2OO6 Program Compliance and Environmental Results
-------
&EFA
United States
Environmental Protection Agency
Office of Air and Radiation
Office of Atmospheric Programs
Clean Air Markets Division
1200 Pennsylvania Ave., NW
Washington, DC 20460
EPA-430-R-07-009
September 2007
www.epa.gov/airmarkets
\
-------
Table of Contents
Executive Summary ii
introduction l
Section l —Background: Ozone and Major Emissions Control Programs 3
Ozone Formation 3
Ozone Impacts on Human Health and Ecosystems 4
Major Control Programs for NOX and VOCs 5
Overview of the NBP in 2006 10
Affected States and Compliance Dates 10
Affected Units 10
Section 2—Changes in NOX Emissions 13
Ozone Season NOX Reductions under the NBP 13
State-by-State NOX Reductions 15
High Electric Demand Days 16
Section 3—Compliance and Market Activity 21
2006 Compliance Results 21
Banking in 2006 and Flow Control in 2007 21
NOX Allowance Trading in 2006 22
Factors Affecting Market Price 23
Transaction Types and Volumes 24
Continuous Emissions Monitoring Systems Results 25
Compliance Options Used by NBP Sources in 2006 26
NOX Controls Used in 2006 26
Section 4—Environmental Results 31
Changes in 1-Hour Ozone Concentrations in the East 31
Changes in 1-Hour Ozone in Rural Areas 32
Changes in 8-Hour Ozone Concentrations 34
Ozone Changes after Adjusting for Meteorology 34
Linking Ozone and NOX Emissions 35
Changes in Ozone Nonattainment Areas 38
Ozone Impacts on Forest Health 39
Section 5—Future NOX Reductions and Ozone improvements 43
CAIR Overview 43
How CAIR Affects NBP States 43
The Future of Ozone Attainment 44
Endnotes 49
Online Resources 5O
Appendix A—Acronyms 51
Appendix B—Ozone Season Nox Emissions from All NBP
Electric Generating units, 199O-2OO6 52
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results i
-------
Executive Summary
The NOX Budget Trading Program (NBP) is
a market-based cap and trade program
created to reduce emissions of nitro-
gen oxides (NOX) from power plants and other
large combustion sources in the eastern United
States. NOX is a prime ingredient in the formation
of ground-level ozone, a pervasive air pollution
problem in many areas in the East. The NBP was
designed to reduce NOX emissions during the
warm summer months, referred to as the ozone
season, when ground-level ozone concentrations
are highest. This report provides background on
ozone formation and effects and evaluates prog-
ress under the NBP in 2006 by examining emission
reductions, reviewing compliance results and mar-
ket activity, and comparing changes in emissions
to changes in ozone concentrations.
2OO6 Key Results
• The NBP has successfully reduced ozone sea-
son NOX emissions throughout the region. In
2006, NBP ozone season NOX emissions were:
— 7 percent lower than in 2005.
— 60 percent lower than in 2000 (before imple-
mentation of the NBP).
— 74 percent lower than in 1990 (before
implementation of the Clean Air Act
Amendments).
• Through a wide range of pollution control strat-
egies and an active NOX allowance market in
2006, sources achieved over 99 percent compli-
ance with the NBP.
Key Components of the NBP
The NBP is an ozone season (May 1 to September
30) cap and trade program for electric generat-
ing units and large industrial combustion sources,
primarily boilers and turbines. The program has
several important features:
• The region-wide cap is the sum of the state
emission budgets EPA established under the
NOX State Implementation Plan (SIP) Call to
help states meet their air quality goals.
• Authorizations to emit, known as allowances,
are allocated to affected sources based on
state trading budgets. The NOX allowance
market enables sources to trade (buy and sell)
allowances throughout the year.
•
•
•
At the end of every ozone season, each source
must surrender sufficient allowances to cover
its ozone season NOX emissions (each allow-
ance represents one ton of NOX emissions).
This process is called annual reconciliation.
If a source does not have enough allowances
to cover its emissions, EPA will automatically
deduct allowances from the following year's
allocation at a 3:1 ratio.
If a source has excess allowances because it
reduced emissions beyond required levels, it
can sell the unused allowances or bank them
for use in a future ozone season.
To accurately monitor and report emissions,
sources use continuous emissions monitoring
systems (CEMS) or other approved monitor-
ing methods under EPA's stringent monitoring
requirements (40 CFR Part 75).
For more information on the NBP, see
-------
— There were 2,579 units affected under the
NBP in 2006. Only four NBP sources (seven
units total) did not hold sufficient allowances.
— Overall, trading activity increased from 2005
to 2006 with an active market, and allowance
prices declined sharply throughout the year.
— The flexibility of the NBP provided sources
with options regarding how to reduce NOX
emissions, such as adding NOX emission
control technologies, replacing existing
controls with more advanced technologies,
or optimizing existing controls.
Ground-level ozone has improved since the
implementation of the NBP in 2003.
— To provide a full picture of ozone trends in
the East, several analytical methods were
used to assess changes in ozone concen-
trations since implementation of the NBP.
Reductions in ozone levels in the NBP
region since implementation of the program
ranged from 5 to 8 percent.
There is a strong association between areas
with the greatest reductions in NOX emissions
and nearby downwind sites exhibiting the
greatest improvements in ozone.
— In 2004, the U.S. Environmental Protection
Agency (EPA) officially designated 104 areas
in the eastern United States as 8-hour ozone
nonattainment areas. Based on 2004 to 2006
air monitoring data, ozone air quality im-
proved in all of these areas. Furthermore,
80 percent of these areas (83 areas) now
have air quality that is better than the level
of the 8-hour National Ambient Air Quality
Standard (NAAQS). The NBP is the most sig-
nificant contributor to these improvements.
Changes in 8-Hour Ozone Nonattainment
Areas in the East
2001-2003 Versus 2004-2006
J Areas below the NAAQS (83 areas)
] Areas above the NAAQS that Show Improvement (17 areas)
| Areas above the NAAQS that Show No Change (1 area)
| Areas above the NAAQS that Are Increasing (1 area)
] Areas with Incomplete NAAQS Data (2 areas)
Note: States participating in the NBP in 2006 are shown inside the
black boundary line.
Source: EPA, 2007.
• Federal and state efforts are ongoing in the
East to reduce ozone into the future.
— The Clean Air Interstate Rule (CAIR) and
several federal mobile source programs will
continue the progress demonstrated by the
NBP. CAIR will further control emissions to
reduce both ozone and fine particles in 28
eastern states and the District of Columbia.
— States are providing detailed State Imple-
mentation Plans (SIPs) to EPA to address the
remaining nonattainment areas. Collectively
and individually, these SIPs will further
reduce ozone levels via local controls.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results iii
-------
,1^.- -
The NOX State Implementation Plan (SIP)
Call was designed to reduce the
regional transport of ozone
and ozone-forming pollutants in the East.
.1 !
I -I
^ r
-------
Introduction
or more than three decades, the U.S. En-
vironmental Protection Agency (EPA) has
worked with state, local, and tribal rep-
resentatives to reduce emissions that contribute
to the formation of ground-level ozone. Ozone
contributes to a number of serious health and
ecological effects. Most early ozone management
policies focused on reducing emissions of one of
two key ozone precursor pollutants—volatile or-
ganic compounds (VOCs). VOCs react with nitro-
gen oxides (NOX), the other key ozone precursor
pollutant, in the presence of sunlight and heat to
form ground-level ozone.
Since 1980, U.S. ambient ozone concentration
levels have decreased substantially—by 21 per-
cent on a national average basis (see ozone trends
at ). This
downward trend began to slow in the early 1990s.
About that time, emerging science indicated that
NOX controls, in addition to VOC controls, could
reduce ozone levels more effectively across large
regions of the United States. In 1997, a new, more
stringent 8-hour ozone standard of 0.08 parts per
million (ppm) was also promulgated, revising the
existing 1-hour standard (0.12 ppm) set in 1979.
The new standard further increased the need for
NOX controls.
EPA responded by developing programs to reduce
NOX emissions, including the NOX State Imple-
mentation Plan (SIP) Call rule in 1998, designed to
reduce the regional transport of ozone and ozone-
forming pollutants in the East. All 20 affected states
and the District of Columbia chose to meet man-
datory NOX SIP Call reductions through participa-
tion in the NOX Budget Trading Program (NBP), a
market-based cap and trade program for electric
generating units (EGUs) and large industrial units.
This 2006 report builds on the previous analyses
by demonstrating the continued progress under
the program and focuses on the following areas:
• Ozone formation and effects on human health
and the environment.
• Background on the NBP and other related EPA
emission control programs.
• Effectiveness of the NBP in 2006, including
emission reductions and corresponding chang-
es in ozone concentrations.
• Progress and compliance under the NBP, in-
cluding market activity and compliance options
employed by sources under the program.
• Transition to the broader Clean Air Interstate
Rule (CAIR) trading program in 2009 and analy-
sis of how to further address ozone nonattain-
ment in the East.
In addition, this year's report includes an appendix
of acronyms and an appendix table describing
emissions from electric generating units (EGUs).
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 1
-------
Federal, state, and local programs
have significantly reduced
NOY and VOC emissions
j\
in the eastern United States.
-------
Section 1
Background: Ozone and Major Emissions
Control Programs
This section provides background on
ozone formation and effects as well as
information on manmade sources and
emissions of ozone precursor pollutants—NOX
and VOCs. EPA's major NOX and VOC reduction
programs are discussed, with a focus on the NOX
SIP Call and the NBP.
Ozone Formation
Ozone in the Earth's upper atmosphere (the
stratosphere) shields the planet from the sun's
harmful ultraviolet rays. At ground level (the tro-
posphere), ozone can be harmful. Ozone pollution
forms when emissions of NOX and VOCs react
in the presence of sunlight. Ozone itself is rarely
emitted directly into the air. Major sources of
NOX and VOC emissions include motor vehicles,
solvents, industrial facilities, and electric power
plants (see Figure 1).
Meteorology plays a significant role in ozone for-
mation. Dry, hot sunny days are most favorable for
ozone production. In general, ozone concentra-
tions increase during the daylight hours, peak in
the afternoon when the temperature and sunlight
intensity are highest, and drop in the evening.
Because ground-level ozone concentrations are
highest when sunlight is most intense, the warm
summer months (May 1 to September 30) are
known as the "ozone season."
Figure 1: Manmade Sources of NOX and VOC Ozone Season Emissions
in the Eastern United States, 2006
NO,
VOCs
Notes:
• Emissions are from Minnesota, Iowa, Missouri, Arkansas, Louisiana, and states east.
• The "Other" category for NOX emissions includes some large (> 250 mmBtu/hr) industrial sources outside the NBP, small industrial sources,
and other smaller sources such as residential fuel combustion. The "Other" category for VOC emissions includes miscellaneous sources.
• The emission data presented in this figure are measured or estimated values from EPA's National Emissions Inventory (NEI). The NEI incor-
porates power industry data measured by continuous emissions monitoring systems (CEMS). Emissions for other sources were estimated
by interpolating between the 2002 final NEI data and a projected 2015 emission inventory developed to support the particulate matter
(PM) National Ambient Air Quality Standards (NAAQS).
Source: EPA, 2007.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 3
-------
Climate Change and Ozone Studies
Recent scientific studies have focused on the poten-
tial impacts of climate change on U.S. air quality in
the future. EPA's Global Change Research Program
is conducting a scenario-based assessment of the
potential consequences of global climate change
on regional air quality, focusing on fine particles
and ozone around the 2050 timeframe. Due to the
complex interplay of meteorology and chemistry in
the formation of these air pollutants, however, the
potential effects are difficult to quantify.
Early results from studies evaluating the impacts of cli-
mate change on air quality point towards an increase
in ground-level ozone concentrations as one potential
topic of concern.1 The projected rise in ozone con-
centrations would be a result of faster atmospheric
reactions, increases in biogenic precursor emissions,
and more numerous stagnation events. The poten-
tial increases in ozone concentrations due to climate
change are projected to be less than the decreases in
ozone concentrations due to the implementation of
current pollutant reduction strategies (e.g.. Clean Air
Interstate Rule, mobile source rules).
In late 2007, EPA plans to release an assessment
and summary of key recent studies of the potential
impact of climate change on U.S. air quality. This
assessment will consider direct meteorological
impacts on atmospheric chemistry and transport as
well as the effect of temperature changes on air pol-
lution emissions.
Weather also affects ozone concentrations and
how quickly ozone is transported or disperses
from an area. Very light winds or no wind can al-
low ozone (and ozone precursors) to build up in
an area, providing a favorable environment for
the chemical reactions necessary to create more
ozone. Winds can also bring more pollution to
an area, sometimes from hundreds of miles away.
Ozone levels are typically higher in urban and sub-
urban areas where there are concentrated local
sources of NOX and VOCs; however, ozone levels
can be elevated in some rural areas with few local
emission sources due to transport of ozone and
ozone precursors.
Ozone Impacts on
Human Health and
Ecosystems
Researchers continue to investigate the relation-
ship between ozone and human health. Exposure
to ozone has been linked to a variety of health
effects, depending on concentration, length of
exposure, and breathing rate.2 At levels found in
many urban areas, ozone can aggravate respira-
tory diseases such as asthma, emphysema, and
bronchitis, and can reduce the respiratory system's
ability to fight off bacterial infections.
Exposure to ozone is associated with increases in
hospital admissions and emergency room visits,
while long-term, repeated exposure to ozone can
cause permanent damage to the lungs. While the
body of research addressing ozone impacts to
respiratory system health is substantial, studies of
cardiovascular system effects of ozone exposure
are less certain. Finally, breathing ozone may con-
tribute to premature death in people with heart
and lung disease.
In addition to negatively affecting human health,
ground-level ozone can also damage vegetation
and ecosystems, leading to reduced agricultural
crop and commercial forest yields and increased
plant susceptibility to diseases, pests, and other
stresses (e.g., harsh weather). Ozone can also
damage foliage, adversely affecting the health
of forests; the market value of crops and plants;
and the landscape of cities and national parks,
forests, and recreation areas. See "Ozone Impacts
on Forest Health" in Section 4 for an analysis of
how changing ozone concentrations affect forest
ecosystems.
For more information on ground-level ozone,
including health and ecological effects, visit
.
Section l Background: Ozone and Major Emissions Control Programs
-------
Major Control Programs
for NOX and VOCs
The majority of NOX and VOC emissions in the
eastern United States come from mobile sources,
industrial processes, and the power industry.
