The NOX Budget Trading Program:
2008 Highlights
United States
Environmental Protection
Agency
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The NOX Budget Trading Program: 2008 Highlights
The NOX Budget Trading Program (NBP) was a market-based cap and trade
program created to reduce the regional transport of emissions of nitrogen
oxides (NOX) from power plants and other large combustion sources that
contribute to ozone nonattainment in the eastern United States. NOX is a major
precursor to the formation of ground-level ozone, a pervasive air pollution prob-
lem in many areas in the East. The NBP was designed to reduce NOX emissions dur-
ing the warm summer months, referred to as the ozone season, when ground-level
ozone concentrations are highest.
The NBP was established through the NOX State Implementation Plan (SIP) Call,
promulgated in 1998. All 20 affected states and the District of Columbia (DC) chose
to meet mandatory NOX SIP Call reductions primarily through participation in the
NBP. From the beginning of program implementation in 2003 to 2008, the NBP
dramatically reduced NOX emissions from power plants and industrial sources
during the summer months, contributing significantly to improvements in ozone
air quality in the eastern United States. In 2009, the NBP was replaced by the Clean
Air Interstate Rule (CAIR) NOX ozone season trading program, which required
emission reductions from affected sources in an expanded geographic area and
went into effect May 1, 2009.
From May to September 2009, the U.S. Environmental Protection Agency (EPA)
released three reports detailing progress under the NBP. This final document high-
lights the key results from the previous reports and discusses the transition from
the NBP to the CAIR NOx ozone season program. These reports can be accessed at
.
For more information on the NBP, please visit: . Detailed emission results and other facility and allowance
data are also publicly available on EPA's Data and Maps Web site at .To view emission and other facility information in an interac-
tive file format using Google Earth or a similar three-dimensional platform, go to
.
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The NOX Budget Trading Program: 2008 Highlights
Overview Of the NOX Budget Trading Program Figure 1:NOX SIP Call Program Implementation
Over the past six ozone seasons, the NBP significantly low-
ered NOX emissions from affected sources, contributing to
improvements in regional air quality across the Midwest,
Northeast, and Mid-Atlantic. Cap and trade programs such
as the NBP and the Acid Rain Program (ARP) set a cap on
overall regional emissions and allocate allowances to each
affected source. Each allowance authorizes a certain num-
ber of emissions—in this case, one ton. This approach pro-
vides individual sources with flexibility in how they com-
ply with emission limits. Sources may sell or bank (save)
excess allowances if they reduce emissions and have more
than they need, or purchase allowances if they are unable
to keep emissions below their allocated budget.
As a group, the participating sources cannot exceed the cap
and each individual source cannot emit more than the al-
lowances it holds for compliance. The cap level is intended
to protect public health and the environment and to sustain
that protection into the future, regardless of growth in the
affected sector. The cap also lends stability and predictabil-
ity to the allowance trading market and provides regula-
tory certainty to affected sources. Cap and trade programs
like the NBP and the ARP have proven highly effective in
reducing emissions from multiple sources while meeting
environmental goals and improving human health.
Key Components of the NBP
The NBP was an ozone season (May 1 to September 30) cap
and trade program for electric generating units (EGUs) and
large industrial combustion sources, primarily boilers and
turbines. The program had several important features:
• Affected States and Compliance Dates: Compli-
ance with the NOX SIP Call was scheduled to begin on
May 1, 2003, for the full ozone season for 20 states
and the District of Columbia. However, litigation de-
layed full implementation for 12 states not previ-
ously in the Ozone Transport Commission's (OTC)
NOX Budget Program. The OTC states (Connecticut,
Delaware, Maryland, Massachusetts, New Jersey, New
York, Pennsylvania, Rhode Island, and the District
of Columbia) adopted the original compliance date
of May 1, 2003, to transition to the NOX SIP Call (see
Figure 1). Eleven states not previously in the OTC NOX
Budget Program (Alabama, Illinois, Indiana, Kentucky,
Michigan, North Carolina, Ohio, South Carolina, Tennes-
see, Virginia, and West Virginia) began compliance on
May 31, 2004, one month into the normal ozone sea-
son. Finally, Missouri began compliance with the pro-
gram on May 1, 2007.
