Final Transport Rule

Interagency Briefing

EPA

May 23, 2011
Outline

• Core Methods

– Responding to major public comment

– Updating inventories and modeling

– Determining final geography

– Determining final state budgets

• Additional Notable Features of Final Transport Rule

– Allowance allocation approaches (new and existing units)

– State Implementation Plan (SIP) submittal provisions

– Variability limits and assurance provisions

– Compliance deadlines

– No carryover of CAIR allowance programs

– Opt-ins removed

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Core Methods

06/24/2011 U.S. Environmental Protection Agency 3
Responding to Major Public Comments (I)

• Remedy structure

– Public comment broadly supportive of “preferred remedy” that maintains 

market-based trading flexibilities to achieve substantial emission reductions 

and health benefits at very low costs

– Commenters generally believed that the Transport Rule was responsive to 

the Court’s remand of CAIR in developing a state-specific solution 

addressing interstate transport of air pollution

• Pollutants regulated

– SO2and ozone-season NOX widely accepted

– Some southern states questioned benefits of annual NOXcontrol in warmer 

climates with lower nitrate contributions

– Many state commenters disappointed that EPA did not use the tighter 

2008 ozone standard (ozone NAAQS is currently under reconsideration)

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Responding to Major Public Comments (II)

• Interstate contribution thresholds

– 1% of NAAQS threshold described as too tight by industry and some 

states, not tight enough by environmental groups and public health 

organizations

– Many states supported the 1% threshold

• Timing of control

– Parts of industry questioned the feasibility of Transport Rule emission 

reductions in 2012 and 2014

• Allowance allocation was of major interest to industry and many 

states

• Other concerns: opt-ins, carryover of CAIR NOX, cogeneration, 

applicability, etc.

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Updates to Inventories and Modeling (I)

• Power sector modeling assumptions and unit-level 

representation of the fleet

– Incorporated new unconventional (e.g., shale) gas supply

– Adopted AEO 2010 electricity demand forecast

– Updated base case pollution controls, legal emission constraints 

(e.g., settlements), and retirements

– Added dry sorbent injection (DSI) SO2control technology

– Imposed coal-switching constraints based on comments

– Adjusted cogeneration unit dispatch

– Revised pollution control retrofit cost and performance 

assumptions

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Updates to Inventories and Modeling (II)

• Emission inventories used for air quality modeling

– Updated EGU projections from updated power sector modeling

• Yielded important decreases in base case SO2 and NOX projections in many states

– Used MOVES 2010 NOX, SO2, and PM for all vehicles (including diesel) 

• Yielded important increases in NOX projections in some urban areas

– Incorporated newly supplied fuel combustion emission projections from states

– Updated plant closures for non-EGU point sources and removed duplicates based on 

comments

– Included additional consent decrees

– Updated projections for cement plants using Industrial Sector Integrated Solutions 

(ISIS) model

– Included emission reductions from reciprocating internal combustion engines (RICE)

– Revised “close to coast” allocation to states of category 3 (C3) commercial marine 

vessel emissions and incorporated Int’l Maritime Org. (ECA-IMO) controls

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Determining Geographic Coverage (I)

• Identified downwind air quality problems

– Identified receptors modeled to have nonattainment and/or maintenance 

problems in 2012

• CAMx modeling results modeling results for 2005 for 2005 and 2012 and 2012 were coupled with 2003 were coupled with 2003 - 2007 

PM2.5 and ozone measurements to project “design values” in 2012. 

– Monitoring sites with 2012 average design values exceeding the NAAQS are 

projected to be nonattainment in 2012.

• Projection of the average of 2003-2005, 2004-2006, and 2005-2007 ambient design 

values

– Monitoring sites with 2012 maximum design values exceeding the NAAQS are 

projected to have maintenance problems in 2012.

• Projection of the maximum of 2003-2005, 2004-2006, and 2005-2007 ambient design 

values

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Determining Geographic Coverage (II)

• Identified upwind linkages to downwind air quality problems

– Quantify the air quality contributions from emissions in upwind states to downwind nonattainment 

and maintenance receptors

• CAMx Source Apportionment modeling was performed for the 2012 base case to 

quantify quantify the contributions of the contributions of SO2 and NOX emissions in each state to annual and daily 2 and NOX emissions in each state to annual and daily 

PM2.5 and ozone at each nonattainment and/or maintenance receptor site.

• Each upwind-to-downwind contribution (i.e., “linkage”) was evaluated against 

thresholds based on 1 percent of the NAAQS. 

