BOARD MEETING DATE: March 7, 2003
AGENDA NO. 22

Program Review for Pilot Credit Generation Rules

SYNOPSIS:

Six pilot credit generation rules were adopted in 2001 to generate mobile source or area source NOx emission reductions that can be used in the RECLAIM program. Five of these rules require a pro-gram review beginning in 2003 and biennially thereafter. This re-port contains the program review for Rules 1631 - Pilot Credit Generation Program for Marine Vessels, 1632 - Pilot Credit Gen-eration Program for Hotelling Operations, 1633 - Pilot Credit Gen-eration Program for Truck/Trailer Refrigeration Units, 1634 - Pilot Credit Generation Program for Truck Stops, and 2507 - Pilot Credit Generation Program for Agricultural Pumps, including information on credit generation, use of emission reductions, retirement of emission reductions to the benefit of the environment, and identifi-cation of any compliance and implementation issues. This program review will also satisfy the requirement of the semi-annual report.

COMMITTEE:

Mobile Source and Stationary Source, February 28, 2003, Reviewed

RECOMMENDED ACTION:

Receive and file.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

Six pilot credit generation rules were adopted by the Board in 2001 to generate mobile source (MSERC) or area source (ASC) NOx emission reduction credits that can be converted to RECLAIM Trading Credits (RTCs) and used in the RECLAIM program. The rules include:

• Rule 1612.1 – Mobile Source Credit Generation Pilot Program
• Rule 1631 – Pilot Credit Generation Program for Marine Vessels;
• Rule 1632 – Pilot Credit Generation Program for Hotelling Operations;
• Rule 1633 – Pilot Credit Generation Program for Truck/Trailer Refrigeration Units;
• Rule 1634 – Pilot Credit Generation Program for Truck Stops; and
• Rule 2507 – Pilot Credit Generation for Agricultural Pumps.

Each of these rules contains a requirement for a program review. The first program review for Rule 1612.1 was due in March 2002, and then biennially thereafter. Therefore, the next program review for Rule 1612.1 will be due in March 2004. The other pilot credit generation rules, Rules 1631, 1632, 1633, 1634 and 2507, contain a requirement for a program review beginning in 2003 and biennially thereafter. This report contains the first program review for these rules. As required by the rules, the report includes:

• Descriptions of projects to generate emission reductions;
• Location of emission reduction projects and of facilities using RTCs generated;
• Amount of NOx MSERCs or ASCs generated under each rule;
• Amount of MSERCs or ASCs converted to RTCs and amount retired to benefit the environment;
• Amount of concurrent non-NOx emission reductions generated and retired to benefit the environment; and

In addition to the biennial program review required by the rules, the Board directed staff to report on the status of implementation of these rules to the Board every six months. This biennial program review also includes the implementation status report and, therefore, satisfies Board’s direction to have that semi-annual report.

EPA Approval

All of the originally adopted pilot credit generation rules have been approved by U.S. EPA for inclusion in the State Implementation Plan (SIP), with the exception of Rule 1634 which is currently being reviewed by U.S. EPA. Rule 1631 was amended in October 2002 to allow engine remanufacturing in addition to engine replacement and to allow participating marine vessels to travel beyond district waters twice per year for maintenance or repair. The Rule 1631 amendments are also currently being reviewed by U.S. EPA for inclusion in the SIP.

Credit Generation Summary

NOx emission reductions generated by these programs can be used for the RECLAIM program either directly or through the RECLAIM Reserve (Rule 2020). Details of the use of RTCs under the RECLAIM Reserve are contained in the March 2003 RECLAIM Annual Audit Report. This report needs to "balance the books" on fees paid, amounts of emission reductions generated, and distribution of credits for the various programs under the RECLAIM Reserve.

No emission reductions were generated under the pilot credit generation rules prior to 2002. During calendar year 2002, four projects generated emission reductions. All projects involved the repowering of marine vessel engines under Rule 1631. Three of the projects were funded by the RECLAIM Mitigation Fee Program and the fourth was funded by a private party. Table 1 shows the project descriptions, locations of credit generation and credit use, and emission reduction data. Approximately 245 tons of NOx emission reductions were generated under Rule 1631, and with a 10% discount, a total of 220 tons of NOx credits were available in 2002.

Table 1
2002 Emission Reductions from Pilot Credit Generation Rule Projects
 

Mitigation Fund Projects
The first three Mitigation Fund projects listed on the table include additional marine vessels that will produce additional NOx emission reductions beginning in 2003. The RECLAIM Executive Order Emissions Mitigation Program currently includes a total of 49 marine vessels (including the eight marine vessels approved by the Board in February 2003). Thirteen of these marine vessels were repowered and generated credits in 2002. The remaining marine vessels are expected to be repowered and begin generating credits in 2003. It is projected that the marine vessel projects will generate approximately 460 tons of NOx emission reductions in 2003, and 658 tons each year for the next two years. The Mitigation Fee Program requires the generation of approximately 543 tons of NOx credits to offset power plant emissions. At least 407 tons of the NOx credits must be generated by the end of 2003, with the remaining balance due in 2004. In 2002, the marine vessel projects generated 135 tons of NOx credits. Therefore, the balance of NOx credits needed in 2003 is 272 tons. It is anticipated the marine vessel projects will generate sufficient NOx credits to satisfy the requirement for the Mitigation Fee Program. The marine vessel projects are projected to generate 460 tons of NOx emission reductions in 2003, and 658 tons each year for the next two years. Excess credits generated in this program will be applied towards AQMD Rule 118 Executive Order #01-03, and Governor’s Executive Order D-40-01 programs.

In February 2003, the Board approved additional Mitigation Fund projects, including the electrification of up to 34 agricultural pumps and the purchase of 37 new CNG Class 7/8 refuse haulers. These additional projects will generate additional NOx emission reductions for the Mitigation Fee Program. It is projected the agricultural pumps will generate approximately 60 tons per year of NOx emission reductions under Rule 2507, and the CNG Class 7/8 refuse haulers will generate approximately 24 tons per year of NOx emission reductions under Rule 1612.1.

Private Party Projects
The private party project for the repowering of the Islander Express generated approximately 85 tons of NOx RTCs in 2002. This marine vessel is projected to generate additional NOx emission reductions of approximately 77 tons per year for the next three years, of which 10% will be retired to the benefit of the environment. Another private party project, the repowering of the Catalina Express, has been approved and is projected to generate approximately 31 tons per year of NOx emission reductions for the next three years with 10% being retired to the benefit of the environment. These credits belong to the private party.

No emission reductions have been generated under the other four rules thus far; however the Governing Board recently approved funding for additional projects for the Mitigation Fee Program involving the replacement of diesel-fueled agricultural pumps with electric motors pursuant to Rule 2507, and the replacement of Class 7/8 diesel-fueled trucks with CNG fueled refuse haulers pursuant to Rule 1612.1.

Compliance and Implementation Issues

Global Positioning Systems (GPS) have been installed on the vessels that have generated emissions credits. Initially, some difficulties were experienced with the software of the GPS units. These included data gathering, downloading, and transmittal issues, which have now been successfully resolved and the systems are functioning properly.

Random inspections will be conducted to verify that the engine re-powering projects have been completed and the vessels operate in compliance with the program requirements.

Conclusions and Recommendations

The marine vessel repowering projects have been successful in generating NOx emission reductions for use by RECLAIM facilities. Ongoing projects under Rule 1631, Rule 1612.1 and Rule 2507 are expected to generate additional reductions in future years. Compliance and implementation issues have been resolved satisfactorily. This report is submitted for receipt and file by the Board.

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