Oregon Department of Energy R evised July 2010 1 

### Oregon ’s

Carbon Dioxide Emission Standards For New Energy Facilities

In 1997, the Oregon Legislature enacted a standard for emissions of carbon dioxide (CO 2 ) from base load electric generating plants fueled by natural gas (HB 3283)

. In addition, t he legisl ation authorized the Oregon Energy Facility Siting Council (Council) to adopt carbon dioxide emissions standards for other fossil

- fueled power plants

. This landmark legislation was the first of its kind in the United States

. Since 1997, the Council has ado pted standards for carbon dioxide emissions from base

load gas plants, non

- base load power plants, and nongenerating energy facilities that emit CO 2
. Applicants for site certificates for the types of energy facilities that are subject to a carbon dioxide

s tandard must demonstrate compliance with the applicable standard. The statutory authority for the CO 2 standard is found in ORS 469.503

. The standards and applicable rules are found in the Oregon Administrative Rules, Chapter 345, Division 24

. For base loa d gas plants and non

- base load plants, the current standard is a net emissions rate of 0.675 pounds of CO 2 per kilowatt

- hour of net electric generation ( lb. CO 2 /kWh ) . For nongenerating facilities, the rate is 0.504 pounds of CO 2 per horsepower

- hour

. The st andard for base load gas plants applies only to natural gas

- fired plants

. The standards for non

- base load plants and nongenerating facilities apply to all fuels

. As described below, the rules allow for hybrid configurations that combine base load with non

- base load operation

. The Council has not set CO 2 emissions standards for base

- load power plants that us e other fossil fuels.

The Council’s CO 2 emission r ules are divided into specific standards for each of the three categories of facilities

. The major dif ferences among the standards are in how the rules account for the capacity factors and variations in the operation of the facilities. The discussion below will address first how the Council forecasts and tracks the gross and net CO 2 emissions for each of t he categories of facilities

. Then it will explain methods of compliance with the standards: offset projects and the monetary path. Note: The following discussion distinguishes between an applicant for a site certificate and a certificate holder. These are stages in the process of building an energy facility

. Applicants have to demonstrate that a proposed facility meets the applicable standard in order for the Council to grant a site certificate

. Certificate holders have to comply with site certificate cond itions related to the standard as they construct and operate their facilities.


### Specific Standards for Generating Facilities

Base Load Gas Plants

The CO 2 emissions standard for a base load, natural gas

- fired power plant (“base load gas plant”) is a net emissions rate of 0.675 lb. CO 2 /kWh of net electric power output. The Council’s definition of a natural gas

- fired facility allows up to 10 percent of the expected annual energy use to be provided by an alternative fuel (typically , distillate fuel )

. The st atute established the initial standard for base load gas plants at 0.70 lb. CO 2 /kWh. The
statute allows the Council to modify th is standard so that the net emissions rate remains 17 percentOregon Department of Energy R evised July 2010 2 below the most efficient base

- load gas plant operating in the U nit ed S tates

. The statute specifies principles the Council must “ consider and balance ” when making chang es to the standard or when adopting new standards for other types of fossil

- fueled power plants

. In January 2000, the Council modified the CO 2 standard for base load gas plants. At that time

, the most efficient operating base load plant had a heat rate of 6,955 Btu/kWh (HHV) . The modified standard was determined by applying a heat rate 1 7 percent lower (5,773 Btu/kWh). Using an emissions rate of 117 pounds o f CO 2 per million Btu of natural gas fuel, the net emissions standard was set at 0.675 lb. CO 2 /kWh. The standard provides an incentive for site certificate a pplicants to propose a facility that has the lowest heat rate possible using state

- of

- the

- art techn ology

— that is

, a more efficient plant

. Building a more efficient plant would go partway in meeting the standard, but manufacturers do not offer technologies that could meet the standard solely through efficiency

. To make up the difference, an applicant mus t meet the net emissions standard through carbon dioxide offsets.

