Health & Clean Air Home Health & Clean Air Newsletter Health & Clean Air Newsletter
HomeNewslettersReferencesEmissionsResourcesDiscussion
SubscribeContact

RECLAIM: Southern California's Failed Experiment With Air Pollution Trading

Read this report.

(1) South Coast Air Quality Management District (SCAQMD), 2001 Air Quality; SCWMD, Emission Trends [hereinafter SCAQMD].

(2) The White House proposed repeal of NSR and EPA's Assistant Administrator for Air and Radiation, Jeffrey Holmstead, said that "the agency would not support and the president would veto any legislation that would not eliminate any new source review." Holmstead said new source review "gives you no benefit" if there is an emission trading system. New Source Review Must Be Eliminated in Any Emission Trading Bill, Air Chief Says, Daily Env't Rep., Mar.18, 2002, at A1.

(3) ARCO introduced the first-ever environmentally engineered gasoline, which is named "EC-1" (for "Emission Control 1") in August 1989. It contained one-third less olefins and aromatics, 50 percent less benzene and 80 percent less sulfur than regular gasoline, with a Reid vapor pressure 1 pound per square inch lower. EC-1 was intended to replace leaded gasoline. See "ARCO to Market Low-Emission Regular Gasoline," Oil & Gas J., Aug. 21, 1989, at 31. ARCO decided to develop and offer EC-1 principally because of the competitive threat posed by methanol, which was at the time being aggressively encouraged by both regulations and technology development in California.

(4) Gary Polakovic, "Innovative Smog Plan Makes Little Progress," L.A. Times, Apr. 17, 2001.

(5) SCAQMD, supra note 1.

(6) Gary Polackovic, "Smog-Credit Trader Under Investigation," L.A. Times, July 30, 2002.

(7) Press Release, SCAQMD, AQMD Issues Violation for Alleged False Reports in Reclaim, Aug. 2, 2002.

(8) Perversely, since the California electricity market price was set by the highest accepted bid of any producer, and this was at times a high-polluting plant in the SCAQMD that included excessive RTC costs in its bid, ratepayers statewide also were hurt economically by RECLAIM.

(9) Clearly, RECLAIM was not adopted because earlier policies had failed, because if measured in terms of reductions in air pollution, pre-1994 air quality programs had been effective in improving the Basin's air quality. For example, for the first time in 1992, the federal annual nitrogen dioxide standard was not violated in the Basin. Similarly, measured by the number of control measures that had been adopted as rules and the resulting tons of pollutants targeted for reductions, pre-1994 programs had been a success.

(10) Marla Cone, "AQMD Board Creates First U.S. 'Smog Market'," L.A. Times, Oct. 16, 1993.

(11) The region's 12 greatest sources of nitrogen oxides and their air pollution allocations for 1994, 2000 and 2003 in tons per year were—

1994 2000 2003
Chevron USA 2,822 1,038 752
California Portland Cement Co. 2,210 543 393
L.A. Dept. of Water and Power 1,901 326 236
ARCO 1,853 996 722
Mobil Oil 1,851 716 519
Southern California Edison 1,763 485 352
Union Oil Co. 1,518 530 384
Texaco Refining Inc. 1,499 478 346
Southern California Edison 1,270 376 273
L.A. Dept. of Water and Power 820 147 106
Southern California Edison 742 185 134
Unocal Oil Co. 646 204 148

(12) The 1994 Plan explained the rationale for RECLAIM:

Rule development in the 1970s and 1980s resulted in dramatic improvement in Basin air quality. However, the effort to impose incremental rule changes on the thousands of stationary sources under District permits was laborious and time consuming. The District concluded it was possible that the limits of the command and control regulatory process were being reached. The 1991 AQMP introduced the concept of a Marketable Permits Program and outlined the skeleton of an idea that was the forerunner to what is now known as the Regional Clean Air Incentives Market (RECLAIM).

