UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

OFFICE OF 

AIR AND RADIATION 

MEMORANDUM 

Subject: 

From: 

To: 

Summary of Stakeholder Meetings 

Carissa Cyran 

Dockets EPA-HQ-OAR-20 13-0602, EPA-HQ-OAR-2013-0603, and EPA-HQOAR-20 13-0495 

This memorandum summarizes meetings with stakeholders during the week of February 16. 

2015. 

On February 18. Acting Assistant Administrator for Air and Radiation Janet McCabe and 

Associate Assistant Administrator for Climate and Senior Counsel for Air and Radiation Joseph 

Goffman met with William Bumpers of Baker Botts L.L.P. 

On February 19, Acting Assistant Administrator for Air and Radiati on Janet McCabe and 

Assoc iate Assistant Administrator for Climate and Senior Counse l for Air and Radi ation Joseph 

Goffman met with representatives from Advanced Energy Economy. Sign-in sheet attached. 

On February 20, Associate Assistant Administrator for Climate and Senior Counse l for Air and 

Radiation Joseph Goffman met with representatives from ational Climate Coalition industry 

group. Sign-in sheet and handouts arc attached. 

On February 20. Acting Assistant Administrator for Air and Radiation Janet McCabe and 

Associate Assistant Administrator for Climate and Senior Counsel for Air and Radiation Joseph 

Goffman met with representatives from National Resource Defense Council. Sign-in sheet 

attached. 

On f-ebruary 20, Associate Assistant Administrator for Climate and Senior Counsel for Air and 

Radiation Joseph Goffman met with representatives from forest Climate Working Group. Signin sheet attached. 

On February 20, Administrator Gina McCarthy spoke with Jim Robo ofNcxtEra. 

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February 20, 20 15 

NCC Discussion Document 

Questions regarding Possible FIP Design 

I. On whom will the FrP place the emission reduction burden - the state or the EGU? 

2. If on the EGU, what will be the required level of emissions reductions - the entire state 

responsibility or onl y those reductions within the control of the EGU? 

3. If it is the fu ll state reduction requirement, then by what means will the EGU comply? 

4. If the EGU is expected to compl y by indirectly accessing outside-the-fenceline emission 

reducti on opportunities (e.g., Building Blocks 2-4 ), then how will the FIP e nsure such 

access? 

5. If an emission reduction credit (ERC) system, then will it be project- or system-based? 

6. In eithe r case, will ERCs be generated before- or after-the-fact? 

7. Whether project-specifi c or system-wide, would ERCs be generated by refe rence to a 

state's individual Buildi ng Block benchmarks or to nationally-u niform benchmarks? 

8. If BSER is based on the estimated level of emission reductions available across the states, 

then must not the FlP require ERCs to be generated whenever a state outperforms 

expected carbon intensity benchmarks (either on a BE-specific basis or system-wide)? 

Otherwise, if some ERCs are not generated and made available for EGU access, how can 

the full level of antici pated emission reductions be required? 

9. Will the ERC program be national or state in scope? If state-specifi c. then how can EPA 

assure adequate ERC suppl y? Must it not be interstate in scope to ensure adequate 

supply? 

I 0. How will the FrP allocate emission red uction burdens among individual EGUs? What 

wou ld be the basis for differentiating among othe rwise-similar EGUs if the emission 

red uction burden were placed on the EGU instead o f the state? Is there a basis for EPA 

to use differenti al state performance benchmarks for generating ERCs but uniform 

performance ex pectations of similarl y-situated EGUs? 

II. Assuming that EGUs will be able to purchase ERCs from any state, how wi ll EPA 

determine which entity or state is entitled to receive the funds? Will ERC generation 

credit be based on fundi ng (e.g., investor, ratepayer, taxpayer) or locus? 
February 20. 2015 

National Climate Coalition 

Discussion Draft 

EPA lll(d) FIP Issues 

KEY ELEMENTS OF THE NCC'S PREVIOUS I ltD COMMENTS 

A Source-Based Program with System Flexibility in the First Instance 

In its previous design recommendations, 1 the National Climate Coalition (''NCC .. ) supported 

a source-based "best system of emission reduction" (BSER) combined with voluntary state 

programs for incorporating system-wide activities that avoid or reduce additional emissions. 

