E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

United States Office of Air and Radiation February 2011 Environmental Protection Agency

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## GUIDANCE FOR DETERMINING BEST AVAILABLE CONTROL TECHNOLOGY FOR REDUCING CARBON DIOXIDE EMISSIONS FROM BIOENERGY PRODUCTIONE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review



## Guidance for Determining Best Available Control Technology for Reducing Carbon Dioxide Emissions from Bioenergy Production

Prepared by the

Climate Change Division Office of Atmospheric Programs U.S. Environmental Protection Agency Washington, DC

February 2011Disclaimer This document explains the requirements of EPA regulations, describes EPA policies, and recommends procedures for permitting authorities to use to ensure that permitting decisions are consistent with applicable regulations. This document is not a rule or regulation, and the guidance it contains may not appl y to a particular situation bas ed upon the individual facts and circumstances. This guidance does not change or s ubstitute for any law, regulation, or any other legally binding requirement and is not legally enforceable. The use of non-mandatory language such as “guidance,” “recommend,” “may,” “sh ould,” and “can,” is intended to describe EPA policies and recommendations. Mandatory termi nology such as “must” and “required” are intended to describe controlling requirements under the terms of th e Clean Air Act and EPA regulations, but this document doe s not establish legally binding requirements in and of itself.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

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### Table of Contents

I. Introduction

II. CO 2 Emissions from Bioenergy and the Carbon Cycle III. EPA’s Previous Actions Relating to Application of PSD Program to Biogenic CO 2 Emissions IV. Summary of the Top-Down BACT Process V. Step 1 of the Top-Down BACT Process A. Traditional Application of Step 1 B. Previous EPA Guidance on GHG Control Strategies C. Application of Step 1 to Bioenergy Facilities VI. Step 2 – Eliminate Tec hnically Infeasible Options VII. Step 3 – Rank Remaining Control Technologies VIII. Step 4 – Energy, Environmental, and Economic Impacts A. Traditional Step 4 Considerations 1. Environmental impacts 2. Economic impacts 3. Energy impacts B. Specific Considerations at Step 4 for Bioene rgy Facilities 1. Environmental impacts 2. Economic impacts 3. Energy impacts C. Potential Conclusions in Step 4 Analysis IX. Step 5 – Selecting BACTE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

3 I. Introduction This guidance provides an illustration of reasoning that a Prevention of Significant Deterioration (PSD) permitting authority may us e to support the conclu sion that the best available control technology (BACT) for carbon dioxide (CO 2 ) emissions at a bioenergy facility 1 is the combustion of biogenic fuels alone. As of January 2, 2011 greenhouse gases (GHG), including CO 2 , became a pollutant subject to regu lation under the Clean Air Act (CAA). 2 Under existing PSD program regulations and EPA interp retations of those regulations, stationary sources of air pollution th at require a PSD permit to authorize construction, 3 and that would have the potential to emit (or would incr ease GHG emissions by) 75,000 tons CO 2 equivalent (CO 2e ) per year (tpy) or more are requesti ng to increase GHG emissions by 75,000 tons CO 2 e per year (tpy) but that did not obtain su ch a permit prior to January 2, 2011, 4 will need to demonstrate to the appropriate re viewing authority 5 that the proposed facility will meet GHG emission limitations through application of BACT. 6 To assist PSD permit applicants and reviewing authorities with making this determination, EPA provided guidance on November 10, 2010. The

1 A ‘bioenergy facility’ is defined, for the purposes of this guidance, as a facility that generates energy via the combustion of biologically-derived material other than foss il fuels, such as wood or agricultural products. This could be undertaken either alone or in addition to traditional fossil fuels. 2 75 FR 17004 (April 2, 2010); 75 FR 31514 (June 3, 2010). 3 On June 3, 2010, EPA issued a final rule that “tailors” the applicability provisions of the PSD and title V programs to enable EPA and states to phase in permitting requi rements for GHGs in a common sense manner (“Tailoring Rule”). The first Tailoring Rule step begins on January 2, 2011, and ends on June 30, 2011, and this step covers what EPA has called “anyway sources” an d “anyway modifications” that would be subject to PSD “anyway” based on emissions of pollutants other than GHGs. The second step begins on July 1, 2011, and continues thereafter to cover both anyway sources and certain other large emitters of GHGs. 4 75 FR 17021 (April 2, 2010); 75 FR 31526 (June 3, 2010) 5 This may be EPA or a state or local government authority depending on the status of implementation. See 75 FR 77698 (December 13, 2 010); 75 FR 81874 (December 29, 2010); 75 FR 82246 - 82536 (December 30, 2010); 76 FR 752 (January 6, 2011); 76 FR 2070 (January 12, 2011); 76 FR 2581 (January 14, 2011); 76 FR 2591 (January 14, 2011). 6 40 CFR 52.21(b)(49)-(50); 40 CFR 51.166(b)(48)-(49); 40 CFR 52.21(b)(12); 40 CFR 51.166(b)(12); 40 CFR 52.21(j)(2)-(3); 40 CFR 51.166(j)(2)-(3); 75 FR 17004 (April 2, 2010); 75 FR 31514 (June 3, 2010).E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

4 November 10, 2010 guidance includes technical white papers 7 for several industry sectors and general guidance entitled PSD and Title V Permitting Guidance for Greenhouse Gases (“2010 GHG Permitting Guidance”) , 8 which includes a section on de termining BACT for GHG. As with any other stationary source, a bioe nergy facility that qualifies as a major stationary source required to obt ain a PSD permit must address the BACT requirement for GHGs

if it emits or increases its emission of this re gulated pollutant in amount s greater than 75,000 tons

on a CO 2 e basis. 9 This guidance on determining BACT for CO 2 emissions from a bioenergy facility is intended to supplement the 2010 GHG Permitting Guidance, and not to supersede it. This guidance applies to sources that generate energy from biol ogically–based material, and it does not apply to other sour ces that may emit biogenic CO 2 but do not generate energy from the biological material. For the s ources not covered by this guidan ce document, one should consult the 2010 GHG Permitting Guidance and prior guidance EPA has provided on the top-down BACT process.

Concurrent with the release of this guidance, EPA is issuing a proposed rule to defer application of PSD permitting requirements to CO 2 emissions from biologically-based material (biogenic CO 2 emissions) for a three-year period. Th e scope of the proposed deferral is wider than the scope of this guidance: the deferral is intended to cover al l sources of biogenic CO 2 emissions, including those that emit CO 2 from biologically-based ma terial but do not generate energy from it. EPA expects to take final action on the proposed deferral rule in the July 2011 timeframe.

In the event that EPA finalizes the deferral for the PSD program as proposed, states may require

additional time to review their state laws to inco rporate the deferral established by that rule. To

7 http://www.epa.gov/nsr/ghgpermitting.html 8 http://www.epa.gov/nsr/ghgdocs/e pa-hq-oar-2010-0841-0001.pdf 9 75 Fed. Reg. at 31606-07; 40 CFR 52.21(b)(49); 40 CFR 52.166(b)(48).E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

5 the extent no such deferral is available under the PSD permitting regulations applicable at the time a permitting authority issues a PSD permit fo r a bioenergy facility, the reasoning described below may be used on an interim basis to support a conclusion in such a permit that BACT for

CO 2 is combustion of biomass fuels alone. This document does not provide final determination of BACT for a particular source,since such determinations can only be made by individual permitting authorities on a case-bycase basis after consideration of the record in each case. Upon considering the record in an individual case, if a permitting authority has a reasoned basis to address particular issues discussed in this document in a different manner than EPA recommends here, permitting authorities (including EPA) have the discreti on to do so in decisions on individual permit applications consistent with the relevant requir ements in the CAA and regulations. However, EPA believes the analysis described below will be sufficient in most cases to support the

conclusion that utilization of biomass fuel alone is BACT for a bioenergy facility. It is also important to note that this gu idance is meant to be interim guidance only and that once EPA completes the detailed examination of the science and techni cal issues associated with accounting for biogenic CO 2 emissions from stationary sources, as discussed in the proposed deferral, those analyses may outweigh many of the consid erations mentioned in this guidance.

