South Coast Air Quality Management District

Authorize Additional Funding for the Executive Officer to Purchase NOx RTCs

SYNOPSIS: 

The Board amended RECLAIM in May 2001 and precluded power plants from purchasing NOx RTCs to reconcile emissions in an effort to stabilize NOx RTC prices. In March 2002, the Board authorized the Executive Officer to purchase Compliance Year 2001 excess NOx RTCs at a cost not to exceed $1.00 per pound of RTC and $500,000 in total purchase for the purposes of offsetting power plant emissions and RTC deductions from power plants. Recently, additional NOx RTCs for Compliance Year 2001 (Cycle 2) became available in the market. This action proposes to authorize additional funding for the Executive Officer to purchase excess NOx RTCs. Funding for this purchase is available in the Executive Officer Mitigation Account, Fund 27.

COMMITTEE: 

Not Applicable

RECOMMENDED ACTION:

Authorize expenditure of an additional $500,000 from the RECLAIM and Executive Officer Mitigation Account, Fund 27, by the Executive Officer, to purchase Compliance Year 2001 excess NOx RTCs on behalf of AQMD at a cost not to exceed $1.00 per pound of RTC, for the purposes of offsetting power plant emissions and RTC deductions from power plants. This funding is in addition to the maximum funding level authorized for this purpose in March 2002.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

In March 2002, the Board authorized the Executive Officer to purchase Compliance Year 2001 NOx RTCs on behalf of AQMD for the purposes of offsetting power plant emissions and RTC deductions from power plants. The authorization included restrictions that the purchases would be at a cost not to exceed $1.00 per pound of RTC and $500,000 in total purchase. On March 1, AQMD purchased 120,035 pounds of NOx RTCs from the Los Angeles Department of Water and Power (LADWP) at the price of $1.00 per pound. Currently, there is a remaining balance of $379,965 in the purchase fund authorized by the Board in March 2002. AQMD staff has recently been approached by some power plants indicating their interests in selling excess NOx RTCs for Compliance Year 2001 (Cycle 2) at the price not to exceed $1.00 per pound. Staff estimates that there are at least 550,000 pounds of NOx RTCs available for purchase. Additional NOx RTCs may become available prior to the end of reconciliation period on August 29, 2002, as RECLAIM facilities complete the review of their emission records. Additional funding authorized by the Board will enable staff to purchase excess NOx RTCs for Compliance Year 2001 as they become available in the market.

The excess NOx RTCs purchased by the AQMD will be used to offset power plant emissions or NOx RTC deductions from power plants that paid into the mitigation fees program. RECLAIM amendments in May 2001 separated the existing large power plants from the RECLAIM market until at least 2004 and precluded power plants from purchasing NOx RTCs to reconcile their emissions in order to stabilize RTC prices. However, the Board established a temporary mitigation fee program to mitigate power plant emissions, whereby power plants would pay the AQMD $7.50 per pound of NOx emissions in excess of their RTC holdings. Furthermore, AQMD Executive Order 01-03 issued on February 8, 2001, pursuant to Rule 118 and the Governor’s Executive Order D-40-01 issued on June 11, 2001 also allowed power plants meeting specific criteria to pay mitigation fees for the purpose of mitigating excess emissions. The AQMD would use the fees to offset excess power plant emissions and RTC deductions from power plants by taking such actions as obtaining emission reductions from mobile, area and stationary sources.

Proposal

Due to the recent installation of air pollution control equipment, some power plants have surplus NOx RTCs available for sale in the RECLAIM market. Additionally, a number of RECLAIM facilities installed control equipment to reduce emissions in 2001. Surplus NOx RTCs from non-power plants sector may also be available for sale. AQMD staff believes that the purchase of surplus NOx RTCs could be used to offset emissions and RTC deductions from power plants consistent with the RECLAIM rules.

Staff proposes the Board authorize expenditure of additional $500,000 by the Executive Officer to purchase Compliance Year 2001 excess NOx RTCs on behalf of AQMD at a cost not to exceed $1.00 per pound of RTC for the purposes of offsetting power plant emissions and RTC deductions from power plants. This authorization will be in addition to the maximum funding level authorized in March 2002. Based on the recent survey of RTC prices conducted by staff, described earlier, there are surplus RTCs currently available in the market at low prices. The investment of less than $1.00 per pound of RTC is a cost-effective means of offsetting emissions and RTC deductions from power plants.

Resource Impacts

RECLAIM and Executive Officer Mitigation Account, Fund 27 was established as a special revenue account. Currently, there is adequate funding available to use in mitigating NOx emissions from power plants as outlined herein.

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