NSR NSR Working Group Meeting Working Group Meeting March 11, - - PowerPoint PPT Presentation

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NSR NSR Working Group Meeting Working Group Meeting

March 11, 2009 March 11, 2009

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Overall Strategy Overall Strategy

Near Near-

• term (2009

term (2009-

• Early 2010)

Early 2010)

– – Legislative Solution Legislative Solution – – Readoption of Rule 1315 and Amending 1309.1 and Rule 1309.2 Readoption of Rule 1315 and Amending 1309.1 and Rule 1309.2 to exclude new power plants to exclude new power plants

Intermediate (Late 2010) Intermediate (Late 2010)

– – Promoting Facility Modernization Promoting Facility Modernization – – Administrative Procedures Administrative Procedures – – Regulation XIII amendments meeting current SB288 and CAA Regulation XIII amendments meeting current SB288 and CAA requirements requirements

Long Long-

• term (Post 2010)

term (Post 2010)

– – Non Non-

• traditional credit sources

traditional credit sources – – Replacement of offset requirements Replacement of offset requirements – – Potential SB288 and Clean Air Act changes Potential SB288 and Clean Air Act changes

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Guiding Principles Guiding Principles

Basic ground rules Basic ground rules

– – Maintain BACT requirement for all new and Maintain BACT requirement for all new and modified sources modified sources – – Quality offsets Quality offsets -

• Real, quantifiable,

Real, quantifiable, enforceable, surplus, and permanent enforceable, surplus, and permanent

Promote facility modernizations Promote facility modernizations Encourage innovative clean technologies Encourage innovative clean technologies Administrative efficiency Administrative efficiency

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Objectives Objectives

Resolve permit moratorium Resolve permit moratorium Increase availability and access to credits Increase availability and access to credits Enhance offset utilization Enhance offset utilization Stabilize price of credits Stabilize price of credits Encourage clean growth Encourage clean growth

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Timeline of Events Leading to Timeline of Events Leading to AQMD Permit Moratorium AQMD Permit Moratorium

Sept 8, 2006 Sept 8, 2006 Rule 1315 Rule 1315 – – Federal New Source Federal New Source Review Tracking System Adopted and Review Tracking System Adopted and Rule 1309.1 Rule 1309.1 – – Priority Reserve Amended Priority Reserve Amended Aug 3, 2007 Aug 3, 2007 Rule 1315, Rule 1309.1 Re Rule 1315, Rule 1309.1 Re-

• adopted

adopted Aug 31, 2007 Aug 31, 2007 State Lawsuit Filed State Lawsuit Filed Aug 18, 2008 Aug 18, 2008 Federal Lawsuit Filed Federal Lawsuit Filed Nov 3, 2008 Nov 3, 2008 Final Judicial Ruling; Judge stopped further use of Final Judicial Ruling; Judge stopped further use of credits and invalidated ~2000 permits credits and invalidated ~2000 permits Nov 28, 2008 Nov 28, 2008 AQMD Appeal AQMD Appeal Jan 2009 Jan 2009 Moratorium on Issuing Permits Moratorium on Issuing Permits Accessing Rule 1309.1 and Rule Accessing Rule 1309.1 and Rule 1304 1304

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Current Permitting Status Current Permitting Status

Up to 2000 permits issued between Up to 2000 permits issued between September 2006 and November 2008 that September 2006 and November 2008 that were subject to Rules 1309.1 or 1304 and were subject to Rules 1309.1 or 1304 and were potentially invalidated by the court were potentially invalidated by the court decision, but are temporarily stayed due to decision, but are temporarily stayed due to the appeal filed by District the appeal filed by District More than 1,100 pending permits subject More than 1,100 pending permits subject to Rules 1309.1 or 1304 cannot be issued to Rules 1309.1 or 1304 cannot be issued unless unless ERCs ERCs are provided by applicants are provided by applicants

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PM10 ERC Supply & Average PM10 ERC Supply & Average Cost Trends (2000 Cost Trends (2000-

• 2008)

2008)

