NOx Budget Trading Program


2005 Program Compliance and


Environmental Results

United States Environmental Protection Agency 

Office of Air and Radiation 

Office of Atmospheric Programs 

Clean Air Markets Division (6204J) 

1200 Pennsylvania Ave., NW 

Washington, DC 20460 

www.epa.gov/airmarkets 

Office of Air Quality Planning and Standards 

Air Quality Assessment Division 

www.epa.gov/airtrends 

EPA430-R-06-013 

September 2006 
Contents


Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1


Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3


Section 1 — Background: Ozone and Major Control Programs. . . . . . . . . . . . . . . . . . . . . 5


Ozone Formation and Health and Ecological Effects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5


Overview: Major Control Programs for NOx and VOCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6


Overview: NOx Budget Trading Program, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9


Section 2 — Changes in Emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11


Ozone Season NOx Reductions under the NOx Budget Trading Program . . . . . . . . . . . . . . . . . . . . . 11


Ozone Season Generation and Emission Reductions by Fuel Type . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


State-by-State Reductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


Daily Emission Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16


Section 3 — Environmental Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17


Ozone Monitoring Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17


General Trends: Changes in Eastern Ozone Concentrations since 1997 . . . . . . . . . . . . . . . . . . . . . . 18


Ozone Changes after Adjusting for Meteorology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18


Ozone Changes: Focus on the NOx Budget Trading Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20


Ozone Impacts on Forest Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25


Section 4 — Compliance and Market Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27


2005 Compliance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27


Banking in 2005 and Flow Control in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28


NOx Allowance Trading in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29


Continuous Emission Monitoring System (CEMS) Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30


Compliance Options Used by NBP Sources in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31


Section 5 — Future NOx Reductions and Ozone Improvements: 


Transition to the Clean Air Interstate Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35


Online Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

NOx Budget Trading Program: 2005 Program Compliance and Environmental Results x Budget Trading Program: 2005 Program Compliance and Environmental Results

Executive Summary


T

he NO Budget Trading Program (NBP) is a x 

market-based cap and trade program created to reduce emissions of nitrogen oxides 

(NOx) from power plants and other large combustion sources in the eastern United States. NO is a x 

prime ingredient in the formation of ground-level 

ozone (smog), a pervasive air pollution problem in 

many areas of the eastern United States. The NBP 

was designed to reduce NOx emissions during the 

warm summer months, referred to as the ozone 

season, when ground-level ozone concentrations 

are highest. This report evaluates progress under 

the NBP in 2005 by examining emission reductions, comparing changes in emissions to changes 

in ozone concentrations, and reviewing compliance results and market activity. 

2005 Key Results 

•	 The NBP has successfully reduced ozone 

season NO emissions throughout the x


region. In 2005, NBP ozone season NOx


emissions were:


–	 11 percent lower than in 2004 even as power 

generation increased by 7 percent (primarily 

due to moving up the seasonal compliance 

period for 11 Midwestern and Southern states 

to May 1); 

–	 57 percent lower than in 2000 (before implementation of the NBP); and 

–	 72 percent lower than in 1990 (before implementation of the Clean Air Act 

Amendments). 

•	 Ground-level ozone has improved since the 

implementation of the NBP. 

–	 Ozone formation depends greatly on weather 

conditions, which can vary significantly from 

year to year. To get a truer picture of how 

emission changes impact ozone formation, 

EPA adjusts ozone concentrations to account 

for the influences of weather. 

–	 Average ozone levels in the NBP region have 

decreased by about 8 percent since 2002. 

Ground level ozone has improved since the 

NBP began in 2003. 

–	 There is a strong association between areas 

with the greatest reductions in NOx emissions and nearby downwind sites exhibiting 

the greatest improvements in ozone. 

–	 In 2004, EPA officially designated 103 areas in 

the eastern United States as 8-hour ozone 

“nonattainment areas”. These areas were 

required to improve their ozone air quality 

with the goal of attaining and maintaining 

the national air quality standards for groundlevel ozone. Based on 2003 to 2005 air monitoring data, ozone air quality improved in all 

of these areas. Nearly 70 percent of them (68 

areas) now have air quality that is better than 

the level of the standard. The NBP is the 

major contributor to these improvements. 

•	 Through a wide range of pollution control 

strategies and an active NOx allowance market in 2005, sources achieved over 99 percent compliance with the NBP. 

–	 There were 2,570 units affected under the 

NBP in 2005. Only three NBP sources ( four 

units total) did not hold sufficient allowances. 

–	 Overall, trading activity increased from 2004 

to 2005 with an active market, and allowance 

prices were slightly lower and somewhat less 

volatile than in 2004. 

–	 The flexibility of the NBP provides sources 

options to reduce NOx emissions, such as 

adding NOx emission control technologies, 

replacing existing controls with more 

advanced technologies, or optimizing existing controls. 

•	 The Clean Air Interstate Rule (CAIR), issued 

in March 2005, will continue the progress 

demonstrated by the NBP. CAIR extends this 

successful cap and trade program to control 

both ozone and fine particles in 28 eastern 

states and the District of Columbia. 

Executive Summary 1 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Introduction


F

or more than three decades, the U.S. 

Environmental Protection Agency (EPA) 

has worked with state, local, and tribal representatives to reduce emissions that contribute 

to the formation of ground-level ozone. This pollutant contributes to a number of serious health 

and ecological effects. 

Early ozone management policies focused on 

reducing ozone by reducing emissions of one of 

its two key precursors, volatile organic compounds (VOCs). VOCs contribute to ground-level 

ozone formation by reacting with nitrogen oxides 

(NOx) in the presence of sunlight and heat. 

Ozone levels have decreased substantially, by 20 

percent, since 1980 (www.epa.gov/ozone.html). 

The downward trend began to slow in the early 

1990s. About that time, emerging science indicated that NOx controls, in addition to VOC controls, might reduce ozone levels more effectively 

across large regions of the United States. 

EPA responded by developing programs to reduce 

NOx emissions, including the NOx State 

Implementation Plan (SIP) Call in 1998, designed 

to reduce the regional transport of ozone and 

ozone-forming pollutants in the eastern half of 

the United States. All 19 affected states and the 

District of Columbia chose to meet mandatory 

NO SIP Call reductions through participation in x 

the NO Budget Trading Program (NBP), a x 

market-based cap and trade program for electric 

generating and large industrial units. 

The 2004 NBP report, Evaluating Ozone Control 

Programs in the Eastern United States: Focus on 

the NOx Budget Trading Program, concluded that 

emissions from affected sources decreased by 

about 50 percent since 2000, before the NBP was 

implemented. In addition, the report showed that 

reductions in ozone concentrations in most of 

the eastern United States more than doubled 

after implementation of the NBP, beginning in 

2003. This 2005 NBP report builds on the previous analyses by assessing continued progress 

under the program. The report: 

•	 Describes ozone formation, its health and environmental effects, and provides background 

on the NBP. 

•	 Evaluates the effectiveness of the NBP in 2005 

by reviewing emission reductions and corresponding changes in ozone concentrations. 

•	 Examines progress and compliance under the 

NBP, including market activity, allowance 

banking and progressive flow control, and 

compliance options employed by sources 

under the program. 

•	 Outlines the additional NO reductions and x 

ozone improvements expected under CAIR 

and how it will affect NBP states. 

Introduction 3 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Section 1 — Background: Ozone and 

Major Control Programs 

Ozone Formation and Health and 

Ecological Effects 

Beneficial ozone occurs naturally in the Earth’s 

upper atmosphere (the stratosphere), where it 

shields the planet from the sun’s harmful ultraviolet rays. At ground level, harmful ozone pollution forms when emissions of nitrogen oxides 

(NOx) and volatile organic compounds (VOCs) 

react in sunlight and heat. Major sources of NOx 

and VOC emissions include motor vehicles, gasoline stations, drycleaners, industrial facilities, and 

electric power plants (see Figure 1). 

Meteorology plays a significant role in both the 

formation and transport of ozone. The complex 

photochemical reactions that transform emissions of NOx and VOCs into ozone require warm, 

sunny conditions. Because ground-level ozone is 

highest when sunlight is most intense, the warm 

summer months (May 1 to September 30) are typically referred to as the “ozone season.” 

Ozone levels can be high where there are concentrated local sources of NOx and VOCs, such as 

urban and suburban areas. The location and concentration of ozone pollution are also affected by 

regional transport — the movement of ozone 

and/or its precursors by the wind. Although, in 

general, urban ozone concentrations are higher 

than rural areas, ozone levels can be elevated in 

some rural areas where there are few local emission sources because of the transport of ozone. 

Ozone Impacts on Human Health and 

Ecosystems 

Exposure to ozone has been linked to a number 

of health effects. At levels found in many urban 

areas, ozone can aggravate respiratory diseases, 

such as asthma, emphysema, and bronchitis, and 

can reduce the respiratory system’s ability to fight 

off bacterial infections. Long-term, repeated 

exposures to sufficient levels of ozone can cause 

permanent damage to the lungs. Recent research 

suggests that acute exposure to ozone likely contributes to premature death. 

Ground-level ozone also damages vegetation and 

ecosystems, leading to reduced agricultural crop 

and commercial forest yields and increased plant 

susceptibility to diseases, pests, and other stresses, 

such as harsh weather. Ozone can damage the 

foliage of trees and other plants, adversely affectWeather Plays a Significant Role in Determining Ozone Pollution in a Given Area 

Ozone is rarely emitted directly into the air. Instead, ground-level ozone forms when NOx and VOCs react 

under the right atmospheric conditions. A dry, hot, sunny day is most favorable for ozone production. In 

general, ozone concentrations increase during the day, peak in the afternoon when the temperature and 

sunlight intensity are the highest, and drop back down again in the evening. 

Wind transports ozone and/or its precursors. Therefore, depending on its direction, the wind can bring in 

more pollution to an area, sometimes from hundreds of miles away. Weather also determines how quickly 

ozone moves away or disperses from an area. Very light winds or no wind can allow ozone and the pollutants that create ozone to build up, providing a more favorable environment for the chemical reactions 

necessary to create ozone. 

When looking at changes in ozone levels (see Section 3, Environmental Results), EPA uses a statistical 

model to account for the impact of weather on ozone concentrations. While no model can account for all 

complex meteorological factors that influence ozone, this adjustment provides a better estimate of the 

underlying ozone trend (i.e., the impact of emission changes). 

