Central Valley Air Quality Coalition Californians Against ... · the American Lung Association’s...

Central Valley Air Quality Coalition

Earthjustice

Central California Asthma Collaborative

Association of Irritated Residents

Climate Change Law Foundation

Coalition for Clean Air

Central California Environmental Justice Network

Community Science Institute

Leadership Counsel for Justice and Accountability

Californians Against Fracking & Dangerous Drilling

Center for Biological Diversity

Medical Advocates for Healthy Air

Center on Race, Poverty and the Environment

Sierra Club, Kern-Kaweah Chapter

Sierra Club, Tehipite Chapter

Sierra Club California

Valley Improvement Project

January 9th, 2019

Ms. Mary Nichols Chair, California Air Resources Board 101 I Street Sacramento, CA RE: Emission Reduction Credit Banking in the San Joaquin Valley Chair Nichols and Members of the California Air Resources Board, On behalf of the undersigned organizations, we respectfully request the California Air Resources Board (CARB) conduct a thorough review of the Emission Reduction Credit (ERC) banks currently administered by the San Joaquin Valley Air Pollution Control District (Air District), starting with the banks for volatile organic compounds (VOCs), nitrogen oxides (NOx) and carbon dioxide and carbon dioxide equivalents (CO2e). Our groups, which represent frontline communities across the San Joaquin Valley, have substantial evidence which indicates that many of the ERCs contained in the banks are invalid. Invalid credits potentially jeopardize the integrity of the ERC system, allow for the improper permitting of new sources of pollution, and threaten progress toward attainment of air quality standards in the Valley, and maintenance thereof. This assertion of invalidity is supported by a new 30-page report released by Earthworks: “Undeserved Credit: Why emissions banking in California’s San Joaquin Valley puts air quality at risk” (November, 2018; see attached). Earthworks is a national nonprofit that partners with affected communities to respond to and solve threats to the environment. Earthworks spent approximately 9 months compiling extensive case studies of ERCs that represent approximately ⅓ of the emission reduction credits in the Air District’s VOC bank and ½ of the credits in their CO2e bank. Earthworks’ research demonstrates that, of the ERCs reviewed, a large proportion of credits in the VOC and CO2e banks appear to be invalid. ERCs were found invalid for numerous reasons, including credits not meeting Clean Air Act requirements, credit issuances violating the Air District’s Emission Reduction Banking rules, credit applications submitted after the regulatory deadlines, and

credits not being “surplus” of then-current regulations. The report goes on to state that a review of even more certificates and their relationships would likely raise validity questions for an even larger proportion of credits in the San Joaquin Valley Air District’s banks. These conclusions are especially pertinent in light of the San Joaquin Valley’s proposed PM2.5 Attainment Plan. The Valley’s PM2.5 Plan will be brought before the CARB Board on January 24th, 2019. If implemented correctly, the Plan could bring the Valley into attainment of multiple PM2.5 standards within the next 5-7 years. However, the ERC system in place intended to maintain - and guard against increases in - pollution levels appears to be insolvent. We believe a malfunctioning ERC system threatens progress toward and maintenance of attainment. Given the evidence presented in the attached report — and in the context of severe and persistent air quality problems across the San Joaquin Valley — we ask CARB to conduct an audit of the ERCs in the San Joaquin Valley Air District’s banks and direct staff to report back to the Board with their findings. Earthworks’ research has paved the way, but more resources and emissions-related expertise are necessary for a full audit.

Sincerely,

Genevieve Gale, Central Valley Air Quality Coalition Elizabeth Forsyth, Earthjustice Bill Magavern, Coalition for Clean Air Denny Larson, Community Science Institute Nayamin Martinez, Central California Environmental Justice Network James Birkelund, Climate Change Law Center Gary Lasky, Sierra Club, Tehipite Chapter Kevin Hamilton, Central California Asthma Collaborative Medical Advocates for Healthy Air

Catherine Garoupa White, Californians Against Fracking & Dangerous Drilling Elly Benson, Sierra Club California Tom Frantz, Association of Irritated Residents Caroline Farrell, Center on Race Poverty and the Environment Gordon Nipp, Kern-Kaweah Chapter, Sierra Club Thomas Helme, Valley Improvement Projects Maya Golden-Krasner, Center for Biological Diversity Ivanka Saunders, Leadership Counsel for Justice and Accountability

CC: Mr. Richard Cory Mr. Kurt Karperos

UndeservedCredit

WhyemissionsbankinginCalifornia’sSanJoaquinValleyputsairqualityatrisk

NadiaSteinzor,CommunityEmpowermentProjectManagerBruceBaizel,EnergyProgramDirectorNovember2018

1612KST.N.W.SUITE904WASHINGTON,DC20006

P2028871872WWW.EARTHWORKSACTION.ORG

TableofContents

1.Introduction.......................................................................................................................3A.Issueoverview.......................................................................................................................................................................3B.AirqualitychallengesintheSanJoaquinValley.....................................................................................................32.TheERCsystem..................................................................................................................4A.Briefhistory............................................................................................................................................................................4B.ERCsandtheSanJoaquinValley...................................................................................................................................63.TheInvestigation................................................................................................................7

4.CaseStudies.......................................................................................................................9A.CreditsheldbyAlonBakersfieldRefining;BakersfieldCrudeTerminalLLC;FlyingJManagement;andVintageProductionCaliforniaLLC(VOC)..............................................................................................................9B.CreditsheldbyAlonBakersfieldRefiningLLC(VOC)........................................................................................12C.CreditsheldbyChevron(VOC).....................................................................................................................................15D.Chevron“permanence”groupcredits(CO2e).......................................................................................................19E.AeraEnergy(CO2e)...........................................................................................................................................................245.Conclusions&Recommendations.....................................................................................26

1.Introduction

A.IssueoverviewInthelate1970s,emissionreductioncredit(ERC)programsemergedfromfederalCleanAirActeffortstoaddresssignificantairpollutionproblems.Theprogramswerebasedonthenotionthatsomeformofincentive,orquasi-marketbasedmechanism,couldleverageadditionalemissionsreductionsforlesscost,beyondthereductionsachievedthroughdirectregulatoryefforts.California’sprogramcameintobeingaspartofthiseffort.

ByobtainingemissionreductioncreditsunderCalifornia’sprogram,operatorswhosefacilitiespollutecanoffsetexcessiveemissionsbytradingorpurchasingcreditsrepresentingpollutionelsewhere.AgenciesthatregulateairpollutionoverseeERC“banks”anddeterminewhetheroperatorscan“deposit”and“withdraw”credits.Creditscanbetransferredtoothercompanieswantingtopollutemore.

Creditsareparticularlycovetedwhereairqualityissopoorthattheregionisclassifiedasbeingoutofattainmentwith(i.e.,doesn’tmeet)federalstandards,andthereforeunabletoabsorbtheadditionalpollutionburdenposedbynewindustrialprojects.

Thebankingofemissioncreditsisaregulatoryapproachthatseemstoogoodtobetrue.Acompanyseekingtoexpand—andpollutemore—isincentivizedtotakevoluntarystepstocontrolpollutioninsomepartofitsoperations.Thesevoluntaryreductionsinemissionscreateanemissionreductioncreditthatthecompanycanthenusetooffsetpollutionoccurringsomewhereelse—eitherinitsownoperationsorinsomeothercompany’soperations.Overtime,companiescansplitoutaportionofthecreditstouseandcontinuetobanktherest,sellcreditstoothercompanies,ortransfercreditstoanoperation’snewowners.Companieswinbygettingnewpermitstopollute,therebyallowingadditionaleconomicactivity.Becauseoverallairpollutionsupposedlyiscontrolled,thestate,andpresumablytheenvironmentandcommunities,alsowin.Atleastthat’sthetheory.Overthecourseofthelast40yearssinceemissionsbankingwasestablished,itspracticehasprovenfarmorecomplexanduneven.Giventheincreasingstakesforairquality,health,andtheclimate,theoutcomesofemissionsbankingwarrantsexamination.ThefollowingpagesexploresuchquestionsinthecontextoftheSanJoaquinValleyAirPollutionControlDistrict(APCD,or“District”)incentralCalifornia.Theregioncoverseightcounties,includingFresno,aportionofKern,Kings,Madera,Merced,SanJoaquin,Stanislaus,andTulare.AlargeportionofCalifornia’soilandgasproductionislocatedinthisregion.

B.AirqualitychallengesintheSanJoaquinValleyTheSanJoaquinValleycanillaffordanycompromiseineffortstoreduceairpollution.AccordingtotheAmericanLungAssociation’s2018StateoftheAirreport,theMostPollutedcitiesnationwideincludedBakersfieldinKernCounty,whichranked#2forozone,#1forshort-termparticlepollution,and#3foryear-roundparticlepollution.AlsoonthelistwastheFresno-Maderametropolitanarea,whichranked#4forozone,#3forshort-termparticlepollution,and#5foryear-roundparticlepollution.Bothparticulatematterandozonearescientificallylinkedtoarangeofrespiratory,pulmonary,andcardiovascularconditionsandanincreasedprevalenceofillnessandprematuredeath.1

TheSanJoaquinValleycurrentlydoesnotmeetfederalstandardsforozoneandfineparticulatematter(PM2.5),astatusthathaspersistedformanyyears.In2016,theUSEnvironmentalProtectionAgency(EPA)determinedthattheDistricthad—followingalawsuitbyenvironmentalorganizationsandadditionalpollutioncontrolefforts—reducedairpollutionenoughtomeetthefederalstandardfor1-hourozoneexposure.2However,theDistrictremainsin“extremenon-attainment”forthefarmorehealth-protective8-hourozoneexposurestandard.Addressingthisproblemposescontinualchallenges.TheDistrictissandwichedamongmountainsthattrappollutantsandweakentheflowofairanddispersionofpollution,hasagrowingpopulation,andiscrisscrossedbymajortransportationroutes.AccordingtotheDistrict,theprimarycausesoftheregion’sparticleandozonepollutionaremotorvehicles,plantandanimalagriculture,oilproduction,woodburning,andfugitivedust.3Inthemidstofintensiveindustrialandagriculturaldevelopment,socioeconomicvulnerabilityandhealthexposurehazardsareinterlinkedandpersistent.4WhileoilandgasproductionisonadownwardtrendinbothCaliforniaandtheDistrict,operatorscontinuetodrill,planformoreproduction,andhopethatshiftingmarketforceswillworkintheirfavorgoingforward.Forexample,theenvironmentalanalysisconductedpriortothe2015adoptionofamendmentstotheKernCountyzoningordinanceprojectsthatmorethan3,600newwellscouldcomeonlineannuallyforthenext20yearsandincludesaprovisiontofast-trackpermitsinanefforttoexpandoilandgasproduction.5AspersistentlypoorairqualityandthepushformoreindustrialdevelopmentconvergeintheSanJoaquinValley,theeffectivenessofvoluntaryERCsinactuallyreducingpollutionisincreasinglydebated.Keyreasonsinclude:

§ Theprimarygoalistosupportcompanieswishingtopursueindustrialprojects,nottoprohibitthecreationofpollution.

§ ERCsallowoperatorstoreleasepollutioneveninareaswhereairqualitystandardsaren’tbeingmet(i.e.,non-attainmentareas).

§ Bankingisbasedonastaticviewofairqualityanditsimpacts,withthevolumeofreductionatonepointintimeorinonelocationcarriedovertothefutureoradifferentlocation,regardlessofactual,changingconditionsorlocalizedimpacts.

§ DespiteanactiveERCprogram,localizedpollutionimpactsandregionalpollutionproblemscanpersistandevenincrease.

§ Thevolumeofemissionsoffsetisbasedonestimatesdevelopedforthepurposeofobtainingapermit—whichmayormaynotrepresentafacility’sactualemissions.

2.TheERCsystem

A.BriefhistoryEmissionReductionCreditsarosefromeffortstoexpandtheCleanAirActin1977,includingintroductionoftheconceptofemissionreductiontrading.TheEPAinitiatedbankingofthesecreditsasaregulatory“reform”toencouragegreatereconomicefficiencyinmeetingtherequirementsoftheCleanAirAct.

AbankingprogramestablishestheadministrativeprocessbywhichafirmcanreceivecreditforreducingitsemissionsbeyondthebaselinelevelrequiredinaStateImplementationPlan(SIP),whichisdevelopedtoguidetheattainmentoflegallyrequiredpollutionlimits.Thecreditor“offset,”wastermedan“EmissionReductionCredit”andformedthe“currency”forabankingprogram.Suchamarket-basedbankingsystemwasjustifiedbecauseitenabledprivatefirmstoreceivecreditforreducingtheiremissionsbeyondthoselevelsthattheywerelegallyrequiredtoachieve,forexampleunderanexistingpermitorSIP—thereforeprovidinganincentiveforadditionalinvestmentinpollutionabatement.Asecondrationalewasthatabankingsystemwouldprovideamechanismtoencourageeconomicdevelopmentwithoutcompromisingeffortstoimproveairquality.6Asaresultofthisregulatorypushinthelate1970s,CaliforniaairdistrictsdevelopedandimplementedNewSourceReview(NSR)programs,whichincludedtheconceptofERCsaspollutionoffsets.Eachofthe35AirPollutionControlDistricts(APCDs)inCaliforniahasitsownNSRprogramandissuesitsownNSRorPreventionofSignificantDeterioration(PSD)permitstosite,construct,andoperate.Theseprogramsregulatenewindustrialsourcesofairpollutionandtheexpansionofexistingindustrialsources.Ingeneral,offsettingmeansthatcompaniescanbuildorexpandtheiremission-producingoperationsonlyiftheyfirstsecureERCsfromanotherpollutionsource(theirownorthatofanothercompany)—withtheendresultbeingnonetincreaseinemissions.ThecostoftheseERCsisset,basedonmarketconditions,bytheownerofthecreditsandvariesdependingontypeofpollutantandtheairdistrictinwhichtheyaregenerated.7Pricingisineffectaclassicmarketquestionofsupply,orthevolumeofemissionsrepresentedbyavailablecredits;anddemand,orthedesireofcompaniestodeveloppollutingprojects.In1995,theCaliforniaStateLegislatureenactedAB1777,throughwhichCARBwasdirectedtodevelopandadoptamethodologyforusebydistrictstocalculatethevalueofcredits.ThemethodologyadoptedbyCARBwasdesignedtoensurethatcreditsweregrantedonlyforemissionreductionsthatwerereal,properlyquantified,permanent,enforceable,andsurplustoapplicablefederal,state,anddistrictrequirementsandadoptedairqualityplans.AB1777provideddistrictswiththeflexibilitytomaintaindistinctNSRprogramstoensuretheavailabilityofERCsneededtoaccommodateindustrialgrowthandtheactivitiesofcompanies.Finally,theregulationcalledforannualperformanceauditsbydistrictstoensurethattheimplementationofcredittradingprogramscontinuedtocomplywithapplicablestateandfederalrequirements.UndercurrentCaliforniastatutorylanguage(HealthandSafetyCodeSection40709.5),ERCbankingisdefinedas"asystem...bywhichreductionsinemissionsmaybebankedorotherwisecreditedtooffsetfutureincreasesintheemissionsofaircontaminants...orwhichutilizeacalculationmethodwhichenablesinternalemissionreductionstobecreditedagainstincreases.”8Oncecreated,ERCsmaybebankedwiththeairdistrictforfutureusebythesourcethatgeneratedthem,usedconcurrentlytooffsetnewprojects,orsoldtoothersourcesforuseasmitigationintheirownprojects.

TheessentialwaytocreateERCsistocontrolorcurtailtheemissionsfromanexistingstationarysource.Creditsmustbegeneratedpursuanttoairdistrictrulesandregulations,andmustbereviewedandcertifiedbytheairdistrict.Thelegalrequirementsofcredit-generatingprogramsarespecifiedintheHealthandSafetyCodeandfurtherdefinedbyrulesinplaceineachofCalifornia’sairdistricts.

B.ERCsandtheSanJoaquinValleyThetwoprimaryrulesgoverningERCsintheSanJoaquinValleyUnifiedAPCDareRule2201andRule2301.9Rule2201istheDistrict’sNSRrule,lastmodifiedin2016,whichcoversthereviewandpermittingofsourcesofairpollution,resultingemissions(includingVOCs,federallyregulatedcriteriapollutants,andgreenhousegases),andthegeneralbasisforemissiontrade-offmechanisms,includingERCbanking.Rule2301,lastmodifiedin2012,istheactualbankingrule,whichprovidestheeligibilitystandardsandtheadministrativemechanismsforthestorageandtransferofERCs.Tobeeligibleforcreditbanking,anapplicationforERCsmustbefilednolaterthan180daysaftertheemissionsreductionoccurred(Rule2301,Sec.4.2.3).However,in2012,theDistrictamendedRule2301(Section5.5.2)toallowERCapplicationsforGHGreductionsthatoccurredpriortoJanuary2012,aslongastheapplicationwassubmittedwithinsixmonths(i.e.,July2012).TheEPAhastheoptiontoreviewERCapplicationsrelatedtoERCsfornewMajorSources,FederalMajorModifications,andMajorModificationsstemmingfromCalifornia’sSenateBill288passedin2003(i.e.,amodificationthathasnosignificantnetemissionsincreaseordoesnotexceedplant-wideemissionslimits).UnderDistrictRule2201,Sec.7.1.5,thoseapplicationswithsupportingdocuments,shallbetransmittedtoEPAandthe“creditability”ofagivenemissionreduction“maybesubjecttoreviewbytheEPA.”

UnderRule2301,Section6.2,oncetherulerequirementshavebeensatisfiedandtheemissionreductionhasactuallyoccurred,theDistrictcanissueanERCCertificate.

UnderDistrict(andfederal)rules,nonetincreaseinemissionsabovespecifiedthresholdsfromnewandmodifiedstationarysourcesofallaffectedpollutantsandtheirprecursorsisallowed.10Ifanewormodifiedemissionssourcewouldresultinincreasedemissions,therulesprovidethattheremustbeanoffset,oranActualEmissionsReduction(AER),comparedtothetwoyearsofoperationpriortotheERCapplication.TheAER,calculatedonapollutant-by-pollutantbasis,shallbe:

§ Real:haveactuallyoccurredasaresultofactionsbytheapplicant.§ Permanent:theemissionsreductioncan’tbereversedorreplacedelsewhereinthearea.§ Quantifiable:theemissionsvolumecanbereliablymeasuredandthemeasurementcanbe

replicated. § Surplus:inexcessofanyemissionsreductionthatisotherwiserequiredthroughexisting

regulationsorinaSIP.§ Enforceable:implementationoftheemissionsreductionisensuredthroughapermitor

otherregulatorylever.Theaspectof“surplus”posesparticularchallengesbecauseofadivergencebetweenfederalandDistrictrules.UnderEPA’sNSRRule,creditsaredefinedassurplusatthe“timeofuse,”orwhentheyareactuallybroughtforthtooffsetemissionsfromacurrentproject,regardlessofwhenthereductiononwhich

thecreditisbasedoccurred.Bywayofexample,thismeansthatifacompanyreceivedERCsforvoluntarilyinstallingapollutionreductiontechnologyin1990,thoseERCscouldn’tbeusedin2000ifintheinterveningdecaderegulationschangedtorequireuseofthesamepollutionreductiontechnology.Tobevalid,theseoldercreditswouldhavetobe“discounted”invalueatthetimetheywereproposedforuse,i.e.,adjustedtoreflectemissionsreductionsrequiredbycurrentregulations.Incontrast,DistrictRule2201requiresthatthecreditsbesurplusatthe“timeofissuance”—allowingcreditstobeusedregardlessofwhethertheywouldoffsetemissionsbeyondwhat’salreadyrequiredcurrently.Asaresult,ERCsbasedontheadoptionofapollutioncontroltechnologyin1990couldbeusedinperpetuity,regardlessofwhetherandwhenregulationschangetoaddressnewairqualityrealitiesandwithoutanyadditionaldiscountingtomatchrequirementsatthetimethecreditisproposedforuse.Followinglengthydiscussionsandnegotiations,CARB,EPA,andtheDistrictreachedagreementthattheDistrictmustensure“equivalency”inemissionsreductionsstemmingfromdifferencesbetweenhowDistrictandfederalrulesdefinethecriterionofsurplus.SinceaddingSection7toDistrictRule2201in2002,theDistricthasbeenrequiredtodemonstratethatits“timeofissuance”approachresultsinequallyormorestringentemissionsreductions.Thisisdonebyannualtrackingandreporting(toCARBandEPA)ofthequantityofcreditsthatwouldhavebeenrequiredunderthefederalNSRrulecomparedtounderDistrictRule2201.11Aslongasequivalencydemonstrationsaresuccessful,theDistrictcancontinuetoadministerERCsaccordingtoitsownrules.TheDistrict’slong-heldviewhasbeenthatitsapproachtoERCbankingismorethanequivalent,inparticularbecausetheDistricthasalwaysdiscountedcreditsuponissuanceandrequiredsmallersourcesofpollutiontoseekemissionoffsets.However,in2010theEPAalsobegantorequireevensmallersourcesofpollutiontoseekoffsets—therebyclosingthegapwithDistrictrulesandeffectivelyincreasingthevolumeofemissionsthatmustbeoffset.Inaddition,sinceadoptingadditionalERCrulesandbeingclassifiedasin“extremenon-attainment”forozone,theDistricthasbyitsownadmissionhadamoredifficulttimeachievingequivalencydemonstrationsforbothVOCsandnitrogenoxide(NOx)andisexaminingnewpollutionoffsetstrategiestoavoidequivalencyfailure.12

3.TheInvestigationThecurrentpaperwastriggeredbya2017EarthworksreporttitledPermittedtoPollute:Howoilandgasoperatorsexploitcleanairprotectionsandputthepublicatrisk,13whichexaminedhownaturalgasoperatorsinPennsylvaniaappeartobedeliberatelyunderestimatingtheirairemissionsinordertoavoidthemorestringentpollutioncontrolandprojectreviewrequirementsoffederalCleanAirActTitleVpermitsforMajoremissionsources.FollowingthepublicationofPermittedtoPollute,wehaddiscussionswithCaliforniapartnerorganizationsconcernedaboutwaysinwhichtheoilindustryinthatstatemaybeavoidingrequiredreductionsinairpollution.Thispossibilityseemedparticularlyrelevantinlightof

California’sinitiativetodrasticallyreducegreenhousegasemissions,andparticularlyconcerninggiventheSanJoaquinValley’spowerfuloilindustryandpersistentairqualitychallenges.Duringthesediscussions,oneoftheemissionsreductionavoidancemechanismsthatcametolightwastheERCsystem.In2015,EarthjusticeandtheCentralValleyAirQualityCoalitionhadbeguninvestigatinghowtheDistrict’sERCsystemwasadministered.ThepreliminaryconclusionofthisworkwasthatthemajorityofVOC-relatedcreditsintheDistrict’sERCbankwerepotentiallyinvalid.Inearly2018,EarthworksbegantodigdeeperintowhatEarthjusticeandtheCentralValleyAirQualityCoalitionhaduncovered.BasedonthelistofERCsintheDistrict’sbankinFebruary2018(whenourresearchbegan),wesubmittedpublicrecordsrequestsforDistrictrecords,applications,assessments,publicnotices,correspondence,andanyotherdocumentationrelatedtoselectedcertificates.Givenourspecificfocusonoilandgasissues,welimitedourinquirytoERCsthatwecouldidentifyasbeingheldbyenergycompaniesandrequestedonlythosecertificatesrepresentingatleast10metrictonsperyearofcredits.Thiscoverednearly65percentofthecreditsforVOCsandnearly60percentofthecreditsforcarbondioxideequivalent(CO2e)intheDistrict’sERCbankasofFebruary2018.Theresultofourpublicrecordsrequestincludedhundredsofpagesofdocumentsrelatedtomorethan50specificERCcertificates.Followinganinitialreviewoftheissuancedatesandclaimedreductions,wethenselectedagroupofcertificatestoanalyzeregardingthecorereasonstheywereissued.Finally,weselectedgroupsofcertificatesonwhichtobasein-depthcasestudies.EarthjusticeandtheCentralValleyAirQualityCoalitionprovidedEarthworkswithdocumentsrelatedtospecificERCcertificatesthattheyhadpreviouslyobtainedthroughpublicrecordsrequests.ThesepartnersalsosharedtheirinitialanalysisandconclusionsandorientedustotheissuesrelatedtoERCsandtheDistrict’sbankingsystem.TheDistrict’spublicrecordsrequestofficewasresponsiveandinformative,processedourrequestsinatimelyandthoroughmanner,andprovidedalldocumentselectronically.Duringthecourseofourresearch,wefacedinformationgapsrelatedtothespecificERCdocumentsprovidedor,insomeinstances,simplymissingfromthefiles.Thesearedetailedintherelevantcasestudies.

Overall,suchinformationgapsreflectthedifficultyofpiecingtogetherthehistoryofcreditsthathavebeensplit,reduced,andreissuedmultipletimes.Inaddition,everytimethishappens,anewERCnumberisissued.Thisresearchwasthereforeakinto“peelinganonion”—witheachlayerpotentiallyrequiringanewpublicrecordsrequest.

Asaresult,itprovedvirtuallyimpossibletodevelopacompletepictureoftheorigin,trajectory,anduseofERCsintheDistrict’sbank.Itwasalsodifficulttofullyunderstandtheconnectionsamongeventhosebankedcreditsforwhichwehaddocuments.Touseanothermetaphor,aswithgenealogyresearch,somefamilymembersclearlyshareancestors—butitcanbedifficulttosaywithcertaintywhereotherscomefrom.

