BOARD MEETING DATE: March 8, 1996

AGENDA NO. 43

Proposal:

Staff Recommendations and Rulemaking Action Plan on Intercredit Trading--Increasing Flexibility for AQMD's Mobile and Stationary Source Emissions Credit Programs

Synopsis:

In April 1995, AQMD initiated the Intercredit Trading Study. The objective of this study is to assess the feasibility of linking the AQMD's mobile and stationary emissions credit trading programs to increase compliance flexibility while achieving air quality goals. In October 1995, AQMD staff released for public review a draft paper on issues surrounding intercredit trading. Four workshops were held in November. Based on public comments received, staff has finalized its policy recommendations and prepared an action plan for Board consideration. A rulemaking schedule to implement the staff's recommendations is provided.

Committee:

Planning, January 30, 1996, Received and Filed.

Recommended Action:

Approve the attached report and direct the Executive Officer to implement the action plan and to initiate rule development for an Intercredit Trading Program.

James M. Lents, Ph.D.
Executive Officer

BRW:CSL:EC:FG

Background

AQMD has been working on more open and flexible trading programs to provide additional compliance flexibility. On October 13, 1995, the "Concept Paper for Increased Compliance Flexibility" was presented to the Governing Board and released for public review. This white paper outlined the AQMD staff's preliminary policy positions on key issues surrounding intercredit trading and was designed to stimulate further dialogue between the AQMD and the public on these key issues.

To seek public input, AQMD staff conducted an extensive public outreach effort by inviting over 10,000 companies and other interested parties to participate in four public workshops held during November. To provide interested parties additional opportunity to comment on this study, the public comment period was extended from December 1, 1995 to January 12, 1996. Meanwhile, AQMD staff also conducted additional air quality, health, and socioeconomic analyses to identify key policy implications.

A final report with staff recommendations and an action plan for rulemaking has been prepared. The report was presented to the Board at its February meeting and the item was continued to March to allow further public input.

Proposal

Staff proposes the recommendations and the action plan in the attached "Intercredit Trading Study." In addition, staff proposes to implement the action plan and initiate rule development. It is critical to work out details on key design issues and administrative procedures to ensure credits are real, quantifiable, and surplus.

Summary of Key Policy Issues and Recommendations

• Trading Interaction: A universal market can be created with minimal restrictions to allow emission credits to flow between various regulatory programs.
• Universe of Sources: The existing trading universe can be expanded to allow more sources to generate and use emission credits.
• Trading Instrument: A universal trading instrument can be developed to simplify credit transactions while maintaining the integrity of existing credit programs.
• Discount and Offset Factors: A discount factor (technical uncertainty adjustment) should be applied when appropriate to ensure real and quantifiable emission credits. An offset factor (i.e., environmental benefit factor) and the need for such a factor should be evaluated as part of the 1997 AQMP.
• Interseasonal Trading: There is a potential air quality benefit in shifting VOC emissions from summer to winter months. In addition, increasing winter VOC emissions would not cause any ozone exceedances.
• Banking: Allowing banking can incentivize clean technologies and early reductions, contributing to the overall attainment strategy. However, such a program requires proper program design with backstop measures to ensure reasonable further progress and attainment demonstration.
• Interpollutant Trading: Current PM₁₀ interpollutant trading provisions pursuant to NSR should be retained until information becomes available to support expansion.

Attachment

Intercredit Trading Study - Proposed Recommendations and Action Plan