Section 1 — Background: Ozone and Major Control Programs 5
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

8-Hour Ozone Standard 

To better protect public health, EPA revised its 

national air quality standards for ozone in 1997, 

establishing an 8-hour standard. The 8-hour 

standard is 0.08 parts per million (ppm). An area 

meets the standard if the 3-year average of the 

annual fourth highest daily maximum 8-hour 

average concentration is less than or equal to 

0.08 ppm. For more information on the 8-hour 

ozone standard and ozone nonattainment areas 

in the United States, visit <www.epa.gov/air/ 

oaqps/greenbk/map8hrnm.html>. 

ing the landscape of cities and national parks, 

forests, and recreation areas. For example, the 

United States Forest Service observed ozoneinduced injury to the leaves of certain ozone sensitive plants ( from 1997 to 2002) in many areas of 

the country, with the highest occurrences in the 

Northeast. Refer to Section 3, Environmental 

Results, for more information. 

For more information on ground-level ozone, 

including health and ecological effects, visit 

<www.epa.gov/epahome/ozone.htm>. 

Overview: Major Control Programs 

for NOx and VOCs 

The majority of NO and VOC emissions in the x 

eastern United States come from mobile sources, 

industrial processes, and the power industry. 

Mobile onroad and nonroad sources (59 percent) 

and electric generating units and large industrial 

sources (22 percent) were responsible for the 

majority of annual NO emissions in the eastern x 

United States in 2005 (see Figure 1). This report 

examines improvements in NO emissions and x 

air quality under the NO Budget Trading x 

Program (NBP), which reduces NO emissions x 

from electric generating units and large industriFigure 1: Manmade Sources of NOx and VOC Annual Emissions 

in the Eastern United States, 2005 

NOx	 VOCs 

Electric 

Other Generating Other 

19% and Large Industrial 

Industrial Processes Solvents 

Sources 27% 

22% 32%

Mobile Other 

Nonroad 2% 

21% 

Mobile Onroad 	 Mobile Mobile 

38% Onroad Nonroad 

24% 15% 

Notes: 

•	 Emissions are from Minnesota, Iowa, Missouri, Arkansas, Louisiana, and states east. 

•	 The Other category for NOx emissions includes some large industrial sources outside the NOx Budget Trading Program 

(NBP), small industrial sources, and other smaller sources such as residential fuel combustion. 

•	 The emission data presented in this figure are measured or estimated values from EPA’s National Emissions Inventory 

(NEI). The NEI incorporates power industry data measured by the continuous emission monitoring system (CEMS); emissions for other sources were estimated by interpolating between the 2002 final NEI data and a projected 2010 emission 

inventory developed to support the Clean Air Interstate Rule (CAIR). 

Source: EPA 

6 Section 1 — Background: Ozone and Major Control Programs 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 2: Manmade Annual NOx and VOC Emissions 

in the Eastern United States, 1990-1995, 1997–2005 

18 18

16 16

0 

2 

4 

6 

8 

10 

12 

14 

1990 1991 1992 1993 1994 1995 

Year 

4 

6 

8 

1997 1999 2001 2003 2005 

Year 

Emissions (Millions of Tons) 

Emissions (Millions of Tons) 

14 

12 

10 

2 

0 

NO VOCs x 

Notes: 

•	 Emissions are from Minnesota, Iowa, Missouri, Arkansas, Louisiana, and states east. 

•	 1996 is not represented in the graphs because there was a change in the method used to collect and estimate emissions, 

particularly for NOx emissions from stationary sources such as the power industry. 

•	 The emission data presented in this figure are measured or estimated values from EPA’s National Emissions Inventory 

(NEI). From 1990 to 2002, the final version of the NEI was used. Starting in 1997, the NEI incorporated power industry data 

measured by continuous emission monitoring systems (CEMS). For this analysis, EPA used CEMS data for the power industry for 2003 through 2005. Emissions for other sources for 2003 through 2005 were estimated by interpolating between 

the 2002 final NEI data and a projected 2010 emission inventory developed to support the Clean Air Interstate Rule 

(CAIR). 

Source: EPA 

al boilers and turbines. Given that these sources 

accounted for about 22 percent of NO emissions x 

in 2005 in the eastern United States, future 

improvements in air quality as a result of reductions from these sources will be limited by their 

contribution. 

Figure 1 shows that 98 percent of VOC emissions 

came from industrial processes (including solvents) and mobile sources. A significant portion 

of VOC emissions might also come from natural 

sources, such as trees, especially during the 

ozone season. Note that the results presented in 

this report do not include emissions from natural 

sources. 

EPA has developed more than a dozen programs 

since 1990 to improve ozone air quality by reducing emissions of NOx and VOCs from major 

sources. These programs complement state and 

local efforts to improve ozone air quality and 

meet national standards. Together, these programs have achieved significant emission reductions across the eastern United States. Figure 2 

shows that total NO and VOC emissions have x 

decreased since 1990, with the largest reductions 

occurring after 1997. 

This report focuses on electric generating units 

and large industrial boilers and turbines covered 

under the NBP. For information on control programs for other major sources of NO and VOCs, x 

such as mobile sources and industrial processes, 

refer to the 2004 NOx Budget Trading Program 

Report at <www.epa.gov/airmarkets/fednox>.1 

1 “Evaluating Ozone Control Programs in the Eastern United States: Focus on the NOx Budget Trading Program, 2004,” 

<www.epa.gov/airmarkets/fednox>. 

Section 1 — Background: Ozone and Major Control Programs 7 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Snapshot: National and Regional Power Industry NOx Control Programs 

Acid Rain Program (ARP) — Congress established the ARP as part of the Clean Air Act Amendments of 

1990. This annual, national program reduces sulfur dioxide (SO2) from electric generating units through a 

cap and trade program. The ARP also reduces NOx emissions from some of these units, but unlike the SO2 

portion of the ARP, there is no NOx allowance trading or cap on NOx emissions. Instead, the ARP NOx provisions apply boiler-specific NOx emission limits (lb/mmBtu) on certain coal-fired boilers that are subject to the 

SO2 requirements of the ARP. NOx limits under the ARP applied beginning in 1996 for some of the largest 

boilers subject to the SO2 requirements; a second phase to reduce NOx emissions from additional coal-fired 

generating units began in 2000. For more information, visit <www.epa.gov/airmarkets/arp>. 

Ozone Transport Commission (OTC) NOx Reduction Programs — The OTC was established under the 

1990 Clean Air Act Amendments. States in the Northeast collaborated to help reduce summertime 

ground-level ozone in the region by achieving ozone season NOx reductions in several phases. In 1995, 

sources were required to reduce their annual NOx emission rates to meet Reasonably Available Control 

Technology (RACT) requirements. From 1999 to 2002, states achieved reductions in NOx from fossil 

fuel-fired electric generating units and large industrial boilers and turbines through Phase I of an ozone 

season cap and trade program, known as the OTC NOx Budget Program. The second phase of the OTC NOx 

Budget Program was slated to begin on May 1, 2003, but was superseded by EPA’s NOx State 

Implementation Plan Call (NOx SIP Call). The OTC states include Connecticut, Delaware, Maine, Maryland, 

Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, and 

Washington, D.C. (Maine, Vermont, and Virginia did not join the OTC trading program. New Hampshire is 

not subject to requirements of the NOx SIP Call). For more information on the OTC, visit 

<www.epa.gov/airmarkets/otc>. 

NOx SIP Call and the NOx Budget Trading Program (NBP) — In 1995, EPA and the Environmental 

Council of the States formed the Ozone Transport Assessment Group to begin addressing the problem of 

ozone transport across the entire eastern United States. Based on the group’s findings and other technical 

analyses, EPA issued a regulation in 1998 to reduce the regional transport of ground-level ozone. This rule, 

commonly called the NOx SIP Call, requires states to reduce ozone season NOx emissions that contribute 

to ozone nonattainment in other states. The NOx SIP Call does not mandate which sources must reduce 

emissions. Rather, it requires states to meet emission budgets and gives them flexibility to develop control 

strategies to meet those budgets. 

Under the NOx SIP Call, EPA developed the NBP to allow states to meet their emission budgets in a highly 

cost-effective manner through participation in a region-wide cap and trade program for electric generating units and large industrial boilers and turbines. All 19 affected states and the District of Columbia chose 

to meet their NOx SIP Call requirements through participation in the NBP. While EPA administers the trading program, states share responsibility with EPA by allocating allowances, inspecting and auditing 

sources, and enforcing the program. Compliance with the NOx SIP Call was scheduled to begin on May 1, 

2003 for the full ozone season. However, litigation delayed implementation until May 31, 2004. Refer to 

the “NOx Budget Trading Program: Affected States and Compliance Dates” on page 9 for more information. 

Clean Air Interstate Rule (CAIR) — On March 10, 2005, EPA promulgated CAIR, a rule that will achieve 

the largest reduction in air pollution in more than a decade. In addition to addressing ozone attainment, 

CAIR assists states in attaining the PM 2.5 National Ambient Air Quality Standards (NAAQS) by reducing 

transported precursors, SO2 and NOx. CAIR accomplishes this by creating three separate programs: an 

ozone season NOx program and annual NOx and SO2 programs. Each of the three programs uses a twophased approach, with declining emission caps in each phase based on highly cost effective controls on 

power plants. Similar to the NOx SIP Call, CAIR gives states the flexibility to reduce emissions using a strategy that best suits their circumstances and provides an EPA-administered, regional cap and trade program 

as one option. States are now choosing the strategy that best enables them to achieve these mandated 

reductions and plans are due to be submitted to EPA for approval by the fall of 2006. 

8 Section 1 — Background: Ozone and Major Control Programs 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Overview: NOx Budget Trading 

Program, 2005 

Over the past 3 years, the NOx SIP Call has 

achieved significant NOx reductions, contributing 

to improvements in regional air quality across 

the Northeast and mid-Atlantic regions. The primary mechanism for achieving these reductions 

is the NBP. 

NOx Budget Trading Program: Affected 

States and Compliance Dates 

In 2005, all NBP affected sources were required to 

comply for the full ozone season, May 1 through 

September 30. 

When reviewing results under the NBP, it is 

important to understand program implementation and compliance dates. Compliance with the 

NO SIP Call was scheduled to begin on May 1, x 

2003 for the full ozone season. However, litigation 

delayed implementation until May 31, 2004. The 

states previously in the OTC NOx Budget 

Program adopted the original compliance date in 

transitioning to the NOx SIP Call and therefore 

began participating in the NBP on May 1, 2003 

(see Figure 3). These states include Connecticut, 

Delaware, Maryland, Massachusetts, New Jersey, 

New York, Pennsylvania, Rhode Island, and the 

District of Columbia. Due to the litigation, the 

first compliance period did not begin until May 

31, 2004, a month into the normal ozone season 

for states not previously in the OTC NOx Budget 

Program (see Figure 3). These states include 

Alabama, Illinois, Indiana, Kentucky, Michigan, 

North Carolina, Ohio, South Carolina, Tennessee, 

Virginia, and West Virginia. The affected portions 

of Missouri and Georgia are required to comply 

with the NOx SIP call as of May 1, 2007. However, 

EPA has stayed the NOx SIP Call requirements for 

Georgia while it responds to a petition to reconsider Georgia's inclusion in the NOx SIP Call. 