Non

- Base Load Power Plants
The CO 2 emissions standard for a non

- base load power plant, regardless of fuel, is a net emissions rate of 0.675 lb. CO 2 /kWh of net electric power output. Becaus e non

- base load power plants are likely to use single

- cycle turbines, the standard is about 40 to 45 percent below the typical emissions of such plants currently in operation, if they are using natural gas

. Power Augmentation
The Council’s rules allow fo r a base load gas plant with power augmentation (a hybrid plant) to meet separate standards for the two modes of operation

. The rule applies only to power augmentation technologies that increase both the capacity and the heat rate of the plant, such as duc t burning

. The base load operation must meet the base load gas plant standard, and the power augmentation operation must meet the non

- base load standard. The Council rules account for technologies that allow a base load gas plant to be operated in a base load manner under usual conditions but to increase capacity for short periods when needed to meeting peaking requirements

. There are two major differences between the rules for the two types of plants: the annual hours of operation and one

- time versus peri odic reporting requirements

. These are explained below.

Forecasting and Tracking CO 2 Emissions The rules account for the different oper ational characteristics of base load and non

- base load plants. Non

- base load plants are peaking ( or “ load

- following ”) p lants.

Base

- Load Gas Plants without Power Augmentation
If a base load gas plant does not employ power augmentation technologies, the Council determines the gross CO 2 emissions that are reasonably likely to result from the operation of the facility based on the proposed design of the facility

. The Council calculates gross CO 2 emissions by assuming a 100

- percent capacity factor and a 30

- year life of the plant, as specified in statute

. Other than the single test on a new and clean basis, described below, the Council does not track the actual emissions of the operating plant.Oregon Department of Energy R evised July 2010 3 Base

- Load Gas Plants with Power Augmentation If a base load gas plant employs power augmentation technologies, the Council determines the
gross CO 2 emissions in an additive fashion for s implicity

. The Council calculates gross CO 2 emis sions by assuming a 100

- percent capacity factor and a 30

- year life of the plant for the number of hours the plant is not using power augmentation and then adds those emissions to the emissions calculate d for the hours when the plant is using power augmentation ( for a total of 8,760 hours annually )

. The Council follows the non

- base load procedure (described below) to calculate emissions for the hours the plant will operate with power augmentation.

Non

- Base Loa d Power Plants The Council determines the gross CO 2 emissions that are likely to result from the operation of the facility based on the proposed design of the facility and the average annual hours of operation. The applicant specifies the annual hours it proposes to operate the plant

. The rules define a non

- base load plant as a fossil

- fuel generating facility that is limited by the site certificate to an average of not more than 6,600 hours of operation annually. This is a 75

- percent capacity factor. The rules treat a facility that would operate more than 6,600 hours annually on average as a base

- load plant at 100

- percent capacity.

As with base load gas plants, the rules specify a 30

- year analysis period for determining gross emissions, unless an applican t requests a shorter operational life for the facility

. The rules require testing on a new and clean basis during the first year of operation, but allow modifications to the testing procedure for technical and operational considerations

. The rules require that the results be adjusted for average local conditions during the times of the year when the facility intends to operate. The rules provide a check on the actual operation of the non

- base load power plants to ensure that they meet the limitations on th eir hours of operation

. Every five years after the plant begins operation, the certificate holder must report to the Council the plant’s actual hours of operation. If the actual emissions ( calculated using the actual hours of operation and the heat rate on a new and clean basis ) exceed the projected emissions prorated for a 5

- year period, the certificate holder must offset the excess emissions using the monetary path (described below)

. The rules apply the present value of the monetary path offset rate for t he year in which the Council first granted the site certificate

. If the plant’s emissions of CO 2 were less than the prorated amount in previous 5

- year periods, the Council will credit the certificate holder with the “unused” emissions to determine the net amount of emissions the certificate holder must possibly offs et in future reporting periods. In addition to requiring the certificate holder to offset excess emissions from previous operations, the rules require the Council to recalculate the projected emi ssions for the facility based on the average hours of operation during the 5

- year period in which it exceeded its limitation on hours of operation

. The Council will project emissions for the years remaining in the deemed 30

- year life of the plant

. The cert ificate holder must also offset these additional projected emissions at the present value of the monetary path offset rate