In 2006, mobile on-road and nonroad sources
(56 percent of emissions) and EGUs and large
industrial sources (25 percent of emissions) were
responsible for the majority of ozone season NOX
emissions in the East (see Figure 1 on page 3).
This report focuses on the NBP, which reduces
emissions from EGUs and large industrial boilers
and turbines.
VOC emissions come from a variety of sources,
both natural and manmade. While a significant
portion of total VOC emissions come from
natural sources (such as trees), especially during
the ozone season, this report focuses only on
manmade emissions. Of these sources, Figure 1
shows that 42 percent of manmade VOC emis-
sions came from mobile sources during the 2006
ozone season. For more information on biogenic
emissions, visit .
EPA has developed more than a dozen programs
since 1990 to improve ozone air quality by reduc-
ing emissions of NOX and VOCs from major
mobile, industrial, and power sector sources.
These programs complement state and local
efforts to improve ozone air quality and meet na-
tional standards. Together, these programs have
achieved significant emission reductions across
the eastern United States. Figure 2 on page 7
shows that total NOX and VOC annual emissions
have decreased since 1990, with the largest reduc-
tions occurring since 1997.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 5
-------
Moreover, several current and recently implement-
ed and proposed air quality programs (shown in
Table 1 on page 8) will further reduce NOX and
VOC emissions in the coming years. The Clean
Air Nonroad Diesel Rule and the 2007 Heavy
Duty Highway Rule (also known as the Clean Air
Diesel Trucks and Buses Rule) are part of EPA's
Clean Diesel Program. These rules will reduce
NOX emissions and particle pollution by more
than 90 percent from affected diesel engines by
2030. Reductions in VOCs will occur as part of
this program and, more dramatically, through the
Control of Hazardous Air Pollutants from Mobile
Sources (MSAT 2) program, starting in 2007. EPA's
Acid Rain Program (ARP) and the NBP (adminis-
tered as part of EPA's NOX SIP Call) will continue
to achieve reductions from the power sector.
Beginning in 2009, ozone season and annual NOX
reductions will be required as part of CAIR (see
"Section 5—Future NOX Reductions and Ozone
Improvements" for more information). Finally,
industrial source regulations of hazardous air pol-
lutants through the Maximum Achievable Control
Technology (MACT) standards and criteria pollut-
ants through the New Source Performance Stan-
dards (NSPS) and Emission Guidelines, along with
regulations on the contents and use of consumer
and commercial products will result in additional
reductions of both VOCs and NOV.
8-Hour Ozone Standard
To better protect public health, EPA revised its Na-
tional Ambient Air Quality Standards (NAAQS) for
ozone in 1997, establishing an 8-hour standard. The
8-hour ozone standard is 0.08 ppm. An area meets
the standard, and is designated as being in attain-
ment, if the three-year average of the fourth-high-
est daily maximum 8-hour average concentration
each year does not exceed 0.08 ppm (effectively
0.084 ppm with the current rounding convention).
Areas that exceed the standard are designated as
nonattainment. Nonattainment areas must develop
plans to improve air quality and meet the standard.
Those plans include the implementation of national
programs to reduce air emissions on a regional
scale as well as strategies to target more localized
sources. For more information on the 1997 8-hour
ozone standard and ozone nonattainment areas in
the United States, visit .
On June 20, 2007, the ERA Administrator deter-
mined that the 1997 standard is not sufficient to
protect public health with an adequate margin of
safety, and should be revised to reflect new sci-
entific evidence about ozone and its effects on
public health and the environment. ERA proposed
to strengthen the health-based primary standard
to a level set within the range of 0.070 to 0.075
ppm. The Agency requested comment on a range
of alternative levels for the primary standard, from
0.060 ppm up to the level of the current stan-
dard. EPA also proposes to specify the level of the
primary standard to the nearest thousandth ppm.
To address the impacts of ground-level ozone on
plants as well as other welfare effects, ERA is pro-
posing two alternatives for the secondary ozone
standard—a new cumulative, seasonal standard,
or a standard identical to the proposed primary
standard. The proposal was published in the Federal
Register on July 11, 2007, marking the opening of a
90-day public comment period. EPA will issue a final
ozone standard by March 12, 2008. For more infor-
mation on EPA's proposed revised ozone standards,
visit .
'
6 Section l Background: Ozone and Major Emissions Control Programs
-------
Figure 2: Manmade Annual NOX and VOC Emissions
in the Eastern United States, 1990-1995 and 1997-2006
1990
1991
1992
1993
1994
1995
1997
2000
2003
2006
Year
NOV
•VOCs
Notes:
• Emissions are from Minnesota, Iowa, Missouri, Arkansas, Louisiana, and states east.
• 1996 is not represented in the graphs because there was a change in the method used to collect and estimate emissions, particularly for
NOX emissions from stationary sources such as the power industry.
• The emission data presented in this figure are measured or estimated values from EPA's National Emissions Inventory (NEI). From 1990 to
2002, the final version of the NEI was used. Starting in 1997, the NEI incorporated power industry data measured by continuous emis-
sion monitoring systems (CEMS). For this analysis, EPA used CEMS data for the power industry for 2003 through 2006. Emissions for other
sources for 2003 through 2006 were estimated by interpolating between the 2002 final NEI data and a projected 2015 emission inventory
developed to support the Particulate Matter (PM) National Ambient Air Quality Standard (NAAQS).
Source: EPA, 2007.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 7
-------
Table 1: Major EPA NOX and VOC Emission Control Programs
Title IV NOX Reduction Program
1996: Phase
2000: Phase 2
Certain coal-fired EGUs (boilers only) subject
to Title IV sulfur dioxide (SO2) emission limita-
tions.
Actual 2006 NOX emissions were 4.7 mil-
lion tons below year 2000 NOX emission
levels projected for all affected units had
the program not been implemented
2004-2007, depending on state
EGUs, large industrial boilers, and turbines in
20 eastern states and D.C.
NOX reductions of 880,000 tons/ozone
season by 2007.
www.epa.gov/airmarkets/progsregs/nox/sip.html
CAIR NOX Annual and Ozone
Season Trading Programs
Fossil-fuel fired EGUs in 28 eastern states and
D.C. (3 states: NOX ozone season only; 3 states
NOX annual only; 22 states and D.C: both NOX
ozone season and annua
NOX reductions of 2 million tons/yr by
2015.
Tier 2 Vehicle and Gasoline
Sulfur Program
2004: Gasoline sulfur content
2004-2009: Phase-in of new
vehicle standards by model
year (MY)
Gasoline sold nationwide; cars, light-duty
trucks, and certain size SUVs sold outside
California.
NOX reductions of 2.8 million tons/year
by 2030. Also reduces VOCs.
www.epa.gov/otaq/regs/ld-hwy/tier-2/index.htm
Heavy Duty Highway Diesel
Program
2006: Diesel sulfur content
2007 (MY): Begin phase-in of
new engine standards
Diesel fuel sold nationwide; heavy-duty
highway diesel engines (trucks, buses, etc.)
nationwide.
NOX reductions of 2.6 million tons/year
by 2030. Also reduces VOCs.
www.epa.gov/otaq/highway-diesel/index.htm
Clean Air Nonroad Diesel
Program
2007: Diesel sulfur content
2008 (MY): Begin phase-in of
new engine standards
Nonroad diesel fuel sold nationwide; diesel
engines nationwide used in most construction
agricultural, and industrial equipment.
www.epa.gov/nonroad-diesel/2004fr.htm
Pollutants from Mobile Sources
(MSAT2)
2010 (MY): Begin phase-in of
new engine standards
2011: Gasoline benzene content
gas cans nationwide; gasoline sold nationwide
www.epa.gov/OMS/toxics.htm
(Proposed) Locomotive and
Marine Diesel Standards
2010: Remanufacture of existing
engines
2014 (MY): Begin phase-in of
new engine standards as early
as 2008
Locomotives and marine diesel engines
nationwide.
(Proposed) NOX reductions of 765,000
tons/year by 2030. Also reduces VOCs
www.epa.gov/otaq/locomotv.htm
www.epa.gov/otaq/marine.htm
NSPS and Emission Guidelines
for Waste Combustion
Certain incinerators and municipal waste
combustors nationwide.
Reduced NOX by 16,283 tons/year in
2006.
www.epa.gov/ttn/atw/129/hmiwi/rihmiwi.html
Maximum Achievable Control
Technology (MACT) Program
Nationwide industrial sources of organic haz-
ardous air pollutant emissions.
VOC reductions of 2.4 million tons/year
(from all sources) and NOX reductions of
168,000 tons/year (from major stationary
engines) by 2007.
www.epa.gov/ttn/atw
(Proposed and Final) New
Source Performance Standard
(NSPS) Program
(Proposed) Refineries, (Final) boilers and tur-
bines, (Proposed and Final) stationary internal
combustion engines.
(Proposed and Final) NOX reductions of
125,000 tons/year by 2015.
Consumer and Commercial
Product Regulations
Printing, coating, and cleaning operations;
consumer products; coatings; and portable fuel
containers.
VOC reductions of 445,000 tons/year
by 2020.
www.epa.gov/ttn/atw/183e/gen/183epg.html
Notes:
• Baselines for reductions are different for each program.
• This chart is not a comprehensive list of all EPA NOX and VOC reduction strategies. Instead, it highlights the current and future major
programs intended to achieve large NOX and VOC emission reductions.
Source: EPA, 2007.
8 Section l Background: Ozone and Major Emissions Control Programs
-------
Snapshot: National and Regional Power Sector NOX Control Programs
Acid Rain Program (ARP): Congress established the
ARP through Title IV of the Clean Air Act Amendments
of 1990. This annual, national program reduces sulfur
dioxide (SO2) from EGUs through a cap and trade pro-
gram. The ARP also reduces NOX emissions from some
of these units, but, unlike the SO2 portion of the ARP,
there is no cap on NOX emissions or allowance trad-
ing. Instead, the ARP NOX provisions apply boiler-spe-
cific NOX emission limits in pounds per million British
thermal units (Ib/mmBtu) on certain coal-fired boilers
that companies can use in "emissions averaging" plans
across their units to comply flexibly with rules. Begin-
ning in 1996, NOX limits under the ARP were applied
on some of the largest boilers while a second phase to
reduce NOX emissions from additional coal-fired gener-
ating units began in 2000. For more information, visit
.
Ozone Transport Commission (OTC) NOX Reduction
Programs: The OTC was established under the 1990
Clean Air Act Amendments. States in the Northeast
and Mid-At I antic collaborated to help reduce summer-
time ground-level ozone in the region by achieving
ozone season NOX reductions in several phases.
In 1995, sources were required to reduce their annual
NOX emission rates to meet Reasonably Available
Control Technology (RACT) requirements (Phase I).
From 1999 to 2002, states achieved reductions in NOX
from fossil fuel-fired EGUs and large industrial boilers
and turbines through an ozone season cap and trade
program known as the OTC NOX Budget Program
(Phase II). The third phase of the OTC NOX Budget
Program was slated to begin on May 1, 2003, but was
replaced by EPA's NOX SIP Call.
The OTC states include Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Hampshire, New Jer-
sey, New York, Pennsylvania, Rhode Island, Vermont,
Virginia, and the District of Columbia. Virginia did not
sign the 1994 memorandum of understanding (MOD)
developing a regional strategy to control NOX emis-
sions from stationary sources and did not participate
in the OTC trading program. Maine and Vermont did
not join the trading program as they each had small
numbers of sources and met the reduction require-
ments in the MOD through state-specific regulations.
New Hampshire is not subject to requirements of the
NOX SIP Call. For more information on the OTC, visit
.
NOX State Implementation Plan (SIP) Call: In 1995,
EPA and the Environmental Council of the States
formed the Ozone Transport Assessment Group to
begin addressing the problem of ozone transport
across the entire eastern United States. Based on the
group's findings and other technical analyses, EPA
issued a regulation in 1998 to reduce the regional
transport of ground-level ozone. This rule, commonly
called the NOX SIP Call, requires states to reduce
ozone season NOX emissions that contribute to ozone
nonattainment in other states. The NOX SIP Call does
not mandate which sources must reduce emissions.
Rather, it requires states to meet emission budgets
and gives them flexibility to develop control strategies
to meet those budgets.
NOX Budget Trading Program (NBP): Under the NOX
SIP Call, EPA developed the NBP to allow states to
meet their emission budgets in a cost-effective manner
through participation in a region-wide cap and trade
program for EGUs and large industrial boilers and
turbines. As of the 2006 ozone season, all 19 affected
states and the District of Columbia chose to meet their
NOX SIP Call requirements through participation in
the NBP. While EPA administers the trading program,
states share responsibility with EPA by allocating allow-
ances, inspecting and auditing sources, and enforcing
the program. Compliance with the NOX SIP Call was
scheduled to begin on May 1, 2003, for the full ozone
season. However, litigation delayed implementation
until May 31, 2004 for 11 states. In addition, eastern
Missouri joined the NBP as the 20th state on May
1, 2007. On June 8, 2007, EPA proposed to remove
Georgia from the requirements of the NOX SIP Call in
response to a petition. At this time, Georgia will not
participate in the NBP. Refer to the "Affected States
and Compliance Dates" section on page 10 for more
information. For more information on the NBP, visit
.
Clean Air Interstate Rule (CAIR): On March 10,
2005, EPA promulgated CAIR, a rule that will achieve
the largest reduction in air pollution in more than a
decade. In addition to addressing ozone attainment,
CAIR assists states in attaining the Paniculate Mat-
ter 2.5 (PM25) National Ambient Air Quality Standard
(NAAQS) by reducing transported precursors, SO2
and NOX. CAIR accomplishes this by creating three
separate trading programs: an annual NOX program,
an ozone season NOX program, and an annual SO2
program. Each of these programs uses a two-phased
approach, with declining emission caps in each phase
based on cost-effective controls on power plants.
Similar to the NOX SIP Call, CAIR gives states the
flexibility to reduce emissions using a strategy that
best suits their circumstances and provides an EPA-
administered, regional cap and trade program as one
option. For more information on CAIR, visit .
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 9
-------
Overview of the NBP
in 2OO6
Over the past four years, the NOX SIP Call has
achieved significant NOX reductions, contributing
to improvements in regional air quality across the
Midwest, Northeast, and Mid-Atlantic. The pri-
mary mechanism for achieving these reductions is
the NBP.
Affected States and Compliance
Dates
Compliance with the NOX SIP Call was scheduled
to begin on May 1, 2003, for the full ozone season.
