A Guide to Emission Reduction Credits (ERCs) System

What is an ERC?

An ERC is a credit earned by a company when it reduces air emissions beyond what is required by permits and rules. It is an asset that can be used by its owner or sold to companies that need emission offsets.

What is an emission offset?

An emission offset occurs when a company compensates for an increase in emissions in one area by decreasing emissions in another area. For example, if a company is expanding, and the expansion will involve an increase in emissions, this company can use ERCs to offset the emissions increase.

Clean the air

Emission offset requirements include a set tradeoff ratio that ensures a continuous decrease in air pollution. When a company redeems emission reduction credit (ERC) certificates to offset increased pollution levels, the end result is less air pollution. Once the certificates are redeemed, the ERCs are retired and cannot be used again. The ERC system is both good for business and good for the air.

Increase your profit

ERCs have a market value. They can be bought and sold between companies. Companies can also use ERCs to reduce costs involved in an expansion or just to protect a variety of expansion options for the future.

Enhance your company’s reputation

Earning ERCs also means earning goodwill in the community. Nationally and locally, communities are applauding businesses that take the initiative to reduce pollution.

How Does it Work?

Companies earn ERCs when they reduce emissions of ROC, NOx, PM (including PM10), CO, or SOx beyond what is required by District permits and rules. This can be done by adding emission controls to a process, replacing equipment, or closing a facility.

ERCs are only issued for reductions of actual emissions that are quantifiable, enforceable, permanent, and surplus.

As long as these criteria are met, there is no minimum or maximum limit on the amount of reductions that may be eligible for ERC certificates. A credit can be earned for reducing as little as one ton of emissions. The ERC certificate becomes a commodity for your business.

ERCs are issued and traded in units of tons per year, so if you reduce ROC by 20 tons per year, you receive an ERC certificate for that amount, unless you shut down a facility or piece of equipment. In that case, you receive slightly less credits than the emissions actually being reduced.

Steps to Follow to Earn ERCs
  1. Consider how you want to reduce emissions at your business.
  2. Call us at (805) 961-8824 to discuss your plans.
  3. Submit application Form 5A (there are fees), or Form 5E for ag sources.
  4. Go through the District review process, and verify that the planned emission reductions meet the four evaluation criteria.
  5. Receive a preliminary Decision of Issuance (DOI) and a final DOI after a public comment period if applicable.
  6. Make sure you have a permit if control equipment is required to generate the ERCs. You can apply for an Authority to Construct (ATC) permit when you begin the ERC process.
  7. Start operating the new equipment to determine whether emission reductions match what was planned.
  8. Obtain Permits to Operate (PTO) for any new equipment.
  9. Receive an ERC certificate in units of tons per quarter, good for five years, and renewable thereafter.
Steps to Follow to Redeem ERCs
  1. If you are using all or part of your ERC certificate, you must submit a form to the District (“Authorization of ERC Use,” Form 5U.)
  2. If you have previously obtained an ERC certificate and wish to use it, you must also inform the District in your permit application (per Rule 204.E.5).
  3. If you purchase an ERC certificate from another company, you need to identify the source when you submit your permit application (per Rule 204.E.5).
  4. If you want to know who has ERC certificates, go to the Source Register Database.
  5. Negotiations between the buyers and sellers of ERCs are private and do not involve the District.
  6. The District maintains a Source Register for ERC transactions to track who has earned them, how many are available, the quantities traded among parties, and the sale price.
  7. ERC certificates may only be used once. Upon redemption, they are no longer valid for future transactions.

There are many ways to reduce air emissions. District engineers can help you find them.

If you are exempt from APCD Rules

Non-regulated businesses can also earn ERCs, generally by replacing pieces of equipment with low-emission models. These companies enter into a contract with the District that allows inspections and may include other specifications for the facility or equipment. ERC certificates may be sold by non-regulated entities to any business that needs them.

The Value of ERC Certificates

Under New Source Review (Rule 802), the District can only allow new or modified, large sources of pollution in the county if previous reductions can “offset” the emissions above a certain threshold. Companies that wish to open a facility or add equipment can satisfy this requirement by redeeming ERCs. Offset requirements include a tradeoff ratio to ensure a net air quality benefit. For example, if a new facility will emit 80 tons of ROC per year, emission offset requirements will make it necessary for the business to redeem credits for 104 tons of emissions. The 40-ton difference produces a net benefit to air quality.

Companies that own ERC certificates may use them at any time, in whole or part, to meet New Source Review requirements. Or they may sell the credits to other companies that need them. The actual value of an ERC will fluctuate depending on District rules at the time of use.


  • New Source Review (Rule 802)
  • Emission Offsets (Rule 804)
  • Emission Reduction Credits (Rule 806)
  • Flaring (Rule 359) for special use of ERCs
  • California Environmental Quality Act (CEQA)
  • OCS Air Regulation Rule 40CFR, Part 55 for special use of ERCs

For more information, contact the Engineering Division at [email protected].