RECLAIM (Regional Clean Air Incentives Market) is an emissions cap-and-trade program that was implemented in 1994 by the South Coast Air Quality Management District (AQMD) to help the South Coast Air Basin (SCAB) achieve clean air in an economical and efficient manner.
The RECLAIM program creates an imaginary “bubble” for the facility so that the AQMD can regulate the total pollution in the bubble instead of regulating each source. Facilities under the RECLAIM program must meet annual emission-reduction targets for nitrogen oxide and sulfur oxide, known in the industry as NOx and SOx.
Facilities that reduce emissions beyond the annual emissions reduction targets have an asset to sell in the open market. Compared to command-and-control methods, RECLAIM gives flexibility to facilities by allowing them to decide how to reduce their emissions in the most economical way.
Facilities in Cycle 1 participate in RECLAIM based on the calendar year (January 1 through December 31), while facilities in Cycle 2 participate based on the fiscal year (July 1 through June 30).
Who Does RECLAIM Apply To?
The RECLAIM program applies to stationary sources within Southern California that are emitting more than four tons per year of NOx or SOx .
For the 2013 compliance year, there were 275 NOx facilities and 33 SOx facilities in the “RECLAIM universe.” These facilities are still subject to other AQMD programs and regulations such as the annual emission reporting (AER) program and the Title V program, but they are exempt from some requirements. These exemptions are due to the RECLAIM program having its own source review and NOx and SOx emission requirements.
Smaller facilities can request to opt-in to the RECLAIM program.
Facilities that are excluded from the program include dry cleaners, restaurants, and public sources such as police facilities.
What Does the RECLAIM Program Do?
RECLAIM was designed to be an alternative approach to air-quality regulation while achieving better emission reductions than traditional command-and-control programs.
Instead of each piece of equipment having an independent emissions standard for NOx and SOx, a RECLAIM facility must have enough RECLAIM Trading Credits (RTCs) to cover their total NOx and SOx emissions. The number of RTCs assigned is based on a facility’s annual emissions limit. The AQMD’s total annual RTCs are determined by past peak production and existing rule requirements.
A RECLAIM Trading Credit can be good for either NOx or SOx, with each credit allowing a facility to emit one pound of the emission. NOx RTCs cannot be traded for SOx RTCs, and vice versa, as they are part of two different markets and have two different values. A facility must have enough of each RTC to cover their emissions for the year.
RTCs can be sold or traded by a facility as long as they own enough to cover their emissions. If a facility emits more than can be covered by their RTCs, it must purchase RTCs on the open market or face penalties.
Over time, RECLAIM drives the reduction of emissions by reducing the supply of RTCs. As the supply drops, the price rises, thus making the implementation of additional control technologies more economically appealing than purchasing RTCs. In this way, the market-based program offers businesses a monetary incentive to reduce emissions.
New facilities entering RECLAIM that were not operating before 1994 receive no RTC allocation from the AQMD and must purchase credits on the open market.
What Are the RECLAIM Requirements?
To ensure the integrity of reported emissions, the RECLAIM program outlines monitoring, reporting, and recordkeeping (MRR) requirements, which are determined by a three-tier classification system for each piece of equipment. Equipment can be classified as a processing unit, large source, or major source, depending on its size.
Major sources must have Continuous Monitoring Equipment and are required to submit daily electronic emissions reports. Large sources require a fuel meter or Continuous Process Monitoring System and are required to submit monthly reports. Processing units require a fuel meter, timer, or Continuous Process Monitoring System and must submit quarterly reports; Rule 219 equipment also needs to be reported quarterly.
The following tables provide a summary of the MRR requirements for RECLAIM emission sources.
