Emission Reduction Credits
(ERC)
Emission Reduction Credits (Emissions
Offsets) are emission reductions that are provided by major sources
and are limited to non-attainment zones to “offset”
emissions increases from new or modified sources of air pollution.
New Source Review Rule (NSR) requires offsets for increases in permitted
emissions over and above certain trigger levels.
Offsets, when required, may be provided by onsite
or offsite emissions reductions and must be real, quantifiable,
enforceable, permanent, and perhaps its most important characteristic,
however, is that it must be “surplus” – that is
it must go beyond the levels required by the command and control
regulations. One way to obtain emission offsets is by purchasing
Emissions Reduction Credits from another party. Generating emission
reduction credits involve:
• voluntary control of emission sources,
• shutdown of emission sources, and/or
• voluntary overcontrol of existing sources.
For a Glossary of ERC Terms please click here.
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SO2 Emissions Allowances
This is the first “cap and
trade” program to create a tradeable commodity on a nationwide
level. Under this system, affected Electric Generation Units (EGUs)
are allocated allowances based on their historic fuel consumption
and a specific emissions rate. Each allowance permits a unit to
emit one ton of SO2 during or after a specified year. For each ton
of SO2 emitted in a given year, one allowance is retired, that is,
it can no longer be used. According to the EPA data 25 million tons
have been traded under the program and annual transaction value
exceeded $4 billion in 2001.
Allowances may be bought, sold, or banked. Anyone
may acquire allowances and participate in the trading system. However,
regardless of the number of allowances a source holds, it may not
emit at levels that would violate federal or state limits set under
Title I of the Clean Air Act to protect public health.
During Phase II of the program (now in effect),
the Act set a permanent ceiling (or cap) of 8.95 million allowances
for total annual allowance allocations to utilities. This cap firmly
restricts emissions and ensures that environmental benefits will
be achieved and maintained.
http://www.epa.gov/airmarkt/trading/basics/index.html
http://www.epa.gov/airmarkt/progsregs/index.html
For a Glossary of ERC Terms please click here.
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NOx Emissions Allowances
The Ozone Transport Commission (OTC) comprises the states
of Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode
Island, New York, New Jersey, Pennsylvania, Maryland, Delaware,
the northern counties of Virginia, and the District of Columbia.
In September 1994, the OTC adopted a memorandum of understanding
(MOU) to achieve regional emission reductions of nitrogen oxides
(NOx). (Virginia did not sign the MOU.) These reductions are in
addition to previous state efforts to control NOx emissions, which
included the installation of reasonably available control technology.
In signing the MOU, states have committed to developing and adopting
regulations that would reduce region-wide NOx emissions in 1999
and further reduce emissions in 2003. The NOx Budget Program represents
the Northeast's effort to control NOx emissions in order to make
progress towards attainment of the ozone health standard.
http://www.epa.gov/airmarkt/otc/index.html
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EPA NOx SIP
CALL
In October, 1998, EPA finalized the "Finding of Significant
Contribution and Rulemaking for Certain States in the Ozone Transport
Assessment Group Region for Purposes of Reducing Regional
Transport of Ozone." (Commonly called
the NOx SIP Call.) One topic covered is the regional transport of
ozone (RTO) and ozone precursors (including nitrogen oxides or NOx).
Certain States were required to revise their State implementation
plan (SIP) measures under EPA's NOx SIP call to ensure that emissions
reductions are achieved to mitigate the regional transport of ozone
across State boundaries in the eastern half of the United States.
Federal implementation plans (FIPs) may be needed to reduce regional
transport if any State fails to adequately revise its SIP to comply
with the NOx SIP call.
