SERA     Improving  EPA's Performance
                   with Program  Evaluation
                   An Evaluation of the SCAQMD Regional Clean Air Incentives
                   Market:  Lessons in Environmental Markets & Innovation
                                                                              Series No. 4
By continuously evaluating its programs, EPA is able to capitalize on lessons learned and incorporate that
experience into other programs. This enables the Agency to streamline and modernize its operations while promoting
continuous improvement and supporting innovation. This series of short sheets on program evaluation is intended
to share both the results and benefits of evaluations conducted across the Agency, and share lessons learned
about evaluation methodologies in this evolving discipline.  For more information contact EPA's Evaluation Support
Division at www.epa.gov/evaluate.
           At a Glance
Evaluation Purpose
To investigate causes of increases in RECLAIM
trading credit prices and program effectiveness.
Evaluation Type
Outcome Evaluation
Publication Date
November 2002
Partners
EPA Region 9 (San Francisco) Air Division
Contacts
Ken Israels, Region 9 (415) 947-4102;
Richard Grow, Region 9 (415) 947-4104
Web Link	               	
http: / /www.epa.gov/region09 /air /reclaim /
index.html
Background:  Why was an evaluation
performed?

Adopted in 1993, RECLAIM, the Regional Clean Air Incentives
Market, is a federally approved "emissions trading program"
developed and implemented by the South Coast Air Quality
Management District (SCAQMD) in EPA Region 9. RECLAIM
sets a factory-wide pollution limit for participating facilities that
emit sulfur oxides (SO ) and nitrogen oxides (NO ).  As part of
the program, businesses decide what equipment, processes, and
materials they  will use to meet their emission limits.  Facilities
that successfully reduce emissions more than required can sell or
trade air pollution credits to other companies that need more time
to clean up their emissions or that find the cost of buying credits
cheaper than buying and installing new equipment. No matter
who buys or sells credits, RECLAIM requires that total emissions
from all participating companies be reduced each year. Between
2000 and  2001, the prices of RECLAIM credits increased.
Additionally,  some  facilities experienced difficulty meeting
emissions levels.  As a result, EPA conducted an evaluation to
investigate the causes  of the events and to examine the
                                                        NCEI

                                                        NATIONAL CENTER  FOR
                                                        ENVIRONMENTAL  INNOVATION

-------
effectiveness of the RECLAIM program.  Three key
performance questions were posed:  (1) whether
expected emission reductions were achieved; (2) what
type of emission control strategies  had been applied
by market participants; and (3) whether the  program
was cost effective overall.

Basic Evaluation Approach:  How
did they do it?

The evaluation was completed using the four steps
outlined below.
Step I:   Review existing RECLAIM background
          materials on program implementation and
          performance.
Step II:   Conduct interviews with 20 stakeholders
          representing   regulated   facilities,
          environmental organizations, regulatory
          agencies, and brokerage  firms.
Step III:  Analyze background data and interview
          results.
Step IV:  Report findings and lessons learned.

Evaluation Results:  What was
learned?

The evaluation revealed the following results.
•  Market-based programs require significant planning,
   preparation, and management during development
   and throughout the life of the program.  Market
   information is a  key factor affecting facility
   decision-making. This includes providing sufficient
   information about market trends.
•  Regulators should strive to create confidence and
   trust in the market by making a full commitment to
   the program and ensuring consistency in the market
   and their policies.
•  Unforeseen external circumstances (like energy
   deregulation) can have dramatic impacts on market-
   based programs. Therefore, these programs must
               be designed to  react quickly and effectively to
               unforeseen  external factors.  Periodic evaluation,
               revisiting of program design assumptions,  and
               contingency strategies are crucial to  keeping
               programs on track.
            •  RECLAIM'S experience suggests that a market based
               approach can work with the  Clean Air Act's New
               Source Review program.  This may be a function of
               the types of sources included or the controls in place
               at many facilities.
            •  Regulators need to have a strong understanding of
               the regulated facilities and the factors impacting
               companies'  decision-making.

            Evaluation Outcome:  What
            happened as a result?

            The evaluation identified key design features  of the
            RECLAIM program that, if designed differently, might
            have addressed the unexpected increase in the price
            of RECLAIM emission  credits. Office of Air and
            Radiation staff are using the lessons  learned from the
            evaluation  as  they monitor  existing programs  and
            consider the development of similar emissions trading
            programs. The evaluation results are also being used
            in other forums, such as  the Clean  Air Act Advisory
            Committee, which met  in November 13,  2002 to
            inform other innovative regulatory efforts.
                 Approach  for this  Evaluation
            Step I
            Review Existing RECLAIM Background Materials
            Step II
            Conduct Interviews
            Step III
            Analyze Resulting Information
            Step IV
            Report Findings and Lessons Learned
 United States
 Environmental Protection
 Agency
Office of Policy,
Economics and Innovation
(1807T)
      June 2003
EPA-100-F-03-008

-------