South Coast Air Quality Management District
South Coast Air Quality Management District
BOARD MEETING DATE: June 15, 2001 AGENDA NO. 40
Proposal to Lift Temporary Moratorium on Inter-District Transfers of Emission Reduction Credits
SYNOPSIS:
In the past two years, the Board has approved transfers of about 3,690 pounds per day of VOC Emission Reduction Credits (ERCs) to the Mojave Desert Air Quality Management District (MDAQMD) and to Antelope Valley Air Pollution Control District (AVAPCD). However, on November 17, 2000, the Board imposed a temporary moratorium on any future transfers of ERCs outside the AQMD until the Board has further assessed future in-basin ERC needs. The temporary moratorium was mainly due to the reduction of VOC ERCs inventory due to ERCs derived from non-VOC sources (February 16, 2001 Amendments to Regulation XIII), the recent surge in demand for ERCs needs for in-basin electricity generating facilities, potential in-basin inter-pollutant conversions and uncertainties in future ERCs needs for in-basin electricity generating facilities. This proposal is to lift the temporary moratorium on Inter-District transfer or ERCs.
COMMITTEE:
Administrative, June 8, 2001, Recommended for Approval
RECOMMENDED ACTION:
Michael D. Antonovich
Governing Board Member
The increase in electricity demand and the current limited capacity of electricity generation in California has caused an electricity supply shortage during peak demand periods. As a result, several new power plants are proposed to be built in the AQMD and other parts of California. Due to the limited availability of ERCs in some of the neighboring districts, the power plant projects proposed in these districts have requested to transfer ERCs from the AQMD to the respective districts.
In May 1999 and November 2000, the AQMD Board approved transfer of total amount of 3,392 pounds per day of VOC ERCs to Mojave Desert Air Quality Management District (MDAQMD) for permitting of two new power plants (total of more than 1,100 mega watts). In addition, in November 2000, the AQMD Board approved the transfer of 298 pounds per day of VOC ERCs to Antelope Valley Air Pollution Control District (AVAPCD) for two aerospace facilities which were previously part of the AQMD but are now located in AVAPCD.
However, in November 2000, the AQMD Board also imposed a temporary moratorium on any future transfers of ERCs outside the AQMD until the Board has further assessed future in-basin ERC needs. The temporary moratorium was mainly imposed due to the reduction of VOC ERCs inventory as a result of ERCs derived from Non-VOC sources (as reflected in the February 16, 2001 Amendments to Regulation XIII), the recent surge in demand for ERCs needs for in-basin electricity generating facilities, potential in-basin inter-pollutant conversions and uncertainties in future ERCs needs for in-basin electricity generating facilities.
Similar issues and concerns regarding inter-district transfer of ERCs were discussed by the AQMD’s Home Rule Advisory Group (HRAG). In October 2000, the HRAG asked the New Source Review (NSR) subcommittee to examine a number of issues associated with creation and use of credits in the AQMD. The NSR subcommittee developed 36 separate recommendations, where four were identified as "Priority Recommendations" and were presented to the HRAG and the Board earlier this year. Of the four Priority Recommendations, two relate to ERCs generation and use. The first recommendation of the NSR subcommittee indicated that "ERCs are vital to the economic growth necessary if this region (i.e. AQMD) is to maintain or improve the current standard of living for our growing population." Therefore, it recommended an active planning and management of credit generation and use by forecasting demand and generation in order to determine the quantity of ERCs necessary for economic growth in the AQMD. The other recommendation of the NSR subcommittee indicated that, "The AQMD Governing Board should adopt a policy to require projects outside of the AQMD seeking the transfer of AQMD credits for offsets, first to perform due diligence for alternative sources of offsets." In addition, they recommended that the applicants requesting inter-district transfers of ERCs should explore the potential for investing in credit generation projects in the receiving district or in the AQMD, and that the AQMD should actively monitor the effects of inter-district transfers.
Another option for downwind districts is to create an offset bank within their air quality management plans. Such action appears feasible for both the Mojave Desert Air Quality Management District and the Antelope Valley Air Pollution Control District.
Analysis
The February 16, 2001 Amendments to Regulation XIII required that 90 days from the date of adoption of the amendments, all unused VOC ERCs be reduced by the amount of unused non-VOC ERCs. This inventory reduction was recently completed and resulted in 9.2% reduction in the total quantity of unused non-VOC ERCs in the AQMD.
The AQMD is finalizing or has issued Permits to Construct for new power generation facilities in the AQMD totaling more than 1,000 mega watts (MWs) to come on line in 2001, and for about 2,000 MWs to be brought on line in 2002 and 2003. Some of these projects not only used up all available ERCs for certain pollutants (i.e. PM10 or Sox), but proposed use of inter-pollutant offsets. The inter-pollutant offset ratios have varied from 2.0 to 1.0 all the way to more than 300 to 1.0.
On April 20, 2001, the AQMD Governing Board adopted amendments to Regulation XIII to allow power plants the opportunity to obtain PM10 emission reduction credits from the AQMD’s Priority Reserve Bank. This was in an effort to facilitate and streamline permitting of new power plants in the AQMD and to address the increased demand on ERCs by new power plants and other sources.
Pursuant to one of Governor Davis’ Executive Orders (EO-24-01) the CARB has created a state-wide ERC bank and dedicated certain amounts of ERCs to each district for use, as offsets, by new peaking power plants which can start operation by September 31, 2001. Several projects in the AQMD have either requested or used ERCs from the CARB bank created for the AQMD. The AQMD and CARB have signed a Letter of Agreement to delegate the implementation of this bank to the AQMD. Other neighboring districts could request from CARB to implement the CARB ERC bank for their district.
The recent amendments to Regulation XIII resulting in 9.2% reduction of the non-VOC ERC inventory, the updated information on emissions and potential ERC needs for the new power plants in AQMD, the amendments to AQMD’s Priority Reserves Regulation XIII and the creation of the new CARB ERC bank, as well as the report provided by the HRAG, provides a better understanding of credit availability, supply and demand in the AQMD. Therefore, it is recommended that the Board lift the temporary moratorium on the inter-district transfer of ERCs. However, each request for transfer will be carefully reviewed on case-by-case basis using criteria based on supply, demand, availability and price of ERCs.
In addition, since the NSR subcommittee of the HRAG studied and analyzed this issue in detail, the HRAG should be consulted in developing criteria for approval/disapproval of inter-district ERC transfer requests.
Recommendation
Based on the above discussions, staff recommends the following:
/ / /