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The South Coast Air Quality Management District (SCAQMD)
Board Meeting
BOARD MEETING:
May 9, 1997
AGENDA NO. 37
PROPOSAL: Adopt Proposed Rule 2501 - Air Quality Investment Program
SYNOPSIS: Proposed Rule 2501 will provide an alternative compliance
option to sources subject to source-specific AQMD rules and regulations
by creating an AQIP reserve of real, quantifiable, permanent, enforceable,
and surplus emission reductions. Source operators can voluntarily participate
by submitting a specified fee to use the emission reductions from the
reserve as an alternative to compliance with a specific emission limitation
under Regulations IV, XI or Rule 2202. This fee will be used to fund
stationary and mobile source projects that will produce surplus emission
reductions for the reserve thereby ensuring that this program will produce
emission reductions equivalent to or greater than those required by
the source-specific rules.
COMMITTEE: Mobile
Source, April 25, 1997, Reviewed.
RECOMMENDED ACTION:
1. Certify the Final Environmental Assessment for Proposed Rule 2501
- Air Quality Investment Program, as proposed, in accordance with the
attached Resolution, and
2. Adopt Proposed Rule 2501 - Air Quality Investment Program.
Background
In March 1996, AQMD staff presented to the Board a set of policy recommendations
to develop an Intercredit Trading Program. As part of the overall recommendations
to develop an universal trading market to allow broader trading of mobile
and stationary source emission credits, AQMD staff also recommended
that an expanded AQIP be developed. An expanded AQIP would compliment
a universal trading market and would be consistent with the objective
of the Intercredit Trading Study to increase compliance flexibility
and promote the commercialization of advanced pollution control technologies.
Based on these policy recommendations, the Board directed staff to initiate
rule development for an Intercredit Trading Program.
The AQMD currently is developing a series of market incentive rules
under Proposed Regulation XXV - Intercredit Trading Program to implement
the recommendations from the Intercredit Trading Study. This proposed
regulation will initially include four rules: Rule 2500 - Intercredit
Trading; Rule 2501 - AQIP; Rule 2505 - Credit Generation for Permitted
Stationary Sources; and Rule 2506 - Credit Generation for Area Sources.
Proposed Rule 2500 is an umbrella rule that creates the universal trading
market, specifies the provisions for trading of credits< credit use,
program audits, and backstop measures. Proposed Rule 2505 and Proposed
Rule 2506 identify credit-generating provisions for permitted stationary
sources and unpermitted area sources, respectively.
Proposal
The Proposed Rule 2501 will absorb and expand the existing AQIP under
Rule 2202. Under Proposed rule 2501 there are two AQIP participants:
(1) Clean Air Investors, and (2) Emission Reduction Providers.
AQIP Clean Air Investors (Investors) are those regulated sources that
meet the applicability requirements of this proposed rule and voluntarily
elect to pay a specified Investment Fee to fund AQMD-approved emission
reduction projects as an alternative to compliance with a specific emissions
limitation requirement. The investment fee would be used to fund mobile
and stationary projects that will achieve emission reductions equivalent
to, or greater than, those which would have otherwise been required
by the source under the applicable AQMD rule or regulations. In addition,
after control strategies that achieve equivalent emission reductions
are selected, many remaining investment fees acquired through the AQIP
will be used to fund projects that will (1) promote the advancement
and commercialization of technologies consistent with the AQMD's AQMP
objectives to achieve air quality goals, and/or (2) generate additional
emission reductions/air quality improvement to benefit the environment.
Prior to participating in the AQIP, an Investor who meets the applicability
requirements of Proposed Rule 2501 must submit an AQIP Plan Registration
and the appropriate Investment Fee. Upon approval of the AQIP Plan Registration,
the Investor can use the AQIP emission reductions.
AQIP Emission Reduction Providers (Providers) are interested parties
that implement AQMD-approved air quality projects thereby providing
the emission reductions that are needed by the Investors. Providers
would implement control strategy proposals to generate emission reductions
equivalent to, or greater than, those needed by the Investors. To ensure
emission reductions used by Investors are real, quantifiable, surplus,
permanent, and enforceable, these emission reduction projects must be
quantified using an AQMD-approved emissions quantification protocol.
Under Proposed Rule 2501, the AQMD will establish an Emission Reduction
Reserve of real, quantifiable, permanent (for the duration of the emission
reduction activity) enforceable, and surplus emission reduction. Only
those emission reductions that have been verified by the Executive Officer
to have occurred and that have been quantified pursuant to an AQMD approved
Emissions Quantification Protocol will be designated for use in the
AQIP Reserve. Investors can then use these pre-approved emission reductions
as an alternative to compliance with specifc emission limitations. The
creation of the Reserve ensures that generation and verification of
emission reductions will occur prior to their use.
In addition, this proposed rule includes provisions to establish a consultation
committee to provide guidance regarding implementation of the AQIP,
program audits and status reports, and corrective measures to correct
potential problems identified through either the status report or program
audits.
Policy Issues
Over the past month, the AQMD staff has worked with environmental groups,
business representatives, agencies (EPA and ARE), and other interested
parties to resolve issues related to Proposed Rule 2501 to the degree
feasible. Based on discussions with these parties and revisions to Proposed
Rule 21501, the AQMD staff believes that it has addressed several issues
originally identified in the Board Letter to the March 14, 1997 Set
Hearing package for Proposed Rule 2501 and the April 11, 1997 Hearing
package for Proposed Rule 2501. Table 1 provides a summary of these
issues and the manner in which they were addressed.
