The South Coast Air Quality Management District (SCAQMD) is considering adoption of Proposed Rule 317, titled Clean Air Act Non-Attainment Fees (the “Proposed Rule”) for the South Coast Air Basin (SOCAB). Adoption of the rule will be considered at the June Governing Board hearing. If adopted, and the SOCAB does not attain the federal one-hour ozone standard by 2010 (the “Attainment Year”), the rule will go into effect in that year. The first year the fee will be due is 2012, and SCAQMD is estimating that the fee in that year will be $9,080 per ton.1

The Proposed Rule is being adopted to comply with federal Clean Air Act (CAA) requirements for air basins not in attainment with the federal one-hour ozone standard. The Proposed Rule applies to “major sources” of VOC or NOx, which in the SOCAB are defined as any source permitted to emit greater than 10 tons of either air contaminant. Fugitive and unpermitted emissions do not count for purposes of determining whether a facility is a “major source,” insofar as they are not permitted.2

The intent of the CAA provisions and the Proposed Rule is to provide facilities an economic incentive to further reduce their emissions by imposing fees on emissions over 80 percent of an established baseline. However, “major sources” in the SOCAB are already heavily regulated and many sources are controlled to current Best Available Control Technology (BACT) levels. Such sources may not be able to further reduce emissions and will be subject to the fee if emissions exceed 80 percent of the baseline, unless they curtail production.  

Key Provisions

Under the Proposed Rule, a “major source” that emits VOC or NOx at levels over 80 percent of its “baseline emissions” will be required to pay the annual non-attainment fee beginning in 2012, and each year thereafter, until the EPA designates the basin to be in attainment with the federal one-hour ozone standard. Fees will be required for the amount of emissions that exceed 80 percent of the baseline and will be in excess of all other fees.  

  • For existing sources, the baseline will be the source’s actual emissions in 2010, including fugitives and emissions from unpermitted sources, during the Attainment Year (2010). For example, even though a source may be permitted to emit 40 tons of NOx per year, if its actual emissions in 2010 are 20 tons, its Rule 317 baseline will be 20 tons. In future years, it will be required to pay a fee for any emissions over 16 tons per year.3  
  • For new sources, baseline will be calculated as the permitted annual emissions levels (non-RECLAIM sources) or, for a RECLAIM source, the higher of the RECLAIM Trading Credits (RTCs) purchased at the beginning of the attainment year or initial year of operation, as applicable, or actual emissions, not to exceed RTC holdings at the end of the reconciliation period.  

Even though fugitive and unpermitted emissions do not count in determining whether a facility is a “major source,” it is important to note that, once a facility is subject to the Proposed Rule, they will count toward the baseline and be counted in determining the amount of the fee.  

Ongoing Efforts

A federal working group has been convened on the CAA provisions at issue and several local industries and trade groups are participating. EPA is expected to issue guidance on the relevant CAA provisions this year. In preparation for issuing guidance, EPA is considering several different approaches to establishing baseline and is also considering allowing the adoption of equivalency provisions rather than a fee. However, due to concerns over a possible citizen suit, SCAQMD does not intend to wait for the guidance to issue before adopting the Proposed Rule.

SCAQMD has held several workshops on the Proposed Rule and many commenters have suggested amendments to reduce or remove the punitive aspects of the rule. Chief among the comments is a request for an exemption for “clean” or new facilities, in which all equipment is at BACT levels. The CAA provisions that mandate the non-attainment fee do not provide an exemption for clean units. However, the San Joaquin Valley Air Pollution Control District adopted a rule that includes an exemption for clean equipment.4 The rule was adopted in 2002, and contains an exemption that reads as follows: “Any clean emission unit shall not be subject to the requirements of this rule.”5 EPA has yet to take action to approve the rule and San Joaquin Valley staff has publically stated their belief that it will not be approved. Despite EPA’s apparent reluctance to approve the San Joaquin Valley rule, on April 3, the SCAQMD Governing Board directed its staff to revise the Proposed Rule to include a similar exemption. Whether a version of the Proposed Rule including a clean unit exemption will ultimately be adopted remains to be seen, and the San Joaquin Valley example suggests that EPA approval of any such rule is uncertain.  

Bottom Line

  • There do not appear to be any viable arguments for challenging the legality of the Proposed Rule as currently drafted.  
  • However, there is at least some likelihood that the Proposed Rule ultimately adopted will contain an exemption for clean equipment, which would serve to neutralize some of its punitive effects.  
  • If adopted, the Proposed Rule will raise the cost of doing business for major sources of NOx and VOC in the SOCAB beginning in 2012.