1. Emissions Banking and Trading (EBT) Programs Melissa Ruano Air Quality Division Texas Commission on Environmental Quality Environmental Trade Fair 2016

2. Presentation Overview The Banking Programs: –Voluntary Emission Credit Programs –Mandatory Cap and Trade Programs New Information and Resources: –Authorized Account Representative –EBT STEERS –Other EBT Resources

3. Voluntary Credit Programs Emission Reduction Credit (ERC) Program Discrete Emission Reduction Credit (DERC) Program

4. ERC Program ERCs are: generated from a permanent reduction of a criteria pollutant (excluding lead) or a precursor of a criteria pollutant; certified in tpy; generated and used only in nonattainment areas; expire after 5 years of emission reduction; and must be permanent, enforceable, real, quantifiable, and surplus at time of generation/use.

5. ERC Generation Generation Examples Permanent shutdown of a facility Installation and operation of pollution control equipment Process change that reduces emissions Permanent curtailment in production Other method approved by TCEQ

6. ERC Generation ERC = Baseline Emissions – Strategic Emissions Baseline emissions are the lowest of the: –historical adjusted emissions; –SIP emissions; or –most stringent applicable regulatory limit. Strategic emissions are the new tpy emission limit after implementing the emission reduction strategy.

7. ERC Generation Generation Process Application is due no more than two years after the implementation of the emission reduction strategy. Updated June 25, 2015

8. ERC Use ERCs can be used for: NSR permit offsets; compliance with 30 TAC Chapters 115 and 117; or as allowed by other local, state, and federal laws. At least an additional 10% of the ERCs must be retired with each use as environmental contribution. ERC must be surplus at the time of use.

9. ERC Use Use Application Process Application is due 90 days before date of use. For NSR offsets, use application is due between the date the permit application is administratively complete and 90 days prior to the start of operation. Application will not be accepted before ERC is available in compliance account (i.e., portfolio) for the site where it will be used. Updated June 25, 2015

10. ERC Use Use Application Process (continued) The user must submit an application to use ERCs prior to ERC expiration date. If approved, the date the application was submitted is the date of use. Once approved for use, the ERC is good for the life of the facility but cannot be used for other purposes. Updated June 25, 2015

11. DERC Program DERCs are: generated from a temporary reduction of a criteria pollutant (excluding lead) or a precursor of a criteria pollutant; certified in tons; generated in attainment or nonattainment areas; do not expire; and must be quantifiable, surplus, and real at time of generation.

12. DERC Generation Generation Examples Installation and operation of pollution control equipment with higher than required efficiency Process change that reduces emissions beyond regulated emission requirements Other method approved by TCEQ

13. DERC Generation DERC = SA x (BER – SER) Strategy Activity (SA) = level of activity during the generation period Baseline Emission Rate (BER) = lowest of the emission rate used in the historical adjusted emissions or the SIP emissions Strategy Emission Rate (SER) = emission rate during the generation period

14. DERC Generation Generation Process Application is due no later than 90 days after the generation period ends or after completing 12 months of generation.

15. DERC Use DERCs can be used for: compliance with Chapters 115 and 117; compliance with MECT; temporary exceedance of permit; or NSR permit offsets. At least an additional 10% of the DERCs must be retired with each use as environmental contribution.

16. DERC Use Use Application Process A DERC cannot be used unless it is available in the account for the site where it will be used. For compliance with Chapters 115, 117, or permit exceedance: –intent to use application is due 45 days prior to the first day of the use period; and –use application is due 90 days after the end of the use period. Updated June 25, 2015

17. DERC Use Use Application Process (continued) For compliance with MECT: –intent application is due October 1; use application is due March 31. For NSR offsets: –use application is due at least 90 days before the start of operation; and –at least 90 days prior to each year of operation not covered by a prior application.

