SCAQMD's "RECLAIM" program; what does it all mean?

Sometime within the next six months the South Coast Air Quality Management District (the "SCAQMD" or "District") will almost certainly adopt a new program that it terms; a bold, almost revolutionary, departure from traditional methods of regulating air pollution. This new approach has been termed "RECLAIM" for Regional Clean Air Incentives Market. The District plans to begin implementation of RECLAIM in January 1994.

Currently, companies normally must obtain a permit from the District for each piece of pollutant emitting equipment which it regulates. For a large operation, this can mean dozens or even hundreds of permits since one is required for each piece of equipment. In most cases the permit conditions and District rules set forth in exasperating detail what kind of equipment can be used, the emission limits it must meet, and how it can be operated.

Violations of any permit condition or rule can lead to massive penalties and fines and, in the worst case, a possible shutdown of the equipment or facility. Such close control is currently required by state and federal law in order to achieve the federal clean air standards.

The intent of RECLAIM is to replace most of this so-called "command and control" style of regulation for a selected group of facilities with a free market approach while achieving the same emissions reductions currently promised by implementing current regulations and the AQMP (the Air Quality Management Plan, or blueprint, for attaining clean air in this basin). The District hopes to accomplish this at a lower cost to regulated industry and with less adverse impact on the economy than imposed by traditional control programs.

Companies would be allowed to achieve required emission reductions of the three primary smog producing gases; oxides of nitrogen (NOx), sulfur oxides (SOx) and reactive organic compounds (ROC), through their choice of add-on controls, the use of reformulated products, by other appropriate and approved techniques, and/or by purchasing excess emission reductions from other sources. This would allow a great deal more flexibility for companies in meeting emission reduction goals necessary for eventual attainment of the air quality standards by the federally mandated dates. Permits for individual items of equipment could be replaced by one facility permit with a single emission limit per pollutant.

This process can be visualized as putting an imaginary bubble over each facility and limiting the total amount of emissions which can escape through the bubble. If a facility reduced its total emissions below that required by the District, it would then be free to sell these excess reductions on the open market.

A yearly decreased in emissions would be required to comply with federally mandated air quality attainment dates. Each facility would initially be allocated an annual emissions "cap" based on its current or past emissions. The initial value of this cap would be determined using what is termed the "baseline" emissions from a facility. Since future emissions from the facility would be required to decrease each year, the choice of an appropriate baseline is a critical element in determining the success of the RECLAIM program as well as successful operation of a regulated business.

The precise value of this initial baseline can affect the compliance status of a facility, and potential imposition of severe penalties as well as whether or not the District achieves its mandated annual area-wide emissions reduction goal. The District has proposed that this baseline be the highest annual emissions from a facility from the years 1989-1991 reduced by an amount equal to the decrease in emissions required by existing rules from the peak year to the start of the RECLAIM program.

However, during recent workshops several business have complained that such a definition could penalize companies that have managed to reduce their facility emissions well below that currently allowed. Such facilities would be assigned very low initial baselines from which they would then be required to achieve further annual reductions, and possibly be penalized for failure to do so. Since these companies have already greatly exceeded required reductions, such a requirement would be grossly unfair.

Other companies complained that their emissions during the period 1989-1991 may have been artificially low due to the recession and that they should have a higher baseline to reflect more normal operating levels. The District has attempted to respond to such inequities by adding provisions to correct for the recession and developing a concept called "super-clean facilities." Such "super-clean" facilities would be exempted from the yearly mandated emission reduction for each year in which their emissions already were below what they would be required to be under RECLAIM.

Although relatively simple in concept, RECLAIM is a complex program with many ramifications. The draft rules proposed to implement the program total 16 that add up to more than 80 typed pages in length. Initially RECLAIM would apply only to facilities whose annual emissions equal or exceed four tons for each pollutant. The District hopes to expand RECLAIM to include many smaller sources in the future. Most sources/facilities emitting more than four tons per year of NOx, SOx or ROC are subject to RECLAIM and will be included unless exempted by District rules.

Currently there are a total of about 1,500 to 2,000 facilities subject to RECLAIM, most of them ROC sources. A number of permitted sources in the District's control area have been exempted from RECLAIM. These include some essential public services, and small businesses such as dry cleaners, restaurants and gas stations.

The NOx and SOx facilities are primarily combustion sources. The ROC list does not include ROC from combustion sources or fugitive emissions and consists mainly of emissions generated from product use such as solvents, coating, inks and adhesives.

