BOARD MEETING DATE: May 8, 1998 AGENDA NO. 39

BOARD MEETING DATE: May 8, 1998 AGENDA NO. 39

REPORT:

Reclaim Program Three-Year Audit and Progress Report

SYNOPSIS:

The progress report and audit of the NOx and SOx RECLAIM program’s first three years of implementation is prepared in accordance with Rule 2015 - Backstop Provisions, and Health and Safety Code §40440.2(a)(1). The report assesses emission reductions, average annual price and availability of RECLAIM Trading Credits, job impacts, compliance issues, and other measures of performance for the 1994 through 1996 compliance years of the program. The report also provides the basis to commence the public hearings to reassess the program relative to findings pursuant to Health and Safety Code §39616(c) and (e).

COMMITTEE:

Stationary Source, April 17, 1998, reviewed.

RECOMMENDED ACTION:

Approve the attached report.

Barry R. Wallerstein, D.Env.
Acting Executive Officer

Background

The AQMD Governing Board adopted the RECLAIM program on October 15, 1993. The goal of RECLAIM is to provide facilities with added flexibility in meeting emission reduction requirements while lowering the cost of compliance. The RECLAIM program is designed to meet all state and federal requirements for clean air programs as well as other performance criteria for air quality improvement, enforcement, implementation costs, job impacts, and protection of public health.

Since RECLAIM represents a significant departure from traditional command-and-control regulations, the RECLAIM rules provide for annual program audits in order to verify that the program objectives are being met. In addition to the annual audits, Rule 2015 also requires an evaluation of RECLAIM performance to the third year of trading. This audit report evaluates program performance relative to the following criteria:

RECLAIM has produced the emission reductions required;

Public health exposure to criteria air pollution has been significantly reduced, and public health exposure to toxics has not significantly increased as a result of RECLAIM;

RECLAIM has not accelerated business shutdowns, job loss or shifts in the occupational structure of the region;

The price of credits and the trading activity in each market has demonstrated adequate supply and demand;

The emission monitoring, recordkeeping, and penalty provisions of RECLAIM have produced a strong compliance program and adequate deterrence of violations;

RECLAIM is consistent with the provisions of the Federal Clean Air Act and the California Clean Air Act;

The emission factors listed in Rule 2002 - Allocations for Oxides of Nitrogen (NO_x) and Oxides of Sulfur (SO_x), Tables 1 and 2 are consistent with and appropriate for any recent technology advancements;

RECLAIM has not resulted in disproportionate impacts measured in terms of required emission reductions, on stationary sources in the program, compared to other stationary sources identified in the AQMP;

Whether RECLAIM should include a broad spectrum of sources, including mobile, area and stationary; and

Control technology has advanced as much as projected under the AQMP.

In addition, Health & Safety Code §40440.2 directs AQMD to present a progress report based upon the first three annual audits to its Governing Board on or before July 1, 1998. The Health & Safety Code further specifies that this progress report is to be based upon the preceding annual audits and shall present NOx data aggregated by three-digit SIC code and facility emission rate (under 4, 4 to 10, 11 to 100, and over 100 tons per year), while SOx data shall be presented aggregated by three-digit SIC code.

In addition to the progress report, the Health & Safety Code requires the Governing Board to commence public hearings to reassess RECLAIM by October 1998 [§39616(e)]. The Health & Safety Code further specifies that this reassessment is to be relative to ratifying compliance with the following criteria:

RECLAIM has been resulting in an equivalent or greater reduction in emissions at equivalent or less cost compared with current command-and-control regulations and future air quality measures that would otherwise have been adopted as part of the district’s plan for attainment;

RECLAIM has been providing a level of enforcement and monitoring, to ensure compliance with emission reduction requirements, comparable with command-and-control air quality measures that would otherwise have been adopted by the district for inclusion in the district’s plan for attainment;

RECLAIM has been promoting the privatization of compliance and the availability of data in computer format. The district has been endeavoring to provide sources with the option to keep records by way of electronic or computer data storage systems, rather than mechanical devices such as strip chart recorders;

RECLAIM has not been in any manner delaying, postponing, or otherwise hindering district compliance with Chapter 10 (commencing with Health & Safety Code §40910) of Part 3.