However, litigation delayed implementation until
May 31, 2004 for 11 states. The states previously
in the Ozone Transport Commission (OTC) NOX
Budget Program adopted the original compli-
ance date in transitioning to the NOX SIP Call and,
therefore, began participating in the NBP on May
1, 2003 (see Figure 3). These states include Con-
necticut, Delaware, Maryland, Massachusetts, New
Jersey, New York, Pennsylvania, Rhode Island, and
the District of Columbia.
Figure 3: NOX SIP Call Program
Implementation
Compliance Deadline
| | May 1, 2003
| | May 31, 2004
I I May 1, 2007
States not previously in the OTC NOX Budget Pro-
gram include Alabama, Illinois, Indiana, Kentucky,
Michigan, North Carolina, Ohio, South Carolina,
Tennessee, Virginia, and West Virginia. These states
began compliance on May 31, 2004, one month
into the normal ozone season. The affected por-
tions of Missouri and Georgia were required to
comply with the NOX SIP call as of May 1, 2007.
Missouri joined the trading program on schedule.
A group in Georgia submitted a petition to re-
consider the state's inclusion in the NOX SIP Call
because the areas affected by sources in Georgia
have been recently redesignated as attainment
areas. On June 8, 2007, EPA published a Federal
Register notice proposing to agree with the peti-
tion to remove the NOX SIP Call requirements for
Georgia. If finalized, Georgia will no longer be
subject to the NOX SIP Call. Georgia will not partici-
pate in the NBP in 2007.
Affected Units
There were 2,579 affected, non-exempt units
under the NBP in 2006. These include some units
that may not have operated or had emissions dur-
ing the 2006 ozone season. For example, some
units provide electricity only as needed on peak
demand days, and may not operate every year.
Most of the units are EGUs, which are large boil-
ers, turbines, and combined cycle units used to
generate electricity for sale. One or more units
make up a facility. As shown in Figure 4 on page
11, EGUs constitute 87 percent of all regulated
NBP units. The program also applies to large in-
dustrial units that produce electricity and/or steam
primarily for internal use. Examples of these units
are boilers and turbines at heavy manufacturing
facilities, such as paper mills, petroleum refiner-
ies, and iron and steel production facilities. These
units also include steam plants at institutional set-
tings, such as large universities or hospitals. Some
states include other types of units, such as petro-
leum refinery process heaters and cement kilns.
Source: EPA, 2007.
1O Section l Background: Ozone and Major Emissions Control Programs
-------
Figure 4: Number of Units in the NBP
by Type in 2006
Key Components of the NBP
Unclassified EGUs
15(1%)
Industrial Units
335 (13%)
Gas EGUs
1068 (41%)
Coal EGUs
723 (28%)
Oil EGUs
438 (17%)
Total: 2,579 units
Note: The 15 "unclassified" EGUs represent units in long-term shut-
down or other non-operating status that remain identified as affected
units under the NBP and have not retired prior to the 2006 ozone
season. These units do not report any fuel type.
Source: EPA, 2007.
The NBP is an ozone season (May 1 to September
30) cap and trade program for EGUs and large
industrial combustion sources, primarily boilers
and turbines. The program has several important
features:
• The region-wide cap is the sum of the state
emission budgets EPA established under the
NOX SIP Call to help states meet their air qual-
ity goals.
• Authorizations to emit, known as allowances,
are allocated to affected sources based on
state trading budgets. The NOX allowance
market enables sources to trade (buy and sell)
allowances throughout the year.
• At the end of every ozone season, each source
must surrender sufficient allowances to cover
its ozone season NOX emissions (each allow-
ance represents one ton of NOX emissions).
This process is called annual reconciliation.
• If a source does not have enough allowances
to cover its emissions, EPA will automatically
deduct allowances from the following year's
allocation at a 3:1 ratio.
• If a source has excess allowances because it
reduced emissions beyond required levels, it
can sell the unused allowances or bank them
for use in a future ozone season. The NBP also
has progressive flow control provisions, which
were designed to discourage extensive use of
banked allowances in a particular ozone sea-
son. When the bank in any given year exceeds
10 percent of the regional trading budget for
the next year, flow control is triggered and
determines the amount of NOX emissions a
banked allowance can offset. More information
on flow control is available in "Section 3—
Compliance and Market Activity."
• To accurately monitor and report emissions,
sources use continuous emissions monitoring
systems (CEMS) or other approved monitor-
ing methods under EPA's stringent monitoring
requirements (40 CFR Part 75).
For more information on the NBP, see
-------
m
In 2006, NOX Budget Trading
Program (NBP) sources emitted
491,483 tons of NOX/ reducin
ozone season emissions
by 74 percent from 199O.
Changes in NOX Emissions
-------
Section 2
Changes in NOX Emissions
To assess the effectiveness of the NBP in
2006, this section shows NOX emission
levels in 1990 and 2000 (baseline years) as
well as 2003, 2004, 2005, and 2006 (NBP compli-
ance years). These results depict emissions from
affected sources in NBP states. All data for 2003
through 2006 in this section are as reported to
EPA's data systems as of July 6, 2007.
Ozone Season NOX
Reductions under
the NBP
In 2006, NBP sources emitted 491,483 tons of
NOX, reducing emissions by more than 38,000
tons, or 7 percent, from 2005, about 60 percent
from 2000, and 74 percent from 1990. Figure 5
shows the total ozone season NOX emissions for
all affected sources in the NBP region in 2006
compared to 1990, 2000, 2003, 2004, and 2005. It
also presents the allowances allocated for 2004
through 2006, which includes allowances from the
states' base trading budgets, additional compli-
ance supplement pool allowances issued in 2004,
and opt-in allowances. Generally, emissions have
been consistent with or below the trading budget
during the 2004 through 2006 ozone seasons.
Many of the NOX reductions since 1990 are a result
of programs implemented under the Clean Air
Act, such as the Acid Rain NOX Reduction Program
and other state, local, and federal programs. The
significant decrease in NOX emissions after 2000
largely reflects reductions achieved by the OTC
trading program, which operated between 1999
and 2002, and the NBP, which began in 2003. The
large drop in emissions between 2003 and 2004 is
a result of the entry of the non-OTC states into the
NBP. The majority of states subject to the NOX SIP
Baseline Years for Measuring
Progress under the NBP
EPA has chosen two baseline years for measuring
progress under the NBP:
• 1990: This baseline represents emission levels
before the implementation of the 1990 Clean
Air Act Amendments.
An
th<
2000: This baseline represents emission levels
after the implementation of NOX regula-
tory programs under the 1990 Clean Air Act
Amendments but before implementation of
the NBP.
Figure 5: Ozone Season NOX Emissions from
All NBP Sources
2,000-
1,800
1,600-1
1,400 —
1,200 —
1,000
800
600
400-1
200 —
1,860
0
1,222
820
653
0530 522 491 bib
III
1990 2000 2003 2004 2005 2006
• Ozone Season NOX Emissions
• Total State Trading Budgets
Note: The emissions in all years represent full ozone season emis-
sions for all states that participated in the program through 2006,
including 2003 and May 2004 emissions from sources in non-OTC
states that did not control emissions during those periods. The
rounded total emissions for 2003 have increased by 1,000 tons com-
pared to prior progress reports, reflecting emission resubmissions by
some sources.
Source: EPA, 2007.
Call (except Missouri and Georgia) participated
the NBP, starting May 31, 2004.
in
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 13
-------
One reason the 2006 ozone season NOX emissions
decreased from 2005 was a 3 percent drop in total
heat input. Heat input is the energy derived from
the combustion of fuel in a unit. It is a way to track
ozone season power generation or utilization of
affected units. While NOX emissions dropped
sharply from 2003 through 2006, heat input rose
gradually from 2003 through 2005, then declined
slightly in 2006. As shown in Table 2, the decline
in heat input was most pronounced for oil-fired
units, accounting for 140 million of the 160 million
mmBtu decrease in ozone season heat input in
2006. However, the decrease in heat input does
not explain the full 7 percent drop in emissions.
In 2006, the overall average NOX emission rate
continued to decline under the program, indicat-
ing that other factors, such as fuel choice or add-
ed NOX controls, also helped to reduce emissions.
The drop in NOX emissions from 2005 to 2006 may
What Is Emission Rate?
Emission rate is the measure of how much pol-
lutant (NOX) is emitted from a combustion unit
compared to the amount of energy (heat input)
used. In this report, emission rate is expressed
as pounds of NOX emitted per mmBtu of heat
input. Emission rates enable comparison of a
combustion unit's "environmental efficiency"
given their fuel type and usage. A lower emis-
sion rate implies a cleaner operating unit—one
that is emitting less pounds of NOX per unit of
energy consumed.
also be attributed to an overall decrease in heat
input coupled with an increase in gas consump-
tion and a decrease in oil consumption. (See the
"NOX Controls Used in 2006" section in "Section
3—Compliance and Market Activity" for more
information.)
Table 2: Comparison of 2003-2006 Ozone Season NOX
Emissions, Heat Input, and NOX Emission Rates for All NBP Sources
by Fuel Ozone Season NOX Mass Emissions Ozone Season Heat Input
Type (thousand tons) (billion mmBtu)
Ozone Season NOX
Emission Rate
(Ib/mmBtu)
2003 2004 2005 2006 2003 2004 2005 2006 2003 2004 2005 2006
Coal
Oil
Gas
Total
770
(94%)
26
(3%)
23
(3%)
820
(100%)
548
(92%)
25
(4%)
20
(3%)
593
(100%)
475
(90%)
32
(6%)
23
(4%)
530
(100%)
459
(93%)
14
(3%)
18
(4%)
491
(100%)
4.72
(85%)
0.27
(5%)
0.59
(11%)
5.57
(100%)
4.71
(83%)
0.25
(4%)
0.69
(12%)
5.66
(100%)
4.90
(81%)
0.31
(5%)
0.84
(14%)
6.05
(100%)
4.85
(82%)
0.17
(3%)
0.87
(15%)
5.89
(100%)
0.33
0.19
0.08
0.29
0.23
0.20
0.06
0.21
0.19
0.20
0.05
0.18
0.19
0.16
0.04
0.17
Notes:
• Tons are rounded to the nearest 1,000, and the heat input values are rounded to the nearest 10 million mmBtus. Totals in final row may not
equal the sum of individual rows due to rounding.
• The average emission rate is based on dividing total reported ozone season NOX emissions for each fuel category by the total ozone sea-
son heat input reported for that category, and then rounding the emission rate to the nearest 0.01 Ib/mmBtu. The average emission rate
expressed for the total is the heat input-weighted average for the three fuel categories.
• Fuel type, as shown here, is based on the monitoring plan primary fuel designation submitted to EPA; however, many units burn multiple
fuels. Also, one primary wood-fired boiler is classified with the coal-fired units based on its secondary fuel. One petroleum coke-fired unit is
classified with oil-fired units as an oil-derived fuel.
• Emissions are from all NBP affected sources, including 2003 and May 2004 emissions from sources in non-OTC states that did not control
emissions during these periods. Total NOX mass emissions for 2003 is adjusted from prior progress reports to reflect resubmitted source
data.
Source: EPA, 2007.
Section 2 Changes in NOX Emissions
-------
In 2006, ozone season emissions reached their
lowest levels for all measured years for all fuel
types. Oil-fired units accounted for the largest
drop in emissions at 18,000 tons or 46 percent of
the total decrease. Coal-fired units accounted for
41 percent of the emission reductions, decreasing
emissions by about 16,000 tons. Gas-fired units,
despite increased heat input, were responsible for
13 percent of the emission reductions between
2005 and 2006.
State-by-State NOX
Reductions
The NBP states continue to achieve significant re-
ductions in ozone season NOX emissions from the
baseline years 1990 and 2000 (as shown in Figure
6 on page 16). All states have achieved reductions
since 1990 as a result of programs implemented
under the Clean Air Act Amendments, with many
states reducing their emissions by more than
half. Since 2000, all states have achieved further
decreases in NOX emissions, largely as a result of
reductions under the OTC and NBP programs.
With the CAIR ozone season NOX program taking
effect in 2009, additional emission declines will
occur across the region through the year 2020 (see
maps of projected emissions in Figure 6).
The NBP is a cap and trade program resulting in
potential fluctuations in emissions from year to
year as units have flexibility in how they comply
with their state trading budgets. While NBP
sources achieved a 7 percent decrease in total
NOX emissions between 2005 and 2006, the
emission reductions varied somewhat from state
to state.
Overall, affected sources in the NBP kept their
total emissions below the cap (the sum of all state
budgets). In 2006, emissions from all sources
totaled 491,483 tons, almost 24,000 tons below
the cap of 515,186 tons. In fact, 12 states and the
District of Columbia had ozone season emissions
below their trading budgets in 2006 and five of
these states plus the District of Columbia were
below their trading budgets by at least 30 percent.
Seven states (Alabama, Illinois, Kentucky, Mary-
land, Michigan, Ohio, and Pennsylvania) exceeded
their trading budgets by a combined total of
9 percent.
Only two states (Kentucky and Pennsylvania) that
exceeded their trading budgets also increased
ozone season emissions from 2005 levels, and
these increases were slight, 2 to 3 percent (see Ta-
ble 3 on page 17). South Carolina increased emis-
sions in 2006, but was still under its budget for the
year. All other states decreased emissions from
2005 to 2006, often by a substantial percentage. In
particular, the states along the Washington, D.C.
to Boston metropolitan corridor—where regional
ozone nonattainment concerns are widespread—
saw emission decreases ranging from 8 percent
(Virginia) to 34 percent (Massachusetts). Even after
including a slight increase in emissions in Pennsyl-
vania, the overall decline in these corridor states
was 13 percent, nearly double the percentage
decline in the NBP region as a whole.
Cap and Trade: Delivering
Environmental Results
Cap and trade programs deliver results with a
fixed cap on emissions while providing sources
flexibility in how they comply. These programs
have proven highly effective in reducing emis-
sions from multiple sources on a regional or larg-
er scale. The cap on emissions acts as a ceiling
under which sources must keep their emissions.
Under cap and trade programs, affected sources
are allocated authorizations to emit in the form
of emission allowances, but the total number of
allowances cannot exceed the cap. The cap is
critical to protect public health and the environ-
ment and to sustain that protection into the fu-
ture. The cap also serves to provide stability and
predictability to the allowance trading market.
For more information on cap and trade, go to
.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 15
-------
Figure 6: State-level Ozone Season NOX Emissions, 1990-2020
1990 Emissions
2000 Emissions (OTC Phase II)
2006 Emissions (under NBP)
2010 Projection (under CAIR)
2015 Projection (under CAIR)
2020 Projection (under CAIR)
>flpw«t8;000 tons
I | 10,001-30,000 tons
^| 30,001 - 60,000 tons
^B 60,001 -100,000 tons
^H > 100,000 tons
Notes:
• Results in Alabama and Michigan only represent ozone season emissions from the affected portion of each state.
