Emissions Trading 101

1
Emissions Trading 101

• Corky Martinkovic
• Arizona Dept. of Environmental Quality
• Air Quality Division Planning Section
• WESTAR BART Technical Conference
• August 31 September 1, 2005 Portland, Oregon

2
World Before Trading

• Stationary sources would obtain permit
• Emissions would be monitored and reported
• Compliance with permit conditions tracked
• Go on like this for next 5 years or until a
  modification tripped a permit revision

3
In a constant universe

• There would be no changes to regulations or air
  quality
• There would be no need for source to change its
  production capacity
• There would be no fluctuation in the market for
  the sources materials
• There would be no demographic shifts

4
However

• Faced with change sources could
• apply controls
• find a way out of applying controls
• shutdown
• Or, they could trade

5
How emissions trading was born

• Some sources could afford to apply controls and
  wanted to reap the benefits, and offset the cost
  of controls
• Some sources could not afford to apply controls
  and wanted to reap the benefits of increased
  capacity, and offset the cost of controls
• But how to find each other

6
The World of Trading

• The concept of trading is as old as dirt
• Emissions trading began in 1970s
• EPAs 1990 Acid Rain Program capped sulfur
  dioxide emissions in the east
• Trading became institutionalized
• But, with or without a trading program, sources
  can trade emissions

7
Flexibility requires structure

• Before trading was given a structure sources
  needed to discover on own
• Where can I find available emissions?
• How do I know these emissions are any good?
• Is the cost of the trade realistic, fair?
• How do I account for these emissions?
• Can I keep these emissions for a rainy day?
• Im new how can I get some emissions?

8
Essential Elements

• Because trading must be
• Efficient
• Transparent
• Reliable
• Emissions reductions must be
• Quantifiable
• Permanent
• Enforceable

9
How is that done?

• You build a trading parlor
• Foundation and walls permits
• Décor monitoring and reporting
• Nails and wiring compliance
• Tables with place cards registry
• Servers brokers or agents
• Cashier administrator
• No uninvited guests, no back room tables, no
  flies in the soup, and no watered-down drinks

10
Will they come to my trading parlor?

• Emission caps - sorry, we have a drink limit
• Law of supply and demand sorry, were all out
  of lobster
• Backstop milestones sorry, we cant seat you
  until 2018
• Compliance sorry, we dont serve your kind here

11
Optimizing

• Trading programs need a critical mass of
  traders buyers and sellers
• Programs that capture more traders increase
  critical mass
• Trading must be cost-effective
• Trading allows for flexibility in a changing
  market, making reductions more likely
• Its bad business to poison the customer