FR Doc 06-7413

[Federal Register: September 6, 2006 (Volume 71, Number 172)]
[Rules and Regulations]
[Page 52698-52703]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06se06-34]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R06-OAR-2005-TX-0006; FRL-8216-3]

Approval and Promulgation of State Implementation Plans; Texas;
Emission Credit Banking and Trading Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: EPA is approving revisions to the Texas State Implementation
Plan (SIP) concerning the Emission Credit Banking and Trading Program.
Additionally, EPA is approving a section of Chapter 115 of the Texas
Administrative Code (TAC) on Control of Air Pollution from Volatile
Organic Compounds that cross-references the Emission Credit Banking and
Trading Program and the Discrete Emission Credit Banking and Trading
Program. We are also approving a subsection of Chapter 116 of the TAC,
Control of Air Pollution by Permits for New Construction or
Modification, which provides a definition referred to in both the
Emission Credit and the Discrete Emission Credit Banking and Trading
Programs.

DATE: This rule is effective on October 6, 2006.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-R06-OAR-2005-TX-0006. All documents in the docket are listed on
the http://www.regulations.gov Web site. Although listed in the index, some

information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, is not placed on the Internet and will be
publicly available only in hard copy form. Publicly available docket
materials are available either electronically through
http://www.regulations.gov or in hard copy at the Air Permitting Section (6PD-

R), Environmental Protection Agency, 1445 Ross Avenue, Suite 700,
Dallas, Texas 75202-2733. The file will be made available by
appointment for public inspection in the Region 6 FOIA Review Room
between the hours of 8:30 a.m. and 4:30 p.m. weekdays except for legal
holidays. Contact the person listed in the FOR FURTHER INFORMATION
CONTACT paragraph below to make an appointment. If possible, please
make the appointment at least two working days in advance of your
visit. There will be a 15-cent per page fee for making photocopies of
documents. On the day of the visit, please check in at the EPA Region 6
reception area at 1445 Ross Avenue, Suite 700, Dallas, Texas.
The State submittal related to this SIP revision, and which is part
of the EPA docket, is also available for public inspection at the State
Air Agency listed below during official business hours by appointment:
Texas Commission on Environmental Quality, Office of Air Quality,
12124 Park 35 Circle, Austin, Texas 78753.

FOR FURTHER INFORMATION CONTACT: Adina Wiley, Air Permitting Section
(6PD-R), EPA Region 6, 1445 Ross Avenue, Dallas, Texas 75202-2733,
telephone 214-665-2115, wiley.adina@epa.gov.

SUPPLEMENTARY INFORMATION: Throughout this document wherever ``we,''
``us,'' or ``our'' is used, we mean EPA.

Outline

I. What action is EPA taking?
II. What is the background for this action?
III. What are EPA's responses to comments received on the proposed
action?
IV. What does Federal approval of a State regulation mean to me?
V. Statutory and Executive Order Reviews

I. What action is EPA taking?

EPA is approving the Emission Credit Banking and Trading program,
also referred to as the Emission Reduction Credit (ERC) program,
enacted at Texas Administrative Code (TAC) Title 30, Chapter 101
General Air Quality Rules, Subchapter H Emissions Banking and Trading,
Division 1, sections 101.300-101.304, 101.306, 101.309, and 101.311.
These sections were submitted as SIP submittals dated December 20, 2000
(state effective date January 18, 2001);

[[Page 52699]]