• Results for Missouri are not shown in the 2006 map because the state was not required to comply with the NOX SIP Call until May 1, 2007.
Source: EPA, 2007.
High Electric Demand Days
As a result of the NBP, EGUs have installed pol-
lution control equipment to provide seasonal
reductions in NOX emissions. These reductions
have occurred with considerable daily variation.
High electric demand days occur during peri-
ods of hot weather and drive NOX emissions to
maximum levels. For example, Figure 7 on page
18 shows that during a five-day period (July 31
through August 4) in the 2006 ozone season, peak
daily emissions reached their highest level (4,945
tons) since all affected states in the region began
complying with the NBP emission requirements
in late May of 2004. In contrast, the average daily
emissions for the entire 2006 ozone season were
about 3,200 tons.
High electric demand days often coincide with
National Ambient Air Quality Standards (NAAQS)
exceedances. Because of continued nonattain-
ment in some portions of the NBP region, EPA,
states, and others are investigating additional
programs and policies that could provide further
emission reductions from targeted sources on
these days.
16 Section 2 Changes in NOX Emissions
-------
Table 3: Ozone Season NOX Emissions from All NBP Sources,
1990-2006 and 2006 State Trading Budgets
1990 2000 2003 2004 2005 2006 2006
NBP State Emissions Emissions Emissions Emissions Emissions Emissions Budget*
AL
CT
DC
DE
IL
IN
KY
MA
MD
Ml
NJ
NY
NC
OH
PA
Rl
SC
TN
VA
WV
All NBP
States
89,758
11,203
576
13,180
124,006
218,333
153,179
40,367
54,375
120,132
44,359
84,485
92,059
240,768
199,137
1,099
56,153
115,348
51,866
149,176
1,859,559
84,560
4,697
134
5,256
119,460
145,722
101,601
14,324
28,954
80,425
14,630
43,583
73,082
159,578
87,329
288
39,674
69,641
40,043
109,198
1,222,179
50,895
2,070
72
5,414
48,917
100,772
63,057
9,265
19,257
45,614
11,003
34,785
51,943
133,043
51,530
209
34,624
55,376
32,766
69,171
819,783
40,564
2,191
35
5,068
40,976
68,375
40,394
7,481
19,944
39,848
10,807
34,139
39,821
67,304
52,140
177
25,377
31,399
25,443
41,333
592,819
33,632
3,022
279
6,538
37,843
57,249
36,729
8,269
20,989
42,157
11,277
36,663
32,888
54,335
51,125
221
18,193
25,718
22,309
30,401
529,809
27,812
2,514
115
4,764
36,343
55,510
37,461
5,464
18,480
40,163
8,692
26,339
30,387
52,817
52,798
181
18,376
23,924
20,491
28,852
491,483
25,497
4,477
233
5,227
35,557
55,729
36,224
12,861
15,466
31,247
13,022
41,397
34,632
49,978
50,843
936
19,678
31,480
21,195
29,507
515,186
* Budgets include opt-in allowances, where applicable.
Note: Totals may not equal individual rows due to rounding. Data for previous years for some states may be slightly different from the data
presented in earlier reports due to resubmissions. Baseline estimates remain fixed based on EPA estimates prepared for the NBP 2003 Progress
and Compliance Report. All other data are current and correspond to data as of July 6, 2007, in EPA's data systems, available through Data and
Maps at . Emissions are from all NBP affected sources, including 2003 and May 2004 emissions from
sources in non-OTC states that did not control emissions during these periods. Data for 2003 emissions in North Carolina do not include affected
non-EGU emissions because they did not report that year.
Source: EPA, 2007.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 17
-------
Strategies to Address High Electric Demand Days
In some areas, the increase in NOX emissions that
occurs during high electric demand days comes from
peaking units without controls. Peaking units oper-
ate during short periods of time to supplement base
load.* States and regional organizations are consid-
ering strategies and incentives that address peak-
ing units' emissions on high electric demand days
and that focus on incremental generation (peaking
turbines, load following coal, and oil/gas units). The
OTC states have considered technology options to
achieve further reductions, such as selective non-
catalytic reduction (SNCR), water injection, and fuel
switching, as well as demand-side strategies focusing
on enhanced energy efficiency, demand response,
and clean distributed energy sources. EPA's Clean
Air Markets Division and Climate Protection Part-
nership Division are investigating the impacts of
enhanced energy efficiency and the corresponding
lowered electricity demand on power sector emis-
sions in the future.
In addition, EPA-supported research by the Mas-
sachusetts Institute of Technology's (MIT) Center for
Energy and Environmental Policy Research investi-
gated the potential of "smarter trading" (time- and
location-differentiated NOX control in markets using
cap and trade mechanisms). MIT hypothesized that
a cap and trade system with variable allowance ex-
change rates would achieve ozone standards more
efficiently. The exchange rates would be set by time
and location using weather and atmospheric chem-
istry forecasts.
Although these approaches might be more expen-
sive on a per ton basis, they have the potential
to be cost-effective using a cost-benefit metric
because the emissions reduced may have greater
impact on reducing ozone on the worst ozone days.
Analyses of peaking unit incentives, technology
options, demand-side management, "smarter trad-
ing," and other policy options are ongoing.
The definition of a peaking unit used in the context of high electric demand days is different from the regulatory definitions found in
40 CFR Part 72 and Part 75.
Figure 7: Comparison of Daily Ozone Season NOX Emissions from NBP Sources, 2003-2006
8,000
Jun Jul Aug
Month
Daily NOX Tons: 2003 2004 2005
Sep
-2006
Note: Emissions from all NBP affected sources are included, including 2003 and May 2004 emissions from sources in non-OTC states that did
not control emissions during those periods.
Source: EPA, 2007.
18 Section 2 Changes in NOX Emissions
-------
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 19
-------
. ^
Over 99.7 percent of affected
units achieved compliance
with the NOX Budget Trading Program
(NBP)in2006.
2O Section 3 Compliance and Market Activity
-------
Section 3
Compliance and Market Activity
n 2006, more than 99 percent of affected units
complied with the NBP. This section examines
compliance under the NBP in 2006 and reviews
allowance trading and pricing trends in this matur-
ing market. In addition, this section reviews the
monitoring and control methods employed by
sources to meet program requirements.
2OO6 Compliance Results
Under the NBP, affected sources must hold suffi-
cient allowances to cover their ozone season NOX
emissions each year. Sources can maintain the al-
lowances in compliance accounts (established for
each unit) or in an overdraft account (established
for each facility with more than one unit). Sources
may buy or sell allowances throughout the year,
but they have two months at the end of the
ozone season to complete their transactions to
ensure their emissions do not exceed allowances
held. After the two-month period, EPA reconciles
emissions with allowance holdings to determine
program compliance.
There were 2,579 units affected under the NBP in
2006. Only four NBP sources (seven units) did not
hold sufficient allowances to cover their emis-
sions. Two of these sources (two units) were from
the power sector, while the other two sources
(five units) were from the industrial sector. All units
that were out of compliance in 2005 moved into
compliance in 2006. Table 4 summarizes the allow-
ance reconciliation process for 2006, and the text
box on page 22 provides detail on how reported
emissions for the 2006 ozone season translated
into allowances deducted for those emissions.
There were 97 tons of emissions for which the four
sources out of compliance will have to surrender
future year allowances on a 3:1 basis.
Table 4: NOX Allowance Reconciliation
Summary for the NOX Budget Trading
Program, 2006
Total Allowances Held for Reconciliation
(2003 through 2006 Vintages)
Allowances Held in Compliance or
Overdraft Accounts
Allowances Held in Other Accounts*
Allowances Deducted in 2006
Allowances Deducted for Actual Emissions
(see Emissions Summary on next page)
Additional Allowances Deducted under
Progressive Flow Control (PEC)
Banked Allowances (Carried into 2007
Ozone Season)
Allowances Held in Compliance or
Overdraft Accounts
Allowances Held in Other Accounts**
Penalty Allowances Deducted***
(from 2007 Ozone Season Allocations)
710,876
662,645
48,231
493,480
491,530
1,950
217,396
161,367
56,029
150
*"Other Accounts" refers to general accounts in the NOX Allowance
Tracking System (NATS) that can be held by any source, individual, or
other organization, as well as state accounts.
** Total includes 7,798 unused new unit allowances returned to state
holding accounts.
*** These penalty deductions are made from 2007 vintage year NOX
allowances, not 2006 allowances. Additional penalty allowances,
owed by one source, will be deducted in the future.
Source: EPA, 2007.
Banking in 2OO6 and
Flow Control in 2OO7
In general, under cap and trade programs, bank-
ing allows companies to decrease emissions
below the amount of allowances they are allo-
cated and then save the unused allowances for
future use. Banking results in environmental and
health benefits earlier than required and provides
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 21
-------
2006 Ozone Season Reconciliation
Emissions Summary
Reported ozone season NOX emissions by NBP
sources totaled 491,483 tons in 2006. Because of
variation in rounding conventions and changes due
to resubmissions by sources, this number is slightly
lower than the number of emissions used for recon-
ciliation purposes and differs by 144 tons. In addi-
tion, several units did not have enough allowances
to cover their emissions, accounting for a difference
of 97 tons. Therefore, the total number of allow-
ances deducted for actual emissions differs slightly
from the number of emissions shown elsewhere in
this report:
Reported Emissions: 491,483
Rounding and Report Resubmission
Adjustments: 144
Emissions Not Covered by
Current/Banked Allowances: (97)
Total Allowances Deducted
for Emissions: 491,530
an available pool of allowances that could address
unexpected events or smooth the transition into
deeper emission reductions in future years.
Figure 8 shows the number of allowances allocated
each year, the allowances banked from the previous
year, and the total ozone season emissions subject
to allowance holding requirements for NBP sources
from 2003 to 2006. Sources banked over 22,000
additional allowances by the end of the 2006 ozone
season, making 217,396 allowances available for
use in 2007 for program compliance (see Table 4 on
page 21). This is about 11 percent higher than the
approximately 195,000 allowances sources banked
by the end of the 2005 ozone season, which were
available for use in 2006 (as shown in Figure 8).
2006 marked the third of four compliance years
in which sources achieved more reductions than
required under the NBP and were able to bank al-
lowances for use in future years.
The NBP's progressive flow control provisions
were designed to discourage extensive use of
banked allowances in a particular ozone season.
Flow control is triggered when the total number
of allowances banked for all sources exceeds 10
percent of the total overall (regional) budget for
the next year. When this occurs, EPA calculates
the flow control ratio by dividing 10 percent of the
total regional NOX trading budget by the number
of banked allowances (a larger bank will result in
a smaller flow control ratio). The resulting flow
control ratio establishes the percentage of banked
allowances that can be deducted from a source's
account on a ratio of one allowance per ton of
emissions. The remaining banked allowances, if
used, must be deducted at a rate of two allow-
ances per one ton of emissions. In 2006, the flow
control ratio was 0.27, and 1,950 additional allow-
ances were deducted from the allowance bank
under the flow control provisions. Flow control will
be triggered again in 2007, at a slightly lower ratio
of 0.24 (see "Flow Control Will Apply in 2007,"
page 23, for details).
Figure 8: NOX Allowance Allocations and the
Allowance Bank, 2003-2006
800-
729
700
711
2003
2004
2005
2006
• Allowances Allocated for Current Year*
Banked Allowances from Previous Year
^"Allowance Deductions Based on Emissions
Notes:
* Allowances allocated includes base budget, compliance supple-
ment pool (CSP), and opt-in allowances. States that are not part
of the OTC were not subject to the NBP in 2003. The addition of
these states in 2004 led to a large increase in the number of allow-
ances allocated. CSP allowances, which were distributed to OTC
states in 2003 and non-OTC states in 2004, also contributed to the
rise in allocations.
Source: EPA, 2007.
NOX Allowance
Trading in 2OO6
The 2006 NOX allowance market saw a large price
decline—beginning the year near $2,725 per ton
and falling to a year-end closing price near $900
per ton (see Figure 9).
22 Section 3 Compliance and Market Activity
-------
Flow Control Will Apply in 2007—How Will It Affect Sources?
2007 Regional Budget:
Banked Allowances after 2006:
Flow Control Trigger:
527,501 allowances
217,396 allowances
217,396/527,501 = 0.412 (> than 10 percent),
triggering flow control for 2007
The 2007 flow control ratio = 0.24 (determined by dividing 10 percent of the total regional trading bud-
get by the total number of banked allowances, or 52,750/217,396).
The flow control ratio applies to banked allowances in each source's compliance and overdraft allow-
ance accounts at the time of compliance reconciliation. For example:
* If a source holds 1,000 banked allowances at the end of 2007, it can use 240 of those allowances on
a 1-for-1 basis and the remaining 760 allowances on a 2-for-1 basis.
* If the source used all 1,000 banked allowances for 2007 compliance, the banked allowances could
cover only 620 tons of NOX emissions (i.e., 240 + 760/2).
Source: EPA, 2007.
Factors Affecting Market Price
Several factors contributed to the price decline. As
discussed in "Section 2—Changes in Emissions,"
NOX ozone season emissions in 2006 were 7 percent
lower than 2005. The lower 2006 emissions were
partly the result of lower electricity demand during
the ozone season. Due to the basic relationships be-
tween supply and demand, lower demand for allow-
ances due to lower emissions should lead to lower
prices—as was observed. Also impacting lower
Figure 9: NOX Allowance Spot Price (Prompt
Vintage), January 2005-May 2007
~o
T!
$4,000—
$3,500^
$3,000
$2,500
$2,000
$1 000
$500
$0
r _
srv* ^
Date
Note: Prompt vintage is the vintage for the "current" compliance
year. For example, 2005 vintage allowances are considered the
prompt vintage until the true-up period closed at the end of Novem-
ber 2005. At that point, the prompt vintage became the 2006 vintage
allowances.
Source: CantorCO2e's Market Price Indicator (MPI), 2007.
See .
emissions was an increase in gas-fired generation (as
evidenced by the higher gas heat input values seen
in Table 2 on page 14) due to gas prices being lower
than oil for most of the ozone season. Since gas
units tend to have a lower overall NOX emission rate
when compared to oil, increased dispatch of gas-
fired units results in lower overall NOX emissions.