Compliance Deadline
• May 1, 2003
May 31, 2004
May 1, 2007
Source: EPA, 2009
Regionwide Cap: The cap was the sum of state emis-
sion budgets that EPA established under the NOX SIP
Call to help states meet their air quality goals to pro-
tect human health and the environment.
Limited Allowances: Authorizations to emit, known
as allowances, were allocated to affected sources based
on state trading budgets. The NOX allowance market
enabled sources to trade (buy and sell) allowances
throughout the year.
Compliance Alternatives: Sources must surrender al-
lowances to cover emissions while having the flexibil-
ity to lower allowance needs by adding emission con-
trols, replacing existing controls with more advanced
technologies, optimizing existing controls, or switch-
ing fuels.
Stringent, Complete Monitoring: To accurately
monitor and report emissions, sources used continu-
ous emission monitoring systems (CEMS) or other
approved monitoring methods under EPA's stringent
monitoring requirements (40 CFR, Part 75).
Compliance Determination: At the end of every
ozone season, each source had to surrender sufficient
allowances to cover its ozone season NOX emissions,
with one allowance required for each ton of NOX
emissions. This process is called annual reconciliation.
Progressive flow control provisions, which took
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The NOX Budget Trading Program: 2008 Highlights
effect when the size of the allowance bank exceeded
10 percent of the regional budget for the subsequent
year, meant that EPA could require a certain portion
of banked allowances to be deducted at a ratio of two
allowances per ton of emissions.
• Automatic Penalties: If a source did not have enough
allowances to cover its emissions, EPA automatically
deducted allowances from the following year's allo-
cation at a 3:1 ratio. Units out of compliance in 2008
had to surrender 2009 CAIR NOX ozone season allow-
ances.
• Allowance Market and Banking: If a source had ex-
cess allowances because it reduced emissions beyond
required levels, it could sell the unused allowances or
bank (save) them for use in a future ozone season. On
January 1, 2009, EPA transferred NBP banked allow-
ances for use in the CAIR NOX ozone season program.
Key Results
Affected Units: There were 2,568 affected units under the
NBP in 2008, including some units that may not have oper-
ated nor had emissions during the 2008 ozone season:
• 88 percent of all regulated NBP units were EGUs (see
Figure 2).
Figure 2: Number of Units in the NBP by Type in 2008
Unclassified EGUs
Industrial Units
319(12%)
Gas EGUs
1,098 (43%)
Coal EGUs
715(28%)
Oil EGUs
433(17%)
Notes:
• The three "unclassified" units represent units in long-term shut-
down or other non-operating status that remained identified as
affected units under the NBP and that had not retired prior to
the 2008 ozone season.
• Percentages add up to more than 100 due to rounding.
Source: EPA, 2009
• The program also applied to large industrial units that
produced electricity or steam primarily for internal
use. Examples of these units are boilers and turbines
at heavy manufacturing facilities.
Ozone Season Emissions: Since the program began
in 2003, the NBP has successfully reduced ozone sea-
son NOX emissions throughout the region. Figure 3 and
Appendix A show that in 2008, NBP ozone season NOX
emissions totaled approximately 481,420 tons and were:
• 9 percent below 2008 cap.
• 62 percent lower than in 2000 (before implementation
of the NBP).
• 75 percent lower than in 1990 (before implementation
of the 1990 Clean Air Act Amendments).
Figure 3: Ozone Season NOX Emissions from All NBP Sources
2,200
2,000
LLJ
1990 2000 2003
2004 2005
Ozone Season
2006 2007 2008
• Ozone Season NOX Emissions
— Total State Trading Budgets
Notes:
• Data reflect full ozone season emissions in all years for all states.
The year 2000 baseline value has been adjusted to correct a mis-
print in Figure 5 of the 2007 NBP report.
• The 2008 total state trading budgets include opt-in allowances,
where applicable (New York, Ohio, and West Virginia).
Source: EPA, 2009
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The NOX Budget Trading Program: 2008 Highlights
State-by-State NOX Reductions: Ozone season NOX emis-
sions decreased from levels in the baseline years in all
states that participated in the NBP (see Figure 4):
• Fourteen states and the District of Columbia had emis-
sions below their allowance budgets.
