SCAQMD RULE 2506 AREA SOURCE CREDITS FOR NOx AND SOx
LAST REVISED 04/11/97

(Adopted April 11, 1997)

RULE 2506. AREA SOURCE CREDITS FOR NOx AND SOx

(a) Purpose

The purpose of this rule is to encourage emission reductions and technology advancement for unpermitted sources, provide incentives for the accelerated turnover of old, higher-emitting equipment, and generate low-cost NOx and SOx emission credits. Emission credits created under this program may be used as an alternate means of compliance with specified District regulations in order to reduce the cost of achieving attainment of the national and state ambient air quality standards.

(b) Applicability

The provisions of this rule apply to area sources of NOx and/or SOx and become effective April 11, 1997.

(c) Definitions

  1. ACTIVITY LEVEL is the amount of activity of the area source during the emission reduction strategy.

  2. AREA SOURCE means any NOx or SOx emitting activity occurring from a non-mobile source within the District which is not subject to District or state permitting or registration requirements and includes but is not limited to processes or equipment not requiring a permit or exempt from written permit pursuant to Rule 219 - Equipment Not Requiring a Written Permit Pursuant to Regulation II.

  3. AREA SOURCE CREDIT (ASC) represents the amount stated in pounds per year of emission reduction credit from an area source. An ASC does not constitute a security or other form of property, but may be used as collateral or security for indebtedness.

  4. BASELINE EMISSION RATE means the lowest of:

    (A) The emission rate allowed by the most stringent regulatory requirement applicable to the source; or

    (B) The emission rate in an applicable Air Quality Management Plan (AQMP) Control Measure with implementation dates contemporaneous with the emission reduction; or

    (C) The median emission rate of a representative sample of the sources in the source category; or

    (D) The documented actual historical emission rate, averaged over the two years preceding either the date of initial Pre-ASC Plan or ASC Plan submittal or the emission reduction, whichever is earlier, of (a) the source retrofitted or replaced, or (b) achieved in practice by the specific product or model type produced by the manufacturer for the case of new sales or new installation.

    In addition, the baseline emission rate shall be established to ensure that all ASCs issued represent surplus emission reductions.

  5. EMISSION REDUCTION DURATION is the length of time during which the emission reduction strategy results in verifiable and surplus emission reductions.

  6. ENFORCEABLE means that the District has determined that credible and relevant evidence exists throughout the emission reduction duration with which to evaluate compliance with the terms and conditions of this rule.

  7. FUNCTIONALLY IDENTICAL REPLACEMENT means the replacement of an area source where the replacement area source serves the identical or similar function as the area source being replaced.

  8. INDEPENDENT TESTING LABORATORY means a testing laboratory that meets the requirements of District Rule 304.

  9. PERMANENT means that the area source reduction in emissions will exist for the entire emission reduction duration.

  10. POST-REDUCTION EMISSION RATE means the emission rate of the area source after implementation of the emission reduction strategy.

  11. QUANTIFIABLE means that the quantity of area source emission reductions can be measured or estimated by accurate and replicable techniques. These techniques shall be at least as accurate and replicable as the techniques accepted by the United States Environmental Protection Agency (EPA) for State Implementation Plan (SIP) purposes.

  12. REAL means that the emission reduction constitutes an actual decrease in air emissions.

  13. RESPONSIBLE OFFICIAL means:

    (A) For a corporation: a president, secretary, treasurer or vice president of the corporation in charge of a principal business function, or a person who performs similar policy-making functions for the corporation;

    (B) For a partnership or sole proprietorship: general partner or proprietor, respectively;

    (C) For a municipality, state or federal or other public agency: a principal executive officer or ranking elected official; and

    (D) For a private individual: the private individual.

  14. SURPLUS means that the emission reductions achieved throughout the duration of the emission reduction activity are not required or assumed by any local, state, or federal rule, regulation, or the most recent locally approved AQMP. If the control efficiency (emissions control level) in the most recent locally approved AQMP is less stringent than control efficiency in the most recent federally approved SIP for a specific source category, then surplus emission reductions are based on the federally approved SIP unless otherwise determined by EPA.

(d) Eligibility Requirements

  1. The following persons shall be eligible to request ASCs:

    (A) The owner of the area source from which emissions are reduced;

    (B) The manufacturer, when ASCs are generated from the sale of equipment; or

    (C) A person who has been given written authorization to apply for the ASCs by a person who meets the eligibility requirements.