A historical milestone occurred with the adoption of RECLAIM on October 15, 1993. RECLAIM is an alternative means of achieving further emission reductions from stationary sources, different from the traditional source-specific regulatory program. RECLAIM calls for declining mass emissions limits on the total emissions from all sources within a facility. The facility can choose from a selection of methods for achieving the prescribed emission reductions: add-on controls, use of reformulated products, changes in production, purchase of excess emission reductions from other sources, and/or any other methods that would be enforceable and quantifiable. At the time of adoption, RECLAIM was estimated to affect approximately 390 and 41 of the largest emitters of oxides of nitrogen and oxides of sulfur in the Basin and is designed to reduce emissions of these pollutants by 80 and 14 tons/day, respectively, by July 1, 2004.

(1) Those related to NOX were as follows:

1994 AQMP
Number
 
Control Measure Title
Potential Substitute Measures
CMB-A Emission Reductions from Miscellaneous Combustion Sources (NOX)
CMB-B Emission Reductions from Small Boilers and Process Heaters (NOX)
CMB-C Emission Reductions from Curing and Drying Ovens (NOX)
CMB-D Emission Reductions from Afterburners (NOX)
CMB-E Emission Reductions from Metal Melting Furnaces (NOX)
CMB-F Further Emission Reductions from Internal Combustion Engines (NOX)
CMB-A Emission Reductions from Miscellaneous Combustion sources (NOX)

(2) Report on Potential Backstop Measures to Stabilize NOX RECLAIM Trading Credits Prices , SCAQMD (Jan. 19, 2001), available at http://www.aqmd.gov/hb/010123a.html.

(3) Polakovic, supra note 4.

(4) Id.

(5) SCAQMD, Final Environmental Impact Report For: Aes Alamitos, L.L.C.-Selective Catalytic Reduction (SCR) Installation at Alamitos Generating Station (Units 1, 2, 3 and 4) (Mar. 9, 2001).

(6) "California's power crisis triggers $17m NOX fine," Envtl. Fin., available at http://www.environmental-finance.com/2000/newsdec2.htm.

(7) Press Release, South Coast Air Quality Management District, AQMD Reaches Landmark Settlement for One of Regions Largest Air Quality Violations, Dec. 13, 2000.

(8) Statement of Dr. Alan C. Lloyd, Subcommittee on Energy and Air Quality, Committee on Energy and Commerce, U.S. House of Representatives, Hearing on Electricity Markets: California (Mar. 22, 2001).

(9) Los Angeles Department of Water and Power, Haynes Generating Station Repowering Project Draft Environmental Impact Report (Mar. 2002).

(10) Ironically, SCR is itself an example of a superior technology developed in the United States, but sold to foreign firms because of the lack of a domestic market. The SCR catalyst was developed by Corning, Inc. an upstate New York firm, which had no choice but to sell its patents to Mitsubishi because it could find no U.S. customers. Mitsubishi has since sold hundreds of SCR systems throughout the world, including the U.S. See Moore, Curtis A. and Miller, Alan S.; Green Gold: Japan, Germany, the United States and the Race for Environmental Technology 146 (1994).

(11) Reyes, Boris E.; NOX Abatement Technology for Stationary Gas Turbine Power Plants-An Overview of Selective Catalytic Reduction (SCR) and Catalytic Absorbtion Emission Control Systems; (Sept. 2002).

(12) Id.

(13) Low NOX Gas Turbine Combustors for Distributed Power Generation; California Energy Commission (Mar. 2000); R.F. MacDonald, Hi-Country Foods, available at http://www.rfmacdonald.com/customers/hicountry.html

(14) Personal communication, Luis Morales, Alzeta, Inc., Aug. 7, 2002.

(15) Polakovic, Gary; "Innovative Smog Plan Makes Little Progress;" L.A. Times, Apr. 17, 2001.

(16) Id.

(17) Id.

(18) White Paper on Stabilization of NOX RTC Prices; SCAQMD; 8 (Jan. 2001).

(19) Press Release, Our Children's Earth, "Environmentalists Settle Seven Federal Lawsuits over Embattled Pollution Trading Credits; Companies to Reduce over 200,000 Pounds of Smog-forming Pollution," August 14, 2002, http://www.ocefoundation.org/press-081402.htm.