Figure 4: State-level Ozone Season NOX Emissions from NBP to
CAIR, 1990-2010
• 1990 Emissions
• 2000 Emissions
• 2008 Emissions
• 2010 Projection
Scale: Largest bar equals 241,000 tons of NOX emissions in Ohio,
1990.
Note: Projected emissions in 2010 represent estimated reductions
due to the implementation of CAIR.
Source: EPA, 2009
High Electric Demand Days: Even with seasonal NOX re-
ductions, periods of hot weather and related high electric-
ity demand often elevate peak NOX emissions on a given
day:
• During the 2008 ozone season, emission levels on peak
demand days were lower than those seen in previous
years (see Figure 5).
• The average NOX emission rate for the 10 highest elec-
tric demand days (as measured by megawatt hours of
generation) consistently fell every year of the NBP.
Figure 5: Comparison of Ozone Season Daily NOX Emissions for
All NBP Units, 2003-2008
8000
1000
Jun
Aug
Sep
Jul
Month
2003 2004 2005 2006 2007 2008
Note: The relatively high May 2004 daily emissions represent the
delayed May 31st compliance date that year for non-OTC states.
Source: EPA, 2009
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The NOX Budget Trading Program: 2008 Highlights
Compliance: Through a wide range of pollution control
strategies, sources achieved nearly 100 percent compli-
ance in 2008:
• Only 2 units (out of 2,568 units) were out of compli-
ance by a total of 63 tons, and 189 allowances were re-
tired as a penalty.
• Continuous trend of near-perfect compliance since
start of program in 2003.
Allowances: Prices and activity were down in 2008 but
there is still a substantial bank and an active market:
• 28 percent price decline in 2008, from an average
price of $825 per ton in January to $592 per ton in
November.
• Market observers should not confuse temporary price
fluctuation in response to major regulatory changes
(more or less regulation) with price volatility.
• 275,367 unused NBP allowances transferred for future
use under CAIR.
Continuous Emission Monitoring Systems: Although
many NBP units with low levels of emissions did not have
to use CEMS, the vast majority—over 99 percent—of the
NOX emissions under the NBP were measured by CEMS
(see Figures 6 and 7):
• About 70 percent of NBP units used CEMS in 2008, in-
cluding 100 percent of coal-fired units.
Controls: Sources could select from a variety of compliance
options to meet NBP emission reduction targets, including
installing control technologies, optimizing existing con-
trols, switching fuels, retiring units, and reducing output:
• Average NOX emission rate for all units has dropped by
45 percent since 2003.
• 70 percent of NBP units have NOX controls; they pro-
duced 96 percent of megawatt hour output in 2008.
Figure 6: Monitoring Methodology for the NBP by Number of
Units in 2008
Source: EPA, 2009
Figure 7: Monitoring Methodology for the NBP by Ozone Season
NO, Emissions in 2008
<1% (Gas Units
w/o CEMS)
3% (Gas Units
w/ CEMS)
2% (Oil Units
w/ CEMS)
<1% (Oil Units
w/o CEMS)
Notes:
• The 2,562 units represented in Figures 6 and 7 are the same as in
Figure 2 of this report, excluding the three unclassified units and
three other units, all of which reported no emissions in 2008.
• Percentages add up to more than 100 due to rounding.
Source: EPA, 2009
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The NOX Budget Trading Program: 2008 Highlights
Ozone: Ground-level ozone has decreased since imple-
mentation of the NBP in 2003 (see Figure 8):
• Analyses of ozone trends using various metrics show
regionwide ozone reductions ranging from 10-14 per-
cent in the NBP region (in 2003, EGUs throughout the
eastern United States plus large industrial sources
in the NBP region were responsible for 21 percent
of ozone season NOX emissions in the eastern United
States).
• There is a strong association between areas with the
greatest reductions in NOX emissions and downwind
sites exhibiting the greatest improvements in ozone.
Figure 8: Seasonal Average 8-Hour Ozone Concentrations in the
NBP Region, 1997-2008
70
60
50
I 40
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The NOX Budget Trading Program: 2008 Highlights
Human Health Benefits: Studies continue to show
a significant link between exposure to air pollution,
particularly PM2.5 and ozone, adverse health effects
including respiratory and cardiovascular effects, and
premature death:
• NOX reductions due to the NBP have led to reductions
in ozone and PM2.5 that are estimated to have saved
580-1,800 lives in 2008.