At the end of each quarter, there is a reconciliation period during which a RECLAIM facility can buy or sell RTCs. The reconciliation schedule is shown below:
- Reconcile quarterly emissions within 30 days after the ends of quarters 1, 2 and 3
- Reconcile year-to-date emissions within 30 days after the ends of quarters 1, 2 and 3
- Reconcile quarterly emissions within 60 days after the end of quarter 4
- Reconcile annual emissions within 60 days after the end of quarter 4
At the end of these reconciliation periods, each RECLAIM facility must submit an emissions report to the AQMD. These quarterly or annual reports, known as Quarterly Certification of Emissions Reports (QCERs) and Annual Permit Emissions Program reports (APEP), self-certify the facility’s emissions and RTC accounting.
The AQMD regularly audits QCERs and APEPs along with the electronic emissions reports sent to them. These audits include calculations to quantify emissions as well as field inspections of equipment.
What Are the Types of RTC Trades and Prices?
RTC trades can occur as either discrete-year RTC transactions or infinite-year block (IYB) transactions (trades that involve blocks of RTCs with a specified start year and continuing into perpetuity).
During the calendar year 2015, the annual average prices of discrete-year NOx RTCs traded were $1,039 per ton for compliance year 2014 and $1,642 per ton for compliance year 2015 . During the same period, the annual average prices for discrete-year SOx RTCs traded were $483 per ton for compliance year 2014 and $380 per ton for compliance year 2015.
These annual average prices are well below the $15,000-per-ton threshold to evaluate and review the compliance aspects of the program as set in AQMD Rule 2015. Also, these annual average prices are below the $41,591 per ton of NOx and $29,946 per ton of SOx discrete RTCs pre-determined overall program review thresholds established by the Governing Board under Health and Safety Code § 39616(f).
During the calendar year 2015, the average annual price was $199,685 per ton for IYB NOx RTCs and $53,665 per ton for IYB SOx RTCs. These prices are well below the $623,866 per ton of IYB NOx RTCs and the $449,184 per ton of IYB SOx RTCs predetermined overall program review thresholds established by the Governing Board under Health and Safety Code § 39616(f).
What Are the Results of RECLAIM Program?
The following figure illustrates the NOx RTC supply and emissions for each year from 1994 to 2014.
From this graph, it’s easy to see how emissions respond to the supply of RTCs. Early in the program, when RTCs were high, there was little incentive to reduce emissions. As the supply of RTCs decreased, emissions followed suit. This effect can be more clearly seen in the next figure, which shows the relation between SOx RTC supply and emissions for 1994 to 2014.
What Are the Risks Associated With Being in RECLAIM?
Facilities that are in RECLAIM need to monitor by using the fuel meter, timer, or main gas bill minus other metered equipment and submit emissions reports to AQMD (as described in the Monitoring Reporting and Recordkeeping section) for each piece of equipment.
SQMD typically performs inspections and verifies the reported emissions on an annual basis. Thus, facility personnel need to be available to accompany inspectors and answer questions.
The facility RECLAIM emissions must be less than or equal to the RTCs in the facility’s Allocation account usable for the same period. Failure to maintain sufficient RTCs can result in a violation and fines. Therefore, it is critical that the facility compares emissions to its usable RTCs and, if necessary, acquire additional RTCs through trading.
The facility also needs to ensure that the reported emissions are correct, as errors in emission calculations may result in insufficient RTCs in the facility’s Allocation account. As a result, many facilities choose to maintain a compliance safety margin of 10-20% “extra” RTCs.
Final Comments About RECLAIM
Each RECLAIM facility is issued an annually declining allocation of emission credits, so companies must decide what equipment and processes to use to meet the facility’s annual emission reductions or to purchase emission reduction credits in the open market to meet targets for annual emission reductions.
The costs of purchasing emission credits may become more expensive over time, which would make it more practical for the facility to buy and install new equipment. Companies should also take into account that RECLAIM facilities that reduce emissions beyond annual targets have an asset (credits that can be sold on the open market), which can help offset the costs of purchasing new equipment.
Although RECLAIM provides flexibility by allowing facilities to decide how to reduce their emissions, facilities need to be vigilant in calculating and reporting the emissions, maintaining sufficient RTCs, and following the program’s MRR requirements. Any errors in reporting could result in a violation and/or fine.