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 106.020. (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 RESOURCES 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., NOx 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 nonattainment 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 106.110; 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