Although a number of issues under Proposed Rule 2501 have been resolve,
there remain outstanding issues regarding program approvability and
design that interested parties and/or staff disagree on and are unlikely
to ever agree. Table 2 summarizes the five outstanding issues associated
with Proposed Rule 2501 and characterizes the general position and comments
from the environmental groups, business representatives, and agencies
(EPA and AEB). The five key outstanding issues are as follows: (1) EPA
approval of emissions quantification protocols; (2) toxic thresholds;
(3) level of premium; (4) program applicability; and (5) buy back option
for unused or excess emission reductions.
A more detailed discussion of these issues and other comments received
is contained in the Staff Report. AQMD staff will continue to work with
interested parties on identified issues.
AQMP and Legal Mandates
Proposed Rule 501 will implement 1997 AQMP Control Measure #97FLX-02:
AQIP. CM #97FLX-02 would allow sources subject to AQMD rules and regulations
to voluntarily invest in AQIP emission reductions as an alternative
to compliance with specific emission limitations. Although no direct
emission reductions were targeted by this measure in the 1997 AQMP,
implementation of this proposed rule is expected to produce a net air
quality benefit and provide for the commercialization of advanced pollution
control technologies that will be needed to achieve the Basis's air
quality attainment goals.
CEQA and Socioeconomic Analysis
Pursuant to the California Environmental Quality Act (CEQA) and the
AQMD's Certified Regulatory Program (Rule 110), the AQMD has prepared
a Subsequent Environmental Assessment (EAA) for Proposed Rule 2501.
The Draft Subsequent EA was made available to the public for a 45-day
review period ending January 8, 1997. Response to comments received
on the draft document are included in the Final Subsequent EA. The changes
to the proposed rule made since the release of the Draft Subsequent
EA are described and evaluated in the Final Subsequent EA. The modifications
do not result in a new significant environmental impact or a substantial
increase in the severity of a previously identified impact and, therefore,
do not require
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| Regulatory Liability | Creation of the AQIP Reserve ensures reductions are generated and verified prior to use of those reductions. |
| Civil Penalties | Civil Penalties for Providers:
Creation of AQIP Reserve resolved the regulatory liability issue
thereby placing less emphasis on civil penalties for Providers. Civil Penalties for Investors: Same civil penalties as existing regulatory program in addition to requirements to make up any emission reduction shortfalls. |
| Program Restrictions for Regulation XIII and Federal Regulation | Provided clarification in the rule
language that restricts use of the AQIP: - to net or avoid NSR requirements or to comply with NSR requirements; and - to comply with a federal regulation unless that regulation or other federal policies specifically allows for emissions trading of the type set forth under Proposed Rule 2501. |
| Enforceability - MRR Requirements for Providers and Investors | Provided clarification regarding MRR
requirements for Investors and Providers. Propose to develop Enforceable Procedures Rule for Investors. |
| Surplus Definition | Revised definition of surplus to indicate: - surplus emission reductions will be determined by the most stringent of the federally and locally approved plan; - the stringency between the federally and locally approved plan is defined by the control efficiency of the source category; and - the SIP represents the combination of rules and control measures. |
| 10 Percent Environmental Benefit | A set aside account will be established to ensure that 10 percent of the AQIP emission reductions used will be retired. |
| Source of Emission Reductions for Pre-Funding the AQIP Reserve | The AQMD staff to report back to the Board by January 1, 1998 regarding the type, origin, and amount of emission reductions that will be used for pre-funding the AQIP Emission Reduction Reserve. (See Resolution) |
| Development of Enforceable Procedures Rule for AQIP Users | Committed to expedited schedule to develop the enforceable procedures rule. (See Resolution) |
| Permit Modification for Title V Facilities | Proposed Rule 2501 incorporates language
indicating that the Plan Registration will constitute an application
for a permit revision unless operation under the Plan is covered
by an alternative operating scenario. The AQMD staff is committed to working with EPA regarding permitting requirements Title V facilities that elect to participate in Proposed Rule 2501. (See Resolution) |
a recirculation of the document pursuant to CEQA Guidelines Section 25088.5. Many of the modifications result in increased program enforceability and address other issues raised in the Draft Subsequent EA and by the environmental community. In fact, the revised propose rule would mitigate the potential significant air quality impacts described in the Draft Subsequent EA to insignificance. The Final Subsequent EA is included as part of this package presented to the Governing Board for the public hearing on the proposed amendments.
AQMD staff conducted a socioeconomic impact assessment for Proposed Rule 2501. In summary, Proposed Rule 2501 is likely to lower compliance costs since facilities can elect to purchase emission reductions through the AQIP when it is more cost-effective than direct compliance with applicable source-specific rules or regulations. In addition, the program provides an incentive for the development of innovative control technologies and provides an initial foundation for a broader private market under the Proposed Universal Trading Market.
Implementation Plan
AQMD staff will conduct an expanded outreach program to solicit proposals for the AQIP, building on other existing outreach efforts. In addition, the AQMD staff will conduct a public outreach program to educate and inform small businesses about this proposed program.
Resource Impacts
The proposed rule will require development of emissions quantification protocols for generating and using AQIP emission reductions, and approval of AQIP Plan Registrations. In addition, Proposed Rule 2501 will require additional AQMD staff workloads to review, certify, and select control strategy proposals. Sufficient resources have been budgeted in the AQMD Three-Year Budget Forecast.