The Nickel Report

The South Coast Air Quality Management District’s (SCAQMD or the District) Regional Clean Air Incentives Market (RECLAIM) made history as California’s first emissions cap-and-trade program. But the District’s decision to sunset the program has resulted in significant uncertainty surrounding RECLAIM’s transition for local communities and industry alike.

Widely acclaimed at its 1993 inception, the program was intended to promote more efficient emissions reductions by allowing facilities to meet their annual cap either by adopting pollution controls directly or by purchasing RECLAIM trading credits (RTCs) from other facilities able to install controls at lower cost and achieve emissions below their caps. In its early years supporters praised RECLAIM as a success, pointing to significant reductions across the South Coast Air Basin. But in more recent years, the US Environmental Protection Agency (EPA) and other stakeholders criticized RECLAIM as falling short of expectations, pointing to periods of RTC price spikes reducing the program’s coverage and a subsequent glut of RTCs from plant closures that critics claim lowered the incentive for pollution reductions at remaining RECLAIM facilities.

In its 2015 Air Quality Management Plan (AQMP), SCAQMD proposed enhancements to RECLAIM’s effectiveness. The California Air Resources Board (CARB) criticized the plan for falling short of air quality objectives, and EPA rejected it in 2016. Rather than amending the plan to address CARB and EPA concerns, however, in 2017 the SCAQMD Governing Board decided to sunset RECLAIM by transitioning sources covered by the program back to a command-and-control regulatory system.

But the District’s RECLAIM sunset transition plan also has come under fire. Some stakeholders criticized the plan for doing too little too slowly. Others worried the District’s transition schedule was overly ambitious and failed to consider critical issues, such as the need to develop source-specific emissions standards and to amend the so-called New Source Review (NSR) permitting program before shifting facilities out of RECLAIM.

Since its adoption of the initial transition plan in March 2018, SCAQMD has commenced the process of proposing broad ranging rule amendments intended to implement RECLAIM’s sunset and convened a working group in an attempt to gain consensus on balancing stakeholder concerns. Although initially reluctant to extend its schedule for transitioning RECLAIM sources back to a command-and-control regime, following a series of EPA consultations, working group sessions and public meetings, SCAQMD ultimately conceded the necessity of resolving a variety of issues in its existing rules before sunsetting RECLAIM.

Among other things, this will entail a lengthy and complex technical evaluation of existing RECLAIM sources to establish emissions controls satisfying Best Available Retrofit Control Technology (BARCT) before SCAQMD will have a basis for adopting new, source-specific emissions standards for RECLAIM facilities. The District also has accepted EPA’s recommendation to reconcile its existing NSR rules for RECLAIM and non-RECLAIM sources. This RECLAIM NSR transition is complicated by a number of factors, not least of which being inconsistencies in how emissions increases and offsets are calculated under the RECLAIM and non-RECLAIM NSR programs. An existing shortage of NOx Emission Reduction Credits (ERCs) in the South Coast Air Basin, the structure of SCAQMD’s proposed “large source bank” intended to address the shortfall, and the fate of RTCs after RECLAIM transition (e.g., whether such RTCs may be converted to ERCs) further complicate the transition.

These BARCT and NSR transition issues alone are likely to require significant technical and legal consideration—and to spur further stakeholder debate—before the District will be ready to propose a comprehensive set of RECLAIM sunset rules that can pass muster with CARB, EPA and with the courts if challenged. Hence, RECLAIM sunset timing currently appears to be a moving target.

Meanwhile, the District’s significant policy shifts since 2015 have opened it to further criticism. In their public comments on SCAQMD’s RECLAIM transition plan and related rule development proposals, for example, some stakeholders have questioned the District’s compliance with California Environmental Quality Act (CEQA) requirements.

Among other concerns, critics have highlighted SCAQMD’s reliance in recent rule development efforts on earlier CEQA documentation not contemplating RECLAIM transition, including impacts analyses supporting the disapproved 2016 AQMP. Along with this asserted “piecemealing” concern, stakeholders question the appropriateness of the District’s more recent impact assessments focused on individual rule revisions given the interdependence of the many rules being considered for amendment as part of SCAQMD’s comprehensive RECLAIM transition plan.

While RECLAIM’s days appear numbered, significant questions remain regarding the timing and details for its transition. What is certain is that the District’s RECLAIM sunset will be more complex and more distant that initially projected.