BOARD MEETING DATE: March 5, 2010
AGENDA NO. 42

PROPOSAL:

Annual RECLAIM Audit Report for 2008 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 fifteenth year of this program. 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 from the commencement of the RECLAIM program through the end of Compliance Year 2008 is included with the report.

COMMITTEE:

Stationary Source, February 19, 2010, Recommended for Board Consideration of Approval

RECOMMENDED ACTION:

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 than command and control for subject facilities, which represent AQMD’s largest emitters of NOx and SOx pollutants. Although RECLAIM was developed as an alternative to command and control, it 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, same or lower 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. In previous annual audit reports, aggregate NOx and SOx emissions were based on both audited emissions and, when audited emissions were not yet available, reported emissions as found in the Annual Permit Emissions Program report (APEP) or Quarterly Certification of Emissions Reports (QCERs) when the APEP was not available. This year’s report reflects AQMD staff’s effort to update all years’ aggregate NOx and SOx emissions with audited emission values. AQMD staff has completed audits of facility records, updated emissions for all previous compliance years, and conducted a complete audit for Compliance Year 2008. Based on audited emissions, there is no change in the previously reported results indicating that RECLAIM met its emissions goals for all years except that NOx emissions still exceeded in Compliance Year 2000 primarily due to the energy crisis. NOx emissions in Compliance Year 2001 are no longer in excess of allocations as was reported in previous annual reports (i.e., NOx emissions goals were met for Compliance Year 2001). The reduction in emissions in Compliance Year 2001 was mainly due to the exclusion of emissions from military technical support equipment from reported emissions pursuant to Health and Safety Code Section 41754(a)(3) and not a direct reflection of the results of full audits of facility records.

Audit results for Compliance Year 2008 show that both aggregate NOx and SOx emissions achieved programmatic compliance with RECLAIM’s targeted emission levels (aggregate allocations). Aggregate NOx emissions were 22 percent less than aggregate NOx allocations and aggregate SOx emissions were 21 percent less than aggregate SOx allocations during Compliance Year 2008.

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 Annual RECLAIM Audit Report for Compliance Year 2008 are based on this methodology.

Audit Findings

The audit of the RECLAIM Program during Compliance Year 2008 and trades of RECLAIM Trading Credits (RTCs) during Calendar Year 2009 show that:

• Aggregate NOx and SOx emissions from RECLAIM facilities were below aggregate allocations.

• The RECLAIM universe consisted of 292 facilities as of June 30, 2008. Six RECLAIM facilities shut down between July 1, 2008 and June 30, 2009. Thus, 286 facilities were in the RECLAIM universe on June 30, 2009. One of the shutdown facilities consolidated its operations with a facility outside of AQMD, and another had sold a portion of its equipment to an existing RECLAIM facility before deciding to shut down and consolidate operations elsewhere in the AQMD. A third facility cited excess capacity and the remaining three facilities cited declining demand for their products as the reasons for shutting down. All the shutdown facilities were NOx-only facilities.

• The vast majority of RECLAIM facilities complied with their Allocations during the 2008 compliance year (95 percent of NOx facilities and 97 percent of SOx facilities). Sixteen facilities exceeded their NOx allocations and one facility exceeded its SOx allocation during the 2008 compliance year. These exceedances did not impact the aggregate NOx and SOx emissions, which stayed below the allocations, respectively.

• Incorporation of the audit results for previous compliance years (back to 1994), resulted in compliance status changes to some of the individual facilities, but did not change the previously reported results relative to overall aggregate NOx and SOx programmatic compliance, as noted above.

• RECLAIM had minimal impact on employment during the 2008 compliance year, which is consistent with previous years. RECLAIM facilities reported an overall net loss of 315 jobs, representing 0.29 percent of their total employment. Two RECLAIM facilities reported a combined total of 139 jobs lost due to RECLAIM, whereas two other facilities reported a total of three jobs gained due to RECLAIM. The job losses and job gains information is strictly based on the RECLAIM facilities reported information and AQMD has no way to verify whether or not the reported job impacts from the RECLAIM facilities are real or perceived. However, AQMD staff has reviewed information available to AQMD for one facility which reported a major portion of the jobs lost (136) due to RECLAIM. The facility has been in the RECLAIM program for the last 15 years, has had relatively steady emissions and adequate RTC allocations to cover its emissions in the last several years, and was not a structural buyer. Based on this, it can be concluded that the facility would most likely have had enough RTCs to cover its future emissions. Therefore, the AQMD could not identify any specific reason why the RECLAIM program would have caused the job losses reported by this facility.

• The RTC trading market slowed down during calendar year 2009 and experienced the lowest trading volume (excluding swaps) since the inception of the RECLAIM program in 1994. A total of $943 million in RTCs has been traded since the adoption of RECLAIM, of which $22.6 million occurred in calendar year 2009 (compared to $58 million in calendar year 2008), excluding swaps. During calendar year 2009, average annual prices for discrete-year NOx RTCs ranged from $809 per ton for Compliance Year 2008, to $4,780 per ton for Compliance Year 2010. The average annual prices for discrete-year SOx RTCs ranged from $653 per ton for Compliance Year 2008, to $1,488 per ton for Compliance Year 2009. The average annual prices of discrete-year NOx and SOx RTCs traded in calendar year 2009 were below the program review threshold of $15,000 per ton established in Rule 2015(b)(6), as well as below the $37,218 per ton for NOx and $26,797 per ton for SOx RTC program review thresholds established by the Governing Board pursuant to Health and Safety Code §39616(f). For calendar year 2009, the average annual price for IYB NOx RTCs was $124,576 per ton, and the average annual price for IYB SOx RTCs was $36,550 per ton (compared to $202,402 and $22,479 per ton for IYB NOx and SOx RTCs in calendar year 2008, respectively). Average annual prices for IYB NOx and SOx RTCs during calendar year 2009 were below the predetermined program review price thresholds of $558,267 per ton of IYB NOx RTCs and $401,952 per ton of IYB SOx 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 2008 and 2009, based on the new price reporting methodology, are summarized in Tables 1 and 2 below.

Table 1 – Average Prices for Discrete-Years’ RTCs during Calendar Years 2008 and 2009

Table 2 – Average Prices for IYB RTCs during Calendar Years 2008 and 2009

• The role of investors in the RTC market remains significant. Based on both trading values and number of trades with price, investor-involved trades constituted the majority of the trades recorded in calendar year 2009, particularly with respect to discrete trades. Investor RTC holdings increased from 4.8 percent to 5.5 percent of total IYB NOx RTCs, and decreased from 7.9 percent to 5.5 percent of total IYB SOx RTCs over the course of calendar year 2009.

Attachment (EXE,10m)

Annual RECLAIM Audit Report for the 2008 Compliance Year