RECLAIM has not been resulting in disproportionate impacts measured on an aggregate basis, on those stationary sources included in the program compared to other permitted stationary sources in the district’s plan for attainment; and

RECLAIM has been allowing for trading of emissions trading units for quantifiable reductions in emissions from a significant number of different sources, including mobile, area, and stationary sources, which are within the district’s jurisdiction or which the district is authorized to include in a market-based emissions trading program, as specified in Health & Safety Code §40440.1.

A single document comprising both the three-year audit for the 1994 through 1996 compliance years (RECLAIM’s first three years of implementation) as required by Rule 2015 and the progress report required by Health & Safety Code §40440.2 has been prepared by AQMD staff. This RECLAIM Program Three-Year Audit and Progress Report is presented for a public hearing pursuant to Rule 2015 and Health & Safety Code §40440.2. This public hearing shall also constitute the initial public hearing to reassess RECLAIM pursuant to Health & Safety Code §39616(e).

Audit Results

The audit findings are summarized below:

Criterion

Data

Achieved equivalent or greater emission reductions at equivalent or less cost
2015(b)(3)(A)
§39616(c)(1)

Aggregate reported emissions from RECLAIM facilities were below aggregate allocations based upon the subsumed command-and-control rules in the 1991 AQMP for the 1994 through 1996 compliance years. In addition, aggregate reported emissions were below aggregate projected emissions in the SIP-approved 1994 AQMP and in the 1997 AQMP. Furthermore, these reductions were achieved at a lower cost than projected for continuation of command-and-control.

Public health exposure to criteria and toxic pollutants
2015(b)(3)(B)

There was no significant shift in emissions seasonally, nor a was there a distinct shift in the geographical distribution of emissions based on the analyses of the quarterly emissions during the 1994 through 1996 compliance years. In addition, the actual per capita ozone exposure was 20.3 hours in 1996, which was already well below the targeted level of 40.2 hours established under the California Clean Air Act for year 2000. Furthermore, RECLAIM facilities are subject to the same air toxic regulations as other sources in the Basin. It is important to note that air quality is a complex function of atmospheric conditions and total emissions from all sources. Therefore, improvements in air quality cannot be directly attributed to RECLAIM.

Shutdowns, job loss, occupational structure shifts
2015(b)(3)(C)

The RECLAIM Universe changed from 394 facilities at the beginning of the 1994 compliance year to 329 facilities at the end of the 1996 compliance year. The changes in the RECLAIM universe include sixty-one facility exclusions, sixteen facility inclusions, and twenty facility shutdowns. Of the twenty facility shutdowns during the 1994 through 1996 compliance years, only one cited RECLAIM as a contributing factor.
In addition, RECLAIM was cited by facility operators as the cause of a total of fifteen jobs lost while facility operators also attributed a total of eight jobs gained to RECLAIM during the 1994 through 1996 compliance years.

RTC supply and demand
2015(b)(3)(D)

An active trading market for RTCs has developed. More than $42 million of RTCs have been traded since the adoption of RECLAIM, with over $21 million in trades occurring in calendar year 1997. Sufficient RTCs have been available to meet the demand of RECLAIM facilities. Average prices, excluding RTCs which were transferred with a price of $0 (such as transfers between facilities of common ownership), are well below both the backstop price of $15,000 per ton established in Rule 2015 and prices projected during at the time RECLAIM was adopted:

$227 per ton for 1997 NOx RTCs ($9,151 projected);
$1,880 per ton for 2010 NOx RTCs ($11,257 projected for 1999);
$64 per ton for 1997 SOx RTCs ($3,062 projected); and
$2,385 per ton for 2010 SOx RTCs ($2,882 projected for 1999).

Compliance, enforcement, & monitoring to deter violations & ensure comparable compliance
2015(b)(3)(E)
§39616(c)(2)

The majority of facilities complied with their allocations during the 1994 through 1996 compliance years, with a few facilities exceeding their allocations. Most instances of non-compliance with allocations were mainly due to miscalculations, a lack of understanding of the proper use and application of RTCs and the missing data procedures (MDP), or problems encountered in electronic submittal of emissions data. AQMD staff has proposed a number of future program enhancements in this report to help resolve these issues in the most timely and appropriate manner. Furthermore, AQMD staff has conducted an audit of each RECLAIM facility at least once each compliance year. RECLAIM has also resulted in implementation of more reliable emissions monitoring techniques, such as greater use of continuous emissions monitoring systems (CEMS).

