[Federal Register Volume 82, Number 109 (Thursday, June 8, 2017)]
[Proposed Rules]
[Pages 26634-26638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11906]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R06-OAR-2017-0192; FRL-9962-32-Region 6]


Approval and Promulgation of Implementation Plans; Texas; 
Revisions to Emissions Banking and Trading Programs for Area and Mobile 
Sources

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Pursuant to the Federal Clean Air Act (CAA or the Act), the 
Environmental Protection Agency (EPA) is proposing to approve revisions 
to the Texas State Implementation Plan (SIP) Emissions Banking and 
Trading Programs submitted for parallel processing on March 10, 2017. 
Specifically, we are proposing to approve revisions that clarify and 
expand the existing provisions for the generation and use of emission 
credits from area and mobile sources.

DATES: Written comments must be received on or before July 10, 2017.

ADDRESSES: Submit your comments, identified by Docket No. EPA-R06-OAR-
2017-0192, at http://www.regulations.gov or via email to 
[email protected]. Follow the online instructions for submitting 
comments. Once submitted, comments cannot be edited or removed from 
Regulations.gov. The EPA may publish any comment received to its public 
docket. Do not submit electronically any information you consider to be 
Confidential Business Information (CBI) or other information whose 
disclosure is restricted by statute. Multimedia submissions (audio, 
video, etc.) must be accompanied by a written comment. The written 
comment is considered the official comment and should include 
discussion of all points you wish to make. The EPA will generally not 
consider comments or comment contents located outside of the primary 
submission (i.e. on the web, cloud, or other file sharing system). For 
additional submission methods, please

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contact Adina Wiley, 214-665-2115, [email protected]. For the full 
EPA public comment policy, information about CBI or multimedia 
submissions, and general guidance on making effective comments, please 
visit http://www2.epa.gov/dockets/commenting-epa-dockets.
    Docket: The index to the docket for this action is available 
electronically at www.regulations.gov and in hard copy at the EPA 
Region 6, 1445 Ross Avenue, Suite 700, Dallas, Texas. While all 
documents in the docket are listed in the index, some information may 
be publicly available only at the hard copy location (e.g., copyrighted 
material), and some may not be publicly available at either location 
(e.g., CBI).

FOR FURTHER INFORMATION CONTACT: Adina Wiley, 214-665-2115, 
[email protected]. To inspect the hard copy materials, please 
schedule an appointment with Ms. Adina Wiley or Mr. Bill Deese at 214-
665-7253.

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

I. Background

A. CAA and SIPs

    Section 110 of the CAA requires states to develop and submit to the 
EPA a SIP to ensure that state air quality meets the National Ambient 
Air Quality Standards (NAAQS). These ambient standards currently 
address six criteria pollutants: carbon monoxide, nitrogen dioxide, 
ozone, lead, particulate matter, and sulfur dioxide. Each federally-
approved SIP protects air quality primarily by addressing air pollution 
at its point of origin through air pollution regulations and control 
strategies. The EPA-approved SIP regulations and control strategies are 
federally enforceable.
    The Texas SIP includes several discretionary emissions trading 
programs developed consistent with the EPA's Economic Incentive Program 
(EIP) Guidance, that are designed to promote flexibility and innovation 
in complying with State and Federal air emission requirements 
established in the SIP and the SIP-approved air permitting programs.\1\ 
This proposed action will address revisions to two of the Texas 
emissions trading programs--the Texas Emission Credit (EC) and Discrete 
Emission Credit (DEC) Programs that were submitted to the EPA on March 
10, 2017, with a request for parallel processing. The EPA is proposing 
approval at the same time that the Texas Commission on Environmental 
Quality (TCEQ) is completing the corresponding public comment and 
rulemaking process at the state level. The March 10, 2017, SIP revision 
request will not be complete and will not meet all the SIP 
approvability criteria until the state completes the public process and 
submits the final, adopted SIP revision with a letter from the Governor 
or Governor's designee to EPA. The EPA is proposing to approve the SIP 
revision request after completion of the state public process and final 
submittal. Please see the Technical Support Document (TSD) accompanying 
this rulemaking for an identification of the specific sections impacted 
by this proposed rulemaking.
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    \1\ ``Improving Air Quality with Economic Incentive Programs'' 
(EIP Guidance) (EPA-452/R-01-001, January 2001) is the EPA guidance 
document for reviewing and approving discretionary EIP submittals. 
The EIP Guidance applies to the establishment of a discretionary EIP 
for attaining or maintaining the NAAQS for criteria pollutants. The 
EIP Guidance supersedes and takes precedence over the discretionary 
EIP guidance provided in prior documents such as the 1994 EIP (April 
7, 1994, 59 FR 16690, 40 CFR part 51, subpart U) and the guidance in 
the emission trading policy statement (ETPS) (December 4, 1986, 51 
FR 43813).
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B. Overview of the Texas Emissions Banking and Trading Programs

