Uncle Sam Goes to Market Federal Agency Disposal of Emission Reduction Credirs Cnder the Federal Propelty Nanagement Regulations

• Author: Major Vincent Joseph Raffeerty, Jr
• Pages: 03

I Introduction

The realignment and closure of federal facilities-especiall! De-partment of Defense msrallatmns-hare presented federal agencm wth a unique opportimi~y: to create and dispose of aw ernlssmn reductmn credits (ERCs) Additionally. current commitments by Congress and rhe Emiranmental Protection Agency (EPA) to expand the LISP of marker-based pollutmn control programs have raised issues regarding federal agencies disposal of ERCs and similar pollution nghrs and allowances

This axtick discusses rhe disposal of ERCs b) federal agencles under existing federal propeny laws and regulations

I1 Emiss~on Reduction Credits

Ennssm reducrm credits hme been called th? "common currenc) of all [emissions] trading actimy ' I Fmt Introduced on Apnl 7. 1QSZ-nhen the EPA published its proposed Emissions Trading Policy Starement?-ERCs may be created by reducing emissions from elther statmnan. area, or mobile sources.' State-established ERC programs pronde polluters with market incentwes to reduce ar emissions from particular

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sources. Once ERCs are created, state emissions wading program allow the ERCs to be used at other sources, banked for future use, or sold to thrd parties.' The emissions trading activities which use ERCs include bubbles, netting, offsets, and banldng.j

Proposed in 1882, and issued in its flnal form in 1986, the EPAs Emissions Trading Policy Statement governs the creation of ERCs and theiruse inemissmns tradingprogTm dC~n~i~tentniUlthispolicystate-ment, each state has the discretion to estabhh programs for the creation, banking, transfer, and use of ERCs.' States may establish EPA-approved generic emissions trading regulations and EPA-approved ERC banks, or may elect to submit emissions trades as individual SIP revi-smm on a case-by-case basis?

To qualify as ERCs and be eligible for use in emissions tradmg ac-tivities, emasions reductions must be su~plus,enforceable, permanent, and Surplus emissions reductions are those reductions that are below a SOUTC~'S state established erm~sions bsseline and that are

not legally required.'O The enforceability requirement dictates that each transaction which rams any emissmn lirmt upward be state approved and federally enforceable." Permanent erms~iom reductions are those that are assured 'by requiring federaily enforceable changes in ~ource p e n t s or applicable state regulations to reflect a reduced level of allowable The final requirement 1s that emissions reduc-

Id TheauthontyfarBTareatoimplemenfauchmarket-basedprogramiia conwned

msectloni IlO(a)(2)(AIand172(c)oftheCIean~r*cf(CA4),42U

SC A 65 7410(a)(Z)(A), 7502(e) (West 1893) hkeume under S 182(g) of the CM. economic incentive program^ may be required llnonartonmenf mlesrmes are mused Id B 7&ila(g)

'Emip.~.".TradrngPoilcyStarement supranole 1 ar43825.43,831 43,834,43.836

' I d af43.831 lo

Id at 43.832 Sumlus e m i m o ~ are 'not legdl) required' lfthey are not requrred

by current regulatlana ~n the SIP. not &ready relied on for SIP plannmg purporer and not bemg used b) the source to meet otherregulatory requrements Id

"Id at43 832 Emrrslons ImiUmsy bemade fedP~dlyenforceablethroughSIPreii-110~

EP.4-apprmed genenc bubble _le&, new SOUIC~

p~~consvyctionpermits issued by

staferunder EPA-appro~~d

SIPregulalions,andco~~cwanpermirs~s.uedb) theEPAo1

delegated states Id There 1s an interesting lulbf for ERCs deposited m a state's EPA-approved ERChank. LhoJeERCImuJrbemadeenlorceable bythestate Id af43.816.43,825 Because merely depositing an ERC m a bank wII not result m an emision mcreare else-where, bnikrdERCrneednorbe niadcfederdlyenforceable until used Id at43.834n21

'>Id SI

13.832

tians be quantifiable in terns of characrenzmg the reduction for future

use and estimating the amount of the reducnon:'

The four methods of emissions trading include bubbles, nertmg. offsets. and banklng Bubbles are used wth exisnng sources, netting 15

used for modifications of eusting sources which result m increased emm smns at least one discharge point, offsets are used with major new sources, and banlnng penniu ERCs to be sold 01 saved for future use." Each method requires the creation of surplus emissions reductions be law- the baseline of one source and the compensatory use of the emis sians a1 another source

Bubbles permit emsting plants or groups of plants IO increase emis-sions a1 one or more emissmn sources in exchange for surplus compensating decreases in emissions a1 some other emission sources .- The '"bubble' 1s

an imagmmy boundary deiice placed over a polluting plant or other facility with many mdmduai sources of ur pollution eniiss~ons Instead of regulating emissions from each smoke-stack. pipe. or fugitive emissmn source. only the total pollution ofthe plant IS regulated-asifa was commgfroma single imaginaly ouIlet in the bubble

calculating ernienonishauld be used LO ~uanflfi

The benefit of a bubble is that it allows firms to reduce compliance costs. Finns may increase then ermssions where control costs are high, in ex-change for surplus reductions where costs are low, so long as each trade is enforceable and results in air quality equivalent to the original requirements

