Emission Reduction Credits (ERC) Strategy Update

RECENT CHANGES IN AIR QUALITY REGULATORY CIRCUMSTANCES FOR THE BATON ROUGE AREA ENHANCE OPPORTUNITIES FOR ECONOMIC DEVELOPMENT

There have recently been a number of significant developments that have altered the air quality regulatory circumstances for the Baton Rouge area, particularly related to compliance with the National Ambient Air Quality Standard (NAAQS) for ozone.  These developments reflect progress the area has made in air quality improvement and present an improved picture for economic development in the Baton Rouge area.

THE BATON ROUGE AREA ACHIEVES ATTAINMENT OF THE OZONE STANDARD

The Baton Rouge area has generally good air quality with the exception of a few periods each summer when the area experiences elevated ozone levels.  The five parish area (Ascension, East Baton Rouge, West Baton Rouge, Livingston, and Iberville) has been in attainment for all established NAAQS except that for ozone and, after years of steady progress (Figure 1), has recently been formally designated to attainment for the 2008 ozone standard by EPA.  This progress in bringing the local ozone levels down is remarkable given the emissions challenges for the area such as a heavy industrial corridor, marine commerce activity on the Mississippi River, state government offices, two major universities, an airport, and heavy interstate traffic through the center of the urban area.

In October, 2015, EPA promulgated a new ozone standard of 70 ppb.  Unfortunately, Baton Rouge ozone design values for 2014-2016 showed that the area would be once again designated to nonattainment status when designations under the new standard were to be made as scheduled in October, 2017.  The 2016 ozone design values for Baton Rouge Area monitors are shown relative to the new 2015 ozone standard in Figure 2.

Figure 1.  Baton Rouge area 8-hour ozone design values.

Figure 2.  Baton Rouge area 8-hr design value as of December 2016

EPA ANNOUNCES EXTENSION OF DEADLINE FOR INITIAL AREA DESIGNATIONS UNDER THE 2015 OZONE STANDARD

On June 6th, EPA announced that it was extending the deadline for promulgating initial area designations by one year for the 2015 ozone NAAQS.  This provides some additional time for the area to meet the new 2015 ozone standard.  The Baton Rouge area was recently redesignated to attainment with the 2008 ozone standard (75 ppb).  However, based on 2014-16 ozone readings, the Baton Rouge area was expected to be redesignated to nonattainment for the new 2015 ozone standard (70 ppb) in October of this year.  The EPA extension of the deadline for making area designations to October 2018 means that the Baton Rouge area will remain in attainment for ozone for another year and provides additional time to achieve attainment for the new standard.

ECONOMIC DEVELOPMENT IMPLICATIONS OF ATTAINMENT STATUS

Aside from the obvious public health implications, the importance of maintaining attainment of the federal ozone standard in the Baton Rouge area cannot be overstated.  This is especially true for the area’s economic development.  Under federal Clean Air Act requirements, any new major source of emissions (new industrial developments or expansions) must undergo New Source Review (NSR).  In attainment areas NSR consists of a process called Prevention of Significant Deterioration (PSD).  The associated program requirements include:

  • Installation of the Best Available Control Technology (BACT);
  • An air quality analysis including modeling ambient concentrations that will result from the proposed project;
  • An additional impacts analysis addressing other environmental media; and
  • Public involvement.

New Source Review in nonattainment areas (NNSR) is a much more severe process.  The principal requirements of NNSR are:

  • Installation of Lowest Achievable Emission Rate (LAER) technology;
  • Provision for “offsets” representing emission reductions that must be made from other sources;
  • Completion of an analysis of alternate sites, sizes, production processes, and environmental control techniques and demonstrate that the benefits of locating the source in a nonattainment area significantly outweigh the environmental and social costs imposed; and
  •  Public involvement.

The “offset” provision of NNSR requires that, for example, a new industry locating in an ozone nonattainment area that expects to emit 100 tons per year (tpy) of a pollutant (e.g. NOx) might have to find 110 tpy of reductions from another source to offset its emissions.  The offset ratio (e.g. 1.1 to1) is designed to ratchet down ozone-forming emissions over time.  It is this provision that has seriously constrained industrial development in the Baton Rouge area, because there has been little in the way of available offsets to support permitting for new industries or expansion of existing industries.

LAC 33:III.504.M.

Recognizing the importance of achieving and maintaining attainment with the ozone standard to public health and economic development for the Baton Rouge area, DEQ promulgated a rule that would continue to require offsetting of emissions for permitting projects in areas recently designated from nonattainment to attainment.  The rule, LAC 33:III.504.M. generally provides that for:

New Sources

  • If potential NOX/VOC emissions are < 50 TPY, there are no additional requirements.
  • If potential NOX/VOC emissions are ≥ 50 TPY: NOX/VOC emissions in excess of 50 TPY must be offset at a 1.0 to 1 ratio.