1. The EC Program
    The EC Program enacted at 30 Texas Administrative Code (TAC) 
Chapter 101, Subchapter H, Division 1 allows owners or operators of a 
facility or mobile source to generate emission credits by reducing 
emissions of criteria pollutants or their precursors, with the 
exception of lead, below any applicable regulations or requirements. 
Emission credits are generated and banked in terms of rate (tons per 
year). The ECs encompass reductions generated and banked from 
stationary sources as emission reduction credits (ERCs) or generated 
and banked from mobile sources as mobile emission reduction credits 
(MERCs). The ECs from the bank have traditionally been used as offsets 
for the permitting of major new or modified facilities in nonattainment 
areas. ECs have also been banked and traded for alternative compliance 
with Reasonably Available Control Technology (RACT) requirements. The 
EPA initially approved the EC program on September 6, 2006 (71 FR 
52698) with updates approved on May 18, 2010 (75 FR 27647). The EPA has 
taken a separate action via a direct final rulemaking to address the 
revisions to the EC Program adopted on June 5, 2015 and submitted to 
the EPA as a SIP revision on August 14, 2015. See 82 FR 21919, May 11, 
2017.
    On March 8, 2017, the TCEQ Commissioners voted to propose for 
adoption revisions to the EC Program that clarify and augment the 
existing regulations pertaining to the generation and use of ECs from 
area and mobile sources. The TCEQ submitted this proposal package on 
March 10, 2017 with a request for parallel processing.
2. The DEC Program
    The DEC Program enacted at 30 TAC Chapter 101, Subchapter H, 
Division 4 allows an owner or operator of a facility or mobile source 
to generate discrete emission credits by reducing emissions of criteria 
pollutants or their precursors, with the exception of lead, below any 
applicable regulation or requirement. Discrete emission credits (DECs) 
are quantified, banked and traded in terms of mass (tons), not a rate 
as is the case with ECs. DECs may be generated from stationary sources 
and banked as discrete emission reduction credits (DERCs) or may be 
generated from mobile sources and banked as mobile discrete emission 
reduction credits (MDERCs). Traditionally DECs have been used for RACT 
compliance for Volatile Organic Compounds (VOCs) and nitrogen oxides 
(NOX); DECs can also be used to offset new major sources or 
major modifications to existing sources in nonattainment areas. The EPA 
initially approved the DEC Program on September 6, 2006, with updates 
approved on May 18, 2010 (75 FR 27644). The EPA is addressing, in a 
separate direct final action, revisions to the DEC program that were 
submitted on December 22, 2008; May 14, 2013; and August 14, 2015. See 
82 FR 21919, May 11, 2017.
    On March 8, 2017, the TCEQ Commissioners voted to propose for 
adoption revisions to the DEC Program that clarify and augment the 
existing regulations pertaining to the generation and use of DECs from 
area and mobile sources. The TCEQ submitted this proposal package on 
March 10, 2017 with a request for parallel processing.

II. The EPA's Evaluation

    Both the Texas EC and DEC SIP programs contain existing language to 
provide for the generation of emission reductions from area and mobile 
sources. The TCEQ is proposing revisions to the existing regulations to 
clarify the processes for area and mobile source credit generation and 
quantification in an effort to incentivize increased utilization of the 
program. The accompanying TSD for this action includes a detailed 
analysis of the

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proposed revisions submitted for EPA's consideration for parallel 
processing.\2\ In many instances the revisions are minor or non-
substantive in nature and do not change the intent of the original SIP-
approved EC or DEC programs. Following is a summary of our analysis for 
those revisions that we view as substantive revisions to the existing 
SIP-approved programs.
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    \2\ The accompanying Technical Support Document is available in 
the rulemaking docket, EPA-R06-OAR-2017-0192.
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A. Addressing Uncertainty in Area and Mobile Source Emission Estimates

