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September 9, 2014 CONFIDENTIAL AND PROPRIETARY Update on Scarcity of Houston- Galveston-Brazoria (HGB) Emission Reduction Credits (ERCs) and Allowances, and use of NOx ERCs for VOC ERCs
September 9, 2014
CONFIDENTIAL AND PROPRIETARY
Update on Scarcity of Houston-Galveston-Brazoria (HGB) Emission
Reduction Credits (ERCs) and Allowances, and use of NOx ERCs for
VOC ERCs
ELEMENT MARKETS INTRODUCTIONUS Emissions House of the Year
Business Units
Greenhouse Gas (GHG) and Emissions Services
Credit MarketingGHG Offset Projects
Renewable Energy Group
Credit MarketingBiogas Development
Launched in 2005, Element Markets has become the leading marketer of environmental commodities in the U.S.
Leading marketer of environmental commodities with a focus on Emissions, GHG,and Renewable Energy (Energy and Transportation Credits), and Biomethane
Over $1.6 Billion in environmental commodities transacted since inception in 2005
Environmental Asset Management Services for over 8,000 MW of generation
Customer base of over 700 companies within the environmental markets
Leading broker in the Texas market for over 8 years
TEXAS NONATTAINMENT AREAS
Houston-Galveston-Brazoria (HGB), Texas
Dallas-Fort Worth, Texas
For NOx and VOC emissions in Houston-Galveston-Brazoria (HGB):
Facilities with NOx PTE > 10 tons are included in the MECT NOx program
Example. New facility with PTE > 25
HGB REQUIREMENT TO OFFSET
Facility Type Potential to Emit (PTE) Required to Offset
New facility > 25 tons All emissions (to zero)
Major modification > 25 tons All emissions (to zero)
100 100
130
0
20
40
60
80
100
120
140
PTE Required to Offset ERCs Required
ton
s p
er
year
x 1.3 =
25
HGB EMISSION REDUCTION CREDITS & ALLOWANCES
ERCs
One-time purchase/offset potential to emit
Perpetual right to operate under air permit
Expires after 5 years if not applied to permit
ERCs are created upon shutdown, process change, or installed control technology
MECT/HRVOC Allowances
Annual Program
Compliance each year
Can sell excess or buy shortfall
Supply of Allowances is capped and usually reduced over time
Allowances allocated at start of program from a historical baseline
New facilities do not receive allocation, but must buy in the marketplace
MECT NOx: Trades in MECT NOx Allowances represented in tons/year
Implemented in HGB in 2002
Initial allocations based on 1997-1999 baseline, declining to 80% reduction by 2008
HRVOC: Trades in HRVOC Allowances represented in tons/year
Initial cap of 3,451.5 tons
25% cap reduction between 2014 and 2017
Transaction types:
Stream (Perpetuity): Good for the life of the program
Current: Good for the current and next compliance year
Vintage: Good for the year immediately following the credit’s vintage year
HGB EMISSIONS CAP & TRADE PROGRAMS
TCEQ MECT NOx STREAMALLOWANCE TRANSACTIONS
0
50
100
150
200
250
300
350
400
450
500
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000N
ov-
02
Feb
-03
May
-03
Au
g-0
3N
ov-
03
Feb
-04
May
-04
Au
g-0
4N
ov-
04
Feb
-05
May
-05
Au
g-0
5N
ov-
05
Feb
-06
May
-06
Au
g-0
6N
ov-
06
Feb
-07
May
-07
Au
g-0
7N
ov-
07
Feb
-08
May
-08
Au
g-0
8N
ov-
08
Feb
-09
May
-09
Au
g-0
9N
ov-
09
Feb
-10
May
-10
Au
g-1
0N
ov-
10
Feb
-11
May
-11
Au
g-1
1N
ov-
11
Feb
-12
May
-12
Au
g-1
2N
ov-
12
Feb
-13
May
-13
Au
g-1
3N
ov-
13
Feb
-14
Vo
lum
e in
to
ns
Pri
ce in
$/t
on
Final Stream Trade Amount Price
HGB MECT NOx SUPPLY vs. DEMAND
0%
20%
40%
60%
80%
100%
120%
140%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% O
vers
up
plie
d
Tota
l ye
arly
allo
cati
on
Emissions Against Actual Allowances Surplus % oversupplied
Surge in project development in HGB over last 2 years
Prices of emission credits and allowances have increased significantly
For example: VOC Emission Reduction Credits have increased in price by over 6,000% since the start of 2011
HGB VOC ERC SHORTAGE