18. DERC Use in DFW Beginning in 2016, the use of NO X DERCs may not exceed 17.0 tons per day in Collin, Dallas, Denton, Ellis, Johnson, Kaufman, Parker, Rockwall, and Tarrant Counties. Applications submitted in response to an ERCOT- declared emergency situation are not subject to this limit. Applications are due August 1 before the beginning of the calendar year in which the DERCs are intended for use. Updated June 25, 2015

19. ERC and DERC Use Limitations Generally, a credit must be used in the same area in which it was generated for the pollutant for which it was generated. Limitations for the use of NO X and VOC DERCs can be found under 30 TAC §101.372(f).30 TAC §101.372(f) There is an exception if the user satisfies the conditions for inter-area or inter-pollutant use:inter-areainter-pollutant –Requires project-specific photochemical modeling; and –Requires TCEQ and EPA approval.

20. ERC and DERC Trades Credits are traded in tenths of a ton. Credits may be traded or sold any time by submitting application to TCEQ: –ERCs must be traded before expiration date. A new certificate number will be issued to the buyer and seller (if part of original amount is retained). Credits can be traded electronically through EBT STEERS.

21. Average HGB ERC Prices

22. Average HGB DERC Prices

23. ERC and DERC Availability ERCs Available by Area DERCs Available by Area *Value includes both ozone and non-ozone season DERCs Available as of 4/13/2016

24. Mobile and Area Source Credits The TCEQ is currently reviewing issues related to the generation and use of mobile/area source credits. Challenges with mobile/area source credits include ensuring: –any credits issued are surplus and real; –credits are quantifiable; and –for ERCs, the reductions are permanent and enforceable.

25. Mandatory Cap and Trade Programs Mass Emissions Cap and Trade (MECT) Highly Reactive Volatile Organic Compounds (HRVOC) Cap and Trade (HECT) Emissions Banking and Trading of Allowances (EBTA)

26. MECT Program Establishes a mandatory cap for NO X emission. Applies to sites in the HGB 8-hour ozone nonattainment area that are: –major sources of NO X with facilities subject to §117.310 or §117.1210; or §117.310§117.1210 –minor sources of NO X with an uncontrolled design capacity to emit ≥ 10 tpy of NO X from facilities subject to §117.2010.§117.2010

27. MECT Program Examples of Affected Facilities –Boilers and process heaters –Stationary gas turbines –Stationary IC engines –Fluid catalytic cracking units –Boilers and industrial furnaces –Lime kilns –Lightweight aggregate kilns –Heat treating furnaces and reheat furnaces –Magnesium chloride fluidized bed dryers –Incinerators

28. HECT Program Establishes a mandatory cap for HRVOC emissions. HRVOCs are defined as ethylene, propylene, 1,3–butadiene, and all isomers of butene. Applies to vents, flares, and cooling towers in Harris County. Sites that have the potential to emit ≤ 10 tpy of HRVOC from all affected facilities are exempt.

29. Allowance Allocations MECT Allocations: –Based on historical levels of activity. –Last cap reduction occurred in 2008. HECT Allocations: –Based on uncontrolled HRVOC emissions and a ratio of each site’s actual HRVOC emissions versus other sites in their industry sector. –Next cap reduction of 5% will occur in 2017. Allowances are allocated, traded, and used in tenths of a ton.

30. Important Dates for MECT and HECT Control period runs from January 1 through December 31 of each year. Trades must be submitted by January 30 following the end of each control period. Annual reports are due March 31 following the end of each control period.

31. MECT and HECT Allowances Current Allowances – Allowances allocated in the year being reported. Unused allowances are banked for use in the next control period. Vintage Allowances – Banked allowances from the previous control period. If not used, these banked allowances expire. Current allowances are used before vintage allowances.

32. MECT and HECT Allowances Example 11.0 1.0 2.0

33. MECT and HECT Trades Trade options: –Current allowance –Vintage allowance –Future allowance –Permanent allocation Current and vintage allowances can be traded electronically through EBT STEERS.

34. MECT and HECT Annual Reports Each report must include: –amount of HRVOC (HECT) or NO X (MECT) emissions for each affected facility; –Chapter 115 (HECT) or Chapter 117 (MECT) protocols used to quantify emissions; and –supporting documentation. Total emissions are always rounded up to the tenth of a ton. Reports can be submitted electronically through EBT STEERS.

35. Insufficient Allowances Penalty Must have sufficient allowances in each site’s compliance account to cover actual emissions for the control period. Deficit plus 10% penalty will be carried to the next control period. If the site’s account does not have sufficient allowances to cover the deficit and 10% penalty, you must acquire allowances within 30 days of notification.

