ERC Issues in the San Joaquin Valley June 15, 2004 Dave Warner - - PowerPoint PPT Presentation

ERC Issues in the San Joaquin Valley

June 15, 2004 Dave Warner Director of Permit Services San Joaquin Valley APCD

Today’s Discussions

• What are ERCs and how are they used?
• ERC Issues (Surplus, pre-1990, new credits)
• NSR Equivalency Tracking and the “Hammer”
• Other considerations (Extreme, Ag, NSR

Reform, SB 288)

• What’s going to happen to ERCs in the SJV?
• Options

What are ERCs?

Emission Reduction Credits

• Created by voluntary reductions in

emissions

• Considered valid after District analysis
• ERC Certificate issued
• Reductions must be real, surplus,

quantifiable, permanent, enforceable

How are ERCs used?

Existing source New or modified source

Decrease in existing emissions New emissions

No increase in emissions in the Valley

ERC Issues

Surplus Credits

• Credits must be “surplus” of required

reductions

• Surplus-at-time-of-use

– Federal requirement – District only looks at “surplus” when banked – Surplus-at-time-of-use reduces value of ERCs

ERC Issues

Surplus Credits

• Arguments against surplus-at-time-of-use:

– Takes valuable property from those who are ahead of pollution reduction requirements – Stifles early or innovative reductions – Use of un-surplussed credits doesn’t affect attainment efforts when properly accounted for in plans

• So far, we’ve only been partially successful with

these arguments

ERC Issues

Pre-1990 Credits

• Reductions banked before the 1990

amendments to the federal Clean Air Act

• Accounting issue, largely resolved
• Current PM-10 Plan properly accounts for

pre-1990 credits

• Future ozone plans will, too.

ERC Issues

Creation of new credits

• Gets tougher all the time
• Any easy reductions are already made, or are

already required (no longer surplus)

• Innovative credits are generally difficult to

get EPA approval of

NSR Tracking System

• Part of Rule 2201 (New Source Review)
• Purpose is to demonstrate equivalency:

District’s offset requirements versus Federal offset requirements

NSR Tracking System

• Quantify increases in emissions from

units that require federal offsets:

– New Major Sources – Major Modifications

• Calculate the ERCs necessary to offset

these sources per federal requirements

NSR Tracking System

• Quantify offsets required by District

program

• Calculate “extra” reductions resulting from

the District’s permitting program:

– Lower offset thresholds – Higher offset ratios – 10% cut from banked credits – Un-banked reductions

• Determine which reductions are surplus

NSR Tracking System

• First test: Compares federal offset

requirements to offsets required by District program.

• Second test: Compares federal offset

requirements to all District offsets and extra reductions (after these reductions are “surplussed” for requirements in existence

• n the date when the reductions were used).

NSR Tracking System

A “Hammer” falls if we fail either test

• Fail 1st Test (quantity of offsets): District must

retire add’l credits until shortfall is made up.

• Fail 2nd Test (surplus credits): District must

require all new major sources and major mods to use surplus-at-time-of-use credits, until shortfall of surplus reductions is made up.

NSR Tracking System

• Annual equivalency demonstration report

for August 20 to August 19, due to EPA on November 20 of each year.

• Successful for the last two years
• This year: potential problem

– CEC approval of a major power plant – Probable shortfall of surplus NOx credits

Other Considerations

• “Extreme” ozone non-attainment

– District board voted to go “extreme” – “Extreme” permitting rules due mid-2005 – Major source trigger reduced to 10 tons/year – Same as current offset trigger, so fewer “extra”

• ffsets generated by district program

– NSR Equivalency Tracking will likely fail

• Status of “Extreme” determination in light of

new 8-hour ozone standard regulations?

Other Considerations

Permitting of Agricultural Sources

– SB 700 created new permitting requirements for agricultural sources – Offsets not required for some (all?) agricultural

• perations, per state law

– Also means ERCs generally can’t be generated by agricultural sources

Other Considerations

Federal NSR Reform

– Provides for exemptions from “Major Modification” determinations – District must revise rules by mid-2005 – Should not be many federal “Major Modifications” after rules are changed

Other Considerations

• Senate Bill 288 (Sher)

– Prohibits relaxation of New Source Review rules in California (from 12/30/02 versions) – Response to Federal NSR Reforms (seen as a forced relaxation of California requirements) – Probably means that, after changes to District NSR rules to incorporate federal NSR reform, we’ll end up with:

• same offsetting requirements as current NSR, but
• there will be fewer (zero?) federal major modifications

Other Considerations

• Current system seems to work well for non-

major sources and non-major modifications:

– New sources of 10 tons per year to 25 tons per year, and Non-major modifications, even at major sources

• Can offset emissions with valid, un-adjusted

credits (of course, this falls apart if we adopt “extreme” NSR rule)

• No surplussing-at-time-of-use required
• No pre-1990 issues

– So value of credits “permanent” for non-major actions

What’s going to happen?

• Likely scenario:

– Tracking system fails, November 2004 – No “Extreme” NSR rule modifications – NSR Rule rewritten for Federal NSR Reform:

• AB 288 prevents relaxation, so offset requirements (actual-to-

potential for major actions) must match 12/30/02 version.

• But few or no federal “major modifications” for tracking

purposes.

– So, “only” new major sources would be subject to surplus-at-time-of-use offsetting requirements of the “hammer”.

• So, do we care if the “hammer” falls?

Options to Avoid “Hammer”

• Incremental surrender of existing ERCs
• District administered ERC Bank

– 1st in, 1st out; to minimize surplussing issues – ERC ownership issues?

• Rule establishing fund to generate credits

– District would have to find surplus reductions!

• Revamp NSR mitigation concept?

– probably requires federal legislative action

• Other ideas?

ERC Issues

If you have comments, questions, answers: dave.warner@valleyair.org