Emissions Reduction Market System (ERMS) Account Officer Training

1. Emissions ReductionMarket System (ERMS)Account Officer Training 2012 Version

2. Basics

3. Purpose of ERMS • Contribute to attainment • Minimize costs of further reduction by using a “market based approach” providing flexibility and allowing sources to determine the best way to reduce emissions • Maintain the “status-quo” for current control programs

4. Past: Command and Control • Rules developed based on industry type (e.g., printing, coating, chemical manufacturing) • All companies required to implement the same reduction percentage • Cost not considered per company • Sometimes had a threshold for implementation • Usually not “one size fits all”

5. ERMS: Market Based • Overall reduction mandated • Allotments (emissions) given to the companies based on a baseline • Up to the companies to determine how/if reductions are made • Make reductions and have allotments to sell • May be cheaper to buy allotments rather than reduce

6. Possible Approaches • Upgrade control measures on existing units where it can be done most economically and effectively • Enhance control measures when existing units are replaced • Switch production out of the trading season • Purchase ATUs

7. Affected Sources • Stationary sources located in the Chicago ozone nonattainment area • Cook, DuPage, Kane, Lake, McHenry and Will counties • Aux Sable Township, Goose Lake Township in Grundy county and Oswego Township in Kendall county

8. Affected Sources - continued • Required to obtain a Clean Air Act Permit Program (CAAPP) permit OR Federally Enforceable State Operating Permit (FESOP) • VOM emissions of at least 10 tons per season(May 1 - September 30)

9. Affected Sources - Exemptions • Can accept a limit of 15 tons/season • 10 tons/season is the threshold for identifying you as a participating source, but accepting a limit of 15 tons/season will keep you out of being a participating source in ERMS • Make a reduction of 18% from your baseline • Participating sources make a 12% reduction

10. Types of ERMS Sources

11. Types of ERMS Sources • Participating Source • New Participating Source • General Participant • Special Participant

12. Participating Source • Operating prior to May 1, 1999 • Located in the Chicago nonattainment area • Potential to emit >=25 tons/year of VOM • Required to obtain a Title V (CAAPP) or FESOP (Federally Enforceable State Operating Permit) permit • VOM emissions >=10 tons/season

13. New Participating Source • Not operating prior to May 1, 1999 • Located in the Chicago nonattainment area • Potential to emit >=25 tons/year of VOM • Required to obtain a Title V (CAAPP) permit • VOM emissions >=10 tons/season • Do not get an annual allotment

14. General Participant • Not a Participating Source • Not a New Participating Source • Any person/entity that obtains a Transaction Account • Can think of this as a “broker” • Can buy and sell ATUs • Need to have a trained account officer

15. Special Participant • Any person/entity that registers with the Agency • Cannot sell ATUs • Can buy ATUs • Any purchased ATUs are immediately retired • No account officer training needed

16. Baselines, Allotments & Reconciliation

17. Allotment Trading Unit (ATU) • The “currency” of the ERMS • Equivalent of 200 pounds VOM emissions • Each ATU is valid for the season of issuance and the following season • Unless used for emission compensation

18. Baseline Emissions • Based on historical emission data • Adjusted upward for over-compliance • Adjusted downward for non-compliance • Can substitute years • Allotment of ATUs will be set from the baseline emissions • generally reduced by 12% • Allotment amount included in your permit

19. Exclusion from Further Reductions • Insignificant emission units • Emission units complying with NESHAP or MACT • Fuel combustion units (e.g., boilers and engines) • Emission units where a LAER demonstration was approved

20. Baseline Years • Average of the two highest years of 1994, 1995 or 1996 • No justification needed • Can substitute any year from 1990-1993 or 1997 if that year is more representative • Requires justification • Substitute one whole year

21. Emission Calculation Methodology • The methodology used to calculate baseline emissions will be included in your permit • Must be used to calculate emissions for the season – no deviations • Changes to calculation methodologies require a permit revision • Baseline and allotment will be recalculated based on the new methodology

22. Annual Allotment • Each year the number of ATUs in your permit will be deposited in your account automatically • Historically done in March/April • No notification • List will appear under the Allocation Reports menu option of the web page

23. Reconciliation Period • The three months (October – December) following seasonal allotment period • Time to compile actual seasonal emission data • Submit seasonal component of annual emission report

24. Reconciliation Period - continued • Conduct end of year trades • Can trade throughout the whole year • Only trades agreed to by December 31st can be counted towards the seasonal emissions for that year • We don’t close the books at midnight December 31st, but wait a few days for paper trades to come in

25. Seasonal Emission Reports

26. Seasonal Emission Reports • Applies to • Participating sources • New Participating sources • 18% reduction sources • 15 ton/season limit sources • Due date • October 31 for < 10 emission units • November 30 for >= 10 emission units

