Emission, Compliance, and Market Data
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The NOx Budget Trading Program (NBP) was a market-based cap and trade program created to reduce the regional transport of emissions of nitrogen oxides (NOx) from power plants and other large combustion sources that contribute to ozone nonattainment in the eastern United States. NOx is a major precursor to the formation of ground-level ozone, a pervasive air pollution problem in many areas in the East. The NBP was designed to reduce NOx emissions during the warm summer months, referred to as the ozone season, when ground-level ozone concentrations are highest.
Over the next several months, EPA will release a series of reports summarizing progress under the NBP. This first report presents 2008 data on emission reductions, compliance results, and NOx allowance prices. Future reports will evaluate progress under the NBP in 2008 by analyzing emission reductions, reviewing compliance results and market activity, and comparing changes in emissions to changes in ozone concentrations.
At a Glance: NBP Results in 2008
Ozone Season Emissions: 481,420 tons
- 9% below 2008 cap
- 62% lower than in 2000 (before implementation of the NBP)
- 75% lower than in 1990 (before implementation of the 1990 Clean Air Act Amendments)
Nearly 100%—only two units out of compliance (out of a total 2,568 units)
275,367 unused NBP allowances transferred for future use under the Clean Air Interstate Rule (CAIR)
28% decline in 2008, from $825/ton to $592/ton
Ozone Season NOx Reductions under the NBP
In 2008, NBP sources emitted 481,420 tons of NOx during the summer ozone season, an overall decrease of 24,880 tons from 2007. Emissions in 2008 were 62 percent below 2000 levels, 75 percent below 1990 levels, and 9 percent below the 2008 cap. Figure 1 shows the total ozone season NOx emissions for all affected sources in the NBP region in 2008 compared to pre-NBP baseline years (1990 and 2000) and prior NBP compliance years (2003 through 2007). It also presents the allowances allocated for 2008, which comprised the cap (the sum of the state budgets) for the program (528,453 tons).
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Figure 1: Ozone Season NOx Emissions from All NBP Sources
Due to litigation, sources in states affected by the NBP had three different compliance dates: May 1, 2003 for Ozone Transport Commission (OTC) states; May 31, 2004 for non-OTC states; and May 1, 2007 for Missouri. To compare emissions year-to-year, the data presented in this report generally include full ozone season emissions for all states, rather than “compliance only” emissions based on these various compliance deadlines. This approach allows for a consistent comparison across all states and all years. All data for 2003–2008 in this report were gathered from EPA’s data systems as of April 1, 2009.
There were 2,568 affected units under the NBP in 2008, including some units that may not have operated nor had emissions during the 2008 ozone season. For example, some units provide electricity only on peak demand days, and may not operate every year.
Most of the units in the NBP were electric generating units (EGUs)—large boilers, turbines, and combined cycle units used to generate electricity for sale. Figure 2 shows that EGUs constituted 88 percent of all regulated NBP units. The program also applied to large industrial units that produced electricity or steam primarily for internal use. Examples of these units are boilers and turbines at heavy manufacturing facilities, such as paper mills, petroleum refineries, and iron and steel production facilities. These units also included steam plants at institutional settings, such as large universities or hospitals. Some states included other types of units, such as petroleum refinery process heaters and cement kilns.
Ozone season NOx emissions decreased substantially, by 43 percent, between 2003 and 2008, even while energy demand (as measured by heat input) remained essentially flat during the same period. Table 1 shows that emission reductions have occurred because the overall average ozone season NOx emission rate has declined significantly, by about 45 percent, since the NBP began in 2003.
Figure 2: Number of Units in the NBP by Type in 2008
Table 1: Comparison of Ozone Season NOx Emissions, Heat Input, and NOx Emission Rates for All NBP Sources, 2003—2008
|Units by Fuel Type|| Ozone Season NOx Mass Emissions
|Ozone Season Heat Input
| Ozone Season NOx Emission Rate
State-by-State NOx ReductionsOzone season NOx emissions have decreased from levels in baseline years in all states participating in the NBP. EPA projects that the Clean Air Interstate Rule (CAIR) NOx ozone season program, which started this year, will bring a continued decline in emissions across the region (as shown in Figure 3).