4.CaseStudies

A.CreditsheldbyAlonBakersfieldRefining;BakersfieldCrudeTerminalLLC;FlyingJManagement;andVintageProductionCaliforniaLLC(VOC)

A.Background

ThiscasecomprisesagroupofeightERCcertificatesbasedonemissionreductionsthatinitiallyoccurredin1977attheBakersfieldrefineryonRosedaleAvenue.Allofthesecertificatesarederivedfromclaimedemissionreductionsfromthe“incinerationoffluidcokerexhaustintheCOboiler.” TheBakersfieldrefineryhaschangedhandsseveraltimesintheensuingdecades,passingfromMohawkPetroleumCorporationtoToscoCorporationtoTexacoRefiningandMarketingInc.toShellOiltoFlyingJManagement.Thecurrentowner,AlonUSA,purchasedtherefineryin2010.Theclaimedreductionsrepresented12,067poundsperdayofnon-methanehydrocarbons;extrapolatedout,thisequatestoabout2,000metrictonsofpotentialclaimedVOCreductionperyear.DocumentsshowthattheAPCDissuedsubsequentrenewalsinatleast1989and1991,andtheoriginatingcertificatewassplitintomanynewcertificatesovertheensuingdecades.AsofFebruary2018,thecertificatesintheERCbankderivedfromthe1977reductionrepresentednearly925metrictonsofannualVOCemissions—ornearly20%ofthevolumeofallVOCcreditsandalmost30%ofthevolumeofVOCcreditsheldbyenergycompanies.Asshowninthetablebelow,bothEarthworksandEarthjusticesubmittedPublicRecordsRequeststotheAirDistrictfordocumentsrelatedtotheeightERCcertificates.Manyofthedocumentswereceivedwereduplicatedinseveralfiles,whileothersappearedonlyinafew.SomeoftheERCswereissuedinthelastfewyears,eventhoughtheyarebasedonreductionsfromdecadesearlier.ItispossiblethatevenmorecreditsintheVOCbankarederivedfromthesame1977reductionattheBakersfieldRefinery.However,determiningthatisnotpossiblegiventheincompletedocumentaryrecordprovidedinresponsetoourrecordsrequests,andthecomplexityoftheintertwinednon-energyrelatedERCsandthemultipleconnectedenergycreditsthatweresplitovertime.Notably,inresponsetoEarthworks’publicrecordsrequestforinformationontwooftheERCsinthisgroup(S-4191andS-4939),theAirDistrictprovidedscansofthefinalcertificate,butnodocumentsonthebackgroundofthecredits.Asaresult,itisimpossibletoknowwithcertaintythattheoriginatingreductionbehindthisERCwasactuallythesame1977reduction;howevergiventhattheERCsarefortheAlonBakersfieldRefineryandthelanguageinthecertificatesareidenticaltothatfortheotherERCs,wearerelativelyconfidentthatS-4191andS-4939arederivedfromthesameactivitiesandapplicationprocessdetailedhere.

Certificatesrelatedto1977emissionreductionsattheBakersfieldRefinery,identifiedthroughpublicrecordrequests

ERCcertificatenumber

Latestissuedateinfilesprovided

FilerequestedbyEarthworks(2018)

FilesrequestedbyEarthjustice(2015)

S-3663 2011 XS-4472 1991 XS-4727 1991 XS-4189 2014 X S-4191 2014 X S-4487 2015 X S-4745 1991 X S-4939 2017 X

B.Timeline

TimelineoftheERCsresultingfromTosco/Texaco’sclaimed1977reductionsApril24,1984 ToscosubmitsamodifiedCountyHealthDepartmentFormtoAPCDrequestingto

bankallitspreviousemissionreductions.BecauseToscodidn’tprovideactualdocumentationofthereductionsorhowtheywerecalculated,APCDreturnsthesubmission.

June14,1985 ToscowritestoAPCDstatingthattheyear-longdelayinprovidingdocumentationwastheresultof“aprolongedseriesofverydifficultcorporatefinancialproblems”andthesuspensionofoperationsattherefineryinlate1983.

October11,1985 ToscowritestoAPCDregardingthe90-daydeadlineforapplyingforERCsfollowingemissionreductions,arguingitdoesn’tapplybecausetherefinerywasonlytemporarily“shutdown”andToscohadmaintainedalloperatingpermits.

October28,1985 ToscosendsAPCDanapplicationtobankcreditsthatincludeddocumentationonthe1977reductions.

February12,1986 TheAirDistrictsendsalettertotheToscoEnvironmentalAffairsManagerstatingthattheemissionscalculationsinthenewERCapplicationwere“madeinamannernotinaccordancewithRule210.3.C.3andlackeddocumentationofemissionreductionswhichmayhaveoccurred…yourapplicationforbankingcertificateisherebydenied.”

February27,1986 FollowingameetingwithToscoofficials,APCDsendsalettertotherefinerymanagerdetailingdeficienciesinitsbankingapplication.Theseincludecontradictoryinformationonemissionsfromtheboilersandthefluidcoker,which“thereforecannotbeusedtovalidatetheproposedERC.”APCDalsoemphasizesthattheDistrict’soxidantnon-attainmentplanincludedinstallationofTosco’sCOboilerasamajorreductionandthat,“Consideringthisplan,Toscomustexplainhowthesereductionscanbefoundtobesurplus.”

May9,1986 APCDwritestoToscostatingthattheinformationsubmittedinthecompany’sapplication,“isnotactualemissiondataandactualprocessdata.Itiscontradictoryandinconsistent…Accordingly,weareherebydenyingyourOctober28,1985requestforabankingcertificate.”

July10,1986 FollowingTexaco’spurchaseoftherefinery,thecompanysubmitsanewapplicationtobankcreditsfromthe1977reductions.

August5,1986 AnanalysisbyanAPCDengineerdeterminesthatpermitconditionsdidn'trequireincinerationoffluidcokerexhaustandToscocouldoperatethecokerwithouttheCOboiler.Heconcludesthatthe“ERCsclaimedcannotbevalidatedastheyarenotpermanentandenforceable”andTexaco’sapplicationshouldbedenied.

March4,1987 Inanewanalysis,theAPCDengineernotesthatTexacoplanstoapplytotheAPCDforavarianceonclaimedreductions,whichwouldallowthefluidcokertoexhaustdirectlytotheatmosphereduringmaintenance.HealsonowstatesthattheERCsmeetthecriteriaofbeingpermanentandsurplus.

March19,1987 TheAPCDengineerspeakswithaUSEPAstaffmember,whosays,“Thatisnotinaccordancewiththeprinciplesofbankingandemissionstrading.Theycannotgetavarianceandcannotoperatethesourcewhentheyaren’tprovidingtheemissions

reductions.”June9,1987 AccordingtoacommentletterfromUSEPA,Texacosubmittedaneworamended

applicationtobankthe1977emissionreductions.Note:thisapplicationwasnotinfilesprovidedbytheAirDistrict.

June16,1987 APCDissuesarequestforpubliccommentonTexaco’semissionscreditbankingproposal.

July11,1987 TheAPCDengineerspeakswithaCARBrepresentative,whostatesthatTexaco’s“InitialsubmittaldidnotconstituteanapplicationinformprescribedbyAPCO[AirPollutionControlOfficer].Submittalwhichwasevaluatedwassubmittedafterexpirationofstatutorytimeperiod.”

July17,1987 TheAirManagementDivisionatUSEPArespondstoAPCD’srequestforpubliccommentonTexaco’sapplication,advisingtheDistrictnottoissuethebankingcertificate.Acommentlettersummarizesthereasons:“Inalllikelihood,thesereductionsarenotsurplussincetheyoccurredsolongago;”“EPAhaspreviouslyadvisedtheDistrictthatbankingcreditmaynotbeawardedforanyreductionswhichoccurredpriortotheCleanAirActAmendmentsofAugust7,1977…EPAwillnotrecognizethesereductionsasvalidoffsets;”theapplicationwassubmitted“wellbeyondtherequiredtimelimits.Itisnotreasonabletoacceptthecompany’srationaleforthedelay;”and“IftheDistrictissuesthebankingcertificatetoTexaco,anysourcewhichattemptstousetheseemissionreductionsasanoffsetmaybesubjecttofederalenforcementaction.”

July17,1987 TheChiefoftheProjectReviewBranchatCARBrespondstoAPCD’srequestforpubliccommentonTexaco’sapplication,tellingtheDistrictthatthe1984applicationwasincompleteandthe1985bankingapplication“wasnotsubmittedwithintheallowabletimelimits”ofAPCDRule210.3and“shouldbeconsideredinvalid.”

July23,1987 APCDissuesERCnumber2007148/501toTexacoforthebankingof12,067poundsperdayofnon-methanehydrocarbons.

August7,1987 AnengineerwithAPCDrespondstoCARB’scomments,statingthattheERCcertificateapplication“complieswiththefilingrequirementsofRule210.3.Theapplication,althoughreturned,wasnotrejected,”andbecausetheAPCDaddedsourcetestingtotheboilerpermit,TexacocouldnowmeettheERCrequirementsforpermanenceandenforceability.

C.WhythecreditsareinvalidTosummarizewhatisintherecordforthisERC,theapplicationsunderpinningthesecreditswerenottimelyandappearnottohavemettherequiredcriteriaofbeingsurplus,permanent,andenforceable.DespitedenyingthebankingapplicationtwiceandstronglywordedrecommendationsfrombothCARBandUSEPAtodenythecredit,theDistrictwentaheadandissuedanERCcertificatein1987.Followingcarefulreviewofdozensofrecordsrelatedtothesecredits,wecouldnotidentifyanyunderlyingjustificationfortheAirDistrict’sreversalofitsownpositionnoritssubsequentdecisiontoignoretheadviceofitsownengineersandstateandfederalagencies.Thecreditsdon’tmeetCleanAirActrequirementsTheAirDistrictissuedtheAuthoritytoConstructfortheCOboilerinJanuary1976,andoperationsbeganinMay1977.TheCleanAirAct(Section51.165(a)(2)(ii)(C)(1)(ii))statesthat,“innoeventmaycreditbegivenforshutdownsthatoccurredbeforeAugust7,1977.”BecausetheemissionreductionsclaimedbyTosco/Texacooccurredpriortothisdate,therelatedERCsareinvalidandcouldn’thavebeenusedtooffsetprojectemissions.

IssuanceofthecreditsviolatedtheAirDistrict’sEmissionReductionBankingruleTheKernCountyAirPollutionDistrict(theprecursortotheSanJoaquinValleyAirPollutionControlDistrict)adoptedRule210.3onApril25,1983(withamendmentsmadein1987and1996).SectionIII(D)(2)statesthat,“Applicationforqualifyingemissionsreductionsoccurringbeforethedateofadoptionofthisruleshallbefiledwithinoneyearofadoption.”Tosco’ssubmittedanincompleteERCapplication—whichamongotherthingslackedanyreductiondata—oneyeartothedayinordertomeettheRule210.3deadline.AlthoughtheDistrictrejectedit,theDistrictappearstohaveallowedtheinitialsubmissiondatetocontrolsubsequentdecisions.Texaco’ssubsequentapplication,onwhichtheissuedERCswerebased,wassubmittedmorethantwoyearsaftertheapplicationdeadline,andnearlyadecadeafterthereductionsactuallyoccurred.Inaddition,accordingtoSection(III)(A)oftherule,“BankingCertificatescannotbeissuedforemissionreductionsrepresentedbyAuthoritiestoConstruct(ATC)orPermitstoOperateoriginallyissuedbeforeDecember28,1976.”Accordingtoa“ChronologyofeventsfortheCokerCOBoiler”providedbyTexacototheAirDistrict,theDistrict’sissuedanATCfortheboiler—theprimaryequipmentonwhichtheclaimedreductionswerebased—onJanuary13,1976;theEPAfollowedwithanApprovaltoConstructonNovember4,1976.Foreitherdate,theATCwasnotissuedinaccordancewiththerule’srequirements.ThecreditsmayalreadyhavebeenaccountedforAsindicatedinthetimelineabove,anapplicationdeficiencieslettersentbyAPCDtoTexacoinFebruary1986raisesthepossibilitythattheclaimedreductiondidn’tqualifyas“surplus”becausetheprimarysourceofthereduction—Tosco/Texaco’sCOboilerinstalledadecadeearlier—wasalreadyconsideredintheDistrict’sairqualityplanning,specificallytheDistrict’s“oxidantnon-attainmentplan.”(Wepresumethisreferredtotheplanaddressingozonenon-attainmentstatus.)

