Tradable Permits Examples: Chicago Emissions Reduction Market System (ERMS)

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The Emissions Reduction Market System (ERMS), which began in 2000, is a “cap and trade” system to reduce ozone-producing emissions of volatile organic materials (VOM). It is directed at only major stationary sources in the Chicago area.

Under the ERMS, each Allotment Trading Unit (ATU) allows emission of 200 pounds of VOMs. At the end of each seasonal allotment period (or “ozone season,” May 1 through September 30), sources must hold sufficient trading units to cover their actual VOM emissions during the season. ATUs may be used either in the season they are allocated or in the following season.

Allocations are based on historic emissions. Sources may also purchase ATUs from the Alternative Compliance Market Account (ACMA), which provides liquidity to the market if sources find themselves short ATUs.