. The rules look only at the previous 5

- year period when calculating future emissions

. There is no credit for earlier 5

- year periods i n which the plant may not have operated at the full capacity allowed by the site certificate.Oregon Department of Energy R evised July 2010 4 The purpose of these rules is to remove the incentive for an applicant to propose fewer hours of operation than are likely to occur so as to avoid having to prov ide full offsets prior to beginning construction, when the plant will actually operate as a base load power plant. If the average annual hours of operation ever exceed 6,600, the rules require the Council to treat the facility as a base load plant operatin g 8,760 hours annually for the remainder of the 30 years. In 2009, the Council amended the definition of a “non

- base load power plant” to allow for facilities that are designed to operate at variable load in response to the variable output from renewable g eneration such as wind or solar generating facilities. Under the amended definition, the annual hours of operation may be determined by dividing the actual annual electric output of the facility (megawatt

- hours) by the facility’s nominal electric generatin g capacity (megawatts). The Council amended the CO 2 emissions standard for non

- base load power plants (OAR 345

- 024

- 0590) to allow the operators of variable power generating plants to report and offset CO 2 emissions based on actual measured emissions, as an alternative to calculating emissions from hours of operation. The amendment allow s the operator to report actual carbon dioxide emissions consistent with any mandatory carbon dioxide emissions reporting required by the Oregon Department of Environmental Q uality or the United State Environmental Protection Agency.

New and Clean Basis The Council will specify site certificate conditions to ensure that a generating plant does not exceed the predicted CO 2 emissions on a “new and clean basis. ” The rules define the phrase “new and clean basis,” including test conditions and allowing for flexibility of testing procedures. The rules require a 100

- hour test that the facility must conduct during its first year of operation. The rules allow the certificate holder to use the commercial acceptance test to meet this requirement

. If the facility fails to meet the predicted CO 2 emissions rate, the certificate holder must offset any excess emissions

. The rules allow flexibility of the “ new and clean basis ” testing procedure for non

- base load plants or power augmentation.

Flexibility

The Council determines compliance with the CO 2 standard based on the proposed design of the facility, but it may be years before the facility is built

. The rules give the certificate holder fle xibility in selecting equipment and defining certain operational parameters at the time it decides to build the facility

. The rules allow a certificate holder to certify the final heat rate and capacity of the facility based on its contract with suppliers

. The certificate holder can vary these elements within limits specified in the rules and the site certificate.

Reducing CO2 Emissions through Cogeneration An applicant for a generating facility may meet the CO 2 emissions standard through cogeneration tha t will offset fossil fuel emissions that would have otherwise occurred

. It is possible for an applicant to meet the standard and offset all excess CO 2 emissions through cogeneration alone

. The Council will evaluate the reduction of net CO 2 emissions f rom c ogeneration and determine the likely reductions over 30 years

. If the Council credit s an applicant with CO 2 offsets from cogeneration, the site certificate will include conditions that guarantee the certificate holder provides the projected emission reduct ions.Oregon Department of Energy R evised July 2010 5 

### Specific Standards for Nongenerating Facilities
Although many types of nongenerating facilities may fall under the Council’s jurisdiction, the most likely application of th e CO 2 standard will be for compressors at underground natural gas storage fa cilities. Therefore, the standard is expressed as a rate of emissions per horsepower hour: 0.504 lb. CO 2 /hp

- hr. This is equivalent to the power plant standard of 0.675 lb. CO 2 /kWh

. In applying this standard, t he Council estimates the total CO 2 emissions f rom the facility to determine the appropriate schedule for increments of emission offsets that the certificate holder should provide

. To account for the high variability in the workload of a compressor, the rules do not require the certificate holder to pr ovide offsets according to a one

- time estimate of gross CO 2 emissions. The rules also allow the Council to determine that the life of the facility may be less than 30 years. The certificate holder must provide a certain amount of offsets in advance

. These offsets make
up an offset credit account that the certificate holder may then draw down based on actual emissions

. The Council sets the schedule for providing offsets by considering the potential gross emissions and the need to provide offsets in amounts sufficient to develop effective offset projects. The Council may require the certificate holder to provide offsets in any increment of the estimated total offsets needed

. In any case, before the account is exhausted, the certificate holder must replenish it with additional offsets up until the end of the analysis period

. The applicable offset rate is the present value of the offset rate in effect on the date the Council issued the site certificate.

