NOx Budget Trading Program, US
On December 17, 1999 the EPA finalised the Findings of Significant Contribution and Rulemaking on Section 126 Petitions of Reducing Regional Transport of Ozone (commonly referred to as Section 126 Final Action). This rule grants petitions filed by four north eastern States (Connecticut, Massachusetts, New York and Pennsylvania) seeking to reduce ozone pollution (smog) through reductions in nitrogen oxide (NOx) emissions from other States. The Section 126 Final Action requires 392 facilities in Delaware, the District of Colombia, Indiana, Kentucky, Maryland, Michigan, North Carolina, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia to reduce annual NOx emissions.
The aim of this programme is to get 392 facilities in Delaware, the District of Colombia, Indiana, Kentucky, Maryland, Michigan, North Carolina, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia to reduce annual NOx emissions by a total of nearly 510,000 tonnes from 2007 levels.
The EPA requires that large electric utilities and large industrial boilers in States whose emissions have been shown to significantly contribute to downwind non-attainment to control their NOx emissions in response to the Section 126 Final Action rulemaking. Fossil fuel boilers or combustion turbines that serve an electric generating unit with rated output of greater than 25 MW or that have a maximum rated heat input capacity of greater than 250 mm Btu/hr are included in the trading programme. Units that no longer operate or units that have a permitted limit to emit less than 25 tonnes of NOxxx "allowances". One allowance authorises the emission of one tonne of NOx emissions. The EPA will allocate each source a specific number of allowances per year. Allowances may be bought, sold or traded between the affected sources and other private parties.
This trading programme applies to 392 facilities in Delaware, the District of Colombia, Indiana, Kentucky, Maryland, Michigan, North Carolina, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia.
Trading Programme Classification
The Federal NOx Budget Program is a cap-and-trade programme.
The Federal NOx Budget Trading Program was introduced on May 1, 2003.
The unit of the Federal NOx Budget Trading Program is the "NOx Allowance". One allowance authorises its holder to emit one tonne of NOx emissions.
The EPA projected total uncontrolled ozone season NOx emissions for the year 2007 for the participating sources in each State. A state-wide emissions trading budget was then established by applying highly cost effective control measures to the named sources in each State. The EPA determined that a control level of 0.15 lbs/mm Btu for electric generating units and a 60% reduction in NOx emissions for industrial boilers were highly cost effective. To set emissions limits for individual sources, the EPA apportions the State emissions trading budgets among the participating sources. An individual source's emissions limit is expressed as the number of NOx allowances it is allocated for a given year. In the December 1999, the EPA allocated the state-wide budgets for 2003-2007 to sources based on their heat input and listed each unit's heat input. The EPA will update these allocations every five years in five year blocks. Updated allocations will be based on output for electric generating units and will probably be based on heat input for industrial boilers. Just under 290,000 NOx allowances will be allocated in total region-wide to sources every year. Sources that retire will continue to receive allocations until the next allocation update. If the retired sources are brought back on line after the allocation up-date, they are not considered new sources and will not receive an allocation until the subsequent allocation update. During the initial two years of the programme, the EPA is also making additional allowances available to participating sources through a compliance supplement pool. These allowances will be distributed among sources which made early reductions during the 2001 and 2002 ozone seasons. Sources may use these allowances for compliance purposes as they would other allowances for the 2003 and 2004 compliance periods. However, the EPA will retire all remaining pool allowances from the allowance tracking system after the 2004 ozone season compliance determination process is completed. New sources entering into the programme will be allocated allowances from a portion of the State budget that is set aside for new sources. A new source is eligible to receive allowances from the new source set-aside until it has sufficient operating data to receive an updated allocation as an existing source. Each new electric generating unit will be allocated allowances based on the product of either a NOxx emissions rate of 0.17lbs/mm Btu or the unit's permitted limited, whichever is less, times their actual utilisation for the control period. Sources that are not currently subject to the programme but undergo major modifications and are subsequently required to participate in the programme are initially treated as new sources and therefore are eligible to receive allowances from the new sources set-aside. After compliance has been determined, any allowances remaining in the new source set-aside will be redistributed to existing sources.
Monitoring and Enforcement
The affected sources were required to begin monitoring on May 1, 2002. Full compliance with the Federal NOx Budget Trading Program is required starting May 1, 2003. Sources demonstrate their compliance by holding enough allowances in their accounts to cover their ozone season emissions. If sources do not have enough allowances to cover their emissions based on their initial allocation, they may take advantage of the flexibility provided by the allowance market and buy allowances. Sources have until November 30 each year, two months after the end of the ozone season, to ensure that they hold adequate allowances. The EPA verifies that sources hold adequate emissions allowances through standardised monitoring and reporting procedures. In order to demonstrate compliance, budget sources must monitor and report their actual emissions to the EPA. Under the trading programme, sources with large NOx emissions must monitor their emissions using continuous emissions monitoring systems. Sources with lower NOx emissions may use simpler estimation methods. Regardless of the method used to determine emissions, the data used to support these determinations is reported to the EPA electronically (by July 30 for the months of May and June, and by October 30, for the months of July, August and September).
Banking and Borrowing
Banking allowances for future use is permitted in this programme.
The Federal NOx Budget Trading Program is very similar to the NOx Budget Trading Program under the NOx SIP Call. Both programmes assume the same level of control for large electric generating units and industrial boilers and require the same compliance data. Sources trading under the Federal NOx Budget Trading Program and sources trading in the NOx Budget Trading Program under the NOx SIP Call, may trade allowances freely with each other. However, under the NOx SIP Call, States have the option of reducing their NOx emissions through a mechanism other than the NOx Budget Trading Program. Therefore, only States that choose to control their emissions through the NOx Budget Trading Program can trade with sources in the Federal NOx Budget Trading Program. Phase II of the Ozone Transport Commission's NOx Budget Program began in1999. Phase III assumes similar control levels as the Federal NOxx Budget Trading Program under the NOx SIP Call and is scheduled to begin in 2003. Because of these similarities, the EPA is working with the affected States to ensure appropriate integration of the programmes in 2003.(See Footnote1) Footnotes1. Refer to OTC Trading Program and NOx SIP Trading Program entries on this website.