B.CreditsheldbyAlonBakersfieldRefiningLLC(VOC)A.BackgroundThiscasecomprisesagroupofthreeERCcertificatesbasedonemissionreductionsthatinitiallyoccurredin1983attheBakersfieldrefineryonRosedaleAvenue.Allofthesecertificatesarederivedfromclaimedemissionreductionsfromthe“ShutdownofThemoforcatalyticcrackingunit,fluidcokerunit,andCOboilerservingfluidcoker.” TheBakersfieldrefineryhaschangedhandsseveraltimesintheensuingdecades,passingfromMohawkPetroleumCorporationtoToscoCorporationtoTexacoRefiningandMarketingInc.toShellOiltoFlyingJManagement.Thecurrentowner,AlonUSA,purchasedtherefineryin2010.Theclaimedreductionsrepresented1,432poundsperdayofnon-methanehydrocarbons;extrapolatedout,thisequatestoalmost240metrictonsofpotentialclaimedVOCreductionperyear.DocumentsshowthatAPCDissuedasubsequentrenewaloftheoriginalERCin1990,andthattheoriginatingcertificatewassplitintoothernewcertificatesovertheensuingdecades.AsofFebruary2018,thecertificatesintheERCbankderivedfromthe1983reductionrepresentedmorethan63metrictonsofannualVOCemissions—orabout1%ofthevolumeofallVOCcreditsand2%ofVOCcreditsheldbyenergycompanies.

Asshowninthetablebelow,bothEarthworksandEarthjusticesubmittedPublicRecordsRequeststotheAirDistrictfordocumentsrelatedtothreeERCcertificatesbasedonthe1983emissionreductions.Mostofthedocumentswereceivedwereduplicatedintwoofthefiles.14OfthethreeERCsinthisgroup,onlyS-4678wasintheairdistrict’sVOCbankasofFebruary2018.TheothertwoERCswerenotlistedinthebankatthattimebutmayhavebeensplitintocertificateswithnewnumbers,whichwewereunabletoidentifythroughthedocumentsprovidedtousbytheDistrict.Certificatesrelatedto1983emissionreductionsattheBakersfieldRefinery,

identifiedthroughpublicrecordrequestsERCcertificatenumber

FilesrequestedbyEarthworks(2018)

S-3465 1990 XS-3467 1990 X S-4678 2016 X B.Timeline

TimelineoftheERCsresultingfromTexaco’sclaimed1983reductionsJuly31,1987 TexacosubmitsanapplicationtotheKernCountyAirPollutionDistrictforfive

separateERCs,includingonefornon-methanehydrocarbons.Aletteraccompanyingtheapplicationstatesthattheequipmentonwhichemissionsreductionsarebased“wasoperatedthroughNovember1983.”

August27,1987 AnAPCDengineerevaluatesTexaco’sapplicationwithregardtoeligibilityforERCs.Heconcludesthatthe“requestedERCsmustbedenied”becauseRule210.3requiresbankingcertificateapplicationstobesubmittednomorethan90daysafterthereductionoccurred—andTexaco’sapplicationwassubmittedthreeyearsandfivemonthsafterthedeadline.Inaletterdatedthesameday,APCDinformsTexacoofthedecisiontodenytheERCapplicationbecause“thisrequestisnottimely.”

September10,1987 InalettertoAPCD,TexacoconteststhedecisiontodenytheERCbecauseofthewordingofRule210.3,SectionC.4.bonthe90-dayapplicationrestriction.(ThisisSectionIII(D)(2)inthecurrentrule.)Texacostatesthat,“Wedonotbelievethattheinterpretationofthatsectionwasintendedtoapplytotheactualoperationoftheequipment.Weinterpretthewords‘datethereductionoccurs’tomeantheeffectivedatethattheequipmentisphysicallyunabletobeusedagainorthedatethatthepermitissurrendered.”Texacoassertsthatsincethecompanystillhasapermittooperatetheequipmentanditcouldbebroughtbackonlineatsomepoint,theapplicationtimingrestrictionshouldn’tapply.TexacoindicatesitsintentiontofileapetitionforreviewofAPCD’sERCdenial.

October19,1987 InalettertoAPCD,TexacostatesthatonthebasisofanOctober1,1987memobyAPCDand“variousdiscussionswithyou,”Texaconowunderstandsthat“theDistrictfindsourapplication[forERCcertificates]wasfiledtimely.”ThereferencedAPCDmemowasnotincludedinthefilesprovidedbyAPCDinresponsetoourrecords

request.

January14,1988 AnAPCDengineerre-evaluatesTexaco’sapplicationwithregardtoeligibilityforERCs.Hismemostatesthat,“TheequipmentshutdownincludesallprocessequipmentassociatedwiththeArea2TCCUnit…thisequipmentwaslastoperatedbyToscoCorp.inNov.1983,however,PermitstoOperateforthisequipmenthavebeenmaintained…andtheequipmentisreportedtobeinoperablecondition.”He

concludesthatsincetheequipmentmeetsthedefinitionof“operatingsource,”theapplicationis“consideredastimelyunderRule210.3SectionC.4.b.”

February22,1988 InletterstoCARB(ProjectReviewBranch)andtheUSEPA(NewSourceSection),APCDinformstheagenciesthatTexaco’sbankingprojectwillbereleasedforpubliccommentandindicatesthattheairDistrictisprovidingdraftedcertificatedocumentsandtheDistrict’sanalysis.Inresponsetoourrecordsrequest,APCDdidnotprovidethisdocumentationnoranycorrespondenceorinformationindicating

whetherCARBandUSEPAcommentedontheproject.April14,1988 APCDissuesERCnumber2007130/501toTexacoforthebankingof1,431.69

poundsperdayofnon-methanehydrocarbons.C.WhythecreditsareinvalidTheapplicationwassubmittedaftertheregulatorydeadlineInAugust1987,theDistrictcorrectlyinterpreteditsownruleswhenitdeniedTexaco’sapplicationonthebasisofnotbeingtimely—havingbeensubmittedmorethanthreeyearsaftertheregulatorydeadlineandnearlyfouryearsaftertheemissionsreductionoccurred.ThelanguageofRule210.3,SectionC.4.b(thecurrentSectionIII(D)(2))isveryclear:“ToobtainanERC,astationarysourceowner/operatorshallfileanapplicationasprescribedbytheControlOfficernomorethanninety(90)daysafterdatesuchreductionoccurs...”Texaco’sERCapplication(andpresumablytheaccompanyingemissionscalculations)wasbasedontheshutdownofthreepiecesofequipmentattheBakersfieldrefinery—andnotfortheshutdownoftheentirefacility.Inclaimingthatonlythesurrenderofpermitsofastationarysourceconstitutesanemissionsreduction,Texacoincorrectlyconflatedthedefinitionof“shutdown”inRule210.3andthedefinitionofan“operatingsource”accordingtoDistrictpolicy.Unfortunately,theDistrictacquiescedwiththisflawedargument,favoringTexaco’spressureoveritsinitialinterpretationofitsownERCRule.ThedecisiontoapprovetheERCisinconsistentwithcreditbankingrulesTexaco’sargumentthatonlypermitsurrenderconstitutesa“shutdown”contradictsacorepurposeofemissionsreductioncreditbanking:toencouragelesspollutingoperations.Itimpliesthatcreditscan’tbebasedonthemodificationofspecificequipmentorcurtailmentofaportionofoperationswithinfacilities.Yetthisissomethingthattheindustrydoesonaregularbasis.Infact,theDistrict’Rule2301onEmissionReductionCreditBanking,Section3.14definesshutdownforthepurposesofoffsetsas“…eithertheearlierofthepermanentcessationofemissionsfromanemittingunitorthesurrenderofthatunit'soperatingpermit”(emphasisadded).Further,Rule2301Section6.1mentionsvariouscircumstancesunderwhichreductionscanbecreatedevenwhileasourceremainsinoperation,includinggreateroperatingefficiencies,moreefficientcontroltechnology,andreducedproductionorproductionrates.Granted,theDistrictadoptedRule2301in1991,afterTexaco’sERCapplication.However,anOctober1985memobytheDistrict’sairpollutioncontrolofficer(LeonHerbertson)onthetopicofShutdownEmissionsclarifiesthedifferencebetweenclaimingareductionandapermitbeingsurrenderedinthecontextofoffsets.IncludedintheDistrictfilesforS-3465andS-3467,thememostates,“Asourcemaymodifyitsoperation,shutdown,orcurtailproductionoroperatinghours,ormakeotherchangeswithinthelimitsofpermitconditionswithoutaffectingthesepermits.Sourceshutdown,shuttingdown,

curtailmentsandpermanentlycurtailingaretermsfoundinAppendixS-EmissionOffsetInterpretiveRuling,Title40CFR.Thesetermsarethereforeonlyapplicableto‘offsets’anddonotaffectasourceexperiencingtemporaryshutdownorcurtailmentsandthenwishingtorestartprovidedpermitsarekeptcurrent.”

Texacowantedto“haveitscakeandeatittoo”TexacoappearstohavewantedtoclaimtheshutdownofequipmentinaspecificareaoftheBakersfieldRefineryasanemissionsreduction.Toqualifyasareduction,thisequipmentshutdownwouldhavetomeettheprerequisiteofbeingpermanent—meaningthattheequipmentcouldn’tbeoperatedagain.Atthesametime,Texacowantedtoreservetherighttobringtheequipmentbackintooperationatsomepoint,arguingthatthetimingofthereduction(November1983)shouldn’tbethebasisfordeterminingwhethertheapplicationwastimelyornotbecausetheequipmentstillhadthepotentialofbeingoperated.However,iftheequipmentcouldstillbeoperatedthenthereductionachievedthroughashutdown(versuse.g.,anequipmentmodification)couldn’tbedefinedaspermanent.Rule2301,Section6.1.2isclearonthispoint:“Iftheemissionreductionswerecreatedasaresultoftheshutdownofapermittedemissionsunit,therelevantPermit(s)toOperatehasbeensurrenderedandvoided.”

Insum,eitherTexaco’sapplicationwasn’ttimelybecausetheapplicationwassubmittedyearsafterthedeadline;orthereductionwasn’tpermanentbecausetheequipmentcouldbeoperatedagainatsomefuturedate.TobeconsistentwithDistrictRules,bothconditionshadtobemet.

C.CreditsheldbyChevron(VOC)A.BackgroundThiscasecomprisestwoERCcertificatesforreductionsthatoccurredin1980.ThereductionsoriginatedwithequipmentmodificationstocontrolgasesfromsteamdrivewellcasingsataseriesofChevronheavyoilproductionwells.Theclaimedreductionsrepresented7,963poundsperdayofVOCs;extrapolatedout,thisequatestoalmost1,320metrictonsofpotentialclaimedVOCreductionperyear.DocumentsindicatethattheDistrictissuedpermitrenewalsfortheoriginalprojectthroughoutthe1980sandthatsubsequentERCcertificatesbasedontheoriginaloffsetshavebeensplitandusedinrecentdecades.Asshowninthetablebelow,bothEarthworksandEarthjusticesubmittedPublicRecordsRequeststotheAirDistrictfordocumentsrelatedtotwooftheERCcertificatesbasedonthe1980emissionreductions.OnlyS-4859wasintheDistrict’sVOCbankasofFebruary2018,equalingabout52metrictonsperyear—or1%ofthevolumeofallVOCcreditsandabout2%ofthevolumeofVOCcreditsinthebankheldbyenergycompanies.15Chevronusedthecreditsasrecentlyas2015foraprojecttoconstructeightnewnaturalgasfiredsteamgeneratorsandin2017forthreenewstoragetanks.Notably,wereceivedfilesthatindicateanadditionalfiveERCcertificatesintheDistrict’sVOCbank(asofFebruary2018)arerelatedtotheadditionofcasingcollectionsystems"pre4/25/83"to

TEOR[ThermallyEnhancedOilRecovery]wellsinCentralHeavyOilStationarySource.”Thesecertificates(S-4670,S-4355,S-4576,S-4198,andS-3701)wereissuedin2011-2016;takentogether,theyrepresentalmost530metrictonsperyearofVOCcredits—orover11%percentofthevolumeofallVOCcreditsinthebankandover15%ofthevolumeofVOCcreditsheldbyenergycompaniesasofFebruary2018.

Giventhatthelanguageinthesecertificatesisthesameaslanguageinthetwothatweinvestigated,wearerelativelyconfidentthattheyalsooriginatedwiththe1980reductions.However,wecouldnotdefinitivelyconfirmthisconnectionbasedonthedocumentsprovidedbytheDistrict.

Certificatesrelatedto1980reductionsatChevronproductionwells,identified

throughpublicrecordrequestsERCcertificatenumber

FilesrequestedbyEarthworks(2018)

S-3869 1997 XS-3869 2016 X S-4859 2017 X B.Timeline

TimelineoftheERCsresultingfromChevron’sclaimed1980reductionsDecember17,1979 ChevronsubmitsanapplicationtotheKernCountyAirPollutionDistricttomodify

existingwellheadcasingventvaporrecoverysystemson45wellshavinga99%“non-methanehydrocarboncollectionefficiency.”

May20,1980 APCDissuesanAuthoritytoConstructfortheequipmentmodificationproject.BecauseDistrictRule411.1(onSteam-enhancedCrudeOilProductionWellVents)required93percentoperatingefficiencytocontrolemissionsatthetime,APCDcreditedChevronwithoffsetsamountingtothedifference(6%ofemissionsbyweight).

