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During the 2001 legislative session, considerable effort was made to address the fee structures imposed on regulated industries at the TCEQ and other state agencies. As a result, the Railroad Commission of Texas is in the process of raising virtually all of its fees paid by the oil and gas industry. Similarly, the TCEQ has adjusted its fee structure for wastewater discharge permits, public drinking water suppliers, and a variety of air permit and emission fees. Most of these adjustments involved modest increases. By raising fees, the agency can rely less upon general revenues, allowing more state money to be allocated to education and health. Raising fees also means polluters and users of natural resources are required to pay more to account for their actions.

Although significant progress was made during the 2001 legislative session to make polluting industries pay in fees to support the state agencies that regulate them, there is considerable opportunity to make such fees more equitable, so that the largest polluters pay their fair share. Currently, many of these fees have either a cap on the maximum amount that can be paid or a cap on a volume of pollution above which no fees are assessed. This situation provides a perverse incentive to pollute.

The Title V Air Emissions Fee

This report examines ways to adjust one of the more important fees paid by regulated industries, the Title V Air Emissions Fee.

Currently, all facilities in Texas that emit “criteria” air pollutants such as carbon monoxide, nitrogen oxide, and sulfur dioxide must report these emissions annually to the TCEQ and pay a fee per ton of emission. The resulting monies flow to the Clean Air Account No. 151, but by statute are directed to be used to cover the costs of the TCEQ’s Title V Air Operating Permit Program. For example, in FY 2002 TCEQ estimated it would spend some $79.66 million under its Clean Air Account, of which some $35.3 million was earmarked for the direct and indirect costs of the Title V Air Operating Permit Program.6 As such, the Title V Air Emissions Fee is by far the largest fee supporting clean air program at TCEQ. That program includes monitoring, inspecting, assessing and enforcing both the federal and state Clean Air Act.

Until FY 2002, the air emissions fee was set at $26 per ton. However, by statue the fee is capped at 4,000 tons per individual pollutant, meaning that the larger polluters in the state pay less per-ton than those facilities that emit less than 4,000 tons of a particular pollutant. This emissions fee cap is often referred to as the “volume discount.”

In September 2002, facing declining emission fees and increasing costs to comply with Title V requirements, the TCEQ raised the air emissions fee for the first time since 1995 by adding an inflation adjustment pegged to the Consumer Price Index (CPI). In FY 2003, the fee was increased to $28.63 per ton. Despite this increase, TCEQ staff has already announced that the CPI adjustment will not guarantee sufficient funding for the program in FY 2004 and 2005 and that it will have “to review the air fee increases adopted…to determine the appropriate levels for….the air fees.” 7

A TCEQ study published in January 2003 found that the Air Emissions Fee would bring in about $36.9 million in FY 2003 (at $28.63 per ton), while the total costs for the program would be $37.3

6 TCEQ, “Projected 02 Direct and Indirect Tile V Cost,” August 2002. Texas Register, Texas Commission on Environmental Quality, Chapter 101-General Air Quality Rules, Rule Log No. 2002-041-116-AI, page 4. 7

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