Emission Offsets/Emission Reduction Credits

An offset is an emission reduction credit that is used to mitigate an emission increase from a new, replacement, modified or relocated emissions unit. The California Clean Air Act requires that the district implement a permitting program designed to achieve no net increase in permitted emissions of certain pollutants and their precursors from new or modified stationary sources. To achieve this goal, all increases in permitted emissions must be offset by a reduction beyond what is required by district rules, either at the facility where the increase will occur or at another permitted facility.

Emission offsets must be provided from a facility with a similar operating schedule to that of the proposed facility. District Rule 26.2 part B.4 and Rule 26.6 part F require that the percentage of annual production that occurs each calendar quarter, known as the quarterly profile, overlap at least 80% of the time at the two facilities.

Offsets are required for certain increases in the pollutants and their precursors for which the district has not attained state or federal requirements. Those are reactive organic compounds (ROC) and nitrogen oxides (NOx), which react in the atmosphere to form ozone, as well as particulate matter with a diameter up to 10 microns (PM10) and sulfur dioxide (SOx), which reacts in the atmosphere to form particulate matter.

District Rule 26.2 part B.1 requires that offsets be provided for any increase in these pollutants for any new, replacement, modified or relocated stationary emissions unit when there is a potential to emit an amount equal to or greater than 5 tons ROC or NOx or 15 tons PM10 and SOx per year on a pollutant-by-pollutant basis.

ERCs are the banked emission reductions available for use as an offset for emission increases from new, replacement, modified or relocated emission units. They are credits created by the largest-emitting companies when they permanently reduce air emissions beyond what is required. The reductions must be quantifiable and enforceable, according to district Rule 26.4. In most cases, companies need to submit an application to the district to bank ERCs. ERCs are measured in tons per year.

Common ways include shutting equipment down, reducing fuel consumption, installing control equipment that isn’t required, modifying equipment or processes and replacing equipment with lower-emitting versions.

They are documentation of credits for emission reductions issued by the district and used for offsets.

Internal ERCs are used by the same company, and external ERCs are sold or leased to other largest-emitting companies to allow for an increase in permitted emissions from new or modified facilities. The buying and selling of ERCs is a private transaction between companies, but district staff members should be notified so that they can make sure that both parties understand all requirements.

When offsets are required because there is an emission increase from a new, replaced, modified or relocated emissions unit, the offset amount must exceed the emission increase by 10% or 30% depending on the post-project potential to emit on a pollutant-by-pollutant basis.
Also, the district ensures every offset trade results in an air-quality benefit by issuing ERC certificates for a lower amount of emissions than were reduced to create them. For example, if the district certifies a company reduced emissions by 10 tons a year, it may issue an ERC certificate for 9 tons a year.

The facilities are those that emit more than 5 tons of reactive organic compounds or nitrogen oxides or more than 15 tons of particulate matter with a diameter up to 10 microns or sulfur dioxide a year. Less than 10% of facilities that must obtain permits from the district fall in this category.