II. CO 2 Emissions from Bioenergy and the Carbon Cycle

Carbon dioxide emissions from bioenergy facilities are generated during the combustion of biologically-based material (i .e., forest or agricultural produc ts) for energy. The term ‘CO 2 emissions from bioenergy’ is used in this guidance to describe biogenic CO 2 emissions from a stationary source that directly result from the combustion of bi ologically-based materials otherE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

6 than fossil fuels when these materials are used to generate energy. Although every molecule of

CO 2 has the same radiative forcing in the atmosphere regardless of its source, CO 2 emissions from bioenergy merit unique consideration in the BACT analysis because land-based biomass carbon stocks can be replenished more quickly than fossil fuel carbon stocks, and thus these biogenic carbon stocks can act as a sink on a shorte r time scale than fossil carbon. For example, many coal deposits in North America originated hundreds of millions of years ago. In contrast,

the reservoirs of carbon found on the surface of Eart h, in pools such as tree biomass and cropland soils, have accumulated over decades, not millennia. Through relatively rapid photosynt hesis, plants absorb CO 2 from the atmosphere and add it to their biomass, which contains roughly 50% carbon by weight, thr ough a process called sequestration. When biological ma terial such as plant biomass is harvested or cleared from the land and burned for energy, the material acts as a source of carbon, releas ing its stored carbon back to the atmosphere as CO 2 . Over large spatial scales such as states, regions, or continents, if more carbon is sequestered in plant biomass than is emitted to the atmosphere through processes such as harvest, fire, or natural decompos ition, plant biomass acts as a net sink for carbon. Conversely, if more carbon is released than is sequestered, plant biomass acts as a net source for

carbon. EPA’s Inventory of U.S. Greenhouse Gas Emissions and Sinks (the Inventory) 10 tracks annual GHG emissions including emissions of CO 2 , methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ). This report estimates all anthropogenic sources and sinks of GHG emi ssions at the national scale, classified into six broad sectors: Energy, Industr ial Processes, Solvents and Other Product Uses,

10 US EPA. 2010. Inventory of U.S Greenhouse Gas Emissi ons and Sinks: 1990-2008. U.S. EPA #430-R-10-06.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

7 Agriculture, Land-Use Change and Forestry (LUC F), and Waste. The Energy Sector includes all GHGs emitted during the production, transfor mation, handling and consumption of energy commodities, including fuel combustion. The LUCF Sector includes emissions and sequestration resulting from human activities that influence the way land is used or that affect the

size of carbon stocks on land. T hus, at the national level, CO 2 emissions from biomass

combustion are not included in the estimate of emissions from a country’s Energy Sector, even though the emissions physically occur at the time and place in which useful energy is being generated (i.e., power plan t or automobile). Averaged over the years 1990-2008, data from th e Inventory show that the LUCF sector

in the United States has been a net sink of 841 Teragrams carbon dioxide equivalent (CO 2 e) per

year. 11 This sink is roughly 12% of the average gr oss emissions from all other sources combined in the United States over the same time peri od. Future national proj ections under business as usual (BAU), as reported in the Fifth U.S Climate Action Report (CAR) submitted to the UNFCCC in 2010, suggest that this LUCF sink is likel y to continue, if not increase in size, at

least until 2020. 12 Biogenic CO 2 emissions are distinct from othe r regulated pollutants at bioenergy facilities because, unlike othe r pollutants and other GHGs, CO 2 emissions can par ticipate directly in the global carbon cycle through photosynthesis, wh ich is critical for the maintenance of life on Earth. Further, emissions of CO 2 can dwarf emissions of othe r GHGs from biomass combustion. For example, CO 2 makes up 97.9% of the global warming potential (GWP) of the GHG

11 See Tables 1 and 2 in Appendix. 12 U.S. Climate Action Report 2010. Fifth National Communication of the United States of America under the United National Framework Convention on Climate Change. Chapter 5 Projected Greenhouse Gas Emissions, page 81. www.state.gov/documents/organization/140636.pdfE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

8 emissions from wood and wood residuals. 13 Finally, because sequestration of CO 2 emissions in living plant material outside th e boundaries of the facility ma y counteract the emissions from such facilities on a continuous basis, this uni que dynamic merits consideration in the BACT analysis. This argument is underlined by the fact that GHGs such as CO 2 are well-mixed in the atmosphere at large spatial scales; therefore, the need to reduce them directly at the facility is of lesser importance so long as their net atmospheri c impact is accounted for and is negative or

zero. III. EPA’s Previous Actions Relating to Application of PSD Program to Biogenic CO 2 Emissions On the basis of the Inventory results de scribed above and other considerations, stakeholders have requested that EPA excl ude, either partially or wholly, biogenic CO 2 emissions for the purposes of the BACT analysis and the PSD program based on the view that the biological material used to generate energy can also serve as a sink for carbon. In its notice proposing the PSD and Title V Greenhouse Gas Ta iloring Rule, EPA referenced the Inventory for the applicable global warming potential (GWP ) values and guidance on how to calculate a

source’s GHG emissions in tons per year (tpy) CO 2 e. While EPA referred to the Inventory for GWP identification purposes only, several commente rs appeared to misunderstand our intent.

The narrow reference to the use of GWP values for estimating GHG emissions was provided to offer consistent guidance on how to calculate these emissions and was not intended as an indication, direct or implied, that biogenic emissions would be excluded from permitting applicability merely by associati on with the national Inventory. 14 As noted above, the Inventory

13 See CO 2 , CH 4 and N 2 O GWPs in Table A-1 of 40 CFR Part 98 Subpart A; and emission factors for CO 2 , CH 4 and N 2 O from combustion of wood and wood residuals in Tables C-1 and C-2 of 40 CFR Part 98 Subpart C. 14 See 74 FR 55351, under the definition for ‘carbon dioxide equivalent’E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

9 does not exclude these emissions, but simply include s them in the LUCF Sector rather than the Energy Sector to avoid double-c ounting at the national scale. In response, when finaliz ing the Tailoring Rule, EPA acknowledged the role that biogenic fuels and feedstocks could play in reducing anthropogenic GHG emissions, and did not dispute the commenters’ observations that many state, federal, and in ternational rules and policies treat biogenic and fossil sources of CO 2 emissions differently. 15 Nevertheless, we

determined that we lacked a sufficient record at th at time to apply the legal rationales utilized in the Tailoring Rule to exclude emissions of CO 2 from biogenic sources in determining permitting applicability provisions. At that time, we had not requested and did not obtain public comments addressing the particular administrative burden of permitting projects that specifically involve biogenic CO 2 emissions from energy production. Although EPA did not promulgate an applicability exclusion for bioge nic emissions in the final Tailo ring Rule, EPA did observe that flexibility exists to apply the existing regulations and policies regarding BA CT in ways that take into account their net effects on atmospheric GHG concentrations. In order to explore the issue further followi ng the promulgation of the Tailoring Rule, in July 2010 EPA solicited views from the public through a Call for Information (CFI) on approaches to accounting for biogenic emissions, including whether some or all of a source's biogenic CO 2 emissions could be discounted based on a de termination that they are canceled out by the CO 2 absorption associated with growing the fuel. Also, we solicited information on the

means to estimate and measure CO 2 emissions from a vari ety of biogenic fuels.

