ENVIRONMENTAL
PROTECTION
AGENCY
40
CFR
Part
52
[
EPA­
R06­
OAR­
2005­
TX­
0029;
FRL
­
]

Approval
and
Promulgation
of
State
Implementation
Plans;
Texas;
Discrete
Emission
Credit
Banking
and
Trading
Program
AGENCY:
Environmental
Protection
Agency
(
EPA).

ACTION:
Final
Conditional
Approval.

SUMMARY:
EPA
is
finalizing
our
conditional
approval
of
revisions
to
the
Texas
State
Implementation
Plan
(
SIP)
concerning
the
Discrete
Emission
Credit
Banking
and
Trading
Program.

DATE:
This
rule
is
effective
on
[
FEDERAL
REGISTER
OFFICE:
Insert
date
30
days
from
date
of
publication
in
the
Federal
Register].

ADDRESSES:
EPA
has
established
a
docket
for
this
action
under
Docket
ID
No.
EPA­
R06­

OAR­
2005­
TX­
0029.
All
documents
in
the
docket
are
listed
on
the
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
2
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:
30am
and
4:
30pm
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
(

6PDR
EPA
Region
6,
1445
Ross
Avenue,
Dallas,
Texas
75202­
2733,
telephone
214­
665­
2115,

wiley.
adina@
epa.
gov.

SUPPLEMENTARY
INFORMATION:
3
Throughout
this
document
wherever
"
we,"
"
us,"
or
"
our"
is
used,
we
mean
EPA.

Outline:

I.
What
action
is
EPA
taking?

II.
What
is
a
conditional
approval?

III.
What
future
actions
are
necessary
for
the
DERC
rule
to
fully
meet
EPA's
expectations?

IV.
What
is
the
background
for
this
action?

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

VI.
What
does
Federal
approval
of
a
State
regulation
mean
to
me?

VII.
Statutory
and
Executive
Order
Reviews
I.
What
action
is
EPA
taking?

EPA
is
conditionally
approving,
as
part
of
the
Texas
SIP,
the
Discrete
Emission
Credit
Banking
and
Trading
program,
also
referred
to
as
the
Discrete
Emission
Reduction
Credit
(
DERC)
program,
enacted
at
Texas
Administrative
Code
(
TAC)
Title
30,
Chapter
101
General
Air
Quality
Rules,
Subchapter
H,
Division
4,
sections
101.370
 
101.374,
101.376,
101.378,
and
101.379.
These
revisions
were
provided
in
SIP
revisions
dated
July
22,
1998
(
state
effective
date
December
23,
1997);
December
20,
2000
(
state
effective
date
January
18,
2001);
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).
4
As
discussed
in
our
proposed
action
at
70
FR
58164­
58166,
we
conclude
that
the
DERC
program
is
consistent
with
section
110(
l)
of
the
Clean
Air
Act.

The
DERC
program
that
we
are
conditionally
approving
today
into
the
Texas
SIP
includes
numerous
cross­
references
to
different
State
rules.
In
order
to
be
able
to
conditionally
approve
(
or
fully
approve)
a
revision
into
a
SIP,
we
also
must
conditionally
approve
(
or
fully
approve)
any
cross­
referenced
rules
that
are
integral
to
the
establishment,
implementation,
and
enforcement
of
the
SIP
revision.
Our
detailed
evaluation
of
all
the
cross­
references
in
the
State's
DERC
rule
language
to
other
State
rules
not
part
of
Subchapter
H,
Division
4,
sections
101.370
 

101.374,
101.376,
101.378,
and
101.379
can
be
found
in
the
"
Review
of
Cross­
References
in
the
DERC
Program"
discussion
in
Section
IV
of
the
Technical
Support
Document
(
available
in
the
rulemaking
docket
EPA­
R06­
OAR­
2005­
TX­
0029).

