FOCUS: Emission Reduction Credit Program

An emission reduction credit (ERC) is a credit granted upon request by an emission source who voluntarily reduces emissions beyond required levels of control. An ERC represents the legal ability to emit regulated pollutants in an amount equal to the quantity specified when the ERC was granted. ERCs may be sold, leased, banked for future use, or traded in accordance with applicable regulations established by SWCAA. ERCs are intended to provide an incentive for reducing emissions below required levels, and to establish a framework to promote a market based approach to air pollution control.

What authority does SWCAA have for this program?

The Washington Clean Air Act (RCW 70.94.850) authorizes local Air Authorities to implement an emission credits banking program. Local Air Authorities who choose to implement an emission credits banking program are required to operate a credit bank for the purpose of administering approved emission reduction credits.

How are ERCs regulated?

SWCAA has adopted regulations for implementation of its emission credits banking program. These regulations comprise three sections of SWCAA's "General Regulations for Air Pollution Sources" (SWCAA 400). SWCAA 400-130 "Use of Emission Reduction Credits" governs the use of ERCs. SWCAA 400-131 "Deposit of Emission Reduction Credits Into Bank" governs the issuance of ERCs. SWCAA 400-136 "Maintenance of Emission Reduction Credits in Bank" governs the maintenance of the ERC bank.

Who can deposit ERCs?

The owner or operator of any source which reduces its actual emissions rate for any contaminant regulated by state or federal law or regulations established to implement such laws may apply to SWCAA for an ERC. Any application for an emission reduction credit must be stated as an allowable limit in weight of contaminant per unit time for the emissions unit involved. An ERC application must be made within 180 days after the emission reduction has been accomplished. An ERC will be granted based upon conditions set forth in SWCAA 400-131(3). Approval of an ERC application will result in the issuance of a Regulatory Order to assure that the emissions from the source will not exceed the allowable emission rates claimed in the ERC application, and provide for issuance of a certificate of ERC.

What is the ERC Bank?

SWCAA has established a credit bank to administer ERCs granted to emission sources under SWCAA 400-131. The owner of any ERC shall maintain the ability to use said ERCs through deposit in the credit bank. Any ERC deposited in the credit bank is subject to annual registration fees or operating permit fees as appropriate for the emission source in question. If the owner of any ERC fails to maintain or renew the applicable registration fees 6 months beyond the due date, then the ERCs revert to SWCAA. ERCs deposited in the credit bank are discounted 10% to allow for minor emissions increases in nonattainment areas by minor sources. SWCAA maintains a log of ERC transactions which accurately reflects the amount and nature of credits contained in the bank.

How is an ERC used?

An ERC may be used to satisfy the requirements for authorization of a bubble under SWCAA 400-120, as a part of a determination of "net emissions increase," as an offsetting reduction to satisfy the requirements for new source review per SWCAA 400-111, 400-112, SWCAA 400-113(3) or SWCAA 400-113(6), or to satisfy requirements for PSD review per SWCAA 400-113(4). Use of an ERC will be granted based on conditions as set forth in SWCAA 400-130(3). An ERC may be sold or otherwise transferred to another owner as set forth in SWCAA 400-130(4). Whenever an ERC is used, the certificate of ERC must be surrendered to SWCAA. An amended certificate will be returned to the owner if only a portion of the ERC is used. An unused ERC and any unused portion thereof expires five years after the date the emission reduction was accomplished.

What is the history of SWCAA's ERC program?

In the mid to late 1980's, the Longview area was a secondary nonattainment status for TSP and the Vancouver area was nonattainment status for CO and ozone. At that time, new or modified industrial sources with emissions greater than one ton/year in a nonattainment area needed to obtain emissions offsets at a ratio of 1.3 to 1.0 (i.e., a 100 ton source would have to get 130 tons of offsets) pursuant to federal Clean Air Act requirements. The objectives of the offset policy were to promote more cost-effective pollution control through the use of market mechanisms and to allow for economic growth within areas in which the ambient air quality standards were being exceeded.

In order to provide an easily available mechanism for growth for new or modified sources in the nonattainment areas of SWCAA jurisdiction, in 1986 SWCAA adopted new general regulations that included provisions for a emission credit bank for VOCs and PM and conditions for issuance of emission credits for sources that emitted greater than 1 ton/year of those pollutants. The beginning balance of the private and public VOC bank was established with emission credits from the December 1982 shutdown of Carborundum, a silicon carbide processing facility in Vancouver. The Port of Vancouver purchased the Carborundum property (in 1986), requested, and was granted 100 tons/year of PM and VOC emission credits to be able to attract new business to the Port. The remainder of the Carborundum credits were assigned to SWCAA (400 tons per year PM and 140 tons per year VOC) for attracting new businesses or providing for existing business expansions.