Figure 3: NOx SIP Call Program Implementation 

Source: EPA 

Section 1 — Background: Ozone and Major Control Programs 9 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Key Components of the NBP 

The NBP is an ozone season (May 1 to September 30) cap and trade program for electric generating units 

and large industrial boilers and turbines. The program has several important features: 

•	 Under the NBP, the region-wide cap is the sum of the state emission budgets EPA established under the 

NOx SIP Call to help states meet their air quality goals. 

•	 Authorizations to emit, known as emission allowances, are then allocated to affected sources based on 

state trading budgets. The NOx allowance market enables sources to trade (buy and sell) allowances 

throughout the year. 

•	 At the end of every ozone season, each source must surrender sufficient allowances to cover its ozone 

season NOx emissions (each allowance represents 1 ton of NOx emissions). This process is called annual 

reconciliation. 

•	 If a source does not have enough allowances to cover its emissions, EPA will automatically deduct 

allowances from the following year’s allocation at a 3:1 ratio. 

•	 If a source has excess allowances because it reduced emissions beyond required levels, it can sell the 

unused allowances or “bank” (i.e., save) them for use in a future ozone season. The NBP also has “progressive flow control” provisions, which were designed to discourage extensive use of banked 

allowances in a particular ozone season. When the bank in any given year exceeds 10 percent of the 

regional trading budget for the next year, flow control is triggered and determines the amount of NOx 

emissions a banked allowance can offset. More information on flow control is available in Section 4, 

Compliance and Market Activity. 

•	 To accurately monitor and report emissions, sources use continuous emission monitoring systems 

(CEMS) or other approved monitoring methods under EPA’s stringent monitoring requirements (40 CFR 

Part 75). 

For more information on the NBP, including state trading budgets, allowance allocations, and compliance 

supplement pool (CSP) allowances, refer to <www.epa.gov/airmarkets/fednox>. 

NOx Budget Trading Program: Affected 

Units in 2005 

There were 2,570 units affected under the NBP in 

2005. These include electric generating units, 

which are large boilers, turbines, and combined 

cycle units used to generate electricity for sale. As 

shown in Figure 4, electric generating units constitute 87 percent of all regulated NBP units. The 

program also applies to large industrial units that 

produce electricity and/or steam primarily for 

internal use. Examples of these units are boilers 

and turbines at heavy manufacturing facilities, 

such as paper mills, petroleum refineries, and iron 

and steel production facilities. These units also 

include steam plants at institutional settings, such 

as large universities or hospitals. Some states have 

included other types of units, such as petroleum 

refinery process heaters and cement kilns. 

Figure 4: Number of Units in the NOx


Budget Trading Program by Type, 2005


338 

(13%) 

720 

(28%) 

1,079


(42%)


433 

(17%) 

Coal Electric 

Generating Units 

Oil Electric 

Generating 

Units 

Industrial 

Units 

Gas Electric 

Generating Units 

Notes: 

•	 Total affected units in 2005 = 2,570. 

•	 For a breakdown of NBP units by ozone season generation, refer to Section 4, Compliance and Market Activity. 

Source: EPA 

10 Section 1 — Background: Ozone and Major Control Programs 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Section 2 — Changes in Emissions


T

o assess the effectiveness of the NO Budget x 

Trading Program (NBP) in 2005, this section 

compares nitrogen oxides (NOx) emission 

levels in 2005 to levels in 1990 and 2000 (baseline 

years), and 2003 and 2004. These results include 

emissions from affected sources in states included in the NBP (see Figure 3). 

Ozone Season NOx Reductions 

under the NOx Budget Trading 

Program 

Figure 5 shows the total ozone season NO emis­ x 

sions for all affected sources in the NBP region in 

2005 compared to 1990, 2000, 2003, and 2004. In 

2005, NBP sources emitted about 530,000 tons of 

NOx, reducing emissions by about 11 percent 

from 2004, 57 percent from 2000, and 72 percent 

from 1990. 

Many of the NO reductions since 1990 are a x 

result of programs implemented under the Clean 

Air Act such as the Acid Rain NOx Reduction

Program and other state, local, and federal proBaseline Years for Measuring 

Progress under the NOx Budget 

Trading Program 

EPA has chosen two baseline years for measuring progress under the NBP: 

•	 1990, which represents emission levels 

before the implementation of the 1990 

Clean Air Act Amendments. 

•	 2000, because most of the reductions due 

to the implementation of earlier NOx regulatory programs under the 1990 Clean Air Act 

Amendments had already occurred by 2000, 

but sources were not yet implementing the 

NBP at that time. 

grams. The significant decrease in NO emissions x 

after 2000 largely reflects reductions achieved by 

the Ozone Transport Commission (OTC) and NBP. 

NOx emissions in 2005 were lower than in 2004, 

despite a 7 percent increase in total heat input as 

sources continue to reduce average NO emission x 

rates, expressed as pounds of NOx emitted per 

Figure 5: Ozone Season Emissions under the NOx Budget Trading Program 

2,000


1,800


1,600


1,400


1,200


1,000


800


600


400


200


0 

1,860 

1,222 

819 

593 530 

1990 2000 2003 2004 2005 

Ozone Season (May 1-September 30) 

Ozone Season N

Ox Emissions

(Thousand Tons) 

Source: EPA 

Section 2 — Changes in Emissions 11
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results Average Rate (lb/mmBtu) 

What Is Heat Input? 

Heat input is the heat derived from the combustion of fuel in a unit. It is a simple way to track 

ozone season power generation or utilization of 

affected units. The overall ozone season heat 

input to affected NBP sources increased by 

about 7 percent between 2004 and 2005, 

although there was no significant change in the 

number of NBP sources. However, despite the 

increase in ozone season power generation in 

2005, NBP sources still achieved substantial NOx 

emission reductions (11 percent). 

million Btu of heat input (lb/mmBtu). Figure 6 

shows the average monthly emission rates for the 

2004 and 2005 ozone seasons. The average rate 

decreased each month when comparing 2004 to 

2005, with the most notable reductions occurring 

in May. Between the 2004 and 2005 ozone seasons, emission rates in May dropped almost 39 

percent. This sharp decline occurred primarily 

Figure 6: Comparison of Average Monthly 

NOx Emission Rates in the NOx Budget 

Trading Program, 2004 and 2005 

0.30 

2004 NOx Rate 

0.25 2005 NOx Rate 

0.20 

0.15 

0.10 

0.05 

0.00 May June July August September 

Source: EPA 

because sources in the non-OTC states did not 

have to comply until May 31, 2004. Excluding 

May, the average emission rate decreased each 

month during the 2005 ozone season by 0.02 

lb/mmBtu, or almost 10 percent from 2004. 

Table 1: Comparison of 2003, 2004, and 2005 Ozone Season NOx Emissions, 


Heat Input, and NOx Emission Rates in the NOx Budget Trading Program


Units by 

Fuel Type 

Ozone Season NOx 

Emissions (tons) 

Ozone Season Heat Input 

(mmBtu) 

Ozone Season NOx Emission 

Rate (lb/mmBtu) 

2003 2004 2005 2003 2004 2005 2003 2004 2005 

Coal 770,000 

(94%) 

548,000 

(93%) 

475,000 

(90%) 

4.72 billion 

(84%) 

4.71 billion 

(83%) 

4.90 billion 

(81%) 

0.33 0.23 0.19 

Oil 25,000 

(3%) 

25,000 

(4%) 

32,000 

(6%) 

260 million 

(5%) 

260 million 

(5%) 

310 million 

(5%) 

0.19 0.19 0.21 

Gas 24,000 

(3%) 

20,000 

(3%) 

23,000 

(4%) 

590 million 

(11%) 

690 million 

(12%) 

840 million 

(14%) 

0.08 0.06 0.05 

Total 819,000 593,000 530,000 5.57 billion 5.66 billion 6.05 billion 0.29 0.21 0.18 

Notes: 

•	 The NOx tons are rounded to the nearest 1,000 tons and the heat input values are rounded to the nearest 10 million 

mmBtus. Totals represent the sum of the rounded values. The 2003 through 2005 data represent the full ozone season, 

May 1 to September 30, for each year. 

•	 The average emission rate is based on dividing total reported ozone season NOx emissions for each fuel category by the 

total ozone season heat input reported for that category. The average emission rate expressed for the total is the heat 

input weighted average for the three fuel categories. 

Source: EPA 

12 Section 2 — Changes in Emissions 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Ozone Season Generation and 

Emission Reductions by Fuel Type 

Table 1 provides the total emissions and heat 

input for NBP units by fuel type for the 2003, 2004, 

and 2005 ozone seasons. Coal-fired units accounted for all of the emission reductions from 2004 to 

2005, decreasing emissions by about 73,000 tons. 

The majority of these reductions (about 67,000 

tons) came from coal-fired units that operated 

add-on controls during the 2005 ozone season (see 

Section 4, Compliance and Market Activity). 

The most dramatic result is the continued 

decrease in NO emission rates leading to these x 

reductions for coal-fired units, despite an 

increase in heat input from these units between 

2004 and 2005. The largest increase in heat input 

came from oil-fired and gas-fired units, which 

increased emissions by about 10,000 tons 

between 2004 and 2005 largely due to increased 

utilization. 

State-by-State Reductions 

The NBP states have achieved significant reductions in ozone season NO emissions since the x 

baseline years 1990 and 2000 (as shown in Figure 

7). All states have achieved reductions since 1990 

as a result of programs implemented under the 

Clean Air Act Amendments, with many states 

reducing their emissions by more than half since 

1990. The decrease in NO emissions after 2000 x 

largely reflects reductions achieved by the OTC 

and NBP. 

While the NBP achieved an 11 percent decrease in 

NOx emissions overall from 2004 to 2005, Figure 8 

shows that the emission reductions from 2004 to 

2005 varied somewhat from state to state. Given 

that 2005 was the first full ozone season compliance period for states outside the OTC, those states 

saw the most significant reductions from 2004. 

Figure 7: NOx Budget Trading Program State-by-State Ozone Season NOx Emission


Reductions from 1990 and 2000


250,000

200,000 

150,000 

100,000 

50,000 

0 

IN 

OH 

MI IL 

KY 

NC AL

WV 

TN 

VA SC 

PA 

NY 

MD 

MA NJ

CT DE

RI DC

OTC States Non-OTC States

Reductions between 1990 

and 2000 

Emissions in 2005 

Reductions between 2000 

and 2005 

Notes: 

•	 Because emissions in the District of Columbia and Delaware increased between 2000 and 2005 by approximately 146 and 

1,282 tons, respectively, there is no green bar shown in the figure for those states. 