(20) One of the lawyers representing ACEx's interests, Bob Wyman—the same attorney who lobbied for creation of RECLAIM on behalf of his industrial clients and who now insists that it is a "resounding success"—said the dispute is a misunderstanding over dates when credits transferred. According to the Times, Wyman said in October 2000 in correspondence to the District that the "allegation is false" and the mistake was "completely inadvertent." In response, the District levied a fine of $1,000.

(21) The text of Rule 2009 follows:

Rule 2009.          COMPLIANCE PLAN FOR POWER PRODUCING FACILITIES
(a) Purpose
The purpose of this rule is to specify the compliance plan requirements for Power Producing facilities, as defined in Rule 2000 (b)(56), and to ensure timely installation of BARCT at all electric generation units.
(b) Compliance Plan for Power Producing Facilities
(1) No later than September 1, 2001, the Facility Permit holder of a Power Producing Facility shall submit to the Executive Officer a compliance plan meeting all the requirements specified in this rule.
(2) The compliance plan shall demonstrate that all RECLAIM NOX emitting equipment, except equipment subject to Rule 219 - Equipment Not Requiring a Written Permit Pursuant to Regulation II, at the Power Producing Facility shall achieve, at a minimum, BARCT emission levels for NOX at the earliest feasible date but no later than January 1, 2004 for turbines used as peaking units, and January 1, 2003 for all other units.
(3) The compliance plan shall include the following information:
(A) A list and description of all RECLAIM NOX emitting equipment pursuant to paragraph (b)(2), existing control equipment, and the associated emission rates expressed in parts per million (ppm) and pounds per net megawatt hour of electric generation. For existing equipment and NOX control technologies that have already achieved BARCT where the facility permit does not specify BARCT limit(s) for NOX, the compliance plan shall include a schedule to modify the permit to include the BARCT limit(s) to ensure compliance with paragraph (b)(2) of this rule.
(B) Description of additional NOX control technology to be installed at each RECLAIM NOX emitting equipment, except equipment subject to Rule 219, to satisfy the requirements in paragraph (b)(2) of this rule and the associated NOX emission rate expressed in parts per million (ppm) and pounds per net megawatt hour of electric generation.
(C) Source test data or continuous emission monitoring data supporting the emission rate specified for equipment described in subparagraph (b)(3)(A), except for NOX process unit(s) that have not opted for a concentration limit pursuant to Rule 2012 - Requirements for Monitoring, Reporting, and Recordkeeping for Oxides of Nitrogen (NOX) Emissions, subparagraph (e)(2)(C). Source test data or continuous monitoring data shall be obtained using the applicable protocols specified in Rule 2012.
(D) Manufacturing guarantee or other documents provided by the equipment manufacturer to support the emission rate for equipment described in subparagraph (b)(3)(B).
(E) Schedule showing dates of submittal of permit applications, installation of NOX control equipment, operation of NOX control equipment, and any necessary outages to install and operate air pollution control equipment for NOX control technologies specified in subparagraph (b)(3)(B). The Facility Permit holder shall consult with California Independent Operator (Cal-ISO) or its successor and the California Energy Commission (CEC) prior to submitting the proposed schedule for outages.
(F) A method of operating NOX emitting electric generating equipment at all power producing facilities under common ownership, in aggregate exceeding 250 megawatt generating capacity and located within the South Coast Air Basin. The method of operation shall meet the criteria for operating the lowest NOX-emitting units to the maximum extent feasible taking into account spinning and non-spinning reserve, any regulation for the purpose of maintaining voltage support and frequency control, minimum equipment operation levels, scheduled outages, forced outages, any "required must run" requirements, any operation ordered by the California Independent System Operator or the California Department of Water Resources; and any specific unit generation contracts executed prior to May 11, 2001, in accordance with the following priority:
Priority I: Operate units with less than 0.11 pound of NOX per net megawatt hour of electric generation.
Priority II: Operate units with less than or equal to 0.50 pound of NOX per net megawatt hour of electric generation.
Priority III: Operate units with greater than 0.50 pound of NOX per net megawatt hour of electric generation.
Priority IV: Operate units not equipped with any NOX control equipment.
The Facility Permit holder shall specify in the compliance plan how units will be selected for operation and how records will be kept and made available to the Executive Officer upon request to verify daily compliance with this subparagraph.
(G) Information necessary to demonstrate that NOX RTCs acquired meet the requirements specified in Rule 2007 - Trading Requirements, paragraphs (c)(4), (c)(5), and (c)(6). The information submitted shall, at the minimum, include:
