Ohio EPA wants to make it easier for economic development to occur in areas like Cleveland, which are designated "non-attainment" with the federal air quality standards (NAAQS) such as ozone or PM 2.5. Federal regulations require companies looking to build or expand in these areas to offset their emissions. Offset is achieved by securing the requisite emission reducition credits from existing companies in the non-attainment area.
In the past a company had no idea whether sufficient eligible emission reductions had occurred that would allow them to fully offset their emission increases. Available emission reduction credits was not public information. This lack of information may have dissuaded companies from considering non-attainment areas for expansion. This hurts areas like Cleveland which is non-attainment for both ozone and P.M. 2.5.
Ohio EPA will now be establishing a state-wide emission trading bank to help facilitate communication between companies that hold emission trading credits and those that need to purchase the credits to build or expand. The emission trading bank is in reality a web site that will list the available credits by non-attainment area and pollutant. It’s kind of like a giant advertising billboard for companies holding credits they want to sell. As further explained below, credits will be listed in the bank as either "verified" or "unverified."
Ohio EPA has finalized the rules that will govern the emission trading bank, known as the emission reduction credits (ERC) rules. See,OAC Chapter 3745-111. The rules will become effective on January 8, 2009.
Basic Overview of Offset Requirement: Under U.S. EPA’s New Source Review (NSR) program a company looking to build or expand a facility in a non-attainment area may be required to offset its air emissions before receiving a permit (Permit to Install and Operate- PTIO) to construct the facility from Ohio EPA. Only new or expanded facilities that are "major" sources need offset their emission. Generally, a "major" source is a source that will emit over 100 tons of the non-attainment related pollutant or 40 tons if it is an expansion of an existing source. However, these thresholds vary depending upon the pollutant and how the severity of the non-attainment designation.
Ohio EPA’s ERC Program is Voluntary: There is no requirement to participate in Ohio EPA’s emission trading bank. The ERC rules only apply to those who elect to list their emission credits on Ohio EPA’s website. Private transactions between companies outside of the Ohio EPA’s emission trading bank is still permissible.
ERC Program Will List Verified and Unverified Credits: A company who holds ERC’s may elect to have them reviewed and certified by Ohio EPA before listing them. If Ohio EPA validates the credits they will be considered "verified" and will be listed as such on the web site. The company will be issued a ERC certificate with a unique number for tracking purposes.
Verified credits have advantages- 1) a buyer should not have to worry as to whether the credits are valid once they turn them in to get their NSR permit; and 2) the permitting process for a new source offsetting its emissions will be faster if it uses verified credits. For sellers of credits, the disadvantage to verified credits its the administrative costs associated with completing the process.
Unverified credits can be included in the bank. However, Ohio EPA’s rules will not allow for the transfer of unverified credits. A company would either have to withdraw the credits and transfer them outside the bank or go through the verification process.
What Types of Activities Generate Credits? Other states (Pennsylvania, Michigan and New Jersey) have operated banks for a long time with a mixed degree of success. Studies have shown that 80% of all ERC credits in other states were generated as a result of facility shut downs. However, ERCs can be generated by installing new pollution control equipment, a change in process or reduced hours if they meet the regulatory requirements (quantifiable, reliable, enforceable and replicable). Stationary and mobile source reductions can both result in ERCs.
What Should You Consider if You Are a Buyer or Seller of Credits?
- Verified credits should be worth more- Verified credits should command a higher price. They have already been certified by Ohio EPA and therefore carry far less risk than unverified credits.
- Transfer contracts should allocate risk- All transfers of credits should be governed by well developed contracts that address the issues associated with the particular transaction. For instance, are the credits sold "as is" or does the contract contain guarantees as to their validity. When will payment be made? What happens if the credits are invalidated?
- Assess the market- Whether you are a buyer or seller you should assess the market before making decisions. What types of credits are available? How many credits are available? If you are a buyer, make preliminary inquiries as to price to determine the viability of completing the project.
Are There ERCs in Ohio Right Now? Ohio EPA has not established the website. Now that the ERC rules are finalized, Ohio EPA can start to promote the bank. Hopefully, this will lead to an expansion in the number of credits available. Based upon limited information from Ohio EPA companies have submitted potential credits for consideration. Submissions so far include the following types of credits in the locations specified:
Generated in Scioto County
17.75 tons of PM 2.5 ERCs
26.62 tons of SO2 ERCs
14.51 tons of NOx ERCs
Generated in Portage County
57.91 tons of VOC ERCs
Generated in Hamilton County
45.60 tons of VOC ERCs