•	 For each state, the total bar (i.e., the sum of the orange, green, and blue stacked bars) depicts emissions in 1990. The sum 

of the green and orange stacked bars depicts emissions in 2000, and the orange bar depicts emissions in 2005. 

•	 Results in Alabama and Michigan represent ozone season emissions from only the affected portion of each state (see 

Figure 3). 

Source: EPA NO x Emissions (Tons) 

Section 2 — Changes in Emissions 13 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 8: NOx Budget Trading Program Ozone Season 

NOx Emissions from 1990, 2000, 2004, and 2005, and 2005 State Trading Budgets 

The non-OTC states are shaded in gray; OTC states are shown in yellow. 

Results in Alabama and Michigan represent ozone season emissions from only the affected portion of each state (see 

Figure 3). 

1990 Emissions 

2000 Emissions 

2004 Emissions 

2005 Emissions 

2005 State Trading Budgets 

120,000 Tons 

Notes: 

• 

• 

Source: EPA 

Eight states (Connecticut, Massachusetts, New 

Jersey, New York, North Carolina, Rhode Island, 

South Carolina, Tennessee) had ozone season 

emissions below their trading budgets in 2005 

(see Figure 8 and Table 2). Three of these states, 

Connecticut, Massachusetts, and Rhode Island, 

were below their trading budgets by at least 30 

percent. Emissions in eight other states 

(Alabama, Illinois, Indiana, Kentucky, Ohio, 

Pennsylvania, Virginia, and West Virginia) 

remained above their trading budgets. However, 

all of these states reduced emissions from 2004 

levels, and most were within 1 to 6 percent of 

their respective budgets. In addition, Indiana, 

Ohio, and West Virginia accounted for more than 

50 percent of the total reductions from 2004 to 

2005 (about 35,000 tons). 

Cap and Trade: Guaranteed 

Environmental Results 

Cap and trade programs deliver results with a 

mandatory cap on emissions while providing 

sources flexibility in how they comply. Cap and 

trade programs have proven highly effective in 

reducing emissions from multiple sources on a 

regional or larger scale. The mandatory cap on 

emissions is critical to protect public health and 

the environment and to sustain that protection 

into the future. Under cap and trade programs, 

affected sources are allocated authorizations to 

emit in the form of emission allowances, but 

the total number of allowances cannot exceed 

the cap. The cap also serves to provide stability 

and predictability to the allowance trading 

market. 

14 Section 2 — Changes in Emissions 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Table 2: NOx Budget Trading Program Ozone Season 


NOx Emissions for 1990, 2000, 2004, and 2005, and 2005 State Trading Budgets


State 1990 Emissions 

(tons) 

2000 Emissions 

(tons) 

2004 Emissions 

(tons) 

2005 Emissions 

(tons) 

2005 State 

Trading Budgets 

(tons) 

CT 11,203 4,697 2,194 3,022 4,477 

DC 576 134 36 280 233 

DE 13,180 5,256 5,066 6,538 5,227 

MA 40,367 14,324 7,483 8,276 12,861 

MD 54,375 28,954 19,943 20,988 15,466 

NJ 44,359 14,630 10,796 11,163 13,022 

NY 84,485 43,583 34,161 36,645 41,350 

PA 199,137 87,329 52,172 51,135 50,843 

RI 1,099 288 177 222 936 

OTC States 448,781 199,195 132,028 138,269 144,415 

AL 89,758 84,560 40,564 33,631 25,497 

IL 124,006 119,460 40,976 37,829 35,557 

IN 218,333 145,722 68,375 57,260 55,729 

KY 153,179 101,601 40,394 36,734 36,224 

MI 120,132 80,425 39,848 42,264 31,247 

NC 92,059 73,082 39,821 32,943 41,547 

OH 240,768 159,578 67,352 54,358 49,499 

SC 56,153 39,674 25,354 18,196 19,678 

TN 115,348 69,641 31,399 25,721 31,333 

VA 51,866 40,043 25,443 22,309 21,195 

WV 149,176 109,198 41,333 30,408 29,043 

Non-OTC States 1,410,778 1,022,984 460,859 391,653 376,549 

Total NBP States 1,859,559 1,222,179 592,887 529,922 520,964 

Note: Results in Alabama and Michigan represent ozone season emissions from only the affected portion of each state (see 

Figure 3). 

Source: EPA 

The District of Columbia, Delaware, Maryland, tively. The District of Columbia’s emissions tend to 

and Michigan had 2005 ozone season NOx emis- fluctuate greatly from year to year as the affected 

sions that exceeded both the state trading budgets electric generating units provide peaking power to 

and 2004 emission levels. Delaware, Maryland, and meet seasonal demand (as opposed to more conMichigan had emission increases of 1,472, 1,045, sistently operating base load units). After 2000, the 

and 2,416 tons above 2004 emission levels, respec- District of Columbia’s NOx emissions have 

Section 2 — Changes in Emissions 15 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

remained low at less than 300 tons per ozone season. State-specific factors have strongly affected 

NO emissions in these states. For example, x 

Delaware experienced a significant jump in both 

heat input and emissions, primarily associated 

with two plants. In Maryland, three plants were 

responsible for over 65 percent of NOx emissions 

in 2005, and emission controls are planned at 

these plants in upcoming years as required by a 

federal consent decree and recently passed state 

legislation.

2 In Michigan, while emissions 

increased 6 percent from 2004, heat input 

increased 9 percent during 2005 — the largest 

increase within the non-OTC region. 

Daily Emission Trends 

Studies indicate that many of the health effects 

associated with ozone are linked to daily exposure. EPA developed the 8-hour ozone standard 

to protect against such exposure. Although the 

NBP ensures significant regional NOx reductions 

throughout the course of the ozone season, there 

have been concerns that a seasonal cap would 

not sufficiently reduce short-term, peak NOx 

emissions that can occur on hot, high electricity 

demand days. 

In practice, the NBP has had a significant impact 

on daily emissions since the program began in 

2003. Figure 9 compares daily NOx emissions during 2003, 2004, and 2005 for the NBP region. In 

2005, daily NOx emission levels for June through 

September remained comparable to those in 

2004. NOx emissions in May 2005 decreased nearly 47 percent from May 2004, illustrating the significant reductions achieved by the non-OTC 

states as they began participating in the program 

on a full ozone season basis. 

Daily NO x Emissions (tons) 

Figure 9: Comparison of Daily NOx Emission Levels, 2003–2005 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

0 

May Jun Jul Aug Sep Oct

2003 

2004 

2005 

Source: EPA 

2	 By 2008, under a federal consent decree, one of the companies with affected units in Maryland will be required to cap emissions from three 

Maryland plants and one Virginia plant to 6,150 tons per ozone season. The emissions cap in this consent decree should reduce emissions 

from existing plants in Maryland well below budget levels. The emissions from these four plants totaled over 14,800 tons in the 2005 ozone 

season. In addition, Maryland recently passed legislation, the Healthy Air Act, which will further lower future NOx emissions. 

16 Section 2 — Changes in Emissions 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Section 3 — Environmental Results


To better understand how the NOx Budget 

Trading Program (NBP) affects ozone, this 

section examines ozone air quality across 

the NBP states since 1997 and then looks at 

changes in ozone concentrations before and after 

implementation of the NBP. In addition, this section compares geographic patterns in ozone concentrations to reductions in nitrogen oxides (NOx) 

emissions under the NBP. These analyses consider 

the impact of weather, because variations in weather conditions play an important role in determining ozone levels. 

Ozone Monitoring Networks 

For this report, EPA assembled data from 36 

urban areas from the Air Quality System (AQS) 

and 35 rural sites from the Clean Air Status and 

Trends Network (CASTNET) to provide a more 

complete picture of air quality in the eastern 

United States (see Figure 10). EPA only used sites 

with sufficient meteorological and ozone data 

within each time period. For a monitor or area to 

be included in this analysis, 50 percent of the days 

for the ozone season had to have complete and 

valid data. 

Figure 10: Location of Urban and Rural Ozone Monitoring Networks


Urban Area (AQS) 

Rural Site (CASTNET) 

Notes: 

•	 States participating in the NBP in 2005 are shaded in green (referred to as the “NBP region”). 

•	 Urban areas represent multiple monitoring sites. Rural areas represent single monitoring sites. 

•	 For more information on AQS, visit <www.epa.gov/ttn/airs/airsaqs>. For more information on CASTNET, visit 

<www.epa.gov/castnet>. 

Source: EPA 

Section 3 — Environmental Results 17 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 11: Trends in Seasonal Average 8-Hour Ozone Concentrations in the NOx Budget 

Trading Program Region (Not Adjusted for Meteorology) 

70 

60 

50 

40 1997 1998 1999 2000 2001 2002 2003 2004 2005 

Ozone Season AQS Urban Ozone Levels 

CASTNET Rural Ozone Levels 

NBP Region Ozone Levels 

Note: Data presented in this figure are unweighted averages of 8-hour daily maximum ozone concentrations during the 

ozone season for sites within the NBP region, shaded in green in Figure 10. 

Source: EPA 

Ozone Concentrations (ppb) 

General Trends: Changes in Eastern 

Ozone Concentrations since 1997 

Figure 11 shows trends in the “seasonal average” 

8-hour ozone concentrations in the NBP region 

from 1997 to 2005, showing the variability over 

time in measured ozone concentrations at urban 

and rural sites. The seasonal average ozone concentration is the average of daily maximum 8­

hour ozone concentrations from May 1 through 

September 30. On average, 2005 ozone concentrations in the NBP region remain below 2002 levels, 

but are higher than in 2004 (not adjusted for 

meteorology). In general, weather conditions 

were more conducive to ozone formation in 2005 

than in 2004. 

Figure 11 also shows that on average, ozone in 

rural areas is lower than ozone in urban areas but 

follows a similar trend. These results provide a 

seasonal average for NBP states and do not show 

variations in ozone concentrations for specific 

urban or rural areas. Although urban and metropolitan areas typically experienced higher ozone 

concentrations, non-urban areas can also experience high ozone levels due to transport and local 

emission sources (e.g., mobile sources). 

For example, the National Park Service reported 

that based on a 3-year average of the fourth highest 

daily maximum 8-hour ozone concentration (in 

parts per billion, or ppb) for the years 2002 to 2004, 

three National Park Units in the eastern United 

States (Acadia, Cape Cod, and Great Smoky 

Mountains) experienced high ozone concentrations that exceeded 85 ppb.3 

Ozone Changes after Adjusting for 

Meteorology 

Variations in weather conditions play an important role in determining ozone levels. EPA uses a 

statistical model to account for the weatherrelated variability of seasonal ozone concentrations to provide a more accurate assessment.4 

3	 National Park Service Air Resources Division. “Annual Data Summary, 2004 Gaseous Pollutant Monitoring, Program Ozone, Sulfur Dioxide, 

Meteorological Observations.” U.S. Department of the Interior. <www2.nature.nps.gov/air/pubs/pdf/ads/2004/GPMP-XX.pdf>. 