Today,
EPA
finds
that
the
cross­
references
in
the
following
sections
of
the
DERC
program
have
already
been
approved
into
the
Texas
SIP:
101.370(
29)
at
65
FR
70792;

101.372(
b)(
3)
at
63
FR
11835;
101.372(
d)(
1)(
A)
at
66
FR
57244;
101.372(
d)(
1)(
B)
at
60
FR
12438,
62
FR
27964,
65
FR
18003,
66
FR
36917,
and
66
FR
54688;
101.372(
f)(
4)
at
66
FR
36917;
101.373(
b)(
1)
at
67
FR
58697;
and
101.376(
d)(
2)(
A)
at
66
FR
57244.
Additionally,
the
cross­
references
in
sections
101.370(
28)
and
101.376(
c)(
5)
have
been
approved
by
the
EPA
into
the
Texas
Federal
Operating
Permits
Program
on
December
06,
2001,
and
March
31,
2005.
The
cross­
reference
in
section
101.376(
b)(
3)
is
addressed
in
a
corresponding
action
on
the
Texas
Mass
Emissions
Cap
and
Trade
program
published
separately
in
today's
Federal
Register.
5
We
are
not
approving
section
101.376(
c)(
4)
into
the
Texas
SIP
because
the
crossreferences
to
30
TAC
Chapter
106
Permit
by
Rule,
sections
106.261(
3)
or
(
4)
or
section
106.262(
3)
are
incorrect
and
do
not
exist
in
State
law,
the
Texas
SIP,
or
the
Texas
Federal
Operating
Permits
program.
Consequently,
unless
and
until
the
State
adopts
and
submits
a
revision
to
EPA
for
approval
as
a
SIP
revision
and
EPA
approves
it,
the
use
of
discrete
emission
credits
to
exceed
the
provisions
in
certain
types
of
pre­
construction
permits
termed
Permits
by
Rule
is
not
available
under
the
Texas
SIP.

In
our
proposed
conditional
approval
of
the
DERC
program,
we
also
proposed
approving
section
115.950
in
30
TAC
Chapter
115,
Control
of
Air
Pollution
from
Volatile
Organic
Compounds,
which
cross­
references
the
DERC
program,
and
we
proposed
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.
Our
final
action
on
those
two
provisions
is
not
included
in
this
final
rule,
but
is
instead
in
our
final
action
on
the
Emission
Credit
Banking
and
Trading
program,
referred
to
as
the
Emission
Reduction
Credit
(
ERC)

program.
Our
approval
of
sections
115.950
and
the
definition
of
"
facility"
in
116.10
is
not
affected
by
the
conditions
on
our
approval
of
the
DERC
program.

II.
What
is
a
conditional
approval?

Under
section
110(
k)(
4)
of
the
Clean
Air
Act,
EPA
may
conditionally
approve
a
plan
based
on
a
commitment
from
the
State
to
adopt
specific
enforceable
measures
by
a
date
certain
that
is
no
more
than
one
year
from
the
date
of
conditional
approval.
If
EPA
determines
that
the
6
revised
rule
is
approvable,
EPA
will
propose
approval
of
the
rule.
If
the
State
fails
to
meet
its
commitment
within
the
one­
year
period,
the
approval
is
treated
as
a
disapproval.
There
are
at
least
two
ways
that
the
conditional
approval
may
be
converted
to
a
disapproval.

 
If
the
State
fails
to
adopt
and
submit
the
specified
measures
by
the
date
it
committed
to
do
so,
or
fails
to
submit
anything
at
all,
EPA
will
issue
a
finding
of
disapproval,
but
will
not
have
to
propose
the
disapproval.
No
proposal
is
required,
because
in
the
original
proposed
and
final
conditional
approval
EPA
will
have
provided
notice
and
an
opportunity
for
comment
on
the
fact
that
EPA
would
directly
make
the
finding
of
disapproval
(
by
letter)
if
the
State
failed
to
submit
anything.
Therefore,
under
this
scenario,
after
the
date
by
which
the
state
committed
to
adopt
and
submit
the
measures,

the
Regional
Administrator
(
RA)
would
send
a
letter
to
the
State
finding
that
it
failed
to
meet
its
commitment
and
that
the
SIP
submittal
was
therefore
disapproved.
The
18­

month
clock
for
sanctions
and
the
two­
year
clock
for
a
Federal
Implementation
Plan
(
FIP)
would
start
as
of
the
date
of
the
letter.
Subsequently,
a
notice
to
that
effect
would
be
published
in
the
Federal
Register,
and
appropriate
language
inserted
in
the
Code
of
Federal
Regulations
(
CFR).
Similarly,
if
EPA
receives
a
submittal
addressing
the
commitment
but
determines
that
the
submittal
is
incomplete,
the
RA
will
send
a
letter
to
the
State
making
such
a
finding.
As
with
the
failure
to
submit,
the
sanctions
and
FIP
clocks
will
begin
as
of
the
date
of
the
finding
letter.