A source which is not currently on the District's RECLAIM list could opt into the program, including marketable permit provisions, if it shows that it is not in violation of any District rules or operating under a variance. However, once a facility is admitted to the program it cannot drop out later. Once in, you're in for better or for worse.

The most challenging and controversial part of RECLAIM is the marketable emissions aspect. Although this approach is allowed, even encouraged, by the 1990 Amendments to the Clean Air Act it has not yet been applied on the scale proposed by RECLAIM. Upon entry to the program, starting in January 1994, facilities would be issued a "Facility Permit" which would include all emission sources at the facility for all pollutants. Each permit would include a plethora of information about the facility, its emissions baseline, annual emissions cap, special permit conditions, and other information needed to ensure compliance with required annual reductions and all other RECLAIM and District requirements. If at the end of a year a facility had reduced its emissions of a RECLAIM pollutant, like NOx, below that required by RECLAIM, an emissions credit called the "Reclaim Trading Credit" or RTC would be issued to the facility. One RTC would be issued for each pound of pollutant.

The District plans to keep a list of RTCs available for all facilities in the air basin. The RTCs could be traded or sold to other facilities on the open market in the basin as long as the trade complied with District rules. Such transactions must be registered with and approved by the District.

The current proposal calls for a staggered implementation of RECLAIM with about one-half of the eligible sources entering the program in January 1994 and the remainder in July 1994. The District would verify compliance of these facilities with the requirements of RECLAIM on a yearly basis synchronized with the start of the program in January.

The RECLAIM proposal was recently modified to incorporate this staggered start/compliance period as a result of studies performed by Caltech and the Pacific Stock Exchange. These studies indicated that such a schedule would make for a more stable market with less dramatic swings in the price of traded emission credits, would reduce the paperwork burden on the District, and would increase the availability of credits at the end of a compliance year.

For the last two years the District has been at work fleshing out the concept and has drafted a set of rules to implement RECLAIM. Although there are seemingly many benefits with such a market based approach, there are also several potential pitfalls. Perhaps the most serious of these is how far the District believes it must go to ensure compliance with the program and enforcement of its many provisions, including the emission limits and required annual reductions.

The District recently proposed changes in the way it hopes to ensure compliance. Currently if a source or permit unit violates a District rule or exceeds its permitted emission rate, the permit holder would be penalized for every day a violation occurred for each permit unit. Since the RECLAIM facility permits will be issued and regulated in terms of yearly emissions, this system would not apply. The District has proposed a formula by which the percentage a source exceeds its annual emissions cap is multiplied by the number of days in a year to arrive at a surrogate number of violation days. Thus if a facility exceeded its annual emissions cap by one percent this would be deemed to be equivalent to four days of violation under the current system and the source could be penalized accordingly. These penalties are by no means small and could range up to $50,000 per day with the possibility of jail time for particularly flagrant violations.

The District has also proposed an increase in its penalties for recordkeeping violations since it will depend, to a significant degree, on the veracity and accuracy of records maintained by the facility to verify compliance with RECLAIM requirements. State law does not currently allow for implementation of these new penalty and compliance provisions and the District is seeking new legislation to allow such tactics.

Greatly increased monitoring will also be needed to achieve compliance. This will require use of continuous in-place emission monitors ("CEM"), possibly feeding into the District's computer, and other intrusive monitoring techniques. Inspection of facilities will be stepped up and penalties will continue to apply for non-compliance for all regulated facilities.

RECLAIM has been termed a bold new approach by some and fatally flawed by others. Some groups in the environmental community have serious reservations about the ability of the District to ensure that required annual emission reductions will be achieved with RECLAIM in place. They are also concerned that it has not made adequate provisions in the program for continued control of toxic air contaminants. Affected businesses are concerned that rather than reducing paperwork, they will be subject to more red tape, reporting requirements, inspections and scrutiny by the District.

Serious questions remain about how to ensure equity and fairness in the assignment of emissions baselines for each facility upon which annual emission caps and compliance will depend. The District has just completed another in a series of workshops on RECLAIM and plans to begin formal public hearings on the program in June, with potential adoption of all implementing rules by August or September. A lot is riding on the outcome of these hearings and it remains to be seen if the District can successfully address the issues that have surfaced, accommodate the needs of the various factions and continue to make progress in cleaning the air without needlessly imposing yet another layer of government regulation on the business community in Southern California.

Mr. Stazer is Of Counsel with the Los Angeles law firm of Cummins & White and practices environmental law with an emphasis on air pollution and hazardous waste issues. Prior to entering private law practice Mr. Stazer was a senior staff member with the South Coast Air Quality Management District.