The NOx SIP call was designed to mitigate significant
transport of NOx, one of the precursors of ozone. For those States
opting to meet the obligations of the NOx SIP call through a cap
and trade program, EPA included a model NOx
Budget Trading Program rule (Part 96). This trading program was
developed to facilitate cost effective emissions reductions of oxides
of nitrogen (NOx) from large stationary sources. Part 96 provides
sources with a complete trading program including provisions for
applicability, allocations, monitoring, banking, penalties, trading
protocols and program administration. States choosing to participate
in the NOx Budget Trading Program have the flexibility to modify
certain provisions within the model rule.
http://www.epa.gov/airmarkt/fednox/index.html
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Greenhouse
Gas (GHG) Emission Reductions
There is strong evidence that most of the warming over
the last half-century is human induced. Human activities have altered
the chemical composition of the atmosphere through the buildup of
greenhouse gases – primarily carbon dioxide, methane, and
nitrous oxide (GHG). The heat-trapping property of these gases is
causing concern and as a response, many governments are taking measures
to regulate and/or manage GHG emissions. In the US several states
are starting their CO2 trading programs or are forming joint efforts
with Canada to reduce CO2 emissions. Canada has been trading CO2
under two pilot programs for a few years. The EU has a “cap
and trade” proposal that covers CO2 emissions from 46% of
industrial facilities. UK launched two trading programs in April
2002. Scandinavian countries will launch their programs in a few
years and Holland is working on a NOx trading program. Slovakia’s
SO2 program already started.
Inovex provides the following services to our US and
International clients:
• Assist in forumlating strategies and
investments to our US and International clients
• Identify GHG opportunities and associated investment liabilities
• Plan, execute and managa "turnkey" projects
for generation of CO2 credits
• Provide brokerage services and manage the transactions.
More information
Before corporations launch potential GHG related
projects, they need to understand the economic and environmental
issues involved with the project. Inovex provides assistance in
analyzing the environment in which GHG investment decisions must
be made. Inovex advises corporations on strategies and environmental
issues in particular countries.
Many corporations have facilities that could enhance
productivity through process optimization, issues management, and
strategic partnerships. Inovex is a leading environmental broker
with engineering staff that has been involved in improvement of
air pollution control technologies and combustion systems since
1987.
http://www.epa.gov/airmarkt/camupdate/dom.html
http://www.epa.gov/airmarkt/camupdate/news.html
http://www.epa.gov/globalwarming/emissions/national/index.html
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The Houston/Galveston Area (HGA) NOx
Emission Allowance
The Emission Banking and Trading of Allowances (EBTA) program
was established for 8 County Houston-Galveston, Texas for the purpose
of achieving substantial reductions in NOx and SO2 emissions from
grandfathered Power Producing Facilities while allowing them flexibility
with emission limits. The cap
and trade program giving power producers participating
the opportunity to buy and sell allowances in order to expand or
modify their facilities.
The Mass Emissions Cap and Trade program will
begin on January 1, 2002 with a final reduction to the emissions
cap occurring in 2007. A Mass Emissions Cap and Trade Guidance Document
is currently being drafted and will be posted as soon as it is available.
• EBTA
Applications and Guidance
• Allowance
Registry
• Allowance
Need Billboard
• Senate
Bill 7 Allowance Transactions
The Mass Emissions Cap and Trade program was
adopted on December 6, 2000 by the TNRCC. This program shall be
mandatory for stationary facilities in the Houston/Galveston nonattainment
area located at sites with a collective design capacity of 10 tons
per year or more and subject to the NOx State Implementation Plan.
• Mass
Emissions Cap and Trade Allowance Registry (Acrobat PDF)
•
Mass Emissions Cap and Trade Yearly Allowance Transactions
• Mass
Emissions Cap and Trade Stream of Allowance Transactions
http://www.tnrcc.state.tx.us/permitting/airperm/banking/ebanktrans.htm
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RECLAIM Trading
Credits (RTC)
The South Coast Air Quality Management
District (SCAQMD) program was the first cap
and trade program designed for a specific
number of sources. The program was adopted by the SCAQMD in 1993
and is based on a declining emissions cap for each individual facility.
