Part 1.
TEXAS NATURAL RESOURCE CONSERVATION COMMISSION
Chapter 101.
GENERAL AIR QUALITY RULES
Subchapter H. EMISSIONS BANKING AND TRADING
3.
MASS EMISSIONS CAP AND TRADE PROGRAM
30 TAC §101.351
The Texas Natural Resource Conservation Commission (commission)
proposes an amendment to §101.351, Applicability. The amended section
will be submitted to the United States Environmental Protection Agency (EPA)
as a revision to the state implementation plan (SIP).
BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULE
On December 6, 2000, the commission adopted rules which established a program
of emissions capping and trading as part of the Houston/Galveston (HGA) SIP
for the control of ozone. These rules were published in the January 12, 2001
issue of the
Texas Register
(26 TexReg 283).
In the preamble for these rules, under the SECTION BY SECTION discussion of §101.351,
the commission stated its intent to propose an amendment to §101.351
shortly after the adoption of the cap and trade program rules. The commission
believed that the amendment would be necessary to specify that the requirement
to operate under the cap and trade program applied to all facilities which
emit nitrogen oxides (NO
x
) in the HGA area with
emission standards under Chapter 117, Control of Air Pollution from Nitrogen
Compounds and which are located at a site where their collective design capacity
to emit NO
x
is ten tons or more per year. Section
101.351, as adopted on December 6, 2000, was proposed with language which
could be interpreted to limit the application of the cap and trade program
to individual facilities which have a NO
x
design
capacity of ten tons or more per year.
This proposal would apply the requirements of Chapter 101, Subchapter H,
Emissions Banking and Trading, Division 3, Mass Emissions Cap and Trade Program
to facilities emitting NO
x
located at a single
site in the HGA area with emission standards under Chapter 117 and which have
a collective design capacity to emit ten tons of NO
x
or more per year. The commission believes that the intended applicability
of the cap and trade has been made clear not only in the preamble that accompanied
the December 6, 2000 rules, but also in the SIP adopted on the same date and
in numerous contacts with representatives of the intended affected sources
in the HGA area.
SECTION BY SECTION DISCUSSION
The proposed amendment to §101.351 would state that the requirements
of Chapter 101, Subchapter H, Division 3 would apply to all stationary facilities
which emit NO
x
with emission specifications under §§117.106,
117.206, and 117.475 of this title (relating to Emission Specifications for
Attainment Demonstration; Emission Specifications for Attainment Demonstration;
and Emission Specifications) which are located at a site where they collectively
have a design capacity to emit ten tons or more per year of NO
x
. The amendment would require the owner or operator of facilities
at a site to obtain and use allowances for actual total NO
x
emissions from all affected facilities at the site once the collective
design capacity of all the affected facilities has reached ten tons.
FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT
John Davis, Technical Specialist with Strategic Planning and Appropriations,
determined for each year of the first five-year period the proposed amendments
are in effect, there will be fiscal implications which are not anticipated
to be significant for units of state or local government as a result of administration
or enforcement of the proposed amendment.
The proposed amendment specifies that the requirement to operate under
the emissions cap and trade program in the HGA ozone nonattainment area would
apply to facilities or groups of facilities located at a site which have a
collective design capacity to emit ten tons or more NO
x
per year and which have emission requirements under Chapter 117,
the commission's NO
x
regulations.
The emissions cap and trade program rules, adopted by the commission in
December 2000, are intended to implement and manage a mandatory annual NO
Examples of equipment and processes at sources that would be affected by
the proposed amendments include: electric utility boilers and stationary gas
turbines; industrial/commercial/institutional (ICI) boilers and stationary
gas turbines; duct burners used in turbine exhaust ducts; process heaters
and furnaces; stationary internal combustion engines; fluid catalytic cracking
units (including catalyst regenerators and carbon monoxide (CO) boilers and
furnaces); pulping liquor recovery furnaces; lime kilns; lightweight aggregate
kilns; heat treating and reheat furnaces; magnesium chloride fluidized bed
dryers; incinerators; and boiler and industrial (BIF) furnace units. The commission
would allocate to a facility or group of facilities a number of allowances
(NO
x
emissions in tons) which a source would
be allowed to emit during the calendar year. The facility or group of facilities
would not be allowed to exceed this number of allocated allowances unless
they obtained additional allowances from another facility's surplus allowances.
Facilities with surplus allowances would be allowed to sell those allowances
to other facilities operating under the emissions cap. New facilities would
have to purchase allowances prior to beginning operations in the HGA ozone
nonattainment area. Allowance trading is intended to provide flexibility and
potential cost savings in planning and determining the most economical mix
of the application of emission control technology with the purchase of other
facility's surplus allowances to meet emission reduction requirements.
