Design of Regulatory Policies for Sustainable Emission Reduction

1. Design of Regulatory Policies for Sustainable Emission Reduction Andreas Linninger December 7, 2006 University of Illinois at Chicago, Chicago, IL,. Laboratory for Product and Process Design, Department of Chemical Engineering, University of Illinois, Chicago, IL 60607, U.S.A.

2. Plant 1 Plant 2 Plant 3 How to Implement Emission Reduction for a Region? Plant 1 Plant 1 Emissions Reduction Plant 2 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons Plant 3 Desired Reduction 50 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons Plant 4 Manufacturer Sustain production while decreasing emissions Regulator Enforce emission reduction withminimum disturbance • Challenges • Regulator • Set the regulatory levels to reduce emission with minimum impact to plants • Manufacturer • Optimal operation with new regulations : How and when to invest?

3. Initial Threshold Desired reduction New Threshold Threshold Threshold Time Command-and-Control Regulates the level of emissions allowed • Emissions rates • Concentration • Total quantity of a pollutant • Requires polluters to use specific technologies • Scrubbers with 90% efficiency • Best Available Control Technology (BACT) • Standards assuming firms are using BACT Disadvantages: • Regulator decides when and how plants should invest • Emissions standards do not guarantee a specific ambient pollution level • No incentive for sustainable Process Improvement Emission Level

4. Technology 2 @New Tax Level @Initial Tax Level @Initial Tax Level Savings Capital Investment Qinitial Emission Reduction Environmental Taxes • Regulator – Sets a tax level per volume of pollutant emitted. • Manufacturers – Invests to Reduce Emissions or Pay Tax Technology 1 Abatement Cost Qfinal Emissions

5. 17 Tons 17 Tons 17 Tons 17 Tons 17 Tons Total Emissions 17 Tons 20 Tons 15 Tons 15 Tons 15 Tons 15 Tons 13 Tons 12 Tons 12 Tons 12 Tons 12 Tons Initial Emissions Initial Emissions Initial Emissions Initial Emissions Initial Emissions Initial Emissions Initial Emissions Initial Emissions 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons New Cap New Cap New Cap New Cap New Cap New Cap New Cap New Cap 17% Desired Reduction 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 50 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons Reduction 5 tons Reduction:2 tons Reduction:3 tons Emission Trading Model • Regulator - Distributes allowances equal to the Cap amount • Manufacturers -Invest to Reduce Emissions or Purchase Allowances 22 Tons 20 Tons 22 Tons 22 Tons 20 Tons 18 Tons TRADE PLANT B PLANT A PLANT C Sells 2 allowances Examples : Acid Rain SO2 Program; Ozone Transport Commission NOx Budget Trading Program, Chicago Climate Exchange (CO2, VOC), European Climate Exchange (CO2, VOC). Kyoto Protocol

6. Challenge: Compliance for CO2 reduction • Predict Compliance Cost & Expected Emissions under: • Command-and-Control • Tax • Cap-and-Trade Emissions Reduction 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 60 Tons 100 Tons 15% Desired Reduction 85 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons 44 Tons • Existing economical approaches use simplified models • This research proposes precise operations models considering technological limitations

7. PLANT 4 PLANT 3 PLANT 2 ONSITE ONSITE ONSITE LEACH ONSITE ONSITE ONSITE ONSITE ONSITE ONSITE ONSITE ONSITE REUSE ONSITE REUSE REUSE REUSE REUSE SCRUB SCRUB SCRUB SCRUB SCRUB REUSE REUSE REUSE REUSE REUSE REUSE REUSE REUSE REUSE REUSE SWER SWER REUSE REUSE Ion Ex Ion Ex SWER SWER SWER SWER Ion Ex EVAP EVAP EVAP EVAP EVAP EVAP EVAP WAO WAO ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM ATM SCR ATM INC INC INC INC INC INC INC INC INC INC SCR INC INC INC INC INC BIO INC INC INC INC BIO INC BIO LF LF LF LF LF PLANT 1 PLANT 2 PLANT 3 PLANT 4 Regional Superstructure SynthesisIdentify all feasible recovery and treatment options for a whole region

8.  Environmental Regulations Site Specific Permits Map Superstructure into Plant infrastructure Market Forecast Business Forecast Plant Model To Offsite Recovery Chemical Tr. Plant To Offsite Treatment REGULATORY MODELS Incinerators WasteWater Solvent Rec. Plant ??? Planning for Operations and Investments

9. I. Command-and-Control Group of manufacturers Example: Pharmaceutical manufacturing. Regulatory Forecast Production Forecast Raw Materials Products Process time Waste Waste Forecast Initial Infrastructure Production / Emission Forecast

10. I. Command and Control 15% Emission Reduction by Year 5 • Most of the investments in year 5 • 15% reduction enforced for each plant • Hard enactment of the regulation leaves little flexibility for investment planning Environmental Constraints Projected Annual Investments Expected Annual Emissions

11. II. Environmental Tax 160% Tax Increase to induce a 15% Emission Reduction by Year 5 Objective Formulation Min. Total Cost Environmental Constraints Annual Emissions Annual Investments • Need information of plant’s marginal costs to determine tax level (difficult to implement for regulators) • Manufacturers have some freedom to plan • No guarantee a specific ambient pollution level is met

12. III. Emission Trading Scenario: Results 15% Cap reduction by Year 5 Annual Emissions Annual Investments Annual Emission Trading Buy Sell • Investment schedules are flexible • 15% pollution reduction enforced region is guaranteed

13. Comparison: Cost for Enforcing Emission Reduction Predicted Cumulative Cost • Command and control • Forces to invest in the year of change. • Difficult to control the total level emissions • Tax • Difficult to set tax level (trial and error) • Cap and Trade • Flexibility to time investments • Less expensive Policy • Effective way to accurately control emissions Total Annualized Cost and total Emissions

14. Comparison: Tightness of Emission Reduction Total Annualized Cost and total Emissions 7,000 7,000 6,000 6,000 5,000 5,000 Total Net Present cost (k$) Total Net Present cost (k$) 4,000 4,000 3,000 3,000 104 104 kTon kTon 104 104 kTon kTon 102 102 kTon kTon 102 102 kTon kTon 110 110 kTon kTon 110 110 kTon kTon of CO of CO of CO of CO of CO of CO of CO of CO of CO of CO of CO of CO 2 2 2 2 2 2 2 2 2 2 2 2 Emitted Emitted Emitted Emitted Emitted Emitted Emitted Emitted Emitted Emitted Emitted Emitted 2,000 2,000 Command Command Cap and Trade Cap and Trade Tax Tax Control Control • Command and control • Achieves a 27% reduction. 12% higher cost than emission trading • Tax • Induces a 29% reduction at a unreasonable high cost. • Emission Trading • Reduces emissions by 17%. Tighter control at minimum cost. • To reduce 27% emissions is still 7% cheaper than C&C

15. Conclusions • Construct a whole region map of feasible technological options. • Estimated compliance cost for different regulatory policies considering technological limitations. • Used utility maximization principle to estimate the optimal behavior. • Cap-and-Trade gives the minimum compliance cost. • Solved environmental regulation design problem. • Partnership of Regulator and Industrial Manufacturers • Automated analysis permits fast evaluation of a single plant or a whole region.