Supply dropped by 54% since 2000 Cost increased by 3,755% since 2000 Highest Price of PM10 ERC sold in 2009 was $320,000 per lb/day

2,123 1,187 1,145 941 872 1,998 803 779 846 984

$85,893 $103,499 $148,761 $25,372 $23,649 $21,710 $16,917 $49,053 $3,859

500 1,000 1,500 2,000 2,500 2000 2001 2002 2003 2004 2005 2006 2007 2008 ERC Supply (lbs/day) $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 ERC Average Cost ($/lb/day) ERC Supply (lbs/day) ERC Cost ($/lb/day)

Three proposed power plants with SCE contracts (Sentinel in Palm Springs, Walnut Creek in City of Industry, and NRG in El Segundo)

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Potential Interference with Rule Potential Interference with Rule Compliance Compliance

Alternative compliance option for coating Alternative compliance option for coating

• perations (e.g., after burners)
• perations (e.g., after burners)

R1146, R1146.1, and R1147 R1146, R1146.1, and R1147 – – Boilers and Boilers and

• Misc. Combustion
• Misc. Combustion

R1421 R1421 – – Dry Cleaning Operations Dry Cleaning Operations R1470 R1470 – – Diesel Diesel ICEs ICEs Consent Orders for site clean ups by other Consent Orders for site clean ups by other agencies agencies

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Path Forward Path Forward

Governor and Legislature to Address Governor and Legislature to Address Power Plant Issues Power Plant Issues Governor and Legislature to Address Governor and Legislature to Address Other Facility Needs or Other Facility Needs or AQMD to Re AQMD to Re-

• Open Offset Bank Once All

Open Offset Bank Once All Litigation Resolved Litigation Resolved

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Potential Legislative Solution Potential Legislative Solution

Proposed bill language subject to Governing Board approval Proposed bill language subject to Governing Board approval Objective: To resume AQMD permitting and address power plant Objective: To resume AQMD permitting and address power plant issues issues Allow use of credits in AQMD bank for R1304 and R1309.1(without Allow use of credits in AQMD bank for R1304 and R1309.1(without power plants) if AQMD rules require BACT, toxics protection power plants) if AQMD rules require BACT, toxics protection Allow power plant access with the following environmental safegu Allow power plant access with the following environmental safeguards ards in place in place

– – Thermal power plants must be subject to CEQA review by the State Thermal power plants must be subject to CEQA review by the State Energy Resources Conservation Committee or other Lead Agency Energy Resources Conservation Committee or other Lead Agency – – Require mitigation fee for power plants Require mitigation fee for power plants – – Require additional safeguards similar to Rule 1309.1(2007) Require additional safeguards similar to Rule 1309.1(2007) – – CEC finds project is needed CEC finds project is needed

Urgency clause Urgency clause Legislative findings Legislative findings

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Concepts to Promote Concepts to Promote Facility Modernizations Facility Modernizations

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Allow Facility to Aggregate Allow Facility to Aggregate Emission Sources Emission Sources

Concept Concept

– – Allow facility to generate internal offsets by aggregating two Allow facility to generate internal offsets by aggregating two

• r more emission sources within the facility by pollutant
• r more emission sources within the facility by pollutant

– – New sources at BACT New sources at BACT – – No emission increase from aggregated sources No emission increase from aggregated sources – – Existing emission PTE will be adjusted to BARCT, if applicable Existing emission PTE will be adjusted to BARCT, if applicable

Discussion Discussion

– – Encourages facility modernization Encourages facility modernization – – Potentially decreases use of older, higher emitting equipment Potentially decreases use of older, higher emitting equipment – – Decreases demand for ERCs Decreases demand for ERCs – – More efficient use of ERCs More efficient use of ERCs

Implementation: Requires rule amendment Implementation: Requires rule amendment

Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Example for Example for Aggregating Emission Sources Aggregating Emission Sources

Existing Boiler #1 PTE: 75 lbs/day BARCT Adjustment: 50 lbs/day New PTE: 30 lbs/day Internal Offset From Boiler #1: 20 lbs/day New Boiler #3 PTE: 40 lbs/day Use 40 lbs/day