  2. An emission reduction from an area source shall meet all of the following criteria in order to be eligible to generate ASCs:

    (A) The activity causing the emission reduction shall commence on or after January 1, 1991;

    (B) The emission reduction shall occur within the South Coast Air Basin;

    (C) The emission reduction shall be real, quantifiable, permanent, enforceable and surplus;

    (D) The area source providing the emission reduction shall be in compliance with all applicable EPA, ARB, and District rules and regulations;

    (E) The emission reduction shall not result from a shutdown of a source or production decrease. Functionally identical replacement of a similar source shall not constitute a shutdown;

    (F) The emission reduction shall not result from electricity conservation other than conservation of electricity from non-permitted on-site generation;

    (G) No credit has been or shall be taken for the emission reduction under any other program, rule or regulation; and

    (H) Reductions of RECLAIM pollutants at RECLAIM facilities shall not be eligible to generate ASCs.

(e) Pre-ASC Plans

  1. In order to assure the amount of credits that may be obtained from a proposed project, applicants should submit a Pre-ASC Plan. The Pre-ASC Plan shall include:

    (A) Project Eligibility

    A description of the ASC activity and a demonstration of eligibility which documents compliance with this rule;

    (B) Preliminary Protocol for Emission Reduction Quantification

    The preliminary protocol for emission reduction quantification shall include:

    (i) Frequency and content of periodic compliance verification report submittals to document activity level and emission rate reductions;

    (ii) Preliminary documentation of the occurrence and extent of the emission reduction, including but not limited to:

    (I) Baseline emission rate;

    (II) Number of equipment replacements or other anticipated actions resulting in emission reductions;

    (III) Method of determining annual activity level for each reporting period over the life of the project. Methods may include, but are not limited to, use of average activity levels, tracking the quantity of units sold for use within the District each year, or fuel use records; and

    (IV) Anticipated post-reduction emission rate; and

    (iii) Documentation of the basin-wide average usage level, when applicable.

    (C) Demonstration of compliance with the requirements of this rule.

  2. An approved Pre-ASC Plan shall become invalid when any information upon which approval is based becomes invalid or three years after Pre-ASC Plan approval, whichever is earlier.

(f) ASC Plans

  1. An ASC Plan shall be submitted in a format specified by the Executive Officer and shall contain the following information in order to be deemed complete and ready for District processing:

    (A) Project Eligibility

    A description of the ASC activity and a demonstration of eligibility which documents compliance with this rule;

    (B) Protocol for Emission Reduction Quantification

    (i) Frequency and content of periodic compliance verification report submittals to document activity level and emission rate reductions;

    (ii) Documentation of the occurrence and extent of the emission reduction, including but not limited to:

    (I) Baseline emission rate;

    (II) Number of equipment replacements or other actions resulting in emission reductions;

    (III) Method of determining annual activity level for each reporting period over the life of the project. Methods may include, but are not limited to, tracking the quantity of units sold for use within the District each year, or fuel use records; and

    (IV) Post-reduction emission rate; and

    (iii) Documentation of the basin-wide average usage level, when applicable.

    (C) Credit Calculation

    (i) Credit calculation pursuant to the protocol for emission reduction quantification.

    (ii) Data used for emission quantification, including as applicable but not limited to:

    (I) Source test reports; and

    (II) Sample analysis.

    (D) Compliance Verification Report

    The Compliance Verification Report shall include but not be limited to:

    (i) Annual certification of activity level;

    (ii) Certification, signed under penalty of perjury by a responsible official, that all information in the ASC Plan (or approved Pre-ASC Plan) and Compliance Verification Report is true and correct; and

    (iii) Request for specific number of pounds of credits.

    (E) Approved Pre-ASC Plans

    Applicants with approved pre-ASC plans are only required to submit the following:

    (i) Update to the preliminary protocol for emission reduction quantification, including but not limited to the actual post-reduction emission rate;

    (ii) Credit calculation, including all items described in subparagraph (f)(1)(C); and

    (iii) Compliance verification report, including all items described in subparagraph (f)(1)(D);

  2. An ASC Plan for emission reductions occurring as a result of actions performed on or after April 11, 1997 shall be submitted within ninety days of project termination or the end of the first twelve-month period of the emission reduction activity, whichever is sooner, unless otherwise provided in an approved Pre-ASC Plan.