Although the exact number is unknown, the commission estimates that approximately
6,000 pieces of equipment would be affected by the proposed amendment and
the existing cap and trade rules, some of which are owned and operated by
units of state or local governments. This is the same figure that was estimated
for the cap and trade rules adopted on December 6, 2000 and includes the facilities
that would be affected by this amendment. Affected facilities can purchase
or sell allowances for approximately $500 to $5,000 per allowance, depending
on market demand and availability. The total cost or revenues gained by units
of state and local government sites will depend on the total number of allowances
purchased or sold.
PUBLIC BENEFIT AND COSTS
Mr. Davis also determined for each of the first five years the proposed
amendment to Chapter 101 is in effect, the anticipated public benefit as a
result of implementing the amendment would be providing flexibility to those
sources covered by Chapter 117 which would facilitate the reduction of emissions
of NO
x
in the HGA ozone nonattainment area to
a level that would allow the area to meet the national ambient air quality
standard (NAAQS) for ozone.
The proposed amendment specifies that the requirement to operate under
the emissions cap and trade program in the HGA ozone nonattainment area would
apply to facilities or groups of facilities which have a collective design
capacity to emit ten tons or more of NO
x
per
year and which have emission requirements under Chapter 117.
Examples of equipment and processes at sources which would be affected
by the proposed amendments include: electric utility boilers and stationary
gas turbines; ICI boilers and stationary gas turbines; duct burners used in
turbine exhaust ducts; process heaters and furnaces; stationary internal combustion
engines; fluid catalytic cracking units (including catalyst regenerators and
CO boilers and furnaces); pulping liquor recovery furnaces; lime kilns; lightweight
aggregate kilns; heat treating and reheat furnaces; magnesium chloride fluidized
bed dryers; incinerators; and BIF units. The commission would allocate to
a facility or group of facilities a number of allowances (NO
x
emissions in tons) which a source would be allowed to emit during
the calendar year. The facility or group of facilities would not be allowed
to exceed this number of allowances unless they obtain additional allowances
from another facility's surplus allowances. Facilities with surplus allowances
would be allowed to sell those allowances to other facilities operating under
the emissions cap. New facilities would have to purchase allowances prior
to beginning operations in the HGA ozone nonattainment area. Allowance trading
is intended to provide flexibility and potential cost savings in planning
and determining the most economical mix of the application of emission control
technology with the purchase of other facility's surplus allowances to meet
emission reduction requirements.
Although the exact number is unknown, the commission estimates that approximately
6,000 pieces of equipment would be affected by the proposed amendment and
the existing cap and trade rules, the majority of which are privately owned
and operated. This is the same figure that was estimated for the cap and trade
rules adopted on December 6, 2000 and includes the facilities that would be
affected by this amendment. Affected facilities can purchase or sell allowances
for approximately $500 to $5,000 per allowance, depending on market demand
and availability. The total cost or revenues gained by privately owned and
operated facilities will depend on the total number of allowances purchased
or sold.
SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT
There will be adverse fiscal implications for small or micro-businesses
as a result of administration or enforcement of the proposed amendment, because
affected owners and operators of new facilities will have to pay for allowances
under the emission cap and trade program. Additionally, owners and operators
of existing facilities will have their emissions capped. However, allowance
trading is intended to provide flexibility and potential cost savings in planning
and determining the most economical mix of the application of emission control
technology with the purchase of other facility's surplus allowances to meet
emission reduction requirements.
Small or micro-businesses located in the HGA ozone nonattainment area can
purchase or sell allowances for the same unit price as larger businesses,
approximately $500 to $5,000 per allowance. Actual costs for the allowances
will be dependent on market demand and availability. The total cost or revenues
gained to affected small or micro-businesses will depend on the total number
of allowances purchased or sold.
Of the 6,000 identified pieces of equipment at sources in the HGA ozone
nonattainment area, some will be owned and operated by small or micro-businesses.
Examples of likely equipment at sources operated by small or micro-businesses
include boilers, process heaters, and internal combustion engines. There is
no feasible way to further reduce the impact of the proposed amendment for
small businesses. However, including these businesses in the cap and trade
program is expected to provide them flexibility in meeting existing requirements
under Chapter 117.
Under Texas Government Code, §2006.002(c), the commission is required
to analyze the cost of compliance with the proposed rule amendment on small
businesses, as compared to the cost of compliance for the largest businesses
affected by the rules. Using the criteria under §2006.002(c)(2), the
commission estimated the cost or revenues would range from as low as $5.00
- $50 per employee, assuming 100 employees, to as high as $25 - $250 per employee,
assuming 20 employees. The cost or revenue for a large business affect by
the proposed amendment would be approximately $.50 - $5.00 per employee, assuming
1,000 employees.
DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION
The commission reviewed the proposed rulemaking in light of the regulatory
analysis requirements of Texas Government Code, §2001.0225. The proposed
rulemaking would affect owners and operators of new and existing facilities
emitting NO
x
subject to §§117.106,
117.206, and 117.475 requirements in the HGA nonattainment area which individually
emit less than ten tons per year of NO
x
, but
which are located at a site with a total of at least ten tons per year of
NO
x
emission from subject facilities. The commission
determined the proposed rulemaking meets the definition of a "major environmental
rule" as defined in Texas Government Code, §2001.0225. "Major environmental
rule" means a rule, the specific intent of which, is to protect the environment
or reduce risks to human health from environmental exposure, and that may
adversely affect in a material way the economy, a sector of the economy, productivity,
competition, jobs, the environment, or the public health and safety of the
state or a sector of the state. Existing facilities would be limited to NO
The requirement to provide a fiscal analysis of proposed regulations in
the Texas Government Code was amended by Senate Bill (SB) 633 during the 75th
Legislative Session, 1999. The intent of SB 633 was to require agencies to
conduct a regulatory impact analysis (RIA) of extraordinary rules. These are
identified in the statutory language as major environmental rules that will
have a material adverse impact and will exceed a requirement of state law,
federal law, or a delegated federal program, or are adopted solely under the
general powers of the agency. With the understanding that this requirement
would seldom apply, the commission provided a cost estimate for SB 633 that
concluded "based on an assessment of rules adopted by the agency in the past,
it is not anticipated that the bill will have significant fiscal implications
for the agency due to its limited application." The commission also noted
that the number of rules that would require assessment under the provisions
of the bill was not large. This conclusion was based, in part, on the criteria
set forth in the bill that exempted proposed rules from the full analysis
unless the rule was a major environmental rule that exceeds a federal law.
As previously discussed, 42 USC does not require specific programs, methods,
or reductions in order to meet the NAAQS; thus, states must develop programs
for each nonattainment area to ensure that area will meet the attainment deadlines.
Because of the ongoing need to address nonattainment issues, the commission
routinely proposes and adopts SIP rules. The legislature is presumed to understand
this federal scheme. If each rule proposed for inclusion in the SIP was considered
to be a major environmental rule that exceeds federal law, then every SIP
rule would require the full RIA contemplated by SB 633. This conclusion is
inconsistent with the conclusions reached by the commission in its cost estimate
and by the Legislative Budget Board (LBB) in its fiscal notes. Because the
legislature is presumed to understand the fiscal impacts of the bills it passes,
and that presumption is based on information provided by state agencies and
the LBB, the commission believes that the intent of SB 633 was only to require
the full RIA for rules that are extraordinary in nature. While the SIP rules
will have a broad impact, that impact is no greater than is necessary or appropriate
to meet the requirements of the 42 USC. For these reasons, rules proposed
for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a),
because they are required by federal law. The commission performed photochemical
grid modeling which predicts that NO
x
emission
reductions, such as those required by this amendment, will result in reductions
in ozone formation in the HGA ozone nonattainment area. This rulemaking does
not exceed an express requirement of state law. This rulemaking is intended
to obtain NO
x
emission reductions which will
result in reductions in ozone formation in the HGA ozone nonattainment area
and help bring HGA into compliance with the air quality standards established
under federal law as NAAQS for ozone. The rulemaking does not exceed a standard
set by federal law, exceed an express requirement of state law, nor exceed
a requirement of a delegation agreement. The rulemaking was not developed
solely under the general powers of the agency, but was specifically developed
to meet the NAAQS established under federal law and authorized under Texas
Clean Air Act (TCAA), §§382.011, 382.012, and 382.017 as well as
under 42 USC, §7410(a)(2)(A).
The commission invites public comment on the draft regulatory impact analysis.
TAKINGS IMPACT ASSESSMENT
The commission completed a takings impact assessment for the proposed amendment.
The following is a summary of that assessment. The amendment is proposed as
part of a strategy to reduce and permanently cap NO
x
emissions to a level which would allow the HGA nonattainment area
to attain the ozone NAAQS. Promulgation and enforcement of the rule will not
burden private real property. The proposed amendment does not affect private
real property in a manner which restricts or limits an owner's right to the
property that would otherwise exist in the absence of a governmental action.
