BOARD MEETING DATE: June 5, 2009
AGENDA NO. 39
(Continued from April 3, 2009 Board Meeting)

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

SYNOPSIS:

The public hearing for the proposed amended rule was continued to the June Board meeting. The newly proposed amendments incorporate provisions for an alternative baseline for calculating fees and an exemption for permit units at BACT as requested by the Board at the April 2009 public hearing.

COMMITTEE:

Administrative, May 5, 2009; Stationary Source, May 22, 2009, 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. Adopting Proposed Amended Rule 317 – Clean Air Act Non-Attainment Fees.
3. Option I or
4. Option II

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The 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.

At the April Board meeting, two rule options were presented (Options A and B). Option A mirrored the rule adopted in December for Coachella Valley (Salton Sea Air Basin) and would have extended the rule provisions to the South Coast Air Basin. Under Option A, the attainment year emissions would constitute the facilities baseline emissions. Option B would have allowed sources claiming to be cyclical to voluntarily petition for an alternative baseline. Under Option B, facilities with emissions defined as cyclical based on the statistical students t-test would be allowed to use the average of their emissions from the five consecutive years preceding the attainment year as their baseline, provided such baseline was normalized to account for federal, state and local regulations that would have restricted such emissions.

At the public hearing in April, the Board received testimony from stakeholders from industry and the environmental community. After public testimony, the hearing was continued until June and staff was directed to develop a new rule option (Option C) that would allow for a baseline that better aligns with the Section 185 guidance provided by U.S. EPA in their March 21, 2008 memorandum and also an exemption for permit units at BACT. At the April hearing the Board also provided staff with direction on how to prioritize use of clean air act fees. After comments received at the May 6, 2009 Public Workshop and based on direction provided at the April 3, 2009 Public Hearing, staff is withdrawing Option B from consideration. In order to avoid confusion over the non-serial naming of these two remaining rule options, (Option A and Option C), Option A is being renamed Option I and Option C is being renamed Option II. There is no material change in the text of either Option A being renamed as Option I or Option C being renamed as Option II.

Rule 317 was developed to satisfy federal requirements for areas classified as severe and extreme that fail to attain the one-hour ozone standard. Major sources in these non-attainment areas are required to reduce emissions by 20% below a baseline level or pay a fee on the difference. A key factor in determining the fee amount is the establishment of a baseline.

Proposal

Options I (formerly Option A) is continued from the April Board hearing. Option I 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 II allows sources to self certify that their emissions are cyclical or vary significantly year-to-year and choose their baseline based on an average of two of the previous ten years. Sources utilizing any alternative baseline would have to adjust for any regulatory measures that have been adopted subsequent to the alternative baseline years.

Option II also exempts permit units at BACT levels from inclusion in the baseline calculation and subsequent years emissions for fee determination. Sources seeking cyclical classification or a BACT permit exemption are required to file a plan and pay a time and material fee under Option II.

All other rule provisions for both options are similar. 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.

While Option II provides the greatest flexibility in determining baseline emissions, certain flexibility provisions of the proposal, such as the “Clean Unit” exemption, are yet to be approved by U.S. EPA. Therefore, the proposal includes language that alerts the impacted facilities that in the event the Administrator of the U.S. EPA finds that the fee provisions of this rule option are deficient in terms of meeting the requirement of the CAA or U.S. EPA, unpaid fees plus accrued interest may be collected by the Administrator pursuant to CAA provisions. Should the U.S. EPA approve an equivalent program submitted by the District or Congress amends the Clean Air Act such that Section 185 fees, or an equivalent program, are no longer required, this rule option would become inoperative.

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 according to the following prioritization:

1. projects at the subject source;
2. in the community adjacent to the subject source;
3. at another source under common control with the subject source; and then
4. other air quality improvement projects.

The formal 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.

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

Staff conducted a socioeconomic analysis to assess the total impacts for all the sectors in the four-county economy. The analysis was performed to cover Option I (Option A) only, since this option will result in the greatest impact. Impacts from Option II are expected to be significantly lower. Based on the socioeconomic analysis 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 under Option I. 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 other 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. As mentioned above the impacts from Option II are anticipated to be significantly lower.

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. AQMD has the authority to adopt the fee rule, which provides sources with the option of reducing their emissions to eighty 80% of the baseline amount.

Implementations and Resources

Proposed Rule 317 will be implemented within current staffing levels. The process of reviewing plans seeking to establish an alternative baseline for facilities with cyclical emissions will have some resource impacts, which is expected to be short term and covered by plan fees collected. 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 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, 443KB)

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