In addition, NOX prices began to react to the
pending implementation of the CAIR require-
ments and the removal of progressive flow control
from the NOX ozone season market. Progressive
flow control has historically resulted in banked al-
lowances trading at a lower price (discount) com-
pared with the price of current vintage allowances,
as determined by the flow control ratio (see "Flow
Control Will Apply in 2007—How Will It Affect
Sources?"). This relationship began to erode in
2006 as banked allowances traded at higher prices
than expected due to flow control. The market
expects most banked allowances to remain in the
bank until 2009 when these allowances can be
used in CAIR with no flow control disincentive.
This may explain why, in 2006, the market ignored
the flow control ratio when setting the price for
banked allowances. In other words, the value of
banked allowances is being set by the expected
future value of allowances under CAIR, not by the
current flow control ratio.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 23
-------
Pricing in 2007 has remained relatively steady, and
as of the beginning of July 2007, allowances were
trading near $600 per ton. This price is based on
where the markets closed on June 28, 2007. NOX
allowance prices are affected by market uncertain-
ties, including expected control installations, en-
ergy demand, weather, and fuel prices. Since NOX
allowances not used for NBP compliance can be
carried forward into the seasonal NOX program un-
der CAIR, current prices also take into account the
market's view of compliance costs associated with
the CAIR ozone season NOX program. Also contrib-
uting to the steady current NOX pricing is the 2007
entry of Missouri into the NBP. Missouri is expected
to add zero net demand to the market and will not
contribute any pressure on price. Based on emis-
sion trend data, Missouri's 2007 allocation and
expected emissions will likely balance or possibly
put Missouri in the position of a net supplier of al-
lowances to the market.
Transaction Types and Volumes
NOX allowance transfer activity includes two types
of transfers: EPA transfers to accounts and private
transactions. EPA transfers to accounts include the
initial allocation of allowances by states or EPA, as
well as transfers into accounts related to special
set-asides. This category does not include trans-
fers due to allowance retirements. Private transac-
tions include all transfers initiated by authorized
account representatives for any compliance or
general account purposes.
As shown in Figure 10, trends in market activity
continue to show a strong market based on a look
at overall NOX allowance transfer activity.
To help better understand the trends in market
performance and transfer history, EPA classifies
private transfers of allowance transactions into two
categories:
• Transfers between separate economic entities,
which may include companies with contractual
relationships such as power purchase agree-
ments, but excludes parent-subsidiary types of
Figure 10: Cumulative NOX Allowances
Transferred through 2006
7
EPA Transfers to Accounts
1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
Note: Graph combines transfer activity starting with the OTC NOX
Budget Trading Program, which later merged into the larger NOX
Budget Trading Program (NBP).
Source: EPA, 2007.
relationships. These transfers are categorized
broadly as "economically significant trades."
• Transfers within a company or between re-
lated entities (e.g., holding company transfers
to an operating subsidiary), including transfers
between a unit compliance account and any
account held by a company with an ownership
interest in the unit.
Private transfers are one of the transfer types that
EPA uses to classify each transfer request it receives
from market participants. This category does not
include activities such as the initial allocation of al-
lowances by the regulator or the transfer of allow-
ances from an entity to EPA for compliance. While
all transactions are important to proper market
operation, EPA believes one of the best indicators
of the strength of the market is to follow trends in
the economically distinct transaction category since
these transactions represent an actual exchange of
assets between unaffiliated participants.
In 2006, economically significant trades represent-
ed about 28 percent of the total transfers between
entities other than a state. There were approxi-
mately 237,000 allowances involved in economi-
cally significant trades in 2006, a slight increase
from 2005 (see Figure 11).
Since the NBP also includes industrial sources,
EPA tracks activity from this sector as well. In 2006,
24 Section 3 Compliance and Market Activity
-------
Figure 11: Estimated Volumes of Economically
Significant Trades under the NBP, 2003-2006
250,000-
200,000
150,000
100,000
50,000
• 2003
• 2004
• 2005
• 2006
Total Allowances Traded Industrial Source Activity
Note: Because trades are not reported by market participants with
respect to whether they are economically significant, EPA presents
these data as a general estimate only
Source: EPA, 2007.
industrial sources accounted for about 6.5 per-
cent of the economically significant trade volume,
up slightly from 2005 levels. This level of activity
is generally proportional to the industrial units'
regional emission contribution of slightly less than
7 percent. In 2006, as in 2005, industrial sources
transferred far more allowances to others than
they received. In most trades, industrial sources
traded with electric generating companies and
brokers, with very few trades involving both an
industrial source buyer and seller.
Continuous Emissions
Monitoring Systems
Results
Accurate and consistent emission monitoring is
the foundation of a cap and trade system.3 EPA
has developed detailed procedures (40 CFR Part
75) to ensure that sources monitor and report
emissions with a high degree of precision, accuracy,
reliability, and consistency. In addition, emission
results and other facility and allowance data are
publicly available on EPA's Data and Maps Web site
at .
Coal-fired units are required to use continuous
emissions monitoring systems (CEMS) for NOX
concentration and stack gas flow rate (and if
needed, a diluent carbon dioxide or oxygen gas
monitor and stack gas moisture measurement) to
calculate and record their NOX mass emissions.
Alternatively, oil-fired and gas-fired units may use
a NOX CEMS in conjunction with a fuel flowmeter
to determine NOX mass emissions. For oil-fired
and gas-fired units that are either operated infre-
quently or that have very low NOX emissions, Part
75 provides low-cost alternatives to estimate NOX
mass emissions. As shown in Figures 12 and 13,
while many units with low levels of emissions do
not have to use CEMS, the vast majority (99 per-
cent) of the NOX mass emissions under the NBP
are measured by CEMS.
Sources are required to conduct stringent quality
assurance tests of their monitoring systems, such as
daily and quarterly calibration tests and a semi-an-
nual or annual relative accuracy test audit (RATA).
These tests ensure that sources report accurate data
and provide assurance to market participants that a
ton of emissions measured at one facility is equiva-
lent to a ton measured at a different facility.
Figure 12: Monitoring Methodology for the
NOX Budget Program (By Number of Units)
Gas Units
w/o CEMS
Oil Units
w/CEMS
Source: EPA, 2007.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 25
-------
Figure 13: Monitoring Methodology
fortheNBP
(By 2006 Ozone Season NOX Emissions)
Oil Units w/CEMS 2%
Gas Units w/CEMS 3%
1% Gas Units w/o CEMS
<1% Oil Units w/o CEMS
Notes:
• The units represented in Figures 12 and 13 are the same as in
Figure 4 on page 11, excluding the unclassified EGUs and 10 other
units, all of which did not operate in the 2006 ozone season.
• Percent totals do not add up to 100 percent due to rounding.
• Due to rounding, emissions from units with CEMS add up to 98
percent. Actual percentage of emissions from units with CEMS is
99 percent.
Source: EPA, 2007.
Compliance Options Used
by NBP Sources in 2OO6
Sources may select from a variety of compliance
options to meet the emission reduction targets
of the NBP in ways that best fit their own circum-
stances. Possible compliance options include:
• Using NOX combustion controls that modify
or optimize the basic combustion process to
reduce the formation of NOX.
• Using add-on emission controls, such as selec-
tive catalytic reduction (SCR) or selective non-
catalytic reduction (SNCR).
• Purchasing additional allowances from other
market participants that have reduced emis-
sions below their allocations.
• Decreasing or stopping generation from units
with high NOX emission rates, and/or shifting to
lower emitting units, during the ozone season.
• Combinations of the above options.
Before implementation of the NBP, a large number
of EGUs and some industrial units added combus-
tion controls to meet applicable NOX emission
limits of either the ARP or state regulations. For
boilers, furnaces, and heaters, NOX combustion
controls include low NOX burner and overfire air
technologies, which reduce formation of NOX from
nitrogen found in the combustion air and fuel.
Add-on control technologies, such as SCR or
SNCR, also were frequently installed for NOX
control. The majority of units that install add-on
controls use them in conjunction with combustion
controls to achieve greater emission reductions.
SCR and SNCR achieve NOX reductions by inject-
ing ammonia or urea into the flue gas downstream
of the combustion zone to react with NOX, form-
ing elemental nitrogen (N2) and water. SCR, which
adds a catalyst to allow the reaction to occur in
a lower temperature range, can be applied to a
wider range of sources than SNCR, and is capable
of greater NOX removal rates.
NOX Controls Used in 2OO6
The majority of energy produced during the 2006
ozone season came from controlled units. In the
2006 ozone season, NBP-controlled units,* those
with at least one NOX control installed prior to the
2006 season, made up 68 percent of the total units
(see Figure 14). However, these same units con-
sumed 92 percent of the total heat input and pro-
duced 94 percent of megawatt output while emit-
ting 89 percent of NOX mass emissions during the
2006 ozone season. Of particular note are the units
with SCRs. Representing 17 percent of the popula-
tion by count, they produced 51 percent of the 2006
seasonal megawatt output but only 19 percent of
NOX emissions.
Sources subject to the NBP are required to report pollution control equipment information in monitoring plans submitted to EPA. In 2006,
EPA audited over 300 facilities to validate monitoring plan information, particularly where data indicated a new NOX control may be pres-
ent. Updated information was submitted by 82 facilities in response to EPA requests. EPA used this information to investigate how units
were achieving the reductions required by the NBP.
26 Section 3 Compliance and Market Activity
-------
Figure 14: Distribution of Controlled Units
and 2006 Ozone Season Emissions, Heat
Input, and Output
100%
90%
Unit Count NOX Mass Heat Input MW Output
Non-Controlled
Other Control
Combustion
SNCR
SCR
Source: EPA, 2007.
As Figure 15 illustrates, by the end of the 2006
ozone season, 432 units had installed SCR controls.
Combustion controls, including low NOX burners
and overfire air, are found on an additional 777
units. NOX controls often occur in combination,
with 637 units having at least two technologies.
Because of the frequent use of multiple controls,
this report assigns NOX control categories in the
following order: first SCR, then SNCR, Combus-
Figure 15: Number of Units with NOX
Controls by Sector in 2006
tion, and Other Control. The SCR category includes
those units that have an SCR by itself or in combi-
nation with other controls such as low NOX burners.
The SNCR designation includes units that have an
SNCR and possibly other controls but not an SCR.
Combustion includes units that have a low NOX
burner or overfire air, and possibly other controls,
but not an SCR or SNCR. The Other Control desig-
nation captures remaining units with a NOX control
not in the previous categories.
The industrial sector has installed controls on 45
percent of units compared with 72 percent of units
in the electricity generating sector. With these
controls, the industrial sector achieved roughly
comparable results, realizing a 36 percent reduction
in emissions since 2003 versus a 40 percent reduc-
tion for the electricity generating sector. One pos-
sible explanation for this might be that industrial
units tend to run more consistently, operating an
average of 65 percent of the time during the 2006
ozone season. By comparison, EGUs as a group
operated only 37 percent of the time.
Of the 432 ECU and industrial units with SCRs, 160
are coal-fired, 260 run on pipeline natural gas, and
the remaining 12 on oil or other types of gas (see
Figure 16). As shown in Figure 17 on page 28, it is
the coal-fired units equipped with SCRs that domi-
Figure 16: Number of Units with NOX
Controls by Fuel Type in 2006
1000-
800
600
400
200
0
Combustion Other Non-
Control Controlled
SNCR Combustion Other Non-
Control Controlled
SCR
Source: EPA, 2007.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 27
Note: There are four oil-fired units and one gas-fired unit with SNCR
that may not be readily visible on the scale of this graph.
Source: EPA, 2007.
-------
Figure 17: Electricity Generating Units
with SCR Daily 2006 Output by Fuel Type
1800-
Sep
Source:
nate electricity generation. While the coal-fired SCR
units operate almost entirely as base load units
(greater than 65 percent operating time during the
season), the gas- and oil-fired SCR units are divided
relatively equally among base, intermediate (25 to
65 percent operating time), and peak operation
(less than 25 percent operating time). The result
is that 81 percent of megawatt output from units
equipped with SCRs in the 2006 season came from
coal-fired units versus 19 percent from the more
numerous gas/oil-fired units. The population of
SNCRs is largely coal-fired (91 out of 96 units).
One of the control strategies used to reduce emis-
sions under the NBP is shifting generation from
units with a high NOX emission rate to units with a
lower rate. For example, coal-fired units with SCR
controls operated an average of 91 percent of the
time during the 2006 ozone season while coal-fired
units without controls operated less than 60 per-
cent of the time. Additionally, a shift in fuel usage
can be seen since implementation of the NBP.
Coal-fired generation remained nearly level be-
tween 2005 and 2006, but oil generation dropped
by almost 50 percent during the same period. Gas-
fired generation, on the other hand, rose 7 percent
making up part of the difference. Gas-fired units
tend to have lower NOX emission rates than oil or
coal, so the shift in that direction resulted in a drop
in emissions. Fuel consumption is driven by fuel
price and peak electricity demand, as well as emis-
sion considerations, so this trend might not hold in
future years as fuel prices fluctuate.
A more detailed look at the increase in gas-fired
generation can be seen among units reporting
hourly fuel usage as shown in Figure 18. This
increase is the result of both fuel switching from
oil to gas at dual-fuel units (units that operate on
gas or oil) and reduced operating time for oil-fired
generation.
Figure 18: Monthly Heat Input for Units
Reporting Gas and Oil Usage, 2003-2006
250,000,000
r 200,000,000
CO
E
E
' 150,000,000
Q_
C
1100,000,000
50,000,000
2003
^m Ozone Season
Source: EPA, 2007.
2004 2005 2006
• Oil Heat Input ^—Gas Heat Input
With removal efficiencies as high as 90 percent,
the SCR-controlled units achieved the lowest
seasonal NOX emission rates. As shown in Figure
19, the aggregate NOX emission rate for coal-fired
Figure 19: 2006 Ozone Season NOX Emission
Rate by Control Type for Coal-Fired Units
0.400-
0.300
^.0.200
'0.100
0.000 -
SCR
SNCR Combustion Other
Control
Source: EPA, 2007.
28 Section 3 Compliance and Market Activity
-------
units with SCR was 0.080 Ib/mmBtu in contrast to a
rate of 0.285 Ib/mmBtu for units with combustion
controls. Those two categories combined account
for 73 percent of NOX mass emissions.