• ffsets from

Boilers #1 and 2 Existing Boiler #2 PTE: 75 lbs/day BARCT Adjustment: 50 lbs/day New PTE: 30 lbs/day Internal Offset Boiler #2: 20 lbs/day Original PTE: 150 lbs/day for Boiler #1 and #2 New PTE: 100 lbs/day for Boiler #1, #2 and #3 New PTE: 30 lbs/day New PTE: 30 lbs/day PTE: 40 lbs/day

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Equipment Replacement Equipment Replacement by Equipment Family by Equipment Family

Concept Concept

– – Allow replacement of old source with a new source provided new Allow replacement of old source with a new source provided new source: source:

Is same equipment family regardless of size Is same equipment family regardless of size Meets BACT Meets BACT Does not cause an emission increase Does not cause an emission increase – – Existing emission PTE will be adjusted to BARCT, if applicable Existing emission PTE will be adjusted to BARCT, if applicable

Discussion Discussion

– – Rule 1304 allows internal netting for “functionally identical Rule 1304 allows internal netting for “functionally identical replacement” replacement” – – Concept limited to similar equipment family for example engine t Concept limited to similar equipment family for example engine to

• engine, boiler to boiler at the same rating

engine, boiler to boiler at the same rating – – Encourages facility modernization Encourages facility modernization Implementation: Requires rule amendment Implementation: Requires rule amendment

Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Example for Replacement Example for Replacement by Equipment Family by Equipment Family

Existing Boiler – 40 MMBTU PTE: 100 lbs/day BARCT Adjustment: 75 lbs/day New Boiler – 55 MMBTU PTE: 50 lbs/day

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Equipment Replacement Equipment Replacement by Pollutant by Pollutant

Concept Concept

– – Allow replacement of old source with a new source by pollutant Allow replacement of old source with a new source by pollutant – – Old and new sources can be different equipment families Old and new sources can be different equipment families – – New equipment must meet BACT New equipment must meet BACT – – Existing emissions will be adjusted to BARCT, if applicable Existing emissions will be adjusted to BARCT, if applicable – – No emission increases by pollutant No emission increases by pollutant

Discussion Discussion

– – Similar discussion points as Equipment Replacement by Similar discussion points as Equipment Replacement by Equipment Families Equipment Families – – More flexibility than limiting to equipment families, More flexibility than limiting to equipment families, i.e. boiler to engine i.e. boiler to engine

Implementation: Requires rule amendment Implementation: Requires rule amendment

Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Concepts to Enhance Concepts to Enhance Offset Utilization Offset Utilization

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Annual Credits Annual Credits

Concept Concept

– – Issue annual instead of daily credits Issue annual instead of daily credits

Discussion Discussion

– – Allows greater flexibility for ERC use and managing Allows greater flexibility for ERC use and managing

• ffsets
• ffsets

– – Loss of ERCs due to operating factors in Rule 1304 Loss of ERCs due to operating factors in Rule 1304 – – More equitable More equitable

Implementation: Requires rule amendment Implementation: Requires rule amendment

Recommendation Recommendation

– – Issue annual instead of daily credits Issue annual instead of daily credits – – Applicable to all credits Applicable to all credits – – open market and NSR

• pen market and NSR

account account

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BARCT/BACT Discount Approach BARCT/BACT Discount Approach

Concept Concept

– – Modify ERC discount approach Modify ERC discount approach – – ERCs predetermined at time of issuance as follows: ERCs predetermined at time of issuance as follows:

BARCT discount applicable if used within first five years BARCT discount applicable if used within first five years BACT discount applicable thereafter BACT discount applicable thereafter

Discussion Discussion

– – Creates more opportunities for credit generation Creates more opportunities for credit generation from over control from over control

– – Discourages long Discourages long-

• term holding of ERCs

term holding of ERCs – – Will require Rule 1306 amendment Will require Rule 1306 amendment

Implementation: Requires rule amendment Implementation: Requires rule amendment Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Adjust NSR Balances to BARCT Adjust NSR Balances to BARCT for ERC Applications for ERC Applications

