2015 Ozone Standards and Current and Potential Shortage of Emission Reduction Credits April 2018 Mike Taylor 945 McKinney Street, Suite 561 Houston, Texas 77002 mtaylor@emissionadvisors.com
8-Hour Ozone Non Attainment Area (2008 Standard) Map
2015 OZONE NAAQS On October 1, 2015, the EPA lowered the NAAQS from 75 parts per billion (ppb) (current 2008 Ozone NAAQS level) to 70 ppb By October 1, 2016, each state must recommend designations of attainment, nonattainment, or unclassifiable The EPA was expected to make final designations by October 1, 2017 2018 2017. To date, EPA still has not finalized list of nonattainment areas for 2015 Ozone NAAQS and has been sued. 3
Texas 8-hour Ozone Nonattainment Areas (2008 Standard) Map
Estimated 2017 Design Values for Texas Area 2017 Design Value Houston-Galveston-Brazoria* 81 Dallas-Fort Worth* 79 San Antonio** 74 El Paso-Juarez** 72 Waco 69 Austin 69 Beaumont-Port Arthur 68 Corpus Christi-Victoria 66 Tyler-Longview-Marshall 65 Lower Rio Grande Valley 57 Laredo 53 *Currently has ERC trading program and interstate trading has been allowed with ERCs moving from DFW to HGB recently **Currently does not have ERC trading program 5
Houston Galveston Brazoria Requirement to Offset For NOx and VOC emissions in Houston-Galveston-Brazoria (HGB): Facility Type Potential to Emit (PTE) Offset Ratio Status New facility >= 25 tons 1.3 to 1 Previous 1997-2016 Severe Major modification >= 25 tons 1.3 to 1 Previous 1997-2016 Severe New facility >=100 tons 1.15 to 1 Current - 2017 redesignation to Moderate Major modification >=40 tons 1.15 to 1 Current - 2017 redesignation to Moderate July 20, 2018 has to obtain 0.075 PPM (2008 Standard) or bumped up to Serious which will increase the offset ratio to 1.2 to 1. As of 2015-2017 Data, Design Value of 81 did not achieve. Drops the new facility threshold to 50 tons and major modification to 25 tons
HGB NOX & VOC ERC REGISTRY 1000 900 800 700 600 500 400 300 200 100 0 HGB ERC Registry 946 944.2 871 755 757 793 725 742.9 674.4 674.4 533 482 381.6 263 330.2 282 274 241 301 172 143 41 66 88 37 24 24 47 Mar-10 May-10 Nov 2011 May-12 Jan-13 Sep-13 Jul-14 Dec-14 Aug-15 Mar-16 Mar-17 May-17 Nov-17 Feb-18 VOC NOx Pending NOx banking ton applications - 180+ tons Pending VOC banking ton applications - 450+ tons NOx expiring by the end of 2018 138 tons (36%) VOCs expiring by the end of 2018 39 tons (~5%) Interpollutant trading has been approved to use NOx to offset VOC in HGB Source: Texas Commission on Environmental Quality 7
NOX ERC Pricing from 2013-Today $350,000.00 $300,000.00 $250,000.00 $200,000.00 $150,000.00 $100,000.00 $50,000.00 $0.00 10/18/2012 5/6/2013 11/22/2013 6/10/2014 12/27/2014 7/15/2015 1/31/2016 8/18/2016 3/6/2017 9/22/2017 4/10/2018
VOC ERC Pricing from 2013-Today Chart Title $350,000.00 $300,000.00 $250,000.00 $200,000.00 $150,000.00 $100,000.00 $50,000.00 $0.00 10/18/2012 5/6/2013 11/22/2013 6/10/2014 12/27/2014 7/15/2015 1/31/2016 8/18/2016 3/6/2017 9/22/2017 4/10/2018
Dallas Fort Worth Requirement to Offset For NOx and VOC emissions in DFW: Facility Type Potential to Emit (PTE) Offset Ratio Status New facility >=100 tons 1.15 to 1 Current - 2017 redesignation to Moderate Major modification >=40 tons 1.15 to 1 Current - 2017 redesignation to Moderate July 20, 2018 has to obtain 0.075 PPM (2008 Standard) or bumped up to Serious which will increase the offset ratio to 1.2 to 1. As of 2015-2017 Data, Design Value of 79 did not achieve. Drops the new facility threshold to 50 tons and major modification to 25 tons
Dallas-Fort Worth Nonattainment Area Current ERC Registry Registry as 3-23-18 NOx VOC Volume 43.4 79.6 DFW historically has a small registry A large project would have a very hard time finding ERCs in DFW Over 70% of VOC ERCs expire in next 6 months! Shortage partially caused as ERCs only have a 5 year shelf life from reduction date (not issuance)and applicants have up to 2 years to apply and could take a year to be issued. Could only have 2 years to market and be applied to an air permit prior to expiration Prices in recent years for VOC have ranged in $750/ton to $10,000/ton range Prices in recent years for NOx ERC have hovered in the $20,000/ton range
