10 CSR 10-6.410 - Emissions Banking and Trading

PURPOSE: This rule provides a mechanism for companies to acquire offsets for economic development in accordance with section 643.220, RSMo. The evidence supporting the need for this proposed rulemaking, per section 536.016, RSMo, is section 643.220, RSMo.

(1) Applicability.

(A) The generation of emission reduction credits (ERCs) in conjunction with this rule is available to installations that meet the following requirements:

1. Emit more than ten (10) tons per year for a criteria pollutant or its precursors as reported on their Emissions Inventory Questionnaire;

2. Have an operating permit as specified in 10 CSR 10-6.065 Operating Permits; and

3. Are located within any of the following areas:

A. An area that has been designated as a nonattainment area for a criteria pollutant;

B. A maintenance area for a criteria pollutant in which emissions offsets are required for new sources or modifications by the state implementation plan (SIP); or

C. A United States Environmental Protection Agency (U.S. EPA) approved attainment or maintenance demonstration or New Source Review (NSR) preconstruction permit modeling domain, unless it is a violation of federal law.

(B) The buying, selling, or trading of ERCs in conjunction with this rule is available to all persons.

(C) The use of ERCs in conjunction with this rule is limited to the following:

1. Emissions offsets to satisfy New Source Review permitting requirements; or

2. For sources needing emission decreases from existing sources in their area of impact to mitigate air quality impacts from new sources or modifications under prevention of significant deterioration (PSD) requirements.

(2) Definitions.

(A) Activity level-The amount of activity at a source measured in terms of production, use, raw materials input, vehicle miles traveled, or other similar units that have a direct correlation with the economic output of the source and is not affected by changes in the emissions rate (i.e., mass per unit of activity).

(B) Definitions of certain terms specified in this rule, other than those defined in this section, may be found in 10 CSR 10-6.020.

(3) General Provisions.

(A) General Rules for Generation and Use.

1. To become an account holder, a person must complete an account application, as specified in subsection (4)(A) of this rule, and be assigned a unique account identification number by the Missouri Department of Natural Resources' Air Pollution Control Program.

2. Each account holder must designate an authorized account representative and an alternate authorized account representative on the account application.

3. Except as provided under paragraph (3)(B)2. of this rule, any source may generate an ERC by reducing emissions, in the amount determined under paragraph (3)(B)1. ERC generators must ensure that ERCs are real, properly quantified, permanent, and surplus.

4. There shall be no resulting adverse impact on air quality.

5. The director of the Missouri Department of Natural Resources' Air Pollution Control Program may not approve use of offsets where that use would interfere with the nonattainment control strategy contained in the Missouri State Implementation Plan.

6. Governmental approvals. No ERC can be transferred without prior notification of intent to transfer to the director of the Missouri Department of Natural Resources' Air Pollution Control Program. No ERC can be retired without prior notification of intent to use. ERCs that are used for NSR offsets shall have prior director approval.

7. Market participation. Any account holder may transfer, buy, sell, trade, or otherwise convey ERCs to another account holder in any manner in accordance with this rule.

8. Limited authorization to emit. An ERC created under this rule is a limited authorization to emit a criteria pollutant or its precursor in accordance with the provisions of this rule. An ERC does not constitute a property right. Nothing in this rule shall be construed to limit the authority of the Missouri Air Conservation Commission to terminate or limit such authorization.

9. Serial numbers. Each ERC will be assigned a unique identification number.

10. Shutdowns.

A. ERCs may be generated when a unit is shutdown or retired if the new replacement equipment is directly replacing the retired unit and the permit is applied for within one (1) year of the shutdown or retirement of the existing unit.

B. ERCs may be generated for entire installation shutdowns if the installation is located in an area where offsets are required by the state implementation plan and if the installation is defined as a major source for the pollutant or a precursor of the pollutant for which the area is classified. These ERCs shall be reduced by twenty-five percent (25%) and rounded to the nearest ton at the time of deposit into the generator's account.

C. In nonattainment areas lacking an approved attainment plan, banking of ERCs from shutdowns is subject to the provisions of 40 CFR 51.165(a)(3)(ii)(C), which is incorporated by reference.