Consistency with Federal & California Clean Air Acts; not delay compliance with §40910 et. seq.
2015(b)(3)(F)
§39616(c)(6)

RECLAIM allocations reflect annual rates of emission reductions greater than required by state or federal law. The majority of facilities have complied with their annual allocations, as has the program in aggregate. Emissions increases from RECLAIM facilities have been offset at ratios much higher than 1.2-to-1, the level specified by federal New Source Review requirements.

Emission factors consistent with & appropriate for recent technology advancements
2015(b)(3)(G)

The emission factors listed in Rule 2002 - Allocations for NOx and SOx, Tables 1 and 2 are consistent with and appropriate for recent technology advancements. Technology reviews were conducted pursuant to Rule 2015(c)(3). Based on the technology reviews, the ending emission factors for glass melting furnaces, cement kilns, and petroleum coke calciners were amended. These amendments have been submitted to EPA for inclusion in the SIP. The existing ending emission factors for other industries reviewed were found to be appropriate.

No disproportionate impacts
2015(b)(3)(H)
§39616(c)(7)

Aggregate actual emissions from RECLAIM facilities were below allocations for the 1994 through 1996 compliance years. In addition, RECLAIM facilities have achieved the same aggregate emission reductions over time as were projected pursuant to command-and-control. As a result, RECLAIM has not resulted in disproportionate impacts measured in term of required emission reductions on the facilities in the program, compared to other sources identified in AQMP.

Inclusion of mobile, area, stationary sources
2015(b)(3)(I)

Although mobile and area sources are not included in the RECLAIM program, Mobile Source Emission Reduction Credits and Area Source Credits generated pursuant to Regulation XVI - Mobile Source Offset Programs and Rule 2506 - Area Source Credits for NOx and SOx can be converted to RECLAIM Trading Credits (RTC) for use in RECLAIM (these rules have been submitted to EPA for inclusion into the SIP). Furthermore, Emission Reduction Credits (ERC) generated from stationary sources pursuant to Regulation XIII - New Source Review held by facilities entering RECLAIM are automatically converted to RTCs upon entry and non-RECLAIM facilities had an opportunity to voluntarily convert ERCs to RTCs.

Control technology advancement
2015(b)(3)(J)

The socioeconomic evaluation conducted at the time of RECLAIM development predicted that the following NOx reduction technologies would be implemented by RECLAIM facilities as of 1997: wet scrubbers, low NOx burners, urea injections, selective catalytic reduction, and non-selective catalytic reduction. Similarly, hydrodesulfurization and hydrogeneration were predicted to be implemented to reduce SOx emissions by 1997. The technologies which were actually implemented to reduce NOx emissions during the period from 1994 through 1997 were low NOx burners, oxygen enrichment, oxy-fuel burners, selective catalytic reduction, SCONOx, secondary combustion of fuel, and replacement of old heaters with cleaners models. SOx emissions were reduced during the same period by the combined installation of scrubbers and electrostatic precipitators. Permits to construct have been issued for additional control technologies to be implemented in the near future.

Privatization of compliance; availability of data in computer format
§39616(c)(5)

Several elements of RECLAIM reflect privatization of compliance and use of electronic data, as summarized below:
1. RTC Trading
RECLAIM facilities are free to engage in unlimited buying and selling of RTC. However, it is their responsibility to ensure that they retain sufficient RTCs in their allocation accounts to offset their annual emissions.
2. Self-Audits and Optimization
RECLAIM facilities have become more conscientious about self-audits to identify ways to streamline their operations and minimize their emissions as a means of complying with declining allocations.
3. Source Tests of Large NOx Sources
RECLAIM facilities are required to obtain and submit a source test of each large NOx source once every three years. Thus, the facilities have the responsibility to periodically demonstrate compliance with their concentration limits and alternate emission rates.
4. Technology Advancement
One of the methods for RECLAIM facilities to comply with their declining allocation is to reduce emissions through the installation of air pollution control equipment. Installation of control technology will become a more cost-effective option as the availability of RTCs decreases over time. This may result in a higher demand for control technology which will encourage technology advancement.
5. Electronic Data Storage
AQMD has issued an RFP and is currently reviewing bids to identify an appropriate methodology to allow the retention of CEMS data electronically rather than in strip chart format. The goal of the contract to be let from this RFP is to identify a means to require the electronic or computer data storage system to have the same degree of signal path security as with existing strip chart recorder systems.