One of the benefits of the NBP is to provide
incentives to optimize plant operations to reduce
NOX emissions. For example, in 2000, coal-fired
tangential and dry bottom wall-fired units be-
came subject to Acid Rain Program annual NOX
rate limits (0.40 Ib/mmBtu for tangential and 0.46
Ib/mmBtu for dry bottom wall-fired units). Sources
generally met the limit by using low NOX burner
controls. Figure 20 looks at the 2006 population of
coal-fired tangential and wall-fired units with low
NOX burner controls. Both the tangential and wall-
fired groups came in under their respective limits
in 2000, but the advent of the NBP in 2003 and ad-
vances in burner technology drove the NOX emis-
sion rate considerably lower. The ozone season
NOX emission rate for dry bottom units fell 28 per-
cent between 2002 and 2006, from 0.452 to 0.322
Ib/mmBtu. Similarly, the tangential rate dropped
20 percent, from 0.279 to 0.224 Ib/mmBtu, over
the same period. Both groups achieved rates
lower than anticipated for units with only combus-
tion modifications (and not SCRs or SNCRs).
Figure 20: Ozone Season NOX Emission
Rates for Coal-Fired
Combustion-Controlled Units, 2000-2006
The impact of SCR controls on 2006 daily NOX
mass emissions between April and October can
be seen in Figure 21. The average daily NOX emis-
sions for units with SCRs dropped by nearly 80
percent in the week leading up to May 1, the first
day of the 2006 ozone season. As noted earlier,
the SCR-equipped units tended to operate as
base load providing a large percentage of total
output and operating time. The non-controlled
units, in contrast, ran most often in a peak capaci-
ty. This is apparent on August 2, the peak demand
day in 2006, as NOX emissions by non-controlled
units nearly tripled their seasonal daily average of
emissions due to high electricity demand driven
by hot summer weather.
Figure 21: 2006 Daily NOX Emissions
by Control Type
Apr May
SCR
Source: EPA, 2007.
Jun Jul Aug
— Combustion Mod
Sep Oct
— Non-Controlled
Units with SCR controls increased megawatt
output in 2006 by 19 percent compared with 2003,
while reducing NOX emissions by 68 percent dur-
ing the same interval. The increased deployment
and operation of SCR controls played a central
role in the emission reductions achieved in 2006.
This trend is expected to continue as sources
throughout the eastern United States prepare for
the annual NOX compliance program under CAIR
in 2009.
o.ooo-
2000 2001 2002 2003 2004 2005 2006
Source: EPA, 2007.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 29
-------
Tf
Ozone concentrations have
decreased across the East
since the implementation of the
NOX Budget Trading Program (NBP).
3O Section 4 Environmental Results
-------
Section 4
Environmental Results
o better understand how the NBP has
affected ozone production in the atmo-
sphere, this section examines changes in
ozone concentrations before and after implemen-
tation of the NBP in the eastern United States.
The section compares regional and geographic
trends in ozone concentrations to changes in
meteorological conditions (such as temperature)
and NOX emissions from sources regulated un-
der the NOX SIP Call. This section also explores
changes in forest ecosystems due to ground-level
ozone effects.
Changes in 1-Hour
Ozone Concentrations
in the East
Two main networks measure ground-level ozone
concentrations across the United States. Across
the East, urban monitoring areas in the Air Qual-
ity System (AQS) and rural monitoring sites in the
Clean Air Status and Trends Network (CASTNET)
collect air quality, meteorological, and other data.
The changes in eastern ozone concentrations
presented here depict data from AQS and CAST-
NET monitoring sites located both within states
with units affected by the NBP, as well as sites in
adjacent states.
Examining changes in regional ozone concentra-
tions since 2000, as measured at urban (AQS) and
rural (CASTNET) sites, shows how EPA's policies
have affected ozone concentrations in the East.
Figure 22 on page 32 shows changes in the 90th
percentile of ozone concentrations between two
time periods: 2000 to 2002 (before implementa-
tion of the NBP) and 2004 to 2006 (under the
NBP). For the multi-year analyses in this section,
2004 is used to represent the post-NBP time peri-
Metrics for Assessing Ozone
Concentrations
Two metrics are used to evaluate trends in ozone
concentration in this section of the report. Each
metric used enhances our understanding of
changes in ozone and indicate that ozone has
decreased since implementation of the NBP. The
two metrics are:
• 90th percentile of 1-hour ozone concentra-
tion: This metric indicates changes in the
higher ozone concentrations and provides a
broad picture of ozone in the eastern United
States. This metric is representative of true
ozone concentrations without meteorological
adjustments. In addition, this metric is applied
to states subject to the NOX SIP Call and to
adjacent states, capturing potential decreases
in ozone concentrations due to transport.
According to this metric, ozone decreased by
5 to 7 percent in the NBP region since imple-
mentation of the NBP.
• Daily maximum 8-hour ozone concentra-
tions: This metric shows progress toward
meeting the health-based ozone NAAQS. The
seasonal average indicates general changes
in daily maximum 8-hour concentrations in
the NBP region, while the three-year average
of the fourth highest daily maximum 8-hour
ozone concentration is more indicative of
potential changes in nonattainment status in
the East and can help identify areas of major
concern. According to this metric, ozone de-
creased by 8 percent in the NBP region (after
adjusting for meteorology) since implementa-
tion of the NBP.
od because it was the first official year of program
compliance when the vast majority of sources
participated. While these values do not consider
the influence of weather, comparing the average
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 31
-------
of the 90th percentile ozone concentrations across
each three-year period mitigates changes due to
varying weather conditions.
Changes in ozone measured at rural and urban
sites before and after program implementation
show an overall regional reduction in the 90th
percentile of ozone concentrations. The average
reduction in ozone concentrations in NBP states
was about 5 percent.
Figure 22: Changes in Average Ozone
Concentrations, 2000-2002 Versus 2004-2006
Note: AQS and CASTNET monitoring sites used for this analysis are
shown as black dots on this map.
Source: EPA, 2007.
Changes in 1 -Hour Ozone
in Rural Areas
In general, ozone-forming potential increases with
warmer temperatures. However, the 90th percen-
tile of hourly ozone measurements collected at
rural sites in the East show a decline over a broad
area since the start of the NBP, even in areas
where ozone would be expected to remain con-
stant or increase as a result of steady or increasing
temperature trends.
Generally, decreases in ozone concentrations in
urban areas are due to reductions in both local
VOC (gasoline and solvents) and NOX (combus-
tion sources) emissions, as well as reduced levels
of transported ozone. Because biogenic emissions
of VOCs are relatively constant and unchanging in
large areas covered by trees and other vegetation,
ozone formation in rural areas is particularly affect-
ed by NOx emissions. Therefore, the majority of
reductions in ozone at rural sites can be attributed
to a reduction in NOX emissions and transported
ozone. Similar to the downward trends observed
in concentrations of 8-hour ozone concentrations
in NBP states (see Figures 25 and 26 on pages 34
and 35), reductions in higher ozone concentra-
tions (represented here by the 90th percentile
metric) have also occurred throughout the East.
To assess changes in ozone concentrations due
to the NOX SIP Call, the 90th percentile of 1-hour
ozone concentrations measured in rural areas be-
tween May 1 and September 30 were compared
for two time periods: 2000 to 2002 (before imple-
mentation of the NBP) and 2004 to 2006 (under
the NBP). Three-year averages were analyzed to
reduce the effects of single-year variability due
to meteorological effects (i.e., warm years versus
cool years), but this analysis does not remove the
impact of meteorological variability between the
two time periods. Therefore, average changes in
the 90th percentile of temperature are also pre-
sented in the table shown in Figure 23.
Ozone and temperature measurements were
examined at 45 rural CASTNET sites in the North-
east, Mid-Atlantic, Midwest, and Southeast (see
Figure 23). Results show statistically significant
decreases (with 95 percent confidence) in seasonal
ozone concentrations in all regions after program
implementation. The largest reduction in rural
ozone concentration occurred in the Mid-Atlantic,
with a decrease of 7.5 percent, even with a slight
increase in temperature. Ozone concentrations
also decreased in the Midwest (5.1 percent) and
the Northeast (4.8 percent) while temperature
remained fairly constant. Across the entire
eastern United States, there was a 5.6 percent
32 Section 4 Environmental Results
-------
overall reduction in rural 90th percentile ozone
concentrations.
In addition to the NBP, reductions in NOX and
VOC emissions have occurred due to a variety of
EPA, state, and local programs over the past sev-
eral years. These reductions are contributing
to a decrease in ozone concentrations.
Figure 23: Changes in Average Rural Seasonal Hourly Ozone Concentration,
2000-2002 Versus 2004-2006
V
Percent Change in 90th Percentile
1-Hour Ozone Concentration
0 Decrease Between 10% and 15%
0 Decrease Between 5% and 10%
• Decrease Less Than 5%
• Increase Less Than 5%
• Increase Between 5% and 10%
Region
Northeast (NY, MA, Rl, CT, VT, ME)
Midwest (Wl, Ml, IN, IL, OH, KY)
Mid-Atlantic (NJ, DE, MD, PA, VA, VW, DC)
Southeast (EL, NC, SC, GA, AL, MS, TN)
Overall Change in the East
Change in Ozone Concentration
-4.8%
-5.1%
-7.5%
-4.4%
-5.6%
Change in Temperature
-0.4%
-0.4%
+0.4%
+0.4%
0.0%
Notes:
• CASTNET sites included in the analysis collected data at least 70 percent of the time during the study time period, both 2000 to 2002 and
2004 to 2006.
• The change in ozone concentration is the percent change of the average of the 90th percentile of 1-hour ozone concentrations between
each three-year period. The change in temperature is the percent change of the average of the 90th percentile of 1-hour temperature
measurements between each three-year period.
• Shaded region shows states with units affected by the NBP in 2006.
Source: EPA, 2007.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 33
-------
Changes in 8-Hour Ozone
Concentrations
Eight-hour daily ozone concentration data were
assessed from 51 urban AQS areas and 28 rural
CASTNET sites located in states subject to the
NOX SIP Call. For a monitor or area to be included
in the trend analysis, 50 percent of the ozone
season days needed to have complete and valid
data for at least nine of the 10 years from 1997
to 2006. Figure 24 shows the AQS and CASTNET
monitoring sites in the NBP region that meet this
completeness criteria.
Figure 24: Location of Urban and Rural
Ozone Monitoring Sites
Urban site (AQS)
Rural site (CASTNET)
Note: Urban areas are represented by multiple monitoring sites.
Rural areas are represented by a single monitoring site. For more
information on AQS, visit . For more
information on CASTNET, visit .
Source: EPA, 2007.
Over the past 10 years (1997 to 2006), trends in the
seasonal average 8-hour ozone concentrations in
the NBP region (Figure 25) show a similar overall
decline at urban and rural monitoring locations.
The seasonal average ozone concentration is
calculated as the average of the daily maximum
8-hour ozone concentrations during the ozone
season, May 1 through September 30. These re-
sults provide an aggregated seasonal average for
NBP states and do not show variations in ozone
concentrations for specific urban or rural areas.
Figure 25: Trends in Seasonal Average
8-Hour Ozone Concentrations in the NBP
Region (Not Adjusted for Meteorology)
-Q
Q_
Q_
65-
£ 55
u
01
c
o
N
o
50
45
-•- CASTNET Rural Ozone Levels
—•— AQS Urban Ozone Levels
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ozone Season
Note: Data presented in this figure are unweighted averages of
8-hour daily maximum ozone concentrations during the ozone
season for sites within the NBP region.
Source: EPA, 2007.
Ozone Changes after Adjusting
for Meteorology
Weather plays an important role in determining
ozone levels. EPA uses a statistical model to ac-
count for the weather-related variability in season-
al ozone concentrations to provide a trend that is
more representative of changes in emissions.4
Meteorological Adjustment
Method
A generalized linear model is used to describe
the relationship between daily ozone and several
meteorological parameters. The model also ac-
counts for the variation in seasonal ozone across
different years by correcting for meteorologi-
cal fluctuations between those years. The most
important meteorological parameters considered
in this model are daily maximum 1-hour tem-
perature and midday (10 a.m. to 4 p.m.) rela-
tive humidity. The resulting estimates represent
ozone levels anticipated under typical weather
conditions for the ozone season. This methodol-
ogy and the subsequent ozone estimates are
provided by EPA's Office of Air Quality Planning
and Standards (OAQPS), Air Quality Assessment
Division (www.epa.gov/airtrends).
34 Section 4 Environmental Results
-------
Figure 26 shows trends in the seasonal average
8-hour ozone concentrations in the NBP region
before and after considering the influence of
weather. It is important to account for meteoro-
logical variations when comparing two years with
significantly different weather conditions and
ozone-forming potential (e.g., 2002 versus 2004).
In general, lower temperatures during the 2004
ozone season dampened ozone formation, while
higher temperatures in the 2002 ozone season in-
creased ozone formation. Removing the effects of
weather results in a higher-than-observed ozone
estimate for 2004, and a lower-than-observed
ozone estimate for 2002.
Figure 26: Seasonal Average 8-Hour Ozone
Concentrations in the NBP Region Before
and After Adjusting for Weather
~ 65-
-Q
Q.
Q_
60
55
50 —
0 •" Adjusted for Meteorology
o -»- Unadjusted for Meteorology
O 45 , , ^_
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ozone Season
Notes:
• Data presented in this figure are unweighted averages of 8-hour
daily maximum ozone concentrations during the ozone season for
sites within the NBP region.
• While both rural (CASTNET) and urban (AQS) ozone measure-
ments are still adjusted for daily maximum 1-hour temperature
and midday average relative humidity, new parameters have been
added to the current weather adjustment model, including trans-
port distance, transport direction, and lapse rate for urban (AQS)
ozone measurements.
• The adjusted and unadjusted ozone season averages are essen-
tially the same in 2006, since weather conditions were generally
typical of the 10-year period used in the trend analysis.
Source: EPA, 2007.
A closer look at the meteorologically adjusted
ozone trends since the start of the NBP in 2003 in-
dicates that these reductions are real and sustain-
able. The average reduction in seasonal 8-hour
ozone concentrations in the NBP region between
2002 and 2006 was about 13 percent. After consid-
ering the influence of weather, the improvement
in 8-hour ozone concentrations was 8 percent (the
same level of improvement reported in last year's
report for 2002 versus 2005). While, on average,
there was no net improvement in ozone concen-
trations in the NBP region between 2004 and
2006, results show that the majority of the ozone
progress made between 2002 and 2004 is being
maintained.
Despite weather conditions conducive to ozone
formation in 2006, average ozone concentrations
in the NBP region were lower than in 2002, before
implementation of the NBP.
Linking Ozone and NOX Emissions
Figure 27 on page 36 shows the relationship
between reductions in power industry NOX emis-
sions and reductions in 8-hour average ozone
after implementation of the NBP. Between 2002
and 2006, ozone decreased across all NBP states
(after adjusting for meteorology), with the largest
reductions occurring in New York, Pennsylvania,
Virginia, and West Virginia.