11. Environmental contribution.

A. On December 31 of each year, the banked ERCs that were deposited in previous calendar years shall be reduced by three percent (3%).

B. The department shall deduct three percent (3%) of these ERCs from each account holders' banked ERCs. The remaining account balances shall be rounded down to the nearest ERC.

C. If the account holder wishes for specific serial numbered ERCs to be deducted for environmental contribution, a letter specifying the serial numbers must be received by the director of the Missouri Department of Natural Resources' Air Pollution Control Program by December 1 of each year.

D. On December 31 of each year, ERCs that have been reserved by an approved Notice of Intent to Use shall not be subject to the three percent (3%) environmental contribution.

E. In the event that ERCs are not taxed on December 31 due to being reserved and the ERCs are subsequently reinstated, a three percent (3%) environmental contribution shall be deducted at that time for each year that the ERCs were reserved and would have been subject to the environmental contribution.

12. ERCs shall be used on a first-in, first-out basis, unless specific serial numbers are included in the Notice of Intent to Use, Notice of Withdrawal, Notice of Intent to Transfer, or at the time of environmental contribution as specified in subparagraph (3)(A)11.C. of this rule. If serial numbers are not specified, the oldest ERCs in an account shall be reserved and/or retired first.

13. The trading or use of ERCs in a modeling domain may be based on modeling performed on a concentration basis.

(B) ERC Generation.

1. Computation of ERCs.

A. The number of ERCs shall be the difference between-

(I) The amount of actual emissions that would have been emitted during the generation period based on actual activity levels during that period and normal source operation; and

(II) The amount of actual emissions during the generation period based on actual activity levels during that period.

B. Protocols. The amount of ERCs must be calculated using quantification protocols that meet the requirements of paragraph (3)(B)7. of this rule.

2. Limitations on generation. An ERC shall not be created by emissions reductions of activities or source categories identified in this subsection:

A. Permanent shutdowns or curtailments, unless it meets the requirements of paragraph (3)(A)10. of this rule;

B. Modification or discontinuation of any activity that is otherwise in violation of any federal, state, or local requirements;

C. Emission reductions required to comply with any state, federal, or local action including but not limited to:

(I) State, federal, or local consent agreements;

(II) Any provision of a state implementation plan; or

(III) Requirements for attainment of a National Ambient Air Quality Standard;

D. Emission reductions of hazardous air pollutants from application of a standard promulgated under section 112 of the Clean Air Act;

E. Reductions credited or used under any other emissions trading program;

F. Emission reductions occurring at a source which received an alternate emission limit to meet a state reasonably available control technology (RACT) requirement, except to the extent that the emissions are reduced below the level that would have been required had the alternate emission limit not been issued; or

G. Emission reductions previously used in determining net emission increases or used to create alternate emission limits.

3. Notice and Certification of Generation.

A. The owner or operator of a generator source shall provide a Notice and Certification of Generation to the Missouri Department of Natural Resources no later than ninety (90) days after the ERC generation activity was completed.

B. Required information. The Notice and Certification of Generation shall include the information specified in subsection (4)(B) of this rule.

C. The department shall review the Notice of Generation and notify the authorized account representative of approval or denial of the Notice of Generation within thirty (30) days of receipt of the notice.

D. The Notice and Certification of Generation shall be accompanied by an operating permit modification application.

E. Certification under penalty of law. Any Notice and Certification of Generation submitted pursuant to this subsection shall contain certification under penalty of law by a responsible official of the generator source of truth, accuracy, and completeness. This certification shall state that based on information and belief formed after reasonable inquiry, the statements and information in the document are true, accurate, and complete.

4. ERC use.

A. Time of acquisition. ERCs may not be used until they are acquired by the user source.

B. Sufficiency. The user source must hold sufficient ERCs to cover its offset obligation.

C. Offset calculation. The amount of ERCs needed to offset emissions shall be the anticipated actual emissions multiplied by the offset ratio.

D. Notice of Intent to Use ERCs.

(I) ERCs may be used only if the authorized account representative of the user source submits to the staff director of the Missouri Department of Natural Resources' Air Pollution Control Program a Notice of Intent to Use.