July 15, 2002 (state effective date April 14, 2002); January 31, 2003
(state effective date January 17, 2003), and December 06, 2004 (state
effective date December 2, 2004). Also in this document, EPA is
approving section 115.950 in 30 TAC Chapter 115, Control of Air
Pollution from Volatile Organic Compounds, which cross-references the
ERC program and the Discrete Emission Credit Banking and Trading
program, referred to as the Discrete Emission Reduction Credit (DERC)
program. This revision was provided in a SIP submittal dated December
20, 2000 (state effective date January 18, 2001). EPA is also approving
the definition of ``facility'' published at 30 TAC Chapter 116, Control
of Air Pollution by Permits for New Construction or Modification,
Subchapter A, section 116.10, submitted as a SIP revision July 22, 1998
(state effective date December 23, 1997).
As discussed in our proposed action at 70 FR 58151-58153, we
conclude that the ERC program is consistent with section 110(l) of the
Clean Air Act.
The ERC program contains several features that EPA feels are
important enough to discuss here. Section 101.302 of the ERC program
generally requires that an emission credit be used in the nonattainment
area in which it was generated unless the user has obtained prior
written approval of both the TCEQ Executive Director and EPA. This
section also provides for the use of emission credits generated in
another county, state, or nation. Although the threshold EPA approval
requirement of section 101.302(f) ensures that EPA approval is
necessary for any of the above transactions, TCEQ has agreed to clarify
the rule language by December 1, 2006, to more clearly require EPA
approval for all transactions involving emission reductions generated
in another state or nation, as well as those transactions from one
nonattainment area to another, or from attainment counties into
nonattainment counties.
EPA has addressed the possibility of cross-jurisdictional trades,
such as those in section 101.302, in Appendix 16.16 of ``Improving Air
Quality with Economic Incentive Programs'' (EPA-452/R-01-001, January
2001) (EIP Guidance). Satisfaction of the provisions of Appendix 16.16
will ensure that cross-jurisdictional trades are consistent with the
fundamental integrity, equity, and environmental benefit principles
described in the EIP Guidance. The EPA review and approval authority
contained in section 101.302(f) will be the mechanism by which EPA
ensures that inappropriate trades do not take place. In particular, EPA
intends to require a further SIP revision (either a detailed trading
program, such as an MOU, or a trade-specific submission) before
approving any international trade, interstate trades, or intrastate
trades that involve reductions from beyond the nonattainment area.
Among these types of trades requiring a further SIP revision,
international trades present an especially difficult case. For
instance, currently there is no approvable mechanism for demonstrating
that reductions made in another country are surplus or enforceable.
Nonetheless, emission reductions in other countries could potentially
offer substantial air quality benefits in the United States. In
approving the ERC program, EPA is recognizing the concept of
international trading and describing a framework (i.e., the submission
of a SIP revision demonstrating, among other things, the validity and
enforceability of foreign reductions) for such trading, in the event
that a suitable and approvable mechanism is ever developed for
resolving concerns including enforceability and surplus. Until such a
mechanism is developed and approved by EPA, however, EPA will not
approve international trades under the ERC rule.
EPA is also approving a provision in section 101.302(d) that allows
generators and users of ERCs to use an alternate quantification
protocol that is different from one of the approved protocols in
Chapter 115 or Chapter 117 (Control of Air Pollution from Volatile
Organic Compounds and Control of Air Pollution from Nitrogen Compounds)
of the Texas rules. Generators/users wanting to use other
quantification protocols must follow the quantification requirements at
section 101.302(d)(1)(C), which include a requirement for EPA adequacy
review of such alternate protocols. TCEQ has agreed to clarify the
provisions of section 101.302(d)(1)(C) by December 1, 2006, to clarify
that a proposed alternate quantification protocol may not be used if
the TCEQ Executive Director receives a letter from EPA that objects to
the use of the protocol during the 45-day adequacy review period or if
EPA proposes disapproval of the protocol in the Federal Register. See
also 70 FR 58149 for a description of the approval process for
alternate quantification protocols.
Today's action also approves the use of ERCs for compliance with
the Highly-Reactive Volatile Organic Compound Emissions Cap and Trade
(HECT) program in the HGB nonattainment area. Section 101.306(a)(7)
provides that ERCs can be used for ``compliance with other requirements
as allowable within the guidelines of local, state, and federal laws.''
Therefore, even though the ERC program does not specifically mention
the use of ERCs within the HECT, it is authorized by the general
provision. The TCEQ has agreed to revise the section 101.306 language
by December 1, 2006, to specify that ERCs may be used with the HECT as
an annual allocation of allowances under section 101.399.