(i) NOX RTCs held by the Facility Permit holder at the time of compliance plan submittal;
(ii) NOX RTCs acquired by the Facility Permit holder prior to January 12, 2001; and
(iii) An itemized list of NOX RTCs acquired or sold on and after January 12, 2001, including the date of acquisition or sales and the seller(s) or buyer(s) of RTCs.
(H) Applicable orders for abatement or settlement agreements may demonstrate partial or full compliance with the requirements of paragraphs (b)(2), (b)(3), and (b)(4) of this rule.
(4) The Facility Permit holder shall submit information specified below with the compliance plan for informational purposes to demonstrate compliance with the methods of deploying electric generating units and the Facility Permit holder's plan for complying with NOX allocations on a quarterly basis, pursuant to Rule 2004 - Requirements, for compliance years beginning 2001 through 2005. Information provided shall be based on the Facility Permit holder's best available information at the time of compliance plan submittal and shall be updated annually, beginning May 31, 2002 and November 30, 2002 for Cycle 2 and 1 facilities, respectively, and every year thereafter through 2004 to reflect the Facility Permit holder's best available information at that time.
(A) Projected annual NOX emissions from each electric generation unit for compliance year 2001 through 2005. The projection shall be based on emission rate for each piece of equipment and shall be consistent with information provided in subparagraph (b)(3)(A) and (B).
(B) Anticipated NOX emission reductions to be obtained under the Mitigation Fee Program or approved Mobile Source Emission Reduction Credits (MSERCs) or Area Source Credits (ASCs) for each compliance year.
(5) Compliance plans approved by the Executive Officer shall be enforceable and shall contain terms and conditions specifying NOX BARCT levels, implementation schedule, including permit application, equipment installation and operation dates for achieving enforceable NOX BARCT emission levels, and methods for deploying electric generation units.
(c) Denial of Compliance Plan
The Executive Officer shall not approve the compliance plan unless it can demonstrate compliance with this rule. If the Executive Officer denies a compliance plan, the Facility Permit holder shall, within 30 days, submit to the Executive Officer a revised compliance plan addressing all deficiencies identified by the Executive Officer. Failure to submit an approvable plan by the date specified shall be a violation of this rule.
(d) Modification of Compliance Plan
A Facility Permit holder may submit an application at least 60 days prior to scheduled permit application submittal date to modify the terms and conditions in an approved compliance plan to replace the control technologies listed in the plan at the same or earlier implementation schedule with one or more alternative equipment, process, or NOX control technology capable of achieving, at a minimum, an equivalent BARCT level. A modified compliance plan must meet all applicable requirements of this rule. The Facility Permit holder shall be subject to the terms and conditions of the existing compliance plan until the modified plan is approved by the Executive Officer.
(e) Mitigation Fee Program
In addition to the requirements specified in Rule 2004 (o)(1), the mitigation fee program may be used through the 2004 compliance year only by Power Producing Facilities that exceed their annual allocations provided the facility also has complied with the schedule and actions specified under an approved compliance plan pursuant to this rule.
(f) Violations
(1) Failure to submit the compliance plan on or before September 1, 2001, to submit a revised compliance plan within 30 days of receiving a denial, or to submit an annual update of information specified in paragraph (b)(4) of this rule at least 30 days prior to the beginning of each compliance year will be a violation of this rule and shall constitute a single, separate violation of this rule for each day until such time as an approvable plan is submitted.
(2) Failure to comply with the dates set forth in the compliance plan for submission of permit applications, installation of control equipment, operation of control equipment or the purchase of credits will be a violation of this rule, commencing when the stated date is missed and shall constitute a single separate violation of this rule for each day until such time as compliance is achieved.
(3) Failure to comply with emission limits specified in the approved compliance plan shall constitute a single separate violation of this rule for each day until such time as compliance is achieved.
(g) Fees
The compliance plan shall be assessed a fee in accordance with Rule 306 - Plan Fees. For the purposes of this rule, the annual updates to compliance plans submitted pursuant to paragraph (b)(4) of this rule will be assessed a fee in accordance with Rule 306.
(h) Rule 221 - Plans
Compliance plan required under this rule will not be considered a plan pursuant to Rule 221 - Plans.
(i) Appeals
A Facility Permit holder has the right to appeal the denial of the compliance plan to the Hearing Board in the same manner as a permit denial as specified in Health and Safety Code Section 42302.