Summary Base

- load gas plant: Net emissions rate: 0.67 5 lb. CO 2 /kWh, with verification of emissions rat e d uring the first year of operation Annual hours of operation: 8,760 hours (100 % capacity) Time

- frame for analysis: 30 years

Non

- base load power plant : Net emissions rate: 0.675 lb. CO 2 /kWh for all fuels, with verification o f emissions rate during the first year of operation an d accounting every five years for emissions based o n reported hours of operation and the new and clea n emissions rate

. Annual hours of operation: Up to 6,600 hours (75 % capac ity) Time

- frame for analysis: 30 years

Nongenerating energy facilities: Net emissions rate: 0.504 lb. CO2/horsepower

- hour. Annual hours of operation : Not applicable

. The Energy Facility Siting Counci l specifies the amount of offsets the certificat e holde r must provide to an offset credit account prior t o beginning construction, and then the certificate holde r replenishes the offset credit account based on actua l emissions as directed by the Council

. Time

- frame for analysis : 30 years, unless the C ouncil specifies a shorter period.Oregon Department of Energy R evised July 2010 6 

### Reducing CO 2 

### Emissions through Offset Projects
An applicant has two alternatives for meeting a CO 2 standard through offset projects: 1) The applicant may implement projects directly or through a third party; or

, 2) The appli cant may use the “monetary path. ”

The statute defines an “ offset ” as an action that will be implemented by the applicant, a third party or a qualified organization to avoid, sequester or displace CO 2 emissions

. The future tense of the definition limits of

fsets to new projects

. There are no limitations on the geographic location or types of CO 2 offset projects.

Applicant

- Sponsored Offset Projects An applicant may propose offset projects that it or a third party ( on contract to the certificate holder) will implement . The Council will determine the quantity of CO 2 emission reductions reasonably likely to occur from each project

. To do so, the Council must consider: 1) T he certainty that the projected offsets will be achieved

. 2) T he ability of the Council to dete rmine what reductions actually result from th e project, based on the monitoring and evaluation the applicant proposes

. 3) T he extent to which the CO 2 reductions would have occurred anyway in the absence o f the offset project

. The rules specify the informatio n that an applicant must provide

. They also provide specific criteria the Council must consider and the findings that the Council must make in order to determine that a proposed offset project meets the standard.
The Council’s evaluation may ultimately ta ke place as part of a quasi

- judicial, contested case proceeding, which is part of the process for reviewing every application for a site certificate. The Council will adopt site certificate conditions to ensure that the proposed projects are implemented; h owever, the Council may not require that the applicant guarantee that it will achieve the predicted CO 2 offsets from these projects

. The rules require the site certificate holder to begin to implement the offset projects before beginning construction of th e energy facility

. The statute prohibits the Council from allowing credit for offsets that have already been allocated or have been awarded CO 2 reduction credits in another regulatory setting

. Neither the law nor the rules specifically addresses carbon tr ading

. Nevertheless, a certificate holder cannot trade the CO 2
o ffsets that the Council requires it to provide to meet the CO 2 standard. The Council holds in trust the CO 2 offsets that the certificate holder provides to comply with the Oregon CO 2 standard.

Monetary Path Applicants may elect to pay a standard dollar amount per ton of CO 2 as a way to meet the standard

. The amount is established by administrative rule and is currently $ 1

. 27 per short ton of CO 2
. The Council may, by rule, adjust the monetary offset rate based on empirical evidence of the actual cost of CO 2 offsets and by making a finding that meeting the standard through the monetary path will be economically achievable for natural gas

- fired power plants

. The Oregon statute, however

, providesOregon Department of Energy R evised July 2010 7 that the Council may not adjust the rate by more than 50 percent ( in crease or decrease ) during any two

year period. The Council last adjusted the monetary offset rate in May 200 7

. If an applicant elects to use the monetary path, the Council will determine the amount of emission reduction needed to meet the standard and will calculate the amount of offset funds the certificate holder must provide to a “ qualified organization. ” The certificate holder must provide a bond or letter of credit for the required am ount before beginning construction of the energy facility

. The rules require the bond or letter of credit to equal the present value of the calculated offset fund s based on the rate in effect at the time the Council granted the site certificate.