Generally, there is a strong association between
areas with the greatest NOX emission reductions
and downwind monitoring sites measuring the
greatest improvements in ozone. This suggests
that, as a result of the NBP, transported NOX emis-
sions have been reduced in the East, contributing
to ozone reductions that have occurred after 2002.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 35
-------
Figure 27: Reductions in Ozone Season Power Industry NOX Emissions and Percent Change
in 8-Hour Ozone, 2002 Versus 2006 (Adjusted for Meteorology)
NOV Emissions
Percent Change in Seasonal 8-Hour Ozone
Ozone Season Emissions,
2002 vs 2006 (tons)
Increase Less Than 100
Decrease Less Than 25,000
Decrease Between 25,000 and 50,000
Decrease Between 50,000 and 75,000
I Decrease Between 75,000 and 110,000
Increase Between 15% and 22%
• Increase Between 5% and 15%
• Increase Less Than 5%
• Decrease Less Than 5%
• Decrease Between 5% and 15%
f") Decrease Between 15% and 23%
Margin of error is +/- 5 percent.
Notes:
• States participating in the NBP in 2006 are shown inside the black boundary line on the emission map (left). NBP states are shaded in
green in the ozone percent change map (right).
• From 2002 to 2006, Vermont (35 tons) shows a small increase in ozone season NOX emissions.
Source: EPA, 2007.
Several additional studies have evaluated the NOX
SIP Call link between decreasing ozone concentra-
tions and decreasing NOX emissions. For example,
one recent study used Community Multiscale Air
Quality (CMAQ) modeling, continuous emission
monitoring systems (CEMS) data, CASTNET moni-
toring data, and HYbrid Single-Particle Lagrang-
ian Integrated Trajectory (HYSPLIT) modeling to
investigate changes in NOX emissions and daily
maximum 8-hour ozone concentrations. The study
showed that after the implementation of the NOX
SIP Call, notable reductions in ozone concentra-
tions occurred throughout many eastern states, but
the greatest reductions were found in areas down-
wind of point sources that had dramatically
reduced NOX emissions in response to the NOX
SIP Call.5 Sources in the Ohio River Valley, in par-
ticular, had a significant impact on reducing NOX
emissions and ozone concentrations in the East. In
fact, trajectory analysis indicated that areas down-
wind of Ohio River Valley sources experienced
greater decreases in daily maximum 8-hour ozone
concentrations than areas not downwind of these
sources. It also indicated that the greatest reduc-
tions in ozone occurred at higher ozone concentra-
tion levels. This analysis demonstrates that NOX
emission reductions due to the NOX SIP Call are
occurring in portions of the East where emissions
from point sources were highest and where re-
ductions have had the greatest impact on ozone
concentrations.
36 Section 4 Environmental Results
-------
Another modeling study examined the changes
in ambient ozone concentrations (as simulated by
the CMAQ model) for the 2002 summer for three
different NOX emission scenarios.6 Two emission
scenarios represented CEMS estimates of 2002
and 2004 emissions, enabling assessment of the
impact of the NOX emission reductions imposed
on the power sector by the NOX SIP Call. The third
scenario represented what NOX emissions would
have been in 2002 if no emission controls had
been imposed on the power sector. This study
revealed that median ozone levels estimated for
the 2004 emission scenario were less than those
modeled for 2002 in the region most affected by
the NOX SIP Call. While there were some excep-
tions in the immediate vicinity of major point
sources, the comparison of the "no control" with
the "2002" scenario revealed that ozone concen-
trations would have been much higher in many
parts of the East if the NOX SIP Call had not been
implemented.
Emerging Assessment Methods
Satellite observations and other remote sensing
technologies are emerging as a potentially use-
ful new technique for understanding atmospheric
chemistry and analyzing changes in atmospheric
pollutant concentrations. A recently published
report by the National Oceanic and Atmospheric
Administration (NOAA) investigated nitrogen
dioxide (NO2) columns captured by satellite obser-
vations. National Emissions Inventory (NEI) data,
and CEMS-recorded emission rates in the eastern
United States and linked these data to modeled es-
timated changes in ozone concentrations.7 Satellite
observations revealed summertime and annual NO2
decreases between 1999 and 2004 in many parts of
the East. Areas that experienced the most signifi-
cant reductions included the Ohio River Valley,
where many power plants affected by the NBP have
installed NOX controls. These observed emission
reductions had a strong correlation with lowered
modeled ozone concentrations in those areas. The
report also indicates that some parts of the country,
particularly the Northeast, have not experienced
the same significant ozone reductions, perhaps due
to the dominance of mobile sources as contributors
of NOX and VOCs.
A wealth of satellite data, such as the information
in the NOAA report, is currently available, and the
potential of these data sources for analyzing atmo-
spheric chemistry and changes in pollutant emis-
sions is an exciting new area in the development of
emerging assessment methods.8
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 37
-------
Changes in Ozone
Nonattainment Areas
In April 2004, EPA designated 126 areas as non-
attainment for the 8-hour ozone standard.9 These
designations were made using data from 2001 to
2003. Of those areas, 104 are in the East (as shown
in Figure 28) and are home to about 108 million
people.10 Based on data gathered between 2004
and 2006, 83 of these original nonattainment areas
have been redesignated to attainment or show
concentrations below the level of the standard, in-
dicating improvements in ozone. This means that
80 percent of the original nonattainment areas in
the East now have ozone air quality that is better
than the 8-hour ozone standard (0.08 ppm). These
improvements bring cleaner air to over 55 million
people. Several of these areas have reviewed or
are reviewing the requirements for redesignation,
as described in the Clean Air Act Section 107.
Nineteen of the original 104 areas in the East
continue to exceed the level of the standard; how-
ever, on average, ozone concentrations in these
areas have improved by 8 percent. Given that the
majority of relevant NOX emission reductions oc-
curring after 2003 are attributable to the NBP, it is
clear that the NBP is the most significant contribu-
tor to these improvements in ozone air quality.
Figure 28: Changes in 8-Hour Ozone Nonattainment Areas in the East, 2001-2003
(Original Designations) Versus 2004-2006
Areas below the NAAQS (83 areas)
Areas above the NAAQS that Show Improvement (17 areas)
^^| Areas above the NAAQS that Show No Change (1 area)
| | Areas above the NAAQS that Are Increasing (1 area)
^^^ Areas with Incomplete NAAQS Data (2 areas)
Note: States participating in the NBP in 2006 are shown inside the black boundary line.
Source: EPA, 2007.
38 Section 4 Environmental Results
-------
Ozone Impacts on
Forest Health
In addition to human health, EPA is interested in
the impacts of air pollution on ecological systems.
In January 2007, EPA published a staff paper that
includes extensive information on the impacts of
ozone exposure to forest ecosystems. Much of
the information presented below is detailed in the
staff paper.11
Ground-level ozone effects on trees and forests
can cause reduced growth and/or reproduction
and increased susceptibility to disease, pests, and
other environmental stresses (e.g., harsh weather).
Exposure to ground-level ozone can impair crop
production and injures native vegetation and eco-
systems. Ozone can cause visible injury to leaves
and foliage; reduce the market value of certain
leafy crops (such as spinach and lettuce); and im-
pact the aesthetic value of ornamental vegetation
and trees in urban landscapes, as well as scenic
vistas in protected natural areas.
Although it is difficult to measure the exact
amount of ozone absorbed by plant leaves, ozone
concentrations in ambient air can serve as a useful
surrogate. The most useful measures of exposure
are those that put more weight on higher concen-
trations and aggregate exposure to hourly ozone
concentrations during the growing season. One
such air quality index is the three-month, 12-hour
W126, which gives disproportionately greater
weight to higher hourly ozone concentrations
that have a greater impact on plant response and
aggregates concentrations to estimate the great-
est three-month ozone exposure for the ozone
season. W126 is used in Figure 29 on page 40 to
estimate ozone exposures before and after NBP
implementation (see EPA's staff paper for more
information on calculating W126) 12
Scientists have developed concentration-response
(C-R) functions for a number of plant species that
can be used to predict how plants respond to vari-
ous exposure levels. One studied species, black
cherry, is known to be prevalent in the East and
can be a useful indicator of ozone exposure. By
combining national estimates of ozone concentra-
tions (three-month 12-hour W126) with the C-R
functions developed for seedlings of the black
cherry tree species, the percent biomass loss
resulting from ozone exposure can be estimated
(see Figure 29). Exposure was estimated using
monitored data from the CASTNET and AQS air
quality monitoring sites and is calculated using
three-year averages to mitigate the effect of the
meteorological variability. The W126 exposure
metric was calculated for the 2000 to 2002 and
2004 to 2006 time periods, depicting biomass loss
before and after implementation of the NBP.
The average biomass loss for this area prior to
implementation of the NBP and after implementa-
tion of the NBP was 17 percent and 12 percent,
respectively. A consensus workshop on ozone
effects reported that a biomass loss greater than
2 percent annually can be significant due to the
potential for compounding effects over multiple
years as short-term negative effects on seedlings
affect long-term forest health.13 The change in
biomass loss estimated for the two time periods
can be attributed to changes in ozone precursor
emissions and concentrations, as well as weather.
While this change in biomass loss cannot be
exclusively attributed to the implementation of
the NBP, it is likely that NOX emission reductions
occurring under the NBP contributed significantly
to this environmental improvement.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 39
-------
Figure 29: Estimated Black Cherry Seedling Annual Biomass Loss due to Ozone Exposure
Pre-NBP Implementation
Average Biomass Loss, 2000 through 2002
Post-NBP Implementation
Average Biomass Loss, 2004 through 2006
Notes:
• Ozone exposure is calculated by interpolating the maximum three-month 12-hour W126 exposure metric between CASTNET and AQS air
quality monitoring locations.
• This map indicates the geographic range for black cherry (Prunus serot/na), but it does not necessarily indicate that black cherry will be
found at every point within its range.
• Each map depicts the average of the annual biomass loss across the specified three-year period.
Source: EPA, 2007.
4O Section 4 Environmental Results
-------
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 41
-------
The Clean Air Interstate Rule (CAIR),
in conjunction with federal, state, and
local efforts, will help to further
address the ozone air quality
issues in the East.
-------
Section 5
Future NOX Reductions and Ozone Improvements
Ithough improvements have been made
in reducing NOX emissions from the
power sector, and many areas in the East
have experienced decreasing ozone concentra-
tions, ozone continues to remain a persistent air
quality concern. EPA's CAIR, in conjunction with
federal, state, and local efforts, will help to further
address the ozone air quality issues in the United
States. While the power sector is still a significant
contributor of ozone precursor pollutants, other
sources of NOX and VOCs play a larger role in
ozone formation.
CAIR Overview
Building on the NOX emission reductions under
the NBP and the ARP, CAIR, issued on March
10, 2005, will permanently lower power industry
emissions of SO2 and NOX in the eastern United
States, achieving significant reductions of these
pollutants. In addition to addressing ozone attain-
ment, CAIR assists states in attaining the NAAQS
for PM25 by reducing transported precursors,
SO2 and NOX. CAIR accomplishes this by creating
three separate programs: an annual NOX program,
an ozone season NOX program, and an annual
SO2 program.
The CAIR programs went into effect in June 2006
as federal programs. Affected EGUs must comply
with future requirement deadlines under the fed-
eral plan. States can submit State Implementation
Plans (SIPs) for EPA approval for participation in
the CAIR programs.
Each of the three programs uses a two-phased
approach, with declining emission caps in each
phase based on highly cost-effective controls on
power plants. The first phase will begin in 2009
for the NOX annual and NOX ozone season pro-
grams, and in 2010 for the SO2 annual program.
The second phase for all three programs will
begin in 2015. Similar to the NOX SIP Call, CAIR
gives states the flexibility in their SIPs to reduce
emissions using a strategy that best suits their
circumstances and provides an EPA-administered,
regional cap and trade program as one option.
All 28 states and the District of Columbia are
expected to be part of the EPA-administered
regional CAIR trading programs. As of the end of
July 2007, EPA had received full or abbreviated
implementation plans from 19 states for final ap-
proval. An additional five states requested that
EPA recommend approval of their proposed rules,
giving EPA the opportunity to approve the final
state rules if they do not change substantively
from what the state proposed. Four states and the
District of Columbia expect to remain under the
federal implementation plan (FIP) for at least the
first year of the NOX programs (2009). Sources in
all states should expect to have initial allowance
allocations (either under their state's rule or the
FIP) recorded in their accounts later in 2007.
How CAIR Affects
NBP States
In 2009, NBP states affected under CAIR will tran-
sition to the CAIR ozone season program. All NBP
states, with the exception of Rhode Island, are
included in the CAIR NOX ozone season program
(see Figure 30 on page 44). In addition, most NBP
states (except Rhode Island, Massachusetts, and
Connecticut) are also subject to emission reduc-
tions under the CAIR annual NOX programs to
help states attain the NAAQS for PM2 5.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 43
-------
Figure 30: Transition from the NBP to CAIR
CAIR States controlled for fine particles
CAIR States controlled for ozone
CAIR States controlled for both
fine particles and ozone
Note: States subject to the NBP are shown in the black boundary line on the above map. The affected portion of Missouri began NBP
participation on May 1, 2007.
Source: EPA, 2007.
States can meet their NOX SIP Call obligations us-
ing the CAIR NOX ozone season trading program
and, as a result, CAIR allows states to include all of
their NBP sources in the CAIR NOX ozone season
program (even if they would not otherwise be
affected by CAIR). The CAIR rule has a provision
that allows Rhode Island to be part of the CAIR
NOX ozone season program so that it can contin-
ue to participate in an interstate trading program.
EPA anticipates, however, that Rhode Island will
choose not to participate in CAIR and will, instead,
pursue another strategy to meet its NBP reduction
requirements.
The 2009 CAIR NOX ozone season emission caps
for EGUs are at least as stringent as the NBP, and
in some states are tighter. The trading budget
for any NBP state that includes its industrial units
under CAIR remains the same for those units as it
was in the NBP. CAIR also allows sources to bank
and use pre-2009 NBP allowances for the CAIR
ozone season NOX program compliance on a 1:1
basis, thereby giving sources in those states the
incentive to begin reducing their emissions now.
Furthermore, sources outside of the NBP region
can buy and use pre-2009 NBP allowances in the
CAIR ozone season NOX trading program. Finally,
progressive flow control will be eliminated as of
2009 with the start of the CAIR ozone season NOX
program. NBP sources that do not have enough
allowances in their accounts at the end of the
reconciliation period in 2008 to cover their 2008
ozone season emissions will be required to sur-
render 2009 CAIR allowances at a 3:1 ratio to be in
compliance.