EPA issued PSD and Title V Permitting Guidance for Greenhouse Gases on November 10, 2010, which provides the basic information that permit writers and applic ants need to address

15 See 75 FR 31514.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

10 GHG emissions in permits. 16 To assist permitting authorities carrying out BACT analyses for

GHGs until EPA took further acti on, the guidance indicated that permitting aut horities may consider the environmental, energy and economic benefits that may accrue from the use of certain types of biogenic fuels (e.g., biogas from landfills) for energy generation, consistent with existing air quality standards. Noting that a vari ety of federal and state policies have recognized that some biogenic fuels can be part of a nati onal strategy to reduce dependence on fossil fuels and to reduce emissions of GHGs, EPA determined that it is appropriate for permitting authorities to account for both existing federal a nd state policies and their underlying objectives in evaluating the environmental, energy and econo mic benefits of biogenic fuels. EPA observed that, based on these considerations, perm itting authorities might determine in the GHG component of the BACT analysis for new or modifi ed bioenergy facilities, as defined in Section I, that such utilization of biogenic fuels is inherently BACT for GHGs. To assist permitting

authorities further in consideri ng these factors, EPA announced its intent to issue guidance that will provide a suggested framewor k for undertaking an analysis of the environmental, energy and economic impacts of using biogenic fuels in Step 4 of the top-down BACT process.

IV. Summary of the Top-Down BACT Process On November 10, 2010, EPA issued the PSD and Title V Permitting Guidance for

Greenhouse Gases (“2010 GHG Permitting Guidance”) which supplements supplements prior EPA guidance on determining BACT, including EPA’s 1990 Draft New Source Review Workshop Manual (“1990 Workshop Manual”). 17 In the 2010 GHG Permitting Guidance, EPA

16 PSD and Title V Permitting Guidance for Greenhouse Gase s. Prepared by EPA staff. November 2010. Available at: http://www.epa.gov/nsr/ghgdo cs/epa-hq-oar-2010-0841-0001.pdf 17 “PSD and Title V Permitting Guidance for Greenhouse Gases.” Prepared by EP A staff. November 2010. Available at: http://www.epa.gov/nsr/ghgdocs/epa-hq-oar-2010-0841-0001.pdf; “New Source Review Workshop Ma nual; Draft.” October 1990. Available at: http://www.epa.go v/ttn/nsr/gen/w kshpman.pdf.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

11 recommends that permitting authorities continue to use the Agency’s five-step “top-down” BACT process to determine BACT for GHGs. In brief, the top-down process calls for all available control technologies for a given pollutant to be id entified and ranke d in descending

order of control effectiveness. A permit applicant should first examine the highest-ranked (“top”) option. The top-ranked option(s) should be established as BACT unless the permit applicant demonstrates to the satisfaction of the permitting authority that technical considerations, or energy, environmental, or eco nomic impacts justify a conclusion that the topranked technology is not “achievable” in that case. If the most effective control strategy is eliminated in this fashion, then the next most ef fective alternative should be evaluated, and so on, until an option is selected as BACT. 18 EPA recommends conducti ng this analysis for each regulated NSR pollutant that is subject to the BACT requirement in a given case. EPA has broken down this analytical process into the following five steps, some of which

are discussed in detail la ter in this section.

Step 1: Identify all avai lable control technologies. Step 2: Eliminate technica lly infeasible options. Step 3: Rank remaining control technologies. Step 4: Evaluate most effective controls and document results. Step 5: Select BACT.

For additional detail on this process, consult the 2010 GHG Pe rmitting Guidance and references contained therein. As this guidance focuses on uni que considerations for bi oenergy facilities, the

discussion that follows elaborat es only on those steps where EPA believes such considerations are most likely to arise.

18 2010 GHG Permitting Guidance at 18.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

12 V. Step 1 of the Top-Down BACT Process A. Traditional Application of Step 1 The first step in the top-down BACT process is to identify all available control options. Available control options are t hose air pollution contro l technologies or techniques (including lower-emitting processes and practices) that have the potential for practical application to the emissions unit and the regulated pollutant under evaluation. They t ypically include the application of alterna tive production processes, methods, systems, and techniques, including

clean fuels or treatment or innovative fuel com bustion for control of the affected pollutant. 19 However, while Step 1 is intended to captu re a broad array of potential options for pollution control, this step of th e process is not without limits. EPA has recognized that a Step 1 list of options need not necessa rily include inherently lower polluting processes that would fundamentally redefine the nature of th e source proposed by the permit applicant. 20 BACT should generally not be applied to regulate the appli cant’s purpose or objec tive for the proposed facility. In assessing whether an option would fundamentally re define a proposed source, EPA recommends that permitting authorities apply th e analytical framework recently articulated by the Environmental Appeals Board. 21 Under this framework, a permitting authority should look

first at the administrative record to see how the applicant defined its goal , objectives, purpose or basic design for the proposed f acility in its application. The underlying record will be an essential component of a suppor table BACT determination that a proposed control technology

19 See pages 25-34 of “PSD and Title V Permitting Guidan ce for Greenhouse Gases.” (November 2010) for more general background on Step 1 of the top-down process. 20 In re Prairie State Generating Company , 13 E.A.D. 1, 23 (EAB 2006). 21 See, generally, In the Matter of American Electric Power Service Corporation, Southwest Electric Power Company, John W. Turk Plant , Petition No. VI-2008-01 (Order on Petitio n) (December 15, 2009) (title V order referencing and applying framework developed by the EAB) ; In the Matter of Cash Creek Generation, LLC , Petition Nos. IV-2008-1 & IV-2008-2 (Order on Petition) (December 15, 2009) (same).E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

13 redefines the source. 22 The “redefining the source” issue is ulti mately a question of degree that is within the discretion of the permitting authorit y. The permitting authority should keep in mind that BACT, in most cases, should not be applied to regulate the applican t’s purpose or objective for the proposed facility. 23 Ultimately, any decision to exclude an option on “redefining the source” grounds must be explained and documented in the permit record, especially where such an option has been identified as significant in public comments. 24 The 2010 GHG Permitting Guidance provides more information that permit write rs and applicants may consult on this topic.

The CAA includes “clean fuels” in the definition of BACT. 25 While clean fuels that would reduce GHG emissions should be considered, EPA has recognized that the initial list of control options for a BACT analysis does not n eed to include “clean fuel” options that would fundamentally redefine the source. Such opti ons include those that would require a permit applicant to switch to a primary fu el type (i.e., coal, natural gas, or biomass) other than the type of fuel that an applicant proposes to us e for its primary combustion process. B. Previous EPA Guidance on GHG Control Strategies