EPA's system-wide approach in the Clean Power Plan is legally risky because the Clean Air 

Act does not authorize EPA to require a source to reduce emissions by means outside of its 

control. An immediate system-wide approach is also risky from an energy policy perspective 

because the necessary regulatory and market mechanisms are not yet in place to enable states 

to achieve system-wide (i.e., outside-the-fence line) reductions without serious economic, 

reliability and other implications. 

A More Robust Energy System Program When the Necessary Regulat01y 

Infrastructure is in Place 

The NCC design recommendations contemplate that EPA, working collaboratively with the 

states, could build the necessary regulatory and market tools to achieve greater, outside-thefence line reductions, but this will take time and will require significant regional coordination, 

advance planning and further EPA determinations regarding the feasibi lity, scale and cost of 

such reductions, among other considerations. 

Interim Milestones Set by States 

As noted in the NCC December I, 201 4 comments and as section 110 ofthe Clean Air Act 

provides for state plans (e.g .. SIPs). EPA should defer to the states to set their own interim 

progress milestones for achieving the 2030 carbon intensity performance targets taking into 

account appropriate state and regional considerations. 

See Nationa I Climate Coalition Program Design Recommendations. February 4, 2014 and 

previous submittals. 
FIP OPTIONS 

EPA recently announced its intention to promulgate a federal implementation plan (FIP) in the 

event that states are unable or unwilling to submit a complying plan on time. A FIP could take 

one of two approaches. It could retain the obligation on the state. as the CPP proposes. or it 

could place the responsibility entirely on the source. Each of these approaches is considered 

below. 

I. THE NCC PREFERS A STATE PORTFOLIO APPROACH WITH A FIP 

BACKSTOP THAT IS NARROWLY TAILORED TO THE SPECIFIC 

SHORTCOMING 

Assuming that EPA finalizes a system-based BSER (i.e., establishing em ission reductions 

based on what the entire energy system, not just sources, can achieve), then the NCC believes 

that a FIP that preserves a state's portfo lio options would be preferable to a source-based 

approach. 

o Under this approach, as in EPA's proposed CPP, the FIP would identify each 

state's final (i.e., 2030) carbon intensity performance goal. The FIP would 

include one or more model rules providing state flexibility to meet that target 

using any of a number of energy system strategies, including measures described 

in Building Blocks (BB) 2-4. 

o To satisfy federal enforceability obligations and as a simple FIP backstop to state 

portfolio commitments that would be narrowly tailored to the specific 

shortcoming. the plan could include a targeted carbon fee as a back stop if the 

state did not meet the reduction target. The fee could be imposed at the state or 

service territory level for any underperformance and would remain in place until 

the state or service territory met the required carbon intensity performance level. 

Revenues would be collected by the state and applied to state efforts to reduce 

carbon intensity or returned to ratepayers or investors, as appropriate. 

ll. NCC RECOMMENDATIONS IF THE FIP PLACES RESPONSrBILITY ON THE 

SOURCE 

If the FIP places the emission reduction responsibility on the individual source (i.e., EGU) 

instead of the state,

2 then certain considerations must be taken into account. Given that 

individual EGUs have no control over outside-the-fenceline. energy-system emission 

We understand that the contemplated FIP approach would essentially embed within an 

individual EGU's operating limit the full emission red uction responsibility (i.e., BBs 1-4) 

of the state in which the EGU operates, expressed as carbon intensity, much as EPA 

would if it used the ·'alternative BSER" approach discussed in the CPP proposa l. 

Significant questions exist regarding the methodology by which the state's emission 

reduction burden would be allocated among EGUs. 