II. What is the background for this action?

The ERC rules establish a type of Economic Incentive Program (EIP).
This program provides flexibility for sources in complying with certain
State and Federal requirements. The ERC program was first adopted by
the State at 30 TAC section 101.29 on December 23, 1997, for use with
volatile organic compound (VOC) and nitrogen oxides (NOX)
requirements in ozone nonattainment areas. Effective January 18, 2001,
section 101.29 was repealed and Chapter 101, Subchapter H, Divisions 1,
3, and 4 were created for the ERC, Mass Emissions Cap and Trade (MECT)
in the Houston/Galveston/Brazoria (HGB) ozone nonattainment area, and
Discrete Emission Credit Banking and Trading (DERC) programs,
respectively. As of April 14, 2002, TCEQ amended the geographic scope
of the ERC program to include provisions for reductions generated
outside the United States at section 101.302. Effective January 17,
2003, TCEQ reorganized the ERC and DERC program rules into more
standardized formats parallel to each other, with a rule structure that
followed a process of recognizing, quantifying, and certifying
reductions as credits while explaining the guidelines for trading and
using creditable reductions. These revisions amended sections 101.300,
101.301, 101.302, 101.303, 101.304, 101.306, 101.309, and 101.311. The
most recent submittal, of December 06, 2004, amended sections 101.300,
101.302, 101.303, 101.304, and 101.311, expanding the ERC program to
cover reductions of criteria pollutants (excluding lead) or precursors
of criteria pollutants for which an area is designated nonattainment.
The ERC program adoption and the subsequent revisions were submitted to
EPA as SIP revisions; today's approval is the first time we have acted
on this program. In doing so we are acting on the original submission
of July 22, 1998, and all subsequent revisions through the December 6,
2004, submittal.

III. What are EPA's responses to comments received on the proposed
action?

EPA's responses to comments submitted by Galveston-Houston

[[Page 52700]]