4	 Cox, William M. and Shao-Hang Chu. (1996). “Assessment of Interannual Ozone Variation in Urban Areas from a Climatological Perspective.” 

Atmospheric Environment, 30.14, 2615-2625. 

18 Section 3 — Environmental Results 
NOX Budget Trading Program: 2005 Program Compliance and Environmental Results 

Meteorology Matters 

The graphics below show how the summers of 1997, 2002, and 2005 deviate from normal summer conditions for temperature and precipitation (a surrogate for humidity). Normal conditions are determined by 

averaging 30 years of temperature and precipitation data (1971 to 2000) at each site for June through 

August. The information presented below is useful in evaluating the ozone forming potential for a particular ozone season. 

Source: National Oceanic and Atmospheric Administration (NOAA), National Climatic Data Center 

<http://www.ncdc.noaa.gov/oa/climate/research/2002/CMB_prod_us_2002.html> 

Section 3 — Environmental Results 19 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 12: Seasonal Average 8-Hour Ozone Concentrations in the NOx Budget Trading 

Program Region before and after Adjusting for Weather 

70 

60 

50 

40 

Unadjusted for Meteorology 

Adjusted for Meteorology 

1997 1998 1999 2000 2001 2002 2003 2004 2005 

Ozone Season 

Note: Data presented in this figure are unweighted averages of 8-hour daily maximum ozone concentrations during the 

ozone season for sites within the NBP region, shaded in green in Figure 10. 

Source: EPA 

Ozone Concentrations (ppb) 

This report uses an assessment approach that 

accounts for the impacts of weather by normalizing weather variations to provide a better estimate of the underlying ozone trend and the 

impact of NOx emission reductions. The resulting 

estimates represent ozone levels anticipated 

under typical weather conditions. This methodology and the ozone estimates were provided by 

EPA’s Office of Air Quality Planning and Standards 

(OAQPS), Air Quality Assessment Division, 

www.epa.gov/airtrends. 

Figure 12 shows trends in the seasonal average 8­

hour ozone concentrations before and after 

adjusting for meteorology. The blue dotted line 

shows the trend in unadjusted, observed values 

at monitoring sites. The orange solid line illustrates the underlying ozone after removing 

effects of weather to provide a more accurate 

ozone trend for assessing changes in emissions. 

When comparing two years with significantly different weather conditions and ozone forming 

potential (e.g., 1997 vs. 2002), it is important to 

account for the variation caused by meteorology. 

For example, in general, lower temperatures 

depressed ozone formation in 1997 while higher 

temperatures increased ozone formation in 2002. 

Removing the effects of weather using this type of 

meteorological adjustment approach results in a 

higher than observed ozone estimate for 1997 and 

a lower than observed ozone estimate for 2002. 

Ozone Changes: Focus on the NOx 

Budget Trading Program 

The 2004 NBP report, Evaluating Ozone Control 

Programs in the Eastern United States: Focus on 

the NOx Budget Trading Program, concluded that 

the average reduction in ozone in the eastern 

United States between 1997 and 2002 was about 4 

percent (adjusted for meteorology), compared 

with more than 10 percent between 2002 and 

2004.5 

Figures 13 and 14 illustrate changes in ozone concentrations between 1997 and 2002 and 2002 and 

2005, after adjusting for meteorology. The average 

reduction in ozone in the NBP region between 

5 “Evaluating Ozone Control Programs in the Eastern United States: Focus on the NOx Budget Trading Program, 2004,” 

<www.epa.gov/airmarkets/fednox>. 

20 Section 3 — Environmental Results 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 13: Percent Change in Seasonal Figure 14: Percent Change in Seasonal 

8-Hour Ozone, 1997 vs. 2002 (Adjusted for 8-Hour Ozone, 2002 vs. 2005 (Adjusted for 

Meteorology) Meteorology) 

Increase Between 25% and 34% 

Increase Between 15% and 25% 

Increase Between 5% and 15% 

Increase Less Than 5% 

Decrease Less Than 5% 

Decrease Between 5% and 15% 

Decrease Between 15% and 23% 

Margin of error is +/- 5 percent. 

Note: Shaded region shows areas affected under the NBP 

as of 2005.

Source: EPA 

2002 and 2005 was about 8 percent. While, on 

average, there was no improvement in ozone in 

the NBP region between 2004 and 2005 (about 0.5 

percent increase as shown in Figure 12), these 

results show that the majority of the ozone 

progress made between 2002 and 2004 was 

retained. In general, weather conditions in 2005 

were similar to weather conditions in 2002 (i.e., 

both years had higher than average ozone forming 

potential). Before adjusting for meteorology, the 

average reduction in ozone between 2002 and 2005 

was also about 8 percent. 

Figure 15 shows the relationship between reductions in power industry NOx emissions and reductions in ozone after implementation of the NBP. 

Between 2002 and 2005, there were decreases in 

ozone across all NBP states, with the largest reductions occurring in Connecticut, New York, North 

Carolina, Pennsylvania, and West Virginia. There 

were some increases in the southern United States, 

Note: Shaded region shows areas affected under the NBP 

as of 2005. 

Source: EPA 

specifically in Florida (which is not in the NBP). 

Generally, there is a strong association between 

areas with the greatest NOx emission reductions 

and downwind sites exhibiting the greatest 

improvement in ozone. This suggests that levels of 

transported NOx emissions have been reduced in 

the eastern United States. While this report does 

not attribute all ozone reductions after 2002 to the 

NBP, it does show that the NBP has played a key 

role in reducing ozone concentrations. 

Other recent studies support the key findings of 

this report. Gégo et al. examined the effectiveness 

of the NOx SIP Call by quantifying changes in daily 

maximum 8-hour ozone concentrations at monitoring sites in the eastern United States before 

(1997 to 1998) and after (2003 to 2004) implementation of the program.

6 The researchers primarily 

used CASTNET data for this analysis because these 

measurements are taken in rural areas where 

ozone production depends strongly on NOx con6 Gégo, Edith P, et. al. “Observation-based assessment of the impact of nitrogen oxides emissions reductions on ozone air quality over the eastern United States.” Journal of Applied Meteorology and Climatology, special issue on the NOAA-EPA Golden Jubilee Symposium (submitted). 

Section 3 — Environmental Results 21
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 15: Reductions in Ozone Season Power Industry NOx Emissions and 8-Hour Ozone, 

2002 vs. 2005 

Power Industry NOx Emission 8-Hour Ozone, Adjusted for


Reductions Meteorology


Ozone Season NOX Emissions Ozone Season 8-Hour Ozone 

Tons Reduced Percent Reduced 

Increase Between 15% and 22% Increase Less Than 1,000 Increase Between 5% and 15% 

Decrease Less Than 25,000 Increase Less Than 5% 

Decrease Between 25,000 and 50,000 Decrease Less Than 5% 

Decrease Between 5% and 15% 

Decrease Between 50,000 and 75,000 Decrease Between 15% and 23% 

Decrease Between 75,000 and 105,000 Margin of error is +/- 5 percent. 

Note: From 2002 to 2005, Delaware (943 tons), New Hampshire (216 tons), Connecticut (76 tons), and Vermont (44 tons) 

show small increases in ozone season NOx emissions. 

Source: EPA 

centrations and is nearly independent of VOCs. 

After adjusting for meteorology, this study found 

that ozone concentrations are on average 13 percent less (ranging from 4 to 27 percent across all 

sites) than they were before the program. This 

study also used a back trajectory analysis and 

found that NO emission reductions in the Ohio x 

River Valley resulted in substantial improvements 

in ozone air quality in downwind regions, especially east and northeast of the Ohio River Valley. This 

study concluded that the NO SIP Call has been x 

effective in reducing interstate ozone transport and 

helping to improve ozone air quality in the eastern 

United States. 

22 Section 3 — Environmental Results 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Improvements in 8-Hour Ozone Concentrations 

In April 2004, based generally on 2001 to 2003 data, EPA designated 126 areas as nonattainment for the 

8-hour ozone standard.

7 Of those areas, 103 are in this part of the eastern United States (see figures below) 

and are home to about 100 million people (US Census, 2000). Based on 2003 to 2005 data, 68 of the 103 

areas (nearly 70 percent) either have ozone air quality that is better than the level of the 8-hour standard or 

meet the standard and have been redesignated to attainment. These improvements bring cleaner air to 

about 20 million people living in these 68 areas. Several of these areas have reviewed or are reviewing the 

requirements for redesignation as described in the Clean Air Act Section 107. Nearly 81 million people live 

in the remaining 31 areas in this part of the eastern United States. On average, ozone concentrations in 

these areas improved by 8 percent. Given that the only major relevant emission reduction that occurred 

after 2003 is the NBP, it is clear that the NBP is the major contributor to these improvements in ozone air 

quality. 

8-Hour Ozone Nonattainment Areas, Areas Remaining Above Standard 

April 2004 (2001–2003 Air Quality Data) (2003–2005 Air Quality Data) 

Note: Included on the maps, but excluded from the analysis, are four areas with incomplete data for 2003 to 2005 

(Cass Co, MI; Dayton-Springfield, OH; Essex Co (Whiteface Mtn), NY; La Porte, IN). 

7 40 CFR Part 81, Air Quality Designations and Classification for the 8-Hour Ozone National Ambient Air Quality Standards (NAAQS). 

Section 3 — Environmental Results 23 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Space-Time Modeling Approach to Adjusting for Meteorological Influences on 

Ozone 

There are different approaches to account for the influences of meteorology on ozone formation. This 

analysis presents results from a space-time modeling approach developed by EPA’s Office of Research and 

Development. The method can provide the uncertainties surrounding ozone trend estimates and can be 

expanded to predict ozone at any location (e.g., even between ozone monitoring sites) and for any time 

period. The graphic below shows the percent change in seasonal average ozone concentrations at rural 

CASTNET sites using the space-time modeling approach. The results from this analysis corroborate the 

findings presented throughout the report; on average ozone concentrations have decreased across the 

eastern United States since 2002 (see figure below). By exploring and developing new methodologies for 

assessing ozone, EPA hopes to continue advancing assessment capabilities into the future. 

Percent Change in Seasonal 8-Hour Ozone, 2002-2004 

Increase Between 15% and 22% 

Increase Between 5% and 15% 

Increase Less Than 5% 

Decrease Less Than 5% 

Decrease Between 5% and 15% 

Decrease Between 15% and 23% 

Source: EPA 

24 Section 3 — Environmental Results 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Ozone Impacts on Forest Health 

As with human health, EPA is concerned about 

the impacts of air pollution on ecological systems. Ground-level ozone-induced effects on 

trees and forests include reduced growth and/or 

reproduction and increased susceptibility to disease, pests, and other environmental stresses 

(e.g., harsh weather). Ground-level ozone can also 

cause visible injury to leaves and foliage. 