2 
3 

4 

reduction opportunities,

3 EPA must deve lo p a robust interstate emissio n reduction credit 

(ERC) program

4 to connect the EGUs with the broader energy system and provid e them with 

an assured compliance option at reasonable cost. ERCs would in theory be generated by a 

state's over-performance through surplus reductions fro m BBs 2-4 and other outside-thefence line. energy-system reduct ions not otherw ise accessible to individual sources. 

There are severa l critical characteristics that an interstate ERC program mu st have to 

succeed: 

• 

• 

• 

• 

• 

Established by EPA - The interstate ERC program must be established by EPA as states 

may not be able nor willing to develop the program and sources will need unrestricted 

access to ERCs for compliance. 

Automatic Registration in a National Data Base- EPA sho uld determine the net 

available surplus emission reductions resulting from each state's most recent annua l (or 

other period of) perfo rmance in each of the state's service territories. EPA would register 

these reductions in a national ERC data base reflecting the ava ilable multistate pool of 

available ERCs. 

Immediate ERC Availability- Once EPA registers the generation of surplus ERCs, 

those credits wou ld be available to EGUs thro ug h an auctio n o r by o ther means. 

ERC Revenues Returned to the States and Investors - funds generated thro ugh EGU 

ERC purchases wou ld be returned to the state whose carbon intensity performa nce 

generated the credits. subject to the Dispute Resolution process addressed be low. EPA 

will need to work with the states to develo p the ground rules necessary to assure that 

funds ultimate ly are returned to the ratepayers, investors o r taxpayers who financed the 

measures that directly o r ind irectly generated the ERCs. 

No ERC Withholding- Because EPA's BSER determination assumes widespread 

ava ilability of all emissio n reductions, states should not be allowed to withho ld their 

surplus reductions from the interstate ERC market. 

The NCC is actively considering whether and under what circumstances EPA could place 

the emissio n reduction responsibility on load-serving entities (LSEs) instead of the EGU 

or whether states should be given the o ption, under the FIP, to transfer the obligation to 

LSEs. In some c ircumstances. LSEs may have superior access to energy system 

opportunities, particularly in BBs 3 and 4. As there are sig nificant differences among 

LSEs across the United States, however, this issue is not stra ig htfo rward and requires 

careful eva luation. 

The NCC conceptua lly supports the a lternative approach of using a natio nal o r multistate 

allowance-based approach instead of a rate-based ERC approach, under appro priate 

conditions, but understands that such an approach is not currently under consideration. 

3 
5 

• Sequencing- Compliance obligations would be timed so that the ERC credit pool is in 

place and adequate ly supplied (see be low) before compliance obligations commence. 

Interim standards that a llow a gradual glide-path would increase o pportunities for states 

to generate ERC credit through over-performance in the early years/ he lping to build the 

credit pool. 

• Minimum ERC Balance and ACP - The program must provide fo r a min imum nationa l 

ERC balance to ensure an adequate supply o f ERCs to meet anticipated EGU demand at 

reasonable cost. Given significant uncertainties regarding the potential supply of ERCs, 

the program must be backstopped by an alternative compliance payment (ACP) o ption or 

other reasonably-priced safety va lve if it is to avoid impermissible burdens on individual 

EGUs or regulated states. 

o ACP - given that it will take some time to assure an adequate supply ofERCs in 

the interstate credit registry/pool, EPA should establish a ceiling-price alternative 

compliance payment o ption (e.g., safety valve) as we have previously 

recommended. States wou ld apply collected fund s for investment in energy 

system GHG reductions. 

• Qualified ERC Purchasers Only - To ensure adequate ERC supply, o nly regulated 

entities (either EGUs or utilities/LSEs, or states if the burden is placed at a state leve l) 

\ ould be able to purchase ERCs. 

