Environmental Progress - Winter 2000

Emissions Trading Program Ends First Year

Illinois was first in the nation to adopt a "cap and trade" program for volatile organic materials

The Illinois EPA (IEPA) recently completed the first year of operation for an innovative volatile organic materials (VOM) emissions trading program. The Emissions Reduction Market System (ERMS) started operation in the Chicago ozone nonattainment area in May of last year.

"Illinois was the first state in the nation to adopt this type of cap and trade program for VOM," said Thomas V. Skinner, director of the IEPA. Emissions trading provides a more cost-effective way for companies to comply with reduction requirements necessary to help meet clean air ozone standards. According to Director Skinner, about a 12 percent reduction in seasonal VOM emissions will result from this program.

Program began with 179 participating sources

The ERMS began operation with 179 sources participating in the VOM emissions market. Participating sources are issued allotment trading units (ATUs) by the IEPA each year for their seasonal emissions from May through September. In 2000, a total of 96,882 ATUs were allotted to sources. These ATUs are equivalent to 200 pounds of VOM emissions and have a two-year life. Trading may take place at any time but is most likely during a three-month reconciliation period that follows the ozone season. By the end of the reconciliation period, these sources must hold the proper number of ATUs to cover the seasonal emissions. Sources may comply by reducing emissions or by trading with another source that has ATUs to sell because it has reduced emissions more than required.

Participants in the ERMS program are required to establish a Transaction Account with IEPA's market operations office. Once ERMS transaction accounts are established, ATUs are allocated to these sources to use in accounting for their emissions for each ERMS season. An account officer must oversee transaction accounts. Each account officer has a unique personal identification number that allows them to electronically submit a variety of information via the Internet to the IEPA including buy/sell posting requests and other types of transactions.

First year saw 32 seasonal trades, three permanent transfers of ATUs

Thirty-five transactions of ATUs took place by the end of 2000, involving 32 seasonal trades and three permanent transfers of allotted ATUs. For the seasonal trades, 1,380 ATUs were traded in 2000. The total amount of monies exchanged was $79,284 while the average price was $75.87 per ATU. In 14 trades, the seller was from Cook County. The next closest was Will County with eight sellers. The buyer was from Cook County for 25 of the trades. The buyer was from DuPage County for three of the trades. Sources in Will County sold 454 ATUs while Cook County sources sold 431 ATUs. Sources in Cook County bought 878 ATUs while DuPage County sources bought 197 ATUs. The three transfer agreements accounted for a total of 318 ATUs being transferred. See the map for more information.

Corn Products of Bedford Park participated in three seasonal trades. "We were pleased to find that the trading process was simple and easy to use," said Alan Jirik, director of environmental affairs for the company. To seek out buyers, they posted a sell notice on the ERMS Internet Website and interested buyers contacted them. This simple design was important in making the market viable, Jirik said, since the trading process is new. American NTN Bearing Mfg. Corp, of Elgin, entered into a permanent transfer of 30 ATUs with another facility. "This is a good example of innovative government-industry cooperation that improves air quality and saves money, demonstrating that a clean environment is good business," says Sam Yoshizawa, vice president and chief operating officer. "We have used some of the money from our emissions credits to support employees who want to use vehicles burning E-85 corn-based ethanol fuel."

Program allows permanent retirement of ATUs

Another innovative feature of the ERMS program is the ability of sources to permanently retire ATUs by donating or selling them to special participants in the program. One of the seasonal trades involved a donation of ATUs for such environmental benefit. Nova Chemicals (U.S.A) Inc., located in Will County, donated 55 ATUs to the University of Illinois at Chicago, which operates as a special participant. "The IEPA is very pleased with the results achieved during this first year of operation," said Director Skinner. "This clearly demonstrates that the market system can work for the participants and the environment." The results from this survey will be described in the first Annual Performance Review Report that must be published in May 2001.