The United States Forest Service Forest Health 

Monitoring Program (FHM) uses visible foliar 

injury as an indicator that ground-level ozone is 

impacting trees and forests. The Ozone Biosite 

Index (see Table 3) was developed based on the 

proportion of damaged leaves and the severity of 

symptoms to the number of non-injured leaves 

within a defined forested area.

8 The Forest 

Service uses the Ozone Biosite Index to survey 

forested areas in the United States. The most 

recent data are presented as an average value 

from 1999 to 2002 (see Figure 16). This analysis 

shows that foliar injury occurred more extensively in the eastern United States than the western 

United States in this time period, especially in the 

Mid-Atlantic and the Southeast. These data show 

visible foliar injury before the NOx emission 

reductions under the NBP took effect. Recent 

improvements in ozone due to emission control 

programs have occurred in many areas where forest ecosystems had experienced the most visible 

foliar injury from ozone exposure. While it will 

take time for forest ecosystems to respond to 

ozone improvements, as data become available 

(i.e., 2002 to 2005 data), EPA will continue to 

examine the impacts of ozone on forest 

indicators. 

Table 3: Ozone Biosite Index Categories, Risk Assumption, and Possible Impact 


Biosite Index Bioindicator 

Response 

Assumption of Risk to 

Forest Resource 

Possible Impact 

0 to < 5.0 Little or No Foliar Injury None Visible injury to isolated genotypes of sensitive species; e.g., common milkweed, 

black cherry. 

5.0 to < 15.0 Light to Moderate Foliar 

Injury 

Low Visible injury to highly sensitive species, 

e.g., black cherry; effects noted primarily 

at the tree level. 

15.0 to < 25.0 Moderate to Severe 

Foliar Injury 

Moderate Visible injury to moderately sensitive 

species, e.g., tulip poplar; effects noted 

primarily at the tree level. 

> 25 Severe Foliar Injury High Visible injury leading to changes in structure and function of the ecosystem. 

Source: Smith, G.C. FHM second ozone bioindicator workshop – summary of proceedings. Unpublished manuscript. 12 p. 

On file with: USDA Forest Service, Forest Health Monitoring Program, P.O. Box 12254, Research Triangle Park, NC 27709 

8 Ambrose, MJ.; Conkling, B.L., eds. In press. Forest Health Monitoring 2005 national technical report. Gen. Tech. Rep. Asheville, NC: U.S. 

Department of Agriculture Forest Service, Southern Research Station. 

Section 3 — Environmental Results 25 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 16: Average Annual Biosite Index by Ecoregion Section, 1999–2002


Note: Table 3 provides a description of each category in the Ozone Biosite Index. 

Source: Forest Health Monitoring 2005 National Technical Report9 

9 	Ambrose, MJ.; Conkling, B.L., eds. In press. Forest Health Monitoring 2005 national technical report. Gen. Tech. Rep. Asheville, NC: U.S. 

Department of Agriculture Forest Service, Southern Research Station. 

26 Section 3 — Environmental Results 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Section 4 — Compliance and Market


Activity 

Sources achieved over 99 percent compliance 

with the NO Budget Trading Program (NBP) in x 

2005. This section examines compliance under 

the NBP in 2005 and reviews allowance trading 

and pricing trends in this maturing market. In 

addition, this section reviews the monitoring and 

control methods employed by sources to meet 

program requirements. 

2005 Compliance Results 

Under the NBP, sources must hold sufficient 

allowances to cover their ozone season nitrogen 

oxides (NOx) emissions each year. Sources can 

maintain the allowances in compliance accounts 

(established for each unit) or in an overdraft 

account (established for each facility with more 

than one unit). The sources have a 2-month period following the end of the control period to buy 

or sell allowances and/or move allowances 

between accounts to ensure their emissions do 

not exceed allowances held. After the 2-month 

period, EPA reconciles emissions with allowance 

holdings to determine program compliance. 

Sources may not transfer allowances until annual 

reconciliation is complete. 

There were 2,570 units affected under the NBP in 

2005. Only three NBP sources (4 units total) did 

not hold sufficient allowances to cover their emissions. Table 4 summarizes the allowance reconciliation process for 2005. 

Table 4: NOx Allowance Reconciliation the Summary for the NOx Budget Trading Program, 2005 

Total Allowances Held for Reconciliation (2003 through 2005 Vintages) 729,326 

Allowances Held in Compliance or Overdraft Accounts 700,782 

Allowances Held in Other Accounts* 28,544 

Allowances Deducted in 2005 534,005 

Allowances Deducted for Actual Emissions 529,830 

Additional Allowances Deducted under Progressive Flow Control (PFC) 4,168 

Termination of 2004 Early Reduction Credits (or Compliance Supplement Pool) Allowances** 7 

Banked Allowances (Carried into 2006 Ozone Season) 195,321 

Allowances Held in Compliance or Overdraft Accounts 160,604 

Allowances Held in Other Accounts*** 34,717 

Penalty Allowances Deducted**** (from Future Year Allocations) 12 

* 	 Other Accounts refers to general accounts in the NOx Allowance Tracking System (NATS) that can be held by any source, 

individual, or other organization, as well as state accounts. 

** Compliance supplement pool (CSP) allowances can only be used for 2 years. CSP allowances not used for reconciliation 

in 2005 have been retired permanently. 

*** Total includes 6,173 new unit allowances returned to state holding accounts. 

**** These penalty deductions are made from future vintage year allowances, not 2005 allowances. An additional 264 

penalty allowances are owed by one source and will be deducted in the future. 

Section 4 — Compliance and Market Activity 27 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Banking in 2005 and Flow Control 

in 2006 

Under cap and trade programs in general, and 

the NBP specifically, banking allows companies 

to decrease emissions below the amount of 

allowances they hold and then save the unused 

allowances for future use. Banking results in environmental and health benefits earlier than 

required and provides an available pool of 

allowances that could address unexpected 

events, or smooth the transition into deeper 

emission reductions. 

Figure 17 shows the number of allowances allocated each year, the allowances banked from the 

previous year, and the total ozone season emissions for NBP sources from 2003 to 2005. Sources 

banked over 195,000 allowances in the 2005 

ozone season (see Table 4), which will be available for use in 2006 for program compliance. This 

is about 6 percent lower than the nearly 208,000 

allowances sources banked by the end of the 2004 

ozone season, which were available for use in 

2005 (as shown in Figure 17). 

The NBP’s progressive flow control provisions 

were designed to discourage extensive use of 

banked allowances in a particular ozone season. 

Flow control is triggered when the total number 

of allowances banked for all sources exceeds 10 

percent of the total regional budget for the next 

year. When this occurs, EPA calculates the flow 

control ratio by dividing 10 percent of the total 

regional NOx trading budget by the number of 

banked allowances (a larger bank will result in a 

smaller flow control ratio). The resulting flow 

control ratio establishes the percentage of 

banked allowances that can be deducted from a 

source’s account on a ratio of one allowance per 

ton of emissions. The remaining banked 

allowances, if used, must be deducted at a rate of 

two allowances per one ton of emissions. In 2005, 

the flow control ratio was 0.25, and 4,168 additional allowances were deducted from the 

allowance bank under the flow control provisions. Flow control will be triggered again in 

2006, at a slightly higher ratio of 0.27 (see “Flow 

Control Will Apply in 2006,” page 29, for details). 

NO x Emissions (Thousand Tons) 

Figure 17: NOx Allowance Allocations and the Allowance Bank, 2003–2005 

800


700


600


500


400


300


200


100


0 

2003 2004 2005 

Ozone Season

Banked Allowances from Previous Year 

Allowances Allocated 

Control Period Emissions 

Notes: 

•	 The 2003 emissions and allocations totals includes only the OTC states. The 2004 emissions total includes the OTC states 

emissions (from May 1 to September 30) plus the non-OTC states emissions (from May 31 to September 30). 

•	 Allowances allocated include base budget, compliance supplement pool (CSP), and opt-in allowances. CSP allowances 

may not be used beyond the 2005 ozone season. For more information on allowance allocations, visit 

www.epa.gov/airmarkets/fednox. 

Source: EPA 

28 Section 4 — Compliance and Market Activity 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Flow Control Will Apply in 2006 — How Will It Affect Sources? 

2006 Regional Budget: 520,957 Allowances 

Banked Allowances after 2005: 195,321 Allowances 

Flow Control Trigger: 195,321/520,957 = .375 (> than 10 percent), 

Triggering Flow Control for 2006 

•	 The 2006 flow control ratio = 0.27 (determined by dividing 10 percent of the total regional trading 

budget by the total number of banked allowances, or 52,096/195,321). 

•	 The flow control ratio applies to banked allowances in each source’s compliance and overdraft 

allowance accounts at the time of compliance reconciliation. For example: 

–	 If a source holds 1,000 banked allowances at the end of 2006, it can use 270 of those allowances on a 

1-for-1 basis and the remaining 730 allowances on a 2-for-1 basis. 

–	 If the source used all 1,000 banked allowances for 2006 compliance, the banked allowances could 

cover only 635 tons of NOx emissions (i.e., 270 + 730/2). 

NOx Allowance Trading in 2005 

There are three main types of allowance 

transactions: 

•	 Transfers within a company or between related 

entities (e.g., holding company transfers to a 

small operating subsidiary), including transfers 

between a unit compliance account and any 

account held by a company with an ownership 

interest in the unit. 

•	 Transfers between separate economic entities. 

This may include companies with contractual 

relationships such as power purchase agreements, but excludes parent-subsidiary types of 

relationships. These transfers are categorized 

broadly as “economically significant trades.” 

•	 Transfers from or to a state as allowance allocations or allowance surrenders. 

In 2005, economically significant trades represented about 30 percent of the total transfers 

between entities other than a state. There were 

approximately 228,000 allowances involved in 

economically significant trades in 2005, an 

increase of about 34,000 allowances from 2004 

(see Figure 18). The economically significant 

trades provide a strong indicator of true market 

activity, because they represent an actual 

exchange of assets between unaffiliated 

participants. 

Industrial sources accounted for over 6 percent 

of the economically significant trade volume in 

2005, which was down from 2004 levels. This level 

of activity is proportional to the industrial units’ 

regional emissions contribution of slightly less 

than 7 percent. The high level of 2004 trading 

activity for industrial sources was the result of a 

significant number of allowances purchased by 

this group of sources. In 2005, that trend was 

reversed as the industrial sources transferred far 

more allowances to others than they received. In 

most trades, industrial sources are trading with 

electric generating companies, with only a few 

trades involving industrial sources on both sides 

of the transaction. 