Association for Smog Prevention (GHASP), Environmental Defense (Texas
Office), the Lone Star Chapter of the Sierra Club, and Public Citizen
(Texas Office) on November 4, 2005, are as follows. EPA has summarized
the comments below; the complete comments can be found in the ERC
rulemaking docket (EPA-R06-OAR-2005-TX-0006). In commenting on the ERC
program, these commenters raise no concerns about pollutants other than
VOCs (and highly reactive VOC, or HRVOC) emissions.\1\
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\1\ During the comment period, EPA did not receive comments
regarding environmental justice and the ERC program. However, during
the finalization process we have reevaluated our interpretation of
the definition of Environmental Justice as found in Executive Order
12898. In our proposed approval of the ERC program, we stated that
``environmental justice concerns arise when a trading program could
result in disproportionate impacts on communities populated by
racial minorities, people with low incomes, or Tribes.'' On further
review, we believe the following description is more consistent with
E.O. 12898: ``Environmental justice concerns can arise when a final
rule, such as a trading program, could result in disproportionate
burdens on particular communities, including minority or low income
communities.'' This revised language does not alter our
determination that the ERC program does not raise environmental
justice concerns.
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Comment 1: There are problems with the inventory of VOC and HRVOC
emissions in the HGB nonattainment area.
Response to Comment 1: While EPA acknowledges that there have been
past VOC emission inventory problems from sources associated with the
petrochemical industry (see our proposed approval of the revisions to
the HGB attainment demonstration, 70 FR 58119), EPA believes that the
emissions inventory developed by TCEQ for the HGB nonattainment area is
an acceptable approach to characterizing the emissions in the HGB
nonattainment area. In addition, we are incorporating by reference our
responses to comments provided in our approval of the attainment
demonstration for the HGB ozone nonattainment area (EPA-R06-OAR-2005-
TX-0018). Those responses more specifically address the commenters'
concerns regarding the development and use of the imputed inventory,
characterization of other VOCs in the inventory, and appropriate
emissions monitoring techniques for flares, fugitive emissions, and
upsets.
Comment 2: The VOC and HRVOC trading programs use unreliable data,
which cannot be replicably measured. There are problems with current
methods for measurement of HRVOC and VOC emissions; therefore, the VOC
and HRVOC trading programs do not meet EPA's EIP Guidance for
quantification.
Response to Comment 2: EPA disagrees. The proposed ERC rule, at 70
FR 58149, describes the basis for EPA's conclusion that the ERC rule
satisfies the EIP Guidance criteria on quantifiability, which are found
in Chapter 4 (``Fundamental Principles of All EIPs'').
Emissions and emission reductions attributed to an EIP are
quantifiable if they can be reliably and replicably measured: The
source must be able to reliably calculate the amount of emissions and
emission reductions from the EIP strategy, and must be able to
replicate the calculations. Under the ERC program, sources address the
element of quantification by using a quantification protocol that has
been approved by TCEQ and EPA. Both agencies have important roles in
ensuring these protocols provide reliable and replicable emission
measurements. The approved quantification protocols for VOC ERC
generation and use are contained in 30 TAC Chapter 115, Control of Air
Pollution from Volatile Organic Compounds. These methods are all
reliable and replicable, either because EPA has promulgated regulations
or published guidance listing them as appropriate methods for measuring
VOC emissions, or because the American Society for Testing and
Materials (ASTM) has determined that they are appropriate standard
methods. EPA approval is required before an alternate quantification
protocol can be used. See section 101.302(d)(1)(C). Examples of the
approved quantification methods for VOC ERC generation and use include:
Test Methods 1-4 (40 CFR 60, Appendix A) for determining
flow rates;
Test Method 18 (40 CFR 60, Appendix A) for determining
gaseous organic compound emissions by gas chromatography;
EPA guidance in ``Procedures for Certifying Quantity of
Volatile Organic Compounds (VOC) Emitted by Paint, Ink, and Other
Coating,'' EPA-450/3-84-019; and
Determination of true vapor pressure using ASTM Methods
D323-89, D2879, D4953, D5190, or D5191 for the measurement of Reid
Vapor pressure.
Comment 3: TCEQ and EPA lack confidence in current methods for
measuring emissions. This lack of confidence increases the risks
associated with a market-based trading program, until the TCEQ is able
to reconcile ambient monitoring with industry emission inventories. For
example, trading could exacerbate the challenge of identifying the
cause of any program failures because comparisons of ambient monitoring
trend data to emission inventory data will require consideration of the
timing and magnitude of trades.
Response to Comment 3: EPA disagrees. We have discussed above in
response to Comments 1 and 2 our conclusion that the methods used for
measuring emissions under the ERC program are consistent with EPA
policy and guidance, and that the emissions inventory developed by TCEQ
is an acceptable approach to characterizing the emissions in the HGB
nonattainment area. Sources that generate and use ERCs must notify the
TCEQ. The TCEQ is then responsible for certifying that the generation
or use strategy is appropriate. Through the certification process TCEQ
is made aware of trades before they happen. This advance knowledge of
trades could then be applied to the reconciliation process and actually
provide additional data instead of being a hindrance.
Comment 4: EPA should find that it is premature for TCEQ to allow
trading of unquantifiable emissions of VOCs in the HGB nonattainment
area. If either the source or the recipient incorrectly estimates the
emissions involved in a trade, the region is at risk of a net increase
in emissions as a result of the trade. Until refineries and chemical
plants are able to routinely quantify their VOC emissions, EPA should
not allow trading of these VOC emissions.
Response to Comment 4: EPA disagrees that VOC emissions should be
ineligible for trading in the HGB nonattainment area. EPA believes that
allowing the petrochemical industry to trade VOC emissions under the
ERC rule is appropriate notwithstanding the commenter's concern about
emissions estimates, because the ERC program satisfies the EIP Guidance
criteria for quantification. For example, sources generating and
banking VOC ERCs must either use the approved quantification protocols
in Chapter 115 or obtain EPA approval for an alternate quantification
method. These protocols will ensure that sources correctly calculate
the emission reduction to be banked as an ERC. The source using the
banked reduction also must calculate the amount of necessary VOC ERCs
using the approved quantification protocols. The TCEQ Executive
Director will review and approve each requested ERC use to ensure that
sources using ERCs have enough credit to cover their use strategy.
Therefore, EPA believes that sources using the approved quantification
protocols will correctly estimate the amount of ERCs generated