 
Where
the
State
does
make
a
complete
submittal
by
the
date
it
committed
to
do
so,
EPA
will
evaluate
that
submittal
to
determine
if
it
may
be
approved
and
will
take
final
action
7
on
the
submittal
within
12
months
after
the
date
EPA
determines
the
submittal
is
complete.
If
the
submittal
does
not
adequately
address
the
deficiencies
that
were
the
subject
of
the
conditional
approval,
and
is
therefore
not
approvable,
EPA
must
go
through
notice­
and­
comment
rulemaking
to
disapprove
the
submittal.
The
18­
month
clock
for
sanctions
and
the
two­
year
clock
for
a
FIP
start
as
of
the
date
of
final
disapproval.

In
either
instance,
whether
EPA
finally
approves
or
disapproves
the
rule,
the
conditional
approval
remains
in
effect
until
EPA
takes
its
final
action.
Note
that
EPA
will
conditionally
approve
a
certain
rule
only
once.
Subsequent
submittals
of
the
same
rule
that
attempt
to
correct
the
same
specifically
identified
problems
will
not
be
eligible
for
conditional
approval.

III.
What
future
actions
are
necessary
for
the
DERC
rule
to
fully
meet
EPA's
expectations?

TCEQ
has
submitted
a
commitment
letter
to
Region
6
outlining
the
steps
that
will
be
taken
to
achieve
full
approval.
This
letter,
dated
September
8,
2005,
can
be
found
in
the
DERC
administrative
record,
EPA­
R06­
OAR­
2005­
TX­
0029.
The
commitments
are:

(
1)
Revising
the
language
in
section
101.373:

a.
To
prohibit
the
future
generation
of
discrete
emission
reduction
credits
from
permanent
shutdowns;
and
8
b.
To
allow
discrete
emission
reduction
credits
generated
from
permanent
shutdowns
before
September
30,
2002,
to
remain
available
for
use
for
no
more
than
five
years
from
the
date
of
the
commitment
letter.

(
2)
TCEQ
will
perform
a
credit
audit
to
remove
from
the
emissions
bank
all
discrete
emission
reduction
credits
generated
from
permanent
shutdowns
after
September
30,

2002.

(
3)
Revising
the
language
in
sections
101.302(
f),
101.372(
f)(
7),
and
101.372(
f)(
8)
to
clarify
that
EPA
approval
is
required
for
individual
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
areas.

(
4)
TCEQ
will
revise
Form
DEC­
1,
Notice
of
Generation
and
Generator
Certification
of
Discrete
Emission
Credits;
Form
MDEC­
1,
Notice
of
Generation
and
Generator
Certification
of
Mobile
Discrete
Emission
Credits;
and
Form
DEC­
2,
Notice
of
Intent
to
Use
Discrete
Emission
Credits,
to
include
a
waiver
to
the
Federal
statute
of
limitations
defense
for
generators
and
users
of
discrete
emission
credits.

(
5)
TCEQ
will
maintain
its
current
policy
of
preserving
all
records
relating
to
discrete
emission
credit
generation
and
use
for
a
minimum
of
five
years
after
the
use
strategy
has
ended.

Additionally,
TCEQ
has
agreed
to
comply
with
these
commitments
during
the
conditional
approval
period.
Specifically,
TCEQ
will
not
approve
any
trades
involving
the
types
of
reductions
described
in
item
(
3)
above,
will
not
approve
any
use
of
discrete
shutdown
credits
that
were
generated
after
September
30,
2002,
will
only
allow
shutdown
DERCs
generated
9
before
September
30,
2002,
to
be
used
for
up
to
five
years
from
the
date
of
the
commitment
letter,
and
will
require
the
waiver
described
in
item
(
4)
above
for
generators
and
users
of
discrete
emission
credits.
TCEQ
must
submit
revised
rules
satisfying
the
above
conditions
to
EPA
on
or
before
December
01,
2006.
The
conditional
approval
will
automatically
become
a
disapproval
if
the
revisions
are
not
completed
and
submitted
to
EPA
by
this
date.