22 In re Desert Rock Energy Company , PSD Appeal No. 08-03 et al. (EAB Se pt. 24, 2009), slip op. at 65, 76. 23 The EPA Environmental Appeals Board has applied this framework for evaluating redefining the source questions in three cases involving coal-fired power plants. In re Desert Rock Energy Company , PSD Appeal No. 08-03 et al. (EAB Sept. 24, 2009); In re Northern Michigan University , PSD Appeal No. 08-02 (EAB Feb. 18, 2009); In re Prairie State Generating Company , 13 E.A.D. 1 (EAB 2006). For additiona l examples of how EPA approached the redefining the source issue in the context of power plants prior to developing this analytical framework, see the following decisions. In re Old Dominion Electric Cooperative , 3 E.A.D. 779 (Adm’r 1992); In re Hawaiian Commercial & Sugar Co. , 4 E.A.D. 95 (EAB 1992); In re SEI Birchwood Inc ., 5 E.A.D. 25 (EAB 1994). EPA also considered this issue in the context of waste incinerators prior to developing the recommended analytical framework. In re Pennsauken , 2 E.A.D. 667 (Adm’r 1988); In the Matter of Spokane Regional Waste-to-Energy Facility , 2 E.A.D. 809 (Adm’r 1989); In the Matter of Brooklyn Navy Yard Resource Recovery Facility , 3 E.A.D. 867 (EAB 1992); In re Hillman Power Co., LLC , 10 E.A.D. 673, 684 (EAB 2002). In another case, EPA considered this question in the context of a conversion of a natu ral-gas fired taconite ore facility to a petcoke fuel. In re Hibbing Taconite Co ., 2 E.A.D. 838 (Adm’r 1989). For an example of the application of this concept to a fiberglass manufacturing facility, see In re Knauf Fiber Glass , 8 E.A.D 121 (EAB 1998). 24 In re Desert Rock Energy Company , slip op. at 70-71, 76-77; In the Matter of Cash Creek Generation , Order at 7- 10. 25 42 USC 7579(3). EPA has not yet updated the definition of BACT in the PSD regulations to reflect the addition of the “clean fuels” language that occu rred in the 1990 amendments to the Clean Air Act. 40 CFR 52.21(b)(12); 40 CFR 51.166(b)(12). Nevertheless, EPA reads and applies its regulations consistent with the terms of the Clean Air Act.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

14 As EPA discussed in the November 2010 guidanc e, for the purposes of a BACT analysis for GHGs, EPA classifies carbon capture and sequestration as an add-on pollution control technology 26 that is “available” 27 for large CO 2 -emitting facilities including fossil fuel-fired power plants and industrial f acilities with high-purity CO 2 streams (e.g., hydrogen production, ammonia production, natural gas processing, et hanol production, ethylene oxide production, cement production, and iron and stee l manufacturing). For these t ypes of facilities, CCS should be listed in Step 1 of a top-down BACT analys is for GHGs. This does not necessarily mean CCS should be selected as BACT for such sources, since other consideratio ns such as technical feasibility or economic impacts ma y justify elimination of such options at later steps of the

process. In addition, EPA has observed that the appl ication of methods, syst ems, or techniques to increase energy efficiency is a key GHG-reducin g opportunity that falls under the category of “lower-polluting processes/practices.” Use of inherently lower-emitting technologies, including energy efficiency measures, represents an opportunity for GHG reductions in these BACT

26 EPA recognizes that CCS systems may have some unique aspects that differentiate them from the types of equipment that have the traditionally been classified as add-on pollution controls ( i.e., scrubbers, fabric filters, electrostatic precipitators). However, since CCS systems have more similarities to such devices than inherently lower-polluting processes, EPA believes that CCS systems ar e best classified as add-on controls for purposes of a top-down BACT analysis. 27 As noted above, a control option is “available” if it has a potential for practical application to the emissions unit and the regulated pollutant under evaluation. Thus, even technologies that are in the initial stages of full development and deployment for an industry, such as CCS, can be considered “available” as that term is used for the specific purposes of a BACT analysis under the PSD program. In 2010, the Interagency Task Force on Carbon Capture and Storage was established to develop a comprehensive and coordinated federal strategy to speed the commercial development and deployment of this clean coal technology. As part of its work, the Task Force prepared a report that summarizes the state of CCS and identified technical and non-technical challenges to implementation. EPA, which participated in the Interagency Task Force, supports the Task Force’s recommendations concerning ongoing investment in demonstrations of the CCS technologies based on the report’s conclusion that: “Current technologies could be used to capture CO 2 from new and existing fossil energy power plants; however, they are not ready for widespread implementation primarily because they have not been demonstrated at the scale necessary to establish co nfidence for power plant a pplication. Since the CO 2 capture capacities used in current industrial processes are generally much smaller than the capacity required for the purposes of GHG emissions mitigation at a typical power plant, there is considerable uncertainty associated with capacities at volumes necessary for commercial deployment.” See Report of the Interagency Task Force on Carbon Capture and Storage, p.50 (http://www.epa.gov/clim atechange/policy/ccs_task_force.html).E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

15 reviews. EPA has encouraged permitting authoriti es to use the discretion available under the PSD program to include the most energy effici ent options in BACT an alyses for both GHG and non-GHG regulated New Source Review (NSR) pollutant s. Since the use of add-on controls to

reduce GHG emissions is not as well-advanced as it is for most combustion-derived pollutants, initially, in many instances energy efficient me asures may serve as the foundation for a BACT analysis for GHGs with add-on pollution control technology and other strategies added as they

become more accessible. C. Application of Step 1 to Bioenergy Facilities At the outset, when considering an applic ation to construct or modify a bioenergy facility, it will be important to address the exte nt to which the BACT analysis for GHGs should include comparative evaluation of biogenic fuels and other types of fuels, including fossil fuels. However, where a proposed bioenerg y facility can demonstrate that utilizing a particular type of biologically-derived fuel is fundamental to the primary purpose of the project, then at the first step of the top-down process, permitting authoritie s can rely on that to determine that use of

another fuel would redefine the proposed source.

To the extent this demonstration is made by a permit applicant proposing to construct or modify an electric generating facility that w ould utilize biomass fuels alone in the primary production process, the options li sted a Step 1 of a top-down BA CT analysis for GHGs may be limited to (1) utilization of bi omass fuel alone, (2) energy e fficiency improvements, and (3) carbon capture and sequestration if the source meets the charact eristics summarized above and

described in more detail in EPA’ s November 2010 guidance. In cases where a permit applicant proposes to co-fire biomass fuels with another primary fuel type, the list of options should include the op tion of utilizing both types of primary fuels inE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

16 combination. If the applicant proposes a specif ic proportional allocation or fuel mix (i.e. < 5 percent biomass, > 95 percent fossil fuel) and believes ot her allocations shoul d be eliminated from consideration in the BACT analysis fo r GHGs, the permit application should provide an explanation as to why th e particular allocation desired by the applicant is necessary to achieve a fundamental business objective of the project. If the permit app licant is unable to demonstrate that a different allocation of primary fuels w ould fundamentally redefine the proposed source, the options at Step 1 should include varying allocations of the two primary fuels if the proportional allocation of fuels has the potential to affect the amount of GHGs emitted from the facility or the net atmospheric GHG concentrations. Although not necessarily a bioenergy facility, re covery furnaces at kraft pulp and paper mills may not have the option of considering a lternative fuels. The fundamental purpose of recovery furnaces used at this t ype of facility is to recover an d regenerate the cooking chemicals (used in the pulping process) from the spent li quor or “black liquor” ex iting the digesters and evaporators. As a secondary benefit, this process also produces energy. Requiring such a recovery furnace that is fully inte grated into the production process to utilize a fuel other than the black liquor to generate this energy would frustrate the primary purpose of these furnaces to recover and regenerate the cooking chemicals. Thus, EPA believes the option of using alternative fuels in a recovery fu rnace would fundamentally redefine this type of unit. Facilities proposing to use black liquor in the recovery furnace of the kraft pul ping process need not

include fuels other than black li quor at Step 1 of a top-down BACT analysis for such a unit.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

17 VI. Step 2 – Eliminate tech nically infeasible options Step 2 of the top-down BACT analysis should be conducted in the same manner for bioenergy facilities as other t ypes of sources. Details on Step 2 are available in the 2010 GHG Permitting Guidance. With respect to facilities that are co-firing biomass and other fuels, if the record shows that an option that involves us ing a greater proportion of biomass fuels than proposed by the permit applicant is not technically feasible, it ma y be eliminated from further

consideration at this st ep with an appropriate justification. VII. Step 3 – Rank remaining control technologies As with Step 2, EPA recommends applying th e same consideration in Step 3 of the BACT analysis for a bioenergy facility that woul d apply to other types of sources. Details on Step 3 are available in the 2010 GHG Permitting Guidance.