  3. An ASC Plan for emission reductions occurring as a result of actions performed prior to April 11, 1997 shall be submitted to the District no later than July 10, 1997.

(g) Protocol for Emission Reduction Quantification

The quantity of ASCs issued for an emission reduction shall be calculated according to the following formula for each pollutant for each year for which ASCs are sought:

ASCyear i

=

[Baseline Emission Rateyear i - Post-Reduction Emission Rate] x Activity Levelyear i

Where:

ASCyear i

=

Area Source Credits for year I

Baseline Emission Rateyear i

=

Baseline emission rate in year I

Activity Levelyear i

=

Activity level of the area source in year i

  1. Baseline Emission Rate and Post-Reduction Emission Rate

    The baseline emission rate and post-reduction emission rate shall be expressed as a mass of emissions per unit of production or throughput. The baseline emission rate shall be determined separately for each year for which ASCs are requested. The following methods shall be used to quantify the baseline and post-reduction emission rates:

    (A) Calculations Using Emission Rate from Table 1

    The baseline emission rate and/or post-reduction emission rate for any source represented by a category with an emission rate listed in Table 1 shall be quantified using the emission rate identified in Table 1 for that category unless the emission rate in Table 1 does not constitute the baseline emission rate as defined in paragraph (c)(4) or is not representative of the post-reduction emission rate.

    (B) Calculations Using Test Method from Table 1

    If Table 1 does not include an emission rate for the source category or the emission rate in Table 1 does not constitute the baseline emission rate as defined in paragraph (c)(4) or is not representative of the post-reduction emission rate, then the ASC applicant shall quantify the baseline emission rate and/or the post-reduction emission rate by emissions testing conducted by an independent testing laboratory pursuant to the test method identified in Table 1 for the source category. The independent testing laboratory must be approved by the District’s Laboratory Approval Program for the test method identified in Table 1. The Executive Officer shall not approve the test results unless the tests meet the following criteria:

    (i) When testing is conducted to characterize a category or population of sources, the quantity and diversity of sample sources selected for testing shall reflect the variation within the category or population. In no case shall the Executive Officer approve testing of either:

    (I) fewer than three sources; or

    (II) prototype units.

    (ii) Any category or population of sources for which emissions are determined by extrapolating the results of emission testing shall be defined with a level of specificity adequate to ensure that the sources tested are representative of the category or population. Both actual emissions and any applicable emission standards shall be considered when defining a category or population of sources.

    (iii) A minimum of three tests which are determined to be valid by the Executive Officer shall be conducted on each source tested. The mean of all valid tests conducted on all sources tested shall be used for purposes of quantifying baseline emission rates and post-reduction emission rates.

    (iv) The tests were conducted no more than two years prior to the date of initial Pre-ASC Plan or ASC Plan submittal.

    (C) Calculations Not Using Table 1

    For sources not referenced in Table 1, the applicant shall develop a source-specific procedure for emission reduction quantification. All testing conducted pursuant to the procedure shall be performed by an independent testing laboratory approved by the Executive Officer for the test method specified in the procedure or, if the Executive Officer chooses, by the District laboratory. Only procedures which have been approved for the source category by the Governing Board, EPA and ARB as meeting all of the criteria identified for calculations using test methods from Table 1 as well as the following criteria are eligible to quantify baseline emission rates and post-reduction emission rates for purposes of generating ASCs pursuant to this subparagraph:

    (i) All procedures proposed for quantification of emission rates for the generation of ASCs shall include identification of all applicable rules and regulations, including rules and regulations with future effective dates.

    (ii) Standardized test methods shall be used whenever available and appropriate.

    (D) Determination of Baseline Emission Rate

    In cases where Table 1 does not identify a baseline emission rate for a source category or the rate in Table 1 needs to be updated to continue to meet the definition of baseline emission rate, the rate shall be determined considering the median emission rate of products in use, or the median emission rate of products available for sale, or other emission rate, whichever rate is necessary to ensure ASCs issued represent surplus emission reductions. The use of emission rates which deviate from Table 1 pursuant to this paragraph, other than historical emission rates, must be approved by the Governing Board prior to approval of an ASC Plan.