Section 4 — Compliance and Market Activity 29 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

NOx allowance prices in 2005 were slightly lower 

Figure 18: Estimated Volumes of and somewhat less volatile than during 2004 (see 

Economically Significant Trades under the Figure 19). Potential reasons for the price decline 

NOx Budget Trading Program, 2003–2005 may include sources’ need to use remaining compliance supplement pool (CSP) allowances before 250,000 

Total Allowances Traded Allowances Traded by Industrial Sources 

2003 

2004 

2005 

Interstate Rule (CAIR) finalized in March 2005. In 150,000 

addition, the general price differential between 

100,000 vintage years 2004 and 2005 versus 2006 through 

2008 reflects the discount applied to banked 50,000 allowances as a result of flow control. 

0 NOx allowance prices can reflect market uncertainties as companies evaluate ongoing trends in 

their 2005 expiration and increased confidence


200,000 from understanding the impacts of the Clean Air


NO x Allowances 

Note: As part of compiling this information for the 2005 

report, EPA has reexamined all allowance transfer data from 

2003 and 2004, and has revised the numbers for 2003 and 

2004 presented in previous reports. Generally, EPA’s estimate of economically significant trade volume in those 

years has decreased based on further analysis of outside 

data sources (such as company Web sites and Securities 

and Exchange Commission filings) to identify corporate 

relationships and ownership interests in units. The 2003 

data also have been adjusted to correct a computational 

error. Because trades are not reported by market participants with respect to whether they are economically significant, EPA presents these data as a general estimate only. 

Source: EPA 

Figure 19: Vintage Year NOx Allowance 

Prices by Month of Sale for the NOx Budget 

Trading Program 

Vintage Year NOx Allowance Price 

9,000 

control installations, energy demand, and other 

external factors that affect the overall costs of 

control. Additional influences on allowance pricing include progressive flow control and integration with other emission control programs, such 

as CAIR. 

Continuous Emission Monitoring 

System (CEMS) Results 

In order for NO allowances to be accurately x 

tracked and traded, NBP sources must use consistent emissions monitoring procedures to 

determine their emissions. Accurate and consistent monitoring ensures that all allowances in 

the NBP have the same value (i.e., a ton of NOx 

emissions from one NBP source is equal to a ton 

of NOx emissions from any other source in the 

program). Sources are required to conduct stringent quality assurance tests of their monitoring 

4,000 

0 

5,000 

6,000 

7,000 

8,000 

Oct ’02 Feb ’03 Jun ’03 Oct ’03 Feb ’04 Jun ’04 Oct ’04 Feb ’05 Jun ’05 Oct ’05 Feb ’06 

2003 

2004 

2005 

2006 

2007 

2008 

only verify that the monitoring systems are meas­ 3,000 

uring accurately, but also compare measured 2,000 

data to a standard reference method. Analysis of 1,000 

the quality-assured CEMS data reported by NBP 

sources in 2005 convincingly demonstrates the 

accuracy of the emission data. 

systems, such as daily calibrations, quarterly lin-


Nominal Dollars per Ton

earity checks, and semi-annual or annual relative


accuracy test audits (RATAs). These tests not


Source: Evolution Markets, LLC and Cantor Environmental 

Brokerage In 2005, both the electric generating units and 

industrial units passed at least 98 percent of the 

quality assurance tests required of their monitoring 

30 Section 4 — Compliance and Market Activity 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

systems. Industrial sources, many of which have 

only been monitoring under EPA’s detailed monitoring procedures (40 CFR Part 75) since 2003, 

were able to perform at nearly the same level as 

electric generating units, many of which have been 

monitoring under Part 75 for more than a decade. 

The NBP sources reported quality-assured 

emission data for more than 99 percent of their 

operating hours in 2005. Part 75 requires conservatively high substitute data values to be reported 

for missing data periods, but substitute data were 

used less than 1 percent of the time in 2005 and 

therefore had little impact on the NOx emissions 

reported by NBP sources. 

Compliance Options Used by NOx 

Budget Trading Program Sources in 

2005 

Sources may select from a variety of compliance 

options to meet the emission reduction targets of 

the NBP in ways that best fit their own circumstances, such as: 

•	 Decreasing or stopping generation from units 

with high NOx emission rates, or shifting to 

lower emitting units, during the ozone season. 

• Using NOx combustion controls that modify or 

optimize the basic combustion process to control the formation of NO . x

•	 Using add-on emission controls, such as selective catalytic reduction (SCR) or selective noncatalytic reduction (SNCR). 

•	 Purchasing additional allowances from other 

market participants whose emissions were 

lower than their allocations. 

Before implementation of the NBP, a large number of electric generating units and some industrial units added combustion controls to meet 

applicable NOx emission limits of either the Acid 

Rain Program (ARP) or state regulations. For 

boilers, furnaces, and heaters, NOx combustion 

controls include low NO burner and overfire air x 

technologies, which modify the combustion 

Monitoring Options Available to 

Sources 

EPA has developed detailed procedures (40 CFR 

Part 75) to ensure that sources monitor and 

report emissions with a high degree of precision, accuracy, reliability, and consistency. Coalfired units are required to use CEMS for NOx 

and stack gas flow rate (and if needed, CO2 or 

O2 and moisture), to measure and record their 

NOx emissions. Oil- and gas-fired units may 

alternatively use a NOx CEMS in conjunction 

with a fuel flowmeter to determine NOx emissions. For oil- and gas-fired units that are either 

operated infrequently to provide power during 

periods of peak demand, or that have very low 

NOx emissions, Part 75 provides low-cost alternatives to CEMS for estimating NOx emissions. 

process to reduce formation of NOx from nitrogen found in the combustion air and fuel. 

Add-on control technologies, such as SCR or 

SNCR, have also been frequently installed for NOx 

control. The majority of units that install add-on 

controls use them in conjunction with their existing combustion controls to achieve greater emission reductions. SCR and SNCR are control 

technologies that achieve NOx reductions by 

injecting ammonia, urea, or another NOx -reducing chemical into the flue gas downstream of the 

combustion unit to react with NOx, forming elemental nitrogen (N2) and water. SCR, which adds 

a catalyst to allow the reaction to occur in a 

lower temperature range, can be applied to a 

wider range of sources than SNCR and is capable 

of greater NOx removal rates. 

NOx Controls Used in 2005 

Sources subject to the NBP are required to report 

pollution control equipment information, including installation dates, in monitoring plans submitted to EPA. For this report, EPA verified the 

source-reported EPA emission control equipment 

data with state agencies, with an emphasis on 

coal-fired units, to confirm the findings.10 

10 Two affected states are still gathering data; all others have provided updated control status information. 

Section 4 — Compliance and Market Activity 31 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 20: Number of Affected Electric Generating Units (EGUs) and Percent of Total 


Ozone Season Electric Generation by Fuel and Control Type for 2004 and 2005


 2004 EGU Population (Total, 2,232 Units) 2005 EGU Population (Total, 2,232 Units) 

203 219


9% 10%


522 508


23% 23%


383
 375 17% 17% 

126 

6% 

136 

6% 

988 1,004 

45% 44% 

2004 EGU Generation (Total, 547,659 GWh) 2005 EGU Generation (Total, 596,247 GWh) 

64,371 86,383 25,408 12% 11,585 27,226 14% 2% 

219,975


40%


5% 

226,320 

41% 

5% 14,905 

213,555 

36% 254,178 

43% 

2% 

Add-on Controlled Coal 

Combustion Controlled Coal 

Uncontrolled Coal 

Controlled Oil and Gas 

Uncontrolled Oil and Gas

Note: Add-on controls for coal units include SCR and SNCR. Combustion controls include various low NOx burner control 

technologies, over-fire air, water injection, and others. 

Source: EPA 

EPA used the input from the state agencies to 

update data where needed. EPA continues efforts 

to verify that control equipment data are accurate and complete. 

Figure 20 shows the breakdown of how electric 

generating units have employed emission controls as of the 2005 ozone season compared to 

the 2004 ozone season. The charts include the 

results broken down both by number of units and 

by the percent of total ozone season generation. 

In the 2005 ozone season, there were 2,232 electric generating units affected under the NBP. The 

results show that although the number of coalfired units with NOx emission controls (i.e., addon controls and/or combustion controls) 

represents less than 30 percent of the total number of electric generating units, this sector represented almost 80 percent of total generation. 

Uncontrolled units, either coal or gas and oil, represent about one-third of all units, but less than 

32 Section 4 — Compliance and Market Activity 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Figure 21: Number of Affected Industrial Units and Percent of Total 

Ozone Season Steam Output by Fuel and Control Type for 2004 and 2005 

2004 Industrial Population (Total, 340 Units) 2005 Industrial Population (Total, 338 Units) 

9 10 3% 53 3% 

133


39%


16% 

75 

22% 

70 

20% 134 

40% 

54 

62

18%

78

23% 

16% 

2004 Industrial Steam Generation (Total, 2005 Industrial Steam Generation (Total, 233,424 million pounds - steam) 216,170 million pounds - steam) 

10,064 

4% 12,331

47,494 

Add-on Controlled Coal 

Combustion Controlled Coal 

Uncontrolled Coal 

Controlled Oil and Gas 

Uncontrolled Oil and Gas 

6% 87,673 20%


38%
 70,313 

33% 

51,717 

24% 

48,743 41,971 

39,450 21% 19% 

17% 39,838 

18% 

Source: EPA 

10 percent of the total generation. 

Figure 21 shows similar information for industrial units based on steam output rather than electric generation. In the 2005 ozone season, there 

were 338 industrial coal-fired units affected 

under the NBP. Based on reported monitoring 

plan data, it appears that only about 3 percent of 

the industrial coal-fired units use add-on NOx 

controls; there were no cases where a coal-fired 

industrial unit reported using SCR. Except for 

turbines that can use a relatively simple form of 

SCR, the technology is typically limited to larger 

coal-fired electric generating units that can 

achieve significant emission reductions in a costeffective way. 

Overall, the number of electric generating units 

and industrial units with NO controls increased x 

from the 2004 to the 2005 ozone season. For 

example, the number of controlled coal-fired 

units (which includes units that added combustion and/or add-on controls) increased by 18 

from 2004 to 2005. The majority of coal-fired 

units with new add-on controls in 2005 had preexisting combustion controls. 

Section 4 — Compliance and Market Activity 33 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Focus on Acid Rain Program Units in the NBP 

EPA conducted a study that examined the NOx rate performance of 465 units in the NBP region. These 

units were selected for this study because they were also required under 40 CFR Part 76 of the Acid Rain 

Program to meet NOx emission rate limits. The specific group of units for this study consisted of dry bottom wall fired and tangentially fired boilers which had NOx combustion controls in both the 2000 and 

2005 ozone seasons but did not have add-on controls at the start of 2000. This study first quantified the 

average ozone season NOx rate reductions among this group of units between 2000 (when the Phase II 

limits took effect) and 2005. Next, EPA examined how these units achieved those reductions. For this study, 

EPA used reported control equipment data, and then contacted a subgroup of about 60 units to obtain 

more specific information on the methods used to lower NOx rates. The results are summarized below. 

