Modeling and Analysis of Nox Emission Trading to Achieve Ozone Standards

Abstract

Emission trading programs are incentive-based policy instruments implemented to achieve environmental targets cost-effectively. In these programs, also known as transferable discharge permit (TDP), emission-reduction trading, and cap and trade programs, participants are required to meet established emission reductions goals through control measures or by acquiring TDPs from sources in the market that over-control. TDP programs encourage development and application of innovative control technologies and allow pollution sources more flexibility in complying with regulations. One potential drawback to a market-driven policy such as TDP is that the geographical distribution of emissions resulting from trades could locally degrade air quality if the market is not designed properly. Since such an outcome is generally undesirable, the ability for regulators to predict environmental impacts of trading prior to implementation is very important. The goal of this thesis is to present a general framework for using mathematical optimization to model and analyze different market design features for TDP programs including the potential use of trading restrictions to control the geographic distribution of permits. This framework will provide regulators with a way to identify effective market designs and implement more robust and reliable TDP programs. An important component of this framework is the use of Modeling to Generate Alternatives (MGA) to identify the range of trading outcomes that may occur in response to a TDP program.A case study using this framework was conducted for NOx emission trading in the Charlotte, North Carolina region. The study analyzed alternative trading outcomes generated using MGA, investigated limitations on source size and type in the trading program, and tested the use of zoning restrictions as a way to control the geographical distribution of permits. Trading outcomes were evaluated with respect to cost, air quality, robustness, and reliability. Results found that TDPs could be used to meet both emission limits of NOx and an ambient standard for ozone with all or a limited number of sources trading. Additionally, trading restrictions in the form of geographic zones were not particularly good at reducing local air quality impacts in the Charlotte region, although this result is believed to be (in part) attributable to the limited size of the trading region.