In addition, EPA recently reviewed the RECLAIM program (EPA 2002m). The lessons EPA derived from RECLAIM for other market-based programs include the following:
Market-based programs require substantial planning, preparation, and management during development and throughout the program’s life.
Market information is a key factor affecting decision-making at individual facilities.
Regulators should strive to create confidence and trust in the market by making a full commitment to the program and ensuring consistency between the market and their policies.
Unforeseen external circumstances and policies (such as energy deregulation) can have dramatic impacts on market-based programs. Therefore, these programs must be designed to react quickly and effectively to unforeseen external factors.
Periodic evaluation, revisiting of program design assumptions, and contingency strategies are crucial for keeping programs operating effectively.
RECLAIM’s experience seems to demonstrate that cap-and-trade programs can work with new-source review. That finding may be a function of the types of sources included or the controls in place at many facilities.
Regulators need to have a strong understanding of the regulated facilities and the factors affecting their decision-making.
Since 2000, the SCAQMD has substantially amended and imposed the RECLAIM rules (SCAQMD 2001), and trading prices have returned to pre-2000 levels. At this writing, SCAQMD is actively considering seeking additional NOx reductions from RECLAIM (SCAQMD 2003).
This program was developed by the states of the Ozone Transport Region (OTR) to supplement the NOx emission reductions mandated under CAA provisions for RACT in Title V and the Acid Rain Program of Title IV, which did not adequately address the regional transport of NOx and O3 and the resultant nonattainment of the O3 NAAQS in the region. The OTR mandates the use of a cap-and-trade system involving large stationary sources to reduce NOx emissions during the May-to-September O3 season. It aims to reduce total emissions by 55–65% in the 1999–2002 interval and by 65–75% starting in 2003. The program was initially designed to have two trading zones to avoid possible regional disbenefits of trading but was finally implemented without constraints to maximize cost savings. Interyear banking of allowances is limited in the program through a provision known