(II) Required information. The Notice of Intent to Use ERCs shall include the information specified in subsection (4)(C) of this rule.

(III) The department shall review the Notice of Intent to Use and notify the facility of approval or denial within thirty (30) days of receipt of the notice.

(IV) The Missouri Department of Natural Resources' Air Pollution Control Program shall reserve the specified ERCs when the permit application is deemed complete by the Initial Review Unit.

(V) Upon issuance of the construction permit, the appropriate number of reserved ERCs shall be permanently retired.

E. Notice of Withdrawal.

(I) An account holder may at any time withdraw ERCs from the program.

(II) Required information. The Notice of Withdrawal shall include the information specified in subsection (4)(D) of this rule.

(III) The department shall review the Notice of Withdrawal and notify the facility of approval or denial within thirty (30) days. Upon approval, the specified ERCs shall be removed from the facility's account.

F. Notice of Transfer.

(I) Account holders seeking an account transfer must submit a Notice of Transfer.

(II) Required information. The Notice of Transfer shall include the information specified in subsection (4)(E) of this rule.

(III) The department shall review the Notice of Transfer and notify the facilities of approval or denial within thirty (30) days. Upon approval, the specified ERCs shall be transferred to the specified account.

5. Use limitations. ERCs may not be used-

A. Before acquisition by the user of the ERCs;

B. For netting or to avoid the applicability of NSR requirements;

C. For NSR offsets unless the requirements of paragraph (3)(B)8. of this rule are met;

D. To meet Clean Air Act requirements for new source performance standards (NSPS) under section 111; lowest achievable emission rate (LAER) standards; best available control technology (BACT) standards; hazardous air pollutant (HAP) standards under section 112; reasonably available control technology (RACT);

E. To meet the requirements for one (1) class of criteria pollutants or precursor by using ERCs generated in a different class of pollutants or precursors (e.g., NO_x reductions may not be exchanged for volatile organic compound (VOC) increases, or vice-versa); or

F. To meet requirements contained in Title IV of the Federal Clean Air Act.

6. Geographic scope of trading.

A. ERCs may be used in a nonattain-ment or maintenance area only if generated in the same nonattainment or maintenance area.

B. ERCs generated inside a modeling domain may be used in the same modeling domain. Trading of ERCs within a modeling domain is subject to the limitations of subparagraph (3)(B)6.A. of this rule.

C. Interstate trading. (Reserved)

7. Protocol development and approval. To quantify the amount of ERCs generated and the amount needed for compliance, all sources shall use the following hierarchy as a guide to determine the most desirable emission data to report to the department. If data is not available for an emission estimation method or an emission estimation method is impractical for a source, then the subsequent emission estimation method shall be used in its place:

A. Continuous Emission Monitoring System (CEMS) as specified in 10 CSR 10-6.110;

B. Stack tests as specified in 10 CSR 10-6.110;

C. Material/mass balance;

D. AP-42 (Environmental Protection Agency (EPA) Compilation of Air Pollution Emission Factors) or FIRE (Factor Information and Retrieval System);

E. Other U.S. EPA documents as specified in 10 CSR 10-6.110;

F. Sound engineering calculations; or

G. Facilities shall obtain department approval of emission estimation methods other than those listed in subparagraphs (3)(B)7.A.-F. of this rule before using any such method to estimate emissions in the submission of data.

8. ERC use for NSR. All ERCs used to meet NSR offset requirements shall comply with the requirements of state rule 10 CSR 10-6.060 Construction Permits Required.

9. Compliance burden.

A. The ERC user source is responsible for assuring that the generation and use of ERCs comply with this rule.

B. The ERC user source (not the enforcing authority) bears the burden of proving that ERCs used are valid and sufficient and that the ERC use meets all applicable requirements of this rule. The ERC user source is responsible for compliance with its underlying obligations. In the event of enforcement against the user source for non-compliance, it shall not be a defense for the purpose of determining civil liability that the user source relied in good faith upon the generator source's representations.

C. In the event of an invalid ERC, the generator source shall receive a Notice of Violation and the ERC user must find additional ERCs to comply with offset requirements.

