Southern California's Once Groundbreaking Cap and Trade Program Is Now Riding Towards the Sunset
| Publication year | 2017 |
| Author | by Josh Heintz and Aron Potash |
by Josh Heintz and Aron Potash
The days are numbered for one of the country's first air emissions cap and trade programs. On March 3, 2017, the South Coast Air Quality Management District ("SCAQMD" or the "District") Governing Board (the "Board") approved an Air Quality Management Plan ("AQMP") that would phase out the Regional Clean Air Initiatives Market ("RECLAIM") program for 2XX stationary sources located throughout Southern California and replace it with a more traditional "command and control" regulatory framework. The District adopted RECLAIM in 1993 to provide a flexible, market-based compliance program for the largest emitters of oxides of nitrogen ("NOx") and oxides of sulfur ("SOx") by allowing major stationary sources to trade NOx and SOx credits under a cap on total emissions. Innovative at that time, RECLAIM served as a precursor for other cap & trade programs, including California's AB32 cap & trade program for greenhouse gas ("GHG") emissions.
District staff, with input from a broad and diverse stakeholder working group, has started the difficult task of fleshing out what the post-RECLAIM regime will look like. A flurry of rulemakings have already begun, and the District has released drafts of the first proposed changes to the rules early in November 2017 that staff has indicated it would like to bring to the Board as early as January 2018. A multitude of additional rulemakings, driven both by the AQMP direction and AB 617, will create the post-RECLAIM landscape and are likely to come quickly thereafter. These new rules will target both specific types of equipment (such as heaters, boilers and glass melting furnaces) and entire industries (such as petroleum refineries and electric generating facilities).
This article provides an overview of the history and current structure of the RECLAIM program, followed by an examination of the District's proposal for phasing out the RECLAIM program.
Although the federal Clean Air Act ("CAA") is the overarching federal law governing air emissions in the United States, primary authority for the regulation of emissions from stationary sources in California rests with local and regional air quality management districts and air pollution control districts, such as the SCAQMD. The SCAQMD has authority over stationary sources located in all of Orange County and the non-desert portions of Los Angeles, Riverside and San Bernardino Counties.
Pursuant to the CAA, the United States Environmental Protection Agency ("US EPA") establishes health-based national ambient air quality standards ("NAAQS") to protect public health. NAAQS apply to criteria pollutants: particulate matter, ground-level ozone, carbon monoxide and lead, in addition to SOx and NOx (the two pollutants regulated by the District's RECLAIM program). Areas of the country where air quality meets the NAAQS are attainment areas subject to the "PSD" program; nonattainment areas are subject to nonattainment "New Source Review."
US EPA and the states partner in regulating criteria pollutants. States and localities come up with plans; states are responsible for developing enforceable state implementation plans ("SIPs") to meet the NAAQS. In California, local air pollution districts work with the state to produce air quality plans and issue facility permits. Each air district, including the SCAQMD, periodically develops and adopts an AQMP, a plan for attaining state and federal air quality standards.
AQMPs are implemented through rules and regulations that limit emissions from affected facilities. State law sets forth certain requirements that must be included in rules and regulations adopted to implement AQMPs, including specifically with respect to the District, the requirement that existing stationary sources achieve a level of emissions reduction that is reflected by "best available retrofit control technology," or BARCT. BARCT is defined as "an emission limitation that is based on the maximum degree of reduction achievable, taking into account environmental, energy and economic impacts by each class or category of source."
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Air districts may adopt market-based incentive programs as an element of their AQMPs, and such market-based incentive programs may substitute for more traditional command and control regulations. [CITE]. State law requires these incentive programs, like RECLAIM, to achieve, in the aggregate, equivalent or greater emission reductions, at equivalent or less cost, as compared to command and control regulations that would have otherwise been in place and required installation of BARCT. Because BARCT is an evolving standard that becomes more stringent over time as technology advances, the incentive programs must be periodically amended to ensure that emissions reductions achieved by the program are keeping pace with advances in BARCT. This periodic evaluation and amendment process is commonly referred to as maintaining "BARCT equivalency." and facilities that are considered to have achieved current levels of BARCT equivalency are referred to as "at BARCT."1
B. Background and Program SuccessThe District Governing Board adopted the RECLAIM program on October 15, 1993, and it went into effect at the beginning of 1994. RECLAIM is a market-based cap and trade program aimed at reducing NOx and SOx emissions by imposing program-wide mass emissions caps that decline over time. RECLAIM facilities are required to provide to the District emissions credits commensurate to their emissions. At the start of RECLAIM, the District allocated emissions credits to facilities subject to the program based on each facility's historic emissions and emissions factors the District developed for the equipment operated by each facility. The District allocated the emissions credits...
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