    The area and mobile source inventories used by TCEQ for attainment 
planning are based on emission estimates and models rather than actual 
reported emissions data. To reduce the uncertainty in the emission 
estimates in the overall area and mobile source inventories, the TCEQ 
is proposing revisions to the definition of ``State Implementation Plan 
(SIP) emissions'' at 30 TAC Sections 101.300(30) and 101.370(31) to 
discount the overall area and mobile source pool available for 
generating reductions; 75% of the respective area source and non-road 
mobile source emissions inventory is eligible to generate emission 
reductions, and 85% of the on-road mobile source emissions inventory is 
eligible to generate emission reductions. The TCEQ is also proposing at 
30 TAC Sections 101.303(b), 101.304(b), 101.373(b), and 101.374(b) that 
the emission and activity rates used to determine the historical 
adjusted emissions for area and mobile source generation strategies 
will be determined from two consecutive years from the past five years. 
The lookback window may be extended up to 10 years if the source has 
detailed operational records to demonstrate the actual emissions.
    The EPA proposes that the overall reduction factor in the area and 
mobile source inventories available for credit generation is 
appropriate and approvable. We also propose that limiting the lookback 
window to five years, with the ability to extend up to 10 years if 
detailed operational records are available, is appropriate and 
approvable. In both instances, the TCEQ has identified an area of 
uncertainty and presented a reasonable method for mitigating the 
uncertainty and ensuring the credits generated under the EC and DEC 
programs represent real reductions that will benefit the airshed. 
Restricting the lookback window to five years addresses the differences 
in emission estimations used for area and mobile sources and the 
reported actual emissions in the point source universe. The option to 
extend the lookback window up to 10 years for detailed operational 
records will also encourage and incentivize more detailed emissions 
monitoring and recordkeeping for area and mobile sources.

B. Limiting the Sources and Strategies Eligible for Generating ECs or 
DECs

    The TCEQ has submitted proposed revisions to the General Provisions 
of the EC and DEC programs at 30 TAC Sections 101.302(c) and 101.372(c) 
to identify the source categories ineligible for generating ECs or 
DECs. Examples of ineligible source categories include residential area 
sources and on-road mobile sources that are not part of an industrial, 
commercial, nonprofit, institutional, or municipal/government fleet. 
Additionally, the TCEQ has proposed at 30 TAC Section 101.303(a)(2)(D) 
that ERCs may not be generated from shutdowns of specific types of 
inelastic area sources that are driven by population demands.\3\ A list 
of inelastic area sources will be maintained by the TCEQ on the agency 
Web site; the TCEQ has proposed a methodology where any person can 
petition the TCEQ Executive Director to add or remove source categories 
from the list.
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    \3\ Inelastic is an economic term used to describe when the 
supply and demand for a good or service is independent of the price. 
In the context of the proposed Texas rules, an inelastic area source 
is a source that will exist regardless of economic factors. Gas 
stations and dry cleaners are examples of inelastic area sources 
because the population will demand these services regardless of 
price.
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    The EPA proposes to find that the TCEQ has appropriately revised 
the EC and DEC programs to identify the sources and types of emission 
reduction strategies eligible for participation within the programs. 
The TCEQ has proposed to limit the eligible source categories to those 
where the sources have required established emissions monitoring and 
recordkeeping provisions and the TCEQ has the authority to ensure the 
reductions will be federally enforceable and permanent, as applicable, 
through construction permits or other certifications. These limits will 
ensure that the emission reductions generated are real, quantifiable, 
surplus, and permanent as required by the Texas SIP.
    The exclusion of shutdowns from inelastic area sources is an 
appropriate method to prevent demand shifting--an outcome where one 
inelastic source (for example, a dry cleaner or gas station) will shut 
down and the same type of source will open down the street based on 
population needs and economic considerations. There is no net reduction 
in emissions in this scenario; by prohibiting inelastic area source 
shutdowns from generating reductions the TCEQ is protecting the airshed 
by ensuring generated and banked ERCs will be real, permanent and 
surplus. The proposed methodology for developing and maintaining the 
inelastic area source category list is also approvable; the proposed 
methodology provides a replicable mechanism for public input.