Existing Sources

  • If potential NOX/VOC emissions are ≥ 50 TPY:

  • consideration of the net emissions increase shall be triggered for any physical change or change in the method of operation that would increase emissions of NOX/VOC by 40 TPY or more, without regard to any project decreases; and

  •  NOX/VOC emissions attributed to each physical change or change in the method of operation that would result in a net emissions increase of 40 TPY or more of NOX/VOC must be offset at a 1.0 to 1 ratio.

Administration of this rule will require that the DEQ ERC banking system continue to operate for the area as it has under nonattainment status.

DEVELOPMENT OF A NEW ERC STRATEGY

Recognizing the constraints to economic development in the Baton Rouge area brought by a dearth of available offsets for new projects, stakeholders of the Baton Rouge Clean Air Coalition (BRCAC) (including the Capital Region Planning Commission (CRPC), the Baton Rouge Chamber, and DEQ) formulated a strategy designed to generate more emission reduction credits (ERCs) that would be available at lower costs. Funds provided by CRPC for this effort were augmented by a 20% match from the Baton Rouge Area Chamber, which recognized the potential of the Center for promoting local economic development.

This strategy essentially involved opening up eligibility for emission reduction credits to mobile sources.  This proposal was well-received by all stakeholders and work began on further defining particulars of the strategy.  The strategy and its development are described in detail in the 2014, 2015, and 2016 Baton Rouge Advance Program Update Reports.   The initial rulemaking to implement this strategy (a revision to DEQ’s banking rule) was proposed in September, 2016 and re-proposed with substantive revisions in February of 2017.  The rule, AQ365S, became final in May of 2017. 

Implementing this new ERC strategy will help mitigate air quality and economic development constraints of the former “point source only” banking system and provide a number of valuable benefits for the Baton Rouge area such as:

  • Allow for continued economic and transportation development (increased availability and lower costs for ERCs, which have been scarce and costly)
  • New ERC projects can start reducing emissions and improving air quality in a relatively short period of time (which is a goal of EPA’s Advance Program in which we participate)
  • Provide for overall ratcheting down of emissions in the nonattainment area through the emission offsets required for permits for new sources of pollutants
  • Reduce emissions from important ozone precursor sources not regulated by DEQ (e.g. on-road and off-road mobiles sources)
  • Facilitate overall emissions reductions in pursuit of attainment and maintenance of ozone and PM2.5  NAAQS
  • Provide funding opportunities for those with emission reduction projects they would like to pursue, but have no funding
  • Substantially further interest in clean diesel

Any organization can generate emission reduction credits through funding or implementing projects that reduce certain air pollutants. These credits can then be used as required offsets for permitting of new projects, or they may be sold or traded. Through this strategy, local air quality will be improved due to reduced emissions, and economic development will be facilitated due to the greater availability and reduced costs of emission reduction credits.  

EMISSIONS REDUCTION CREDITS BANKING CONFERENCE

To help the regulated community and general public better understand the ramifications of this new ERC strategy and enabling revision to DEQ’s banking rule, BRCAC in conjunction with DEQ sponsored a conference held January 26, 2017 at the DEQ Conference Center located at DEQ headquarters in downtown Baton Rouge.  There was good interest in the event which was attended by approximately 130 individuals.

Speakers addressed the specifics of the new banking rule (AQ365); air quality and economic benefits; ERC project opportunities with roadway, marine, and rail emission sources; a new information resources website; inter-pollutant trading; Baton Rouge area emissions credits markets; legal issues with the new ERC program; and comparisons with a similar program being developed in Texas. 

The conference agenda, speaker bios, and presentations can be found at http://www.laerc.com/.

THE ERC INFORMATION RESOURCE CENTER

To serve as a central ERC information resource and to make program and projects information more accessible, CRPC and BRCAC created the web-based Emission Reduction Credit Information Resource Center (IRC).  Development of the IRC website (www.laerc.com) was a joint effort by CRPC and BRCAC.  CRPC is responsible for housing and maintenance of the site.

 Purposes of the new IRC include:

  • Background on the new ERC strategy
  • Reservoir of guidance on participation in the new ERC program 
  • Description of program developments (blogs)
  • Information resources
  • Coordination and facilitation of ERC projects
  • Database for ERC projects and emission reductions
  • Source of information on banked ERCs
  • List of relevant service providers

CONTINUING PROGRESS

Although the Baton Rouge area has achieved attainment of the 2008 ozone standard and received a reprieve for the re-designation to nonattainment under the 2015 ozone standard, efforts will continue to improve air quality.  BRCAC stakeholders are committed to continue efforts to achieve and maintain compliance with the ozone NAAQS.  As testimony to this commitment, BRCAC, CRPC, and Louisiana Clean Fuels (LCF) have cooperatively engaged in EPA’s Ozone and PM Advance Program representing the Baton Rouge area.  This voluntary program encourages expeditious emission reductions in ozone and fine particle (PM2.5) to help communities achieve and maintain compliance with NAAQS. 

Each year since 2013 the three organizations have documented their clean air efforts in an annual report entitled “Baton Rouge Area Clean Air Action Report”.  Copies of the original 2013 report and the 2014, 2015, and 2016 updates can be found on the BRCAC website at http://www.brcleanair.com/archives/archivesreports.