Initially the program was designed to include NOx, SOx, and VOC;
however, VOC was taken out due to monitoring difficulties. Facilities
emitting four tons per year or more of NOx or SOx, with a few exceptions,
are subject to RECLAIM. The starting allocations were based on the
highest production year in the 1989-1992 period. The ending allocation
was calculated by applying 1991 AQMP required reductions to individual
facilities. Facilities are divided into two different annual cycles
six months apart to help facilitate the trading process.
http://www.aqmd.gov/reclaim/reclaim.html
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Discrete Emission
Reduction Credits (DERs)
DERs are created by reductions from allowable emission
limits under voluntary Open Market Trading Rule (OMTR) proposed
by the EPA in 1995 and adopted by several individual states. Currently
New Jersey, Connecticut, Massachusetts, New Hampshire, Michigan,
and Texas have approved DER regulation. Each state program provides
auditing of the credits generated and require of certify DERs, others
allow certification with third-party verification. These credits
are usually traded to existing major emission sources for compliance
with Reasonably Available Control Technology (RACT).
Discrete Emission Reductions (DERs) are granted under
a state Open Market Trading System. A DER is a discrete ton of emissions
reduction, generated by a reduction strategy that is not necessarily
permanent. DERs are awarded to emission sources that voluntarily
reduce their emissions below their permitted limits. DERs can be
generated for reductions of carbon monoxide (CO), sulfur dioxide
(SO2) and particulate matter (PM10), as well as the more typically
traded VOC and NOX reductions. DER markets are state-specific in
nature, although the programs tend to be similar in design. Below
is a discussion of the main points of the DER markets, including
the market design, monitoring and reporting requirements, price
history, market performance and common transaction structures.
DERs are created by temporary reductions against permitted
levels under voluntary open-market trading rules. The states that
currently have this type of rule include New Jersey, Connecticut,
Massachusetts, New Hampshire, Michigan and Texas.
A DER is a discrete ton of emissions reduced by a facility.
Unlike an Emission Reduction Credit (ERC), which is a permanent
emission reduction expressed in tons per year, DERs do not carry
units of time. For example, if a source reduced total VOC emissions
10 tons by installing controls prior to a compliance date, 10 VOC
DERs may be generated. While an ERC represents an ongoing reduction,
DERs are wholly past reductions. DERs are quantified after the end
of the period of their generation.
Different states have different mechanisms for granting
credits. For example, some states certify DERs, while others allow
for self-certification with third party verification. DERs are usually
traded to existing major sources for RACT compliance. They are sometimes
used to avoid a Notice of Violation at a specific facility. DERs
are specified in mass (tons) and usually by the season in which
they are generated. The ozone season runs from May 1 to September
30, with the non-ozone season covering the rest of the year.
A DER can only be used once. If a facility needs to
use DERs to meet an emission reduction requirement on a continuing
basis, the facility must obtain new DERs on a continuing basis.
Depending on market value, this factor may make ERCs the credit
of choice for long-term uses.
A DER may be generated for volatile organic compounds
(VOC) and nitrogen oxides (NOX). Some states will allow creation
for carbon monoxide and particulate matter, but these very rarely
occur.
DERs can be generated from a permanent facility and
unit shutdown, installation of pollution-control equipment, installation
of control equipment with a higher-than-required efficiency or prior
to a compliance date for additional control, a process change or
pollution prevention.
Immediate settlement structures are the most common.
Options and forward transactions are extremely rare.
http://www.state.nj.us/dep/aqm/omet/
http://www.des.state.nh.us/ard/enva3100.htm
http://www.deq.state.mi.us/maets/
http://www.tnrcc.state.tx.us/permitting/airperm/banking/index.htm#ercderc
http://dep.state.ct.us/air2/dercforms.pdf
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Renewable Energy
Credits
Texas passed a comprehensive electric industry restructuring
law in 1999 (SB 7) that opens the power market to competition in
January, 2002. The legislation includes rules instituting a requirement
to acquire renewable resources (Renewable Portfolio Standards with
the intent of increasing the generating capacity from renewable
energy technologies by 2,000 MW by January 1, 2009. Electric generators
are granted RECs in direct proportion to the Megawatt-hours (MWh)
of renewable energy produced (energy produced from sources such
as hydro, wind, solar and biogas). In turn, all retail electric
providers in Texas are required to hold RECs based on the level
of their annual retail electric sales in the state. Similar programs
are under development by the European Union.
