BOARD MEETING DATE: January 10, 2003
AGENDA NO. 15

Authorize Funding to Purchase Compliance Year 2002 NOx RECLAIM Trading Credits

SYNOPSIS: 

The Board amended RECLAIM in May 2001 and precluded power plants from purchasing NOx RECLAIM Trading Credits (RTCs) to reconcile emissions in an effort to stabilize NOx RTC prices. In March and August 2002, the Board authorized the Executive Officer to purchase excess NOx RTCs for Compliance Year 2001 for the purposes of offsetting power plant emissions and RTC deductions from power plants. Staff anticipates that excess NOx RTCs for Compliance Year 2002 may become available in the market. This action proposes to authorize the Executive Officer to purchase excess NOx RTCs when they become available. Funding for this purchase is available in the Executive Officer Mitigation Account, Fund 27.

COMMITTEE: 

Administrative, December 13, 2002, Recommended for Approval

RECOMMENDED ACTION:

Authorize expenditure of $3 million from the RECLAIM and Executive Officer Mitigation Account, Fund 27, by the Executive Officer, to purchase Compliance Year 2002 excess NOx RTCs on behalf of AQMD for the purposes of offsetting power plant emissions and RTC deductions from power plants.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

On May 11, 2001, the Board amended the RECLAIM program to address California’s energy crisis and stabilize NOx RTC prices. The amendments separated the existing large power plants from the RECLAIM market until at least 2004 and required them to install the best available retrofit control technologies as soon as possible, but no later than January 1, 2003 for boilers and non-peaking turbines and January 1, 2004 for peaking turbines. These amendments also precluded power plants from purchasing NOx RTCs to reconcile their emissions in order to stabilize RTC prices. In addition, the Board established a temporary mitigation fee program for the next four years 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.

Further, 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 for a limited time that power plants meeting specific criteria may pay mitigation fees for the purpose of mitigating excess emissions. The AQMD then uses these fees to offset excess power plant emissions and RTC deductions from power plants by taking actions such as obtaining emission reductions from mobile, area and stationary sources.

In 2002, the Board authorized the Executive Officer to purchase surplus Compliance Year 2001 RTCs from RECLAIM facilities. These RTCs were used to offset emissions and RTC deductions from power plants.

Proposal

A large number of power plants installed air pollution control equipment in 2001 in response to the high RTC prices and the RECLAIM rule amendments. This action has resulted in surplus NOx RTCs from some power plants in their 2001 Compliance Year. Additionally, a number of RECLAIM facilities installed control equipment to reduce emissions in 2001. Therefore, AQMD staff anticipates that there may be surplus NOx RTCs for Compliance Year 2002 available from both the power plant and non-power plant sectors for sale. Staff believes that the purchase of surplus NOx RTCs can be used to offset emissions and RTC deductions from power plants consistent with the RECLAIM rules.

Staff proposes the Board authorize the Executive Officer to purchase Compliance Year 2002 surplus NOx RTCs on behalf of AQMD at a cost not to exceed $3 million in total purchases for the purposes of offsetting excess power plant 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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