IV.
What
is
the
background
for
this
action?

The
DERC
rules
establish
a
type
of
Economic
Incentive
Program
(
EIP),
in
particular
an
open
market
emissions
trading
program
as
described
in
EPA's
EIP
Guidance
document,

"
Improving
Air
Quality
with
Economic
Incentive
Programs"
(
EPA­
452/
R­
01­
001,
January
2001).
This
program
provides
flexibility
for
sources
in
complying
with
certain
State
and
Federal
requirements.
In
an
open
market
trading
program,
a
source
generates
emission
credits
by
reducing
its
emissions
during
a
discrete
period
of
time.
These
credits,
called
discrete
emission
credits,
or
DECs,
in
the
Texas
program,
are
quantified
in
units
of
mass.
Discrete
emission
credit
(
DEC)
is
a
generic
term
that
encompasses
reductions
from
stationary
sources
(
discrete
emission
reduction
credits,
or
DERCs),
and
reductions
from
mobile
sources
(
mobile
discrete
emission
reduction
credits,
or
MDERCs).
The
DERC
program
was
first
adopted
by
the
State
at
30
TAC
section
101.29
on
December
23,
1997.
Effective
January
18,
2001,
section
101.29
was
repealed
and
Chapter
101,
Subchapter
H,
Divisions
l,
3,
and
4
were
created.
This
action
created
separate
divisions
for
the
ERC,
Mass
Emissions
Cap
and
Trade
(
MECT)
in
the
Houston/
Galveston/
Brazoria
(
HGB)
area,
and
DERC
programs.
Amendments
to
the
MECT
were
adopted
on
October
18,
2001;
these
amendments
also
included
changes
made
primarily
for
10
clarification
to
sections
101.370,
101.372,
and
101.373
in
the
DERC
program.
As
of
April
14,

2002,
TCEQ
amended
the
program
to
include
the
provisions
in
Texas
Senate
Bill
1561
for
air
emissions
trading
across
international
boundaries.
Effective
January
17,
2003,
TCEQ
reorganized
the
DERC
and
ERC
program
rules
into
more
standardized
formats
parallel
to
each
other,
with
a
rule
structure
which
followed
a
process
of
recognizing,
quantifying,
and
certifying
reductions
as
credits
while
explaining
the
guidelines
for
trading
and
using
creditable
reductions.

The
most
recent
submittal,
of
December
06,
2004,
amended
sections
101.370,
101.373,
101.373,

and
101.376.
The
DERC
program
adoption
and
the
subsequent
revisions
were
submitted
to
EPA
for
approval
into
the
SIP;
however,
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
06,
2004,
submittal.

The
DERC
program
contains
several
features
that
EPA
feels
are
important
enough
to
discuss
here.
The
DERC
program
provides
at
section
101.372(
f)
that
emission
reductions
from
another
county,
state,
or
nation
may
be
used
subject
to
certain
conditions.
The
current
wording
of
the
rule
is
unclear
as
to
when
prior
approval
from
EPA
will
be
required.
To
improve
this
aspect
of
the
rule,
on
completion
of
the
condition
outlined
above
the
rule
will
more
clearly
require
prior
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
101.372,
in
Appendix
16.16
of
the
EIP
Guidance.
Satisfaction
of
the
provisions
of
Appendix
11
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
in
section
101.372(
f),
as
revised
in
accordance
with
EPA's
conditions
for
approval,
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
increases
in
a
nonattainment
area
and
reductions
from
beyond
that
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
DERC
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
DERC
rule.

EPA
is
also
approving
a
provision
in
section
101.372(
d)
that
allows
generators
and
users
of
DERCs
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
12
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
101.372(
d)(
1)(
C),
which
include
a
requirement
for
EPA
adequacy
review
of
such
alternate
protocols.
TCEQ
has
agreed
to
clarify
the
provisions
of
section
101.372(
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
58157
for
a
description
of
the
approval
process
for
alternate
quantification
protocols.

EPA
is
also
approving
a
provision
in
section
101.376
that
allows
DECs
to
be
used
as
new
source
review
(
NSR)
offsets.
Section
101.376
outlines
criteria
for
DEC
usage
and
NSR
permits
that
must
be
satisfied
for
DECs
to
be
used
as
NSR
offsets.
With
these
restrictions
and
the
environmental
benefit
provisions
of
the
DERC
program,
we
feel
that
the
use
of
DECs
as
NSR
offsets
is
consistent
with
sections
171
and
173
of
the
Clean
Air
Act
and
the
EIP
Guidance.
See
70
FR
58160
for
our
more
detailed
discussion
of
DECs
as
NSR
offsets.

