Southern California’s Once Groundbreaking Cap and Trade Program is Now Riding Towards the Sunset

by Josh Heintz and Aron Potash

The days are numbered for one of the country’s first air emissions cap and trade programs. On March 3, 2017, the South Coast Air Quality Management District ("SCAQMD" or the "District") Governing Board (the "Board") approved an Air Quality Management Plan ("AQMP") that would phase out the Regional Clean Air Initiatives Market ("RECLAIM") program for 2XX stationary sources located throughout Southern California and replace it with a more traditional "command and control" regulatory framework. The District adopted RECLAIM in 1993 to provide a flexible, market-based compliance program for the largest emitters of oxides of nitrogen ("NOx") and oxides of sulfur ("SOx") by allowing major stationary sources to trade NOx and SOx credits under a cap on total emissions. Innovative at that time, RECLAIM served as a precursor for other cap & trade programs, including California’s AB32 cap & trade program for greenhouse gas ("GHG") emissions.

District staff, with input from a broad and diverse stakeholder working group, has started the difficult task of fleshing out what the post-RECLAIM regime will look like. A flurry of rulemakings have already begun, and the District has released drafts of the first proposed changes to the rules early in November 2017 that staff has indicated it would like to bring to the Board as early as January 2018. A multitude of additional rulemakings, driven both by the AQMP direction and AB 617, will create the post-RECLAIM landscape and are likely to come quickly thereafter. These new rules will target both specific types of equipment (such as heaters, boilers and glass melting furnaces) and entire industries (such as petroleum refineries and electric generating facilities).

This article provides an overview of the history and current structure of the RECLAIM program, followed by an examination of the District’s proposal for phasing out the RECLAIM program.