VIII. Step 4 – Energy, Environmental, and Economic Impacts A. Traditional Step 4 Considerations Under Step 4 of the top-down BACT analysis , permitting authorities must consider the economic, energy, and environmental impacts arising from each option remaining under consideration. Accordingl y, after all available and technically feasible control options have been ranked in terms of control effectiveness (BACT St ep 3), the permitting authority should consider any specific energy, environmental, and economic im pacts identified with t hose technologies to either confirm that the top control alternative is appropriate or determine it to be inappropriate. The “top” control option should be established as BACT unless th e applicant demonstrates, and the permitting authority agrees, that the energy, environmental, or economic impacts justify a conclusion that the most stringent technology is not “achievable” in that case. If the mostE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

18 stringent technology is eliminated in this fashion, then the next most stringent alternative is considered, and so on. 1. Environmental impacts EPA and other permitting authorities have most often used this analysis to eliminate more stringent control technologies with significant or unusual effects that are unacceptable in favor of the less stringent technologies w ith more acceptable collateral envi ronmental effects. However, EPA has also interpreted the BACT requirement s to allow for a more stringent technology to

remain in consideration as BACT if the collat eral environmental benefits of choosing such a technology outweigh the economic or energy costs of that selection. 28 In other words, the permitting authority is not limited to evaluating the impacts of only the “top” or most effective technology but can assess the impacts of all technologies un der consideration. 29 The same principle applies when assessing te chnologies for controlling GHGs. In BACT Step 4, the applicant and permitting authority should consider both direct and indirect impacts of the emissions control option or strategy being evaluated. EPA has previously referred to BACT Step 4 as th e “collateral impacts analysis,” 30 but this term is primarily applicable only to the environmental impact anal ysis. Overall, the Step 4 analysis is more accurately described as an environmental, economic, and energy impacts analysis that includes both direct and indirect ( i.e., collateral) considerations.

Since a BACT limitation must reflect the maximum degree of reduction achievable for each regulated pollutant, EPA has emphasized that the environmental impacts analysis in Step 4 should concentrate on impacts other than direct impacts due to emissions of the regulated

28 In the Matter of North County Resource Recovery Assoc. , 2 E.A.D. at 230-31. 29 In re Knauf Fiber Glass, 8 E.A.D. at 131 n. 15. 30 In re Hillman Power, 10 E.A.D. at 683; In the Matter of Columbia Gulf Transmission Co ., 2 E.A.D. 824, 828 n. 5 (Adm’r 1989); In re Kawaihae Cogeneration Project, 7 E.A.D. 107, 116-17 (EAB 1997).E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

19 pollutant that is the subject of the BACT analys is. EPA has recognized th at consideration of a wide variety of environmental impacts is a ppropriate, such as solid or hazardous waste generation, discharges of polluted water from a control device, visibility impacts, demand on local water resources, and emi ssions of other pollutants subject to NSR or pollutants not regulated under NSR such as air toxics. 31 In discussing the particulars of a BACT analysis for GHGs, EPA reiterated in the 2010 GHG Permitting Guidance that the environmental impact analysis should continue to con centrate on impacts other than the direct impacts due to emissions of the regulated pollutant that is th e subject of the BACT analysis. 2. Economic impacts EPA has previously advised that the economic impacts component of the analysis should focus on direct economic impacts calculated in te rms of cost effectiveness (dollars per ton of pollutant emission reduced). This cost eff ectiveness should be addressed on both an average

basis for each measure and combination of meas ures, and on an incremen tal basis comparing the costs and emissions performance level of a control option to the cost and performance of the next most stringent control option. 32 The emphasis should be on the cost of control relative to the amount of pollutant removed, rather than economic parameters that provide an indication of the general affordability of the control alternative rela tive to the source. To justify elimination of an option on economic grounds, the permit applicant s hould demonstrate that th e costs of pollutant removal for that option are disproportionately high. 33 3. Energy impacts

31 1990 Workshop Manual at B.46; In the Matter of North County Resource Recovery Assoc. , 2 E.A.D. 229, 230 (Adm’r 1986).; In the Matter of Columbia Gulf Transmission Co ., 2 E.A.D. at 828. 32 1990 Workshop Manual, Secti on IV.D.2.b (B.36 – B.44). 33 1990 Workshop Manual at B.31-32.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

20 EPA has traditionally called for the energy impacts analysis to consider only direct energy consumption and not indirect energy impact s, such as the energy required to produce raw materials for construction of control equipment. 34 Direct energy consumption impacts include the consumption of fuel and the consumption of electrical or thermal energy. This energy impacts analysis should include an assessment of demand for both electric ity that is generated onsite and power obtained from the electrical gr id, and may include an evaluation of impacts on fuel scarcity or a locally desired fuel mix in a particular area. Applicants and permitting

authorities should examine whethe r the energy requirements for eac h control option result in any significant or unusual energy penalties or benefits. 35 The costs associated with direct energy impacts should be calculated and included in the economic impacts analysis (i.e., cost analysis). 36

B. Specific Considerations at Step 4 for Bioenergy Facilities While the more traditional approach that EPA has applied in the Step 4 analysis is to eliminate options from the top-down BACT an alysis based on unacceptable adverse energy, environmental, or economic impacts, this is not the only way to conduct a Step 4 analysis. EPA has recognized a permitting authority is not limited to evaluating the impacts of only the “top” or most effective technology (based on the ranking options based on control of released from the facility) but can assess the impacts of all technologies under consideration. 37 This approach may

include an evaluation of the en ergy, environmental, and environm ental benefits of all options under consideration without explicitly elimin ating options based on adverse impacts.

34 In re Power Holdings , PSD Appeal No. 09-04 (EAB Aug. 13, 2010), slip op. at 22, n.17 (citing 1990 Workshop Manual at B.30). 35 1990 Workshop Manual at B.29. 36 1990 Workshop Manual at B.30. 37 In re Knauf Fiber Glass, 8 E.A.D. at 131 n. 15.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

21 1. Environmental impacts Although EPA has not recommended focusing on the environmental impacts of the pollutant that is the subject of the BACT analysis, with respect to CO 2 emissions from bioenergy facilities, EPA believes a different frame of reference should be considered because of the nature of the carbon cycle and the fact that the produc tion of biomass entails carbon sequestration. Within the context of the PSD program, a potential justification that biogenic CO 2 emissions can be accounted for differently than non-biogenic CO 2 emissions at the facility relies on the argument that sequestration occurs. This sequest ration occurs offsite, out side the boundaries of the facility. Therefore, given its traditiona l focus on “collateral” environmental impacts and benefits, Step 4 of the BACT analysis seems well-suited to enable permitting authorities to consider the potential sequestr ation of carbon in biogenic resour ces outside the boundaries of the facility when evaluating BACT for greenhouse gase s. This approach was reinforced by CFI comments, which emphasized the importance of reconciling the focus of the PSD and Title V program regulations on the amount of emissions re leased from each individual facility with the role that land-based sequestration may play in mitigating the net at mospheric GHG impact of

emissions from individual sources. Because other pollutants and non-CO 2 GHGs do not participate in natural biogeochemical cycles to the same extent that CO 2 does, this frame of reference – in which the potential for sequestration outside the facili ty of pollutant subject to the BACT analysis is considered as part of the environmental impacts at Step 4 – is not relevant for those other pollutants.