27. Seasonal Reports – Content • Actual VOM emissions from May 1 – September 30 • Adjustments due to variance, consent order, emergency condition and so forth • Number of ATUs that equate to the seasonal emissions • HAP emissions for the season

28. Seasonal Report – HAPs • HAPS = Hazardous Air Pollutants • Report VOM HAPs if • Major for HAPs • >= 10 tons/year for any individual HAP • >= 25 tons/year for all HAPs combined • Subject to NESHAP/MACT • Report only those units subject to NESHAP/MACT • Report to TRI

29. Seasonal Reports – Checking • Signature • All emission units are reported • Emission calculations performed correctly • We find many math errors • Calculation methodology needs to be the same as in the permit • Production rate is used as a reasonableness check

30. Compensation and Excursions

31. Emission Compensation • This is the IEPA retiring (subtracting) the amount of ATUs, reported on your seasonal report, from your transaction account • Timing • Sometime in mid-January of each year when all previous year transactions have been entered and seasonal report has been accepted • Never before January 1

32. Excursion • Occurs when your account does not hold enough ATUs to cover your seasonal emissions • If an excursion occurs, you are not in violation • The ERMS rule gives a mechanism for resolving an excursion

33. Excursion Penalty • First excursion • Owe 1.2 times the amount of excursion • Second (or more) excursion in a row • Owe 1.5 times the amount of excursion • When multiplying by 1.2 or 1.5, if there is a fractional ATU, the value is always rounded up to the next higher ATU

34. Excursion Resolution • Will send an excursion compensation notice • Only two choices for resolution • Purchase from ACMA (default) • Take from next year’s allotment • Notify us within 15 days • Choice is yours • If choosing ACMA, you will be sent a bill

35. Annual “Flow” of ERMS • April: Allotment • May – September: Emissions • October – December : Reconciliation • Submit seasonal report • Trade as necessary (throughout the year) • January: Compensation and Excursion

36. Other Facets of ERMS

37. ACMA • Alternative Compliance Market Account • Reserve of ATUs managed by IEPA • Receives ATUs equivalent to 1% of each year’s allotment (about 1000 ATUs) • ACMA available during reconciliation period • Cost is lesser of 1.5 times the average market price or $10,000/ton

38. Shutdowns • All operations at a source shut down and the permit is withdrawn (or is revoked or terminated) • 80% of allotted ATUs go to source and 20% to ACMA unless… • Source makes arrangement to trade whole allotment to a general participant before shutting down

39. Emission Reduction Generators • ATUs created for creditable reductions at permitted sources that are not participating sources • Source needs to become a general participant or have a partner in ERMS who gets the ATUs • Reductions must be real, actual and surplus (can’t be shifted elsewhere in the area)

40. Inter-Sector • Receive ATUs for making reductions in area source or mobile source categories • Cars – Cash for clunkers • Switch from gas to electric lawnmowers • Reformulate coatings purchased by the public (only Intersector to date) • Etc. • Request reviewed by the Agency

41. Quick Facts

42. Quick Facts • About 140 participating sources • About 5 new participating sources • About 90 sources with 15 ton/season exemption • About 75 general participants • About 7 special participants

43. More Quick Facts • About 104,000 ATUs allotted each season • 100,000 from baseline • 2700 from Emission Reduction Generators • 1000 to ACMA • Around 40,000 ATUs retired each year • Around 59,000 ATUs expire each year

44. Buyers/Sellers • Around 20 sources need to buy ATUs each year • Remaining sources (around 120) are possible sellers • A few (1-3) sources go into excursion each year • Mainly due to inaction on their part to buy ATUs

45. ATU Prices ($/ATU) • 2011 = • 2010 = $20.10 • 2009 = $19.32 • 2008 = $18.22 • 2007 = $14.86 • 2006 = $17.01

46. Transaction Account and Account Officers

47. Transaction Account • Database where ATUs are kept • Has a unique identification number for the entity • All allocations, trades, retirements and expirations occur in the database • Trade is not accepted until it is enacted in the database • Think of it as your bank account

48. Account Officer • A person who has been approved by the Agency who is responsible for one or more transaction accounts • Transaction account • Must have at least one account officer • Can have multiple account officers • An account officer may be associated with more than one transaction account

49. Account Officers • Remember… • An account officer can freely trade ATUs in and out of the transaction account as long as he is associated with the account • If an account officer leaves a company, it is best to notify the Agency of that fact and that you wish to have him removed from the account • Account officer can still represent other accounts

50. Expedited Approval ofAccount Officer • Used when an account officer unexpectedly leaves that position • Requested by the company • With expedited approval, the account officer can perform trades without training • Must take the account officer training within one year of request