On August 2, 1996, NJDEP’s Open Market Emission Trading Program became operative with the principle goal of achieving compliance and attainment more quickly and less expensively than the old “command and control” system. The program, which is limited to VOC and NOx, will provide incentive for facilities to make voluntary reductions and allow companies to use excess reductions to comply more cheaply. The currency, discrete emission reductions (DERs), can be generated, transferred, or used without approval by NJDEP. One DER is equivalent to a reduction of 1/20 of a ton.
To generate DERs, actual emissions must be reduced below the level required by federal or state regulations or the facility’s permit. Reductions must be real, surplus, and quantified properly. The quantity of DERs generated is the difference between baseline emissions and actual emissions:
DERs = (baseline emission rate – actual emission rate) x economic output
Each generation period is less than or equal to one year, but generation may occur over consecutive years. DERs cannot be generated from shutdowns or curtailments, reductions occurring before May 1992, or reductions occurring between May 1992 and August 1996 unless filed for by October 1996. For each batch of DERs generated, a Notice and Certification of DER generation must be submitted to the registry within 90 days of the last day of the generation period.
All DERs must be in the registry before they can be used. Through a bidding process, NJDEP chose the Mosakin Corporation ( 908-566-9443, email@example.com) as a private, third party registry operator. The registry assigns a serial number to each DER and includes information from notices of certification, transfer, verification, intent to use, and retirement. Registry information is public. The following is a summary of current registry information:
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DERs must be verified by a New Jersey professional engineer (PE) or certified public accountant (CPA), who is independent of the generator, before use. The verifier submits a Notice of DER Verification to the registry.
There are several general requirements which should be understood before using DERs. No interpollutant trading is allowed – a DER based on NOx emission reductions cannot be used to comply with a VOC requirement and vice versa. Similarly, DERs generated outside the ozone season cannot be used to comply with any requirement during the ozone season. The use period is less than or equal to one year, but DERs may be used over consecutive years. All DERs needed for compliance must be held before actually using them. A Notice of Intent to Use DERs should be submitted 30 days before the beginning of the use period and a Notice and Certification of DER Use 30 days after the end of the use period. If either notice is late, the number of DERs required for compliance will be increased by a multiplier.
DERs may be used to comply with a NOx or VOC emission limit, as emission offsets, or in lieu of a penalty or as part of a compliance schedule. When using DERs for compliance, the user retires 10 percent of the quantity of DERs required for the benefit of the environment. An additional and required use is as compensation for existing flexibility (i.e., AEL, MEG alert, innovative control technology plan). The NJDEP Emissions Trading Workgroup is currently investigating the development of additional uses of DERs, such as “operational flexibility”, in order to foster a robust market.
A DER generated in New Jersey may be used anywhere in New Jersey. DERs generated outside of New Jersey may be used in New Jersey only if an interstate trading agreement has been concluded with the other state and the trade is directionally correct. New Jersey currently has MOUs with Connecticut and Pennsylvania and draft MOUs with Michigan, New York, and Massachusetts.
Generally speaking, each party is responsible for actions within their control. The generator creates reductions that are real, surplus, and properly quantified. The verifier uses due diligence to check that the real, surplus, and quantifiable criteria are met. And finally, the user ensures that the DERs are registered, verified and unused, directionally correct, in sufficient quantity, and used in a non-prohibited manner.
For more information about Open Market Emission Trading in New Jersey refer to N.J.A.C. 7:27-30 or contact Tom Petersen of EES at 215-881-9401.
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