AQMD staff will continue to monitor and assess the performance of the RECLAIM program and work closely with RECLAIM participants to ensure continued program success.

Attachments

RECLAIM Program Three-Year Audit and Progress Report

/ / /

This page updated: July 22, 2010
URL: http://www.aqmd.gov/hb/1998/980539a.html

Criterion	Data
Achieved equivalent or greater emission reductions at equivalent or less cost 2015(b)(3)(A) §39616(c)(1)	Aggregate reported emissions from RECLAIM facilities were below aggregate allocations based upon the subsumed command-and-control rules in the 1991 AQMP for the 1994 through 1996 compliance years. In addition, aggregate reported emissions were below aggregate projected emissions in the SIP-approved 1994 AQMP and in the 1997 AQMP. Furthermore, these reductions were achieved at a lower cost than projected for continuation of command-and-control.
Public health exposure to criteria and toxic pollutants 2015(b)(3)(B)	There was no significant shift in emissions seasonally, nor a was there a distinct shift in the geographical distribution of emissions based on the analyses of the quarterly emissions during the 1994 through 1996 compliance years. In addition, the actual per capita ozone exposure was 20.3 hours in 1996, which was already well below the targeted level of 40.2 hours established under the California Clean Air Act for year 2000. Furthermore, RECLAIM facilities are subject to the same air toxic regulations as other sources in the Basin. It is important to note that air quality is a complex function of atmospheric conditions and total emissions from all sources. Therefore, improvements in air quality cannot be directly attributed to RECLAIM.
Shutdowns, job loss, occupational structure shifts 2015(b)(3)(C)	The RECLAIM Universe changed from 394 facilities at the beginning of the 1994 compliance year to 329 facilities at the end of the 1996 compliance year. The changes in the RECLAIM universe include sixty-one facility exclusions, sixteen facility inclusions, and twenty facility shutdowns. Of the twenty facility shutdowns during the 1994 through 1996 compliance years, only one cited RECLAIM as a contributing factor. In addition, RECLAIM was cited by facility operators as the cause of a total of fifteen jobs lost while facility operators also attributed a total of eight jobs gained to RECLAIM during the 1994 through 1996 compliance years.

RTC supply and demand 2015(b)(3)(D)	An active trading market for RTCs has developed. More than $42 million of RTCs have been traded since the adoption of RECLAIM, with over $21 million in trades occurring in calendar year 1997. Sufficient RTCs have been available to meet the demand of RECLAIM facilities. Average prices, excluding RTCs which were transferred with a price of $0 (such as transfers between facilities of common ownership), are well below both the backstop price of $15,000 per ton established in Rule 2015 and prices projected during at the time RECLAIM was adopted: $227 per ton for 1997 NOx RTCs ($9,151 projected); $1,880 per ton for 2010 NOx RTCs ($11,257 projected for 1999); $64 per ton for 1997 SOx RTCs ($3,062 projected); and $2,385 per ton for 2010 SOx RTCs ($2,882 projected for 1999).
Compliance, enforcement, & monitoring to deter violations & ensure comparable compliance 2015(b)(3)(E) §39616(c)(2)	The majority of facilities complied with their allocations during the 1994 through 1996 compliance years, with a few facilities exceeding their allocations. Most instances of non-compliance with allocations were mainly due to miscalculations, a lack of understanding of the proper use and application of RTCs and the missing data procedures (MDP), or problems encountered in electronic submittal of emissions data. AQMD staff has proposed a number of future program enhancements in this report to help resolve these issues in the most timely and appropriate manner. Furthermore, AQMD staff has conducted an audit of each RECLAIM facility at least once each compliance year. RECLAIM has also resulted in implementation of more reliable emissions monitoring techniques, such as greater use of continuous emissions monitoring systems (CEMS).
Consistency with Federal & California Clean Air Acts; not delay compliance with §40910 et. seq. 2015(b)(3)(F) §39616(c)(6)	RECLAIM allocations reflect annual rates of emission reductions greater than required by state or federal law. The majority of facilities have complied with their annual allocations, as has the program in aggregate. Emissions increases from RECLAIM facilities have been offset at ratios much higher than 1.2-to-1, the level specified by federal New Source Review requirements.