– Annual PM2.5: contributions >= 0.15 μg/m3 [NAAQS = 15.0 ug/m3]

– Daily PM2.5: contributions >= 0.35 μg/m3 [NAAQS = 35 ug/m3]

– 8-Hour Ozone: contributions >= 0.8 ppb [NAAQS = 0.08 ppm]

• States that contribute amounts that meet or exceed the thresholds at a 

downwind receptor are considered “linked” to those downwind areas and are 

considered for inclusion in the Transport Rule programs.

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States Covered in the Final Rule

Final Transport Rule*

Proposed Transport Rule

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Drop Out Come In

Annual and/or 

24-hr PM

CT, DC, DE, FL, 

LA, MA TX

Ozone CT, DC, DE IA, MO, WI

*Map includes six states whose 

coverage in the ozone-season NOX

program is subject to an SNPR
Determining State Budgets

• Quantify and eliminate emissions in each “linked” state which constitute that state’s 

“significant contribution and interference with maintenance”

• Consider both control costs and air quality improvements (multifactor analysis) to identify 

appropriate cost thresholds

– Used Integrated Planning Model (IPM) to estimate emissions reductions at various cost thresholds

– Used Air Quality Assessment Tool (AQAT) calibrated with CAMx model to estimate downwind air 

quality impacts associated with the reductions at each cost threshold

• Calculated state-specific budgets by quantifying emissions remaining after all reductions 

available at the appropriate cost threshold are achieved.

– Upwind states linked for ozone 

• Ozone-season NOX budgets based on a $500/ton cost threshold

– Upwind states linked for PM2.5

• Annual NOX budgets based on a $500/ton cost threshold

• Annual SO2 budgets in Group 1 states based on a $2300/ton threshold

• Annual SO2 budgets in Group 2 states based on a $500/ton threshold

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Air Quality-Assured Trading Programs

Group 1 versus Group 2 SO2 States

Total Program Coverage*

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SO2Control

Group 1

IL, IN, IA, KY, MD, MI, 

MO, NJ, NY, NC, OH, 

PA, TN, VA, WV, WI

Group 2

AL, GA, KS, MN, NE, 

SC, TX

*Map includes six states whose 

coverage in the ozone-season NOX

program is subject to an SNPR
Additional Notable Features of

Final Transport Rule

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Allocation to New Units

• “New unit” is any unit not online by January 1, 2010

• Each state’s new unit set-aside has two parts:

– Basic amount of 2% of total state budget

• EPA reserves 5% of this amount for new units in Indian country within that state

– Projected amount of emissions from committed units in that state (for example, committed 

units in Illinois are projected to emit 3% of the state’s SO2 budget and 6% of the state’s annual 

NOXand ozone-season NOX budgets)

• New units may receive allocations during their first year of operation

• Retiring units’ allocations are redistributed to the new unit set-asides

• If unallocated, set-asides are redistributed to unretired existing units 

before the compliance deadline

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Allocation to Existing Units

• EPA proposed an emissions-based approach and also solicited comments on 

historic heat input-based alternatives

• Commenters noted the following advantages of the historic heat inputbased approaches:

– Superior Superior data that is quality that is quality-assured assured

– Less complex and more transparent than proposal’s approach

– Does not penalize units for choosing cleaner fuels or installing pollution controls

• The final rule allocates allowances to existing units based on share of state’s 

heat input constrained not to exceed a unit’s maximum historic emissions

– Uses highest three of the last five years for each unit to establish heat input baseline

– Constrains unit-level allocations not to exceed maximum emissions from 2003-2010

• States can establish allocations to existing units from 2013 onward

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SIP Submittal Provisions

• States may replace existing unit FIP allocations as early as 2013 by 

submitting a simple table of units and allocations

• States may submit SIPs to determine allocations for 2014 and later 

with a lot of flexibility while respecting certain bounds aimed at 

sound program structure

– Total allocations for a year cannot exceed state budget (without variability) minus the Indian 

country new unit set-aside, which EPA continues to administer

– Existing and new unit allocations must be submitted by specified deadlines to EPA for recording 

in allowance accounts

– No other changes can be made to trading program provisions

– States may choose to SIP solely for allocation purposes for one or more Transport Rule 

programs, and they are free to allocate how they see fit (i.e., including set-asides and auctions)

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Variability Limits

• Transport Rule budgets reflect EGU operations in an “average year”

– Interconnected nature of power sector creates inherent year-to-year variability in 

state-level EGU operations

• EPA analyzed historic state EPA analyzed historic state-level heat input variability from 2002 heat input variability from 2002-2008 (as a 

proxy for emissions variability assuming constant emission rates)

– Most states’ historic variability levels were within 10%; a few approached 15% and 

three approached 20%

– Final rule establishes annual variability limits on each state budget at whichever level 

(10%, 15%, 20%) minimizes variability while covering historical level in that state

• State’s budget plus variability limit equals state’s “assurance level”

• Assurance provisions go into effect in 2012

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Assurance Provisions

• If a state exceeds its “assurance level” in a given year, an assurance penalty is assessed on the 

excess tons

– Final rule imposes a 2:1 assurance penalty; for each excess ton, owners and operators must hold 1 allowance for normal 

compliance plus 2 allowances for the penalty

• Excess tons at the state level must be apportioned to the source level to assess penalties

– Proposed rule apportioned by ownership; final rule apportions to groups of sources with a common designated 

representative

– A group of sources’ share of state’s excess tons is based on group’s emissions exceeding group’s allocations plus its 

share of the state variability limit.

