US: ARB investigating ODS credits from Arkansas facility

The Air Resources Board (ARB) is investigating if offset credits issued for the destruction of ozone-depleting substances (ODS) at an Arkansas facility were generated while it was not in compliance with federal environmental rules, according to an ARB letter sent to offset holders.

The regulator can review and invalidate credits for up to eight years after issuance if the implementation of the project was not in compliance with local, state, or national environmental and health and safety regulations.

The ARB did not disclose the amount of offsets affected or the period in which they were issued. According to data from the regulator, the El Dorado, Arkansas incineration facility run by Clean Harbors was connected to up to one quarter of the ODS offsets issued so far, or roughly 14% of the 8.8m total offsets issued to date. The facility is by far the most used for ODS destruction.

As a result of the investigation, companies will not be able to buy or sell those credits during the period of review, according to the ARB document obtained by ICIS.

The offset holders now have 25 days to provide additional information to the ARB, and the regulator will make a final verdict 30 days after all information has been collected.

The facility

The facility was found non-compliant with the federal resource conservation and recovery act (RCRA) as part of “multiple inspections” conducted by the US Environmental Protection Agency (EPA) in 2009 and 2011, according to information from the agency.

EPA ordered Clean Harbors to pay a $581,236 penalty for improperly identifying and disposing of hazardous waste, improper storage of hazardous waste and failure to comply with air emissions standards, the agency said earlier this month.

The agency said the company improperly sold brine produced from the facility air control system as product. Under the federal RCRA program, hazardous substances must instead be stored, handled and disposed.

Clean Harbors told ICIS it has not received any formal notification by the ARB about the investigation.

“We have compliantly destroyed hundreds of thousands of kilograms of chlorofluorocarbons at our state of the art hazardous waste incineration facility,” Phillip Retallick, senior vice president for compliance and regulatory affairs, told ICIS.

He added the company does not believe the RCRA violation will impact compliance with the ARB offset programme.

Impact

According to ARB data, 87% of the 5.5m ODS offsets issued so far were destroyed at the Clean Harbors facility. Narrowing the focus to 2009-2011, the years when the facility was found non-compliant, up to 25% of the total ODS offsets could be affected, or 1.3m, according to data.

Offset developers EOS Climate, Diversified Pure Chem, Environmental Credit Corp, Wilshire Stanford Offsets and Pure Chem Separation all were issued ODS credits through the Clean Harbors facility. EOS Climate did not comment on the issue. The other companies did not respond to questions from ICIS at the time of publication.

Market participants said the news had the potential to have a devastating impact on the offset market, specifically on the ODS protocol, depending on the scope and the ARB final verdict.

Under California rules, the buyer of the offsets rather than the seller holds the risk of invalidation, unless contractually agreed otherwise.

A trader at a compliance entity said the investigation likely would depress the market for offsets, because ODS was seen as the less risky of the five current protocols. He said the investigation would change how people view all offset credits, likely hurting demand in the short-term.

Compliance entities can use offsets to cover 8% of their annual emissions under ARB rules. Dan X. McGraw and Silvia Molteni