EPA has continued to review state plans during
the summer of 2007 and will conduct several CAIR
implementation training workshops for states and
the regulated community throughout the year at
sites around the country. Check for information on upcom-
ing workshops and to access workshop materials.
The Future of Ozone
Attainment
Despite extensive reductions in ozone expected
from CAIR and other existing programs, EPA has
Section 5 Future NOX Reductions and Ozone improvements
-------
Figure 31: Projected Ozone Nonattainment in the Future
^•2010 -Areas in Nonattainment (32 counties)
Source: EPA, 2007.
12015 -Areas in Nonattainment (16 counties)
projected several areas in the East to have con-
tinued difficulty attaining the NAAQS for ozone in
the future (see Figure 31). SIPs will help address
attainment in these areas. Without additional con-
trols, however, recent EPA modeling concluded
that residual ozone nonattainment will persist into
2010 and 2015 for many areas in the East.14
The same modeling tools have been used to
evaluate the relative contribution of major source
sectors to residual air quality problems.15 These
analyses indicate that, while all source sectors
contribute, mobile source emissions are expected
to continue to be the largest contributor to ozone
exceedance days in the future throughout the
East (for example, see text box "Case Study:
Future Ozone Nonattainment in Philadelphia" on
page 46). It should be noted that many programs,
such as the on-road mobile source Tier 2 tailpipe
reductions, are in the early stages of achiev-
ing significant additional emission reductions of
NOX and VOCs. These programs are expected to
provide substantial ozone reductions beyond 2010
and 2015.
Furthermore, considerable reductions are expect-
ed from CAIR and state efforts being developed
for additional local controls. Additionally, several
state and regional organizations are investigating
new methods for understanding ozone forma-
tion and reducing ozone precursors. For example,
progress is being made by the Lake Michigan Air
Director's Consortium (LADCO) regional plan-
ning organization to model causes of observed air
pollution in order to better develop solutions to
reduce it. Another example of state efforts is the
analysis of high electric demand days by North-
eastern states and the OTC (for more information,
see "High Electric Demand Days" in Section 2).
Many activities are underway to find long-lasting
solutions for ozone nonattainment issues in the
United States. Significant progress has been made
in reducing emissions, understanding and model-
ing of the ground-level ozone air pollution phe-
nomena is improving, and greater knowledge of
existing control options is available. EPA expects
further reductions in the future from programs
being developed by the states as part of the SIP
planning process for the current ozone NAAQS.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 45
-------
Case Study: Future Ozone Nonattainment in Philadelphia
Areas along the 1-95 corridor of the eastern United States, stretching from Washington, D.C. to Boston,
remain of interest into the year 2015 in relation to ozone NAAQS attainment. Philadelphia serves as a
representative case study for this corridor area and source apportionment results for this city are
presented here.
Two separate types of modeling analyses were used to assess the future of ozone nonattainment.
Each approach provides insight into the severity and nature of the expected ozone problem in the future.
In the first approach, the Comprehensive Air quality Model with extensions (CAMx) was used to simulate
the air quality that would result from projected future-year emissions and base-year meteorological condi-
tions.16 The relative change between the future case and the base case was used to estimate how pres-
ent-day ozone design values would change in the future case as a result of the emissions modifications.
Additionally, CAMx contains a tool which can be used to estimate how emissions from individual source
areas and/or regions affect modeled ozone concentrations. This is achieved by using multiple tracer
species to track the fate of ozone precursor emissions and the ozone formation caused by these
emissions within a simulation. This "source apportionment" modeling technique allows the estimation
of relative impact strengths of specific sets of emissions.
Figure 32 shows the relative contributions from mobile on-road, mobile nonroad, EGU, and other sources
to high levels of ozone in Philadelphia in 2010. Mobile sources (both on-road and nonroad) are projected
to be the primary source (65 percent) of contribution to ozone in the future. While out-of-state emissions
will still contribute to ozone nonattainment in 2010, in-state emissions are projected to remain the primary
source of contribution for projected future years in Philadelphia (see Figure 33).
Figure 32: Relative Contribution of
Manmade Sources of NOX and VOC to
High Ozone Days in Philadelphia in 2010
Figure 33: Percentage Contribution
by State of Manmade Sources of NOX
and VOC to High Ozone Days
in Philadelphia in 2010
35-
30—
25—
20—
15—
10—
5-
tl
I
Note: Other category includes non-EGU point, fire, and area
sources.
Source: EPA, 2007.
PA MD NJ DE OH VA IL Ml
Source: EPA, 2007.
Section 5 Future NOX Reductions and Ozone improvements
-------
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 47
-------
-------
Endnotes
1 Bell, Ml., Goldberg, R., Hogrefe, C, Kinney, P.L., Knowlton, K., Lynn, B., Rosenthal, J., Rosenzweig, C., & Patz, J.
(2007). Climate change, ambient ozone, and health in 50 U.S. cities. Climatic Change, 82, 61-76.
Mickley, L.J., Jacob, D.J., Field, B.D., & Rind, D. (2004). Effects of future climate change on regional air pollution
episodes in the United States. Geophysical Research Letters, 30, L24103.
Steiner, A.L., Tonse, S., Cohen, R.C., Goldstein, A.M., & Harley, R.A. (2006). Influence of future climate and emissions
on regional air quality in California. Journal of Geophysical Research, 111, D18303.
Tao, Z., Williams, A., Huang, H.C., Caughey M., & Liang, X.-Z. (2007). Sensitivity of U.S. surface ozone to future
emissions and climate changes. Geophysical Research Letters, 34, L08811.
2 Samet, J., & Krewski, D. (2007). Health effects associated with exposure to ambient air pollution. Journal of Toxicology
and Environmental Health, 70, 227-242.
Whitfield, R.G., Richmond, H.M., & Johnson, T.R. (1998). Overview of ozone human exposure and health risk analyses
used in the U.S. EPA's review of the ozone air quality standard. Studies in Environmental Science, 72, 483-516.
Goldberg, M. S. (2005). Short term exposure to ambient ozone increases mortality in the United States. Evidence-
Based Healthcare and Public Health, 9, 206-208.
3 Schakenbach, J., Vollaro, R., & Forte, R. (2006). Fundamentals of successful monitoring, reporting, and verification
under a cap-and-trade program. Journal of the Air & Waste Management Association, 56, 1576-1583.
4 Cox, W. M., & Chu, S.-H. (1996). Assessment of interannua ozone variation in urban areas from a dimatological
perspective. Atmospheric Environment, 30, 2615-2625.
Camalier, L., Cox, W., & Dolwick, P. (2007). The effects of meteorology on ozone in urban areas and their use in assess-
ing ozone trends. In press. Atmospheric Environment.
5 Godowitch, J., et al. (2007). Modeling assessment of point source NOX emission reductions on ozone air quality in the
eastern United States. In review. Atmospheric Environment.
6 Gego, E., et al. (2007). Modeling analyses of the effects of changes in nitrogen oxides emissions from the electric
power sector on ozone air quality in the eastern United States. In review. Journal of the Air & Waste Management
Association.
7 Kim, S.W., et al. (2006). Satellite-observed U.S. power plant NOX emission reductions and their impact on air quality.
Geophysical Research Letters, 33, L22812.
8 Borrell, P., Burrows, J.P., Platt, U., & Zehner, C. (2007). Determining tropospheric concentrations of trace gases from
space. Electrical Energy Society of Australia, 107, 72-81.
9 40 CFR Part 81. Air quality designations and classification for the 8-hour ozone national ambient air quality standards
(NAAQS).
10 U.S. Census, 2000.
11 U.S. EPA. (2007). Review of the National Ambient Air Quality Standards for Ozone: Policy assessment of scientific and
technical information. Office of Air Quality Planning and Standards staff paper. EPA-452/R-07-003.
12 Ibid.
13 Heck, W. W., & Cowling, E.B. (1997). The need for a long term cumulative secondary ozone standard—an ecological
perspective. Environmental Management, January, 23-33.
14 www.epa.gov/airmarkets/progsregs/cair/docs/airqualityresults.xs.
15 www.epa.gov/scram001/modelingapps_photo.htm.
16 www.camx.com.
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 49
-------
Online Resources
General Information
• Office of Air and Radiation:
www.epa.gov/oar
• Office of Atmospheric Programs:
www.epa.gov/air/oap.html
• Office of Air Quality Planning and Standards:
www.epa.gov/oar/oaqps
• Office of Transportation and Air Quality
(mobile sources):
www.epa.gov/otaq
• Cap and Trade and Related Programs:
www.epa.gov/airmarkets
• Air Trends: www.epa.gov/airtrends
NOX Control Programs
• Acid Rain Program (ARP):
www.epa.gov/airmarkets/progsregs/arp/
index.html
• Ozone Transport Commission (OTC) NOX Bud-
get Program:
www.epa.gov/airmarkets/progsregs/nox/
otc.html
• NOX Budget Trading Program (NBP):
www.epa.gov/airmarkets/progsregs/
nox/sip.html
• Clean Air Interstate Rule (CAIR):
www.epa.gov/cair
Ozone Information
• General Information:
www.epa.gov/air/ozonepollution/
• U.S. Department of Agriculture (USDA) Forest
Service, Forest Health Monitoring Program:
http://fhm.fs.fed.us/index.shtm
Emission Data and
Monitoring Information
• National Emissions Inventory (NEl):
www.epa.gov/ttn/chief/net
• Clean Air Markets Data and Maps:
http://camddataandmaps.epa.gov/gdm
Ozone Monitoring
Networks and Data
• Clean Air Status and Trends Network
(CASTNET): www.epa.gov/castnet
• Air Quality System (AQS):
www.epa.gov/ttn/airs/airsaqs
Other Emission and Air
Quality Resources
• General Information on EPA Air Quality Moni-
toring Networks: www.epa.gov/ttn/amtic
• Clean Air Mapping and Analysis Program
(CMAP):
www.epa.gov/airmarkets/maps/c-map.html
• The Emissions and Generation Resource Inte-
grated Database (eGRID):
www.epa.gov/cleanenergy/egrid
• AIRNow: www.epa.gov/airnow
5O Online Resources
-------
Appendices
Appendix A: Acronyms
AQS Air Quality System
ARP Acid Rain Program
CAIR Clean Air Interstate Rule
CASTNET Clean Air Status and Trends Network
CEMS continuous emissions monitoring systems
Community Multiscale Air Quality
CMAQ
CAMx
CFR
CMAP
C-R
CSP
eGRID
ECU
FIP
LADCO
Ib
MACT
MS AT
mmBtu
Comprehensive Air quality Model
with extensions
Code of Federal Regulations
Clean Air Mapping and Analysis Program
concentration-response
compliance supplement pool
Emissions and Generation Resource
Integrated Database
electric generating unit
federal implementation plan
HYbrid Single-Particle Lagrangian
Integrated Trajectory
Lake Michigan Air Directors Consortium
pound
maximum achievable control technology
Control of Hazardous Air Pollutants
from Mobile Sources
million British thermal units
MIT Massachusetts Institute of Technology
NAAQS National Ambient Air Quality Standard
NBP
NEI
NOAA
NSPS
N
NATS
NO2
NOX
OTC
PFC
PM
PM2.5
ppm
RACT
RATA
SCR
SIP
S02
SNCR
USDA
U.S. EPA
VOC
NOX Budget Trading Program
National Emissions Inventory
National Oceanic and Atmospheric
Administration
New Source Performance Standard
elemental nitrogen
NOX Allowance Tracking System
nitrogen dioxide
nitrogen oxides
Ozone Transport Commission
progressive flow control
particulate matter
particulate matter smaller than
2.5 micrometers in diameter
parts per million
reasonably available control technology
relative accuracy test audit
selective catalytic reduction
state implementation plan
sulfur dioxide
selective noncatalytic reduction
United States Department of
Agriculture
United States Environmental Protection
Agency
volatile organic compound
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 51
-------
Appendix B: Ozone Season NOX Emissions from All NBP Electric Generating
Unitb VCVJU5J, I77U— £.\J\JO
State 1990 2000 2003 2004 2005 2006
AL
CT
DC
DE
IL
IN
KY
MA
MD
Ml
NJ
NY
NC
OH
PA
Rl
SC
TN
VA
VW
All NBP
States
78,904
10,836
497
12,918
114,409
196,192
147,573
39,941
51,358
105,496
42,339
78,734
78,743
221,460
192,373
1,099
41,800
82,046
31,419
133,597
1,661,734
79,173
4,521
134
5,005
100,811
133,493
101,561
13,378
27,729
77,050
13,524
38,762
70,593
155,731
84,075
288
39,038
66,829
39,181
105,723
1,156,599
48,079
1,939
54
4,064
43,237
94,336
62,881
9,075
18,311
44,894
10,446
28,518
51,943
130,054
48,596
209
30,569
49,572
29,368
60,528
766,673
38,596
2,006
19
3,820
36,190
63,683
40,304
7,314
18,981
39,331
10,226
27,919
37,536
64,809
49,251
177
23,184
26,615
23,280
39,422
552,661
31,981
2,836
270
5,367
34,051
52,708
36,635
8,072
20,089
41,616
10,835
30,653
30,695
51,877
48,401
221
16,218
21,839
20,438
28,950
493,752
25,786
2,376
95
3,732
33,042
51,245
37,400
5,294
17,534
39,645
8,333
20,971
28,745
50,482
50,439
181
16,285
20,091
18,362
27,317
457,357
Note: Totals may not equal individual rows due to rounding. All data correspond to data as of July 6, 2007, in EPA's data systems, avail-
able through Data and Maps at . Emissions from all NBP-affected EGU sources are shown here,
including 2003 and May 2004 emissions from sources in non-OTC states that did not control emissions under the NBP during those periods.
Affected non-EGUs in North Carolina did not report emissions in 2003, so the emissions for North Carolina in this appendix and in Table 3 on
page 17 of this report are identical.
Source: EPA, 2007.
52 Appendices
-------
NOX Budget Trading Program: 2OO6 Program Compliance and Environmental Results 53
-------
United States
Environmental Protection Agency
Office of Air and Radiation
Office of Atmospheric Programs
Clean Air Markets Division
1200 Pennsylvania Ave., NW
Washington, DC 20460
EPA-430-R-07-009
September 2007
www.epa.gov/airmarkets
Recycled/Recyclable—Printed with vegetable oil based inks on 100% postconsumer, process chlorine free recycled paper.
------- |