Baton Rouge Nonattainment Area Requirement to Offset For NOx and VOC emissions in Baton Rouge Nonattainment Facility Type Potential to Emit (PTE) New facility >= 100 tons Major modification Offset Ratio 1.1 to 1 (offset only down to 0 tons) >= 40 tons 1.1 to 1 (offset only down to 0 tons) New facility >=50 tons 1 to 1 (offset only down to 50 tons) Major modification >=50 tons 1 to 1 (offset only down to 50 tons) Status Previous to 2017 Attainment Designation Previous to 2017 Attainment Designation Current State requirements Current - 2017 redesignation to Moderate Classified as attaining 2008 Standard in 2017, but 2017 Design Value not attaining 2015 Standard Interpollutant Trading approved in 2017 for first time, using NOx to offset VOC
8-hr Design Value as of October 1, 2017 90 85 80 75 70 65 60 71 70 69 68 67 66 66 67 66 66 65 65 65 NAAQS 70 ppb 65 65 64 64 64 63 63 63 60 55 50 45 40 35 30 25 20 15 10 5 0
NOx ERC and VOC ERC supply in Baton Rouge NOx ERC Supply VOC ERC Supply Date Listed Reduction Listed Reduction Volume since 2008 Volume since 2008 Aug-08 6,839-2,149 - Aug-09 6,049 12% 1,818 15% Aug-10 5,135 25% 1,666 23% Aug-11 4,403 36% 1,208 44% Aug-12 4,403 36% 1,011 53% Aug-13 4,281 37% 610 72% Aug-14 2,939 57% 675 69% Aug-15 1,581 77% 272 87% Aug-16 1,660 76% 236 89% Aug-17 3,255 52% 285 87% Mar-18 3,166 48% 260 86% 7000 6000 5000 4000 3000 2000 1000 0 39661 40026 40391 40756 41122 41487 41852 42217 42583 42964 43177 NOx VOC
Northeast ERCs
New York ERCs ERCs Never Expire no rule discounting New York City Severe Nonattainment Trading Rest of State OTR/Marginal Prices do not get reported No interpollutant Trading ERCs allowed to be exported/imported to PA and CT and for a 3 year window NOx only to exported/imported to Northern NJ NOx (tpy) VOC (tpy) 23,427 2,874
New Jersey ERCs Shutdown ERCs get cut in half after 5 years, than 100% expire after 10 years Reduction ERCs never expire, but subject to rule discounting Northern New Jersey Severe 17 (area includes NY and CT) Southern New Jersey Severe 15 Prices do not get reported No interpollutant Trading (yet?) No current interstate trading: NJ did bring in 350 tons (100% of cap) of NOx in from NY from 2015-2017, than NY refused to extend NOx (tpy) 1,244 733 VOC (tpy)
Connecticut ERCs ERCs Never Expire but rule discounting Only NOx ERCs Fairfield/New Haven Severe Nonattainment Trading Rest of State Moderate Prices do not get reported No interpollutant Trading ERCs allowed to be exported to NY and RI NOx (tpy) 230
Maryland ERCs ERCs 100% expire after 10 years Baltimore Area Severe Trading Restrictions Rest of State Marginal Prices do not get reported No interpollutant Trading (yet?) NO VOC! Interstate Trading: Can be exported to VA and import/export PA NOx (tpy) 2,874 0 VOC (tpy)
Pennsylvania ERCs Shutdown ERCs 100% expire after 10 years Reduction ERCs never expire Philadelphia Severe Trading Restrictions Rest of State OTR/Marginal Prices do not get reported Interpollutant Trading: NOx used to offset VOC first time in 2017 Interstate trading: export/import with NY and MD NOx (tpy) VOC (tpy) 22,649 1,006
California ERC Summary ERCs are generally available in San Joaquin Valley, South Coast, Bay Area, Mojave and San Diego ERCs are tighter supply in Santa Barbara and Sacramento The aggressive Renewable Portfolio Standard (RPS) and AB32 Carbon Cap and Trade Program has dramatically decreased power generation from fossil fuel and with it the demand for ERCs, while also increasing supply. Interpollutant trading is allowed (i.e. VOC for NOx, Sox for PM10) and limited intrastate trading is allowed (i.e. San Joaquin to Mojave)
Summary 2015 Ozone Standard could add more ERC trading regions as more counties will be nonattainment Running out of ERCs in many parts of Gulf Coast and Northeast, especially VOC. Interpollutant Trading on the Rise VOC for NOx. California home to most expensive ERCs in World, now is on a different path 2008 Ozone Standard still affecting markets and bumps ups are coming 1997 Ozone NOx Revocation may affect designation status
Lessons Learned Plan Earlier for projects that require Offsets, especially if interpollutant or interstate trading Avoid Panic or Fatal Flaw! Get educated: Become Smarter Buyer! Latest market supply and demand Pricing Regulations Future Potential Regulations- Redesignation Be more strategic in timing of procurement of ERCs Save Money! More flexible rules to generate ERCs Make Money!
Mike Taylor President 713-385-3321 mtaylor@emissionadvisors.com www.emissionadvisors.com 945 McKinney Street, Suite 561 Houston, Texas 77002 24