BOARD MEETING DATE: March 1, 2002
AGENDA NO. 42

Annual RECLAIM Audit Report for 2000 Compliance Year

SYNOPSIS: 

The annual report on the NOx and SOx RECLAIM program is prepared in accordance with Rule 2015 - Backstop Provisions. The report assesses emission reductions, average annual price and availability of RECLAIM Trading Credits (RTCs), job impacts, compliance issues, and other measures of performance for the seventh year of this program.

COMMITTEE: 

Stationary Source, February 22, 2002

RECOMMENDED ACTION:

Approve the attached report.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The AQMD Governing Board adopted the RECLAIM program on October 15, 1993 to provide a more flexible compliance program for RECLAIM facilities, representing the largest emitters of NOx and SOx. RECLAIM was designed to meet all state and federal requirements for clean air programs and a variety of performance criteria to ensure protection of public health, air quality improvement, effective enforcement, implementation costs, and minimal job impacts.

RECLAIM represents a significant departure from traditional command-and-control regulations. Therefore, the RECLAIM rules provide for annual program audits to verify that the program objectives are being met. Rule 2015 – Backstop Provisions, requires AQMD to conduct an annual program audit to assess various aspects of the program to verify that the program objectives are being met. AQMD staff completed the audit of RECLAIM Compliance Year 2000. The audit results showed that California’s energy crisis during this time period had significant impact on the RECLAIM program. The increased production levels at the power producing facilities in response to energy demands in California had caused aggregate emissions in the RECLAIM program to exceed allocations by more than five percent, and drove up the price of NOx RTCs to the levels above $15,000 per ton.

In October 2000, the Board directed staff to form an advisory committee to examine the program and recommend changes to stabilize prices. This effort led staff to develop a RECLAIM White Paper, which was presented to the Board in January 2001. The White Paper recommended measures to stabilize NOx RTC prices, as well as suggested control measures to reduce emissions from RECLAIM facilities. Acting expeditiously to correct the problems, the Board amended RECLAIM rules in May 2001 adopting several staff recommendations in the White Paper. The NOx RTCs prices declined sharply after the rule amendments. Additionally, all of the power producing facilities and a number of RECLAIM facilities installed additional air pollution control equipment or submitted plans to install air pollution control equipment in the near future. At the time of this report NOx RTCs are being offered in the market at less than $3 per pound. The attached report presents the annual audit for Compliance Year 2000. Pursuant to Rule 2015, this report will also be included in the AQMD’s annual performance report to the California Legislature.

Audit Findings

The audit of the Compliance Year 2000 RECLAIM program indicates that:

• Aggregate SOx emissions from RECLAIM facilities continue to be below allocations. However, increased production levels at power producing facilities, in response to California’s energy crisis, caused aggregate NOx emissions to exceed allocations by more than five percent. The analysis shows that emissions from non-power producing facilities were well below their initial allocations for Compliance Year 2000.
  
   
• The RECLAIM universe consisted of 354 facilities at of the end of the 1999 compliance year. There was a net decrease of 19 facilities in the RECLAIM universe during the 2000 compliance year. Thus, there were 335 facilities in the RECLAIM Universe at the end of the 2000 compliance year.
  
   
• Activity in the RTC trading market increased significantly. More than $600 million in RTCs have been traded since the adoption of RECLAIM, of which more than $316 million occurred in Calendar Year 2001. The annual average NOx RTCs prices for Compliance Years 2000 through 2003 exceeded the backstop prices of $15,000.
  
  However, the average prices for NOx RTCs for all other years and for SOx RTCs for all years were below $15,000 per ton. Average prices during 1999, 2000, and 2001 are summarized below:

• The rule amendments in May 2001 are having a definite impact in reducing RTC prices. Actual NOx RTC prices traded have been on a steady decline. The price for Compliance Year 2001 Cycle 1 NOx RTCs had dropped under $6,000 per ton at the time this report was being prepared.
  
   
• The vast majority of RECLAIM facilities complied with their Allocations during the 2000 compliance year. Forty-three facilities exceeded their Allocations during this compliance year. Failure to obtain sufficient RTCs to reconcile with emissions was the leading cause of exceedance.
  
   
• RECLAIM had minimal impact on employment during the 2000 compliance year, as in previous years. Six facilities attributed RECLAIM with generating a total of forty-seven jobs. Thirteen facilities attributed 510 jobs lost to RECLAIM. Most of these job losses (445) were attributable to two facilities that experienced other difficulties. Twenty-two RECLAIM facilities shut down or went out of business in 2000. Two of the operators of these facilities indicated that RECLAIM contributed to their decisions to cease operations.

Attachment

Annual RECLAIM Audit Report for the 2000 Compliance Year

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