# Roadmap for Incorporating Energy Efficiency/Renewable Energy Policies and Programs into State and Tribal Implementation Plans

Appendix C: Existing EPA Energy Efficiency/Renewable Energy GuidanceC

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Roadmap for Incorporating Energy Efficiency/Renewable Energy Policies and Programs into State and Tribal Implementation Plans

Appendix C: Existing EPA Energy Efficiency/Renewable Energy Guidance

By: U.S. Environmental Protection Agency Office of Air Quality Planning and Standards
Outreach and Information Division Research Triangle Park, North Carolina

U.S. Environmental Protection Agency Office of Air Quality Planning and Standards
Outreach and Information Division Research Triangle Park, North CarolinaC

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### ACKNOWLEDGMENTS
We would like to acknowledge substantial contributions from members of an inter

- office EPA team that included the Office of Atmospheric Programs, the Office of Policy Analysis and

Review

, the Office of General Counsel and Regions 1 and 6. Th i s document also reflects

comments received from a number of stakeholders, including state a n d l o c a l air quality agencies.C

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### Contents

SECTION C.1: INTRODUCTION

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SECTION C.2: EXISTING GUIDANCE ON BASELINE PATHWAY

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SECTION C.3: EXISTING GUIDANCE ON CONTROL STRATEGY PATHWAY

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Quantifiable

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Surplus

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Enforceable

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Permanent

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SECTION C.4: EXISTING GUIDANCE ON EMERGING/VOLUNTARY MEASURES PATHWAY

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How a State Can Receive SIP Approval for Emerging/Voluntary Measures

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Four Criteria for SIP Emerging/Voluntary Measures

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Quantifiable

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Surplus

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Enforceable

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Permanent

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Emission Reduction Credit

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Bundling Emerging/Voluntary Measures

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SECTION C.5: EXISTING GUIDANCE ON WOE PATHWAY

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REFERENCES

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### SECTION C.1: INTRODUCTION

T his appendix provide s brief information on existing U.S. Environmental Protection Agency (EPA) guidance that relates to energy efficiency/renewable energy ( EE/RE ) and state implementation plans ( SIPs ) . It is organized by pathway. The EPA has issued five guidance documents related to incorporating EE/RE programs in SIPs:

Guidance on State Implementation Plan (SIP) Credits for Emission Reductions from
Electric

- Sector Energy Efficiency and Renewable Energy Measures, http://www.epa.gov/ttn/oarpg/t1/memoranda/ereseer em_gd.pdf

, August 2004 (referred to in this a ppendix as EE/RE Measures Guidance).

Guidance on Incorporating Emerging and Voluntary Measures in a State Implementation Plan (SIP), http://dnr.mo.gov/env/apcp/sipworkgrp/control_strategy_wrkgrp/VoluntaryControlMe asuresPolicyEPA.pdf , September 2004 ( referred to in this a ppendix as Emerging/Voluntary Measures Guidance)

. Guidance on Incorporating Bundled Measures in a State Implementation Plan, http://www.epa.gov/ttn/oarpg/t1/memoranda/10885guideibminsip.pdf

, August 2005 ( referred to in this a ppendix as the Bundled Measures Guidance)

. Guidance on the Use of Models and Other Analyses for Demonstrating Attainment of Air Quality Goals for Ozone, PM 2.5 , and Regional Haze, http://www.epa.gov/scram001/guidance/guide/final

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- guidance.pdf , April 2007 ( referred to in this a ppendix as the Modeling Guidance)

. Guidance on Emiss ion Projections, Volume X, ( http://www.epa.gov/ttnchie1/eiip/techreport/volume10/x01.pdf , 1999 ( referred to in
this a ppendix as Emissions Projection Guidance)

.

The text included in this appendix consists mostly of direct excerpts from these documents. In

some cases , changes have been made to improve the readability of the text. In other cases, corrections have been made to the text to ensure its accuracy.



### SECTION C.2: EXISTING GUIDANCE ON BASELINE PATH WAY Several guidance documents provide recommendations on how to estimate emissions for future years . Among point source emissions, there are two major subsets: electric generating utilities (EGUs) and non

- EGUs. The Clean Air Mark ets Division (CAMD) of the EPA uses the Integrated Planning Model (IPM) 1 to model emissions trading programs and to predict future

year emissions from EGUs. Other models and approaches may exist and could be used for
estimation of future

- year emissions

. (Appendix E provides more information on what factors other approaches need to consider for the b aseline p athway

. ) In addition, EPA Emissions Projection Guidance has general information on emission projections , which provides important factors that s tate, tribal and local ag encies should consider when projecting emissions results for future attainment years.

