Under the section of the federal pollution regulations called New Source Review (NSR), new and expanding facilities in non-attainment areas that exceeded the minimum emissions thresholds must offset their emissions by finding a source that is going to make a similar number of emissions reductions within the same airshed. The regulations require a facility to secure a greater number of offsets than it will use in accordance with the offset ratios listed below. New Source Review also requires that the additional offsets be retired in order to create an environmental benefit. This retirement insures that total pollution in a non-attainment region decreases over time. For example, a newly constructed facility in a serious non-attainment region, which has the potential to emit 60 tons of NOx annually, must secure 72 tons of offsets before commencing operations (see offset ratios below).

Although the requirement to obtain emissions offsets has been part of the New Source Review (NSR) regulations for more than fifteen years, recent amendments to the Clean Air Act have augmented the regulations. These regulations now require offsets for both oxides of nitrogen (NOx) and volatile organic compounds (VOCs). Offset requirements are now triggered by smaller changes in volumes of emissions and are required in a greater number of locations. The entire Northeast (from the D.C. area through Maine) is now subject to offset requirements. As a result of these expanded requirements, the market for ERCs has developed rapidly over the past several years.

What are ERCs?

ERCs represent pollution that is no longer being emitted. A company that has retained the right to emit a given quantity of a pollutant into the air, but has voluntarily lowered or eliminated those emissions may apply to have those emissions certified. Once certified, the emissions may be used to meet the ERC requirements of a new or modified facility. In order to legally certify the ERCs, the facility must agree to a permanent restriction in their air permit.

ERCs are certified reductions of VOCs, NOx, SO2, PM-10, or CO from facilities in areas that are non-attainment for the pollutant in question. Usually, the emission reductions must have occurred within the past 5 years and must be in excess of what is otherwise required by regulations. There are many types of emission reductions that qualify for ERCs. (See below) Facilities that do not have ERCs to offset emissions from planned expansions must purchase ERCs from other sources. This creates an ERC market, with supply and demand determining the value of the ERCs.

An emission reduction credit (ERC) can be created by:

1. Shutting down all or part of a facility
2. Curtailing production or operating hours
3. Improving control measures (i.e., lowering emission rates through technology or fuel changes)
4. Making other process changes that reduce emissions

ERCs, also referred to as offsets, must be "voluntary," "permanent," "quantifiable," and "enforceable". States usually request that sources demonstrate that they have met these criteria in an ERC application. The emission reductions can then be certified by the state as ERCs and entered into a "bank" or ERC registry. Natsource structures ERC transactions as an introductory broker. That is, Natsource matches buyers and sellers who remain anonymous to one another until all of the commercial terms and conditions of the transactions are agreed upon (generally, price, volume and delivery terms). Natsource does not act as a principal in any transactions; and therefore does not take proprietary positions in the markets. This gives both buyers and sellers confidence that Natsource, as their intermediary, has no vested interest in the price, and therefore our clients will always see the best market. In addition, all terms and conditions of transactions are kept strictly confidential.