June1987 APCDadoptsrevisionstoRule210.1(onNewandModifiedStationarySourceReview),resultinginfacilitieshavingtheiremissioncreditssettozero.(ThismayhavebeenbecausetheRule210.1revisionsrequiredBestAvailableControlTechnologywith99.9%operatingefficiency.)Operatorsaregiventheoptionofreestablishingreductionsprovidedtheypassthetestofbeing“real,quantifiable,permanent,andenforceable”andhadn’tyetbeenusedtooffsetotherprojects.

October1990 ChevronsubmitsareporttotheAPCDtosupportthereestablishmentofVOCoffsetsforthe1980reductions,includingdataonreductionvolume,sources,andweightedemissionfactors.Titled“ReestablishVOCOffsetsforCentralandWesternSources,”thereportarguesthattheoffsetsmeetalllegalrequirementsforreestablishmentandsetsouttherequestedemissionsvolume.

March16,1992 Chevronfilesaformalapplicationtoconvertthecompany’s“internalprofile”forhydrocarbonstoanewSanJoaquinValleyUnifiedAPCDERCcertificate.ThisisthelastdayofAPCD’sdeadlineforreestablishingemissionreductionsoccurringpriortoJanuary1,1988,asspecifiedinDistrictRule230.1(adoptedinSeptember1991).

March23,1992 APCDreturnstheapplicationtoChevron,explaininginaletterthatitisdeniedbecauseDistrictRule230.1restrictstheissuanceofthenewERCcertificatesforpre-1988emissionsreductionstothosethathadbeen“previouslyrecognizedbyabankingcertificate.”

November13,1992 ChevronsubmitsanewapplicationforanERCcertificaterepresentingoffsets“thatoccurredpriortoadoptionofKCAPCD[KernCountyAPCD]BankingRule210.3.”ChevronassertsthatbecausethereductionsoccurredpriortotheadoptionoftheRule(inApril1983)andKernCountyAPCDrecognizedthereductionsinChevron’s

internalprofiles,thereductionsareeligibleforanewERCcertificate.February-May1993 APCDapparentlychangesitsmindaboutthevalidityofChevron’sapplicationand

reviewsChevron’sERCapplicationforProject#920255,whichappearstocomprise15ERCapplications.Intheresultingprojectreviewmemo,APCDindicatesthattheapplicationisbasedondatainChevron’s1990reportonreestablishingVOCoffsets,but“Duetothelargevolumeofdatainthisreportonlyrandomreductionswereverified,therestwereassumedtobecorrect.”

July30,1993 APCDwritesamemotoEPARegionIXabouttheERCapplicationinresponsetoquestionspreviouslyposedbyEPA,includinghowChevronwasabletodemonstratea99%VOCcontrolefficiencyandthatthereductionsareenforceable.

August11,1993 TheChiefoftheStationarySourceBranchatEPARegionIXsubmitscommentstoAPCDaboutChevron’sapplication.EPAdeterminesthatthecreditsdon’tmeetthedefinitionofbeingsurplusbecausethecontrolsthatgeneratedthemarenowaReasonablyAvailableControlTechnology(RACT)requiredbyotherregulations.EPAemphasizesthataccordingtotheUSCleanAirActSection173(C)(2),“theretainedreductioncreditsmustbeusedinaccordancewiththecurrentrequirementsinthearea,nottherequirementsineffectatthetimethecreditswereestablished.”EPAalsocommentsthatthecreditsaren’tsurplusbecauseAPCDRule4401.53alreadyrequiresa99%controlefficiency.

August18,1993 TheChiefoftheStationarySourceBranchatEPARegionIXwritestoAPCDaboutsixpublicnoticesofERCapplications,includingChevron’sforthe1980reductions.TheprimarycommentisthataccordingtotheUSCleanAirAct,creditsforpre-1990emissionreductionsmaybeusedonlyifthey’reincludedintheemissionsinventory—butthatphonecallswithAPCDmadeitclearthat,“plannersdonothavetheabilitytoaddtheemissionstothe1987inventory.”

December21,1993 APCDwritestoChevroninformingthecompanythatithasdecidedtoapproveProject#920255andisenclosingassociatedERCcertificates.TheapprovalletterstatesthatChevronshould“beawarethatEPAhascommentedthatthesecreditsarenotsurplusoffederalRACTrequirementsand,therefore,cannotbeusedasoffsetsuntiltheyareRACTadjusted…TheDistrictdoesnotconcurwithEPAonthismatteratthistime.EPAmaychallengeanyprojectwhichusesthesecreditstogainapproval.”

December21,1993 OnthesamedaythatAPCDapprovesChevron’sERCapplication,APCDwritestotheProjectReviewBranchatCARBinformingtheagencyofitsdecisiontoapproveProject#920255.APCDalsowritestoEPAinresponsetoitsAugust11comments,statingthatthecreditsaresurplusaccordingtoDistrictRule2301andthatreductionsshouldbeadjustedbasedonrulesandplans“ineffectatthetimetheAuthoritytoConstructwasdeemedcomplete.”APCDindicatesitintendstoreviseitsemissionsinventorytoreflectpre-1988reductionsapprovedforbanking.

July1994 Underacooperativeagreement,CARB,EPA,andAPCDconductareviewof110districtERCbankingactions,includingChevron’sProject#920255.AdraftreportconcludesthatChevron’sapplicationwasfiledafterthedeadlineinDistrictrulesandthattheSanJoaquinAPCDwasallowingpre-1983emissionreductionsinKernCountytobebankedasERCs,whichcontradictedDistrictRule230.1.

August1994 CARBreviewsover20ERCprojectsintheSanJoaquinAPCD.AdraftprojectsummaryconcludesthattheemissionreductionsinChevron’sProject#920255aren’tenforceablebyconditionsinthePermittoOperate(PTO)orAuthoritytoConstruct(ATC).

September6-12,1994 APCDrespondstoCARB’sconclusionsinthedraftauditreportabouttheChevronERCproject,statingthatbecauseChevronfiledanoriginalapplicationonMarch16,1992,itwastimely.APCDacknowledgesthatnineyearspassedfromthetimeofreductiontothetimetheapplicationwasfiled.APCDalsostatesthatthereductionsareenforceablebecausea99%efficiencyratewasincludedinPTOsandATCsissuedinthe1980sforChevron’smodificationofvaporrecoverysystems.

C.WhythecreditsareinvalidTheapplicationwassubmittedaftertheregulatorydeadlineInJuly1994,EPAconcludedthatChevron’sapplicationwasfiledafterthedeadlineinRule230.1,whichspecified(inSectionIV.A.2atthetime)thatERCsforemissionreductionsoccurringpriortoJanuary1,1988mustbesubmittedwithin180daysoftheadoptionoftherule,i.e.,byMarch16,1992.

ThiswasthedateofChevron’sfirstERCapplication—anapplicationthattheDistrictdeniedandreturnedwithoutconductinganyreview.YetinreviewingChevron’ssecondERCapplication,thedistrictassertedthattheapplicationwastimelybecauseitwassubmittedonMarch16—wheninfact,itwassubmittedinNovember1992(i.e.,eightmonthsafterthesubmissiondeadline).

Inaddition,theKernCountyAirPollutionControlDistrict(KCAPCD,theprecursortotheSanJoaquinValleyAirPollutionControlDistrict)adoptedRule210.3onApril25,1983.SectionC.4.b(orSectionIII(D)(2)inthecurrentrules)statesthatthe,“Applicationforqualifyingemissionsreductionsoccurringbeforethedateofadoptionofthisruleshallbefiledwithinoneyearofadoption.”SincetheDistricthadcreditedChevron’sreductions(i.e.,the6%abovethe93%controlefficiencyrequiredatthetime)inJanuary1980,itappearsthatChevroncouldhaveformallyappliedtohavethosecreditsbankedunderRule210.3,butdidn't.The1994jointaudit(byCARB,EPA,andtheDistrict)ontheDistrict’sbankingactionsnotedthisone-yeargraceperiod,emphasizingthat,“Afterthisperiod,pre-1983reductionscouldbecarriedonastationarysource’snetemissionsincrease,butcouldnotberecognizedasERCs.”Thecreditsweren’tsurplusTheseChevronERCsreflectthedivergencebetweentheEPA’sandtheDistrict’sdefinitionof“surplus”whenitcomestoevaluatingERCs.Inshort,theDistrictallowsforcreditsthatare“surplusatthetimeofissuance,”whileEPAmandatesthattheybe“surplusatthetimeofuse.”Asdiscussedintheintroductiontothispaper,theDistrictandEPAarguedoverthisdifferenceforalongtimeandultimatelyreachedanagreementonhowtoaddressit.

WithregardtoChevron’semissionreductioncreditclaimforthe1980shutdown,bythetimethecompanysubmittedtheapplicationthattheDistrictformallyreviewed(November1992),thebasisforthereductionswasalreadycoveredbyexistingregulations.Thismeanstheycouldn'tbeclassifiedassurplus.

EPA’sAugust1993commentstotheDistrictstatedthat,onthebasisofSections172and173oftheUSCleanAirAct,“retainedreductioncreditsmustbeusedinaccordancewiththecurrentrequirementsinthearea,nottherequirementsineffectatthetimethecreditswereestablished.”

Inaddition,theKernCountyAirDistrictrevisedRule210.1requiringBestAvailableControlTechnology(thecurrentSJVUAPCDRule2201)inJune1987,aboutfiveyearsbeforeChevron’sERCapplication.DistrictRule4401onSteam-EnhancedCrudeOilProductionWells,adoptedinApril1991(i.e.,morethan18monthspriortoChevron'sERCapplication),required99%controlefficiencyforVOCs.

Inordertobesurplus,theoriginaldateofequipmentmodificationandemissionsreductions(May1980)wouldhavetobeconsideredasthe“dateofissuance.”However,in1980,theDistrictsimply

allowedChevrontoincludethe6%ofreductionsaboveregulatoryrequirementsinthecompany’sinternalprofilesforhydrocarbons.Thisactiondoesnotseemtohaveconstitutedan“issuance”ofcreditsbecauseatthetime,theDistrictdidn’thavearuleonbankingemissionsreductionsuntil1983.

ThiswasthesameconclusionreachedbytheDistrictwhenitdeniedChevron’sfirstERCcertificateapplicationinMarch1992.Thedenialletteremphasizesthatonlypre-1983reductionsrepresentedbybankingcertificatescouldbebanked—meaningthatthe6%ofreductionscreditedtoChevron’sinternalprofilesdidn’tqualify.YetwhentheDistrictrespondedtoEPA’sERCAudit,whichincludedtheChevronproject,itassertedthatthereductionswerevalidbecausetheyhadbeen“formallyrecognized”ina1980AuthoritytoConstructfortheequipmentmodification.

ThefilesprovidedinresponsetoourrecordsrequestdidnotexplainwhytheDistrictchangeditsmindandinsteadagreedwithChevron’sassessmentthatinclusionofthereductionsinthecompany’sinternalprofileforhydrocarbonsmadethemeligibleforabankingcertificate.

Chevronwantedto“haveitscakeandeatittoo”InitsresponsetoCARBandEPA’scommentsduringthe1994audit,theDistrictstatedthatthe“emissionreductionissurplusprovidedthatitwasproposedbeforeanyrulewouldhaverequiredthereduction.”ThisstatementreflectsthefactthatChevron,withtheDistrict’ssupport,wastryingtohaveitbothways.If1980wasthedatethereductionswereproposed,thenthecreditsintheNovember1992applicationmayhavepotentiallymetthedefinitionofsurplusbuttheapplicationitselfwasn’ttimely.Ifa1992applicationandreduction“proposed”datewasusedinordertomaketheapplicationtimely,thenthereductionscouldn’tbeconsideredsurplusbecauseofregulatoryrequirementsinplaceatthetime.

D.Chevron“permanence”groupcredits(CO2e)ChevronappliedforandreceivedERCcertificatesforaseriesofreductionsfromequipmentusedinoilfieldsoverthecourseofseveralyears.Thesecreditssharethecharacteristicofassertingtherequirementofthe“permanence”oftheemissionsreductionsonthebasisofastatewidegeographicboundaryandtheoveralldownwardtrendinoilandgasproductioninCalifornia.Belowwediscussreasonswhythesebroadclaimscallthevalidityofthecreditsintoquestion,followedbyanoverviewofadditionalconcernsregardingthreeofthecertificatesinthisgroup.