1 For more information on IPM, go to: http://www.epa.gov/airmarkets/progsregs/epa

- ipm/index.html

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### SECTION C.3: EXISTING GUIDANCE ON CONTROL STRATEGY PATHWAY

The EPA ’s EE/RE Measures G uidance addresses the criteria needed for ener gy EE/RE measures
to be considered approvable as a SIP control measure:

Quantifiable Surplus
Enforceable

Permanent



### Quantifiable The EE/RE M easure s G uidance lists four steps to address when trying to quantify EE/RE

measures:

Step 1 : Estimate the energy savings that an energy efficiency measure will produce, or, for a renewable energy project, the amount of energy generation that will occur. Step 2 : Convert the energy impact in STEP 1 into an estimated emissions reduction. Step 3 : Determine the impact from the estimated emission reductio n on air quality in
the nonattainment area. Step 4 : Provide a mechanism to validate or evaluate the effectiveness of the project or

initiative.

Th us, th e guidance indicates that the emission reductions need to be quantifiable and include procedures to eva luate and verify over time the level of emission reductions actually achieved. The emission quantification approaches in this guidance may be used to address this criterion.

E valuation and verification methods can be found in best practices materials on e stablishing
and i mplementing EE pr ograms provided by the National Action Plan for Energy Efficiency (NAPEE)

. 2 However, since there can be many types of EE or RE programs covering many different areas, alternative protocols may also be acceptable, and woul d be evaluated, as

necessary, on a case

- by

- case basis.



### Surplus The EE/RE M easure s G uidance indicates that emission reductions are surplus as long as they are not otherwise relied on to meet air quality attainment requirements in air quality programs
relate d to your SIP. In the event that the measures to reduce utility emissions are relied on in a jurisdiction’s plan to meet air quality

- related program requirements, they are no longer surplus and may not be used as an additional reduction to meet SIP emissi on reduction requirements,
such as the attainment demonstration or R easonable F urther P rogress (RFP)

.

The i mportance of the surplus requirement in areas subject to a cap and trade program merits particular focus

. To illustrate, i f an EE program causes several EGUs that are part of a cap and trade program to scale back the amount of electricity they generate and

, therefore

, reduce

2 For more information on NAPEE, go to: http://www.epa.gov/cleanenergy/energy

programs/suca/resources.html

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overall emissions, then, absent additional limitations discussed below, it may be difficult to
show that thes e reductions meet the “surplus” criteria for crediting the measure. This is because the units are still allowed to emit up to the same number of allowances in the program even though the amount of electricity they need to generate has be en reduced. The EE or RE measure, in effect, allow s the EGUs to comply with the cap and trade program with a slightly higher average emission rate and a theoretically lower allowance price. Therefore, the
estimated emission reductions from the EE or RE measure would typica lly not be surplus, and
would es sentially be double counted if EPA permitted the allowances that were freed up by the
measure to be used in the trading program and if EPA provided additional SIP credit for the EE

actions.

The presence of a cap and trade program, however, does not necessarily prohibit the use of EE
and RE measures by a s tate agency to achieve additional SIP reductions. One acceptable way of achieving additional emission reductions from EE and RE measures in the presence of a cap and trade program is through the retirement of allowances commensurate to the emissions expected to be reduced by the EE measures. The retirement of allowances

, which amounts to lowering the cap, assur es that the EE measures will ac hieve emission reductions that are surplus to the emission reductions under the cap and trade program. Another way is to clearly
demonstrate that emissions will decrease in the area despite the cap and trade program and the ability o f plants to sell more electricity to other areas. This demonstration will likely entail a detailed analysis of electricity dispatch and allowance markets to determine the specific impact of the measures on the system.



### Enforceable The EE/RE M easures G uidance indicates that EE/R E measures may be:

Enforceable directly against a source; Enforceable against another party responsible for the energy efficiency or renewable energy activity; or Included under our voluntary measures policy where the state would be responsible for assuring that the emission reductions credited in the SIP occur.