36. Quantification Penalty Starting with the 2015 control period, a 10% penalty will be applied to emissions quantified using alternative data due to noncompliance with Chapter 115 or 117 protocols. Penalty is calculated per facility based on the total emissions quantified using noncompliant data. If the compliance account does not have sufficient allowances, the insufficient allowances penalty will also apply. NEW!

37. Quantification Penalty Example *Value rounded up to the nearest 0.1 ton per facility

38. When Can I Stop Reporting? Annual reports for the MECT and/or HECT programs are no longer required if: –the site has been permanently shutdown and all authorizations have been voided; or –the owner/operator no longer has authorization to operate any affected facilities. Contact EBT staff to request an annual compliance report waiver. NEW!

39. Using MECT or HECT for NSR Offsets The facility being offset must be subject to the program. MECT allowances can be used for NO X offsets and HECT allowances for VOC offsets. A permanent allowance allocation must be used. The allowances used cannot be banked, traded, or used for any other purpose (other than complying with MECT or HECT). Updated June 25, 2015

40. Using MECT or HECT for NSR Offsets The user must submit an application at least 30 days before the start of operation. Allowances used for the 1:1 portion: –must be used simultaneously for MECT or HECT compliance; –for all allowances set aside will be deducted at the end of each control period; and –may devalue with future regulatory changes. Updated June 25, 2015

41. Using MECT or HECT for NSR Offsets Allowances used for the environmental contribution portion of the offset ratio: –are permanently retained by TCEQ; and –will not devalue. Updated June 25, 2015

42. Using MECT or HECT for NSR Offsets Allowances used for offsets may be released if: –an alternative means of compliance for offset requirement is authorized in NSR permit; or –the affected facility is permanently shut down (1:1 portion only). If approved, the release will be effective in the control period following the date of the request. Allowances will not be released retroactively. Updated June 25, 2015

43. EBTA Program Affects EGFs, permitted under 30 TAC Chapter 116, Subchapter I, that existed when the Texas Clean Air Act was created in 1971 (others can opt-in). Allocation reduces NO X emissions by 50% and SO 2 emissions by 25% compared to the 1997 emissions from affected EGFs. Allowances are allocated, traded, and used in whole tons. Allowances do not expire.

44. Important Dates for EBTA Control period runs from May 1 - April 30. Allowances may be traded at any time during the control period; however, each site must have sufficient allowances to cover emissions by June 1 following the end of each control period. Annual reports are due June 30 following the end of each control period. EBTA trades and reports can be submitted electronically through EBT STEERS.

45. New Information and Resources

46. Authorized Account Representative Each account (portfolio) must have an AAR. The AAR must be authorized by someone that meets the responsible official qualifications in 30 TAC §122.165(c). 30 TAC §122.165(c) AAR must certify (sign) all EBT forms submitted for that portfolio (paper and electronic). To register an AAR, submit an Authorized Account Registration Form.Authorized Account Registration Form

47. EBT STEERS STEERS: STEERS –Annual reports for the MECT, HECT, and EBTA Programs –Trades for the ERC, DERC, MECT, HECT, and EBTA Programs Portfolio AAR, technical contact, and facility information can also be updated through EBT STEERS.

48. EBT STEERS Tips Start early Keep user roles up-to-date Contact EBT staff regarding legal name or ownership changes to your site ASAP Keep contact and facility information up-to-date: –Don’t forget to submit a revised AAR Form Always click the Submit button!

49. Other Resources TCEQ EBT Web page: TCEQ EBT Web page –Links to program rules and guidance –Credit and allowance trade information –Updated application forms –Sign up to receive program updates TCEQ EBT Database: TCEQ EBT Database –Account balances –Official record of all trades, reports, uses, etc.

50. Contact Information Melissa Ruano, Emissions Banking and Trading –E-mail: Melissa.Ruano@tceq.texas.govMelissa.Ruano@tceq.texas.gov –Phone: (512) 239-4496 General EBT Contact –E-mail: ebt@tceq.texas.govebt@tceq.texas.gov –Phone: (512) 239-4900 STEERS Help –E-mail: steers@tceq.texas.govsteers@tceq.texas.gov –Phone: (512) 239-6925

51. Questions?