[[Page 52701]]

and used, and we also believe that the program is designed to minimize
incorrect emissions estimates. Further, users of VOC ERCs must purchase
and retire an additional ten percent VOC ERCs as an environmental
benefit. The ten percent environmental benefit will also help ensure
that the trading program will not negatively impact the nonattainment
area in which the ERC is generated and used.
EPA's response to Texas Industry Project (TIP) comments made on
November 4, 2005, is as follows:
Comment: TIP supports EPA's proposed approval of the ERC program
and urges EPA to finalize its approval as soon as practicable.
Response: EPA appreciates the support of TIP for our approval of
the ERC program.

IV. What does federal approval of a State regulation mean to me?

Enforcement of the State regulation before and after it is
incorporated into the federally approved SIP is primarily a State
function. However, once the regulation is federally approved, EPA and
the public may take enforcement action against violators of these
regulations.

V. Statutory and Executive Order Reviews

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this
action is not a ``significant regulatory action'' and therefore is not
subject to review by the Office of Management and Budget. For this
reason, this action is also not subject to Executive Order 13211,
``Actions Concerning Regulations That Significantly Affect Energy
Supply, Distribution, or Use'' (66 FR 28355, May 22, 2001). This action
merely approves state law as meeting Federal requirements and imposes
no additional requirements beyond those imposed by state law.
Accordingly, the Administrator certifies that this rule will not have a
significant economic impact on a substantial number of small entities
under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Because
this rule approves pre-existing requirements under state law and does
not impose any additional enforceable duty beyond that required by
state law, it does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4).
This rule also does not have tribal implications because it will
not have a substantial direct effect on one or more Indian tribes, on
the relationship between the Federal Government and Indian tribes, or
on the distribution of power and responsibilities between the Federal
Government and Indian tribes, as specified by Executive Order 13175 (65
FR 67249, November 9, 2000). This action also does not have Federalism
implications because it does not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government, as specified in Executive Order 13132 (64
FR 43255, August 10, 1999). This action merely approves a state rule
implementing a Federal standard, and does not alter the relationship or
the distribution of power and responsibilities established in the CAA.
This rule also is not subject to Executive Order 13045 ``Protection of
Children from Environmental Health Risks and Safety Risks'' (62 FR
19885, April 23, 1997), because it is not economically significant.
In reviewing SIP submissions, EPA's role is to approve state
choices, provided that they meet the criteria of the CAA. In this
context, in the absence of a prior existing requirement for the State
to use voluntary consensus standards (VCS), EPA has no authority to
disapprove a SIP submission for failure to use VCS. It would thus be
inconsistent with applicable law for EPA, when it reviews a SIP
submission, to use VCS in place of a SIP submission that otherwise
satisfies the provisions of the CAA. Thus, the requirements of section
12(d) of the National Technology Transfer and Advancement Act of 1995
(15 U.S.C. 272 note) do not apply. This rule does not impose an
information collection burden under the provisions of the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this rule and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2).
Under section 307(b)(1) of the CAA, petitions for judicial review
of this action must be filed in the United States Court of Appeals for
the appropriate circuit by November 6, 2006. Filing a petition for
reconsideration by the Administrator of this final rule does not affect
the finality of this rule for the purposes of judicial review nor does
it extend the time within which a petition for judicial review may be
filed, and shall not postpone the effectiveness of such rule or action.
This action may not be challenged later in proceedings to enforce its
requirements. (See section 307(b)(2).)