Concept Concept

– – Adjust positive NSR balance to reflect current BARCT Adjust positive NSR balance to reflect current BARCT level when applying for level when applying for ERCs ERCs

Discussion Discussion

– – Consistent currency Consistent currency – – NSR Accounting for AQMD bank discounts credits to NSR Accounting for AQMD bank discounts credits to BARCT BARCT – – Potentially increase supply of ERCs Potentially increase supply of ERCs

Implementation: Requires policy change, possibly Implementation: Requires policy change, possibly rule amendment rule amendment Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Encourage Innovative Encourage Innovative Clean Technologies Clean Technologies

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Innovative Credit Approach Innovative Credit Approach

Concept Concept

– – Evaluate additional mechanisms for increasing credit generating Evaluate additional mechanisms for increasing credit generating

• pportunities
• pportunities

Discussion Discussion

– – Rule 1625 Rule 1625 – – Generation of ERCs for Particulate Matter Generation of ERCs for Particulate Matter – – Rule 2511 Rule 2511 – – Credit Generation Program for Locomotive HEP Credit Generation Program for Locomotive HEP – – Bonnet system to capture emissions from Bonnet system to capture emissions from hotelling hotelling ships and ships and idling locomotives idling locomotives

Implementation: Requires rule development (SIP Implementation: Requires rule development (SIP approved protocols) approved protocols)

Recommendation Recommendation

– – Continue to investigate non Continue to investigate non-

• traditional ERC generation

traditional ERC generation

• pportunities
• pportunities

– – Develop rule/protocols to generate ERCs Develop rule/protocols to generate ERCs

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Issue Discrete Credits for Issue Discrete Credits for Limited Life Reductions Limited Life Reductions

Concept Concept

– – Issue ERCs as discrete credits for reductions with limited life Issue ERCs as discrete credits for reductions with limited life reductions through protocol specific regulations reductions through protocol specific regulations

Discussion Discussion

– – Greater flexibility of ERC use Greater flexibility of ERC use – – Can encourage generation of credits for equipment with limited l Can encourage generation of credits for equipment with limited life ife

Implementation: Requires rule amendment Implementation: Requires rule amendment

Recommendation Recommendation

– – Allow option to generate discrete credits from projects with lim Allow option to generate discrete credits from projects with limited ited equipment life such as mobile source projects equipment life such as mobile source projects – – Considering limited credit life Considering limited credit life – – Allow user to specify how credit is distributed to fit their nee Allow user to specify how credit is distributed to fit their need d – – Example: 50 pounds can be distributed over 5 years (i.e., short Example: 50 pounds can be distributed over 5 years (i.e., short-

• term projects) or 30 years provided the discrete amount is the

term projects) or 30 years provided the discrete amount is the same same

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Example of Early Reductions Example of Early Reductions

5 10 15 20 25 30 2 7 2 9 2 1 1 2 1 3 2 1 5 2 1 7 2 1 9 2 2 1 2 2 3 2 2 5 2 2 7 2 2 9 2 3 1 2 3 3 2 3 5 2 3 7 2 3 9 2 4 1

Reductions no longer surplus.

lbs/yr

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Example of 100 pounds Example of 100 pounds Distributed Over 30 years Distributed Over 30 years

5 10 15 20 25 30 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037

Reductions no longer surplus.

lbs/yr

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Creation of Mobile Source Account Creation of Mobile Source Account

Concept Concept

– – Create a Mobile Source Account (Discrete Reductions) Create a Mobile Source Account (Discrete Reductions) – – Credits generated prior to use Credits generated prior to use – – Users pay a fee Users pay a fee – – AQMD manage Mobile Source Account where credits can be used: AQMD manage Mobile Source Account where credits can be used:

For compliance with mobile source offset requirements For compliance with mobile source offset requirements For non For non-

• NSR use such as CEQA mitigation

NSR use such as CEQA mitigation

Discussion Discussion

– – Can encourage generation of credits for non Can encourage generation of credits for non-

• traditional sources of

traditional sources of equipment (e.g., off equipment (e.g., off-

• road equipment)

road equipment) – – Fee based on technology and transaction costs Fee based on technology and transaction costs – – Need to define project life for permitted sources Need to define project life for permitted sources

Implementation: Requires rule development Implementation: Requires rule development Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Concept for Overall Credit Market Concept for Overall Credit Market

Open Market

• 4 tpy facilities
• Mobile sources
• <4 tpy facilities
• R1309.1 facilities*
• R1304 exempt

facilities

• Same as NSR Account
• Others

AQMD NSR Account

AQMD Mobile Account

* Without powerplants.