The EPA believes that most measures you may consider under the guidance would fall into the second or third categories listed above. E E or RE measures are unlike t raditional control measures on stationary sources. There is typically a physical distance between where the measure is implemented and where the emission reductions occur , as well as a geographic
distribution to the emission reductions. Since EGUs are in terconnected in the electric grid, a reduction in energy demand or generation from a renewable resource will likely affect the operation and emissions of several fossil fired units in the system. The EE or RE measure itself may be enforceable against the entities undertaking the activity even though they are not responsible for the operation of the electric generators at which the emission reductions are estimated for purposes of the SIP. For example, you could require certain entities to purchase

an amou nt of RE . If you rely upon such requirements within the SIP, then this measure could be enforceable against th os e entities required to purchase the RE electricity or to reduceC

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energy consumption, even if those entities are not responsible for the operatio n of the electricity generating units at which the emission reductions are expected to occur.

If the reductions are “enforceable directly against the source” or are “enforceable against another party responsible for the energy efficiency or renewable energy activity

, ” then the
reductions are considered enforceable if:

They are independently verifiable; Violations are defined;
Those liable for violations can be i dentified; The state and EPA maintain the ability to apply penalties and secure appropriate corrective actions where applicable;
Citizens have access to all the emissions

- related and activity information obtained from the source; Citizens can file suits ag ainst the source or responsible party for violations; and They are practicably enforceable in accordance with EPA guidance on practicable enforceability. 3



### Permanent The EE/RE measure should be permanent throughout the term for which the credit is granted

u nless it is repl aced by another measure or the s tate demonstrates in a SIP revision that the emission reductions from the measure are no longer needed to meet all applicable statutory and regulatory requirements.



### SECTION C.4: EXISTING GUIDANCE ON EMERGIN G/VOLUNTARY
MEASURES PATHWAY

The EPA ’s Emerging/Voluntary Measures Guidance describes an emerging measure as a new emission reduction or pollutant reduction measure that is more difficult to accurately quantify
than traditional SIP emission reduction measures. The difficulty in quantifying the emission or pollutant reductions may be due to scientific, technological, or informational uncertainty. The ability to quantify reductions fr om emerging measures may necessitate development of a protocol based on assumptions and/or modeling to estimate the reduction impacts of the emerging measure.

A voluntary measure is an action by a source that will reduce emissions of a criteria pollutant or
a precursor to a criteria pollutant that the s tate could claim as an emission reduction in its SIP for purposes of demonstrating attainment or maintenance of the National Ambient Air Quality
Standards (NAAQS)

, or RFP, but that is not directly enforceable against a source. The E PA ’s guidance also desc ribes how s tates can identify individual voluntary and emerging measures and "bundle" them in a single SIP submission.

3 EPA (1989) and EPA (1992).C

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### How a State Can Receive SIP Approval f or Emerging/Voluntary Measures The SIP submitted by the state to EPA :

Identifies and describes the measure; Contains projections of emission or pollutant reductions attributable to the program, along with relevant technical support documentation :

o F or emerging measures, a full discussion of the relevant best available science supporting the measure; Enforceably commits the s tate to implement those parts of the measure for which the

state or local government is responsible; Enforceably commits the s tate to monitor, evaluate, and report at least every three years to the public and EPA on the resulting emissions effect of the emission or pollutant reduction measure; Enforceably commits the s tate to remedy any SIP credit shortfall in a timely manner, if the program does not achieve projected emission reductions; Meets all other requirements for SIP revisi ons under sections 110 and 172 , and any other applicable sections, of the Clean Air Act ( CAA ) ; and Undergoes public notice and comment (like any other SIP revision )

.



### Four Criteria f

or SIP Emerging/Voluntary Measures
The Emerging/Voluntary Measures Guidance addresses the criteria needed for ener gy EE/RE

measures to be considered approvable as e merging/voluntary measures :

Quantifiable Surplus
Enforceable

Permanent

Quantifiable Emissions and emission reductions attributed to the measure are quantifiable if someone can reliably measure or determine them and replicate the results . Any uncertainty in the quantification should be addressed by following the guidance contained in the Economic Incentives Program 4 in section 5.2 (b). A v oluntary measure should meet this provision and

, if the measure is also an emerging measure , then it should meet the criteria for emerging

measures.

