In 1999, the Department of Defense (DoD) initiated the Emission Reduction Incentive Pilot Program. Military installations now have the opportunity to use the proceeds from sales of air emission credits at their installation instead of depositing them to the US Treasury. Establishment of the pilot program provides military installations with a monetary incentive to incorporate more pollution prevention measures into their environmental management strategies. The Pilot Program has been in effect since 30 September 1999, and has been renewed to the end of FY00, with current action being taken to extend until FY02. The program includes an annual cap of $500,000 for the entire DoD.

The purpose of the Pilot Program is to encourage military facilities to reduce their air emissions below legal limits. The facility must be located in a state or local air quality district that provides an economic incentive program. The facility can use the net proceeds from the sale of emissions for use in the management of environmental programs subject to certain conditions.

Economic incentives may not be sold if needed for operational use or if they are attributable under closure or realignment of a military installation under Base Realignment and Closure. Sales may be transacted similarly to the private sector, including the use of an air broker, listing in environmental trade letters and local newspapers, and through the local air pollution control district.

In emissions trading programs, the commodity being traded is tons, or fractions of tons, of actual emission reductions of criteria pollutants which consist of nitrogen oxides or NOx, sulfur oxides or SOx, volatile organic compounds or VOC, carbon monoxide (CO), and particulate matter (referred to as PM-10). The emissions can be generated by either stationary or mobile sources.

In most trading programs, sources trade emissions at a "rate," for example, one ton per year for some number of years, or indefinitely. Oxides of nitrogen (NOx) and volatile organic compounds (VOC) are the pollutants most frequently traded.

For all emission trading programs, emissions must be:

1. Surplus, meaning that the reductions are not required by other regulations;
2. Real, meaning that the reductions have already occurred and that production will not lead to an increase elsewhere in the facility or air basin;
3. Quantifiable, meaning that the reductions can be measured;
4. Enforceable, meaning that violations can be enforced by the agencies allowing the trade; and
5. Permanent, meaning that the reductions will continue in perpetuity.

There are basically two types of emission trading programs. New Source Trading and Banking programs allow facilities to bank emissions credits to be used to offset emission increases caused by new or modified sources and/or for inter-pollutant trading (i.e., NO₂ emissions can be used for a new VOC source). Allocation trading programs define a facility’s emissions allocation and create a "bubble" inside which allocations can be traded. The three established allocation trading programs (also known as cap-and-trade) currently in place include the Sulfur Dioxide (SO₂) Trading, the Ozone Depleting Chemicals (ODC) manufacturing capability trading, and the Regional Clean Air Incentives Market (RECLAIM) program in the South Coast Air Quality Air District (SCAQMD). These three programs differ in the pollutants addressed, the allocation structures, trading deadlines, expiration rules and geographic adjustments. All are designed to provide flexibility within an area or region to implement pollution prevention measures which will ultimately improve overall air quality.

Under most programs, emission reduction credits or ERC’s are generated based on emission reductions achieved above and beyond the requirements of the regulations. Since these emission reductions are real, quantifiable, and impact the emissions for the life of the associated piece of equipment, the ERC certificates typically do not have an expiration date. The ERC’s are a commodity that can be sold in part or as a whole. Once sold, the seller has no claim over the emissions credits.

Pilot Program Success Stories

March ARB is located in Riverside County in Southern California and is the first DoD installation to participate in the Emission Reduction Incentive Pilot Program. March ARB is covered by the RECLAIM Trading Program and also the Emission Reduction Credit Program in Riverside County. March ARB has a surplus of NOx, VOC, SO₂, CO and PM10 ERCs created from a reduction in base operations. In addition, the base converted from using JP-4 to JP-8 in 1994. Because JP-8 has significantly less VOCs than JP-4, the base was able to convert this savings in emissions into ERCs.

The table below summarizes the ERCs and RTCs (RECLAIM Trading Credits, which are specific to the RECLAIM Trading program) sold to date. In addition, March ARB has on the market 1999 and 2000 RTCs and SO₂, PM10 VOC and CO ERCs.

The base plans to accrue an undetermined amount of Mobile Source Emissions Reduction Credits (MSERCs) from the use of clean fuel vehicles. These MSERCs can then be converted to RTCs for that year and be sold like other RTCs.

The second success story for the pilot program is the trade/sale involving 18.31 tons of NOx RECLAIM Trading Credits (RTCs) available from MCAS El Toro. These credits became available due to the operational closure of the facility in July, 1999. After review by the Deputy Assistant Secretary of the Navy for Environment and Safety, the facility was authorized to offer the RTCs in exchange for ERCs in another Southern California air basin to accommodate emerging Marine Corps or Navy needs or to sell the RTCs if an exchange was not possible. The RTCs were subsequently exchanged for ERCs in the San Diego Air Basin. The value of the exchanged RTCs was estimated at $640,885 as of August 2000. Subsequent to that exchange, the Navy has entered into a sale transaction that is currently in progress. The outcome and revenue generated by this sale was not currently available at the time of this writing. This data will be available by contacting the Program Administrator (see POC section below). Additional websites containing information on air credit programs and the DoD pilot program include:

https://www.denix.osd.mil/

http://yosemite.epa.gov/aa/programs.nsf

The compliance benefits listed here are only meant to be used as a general guideline and are not meant to be strictly interpreted. Actual compliance benefits will vary depending on the factors involved, e.g. the amount of workload involved.

• Provides incentive to exceed environmental and regulatory air emissions reduction goals and reduce emission below legal requirements.
• May provide reductions that decrease facility emissions below Title V permitting thresholds.
• May reduce or eliminate local VOC requirements in ozone non-attainment and maintenance areas.
• Emission reduction credits can also be used to offset emissions increases under New Source Review, Prevention of Significant Deterioration, and Base Realignment and Closure.
• Encourages the use of cleaner fuels or less polluting raw materials.

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DoD and Navy
Ms. Lisa Trembly (Executive Agent Program Administrator)
Naval Facilities Engineering Service Center
1100 23rd Ave (ESC 426)
Port Hueneme, CA 93041
Phone:  (805) 982-3567
or (805) 982-4832
DNS 551-3567
Email: tremblyla@nfesc.navy.mil

Army
Mr. Larry Webber
Phone:  (410) 436-1214

Air Force
Bret Donegan for the March ARB Program HQ AFRC
Air Compliance Manager
Phone:  (478) 327-1043
Email:  mailto:bdonegan@wrb.afres.af.mil