Emission factors consistent with & appropriate for recent technology advancements 2015(b)(3)(G)	The emission factors listed in Rule 2002 - Allocations for NOx and SOx, Tables 1 and 2 are consistent with and appropriate for recent technology advancements. Technology reviews were conducted pursuant to Rule 2015(c)(3). Based on the technology reviews, the ending emission factors for glass melting furnaces, cement kilns, and petroleum coke calciners were amended. These amendments have been submitted to EPA for inclusion in the SIP. The existing ending emission factors for other industries reviewed were found to be appropriate.
No disproportionate impacts 2015(b)(3)(H) §39616(c)(7)	Aggregate actual emissions from RECLAIM facilities were below allocations for the 1994 through 1996 compliance years. In addition, RECLAIM facilities have achieved the same aggregate emission reductions over time as were projected pursuant to command-and-control. As a result, RECLAIM has not resulted in disproportionate impacts measured in term of required emission reductions on the facilities in the program, compared to other sources identified in AQMP.
Inclusion of mobile, area, stationary sources 2015(b)(3)(I)	Although mobile and area sources are not included in the RECLAIM program, Mobile Source Emission Reduction Credits and Area Source Credits generated pursuant to Regulation XVI - Mobile Source Offset Programs and Rule 2506 - Area Source Credits for NOx and SOx can be converted to RECLAIM Trading Credits (RTC) for use in RECLAIM (these rules have been submitted to EPA for inclusion into the SIP). Furthermore, Emission Reduction Credits (ERC) generated from stationary sources pursuant to Regulation XIII - New Source Review held by facilities entering RECLAIM are automatically converted to RTCs upon entry and non-RECLAIM facilities had an opportunity to voluntarily convert ERCs to RTCs.
Control technology advancement 2015(b)(3)(J)	The socioeconomic evaluation conducted at the time of RECLAIM development predicted that the following NOx reduction technologies would be implemented by RECLAIM facilities as of 1997: wet scrubbers, low NOx burners, urea injections, selective catalytic reduction, and non-selective catalytic reduction. Similarly, hydrodesulfurization and hydrogeneration were predicted to be implemented to reduce SOx emissions by 1997. The technologies which were actually implemented to reduce NOx emissions during the period from 1994 through 1997 were low NOx burners, oxygen enrichment, oxy-fuel burners, selective catalytic reduction, SCONOx, secondary combustion of fuel, and replacement of old heaters with cleaners models. SOx emissions were reduced during the same period by the combined installation of scrubbers and electrostatic precipitators. Permits to construct have been issued for additional control technologies to be implemented in the near future.

Privatization of compliance; availability of data in computer format §39616(c)(5)	Several elements of RECLAIM reflect privatization of compliance and use of electronic data, as summarized below: 1. RTC Trading RECLAIM facilities are free to engage in unlimited buying and selling of RTC. However, it is their responsibility to ensure that they retain sufficient RTCs in their allocation accounts to offset their annual emissions. 2. Self-Audits and Optimization RECLAIM facilities have become more conscientious about self-audits to identify ways to streamline their operations and minimize their emissions as a means of complying with declining allocations. 3. Source Tests of Large NOx Sources RECLAIM facilities are required to obtain and submit a source test of each large NOx source once every three years. Thus, the facilities have the responsibility to periodically demonstrate compliance with their concentration limits and alternate emission rates. 4. Technology Advancement One of the methods for RECLAIM facilities to comply with their declining allocation is to reduce emissions through the installation of air pollution control equipment. Installation of control technology will become a more cost-effective option as the availability of RTCs decreases over time. This may result in a higher demand for control technology which will encourage technology advancement. 5. Electronic Data Storage AQMD has issued an RFP and is currently reviewing bids to identify an appropriate methodology to allow the retention of CEMS data electronically rather than in strip chart format. The goal of the contract to be let from this RFP is to identify a means to require the electronic or computer data storage system to have the same degree of signal path security as with existing strip chart recorder systems.