In addition to this new frame of referen ce in which sequestration outside the boundaries of the facility is considered, it may also be appr opriate to consider broad categories of feedstocks in terms of their net impact on atmospheric GHG stocks. A complete accounting of the netE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

22 atmospheric GHG impact of a facility utilizing particular feedstocks would rely on a case-bycase, facility-specific assessment of the impact of the proposed facility. This type of facilityspecific approach would also likely be the most scientifically sound approach for assessing the direct carbon cycle impact of sp ecific biogenic fuels used at the f acility, because there is inherent variability in biological processes, as well as the variability in space and time common to estimates of sequestration. The BACT analysis should consider a vari ety of factors that may influence the net amount of carbon added to the atmosphere from a nd utilization of bioenergy at a facility. An important area of consensus from commenters on the CFI was the idea that feedstocks are different, and that the net impact of bioenergy and other biogenic emissions is associated with

the feedstock that is used. The level of sequestration that oc curs naturally on the landscape

without additional intervention can be considered the “business as usual” (BAU) case. In other words, this level of sequestration (or emissions ) will likely continue in to the future without additional action. For example, if favorable cond itions for plant growth cause sequestration to increase beyond what is incorporated into th e BAU case for that region, then net atmospheric carbon stocks will decrease beyond the BAU case. Similarly, if certain activities, such as logging, are accelerated in a particular region ov er a certain period of time, and associated emissions are thereby increased, then the net a tmospheric carbon stocks will increase over the BAU case. In the context of bioenergy and biog enic emissions, where such a wide variety of potential feedstocks exists, the BAU case might be considered the emissions that “would have happened anyway.” Using this approach, a permitting authority would have to assess the extent to which a policy action or an activity increases or reduces CO 2 emissions above or below what would have occurred in comparison to the BAU case. From the perspective of bioenergy andE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

23 other biogenic emissions, emissions that would have occurred re gardless of whether or not the facility captured the energy from the biofuel us e or carried out the process using biological material as a feedstock might demonstrate that th e cost of additional pollu tant controls is not justified. Land use change has a separate set of consid erations under the BAU case. Specifically, if

the rate of transition of land use from forest to agricultural use were to increase over and above that which occurred in the BAU case, and if this increase were attributable to market demand for the bioenergy crop, then it would be possible that these emissions would be additional to the emissions expected under BAU. In that situa tion, the BAU case is the n on-bioenergy case, such that the bioenergy use might resu lt in increased atmospheric CO 2 levels. However, such a case-by-case analysis of th e net atmospheric impact of biomass fuels would likely be prohibitively time-consumi ng and complex for facilities and permitting

authorities. The information we have collected to this point indi cates that at present, attempting to determine the net carbon cycle impact of particular facilities combusting particular types of biomass feedstocks would require extensive an alysis and would ther efore entail extensive workload requirements. Further, additional detailed examination of science and technical issues is needed to ensure that permitting authoritie s would be able to reasonably calculate and implement accounting for the amount of GHG emissi ons above BAU in partic ular instances, or to assure consistency among the calculation met hodologies of the various permitting authorities. Given the challenge of conducting a complete analysis for each permit application, a more practical approach to accounting is needed. Ab sent this, the burden on permitting authorities is likely to be overwhelming.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

24 For at least one category of bi omass feedstocks that may be used in energy production, it does appear possible at this time to conclude that the atmospheri c impact is negligible. Some commenters on the CFI suggested that utilizing mill residue (e.g. sawdust, planar shavings, panel trim) to generate energy, rather than leaving the residue to decompose, likely would not cause emissions over and above that which would have taken place if the energy use did not occur. Given that this material would have decomposed under natural circumstances in a short period of time (e.g., less than 10-15 years) in the absence of utilization as bioenergy, this conclusion appears credible. In some cases, the use of biological mate rial as a fuel would clearly reduce net atmospheric CO 2 stocks in comparison with BAU fossil fu el emissions. In these cases, requiring permitting at this time, before conducting the deta iled analysis required to develop an appropriate accounting system for bioenergy and other biogenic sources, might actually discourage projects that would have a net benefit for the atmosphere . For example, requiring permitting for facilities seeking to generate energy from the combustion of dead trees, especially those killed due to a widespread event like the mountain pine beetle epidemic (that would emit CO 2 anyway through natural decomposition), is likely to discourage the utilization of a readily available resource that would clearly reduce CO 2 emissions, in comparison with BAU fossil fuel-related emissions. In November 2010, EPA said it would provide guidance containing qualitative

information on useful issues to consider with respect to biomass combustion, such as specific feedstock types and trends in car bon stocks at different spatial scales (e.g. national, regional, state). Upon further review, EPA has concluded th at it requires further scie ntific input from an independent panel before it can make more qualitative characterizations beyond the one

described above for residue material.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

25 2. Economic impacts As discussed earlier this section, EPA has pr eviously advised that the economic impacts component of BACT analysis should focus on di rect economic impacts cal culated in terms of cost effectiveness (dollars pe r ton of emission reduction). As noted in the 2010 GHG Permitting Guidance, EPA recognizes that at present add-on controls for CO 2 are generally expensive technologies, especially th e costs associated with CO 2 capture and compression. As with other electric generating facilities, these direct costs wi ll generally make the price of electricity from bioenergy used in conjunction with add-on control technologies for CO 2 uncompetitive compared to electricity from plants with ot her GHG controls, such as bioenergy alone. In addition to the direct economic impacts component of the BACT analysis, permitting authorities may also consider i ndirect economic impacts, including potential economic benefits. Such indirect considerations may include economic growth and the availa bility of employment opportunities generated within a pa rticular region or community by the utilization of biomass fuels. As EPA noted in the 2010 Guidance, it is appropriate for permitting authorities to account for the underlying objectives of federal and stat e policies to foster expansion of renewable resources and promote biomass. Tax incentives ar e an example of such policies. Where one of the underlying objectives of a tax incentive or ot her type of policy promoting renewable energy

or biomass utilization is to foster economic growth and create jobs in particular area, this may be considered as a relevant indirect economic impacts or benefit that can be c onsidered in Step 4 of a BACT analysis. Where selecting a particular option as BACT would further the goals of such policy, this may form part of the basis for sele ct that option as BACT. Likewise, where the record shows that requiring a part icular control option as BACT would counteract, or work at cross purposes from, policies that are intended to promote renewable energy and biomass, thisE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

26 may form part of the justification for eliminati ng an option from further c onsideration at Step 4 of the BACT analysis. Many federal and state policies, along with a number of regional e fforts, are currently underway to foster the expansi on of renewable resources and pr omote bioenergy projects as a way of addressing climate change , increasing domestic alternative energy production, enhancing forest management and creating related employm ent opportunities. For example, the federal Renewable Electricity Production Tax Credit, a per-kilowatt-hour tax credit for electricity generated by qualified energy resources including bi omass, was originally enacted by the Energy Policy Act of 1992 (largely by amending the Internal Revenue Code of 1986). Numerous pieces of federal legislation, the most recent being the American Rec overy and Reinvestment Tax Act of 2009, have since been passed to extend certai n related expiring tax provisions and expand the scope of qualified biomass feedstocks, with the du el aims of domestic job creation and economic

stabilization. 38,39 Such policies can improve the economy, especially in rural communities, by generating jobs, income, and taxes through demand for local biogenic resources and construction of bioenergy conversion facilities. Specifically, an improved market for biogenic fuels and forest land could affect economic stabilization through in creased incomes (from new jobs), higher local tax base and possibly through the diversifica tion of local energy s ources, and increased competition could lower energy prices. As another example of such economic impacts, the Record of Decision for the Biomass Crop Assistance Program (BCAP) –a program created by the 2008 Farm Bill that provides

financial assistance to biomass conversion faciliti es and owners of agricultural and non-industrial