List of Subjects 40 CFR Part 52

Environmental protection, Air pollution control, Intergovernmental
relations, Nitrogen oxides, Ozone, Reporting and recordkeeping
requirements, Volatile organic compounds.

Dated: August 24, 2006.
Richard E. Greene,
Regional Administrator, Region 6.

0
40 CFR part 52 is amended as follows:

PART 52--[AMENDED]

0
1. The authority citation for part 52 continues to read as follows:

Authority: 42 U.S.C. 7401 et seq.

Subpart SS--Texas

0
2. The table in Sec. 52.2270(c) entitled ``EPA Approved Regulations in
the Texas SIP'' is amended:
0
a. Under Chapter 101--General Air Quality Rules, under the centered
heading Subchapter H--Emissions Banking and Trading, by adding a new
centered heading ``Division 1--Emission Credit Banking and Trading''
followed by new entries for sections 101.300, 101.301, 101.302,
101.303, 101.304, 101.306, 101.309, and 101.311;
0
b. Under Chapter 115 (Reg 5)--Control of Air Pollution from Volatile
Organic Compounds, under the centered heading Subchapter J--
Administrative Provisions, immediately before the entry for section
115.950, by adding a new centered heading ``Division 4--Emissions
Trading'' and by revising the entry for section 115.950;
0
c. Under Chapter 116 (Reg 6)--Control of Air Pollution by Permits for
New Construction or Modification, under the centered heading Subchapter
A--Definitions, by revising the entry for section 116.10.
The additions and revisions read as follows:

Sec. 52.2270 Identification of plan.

* * * * *
(c) * * *

[[Page 52702]]

EPA Approved Regulations in the Texas SIP
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State approval/
State citation Title/subject submittal Explanation approval date Explanation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Chapter 101--General Air Quality Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subchapter H--Emissions Banking and Trading
Division 1--Emission Credit Banking and Trading
--------------------------------------------------------------------------------------------------------------------------------------------------------
Section 101.300.................... Definitions................ 11/10/04 [Insert date of FR publication] ................................
[Insert FR page number where
document begins].
Section 101.301.................... Purpose.................... 12/13/02 [Insert date of FR publication] ................................
[Insert FR page number where
document begins].
Section 101.302.................... General Provisions......... 11/10/04 [Insert date of FR publication] ................................
[Insert FR page number where
document begins].
Section 101.303.................... Emission Reduction Credit 11/10/04 [Insert date of FR publication] ................................
General and Certification. [Insert FR page number where
document begins].
Section 101.304.................... Mobile Emission Reduction 11/10/04 [Insert date of FR publication] ................................
Credit Generation and [Insert FR page number where
Certfication. document begins].
Section 101.306.................... Emission Credit Use........ 12/13/02 [Insert date of FR publication] ................................
[Insert FR page number where
document begins].
Section 101.309.................... Emission Credit Banking and 12/13/02 [Insert date of FR publication] ................................
Trading. [Insert FR page number where
document begins].
Section 101.311.................... Program Audits and Reports. 11/10/04 [Insert date of FR publication] ................................
[Insert FR page number where
document begins].

[[Page 52703]]

Chapter 116 (Reg 6)--Control of Air Pollution by Permits for New Construction or Modification
Subchapter A--Definitions
--------------------------------------------------------------------------------------------------------------------------------------------------------
Section 116.10..................... General Definitions........ 06/17/98 [Insert date of FR publication] The SIP does not include
[Insert FR page number where subsections 116.10(1), (2),
document begins]. (3), (6), (8), (9), (10), and
(14).

* * * * * * *
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[FR Doc. 06-7413 Filed 9-5-06; 8:45 am]

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