(22) District - Tier 1 Control Measures

AQMP
Measure No.
 
Title
P-B-1 Control of Emissions from Petroleum Refinery Fluid Catalytic Cracking (FCC) Units (SOX)
P-B-2 Control of Emissions from Petroleum Refinery Fluid Catalytic Cracking (FCC) Units (NOX)
P-B-6 Control of Emissions from Petroleum Refinery Flares (All Pollutants)
P-C-2 Control of Emissions from Afterburners (NOX)
P-C-4 Control of Emissions from Small Boilers and Process Heaters (NOX)
P-C-5 Control of Emissions from Metal Melting Furnaces (NOX)
P-C-6 Control of Emissions from Curling and Drying Ovens (NOX)
P-C-7 Further Control of Emissions from Glass Melting Furnaces (NOX)
A-C-5 Control of Emissions from Miscellaneous Combustion Sources (NOX)
A-C-6 Further Control of Emissions from Internal Combustion Engines (NOX)
A-D-2 Control of Emissions from Swimming Pool Water Heating (NOX)
A-D-3 Control of Emissions from Residential & Commercial Water Heating (NOX)
A-F-1 Installation of Best Available Retrofit Control Technology on Miscellaneous Sources (All Pollutants)
M-G-1 Zero-Emission Urban Bus Implementation (All Pollutants)
M-G-2 Low Emission Retrofit of Transit Buses (NOX, SOX, PM10)
M-I-7 Eliminate Leaf Blowers (All Pollutants)
E-D-1b Residential Sector - Natural Gas Savings (All Pollutants)
E-C-1a Commercial Sector - Electricity Savings (NOX)
E-C-1b Commercial Sector - Natural Gas Savings (All Pollutants)
E-C-2a Industrial Sector - Electricity Savings (NOX)
E-C-2b Industrial Sector - Natural Gas Savings (All Pollutants)
E-C-2c Industrial Sector - Glass Recycling (NOX)
E-C-2d Industrial Sector - Paper Recycling (NOX)
E-C-3 Local Government Sector - Electricity and Natural Gas Savings (All Pollutants)

(23) Control Measures on District Rulemaking 1991 Calendar Under The 1989 AQMP

Control
Measure No.
 
AQMP Title
A-D-3 Control of Emissions from Residential and Commercial Water Heating (NOX)
P-B-1 Control of Emissions from Petroleum Refinery Fluid Catalytic Cracking (FCC) Units (NOX)
P-C-4 Control of Emissions from Small Boilers and Process Heaters (NOX)

Technology Advancement Projects

 
Subject
 
Agency
Expected
Duration
Alternative Fuels in Refinery Heaters District 1989-1995
Fuel Cells (>100MW) District 1989-2000
Low-NOX Combustion for Residential, Commercial, and Industrial Applications District 1990-1997

Demonstration Projects

 
Project
Responsible
Agency
Date
Alternative Fuels in Refinery Heaters District 1990-1995
Fuel Cells (11MW) District 1990-2000
Low-NOX Combustion for Residential, Commercial, and Industrial Applications District 1990-1997

(24) District Control Measures Ranked According to Adoption Priority

 
Priority
Control
Measure No.
 