  2. Activity Level

    (A) Activity level shall account for any change in material or fuel consumption which:

    (i) Is due to the use of the emission reduction strategy; and

    (ii) Impacts the quantity of emissions generated per unit of production.

    (B) The annual activity level for emission reductions resulting from sale, installation, or use of low-emission products shall be based on:

    (i) The documented actual quantity of low-emission products sold, installed, or used in that year within the South Coast Air Basin; and

    (ii) The basin-wide annual average usage level.

    The basin-wide annual average usage level shall be used to establish the annual activity level only for projects involving the sale of numerous low-emitting devices with an extended life and which cannot be tracked individually, including but not limited to residential appliances.

  3. Emission Reduction Duration

    The emission reduction duration used to determine the number of years for which ASCs are issued shall be the emission reduction duration approved by the Executive Officer in accordance with federal and state guidance and the following criteria:

    (A) The average useful life of sources in the source category;

    (B) Any applicable rule or regulation with a future-effective compliance date;

    (C) Any AQMP assumptions or Control Measure specifying future applicable emission reductions; and

    (D) Any other consideration specific to the ASC Plan.

(h) Review and Approval of Pre-ASC Plans and ASC Plans

  1. The Executive Officer shall provide copies of each Pre-ASC Plan to ARB and EPA for review and comment. Within 45 days of receipt of a Pre-ASC Plan, the District will review the protocol with the applicant.

  2. The Executive Officer shall provide copies of each ASC Plan and the District’s evaluation, excluding ASC Plans submitted pursuant to approved Pre-ASC Plans, to the ARB and the EPA for review and comment. The District shall not approve ASC Plans submitted for emission reductions occurring prior to April 11, 1997 if EPA or ARB provides the District with written objection within 45 days of receipt from the District.

  3. Approval, or the changes necessary to secure approval, of a Pre-ASC Plan will be provided to the applicant within 90 days of a complete submittal unless the protocol for emission reduction quantification needs to be submitted to EPA and ARB for approval.

  4. If the ASC Plan is submitted pursuant to an approved Pre-ASC Plan, the Executive Officer shall approve or deny the ASC Plan within thirty days of receipt of the ASC Plan.

  5. ASC Plans shall only be approved for projects which meet one of the following criteria:

    (A) The emission reductions have occurred prior to ASC Plan approval; or

    (B) The action which will result in the emission reduction has occurred prior to ASC Plan Approval and it is reasonably certain that the emission reduction will occur as described in the ASC plan. Only projects which meet all of the following criteria are eligible for ASC Plan approval pursuant to this subparagraph:

    (i) Prior District experience with the emission reduction strategy demonstrates that it is reliable and achieves predictable results and the source is not subject to significant fluctuations in throughput or usage; and

    (ii) Once the emission reduction strategy has been implemented or equipment installed there is no financial incentive for the operator to discontinue its use or remove it.

  6. For each ASC Plan, the Executive Officer shall determine the need for, and extent of, periodic compliance verification to document the activity level and that the emission reduction continues to meet the eligibility criteria for ASCs. Where the Executive Officer determines that periodic compliance verification is appropriate, the Executive Officer shall place enforceable conditions in the ASC Plan requiring the applicant to submit compliance verification and specifying the frequency and content of the submittals. The determination shall be based on the following criteria:

    (A) The extent to which the emission control strategy has been implemented and demonstrated to perform under actual use conditions similar to the use conditions in the ASC project;

    (B) The amount of emission reduction claimed per individual source;

    (C) The extent to which the quantity of emission reductions may vary on an annual or periodic basis;

    (D) The probability that the performance of the emission reduction strategy will deteriorate over time; and

    (E) The maintenance requirements of the sources generating the emission reductions and of the control strategy.

  7. Each Pre-ASC Plan or ASC Plan approval shall be subject to enforceable conditions specified by the Executive Officer, which shall include but not be limited to:

    (A) Recordkeeping requirements pursuant to subdivision (l) sufficient to verify the emission reduction, including the activity level, baseline emission rate, post-reduction emission rate and emission reduction duration;

    (B) Conditions requiring the applicant to submit periodic compliance verification if required pursuant to this subdivision; and

    (C) Any other conditions necessary to ensure enforceability of the Plan.