Netting deals with madificauons of existing mqor sources and may exempt these sources from specific preconswuction permit requirements under Sew Source To quaii$ for these exemptions, there must be no net emssions increase wthin the major souce, or any increase must fall below significance The resuit of "netting out' 1s that the modification is not considered "ma.mr" and 1s not subject to the preconstmction permit requirements for q o r rnadificatlons22 Netting pelrmts mcreased emissions from one stack or another part of a plant to be offset by decreased ermssions from Some other emissions point If no net increase m erms~ion~results 29

Offsets allow a firm to construct a myar new ermssmns source-or expand an existing one-when the source athenrise would cause or contnbute to am quality problems Cnder the offset program, fims are required to secure sufficient surplus emissions reductions from other SDUIC~S in the vicinity to compensate for any new emissions that they uili add ?5 Offsets are specifically required m nonattunment areas for major nen stationw sources and myor modfications,z6 and also may be required in attamment areas to prevent increment exceedances, prajected ambientuolations, orvisibility impacts associated with new source growth ?'

Banlong allows firms to store ERCs for future use-m bubbles, offsets, or netting, or to sell or transfer to other firms.2P States may establish ems~ionsreducuon banks and governing regulations as part of their

l'hlorgenirem.supro note 16 at27

Emlsslonr Trading Pollcg Statement, mqra note I, at 13.830

'~Elman.supm note 86 at365, EmissionrTrading Policy Sraremaot sipia note I, at 13 530-31

Emissions Trading Pahe) Smtement. supm note I ati3.831

SIPS.~' These EPA-approvable banks must be eStablished before a state can qualify emissions reductions as ERCs consistent with the Ermssions Trading Poiicy Statement.So

A Sirm cannot automatically create ERCs just by reducing their emiSsions Where state and local air quality management districts have established EPA-approved ERC programs?' firms must comply wth the local regulatory reqmremenrs and procedures to obtain ERCs

11 Federal Agencies and ERC Disposal

The procedures that Sederal agencies use to dispose of emm.mn rights present timely and interesting issues. Two pnnciple factors dnr-mg these issues are the realignment and closure of Sederal facilities and the increased use OS market-based programs in pollution control laws

The dosure and realignment of federal facilmes, particularly at Department of Defense (DOD) installations, enables Sederal agencies to create and dispose of ERCs. Many entities in the same air basins as the Sederal inetallat~ons are interested m obtaining these nghts Interested groups include other federal installations, community organizations seeking to reuse and redevelop the closing facdities, and businesses m need of air credits If transferred TO other federal agencies. ERCs would gire agencies the needed flexibility to effectively accomplish their misaan while compipng with the requirements of the C M and applicable state

J'fd(cmng40C F R pt 51 app S(EP*srer~iedOffietRulmg),

'0 id .An mfomal bankmg system ha;. developed at the state lerel This sbslem m iolres pnvare unpublicized deals made betueen itate regulators and indust0 coneernlng CrediW for emismme Ieducfions that the state allows to be used lnrerndly 10 meet C M reqvemeo~i Rsitne mpm note 2 a? I628 (crtmg Raben B Hahn and Gordon HeeIer mire Dzddll fhe.WaarkeLc Go'An Anoiyszs olEP.4~

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Pubs me) Sloir oiMiehtgon, Em wonnamtoi DrJmse Fund andC,W Team Cp zn Chon Air Fzghl PR UwmInE Oct 7 1093 (ainlable In LENS Enilm Libraw Pubs File) Nlsc~naln

IS "orhng Lo de>elap an ~economlcdli fnendl) emlSJlonS fradmg~ystern ' WEPCO iibrhrng1L.ilkSlalefoDrilzsr YO2 lDCTiading PlonJDrOionp Are=. U ~ r ~ i n

E\i'7 REP Dec 10 1993. at 9

J oh REG 109, 130 132 (1888)l

Plln 1986,tbeEPA had approved bankmgruleeforanlg ~~eIrarpiorlocalagDllclps whde elghr ocher agencies had adapted bankmg d e s awutlng EPA approvd One of the active programs 1s located 10 Lourrilile KenrucinERCprogrm lrlocared InCdlfomla.ser Vote h e

implementation plans. If sold to community reuse groups or businesses, swlus federal ERCs could be a source of revenue for the federal government. If donated to community reuse groups or local air quality man. agement distncts, surplus federal ar crehts could generate good Mil and signify, in some small way. the federal government's commitment to achie\ing CAA compliance in that particular air

.4s eddenced by the C M and other pollution controls, Congress and the EP.4 appear comrmtted to the use of...