Ecosystem Protection: Changes in ozone and nitrate
concentrations due to the NBP have contributed to
improvements in ecosystems in the East:
• Ozone
The eastern United States has experienced a
decrease in areas with significant ozone damage
to seven ozone-sensitive tree species. Ozone has a
strong effect on the health of many plants and can
increase their susceptibility to disease, insects,
fungus, and other environmental stresses, such as
harsh weather.
Nitrate
There has been a 33 percent reduction in total
ambient nitrate concentrations in the East. Nitrate
deposition can be harmful to sensitive ecosystems,
vegetation, and water bodies by causing acidification,
eutrophication, changes in biological communities,
and an increased sensitivity to changes in the
environment.
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The NOX Budget Trading Program: 2008 Highlights
Clean Air Interstate Rule
CAIR was issued on March 10, 2005, in order to build on
the emission reductions under the NBP and the ARP. The
rule was designed to permanently lower emissions of SC>2
and N0xin the eastern United States. CAIR, as promulgated,
was designed to help states address ozone nonattainment
and attain the NAAQS for PM2.5 by reducing transported
precursors, SC>2 and NOX. CAIR is also intended to improve
visibility in Class 1 areas, including national parks, monu-
ments, and wilderness areas. To do this, it created three
separate compliance programs: an annual NOX program, an
ozone season NOX program, and an annual SC>2 program.
Each of the three programs uses a two-phased approach,
with declining emission caps in each phase. The first phase
began in 2009 for the NOX annual and NOX ozone season
programs, and will start in 2010 for the SC>2 annual pro-
gram. The rule also establishes a second phase for all three
programs beginning in 2015. Similar to the NOX SIP Call,
CAIR gave affected states NOX emission budgets and the
flexibility in their state implementation plans (SIPs) to
reduce emissions using a strategy that best suits their cir-
cumstances, including EPA-administered, regional cap and
trade programs as one option.
All 28 states and the District of Columbia chose to be part
of the EPA-administered regional CAIR trading programs.
Monitoring and reporting according to EPA's stringent reg-
ulations for the NOX programs began in 2008; monitoring
and reporting for SC>2 began in 2009.
Litigation and CAIR Replacement Rule
On July 11, 2008, the U.S. Court of Appeals for the D.C. Cir-
cuit issued a ruling vacating CAIR in its entirety. EPA and
other parties requested a rehearing, and on December 23,
2008, the Court revised its decision and remanded CAIR to
EPA without vacatur. This ruling leaves CAIR and the CAIR
Federal Implementation Plans (FIPs)—including the CAIR
trading programs—in place until EPA issues new rules to
replace CAIR.
While the court did not impose a deadline by which EPA
must issue the replacement rules, EPA estimates that de-
velopment and finalization of replacement rules could take
about two years. EPA is committed to issuing rules to re-
place CAIR that will help states address the interstate air
emissions transport problem in a timely way and that fully
comply with the requirements of the Clean Air Act and the
opinions of the D.C. Circuit Court.
Current CAIR Implementation in NBP States
All NBP states, except Rhode Island, are included in the CAIR
NOX ozone season program (see Figure 10). Furthermore,
the CAIR NOX ozone season program includes six additional
eastern states (Florida, Iowa, Louisiana, Mississippi,
Arkansas, and Wisconsin) and full state coverage in
Alabama, Missouri and Michigan. The 2009 CAIR NOX
ozone season cap is 580,000 tons.
NBP states affected by CAIR transitioned to the CAIR NOX
ozone season program on May 1, 2009. In addition, most
NBP states (except Rhode Island, Massachusetts, and Con-
necticut) are also subject to emission reductions under the
CAIR annual NOX programs to help states attain the NAAQS
for PM2.5- States meet their NOX SIP Call obligations using
the CAIR NOX ozone season trading program and, as a re-
sult, CAIR allows states to include all of their NBP sources
in the CAIR NOX ozone season program (even if they would
Figure 10: Transition from the NBP to CAIR
fn CAIR States controlled for
fine particles
[J CAIR States controlled
for ozone
CAIR States controlled for
both fine particles and ozone
Notes:
• States in the NBP region are shown inside the black boundary
line.
