Air Regulators Renew Power Project Offset Efforts

By Published On: December 9, 2011

After a two-year hiatus, greater Los Angeles area air quality regulators renewed their effort to end an air pollution offset shortage that’s practically prevented building new gas-fired power plants across the 11,000 square mile region. “Offsets have been front and center in the ability to site new power plants,” according to Barry Wallerstein, South Coast Air Quality Management District executive officer. “Relative to offsets, some sort of a major overhaul is necessary.” The Air District is resuming its drive after largely failing in an earlier attempt that played out over several years at the end of the last decade. Environmentalists successfully stymied the Air District with a lawsuit. At that time, the agency tried to open a credit bank it maintains to provide free offsets for essential public services, like water treatment plants and hospitals. Now, Wallerstein said he’s eyeing a plan under which power generators would pay into a fund which the Air District would use to finance pollution reduction projects around the Los Angeles area. At least a portion of the resulting pollution reductions would be used to create new offset credits for power plant builders. The Los Angeles area’s chief air regulator revealed the new tack at a stakeholders’ meeting last month. To advance the plan, the Air District intends to form a working group that’s likely to include other air pollution control districts and representatives from the California Air Resources Board and the federal Environmental Protection Agency. Both the state Air Board and federal EPA would have to approve any new offset plan before it could be used to generate credits needed by power plant builders. Those credits are required under the federal Clean Air Act’s “new source review” program to offset pollution from new power plants and major industrial facilities in smoggy areas. Normally, project builders buy the credits on the open market, which are created by either controlling pollution more than required or shutting down old plants. Since at least 2006, an acute open market shortage of offset credits for fine particles emitted by power plants has prevented construction of projects planned in the Los Angeles area, except for two. One--the 850 MW CPV Sentinel Project being built near Palm Springs--was allowed by special legislation to purchase offsets for $53 million from the Air District’s bank. CPV was allowed to do so under AB 1318, a bill by Assemblymember V. Manuel Pérez (D-Indio) signed into law in 2009. The other project able to move forward amid the credit crunch is Edison Mission Energy’s Walnut Creek plant. Edison Mission paid AES $56 million to retire two units at its Huntington Beach facility at the end of 2012 and turn over the associated emissions rights as offsets for its new 479 MW Walnut Creek plant being built in the City of Industry. That’s according to a filing last summer with the Securities & Exchange Commission. Environmentalists heralded the move because it eliminates air pollution permanently after the emissions rights are transferred. That’s because the rights are discounted to account for the fact that the new plant can produce a megawatt of power with fewer emissions than the old units. “New source review gives us the kind of assurance we’ve asked for,” said Coalition for Clean Air campaign director Martin Schlageter. He added that old plants are supposed to close to make way for new ones and reduce pollution. Yet, Southern California Edison, a regulated utility affiliate of unregulated Edison Mission Energy, sees what its director of corporate environmental policy Mike Hertel calls “a pretty bleak future” unless a pool of offset credits can be created for new power plants. According to Hertel, the utility needs more gas-fired generating capacity to successfully integrate an ever-increasing amount of renewable energy into its resource portfolio to meet state requirements. State law requires utilities to hit the one-third renewable energy mark by 2020. Edison now stands just below 20 percent. Much of that gas-fired power must be produced locally to maintain service reliability, Hertel said. Air District officials hinted their plan to create a pollution control fund to which generators could contribute to create emissions offsets could be outlined next year when the agency updates its air quality management plan. The move must be approved by both the state and U.S. EPA. If that plan includes the fund and it’s approved, it would all but clear the path for the Air District to move ahead on resolving the offset shortage. EPA has the power to approve limited demonstration programs aimed at cleaning up pollution in smoggy areas that do not necessarily conform to existing standards if they are considered innovative and achieve the same or better results. Such action by the federal agency could be the key to the Air District moving ahead. Otherwise, environmentalists believe Congress would have to amend the Clean Air Act for the type of program Wallerstein envisions.

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