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Following Scathing Report, Air District’s Emissions Banking Program Faces Scrutiny

Mar 12, 2019

Kevin Hamilton was surprised when he learned that, for decades, industries that pollute have been able to trade emissions reductions under a San Joaquin Valley Air Pollution Control District program. It’s like a bank: If a company installs a new technology that reduces its pollution—and that’s the program's goal—the company can earn what’s called emission reduction credits, or ERCs. It means it can emit more with no penalty. “And you can trade them, they have value,” Hamilton says. “You get a certificate, it's like a stock certificate.”

As the CEO of the Central California Asthma Collaborative, Hamilton is a long-time air quality advocate and community advisor to the Valley air district. When he began looking into the ERC program a few years ago, he was disappointed that so little information was available on who was earning credits and for how much. “I started asking: ‘Can we see a list of those?’ At that time, they couldn't even produce a list for us,” he says.

Central California Asthma Collaborative CEO Kevin Hamilton testified during the CARB meeting in Fresno in January.
Credit Cal-Span

In other words: Is the program even working? “I don’t know,” Hamilton says. “We can’t tell. There’s no record.”

But living in an air basin that already fails to meet many federal air quality standards, Hamilton wanted more information. He and other air quality advocates asked a Washington, DC non-profit called Earthworks to look into the ERC program. After nearly two years digging through documents they obtained through the Public Records Act, Earthworks released a scathing report in November.

Among other things, it argues the air district does not have the documentation to back up many of the credits it’s issued. “I admit it was worse than I thought it was,” Hamilton says. “I thought there might be some reporting errors, I didn’t know quite what, but this is not good.”

Some credits have been around for almost 40 years, which the report argues is too long to remain valid. Plus, the air district appears to have granted some credits against the recommendations of its own staff, and the EPA, with no documentation as to why. A handful of those credits went to an oil refinery on Bakersfield’s Rosedale Highway. It’s been idle since 2008, but while it was operating, , the credits meant it would have been allowed to emit six additional tons of pollution—every day—for over two decades. “What happened?” Hamilton asks, looking at the report. “How did we get there?”

Authors of the Earthworks report, published in November 2018, warn that due to depreciation and a lack of documentation, many of the emission reduction credits issued by the Valley air district may be invalid.

In January, the statewide Air Resources Board, or CARB, agreed to formally evaluate the local program. “We were very much concerned when we saw the report,” says Michael Benjamin, CARB’s Chief of Air Quality Planning. “Ultimately our board also recognized that there was some issues that needed to be investigated.”

Benjamin says CARB expects to share its findings in September, after reviewing the air district’s credits and how it awards them. “The opacity of the district’s banking program is something that we want to be able to better understand,” Benjamin says, “and with any banking program, having a good paper or electronic trail is really important.”

Dave Warner, Deputy Air Pollution Control Officer with the Valley air district, says the Earthworks report was too narrowly focused to produce an accurate picture. “It was a lot of correct facts but incorrect conclusions,” he says.

Warner argues ERCs are helping to reduce emissions, but since they’re just one part of a much bigger permitting program, he’s unable to produce data to show their specific air quality impacts. Each year, however, the air district does submit a report to the EPA to demonstrate this program satisfies federal requirements for offsetting emissions.

Plus, Warner says, many of the individual case studies analyzed in the Earthworks report, like the idle oil refinery, were already approved by air authorities decades ago. “Those are the same projects that CARB and the EPA gave us a clean bill of health in the 1995 audit,” he says.

The biggest ERC beneficiaries are oil and gas companies, and Kara Siepmann with the Western States Petroleum Association says ERCs help that industry grow. “With a banking system in place, businesses are allowed to develop new facilities,” she says. “It even brings in new businesses that wouldn’t normally be able to operate in the San Joaquin Valley.”

That’s because the credits they earn when they improve their emissions can be used to save money down the line. “When you’re creating new projects, you’re creating new jobs, and so the overall economic development of the region is going to increase,” Siepmann says. “And at the same time still paying attention to improving air quality.”

Compared to other stationary sources of industry pollution, the petroleum industry has dropped many of its emissions at a faster rate - including reactive organic gases, which are similar to volatile organic compounds and are a precursor to PM2.5. For direct PM2.5 emissions, however, trend lines show the opposite trend: Oil and gas emissions rising slightly while others fall.
Credit California Air Resources Board Emissions Inventory

Cindy Pollard with major petroleum company Aera Energy says she doesn’t appreciate the report’s implication: That producers and refiners have a disregard for air quality. After all, she says, Aera’s employees breathe the same air as everyone else. “It makes it kind of personal for us," she says. "We value where they live and because of that, we have a strong commitment to protecting the environment.”

Aera is currently building the largest solar farm in the state, which it expects to offset hundreds of thousands of tons of carbon dioxide emissions each year.

Over the last two decades, the petroleum industry has generally reduced its emissions at a faster rate than other industries, but not when it comes to particulate matter. For oil and gas, PM2.5 emissions have actually increased, which has direct implications for asthma attacks, reduced immune function, and cardiovascular problems among Valley residents.

With such high stakes, Kevin Hamilton wonders: Should emission reduction credits even exist? “We have nothing to draw credit against,” he says. “We are in a deficit spending mode when it comes to air quality.”

At the very least, he hopes the state will help the ERC program become a little less hazy.