L.A. emissions credits at core of power plant issue

Late at night last September, while feuding lawmakers publicly and bitterly reached a multibillion-dollar deal – finally — to allow Southern California air-quality regulators to resume issuing pollution credits, a hijacked bill emerged quietly from the Assembly and headed to the Senate.  

The obscure bill originally dealt with making college textbooks affordable for students.

But that bill, SB 388 by Sen. Ron Calderon, D-Montebello, was quickly rewritten: The textbooks were taken out and a $900 million power plant was put in. The Assembly speedily approved it, and it has sat for the last six months in the Senate Rules Committee waiting for a Senate vote. Ostensibly, the bill was dead.

In reality, it is the focus of a new push to win approval. And it is becoming a touchstone in the ongoing dispute between environmentalists and power generators over the L.A. basin’s air quality.

The revised language allows the new Walnut Creek power plant planned for the City of Industry to get emission credits from the Southern California Air Quality Management District, which enforces anti-pollution rules in Orange County and the urban areas of Los Angeles, Riverside and San Bernardino Counties.

“There’s a real need for new power plants. Some of the plants in the basin are nearly 50 years old. This bill strives to allow the construction of a newer, cleaner plant that can fire up in a much shorter period of time,” said Calderon spokesman Rocky Rushing.

 The credits, he added, “are the only source of emission offsets available. That’s why we need legislative action. The bill is the game.”

The credits will allow the 500-megwatt power plant, which has received official approvals to proceed, to actually begin operating when it’s completed.

The plant, a project of Edison Mission Group, is expected to employ some 220 people. It is a major project, and would supply power under contract to Southern California Edison and the grid.

It’s supporters note that it employs newer, greener technology than older plants, can be operated more efficiently, fulfills a critical need for reliable electricity in the L.A. basin and allows the retiring of a number of inefficient plants. It is seen by some as a new generation power-generating facility, and one that will help the state in it’s transition toward a greater level of renewable energy.

Absent the bill, however, Walnut Creek likely will sit dormant because pollution credits — if they can be found at all — are enormously expensive.

The economic implication of selling and buying those credits is at the core of a complex environmental-energy dispute in the Los Angeles basin.

In 2006, the AQMD noted that a credit to allow a particulate pollution called PM-10 cost $50,417 per pound. Two years later, one estimate put the price at $214,000 per pound on the open market, while another put it at $295,000. Capitol, environmental and industry experts said the per-pound credits can cost even more, up to $600,000. It is premature to identify the potential cost of current credits obtained through AQMD, but it could be in the neighborhood of $92,000 per pound, according to one AQMD estimate. The district has not taken a position on Calderon’s bill.

The AQMD in 2006 and 2007, noting the tight-credit that was crimping energy development in the L.A. basin, made credits available to power plants – a move that drew fire from environmentalists, who filed lawsuits against the district.

If SB 388 is approved, the cost of PM-10 credits is likely to be less, or even free through AQMD, which means a power plant could save millions of dollars if the bill is approved.

Three power plants were viewed in the Capitol as beneficiaries of the emissions when lawmakers debated the AQMD’s credits-distribution bill, SB 827 by Sen. Rod Wright, D-Inglewood, which was signed into law by Gov. Schwarzenegger.

Wright’s bill, in effect, blocked a court decision in a suit mounted by environmentalists and allowed the AQMD to resume distributing emissions credits, including those for essential services, such as hospitals, schools, fire stations and the like.  Wright and his allies said the halt in credits potentially resulted in a $4.4 billion economic hit caused by job loss and stalled development. That’s because businesses need credits to operate. And when businesses shut down in the basin, their unused emission credits flow to the AQMD’s reserve of credits to be distributed to other entities.

“The governor’s approval now helps jump-start our ailing economy while protecting our air quality,” William Burke, the AQMD board chairman, said after the bill was signed.

One of the three power plants, Sentinel in Riverside County, was cleared to receive the credits, under a separate bill that moved along with Wright’s.

Two other projects, however, remain in limbo: Walnut Creek in the City of Industry and an NRG plant in El Segundo.

Both El Segundo and Walnut Creek are plants that use newer technology, so if older plants are retired and new ones take over, the net result is energy generated with less pollution. In the El Segundo plant, the project actually is a repowering at an existing facility.

But environmental critics of emissions credits for power plants say the issue is not so simple. They contend, among other things, that the credits essentially are fabricated and don’t lead to real cuts in pollution. In effect, their distribution to power generators doesn’t result in a pollution reduction, which is the fundamental goal.

“The real issue here is whether or not the AQMD can manufacture emission reduction credits,” said Angela Johnson Meszaros, an attorney and environmental justice consultant.  “The reality is this: In the real world, if the district is fabricating credits, then you are not actually getting the air cleaner, because you are giving the credits to polluters,” she said.

“But even if the credits really exist, what we’re saying is, ‘If that’s case, and you want to build a new, cleaner power plant, then you should identify the plant, shut it down, get your emission credits and build your new plant,’” she added. Without that, she said, “we’re talking about a massive amount of new pollution and we’re opposed to that.”

The AQMD is the air pollution control agency for all of Orange County and the urban portions of Los Angeles, Riverside and San Bernardino counties. This area of 10,743 square miles is home to over 16.7 million people – about half the population of the whole state of California. It is the second most populated urban area in the United States and one of the smoggiest.

The notion of market trading pollution-reduction credits is an outgrowth of earlier legislation. The idea was that if the per-credit price soared, power companies would be encouraged to build cleaner plants.

“But instead of that, when the price of credits got high, for whatever reason, the power industry has been trying to ignore the market signals. They thought it was the most efficient way to run the market – until it effects them, and then they run to Sacramento,” said David Petit, an attorney with the Natural Resources Defense Council.

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