• Assuming a 10% variability limit, a group’s emissions beyond 110% of its allocations would be used to calculate its share of 

state’s excess emissions if state assurance level is exceeded

• EPA analysis shows that state exceedances of assurance levels would be uneconomic (and thus 

exceedingly unlikely to occur)

• Penalty is designed to deter state-level emissions from exceeding assurance levels; there is no 

limit to the degree of interstate trading of allowances

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Transport Rule Compliance Deadlines

• January 2012 for annual NOX/SO2and May 2012 for ozone-season 

NOX; deeper reductions from January 2014 for SO2in Group 1 states

– The 2012/2014 compliance dates are responsive to Court’s direction to 

align emissions reductions with the NAAQS attainment deadlines. 

• Basis for reductions in each compliance period

– 2012: operation of planned/existing controls; fuel-switching; cleaner 

dispatch; and installation or upgrade of combustion controls

– 2014: installation of less than 6 GW of scrubbers and 3 GW of dry sorbent 

injection (DSI)

• Significant decrease in retrofit effort compared to proposal’s modeling projections of 

14 GW of scrubber installations by 2014, due to updated gas supply assumptions and 

the inclusion of DSI technology in the final rule’s modeling

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No Carryover of CAIR Allowance Programs

• EPA alerted CAIR participants that the Court’s remand undermined the long-term value of CAIR allowances

2012 Allowance Pools Anticipated

Remaining CAIR 

Allowances

Transport Rule 

Budgets

Remaining CAIR Allowances as 

Percent of Transport Rule Budgets

Annual NOX 460,000 1,245,869 37%

Ozone-Season NOX 440,000 580,172 76%

• EPA alerted CAIR participants that the Court’s remand undermined the long-term value of CAIR allowances

– “EPA's continued recording of CAIR NOX allowances does not guarantee or imply that any allowances will continue to be usable for 

compliance after a replacement rule is finalized or that they will continue to have value in the future.”

• Proposed Transport Rule further underscored Court-imposed challenges to carryover

• Carryover preserves beneficial or adverse effects on sources of EPA’s use of “fuel factors”, which were rejected by 

Court with regard to state budgets

• Not all remaining CAIR NOXallowances represent overcompliance; many are due to “compliance supplement pools” 

and subsequent NSR actions that freed up allowances

• Conversion of CAIR allowances into TR allowances would introduce new complexities and delay sizable portions of 

allowance allocations beyond the start of the programs

– CAIR compliance for 2011 will not be completed until mid-2012

– CAIR allowances may be held by sources or parties not covered by the Transport Rule

• EPA does not see a legal way to use title IV SO2allowances in the Transport Rule programs.

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Opt-in Provisions Removed

• Opt-in provision from the proposal was designed to reduce overall program costs

• Opt-ins would receive allocations for 70% of prior emissions; these allowances are on top of the state 

budgets

• Future allocations reduced if more stringent state/federal emission limitation becomes applicable

• Public comments identified a series of drawbacks comments identified a series of drawbacks to the proposal’s to the proposal’s opt-in provisions in provisions

– Increasing the Transport Rule’s budgets for opt-ins undermines goal of 110(a)(2)(D) to eliminate a state’s 

significant contribution (CATF; DE; MO; OTC; Exelon; MDE)

– No cheap tons are available from non-EGUs (API; 8-Hour Ozone SIP Coalition; American Chemistry Council)

– Opt-in participation is unattractive due to operational and monitoring requirements; also, there is no basis for 

the 70% allocation factor (AFPA, PPL; Class of 85; CEG; CIBO; Exelon; PSEG; RRI)

• EPA cannot prevent with certainty an opt-in unit from receiving credit for SO2 or NOXreductions it 

would have made for other reasons (“anyway tons”).

– For example, non-EGUs covered by boiler MACT might receive allowances for “anyway” SO2reductions 

incidental to their legally required HCl reductions.

• Each “anyway ton” awarded to an opt-in unit inflates the budget and is thus a ton of significant 

contribution that the Transport Rule would fail to eliminate.

