BOARD MEETING DATE: March 6, 2009
AGENDA NO. 37

REPORT:

Annual RECLAIM Audit Report for 2007 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, availability of RECLAIM Trading Credits (RTCs) and their average annual prices, job impacts, compliance issues, and other measures of performance for the fourteenth year of this program. This is the second annual RECLAIM audit report to employ the new price reporting and averaging methodology which analyzes discrete-year RTC trade price data separately from infinite-year block RTC trade price data. In addition, recent trends in trading future year RTCs are analyzed and presented in this report. Further, a list of facilities that did not reconcile their emissions for the compliance year is included with the report.

COMMITTEE:

Stationary Source, February 20, 2009, Recommended for Approval

RECOMMENDED ACTIONS:

Approve the attached annual report.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The Board adopted the RECLAIM program on October 15, 1993, to provide a more flexible compliance program for RECLAIM facilities, which represent AQMD’s largest emitters of NOx and SOx pollutants. RECLAIM was designed to meet all state and federal clean air program requirements and a variety of performance criteria in order to ensure public health protection, air quality improvement, effective enforcement, no increase in implementation costs, and minimal job impacts.

RECLAIM represents a significant departure from traditional command-and-control regulations. Therefore, the RECLAIM regulation’s Rule 2015 - Backstop Provisions, requires AQMD to conduct annual program audits to assess various aspects of the program to verify that program objectives are being met. AQMD staff completed the program audit of RECLAIM Compliance Year 2007. The audit results show that both aggregate NOx and SOx emissions achieved programmatic compliance with the program’s target emission levels (aggregate allocations), based on emissions reported by RECLAIM facilities. Aggregate NOx emissions were 21 percent less than the aggregate NOx allocations and aggregate SOx emissions were 13 percent less than aggregate SOx allocations during Compliance Year 2007. Staff is continuing to conduct emission audits at RECLAIM facilities to further validate these emission reports.

At the September 7, 2007 AQMD Governing Board meeting, the Board approved the “Evaluation and Review of the RECLAIM Program and Assessment of RTC Price Reporting” Report and a new methodology for reporting RTC trade prices and determining average RTC prices. This methodology evaluates price data for trades involving individual discrete years and trades involving blocks of RTCs extending into perpetuity (infinite-year blocks or IYBs), separately. Trade data in the attached report are based on this methodology.
 

Audit Findings

The audit of RECLAIM’s Compliance Year 2007 shows that:

• Aggregate NOx and SOx emissions from RECLAIM facilities were below aggregate allocations.
  
  
• The RECLAIM universe consisted of 296 facilities as of June 30, 2007. There was a net decrease of five facilities in the RECLAIM universe during July 1, 2007 through June 30, 2008. Thus, 291 facilities were in the RECLAIM universe on June 30, 2008.
   
  • Eight RECLAIM facilities shut down. Two of the shutdown facilities indicated that air pollution regulations were a factor in the decision to shut down and a third facility was shut down because the facility had been unable or unwilling to comply with various AQMD regulations and EPA’s MACT requirements.
    
  • One facility, that was previously in RECLAIM but had shut down, restarted operation with new permits and was therefore returned to the active universe of RECLAIM facilities. Two additional facilities entered the RECLAIM program as a result from partial changes of operator at existing NOx RECLAIM facilities.
    
    
• The vast majority of RECLAIM facilities complied with their Allocations during the 2007 compliance year (94 percent of NOx facilities and 94 percent of SOx facilities). At the time of this report’s preparation, staff had determined that seventeen facilities exceeded their NOx allocations, one facility exceeded its SOx allocation, and one facility exceeded both its NOx and SOx allocations during the 2007 compliance year. Staff is conducting further audits of the reported emissions for Compliance Year 2007, so additional exceedances may be found.
   
• RECLAIM had minimal impact on employment during the 2007 compliance year, which is consistent with previous years. RECLAIM facilities reported an overall net loss of 413 jobs, representing 0.33 percent of their total employment. Three RECLAIM facilities reported a combined total of 34 jobs lost due to RECLAIM, and a fourth facility, which shut down during the compliance year, reported an additional 40 jobs lost due to RECLAIM. AQMD has no way to verify whether or not the reported job impacts from the RECLAIM facilities are real or perceived.
   
• The RTC trading market remained active. A total of $980 million in RTCs has been traded since the adoption of RECLAIM, of which $58 million occurred in calendar year 2008. During calendar year 2008, average annual prices for discrete-year NOx RTCs ranged from $1,047 per ton for Compliance Year 2007, to $10,984 per ton for Compliance Year 2010. The average annual prices for discrete-year SOx RTCs ranged from $877 per ton for Compliance Year 2007, to $1,474 per ton for Compliance Year 2009. The average annual prices of discrete-year NOx and SOx RTCs traded in calendar year 2008 were below the program review threshold of $15,000 per ton established in Rule 2015(b)(6), as well as below the $36,463 per ton for NOx and $26,253 per ton for SOx RTC program review thresholds established by the Governing Board pursuant to Health and Safety Code §39616(f). For calendar year 2008, the average annual price for NOx IYB RTCs was $202,402 per ton, and the average annual price for SOx IYB RTCs was $22,479 per ton. Average annual prices for NOx and SOx IYB during calendar year 2008 were below the predetermined program review price thresholds of $546,948 per ton of NOx IYB RTCs and $393,802 per ton of SOx IYB RTCs established by the Governing Board pursuant to Health and Safety Code Section 39616(f). The average annual prices of RTCs traded during calendar years 2007 and 2008, based on the new price reporting methodology, are summarized in Table 1 and Table 2 below.
   

Table 1 – Average Prices for Discrete-Years’ RTCs during Calendar Years 2007 and 2008

Table 2 – Average Prices for IYB RTCs during Calendar Years 2007 and 2008

• The role of investors in the RTC market remains significant. Based on both trading values and number of trades, investor-involved trades constituted the majority of the trades recorded in calendar year 2008, particularly with respect to IYB trades. Investor RTC holdings increased from 4.2 percent to 4.8 percent of total IYB NOx RTCs, and decreased from 8.5 percent to 7.9 percent of total IYB SOx RTCs over the course of calendar year 2008. Concurrently, the average annual price of NOx IYB RTCs increased by four percent (from $194,202 to $202,402 per ton), while the average annual price of SOx IYB RTCs decreased by six percent (from $23,848 to $22,479 per ton) during calendar year 2008.
   

Attachment (EXE, ~1.3m)

Annual RECLAIM Audit Report for the 2007 Compliance Year