1. U.S.-Canada Cooperation: The U.S.-Canada Air Quality Agreement
Brian McLean, U.S. EPA
Jane Barton, Environment Canada
October 17, 2006
Vancouver, BC, Canada

2. The Impetus to Cooperate
In the 1980s, Canada and the US faced a common problem impacting eastern ecosystems — acid rain
Signed in 1991, the US-Canada Air Quality Agreement was designed to be flexible framework to address not only acid rain but other transboundary air pollution problems
U.S. and Canada committed to:
Specific emission limitations or reductions and timetables/programs
Notification and consultation mechanism
Compliance monitoring
Prevention of air quality deterioration and visibility protection
Coordinate/cooperate on scientific and technical activities, economic research
Review, assess, and regularly report on progress
Historical points – why we came together; impetus for agreement
Canada-U.S. cooperation on air quality is long-standing.
Acid deposition effects: lakes/streams; forests; visibility; buildings; human health
Need to do things to address the problems

3. Air Quality Agreement Structure
Agreement established Air Quality Committee to implement commitments, measure/report progress, identify evolving areas in transboundary air pollution
Co-chaired by U.S. State Department and Environment Canada
Membership includes relevant federal agencies and States/Provinces
Subcommittee on Program Monitoring and Reporting
Subcommittee on Scientific and Technical Cooperation
Obligations recognize different approaches taken by U.S. and Canada in their efforts to reduce air pollution
Success rests on supportive/cooperative working relationships and experience of trust

4. Acid Rain Annex — 1991
Established specific emission reduction commitments (caps for SO2), and detailed timetable for meeting commitments
U.S. emission reduction commitments:
National SO2 reductions of 10 million tons, including caps of 8.95 million tons for power generation and 5.6 million tons for industrial sources
NOx reduction of 2 million tons from power generation and vehicles
Canada emission reduction commitments:
Cap SO2 emissions in seven eastern provinces at 2.3 million tonnes by 1994, and cap national SO2 emissions at 3.2 million tonnes by 2000
By 1995, reduce stationary source NOx emissions 100,000 tonnes below the forecast level and develop further annual national emission reduction requirements to be achieved by 2000 and/or 2005
Implement NOX control program for mobile sources

5. Ozone Annex — 2000
Scope of AQA extended in 2000 to address ozone transport between the U.S. and Canada and health effects
Established Pollutant Emission Management Area (PEMA) in transboundary region (18 states and the District of Columbia; central and southern Ontario and southern Quebec)
U.S. commitment: Cap on summertime utility and industrial boiler NOx emissions (NOX SIP Call); mobile source controls; implement new source standards for NOx and VOC reductions
Estimated U.S. transboundary region NOx reductions of 36% annual and 43% ozone season by 2010
Canada commitment: NOx and VOC emission reduction measures including annual NO2 power plant cap by 2007 in transboundary region; Tier 2 engines and fuel regulations; solvents, paints, and consumer products; measures to achieve Canada-wide Standards for ozone
Estimated Canada transboundary region reductions from 1990: NOx 39% annual by 2010 and VOC 35% annual by 2010

6. Results: Reduced SO2 and NOx Emissions in the U.S.
Total U.S. SO2 and NOx Emissions*
Total U.S. SO2 emissions have decreased 11.3 million tons (44%) from 1980 levels as of 2005.
Total U.S. NOx emissions have decreased 8.4 million tons (31%) from 1980 levels as of 2005.
* Power industry emissions are measured by CEMS; emissions for other sources were estimated by interpolating from the 2002 final NEI data.

7. Results: Reduced SO2 and NOx Emissions in Canada
Total Canadian SO2 and NOx Emissions
Total Canadian SO2 emissions in 2005 have decreased by 1.5 million tons (37%) since 1985.
Total Canadian NOx emissions in 2005 have decreased by 0.1 million tons (3%) since 1985.

8. Results: Environmental Benefits of Reduced Acidic Deposition
SO4 Concentrations
These reductions have had tremendous environmental and health benefits – the Acid Rain Program will result in $122 billion annually in U.S. benefits in 2010, including $6 billion in benefits to Canada
Future reductions under these programs, the Clean Air Interstate Rule, and new auto and diesel requirements are key components in the attainment of ozone and PM standards in the U.S.