Additionally,
EPA
is
approving
the
use
of
DECs
in
lieu
of
allowances
in
the
Houston/
Galveston/
Brazoria
(
HGB)
MECT
program
for
emissions
of
nitrogen
oxides
(
NOx).

Section
101.376
of
the
DERC
program
enables
the
use
of
DECs
in
the
MECT,
but
the
rule
language
providing
the
detailed
usage
requirements
for
DECs
under
the
MECT
is
in
section
101.356(
h)
of
the
MECT
program,
which
we
are
approving
elsewhere
in
today's
Federal
Register.
Because
of
the
interaction
between
the
DERC
and
MECT
programs,
the
conditional
13
approval
commitments
of
the
DERC
program
must
be
interpreted
with
respect
to
the
use
of
DECs
in
the
MECT.
DECs
can
be
used
as
allowances
in
the
MECT
subject
to
the
requirements
of
section
101.356(
h),
and
only
if
the
DECs
meet
the
conditions
outlined
above.
Therefore,
the
TCEQ
will
not
approve
the
use
of
any
DERCs
that
were
generated
from
shutdowns
since
September
30,
2002,
and
the
use
of
banked
shutdown
DERCs
generated
before
September
30,

2002,
must
occur
within
5
years
from
the
date
of
the
commitment
letter.
In
addition,
with
respect
to
all
DECs
that
are
to
be
used
in
the
MECT
programs,
both
generators
and
users
of
such
DECs
must
certify
to
a
waiver
of
the
Federal
statute
of
limitations.
EPA
approval
is
also
required
when
DECs
generated
in
another
state
or
nation,
and
in
either
attainment
or
nonattainment
areas
(
other
than
the
HGB
nonattainment
areas)
are
requested
for
use
in
the
MECT
program.
Also,
as
provided
in
the
MECT
rule,
the
DECs
used
as
allowances
under
the
MECT
program
are
not
charged
the
10
percent
environmental
contribution
because
of
the
use
ratios
implemented
in
section
101.356(
h).

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

EPA's
responses
to
comments
submitted
by
Galveston­
Houston
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
DERC
administrative
record
(
EPA­
R06­
OAR­
2005­
TX­
0029).
In
commenting
on
the
DERC
program,
14
the
commenters
raise
no
concerns
about
pollutants
other
than
VOCs
(
including
highly
reactive
VOCs,
or
HRVOCs).
1
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
GHASP's
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
1
During
the
comment
period,
EPA
did
not
receive
comments
regarding
environmental
justice
and
the
DERC
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
DERC
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
DERC
program
does
not
raise
environmental
justice
concerns.
15
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
DERC
rule,
at
70
FR
58154,

describes
the
basis
for
EPA's
conclusion
that
the
DERC
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
DERC
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
DERC
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
101.372(
1)(
C).
Examples
of
the
approved
quantification
methods
for
VOC
DERC
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;
16
 
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
DERC
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
DERCs
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.
17
Comment
4:
EPA
should
find
that
it
is
premature
for
TCEQ
to
allow
trading
of
unquantifiable
emissions
of
VOC
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
DERC
rule
is
appropriate
notwithstanding
the
commenter's
concern
about
emissions
estimates,
because
the
DERC
program
satisfies
the
EIP
Guidance
criteria
for
quantification.
For
example,
sources
generating
and
banking
VOC
DERCs
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
a
DERC.
The
source
using
the
banked
reduction
also
must
calculate
the
amount
of
necessary
VOC
DERCs
using
the
approved
quantification
protocols.

The
TCEQ
Executive
Director
will
review
and
approve
each
requested
DERC
use
to
ensure
that
sources
using
DERCs
have
enough
credit
to
cover
their
use
strategy.
After
the
DERC
use
has
occurred,
sources
must
notify
TCEQ
of
the
number
of
DERCs
actually
used.
Sources
that
do
not
have
enough
DERCs
to
cover
their
actual
use
will
be
in
violation
of
the
DERC
program.

Additionally,
sources
that
do
not
obtain
sufficient
DERCs
in
advance
will
be
in
violation
of
the
program
and
TCEQ
has
the
authority
to
pursue
enforcement
actions.
Therefore,
EPA
believes
that
sources
using
the
approved
quantification
protocols
will
correctly
estimate
the
amount
of
DERCs
generated
and
used,
and
we
also
believe
that
the
program
is
designed
to
minimize
18
incorrect
emissions
estimates.
Further,
users
of
VOC
DERCs
must
also
purchase
and
retire
an
additional
ten
percent
VOC
DERCs
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
DERC
is
generated
and
used.
The
ten
percent
environmental
benefit
is
not
applicable
to
situations
where
VOC
DECs
are
used
in
lieu
of
NOx
MECT
allowances.
In
these
situations,
the
ten
percent
environmental
benefit
is
replaced
with
the
stringent
retirement
ratios
found
in
section
101.356(
h).

