On December 4th, 2015, the Governing Board of the South Coast Air Quality Management District (SCAQMD) voted to approve amendments to SCAQMD Regulation XX – Regional Clean Air Incentives Market (RECLAIM). The adopted amendments will reduce oxides of nitrogen (NOx) emission allowances, also known as RECLAIM Trading Credits (RTCs), from 56 facilities by 12 tons per day (tpd) over the next seven years. The adopted 12 tpd NOx shave is weaker than the 14 tpd shave originally proposed in the SCAQMD Staff Report. The approved implementation schedule for the NOx RTC shave is summarized in the following table.
Note: 14.5 tpd equals approximately 10.5 million pounds per year, updated table above.
The NOx RTC reductions will be distributed between 9 refineries, 15 investors, 21 electrical generating facilities, and 26 non-electrical generating facilities that hold 90% of the current 26.5 tpd of RTCs. Refineries and investors will experience the largest reduction in RTCs, followed by the electrical and non-electrical generating sectors. The 219 “other” facilities in the RECLAIM program will not experience RTC reductions. In addition to the NOx RTC shave, the adopted amendments eliminated a proposal that would have retired offset credits owned by facilities that shut down.
How will this decision affect the RTC Market?
As of October 2015, the 12-month rolling average price of NOx RTCs is $1.30 per pound. The adopted NOx shave is expected to cause an increase in the average price of NOx RTCs. This will result in a benefit for facilities with surplus RTCs and negative financial impacts for facilities required to purchase RTCs in order to offset NOx emissions. However, the adopted NOx shave is lower than originally proposed, so the market may be more stable than originally expected. In addition, RTCs owned by facilities that shut down will remain available due to the elimination of the amendment to retire these credits.
How will this decision affect my facility?
Although the exact effects of the Governing Board’s decision remain to be seen, facilities subject to the RECLAIM regulation should plan and prepare for higher NOx RTC prices over the next seven years. Depending on the magnitude of the price change, installation of NOx emission control technology may be financially beneficial compared to purchasing NOx RTCs. Facilities should initiate cost analyses in order to determine whether emission controls would be economically feasible under future RTC pricing scenarios.
In addition, the increase in RTC price will result in increased pressure on facilities to sell their surplus credits. Facilities with small quantities of surplus credits may find it worthwhile to sell. Whereas before, the effort of selling small quantities of credits may not have been worth the potential profits. The increase RTC price may also result in an increase in calls and requests from credit brokers. Facility managers need to be well informed on the RECLAIM program in order properly respond to sales calls. It will be essential to know the current market price of NOx RTCs and to have a solid understanding the options available to each facility.
Alta Environmental has over 20 years of experience with the RECLAIM program, and can provide facilities with support strategizing, trading, and reporting within the RECLAIM universe. For more information, contact Chris Waller at 562-495-5777 or email@example.com.