Asthetablebelowshows,thevolumeofcreditsrangesconsiderablyamongthefiveindividualcertificatesinthisgroup.Takentogether,however,theyrepresent56%ofthetotalvolumeofERCsand96%ofthetotalvolumeofERCsheldbyenergycompaniesintheCO2ebankasofFebruary2018.SomeoftheERCswereissuedinrecentyears,eventhoughtheyarebasedonreductionsfromdecadesearlier.ThesecreditswereclaimedfortheshutdownoftwoenginesintheCoalingaoilfield(S-1372);removaloffourgasturbinesintheKernRiveroilfield(S-4113andS-4114,initiallyappliedfortogether);shutdownofthreegasturbineenginesattheNorthMidwaycogenerationfacilityintheKernRiveroilfield(S-4304);andreducedoperationoffourgasturbineenginesattheSycamorecogenerationfacilityintheKernRiverOilField(S-4808).16

CertificatesrelatedtoChevron’sclaimofastatewidegeographicboundaryforreductions,identifiedthroughpublicrecordrequests

ERCcertificatenumber

FilerequestedbyEarthworks(2018)

ClaimedreductioninMT/Year

S-1372-24 2015 X 161S-4113-24 2014 X 36,937S-4114-24 2014 X 33,851S-4304-24 2014 X 30,279S-4808-24 2017 X 257,426 Total 358,654AstatewideboundaryistoobroadInallthesecases,theDistrict’sinitialevaluationofERCapplicationsquestionedChevron’sclaimofpermanenceandwhethertheequipment(andresultingemissions)wouldn'tjustbereplacedelsewherebyotheroperations.TheDistrictalsorequesteddocumentationspecifictothetypesofenginesandprocessesforwhichthereductionswerebeingclaimed.Forexample,inApril2012,theDistrictsentalettertoChevronaboutitsapplicationforERCcertificatesS-4113andS-4114(bothrelatedtothesameproject),statingthattheapplicationwasincompleteandaskingChevronto“providedocumentationthattheemissionsfromtheelectricalandthermalenergyproducedbytheturbinesarepermanent,i.e.,electricalandthermalenergyisnotbeingreplacedbyanyneworexistingequipment.”InMay2013,theDistrictsentalettertoChevronaboutitsapplicationforERCcertificateS-1372,statingthatadditionalinformationwasneededandChevronneededtoprovide“anexplanation/justificationofhowtheGHGemissionreductionispermanent(i.e.,notshiftedtootherequipmentorprocesses)withintheboundaryoftheemissionreductionproject.”(Emphasisadded.)TheDistrictusedthissamelanguageinaDecember2013lettertoChevroninformingtheoperatorofitsintenttodenytheapplicationforERCcertificateS-4304.Inresponsetothesechallenges,ChevronassertedthattheentirestateofCaliforniawastheboundaryforclaimingpermanence.Chevron’sprimaryrationaleforthispositionwasCalifornia’scap-and-tradeprogram,whichisbasedonthepresumptionofasignificantreductioninGHGemissionsstatewide.Chevronarguedthatbecausethecompanyparticipatesintheprogram,itwouldnotbeallowedtoincreaseitsemissionsanywhereinCaliforniagoingforward—includingintheareaswherethespecificreductionsfromshuttingdownsomeenginesoccurred.Inallofthecasesreviewedhere,theDistrictacceptedChevron’sargumentandgeneralstatementsaboutitsparticipationinthecap-and-tradeprogram.ShortlyafterreceivinglettersfromChevroncontestingtheDistrict’srequestfordocumentationonthepermanenceofthereductions,theDistrictdeemedtheapplicationscompleteandsubsequentlyissuedERCcertificates.Werecognizethatthecap-and-tradesystemisbasedonmeasuringreductionsintermsofthe“boundary”ofacompany’soperationsacrossabroadgeographicarea.However,eveninthatcontext,ChevrondidnotprovideanyinformationtotheDistricttosubstantiatetheclaimthatthecompanywouldnotatthetime,orever,increaseitsallowedemissionsintheoilproductionregionswherethereductionswereinitiallyclaimed.Asaresult,theDistricthadnobasistopresumethatastatewideboundaryinfactresultsinpermanentreductionsinthoseareas.

InJune2016,theCenterforBiologicalDiversity(CBD)expressedthisconcerntotheDistrictinacomprehensivecommentletteronERCcertificateapplicationS-4320-24,which(asexplainedabove)alsoappliestoS-4808-24.TheCBDcommentletteremphasizedthatwhilethecap-and-tradeprogram’sgoalisareductioninstatewideemissions,operatorshavenumerousoptionsinwhichtoachievethisthatmayhavenothingtodowiththereductionsclaimedforERCs;inaddition,the“prolificuseofoffsetsandthe‘paytopollute’approachintrinsictocap-and-tradesystemserodesthecertaintyofreducedenergydemand.”AccordingtoCARB’sMandatoryGreenhouseGasReportingDatabase,Chevron’semissionsappeartohaveincreasedintheyearssincethecompanyappliedfortheseERCcertificatesonthebasisofstatewidepermanenceandthepromiseofstatewideemissionreductions.Entriesinthedatabaseindicatethatfrom2012-2016,metrictonsoftotalCO2ereportedbyChevronincreasednearly3percentforalloperationsstatewideandnearly30percentforoperationsintheSanJoaquinValleyairbasin.Decliningoilandgasproductionisn’tthesameasemissionreductionsChevrongaveanotherreasonforitspositionthatallofCaliforniashouldserveastheboundaryfordeterminingthepermanenceofemissionreductions:decliningoilandgasproductioninthestate.InbothaSeptember2013letterinthefilesforS-1372,S-4113,andS-4114andaDecember2013letterinthefilesforS-4304,Chevronstatedthatoilfieldproduction,“hasdeclinedinthepastthirtyyears…TherehavebeennosignificantnewoildiscoveriesinCaliforniaduringthattimeandthedeclineisexpectedtocontinue.”Tosupportthisaspectofitsstatewide“boundary”claim,ChevronprovidedasingleplotgraphonCalifornia’sgasproductionduring2009-2012fromtheCaliforniaNaturalGasProducersAssociation(inthefilesforS-1372)andasingleplotgraphonCaliforniafieldproductionofcrudeoilduring1985-2010fromtheUSEnergyInformationAdministration(inthefilesforS-4113-,S-4114,S-4304,andS-4808).Thesegraphsareinsufficienttosubstantiatetheclaimthatsuchtrendsarepermanent.InitscommentletteronERCcertificateapplicationS-4320,CBDcorrectlystatedthatthe“oilmarketishighlyvolatile,makinghistorictrendsquestionablepredictors.”Pricevolatility,newproductiontechnologiesandfielddiscoveries,andshiftsindemandmakemarketshardtopredictwithcertainty.YetevenifCalifornia’soveralloilproductioncontinuestodecline,oilandgascompaniesareseekingtoexpandtheiroperations.Forexample(asnotedabove),theenvironmentalanalysisconductedpriortothe2015adoptionofamendmentstotheKernCountyzoningordinanceprojectsthatmorethan3,600newwellscouldcomeonlineannuallyforthenext20years,andincludesaprovisiontofast-trackpermitsinanefforttoexpandoilandgasproduction.17(Thispolicychangeledseveralorganizationstosueoverthelackofenvironmentalreviewandpublicparticipation.)ForChevron’spart,thecompanyisinvestingheavilyinenhancedoilrecovery(EOR)technologiestoextendthelifeofitsoilwells.Accordingtothecompany’swebsiteonEOR,theseefforts“haveflattenedChevron’snaturaldeclinecurveforexistingassetsfrom14percenttolessthan2percentoverthelastseveralyears,”andwillhelpachieveChevron’sstated“goalofgrowingproduction.”

Attheveryleast,intheERCapplicationsChevronshouldhavedemonstratedthatthecompany’sownproductiondeclineswouldbepermanent—ratherthanrelyingontrendsforalloperatorsacrosstheentirestate.NordidChevron’sERCapplicationsprovideanyinformationsubstantiatingtheclaimthatlowerproductionvolumesamongoperatorsstatewidemeanspermanentemissionsreductionsinanareawhereengineshavebeenshutdownatsomeofthecompany’swells.Emissionsfromdifferentpartsoftheproductionprocessarehighlyvariabledependingonequipmentandactivities.Thesubstancesinandlevelsofemissionsvaryamongprocesses,makingitspecioustoequate,forexample,theemissionsassociatedwithdrillingorflowbackwithemissionsfromcompressorengines.Unfortunately,itappearsthatdespiteinitialquestions,theDistrictencouragedChevron’sunsupportedsubstitutionofemissionsreductionsfromspecificequipmentinalimitedgeographywithstatewideproductiondeclinesforthepurposesofclaimingpermanence.InNovember2013,anairdistrictengineerwiththepermitsservicesdivisionemailedaChevronemployeeregardingtheapplicationforERCS-1372,stating:

Idon’tseehowwemadetheleapbetweentheNoseUnit[intheCoalingaoilfield]andtheStateofCaliforniaasboundariesforpermanence.

IrealizethattheNoseUnitisdriedup(andtomepersonally-thatgascanneverbecompressed

again-anywhereintheworldbecauseit’sALLGONE–andthat’saspermanentasyoucanget)…

buttheDistrictisasking:Can’tsomeoneelseinCaliforniacompressgastomakeuptheproduction

that’slostintheNoseUnit?

DoyouhaveagraphofnaturalgasdeclineinCAsimilartothegraphofoilproductiondeclinethat

SteveDavidsonusedinhisproject?We’rereadytorollandIwanttogettheseprojectsdoneforyou.

AccordingtoCalifornia’sDivisionofOil,Gas,andGeothermalresourcesactivewelldatabase,inSeptember2018Chevronowned40producingoilandgaswellsinexactlythesameSection/Township/RangeforwhichtheERCenginereductionswereclaimed.ThisappearstocountertheDistrictengineer’sassertionfiveyearspriorthattheCoalingaNoseUnitwasalready“driedup”and“allgone.”AdditionalquestionsbasedonERCcriteriaOurreviewoffilesforthisgroupofChevroncertificatesraisedadditionalquestionsregardingthevalidityofthreeofthembasedonstatutoryrequirementsforERCbanking.CertificateS-1372-24.ChevronsubmittedanapplicationonFebruary15,2013forcreditsbasedonreductionsfromtheshutdownofanengineonAugust5,2011andanotherengineonApril11,2012.Initsreview,theDistrictdeterminedthatthelattershutdownwasn’teligiblebecauseitoccurredafterthedeadlineforbeingconsideredsurplus.AccordingtoDistrictRule2301Section4.5.3.1,“GreenhousegasemissionreductionsthatoccurredatafacilitysubjecttotheCARBgreenhousegascapandtraderegulationonorafterJanuary1,2012arenotsurplus.”IndeterminingwhetherChevron’sapplicationwastimely,theDistrictcitedDistrictRule2301,Section5.5:“ERCCertificateapplicationsforreductionsshallbesubmittedwithin180daysaftertheemissionreductionoccurs.”TheDistrictstatedthatbecauseChevronhadsurrenderedthepermitsforthetwoenginesonAugust27,2012,theapplicationwastimely.However,thelanguage

inSection5.5refersto180daysaftertheemissionsreduction,whichinthiscasewastheshutdownofengines.Inaddition,theDistricthadalreadyeliminatedtheApril2012reductionfromtheapplicationbecauseitdidn'tmeettherequirementofbeingsurplus.Atthispoint,onlytheAugust2011reductionwasinplay—meaningthattheapplicationbeinganalyzedwassubmittednearly18months(inFebruary2013)afterthereductionoccurred.Interestingly,intheERCapplicationanalysis,theDistrictalsocitesDistrictRule2301Section5.5.2:“ForreductionscoveredunderSection4.5.1[relatedtoGHGreductions]thatoccurredpriortoJanuary19,2012ERCCertificateapplicationsshallbefiledwiththeDistrictbyJuly19,2012.”ThisdatewasnotmetbytheapplicationforCertificateS-1372-24either,whichChevronfiledinFebruary2013,sevenmonthsafterthedeadlinestipulatedinSection5.5.2.TheDistrictalsoreferredtoanapplicationsubmittedonMay27,2011toasserttimeliness.Itisnotclearfromthefileswhatthisearlierapplicationwasfor.However,thisearlierapplicationwasnottheonebeinganalyzedbythedistrict,anditsdatewouldhavebeenmorethantwomonthsbeforethereductionoccurredinAugust2011.CertificateS-4304-24.ChevronsubmittedanapplicationonJuly19,2012foremissionreductionsfromthreegasturbineengines(GTEs).AccordingtotheDistrict’sapplicationanalysis,thelastdayofoperationofthethreeGTEswasDecember28,2011.ThesedatesfulfilledrequirementsinDistrictRule2301:first,theapplicationwassubmittedintimeforapplicationsbasedonreductionspriortoJanuary19,2012tobeconsideredsurplusaccordingtoSection5.5.2;andthereductionoccurredafewdaysbeforethecutoff(January1,2012)forgreenhousegasreductionstobeconsideredsurplusaccordingtoDistrictSection4.5.3.1.However,theDistrict’sanalysisstatesthatthe“GTEswereinadormantstate;”werepermittedas“dormantnon-compliant;”andweretherefore“capableofresumingoperation”evenafterChevronstoppedusingtheminDecember2011.Thismeansthatthereductionsweretheresultofapermitand/oroperatingconditionthatcouldbereversed—andanyreductionsthatoccurredinDecember2011weren’tpermanent.Initsapplicationanalysis,theDistrictindicatedthatthe“PermittoOperateforeachturbinewassurrenderedwhentheERCapplicationwasreceivedonJuly19,2012.Thereforetheapplicationwassubmittedinatimelyfashion.”ThisstatementindicatesthatChevronandtheDistrictusedthedateofthepermitsurrenderasaproxyforthedateofemissionreductions,whichwasnecessarytoestablishthereductionsaspermanent.Theapplicationanalysisconfirmsthisapproach,statingthatthecriterionofpermanenthasbeenmetbecause“ThegasturbineshavebeenshutdownandtheRTOshavebeensurrendered."However,ifJuly19,2012wasthe“reduction”date(ratherthanDecember28,2011),thenChevronmissedtheJanuary1,2012cutoffforgreenhousegasreductionstobeconsideredsurplusaccordingtoDistrictRule2301Section4.5.3.1.