For emerging measures, EPA’ s policy provides flexibility for the quantification requirement.

Some areas want to try new types of emission control or pollution reduction strategies. Some of these new strategies have a substantial chance to be as effective (and possibly more effective) than current measures in reducing criteria pollutant levels. The EPA supp orts and wishes to promote the testing of new emission s and pollutant control strategies. This policy provides a mechanism for s tates to receive provisional emission reduction credit in their SIP for

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new emission control and pollutant reduction strategies that have the potential to generate additional emission reductions or air quality benefits. Provisiona l emission reductions or pollutant reduction strategies can become permanent through a SIP revision when post

implementation evaluations validate the am ount of emission reductions achieved.
“Provisiona l ” in this case means the state may use particular emission reductions for RFP or other purposes before the quantification procedure has been fully validated. Even though EPA
believes that these emission r eductions can be used to fulfill CAA emission reduction requirements, if post implementation evaluations do not show that all the projected emission
reductions have occurred, the state would need to reconcile the difference between the projected and actual emission reductions . In order to encourage emerging new programs with
which EPA and the state s do not have significant experience, but which are technically and scientifically sound, the Agency be lieves it is appropriate to allow quantification based on best available science or information where direct, empirically verified data are not available. In these circumstances, the state should quantify the pollution reduction based on the best knowledg e currently available for the measure being considered. The state should develop a protocol based on a carefully considered determination of the activities that it is committing to undertake and the activities’ projected impact on pollution. The estimate s may be based on modeling, on extrapolated experience for similar types of projects

, or on another approach that is likely to yield a reasonable estimate of pollution reduction.

Surplus Emission reductions used to meet air quality attainment requirements are surplus as long as they are not otherwise relied on in air quality

- related programs relating to a SIP. For voluntary and emerging measures, EPA believes these reductions should also be surplus to adopted state air quality programs, even those programs that are not in the SIP , such as a consent decree and
f ederal rules that focus on reducing criteria pollutants or their precursors. For emission
reductions used for attainment, RFP, maintenance or general conformity, the emission
reductions cannot alread y be assumed for the same requirement, where the requirements are
cumulative. An emission reduction may be used for more than one of these requirements. For example, emission reductions used to meet the RFP requirement may also be used for the
attainment demonstration. However, emission reductions are not surplus if they have already been assumed in a program. In other words, state s cannot claim emission reductions that are already assumed in the existing SIP, or that result from any other emission reduction or limitation of a criteria pollutant or precursor that the state is required to have to attain or
maintain a NAAQS or to satisfy other CAA requireme nts. In the event that emission reductions relied on from a measure are subsequently required by a new air quality related program, such as those listed above, those emission reductions would no longer be surplus for this purpose.

Enforceable
While EPA ha s already stated that voluntary measures are not enforceable against the source,
the state would be responsible for en suring that the emission reductions credited in the SIP do, in fact, occur. The state would make an enforceable commitment to monitor, as sess , and report on the emission reductions resulting from the voluntary measures and to remedy any shortfalls from forecasted emission reductions in a timely manner

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Emission reductions and other mandatory state or local actions a re enforceable against the
source if

, for each source:

The emission reductions are independently verifiable; Program violations are defined;
Those responsible for the violations can be identified; For emerging measures, the state and the EPA maintain the ability to apply penalties and secure appropriate corrective action where applicable;
The emission reductions are enforceable in accordance with other EPA guidance on practicable enforceability; For voluntary measures, the EPA mai ntains the ability to apply penalties and secure appropriate corrective action from the state where applicable and the state maintains the secure appropriate corrective action with respect to portions of the program that are directly enforceable against th e source; Citizens have access to all the emissions

- related information obtained from the source;
and For emerging measures, citizens can file suits against sources for violations.

Permanent
The Emerging/Voluntary Measures Guidance indicates that an emissi on reduction strategy
needs to continue throughout the term that the credit is granted unless it is replaced by another measure (through a SIP revision)

. Alternatively, the state can demonstrate in a SIP
revision that the emission reductions from the meas ure are no longer needed to meet the

criteria that apply to voluntary and emerging measures or any other CAA requirements

.



