How to Navigate Texas Emissions Banking and Trading (EBT) Programs in Houston

This is the fourth and final blog in a series where I discuss Texas Emissions Banking and Trading (EBT) Programs specifically in the Houston-Galveston-Brazoria (HGB) region.  In this edition, I will discuss different strategies companies can use to get the most out of the EBT system, focusing in on two circumstances:

• What do I do if I need allowances; and
• What do I do if I have excess allowances?

Many facilities that undergo process changes or expansion find that they don’t have enough emissions allowances to cover their annual emissions, and they are stuck with the reality that they must purchase additional allowances to cover the difference.  The cost of these allowances are often overlooked and should be included in the cost estimate of a project during its planning phase to avoid an unanticipated project cost overrun.  There are a few different types of allowances that can be used for compliance purposes.  Depending on the type of allowance purchased (as I will discuss later), the cost can be either a capital cost or an operating cost.

If a company finds that they are short in emission allowances and need to purchase additional emissions allowances, there are a variety of options to choose from.  The first option is to buy “stream” allowances, or allowances that do not expire.  Since they do not expire, they do not have to be purchased each year and are considered a capital cost.  Another option is to purchase “current” allowances.  Current allowances are one-time-use allowances that are usable for the designated compliance period in which they are purchased for, and therefore are considered an operating cost.

For example, if Company X is allocated 100 tons of allowances each year, but only needs 90 tons of allowances for compliance in a year, they can sell 10 current allowances to another facility.  In the following year, Company X will get another 100 tons of allowances allocated to their facility.

The last option is to purchase “vintage” allowances.  Vintage allowances are also one-time-use allowances and are used the same way as current allowances.  Vintage allowances are unused allowances which can be used for compliance in the following compliance year.  However, the vintage allowances are only good for one year before they expire.  When using allowances for a control period, the Texas Commission on Environmental Quality (TCEQ) will deduct allowances with the most recently allocated allowances before deducting vintage allowances to prevent accumulation of unused allowances.

A facility may also find themselves in the position of having a surplus of allowances.  These surpluses usually come from process changes, the installation of air pollution control devices, or partial/total facility shutdowns.  These surplus allowances can be sold in the same way described above.

If a facility plans on needing the allowances in the future, they should consider keeping the stream allowances and selling their vintage and current allowances every year.  If a facility does not plan on needing the allowances or wants a large chunk of change to invest in another project, the stream allowances could be sold.

Facilities can purchase or sell emissions allowances directly to/from another facility, or through an emissions broker.  While the TCEQ keeps a list of historical allowance purchase prices, it is not the most up-to-date resource to find current allowance prices; therefore, many companies choose to use an emissions broker for selling and purchasing decisions.  The TCEQ keeps an up-to-date list of companies buying/selling emissions allowances on this website.

This concludes the EBT Programs blog series where I discussed how to navigate the cap and trade world in the HGB region.  If you missed any of the blogs in this series, be sure to read “Did you know there are 5 emissions trading programs in Texas?!”, “How Does the Texas Mass Emission Cap and Trade (MECT) Program Affect Houston?”, and “How does the Highly Reactive Volatile Organic Compound Emissions Cap and Trade (HECT) program affect Houston?”.  The first article gives a general overview of the programs, while the second and third dive into details of the MECT and HECT programs.  If you have any questions regarding any of these blogs, please reach out to me at thenson@all4inc.com and 281-937-7553 x308.