C. Addressing Uncertainty in the Area and Mobile Source Generation 
Strategy

    The TCEQ is proposing additional adjustment factors to address 
uncertainty in credit generation and quantification at 30 TAC Sections 
101.303(c), 101.304(c), 101.372(c) and 101.374(c). For emission 
reductions from the shutdown of area or mobile sources, the TCEQ is 
proposing that the amount of ECs or MDERCs will be reduced by 15%. For 
emission reductions of area or mobile sources using alternative methods 
for emissions quantifications, the TCEQ is proposing that the amount of 
ECs or DECs will be reduced by 15%. If the source is subject to both 
adjustment factors, the TCEQ proposes the total combined reduction will 
be 20%.
    The EPA proposes to find that the proposed adjustment factors 
applied to credit generation and certification are approvable. The 
adjustment factor applied for the shutdown of area or mobile sources 
will mitigate the possibility of unanticipated demand shifting. The 
adjustment factor applied for alternative methods of emissions 
quantification will address the uncertainty associated with emission 
estimation techniques and could serve to incentivize the use of more 
robust emissions monitoring and reporting consistent with point source 
requirements. These adjustment factors will help ensure that the TCEQ 
certifies emission reductions that are real, surplus, quantifiable, and 
permanent as required by the CAA and the Texas SIP.

D. Exceptions to Application Deadlines and Emission Credit Lifetimes

    The Texas SIP currently provides that ECs will have a lifetime of 
60 months (5 years) from the date of the emission reduction, see 30 TAC 
Section 101.309(b). The TCEQ has proposed limited exceptions to the EC 
application deadline and credit lifetimes at 30 TAC Sections 101.303(d) 
and 101.304(e). The TCEQ has demonstrated that the extended application 
deadlines and credit lifetimes would apply to a small subset of the 
potential EC population for

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a specified time period. These extensions in lifetime are proposed to 
assist in program implementation, incentivize expeditious plugging of 
oil and gas wells, and to equitably process the EC applications 
submitted during the stakeholder and rule development process. Each of 
the applications with the extended lifetime will be processed by the 
TCEQ in accordance with the proposed regulations; the TCEQ will apply 
the overall discount to the area or mobile source inventories and apply 
the adjustment factors to address uncertainty in the emission 
estimations and unanticipated activity shifting. The TCEQ also has 
existing SIP-authority at 30 TAC Section 101.302(g), proposed to be 
renumbered as 101.302(i), to require recordkeeping beyond the nominal 5 
year lifetime of the EC. In its preamble to the proposed state rule, 
the TCEQ interprets this existing SIP-authority to require 
recordkeeping for the entirety of the extended EC lifetime and states 
this requirement would be annotated in the federally enforceable 
certification paperwork required by the TCEQ executive director; 
thereby ensuring that the recordkeeping for the ECs with the extended 
lifetime continues to satisfy the CAA and the Texas SIP.\4\ The 
proposed limited exceptions to the EC application deadline and credit 
lifetimes at 30 TAC Sections 101.303(d) and 101.304(e) are approvable. 
We are making a preliminary finding that the TCEQ has appropriately 
defined the scope of the EC program and has the authority to require 
recordkeeping for the life of the generated ECs to ensure compliance 
with the CAA and the Texas SIP.
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    \4\ See 42 TexReg 1340, March 24, 2017.
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E. Clarification of the DEC Program To Provide for the Generation of 
MDERCs From Shutdowns

    The TCEQ is proposing to clarify the existing SIP-approved language 
for MDERC generation at 30 TAC Section 101.374(c)(1) to explicitly 
provide for the generation of MDERCs from shutdowns, including 
permanent shutdowns and temporary curtailments of activity from a 
mobile source. The TCEQ must still review each MDERC generated from a 
shutdown to determine whether the reduction is real, quantifiable, 
surplus and enforceable before certifying the reduction, consistent 
with the Texas SIP and the CAA.
    The EPA is proposing to approve the clarification of the MDERC 
generation language to provide for generation of credits from mobile 
source shutdowns. Sources have traditionally not availed themselves of 
the current SIP provisions for generating MDERCs, therefore any 
generation of emission reductions (including those from the shutdown of 
mobile sources) would likely be considered innovative and novel. The 
DEC program is an open market trading program designed to promote 
creative and innovative emission strategies. We believe that emission 
reduction strategies for the shutdown of mobile sources is consistent 
with the intent of the EIP because these strategies could result in a 
benefit to the specific airshed and promote and incentivize mobile 
source reductions. The emission adjustment factor of 15% proposed by 
the TCEQ will address any uncertainties associated with the generation 
of MDERCs from shutdowns or concerns about activity shifting, further 
ensuring that the reduction strategies generate real, enforceable and 
surplus reductions.