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Administrative Changes Administrative Changes

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Recall Offsets to AQMD Shutdowns Recall Offsets to AQMD Shutdowns Where No Offsets Previously Provided Where No Offsets Previously Provided

Concept Concept

– – Require offsets generated from shutdowns to be returned to the Require offsets generated from shutdowns to be returned to the AQMD if sources permitted prior to adoption of NSR offsetting AQMD if sources permitted prior to adoption of NSR offsetting requirements (non requirements (non-

• orphans)
• rphans)

Discussion Discussion

– – Facility did not provide offsets for facility operation, did not Facility did not provide offsets for facility operation, did not access open market access open market – – Shutdown credits can be used in AQMD Account Shutdown credits can be used in AQMD Account – – Shutdowns from sources that accessed the AQMD Account are Shutdowns from sources that accessed the AQMD Account are returned to the AQMD returned to the AQMD – – Potentially increase access to AQMD Account Potentially increase access to AQMD Account

Implementation: Rule amendment needed Implementation: Rule amendment needed Recommendation Recommendation

– – Proceed with rule amendment Proceed with rule amendment

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Efficiency Improvements Efficiency Improvements

Concept Concept

– – Improve efficiency of the District’s NSR program by increasing Improve efficiency of the District’s NSR program by increasing transparency in trading information and ERC price transparency in trading information and ERC price – – Pre Pre-

• consultation prior to generating ERCs

consultation prior to generating ERCs

Discussion Discussion

– – Can potentially lead to more credit generating opportunities Can potentially lead to more credit generating opportunities – – Provides additional information for market participants Provides additional information for market participants – – Potential resource impacts Potential resource impacts

Implementation: Requires policy change Implementation: Requires policy change Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Timing of Surrendering Offsets Timing of Surrendering Offsets

Concept Concept

– – Offsets must be surrendered prior to permit to operate consisten Offsets must be surrendered prior to permit to operate consistent t with federal NSR with federal NSR

Discussion Discussion

– – Currently offsets must be surrendered prior to permit to constru Currently offsets must be surrendered prior to permit to construct ct – – The time differential between the permit to construct and operat The time differential between the permit to construct and operate e can be multiple years can be multiple years – – Provides additional time for the Provides additional time for the permitee permitee to secure offsets to secure offsets – – Safeguards needed Safeguards needed

Implementation Implementation

– – Requires rule amendment Requires rule amendment

Recommendation Recommendation

– – Further evaluation needed Further evaluation needed

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Mitigation Fee Mitigation Fee

Concept Concept

– – Replace offset requirements in Clean Air Act with a Replace offset requirements in Clean Air Act with a mitigation fee mitigation fee – – Mitigation fee to be invested in affected communities Mitigation fee to be invested in affected communities – – New sources must meet BACT New sources must meet BACT

Discussion Discussion

– – Generate current reductions to mitigate community Generate current reductions to mitigate community specific impacts specific impacts

Implementation: Clean Air Act amendments Implementation: Clean Air Act amendments needed needed Recommendation Recommendation

– – Seek amendments to federal Clean Air Act Seek amendments to federal Clean Air Act

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Schedule Schedule

NSR Working Group is a ~one NSR Working Group is a ~one-

• year process

year process Next Meeting Next Meeting Wed., April 16, 2009 Wed., April 16, 2009 1:00 PM 1:00 PM -

• 3:00 PM

3:00 PM Tentative Future Meetings Tentative Future Meetings May 21, 2009 May 21, 2009 June 18, 2009 June 18, 2009 July 16, 2009 July 16, 2009 August 20, 2009 August 20, 2009