38 American Recovery and Reinvestment Tax Act of 2009. The Library of Congress. http://thomas.loc.gov/home/h1/Recovery_Bill_Div_B.pdf 39 H. R. 1424 Emergency Economic Stabilization Act of 2008. The Library of Congress. http://thomas.loc.gov H. R. 4520 American Jobs Creation Act of 2004 . The Library of Congress. http://thomas.loc.gov H. R. 3090 Job Creation and Worker Assistance Act of 2002. The Library of Congress. http://thomas.loc.govE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

27 private forest land who wish to establish, produce, and deliver biomass feedstocks – estimated the total economic impact from broad BCAP im plementation to include $88.5 billion in related economic activity and the creation of nearly 700,000 jobs. 40 Other potential indirect economic considerations from biomass utilization as BACT could include, but are not limited to, increased demand for traditional or new biogenic crops and reduced disposal costs for biogenic materials that would otherwise be landfilled or destroyed. 3. Energy impacts With respect to energy impacts, the BACT analysis should assess the relative energy demands of the options under cons ideration for reducing emissions from the facility obtaining a permit and may include an evaluation of impacts on fu el scarcity or a locally desired fuel mix in a particular area. For fa cilities utilizing biogenic fuels, it is appropriate to broaden the scope of the energy impacts analysis to consider policies that seek to promote diversity in fuels used in a local area, within a stat e, or nationally. A variety of federal and state policies have recogni zed that some types of biomass can be part of a national strategy to reduce dependence on fossil fuels. Renewable fuels policies, which in some cases provide incentives for the substitution of renewable fuels for fossil fuels, have not traditionally been part of the BACT energy impacts analysis. However, consideration of renewable energy policies could beco me part of the BACT analysis , especially if state policies mandate the replacement of fossil fuel with biogenic fuel. 41 In addition to numerous federal programs, as of February 2011, 48 states have some kind of state-level financial or conservation incentive program that includes biomass producti on and almost as many states have rules,

40 USDA Farm Service Agency. 2010. www.apfo.usda.gov/FSAProgrammatic Environmental Impact Statement for the Biomass Crop Assistance Program. 2010. http://public.geomarine.com/report.aspx?id=26 41 See p. B.30 of the 1 990 NSR Guidance, discussi ng locally scarce fuels.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

28 regulations or policies th at promote bioenergy use. 42 For example, certain states, such as

California 43 , Washington 44 and Massachusetts 45 , have policies and programs to incentivize forest management for biomass production. California, for example, as of 2009, has the technical potential for 14.2 million bone dry tons a year available from forest residues. 46 After trees are harvested for timber, such forest residues are typica lly left in the forest or disposed of via open burning because only timber of a certain quality can be used in lumber mills and other processing

facilities. An advantage of using forest residues fo r bioenergy production is that a collection infrastructure is already in place to harvest the wood, it reduces the incidence of open burning and provides an additional stream of revenue for forest owners. Programs and policies established to meet the multiple goals of forest management plans -- to establish healthy and naturally diverse forests with a balance between productive harvest and natural ecosystem and

wildlife health – can act as a foundation for sustainable bioenergy production. 47 Conversely, if the proposed bioge nic feedstock is scarce in the localized area of the proposed project, then the scarcity of available fu el for the project might be an energy impact suggesting that the proposed feedstoc k should not be se lected as BACT.

42 Database of State Incentives for Renewabl es & Efficiency. Accessed February 1, 2011. www.dsireusa.org/incentives/ 43 2009 Progress to a Plan: Bioenergy Action Plan for California. California Energy Commission. 2009. www.energy.ca.gov/2010publications/CEC-500-2010-007/CEC-500-2010-007.PDFIntegrated Energy Policy Report. California Energy Commission. 2007. www.energy.ca.gov/2007publications/CEC100-2007-008/CEC-100-2007-008-CMF.PDF Senate Bill (SB) 71. Economic Development: Sales And Use Tax Exclusions. Environmental Technology Project California Alternative Energy and Advanced Tr ansportation Financing Authority (CAEATFA). www.treasurer.ca.gov/caeatfa/sb71/index.asp 44 Washington State Bioenergy Policy Framework. www.bioenergy.wa.gov/BiofuelIncentives.aspx 45 Massachusetts Green Power Purchasing Commitment, 2007, and Renewable Portfolio Standard. 2010. www.dsireusa.org/incentives/index.cfm?EE=0&RE=1&SPV=0&ST=0&implementingsector=S&state=MA&technol ogy=Biomass&sh=1 Act Related to Green Communities. Commonwealth of Massachusetts. 2008. www.malegislature.gov/Laws/SessionLaws/Acts/2008/Chapter169 46 2009 Progress to a Plan: Bioenergy Action Plan for California. California Energy Commission. 2009. www.energy.ca.gov/2010publications/CEC-500-2010-007/CEC-500-2010-007.PDF 47 California Forest Practice Rules. The California Department of Forestry and Fire Protection. 2011. www.fire.ca.gov/resource_mgt/downloads/2011_FP_Rulebook_with_Diagrams_with_Tech_Rule_No_1.pdf.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

29 C. Potential Conclusions in Step 4 Analysis

The considerations described above can support a conclusion that the exclusive utilization of biomass fuel is BACT for greenhous e gases at a bioenergy f acility. As discussed above and in earlier EPA guidance, the cost s of applying add-on pollution controls for greenhouse gas emissions are expected to be expe nsive and thus would in most cases justify elimination of this option based on direct economi c impacts. However, EPA does not expect that the projected costs of energy efficient technology will by itself justify eliminating this option from consideration at bioenergy facilities. Neve rtheless, where a bioener gy facility is projected to provide the energy and economic benefits descri bed above in accordance with existing federal or state policies promoting utilization of bi omass for energy production, these considerations may justify selecting the option of exclusively using a biomass fuel as BACT for a bioenergy facility. Furthermore, in the case of residue material that would otherwise decompose in a 10-15 year time frame, the net carbon cycle impact of this biomass fuel is expected to be negligible. Thus for a feedstock composed of such residue material, the co sts of applying strategies to reduce emissions from the facility level do not a ppear justified at this time because the carbon

dioxide emissions from the indi vidual facility would not be increasing atmospheric impacts

above the business as usual case. As discussed above, additional information is needed before similar conclusions can be supported for other t ypes of biomass feedstocks, but EPA believes the energy and economic benefits of this fuel is suffi cient at this time to justify selecting biomass fuel as BACT for greenhouse gases without further control. 48

48 This guidance is applicable to an assessment of BACT for greenhouse gases. When conducting a BACT analysis for other regulated NSR pollutants at the type of source covered by this guidance, EPA recommends continuing to focus on guidance EPA has previously provided on determining BACT using the top-down process. The considerations described here, in terms of federal and state incentives for bioenergy production and sustainable forest management, may still be relevant considerations in Step 4 of a top-down BACT analysis for another regulated NSR pollutant, but these factors should be consider ed in the context of the particular pollutant for which the BACT analysis is conducted. These considerations may not apply in the same manner to pollutants other thanE.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