9. Scientific and Technical Activities
Key Accomplishments:
Acid Rain and ecological monitoring and assessment
Development of extensive shared emission inventories
Ozone assessment report (1999)
PM science assessment report (2004)
Coordinated tracking of ozone air quality/deposition along the border
Informal consultations/collaborations on specific industrial facilities
Other collaborative efforts: Border Air Quality Strategy (2005)
The Great Lakes Basin Airshed Management Framework
Georgia Basin/Puget Sound International Airshed Strategy
Emissions Cap and Trading Feasibility Study for SO2 and NOx

10. Great Lakes Basin Airshed Study Area: Southeast Michigan/Southwest Ontario Region

11. The Great Lakes Basin Airshed Management Framework
Objective: To improve air quality coordination and information exchange between the two countries
- Administrative and structural frameworks
- Control strategies and jurisdictional plans
- Permitting systems for existing, new and modified sources
- Compliance and enforcement systems
- Policy uses for scientific tool and research
Conclusions: Coordinated management of the airshed is feasible and desirable
Barriers and obstacles can be overcome with sustained effort
Existing mechanisms and new opportunities are needed
Applicability to other areas within the Great Lakes Basin
Next step: Proposed guidelines for airshed management
Policy Needs efforts led to improved mechanisms and procedures… Improved mechanisms for responding to cross-border complaints on air quality. Citizens and air quality officials in both countries may now report their complaints regarding facilities in the neighboring country, and they will be responded to by the appropriate authorities.
Improved industrial source permit notification procedures. As a result, groups in Canada were able to voice concern over a proposed permit for a coke oven in Ohio, which contributed to stricter mercury limits being imposed on the facility.

12. Georgia Basin/Puget Sound International Airshed

13. Georgia Basin/Puget Sound International Airshed Project
Results of the Project – so far…
Partner agencies have adopted the International Airshed Strategy for the Georgia Basin-Puget Sound
Health research focused on particulate matter is underway to better define regional issues of concern and priorities for remedial action
Transboundary collaboration on scientific research is continuing to better define air pollution causes and solutions
Ongoing regional collaborative measures to reduce emissions from motor vehicles, marine vessels, agricultural activities and woodstoves
Initiatives for Improved Air Quality Management
Transboundary Science
Completed the Airshed Characterization Study / Report
Assessment of role of agricultural ammonia emissions on air quality
Continued progress in the Transboundary Air Data Exchange project
Ongoing air modeling studies to support AQ planning priorities
Notification of New Sources
Completed review of air approval procedures in B.C. and NW U.S.
Determination of issues and gaps in notification/review of new sources
Communications and Outreach
Addressing communication and outreach needs for other Initiatives
Assisting with liaison/coordination for IAS members and stakeholders

14. Informal Consultations/Collaborations on Specific Facilities
Conner’s Creek Power Plant, Detroit, Michigan, U.S.
Successful discussion which ended when the power plant was required by EPA and Michigan to refuel with natural gas instead of coal
Algoma Steel Mill, Sault Ste. Marie, Ontario, Canada
Ongoing discussion with joint monitoring of air toxics and PM, information exchange on abatement at the plant, and reporting to the public
Boundary Dam Power Plant, Estevan, Saskatchewan, Canada
Successful conclusion this year with joint monitoring demonstrating that no air quality levels are being exceeded in the region

15. U.S. Experience with SO2 and NOx Cap and Trading
Traditional Regulation: Command and Control
Reduced emissions significantly
Typically a technology or rate based method with limited monitoring
Very effective in many situations
Limited expertise about air quality management
Control or reduction options are limited or obvious
Control or reduction costs are reasonable
Established what needed to be done
Prescribed how and when each source was to do it

16. Experiments in Flexibility: Bubbles, Offsets, and Credits
Assumed command and control infrastructure
Provided some flexibility in how a source could comply, i.e., by getting reductions from another source
Required government approval to prevent:
“Paper Credits”
“Anyway Tons”
Unacceptable air quality impacts

17. Cap and Trade
An alternative to traditional regulation and credit trading
Not simply a trading feature added to existing regulation
Certainty that a specific emissions level is achieved and maintained
More regulatory certainty, compliance flexibility, and lower permitting and transaction costs for sources
Fewer administrative resources needed by industry and government (if kept simple)
Government focused on setting goals & assuring results, not on approving individual compliance actions
An incentive for innovation and early reductions
Can be compatible with other mechanisms
Lower costs make further improvements feasible
The Cap: Constraint of a firm cap requires that all new emitters secure allowances from existing emitters who have reduced below the required levels
Thus, there is no net increase in emissions, even when activity increases
Program’s environmental goal is assured
Monitoring: Complete accounting with no underestimation
Incentives for accuracy and improvement
Consistency and cost effectiveness
Flexibility for small sources - 36% of units must use Continuous Emissions Monitors (CEMS); Accounts for 96% of total SO2 emissions
Electronic reporting, feedback, and auditing
Public access to data

18. Why Cap and Trade Works
Full sector coverage – All sources (existing and new) included
Minimizes shifting of production and emissions (“leakage”)
Assures achievement of emission reduction goal without case-by-case review
Reduces administrative costs to government and industry
Cap on emissions – Government issuance of a fixed quantity of allowances
Limits emissions to achieve and maintain environmental goal
Limits creation of “paper credits” and “anyway tons”
Provides certainty to allowance market
Monitoring – Accurate measurement and reporting of all emissions
Assures accountability and results
Establishes integrity of allowances and confidence in the market
Trading – Unrestricted trading and banking (with source-specific limits allowed to protect local air quality
Allows companies to choose (and change) compliance options
Minimizes compliance cost
Ensures that trading will not cause “hotspots”
Certainty: Establishment of long term goals and issuance of allowances for multiple years (or decades, if possible) demonstrate government commitment that enables long-term and cost-effective investment by industry.
Transparency: Publicly available emissions and allowance data build confidence and support for the cap and trade approach.