F. Analysis Under Section 110(l) of the CAA

    Our analysis indicates that the March 8, 2017 regulations proposed 
for adoption by TCEQ have been developed in accordance with the CAA and 
submitted on March 10, 2017 with a request for parallel processing. The 
Texas EC and DEC programs are SIP-approved programs that provide for 
compliance flexibility and generation and use of emission credits in 
the SIP-approved nonattainment New Source Review permitting program. 
The proposed revisions to the EC and DEC programs further clarify and 
update the existing programs specific to the generation and use of 
emission reductions from area and mobile sources. These submitted 
proposed revisions do not change the fundamental premise or structure 
of the approved programs. Therefore, we find that the proposed 
revisions to the EC and DEC programs will not interfere with 
attainment, reasonable further progress or any other applicable 
requirements of the Act.

III. Proposed Action

    The EPA has made the preliminary determination that the March 10, 
2017, proposed revisions to the Texas SIP and request for parallel 
processing are in accordance with the CAA and consistent with the CAA 
and the EPA's policy and guidance on emissions trading. Therefore, 
under section 110 of the Act, the EPA proposes to approve the following 
revisions to the Texas SIP that were proposed for adoption on March 8, 
2017 and submitted for parallel processing on March 10, 2017:
     Revisions to 30 TAC Section 101.300;
     Revisions to 30 TAC Section 101.302;
     Revisions to 30 TAC Section 101.303;
     Revisions to 30 TAC Section 101.304;
     Revisions to 30 TAC Section 101.306;
     Revisions to 30 TAC Section 101.370;
     Revisions to 30 TAC Section 101.372;
     Revisions to 30 TAC Section 101.373;
     Revisions to 30 TAC Section 101.374; and
     Revisions to 30 TAC Section 101.376.
    The EPA is proposing this action in parallel with the state's 
rulemaking process. We cannot take a final action until the state 
completes its rulemaking process, adopts its final regulations, and 
submits these final adopted regulations as a revision to the Texas SIP. 
If during the response to comments process, the state rule is changed 
significantly from the proposed rule and the rule upon which the EPA 
proposed, the EPA may have to withdraw our initial proposed rule and 
repropose based on the final SIP submittal.

IV. Incorporation by Reference

    In this action, we are proposing to include in a final rule 
regulatory text that includes incorporation by reference. In accordance 
with the requirements of 1 CFR 51.5, we are proposing to incorporate by 
reference revisions to the Texas regulations as described in the 
Proposed Action section above. We have made, and will continue to make, 
these documents generally available electronically through 
www.regulations.gov and/or in hard copy at the EPA Region 6 office.

V. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP 
submission that complies with the provisions of the Act and applicable 
Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in 
reviewing SIP submissions, the EPA's role is to approve state choices, 
provided that they meet the criteria of the CAA. Accordingly, this 
action merely proposes to approve state law as meeting Federal 
requirements and does not impose additional requirements beyond those 
imposed by state law. For that reason, this action:
     Is not a ``significant regulatory action'' subject to 
review by the Office of Management and Budget under

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Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 
3821, January 21, 2011);
     Does not impose an information collection burden under the 
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact 
on a substantial number of small entities under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.);
     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);
     Does not have Federalism implications as specified in 
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based 
on health or safety risks subject to Executive Order 13045 (62 FR 
19885, April 23, 1997);
     Is not a significant regulatory action subject to 
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of section 12(d) of the 
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 
note) because application of those requirements would be inconsistent 
with the CAA; and
     Does not provide EPA with the discretionary authority to 
address, as appropriate, disproportionate human health or environmental 
effects, using practicable and legally permissible methods, under 
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, the SIP is not approved to apply on any Indian 
reservation land or in any other area where EPA or an Indian tribe has 
demonstrated that a tribe has jurisdiction. In those areas of Indian 
country, the proposed rule does not have tribal implications and will 
not impose substantial direct costs on tribal governments or preempt 
tribal law as specified by Executive Order 13175 (65 FR 67249, November 
9, 2000).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Carbon monoxide, 
Incorporation by reference, Intergovernmental relations, Lead, Nitrogen 
dioxide, Ozone, Reporting and recordkeeping requirements, Sulfur 
oxides, Volatile organic compounds.

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

    Dated: May 24, 2017.
Samuel Coleman,
Acting Regional Administrator, Region 6.
[FR Doc. 2017-11906 Filed 6-7-17; 8:45 am]
 BILLING CODE 6560-50-P