30 For facilities that are co-firing biomass with another primary fuel, the permitting record should provide a reasoned jus tification for basing BACT fo r greenhouse gases a specific proportional allocation of fuels. 49 The factors described above may be used to justify a higher proportional allocation of biomass fuels as BACT (to the extent technica lly feasible) but not necessarily to eliminate other st rategies for reducing greenhouse em issions from a facility that utilizes some proportion of fossil fuels. The co sts of add-on pollution cont rols will still in most cases justify eliminating this t echnology from a facility that util izes biomass and another primary fuel type. However, applic ation of methods, systems, or techniques to increase energy efficiency will remain a key GHG-reducing opportunity for facilities that utilize a significant proportion of fossil fuels and cannot demonstr ate the same degree of energy and economic

benefits achieved from the exclusiv e utilization of the biomass fuel s, as described above. While some utilization of biomass fuels will have some impact on reducing dependence on fossil fuels and promoting economic growth in areas that supply biomass fuels, a small proportion of biomass fuel use may not justify bypassing oppor tunities to reduce GHG emissions by improving energy efficiency at a facility that still co mbusts a significant proportion of fossil fuels. However, when assessing the pr oportional allocation for biomass a nd other fuel types at a cofired energy facility, a permitting authority may cons ider the relative energy efficiency of using a greater proportion of biomass fuels and the e ffect this may have on GHG emissions from an individual facility. Where a residue material is utilized, any loss of energy efficiency attributable to the use of this type of biomass feedstock ma y be offset by the absence of a significant net carbon cycle impact above the business as usual case.

GHGs, particularly where there is a more established reco rd of the range of costs th at have been acceptable in previous BACT determinations for the pollutant. 49 See, In re: Northern Mich igan University Ripley Heating Plant. PSD Appeal No. 08-02, S lip. Op at 18-23, 28 (EAB 2009) (remanding a permit for a co-fired electric ge nerating facility where record did not contain justification for establishing BACT limits based on specific proportional allocation of wood and coal).E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

31 IX. Step 5 – Selecting BACT When setting GHG emissions limitations for sources of biogenic CO 2 emissions, one

should conduct the same evaluation as that described in the 2010 GHG Permitting Guidance. 50 The permitting authority is responsible for defi ning the form of the BACT limits, and making them enforceable as a practical matter. 51 In determining the form of the limit, the permitting authority should consider issues such as averaging times, and units of measurement. For example, in the case of co-fired faciliti es, a final permit may include a standard that specifies the proportional allocation of fuels to be used, thus limiting the options to the fuel mix justified as BACT. When maki ng sure the limit is practica lly enforceable, the permitting authority must include information regarding th e methods that will be used for determining compliance with the limits (such as operationa l parameters, timing, testing methods, etc.) and ensure that there is no ambiguity in the permit terms themselves. 52 The permitting authority bears the responsibility in Step 5 to fully justify the BACT decision in the permit record. Regardless of the control level or feedstock pr oposed by the applicant as BACT, the ultimate determination of BACT is made by the permitting authority. In addition to a permit containing specific num erical emissions limits established in a BACT analysis, a permit can also include condition s requiring the use of a work practice such as an Environmental Management System (EMS) fo cused on energy efficiency as part of that BACT analysis. The inclusion of such a re quirement would be appropriate where it is technically impractical to measure emissions a nd/or energy use from all of the equipment and processes of the plant and apply an output-based standard to ea ch of them. For example, a

50 “PSD and Title V Permitting Guidance for Greenhouse Ga ses.” Prepared by EPA staf f. November 2010. See pages 45-47. Available at: http://www.epa. gov/nsr/ghgdocs/epa-hq-oar-2010-0841-0001.pdf. 51 See generally EPA Guidance on Limiting Potential to Emit (P TE) in New Source Permitting (June 13, 1989), available at http://www.epa.gov/reg3artd/permitting/t5_epa_guidance.htm. 52 In re Prairie State Generating Company , 13 E.A.D. at 83, 120.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

32 candidate might be a factory with many different pieces of equipment and processes that use energy. In addition to a BACT emissions limit on the boiler pr oviding energy, the permit could also lay out a requirement to implement an EM S along with a requirement that all suggested actions that result in net savings have to be im plemented. Consequently, the plant will operate in the most efficient manner through gradual ach ievable improvements. However, design, equipment, or work practice standards may not be used in lieu of a numerical emissions limitation(s) unless there is a demonstration in th e record that the criteria for applying such a

standard are satisfied.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

33 Appendix: LUCF data from the Inventory Table 1: Carbon sequestered by LULUCF sinks as reported in the Inventory (Tg CO 2 Eq.) 53 , ranked in order of magnitude. Forest Land Remaining Forest Land has been further broken up into forest and harvested wood carbon pools.

IPCC Source Category LULUCF Sink 2008 *1990–2008 Average

Forest Land Remaining Forest Land (Carbon Stock Changes) Total Forest Sector C Stock Change (791.9) (688.0)

Forest (703.9) (576.7) Aboveground Biomass (397.2) (373.5)

Soil Organic Carbon (145.9) (68.0) Belowground Biomass (78.8) (74.1)

Litter (55.9) (35.8)

Dead Wood (26.2) (25.3)

Harvested Wood (88.0) (111.2)

SWDS (63.6) (63.7)

Products in Use (24.4) (47.6)

Settlements Remaining Settlements C Stock Changes in Urban Trees (93.9) (75.5) Cropland Remaining Cropland Soil C Stock Changes for Mineral Soils (45.7) (51.5)

Land Converted to Grassland Soil C Stock Changes for Mineral Soils (25.1) (24.0)

Grassland Remaining Grassland Soil C Stock Changes in Mineral Soils (12.4) (23.3)

Other Changes in Yard Trimming and Food Scrap C Stocks in Landfills (9.5) (13.6)

Gross Sequestration from LULUCF Sinks (978.5) (875.9)

* The U.S. Greenhouse Gas Inventories submitted to the UNFCCC provide annual estimates from 1990.

53 The Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 –2008 (April 2010) and the archive of previous inventories are available online from the Environmental Protection Agency Inventory Report Web site, located at http://www.epa.gov/climatechang e/emissions/usinventoryreport.html

.E.O. 12866 Review – Draft – Do Not C ite, Quote or Release During Review

34 Table 2: Emissions from LULUCF sources as reported in the Inventory (Tg CO 2 Eq.), ranked in order of magnitude.

IPCC Source Category LULUCF Source 2008 *1990–2008 Average Cropland Remaining Cropland Soil C Stock Changes in Organic Soils 27.7 27.6

Forest Land Remaining Forest Land Non

‐ CO 2 Emissions from Forest Fires 21.7 15.7

Land Converted to Cropland Soil C Stock Changes for Mineral and Organic Soils 5.9 2.8

Cropland Remaining Cropland Liming of Agricultural Soils 3.8 4.4 Cropland Remaining Cropland Urea Fertilization 3.8 3.1

Grassland Remaining Grassland Soil C Stock Changes in Organic Soils 3.7 3.7

Settlements Remaining Settlements Direct N 2 O Fluxes from Settlement Soils 1.6 1.2

Wetlands Remaining Wetlands CO 2 an d N 2 O Emissions from Peatlands Remaining Peatlands 0.9 1.0

Land Converted to Grassland Soil C Stock Changes in Organic Soils 0.9 0.8

Forest Land Remaining Forest Land Direct N 2 O Emissions from Forest Soils 0.4 0.3

Gross Emissions from LULUCF Sources 70.4 60.6

* The U.S. Greenhouse Gas Inventories submitted to the UNFCCC provide annual estimates from 1990.