Emission Reduction Credits
Marketing Pollution Reduction
It’s good for business— and it’s good for the air.

A Guide to the Emission Reduction Credits (ERCs) System

How to....

• Clean the air
• Increase your profit
• Enhance your company’s reputation

Emission Reduction Credits (ERCs)

What is an ERC?

An ERC is a credit earned by a company when it reduces air emissions beyond what is required by permits and rules. It is an asset that can be used by its owner or sold to companies that need emission offsets.

An emission offset occurs when a company compensates for an increase in emissions in one area by decreasing emissions in another area. For example, if a company is expanding, and the expansion will involve an increase in emissions, this company can use ERCs to offset the emissions increase.

Emission offset requirements include a set tradeoff ratio that ensures a continuous decrease in air pollution. So when a company redeems emission reduction credit (ERC) certificates to offset increased pollution levels, the end result is less air pollution. And once the certificates are redeemed, the ERCs are retired, and cannot be used again. The ERC system is both good for business and good for the air.

ERCs have a market value. They can be bought and sold between companies. Companies can also use ERCs to reduce costs involved in an expansion—or just to protect a variety of expansion options for the future.

Earning ERCs also means earning goodwill in the community. Nationally and locally, communities are applauding businesses that take the initiative to reduce pollution.

So How Does it Work?

Companies earn ERCs when they reduce emissions of ROC, NOx, PM (including PM₁₀), CO or SOx beyond what is required by APCD permits and rules. This can be done by adding emission controls to a process, replacing equipment, or closing a facility.

ERCs are only issued for reductions of actual emissions that are quantifiable, enforceable, permanent and surplus.

As long as these criteria are met, there is no minimum or maximum limit on the amount of reductions that may be eligible for ERC Certificates. A credit can be earned for reducing as little as one ton of emissions. The ERC Certificate becomes a commodity for your business.

ERCs are issued and traded in units of tons per quarter, so if you reduce ROC by 20 tons per quarter, you receive an ERC Certificate for that amount, unless you shut down a facility or piece of equipment. In that case, you receive slightly less credits than the emissions actually being reduced.

Steps to Follow to Earn ERCs

1. Consider how you want to reduce emissions at your business.
2. Call our ERC Engineer at (805) 961-8824 to discuss your plans.
3. Submit application Form 5A (there are fees).
4. Go through the APCD review process, and verify that the planned emission reductions meet the four evaluation criteria.
5. Receive a preliminary Decision of Issuance (DOI) and a final DOI after a public comment period if applicable.
6. Make sure you have a permit if control equipment is required to generate the ERCs. You can apply for an Authority to Construct (ATC) permit when you begin the ERC process.
7. Start operating the new equipment to determine whether emission reductions match what was planned.
8. Obtain Permits to Operate (PTO) for any new equipment.
9. Receive an ERC Certificate in units of tons per quarter, good for five years, and renewable thereafter.

Steps to Follow to Redeem ERCs

1. If you are using all or part of your ERC Certificate, you must submit a form to the APCD ("Authorization of ERC Use," Form 5U.)

2. If you have previously obtained an ERC Certificate and wish to use it, you must also inform the APCD in your permit application (per Rule 204.E.5).

3. If you purchase an ERC Certificate from another company, you need to identify the source when you submit your permit application (per Rule 204.E.5).

4. If you want to know who has ERC Certificates, go to the Source Register Database.

5. Negotiations between the buyers and sellers of ERCs are private and do not involve the APCD.

6. APCD maintains a Source Register for ERC transactions to track who has earned them, how many are available, the quantities traded among parties, and the sale price.

7. ERC Certificates may only be used once. Upon redemption, they are no longer valid for future transactions.

For more information:

ERC Engineer 805-961-8855
Business Assistance 805-961-8868
Email to: Kaitlin Ergun  ergunk@sbcapcd.org

Non-regulated businesses can also earn ERCs, generally by replacing pieces of equipment with low-emission models. These companies enter into a contract with the APCD that allows inspections and may include other specifications for the facility or equipment. Reducing emissions from mobile sources (buses, trucks, and other vehicles) can also earn ERCs, although certain restrictions do apply. ERC Certificates may be sold by non-regulated entities to any business that needs them.

Under New Source Review (Rules 802 and 803), the APCD can only allow new or modified, large sources of pollution in the county if previous reductions can "offset" the emissions above a certain threshold. Companies that wish to open a facility or add equipment can satisfy this requirement by redeeming ERCs. Offset requirements include a tradeoff ratio to ensure a net air quality benefit. For example, if a new facility will emit 80 tons of ROC per year, emission offset requirements will make it necessary for the business to redeem credits for 120 tons of emissions. The 40-ton difference produces a net benefit to air quality.

Companies that own ERC Certificates may use them at any time, in whole or part, to meet New Source Review requirements. Or they may sell the credits to other companies that need them. The actual value of an ERC will fluctuate depending on APCD rules at the time of use.

• New Source Review (Rules 802 & 803)
• Emission Offsets (Rule 804)
• Emission Reduction Credits (Rule 806)
• Flaring (Rule 359) for special use of ERCs
• California Environmental Quality Act (CEQA)
• OCS Air Regulation Rule 40CFR, Part 55 for special use of ERCs

For more information or assistance, call the Engineering and Compliance Division at (805) 961-8800, or e-mail us at engr@sbcapcd.org

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