Additionally, the credits and allowances that are the subject of this rule
are not property rights. Consequently, this amendment does not meet the definition
of a takings under Texas Government Code, §2007.002(5). Although the
proposed rule revisions do not directly prevent a nuisance or prevent an immediate
threat to life or property, they do prevent a real and substantial threat
to public health and safety, and partially fulfill a federal mandate under
the 42 USC, §7410. Specifically, the emission limitations within this
proposal were developed in order to meet the ozone NAAQS set by the EPA under
the 42 USC, §7409. States are primarily responsible for ensuring attainment
and maintenance of the NAAQS once the EPA has established them. Under the
42 USC, §7410 and related provisions, states must submit, for approval
by the EPA, SIPs that provide for the attainment and maintenance of NAAQS
through control programs directed to sources of the pollutants involved. Therefore,
the purpose of the rule proposal is to implement a NO
x
strategy which is necessary for the HGA area to meet the air quality
standards established under federal law as NAAQS. Consequently, the exemption
which applies to this proposed amendment is that of an action reasonably taken
to fulfill an obligation mandated by federal law. Therefore, these proposed
revisions will not constitute a takings under Texas Government Code, Chapter
2007.
CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM
The commission determined that this rulemaking action relates to an action
or actions subject to the Texas Coastal Management Program (CMP) in accordance
with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources
Code, §§33.201 et seq.), and the commission's rules in 30 TAC Chapter
281, Subchapter B, concerning Consistency with the Texas Coastal Management
Program. As required by 30 TAC §281.45(a)(3) and 31 TAC §505.11(b)(2),
relating to actions and rules subject to the CMP, commission rules governing
air pollutant emissions must be consistent with the applicable goals and policies
of the CMP. The commission reviewed this action for consistency with the CMP
goals and policies in accordance with the regulations of the Coastal Coordination
Council, and determined that the proposed rule is consistent with the applicable
CMP goal expressed in 31 TAC §501.12(1) of protecting and preserving
the quality and values of coastal natural resource areas, and the policy in
31 TAC §501.14(q), which requires that the commission protect air quality
in coastal areas. If adopted, the amended section would require all NO
EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM
The amended section will become part of the state's ozone attainment strategy;
therefore, these amendments will be submitted as part of the SIP. As a result,
the amended section and any allowances allocated under the section would become
applicable requirements under the federal operating permit program.
ANNOUNCEMENT OF HEARING
The commission will hold a public hearing on this proposal in Houston on
April 26, 2001 at 2:00 p.m. at the City of Houston Pollution Control Building
Auditorium, located at 7411 Park Place Boulevard. The hearing is structured
for the receipt of oral or written comments by interested persons. Individuals
may present oral statements when called upon in order of registration. Open
discussion will not occur during the hearing; however, agency staff members
will be available to discuss the proposal 30 minutes prior to the hearing,
and will answer questions before and after the hearing.
Persons with disabilities who have special communication or other accommodation
needs, who are planning to attend the hearings, should contact the Office
of Environmental Policy, Analysis, and Assessment at (512) 239-4900. Requests
should be made as far in advance as possible.
SUBMITTAL OF COMMENTS
Comments may be submitted to Lola Brown, Office of Environmental Policy,
Analysis, and Assessment, MC 205, P.O. Box 13087, Austin, Texas 78711-3087
or faxed to (512) 239-4808. All comments should reference Rule Log Number
2001-015-101-AI. Comments must be received by 5:00 p.m., April 26, 2001. For
further information, please contact Matthew R. Baker at (512) 239-1091 or
Beecher Cameron at (512) 239-1495.
STATUTORY AUTHORITY
The amendment is proposed under Texas Health and Safety Code, TCAA, §382.011,
which authorizes the commission to control the quality of the state's air; §382.012,
which authorizes the commission to develop a plan for control of the state's
air; §382.017, which provides the commission the authority to adopt rules
consistent with the policy and purposes of the TCAA; and 42 USC, §7410(a)(2)(A),
which requires SIPs to include enforceable emission limitations and other
control measures or techniques, including economic incentives such as fees,
marketable permits, and auction of emission rights.
The proposed amendment implements TCAA, §382.011, General Powers and
Duties; §382.012, State Air Control Plan; §382.017, Rules; and 42
USC, §7410(a)(2)(A).
§101.351.Applicability.
This division applies to all stationary facilities which emit nitrogen
oxides (NO
x
) in the Houston/Galveston nonattainment
area
which
[
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on March 23, 2001.
TRD-200101688
Margaret Hoffman
Director, Environmental Law Division
Texas Natural Resource Conservation Commission
Earliest possible date of adoption: May 6, 2001
For further information, please call: (512) 239-0348
Subchapter I. NON-ROAD ENGINES
and
] are subject to the emission specifications
under §§117.106, 117.206, and 117.475 of this title (relating to
Emission Specifications for Attainment Demonstration; Emission Specifications
for Attainment Demonstration; and Emission Specifications) and which
are located at a site where they collectively
have a design capacity
to emit ten tons or more per year of NO
x
.
Chapter 114.
CONTROL OF AIR POLLUTION FROM MOTOR VEHICLES