(i) ASC Issuance

  1. The Executive Officer shall issue the ASCs to the applicant at the time of ASC Plan approval, except in the case of ASC activities requiring periodic compliance verification. For such activities, the ASCs corresponding to the time period covered by each compliance verification submittal shall be issued upon review and approval of the submittal, as specified in the approved ASC Plan.

  2. ASCs shall be:

    (A) issued for the calendar year or fiscal (July through June) year following the year in which the emission reductions occurred; and

    (B) denominated in units of pounds per specific calendar or fiscal year.

  3. The amount of ASCs issued for a particular reduction will equal the amount of emission reductions which the Executive Officer has verified and determined to be eligible for credit pursuant to this rule.

(j) Trading of ASCs

  1. The Executive Officer shall maintain an ASC Listing specifying all ASCs held by each person. The listing is the official and controlling record of ASC holdings. The Executive Officer shall amend the ASC Listing upon any of the following actions:

    (A) ASC transfer;

    (B) ASC use;

    (C) Change of name of an ASC holder; or

    (D) Expiration of unused ASCs.

  2. Any person may acquire ASCs through purchase, trade or other means of transfer from any person who holds ASCs. The following requirements shall govern the transfer of ASCs:

    (A) The transfer of ASCs shall be effective only upon amendment by the Executive Officer of the ASC Listing;

    (B) The Executive Officer shall not amend the ASC Listing unless the seller and buyer have jointly filed a Registration of ASC Transfer. The Registration of ASC Transfer shall include, but not be limited to, the following information:

    (i) Identification of the seller and buyer;

    (ii) ASC issuance date;

    (iii) The quantity of credits for each pollutant;

    (iv) The transaction date and the date on which the transfer is to be effective; and

    (v) The price per pound of emissions, if sold.

    (C) Joint registration may be submitted by an agent, broker or other intermediary representing the buyer and seller.

(k) Use of ASCs

ASCs may be used only in the specific calendar or fiscal year in which they are denominated, unless another District rule explicitly authorizes a different time frame for use of ASCs. ASCs may not be applied towards compliance with federal requirements that do not authorize compliance through emissions trading including those promulgated by EPA as authorized under Title 42, Section 7412(d) and those subsections of 7511b of the U.S. Code that do not authorize compliance through emissions trading. ASCs may be used as:

  1. RECLAIM Trading Credits (RTCs). The Executive Officer shall allow the conversion of NOx and SOx ASCs to NOx and SOx RTCs. Each ten pounds of ASCs converted shall generate nine pounds of RTCs. ASCs converted to RTCs may be held in either certificate or allocation RTC accounts; and

  2. An alternative means of compliance as provided in any other District rule or regulation which explicitly authorizes the use of ASCs. Use of ASCs pursuant to any other District rule or regulation prior to approval by EPA into the SIP of such rule or regulation may be subject to enforcement action pursuant to the federal Clean Air Act.

(l) Recordkeeping Requirements

  1. ASC applicants shall be responsible for storing and maintaining records documenting the activities and emission reductions for which ASCs are granted. The records shall at a minimum include sufficient information to substantiate the emission reductions identified in the ASC Plan. The record shall include, but not be limited to, all of the following which are applicable:

    (A) Quantity of fuel or material processed, used or applied;

    (B) Quantity of product produced;

    (C) Hours of operation;

    (D) Sulfur content of fuel, raw materials, or products;

    (E) Quantity of units sold for use within the South Coast Air Basin; and

    (F) Any additional documentation identified in the Pre-ASC Plan or ASC Plan.

  2. The records shall be maintained by the ASC applicant for at least five years from the date of ASC issuance or generation, whichever is later.

(m) Compliance Auditing and Enforcement

  1. The ASC applicant shall submit any files or records created to comply with the recordkeeping requirements of this rule to the Executive Officer, EPA, and ARB upon request.

  2. Violation of any provision of this rule, including but not limited to falsification of information in a plan or of records maintained pursuant to the recordkeeping requirements, shall be subject to the penalties specified in the California Health and Safety Code for violation of District rules and shall be grounds for the Executive Officer to take one or more of the following actions:

    (A) Disapprove the plan;

    (B) Revoke ASCs issued to the applicant which have not been transferred to another person; and/or

    (C) Require the applicant to acquire and retire an equivalent or greater amount of ASCs or other emission reduction credits as restitution.

