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BOARD MEETING DATE: May 14, 1999 AGENDA NO. 30

PROPOSAL:

Inter-District Transfer of Emission Reduction Credits for High Desert Power Project

SYNOPSIS:

The High Desert Power Project has requested the acquisition of SCAQMD emission reduction credits (ERCs) for a proposed plant in the Mojave Desert area. Senate Bill 1416 allows interbasin offset trading provided approval has been obtained from the air district in which the ERCs are generated. Staff recommends approval of this specific request at this time.

COMMITTEE:

Stationary Source, April 23, 1999, Reviewed

RECOMMENDED ACTION:

Approve the Transfer of Inter-District Emission Offsets to the Mojave Desert Air Quality Management District for the High Desert Power Project, in accordance with the Attached Resolution.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The High Desert Power Project (HDPP) is proposing to site a large power plant in San Bernardino county approximately 70 miles northeast of Los Angeles. The proposed location at the former George Air Force Base is within the Mojave Desert Air Quality Management District (MDAQMD).

HDPP is currently proposing two alternative plant configurations using natural gas-fired gas turbines with either 750 or 700 megawatts of electric generating capacity. The following table provides the estimated maximum annual controlled emissions for each configuration.

HDPP Projected Maximum Annual Emissions (pounds per day)

HDPP is subject to MDAQMD’s New Source Review requirements and approved ERCs must be used to offset the emission increases. MDAQMD rules require that the offsets be secured prior to the start of construction. Due to the limited amount of ERCs available in the MDAQMD, HDPP is proposing to use ERCs generated both in the MDAQMD and the SCAQMD to offset the emissions. Furthermore, due to the scarcity of NOx ERCs in the SCAQMD, HDPP is proposing to use VOC ERCs to offset both VOC and NOx emissions from the project. Discussions regarding the specific inter-pollutant trade ratio (VOC to NOx) are being finalized with the U.S. EPA and the California Energy Commission. Accounting for ERCs obtained in MDAQMD, and using an offset ratio of 1.3 for emissions decrease to emissions increase and an inter-pollutant ratio of 1.6 for NOx to VOC conversion, the maximum amount of VOC offsets needed from SCAQMD will not exceed 1,620 pounds/day.

HDPP has option agreements in place for several sources of VOC ERCs generated in the SCAQMD, and is requesting governing board approval from both districts to use these ERCs to offset the emission increases from the proposed project. To minimize impacts to the SCAQMD’s supply of ERCs, SCAQMD will not authorize the release of more ERCs than required to offset the emissions from the project.

Regulatory Framework

California Health & Safety Code Section 40709.6 (SB 1416) and SCAQMD New Source Review Rule 1309(h) allow the transfer of ERCs between different air basins only when: (1) the stationary source to which the ERCs are credited is located in an upwind district that is classified as being in a worse nonattainment status than the downwind district, and (2) the stationary source where the ERCs will be used is located in a downwind district that is overwhelmingly impacted by emissions transported from the upwind district. In addition to the above, each district’s governing board needs to approve an adopting resolution that considers the impacts of the offset on air quality, public health, and the regional economy.

The South Coast Air Basin (SOCAB) is classified as an extreme ozone nonattainment area, which is one category more severe than the severe ozone nonattainment classification given to the western portion of the MDAQMD. In addition, the ARB has identified MDAQMD as a downwind district that is overwhelmingly impacted by emissions transported from the SOCAB. ARB studies indicate that the majority of ozone exceedances in the western Mojave Desert can be attributed to transport from the SOCAB. The proposed project site (in the western Mojave Desert) meets the two conditions specified above and is therefore eligible for inter-district offsets.

Air Quality Impacts

MDAQMD has determined that the proposed project will not interfere with the attainment and maintenance of federal and state ambient air quality standards (AAQS) in their district. Because the project is downwind of SOCAB, it will have no direct impact on air quality in SOCAB. However, it will have an indirect, beneficial impact on future air quality in the SOCAB because the use of SCAQMD ERCs will eliminate the potential for such ERCs to be used to offset future VOC emission increases within the SOCAB.

Public Health

With respect to emissions of criteria pollutants, air quality modeling studies indicate that the proposed project will not cause a violation of AAQS (taking into account the PM₁₀ mitigations) in the MDAQMD. HDPP also analyzed (using MDAQMD approved methods) health impacts due to toxic air emissions, including carcinogenic, non-carcinogenic chronic, and non-carcinogenic acute impacts. The results of the health risk assessment indicate that the peak 70-year cancer risk from the project will be less than one in one million for all receptors. In addition, the maximum non-cancer chronic and acute Hazard Indices are both less than the significance level of 1.0.

The HDPP will not impact public health in the SCAQMD because the proposed project will be located in a downwind air basin.

Regional Economy

HDPP is requesting to purchase up to 1,620 pounds/day of VOC ERCs from the SCAQMD. The impact of this purchase on VOC ERC availability and cost is analyzed by comparing the demand, supply, and cost information over the last several years (see following table).

Demand, Supply, and Price of VOC ERCs

Demand and supply are in pounds per day. Supplies for 1994 and 1995 were approximated.
¹ over calendar year.
² as of January 1 of each year.

The economy of the four-county region has been growing since it climbed out of a significant recession in the early 1990s. For the period of 1995 to 1998, the region's manufacturing grew at 3.46 percent a year and the growth of the entire region was 3.37 percent a year. The open market demand for VOC ERCs has not increased since 1996 despite this strong economic activity. Since 1996, the supply of VOC ERCs has remained relatively constant due to a steady flow of ERCs generated from process modifications, overcontrols, and shutdowns. Since there is an adequate supply of VOC ERCs in the SCAQMD, prices have dropped in spite of a strong economy.

From now to the year 2010, the region is expected to grow at 3.36 percent a year and manufacturing is forecast to grow at 4.81 percent yearly. The previous trends for VOC ERC demand, supply, and price are expected to continue because increasingly stringent BACT and retrofit rule requirements, and improved air pollution control technologies are lowering the VOC emissions from sources potentially needing ERCs.

The VOC ERCs requested by HDPP should have minimal impact on the availability of VOC ERCs in the SCAQMD, and as long as supply exceeds demand, prices should remain relatively stable. Therefore, adverse impacts (such as significant increased prices) to the regional economy due to this proposed inter-district transfer of VOC ERCs are not expected.

Recommendation

Staff recommends approving the inter-district transfer of VOC ERCs needed by the HDPP. However, any future request for inter-district offset transfer needs to be carefully analyzed and requesting parties should not presume that the request will be granted.

Attachments

Resolution

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