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Texas has developed a variety of market-based mechanisms to reduce air pollution, including ozone
precursors, nitrogen oxide, emissions from cars and even emissions from Mexico.
The TCEQ's Emissions Banking and Trading
program was established in 1993 to provide flexibility in complying with the Texas Clean Air Act for sources in areas designated as non-attainment for the federal ozone standard. Since then, the program has been expanded to include other types of mechanisms to sources outside of the non-attainment areas and in some cases, to institute state-wide programs for specific industries, such as utilities, obligated to reduce emissions of criteria pollutants. There are a number of different programs within TCEQ's Emissions Banking and Trading program.
Emission Reductions Credit program. Under Texas's Emission Reductions Banking Rule, adopted in 1993,
sources of VOC and nitrogen oxide emissions receive emission reduction credits if they reduce emissions below the level required by law, either through a permanent reduction in emissions or
by closing an emission source. These reduction credits are certified by the TCEQ and recorded or "deposited" in the Emissions Reductions Bank. A company can then sell its credits to companies
within the same non-attainment area that need offsets for new permits or expansion of existing facilities. Since the program began, more than 100 transactions have been made in the
Houston-Galveston, Beaumont-Port Arthur, El Paso and Dallas-Fort Worth non-attainment areas. For example, between August of 2001 and September of 2003, companies had engaged in 30
transactions, totaling about 930 tons of VOCs and about 2,000 tons of nitrogen oxides. *
Mobile emission reduction credits. Under rules adopted by the TCEQ, a private or public fleet of
vehicles that needs to comply with Clean Air Act requirements for low-emission vehicle (LEV) standards may earn mobile emission reduction credits (MERCs) or program compliance credits (PCCs)
by acquiring LEVs earlier than required, by acquiring more than required, or by acquiring fleet vehicles that are certified to meet an emission standard more stringent than the LEV, including
the zero-emission vehicle standard. These credits can be banked, traded, or transferred to other fleet operators unable to comply with fleet regulations within the ozone nonattainment area.
In addition, TCEQ has also adopted rules for Mobile Discrete Emission Reduction Credits (MDERC), where mobile sources such as parcel tankers which choose to operate more cleanly in
nonattainment areas like the Houston-Galveston nonattainment area, could then sell actual measured reductions in emissions to companies needing to meet emission standards that year.*
Discrete emission reduction credit (DERC) program. Under rules adopted by the TCEQ in late 1997, an
"open" market in reduction credits would be created in Texas, using DERCs. Unlike regular emission reduction credits, which are based upon permanent reductions certified by the TCEQ before
being traded or banked, a source would measure an actual reduction and trade it to another company, which would then seek regulatory approval from TCEQ to comply with permit levels or new
regulations based on the reduction. While this "open" market approach might spur more trading among companies, it might not help communities reduce actual emissions, because DERCs are not
permanent reductions. In fact, it could even lead to an increase in emissions as a company produces a DERC one year but not the next. For this and other reasons, DERCs are quite
controversial. However, thus far, DERCs have not been used to a great extent. For example, between August of 2000 and September of 2003, companies completed a total of eight transactions,
totaling 7,060 tons of NOx and 4 tons of carbon monoxide.*
Emission Banking and Trading of Allowances (SB7 Permitting). In 1999, the Texas Legislature approved
tough emission reductions on major utilities that had been "grandfathered" from permitting under the Texas Clean Air Act. However, rather than requiring all utilities to reduce NOx and SO2
emissions equally, the legislation creaated a cap and trade system similar to the federal Acid Rain program. Each utility required to seek a permit under the legislation -- as well as other
utilities wishing to participate -- have been given "allowances" of emissions of these pollutants. The program gives electric generating facilities the opportunity to buy and sell allowances
in order to respond to business needs.
Mass Emissions Cap and Trade Program. This program was adopted in 2000 and is mandatory for all
stationary sources in the Houston/Galveston nonattainment area which are subject to the NOx State Implementation Plan rules, and which have a design capacity of 10 tons or more per year of
NOx emissions. Unlike the previous emission credit program adopted by the agency, the MECT program establishes a mandatory NOx emissions cap on certain stationary sources and then allows them
to allocate, trade or bank the allowances of NOx emissions. However, stationary sources can not use these allowances to exceed the limitations of the annual emission cap. The program is
designed to help different categories of stationary sources meet the ozone standard. Since the program begain, there have been some 85 transactions in the Houston-Galveston nonattainment area.*
Cross-Border Emissions Banking and Trading. A Texas law passed by the Legislature in 2001 would allow
emissions reductions in Mexico to count toward regulatory obligations on the U.S. side of the border. * For example, El Paso Electric Company -- in order to comply with a state requirement to reduce their power plant NOx emissions by 50 percent -- had proposed an alternative plan to reduce emissions in the Paso del Norte airshed by building 60 modern brick kilns with lower emissions of CO, PM-10 and VOC in Ciudad Juarez just across the border. Brick kiln emissions are a serious environmental and health problem in the airshed and it is clear that this investment would provide benefits to the airshed. Nonetheless, some have questioned the logic of allowing a company like El Paso Electic to substitute reduced kiln emissions in Mexico with increased NOx emissions in Texas. In fact, since the proposal, EPE has only built 20 of the 60 kilns and is proposing that only five of these kilns be applied toward the original 50 percent NOx reduction requirement, with the remainder instead count toward a separate federal New Source Review emissions reduction requirement, not currently authorized by U.S. law. *
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