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Overview of the Ozone Transport Commission (OTC) NOx Budget Program

This program was implemented from 1999 to 2002, and has since been replaced by the NOx Budget Trading Program under “the NOx SIP Call.” The information on this page is provided as historical background only.

The Ozone Transport Commission (OTC) NOx Budget Program is an environmental program to reduce summertime NOx emissions, which cause ozone formation, in the northeast United States. The program caps summertime NOx emissions at 219,000 tons in 1999 and 143,000 tons in 2003, less than half of the 1990 baseline emission level of 490,000 tons. The OTC NOx Budget Program uses an allowance trading system which harnesses free market forces to reduce pollution.

What is the environmental goal of the OTC NOx Budget Program?

The goal of the OTC NOx Budget Program is to reduce summertime NOx emissions region-wide as a part of each state's effort to attain the national ambient air quality standard (NAAQS) for ground level ozone. These NOx reductions will take place in two phases, the first phase beginning on May 1, 1999 and the second phase on May 1, 2003.

The Ozone Transport Commission (OTC) comprises the states of Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, Maryland, Delaware, the northern counties of Virginia, and the District of Columbia. In September 1994, the OTC adopted a memorandum of understanding (MOU) to achieve regional emission reductions of NOx. (However, Virginia was not a signatory of the MOU.) These reductions are in addition to previous OTC state efforts to control NOx emissions, which included the installation of reasonably available control technology (RACT). In signing the MOU, states have committed to developing and adopting regulations that would reduce region-wide NOx emissions in 1999 and further reduce emissions in 2003. (Maine and Vermont are not required to adopt these regulations as they are already in attainment for the ozone NAAQS.) The NOx Budget Program represents the Northeast's effort to control NOx emissions in order to make progress towards attainment of the ozone health standard.

How does the program work?

The OTC states in collaboration with the U.S. EPA, as well as representatives from industry, utilities, and environmental groups, developed a model rule which identifies key elements that should be consistent among the regulations in all participating states so that an integrated interstate emissions trading program is created. The elements determined in the model rule include: program applicability, control period, NOx emissions limitations, emissions monitoring, record keeping of emissions and allowances, and electronic reporting requirements. It is now the responsibility of each state to go through its own regulatory process to develop and adopt state rules that are consistent with the model rule.

The OTC NOx Budget Program involves an allowance trading system which harnesses free market forces to reduce pollution, similar to the U.S. EPA's Acid Rain Program. Under this program, budget sources will be allocated allowances by their state government. Each allowance permits a source to emit one ton of NOx during the control period (May through September) for which it is allocated or any later control period. For each ton of NOx discharged in a given control period, one allowance is retired and can no longer be used.

Allowances may be bought, sold, or banked. Any person may acquire allowances and participate in the trading system. Each budget source must comply with the program by demonstrating at the end of each control period that actual emissions do not exceed the amount of allowances held for that period. However, regardless of the number of allowances a source holds, it can not emit at levels that would violate other federal or state limits (i.e., NSPS, Title IV, NOx RACT).

Who is affected?

Generally, the program affects electric utilities and large industrial boilers. Specifically, the program affects all fossil fuel fired boilers or indirect heat exchangers with a maximum rated heat input capacity of 250 MMBtu/hour or more; and all electric generating facilities with a rated output of 15 MW or more. In addition to the budget sources identified in the MOU, states have the option of subjecting additional source categories to the program. Other stationary sources of NOx emissions have the option of voluntarily complying with the program (i.e., opt-in) on an individual basis.

How was the OTC NOx Budget established?

In June 1995, the NOx Budget was established through the cooperative efforts of the OTC, U.S. EPA, industry, and environmental groups, by applying the OTC MOU emission reduction targets to each source contributing to the 1990 baseline for NOx emissions. The NOx Budget was then divided among the participating states, who will allocate allowances to their respective budget sources.

What are the requirements and deadlines?

For the control period of May through September 1999, the start of the first phase of the program, the region-wide seasonal NOx budget is 219,000 tons. This means that beginning in 1999, the sum of NOx emissions in the region can not exceed 219,000 tons. This cap will remain in place until 2003, the start of the second phase of the program, when the cap will be reduced to 143,000 tons of NOx across the region. Each budget source will be allocated NOx allowances from their state on either an annual or multi-year basis. Compliance is determined by ensuring that allowances held by a source at the end of each control period meet or exceed the emissions for that source for the given control period, as reported to EPA by certified monitoring systems. In order to prepare the data acquisition and tracking systems and allow for early reductions to be banked, it is also expected that certain emissions monitoring and electronic data reporting requirements will take effect during the 1998 ozone season.

How are emissions measured and reported?

In order to demonstrate compliance, budget sources must monitor and report their actual emissions. Sources with large NOx emissions must monitor using continuous emissions monitoring systems. Sources with lower NOx emissions may use simpler estimation methods. Regardless of the method used to determine emissions, the data used to support these determinations must be reported electronically to EPA.

What is the role of the states?

The OTC States are responsible for enacting regulations consistent with the model rule in order to achieve the region-wide NOx reductions in a consistent, enforceable manner. Each state is also responsible for identifying its budget sources and allocating its allotment of NOx allowances among the sources in the state. States are also responsible for ensuring that sources are in compliance with all of the requirements of the program. This includes both requirements related to the monitoring and reporting of actual emissions and the compliance demonstration process. Consistent with the model rule, each state must also determine the baseline of sources wishing to opt in to the program and the early reduction allowances to be awarded sources for reductions undertaken prior to the beginning of the program in 1999.

What is the role of the EPA?

EPA is responsible for reviewing and approving each state's regulations into its State Implementation Plan (SIP) for attaining the NAAQS for ground level ozone. EPA is also responsible for developing and operating the NOx Allowance Management System (NAMS) and the NOx Emissions Tracking System (NETS) for this program. For the NAMS, this entails administering transfers of allowances, new accounts, and the annual reconciliation process, whereby account holdings are cross-checked with emissions on a unit by unit basis for compliance determination. EPA will also analyze and distribute information on activity in the allowance market. For the NETS, EPA will collect and analyze emissions data and distribute emissions information. Finally as with any Title I program, EPA may also play a role in enforcement.

What is the relationship of the OTC NOx Budget Program to the Ozone Transport Assessment Group (OTAG) process and the Acid Rain NOx reduction program?

OTAG, which comprises the 37 eastern most states, is currently studying possible future strategies for controlling NOx emissions. If the OTAG process or subsequent efforts result in a program similar to the OTC NOx Budget Program, the OTC states and the U.S. EPA will work to coordinate these programs.
The OTC NOx Budget Program is separate and distinct from the Acid Rain "Phase I and II" NOx reduction requirements. Sources affected by these programs are responsible for demonstrating compliance with the requirements of both programs.

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