Inotherwords,eitherthecreditsweresurplusbecausethereductionoccurredinDecember2011ortheybecamepermanentinJuly2012whenthepermitsweresurrendered.TobecompliantwithDistrictRules,theyhadtobeboth—andyettheywerenot.CertificateS-4808-24.CBD’scommentletteronS-4320-24,whichappliestothederivedcertificateS-4808-24,emphasizesthattheproposedcreditswerenotsurplusbecauseaccordingtoDistrictRule2301Section4.5.3.1,“GreenhousegasemissionreductionsthatoccurredatafacilitysubjecttotheCARBgreenhousegascapandtraderegulationonorafterJanuary1,2012arenotsurplus.”ChevronappliedfortheERCapplicationonDecember27,2011,justafewdaysbeforethisdeadline.However,itisn’tclearfromtheERCfileswhenthereductionsactuallyoccurred.ItthereforeispossiblethatChevronandtheDistrictusedthedateofERCapplicationasaproxyforthedateofemissionreductionsforthepurposesofclaimingtheyweresurplus.Districtandstaterulesclearlystatethatcreditsaredeterminedtobesurplusbasedonthedateofreduction(i.e.,notthedateofapplication).Initsapplication,Chevronassertedthatthereductionsweretheresultofcurtaileduseoffourgasturbineenginesfollowingadeclineinproduction.However,asCBDpointedout,theclaimedreductionsdidn'tbecomepartofChevron’spermitsuntilJune2012,soweren’tenforceableuntilafterthedeadlineforbeingsurplushadpassed.Inotherwords,thereductionswereeithersurplusorenforceableatthetimeofapplication.TobecompliantwithDistrictRules,theyhadtobeboth—andyettheywerenot.

E.AeraEnergy(CO2e)InMarch2015,theDistrictissuedERCcertificateS-4212-24toAeraEnergyfor12,003metrictonsperyearofCO2e.Thisrepresentsabout2%ofthetotalvolumeofallCO2ecreditsand3%ofthevolumeofcreditsheldbyenergycompaniesinthebankasofFebruary2018.ThefileswereceivedforthiscertificatewereidenticaltothosereceivedforS-2988-1,whichwasinthebankasofFebruary2018forasmallvolumeofVOCsheldbyFederalPowerAvenal;theconnectionbetweenthesetwoERCcertificatesisn’tclearbasedonthedocumentssenttousbytheDistrict.AeraEnergysubmittedanapplicationonJuly16,2012foremissionsreductionsfromtheshutdownofsixcompressorenginesandanoilheateratthecompany’sLostHillsGasPlant.AerasoughtthecertificateunderDistrictRule2301Section5.5.2,whichstatesthat,“ForreductionscoveredunderSection4.5.1thatoccurredpriortoJanuary19,2012ERCCertificateapplicationsshallbefiledwiththeDistrictbyJuly19,2012.”Initsapplication,Aerastatedthatuseoftheequipmenthadbeensignificantlycurtailedstartingin2004becauseoperatorshadcutbacktheiruseoftheplantforprocessingandtheequipmentpermitshadbeensurrenderedinAugust2007.AerastatedthattheequipmenthadbeensoldaroundthattimetoCrimsonResourcesandremovedfromthesite,andthatCrimsonwouldneedtoseekapermittoputitbackintouseinthefuture.AstatewideboundaryistoobroadOnAugust21,2012,aDistrictpermitservicesmanagerwrotetoanAeraemployeeaskingformoreinformation“todemonstratethattheGHGemissionreductionsarepermanent,andnotreplacedbyemissionselsewhere.”

ThisquestionapparentlyarosebecauseAerahadselectedtheentirestateofCaliforniaasthegeographicalboundarytodeterminethereduction’spermanence.ThiswasthesameapproachtakenbyChevronforthegroupofERCcertificatesdetailedabove;forthesamereasons,webelievethiscallsthevalidityofERCcertificateS-4212-24intoquestion.Aera’srationaleforsuchabroadandgeneralboundarywasthedeclineofnaturalgasproductionstatewide.AsintheChevroncases,theonlydocumentationthatAeraprovidedtosubstantiatethiswasasingleplotgraphshowingageneraldownwardtrendinCalifornia’sgasproductionfrom2009-2012.Initsapplicationanalysis,theDistrictappearedtoacceptthestatewideboundary,statingthatthecreditscouldbeissued“withnoneoftheloadbeingshiftedtoanyothercompressorenginesorelectricmotorsinCalifornia,”inpartbecausetheengineswereina“depletedgasfield.”However,accordingtoCalifornia’sDivisionofOil,Gas,andGeothermalresourcesactivewelldatabase,inSeptember2018Aerastilloperatedmorethan50activeoilandgaswellsinexactlythesameSection/Township/RangeinwhichtheLostHillsgasplantwaslocatedandforwhichtheenginereductionswereclaimed.ThiscounterstheDistrict’srationalethatthereductionscouldn'tbeshiftedbecausetheenginesoccurredina“depletedgasfield.”Inaddition,iftheDistrictviewedtheconditionofaspecificgasfieldasthebasisforthepermanencefortheclaimedreductions,itisunclearwhyAerahadtoalsoclaimastatewideboundary.EconomicfactorsarenotabasistoclaimGHGcreditsOnApril17,2014,CBDsubmittedacommentlettertotheDistrictregardingtheproposedissuanceofERCsforAera’senginesandheatershutdownattheLostHillsgasplant.CBD’sprimarycommentwasthatissuanceofthecreditswasnotallowedundertheCaliforniaEnvironmentalQualityAct(CEQA)becauseAeraconductedtheshutdownsin2007foreconomicreasons—notforthepurposeofGHGmitigation.Aeramadeitsreasonfortheequipmentshutdownveryclear.OnJanuary16,2014,adistrictengineeremailedanAeraemployeeaskingwhytheLostHillsgasplantwasshutdown;Aerarespondedthat,“TheSection15GasPlantwasshutdownduetodeclininggasproductioninthefieldssurroundingtheplant.”AerahadalsostatedinitsERCapplicationthatthesubsequentsaleofallequipmentattheplanttoanothercompanywasareasontheshutdownmettheERCcriterionofbeingpermanent.Inaddition,Aeraused2002-2004asthebaselineforcalculatingemissionstoobtainERCcreditsbecauseoperationsattheplanthadalreadybeen“severelycurtailed”inthetwoyearspriortothefinalequipmentshutdown.Giventhis,thesoughtcreditsdidn'tmeettheERCcriteriaofbeingsurplusinthesensethatAerawouldhaveremovedtheequipmentfromoperationforreasonsthathadnothingtodowiththepursuitofGHGreductions.AccordingtotheCBDletter,“CEQAleadagenciesmustidentifyadditionalfeasibleemissionsreductionsthatwouldnotalreadyhaveoccurredintheabsenceofthemitigationrequirement."InFebruary2014,CBDhadalsosentalettertotheCaliforniaAirPollutionControlOfficersAssociation(CAPCOA)explainingconcernswiththeDistrict’screditslistedonCAPCOA’sGHGexchange.CBD’sletteremphasizedthatalargenumberofcreditsontheexchangewerebasedonclaimedreductionsthatoccurredbecauseofthecessationofoperationsatsugarandbeet

processingfacilities.However,inthesecases—aswithAera’sapplicationforequipmentattheLostHillsGasPlant—economicconsiderations(i.e.,decliningproductionandpricesandincreasingoperationalcosts)didnotcomportwithCAPCOA’srequirementthatcreditsbe“highquality”and“createdwhenprojectsorpracticesareimplementedspecificallytoreduceGHGemissions.” InMay2013,CARBissued“ProcessfortheReviewandApprovalofComplianceOffsetProtocolsinSupportoftheCap-and–TradeRegulation.”Thispaperstatedthat,“TheGHGemissionsreductionmustbeadditional,orbeyondanyreductionrequiredthroughregulationoractionthatwouldhaveotherwiseoccurredinaconservativebusiness-as-usualscenario."ThisindicatesthatbecauseAera’schoicein2007toshutdownthegasplantwasfinancialinnature,thesubsequentreductionscouldn’tbeusedtoclaimERCs.InresponsetoCBD’scomments,theDistrictapparentlydecidednottolistthecreditsinERCCertificateS-4212-24ontheCAPCOAexchange.However,theDistrictignoredthequestionofAera’sequipmentshutdownbeingafinancialdecision,emphasizingonlythatCEQAallows“off-sitemeasures,includingoffsetsthatarenototherwiserequired”tobeusedforGHGmitigation.TherearenodocumentsinthefilesprovidedforCertificateS-4212-24toindicatewhetherornotCARBorEPAcommentedonAera’sapplicationbeforethecreditswereissued.

5.Conclusions&RecommendationsAsthecasestudiesinthisreportdemonstrate,asignificantproportionofERCsintheSanJoaquinValleyAirPollutionControlDistrict’sbankappeartobeinvalid.Thecertificatesreviewedforthesecasestudiesrepresentabout22%ofthevolumeofcreditsintheVOCbank(asofFebruary2018);thismaybeashighas33%iftheadditionalcertificatesidentifiedintheresearchforcaseC(ChevronVOC)arealsorelatedtotheoriginating1980reduction.Inaddition,thecertificatesreviewedforthetwoCO2ecasesrepresent58%ofthevolumeofthosecreditsinthebankforthatpollutant(asofFebruary2018).ThereviewofevenmorecertificatesandtheirrelationshipswouldlikelyraisevalidityquestionsforanevenlargerproportionofcreditsintheDistrict’sbanks.Whilethedetailsofeachcaseandcertificatevary,somecleartrendsemergedfromourresearch:

§ TheDistrictacceptedERCapplicationsyearsafterreductionsactuallyoccurredandallowedvariousdatestobe“mixedandmatched”tojustifythetimelinessoftheapplications.

§ DuringERCapplicationreview,theDistrict’sinterpretationofERCruleswasoftenlooseandvariable(e.g.,withregardtocreditshavingtobesurplusandpermanent).

§ WhenapplicantsobjectedtotheDistrict’sconclusionsregardingproblemswithapplications(e.g.,misseddeadlinesorinadequateemissionsdata),theDistrictchangeditsmindandacceptedtheoperator’sarguments.

§ DespiteobjectionsfromEPAandCARBaboutthebasisforclaimedreductionsandthevalidityoftheassociatedcredits,theDistrictissuedthemanyway.

Insum,therearethreeunderlyingproblemswithregardtotheDistrict’sERCbanks.First,despiteextensiveresearch,itprovedvirtuallyimpossibletodevelopacompletepictureoftheorigin,

trajectory,anduseofERCs.Itwasdifficulttofullyunderstandtheconnectionsamongeventhebankedcreditsforwhichwehaddocuments.Theresultingopaquenatureofthecreditsmakesitverydifficulttosortoutwhethertherearemanyothercreditsthatshouldneverhavebeenissuedandthereforeshouldnowberetired,orshouldbefurtherdiscountedbeforebeingappliedtocurrentprojects.Second,foraperiodoftime,theDistrictamendeditsbankingrulesinordertoallowoperatorstoclaimcreditsforemissionreductionsthathappenedyearsearlier.Thismeansoperatorswereabletoidentifyaspectsofpastactivitiesinordertoclaimreductionsforyearsgoingforward.Sucharetrospectiveapproachtoemissioncreditbankinghasmadeitfarmoredifficulttoensurethevalidityofcreditscurrentlyinthebankthatstemfromdecades-oldreductions.Importantly,thiscouldmeanthattheDistrict’sERCsystemhaslongappearedtobehavingamoremeaningfulimpactonreducingairpollutionthanitactuallyhas.TheDistrictmaynolongerbeallowingveryoldreductionstobeincludedinapplications,butasignificantproportionofcreditsinthecurrentbank—whichcontinuetobewithdrawnandusedfornewprojects—reflectsuchpastpractices.Third,creditsintheDistrict’sbankneverexpireandareconsideredvalidattimeofissuance,sotheycanbesplitandchangehandsendlessly.Thisisproblematicbecauseovertime,theERCsmaybeconsideredvalideveniftheynolongermeetthelegallyrequiredcriteriaofbeingreal,permanent,quantifiable,surplus,andenforceable.Evencreditsthatwouldneverbeissuedtodayremaininemissioncreditbanksandcanbeusedfornewprojects.Asaresultofthesefindings,westronglyrecommendthefollowingtwoactions.