10. Sources that emit less than ten (10) tons per year. (Reserved)

(C) Offsets. Offsets referred to in 10 CSR 10-6.060 subsection (7)(B) are subject to the following conditions:

1. Except for previously banked emission reduction credits, no offset credit may be taken for emission reductions occurring prior to the base year used to project attainment of the pollutant standard in the state implementation plan; and

2. No offset credit may be taken for emission reductions previously used in determining net emission increases or used to create alternate emission limits.

(D) Banking. Banking credit for emission reductions to use as offsets, at some future time, shall be allowed under the following circumstances:

1. The person requesting banking is the owner or operator of:

A. A new or modified installation who obtains a permit by applying offsets which exceed the requirements of 10 CSR 10-6.060; or

B. An existing installation in an area where offsets are required by the state implementation plan and that voluntarily reduces emissions of the pollutant or a precursor of the pollutant for which the area is classified after the base year used in the state implementation plan;

2. For source operations in the nonattainment areas for which reasonably available control technology (RACT) would be required, but as yet has not been defined, actual emission levels shall be reduced to represent post-RACT levels. The control technology assumed for these calculations shall be mutually agreed upon by the applicant and the director of the Missouri Department of Natural Resources' Air Pollution Control Program. Only emission reductions beyond the post-RACT emissions levels will be creditable;

3. Credit for emission reductions beyond those that were required by RACT or paragraph (3)(D)2. of this rule at a shutdown installation and that are in excess of those needed to offset a replacement installation can be banked;

4. It shall be a violation of this rule for any person to operate a source operation from which banked credit for emission reductions was obtained so as to emit the pollutant at levels greater than identified in the offset calculation referred to in subparagraph (3)(B)4.C. of this rule, unless the person who banked credit for the reductions, or their transferee, first files a notice with the director of the Missouri Department of Natural Resources' Air Pollution Control Program stating that credit for the reductions or a part of the credit is being withdrawn from the bank, and credit has not previously been withdrawn; and

5. The amount of banked emission reduction credits shall be discounted without compensation to the holder in the applicable source category when new rules requiring emission reductions are adopted by the commission. The amount of discounting of banked emission reduction credits shall be calculated on the same basis as the reductions required for existing sources which are subject to the new rule. A portion of banked credits, equivalent to the anticipated required reductions may be temporarily frozen by the director of the Missouri Department of Natural Resources' Air Pollution Control Program in anticipation of a new rule being adopted by the commission. This paragraph, however, shall not apply to emission reductions, discounted at the time of banking in accordance with paragraph (3)(D)2. of this rule, unless the new rule provides for the replacement of RACT with BACT or another more stringent level of control.

(4) Reporting and Record Keeping.

(A) The Account Application shall include the following information, submitted on a form supplied by the Missouri Department of Natural Resources:

1. The name and address of account holder;

2. Authorized account representative and alternate authorized account representative; and

3. County plant identification number (if applicable).

(B) The Notice and Certification of Generation shall include the following information, submitted on a form supplied by the Missouri Department of Natural Resources:

1. Account identification number;

2. Date generating activity was completed;

3. A brief description of the generation activity;

4. The amount of ERCs generated;

5. Affected emission units;

6. The protocols that were used to calculate and document the ERCs;

7. Information on all the generator source's applicable emission rates;

8. A statement that the reductions were calculated in accordance with paragraph (3)(B)1. of this rule;

9. A statement that the ERCs were not generated in whole or in part from actions prohibited pursuant to paragraph (3)(B)2. of this rule;

10. For each source subject to reporting toxic chemical releases for the Community Right-to-Know provisions under 40 CFR part 372, the estimated amount of hazardous air pollutants, as defined below, emitted to the air as the result of the generation of the ERC.

A. A pollutant shall be reported under this paragraph, only if it is listed both in 40 CFR 372.65 and section 112(b) of the Clean Air Act, and a chemical which the source is reporting or expects to report under 40 CFR part 372 for the calendar year in which the ERC was generated.

B. The requirements in 40 CFR 373.30(b) shall be followed for the notice.

C. The exemptions listed in 40 CFR 372.38 for determining the amount of release to be reported under 40 CFR 372.30 shall also be exemptions for determining the amount emitted under this subsection.