When the certificate holder has provided the funds specified in the site certificate conditions in the manner required, it will have fulfilled its obligation to meet the CO 2 standard. The monetary path allows an applicant to avoid having to prove the projected CO 2 offsets from specific projects

. It gives the certificate holder certainty about what it will cost to comply with the standard

, and it allows the certificate holder to avoid having to develop and manage offset projects itself.

Site Certificate Holder’s Fin ancial Responsibilities under the Monetary Path The certificate holder is responsible for two types of payments under the monetary path: 1) T he offset funds, which are calculated at $ 1

. 27 per short ton of CO 2 emissions in excess of the standard. 2) S election a nd contracting funds. The selection and contracting funds compensate the qualified organization for its cost of selecting and contracting for the implementation of offsets

. To the extent these funds are not needed for administrative functions , t he qualifi ed organization may also use these funds to purchase offsets

. The selection and contracting funds are additional to the offset funds and are comparable to costs the certificate holder would have incurred directly, had the certificate holder opted to comply with the CO 2 standard by implementing offset projects on its own

. The selection and contracting funds are equal to 10

- percent of the first $500,000 of offset funds and 4.286

- percent of the offset funds above $500,000

. A base load gas plant must pay a min imum of $50,000 unless the Council specifies a lesser minimum

. On smaller projects or for additional payments, the Council’s practice has been to require 20

- percent of the first $250,000 of offset funds and 4.286

- percent of the offset funds above that amou nt.
The Council will specify in the site certificate how a certificate holder must disburse funds to the qualified organization

. The certificate holder must pay the selection and contracting funds to the qualified organization prior beginning facility con struction

. The certificate holder must pay the total offset funds the qualified organization upon request when the qualified organization notifies the certificate holder that it has a contract to implement an offset project

. Once a certificate holder has
p rovided offset funds, the rules do not permit a refund.

Use of Offset Funds The qualified organization must use at least 80 percent of the offset funds for contracts to implement offsets directly

. The rules define offsets as any action that will avoid, s equester or displace CO 2 emissions

. The qualified organization may use up to 20 percent of offset funds for monitoring, evaluation, administration and enforcement of contracts to implement offsets

. The rules also require aOregon Department of Energy R evised July 2010 8 qualified organization to obtai n the offsets in a timely manner and regularly to report its activities to the Council.

Qualified Organization The monetary path relies on a “ qualified organization ” to implement offset projects

. The statute set s the qualification criteria for an indepen dent, non

- profit organization that may administer the monetary path (ORS 469.503(2)(e)(K)) . Neither the statute nor the Council’s rules name or establish a specific organization.

To be a “qualified organization

, ” an organization must meet several criteria , including that it be exempt from federal taxation under section 501(c)(3) of the Internal Revenue Code . The qualified organization’s decisions on the use of offset funds must be made by a decision

- making body composed of three members appointed by the Co uncil, three members appointed by an environmental non

- profit organization, and one member appointed by applicants for site certificates that are subject to th e monetary path

. A certificate holder that has provided funds to the qualified organization holds a non

voting seat on the board wh en the qualified organization is selecting and contracting for projects with the certificate holder’s funds.

The Climate Trust The Climate Trust has been created independently and is currently the only qualified organiza tion

. It was formed in accordance with the criteria in the law , and i ts board membership meets the requirements of the law

. It is incorporated in Oregon and has federal nonprofit 501(c)(3) tax status. For information about The Climate Trust, contact: The Climate Trust

, 65 SW Yamhill Street

, Suite 400

, Portland, OR 97204 ( telephone: 503

- 238

- 1915 ) or visit the website at http://www.climatetrust.org/

.