1.CARBshouldaudittheSanJoaquinValleyAirDistrictERCsystem

ThereisprecedentforanauditInlightofthedocumentationpresentedinthisreport—andinthecontextofsevereandpersistentairqualityproblemsacrosstheSanJoaquinValleyregion—CARBshouldconductanauditofwhethertheERCsinthebankarevalid,orareinsteadfacilitatingthepermittingandexpansionofoperationsthatwouldotherwisenotbeallowed.Ourresearchhaspavedtheway,butmoreresourcesandemissions-relatedexpertisearenecessaryforafullaudit.Anauditisnecessaryinlightofthepossibilitythatpollutionfromprojectsthatreliedoninvalidcreditsforapprovalhasn’tinactualitybeenoffset—orthatoldercreditsinthebankareinsufficienttocountertheadditiveeffectsofnewpollution.InJuly1994,underacooperativeagreement,CARB,EPA,andtheDistrictconductedareviewof110DistrictERCbankingactions. ThepreliminarydraftofthisreviewindicatedthatsignificantconcernswiththeDistrict’sbankingtransactionsexistedover20yearsago.TheseconcernsincludedafasterrateofbankingthaninotherCaliforniaairdistricts;alargepercentageofcreditsbasedonpre-1988reductions;andtheDistrictchangingitsrulestoallowforthebankingofpre-1983credits.

Unfortunately,itwasn’tpossibletogleanadditionalinformationfromthisjointreview,nortofullyunderstandEPAandCARB’spositiononquestionsrelatedtooldercredits,filingperiods,andotherconcerns.Thefilesprovidedinresponsetoourrecordsrequest(relatedtoCaseContheVOCcreditsheldbyChevron)includedonlyfivenon-consecutivepagesofadraftreport;thepage

numbersindicatedthereweremanymorepagesthatwerenotprovided.Wesubsequentlysubmittedapublicrecordsrequestspecificallyforthefinalreportonthejointreview.Inresponse,theDistrictPublicRecordsRequestCoordinatorstatedthat,“AsearchoftheDistrict'sdatabaseshasreturnednorecordsonfile.ItissuggestedtocontactCAAirResourcesBoardviaCARB'spublicrecordsrequest.”Arecordsrequestforthe1994jointauditfiledwithCARBhadthesameresult;theagency’sPublicRecordsActCoordinatorstatedthat,“ThesearchforresponsiverecordsiscompleteandnoresponsivedocumentswerelocatedbyCARBstaff.”In2005,CARBissuedthe“SanJoaquinValleyAirPollutionControlDistrictProgramReview.”Thisreportexaminedseveralcriticalissues,suchaspermitting,airmonitoring,andcompliance,butdidnotdelveintotheERCbankingprogram.However,CARBdidciteaninstanceinwhichtheDistrictretroactivelychangedapermitrequirementforanairmonitoringsystem—eventhoughthatsystemwasoneofthereasonsthecompanyhadreceivedanERCcertificate—andconcludedthattheDistrictneededtoensurethatinitialpermitrequirementsarenotweakenedatlaterdates.EquivalencyshouldbequestionedCARBshouldincludeequivalencydeterminationsinanauditgiventhatmanyofthecreditsintheDistrict’sERCbankarepotentiallyinvalid.Todate,theDistrictappearstohavedemonstrated“equivalency”ofitsrequiredoffsets—issuedundera“timeofissuance”premise—toCARB’ssatisfaction.However,theonlywaytoensurethatthisisindeedthecaseistoaudittheDistrict’sequivalencyreports,inparticularwithregardtotheadequacyofdiscountingforinvalidcredits.SincealargeproportionofthecreditsintheDistrict’sERCbanksarelikelyinvalid,thevalidityoftheequivalencydeterminationsthatarebasedonthosecreditsshouldalsobeexamined.Inrecentyears,legalteamsatEarthjusticeandtheCenterforBiologicalDiversityhavesubmitteddetailedcommentsonseveralERCpermitapplications.Unfortunately,theDistrictrespondedtothesecommentsmerelybyreiteratingthatallcreditsintheDistrict’sERCbankarevalidandthatthe“equivalency”reportingtoCARB(discussedabove)ensuresthattheactualoffsetsmeetwhatwouldhavebeenrequiredunderthe“timeofuse”premiseinfederallaw.Unfortunately,theequivalencyreportsthattheDistrictmakesavailabletothepublicshowonlytotalnumbersforfederalNewSourceReviewandDistrictcredits,withnoindicationofhowthoseresultswerecalculated.Inaddition,analyzingtheunderlyingdatawouldrequireconsiderabletechnicalexpertise.IfCARBweretodeterminethatsomeofthecreditsintheDistrict’sERCbankareindeedinvalid,orfindsthatthecreditsonwhichtheequivalencyreportsarebasedareinvalid,theDistrictwouldhavetoreducethevolumeofcreditsavailabletooperators.Section7.4.1.1ofDistrictRule2201requiresthatiftheDistrictfailstoshowequivalencywithpollutionoffsetsrequiredbyfederallaw,“theDistrictshallretireadditionalcreditableemissionreductionsthathavenotbeenusedasoffsetsandhavebeenbankedorhavebeengeneratedasaresultofpermittingactions…”Inturn,theDistrictmayhavetodenysomeprojectsduetoalackofvalidcreditstosupportthem.ItisalsopossiblethatfewerERCswouldbeavailableinthefuture,andexistingvalidcreditswouldbecomemorevaluable.

Atthesametime,suchshiftscouldencourageadditionalvoluntarypollutionreductions.Feweravailablecreditswouldgivecompaniesanevengreaterincentivetoinstallandmaintainthemosteffectiveemissionscontroltechnologiespossible.Mostsignificantly,ERCapplicantswouldbeforcedtotailorprojects—andtheDistricttodeterminetheirapproval—basedonthelimitationsofoperatinginaregionwithseverelycompromisedairqualityandapersistent“extremenon-attainment”statusforpollutantsknowntoharmhealth.MorestringentairpollutioncontrolsandlimitswouldalsobeconsistentwithCalifornia’sambitiousgoalstoimproveairqualityandcombatclimatechange.Recently,theDistrictassumedresponsibilityfortheregionalimplementationofthestate’s2017GreenhouseGasEmissionStandardforCrudeOilandNaturalGasFacilities,adoptedbyCARBtoregulateandreducemethanefromtheindustry.18Thiscommitmentwillrequireevengreateroversightofthesepollutionsources,andshouldincludereviewofthevalidityofthecreditsintheDistrict’sCO2ebankheldbyenergycompanies.2.CARBshouldnotallowERCstolastforever

Asdetailedinthecasestudiesforthisreport,manyofthepotentiallyinvalidcreditsaredecadesold.Thisisanoutcomeofseveralfactors,notleastofwhichisthefactthattheDistrict’sERCsystemdoesnotincludeexpirationdatesinissuedcertificates.Inaddition,theimpactofoldercreditsonactualairqualityconditionsisseverelylimitedbecausetheDistrictdoesn’tdiscountthevolumeofemissionsrepresentedbyolderERCsatthetimetheyareused.

CARBshouldrequiretheSanJoaquinValleyAirDistricttodiscountoldercreditsatthetimeofuse,notjustthetimeofissuance.InadditionallERCsissuedacrossCaliforniashouldincludeexpirationdates.

OtherstateshavedonesofortheirERCprograms,settinglimitsonhowmuchtimecanpassbetweenthereductionandwhenanoperatorclaimsit,andeffectivelylimitingtheperiodduringwhichcreditscanbetransferredamongdifferentparties.

Theseexamplesincludemajoroilandgasstates,suchas:

§ Texas,whichlimitscreditsto60months(fiveyears)afterthetimeofreductionsthatoccurredafterJanuary2001.19

§ Pennsylvania,whichlimitscreditstotenyearsfromthetimeofreduction.20

§ Louisianalimitstheuseofcreditstotenyearsfromthedateofemissionreduction.21

§ Colorado’sERCprogram,whichrequiresthatcreditsexpireaftersevenyearsfromthedateofcertification.22

1USEPA,“Healthandenvironmentaleffectsofparticulatematter(PM),https://www.epa.gov/pm-pollution/health-and-environmental-effects-particulate-matter-pm;and“Healtheffectsofozonepollution,”https://www.epa.gov/pm-pollution/health-and-environmental-effects-particulate-matter-pm.2USEPA,FactSheet,“ProposedRulefortheSanJoaquinValley,DeterminationofAttainmentofthe1-HourOzoneNationalAmbientAirQualityStandards.”May3,2016.

3SanJoaquinValleyAirPollutionControlDistrict,“AbouttheDistrict,”www.valleyair.org.4JonathanLondon,GanlinHuang,andTaraZagofsky.LandofRisk,LandofOpportunity:CumulativeEnvironmentalVulnerabilitiesinCalifornia’sSanJoaquinValley.UCDavisCenterforRegionalChange,2011.5CenterforBiologicalDiversitypressrelease,“LawsuitseekstosafeguardKerncommunitiesfromflawedoildrillingamendment,”December10,2015,https://www.biologicaldiversity.org/news/press_releases/2015/oil-and-gas-12-10-2015.html.6ICFIncorporatedandUSEPA,EmissionReductionBankingManual,September1980.7CARB,“NewSourceReview-EmissionReductionCreditOffsets,”https://www.arb.ca.gov/nsr/erco/erco.htm;and“NewSourceReviewPermittingPrograms,www.arb.ca.gov/nsr/nsr.htm#background.8CaliforniaCode,HealthandSafetyCode,Division26,Chapter6,Section40709.5.9SanJoaquinValleyUnifiedAirPollutionControlDistrict,CurrentDistrictRulesandRegulations,http://www.valleyair.org/rules/1ruleslist.htm.10AffectedPollutantssubjecttoERCsarethoseforwhichanambientairqualitystandardhasbeenestablishedandtheprecursorstosuchpollutants,andwhichisregulatedundertheCAAortheCaliforniaHealthandSafetyCode,includingVOC,NOx,SOx,PM10,andCO.Inaddition,greenhousegasemissions(GHG)reductionsthatoccurredonorafterJanuary1,2005aresubjecttoERCs(Rule2301,Sec.4.5.1).GHGsareidentifiedasCO2,CH4,N2O,HFCs,PFCsandSF6.Table1inRule2301providestheconversionfactorsbetweenGHGsandCO2e.11SanJoaquinValleyUnifiedAirPollutionControlDistrict,“AnnualOffsetEquivalencyDemonstration,”DraftStaffReport,April2016,http://www.valleyair.org/workshops/postings/2016/05-11-16_OEI/DRAFT-Staff-Report.pdf.12SanJoaquinValleyUnifiedAirPollutionControlDistrict,“AnnualOffsetEquivalencyDemonstration,”DraftStaffReport,April2016,http://www.valleyair.org/workshops/postings/2016/05-11-16_OEI/DRAFT-Staff-Report.pdf.13NadiaSteinzor,PermittedtoPollute,Earthworks2017,https://earthworks.org/publications/permitted_to_pollute/.14ForERCS-4678,theairdistrictprovidedadifferentsetofdocuments,noneofwhichincludedinformationontheoriginatingreduction.However,theERCisfortheAlonBakersfieldRefineryandthelanguageinthecertificateisforthesameactivitiesasthe1983equipmentshutdowns.Inaddition,anAuthoritytoConstructdocumentfromJanuary2012includedintheS-4678filesstates,“ERCcertificatenumberS-3467-1(oracertificatesplitfromthiscertificate)shallbeusedtoprovidetherequiredoffsets.”Basedonthis,werequestedrecordsforS-3467andreceiveddocumentsthatareforthe1983reductions.15AnERCWithdrawalandReissueApplicationReviewforminthefilesreceivedfromtheairdistrictindicatedthatthiscertificatewasderivedfromS3869-1,whichEarthjusticehadreviewedpreviously.EarthworksrequestedthefilesforS-3869aswell,inordertoconfirmtherelationship.16InresponsetoourrequestforfilesforERCcertificateS-4808-24,wereceivedfilesrelatedtoS-4320-24.WethereforepresumethatS-4808-24(for257,426MT/yr)wassplitfromtheearlierS-4320-24(for355,338MT/yr).17CenterforBiologicalDiversitypressrelease,“LawsuitseekstosafeguardKerncommunitiesfromflawedoildrillingamendment,”December10,2015,https://www.biologicaldiversity.org/news/press_releases/2015/oil-and-gas-12-10-2015.html.18SanJoaquinValleyAirPollutionControlDistrict,“RegistrationforStateRegulationtoReduceMethaneEmissionsfromOilandGasOperations,”http://www.valleyair.org/busind/pto/ptoforms/oil-and-gas-registration.htm.

19TexasAdministrativeCode,§101.309,EmissionCreditBankingandTrading.20PennsylvaniaStateCode,Title25,§127.206,ERCGeneralRequirements.21LouisianaStateCode,Title33,Title33,PartIII,§607(B),DeterminationofCreditableEmissionsReductions.22ColoradoDepartmentofPublicHealthandEnvironment,Regulation3,PartA,SectionV.

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