  3. Each day that an applicant violates a provision of this rule or a provision of an approved Plan shall constitute a separate day of violation.

(n) Program Audits

  1. On or before March 1998 and annually thereafter, the Executive Officer shall present an audit report to the Governing Board, either separately or as part of an audit on market incentive programs, which includes the following information on the issuance of ASCs pursuant to this rule:

    (A) The types of parties to whom the ASCs were issued;

    (B) The types of sources from which emissions were reduced;

    (C) The types of emission reduction strategies used;

    (D) The amount of ASCs issued;

    (E) Trading of ASCs, including prices;

    (F) The use of ASCs;

    (G) Any proposed adjustments or additions to the emission rates in Table 1;

    (H) An evaluation of whether the recordkeeping and enforcement provisions of this rule have produced a strong compliance program and adequate deterrence of violations;

    (I) An evaluation of the potential for the ASC program to encourage an increase in activity levels above what would be economically viable in the absence of the ASC program for the purpose of generating additional ASCs;

    (J) For those activities approved for ASCs under this rule that cause a secondary increase in emissions of other air contaminants, an evaluation of whether the cumulative secondary increases in emissions will interfere with the attainment of any ambient air quality standard; and

    (K) The first program audit after Governing Board adoption of each AQMP subsequent to the 1997 AQMP shall include the Executive Officer’s evaluation of Table 1 for each source category for which ASCs have been issued under this rule. This evaluation shall include a determination for these source categories if the emission rate in Table 1 should be updated to reflect changes in the baseline emission rate due to changes in the characteristics of the source population. The determination shall be based on the following criteria:

    (i) The estimated size of the source population within the District;

    (ii) The number of sources for which ASCs have been issued;

    (iii) Technological developments for the source category as reflected in Pre-ASC Plans and ASC Plans; and

    (iv) Any changes in regulatory requirements or AQMP Control Measures applicable to the source category.

    If a program audit identifies any proposed adjustments to any emission rates in Table 1, then the Executive Officer shall propose appropriate amendments to this rule to the Governing Board.

  2. In a public hearing on or before March 2000, The Executive Officer will present a three-year program evaluation report to the Governing Board, which includes:

    (A) Summary of all annual audit information;

    (B) Recommendations for standard protocols, if needed;

    (C) Evaluation of technology advancements;

    (D) Evaluation of environmental benefit; and

    (E) Recommendations on the continuation and/or modification of the Area Source Credits program, Rule 2506.

  3. Each program audit shall be submitted to EPA and ARB.

Table 1

Emission Rates and Test Methods by Source Category

Source Description

Emission Ratea

Test Methodb

COMBUSTION

External combustion, boiler, < 2mm Btu/hr, fuel oil #2

6.4 lb SOx/1000 gal

100.1 (NOx, SOx, CO), 7.1 (NOx), 6.1 (SOx)

External combustion, boiler, < 2mm Btu/hr, fuel oil #2

19 lb NOx/1000 gal

100.1 (NOx, SOx, CO), 7.1 (NOx), 6.1 (SOx)

External combustion, other, residual oil

6.4 lb SOx/1000 gal


External combustion, other, distillate oil

6.4 lb SOx/1000 gal


External combustion, other, distillate oil

19 lb NOx/1000 gal


External combustion, other, residual oil

53 lb NOx/1000 gal


External combustion, water heater, residential, natural gas

0.093 lb NOx/mmBtu heat output

Nitrogen Oxides Emissions Compliance Testing for Natural Gas-Fired Water Heaters and Small Boilers (January 1995; NOx, CO)

External combustion, fan type central furnace, residential, natural gas

0.093 lb NOx/mmBtu heat output

Rule 1111 Nitrogen Oxides Emissions Compliance Testing for Natural Gas-Fired, Fan-Type Central Furnaces (NOx)

Internal combustion, reciprocating engine, diesel

6.4 lb SOx/1000 gal


Internal combustion, reciprocating engine, diesel

450 lb NOx/1000 gal


Internal combustion, reciprocating engine, natural gas

916 lb NOx/mmscf


a Table 1 does not reflect any AQMP control measures with implementation dates in 1998 or subsequent years.

b All methods cited in Table 1 are published by the District.