AQMP Title
6 M-I-5 Limit Sulfur Content of Marine Fuel Oils (SOX)
7 M-I-8 Emission Standards for Construction and Farm Equipment (175 Hp and less) (ROG, NOX, PM10)
13 A-F-1 Installation of BARCT on Miscellaneous Sources (All Pollutants)
14 P-C-8 Further Emission Reductions from Cement Kilns (NOX)
17 M-I-4 Control of Emissions from Marine Diesel Operations (NOX)
21 E-D-1b Residential Sector - Natural Gas Savings (All Pollutants)1
22 A-C-5 Control of Emissions from Miscellaneous Combustion Sources (NOX)1
24 M-I-7 Eliminate Leaf Blowers (ROG, NOX, CO, PM10)
29 E-C-1a Commercial Sector - Electricity Savings (NOX)1, 3
31 M-I-1 Control of Emissions from Ship Berthing Facilities (NOX)
39 E-D-1a Residential Sector - Electricity (NOX)1, 3
41 P-B-2 Control of Emissions from Petroleum FCC Units (NOX)1, 2
42 P-C-7 Further Emission Reductions from Glass Melting Furnaces (NOX)
45 P-C-8 Control of Emissions from Curing and Drying Ovens (NOX)
48 P-C-5 Control of Emissions from Metal Melting Furnaces (NOX)
49 E-C-1b Commercial Sector - Natural Gas Savings (All Pollutants)1
53 E-C-2a Industrial Sector - Electricity Savings (NOX)1, 2
57 P-B-6 Control of Emissions from Petroleum Refinery Flares (All Pollutants) NOX
59 P-F-2 Emission Minimization Management Plan (All Pollutants)1, 2
60 E-C-2b Industrial Sector - Natural Gas Savings (All Pollutants)1, 2
61 E-C-3 Local Government Conservation (All Pollutants)1, 2
62 A-C-6 Further Control of Emissions from Internal Combustion Engines (NOX)1,2

1Cost-effectiveness based on average for type of source and pollutant.

2Emission reductions based on conservative estimate.

(25) Control Measures Adopted Through 2nd Quarter 1991 (1989 Control Measure Numbers)

Control
Measure
  
Title
  
Rule No.

ROG Rules

A-1 Wood Flatstock Coatings SCAQMD Rule 1104
A-2 Wood Furniture Coatings SCAQMD Rule 1136
A-3 Can & Coil Coatings SCAQMD Rule 1125
A-4 Aerospace Coatings SCAQMD Rule 1124
A-6 Automobile Refinishing SCAQMD Rule 1151
A-7 Marine Vessels Coatings SCAQMD Rule 1106
A-8a Architectural Coatings SCAQMD Rule 1113
A-10 Graphic Arts SCAQMD Rule 1130
A-12 Solvent Degreasers SCAQMD Rule1122
A-14 Expand Plastic-Foam Blowing SCAQMD Rule 1175
A-15 Semiconductors Manufacturing SCAQMD Rule 1164
A-17 Petro Solvent Dry Cleaners SCAQMD Rule 1102
A-18 Underarm Products ARB
A-19 Domestic Products ARB
A-21 Adhesives SCAQMD Rule 1168
B-3 Sumps, Pits & Separators SCAQMD Rule 1176
B-13 Valves, Pumps & Compressors SCAQMD Rule 1173
C-1 Commercial Bakeries SCAQMD Rule 1153
D-1 Starter Fluid SCAQMD Rule 1174
D-3 Publicly Owned Treatment Works (POTWs) SCAQMD Rule 1179
F-6 Exempt Equipment SCAQMD Rule 219
F-7 Soil Decontamination SCAQMD Rule 1166
F-8(1) New Source Review SCAQMD Reg. XIII
G-5 Smoking Vehicle Enforcement N/A
NOX Rules
B-6 Crude Oil Pipeline Heaters SCAQMD Rule 1146
B-14 Oil Field Steam Generators SCAQMD Rule 1146
B-15 Refinery Heaters & Boilers SCAQMD Rule 1109
C-2 Internal Combustion Engines SCAQMD Rule 1110.2
C-7 Small Boilers and Heaters SCAQMD Rule 1146.1
C-8 Industrial Boilers, Heaters, & Generators SCAQMD Rule 1146
C-9 Gas Turbines SCAQMD Rule 1134
C-10 Electric Power Generators & Boilers SCAQMD Rule 1135
F-8(1) New Source Review SCAQMD Reg. XIII
SOX RULES
F-2 Sulfur Content-Gas Fuels SCAQMD Rule 431.1
F-3 Sulfur Content-Liquid Fuels SCAQMD Rule 431.2

(1)F-8 (New Source Review) reduces both ROG and NOX.

 

Copyight Health & Clean Air, 2002-2008