### Emission Reduction Credit The EPA believes that it is appropriate to presumptively limit the amount of emission
reductions allowed fo r approval under this policy. Although EPA concludes that emerging measures are consistent with the statute because all emerging measures will be accompanied with an appropriate enforceable backstop commitment from the state as described in this policy, E PA believes it is appropriate to limit these measures to a small portion of the SIP

, given
the untested nature of the control mechanisms.

The presumptive limit is 6 percent of the total amount of emission r eductions required for the RFP, attainment, or maintenance demonstration purposes. The limit applies to the total number of emission reductions that can be claimed from any combination of voluntary and/or emerging measures, including those measures that are both voluntary and emerg ing. The limit is presumptive in that EPA believes it may approve measures into a SIP in excess of the presumptive 6 percent whe n a clear and convincing justification is made by the state as to why a higher limit should apply in their case. Any request fo r a higher limit will be reviewed by EPA

on a case

- by

- case basis. Any approval of emerging measures under this policy will be conducted through full notice

- and

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### Bundling Emerging/Voluntar y Measures As explained in EPA’s Bundled Measures Guidance, e merging/voluntary measures can be bundled together. The emission reductions for each measure in the bundle would be quantified and, after applying an appropriate discount factor for uncertainty , the total reductions would be summed together in the SIP submission. After SIP approval, each individual measure would be implemented according to its schedule in the SIP. It is the performance of the entire bundle (the sum of the emission reductions f rom all the measures in the bundle) that is considered for SIP evaluation purposes, not the effectiveness of any
individual measure.



### SECTION C.5: EXISTING GUIDANCE ON WOE PATHWAY

The EPA Modeling Guidance issued in 2007 addresses the weight

- of

- evidence (WOE) approach for attainment demonstrations. The guidance indicates that state s/ tribe s should always perform complementary analyses of air quality, emissions and meteorological data, and
consider outputs of modeling other than the results of the attainme nt test. Such analyses are instrumental in guiding the conduct of an air quality modeling application. Sometimes, the results of corroboratory analyses may be used in a WOE determination to show that attainment is likely despite modeled results ( which may be inconclusive ) . The further the attainment test is from being passed, the more compelling the contrary evidence produced by corroboratory analyses would need to be to draw a conclusion differ ent from that implied by the modeled
attainment test resul ts. If a conclusion differs from the outcome of the modeled test, then the
need increases for subsequent , future review w ith more complete databases is increased. If the test is failed by a wide margin (e.g., future design values are outside the recommend ed range at an individual site or multiple sites/locations), it is far less likely that the more qualitative arguments made in a weight of evidence determination would be sufficiently convincing to conclude that the NAAQS will be attained.

In a WOE dete rmination, state s/ tribe s should review results from several diverse types of air quality analyses, including results from the modeled attainment test. As a first step,

state s/ tribe s should note whether the results of these analyses support a conclusion th at the proposed strategy will meet the air quality goal. Second, state s/ tribe s should weigh each type of analysis according to its credibility, as well as its ability to address the question being posed (i.e., is the strategy adequate for meeting the NAAQ S by a defined deadline?). The conclusions derived in the two preceding steps are combined to make an overall assessment of the
likelihood of meeting the air quality goal. This last step is a qualitative one. If the conclusion is that a strategy is inadequate to demonstrate attainment, then a new strategy is selected for review, and the process is repeated. S tate s and tribe s should provide a written rationale documenting the adequacy of the final selected strategy. Results obtain ed with air quality models are an essential part of a weight of evidence determination and should ordinarily be very influential in deciding whether the NAAQS will be met.C

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### REFERENCES

EPA (198 9). Guidance on Limiting Potential to Emit in New Source Permi tting

. June 13, 1989. Available
online at < http://www.epa.gov/reg3artd/permitting/t5_epa_guidance.htm >

.

EPA (1992). Use of Long Term Rolling Averages to Limit Potential to Emit

. February 24, 1992. Available
online at < http://www.epa.gov/region7/air/title5/t5memos/rollave.pdf >

EPA (200 1). Improving Air Quality with Economic Incentive Programs . January 2001. A vailable online at <http://www.epa.gov/ttncaaa1/t1/memoranda/eipfin.pdf>13 United States
Environmental Protection Agency Office of Air Quality Planning and Standards
Outreach and Information Division Research Triangle Park, NC Publication No. EPA

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