Retail electric providers have a requirement to hold
RECs. The obligation to hold renewable energy credits is based upon
each retail electric provider’s percentage of retail sales
in the state of Texas. At the same time, retail electric providers
are prohibited from directly owning capacity. However, retail electric
providers may contract with generation companies who own renewable
energy.
Because Senate Bill 7 assumes that the 880 MW of existing
renewable energy resources will remain in existence in 2009, the
REC program was extended to cover these sources. However, existing
renewable facilities should not be allowed to compete with the new
facility mandate. The compromise negotiated granted existing renewable
energy facilities a separate status, REC offsets.
REC offsets may be used to offset the compliance obligation,
but may not be traded. REC offset awards are based on the ten year
average energy production. REC offsets may not be banked for future
use. However, REC offsets are issued annually. If the existing facilities
are retired from operation, then the replacement RECs will be added
into the normal allocation two compliance periods later.
Green characteristics of renewable energy have been
packaged into the REC. Thus, buying energy from a renewable energy
generator is meaningless without the purchase of the REC. On the
other hand, purchasing the REC gives title to all the characteristics
of the renewable energy.
The environmental character of an REC includes a zero
emission level for CO2 (as long as the REC generator is not a landfill
gas facility). Assuming that the renewable energy displaces fossil
fuel energy, a greenhouse gas reduction has occurred. Because each
REC has a unique serial number that identifies the original generator,
a greenhouse gas reduction can be quantified.
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Emission Reduction
Market System (ERMS), Illinois EPA
The ERMS is a "cap and trade" market system in
which participating sources must hold "trading units"
for their actual VOM emissions. Each year, starting with the 2000
ozone season, participating sources will be issued trading units
based on the initial allotment set during issuance of the sources'
Clean Air Act Permit Program (CAAPP) permit.
A trading unit under the ERMS is termed as an "Allotment
Trading Unit" or ATU, and each ATU will be equivalent to 200
pounds of VOM emissions. Once the baseline emissions have been established
for a source, a source's allotment of trading units or ATUs will
be set. This allotment will generally be set in a quantity equivalent
to the source's baseline emissions reduced by 12%. For example,
if a source has a baseline of 100 tons of seasonal VOM emissions,
and they operated no equipment that was excluded from further reduction,
the source's yearly allotment of ATUs would be or 88 tons of VOM
emissions (880 ATUs). This will provide the reduction in VOM emissions
from stationary sources required by the Clean Air Act for 2000.
During the development of the ERMS, the Agency recognized
that there were certain emission units at participating sources
for which it would not be reasonable to expect a source to further
reduce VOM emissions. These units include installations that have
been through New Source Review since 1990 and are currently operating
with the Lowest Achievable Emission Rate, units that are complying
with NESHAP or MACT standards, fuel combustion emission units, internal
combustion engines, and units for which the source has proposed,
and the Agency concurs that best available technology (BAT) is already
being utilized. Emissions from these units must be included in the
baseline emissions for a source, but they are not subject to the
12% reduction when determining a source's allotment. For example,
if a source has baseline emissions of 100 tons of seasonal VOM emissions
for units subject to the 12% reduction and 100 tons of baseline
emissions from emission units that are excluded from further reduction,
the source would be issued ATUs for 188 tons of VOM or 1880 ATUs
{100 tons × (1-0.12) + 100 tons = 188 tons}.
http://www.epa.state.il.us/air/erms/overview.html
http://www.epa.state.il.us/air/erms/faq.html
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