• Parallel to Independent State Programs - Creation of an interstate ERC market would 

not interfere with separate state or regional G HG trading programs, which would operate 

independent ofthe FIP program (i.e., as parallel but independent programs). ERCs 

generated by states not subject to the Fl P as surplus to the state's applicable Ill d carbon 

intensity base lines wo uld still be registered in the natio na l ERC credit pool and made 

available to EGUs o r LSEs (or states) as needed for compliance. 

• Dispute Resolution and Appeal Process - EPA should issue guide lines c larifying ERC 

ownership among potentially competing public and private investo rs and states. EPA 

also should establish an appea l procedure to resolve any disputes related to ERC 

generation determinatio ns. Un leashing capita l will require c lear ERC ownership rules 

and a fa ir and efficient dispute adjudicatio n process. 

Potential Advantages ofthis Approach: 

• Minimizes Intrusion into Energy Planning - This approach creates an o ngo ing 

incentive for state and regional actio n but does not interfere with state and regio nal 

energy planning. Other than data sharing, the Fl P wou ld not impose independent 

ERCs wou ld be generated by reference to the carbon intensity base lines app licable to 

each period fo r each state. 

4 
federal planning burdens other than those related to automatic ERC generation and 

fund distribution. 

• Rewards Early Action - States that beat their carbon intensity targets will 

automatically generate ERCs and receive funds from ERC purchases, potentially 

rewarding ratepayers, investors and taxpayers in such states. Accordingly, such a 

design wou ld provide an incentive for other states to move quick ly to lower energy 

system carbon intensity, generate the ir own ERCs and capture ERC payments. 

• Encourages Interstate Coordination - The approach offers a way for states to 

harmonize their actions. 

• Minimizes Resource Burdens on Individ ual States - FIP States could focus their 

resources on the ir own energy planning while using the Fl P approach to meet fede ra l 

requirements. 

• Cost Minimization - by deve loping a national ERC pool, the approach would avoid 

the potentia l for compliance costs to be determined by regiona l or local factors (e.g., 

gas supply, renewable investment, weather or other constra ints). The national sca le 

of the ERC pool together with the ce iling-price ACP mechanism wou ld provide 

desirable cost un iformity, stability and mit igation benefits. 

• Ensures Adequate Compliance Options for Regulated Sources - the interstate 

ERC poo l and ACP wo uld ensure that EGUs have suffic ient compliance options to 

meet the ir FIP obligations. 

• Establishes Price Signal for Long-Term Capital Deployment - ERC transactions 

w ill provide a price signal that will help private capital and sources make long-term 

capita l deployment decisions. In some cases, additio nal revenue streams from ERC 

creation and sa le will make certain deve lopment oppo rtunities fi nancially possible. 

Because this draft discussion document is an integrated package of recommendations 

that reconciles often conflicting individual company or association perspectives. no 

particular position should be attributed to any individual National Climate Coalition 

member. The Coalition offers these comments recognizing that EPA will receive a 

variety of comments from other stakeholders. We look forward to continued dialogue 

with all stakeholders and COIIIlnit to give serious consideration to and to comment upon 

constructive ideas offered by others. Coalition positions may evolve over time in 

response to such ideas or following further ongoing analysis. 

Contacts 

Bob Wyman 

Stacey VanBelleghem 

(213) 891-8346 

(202) 637-2 153 

5 

rober1.\\ vman@lw.com 

stacey. vanbelleghernr@ lw.com 
The National Climate Coalition 

The National Climate Coalition IS a multHndustry coalition that was formed 1n 2008 to 

proVIde input to EPA regard1ng GHG regulation under the Clean A1r Act and whose members 

have 1ncluded compames 1n the aerospace and electtomcs. automotive. cement. consumer 

products. electricity generation. manufactunng. 011 refining and renewable energy sectors. 

we are the energy 

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NCC CONTACTS 

Bob Wyman (213) 891-8346 ROBERT.WYMAN@LW.CDM 

StaceyVanBelleghem (202] 637-2153 STACEYVANBELLEGHEM@LW.a:JM 

LATH AM &WAT KIN S LLP 
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