ENV-16-9 Overview of Regional Emissions Markets and Pricing

Description:

The massive influx of cheap natural gas and condensate from U.S. shale plays has fueled a substantial growth of refinery, petrochemical, and specialty chemical facilities particularly along the Gulf Coast, and a boom of new natural gas fired electric generating facilities in the Northeast U.S. as the aging coal fleet is retired. This growth, coupled with the constant flux of federal, state, and local environmental regulations, has caused significant volatility in the supply and demand dynamics of the individual emission credit markets as facility owners search for cost-effective sources of emission offsets. We’ve even seen these historical market reactions in areas like the Houston-Galveston-Brazoria (HGB) nonattainment area where VOC emission credits moved from $4500 per ton in 2011 to $300,000 per ton in 2014 resulting in the cancellation or relocation of multi-billion dollar projects. The Baton Rouge nonattainment area also faced these market dynamics as refiners, manufacturing, chemical and petrochemical companies chose to relocate projects to counties classified as attainment just outside the Baton Rouge nonattainment area. The lack of low-risk, low-cost internal reductions combined with the downstream industry’s reaction to ramp up operations to take advantage of low-cost feedstock has negatively impacted facilities hoping to “net out” of major new source/major modification nonattainment permitting offset requirements. As a result, facilities with these “dried-up” netting tables hoping to expand operations must now participate in their respective emission credit markets. Emission credit availability and pricing could ultimately become the deciding factor in the timing and location of new capital projects. This technical report will focus on several key factors and regional emission markets that affect the refinery sector today and discuss what issues fuel producers may face under the growing cost of emission credit compliance.