In addition to the Carborundum credits, the SWCAA Board of Directors adopted two resolutions that added emission credits to the bank. Resolution 1988-3 adopted on July 19, 1988 allocated 1,120 kg/day VOCs, 70% of VOC emissions determined to be excess in the State Implementation Plan at that time, to the bank. Amended Resolution 1989-3 adopted on January 24, 1989 amended emissions to the bank to 972 kg/day, 30% of VOC emissions determined to be excess in the State Implementation Plan at that time.

In September of 1993, the SWCAA General Regulations (SWCAA 400) were revised to be consistent with federal and state of Oregon rules for nonattainment areas which only require an offset of 1.1 to 1.0 and only for new sources of 100 tons or greater or modified sources with an increase of 40 tons or greater instead of the previous 1.3 to 1.0 and 1 ton increase threshold. Most, if not all, public credit banking transactions performed by SWCAA prior to these regulation changes were for quantities less than 40 tons per year. Therefore, those types of sources that had requested and received emission credits prior to 1993 no longer are required to go through this process for quantities less than those described above.

Private CO and NOx credit banks have also been established with requests for credits from several industries due to shutdowns or modifications.

Neither the SWCAA credit bank nor credit program have been approved by the US Environmental Protection Agency (EPA). Each year when the Washington Department of Ecology (WDOE) and SWCAA submit the general regulations to the EPA for update as part of the Washington State Implementation Plan (SIP), the rules for the emission credit bank are rejected by EPA. This is due to the fact that the WDOE and SWCAA rules for emission banking did not conform to the EPA guidelines when they were established in 1986 (i.e., Carborundum credits were banked 4 years after actual emission reduction) nor current regulations (i.e., the 10 year expiration date does not compare with the 5 year expiration date of federal rules). Therefore, the credits established under the bank are not federally recognized or approvable for large sources and cannot be used for satisfying federal programs such as prevention of significant deterioration (PSD), offsets, or new source review.

The Vancouver Ozone Maintenance Plan/Redesignation Request (approved by EPA on April 30, 1997) for the Portland/Vancouver ozone nonattainment area did not account for credits in the SWCAA VOC bank in the emission inventory in the plan. This was an unintentional oversight rather than a deliberate action, however, there would have been an issue of federal enforceability and time periods to reconcile as part of proposing use of these credits. (The private NOx and CO ERCs were accounted for in the Ozone and CO Maintenance Plans due to the fact that 1992 actual emissions were used in the Maintenance Plans and all the current CO and NOx bank credits were accounted for in those emissions; i.e., the shutdowns occurred after 1992.) The proposed Ozone Maintenance Plan/Redesignation Request does include a growth margin for new or modified sources, however, this margin does not provide for use of any existing or future credits. Since the Ozone Maintenance Plan/Redesignation Request has this growth margin for industrial sources, emission reduction credits are not needed until the growth margin is used up and the rules require offsets once again. Since SWCAA rarely has new major sources, this may not occur until after the full 10 year Maintenance Plan time period. If a major source did need offsets, they currently would not be able to use the VOC credits in the existing banks since they are not federally enforceable. Also, even if the SWCAA credit bank gets approved by EPA, there is only enough VOC credits in the public VOC bank for one new major source to use.

SWCAA General Regulations (SWCAA 400) were again revised in April 1999 which eliminated the public banks, retained the private banks, and revised the rules to be consistent with federal rules; i.e., credits expire in 5 years from date emission reductions accomplished.

As of April 2006, the current balance in the banks are as follows:

Public VOC bank	Dissolved
Private VOC bank	0 tons/yr.
Public PM bank	Dissolved
Private PM bank	0 tons/yr.
Public CO bank	Dissolved
Private CO bank	0 tons/yr.
Public NOx bank	Dissolved
Private NOx bank	0 tons/yr.

What future actions will SWCAA take with regards to the ERC program?

Submit the revised SWCAA 400 rules to EPA for approval and inclusion in the SIP. Therefore, if offsets become required again, the private credits can be used for federal programs. Otherwise, there may not be a need for the banks if one could only use credits that had been approved in the SIP.

Revise rules to allow the ability for future interstate emission trading. Other states and agencies will have to revise their own rules to accommodate interstate trading issues; other states and agencies have not shown great interest however. The Oregon Department of Environmental Quality has stated they could approve an interstate transfer on a case-by-case basis using a source-specific SIP revision.

1. No PM credits have ever been issued by SWCAA and the entire amount from Carborundum expired in July of 1996.

2. No CO or NOx public credits have ever been issued by SWCAA nor has there ever been public CO or NOx credits available.

10/19/2006