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
0
50
100
150
200
250
1/2
8/2
00
9
1/2
8/2
00
9
3/3
1/2
00
9
4/1
/20
09
4/2
8/2
00
9
9/2
5/2
00
9
2/9
/20
10
5/2
0/2
01
0
7/2
0/2
01
0
7/2
7/2
01
0
1/1
7/2
01
1
6/1
7/2
01
1
12
/21
/20
11
8/2
1/2
01
2
10
/8/2
01
2
10
/11
/20
12
10
/31
/20
12
11
/1/2
01
2
12
/28
/20
12
1/2
4/2
01
3
2/2
5/2
01
3
2/2
8/2
01
3
3/4
/20
13
3/1
5/2
01
3
4/2
5/2
01
3
5/1
/20
13
5/2
4/2
01
3
7/1
7/2
01
3
8/1
5/2
01
3
9/2
4/2
01
3
10
/22
/20
13
11
/14
/20
13
12
/2/2
01
3
12
/9/2
01
3
12
/20
/20
13
1/2
9/2
01
4
3/1
4/2
01
4
3/1
7/2
01
4
3/3
1/2
01
4
6/2
/20
14
7/1
7/2
01
4
Pri
ce in
$/t
on
Vo
lum
e in
to
ns
HGB VOC Emission Reduction Credit Transactions, 2009-2014
Volume Price
HGB ERC VOLUME SINCE 2010
Date Total VOC (tons) Total NOx (tons)
3/23/2010 755.90 41.50
4/27/2010 66.20 37.90
11/29/2011 143.10 24.30
4/26/2012 263.60 24.30
8/3/2012 299.70 24.30
6/15/2012 263.60 24.30
8/3/2012 299.70 24.30
11/7/2012 295.50 37.20
1/3/2013 533.40 47.30
2/4/2013 547.50 47.30
9/17/2013 757.90 88.50
11/7/2013 749.70 141.10
1/14/2014 756.20 142.00
3/17/2014 764.20 155.90
7/1/2014 946.50 172.70
8/21/2014 937.60 168.60
9/9/2014 937.60 168.60
937.6
168.6
0
100
200
300
400
500
600
700
800
900
1000
Total HGB ERCs on Registry
Total VOC (tons) Total NOx (tons)
Stats on HGB NOx and VOC Registry
High majority of ERCs on the registry are held by companies with announced projects
136 tons of VOC ERCs reach their expiration date by November 15th, 2014
VOC ERCs on registry held by 11 distinct companies, of which 4 hold 83%
NOx ERCs on registry held by 8 distinct companies, of which 2 hold 70%
Emissions must have been reported or
represented in inventory used for SIP
determinations
For a permanent shutdown, the entire
permit must be voided
To apply for certification, applicants must submit Form EC-1
Reductions must be reviewed and approved
by TCEQ
Once approved, TCEQ will list on the Emission
Reduction Credit Registry
Once certified, ERCs are available for trade or use
ERC GENERATION - PERMANENT REDUCTION IN VOC OR NOx EMISSIONS
Process for surrender of MECT NOx and creation of NOx ERCs:
Surrender Permits
Turn in EC-1 within 180 days of implementation of reduction strategy
TCEQ reviews the EC-1 form
Once TCEQ verifies the ERC generation amount
TCEQ requests an equal amount of the stream trade (surrender)
After stream trade is complete, TCEQ issues the NOx ERCs.
An entity is able buy or swap for any MECT allowance to be surrendered if they are not in held by entity.
CREATE NOx ERCs AND SURRENDER MECT NOx
Provide HGB VOC ERCs
Historical Route
Provide HGB VOC DERCs for every year of operation
Limited due to Supply of VOC DERCs
Provide HGB NOx DERCs for every year of operation
Modeling, EPA and TCEQ approval
Provide HGB NOx ERCs
Modeling, EPA and TCEQ approval
Provide DFW VOC ERCs
Modeling, EPA and TCEQ approval
Offsetting VOC in HGB
NOx ERCs
Historical Route
NOx DERCs
MECT NOx Allowances
Preferred Route as allows the 1:1 to offset both NSR permit and Annual Compliance with MECT
Offsetting NOx in HGB
NOx ERCs MECT NOx
Offset NOx for NSR (air permit) YES YES
Compliance with Annual MECT NOx Program
NO YES
Usable in lieu of VOC ERCs YES (with air modeling and
TCEQ and EPA approval)
NO
VALUE OF NOx ERCs VERSUS MECT NOx
THANK YOU
“US Emissions House of the Year”, 2014 and 2010 by Energy Risk
Energy Risk Environmental Rankings
• #1 U.S. Regional Greenhouse Gas Dealer
• #1 U.S. Voluntary GHG Credit Dealer
• #2 Renewable Energy Credit Dealer
• #1 NOx & SO2 Dealer
Environmental Finance Magazine
• Best Trading Company in North American Renewable Energy
• Runner- Up, Best Trading Company of North American GHG Markets (California)
• Best Trading NOx & SO2 Company Emission Credits
Mike Taylor, Senior Vice PresidentElement Markets, LLC
3555 Timmons Lane, Suite 900Houston, TX 77027
(281) 207-7207 office(713) 385-3321 cell
