The South Coast Air Quality Management District (SCAQMD)

Letter from Felicia Marcus to Barry Wallerstein

Barry R. Wallerstein, D. Env.
Acting Executive Officer
South Coast Air Quality Management District
21865 East Copley Drive
Diamond Bar, CA 91765-4182

Dear Dr. Wallerstein:

I am responding to your January 22nd request that EPA approve SCAQMD Rules 2501 and 2503 under Project XL. I know the District has devoted considerable time and energy to develop these rules and the overall Air Quality Investment Program (AQIP). EPA continues to support economic incentive programs (EIPs) and to value SCAQMD's leadership in this area. We believe EIPs in the South Coast should be expanded beyond NOx/SOx RECLAIM to encourage development of low-cost emission reductions. The issues we have raised with AQIP in the State Implementation Plan (SIP) context, however, reflect our concern that EIPs must be developed carefully to avoid the potential for abuse or inadvertent environmental harm.

Our primary obstacles to approving AQIP into the SIP have focussed on emission quantification protocols, enforceability and environmental justice. EPA is currently updating and clarifying national policy on each of these issues. We recently initiated a broad review of the EIP rules in 40 CFR 51.493 which could result in revisions to policy on protocols and enforceability. I encourage the District to continue working to resolve these issues with my staff and with the EPA offices responsible for revising the EIP rules and developing the Clean Air Investment Fund (CAIF) guidance. Further, the general issue of environmental justice and emissions trading is being discussed with the National Environmental Justice Advisory Council (NEJAC), partly in the context of the Civil Rights Act complaint regarding SCAQMD's Rule 1610. This discussion will move forward over the coming months and will likely influence EPA's national EIP policies regarding environmental justice. Regardless of the ultimate outcome of these policy deliberations, I believe that our agencies could agree on modifications to AQIP and SCAQMD's other trading programs that would allow SIP approval.

Our concerns with AQIP in the SIP context are also concerns under Project XL. For example, the SIP enforceability and protocol issues need to be resolved to meet XL's environmental results criteria. The SIP enforceability and protocol requirements were established to assure emission reductions and environmental protection. Issues in these areas coupled with AQIP's reliance on car scrappage credits raise concern that the program may not achieve the superior environmental performance required by XL, and could result in inadvertent environmental harm. Lastly, Project XL requires more extensive stakeholder involvement than the SIP process. Thus, to pursue the proposal as an XL project, SCAQMD must develop a stakeholder involvement plan that provides for extensive public participation in the project development process and explicit support from environmental groups.

In conclusion, the current version of AQIP presents potential problems meeting at least three of the XL criteria and therefore would require modifications before being accepted as an XL project. After identifying these problems, we did not complete a comprehensive review of the XL proposal.

Please contact Dave Howekamp at (415) 744-1219 to let us know whether you are willing to consider changes to the AQIP rules and whether you would rather pursue EPA approval of this program under Project XL or through the normal SIP process. We believe that it will be easier and quicker to approve AQIP as a SIP revision than as an XL project. As a result, I encourage you to continue working with my staff to find practical and mutually agreeable solutions to our remaining SIP issues. However, if you choose to pursue the proposal under Project XL, we would value the opportunity for our staffs to work together to develop an innovative XL project which could provide data and experience in achieving better and more cost-effective public health and environmental protections, and therefore lead to the redesign of current approaches to environmental and public health protection. The choice is up to you. The next step in the XL process would be for EPA to complete its technical review of your proposal and provide you with a letter detailing EPA's concerns. At that time, EPA would request revisions to SCAQMD's proposal that would assuage EPA's concerns.

Yours,

Felicia Marcus
Regional Administrator

cc: Lucille Van Ommering, CARB
bc: Charles Fox, Office of Reinvention (1801)
Rob Brenner, Office of Air & Radiation (6103)
Nancy Mayer, OAQPS (MD-15)

Sally Seymour, OSPEI (SPE-1)

Dave Howekamp, AD (Air-1)
Allan Zabel, ORC (ORC- 2)

Andy Steckel, AD (Air-4)

Lily Wong, AD (Air-4)

The South Coast Air Quality Management District (SCAQMD)

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