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APPENDIX

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2012 Base Case Annual PM2.5 Nonattainment and 

Maintenance Receptors 

Proposal

Final

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2012 Base Case 24-hour PM2.5 Nonattainment 

and Maintenance Receptors

Proposal

Final

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2012 Base Case Ozone Nonattainment

and Maintenance Receptors 

Proposal

Final

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Projected Transport Rule Budgets from EGUs 

Compared to Proposal*

(Thousand tons)

Proposed 

2012 TR 

Budget

Final 2012 

TR Budget

Proposed 

2014 TR 

Budget

Final 2014 TR 

Budget

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*For comparability, only includes states in both proposal, final, and supplemental proposal 

(for ozone):

• 23 for OS NOX: AL, AR, FL, GA, IL, IN, KS, KY, LA, MD, MI, MS, NJ, NY, NC, OH, OK, PA, SC, TN, TX, 

VA, WV 

•22 for annual NOX and SO2: AL, GA, IL, IN, IA, KS, KY, MD, MI, MN, MO, NE, NJ, NY, NC, OH, PA, SC, 

TN, VA, WV, WI 

Budget TR Budget Budget Budget

SO2 3,623

1,197

638

3,057

1,112

556

2,229

1,197

638

1,884

1,031

524

Annual NOX

Ozone-Season NOX

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Assurance Provision Penalty Examples

Number of 

Allowances 

Allocated

Allocation plus share 

of variability limit

(“Penalty Position”)

Total 

Emitted

Number of Allowances

above Penalty Position

Share of 

Exceedance (%)

Penalty 

(Allowances) 

DR1 60 66 75 9 35% 17

DR2 20 22 35 13 50% 25

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• DR1, DR2, DR3, and DR4 are all in the same state.

• State budget plus 10% variability limit is 110 tons (100 + 10 = 110).

• State exceeded its assurance level by 25 tons (135 - 110 = 25). 

• Penalty is 50 allowances (2 x 25 = 50).

• Some numbers may not add up due to rounding

• If state had not exceeded its assurance level (i.e., if DR1 had emitted 50 tons rather than 75 tons), no 

penalties would have been incurred by any source.

DR3 10 11 15 4 15% 8

DR4 10 11 10 - - 0

TOTAL 100 110 135 25 100% 50 
Transport Rule Air Quality Results

1997 Annual PM 2006 24-Hour PM 1997 Ozone

2012 Base Case

Non-attainment 7 areas

Atlanta

Birmingham

Cincinnati

Cleveland-Akron

Detroit

Liberty-Clairton (Allegheny)

St. Louis

11 areas

Birmingham

Chicago-Gary-Lake1

Cleveland-Akron

Detroit

Indianapolis

Lancaster

Liberty-Clairton (Allegheny)

Milwaukee

2 areas

Baton Rouge

Houston

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1 The Chicago-Gary-Lake and Dayton areas are not officially classified for 24-hour PM non-attainment. For the purposes of this exercise we assumed that these 

areas would be similar to their annual PM non-attainment areas. Therefore, the Lake, IN and Cook, IL receptors were included in the Chicago-Gary-Lake area.

2012 Base Case Milwaukee

Pittsburgh

St. Louis

Steubenville

Maintenance 1 area

Indianapolis

3 areas

Cincinnati

Dayton

Harrisburg

3 areas

Allegan

Baltimore

New York

20141 Transport Rule

Non-attainment No areas 1 area

Liberty-Clairton (Allegheny)

1 area

Houston

Maintenance No areas 3 areas

Chicago-Gary-Lake1

Detroit

Lancaster

1 area

Baton Rouge

05/23/2011
Final TR Annual Reductions, Costs, and Benefits 

(reductions in thousands of tons) 2012 2014

SO2Reductions 4,010 3,866

Annual NOXReductions 120 155

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Ozone-Season NOXReductions 60 75

Incremental Costs

(Billion 2007$) 1.4 0.8

Annual estimated benefits 

(Billion 2007$, 3% discount rate)

A

-- 120-280

Annual estimated deaths 

avoided (Thousands) -- 13-34

A Sum of PM2.5 and ozone-related health benefits, value of visibility improvements in Class I areas 

and CO2-related benefits

05/23/2011
Supplemental Proposal for Notice and Comment

• Analysis conducted with updated inventories/modeling platforms results in new 

ozone receptors and states not included at proposal

– Two new ozone maintenance receptors (Allegan, MI and Harford, MD)

• Five states are only linked to these new receptors: IA, KS, MI, OK, and WI

– Three new upwind states in ozone program not included at proposal

• IA, MO, and WI

• EPA is issuing a narrow supplemental proposal to provide opportunity for 

comment

• Would accept comment only on whether these six states satisfy the test for inclusion in the 

TR ozone-season NOX program

• Would not re-open methodological issues finalized in the TR

• EPA is seeking to finalize this supplemental by no later than October 31

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