Figure 3: State-level Ozone Season NOx Emissions from NBP to CAIR, 1990—2010
In the 2008 ozone season, the total emissions from NBP sources were about 47,000 tons (9 percent) below the regional emission cap. Fourteen states and the District of Columbia had emissions below their allowance budgets, collectively by about 71,000 tons. Another six states (Alabama, Indiana, Kentucky, Michigan, Ohio, and Pennsylvania) exceeded their 2008 budgets by a total of about 24,000 allowances, indicating that some sources within those states covered a portion of their emissions with allowances banked from earlier years or purchased from the market.
In any given year, emission control programs experience variation in emissions from individual units due to a wide range of conditions, including weather, grid demand, transmission constraints, fuel costs, and compliance strategy. See Appendix A at the end of this document for individual state emission and budget data. Subsequent 2008 reports will analyze these state-specific results in further detail. In addition, detailed unit-level data are available in Appendix 1. To view emission data in an interactive file format using Google Earth or a similar three-dimensional platform, use the resources on EPA’s Clean Air Markets Interactive Mapping page.
2008 Compliance Results
There were 2,568 units affected under the NBP in 2008. Of those units, only two units at separate facilities did not hold sufficient allowances to cover their emissions (63 tons total). Because 2008 was the last official year of the NBP, affected facilities have transitioned to the CAIR NOx ozone season program, which began on May 1st for the 2009 ozone season. Accordingly, the two units out of compliance automatically surrendered first year (2009) CAIR NOx ozone season program allowances on a 3:1 basis, or 189 allowances total. Table 2 summarizes the allowance reconciliation process for 2008.
Table 2: NOx Allowance Reconciliation Summary for the NOx Budget Trading Program in 2008
|Total Allowances Held for Reconciliation (2003 through 2008 Vintages)||755,684|
|Allowances Held in Compliance or Overdraft Accounts||673,336|
|Allowances Held in Other Accounts*||82,348|
|Allowances Deducted in 2008||482,476|
|Allowances Deducted for Actual Emissions||481,147|
|Additional Allowances Deducted under Progressive Flow Control (PFC)||1,329|
|Banked Allowances (Carried into 2009 CAIR NOx Ozone Season Program)||273,208|
|Allowances Held in Compliance or Overdraft Accounts||188,003|
|Allowances Held in Other Accounts**||85,205|
|Penalty Allowances Deducted*** (from 2009 CAIR NOx Ozone Season Program Allocations)||189|
Banking in 2008
Figure 4 shows the allowances allocated each year, the allowances banked from the previous year, and the total ozone season emissions subject to allowance holding requirements for NBP sources from 2003 to 2008. The bank has grown each year since the program began in 2003, with this trend continuing through the NBP's final ozone season. After completion of the 2008 reconciliation process, the bank increased to 273,208 NBP allowances, as shown in Table 2. Additionally, 2008 marked the fifth of six compliance years in which sources achieved more reductions than required under the NBP and were able to bank allowances for use in future years.
In 2009, the NBP transitioned to the CAIR NOx ozone season program. As part of this process, EPA transferred NBP banked allowances and some previously unallocated allowances held by states to corresponding CAIR accounts. In total, 275,367 allowances were transferred from the NBP to the CAIR NOx ozone season program. In addition, while the NBP flow control provisions resulted in 1,329 additional allowances being deducted from the allowance bank as part of the 2008 reconciliation process (see Table 2), flow control no longer applies in 2009 and the transition to CAIR. Thus, the transferred allowances may be used under CAIR with no restrictions or time limits on a straight 1:1 basis.
Figure 4: NOx Allowance Allocations and the Allowance Bank, 2003—2008
NOx Allowance Trading in 2008
The 2008 NOx allowance market experienced a 28 percent price decline—beginning the year at $825 per ton in January and climbing as high as $1,400 during the middle of the year before falling to a period-end closing price in November of $592 per ton (see Figure 5). NBP reports released in the next few months will investigate allowance market activity for 2008 in more detail.
Figure 5: NOx Allowance Spot Price (Prompt Vintage), January 2008—November 2008
Appendix A: Ozone Season NOx Emissions (Tons) from NBP Sources, 1990—2008, and 2008 State Trading Budgets
|All NBP States||1,923,831||1,256,237||849,220||609,029||548,649||507,603||506,300||481,420||528,453|