the Federal Clean Air Act (FCAA), § 173(c)(1) which allows such offset trading between ozone nonattainment areas.
The availability of DERCs encourages early reductions of emissions, which may be used to meet RACT requirements. It is anticipated that with increased opportunities for credit use, there will be an economic incentive for sources at small businesses, not currently required by regulation to make reductions, to reduce emissions in order to create marketable credits.
Emissions banking and trading is an innovative approach to regulatory compliance, allowing a source to meet emission control requirements by purchasing and using credits generated by another source in the same ozone nonattainment area which has reduced its emissions below the level required by rule or permit. Prior to this adoption, banking and trading were not an option to meet the Chapter 115 volatile organic compound (VOC) control requirements, with the exception of limited intrasource trading available under § § 115.910-115.916, regarding Alternate Means of Control. This new § 115.950 enables sources to meet the VOC emission control requirements of Chapter 115, in whole or in part, by obtaining reduction credits in accordance with § 101.29 of this title, regarding Emissions Banking and Trading. Concurrent with the § 115.950 adoption, existing § 101.29 is repealed and new § 101.29 is adopted. The new section retains provisions that allow emission reduction credits (ERCs) and mobile emission reduction credits (MERCs) to be used for purposes of nonattainment offsetting. The new section expands uses of ERCs to include compliance with reasonably available control technology requirements and to allow for the creation and use of discrete emission reduction credits (DERCs) and mobile discrete emission reduction credits (MDERCs). Also, revisions to Chapter 117 of this title, concerning Control of Air Pollution from Nitrogen Compounds, are adopted concurrent with this adoption which provide more flexible trading options for sources of nitrogen oxides.
New § 115.950 allows sources to meet Chapter 115 VOC control requirements by applying ERCs, MERCs, DERCs, or MDERCs. Please refer to the § 101.29 adoption for a more complete description of these types of credits, and the requirements for their generation and use.
Section 117.540 and § 117.570 are amended to make the rule requirements consistent with new § 101.29 of this title, regarding Emissions Banking and Trading. Existing § 101.29 is being repealed, and new § 101.29 is being added, concurrent with these amendments to Chapter 117. The amendments retain provisions that allow emission reduction credits (ERCs) and mobile emission reduction credits (MERCs) to be used for purposes of nonattainment offsetting. The amendments expand uses of ERCs to include compliance with RACT requirements and to allow for the creation and use of discrete emission reduction credits (DERCs) and mobile discrete emission reduction credits (MDERCs). Under the amendments, sources may meet Chapter 117 nitrogen oxides (NOx) control requirements by applying ERCs or DERCs. Please refer to the § 101.29 adoption for a more complete description of these types of credits, and the requirements for their generation and use. Also, revisions to Chapter 115 of this title, concerning Control of Air Pollution from Volatile Organic Compounds (VOC), are adopted concurrent with this rulemaking to provide more flexible trading options for sources of VOCs.
Section 117.540 allows affected sources to petition the agency for additional time to comply with Chapter 117 requirements. The rule was developed in response to companies' concerns that in spite of good faith efforts to achieve compliance by the required date, delays in delivery, construction, and installation of control equipment could be encountered in some cases. As originally adopted and previously amended, § 117.540 requires documentation of the specific reasons for any requested compliance extension. This amendment requires that reduction credits, if reasonably available, must be obtained by sources seeking extensions past the Chapter 117 compliance date. Revised § 117.540 requires that phased RACT petitions contain detailed documentation that credits are not reasonably available. In addition, § 117.540 (b) and (c) are deleted, since the uses of MERCs for Chapter 117 compliance as outlined in these subsections are now addressed in new § 101.29(d).
Existing § 117.570 allows trading as an alternative method for sources of NOx to comply with the control requirements of Chapter 117. Revisions to § 117.570 in this adoption update rule references to include MERCs, DERCs, and MDERCs, clarify rule requirements, and eliminate redundant rule provisions now contained in new § 101.29.
New § 117.570(c)(4) specifies requirements for credit generation by units participating in a source cap in accordance with § 117.223 (Source Cap). Under § 117.223, heat input is calculated by taking the actual historical average of the daily heat input for each participating unit during a specified 24 consecutive month period, plus one standard deviation of the average daily heat input for that period. This provision for adding one standard deviation affords companies a compliance margin that accounts for normal fluctuations in the actual daily heat input. A source cap allowable emission rate based on historical heat input, without including this margin, could result in exceedances of the source cap under normal operating conditions unless either a compliance margin was provided, or the source lowered its actual emission rate to compensate for these fluctuations. In order to assure that credits generated under a source cap represent actual emission reductions, new § 117.570(c)(4) requires that one standard deviation may not be included in the calculation of reduction credits generated. In addition, the source cap allowable must be reduced by the amount of the creditable reductions claimed for the unit in question.
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