D. The notice shall include:

(I) The name and Chemical Abstracts Service (CAS) number (if applicable) of the chemical reported;

(II) If the chemical identity is claimed trade secret under 40 CFR 372, a generic name for the chemical as reported under 40 CFR 372.85(b)(11);

(III) A mixture component identity if the chemical identity is not known; and

(IV) An estimate of total air emissions, in pounds, for the relevant time period of ERC generation. Releases of less than one thousand (1,000) pounds may be indicated in ranges.

11. Signature of authorized account representative and the signature of an official responsible for the truth, accuracy, and completeness of the notice.

(C) The Notice of Intent to Use ERCs shall include the following information submitted on a form supplied by the Missouri Department of Natural Resources:

1. The name of the facility;

2. The emissions unit and the applicable pollutant;

3. Account identification number;

4. The date(s) on which the ERCs were acquired;

5. The amount of ERCs used and the associated serial numbers;

6. The applicable state and federal requirements that the ERCs were used to comply with;

7. The emissions quantification protocols that were used to calculate the amount of ERCs required to demonstrate compliance and documentation for the compliance calculation under paragraph (3)(B)7. of this rule;

8. A statement that due diligence was made to verify that the ERCs were not previously used and not generated as a result of actions prohibited under this regulation or other provisions of law;

9. A statement that the ERCs were not used in a manner prohibited under this regulation or other provisions of law;

10. For each source subject to reporting toxic chemical releases for the Community Right-to-Know provisions under 40 CFR part 372, the estimated amount of hazardous air pollutants emitted to the air as the result of the use of the ERC to meet otherwise applicable requirements. The estimated amount shall include emissions increases and any emission reductions used for ERCs instead of non-ERC compliance with otherwise applicable requirements. The same procedures shall be followed as the similar requirement under the Notice and Certification of Generation; and

11. Signature of authorized account representative and the signature of an official responsible for the truth, accuracy, and completeness of the notice.

(D) The Notice of Withdrawal shall include the following information submitted on a form supplied by the Missouri Department of Natural Resources:

1. The name of the facility;

2. The emissions unit and the applicable pollutant;

3. Account identification number;

4. The serial numbers of the ERCs to be withdrawn;

5. The reason for the withdrawal;

6. A copy of the Notice and Certification of Generation submitted by the generator source to the state; and

7. Signature of authorized account representative and the signature of an official responsible for the truth, accuracy, and completeness of the notice.

(E) The Notice of Transfer shall include the following information submitted on a form supplied by the Missouri Department of Natural Resources:

1. The name of the account holder that is trading the ERCs;

2. The name of the account holder that is receiving the ERCs;

3. Account identification number;

4. The amount of ERCs to be transferred and the associated serial numbers and applicable pollutants;

5. A statement that due diligence was made to verify that the ERCs were not previously used and not generated as a result of actions prohibited under this regulation or other provisions of law; and

6. Signature of authorized account representatives from both accounts signifying that both account holders agree to the requested transfer.

(F) The generator source shall document the protocol and specific data by which an ERC is quantified. Generator sources shall transfer all such documentation to any transferee at the time that ownership of an ERC is transferred. The user source shall document the protocol and specific data by which the amount of ERCs needed for compliance was determined. The user source shall maintain all relevant documentation for a minimum of five (5) years after an ERC is used for compliance. Records shall be kept with at least the same frequency as required for the underlying requirement.

(5) Test Methods. (Not Applicable)

Notes

10 CSR 10-6.410

AUTHORITY: sections 643.050 and 643.220, RSMo Supp. 2011.* Original rule filed Aug. 2, 2002, effective April 30, 2003. Amended: Filed May 17, 2004, effective Dec. 30, 2004. Amended: Filed Oct. 15, 2008, effective July 30, 2009. Amended: Filed Jan. 31, 2012, effective Sept. 30, 2012.

*Original authority: 643.050, RSMo 1965, amended 1972, 1992, 1993, 1995, 2011 and 643.220, RSMo 2001, amended 2002.