Environmental Valuation & Cost-Benefit News

The NOx Budget Trading Program (NBP) is a market-based cap and trade program created to reduce emissions of nitrogen oxides (NOx) from power plants and other large combustion sources in the eastern United States. NOx is a prime ingredient in the formation of ground-level ozone, a pervasive air pollution problem in many areas in the East. The NBP was designed to reduce NOx emissions during the warm summer months, referred to as the ozone season, when ground-level ozone concentrations are highest. This report provides background on ozone formation and effects and evaluates progress under the NBP in 2006. The report examines reductions, reviews compliance results and market activity, and compares changes in emissions to changes in ozone concentrations.

The NBP, a Cap and Trade Program, Is Effectively Reducing Emissions across a Broad Region

* The emission budget for each state, set by EPA, creates a cap on emissions at a level chosen to help states meet their air quality goals.
* In 2006, emissions were again below the region-wide cap.
* With high compliance, reduced emissions, and an active trading market, the NBP is delivering important public health and environmental results.

There Have Been Improvements in Nonattainment Areas in the East since Implementation of the NBP

* In 2004, EPA designated 104 areas in the East as 8-hour ozone standard nonattainment areas. In 2006, four out of five of the original nonattainment areas now meet the ozone standard. The vast majority of the remaining areas also came closer to attainment.
* The NBP is the most significant contributor among several EPA programs leading to improvements in ozone.

Ozone Season NOx Emissions Have Declined across the Region

* Total NOx Budget Trading Program (NBP) NOx Emissions in 2006 were 491 thousand tons.
* Affected electric generators and large stationary sources in NBP states have reduced ozone season (May 1 - September 30) NOx emissions:
o 74% from 1990 (before implementation of the Clean Air Act Amendments),
o 60% from 2000 (before implementation of the NBP), and
o 7% from 2005.
* The main reason for this has been the NBP, but reductions also occurred due to the Acid Rain NOx Program, CAA Title I RACT, and other state controls.

Sources Achieved a High Level of Compliance

* Compliance in 2006 with the NBP was 99.7%.
* Out of a total of 2,579 units affected by the NBP in 2006, only 4 sources (total of 7 units) were out of compliance:
o 2 sources (with 2 units) from the power sector and
o 2 sources (with 5 units) from the industrial sector.

Decreases in Ozone Have Occurred since Implementation of the NBP

* Ozone concentrations decreased by 5-8% in the NBP region since implementation of the NBP.
* There is a strong association between areas with the greatest reductions in NOx emissions and nearby downwind sites exhibiting the greatest improvements in ozone.
* Areas with the largest NOx emissions reductions include: Illinois, Indiana, Kentucky, Ohio, Tennessee, and West Virginia.

U.S. Environmental Protection Agency www.epa.gov
Published September 2007
http://www.epa.gov/airmarkets/progress/nbp06.html