• EPA has proposed and is finalizing a rule to stay, or suspend, the
effectiveness of CAIR in Minnesota.
Source: EPA, 2009
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The NOX Budget Trading Program: 2008 Highlights
not otherwise be affected by CAIR). Most states used this
flexibility, and those that did not are pursuing other strat-
egies to meet their 2009 NOX SIP Call reduction require-
ments from their NBP sources. Rhode Island has decided
not to join the CAIR trading program but must continue to
meet its NOX SIP Call reduction requirements.
The 2009 CAIR NOX ozone season emission cap for EGUs
is at least as stringent as the NBP, and in some states is
tighter. The trading budget for any NBP state that includes
its industrial units under CAIR will remain the same for
those units as it was in the NBP. CAIR also allows sources
to bank and use pre-2009 NBP allowances for CAIR NOX
ozone season program compliance on a 1:1 basis, thereby
giving sources in those states the incentive to begin reduc-
ing their emissions sooner. Flow control no longer applies
in 2009 and beyond, so transferred NBP allowances may
be used under CAIR on a straight 1:1 basis with no restric-
tions or time limits.
Furthermore, sources outside of the NBP region can buy
and use pre-2009 NBP allowances in the CAIR NOX ozone
season trading program. Finally, in order to be in compli-
ance, NBP sources that did not have enough allowances
in their accounts at the end of the reconciliation period
to cover their 2008 ozone season emissions surrendered
2009 CAIR allowances at a 3:1 ratio.
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The NOX Budget Trading Program: 2008 Highlights
Appendix A: Ozone Season NOX Emissions (Tons) from NBP Sources, 1990-2008, and 2008 State
Trading Budgets
2008
State 1990 2000 2003 2004 2005 2006 2007 2008 Budget
AL
CT
DC
DE
IL
IN
KY
MA
MD
Ml
MO
NC
NJ
NY
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
64,272
92,059
44,359
84,485
240,768
199,137
1,099
56,153
115,348
51,866
149,176
1,923,831
84,560
4,697
134
5,256
119,460
145,722
101,601
14,324
28,954
80,425
34,058
73,082
14,630
43,583
159,578
87,329
288
39,674
69,641
40,043
109,198
1,256,237
50,895
2,070
72
5,414
48,917
100,772
63,057
9,265
19,257
45,614
29,407
51,943
11,003
34,815
133,043
51,530
209
34,624
55,376
32,766
69,171
849,220
40,564
2,191
35
5,068
40,976
68,375
40,394
7,481
19,944
39,848
16,190
39,821
10,807
34,157
67,304
52,140
177
25,377
31,399
25,448
41,333
609,029
33,632
3,022
279
6,538
37,843
57,249
36,730
8,269
20,989
42,157
18,809
32,888
11,277
36,633
54,335
51,125
253
18,193
25,718
22,309
30,401
548,649
27,812
2,514
115
4,763
36,343
55,510
37,461
5,464
18,480
40,353
15,917
30,387
8,692
26,339
52,817
52,806
181
18,376
23,930
20,491
28,852
507,603
28,744
2,152
76
5,454
35,630
56,374
40,210
3,666
16,521
34,354
12,961
28,390
7,773
24,728
57,862
57,615
187
18,418
23,261
22,957
28,967
506,300
30,221
1,721
133
4,285
34,126
57,838
39,386
3,230
10,667
34,358
12,777
27,105
7,139
20,934
54,644
56,747
161
17,552
21,711
19,596
27,089
481,420
25,497
4,477
233
5,227
35,557
55,729
36,109
12,861
15,466
31,247
13,459
34,703
13,022
41,385
49,842
50,843
936
19,678
31,480
21,195
29,507
528,453
Notes:
• Emissions for Alabama, Michigan, and Missouri are for units in the portion of the state that became subject to the NBP in 2004 (Alabama and
Michigan) and 2007 (Missouri).
• The 2008 state budget values include opt-in allowances, where applicable (New York, Ohio, and West Virginia).
• Emissions for prior years reflect emission resubmissions as of April 1, 2009, and may differ slightly from numbers that appear in previous
progress reports.
Source: EPA, 2009
10
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United States
Enivironmental 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-09-026
October 2009
www.epa.gov/airmarkets
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