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
DERC
program
and
urges
EPA
to
finalize
its
approval
as
soon
as
practicable.

Response:
EPA
acknowledges
the
support
of
TIP
for
our
approval
of
the
DERC
program.

VI.
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.
19
VII.
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
conditionally
approves
State
law
as
meeting
Federal
requirements
and
imposes
no
additional
requirements
beyond
those
imposed
by
State
law.
If
the
conditional
approval
is
converted
to
a
disapproval
under
section
110(
k),
based
on
the
State's
failure
to
meet
the
commitment,
it
will
not
affect
any
existing
State
requirements
applicable
to
small
entities.
Federal
disapproval
of
the
State
submittal
does
not
affect
State
enforceability.
Moreover,
EPA's
disapproval
of
the
submittal
does
not
impose
any
new
requirements.
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
conditionally
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
(
Public
Law
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
20
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
conditionally
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
A
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.
section
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
21
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
A
major
rule
@

as
defined
by
5
U.
S.
C.
section
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
[
FEDERAL
REGISTER
OFFICE:
insert
date
60
days
from
date
of
publication
of
this
document
in
the
Federal
Register].
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).)
22
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.
23
40
CFR
part
52
is
amended
as
follows:

PART
52­­[
AMENDED]

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

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

Subpart
SS
­
Texas
2.
The
table
in
§
52.2270(
c)
entitled
"
EPA
Approved
Regulations
in
the
Texas
SIP"
is
amended
under
Chapter
101
 
General
Air
Quality
Rules,
Subchapter
H
 
Emissions
Banking
and
Trading,
by
adding
in
numerical
order
a
new
centered
heading
"
Division
4
 
Emission
Credit
Banking
and
Trading"
followed
by
new
entries
for
sections
101.370,
101.371,

101.372,
101.373,
101.374,
101.376,
101.378,
and
101.379.

The
additions
reads
as
follows:

§
52.2270
Identification
of
plan.

*
*
*
*
*

(
c)
*
*
*
24
EPA
Approved
Regulations
in
the
Texas
SIP
State
Citation
Title/
Subject
State
approval
/
submittal
date
EPA
approval
date
Explanation
Chapter
101
 
General
Air
Quality
Rules
*
*
*
*
*
*
*
Subchapter
H
 
Emissions
Banking
and
Trading
*
*
*
*
*
*
*
Division
4
 
Discrete
Emission
Credit
Banking
and
Trading
Section
101.370
Definitions
11/
10/
04
[
Insert
date
of
FR
publication]
[
Insert
FR
page
number
where
document
begins]
Section
101.371
Purpose
12/
13/
02
[
Insert
date
of
FR
publication]
[
Insert
FR
page
number
where
document
begins]
Section
101.372
General
Provisions
12/
13/
02
[
Insert
date
of
FR
publication]
[
Insert
FR
page
number
where
document
begins]
Section
101.373
Discrete
Emission
Reduction
Credit
Generation
and
Certification
11/
10/
04
[
Insert
date
of
FR
publication]
[
Insert
FR
page
number
where
document
begins]

Section
101.374
Mobile
Discrete
Emission
Reduction
Credit
Generation
and
Certification
11/
10/
04
[
Insert
date
of
FR
publication]
[
Insert
FR
page
number
where
document
begins]

Section
101.376
Discrete
Emission
Credit
Use
11/
10/
04
[
Insert
date
of
FR
publication]
[
Insert
FR
page
number
where
document
begins]
Subsection
101.376(
c)(
4)
NOT
in
SIP.

Section
101.378
Discrete
Emission
Credit
Banking
and
12/
13/
02
[
Insert
date
of
FR
publication]
[
Insert
FR
page
25
Trading
number
where
document
begins]
Section
101.379
Program
Audits
and
Reports
12/
13/
02
[
Insert
date
of
FR
publication]
[
Insert
FR
page
number
where
document
begins]
*
*
*
*
*
*
*
