Emission Reduction Credits (ERCs or Offsets) were initially established as part of the 1977 Clean Air Act Amendments and greatly expanded in the 1990 Clean Air Act Amendments.
The local ERC program being discussed is for criteria air pollutants, not greenhouse gases. Greenhouse gas credits, if required, must be obtained through the State’s Cap and Trade program which runs very differently than a local ERC Program.
In general the ERC system is relatively simple. A source, let’s call it “A,” wants to expand operations so they purchase another source’s, let’s call them “B,” ‘right to emit’ a fixed amount of a given pollutant. The actual transaction is conducted between the two parties, but the District is involved to ensure the emission reductions are real and to track transactions. The District does not receive any funding from the transaction, nor does its own the credits involved.
Sometimes a third party buys the ERCs before it is used as an investment, this can somewhat complicate the process.
There are geographic limitations on ERC use. Generally they are restricted to the Air District they are generated. However ERCs within two Air Districts in the same Air Basin can be transferred with the approval of both District Boards. The applicable laws and regulations (generally H&S Code 40790 et.sec. and District Regulation 10.2 and 10.9) do not require the Board to allow out of District ERC transfers, approval of individual transfers is a legislative act of the Board.
ERCs are available for five different pollutants, ROG (Reactive Organic Gases), NOx (Oxides of Nitrogen), PM10 (Particulate Matt er), SOx (Oxides of Sulfur) and CO (Carbon Monoxide). Only the first three (ROG, NOx and PM10) currently have any value for credit programs
In October of 2014, the District Board approved an amendment to Regulation 10.9 which allowed FRAQMD credits to be recognized by EPA without individual review. This created two separate pools of credits – “Non Federal” (the existing credits) and “Federal” ERCs. Federal ERCs are more valuable than Non-Federal ERCs because they are more easily transferred. Federal credits can also be used for non-federal projects.
Applicants were required to request federal status prior to the rule being officially approved by EPA, several mailings were made to current permit holders and a number of applications were received.