Reductions in Average NOx Rates 

Between 2000 and 2005 0.500 

0.450 

Between 2000 and 2005, the average


ozone season NOx emission rate for all 

465 units decreased by more than 50


percent, while the units’ heat input


remained comparable. The average


ozone season NOx rate for wall-fired 

boilers dropped by 55 percent, while


NOX Rate (lb/mmBtu)

0.400 

0.350 

0.300 

0.250 

0.200 

0.150 

0.100 

2000 Ozone Season 

2005 Ozone Season 

tangentially fired boilers achieved 0.050 

reductions of 47 percent. In 2005, both 0.000 

wall-fired and tangentially fired boiler All Units Dry Bottom Wall-Fired Tangentially Fired Boilers 

types operated at emission rates below Boilers 

the limits set in Part 76. The graph and Source: EPA 

table summarize the NOx rate reductions by boiler type. 

Unit Type ARP Phase II NOx Rate 

limits (lb/mmBtu) 

2000 Average Ozone Season 

NOx Rate (lb/mmBtu) 

2005 Average Ozone 

Season NOx Rate 

(lb/mmBtu) 

Percent Reduction 

from 2000 to 2005 

All Units (465) NA 0.403 0.194 52% 

Dry Bottom WallFired Boilers (221) 0.46 0.432 0.193 55% 

Tangentially Fired 

Boilers (244) 

0.40 0.373 0.196 47% 

How Sources Achieved These Reductions 

Based on the reported control equipment data and the additional contact with a subset of sources, EPA 

found that out of 465 units: 

•	 154 units installed add-on controls (SCR or SNCR). Between the 2000 and 2005 ozone seasons, the average NOx rate for this group of units declined by 70 percent (from 0.416 to 0.123 lb/mmBtu) from their levels prior to installing add-on controls. This is equal to a decrease of over 267,000 tons of NOx emissions. 

•	 311 units operated with existing, modified, and/or additional advanced NOx combustion controls. 

Between the 2000 and 2005 ozone seasons, the average NOx rate for this group of units declined by 

26 percent (from 0.388 to 0.288 lb/mmBtu). This is equal to a decrease of over 82,000 tons of NOx emissions. From the telephone contact, EPA found that several approaches were used by these sources 

including: installing advanced low NOx burner technology; adding overfire air or coal reburn; and optimizing existing low NOx burners and modifying boiler characteristics, such as air-to-fuel ratio. In addition, sources noted the co-benefits from blending or switching to sub-bituminous coals. 

34 Section 4 — Compliance and Market Activity 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

Section 5 — Future NOx Reductions 

and Ozone Improvements: Transition to 

the Clean Air Interstate Rule 

Building upon the nitrogen oxides (NO )x

emission reductions of the NOx Budget 

Trading Program (NBP) and the Acid Rain 

Program, the Clean Air Interstate Rule (CAIR), 

issued March 10, 2005, will permanently lower 

power industry emissions of sulfur dioxide (SO2) 

and NOx in the eastern United States, achieving 

significant reductions of these pollutants. In addition to addressing ozone attainment, CAIR assists 

states in attaining the PM 2.5 National Ambient 

Air Quality Standards (NAAQS) by reducing transported precursors, SO2 and NOx. CAIR accomplishes this by creating three separate programs: 

an ozone season NOx program and annual NOx 

and SO2 programs. Each of the three programs 

uses a two-phased approach, with declining 

emission caps in each phase based on highly costeffective controls on power plants. The first phase 

will begin in 2009 for the NOx ozone season and 

annual programs and 2010 for the SO2 annual 

program. The second phase for all three programs 

will begin in 2015. Similar to the NOx SIP Call, 

CAIR gives states the flexibility to reduce 

emissions using a strategy that best suits their 

circumstances and provides an EPA-administered, 

regional cap and trade program as one option. 

States are now choosing the strategy that best 

enables them to achieve these mandated reductions and plans are due to be submitted to EPA for 

approval by the fall of 2006. 

Figure 22: Transition from the NOx Budget Trading Program to the Clean Air Interstate Rule 

Note: The affected portions of Missouri and Georgia are required to comply with the NOx SIP Call as of May 1, 2007. 

However, EPA has stayed the NOx SIP Call requirements for Georgia while it responds to a petition to reconsider Georgia’s 

inclusion in the NOx SIP Call. 

Source: EPA 

Section 5 — Future NOx Reductions and Ozone Improvements: Transition to the Clean Air Interstate Rule 35 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

How CAIR Affects NOx Budget 

Trading Program States 

In 2009, NBP states affected under CAIR will 

transition to the CAIR annual and/or ozone season programs. All NBP states, with the exception 

of Rhode Island, are included in the CAIR NOx 

ozone season program (see Figure 22). States can 

meet their NBP obligations using the CAIR NOx 

ozone season program and, as a result, CAIR 

allows states to include all of their NBP sources 

in the CAIR NOx ozone season program. EPA also 

will allow Rhode Island to opt into the CAIR NOx 

ozone season program so that it can continue to 

participate in an interstate trading program. The 

2009 CAIR NO ozone season emission caps for x 

electric generating units are at least as stringent 

as the NBP, and in some states are tighter. If a 

state includes industrial units, the trading budget 

for those units remains the same as the NBP. 

CAIR also allows sources to bank and use pre2009 NBP allowances for the CAIR NO ozone x 

season program compliance on a 1:1 basis, thereby giving sources the incentive to begin reducing 

their emissions now. Progressive flow control will 

be eliminated as of 2009 with the start of the 

CAIR program.

CAIR Benefits 

In 2004, EPA officially designated 103 areas in the 

eastern United States as 8-hour ozone "nonattainment areas". Based on 2003 to 2005 air monitoring data, nearly 70 percent of them (68 areas 

home to about 20 million people) now have air 

quality that is better than the level of the standard. In 2005, however, there were still 31 areas 

(home to about 80 million people) that are not 

meeting the 8-hour ozone standard. CAIR will 

help bring the remaining 31 areas in this part of 

the eastern United States into attainment with 

the ozone standard. 

EPA projects that in 2015, CAIR, the NBP, and 

other programs in the CAIR region will reduce 

power industry ozone season NOx emissions by 

about 40 percent and annual NOx emissions by 

Figure 23: Ozone and Particle Pollution in the Future


Ozone and Fine Particle Nonattainment Projected Nonattainment Areas in 2010 Projected Nonattainment Areas in 2015 

Areas (April 2005) after Reductions from CAIR and after Reductions from CAIR and 

Existing Clean Air Act Programs Existing Clean Air Act Programs 

Nonattainment areas for both 8-hour ozone and fine particle pollution 

Nonattainment areas for fine particle pollution only 

Nonattainment areas for 8-hour ozone only 

Note: Projections concerning future levels of air pollution in specific geographic locations were estimated using the best 

scientific models available. They are estimations, however, and should be characterized as such in any description. Actual 

results may vary significantly if any of the factors that influence air quality differ from the assumed values used in the 

projections shown here. 

Source: EPA 

36 Section 5 — Future NOx Reductions and Ozone Improvements: Transition to the Clean Air Interstate Rule 
NOx Budget Trading Program: 2005 Program Compliance and Environmental Results 

about 55 percent from 2005 levels. EPA also projects that CAIR and existing federal and state programs will reduce the number of 8-hour ozone 

nonattainment areas in the East to six by 2015 

(see Figure 23). The phase in of clean diesel 

engines and low sulfur fuel requirements will further reduce ozone and fine particle pollution 

throughout the United States. Additionally, states 

are working to identify and implement local controls to move these remaining six areas into 

attainment. 

By 2015, the air quality improvements under 

CAIR are projected to result in: 

•	 $85 to $100 billion in annual health benefits, 

annually preventing 17,000 premature deaths, 

millions of lost work and school days, and tens 

of thousands of non-fatal heart attacks and 

hospital admissions. 

•	 Nearly $2 billion in annual visibility benefits in 

southeastern national parks, such as Great 

Smoky and Shenandoah. 

•	 Significant regional reductions in sulfur and 

nitrogen deposition, reducing the number of 

acidic lakes and streams in the eastern United 

States. 

For more information, visit <www.epa.gov/CAIR>. 

Section 5 — Future NOx Reductions and Ozone Improvements: Transition to the Clean Air Interstate Rule 37 
NOX Budget Trading Program: 2005 Program Compliance and Environmental Results 

Online Resources 

General Information: 

•	 Office of Air and Radiation: www.epa.gov/oar 

–	 Office of Atmospheric Programs: www.epa.gov/air/oap.html 

–	 Office of Air Quality Planning and Standards: www.epa.gov/oar/oaqps 

•	 Mobile Sources: www.epa.gov/otaq 

•	 Cap and Trade and Related Programs: www.epa.gov/airmarkt 

•	 Air Trends: www.epa.gov/airtrends 

NOx Control Programs: 

•	 Acid Rain Program: www.epa.gov/airmarkets/arp 

•	 Ozone Transport Commission (OTC) NOx Budget Program: www.epa.gov/airmarkets/otc 

• NOx Budget Trading Program (NBP): www.epa.gov/airmarkets/fednox 

•	 Clean Air Interstate Rule (CAIR): www.epa.gov/cair 

Ozone Information: 

•	 General Information: http://www.epa.gov/air/urbanair/ozone 

•	 USDA Forest Service, Forest Health Monitoring Program http://fhm.fs.fed.us/pubs 

Emission Data and Monitoring Information: 

•	 National Emissions Inventory (NEI): www.epa.gov/ttn/chief/net 

•	 Clean Air Markets Data and Maps: http://cfpub.epa.gov/gdm 

Ozone Monitoring Networks and Data: 

•	 Clean Air Status and Trends Network (CASTNET): www.epa.gov/castnet 

•	 Air Quality Systems (AQS): www.epa.gov/ttn/airs/airsaqs 

Other Emission and Air Quality Resources: 

•	 General Information on EPA Air Quality Monitoring Networks: www.epa.gov/ttn/amtic 

•	 Clean Air Mapping and Analysis Program (CMAP): www.epa.gov/airmarkets/cmap 

•	 The Emissions and Generation Resources Integrated Database (eGRID): 

www.epa.gov/cleanenergy/egrid 

•	 AIRNow: www.epa.gov/airnow 

38 Online Resources 
United States 

Environmental Protection Agency 

Office of Air and Radiation 

Office of Atmospheric Programs 

Clean Air Markets Division (6204J) 

1200 Pennsylvania Ave., NW 

Washington, DC 20460 

www.epa.gov/airmarkets 

EPA430-R-06-013 

September 2006 

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