19. Public Access to Hourly Emissions Data
Compliance and Enforcement
Annual reconciliation: Actual emissions compared with allowances in accounts
Penalties for non-compliance
SO2 Program:
Automatic offset (deduct allowance from next year’s allocation)
Automatic financial penalty ($3,042/ton of SO2 )
Possible civil and criminal penalties
NOx Program
3 allowances surrendered for each ton from next year’s account (no automatic monetary penalty)
99.9% compliance rate for both SO2 and NOx programs
Penalties have ranged from $3,000 to $1,500,000

20. Public Access to Allowance Data
Allowance Registry: Official record of allowance transfers and holdings
Each allowance has a serial number
Parties reach agreement, then transfer allowances online, or authorise EPA to transfer allowances
Registry is not a trading platform
Active Allowance Market:
Over 215 million allowances transferred through almost 42,000 transactions since 1994
Approximately 45% of transfers are arms length trades
Over 97% of transfers were handled online in 2005
Low transaction costs
Type of transfer
(auction, private)
Seller name and
account info
Confirmation date, serial numbers and total allowances transferred
Buyer name and

21. Results: Major Reductions in SO2 Emissions and Acid Rain
11.9
Million Tons of SO2
Actual Emissions
Final Cap
15.7
10.2
17.3
89.0
11.2
SO2 emissions from power plants down by 5.5 million tons since 1990
Acid rain reduced by 25 – 40%
Wet Sulfate Deposition
Wet Sulfate Deposition

22. Summertime NOx Emissions Reductions
2005 NBP states ozone season reductions
(May 1 – September 30) :
72% from 1990 baseline
57% from 2000 baseline
11% from 2004
Daily Emission Trends for NOx Budget Trading Program Units in 2003, 2004 and 2005
Total NBP Ozone Season NOx Emissions
NOx Emissions (Thousand Tons)
Multi-State NOx Programs
Problem: Reduce summer ozone/smog levels
Scope: Eastern U.S.
Target: Reduce NOx emissions from electric generators and industrial boilers by 1 million tons (70% below 1990 levels)
Coverage: ~2600 units

23. National SO2 and NOx Power Plant Emissions
Projected, w/ CAIR
Clean Air Interstate Rule (CAIR) will significantly cut emissions of SO2 and NOx from power plants and:
Help cities and states in the East meet new, more stringent national ambient air quality standards (NAAQS) for ozone and fine particles.
Guarantee substantial benefits for public health and the environment.
Achieve the largest reduction in air pollution in more than a decade (since the highly successful Acid Rain Program).
Require one of the largest investments in pollution control technology in history.
Serve as the single most important step to take now to improve air quality in the U.S. and help reduce transboundary air pollution flows in Canada.
Source: EPA

24. Feasibility Study
The U.S.-Canada AQA identified market-based mechanisms for information exchange, including emissions trading. In 2003, a joint study on SO2 and NOx emissions cap and trading was undertaken, and completed in 2005.
The key conclusions of the economic and air quality modeling were:
Acid rain, smog, and regional haze are problems in both countries that would be improved if SO2 and NOx emission caps were implemented in both countries at levels comparable to U.S. caps.
Cross-border trading would not alter the overall level of emission reductions nor the consequent benefits to air quality and the environment.
– The costs to industry of complying with the caps would be cheaper with trading than without trading.
Significant technical advances and cooperation resulted from this study, such as development of analytical tools, shared emission inventories, integrated electricity and emission modeling and cross-border air quality modeling.

25. Feasibility Study
The study concluded that caps and cross-border trading would be feasible if certain critical elements were in place:
In Canada, enforceable SO2 and NOx emission caps for the electricity sector—and other sectors, if appropriate—and rigorous emissions monitoring and public reporting requirements, comparable in stringency to those in the U.S.
In both countries:
Legislative and/or regulatory changes to give the allowances in each country equivalency so that they could be traded freely and used for compliance in either country.
A commitment to pursue implementation of cross-border SO2 and NOX cap and trade.

26. Summary of Progress
Over past 30 years, witnessed transition from identifying transboundary issues to developing binational solutions
2006 Biennial Progress Report and Third Five-Year Review of Program (15 year anniversary)
With recognition of different governmental authorities, but commitment to common goals, expect continued progress working collaboratively
U.S.-Canada Air Quality Agreement provides an example for international agreements, providing real progress in improving the environment