Air Agency Delays Emission Credits for LNG

Following charges that its environmental analysis is inadequate, the South Coast Air Quality Management District board is delaying offering credits to new liquefied natural gas, biomass, and oil import facilities. However, air quality regulators are expected to expand the pool of emissions credits for new power plants September 8 after press time. There is a shortage of air pollution rights in Southern California. Credits are also increasing in price. "AQMD has decided to postpone the portions of the rule amendments for Rule 1309.1 that do not pertain to electric generating facilities," said Tina Cherry, air district spokesperson. The agency still plans to make the credits available to the other energy facilities, she said. However, that will be at a later date and after further environmental analysis. The agency's initial plan envisioned making more than 21,000 pounds per day of air pollution credits available to the energy industry. Credits for some types of pollution fetch as much as $85,000 a pound on the open market. However, under the scaled-back plan to be approved this week, the agency would make less than 18,000 lb/day available solely for building 2,500 MW of new natural gas power-generating capacity. The South Coast Air Quality Management District's delay could affect two major LNG terminals planned in the Los Angeles area - Sound Energy Solutions' project in Long Beach Harbor and Woodside Energy's proposed facility off the Los Angeles County coast. It also could affect a major oil import terminal planned in Los Angeles Harbor. "We're actively pursuing other credits on the open market," said Paul Langland, Sound Energy Solutions vice-president of stakeholders. "We've gotten quite a few and hope to get more." He did acknowledge that the credits may be more expensive on the open market. Under the federal Clean Air Act, new facilities in the polluted region must obtain credits - either purchased on the open market or from the agency reserve - to offset their emissions. The reserve has been available only to public facilities such as water-treatment plants, landfills, and police and fire stations, except during the energy crisis, when it was also open to power plants. The greater Los Angeles smog-fighting agency initially planned to open its priority reserve air credit bank to new power plants and other "regionally significant" energy facilities. It fears that a growing shortage of pollution credits on the open market is about to create an energy shortage as demand for power and fossil fuel grows (Circuit, June 30, 2006). "Despite the political pressure coming from the energy sector, a prompt opening of the South Coast Air Quality Management District's [emissions reduction credit] banks remains in question," said Samantha Unger, Evolution Markets environmental market broker. Environmentalists and community activists "continue to stir controversy," she said. The credits are expected to benefit builders of new plants around Los Angeles, according to the agency. Those non-LNG and biomass plants include gas-fired plants owned by Edison Mission Energy and the city of Vernon. SCAQMD suspended action for the other facilities after 12 environmental organizations warned that "legal deficiencies and technical flaws plague the environmental assessment" for the plan. "We'd like to see state energy growth handled through improved efficiency measures and increases in renewable generation," said Tom Politeo, Sierra Club Harbor Vision Task Force cochair. "We look at this as being an awful lot of commercial opportunity." The groups, which include the Natural Resources Defense Council, wrote in an August 15 letter that the "proposed rule amendments will have devastating region-wide impacts." They said the air agency's environmental assessment failed either to describe the purpose of the regulatory amendments or to examine alternatives to importing and burning more fossil fuel in the region, which is the number-one cause of air pollution. Politeo also urged that the agency focus on cleaning up old power plants to reduce emissions and improve their efficiency, rather than facilitating more imports of fossil fuel and building more gas-powered plants by offering credits. Meanwhile, Cherry said the agency decided it could open its credit pool to generators this week because the regulatory change is exempted by statute from the California Environmental Quality Act. The exemption exists because the California Energy Commission requires environmental review under the Warren-Alquist Act when it licenses new power plants. To access the credits, plant builders will have to complete their air permit applications by 2008 and pay $50,417 per pound per day for fine particulate matter (PM10). They will also pay $15,083/lb/day for sulfur oxides, $12,000/lb/day for carbon monoxide, and $1,410/lb/day for volatile organic compounds. Nitrogen oxide emissions credits will not be available through the agency since their supply on the open market is not as tight as for the other pollutants. Open-market prices for the credits have recently hit $3,000/lb/day for volatile organic compounds and up to $85,000/lb/day for PM10, according to Evolution Markets data.

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Air Agency Delays Emission Credits for LNG

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