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3.2.6. Regional Nitrogen Oxides Trading Program

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Savings from Economic Incentives

In November 1997 and May 1998 Federal Register notices, the USEPA proposed creating a regional NOX trading program involving most of the eastern one-half of the US. The program, in part, is based on a Demonstration Project to trade “discrete emission reductions” (DERs) that was developed by the Northeast States for Coordinated Air Use Management (NESCAUM) in 1993. Other important contributors to the design of USEPA’s regional NOX program include the Ozone Transport Commission (OTC) and the Ozone Transport Assessment Group (OTAG), both of which worked to design regional trading programs for NOX for the eastern part of the US.

NOx emissions along with volatile organic compounds (VOC) are precursors of ozone. Ozone has long been recognized in clinical and epidemiological studies as affecting public health, ornamental vegetation, agricultural crops and forests. The effects of ozone on health, which are the concern of most recent regulatory efforts, include decreased lung function (mainly in children exercising outdoors), increased respiratory symptoms (particularly in highly sensitive individuals such as asthmatics), increased hospital admissions and emergency room visits for respiratory effects, increased inflammation of the lungs, and possible chronic (long-term) effects on the lungs.

EPA’s proposal recognizes that regional NOx controls would have comparable ambient impacts on ozone as would local NOx and VOC controls, but at significantly lower cost. Sources of NOx emissions include power generation, other point sources, area sources, and mobile sources. The trading regime that EPA proposed would involve only large point sources (sources serving electric generators with capacity greater than 25 MWe and boilers with a designed heat input greater than 250 mmBTu/hr. The large point sources have various means of reducing emissions: combustion modifications, post-combustion technologies, and fuel switching. If the state in which they were located decided to participate in the trading program, the sources could add emission trading to the list of possible compliance options. To participate in trading, EPA would insist that sources install continuous emission monitors (CEM).

EPA analysis indicates that the savings from trading would be substantial. The projected additional cost of the most enlightened form of command and control regime, a performance standard for point sources, would cost $500 million a year more to achieve the same environmental results. A number of details remain to be worked out, including whether trading would occur throughout the entire region or would restricted to different sub-regions. Another issue is what trading ratio to apply to trades and whether the ratio should vary with distance between parties to the trade, season, weather, or other variables. EPA recognizes the fact that there will be tradeoffs between cost savings from trading and potential adverse environmental impacts in certain areas.

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