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OVERVIEW OF THE PENNSYLVANIA EMISSIONS REDUCTION CREDIT

REGISTRATION PROGRAM

Air pollution control rules in Pennsylvania, New York and Maryland create a market for air pollution Emissions Reduction Credits ("ERCs") and in some states impose deadlines to register and preserve these credits. The New Source Review ("NSR") rules published in the Pennsylvania Bulletin and effective January 15, 1994, require a new plant (or plant expansion beyond a certain size) to obtain a construction permit, install Lowest Achievable Emissions Rate ("LAER") air pollution controls at the new source, and reduce total emissions of pollutants in the area by offsetting or reducing pollution from another source at that plant or from other plants in the area. The NSR offset rules create a market for ERCs which will be necessary for future industrial development. New York and Maryland have similar rules, and all three states have an interstate trading agreement.

An emissions reduction is any reduction in pollutants beyond the emissions level allowed by law. Emissions credits can be created by

- "over-control" -- controlling emissions to a lower level than is required by law,

- new technology, materials or processes that reduce emissions,

- fuel changes,

- improved control measures, including control of fugitive emissions,

- shutdown of a facility, or

- permanent reduction of production or operating hours.

In PA, emissions reductions based on plant shutdowns or decreases in production must be used within ten years; ERCs resulting from over-control never expire. ERCs must be surplus, permanent, quantified, and federally enforceable, as defined in the regulations.

The rules provide that state environmental agencies will operate a registry system to track and account for ERCs. DEP will review ERC registry applications to determine if the ERCs meet all requirements. In Pennsylvania, a facility has one year after creating the emissions reduction to apply for registration of the ERCs. The baseline emissions rate is based on emissions from the two years prior to the emissions reduction, unless another period is more representative of normal emission rates. When ERCs are "used" in a permit, DEP must determine that they are available for use for the specific pollutant in the particular nonattainment area. These are active markets for NOX and VOC ERCs, and the supply of credits is low in the Asevere@ ozone nonattainment areas near New York City, Philadelphia and Baltimore.

The market value of ERCs for various pollutants varies with geographic area. In Pittsburgh, NOX and VOC credits are currently worth less than $2,000 per ton; in Philadelphia they are selling for more than $10,000 per ton.

Because of these new regulations, business owners who have closed plants, reduced production, changed processes, substituted less polluting materials, or controlled fugitive pollution may have a valuable asset in ERCs. The source registering the ERCs does not need to be a large plant or have an air permit. If a closed plant is to be sold as a viable concern, the owner should register and hold the credits because they will be needed to reactivate the plant. Credits from a plant permanently out of service can be sold to allow future development.

While some parts of the rule are very complex, the permit application is only three pages long -- companies that might have ERCs should at least submit a preliminary application to preserve any potential asset. I have done many registrations and over 16 sales transactions. Contact me for more information.