Emissions Credits Expansion in SoCal Collapsing

The South Coast Air Quality Management District's plan to ease the emissions credit shortage for new power plants around Los Angeles appears to be disintegrating. Its likely demise is attributable to a lawsuit and growing environmental justice concerns just months after it was adopted. As a result, companies seeking to build five new power plants with 2,714 MW of capacity in the area can expect to pay more for emissions credits and face potential project delays. The apparent collapse of the new policy may even spell the death of AES's proposed Highgrove plant, an AES executive indicated. Under mounting pressure, SCAQMD scheduled a December 12 meeting on a new regulatory proposal that would take back some of the ground it ceded to the power industry to facilitate new projects. The controversy comes after the agency amended its New Source Review rule September 8 to head off a looming energy shortage. The amendments allowed plant builders to purchase emissions offset credits - which are in increasingly short supply - from the agency's priority reserve. That credit bank traditionally has been available only to public agencies that provide essential public services such as water treatment and fire protection on a nonprofit basis (Circuit, Sept. 15, 2006). In advance of next week's meeting, the district unveiled amendments that would partially reverse changes it previously approved. Those would prohibit plant builders in areas with the highest levels of fine particulate pollution from tapping the reserve at all. In areas with slightly less elevated levels of fine particulate emissions, the district would hike fees for the credits and require additional health studies. Plants proposed in areas with the lowest levels of fine particulate pollution would be unaffected and able to access credits as outlined in the agency's September amendments. The new proposal is intended to address concerns raised by environmental justice advocates in September when SCAQMD loosened its credit policy for power producers. Activists complained that the relaxation allowed power plants to increase pollution levels in surrounding neighborhoods by not requiring operators to fully mitigate their emissions. Shortly after the district's board approved the changes three months ago, the Natural Resources Defense Council joined with three other environmental organizations - Communities for a Better Environment, the Coalition for a Safe Environment, and California Communities Against Toxics - in asking a judge to overturn the air board's less restrictive amendments. In a little-noticed October 19 complaint filed in Los Angeles Superior Court, the groups contended that the district neglected to analyze the likely environmental effects of the regulatory amendments as required under the California Environmental Quality Act. The suit also contended that some of the credits given power plant developers already have been claimed for meeting legally required clean-air milestones. "[T]hese credits would be double counted if used to offset future pollution increases," the complaint concluded. The groups asked the court to prevent the district from issuing any offset credits to power plants until their challenge is resolved. However, a SCAQMD spokesperson said that the suit "is not currently a factor" in any sale of credits to power project developers. Tim Grabiel, NRDC attorney, said the district should have addressed environmental justice concerns by requiring the power industry to pursue greater energy efficiency and renewable technology before building new fossil-fueled plants in the polluted air basin. Power company officials said the district's proposal and the growing controversy over the offset issue would affect them. "It could have an impact on our project going forward," said Julie Way, AES Highgrove project director. The company is pursuing a license to build the 300 MW Highgrove Project in Grand Terrace (Circuit, Nov. 27, 2006). The community is in a zone where high levels of fine particulate matter, or PM2.5, would preclude AES from accessing credits from the reserve. Way said the company is seeking clarification from the air district on whether it would still be eligible for the credits - which may not be available on the open market because of the shortage. It appears, however, that the plant would be squarely within the excluded area. Edison Mission Energy would be affected too, said Charlie Parnell, company spokesperson. The company has proposed two new plants and is in line for credits from the air district's priority reserve (Circuit, March 24, 2006). Edison would have to pay a higher price for offset credits at its proposed Walnut Creek plant in the City of Industry, Parnell added. The change could add $18 million in costs for particulate emissions offset credits at the Walnut Creek plant, plus more money for offsetting additional pollutants. The utility is also trying to figure out whether its proposed Sun Valley plant in Romoland would be subject to the higher fees. The Vernon Power Project - opposed by neighboring communities - also would have to pay higher fees. Payments for particulate offsets alone could escalate by $22.1 million. An innovative 500 MW hydrogen-fired plant proposed jointly by BP and Edison in Carson would appear to be unaffected by the district's proposal but still could be delayed along with the other four plants, depending on how the litigation progresses. The agency hopes that its board will adopt the proposed amendments in March. The lawsuit is in its early stages, according to Grabiel. - William J. Kelly

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Emissions Credits Expansion in SoCal Collapsing

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